Manager of DAWOOD ISLAMIC FUND ANNUAL REPORT 2012 · maximizing returns and providing exemplary...

(Shariah Division)

ANNUAL REPORT2012

DAWOOD ISLAMIC FUND

Manager of

Annual Report 2012

Corporate Information 2

Mission Statement 3

Report of the Directors of the Management Company 4

Report of the Fund Manager 13

Details of Pattern of Holding (Units) 16

Report of the Shariah Advisors 17

Shariah Compliance Auditors’ Report to the Unit Holders 18

Trustee Report to the Unit Holders 19

Statement of Compliance with The Code of Corporate Governancefor the Year Ended June 30, 2012 20

Review Report to the Unit Holders on the Statement of Compliance withthe Best Practices of the Code of Corporate Governance 22

Independent Auditors’ Report to the Unit Holders 23

Financial Statements:

Statement of Assets and Liabilities 24

Income Statement 25

Statement of Comprehensive Income 26

Distribution Statement 27

Cash Flow Statement 28

Statement of Movement in Unit Holder’s Fund 29

Notes to the Financial Statement 30

Supplementary Non Financial Information 54

CONTENTS

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Management Company Dawood Capital Management Limited5B Lakson Square Building #1Sarwar Shaheed RoadKarachi-74200Tel: (92-21) 3562-1001-7Fax: (92-21) 3562-1010E-mail: [email protected]: www.edawood.com

Board of Directors Mrs. Shafqat Sultana ChairpersonMiss Tara Uzra Dawood Chief Executive OfficerMr. 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

Chief Financial Officer & Company Secretary Syed Kabiruddin

Head of Internal Audit & Compliance Officer Mr. Muhammad Farooq

Audit Committee Mr. Gul Nawaz ChairmanMr. Masood A. S. Wahedna MemberSyed Shabahat Hussain Member

Human Resource Committee Mrs. Shafqat Sultana ChairpersonMr. Gul Nawaz MemberMiss Tara Uzra Dawood Member

Trustee Central Depository Company of Pakistan LimitedCDC House, 99-B, Block-B, S.M.C.H.S.Main Shahra-e-Faisal, Karachi-74400

Auditors Ernst & Young Ford Rhodes Sidat HyderChartered Accountants

Tax Advisor Mazhar AssociatesA-1/E-3, Faiza Avenue Karachi

Legal Advisor Bawaney & Partners404, 4th Floor, Beaumont Plaza 6-cl-10Beaumont Road, Karachi 75530

Registrars Noble Computer Services (Pvt.) LimitedFirst Floor, House of Habib Building, 3-JinnahC.H. Society, Main Shahrah-e-Faisal, Karachi-75350

Former Registrars Gangjees Registrar Services (Pvt.) LimitedRoom # 516, 5th. Floor, Clifton CentreKehkashan Clifton, Karachi

Banker Burj Bank LimitedAl Baraka Bank (Pakistan) LimitedHabib Metropolitan Bank Limited

Rating PACRA: 3-Star

AMC Rating PACRA: AM3-

CORPORATE INFORMATION

Mission Statement

To be an innovative, proactive, skillful

and risk-averse mutual fund that adds

value to the investment of unit holders by

maximizing returns and providing

exemplary customer services.

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The Board of Directors of Dawood Capital Management Ltd. ("DCM" or the "Company") the ManagementCompany of Dawood Islamic Fund ("DIF-S"/"the Fund") are pleased to present the fifth annual report andthe audited financial statements of the Fund for the year ended June 30, 2012.

This Report presents the financial, operating and performance of the fund and highlights the key businesschallenges faced by us during the year. The Fund continued its journey of success and has emerged with amore progressive and dynamic outlook despite several challenges.

Fund Performance

As at June 30, 2012, net assets were Rs. 253.98 million as compared to Rs. 344.29 million as at June 30,2011. Total Loss for the year was Rs. 6.51 million as opposed to total income Rs. 56.52 million for the sameperiod last year. Total expenses during the year were Rs. 8.53 million as compared to Rs. 8.92 million forthe same period last year. The Net Asset Value per unit was Rs. 93.96 as at June 30, 2012.

Investment Strategy

The investment strategy devised for the Fund seeks to provide investors with balanced exposure to Shariahbased securities including stocks, debt securities and government securities. The Fund's strategy aims to notonly preserve investors' capital but also to maximize the value of their investments while providing a stablestream of income.

The portfolio management team selects investments using various analytical disciplines such as top-downfundamental research and quantitative screens in the light of the country's macro indicators. In particular,the team seeks to include in its portfolios fundamentally strong sectors and companies, while dynamicallyrebalancing portfolios to benefit from predicted macro trends. Investments are diversified across a mix ofsectors and investors are offered an optimized risk/return profile.

As on June 30, 2012, the Fund has made equity investments of Rs. 38.64 million mostly in strong dividendpayout and blue chip scripts representing 14.85% of total assets. Major emphasis in building the portfoliowas to accumulate those scripts which are under-priced and have huge growth potentials. Major sector-wiseweightage of the portfolio is Oil & Gas 8.86%. Fund maintained its holdings in this sector due to its longterm appreciation and dividend paying capability.

The debt securities consist of 60.45% of the total assets including 38.43% in AAA rated GoP Ijarah and restincludes diversified investment grade portfolio. Overall secondary debt market remained under pressure dueto downward revaluation and defaults of major debt securities in the market. Few issuers have done theirrescheduling and going for settlements which, we hope, will help in regaining the investors' confidence inthe upcoming years.

Dividend

The Board of Directors while reviewing the performance, decided to pay no dividend to unitholders.

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REPORT OF THE DIRECTORS OF THE MANAGEMENT COMPANY

Sales and Redemption of units

A total of 585,446 units were issued in the current year (Including 158,234 Bonus Units Issued) valued atRs. 45.30 million and 949,369 units were redeemed with a value of Rs. 102.88 million. As at June 30, 2012,the total number of outstanding units were 2,703,061 valued as 253.98 million.Charity

The Fund has accrued Rs. 0.218 million out of its total income for charity. Please see the note 13.

Credit Rating

The Pakistan Credit Rating Agency Limited (PACRA) has assigned a "3-Star" long-term rating to your fundfor the third year in a row which reflects superior performance relative to its peers.

Pakistan's Economy

The year started with the reduction of 50 basis points in discount rate by the new State Bank governor toboost the economy and further it scaled down 150 bps (total 200bps) due to less inflationary pressure to 12%in 1HFY12, to assist in boosting the private sector credit and investment. However, State Bank of Pakistanadopted a wait-and-see approach, keeping the discount rate unchanged in 2HFY12. On the macroeconomicfront, inflation rose sharply during the first month of the new fiscal year with a YoY CPI inflation touching13.8% but it reduced near to single digit by the end of the year at an average 11.0% YoY.

Net government borrowings from central bank to finance the budget deficit were at an all time high at RS1.28tn in FY12. Major reasons owing to this high borrowing requirement were insufficient foreign inflows,escalating government expenditures, lower than targeted revenue collection, losses of Public Sector Enterprisesand huge rupee subsidies. A greater reliance was put onto commercial banking sectors (56% of the totalborrowing for budgetary support or RS 704bn) to gain financial support.

After reaching high Foreign exchange reserves depletion and bringing the local currency to a record lowlevel as political environment continued to remain volatile - involving government, judiciary and militaryleadership especially the Prime Minister of Pakistan disqualified by the Supreme Court for not writing aletter to Swiss authorities for the re-opening of graft cases against the President.

The rupee continued to lose its value due to tense relations between Pakistan and United States coupled withthe absence of sizeable foreign inflows along with government's inability to contain budget deficit keptpressure on the exchange rate. Tensions persisted between Pak-US relations that increased during the firsthalf of the year after an incident took place on Pakistani check post at Pak-Afghan border. Pak-US relationswere at their lowest ebb post the NATO supply routes closure in Nov-2011, which stalled the potentialCoalition Support Fund and Kerry-Lugar Bill flows.

However, remittances once again reached a record high level this year too but exports fell short of target dueto low demand in the euro zone. The country not only missed the exports target but also witnessed highestever trade deficit of $21.271 billion during the last fiscal year 2011-12. On the other hand, the imports ofthe country also witnessed a new height and amounted to $44.912 billion in the July-June period of the lastfiscal year 2011-12 as compared with imports of $40.414 billion during the previous fiscal year 2010-11,

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indicating an increase of 11.13 percent. Fiscal side, on the other hand, has remained a cause of concern forthe economic managers.

The unending gas and electricity crisis and overall law and order situation of the country downed the 2011-12 textile exports by 17.7 percent , in dollar terms by $1.432 billion as compared to 2010-11 exports but witha substantial growth of over 78 per cent, raw cotton export has reached all time high mark of 1.66 millionbales at the end of last fiscal year 2011-2012 (FY12) mainly due to bumper cotton crop in the country andhigh demand in the world market.

While global economic headwinds continued to drive the domestic macroeconomic outlook, a multitude ofevents in FY12, such as the 200bps reduction in benchmark interest rates, oil price weakness toward the endof the fiscal year and higher GDP growth (3.7% against the anticipated 3%) on better agri-produce, providedsome good news in an increasingly challenging environment.

Headline Inflation

According to Federal Board of Statistics, the average headline inflation at 11.0% in FY12 as compared to13.7% in FY11, 1.0% below government's target of 12.0%. However, CPI ex food and energy inflation pickedup, at 10.5% in FY12 as opposed to 9.4% in FY11.

The aforesaid decline in headline numbers was mainly driven by reduction in food prices due to betterdomestic supplies and a decline in international prices. CPI food inflation decelerated to 11.0% in FY12compared to 18.0% increase in FY11. Other than food, a significant decline in house rent inflation, whichhas 21.8% weight in the CPI basket, also contributed to lower CPI in FY12.

Despite decline in house rent inflation, increase in core inflation represents substantial rise in prices of othergoods and services. This shows 1) inflationary expectations are becoming entrenched in the economy; 2)lack of price controls which is also collaborated by significant difference between wholesale and retail pricesof different goods.

The government projects headline inflation to further decline to 9.5% in FY13. However, we expect pricepressures to persist in FY13 due to increase in electricity tariffs, rupee devaluation and demand effects ofan expansionary fiscal policy. We expect FY13 inflation to at 10.0-11.0%.

At present, the government, due to its inability to access external sources and maintain fiscal discipline, hasan insatiable funding demand from the local markets. Even the current level of interest rates has beenmaintained due to substantial government borrowing from SBP and liquidity injections in the banking systemby the central bank. In our opinion, a change in government's fiscal stance, together with more balancedfunding of the fiscal deficit, is a prerequisite for any further decline in domestic interest rates.

Tax Collection

Tax collection remained a huge task and after setting a target of Rs 1952 billion at the start of the year thegovernment remained short of around Rs 70 billion in tax collection. However this remained the highest taxcollection by any government in history. Direct tax remained major source of FBR tax collection.

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Stock Market

KSE-100 ended off FY12 with a respectable 10.45% gain YoY, which positions it amongst the better-performing markets within regional peers. 1HFY12 saw the market lose 9.19% and then recover the sameand more in 2HFY12 by 21.62%. Index rallied in the second half due to certain encouragement measureslike the promulgation of the Capital Gain Tax Ordinance, reduction in discount rate by the central bank andSECP notification about relaxation in MTS rules. Volumes and FPIs, too, depicted a broadly similar trend,where the US$32.2mn/day traded value of 1HFY12 was comfortably trumped by 2HFY12 traded value ofUS$52.6mn/day. On FPIs (adjusting for Hubco sales of US$61mn and US$65mn in Oct and June, respectively),7 months of outflows (total US$97mn) were followed by 4 months of inflows (US$78mn). Overall, FPI sawUS$63mn of outflows (US$189mn incl Hubco) in FY12. The Pakistani Stock markets as compared with theother world indices performed reasonably well. Current government took steps to boost the confidence ofthe equity market investors.

While the market did enjoy a vibrant phase during 2HFY12, the vibrancy started to fade away toward theend of the year, due to 1) domestic politics, which saw the Prime Minister of Pakistan disqualified by theSupreme Court for not writing a letter to Swiss authorities for the re-opening of graft cases against thePresident; 2) a delay in re-setting of ties with the US, where the re-opening of NATO supply routes remainedelusive, which, in turn, cast doubts over the outlook for expected sovereign flows and 3) dwindling macrosmost reflected in the currency weakness witnessed toward the end of the year.

Foreign Direct Investment

Foreign direct investment (FDI) in Pakistan in FY12 showed a massive decline of 50.3% to $812.6 millionfrom $1.634 billion the preceding year. Oil and gas exploration, petroleum refining, beverages, electricalmachinery, automobiles, construction, and textiles sectors recorded higher growth in FDI. Nevertheless,foreign direct investment in telecommunications, power and financial sectors witnessed a negative growth.

Debt Market Review

Similar to FY11, debt market remained under pressure throughout the FY12 also. Downgrading and downwardvaluation continues at MUFAP coupled with defaults of major investee companies led towards negativemarket sentiments. Also the pressured selling of debt scripts by mutual funds to meet liquidity requirementsjoined the party. These issues are still hampering the secondary market which leads towards the shakyinvestors' confidence on the Mutual Fund industry especially in income funds. With the launch of few moneymarket and government securities funds with 70%-80% investments in sovereign issues, industry is nowattracting new investors with consistent yields.

Future Outlook

Pakistan's economy remains highly vulnerable because of continued security challenges, political uncertainty,worsened relationships between government and judiciary. Large fiscal deficits keep inflation high and limitgrowth, and the outlook for the short and medium term is not good. The media often focuses on the deterioratingsecurity situation in Pakistan, but Pakistan's feeble economy may prove a more dangerous-but less visible-

Annual Report 2012

threat. While Pakistan was held decades ago as a shining example of economic progress in the developingworld; its economy is now anemic, hobbled by a low savings rate, weak tax structure, a low investment inhuman capital, and the country's fraught political situation.

Moody's and Standard and Poor's (S&P) have reviewed Pakistan's current economic strength and futureoutlook and arrived at different conclusions. While Moody's downgraded Pakistan's sovereign credit ratingby one notch, that is, from B3 to Caa1 with negative outlook, the S&P has maintained its previous ratingfor Pakistan at B-minus with stable outlook. Not surprisingly, Moody's also downgraded the ratings of fivePakistani commercial banks by one notch to B3 from B2 with negative outlook owing to their large exposureto government's debt securities.

This rating downgrade has severe economic implications. It will increase the confirmation charges of Letterof Credit thereby raising the cost of doing business in Pakistan. The cost of foreign and local currencyborrowing is likely to rise with implications for debt-servicing. This entire cost is likely to be passed to theend consumers.

Going forward we believe in FY13 government borrowings requirement will mirror that witnessed in FY12.The government has set up a financing target of RS 1105bn in FY13. Domestic financing of estimated RS484bn (or 43% of the total financing) will be raised through banks while RS 487bn or 44% (of the totalfinancing) will be done through non-banks. The SBP has pushed for a net-zero financing from SBP, whichwe think would be overly optimistic to believe that government will restore to such policy keeping in mindalready it has RS 564bn standing in its account. Whereas on the external side, bleak outlook over externalfunds will be a major risk pertaining to domestic borrowing. IMF due payments will also be a risky factorwhich amounts to USD 1.5bn in FY13.

There is huge economic opportunity for Pakistan if reforms are enacted. However, consensus on these reformsseems to have fled Pakistan. There are two possible reasons for this lack of consensus; either there is aninformation deficit and leaders do not understand the value of these reforms for Pakistan as a whole, or oneconstituency in Pakistan is shifting costs onto another constituency.

Pakistan has abundant economic potential. It is located in an economically dynamic neighborhood, is readyto massively benefit from increased regional trade, and has the potential demographic dividend of a youngpopulation eager for employment.

Several policy changes could be enacted in both the short- and medium-term to return Pakistan to a path ofupward growth. In particular, Pakistan would need to enact fiscal, financial sector, and structural reforms.If Pakistan was able to do so, it would be able to contain vulnerabilities and move the economy to high andinclusive growth.

Looking ahead, election year considerations (higher development spending, salaries, targeted subsidies, andslower progress in increasing power tariff) are expected to keep fiscal pressures intact. The current focuson elections by Pakistani politicians would make it difficult to enact reforms.

Compliance with the Best Practices of the Code of Corporate Governance

The management company complies with the "Code of Corporate Governance" (Code) contained in the

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listing regulations of the Karachi Stock Exchange for the purpose of establishing a framework of goodgovernance, whereby a listed Fund is managed in compliance with the best practices of Code. The directorsof the Management Company hereby confirm the following as required by clause (xvi) of the Code:

The financial statements, prepared by the management of the listed company, present its state of affairs fairly, the result of its operations, cash flows and changes in equity;Proper books of account of the listed company have been maintained;Appropriate accounting policies have been consistently applied in preparation of financial statementsand accounting estimates are based on reasonable and prudent judgment;International Financial Reporting Standards, as applicable in Pakistan, have been followed inpreparation of financial statements and any departures therefrom has been adequately disclosedand explained;The system of internal control is sound in design and has been effectively implemented andmonitored with on going efforts to improve it further.There are no significant doubts upon the listed company's ability to continue as a going concern.There has been no material departure from the best practices of Corporate Governance, as detailedin the listing regulations.The management company has planned to conduct orientation course for its directors, wherenecessary, in the near future to appraise them with their duties and responsibilities.There has been no trading during the year in the units of the Fund carried out by the Directors,Chief Executive Officer, Company Secretary and their spouses and their minor children.There are no statutory payment on account of taxes, duties, levies and charges outstanding.

Changes in Directors

A casual vacancy occurring on the board on February 17, 2011 is in the process as it needs prior approvalof SECP as per NBFC Regulations to ensure the fit and proper criteria for director of NBFC.

Currently, the Management Company has six directors out of which five are non-executive directors.

Board of Directors Meetings

During the year, five meetings were held. The attendance of each Director is as follows:

S. No. Name Designation Entitlement Leave of to Attend Absences

Meeting

1. Mrs. Shafqat Sultana * Chairperson 2 1 2. Ms. Tara Uzra Dawood Chief Executive 5 - 3. Mr. Gul Nawaz Director 5 - 4. Mr. Masood A. S. Wahedna Director 5 2 5. Syed Shabahat Husssain Director 5 - 6. Mr. Nazimuddin Feroz Director 5 2

* Appointed During the Year

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Audit Committee Meeting

During the year, four meetings were held. The attendance of each member is as follows:

S. No. Name Designation Entitlement Leave of to Attend Absences

Meeting

1. Mr. Gul Nawaz Chairman 4 - 2. Mr. Masood A. S. Wahedna Member 4 2 3. Syed Shabahat Husssain Member 4 -

Auditors

The present Auditor, M/s Ernst & Young Ford Rhodes Sidat Hyder, Chartered Accountants are due forretirement and being eligible, offer themselves for re-appointment. As required under the Code of CorporateGovernance, The audit Committee of Management Company has recommended the appointment of Ernst& Young Ford Rhodes Sidat Hyder, Chartered Accountants as auditors for the year ending June 30, 2013

Risk Management

Risk taking is an integral part of any business and is rooted in the philosophy of risk versus reward, that is,the higher the risk the greater the reward. Our fundamental objective is to maximize the unit holder's value,but this must be carried out in a clearly articulated risk tolerance framework.

DIF-S is exposed to a variety of risks including credit, liquidity, interest rate, market risk and operationalrisk.

Our risk management policies and procedures ensure that risks are effectively identified, evaluated, monitoredand managed. Risk management is a dynamic function and management must continuously monitor itsinternal risk procedures and practices in order to reduce earnings variability.

The Board has formed the following committees to manage the various types of risks the Bank is exposedto:

Board's Audit CommitteeInvestment Committee

Statement of Ethics and Business Practices

The Board of Directors of the Management Company has adopted a statement of ethics and business practices.All employees are informed of this statement and are required to observe these rules of conduct in relationto business and regulations.

Marketing Function/Role

DIF-S continues to be one of the most exciting and profitable Shariah Compliant Islamic Asset AllocationFund in Pakistan. It is also the most innovative fund in the industry with its DAWOODPERKS® loyaltyprogram (which has grown to over 20 eminent partners) and DAWOOD SAVINGS FUNDS® includingBABYFUND® (children's trust fund), LADIESFUND® and SHAADI FUND®. The DCM family has nowgrown to include joint promotions with various enterprises including restaurants, art galleries, boutiques,salons and variety of other stores. A list of current partners and promotions is available on our websitewww.dawoodperks.com

As part of its corporate social responsibility, DCM has also held a series of fundraisers for Dawood GlobalFoundation(TM)'s LADIESFUND® Fellowships and Scholarships Program to meet UNDP's MillenniumGoals (Goal 3 Women's economic empowerment - Innovative Approaches to Promoting Women's EconomicDevelopment). These events include LADIESFUND® Entrepreneurship Conference 2010 at Avari Karachi,LADIESFUND® Women of Influence Networking Luncheon at the British Deputy High Commission and3rd LADIESFUND® Women's Awards at Mohatta Palace Museum. DCM also published LADIESFUND®Magazine, Pakistan's first magazine for women professionals and entrepreneurs.

In addition to the above stated marketing, further publicity is derived from interviews, newspaper articlesand participation in industry events.

Information Technology

The IT department has been an integral department of the organization. A cutting-edge computerizedenvironment and efficient utilization of information technology has been the hallmark of your company'spolicy.

DCM continuously invests in technology to improve internal decision-making operational efficiencies andthe quality of service to customers.

The IT function besides creating an efficient IT environment in the organization also keeps abreast with thelatest trends in information technology. In addition, the company continues to implement initiatives to reducethe usage of paper through the utilization of information technology as part of the company's long tenureobjective to strive towards a paperless environment.

The Fund is also constantly upgrading its website www.edawood.com, which provides corporate productinformation.

Human Resource Training and Development

DCM's employees are its greatest asset. Hence, several significant initiatives have been taken during the yearto improve upon the hiring including retention and work environment-related issues, grooming of skills tomatch with the changing business needs, induction of qualified and experienced professionals. Training andHuman Resource Development continues to be of prime importance in 2012-13.

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Transaction with Connected Persons/Related Parties

Transactions between the Fund and its connected persons are carried out on an arm's length basis and therelevant terms of the transactions are determined in accordance with the "Comparable Uncontrolled PriceMethod". The Fund has fully complied with the best practices on transfer pricing as contained in the ListingRegulation of the Karachi Stock Exchange.

Pattern of Unit Holding

The pattern of unit holders as on June 30, 2012 along with disclosure as required under the Code of CorporateGovernance is annexed.

Key Financial Highlights

Key financial highlights are summarized and annexed to these financial statements.

Acknowledgement

The Directors wish to express their gratitude to the Securities & Exchange Commission of Pakistan and otherregulatory bodies for their valuable support, assistance and guidance during these times of recovery. TheBoard also thanks the employees of the Asset Management Company and CDC for their dedication and hardwork and the unit holders for their confidence in the Management.

For and on behalf of the Board of Directors,

September 17, 2012Karachi. Chairperson

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Annual Report 2012

REPORT OF THE FUND MANAGERFOR THE YEAR ENDED 30 JUNE 2012

Fund Objective

Dawood Islamic Fund (DIF-S) is an Islamic Asset Allocation Fund, its objective is to provide investors theopportunity to earn Riba-free Halal Munafa and capital growth through investments.

Fund Performance

As at June 30, 2012, net assets were Rs. 254 million as compared to Rs. 344 million as at June 30, 2011.The net loss for the financial year 2011-12 was Rs. 7 million, as opposed to income of Rs. 57 million lastyear.

Income Derived

PS = Profit on SukuksPBB = Profit on Bank BalancesCGSS = Capital Gain on Sale of SecuritiesDI = Dividend Income

The NAV per unit has decreased from Rs. 101.7587 to Rs. 93.9601 as at June 30, 2012 because of impairmentlosses on debt securities by Rs. 36.11 million. Fund prudently reduced its debt portfolio to 22% as comparedto 37% in FY11. Few investments are still in process of settlements and management is very hopeful thatthese will also come through resulted in the better liquidity and sales volumes in upcoming years.

Fund remained totally liquid throughout the year with major investments inbank deposits and government securities. Tiny portion of the portfolio alsoinvested in dividend paying blue chip stocks, with major in Oil & Gas sector,which works as a yield kicker in terms of capital gains in bullish markettrends coupled with dividend in bearish market due to strong earning potentials.

Dawood Islamic Fund is still an attractive investment for those who want to make quick capital gains ontheir investments.

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Annual Report 2012

Investment Strategy

The investment strategy devised for the Fund seeks to provide investors with balanced exposure to Shariahbased securities including stocks, debt securities and government securities. The Fund's strategy aims to notonly preserve investors' capital but also to maximize the value of their investments while providing a stablestream of income.

The portfolio management team selects investments using various analytical disciplines such as top-downfundamental research and quantitative screens in the light of the country's macro indicators. In particular,the team seeks to include in its portfolios fundamentally strong sectors and companies, while dynamicallyrebalancing portfolios to benefit from predicted macro trends. Investments are diversified across a mix ofsectors and investors are offered an optimized risk/return profile.

As on June 30, 2012, the Fund has made equity investments of Rs. 38.64 million mostly in strong dividendpayout and blue chip scripts representing 14.85% of total assets. Major emphasis in building the portfoliowas to accumulate those scripts which are under-priced and have huge growth potentials. Major sector-wiseweightage of the portfolio is Oil & Gas 8.86%. Fund maintained its holdings in this sector due to its longterm appreciation and dividend paying capability.

The debt securities consist of 60.45% of the total assets including 38.43% in AAA rated GoP Ijarah and restincludes diversified investment grade portfolio. Overall secondary debt market remained under pressure dueto downward revaluation and defaults of major debt securities in the market. Few issuers have done theirrescheduling and going for settlements which, we hope, will help regaining the investors' confidence in theupcoming years.

Major Strategies And Policies Employed During FY12

On the basis of our objective of capital security, the Fund mostly adopted the strategy to invest only in liquidinstruments. Details of major strategies and policies employed are as under:

Stock Investments

On the basis of our objectives of long term value investing, the Fund mostly adopted criteria to take newexposures in those sectors/stocks which fulfill all Shariah compliant criteria and offered positive fundamentalsand technical signals; reduce exposure from those sectors/stocks where fundamentals and technical becamenegative. Sector wise details of major strategies and policies employed are as under:

Fund maintained its exposure in Pharma & Bio Tech sector. Glaxo is the scriptheld throughout the year due to strong earning potential.

Fund maintained its major exposure in Oil and Gas sector of about8.86% with major exposure in Shell.

In Pharma, Fund held the Glaxo due to strong fundamentals and long term growth potential.

In Chemical sector fund held the ICI and added FFC due to strongfundamentals.

In Personal Goods sector NML is added for having strong capacityto pay dividends.

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Debt Investments

During the year no major activity was observed in the debt investments due to illiquid market conditionexcept selling/settlement of few scripts in order to take advantage of better prices and to increase the liquidityin the fund. The Fund has maintained the optimum level of debt credit quality as at June 30, 2012.

Fund adopted the strategy to offload/settle as much corporatedebt securities at better rates to increase the liquidity as well asto optimize the allocation. Fund successfully reduced its corporatedebt securities to 22% as compared to 37.33% in FY11.

The liquidity so received was mainly invested in bank depositsand government securities (GoP Ijarah) which are the safestavenues to maintain consistency in returns while ensuring liquidity.

Dividend

The Board of Directors while reviewing the performance, decided to pay NIL dividend to unitholders.

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Detail of Pattern of Holdings (Units)As at June 30, 2012

Catogory No. of Unit Holders Unit Held % of Total

Individuals 74 18,569 0.69

Bank 1 2,628,981 97.26

NBFC 1 590 0.02

Retirement Funds 1 54,909 2.03

Others 1 12 0.00

TOTAL 78 2,703,061 100

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REPORT OF THE SHARIAH ADVISORS

We, the Shariah Advisors of the Dawood Islamic Fund (DIF-S) managed by Dawood Capital ManagementLimited (DCM) are issuing this report in accordance with clause 3.4(c)(v) of the Trust Deed of the said Fund.The scope of the report is to express an opinion on the Shariah Compliance of the Fund's activities.

In the capacity of Shariah Advisors, we have prescribed criteria and procedures to be followed in ensuringShariah Compliance in every investment.

It is the responsibility of the Management Company of the said Fund to establish and maintain a system ofinternal controls to ensure compliance with Shariah guidelines. Our responsibility is to express an opinion,based on our review, to the extent where such compliance can be objectively verified. A review is limitedprimarily to inquiries of the Management Company's personnel and review of various documents preparedby the Management Company to comply with the prescribed criteria.

In the light of the above, we hereby certify that:

1. We have reviewed and approved the modes of investments of DIF-S in the light of the Shariah guidelines.

2. All the provisions of the Scheme and investments made on account of DIF-S by DCM (Shariah Division)for the year ended June 30, 2012 are Shariah compliant and in accordance with the criteria established.

3. Furthermore the Management Company has calculated an amount of PKR 217,712/-. This amount isa percentage of the dividend income attributable to the non-compliant sources of the investee companieswhere dividend was received during the year. We confirm that we have checked and verified thisamount. The treatment of the above Non-Shariah compliant income is disclosed in the Notes to theAccounts under the heading of "Prohibited Income in the Distributed Income". As the Shariah non-compliance amount of PKR. 217,712/- is received by the FUND during the year, therefore, in ouropinion, it must be paid as charity from FUND to any charitable Institution with the consent of theShariah Board.

May Allah bless us with best Tawfeeq to accomplish His cherished tasks, make us successful in this worldand in the Hereafter.

Prof. Mufti Munib-ur-RehmanChairman Shariah Board

KarachiSeptember 17, 2012

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Independent Assurance Report to the Unit Holders of the Fund in Respect of theFund's Compliance with the Shariah Rules and Principles

We have performed an independent assurance engagement of Dawood Islamic Fund (the Fund) to ensurethat the Fund has complied with the Shariah rules and principles prescribed by the Shariah Board of the Fundduring the year ended 30 June 2012, in accordance with clause 3.5 of the Trust Deed of the Fund.

2. Management's Responsibility for Shariah Compliance

It is the responsibility of the management of the Fund to ensure that the financial arrangements, contractsand transactions entered into by the Fund are, in substance and in their legal form, in compliance with therequirements of the Shariah rules and principles. The management is also responsible for design, implementationand maintenance of appropriate internal control procedures with respect to such compliance and maintenanceof relevant accounting records.

3. Our Responsibility

3.1. We planned and performed our evidence gathering procedures to obtain a basis for our conclusionin accordance with International Standard for Assurance Engagements 3000 (ISAE 3000) "AssuranceEngagements other than Audits or Reviews of Historical Financial information". This Standard requires thatwe comply with ethical requirements and plan and perform the engagement to obtain reasonable assuranceregarding the subject-matter i.e. the Fund's compliance with the Shariah rules and principles as determinedby the Shariah Board.

3.2. The "Assurance Procedures" selected by us for the engagement were dependent on our judgment,including the assessment of the risks of material non-compliance with the Shariah rules and principles. Inmaking those risk assessments, we considered internal controls relevant to the Fund's compliance with theShariah rules and principles in order to design procedures that are appropriate in the circumstances, but notfor the purpose of expressing an opinion on the effectiveness of the Fund's internal controls.

3.3. Our responsibility is to express an opinion, based on the procedures performed on the Fund'sfinancial arrangements, contracts and transactions having Shariah implications, on a test basis whether suchfinancial arrangements, contracts and transactions, having Shariah implications, are in line with the Shariahrules and principles as prescribed by Shariah Board of the Fund.

4. Our Opinion

In our opinion, the Fund was, in all material respects, in compliance with the Shariah rules and principlesas determined by Shariah Board of the Fund during the year ended30 June 2012.

Ernst & Young Ford Rhodes Sidate HyderKARACHI CHARTERED ACCOUNTANTSDate: September 17, 2012

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18

Annual Report 2012

TRUSTEE REPORT TO THE UNIT HOLDERS

Report of the Trustee pursuant to Regulation 41(h) and Clause 9 of Schedule V of the Non-Banking FinanceCompanies and Notified Entities Regulations, 2008

We Central Depository Company of Pakistan Limited, being the Trustee of Dawood Islamic Fund (the Fund) are ofthe opinion that Dawood Capital Managment Limited being the Management Company of the Fund has in all materialrespects manged the Fund during the year ended June 30, 2012 in accordance with the provisions of the following:

(i) Limitations imposed on the investment powers of the management company under the constitutivedocuments of the Fund;

(ii) The pricing, issuance and redemption of units are carried out in accordance with the requirements ofthe constitutive documents of the Fund; and

(iii) The Non-Banking Finance Companies (Establishment and Regulations) Rules, 2003, the Non-BankingFinance Companies and Notified Entities Regulations, 2008 and the constitutive documents of the Fund.

Muhammad Hanif JakhuraChief Executive OfficerCentral Depository Company of Pakistan Limited

Karachi: October 08, 2012

19

CENTRALDEPOSITORY

COMPANY

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20

STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCEFOR THE YEAR ENDED JUNE 30, 2012

Statement of Compliance with the Code of Governance

This statement is being presented to comply with the Code of Corporate Governance (the Code) contained in RegulationNo. 35 of listing Regulations of Karachi Stock Exchange for the purpose of establishing a framework of good governance,whereby a listed company is managed in compliance with the best practices of corporate governance.

The management company has applied the principles contained in the Code in the following manner:

1. The management company encourages representation of independent non-executive directors on its board ofdirectors. At present the board includes:

Category Names

Independent Directors 1. Mrs. Shafqat Sultana2. Mr. Gul Nawaz

Executive Directors 1. Miss Tara Uzra Dawood - Chief Executive Officer

Non - Executive Directors 1. Mr. Masood A. S. Wahedna2. Mr. Nazimuddin Feroz3. Mr. Shabahat Hussain

The independent directors meets the criteria of independence under clause i (b) of the Code.

2. The directors have confirmed that none of them is serving as a director on more than seven listed companies,including this management company (excluding the listed subsidiaries of listed holding companies whereapplicable).

3. All the resident directors of the management company are registered as taxpayers and none of them has defaultedin payment of any loan to a banking company, a DFI or an NBFI or, being a member of a stock exchange, hasbeen declared as a defaulter by that stock exchange.

4. The company has prepared a "Statement of Ethics and Business Practices", which has been signed by all thedirectors and employees of the company.

5. The board has developed a vision/mission statement, overall corporate strategy and significant policies of themanagement company. A complete record of particulars of significant policies along with the dates on whichthey were approved or amended has been maintained.

6. All the powers of the board have been duly exercised and decisions on material transactions, including appointmentand determination of remuneration and terms and conditions of employment of the CEO, other executive andnon-executive directors, have been taken by the board.

7. The meetings of the board were presided over by the Chairperson and, in her absence, by a director elected bythe board for this purpose and the board met at least once in every quarter. Written notices of the board meetings,along with agenda and working papers, were circulated at least seven days before the meetings. The minutes ofthe meetings were appropriately recorded and circulated.

8. The management company arranged one orientation programs for its directors during the year.

9. No new appointment of CFO, Company Secretary and Head of Internal Audit were made during the year.

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21

10.The directors' report for this year has been prepared in compliance with the requirements of the Code and fullydescribes the salient matters required to be disclosed.

11. The financial statements of the fund were duly endorsed by Chief Executive Officer and Chief Financial Officerof the management company before approval of the board.

12.The directors, Chief Executive Officer and executives do not hold any interest in the units of the fund other thanthat disclosed in the pattern of unit-holdings.

13.The management company has complied with all the corporate and financial reporting requirements of the Code.

14.The board has formed an Audit Committee. It comprises of three members, of whom all are non-executivedirectors and the chairman of the committee is an independent director.

15.The meetings of the audit committee were held at least once every quarter prior to approval of interim and finalresults of the fund and as required by the Code. The terms of reference of the committee have been formed andadvised to the committee for compliance.

16.The Board has outsourced the internal audit function to Riaz Ahmad & Company Chartered Accountants whoare considered suitably qualified and experienced for the purpose and are conversant with the policies andprocedures of the management company.

17. The Board has formed a Human Resource and Remuneration Committee subsequent to the year end. It comprisesof three members, of whom two are non-executive directors and the chairman of the committee is an independentnon-executive director.

18.The statutory auditors of the fund have confirmed that they have been given a satisfactory rating under the qualitycontrol review program of the Institute of Chartered Accountants of Pakistan (ICAP), that they or any of thepartners of the firm, their spouses and minor children do not hold certificate of the fund and that the firm andall its partners are in compliance with International Federation of Accountants (IFAC) guidelines on code ofethics as adopted by the Institute of Chartered Accountants of Pakistan (ICAP).

19.The statutory auditors or the persons associated with them have not been appointed to provide other servicesexcept in accordance with the listing regulations and the auditors have confirmed that they have observedInternational Federation of Accountants (IFAC) guidelines in this regard.

20.The 'closed period', prior to the announcement of interim/final results, and business decisions, which maymaterially affect the market price of scrip, was determined and intimated to directors, employees and stockexchange.

21.Material/price sensitive information has been disseminated among all market participants at once through stockexchange.

22.We confirm that all other material principles enshrined in the Code have been complied except for the following,towards which reasonable progress is being made by the management company to seek compliance by the endof next accounting year:

A casual vacancy occurred in the Board on February 17, 2011 which has not yet been filled as the SECPdid not grant approval for appointment of persons applied to fill the said casual vacancy;

For and on behalf of theBoard of Directors,

September 17, 2012 Tara Uzra DawoodKarachi.

REVIEW REPORT TO THE UNIT HOLDERS ON THE STATEMENT OFCOMPLIANCE WITH THE BEST PRACTICES OF THE CODE OFCORPORATE GOVERNANCE

We have reviewed the Statement of Compliance with the best practices (the Statement) contained in the Codeof Corporate Governance (the Code) prepared by the Board of Directors of Dawood Capital ManagementLimited (the Management Company) of Dawood Islamic Fund (the Fund) to comply with the ListingRegulation No. 35 (Chapter X1) of the Karachi Stock Exchange where the Fund is listed.

The responsibility for compliance with the Code is that Board of Directors of the Management company ofthe Fund. Our responsibility is to review, to the extent where such compliance can be objectively verified,whether the Statement reflects the status of the Management Company's compliance with the provisions ofthe Code in respect of the Fund and report if it does not. A review is limited primarily to inquiries of theManagement Company's personal and review of various documents prepared by the Management Companyto comply with the Code.

As part of our audit of financial statements, we are required to obtain an understanding of the accountingand internal control systems sufficient to plan the audit and develop an effective audit approach. We are notrequired to consider whether the Board's statement on internal control covers all risks and controls, or toform an opinion on the effectiveness of such internal controls, the Management Company's corporategovernance procedures and risks.

Further, Sub-Regulation (xiii a) of Listing Regulation 35 notified by The Karachi Stock Exchange videcircular KSE/N-269 dated 19 January 2009 requires the Management Company to place before the Boardof Directors for their consideration and approval related party transactions distinguishing between transactioncarried out on terms equivalent to those that prevail in arm's length transactions and transactions which arenot executed at arm's length price recording proper justification for using such alternate pricing mechanism.Further, all such transactions are also required to be separately placed before the audit committee. We areonly required and have ensured compliance of requirement to the extent of approval of related party transactionsby the Board of Directors and placement of such transactions before the audit committee. We have not carriedout any procedure to determine whether the related party transactions were undertaken at arm's length priceor not.

Based on our review, nothing has come to our attention which causes us to believe that the Statement doesnot appropriately reflect the Management Company's compliance, in all material respects, with the bestpractices contained in the Code in respect of the Fund for the year ended 30 June 2012.

We draw your attention to clause 22 of the Statement which mentions certain non-compliances with the Code.

Our opinion is not qualified in respect of the above matter.

Ernst & Young Ford Rhodes Sidat HyderChartered Accountants

KarachiDate: September 17, 2012

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22

INDEPENDENT AUDITORS' REPORT TO THE UNIT HOLDERSREPORT ON THE FINANCIAL STATEMENTS

We have audited the accompanying financial statements of Dawood Islamic Fund (the Fund), which comprise the statementof assets and liabilities as at 30 June 2012, and the related statements of income, comprehensive income, distribution, cashflows and movement in unit holders' fund for the year then ended, and a summary of significant accounting policies andother explanatory notes.

Management's Responsibility for the Financial Statements

The Management Company of the Fund is responsible for the preparation and fair presentation of these financial statementsin accordance with the requirements of approved accounting standards as applicable in Pakistan, and for such internalcontrol as management determines is necessary to enable the preparation of financial statements that are free from materialmisstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with auditing standards as applicable in Pakistan. Those standards require that we comply with ethicalrequirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free frommaterial misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditorconsiders internal control relevant to the entity's preparation and fair presentation of the financial statements in order todesign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policiesused and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentationof the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to providea basis for our audit opinion.

Opinion

In our opinion the financial statements give a true and fair view of the state of the Fund's affairs as at 30 June 2012 andof its financial performance, cash flows and transactions for the year then ended in accordance with approved accountingstandards as applicable in Pakistan.

Other Matters

The financial statements of the fund for the year ended 30 June 2011 were audited by another firm of Chartered Accountantswhose report dated 07 September 2011 expressed an unqualified opinion thereon.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

In our opinion, the financial statements have been prepared in accordance with the relevant provisions of Non-BankingFinance Companies (Establishment and Regulation) Rules, 2003 and Non-Banking Finance Companies and NotifiedEntities Regulations, 2008.

Chartered AccountantsAudit Engagement Partner: Omer Chughtai

Date: September 17, 2012Karachi

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23

Annual Report 2012

24

STATEMENT OF ASSETS AND LIABILITIESAS AT JUNE 30, 2012

For Dawood Capital Management Limited(Management Company)

Chief Executive Officer Director Director

2012 2011 Note Rupees Rupees

ASSETSBank Balances 5 52,891,628 69,829,055Investments 6 195,961,922 264,858,635Dividend and Profit Receivable 7 8,907,041 8,270,691Security Deposit 8 2,500,000 5,500,000Preliminary Expenses and Floatation Costs 9 - 500,000Total Assets 260,260,591 348,958,381

LiabilitiesPayable to Management Company 10 917,910 1,511,614Payable toTrustee 11 57,313 59,693Annual Fee Payable to Securities and Exchange Commission of Pakistan 12 303,692 322,643Accrued Expenses and Other Liabilities 13 5,001,700 2,768,740Total Liabilities 6,280,615 4,662,690

NET ASSETS 253,979,976 344,295,691

Unit Holders' Fund (as per statement attached) 253,979,976 344,295,691

Number of Units in Issue 15 2,703,061 3,066,984

Net Asset Value per Unit 93.96 112.26

Contingencies and Commitments 14

The annexed notes from 1 to 24 form an integral part of these financial statements.

Annual Report 2012

25



INCOME STATEMENTFOR THE YEAR ENDED JUNE 30, 2012

Note 2012 2011 Rupees Rupees

Income

Profit on Sukuks, Musharika and Bank Balances 16 35,962,404 29,725,915Gain on Sale of Securities - Net 660,895 7,655,360Dividend Income 1,552,500 2,815,429(Charge of)/Reversal ofImpairment in the Value of

Investments Classified as Available for Sale-Net 6.5 (36,109,928) 12,423,357Unrealised(Diminution)/Appreciation in Value of

Investments at Fair Value through Profit orLoss (8,574,936) 3,897,920Total Income (6,509,065) 56,517,981

Expenses

Remuneration of Management Company 10 4,795,145 5,094,403Sales Tax on Management Fee 10.1 767,223 -Remuneration of Trustee 11 700,993 704,355Annual Fee to Securities and Exchange

Commission of Pakistan 12 303,692 322,643Securities Transactions Cost 293,748 112,601Auditors' Remuneration 17 435,000 330,000Amortization of Preliminary Expenses and

Floatation Costs 500,000 500,000Bank Charges 14,640 9,873Printing Charges 88,200 67,756Workers' Welfare Fund - 807,428Fees and Subscription 416,457 384,465Charity 217,712 585,184Total Expenses 8,532,810 8,918,708

Net (Loss)/Income from Operating Activities (15,041,875) 47,599,273

Element of (Losses)/Gains and Capital (Losses)/Gains Included inPrices of Units Issued Less those in Units Redeemed -Net (5,085,874) (8,035,295)

Net(Loss)/Income (20,127,749) 39,563,978


Annual Report 2012

26



STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED JUNE 30, 2012

2012 2011

Note Rupees Rupees

Net (Loss)/Income (20,127,749) 39,563,978

Other Comprehensive (Loss)/Income

Net Unrealized (Diminution)/Appreciation in the

Fair Value of Investments Classified as

'Available for Sale' 6.6 (1,592,344) 497,227

Total Comprehensive (Loss)/Income for the Year (21,720,093) 40,061,205


Annual Report 2012

27



DISTRIBUTION STATEMENTFOR THE YEAR ENDED JUNE 30, 2012

2012 2011Rupees Rupees

Undistributed Income/(Loss)Brought Forward- Realised 44,234,397 8,568,339 - Unrealised (6,555,174) (10,453,094)

37,679,223 (1,884,755)

Net (Loss)/Incomefor the Year (20,127,749) 39,563,978

Final Distribution for the Year Ended 30 June 2011- Cash Distribution of Rs 5.25 per Unit (2010: Nil) (16,101,666) -- Bonus Units (158,234 Units) of Rs 5.25 per Unit (2010: Nil) (16,101,666) -

Undistributed(Loss)/IncomeCarried Forward (14,651,858) 37,679,223

Represented By:- Realised 478,252 44,234,397- Unrealised (15,130,110) (6,555,174)

(14,651,858) 37,679,223


Annual Report 2012

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CASH FLOW STATEMENTFOR THE YEAR ENDED JUNE 30, 2012

2012 2011 Rupees RupeesCASH FLOWS FROM OPERATING ACTIVITIESNet (Loss)/Income for the Year (20,127,749) 39,563,978

Adjustments for:Diminution/(Appreciation) on Measurement of Investments

at Fair Value through Profit or Loss 8,574,936 (3,897,920)Gain on Sale of Securities (660,895) (7,655,360)Element of Losses and Capital Losses Included in Prices of

Units Issued Less Those in Units Redeemed - Net 5,085,874 8,035,295Charge/(Reversal) Impairment in the Value of Investments Classified as Available for Sale -Net 36,109,928 (12,423,357)Amortisation of Preliminary Expenses and Floatation Costs 500,000 500,000

29,482,094 24,122,636Decrease/(Increase)in AssetsInvestments 23,280,400 (37,457,276)Dividend and Profit Receivable (636,350) 3,504,134Security Deposit 3,000,000 (3,000,000)

25,644,050 (36,953,142)Increase/(Decrease)in LiabilitiesPayable to Management Company (593,704) 242,166Payable toTrustee (2,380) 2,159Annual Fee Payable to Securities &

Exchange Commission of Pakistan (18,951) (3,516)Payable against Redemption of Units - (24,436)Accrued Expenses and Other Liabilities 2,232,960 1,453,083

1,617,925 1,669,456Cash Dividend Paid (16,101,666) -Net Cash Inflow/(Outflow) from Operating Activities 40,642,403 (11,161,050)CASH FLOWS FROM FINANCING ACTIVITIESCash Received on Issue of Units 45,298,000 1,743,017Cash Paid on Redemption of Units (102,877,830) (2,255,627)Net Cash Outflow from Financing Activities (57,579,830) (512,610)

Net Decrease in Cash and Cash Equivalents (16,937,427) (11,673,660)

Cash and Cash Equivalents at Beginning of the Year 69,829,055 81,502,715

Cash and Cash Equivalents at End of the Year 52,891,628 69,829,055


Annual Report 2012

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STATEMENT OF MOVEMENT IN UNIT HOLDER’S FUNDFOR THE YEAR ENDED JUNE 30, 2012

2012 2011 Rupees Rupees

Net Assets at the Beginning of the Year 344,295,691 231,491,462

Issue of 427,212 Units (2011: 746,976) 45,298,000 1,743,017Withdrawal of Redemption of 731,305 Units - 65,220,339Redemption of 949,369 Units (2011: 19,545 Units) (102,877,830) (2,255,627)

(57,579,830) 64,707,729

Element of Losses/(Gains)and Capital Losses/(Gains)Included in Prices of Units Issued Less Those inUnits Redeemed - Net 5,085,874 8,035,295

Final Cash Distribution for the Year Ended30 June 2011: Rs. 5.25 per Unit (2010: Nil) (16,101,666) -

Net (Loss)/Income for the Year (20,127,749) 39,563,978

Other Comprehensive (Loss)/Income (1,592,344) 497,227Total Comprehensive (Loss)/Income for the Year (21,720,093) 40,061,205

Net Assets as at End of the Year 253,979,976 344,295,691

Net Assets Value per Unit at the Beginning of the Year 112.26 98.95Net Assets Value per Unit at the end of the Year 93.98 112.26


(Rupees)

1. LEGAL STATUS AND NATURE OF BUSINESS

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 CentralDepositary Company of Pakistan (CDC) as Trustee. The Securities and Exchange Commission ofPakistan (SECP) approved the appointment of Trustee and granted license to the ManagementCompany of the Fund to act as an Asset Management Company. Registered office of the ManagementCompany is situated at 5B Lakson Square Building# 1, SarwarShaheed Road, Karachi, Pakistan.

The Fund is an open-ended mutual fund and is listed on Karachi Stock Exchange. Units are offeredfor public subscription on a continuous basis. The units are transferable and can be redeemed bysurrendering them to the Fund.

The Fund is categorized as an open ended Shariah Compliant asset allocation scheme. The principalactivities of the Fund are to make investment in equity and debts securities which are ShariahCompliant and approved by the Shariah Advisors.Titles to the assets of the Fund are held in the nameof Central Depository Company of Pakistan Limited as a Trustee of the Fund.

Asset Manager Rating (AMR) of Management Company is 'AM3-' and that of Fund is 3 star, ratedby Pakistan Credit Rating Agency (PACRA).

2. BASIS OF PRESENTATION

The transactions undertaken by the Fund are in accordance with the process prescribed under theShariah guidelines issued by the Shariah Advisory Board of the Fund.

2.1 Statement of Compliance

These financial statements have been prepared in accordance with approved accounting standardsas applicable in Pakistan. Approved accounting standards comprise of International Financial ReportingStandards (IFRS) issued by the International Accounting Standards Board (IASB) as are notifiedunder the Companies Ordinance, 1984, the requirements of the Trust Deed, the Non-Banking FinanceCompanies Rules, the Non-Banking Finance Companies and Notified Entities Regulations, 2008(the NBFC Regulations) and directives issued by the Securities and Exchange Commission ofPakistan. Wherever the requirements of the Trust Deed, the NBFC Rules, the NBFC Regulations orthe directives issued by the SECP differ with the requirements of IFRS, the requirements of the TrustDeed, the NBFC Rules, the NBFC Regulations or the requirements of the said directives shall prevail.

2.2 Basis of Measurement

These financial statements have been prepared under the historical cost convention except forinvestments which are accounted for as stated in notes 5.1 and 5.2 below.

2.3 Functional and Presentation Currency

These financial statements have been presented in Pakistan Rupees which is the functional andpresentation currency of the Fund.

Annual Report 2012

30

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED JUNE 30, 2012

Annual Report 2012

31

2.4 Use of Estimates and Jugements

The preparation of financial statements requires management to make judgments, estimates andassumptions 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 experienceand various other factors that are believed to be reasonable under the circumstances, the result ofwhich form the basis of making judgments about carrying values of assets and liabilities. The estimatesand underlying assumptions are reviewed on an ongoing basis.

Judgments made by management in the application of accounting policies that have significant effecton the financial statements and estimates with a significant risk of material adjustment are explainedin the relevant accounting policies/notes in the financial statements.

2.5 Changes in Accounting Policy and Disclosures

The accounting policies adopted in the preparation of these financial statements are consistent withthose of the previous financial year except as described below:

The Fund has adopted the following new and amended IFRS and IFRIC interpretations which becameeffective during the year:

IFRS 7 - Financial Instruments: Disclosures (Amendment)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 variousstandards primarily with a view to removing inconsistencies and clarifying wording. These improvementsare listed below

IFRS 7 - Financial Instruments: Disclosures - Clarification of disclosuresIAS 1 - Presentation of Financial Statements - Clarification of statement of changes in equityIAS 34 - Interim Financial Reporting - Significant events and transactionsIFRIC 13 - Customer Loyalty Programmes - Fair value of award creditsThe adoption of the above standards, amendments, interpretations and improvements did not haveany material effect on the financial statements.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the financial statements are set outbelow:

3.1 Investments

The investments, upon initial recognition, are classified as investment at fair value through profitor loss, held to maturity investment or available for sale investment, as appropriate, in accordancewith the requirements of International Accounting Standards (IAS) 39; 'Financial Instruments:Recognition and Measurement'.

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32

All investments are initially recognised at fair value plus transaction costs except for financial assetscarried at fair value through profit and loss. Financial assets carried at fair value through profit orlossare initially recognized at fair value and transaction costs are charged in the income statement.

All regular way purchases and sales of investments are recognised on the trade date i.e. the date theFund commits to purchase/sell the investment. Regular way purchases and sales of investmentsrequire delivery of securities within the time frame generally established by regulation or marketconvention.

The investments of the Fund are classified in the following categories:

a) Financial Assets at Fair Value through Profit or Loss

These include held for trading investments and such other investments that, upon initial recognition,are designated under this category. Investments are classified as held for trading if they are acquiredfor the purpose of selling in the near term. Financial assets designated at fair value through profitor loss at inception are those that are managed and their performance is evaluated on a fair valuebasis in accordance with the Fund's documented investment strategy. After initial measurement, suchinvestments are carried at fair value and the gains or losses on revaluation are recognised in theincome statement in the period in which they arise.

b) Loans and Receivables

These are non-derivative financial assets with fixed or determinable payments that are not quotedin an active market. The Fund's loans and receivables comprise of bank balances, receivable fromthe sale of securities, advances, deposits and profit receivable.

c) Held to Maturity

Investments with fixed maturities and fixed or determinable payments are classified as held to maturityinvestments when management has both the intent and ability to hold to maturity. After initialmeasurement, such investment are carried at amortised cost less any provision for impairment exceptfor in case of debt securities (listed but not regularly traded on a stock exchange) and governmentsecurities, which are carried at fair value in accordance with the requirements of the NBFC Regulationsand directives issued by SECP.

d) Available for Sale

These are non-derivative financial assets that are designated as available-for-sale and may be soldin response to needs for liquidity or changes in profit rates or market prices or are not classified inany of the three other categories. After initial measurement, such investments are measured at fairvalue with unrealised gains or losses recognised in other comprehensive incomeas a part of the unitholders' fund until the investment is derecognised or determined to be impaired, at which time thecumulative gain or loss previously recognised in unit holders' fund is taken to the income statement.

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Fair Value of Investments is Determined as Follows:

Listed Equity SecuritiesThese are valued on the basis of closing market prices quoted on the respective stock exchange.

Debt Securities:Fair value of debt securities, other than government securities, are valued on the basis of pricesannounced by the Mutual Funds Association of Pakistan (MUFAP) in accordance with the SECP'sCircular No. 1 of 2009 dated 06 January 2009, read with Regulation 66(b) of the NBFC Regulations.

Fair value of unlisted debt securities, other than government securities, is also determined by referenceto the average rates notified by MUFAP and where such rates are not so notified, with reference toquotations obtained from brokerage houses.

Government Securities:Fair value of government securities is determined by reference to the quotations obtained from thePKRV rate sheet on the Reuters page.

3.2 Impairment

The carrying amounts of the Fund's assets are reviewed at each balance sheet date to determinewhether there is any indication of impairment of any asset or a group of assets. If any such indicationexists, the recoverable amount of such assets is estimated. An impairment loss isrecognisedwheneverthe carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognizedin the income statement and are reversed through the profit and loss account as well.

Provision of non-performing debt securities is made on the basis of time based criteria as prescribedunder Circular No. 01 of 2009 issued by the Securities and Exchange Commission of Pakistan.

To fulfill the requirement of SECP Circular No. 13 dated 04 May 2009 the BOD approved acomprehensive provisioning policy whereby the Investment Committee can make accelerated provisionagainst any debt security or exposure other than debt security after considering the financial difficultiesof the issuer, probability of the borrower entering bankruptcy or financial reorganization, deteriorationof key financial ratios, down grade of credit rating, measurable decrease in cash flows and industryout look.

3.3 Derecognition

All investments are derecognised when the rights to receive cash flows from the investments haveexpired or have been transferred and either (a) the Fund has transferred substantially all risks andrewards of ownership or (b) the Fund has neither transferred nor retained substantially all risks andrewards of the asset, but has transferred the control of the asset.

3.4 Preliminary Expenses and Floatation Costs

Preliminary expenses and floating costs are amortised over the period not exceeding five years.

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3.5 Securities Under Repurchase/Resale Agreements

Securities purchased with a corresponding commitment to resell at a specified future date (reverse-repo) are not recognised in the statement of assets and liabilities. Amounts paid under these agreementsare included in receivable in respect of reverse repurchase transactions. The difference betweenpurchase and resale price is treated as income from reverse repurchase transactions and accrued overthe life of the reverse-repo agreement.

Securities sold with a simultaneous commitment to repurchase at a specified future date (repos)continue to be recognised in the statement of assets and liabilities and are measured in accordancewith accounting policies for investment securities. The counterparty liabilities for amounts receivedunder these transactions are recorded as liabilities. The difference between sale and repurchase priceis treated as borrowing charges and accrued over thelife of the repo agreement using the effectiveinterest method.

3.6 Issue and Redemption of Units

Units issued are recorded at the offer price, determined by the Management Company, for theapplications received by the distributors during business hours on that date. The offer price representsthe net asset value per unit as of the close of the business day plus provision of duties and chargesand provision of transaction costs, if applicable.

Units redeemed are recorded at the redemption price, applicable to units for which the distributorsreceive redemption applications during business hours of that day. The redemption price representsthe net asset value per unit as of the close of the business day less duties, taxes, charges on redemptionand provision for transaction costs, if applicable.

Redemption of units is recorded on acceptance of application of redemption.

3.7 Element of Income/(Loss) and Capital Gain/(Loss) Included in Prices of Units Sold Less Thosein Units Redeemed

An equalisation account called the "element of income/(loss) included in prices of units sold lessthose in units redeemed" is created, in order to prevent the dilution of per unit income and distributionof income already paid out on redemption.

The "element of income and capital gains in prices of units sold less those in units redeemed" accountis credited with the amount representing net income and capital gains accounted for in the lastannounced net asset value and included in the sale proceeds of units. Upon redemption of units, the"element of income and capital gains in prices of units sold less those in units redeemed" accountis debited with the amount representing net income and capital gains accounted for in the lastannounced net asset value and included in the redemption price.

The "element of income and capital gains in prices of units sold less those in units redeemed" duringan accounting period is transferred to the income statement.

Annual Report 2012

35

3.8 Net Asset Value per Unit

The net asset value per unit disclosed in the statement of assets and liabilities is calculated by dividingthe net assets of the Fund by the number of units in circulation at yearend. Net assets are defined inNBFC Regulation, 2008 clause 66.

3.9 Taxation

The Fund is exempt from taxation on income under clause 99 of Part I to the Second Schedule ofthe Income Tax Ordinance, 2001, subject to the condition that not less than 90 percent of its accountingincome excluding realised and unrealised capital gain for the year is distributed amongst the unitholders. The Fund intends to avail this exemption for current and future periods. Accordingly, noprovision is made for current and deferred taxation in these financial statements.

3.10 Revenue Recognition

Gains/(losses) arising on sale of investments are included in the income statement on the date atwhich the transaction takes place.

Dividend income is recognised when the right to receive the dividend is established.

Income on reverse repurchase, certificates of investment, placements, bank deposits, commercialpapers, federal government securities and investments in debt securities are recognised at rate ofprofit implicit in the instrument on a time proportionate basis.

3.11 Financial Instruments

All the financial assets and financial liabilities are recognised at the time when the Fund becomes aparty to the contractual provisions of the instrument. Financial assets are derecognised when thecontractual rights to receive cashflows related to the asset expire. Financial liabilities are derecognisedwhen they are extinguished, that is, when the obligation specified in the contract is discharged,cancelled, or expires. Any gain or loss on derecognition of the financial assets and financial liabilitiesis taken to the income statement in the period in which it arises.

3.12 Offsetting of Financial Assets and Financial Liabilities

Financial assets and financial liabilities are only offset and net amount reported in the statement ofassets and liabilities when there is a legally enforceable right to set off the recognised amount andthe Fund intends either to settle on a net basis, or to realize the asset and settle the liabilitysimultaneously.

3.13 Cash and Cash Equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of cash flowstatement, cash and cash equivalents consist of bank balance net of short term running finance undermarkup arrangements, if any.

Annual Report 2012

36

3.14 Provision

A provision isrecognised in the statement of assets and liabilities when the Fund has a legal orconstructive obligation as a result of past event and it is probable that an outflow of resourcesembodying economic benefits will be required to settle the obligation and a reliable estimate can bemade of the amount of the obligation. Provisions are regularly reviewed and adjusted to reflect thecurrent best estimate.

The amount recognized as provision is the best estimate of the consideration required to settle thepresent obligation at the balance sheet date, taking into account the risks and uncertainties surroundingthe obligation.

3.15 Distribution to Unit Holders

Distribution to unit holders is recognised upon declaration and approval by the Board of Directorsof the management company.

Zakat is the responsibility of each unit holder. Nevertheless, the Fund follows the provision of Zakatand Ushr Ordinance, 1980. Units held by individual resident Pakistan unit holders are subject toZakat at 2.5% of the par value of the units under the said Ordinance, except those exempted fromZakat. Zakat is deducted at source from dividend or from redemption proceeds, if units are redeemedduring the Zakat year before the payment of Zakat.

4. ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET EFFECTIVE

The following revised standards, amendments and interpretations with respect to the approvedaccounting standards as applicable in Pakistan would be effective from the dates mentioned belowagainst the respective standard or interpretation:

Effective Date (Annual PeriodsStandard or Interpretation Beginning On or After)

IFRS 7 - Financial Instruments: Disclosures - (Amendments) -Amendments enhancing disclosures about offsettingof financial assets and financial liabilities 01 January 2013

IAS 1 - Presentation of Financial Statements - Presentation of itemsof comprehensive income 01 July 2012

IAS 12 - Income Taxes (Amendment) - Recovery of Underlying Assets 01 January 2012

IAS 19 - Employee Benefits -(Amendment) 01 January 2013

IAS 32 - Offsetting Financial Assets and Financial liabilities - (Amendment) 01 January 2014

IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine 01 January 2013

Annual Report 2012

37

Note 2012 2011Rupees Rupees

5. BANK BALANCES

PLS Savings Accounts 5.1 50,772,352 69,723,226Current Account 2,119,276 105,829

52,891,628 69,829,055

5.1 This represents savings accounts maintained with various Islamic banks or Islamic division ofconventional banks carrying profit rates ranging from 5% to 13% (2011: 5% to 13%) per annum.

6. INVESTMENTS

At Fair Value through Profit or LossInvestment in Listed Equity Securities 6.1 38,640,842 34,193,570

Available for Sale SecuritiesGOP Ijarah-Sukuk 6.2 100,020,000 100,400,000Certificates of Musharika 6.3 26,225,355 30,080,740Unlisted Debt Securities - Sukuks 6.4 31,075,725 100,184,325

195,961,922 264,858,635

The fund expects that the adoption of the above revisions, amendments and interpretations of thestandards will not affect the fund's financial statements in the period of initial application.

In addition to the above, the following new standards have been issued by IASB which are yet tobe notified by the SECP for the purpose of applicability in Pakistan.

IASB Effective Date (AnnualStandard Periods Beginning On or After)

IFRS 9 - Financial Instruments: Classification and Measurement 01 January 2015

IFRS 10 - Consolidated Financial Statements 01 January 2013

IFRS 11 - Joint Arrangements 01 January 2013

IFRS 12 - Disclosure of Interests in Other Entities 01 January 2013

IFRS 13 - Fair Value Measurement 01 January 2013

Annual Report 2012

38

6.1.

1Th

e ho

ldin

gs a

re in

the

fully

pai

d or

dina

ry s

hare

s/ce

rtific

ates

of R

s 10

/-eac

h.

6.1.

2Th

e sc

hem

e of

arr

ange

men

t for

reco

nstru

ctio

n of

ICI P

akis

tan

Lim

ited

was

exe

cute

d on

Jun

e 27

, 201

2 w

here

by th

e pa

ints

bus

ines

san

d al

l ass

ets,

righ

ts, l

iabi

litie

s an

d ob

ligat

ions

per

tain

ing

ther

eto

have

bee

n se

para

ted

and

vest

ed in

to A

kzoN

obel

Pak

ista

n Li

mite

d.A

s a

cons

eque

nce

of th

e tra

nsfe

r and

ves

ting,

Akz

oNob

el P

akis

tan

Lim

ited

issu

ed O

rdin

ary

shar

es o

f Rs.

10 e

ach

and

such

allo

tmen

tis

mad

e in

pro

porti

on o

f 66.

54:3

3.46

bas

ed o

n th

e ne

t ass

ets

of th

e pa

ints

bus

ines

s w

ith re

fere

nce

to th

e to

tal n

et a

sset

s of

ICI P

akis

tan

Lim

ited.

Con

sequ

ently

the

Fund

's ho

ldin

g of

5,0

00 s

hare

s of

ICI P

akis

tan

Lim

ited

as o

n Ju

ne 2

7, 2

012

is re

duce

d to

3,3

27 O

rdin

ary

shar

es o

f IC

I Pa

kist

an L

imit

ed a

nd 1

,673

Ord

inar

y sh

ares

of

Akz

oNob

el P

akis

tan

Lim

ited

iss

ued

to t

he F

und.

Ele

ctri

city

Hub

Pow

er C

ompa

ny L

imite

d30

,000

155,

000

135,

000

-50

,000

1,99

9,40

241

.89

2,09

4,50

095

,098

1.07

0.82

Oil

& G

as

Atto

ck R

efin

ery

Lim

ited

-74

,200

64,2

00-

10,0

001,

250,

237

122.

871,

228,

700

(21,

537)

0.63

0.48

Paki

stan

Pet

role

um L

imite

d5,

000

12,5

0017

,500

--

--

--

--

Shel

l Pak

ista

n Li

mite

d76

,692

3,30

85,

000

18,7

5093

,750

20,4

50,8

1512

7.83

11,9

84,0

63(8

,466

,752

)6.

124.

72Pa

kist

an O

ilfie

lds

Lim

ited

-43

,300

43,3

00-

--

--

--

-N

atio

nal R

efin

ery

Paki

stan

Lim

ited

10,0

0080

,900

48,4

00-

42,5

0013

,393

,142

231.

399,

834,

079

(3,5

59,0

63)

5.02

3.87

Oil

& G

as D

evel

opm

ent C

ompa

nyLi

mite

d-

12,5

0012

,500

--

--

--

--

35,0

94,1

9423

,046

,842

(12,

047,

352)

Che

mic

als

Fauj

iFer

tiliz

er C

ompa

ny L

imite

d-

100,

000

90,0

00-

10,0

001,

111,

724

111.

051,

110,

500

(1,2

24)

0.57

0.44

ICI P

akis

tan

Lim

ited

(not

e 6.

1.2)

5,00

026

,500

26,5

00-

5,00

067

4,99

513

1.07

655,

350

(19,

645)

0.33

0.26

Lotte

Pak

ista

n PT

A L

imite

d50

,000

425,

000

375,

000

-10

0,00

078

8,83

07.

0370

3,00

0(8

5,83

0)0.

360.

282,

575,

549

2,46

8,85

0(1

06,6

99)

Con

stru

ctio

n an

d M

ater

ials

D G

Kha

n C

emen

t Com

pany

Lim

ited

-21

0,00

021

0,00

0-

--

--

--

-

Luck

y C

emen

t Lim

ited

-45

2,73

242

7,73

2-

25,0

003,

018,

267

115.

392,

884,

750

(133

,517

)1.

471.

143,

018,

267

2,88

4,75

0(1

33,5

17)

Pers

onal

Goo

ds

Nis

hat M

ills

Lim

ited

50

,000

295,

000

320,

000

-25

,000

1,29

7,37

947

.58

1,18

9,50

0(1

07,8

79)

0.61

0.47

Phar

ma

and

Bio

Tec

hG

laxo

Smith

Klin

e Pa

kist

an L

imite

d94

,875

5,12

5-

10,0

0011

0,00

09,

786,

161

63.2

46,

956,

400

(2,8

29,7

61)

3.55

2.74

Tota

l as

at 3

0 Ju

ne 2

012

53,7

70,9

5238

,640

,842

(15,

130,

110)

19.7

315

.22

Ope

ning

asat

July

01,

2011

Purc

hase

sDu

ring t

heYe

ar

Sales

Durin

gth

e Yea

r

Bonu

s/Ri

ght I

ssue

Durin

gth

e Yea

r

As at

30 Ju

ne20

12

Cost

asat

30Ju

ne 20

12

Mar

ket

Valu

e as a

t 30

June

2012

Unr

ealiz

edAp

prec

iatio

n/ (D

imin

utio

n)

Perc

enta

geof NA

VNa

me o

f Inv

este

e

Num

ber o

f Sha

res

Rupe

es

6.1In

vestm

ents

in L

isted

Equ

ity S

ecur

ities

Num

ber o

f Sha

res/C

ertif

icate

sVa

lue o

f Sha

res/C

ertif

icate

s

Rate

Perc

enta

ge of

Tota

lIn

vestm

ent

Annual Report 2012

39

Inve

stmen

t in G

over

nmen

t Sec

uriti

es

For a

Face

Valu

e of R

s. 10

0,000

/= E

ach

GOP-

Ijarah

Suku

k1,0

0050

050

01,0

0010

0,220

,000

100,0

20,00

07 M

arch 2

014

11.81

%51

.0439

.38

As at

01 Ju

ly201

1Pu

rchase

d/Ac

quire

dDu

ring t

he Ye

ar

Matur

ed/So

ldDuri

ngthe

Year

Closin

g as

at 30

June

2012

Cost a

sat

30Ju

ne 201

2Da

te of

Matur

ityPro

fit on

Invest

ments

Perce

ntage

of To

talInv

estme

nts o

n the

Basis

ofCa

rrying

Value

Num

ber o

f Cer

tifica

tesRu

pees

%

Marke

tVa

lue as

at 30

June

2012

Perce

ntage

of Ne

tAs

sets o

n the

Basis

ofCa

rrying

Value

6.2In

vestm

ent in

Gov

ernme

nt Se

curit

ies

Inve

st Ca

pital

Inve

stmen

t B

ank L

imite

d6.3

.1 &6

.741

,250,0

00-

-(9

,000,0

00)

32,25

0,000

6,024

,645

26,22

5,355

10 Ja

nuary

2016

13.38

10.33

As at

01 Ju

ly201

1Pu

rchase

d/Ac

quire

dDu

ring t

he Ye

arSo

ldDuri

ngthe

Year

Recei

vedDu

ring

the Ye

ar

As at

30Ju

ne 201

2Ca

rrying

Value

Date o

fMa

turity

Perce

ntage

of To

talInv

estme

ntson

the B

asis

of Ca

rrying

Value

Rupe

es

Impa

irment

Loss

Perce

ntage

of Ne

tAs

sets o

n the

Basis

ofCa

rrying

Value

6.3Ce

rtific

ate of

Mus

harik

a (CO

M)

Note

6.3.

1O

n D

ecem

ber 3

1, 2

010,

Daw

ood

Cap

ital M

anag

emen

t - th

e M

anag

emen

t Com

pany

ent

ered

into

an

agre

emen

t for

repa

ymen

t of t

his

Cer

tific

ate

of M

usha

rika

in 2

mon

thly

inst

allm

ents

of R

s. 2

.5 m

illio

n ea

ch a

nd fu

rther

60

equa

l mon

thly

inst

allm

ents

of R

s. 0

.75

mill

ion

each

from

Feb

ruar

y, 2

011.

Pro

fit o

n th

is in

vest

men

t has

bee

n w

aive

d ef

fect

ive

from

Aug

ust 2

9, 2

010.

Engro

Fertil

iser L

imite

d (06

-09-07

)7,0

00-

2,000

-5,0

0025

,000,0

0025

,413,2

2541

3,225

K6+1

.5%12

.9710

.01Pa

k Elec

tron L

imite

d (28

-09-07

)6.4

.18,0

00-

--

8,000

17,28

0,105

-(17

,280,1

05)

K3+1

.75%

--

Koha

t Cem

ent L

imite

d (20

-12-07

)6.4

.25,0

00-

--

5,000

7,550

,000

5,662

,500

(1,88

7,500

)K3

+1.8%

2.89

2.23

Maple

Leaf

Ceme

nt Fa

ctory

Limite

d (03

-12-07

)6.4

.39,8

15-

--

9,815

48,08

4,137

-(48

,084,1

37)

K3+1

%-

-Ma

ple Le

af Ce

ment

Facto

ry Lim

ited (

31-03

-07)

6.4.4

368

--

-36

81,8

40,00

0-

(1,84

0,000

)K3

+1%

--

New

Allie

d Elec

tronic

s Ind

ustrie

s Lim

ited

(03-12

-07)

6.4.5

1,000

--

-1,0

005,0

27,50

0-

(5,02

7,500

)K3

+2.2%

--

104,7

81,74

231

,075,7

25(73

,706,0

17)

15.86

12.24

Impa

irmen

t Loss

6.772

,231,7

41(1,

474,2

76)

As at

01Ju

ly 2011

Purch

ased

Durin

g the

Year

Matur

edDu

ring t

heYe

ar

As at

30Ju

ne 2012

Cost a

s at 3

0Ju

ne 2012

Unrea

lised

Gain/

(Loss)

/(Im

pairm

ent)

Rate o

fPro

fit per

Annu

m

Perce

ntage

of To

talInv

estme

ntson

the B

asis o

fCa

rrying

Value

Num

ber o

f Cer

tifica

tesRu

pees

%

Perce

ntage

ofNe

t Asse

ts on

the Ba

sis of

Carry

ing Va

lueNo

teSo

ldDu

ring

the Ye

ar

6.4Un

listed

Debt

Secu

rities

- Suk

uks

Marke

t Valu

eas

at 30

June

2012

Annual Report 2012

40

6.4.1 Pak Electron Limited (PEL) defaulted on the installment due on 28 December 2011 as per therestructured agreement. Consequently, the security was classified as non-performing by MUFAP on13 January 2012 and accrual on the same was suspended. Consequently, a provision of Rs. 3.428million has been created and accrual of income has been suspended in line with the SECP's CircularNo. 1 of 2009. Further, an additional provision amounting to Rs. 13.714 million has been createdon the recommendation of the investment committee and as per the provisioning policy of the Fundprepared in compliance with SECP's Circular No. 13 of 2009. Pak Electron Limited is undergoingnegotiations with the sukuk holders to restructure the facility for a period of four years. However,nothing in this regard has been finalized yet.

6.4.2 During the year, the Sukuk issued by Kohat Cement Company Limited was restructured. As per therevised terms:

- From September 2012 current markup will be paid on the respective due dates- From September 2014 payment of frozen markup will be started. All the accumulated balance

in the frozen account will be paid off till June 2016.- The current markup rate will be 3 months KIBOR plus 1.5%.

The Company has been regular on its payments as per the restructuring agreement. Furthermore,during the period the issuer by exercising Call option for early payment of outstanding principalamount made part payment representing 30% of principal amount due.

6.4.3 Maple Leaf Cement Factory (MLCF) defaulted on the installment due on 03 September 2011 as perthe restructured agreement. Consequently, the security was classified as non-performing by MUFAPon 19 September 2011. Consequently, a provision of Rs. 22.037 million has been created and accrualof income has been suspended in line with the SECP's Circular No. 1 of 2009. Further, an additionalprovision amounting to Rs. 26.934 million has been created on the recommendation of the investmentcommittee and as per the provisioning policy of the Fund prepared in compliance with SECP'sCircular No. 13 of 2009.

6.4.4 This represents additional sukuks of MLCF received by the Fund through restructuring agreementreached between lenders and MLCF. Under such agreement outstanding mark up due on 03 December2009 amounting to Rs. 3.8 million was settled partially in cash and partially in the form of sukukscertificates valuing Rs. 1.84 million. The sukuk accrues profit on 3 month KIBOR + 100 basis pointsper annum and profit payments on the same are being received regularly, while principal redemptionpayments have not been received which were due in March 2012. The said issue has been accordinglyclassified as non-performing by Mutual Fund Association of Pakistan (MUFAP) and a provision hasbeen made in accordance with the requirements of SECP's circular No. 1 of 2009 and the Board'sapproved provisioning policy.

6.4.5 New Allied Electronics Industries Limited TFC defaulted in its payment of principal due on 27October 2008 and consequently has been classified as non-performing by MUFAP on 9 January 2009and 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 ofSECP's circular No. 1 of 2009.

Annual Report 2012

41

6.5 Break up of impairment (loss)/reversal of impairment loss on investments classified as non-performingare as follows:


Unlisted Debt Securities -SukuksKohat Cement Company Limited 8,017,221 (1,979,720)Maple Leaf Cement Factory Limited (30,696,190) 25,348,439Maple Leaf Cement Factory Limited - Additional (1,295,469) -Pak Electron Limited (17,280,105) -

PlacementsInvest Capital Investment Bank Limited 5,144,615 (11,169,261)BRR Guardian Modarba - ARelated Party - 223,899

Total (36,109,928) 12,423,357

6.6 Net unrealized diminution in the value of investments classified as 'available for sale'


Market Value of Securities 157,321,080 230,665,065Less: Cost of Securities 237,251,742 272,893,454

(79,930,662) (42,228,389)

Net Impairment at the Beginning of the Year 42,146,458 54,569,815Impairment Charged/(Reversed) During the Year 36,109,928 (12,423,357)Net Impairment at the End of the Year 78,256,386 42,146,458

Add: Realised on Disposal - 579,158

Net Unrealized Diminution in the Market Value of Securities Classified as Available for Sale at the End of the Year (1,674,276) 497,227

Less: Net Unrealized Appreciation in the Market Value of Securities Classified as Fair Value Through Profit or Loss at the Beginning of the Year (81,932) -

Net Unrealized Diminution in the Market Value During the Year (1,592,344) 497,227

6.7 Details of Non CompliantInvestments Under SECP Circular No.16 Dated July 07, 2010 are asFollows:

Circular no. 16 dated 07 July 2010 issued by the SECP requires details of investments not compliantwith the investment criteria specified by the category assigned to open-end collective investmentschemes or the investment requirements of the constitutive documents of the Fund to be disclosed inthese condensed interim financial statements of the Fund. Details of such non-compliant investmentsare given below:

Annual Report 2012

42

N

ame o

f Non

-Com

plian

t Inves

tment

Type

Value

of

Provi

sion

Value

ofof

Invest

ment

Invest

ment

Held

Invest

ment

Perce

ntage

of Pe

rcenta

ge of

Be

fore P

rovisio

nAf

ter P

rovisio

n Ne

t Asse

tsGr

oss As

sets

Inve

st Ca

pita

l Inv

estm

ent B

ank

Lim

ited

form

erly

Al-Z

amin

Leas

ing

COM

32,2

50,0

00

(6

,024

,645

)26

,225

,355

10.3

310

.08

Koh

at C

emen

t Com

pany

Lim

ited

(20

-12-

07)

SUK

UK

5

,662

,500

-

5,66

2,50

02.

232.

18

Map

le L

eaf C

emen

t Fac

tory

Lim

ited

(03-

12-0

7)SU

KU

K48

,084

,137

(48,

084,

137)

--

-

Map

le L

eaf C

emen

t Fac

tory

Lim

ited

(31-

03-1

0)SU

KU

K

1

,840

,000

(1

,840

,000

)-

--

New

Alli

ed E

lect

roni

cs In

dustr

ies L

imite

d(0

3-12

-07)

SUK

UK

5,0

27,5

00

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Annual Report 2012

43


7. DIVIDEND AND PROFIT RECEIVABLE

- Dividend - 25,000

- Profit Receivable onDeposit Accounts with Banks 1,419,773 1,907,389Sukuk Bonds 3,745,159 1,992,274GOP Ijarah Sukuk 3,742,109 4,346,028

8,907,041 8,270,691

8. SECURITY DEPOSIT

Security Deposit with National Clearing Company of Pakistan Limited 2,500,000 5,500,000

9. PRELIMINARY EXPENSES AND FLOATATION COST

Opening 500,000 1,000,000Amortised During the Year (500,000) (500,000)Closing - 500,000

10. PAYABLE TO MANAGEMENT COMPANY

Dawood Capital Management - the management company is entitled to remuneration for servicesrendered to the Fund under Regulation 61 of the Non-Banking Finance Companies and Notified EntitiesRegulations, 2008, of an amount not exceeding three percent of the average daily net assets of the Fundduring first five years of the Fund's existence and thereafter an amount equal to two percent of suchassets of the Fund. The rate used by the management company (and the Fund) is 1.5 percent per annumof the average daily net assets of the Fund as disclosed in the offering document.

10.1 During the current year, an amount of Rs. 0.767 million (30 June 2011: Rs Nil) was charged on accountof sales tax on management fee levied through Sindh Sales Tax on Services Act, 2011.

11. PAYABLE TO TRUSTEE

Central Depository Company of Pakistan Limited- the trustee is entitled to a remuneration for theservices rendered to the Fund under the provision of the Trust Deed at the rate of 0.20% on the firstRs.1,000 million of the average daily net assets and thereafter 0.10% on amount exceeding Rs. 1,000million of average daily net assets of the Fund, subject to a minimum of Rs. 700,000 per annum.

Any upward increase in the Trustee's remuneration would require SECP's approval and amendment inthe Trust Deed. However, any downward shift in the Trustee's remuneration will not require such anapproval.

12. ANNUAL FEE PAYABLE TO SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN

This represents annual fee payable to SECP in accordance with theRegulation 62 of the Non-BankingFinance Companies and Notified Entities Regulations, 2008whereby the Fund is required to pay SECPan amount equal to 0.095% of the average daily net assets.

Annual Report 2012

44

2012 2011Note Rupees Rupees

13. ACCRUED EXPENSES AND OTHER LIABILITIES

Charity Payable 13.1 1,286,328 1,068,616Workers'Welfare Fund 13.2 1,245,011 1,245,011Payable against Purchase of Securities 1,463,804 -Brokerage Payable 21,778 25,613Audit Fee Payable 329,800 237,500Others 654,979 192,000

5,001,700 2,768,740

13.1 CHARITY

According to the instructions of the Shariah Advisory Council, if any income is earned by the Fundfrom investments whereby a portion of income of such investees has been derived from prohibitedsources, such proportion of income of the Fund should be donated for charitable purposes by the Fund.The Fund has segregated such income for the year amounting to Rs. 217,712 (2011: Rs. 585,184)

13.2 WORKERS' WELFARE FUND

Through the Finance Act, 2008 an amendment was made in section 2(f) of the Workers' Welfare FundOrdinance, 1971 (the WWF Ordinance) whereby the definition of 'Industrial Establishment' has beenmade 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 applicableto all Collective Investment Schemes (CISs) whose income exceeds Rs. 0.5 million in a tax year. Apetition has been filed with the Honourable High Court of Sindh by some of Collective InvestmentSchemes (CISs) through their Trustee on the grounds that the CIS (mutual funds) are not establishmentsand 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 2010clarified that "Mutual Fund(s) is a product which is being managed/sold by the Asset ManagementCompanies which are liable to contribute towards Workers Welfare Fund under Section-4 of WWFOrdinance 1971. However, the income on Mutual Fund(s), the product being sold, is exempted underthe law ibid".

Further, the Secretary (Income Tax Policy) Federal Board of Revenue (FBR) issued a letter dated 6October 2010 to the Members (Domestic Operation) North and South FBR. In the letter reference wasmade to the clarification issued by the Ministry of Labour and Manpower stating that mutual funds area product and their income are exempted under the law ibid. The Secretary (Income Tax Policy) FederalBoard of Revenue directed that the Ministry's letter may be circulated amongst field formations fornecessary action. Following the issuance of FBR Letter, show cause notice which had been issued bytaxation 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 cancelledab-initio clarificatory letter dated 6 October 2010 on applicability of WWF on mutual funds and issuedshow 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 thepending constitutional petition in the said court as referred above.

Annual Report 2012

45

During 2011, the Honourable Lahore High Court in a Constitutional Petition relating to the amendmentsbrought in WWF Ordinance through the Finance Act 2006, and the Finance Act, 2008, has declaredthe said amendments as unlawful and unconstitutional. Further, during the year, based on such decisionof Honourable High Court, the Commissioner of Inland Revenue(Appeals - II) have declared the WWFdemand raised by tax authorities against certain mutual funds managed by Asset Management Companiesas illegal and without jurisdiction. The management company believes that the decision of the HonourableLahore High Court, will lend further support to the Constitutional Petition which is pending in theHonourable High Court of Sindh. Further, based on the opinion from legal counsel of Mutual FundsAssociation of Pakistan (MUFAP), there are good chances for the Constitutional Petition to be decidedin favour of the mutual funds and accordingly mutual funds need not to make a provision regardingWWF in their financial statements.

In view of above stated facts and considering the uncertainty on the applicability of WWF to mutualfunds due to show cause notices issued to a number of mutual funds, the management company as amatter of abundant caution has decided to continue to maintain the provision for WWF amounting toRs. 1.245 million up to 30 June 2012.If the same were not made, the NAV per unit would be higherby Re. 0.46.

14. CONTINGENCIES AND COMMITMENTS

There were no contingencies and commitments as at 30 June 2012.

15. NUMBER OF UNITS IN ISSUE

The units in issue as at 30 June 2012 were as follows:

15.1 The management of the Fund has set a minimum investment size of Rs 5,000. All units carry equalrights and are entitled to dividends and share in net asset value on liquidation.

16. PROFIT ON SUKUKS, MUSHARIKA AND BANK BALANCES


Profit on:Sukuks 28,218,815 16,073,526MusharikaPlacements - 3,506,082 Bank Balances 7,743,589 10,146,307

35,962,404 29,725,915

Units in Issue - Par Value of Rs. 100 Each 2,703,061 253,979,976 3,066,984 344,295,691

Units Rupees Units Rupees2012 2011

Annual Report 2012

46


17. AUDITORS' REMUNERATION

Annual Audit 180,000 150,000Half-Yearly Review 85,000 75,000Review of Statement of Compliance with the Code of Corporate Governance 25,000 15,000Shariah Audit 65,000 50,000Other Certifications 20,000 -Out of Pocket Expenses 60,000 40,000

435,000 330,000

18. The Management Company has appointed Mufti Munib-ur-rehman, SyedSabirHussain and SyedZahidSiraj as its Shariah Advisors. As per the Shariah Advisory agreement, the remuneration to theShariah Advisory Baord shall be paid by the Management Company

19. TRANSACTIONS WITH RELATED PARTIES/CONNECTED PERSONS

Related parties/connected persons comprise of the following as at 30 June 2012:

Dawood Capital Management Limited - Management CompanyCentral Depository Company of Pakistan LimitedDawood Family Takaful LimitedDirectors and officers of the Management Company.

Remuneration payable to the management company and the trustee is determined in accordance withthe provisions of the NBFC Regulations, 2008 and the Trust Deed respectively. Details of transactionswith related parties and balances with them at the year end are as follows:

The transactions with related parties are in the normal course of business, at contracted rates and termsdetermined in accordance with market rates.

19.1 Details of transactions and balances at year end with related parties/connected persons, other than thosewhich have been disclosed elsewhere in these financial statements, are as follow:

Units Sold to:Dawood Capital Management Limited 92,259 10,000,000 - -Units Redeemed by:The Burj Bank Limited - - 408,318 36,071,384Dawood Family Takaful Limited 470,423 50,982,120 - -Dawood Capital Management Limited 92,259 10,009,521 - -

(Units) (Rupees) (Units) (Rupees)

For the Year Ended30 June 2012

For the Year Ended30 June 2011

Units Held by:Unit Holders Holding More than 10%The Burj Bank Limited 2,628,981 247,019,417 2,500,000 280,646,748

Annual Report 2012

47


Balances with Related Parties:

Dawood Capital Management LimitedBalance as at 01 July 1,511,614 1,269,448Remuneration for the Year Including Sales Tax 5,562,368 5,094,403Reimbursement of Formation Costs (500,000) (500,000)Remuneration Paid During the Year (5,656,072) (4,352,237)Balances as at 30 June 917,910 1,511,614

Central Depository Company of Pakistan Limited - TrusteeBalance as at 01 July 59,693 57,534Remuneration for the Year 700,993 704,355Remuneration Paid During the Year (703,373) (702,196)Balances as at 30 June 57,313 59,693

20. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

20.1 The Fund's objective in managing risks is the creation and protection of Unit holders' value. Risk isinherent in the Fund's activities, but it is managed through monitoring and controlling activities whichare primarily set up to be performed based on limits established by the management company, Fund'sconstitutive documents and the regulations and directives of the SECP.

Financial risk in fund is the possibility that the outcome of an action or event could bring up adverseimpacts. Such outcomes could either result in a direct loss of earnings/net assets or may result inimposition of constraints on fund's ability to meet its business objectives. Such constraints pose a riskas these could hinder a fund's ability to conduct its ongoing business or to take benefit of opportunitiesto enhance its business.

These limits reflect the business strategy and market environment of the Fund as well as the level ofthe risk that Fund is willing to accept. The Board of Directors of the management company supervisesthe overall risk management approach within the Fund. The Fund is exposed to market risk (whichincludes profit rate risk and price risk), credit risk and liquidity risk arising from the financial instrumentsit holds.

Regardless of the sophistication of measures, fund often distinguish between expected and unexpectedlosses. Expected losses are those that the management knows with reasonable certainty will occur (e.g.the expected decline in prices) and are typically reserved for in some manner. Unexpected losses arethose associated with unforeseen events.

Risk management activities broadly take place simultaneously at following different hierarchy levels:

a) Strategic Level: It encompasses risk management functions performed by senior management andBOD. It is concerned with the overall risk management of the organization starts with identifyingof risk, planning to mitigate them, implementation of strategies and monitoring.

b) Macro Level: It encompasses risk management within a business area or across business lines.Generally the risk management activities performed by middle management or units devoted torisk reviews fall into this category.

c) Micro Level: It involves 'On-the-line' risk management where risks are actually created. This isthe risk management activities performed by individuals who take risk on organization's behalfsuch as front office and transactions origination functions.

Annual Report 2012

48

Risk management starts at the highest management level. Its responsibility rests with the board ofdirectors. Senior management makes sure that the policies of risk management are ingrained in theorganization's culture.

Concentration indicates the relative sensitivity of the Fund's performance to developments affecting aparticular industry or geographical location. Concentrations of risk arise when a number of financialinstruments or contracts are entered into with the same counterparty, or where a number of counterpartiesare engaged in similar business activities, or activities in the same geographic region, or have similareconomic features that would cause their ability to meet contractual obligations to be similarly affectedby changes in economic, political or other conditions. Concentrations of liquidity risk may arise fromthe repayment terms of financial liabilities, sources of borrowing facilities or reliance on a particularmarket in which to realise liquid assets.

Concentrations of risk may arise if the Fund has a significant exposure in a single industry, or aggregateexposure in several industries that tend to move together. In order to avoid excessive concentration ofrisk, the Fund's policies and procedures include specific guidelines to focus on maintaining a diversifiedportfolio. The Fund Manager is instructed to reduce exposure to manage excessive risk concentrationswhen they arise.

20.2 Market Risk

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuatedue to changes in market variables such as profit rates, debt security prices and foreign exchange rates.

(i) Profit Rate Risk

Profit rate risk is the risk that the value of the financial instruments will fluctuate due to changesin the market profit rates. As of 30 June 2012, the Fund is exposed to such risk in respect of bankbalances and investment in sukuks and Government securities. The bank balances are subject toprofit rates as declared by the respective bank on periodic basis. Majority of the sukuks are subjectto floating profit rates.

(ii) Price Risk

The risk that fair value or future cash flows of a financial instrument will fluctuate because ofchanges in market prices of securities due to a change in credit rating of the issuer or the instrument,change in market sentiments, speculative activities, supply and demand of securities and liquidityin the market. The Fund is exposed to changes in the fair values of investments as a result ofchanges in MUFAP Prices and PKRV rates.

(iii) Foreign Currency Risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrumentwill fluctuate because of changes in foreign exchange rates. The Fund does not have any financialinstruments in foreign currencies and hence is not exposed to such risk.

The management company manages the above market risks through diversification of investmentportfolio and placing limits on individual and aggregate exposures in accordance with the internal riskmanagement policies.

Management of the fund estimates that 1% increase/(decrease) in the market profit rate/fair value, withall other factors remaining constant, would increase/(decrease) the fund's net assets by;

Annual Report 2012

49

2012 100 2,075,120 386,408 (100) (2,075,120) (386,408)

2011 100 2,080,702 341,935 (100) (2,080,702) (341,935)

Increase/(Decrease)in Basis Points

Sensitivity ofProfit Income

Increase/(Decrease)

Sensitivity of Changes in FairValue of InvestmentsIncrease/(Decrease)

------------------------ (Rupees) ------------------------

The Fund's exposure to profit rate risk based on contractual repricing and maturity dates, whicheveris earlier is as follows:

AssetsBank Balances 48,049,440 - - - - 4,842,188 52,891,628Investments - - - 105,682,500 25,413,225 64,866,197 195,961,922Dividend and Profit Receivable - - - - - 8,907,041 8,907,041Security Deposit - - - - - 2,500,000 2,500,000

Sub-Total 48,049,440 - - 105,682,500 25,413,225 81,115,426 260,260,591

LiabilitiesPayable to Management Company - - - - - 917,910 917,910Payable to Trustee - - - - - 57,313 57,313Accrued and Other Liabilities - - - - - 5,001,700 5,001,700Sub-Total - - - - - 5,976,923 5,976,923

Total Profit Sensitivity Gap 48,049,440 - - 105,682,500 25,413,225 75,138,503 254,283,668

3 to 6Months

1 to 5Years

More Than5 Years

Non-ProfitBearing

Total

Rupees

0 to 3Months

6 to 12Months

AssetsBank Balances 69,723,226 - - - - 105,829 69,829,055Investments - - - 165,584,325 35,000,000 64,274,310 264,858,635Dividend and Profit Receivable - - - - - 8,270,691 8,270,691Security Deposit - - - - - 5,500,000 5,500,000Preliminary Expenses and Floatation Costs - - - - - 500,000 500,000Sub-Total 69,723,226 - - 165,584,325 35,000,000 78,650,830 348,958,381

LiabilitiesPayable to Management Company - - - - - 1,511,614 1,511,614Payable to Trustee - - - - - 59,693 59,693Accrued and Other Liabilities - - - - - 2,768,740 2,768,740Sub-Total - - - - - 4,340,047 4,340,047

Total Profit Sensitivity Gap 69,723,226 - - 165,584,325 35,000,000 74,310,783 344,618,334

3 to 6Months

1 to 5Years

More Than5 Years

Non-ProfitBearing

Total

Rupees

0 to 3Months

6 to 12Months

2012

2011

Annual Report 2012

50

20.3 Liquidity RiskLiquidity risk is defined as the risk that the Fund will encounter difficulty in meeting obligationsassociated with financial liabilities. Liquidity risk arises because of the possibility that the Fund couldbe required to pay its liabilities earlier than expected. The Fund is exposed to cash redemptions of itsredeemable units on a regular basis. Units are redeemable at the unit holder's option based on the Fund'snet asset value per unit at the time of redemption calculated in accordance with the Fund's constitutivedocuments.In order to manage the Fund's overall liquidity, the Fund has the ability to withhold daily redemptionrequests in excess of ten percent of the units in issue and such request would be treated as redemptionrequests qualifying for being processed on the next business day. Such procedure would continue untilthe outstanding redemption requests come down to a level below ten percent of the units then in issue.The Fund did not withhold any significant redemption during the year.The table below summaries the maturity profile of the Fund's financial instruments. The analysis intorelevant maturity groupings is based on the remaining period at the end of the reporting period to thecontractual maturity date.

Financial AssetsBank Balances 52,891,628 - - - - 52,891,628Investments 38,640,842 - - 131,907,855 25,413,225 195,961,922Dividend and Profit Receivable 1,419,773 4,818,349 - 2,668,919 - 8,907,041Security Deposits 2,500,000 - - - - 2,500,000Sub-Total 95,452,243 4,818,349 - 134,576,774 25,413,225 260,260,591

Financial LiabilitiesPayable to Management Company - 917,910 - - - 917,910Payable to Trustee - 57,313 - - - 57,313Accrued and Other Liabilities 3,756,689 - - - - 3,756,689Sub-Total 3,756,689 975,223 - - - 4,731,912

Liquidity Gap 91,695,554 3,843,126 - 134,576,774 25,413,225 255,528,679

1 to 3Months

1 to 5Years

More Than5 Years

Total

Rupees

Not LaterThan One

Month

3 to 12Months

2012

Financial AssetsBank Balances 69,829,055 - - - - 69,829,055Investments 34,193,570 - - 195,665,065 35,000,000 264,858,635Dividend and Profit Receivable 1,907,389 6,363,302 - - - 8,270,691Preliminary Exp. and Floatation Costs 500,000 - - - - 500,000Security Deposits 5,500,000 - - - - 5,500,000Sub-Total 111,930,014 6,363,302 - 195,665,065 35,000,000 348,958,381

Financial LiabilitiesPayable to Management Company - 1,511,614 - - - 1,511,614Payable to Trustee - 59,693 - - - 59,693Accrued and Other Liabilities 1,523,729 - - - - 1,523,729Sub-Total 1,523,729 1,571,307 - - - 3,095,036

Liquidity Gap 110,406,285 4,791,995 - 195,665,065 35,000,000 345,863,345

1 to 3Months

1 to 5Years

More Than5 Years

Total

Rupees

Not LaterThan One

Month

3 to 12Months

2011

Annual Report 2012

51

20.4 Credit Risk

Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss to theFund by failing to discharge its obligation. The Fund's credit risk is primarily attributable to its investmentin term finance certificates, certificates of investment, term deposits and balances with banks. The creditrisk on liquid fund is limited because the counter parties are financial institutions with reasonably highcredit ratings. In addition, the internal risk management policies, offering document and investmentguidelines (approved by Investment Committee) require the Fund to invest in debt securities that havebeen rated as investment grade by a approved rating agency. Due to defaults made by the issuers ofTFCs the rating of the instrument have down graded from the investment grade, the fund has notliquidated its investments as the management expects the counterparties will recover their rating. Thetable below analyses the Fund's maximum exposure to credit risk:


Investments (Other Than Government Securities) 95,941,922 164,458,635Bank Balances 52,891,628 69,829,055Dividend and Profit Receivable 8,907,041 8,270,691Security Deposit 2,500,000 5,500,000

The analysis below summaries the credit quality of the Fund's debt portfolio:Debt Securities/Entity Rating by Category

AAA 100,020,000 76.30 100,400,000 50.05AA- to AA+ 25,413,225 19.39 35,000,000 17.45A- to A+ - - 17,018,174 8.48BBB to BBB+ - - - -Non InvestmentGrade 5,662,500 4.32 48,166,151 24.01Total 131,095,725 200,584,325

30 June 2012Rupees %


The analysis below summarizes the credit quality of the Fund's portfolio in deposits/placement withbanks:

AA- to AA+ 4,842,188 6.12 105,829 0.11A- to A+ 48,049,440 60.73 69,723,226 69.79BBB to BBB+ - - - -Non InvestmentGrade 26,225,355 33.15 30,080,740 30.11Total 79,116,983 99,909,795



Concentration of credit risk exists when changes in economic or industry factors affect the group ofcounterparties whose aggregate credit exposure is significant in relation to the Fund's total creditexposure. The Fund's policy is to maintain a diversified portfolio of financial assets and to enter intotransactions with diverse credit worthy counterparties thereby mitigating any significant concentrationof credit risk. The concentration in the banks has been due to illiquidity in the TFCs market and thedefaults made by the issuers of the instruments. However the management expects these counterpartieswill recover their rating and consequently their liquidity in the market. The table below analyses theFund's concentration of credit risk by industrial distribution;

Annual Report 2012

52

Electricity 2,094,500 1.07 1,125,000 0.42Oil & Gas 23,046,842 11.76 21,814,417 8.24Chemicals 27,882,075 14.23 36,450,753 13.76Construction and Materials 8,547,250 4.36 48,166,151 18.19Personal Goods 1,189,500 0.61 2,517,000 0.95Pharma and Bio Tech 6,956,400 3.55 7,286,400 2.75Electronic and Electrical Equipment - - 17,018,174 6.43Financial Services 26,225,355 13.38 30,080,740 11.36Government Securities 100,020,000 51.04 100,400,000 37.91

195,961,922 264,858,635

30 June 2012Rupees % Rupees %

Sector Exposure on the basis of net investment

30 June 2011

20.5 Capital Management

The Fund's objective when managing unit holder's funds is to safeguard the Fund's ability to continueas a going concern so that it can continue to provide optimum returns to its unit holders and to ensurereasonable safety of capital. The Fund manages its investment portfolio and other assets by monitoringreturn on net assets and makes adjustments to it in the light of changes in market's conditions. Thecapital structure depends on the issuance and redemption of units.

21. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the amount for which an asset could be exchanged, or a liability settled, betweenknowledgeable willing parties in an arm's length transaction.

Financial assets which are tradable in an open market are revalued at the market prices prevailing onthe balance sheet date. The estimated fair value of all other financial assets and liabilities is considerednot significantly different from book value

The following table shows financial instruments recognised at fair value, analysed between those whosefair 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 forthe 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)

June 30, 2012 June 30, 2011Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

At Fair Value Through Profit or Loss

Listed Equity Securities 38,640,842 - - 34,193,570 - -

Available for Sale Investments

Unlisted Debt Securities - Sukuks - 31,075,725 - - 84,051,545 16,132,780Placements - - 26,225,355 - - 30,080,740Government Securities - 100,020,000 - - 100,400,000 -

38,640,842 131,095,725 26,225,355 34,193,570 184,451,545 46,213,520

22. DATE OF AUTHORISATION FOR ISSUE

These financial statements were authorised for issue by The Board of Directors of the management company onSeptember 17, 2012.

23. SUPPLEMENTARY NON FINANCIAL INFORMATION

The information regarding unit holding pattern, top five brokers, members of the Investment Committee, fundmanager, meetings of the Board of Directors of the management company and rating of the Fund and the managementcompany has been disclosed in Annexure I to the financial statements.

24. GENERAL

Figures have been rounded off to nearest Rupee.

Annual Report 2012

53



Annual Report 2012

54

SUPPLEMENTARY NON FINANCIAL INFORMATIONAS REQUIRED UNDER SECTION 6(D), (F), (G), (I) AND (J)OF THE FIFTH SCHEDULE TO THE NBFC REGULATIONS

Annexure - I(i) UNIT HOLDING PATTERN OF THE FUND

Category Number of Number of Amount % ofunit holders units held Total

Individuals 74 18,569 1,744,762 0.69Bank 1 2,628,981 247,019,417 97.26NBFC 1 590 55,400 0.02Retirement Funds 1 54,909 5,159,283 2.03Others 1 12 1,114 0.00

78 2,703,061 253,979,976

(ii) LIST OF TOP FIVE BROKERS BY PERCENT OF THE COMMISSION PAIDS.No. Name Percentage of commission paid

1 Pearl Securities Pvt. Ltd 12.342 Top Line Securities. 12.223 First National Equities Ltd. 11.974 Foundation Securities Pvt. Ltd 11.645 Adam Securities Pvt. Ltd 10.37

(iii) THE MEMBERS OF THE INVESTMENT COMMITTEE

Name Designation Qualification Experience

Ms.Tara Uzra Dawood Chief Executive Officer Doctorate of Juridical Science 9 yearsMr. Syed Kabiruddin Chief Financial Officer and

Company Secretary ACMA , ACIS 21 yearsMr. Muhammad Abbas Fund Manager Fixed Income/

Manager Finance MBA Finance 13 yearsMr. Muhammad Aslam Assistant Fund Manager B.com 26 yearsMr. Zeeshan Swalaheen Research Associate M.A. Economic and Finance 03 years

(iv) MEETINGS OF BOARD OF DIRECTORS OF THE MANAGEMENT COMPANY

Following are the names of directors who attended the meetings of the board of directors during the year along withthe dates of the meetings.

Ms.Tara Uzra Dawood P P P P PMr. Gul Nawaz P P P P PSyed Shabahat Hussain P P P P PMr. Masood A.S. Wahedna P P x P XMr. Nizamuddin Feroz x P P X PMrs. Shafqat Sultana x x x P x

Meeting held onName of Director 06 July September October 21 February 28 April

2011 07 2011 20 2011 2012 2012



AM

P Tel: 32737531 C

ell : 0300-2174970

BO

OK

PO

ST

If undelivered, please return to:D

AWO

OD

ISLAM

IC FU

ND

5B Lakson Square Building #1,Sarwar Shaheed Road, Karachi 74200.

5B Lakson Square Building #1, Sarwar Shaheed Road, Karachi 74200Tel: (92-21) 3562-1001-7 Fax: (92-21) 3562-1010Email: [email protected]: www.edawood.com

DAWOOD

Trustee: Central Depository Company of Pakistan Limited

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