ANNUAL REPORT & ACCOUNTS 2O17

Transcription

1 ANNUAL REPORT & ACCOUNTS 2O17

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3 It s taken 100 years of hard work and perseverance over many generations to get us this far. Our company has evolved but we ve always stayed committed to creating lasting value and enabling people to live their best lives possible. For now and for generations to come.

4 Trustee s and Professional Advisors Corporate Trustee Stanbic Bank Kenya Limited, Stanbic Centre, 1 st Floor Chiromo Road, Westlands P.O. Box , Nairobi, Kenya. Registered Office Sanlam House, Kenyatta Avenue, P.O. Box , Nairobi, Kenya. Fund Manager Sanlam Investments Limited, 3 rd Floor, Sanlam House, Kenyatta Avenue, P.O. Box , Nairobi, Kenya. Custodian Stanbic Bank Kenya Limited, Stanbic Centre, 2 nd Floor Chiromo Road, Westlands, P.O. Box , Nairobi, Kenya. Independent Auditor PricewaterhouseCoopers, Certified Public Accountants, PwC Tower, Waiyaki Way/ Chiromo Road, Westlands, P.O. Box , Nairobi, Kenya.

5 1 Sanlam Money Market Fund Report of the Trustee 8 Statement of Trustee s Responsibilities 9 Fund Manager s Report Report of the Custodian 12 Independent Auditor s Report Financial Statements Statement of Comprehensive Income 16 Statement of Financial Position 17 Statement of Changes in Equity 18 Statement of Cash Flows 19 Notes to the Financial Statements Sanlam Balanced Fund Report of the Trustee 32 Statement of Trustee s Responsibilities 33 Fund Manager s Report Report of the Custodian 36 Independent Auditor s Report Financial Statements Statement of Comprehensive Income 40 Statement of Financial Position 41 Statement of Changes in Equity 42 Statement of Cash Flows 43 Notes to the Financial Statements Sanlam Dividend Fund Report of the Trustee 56 Statement of Trustee s Responsibilities 57 Report of Fund Manager Report of the Custodian 60 Independent Auditor s Report Financial Statements Statement of Comprehensive Income 64 Statement of Financial Position 65 Statement of Changes in Equity 66 Statement of Cash Flows 67 Notes to the Financial Statements 68-78

6 Sanlam Money Market Fund 1

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8 Report of the Trustee The Trustee has the pleasure in submitting the Sanlam Money Market Fund (the Fund ) report together with the audited financial statements for the year ended 31 December Establishment, Nature and Status of the Fund The Fund was established and is governed by a Trust Deed dated 11 September 2014 as a money market fund. The Fund is registered with the Capital Markets Authority and approved under the Income Tax Act. The Fund is subject to withholding tax on interest income and dividends. The primary objective of the Fund is to provide a superior return relative to average bank deposits while maintaining capital preservation. The Fund is a unit trust and the interest of the individual members is determined by the value of their units. It is administered by the Trustee who is responsible for its affairs. It is an approved collective investment scheme within the meaning of the Capital Markets Act and the holders are not liable for the debts of the Fund. Changes to Incorporation Documents There were no changes made to the incorporation documents (Prospectus, Trust Deed and Rules of the Fund) during the year. Income Distribution The profit for the year of KShs. 217,000,000 (2016: KShs. 155,998,000) has been distributed to the unit holders by reinvestment in the Fund. Investment Under the terms of their appointment, Sanlam Investments Limited are the Fund Managers and support the Trustees in the investment decisions. The overall responsibility for investment and performance lies with the Trustee. Fund Perfomance The highest and lowest absolute yields during the year were 12.12% (2016: 19.84%) and 6.92% (2016: 9.15%) respectively. Total Value of the Fund The market value of the Fund as at 31 December 2017 was KShs. 2,485,999,000 (2016: KShs. 2,385,695,000). Auditor The Fund s auditor, PricewaterhouseCoopers, has indicated their willingness to continue in office. Signed on behalf of the Trustee 28 th March,

9 Statement of Trustee s Responsibilities The Kenyan Capital Markets Act requires the Trustee to prepare financial statements for each financial year which give a true and fair view of the financial position of the Fund at the end of the financial year and its financial performance for the year then ended. The Trustee is responsible for ensuring that the Fund keeps proper accounting records that are sufficient to show and explain the transactions of the Fund, disclose with reasonable accuracy at any time the financial position of the Fund and that enables them to prepare financial statements of the Fund that comply with prescribed financial reporting standards and the requirements of the Kenyan Capital Markets Act. They are also responsible for safeguarding the assets of the Fund and for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Trustee accepts responsibility for the preparation and presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Capital Markets Act. They also accept responsibility for: i. Designing, implementing and maintaining internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error; ii. Selecting suitable accounting policies and then apply them consistently; and iii. Making judgements and accounting estimates that are reasonable in the circumstances. In preparing the financial statements, the Trustee has assessed the Fund s ability to continue as a going concern and disclosed, as applicable, matters relating to the use of going concern basis of preparation of the financial statements. Nothing has come to the attention of the Trustee to indicate that the Fund will not remain a going concern for at least the next twelve months from the date of this statement. The Trustee acknowledges that the independent audit of the financial statements does not relieve them of their responsibility. Approved by the Trustee on 28 th March, 2018 and signed on its behalf by: Representing Trustee 9

10 Fund Manager s Report Dear Unit Holder, This Fund aims to deliver a higher level of income compared to the average banks fixed deposits with features of capital preservation and liquidity access. The Money Market Fund returned a yield of 10.9% over 12 months. This return was largely influenced by taking opportunity of higher yields offered during the year especially through the Treasury Bills market. Going forward, we expect that stable interest rates will be the predominant theme for With this, the Fund will continue to pick up exposure to Treasury Bills as well as high yielding deposits where gaps of liquidity will arise. We are aware that the low inflation rate environment might support the Central Bank to review the CBR rate, currently at 10% downwards. This would then see the Fund extend its maturity profile slightly to maintain an attractive running yield. The market liquidity tightened during the year as the election period extended and government disbursements waned off. Top tier banks however enjoyed skewed liquidity even as less capitalised banks relied on the Central Bank s monetary intervention through repurchase agreements (repos). The interbank rate closed at 6.9% in December as noted by the Central Bank which was a fair indicator of the relative average for the year. All the same, the year 2017 experienced a higher cash crunch due to diminished fiscal spending and a severe lag in economic activity. The annual average interbank rate was at 6.4% compared to 5.6% in Short term rates were generally flat as the Central Bank s efforts to adopt an expansionary policy were still in play during this year. Treasury Bills rates went up slightly towards the end of Quarter 3 due to maturing obligations of short term debt but stabilised thereafter. We expect the short-term rates to pick up slightly at the start of 2018 but to revert on the back of a stable inflation level. The 91-day, 182-day and 364-day T-Bill rates closed at 8.1%, 10.6% and 11.2% respectively in Inflation levels came down toward the close of the year. The Kenya National Bureau of Statistics recorded 4.5% for the month of December, the lowest level attained during the year and attributed the drop to improved food prices. Core inflation remained flat throughout the year and closed at 3.5% to confirm the lag on consumer demand. We will continue to monitor the private sector activity and its contribution to consumption growth in the year Fuel inflation went up slightly during this quarter owing to an increase in global fuel prices. We expect inflation to remain within the lower range of the CBK inflation target for the 1 st half of The Shilling closed the year at KShs against the dollar which marked a flat change for this year. There was considerable effort by the Central Bank to support the local currency through dollar sales throughout the year. This would ultimately lead to a depletion on the Foreign Reserves which was less than 5 months of import cover at the close of the year. We expect a slight decline in the Shilling over the course of the next year owing to foreign debt obligations and an expected increase of dollar demand form importers as the economy rebounds. Nonetheless, the Treasury is keen to explore dollar funding options which should bolster the Foreign Reserves and maintain the currency s stability. 10

11 Fund Manager s Report Fund Performance as at 31 December % 15.00% 10.00% 10.90% 12.00% 16.50% 14.50% 5.00% 0.00% 12 Months 3 Months Portfolio Benchmark Fund Allocation as at December 2017 Asset Allocation 6% 34% 29% Cash & Call Deposits Commercial Papers Bank FDs Treasury 31% Signed on behalf of the Fund Manager 28 th March,

12 Report of the Custodian In accordance with the Capital Markets (Collective Investment Schemes) Regulations, 2001 (the Regulations) and the Custody Agreement between Stanbic Bank Kenya Limited as the Custodians and Sanlam Investments Limited as the Fund Manager, we confirm that: a) We have discharged the duties prescribed for a Custodian under Regulation 35 of the Regulations, to the Sanlam Balanced Fund; b) The issue, sale, redemption and cancellation and calculation of the price of the Fund s units and the application of the Fund s income have been carried out in accordance with the Regulations; and c) The investment and borrowing powers and restrictions applicable to the Fund in accordance with the Regulations and the documents of incorporation have not been exceeded. For the year ended 31 December 2017, we have held the assets of the Sanlam Money Market Fund, which include title deeds, securities and income that accrue thereof, to the order of the Fund Manager and facilitated the transfer, exchange or delivery in accordance with the instructions received from the Fund Manager. In our opinion, the Fund Manager has in all material respects managed the scheme in accordance with the provisions of the Capital Markets (Collective Investment Schemes) Regulations, 2001, incorporation documents, the information memorandum and the rules of the collective investment scheme. Signed on behalf of the Custodian 28 th March,

13 Independent Auditor s Report To the Unit Holders of Sanlam Money Market Fund Report on the Financial Statements Opinion We have audited the accompanying financial statements of Sanlam Money Market Fund (the Fund ) set out on pages 10 to 23 which comprise the statement of financial position at 31 December 2017 and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended and the notes to the financial statements, which include a summary of significant accounting policies. In our opinion, the financial statements give a true and fair view of the financial position of the Fund at 31 December 2017 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Kenya and we have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information The Trustee is responsible for the other information. The other information comprises the information included in the annual report but does not include the financial statements and our auditor s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Trustee for the Financial Statements The Trustee is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and the requirements of Capital Markets Authority (Collective Investments Schemes) Regulations 2001 and for such internal control as the Trustee determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 13

14 Independent Auditor s Report To the Unit Holders of Sanlam Money Market Fund (Continued) Responsibilities of the Trustee for the Financial Statements (continued) In preparing the financial statements, the Trustee is responsible for assessing the Fund s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Trustee either intends to liquidate the Fund or to cease operations, or have no realistic alternative but to do so. The Trustee is responsible for overseeing the Fund s financial reporting process. Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal controls Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal controls Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Trustee Conclude on the appropriateness of the Trustee s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Fund to cease to continue as a going concern Evaluate the overall presentation, structure and content of the financial statements, including the disclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation We communicate with the Trustee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 14

15 Independent Auditor s Report To the Unit Holders of Sanlam Money Market Fund (Continued) Report on Other Legal Requirements We confirm that the financial statements have been properly prepared in accordance with the Capital Markets Authority (Collective Investment Schemes) Regulations, The Capital Markets Authority (Collective Investment Schemes) Regulations, 2001 also require that in carrying out our audit, we consider and report to you on the following matters: If the auditor is of the opinion that proper accounting records for the collective investment scheme have not been kept or that the accounts are not in agreement with those records; If the auditor has not been given all the information and explanations which, to the best of his knowledge and belief, are necessary for the purpose of his audit; or If the auditor is of the opinion that the information given in the report of the Fund Manager for that period is inconsistent with the accounts. We confirm that there are no matters to report in respect of the foregoing requirements. The engagement partner responsible for the audit resulting in this independent auditor s report is CPA Kang e Saiti Practising Certificate No Certified Public Accountants Nairobi 28 th March,

16 Financial Statements Statement of Profit or Loss and Other Comprehensive Income Notes KShs 000 KShs 000 Interest income 6 (i) 283, ,627 Total income 283, ,627 Operating expenses 6 (ii) (41,028) (21,365) Profit before income tax 242, ,262 Income tax expense (25,005) (24,264) Profit for the year 217, ,998 Other comprehensive income: - - Total comprehensive income for the year 217, ,998 The notes on pages 14 to 23 are an integral part of these financial statements. 16

17 Financial Statements Statement of Financial Position Notes KShs 000 KShs 000 ASSETS Bank balances 131,440 17,604 Call deposits with financial institutions 8(ii) 142, ,800 Fixed deposits 8(ii) 776,862 1,077,760 Treasury bills 8(ii) 850,822 69,320 Commercial paper 8(ii) 608, ,480 Other receivables - 45,846 Total assets 2,509,742 2,425,810 Liabilities Payables and other accruals 10 23,743 40,115 NET ASSETS 2,485,999 2,385,695 EQUITY Unit holder balances 2,485,999 2,385,695 The notes on pages 14 to 23 are an integral part of these financial statements. The financial statements on pages 10 to 23 were approved for issue by the Trustee on 28 th March, 2018 and signed on its behalf by: Representing Trustee Representing Trustee Abraham Ongenge Name Name 17

18 Financial Statements Statement of Changes in Equity Unit holder capital balances KShs 000 Balance at 1 January ,134 Profit for the year 155,998 Transactions with unit holders: Additional units purchased 2,063,673 Units liquidated (274,110) Total transactions with unit holders 1,789,563 Balance at 31 December ,385,695 Balance at 1 January ,385,695 Profit for the year 217,000 Transactions with unit holders: Additional units purchased 9 1,537,300 Units liquidated 9 (1,653,996) Total transactions with unit holders (116,696) Balance at 31 December ,485,999 The notes on pages 14 to 23 are an integral part of these financial statements. 18

19 Financial Statements Statement of Cash Flows Notes KShs 000 KShs 000 Profit before income tax 242, ,262 Adjustments for: Interest income 6(i) (283,033) (201,627) Changes in working capital: Payables and other accruals (16,372) (43,332) Other receivables 45,846 38,857 Cash used in operations (11,554) (25,840) Income tax paid (25,005) (24,264) Net cash used in operating activities (36,559) (50,104) Cash flows from investing activities Purchase of investments 8(ii) (8,993,001) (6,282,702) Proceeds from disposal of investments 9,358,327 4,674,602 Interest received 283, ,627 Net cash generated from/(used in) investing activities 648,359 (1,406,473) Cash flows from financing activities Net contribution from unit holders 9 1,537,300 2,063,673 Liquidations by unit holders 9 (1,653,996) (274,110) Net cash (used in)/generated from financing activities (116,696) 1,789,563 Net increase in cash and cash equivalents 495, ,986 Cash and cash equivalents at start of year 629, ,738 Cash and cash equivalents at end of year 1,124, ,724 Represented by: Bank balances 131,440 17,604 Call deposits 142, ,800 Treasury bills 850,822 69,320 The notes on pages 14 to 23 are an integral part of these financial statements. 1,124, ,724 19

20 Notes to the Financial Statements 20 Notes 1. General Information The Fund started operations on 1 November 2014 and is governed by a Trust Deed dated 11 September 2014, is registered with the Capital Markets Authority and is domiciled in Kenya. The address of its registered office is: Sanlam Life House, Kenyatta Avenue, Nairobi. The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 2. Summary of Significant Accounting Policies a) Basis of Preparation The financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The financial statements are presented in Kenya Shillings (KShs), rounded to the nearest thousand. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Fund s accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3. b) Changes in Accounting Policy and Disclosures New and Amended Standards not yet Adopted by the Fund A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2017 and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Fund. IFRS 9, Financial Instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities, there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted. The Trustees are of the view that there will be no significant impact on the adoption of IFRS 9.

21 Notes to the Financial Statements Notes (Continued) 2. Summary of Significant Accounting Policies (continued) b) Changes in Accounting Policy and Disclosures (continued) New and Amended Standards not yet Adopted by the Fund (continued) There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Fund. (c) Revenue Recognition Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Fund and the amount of income can be measured reliably. Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset net the carrying amount on initial recognition. (d) Income Tax Expense The Fund is subject to withholding tax on interest income from bank deposits and commercial paper at a rate of 15% and dividends received at a rate of 5%. Withholding tax on treasury bonds is 10% for bond with tenures longer than 10 years and 15% otherwise. Infrastructure bonds do not attract withholding tax. (e) Cash and Cash Equivalents For the purposes of the statement of cash flows, cash equivalents include short term liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired. (f) Financial Instruments Financial Assets Classification A financial asset or liability is recognised when the Fund becomes party to the contractual provisions of the instrument. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Fund has transferred substantially all risks and rewards of ownership. As at the reporting date, the classification of the Fund s financial assets was as follows: Loans and receivables: Other receivables and bank balances Held to maturity: Fixed deposits, call deposits, commercial paper and treasury bills The Fund determines the appropriate classification of its financial assets at initial recognition. (i) Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Fund provides money, goods or services directly to a debtor with no intention of trading the receivable. These assets are carried at amortised cost. 21

22 Notes to the Financial Statements Notes (Continued) 2 Summary of Significant Accounting Policies (continued) (f) Financial Instruments (continued) (ii) Held-to-maturity Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that management has the positive intention and ability to hold to maturity. Where a sale occurs other than for an insignificant amount of held-to-maturity assets, the entire category would be tainted and classified as available for sale. Impairment and Uncollectability of Financial Assets The Fund assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed either directly or by adjusting an allowance account. The reversal does not result in a carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit or loss. Financial Liabilities Financial liabilities are initially recognised at fair value and subsequently measured at amortised cost. Financial liabilities are derecognised when they have been redeemed or otherwise extinguished. Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as Payables and other accruals if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as Non-Payables and other accruals. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. (g) Functional and presentational currency and translation of foreign currencies Functional and Presentation Currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the Functional Currency ). The financial statements are presented in Kenyan Shillings (KShs) rounded to the nearest thousand, which is the Fund s presentation currency. Transactional Balances Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. 22

23 Notes to the Financial Statements Notes (Continued) 2 Summary of Significant Accounting Policies (continued) Transactional Balances (continued) Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within finance income or cost. All other foreign exchange gains and losses are presented in profit or loss within other income or other expenses. (h) Distribution All income or loss arising from investment is distributed to unit holders after provision of all expenses. All distributions including unclaimed distributions are reinvested in the unit holder s accounts. (i) Unit Holder Balances Unit holders funds are redeemable on demand at an amount equal to a proportionate share of the unit portfolios net asset value. The balances are carried at the redemption amount that is payable at the financial reporting date if the holder exercised their right to redeem the balances. 3 Critical Judgement in Applying the Fund s Accounting Policies In the process of applying the Fund s accounting policies, management has made estimates and judgements in valuation of financial instruments as discussed in note 2(f). Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 4 Financial Risk Management Objectives and Policies The Fund generates revenue for the members by investing in various income generating activities which involve trading in commercial paper. These activities expose the Fund to a variety of financial risks, including credit risk and the effects of changes in market dynamics. The Trust Deed sets out the investment policy and management of the Fund s assets to minimise potential adverse effects on its financial performance. Risk management is carried out by the Fund Manager, Sanlam Investments Limited. The Fund Manager identifies, evaluates and manages financial risks, with emphasis on specific areas such as interest rate risk, credit risk and investing excess liquidity. The Fund s risk management policies include the use of guidelines governing the acceptance of clients and investment policies are in place which help manage liquidity and seek to maximise return within an acceptable level of interest rate risk. The Capital Markets Authority (CMA) sets out that the book value of the Fund s investments should not exceed the following limits: Listed securities on the Nairobi Stock Exchange 80% Securities issued by the Government of Kenya 80% Immovable property 25% Other collective investment schemes including umbrella schemes 25% Other securities not listed on a securities exchange in Kenya 25% Off-shore investments 10% The Fund had complied with these requirements as at 31 December 2017 and (a) Credit Risk Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the Fund. In accordance with the Fund s policy, the Fund Manager monitors the Fund s credit position on a daily basis and it is reviewed on a quarterly basis by the Fund s Investments Committee. 23

24 Notes to the Financial Statements Notes (continued) The amount that best represents the Fund s maximum exposure to credit risk at 31 December 2017 and 2016 is made up as follows: 4 Financial Risk Management Objectives and Policies (continued) (a) Credit Risk (continued) KShs 000 KShs 000 Bank balances 131,440 17,604 Call deposits with financial institutions 142, ,800 Fixed deposits 776,862 1,077,760 Treasury bills 850,822 70,000 Commercial paper 608, ,480 Other receivables - 45,166 2,509,742 2,425,810 No collateral is held for any of the above assets. All receivables that are neither past due or impaired are within their approved credit limits and no receivables have had their terms renegotiated. All receivables past due by more than 60 days are considered to be impaired and are carried at their estimated recoverable value. b) Liquidity Risk Liquidity risk is the risk that the Fund will not be able to meet its financial obligations when they fall due. The Fund s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, without incurring unacceptable losses or at the risk of damaging the Fund s reputation. The Fund is exposed to daily withdrawal of funds by investors. The Fund maintains cash balances to meet all of these needs as experience shows that a certain amount of withdrawals are requested daily and can be predicted with a high level of certainty. Management closely monitors the proportion of maturing funds available to meet such calls and on the minimum level of funds that should be in place to cover withdrawals at unexpected levels of demand. The table below analyses the Fund s financial liabilities and unit holder balances that will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. 24

25 Notes to the Financial Statements Notes (continued) 4 Financial Risk Management Objectives and Policies (continued) b) Liquidity Risk (continued) Due on demand Due within 3 months Total KShs 000 KShs 000 KShs 000 As at December 2017 Unit holders balances 2,485,999-2,485,999 Payables and other accruals - 23,743 23,743 Total 2,485,999 23,743 2,509,742 As at December 2016 Unit holders balances 2,385,695-2,385,695 Payables and other accruals - 40,115 40,115 Total 2,385,695 40,115 2,425,810 c) Market Risk (i) Cash Flow and Fair Value Interest Rate Risk The Fund s interest bearing financial assets are commercial paper, government securities and deposits with financial institutions, which are at fixed rate and on which it is therefore not exposed to cash flow and interest rate risk. The Fund Manager regularly monitors financing options available to ensure optimum interest rates are obtained. (ii) Foreign Exchange Risk As at 31 December 2017 and 2016, the Fund had no exposure to foreign exchange risk. 25

26 Notes to the Financial Statements Notes (continued) (d) Fair Value Estimation For the money market fund, there are no assets stated at fair value. 5 Capital Management The capital of the Fund is represented by unit holders balances. The amount of unit holder liabilities can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unit holders. The Fund s objectives when managing capital are to safeguard the Fund s ability to continue as a going concern in order to provide returns for unit holders. 6 (i) Interest Income Interest income from: KShs 000 KShs 000 Call deposits with financial institutions 56,097 16,443 Fixed deposits with financial institutions 135, ,675 Commercial paper 91,254 29, , ,627 6 (ii) Operating Expenses Custodial fees 3, Management fees 35,977 20,394 Audit fees Bank charges ,028 21,365 7 Taxation The unit trust is registered under the Income Tax Act (Collective Investment Scheme Rules 2002) and is exempt from income tax. On 11 September 2009, KRA issued a public notice requiring the Fund to withhold tax on interest and dividend income. The tax charge in 2017 and 2016 relates to tax withheld after the issue of the legal notice at a rate of 15% for interest income. 26

27 Notes to the Financial Statements Notes (continued) 8 Investments (i) Maturity Profile of Investments in the Money Market Up to 3 months 6 & 12 months Due within 1 & 5 years Totals KShs 000 KShs 000 KShs 000 KShs 000 As at 31 December 2017 Call deposits with financial institutions 142, ,566 Fixed deposit - 776, ,862 Treasury bills , ,822 Commercial paper - 608, ,051 Total 142,566 1,384, ,822 2,378,301 Up to 3 months 6 & 12 months Due within 1 & 5 years Totals KShs 000 KShs 000 KShs 000 KShs 000 As at 31 December 2016 Call deposits with financial institutions 542, ,800 Fixed deposit - 1,077,760-1,077,760 Treasury bills - 69,320-69,320 Commercial paper 572, , ,480 Total 1,115,280 1,247,080-2,362,360 Carrying value at 1 January 2017 Purchases at cost Interest accrued Sales/ maturities Carrying value at 31 December 2017 KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 Year ended 31 December 2017 Call deposits with financial institutions 542,800 2,274,000 2,566 (2,676,800) 142,566 Fixed deposits with financial institutions 1,077,760 4,495,773 4,196 (4,800,868) 776,862 Treasury bills 69,320 1,127,516 18,024 (364,038) 850,822 Commercial paper 672,480 1,095,712 43,794 (1,203,935) 608,051 Total 2,362,360 8,993,001 68,580 (9,045,641) 2,378,301 27

28 Notes to the Financial Statements Notes (continued) 8 Investments (continued) (ii) Movement in Investments (continued) Carrying value at 1 January 2016 Purchases at cost Interest accrued Sales/ maturities Carrying value at 31 December 2016 KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 Year ended 31 December 2016 Call deposits with financial institutions 290, ,370 6, ,800 Fixed deposit with financial institutions - 5,439,835 36,391 (4,398,466) 1,077,760 Treasury bills - 66,996 2,324-69,320 Commercial paper 142, ,501 16,077 (15,238) 672,480 Total 432,482 6,282,702 60,880 (4,413,704) 2,362,360 (iii) Cash and Cash Equivalents KShs 000 KShs 000 Deposits held with financial institutions maturity of up to 3 months from contract date 141, ,800 Treasury bills 852,822 69,320 Cash and bank balance 131,440 17,604 At end of year 1,124, ,724 9 Unit Holders Funds No. of Units 2017 Value No. of Units 2016 Value 000 KShs KShs 000 At start of the year 2,385,695 2,385, , ,134 Creations 1,537,300 1,537,300 2,063,673 2,063,673 Liquidations (1,653,996) (1,653,996) (274,110) (274,110) Total comprehensive income 217, , , ,998 At end of the year 2,485,999 2,485,999 2,385,695 2,385,695 28

29 Notes to the Financial Statements Notes (continued) 10 Payables and Other Occruals KShs KShs 000 Management fees payable to Sanlam Investments Limited 2,989 2,738 Audit fees payable Income distribution payable 19,854 20,240 Other payables - 16,537 23,743 40, Related Party Transaction Sanlam Money Market Fund is managed by Sanlam Investments Limited. Sanlam Investments Limited is controlled by Sanlam Kenya Plc incorporated in Kenya. The Fund transacts with other entities and divisions within Sanlam Kenya Plc. Balances due to related companies have been disclosed under Note 10. During the year, the following transactions were carried out with related parties. Management fees KShs 000 KShs 000 Sanlam Investments Limited 35,977 20, Subsequent Events During the year 2017, Sanlam Investments Limited entered into an agreement with Sanlam Investments East Africa Limited (formerly PineBridge Investments) that culminated in the transfer of assets under management including the unit trusts from Sanlam Investments Limited ( the Company) to Sanlam Investments East Africa Limited in January The transaction was part of a restructuring exercise to amalgamate all Sanlam asset management businesses under one company in Kenya after the acquisition of PineBridge Investments (now Sanlam Investments East Africa Limited) by Sanlam Emerging Markets Pty Limited. 29

30 samlam 2018 WHO LEADS US

31 2 Sanlam Balanced Fund

32 Report of the Trustee The Trustee has the pleasure of submitting the Sanlam Balanced Fund (the Fund ) report together with the audited financial statements for the year ended 31 December Establishment, Nature and Status of the Fund The Fund was established, and is governed by a Trust Deed dated 11 September 2014 as a balanced fund. The Fund is registered with the Capital Markets Authority and approved under the Income Tax Act. The Fund suffers withholding tax on interest income and dividends. The primary objective of the Fund is to create long term wealth for investors with reinvestment of income cash flows. The Fund is a unit trust and the interest of the individual members is determined by the value of their units. It is administered by the Trustee who is responsible for its affairs. It is an approved collective investment scheme within the meaning of the Capital Markets Act and the holders are not liable for the debts of the Fund. Changes to Incorporation Documents There were no changes made to the incorporation documents (Prospectus, Trust Deed and Rules of the Fund) during the year. Income Distribution The profit for the year of KShs. 4,609,000 (2016: KShs. 2,216,000) has been distributed to the unit holders by reinvestment in the Fund. Investment Under the terms of their appointment, Sanlam Investments Limited are the Fund Managers and support the Trustees in the investment decisions. The overall responsibility for investment and performance lies with the Trustees. Fund Perfomance The highest and lowest bid prices during the year were (2016: KShs ) and (2016: KShs ) respectively. Total Value of the Fund The market value of the Fund as at 31 December 2017 was KShs. 33,502,000 (2016: KShs. 19,766,000). Auditor The Fund s auditor, PricewaterhouseCoopers, has expressed their willingness to continue in office. Signed on behalf of the Trustee 28 th March,

33 Statement of Trustee s Responsibilities The Kenyan Capital Markets Act requires the Trustee to prepare financial statements for each financial year which give a true and fair view of the financial position of the Fund at the end of the financial year and its financial performance for the year then ended. The Trustee is responsible for ensuring that the Fund keeps proper accounting records that are sufficient to show and explain the transactions of the Fund, disclose with reasonable accuracy at any time the financial position of the Fund and that enables them to prepare financial statements of the Fund that comply with prescribed financial reporting standards and the requirements of the Kenyan Capital Markets Act. They are also responsible for safeguarding the assets of the Fund and for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Trustee accepts responsibility for the preparation and presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Capital Markets Act. They also accept responsibility for: i. Designing, implementing and maintaining internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error; ii. Selecting suitable accounting policies and then apply them consistently; and iii. Making judgements and accounting estimates that are reasonable in the circumstances. In preparing the financial statements, the Trustee has assessed the Fund s ability to continue as a going concern and disclosed, as applicable, matters relating to the use of going concern basis of preparation of the financial statements. Nothing has come to the attention of the Trustee to indicate that the Fund will not remain a going concern for at least the next twelve months from the date of this statement. The Trustee acknowledges that the independent audit of the financial statements does not relieve them of their responsibility. Approved by the Trustee on 28 th March, 2018 and signed on its behalf by: Signed on behalf of the Trustee 28 th March,

34 Fund Managers Report Dear Unit Holder, This Fund aims to deliver moderately aggressive returns while maintaining a long-term capital growth position with lower risk relative to an Equity Fund. The Balanced Fund gained a return of 14.2% over 12 months in the year Nonetheless, the Fund s performance lagged the Fixed Income and Local Equities benchmarks return which equally returned 16.5% on the NSE 20 Index and the FTSE Government Index during the same period. The Fund s cash cycle did not favor stock picking activity and hence could not fully capitalise on the local equity market gain attained during the year. However, we are confident that the Fund s 3-year return has significantly outpaced the equity market and its underlying benchmarks over the 3-year period. We aim to increase the Domestic Equities and Treasury Bonds exposure in 2018 in a bid to increase the Fund s overall return. We have an optimistic view of the economic outlook for 2018 coming from a year of heightened political activity and a slowdown in private sector credit which formed the backdrop of a bleak economic environment in This is vividly noted by the weak GDP growth rate recorded in Quarter 3 of 4.4% which was a considerable drop from 5.6% during a similar period in Bond assets had a positive performance on the back of lower interest rate levels compared to the year The secondary market turnover was upbeat as investors were keen to add exposure on government securities during this period. Given the aggressive domestic debt budget that the Treasury is expecting to pick for the fiscal year 2018, we aim to participate in primary auctions to pick up on attractive yields going in The FTSE Government Index gained 16.5% during the year on the back of a downward shift of the yield curve at the close of this year. We continue to take opportunity in the medium tenor to avoid interest volatility and take advantage of attractive yields as the fiscal year progresses. The equities return was strong attributed to renewed investor demand in the 2 nd half of 2017 despite bouts of weakness evident during the election season. Banking sector stocks experienced significant demand during Quarter 4 even as most banks reported weak single digit earnings on Quarter 3 results. We intend to pick up exposure on banks that have high asset quality businesses especially as the IFRS9 standards are expected to be implemented locally in We will also maintain our strategy to pick up on stocks that have the capacity to generate strong cash flows in the medium term notwithstanding the slow paced local economy. The NSE 20 Index lost 1.1% during Quarter 4 but gained 16.5% for the year 2017 marking a stellar performance. 34

35 Fund Managers Report Fund Performance as at 31 December % 16.80% 16.00% 14.00% 14.20% 15.80% 12.00% 10.00% 8.00% 6.00% 4.00% 4.10% 2.00% 0.00% 12 Months 3 Months Portfolio Benchmark Fund Allocation as at 31 December % 27% 18% 8% 44% Cash & Call Deposits Commercial Papers Corporate Bonds Govt Bonds Equities 3% Signed on behalf of Fund Manager 28 th March,

36 Report of the Custodian In accordance with the Capital Markets (Collective Investment Schemes) Regulations, 2001 (the Regulations) and the Custody Agreement between Stanbic Bank Limited as the Custodians and Sanlam Investments Limited as the Fund Manager, we confirm that: a) We have discharged the duties prescribed for a Custodian under Regulation 35 of the Regulations, to the Sanlam Balanced Fund; b) The issue, sale, redemption and cancellation and calculation of the price of the Fund s units and the application of the Fund s income have been carried out in accordance with the Regulations; and c) The investment and borrowing powers and restrictions applicable to the Fund in accordance with the Regulations and the documents of incorporation have not been exceeded. For the year ended 31 December 2017, we have held the assets of the Fund, which include title deeds, securities and income that accrue thereof, to the order of the Fund Manager and facilitated the transfer, exchange or delivery in accordance with the instructions received from the Fund Manager. In our opinion, the Fund Manager has in all material respects managed the scheme in accordance with the provisions of the Capital Markets (Collective Investment Schemes) Regulations, 2001, incorporation documents, the information memorandum and the rules of the collective investment scheme. Signed on behalf of the Custodian 28 th March,

37 Independent Auditor s Report To the Unit Holders of Sanlam Balanced Fund Report on the Financial Statements Opinion We have audited the accompanying financial statements of Sanlam Balanced Fund (the Fund ) set out on pages 10 to 23 which comprise the statement of financial position at 31 December 2017 and the statements of comprehensive income, changes in equity and cash flows for the year then ended and the notes to the financial statements, which include a summary of significant accounting policies. In our opinion, the financial statements give a true and fair view of the financial position of the Fund at 31 December 2017 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Kenya and we have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information The Trustee is responsible for the other information. The other information comprises the information included in the annual report but does not include the financial statements and our auditor s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If based on the work we have performed on the other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Trustee for the Financial Statements The Trustee is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and the requirements of Capital Markets Authority (Collective Investments Schemes) Regulations 2001 and for such internal controls as the Trustee determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 37

38 Independent Auditor s Report To the Unit Holders of Sanlam Balanced Fund (Continued) Responsibilities of the Trustee for the Financial Statements (continued) In preparing the financial statements, the Trustee is responsible for assessing the Fund s ability to continue as a going concern, disclosing as applicable matters related to going concern and using the going concern basis of accounting unless the Trustee either intends to liquidate the Fund or to cease operations, or have no realistic alternative but to do so. The Trustee is responsible for overseeing the Fund s financial reporting process. Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal controls Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Trustee Conclude on the appropriateness of the Trustee s use of the going concern basis of accounting and based on the audit evidence obtained whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Fund to cease to continue as a going concern Evaluate the overall presentation, structure and content of the financial statements, including the disclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation We communicate with the Trustee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit. 38

39 Independent Auditor s Report To the Unit Holders of Sanlam Balanced Fund (Continued) Report on Other Legal Requirements We confirm that the financial statements have been properly prepared in accordance with the Capital Markets Authority (Collective Investment Schemes) Regulations, The Capital Markets Authority (Collective Investment Schemes) Regulations, 2001 also requires that in carrying out our audit, we consider and report to you on the following matters: If the auditor is of the opinion that proper accounting records for the collective investment scheme have not been kept or that the accounts are not in agreement with those records, If the auditor has not been given all the information and explanation which, to the best of his knowledge and belief, are necessary for the purpose of his audit; or If the auditor is of the opinion that the information given in the report of the Fund Manager for that period is inconsistent with the accounts. We confirm that there are no matters to report in respect of the foregoing requirements. The engagement partner responsible for the audit resulting in this independent auditor s report is CPA Kang e Saiti Practising Certificate No Certified Public Accountants Nairobi 28 th March,

40 Financial Statements Statement of Profit or Loss and other Comprehensive Income Note KShs 000 KShs 000 Interest and dividend income 5 3,541 1,879 Realised gains on investments Fair value gains on investments at fair value through profit or loss Income and adjustment due to creations and liquidations ,193 - Total income 5,734 2,561 Operating expenses 6 (884) (345) Profit before income tax 4,850 2,216 Income tax expense (241) - Profit for the year 4,609 2,216 Other comprehensive income: - - Total comprehensive income for the year 4,609 2,216 The notes on pages 14 to 23 are an integral part of these financial statements. 40

41 Financial Statements Statement of Financial Position Notes KShs 000 KShs 000 ASSETS Bank balances 1, Deposits with financial institutions 8(ii) 13,180 5,660 Commercial paper 8(ii) 2,743 5,372 Government securities 8(ii) 6,843 5,845 Quoted ordinary shares 8(ii) 9,321 2,000 Other receivables 442 2,552 Total assets 34,343 21,822 Liabilities Other payables ,056 NET ASSETS 33,502 19,766 EQUITY Unit Holder Balances 33,502 19,766 The notes on pages 14 to 23 are an integral part of these financial statements. The financial statements on pages 10 to 23 were approved for issue by the Trustee on 2018 and signed on its behalf by: Representing Trustee Representing Trustee Abraham Ongenge Name Name 41

42 Notes to the Financial Statements Statement of Changes in Equity Unit holder capital balances KShs 000 Balance at 1 January ,358 Profit for the year 2,216 Transactions with unit holders: Additional units purchased 14,858 Units liquidated (10,666) At the end of the year 4,192 Balance at 31 December ,766 Balance at 1 January ,766 Profit for the year 4,609 Transactions with unit holders: Additional units purchased 27,091 Units liquidated (17,964) At the end of the year 33,502 The notes on pages 14 to 23 are an integral part of these financial statements. 42

43 Financial Statements Statement of Cash Flows Notes KShs 000 KShs 000 Profit before income tax 4,850 2,216 Adjustments Interest income 5 2,573 1,754 Dividend income Changes in working capital Payables and accruals (1,215) 1,982 Other receivables 2,111 (1,538) Cash generated from operations 9,287 4,539 Income tax paid (240) - Net cash generated from operating activities 9,047 4,539 Cash flows from investing activities Purchase of investments (79,161) (43,026) Proceeds from disposal of investments 66,387 34,816 Interest received 2,573 1,754 Dividend received Net cash used in investing activities (9,233) (6,331) Cash flows from financing activities Net contribution from unit holders 10 27,091 14,858 Liquidations by unit holders 10 (17,964) (10,666) Net cash generated from financing activities 9,127 4,192 Net increase in cash and cash equivalents 8,941 2,400 Cash and cash equivalents at start of year 6,053 3,653 Cash and cash equivalents at end of year 14,994 6,053 Represented by: Bank balances 1, Call deposits 13,180 5,660 14,994 6,053 The notes on pages 14 to 23 are an integral part of these financial statements. 43

44 Notes to the Financial Statements 1 General Information The Fund started operations on 1 November 2014 and is governed by a Trust Deed dated 11 September 2014, is registered with the Capital Markets Authority and is domiciled in Kenya. The address of its registered office is: Sanlam Life House, Kenyatta Avenue, Nairobi. The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. 2 Summary of significant Accounting Policies a) Basis of Preparation The financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The financial statements are presented in Kenya Shillings (KShs), rounded to the nearest thousand. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Fund s accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3. b) Changes in Accounting Policy and Disclosures New and Amended Standards not yet Adopted by the Fund A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2017, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Fund. IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted. The Trustees are of the view that there will be no significant impact on the adoption of IFRS 9. 44

45 Notes to the Financial Statements Notes (Continued) 2 Summary of Significant Accounting Policies (Continued) b) Changes in Accounting Policy and Disclosures (continued) There are no other IFRS or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Fund. c) Revenue Recognition Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Fund and the amount of income can be measured reliably. Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset net the carrying amount on initial recognition. d) Income Tax Expense The fund is subject to withholding tax on interest income from bank deposits and commercial paper at a rate of 15% and dividends received at a rate of 5%. Withholding tax on treasury bonds is 10% for bond with tenures longer than 10 years and 15% otherwise. Infrastructure bonds do not attract withholding tax. e) Cash and Cash Equivalents For the purposes of the statement of cash flows, cash equivalents include short term liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired. f) Financial Instruments Financial Assets Classification A financial asset or liability is recognised when the Fund becomes party to the contractual provisions of the instrument. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Fund has transferred substantially all risks and rewards of ownership. As at the reporting date, the classification of the Fund s financial assets was as follows: Loans and receivables: Other receivables and bank balance Held to maturity: Fixed deposits, call deposits and commercial paper The Fund determines the appropriate classification of its financial assets at initial recognition. (i) Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Fund provides money, goods or services directly to a debtor with no intention of trading the receivable. These assets are carried at amortised cost. 45

46 Notes to the Financial Statements Notes (Continued) 46 2 Summary of Significant Accounting Policies (Continued) f) Financial Instruments (continued) Financial assets (continued) Classification (continued) (ii) Held-to-maturity Held-to-maturity investments are nonderivative financial assets with fixed or determinable payments and fixed maturities that management has the positive intention and ability to hold to maturity. Where a sale occurs other than for an insignificant amount of held-to-maturity assets, the entire category would be tainted and classified as available for sale. Impairment and Uncollectability of Financial Assets The Fund assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the a6sset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed either directly or by adjusting an allowance account. The reversal does not result in a carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal is recognised in profit or loss. Financial Liabilities Financial liabilities are initially recognised at fair value and subsequently measured at amortised cost. Financial liabilities are derecognised when they have been redeemed or otherwise extinguished. Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. f) Functional and Presentational Currency and Translation of Foreign Currencies Functional and Presentation Currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the Functional Currency ). The financial statements are presented in Kenyan Shillings (KShs) rounded to the nearest thousand, which is the Fund s presentation currency. Transactional Balances Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

47 Notes to the Financial Statements Notes (Continued) 2 Summary of Significant Accounting Policies (continued) f) Functional and Presentational Currency and Translation of Foreign Currencies (continued) Transactional Balances (continued) Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in profit or loss within finance income or cost. All other foreign exchange gains and losses are presented in profit or loss within other income or other expenses. g) Distribution All income or loss arising from investment is distributed to unit holders after provision of all expenses. All distributions including unclaimed distributions are reinvested in the unit holder s accounts. h) Unit Holder Balances Unit holders funds are redeemable on demand at an amount equal to a proportionate share of the unit portfolios net asset value. The balances are carried at the redemption amount that is payable at the financial reporting date if the holder exercised their right to redeem the balances. 3 Critical Judgement in Applying the Fund s Accounting Policies In the process of applying the Fund s accounting policies, management has made estimates and judgements in valuation of financial instruments as discussed in note 2(f). Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 4 Financial Risk Management Objectives and Policies The Fund generates revenues for the members by investing in various income generating activities which involve trading in the commercial paper. These activities expose the Fund to a variety of financial risks, including credit risk and the effects of changes in market dynamics. The Trust Deed sets out the investment policy and management of the Fund s assets to minimise potential adverse effects on its financial performance. Risk management is carried out by the Fund Manager, Sanlam Investments Limited. The fund manager identifies, evaluates and manages financial risks, with emphasis on specific areas such as interest rate risk, credit risk and investing excess liquidity. The Fund s risk management policies include the use of guidelines governing the acceptance of clients and investment policies are in place which help manage liquidity and seek to maximise return within an acceptable level of interest rate risk. The Capital Markets Authority (CMA) sets out that the book value of the Fund s investments should not exceed the following limits: Listed securities on the Nairobi Stock Exchange 80% Securities issued by the Government of Kenya 80% Immovable property 25% Other collective investment schemes including umbrella schemes 25% Other securities not listed on a securities exchange in Kenya 25% Off-shore investments 10% The Fund had complied with these requirements as at 31 December 2017 and a) Credit Risk Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the Fund. In accordance with the Fund s policy, the Fund Manager monitors the Fund s credit position on a daily basis, and it is reviewed on a quarterly basis by the Fund s Investments Committee. The amount that best represents the Fund s maximum exposure to credit risk at 31 December 2017 and 2016 is made up as follows: 47

48 Notes to the Financial Statements Notes (Continued) 4 Financial Risk Management Objectives and Policies a) Credit Risk (continued) KShs 000 KShs 000 Bank balances 1, Commercial paper 2,743 5,372 Government securities 6,843 5,845 Deposits with financial institutions 13,180 5,660 Other receivables 441 2,552 25,021 19,822 No collateral is held for any of the above assets. All receivables that are neither past due or impaired are within their approved credit limits, and no receivables have had their terms renegotiated. All receivables past due by more than 60 days are considered to be impaired, and are carried at their estimated recoverable value. b) Liquidity Risk Liquidity risk is the risk that the Fund will not be able to meet its financial obligations when they fall due. The Fund s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due without incurring unacceptable losses or at the risk of damaging the Fund s reputation. The Fund is exposed to daily withdrawal of funds by investors. The Fund maintains cash balances to meet all of these needs as experience shows that a certain amount of withdrawals are requested daily and can be predicted with a high level of certainty. Management closely monitors the proportion of maturing funds available to meet such calls and on the minimum level of funds that should be in place to cover withdrawals at unexpected levels of demand. c) Market risk (i) Cash Flow and Fair Value Interest Rate Risk The Fund s interest bearing financial assets are commercial papers, government securities and deposits with financial institutions, which are at fixed rate, and on which it is therefore not exposed to cash flow and interest rate risk. The Fund Manager regularly monitors financing options available to ensure optimum interest rates are obtained. (ii) Foreign Exchange Risk As at 31 December 2017 and 2016, the fund had no exposure to foreign exchange risk. 48

49 Notes to the Financial Statements Notes (Continued) 4 Financial Risk Management Objectives and Policies (continued) d) Fair value estimation Determination of Fair Value and Fair Value Hierarchy IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Fund s market assumptions. These two types of inputs have created the following fair value hierarchy: Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes debt instruments on exchanges Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) Level 3 Inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components. This hierarchy requires the use of observable market data when available. The Fund considers relevant and observable market prices in its valuations where possible There were no transfers between the levels in the period. The following table presents the Fund s assets and liabilities that are measured at fair value at 31 December 2017 and Level 1 Level 2 Level 3 Total KShs 000 KShs 000 KShs 000 KShs December 2017 Investment in government securities 6, ,843 Commercial paper - 2,743-2,743 Investment in quoted shares 9, ,322 Total assets 16,165 2,743-18, December 2016 Investment in government securities 5, ,845 Commercial paper - 5,372-5,372 Investment in commercial paper 2, ,000 Total assets 7,845 5,372-13,217 49

50 Notes to the Financial Statements Notes (Continued) 4 Financial Risk Management Objectives and Policies (continued) d) Fair Value Eestimation (continued) The fair value of financial instruments traded in active markets is based on quoted market prices at the statement of financial position date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm s length basis. The quoted market price used for financial assets held by the Fund is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily NSE equity investments classified as trading securities or at fair value through comprehensive income. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. e) Capital Management The capital of the Fund is represented by unit holders balances. The amount of unit holder liabilities can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unit holders. The Fund s objectives when managing capital are to safeguard the Fund s ability to continue as a going concern in order to provide returns for unit holders. 5 Interest and Dividend Income KShs 000 KShs 000 Interest income 2,573 1,754 Dividend income ,541 1,879 6 Operating Expenses 2017 Kshs Kshs 000 Custodial Management fees Bank charges

51 Notes to the Financial Statements Notes (Continued) 7 Taxation The unit trust is registered under the Income Tax Act (Collective Investment Scheme Rules 2002) and is exempt from income tax. The tax charge in 2017 and 2016 relates to tax withheld at a rate of 15% for interest income and 5% for dividend income. On 11 September 2009, KRA issued a public notice requiring the Fund to withhold tax on distributions. 8 Investments (i) Maturity Profile of Investments in the Money Market Up to 3 months 6 & 12 months Due within 1 & 5 years Due after 5 years Totals KShs 000 KShs 000 KShs 000 KShs 000 As at 31 December 2017 Deposits with financial institutions 13, ,180 Commercial paper - 2, ,744 Quoted ordinary shares ,322 9,322 Government securities ,843 6,843 Total 13,180 2,744-16,165 32,089 As at 31 December 2016 Deposits with financial institutions 5, ,660 Commercial paper - 5, ,372 Quoted ordinary shares ,000 2,000 Government securities ,845 5,845 Total 5,660 5,372-7,845 18,877 51

52 Notes to the Financial Statements Notes (Continued) 8 Investments (continued) (ii) Movement in Investments Carrying value at 1 January 2017 Purchases at cost Interest accrued Change in fair value Sales/ maturities Carrying Value at 31 December 2017 KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 Year ended 31 December 2017 Deposits with financial institutions 5,660 25, (18,644) 13,180 Quoted ordinary shares 2,000 37,274 - (102) (29,850) 9,322 Government securities 5, (239) 6,843 Commercial paper 5,372 15, (17,692) 2,744 Total 18,877 79, (102) (66,425) 32,089 Carrying Value at 1 January 2016 Purchases at cost Interest accrued Change in fair value Sales/ maturities Carrying Value at 31 December 2016 KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 KShs 000 Year ended 31 December 2016 Deposits with financial institutions 3,653 1, ,660 Quoted ordinary shares - 13, (11,345) 2,000 Government securities 3,711 24, (23,035) 5,845 Commercial paper 5,054 3, (3,005) 5,372 Total 12,418 43, (37,385) 18,877 9 Unit Holders Funds No. of Units 2017 Value No. of Units 2016 Value 000 KShs KShs 000 At start of the year 1,537 19,766 1,259 13,358 Creations 1,911 27, Liquidations (1,026) (17,964) (200) (10,666) Total comprehensive income 4,609-2,216 At end of the year 2,422 33,502 1,537 19,766 52

53 Notes to the Financial Statements Notes (Continued) 10 Other Payables KShs KShs 000 Management fees payable to Sanlam Investments 68 2,056 Limited Income distribution payable , Related Party Transaction Sanlam Balanced Fund is managed by Sanlam Investments Limited. Sanlam Investments Limited is controlled by Sanlam Kenya Plc incorporated in Kenya. The Fund transacts with other entities and divisions within Sanlam Kenya Plc. Balances due to related companies have been disclosed under note 11. During the year, the following transactions were carried out with related parties: a) Unit Holder s Balances KShs 000 KShs 000 Sanlam Kenya Plc 13,735 11,911 b) Management Fees Sanlam Investments Limited Subsequent Events During the year 2017, Sanlam Investments Limited entered into an agreement with Sanlam Investments East Africa Limited (formerly PineBridge Investments) that culminated in the transfer of assets under management from Sanlam Investments Limited ( the Company) to Sanlam Investments East Africa Limited in January The transaction was part of a restructuring exercise to amalgamate all Sanlam asset management businesses under one company in Kenya after the acquisition of PineBridge Investments (now Sanlam Investments East Africa Limited) by Sanlam Emerging Markets Pty Limited. 53

54 Sanlam Dividend Plus Fund 3

55

56 Report of the Trustee The Trustee has the pleasure in submitting the Sanlam Dividend Plus Fund (the Fund ) report together with the audited financial statements for the year ended 31 December Establishment, Nature and Status of the Fund The Fund was established, and is governed by a Trust Deed dated 11 September 2014 as a dividend plus Fund. The Fund is registered with the Capital Markets Authority and approved under the Income Tax Act. The Fund suffers withholding tax on interest income and dividends. The primary objective of the Fund is to create long term wealth for investors with reinvestment of income cash flows. The Fund is a unit trust and the interest of the individual members is determined by the value of their units. It is administered by the Trustee who is responsible for its affairs. It is an approved collective investment scheme within the meaning of the Capital Markets Act and the holders are not liable for the debts of the Fund. Changes to Incorporation Documents There were no changes made to the incorporation documents (Prospectus, Trust Deed and Rules of the Fund) during the year. Income Distribution The profit for the year of KShs. 52,977,000 (2016: KShs. 6,820,000) has been distributed to the unit holders by reinvestment in the Fund. Investment Under the terms of their appointment Sanlam Investments Limited are the Fund Managers and support the Trustee in the investment decisions. The overall responsibility for investment and performance lies with the Trustee. Fund Perfomance The highest and lowest bid prices during the year were KShs (2016: KShs ) and KShs (2016: KShs. 9.36) respectively. Total Value of the Fund The market value of the Fund as at 31 December 2017 was KShs. 16,179,000 (2016: KShs. 309,551,000). Auditor The Fund s auditor, PricewaterhouseCoopers, has indicated their willingness to continue in office. Signed on behalf of the Trustee 28 th March,

57 Statement of Trustee s Responsibilities The Kenyan Capital Markets Act requires the Trustee to prepare financial statements for each financial year which give a true and fair view of the financial position of the Fund at the end of the financial year and its financial performance for the year then ended. The Trustee is responsible for ensuring that the Fund keeps proper accounting records that are sufficient to show and explain the transactions of the Fund, disclose with reasonable accuracy at any time the financial position of the Fund and that enables them to prepare financial statements of the Fund that comply with prescribed financial reporting standards and the requirements of the Kenyan Capital Markets Act. They are also responsible for safeguarding the assets of the Fund and for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Trustee accepts responsibility for the preparation and presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Capital Markets Act. They also accept responsibility for: i. Designing, implementing and maintaining internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error; ii. Selecting suitable accounting policies and then apply them consistently; and iii. Making judgements and accounting estimates that are reasonable in the circumstances. In preparing the financial statements, the Trustee has assessed the Fund s ability to continue as a going concern and disclosed, as applicable, matters relating to the use of going concern basis of preparation of the financial statements. Nothing has come to the attention of the Trustee to indicate that the Fund will not remain a going concern for at least the next twelve months from the date of this statement. The Trustee acknowledges that the independent audit of the financial statements does not relieve them of their responsibility. Approved by the Trustee on 28 th March, 2018 and signed on its behalf by: Representing Trustee 28 th March,

58 Report of Fund Manager Dear Unit Holder, The Fund s objective is to provide a periodic cash flow income while ensuring moderate capital growth of the Fund. The Fund maintains a medium risk profile relative to the Balanced Fund. The Dividend Fund had a considerable return of 15.4% over 12 months in the year Nonetheless, the Fund performance lagged the fixed income and local equities benchmarks return which equally returned 16.5% on the NSE 20 Index and the FTSE Government Index during the same period. The Fund s cash cycle did not favor stock picking activity and hence could not fully capitalise on the local equity market gain attained during the year. However, we are confident that the Fund s 3-year return has significantly outpaced the equity market and its underlying benchmarks over the 3-year period. We aim to increase the domestic equities and treasury bonds exposure in 2018 in a bid to increase the Fund s overall return. We have an optimistic view of the economic outlook for 2018 coming from a year of heightened political activity and a slowdown in private sector credit which formed the backdrop of a bleak economic environment in This is vividly noted by the weak GDP growth rate recorded in Quarter 3 of 4.4% which was a considerable drop from 5.6% during a similar period in Bond assets had a positive performance on the back of lower interest rate levels compared to the year The secondary market turnover was upbeat as investors were keen to add exposure on government securities during this period. Given the aggressive domestic debt budget that the Treasury is expecting to pick for the fiscal year 2018, we aim to participate in primary auctions to pick up on attractive yields going in The FTSE Government Index gained 16.5% during the year on the back of a downward shift of the yield curve at the close of this year. We continue to take opportunity in the medium tenor to avoid interest volatility and take advantage of attractive yields as the fiscal year progresses. The equities return was strong attributed to renewed investor demand in the 2 nd half of 2017 despite bouts of weakness evident during the election season. Banking sector stocks experienced significant demand during Quarter 4 even as most banks reported weak single digit earnings on Quarter 3 results. We intend to pick up exposure on banks that have high asset quality businesses especially as the IFRS 9 Standards are expected to be implemented locally in We will also maintain our strategy to pick up on stocks that have the capacity to generate strong cash flows in the medium term notwithstanding the slow paced local economy. The NSE 20 Index lost 1.1% during Quarter 4 but gained 16.5% for the year 2017 marking a stellar performance. 58

59 Report of Fund Manager Fund Performance as at 31 December % 15.00% 15.40% 16.40% 14.10% 10.00% 5.00% 7.20% 0.00% 12 Months 3 Months Portfolio Benchmark Fund Allocation as at 31 December 2017 Asset Allocation 9% Cash & Call Deposits 31% 29% Commercial Papers Corporate Bonds Govt Bonds 25% Equities 6% Signed on behalf of the Fund Manager 28 th March,

60 Report of the Custodian In accordance with the Capital Markets (Collective Investment Schemes) Regulations, 2001 (the Regulations) and the Custody Agreement between Stanbic Bank Kenya Limited as the Custodian and Sanlam Investments Limited as the Fund Manager, we confirm that: a) We have discharged the duties prescribed for a Custodian under Regulation 35 of the Regulations, to the Sanlam Dividend Plus Fund; b) The issue, sale, redemption and cancellation and calculation of the price of the Fund s units and the application of the Fund s income have been carried out in accordance with the Regulations; and c) The investment and borrowing powers and restrictions applicable to the Fund in accordance with the Regulations and the documents of incorporation have not been exceeded. For the year ended 31 December 2017, we have held the assets of the Fund, which include title deeds, securities and income that accrue thereof, to the order of the Fund Manager and facilitated the transfer, exchange or delivery in accordance with the instructions received from the Fund Manager. In our opinion, the Fund Manager has in all material respects managed the Fund in accordance with the provisions of the Capital Markets (Collective Investment Schemes) Regulations, 2001, incorporation documents, the information memorandum and the rules of the collective investment scheme. Signed on behalf of the Custodian 28 th March,

61 Independent Auditor s Report To the Unit Holders of Sanlam Dividend Plus Report on the Financial Statements Opinion We have audited the accompanying financial statements of Sanlam Dividend Plus Fund (the Fund ) set out on pages 10 to 24 which comprise the statement of financial position at 31 December 2017 and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended and the notes to the financial statements, which include a summary of significant accounting policies. In our opinion, the financial statements give a true and fair view of the financial position of the Fund at 31 December 2017 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Kenya and we have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information The Trustee is responsible for the other information. The other information comprises the information included in the annual report but does not include the financial statements and our auditor s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If based on the work we have performed on the other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Trustee for the Financial Statements The Trustee is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and the requirements of Capital Markets Authority (Collective Investments Schemes) Regulations 2001 and for such internal controls as the Trustee determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 61

62 Independent Auditor s Report To the Unit Holders of Sanlam Dividend PlusFund (Continued) Responsibilities of the Trustee for the Financial Statements (continued) In preparing the financial statements, the Trustee is responsible for assessing the Fund s ability to continue as a going concern disclosing, as applicable matters related to going concern and using the going concern basis of accounting unless the Trustee either intends to liquidate the Fund or to cease operations, or have no realistic alternative but to do so. The Trustee is responsible for overseeing the Fund s financial reporting process. Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal controls Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Trustees Conclude on the appropriateness of the Trustee s use of the going concern basis of accounting and based on the audit evidence obtained whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Fund to cease to continue as a going concern Evaluate the overall presentation, structure and content of the financial statements, including the disclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation We communicate with the Trustee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit. 62

63 Independent Auditor s Report To the Unit Holders of Sanlam Dividend PlusFund (Continued) Report on Other Legal Requirements We confirm that the financial statements have been properly prepared in accordance with the Capital Markets Authority (Collective Investment Schemes) Regulations, The Capital Markets Authority (Collective Investment Schemes) Regulations, 2001 also requires that in carrying out our audit, we consider and report to you on the following matters: If the auditor is of the opinion that proper accounting records for the collective investment scheme have not been kept or that the accounts are not in agreement with those records; If the auditor has not been given all the information and explanation which, to the best of his knowledge and belief, are necessary for the purpose of his audit; or If the auditor is of the opinion that the information given in the report of the Fund Manager for that period is inconsistent with the accounts. We confirm that there are no matters to report in respect of the foregoing requirements. The engagement partner responsible for the audit resulting in this independent auditor s report is CPA Kang e Saiti Practising Certificate No Certified Public Accountants Nairobi 28 th March,

64 Financial Statements Statement of Comprehensive Income Notes KShs 000 KShs 000 Interest and dividend income 5 73,580 2,640 Income adjustment due to creations and liquidations of units (3,600) 4,676 Total income 69,980 7,316 Operating expenses 6 (10,901) (496) Profit before income tax 59,079 6,820 Income tax expense 7 (6,102) - Profit for the year 52,977 6,820 Other comprehensive income - - Total comprehensive income for the year 52,977 6,820 The notes on pages 14 to 24 are an integral part of these financial statements. 64

65 Financial Statements Statement of Financial Position Notes KShs 000 KShs 000 ASSETS Bank balances 1,299 27,274 Deposits with financial institutions 8(ii) ,410 Commercial paper 8(ii) 4,784 98,773 Corporate bonds 8(ii) 6, ,700 Government securities 8(ii) 1,189 1,214 Quoted ordinary shares 8(ii) 6,160 1,542 Other receivables Total assets 20, ,649 Liabilities Payables and other accruals 4,514 20,098 NET ASSETS 16, ,551 EQUITY Unit holder funds 16, ,551 The notes on pages 14 to 24 are an integral part of these financial statements. The financial statements on pages 10 to 24 were approved for issue by the Trustee on 28 th March, 2018 and signed on its behalf by: Representing Trustee Representing Trustee Abraham Ongenge Name Name 65