securities; NIT-GBF offers a high degree of security to investors and is an ideal Fund for investors seeking best possible returns

Transcription

1 An Open-end Income Fund primarily investing in Government issued securities; NIT-GBF offers a high degree of security to investors and is an ideal Fund for investors seeking best possible returns with minimum risk.

2 CORPORATE INFORMATION FUND NAME NIT - Government Bond Fund NAME OF AUDITORS KPMG Taseer Hadi & Co. Chartered Accountants LIST OF BANKERS Allied Bank Limited Bank Al Falah Limited Bank Al Habib Limited NIB Bank Limited Summit Bank Limited United Bank Limited Soneri Bank Limited Habib Bank Limited MCB Bank Limited Dubai Islamic Bank Limited 08

3 FUND MANAGER REPORT NIT Government Bond Fund Objective The objective of NIT Government Bond Fund is to generate best possible return with minimum risk, for its Unit Holders, by investing primarily in the Government Securities. Profile of Investment Manager National Investment Trust Ltd. (NITL) is the first Asset Management Company of Pakistan, formed in NITL is the largest asset management company of Pakistan with approximately Rs. 109 billion assets under management. As of 30th June 2017, the family of Funds of NIT comprises of ten funds including 4 equity funds, 2 fixed income funds, 1 money market fund, 1 Shariah Compliant Income Fund, 1 conventional pension fund and 1 Islamic pension fund. NIT s tally of nationwide branches is 23 and sales desk is also available in financial hub at Abbotabad, yet another milestone as no Mutual Fund in Pakistan has such a big network of branches. To cater the matters relating to investments in NIT and day to day inquiries / issues of NIT s unit holders, state of the art Investors Facilitation Centre is also in place. The Board of Directors of NITL consists of top executives from leading financial institutions, prominent industrialists and a nominee of Government of Pakistan. The Company has been assigned an Asset Manager rating of AM2++ by Pakistan Credit Rating Agency, which reflects the company s very strong capacity to manage the risks inherent in the asset management business and the asset manager meets very high investment management industry standards and benchmarks with noted strengths in several of the rating factors. All Investment decisions are taken by the Investment Committee of NITL. Fund Information - NIT GBF Fund Type Open-End Category Income Fund Launch Date November 18, 2009 Listing PSX Management Fee (Previously: 1.25% p.a. of Average Annual Net Assets. Revised on February, 2017 ) 10% of Gross Earnings, subject to minimum of 0.50% p.a. and maximum of 1% p.a. of Average Annual Net Assets * Varies as per policy (No sales load is charged if the investor approaches directly). Front End Load* 1.00% Back End Load Nil Par Value PKR Fund Manager Shoaib Ahmed Khan Risk Profile Low Stability Rating AA- (f) (PACRA) (updated on 30-Dec-2016) AMC Rating AM2++ (PACRA) (updated on 25-May-2017) Trustee Central Depositary Co. (CDC) Auditors KPMG Taseer Hadi Registrar National Investment Trust Ltd. Pricing Mechanism Forward Pricing Min Subscription Rs. 5,000 Growth Units Rs. 10,000 Income Units Rating The Pakistan Credit Rating Agency (PACRA) assigned stability rating of AA - (f) (Double A Minus fund rating) to NIT Government Bond Fund in December The fund s rating denotes a very strong capacity to manage relative stability in returns and very low exposure to risks. 09

4 FUND MANAGER REPORT Fund s Performance at a Glance Beginning Net Assets (Rs. Million) 4,092 4,861 Beginning NAV Per Unit (Ex-Dividend) (Rs.) Ending Net Assets (Rs. Million) (Interim Dividend Adjusted) 3,765 4,092 Ending NAV Per Unit (Rs.) (Interim Dividend Adjusted) Net Income (Rs. Million) Distribution Per Unit (Rs.)** Income Distribution (% of Net Income for the year) 94.50% 92.78% Annualized Return (%) 5.28% 5.78% Benchmark Return (%) 5.80% 5.78% Weighted Average Time to Maturity (Year) ** Interim Distribution. Benchmark vs. Return The performance of the scheme is compared against a benchmark rate of average 6 months Pakistan Revaluation Rates (PKRV). Comparison of Fund s return against benchmark The graph below depicts the comparison of the Fund s return against its benchmark. Investment Strategy NIT Government Bond Fund generated a return of 5.28% p.a. for FY17 as compared to its benchmark return of 5.80% p.a. The Fund s annualized return since its inception was 12.47% p.a. while its benchmark return was 8.62% p.a. During the month of January 2017, the fund reversed the amount accrued on the account of Workers Welfare Fund and also started provisioning on account of Sindh Workers Welfare Fund. 10

5 FUND MANAGER REPORT The fund varied its portfolio s weighted average maturity over the year concentrating on medium to short tenor instruments and reduced the weighted average maturity from 0.47 years at the start of the fiscal year to 0.20 years by the end of FY17. Asset Allocation The fund as of June 30, 2017 had allocated about 74% of its total assets in Government Securities with an exposure of about 53% in Treasury Bills and about 21% in Pakistan Investment Bonds, whereas the remaining 26% of total assets were in the form of cash and other assets. Weighted average time to maturity of the fund was 73 days as on June 30, This was adjusted in accordance with the view on market conditions. At the end of the FY17, the net assets of the Fund stood at around Rs Billion. Credit quality of the portfolio reveals that the fund had an investment of around 74% of its total assets in Government Securities while around 13% was placed in AA- and about 12% was placed with AA+ rated banks. The remaining exposure was in un-rated securities (comprising of accruals/ receivables). Others, 0.88% AA+, 11.92% AA-, 12.91% Govt. Sec, 74.28% Dividend Declaration by the Fund for FY17 During FY17, NIT Government Bond Fund has earned a net income of Rs. 202 million as compared to Rs. 239 million in FY16. The fund has declared a per unit distribution of Rs for its unit holders. 11

6 FUND MANAGER REPORT Pattern of Unit Holders Category (Units in million) NIT-GBF % of Holding Institutional Investors % Individuals 56 15% Total % Total Expense Ratio Total expense ratio (all the expenses, including government levies, incurred during the year divided by average net asset value for the year) is 0.69% per annum. Total expense ratio (excluding government levies) is 1.22% per annum. SWWF Disclosure The Scheme has maintained provisions against Sindh Workers Welfare Fund s liability to the tune of Rs million upto 30 June, 2017.If the same were not made the NAV per unit/year-to-date return of the Scheme would be higher by Rs /0.25%. Money Market Review State Bank of Pakistan kept its policy (target) rate unchanged at 5.75% during the fiscal year 2017.By keeping policy rates unchanged, State Bank took into consideration the likelihood of continued growth momentum, contained inflation and the challenges on the external front. Although the current account deficit reached US$12.1 billion during the year, this mainly owing to machinery imports both for CPEC and non-cpec energy and infrastructure projects, the country s FX reserves remained over US$ 21 billion as compared to US$ 23 billion in the past year. Average CPI stood at 4.16% for the current fiscal year as compared to 2.86% during the previous fiscal year. During FY17, SBP conducted a total of 26 T-bill auctions (two auctions per month and 3 auctions in Aug-16 and Mar-17). Treasury Bills auction cut off held in Jun-17 for the 3M, 6M and 12M tenors increased to 5.99% p.a., 6.01% p.a. and 6.04% p.a. from 5.90% p.a., 5.92% p.a. and 5.96% p.a. respectively held in June-16. The cut-off yields of 6.41% p.a., 6.90% p.a. and 7.94% p.a.on 3, 5 and 10 years PIBs respectively were almost flat when compared to the previous year s closing cut off yields of 6.41% p.a., 6.90% p.a. and 8.02% p.a. for the 3, 5 and 10 years PIBs. Further, at the end of FY17 the 6-month KIBOR slightly increased by 9bps to 6.15% as compared to last year ending at 6.06%. Economic Review Pakistan has seen a noticeable economic turnaround over the last four years due to the implementation of a comprehensive economic revival programme. Key areas of reforms include fiscal consolidation through improved public financial management and tax administration, restructuring of energy sector including capacity enhancement, divestment through strategic private partnerships, and strengthening of regulatory framework. Pakistan s economy grew by 5.3 percent in FY17, up from 4.5 percent growth recorded in FY16. This was the highest annual growth for a decade. This acceleration was achieved on the back of strong performance of agriculture and services sectors, which grew by 3.5 percent and 6.0 percent respectively in FY17, compared with 0.3 percent and 5.5 percent last year. The agriculture sector met its growth target of 3.5 percent, helped by supportive government policies and due to increase in agriculture credit disbursements. The rebound in agriculture was primarily driven by five major crops (i.e. rice, cotton, sugarcane, wheat, and maize), which posted a growth of 3.5 percent, after declining 5.0 percent last year. The industrial sector posted a growth of 5.0 percent during FY17, compared with 5.8 percent last year. This moderation came mainly from decline in growth rates of mining, quarrying, electricity and gas sub-sectors. Against this, the large-scale manufacturing sector (LSM), a key contributor to industry, grew by 4.9 percent during FY17, compared to 2.9 percent last year. 12

7 FUND MANAGER REPORT The services sector recorded a growth of 5.98 percent and surpassed its target which was set at 5.70 percent. Wholesale and retail trade sector grew at a rate of 6.82 percent. The growth in this sector was bolstered by the output in the agriculture and manufacturing sectors. CPI inflation during FY16-17 was 4.2 percent, compared with 2.9 percent in the same period last year. However, the uptick in inflation can partly be attributed to partial pass-through of the increase in international oil prices to domestic POL prices; a surge in global prices of some key food commodities (like palm oil); increase in medicine prices; and upward revision in education fees. Keeping in view the delicate balance between macroeconomic risks and ongoing growth momentum, the policy rate was kept unchanged at 5.75 percent throughout the year FY17. The low interest rate and benign business environment also stimulated demand for credit by the private sector The current account deficit reached US$ 12.1 billion during FY17 on the back of a large trade deficit and slowdown in remittances. The trade deficit swelled due to a decline in exports (-1.3 percent) and a sharp increase in imports (17.66 percent), which mainly consisted of capital goods and raw materials. The increase in imports can be explained by continued power and infrastructure development, expansion plans of a number of industries, and increase in manufacturing activities and is largely in line with the growth witnessed in LSM sector. FDI amounted to $2.4 billion during FY17 compared to $2.3 billion during the same period last year, posting a growth of 4.6% percent. Food, Power, Construction, Electronics, Oil & Gas exploration, Financial Business and Communication remained the main recipient sectors. Remittances could not continue its upward growth trajectory during FY17 whereby it remained at US$ 19.3 billion as compared to 19.9 billion during same period last year. It is important to note that slowdown in remittances to Pakistan is mainly attributed to the factors like sharp decline in oil prices and due to a number of companies in Middle East adopting policies of wage cuts and slashing down employment in different sectors, particularly in construction sector. In sum, the growth prospects of Pakistan s economy from FY18 onwards would largely hinge upon planned infrastructure projects and capacity expansion by industries. In order to make these plans a success story, enhanced coordination amongst all public sector institutions would be more crucial. Also, continuity and consistency in policies, especially those related to investment and industry, would be necessary to ensure sustainability of the growth momentum. (Economic data source: Economic Survey of Pakistan, PBS & SBP Website) Other Disclosures under NBFC Regulations 2008: The Fund Manager hereby makes the following disclosures as required under the NBFC Regulations 2008; a. The Management Company or any of its delegates did not receive any soft commission (goods & services) from any of its brokers / dealers by virtue of transactions conducted by the Fund. b. There was no unit split undertaken during the year. 13

8 TRUSTEE REPORT TRUSTEE REPORT TO THE UNIT HOLDERS Report of the Trustee pursuant to Regulation 41(h) and Clause 9 of Schedule V of the Non-Banking Finance Companies and Notified Entities Regulations, 2008 We, Central Depository Company of Pakistan Limited, being the Trustee of NIT Government Bond Fund (the Fund) are of the opinion that National Investment Trust Limited being the Management Company of the Fund has in all material respects managed the Fund during the year ended June 30, 2017 in accordance with the provisions of the following: (i) Limitations imposed on the investment powers of the Management Company under the constitutive documents of the Fund; (ii) The pricing, issuance and redemption of units are carried out in accordance with the requirements of the constitutive documents of the Fund; and (iii) The Non-Banking Finance Companies (Establishment and Regulations) Rules, 2003, the Non-Banking Finance Companies and Notified Entities Regulations, 2008 and the constitutive documents of the Fund. Sd/- Aftab Ahmed Diwan Chief Executive Officer Central Depository Company of Pakistan Limited Karachi, September 28,

9 AUDITORS REPORT INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of NIT Government Bond Fund ( the Fund ), which comprise the statement of assets and liabilities as at 30 June 2017 and the related income statement, statement of comprehensive income, distribution statement, cash flow statement, statement of movement in unit holders fund for the year then ended and a summary of significant accounting policies and other explanatory notes. Management s responsibility for the financial statements The Management Company of the Fund is responsible for the preparation and fair presentation of the financial statements in accordance with approved accounting standards as applicable in Pakistan, and for such internal control as the management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards as applicable in Pakistan. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the state of the Fund s affairs as at 30 June 2017 and of its financial performance, cash flows and transactions for the year then ended in accordance with approved accounting standards as applicable in Pakistan. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In our opinion, the financial statements have been prepared in accordance with the relevant provisions of the Non-Banking Finance Companies (Establishment and Regulation Rules, 2003) and Non-Banking Finance Companies and Notified Entities Regulations, Sd/- KPMG Taseer Hadi & Co. Chartered Accountants Muhammad Nadeem Dated: September 26, 2017 Karachi 15

10 COMPLIANCE REPORT REVIEW REPORT TO THE UNIT HOLDERS ON STATEMENT OF COMPLIANCE WITH BEST PRACTICES OF CODE OF CORPORATE GOVERNANCE We have reviewed the enclosed Statement of Compliance with the best practices contained in the Code of Corporate Governance (the Code) prepared by the Board of Directors of National Investment Trust Limited ( the Management Company ) of NIT Government Bond Fund (the Fund) for the year ended 30 June 2017, to comply with clause 5.19 of the Pakistan Stock Exchange Limited Regulations where the Fund is listed. The responsibility for compliance with the Code is that of the Board of Directors of the Management Company of the Fund. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of the Fund s compliance with the provisions of the Code and report if it does not and to highlight any non-compliance with the requirements of the Code. A review is limited primarily to inquiries of the Management Company s personnel and review of various documents prepared by the Management Company to comply with the Code. As part of our audit of financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board of Directors statement on internal control covers all risks and controls, or to form an opinion on the effectiveness of such internal controls, the Company s corporate governance procedures and risks. The Code requires the Management company to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board of Directors for their review and approval of its related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in arm s length transactions and transactions which are not executed at arm s length price and recording proper justification for using such alternate pricing mechanism. We are only required and have ensured compliance of this requirement to the extent of the approval of the related party transactions by the Board of Directors upon recommendation of the Audit Committee. We have not carried out any procedures to determine whether the related party transactions were undertaken at arm s length price or not. Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Fund s compliance, in all material respects, with the best practices contained in the Code of Corporate Governance as applicable to the Fund for the year ended 30 June Further, we highlight below instances of non-compliance with the requirements of the Code as reflected in the paragraph reference where these are stated in the Statement of Compliance: S.No. Paragraph Reference Description 1 1 Appointment of Directors 2 10 Chief Financial Officer acted as secretary of the Audit Committee 3 15 Composition of Audit Committee Sd/- KPMG Taseer Hadi & Co. Chartered Accountants Karachi Dated: September 26,

11 COMPLIANCE STATEMENT STATEMENT OF COMPLIANCE WITH THE BEST PRACTICES OF THE CODE OF CORPORATE GOVERNANCE FOR THE YEAR ENDED JUNE 30, 2017 This Statement is being presented to comply with the requirements of the Code of Corporate Governance contained in the Listing Regulations of Pakistan 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. National Investment Trust Limited, the Management Company, is not listed and hence, the Code is not applicable to it. However, NIT- Government Bond Fund (the Fund) being listed at Pakistan Stock Exchange comes under the ambit of the Code. The Fund, being a unit trust scheme, does not have its own Board. The Board of Directors of the Management Company manages the affairs of the Fund and appoints the Chief Financial Officer (CFO) and the Company Secretary of the Management Company and other necessary personnel to manage its affairs. The Management Company has applied the principles contained in the Code in the following manner: 1. The Management Company encourages representation of non-executive directors (the Board). Presently, the Board includes nine non-executive directors. The names are listed in alphabetical order as under: (i) Mr. Arshad Ahmad Non Executive (ii) Mr. Iqbal Adamjee Non Executive (iii) Mr. Jamal Nasim Non Executive (iv) Mr. Khalid Mohsin Shaikh Non Executive (v) Mr. Mansoor Masood Khan Non Executive (vi) Mian Nusrat-ud-Din Non Executive (vii) Mr. Muhammad Siddique Memon Non Executive (viii) Mr. Muhtashim Ahmad Ashai Non Executive (ix) Mr. Yameen Kerai Non Executive Currently, the Board does not have any independent director. The matter is still under discussion with SECP and Board. In addition, the term of contract of Mr. Shahid Ghaffar (Executive Director) as appointed by GoP expired on 22 May Mr. Manzoor Ahmed, Chief Operating Officer assumed charge of the office of the Managing Director / CEO on 14 September 2017 in compliance with GoP Office Order No.F.4-4/2010-Inv-III dated 13 September The directors have confirmed that none of them is serving as a director in more than seven listed companies. 3. All the resident directors of the Management Company have confirmed that they are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member of Pakistan Stock Exchange, has been declared as a defaulter by Pakistan Stock Exchange. 4. During the year, GoP appointed Mr. Arshad Ahmad as a director with effect from 28 July The term of contract of Mr. Syed Ahmed Iqbal Ashraf as appointed by GoP expired on 27 February In addition, following three casual vacancies occurred on the board which were filled up by the directors within 90 days. The details of which are as follows: a. Mr. Khalid Mohsin Shaikh was appointed in place of Mr. Raymond Kotwal with effect from 7 September b. Mr. Mansoor Masood Khan was appointed in place of Mr. Muhammad Hanif Akhai with effect from 13 January c. Mr. Muhammad Siddique Memon was appointed in place of Syed Arshad Ali with effect from 27 February The Management Company has adopted a Corporate Social Responsibility (CSR) Document detailing organizational governance and business practices which has been acknowledged by all the directors and employees of the Management Company. 17

12 COMPLIANCE STATEMENT 6. The Management Company has developed a vision / mission statement, overall corporate strategy and significant policies of the Management Company which have been approved by the Board. A complete record of particulars of significant policies along with the dates on which they 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 and determination of remuneration and terms and conditions of employment of the Chief Executive Officer, have been taken by the Board. 8. The meetings of the Board were presided over by the Chairman and in his absence by a director elected by the Board. The Board of Directors has met at least once every quarter during the year and written notices of the 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. Three Directors on the Board have certification under Directors Training Program. Remaining Directors meet the Board Experience criteria given in the Code. Board has been given orientation with regard to New Funds added in the Funds under the Management of NIT. 10. There was no new appointment of Chief Financial Officer or the Head of Internal Audit during the year. Effective from 09 December 2016, the Board appointed Chief Financial Officer as the Company Secretary of the Company. The Chief Financial Officer has also acted as the secretary of the Audit Committee since 09 December Their remuneration and terms and conditions of employment had been approved by the Board. 11. The Directors Report for the year ended 30 June 2017 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 have been prepared in accordance with the approved accounting standards as applicable in Pakistan and were duly endorsed by Chief Executive Officer and Chief Financial Officer before approval of the Board. 13. The Directors, CEO and Executives do not hold units of the Fund other than those disclosed in note 18 to the financial statements Transactions and Balances with Connected Persons. 14. The Management Company has complied with all the corporate and financial reporting requirements of the Code. 15. The Board has formed an Audit Committee. It comprises of 5 (five) members, all of whom are non-executive directors. None of the members is independent. 16. The meetings of the Audit Committee were held at least every quarter prior to approval of interim and final results of the Fund as required by the Code. The Board has approved terms of reference of the Audit Committee. 17. The Board has formed a Human Resource and Remuneration Committee. It comprises of 5 (five) members, all of whom are non-executive directors. 18. The Board has set-up an effective internal audit function headed by the Head of Internal Audit & Compliance who is considered suitably qualified and experienced for the purpose and is conversant with the policies and procedures of the company. 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 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 final results, and business decisions, which may materially affect market price of the Fund s unit was determined and intimated to the trustee, employees and Pakistan Stock Exchange. 18

13 COMPLIANCE STATEMENT 22. Material / price sensitive information has been disseminated among all market participants at once through Pakistan Stock Exchange. 23. The Management Company has complied with the requirements relating to maintenance of register of persons having access to inside information by designated senior management officer in a timely manner and maintained proper record including basis for inclusion or exclusion of names of person from the said list. 24. We confirm that all other material principles contained in the Code have been complied with. Sd/- Manzoor Ahmed Managing Director Date: September 26, 2017 Place: Karachi 19

14 STATEMENT OF ASSETS AND LIABILITIES AS AT 30 JUNE 2017 Note (Rupees in '000) Assets Bank balances 5 961,804 1,279,554 Investments 6 2,876,774 2,820,110 Profit receivables 7 34,187 94,347 Deposit with Central Depository Company of Pakistan Limited Total assets 3,872,865 4,194,111 Liabilities Payable to National Investment Trust Limited - Management Company 8 2,682 5,088 Payable to Central Depository Company of Pakistan Limited - Trustee Payable to Securities and Exchange Commission of Pakistan 10 3,023 3,469 Payable against redemption of units Accrued expenses and other liabilities 11 48,652 73,796 Dividend payable 53,360 19,655 Total liabilities 108, ,484 Net assets 3,764,768 4,091,627 Unit holders' fund (as per statement attached) 3,764,768 4,091,627 Contingencies 12 Number of units in issue ,902, ,935,884 Net assets value per unit The annexed notes from 1 to 27 form an integral part of these financial statements. (Number of units) (Rupees) For National Investment Trust Limited (Management Company) Sd/- Sd/- Sd/- Managing Director Director Director 20

15 INCOME STATEMENT Note (Rupees in '000) Income Income from government securities 133,433 37,172 Mark-up on Pakistan Investment Bonds 50, ,779 Profit on bank deposits 56,068 54,032 Gain on sale of investments - net 6, ,459 Total income 246, ,442 Expenses Remuneration to National Investment Trust Limited - Management Company ,934 58,008 Sindh Sales Tax on remuneration to Management Company 8.2 5,191 9,421 Federal Excise Duty on remuneration to Management Company ,281 Remuneration to Central Depository Company of Pakistan Limited - Trustee 9.1 3,777 4,238 Sindh Sales Tax on remuneration to Trustee Annual fee - Securities and Exchange Commission of Pakistan 10 3,023 3,469 Allocation of expenses related to registrar services, accounting, operation and valuation services 8.3 4,035 2,568 Auditors' remuneration Mutual fund rating fee Annual listing fee Settlement and bank charges Printing charges Legal and professional charges - 1,591 Securities transaction costs Total expenses 58,086 91,189 Net income from operating activities 188, ,253 Element of income / (loss) and capital gains / (losses) included in prices of units issued less those in units redeemed - net (16,692) (136,727) Reversal of provision for Workers' Welfare Fund ,149 - Provision for Sindh Workers' Welfare Fund 11.1 (9,005) - Net income for the year before taxation 201, ,526 Taxation Net income for the year after taxation 201, ,526 The annexed notes from 1 to 27 form an integral part of these financial statements. For National Investment Trust Limited (Management Company) Sd/- Sd/- Sd/- Managing Director Director Director 21

16 STATEMENT OF COMPREHENSIVE INCOME Note (Rupees in '000) Net income for the year after taxation 201, ,526 Other comprehensive income for the year Items to be reclassified to income statement in subsequent periods: Net unrealised (diminution) on re-measurement of 6.3 (9,357) (113,262) investments classified as 'available for sale' Total comprehensive income for the year 192, ,264 The annexed notes from 1 to 27 form an integral part of these financial statements. For National Investment Trust Limited (Management Company) Sd/- Sd/- Sd/- Managing Director Director Director 22

17 DISTRIBUTION STATEMENT (Rupees in '000) Accumulated loss brought forward - realised (2,628) (69,341) Element of income / (loss) and capital gains / (losses) included in the prices of units issued less those in units redeemed - amount representing income / (loss) that form part of unit holders' fund - net ,485 Net income for the year after taxation 201, ,526 Interim distribution for the year ended 30 June 2017: Rs per unit (Date of distribution: 22 June 2017) [2016: Rs per unit (Date of distribution: 15 June 2016)] - Cash distribution (85,601) (113,735) - Issue of units under Cumulative Investment Plan (105,270) (107,563) (190,871) (221,298) Undistributed income / accumulated (loss) carried forward - realised 9,218 (2,628) The annexed notes from 1 to 27 form an integral part of these financial statements. For National Investment Trust Limited (Management Company) Sd/- Sd/- Sd/- Managing Director Director Director 23

18 STATEMENT OF MOVEMENT IN UNIT HOLDERS FUND Note (Rupees in '000) Net assets at beginning of the year 4,091,627 4,860,709 [Rs per unit (2016: Rs per unit)] Issue of 93,185,549 units (2016: 265,752,416 units) 946,155 2,707,249 Redemption of 136,797,236 units (2016: 345,843,532 units) (1,396,731) (3,624,587) Issue of 10,577,929 units under Cumulative Investment Plan (2016: 10,821,869 units) 105, ,563 (345,306) (809,775) Element of income / (loss) and capital gains / (losses) included in prices of units issued less those in units redeemed - net - amount representing (income) / loss transferred to income statement 16, ,727 - amount representing (income) / loss transferred to distribution statement (734) (49,485) 15,958 87,242 Net unrealised (diminution) on re-measurement of investments classified as 'available for sale' 6.3 (9,357) (113,262) Gain on sale of investments - net 6, ,459 Other net income for the year 195, ,067 Total comprehensive income for the year 192, ,264 Interim distribution for the year ended 30 June 2017: Rs per unit (Date of distribution: 22 June 2017) [2016: Rs per unit (Date of distribution: 15 June 2016)] - Cash distribution (85,601) (113,735) - Issue of units under Cumulative Investment Plan (105,270) (107,563) (190,871) (221,298) Element of income / (loss) and capital gains / (losses) included in the prices of units issued less those in units redeemed - amount representing income / (loss) that form part of unit holders' fund - net ,485 Net assets at end of the year 3,764,768 4,091,627 [Rs per unit (2016: Rs per unit)] The annexed notes from 1 to 27 form an integral part of these financial statements. For National Investment Trust Limited (Management Company) Sd/- Sd/- Sd/- Managing Director Director Director 24

19 CASH FLOW STATEMENT Note (Rupees in '000) CASH FLOWS FROM OPERATING ACTIVITIES Net income for the year before taxation 201, ,526 Adjustments: Element of (income) / loss and capital (gains) / losses included in prices of units issued less those in units redeemed - net 16, , , ,253 (Increase) / decrease in assets Investments (66,021) 647,761 Profit receivables 60,160 74,794 (5,861) 722,555 (Decrease) in liabilities Payable to National Investment Trust Limited - Management Company (2,406) (1,867) Payable to Central Depository Company of Pakistan Limited - Trustee - (64) Payable to Securities and Exchange Commission of Pakistan (446) (1,578) Accrued expenses and other liabilities (25,144) (48,696) (27,996) (52,205) Net cash generated from operating activities 184,818 1,045,603 CASH FLOWS FROM FINANCING ACTIVITIES Amount received on issue of units 946,155 2,707,249 Payments against redemption of units (1,396,827) (3,625,025) Distribution paid (51,896) (291,785) Net cash (used in) financing activities (502,568) (1,209,561) Net (decrease) in cash and cash equivalents during the year (317,750) (163,958) Cash and cash equivalents at beginning of the year 1,279,554 1,443,512 Cash and cash equivalents at end of the year 5 961,804 1,279,554 The annexed notes from 1 to 27 form an integral part of these financial statements. For National Investment Trust Limited (Management Company) Sd/- Sd/- Sd/- Managing Director Director Director 25

20 1 LEGAL STATUS AND NATURE OF BUSINESS The NIT - Government Bond Fund (the Fund) was established under a Trust Deed executed between National Investment Trust Limited (NITL) as Management Company and Central Depository Company of Pakistan Limited (CDC) as Trustee. The Fund was approved by the Securities and Exchange Commission of Pakistan (SECP) vide its letter no.nbfc-ii/nitl/896/2009 dated 24 September 2009 in accordance with the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (NBFC Rules) and the Trust Deed was executed on 4 September The Fund is categorised as an Income Scheme as per the criteria for categorisation of open end collective investment scheme as specified by Securities and Exchange Commission of Pakistan (SECP) and other allied matters. The units of the Fund were initially issued at Rs. 10 per unit. The Management Company of the Fund has been classified as a Non-Banking Finance Company (NBFC) under the NBFC Rules, 2003 and has obtained the requisite license from the Securities and Exchange Commission of Pakistan (SECP) to undertake Asset Management Services. The registered office of the Management Company is situated at 6th floor, National Bank of Pakistan Building, I.I. Chundrigar Road, Karachi. The Fund is an open-ended mutual fund and is listed on Pakistan Stock Exchange Limited. Units are offered for public subscription on a continuous basis. The units are transferable and can be redeemed by surrendering them to the Fund. Pakistan Credit Rating Agency Limited (PACRA) has assigned "AA-(f)" rating to the Fund and has assigned an asset manager rating of "AM2++" to the Management Company. The objective of the Fund is to generate competitive stream of return with moderate level of risk for its unit holders, by investing primarily in government securities. Title to the assets of the Fund are held in the name of Central Depository Company of Pakistan 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 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 as are notified under the repealed Companies Ordinance, 1984, 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 directives issued by the Securities and Exchange Commission of Pakistan (SECP). Wherever the requirements of the NBFC Rules, the NBFC Regulations or directives issued by the SECP differ with the requirements of IFRS, the NBFC Rules, the NBFC Regulations or the directives issued by the SECP shall prevail (refer note 3.2). 2.2 Accounting convention These financial statements are prepared under the historical cost convention except for investments which are carried at fair value. 2.3 Functional and presentation currency These financial statements are presented in Pak Rupees, which is the Fund's functional and presentation currency. 2.4 Critical accounting estimates and judgments In preparing these financial statements, management has made judgement, estimates and assumptions that affect the application of the Fund's accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from the estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revision to estimates are recognised prospectively. Information about judgements made in applying accounting policies that have the most significant effects on the amount recognised in the financial statements and assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the subsequent years related to classification and valuation of investments (refer note 4.1 and note 6). 3 NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS OF IFRSs 3.1 There are new and amended standards and interpretations that are mandatory for accounting periods beginning 01 July 2016 but are considered not to be relevant or do not have any significant effect on the the Fund's financial statements and are therefore not stated in these financial statements. 26

21 3.2 Standards, interpretations and amendments to published approved accounting standards that are not yet effective The following standards, amendments and interpretations of approved accounting standards will be effective for accounting periods beginning on or after 1 July 2017: Amendments to IAS 12 Income Taxes are effective for annual periods beginning on or after 1 January The amendments clarify that the existence of a deductible temporary difference depends solely on a comparison of the carrying amount of an asset and its tax base at the end of the reporting period, and is not affected by possible future changes in the carrying amount or expected manner of recovery of the asset. The amendments further clarify that when calculating deferred tax asset in respect of insufficient taxable temporary differences, the future taxable profit excludes tax deductions resulting from the reversal of those deductible temporary differences. The amendments are not likely to have an impact on the Fund's financial statements. Amendments to IAS 7 Statement of Cash Flows are part of IASB s broader disclosure initiative and are effective for annual periods beginning on or after 1 January The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. The amendments are not likely to have an impact on the Fund's financial statements. Amendments to IFRS 2 - Share-based payment clarify the accounting for certain types of arrangements and are effective for annual periods beginning on or after 1 January The amendments cover three accounting areas (a) measurement of cashsettled share-based payments; (b) classification of share-based payments settled net of tax withholdings; and (c) accounting for a modification of a share-based payment from cash-settled to equity-settled. The new requirements could affect the classification and /or measurement of these arrangements and potentially the timing and amount of expense recognized for new and outstanding awards. The amendments are not likely to have an impact on the Fund's financial statements. Transfers of Investment Property (Amendments to IAS 40 Investment Property - effective for annual periods beginning on or after 1 January 2018) clarifies that an entity shall transfer a property to, or from, investment property when, and only when there is a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. In isolation, a change in management's intentions for the use of a property does not provide evidence of a change in use. The amendments are not likely to have an impact on the Fund's financial statements. Annual improvements to IFRS standards cycle. The new cycle of improvements addresses improvements to following approved accounting standards: - - Amendments to IFRS 12 Disclosure of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2017) clarify that the requirements of IFRS 12 apply to an entity s interests that are classified as held for sale or discontinued operations in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. The amendments are not likely to have an impact on the Fund's financial statements. Amendments to IAS 28 Investments in Associates and Joint Ventures (effective for annual periods beginning on or after 1 January 2018) clarifies that a venture capital organization and other similar entities may elect to measure investments in associates and joint ventures at fair value through profit or loss, for each associate or joint venture separately at the time of initial recognition of investment. Furthermore, similar election is available to non-investment entity that has an interest in an associate or joint venture that is an investment entity, when applying the equity method, to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate's or joint venture's interests in subsidiaries. This election is made separately for each investment entity associate or joint venture. The amendments are not likely to have an impact on the Fund's financial statements. - - IFRIC 22 Foreign Currency Transactions and Advance Consideration (effective for annual periods beginning on or after 1 January 2018) clarifies which date should be used for translation when a foreign currency transaction involves payment or receipt in advance of the item it relates to. The related item is translated using the exchange rate on the date the advance foreign currency is received or paid and the prepayment or deferred income is recognized. The date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) would remain the date on which receipt of payment from advance consideration was recognized. If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration. IFRIC 23 Uncertainty over Income Tax Treatments (effective for annual periods beginning on or after 1 January 2019) clarifies the accounting for income tax when there is uncertainty over income tax treatments under IAS 12. The interpretation requires the uncertainty over tax treatment be reflected in the measurement of current and deferred tax. 27

22 - The Companies Ordinance, 1984 was repealed by the enactment of the Companies Act, 2017 on 30 May SECP vide its Circular 17 of 2017 and its press release dated 20 July 2017 has clarified that all those companies whose financial year, including quarterly and other interim period, closes on or before 30 June 2017 shall prepare their financial statements in accordance with the provisions of the repealed Companies Ordinance, The Companies Act, 2017 requires enhanced disclosures and has also enhanced the definition of related parties. The amendments are not likely to have an impact on the Fund's financial statements except extended disclosures. - SECP through SRO 756(I)/2017 dated 03 August 2017 with immediate effect has made certain amendments in NBFCs and Notified Entities Regulations, The SRO changed the definition of accounting income in regulation (63) sub-regulation (I) which excludes the element of income from "accounting income". The said SRO also deleted 'Distribution Statement' and requires additional disclosures and recording of element of income / loss included in price of unit issued or redeemed in Statement of movements in reserves or unit holders' fund instead of income statement. This change will affect the charge for SWWF in respect of element of income and consequently NAV per unit in future years. 4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements have been consistently applied to all periods presented. 4.1 Financial assets Classification The Fund classifies its financial assets into the following categories: loans and receivables, at fair value through profit or loss and available for sale. The classification depends on the purpose for which the financial assets were acquired. The Management Company determines the classification of its financial assets at initial recognition. a) Loans and receivables These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. b) Financial assets at fair value through profit or loss Financial assets that are acquired principally for the purpose of generating profit from short-term fluctuations in prices are classified as held for trading in the 'financial assets at fair value through profit or loss' category. c) Available for sale Available for sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as (a) loans and receivables or (b) financial assets at fair value through profit or loss. 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 Regular 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 Initial recognition and measurement Financial assets are initially recognised at fair value plus transaction costs except for financial assets carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement Subsequent measurement Subsequent to initial recognition, financial assets designated by the management as at fair value through profit or loss and available for sale are valued as follows: 28

23 a) Basis of valuation of government securities The investment of the Fund in government securities is valued on the basis of rates announced by the Financial Markets Association of Pakistan. Net gains and losses arising from changes in the fair value of financial assets carried at 'fair value through profit or loss' are taken to the income statement. Net gains and losses arising from changes in fair value of available for sale financial assets are taken to the 'statement of comprehensive income' until these are derecognised or impaired. At this time, the cumulative gain or loss previously recognised directly in the statement of comprehensive income is transferred to the income statement. b) Loans and receivables Subsequent to initial recognition financial assets classified as 'loans and receivables' are carried at amortised cost using the effective interest method Impairment of financial assets The carrying value of the Fund's assets are reviewed at each reporting date to determine whether there is any indication of impairment. If such an indication exists, the recoverable amount of such asset is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the income statement. In case of debt instruments classified as available-for-sale, if any such evidence exists, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in unit holders' fund through comprehensive income is reclassified from unit holders' fund through other comprehensive income to income statement. Impairment losses recognised on debt instruments in the income statement are reversed subsequently from income statement to unit holders' fund through comprehensive income Derecognition Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and where the Fund has transferred substantially all risks and rewards of ownership Offsetting of financial assets and liabilities Financial assets and financial liabilities are offset and the net amount is reported in the Statement of Assets and Liabilities when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. 4.2 Cash and cash equivalents Cash and cash equivalents comprise of deposits and current accounts maintained with banks. Cash equivalents are short term highly liquid investments 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 investments and other purposes. 4.3 Derivatives Derivative instruments are initially recognised at fair value and subsequent to initial measurement each derivative instrument is remeasured to its fair value and the resultant gain or loss is recognised in the income statement. 4.4 Financial liabilities All financial liabilities are recognised at the time when the Fund becomes a party to the contractual provisions of the instrument. They are initially recognised at fair value and subsequently stated at amortised cost. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. 4.5 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 the amount of obligation can be made. Provisions are regularly reviewed and adjusted to reflect the current best estimate. 29