CONTENTS PAK OMAN ADVANTAGE ISLAMIC INCOME FUND

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1 CONTENTS Mission & Vision Statement 01 Fund Information 02 Report of the Director of the Management Company 03 Report to the Fund Manager of the Management Company Report of the Shariah Advisor Report to the Trustee MCBFSL "To provide higher risk adjusted returns to investors at large by investing into a diversified range of investment assets on consistent basis." Independent Auditors Report to the Unitholders 12 Statement of Assets and Liabilities 16 Income Statement 17 Statement of Comprehensive Income 18 Statement of Movement in Unit Holder s Fund 19 Cash Flow Statement Notes to the Financial Statements "Pak Oman Advantage Islamic Income Fund aims to provide diversified portfolio and return that is risk adjusted to suit investors at large, on a consistent basis." 1

2 Management Company Pak Oman Asset Management Company Limited. Horizon Vista, Mezzanine Floor - 2, Plot No. Commercial - 10, Scheme - 5, Block - 4, Clifton, Karachi Phone : Fax : Web site : Board of Director of The Management Company H.E. Yahya Bin Said Bin Abdullah Al-Jabri Chairman Mr. Bahauddin Khan Director Mr. Humayun Murad Director Mr. Sulaiman Hamad Al Harthy Director Mr. Jehangir Shah Director Mr. Saif Said Salim Al Yazidi Director Mr. Habib ur Rehman Director Mr. Adeel Ahmad Khan CEO Audit Committee Mr. Humayun Murad Mr. Bahauddin Khan Mr. Sulaiman Hamad Al Harthy Mr. Saif Said Salim Al Yazidi Chairman Director Member Member Human Resource & Remuneration Committee Mr. Bahauddin Khan Chairman Mr. Humayun Murad Member Mr. Bahauddin Khan Member Mr. Saif Said Salim Al Yazidi Member Chief Financial Officer/ Company Secretary Syed Adeel Shahid FUND INFORMATION Trustee MCB Financial Services Limited 3rd Floor, Adamjee House, I.I Chundrigar Road, Karachi Phone : Fax: Auditors A.F Fergusons & Co. Chartered Accountants State Life Building No. 1C, Off I.I Chundrigar Road Karachi-4716, Pakistan Bankers to The Fund Bank Islami Pakistan Limited Summit Bank Limited - Islamic Banking Bank Alfalah Limited - Islamic Banking Dubai Islamic Bank Pakistan Limited Shariah Advisor Dr. Muhammad Najeeb Khan Legal Advisor MohsinTayebaly& Co. 2nd Floor, Dime Center, BC - 4, Block - 9, KDA Scheme 5,Clifton, Karachi. Phone : Transfer Agent Pak Oman Asset Management Company Limited. Horizon Vista, Mezzanine Floor - 2, Plot No. Commercial - 10, Scheme - 5, Block - 4, Clifton, Karachi Phone : Fax : Web site : Rating of The Funds 3 Star (PACRA) DIRECTORS REPORT TO THE UNIT HOLDERS The Board of Directors of Pak Oman Asset Management Company Limited ("the Management Company" or "POAMCL" or "the Company") is pleased to present the yearly report of the Pak Oman Advantage Islamic Income (POAIIF) for the Year ended 31 June Economy Review During FY18, CPI inflation averaged 3.93% falling from FY17 average CPI inflation of 4.16%. Low food inflation on account of much higher food prices as compared to global average during the period has kept the CPI inflation in check. Despite a cumulative PKR devaluation of 15.2% since Dec-17, inflation remained at 4.36% during 4QFY18, due to low food inflation. However, non-food inflation, picked up sharply in Jun-18 to 6.7% YoY while core NFNE inflation also clocked in at 7.1% YoY, highest since Oct-14. Barring food, large increases were witnessed during 4QFY18 in transport, recreation and culture and clothing and footwear segments. Rising prices in non-food CPI basket seems to be a result of a combined effect of strong domestic demand and PKR devaluation. House rent also picked up in the fourth quarter, clocking in at 7.0% YoY during 4QFY18, compared to 5.4% YoY during 3QFY18. In Jun-18, the rupee witnessed a second round of currency devaluation by 5.2% and closed at PKR per USD by June end. The currency witnessed a sharp decline at the beginning of FY19 and reached PKR 128.5, however, the currency has recovered since then and currently stands at PKR per USD. Recent recovery in international food prices, coupled with the fall in domestic food prices, has significantly narrowed the gap between international and domestic food prices. With local and international food prices converging, any further PKR devaluation may lead to a substantial rise in CPI inflation, which is likely to reach close to double digits during FY19. The State Bank of Pakistan (SBP) increased the policy rate by 75bps during FY18, taking the policy rate to 6.5% by the end of the fiscal year. The central bank's decision seems to have been driven by increasing inflation, which is further expected to rise sharply once domestic and international food prices converge. In its first monetary policy statement for FY19, the SBP decided to further increase the policy rate by 100bps to 7.5%. As low food prices have somewhat delayed the translation of PKR devaluation into higher headline inflation, we now expect SBP to raise the policy rate to 10% during FY19. Pressures on Pakistan's external account continued during 4QFY18. Current Account Deficit (CAD) during May-18 amounted to USD 2.1bn (8.1% of GDP) and decreased slightly to USD 1.8bn (7.7% of GDP) in Jun-18, taking FY18 CAD to USD 17.9bn (5.7% of GDP). For FY18, trade deficit was up by 16% YoY to USD 31.0bn (9.9% of GDP) driven primarily by faster increase in imports at 15% YoY compared to 13% YoY growth for exports. Among export items, food contributed the largest chunk of increase in exports (up 32.5% YoY), followed by the Textile Group (up 7.1% YoY) and Other Manufacture (up 12.5% YoY). On the imports side, large increase was witnessed in the petroleum group due to higher oil prices (up 25.0% YoY), followed by the Machinery Group (up 17.4% YoY) and Agriculture and other chemicals (up 16.6% YoY). Worker's remittances for FY18 increased by 1.4% YoY, driven primarily by upticks from USA and UK. Despite the growth, worker remittances missed the budgeted target of USD 20.7bn by 5%. The decline was due to a 11% reduction in remittances from Saudi Arabia, the largest contributor to workers remittances with 25% share, on account of stringent labor policies for expat workers. Jul-17 to Jun-18 broad money supply (M2) reported an increase of 9.7% compared to an increase of 13.7% during Jul-16 to June-17 indicating a slowdown in M2 growth over the same period. Government's borrowings for budgetary support increased considerably by 13.9% while private sector credit offtake recorded growth of 17.0% from Jul-17 to Jun-18. Fixed Income Review Yields across the board increased significantly during the second half of the fiscal year in-line with market expectation of hike in policy rate, which increased by 75bps during the year. Yields on short term paper rose 79bps-116bps YoY where Yields on 3m, 6m and 1yr papers closed at 6.78%, 6.90% and 7.20% at the end of the fiscal year. Yields on 3yr and 5yr PIBs settled in at 8.29% and 8.77% depicting YoY increase of 180bps and 171bps, respectively. Yield on 10yr PIBs was up by 86bps to 9.03%. 2 3

3 Yields are likely to continue their upward trajectory as market consensus shows that policy rate may reach double digits during the current fiscal year as the government is likely to follow contractionary monetary policy in an attempt to curb aggregate demand. PACRA POAIIF In FY18, the unit price of POAIIF appreciated by 4.98% against its benchmark of 2.45%. The assets under management of fund stood at PKR 314 million as against PKR 331 million at the start of the quarter. During the period, average exposure against Corporate Sukuks stood at 32.79%. Exposure against this asset class was partly increased during the year by investing in fresh Sukuk issues while partial increment in reflective of changes in fund size. During the period, exposure was taken against floating rate fresh Sukuk issues and valuation gains were realized on premium priced instruments. Exposure against Term Deposits averaged at 15.73% while approximately 51.49% of the funds were invested as cash with A and above rated Islamic banks/islamic windows of commercial banks. Re-Appointment of Auditor The present auditors M/s A.F. Ferguson & Co, Chartered Accountants have retired from their services and being eligible for reappointment have been appointed as the auditors of the Fund for the year ending June 30, Mutual Fund Rating The PACRA has assigned management quality rating of AM3+ to the Management Company as at 30 December 2016 and fund performance ranking of MFR "2-Star" for one year, MFR "2-Star" for three years and MFR "3-Star" for five years as on 20 April Acknowledgment We thank all our investors who have placed their confidence in us. We also offer our sincere gratitude to the Securities and Exchange Commission of Pakistan, the Trustee of the Fund and the management of the Pakistan Stock Exchange. We also wish to place on record our appreciation for the employees of the Management Company. For and on behalf of the Board September 6, 2018 Adeel Ahmad Khan Karachi - Pakistan. CEO 4 5

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5 REPORT OF THE FUND MANAGER OF THE MANAGEMENT COMPANY Pak Oman Asset Management Company, the Management Company of Askari Islamic Income Fund (the Fund) is pleased to present the Fund Manager's Report of the Fund for the year ended June 30, INVESTMENT OBJECTIVE: The objective of the Fund is to provide investors a Shariah compliant product with stable halal income. The fund would target on capitalizing available opportunities in the Shariah compliant income generating instruments. The Fund will focus on superior quality portfolio compared with average portfolio quality of Islamic income funds in the industry and enhanced returns over a 3 month horizon. Mohsin Tayab Ali Pak Oman Asset Management Co. Ltd. PACRA As per the requirement of Regulation 38A (g) of the NBFC regulations 2008, AMC on behalf of CIS did not participate in shareholder's meeting during the year. The proxy voting policy of the CIS is available on the website of the AMC and detailed information regarding actual proxies voted by the AMC in respect of the CIS is also available without charges, upon request, to all unit holders. Equity Review The benchmark KSE-100 index lost 4,654pts or 10% YoY during the fiscal year. The index performance remained disappointing throughout the fiscal year due to concerns over the rising twin deficit and imminent currency devaluation. Political uncertainty in the election year further dampened investor sentiment. PKR lost 15.87% of its value against USD in the current fiscal year which effected the performance of sectors heavily reliant on imports to meet their raw material needs. Cement and Autos performance was particularly abysmal during the year with underperformance of 43.11% and 30.16%, respectively. E&Ps turned out to be the major outperformer during the year with 20.24% return generated due to increase in oil prices and currency devaluation. Fertilizer sector also outperformed the broader index due to increase in prices of fertilizer products by local manufacturers and robust demand. Hike in policy rate by 75bps during FY18 also proved to be detrimental for the highly leveraged sectors such as Cement and Steel. Despite the hike in policy rate, Banks underperformed the KSE-100 index due to extensive foreign selling. ADTV declined significantly by 50.10% YoY to 174mn shares. Foreign investors were major net sellers during the fiscal year with net outflows recorded at USD mn. On local front, Insurance and Companies were major net buyer with net buying recorded at USD mn and USD 99.56mn, respectively. Brokers and Mutual Funds emerged as major net sellers during the year with net selling at USD 44.34mn and USD 34.79mn, respectively. Market performance during the current fiscal year is likely to be dictated by the measures taken by the newly elected government. So far, there has been no clear policies by the new government with a lot of backtracking from the measures necessary to curtail the economic crises faced by the country. Entry into IMF program, which seems inevitable, will likely accompany up to 10% further currency devaluation. Market heavyweights such as E&Ps and Banks may benefit from such measures, and are likely to drive the market, however, cyclical sectors such as consumer durables, automobile assemblers and cements are likely to stay subdued during the year. Foreign investors are likely to stay away from the market as can be seen from their cautious stance on emerging markets in the recent weeks. Implementation of stable and consistent policies by the government are likely to rekindle their interest. Disclosure: Pak Oman Asset Management Company, on behalf of the fund, did not participate in any proxy voting during the year due to insignificant holding September 20, 2018 Mr. Summera Shukat Fund Manager 8 9

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9 STATEMENT OF ASSETS AND LIABILITIES AS AT 30 JUNE

10 INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2018 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE

11 STATEMENT OF MOVEMENT IN UNIT HOLDERS' FUND FOR THE YEAR ENDED 30 JUNE 2018 CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE

12 Notes To The Financial Statements FOR THE YEAR ENDED 30 JUNE LEGALSTATUS AND NATURE OF BUSINESS 1.1 Pak Oman Advantage Islamic Income Fund (the Fund) was established as an open-end scheme under a trust deed (the Trust Deed) executed between Pak Oman Asset Management Company Limited (the Management Company) as the Management Company, a company incorporated under the Companies Ordinance, 1984 and MCB Financial Services Limited (the Trustee) as a trustee under the trust deed (the Trust Deed) that was executed on May 15, The Fund is registered as a notified entity under the Non Banking Finance Companies and Notified Entities Regulations, The registered office of the Management Company is situated at Finance and Trade Centre, First Floor, Tower A, Karachi. 1.3 The Fund is a Shariah compliant open-end mutual fund and is listed on the Pakistan Stock Exchange. Its units are offered for public subscription on a continuous basis. The units are transferable and can be redeemed by surrendering them to the Fund at the option of the unit holders. 1.4 The Fund is categorised as an income fund in accordance with the requirements of the Securities and Exchange Commission of Pakistan's (SECP's) circular No. 7 dated March 6, 2009 and, accordingly, its investments comprise of Shariah compliant securities, so as to ensure riba-free return on investments. All investments of the Fund are as per the guidelines of the shariah principles provided by the Shariah Advisor of the Fund and comprise the investments permissible as "Authorised Investments" under the Trust Deed. 1.5 In accordance with the criteria specified by the rating agency, the ranking of the Fund is 'A(f)' as assigned by Pakistan Credit Rating Agency Limited (PACRA) on June 30, PACRA has assigned an 'AM3' rating to the Management Company on December 8, Title to the assets of the Fund is held in the name of MCB Financial Services Limited as the trustee of the Fund. 2. BASIS OF PREPARATION 2.1 Statement of compliance "These financial statements have been prepared in accordance with the accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards applicable in Pakistan comprise of: - International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as notified under the Companies Act, 2017; Where provisions of and directives issued under the Companies Act, 2017, part VIIIA of the repealed Companies Ordinance 1984, the NBFC Rules, the NBFC Regulations and the requirements of the Trust Deed differ from the IFRS Standards, the provisions of and directives issued under the Companies Act, 2017, part VIIIA of the repealed Companies Ordinance 1984, the NBFC Rules, the NBFC Regulations and the requirements of the Trust Deed have been followed. 2.2 The transactions undertaken by the Fund in accordance with the process prescribed under the Shariah Guidelines issued by the Shariah Advisor are accounted for on substance rather than the form. This practice is being followed to comply with the requirements of approved accounting standards as applicable in Pakistan. 2.3 Standards, interpretations and amendments to published approved accounting standards that are effective in the current year There are certain amended standards and interpretations that are mandatory for the Fund's accounting period beginning on or after July 1, 2017 but are considered not to be relevant or do not have any significant effect on the Fund's operations and are, therefore, not disclosed in these financial statements. 2.4 Standards, interpretations and amendments to published approved accounting standards that are not yet effective The following standards have been adopted in Pakistan and would be effective from the dates mentioned below against the respective standards: These standards may impact the financial statements of the Fund on adoption. The Management is currently in the process of assessing the full impact of these standards on the financial statements of the Fund. 2.5 Critical accounting estimates and judgments The preparation of these financial statements in conformity with the approved accounting standards requires the Management Company to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates, judgments and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. - Provisions of and directives issued under the Companies Act, 2017 along with part VIIIA of the repealed Companies Ordinance, 1984; and - the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the NBFC Rules), the Non-Banking Finance Companies and Notified Entities Regulations, 2008 (the NBFC Regulations) and the requirements of the Trust Deed. In particular, information about significant areas of estimation and critical judgment in applying accounting policies that have significant effect on the amounts recognised in these financial statements are as follows: (a) Classification and valuation of financial instruments (notes 3.2 and 5) 21 22

13 (b) Recognition of provision for current and deferred taxation (note 3.7) (c) Provision for Sindh Workers' Welfare Fund (note 11.1) (d) "Provision for Federal Excise Duty on the Management Company's remuneration (note 8.3)" 2.6 Accounting convention These financial statements have been prepared under historical cost convention except that investments have been carried at fair value. 2.7 Functional and presentation currency Items included in these financial statements are measured using the currency of the primary economic environment in which the Fund operates. These financial statements are presented in Pakistani Rupees which is the Fund's functional and presentation currency. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years except for the changes in accounting policies as explained in note 3.4 below. 3.1 Cash and cash equivalents Cash and cash equivalents comprise of bank balances including term deposits with banks with maturity period of three months or less that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value and are held for the purpose of meeting short term cash commitments rather than for investment or other purposes. These include financial assets that upon initial recognition are designated as 'financial assets at fair value through profit or loss' except for investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured. (b) Held to maturity These are non-derivative financial assets with fixed or determinable payments and fixed maturity and the Fund has the positive intent and ability to hold them upto maturity. (c) Loans and receivables These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those classified by the Fund as 'at fair value through profit or loss' or 'available for sale'. (d) Available for sale These financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. These are intended to be held for an indefinite period of time which may be sold in response to the needs for liquidity or change in price Regular way contracts All regular way purchases and sales of financial assets are recognised on the trade date - the date on which the Fund commits to purchase or sell the asset. Regular purchases and sales of financial assets require delivery of securities within the time frame established by the stock exchange regulations Recognition 3.2 Financial instruments Classification The management determines the appropriate classification of the financial assets of the Fund in accordance with the requirements of International Accounting Standard (IAS) 39: 'Financial Instruments: Recognition and Measurement' at the time of the purchase of the financial assets and re-evaluates this classification on a regular basis. The classification depends on the purpose for which the financial assets are acquired. The financial assets of the Fund are categorised as follows: (a) Investments 'at fair value through profit or loss' - Financial assets categorised as 'held for trading' These include financial assets acquired principally for the purpose of generating profit from short-term fluctuations in prices or dealers' margins or are securities included in a portfolio in which a pattern of short-term profit taking exists. - Financial assets designated 'at fair value through profit or loss upon initial recognition' The Fund recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. Financial liabilities are not recognised unless one of the parties has performed its part of the contract or the contract is a derivative contract Initial and subsequent measurement Financial instruments are measured initially at fair value (transaction price) plus, in case of a financial asset or financial liability not 'at fair value through profit or loss', transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs on financial asset or financial liability 'at fair value through profit or loss' are expensed immediately. Subsequent to initial recognition, instruments classified as 'financial assets at fair value through profit or loss' and 'available for sale' are measured at fair value. Gains or losses arising, from changes in the fair value of the 'financial assets at fair value through profit or loss' are recognised in the income statement for the year. Changes in the fair value of instruments classified as 'available for sale' are recognised as 'other comprehensive income' until they are derecognised or impaired. Once these are derecognised or impaired the cumulative gain or loss previously recognised as 'other comprehensive income' are taken to income statement for the year

14 Financial assets classified as loans and receivables and held-to-maturity are carried at amortised cost using the effective yield method, less impairment losses, if any. Financial liabilities are initially recognised at fair value and subsequently stated at amortised cost using the effective yield method which is also estimated to approximate to its fair value Impairment Financial assets not carried 'at fair value through profit or loss' are reviewed at each reporting date to determine whether there is objective evidence of impairment. If any such indication exists, an impairment loss is recognised in the income statement for the year as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective yield rate. If, in a subsequent period, the amount of an impairment loss recognised on a financial asset carried at amortised cost decreases and the decrease can be linked objectively to an event occurring after the write-down, the impairment is reversed through the income statement. Provision for diminution in the value of debt securities is made as per the requirements of Circular No. 33 of 2012 dated October 24, 2012 and based on the Management Company's assessment made in line with its provisioning policy approved by the Board of Directors of the Management Company pursuant to the requirements of the SECP's above referred circular. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the income statement Derecognition Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire or have been transferred and the Fund has transferred substantially all the risks and rewards of ownership. The Fund uses weighted average method to determine realised gains and losses on derecognition. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on derecognition of financial assets and financial liabilities is taken to the Income Statement Offsetting of financial instruments A financial asset and financial liability is offset and the net amount is reported in the statement of assets and liabilities, if the Fund has a legal right to set off the transaction and also intends either to settle on a net basis or to realise the asset and settle the liability simultaneously Valuation of debt securities vide its Circular No. 33 of 2012 dated October 24, In the determination of the rates, MUFAP takes into account the holding pattern of these securities and categorises them as traded, thinly traded and non-traded securities. The circular also specifies the valuation process to be followed for each category as well as the criteria for the provisioning of non performing debt securities. 3.3 Issue and redemption of units Units issued are allocated at the offer price prevalent on the day on which applications for purchase of units are received, however, units are issued on realisation of cheques. The offer price represents the net asset value of units at the close of the business day plus the allowable sales load (if any). Units are redeemed at the redemption price prevalent on the day on which the applications for the redemption of units are received. The redemption price represents the net assets value at the close of the business day. 3.4 Element of income / (loss) and capital gains / (losses) included in prices of units issued less those in units redeemed The Securities and Exchange Commission of Pakistan through its SRO 756(I)/2017 dated August 3, 2017 has made certain amendments in the NBFC Regulations. The notification includes a definition and explanation relating to "element of income" and excludes the element of income from the expression "accounting income" as described in regulation 63 (amount distributable to unit holders) of the NBFC Regulations. As per the notification, element of income represents the difference between net assets value per unit on the issuance or redemption date, as the case may be, of units and the net assets value per unit at the beginning of the relevant accounting period. Further, the revised regulations also specify that element of income is a transaction of capital nature and the receipt and payment of element of income shall be taken to unit holders' fund. However, to maintain the same ex-dividend net asset value of all units outstanding on the accounting date, net element of income contributed on issue of units lying in unit holders fund will be refunded on units in the same proportion as dividend bears to accounting income available for distribution. MUFAP, in consultation with the SECP, has specified the methodology of determination of income paid on units redeemed during the year under which such income is paid on gross element received and is calculated from the latest date at which the Fund achieved net profitability during the year. Furthermore, the revised regulations also require certain additional disclosures with respect to 'Income Statement' (relating to allocation of net income for the year) and 'Statement of Movement in Unit Holders' Fund', whereas disclosure with respect to 'Distribution Statement' has been deleted in the revised regulations. Previously, an equalisation account called the 'element of income / (loss) and capital gains / (losses) included in prices of units issued less those in units redeemed' was created, in order to prevent the dilution of per unit income and distribution of income already paid out on redemption. The net element of income / (loss) and capital gains / (losses) relating to units issued and redeemed during the accounting period which pertained to unrealised appreciation / (diminution) held in the Unit Holder's Fund was recorded in a separate account and any amount remaining in this reserve account at the end of the accounting period (whether gain or loss) was included in the amount available for distribution to the unitholders. The remaining portion of the net element of income / (loss) and capital gains / (losses) relating to units issued and redeemed during an accounting period was recognised in the Income Statement. The debt securities are valued on the basis of rates determined by the Mutual Funds Association of Pakistan (MUFAP) in accordance with the methodology prescribed by the SECP for valuation As required by IAS 8: 'Accounting Policies, Changes in Accounting Estimates and Errors', a change in accounting policy requires retrospective application as if that policy had always been applied

15 However, the Management Company has applied the above changes in accounting policy, including the additional disclosure requirements in the 'Income Statement' and 'Statement of Movement in Unit Holders' Fund', prospectively from July 1, 2017 based on a clarification issued by the SECP. Accordingly, corresponding figures have not been restated. The Distribution Statement for the comparative period has not been presented as it has been deleted as a result of the amendments made in the NBFC Regulations through the aforementioned SRO issued by the SECP. Had the element of income / (loss) been recognised as per the previous accounting policy, the income of the Fund would have been lower by Rs million net of charge for SWWF with immaterial effect on the 'net assets attributable to the unit holders' and NAV per unit of the Fund as disclosed in the 'Statement of Assets and Liabilities' and 'Statement of Movement in Unit Holders' Fund' respectively. However, the change in accounting policy does not have any impact on the 'Cash Flow Statement'. The change has resulted in inclusion of certain additional disclosures / new presentation requirements in the 'Income Statement' and 'Statement of Movement in Unit Holders' Fund which have been incorporated in these statements. 3.5 Provisions Provisions are recognised when the Fund has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of that obligation can be made. Provisions are regularly reviewed at each reporting date and adjusted to reflect the current best estimate. 3.6 Net assets value per unit The net assets value (NAV) per unit as disclosed in the statement of asset and liabilities is calculated by dividing the net assets of the Fund by the number of units in issue at year end. 3.7 Taxation Current Provision for current taxation is based on taxable income at the current rates of taxes after taking into account tax credits and rebates, if any. The charge for current tax is calculated using the prevailing tax rates or tax rates expected to apply to the profits for the period at the enacted rates. The Fund is also exempt from the provisions of section 113 (minimum tax) under clause 11A of Part IV of the Second Schedule to the Income Tax Ordinance, Moreover, super tax introduced in the Finance Act, 2015 is also not applicable on funds (Section 4B of the Income Tax Ordinance, 2001). 3.8 Revenue recognition (a) Gains / (losses) arising on disposal of investments are recognised on the date at which the transaction takes place. (b) Unrealised gains / (losses) arising on revaluation of investments classified as 'financial assets at fair value through profit or loss' are included in the income statement for the period in which they arise. (c) Income on debt securities, placements and bank balances is recognised in the income statement at rate of return implicit in the instrument balance on a time proportionate basis. (d) Profit on saving accounts with bank is recorded on an accrual basis. 3.9 Distributions to unit holders Distributions to the unit holders are recognised upon declaration and approval by the Board of Directors of the Management Company. Based on Mutual Funds Association of Pakistan's (MUFAP) guidelines duly consented by the SECP, distribution for the year also includes portion of income already paid on units redeemed during the year. Distributions declared subsequent to the year end reporting date are considered as non-adjusting events and are recognised in the financial statements of the year in which such distributions are declared and approved by the Board of Directors of the Management Company Earnings per unit Earnings per unit (EPU) has not been disclosed as in the opinion of the Management Company of the Fund, determination of weighted average units for calculating EPU is not practicable. Deferred The Fund provides for deferred taxation using the balance sheet liability method on all major temporary differences between the amounts attributed to assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. In addition, the Fund also records deferred tax asset on unutilised tax losses to the extent that these will be available for set off against future taxable profits. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. The income of the Fund is exempt from income tax under clause 99 of Part I of the Second Schedule to the Income Tax Ordinance, 2001 subject to the condition that not less than 90 percent of its accounting income for the year, as reduced by capital gains, whether realised or unrealised, is distributed amongst the unitholders. Furthermore, for the purpose of determining distribution of at least 90 percent of the accounting income, the income distributed through bonus units shall not be taken into account

16 5.3 Mudarabah Placement This represents unsecured mudarabah placement with NRSP Microfinance Bank Limited, Bahawalpur Islamic branch, amounting to Rs 50 million. The tenor of the placement is 12 months and will mature on December 21, The principal amount is redeemable in four equal semi-annual installments of Rs 8.75 million each commencing from October The principal amount is redeemable in a single installment of Rs 40 million in November The principal amount is redeemable in twelve equal quarterly installments of Rs million each commencing from April The principal amount is redeemable in six equal semi-annual installments of Rs 2 million each commencing from September 2019 and two equal semi-annual installments of Rs 4 million each commencing from September As per clause 47(B) of part IV of the Second Schedule to the Income Tax Ordinance, 2001, payments made to collective investment schemes (CISs) are exempt from withholding tax under section 151 and 150. However, during the year ended June 30, 2018, withholding tax on profit on debt paid to the Fund was deducted by various withholding agents based on the interpretation issued by FBR vide letter C. no. 1(43) DG (WHT)/2008-VOL.II R dated 12 May 2015 which requires every withholding agent to withhold income tax at applicable rates in case a valid exemption certificate under section 159(1) issued by the concerned Commissioner of Inland Revenue (CIR) is not produced before him by the withholdee. The tax withheld on profit on debt as at June 30, 2018 amounts to Rs million For this purpose, the Mutual Funds Association of Pakistan (MUFAP) on behalf of various mutual funds (including the Funds being managed by the Management Company) had filed a petition in the Honourable Sindh High Court (SHC) challenging the above mentioned interpretation of the Federal Board of Revenue (FBR) which was decided by the SHC in favour of FBR. On January 28, 2016, the Board of Directors of the Management Company passed a resolution by circulation, authorising all CISs to file an appeal in the Honourable Supreme Court through their Trustees, to direct all persons being withholding agents, including share registrars and banks to observe the provisions of clause 47B of Part IV of the Second Schedule to the Income Tax Ordinance,

17 without imposing any conditions at the time of making any payment to the CISs being managed by the Management Company. Accordingly, a petition was filed in the Supreme Court of Pakistan by the Fund together with other CISs (managed by the Management Company and other Asset Management Companies) whereby the Supreme Court granted the petitioners leave to appeal from the initial judgement of the SHC. Pending resolution of the matter, the amount of withholding tax deducted on profit received by the Fund on dividends and profit on debt has been shown as other receivables as at June 30, 2018 as, in the opinion of the management, the amount of tax deducted at source will be refunded. is pending before the SCP. Had the said provision for FED not been recorded in these financial statements, the net asset value of the Fund as at June 30, 2018 would have been higher by Re per unit (2017: Re per unit). 8.4 In accordance with the provisions of the NBFC Regulations (as amended vide S.R.O 1160(I) / 2015 dated November 25, 2015), the Management Company of the Fund is entitled to reimbursement of fees and expenses in relation to registrar services, accounting, operation and valuation services related to the Fund up to a maximum of 0.1% of the average annual net assets of the Fund or actual, whichever is less. Accordingly, with effect from July 1, 2017 the Management Company has charged such expenses at the rate of 0.1% of the average annual net assets of the Fund being lower than actual expenses. 8.1 In accordance with regulation 61 of the NBFC Regulations, as amended vide SRO 1160(I)/2015 dated November 25, 2015, the Management Company is entitled to a remuneration, of an amount not exceeding 1.5 percent of the average annual net assets of the Fund that has been verified by the trustee and is paid in arrears on a monthly basis. 8.2 The Provincial Government of Sindh has levied Sindh Sales Tax at the rate of 13% (2017: 13%) on the remuneration of the Management Company through the Sindh Sales Tax on Services Act, The Finance Act, 2013 enlarged the scope of Federal Excise Duty (FED) on financial services to include Asset Management Companies (AMCs) with effect from June 13, As the asset management services rendered by the Management Company of the Fund were already subject to provincial sales tax on services levied by the Sindh Revenue Board, which is being charged to the Fund, the Management Company was of the view that further levy of FED was not justified. 9.1 MCB Financial Services Limited as Trustee is entitled to monthly remuneration at the rate of 0.12% for services rendered to the Fund under the Trust Deed in accordance with the tariff specified therein. 9.2 The Sindh Revenue Board through Circular No. SRB 3-4/TP/01/2015/86554 dated June 13, 2015, has amended the definition of service of shares, securities and derivatives to include the custodianship services as well. Accordingly, Sindh Sales Tax of 13% (2017: 13%) on such services is charged on Trustee remuneration. 10. PAYABLE TO THE SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN This represents annual fee to the SECP in accordance with regulation 62 of the NBFC Regulations whereby the Fund is required to pay an annual fee at the rate of 0.075% of the average daily net assets of the Fund. On September 4, 2013, a constitutional petition was filed in the High Court of Sindh (HCS) jointly by various asset management companies, together with their representative Collective Investment Schemes through their trustees, challenging the levy of FED. During the year ended June 30, 2017, the HCS passed an order whereby all notices, proceedings taken or pending, orders made, duty recovered or actions taken under the Federal Excise Act, 2005 in respect of the rendering or providing of services (to the extent as challenged in any relevant petition) were set aside. In response to this, the Federal Board of Revenue has filed a civil petition for leave to appeal in the Supreme Court of Pakistan (SCP) which is pending adjudication. With effect from July 1, 2016, FED on services provided or rendered by non-banking financial institutions dealing in services which are subject to provincial sales tax has been withdrawn by the Finance Act, In view of the above, the Fund discontinued making further provision in respect of FED on remuneration of the Management Company with effect from July 1, However, as a matter of abundant caution the provision for FED made for the period from June 13, 2013 till June 30, 2016 amounting to Rs million is being retained in these financial statements as the matter 11.1 As a consequence of the 18th amendment to the Constitution of Pakistan, in May 2015 the Sindh Workers Welfare Fund Act, 2014 (SWWF Act) had been passed by the Government of Sindh as a result of which every industrial establishment located in the Province of Sindh, the total income of which in any accounting year is not less than Rs 0.50 million, was required to pay Sindh Workers Welfare Fund (SWWF) in respect of that year a sum equal to two percent of such income. The matter was taken up by the MUFAP with the Sindh Revenue Board (SRB) collectively on behalf of various asset management companies and their CISs whereby it was contested that mutual funds should be excluded from the ambit of the SWWF Act as these were not industrial establishments 31 32

18 but were pass through investment vehicles and did not employ workers. The SRB held that mutual funds were included in the definition of financial institutions as per the Financial Institution (Recovery of Finances) Ordinance, 2001 and were, hence, required to register and pay SWWF under the SWWF Act. Thereafter, MUFAP had taken up the matter with the Sindh Finance Ministry to have CISs / mutual funds excluded from the applicability of SWWF. In view of the above developments regarding the applicability of SWWF on CISs/mutual funds, MUFAP recommended that as a matter of abundant caution, provision in respect of SWWF should be made on a prudent basis with effect from the date of enactment of the SWWF Act, 2014 (i.e. starting from May 21, 2015). In the repealed Companies Ordinance, 1984 and the now applicable Companies Act, 2017, mutual funds have not been included in the definition of "financial institutions". The MUFAP has held the view that SWWF is applicable on asset management companies and not on mutual funds. Had the provision for SWWF not been recorded in the financial statements of the Fund, the net asset value of the Fund as at June 30, 2018 would have been higher by Re per unit (2017: Re per unit). NBFC Regulations, requires the Fund to distribute not less than 90% of the net accounting income other than capital gains to the unit holders. The Fund is also exempt from the provisions of section 113 (minimum tax) under clause 11A of Part IV of the Second Schedule to the Income Tax Ordinance, Since the Management Company has distributed the income earned by the Fund during the year to the unit holders in the manner as explained above, no provision for taxation has been in these financial statements. Moreover, super tax introduced in the Finance Act, 2015 is also not applicable on funds as per Section 4B of the Income Tax Ordinance, TRANSACTIONS AND BALANCES WITH RELATED PARTIES / CONNECTED PERSONS 16.1 Connected persons / related parties include Pak Oman Asset Management Company Limited being the Management Company, MCB Financial Services Limited being the Trustee, Pak Oman Investment Company Limited, which is the holding company of the Management Company, Pak Oman Microfinance Bank Limited being the associated entity of the Fund, entities having common directorship with the Management Company, retirement fund of the Management Company, other funds being managed by the Management Company, Key Management Personnel of the Management Company and any person or company which beneficially owns directly or indirectly 10% or more of the units in issue / net assets of the Fund The transactions with connected persons / related parties are in the normal course of business, at contracted rates and terms determined in accordance with market rates Remuneration payable to the Management Company and the Trustee is determined in accordance with the provisions of the NBFC Regulations and the Trust Deed. Transactions and balances with related parties / connected persons are stated in notes 16.4 and 16.5 below: 14. TOTAL EXPENSE RATIO The total expense ratio (TER) of the Fund for the year ended June 30, 2018 is 2.39% which includes 0.39% representing government levies such as federal excise duty and sales taxes, Sindh Workers' Welfare Fund, annual fee payable to the SECP, etc. This ratio is within the maximum limit of 2% prescribed under the NBFC Regulations for a collective investment scheme categorised as an "Income" scheme. 15. TAXATION The income of the Fund is exempt from income tax under clause 99 of Part I of the Second Schedule to the Income Tax Ordinance, 2001 subject to the condition that not less than ninety percent of its accounting income for the year, as reduced by capital gains, whether realised or unrealised, is distributed to the unit holders as cash dividend. Furthermore, regulation 63 of the 33 34

19 Paid / payable to the Management Company for onward payment to the Government Paid / payable to the Trustee for onward payment to the Government

20 18. FINANCIALRISK MANAGEMENT The Fund's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Fund s objective in managing risk is the creation and protection of unit holders value. Risk is inherent in the Fund s activities, but it is managed through monitoring and controlling activities which are primarily set up based on limits established by the Management Company, the Fund's constitutive documents and the regulations and directives of the SECP. These limits reflect the business strategy and market environment of the Fund as well as the level of the risk that the Fund is willing to accept. The Board of Directors of the Management Company supervises the overall risk management approach within the Fund. The management of these risks is carried out by the Investment Committee under the policies and procedures approved by the Board. Investment Committee is constituted by the Board of Directors of the Management Company. Investment Committee is responsible to devise the investment strategy and manage the investment portfolio of the Fund in accordance with the limits prescribed and restrictions imposed in the NBFC Regulations, the NBFC Rules and constitutive documents of the Fund in addition to the Fund's internal risk management policies. The Fund invests primarily in a portfolio of shariah compliant income securities as per Shariah Advisor's approval. Such investments are subject to varying degrees of risk Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument may fluctuate as a result of the changes in market prices. The Management Company manages market risk by monitoring exposure on marketable securities by following the internal risk management policies and investment guidelines approved by the Investment Committee and the regulations laid down by SECP. Market risk comprises three types of risk: currency risk, interest rate risk and price risk Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in foreign exchange rates. At present, the Fund is not exposed to currency risk as all the transactions are carried out in Pakistani Rupees Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates. The interest rate profile of the Fund's interest bearing financial instruments is as follows: a) Sensitivity analysis for variable rate instrument A reasonably possible change of 50 basis points in interest rates at the reporting date would have increased / decreased the income and comprehensive income by Rs million (2017: Rs million) and consequently statement of movement in unit holders' fund would be affected by the same amount. The analysis assumes that all other variables remain constant. b) Sensitivity analysis for fixed rate instruments A reasonably possible change of 50 basis points in interest rates at the reporting date would have increased / decreased the income statement and statement of comprehensive income by Rs 0.25 million (2017: Rs 0.225) and consequently statement of movement in unit holders' fund would be affected by the same amount. The analysis assumes that all other variables remain constant. The composition of the Fund's investment may change over time. Accordingly, the sensitivity analysis prepared as at June 30, 2018 is not necessarily indicative of the impact on the Fund's net assets of future movements in interest rates Price risk Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk) whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. As at the reporting date, the Fund is not exposed to price risk Credit risk Credit risk represents the risk of a loss if counterparties fail to perform as contracted and arises principally from bank balances, investments, accrued return on bank balances and investments, deposit and other receivable. The Fund's policy is to enter into financial contracts in accordance with the investment guidelines approved by the Investment Committee and Shariah Advisor, its Trust Deed, the requirements of the NBFC rules and regulations and guidelines given by SECP from time to time. Before making investment decisions, the credit rating and credit worthiness of the issuer is taken into account along with the financial background so as to minimise the risk of default

21 Credit risk is managed and controlled by the Management Company of the Fund in the following manner: - Where the investment committee makes an investment decision with the approval of shariah compliance, the credit rating and credit worthiness of the issuer is taken into account along with the financial background so as to minimise the risk of default. - Analysing credit ratings and obtaining adequate collaterals wherever appropriate / relevant. - The risk of counterparty exposure due to failed trades causing a loss to the Fund is mitigated by a periodic review of the credit ratings and financial statements on a regular basis. Above ratings are on the basis of available ratings assigned by PACRA and JCR-VIS as of June 30, Concentration of credit risk Concentration of credit risk exists when changes in economic or industry factors affect the group of counterparties whose aggregate credit exposure is significant in relation to the Fund's total credit exposure. Details of the Fund's concentration of credit risk of financial instruments by economic sectors are as follows: - Cash is held only with reputable banks with high quality external credit enhancements Exposure to credit risk The maximum exposure to credit risk as at June 30, 2018 was as follows: None of the financial assets of the Fund were past due or impaired as at June 30, Except for the investment in sukuks, none of the other financial assets of the Fund are secured Liquidity risk Liquidity risk is the risk that the Fund may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or can only do so on terms that are materially disadvantageous to the Fund Credit Rating As at June 30, 2018, the Fund held balances with banks and profit receivable having the following credit ratings: The Fund is exposed to cash redemptions of its redeemable units on a regular basis. The Fund's approach to managing liquidity is to ensure, as far as possible, that the Fund will always have sufficient liquidity to meet its liabilities when due under both normal and stressed conditions. The Fund's policy is therefore to invest the majority of its assets in short term instruments in order to maintain liquidity. The Fund can borrow in the short term to ensure settlement. The maximum amount available to the Fund from the borrowing would be limited to fifteen percent of the net assets upto 90 days and would be secured by the assets of the Fund. The facility would bear interest at commercial rates. However, no borrowing was required to be obtained by the Fund during the year. In order to manage the Fund's overall liquidity, the Fund may also withhold daily redemption requests in excess of ten percent of the units in issue and such requests would be treated as redemption requests qualifying for being processed on the next business day. Such procedure would continue until the outstanding redemption requests come down to a level below ten percent of the units then in issue. The Fund did not withhold any redemptions during the year. The Fund has made investment in sukuks and mudarabha placement as disclosed in note 5 to these financail statements. Ratings of sukuks and mudarbaha placements have been disclosed in related notes. The table below indicates the Fund's financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows

22 20. UNIT HOLDERS' FUND RISK MANAGEMENT 19. FAIR VALUE OF FINANCIAL INSTRUMENTS 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. Consequently, differences can arise between carrying values and the fair value estimates. Underlying the definition of fair value is the presumption that the Fund is a going concern without any intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse terms. Fair value of investments is determined as per the policy disclosed in note to these financial statements. International Financial Reporting Standard 13, 'Fair Value Measurement' requires the Fund to classify assets using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: The capital of the Fund is represented by the net assets attributable to the unit holders of the Fund. The amount of net assets attributable to the unit holders can change significantly on a daily basis as the Fund is subject to daily issuance and redemptions at the discretion of the unit holders. The Fund s objective when managing capital is to safeguard the Fund s ability to continue as a going concern in order to provide returns for unit holders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund. The Fund has no restrictions on the subscription and redemption of units. As required under the NBFC Regulations, every open end scheme shall maintain fund size (i.e. net assets of the Fund) of Rs 100 million at all times during the life of the scheme. The Fund has maintained and complied with the requirement of minimum fund size during the year. In accordance with the risk management policies as stated in note 18, the Fund endeavours to invest the subscriptions received in appropriate investments while maintaining sufficient liquidity to meet redemption requests, such liquidity being augmented by short-term borrowings or disposal of investments where necessary. - Level 1: Quoted price (unadjusted) in an active market for identical assets or liabilities that the entity can access at the measurement date; - Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and - Level 3: Inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs). The following table analysis within the fair value hierarchy the Fund's financial assets (by class) measured at fair value: 41 42

23 27. DATE OF AUTHORISATION FOR ISSUE These financial statements were authorised for issue on 6 September, 2018 by the Board of Directors of the Management Company. 25. CORRESPONDING FIGURES Corresponding figures have been rearranged and reclassified, wherever necessary, for the purpose of better presentation. No significant rearrangement or reclassifications were made in these financial statements. 26. GENERAL Figures have been rounded off to the nearest thousand rupees

24