Half Yearly Report - December 2011

Transcription

1 Half Yearly Report - December 2011 Islamic Investment Solutions UBL Islamic Savings Fund (UISF) United Composite Islamic Fund (UCIF) United Islamic Income Fund (UIIF)

2 TABLE OF CONTENTS 01 Vision, Mission & Core Values 02 Corporate Information 03 Directors Report Fund Information Trustee Report to the Unit Holders Auditors Report to the Unit Holders on Review of Interim Financial Information Condensed Interim Statement of Assets And Liabilities Condensed Interim Income Statement Condensed Interim Statement of Comprehensive Income Condensed Interim Distribution Statement Condensed Interim Statement of Movement in Unit Holders' Fund Condensed Interim Cash Flow Statement Notes to the Condensed Interim Financial Statements Fund Information Trustee Report to the Unit Holders Auditors Report to the Unit Holders on Review of Interim Financial Information Condensed Interim Statement of Assets And Liabilities Condensed Interim Income Statement Condensed Interim Statement of Comprehensive Income Condensed Interim Distribution Statement Condensed Interim Statement of Movement in Unit Holders' Fund Condensed Interim Cash Flow Statement Notes to the Condensed Interim Financial Statements Fund Information Trustee Report to the Unit Holders Auditors Report to the Unit Holders on Review of Interim Financial Information Condensed Interim Statement of Assets And Liabilities Condensed Interim Income Statement Condensed Interim Statement of Comprehensive Income Condensed Interim Distribution Statement Condensed Interim Statement of Movement in Unit Holders' Fund Condensed Interim Cash Flow Statement Notes to the Condensed Interim Financial Statements

3 VISION We will be the leader in the industry by being the first choice investment solution provider, offering investment advisory services, with an international presence, renowned for being client centric, quality conscious and innovative. MISSION Offer value added products & services while adhering to the highest level of ethical standards Attract, develop & retain exceptional talent that shapes our passion for excellence and our commitment to teamwork Listen carefully to all our stakeholders and deliver winning solutions Be a responsible corporate citizen CORE VALUES Respect Excellence Customer Focus Quality Honesty 01

4 CORPORATE INFORMATION BOARD OF DIRECTORS Tariq Kirmani Chairman Mir Muhammad Ali, CFA Chief Executive Muhammad Hanif Akhai Director Ali Sameer Director Saeed Iqbal Director Rayomond H. Kotwal Director Shabbir Hussain Hashmi Director AUDIT COMMITTEE Shabbir Hussain Hashmi Chariman Rayomond H. Kotwal Member Saeed Iqbal Member RISK MANAGEMENT COMMITTEE Ali Sameer Chairman Rayomond H. Kotwal Member Mir Muhammad Ali, CFA Member HR & COMPENSATION COMMITTEE Tariq Kirmani Chairman Shabbir Hussain Hashmi Member Saeed Iqbal Member Mir Muhammad Ali, CFA Member SHARIAH ADVIOSRY BOARD Maulvi Muhammad Hassaan Kaleem Member Muhammad Najeeb Khan Member CHIEF FINANCIAL OFFICER & COMPANY SECRETARY Muhammad Imran Khalil REGISTERED OFFICE 8th Floor, State Life Building Number 1, I. I. Chundrigar Road, Karachi, Pakistan CORPORATE OFFICE 8th Floor, Executive Tower, Dolmen City Building, Block-4, Clifton, Karachi, Pakistan Tel: (92-21) Fax: (92-21) OPERATIONS OFFICE 4th Floor, STSM Building, Beaumont Road, Civil Lines, Karachi, Pakistan UAN: (92-21) Fax: (92-21) DATE OF INCORPORATION OF THE MANAGEMENT COMPANY Incorporated in Pakistan on 3 April 2001 as a Public Limited Company under the Companies Ordinance, 1984 MANAGEMENT QUALITY RATING AM2 High Management Quality by JCR-VIS Credit Rating Company FUNDS UNDER MANAGEMENT UBL Liquidity Plus Fund Launch Date: 21 June 2009 UBL Savings Income Fund Launch Date: 14 October 2010 UBL Government Securities Fund Launch Date: 27 July 2011 United Growth & Income Fund Launch Date: 02 March 2006 United Stock Advantage Fund Launch Date: 04 August 2006 UBL Islamic Savings Fund Launch Date: 07 November 2010 United Islamic Income Fund Launch Date: 20 October 2007 United Composite Islamic Fund Launch Date: 24 December 2006 UBL Capital Protected Fund-II Launch Date: 23 May 2010 UBL Retirement Savings Fund Launch Date: 10 May 2010 UBL Islamic Retirement Savings Fund Launch Date: 10 May 2010 INVESTMENT PLANS UBL Principal Protected Plan-II Conventional Mahana Munafa Plan Conventional & Islamic Sarmaya Izafa Plan Conventional & Islamic Profit + Growth Plan Conventional & Islamic Mera Kal - Children Savings Plan Conventional 02

5 Half Yearly Report December 2011 DIRECTORS REPORT FOR THE PERIOD ENDED DECEMBER 31, 2011 The Board of Directors of UBL Fund Managers Limited is pleased to present to you the Directors' Reports of its SIRAJ series represented by UBL Islamic Savings Fund, United Islamic Income Fund and United Composite Islamic Fund for the halfyear ended December 31, Economy & Money Market Review - 1HFY12 The economic policy makers maintained their stance towards a relaxed monetary policy as they stepped into the new fiscal year The SBP reduced the discount rate by 200bps cumulatively against the backdrop of failed talks with the IMF regarding continuation of the stand-by facility. With no IMF conditions to abide by, SBP had greater room to maneuver - however, this will negatively impact the future inflows from international donor agencies and lenders. The country's performance on the external front deteriorated substantially this year with the current account deficit, USDPKR exchange rate and forex reserves posting substantial declines. Largescale manufacturing sector was only able to achieve marginal growth of 1.52% in Jul-Nov period due to the lingering fuel crisis in the economy. Inflation remained somewhat subdued at 10.87% p.a. during the half, mainly due to the effect of rebasing of CPI index. Relatively comfortable inflation levels and cuts in discount rate led to a bps decline in money market rates. Stock Market Review - 1HFY12 The KSE100 index closed the half-year at 11,348 down 9.19% for the period. The daily average trading volumes stayed dismal at 60mn shares, down 35% from the same period in Weak macro fundamentals, increasingly volatile political scenario and lack of clarity on the issue of Capital Gains Tax (CGT) compelled local investors to sit at the sidelines this year. Foreign investors, plagued by EU debt crisis and falling value of USDPKR rate fled the local market, resulting in a net outflow of USD 152mn while in the same period of 2010, the local market saw a net inflow of USD 238mn. Corporate earnings for the period ending Dec '11 have been in-line with expectations thus far, and investor sentiment has improved to some extent in the hopes of some relaxation in the current CGT regime. Another trigger has been the issuance of a new TFC which would reduce the burden of "circular debt" and enhance dividend payouts in the energy chain companies. At a forward PE of 6.6x, the market continues to be attractive on a relative valuation basis (Historical average: 8x India: 13.6x China: 8.2x). Earnings season for the period ending December '11 is still underway. Banking sector is expected to report impressive earnings on the back of higher investment income and healthy spreads. Refineries are also expected to post solid earnings growth because of the rise in their gross refining margins. Fertilizer and cement manufacturers have posted a strong set of earnings this year mainly due to a surge in fertilizer and cement prices which has enhanced their profit margins. Auto-manufacturers will benefit from higher volumetric sales and improved capacity utilization during the period. Oil & Gas producers will benefit from higher product prices. Oil marketing companies' earnings would be propped-up by inventory gains. International equity markets recorded dismal performance during the period as they reflected the trouble brewing on the global economic front. Investors exited risky investments such as equities and shifted to safer avenues like Gold and treasuries. Amongst the developed markets, the US fared comparatively better than Europe due to a robust growth in holiday retail sales and the EU debt crisis. Emerging markets (Sensex: % Shanghai: %) suffered from heightened risk aversion amongst investors and on concerns regarding sustainability of the high GDP growth rates and rising inflation in the region. UBL ISLAMIC SAVINGS FUND (UISF): UBL Islamic Savings Fund continued to receive significant investor interest during 1HFY12, with its net assets rising by 49% to PKR 3.7bn since Sepend. The Fund Manager generated excess return of 4.03% during the period as the fund's return stood at 11.94% p.a., outperforming the benchmark return of 7.91% p.a. The Fund Manager has deployed excess cash towards Ijara Sukuk and placements in highlyrated banks/dfis in order to take advantage of the attractive yields in these investment avenues. UISF Benchmark 1HFY'12 Return: 11.94% p.a % p.a. Standard Deviation (12m Rolling): 0.11% 0.08% Sharpe Ratio (12m Rolling):

6 Half Yearly Report December 2011 Asset Allocation (% of NAV) GOP Ijarah Sukuk Cash Others Placements with Banks & DFIs Oct'11 54% 43% 3% 0% Portfolio Quality Nov'11 53% 45% 2% 0% Dec'11 62% 27% 1% 11% to 52% on account of principal payments by a major issuer as well as incremental provisioning on an issuer undergoing restructuring. The proceeds from the principal payments have been invested in GoP Ijara Sukuk, which offer an attractive risk-adjusted return. The Ijara Sukuks combined with the cash position stands of 6% (of net assets) provide the fund with ample liquidity which should provide a reasonable amount of comfort to investors. UIIF Benchmark 1HFY'12 Return: % p.a. 9.08% p.a. Standard Deviation (12m Trailing): 15.93% % Sharpe Ratio (12m Trailing): UISF vs. Benchmark Asset Allocation (% of NAV) Sukuks Gop Ijara Sukuk Cash Others Placements with Bank & DFIs Leverage Oct'11 68% 11% 19% 2% - - Nov'11 68% 11% 20% 1% - - Dec'11 52% 21% 20% 6% - - Portfolio Quality The Fund earned a net income of PKR million for the half-year ended December 31, 2011 which mainly includes profit on bank balances and GoP securities. Net asset of the Fund stood at PKR 3.72 billion as at December 31, 2011 representing net asset value of PKR per unit. UIIF vs. Benchmark JCR-VIS Credit Rating Company Limited (JCR- VIS) has assigned AA- (f) rating to the Fund. UNITED ISLAMIC INCOME FUND (UIIF): During 1HFY'12, the Fund manager focused solely on maintaining the quality and liquidity of the portfolio at a comfortable level, while working to resolve restructuring issues surrounding various corporate sukuks. The Fund's return stayed subdued during the period at % p.a. The concerns regarding sukuk pricing have impacted all long-term Islamic income funds in the market, leading to weak performance across the entire Islamic income mutual fund category. Exposure to corporate sukuks was reduced substantially The Fund suffered a net loss of PKR million for the half-year ended December 31, 2011 (including provision of PKR million -net against nonperforming debt investments) as against a net income of PKR million for the same period last year. Net assets of the Fund stood at PKR million as at December 31, JCR-VIS Credit Rating Company Limited (JCR- VIS) has assigned BBB- (f) rating to the Fund. 04

7 Half Yearly Report December 2011 UNITED COMPOSITE ISLAMIC FUND (UCIF): During 1HFY'12 the Fund generated a return of 0.06%, versus benchmark return of 0.95%. After enhancing equity exposure to 71% intra-period, the fund manager gradually reduced exposure to 64% due to a deterioration in fundamentals of some blue-chips companies. The sukuk exposure was reduced slightly to 20% (of net assets) during the period, while 5% exposure was taken in GoP Ijarah sukuk in the month of December. The Fund's major exposure was concentrated in Chemicals, Oil & Gas, Chemicals, and Electricity sectors - all of which offer high-dividend yields and opportunity for capital gains. The Fund's exposure to international markets was liquidated during early part of the fiscal year due to heightened risk of a double-dip recession in the global economy. Increase in cash holdings would give the fund manager more room to take advantage of investment opportunities as and when they arise in the future. UCIF Benchmark 1HFY'12 Return: 0.06% 0. 95% Standard Deviation (12m Trailing): 12.22% % Sharpe Ratio (12m Trailing): Asset Allocation (% of NAV) Equities Sukuks International Investments Cash & Equivalents Leverage Oct'11 71% 22% - 8% - Nov'11 69% 20% - 10% - UCIF vs. Benchmark Dec'11 64% 20% 5% 11% - The Fund suffered a net loss of Rs million for the period ended December 31, 2011, (including provision of PKR million -net against nonperforming debt investments) as compared to a net income of Rs million during the same period last year. The Fund has earned unrealized loss amounting to PKR million as compared to a net unrealized gain of Rs million during the same period last year. As at December 31, 2011, net assets of the Fund were PKR 459 million representing the net asset value of PKR per unit. JCR-VIS Credit Rating Company Limited (JCR- VIS) has assigned an MFR 3-star ranking to the Fund. Outlook Economic growth in FY12 is likely to be anemic at best, with high probability of missing the GoP's initial target of 4.2%. Agricultural output would post a marginal recovery in FY12. International cotton prices have declined from the highs witnessed last year, and although wheat support price has been increased by 10.5%, this is not sufficient to cover the increase in fertilizer and energy costs. A modest improvement in LSM production is likely in 2HFY12; however this would be contingent upon sufficient and stable gas supply to the industrial sector. CPI inflation is likely to accelerate mainly due to the rise in international oil prices. The country's balance of payments position is at risk of further deterioration on account of lackluster cotton prices and a lack of foreign inflows. The IMF has recently released a scathing report on the Pakistani economy, which would be a significant deterrent to any major inflow of loans/aid from other lender/donor agencies. However, continued growth in remittances and the sale of 3G licenses would provide some support to the external account position. Forex reserves and USDPKR parity are likely to come under pressure as the IMF repayments are scheduled to begin in As for the local equity market, the benchmark KSE100-Index is trading at Price to Earning (PE) (12E) of 6.6x, which is below the historical average of 8.0x - 8.5x. This indicates that the equity market is currently at historically cheap levels. Corporate results are likely to be impressive which would be a key driver for gains in the market. On the global front, the US economy has shown some signs of improvement with their unemployment rate falling below 9%. Europe would continue to face significant headwinds due to the lingering debt crisis, and would be a key factor in stifling a global economic recovery. China and India would continue to drive growth in the global economy; however, the 05

8 Half Yearly Report December 2011 recent tightening of monetary policy in these states would reduce the pace of growth in the year ahead. FOR & ON BEHALF OF THE BOARD Acknowledgements We would like to thank our valued unit holders for their confidence and trust in UBL Fund Managers Limited. In addition, we would like to acknowledge the Securities and Exchange Commission of Pakistan, State Bank of Pakistan, Central Depository Company of Pakistan Limited (Trustee) and Shariah Advisory Board for their continued support, guidance and cooperation. The Board also likes to take this opportunity to express its appreciation to the employees for their dedication, commitment, enthusiasm and hard work. MIR MUHAMMAD ALI, CFA CHIEF EXECUTIVE Karachi, Dated: February 28,

9 INVESTMENT OBJECTIVE UBL Islamic Savings Fund ia an open-end Shariah Compliant Income Fund which aims to provide a competitive return with a moderate level of risk to its investors by investing in Shariah Compliant fixed income securities / instruments. FUND INFORMATION Management Company Trustee Distribution Company Auditors Legal Advisor Bankers UBL Fund Managers Limited Central Depository Company of Pakistan Limited 99-B, Block-B, S.M.C.H.S., Main Shahra-e-Faisal, Karachi. Tel: (9221) United Bank Limited (for detail of others, visit Ernst & Young Ford Rhodes Sidat Hyder - (Chartered Accountants) Akund Forbes United Bank Limited Bank Al Falah Limited Meezan Bank Limited Standard Chartered Bank Limited Al Baraka Islamic Bank Deutsche Bank A.G. Faysal Bank Limited Habib Metropolitan Bank Limited Bank Al-Habib Limited 07

10 Half Yearly Report December UBL Islamic Savings Fund TRUSTEE REPORT TO THE UNIT HOLDERS UBL ISLAMIC SAVINGS FUND Report of the Trustee pursuant to Regulation 41(h) of the Non-Banking Finance Companies and Notified Entities Regulations, 2008 We Central Depository Company of Pakistan Limited, being the Trustee of UBL Islamic Savings Fund (the Fund) are of the opinion that UBL Fund Managers Limited being the Management Company of the Fund has in all material respects managed the Fund during the six months period ended December 31, 2011 in accordance with the provisions of the following: (i) (ii) (iii) Limitations imposed on the investment powers of the Management Company under the constitutive documents of the Fund; The pricing, issuance and redemption of units are carried out in accordance with the requirements of the constitutive documents of the Fund; and 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. Muhammad Hanif Jakhura Chief Executive Officer Central Depository Company of Pakistan Limited Karachi: February 28,

11 Half Yearly Report December UBL Islamic Savings Fund Introduction AUDITORS' REPORT TO THE UNIT HOLDERS ON REVIEW OF INTERIM FINANCIAL INFORMATION We have reviewed the accompanying condensed interim Statement of Assets and Liabilities of UBL Islamic Savings Fund (the Fund) as at 31 December 2011, and the related condensed interim Income Statement, condensed interim Statement of Comprehensive Income, condensed interim Distribution Statement, condensed interim Cash Flow Statement and condensed interim Statement of Movement in Unit Holders' Funds for the period then ended together with the notes forming part thereof (here-in-after referred to as the "interim financial information"). Management Company is responsible for the preparation and presentation of this interim financial information in accordance with approved accounting standards as applicable in Pakistan for interim financial reporting. Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of Review We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not prepared, in all material respects, in accordance with approved accounting standards as applicable in Pakistan for interim financial reporting. Chartered Accountants Date: February 28, 2012 Karachi 09

12 Half Yearly Report December UBL Islamic Savings Fund CONDENSED INTERIM STATEMENT OF ASSETS AND LIABILITIES AS AT DECEMBER 31, 2011 (Un-audited) (Audited) December 31, June 30, Note (Rupees in '000) Assets Bank balances 4 998, ,314 Term deposit musharaka 5 400,000 - Investments 6 2,299,566 1,365,387 Accrued profit / mark-up 7 40,662 39,437 Deferred formation cost 991 1,121 Deposits, prepayments and other receivables 5 - Total assets 3,740,191 2,301,259 Liabilities Payable to the Management Company 2, Remuneration payable to the Trustee Annual fee payable to Securities and Exchange Commission of Pakistan Payable against redemption of units 17,350 12,074 Dividend payable - 101,831 Accrued and other liabilities Total liabilities 21, ,949 Net assets 3,718,430 2,185,310 Contingency 8 Unit holders' fund 3,718,430 2,185, (Numbers) Number of units in issue 35,071,854 21,817, (Rupees) Net assets value per unit The annexed notes from 1 to 16 form an integral part of these condensed interim financial statements. For UBL Fund Managers Limited (Management Company) Mir Muhammad Ali, CFA Chief Executive Saeed Iqbal Director 10

13 Half Yearly Report December UBL Islamic Savings Fund CONDENSED INTERIM INCOME STATEMENT For the half year and quarter ended December 31, 2011 (un-audited) From November Half year ended Quarter ended 07, 2010 to December 31, December 31, December 31, Note (Rupees in '000) Income Profit / mark-up income ,050 80,046 14,192 Capital gain on sale of investments 7,356 3, ,406 83,333 14,192 Expenses Remuneration to the Management Company 12,318 6,614 1,123 Sales tax on management fee 9 1,971 1,058 - Remuneration to the Trustee 1, Annual fee to Securities and Exchange Commission of Pakistan Bank charges Auditors' remuneration Amortisation of formation cost Settlement charges Listing fee Others Total operating expenses 17,465 9,413 1,791 Net income from operating activities 142,941 73,920 12,401 Element of gain and capital gains included in prices of units sold less those in units redeemed - net 66,737 61,521 7,843 Net income for the period 209, ,441 20,244 The annexed notes from 1 to 16 form an integral part of these condensed interim financial statements. For UBL Fund Managers Limited (Management Company) Mir Muhammad Ali, CFA Chief Executive Saeed Iqbal Director 11

14 Half Yearly Report December UBL Islamic Savings Fund CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME For the half year and quarter ended December 31, 2011 (un-audited) From November Half year ended Quarter ended 07, 2010 to December 31, December 31, December 31, (Rupees in '000) Net income for the period 209, ,441 20,244 Other comprehensive income Unrealised (loss) / gain on available-for-sale investments (3,013) (500) 460 Total comprehensive income for the period 206, ,941 20,704 The annexed notes from 1 to 16 form an integral part of these condensed interim financial statements. For UBL Fund Managers Limited (Management Company) Mir Muhammad Ali, CFA Chief Executive Saeed Iqbal Director 12

15 Half Yearly Report December UBL Islamic Savings Fund CONDENSED INTERIM DISTRIBUTION STATEMENT For the half year and quarter ended December 31, 2011 (un-audited) From November Half year ended Quarter ended 07, 2010 to December 31, December 31, December 31, (Rupees in '000) Undistributed income brought forward 3,970 78,207 - Net income for the period 209, ,441 20,244 Undistributed income carried forward 213, ,648 20,244 The annexed notes from 1 to 16 form an integral part of these condensed interim financial statements. For UBL Fund Managers Limited (Management Company) Mir Muhammad Ali, CFA Chief Executive Saeed Iqbal Director 13

16 Half Yearly Report December UBL Islamic Savings Fund CONDENSED INTERIM CASH FLOW STATEMENT For the half year and quarter ended December 31, 2011 (un-audited) From November Half year ended 07, 2010 to December 31, December 31, (Rupees in '000) CASH FLOWS FROM OPERATING ACTIVITIES Net income for the period 209,678 20,244 Adjustments for: Profit on bank balances and investments 153,050 (14,192) Amortization of formation cost Element of gain and capital gains included in prices of units issued less those in units redeemed - net (66,737) (7,843) 86,443 (21,996) Increase in assets Investments (937,192) (759,090) Deposits, prepayments and other receivables (5) (119) (937,197) (759,209) Increase / (decrease) in liabilities Remuneration payable to the Management Company 2, Remuneration payable to the Trustee Annual fee payable to Securities and Exchange Commission of Pakistan (492) 84 Payable against redemption of units 5,276 1,490 Dividend payable (101,831) - Accrued and other liabilities (94,188) 2,336 Profit paid (154,275) (1,498) Net cash used in operating activities (889,539) (760,123) CASH FLOWS FROM FINANCING ACTIVITIES Receipts from issuance of units 2,044,627 1,268,765 Payments against redemption of units (651,435) (43,267) Net cash flows from financing activities 1,393,192 1,225,498 Net increase in cash and cash equivalents 503, ,375 Cash and cash equivalents at beginning of the period 895,314 - Cash and cash equivalents at end of the period 1,398, ,375 CASH AND CASH EQUIVALENTS Bank balances 998, ,375 Term deposit musharaka 400,000-1,398, ,375 The annexed notes from 1 to 16 form an integral part of these condensed interim financial statements. For UBL Fund Managers Limited (Management Company) Mir Muhammad Ali, CFA Chief Executive Saeed Iqbal Director 14

17 Half Yearly Report December UBL Islamic Savings Fund CONDENSED INTERIM STATEMENT OF MOVEMENT IN UNIT HOLDERS' FUND For the half year and quarter ended December 31, 2011 (un-audited) From November Half year ended Quarter ended 07, 2010 to December 31, December 31, December 31, (Rupees in '000) Net assets at the beginning of the period 2,185,310 2,489,176 - Cash received on issuance of units * 2,044,627 1,625,893 1,268,765 Cash paid / payable on redemption of units ** (651,435) (470,059) (43,267) 1,393,192 1,155,834 1,225,498 3,578,502 3,645,010 1,225,498 Element of gain and capital gains included in prices of units sold less those in units redeemed - net (66,737) (61,521) (7,843) Unrealised (loss) / gain on available-for-sale investments (3,013) (500) 460 Net income for the period 209, ,441 20,244 Net assets as at end of the period 3,718,430 3,718,430 1,238, (Number of units) * Number of units issued 19,546,820 15,439,980 12,606,180 ** Number of units redeemed 6,292,404 4,503, ,632 The annexed notes from 1 to 16 form an integral part of these condensed interim financial statements. For UBL Fund Managers Limited (Management Company) Mir Muhammad Ali, CFA Chief Executive Saeed Iqbal Director 15

18 Half Yearly Report December UBL Islamic Savings Fund NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS For the half year ended December 31, 2011 (un-audited) LEGAL STATUS AND NATURE OF BUSINESS 1.1 UBL Islamic Savings Fund (the Fund) was established under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the NBFC Rules) and Non-Banking Finance Companies and Notified Entities Regulations, 2008 (NBFC Regulations) as an open-end mutual fund. It was constituted under the Trust Deed dated August 25, 2010 executed between UBL Fund Managers Limited (a wholly owned subsidiary of United Bank Limited) as the Management Company, a company incorporated under Companies Ordinance, 1984 and Central Depository Company of Pakistan Limited as the Trustee. The Trust Deed has also been approved by the Securities and Exchange Commission of Pakistan (SECP). The registered office of the Management Company is situated at the 8th Floor, State Life Building No. 1, I.I. Chundrigar Road, Karachi, Pakistan. 1.2 The Management Company of the Fund is registered with the SECP as a Non-Banking Finance Company under the NBFC Rules. 1.3 The Fund is listed on the Islamabad Stock Exchange (Guarantee) Limited. Units are offered for public subscription on a continuous basis. The units are transferable and can also be redeemed by surrendering them to the Fund at the option of the unit holder. The Fund is categorised as an open-end shariah compliant (Islamic) income scheme in accordance with Circular 7 of 2009 issued by SECP. 1.4 The Fund has been formed to provide a competitive rate of return with a moderate level of risk to its investors by investing in designated authorised investments approved by the Shariah Advisor Board. Under provisions of the Trust Deed, all activities of the Fund shall be undertaken in accordance with the Shariah. 2. BASIS OF PRESENTATION 2.1 The condensed interim financial statements have been prepared in accordance with the requirements of International Accounting Standard 34: Interim Financial Reporting, the Trust Deed, the NBFC Rules, Non- Banking Finance Companies and Notified Entities Regulations, 2008 (NBFC Regulations) and directives issued by SECP. In case where requirements differ, the requirements of the Trust Deed, the NBFC Rules, the NBFC Regulations or the directives issued by the SECP prevail. 2.2 These condensed interim financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the financial statements of the Fund for the period ended June 30, These condensed interim financial statements are un-audited but subject to limited scope review by the auditors. 2.4 The condensed interim financial statements are presented in Pakistani Rupees which is the Fund's functional currency. 2.5 The directors of the Asset Management Company declare that this condensed interim financial information give a true and fair view of the Fund. 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted for the preparation of these condensed interim financial statements are consistent with those followed in the preparation of the financial statements of the Fund for the period ended June 30, 2011 except for the following amended IFRS and IFRIC interpretations which became effective during the period as mentioned in note 3.1 below: 3.1 New and amended standards and interpretations During the period, following amendments, interpretations and improvements to the accounting standards became effective: 16

19 Half Yearly Report December UBL Islamic Savings Fund - IFRS 7 Financial Instruments: Disclosures - IAS 24 Related Party Disclosures (Revised) - IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment) In May 2010, International Accounting Standards Board (IASB) issued amendments to various standards primarily with a view to removing inconsistencies and clarifying wording. These improvements are listed below: IFRS 7 Financial Instrument Disclosures - Clarification of disclosures IAS 1 Presentation of Financial Statements - Clarification on statement of changes in equity IAS 34 Interim Financial Reporting - Significant events and transactions IFRIC 13 Customer Loyalty Programmes - Fair value of award credits The adoption of the above standards, amendments / improvements and interpretations did not have any material effect on these condensed interim financial statements. Certain additional disclosures have, however, been made in the condensed interim financial statements. The financial risk management objectives and policies are consistent with those disclosed in the annual financial statements of the Fund for the period ended June 30, BANK BALANCES Note (Un-audited) (Audited) December 31, June 30, (Rupees in '000) PLS saving accounts 4.1 & , ,232 Current accounts 4,075 9, , , Profit rates on PLS saving accounts range between 5.00% and 11.50% per annum (June 30, 2011: 5.23% and 12.70% per annum). 4.2 This includes Rs million (June 30, 2011: Rs million) with a related party on which return is earned at 11% per annum (June 30, 2011: 12.70% per annum). 5. TERM DEPOSIT MUSHARAKA Note (Un-audited) (Audited) December 31, June 30, (Rupees in '000) With a commercial bank , The Term Deposit Musharaka (TDM) carry profit at rates ranging between 11.85% and 12.65% (June 30, 2011: Nil) per annum with maturities upto 3 months (June 30, 2011: Nil). 17

20 Half Yearly Report December UBL Islamic Savings Fund Note (Un-audited) (Audited) December 31, June 30, (Rupees in '000) INVESTMENTS 6.1 2,299,566 1,365, Available-for-sale - government securities (Sukuk certificates of Rs.100,000 each) Sold / matured during the Carrying value as at December 31, As at Purchased Balance as at Carrying value July 01, during the December 31, as at June 30, % of 2011 period period investment Note (Number of holdings) (Rupees in '000) Government of Pakistan Ijarah Sukuk III 3 Year , % Ijarah Sukuk V 3 Year , ,000 4, , , % Ijarah Sukuk VI 3 Year , ,500 2, , , % Ijarah Sukuk VII 3 Year ,500 3,500 4,500 1, , , % Ijarah Sukuk VIII 3 Year , ,060 2, , , % Ijarah Sukuk IX 5 Year ,500-11,500 1,150, % 13,650 17,650 8,310 22,990 2,299,566 1,365, % These Ijarah sukuk certificates have face value of Rs.25 million and were issued in September These carry profit equal to the latest weighted average yield of six-month Market Treasury Bills (MTBs) per annum, receivable semi-annually in arrears with no floor or cap and will mature in September These sukuk certificates carry the sovereign guarantee of the Government of Pakistan and are redeemable in full on maturity. At December 31, 2011, profit at 13.23% per annum (June 30, 2011: Nil) was due on these sukuk certificates These Ijarah sukuk certificates have face value of Rs.425 million and were issued in November These carry profit equal to the latest weighted average yield of six-month Market Treasury Bills (MTBs) per annum, receivable semi-annually in arrears with no floor or cap and will mature in November These sukuk certificates carry the sovereign guarantee of the Government of Pakistan and are redeemable in full on maturity. At December 31, 2011, profit at 11.79% per annum (June 30, 2011: 13.45% per annum) was due on these sukuk certificates These Ijarah sukuk certificates have face value of Rs.295 million and were issued in December These carry profit equal to the latest weighted average yield of six-month Market Treasury Bills (MTBs) per annum, receivable semi-annually in arrears with no floor or cap and will mature in December These sukuk certificates carry the sovereign guarantee of the Government of Pakistan and are redeemable in full on maturity. At December 31, 2011, profit at 13.71% per annum (June 30, 2011: 13.71% per annum) was due on these sukuk certificates These Ijarah sukuk certificates have face value of Rs.150 million and were issued in March These carry profit equal to the latest weighted average yield of six-month Market Treasury Bills (MTBs) per annum, receivable semi-annually in arrears with no floor or cap and will mature in March These sukuk certificates carry the sovereign guarantee of the Government of Pakistan and are redeemable in full on maturity. At December 31, 2011, profit at 13.28% per annum (June 30, 2011: 13.68% per annum) was due on these sukuk certificates These Ijarah sukuk certificates have face value of Rs.254 million and were issued in May These carry profit equal to the latest weighted average yield of six-month Market Treasury Bills (MTBs) per annum, receivable semi-annually in arrears with no floor or cap and will mature in May These sukuk certificates carry the sovereign guarantee of the Government of Pakistan and are redeemable in full on maturity. At June 30, 2011, profit at 11.79% per annum (June 30, 2011: 13.45% per annum) was due on these sukuk certificates. 18

21 Half Yearly Report December UBL Islamic Savings Fund These Ijarah sukuk certificates have face value of Rs.1,150 million and were issued in December These carry profit equal to the latest weighted average yield of six-month Market Treasury Bills (MTBs) per annum, receivable semi-annually in arrears with no floor or cap and will mature in December These sukuk certificates carry the sovereign guarantee of the Government of Pakistan and are redeemable in full on maturity. At December 31, 2011 profit at 11.94% per annum (June 30, 2011: Nil) was due on these sukuk certificates The cost of government securities is Rs.2,302 million (June 30, 2011: Rs.1,366 million). 7. ACCRUED PROFIT / MARK-UP (Un-audited) (Audited) December 31, June 30, (Rupees in '000) On - Bank balances 18,108 14,505 - GOP Ijarah Sukuks 21,104 24,932 - Term deposit musharaka 1,450-40,662 39, CONTINGENCY - WORKERS' WELFARE FUND The Finance Act, 2008 introduced an amendment to the Workers' Welfare Fund Ordinance, 1971 (WWF Ordinance). As a result of this amendment it may be construed that all Collective Investment Schemes / mutual funds (CISs) whose income exceeds Rs.0.5 million in a tax year, have been brought within the scope of the 'WWF Ordinance, thus rendering them liable to pay contribution to WWF at the rate of two percent of their accounting or taxable income, whichever is higher. In this regard, a constitutional petition has been filed by certain CISs through their trustees in the Honourable High Court of Sindh (SHC), challenging the applicability of WWF to the CISs, which is pending adjudication. In July 2010, a clarification was issued by the Ministry of Labour and Manpower (the Ministry) which stated that mutual funds are not liable to contribute to WWF on the basis of their income. This clarification was forwarded by Federal Board of Revenue (FBR) (being the collecting agency of WWF on behalf of the Ministry) to its members for necessary action through letter dated October 06, Based on this clarification, the FBR also withdrew notice of demand which it had earlier issued to one of the mutual funds for collection of WWF. Notices of demand have also been issued to several other mutual funds and the matter has been taken up by the respective mutual funds with the FBR for their withdrawal on the basis of the above referred clarification of the Ministry. However, the Secretary (Income Tax Policy) Federal Board of Revenue vide letter dated January 04, 2011 subsequently cancelled ab-initio the clarification letter dated October 06, 2010 on applicability of WWF on mutual funds. On December 14, 2010, the Ministry had filed its response against the constitutional petition requesting the SHC to dismiss the petition. According to the legal counsel who is handling the case, there is a contradiction between the aforementioned clarification issued by the Ministry and the response filed by the Ministry in the SHC. During the current period, the Honorable Lahore High Court (LHC) in a similar constitutional petition relating to the amendments brought in the WWF Ordinance, 1971 through the Finance Act, 2006, and the Finance Act, 2008, has declared the said amendments as unlawful and unconstitutional. The Management Company is hopeful that the decision of the LHC, will lend further support to the constitutional petition which is pending in the SHC. Based on the above, the Management Company believes that the Fund is not liable to contribute to WWF. The unrecognised amount of WWF as at December 31, 2011 amounts to Rs.7.42 million (June 30, 2011: Rs.3.23 million). 19

22 Half Yearly Report December UBL Islamic Savings Fund 9. SALES TAX ON MANAGEMENT FEE During the current period, an amount of Rs.1.97 million was charged on account of sales tax on management fee levied through Sindh Sales Tax on Services Act, 2011 effective from July 01, TAXATION The income of the Fund is exempt from taxation under clause 99 of Part I of the Second Schedule to the Income Tax Ordinance, 2001, subject to the condition that not less than 90% of its accounting income excluding realised and unrealised capital gains for the year is distributed amongst the Fund s unit holders. Accordingly, the Fund has not recorded a tax liability in respect of income relating to the current period as the Fund intends to avail this exemption. The Fund is also exempt from the provisions of section 113 (minimum tax) under clause 11 A of Part IV of the Second Schedule to the Income Tax Ordinance, PROFIT / MARK-UP INCOME Half year ended Quarter ended December 31, December 31, (Rupees in '000) From November 07, 2010 to December 31, 2010 On - Bank balances - Term deposit musharaka - GOP Ijarah Sukuks 52,707 6,057 94, ,050 29,924 3,744 46,378 80,046 4,913-9,279 14, TRANSACTIONS WITH CONNECTED PERSONS / RELATED PARTIES Related parties / connected persons include UBL Fund Managers Limited (the management company), United Bank Limited (holding company of the management company), UBL Liquidity Plus Fund (ULPF), UBL Government Securities Fund (UGSF), United Growth & Income Fund (UGIF), United Stock Advantage Fund (USF), United Composite Islamic Fund (UCIF), United Islamic Income Fund (UIIF), UBL Capital Protected Fund-II (UCPF-II), UBL Retirement Saving Funds (URSF), UBL Islamic Retirement Savings Funds (UIRSF), UBL Islamic Savings Fund (UISF) and UBL Savings Income Fund (USIF) (funds managed by the management company), Central Depository Company of Pakistan Limited (CDC) as Trustee. United National Bank Limited, United Bank AG Zurich, United Executors and Trustee Company Limited, Oman Exchange Comapny LLC. UBL Insurers Limited, UBL Fund Managers Limited Employees Provident Fund, UBL Fund Managers Limited Gratuity Fund, UBL Employees Provident Fund Trust, UBL Employees Gratuity Fund Trust, UBL Staff General Provident Fund Trust, UBL Officers / Non-Officers Benefits Fund, Pakistan Petroleum Limited, Meezan Bank Limited, Engro Corporation Limited, Engro Fertilizers Limited, Engro Polymer & Chemical Limited, Engro Powergen Qadirpur Limited (Formerly Engro Energy Limited), Sindh Engro Coal Mining Company Limited, National Bank of Pakistan, Byco Petroleum Limited, Byco Oil Pakistan Limited, Central Insurance Company Limited, key management personnel of the management company, etc. (refer below for details). Remuneration payable to the Management Company and the Trustee are determined in accordance with the provisions of Non-Banking Finance Companies and Notified Entities Regulations, 2008, and the Trust Deed, respectively. 20

23 Half Yearly Report December UBL Islamic Savings Fund 12.1 Units sold to: From November From November Half year ended 07, 2010 to Half year ended 07, 2010 to December 31, December 31, December 31, December 31, (Units in 000) (Rupees in 000) Associated undertakings - United Bank Limited 9, ,267 - UBL Fund Managers Limited 2, ,000 70,254 - UBL Ameen ,000 - UBL Insurers Limited - UBL Insurers Limited Employee Provident Fund Trust 39-4, UBL Insurers Limited Employee Gratuity Fund 21-2, Meezan Bank Limited 13-1,364 - Other related parties - Directors and executives of the management company ,043 2, Units redeemed by: Associated undertakings - UBL Fund Managers Limited ,000 25,000 - UBL Insurers Limited 2, ,000 - Other related parties - Directors and executives of the management company , Units held by: December 31, June 30, December 31, June 30, (Units in '000) (Rupees in '000) Associated undertakings - United Bank Limited 12,311 5,721 1,305, ,035 - UBL Fund Managers Limited ,629 23,338 - UBL Insurers Limited ,382 - UBL Insurers Limited - UBL Insurers Limited Employee Provident Fund Trust 39-4, UBL Insurers Limited Employee Gratuity Fund 21-2, UBL Fund Managers Limited - UBL Fund Managers Limited Employees Gratuity Fund 66-6, UBL Fund Managers Limited Employees Provident Fund , Meezan Bank Limited 7, ,945 - Other related parties - Directors and executives of the Management Company ,920 9,916 21

24 Half Yearly Report December UBL Islamic Savings Fund Half year ended Quarter ended From November From November 07, 2010 to 07, 2010 to December 31, December 31, December 31, December 31, (Rupees in '000) (Rupees in '000) Other transactions Associated undertakings United Bank Limited - holding company of the management company - Bank charges Securities purchased during the period 150, , Securities sold during the period 101, , Profit earned on bank balances 34, , Other related parties - Remuneration to the management company 14,289 1,123 13,590 1,123 - Remuneration to the Trustee 1, , Meezan Bank Limited - Securities purchased during the period 1,000, Profit earned on bank balances Balances related party - unsecured December 31, June 30, (Rupees '000) Balances with associated undertakings - unsecured United Bank Limited - GOP Ijarah Sukuk Certificates Purchased 150, GOP Ijarah Sukuk Certificates Sold 105, Bank balance 327, ,187 - Profit receivable on bank deposits 4,504 3,465 Balances with other related parties - unsecured Management Company - Remuneration payable to the Management Company 2, Other Payable to Management Company Trustee - Remuneration payable to the Trustee Security deposit - - Deutsche Bank-Sub-Custodian - Bank balances Meezan Bank Limited - Bank balances 3,

25 Half Yearly Report December UBL Islamic Savings Fund 13. FAIR VALUE HIERARCHY The Fund uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted prices in active markets for identical assets. Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. As at December 31, 2011, the Fund held the following financial instruments measured at fair value: December 31, 2011 Level 1 Level 2 Level 3 Total (Rupees) Investments - available-for-sale Government Securities - 2,299,566-2,299,566-2,299,566-2,299,566 As at June 30, 2011, the Fund held the following financial instruments measured at fair value: June 30, 2011 Level 1 Level 2 Level 3 Total (Rupees) Investments - available-for-sale Government Securities - 1,365,387-1,365,387-1,365,387-1,365,387 During the half year ended December 31, 2011, there were no transfers between level 1 and level 2 fair value measurements, and no transfers into and out of level 3 fair value measurements. 14. SUBSEQUENT EVENT The Chief Executive Officer on behalf of the Board of Directors of the Management Company has declared an interim payout at the rate of 6.39% (i.e. Rs.6.4 per unit) on January 19, These condensed interim financial statements of the Fund for the half year ended December 31, 2011 do not include the effect of the payout which will be accounted for in the financial statements of the Fund subsequent to the period end. 15. DATE OF AUTHORISATION FOR ISSUE These condensed interim financial statements were authorised for issue by Board of Directors of the Management Company on February 28, GENERAL 16.1 Figures for the quarter ended December 31, 2011 and the corresponding figures for the quarter ended December 31, 2010 as reported in these condensed interim financial statements have not been subject to limited scope review by the external auditors Figures have been rounded off to the nearest thousand rupee. For UBL Fund Managers Limited (Management Company) Mir Muhammad Ali, CFA Chief Executive Saeed Iqbal Director 23

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27 INVESTMENT OBJECTIVE UIIF is an open-end Shariah Compliant Aggressive Fixed Income Fund which invests in medium to long-term income instruments as well as short-tenor money market instruments to generate superior, long-term, risk adjusted returns while preserving capital over the long-term. FUND INFORMATION Management Company Trustee Distribution Company Auditors Legal Advisor Bankers UBL Fund Managers Limited Central Depository Company of Pakistan Limited 99-B, Block-B, S.M.C.H.S., Main Shahra-e-Faisal, Karachi. Tel: (9221) United Bank Limited (for detail of others, please visit our website: KPMG Taseer Hadi & Co, Chartered Accountants Mohsin Tayebaly & Co. United Bank Limited Bank Alfalah Limited Dubai Islamic Bank Limited Habib Metropolitan Bank Standard Chartered Bank Limited Deutsche Bank A.G. Meezan Bank Limited HSBC Bank Middle East Limited, Pakistan Al Baraka Islamic Bank 25