morgan stanley saudi arabia the morgan stanley saudi ...name of the fund morgan stanley saudi equity...

MORGAN STANLEY SAUDI EQUITY FUND ]

Annual Report | 31 DECEMBER 2020 ]

1

MORGAN STANLEY SAUDI ARABIA

The Morgan Stanley Saudi Equity Fund Annual Report 2020

IFR, Article 71 (b)

MORGAN STANLEY SAUDI EQUITY FUND

Annual report | 31 DECEMBER 2020

2

Table of Contents

Fund Directory ................................................................................................................................................. 3

A. Investment Fund Information .................................................................................................................. 4

1. Name of the investment fund ........................................................................................................... 4

2. Investment objectives and policies ................................................................................................... 4

3. Distribution of income and gain policy .............................................................................................. 4

B. Fund Performance .................................................................................................................................. 4

1. Fund summary .................................................................................................................................. 4

2. Fund performance record ................................................................................................................. 5

3. Actual fees and fund expenses paid by the investment fund ........................................................... 6

4. Material changes having affected the fund ...................................................................................... 6

5. Disclosure of annual voting rights .................................................................................................... 7

6. Fund Board Resolutions ................................................................................................................. 16

C. Fund Manager ...................................................................................................................................... 17

1. A review of the investment activities during the period. ................................................................. 17

2. A write-up of the investment fund’s performance during the period. .............................................. 17

3. Details of any material changes made during the period. .............................................................. 17

4. Any other information that would enable unitholders to make an informed judgment about the fund’s activities during the period. .................................................................................................. 17

5. A statement on any special commission received by the fund manager during the period. .......... 17

Custodian ...................................................................................................................................................... 18

Auditor ........................................................................................................................................................... 18

MORGAN STANLEY SAUDI EQUITY FUND

Annual report | 31 DECEMBER 2020

3

Fund Directory

Name of the Fund Morgan Stanley Saudi Equity Fund

Fund Manager Morgan Stanley Saudi Arabia, a closed joint stock company established under the laws of Saudi

Arabia with Commercial Registration Number 1010224144 dated 18/9/1427H, issued in Riyadh, and

licensed by the Capital Market Authority.

The address of the Fund Manager is:

Al Rashid Tower, 10th Floor

King Saud Road, Riyadh

P. O. Box 66633, Riyadh 11586

Tel: +966 (11) 218 70 00

Fax:+966 (11) 218 71 44

www.MorganStanley.com

Custodian The Custodian is HSBC Saudi Arabia Limited

2nd floor – HSBC Building, Olaya Road

7267 Olaya – Al Murooj

Riyadh 12283-2255

Saudi Arabia

Tel: +966 (11) 299 23 13

Fax: +966 (11) 299 23 85

Administrator The Administrator is HSBC Saudi Arabia Limited

HSBC Building, Olaya Road


Riyadh 12283-2255

Saudi Arabia

Registrar The Registrar is HSBC Saudi Arabia Limited

HSBC Building, Olaya Road


Riyadh 12283-2255

Saudi Arabia

Auditor The Auditor is Ernst & Young

P.O. Box 2732

Riyadh 11461

Saudi Arabia

Tel: +966 (11) 273 4740

Fax: +966 (11) 273 4730

http://www.morganstanley.com/


Annual Report | 31 DECEMBER 2020

4

A. Investment Fund Information

1. Name of the investment fund

The Morgan Stanley Saudi Equity Fund

2. Investment objectives and policies

The Fund’s investment objective is to provide long-term capital appreciation and growth. It

intends to pursue these objectives by investing in shares listed and traded on the Saudi Stock

Exchange, Tadawul, and in shares offered in the course of an IPO. The Fund’s performance will

be measured against the Tadawul All Share Index (“TASI”) for the purposes of providing

investors with an indication of performance relative to an existing standard.

3. Distribution of income and gain policy

The Fund is an income accumulation Fund, whereby its net income will be reinvested in the Fund

and not distributed as dividends on the Units. Reinvestment of income will be reflected in the

value and price of the Units.

Reports are available upon request free of charge from the fund manager.

B. Fund Performance

1. Fund summary

2018 2019 2020

Net Assets 31.12 (SAR) 49,811,246.62 64,557,067.45 48,880,228.63

Net assets per unit 31.12 (SAR) 357.8715 412.4647 449.9475

Highest Net Assets Value per unit (SAR) 390.1710 436.4506 452.8824

Lowest Net Assets Value per unit (SAR) 303.7469 356.8052 302.2628

Units in Issue 31.12 139,187.53 156,515.38 108,635.41

Income Distribution Per Unit 0.00 0.00 0.00

Total Expense Ratio 2.58% 1.93% 2.14%



5

2. Fund performance record

The total return for 1 year, 3 years and 5 years (or since inception):

DESCRIPTION INCEPTION DATE

RETURN TYPE 1 YEAR CUM 3 YEAR CUM 5 YEAR CUM

SINCE INCEPTION

CUM

Saudi Equity Month-end NAV 6-Jan-09 Net 9.09 48.12 66.27 349.95

Tadawul All Share Index N/A N/A 3.58 20.25 25.72 64.27

The Annual total return for each of the last 10 financial years (or since Inception):

DESCRIPTION DATE ANNUALIZED RETURN

Saudi Equity Monthend NAV 31-Dec-09 19.551

Tadawul All Share Index 31-Dec-09 15.731




Tadawul All Share Index 31-Dec-11 -3.07







Saudi Equity Monthend NAV 31-Dec-15 -3.51




Saudi Equity Month end NAV 31-Dec-17 2.13








1 Fund inception date is 6 January 2009.



6

3. Actual fees and fund expenses paid by the investment fund

The table below shows the actual fees and fund expenses paid by the investment fund during the

year.

DESCRIPTION PERIOD 2020

Management Fees 989,758

Management Fee rebate 282,788

Custody Fees 59,224

Fund Admin Fees 85,732

Audit Fees 55,000

Registration Fees 10,275

Board Fees 23,000

Transaction charges 50,288

VAT 99,089

Brokerage Fee 121,929

Other expenses 819

Total Expense 1,212,324

Average AUM 56,559,473

TER For 2020 2.14

4. Material changes having affected the fund

Performance was driven by normal business activities and portfolio positioning.

The Board of Directors approved to keep the investment management fee at 1.25% pa. up to 31

Dec 2021.

5. Disclosure of annual voting rights

COMPANY NAME

EVENT DATE AGENDAS VOTING DECISION

OF MSSEF

Bahri

Ordinary General

Assembly Meeting

12-Jan-20

1. Vote on the election of BoD members Agreed

2. Vote on the election of Audit Committee, approve tis Charter and the remuneration of its members Agreed

Ataa

Extraordinary General

Assembly Meeting

20-Jan-20

1. Vote on approving BoD report Agreed

2. Vote on approving the Company’s financials Agreed

3. Vote on approving the auditor’s report Agreed

4. Vote on discharging the BoD from liability Agreed

5. Vote on the recommendation of BoD to appoint external auditors Agreed

6. Vote on the distribution of cash dividends Agreed

7. Vote on the recommendation of the BoD to pay SAR 1.35 Mn as remuneration to BoD members Agreed



7

8. Vote on approving three related party transactions Agreed

9. Vote on amending articles one and two of the Company’s bylaws Agreed

10. Vote on adding article nine to the Company’s bylaws Agreed

SABB

Ordinary General

Assembly Meeting

28-Jan-20

1. Vote on the election of Audit Committee for the new 3-year term starting from 28 Jan 2020 until 31 Dec 2022, and on its tasks, controls and remuneration of its members

Agreed

2. Vote on amending board membership Charter (polices and criteria of selection) Disagreed

3. Vote on amending remuneration and compensation policy for the board of directors, committees members and executive management

Agreed

Qassim Cement

Ordinary General

Assembly Meeting

4-Mar-20

1. Vote to approve board report for FY2019 Agreed

2. Vote to approve auditors report for FY2019 Agreed

3. Vote to approve 2019 FS. Agreed

4. Vote on the recommendation of BoD to appoint external auditors for 2020 and Q1 of 2021. Agreed

5. Vote to approve the distributed dividends of 2019. Agreed

6. Vote to approving a related party transaction between the Company and Al Watani Wealth Management Company

Disagreed

7. Vote on discharging BoD members from liability for 2019 Agreed

8. Vote on the recommendation to pay SAR 2.7 Mn as remuneration to BoD members for FY 2019 Agreed

9. Vote on delegating the BoD to distribute cash dividends for 2020 on a quarterly basis Agreed

10. Vote on the BoD recommendation to appointing Tariq Almarshoud (non-executive member) as a representative of GOSI in the board.

Agreed

Arabian Centres


Assembly Meeting

16-Mar-20 1. Vote on the issuance of up to USD 1 Bn of Shariah compliant sukuk, which may be issued from time to time either domestically and/or internationally in any currency and in a single or multiple issuances

Agreed

Samba

Ordinary General

Assembly Meeting

25-Mar-20


2. Vote to approve auditors report for FY2019 Agreed

3. Vote to approve 2019 FS Agreed

4. Vote on the BoD recommendation to distribute SAR 0.70 as cash dividends for H2 2019 Agreed



7. Vote on the recommendation of BoD to appoint external auditors for Q1 2020 Agreed

8. Vote on the recommendation of BoD to appoint external auditors for Q2 2020 – Q1 2021 Agreed

9. Vote on delegating the BoD to distribute cash dividends for 2020 on a bi-annual or quarterly basis Agreed

10. Vote on amending the nomination and remuneration committee charter Agreed

11. Vote on allowing Dr. Khalid Alsuwalim (BoD member) to be involved with other companies Agreed

12. Vote on allowing Mr. Fahad Almufarej (BoD member) to be involved with other companies Agreed

13. Vote on allowing Mr. Abdullah Alruweis (BoD member) to be involved with other companies Agreed

14. Vote to approve 8 related party transactions Agreed

Riyad Bank

Ordinary General

Assembly Meeting

25-Mar-20







7. Vote on the BoD recommendation to appoint external auditors for 2020 Agreed

8. Vote on amending the Audit Committee Charter Agreed

9. Vote on amending the Nomination and Remuneration Committee Charter Agreed



8

10. Vote on authorizing the BoD the power of license included in paragraph 1 of Article 71 of the Companies Law, for one year period - from the OGM date of approval or until the end of BoD term

Disagreed


Al Rajhi Bank


Assembly Meeting

29-Mar-20



3. Vote to approve auditor report Agreed

4. Vote to discharge BoD members from liability for 2019 Agreed

5. Vote on the distributed cash dividends for H1 2019 Agreed





10. Voting on the delegation of authorization powers stipulated in paragraph (1) of Article 71 of the Companies Law from general assembly to the BoD for one year

Disagreed


SABIC Agri-Nutrients

Ordinary General

Assembly Meeting

29-Mar-20




4. Vote on the BoD recommendation to appoint external auditors for 2020 and Q1 2021 Agreed





9. Vote to amend the Nomination and Remuneration Committee Charter Agreed

10. Vote to elect BoD members for the upcoming term Abstained

11. Vote to form the Audit Committee members, approve its Charter and remunerate its members Agreed


Arab National

Bank


Assembly Meeting

30-Mar-20






6. Vote on amending articles 3, 5, 8, 23, 33, 44 and 48 of the Company’s bylaws Agreed

7. Vote on removing article 16 from the Company’s bylaws Agreed

8. Vote on reorganizing and renumbering the articles of the bylaws to reflect the changes Agreed


10. Vote to elect BoD members for the upcoming term Abstained

11. Vote to form the Audit Committee members, approve its Charter and remunerate its members Agreed

12. Vote on the recommendation to pay SAR 5 Mn as remuneration to BoD members for FY 2019 Agreed



Disagreed


Advanced Ordinary General

31-Mar-20 1. Vote to approve board report for FY2019 Agreed



9

Assembly Meeting 2. Vote to approve 2019 FS Agreed



5. Vote on the BoD recommendation to distribute SAR 0.65 as cash dividends for Q4 2019 Agreed

6. Vote on the distributed cash dividends for Q1, Q2 and Q3 2019 Agreed




Disagreed

NCB


Assembly Meeting

31-Mar-20










10. Vote on the share repurchase program of up to 3.98 Mn shares to be allocated to employee share scheme

Agreed

11. Vote on delegating to the Board of Directors the General Assembly’s powers included in paragraph (1) of Article (71) of the Companies Law, for one year

Disagreed


Yamama Cement

Ordinary General

Assembly Meeting

6-Apr-20



3. Vote to approve auditor report for 2019 Agreed


5. Vote on the BoD recommendation to distribute SAR 0.50 as cash dividends for 2019 Agreed



8. Vote to allow the general manager Mr. Jihad Alrasheed to be involved with other competitors Agreed


10. Vote to amend the remuneration policy for BoD, executive management and their committees Agreed

Jarir

Ordinary General

Assembly Meeting

13-Apr-20





5. Vote on the distributed cash dividends for 2019 Agreed




9. Vote on delegating the BoD to distribute cash dividends for 2020 on bi-annual or quarterly basis Agreed

Bank Aljazira

Ordinary General

Assembly Meeting

15-Apr-20





10

3. Vote to approve external auditor’s report for 2019 Agreed



6. Vote on the BoD recommendation to distribute SAR 0.30 for H2 2019 Agreed


Care

Ordinary General

Assembly Meeting

15-Apr-20









9. Vote on delegating the BoD for the authority of the OGM with authority mentioned in Paragraph (1) of Article 71 of the Companies Law

Disagreed

SIIG

Ordinary General

Assembly Meeting

15-Apr-20





5. Vote on the distributed cash dividends for 2019 Agreed

6. Vote to pay SAR 1.8 Mn as remuneration to BoD members for FY 2019 Agreed

7. Vote to appoint external auditors for 2020 and Q1 2021 Agreed


9. Vote to update the Company’s corporate governance charter Agreed

Petrochem

Ordinary General

Assembly Meeting

16-Apr-20



3. Vote to approve board report for 2019 Agreed



6. Vote on the BoD recommendation to distribute SAR 0.50 for 2019 Agreed


8. Vote to approve a related party transaction Agreed


10. Vote to update the nomination and remuneration committee charter Agreed

11. Vote to update the executive committee charter Agreed

Arriyadh Development

Co.

Ordinary General

Assembly Meeting

19-Apr-20





5. Vote on BoD recommendation to appoint Mr. Abdullah Al Bahouth as an independent BoD member Agreed

6. Vote on the BoD resolution to appoint Mr. Abdullah Al Bahouth as a member of the audit committee Agreed




11

8. Vote to pay SAR 4 Mn as remuneration to BoD members for FY 2019 Agreed

9. Vote on the distributed cash dividend for H1 2019 Agreed



Bahri

Ordinary General

Assembly Meeting

20-Apr-20








8. Vote to increase the audit committee members from 3 members to 4 members, and appoint Mr. Yassir Al Qadhi to be an independent BoD member and a member of the audit committee

Agreed

Seera

Ordinary General

Assembly Meeting

20-Apr-20


2. Vote to approve external auditor report for 2019 Agreed






Disagreed

SABB

Ordinary General

Assembly Meeting

22-Apr-20






6. Vote to appoint external auditors for 2020 Agreed



9. Vote to increase the audit committee members to five from three, and appoint Mr. Stuart Gulliver and Mr. Andrew Jackson (independent members) as audit committee members

Agreed

10. Vote to amend the nomination and remuneration committee charter Agreed



Disagreed

Mouwasat

Ordinary General

Assembly Meeting

22-Apr-20


2. Vote to approve external auditor report for 2019 Agreed






8. Vote to allow BoD member Mr. Sami Alabdulkarim to be involved with other competitors Agreed

9. Vote to allow BoD member Mr. Nasser Al Subaie to be involved with other competitors Agreed

10. Vote to allow BoD member Mr. Mohammed Al Salim to be involved with other competitors Agreed



12


Alrajhi Takaful

Ordinary General

Assembly Meeting

26-Apr-20







7. Vote on the BoD resolution to appoint Mr. Buleihid bin Buleihid – as an independent BoD member Agreed


Savola Group


Assembly Meeting

29-Apr-20








8. Vote to increase the audit committee members to five from three, and appoint Mr. Mohammed Alissa (non-executive board member) and Mr. Bader Al Rabiah (independent board member) as audit committee members

Agreed

9. Vote to amend the remuneration an nomination committee charter Agreed

10. Vote to authorize the share repurchase program of up to 700,000 shares to be allocated to the employee share scheme

Agreed

SACO

Ordinary General

Assembly Meeting

30-Apr-20






6. Vote on the distributed cash dividend for H1 2019 and vote to not distribute dividends for H2 2019 Agreed




10. Vote on the board recommendation to appoint Mr. Sameer Baissa as an independent BoD member Agreed

Leejam Sports Co.


Assembly Meeting

30-Apr-20







7. Vote on the distributed cash dividends for Q1, Q2 and Q3 2019 Agreed


9. Vote on authorizing the BoD the power of license included in section (1) of article (71) of the companies law

Disagreed


11. Vote to amend articles 3, 22 and 50 of the company’s bylaws Agreed

NADEC Extraordinary

General 5-May-20 1. Vote to approve auditor report for 2019 Agreed



13

Assembly Meeting 2. Vote to approve 2019 FS Agreed




6. Vote to approve audit committee report for 2019 Agreed

7. Vote to appoint external auditor for 2020 and Q1 2021 Agreed

8. Vote on the BoD recommendation to increase the company’s capital by 20%, through issuance of bonus shares (1:5)

Agreed

9. Vote on the BoD recommendation to appoint Abdullatif Alrajhi as a non-executive BoD member. Agreed

10. Vote to approve the standards of engagement of BoD members with other companies/competitors Agreed


Disagreed

12. Vote to amend the audit committee charter Agreed

13. Vote to amend articles 22, 23, 24, 25, 36, 47, 48 and 51 of the Company’s bylaws Agreed


15. Vote to allow BoD Eng. Ibrahim Abu Oubah to be involved with other competitor companies Agreed

Extra


Assembly Meeting

5-May-20






6. Vote on the distributed cash dividends for H1 and H2 2019 Agreed



9. Vote on the BoD recommendation to increase the company’s capital by 20%, through issuance of bonus shares (1:5)

Agreed

10. Vote to amend articles 7, 8 and 17 of the Company’s bylaws Agreed


Disagreed


13. Vote on Extra to buy up to 100,000 shares to be allocated to the employee share scheme Disagreed

Maharah

Ordinary General

Assembly Meeting

6-May-20







7. Vote to amend the remuneration policy for the BoD and committees Agreed

8. Vote to amend the audit committee charter Agreed

9. Vote on BoD resolution to appoint Dr. Abdulkarim Al Nujeedi as an executive member in the board Agreed

10. Vote on BoD resolution to appoint Mr. Haitham Al Milhim as an independent member in the board Agreed


Disagreed



SULAIMAN ALHABIB


10-May-20 1. Vote to approve board report for 2019 Agreed



14

Assembly Meeting 2. Vote to approve external auditor’s report for 2019 Agreed



5. Vote on the BoD recommendation to appoint Dr. Nabeel Alamudi as an independent BoD member Agreed





Disagreed

10. Vote on the competing business standards Agreed

11. Vote to amend articles 2, 13, 20, 21, 25, 35, 38, 39, 50, 51 and 57 of the Company’s bylaws Agreed


13. Vote on the participation of the Chairman Dr. Sulaiman Al Habib in a competing business to the Company activities

Agreed

14. Vote on the participation of the BoD member Mr. Saleh Al Habib in a competing business to the Company activities

Agreed

Saudi Fransi Bank


Assembly Meeting

13-May-20










Disagreed

10. Vote to appoint external auditor for Q1 2021 Agreed


12. Vote on BSFR to buy up to SAR 60 Mn shares to be allocated to the employee long-term incentive plan

Disagreed

SACO

Ordinary General

Assembly Meeting

20-May-20

1. Vote to elect BoD members Agreed

2. Vote on the formation of audit committee, approve its charter and the remuneration of its members Agreed

Yanbu Cement

Ordinary General

Assembly Meeting

3-Jun-20

1. Vote to approve board report for 2019 Abstained

2. Vote to approve 2019 FS Abstained

3. Vote on the BoD recommendation to distribute SAR 1.25 for H2 2019 Abstained

4. Vote to discharge BoD members from liability for 2019 Abstained

5. Vote to approve auditor report for 2019 Abstained

6. Vote to appoint external auditors for 2020 and Q1 2021 Abstained

7. Vote on delegating the BoD to distribute cash dividends for 2020 on bi-annual basis Abstained

Zain KSA

Ordinary General

Assembly Meeting

3-Jun-20










15

SABIC


Assembly Meeting

10-Jun-20

1. Vote to amend articles 2- 4, 12- 14, 16-20, 23, 26, 28, 29, 33-35, 37, 38, 40, 41, 43 and 46 of SABIC’s bylaws

Agreed

2. Vote to amend articles 15 and 36 of SABIC’s bylaws Disagreed

2. Vote to delete articles 8, 22 and 24 of SABIC’s bylaws Agreed

4. Vote on rearranging and numbering the articles of SABIC’s bylaws Agreed

5. Vote to add articles 34-37 to SABIC’s bylaws Agreed

6. Vote to amend remuneration policy for board members, committee members, and executive committee

Disagreed

Ataa

Ordinary General

Assembly Meeting

15-Jun-20


2. Vote on amending the remuneration and nomination Committee Charter Agreed

3. Vote to amend remuneration policy for board members, committee members, and executive committee

Agreed

Budget Saudi

Ordinary General

Assembly Meeting

15-Jun-20




4 .Vote to appoint external auditors for 2020 Agreed

5..Vote to appoint external auditors for 2021 Agreed

6. Vote to pay SAR 2.53 Mn as remuneration to BoD members for FY 2019 Disagreed


8. Vote to allow BoD member Mr. Alaa Sami to be involved with other competitors Agreed

9. Vote on delegating the BoD to distribute cash dividends for 2020 on bi-annual basis Agreed




SADAFCO


Assembly Meeting

16-Jun-20

1. Vote to approve board report for year ended on 31 Mar 2020 Agreed

2. Vote to approve auditor report for year ended on 31 Mar 2020 Agreed

3. Vote to approve financial statement for year ended on 31 Mar 2020 Agreed

4. Vote on the BoD recommendation to distribute SAR 2.50 as cash dividends for H2 of the year ended on 31 Mar 2020

Agreed

5. Vote on the distributed cash dividends for H1 of the year ended on 31 Mar 2020 Agreed

6. Vote on delegating the BoD to distribute cash dividends for the year ended om 31 Mar 2021 on a bi-annual or quarterly basis

Agreed

7. Vote to appoint external auditor for Q2-Q4 2020 and Q1 2021 Agreed

8. Vote to discharge BoD members from liability for the year ended on 31 Mar 2020 Agreed

9. Vote to pay SAR 2.8 Mn as remuneration to BoD members for the year ended on 31 Mar 2020 Agreed


11. Vote to amend article 20 of the Company’s bylaws Agreed

Aldrees

Ordinary General

Assembly Meeting

16-Nov-20

1. Vote to elect BoD members Abstained

2. Vote on the formation of audit committee, approve its charter and the remuneration of its members Agreed

SABIC Agri-Nutrients

Ordinary General

Assembly Meeting

18-Nov-20

1. Vote on the BoD recommendation to increase the company’s capital by 14.25%, through rights issue Agreed

2. Vote to change the company’s name to SABIC Agri Nutrients – subject to the approval of the first agenda

Agreed

3. Vote to amend articles 1, 5, 6, 16, 17, 19, 20, 24, 30 and 34 of the company’s bylaws Agreed

4. Vote to approve additional remuneration of auditors in relation to the acquisition and Q2, Q3 and Q4 of 2020 and Q1 of 2021

Agreed

5. Vote to approve remuneration and nomination committee charter Agreed

SADAFCO Extraordinary

General 18-Nov-20 1. Vote to purchase of up to 2,749,750 company shares to be used as treasury shares Agreed



16

Assembly Meeting 2. Vote to hold the purchased treasury shares for a period up to 5 years Agreed


Southern Province Cement

Ordinary General Assembly Meeting

24-Dec-20 1. Vote on the election of BoD members Abstained

Saudi Electricity


Assembly Meeting

27-Dec-20


2. Vote to approve SAR 3.35 billion due to Saudi Aramco as a debt in favor to The Ministry of Finance and approve related resolutions

Agreed

3. Vote on establishing and allocating a consensual reserve to pay profit rate of Mudarabah instrument, in accordance with percentage and mechanism mentioned in that agreement

Agreed

4. Vote to authorize the BoD to transfer funds from the company’s retained earnings to form the reserve Agreed

5. Vote to authorize the BoD to use the consensual reserve in paying the Mudarabah instrument profit rate

Agreed

Bank Aljazira


Assembly Meeting

30-Dec-20

1. Vote to amend the Audit Committee Charter Agreed

2. Vote to amend the Nomination and Compensation Committee Charter. Agreed

3. Vote on the BoD resolution to appoint Khalifa Almulhem as an independent board of director Agreed

4. Vote to authorize the BoD to distribute interim dividends on semi-annual or quarterly basis for 2021 Agreed


Agreed

6. Vote to amend the Bank’s Compensation Policy for members of the Board, Board Committees and senior executives

Agreed

7. Vote to transfer an amount of SAR 68 million existing as a general reserve to the retained earnings Agreed

8. Vote to amend articles 3, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 17, 18, 19, 20, 21, 22, 24, 28, 29, 31, 32, 33, 37, 38, 39, 46, 48, 49, and 51 of the Bank’s bylaws

Agreed

9. Vote to add articles 4 and 26 to the Bank’s bylaws Agreed

6. Fund Board Resolutions

In 2020, the Fund’s board held its meetings on 14 April and 17 of November and the following

resolutions were approved:

Board meeting held on 14 April 2020:

The minutes of the previous board meeting were ratified;

Review the Fund’s financial report for the period ended 31 Dec 2019;

Review the performance and risk metrics of the Fund;

Board meeting held on 17 November 2020:

The minutes of the previous board meeting were ratified;

Review the Fund’s financial report for the period ended 30 Jun 2020;

Review and approval of auditor engagement letter and new audit fee;

Review the performance and risk metrics of the Fund



17

C. Fund Manager

1. A review of the investment activities during the period.

Portfolio Activity

In this section we discuss some of the portfolio activities. During 2020, we increased our

allocation to the construction material, which remains a play on the housing market on the back

of strong mortgage lending growth. We also increased exposure to the healthcare sector, which

offers growth opportunities as hospitals continue to expand. On the other hand, we reduced

allocation to the banking sector which is negatively impacted by the declining interest rate, which

is expected to drag the margins lower in short to medium term. The Fund carries an underweight

position on the largest two sectors by index weight namely Banks and Chemicals

2. A write-up of the investment fund’s performance during the period.

Performance Review

During the calendar year 2020, the Fund returned 9.09% (net of fees), while the benchmark

(TASI) rose by 3.58%. Both Stock selection and allocation contributed positively to returns. The

largest positive contributions were from the Healthcare sector, followed by the Food & Beverage

and Banking sectors. On the other hand, the Consumer Services and Consumer Durable sectors

contributed negatively.

3. Details of any material changes made during the period.

There were no material changes during the period.

4. Any other information that would enable unitholders to make an informed judgment about

the fund’s activities during the period.

The ongoing charges figure incorporates a fee reduction effective 1 June 2018 by way of a

waiver of 0.50% until 31 December 2021. This fee reduction will expire on 1 January 2022. The

reduced management fee is 1.25% per annum.

5. A statement on any special commission received by the fund manager during the period.

No special commission was received by the fund manager during the period.

6. Any other data and other information required by these Regulations to be included in this

report.

There is no other data or information required by the regulation to add to the report



18

Custodian

Brief description of its duties and responsibilities,

The Custodian is a service provider to the Fund in line with articles 22 to 29 of the Investment Fund

Regulations issued by the Capital Market Authority. Please find below a brief summary of the

responsibilities of the custodian:

Opening of segregated accounts for the Fund in the name of the custodian for the benefit of the

specific Fund;

Safekeeping and periodic reconciliation of assets under custody;

Movement of Funds for Fund's investment and operational purposes based on Fund Manager

instructions;

Settlement of trades after execution and handling of corporate actions in the Fund portfolio based

on Fund Manager instructions;

Providing periodic statements to the Fund Manager and the Fund’s auditors; and

Complying with client money rules and Investment Account Instructions issued by the CMA.

The Custodian confirms that the above mentioned responsibilities have been duly complied.

The Custodian does not have any opinion on the below aspects:

- Issued, transferred and redeemed the units in accordance with the provisions of the

Investment Funds Regulations and the fund’s Terms and Conditions;

- Valued and calculated the price of units in accordance with the provisions of the Investment

Funds Regulations, the fund’s Terms and Conditions and the Information memorandum;

- Breached any of the investment restrictions, limitations and borrowing powers applicable to

the Investment Fund Regulations.



19

Auditor

The Audited Financial Statements and Audit Opinion for the year ended in 31 December 2020 are as

follows:

Opinion

“We have audited the financial statements of Morgan Stanley Saudi Equity Fund (the “Fund”) managed by

Morgan Stanley Saudi Arabia Company (the “Fund Manager”), which comprise the statement of financial

position as at 31 December 2020, and the statement of comprehensive income, statement of cash flows

and statement of changes in equity for the year then ended, and notes to the financial statements,

including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial

position of the Fund as at 31 December 2020, and its financial performance and its cash flows for the year

then ended in accordance with International Financial Reporting Standards that are endorsed in the

Kingdom of Saudi Arabia and other standards and pronouncements that are endorsed by the Saudi

Organization for Certified Public Accountants.”

Morgan Stanley Saudi Equity Fund

(Managed By Morgan Stanley Saudi Arabia

Company)

FINANCIAL STATEMENTS AND INDEPENDENT

AUDITOR’S REPORT

31 DECEMBER 2020


(Managed by Morgan Stanley Saudi Arabia Company)

The accompanying notes 1 to 16 form an integral part of these financial statements.

3

STATEMENT OF FINANCIAL POSITION

As at 31 December 2020

Notes

31 December 2020 SR

31 December 2019 SR

Assets

Bank balance 1,663,600 3,867,779

Financial assets at fair value through profit or loss (FVTPL) 7 47,608,640 60,619,360

Other assets 13,211 320,553

──────── ────────

Total assets 49,285,451 64,807,692

──────── ────────

Liabilities

Management fee payable 9 159,916 191,791 Accrued expenses 8 93,837 58,834

Other payables 151,469 -

──────── ────────

Total liabilities 405,222 250,625

──────── ────────

Equity

Net assets attributable to unitholders of redeemable units 48,880,229 64,557,067

════════ ════════

Redeemable units in issue 108,635 156,515

════════ ════════

Net asset value attributable to per unit 449.95 412.47

════════ ════════




4

STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December 2020

2020 2019 Notes SR SR Income

Net unrealised (loss) gain on financial assets at FVTPL (570,485) 3,261,716

Net realised gain on financial assets at FVTPL 4,972,665 3,224,740

Dividend income 1,497,519 2,577,491 ──────── ────────

5,899,699 9,063,947

──────── ────────

Expenses

Management fees 9 706,970 795,671

Other expenses 10 383,427 340,786

──────── ────────

1,090,397 1,136,457 ──────── ──────── Profit for the year 4,809,302 7,927,490

Other comprehensive income - - ──────── ──────── Total comprehensive income 4,809,302 7,927,490 ════════ ════════




5

STATEMENT OF CASH FLOWS

Year ended 31 December 2020

2020 2019 SR SR Operating activities Profit for the year 4,809,302 7,927,490 Adjustments for: Net unrealised loss (gain) on financial assets at FVTPL 570,485 (3,261,716) ──────── ────────

5,379,787 4,665,774 Working capital adjustments: ──────── ────────

Decrease (increase) in financial assets at FVTPL 12,440,235 (8,258,228) Decrease (increase) in other assets 307,342 (320,553) (Decrease) increase in management fee payable (31,875) 69,015 Increase (decrease) in accrued expenses 35,003 (10,627) Increase in other liabilities 151,469 - ──────── ────────

12,902,174 (8,520,393) ──────── ────────

Net cash flows from (used in) operating activities 18,281,961 (3,854,619) ──────── ────────

Financing activities

Proceeds from issuances of units 1,200,000 13,280,500

Payments on redemption of units (21,686,140) (6,462,170) ──────── ────────

Net cash flows (used in) from financing activities (20,486,140) 6,818,330 ──────── ────────

Net (decrease) increase in bank balance during the year (2,204,179) 2,963,711

Bank balance at the beginning of the year 3,867,779 904,068 ──────── ────────

Bank balance at the end of the year 1,663,600 3,867,779 ════════ ════════




6

STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2020

2020 2019

SR SR

Net asset value (equity) at the beginning of the year 64,557,067 49,811,247

Profit for the year 4,809,302 7,927,490

Other comprehensive income for the year - - ──────── ────────

Total comprehensive income for the year 4,809,302 7,927,490

──────── ────────

Issue of units during the year 1,200,000 13,280,500

Redemption of units during the year (21,686,140) (6,462,170)

──────── ────────

Net change from unit transactions (20,486,140) 6,818,330

──────── ────────

Net asset value (equity) at the end of the year 48,880,229 64,557,067

════════ ════════

REDEEMABLE UNITS TRANSACTIONS

Transactions in redeemable units for the year ended 31 December are summarised as follows:

2020 2019 Units Units

Units at the beginning of the year 156,515 139,187

──────── ────────

Issue of units during the year 2,907 33,761

Redemption of units during the year (50,787) (16,433) ──────── ──────── Net change in units (47,880) 17,328 ──────── ──────── Units at the end of the year 108,635 156,515 ════════ ════════



NOTES TO THE FINANCIAL STATEMENTS At 31 December 2020

7

1 INCORPORATION AND ACTIVITES

Morgan Stanley Saudi Equity Fund (the “Fund”) is an open ended investment fund created by agreement between

Morgan Stanley Saudi Arabia Company (the “Fund Manager”) and investors (the “Unitholders”) in the Fund. The

objective of the Fund is to seek long-term capital appreciation and returns from investments in the Saudi equity market.

The Fund has appointed HSBC Saudi Arabia Limited (the “Administrator”) to act as its custodian, administrator and registrar. The fees for the custodian and administrator’s services are paid by the Fund.

The approval from the Capital Market Authority (the “CMA”) for the establishment of the Fund was obtained via

letter no. RH/639 dated 15 Sha’aban 1429H (corresponding to 16 August 2008). The Fund commenced operations

on 7 January 2009.

The books and records of the Fund are maintained in Saudi Riyals (“SR”).

The Fund’s Manager registered office is P.O. Box 66633, Riyadh 11586, Kingdom of Saudi Arabia.

2 REGULATING AUTHORITY

The Fund is governed by the Investment Fund Regulations (the “Regulations”) issued by the CMA on 3 Dhul Hijja

1427H (corresponding to 24 December 2006) and effective from 6 Safar 1438H (corresponding 6 November 2016)

by the New Investment Fund Regulations (the “Amended Regulations”) published by the Capital Market Authority

on 16 Sha’aban 1437H (corresponding to 23 May 2016), detailing requirements for all funds within the Kingdom of

Saudi Arabia.

3 BASIS OF PREPARATION

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)

that are endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements that are issued by the Saudi

Organization for Certified Public Accountants (“IFRS as endorsed in KSA”).

These financial statements have been prepared on a historical cost basis, except for financial assets held at fair value

through profit or loss that have been measured at fair value. The financial statements are presented in Saudi Riyal (“SR”)

which is the functional currency of the Fund.

4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial instruments

(i) Classification The Fund classifies its financial assets and financial liabilities at initial recognition into the categories of financial assets

and financial liabilities discussed below.

In applying that classification, a financial asset or financial liability is considered to be held for trading if:

(a) It is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or

(b) On initial recognition, it is part of a portfolio of identified financial instruments that are managed together and for

which, there is evidence of a recent actual pattern of short-term profit-taking or

(c) It is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging

instrument)

Financial assets

The Fund classifies its financial assets as subsequently measured at amortised cost or measured at fair value through profit or loss on the basis of both:

► The entity’s business model for managing the financial assets ► The contractual cash flow characteristics of the financial asset



NOTES TO THE FINANCIAL STATEMENTS (continued) At 31 December 2020

8

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Financial assets (continued)

• Financial assets measured at amortised cost

A debt instrument is measured at amortised cost if it is held within a business model whose objective is to

hold financial assets in order to collect contractual cash flows and its contractual terms give rise on specified

dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

• Financial assets measured at fair value through profit or loss (FVTPL)

A financial asset is measured at fair value through profit or loss if:

i. Its contractual terms do not give rise to cash flows on specified dates that are solely payments of

principal and interest on the principal amount outstanding (SPPI); and

ii. It is not held within a business model whose objective is either to collect contractual cash flows,

or to both collect contractual cash flows and sell;

OR

iii. At initial recognition, it is irrevocably designated as measured at FVTPL when doing so eliminates

or significantly reduces a measurement or recognition inconsistency that would otherwise arise

from measuring assets or liabilities or recognising the gains and losses on them on different bases.

The Fund includes in this category:

• Instruments held for trading. This category includes equity instruments which are acquired

principally for the purpose of generating a profit from short-term fluctuations in price. Financial liabilities

• Financial liabilities measured at fair value through profit or loss (FVTPL)

A financial liability is measured at FVTPL if it meets the definition of held for trading. The Fund does not

hold any financial liabilities measured at FVTPL.

• Financial liabilities measured at amortised cost

This category includes all financial liabilities, other than those measured at FVTPL. (ii) Recognition

The Fund recognises a financial asset or a financial liability when it becomes a party to the contractual provisions of

the instrument.

Purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that

the Fund commits to purchase or sell the asset. (iii) Initial measurement

Financial assets and financial liabilities at FVTPL are recorded in the statement of financial position at fair value.

All transaction costs for such instruments are recognised directly in profit or loss.

Financial assets and liabilities (other than those classified as at FVTPL) are measured initially at their fair value including any directly attributable incremental costs of acquisition or issue.

(iv) Subsequent measurement

After initial measurement, the Fund measures financial instruments which are classified as at FVTPL, at fair value. Subsequent changes in the fair value of those financial instruments are recorded in net gain or loss on financial assets

and liabilities at FVTPL in the statement of comprehensive income. Interest and dividends earned or paid on these

instruments are recorded separately in interest income or expense and dividend income or expense in the statement

of comprehensive income.




9

4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued)

(v) Derecognition

A financial asset (or, where applicable, a part of a financial asset or a part of a group of similar financial assets) is

derecognised where the rights to receive cash flows from the asset have expired, or the Fund has transferred its rights

to receive cash flows from the asset, or has assumed an obligation to pay the received cash flows in full without

material delay to a third party under a pass-through arrangement and the Fund has:

(a) Transferred substantially all of the risks and rewards of the asset or

(b) 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 right to receive cash flows from an asset (or has entered into a pass-through

arrangement), 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.

In that case, the Fund also recognises an associated liability. The transferred asset and the associated liability are

measured on a basis that reflects the rights and obligations that the Fund has retained.

The Fund derecognises a financial liability when the obligation under the liability is discharged, cancelled or expired.

(vi) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position

if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention

to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is generally not the case

with master netting agreements unless one party to the agreement defaults and the related assets and liabilities are

presented gross in the statement of financial position. (vii) Impairment of financial assets

The Fund holds trade receivables with no financing component having maturities of less than 12 months at amortised

cost and, as such, has chosen to apply an approach similar to the simplified approach for expected credit losses (ECL)

to all its trade receivables. Therefore, the Fund does not track changes in credit risk, but instead recognises a loss

allowance based on lifetime ECLs at each reporting date.

The Fund’s approach to ECLs reflects a probability-weighted outcome, the time value of money and reasonable and

supportable information that is available without undue cost or effort at the reporting date about past events, current

conditions and forecasts of future economic conditions.

The Fund uses the provision matrix as a practical expedient to measuring ECLs on trade receivables, based on days

past due for groupings of receivables with similar loss patterns. Receivables are grouped based on their nature. The

provision matrix is based on historical observed loss rates over the expected life of the receivables and is adjusted

for forward-looking estimates.

Impaired debts, together with the associated allowance, are written off when there is no realistic prospect of future

recovery and all collateral has been realised or has been transferred to the Fund. If a previous write-off is later

recovered, the recovery is credited to the credit loss expense.

Commission revenue on impaired financial assets is recognised using the rate of commission used to discount the

future cash flows for the purpose of measuring the impairment loss. Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprise cash on hand and short-term deposits in

banks that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes

in value, with original maturities of three months or less.

Short-term investments that are not held for the purpose of meeting short-term cash commitments and restricted

margin accounts are not considered as ‘cash and cash equivalents’.




10

4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and cash equivalents (continued)

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as

defined above, net of outstanding bank overdrafts when applicable. Redeemable Units

Redeemable units are classified as equity instruments when:

- The redeemable units entitle the holder to a pro rata share of the Fund’s net assets in the event of the Fund’s

liquidation

- The redeemable units are in the class of instruments that is subordinate to all other classes of instruments

- All redeemable units in the class of instruments that is subordinate to all other classes of instruments have

identical features

- The redeemable units do not include any contractual obligation to deliver cash or another financial asset other

than the holder’s rights to a pro rata share of the Fund’s net assets

- The total expected cash flows attributable to the redeemable units over the life of the instrument are based

substantially on the comprehensive income, the change in the recognised net assets or the change in the fair

value of the recognised and unrecognised net assets of the Fund over the life of the instrument

In addition to the redeemable shares having all of the above features, the Fund must have no other financial instrument

or contract that has:

- Total cash flows based substantially on the comprehensive income, the change in the recognised net assets or

the change in the fair value of the recognised and unrecognised net assets of the Fund

- The effect of substantially restricting or fixing the residual return to the redeemable unitholders

The Fund continuously assesses the classification of the redeemable shares. If the redeemable shares cease to have

all the features, or meet all the conditions set out, to be classified as equity, the Fund will reclassify them as financial

liabilities and measure them at fair value at the date of reclassification, with any differences from the previous

carrying amount recognised in equity. If the redeemable shares subsequently have all the features and meet the

conditions to be classified as equity, the Fund will reclassify them as equity instruments and measure them at the

carrying amount of the liabilities at the date of the reclassification.

The issuance, acquisition and cancellation of redeemable shares are accounted for as equity transactions.

No gain or loss is recognised in the statement of comprehensive income on the purchase, issuance or cancellation of

the Fund’s own equity instruments.

Dividend income

Dividend income is recognised in the statement of comprehensive income when the Fund’s right to receive payment

is established.

Net gain or loss on financial assets and liabilities at fair value through profit or loss (“FVTPL”)

Net gains or losses on financial assets and liabilities at FVTPL are changes in the fair value of financial assets and

liabilities held for trading or designated upon initial recognition as at FVTPL and exclude interest and dividend

income and expenses.

Unrealised gains and losses comprise changes in the fair value of financial instruments for the period and from

reversal of the prior period’s unrealised gains and losses for financial instruments which were realised in the reporting period. Realised gains and losses on disposals of financial instruments classified as at FVTPL are calculated using

the weighted average cost method. They represent the difference between an instrument’s initial carrying amount

and disposal amount, or cash payments or receipts made on derivative contracts (excluding payments or receipts on

collateral margin accounts for such instruments).




11

4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fee and other expenses

Fee and other expenses are recognized on an accrual basis. Zakat and income tax

Zakat and income tax is the obligation of the unitholders and is therefore not provided in these financial statements. Foreign currency translation

Transactions in foreign currencies are translated into SR at the exchange rate at the dates of the transactions. Foreign

exchange gains and losses arising from translation are included in profit or loss.

Monetary assets and liabilities denominated in foreign currencies are retranslated into SR at the exchange rate at the

reporting date.

Foreign currency differences arising on retranslation are recognised in the statement of comprehensive income as net

foreign exchange gains/losses. 5 SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES The preparation of the Fund’s financial statements requires management to make judgments, estimates and

assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these

assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount

of the asset or liability affected in the future periods. Significant areas where management has used estimates, assumptions or exercised judgement are as follows: 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, management is not

aware of any material uncertainties that may cast significant doubt upon the Fund's ability to continue as a going

concern. Therefore, the financial statements continue to be prepared on a going concern basis. Fair value measurement

The Fund measures its investments in financial instruments, such as equity instruments, at fair value at each reporting

date.

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. The fair value measurement is based on the presumption that

the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability

or, in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or

the most advantageous market must be accessible to the Fund. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market

participants act in their economic best interest.

The fair value for financial instruments traded in active markets at the reporting date is based on their quoted price

(bid price for long positions and ask price for short positions), without any deduction for transaction costs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized

within the fair value hierarchy. This is described, as follows, based on the lowest level input that is significant to the

fair value measurement as a whole:

• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

• Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement

is directly or indirectly observable

• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

The Fund has only financial assets at FVTPL or loss which is measured at fair values and are classified within level

1 of the fair value hierarchy. Management believes that the fair value of all other financial assets and liabilities at

the reporting date approximate their carrying values owing to their short-term tenure and the fact that these are readily liquid. These are all classified within level 2 of the fair value hierarchy. There were no transfers between

various levels of fair value hierarchy during the current period or prior year.




12

6 NEW AND AMENDED STANDARDS AND INTERPRETATIONS a) Standards issued and effective during the year The standards and interpretations that were effective in 2020 do not have significant impact on the Fund’s financial

statements. Below is the list of the amended standards and interpretations:

• Amendments to IFRS 3: Definition of a Business

• Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform

• Amendments to IAS 1 and IAS 8 Definition of Material

• Conceptual Framework for Financial Reporting issued on 29 March 2018

• Amendments to IFRS 16 Covid-19 Related Rent Concessions

b) Standards issued but not yet effective There are several standards and interpretations that are issued, but not yet effective, up to the date of issuance of the

Fund’s financial statements. In the opinion of the Board, these standards will have no significant impact on the

financial statements of the Fund. The Fund intends to adopt these standards, if applicable, when they become

effective. Below is the list of the amended standards and interpretations:

• IFRS 17 Insurance Contracts

• Amendments to IAS 1: Classification of Liabilities as Current or Non-current

• Reference to the Conceptual Framework – Amendments to IFRS 3

• Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16

• Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37

• IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time

adopter

• IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities

• IAS 41 Agriculture – Taxation in fair value measurements

7 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS The composition of the portfolio on the last valuation day is summarised below: 31 December 2020

% of market

Cost

Market value

Unrealised gain/(loss)

Description value SR SR SR Sectors

Banks 31.22% 13,040,221 14,861,537 1,821,316

Materials 21.77% 8,762,189 10,363,416 1,601,227

Health Care Equipment & Services 9.68% 3,643,889 4,609,520 965,631

Retailing 9.54% 3,505,509 4,540,444 1,034,935

Energy 5.21% 2,474,009 2,479,039 5,030

Capital Goods 4.12% 1,647,156 1,962,718 315,562

Food and beverages 3.19% 1,050,445 1,519,350 468,905

Consumer Services 2.81% 1,251,528 1,337,974 86,446

REITs 2.37% 981,402 1,125,611 144,209

Transportation 2.29% 1,015,873 1,089,536 73,663

Insurance 2.03% 876,676 968,053 91,377

Commercial & Professional Svc 2.01% 947,948 957,642 9,694

Food & Staples Retailing 1.97% 758,208 939,862 181,654

Utilities 1.79% 868,340 853,938 (14,402) ──────── ───────── ───────── ──────────

100.00% 40,823,393 47,608,640 6,785,247 ════════ ═════════ ═════════ ══════════




13

7 INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)

31 December 2019

% of market

Cost

Market value

Unrealised gain/(loss)

Description value SR SR SR Sectors

Banks 43.60% 22,883,921 26,431,647 3,547,726

Energy 8.87% 4,183,096 5,376,367 1,193,271

Retailing 8.24% 4,691,214 4,994,337 303,123

Materials 7.84% 4,577,924 4,751,919 173,995 Consumer Services 7.54% 3,835,869 4,569,175 733,306

Food and beverages 5.49% 2,767,635 3,329,010 561,375

Health Care Equipment & Services 4.16% 2,486,467 2,519,243 32,776

Insurance 3.20% 1,879,326 1,941,386 62,060

REITs 2.95% 1,375,307 1,788,886 413,579

Real Estate 2.91% 1,725,437 1,765,790 40,353

Commercial & Professional Svc 1.85% 958,860 1,118,697 159,837

Consumer Durables & Apparel 1.70% 1,063,700 1,029,922 (33,778)

Transportation 1.65% 834,872 1,002,981 168,109 ──────── ───────── ───────── ──────────

100.00% 53,263,628 60,619,360 7,355,732 ════════ ═════════ ═════════ ══════════ Investments are listed on the Saudi stock exchange (“Tadawul”). The Fund Manager seeks to limit risk for the Fund by monitoring exposures in each investment sector and individual securities.

8 ACCRUED EXPENSES

31 December 2020 SR

31 December 2019 SR

Accrued audit fees 35,000 30,000

VAT payable 31,663 11,935

Accrued directors’ fees 11,000 -

Accrued fund administration fees 6,352 7,983 Accrued custodian fees 4,764 5,322

Others 5,058 3,594 ──────── ──────── 93,837 58,834 ════════ ════════




14

9 TRANSACTIONS WITH RELATED PARTIES Management fee

Until 31 May 2018, the Fund manager was charging the management fee calculated at the rate of 1.75% per annum

on the net assets value of the Fund at each valuation date, however, effective from 1 June 2018, the Fund Manager

has waived 0.50% of this rate effectively reducing the rate to 1.25% per annum until the end of December 2021. The management fees amounting to SR 706,970 (31 December 2019: SR 795,671) reflected in the statement of

comprehensive income, represent the fees charged by the Fund Manager during the year as described above. As at 31

December 2020, management fees amounting to SR 159,916 (31 December 2019: SR 191,791) are payable to the

Fund Manager.

Board of directors

The independent directors are entitled to remuneration for their services at rates determined by the Fund’s terms and

conditions in respect of attending meetings of the board of directors or meetings of the Fund. Independent director’s

fees are currently SR 3,000 per meeting in addition to out of pocket expenses incurred for attending a meeting of the

Board subject to a cap of SR 5,000 per month per independent director. The maximum yearly remuneration for each

independent director is SR 50,000. Non-independent directors receive no remuneration from the Fund. The directors

received a total remuneration of SR 23,000 (inclusive of directors’ fees and ticketing) for year ended 31 December

2020 (for year ended 31 December 2019: SR 23,288). The Unitholders’ account at 31 December included units held as follows:

2020 Units

2019 Units

Held by the Fund Manager 10,447 10,447 ══════ ══════ 10 OTHER EXPENSES

31 December

2020 31 December

2019 SR SR VAT charges 99,089 52,930

Fund administration fees (note 1) 85,732 95,485

Custodian fees (note 1) 59,224 63,963

Audit fees 55,000 50,000

Transaction fees 50,288 42,975

Director fees (note 9) 23,000 23,288

Others 11,094 12,145 ──────── ──────── 383,427 340,786 ════════ ════════




15

11 MATURITY ANALYSIS OF ASSETS AND LIABILITIES

The table below shows an analysis of assets and liabilities according to when they are expected to be recovered or settled

respectively:


Within

12 months

After

12 months Total

SR SR SR ASSETS

Bank balance 1,663,600 - 1,663,600

Financial assets at FVTPL 47,608,640 - 47,608,640

Other assets 13,211 - 13,211

───────── ───────── ─────────

TOTAL ASSETS 49,285,451 - 49,285,451

───────── ───────── ─────────

LIABILITIES

Management fee payable 159,916 - 159,916

Accrued expenses 93,837 - 93,837

Other liabilities 151,469 - 151,469 ──────── ───────── ────────

TOTAL LIABILITIES 405,222 - 405,222 ═════════ ═════════ ═════════


Within

12 months

After

12 months Total

SR SR SR ASSETS

Bank balance 3,867,779 - 3,867,779

Financial assets at FVTPL 60,619,360 - 60,619,360 Other assets 320,553 320,553

───────── ───────── ─────────

TOTAL ASSETS 64,807,692 - 64,807,692

───────── ───────── ─────────

LIABILITIES

Management fee payable 191,791 191,791

Accrued expenses 58,834 - 58,834 ──────── ───────── ────────

TOTAL LIABILITIES 250,625 - 250,625 ═════════ ═════════ ═════════




16

12 FINANCIAL AND RISK MANAGEMENT OBJECTIVES AND POLICIES

Introduction

The Fund’s objective in managing risk is the creation and protection of unitholder's value. Risk is inherent in the Fund’s activities, but it is managed through a process of ongoing risk identification, measurement and monitoring,

subject to risk limits and other controls. The process of risk management is critical to the Fund’s continuing

profitability. The Fund is exposed to market risk (which includes foreign currency risk and equity price risk), credit

risk and liquidity risk arising from the financial instruments it holds.

Risk management

The Fund’s Investment Manager is responsible for identifying and controlling risks. The Board of Directors

supervises the Investment Manager and is ultimately responsible for the overall risk management of the Fund. Risk measurement and reporting system

Monitoring and controlling risks is primarily set up to be performed based on limits established by the Board of Directors. These limits reflect the business strategy, including the risk that the Fund is willing to accept and the market

environment of the Fund. In addition, the Fund monitors and measures the overall risk in relation to the aggregate

risk exposure across all risks type and activities. Risk mitigation

The Fund has investment guidelines that set out its overall business strategies, its tolerance for risk and its general risk

management philosophy.

Concentration risk

Concentration indicates the relative sensitivity of the Fund’s performance to developments affecting a particular

industry or geographical location. Concentrations of risk arise when a number of financial instruments or contracts

are entered into with the same counterparty, or where a number of counterparties are engaged in similar business

activities, or activities in the same geographical region, or have similar economic features that would cause their

ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions.

Concentrations of liquidity risk may arise from the repayment terms of financial liabilities, sources of borrowing facilities or reliance on a particular market in which to realise liquid assets. Concentrations of foreign exchange risk

may arise if the Fund has a significant net open position in a single foreign currency, or aggregate net open positions

in several currencies that tend to move together.

In order to avoid excessive concentrations of risk, the Fund’s policies and procedures include specific guidelines to

focus on maintaining a diversified portfolio. The investment manager is instructed to reduce exposure or to use

derivative instruments to manage excessive risk concentrations when they arise.

Note 7 to the financial statements analyse the Fund’s concentration of equity portfolio by industrial distribution.

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 does not have a formal internal grading mechanism. Credit risk is managed and

controlled by monitoring credit exposures, limiting transactions with specific counterparties and continually assessing

the creditworthiness of counterparties. Credit risks are generally managed on the basis of external credit ratings of the

counterparties. The Fund Manager seeks to limit its credit risk by monitoring credit exposure and by dealing with reputed

counterparties.

The Fund is exposed to credit risk on its bank balances. Balances with bank is assessed to have low credit risk of default since the bank is highly regulated by the central bank. None of the balances with bank at the end of the reporting period

are past due, and taking into account the historical default experience and the current credit ratings of the bank, the

management of the Fund have assessed that there is no significant impairment, and hence have not recorded any loss

allowances on these balances.




17

12 FINANCIAL AND RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Credit risk (continued)

The table below shows the maximum exposure to credit risk for the component of the statement of financial position.

31 December 2020 SR

31 December 2019 SR

Bank balance 1,663,600 3,867,779 ───────── ───────── 1,663,600 3,867,779 ═════════ ═════════

Liquidity risk

Liquidity risk is the risk that the Fund will encounter difficulty in releasing funds to meet commitments associated with

financial liabilities that are settled by delivering cash or another financial assets.

The Fund’s terms and conditions provide for the terms of subscriptions and redemptions of units and it is, therefore,

exposed to the liquidity risk of meeting unitholder redemptions. The Fund’s securities are considered to be readily

realizable as they are all listed on stock markets. The Fund Manager monitors the liquidity requirements on a regular

basis and seeks to ensure that sufficient funds are available to meet any commitments as they arise.

The value of Fund’s undiscounted financial liabilities at the reporting date are equal to their carrying values and are all

repayable within one year from reporting date.

Market risk

Market risk is the risk that changes in market prices - such as foreign exchange rates, interest rates and equity prices

will affect the Fund’s income or the fair value of its holdings in financial instruments.

The Fund’s strategy for the management of market risk is driven by the Fund’s investment objective as per Fund’s

terms and conditions. The Fund’s market risk is managed on a timely basis by the Investment Manager in accordance

with the policies and procedures in place. The Fund’s market positions are monitored on a timely basis by the Fund

Manager.

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.

Sensitivity analysis

The table below sets out the effect on net assets attributable to unitholders of a reasonably possible weakening /

strengthening in the individual equity market prices of 5% at reporting date. The estimates are made on an individual

investment basis. The analysis assumes that all other variables remain constant.



SR SR

Strengthening of 5% 2,541,772 3,131,018

Weakening of 5% (2,541,772) (3,131,018)

Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange

rates. The Fund is not subject to fluctuations in foreign exchange rates as all significant monetary assets and labilities

and all significant transactions are denominated in Saudi Riyals.




18

12 FINANCIAL AND RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

Interest rate risk

The Fund has no interest bearing financial assets and liabilities and therefore management believes that the Fund is

not exposed to any direct interest rate risk.

13 EVENTS SUBSEQUENT TO THE REPORTING PERIOD

In the opinion of Fund Manager, no events have occurred subsequent to the reporting date and before the issuance of

these financial statements which requires adjustment to, or disclosure, in these financial statements.

14 IMPACT OF COVID-19 ON OPERATIONS AND FINANCIAL STATEMENTS The global Coronavirus (COVID-19) pandemic continues to create unprecedented economic and social uncertainty throughout the world. During the period, global financial markets exhibited high levels of volatility which gave rise to steep and fast declines in global asset values (from 21st February 2020 through 23rd March 2020). Following unprecedented commitments to fiscal and monetary stimulus by governments and central banks globally we witnessed a strong recovery in asset values in the months following. The emergence of second and third waves as well as new variants of the virus added further to market volatility through the remainder of the year. News of the development and roll out of vaccines towards the end of the year gave rise to further volatility and a rotation towards those sectors which had been worst affected in the March sell off. Whilst the ultimate impact of the pandemic is difficult to predict, we have experienced increased market volatility and economic uncertainties, which may materially affect the valuation of portfolio investments and in turn, the net asset value of the Fund. The long-term impact of this is currently unpredictable.

15 LAST VALUATION DAY The last valuation day of the year was 31 December 2020 (For the year ended 31 December 2019: 31 December 2019).

16 APPROVAL OF FINANCIAL STATEMENTS

These financial statements are approved by the Fund’s Management on 16 Sha’aban 1442H (corresponding to 29

March 2021).

morgan stanley saudi arabia the morgan stanley saudi ...name of the fund morgan stanley saudi equity...

Documents