(Managed by Alistithmar for Financial Securities and Brokerage Company) FINANCIAL STATEMENTS 31 DECEMBER
BALANCE SHEET As at 31 December Note ASSETS Bank balances 664,255 3,483,946 Trading investments 4 38,567,847 50,966,731 Dividend receivable - 38,876 39,232,102 54,489,553 LIABILITY Accrued expenses 50,932 50,507 NET ASSETS 39,181,170 54,439,046 Units in issue 213,483 290,922 Per unit value 183.53 187.13 The accompanying notes 1 to 10 form part of these financial statements. 3
STATEMENT OF OPERATIONS Year ended 31 December Notes INVESTMENT (LOSS) INCOME Trading (loss) income, net 5 (961,248) 5,112,533 EXPENSES Management fees 6 (876,052) (911,418) Other expenses 7 (45,300) (45,300) (921,352) (956,718) NET (LOSS) INCOME FROM OPERATIONS (1,882,600) 4,155,815 The accompanying notes 1 to 10 form part of these financial statements. 4
STATEMENT OF CASH FLOWS Year ended 31 December OPERATING ACTIVITIES Net (loss) income from operations (1,882,600) 4,155,815 Adjustment for: Movement in unrealised losses (gains) on trading investments 1,009,427 (11,487,024) Changes in operating assets and liabilities: Trading investments 11,389,457 17,496,690 Dividend receivable 38,876 (38,876) Other receivable - 846,414 Accrued expenses 425 2,397 Net cash from operating activities 10,555,585 10,975,416 FINANCING ACTIVITIES Proceeds from units sold - 405,900 Value of units redeemed (13,375,276) (8,730,407) Net cash used in financing activities (13,375,276) (8,324,507) (DECREASE) INCREASE IN BANK BALANCES (2,819,691) 2,650,909 Bank balances at the beginning of the year 3,483,946 833,037 BANK BALANCES AT THE END OF THE YEAR 664,255 3,483,946 Operational cash flows from dividends Dividends received 1,750,611 1,840,611 The accompanying notes 1 to 10 form part of these financial statements. 5
STATEMENT OF CHANGES IN NET ASSETS Year ended 31 December NET ASSET VALUE AT THE BEGINNING OF THE YEAR 54,439,046 58,607,738 CHANGES FROM OPERATIONS Net (loss) income from operations (1,882,600) 4,155,815 CHANGES FROM UNIT TRANSACTIONS Proceeds from units sold - 405,900 Value of units redeemed (13,375,276) (8,730,407) Net change from unit transactions (13,375,276) (8,324,507) NET ASSET VALUE AT THE END OF THE YEAR 39,181,170 54,439,046 UNIT TRANSACTIONS Transactions in units for the year ended 31 December are summarised as follows: Units Units UNITS AT THE BEGINNING OF THE YEAR 290,922 345,287 Units sold - 2,458 Units redeemed (77,439) (56,823) Net decrease in units (77,439) (54,365) UNITS AT THE END OF THE YEAR 213,483 290,922 The accompanying notes 1 to 10 form part of these financial statements. 6
NOTES TO THE FINANCIAL STATEMENTS 31 December 1 GENERAL (the Fund) is an open-ended investment fund created by an agreement between the Fund Manager and investors (the Unitholders) in the Fund. The Fund commenced operations on 24 July 2004. The Fund is designed for investors seeking capital appreciation, over the long term, through diversified exposure to publicly traded Saudi equities and financial products. All income is reinvested in the Fund and is reflected in the unit price. Alistithmar for Financial Securities and Brokerage Company (Alistithmar Capital), wholly owned subsidiary of the Saudi Investment Bank (The Bank) is the Fund Manager, Broker and Custodian of the Fund. The books and records of the Fund are maintained in Saudi Riyals (). 2 REGULATING AUTHORITY The Fund is governed by the Investment Fund Regulations (the Regulations) published by Capital Market Authority (CMA) on 3 Dhul Hijja 1427H (corresponding to 24 December 2006) and effective from 6 Safar 1438H (corresponding 6 November ) by the New Investment Fund Regulation published by the Capital Market Authority on 16 Sha aban 1437H (corresponding 23 May ), detailing requirements for all funds within the Kingdom of Saudi Arabia. 3 SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with accounting standards generally accepted in the Kingdom of Saudi Arabia. The significant accounting policies adopted are as follows: Accounting convention The financial statements are prepared under the historical cost convention modified to include the measurement at fair value of trading investments. Investment valuation Equity investments which are purchased for trading purposes are valued at their market price as at the balance sheet date. Investments in mutual funds are valued on the basis of net asset values published by the Fund Manager. Investment transactions Investment transactions are accounted for as of the trade date. Revenue recognition Trading income includes movement in unrealised gains (losses) from changes in fair value, realised gains (losses) from sale of trading investments and dividends from trading investments. Realised gains (losses) on trading investments sold are determined on a weighted average cost basis. Dividend income is recognised when declared (i.e. when the Fund s right to receive the dividend is established). Zakat and income tax Zakat and income tax are the obligations of the Unitholders and are not provided for in the accompanying financial statements. Foreign currencies Transactions in foreign currencies are translated into Saudi Riyals at the rates of exchange prevailing at the dates of the transaction. Assets and liabilities in foreign currencies at the balance sheet date are retranslated at the rates of exchange ruling at that date. Resulting exchange gains and losses are taken to the statement of operations. 7
NOTES TO THE FINANCIAL STATEMENTS (continued) 31 December 4 TRADING INVESTMENTS The composition of the portfolio by sectors is summarised below: Cost Market value % of market value Equity investments Banking 12,199,452 11,798,215 30.59 Materials 8,331,696 8,369,010 21.70 Consumer services 5,482,989 3,880,711 10.06 Health care equipment 3,656,421 3,472,073 9.00 Retailing 2,876,521 2,913,319 7.55 Transportation 2,840,753 2,895,373 7.51 Others 4,514,347 5,239,146 13.58 39,902,179 38,567,847 100.00 Cost Market value % of market value Equity investments Banking 16,241,068 13,828,267 27.13 Materials 11,599,672 10,296,008 20.20 Food & beverages 4,900,852 4,972,894 9.76 Real estate 3,540,155 4,796,035 9.41 Transportation 3,459,998 4,186,531 8.21 Insurance 2,086,897 2,437,486 4.78 Others 9,462,994 10,449,510 20.50 51,291,636 50,966,731 100.00 Equity investments are traded on the Saudi stock exchange (Tadawul) is unrated. The Fund also does not have an internal grading mechanism. However, the Fund Manager seeks to limit its risk by monitoring investments sector exposures and setting limits for individual sectors. 5 TRADING (LOSS) INCOME, NET Dividend income 1,711,735 1,879,487 Movement in unrealised (losses) gains (1,009,427) 11,487,024 Realised losses (1,663,556) (8,253,978) (961,248) 5,112,533 8
NOTES TO THE FINANCIAL STATEMENTS (continued) 31 December 6 TRANSACTIONS WITH RELATED PARTIES The Fund paid a management fee calculated at an annual rate of 1.75% of the net asset value at each valuation date The management fees reflected in the statement of operations represent the fees charged by the Fund Manager during the year. Additionally, administration expenses paid by the Fund Manager on behalf of the Fund are reimbursed from the Fund, subject to a maximum administration expense of 0.25% of net asset value per annum. Trade transactions on Tadawul are executed through Alistithmar Capital which is also the custodian of the Fund s investments. The Bank acts as the Fund s banker. 7 OTHER EXPENSES Audit fees 30,000 30,000 CMA fees 7,500 7,500 Tadawul fees 5,000 5,000 Fund board member fees 2,800 2,800 45,300 45,300 8 RISK MANAGEMENT Special commission rate risk Special commission rate risk arises from the possibility that changes in market commission rates will affect future profitability or the fair value of the financial instruments. As of the balance sheet date, the Fund is not exposed to commission rate risk as its assets and liabilities are noncommission bearing. Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Fund is exposed to credit risk for its bank balances, dividend receivable and other receivable. The Fund Manager seeks to limit its credit risk by monitoring credit exposures. The table below shows the maximum exposure to credit risk for the components of the balance sheet. Bank balances 664,255 3,483,946 Dividend receivable - 38,876 Total exposure to credit risk 664,255 3,522,822 9
NOTES TO THE FINANCIAL STATEMENTS (continued) 31 December 8 RISK MANAGEMENT (continued) Equity price risk Equity price risk is the risk that the fair value of equities changes as the result of changes in the levels of equity indices and the value of individual stocks. The Fund s equity investments are subject to equity price risk. This is calculated based on the Beta of the Fund, as calculated and measured in-house by the Fund Manager. Beta calculates the responsiveness of the Fund s price to changes in the Tadawul All Shares Index (TASI). The effect on the statement of operations as a result of a change in fair value of equity instruments due to a reasonable possible change in equity indices, with all other variables held constant is as presented below: Effect on statement of Change in operations equity price % % Change in equity price Effect on statement of operations TASI 10 3,548,242 10 4,637,972 Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in releasing funds to meet commitments associated with its financial liability. The Fund s terms and conditions provide for the subscriptions and redemptions of units daily and it is, therefore, exposed to the liquidity risk of meeting Unitholders redemptions. The Fund s securities are considered to be readily realisable as they are listed on Tadawul. The Fund Manager monitors the liquidity requirements on a regular basis and seeks to ensure that sufficient funds are available to meet any commitments as they arise. Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to a change in foreign exchange rates. The Fund s functional currency is Saudi Riyal. As the Fund s financial assets and liabilities are denominated in its functional currency, the Fund is not subject to currency risk. 9 FAIR VALUES OF FINANCIAL INSTRUMENTS Financial instruments comprise financial assets and financial liabilities. The Fund s financial assets consist of bank balances and trading investments. Fair value is the amount for which an asset could be exchanged, or a liability settled between knowledgeable willing parties in an arm s length transaction. For investments traded in an active market, fair value is determined by reference to quoted market bid prices. For investments in mutual funds, fair value is determined by reference to net asset values as published by the Fund Manager. Trading investments are carried at fair value. The fair values of other financial instruments are not expected to be materially different from their carrying values. 10 LAST VALUATION DAY The last valuation day of the year was 31 December (: 31 December ). 10