aljazira gcc income fund

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ALJAZIRA GCC INCOME FUND An Open-Ended Mutual Fund (Managed by Aljazira Capital Company) Interim condensed financial statements (Unaudited)

For the six-month period ended 30 June 2019 together with the

Review Report to the Unitholders

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(Managed by Aljazira Capital Company)

INTERIM CONDENSED FINANCIAL STATEMENTS For the six-month period ended 30 June 2019

PAGES

REPORT ON REVIEW OF INTERIM CONDENSED FINANCIAL STATEMENTS 2

INTERIM STATEMENT OF FINANCIAL POSTION 3

INTERIM STATEMENT OF COMPREHENSIVE INCOME 4

INTERIM STATEMENT OF CHANGES IN NET ASSETS

ATTRIBUTABLE TO THE UNITHOLDERS 5

INTERIM STATEMENT OF CASH FLOWS 6

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS 7- 11

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REPORT ON REVIEW OF INTERIM CONDENSED FINANCIAL STATEMENTS

TO THE UNITHOLDERS OF ALJAZIRA GCC INCOME FUND

RIYADH, KINGDOM OF SAUDI ARABIA

INTRODUCTION

We have reviewed the accompanying interim statement of financial position of Aljazira GCC Income Fund (the “Fund”) managed by Aljazira Capital Company (the “Fund Manager”) as at 30 June 2019 and the related interim statements of comprehensive income, changes in net assets attributable to the unitholders and cash flows for the six months period then ended, and a summary of significant accounting policies and other explanatory notes (the “interim condensed financial statements”). Management is responsible for the preparation and fair presentation of these interim condensed financial statements in accordance with International Accounting Standard 34 - “Interim Financial Reporting” ("IAS 34"), as endorsed in the Kingdom of Saudi Arabia. Our responsibility is to express a conclusion on these interim condensed financial statements based on our review.

SCOPE OF REVIEW

We conducted our review in accordance with International Standard on Review Engagement 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” as endorsed in the Kingdom of Saudi Arabia.

A review of these interim condensed financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing as endorsed in the Kingdom of Saudi Arabia, and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed financial statements are not prepared, in all material respects, in accordance with IAS 34, as endorsed in the Kingdom of Saudi Arabia.

For Al-Bassam & Co.

(Allied Accountants)

Ibrahim A. Al-Bassam Certified Public Accountant Registration No. 337

25 August 2019G 24 Dhul Hijjah 1440H

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(Managed by Aljazira Capital Company)

INTERIM STATEMENT OF FINANCIAL POSITION As at 30 June 2019

(Amounts in Saudi Arabian Riyals)

Notes

30 June 2019 (Unaudited)

31 December 2018 (Audited)

ASSETS

Cash and cash equivalents 4 2,673,709 2,065,073

Investments carried at FVTPL 5 31,604,943 31,287,347

Receivable against sale of investments 371,502 -

Dividend receivable 673,665 664,787

Prepayments and other receivables 2,690 370,811

TOTAL ASSETS 35,326,509 34,388,018

LIABILITIES

Management fee payable 7 210,007 152,337

Payable to unitholder on account of redemption 8.1 39,420 115,063

Accrued expenses and other liabilities 21,025 96,100

TOTAL LIABILITIES 270,452 363,500

NET ASSETS ATTRIBUTABLE TO THE

UNITHOLDERS 35,056,057 34,024,518

Units in issue (in numbers) 8 317,573 324,245

Net Asset Value per unit 110.39 104.93

The accompanying notes 1 to 12 form an integral part of these interim condensed financial statements.

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ALJAZIRA GCC INCOME FUND (Managed by Aljazira Capital Company)

(4) INTERIM STATEMENT OF COMPREHENSIVE INCOME

For the six-month period ended 30 June 2019 (Amounts in Saudi Arabian Riyals)

Notes

30 June 2018 (Unaudited) Income

Net realized and unrealized gain on Investments carried

at FVTPL 6 1,750,679 4,688,225

Dividend income 926,056 1,028,423

Rebate on commission - 2,337

2,676,735 5,718,985 Expenses

Management and custody fees 7 281,031 358,253

Other expenses 59,008 53,077

340,039 411,330

Net profit for the period 2,336,696 5,307,655

Other comprehensive income for the period - -

Total comprehensive income for the period 2,336,696 5,307,655

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(Managed by Aljazira Capital Company)

STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO THE UNITHOLDERS For the six-month period ended 30 June 2019

30 June 2018 (Unaudited) Net assets attributable to the Unitholders at beginning

of the period 34,024,518 40,965,943

Total comprehensive income for the period 2,336,696 5,307,655 Changes from unit transactions

Issuance of units 3,629,290 10,344,331

Redemption of units (4,200,374) (12,635,681)

Net changes from unit transactions (571,084) (2,291,350)

Distribution to the unitholders (734,073) (949,826)

Net assets attributable to the Unitholders at end of the

period 35,056,057 43,032,422

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ALJAZIRA GCC INCOME FUND (Managed by Aljazira Capital Company)

(6) INTERIM STATEMENT OF CASH FLOWS

For the six-month period ended 30 June 2019 (Amounts in Saudi Arabian Riyals)

Notes

Cash flows from operating activities:

Net profit for the period 2,336,696 5,307,655

Adjustments for:

- Net unrealized gain on investments carried

at FVTPL 6 (2,040,823) (4,195,622)

295,873 1,112,033 Net changes in operating assets and liabilities:

Investments carried at FVTPL 1,723,227 2,343,011

Advance against purchase of investments - 10,584

Dividends receivable (8,878) (606,566)

Prepayments and other receivables 368,121 (87)

Receivable against sale of investments (371,502) -

Management fee payable 57,670 (175,583)

Payable to unitholder on account of redemption (75,075) -

Accrued expenses and other liabilities (75,643) 145,784

Net cash generated from operating activities 1,913,793 2,829,176 Cash flows from financing activities:

Proceeds from issuance of units 3,629,290 10,344,331

Redemption of units * (4,200,374) (12,635,681)

Distributions to unitholders (734,073) (949,826)

Net cash used in financing activities (1,305,157) (3,241,176) Net increase / (decrease) in cash and cash equivalents: 608,636 (412,000) Cash and cash equivalents at beginning of the period 4 2,065,073 2,461,524 Cash and cash equivalents at end of the period 4 2,673,709 2,049,524

*Supplementary Information

Payable to unitholder on account of redemption (75,075) -

The accompanying notes 1 to 12 form an integral part of these interim condensed financial statements

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(Managed by Aljazira Capital Company)

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS For the six-month period ended 30 June 2019

1 LEGAL STATUS AND PRINCIPAL ACTIVITIES

Aljazira GCC Income Fund (the “Fund”) is an open-ended investment fund established and managed through an agreement between Aljazira Capital Company - a Saudi Closed Joint Stock Company (the “Fund Manager”) and the investors (the “Unitholders”). The Fund manager is a wholly owned subsidiary of Bank Aljazira (the

“Bank”). The Capital Market Authority (“CMA”) approval for establishment of the Fund was granted vide its letter no 2414/5 dated 25 Jumada Al-Thani 1434H (corresponding to 05 May 2013). The Fund commenced its operations on 13 July 2013.

The Fund operates under the terms and conditions contained in its prospectus with the prime objective of providing the investors with the opportunities to invest in Shariah compliant investments securities in emerging economies to achieve the long-term capital growth. The Fund’s net income is re-invested in the Fund after distribution of dividend to unitholders, which is reflected in the net assets attributable to each unit.

The Fund is administered by the Fund Manager. The Fund’s assets are held in the custody of Northern Trust Securities (the “Custodian”).

The Fund is governed by the Investment Fund Regulations (the “Regulations”) published by CMA on 3 Dhul Hijja 1427 H (corresponding to 24 December 2006) thereafter amended (the “amended regulation”) on 16 Sha’ban 1437 H (corresponding to 23 May 2016), detailing requirements for all funds within the Kingdom of Saudi Arabia. The amended regulation came into effect from 6 Safar 1438 H (corresponding to 6 November 2016).

2 BASIS OF PREPARATION

The principal accounting policies applied in the preparation of these interim condensed financial statements are set out below.

2.1 Statement of compliance

These interim condensed financial statements of the Fund have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting” as endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements that are issued by Saudi Organization for Certified Public Accountants (SOCPA) and should be read in conjunction with the Fund’s last annual financial statements for the year ended 31 December 2018.

The results for the six month period ended 30 June 2019 are not necessarily indicative of the results that may be expected for the financial year ending 31 December 2019.

2.2 Basis of measurement

The interim condensed financial statements have been prepared on a historical cost convention, except for Investments that are measured at fair value.

The Fund does not have a clearly identifiable operating cycle and therefore does not present current and non- current assets and liabilities separately in the statement of financial position. Instead, assets and liabilities are presented in order of liquidity.

2.3 Functional and presentation currency

Items included in the interim condensed financial statements are measured using the currency of the primary economic environment in which the Fund operates (the “functional currency”). These interim condensed financial statements are presented in Saudi Arabian Riyals (“SAR”) which is the Fund’s functional and presentation currency.

Transactions and balances

Foreign currency transactions, if any, are translated into SAR using the exchange rates prevailing at the date of transactions. Foreign currency assets and liabilities are translated into SAR using the exchange rates prevailing at the date of the interim statement of financial position. Foreign exchange gains and losses arising from translation are included in the interim statement of comprehensive income.

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ALJAZIRA GCC INCOME FUND (Managed by Aljazira Capital Company)

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS For the six-month period ended 30 June 2019

(8) 3 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

The preparation of the interim condensed financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected.

In the process of applying the Fund’s accounting policies, management has made the following estimates and judgments which are significant to the interim condensed financial statements:

3.1 Going concern

The Fund's management has made an assessment of the Fund’s ability to continue as a going concern and is satisfied that the Fund has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt on the Fund’s ability to continue as a going concern. Accordingly, the interim condensed financial statements have been prepared on a going concern basis.

4 CASH AND CASH EQUIVALENTS

Note

Cash at bank 4.1 684,121 1,823,577

Cash with custodian 1,989,588 241,496

2,673,709 2,065,073

4.1 Cash at bank are held in current account with Bank Aljazira , a related party (Also see Note 1). The Fund does not earn profit on these current accounts.

5 INVESTMENTS CARRIED AT FVTPL

Investments in equity instruments comprise of the following:

As at 30 June 2019 (Unaudited)

Investments by Industry Sectors Cost Fair Value % of Fair Value

Banks and financial institutions 7,089,374 10,268,483 32.49%

Petrochemical Industries 9,936,247 10,107,850 31.99%

Real Estate 2,866,012 1,419,237 4.49%

Transportion 1,987,114 2,236,003 7.07%

Telecommunication 4,431,084 4,810,324 15.22%

Agriculture and food industries 864,134 857,903 2.71%

Cement 350,039 391,820 1.24%

Industrial Investments 1,346,964 1,244,403 3.94%

Consumer services 187,200 268,920 0.85%

Total 29,058,168 31,604,943 100%

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(Managed by Aljazira Capital Company)

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS For the six-month period ended 30 June 2019

5 INVESTMENTS CARRIED AT FVTPL (continued)

As at 31 December 2018 (Audited)

Investments by Industry Sectors Cost Fair Value % of Fair Value

Banks and financial institutions 7,633,446 9,657,017 30.87%

Petrochemical Industries 10,862,479 10,674,658 34.12%

Real Estate 2,520,492 1,785,749 5.71%

Insurance 165,203 143,856 0.46%

Real Estate Development 761,561 460,678 1.47%

Transportion 1,687,781 1,683,690 5.38%

Telecommunication 4,957,849 4,958,774 15.85%

Agriculture and food industries 1,229,693 974,349 3.11%

Cement 37,563 35,256 0.11%

Industrial Investments 738,128 701,638 2.24%

Consumer services 187,200 211,682 0.68%

30,781,395 31,287,347 100%

6 NET REALIZED AND UNREALIZED GAIN OR LOSS FROM INVESTMENTS CARRIED AT FVTPL

7 RELATED PARTY TRANSACTIONS AND BALANCES Management fee and other charges

For management services, the Fund pays quarterly, the management fees at an annual rate of 1.50% of the net assets of the Fund attributable to unitholders, at each valuation date, as set out in the Fund’s term and conditions.

The Fund Manager recovers from the Fund any other expenses incurred on behalf of the Fund such as board compensation, Shariah supervisory board compensation and other similar charges. These expenses are not expected to exceed an annual rate of 0.5% of the value of Fund’s net asset calculated on daily basis.

Transactions with related parties

During the period, the Fund entered into the following significant transactions with related parties in the ordinary course of business. These transactions were carried out on the basis of approved terms and conditions of the Fund. All related party transactions are approved by the Fund Board.

Related party Nature of relationship

Nature of transaction 30 June 2019 (Unaudited)

30 June 2018 (Unaudited) Aljazira Capital

Company Fund manager

Management fees 273,731 340,152

Custodian fees

*

- 9,050

Board compensation fees 5,852 5,885

Other expenses - 47,192

Unrealized gain on revaluation of investments 2,040,823 4,195,622

Realized (loss) / gain on disposal of investments (290,144) 492,603

1,750,679 4,688,225

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ALJAZIRA GCC INCOME FUND (Managed by Aljazira Capital Company)

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS For the six-month period ended 30 June 2019

(10) 7 RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Custody Fee:

The Fund manager was the Fund’s custodian in June 2018. However, the Custodian was changed later in 2018.

Accordingly, custody fee from related party appears only in June 2018 transaction. Balances with related parties

Related parties Nature of relationship

Nature of transaction

Aljazira Bank Affiliate Bank balances 684,121 1,823,577

Aljazira Capital

Company Fund Manager Management fee

payable 210,007 152,337

Fund’s Board Key executive Remuneration

payable 6,842 12,000

Certain units of the Fund are held by the funds managed and administered by the Fund Manager, the details of which are as follows:

Name of related parties

31 December 2018 (Audited) (Unit in numbers)

Aljazira Diversified Aggressive Fund 147,497 137,747

Aljazira Diversified Balanced Fund 24,921 37,157

Aljazira Diversified Conservative Fund 7,919 14,145

8 UNIT TRANSACTIONS

Transactions in units for the period / year are summarized as follows:

Note

31 December 2018 (Audited) (Unit in numbers)

Units at beginning of the period / year 324,245 391,145

Units issued during the period / year 31,644 122,689

Units redeemed during the period / year 8.1 (38,316) (189,589)

Net change in units (6,672) (66,900)

Units at end of the period / year 317,573 324,245

8.1 As per Fund’s terms and conditions, any redemption of units are to be settled by the Fund to the unitholders within 4 working days from the date of redemption (“settlement period”). On 24^th June 2019, 360 units amounting to SAR 39,420 were redeemed by a unitholder. However, the valuation was carried out on 27^th June 2019 as per the terms and conditions of the Fund and accordingly the payable amounting to SAR 39,420 as of 30 June 2019 was cleared by the Fund subsequently within the settlement period.

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(Managed by Aljazira Capital Company)

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS For the six-month period ended 30 June 2019

9 FAIR VALUE ESTIMATION

The fair value for financial instruments traded in active markets is based on quoted market prices at the close of trading on the financial reporting date. Instruments for which no sale was reported on the valuation day are valued at the most recent bid price.

An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The carrying value less impairment provision, if any, of financial instrument carried at amortized cost are reasonable approximation of fair values.

The fair value hierarchy has the following levels:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

• Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed equity. The Fund does not adjust the quoted price for these instruments.

Fund classifies all of its financial assets, except for those carried at amortized cost, at fair value as level 1.

10 EVENTS AFTER THE END OF THE REPORTING PERIOD

There has been no significant event after the date of statement of financial position, which in the opinion of the management requires recognition or disclosure in the interim condensed financial statements.

11 LAST VALUATION DAY

The last valuation day for the purpose of preparation of these interim condensed financial statements was 27 June 2019 (2018: 31 December 2018). There is no material change in the net assets attributable to each unit of the Fund between last valuation day and its financial period end i.e. 30 June 2019.

12 APPROVAL OF THE INTERIM CONDENSED FINANCIAL STATEMENTS

These interim condensed financial statements were authorized for issue by the Fund Manager on August 25, 2019G corresponding Dhul Hijjah 24, 1440H.