AlAhli Asia Pacific Index Fund
AlAhli Asia Pacific Index Fund
Annual Report – 2017
Contents A. Investment Fund Information ................................................................................................................................... 3
B. Fund Performance..................................................................................................................................................... 3
C. Fund Manager ........................................................................................................................................................... 5
D. Custodian .................................................................................................................................................................. 5
E. Auditor ...................................................................................................................................................................... 6
F. Financial Statements ................................................................................................................................................. 6
AlAhli Asia Pacific Index Fund – 2017 Annual Report
AlAhli Asia Pacific Index Fund – 2017 Annual Report A. Investment Fund Information 1. Investment Objective AlAhli Asia Pacific Index Fund is an open-ended investment fund which aims to achieve capital growth over the long term. The Fund seeks to replicate as closely as possible, before expenses, the performance of the MSCI Pacific Islamic M-Series (Net Total Return USD). 2. Investment Policies The Fund primarily invests in the stocks of large-medium cap listed companies. The Fund's Investments will be concentrated in the stocks of companies listed on Developed Asia and Pacific Markets. The Fund is managed pursuant to an index-linked passive strategy that is designed to trace the performance of MSCI Pacific Islamic M-Series (Net Total Return USD), which is an index based on an the average free float adjusted market capitalization weighted to measure the performance of Shariah compliant large and medium cap segment companies that are listed in the Developed Asia and Pacific Markets. 3. Distribution of income and gain policy Income and dividends will be reinvested in the Fund. No income or dividends will be distributed to Unitholders. 4. The fund's reports are available upon request free of charge. B. Fund Performance 1. The following table shows a comparison of the following data for the last three years: Year
2017
2016
2015
51,514,343
38,209,390
38,209,390
NAV per Unit*
1.61
1.19
1.19
Highest Price*
1.62
1.40
1.40
Lowest Price*
1.24
1.06
1.06
32,053,625
32,036,329
32,036,329
-
-
-
0.43%
1.35%
2.08%
AUM*
Number of Units Income Distribution Fees and Expense ratio * In US Dollar
2. Total return compared to the benchmark for 1 year, 3 years, 5 years and 10 years: Period
Year
3 Years
5 Years
10 Years
Total return %
29.12
8.31
7.20
4.82
Benchmark %
29.89
11.22
10.00
6.96
AlAhli Asia Pacific Index Fund – 2017 Annual Report
3. Annual total return for each of the last 10 financial years: Year
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
Return %
29.12
4.36
-5.71
4.56
6.55
16.25
-10.81
19.90
50.69
-39.64
Benchmark %
29.89
12.09
-5.51
8.08
8.29
22.48
-8.69
23.53
63.46
-46.11
4. Actual fees and fund expenses paid by the investment fund during the year: Fees and Expenses
Percentage of NAV
Management Fee Expense
0.30%
Audit Fee Expense
0.01%
Fund Admin Fee Expense
0.04%
CMA Fee Expense
0.00%
Tadawul Fee Expense
0.00%
Shariah Audit Fee Expense
0.02%
Fund Board Fee Expense
0.01%
Custody Fee Expense
0.04%
Expense Ratio
0.43%
5. No material changes occurred during the year. 6.
No voting right was exercised during the year.
7. Fund Board Annual Report: The Board of Directors consists of the following members, who were appointed by the fund manager and approved by the Capital Market Authority: Mohammed Al-Ali Mohammed Saqaf Dr. Abdulrauof Banajah Alaaeldden Sami
Chairman of the Fund’s Board of Directors non-independent member independent member independent member
The Fund's Board of Directors held three meetings during 2017. The following is a summary of the key decisions approved and the matters discussed by the Fund’s Board of Directors: Fund’s performance review: The Fund performance was 29.12% while the benchmark was 29.89%. Risks related to the funds; including: liquidity, market, operational risks. Ensuring fund’s compliance to all applicable rules and regulations. The effects of the updated Investment Funds Regulations on the fund.
AlAhli Asia Pacific Index Fund – 2017 Annual Report
C. Fund Manager 1. NCB Capital Company. King Saud Road, P.O. Box 22216, Riyadh 11495, Saudi Arabia, Tel: +966 920000232 Website: www.alahlicapital.com 2. Sub-manager / investment adviser AMUNDI Asset Management, 90 Boulevard Pasteur, 75015 Paris, France 3. Investment activities The fund targets to replicate as closely as possible, before expenses, the performance of the MSCI Pacific Islamic Mseries Index (Net Total Return USD). 4. Fund’s performance In 2017, The Fund performance was 29.12% while the benchmark was 29.89%. 5. T&C’s Material changes Updating the Terms and Condition to include Value Added Tax law; 6. The fund does not invest substantially in other investment funds. 7. No special commissions were received by the fund manager during the period D. Custodian 1. NCB Capital Company. King Saud Road, P.O. Box 22216, Riyadh 11495, Saudi Arabia, Tel: +966 920000232 Website: www.alahlicapital.com 2. Custodian’s duties and responsibilities The custodian shall be held responsible to the fund manager and unitholders for any losses caused to the investment fund due to the custodian fraud, negligence, misconduct or willful default. The custodian shall be responsible for taking custody and protecting the fund's assets on behalf of unitholders, and taking all necessary administrative measures in relation to the custody of the fund's assets. 3. Custodian’s opinion NCB Capital Co. hereby confirms that we Issued, transferred and redeemed the units in accordance with the provision of the IFR and Fund T&Cs. NCB Capital Co. hereby confirms that we valued and calculated the Unit price in accordance with the provisions of IFR, Fund T&Cs and Information Memorandum. NCB Capital Co. hereby confirms that we have not breached any of the Investment Restrictions, Limitations and borrowing powers applicable to IFR.
AlAhli Asia Pacific Index Fund – 2017 Annual Report
E. Auditor 1. KPMG Al Fozan & Partners. Zahran Business Center, Prince Sultan Street, Jeddah, Saudi Arabia Tel: +966 12 6989595 Website: www.kpmg.com/sa 2. Auditor’s opinion: Accompanying financial statements have complied with the requirements of the applicable provisions of the Investment Funds Regulations issued by the Capital Market Authority, and the Fund’s Terms and Conditions and the Information Memorandum in so far as they affect the preparation of the financial statements and accordingly nothing has been reported by the auditor in their report which is in compliance with the SOCPA requirements. F. Financial Statements
AlAhli Asia Pacific Index Fund – 2017 Annual Report
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) FINANCIAL STATEMENTS For the year ended 31 December 2017 with INDEPENDENT AUDITORS’ REPORT TO THE UNITHOLDERS
kpmg
KPMG Al Fozan & Partners Certified Public Accountants Zahran Business Centre, 9th Floor Prince Sultan Street PO Box 55078 Jeddah 21534 Kingdom of Saudi Arabia
Telephone +966 12 698 9595 Fax +966 12 698 9494 Internet www.kpmg.com.sa License No. 46/11/323 issued 11/3/1992
Independent auditors’ report The Unitholders AlAhli Asia Pacific Index Fund Jeddah, Kingdom of Saudi Arabia Opinion We have audited the financial statements of AlAhli Asia Pacific Index Fund (“the Fund”) managed by NCB Capital Company (the “Fund Manager”) which comprise the balance sheet as at 31 December 2017, the statements of income, cash flows and changes in net assets attributable to unitholders for the year then ended, and notes, comprising significant accounting policies and other explanatory information. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Fund as at 31 December 2017, and its financial performance and its cash flows for the year then ended in accordance with generally accepted accounting standards as issued by Saudi Organization for Certified Public Accountants (SOCPA). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Fund in accordance with the professional code of conduct and ethics that are endorsed in the Kingdom of Saudi Arabia that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Fund Manager and Those Charged with Governance for the Financial Statements. The Fund Manager is responsible for the preparation and fair presentation of the financial statements in accordance with generally accepted accounting standards as issued by SOCPA, the applicable provisions of the Investment Funds Regulations issued by Capital Market Authority, the Fund’s terms and conditions, the Information Memorandum, and for such internal control as Fund Manager determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Fund Manager 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 Fund Manager either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Fund’s financial reporting process.
KPMG Al Fozan & Partners, a partnership registered in Saudi Arabia and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) BALANCE SHEET As at 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated)
Notes
2017
2016
Cash and cash equivalents
7
522
260
Held for trading investments
9
51,219
35,796
Accounts receivable
10
211 ───── 51,952
230 ───── 36,286
11
437 ───── 51,515 ═════ 32,054 ═════ 1.60716 ═════
351 ───── 35,935 ═════ 28,869 ═════ 1.2448 ═════
ASSETS
Total assets LIABILITY Accounts payable Net assets attributable to Unitholders 12
Units in issue in thousands (number) Net asset value per unit (USD)
The accompanying notes 1 to 16 form integral part of these financial statements 1
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) STATEMENT OF INCOME For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated)
Note
2017
2016
836
763
1,229
2,611
8,979 ────── 11,044 ──────
(1,169) ────── 2,205 ──────
128
391
Custody fee
18
71
Administrative expenses
16
19
Shariah audit fee
8
7
Professional fees
7
6
Fund Board remuneration
5
5
2 ────── 184 ──────
2 ────── 501 ──────
10,860 ══════
1,704 ══════
INVESTMENT REVENUE Dividend income Realised gain on sale of held for trading investments Unrealised gain / (loss) on measurement of held for trading investments Total revenue 8
EXPENSES Management fee
CMA fee Total expenses
Net income for the year
The accompanying notes 1 to 16 form integral part of these financial statements 2
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) STATEMENT OF CASH FLOWS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) Note Cash flow from operating activities Net income for the year Adjustment for: Value for unites reinvested Unrealised (loss) / gain on held for trading investments
2017 10,860
Changes in operating assets and liabilities: (Increase) / decrease in held for trading investments Decrease / (increase) in accounts receivable Increase in accounts payable Net cash (used in) / provided by operating activities Cash flow from financing activities Proceeds from units sold Value of units redeemed Net cash provided by / (used in) financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year
7
Cash and cash equivalents at the end of the year
7
1,704
-(8,979) ────── 1,881
416 1,169 ────── 3,289
(6,444) 19 86 ────── (4,458) ──────
888 (212) 340 ────── 4,305 ──────
12,985 (8,265) ────── 4,720 ────── 262
4,795 (9,194) ────── (4,399) ────── (94)
260 ────── 522 ══════
354 ────── 260 ══════
The accompanying notes 1 to 16 form integral part of these financial statements 3
2016
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) Notes
2017
2016
Net assets attributable to Unitholders at the beginning of the year
35,935
38,214
Net income for the year
10,860
1,704
12,985
4,795
--
416
(8,265)
(9,194)
4,720 ─────
(3,983) ─────
51,515 ═════
35,935 ═════
Increase / (decrease) in net assets from unit transactions during the year
12
Proceeds from units sold Value of units reinvested
8
Value of units redeemed
Net assets attributable to Unitholders at the end of the year
The accompanying notes 1 to 16 form integral part of these financial statements 4
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 1
THE FUND AND ITS ACTIVITIES
Al-Ahli Asia Pacific Index Fund (the "Fund") is a Shariah compliant, open-end investment fund, managed by NCB Capital Company ("the Fund Manager"), a subsidiary of The National Commercial Bank (“the Bank”), for the benefit of the Fund's Unitholders. The Fund is established under article 30 of the Investment Fund Regulations (the Regulations) issued by the Capital Market Authority (CMA). NCB Capital Company also acts as the custodian of the Fund. As defined in Capital Market Authority's (CMA) Regulation No. 2-83-2005 dated 21 Jumada Awal 1426H (28 June, 2005) the Fund Manager conducts following securities’ activities: a) b) c) d) e)
Dealing; Arranging; Managing; Advising; Custody;
The Fund’s investments are held by CACEIS Bank Luxembourg, a custodian appointed by the Fund Manager. The Fund Manager has appointed an international investment house, Amundi - France, as sub-manager to the Fund. Their duties include opening separate independent investment accounts and managing the Fund’s assets in line with the investment strategies and Shariah guidelines. The Fund invests in securities of companies listed on major South East Asian, Pacific and Japanese stock exchanges, complying with Shariah Principles for investment. Uninvested cash balances may be held in Shariah compliant money market and Murabaha funds and/or be placed in Murabaha transactions. The terms and conditions of the Fund were originally approved by the Saudi Arabian Monetary Authority (SAMA) and subsequently endorsed by CMA through their letter dated 18 Dhul Hijja 1429H (corresponding to 16 December 2008). 2
REGULATING AUTHORITY
The Fund is governed by the Regulations issued by the CMA pursuant to resolution number 7-219-2006 dated 3 Dhul Hijja 1427H (corresponding to 24 December 2006) as amended by the Resolution No 1/61/2016 of Board of the CMA dated 16 Sha’ban 1437H (corresponding to 23 May 2016), which provided detailed requirements for all funds within the Kingdom of Saudi Arabia. 3
CHANGES IN FUND’S TERMS AND CONDITIONS
During the year ended 31 December 2017, the Fund Manager has made certain revisions to the terms and conditions of the Fund relate to inclusion of VAT clause. The changes were notified to CMA through a letter dated 4 December 2017. These changes were notified by the Fund manager to the unitholders through a letter dated 6 December 2017. The revised terms and conditions became effective from 1 January 2018.
5
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 4
SUBSCRIPTION AND REDEMPTION
The Fund is open for subscriptions / redemptions of units on every Saudi and US Business day (Monday to Thursday). The net asset value of the Fund is determined on each Valuation day (Monday to Friday). All transactions for purchase / sale of units are entered on the net assets value of the Fund, determined by dividing the value of net assets of the Fund by the total number of outstanding Fund units on the relevant Valuation day. 5
BASIS OF PREPARATION
Statement of compliance These financial statements are prepared in accordance with generally accepted accounting standards in the Kingdom of Saudi Arabia promulgated by Saudi Organization for Certified Public Accountants ("SOCPA"), the applicable provisions of the Investment Funds Regulations issued by Capital Market Authority, the Fund’s terms and conditions and the Information Memorandum, The Fund prepares its financial statements as at and for the year ended on its last valuation date (note 15). Basis of measurement These financial statements have been prepared under the historical cost convention using the accrual basis of accounting and the going concern concept, except for held for trading investments which are carried at fair value. Functional and presentational currency These financial statements are presented in United States Dollar (USD), which is the Fund’s functional currency. All financial information presented in United States Dollar has been rounded to the nearest thousand. Use of estimates and judgments The preparation of the financial statements in conformity with the generally accepted accounting standards as applicable in the Kingdom of Saudi Arabia requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues 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 year in which the estimates are revised and in any future periods affected. Valuation of financial assets Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As the Fund's financial instruments are accounted for under the historical cost convention, except for held for trading investments, differences may arise between the carrying values and fair values. The Fund Manager believes that at the reporting date, the fair values of the Fund's financial assets and liabilities are not materially different from their carrying values.
6
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 5
BASIS OF PREPARATION (continued)
Use of estimates and judgments (continued) Valuation of financial assets (continued) The Fund measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Level 1: Fair value measurements using quoted price (unadjusted) in an active market for identical assets or liabilities. Level 2: Fair value measurements using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Fair value measurement using inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).
All financial assets of the fund, carried at fair value at the reporting date, are classified under hierarchy level 1. 6
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these financial statements. a)
Held for trading investments
Securities listed or traded on a stock exchange are classified as Held for Trading and are initially recognised at cost, being the fair value of the consideration given and are subsequently measured at fair value. Changes in fair values of held for trading investments (“investments”), comprising unrealised gains and losses are included in the statement of income. Realised gains and losses on investments sold are determined on weighted average basis. b)
Investment transaction
Investment transactions are accounted for as of the trade date which is the date on which Fund becomes a part to the contractual provisions of the instrument. c)
Impairment of financial assets
An assessment is made at the balance sheet date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the statement of income. If a financial asset is impaired, impairment is determined as follows: (i)
For assets carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously recognised in the statement of income; (ii) For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; (iii) For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective commission rate.
7
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 6 d)
SIGNIFICANT ACCOUNTING POLICIES (continued) Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where: (i) The rights to receive cash flows from the asset have expired; or (ii) The Fund has transferred its rights to receive cash flows from the asset; and (iii) Either (a) the Fund has transferred substantially all the risks and rewards of the asset, or (b) the Fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Fund has transferred its rights to receive cash flows from an asset, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Fund’s continuing involvement in the asset. e)
Revenue recognition
Realised gains and losses on investments sold are determined on an average cost basis. Dividends are recognised when the Fund’s right to receive the payment is established. Increases or decreases in the difference between the cost and market value of the Fund’s portfolio of investments are receognised as change in fair value of investments in the statement of income. f)
Foreign currency translation
Transactions during the year in currencies other than the functional currency are translated into the functional currency at the rates of exchange at the dates of the transactions. Monetary assets and liabilities that are denominated in a foreign currency are retranslated at the rate of exchange ruling at the balance sheet date. Exchange gains or losses are reflected in the statement of income. g)
Taxation / zakat
Taxation / zakat is the obligation of the Unitholders and therefore, no provision for such liability is made in these financial statements. h)
Cash and cash equivalents
For the purposes of the statement of cashflows, cash and cash equivalents consists of bank balances. i)
Net asset value per unit
The net asset value per unit is calculated by dividing the net assets attributable to Unitholders included in the balance sheet by the number of units outstanding at the year end.
8
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 5 j)
SIGNIFICANT ACCOUNTING POLICIES (continued) Provision and accruals
Provisions and accruals are recognized when the Fund has an obligation (legal or constructive) arising from a past event, and the costs to settle the obligation are both probable and can be measured reliably. k)
Offsetting
Financial assets and liabilities are offset and reported net in the balance sheet when there is a legally enforceable right to set off the recognized amounts and when the Fund intends to settle on a net basis, or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under accounting standards generally accepted in the Kingdom of Saudi Arabia, or for gains and losses arising from a group of similar transactions. 7
CASH AND CASH EQUIVALENTS
Cash and cash equivalents primarily represent cash held in current accounts with banks. 8
MANAGEMENT FEE AND OTHER EXPENSES
The Fund is managed and administered by the Fund Manager. For these services, the Fund accrues a management fee, as determined by the Fund Manager, which should not be more than the maximum annual rate of 0.3% p.a., as set out in the Fund’s terms and conditions. The Fund Manager is also entitled to recover expenses incurred on behalf of the Fund relating to audit, custody, advisory, data processing and other similar charges. The maximum amount of such expenses that can be recovered from the Fund by the Fund Manager is restricted to 0.50% per annum of the Fund's net assets at the respective valuation days, as specified in the Fund’s terms and conditions. These expenses have been recovered by the Fund Manager on actual basis. Furthermore, the Fund Manager is entitled to a subscription fee of 2% at the time of the investment in the Fund by a Unitholder. This fee may be waived at the discretion of the Fund manager. Until 23 July 2016, the Fund Manager was allocated units against settlement of the management fee and other expenses on every valuation day, which were reinvested in the Fund. Subsequent to this date, these fees/charges are paid in cash.
9
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 9
HELD FOR TRADING INVESTMENTS
The composition of the held for trading investments by currency is summarized below: 2017 Currency
Country
Japanese yen Australia Dollar Hong Kong Dollar United States Dollar
Japan Australia Hong Kong United States of America Singapore New Zealand
Singapore Dollar New Zealand dollars
% of Total Value
Cost
Fair Value
74.86 16.86 5.03
31,380 7,029 2,166
38,340 8,637 2,575
1.77 0.76 0.72 ──────── 100 ════════
917 460 359 ──────── 42,311 ════════
908 388 371 ──────── 51,219 ════════
2016 Currency
Country
Japanese Yen Australian Dollar Hong Kong Dollar Singapore Dollar New Zealand Dollar
Japan Australia, Ireland Hong Kong Singapore New Zealand
% of Total Value
Cost
Fair Value
74.90 17.12 4.83 2.28 0.88 ──────── 100 ════════
26,960 5,892 1,743 955 316 ──────── 35,866 ════════
26,810 6,127 1,730 815 314 ──────── 35,796 ════════
10
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 9
HELD FOR TRADING INVESTMENTS (continued)
The composition of the held for trading investments by industry sector is summarized below: 2017 Industry Sector Consumer Goods Health Care Materials Industrials Information Technology Telecommunication Services Financial services Retail Real Estate Energy Transportation Others
% of Total Value
Cost
Fair Value
35.75 23.18 8.67 8.64 5.34 4.85 4.57 3.20 2.61 1.69 1.25 0.25 ──────── 100 ════════
14,386 10,296 3,205 3,887 2,132 2,595 1,995 1,242 1,127 724 632 90 ──────── 42,311 ════════
18,310 11,875 4,441 4,426 2,736 2,486 2,340 1,638 1,339 865 643 120 ──────── 51,219 ════════
2016 Industry Sector Health Care Industrials Information Technology Consumer Goods Materials Telecommunication Services Consumer Staples Real Estate Utilities Energy
% of Total Value
Cost
Fair Value
20.63 17.45 13.68 12.92 12.85 7.47 7.44 4.02 1.77 1.77 ──────── 100 ════════
8,303 6,030 4,595 4,203 3,800 3,176 3,074 1,448 640 597 ──────── 35,866 ════════
7,383 6,247 4,897 4,626 4,602 2,673 2,665 1,439 632 632 ──────── 35,796 ════════
11
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 10
ACCOUNTS RECEIVABLE
Dividends receivable Receivable for investments sold Other receivables
11
2016
70 41 100 ────── 211 ══════
64 -166 ────── 230 ══════
2017
2016
213 106 118 ────── 437 ══════
-144 207 ────── 351 ══════
ACCOUNTS PAYABLE
Payable to Unitholders on account of redemptions Payable for investments purchased Other payables
12
2017
UNIT TRANSACTIONS Transactions in units are summarized as follows: 2017 Units’ 000
2016 Units’ 000
28,869
32,041
8,795
3,887
Units reinvested
--
356
Units redeemed
(5,610)
(7,415)
3,185 ─────── 32,054 ═══════
(3,172) ─────── 28,869 ═══════
Units at the beginning of the year Units sold
Net increase / (decrease) in units during the year Units at the end of the year
As at 31 December 2017, top five Unitholders represented of 61.39% (31 December 2016: 70.93%) of the Fund’s units.
12
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 13
RELATED PARTY TRANSACTIONS
In the ordinary course of its activities, the Fund transacts business with related parties on the basis of approved terms and conditions of the Fund. All related party transactions are approved by the Fund Board. Name of entity
Relationship
NCB Capital Company National Commercial Bank (NCB) Al-Ahli Takaful Company Al-Ahli Multi Asset Conservative Fund Al-Ahli Multi Asset Moderate Fund Al-Ahli Multi Asset Growth Fund Al-Ahli Global Equity Fund
Fund Manager Shareholder of Fund Manager Unitholder Unitholder Unitholder Unitholder Unitholder
The significant related party transactions entered into by the Fund during the year and balances resulting from such transactions are as follows:
Related party
Nature of transaction
NCBC
Management Fee
Value of units held as at 31 December 2017 2016
Amount of transactions 2017 2016
Expenses paid on behalf of the fund
128
391
56
110
Al-Alhli Multi Asset Conservative Fund
Subscription of units
639
--
Redemption of units
1,769
1,537
Al-Ahli Multi Asset Moderate Fund
Subscription of units
1,124
--
Redemption of units
1,088
691
Al-Ahli Multi Asset Growth Fund
Subscription of units
283
--
Redemption of units
1,048
805
Al-Ahli Global Equity Fund
Subscription of units
31
973
Redemption of units
491
--
Al Ahli Takaful Subscription of units Company Redemption of units
765
--
--
393
13
--
5,973
5,835
5,969
5,769
5,833
5,307
731
952
1,371
125
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 14
FINANCIAL RISK MANAGEMENT
The Fund’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Fund’s overall risk management program seeks to maximize the returns derived for the level of risk to which the Fund is exposed, and, to minimize potential adverse effects on the Fund’s financial performance. The Fund Manager uses different methods to measure and manage the various types of risk to which the Fund is exposed. 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 Manager seeks to manage credit risk by monitoring credit exposures, limiting transactions with specific counterparties, and continually assessing the creditworthiness of counterparties. As at the balance sheet date, the Fund’s maximum exposure to credit risk is represented by the carrying amount of cash and cash equivalents, which represent cash at bank with a local Bank having sound credit rating. Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or other financial asset. The Fund Manager seeks to manage liquidity risk by ensuring, as far as possible, that it will have sufficient liquidity to meet its financial liabilities as and when they fall due, in normal or stressed conditions, without incurring unacceptable losses or risking damage to the its reputation. Equity price risk Equity price risk is the risk that the value of financial instruments will fluctuate because of changes in market prices. The Fund's investments are susceptible 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 industry concentration (see note 9). The effect on the statement of income (as a result of the change in the fair value of investments in equity instruments as at December 31) due to a reasonably possible change in equity indices based on the industry concentration, with all other variables held constant is as follows:
Effect on net assets
Change in market rates
2017
2016
± 10%
± 5,122
± 3,580
14
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 14
FINANCIAL RISK MANAGEMENT (continued)
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 views the United States Dollar as its functional currency. The Fund's financial assets and liabilities are denominated in currencies other than its functional currency. Accordingly, the value of the Fund's assets may be affected favorably or unfavorably by fluctuations in currency rates. The analysis calculates the effect of a reasonably possible movement of the U.S. Dollar against the underlying currencies of the investment portfolio with all other variables held constant, on the statement of operations due to the fair value of currency sensitive assets.
Japanese Yen Australian Dollar Hong Kong Dollar United States Dollar Singapore Dollar New Zealand Dollar Euro 15
Change in market rates
2017
2016
± 10% ± 10% ± 10% ± 10% ± 10% ± 10% ± 10%
± 3,138 ± 703 ± 217 ± 92 ± 46 ± 36 ± --
± 2,681 ± 592 ± 173 ± -± 82 ± 31 ± 20
LAST VALUATION DAY
The last valuation day of the year was 29 December 2017 (2016: 28 December 2016). There is no significant change in in the net asset value per unit of the Fund between last valuation and 31 December 2017. 16
APPROVAL OF THE FINANCIAL STATEMENTS
These financial statements were approved by the Fund Manager on Rajab 10, 1439H, corresponding to March 27, 2018.
15
Annual Report – 2017
Contents A. Investment Fund Information ................................................................................................................................... 3
B. Fund Performance..................................................................................................................................................... 3
C. Fund Manager ........................................................................................................................................................... 5
D. Custodian .................................................................................................................................................................. 5
E. Auditor ...................................................................................................................................................................... 6
F. Financial Statements ................................................................................................................................................. 6
AlAhli Asia Pacific Index Fund – 2017 Annual Report
AlAhli Asia Pacific Index Fund – 2017 Annual Report A. Investment Fund Information 1. Investment Objective AlAhli Asia Pacific Index Fund is an open-ended investment fund which aims to achieve capital growth over the long term. The Fund seeks to replicate as closely as possible, before expenses, the performance of the MSCI Pacific Islamic M-Series (Net Total Return USD). 2. Investment Policies The Fund primarily invests in the stocks of large-medium cap listed companies. The Fund's Investments will be concentrated in the stocks of companies listed on Developed Asia and Pacific Markets. The Fund is managed pursuant to an index-linked passive strategy that is designed to trace the performance of MSCI Pacific Islamic M-Series (Net Total Return USD), which is an index based on an the average free float adjusted market capitalization weighted to measure the performance of Shariah compliant large and medium cap segment companies that are listed in the Developed Asia and Pacific Markets. 3. Distribution of income and gain policy Income and dividends will be reinvested in the Fund. No income or dividends will be distributed to Unitholders. 4. The fund's reports are available upon request free of charge. B. Fund Performance 1. The following table shows a comparison of the following data for the last three years: Year
2017
2016
2015
51,514,343
38,209,390
38,209,390
NAV per Unit*
1.61
1.19
1.19
Highest Price*
1.62
1.40
1.40
Lowest Price*
1.24
1.06
1.06
32,053,625
32,036,329
32,036,329
-
-
-
0.43%
1.35%
2.08%
AUM*
Number of Units Income Distribution Fees and Expense ratio * In US Dollar
2. Total return compared to the benchmark for 1 year, 3 years, 5 years and 10 years: Period
Year
3 Years
5 Years
10 Years
Total return %
29.12
8.31
7.20
4.82
Benchmark %
29.89
11.22
10.00
6.96
AlAhli Asia Pacific Index Fund – 2017 Annual Report
3. Annual total return for each of the last 10 financial years: Year
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
Return %
29.12
4.36
-5.71
4.56
6.55
16.25
-10.81
19.90
50.69
-39.64
Benchmark %
29.89
12.09
-5.51
8.08
8.29
22.48
-8.69
23.53
63.46
-46.11
4. Actual fees and fund expenses paid by the investment fund during the year: Fees and Expenses
Percentage of NAV
Management Fee Expense
0.30%
Audit Fee Expense
0.01%
Fund Admin Fee Expense
0.04%
CMA Fee Expense
0.00%
Tadawul Fee Expense
0.00%
Shariah Audit Fee Expense
0.02%
Fund Board Fee Expense
0.01%
Custody Fee Expense
0.04%
Expense Ratio
0.43%
5. No material changes occurred during the year. 6.
No voting right was exercised during the year.
7. Fund Board Annual Report: The Board of Directors consists of the following members, who were appointed by the fund manager and approved by the Capital Market Authority: Mohammed Al-Ali Mohammed Saqaf Dr. Abdulrauof Banajah Alaaeldden Sami
Chairman of the Fund’s Board of Directors non-independent member independent member independent member
The Fund's Board of Directors held three meetings during 2017. The following is a summary of the key decisions approved and the matters discussed by the Fund’s Board of Directors: Fund’s performance review: The Fund performance was 29.12% while the benchmark was 29.89%. Risks related to the funds; including: liquidity, market, operational risks. Ensuring fund’s compliance to all applicable rules and regulations. The effects of the updated Investment Funds Regulations on the fund.
AlAhli Asia Pacific Index Fund – 2017 Annual Report
C. Fund Manager 1. NCB Capital Company. King Saud Road, P.O. Box 22216, Riyadh 11495, Saudi Arabia, Tel: +966 920000232 Website: www.alahlicapital.com 2. Sub-manager / investment adviser AMUNDI Asset Management, 90 Boulevard Pasteur, 75015 Paris, France 3. Investment activities The fund targets to replicate as closely as possible, before expenses, the performance of the MSCI Pacific Islamic Mseries Index (Net Total Return USD). 4. Fund’s performance In 2017, The Fund performance was 29.12% while the benchmark was 29.89%. 5. T&C’s Material changes Updating the Terms and Condition to include Value Added Tax law; 6. The fund does not invest substantially in other investment funds. 7. No special commissions were received by the fund manager during the period D. Custodian 1. NCB Capital Company. King Saud Road, P.O. Box 22216, Riyadh 11495, Saudi Arabia, Tel: +966 920000232 Website: www.alahlicapital.com 2. Custodian’s duties and responsibilities The custodian shall be held responsible to the fund manager and unitholders for any losses caused to the investment fund due to the custodian fraud, negligence, misconduct or willful default. The custodian shall be responsible for taking custody and protecting the fund's assets on behalf of unitholders, and taking all necessary administrative measures in relation to the custody of the fund's assets. 3. Custodian’s opinion NCB Capital Co. hereby confirms that we Issued, transferred and redeemed the units in accordance with the provision of the IFR and Fund T&Cs. NCB Capital Co. hereby confirms that we valued and calculated the Unit price in accordance with the provisions of IFR, Fund T&Cs and Information Memorandum. NCB Capital Co. hereby confirms that we have not breached any of the Investment Restrictions, Limitations and borrowing powers applicable to IFR.
AlAhli Asia Pacific Index Fund – 2017 Annual Report
E. Auditor 1. KPMG Al Fozan & Partners. Zahran Business Center, Prince Sultan Street, Jeddah, Saudi Arabia Tel: +966 12 6989595 Website: www.kpmg.com/sa 2. Auditor’s opinion: Accompanying financial statements have complied with the requirements of the applicable provisions of the Investment Funds Regulations issued by the Capital Market Authority, and the Fund’s Terms and Conditions and the Information Memorandum in so far as they affect the preparation of the financial statements and accordingly nothing has been reported by the auditor in their report which is in compliance with the SOCPA requirements. F. Financial Statements
AlAhli Asia Pacific Index Fund – 2017 Annual Report
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) FINANCIAL STATEMENTS For the year ended 31 December 2017 with INDEPENDENT AUDITORS’ REPORT TO THE UNITHOLDERS
kpmg
KPMG Al Fozan & Partners Certified Public Accountants Zahran Business Centre, 9th Floor Prince Sultan Street PO Box 55078 Jeddah 21534 Kingdom of Saudi Arabia
Telephone +966 12 698 9595 Fax +966 12 698 9494 Internet www.kpmg.com.sa License No. 46/11/323 issued 11/3/1992
Independent auditors’ report The Unitholders AlAhli Asia Pacific Index Fund Jeddah, Kingdom of Saudi Arabia Opinion We have audited the financial statements of AlAhli Asia Pacific Index Fund (“the Fund”) managed by NCB Capital Company (the “Fund Manager”) which comprise the balance sheet as at 31 December 2017, the statements of income, cash flows and changes in net assets attributable to unitholders for the year then ended, and notes, comprising significant accounting policies and other explanatory information. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Fund as at 31 December 2017, and its financial performance and its cash flows for the year then ended in accordance with generally accepted accounting standards as issued by Saudi Organization for Certified Public Accountants (SOCPA). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing that are endorsed in the Kingdom of Saudi Arabia. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Fund in accordance with the professional code of conduct and ethics that are endorsed in the Kingdom of Saudi Arabia that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Fund Manager and Those Charged with Governance for the Financial Statements. The Fund Manager is responsible for the preparation and fair presentation of the financial statements in accordance with generally accepted accounting standards as issued by SOCPA, the applicable provisions of the Investment Funds Regulations issued by Capital Market Authority, the Fund’s terms and conditions, the Information Memorandum, and for such internal control as Fund Manager determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Fund Manager 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 Fund Manager either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Fund’s financial reporting process.
KPMG Al Fozan & Partners, a partnership registered in Saudi Arabia and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) BALANCE SHEET As at 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated)
Notes
2017
2016
Cash and cash equivalents
7
522
260
Held for trading investments
9
51,219
35,796
Accounts receivable
10
211 ───── 51,952
230 ───── 36,286
11
437 ───── 51,515 ═════ 32,054 ═════ 1.60716 ═════
351 ───── 35,935 ═════ 28,869 ═════ 1.2448 ═════
ASSETS
Total assets LIABILITY Accounts payable Net assets attributable to Unitholders 12
Units in issue in thousands (number) Net asset value per unit (USD)
The accompanying notes 1 to 16 form integral part of these financial statements 1
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) STATEMENT OF INCOME For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated)
Note
2017
2016
836
763
1,229
2,611
8,979 ────── 11,044 ──────
(1,169) ────── 2,205 ──────
128
391
Custody fee
18
71
Administrative expenses
16
19
Shariah audit fee
8
7
Professional fees
7
6
Fund Board remuneration
5
5
2 ────── 184 ──────
2 ────── 501 ──────
10,860 ══════
1,704 ══════
INVESTMENT REVENUE Dividend income Realised gain on sale of held for trading investments Unrealised gain / (loss) on measurement of held for trading investments Total revenue 8
EXPENSES Management fee
CMA fee Total expenses
Net income for the year
The accompanying notes 1 to 16 form integral part of these financial statements 2
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) STATEMENT OF CASH FLOWS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) Note Cash flow from operating activities Net income for the year Adjustment for: Value for unites reinvested Unrealised (loss) / gain on held for trading investments
2017 10,860
Changes in operating assets and liabilities: (Increase) / decrease in held for trading investments Decrease / (increase) in accounts receivable Increase in accounts payable Net cash (used in) / provided by operating activities Cash flow from financing activities Proceeds from units sold Value of units redeemed Net cash provided by / (used in) financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year
7
Cash and cash equivalents at the end of the year
7
1,704
-(8,979) ────── 1,881
416 1,169 ────── 3,289
(6,444) 19 86 ────── (4,458) ──────
888 (212) 340 ────── 4,305 ──────
12,985 (8,265) ────── 4,720 ────── 262
4,795 (9,194) ────── (4,399) ────── (94)
260 ────── 522 ══════
354 ────── 260 ══════
The accompanying notes 1 to 16 form integral part of these financial statements 3
2016
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) Notes
2017
2016
Net assets attributable to Unitholders at the beginning of the year
35,935
38,214
Net income for the year
10,860
1,704
12,985
4,795
--
416
(8,265)
(9,194)
4,720 ─────
(3,983) ─────
51,515 ═════
35,935 ═════
Increase / (decrease) in net assets from unit transactions during the year
12
Proceeds from units sold Value of units reinvested
8
Value of units redeemed
Net assets attributable to Unitholders at the end of the year
The accompanying notes 1 to 16 form integral part of these financial statements 4
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 1
THE FUND AND ITS ACTIVITIES
Al-Ahli Asia Pacific Index Fund (the "Fund") is a Shariah compliant, open-end investment fund, managed by NCB Capital Company ("the Fund Manager"), a subsidiary of The National Commercial Bank (“the Bank”), for the benefit of the Fund's Unitholders. The Fund is established under article 30 of the Investment Fund Regulations (the Regulations) issued by the Capital Market Authority (CMA). NCB Capital Company also acts as the custodian of the Fund. As defined in Capital Market Authority's (CMA) Regulation No. 2-83-2005 dated 21 Jumada Awal 1426H (28 June, 2005) the Fund Manager conducts following securities’ activities: a) b) c) d) e)
Dealing; Arranging; Managing; Advising; Custody;
The Fund’s investments are held by CACEIS Bank Luxembourg, a custodian appointed by the Fund Manager. The Fund Manager has appointed an international investment house, Amundi - France, as sub-manager to the Fund. Their duties include opening separate independent investment accounts and managing the Fund’s assets in line with the investment strategies and Shariah guidelines. The Fund invests in securities of companies listed on major South East Asian, Pacific and Japanese stock exchanges, complying with Shariah Principles for investment. Uninvested cash balances may be held in Shariah compliant money market and Murabaha funds and/or be placed in Murabaha transactions. The terms and conditions of the Fund were originally approved by the Saudi Arabian Monetary Authority (SAMA) and subsequently endorsed by CMA through their letter dated 18 Dhul Hijja 1429H (corresponding to 16 December 2008). 2
REGULATING AUTHORITY
The Fund is governed by the Regulations issued by the CMA pursuant to resolution number 7-219-2006 dated 3 Dhul Hijja 1427H (corresponding to 24 December 2006) as amended by the Resolution No 1/61/2016 of Board of the CMA dated 16 Sha’ban 1437H (corresponding to 23 May 2016), which provided detailed requirements for all funds within the Kingdom of Saudi Arabia. 3
CHANGES IN FUND’S TERMS AND CONDITIONS
During the year ended 31 December 2017, the Fund Manager has made certain revisions to the terms and conditions of the Fund relate to inclusion of VAT clause. The changes were notified to CMA through a letter dated 4 December 2017. These changes were notified by the Fund manager to the unitholders through a letter dated 6 December 2017. The revised terms and conditions became effective from 1 January 2018.
5
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 4
SUBSCRIPTION AND REDEMPTION
The Fund is open for subscriptions / redemptions of units on every Saudi and US Business day (Monday to Thursday). The net asset value of the Fund is determined on each Valuation day (Monday to Friday). All transactions for purchase / sale of units are entered on the net assets value of the Fund, determined by dividing the value of net assets of the Fund by the total number of outstanding Fund units on the relevant Valuation day. 5
BASIS OF PREPARATION
Statement of compliance These financial statements are prepared in accordance with generally accepted accounting standards in the Kingdom of Saudi Arabia promulgated by Saudi Organization for Certified Public Accountants ("SOCPA"), the applicable provisions of the Investment Funds Regulations issued by Capital Market Authority, the Fund’s terms and conditions and the Information Memorandum, The Fund prepares its financial statements as at and for the year ended on its last valuation date (note 15). Basis of measurement These financial statements have been prepared under the historical cost convention using the accrual basis of accounting and the going concern concept, except for held for trading investments which are carried at fair value. Functional and presentational currency These financial statements are presented in United States Dollar (USD), which is the Fund’s functional currency. All financial information presented in United States Dollar has been rounded to the nearest thousand. Use of estimates and judgments The preparation of the financial statements in conformity with the generally accepted accounting standards as applicable in the Kingdom of Saudi Arabia requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues 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 year in which the estimates are revised and in any future periods affected. Valuation of financial assets Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As the Fund's financial instruments are accounted for under the historical cost convention, except for held for trading investments, differences may arise between the carrying values and fair values. The Fund Manager believes that at the reporting date, the fair values of the Fund's financial assets and liabilities are not materially different from their carrying values.
6
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 5
BASIS OF PREPARATION (continued)
Use of estimates and judgments (continued) Valuation of financial assets (continued) The Fund measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
Level 1: Fair value measurements using quoted price (unadjusted) in an active market for identical assets or liabilities. Level 2: Fair value measurements using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Fair value measurement using inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).
All financial assets of the fund, carried at fair value at the reporting date, are classified under hierarchy level 1. 6
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these financial statements. a)
Held for trading investments
Securities listed or traded on a stock exchange are classified as Held for Trading and are initially recognised at cost, being the fair value of the consideration given and are subsequently measured at fair value. Changes in fair values of held for trading investments (“investments”), comprising unrealised gains and losses are included in the statement of income. Realised gains and losses on investments sold are determined on weighted average basis. b)
Investment transaction
Investment transactions are accounted for as of the trade date which is the date on which Fund becomes a part to the contractual provisions of the instrument. c)
Impairment of financial assets
An assessment is made at the balance sheet date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the statement of income. If a financial asset is impaired, impairment is determined as follows: (i)
For assets carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously recognised in the statement of income; (ii) For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return for a similar financial asset; (iii) For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at the original effective commission rate.
7
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 6 d)
SIGNIFICANT ACCOUNTING POLICIES (continued) Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where: (i) The rights to receive cash flows from the asset have expired; or (ii) The Fund has transferred its rights to receive cash flows from the asset; and (iii) Either (a) the Fund has transferred substantially all the risks and rewards of the asset, or (b) the Fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Fund has transferred its rights to receive cash flows from an asset, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Fund’s continuing involvement in the asset. e)
Revenue recognition
Realised gains and losses on investments sold are determined on an average cost basis. Dividends are recognised when the Fund’s right to receive the payment is established. Increases or decreases in the difference between the cost and market value of the Fund’s portfolio of investments are receognised as change in fair value of investments in the statement of income. f)
Foreign currency translation
Transactions during the year in currencies other than the functional currency are translated into the functional currency at the rates of exchange at the dates of the transactions. Monetary assets and liabilities that are denominated in a foreign currency are retranslated at the rate of exchange ruling at the balance sheet date. Exchange gains or losses are reflected in the statement of income. g)
Taxation / zakat
Taxation / zakat is the obligation of the Unitholders and therefore, no provision for such liability is made in these financial statements. h)
Cash and cash equivalents
For the purposes of the statement of cashflows, cash and cash equivalents consists of bank balances. i)
Net asset value per unit
The net asset value per unit is calculated by dividing the net assets attributable to Unitholders included in the balance sheet by the number of units outstanding at the year end.
8
ALAHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 5 j)
SIGNIFICANT ACCOUNTING POLICIES (continued) Provision and accruals
Provisions and accruals are recognized when the Fund has an obligation (legal or constructive) arising from a past event, and the costs to settle the obligation are both probable and can be measured reliably. k)
Offsetting
Financial assets and liabilities are offset and reported net in the balance sheet when there is a legally enforceable right to set off the recognized amounts and when the Fund intends to settle on a net basis, or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under accounting standards generally accepted in the Kingdom of Saudi Arabia, or for gains and losses arising from a group of similar transactions. 7
CASH AND CASH EQUIVALENTS
Cash and cash equivalents primarily represent cash held in current accounts with banks. 8
MANAGEMENT FEE AND OTHER EXPENSES
The Fund is managed and administered by the Fund Manager. For these services, the Fund accrues a management fee, as determined by the Fund Manager, which should not be more than the maximum annual rate of 0.3% p.a., as set out in the Fund’s terms and conditions. The Fund Manager is also entitled to recover expenses incurred on behalf of the Fund relating to audit, custody, advisory, data processing and other similar charges. The maximum amount of such expenses that can be recovered from the Fund by the Fund Manager is restricted to 0.50% per annum of the Fund's net assets at the respective valuation days, as specified in the Fund’s terms and conditions. These expenses have been recovered by the Fund Manager on actual basis. Furthermore, the Fund Manager is entitled to a subscription fee of 2% at the time of the investment in the Fund by a Unitholder. This fee may be waived at the discretion of the Fund manager. Until 23 July 2016, the Fund Manager was allocated units against settlement of the management fee and other expenses on every valuation day, which were reinvested in the Fund. Subsequent to this date, these fees/charges are paid in cash.
9
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 9
HELD FOR TRADING INVESTMENTS
The composition of the held for trading investments by currency is summarized below: 2017 Currency
Country
Japanese yen Australia Dollar Hong Kong Dollar United States Dollar
Japan Australia Hong Kong United States of America Singapore New Zealand
Singapore Dollar New Zealand dollars
% of Total Value
Cost
Fair Value
74.86 16.86 5.03
31,380 7,029 2,166
38,340 8,637 2,575
1.77 0.76 0.72 ──────── 100 ════════
917 460 359 ──────── 42,311 ════════
908 388 371 ──────── 51,219 ════════
2016 Currency
Country
Japanese Yen Australian Dollar Hong Kong Dollar Singapore Dollar New Zealand Dollar
Japan Australia, Ireland Hong Kong Singapore New Zealand
% of Total Value
Cost
Fair Value
74.90 17.12 4.83 2.28 0.88 ──────── 100 ════════
26,960 5,892 1,743 955 316 ──────── 35,866 ════════
26,810 6,127 1,730 815 314 ──────── 35,796 ════════
10
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 9
HELD FOR TRADING INVESTMENTS (continued)
The composition of the held for trading investments by industry sector is summarized below: 2017 Industry Sector Consumer Goods Health Care Materials Industrials Information Technology Telecommunication Services Financial services Retail Real Estate Energy Transportation Others
% of Total Value
Cost
Fair Value
35.75 23.18 8.67 8.64 5.34 4.85 4.57 3.20 2.61 1.69 1.25 0.25 ──────── 100 ════════
14,386 10,296 3,205 3,887 2,132 2,595 1,995 1,242 1,127 724 632 90 ──────── 42,311 ════════
18,310 11,875 4,441 4,426 2,736 2,486 2,340 1,638 1,339 865 643 120 ──────── 51,219 ════════
2016 Industry Sector Health Care Industrials Information Technology Consumer Goods Materials Telecommunication Services Consumer Staples Real Estate Utilities Energy
% of Total Value
Cost
Fair Value
20.63 17.45 13.68 12.92 12.85 7.47 7.44 4.02 1.77 1.77 ──────── 100 ════════
8,303 6,030 4,595 4,203 3,800 3,176 3,074 1,448 640 597 ──────── 35,866 ════════
7,383 6,247 4,897 4,626 4,602 2,673 2,665 1,439 632 632 ──────── 35,796 ════════
11
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 10
ACCOUNTS RECEIVABLE
Dividends receivable Receivable for investments sold Other receivables
11
2016
70 41 100 ────── 211 ══════
64 -166 ────── 230 ══════
2017
2016
213 106 118 ────── 437 ══════
-144 207 ────── 351 ══════
ACCOUNTS PAYABLE
Payable to Unitholders on account of redemptions Payable for investments purchased Other payables
12
2017
UNIT TRANSACTIONS Transactions in units are summarized as follows: 2017 Units’ 000
2016 Units’ 000
28,869
32,041
8,795
3,887
Units reinvested
--
356
Units redeemed
(5,610)
(7,415)
3,185 ─────── 32,054 ═══════
(3,172) ─────── 28,869 ═══════
Units at the beginning of the year Units sold
Net increase / (decrease) in units during the year Units at the end of the year
As at 31 December 2017, top five Unitholders represented of 61.39% (31 December 2016: 70.93%) of the Fund’s units.
12
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 13
RELATED PARTY TRANSACTIONS
In the ordinary course of its activities, the Fund transacts business with related parties on the basis of approved terms and conditions of the Fund. All related party transactions are approved by the Fund Board. Name of entity
Relationship
NCB Capital Company National Commercial Bank (NCB) Al-Ahli Takaful Company Al-Ahli Multi Asset Conservative Fund Al-Ahli Multi Asset Moderate Fund Al-Ahli Multi Asset Growth Fund Al-Ahli Global Equity Fund
Fund Manager Shareholder of Fund Manager Unitholder Unitholder Unitholder Unitholder Unitholder
The significant related party transactions entered into by the Fund during the year and balances resulting from such transactions are as follows:
Related party
Nature of transaction
NCBC
Management Fee
Value of units held as at 31 December 2017 2016
Amount of transactions 2017 2016
Expenses paid on behalf of the fund
128
391
56
110
Al-Alhli Multi Asset Conservative Fund
Subscription of units
639
--
Redemption of units
1,769
1,537
Al-Ahli Multi Asset Moderate Fund
Subscription of units
1,124
--
Redemption of units
1,088
691
Al-Ahli Multi Asset Growth Fund
Subscription of units
283
--
Redemption of units
1,048
805
Al-Ahli Global Equity Fund
Subscription of units
31
973
Redemption of units
491
--
Al Ahli Takaful Subscription of units Company Redemption of units
765
--
--
393
13
--
5,973
5,835
5,969
5,769
5,833
5,307
731
952
1,371
125
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 14
FINANCIAL RISK MANAGEMENT
The Fund’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Fund’s overall risk management program seeks to maximize the returns derived for the level of risk to which the Fund is exposed, and, to minimize potential adverse effects on the Fund’s financial performance. The Fund Manager uses different methods to measure and manage the various types of risk to which the Fund is exposed. 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 Manager seeks to manage credit risk by monitoring credit exposures, limiting transactions with specific counterparties, and continually assessing the creditworthiness of counterparties. As at the balance sheet date, the Fund’s maximum exposure to credit risk is represented by the carrying amount of cash and cash equivalents, which represent cash at bank with a local Bank having sound credit rating. Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or other financial asset. The Fund Manager seeks to manage liquidity risk by ensuring, as far as possible, that it will have sufficient liquidity to meet its financial liabilities as and when they fall due, in normal or stressed conditions, without incurring unacceptable losses or risking damage to the its reputation. Equity price risk Equity price risk is the risk that the value of financial instruments will fluctuate because of changes in market prices. The Fund's investments are susceptible 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 industry concentration (see note 9). The effect on the statement of income (as a result of the change in the fair value of investments in equity instruments as at December 31) due to a reasonably possible change in equity indices based on the industry concentration, with all other variables held constant is as follows:
Effect on net assets
Change in market rates
2017
2016
± 10%
± 5,122
± 3,580
14
AL-AHLI ASIA PACIFIC INDEX FUND (Managed by NCB Capital Company) NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2017 Expressed in US Dollars ‘000 (unless otherwise stated) 14
FINANCIAL RISK MANAGEMENT (continued)
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 views the United States Dollar as its functional currency. The Fund's financial assets and liabilities are denominated in currencies other than its functional currency. Accordingly, the value of the Fund's assets may be affected favorably or unfavorably by fluctuations in currency rates. The analysis calculates the effect of a reasonably possible movement of the U.S. Dollar against the underlying currencies of the investment portfolio with all other variables held constant, on the statement of operations due to the fair value of currency sensitive assets.
Japanese Yen Australian Dollar Hong Kong Dollar United States Dollar Singapore Dollar New Zealand Dollar Euro 15
Change in market rates
2017
2016
± 10% ± 10% ± 10% ± 10% ± 10% ± 10% ± 10%
± 3,138 ± 703 ± 217 ± 92 ± 46 ± 36 ± --
± 2,681 ± 592 ± 173 ± -± 82 ± 31 ± 20
LAST VALUATION DAY
The last valuation day of the year was 29 December 2017 (2016: 28 December 2016). There is no significant change in in the net asset value per unit of the Fund between last valuation and 31 December 2017. 16
APPROVAL OF THE FINANCIAL STATEMENTS
These financial statements were approved by the Fund Manager on Rajab 10, 1439H, corresponding to March 27, 2018.
15
