Islamic Asset Allocation Fund. Financial Statements for the period ended June 30, 2016

Transcription

1 Islamic Asset Allocation Fund Financial Statements for the period ended June 30, 2016

2 Faysal Islamic Asset Allocation Fund The Faysal Islamic Asset Allocation Fund (FIAAF) is an open-ended shariah compliant mutual fund. FIAAF seeks to provide long-term capital appreciation optimizing through broad mix of asset classes encompassing shariah compliant equity, fixed income and money market instruments.

3 Review Report to the Unit Holders on the Statment of Compliance with the best practices of the code of corporate governance

4 04 Faysal Asset Management Faysal Islamic Asset Allocation Fund Faysal Asset Management Limited Mr. Nauman Ansari, Chairman Mr. Razi-Ur-Rahman Khan, Director Mr. Osman Khan, Director Syed Ibad-Ur-Rehman Chishti, Director Mr. Mohammad Zahid Ahmed, Director Mr. Farooq Hadi, Director Mr. Enamullah Khan, Chief Executive Officer Chief Financial Officer and Company Secretary of the Management Company Mr. Umairullah Khan Mr. Razi-Ur-Rahman Khan, Chairman Syed Ibad-ur-Rehman Chisti, Member Mr. Osman Khan, Member HR Comittee Mr. Osman Khan, Chairman Mr. Razi-Ur-Rahman Khan, Member Syed Ibad-Ur-Rehman Chishti, Member Mr. Enamullah Khan, Member Central Depository Company of Pakistan Limited, Faysal Bank Limited - Islamic Banking Bank Islami Pakistan Limited Meezan Bank Limited Burj Bank Limited Dubai Islamic Bank Limited EY Ford Rhodes, Chartered Accountants

5 Faysal Asset Management Faysal Islamic Asset Allocation Fund 05 The Faysal Islamic Asset Allocation Fund endeavours to provide investors with an opportunity to earn long-term capital appreciation optimizing through broad mix of asset classes encompassing shariah compliant equity, fixed income & money market instruments.

6 06 Faysal Asset Management Faysal Islamic Asset Allocation Fund REPORT OF THE DIRECTORS OF THE MANAGEMENT COMPANY The Directors of the Faysal Asset Management Limited, the Management Company of Faysal Islamic Asset Allocation Fund (FIAAF), are pleased to present the Annual Report on the operations of FIAAF along with the audited accounts, Reports of the Trustee and Auditors to the Unit Holders for the period ended June 30, The Fund was launched on September 09, SALE AND REDEMPTION OF UNITS During the period, units worth Rupees million were issued and units with a value of Rupees million were redeemed. UNIT HOLDERS As of June 30, 2016, 2,006,745 units with a value of Rs million were outstanding. UNIT PRICES Unit prices are being announced on a daily basis based on the NAV of the underlying portfolio. The highest and lowest offer/redemption prices during the period as well as the prices prevailing as of June 30, 2016 were as below: Offer Price Redemption Price Highest Lowest As of June 30, ECONOMIC OUTLOOK Pakistan s economy underwent substantial progress during the course of fiscal year Almost all the critical macroeconomic indicators exhibited continuous progress which alleviated the GDP growth to reach 8-year high of 4.7%. The industrial sector activities made significant strides on the back of better energy supply and improved law and order situation. Despite the challenges on external front in the form of declining exports amid deteriorating global growth prospects and heavy agricultural losses, economic recovery process remained on track. The average inflation during FY16 declined to 47-year low of 2.86% against 4.53% in the same period last year. Such historical lows were achieved on the back of falling commodity prices and contained food inflation along with help from prudent monetary and fiscal policies. The Perishable Food Items and Transport heads registered year-on-year negative readings at -1.82% and -5.18% respectively. Likewise, all the other CPI basket items remained benign throughout the year. International reserve buffers held by State Bank of Pakistan (SBP) were effectively rebuilt during the year. By the year end, foreign exchange reserves reached to USD 18.1 billion, sufficient to finance four months of imports. Muted global oil prices, steady remittances growth, improved Foreign Direct Investments (FDI) and FX borrowing played the much needed role in consolidation of the foreign exchange reserves. According to the figures of State Bank of Pakistan (SBP), current account deficit (CAD) for the fiscal year 2016 contracted by 6.8% to USD 2.5 billion as compared to USD 2.7 billion in the same period last year. Workers remittances, despite looming concerns of slowdown in Gulf region, remained upbeat clocking in at USD 19.9 billion (up 6.4% year-on-year) as compared to USD 18.7 billion during the last fiscal year. The current account deficit was further alleviated with an impressive surge of 39% in Foreign Direct Investments (FDI) which clocked in at USD 1.3 billon as compared to USD 0.9 billion last year. This improvement came mainly on account of investment inflows coming from the China-Pakistan Economic Corridor (CPEC) project. Export, on the other hand, underwent decline of 8.6% on the back of global meltdown and low commodity prices. Nevertheless, imports bill was reduced by mere 2% owing to substantial increase in non-oil imports (up 79% to USD 31.8 billion). Accordingly, balance of payments position clocked in at USD -2.6 billion, declining by mere 0.3% as compared to the last year. CAD as % of GDP clocked in at -0.9% as compared to -0.17% during the last fiscal year. According to Pakistan Bureau of Statistics (PBS), overall Large Scale Manufacturing (LSM) sector has exhibited growth of 3.45% during July-May when compared with the same period of last year. Major industries driving the growth were a) automobiles (up 18%), b) fertilizers (up 15%), c) nonmetallic mineral products (up 11%), d) leather products (up 9%), e) chemicals (up 9%), f) rubber products (up 7%) and g) pharmaceuticals (up 6%). During the year, broad-based improvements in underlying economic indicators facilitated the State Bank of Pakistan (SBP) to cut its policy rate by a cumulative 75bps in FY16; over and above cut of 300bps in FY15. Going forward, GDP growth is anticipated to remain buoyant on the back of construction and development activities under China Pakistan Economic Corridor (CPEC) and strengthened private sector credit growth. Nonetheless, risks pertaining to challenging global environment and its looming impact on exports and remittances growth could be very critical and may undermine the growth prospects.

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8 08 Faysal Asset Management Faysal Islamic Asset Allocation Fund REPORT OF THE DIRECTORS OF THE MANAGEMENT COMPANY INCOME DISTRIBUTION The Board of directors has not approved Fund distribution considering the loss for the period ended June 30, MUTUAL FUND RATING Pakistan Credit Rating Agency (PACRA) has not assigned ranking to Faysal Islamic Asset Allocation as of June 30, CORPORATE GOVERNANCE A prescribed under clause of the Listing Regulations of Pakistan Stock Exchange Limited, Statement of Compliance with the Code of Corporate Governance along with the auditors report thereon for the period ended June 30, 2016 forms part of this annual report. 1. Statements under clause of the Code: a. The financial statements, prepared by the management of the listed Fund, present its state of affairs fairly, the result of its operations, cash flows and changes in equity; b. Proper books of account of the listed Fund have been maintained; c. Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment; d. International Financial Reporting Standards, as applicable in Pakistan, have been followed in preparation of financial statements and any departures therefrom has been adequately disclosed and explained; e. The system of internal control is sound in design and has been effectively implemented and monitored; f. There are no significant doubts upon the listed Fund s ability to continue as a going concern; g. The details of taxes, duties, levies and charges outstanding, are disclosed in the financial statements; h. The number of board and committees meetings held during the period and attendance by each director forms part of this Annual Report; and i. The prescribed pattern of shareholding is given as part of this Annual Report. The sale and repurchase of units of the Fund carried out by the directors, CEO, COO, CFO, Head of Internal Audit, Company Secretary, their spouses and minor children, and the Management Company are as under: Trades By: Investment Redemption (No. of Units) Management Company 227, ,351 PATTERN OF HOLDING The Pattern of Holding of FIAAF is given as part of this Annual Report. AUDITORS The present auditors Messers EY Ford Rhodes, Chartered Accountants retire and, being eligible, offer themselves for re-appointment. The Board endorses the recommendation of the Audit Committee for re-appointment of Messers EY Ford Rhodes, Chartered Accountants as the auditors for the year ending June 30, ACKNOWLEDGEMENT The Board of Directors of the Management Company is thankful to unit holders for their confidence on the Management, the Securities and Exchange Commission of Pakistan and the management of Pakistan Stock Exchange for their valuable support, assistance and guidance. The Board also thanks the employees of the Management Company and the Trustee for their dedication and hard work. For and on behalf of the Board Karachi: September 26, 2016 Enamullah Khan Chief Executive Officer

9 Faysal Asset Management Faysal Islamic Asset Allocation Fund 09 FUND MANAGER S REPORT Economic Review Pakistan s economy underwent substantial progress during the course of fiscal year Almost all the critical macroeconomic indicators exhibited continuous progress which alleviated the GDP growth to reach 8 year high of 4.7%. The industrial sector activities made significant strides on the back of better energy supply and improved law and order situation. Despite the challenges on external front in the form of declining exports amid deteriorating global growth prospects and heavy agricultural losses, economic recovery process remained on track. The average inflation during FY16 declined to 47 year low of 2.86% against 4.53% in the same period last year. Such historical lows were achieved on the back of falling commodity prices and contained food inflation along with help from prudent monetary and fiscal policies. The Perishable Food Items and Transport heads registered year on year negative readings at 1.82% and 5.18% respectively. Likewise, all the other CPI basket items remained benign throughout the year. International reserve buffers held by State Bank of Pakistan (SBP) were effectively rebuilt during the year. By the year end, foreign exchange reserves reached to USD 18.1 billion, sufficient to finance four months of imports. Muted global oil prices, steady remittances growth, improved Foreign Direct Investments (FDI) and FX borrowing played the much needed role in consolidation of the foreign exchange reserves. According to the figures of State Bank of Pakistan (SBP), current account deficit (CAD) for the fiscal year 2016 contracted by 6.8% to USD 2.5 billion as compared to USD 2.7 billion in the same period last year. Workers remittances, despite looming concerns of slowdown in Gulf region, remained upbeat clocking in at USD 19.9 billion (up 6.4% year on year) as compared to USD 18.7 billion during the last fiscal year. The current account deficit was further alleviated with an impressive surge of 39% in Foreign Direct Investments (FDI) which clocked in at USD 1.3 billon as compared to USD 0.9 billion last year. This improvement came mainly on account of investment inflows coming from the China Pakistan Economic Corridor (CPEC) project. Export, on the other hand, underwent decline of 8.6% on the back of global meltdown and low commodity prices. Nevertheless, imports bill was reduced by mere 2% owing to substantial increase in non oil imports (up 79% to USD 31.8 billion). Accordingly, balance of payments position clocked in at USD 2.6 billion, declining by mere 0.3% as compared to the last year. CAD as % of GDP clocked in at 0.9% as compared to 1.0% during the last fiscal year. According to Pakistan Bureau of Statistics (PBS), overall Large Scale Manufacturing (LSM) sector has exhibited growth of 3.45% during July May when compared with the same period of last year. Major industries driving the growth were a) automobiles (up 18%), b) fertilizers (up 15%), c) nonmetallic mineral products (up 11%), d) leather products (up 9%), e) chemicals (up 9%), f) rubber products (up 7%) and g) pharmaceuticals (up 6%). During the year, broad based improvements in underlying economic indicators facilitated the State Bank of Pakistan (SBP) to cut its policy rate by a cumulative 75bps in FY16; over and above cut of 300bps in FY15. Going forward, GDP growth is anticipated to remain buoyant on the back of construction and development activities under China Pakistan Economic Corridor (CPEC) and strengthened private sector credit growth. Nonetheless, risks pertaining to challenging global environment and its looming impact on exports and remittances growth could be very critical and may undermine the growth prospects. Equity Market Review As market participants weighed Pakistan s return to MSCI Emerging Markets index together with discounted valuations in major sectors, KSE 100 index crossed an all time high of 39,000 points during intraday trading before closing the year at 37,784 points. The index accumulated 3,385 points during the year and returned 9.8% and 6.8% in PKR and USD respectively. Consequently, the KMI30 Islamic index posted a return of 15.53% as index remained insulated from the weak banking sector performance that hit the KSE100. The local bourse was able to easily outperform both the Emerging and Frontier market index which saw an attrition of 15.5% & 15.1%, respectively. The year also marked the amalgamation of all three bourses into a single Pakistan Stock Exchange (PSX), a positive step towards demutualization of the exchange. FY16 market performance can be classified as a tale of two halves whereby the 1HFY16 saw the KSE 100 index declining by 4.6%, while the 2HFY16 saw it rising by a hefty 15.1%. This stark contrast has occurred as key heavy weight Oil & Banking sector declined by 26%/5% in 1HFY16, versus a rise of 27%/2% in the 2HFY16. While foreign players remained net sellers for the first 10 months of Fy16, the trend changed in last two months with net foreign buying jumping to USD 74mn in Jun 16, highest monthly inflow in the past 26 months. The hefty inflow may be attributed to Pakistan s reclassification to MSCI Emerging Markets index along with EFERT s SPO. Nevertheless,

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16 14 Faysal Asset Management Faysal Islamic Asset Allocation Fund STATEMENT OF COMPLIANCE WITH THE BEST PRACTICES OF THE CODE OF CORPORATE GOVERNANCE This statement is being presented to comply with the Code of Corporate Governance (the CCG) contained in Paragraph 5.19 of Chapter 5 of Pakistan Stock Exchange Limited s Regulations (Formerly: Karachi Stock Exchange) for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of Corporate Governance. The Board of Directors (the Board) of Faysal Asset Management Limited (the Management Company), an unlisted public company, manages the affairs of Faysal Islamic Asset Allocation Fund (the Fund) (launched on September 7, 2015). The Fund being a unit trust open end scheme does not have its own Board of Directors. The Management Company has applied the principles contained in the Code to the Fund in the following manner: 1. The Management Company encourages representation of independent non-executive directors. At present, the Board includes: Category Independent Director Executive Director Non-Executive Director Names Mr. Osman Asghar Mr. Enamullah Khan (CEO) Mr. Nauman Ansari Syed Ibad-Ur-Rehman Chishti Mr. Razi-Ur-Rahman Khan Mr. Mohammad Zahid Ahmed The independent directors meet the criteria of independence under clause (b) of the CCG. 2. The directors have confirmed that none of them are serving as a director on more than seven listed companies, including the Management Company. 3. All the resident directors of the Management Company are registered taxpayers and none of them have defaulted in payment of any loan to a banking company, a DFI or an NBFI, or being a Broker of a stock exchange, has been declared as a defaulter by that stock exchange. 4. A casual vacancy occurred on the board on 11 December 2015, which has subsequently been filled on 9th August, 2016, after soliciting necessary approvals from the Security and Exchange Commission of Pakistan. 5. The Management Company has prepared a Code of Conduct and has ensured that appropriate steps have been taken to disseminate it throughout the company along with its supporting policies and procedures. 6. The Board has developed a vision / mission statement, an overall corporate strategy and significant policies for the Fund. A complete record of particulars of significant policies along with the dates on which these were approved or amended has been maintained. 7. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment, determination of remuneration and terms and conditions of employment of the Chief Executive Officer (CEO) and other executive and non-executive directors have been taken by the Board / shareholders. 8. The meetings of the Board were presided over by the Chairman and, in his absence, by a director elected by the Board for this purpose and the Board met at least once in every quarter, during the year. Written notices of the Board meetings, along with agenda and working papers, were circulated at least seven days before the meetings. The minutes of the meetings were appropriately recorded and circulated. 9. All the directors of the Management Company are well-conversant with the relevant laws applicable to the Fund and Management Company, its policies and procedures and provisions of memorandum and articles of association and are aware of their duties and responsibilities. The Compliance with the requirement of certification of directors is ensured. 10. The board has approved the appointment of Head of Internal Audit including his remuneration and terms and conditions of employment.

17 Faysal Asset Management Faysal Islamic Asset Allocation Fund 15 STATEMENT OF COMPLIANCE WITH THE BEST PRACTICES OF THE CODE OF CORPORATE GOVERNANCE 11. The Directors' report relating to the Fund for the period ended June 30, 2016 has been prepared in compliance with the requirements of the Code and fully describes the salient matters required to be disclosed. 12. The financial statements of the Fund were duly endorsed by the CEO and CFO of the Management Company before approval of the Board. 13. The Directors, CEO, and executives do not hold any interest in the units of the Fund other than that disclosed in the Directors' report. 14. The Management Company has complied with all the corporate and financial reporting requirements of the CCG. 15. The Board has formed an Audit Committee. It comprises of three members, all of whom are non-executive directors of the Management Company including the chairman of the Committee. 16. The meetings of the Audit Committee were held at least once in every quarter and prior to the approval of interim and final results of the Fund as required by the CCG. However, the meeting due in first quarter of the year 2016 was held on October 6, 2015 due to delay in finalisation of the financial statements for the year ended June 30, The terms of reference of the Committee have been formed and advised to the Committee for compliance. 17. The Board has formed an HR and Compensation Committee. It comprises of four members of whom two are non-executive directors and the chairman of the Committee is an independent director. 18. The Management Company has outsourced the internal audit function to KPMG Taseer Hadi & Co. Chartered Accountants (the Firm) who are considered suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the Fund. 19. The statutory auditors of the Fund have confirmed that they have been given a satisfactory rating under the Quality Control Review program of the Institute of Chartered Accountants of Pakistan (ICAP), that they or any of the partners of the firm, their spouses and minor children do not hold shares of the Management Company or units of the Fund and that the firm and all its partners are in compliance with the International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by the ICAP. 20. The statutory auditors or the persons associated with them have not been appointed to provide other services except in accordance with the listing regulations and the auditors have confirmed that they have observed IFAC guidelines in this regard. 21. The closed period, prior to the announcement of interim / final results, and business decisions, which may materially affect the market price of Fund s units, was determined and intimated to directors, employees and stock exchange. 22. Material / price sensitive information has been disseminated among all market participants at once through stock exchange. 23. We confirm that all applicable material principles enshrined in the Code have been complied with. Karachi Dated: September 26, 2016 Enamullah Khan Chief Executive Officer

18 16 Faysal Asset Management Faysal Islamic Asset Allocation Fund INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS

19 Faysal Asset Management Faysal Islamic Asset Allocation Fund 17 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS September 26, 2016

20 18 Faysal Asset Management Faysal Islamic Asset Allocation Fund STATEMENT OF ASSETS AND LIABILITIES AS AT JUNE 30, 2016 June 30, 2016 Note --- (Rupees) --- Assets Bank balances 6 62,359,954 Investments 7 135,633,547 Deposits and other receivables 8 4,004,309 Preliminary expenses and floatation costs 9 1,624,127 Total assets 203,621,937 Liabilities Payable to the Management Company 10 3,600,833 Remuneration payable to the Trustee 11 63,409 Accrued and other liabilities 12 1,998,193 Payable against purchase of investments 5,356,423 Total liabilities 11,018,858 Net assets 192,603,079 U nit holders' fund (as per statement attached) 192,603,079 (Number of units) Number of units in issue 2,006, (Rupees) Net assets value per unit The annexed notes from 1 to 20 form an integral part of these financial statements. For Faysal Asset Management Limited (Management Company) Chief Executive Officer Director Director

21 Faysal Asset Management Faysal Islamic Asset Allocation Fund 19 INCOME STATEMENT FOR THE PERIOD FROM SEPTEMBER 09, 2015 TO JUNE 30, 2016 From September 09, 2015 to June 30, 2016 Income Note --- (Rupees) --- Dividend income on investments classified as 'at fair value through profit or loss' - held-for-trading 3,163,300 Return on bank balances 3,026,655 Net (loss) / gain on investments 'at fair value through profit or loss' - held-for-trading: - Net capital gain on sale of investments 1,223,310 - Net unrealised loss on revaluation of investments 7.3 (9,200,898) (7,977,588) Total income (1,787,633) Expenses Remuneration of the Management Company ,731,740 Provision for indirect taxes and duties ,670 Sales tax on Management fee ,444 Remuneration of the Trustee ,758 Sales tax on Trustee fee ,206 Brokerage charges 995,544 Bank charges 46,864 SECP annual fee ,010 Auditors' remuneration ,875 Fees and subscription 277,996 Settlement charges, federal excise duty and capital value tax 311,651 Printing charges and other expenses 263,810 Reimbursement of expenses to the Management Company ,568 Amortisation of preliminary expenses and floatation costs 9 314,398 Total expenses 8,622,534 N et loss from operating activities Element of income and capital gains included in prices o f units sold less those in units redeemed - net N et loss for the period before taxation (10,410,167) 2,338,799 (8,071,368) Taxation 14 - N et loss for the period after taxation (8,071,368) Other comprehensive income for the period - T otal comprehensive loss for the period (8,071,368) The annexed notes from 1 to 20 form an integral part of these financial statements. For Faysal Asset Management Limited (Management Company) Chief Executive Officer Director Director

22 20 Faysal Asset Management Faysal Islamic Asset Allocation Fund DISTRIBUTION STATEMENT FOR THE PERIOD FROM SEPTEMBER 09, 2015 TO JUNE 30, 2016 From September 09, 2015 to June 30, (Rupees) --- U ndistributed income / (loss) brought forward - Net loss for the period after taxation (8,071,368) Undistributed loss carried forward [includes unrealised loss on investments of Rs.9,200,898] (8,071,368) The annexed notes from 1 to 20 form an integral part of these financial statements. For Faysal Asset Management Limited (Management Company) Chief Executive Officer Director Director

23 Faysal Asset Management Faysal Islamic Asset Allocation Fund 21 CASH FLOW STATEMENT FOR THE FOR PERIOD THE PERIOD FROM SEPTEMBER 09, 09, TO JUNE TO 30, JUNE , 2016 From September 09, 2015 to June 30, 2016 Note --- (Rupees) --- CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period before taxation (8,071,368) Adjustment for non-cash and other items: Net loss / (gain) on investments 'at fair value through profit or loss' - held-for-trading: - Net capital gain on sale of investments (1,223,310) - Net unrealised loss on revaluation of investments 9,200,898 Dividend income on investments classified as 'at fair value through profit or loss' - held-for-trading (3,163,300) Return on bank balances (3,026,655) Amortisation of preliminary expenses and floatation costs 314,398 Element of income and capital gains included in prices of units sold less those in units redeemed - net (2,338,799) (8,308,136) Increase in assets Deposits and other receivables (2,600,000) Increase in liabilities Payable to the Management Company 1,662,308 Remuneration payable to the Trustee 63,409 Accrued and other liabilities 1,998,193 3,723,910 (7,184,226) Proceeds from sale of investments 688,881,580 Payments made against purchase of investments (827,136,292) Return received on bank balances 2,705,134 Dividend received 2,638,300 Withholding tax paid (557,788) N et cash used in operating activities (140,653,292) CASH FLOWS FROM FINANCING ACTIVITIES Amounts received against issue of units 460,378,120 Payments made against redemption of units (257,364,874) N et cash generated from financing activities 203,013,246 N et increase in cash and cash equivalents during the period 62,359,954 Cash and cash equivalents at the beginning of the period - Cash and cash equivalents at the end of the period 6 62,359,954 The annexed notes from 1 to 20 form an integral part of these financial statements. For Faysal Asset Management Limited (Management Company) Chief Executive Officer Director Director

24 22 Faysal Asset Management Faysal Islamic Asset Allocation Fund STATEMENT OF MOVEMENT IN UNIT HOLDERS' FUND FOR THE PERIOD FROM SEPTEMBER 09, 2015 TO JUNE 30, 2016 From September 09, 2015 to June 30, (Rupees) Net assets value per unit at beginning of the period Net assets value per unit at end of the period Net assets at beginning of the period - Amounts received on issue of units * 460,378,120 Amounts paid on redemption of units ** (257,364,874) 203,013,246 Element of income and capital gains included in prices of units sold less those in units redeemed - net (2,338,799) Net capital gain on sale of investments 1,223,310 Net unrealised loss on revaluation of investments (9,200,898) Net loss for the period (93,780) T otal comprehensive loss for the period (8,071,368) N et assets at end of the period 192,603,079 (Number of units) * Number of units issued 4,616,423 ** Number of units redeemed 2,609,678 The annexed notes from 1 to 20 form an integral part of these financial statements. For Faysal Asset Management Limited (Management Company) Chief Executive Officer Director Director

25 Faysal Asset Management Faysal Islamic Asset Allocation Fund 23 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM SEPTEMBER 09, 2015 TO JUNE 30, LEGAL STATUS AND NATURE OF BUSINESS Faysal Islamic Asset Allocation Fund (the Fund) has been established under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the NBFC Rules) and has been authorised as a unit trust scheme by the Securities and Exchange Commission of Pakistan (SECP) on June 12, It has been constituted under a Trust Deed, dated May 18, 2015, between Faysal Asset Management Limited (the Management Company), a company incorporated under the Companies Ordinance, 1984 and Central Depository Company of Pakistan Limited (CDC) as the Trustee, also a company incorporated under the Companies Ordinance, The Fund is a Shariah Compliant open-ended asset allocation fund and is listed on the Pakistan Stock Exchange Limited (formerly Karachi Stock Exchange Limited). Units are offered for public subscription on a continuous basis and the units are transferable and can be redeemed by surrendering them to the Fund. The Fund was launched on September 09, The Fund commenced its operations from September 09, Accordingly, there are no comparatives in statement of assets and liabilities, income statement, distribution statement, cash flow statement and statement of movement in unit holders fund. The objective of the Fund is to earn competitive riba free return by investing in various Shariah Compliant asset classes / instruments based on the market outlook. The Fund is categorised as an "Islamic Asset Allocation Scheme" as per the Circular No.7 of 2009 issued by SECP. Since the Fund was launched in September 2015, the stability ranking to the Fund is yet to be assigned. JCR - VIS Credit Rating Company limited has awarded an "AM3++" asset manager rating to the Management Company as of May 04, STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Ordinance, 1984, the requirements of the Trust Deed, the NBFC Rules, the Non Banking Finance Companies and Notified Entities Regulation, 2008 (the NBFC Regulations) and directives issued by SECP. Wherever the requirements of the Trust Deed, the NBFC Rules, the NBFC Regulations or the directives issued by SECP differ with the requirements of IFRS, the requirements of the Trust Deed, the NBFC Rules, the NBFC Regulations or the requirements of the said directives prevail. 3. BASIS OF MEASUREMENT These financial statements have been prepared under the historical cost convention, except for certain investments which are accounted for as stated in note 4.1 below. The Fund invests in riba free Shariah Compliant asset classes / instruments. The income on such investments is recognised in accordance with the principles of the Islamic Shariah. However, income, if any, received which does not comply with the principles of the Islamic Shariah is recognised as charity payable, if so directed by the Shariah Advisor of the Fund. 3.3 These financial statements are presented in Pak rupees, which is the Fund's functional and presentation currency.

26 24 Faysal Asset Management Faysal Islamic Asset Allocation Fund NOTES TO THE FINANCIAL STATEMENTS ALLOCATION 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies were adopted in the preparation of these financial statements: 4.1 Investments The investments of the Fund, upon initial recognition, are classified as investment at fair value through profit or loss, available-for-sale or held to maturity investments as appropriate. All investments, are initially measured at fair value plus, in the case of investments not at fair value through profit or loss, transaction costs that are directly attributable to acquisition. All regular way purchases / sales of investments that require delivery within the time frame established by the regulation of market convention are recognised on the trade date, i.e. the date on which the Fund commits to purchase / sell the investment. Regular way purchases / sales of investments require delivery of securities within the period generally established by the regulation or market convention such as "T+2" The Fund classifies investments in the following categories: At fair value through profit or loss This category has two sub-categories, namely; financial instruments held-for-trading, and those designated at fair value through profit or loss upon initial recognition. - - Investments which are acquired principally for the purposes of generating profit from short term fluctuation in price or are part of the portfolio in which there is recent actual pattern of shortterm profit taking are classified as held-for-trading. Investments designated at fair value through profit or loss upon initial recognition include those group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with the documented risk management / investment strategy. These investments are initially recognised at fair value, being the cost of the consideration given. After initial measurement, investment at fair value through profit or loss are carried at fair value and the gains or losses on revaluation are recognised in the income statement. Held to maturity investments Investment securities with fixed maturities and fixed or determinable payments are classified as 'heldto-maturity investments' when management has both the intention and ability to hold to maturity. After initial measurement, such investments are carried at amortised cost less any provision for impairment except in case of debt securities and government securities, which are carried at fair value in accordance with the requirements of the NBFC Regulations. Available-for-sale investments Investments which are not classified in any of the preceding categories are classified as available-forsale investments. After initial measurement, such investments are measured at fair value with unrealised gain or loss recognised directly in the unit holders' fund until the investment is derecognised or determined to be impaired at which time the cumulative gain or loss previously recognised in unit holders' fund is taken to the income statement. Loans and receivables Loans and receivables 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'.

27 Faysal Asset Management Faysal Islamic Asset Allocation Fund 25 NOTES TO THE FINANCIAL STATEMENTS Fair value of investments is determined as follows: Listed shares ALLOCATION F These are valued on the basis of closing market prices quoted on the respective stock exchanges. Basis of valuation of Sukuk Certificates The investment of the Fund in debt securities is valued on the basis of rates determined by the Mutual Funds Association of Pakistan (MUFAP) in accordance with the methodology prescribed by SECP for valuation of debt securities vide its Circular No. 1 of 2009 dated January 06, 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 nonperforming debt securities. Basis of valuation of GOP Ijara Sukkuks Loans and receivables 4.2 Issuance and redemption of units 4.3 Provisions The investment of the Fund in GOP Ijara Sukkuks is valued using the PKISRV Reuters rate circulated by MUFAP. Subsequent to initial recognition financial assets classified as loans and receivables are carried at amortised cost using the effective interest method. Units issued are recorded at the offer price prevalent on the day on which application form, (complete in all respects) is received. The offer price represents the net assets value of units at the end of the day plus the allowable sales load. The sales load is payable to the Management Company as processing fee. Issue of units is recorded on acceptance of application for sale. Units redeemed are recorded at the redemption price, prevalent on the day on which the redemption form (complete in all respects) is accepted. The redemption price represents the net assets value of units at the end of the day. Redemption of units is recorded on acceptance of application for redemption. 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 the obligation can be made. Provisions are regularly reviewed and adjusted to reflect the current best estimate. 4.4 Net Assets Value (NAV) per unit The net assets value per unit disclosed in the statement of assets and liabilities is calculated by dividing the net assets of the Fund by the number of units in issue at the period end. 4.5 Revenue recognition - Gain or loss on sale of investments is accounted for in the period in which it arises Dividend income on equity securities are recognised in the income statement when the right to receive the dividend is established. Unrealised gains or losses arising on revaluation of investments classified as 'at fair value through profit or loss' are included in the income statement in the period in which they arise. Income on government securities, debt securities, return on certificates of investment, profit on clean placements and return on bank balances are recognised on a time proportion basis using effective interest rate method.

28 26 Faysal Asset Management Faysal Islamic Asset Allocation Fund NOTES TO THE FINANCIAL STATEMENTS 4.6 Element of income / (loss) and capital gains / (losses) included in prices of units issued less those in units redeemed An equalisation account called the "element of income / (loss) and capital gains / (losses) included in prices of units issued less those in units redeemed" (the element) is created in order to prevent the dilution of per unit income and distribution of income already paid out on redemption. The element is arrived at by comparing the unit prices with opening Ex - Net Assets Value (NAV) at beginning of the financial period. The element so computed is recognised in the income statement except to the extent that the amount represented by unrealised appreciation / diminution arising on available-forsale investments is included in distribution statement. The net element of income / (loss) and capital gains / (losses) included in prices of units sold less those in units redeemed during an accounting period is transferred to the income statement. 4.7 Taxation The Fund is exempt from taxation under clause 99 of Part I of the 2nd Schedule to the Income Tax Ordinance, 2001, subject to the condition that not less than 90% of its accounting income excluding realised and unrealised capital gains for the period is distributed amongst the unit holders. 4.8 Cash and cash equivalents Cash and cash equivalents comprise cash at banks and short-term deposits with an original maturity of three months or less. Cash and cash equivalents are carried in the statement of assets and liabilities at cost. 4.9 Distribution to unit holders Distribution to unit holders made subsequent to the statement of assets and liabilities date are considered as non-adjusting events and are recognised in the financial statements in the period in which such distributions are declared and approved by the Board of Directors of the Management Company Financial assets and financial liabilities All financial assets and financial liabilities are recognised at the time when the Fund becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to receive cash flows related to the asset expire. Financial liabilities are derecognised when they are extinguished, that is, when the obligation specified in the contract is discharged, cancelled or expires. Any gain or loss on derecognition of the financial assets and financial liabilities is taken to income statement currently. Financial assets carried in the statement of assets and liabilities include bank balances, investments and deposits and other receivables. Financial liabilities carried in the statement of assets and liabilities include payable to the Management Company, remuneration payable to the Trustee, payable against purchase of investments and accrued and other liabilities Impairment of financial assets An assessment is made at each statement of assets and liabilities date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss, is recognised in the income statement. Impairment is determined as follows: (a) (b) (c) for assets carried at amortised cost, impairment is based on estimated cash flows discounted at the original effective interest rate. for assets carried at fair value, impairment is the difference between cost and fair value. for assets carried at cost, impairment is present value of future cash flows discounted at the current market rate of return for a similar financial asset.

29 Faysal Asset Management Faysal Islamic Asset Allocation Fund 27 NOTES TO THE FINANCIAL STATEMENTS For available-for-sale equity investments, reversal of impairment losses are recorded as increase in cumulative changes in fair value through unit holders' fund. In addition, a provision is made to cover impairment for specific groups of assets where there is a measurable decrease in estimated future cash flows Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are only offset and the net amount reported in the statement of assets and liabilities when there is a legally enforceable right to set off the recognised amount and the Fund intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously Preliminary expenses and floatation costs Preliminary expenses and floatation costs represent expenditure incurred in connection with incorporation, registration, establishment and authorisation of the Fund till the close of the Initial Public Offering period. These costs are to be amortised over a period not exceeding sixty months in accordance with the Trust Deed Standards, interpretations and amendments to approved accounting standards that are not yet effective The following standards, amendments and interpretations with respect to the approved accounting standards as applicable in Pakistan would be effective from the dates mentioned below against the respective standard or interpretation: Standard or Interpretation IFRS 2 Share-based Payments Classification and Measurement of Share-based Payments Transactions (Amendments) Effective date (accounting periods beginning on or after) January 01, 2018 IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investment in Associates Investment Entities: Applying the Consolidation Exception (Amendment) January 01, 2016 IFRS 10 Consolidated Financial Statements and IAS 28 Investment in Associates and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendment) IFRS 11 Joint Arrangements - Accounting for Acquisition of Interest in Joint Operation (Amendment) IAS 1 Presentation of Financial Statements - Disclosure Initiative (Amendment) IAS 7 Financial Instruments: Disclosures - Disclosure Initiative - (Amendment) IAS 12 Income Taxes Recognition of Deferred Tax Assets for Unrealized losses (Amendments) IAS 16 Property, Plant and Equipment and IAS 38 intangible assets - Clarification of Acceptable Method of Depreciation and Amortization (Amendment) Not yet finalized January 01, 2016 January 01, 2016 January 01, 2017 January 01, 2017 January 01, 2016

30 28 Faysal Asset Management Faysal Islamic Asset Allocation Fund NOTES TO THE FINANCIAL STATEMENTS Standard or Interpretation IAS 16 Property, Plant and Equipment IAS 41 Agriculture Agriculture: Bearer Plants (Amendment) IAS 27 Separate Financial Statements Equity Method in Separate Financial Statements (Amendment) Effective date (accounting periods beginning on or after) January 01, 2016 January 01, 2016 The above standards and amendments are not expected to have any material impact on the Fund's financial statements in the period of initial application. In addition to the above standards and amendments, improvements to various accounting standards have also been issued by the IASB in September Such improvements are generally effective for accounting periods beginning on or after January 01, The Fund expects that such improvements to the standards will not have any material impact on the Fund's financial statements in the period of initial application. Further, following new standards have been issued by IASB which are yet to be notified by the SECP for the purpose of applicability in Pakistan. Standard IASB effective date (annual periods beginning on or after) IFRS 9 Financial Instruments: Classification and Measurement January 01, 2018 IFRS 14 Regulatory Deferral Accounts January 01, 2016 IFRS 15 Revenue from Contracts with Customers January 01, 2018 IFRS 16 Leases January 01, ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of financial statements requires management to make judgments, estimates and assumptions that effect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making judgments about carrying values of assets and liabilities. The estimates and underlying assumptions are reviewed on an ongoing basis. Judgments made by management in the application of accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment are explained in notes 4.1, 4.10 and 4.11 to the financial statements. 6. BANK BALANCES June 30, 2016 Note -- (Rupees) -- Cash at bank - PLS savings accounts ,359, These carry mark-up ranging between 2.40% and 6.10% per annum and include balance of Rs.32,652 held with Faysal Bank Limited, a related party. 7. INVESTMENTS 'At fair value through profit or loss' - held-for-trading Listed equity securities ,633,547

31 Faysal Asset Management Faysal Islamic Asset Allocation Fund 29 NOTES TO THE FINANCIAL STATEMENTS 7.1 Listed equity securities * - held-for-trading Name of the investee company Note Purchased during the period * Ordinary shares having a face value of Rs.10 each unless stated otherwise Number of shares Balance as at June 30, Bonus received Disposed off during the during the As at June period period 30, 2016 Unrealized Market / (loss) / gain Cost carrying value on revaluation (Rupees) Investment as % of Net assets Total investments Investee company paidup capital Oil and gas Hascol Petroleum Limited ,000 22, ,900 1, , ,907 45, % 0.16% 0.00% M ari Petroleum Company Limited 106, , Oil & Gas Development Company Limited 105, , P akistan State Oil Company Limited 55,100-55, P akistan Petroleum Limited 65,000-65, P akistan Oil Fields Limited 142, ,100 5,500 1,919,011 1,911,140 (7,871) 0.99% 1.41% 0.00% 2,088,741 2,126,047 37, % 1.57% Multiutilities (gas and water) S ui Southern Gas Company Limited 100, ,000 2,763,875 2,753,000 (10,875) 1.43% 2.03% 0.01% S ui Northern Gas Pipelines Limited 1,550,000-1,550, ,763,875 2,753,000 (10,875) 1.43% 2.03% Chemicals A kzo Nobel Pakistan Limited 15,000-15, I CI Pakistan Limited 43,900-3,400 40,500 19,724,814 18,023,310 (1,701,504) 9.36% 13.29% 0.04% F auji Fertilizer Bin Qasim Limited 375, ,000 80,000 4,535,120 4,240,800 (294,320) 2.20% 3.13% 0.01% E ngro Corporation Limited 322, ,000 2, , ,940 (80) 0.35% 0.49% 0.00% F auji Fertilizer Company Limited 175, , F atima Fertilizer Company Limited 164, ,000 15, , ,100 33, % 0.38% 0.00% E ngro Fertilizers Limited , , ,000 16,776,609 16,120,000 (656,609) 8.37% 11.88% 0.02% 42,178,291 39,559,150 (2,619,141) 20.54% 29.17% Construction and materials C herat Cement Company Limited 120, , D.G. Khan Cement Company Limited 327, , L ucky Cement Limited 78,000-63,000 15,000 9,930,006 9,727,650 (202,356) 5.05% 7.17% 0.00% P ioneer Cement Limited 175, , ,930,006 9,727,650 (202,356) 5.05% 7.17% Software and computer services S ystems Limited 276, , Food producers A l Shaheer Corporation Limited 400,000 52, , General Industrials P ackages Limited 17,500-2,500 15,000 8,621,253 9,543, , % 7.04% 0.02% S ynthetic Product Enterprises Limited 25,000-25, ,621,253 9,543, , % 7.04% Industrial metals and mining Crescent Steel and Allied Products Limited , , ,000 36,672,340 33,236,900 (3,435,440) 17.26% 24.50% 0.37% A mreli Steels Limited 200, , ,672,340 33,236,900 (3,435,440) 17.26% 24.50% Automobile and parts G handhara Nissan Limited 25,400-25, P ak Suzuki Motor Company Limited 7,200-7, Personal goods (textile) N ishat Mills Limited 250,000-50, ,000 23,984,444 21,580,000 (2,404,444) 11.20% 15.91% 0.06% N ishat (Chunian) Limited 15,000-15, ,984,444 21,580,000 (2,404,444) 11.20% 15.91% Engineering M illat Tractors 30, ,000 18,595,495 17,107,500 (1,487,995) 8.88% 12.61% 0.07% M ughal Iron & Steel Industries Limited 150, , ,595,495 17,107,500 (1,487,995) 8.88% 12.61% Fixed line communication Pakistan Telecommunication Company Limited 195, , ,101,450 74,500 6,131,850 1,044, ,834, ,633,547 (9,200,898) 70.41% % Following shares have been pledged with National Clearing Company of Pakistan Limited (NCCPL) security against settlement of the Fund's trades in terms of Circular No. 11 dated October 23, 2007 issued by SECP: June 30, June 30, (Number of shares) -- (Rupees) -- Crescent Steel and Allied Products Limited 100,000 11,461,000 Engro Fertilizers Limited 100,000 6,448, ,000 17,909, This investment includes bonus shares having market value of Rs.0.22 million withheld by the investee company during the period as issuance of bonus shares has been made taxable through Finance Act, Consequently, bonus shares equivalent to 5% (representing tax impact of the bonus announcement) have been withheld by the investee company. The Mutual Funds Association of Pakistan (MUFAP) has filed a petition in the Honorable Sindh High Court (SHC) to declare the amendments brought in the Income Tax Ordinance, 2001 with reference to tax on bonus shares for collective investment schemes as null and void and not applicable on the mutual funds, based on the premise of exemption given to mutual funds under clause 47B and 99 of Second Schedule to the Income Tax Ordinance, The case was dismissed by SHC against MUFAP and various other plantiffs vide judgement dated September 08, However, MUFAP along with various other mutual funds has filed an appeal before SHC under the section 3 of the Law Reforms Ordinance, The SHC has suspended the operation of the earlier impugned order and has granted stay from tax on bonus shares.

32 30 Faysal Asset Management Faysal Islamic Asset Allocation Fund NOTES TO THE FINANCIAL STATEMENTS 7.2 Details of non-compliant investment Name of non-compliant investment Note Type of instrument Value of investment (Rupees) Limit of investment in a single company as a percentage of net assets Investment as at period end as a percentage of Net assets Gross assets Crescent Steel and Allied Listed equity Products Limited securities 33,236,900 15% 17.26% 16.32% The above exposure is in excess of the limit prescribed by the NBFC Regulations and disclosure for breach of exposure limit is made as required by the Circular No.16 of 2010 dated July 07, 2010 by SECP. However, the NBFC Regulations allow four months time period to regularize these exposures. 7.3 Net unrealised loss on revaluation of investments classified as 'at fair value through profit or loss' - held-for-trading June 30, 2016 Note -- (Rupees) -- Market value of investments 135,633,547 Less: Cost of investments (144,834,445) (9,200,898) 8. DEPOSITS AND OTHER RECEIVABLES - considered good Security deposits - National Clearing Company of Pakistan Limited 2,500,000 - Central Depository Company of Pakistan Limited 100,000 2,600,000 Return receivable on bank balances 321,521 Income tax recoverable ,788 Dividend receivable 525,000 4,004, This represents tax deducted under section 236(M) of the Income Tax Ordinance, 2001 on bonus shares issued to the Fund by the investees. 9. PRELIMINARY EXPENSES AND FLOATATION COSTS Preliminary expenses and floatation costs 1,938,525 Amortised during the period 9.1 (314,398) 1,624, Preliminary expenses and floatation costs represent expenditure incurred prior to the commencement of operations of the Fund as incurred by the Management Company and are being amortised over a period of five years commencing from September 09, 2015.

33 Faysal Asset Management Faysal Islamic Asset Allocation Fund 31 NOTES TO THE FINANCIAL STATEMENTS 10. PAYABLE TO THE MANAGEMENT COMPANY Management fee payable Sales tax payable on Management fee Sales load payable Preliminary expenses and floatation costs Reimbursement of expenses payable to the Management Company Other payable June 30, 2016 Note -- (Rupees) , ,941 1,064, ,938, ,568 30,000 3,600, The Management Company is entitled to remuneration for services rendered to the Fund under the provisions of NBFC Regulations of an amount not exceeding 2% of average annual net assets of the Fund. The Management Company has charged its remuneration accordingly. The Government of Sindh has levied Sindh Sales Tax at the rate of 14% on the remuneration of the Management Company through the Sindh Sales Tax on Services Act, SECP has introduced "expense ratio" vide amendments in NBFC Regulations dated November 25, 2015, whereby, the total expense ratio of an asset allocation scheme shall be capped at 4% of average daily net assets value of the scheme. The regulation further states that for the purpose of expense ratio, expenses incurred in relation to any government levy on funds such as sales tax, federal excise duty, SECP fee, etc. shall be excluded while calculating expense ratio. Furthermore, under NBFC Regulation 60(3)(s), wherein the Management Company is allowed to charge their cost to Collective Investment Schemes (CIS) in respect of fees and expenses related to registrar services, accounting, operations and valuation services related to that CIS. The maximum cost that can be charged in this regard is up to 0.1% of the average annual net assets of that CIS or actual, whichever is less. Accordingly, this represents the amount payable to the Management Company to maintain the expense ratio of the Fund within the prescribed limits. 11. REMUNERATION PAYABLE TO THE TRUSTEE Remuneration payable to the Trustee ,621 Sales tax payable on Trustee fee ,788 63, The Trustee is entitled to a monthly remuneration for services rendered to the Fund under the provisions of the Trust Deed as per the tariff specified therein, based on the daily net assets value of the Fund. The Government of Sindh has levied Sindh Sales Tax at the rate of 14% on the remuneration of the Trustee through the Sindh Sales Tax on Services Act, ACCRUED AND OTHER LIABILITIES SECP annual fee payable ,010 Brokerage payable 396,664 Accrued liabilities 744,849 Provision for indirect taxes and duties ,670 1,998, This represents annual fee payable to SECP in accordance with the NBFC Regulations, whereby the Fund is required to pay SECP annually an amount equal to 0.095% per annum of the daily net asset value of the Fund.

34 32 Faysal Asset Management Faysal Islamic Asset Allocation Fund NOTES TO THE FINANCIAL STATEMENTS 12.2 As per the requirements of the Finance Act, 2013, Federal Excise Duty (FED) at the rate of 16% on the services of the Management Company has been applied effective June 13, The Management Company is of the view that since the remuneration is already subject to provincial sales tax, further levy of FED results in double taxation, does not appear to be the spirit of the law. The matter has been collectively taken up by the Management Company jointly with other Asset Management Companies and CDC on behalf of Collective Investment Schemes through a constitutional petition filed in the Honourable Sindh High Court (SHC) in September The Fund, as amatter of abundant caution, has charged FED and sales tax on service thereon in its financial statements with effect from the date of commencement of its operations. As at June 30, 2016, the Fund has held a provision for FED aggregating to Rs.0.68 million. The Sindh High Court in its decision dated July 16, 2016 maintained the previous order passed against other constitutional petition whereby levy of FED is declared to be Ultra Vires the Constitution. The management is however of the view that since the Federal government still has the right to appeal against the order, the provision held for FED shall not be reversed. Further, as per the Finance Act, 2016, the management fees charged by the asset management company have been declared exempt from the levy of FED with effect from July 01, Accordingly, no provision for FED is made from July 01, 2016 onwards. 13. AUDITORS' REMUNERATION From September 09, 2015 to June 30, (Rupees) --- Audit fee 330,000 Review and other certifications 150,000 Other 7, ,500 Sales tax 24, , TAXATION The income of the Fund is exempt from income tax under Clause (99) of Part 1 of the Second Schedule to the Income Tax Ordinance, 2001 (Clause 99) subject to the condition that not less than 90 percent of the accounting income for the period, as reduced by capital gains, whether realized or unrealized, is distributed in cash amongst the unit holders. As there is loss for the period, no distribution was made. Accordingly, no provision for current and deferred tax has been made in these financial statements. 15. TRANSACTIONS WITH CONNECTED PERSONS / RELATED PARTIES 15.1 Connected persons / related parties include Faysal Asset Management Limited being the Management Company, CDC being the Trustee, other collective investment schemes managed by the Management Company, Faysal Asset Management Limited - Staff Provident Fund, Faysal Asset Management Limited - Staff Gratuity Fund, Faysal Bank Limited, Faysal Bank Limited - Staff Provident Fund, Faysal Bank Limited - Staff Gratuity Fund and other entities under common management and / or directorship and the directors and officers of the Management Company and the Trustee The transactions with connected persons are in the normal course of business, at contracted rates The details of significant transactions carried out by the Fund with connected persons / related parties and balances with them at period end are as follows:

35 Faysal Asset Management Faysal Islamic Asset Allocation Fund 33 NOTES TO THE FINANCIAL STATEMENTS Transactions during the period From September 09, 2015 to June 30, (Rupees) -- Faysal Asset Management Limited (Management Company) Remuneration of the Management Company 3,731,740 Sales tax on Management fee 522,444 Reimbursement of expenses to the Management Company 144,568 Issue of 227,351 units 22,735,023 Redemption of 227,351 units 22,797,557 Central Depository Company of Pakistan Limited - (Trustee of the Fund) Remuneration of the Trustee 565,758 Sales tax on Trustee fee 79,206 Settlement charges 64,592 Unit holder holding 10% or more units Nighat Faruqi Issue of 245,290 units 25,000,000 Syed Yawar Ali Issue of 611,208 units 60,524,551 Redemption of 408,131 units 39,496,027 Muller & Phipps Pakistan (Pvt.) Limited - Staff Provident Fund Issue of 240,381 units 24,037,875 Outstanding balances June 30, (Rupees) -- Faysal Asset Management Limited (Management Company) Management fee payable 371,012 Sales tax payable on Management fee 51,941 Sales load payable 1,064,787 Preliminary expenses and floatation costs 1,938,525 Reimbursement of expenses payable to the Management Company 144,568 Other payable 30,000 Faysal Bank Limited (Group / Associated Company) Balance in PLS savings account 32,652 Central Depository Company of Pakistan Limited - (Trustee of the Fund) Remuneration payable to the Trustee 55,621 Sales tax payable on Trustee fee 7,788 Unit holder holding 10% or more units Nighat Faruqi Units in issue 245,290 units 23,542,934 Syed Yawar Ali Units in issue 203,077 units 19,491,330 Muller & Phipps Pakistan (Pvt.) Limited - Staff Provident Fund Units in issue 240,381 units 23,071,768

36 34 Faysal Asset Management Faysal Islamic Asset Allocation Fund NOTES TO THE FINANCIAL STATEMENTS 16. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES 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 to be performed based on limits established by the Management Company, 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 Fund is willing to accept. The Board of Directors of the Management Company supervises the overall risk management approach within the Fund. The Fund is exposed to market risk, liquidity risk and credit risk arising from the financial instruments it holds Market risk Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as equity prices, profit rates, foreign exchange rates and debt security prices. (i) Equity price risk Equity price risk is the risk of volatility in share prices resulting from their dependence on market sentiments, speculative activities, supply and demand for shares and liquidity in the market. The equity price risk exposure arises from the Fund's investment in equity securities. Management of the Fund estimates that a 5% increase or decrease in the overall equity prices in the market with all other factors remaining constant would result in increase or decrease of Fund's net assets by Rs.6.78 million. However, in practice, the actual results may differ from the sensitivity analysis. The Management Company manages the above market risks through diversification of investment portfolio and placing limits on individual and aggregate exposures in accordance with the internal risk management policies and regulations laid down by the SECP. The analysis of Fund's concentration on equity price risk is disclosed in note 7.1 to these financial statements. (ii) Profit rate risk Profit rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market profit rates. As of June 30, 2016, the Fund's exposure to the risk of changes in market profit rates relates primarily to bank balances. The bank balances are subject to profit rates as declared by the respective banks on periodic basis. As at June 30, 2016 approximately 30.96% of the Fund's financial assets are subject to profit rates. The Fund is not exposed to fixed rate financial assets. Therefore, a change in their profit rates at the reporting date would not have any impact on the income and net assets of the Fund. Management of the Fund estimates that an increase of 100 basis points in the profit rate, with all other factors remaining constant, would increase the Fund's income and increase the net assets of the Fund by Rs.0.62 million and a decrease of 100 basis points would decrease the Fund's income and decrease the net assets of the Fund by the same amount. However, in practice, the actual results may differ from the sensitivity analysis. (iii) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Fund does not have any financial instruments in foreign currencies and hence is not exposed to such risk.

37 Faysal Asset Management Faysal Islamic Asset Allocation Fund 35 NOTES TO THE FINANCIAL STATEMENTS 16.2 Liquidity risk Liquidity risk is defined as the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk arises because of the possibility that the Fund could be required to pay its liabilities earlier than expected. The Fund is exposed to cash redemptions of its redeemable units on a regular basis. Units are redeemable at the unit holders' option based on the Fund s net assets value per unit at the time of redemption calculated in accordance with the Fund s constitutive documents. The table below summarises the maturity profile of the Fund's financial liabilities based on contractual undiscounted payments. More than three months and Upto three upto one More than June 30, 2016 months year one year Total (Rupees) Financial liabilities Payable to the Management Company 1,610,367 1,938,525-3,548,892 Remuneration payable to the Trustee 55, ,621 Accrued and other liabilities 1,084, ,084,448 Payable against purchase of investments 5,356, ,356,423 8,106,859 1,938,525-10,045, Credit risk Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Fund by failing to discharge its obligation. The Fund s policy is to enter into financial contracts with reputable counter parties in accordance with the internal guidelines, offering document and regulatory requirements. The table below analyses the Fund's maximum exposure to credit risk. The maximum exposure is shown gross, before the effect of mitigation through the use of collateral agreements at reporting date: June 30, (Rupees) -- Bank balances 62,359,954 Return receivable on bank balances 321,521 Dividend receivable 525,000 Security deposits 2,600,000 65,806,475 All deposits with banks, CDC and NCCPL are highly rated and risk of default is considered minimal. 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. The Fund s portfolio of financial assets is broadly diversified and transactions are entered into with diverse credit worthy counterparties thereby mitigating any significant concentration of credit risk. The table below analyses the credit quality of the Fund's exposure: % Rating category AAA, AA+, AA, AA % A+, A, A % BBB+ 0.09% Unrated 4.61% %

38 36 Faysal Asset Management Faysal Islamic Asset Allocation Fund NOTES TO THE FINANCIAL STATEMENTS The table below analyses the Fund's concentration of credit risk by industrial distribution: June 30, 2016 % of assets exposed to credit risk Commercial banks 95.25% Others 4.75% % 16.4 Unit holders' fund The capital of the Fund is represented by the net assets attributable to holders of redeemable units. The capital structure depends on the issuance and redemption of units. The Fund s objective when managing unit holders fund is to safeguard the Fund s ability to continue as a going concern in order to seek maximum preservation of unit holders fund and an optimum rate of return by investing in avenues having good credit rating and liquidity and to maintain a strong capital base to support the development of the investment activities of the Fund. The Fund has no restrictions or specific capital requirements on the subscription and redemption of units. In accordance with the risk management policies, 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. Under the NBFC Regulations, the minimum size of an open end scheme shall be one hundred million rupees at all the times during the life of the scheme. 17. FAIR VALUE OF FINANCIAL INSTRUMENTS IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements and disclosures about fair value measurement where such measurements are required as permitted by other IFRSs. It defines fair value as 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 (i.e. an exit price). Adoption of IFRS 13 has not affected the financial statements. 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 hierarchy The following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on: Level 1: Level 2: Level 3: quoted prices in active markets for identical assets. other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

39 Faysal Asset Management Faysal Islamic Asset Allocation Fund 37 NOTES TO THE FINANCIAL STATEMENTS Financial assets measured at fair value Deposits and other receivables Carrying amount Cash and cash equivalents Total Investments (Rupees) June 30, 2016 Fair value Level 1 Level 2 Level 3 Total (Rupees) 'At fair value through profit or loss' - held-for-trading Listed equity securities 135,633, ,633, ,633, ,633,547 Financial assets not measured at fair value Bank balances ,359,954 62,359, Deposits and other receivables - 3,446,521-3,446, ,633,547 3,446,521 62,359, ,440, ,633, ,633,547 During the period ended June 30, 2016, there were no transfers between level 1 and level 2 fair value measurements, and no transfer into and out of level 3 fair value measurements. June 30, 2016 'At fair value through profit and loss' - heldfor-trading Other financial liabilities Total (Rupees) Financial liabilities Payable to the Management Company Remuneration payable to the Trustee Accrued and other liabilities Payable against purchase of investments - 3,548,892 3,548,892-55,621 55,621-1,084,448 1,084,448-5,356,423 5,356,423-10,045,384 10,045,384

40 38 Faysal Asset Management Faysal Islamic Asset Allocation Fund NOTES TO THE FINANCIAL STATEMENTS 18. SUPPLEMENTARY NON FINANCIAL INFORMATION The information regarding pattern of unit holding, top ten brokers, members of the Investment Committee, performance table, fund manager, meetings of the Board of Directors of the Management Company and rating of the Fund and the Management Company has been disclosed in Annexure I to the financial statements. 19. GENERAL 19.1 Figures have been rounded off to the nearest rupee Being the first accounting period of the Fund, there are no corresponding figures to report. 20. DATE OF AUTHORISATION FOR ISSUE This condensed interim financial information was authorised for issue on September 26, 2016 by the Board of Directors of the Management Company. For Faysal Asset Management Limited (Management Company) Chief Executive Officer Director Director

41 Faysal Asset Management Faysal Islamic Asset Allocation Fund 39 SUPPLEMENTARY NON FINANCIAL INFORMATION DISCLOSURE REQUIREMENTS UNDER CLAUSE 6 - NOTES TO THE ACCOUNTS SUB CLAUSE (D), (F), (G), (H), (I) AND (J) OF THE 5TH SCHEDULE TO THE NON BANKING FINANCE COMPANIES AND NOTIFIED ENTITIES REGULATIONS, 2008 Annexure I (i) PATTERN OF UNIT HOLDING Category No. of investors Units held % Associated company Insurance company R etirement Funds 5 398, I ndividuals 105 1,389, B anks and DFIs NBFCs O ther 3 218, ,006, (ii) TOP TEN BROKERS BY PERCENTAGE OF COMMISSION PAID June 30, 2016 Name % Investment Manager 11.58% Alfalah Securities 11.49% Invest & Finance Securities 11.29% We Financial Services Limited 9.99% Fortune Securities 9.12% Arif Habib Securities Limited 7.92% JSK Securities Limited 7.55% Adam Securities Pvt. Ltd 7.51% KASB Securities Ltd 7.40% Intermarket Securities Limited 6.01% (iii) THE MEMBERS OF THE INVESTMENT COMMITTEE Following are the members of the Investment Committee of the Fund: Name Mr. Enam Ullah Khan Mr. Najm Ul Hassan Mr. Vasseh Ahmed Mr. Ayub Khuhro Mr. Saif Hassan Mr. Sarwar Khan (Non-Voting) Qualification B. Eco, FSA, Accreditations MBA, ACMA, CFA I Master in Science BSC Economics, CFA I MSC (Statistics) & MEF ACCA, CFA II Experience Over 24 years Over 21 years Over 8 years Over 8 years Over 10 years Over 8 years

42 40 Faysal Asset Management Faysal Islamic Asset Allocation Fund SUPPLEMENTARY NON FINANCIAL INFORMATION DISCLOSURE REQUIREMENTS UNDER CLAUSE 6 - NOTES TO THE ACCOUNTS SUB CLAUSE (D), (F), (G), (H), (I) AND (J) OF THE 5TH SCHEDULE TO THE NON BANKING FINANCE COMPANIES AND NOTIFIED ENTITIES REGULATIONS, 2008 (iv) PARTICULARS OF FUND MANAGERS Name Qualification Other Collective Investment Schemes Managed Mr. Saif Hassan MSC (stats) & MEF Faysal Balanced Growth Fund Faysal Asset Allocation Fund (v) PERFORMANCE TABLE N et assets N et asset value per unit O ffer price R epurchase price per unit Highest offer price per unit Highest repurchase price per unit Lowest offer price Lowest repurchase price per unit Total return: - capital growth - income distribution Average annual return: (Launch date: Decemeber 13, 2010) - one year - two years - three years Distribution per unit: - Interim distribution (% per unit) - Final distribution (% per unit) June 30, 2016 Rupees 192,603, % -4.02% % -4.02% -4.02% The Fund's past performance is not necessarily indicative of future performance. Therefore, the unit prices and investment returns may go down, as well as up. (vi) Responsibilities towards Corporate Governance and Proxy Voting as per Regulation 38A Faysal Asset Management Limited (FAML) on behalf of Faysal Islamic Asset Allocation Fund (FIAAF) a collective investment scheme (CIS) under its management did not participate in shareholders meetings. Further, the proxy voting policy of the FIAAF is available on the website of the FAML and detailed information regarding actual proxies voted by the FAML (if any) in respect of the CIS is also available without charge, upon request, to all unit holders. (vii) Expense ratio from the November 25, 2015 to June 30, 2016 Faysal Islamic Asset Allocation Fund (FIAAF) has total expense ratio (TER) of 4.69%, the TER inlcudes 0.89% representing government levy and SECP fee.

43 Faysal Asset Management Faysal Islamic Asset Allocation Fund 41 SUPPLEMENTARY NON FINANCIAL INFORMATION DISCLOSURE REQUIREMENTS UNDER CLAUSE 6 - NOTES TO THE ACCOUNTS SUB CLAUSE (D), (F), (G), (H), (I) AND (J) OF THE 5TH SCHEDULE TO THE NON BANKING FINANCE COMPANIES AND NOTIFIED ENTITIES REGULATIONS, 2008 Annexure II (vi) MEETINGS OF THE BOARD OF DIRECTORS Following is the analysis of the attendance in the meetings of the Board of Directors of the Management Company during the year: Name of Directors Meetings held on Meetings Sep 23 Oct 06 Oct 28 Feb 29 March 18 March 31 April 22 June 27 Attended Mr. Nauman Ansari, Chairman Mr. Osman Khan, Director Mr. Zahid Ahmed, Director 4 N/A N/A N/A Syed Ibad ur Rahman Chishti, Director Mr. Razi ur Rahman, Director Mr. Enamullah Khan, Chief Executive Officer (vii) MEETINGS OF THE AUDIT COMMITTEE Following is the analysis of the attendance in the meetings of the Audit Committee of the Management Company during the year: Name of Member Meetings held on Meetings Oct 06 Oct-27 Oct-28 Feb-26 Apr-22 Attended Mr. Razi ur Rehman, Chairman Mr. Osman Khan, Director Syed Ibad ur Rahman Chishti, Director (viii) MEETINGS OF THE BOARD HR COMMITTEE Following is the analysis of the attendance in the meetings of the Board HR Committee of the Management Company during the year: Name of Directors Meetings held on Meetings Oct 13 Oct 28 Dec 30 March 04 Attended Mr. Osman Khan, Chairman Mr. Razi ur Rahman Khan, Director Syed Ibad ur Rahman Chishti, Director Mr. Enamullah Khan, Chief Executive Officer (ix) RATING OF THE FUND AND THE MANAGEMENT COMPANY Since the Fund was launched in September 2015, the stability ranking to the Fund is yet to be assigned and the JCR-VIS Credit Rating Company Limited (JCR-VIS) has awarded an "AM3++" asset manager rating to the Management Company as of May 04, 2016.

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