Al-Arabi Saudi Equity Fund (Managed by Arab National Investment Company)

Transcription

1 FINANCIAL STATEMENTS 31 DECEMBER

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4 BALANCE SHEET As at 31 December Note ASSETS Bank balances 1,056,542 3,131,178 Trading investments 4 108,819, ,213,375 Dividend receivable 89, , ,965, ,455,428 LIABLITY Payables 513, ,804 UNITHOLDERS FUNDS Net assets 109,452, ,876,624 Units in issue 1,192,349 1,632,825 Per unit value The accompanying notes 1 to 10 form part of these financial statements. 3

5 STATEMENT OF OPERATIONS For the year ended 31 December Notes INCOME Trading income, net 5 7,053,186 10,427,800 EXPENSES Management fees 6 2,232,067 2,309,566 Other fees 6 75,713 54,194 2,307,780 2,363,760 NET INCOME FROM OPERATIONS 4,745,406 8,064,040 The accompanying notes 1 to 10 form part of these financial statements. 4

6 STATEMENT OF CASH FLOWS For the year ended 31 December OPERATING ACTIVITIES Net income from operations 4,745,406 8,064,040 Adjustment for: Movement in unrealised losses (gains) on trading investments 1,684,411 (31,847,826) 6,429,817 (23,783,786) Changes in operating assets and liabilities: Trading investments 31,709,171 53,003,138 Payables (65,580) 295,603 Dividend receivables 21,875 (110,875) Net cash from operating activities 38,095,283 29,404,080 FINANCING ACTIVITIES Proceeds from units sold 213, ,550 Value of units redeemed (40,383,650) (31,047,483) Net cash used in financing activities (40,169,919) (30,687,933) DECREASE IN BANK BALANCES (2,074,636) (1,283,853) Bank balances at the beginning of the year 3,131,178 4,415,031 BANK BALANCES AT THE END OF THE YEAR 1,056,542 3,131,178 Operational cash flows from dividends Dividends received 4,462,748 4,311,831 The accompanying notes 1 to 10 form part of these financial statements. 5

7 STATEMENT OF CHANGES IN NET ASSETS For the year ended 31 December NET ASSET VALUE AT THE BEGINNING OF THE YEAR 144,876, ,500,517 NET INCOME FROM OPERATIONS 4,745,406 8,064,040 CHANGES FROM UNIT TRANSACTIONS Proceeds from units sold 213, ,550 Value of units redeemed (40,383,650) (31,047,483) Net change from unit transactions (40,169,919) (30,687,933) NET ASSET VALUE AT THE END OF THE YEAR 109,452, ,876,624 UNIT TRANSACTIONS Transactions in units for the year ended 31 December are summarised as follows: Units Units UNITS AT THE BEGINNING OF THE YEAR 1,632,825 2,037,580 Units sold 2,496 4,635 Units redeemed (442,972) (409,390) Net decrease in units (440,476) (404,755) UNITS AT THE END OF THE YEAR 1,192,349 1,632,825 The accompanying notes 1 to 10 form part of these financial statements. 6

8 NOTES TO THE FINANCIAL STATEMENTS At 31 December 1 GENERAL (the Fund ) is an open-ended fund. The investment objective of the Fund is to invest in a broadly diversified portfolio of Saudi Arabian equities including money market and murabaha funds. The Fund was established on 13 Shawwal 1410H (corresponding to 8 May 1990) by Arab National Bank (the Bank ). In accordance with the Capital Market Authority s (CMA) decision No dated 21 Jumada Awal 1426H (corresponding to 28 June 2005) issued by the CMA Board in connection with the regulations relating to Authorised Persons, the Bank has transferred its asset management operations to Arab National Investment Company (the Fund Manager ), a wholly owned subsidiary of the Bank, effective 1 January The books and records of the Fund are maintained in Saudi Riyals. 2 REGULATING AUTHORITY The Fund is governed by the Investment Fund Regulations (the Regulations ) issued by the CMA on 3 Dhul Hijja 1427H (corresponding to 24 December 2006) and effective from 6 Safar 1438H (corresponding 6 November ) by the New Investment Fund Regulations ( Amended Regulations ) published by the Capital Market Authority on 16 Sha aban 1437H (corresponding to 23 May ), detailing requirements for all funds within the Kingdom of Saudi Arabia. 3 SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia. The significant accounting policies adopted are as follows: Accounting convention The financial statements are prepared under the historical cost convention modified to include the measurement at fair value of trading investments. Revenue recognition Dividend income is recognised when declared (i.e. when the Fund s right to receive the dividend is established). Trading income includes unrealised gains and losses from changes in fair value, realised gains and losses from sale of trading investments and dividends declared. Realised gains and losses on trading investments sold are determined on a weighted average cost basis. Special commission income is recognised on an effective yield basis. Investment valuation Equity investments which are purchased for trading purposes are valued at their market price as at the valuation date. Investments in mutual funds are valued on the basis of net asset values published by the Fund Manager. Investment transactions Investments transactions are accounted for as of the trade date. Zakat and income tax Zakat and income tax are the obligations of the Unit holders and are not provided for in the accompanying financial statements. 7

9 NOTES TO THE FINANCIAL STATEMENTS (continued) 31 December 4 TRADING INVESTMENTS The composition of the portfolio by industry group is summarised below: % of market Cost Market value Unrealised (loss) gain value Equity investments Banks ,477,950 35,979,472 2,501,522 Materials ,497,657 32,712,246 5,214,589 Insurance ,552,127 9,784,600 1,232,473 Real estate management & development ,979,365 7,563,460 (415,905) Health care equipment & services ,549,694 5,252, ,306 Food & beverages ,178,401 5,030,310 (148,091) Retailing ,818,208 4,377, ,152 Telecommunication services ,935,276 3,455, ,449 Consumer services ,706,114 2,663,920 (42,194) Utilities ,957,166 2,000,700 43,534 Total investments ,651, ,819,793 10,167,835 Equity investments Banks and financial services ,773,839 44,995,860 (1,777,979) Petrochemical industries ,484,558 27,308,376 4,823,818 Retail ,597,140 12,351, ,438 Real estate development ,179,409 10,627,154 2,447,745 Transport ,225,639 9,956,654 1,731,015 Agriculture and food industries ,704,684 8,432, ,076 Insurance ,547,901 6,942,345 1,394,444 Industrial investment ,233,379 5,903, ,141 Hotel and tourism ,184,995 5,178,030 (6,965) Telecommunication and IT ,042,377 5,029, ,311 Energy and utilities ,232,940 3,730, ,080 Cement ,154,268 1,757,390 (396,878) Total investments ,361, ,213,375 11,852,246 Equity securities are listed on the Saudi stock exchange ( Tadawul ). The Fund Manager seeks to limit its risk by monitoring exposures in each investment sector and individual securities. 5 TRADING INCOME, NET Movement in unrealised (losses) gains on trading investments (1,684,411) 31,847,826 Dividend income 4,440,873 4,422,706 Realised gains (losses) on sale of trading investments, net 4,296,724 (25,842,732) 7,053,186 10,427,800 8

10 NOTES TO THE FINANCIAL STATEMENTS (continued) 31 December 6 TRANSACTIONS WITH RELATED PARTIES A subscription fee of 2% may be charged to the subscribers by the Fund Manager upon subscription. The Fund pays a management fee at the rate of 1.75% per annum calculated on the total net assets at each valuation date. In addition, the Fund Manager also charges other fees at a maximum rate of 1.00% per annum calculated on the total net assets at each valuation date to meet other expenses of the Fund. The management fees amounting to 2,232,067 (: 2,309,566) and other fees amounting to 75,713 (: 54,194) reflected in the statement of operations, represent the fees charged by the Fund Manager during the year as described above. Trade transactions on the Tadawul are executed through the Fund Manager. The Fund Manager also acts as the custodian of the Fund s investments. The Bank (parent of the Fund Manager) acts as the Fund s banker. The Unit holders account at 31 December included units held as follows: Units Units Held by the Bank - 313,192 Held by funds under same management 6,678 32,642 Held by the employees of the Bank 886 2,045 7, ,879 7 RISK MANAGEMENT Special commission rate risk Special commission rate risk is the risk that the value of financial instruments will fluctuate due to changes in the market rates. The Fund does not have any floating special commission bearing financial assets or liabilities as at 31 December and is not exposed to significant special commission rate risk. Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Fund is exposed to credit risk on its bank balances and dividend receivables. The Fund Manager seeks to limit its credit risk by monitoring credit exposures and dealing with reputed counterparties only. The table below shows the maximum exposure to credit risk for the components of the balance sheet. Bank balances 1,056,542 3,131,178 Dividend receivables 89, ,875 Total exposure to credit risk 1,145,542 3,242,053 The Bank has an investment grade credit rating. 9

11 NOTES TO THE FINANCIAL STATEMENTS (continued) 31 December 7 RISK MANAGEMENT (continued) Equity price risk Equity price risk is the risk that the fair value of equities changes as the result of changes in the levels of equity indices and the value of individual stocks. According to the Fund s management, the effect on the statement of operations (as a result of a change in fair value of equity instruments held in the trading portfolio) due to a reasonable possible change in equity indices, with all other variables held constant, is as follows: The sensitivity analysis presented below is based on a historical comparison of unit price and underlying index volatilities. This sensitivity analysis relies upon assumptions including a correlation of the equity holdings of the Fund with the index composition. Market index Change in equity price Effect on statement of operations Effect on statement of operations Change in Equity price % % Tadawul 10 10,462, ,064,593 Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in releasing funds to meet commitments associated with financial liabilities. Liquidity risk may result from an inability to sell a financial asset quickly at an amount close to its fair value. The Fund s terms and conditions provide for redemptions of units twice a week and it is, therefore, exposed to the liquidity risk of meeting Unit holders redemptions. The Fund s trading investments are considered to be readily realisable, as the equity investments are listed on the Saudi stock market and investments, if any, in mutual funds can be redeemed any time throughout the week. The Fund Manager monitors liquidity requirements on a regular basis and seeks to ensure that sufficient funds are available including bank facilities to meet commitments as they arise. Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to a change in foreign exchange rates. The Fund s functional currency is the Saudi Riyal. As the Fund s financial assets and financial liabilities are denominated in its functional currency, the Fund is not subject to currency risk. 8 FAIR VALUES OF FINANCIAL INSTRUMENTS Financial instruments comprise financial assets and financial liabilities. The Fund s financial assets consist of bank balances, dividend receivables and trading investments. The financial liabilities consist of payables. Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm s length transaction. For investments traded in an active market, fair value is determined by reference to quoted market bid prices. Trading investments are carried at their fair value. The fair values of other financial instruments are not expected to be materially different from their carrying value. 9 LAST VALUATION DAY The last valuation day of the year was 31 December (: 28 December ). 10 FUND BOARD APPROVAL The financial statement of the fund for the year was approved by the Fund Board on 29 March