(Shariah Division) Manager of DAWOOD ISLAMIC FUND FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, (Un-Audited)
CONTENTS Corporate Information 1 Management Company CORPORATE INFORMATION Dawood Capital Management Limited 5B Lakson Square Building #1 Sarwar Shaheed Road Karachi-74200 Tel: (92-21) 3562-1001-7 Fax: (92-21) 3562-1010 E-mail: dcm@edawood.com Website: www.edawood.com Directors Report 2 Statement of Assets & Liabilities 4 Income Statement 5 Statement of Comprehensive Income 6 Board of Directors Mrs. Shafqat Sultana Chairperson Miss Tara Uzra Dawood Chief Executive Officer Chief Financial Officer & Company Secretary Mr. Masood A. S. Wahedna Director (Nominee of BoK) Mr. Nazimuddin Feroz Director (Nominee of BRRGM) Syed Shabahat Hussain Director (Nominee of NIT) Mr. Gul Nawaz Director Syed Kabiruddin Distribution Statement 7 Head of Internal Audit & Compliance Officer Mr. Muhammad Farooq Cash Flow Statement 8 Statement of Movement in Unitholders Fund 9 Notes to the Financial Statements 10 Audit Committee Mr. Gul Nawaz Chairman Mr. Masood A. S. Wahedna Member Syed Shabahat Hussain Member Human Resource Committee Mrs. Shafqat Sultana Chairperson Mr. Gul Nawaz Member Miss Tara Uzra Dawood Member Trustee Auditors Tax Advisor Legal Advisor Registrars Banker Rating Central Depository Company of Pakistan Limited CDC House, 99-B, Block-B, S.M.C.H.S. Main Shahra-e-Faisal, Karachi-74400 Ernst & Young Ford Rhodes Sidat Hyder Chartered Accountants Mazhar Associates A-1/E-3, Faiza Avenue Karachi Bawaney & Partners 404, 4th Floor, Beaumont Plaza 6-cl-10 Beaumont Road, Karachi 75530 Noble Computer Services (Pvt.) Limited First Floor, House of Habib Building, 3-Jinnah C.H. Society, Main Shahrah-e-Faisal, Karachi-75350 Burj Bank Limited Al Baraka Bank (Pakistan) Limited Habib Metropolitan Bank Limited PACRA: 3-Star AMC Rating PACRA: AM3-1
DIRECTORS' REPORT FOR THE QUARTER ENDED SEPTEMBER 30, It gives me immense pleasure to present on behalf of the Board of Directors of Dawood Capital Management Limited ("DCM"/"the Company"), the Management Company of Dawood Islamic Fund ("DIF-S"/"the Fund"), the un-audited financial statements for the first quarter ended September 30,. Economic Outlook In order to meet rising fiscal deficit, the federal government intended to borrow a huge amount of Rs. 1.6 trillion from banking sector during the first quarter (July-Sept) of current fiscal year -2013 (FY13). On the geo-political front, resumption of NATO supplies and revival of Pak-US ties was one of the key highlights for the quarter as it paved the way for along awaited Coalition Support Fund. the first quarter, inflation reached to single digit on month on month basis. Prices of petroleum remained mostly up during the quarter giving some push to the prices of general items but still the central bank found room to bring the discount rate down by 150 basis points. India overturned its ban on foreign investment from Pakistan in a move designed to build goodwill amid a renewed push for a peace settlement between the nuclear-armed neighbors. Power sector subsidies crossed Rs. 50 billion marked in the first two months of the current fiscal year against Rs. 134 billion budgeted for the entire year. Stock Market Review KSE-100 index made an impressive start and swiftly crossed the mark of 15,000 points in the mid of the quarter mainly on the back of strong financial results during the quarter. The easing tensions between United States and Pakistan provided some acceleration to the market along with improved external account outlook on the back of possible release of Coalition Support Fund payments which helped allay investor concerns and positive corporate announcements played its part. the beginning of second month of the quarter investors remained cautious earlier in the month with all eyes were on the Monitory Policy Statement which according to various economist was expected to go down. The stock market continued its strong performance during the traditionally dull period during Eid holidays and managed to stay firmly above the 15,000-point barrier. the very last week of the quarter market closed at 15,444.82 points with low volumes after investors adopted a cautious approach ahead of upcoming monetary policy announcement. Debt Market Review The prevailing instability in the economic conditions resulted in a volatile debt market though downward trajectory of the interest rate gave some breathing space to the debt market. Consecutive borrowing by the government from central bank left institutions stuck in a liquidity plight. the period under review, the overall debt market remained dejected though trading in few scripts observed at depressed prices to meet liquidity requirements. Defaults on NBFC debt instruments were the major cause of panic resulting in the downward revaluation of scripts at MUFAP coupled with huge losses and lost investors' confidence on mutual funds. Money Market Review The short term money market rates remained in the higher range during most part of the month owing to relatively tight liquidity position in the system with few exceptions wherethe market witnessed floors also. this quarter as well, the SBP continued to inject sizeable amount through Open Market Operations. As the discount rate cut was expected during the quarter so the entire curved shift downward. In its last auction of T-bills, State Bank of Pakistan has accepted bids worth of PKR 283.00 billion out of the total received bids of PKR 461.99 billion where the cut-off rates have witnessed a slight decline on 3, 6 and 12 months T-bills. 2 Fund Strategy The strategy for now is to invest more in Shariah Compliant Sovereign issues and placements in Shariah compliant banks as equity was disposed of completely by end of the of the quarter. This strategy will make the fund safer and offer almost consistent return with slight variation due to the nature of Islamic fund. Fund Performance As at September 30,, net assets were Rs. 104.36 million as compared to Rs. 253.98 million as at June 30,. Total operating income for the period was Rs. (13.06) million as compared to Rs. 8.98 million for the same period last year. The decrease in income was mainly due to impairment losses on Certificate of Musharika for the period. Total expenses during the period were Rs. 1.56 million as compared to Rs. 2.25 million for the same period last year. The Net Asset Value (NAV) per unit was Rs. 89.30 as at September 30,. Fund Outlook The Mutual Funds Industry will face new challenges during the FY -13. Lowering of interest rate by the central bank is expected to give some impetus to the pace of the mutual fund industry as investor will seek for a better return rather than placing their money in savings account or fixed deposits. Money market funds rates will go down further in the upcoming months and some risk taking investors might turn towards equity funds. Companies with debt liability will incur low financing cost since the reduction of discount rate and will have better cash flow positions. The defaults in the industry at debt side, are likely to harmonize and with lowering interest rates, they will start paying their due liabilities which is the good sign for mutual funds industry. International oil prices are vital to push high or low the inflationary numbers which may force SBP to increase or keep unchanged its benchmark rate. Investors may go towards short term instruments to hedge themselves against any interest rate hike. Keeping this in view, Industry should once again define its marketing strategy to reach new dimension focusing on awareness programs. Acknowledgement The Directors thanks the Securities & Exchange Commission of Pakistan and other regulatory bodies for their valuable support, assistance and guidance during these times of recovery. The Board also thanks the employees of the Asset Management Company, the Trustee and Shariah Advisors for their dedication and hard work and the unit holders for their confidence in the Management. October 11, Karachi. 3 For and on Behalf of the Board of Directors Chairperson
CONDENSED INTERIM STATEMENT OF ASSETS AND LIABILITIES AS AT SEPTEMBER 30, Assets September 30, June 30, Note (Un-Audited) (Audited) Bank Balances 5 102,965,118 52,891,628 Investments 6-195,961,922 Dividend and Profit Receivable 3,524,378 8,907,041 Security Deposit & Prepayments 2,530,000 2,500,000 Total Assets 109,019,496 260,260,591 Liabilities Payable to Management Company 807,406 917,910 Payable to Trustee 57,466 57,313 Annual Fee Payable to Securities and Exchange Commission of Pakistan 52,530 303,692 Accrued Expenses and Other Liabilities 3,740,190 5,001,700 Total Liabilities 4,657,592 6,280,615 NET ASSETS 104,361,904 253,979,976 CONDENSED INTERIM INCOME STATEMENT (UN-AUDITED) FOR THE QUARTER ENDED SEPTEMBER 30, September 30, September 30, 2011 Note Income Profit on - Sukuks 1,441,618 6,814,866 - Bank Balances 3,627,169 2,089,841 Gain on Sale of Securities - Net (272,627) 42,932 Dividend Income - - (Charge of)/reversal of Impairment in the Value of Investments Classified as Available for Sale Net 6.5 (17,852,092) 609,232 Unrealised Diminution in Value of Investments at Fair Value through Profit or Loss - (577,119) Total Income (13,055,932) 8,979,752 Expenses Remuneration of Management Company 830,486 1,244,462 Sales Tax on Management Fee 7 132,875 199,108 Remuneration of Trustee 176,291 175,969 Annual Fee of Securities and Exchange Commission of Pakistan 52,530 82,328 Securities Transaction Cost 84,054 64,741 Auditors' Remuneration 118,750 101,200 Amortization of Preliminary Expenses and Floatation Cost - 125,000 Bank Charges 3,927 6,103 Printing Charges 10,000 9,500 Worker's Welfare Fund 43,745 142,891 Fee and Subscription 108,184 101,720 Total Expenses 1,560,842 2,253,022 Net (Loss)/Income from Operating Activities (14,616,774) 6,726,730 UNIT HOLDERS' FUND (as per statement attached) 104,361,904 253,979,976 Number of Units in Issue 1,168,703 2,703,061 Net Asset Value per Unit (Face Value per Unit Rs. 100/-) 89.30 93.96 Contingencies and Commitments 8 The annexed notes from an integral part of these condensed interim financial statements. Element of Income and Capital Gain in Prices of Units Sold Less Those in Units Redeemed - Net 16,760,266 274,910 2,143,492 7,001,640 Taxation 10 - - NET INCOME FOR THE PERIOD CARRIED TO DISTRIBUTION STATEMENT 2,143,492 7,001,640 EARNINGS PER UNIT 11 The annexed notes from an integral part of these condensed interim financial statements. 4 5
CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (UN-AUDITED) FOR THE QUARTER ENDED SEPTEMBER 30, September 30, September 30, 2011 Net Income for 2,143,492 7,001,640 Other Comprehensive Income Net Unrealized Appreciation in the Fair Value of Investments Classified as Available for Sale 6.6 1,674,276 149,727 Total Comprehensive Income for 3,817,768 7,151,367 CONDENSED INTERIM DISTRIBUTION STATEMENT (UN-AUDITED) FOR THE QUARTER ENDED SEPTEMBER 30, Undistributed Income Brought Forward September 30, September 30, 2011 - Realized 478,252 44,234,397 - Unrealized (15,130,110) (6,555,174) (14,651,858) 37,679,223 Net Income for 2,143,492 7,001,640 Final Distribution for the Year Ended 30 June The annexed notes from an integral part of these condensed interim financial statements. - Cash Distribution of Rs Nil per Unit (2011: Rs 5.25 per Unit) - (16,101,666) - Bonus Units Nil (2011: 158,234 Units of Rs 5.25 per Unit) - (16,101,666) Undistributed Income Carried Forward (12,508,366) 12,477,531 Represented By: - Realized (12,508,366) 19,609,824 - Unrealized - (7,132,293) (12,508,366) 12,477,531 The annexed notes from an integral part of these condensed interim financial statements. 6 7
CONDENSED INTERIM CASH FLOW STATEMENT (UN-AUDITED) FOR THE QUARTER ENDED SEPTEMBER 30, September 30, September 30, 2011 CASH FLOWS FROM OPERATING ACTIVITIES Net Income for 2,143,492 7,001,640 Adjustments for: Diminution on Measurement of Investments at Fair Value through Profit or Loss - 577,119 Gain on Sale of Securities 272,627 (42,932) Element of Income and Capital Gain in Prices of Units Sold Less Those in Units Redeemed (16,760,266) (274,910) Charge Impairment in the Value of Investments Classified as Available for Sale Net (17,852,092) (609,232) Amortisation of Preliminary Expenses and Floatation Costs - 125,000 (32,196,239) 6,776,685 Decrease/(Increase) in Assets Investments 215,215,663 11,428,534 Dividend and Profit Receivable 5,382,663 2,515,281 Security Deposit & Prepayments (30,000) (3,698,211) 220,568,326 10,245,604 (Decrease)/Increase in Liabilities Payable to Management Company (110,504) (472,433) Payable to Trustee 153 (2,303) Annual Fee Payable to Securities & Exchange Commission of Pakistan (251,162) (240,315) Accrued Expenses and Other Liabilities (1,261,510) 444,500 (1,623,023) (270,551) Cash Dividend Paid - (16,101,666) Net Cash Inflow from Operating Activities 186,749,064 650,072 CASH FLOWS FROM FINANCING ACTIVITIES Cash Received on Issue of Units 97,100,000 10,000 Cash Paid on Redemption of Units (233,775,574) (186,090) Net Cash Outflow from Financing Activities (136,675,574) (176,090) Net Increase in Cash and Cash Equivalents for 50,073,490 473,982 Cash and Cash Equivalents at Beginning of the Year 52,891,628 69,829,055 Cash and Cash Equivalents at End of 102,965,118 70,303,037 CONDENSED INTERIM STATEMENT OF MOVEMENT IN UNIT HOLDERS FUND (UN-AUDITED) FOR THE QUARTER ENDED SEPTEMBER 30, September 30, September 30, 2011 Net Assets at Beginning of the Year 253,979,976 344,295,691 Issue of 1,096,335 Units (2011: 97 Units) 97,100,000 10,000 Redemption of 2,630,693 Units (2011: 1,824 Units) (233,775,574) (186,090) (136,675,574) (176,090) Element of Income and Capital Gain in Prices of Units (16,760,266) (274,910) Sold Less Those in Units Redeemed - Net Final Cash Distribution for the Year Ended 30 June : Rs. Nil per Unit (2011: Rs. 5.25 per Unit) - (16,101,666) Net Income for 2,143,492 7,001,640 Other Comprehensive Income 1,674,276 149,727 3,817,768 7,151,367 Net Assets at End of 104,361,904 334,894,392 Net Assets Value per Unit 89.30 103.89 The annexed notes from an integral part of these condensed interim financial statements. The annexed notes from an integral part of these condensed interim financial statements. 8 9
NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE QUARTER ENDED SEPTEMBER 30, 1. LEGAL STATUS AND NATURE OF BUSINESS 1.1 Dawood Islamic Fund (the Fund) was established under a Trust Deed executed on September 13, 2006 between Dawood Capital Management Limited (DCML) as Management Company and Central Depositary Company of Pakistan (CDC) as Trustee. The Securities and Exchange Commission of Pakistan (SECP) approved the appointment of Trustee and granted license to the Management Company of the Fund to act as an Asset Management Company. Registered office of the Management Company is situated at 5B Lakson Square Building # 1, Sarwar Shaheed Road, Karachi, Pakistan. 1.2 The Fund is an open-ended mutual fund and is listed on Karachi Stock Exchange. Units are offered for public subscription on a continuous basis. The units are transferable and can be redeemed by surrendering them to the Fund. 2.3 These condensed interim financial statements are unaudited are being circulated to the unit holders as required under the Regulations. 2.4 The directors of the management company declare that these condensed interim financial statements give a true and fair view of the fund. 3. BASIS OF PRESENTATION 3.1 Accounting Convention These condensed interim financial Statements have been prepared under the historical cost convention except certain financial instruments which have been carried at fair value. 1.3 The Fund is categorized as an open ended Shariah Compliant asset allocation scheme. The principal activities of the Fund are to make investment in equity and debts securities which are Shariah Compliant and approved by the Shariah Advisors. Titles to the assets of the Fund are held in the name of Central Depository Company of Pakistan Limited as a Trustee of the Fund. 1.4 Asset Manager Rating (AMR) of Management Company is 'AM3-' and that of Fund is 3 star, rated by Pakistan Credit Rating Agency (PACRA). 2. STATEMENT OF COMPLIANCE 2.1 These condensed interim financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Ordinance, 1984, the requirements of the Trust Deed, the Non-Banking Finance Companies 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. Wherever the requirements of the Trust Deed, the NBFC Rules, the NBFC Regulations or the directives issued by the SECP differ with the requirements of IFRS, the requirements of the Trust Deed, the NBFC Rules, the NBFC Regulations or the requirements of the said directives shall prevail. 2.2 This condensed interim financial statements comprise of condensed interim statement of assets and liabilities, 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' fund together with the notes forming part thereof. It does not include all the information and disclosures made in the annual published financial statement and should be read in conjunction with the financial statements of the Fund for the year ended June 30,. Comparative information of the 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' fund for the three months period ended September 30, 2011 are un-audited and have been included to facilitate comparison. 3.2 Functional and Presentation Currency 10 11 These condensed interim financial statements have been presented in Pakistan which is the functional and presentation currency of the Fund. 3.3 Critical Accounting Estimates and Judgments The preparation of condensed interim financial statements requires management to make judgments, estimates and assumptions that effect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making judgments about carrying values of assets and liabilities. The estimates and underlying assumptions are reviewed on an ongoing basis. Judgments made by management in the application of accounting policies that have significant effect on the condensed interim financial statements and estimates with a significant risk of material adjustment are explained in the relevant accounting policies/notes in the condensed interim financial statements. In preparing this condensed interim financial statements, the significant judgments made by management in applying the Fund s accounting policies and the key sources of estimation and uncertainty were the same as those that applied to the financial statements as at and for the year ended June 30,. 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,. 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies and methods of compliance adopted for the preparation of these interim financial statements are the same as those applied in the preparation of the annual published financial statements of the Fund for the year ended June 30,.
5. BANK BALANCES 12 September 30, June 30, Note (Un-Audited) (Audited) PLS Savings Accounts 5.1 102,845,684 50,772,352 Current Account 119,434 2,119,276 102,965,118 52,891,628 5.1 This represents savings accounts maintained with various Islamic banks or Islamic division of conventional banks carrying profit rates ranging from 5% to 10.5% (2011: 5% to 13%) per annum. September 30, June 30, Note (Un-Audited) (Audited) 6. INVESTMENTS At Fair Value through Profit or Loss Investment in Listed Equity Securities 6.1-38,640,842 Available for Sale Securities GOP Ijarah Sukuk 6.2-100,020,000 Certificates of Musharika 6.3-26,225,355 Unlisted Debt Securities - Sukuks 6.4-31,075,725-195,961,922 6.1 Investments in Listed Equity Securities Number of Shares/Certificates Value of Shares/Certificates Unrealized Diminution Market Value Cost As at 30 September, Bonus/ Right Issue Sales Purchases As At 01 July, Name of Investee Number of Shares Electricity Hub Power Company Limited. 50,000-50,000 - - - - - Oil & Gas Attock Refinery Limited 10,000 7,500 17,500 - - - - - Shell Pakistan Limited 93,750-93,750 - - - - - National Refinery Pakistan Limited 42,500-42,500 - - - - - - - - Chemicals Fauji Fertilizer Company Limited 10,000 10,000 20,000 - - - - - Fauji Fertilizer Bin Qasim Limited - 60,000 60,000 - - - - - ICI Pakistan Limited 5,000-5,000 - - - - - Lotte Pakistan PTA Limited 100,000-100,000 - - - - - - - - Construction and Materials AKZO Nobel Pakistan Limited - 1,673 1,673 - - - - - Lucky Cement Limited 25,000 20,000 45,000 - - - - - - - - Personal Goods Nishat Mills Limited 25,000 5,000 30,000 - - - - - 13 Pharma and Bio Tech GlaxoSmithKline Pakistan Limited 110,000-110,000 - - - - - Total as at 30 September - - - 6.1.1 The Holding are in the Fully Paid Ordinary Shares of Rs 10/- Each
Closing as at 30 Sept., Sold Purchased As at 01 July 2011 6.2 Investment in Government Securities Cost Number of Certificates Investment in Government Securities For a Face Value of Rs. 100,000/= Each GOP-Ijarah Sukuk 1,000-1,000 - - Carrying Value at Sept. 30, Closing as at Sept. 30, (Matured) Settlement Purchased As At 01 July, 6.3 Certificates of Musharika Investment (COM) Invest Capital Investment Bank Limited (note 6.3.1 & 6.5) 32,250,000-23,625,000 8,625,000 - - 6.3.1 On July 31. the Management Company entered into an agreement for settlement of COM in full and final settlement of the entire outstanding principal amounting to Rs. 31,500,000/- against cash payment of 25% of the outstanding principal amount. There will be no profit charged on this amount for the period. Percentage of Net Assets on the Basis of Carrying Value Impairment Loss as at 30 Sept., Market Value/ Carrying Value as at 30 Sept., 6.4 Investment in Debt Securities Percentage of Total Investment Return on Investment Cost as at 30 Sept., Closing as at 30 Sept., Sold the Period Purchased As At 01 July, Note Name of Security Number of Certificates Unquoted Debt Securities Sukuks Engro Fertilizer Limited (06-09-07) 5,000-5,000 - - - - K6+1.5 - - Pak Elektron Limited (28-09-07) 6.4.1 8,000 - - 8,000 17,280,105 - (17,280,105) K3+1.75 - - Kohat Cement Limited (20-12-07) 5,000-5,000 - - - - K3+1.8 - - Maple Leaf Cement Factory Limited (03-12-07) 6.4.2 9,815 - - 9,815 46,857,262 - (46,857,262) K3+1 - - Maple Leaf Cement Factory Limited (31-03-10) 6.4.3 368 - - 368 1,431,112 - (1,431,112) K3+1 - - New Allied Electronics Industries Limited (03-12-07) 6.4.4 1,000 - - 1,000 5,027,500 - (5,027,500) K3+2.2 - - 70,595,979 - (70,595,979) - - K = KIBOR 6.4.1 Pak Electron Limited (PEL) defaulted on the installment due on 28 December 2011 as per the restructured agreement. Consequently, the security was classified as non-performing by MUFAP on 13 January and accrual on the same was suspended. Considering the repayment history and financial uncertainty, the security has been fully provided on April 30, with the approval of the Board. 6.4.2 Maple Leaf Cement Factory (MLCF) defaulted on the installment due on 03 September 2011 as per the restructured agreement. Consequently, the security was classified as non-performing by MUFAP on 19 September 2011. Considering the repayment history and financial uncertainty, the security has been fully provided on April 30, with the approval of the Board. 6.4.3 This represents additional sukuks of MLCF received by the Fund through restructuring agreement reached between lenders and MLCF. Under such agreement outstanding mark up due on 03 December 2009 amounting to Rs. 3.8 million was settled partially in cash and partially in the form of sukuks certificates valuing Rs. 1.84 million. The sukuk accrues profit on 3 month KIBOR + 100 basis points per annum. MUFAP has been declared non-performing on January 17,. Considering the repayment history and financial uncertainty, the security has been fully provided on April 30, with the approval of the Board. 6.4.4 New Allied Electronics Industries Limited TFC defaulted in its payment of principal due on 27 October 2008 and consequently has been classified as non-performing by MUFAP on 9 January 2009 and accrual on the same was suspended. Accordingly, a provision amounting to Rs. 5.027 million (100%) has been created based on the number of overdue days in line with the requirements of SECP s circular No. 1 of 2009. 6.5 Break up of impairment (loss)/reversal of impairment loss on investments classified as nonperforming are as follows: September 30, September 30, 2011 Unlisted Debt Securities Sukuks Kohat Cement Company Limited (1,887,500) - Maple Leaf Cement Factory Limited 1,226,875 - Maple Leaf Cement Factory Limited - Additional 408,888 - Placements Invest Capital Investment Bank Limited (17,600,355) 609,232 Total (17,852,092) 609,232 14 15
6.6 Net unrealized diminution in the value of investments classified as available for sale September 30, June 30, (Un-Audited) (Audited) Market Value of Securities - 157,321,080 Less: Cost of Securities 70,595,979 237,251,742 (70,595,979) (79,930,662) Net Impairment at the Beginning of the Year 78,256,386 42,146,458 Impairment Charged/(Reversed) 17,852,092 36,109,928 Net Impairment at the End of 96,108,478 78,256,386 Add: Realised on Disposal (25,512,499) - Net Unrealized Diminution in the Market Value of Securities Classified as Available for Sale at the End of the Year - (1,674,276) Less: Net Unrealized Appreciation in the Market Value of Securities Classified as Fair Value Through Profit or Loss at the Beginning of the Year (1,674,276) (81,932) Net Unrealized Diminution in the Market Value 1,674,276 (1,592,344) 6.7 Details of Non Compliant Investments Under SECP Circular No.16 Dated July 07, 2010 are as Follows: Circular no. 16 dated 07 July 2010 issued by the SECP requires details of investments not compliant with the investment criteria specified by the category assigned to open-end collective investment schemes or the investment requirements of the constitutive documents of the Fund to be disclosed in these condensed interim financial statements of the Fund. Details of such non-compliant investments are given below: Remarks Percentage of Gross Assets Percentage of Net Assets Value of Investment After Provision Provision Held Value of Investment Before Provision Type of Investment Name of Non-Compliant Investment Maple Leaf Cement Factory Limited (03-12-07) SUKUK 46,857,262 (46,857,262) - - - Non-Compliant Investment Due to Credit Rating Less than Required as per SECP Circular No.7 of 2009 Maple Leaf Cement Factory Limited (31-03-10) SUKUK 1,431,112 (1,431,112) - - - New Allied Electronics Industries Limited (03-12-07) SUKUK 5,027,500 (5,027,500) - - - Pak Electron Limited (28-09-07) SUKUK 17,280,105 (17,280,105) - - - At the time of purchase/investment, the COM and Sukuks were in compliance with the investment requirement of the Constitutive Documents and investment restriction parameters laid down in NBFC Regulations or NBFC Rules. However, subsequently they were defaulted or downgraded to non investment grade or became non-compliant with investment restrictions parameters laid down in NBFC Regulations or NBFC Rules and with the requirements of Constitutive Documents. 16 17
7. SALES TAX ON MANAGEMENT FEE the current period, an amount of Rs. 0.133 million (30 September 2011: Rs. 0.199 million) was charged on account of sales tax on management fee levied through Sindh Sales Tax on Services Act, 2011. 8. CONTINGENCIES AND COMMITMENTS In view of above stated facts and considering the uncertainty on the applicability of WWF to mutual funds due to show cause notices issued to a number of mutual funds, the management company as a matter of abundant caution has decided to continue to maintain the provision for WWF amounting to Rs. 1.289 million (30 June : Rs. 1.245 million) up to 30 September. If the same were not made, the NAV per unit would be higher by Re. 1.10. 10. TAXATION There were no contingency and commitment as at September 30,. 9. WORKERS WELFARE FUND Through the Finance Act, 2008 an amendment was made in section 2(f) of the Workers' Welfare Fund Ordinance, 1971 (the WWF Ordinance) whereby the definition of 'Industrial Establishment' has been made applicable to any establishment to which West Pakistan Shops and Establishment Ordinance, 1969 applies. As a result of this amendment it appears that WWF Ordinance has become applicable to all Collective Investment Schemes (CISs) whose income exceeds Rs. 0.5 million in a tax year. A petition has been filed with the Honourable High Court of Sindh by some of Collective Investment Schemes (CISs) through their Trustee on the grounds that the CIS (mutual funds) are not establishments and as a result not liable to pay contribution to WWF. Subsequently, the Ministry of Labour and Manpower (the Ministry) vide its letter dated 15 July 2010 clarified that Mutual Fund(s) is a product which is being managed/sold by the Asset Management Companies which are liable to contribute towards Workers Welfare Fund under Section-4 of WWF Ordinance 1971. However, the income on Mutual Fund(s), the product being sold, is exempted under the law ibid. Further, the Secretary (Income Tax Policy) Federal Board of Revenue (FBR) issued a letter dated 6 October 2010 to the Members (Domestic Operation) North and South FBR. In the letter reference was made to the clarification issued by the Ministry of Labour and Manpower stating that mutual funds are a product and their income are exempted under the law ibid. The Secretary (Income Tax Policy) Federal Board of Revenue directed that the Ministry s letter may be circulated amongst field formations for necessary action. Following the issuance of FBR Letter, show cause notice which had been issued by taxation office to certain mutual funds for payment of levy under WWF were withdrawn. However, the Secretary (Income Tax Policy) Federal Board of Revenue vide letter 4 January 2011 has cancelled ab-initio clarificatory letter dated 6 October 2010 on applicability of WWF on mutual funds and issued show cause notices to certain mutual funds for collecting WWF. In respect of such show cause notices, certain mutual funds have been granted stay by Honorable High Court of Sindh on the basis of the pending constitutional petition in the said court as referred above. 2011, the Honourable Lahore High Court in a Constitutional Petition relating to the amendments brought in WWF Ordinance through the Finance Act 2006, and the Finance Act, 2008, has declared the said amendments as unlawful and unconstitutional. Further, during the year, based on such decision of Honourable High Court, the Commissioner of Inland Revenue (Appeals - II) have declared the WWF demand raised by tax authorities against certain mutual funds managed by Asset Management Companies as illegal and without jurisdiction. The management company believes that the decision of the Honourable Lahore High Court, will lend further support to the Constitutional Petition which is pending in the Honourable High Court of Sindh. Further, based on the opinion from legal counsel of Mutual Funds Association of Pakistan (MUFAP), there are good chances for the Constitutional Petition to be decided in favour of the mutual funds and accordingly mutual funds need not to make a provision regarding WWF in their financial statements. No provision for taxation has been made as the Fund is exempt from income tax under clause 99 of Part 1 of Second Schedule to the Income Tax Ordinance, 2001 (the Ordinance), subject to the condition that not less than 90% of its accounting income for the year, as reduced by the capital gains whether realized or unrealized, is distributed amongst its unit holders. The Fund plans to avail this exemption during the tax year. The Fund is also exempt from the provisions of Section 113 (minimum tax) under Clause 11(i) of Part IV of the Second Schedule to the Income Tax Ordinance, 2001. 11. EARNINGS PER UNIT Earnings per unit (EPU) has not been disclosed as, in the opinion of management, the determination of weighted average units for calculating EPU is not practicable. 12. TRANSACTIONS WITH CONNECTED PERSONS "Connected persons comprise of management company, associated undertakings, directors, trustee and key management staff of the management company. Units Sold to: Dawood Capital Management Limited - - 92,259 10,000,000 BRR Guardian Modaraba 448,422 40,000,000 - - - Directors and Executives of the Management Company 101,644 9,000,000 - - Units Redeemed by: The Burj Bank Limited 2,628,981 233,613,632 - - Dawood Capital Management Limited - - 92,259 10,009,521 Units Held by: BRR Guardian Modaraba 448,422 40,042,869 - - The Burj Bank Limited - - 2,628,981 247,019,417 - Directors and Executives of the Management Company 101,644 9,076,564 - - 18 19 For the Quarter Ended 30-Sep-12 (Un-Audited) (Units) () For the Year Ended 30-Jun-12 (Audited) (Units) ()
Balances with Related Parties: September 30, June 30, (Un-Audited) (Audited) Dawood Capital Management Limited Balance as at 01 July 917,910 1,511,614 Remuneration for Including Sales Tax 963,361 5,562,368 Reimbursement of Formation Costs - (500,000) Remuneration Paid (1,073,865) (5,656,072) Balances as at Period Ended 807,406 917,910 Central Depository Company of Pakistan Limited Trustee Balance as at 01 July 57,313 59,693 Remuneration for 176,291 700,993 Remuneration Paid (176,138) (703,373) Balances as at Period Ended 57,466 57,313 13. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm's length transaction. At Fair Value Through Profit or Loss Listed Equity Securities - - - 38,640,842 - - Available for Sale Investments Unlisted Debt Securities - Sukuks - - - - 31,075,725 - Placements - - - 26,225,355 Government Securities - - - - 100,020,000-14. DATE OF AUTHORIZATION FOR ISSUE These condensed interim financial statements were approved and authorized for issue on October 11, by the Board of Directors of the Management Company. 15. GENERAL For the Quarter Ended 30-Sep-12 (Un-Audited) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 ---------------------- ---------------------- - - - 38,640,842 131,095,725 26,225,355 Figures have been rounded off to the nearest Rupee unless otherwise specified. For the Year Ended 30-Jun-12 (Audited) Financial assets which are tradable in an open market are revalued at the market prices prevailing on the balance sheet date. The estimated fair value of all other financial assets and liabilities is considered not significantly different from book value The following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: 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 Level 3: Those with inputs for the asset or liability that are not based on observable market data (unobservable inputs) 20 21
BOOK POST If undelivered, please return to: DAWOOD ISALMIC FUND 5B Lakson Square Building #1, Sarwar Shaheed Road, Karachi 74200. Trustee: Central Depository Company of Pakistan Limited DAWOOD 5B Lakson Square Building #1, Sarwar Shaheed Road, Karachi 74200 Tel: (92-21) 3562-1001-7 Fax: (92-21) 3562-1010 Email: dcm@edawood.com Website: www.edawood.com