JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY) Financial Statements
For the year ended 31 December 2015 together with the
JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY)
FINANCIAL STATEMENTS TOGETHER WITH THE INDEPENDENT AUDITORS’ REPORT
FOR THE YEAR ENDED 31 DECEMBER 2015
INDEX PAGE
Auditors’ report --
Balance Sheet 1
Statement of income 2
Statement of cash flows 3
Statement of changes in net assets attributable to the unitholders 4
JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY) BALANCE SHEET As at 31 December 2015 (Amounts in SAR) 1 -Notes 2015 2014 Assets
Cash and cash equivalents 1,155,167 1,916,385
Investments held for trading 4 33,253,567 32,975,231
Total assets 34,408,734 34,891,616
Liabilities
Management fee payable 5 56,626 63,411
Accrued expenses 92,848 96,713
Total liabilities 149,474 160,124
Net assets attributable to unitholders 34,259,260 34,731,492
Units in issue 138,723.56 139,681.58
Net assets value attributable to each unit 246.96 248.65
JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY) STATEMENT OF INCOME
For the year ended 31 December 2015 (Amounts in SAR)
- 2 -
Notes 2015 2014
Trading income / (loss)
Realized gains on investments, net 1,235,801 9,140,522 Unrealized losses on investments, net (1,784,238) (6,289,684)
Dividend income 1,014,238 1,091,839 465,801 3,942,677 Expenses Management fee 1(b), 5 (756,199) (749,858) Other expenses 1(b) (119,735) (124,688)
Foreign exchange losses (10,594) (5,592)
(886,528) (880,138)
Net (loss) / income for the year (420,727) 3,062,539
JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY) STATEMENT OF CASH FLOWS
For the year ended 31 December 2015 (Amounts in SAR)
2015 2014
Cash flows from operating activities
Net (loss) / income for the year (420,727) 3,062,539
Adjustments to reconcile net (loss) / income for the year to net cash (used in) /generated from operating activities:
Realized gains on investments, net (1,235,801) (9,140,522) Unrealized losses on investments, net 1,784,238 6,289,684
Changes in operating assets and liabilities:
Purchase of investments held for trading (21,049,497) (38,092,191) Proceeds from sale of investments held for trading 20,222,728 39,474,755
Management fee payable (6,787) 5,009
Accrued expenses (3,867) 36,291
Net cash (used in) / generated from operating activities (709,713) 1,635,565
Cash flows from financing activities
Proceeds from issuance of units 2,796,285 6,586,408 Payments against redemption of units (2,847,790) (6,340,828) Net cash (used in) / generated from financing activities (51,505) 245,580 Net (decrease) / increase in cash and cash equivalents (761,218) 1,881,145 Cash and cash equivalents at beginning of the year 1,916,385 35,240 Cash and cash equivalents at end of the year 1,155,167 1,916,385
JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY)
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO THE UNITHOLDERS For the year ended 31 December 2015
(Amounts in SAR) 4 -2015 SAR 2014 SAR
Net assets attributable to unitholders at beginning of the year 34,731,492 31,423,373
Net (loss) / income for the year (420,727) 3,062,539
Changes from units transactions:
Proceeds from issuance of units 2,796,285 6,586,408 Payments against redemption of units (2,847,790) (6,340,828) Net change from units transactions (51,505) 245,580
Net assets attributable to unitholders at end of the year 34,259,260 34,731,492 Units Transactions 2015 Units 2014 Units
Units in issue at beginning of the year 139,681.58 136,849.52
Units issued 9,439.64 23,835.31
Units redeemed (10,397.66) (21,003.25)
Units in issue at end of the year 138,723.56 139,681.58
JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY) NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2015 (Amounts in SAR)
1. GENERAL
(a) Jadwa GCC Equity Fund (the “Fund”) is an equity fund established and managed as per terms and conditions between Jadwa Investment Company (the “Fund Manager”) and the Fund Investors (the “Unitholders”). The Capital Market Authority’s (“CMA”) approval for the establishment of the Fund was granted in its letter number 443 dated Jumad Awal 9, 1428 H (corresponding to 26 May 2007). The Fund commenced its income on 30 June 2007.
The Fund aims to provide investors with long-term capital appreciation by investing in equities listed on the GCC stock markets of which are compliant with the Shariah standards approved by the Jadwa’s Shariah Committee.
In dealing with the unitholders, the Fund Manager considers the Fund as an independent accounting unit. Accordingly, the Fund Manager prepares separate financial statements for the Fund.
The Fund is governed by the Investment Fund Regulations (the “Regulations”) published by CMA on Dhul Hijja 3, 1427 H (corresponding to 24 December 2006) detailing requirements for all funds within the Kingdom of Saudi Arabia.
The Fund manager, administrator and custodian of the Fund is Jadwa Investment Company. The books and records of the Fund are maintained in Saudi Arabian Riyals.
(b) The management of the Fund is the responsibility of the Fund Manager. However, in accordance with the Fund’s terms and conditions, the Fund Manager can delegate or assign its duties to one or more of the financial institutions in the Kingdom of Saudi Arabia and overseas.
The Fund Manager may charge investor a subscription fee for a percentage not to exceed 3% of subscribed amount. Subscription fee is not included in these financial statements. Furthermore, the Fund Manager charges the Fund a management fee of 1.95% per annum of the average net assets value of the Fund at each valuation day. In addition, the Fund Manager has the right to collectively charge the Fund all other expenses related to the management of the Fund, including but not limited to audit fee, legal charges for a percentage not to exceed 2% per annum of the net assets value of the Fund at each valuation day.
2. BASIS OF PRESENTATION
Statement of compliance
These financial statements have been presented in accordance with generally accepted accounting standards applicable in the Kingdom of Saudi Arabia issued by the Saudi Organization of Certified Public Accountants (“SOCPA”).
JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY) NOTES TO THE FINANCIAL STATEMENTS (Continued)
For the year ended 31 December 2015 (Amounts in SAR)
- 6 - 2. BASIS OF PRESENTATION (Continued)
Basis of measurement
These financial statements have been prepared under the historical cost convention, except for the measurement of investments held for trading at fair value, using accrual basis of accounting and the going concern concept.
Functional and presentation currency
These financial statements are presented in Saudi Arabian Riyals (SAR), which is also the functional and presentation currency of the Fund. All financial information presented has been rounded to the nearest SAR.
Use of estimates and judgments
In the ordinary course of business, the preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised on prospective basis.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation of these financial statements are set out below:
Investments held for trading
Investment securities purchased for trading are initially recognized at cost on the trade date and are re-measured at their market values. The unrealized gains and losses from revaluation of investments held for trading and realized gains and losses from sale of investments held for trading are recognized in the statement of income.
Unrealized gains and losses on investments held for trading comprise of changes in the fair value of the investments for the year and from reversal of prior year’s unrealized gains and losses for the investments which were realized in the current year.
Realized gains and losses on investments held for trading at disposal are determined on average cost basis. These represents the difference between an investment’s weighted average cost and sale price.
JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY) NOTES TO THE FINANCIAL STATEMENTS (Continued)
For the year ended 31 December 2015 (Amounts in SAR)
- 7 -
3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Dividend Income
Dividend income is recognized when the Fund’s right to receive the dividend is established.
Trade date accounting
All purchase and sale of financial assets are recognized and derecognized on the trade date.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and cash maintained with the custodian under omnibus account with a local bank having sound credit rating.
Zakat and income tax
Zakat and income tax are the obligations of the unitholders and are not provided for in the accompanying financial statements.
4. INVESTMENTS HELD FOR TRADING
These represent investment in quoted equities within and outside Kingdom of Saudi Arabia. The geographical breakdown of the investments is as follows:
2015
Country Cost Fair value %
Kingdom of Saudi Arabia 26,841,283 25,001,850 75.19 United Arab Emirates 4,636,897 4,869,089 14.64
State of Qatar 2,057,033 2,563,016 7.71 Sultanate of Oman 1,006,009 819,612 2.46 34,541,222 33,253,567 100 2014
Country Cost Fair value %
Kingdom of Saudi Arabia 25,816,240 25,279,086 76.66 United Arab Emirates 3,801,410 4,124,268 12.52
State of Qatar 1,854,990 2,442,911 7.40
Sultanate of Oman 1,006,008 1,128,966 3.42
JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY) NOTES TO THE FINANCIAL STATEMENTS (Continued)
For the year ended 31 December 2015 (Amounts in SAR)
- 8 -
4. INVESTMENTS HELD FOR TRADING (Continued)
The investments portfolio is allocated among the various economic sectors as follows:
2015
Cost Fair value %
Banks and financial services 7,491,971 6,284,904 18.90 Agriculture and food industries 4,397,275 4,469,880 13.44
Transport 2,776,366 3,918,552 11.78
Telecommunication and information
technology 3,312,278 3,187,606 9.59
Retail 2,963,342 2,478,074 7.45
Real estate development 2,493,588 2,422,329 7.28
Insurance 1,663,899 2,013,907 6.06
Petrochemical industries 2,912,699 1,961,717 5.90 Multi investment 1,441,879 1,905,210 5.73 Travel and tourism 1,363,640 1,599,204 4.81
Cement 1,734,774 1,507,134 4.53
Building and construction 1,989,511 1,505,050 4.53
Total investment portfolio 34,541,222 33,253,567 100
2014
Cost Fair value %
Banks and financial services 5,542,836 5,859,994 17.77 Agriculture and food industries 3,167,012 3,293,554 9.99
Transport 3,003,978 3,418,424 10.37
Telecommunication and information
technology 1,914,107 1,703,652 5.17
Retail 1,943,085 1,643,574 4.98
Real estate development 2,957,966 2,657,615 8.06
Insurance 1,059,428 1,132,542 3.43
Petrochemical industries 4,245,810 3,494,923 10.60
Multi investment 869,386 1,184,278 3.59
Travel and tourism 1,508,685 2,199,530 6.67
Cement 985,605 1,258,634 3.82
Building and construction 3,543,900 3,309,001 10.03 Industrial investment 1,736,850 1,819,510 5.52 Total investment portfolio 32,478,648 32,975,231 100
5. RELATED PARTY TRANSACTIONS
Related party of the Fund includes the Fund manager. In the ordinary course of its activities, the Fund transacts business with the Fund manager (Refer to Note 1).
JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY) NOTES TO THE FINANCIAL STATEMENTS (Continued)
For the year ended 31 December 2015 (Amounts in SAR)
- 9 - 5. RELATED PARTY TRANSACTIONS (Continued)
Transactions with related parties included in the accompanying financial statements are as follows:
2015 2014
Fund Manager:
Management fee 756,199 749,858
The balances as at 31 December resulting from the above transactions included in the accompanying financial statements are as follows:
2015 2014
Fund Manager:
Management fee payable 56,626 63,411
6. RISK MANAGEMENT
Credit risk
Credit risk is the risk that one party to financial instrument may fail to discharge an obligation and cause the other party to incur a financial loss.
The Fund’s financial assets exposed to credit risk include cash at bank and cash with custodian held under omnibus account with a local bank having sound credit rating.
Equity price risk
Equity price risk is the risk that the value of financial instruments may fluctuate because of changes in market prices.
The Fund’s underlying investments are exposed to market price risk arising from uncertainties about future prices. The Fund Manager manages this risk through diversification of its investment portfolio in terms of geographical and industrial distribution.
Liquidity risk
Liquidity risk is the risk that the Fund may encounter difficulty in releasing funds to meet commitments associated with financial liabilities.
The Fund’s terms and conditions provide for the subscriptions and redemptions of units twice a week and it is, therefore, exposed to the liquidity risk of meeting unitholders’ redemptions. The Fund’s investments are considered to be readily realizable as they are investments in equities which can be easily redeemed at any time. The Fund Manager monitors the liquidity requirements on a regular basis and ensures that sufficient funds are available to meet any commitments as they arise.
JADWA GCC EQUITY FUND Open-ended Mutual Fund
(MANAGED BY JADWA INVESTMENT COMPANY) NOTES TO THE FINANCIAL STATEMENTS (Continued)
For the year ended 31 December 2015 (Amounts in SAR)
- 10 - 6. RISK MANAGEMENT (Continued)
Currency risk
Currency risk is the risk that the value of a financial instrument may fluctuate due to a change in foreign exchange rates.
The Fund is subject to fluctuations in foreign exchange rates in the normal course of its business. The Fund did not undertake transactions in currencies other than Saudi Riyal, Qatari Riyal, Kuwaiti Dinar, UAE Dirham, Omani Riyal, Bahraini Dinar and US Dollar during the year. The Fund monitors its exposure to different currencies on a periodic basis.
7. FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instruments comprise financial assets and financial liabilities. The Fund’s financial assets consist of cash and cash equivalents and investments held for trading.
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 closing market prices.
Investments held for trading are carried at their fair value. Fair value of other financial instruments is not significantly different from their carrying value.
8. VALUATION DAYS
The Fund’s units are valued twice a week, every Monday and Wednesday, and unit price is announced on the following business day.
9. APPROVAL OF FINANCIAL STATEMENTS
These financial statements were approved by the Fund Board on 15 Jumaada Al Akhir 1437 corresponding to 24 March 2016.
