GENERRAALL INFORMATION ABOUT THE … to PF Financial Statements 1 GENERRAALL INFORMATION ABOUT THE PROVIDENT FUND Description of the Provident Fund The UNRWA Provident Fund (PF) is

Notes to PF Financial Statements

1

GGEENNEERRAALL INFORMATION ABOUT THE PROVIDENT FUND Description of the Provident Fund

The UNRWA Provident Fund (PF) is a retirement benefit plan, which applies to all eligible

area staff members; the participation in the provident fund is mandatory, the PF benefit

becomes eligible to participate after 6 months of service. It is a defined contribution plan,

whereby the amounts to be paid as retirement benefits are determined by contributions paid to

the fund together with investment earnings thereon. The PF had 31,714 members as at 31

December 2013. Staff contribution is a mandatory 7.5% of basic salary and is matched by

the Agency contribution of 15%. Staff members can also make additional voluntary

contributions that can reach a maximum limit of 50% of the basic salary. As at 31 December

2013 the PF had 1,105 members enrolled in the voluntary contribution scheme. The PF is

administered by the Provident Fund Secretariat (PFS) and two committees, the Provident

Fund Committee (PFC) and the Investment Advisory Committee (IAC), which provide

additional governance. The Commissioner-General has the ultimate authority over the

Provident Fund.

Provident Fund Benefits

A staff member who is a participant in the Provident Fund shall, upon separation from the

Agency's service, be paid Provident Fund benefits as follows:

(A) A staff Provident Fund benefit equal to the balance of staff credits in his/her account

current to the date of separation including both mandatory and voluntary

contributions; and

(B) An Agency Provident Fund benefit equal to the balance of Agency credits in his/her

account current to the date of separation; and

(C) In addition, the income earned each year by the Provident Fund assets, which is

credited to the participants account.


2

AAddooppttiioonn ooff NNeeww aanndd RReevviisseedd SSttaannddaarrddss

UNRWA is adopting all of the new and revised Standards and Interpretations issued by the

International Accounting Standards Board (the IASB) and the International Financial

Reporting Interpretations Committee (the IFRIC) of the IASB that are relevant to its

operations and effective for annual reporting periods beginning on 1 January 2013.

IInnvveessttmmeennttss aanndd AAsssseett AAllllooccaattiioonn

The asset allocation strategy and the actual asset allocation percentage are shown in the table

below:

AAsssseett aallllooccaattiioonn aass ooff 3311 DDeecceemmbbeerr 22001133

Descriptions Asset Allocation

Strategy

Actual Asset

Allocation

Bonds 40 35

Equities 32.5 35

Cash 0 5

Hedge Fund of Funds 5 5

Real Estate Securities 7.5 7

Emerging Markets Debts 7.5 6

Emerging Markets Equity 7.5 7

Total 100 100

The PF employed the service of 12 investment managers in 2013, four with bond mandates,

three with equity mandates, two with hedge fund of funds mandates, one for real estate

securities, one with emerging markets equity and one with emerging markets debt.

The custody of the fund assets is with a global custodian, the Northern Trust Company (NT).

NT also administers a securities-lending program on behalf of the PF, as well as being

responsible for measuring managers’ performance.


3

IInnvveessttmmeenntt OObbjjeeccttiivvee::

The fund managers’ investment performance is measured against UNRWA customization of

market benchmarks. The construction of these benchmarks is as follow:

-- CCoommbbiinneedd CCuussttoomm BBeenncchhmmaarrkk:: 40% Fixed Income , 32.5% Equities, 5% Hedge fund of

Funds, 7.5% Real Estate securities ,7.5% Emerging Markets Equity and 7.5% Emerging

market Debt.

-- FFiixxeedd IInnccoommee CCuussttoomm BBeenncchhmmaarrkk: Barclays Global Investors Management 40 %Hedged

to USD.

-- EEqquuiittyy CCuussttoomm BBeenncchhmmaarrkk: MSCI World Index.

-- HHeeddggee FFuunndd ooff FFuunndd BBeenncchhmmaarrkk: HFRI Fund of Fund Composite Index.

-- RReeaall EEssttaattee SSeeccuurriittiieess: UBS Global Investors Total Return Index (USD)

-- EEmmeerrggiinngg MMaarrkkeettss EEqquuiittyy BBeenncchhmmaarrkk:: MSCI Emerging Markets GDR fully unhedged

in US dollars

- EEmmeerrggiinngg MMaarrkkeettss DDeebbtt BBeenncchhmmaarrkk:: JP Morgan GBI-EM Global Diversified index.

The fixed income managers Baring Asset Managements, BlackRock International

Investments, Western Asset Management and Fiduciary Trust are expected to achieve returns

equivalent to UNRWA Fixed Income custom benchmark. The global equity managers State

Street Global Advisors, J.P. Morgan Asset Management and Cantillon Capital Management

are expected to achieve performance equivalent to the return from the UNRWA Equity

custom benchmark. Whereas the hedge fund of funds managers UBS Global Asset

Management and Kottmann Analytics are expected to achieve performance equivalent to the

return from Hedge Fund of Funds benchmark. The Real Estate Securities fund manager AMP

Capital Investment Management is expected to achieve performance equivalent to the return

from UBS Global Investors Total Return Index (USD).

Lazard Asset Management is expected to achieve returns equivalent to UNRWA emerging

markets equities benchmark and Pictet & Cie is expected to achieve returns equivalent to

UNRWA emerging markets debt benchmark. For all managers preservation of capital is

considered of primary importance with liquidity as secondary.


4

IInnvveessttmmeenntt PPeerrffoorrmmaannccee

FFuunndd PPeerrffoorrmmaannccee

The total fund has achieved the targeted performance in year 2013; the table below shows the

summary of PF aggregate and asset class performance against the relative benchmarks for

years 2012 and 2013.

The objective of the fund is to achieve the benchmark return; the fund over-performed the

benchmark in the year 2013. Although the emerging markets equity and emerging markets

debt portfolios, under-performed the benchmark, the over performance of the equity, fixed

income, real estate securities and hedged fund of funds portfolios compensated the under-

performance of the emerging markets equity and emerging markets debt portfolios.

Details 2013

(%)

2012

(%)

Total Fixed Income Managers -0.92 7.50

Market Fixed Income Customized Benchmark -1.61 4.88

Total Equity Managers 8.58 19.47

Market Equity Customized Benchmark 7.22 16.54

Total Hedge Fund of Fund Manager 12.05 3.18

Hedge Fund of Fund Benchmark 8.73 4.81

Total Real Estate Securities 5.84 26.65

UBS Global Investors Total Return Benchmark 2.74 24.93

Emerging Markets Equity Manager -2.90 -0.91

Emerging Markets Equity Benchmark 1.66 5.17

Emerging Markets Debt Manager -2.84 5.22

Emerging Markets Debt Benchmark -2.10 5.67

Total Provident Fund 8.42 11.77

Market Combined Customized Benchmark 7.22 9.68


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The investment environment in 2013 was good for most of the financial asset classes. Hence

the Provident Fund experienced good returns for the equity portfolios, real estate securities

portfolio and hedged fund of funds portfolios in 2013.

Though the return for fixed income portfolios was above the benchmark, the return is minus.

However the return for the emerging markets debt was below the benchmark index and the

performance of the emerging markets equity was very disappointing in the year of 2013.

The UNRWA PF required no specific hedging techniques to be considered by the Fund

Managers. The guidelines provided to Fund Managers by UNRWA provide that Fund

Managers may use hedging instruments such as equity options and futures as well as

derivatives, based on certain conditions for return augmentation and index replication.

For investments in fixed income and equity portfolios, the manager may invest only in the

currencies listed in the performance benchmark specified.

PPlleeddggeedd FFiinnaanncciiaall AAsssseettss ((SSeeccuurriittiieess LLeennddiinngg PPrrooggrraamm))::

To augment the income of the Provident Fund and to cover the custody fees of the global

custodian (NT), UNRWA entered into a Securities Lending program with the global

custodian (NT) on 3 January 1991. Securities lending involves lending securities such as

bonds and equities (pledged financial assets) from the PF portfolio to approved borrowers.

The table below shows the value of the pledged financial assets.

VVaalluuee ooff PPFF PPlleeddggeedd FFiinnaanncciiaall AAsssseettss

Pledged Assets 2013 2012

Equities 54,452,929 33,428,130

Bonds 74,415,806 122,139,138

EMD 498,665 -

EME 23,403,730 14,270,155

Real Estate Securities 10,666,504 12,587,829

Total 163,437,634 182,425,252


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The creditworthiness of these borrowers is monitored by Northern Trust Company loans

which includes both US and non–US dollar securities and is protected by taking collateral

from the borrowers.

The collateral could be cash, government securities or irrevocable bank letters of credit or

others. The collateral has to cover up to 102% of the value for US securities and 105% for

non–US securities. On a daily basis the current market value of the securities plus accrued

interest is compared to the collateral level and additional collateral is requested from, or

excess collateral is returned to the borrower. The collateral is pooled.

Earnings in the case of cash collateral are derived from investing the cash collateral in short-

term money market funds. Earnings in the case of other forms of collateral are derived from a

loan fee paid by the borrower. The risks involved with securities lending are managed by the

global custodian (NT). The credit standing of the borrower is reviewed periodically. The

investment of the cash collateral is subject to strict guidelines concerning credit rating,

maturity, liquidity, diversification and type of investment.

The Provident Fund Secretariat has imposed further control on the securities lending program

by restricting the size of the securities lending to 40 % of the total fund.

EEssttaabblliisshhmmeenntt ooff tthhee CCoonnsseerrvvaattiivvee FFuunndd

In view of the recent financial market turmoil, it has been decided to introduce a new fund

called “conservative fund” for PF members approaching retirement, the assets of the new

fund will be invested in a very low risk asset classes, the main goal for the conservative fund

is to provide better protection for members who are participating in the this fund.

The age to transfer to the new conservative fund will be by element of choice upon turning 55

years of age and the transfer will be in one direction only, eligible PF members when he/she

reaches age 55, will be given an option to transfer up to 20% of his/her balance currently in

the main fund to the newly established conservative fund.

The new two funds structure will allow PF members to make 5 partial movements into the

conservative fund, eligible PF members who select to participate in the conservative fund can

exercise their option when he/she reaches age 55 only, eligible PF members will be given an

option every year to transfer around 20% of his/her balance currently in the main fund to be

invested in the new conservative fund or to keep their balances in the main fund if they chose

not to participate in the conservative fund.


7

The blow shows how PF eligible members can transfer their balances from the main to the

conservative fund:

Age 55 and above 20%




Age 59 and above up to 100%

Eligible PF members will have the choice every year in December to freeze their

participation in the conservative fund, or transfer up to all of their remaining balance in the

main fund to the conservative fund one year from their retirement, separated staff will get one

chance to transfer 50% or 100% of their balances in the main fund to the conservative fund

regardless of age.

The Conservative Fund had 737 members as at 31 December 2013 and 79 members enrolled

in the voluntary contribution scheme.

FFiinnaanncciiaall RRiisskk MMaannaaggeemmeenntt

IInnttrroodduuccttiioonn

The investments of the PF similar to any other investment in the financial markets are subject

to many risks. These risks include market risk, currency risk, price risk, credit risk, liquidity

risk, concentration risk and interest rate risk. The PF seeks to minimize the effects of these

risks by adopting a conservative investment benchmark and by diversifying the PF

investment through various asset classes, currencies, locations, durations, markets, issuers

etc. In addition, the PF manages mitigate the risk by allocating the investment to various

portfolios managed by different reputable fund managers with various investment approaches

(active, passive and replication).

The PF financial assets would have the following particular risks:

1. The PF investment in bonds is subject to liquidity risk, credit risk, concentration risk

and market risk.

2. The PF investment in equities is exposed to market risk and concentration risk.

3. The PF investment in hedge fund of funds is subject to liquidity risk, credit risk,

market risk, and manager’s risk.


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4. The PF investment in emerging markets equity is subject to credit risk, corporate risk,

currency risk and market risk.

5. The PF investment in emerging market debt is subject to credit risk, corporate risk,

currency risk and market risk.

RRiisskk MMaannaaggeemmeenntt OObbjjeeccttiivvee

The PF risk management objective is to maintain the portfolio risks around the relevant

benchmark risk levels. At the longer term, the portfolio is not expected to exceed the

benchmark risk levels unless justified by additional returns.

PPoorrttffoolliioo MMoonniittoorriinngg aanndd CCoonnttrrooll PPrroocceessss

The investment service agreements with the fund managers identify the relevant benchmarks

and the risk measures, as well as it identifies the maximum approved risk levels.

The Portfolio risk is monitored on a number of levels. In the first instance, the fund managers

risk monitoring and control specialist teams have responsibility for ensuring that portfolios

reflect the relevant investment strategy and the benchmark risk levels. This involves a

combination of pre and post-trade checking.

In addition, the PFS closely and extensively monitors the risk of the portfolio and compare it

with relevant benchmark on a daily basis by using the custodian on line systems. Further, the

Investment Advisory Committee (IAC) reviews the risk measures of the fund managers on a

semi-annual basis based on the reports and the live presentations of the fund manager and the

performance evaluator. Also the Provident Fund Committee (PFC) reviews the performance

of the fund managers on semi-annual basis based on the reports and the live presentations of

the fund manager and the performance evaluator.

If the fund manager exceeds the risk measures as identified in the investment guidelines an

immediate process of follow up is initiated by the PFS. If the risk was unjustified the fund

manager will be asked to reduce the additional risk and to compensate the portfolio for any

loss.


9

HHooww RRiisskkss AArriissee aanndd RRiisskk MMeeaassuurreess::

CCrreeddiitt RRiisskk: this risk arises from the risk of insolvency of the fixed income issuers and the

subsequent risk of default. The credit risk is measured by comparing the credit quality rating

of the bond portfolios against the credit quality of the benchmark as shown below:

The credit rating is a rating for the issuer of a debt instruments done by professional reputable

credit rating agencies. The rating is based on a comprehensive review of the issuer’s financial

position. The highest possible rating is AAA and the lowest rating is D.

LLiiqquuiiddiittyy RRiisskk: this risk arises from the lack of liquid assets to meet the PF payments to

separated members. The liquidity risk is managed by investing only in very liquid assets in

the liquid financial markets of the developed and emerging countries. In addition, the

liquidity situation of the bond portfolios is further improved by requiring the holding at least

2% of the total assets in cash and short term investments as shown in the table below:

Portfolio Cash Allocation

Description 2013 2012

Cash Holding 0 6%

MMaarrkkeett RRiisskk:: this risk arises from the risk that the PF portfolios are not following the

relevant benchmarks. The market risk of the bond and equity portfolios is measured against

the relevant benchmarks through the Tracking Error and Information Ratio measures as

shown in the table below:

Market Risk


Tracking Error 0.77 0.66

Information Ratio 1.73 3.17

Portfolio Credit Rating


Portfolio Aa Aa3

Benchmark NA NA


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The tracking error measures the extent to which a portfolio tracks its benchmark. The higher

the tracking error, the higher the variability of the portfolio returns around the benchmark.

The tracking error will always be greater than zero, unless the portfolio is exactly tracking the

benchmark.

The information ratio is a measure of risk adjusted return over the benchmark returns. The

higher the information ratio, the higher the risk adjusted return.

CCoonncceennttrraattiioonn RRiisskk: this risk arises from over concentrating the portfolio in few portfolios

or asset classes which may expose the portfolio to the individual risks of these portfolios or

assets. This risk is managed by diversifying the portfolio at the fund manager level as well as

the underlying asset classes.

MMeemmbbeerrsshhiipp DDeettaaiillss

Changes in the membership of the PF during 2013 are as follows:

Membership Details 2013 2012

Number of Members at Beginning of the Year 31,395 31,304

Less: Adjustment to Number of Members 0 10

Adjusted Opening Number of Members at the Beginning

of the Year 31,395 31,314

Add: new members accounts during the years 1,081 1,039

Less: members accounts closed during the years (763) (958)

Number of members as at End Of the Year 31,714 31,395

KKeeyy MMaannaaggeemmeenntt PPeerrssoonnnneell

The key management personnel of Provident Fund are:

Mr. Filippo Grandi Commissioner-General

Ms. Margot Ellis Deputy Commissioner-General

Mr. Bernard Laufenberg Director of Finance


11

NNootteess ttoo tthhee AAnnnnuuaall FFiinnaanncciiaall SSttaatteemmeennttss

NNoottee 11:: BBaassiiss ooff PPrreeppaarraattiioonn

((aa)) SSttaatteemmeenntt ooff ccoommpplliiaannccee

The annual financial statements have been prepared in accordance with International

Financial Reporting Standards.

The financial statements were approved by the Commissioner General on [31 March 2014].

BBaassiiss ooff PPrreesseennttaattiioonn

The fundamental accounting assumptions of going concern, consistency and accrual are

followed in the annual financial statement presentation.

((bb)) FFuunnccttiioonnaall ccuurrrreennccyy aanndd pprreesseennttaattiioonn ccuurrrreennccyy

The annual financial statements are prepared in United States Dollars (USD) which is the

entity’s functional currency. All financial information presented in USD has been rounded to

the nearest dollar.

((cc)) BBaassiiss ooff mmeeaassuurreemmeenntt

The financial statements have been prepared on the historical cost basis, with the exception of

held for trading investments, which are reported at fair value. The principal accounting

policies are set out below.

NNoottee 22:: SSiiggnniiffiiccaanntt AAccccoouunnttiinngg PPoolliicciieess

The accounting policies set out below have been applied consistently to all periods presented

in these financial statements and have been applied consistently throughout the period.

((aa)) FFiinnaanncciiaall aasssseettss hheelldd ffoorr ttrraaddiinngg iinnvveessttmmeennttss

The PF investment in Bonds, Equities, Hedge Fund of Funds, Real Estate Securities

Emerging Markets Debt and Emerging Markets Equity are classified as financial assets held

for trading.

Securities are classified as held for trading securities if their carrying amount will be

recovered principally through a sale transaction rather than through continuing use. This

condition is regarded as met only when the sale is highly probable and the asset is available


12

for immediate sale in its present condition. The investments have been valued as at 31

December 2013 on the current fair value. The fair value is determined based on the financial

market pricing for the bonds, equities, hedge fund of funds, real estate securities, emerging

markets debt and emerging markets equity.

The PF financial assets held for trading are classified as Level (1) according to IFRS 7 (Level

1: quoted prices (unadjusted) in active markets for identical assets or liabilities).

Investments are recognized and de-recognized on a trade date where the purchase or sale of

an investment is under a contract whose terms require delivery of the investment within the

timeframe established by the market concerned. The financial assets classified as held for

trading securities are initially measured at fair value.

((bb)) FFoorreeiiggnn ccuurrrreennccyy

(1) Investment Manager’s transactions executed in other currencies are translated to USD at

the spot market rates of exchange prevailing at the time of the transaction.

(2) PF transactions related to liabilities and expenses in other currencies are translated to

USD at the United Nations operational rates of exchange prevailing at the time of the

transaction.

((cc)) DDeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss

The PF allows the fund managers to invest in derivative financial instruments to augment the

return and to achieve the ultimate objective of attaining the benchmark return. Derivatives are

initially recognized at fair value at the date the derivative contract is entered into and are

subsequently measured to their fair value at the end of each reporting period. The resulting

gain or loss is recognized in the income statement.

((dd)) CCaasshh aanndd CCaasshh EEqquuiivvaalleenntt

The cash and invested cash kept by the custodian The Northern Trust which is related to the

fund manager’s portfolio.

((ee)) PPrrooppeerrttyy,, PPllaanntt aanndd EEqquuiippmmeenntt’’ss

Equipment and fixtures are stated at cost less accumulated depreciation and any accumulated

impairment losses.


13

Depreciation is recognized on a straight-line basis over the estimated useful life of an item of

property, plant and equipment. The estimated useful lives, residual values and depreciation

method are reviewed at each year-end, with the effect of any changes in estimate accounted

for on a prospective basis.

The estimated useful life of equipment and fixtures is 4 years, with residual value estimated

at zero USD.

((ff)) IInnvveessttmmeenntt iinnccoommee

Investment income comprises interest income on funds invested, dividend income, gains on

the disposal of held for trading securities, changes in the fair value of financial assets at fair

value through profit or loss. Interest income is recognized as it accrues using the effective

interest method. Dividend income is recognized on the date that the Fund’s right to receive

payment is established.

((gg)) MMaannaaggeemmeenntt ffeeeess

The Provident Fund has two investments styles i.e. segregated portfolio and commingled

(Pool) investments, accordingly, the calculation of management fees will differ based on the

style of investment.

The fee will be paid semi-annually or quarterly in arrears and is recognized when service are

rendered to the fund. In case of Barings, Fiduciary, BlackRock, Western Assets, State Street,

Barclays, J.P. Morgan, Cantillon, Pictet, Lazard and AMP, these are segregated portfolios

where the investment management fees are calculated and then paid from the relevant

portfolio.

In case of Kottmann Analytics and UBS, PF invests in commingled pooled investment. The

fees in these pools are calculated across the pool and deducted directly from the pool

portfolio.

The different approach of fee deduction is owed to different investment styles.

Transaction Cost: The Brokers' fees and other transactions charges in connection with

transactions executed on the Provident Fund’s behalf are charged to the Provident Fund and

any brokerage discounts or re-allowances are passed on to the Provident Fund.


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((hh)) PPrroovviissiioonn ffoorr WWiitthhddrraawwaall LLiiaabbiilliittyy

The provision for withdrawal liability by separated members is an obligation in which

UNRWA-PF would become liable for an amount equal to the separated member’s credit in

the Provident Fund. The recognition of provision would be as a result of a past event which

required settlement of the obligation and a reliable estimate can be made for the amount of

the obligation.

Since it is unusual and in actuality unlikely that all the separated members would withdraw

all their credits within any certain year, the amount recognized as a provision is calculated

based on the best estimate of UNRWA-PF. The provision is based on the average of

withdrawals made by separated members during the most recent five years, including the

current year.

II)) PPrroovviissiioonn SSeevveerraannccee BBeenneeffiittss

The provision for severance by separated members is an obligation in which UNRWA-PF

would become liable for an amount equal to the severance benefit in the Provident Fund. The

recognition of provision would be as a result of a past event which required settlement of the

obligation and a reliable estimate can be made for the amount of the obligation.

NNoottee 33:: PPrrooppeerrttyy,, PPllaanntt aanndd EEqquuiippmmeenntt

Based on the Provident Fund accounting policy for property, plant and equipment starting

2013, the following conditions must be met for an item to be capitalized as an asset:

The asset has a useful life of more than one year.

The asset has a total cost of USD 2,000 per unit or above.


15

NNoottee 44:: CCaasshh aanndd CCaasshh EEqquuiivvaalleennttss

Description Change in cash USD Change in cash USD

Fund Manager 2013

USD

2012

USD

Baring Asset Management 2,215,791 3,344,910

Fiduciary Trust International 2,088,915 13,473,001

Black Rock Bond 10,370,708 9,492,785

Western Asset Management 6,464,393 5,974,984

Pictet EMD 5,878,796 825,243

State Street Global Advisory 2,157,072 2,819,339

Black Rock Equity 0 8,435

Lazard Asset Management 4,141,776 2,238,446

JPMorgan Asset Management 2,969,678 996,466

Cantillon Capital Management 7,429,262 5,706,016

UBS Global Asset 14 14

Felix Kottmann 13 13

AMP Capital Investor 1,487,452 1,402,889

Securities Lending Income 400,299 2,039,923

UNRW Restructure Portfolio 0 57,625

Conservative Fund 19,855,261 22,516,450

Total Fund Managers 65,459,430 70,896,530

The components of cash and cash equivalents are cash as well as invested cash held by The

Northern Trust which relates to the investment fund manager’s portfolio and the conservative

fund balance.


16

NNoottee 55:: AAccccrruueedd iinnccoommee

Accrued income consists of the following items as shown in the table below:


USD USD

Dividend Receivable 1,133,806 1,788,378

Interest Receivable 6,015,391 5,507,720

Total 7,149,197 7,296,098

NNoottee 66:: HHeelldd ffoorr TTrraaddiinngg IInnvveessttmmeennttss

((aa)) IInnvveessttmmeennttss bbyy FFuunndd MMaannaaggeerrss

Investments held by each of the fund managers as at 31 December 2013 are shown below, at

book value and fair value. The PF financial assets held for trading are classified as Level (1)

according to IFRS 7 (Level 1: quoted prices (unadjusted) in active markets for identical assets

or liabilities):

Description Book Value

USD

Market Value

USD

Book Value

USD

Market

Value USD

Fund Manager 31/12/2013 31/12/2013 31/12/2012 31/12/2012

Baring Asset Management 142,412,036 141,519,652 182,050,522 190,583,963

Fiduciary Trust International 100,529,560 99,321,040 117,797,029 109,840,561

Black Rock Bond 99,307,960 90,410,421 103,303,122 99,952,572

Western Asset Management 100,083,596 94,654,389 106,909,322 109,438,716

Pictet Asset Management 90,468,769 76,821,912 55,229,410 55,788,922

State Street Global Advisory 92,838,857 136,801,644 92,146,980 108,962,708

Black Rock Equity 0 0 8,435 -

Lazard Asset Management 90,608,587 89,607,727 48,607,435 47,128,202

JPMorgan Asset Management 106,769,354 134,335,870 100,483,876 108,409,540

Cantillon Capital Management 125,516,098 160,915,734 117,270,154 130,650,827

UBS Global Asset 23,474,171 27,821,345 23,407,483 24,726,041


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Kottmann Analytics 25,000,013 28,018,898 25,000,013 25,343,581

AMP Capital Investor 81,279,150 88,876,148 54,552,341 64,105,102

Securities Lending Income 402,558 5,173 2,042,182 2,885

UNRW Restructure Portfolio 29 57,625 29

Total Fund Managers 1,078,690,709 1,169,109,982 1,028,865,929 1,074,933,646

The following is a breakdown of PF investments by investment type, region and by fund

manager as at 31 December 2013:

Fund Manager Europe Pacific Basin North America Total

Baring Asset Management 20 10 70 100

Fiduciary Trust International 20 12 68 100

BlackRock Bond 21 11 68 100

Western Asset Management 19 9 72 100

Pictet Asset Management 42 28 30 100

State Street Global Advisory 28 13 59 100

Lazard Asset Management 6 35 59 100

JPMorgan Asset Management 28 14 58 100

Cantillon Capital Management 55 3 42 100

UBS Global Asset - - 100 100

Kottmann Analytics - - 100 100

AMP Capital Investor 19 21 60 100

Securities Lending Income 1 - 99 100

Total Fund Managers 28 13 59 100


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The following is a breakdown of PF investments by asset class as at 31 December 2013:

Fund Manager Bonds Equity HFOF Real Estate

Securities EMD EME Cash Total

Baring Asset Management 98 - - - - - 2 100

Fiduciary Trust International 94 - - - - - 6 100

BlackRock Bond 88 - - - - - 12 100

Western Asset Management 93 - - - - - 7 100

Pictet Asset Management - - - - 93 - 7 100

State Street Global Advisory - 100 - - - - - 100

Lazard Asset Management - - - - - 96 4 100

JPMorgan Asset Management - 98 - - - - 2 100

Cantillon Capital Management - 96 - - - - 4 100

UBS Global Asset - - 100 - - - - 100

Kottmann Analytics - - 100 - - - - 100

AMP Capital Investor - - - 98 - - 2 100

Securities Lending Income - 1 - - - - 99 100

Total Fund 37 36 5 7 7 8 0 100


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((bb)) IInnvveessttmmeenntt bbyy TTyyppee

A breakdown of the type of investments held is given below:

Book Value Market Value Book Value Market Value

Investment Type 31/12/2013

USD

31/ 12/ 2013

USD

31/12/2012

USD

31/ 12/ 2012

USD

Bonds

368,319,904

351,494,869 389,963,039 387,679,557

Equities 270,671,379 377,600,348

263,951,111 287,736,990

Pledge Financial Assets 163,437,634 163,437,634 182,425,253 182,425,253

Hedged Fund of Funds 48,474,184 55,840,243 48,407,496 50,069,622

Real Estate Securities 70,612,646 78,209,644 54,552,341 64,105,102

EMD 89,970,105 76,323,247 55,229,410 55,788,922

EME 67,204,857 66,203,997 34,337,279 47,128,202

Conservative Fund 19,855,261 19,855,261 22,516,450 22,516,450

Total 1,098,545,970 1,188,965,243 1,051,382,379 1,097,450,097


20

NNoottee 77:: AAccccoouunnttss RReecceeiivvaabbllee--UUNNRRWWAA // ((AAccccoouunntt ppaayyaabbllee –– UUNNRRWWAA))

The movement of funds and the resulting amount owed by (to) UNRWA to the PF as of 31

December 2013 is given below:

Accounts Receivable-UNRWA 2013 2012

USD USD

Amount due from UNRWA as at 1 January 2013 1,018,881 (1,154,223)

Add : Inflows to the Fund:

Contributions inflow:

Members’ mandatory and voluntary contributions 26,292,131 25,227,599

Agency contributions 52,110,073 50,073,065

Add : Adjustments to Members Credits 2,363,438 1,124,505

Total Contributions Inflow 80,765,642 76,425,169

Provident Fund Humanitarian Repayable

Withdrawals and Funding Inflow

Provident Fund Humanitarian Repayable Withdrawals

Repayments 16,354,451 14,393,407

Income from Provident Fund Humanitarian Repayable

Withdrawals Administration Fees 106486 100,708

Net Fund Transfers to UNRWA (3,788,300) 17,032,380

Total Provident Fund Humanitarian Repayable

Withdrawals and Funding Inflow 12,672,637 31,526,495

Total Inflows 93,438,279 107,951,664

Less: Outflows from the Fund:

Withdrawals by separating members (58,536,932) (80,138,622)

Provident Fund Humanitarian Repayable

Withdrawals Payments (24,653,010) (24,863,983)

General administration expenses charged by UNRWA (584,559) (628,493)

Participants Provident Fund Humanitarian Repayable

Withdrawals Administration Expenses (106,486) (100,708)

Additional interest paid to participants 0 (46,754)

Total outflows (83,880,987) (105,778,560)

Amount due (to)/from UNRWA as at 31 December 2013 10,576,173 1,018,881


21

NNoottee 88:: MMeemmbbeerrss CCrreeddiittss

Members’ credits comprise of the PF balances applicable to staff at the following locations:

Location 2013 2012

USD USD

Headquarters (Amman) 10,877,796 8,778,041

Field Office Gaza 448,846,796 400,921,683

Field Office Lebanon 124,195,769 106,868,325

Field Office Syria 105,119,074 86,594,091

Field Office Jordan 201,116,950 175,630,824

Field Office West Bank 184,108,039 163,054,036

Headquarters (Gaza) 7,855,411 7,043,282

Sub Total 1,082,119,835 948,890,282

Net Income for the Year 2013 91,737,876 118,140,656

Income Paid to Member’s (1,200,792) (3,487,906)

Income Available for Distribution 90,537,084 114,652,750

Total 1,172,656,919 1,063,543,032

PPFF HHuummaanniittaarriiaann RReeppaayyaabbllee WWiitthhddrraawwaallss

UNRWA staff members are eligible to apply for PF Humanitarian Repayable Withdrawals,

for the purposes of education, medical and housing needs. PF Humanitarian Repayable

Withdrawals are only granted to those staff members qualifying under the strict eligibility

criteria of the scheme. PF Humanitarian Repayable Withdrawals are restricted in that

members do not earn income on the amount of their balances distributed as PF Humanitarian

Repayable Withdrawals.

The details of Humanitarian Repayable Withdrawal are as shown below:


22

PPrroovviiddeenntt FFuunndd HHuummaanniittaarriiaann RReeppaayyaabbllee WWiitthhddrraawwaall

Descriptions

2013

2012

Number of members with Humanitarian Repayable

Withdrawals 12,704 11,658

Number of Humanitarian Repayable Withdrawals

21,150 19,045

Amount of Humanitarian Repayable Withdrawals USD 69,987,662 USD 63,104,049

NNoottee 99:: WWiitthhddrraawwaall LLiiaabbiilliittyy ffoorr SSeeppaarraatteedd MMeemmbbeerrss

The amount of USD 6,425,802 represents withdrawal amounts due to separated staff

members, who have separated in 2013, and were paid after 31 December 2013.

Field 2013 2012

USD USD

Head Quarter (Amman) 351,438 86,561

Field Office Gaza 0 2,702,365




Field Office West Bank 0 2,865,292

Head Quarter (Gaza) (72,586) 77,364

Grand Total 6,425,802 17,428,270

NNoottee 1100:: PPrroovviissiioonn ffoorr WWiitthhddrraawwaall LLiiaabbiilliittyy bbyy SSeeppaarraatteedd MMeemmbbeerrss

The provision for withdrawal liability by separated members is an obligation in which

UNRWA-PF would become liable for that amount when the separated members opt to

withdraw their PF balance at any time during the year.


23

Field 2013 2012

USD USD

Head Quarter (Amman) 724,802 1,351,967

Field Office Gaza 27,810,353 24,153,906




Field Office West Bank 13,903,900 12,683,184

Head Quarter (Gaza) 361,814 295,659

Grand Total 71,028,209 71,209,831

NNoottee 1111:: AAccccrruuaallss

Accruals consist of the following items as shown in the table below:


USD USD

Accrued management fees 1,944,872 1,811,910

Accrued Custody Fees 141,091 65,838

Total 2,085,963 1,877,748

Accrued management fees represent the fund managers’ and the custodian’s accrued fees (as

per their respective contracts with PF) on their services provided to the PF.

NNoottee 1122:: AAccccrruueedd LLeeaavvee LLiiaabbiilliittyy

Accrual of leave encashment in respect of accumulated leave days for Provident Fund staff

members is summarized in the table below:


USD USD

Opening Balance 13,097 8,967

Movements in Current Year Provision 2,793 4,130

Closing Balance 15,890 13,097


24

NNoottee 1133:: PPrroovviissiioonn SSeevveerraannccee BBeenneeffiittss

The provision for Severance by provident fund members is an obligation in which UNRWA-

PF would become liable for that amount when the PF staff separated from the agency at any

time during the year.


USD USD

Opening Balance 75,033 58,254

Add: Movements in Provision for Severance 6,966 16,779

Total 81,999 75,033

NNoottee 1144:: IInnvveessttmmeenntt ((LLoossss)) IInnccoommee

Gross investment income for the year 2013 is comprised of the following:

Investment Income 2013

USD

2012

USD

Interest from Fixed Income Securities 19,135,222 20,141,238

Dividends from Equities 12,973,949 12,176,025

Realized Capital Gain 22,694,714 16,105,560

Net Foreign Exchange Gain 24,193 3,127,331

Income on Cash & Securities Lending and

other Income 537,652 1,213,290

Unrealized Capital Gain (Loss) 41,773,672 70,232,890

Total Investment Income/ (Loss) 97,139,402 122,996,334

a) Interest Revenues: Interest revenues earned by Provident Fund whether or not the

interest was received or billed, the revenue or income for PF receives from

any investments it makes in the debts the PF holds.

b) Dividend Revenues: Dividend revenues the dividend earned on the stock of

companies which PF hold stocks in those companies.

http://www.accountingtools.com/definition-investment


25

c) Realized Capital Gain: Realized capital gain is resulting from selling an asset at a

price higher than the original purchase price.

d) Net Foreign Exchange Gain: foreign currency transaction gain or loss is produced

from redeeming receivables payables that are fixed in terms of amounts of foreign

currency received/paid.

e) Unrealized capital gain / (loss) resulted from an increase / (decrease) in the market

value of Provident Fund held for trading investments.

NNoottee 1155:: IInnccoommee ffrroomm PPFF HHuummaanniittaarriiaann RReeppaayyaabbllee WWiitthhddrraawwaallss

Field 2013 2012

USD USD

Head Quarter (Amman) 1,091 1,070

Field Office Gaza 49,933 50,624

Field Office Lebanon 11,083 9,294

Field Office Syria 1,771 3,626

Field Office Jordan 27,489 21,344

Field Office West Bank 14,456 13,930

Head Quarter (Gaza) 663 820

Grand Total 106,486 100,708

A one off administration fee of the lesser of USD 25 or one-percentage point (1%) of the

withdrawal amount is charged on each PF Humanitarian Repayable Withdrawal.

NNoottee 1166:: AAddmmiinniissttrraattiioonn EExxppeennsseess

MMaannaaggeemmeenntt FFeeeess

Investment management and custodian fees are paid by the PF to the fund managers and

custodian respectively based on the agreed upon contract.


26

Description

Fund Manager 2013

USD

2012

USD

Baring Asset Management 172,830 197,385

Fiduciary Trust International 171,002 189,281

Black Rock Bond 175,504 170,727

Western Asset Management 208,901 567,048

Pictet Asset Management 307,385 205,328

State Street Global Advisory 118,352 109,345

Lazard Asset Management 209,846 155,444

JPMorgan Asset Management 495,815 427,336

Cantillon Capital Management 1,557,363 1,278,311

Kottmann Analytics 133,750 96,667

AMP Capital Investor 625,969 193,717

Northern Trust 273,350 259,311

Total Fund Managers 4,450,067 3,849,900

a) The Administration Expenses includes expenses incurred by the Provident Fund

Secretariat and by other Agency departments in the course of administering the PF

such as Finance Departments Agency Wide and management participation in PF

meetings such as Commissioner General, Director of Finance and the Administration

Directors. The Agency expenses are allocated between general and PF Humanitarian

Repayable Withdrawals administration as shown in the table below:


27

DETAILS 2013 2012

USD USD

Provident Fund Secretariat:

Staff Costs - Established Posts 301,464 311,840

Travel Costs 68,042 89,102

Telecommunications 128 789

Other Costs 17,999 37,264

Depreciation Expense - 1,416

Total PFS Expenses 387,633 440,411

Add:

Agency's Administration Expenses 230,904 225,170

Audit Fees Expense 84,113 84,113

Total Agency Expenses 315,017 309,282

Total Administration Expenses 702,650 749,693

Allocated between:

General Administration Expense 620,919 654,965

PFHRW Administration Expense 81,731 94,728

Total Administration Expenses 702,650 749,693

b) The Agency’s administration expenses to the PF:

The transactions related to participants credits are done by UNRWA staff members, and

using the UNRWA facilities ranging from using the system to communication facilities to

printing materials and other stationary. UNRWA charges the PF an appropriate amount

agreed upon for the services rendered during the year. The current policy is to charge the

Agency’s expenses to the PF based on 2% of the Financial Services, which represents the

total expenses for all finance departments Agency wide.

c) Agency’s administration expenses on PF Humanitarian Repayable Withdrawals (PFHRW)

to the PF: With effect from 1 January 2008, the Provident Fund Secretariat has adopted a

standardization mechanism for charging the administration expense on the PF

Humanitarian Repayable Withdrawals. It has been decided that the charge per PF

Humanitarian Repayable Withdrawal will be the lower of 1% of the withdrawals amount

or USD 25.


28

d) The administration of the conservative fund is within the main fund, the amount of USD

1,686 was charged to the conservative fund to cover the administration of the fund.

NNoottee 1177:: PPFF HHuummaanniittaarriiaann RReeppaayyaabbllee WWiitthhddrraawwaall EExxppeennssee::

Agency’s administration expenses on PF Humanitarian Repayable Withdrawals

(PFHRW) to the PF: With effect from 1 January 2008, the Provident Fund Secretariat has

adopted a standardization mechanism for charging the administration expense on the PF

Humanitarian Repayable Withdrawals. It has been decided that the charge per PF

Humanitarian Repayable Withdrawal will be the lower of 1% of the withdrawals amount

or USD 25.

PPFF HHuummaanniittaarriiaann RReeppaayyaabbllee WWiitthhddrraawwaall EExxppeennssee

Location 2013 2012

USD USD

Headquarters (Amman) 1,091 1,070

Field Office Gaza 25,178 44,644

Field Office Lebanon 11,083 9,294

Field Office Syria 1,771 3,626

Field Office Jordan 27,489 21,344

Field Office West Bank 14,456 13,931

Headquarters (Gaza) 663 820

Total 81,731 94,729

NNoottee 1188:: RReellaatteedd PPaarrttyy TTrraannssaaccttiioonnss

UNRWA is a related party to the PF. All the transactions related to participants’ credits are

processed by UNRWA staff members, and using the UNRWA facilities ranging from using

the system to communication facilities to printing materials and other stationery. UNRWA

charges the PF with an agreed upon amount for the services rendered during the year.

AAggeennccyy’’ss aaddmmiinniissttrraattiioonn eexxppeennsseess cchhaarrggee ttoo PPFF

2013 USD 2012 USD

230,904 225,170


29

NNoottee 1199:: SSeeggmmeenntt RReeppoorrttiinngg::

A segment is a distinguishable fund for which it is appropriate to separately report financial

information. Segment information is provided to reflect UNRWA PF segment performance

and financial position. Segment reporting is provided for the two segments:

a) The Main Fund b) The Conservative Funds.The conservative fund established to account

for the PF members who opted to participate in the conservative fund.

DETAILS Main Fund Conservative

Fund

Inter-

Fund

Balances

Total

ASSETS

Cash and Cash Equivalents 45,604,169 19,855,261 65,459,430

Held for Trading Investments 1,169,109,982 - 1,169,109,982

Accrued Investment Income 7,149,197 - 7,149,197

Accounts Receivable - UNRWA 10,576,173 - (272,206) 10,303,967

Accounts Receivable -Conservative - 272,206 - 272,206

Total Assets 1,232,439,521 20,127,467 (272,206)

1,252,294,782

EQUITY

Members Credits 1,155,390,865 17,266,054 1,172,656,919

Total equity 1,155,390,865 17,266,054 1,172,656,919

LIABILITIES

Current liabilities

Withdrawal Liability for Separated Members 3,564,389 2,861,413 6,425,802

Provision for Withdrawal Liability by Separated Members 71,028,209 - 71,028,209

Accruals 2,085,963 - 2,085,963

Provision Severance Benefits 81,999 - 81,999

Accrued Leave Liability 15,890 - 15,890

Due To Conservative Fund 272,206 - (272,206) -

Total liabilities 1,232,439,521 20,127,467 - 1,252,294,782


30

DETAILS Main Fund Conservative Fund Inter-Fund Balances Total

Income:

Investment Income/loss 97,137,715 1,686 - 97,139,401

Income from PF Humanitarian Repayable

Withdrawals 106,486 - - 106,486

Income Against Expenses (Conservative

Administration Cost) 1,686

-

(1,686) -

TOTAL INCOME 97,245,887 1,686 (1,686) 97,245,887

Expenses:

Investment Management Fees 4,450,067 - - 4,450,067

Cost of Trading Commission 355,294 - - 355,294

General Administration Expenses 620,919 (1,686) 1,686 620,919

PF Humanitarian Repayable Withdrawals

Scheme Administration Expenses 81,731 - - 81,731

TOTAL EXPENSES 5,508,011 (1,686) 1,686 5,508,011

NET INCOME FOR THE YEAR 91,737,876 - - 91,737,876

Documents

GENERRAALL INFORMATION ABOUT THE … to PF Financial Statements 1 GENERRAALL INFORMATION ABOUT THE PROVIDENT FUND Description of the Provident Fund The UNRWA Provident Fund (PF) is