Financial Sector Opportunity Fund Financial Statements for the Quarter Ended September 30, 2017
Fund Information Mission Statement Report of the Directors of the Management Company Condensed Interim Statement of Assets and Liabilities Condensed Interim Income Statement Condensed Interim Statement of Comprehensive Income Condensed Interim Cash Flow Statement Condensed Interim Statement of Movement in Unit Holders Fund Notes to the Condensed Interim Financial Information 04 05 06 09 10 11 12 13 14 25
4 Faysal Financial Sector Opportunity Fund Faysal Asset Management Limited Mr. Salman Ahmed Usmani, Chairman Mr. Osman Khan, Director Syed Ibad-Ur-Rehman Chishti, Director Mr. Mohammad Zahid Ahmed, Director Mr. Farooq Hassan, Director Mr. Razi-Ur-Rahman Khan, Director/CEO Chief Financial Officer and Company Secretary of the Management Company Mr. Naved Hanif Mr. Osman Khan, Chairman Syed Ibad-Ur-Rehman Chisti, Member Mr. Farooq Hassan, Member HR Comittee Mr. Osman Khan, Chairman Syed Ibad-Ur-Rehman Chishti, Member Mr. Razi-Ur-Rahman Khan, Member Central Depository Company of Pakistan Limited, Soneri Bank Limited Bank Alfalah Limited Faysal Bank Limited United Bank Limited Allied Bank Limited Standard Chartered Bank Limited JS Bank Limited Habib Bank Limited EY Ford Rhodes, Chartered Accountants
Faysal Financial Sector Opportunity Fund 5
6 Faysal Financial Sector Opportunity Fund The Board of Directors of the Faysal Asset Management Limited, the Management Company of the Faysal Financial Sector Opportunity Fund (FFSOF), is pleased to present the un-audited condensed interim financial information of FFSOF for the quarter ended September 30, 2017. FINANCIAL HIGHLIGHTS Quarter Ended September 30 2017 2016 Total income Operating expenses Net income before tax Element of loss Taxation Net income after tax NAV per unit (Rs. per unit) 2.261 (0.725) 1.536-1.536-1.536 102.47 1.856 (0.641) 1.215 (0.438) 0.777-0.777 101.92 ECONOMIC REVIEW: The China-Pakistan Economic Corridor (CPEC) which is still work-in-progress has already started to help Pakistan climb several rungs on the ladder of global competitiveness and economic progress. Pakistan is a resource-rich and labor abundant economy, but relatively poor infrastructure, acute energy shortfall, low Foreign Direct Investment (FDI) and narrow manufacturing base have created barriers for global integration and industrialization in Pakistan. These bottlenecks have restrained productivity over the years. In such circumstances, the investment of $59 billion under the project of China-Pakistan Economic Corridor (CPEC) is a blessing in disguise that is supposed to revive the economy of Pakistan. When market forces fail to bring convergence in the economy, government intervention to overcome the situation becomes necessary. For Pakistan, this vital role of savior is being played by CPEC, which aims to fulfill the investment saving gap, improve the industrial base and shape the manufacturing sector. Moreover, the LSM Index inclined by 13% YoY during Jul 17, which was the highest since Mar 16. Pakistan s burgeoning youth and their freewheeling attitude toward rising incomes have turned the nation into the world s fastest growing retail market. Bloomberg predicted the market to expand 8.2% per annum through 2016-2021 as disposable income has doubled since 2010, according to research group Euromonitor International. The size of the middle class is estimated to surpass that of the U.K. and Italy in the forecast period, it said. Pakistan s improving security environment, economic expansion at near 5% and cheap consumer prices are driving shoppers to spend up big. Almost two-thirds of the nation s 207.8 million people are aged under 30, according to the Jinnah Institute, an Islamabad-based think tank. Not only that, Pakistan s ranking in terms of Economic Freedom of the World 2017 report has improved by 10 notches and it stood at 127th position out of total 159 countries,
Faysal Financial Sector Opportunity Fund 7 where people are free to pursue their own opportunities and make their own choices, they lead more prosperous, happier and healthier lives. Average CPI based inflation during the first quarter of the current fiscal year (July-September) witnessed increase of 3.39% compared to July-September (2016-17). Furthermore, Economic indicators CAD receded by 73% MoM to USD 550mn in Aug 2017, thus reducing the investors concern on sustainability of Balance of Payments. Moreover, the LSM Index inclined by 13% YoY during Jul 17, which was the highest since Mar 16. FDI escalated to $234 million in Aug 2017, while foreign exchange reserves of the country stood at $20.051 billion. Of course, Pakistan s major problem is growing public debt, as debt services loan installments and interest would consume about 33% of federal revenue. Unprecedented growing public debt, on one hand, limits the capacity to build a strong defensive capability, and on the other hand, limits fiscal space to invest in human development and infrastructure. Pakistan faces challenges of a growing debt burden, fiscal deficit, trade deficit, and current account deficit, which are not of any less importance than the threats to internal and external security. MONEY MARKET REVIEW SBP announced 2 MPS Monetary Policy Statements during 01QFY18 and in both MPS announcements SBP maintained status quo policy rate at 5.75% given the continuously expanding fiscal deficit, rapidly declining exports, decline in remittance inflows and improvement in inflation outlook on the back of improved prices of perishables. During the period Jul 17 Sep 17 money market continued to remain illiquid and SBP conducted eighteen OMO Injections where the total injected amount was PKR 17,619bn and the total participation amount was PKR 18,400bn. The weighted average rate of the injected amount during the said period was 5.77%. During the period under discussion No OMO - Mop up were conducted. SBP conducted 07 T-bill auctions in the 01QFY18 where the total accepted amount was PKR 4,294.28bn where the total stipulated target of SBP was PKR 3,900bn and the cuts offs remained stable over the said period as in last auction cut-offs were; 3M 5.9910%, 6M 6.0109% and 12M 6.0386%. Similarly, during the 01QFY18, one PIB auctions was conducted where SBP realized bids worth PKR 52.41bn against total target of PKR 100bn. The major focus was 3yr followed by 5yr and 10yr by market participants. Moreover, this suit conveyed various investors to foresee SBP s reluctance to accumulate at higher levels, given excess amount borrowed from T-bills. This mindset was clearly witnessed in subsequent two auctions, as both were rejected. Central Directorate of National Savings (CDNS) has proposed launching dollar denominated bond for attracting investment from millions of overseas Pakistanis to generate $500 to $700 million during the current fiscal year to lure small investors working overseas and possessing meager savings. The government is planning to unveil a scheme to attract remittances from abroad. Pakistan s nationalized and commercial banks would be incentivized to establish
8 Faysal Financial Sector Opportunity Fund joint ventures with branches of international banks at selected destinations to lure Pakistanis living abroad to send money through official banking channels. FUND PERFORMANCE Faysal Financial Sector Opportunity Fund generated return of 4.15% during the 1QFY18. By the end of 1QFY18, your fund is invested in cash (74.20%), TFCs (20.01%) and Commercial Papers (4.91%). Going forward your fund would keep analyzing the macroeconomic landscape while investing in debt and fixed income securities with credible credit rating. FUND RANKING Pakistan Credit Rating Agency Limited (PACRA) has awarded the fund stability rating of AA-(f) for Faysal Financial Sector opportunity Fund (FFSOF). This rating denotes high degree of stability in Net Assets Value. ACKNOWLEDGEMENT The Board of Directors of the Management Company thanks the Securities and Exchange Commission of Pakistan for its valuable support, assistance and guidance. The Board also thanks the employees of the Management Company and the Trustee for their dedication and hard work and the unit holders for their confidence in the Management. For and on behalf of the Board Karachi: October 19, 2017 Razi-Ur-Rahman Khan Chief Executive Officer
Faysal Financial Sector Opportunity Fund 9 Condensed Interim Statement of Assets and Liabilities As at September 30, 2017 Assets Note September 30, June 30, 2017 2017 (Un-audited) (Audited) ------------- (Rupees) ------------- Bank balances 5 119,876,976 54,588,940 Investments 6 40,265,248 49,353,858 Deposit and other receivables 1,392,231 2,163,135 Preliminary expenses and floatation costs 312,210 417,425 Total assets 161,846,665 106,523,358 Liabilities Payable to the Management Company 1,197,694 1,473,699 Remuneration payable to the Trustee 24,944 18,674 Accrued and other liabilities 7 1,945,127 1,885,337 Dividend payable - 1,080,608 Total liabilities 3,167,765 4,458,318 Net assets 158,678,900 102,065,040 Unit holders fund (as per the statement attached) 158,678,900 102,065,040 Contingencies and commitments 8 --------- (Number of units) --------- Number of units in issue 1,548,564 1,006,452 ---- (Rupees) ---- Net assets value per unit 102.47 101.41 The annexed notes from 1 to 13 form an integral part of this condensed interim financial information. For Faysal Asset Management Limited (Management Company) Chief Financial Officer Chief Executive Officer Director
10 Faysal Financial Sector Opportunity Fund Condensed Interim Income Statement For the Quarter Ended September 30, 2017 (Un-Audited) For the quarter ended September 30, 2017 2016 Note ------------- (Rupees) ------------- Income Profit earned on debt and government securities - designated 'at fair value through profit or loss' 684,063 1,099,173 Return on certificates of investment and commercial papers classified as 'held to maturity' 154,370 - Return on bank balances and term deposit receipts 1,698,925 959,976 Net (loss) / gain on investments designated 'at fair value through profit or loss' - Net capital (loss) / gain on sale of investments (48,057) 163,313 - Net unrealised loss on revaluation of investments 6.3 (228,503) (366,403) (276,560) (203,090) Total income 2,260,798 1,856,059 Expenses Remuneration of the Management Company 174,674 150,285 Sales tax on Management fee 22,686 19,537 Reimbursement of expenses to the Management Company 33,726 30,060 Remuneration of the Trustee 58,672 51,170 Sales tax on Trustee fee 7,627 6,652 Brokerage charges 3,049 6,000 Bank charges 5,145 4,169 Auditors' remuneration 38,496 134,121 SECP annual fee 7.1 25,678 22,543 Fees and subscription 46,339 52,399 Settlement charges, federal excise duty and capital value tax 117,486 1,135 Amortisation of preliminary expenses and floatation costs 105,215 105,215 Printing charges and other expenses 54,907 57,394 Provision for Sindh Workers' Welfare Fund (SWWF) 7.2 31,322 - Total expenses 725,022 640,680 Net income from operating activities 1,535,776 1,215,379 Element of loss and capital losses included in prices of units sold less those in units redeemed - net - (437,828) Net income for the period before taxation 1,535,776 777,551 Taxation 9 - - Net income for the period after taxation 1,535,776 777,551 Allocation of net income for the period Income already paid on units redeemed (167,022) - 1,368,754 777,551 Accounting income available for distribution - Relating to capital gains - 163,313 - Excluding capital gains 1,368,754 614,238 1,368,754 777,551 The annexed notes from 1 to 13 form an integral part of this condensed interim financial information. For Faysal Asset Management Limited (Management Company) Chief Financial Officer Chief Executive Officer Director
Faysal Financial Sector Opportunity Fund 11 Condensed Interim Statement of Comprehensive Income For the Quarter Ended September 30, 2017 (Un-Audited) For the Quarter ended September 30, 2017 2016 -------- (Rupees) -------- Accounting income available for distribution 1,368,754 777,551 Other comprehensive income for the period - - Total comprehensive income for the period 1,368,754 777,551 The annexed notes from 1 to 13 form an integral part of this condensed interim financial information. For Faysal Asset Management Limited (Management company) Chief Financial Officer Chief Executive Officer Director
12 Faysal Financial Sector Opportunity Fund Condensed Interim Cash Flow Statement For the Quarter Ended September 30, 2017 (Un-Audited) CASH FLOWS FROM OPERATING ACTIVITIES For the quarter ended September 30, 2017 2016 Note ------------- (Rupees) ------------- Net income for the period before taxation 1,535,776 777,551 Adjustments for non-cash and other items: Net loss / (gain) on investments designated 'at fair value through profit or loss' - Net capital loss / (gain) on sale of investments 48,057 (163,313) - Net unrealised loss on revaluation of investments 228,503 366,403 Profit earned on debt and government securities - designated 'at fair value through profit or loss' (684,063) (1,099,173) Return on certificates of investment and commercial papers classified as 'held to maturity' (154,370) - Return on bank balances and term deposit receipts (1,698,925) (959,976) Element of loss and capital losses included in prices of units sold less those in units redeemed - net - 437,828 Amortisation of preliminary expenses and floatation costs 105,215 105,215 (619,807) (535,465) (Increase) / decrease in assets Deposit and other receivables 32,727 (33,518) (Decrease) / increase in liabilities Payable to the Management Company (276,005) (21,291) Remuneration payable to the Trustee 6,270 (17,376) Accrued and other liabilities 59,790 (239,048) (209,945) (277,715) Proceeds from sale / redemption of investments 8,812,050 67,187,943 Profits and returns received 3,275,535 2,764,718 Net cash generated from operating activities 11,290,560 69,105,963 CASH FLOWS FROM FINANCING ACTIVITIES Amounts received against issuance of units 93,734,626 - Payments made against redemption of units (38,656,542) (96,957,852) Dividend paid (1,080,608) - Net cash generated from / (used in) financing activities 53,997,476 (96,957,852) Net increase / (decrease) in cash and cash equivalents during the period 65,288,036 (27,851,889) Cash and cash equivalents at beginning of the period 54,588,940 98,673,464 Cash and cash equivalents at end of the period 5 119,876,976 70,821,575 The annexed notes from 1 to 13 form an integral part of this condensed interim financial information. For Faysal Asset Management Limited (Management Company) Chief Financial Officer Chief Executive Officer Director
Faysal Financial Sector Opportunity Fund 13 Condensed Interim Statement of Movement in Unit Holders Fund For the Quarter Ended September 30, 2017 (Un-Audited) For the quarter ended September 30, 2017 2016 ------------- (Rupees) ------------- Net assets value per unit at beginning of the period 101.41 101.09 Net assets value per unit at end of the period 102.47 101.92 Net assets at beginning of the period 102,065,040 191,135,532 Amounts received against issuance of units* 93,734,626 - Amounts paid against redemption of units** (38,656,542) (96,957,852) 55,078,084 (96,957,852) Element of loss and capital losses included in prices of units sold less those in units redeemed - net - 437,828 Income already paid on units redeemed 167,022 - Total comprehensive income for the year 1,368,754 777,551 Net assets at end of the period 158,678,900 95,393,059 Distribution for the period Undistributed income brought forward - Realised 2,519,291 1,072,649 - Unrealised 315,183 1,442,125 2,834,474 2,514,774 Accounting income available for distribution - Relating to capital gains - 163,313 - Excluding capital gains 1,368,754 614,238 1,368,754 777,551 Undistributed income carried forward 4,203,228 3,292,325 - Realised 4,203,228 2,950,326 - Unrealised - 341,999 4,203,228 3,292,325 --------- (Number of units) --------- * Number of units issued (including Nil bonus units issued during the period ended September 30, 2017 and September 30, 2016) 921,665 - ** Number of units redeemed 379,544 954,793 The annexed notes from 1 to 13 form an integral part of this condensed interim financial information. For Faysal Asset Management Limited (Management Company) Chief Financial Officer Chief Executive Officer Director
14 Faysal Financial Sector Opportunity Fund Notes to the Condensed Interim Financial Information For the Quarter Ended September 30, 2017 (Un-Audited) 1. LEGAL STATUS AND NATURE OF BUSINESS Faysal Financial Sector Opportunity Fund (the Fund) has been established under the Non-Banking Finance Companies (Establishment and Regulation), Rules 2003 (the NBFC Rules) and has been authorised as a unit trust scheme by the Securities and Exchange Commission of Pakistan (SECP) on May 23, 2013. It has been constituted under a Trust Deed, dated May 28, 2013 under the name of Faysal Financial Sector Opportunity Fund between Faysal Asset Management Limited (the Management Company), a company incorporated under the Companies Ordinance, 1984 and Central Depository Company of Pakistan Limited (CDC) as the Trustee, also a company incorporated under the Companies Ordinance, 1984. The Fund is an open ended income fund and offers units for public subscription on a continuous basis. The units are transferable and can also be redeemed by surrendering to the Fund. Title to the assets of the fund are held in the name of CDC as a Trustee of the Fund. The units are listed on the Pakistan Stock Exchange Limited. The Fund was launched on July 03, 2013. The objective of the Fund is to provide a competitive rate of return to its investors by investing in money market and debt instruments with major exposure in financial sector. The Fund is categorised as an "Income Scheme" as per the Circular No.7 of 2009 issued by SECP. The Pakistan Credit Rating Agency Limited (PACRA) has assigned a "AA-(f)" fund stability rating to Faysal Financial Sector Opportunity Fund as of July 12, 2017. JCR - VIS has awarded an "AM3+" asset manager rating to the Management Company as of October 12, 2017. 2. BASIS OF PREPARATION 2.1 This condensed interim financial information of the Fund has been prepared in accordance with the requirements of the International Accounting Standard 34: Interim Financial Reporting the requirements of the Trust Deed, the NBFC Rules, the Non Banking Finance Companies and Notified Entities Regulation, 2008 (the NBFC Regulations), the Companies Act, 2017 and directives issued by the SECP. In case requirements differ, the requirements of the Trust Deed, the NBFC Rules, the NBFC Regulations the Companies Act, 2017 or the directives issued by the SECP shall prevail. 2.2 The Companies Ordinance, 1984 has been repealed after the enactment of the Companies Act, 2017 (the Act) on May 30, 2017. However, the SECP vide its Circular No.23 dated October 4, 2017 allowed Companies whose financial year closes on or before December 31, 2017 to prepare the financial statements in accordance with the provisions of the repealed Companies Ordinance, 1984. The Act does not impact the condensed interim financial information of the Fund for the period ended September 30, 2017. 3. BASIS OF MEASUREMENT 3.1 This condensed interim financial information does not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the annual financial statements of the Fund for the year ended June 30, 2017. 3.2 This condensed interim financial information is presented in Pak rupees, which is the Fund's functional and presentation currency. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Except for change in note 4.1, the accounting policies and methods of computation adopted in the preparation of this condensed interim financial information and the significant judgements made by the management in applying the accounting policies and key sources of estimation uncertainity are the same as those applied in the preparation of the financial statements as at and for the year ended June 30, 2017. The Fund s financial risk management objectives and policies are consistent with those disclosed in the financial statements as at and for the year ended June 30, 2017.
Faysal Financial Sector Opportunity Fund 15 Notes to the Condensed Interim Financial Information For the Quarter Ended September 30, 2017 (Un-Audited) 4.1 Change in accounting policy - element of income / (loss) and capital gains / (losses) included in prices of units issued less those in units redeemed The SECP vide its statutory notification (S.R.O) No.756(I) / 2017 dated August 3, 2017, has introduced certain amendments in Schedule V of the NBFC Regulations, resulting in change in the treatment of element of income / (loss) and capital gains / (losses) included in prices of units issued less those in units redeemed, earlier the element was recognized in the income statement to the extent that it is represented by income earned during the year and unrealized appreciation / (diminution) arising during the year on available for sale securities was included in the Distribution Statement. As per the aforesaid SRO "element of income is a transaction of capital nature and receipt and payment of element of income is taken to the unit holder's fund." As a result the Fund has made certain changes in this condensed interim financial information as mentioned in note 12.2. 5. BANK BALANCES Note September 30, June 30, 2017 2017 (Un-audited) (Audited) ------------- (Rupees) ------------- Cash at bank - PLS savings accounts 5.1 119,876,976 54,588,940 5.1 These carry mark-up ranging between 3.75% and 6.40% (June 30, 2017: 3.75% and 6.45%) per annum and include a balance of Rs. 710,585 (June 30, 2017: Rs. 46,464) held with Faysal Bank Limited (a related party). 6. INVESTMENTS Note Designated 'at fair value through profit or loss' September 30, June 30, 2017 2017 (Un-audited) (Audited) ------------- (Rupees) ------------- Debt securities 6.1 32,327,332 41,570,311 Held to maturity Commercial paper 6.2 7,937,916 7,783,547 40,265,248 49,353,858
16 Faysal Financial Sector Opportunity Fund Notes to the Condensed Interim Financial Information For the Quarter Ended September 30, 2017 (Un-Audited) 6.1 Debt securities - designated 'at fair value through profit or loss' Name of the security Term finance certificates - unlisted As at July 01, 2017 Number of certificates Balance as at September 30, 2017 Purchased during the period Disposed during the period As at September 30, 2017 Carrying value Unrealized gain on revaluation Market value ----------------------Rupees-------------------- Market value as percentage of total investments Market value as percentage of net assets Market value as percentage of issue size Commercial banks MCB Bank Limited (formerly NIB Bank Limited) 1,800 - - 1,800 9,011,487 9,036,350 24,863 22.44% 0.23% Bank Al Falah Limited 1,800 - - 1,800 9,173,029 9,200,211 27,182 22.85% 0.18% Habib Bank Limited 90-90 - - - - 0.00% 0.00% The Bank of Punjab 90 - - 90 8,998,200 9,030,126 31,926 22.43% 0.36% Askari Bank Limited 1,000 - - 1,000 5,089,427 5,060,645 (28,782) 12.57% 0.13% September 30, 2017 4,780-90 4,690 32,272,143 32,327,332 55,189 80.29% 0.90% June 30, 2017 41,255,128 41,570,311 315,183 6.1.1 Significant terms and conditions of debt securities are as follows: Name of security Number of certificates Face value per certificate (Rupees) Mark-up rate (per annum) Maturity Secured / unsecured Rating MCB Bank Limited (formerly NIB Bank Limited) 1,800 4,995 1.15% + 6M KIBOR June, 2022 Secured AA- Bank Al Falah Limited 1,800 4,991 1.25% + 6M KIBOR February, 2021 Secured AA- Habib Bank Limited - 99,940 0.50% + 6M KIBOR February, 2026 Secured AAA The Bank of Punjab 90 1,111 1.00% + 6M KIBOR December, 2026 Secured AA- Askari Bank Limited 1,000 4,994 1.20% + 6M KIBOR September, 2024 Secured AA- 6.2 Commercial paper - held to maturity Name of investee company Rate of return per annum As at July 01, 2017 Face value Purchased during the period Matured during the period As at September 30, 2017 Carrying value as at September 30, 2017 Maturity Rating Face value as percentage of total investments Face value as percentage of net assets JS Global Capital Limited 6MK + 1.75% 8,000,000 - - 8,000,000 7,937,916 7-Nov-17 AA+ - June 30, 2017 6MK + 1.75% - 8,000,000-8,000,000 7,783,547
Faysal Financial Sector Opportunity Fund 17 Notes to the Condensed Interim Financial Information For the Quarter Ended September 30, 2017 (Un-Audited) 6.3 Net unrealised gain on revaluation of investments designated at fair value through profit or loss Note September 30, June 30, 2017 2017 (Un-audited) (Audited) ------------- (Rupees) ------------- Market value of investments 32,327,332 41,570,311 Less: cost of investments 32,272,143 41,255,128 55,189 315,183 Net unrealised gain on investments at beginning of the period (315,183) 1,422,125 Realised on disposal during the period 31,491 (1,422,125) (283,692) - (228,503) 315,183 7. ACCRUED AND OTHER LIABILITIES SECP annual fee payable 7.1 25,678 75,299 Accrued liabilities 781,807 703,718 Provision for Sindh Workers' Welfare Fund (SWWF) 7.2 368,930 337,608 Provision for indirect taxes and duties 7.3 768,712 768,712 1,945,127 1,885,337 7.1 This represents annual fee payable to the SECP in accordance with the NBFC Regulations, whereby the Fund is required to pay SECP annually an amount equal to 0.075% (June 30, 2017: 0.075%) per annum of the daily net assets value of the Fund. 7.2 The Finance Act, 2008 had introduced an amendment to the Workers' Welfare Fund Ordinance, 1971 (WWF Ordinance) as a result of which it was construed that all Collective Investment Schemes (CISs) / mutual funds whose income exceeded Rs.0.5 million in a tax year were 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 was higher. In light of this, the Mutual Funds Association of Pakistan (MUFAP) filed a constitutional petition in the Honourable Sindh High Court (SHC) challenging the applicability of WWF on CISs which is pending adjudication. Similar cases were disposed of by the Peshawar and the Lahore High Courts in which these amendments were declared unlawful and unconstitutional. However, these decisions were challenged in the Supreme Court of Pakistan (SCP). Subsequently, the Finance Act, 2015 introduced an amendment under which CISs / mutual funds have been excluded from the definition of industrial establishment subject to WWF under the WWF Ordinance. Consequently, mutual funds are not subject to this levy after the introduction of this amendment which is applicable from tax year 2016. Accordingly, no further provision in respect of WWF was made with effect from July 01, 2015. On November 10, 2016 SCP has passed a judgment declaring the amendments made in the Finance Acts, 2006 and 2008 pertaining to WWF as illegal citing that WWF was not in the nature of tax and could; therefore, not have been introduced through money bills. Accordingly, the aforesaid amendments have been struck down by the SCP. The Federal Board of Revenue has filed a petition in the SCP against the said judgment, which is pending hearing. While the petitions filed by the CISs on the matter are still pending before the SHC, MUFAP (collectively on behalf of the asset management companies and their CISs) has taken legal and tax opinions on the impact of the SCP judgement on the CISs petition before the SHC. Both legal and tax advisors consulted were of the view that the judgment has removed the very basis on which the demands were raised against the CISs. Therefore, there was no longer any liability against the CISs under the WWF Ordinance and that all cases pending in the SHC or lower appellate forums will now be disposed of in light of the earlier judgement of the SCP. Furthermore, as a consequence of the 18th amendment to the Constitution of Pakistan, in May 2015 the Sindh Workers Welfare Fund Act, 2014 (SWWF Act) had been passed by the government of Sindh as a result of which every industrial establishment located in the Province of Sindh, the total income of which in any accounting year is not less than Rs 0.5 million, is required to pay Sindh Workers Welfare Fund (SWWF) in respect of that year a sum equal to two percent of such income. The matter was taken up by the MUFAP with the Sindh Revenue Board (SRB) collectively on behalf of various asset management companies (including the Management Company of the Fund) whereby it was contested that mutual funds should be excluded from the ambit of the SWWF Act as these were not industrial establishments but were pass through investment vehicles and did not employ workers. The SRB held that mutual funds were included in the definition of financial institutions as per the Financial Institution (Recovery of Finances) Ordinance, 2001 and were, hence, required to register and pay SWWF under the SWWF Act. Thereafter, MUFAP has taken up the matter with the Sindh Finance Ministry to have CISs / mutual funds excluded from the applicability of SWWF.
18 Faysal Financial Sector Opportunity Fund Notes to the Condensed Interim Financial Information For the Quarter Ended September 30, 2017 (Un-Audited) In view of the above developments regarding the applicability of WWF and SWWF on CISs / mutual funds, MUFAP has recommended the following to all its members on January 12, 2017: - based on legal opinion, the entire provision against WWF held by the CISs till June 30, 2015, to be reversed on January 12, 2017; and - the provision in respect of SWWF should be made on a prudent basis with effect from the date of enactment of the SWWF Act, 2014 (i.e. starting from May 21, 2015) on January 12, 2017. Accordingly, the provision for SWWF is being made on a daily basis going forward. The above decisions were communicated to SECP and the Pakistan Stock Exchange Limited on January 12, 2017 and the SECP vide its letter dated February 01, 2017 has advised MUFAP that the adjustments relating to the above should be prospective and supported by adequate disclosures in the financial statements of the CISs / mutual funds. Accordingly, the Fund has recorded these adjustments in its books on January 12, 2017. The provision for SWWF is now being made on a daily basis. Had the provision for SWWF not been recorded in the financial statements of the Fund, the net asset value of the Fund as at September 30, 2017 would have been higher by Re.0.24 per unit. 7.3 There is no change in the status of the appeal filed by the Federal Board of Revenue in the Supreme Court of Pakistan in respect of levy of Federal Excise Duty at the rate of 16% on the services of the Management Company, as reported in note 13.3 to the annual financial statements of the Fund for the year ended June 30, 2017. Had the provision not been made, the net assets value per unit of the Fund would have been higher by Rs.0.50 per unit (June 30, 2017: Rs.0.76 per unit). 8. CONTINGENCIES AND COMMITMENTS There were no contingencies and commitments as at September 30, 2017 and June 30, 2017. 9. TAXATION The income of the fund is exempt from income tax under Clause (99) of Part 1 of the Second Schedule to the Income Tax Ordinance, 2001 (Clause 99) and regulation 63 of the Non Banking Finance Companies and Notified Entities Regulations, 2008 subject to the condition that not less than 90 percent of the accounting income for the year, as reduced by capital gains, whether realized or unrealized, is distributed amongst the unit holders. The Fund is also exempt from the provisions of section 113 (minimum tax) under clause II A of Part IV to the Second Schedule of the Income Tax Ordinance, 2001. Since the management intends to distribute the income earned by the Fund during the period to the unit holders in cash in the manner as explained above, accordingly, no provision for taxation has been made in this condensed interim financial information for the period ended September 30, 2017. 10. TRANSACTIONS WITH CONNECTED PERSONS / RELATED PARTIES 10.1 Connected persons / related parties include Faysal Asset Management Limited being the Management Company, CDC being the Trustee, other collective investment schemes managed by the Management Company, Faysal Asset Management Limited - Staff Provident Fund, Faysal Asset Management Limited - Staff Gratuity Fund, Faysal Bank Limited, Faysal Bank Limited - Staff Provident Fund, Faysal Bank Limited - Staff Gratuity Fund and other entities under common management and / or directorship and the directors and officers of the Management Company and the Trustee. 10.2 The transactions with connected persons are in the normal course of business, at contracted rates. 10.3 The details of significant transactions carried out by the Fund with connected persons / related parties and balances with them at year end are as follows: Transactions during the period For the quarter ended September 30, 2017 2016 (Un-audited) ------------- (Rupees) ------------- Faysal Asset Management Limited (Management Company) Remuneration of the Management Company 174,674 150,285 Sales tax on Management fee 22,686 19,537 Reimbursement of expenses to the Management Company 33,726 30,060 Sales load paid during the period 1,421,154 - Redemption of 14,666 units (2016: Nil units) 1,500,000 -
Faysal Financial Sector Opportunity Fund 19 Notes to the Condensed Interim Financial Information For the Quarter Ended September 30, 2017 (Un-Audited) For the quarter ended September 30, 2017 2016 (Un-audited) ------------- (Rupees) ------------- Faysal Bank Limited (Group / Associated Company) Return on PLS savings accounts 90,228 729 Bank charges 386 - Central Depository Company of Pakistan Limited - (Trustee of the Fund) Remuneration of the Trustee 58,672 51,170 Sales tax on Trustee fee 7,627 6,652 Settlement charges 2,260 1,135 Outstanding balances September 30, June 30, 2017 2017 (Un-audited) (Audited) ------------- (Rupees) ------------- * Faysal Asset Management Limited (Management Company) Management fee payable 64,911 46,481 Sales tax payable on Management fee 8,439 6,043 Sales load payable 1,124,344 1,421,175 Reimbursement of expenses receivable from the Management Company (290,425) (324,152) Units in issue 88,315 units (2017: 102,980 units) 9,049,638 10,443,202 * Faysal Bank Limited (Group / Associated Company) Balance in PLS savings accounts 268,942 710,585 Return receivable on PLS savings account - 20,617 Units in issue 142,925 units (2017: 142,925 units) 14,645,525 14,494,024 FAML Staff Gratuity Fund (Group / Associated Company) Units in issue 69,027 units (2017: 69,027 units) 7,073,197 7,000,028 Central Depository Company of Pakistan Limited - (Trustee of the Fund) Trustee fee payable 22,073 16,524 Sales tax payable on Trustee fee 2,871 2,150 Security deposit 100,000 100,000 * Faysal Bank Limited and Faysal Asset Management Limited also hold more than 10% units in the Fund. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements and disclosures about fair value measurement where such measurements are required as permitted by other IFRSs. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). Financial assets which are tradable in an open market are revalued at the market prices prevailing on the statement of assets and liabilities date. The estimated fair value of all other financial assets and financial liabilities is considered not significantly different from book value. The following table shows financial instruments recognized at fair value, analyzed between those whose fair value is based on: Level 1: Level 2: Level 3: quoted prices in active markets for identical assets or liabilities; those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and those with inputs for the asset or liability that are not based on observable market data (unobservable inputs).
20 Faysal Financial Sector Opportunity Fund Notes to the Condensed Interim Financial Information For the Quarter Ended September 30, 2017 (Un-Audited) Financial assets measured at fair value Investments designated 'at fair value through profit or loss' Deposits and other receivables September 30, 2017 Carrying amount Fair value Cash and cash equivalents Total Investments Level 1 Level 2 Level 3 Total ------------------------------------- (Rupees) ------------------------------------- ------------------------------------- (Rupees) ------------------------------------ Debt securities - Term finance certificates 32,327,332 - - 32,327,332-32,327,332-32,327,332 Financial assets not measured at fair value Bank balances - - 119,876,976 119,876,976 - - - - Deposits and other receivables - 2,199,476-2,199,476 - - - - Held to maturity Commercial paper 7,937,916 - - 7,937,916 - - - - 40,265,248 2,199,476 119,876,976 162,341,700-32,327,332-32,327,332 Financial assets measured at fair value Investments designated 'at fair value through profit or loss' Deposits and other receivables June 30, 2017 Carrying amount Fair value Cash and cash equivalents Total Investments Level 1 Level 2 Level 3 Total ------------------------------------- (Rupees) ------------------------------------- ------------------------------------- (Rupees) ------------------------------------ Debt securities - Term finance certificates 41,570,311 - - 41,570,311-41,570,311-41,570,311 Financial assets not measured at fair value Bank balances - - 54,588,940 54,588,940 - - - - Deposits and other receivables - 2,159,999-2,159,999 - - - - Held to maturity Commercial paper 7,783,547 - - 7,783,547 - - - - 49,353,858 2,159,999 54,588,940 106,102,797-41,570,311-41,570,311
Faysal Financial Sector Opportunity Fund 21 Notes to the Condensed Interim Financial Information For the Quarter Ended September 30, 2017 (Un-Audited) September 30, 2017 'At fair value through profit and loss' - held-fortrading Other financial liabilities Total ---------------------- (Rupees) ---------------------- Financial liabilities Payable to the Management Company - 1,189,255 1,189,255 Remuneration payable to the Trustee - 22,073 22,073 Accrued and other liabilities - 781,807 781,807-1,993,135 1,993,135 June 30, 2017 'At fair value through profit and loss' - heldfor-trading Other financial liabilities Total ---------------------- (Rupees) ---------------------- Financial liabilities Payable to the Management Company - 1,467,656 1,467,656 Remuneration payable to the Trustee - 16,524 16,524 Accrued and other liabilities - 703,718 703,718 Dividend payable - 1,080,608 1,080,608-3,268,506 3,268,506 12. GENERAL 12.1 As per Directive 23 of 2016 dated July 20, 2016 issued by SECP, the total expense ratio of the Fund is 2.1% as on September 30, 2017 which includes 0.36% representing Government Levies, Provision for SWWF and SECP fee. 12.2 The SECP vide its statutory notification (S.R.O) No.756(I) / 2017 dated August 3, 2017, has introduced certain amendments in Schedule V of the NBFC Regulations, resulting in certain changes in the presentation of Income Statement and Statement of Movement in Reserves or Unit Holders' Fund, and deletion of Distribution Statement. The same is applicable on the financial statements beginning on or after July 1, 2017. Accordingly, the financial and other impacts due to the applicability of the amended NBFC Regulations, 2008, if any, have been incorporated from this financial period. Had the above mentioned changes not been made in the condensed interim financial information the net income for the period would have been higher by Rs.0.102 million. 12.3 Figures have been rounded off to the nearest rupee. 13. DATE OF AUTHORISATION FOR ISSUE This condensed interim financial information was authorised for issue on October 19, 2017 by the Board of Directors of the Management Company. For Faysal Asset Management Limited (Management Company) Chief Financial Officer Chief Executive Officer Director
22 Faysal Financial Sector Opportunity Fund
Faysal Financial Sector Opportunity Fund 23
24 Faysal Financial Sector Opportunity Fund
Faysal Financial Sector Opportunity Fund 25 2016 1.856 (0.641) 1.215 (0.438) 0.777-0.777 101.92 Quarter Ended September 30 2017 2.261 (0.725) 1.536-1.536-1.536 102.47