MEFIC REAL ESTATE INCOME FUND Managed by MIDDLE EAST ...
MEFIC REAL ESTATE INCOME FUND Managed by MIDDLE EAST FINANCIAL INVESTMENT COMPANY INTERIM CONDENSED FINANCIAL STATEMENTS (Unaudited) For the six months period ended 30 June 2016 together with the Independent Auditors’ Review Report to the Unitholders
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REVIEW REPORT For the six-months period ended 30 June 2016
INDEX
PAGE
Independent auditors’ review report
2
Interim balance sheet
3
Interim statement of income
4
Interim statement of cash flows
5
Interim statement of changes in net assets attributable to unitholders
6
Notes to the interim condensed financial statements
7 - 10
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY INTERIM BALANCE SHEET (Unaudited) As at 30 June 2016 (Saudi Riyals)
Note 30 June 2016
30 June 2015
282,190 95,000,000 3,998,587 99,280,777
1,999,456 95,000,000 3,676,554 100,676,010
1,002,939 100,000 1,102,939
499,241 1,840,000 85,000 2,424,241
98,177,838
98,251,769
9,630,000
9,630,000
10.19
10.20
ASSETS Cash at bank- current account Receivable under deferred sale agreement Accrued commission income Total assets
6 6
LIABILITIES Management fees payable Dividend payable Other expenses payable Total liabilities
6 7
Net assets attributable to the Unitholders Number of units in issue Net assets value – per unit
The accompanying notes 1 to 11 form an integral part of these interim condensed financial statements.
3
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY INTERIM STATEMENT OF INCOME (Unaudited) For the six months period ended 30 June 2016 (Saudi Riyals)
Note INCOME Commission income Total income EXPENSES Management fees Other expenses Total expenses NET INCOME FOR THE PERIOD
30 June 2016
30 June 2015
6
4,884,181 4,884,181
4,857,345 4,857,345
5 5
1,002,939 78,750 1,081,689
1,022,337 106,250 1,128,587
3,802,492
3,728,758
The accompanying notes 1 to 11 form an integral part of these interim condensed financial statements. 4
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY INTERIM STATEMENT OF CASH FLOWS (Unaudited) For the six months period ended 30 June 2016 (Saudi Riyals)
30 June 2016
30 June 2015
Net income for the year
3,802,492
3,728,758
Changes in operating assets and liabilities: Accrued commission income Management fees payable Other expenses payable Net cash from operating activities
4,615,819 (535,327) (33,750) 4,114,240
4,642,655 (1,041,017) 16,250 7,346,646
(9,544,000) (9,544,000)
(5,864,000) (5,864,000)
(1,627,266) 1,909,456
1,482,646 516,810
282,190
1,999,456
CASH FLOWS FROM OPERATING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Net cash used in financing activities
7
Net (decrease) / increase in cash and cash equivalent Cash and cash equivalent at the beginning of the year Cash and cash equivalent at the end of the year
The accompanying notes 1 to 11 form an integral part of these interim condensed financial statements.
5
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY INTERIM STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS (Unaudited) For the six months period ended 30 June 2016 (Saudi Riyals)
30 June 2016
30 June 2015
102,079,346
102,227,011
3,802,492
3,728,758
Dividends declared during the period
(7,704,000)
(7,704,000)
Net assets value at 30 June
98,177,838
98,251,769
9,630,000
9,630,000
Net assets value at 1 January Net income for the period
TRANSACTIONS WITH UNITHOLDERS:
Units at beginning / end of the period (number)
The accompanying notes 1 to 11 form an integral part of these interim condensed financial statements. 6
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS (Unaudited) For the period ended 30 June 2016 (Saudi Riyals) 1.
THE FUND AND ITS ACTIVITIES The Real Estate Income Fund (“the Fund”) is a closed-ended real estate fund established and managed through an agreement between Middle East Financial Investment Company (“the Fund Manager”) and the Fund Investors (“the Unitholders”). The objective of the Fund is to purchase residential and commercial real estate in the Kingdom of Saudi Arabia on a condition that it is rented in advance with a known annual return, or purchase the right to benefit from it and achieve stable returns for investors around 8% annually, and distributing a significant portion of it on a yearly basis over the term of the Fund. The Fund commenced its operations on 18 March 2012 for a term of 4 years starting from the subscription date on 18 February 2012. The approval from Capital Market Authority (“CMA”) for the establishment of the Fund was granted in its letter number 4514/5 dated 24 Ramadan 1432 H (corresponding to 24 August 2011). During the period, the contractual tenure of the Fund was extended for one year up to 18 February 2017. Revised terms and conditions have been approved by Fund’s Board during the period and announced on 22 March 2016. 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. Furthermore, Unitholders are beneficial owners of the assets of the Fund and any income distribution is made in proportion to their unit holdings in the fund. The interim results of the Fund may not be an indicator of its annual results of the operations.
2.
REGULATORY AUTHORITY The Fund is governed by the Real Estate Investment Funds Regulations issued by the CMA on 19 Jumada II, 1427 H (corresponding to 15 July 2006) detailing requirements for all real estate funds within the Kingdom of Saudi Arabia.
3.
BASIS OF PREPARATION
3.1 Statement of compliance The interim condensed financial statements are prepared in accordance with the accounting standards generally accepted in the Kingdom of Saudi Arabia issued by the Saudi Organization for Certified Public Accountants (SOCPA). 3.2 Basis of measurement These interim condensed financial statements have been prepared under the historical cost convention, using the accrual basis of accounting and the going concern concept. 3.3 Functional and presentation currency These financial statements have been presented in Saudi Riyals (SR), which is the functional currency of the Fund. All financial information presented has been rounded to the nearest SR.
7
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS (Unaudited) For the six months period ended 30 June 2016 (Saudi Riyals) 3.
BASIS OF PREPARATION (Continued)
3.4 Use of estimates and judgment The preparation of these financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. 4.
SIGNIFICANT ACCOUNTING POLICIES The significant accounting and risk management policies used in the preparation of these interim condensed financial statements are consistent with those applied and disclosed in the financial statements for the year ended 31 December 2015.
5.
MANAGEMENT FEE, ADMINISTRATION AND OTHER CHARGES The Fund Manager charges the following fees as per the terms and conditions of the Fund: Subscription fee: The Fund Manager charges each investor with a subscription fee of a percentage not exceeding 1.25% of the subscribed amount. Management fee: The Fund Manager charges the Fund a management fee at the rate of 2% (30 June 2015: 2%) per annum payable quarterly of the net assets value of the Fund at each valuation day. Other expenses: The Fund Manager also recovers certain expenses incurred on behalf of the Fund within limits mentioned in the terms and conditions of the Fund.
6.
TRANSACTIONS AND BALANCES WITH RELATED PARTIES Related parties of the Fund include unitholders, the Fund Manager and other funds managed by the Fund Manager. All transactions with related parties are carried out based on mutually agreed terms under formal agreement. Transactions: Name of related party
Nature of relationship
Nature of transaction
For the six months period ended 2016 2015
Abdullah al Blehed Son’s Holding Company
Unitholder
Commission income
4,884,181
4,857,345
Middle East Financial Investment Company
The Fund manager
Management fees
1,002,939
1,022,337
8
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS (Unaudited) For the six months period ended 30 June 2016 (Saudi Riyals) 6.
TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Continued) Balances: The transactions resulted in following balances due from / (due to) related parties at balance sheet date: Related party Description 30 June 2016 30 June 2015 Abdullah al Blehed Son’s Holding Company
Receivable under deferred sale agreement Dividend payable Accrued commission income
Middle East Financial Investment Company
Management fees payable
95,000,000
95,000,000
-
(1,840,000)
3,998,587
3,676,554
(1,002,939)
(499,241)
On 18 March 2012, the Fund entered into the following three agreements with Abdullah Al Blehed Son’s Holding Company (the “Owner”) of a residential compound in Riyadh (the “Compound”): −
− −
Agreement to purchase the Compound at a price of SR 95,000,000. The Fund obtained the legal title of dthe Compound initially in the name of the Managing Director of the Fund Manager, which was transferred to Jeser Real Estate Development Company (“the Custodian”), a subsidiary of the Fund manager, in its capacity of a custodian of the title on behalf of the Fund. The Custodian, through a letter, has assigned the legal title to the Fund Manager; Agreement to sell the Compound back to the Abdullah al Blehed Son’s Holding Company after completion of 5 years at the price of SR 95,000,000; and Agreement to lease back the Compound to the Owner at an annual (hijri) commission income of SR 9,500,000.
In accordance with applicable accounting standards, assets purchased under the agreement to resell at a future specified date are not recognized in the balance sheet. Considering the substance of the transaction the fund is not exposed to substantial risks and rewards of the underlying property hence the arrangement does not qualify for classification as either a finance lease or an operating lease of the property. The arrangement is a treated as a financing arrangement with deferred settlement date for the principal amount. Unearned commission income is recorded in the Fund’s statement of income using the effective interest rate method and accordingly an amount of SR 4,884,181 (30 June 2015: SR 4,875,345) has been recorded as commission income in statement of income. The fair value of the Compound determined by two approved appraisers as of 30 June 2016 was SR 117,451,000 and SR 123,225,674 respectively (30 June 2015: SR 123,225,674 and SR 117,451,000 respectively). The units in issue as at the balance sheet date include units held by related parties are follows: Related party Abdullah al Blehed Son’s Holding Company Jeser Real Estate Company 9
30 June 2016
30 June 2015
2,300,000 60,000
2,300,000 60,000
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS (Unaudited) For the six months priod ended 30 June 2016 (Saudi Riyals) 7.
DIVIDEND During the six months period ended 30 June 2016 the Fund Board declared and paid dividend to the unitholders amounting to SR 7,704,000 (30 June 2015: 7,704,000) as per the terms and conditions of the Fund.
8.
RISK MANAGEMENT Credit risk Credit risk is the risk that one party to a financial instrument fails to discharge an obligation and cause other party to incur a financial loss. The Fund is exposed to credit risk on its bank balance and receivable under deferred sale agreement. However the bank balance is maintained with reputed local bank in the Kingdom of Saudi Arabia and the receivable under deferred sale agreement is due from a related party which is secured against the underlying property, whose fair value exceeds the amount receivable and therefore the Fund Manager believes that the Fund does not have any significant credit risk. Liquidity risk Liquidity risk is the risk that the Fund may encounter difficulty in generating funds to meet commitments associated with financial liabilities, which comprise fund management and administration fee payable. 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. Currency risk Currency risk is the risk that the value of a financial instrument may fluctuate due to change in the foreign exchange rates. The financial instruments of the Fund i.e. cash and- payables are denominated in Saudi Arabian Riyals. Accordingly, the Fund is not exposed to any currency risk.
9.
FAIR VALUES OF FINANCIAL INSTRUMENTS Fair value is the amount for which an asset could be exchanged, or a liability be settled between knowledgeable willing parties in an arm’s length transaction. The Fund’s financial assets consist of bank balance and receivable under deferred sale agreement from a related party. Its financial liabilities consist of management and administration fee payable. The fair values of these financial instruments are not materially different from the carrying values.
10. RECLASSIFICATION Comparative figures for certain account heads have been re-classified to conform to the current period’s presentation 11. APPROVAL OF INTERIM CONDENSED FINANCIAL STATEMENTS These interim condensed financial statements were approved by the Fund’s Board on 27 Shawal , 1437H corresponding to 1 August, 2016G.
10
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REVIEW REPORT For the six-months period ended 30 June 2016
INDEX
PAGE
Independent auditors’ review report
2
Interim balance sheet
3
Interim statement of income
4
Interim statement of cash flows
5
Interim statement of changes in net assets attributable to unitholders
6
Notes to the interim condensed financial statements
7 - 10
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY INTERIM BALANCE SHEET (Unaudited) As at 30 June 2016 (Saudi Riyals)
Note 30 June 2016
30 June 2015
282,190 95,000,000 3,998,587 99,280,777
1,999,456 95,000,000 3,676,554 100,676,010
1,002,939 100,000 1,102,939
499,241 1,840,000 85,000 2,424,241
98,177,838
98,251,769
9,630,000
9,630,000
10.19
10.20
ASSETS Cash at bank- current account Receivable under deferred sale agreement Accrued commission income Total assets
6 6
LIABILITIES Management fees payable Dividend payable Other expenses payable Total liabilities
6 7
Net assets attributable to the Unitholders Number of units in issue Net assets value – per unit
The accompanying notes 1 to 11 form an integral part of these interim condensed financial statements.
3
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY INTERIM STATEMENT OF INCOME (Unaudited) For the six months period ended 30 June 2016 (Saudi Riyals)
Note INCOME Commission income Total income EXPENSES Management fees Other expenses Total expenses NET INCOME FOR THE PERIOD
30 June 2016
30 June 2015
6
4,884,181 4,884,181
4,857,345 4,857,345
5 5
1,002,939 78,750 1,081,689
1,022,337 106,250 1,128,587
3,802,492
3,728,758
The accompanying notes 1 to 11 form an integral part of these interim condensed financial statements. 4
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY INTERIM STATEMENT OF CASH FLOWS (Unaudited) For the six months period ended 30 June 2016 (Saudi Riyals)
30 June 2016
30 June 2015
Net income for the year
3,802,492
3,728,758
Changes in operating assets and liabilities: Accrued commission income Management fees payable Other expenses payable Net cash from operating activities
4,615,819 (535,327) (33,750) 4,114,240
4,642,655 (1,041,017) 16,250 7,346,646
(9,544,000) (9,544,000)
(5,864,000) (5,864,000)
(1,627,266) 1,909,456
1,482,646 516,810
282,190
1,999,456
CASH FLOWS FROM OPERATING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Net cash used in financing activities
7
Net (decrease) / increase in cash and cash equivalent Cash and cash equivalent at the beginning of the year Cash and cash equivalent at the end of the year
The accompanying notes 1 to 11 form an integral part of these interim condensed financial statements.
5
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY INTERIM STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS (Unaudited) For the six months period ended 30 June 2016 (Saudi Riyals)
30 June 2016
30 June 2015
102,079,346
102,227,011
3,802,492
3,728,758
Dividends declared during the period
(7,704,000)
(7,704,000)
Net assets value at 30 June
98,177,838
98,251,769
9,630,000
9,630,000
Net assets value at 1 January Net income for the period
TRANSACTIONS WITH UNITHOLDERS:
Units at beginning / end of the period (number)
The accompanying notes 1 to 11 form an integral part of these interim condensed financial statements. 6
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS (Unaudited) For the period ended 30 June 2016 (Saudi Riyals) 1.
THE FUND AND ITS ACTIVITIES The Real Estate Income Fund (“the Fund”) is a closed-ended real estate fund established and managed through an agreement between Middle East Financial Investment Company (“the Fund Manager”) and the Fund Investors (“the Unitholders”). The objective of the Fund is to purchase residential and commercial real estate in the Kingdom of Saudi Arabia on a condition that it is rented in advance with a known annual return, or purchase the right to benefit from it and achieve stable returns for investors around 8% annually, and distributing a significant portion of it on a yearly basis over the term of the Fund. The Fund commenced its operations on 18 March 2012 for a term of 4 years starting from the subscription date on 18 February 2012. The approval from Capital Market Authority (“CMA”) for the establishment of the Fund was granted in its letter number 4514/5 dated 24 Ramadan 1432 H (corresponding to 24 August 2011). During the period, the contractual tenure of the Fund was extended for one year up to 18 February 2017. Revised terms and conditions have been approved by Fund’s Board during the period and announced on 22 March 2016. 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. Furthermore, Unitholders are beneficial owners of the assets of the Fund and any income distribution is made in proportion to their unit holdings in the fund. The interim results of the Fund may not be an indicator of its annual results of the operations.
2.
REGULATORY AUTHORITY The Fund is governed by the Real Estate Investment Funds Regulations issued by the CMA on 19 Jumada II, 1427 H (corresponding to 15 July 2006) detailing requirements for all real estate funds within the Kingdom of Saudi Arabia.
3.
BASIS OF PREPARATION
3.1 Statement of compliance The interim condensed financial statements are prepared in accordance with the accounting standards generally accepted in the Kingdom of Saudi Arabia issued by the Saudi Organization for Certified Public Accountants (SOCPA). 3.2 Basis of measurement These interim condensed financial statements have been prepared under the historical cost convention, using the accrual basis of accounting and the going concern concept. 3.3 Functional and presentation currency These financial statements have been presented in Saudi Riyals (SR), which is the functional currency of the Fund. All financial information presented has been rounded to the nearest SR.
7
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS (Unaudited) For the six months period ended 30 June 2016 (Saudi Riyals) 3.
BASIS OF PREPARATION (Continued)
3.4 Use of estimates and judgment The preparation of these financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. 4.
SIGNIFICANT ACCOUNTING POLICIES The significant accounting and risk management policies used in the preparation of these interim condensed financial statements are consistent with those applied and disclosed in the financial statements for the year ended 31 December 2015.
5.
MANAGEMENT FEE, ADMINISTRATION AND OTHER CHARGES The Fund Manager charges the following fees as per the terms and conditions of the Fund: Subscription fee: The Fund Manager charges each investor with a subscription fee of a percentage not exceeding 1.25% of the subscribed amount. Management fee: The Fund Manager charges the Fund a management fee at the rate of 2% (30 June 2015: 2%) per annum payable quarterly of the net assets value of the Fund at each valuation day. Other expenses: The Fund Manager also recovers certain expenses incurred on behalf of the Fund within limits mentioned in the terms and conditions of the Fund.
6.
TRANSACTIONS AND BALANCES WITH RELATED PARTIES Related parties of the Fund include unitholders, the Fund Manager and other funds managed by the Fund Manager. All transactions with related parties are carried out based on mutually agreed terms under formal agreement. Transactions: Name of related party
Nature of relationship
Nature of transaction
For the six months period ended 2016 2015
Abdullah al Blehed Son’s Holding Company
Unitholder
Commission income
4,884,181
4,857,345
Middle East Financial Investment Company
The Fund manager
Management fees
1,002,939
1,022,337
8
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS (Unaudited) For the six months period ended 30 June 2016 (Saudi Riyals) 6.
TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Continued) Balances: The transactions resulted in following balances due from / (due to) related parties at balance sheet date: Related party Description 30 June 2016 30 June 2015 Abdullah al Blehed Son’s Holding Company
Receivable under deferred sale agreement Dividend payable Accrued commission income
Middle East Financial Investment Company
Management fees payable
95,000,000
95,000,000
-
(1,840,000)
3,998,587
3,676,554
(1,002,939)
(499,241)
On 18 March 2012, the Fund entered into the following three agreements with Abdullah Al Blehed Son’s Holding Company (the “Owner”) of a residential compound in Riyadh (the “Compound”): −
− −
Agreement to purchase the Compound at a price of SR 95,000,000. The Fund obtained the legal title of dthe Compound initially in the name of the Managing Director of the Fund Manager, which was transferred to Jeser Real Estate Development Company (“the Custodian”), a subsidiary of the Fund manager, in its capacity of a custodian of the title on behalf of the Fund. The Custodian, through a letter, has assigned the legal title to the Fund Manager; Agreement to sell the Compound back to the Abdullah al Blehed Son’s Holding Company after completion of 5 years at the price of SR 95,000,000; and Agreement to lease back the Compound to the Owner at an annual (hijri) commission income of SR 9,500,000.
In accordance with applicable accounting standards, assets purchased under the agreement to resell at a future specified date are not recognized in the balance sheet. Considering the substance of the transaction the fund is not exposed to substantial risks and rewards of the underlying property hence the arrangement does not qualify for classification as either a finance lease or an operating lease of the property. The arrangement is a treated as a financing arrangement with deferred settlement date for the principal amount. Unearned commission income is recorded in the Fund’s statement of income using the effective interest rate method and accordingly an amount of SR 4,884,181 (30 June 2015: SR 4,875,345) has been recorded as commission income in statement of income. The fair value of the Compound determined by two approved appraisers as of 30 June 2016 was SR 117,451,000 and SR 123,225,674 respectively (30 June 2015: SR 123,225,674 and SR 117,451,000 respectively). The units in issue as at the balance sheet date include units held by related parties are follows: Related party Abdullah al Blehed Son’s Holding Company Jeser Real Estate Company 9
30 June 2016
30 June 2015
2,300,000 60,000
2,300,000 60,000
MEFIC REAL ESTATE INCOME FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS (Unaudited) For the six months priod ended 30 June 2016 (Saudi Riyals) 7.
DIVIDEND During the six months period ended 30 June 2016 the Fund Board declared and paid dividend to the unitholders amounting to SR 7,704,000 (30 June 2015: 7,704,000) as per the terms and conditions of the Fund.
8.
RISK MANAGEMENT Credit risk Credit risk is the risk that one party to a financial instrument fails to discharge an obligation and cause other party to incur a financial loss. The Fund is exposed to credit risk on its bank balance and receivable under deferred sale agreement. However the bank balance is maintained with reputed local bank in the Kingdom of Saudi Arabia and the receivable under deferred sale agreement is due from a related party which is secured against the underlying property, whose fair value exceeds the amount receivable and therefore the Fund Manager believes that the Fund does not have any significant credit risk. Liquidity risk Liquidity risk is the risk that the Fund may encounter difficulty in generating funds to meet commitments associated with financial liabilities, which comprise fund management and administration fee payable. 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. Currency risk Currency risk is the risk that the value of a financial instrument may fluctuate due to change in the foreign exchange rates. The financial instruments of the Fund i.e. cash and- payables are denominated in Saudi Arabian Riyals. Accordingly, the Fund is not exposed to any currency risk.
9.
FAIR VALUES OF FINANCIAL INSTRUMENTS Fair value is the amount for which an asset could be exchanged, or a liability be settled between knowledgeable willing parties in an arm’s length transaction. The Fund’s financial assets consist of bank balance and receivable under deferred sale agreement from a related party. Its financial liabilities consist of management and administration fee payable. The fair values of these financial instruments are not materially different from the carrying values.
10. RECLASSIFICATION Comparative figures for certain account heads have been re-classified to conform to the current period’s presentation 11. APPROVAL OF INTERIM CONDENSED FINANCIAL STATEMENTS These interim condensed financial statements were approved by the Fund’s Board on 27 Shawal , 1437H corresponding to 1 August, 2016G.
10
