BRITISH-AMERICAN BALANCED FUND

Transcription

1 BRITISH-AMERICAN BALANCED FUND ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

2 Annual Reports and TABLE OF CONTENTS Page No Trustee and advisors to the fund 1 Trustee s report 2 Statement of trustee s responsibilities 3 Fund manager s report 4-6 Asset allocation 7 Report of the custodian 8 Report of the independent auditor 9-10 Financial statements: Statement of comprehensive income 11 Statement of financial position 12 Statement of changes in equity 13 Statement of cash flows 14 Notes to the financial statements 15-27

3 Trustee and Advisors to the Fund FUND MANAGER British-American Asset Managers Limited Britam Centre Junction of Mara & Ragati Roads 5 th Floor, Upper Hill P.O. Box 30375, Nairobi, Kenya TRUSTEE Kenya Commercial Bank Limited, Piedmont Plaza, Opp. Kenya Science, Ngong Road P.O. Box Nairobi, Kenya CUSTODIAN Standard Chartered Bank of Kenya Limited Standard Chartered Securities Services Kenya Standard Chiromo, Level 5 48 Westlands Road P O Box 40984, Nairobi, Kenya AUDITOR PricewaterhouseCoopers PwC Tower, Waiyaki Way/Chiromo Road P.O. Box 43963, Nairobi, Kenya LAWYERS Daly & Figgis Advocates ABC Place Waiyaki Way P.O. Box 40034, Nairobi, Kenya 1

4 Trustee s Report The Trustee submits its report together with the audited financial statements for the year ended 31 December 2014 that disclose the state of affairs of ( the Fund ). INVESTMENT OBJECTIVES The objective of the is to achieve a reasonable level of current income and enhance capital growth. This is achieved by investing in a diversified spread of shares and fixed income securities. The Fund will have a bias towards equities offering long term value. The key investment philosophies for the are: To maintain a balanced and optimal portfolio by investing in shares of companies with strong potential of growth and fixed income instruments with attractive yields. To achieve its performance objectives through well-researched and superior share selection. To invest in quality businesses diligently selected based upon attractive long-term fundamentals. CHANGES TO THE INCORPORATION DOCUMENTS There were no changes made to the incorporation documents (Prospectus, Trust Deed and Rules of the fund) during the year. FUND PERFORMANCE The highest and the lowest bid prices during the period were Shs and Shs respectively (2013: and Shs INCOME DISTRIBUTION The profit for the Fund as at 31 December 2014 was Shs 210,998,000 (2013: Shs 341,853,000) and has been distributed to the unit holders. TOTAL VALUE OF THE FUND The market value of the fund as at 31 December 2014 was Shs 2,012,645,000 (2013: Shs 1,831,762,000). AUDITOR The Fund s auditor, PricewaterhouseCoopers, have indicated their willingness to continue in office. By order of the Trustee Kenya Commercial Bank Limited

5 Statement of Trustee s Responsibilities The Capital Markets Act requires the Trustee to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Fund as at the end of the year and of the results of its operations. It also requires the Trustee to ensure that the fund manager keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Fund. The Trustee is also responsible for safeguarding the assets of the fund. The Trustee accepts responsibility for the annual financial statements, which have been prepared using appropriate accounting policies in conformity with International Financial Reporting Standards and the requirements of the Capital Markets Act. The Trustee is of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Fund and of its operating results. The Trustee further accepts responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement. DECLARATION STATEMENT The is an approved Unit Trust within the meaning of the Capital Markets Act; The unit-holders are not liable for the debts of the Unit Trust; The is a securities fund investing mainly in the Nairobi Securities Exchange and government securities in Kenya. Funds may be invested in the demand deposits in the short term as decisions on the stock market are made. Nothing has come to the attention of the Trustee to indicate that the fund will not remain a going concern for at least twelve months from the date of this statement. By order of the Trustee Kenya Commercial Bank Limited

6 Fund Manager s Report Dear Unit Holder, The fundamental investment objective of the is to achieve both high level of current income and offer investors long term capital growth. In order to achieve this objective, we invest in a diversified spread of equities and fixed income securities of quality businesses based in Kenya and the region. Typically, the Fund s equity weighting ranges between 40-60% depending on market opportunities, with the balance held in fixed income and cash. The Fund is biased towards equities offering long term value and invests offshore as a hedge against long-term inflation. British-American Asset Managers Limited has an investment philosophy that ensures the Fund maintains a balanced and optimal portfolio. The fixed income portion of the Fund provides stability during volatile years in the markets. The equity portion is invested in companies with quality businesses which are trading at attractive valuations. We actively monitor and invest in companies that match our criteria: namely, consistent financial performance, specialized competitive advantage, positive earnings outlook and sound management. The year 2014 was characterized by increased insecurity concerns as frequent Al Shabaab attacks and communal clashes across the Coastal and Northern regions eventually culminating into a reshuffle in the Security docket with the Cabinet Secretary for Interior Security and the police Inspector General having their careers among the casualties. The last quarter of the year also saw the ICC drop all its charges against the sitting President Uhuru Kenyatta. While the announcement did nothing to assuage diplomatic relations with Western nations, the developments pointed to a more stable political and macroeconomic environment going forward. The macroeconomic environment remained stable in 2014 albeit experiencing lower economic growth than observed in the previous year. The overall stable macroeconomic environment highlighted the economy s resilience in the face of various internal and external shocks ranging from depressed global commodity prices, insecurity concerns, strong dollar and declining capital flows to emerging and frontier economies. The rebasing of the country s GDP in September 2014 helped better capture the economy s true size; leading to a 25% upward revision in the GDP figures of 2013 from USD 44.1bn to USD 55.2bn placing the country among the top 10 economies in the African continent. Other than the rebasing exercise (changing the country s base year from 2001 to 2009) 2014 also saw the maiden issue of Kenya s Eurobond raising USD 2bn and subsequent reopening of USD 0.75bn with the bulk of the funds earmarked for infrastructure spending. Kenya s economy is estimated to have grown by 5.5% in the third quarter of 2014 compared to a 6.2% increase observed in a similar period in The slower growth was attributable to the small advances observed in the agricultural sector during the first part of the year and the contracting tourism industry as the high levels of insecurity continue to negatively affect the 4

7 Fund Manager s Report sector. Matters of security and its effects on Kenya s economy continue to be a key concern for businesses, the government and the general public. Nevertheless the resilience of various sectors particularly the construction; and finance and insurance sectors continue to offset the adverse effects of the security threats. Inflation maintained a downward trend throughout 2014 with the exception of the months of May- August where it rose due to the base effect arising from 2013 and an increase in food, fuel and electricity prices in the period. Inflation has since come down driven mainly by the plummeting global oil prices, the introduction of cheaper geothermal energy into the grid and favourable weather conditions kept food prices at bay. Inflation is expected to remain stable, moving towards the Central Bank s target of 5% largely influenced by the low global oil prices. The interest rate environment remained relatively low and stable as the Central Bank maintained its policy rate at 8.5% throughout the year in an effort to stimulate economic growth. The regulator also introduced the Kenya Bankers Reference Rate (KBRR) in a bid to increase transparency among banks and lower the cost of borrowing. The 91 day Treasury bill declined from highs 9.26% observed in January 2014 to 8.57% as at the end of December while the commercial bank lending rates stabilized at 15.86% by the end of the year. The Kenya shilling depicted mixed performance against major international currencies in the year, strengthening against the Sterling Pound, Japanese Yen, Euro and weakening gradually to the USD. The Central Bank of Kenya s (CBK) liquidity management and Foreign Direct Investments into both capital markets and private sector offered support to the Shilling in a year where traditional hard currency sources were underperforming with the Shilling shedding 4.6% to the USD. Low commodity prices saw declining earnings from the tea sector, insecurity concerns and travel advisories led to poor performance from the tourism sector as a strong dollar in the year hammered most emerging market currencies. Going forward we expect the Shilling to continue facing downward pressure given growing demand from importers for capital and infrastructure projects, but a more gradual depreciation is expected supported by CBK intervention. The Nairobi Securities Exchange (NSE) continued its bullish trend pushing it to a 3-year consecutive rally in line with our expectations of continued vibrant performance in the bourse. The NSE 20 index gained 3.8% in the year while the Nairobi All Share Index (NASI) gained 19.5%. The rally was driven by increased corporate earnings in the year, attractive valuations for companies listed on the exchange with foreigners remaining as the main players in the market although their performance was underscored by net outflows Our investment team employed a cautious strategy, investing in high quality stocks as we increased exposure to equities. As at the end of the year, the Fund s holdings represented 28% invested in listed shares, 15% in alternative investments and 57% in fixed income including government securities, corporate securities and deposits with financial institutions. To improve 5

8 Fund Manager s Report risk adjusted return through diversification, the fund also invested in offshore, local funds and property. During the year, the Fund generated a net return of 17.9% against a return of 13.0% on a blended benchmark of the NSE 20-share Index and the average yield from the 91 day Treasury bill. Going forward, we believe that a stable macroeconomic environment, low inflation and stable interest rates and trickle down benefits of large infrastructure investment in the country are all supportive of corporate earnings growth in We also expect increased capital raising initiatives at the bourse which will only serve to grow and deepen our capital markets. We expect to see a more vibrant bourse in 2015, across all asset classes with equities performance expected to remain vibrant in the year while fixed income securities will continue to offer a hedge for the expected volatility. We thank you for your choice of investing in to maximize your returns in the medium to long-term. The team at British-American Asset Managers Limited looks forward to working closely with you in meeting and exceeding your financial and investment objectives. We extend our best wishes for Yours sincerely, On behalf of the Fund Manager 6

9 Asset Allocation Asset Allocation Structure: Asset Allocation Call Deposits 2% Fixed Deposits 1% Corporate Bonds 7% Local Equities 28% Local Funds 10% Property 10% Regional Equities 2% Treasury Bonds 35% Offshore Funds 5% 7

10 Report of the Custodian a) In accordance with the Capital Markets (Collective Investments Schemes) Regulations, 2001 (the regulations) and the Custody Agreement between Standard Chartered Securities Services Kenya as the Custodian and British-American Asset Managers as the Fund Manager, we confirm that we have discharged the duties prescribed for a Custodian under Regulation 35 of the regulations to., we have held the assets for the British-American Balanced Fund, including 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. b) We confirm having effected the sale, redemption and cancellation of units in accordance with the creation/liquidation instructions received from the Fund Manager. By order of the Custodian Standard Chartered Securities Kenya

11 REPORT OF THE INDEPENDENT AUDITOR TO THE UNIT HOLDERS BRITISH-AMERICAN BALANCED FUND Report on the financial statements We have audited the accompanying financial statements of the (the Fund ) set out on pages These financial statements comprise the statement of financial position at 31 December 2014, and the statement of comprehensive income, statement of changes in equity and a statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Trustee s responsibility for the financial statements The trustee is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and with the requirements of the Capital Markets Authority (Collective Investment Schemes) Regulations, 2001 and for such internal control as the trustee determines necessary to enable preparation of financial statements that are free from material misstatements, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the trustees, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion the accompanying financial statements give a true and fair view of the Fund s financial position at 31 December 2014 and of its profit and cash flows for the year then ended in accordance with International Financial Reporting Standards. PricewaterhouseCoopers CPA. PwC Tower, Waiyaki Way/Chiromo Road, Westlands P O Box Nairobi, Kenya T: +254 (20) F: +254 (20) Partners: A Eriksson K Muchiru M Mugasa F Muriu P Ngahu A Njeru R Njoroge B Okundi K Saiti R Shah

12 REPORT OF THE INDEPENDENT AUDITOR TO THE UNIT HOLDERS BRITISH-AMERICAN 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 - P/No Certified Public Accountants Nairobi

13 Statement of comprehensive income Year ended 31 December Notes Shs 000 Shs 000 Income Interest and dividend income 5 129, ,761 Realised gains on investments 6 54, ,367 Fair value gains on investments at fair value through profit or loss 9(iii) 114, ,022 Total income 298, ,150 Expenses Management fees (71,175) (77,475) Audit fees (216) (254) Trustee fees (3,597) (3,177) Custody fees (4,653) (4,131) Annual general meeting fees (142) (142) Licence fees (43) (43) Total expenses 7 (79,826) (85,222) Profit before income tax 218, ,928 Income tax expense 8 (7,504) (9,075) Profit for the year 210, ,853 Other comprehensive income net of tax Items that will not be re-classifiable to profit or loss Fair value gains on investments at fair value through other comprehensive income 9(iii) 21,458 6,982 Total comprehensive income for the year 232, ,835 The notes on pages 15 to 27 are an integral part of these financial statements. 11

14 Statement of financial position As at 31 December Notes Shs 000 Shs 000 Assets Financial assets at fair value through other comprehensive income: - government securities 9(iii) 708, ,224 - corporate securities 9(iii) 143, ,042 Financial assets at fair value through profit or loss: : or - loss offshore funds: 9(iii) 93,966 88,984 - quoted ordinary shares 9(iii) 616, ,942 - unit trusts 9(iii) 33,783 32,182 - other funds 9(iii) 370,826 71,316 Other receivables Deposits with financial institutions 9(iii) 50, ,329 Units Bank trusts and cash balances 8,977 4,268 Total assets 2,025,788 1,840,287 Equity Unit holders balances 10 1,983,054 1,823,629 Fair value reserves 29,591 8,133 2,012,645 1,831,762 Liabilities Current liabilities 11 13,143 8,525 Total equity and liabilities 2,025,788 1,840,287 The notes on pages 15 to 27 are an integral part of these financial statements. The financial statements on pages 11 to 27 were approved for issue by the Trustee on 2015 and signed on its behalf by: Trustee 12

15 Statement of changes in equity Notes Unit holder Fair value Total balances gains/(losses) Shs 000 Shs 000 Shs 000 Balance at 1 January ,443,389 1,151 1,444,540 Profit for the year 341, ,853 Other comprehensive income Fair value gains on financial assets at fair value through OCI 9(iii) - 6,982 6,982 Total comprehensive income 341,853 6, ,835 Transactions with unit holders Additional units purchased , ,124 Units liquidated 10 (82,737) - (82,737) Total transactions with unit holders 38,387-38,387 Balance at 31 December ,823,629 8,133 1,831,762 Balance at 1 January ,823,629 8,133 1,831,762 Profit for the year 210, ,998 Other comprehensive income Fair value gains on financial assets at fair value through OCI 9(iii) - 21,458 21,458 Total comprehensive income 210,998 21, ,456 Transactions with unit holders Transactions Additional units with purchased unit holders , ,784 Units liquidated 10 (445,357) (445,357) - Total transactions with unit holders (51,573) (51, 573) Balance at 31 December ,983,054 29,591 2,012,645 The notes on pages 15 to 27 are an integral part of these financial statements. 13

16 Statement of cash flows Year ended 31 December Notes Shs 000 Shs 000 Cash flows from operating activities Service fees paid (74,627) (79,248) Purchase of deposits with financial institutions (40,000) (88,800) Investment in government securities 9(iii) (451,091) (803,358) Purchase of quoted ordinary shares 9(iii) (312,106) (165,494) Purchase of unit trusts 9(iii) - (81,243) Purchase of other funds 9(iii) (308,031) (68,119) Purchase of corporate bond 9(iii) (53,298) (62,381) Tax paid (7,511) (9,521) Interest and dividends received 180, ,329 Proceeds from sale of investments 1,100,662 1,020,186 Net cash generated from/(used in) operating activities 34,289 (126,649) Cash flows from financing activities Net contribution from unit holders 392, ,981 Liquidations by unit holders 10 (445,357) (82,737) Net cash (used in)/generated from financing activities (52,440) 39,244 Net decrease in cash and cash equivalents (18,151) (87,405) Movement in cash and cash equivalents At start of year 37, ,700 Decrease (18,151) (87,405) Cash and cash equivalents at end of year 9(iv) 19,144 37,295 The notes on pages 15 to 27 are an integral part of these financial statements. 14

17 Notes 1 General information The fund started operations on 1 July The fund is governed by a Trust Deed dated 7 th June 2005, is registered under the Capital Markets Authority Act and is domiciled in Kenya. The address of its registered office is: Britam Centre Junction of Mara and Ragati Roads Upper Hill Nairobi 2 Summary of significant accounting policies 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. (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 Kenyan Shillings (Shs), 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 the trustee to exercise its judgement in the process of applying the Fund s accounting policies. There are no areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, other than the tax status of the Fund as explained in Note 7. Changes in accounting policy and disclosures (i) New and amended standards adopted The following standards have been adopted by the Fund for the first time for the financial year beginning on or after 1 January 2014 and have a material impact on the Fund: Amendment to IAS 32, Financial instruments: Presentation on offsetting financial assets and financial liabilities. This amendment clarifies that the right of set-off must not be contingent on a future event. It must also be legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment did not have a significant effect on the Fund financial statements. Amendments to IAS 36, Impairment of assets, on the recoverable amount disclosures for nonfinancial assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13. IFRIC 21, Levies, sets out the accounting for an obligation to pay a levy if that liability is within the scope of IAS 37 Provisions. The interpretation addresses what the obligating event is that gives rise to pay a levy and when a liability should be recognised. The Fund is not currently subjected to significant levies so the impact on the Fund is not material. Other standards, amendments and interpretations which are effective for the financial year beginning on 1 January 2014 are not material to the Fund. 15

18 Notes (continued) 2 Summary of significant accounting policies (continued) (a) Basis of preparation (continued) Changes in accounting policy and disclosures (continued) (ii) New standards and interpretations not yet adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014, 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, except the following set out below: IFRS 15, Revenue from contracts with customers deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 Revenue and IAS 11 Construction contracts and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted. The Fund is assessing the impact of IFRS 15. 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. (b) Foreign currency translation (a) 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 Kenya Shillings ( Shs ), rounded to the nearest thousand which is the Fund s Functional Currency. (b) Transactions and balances Foreign currency transactions are translated into the Functional Currency of the respective entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at yearend exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. (c) Revenue recognition Interest income is recognised on a time proportion basis that takes into account the effective yield on the asset. Dividends are recognised as income in the period in which the right to receive payment is established. 16

19 Notes (continued) 2 Summary of significant accounting policies (continued) (d) Financial assets The trustees assessed the financial assets and financial liabilities held by the Fund at the date of initial application of IFRS 9 (1 January 2013). i) Classification of financial assets As from 1 January 2013, the Fund classifies its financial assets in the following measurement categories: those at measured fair value and those measured at amortised cost. This classification depends on whether the financial asset is a debt or equity investment. a. Debt investments Financial assets at amortised cost A debt investment is classified as amortised cost only if both of the following criteria are met: the objective of the fund s business model is to hold the asset to collect the contractual cash flows; and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. The nature of any derivatives embedded in the debt investment are considered in determining whether the cash flows of the investment are solely payments of principal and interest on the principal outstanding and are not accounted for separately. The Fund s investments in deposits with financial institutions and other receivables are classified in this category. The Fund s assets in this category were Shs 50,609,000 as at the reporting date of December 2014 (December 2013: Shs 125,304,000). Financial assets at fair value If either of the two criteria above are not met, the debt instrument is classified as fair value through other comprehensive income. The Fund s investments in government securities and corporate bonds are classified in this category. The Fund s assets in this category at the end of the year were Shs 851,612,000 (2013:sh 714,266,000) The group has not designated any debt investment as measured at fair value through profit or loss to eliminate or significantly reduce an accounting mismatch b. Equity investments All equity investments are measured at fair value. Equity investments that are held for trading are measured at fair value through profit or loss. For all other equity investments, the fund can make an irrevocable election at initial recognition to recognize changes in fair value through other comprehensive income rather than profit or loss. The Fund s investments in quoted ordinary shares, offshore funds, unit trusts and other funds are classified in this category. The Fund s assets in this category at the end of the year were Shs 1,114,590,000 (2013:sh 996,425,000) 17

20 Notes (continued) 2 Summary of significant accounting policies (continued) (d) Financial assets (continued) ii) Recognition and measurement Regular purchases and sales of financial assets are recognized on the trade date the date on which the Fund commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. At initial recognition, the Fund measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in the income statement. The Fund measures all equity investments at fair value. Dividends from such investments continue to be recognized in profit or loss as long as they represent a return on investment. The group is required to classify all affected debt investments when and only when its business model for managing those assets changes. iii) Impairment of financial assets The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets measured at amortised cost is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. (e) Distribution All income or loss arising from investment is distributed to unit holders after provision for expenses. All distributions including unclaimed distributions are reinvested in the unit holders account. (f) Unit holder balances Unit holders funds are redeemable on demand at an amount equal to a proportionate share of the unit portfolio s 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. 18

21 Notes (continued) 2 Summary of significant accounting policies (continued) (g) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks maturing within three (3) months. 3 Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including experience of future events that are believed to be reasonable under the circumstances. Areas involving a higher degree of judgement or complexity or where assumptions and estimates are significant to the financial statements relate to classification and valuation of assets, determination of whether the assets are impaired and tax status of the Fund as disclosed in note 7. 4 Financial risk management objectives and policies The fund s activities expose it to a variety of financial risks, including credit risk, liquidity risk and the effects of changes in market prices and interest rates. The fund s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on its financial performance. There is no concentration of risk at year end. Risk management is carried out by the Fund Manager, British-American Asset Managers Limited. British-American Asset Managers Limited 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 Securities 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 2014 and

22 Notes (continued) 4 Financial risk management objectives and policies (continued) Market risk (i) Foreign exchange risk The fund is exposed to foreign exchange risk arising from offshore investments in the Uganda Shillings, Rwandan Franc and US Dollar. As at 31 December 2014, if the Shilling had weakened/strengthened by 5% against the US Dollar with all other variables held constant, income available for distribution would have been NIL higher/lower 437,000 (2013: NIL). (ii) Price risk The Fund invests in financial instruments that are subject to price risk. These are monitored closely by the management team to ensure risks are mitigated. As at 31 December 2014, if the Securities Exchange Indexes of all the countries the securities are invested in had increased/decreased by 15% with all other variables held constant and all the funds equity instrument moved according to the historical correlation to the indexes, income available for distribution for the year would have been Shs 92,402,000 higher/lower (2013: Sh. 120,591,000 for an increase/decrease of 15%). (iii) Cash flow and fair value interest rate risk The fund s interest bearing financial assets are corporate bonds, government securities and deposits with financial institutions which are at fixed rate, and which the fund is therefore not exposed to cash flow interest rate risk. The fund manager regularly monitors financing options available to ensure optimum interest rates are obtained. Credit risk The fund is exposed to credit risk, which is the risk that counterparty will be unable to pay amounts in full when they fall due. In accordance with the funds policy, the fund manager monitors the funds 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 2014 and 31 December 2013 is made up as follows: Shs 000 Shs 000 Corporate bonds 143, ,042 Government securities 708, ,224 Deposits with financial institutions 50, ,329 Unit trusts 33,783 32,182 Other receivables Bank and cash balances 8,977 4,268 Other funds 370,826 71,316 Total 1,315, ,361 20

23 Notes (continued) 4 Financial risk management objectives and policies (continued) Credit risk (continued) 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 None of the above assets are past due, past due but not impaired, or impaired. Liquidity risk Liquidity risk is the risk that the Fund may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or can only do so on terms that are materially disadvantageous. The fund is exposed to daily withdrawal of funds by investors. The Fund does not maintain 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 noon a net basis into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. Due on demand Due within 3 months Total Shs 000 Shs 000 Shs 000 As at December 2014 Unit holders balances 1,983,054-1,983,054 Current liabilities - 13,143 13,143 Total 1,983,054 13,143 1,996,197 As at December 2013 Unit holders balances 1,823,629-1,823,629 Current liabilities - 8,525 8,525 Total 1,823,629 8,525 1,832,154 21

24 Notes (continued) 4 Financial risk management objectives and policies (continued) Fair value estimation Effective 1 January 2009, the group adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). 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 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The following table presents the funds assets that are measured at fair value at 31 December As at 31 December 2014 Level 1 Level 2 Level 3 Total Assets Shs 000 Shs 000 Shs 000 Shs 000 Financial asset at fair value through profit or loss: - Quoted equity securities - Offshore funds 616, , ,015 93,966 - Unit trusts - 33,783-33,783 - Other funds , ,826 Financial assets at FVTOCI - Government securities - 708, ,405 - Corporate bonds - 143, ,207 Total assets 616, , ,826 1,966,202 As at 31 December 2013 Level 1 Level 2 Level 3 Total Assets Shs 000 Shs 000 Shs 000 Shs 000 Financial asset at fair value through profit or loss: Quoted Ordinary Shares 803, ,942 - Offshore Funds - 88,984-88,984 - Unit trusts - 32,182-32,182 - Other funds ,316 71,316 Financial assets at FVTOCI: - Government securities - 539, ,224 - Corporate bonds - 175, ,042 Total assets 803, ,432 71,316 1,710,690 22

25 Notes (continued) 4 Financial risk management objectives and policies (continue) Fair value estimation (continued) The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet 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 group is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily Nairobi Securities Exchange equity investments classified as trading securities or at fair value through other comprehensive income. The fair value of financial instruments that are not traded in an active market (for example, unit trusts and offshore shares 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. The Fund did not have any instruments included in level 3 in 2014 (2013: Nil). 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 Shs 000 Shs 000 Interest income 106,833 93,175 Dividend income 22,692 21, , ,761 6 Realized gains on investments Shs 000 Shs 000 Realised gains on equities 54,773 87,910 Realised loss on treasury bonds (5) 14,457 Realised loss on corporate bonds (49) - 54, ,367 23

26 Notes (continued) 7 Service fees The management fees relate to service fees paid to British-American Asset Managers Limited for the professional management of the Fund (Note 11b). This is charged at 2% per annum, computed on the daily fund balances. Audit fees, trustee fees at 0.17%, custodial fees at 0.21%, annual general meeting (AGM) fees and license fees are charged to the fund as well. 8 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 relates to tax withheld after the issue of the legal notice at a rate of 5% and 15% for dividend and interest income respectively. Investments in Infrastructure bonds and the Kengen bond are however tax exempt. 9 Investments (i) Maturity profile of investments in the money market Year ended 31 December 2014 Up to 6 & 12Due within 1& 5 Due after 5 3 months months years years Totals Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Deposits with financial institutions 10,167-40,149-50,316 Government securities , ,405 Corporate bonds - 73,391 53,125 16, ,207 Total 10,167 73,391 93, , ,928 Year ended 31 December 2013 Up to 3 months 6 & 12 months 1& 5 years Due after 5 years Totals Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Deposits with financial institutions 33,027 92, ,329 Government securities - 20, , , ,224 Corporate bonds 16,443 15, ,347 11, ,042 Total 49, , , , ,595 24

27 Notes (continued) 9 Investments (continued) (ii) Classification of equity securities per sector: Shs 000 Shs 000 Kenya: - Commercial and services 141,716 69,913 - Finance and investment 312, ,774 - Industrial and allied 118, ,504 Offshore funds - Uganda 24,940 8,751 - Rwanda - Mauritius 18,048 93,966-88, , ,926 (iii) Movement in investments Year ended 31 December 2014 Value at 1/1/2014 Purchases at cost Accrued Interest Sales/ maturity Change in fair value (IS)* Change in fair value (OCI)* Value at 31/12/2014 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Quoted ordinary shares 803, ,106 - (597,936) 97, ,015 Offshore funds 88, ,982-93,966 Corporate bonds 175,042 53,298 (440) (88,266) - 3, ,207 Government securities 539, ,091 4,244 (304,039) - 17, ,405 Deposits with financial institutions 125,329 1,471,440 (3,290) (1,543,163) ,316 Unit trusts 32, ,601-33,783 Other funds 71, ,031 - (18,119) 9, ,826 Total 1,836,019 2,595, (2,551,523) 114,084 21,458 2,016,518 25

28 Notes (continued 9 Investments (continued) (iii) Movement in investments (continued) Year Ended 31 December 2013 Value at 1/1/2013 Purchases at cost Accrued Interest Sales/ maturity Change in fair value (SOCI)* Change in fair value (OCI)* Value at 31/12/2013 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Shs 000 Quoted ordinary shares 649, ,494 - (218,344) 207, ,942 Offshore funds - 81, ,741-88,984 Corporate bonds 154,329 62, (46,709) - 4, ,042 Government securities 330, ,358 2,111 (598,806) - 2, ,224 Deposits with financial - institutions 239,905 1,872,011 (24,745) (1,961,842) - 125,329 Unit trusts 31, ,024-32,182 Other funds - 68, ,197-71,316 Total 1,405,558 3,052,606 (22,448) (2,825,701) 219,022 6,982 1,836,019 *SOCI - Statement of compressive income *OCI - Other comprehensive income iv) Cash and cash equivalents Shs 000 Shs 000 Deposits held with financial institutions maturity of up to 3 months from contract date 10,167 33,027 Cash and bank balance 8,977 4,268 19,144 37,295 26

29 Notes (continued) 10 Unit holder funds No. of units Shs No. of units Shs At start of year 9,826 1,823,629 9,204 1,443,389 Creations 2, ,784 1, ,124 Liquidations (2,448) (445,357) (538) (82,737) Distributions - 210, ,853 9,905 1,983,054 9,826 1,823, Current liabilities Shs 000 Shs 000 Service fees payable to British American Asset Managers Limited 13,132 7,646 Unsettled investment transactions ,143 8, Related party transactions is managed by British-American Asset Managers Limited (British American Asset Managers ERS). British American Asset Managers is controlled by British- American Investment Company Limited (Kenya) (BAICL) incorporated in Kenya. There are other companies that are related to British American Asset Managers Limited through common shareholdings or common directorship. The following transactions were carried out with related parties. a) Unit holder balance Shs 000 Shs 000 Held by British-American Insurance Company (Kenya) Limited - 1,511,347 b) Service fees British-American Asset Managers Limited (Note 7) 71,175 77,475 Service fees payable are disclosed in Note