LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND Annual Report 2017
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
CONTENTS Vision & Mission Statement
1
Fund's Information
2
Report of the Directors of the Management Company
4
Report of the Directors of the Management Company (In Urdu)
9
Report of the Fund Manager
16
Trustee Report to the Unit Holders
21
Statement of Compliance with the Code of Corporate Governance
22
Review Report to the Unit Holders on Statement of Compliance with the Best Practices of Code of Corporate Governance
25
Independent Auditor's Report to the Unit Holders
26
Statement of Assets and Liabilities
28
Income Statement
29
Statement of Comprehensive Income
30
Distribution Statement
31
Statement of Movement in Unit Holders' Fund
32
Statement of Cash Flow
33
Notes to and forming part of the Financial Statements
34
Performance Table
65
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
Vision To be a top quartile provider of investment solutions to both individuals and institutions. Through the success of our clients and employees we seek to build sustainable and long-term shareholder value, and to be an employer of choice in the asset management industry.
Mission To deliver superior performance as measured by market share parameters, high-quality service and a portfolio of innovative yet tailored products across a range of investment disciplines and distribution channels. To provide a fulfilling, stimulating and supportive environment for our employees that fosters their personal growth and facilitates our productivity as a team.
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LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
Funds Information Management Company
Lakson Investments Limited Head Office Lakson Square, Building No.2, Sarwar Shaheed Road, Karachi-74200, Pakistan. Phone: (9221) 3569.8000 Fax: (9221) 3568.1653 Web site: www.li.com.pk E-mail:
[email protected] Lakson Investments Limited (Regulated by the DFSA as a Representative Office) Level 15, Gate Building DIFC, P.O. Box 507054 Dubai, U.A.E. Phone: +971.4 401.9284 Fax: +971.4 401.9578
Board of Directors of the Management Company
Mr. Iqbal Ali Lakhani - Chairman Mr. Babar Ali Lakhani - Chief Executive Officer Mr. A. Aziz H. Ebrahim Mr. Mahomed J. Jaffer Mr. Amin Mohammed Lakhani Mr. Jacques John Visser Mr. Daniel Scott Smaller Mr. Zahid Zakiuddin
Chief Financial Officer & Company Secretary of the Management Company
Ms. Maimoona Raffat
Audit Committee
Mr. Zahid Zakiuddin - Chairman Mr. A. Aziz H. Ebrahim Mr. Iqbal Ali Lakhani
Human Resource and Remuneration Committee
Mr. Iqbal Ali Lakhani - Chairman Mr. Babar Ali Lakhani Mr. Daniel Scott Smaller
Trustee
Central Depository Company of Pakistan Limited CDC House, 99-B, Block-B, S.M.C.H.S, Main Shahra-e-Faisal, Karachi, Pakistan.
Auditors
KPMG Taseer Hadi & Co. Chartered Accountants Sheikh Sultan Trust Building No.2, Beaumont Road, Karachi - 75530, Pakistan
2
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND Bankers to the Fund
Allied Bank Limited Bank Alfalah Limited Faysal Bank Limited Habib Bank Limited Habib Metropolitan Bank Limited Habib Bank AG Zurich United Bank Limited
Legal Adviser
Fazleghani Advocates F-72/I, Block 8, KDA-5, Kehkashan, Clifton, Karachi, Pakistan.
Registrar
Lakson Investments Limited Lakson Square Building No.2, Sarwar Shaheed Road, Karachi-74200, Pakistan
Distributor
Rabia Fida
Rating
3-Star (One Year) 2-Star (Three Years) 2-Star (Five Years) Fund Performance Ranking (By JCR-VIS) AM2+ : Asset Manager Rating by PACRA
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LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
REPORT OF THE DIRECTORS OF THE MANAGEMENT COMPANY FOR THE YEAR ENDED JUNE 30, 2017 The Board of Directors of Lakson Investments Limited, the Management Company of the Lakson Asset Allocation Developed Markets Fund ("LAADMF") is pleased to submit its report together with Audited Financial Statements for the year ended June 30, 2017. Fund Objective The investment objective of the Lakson Asset Allocation Developed Markets Fund is to provide longterm capital appreciation by investing in a mix of domestic debt and Developed Markets Securities. Fund Profile LAADMF is an open end asset allocation scheme. The Scheme is managed using an active investment management style which focuses on an analysis of the macro factors such as government policies, global economic data, commodities prices and supply/demand dynamics. The Scheme switches exposure between the domestic Government Securities and the Developed Markets securities based on the outlook of the Investments Team of the performance of the Developed Markets. The Scheme may overweight or underweight countries relative to its benchmark for Developed Markets investments, the MSCI World Index. Exposure of the Scheme in the fixed income securities is managed through duration and yield curve management by shifting between different maturities of the Government Securities. Fund Performance The LAADMF provided a return of 9.01% during FY17 compared to a 9.09% appreciation in the Benchmark (Benchmark performance of the LAADMF is calculated through a weighted average daily return of 6M KIBOR and the MSCI World Index). The Fund underperformed the benchmark by 8 bps. Asset allocation was split between T bills (35%), PIBs (19%), Developed market equities (30%) and cash (16%). Earnings Per Unit (EPU) EPU is not being disclosed as we feel determination of weighted average units for calculating EPU is not practicable for open end funds Income Distribution The Chief Executive Officer under the authority from Board of Directors of the Management Company during the year declared the interim payout of PKR 4.5573 per unit (4.5573% of face value of PKR 100/-) amounting to PKR 6.196 million distribution in cash for the year ended June 30, 2017. Fund and Asset Manager Rating The Pakistan Credit Rating Agency Limited ('PACRA') has upgraded the asset manager rating of the Management Company to AM2+ from AM2. The JCR-VIS Credit Rating Company Limited has given 1 year performance ranking of 3-star, 3 years performance ranking of 2-star and 5 years performance ranking of 2-star to the fund. Corporate Governance The Fund is listed on the Pakistan Stock Exchange Limited; therefore, the Management Company is required to comply with the requirements of the Code of Corporate Governance for listed companies. 1. The financial statements prepared by the Management Company present fairly the state of affairs of the Fund, the results of its operations, cash flows and movement in unit holders' fund. 2. Proper books of accounts of the Fund have been maintained. 3. Appropriate accounting policies have been consistently applied in the preparation of financial statements and accounting estimates are based on reasonable and prudent judgment.
4
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 4. Relevant International Financial Reporting Standards, as applicable in Pakistan, provisions of NonBanking Finance Companies (Establishment and Regulation) Rules, 2003, Non-Banking Finance Companies and Notified Entities Regulations, 2008 ('NBFC Regulations), directives issued by the Securities & Exchange Commission of Pakistan and requirements of the constitutive documents of the Fund have been followed in the preparation of financial statements and any departure there from has been adequately disclosed. 5. The system of internal control is sound in design and has been effectively implemented and monitored. 6. There are no significant doubts upon the Fund's ability to continue as a going concern. 7. There has been no material departure from the best practices of Corporate Governance, as detailed in the listing regulations. 8. Key financial data as required by the Code of Corporate Governance has been summarized in this Annual Report. 9. Outstanding statutory payments on account of taxes, duties, levies and charges have been fully disclosed in the Financial Statements. 10. The statement as to the value of investments of provident fund is not applicable in the case of the Fund as such expenses are borne by the Management Company. 11. Meetings of the Board of Directors of the Management Company are held at least once in every quarter. During the year under review four meetings were held. Attendance of the Directors in these meetings is as follows:
Meetings S.No.
Name
Designation
Total
Attended Leave Granted
1
Mr. Iqbal Ali Lakhani
Chairman
4
3
1
2
Mr. Babar Ali Lakhani
Chief Executive
4
4
-
3
Mr. A. Aziz H. Ebrahim
Director
4
4
-
4
Mr. Mahomed J. Jaffer
Director
4
4
-
5
Mr. Amin Mohammed Lakhani
Director
4
2
2
6
Mr. Daniel Scott Smaller
Director
4
4
-
7
Mr. Zahid Zakiuddin
Director
4
4
-
8
Mr. Jacques John Visser
Director
4
3
1
12. Meetings of the Audit Committee of the Management Company are held at least once in every quarter. During the year under review four meetings were held. Attendance of the Directors in these meetings is as follows:
S.No.
Name
Designation
Total
Meetings Attended Leave Granted
1
Mr. Zahid Zakiuddin
Chairman
4
4
2
Mr. A. Aziz H. Ebrahim
Member
4
4
-
3
Mr. Iqbal Ali Lakhani
Member
4
3
1
5
-
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 13. During the year, one meeting of the Human Resource and Remuneration Committee comprising of Mr. Iqbal Ali Lakhani - Chairman, Mr. Babar Ali Lakhani - Member and Mr. Daniel Scott Smaller - Member was held, all the three members of the Committee attended the meeting. 14. The pattern of unit holding is given in note No. 20.1 of the Financial Statements. 15. During the year under review trades in the Units of the Fund were carried out by the Directors, the Chief Executive Officer, the Executives and including their spouses and minor children are as under: S.No.
Name
1
Babar Ali Lakhani
2
Ronak Iqbal Lakhani
Designation
Investment
Redemption
(Number of Units)
Chief Executive Officer
838.7184
-
Spouse of Chairman
19,966.8832
(507,529.8604)
External Auditor The existing auditors M/s. KPMG TaseerHadi & Co., Chartered Accountants being eligible have given their consent for reappointment as auditors for the year ending June 30, 2018. The Board of Directors, on the recommendations of the Audit Committee, has reappointed M/s. KPMG TaseerHadi & Co., Chartered Accountants for the year ending June 30, 2018. Economy review CPI inflation clocked in at 4.16% in FY17, compared to 2.86% in the same period last year. The CPI inflation however remained well under the policy rate, keeping real interest rates positive and allowed the central bank to maintain its policy rate at 5.75% throughout the period under review. The low interest rate environment supported private sector credit expansion which recorded 18% YoY growth. On the trade front, imports surged to USD 53.03 bn in FY17 up 18.67% YoY as compared to USD 44.69 bn in FY16 on account of higher import of machinery (up 37.27% YoY) and petroleum products (up 30.25% YoY). On the other hand, exports failed to mark any recovery, falling 1.63% YoY in FY17 to USD 20.45 bn. Due to expanding trade deficit, up 36.3% in FY17 to USD 32.6 bn, and slowdown in remittances (down 3.08% YoY to USD 19.3 bn in FY17) particularly from Gulf countries, U.K. and USA, the current account deficit has deteriorated to USD 12.1 bn in FY17 from USD 4.9 bn in the same period last year. Due to a widening current account and external debt servicing (USD 4.8 bn for 11MFY17), FX reserves depleted to USD 21.37 bn in FY17, falling by some 8.1% YoY. PKR's stability against the USD however, remained intact during the period, despite USD gaining further strength against major emerging market currencies. During 9MFY17, fiscal deficit swelled to 3.9% of GDP on account of less than expected tax revenues along with higher development & security related expenditures against the annual target of 3.8% of GDP forcing the government to revise the budget deficit target to 4.1% of GDP. Cumulatively in 10MFY17, tax collection increased by only 8% to PKR 2,518.7 bn as compared to PKR 2,332.1 bn in SPLY. Fixed Income Market Review Headline interest rates remained unchanged at 5.75%/6.25% across FY17 as inflation remained benign at 4.2% YoY even as growth activity accelerated, with LSM up 5.5% YoY (11MFY17) and credit to private sector rising by 18% YoY. However, burgeoning risks on the external front appear to now be weighing on monetary policy; in Nov'16, 4 out of 10 MPC members voted for a 25bps cut but in the May'17 MPS, all committee members unanimously voted to keep interest rates unchanged. In its last communication in Jul'17, the SBP has pointed towards strong likelihood of continued growth momentum, contained inflation (FY18F: 4.5%-5.5%) and challenges on the external front (FY17 Current Account deficit rose to USD 12.1 bn or about 4% of GDP), while again keeping interest rates unchanged.
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LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND MPC Committee Voting Pattern MPS Date
25bps cut
No change
Total
Jul'16
2
8
10
Sep'16
2
8
10
Nov'16
4
6
10
Jan'17
3
6
9
Mar'17
2
6
8
May'17
-
10
10
The government was a heavy borrower from the SBP in FY17 while not tapping commercial banks for financing. This allowed banks space and incentive to lend to the private sector, which was further supported by rising demand and soft interest rates. This growth is broad-based with trade financing and working capital lending also rising up to join the already-visible uptick in long-term fixed investment loans. This is in line with the SBP's outlook that overall growth momentum in the economy will likely be maintained. That said, with Pakistan entering an election year, it is possible that GoP borrowing requirements lift especially if populist decision making takes over. M2 growth clocked in at 13.7% YoY for FY17, at the same pace of growth witnessed in FY16. After the marked shift into PIBs a few years ago, GoP preference is again tilting towards shorter-term T Bills. From a 36% share in Jun'16, PIBs constituted less than 29% of GoP's total domestic debt by Apr'17. This differential has been almost entirely filled up by T Bills which are cheaper for the GoP; in FY17, the 12M T Bill yield averaged 5.96% vs. average yield for 3YR PIB of 6.36% (10YR bond was more than 8%). In FY17, the government raised PKR 9.1 tn through the T-Bills and PKR 894 bn through PIBs. In 4Q, as government focus continued to shift from PIBs to T-Bills with money raised through PIBs decelerated to PKR 115 bn during the quarter compared to PKR 646 bn raised in 1Q. This follows change in thinking in GoP's debt strategy following the IMF program. Date
T-Bills
PIB
6M
3M
12M
3YR
5YR
10 YR
30-Sep-16
5.86%
5.90%
5.91%
6.19%
6.69%
7.80%
31-Dec-16
5.96%
5.98%
5.95%
6.19%
6.69%
7.80%
31-Mar-17
5.97%
5.99%
5.99%
6.40%
6.89%
7.94%
30-Jun-17
5.99%
6.01%
6.04%
6.40%
6.90%
7.94%
Developed Markets Review Developed Markets also remained bullish in FY17, with the MSCI Europe, Australasia and Far East (EAFE) Index gaining 17.1%. Certain Eurozone countries and Japan outperformed the Index, while the US and UK underperformed. Eurozone economies performed well this year due to positive signals from the European Central Bank and approaching monetary tightening, which can come as early as the second quarter of 2018. Germany's DAX Index was up 27.3%, while France's CAC Index was up by 20.8%. France's equity markets were also helped by the election win of centrist Emmanuel Macron. US equities rallied during the year on the back of continuously improving economic data, especially unemployment. The S&P 500 Index was up 15.5% in FY17, as opposed to 1.7% in FY16 and 5.2% in FY15. The market performed particularly well in the four months following US Presidential Elections due to promises on infrastructure and tax reforms by the new Administration. But sentiment appeared to sour in the second half of the year as the new Administration struggled to make good its promises of Obamacare repeal, enforcement of a travel ban on Muslims and building of a wall on the Mexican
7
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND border. Investors started to doubt whether the new US Administration had the ability to pass tax reforms if they were having trouble with easier reforms, like repeal of Obamacare and/or replacement with a new healthcare program. The passing of reforms will continue to be an important driver of the US equity market in FY18. UK underperformed its peers because of the uncertainty created by the Brexit vote and the following disastrous snap elections. The UK referendum held on June 23, 2016, in which the country voted to exit from the EU (process known as Brexit) led to uncertainty and consequently jitters across the equity and FX markets. The backfiring of snap elections, in which Prime Minister May lost her overall majority in the UK parliament, further added to the uncertainty. The FTSE 100 Index rose by only 12.4% in the year, missing the strong rally in most of the rest of the world. Future Outlook Progress on CPEC-related projects and rebound in agriculture is expected to take GDP growth to 5.7% in FY18, from 5.3% in FY17. Interest rates appear to have bottomed, and could see some uptick in line with the expected increase in CPI inflation. Widening of twin deficits remains a key concern, where we believe that the long-pending devaluation of the PKR can stimulate falling exports. Likewise, timely disbursements related to the government's exports incentive package could help to generate some much needed foreign exchange. On the import front, curtailment of unnecessary items as well as stable oil prices are a key to keep the trade deficit in check. On the fiscal front, active and honest revenue mobilization will be crucial to meet the government's fiscal deficit target of 4.1% of GDP for FY18. The US economy continues to look healthy, with unemployment now lower than it has been since 1970. The FED raised rates again in June and announced that it is likely to start reducing the size of its balance sheet "relatively soon". Like the ECB, the FED is also likely to continue tightening monetary policy gradually, given its belief that the economy is already past the level of unemployment that should soon start to generate domestic wage inflation. On the other hand, in the UK, the economic and political outlook remains highly uncertain. Falling real wage growth and consumer confidence do not bode well for consumption. A sharp fall in the savings rate and rising consumer credit may be able to support consumption in the short term, but raise questions about its sustainability. Recent comments from the BoE suggest the probability of a rate rise this year has risen. Acknowledgment The Board is thankful to its valued investors, the Securities & Exchange Commission of Pakistan, the State Bank of Pakistan, the Trustee of the Fund - Central Depository Company of Pakistan Limited and the management of the Pakistan Stock Exchange Limited for their continued cooperation and support. The Directors of the Management Company also acknowledge the efforts put in by the team of the Management Company for the growth and the prudent management of the Fund.
For and on behalf of the Board
Director
Chief Executive Officer
Dated: August 25, 2017 Karachi
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LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
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LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
10
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
11
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
12
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
13
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
14
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
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LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
REPORT OF THE FUND MANAGER FOR THE YEAR ENDED JUNE 30, 2017 Fund Facts Open-End Asset Allocation Fund 227.0000 118.9544 Forward Day CDC Pakistan Limited KPMG Taseer Hadi & Co. 15% of the gross earnings of the Scheme, calculated on a daily basis. The fee is subject Management Fee to a minimum of 1.25% and maximum of 2% of the average annual net assets of the Scheme. Current - 1.55% Front End Load 2.50% Back End Load None Launch Date October 11, 2011 Weighted average daily return of 6M KIBOR and the MSCI Benchmark World Index based on the Scheme's actual proportion in the debt securities and developed market securities Dealing Days Mon - Fri Cut-Off Time 04:00 PM Asset Manager Rating AM2+ by PACRA (15.5.2017)
Asset Allocation
Fund Type Category Net Assets (PKR Mil.) NAV (30.06.2017) Pricing Mechanism Trustee Auditor
Fund Performance
LAADMF
Others 1%
Cash 16% T-Bills 34%
Developed Mkt. Equities 30% PIBs 19%
QQQ ETF
As of June 2017
Contry United States China United Kingdom Israel
Exposure 96.48% 2.06% 0.65% 0.28%
VANGUARD S&P 500
As of June 2017
Sectors United States Ireland Switzerland United Kingdom Bermuda
Benchmark
Exposure 97.48% 1.01% 0.51% 0.50% 0.06%
Investment Committee
FY17 9.01% 9.09% June-17 -0.03% 0.43% 2 Months 0.93% 1.37% 3 Months 1.74% 2.12% 6 Months 5.77% 5.12% 12 Months 9.01% 9.09% CY17-YTD 5.77% 5.12% 3 Years 26.90% 17.60% 5 Years 53.70% 49.46% Since Inception 63.60% 65.39% the benchmark of the fund was changed in September 2016
Babar Ali Lakhani Kashif Mustafa Mustafa O. Pasha, CFA Syed Saifullah Kazmi Sana Abdullah, CFA Hassan Bin Nasir Junaid Arshad, ACCA Tayyaba Azeem
Chairman
Investment Objective The investment objective of the Lakson Asset Allocation Developed Markets Fund ("LAADMF") is to provide long-term capital appreciation by investing in a mix of domestic debt and Developed Markets securities. The LAADMF achieved its investment objective by investing in a mix of risk free PIBs, T-Bills and Exchange Traded Funds ("ETFs") that tracked the performance of the MSCI World Index. The domestic debt component provides investors with long term capital protection; whereas the international portion aims to provide long term capital appreciation and a powerful currency hedge.
16
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND Investment Strategy The Fund reduced concentration to Developed Market exposure in US markets like the S&P and NASDAQ during FY17. The domestic debt component of the LAADMF portfolio was constructed by investing in liquid and risk free instruments like PIBs and T-Bills. The exposure of the LAADMF in TBills was managed based on the relative yield analysis of these instruments and our yield curve expectations. High exposure in T-Bills and cash enabled the LAADMF to benefit from lower secondary yields, while maintaining liquidity and meeting all its obligations in a timely manner. As of 30th June 2017, the Fund had the following asset allocation; PIBs (19%), Developed Market Equities (30%), Cash (16%) and T bills (35%), Others (1%).
Economic Review CPI inflation clocked in at 4.16% in FY17, compared to 2.86% in the same period last year. The CPI inflation however remained well under the policy rate, keeping real interest rate positive and allowed central bank to maintain its policy rate at 5.75% throughout the period under review. The low interest rate environment has supported private sector credit expansion recording 15% YoY growth in 11MFY17 to PKR4.4t. As far as trade statistics are concerned, imports have surged to $53.026bn in FY17 up 18.67% YoY as compared to $44.685bn in FY16 on account of higher import of machinery (up 37.27%YoY) and petroleum products (up 30.25%YoY). On the other hand, exports have failed to mark any recovery, falling 1.63% YoY in FY17 to $20.45bn. Due to expanding trade deficit, up 36.3% in FY17 to $32.6bn, and slowdown in remittances (down 3.08%YoY to $19.3bn in FY17) particularly from Gulf countries, U.K. and USA, the current account deficit has deteriorated to $12.1bn in FY17 from $4.9bn in the same period last year. As a result of widening of current account and external debt servicing ($4.8bn for11MFY17), FX reserves depleted to $21.37bn in FY17, falling by some 8.1%YoY. PKR's stability against the USD however, remained intact during the period, despite USD gaining further strength against major emerging market currencies. During 9MFY17, fiscal deficit swelled to 3.9% of GDP on account of less than expected tax revenues along with higher development & security related expenditures against the annual target of 3.8% of GDP forcing the government to revise the budget deficit target to 4.1% of GDP. Cumulatively in 10MFY17, the tax collection increased by only 8% to PKR 2518.7bn as compared to PKR2332.1bn in SPLY. Outlook Progress on CPEC-related projects and rebound in agriculture sector growth is expected to take GDP growth to 5.7% in FY18, from 5.3% in FY17. Interest rate appear to have bottomed, and could see some uptick in line with the expected increase in CPI inflation. Widening of twin deficit remains key concern, where we believe that the long-pending devaluation of the local currency can add stimulus to the falling exports. Likewise, timely disbursements related to exports incentive package announced by the government can also bode well for the falling exports. On the import front, curtailment of unnecessary items as well as stable (read low) oil prices are a key to keep the trade deficit in check. On the fiscal front, active and honest revenue mobilization will be crucial to meet the government's fiscal deficit target of 4.1% of GDP for FY18. Emerging Markets Review After two consecutive years of declines, Emerging Equity Markets finally turned bullish in FY17 with the MSCI Emerging Market Index gaining 21.2%. Almost all Emerging Markets (EM) performed better in FY17 compared to FY16 with smaller countries in the EM space performing better than heavy weights China and India. Russia was a notable exception to the general trend, posting flat growth in the year and missing the global rally that dominated FY17. Indian equities performed well during the year due to both foreign and local investor confidence in its economy. Consequently, the BSE Sensex Index gained 14.5% during the year (all returns mentioned
17
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND are simple price performance in local currency). Gains on the economic front were somewhat countered by confusion related to two significant reforms introduced during the year, namely demonetization and levying of Goods and Services Tax (GST) regime. Demonetization was enforced in order to discourage criminal activities in the country, while GST was introduced in order to combine more than a dozen levies into one tax and simplify the system. Both the reforms could not be executed very smoothly, with public confusion reflecting to some degree in stock market returns. With the country expected to continue on a trajectory of strong economic growth (IMF projects its GDP to grow at a rate of 7.2% in 2017 and 7.7% in 2018) it is expected that the Indian market will continue to provide positive return in FY18. Chinese equities underperformed Emerging Markets as concerns related to its high debt and slowing growth persisted. Moreover, threats of a trade war with the US due to aggressive stance of the new US Administration lent to jitters in the market. Poor relations with other countries, especially US, North Korea and India also had a negative effect on sentiments. IMF in its July World Economic Update has raised China's GDP growth rate estimate to 6.7% in 2017 and 6.4% in 2018, up by 0.1% and 0.2% from the estimates given in April. Given the growth outlook, it seems likely that Chinese equities will continue to post positive returns in FY18. Brazilian equities too performed well during the year even as the country's political situation worsened leading to uncertainty. Two of the countries' politicians were charged with corruption during the year, namely the ex-president Luiz Inácio Lula da Silva , and the sitting President Michel Temer. Moreover, ex-President Dilma Rousseff was impeached in August 2016 upon allegations of manipulating the budget. The Bovespa Index gained 22.1% during the year, compared to flat trend in both FY16 and FY15. Outlook The outlook for emerging markets continues to brighten as the global recovery broadens. However, it is mainly hinged upon the following three factors: 1) Liberalization of Chinese markets, and the Communist Party's leadership transition later this year, (2) Anticipated protectionist actions by the US and, (3) Commodity prices, weakening could dampen sentiment and cause commodity-focused emerging economies, such as Brazil and Russia to relapse. According to IMF January 2017 outlook however, economic activity that picked up the pace in 1H CY17 in emerging markets is likely to continue in CY18. The GDP growth for emerging economies is expected to be 4.8% in CY18 compared to expectations of 4.5% in CY17. Developed Markets Review After two consecutive years of negative returns, Developed Markets finally turned bullish in FY17, with the MSCI Europe, Australasia and Far East (EAFE) Index gaining 17.1%. Certain Eurozone countries and Japan outperformed the Index, while the US and UK underperformed. Eurozone economies performed well this year due to positive signals from the European Central Bank and approaching monetary tightening, which can come as early as the second quarter of 2018. Germany's DAX Index was up 27.3%, while France's CAC Index was up by 20.8% in FY17. France's equity markets were also helped by the election win of centrist Emmanuel Macron. US equities rallied during the year on the back of continuously improving economic data, especially unemployment. The S&P 500 Index was up 15.5% in FY17, as opposed to 1.7% in FY16 and 5.2% in FY15. The market performed particularly well in the four months following US' Presidential Elections due to promises by the new Administration related to healthcare and tax reforms. But sentiment appeared to sour in the second half of the year as the new Administration struggled to make good its promises of Obamacare repeal, enforcement of a travel ban on Muslims and building of a wall on the Mexican border. Investors started to doubt whether the new US Administration had the ability to pass tax reforms if they were having trouble with easier reforms, like repeal of Obamacare and/or replacement with a new healthcare program. The passing of reforms will continue to be an important driver of the US equity market in FY18. UK underperformed its peers because of the uncertainty created by the Brexit vote and the following disastrous snap elections. The UK referendum held on June 23, 2016, in which the country voted to
18
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND exit from the EU (process known as Brexit) led to uncertainty and consequently jitters across the equity and FX markets. The backfiring of snap elections, in which Prime Minister May lost her overall majority in the UK parliament, further added to the uncertainty. The FTSE 100 Index rose by only 12.4% in the year, missing the strong rally in most of the rest of the world. Outlook The US economy continues to look healthy, with unemployment now lower than it has been since 1970. The FED raised rates again in June and announced that it is likely to start reducing the size of its balance sheet "relatively soon". Like the ECB, the FED is also likely to continue tightening monetary policy gradually, given its belief that the economy is already past the level of unemployment that should soon start to generate domestic wage inflation. On the other hand, in the UK, the economic and political outlook remains highly uncertain. Falling real wage growth and consumer confidence do not bode well for consumption. A sharp fall in the savings rate and rising consumer credit may be able to support consumption in the short term, but raise questions about its sustainability. Recent comments from the BoE suggest the probability of a rate rise this year has risen.
Fund Performance The LAADMF provided a return of 9.01% in FY17, outpacing FY16 return of 8.00%. The fund's benchmark during FY17 was 9.09%, causing the fund to underperform by 8bps.
Distributions Interim Distribution NAV before Distribution NAV after Distribution Distribution Date
FY17 4.56 124.0585 119.5012 22-Jun-17
FY16
LAADMF vs. Benchmark
321
112
110
127.5054 114.9000 124.3955 112.0975 115.0565 10.8068 114.9738 9.01%
108
106
104
Jun-17
Jun-17
Apr-17
May-17
Apr-17
May-17
Mar-17
Mar-17
Mar-17
Jan-17
Feb-17
Jan-17
Benchmark
FY16
Feb-17
Dec-16
Dec-16
Nov-16
Oct-16
Nov-16
Oct-16
Nov-16
Sep-16
Sep-16
100
Aug-16
102
Jul-16
290 227 127.2001 116.2507 124.0976 113.4153 113.2854 4.5573 119.5012 9.01% 8
Aug-16
FY17
Jun-16
Net Assets - Beginning (PKR Mil.) Net Assets - Ending (PKR Mil.) Highest Offer Price (PKR) Lowest Offer Price (PKR) Highest Redemption Price (PKR) Lowest Redemption Price (PKR) Beginning NAV - Ex-Div. (PKR) Interim Distributions (PKR) Final Distribution (PKR) Ending NAV - Ex-Div. (PKR) Return Net Income / (Loss) (PKR Mil.)
Aug-16
Performance Table
LAADMF
10.8068 123.71 112.90 28-Jun-16
Future Outlook The LAADMF will continue to maintain 70% exposure in the risk free instruments like PIBs, T-Bills and cash however the LAADMF may switch between different maturities depending upon the liquidity conditions of the market and interest rates outlook. The LAADMF will continue to maintain the current exposure in the ETFs which provide exposure to US equities.
Circumstances Materially Affecting Interests of Unit Holders PACRA upgraded the Asset manager Rating of Lakson Investments to 'AM2+' during FY17. As of June 30, 2017 the LAADMF has maintained provisions against Sindh Workers' Welfare Fund's liability to the tune of PKR 0.54 mn. If the same were not made the NAV per unit of the LAADMF would be higher by PKR 0.2828 and the return of the LAADMF for FY17 would be higher by 0.24%.
Other Disclosures
Lakson Investments Limited or any of its delegates did not receive any soft commission from its broker(s) or dealer(s). There was no unit split undertaken during the year. As of June 30, 2017 the LAADMF does not employ any leverage.
19
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND Breakdown of Unit Holding by Size Units Range
No. of Clients
Units Held
3 4 1 2 1 4 3 5 1 0 0
141 774 587 5,199 5,385 120,654 169,009 1,007,655 601,712 -
24
1,911,116
1 - 100 101 - 500 501 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 50,000 50,001 - 100,000 100,001 - 500,000 500,001 - 1,000,000 1,000,001 - 5,000,000 5,000,001 - above
20
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
21
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE FOR THE YEAR ENDED JUNE 30, 2017 This statement is being presented to comply with the Code of Corporate Governance ('the Code') contained in Regulation No 5.19.24 of listing regulations of Pakistan Stock Exchange Limited where Lakson Asset Allocation Developed Markets Fund ('the Fund') is listed. The purpose of the Code is to establish a framework of good governance, whereby a listed entity is managed in compliance with the best practices of corporate governance. Lakson Investments Limited ('Management Company'), an un-listed public company, which manages the affairs of the Fund, has applied principles contained in the Code in the following manner. 1. The Management Company encourages representation of independent non-executive directors onits Board of Directors. At present the Board includes: Category
Names
Independent Directors
1. 2. 3. 4.
Mr. Daniel Scott Smaller Mr. Mahomed J. Jaffer Mr. Zahid Zakiuddin Mr. Jacques John Visser
Executive Director
1.
Mr. Babar Ali Lakhani
Non-Executive Directors
1. 2. 3.
Mr. Iqbal Ali Lakhani - Chairman Mr. A. Aziz H. Ebrahim Mr. Amin Mohammed Lakhani
The Independent Directors meet the criteria of independence under clause 5.19.1(b) of the Code. 2. The Directors of the Management Company have confirmed that none of them is serving as a director on more than seven listed companies, including the Management Company. 3. All the resident Directors of the Management Company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a broker of a stock exchange, has been declared as a defaulter by that stock exchange. 4. During the period no casual vacancy occurred on the Board of the Management Company. 5. The Management Company has prepared a "Code of Conduct" and has ensured that appropriate steps have been taken to disseminate it throughout the Management Company along with its supporting policies and procedures. 6. The Board has developed a vision / mission statement, overall corporate strategy and significant policies for the Fund. A complete record of particulars of significant policies along with the dates on which they were approved or amended has been maintained. 7. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of the Chief Executive Officer ('CEO') have been taken by the Board.
22
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 8. The meetings of the Board were presided over by the Chairman and, in his absence, by a director elected by the 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 of the meetings were appropriately recorded and circulated. 9. The Directors are conversant of the relevant laws applicable to the Management Company, its policies and provisions of memorandum and articles of association and are aware of their duties and responsibilities. The directors of the Company having 14 years of education and 15 years of experience on the board of a listed company are exempted from the requirement of director's training program. All the board members except one director qualify for exemption under this provision of the CCG or having completed all parts of the program offered by the Pakistan Institute of Corporate Governance and duly certified. 10. The new appointment of Chief Financial Officer and Company Secretary was made during the year and is duly approved by the Board of Directors including her terms of employment. The Company has designated one of its employees as 'Coordinator/Head of Internal Audit' to act as coordinator between the firm providing internal audit services and the Audit Committee. 11. The Directors' Report of the Fund for this year has been prepared in compliance with the requirements of the Code and fully describes the salient matters required to be disclosed. 12. The financial statements of the Fund were duly endorsed by Chief Executive Officer and Chief Financial Officer before approval of the Board. 13. The Directors, Chief Executive Officer and Executives do not hold any interest in the units of the Fund other than those disclosed in the Annual Report. 14. The Management Company has complied with all the corporate and financial reporting requirements of the Code with respect to the Fund. 15. The Board has formed an Audit Committee. It comprises of three members, all of whom are NonExecutive Directors of the Management Company and the Chairman of the Committee is an Independent Director. 16. The meetings of the Audit Committee were held at least once every quarter and prior to approval of interim and final results of the Fund. The terms of reference of the Committee have been formed and advised to the Committee for compliance. 17. The Board of the Management Company has formed a Human Resource and Remuneration Committee. It comprises of three members, of whom two are Non-Executive Directors and the Chairman of the Committee is a Non-Executive Director. 18. The Board has outsourced the internal audit function to M/s. Grant Thornton Anjum Rahman, Chartered Accountants who are considered suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the Fund. 19. The statutory auditors of the Fund have confirmed that they have been given a satisfactory rating under the quality control review program of the Institute of Chartered Accountants of Pakistan ('ICAP'), that they or any of the partners of the firm, their spouses and minor children do not hold units of the Fund and that the firm and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by the ICAP. 20. The statutory auditors or the persons associated with them have not been appointed to provide other services except in accordance with the listing regulations and the auditors have confirmed that they have observed IFAC guidelines in this regard.
23
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 21. The 'Closed Period', prior to the announcement of interim / final results, and business decisions, which may materially affect the market price of Fund's securities, was determined and intimated to directors, employees and stock exchange. 22. Material / price sensitive information has been disseminated among all market participants at once through stock exchange. 23. The company has complied with the requirements relating to maintenance of register of persons having access to inside information by designated senior management officer in a timely manner and maintained proper record including basis for inclusion or exclusion of names of persons from the said list. 24. We confirm that all other applicable material principles enshrined in the Code have been complied with.
For and on behalf of the Board
Director
Chief Executive Officer
Dated: August 25, 2017
24
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
25
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
26
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
27
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
Statement of Assets and Liabilities As at June 30, 2017 2017
Note
Assets Bank balances Investments Dividend receivables (on held for trading investments) Markup accrued Prepayments Deferred formation cost Total assets
4 5
(Rupees)
2016
36,277,056 195,471,917
76,770,410 216,467,491
217,464 2,049,393 43,910 234,059,740
243,203 4,718,543 40,263 140,582 298,380,492
8 9
5,142,687 132,195
5,256,526 65,407
10 11
269,297 1,179,770 6,723,949
284,360 2,942,189 8,548,482
227,335,791
289,832,010
227,335,791
289,832,010
6 7
Liabilities Payable to the Management Company Remuneration payable to the Trustee Annual fee payable to Securities and Exchange Commission of Pakistan Accrued expenses and other liabilities Total liabilities Contingencies and commitments Net assets
13
Unit holders' fund (as per the statement attached)
(Number) Number of units in issue (face value: Rs 100 per unit)
14
1,911,116
2,558,421
(Rupees) Net assets value per unit
118.9544
113.2854
The annexed notes from 1 to 21 form an integral part of these financial statements.
For Lakson Investments Limited (Management Company)
Chief Executive Officer
Chief Financial Officer
28
Director
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
Income Statement For the year ended June 30, 2017 Income Gain on sale of held for trading investments - net Unrealised gain on revaluation of held for trading investments - net Dividend income (on held for trading investments) Markup on bank balances Markup on Government securities (held for trading) Exchange gain on foreign investments and bank balance - net Reversal of provision against workers' welfare fund Expenses Remuneration of the Management Company Sindh Sales Tax on remuneration of the Management Company Federal Excise Duty on the remuneration of the Management Company Remuneration of the Trustee Annual fee to the Securities and Exchange Commission of Pakistan (SECP) Auditors' remuneration Custody charges Fees and subscription Credit rating fee Printing charges Brokerage, custody, settlement and bank charges SECP supervisory fee Amortisation of deferred formation cost Provision for Sindh workers' welfare fund (SWWF) for previous period
(Rupees)
2016
2,803,112
5,627,457
10,903,463 1,016,660 671,699 14,306,981
2,822,197 1,032,331 2,042,268 17,952,538
7,245 29,709,160
2,292,886 31,769,677
11.1
2,659,188 32,368,348
31,769,677
8.1
4,314,853
4,623,518
8.3
560,931
750,859
8.4 9
791,002
739,763 798,001
10 15
269,297 303,110 176,238 105,000 188,453 72,740 110,421 4,000 140,583
284,360 297,401 140,721 94,000 179,397 45,398 203,689 504,440
540,504 7,577,132
8,661,547
(16,360,625) 8,430,591
(9,019,451) 14,088,679
7 11.1
Element of income / (loss) and capital gains / (losses) in prices of units sold less those in units redeemed - net Net Income before taxation Taxation
2017
Note
17
Net income for the year
8,430,591
14,088,679
The annexed notes from 1 to 21 form an integral part of these financial statements.
For Lakson Investments Limited (Management Company) Chief Executive Officer
Chief Financial Officer
29
Director
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
Statement of Comprehensive Income For the year ended June 30, 2017 2017 Net income for the year
(Rupees)
8,430,591
Other comprehensive income for the year
2016
14,088,679
-
Total comprehensive income for the year
8,430,591
14,088,679
The annexed notes from 1 to 21 form an integral part of these financial statements.
For Lakson Investments Limited (Management Company)
Chief Executive Officer
Chief Financial Officer
30
Director
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
Distribution Statement For the year ended June 30, 2017 2017
(Rupees)
2016
- Realised income at beginning of the year - Unrealised income at beginning of the year Undistributed income at beginning of the year
31,167,705 2,822,197 33,989,902
31,460,919 10,319,380 41,780,299
Interim cash distribution of Rs. 4.5573 (2016: Rs. 10.8068) per unit approved on 22 June 2017 (2016: 27 June 2016)
(6,196,284)
(21,879,076)
8,430,591
14,088,679
Undistributed income at end of the year
36,224,209
33,989,902
Represented by: - Realised income at end of the year - Unrealised income at end of the year Undistributed income at end of the year
25,320,746 10,903,463 36,224,209
31,167,705 2,822,197 33,989,902
Net income for the year after taxation (total comprehensive income for the year)
The annexed notes from 1 to 21 form an integral part of these financial statements.
For Lakson Investments Limited (Management Company)
Chief Executive Officer
Chief Financial Officer
31
Director
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
Statement of Movement In Unit Holders' Fund For the year ended June 30, 2017 2017 Net assets as at beginning of the year
(Rupees)
2016
289,832,010
320,801,610
67,927,458
68,552,874
(149,018,609) (81,091,151)
(100,751,528) (32,198,654)
16,360,625
9,019,451
10,903,463
2,822,197
2,803,112 (5,275,984)
5,627,457 5,639,025
8,430,591
14,088,679
(6,196,284)
(21,879,076)
227,335,791
289,832,010
Net assets value per unit at begining of the year
113.2854
114.9738
Net assets value per unit at end of the year
118.9544
113.2854
Amount received on issuance of 568,349* (2016: 607,386) units Amount paid on redemption of 1,215,654 (2016: 839,178) units Element of (income) / loss and capital (gains) / losses included in prices of units issued less those in units redeemed - net Unrealised gain on remeasurement of held for trading investments - net Gain / (loss) on sale of held for trading investments - net Other (loss) / income for the year - net Total income for the year (comprehensive income for the year) Interim cash distribution of Rs. 4.5573 (2016: Rs. 10.8068) per unit approved on 22 June 2017 (2016: 27 June 2016) Net assets as at end of the year
* This includes 48,847 (2016: 103,043) units issued during the year against the reinvestment of interim cash dividend. The annexed notes from 1 to 21 form an integral part of these financial statements.
For Lakson Investments Limited (Management Company)
Chief Executive Officer
Chief Financial Officer
32
Director
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
Statement of Cash Flow For the year ended June 30, 2017 2017 CASH FLOWS FROM OPERATING ACTIVITIES Net income for the year
(Rupees)
2016
8,430,591
14,088,679
(10,903,463)
(5,121,005)
16,360,625 140,583 (1,016,660) (14,978,680) (1,967,004)
9,019,451 504,440 (1,032,331) (19,994,806) (2,535,572)
31,899,036 (3,647) 31,895,389
(70,250,459) (3,003) (70,253,462)
(113,839) 66,788
655,069 (16,047)
(15,063) (1,762,419) (1,824,533) 1,042,399
(258,450) 56,340 436,912 789,128
17,647,830 46,794,081
22,692,554 (48,870,440)
67,927,458 (149,018,609) (6,196,284) (87,287,435)
68,552,874 (100,751,528) (21,879,076) (54,077,730)
(40,493,354)
(102,948,170)
Cash and cash equivalents at beginning of the year
76,770,410
179,718,580
Cash and cash equivalents at end of the year
36,277,056
76,770,410
Adjustments for: Unrealised (gain) / loss on revaluation of held for trading investments - net Element of (income) / loss and capital (gains) / losses in prices of units sold less those in units redeemed - net Amortisation of deferred formation cost Dividend income (on held for trading investments) Markup on bank balances and Governement securities Decrease / (increase) in assets Investments Prepayment Increase / (decrease) in liabilities Payable to the Management Company Remuneration payable to the Trustee Annual fee payable to Securities and Exchange Commission of Pakistan Accrued expenses and other liabilities Dividend income received Markup received on bank balances and Governement securities Net cash flows from operating activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of units Payments on redemption of units Distribution to unit holders' in cash Net cash flows from financing activities Net increase in cash and cash equivalents during the year
The annexed notes from 1 to 21 form an integral part of these financial statements.
For Lakson Investments Limited (Management Company) Chief Executive Officer
Chief Financial Officer
33
Director
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
Notes to the Financial Statements For the year ended June 30, 2017 1.
LEGAL STATUS AND NATURE OF BUSINESS
1.1
The Lakson Asset Allocation Developed Markets Fund) (the "Fund") was established under the Trust Deed executed on 30 May 2011 between the Lakson Investments Limited as its Management Company and the Central Depository Company of Pakistan Limited (CDC) as its Trustee. The Fund has been registered as a Notified Entity by the Securities and Exchange Commission of Pakistan (SECP) in accordance with the Non-Banking Finance Companies and Notified Entities Regulations, 2008 (NBFC Regulations).
1.2
The Management Company of the Fund has been licensed by SECP to undertake Asset Management and Investment Advisory Services as a Non-Banking Finance Company under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (NBFC Rules). The registered office of the Management Company is located at 14 - Ali Block, New Garden Town, Lahore, while the head office is in the Lakson Square Building No. 2, Karachi.
1.3
The Fund is an open end mutual fund and is listed on the Pakistan Stock Exchange Limited. Units are offered for public subscription on a continuous basis. The units are transferable and can be redeemed by surrendering them to the Fund. The Fund is categorised as "Asset Allocation Scheme" as per the Circular 07 of 2009 issued by Securities and Exchange Commission of Pakistan (SECP) and is authorised to invest within the prescribed limit mentioned in the offering document of the fund in Government securities, deposits and foreign currency deposits with local or foreign banks etc. in Pakistan. Further, as allowed by SECP and State Bank of Pakistan, the Fund can invest abroad up to 30% of the aggregated funds mobilized (including foreign currency funds) subject to a maximum limit of USD 15 million. The investments authorized outside Pakistan include exchange traded funds based on equities / debt with exposure in the commodities, index tracker funds tracking different commodities indices, actively managed commodities based funds, equities and debt securities of companies with exposure in commodities, future contracts of different commodities and foreign currency deposits etc. Title to the assets of the Fund is held in the name of Central Depository Company of Pakistan Limited as Trustee of the Fund.
1.4
Pakistan Credit Rating Company Limited (PACRA) has upgraded the rating of the Management Company of the Fund to the new scale 'AM2+' (stable outlook) vide its report dated 15 May 2017 (2016: AM2 as on 08 June 2016). The JCR-VIS Credit Rating Company Limited has given 1 year performance ranking of 3-star, 3 years performance ranking of 2-star and 5 years performance ranking of 2-star to the fund.
2.
BASIS OF PREPARATION
2.1
Statement of compliance
2.1.1
These financial statements have been prepared in accordance with applicable approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the Rules), Non-Banking Finance Companies and Notified Entities Regulations, 2008 (the Regulations) and directives issued by the Securities and Exchange Commission of Pakistan (SECP). Wherever the requirements of the Rules, the Regulations or directives issued by the SECP differ with the requirements of IFRS, the Rules, the Regulations or the directives issued by the SECP shall prevail.
34
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 2.1.2
The Companies Act, 2017 was enacted on 30 May 2017 and is applicable with immediate effect. The Securities and Exchange Commission of Pakistan through press release and vide circular no. 17 of 2017 dated 20 July 2017 has decided that all the companies whose financial year, including quarterly and other interim period, closes on or before 30 June 2017, shall prepare their financial statements, including interim financial statements, in accordance with the provisions of the repealed Companies Ordinance, 1984. The new requirements of the Companies Act, 2017 shall be applicable to the companies having their financial year closure after 30 June 2017.
2.2
Basis of measurement These financial statements have been prepared under the historical cost convention, except that investments are measured at fair value.
2.3
Functional and presentation currency These financial statements are presented in Pak Rupees, which is the fund's functional and presentation currency. All amount have been rounded off to the nearest of rupees, unless otherwise indicated.
2.4
Use of estimates and judgments The preparation of financial statements in conformity with approved accounting standards as applicable in Pakistan requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The areas where various assumptions and estimates are significant to the Fund's financial statements or where judgment was exercised in the application of accounting policies are given below: a) Judgements Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements is included in the note 3.1.2 regarding the Classification of investments. b) Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the financial statements for the year ending 30 June 2017 is included in the following notes: - Note 3.1 - Valuation of investments - Notes 3.11 and 3.15 - Impairment of financial instruments and other assets - Notes 11.1, 8.3 and 8.4 - Recognition of provision for Workers' Welfare Fund, Federal Excise Duty and Sindh Sales Tax on Federal Excise Duty respectively - Notes 3.6 and 17 - Taxation - Note 3.8 - Element of income / (loss) and capital gains / (losses) in prices of units sold less those in units redeemed - net
35
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 2.5
Standards, interpretations and amendments to published approved accounting standards that are not yet effective The following standards, amendments and interpretations of approved accounting standards will be effective for accounting periods beginning on or after 01 July 2017: - Amendments to IAS 12 Income Taxes are effective for annual periods beginning on or after 1 January 2017. The amendments clarify that the existence of a deductible temporary difference depends solely on a comparison of the carrying amount of an asset and its tax base at the end of the reporting period, and is not affected by possible future changes in the carrying amount or expected manner of recovery of the asset. The amendments further clarify that when calculating deferred tax asset in respect of insufficient taxable temporary differences, the future taxable profit excludes tax deductions resulting from the reversal of those deductible temporary differences. The amendments are not likely to have an impact on Funds financial statements. - Amendments to IAS 7 Statement of Cash Flows are part of IASBs broader disclosure initiative and are effective for annual periods beginning on or after 1 January 2017. The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. - Amendments to IFRS 2 - Share-based Payment clarify the accounting for certain types of arrangements and are effective for annual periods beginning on or after 1 January 2018. The amendments cover three accounting areas (a) measurement of cash-settled share-based payments; (b) classification of share-based payments settled net of tax withholdings; and (c) accounting for a modification of a share-based payment from cashsettled to equity-settled. The new requirements could affect the classification and/or measurement of these arrangements and potentially the timing and amount of expense recognized for new and outstanding awards. The amendments are not likely to have an impact on Funds financial statements. - Transfers of Investment Property (Amendments to IAS 40 Investment Property -effective for annual periods beginning on or after 1 January 2018) clarifies that an entity shall transfer a property to, or from, investment property when, and only when there is a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. In isolation, a change in management's intentions for the use of a property does not provide evidence of a change in use. The amendments are not likely to have an impact on Funds financial statements. - Annual improvements to IFRS standards 2014-2016 cycle. The new cycle of improvements addresses improvements to following approved accounting standards: - Amendments to IFRS 12 Disclosure of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2017) clarify that the requirements of IFRS 12 apply to an entitys interests that are classified as held for sale or discontinued operations in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. The amendments are not likely to have an impact on Funds financial statements. - Amendments to IAS 28 Investments in Associates and Joint Ventures (effective for annual periods beginning on or after 1 January 2018) clarifies that a venture capital organization and other similar entities may elect to measure investments in associates and joint ventures at fair value through profit or loss, for each associate or joint venture separately at the time of initial recognition of investment. Furthermore,
36
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND similar election is available to non-investment entity that has an interest in an associate or joint venture that is an investment entity, when applying the equity method, to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate's or joint venture's interests in subsidiaries. This election is made separately for each investment entity associate or joint venture. The amendments are not likely to have an impact on Funds financial statements. - IFRIC 22 Foreign Currency Transactions and Advance Consideration (effective for annual periods beginning on or after 1 January 2018) clarifies which date should be used for translation when a foreign currency transaction involves payment or receipt in advance of the item it relates to. The related item is translated using the exchange rate on the date the advance foreign currency is received or paid and the prepayment or deferred income is recognized. The date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) would remain the date on which receipt of payment from advance consideration was recognized. If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration. - IFRIC 23 Uncertainty over Income Tax Treatments (effective for annual periods beginning on or after 1 January 2019) clarifies the accounting for income tax when there is uncertainty over income tax treatments under IAS 12. The interpretation requires the uncertainty over tax treatment be reflected in the measurement of current and deferred tax. Above amendments are not likely to have an impact on financial statements of the Fund. - As disclosed in note 2.1.2, the new requirements of the Companies Act, 2017, shall be applicable to the financial statements issued on or after 30 June 2017. The Act included mutual funds in Third Schedule, accordingly certain additional requirements / disclosures in Fifth Schedule to the Companies Act, 2017 are also applicable to the financial statements of mutual funds. Significant disclosures / requirements, which are relevant to the funds includes but not limited to: name of associated companies or related parties or undertakings along with the basis of relationship describing common directorship and/or percentage of shareholding; summary of significant transactions and events that have affected the financial position and performance during the year, etc. - SECP through SRO 756(I)/2017 dated 03 August 2017 has made certain amendments in NBFCs and Notified Entities Regulations, 2008. The amendments require additional disclosures and recording of element of income / loss included in price of unit issued or redeemed in Statement of Movements in Reserves or Unit holders Fund instead of Income Statement. The SRO also deleted Distribution Statement and its contents along with certain additional break-ups and disclosures to be included on the face of Income Statement and Statement of Movements in Reserves or Unit holders Fund. Further, new amendments changed the definition of accounting income in regulation (63) sub-regulation (I) which is now to be determined after taking into account the element of income / loss relating to the redemption of units. This change will be applied prospectively and may affect the charge for Sindh Workers Welfare Fund (SWWF) and consequently, the Net Asset Value per unit of the Fund in future. 3.
SIGNIFICANT ACCOUNTING POLICIES Accounting policies set out below have been applied consistently to all periods presented in these financial statements.
37
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 3.1
Investments
3.1.1
All investments are initially recognised at cost, being the fair value of the consideration given including the transaction cost associated with the investment, except in case of held for trading investments, in which case the transaction costs are charged to the income statement.
3.1.2
The Fund classifies its investments in the following categories: Financial assets at fair value through profit or loss This category has two sub-categories, namely; financial instruments classified as held for trading, and those designated at fair value through profit or loss upon initial recognition: Investments which are acquired principally for the purposes of generating profit from short term fluctuation in price or are part of the portfolio in which there is recent actual pattern of short term profit taking are classified as held for trading. Investments designated at fair value through profit or loss upon initial recognition include those group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with the documented investment strategy. After initial recognition, above investments are remeasured at fair value determined with reference to the period-end quoted rates. Gains or losses on re-measurement of these investments are recognised in income statement.
3.1.3
Basis of valuation of investments Fair value of the investments in Government Securities comprising Treasury Bills and Pakistan Investment Bonds is determined by reference to the quotations obtained from the PKRV rate sheet notified by the Mutual Fund Association of Pakistan (MUFAP) as of the year end. Fair value of the investments in listed securities are determined on the basis of available quoted market prices. Overseas investments are valued at the year-end rates quoted by the respective exchanges.
3.1.4
All regular way purchases and sales of investments are recognised on the trade date i.e. the date the Fund commits to purchase / sell the investments.
3.1.5
Income accrued on Treasury Bills are included in the carrying value of investments.
3.2
Formation cost This represents expenses incurred on the formation of the Fund. As permitted in the NonBanking Finance Companies and Notified Entities Regulations, 2008, these expenses are being amortised to the income statement over a period of not less than five years i.e. effective from 11 October 2011.
3.3
Unit holders' fund Unit holders' fund representing the units issued by the Fund, is carried at the redemption amount representing the investors' right to a residual interest in the Fund's assets.
3.4
Issue and redemption of units Units are allocated at the offer price prevalent on the day on which applications for the purchase of units are received (however units are issued on the realisation of cheques). The offer price represents the net assets value of units at end of the day plus the allowable sales load (if any).
38
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND Units are redeemed at the redemption price prevalent on the day on which the applications for the redemption of units are received. The redemption price represents the net assets value at end of the day. 3.5
Net asset value per unit The net assets value per unit disclosed in the statement of assets and liabilities is calculated by dividing the net assets of the Fund with the number of units in issue at the year end.
3.6
Taxation The Fund is exempt from taxation under clause 99 of the Part I of the 2nd Schedule of the Income Tax Ordinance, 2001, subject to the condition that not less than 90% of its accounting income for the year as reduced by capital gains whether realised or unrealised is distributed amongst the unit holders, provided that for the purpose of determining distribution of not less than 90% of its accounting income for the year, the income distributed through bonus units shall not be taken into account. The Fund is also exempt from the provisions of section 113 (minimum tax) under clause 11A of Part IV of the Second Schedule to the Income Tax Ordinance, 2001.
3.7
Revenue recognition - Dividend income is recognised when the right to receive dividend is established. - Gains or losses on sale of securities and unrealised gains or losses arising on the revaluation of securities classified as 'financial assets at fair value through profit or loss' are included in the income statement in the year in which they arise. - Mark-up on bank balances is recognised on accrual basis. - Unrealised gain or loss arising on revaluation of investment classified as held for trading is included in the income statement in the period in which it arises. - Income on term deposits and investments in Treasury Bills and Pakistan Investment Bonds are recognised at rate of return implicit in the instrument on a time proportionate basis. - Element of income / (loss) and capital gains / (losses) included in prices of units issued and redeemed is included in the income on the date of the issuance and redemption of units.
3.8
Element of income / (loss) and capital gains / (losses) in prices of units sold less those in units redeemed - net To prevent the dilution of per unit income and distribution of income already paid out on redemption, as dividend, an equalisation account called element of income and capital gains included in prices of units sold less those in units redeemed is created. The net "element of income / (loss) and capital gains / (losses) in prices of units sold less those in units redeemed" during an accounting year is recognised in the income statement.
3.9
Financial instruments Financial assets and financial liabilities are recognised at the time when the Fund becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the Fund ceases to be a party to such contractual provisions of the instrument, that
39
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND is, when the rights to receive cash flows have expired, the balance has been realised or when the Fund has transferred substantially all the risk and rewards incidental to ownership. Financial liabilities are derecognised when they are extinguished, that is, when the obligation specified in the contract is discharged, cancelled or when it has expired. Any gain or loss on derecognition of the financial assets and financial liabilities is taken to income currently. All financial assets are initially recognised at cost, being the fair value of the consideration given. Subsequent to initial recognition, financial assets (other than investments mentioned in note 3.1 above) comprising of loans and receivables (representing non-derivative financial assets with fixed or determinable payments that are not quoted in an active market) are carried at amortised cost. However, these are estimated to approximate to its fair value. Financial liabilities are initially recognised at fair value and subsequently stated at amortised cost, which is also estimated to approximate to its fair value. 3.10
Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount reported in the statement of assets and liabilities when there is a legally enforceable right to set off the recognised amount and the Fund intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
3.11
Impairment A financial asset is assessed at each balance sheet date to determine whether there is any objective evidence that it is impaired. A financial assets is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of the asset. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in the income statement.
3.12
Provisions Provisions are recognised when the Fund has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and reliable estimate of the amount can be made. Provision are reviewed at each balance sheet date and are adjusted to reflect the current best estimate.
3.13
Cash and cash equivalents Cash and cash equivalents comprise of bank balances including term deposits with banks (with maturity period of less than three months from the date of deposit) that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.
3.14
Dividend distribution Dividend distributions (including the bonus units) are recorded in the period in which the distributions are approved. As per regulation 63 of the Non Banking Finance Companies and Notified Entities Regulations, 2008, the Fund is required to distribute 90% of the net accounting income other than capital gains to the unit holders.
3.15
Other assets Other assets are stated at cost less impairment losses, if any.
40
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 3.16
Foreign currency transactions Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the conversion of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the period end exchange rates are recognised in the income statement.
3.17
Earnings per unit (EPU) Earnings Per Unit (EPU) has not been disclosed as in the opinion of the management, determination of weighted average units for calculating EPU is not practicable.
4.
Note
BANK BALANCES Local currency Current accounts Profit and loss sharing accounts
4.1
Foreign currency In current account
4.2
2017
(Rupees)
2016
15,764 34,796,471
17,442 74,701,256
1,464,821 36,277,056
2,051,712 76,770,410
4.1
These carry mark-up rates ranging from 3.75% to 6.50% (30 June 2016: from 4.50% to 6.50%) per annum.
4.2
This represents USD denominated current account maintained in a foreign country amounting to USD 13,970 (2016: USD 19,571).
5.
INVESTMENTS At fair value through profit or loss - held for trading Government Securities - Market Treasury Bills - Pakistan Investment Bonds Exchange Traded Funds (foreign investments)
41
5.1 5.2
81,350,770 43,495,802
39,252,559 98,071,356
5.3
70,625,345 195,471,917
79,143,576 216,467,491
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 5.1
Government securities - Market Treasury Bills At fair value through income statement - held for trading Balance as at June 30, 2017
------------Number certificates------------
Holding as at 01 July 2016
Date of Maturity
Name of Investee Company
Purchases during the period
Disposed / matured during the period
Holding as at 30 June 2017
---------------- (Number of Certificates) ---------------12 months Treasury Bills 12 months Treasury Bills 3 months Treasury Bills 3 month Treasury Bills 3 month Treasury Bills 3 month Treasury Bills - 5.1.1 3 month Treasury Bills - 5.1.2
27 October 2016 19 January 2017 5 January 2017 27 October 2016 13 October 2016 6 July 2017 20 July 2017
400 -
650 500 250 500 455 360 Total as at 30 June 2017
400 650 500 250 500 -
Carrying value as of the year ended 30 June 2017 before revaluation
Market value as of the year ended 30 June 2017 (After revaluation)
Unrealised (loss)
Market value Market value as % of total as % of net investments assets (based on market (based on value) market value)
---------------------- (Rupees) ---------------------455 360
45,463,167 35,889,257 81,352,424
Cost as at 30 June 2017
81,352,424
Total as at 30 June 2016
39,232,352
Cost as at 30 June 2016
39,232,352
45,462,873 35,887,897 81,350,770
(294) (1,360) (1,654)
39,252,559
20,207
% 23.26% 18.36% 41.62%
20.00% 15.79% 35.78%
5.1.1
This represents investment in 3 months Market Treasury Bills carrying an effective profit rate of 5.9910% (30 June 2016: Nil) having maturity on 6 July 2017.
5.1.2
This represents investment in 3 months Market Treasury Bills carrying an effective profit rate of 5.9910% (30 June 2016: Nil) having maturity on 20 July 2017.
5.1.3
Above investments at 30 June 2017 were held in the IPS accounts of a commercial bank.
5.2
Government securities - Pakistan Investment Bonds At fair value through income statement - held for trading Balance as at June 30, 2017
------------Number certificates------------
Name of Investee Company
Date of Maturity
Holding as at 01 July 2016
Purchases during the period
Disposed / matured during the period
Holding as at 30 June 2017
---------------- (Number of Certificates) ---------------10 years Pakistan Investment Bond - 5.2.1 5 years Pakistan Investment Bond - 5.2.2 3 years Pakistan Investment Bond
17 July 2024 265 17 July 2019 275 17 July 2017 310 Total as at 30 June 2017
175 310
Cost as at 30 June 2017
Carrying value as of the year ended 30 June 2017 before revaluation
Market value as of the year ended 30 June 2017 (After revaluation)
Unrealised (loss)
Market value Market value as % of total as % of net investments assets (based on market (based on value) market value)
---------------------- (Rupees) ---------------------265 100 -
33,793,451 11,433,144 45,226,595
32,502,621 10,993,181 43,495,802
(1,290,830) (439,963) (1,730,793)
98,071,356
5,004,653
% 16.63% 5.62% 22.25%
14.30% 4.84% 19.13%
37,340,972
Total as at 30 June 2016
93,066,703
Cost as at 30 June 2016
85,544,900
5.2.1
This represents investments in 10 years Pakistan Investment Bond carrying an effective profit rate of 12% (30 June 2016: 12%) and having maturity on 17 July 2024. The face value of Pakistan Investment Bond as at 30 June 2017 amounted to Rs. 26.5 million (30 June 2016: 26.5 million).
5.2.2
This represents investments in 5 years Pakistan Investment Bond carrying an effective profit rate of 11.5% (30 June 2016: 11.5%) and having maturity on 17 July 2019. The face value of Pakistan Investment Bond as at 30 June 2017 amounted to Rs. 10 million (30 June 2016: Rs. 27.5 million).
5.2.3
Above investments at 30 June 2017 were held in the IPS accounts of a commercial bank.
42
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 5.3
Exchange Traded Funds (foreign investment) At fair value through income statement - held for trading --------------------- Number of units --------------------Holding as at 01 July 2016
Particulars
Powershares QQQ Trust Series 1 (5.3.1) Vanguard Funds Plc Vanguard S&P 500 UCITS of Exchange Trade Funds USD shares (5.3.2)
Purchases during the year
Disposal during the year
Holding as at 30 June 2017
Balance as at June 30, 2017 Carrying value Market value as as of the year of the year Unrealised ended 30 June ended 30 June gain - net 2017 before 2017 (After revaluation revaluation) ------------------- Rupees -------------------
Market value as Market value as % of total % of net assets investments
3,450
-
1,020
2,430
27,395,556
35,070,014
7,674,458
17.94%
15.43%
9,700
-
2,330
7,370
30,580,677
35,555,331
4,974,654
18.19%
15.64%
Total as at 30 June 2017
57,976,233
70,625,345
12,649,112
36.13%
31.07%
Cost as at 30 June 2017
57,869,999 79,143,576
96,145
Total as at 30 June 2016
79,047,431
Cost as at 30 June 2016
79,047,431
5.3.1
Powershares QQQ Trust Series 1 is an Exchange Traded Fund incorporated in the USA. It tracks the performance of the Nasdaq 100 Index and holds large cap U.S. stocks. Its investments exclude the financial sector and therefore, tend to be focused on the technology and consumer sector. These are valued at the rate quoted on a daily basis by NASDAQ 100 Index. Total value of the units at USD 137.64 per unit as at the year-end amounted to USD 334,465 (2016: USD 371,013).
5.3.2
Vanguard S&P 500 is also an Exchange Traded Fund, incorporated in Ireland. The Fund seeks to track the performance of the S&P 500 Index, comprising of the stocks of large U.S. companies. These are valued at the rates quoted on a daily basis by the London Stock Exchange. Total value of the units at USD 46.01 per unit as at the year-end amounted to USD 339,094 (2016: USD 383,926).
5.3.3
Above units are held by Habib Bank AG Zurich as a custodian. 2017
Note 6.
DEFERRED FORMATION COST Unamortised cost Amortised to the income statement during the year
7.1
2016
MARK-UP RECEIVABLE Markup Receivable on: - Profit and loss sharing bank balances - Pakistan Investment Bonds
7.
(Rupees)
7.1
75,484 1,973,909 2,049,393
235,633 4,482,910 4,718,543
140,582
645,022
(140,582) -
(504,440) 140,582
This represents expenses incurred on the formation of the Fund. Regulation 60 (2) of the NBFC Regulations requires that all expenses incurred in connection with the incorporation, establishment and registration of collective investment scheme (formation cost) shall be reimbursable by a collective investment scheme to the Management Company subject to the audit of expenses. The said formation cost shall be amortised by the collective investment scheme over a period of not less than five years or with in the maturity date of collectiveinvestment scheme. Accordingly, the said expenses were being amortised over a period of five years effective from 11 October 2011, i.e. after the close of initial period of the Fund.
43
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 8.
PAYABLE TO THE MANAGEMENT COMPANY
2017
Note
Remuneration payable to the Management Company Sales tax payable on remuneration to the Management Company Federal excise duty payable on remuneration to the Management Company Sales load payable to the Management Company
(Rupees)
2016
8.1
280,025
377,426
8.3
675,293
691,731
8.4
4,184,410
4,184,410
2,959 5,142,687
2,959 5,256,526
8.1
The Management Company is entitled to remuneration for services rendered to the Fund under the provisions of the Non-Banking Finance Companies and Notified Entities Regulations, 2008, of an amount not exceeding 2% per annum of the average annual net assets of the Fund. However, the Management Company is currently charging fee at 15% of the gross earnings of the scheme for the year ended 30 June 2017. The fee is subject to a minimum of 1.25% and maximum of 2% of the average annual net assets of the Fund. The effective management fee rate for the year ended 30 June 2017 is 1.55% of the average net assets. Remuneration is paid to the Management company in arrears on a monthly basis.
8.2
As per the clause 60(s) of the Non-Banking Finance Companies and Notified Entities Regulation, 2008 fees and expenses for registrar services, accounting, operation and valuation services relating to the Fund up to a maximum of 0.1% of the average annual net assets of the Fund or actual expenses, whichever is less, shall be charged to the Fund by the Management Company. However, above mentioned expenses were not charged by the Management Company to the Fund during the period under audit. Had the above expenses been charged to the Fund, these would not have been material.
8.3
The Sindh Provincial Government has levied Sindh Sales Tax at the rate of 13% (till 30 June 2016: 14%) on Management Company's remuneration. Above liability includes Rs. 638,891 (30 June 2016: Rs. 638,891) accrued on Federal Excise Duty (FED) on the management remuneration as more fully explained in note 8.4 below. Had the provision relating to FED not been made, Net Asset Value per unit of the Fund as at 30 June 2017 would have been higher by Re. 0.33 (30 June 2016: Re. 0.25) per unit.
8.4
As per the requirements of the Finance Act, 2013, Federal Excise Duty (FED) at the rate of 16 percent on the remuneration of the Management Company has been applied effective from 13 June 2013. The Management Company is of the view that since the remuneration is already subject to the provincial sales tax, further levy of FED may result in double taxation, which does not appear to be the spirit of the law, hence, a petition was collectively filed by the Mutual Fund Association of Pakistan with the Sindh High Court (SHC) on 4 September 2013. While disposing the above petition through order dated 16 July 2016, the SHC declared the said provisions to be ultra vires and as a result no FED is payable with effect from 01 July 2016. However, the tax authorities subsequently filed appeal against the decision of the SHC in the Supreme Court of Pakistan, which is pending for the decision. Furthermore, the Finance Act 2016 also introduced an amendment to the Federal Excise Act, 2005 whereby FED was withdrawn on services of different industries including NonBanking Financial Institutions, which are already subject to provisional sales tax. However, since the appeal is pending in the Supreme Court of Pakistan, the Management Company, as a matter of abundant caution, is carrying provision for FED for the period from
44
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 13 June 2013 to 30 June 2016 aggregating to Rs. 4.184 million. Had the provision not been made, NAV per unit of the Fund as at 30 June 2017 would have been higher by Re. 2.19 (30 June 2016: Re. 1.64) per unit. 9.
REMUNERATION PAYABLE TO THE TRUSTEE The Trustee is entitled to a monthly remuneration for services rendered to the Fund under the provision of Trust Deed as follows: - Net assets ranging from Rs. 1 million to Rs. 1 billion
Rs. 0.7 million or 0.20% per annum of the daily average net assets of the Fund, which ever is higher.
- Net assets exceeding Rs. 1 billion
Rs. 2 million plus 0.10% per annum of the daily average net assets of the Fund exceeding Rs. 1 billion.
The remuneration is paid to the trustee in arrears on monthly basis. 10.
ANNUAL FEE PAYABLE TO THE SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN This represents annual fee payable to Securities and Exchange Commission of Pakistan (SECP) in accordance with Regulation 62 of the Non-Banking Finance Companies and Notified Entities Regulations, 2008, whereby the Fund is required to pay annual fee to SECP at the rate of 0.095% of the average daily net assets of the Fund.
11.
Sindh Workers' Welfare Fund Withholding income tax payable (subsequent paid) Auditors' remuneration Custody fee payable Prinitng charges payable Brokerage payable Workers' Welfare Fund 11.1
2017
Note ACCRUED EXPENSES AND OTHER LIABILITIES 11.1
11.1
(Rupees)
540,503 359,865 230,611 28,293 20,498 1,179,770
2016
7,656 206,701 43,744 19,998 4,902 2,659,188 2,942,189
Provision for Sindh Workers' Welfare Fund is being made on a daily basis going forward pursuant to MUFAP's recommendation to all its members on 12 January 2017 against the backdrop of the Sindh Revenue Board (SRB) letter to mutual funds in January 2016 whereby SRB directed the mutual funds to register and pay Sindh Workers Welfare Fund (SWWF) for the accounting year closing on or after 31 December 2013. This is on the premise that mutual funds are included in definition of financial institutions in the Financial Institutions (Recovery of Finance) Ordinance, 2001 hence WWF is payable by them. Though MUFAP has taken up the matter with the Sindh Finance Ministry to have CISs / mutual funds excluded from the applicability of SWWF, but as a matter of abundant caution management has recorded SWWF with effect from the date of the applicability of the SWWF Act, 2014 (i.e. with effect from 01 July 2014). Furthermore on 10 November 2016, Honourable Supreme Court of Pakistan (SCP) passed a judgment declaring the amendments made in the Finance Acts 2006 and 2008 pertaining to WWF as illegal citing that WWF was not in the nature of tax and could, therefore, not have been introduced through money bills. Accordingly, the aforesaid amendments have been struck down by the SCP. The Federal Board of Revenue has filed a petition with the
45
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND SCP against the said judgment, which is pending hearing. While the petitions filed by the Collective Investment Schemes (CISs) on the matter are still pending before the Sindh High Court (SHC), the Mutual Funds Association of Pakistan (MUFAP) (collectively on behalf of the asset management companies and their CISs) have taken legal and tax opinions on the impact of the SCP's judgement on the CISs petition before the SHC. Both the legal and tax advisors consulted were of the view that the SCP's judgment has removed the very basis on which the demands were raised against the CISs. Therefore, there was no longer any liability against the CISs under the WWF Ordinance and that all cases pending in the SHC or lower appellate forums will now be disposed of in light of the earlier judgement of the SCP. Pursuant to above MUFAP recommended that the entire provision of Rs. 2.659 million against WWF held by the CISs till 30 June 2015, to be reversed on 12 January 2017. Above decisions regarding the reversal and the recognition of WWF and SWWF were communicated to the SECP and the Pakistan Stock Exchange Limited on 12 January 2017 and SECP vide its letter dated 1 February 2017 has advised MUFAP that the adjustments relating to the above should be prospective. Accordingly, the Fund has recorded these adjustments in its books on 12 January 2017. The total provision for SWWF till 30 June 2017 is Rs. 0.541 million. Had the provision not been made, Net Asset Value per unit of the Fund as at 30 June 2017 would have been higher by Re. 0.28 per unit. 12.
TOTAL EXPENSE RATIO In the current period, Securities and Exchange Commission of Pakistan (SECP) vide directive no. SCD/PRDD/Direction/18/2016 dated 20 July 2016, require that Collective Investment Scheme (CIS) shall disclose Total Expense Ratio (TER) in the periodic financial statements of CIS / the Fund. TER of the Fund for the year ended 30 June 2017 is 2.54% which includes 0.41% representing government levies (comprising of Workers Welfare Fund and SECP fee, etc). As per the NBFC Regulation the total expense ratio of the Asset Allocation Scheme shall be caped up to 4%.
13.
CONTINGENCIES AND COMMITMENTS The fund had no contingency or commitment at the year end.
14.
NUMBER OF UNITS IN ISSUE As at 30 June 2017, 1,911,116 (2016: 2,558,421) units at par value of Rs. 100 each were in issue. 2017 2016 (Rupees) Total outstanding as of 1 July 2,558,421 2,790,213 Issued during the year 568,349 607,386 Redemptions during the year 14.1 (1,215,654) (839,178) Total units in issue as of 30 June 1,911,116 2,558,421
14.1
Includes 7,992 (2016: 48,184) units on the conversion of units to the related funds.
46
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 15.
AUDITORS' REMUNERATION
2017
Annual audit fee Fee for the review of half yearly financial statements Fee for the review of statement of compliance with the best practices of Code of Corporate Governance Report on the statement of income and expenses and agreed upon procedures report Out of pocket and sales tax expense 18.
(Rupees)
2016
150,000
150,000
52,500
52,500
25,000
25,000
35,000 40,610 303,110
35,000 34,901 297,401
INTERIM DISTRIBUTIONS DURING THE YEAR Distribution Distribution per unit Amount ---------(Rupees) --------2017 Cash distribution declared on 22 June 2017
4.5573
Cash distribution declared on 27 June 2016
10.8068
6,196,284 2016 21,879,076
17.
TAXATION
17.1
The Fund's income is exempt from Income Tax as per clause 99 of Part I of the Second Schedule to the Income Tax Ordinance, 2001 subject to the condition that not less than 90% of the accounting income for the year as reduced by capital gains whether realised or unrealised is distributed amongst the unit holders, provided that for the purpose of determining distribution of not less than 90% of its accounting income for the year, the income distributed through bonus units shall not be taken into account. Furthermore, as per regulation 63 of the Non-Banking Finance Companies and Notified Entities Regulations, 2008, the Fund is required to distribute 90% of the net accounting income other than capital gains to the unit holders. The Fund is also exempt from the provisions of Section 113 (minimum tax) under Clause 11A of Part IV of the Second Schedule to the Income Tax Ordinance, 2001. Since the Management Company has distributed the income earned by the Fund during the year to the unit holders in the manner as explained above, no provision for taxation has been made in these financial statements.
7.2
During the year ended 30 June 2014, the FBR issued show cause notices to the Fund under section 122(9) for proceeding u/s 122(5A) of the Income Tax Ordinance, 2001 for the amendment of assessment on the grounds that exemption from tax claimed under clause 99 of Part-I of the Second Schedule is not as per law. Total tax including Workers Welfare Fund payable as per the amended assessment would be Rs. 7.203 million and Rs 19.001 million for the tax years 2012 and 2013 respectively. A suit has been in the High Court of Sindh for declaration and permanent injunction for which a stay order has been granted by the Sindh High Court. The management expects a favourable outcome and, accordingly, no provision has been recorded in respect of this matter.
18.
TRANSACTIONS AND BALANCES WITH CONNECTED PERSONS / RELATED PARTIES Connected persons / related parties include Lakson Investments Limited being the Management Company, Central Depository Company of Pakistan Limited (CDC) being the trustee, Habib Bank AG Zurich Switzerland being the Custodian, Siza Services (Private) Limited being holding company of the Management Company, associated companies of the
47
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND Management Company and the holding company, key management personnel, other funds being managed by the Management Company and entities having holding 10% or more in the units of the Fund as at 30 June 2017. It also includes staff retirement funds of the above related parties / connected persons. Transactions and balances with related parties other than those disclosed elsewhere are as follows: 18.1
Details of balance with related parties / connected persons at the year end
Lakson Investments Limited - Management Company of the Fund
Note
Remuneration payable (including the Sindh Sales Tax and Federal Excise Duty amounting to Rs. 4.859 million (2016: Rs. 4.876 million)) * 18.4 Sales load payable Central Depository Company of Pakistan Limited - Trustee of the Fund Remuneration payable (including Sindh Sales tax of Rs. 15,207 (2016: Rs. 8,030))*
18.4
Habib Bank AG Zurich - Custodian Bank Deposits Custodian fee payable
2017
(Rupees)
2016
5,139,728 2,959
5,253,567 2,959
132,195
65,407
1,464,821 28,293
2,051,712 43,744
*Sales tax and FED is paid / payable to the management company / Trustee for onwards payment to the Government. 18.2
Details of transaction with related parties / connected persons at the year end Lakson Investments Limited - Management Company of the Fund Remuneration for the year Sindh sales tax on remuneration of Management Company * Federal Excise Duty on Remuneration of Management Company *
4,314,853
4,623,518
560,931
750,859
-
739,763
Central Depository Company of Pakistan Limited - Trustee of the Fund Remuneration for the year (including Sindh Sales tax of Rs. 91,002 (2016: 98,001))*
791,002
798,001
Habib Bank AG Zurich - Custodian Brokerage and settlement charges Custody charges
101,430 176,238
140,721
48
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 2017 Directors, Chief Executive and their spouse and minors Dividend paid
(Rupees)
2016
2,762,549
11,077,837
Colgate Palmolive (Pakistan) Limited Employees Gratuity Fund Dividend paid
451,793
1,071,343
Cyber Internet Services (Private) Limited Employees Contributory Provident Fund Trust Dividend paid
242,425
574,867
1,243,492
2,948,712
670,231
1,589,329
Century Paper & Board Mills Limited - Employees Contributory Provident Fund Trust Dividend paid Century Paper & Board Mills Limited Employees Gratuity Fund Dividend paid
* Sales tax and FED is paid / payable to the management company / Trustee for onwards payment to the Government.
49
Lakson Business Solutions Limited - Employees Contributory Provident Fund Trust Princeton Travels (Private) Limited - Employees Contributory Provident Fund Trust Lakson Investments Limited - Employees Contributory Provident Fund Trust GAM Corporation (Private) Limited - Employees Contributory Provident Fund Trust SIZA Foods (Private) Limited - Employees Contributory Provident Fund Trust Colgate Palmolive (Pakistan) Limited - Employees Contributory Provident Fund Trust Colgate Palmolive (Pakistan) Limited - Employees Gratuity Fund Cyber Internet Services (Private) Limited - Employees Contributory Provident Fund Trust Accuray Surgicals Limited - Employees Contributory Provident Fund Trust Merit Packaging Limited - Employees Contributory Provident Fund Trust Merit Packaging Limited - Employees Gratuity Fund Century Paper & Board Mills Limited - Employees Contributory Provident Fund Trust Century Paper & Board Mills Limited - Employees Gratuity Fund
Associated companies / undertakings of the Management Company
Othe key management personnel
2,900.00 44,343.00 25,936.00 301,196.00 3,781.00 2,029.00 50,199.00 63,586.00 25,100.00 10,406.00 5,609.00
5,328 2,797 42,625 25,309 289,052 99,136 53,195 46,621 61,274 23,977 272,857 147,068
5,385.00
-
20,806
5,195
177,525
1,113,711
50 10,406.00 5,609.00
46,621.00 61,274.00 23,977.00
-
289,052.00 -
25,309.00
42,625.00
2,797.00
5,328
5,195.00
177,525
507,530
272,857 147,068
50,199 63,586 25,100
55,224
301,196 102,917
25,936
44,343
2,900
-
5,385
-
626,987
30,910,714 16,660,657
5,281,479 6,941,450 2,716,244
6,026,217
32,745,371 11,230,661
2,867,140
4,828,790
316,859
603,585
588,518
20,110,991
126,167,195
1,243,492 670,231
6,000,000 7,600,000 3,000,000
242,425
36,000,000 451,793
3,100,000
5,300,000
346,579
-
643,647
-
2,486,294
1,237,872 667,201
5,775,636 7,590,836 2,970,327
-
35,808,944 -
3,135,345
5,280,582
346,538
614,644
643,571
21,429,832
62,000,000
32,457,541 17,494,386
5,971,392 7,563,834 2,985,755
6,569,138
35,828,589 12,242,430
3,085,201
5,274,795
344,968
-
640,569
-
74,582,862
Year ended June 30, 2017 ------------------------ Number of Units ------------------------------------------------------- Rupees -------------------------------Balance at the Number of Units Units Number of Balance Units issued Units issued year end 30 on units as at redeemed redeemed Units as as at July 01, during the during the June 2017 June 30, during the during the at July 01, 2016 year year (Investment at 2017 year year 2016 current NAV)
Details of units held, issued and redeemed by the related parties / connected persons.
Directors, Chief Executive and their spouse and minors
18.3
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
51
* holding reduced to below 10 % as at 30 June 2017.
Lakson Business Solutions Limited - Employees Contributory Provident Fund Trust Princeton Travels (Private) Limited - Employees Contributory Provident Fund Trust Lakson Investments Limited - Employees Contributory Provident Fund Trust Tetley Clover (Private) Limited - Employees Contributory Provident Fund Trust Century Insurance Company Limited - Employees Contributory Provident Fund Trust GAM Corporation (Private) Limited - Employees Contributory Provident Fund Trust SIZA Foods (Private) Limited - Employees Contributory Provident Fund Trust Colgate Palmolive (Pakistan) Limited - Employees Contributory Provident Fund Trust Colgate Palmolive (Pakistan) Limited - Employees Gratuity Fund SIZA Services (Private) Limited - Employees Contributory Provident Fund Trust Cyber Internet Services (Private) Limited - Employees Contributory Provident Fund Trust Sybrid (Private) Limited - Employs Contributory Provident Fund Trust Accuray Surgicals Limited - Employees Contributory Provident Fund Trust Merit Packaging Limited - Employees Contributory Provident Fund Trust Merit Packaging Limited - Employees Gratuity Fund Century Paper & Board Mills Limited - Employees Contributory Provident Fund Trust Century Paper & Board Mills Limited - Employees Gratuity Fund Other - Connected person due to holding more than 10% outstanding units*
Associated companies / undertakings of the Management Company
Othe key management personnel
Directors, Chief Executive and their spouse and minors
88,631
2,539
46,621 61,274 23,977 -
42,314 55,613 21,762 272,857 147,068 -
-
53,195 16,926
432,266
-
10,881
173,885
-
55,613 21,762
42,314
16,926
10,881
262,348 -
22,971
25,309 289,052 -
22,971 262,348 99,136
38,687
42,625
14,508
8,463
38,687
-
4,836
4,715
-
2,797
2,539 8,463
-
14,508
5,195 5,328
4,836
14,128
4,715
163,397
1,025,080
258,381
272,857 147,068
61,274 23,977
46,621
53,195 -
-
289,052 99,136
25,309
42,625
-
-
2,797
5,328
5,195
177,525
1,113,711
49,699,238
31,371,427 16,908,915
6,394,027 2,502,010
4,865,020
6,116,025 1,946,008
1,251,005
30,163,125 11,398,047
2,641,011
4,448,019
1,668,007
973,004
291,901
556,002
542,102
18,786,363
117,857,364
-
-
6,917,995 2,707,041
5,263,692
-
-
32,634,888 -
2,857,433
4,812,518
-
-
315,822
601,565
586,526
1,589,218
9,970,053
20,000,000
-
6,917,995 2,707,041
5,263,692
2,014,222
1,275,650
32,634,888 -
2,857,433
4,812,518
1,785,313
985,449
315,822
601,565
586,526
-
-
29,270,838
30,910,714 16,660,657
6,941,450 2,716,244
5,281,479
6,026,217 -
-
32,745,371 11,230,661
2,867,140
4,828,790
-
-
316,859
603,585
588,518
20,110,991
126,167,196
Year ended June 30, 2016 ------------------------ Number of Units ------------------------------------------------------- Rupees -------------------------------Balance at the Number of Units Units Number of Balance Units issued Units issued year end 30 on units as at redeemed redeemed Units as as at July 01, during the during the June 2016 June 30, during the during the at July 01, 2015 year year (Investment at 2016 year year 2015 current NAV)
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 18.4
Remuneration payable to the Management Company and the Trustee have been determined in accordance with the provisions of NBFC Regulations and the Trust Deed respectively.
18.5
Purchase and redemption of the Fund's unit by related parties / connected persons are recorded at the applicable net asset value per unit. Other transactions are at agreed rates.
19.
FINANCIAL INSTRUMENTS - FAIR VALUES AND RISK MANAGEMENT Introduction and overview The Fund has exposure to the following risks from financial instruments: -
credit risk (refer note 19.1) liquidity risk (refer note 19.2) market risk (refer note 19.3) Operational Risk (refer note 19.4)
Risk management framework The Fund's board of directors has overall responsibility for the establishment and oversight of the Fund's risk management framework. Risk is inherent in the Fund's activities, but it is managed through monitoring and controlling activities which are primarily setup based on the limits established by the management company, Fund's constitutive documents and the regulations and directives of the SECP. The policies are established to identify and analyse the risks faced by the Fund, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Fund's activities. The audit committee oversees how management monitors compliance with the Fund's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Fund. The audit committee is assisted in its oversight role by internal audit. Internal audit undertakes regular reviews of risk management controls and procedures, the results of which are reported to the audit committee. Asset purchases and sales are determined by the Funds Investment Manager, who has been authorised to manage the distribution of the assets to achieve the Funds investment objectives. Compliance with the target asset allocations and the composition of the portfolio is monitored by the Investment Committee. In instances where the portfolio has diverged from target asset allocations, the Funds Investment Manager is obliged to take actions to rebalance the portfolio in line with the established targets, within prescribed time limits. 19.1
Credit risk Credit risk is the risk of financial loss to the Fund if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from deposits with banks and financial institutions, investments in equity traded funds and as a result of dividend receivable on equity securities. Management of credit risk The Fund's policy is to enter into financial contracts in accordance with the investment guidelines approved by the Investment Committee, its Trust Deed and the requirements of NBFC rules and regulations and guidelines from SECP from time to time. Before making investment decisions, the credit rating and credit worthiness of the issuer is taken into account along with the financial background so as to minimise the risk of default. Credit risk is managed and controlled by the Management Company of the Fund in the following manner:
52
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND -
Where the investment committee makes an investment decision, the credit rating and credit worthiness of the issuer is taken into account along with the financial background so as to minimise the risk of default.
-
Analysing of credit ratings and obtaining adequate collaterals wherever appropriate / relevant.
-
The risk of counterparty exposure due to failed trades causing a loss to the Fund is mitigated by a periodic review of the credit ratings and financial statements on a regular basis.
-
Cash is held only with reputable banks with high quality external credit enhancements.
-
Credit risk on dividend recievable is minimal due to stautary protection.
Exposure to credit risk The maximum exposure to credit risk as at 30 June 2017 was as follows: 2017 Balance as Maximum per the exposure Statement of Asset and Liabilities ------------ (Rupees) ------------
Bank balances (including profit due) Investments (including profit due) Dividend receivables
2016 Balance as Maximum per the exposure Statement of Asset and Liabilities ------------ (Rupees) ------------
36,352,540
36,352,540
77,006,043
77,006,043
197,445,826 217,464 234,015,830
70,625,345 217,464 107,195,349
220,950,401 243,203 298,199,647
79,143,576 243,203 156,392,822
Difference in the balance as per the Statement of Assets and Liabilities and maximum exposure in investments is due to the fact that investments in government securities amounting to Rs. 126,820,481 (2016: Rs. 141,806,825) do not carry credit risk. Bank balances The Fund held cash and cash equivalents at 30 June 2017 with banks had following credit ratings: 2017 2016 2017 2016 Rating AAA AA+ AA Other* Total balance
33,206,379 1,673,552 7,788 1,464,821 36,352,540
56,978,019 17,857,163 119,148 2,051,713 77,006,043
91.35 4.60 0.02 4.03 100.00
73.99 23.19 0.15 2.66 100.00
Above rates are on the basis of available ratings assigned by PACRA and JCR-VIS. * The reported balance is in Habib Bank AG Zurich Switzerland. Rating of the bank is not available, however, the management consider that this is a reputable bank of good credit standing.
53
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND Concentration of credit risk Concentration of credit risk exists when changes in economic or industry factors affect the group of counterparties whose aggregate credit exposure is significant in relation to the Funds total credit exposure. Details of Fund's concentration of credit risk of financial instruments by industrial distribution are as follows: 2017
(Rupees) Commercial banks 36,352,540 Exchange Traded Fund - USA 35,070,014 Exchange Traded Fund - Ireland 35,555,331 Dividend recieveable on foreign securities 217,464 107,195,349
2016
(%)
(Rupees)
(%)
33.91 32.72
77,006,043 38,894,924
49.24 24.86
33.17
40,248,652
25.74
0.20 100.00
243,203 156,392,822
0.16 100.00
Past due and impaired assets and collaterals held None of the financial assets of the Fund are past due or impaired as at 30 June 2017. Settlement risk The Funds activities may give rise to risk at the time of settlement of transactions. Settlement risk is the risk of loss due to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractually agreed on sale. For the vast majority of transactions the Fund mitigates this risk by conducting settlements through a broker to ensure that a trade is settled only when both parties have fulfilled their contractual settlement obligations. 19.2
Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Fund's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when they are due, under bot hnormal and stressed conditions, without incurring unacceptable losses or risking damage to the Fund's reputation. The Fund aims to maintain the level of cash and cash equivalents and other highly marketable securities at an amount in excess of expected cash outflows on financial liabilities. The Fund is exposed to cash redemptions of its units on a regular basis. Units are redeemable at the holders option based on the Funds net asset value per unit at the time of redemption calculated in accordance with the Funds constitutive document and guidelines laid down by Securities and Exchange Commission of Pakistan (SECP). Management of liquidity risk The Fund's policy is to manage this risk by investing majority of its assets in investments that are traded in an active market and can be readily disposed. The Fund invests primarily in marketable securities and other financial instruments, which under normal market conditions are readily convertible to cash. As a result, the Fund may be able to liquidate quickly its investments in these instruments at an amount close to their fair value to meet its liquidity requirement.
54
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND In addition, the Fund is entitled to borrow, with prior approval of trustee, for meeting redemptions. No suchborrowings were made during the year. The maximum amount available to the Fund from borrowings is limited to the extent of 15% of net assets at the time of borrowing with repayment with in 90 days of such borrowings. No such borrowing were made during the year. In order to manage the Fund's overall liquidity, the Fund can also withhold daily redemption request in excess of ten percent of the units in issue and such requests would be treated as redemption request qualifying for being processed on the next business day. Such procedure would continue until the outstanding redemption requests come down to a level below ten percent of the units then in issue. However, during the period no such option was excercised or considered necessary. Maturity analysis for financial liabilities Following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted.
Non-derivative financial liabilities (excluding unit holders' fund) Payable to the Management Company * Remuneration payable to the Trustee Accrued expenses and other liabilities * Unit holders' fund
Non-derivative financial liabilities (excluding unit holders' fund) Payable to the Management Company * Remuneration payable to the Trustee Accrued expenses and other liabilities * Unit holders' fund
2017 Contractual cash flows Carrying Less than amount 3 month ----------- (Rupees) ----------282,984 132,195 279,402 694,581
282,984 132,195 279,402 694,581
227,335,791
227,335,791
2016 Contractual cash flows Carrying Less than amount 3 month ----------- (Rupees) ----------380,385 65,407 275,345 721,137
380,385 65,407 275,345 721,137
289,832,010
289,832,010
* excluding provision for workers' welfare fund, federal excise duty on Management Company's remuneration, annual fee payable to the Securities and Exchange Commission of Pakistan and Sindh Sales Tax payable on Management Company's remuneration. Above financial liabilities do not carry any mark-up.
55
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 19.3
Market risk Market risk is the risk that changes in market prices - such as foreign exchange rates, interest rates and equity prices - will affect the Funds income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. Management of market risks The Fund manages market risk by monitoring exposure on marketable securities by following the internal risk management policies and investment guidelines approved by the Investment Committee and regulations laid down by the Securities and Exchange Commission of Pakistan. The maximum risk resulting from financial instruments equals their fair values. The Fund is exposed to currency risk, interest rate risk and equity price risk.
19.3.1
Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Fund has a bank balance and investments in foreign exchange traded funds which are exposed to foreign exchange risk. As per the approval accorded by the Securities and Exchange Commission of Pakistan and State Bank of Pakistan the Fund's exposure in foreign currency shall not exceed 30% of the aggregate funds mobilised subject to cap of US$ 15 million. Investment Committee monitors and reviews the investment performance and makes necessary adjustment in light of the current economic scenario and currency valuation outlook to mitigate the risk. The Fund's total exposure to foreign exchange at 30 June are as follows:
Financial Assets Bank balance Exchange Traded Funds (foreign investments) On balance sheet gap in foreign currency exposure
Financial Assets Bank balance Exchange traded funds (foreign investments) On balance sheet gap in foreign currency exposure
(Rupees)
2017
1,464,821 70,625,345 72,090,166 (Rupees)
2016
2,051,712 79,143,576 81,195,288
(USD) 13,970 673,559 687,529 (USD) 19,571 754,939 774,510
A five percent strengthening of Pakistani Rupee against US dollar would have decreased the net assets of the fund by Rs. 3.604 million (2016: Rs. 4.060 million). This analysis assumes that all other variables in particular interest rate remain constant. Weakening of Pakistani Rupee by the same percentage would have a vice versa impact. 19.3.2
Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates. Risk management procedures are the same as those mentioned in the credit risk management.
56
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND Exposure to interest rate risk The interest rate profile of the Fund's interest-bearing financial instruments is as follows: 2017 Variable-rate instrument Financial assets (bank balances)
(Rupees)
34,796,471
2016
74,701,256
Cash flow sensitivity analysis for variable rate instruments A reasonably possible change of 100 basis points in interest rates at the reporting date would have increased / decreased unit holder fund and income statement by Rs. 347,965 (2016: Rs. 747,013). The analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant. Above bank balances are reprised by the bank after changes in the State Bank of Pakistan's policy rate and do not have any contractual maturity. None of the other assets and Fund's liabilities are exposed to interest rate risk. 2017 Fixed rate instruments Investments in Government securities
(Rupees)
124,846,572
2016
137,323,915
Fair value sensitivity analysis for fixed rate instruments As at 30 June 2017, the Funds held in Government securities which are classified as held for trading, exposing the Fund to fair value interest rate risk. In case of 100 basis points increase / decrease in PKRV on 30 June 2017, with all other variables held constant, the net assets would have increased / decreased by Rs. 1,248,465 (2016: Rs. 1,373,239). A summary of the Fund's interest rate gap position, categorised by the earlier of contractual re-pricing or maturity date is as follows:
Interest rate %
Financial assets Investments - Government Securities 5.1 & 5.2 - Exchange Traded Units Dividend receivable Bank balances (including profit due) 4.1
---------------------------- June 30, 2017 ---------------------------Exposed to interest rate risk Not exposed to No later than No later than one month one year
More than one year
interest rate risk
Total
---------------------------- Rupees ----------------------------
81,350,770 -
-
43,495,802 -
1,973,909 70,625,345 217,464
126,820,481 70,625,345 217,464
34,796,471 116,147,241
-
43,495,802
1,556,069 74,372,787
36,352,540 234,015,830
57
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND Interest rate %
Financial assets Investments - Government Securities 5.1 & 5.2 - Exchange Traded Units Dividend receivable Bank balances (including profit due) 4.1
19.3.3
---------------------------- June 30, 2016 ---------------------------Exposed to interest rate risk Not exposed to No later than No later than one month one year
More than one year
interest rate risk
Total
---------------------------- Rupees ----------------------------
-
39,252,559 -
98,071,356 -
4,482,910 79,143,576 243,203
141,806,825 79,143,576 243,203
74,701,256 74,701,256 39,252,559
98,071,356
2,304,787 86,174,476
77,006,043 298,199,647
Market price risk Price risk is the risk of unfavorable changes in the fair value of Exchange Traded Funds and units of mutual funds as the result of changes in the levels of respective indices and the value of individual securities. This arises from the investment held by the Fund for which prices in the future are uncertain. The Fund is exposed to price risk because of investments held by the Fund in the Exchange Traded Funds. As per the approval accorded by the Securities and Exchange Commission of Pakistan and State Bank of Pakistan the Fund's exposure in foreign currency shall not exceed 30% of the aggregate funds mobilised subject to cap of US$ 15 million. Investment Committee monitors and reviews the investment performance and makes necessary adjustment in light of the current economic scenario and currency valuation outlook to mitigate the risk. Sensitivity analysis - Equity price risk The Fund's listed equity investments are listed Nasdaq Index and London Stock Exchange. For such investments classified as at fair value through income statement the impact on income statement and unit holders'fund, to a 5% increase or decrease in the fair values of the equity investments, would have been an increase or decrease of Rs. 3,531,267 (2016: Rs. 3,957,179).
19.4
Operational risks Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the processes, technology and infrastructure supporting the Fund's operations either internally within the Fund or externally at the Fund's service providers, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of investment management behaviour. Operational risks arise from all of the Fund's activities. The Fund's objective is to manage operational risk so as to balance limiting of financial losses and damage to its reputation with achieving its investment objective of generating returns for investors. The primary responsibility for the development and implementation of controls over operational risk rests with the board of directors. This responsibility encompasses the controls in the following areas: -
requirements for appropriate segregation of duties between various functions, roles and responsibilities; requirements for the reconciliation and monitoring of transactions; compliance with regulatory and other legal requirements;
58
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 19.5
documentation of controls and procedures; requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified; ethical and business standards; risk mitigation, including insurance where this is effective.
Unit holder's fund risk management The Fund's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to continue as a going concern so that it can continue to provide returns to its unit holders. Management monitors the return on capital as well as the level of dividends to unit holders and makes adjustments to it in the light of changes in markets' conditions. Under the NBFC regulations 2008, the minimum size of an open end scheme shall be one hundred million rupees at al the times during the life of the scheme. The Fund size depends on the issuance and redemption of units.
19.6
Fair value of financial instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Underlying the definition of fair value is the presumption that the Fund is a going concern without any intention or requirement to curtail materially the scale of its operations or to undertake a transaction on adverse terms. The fair value of financial assets and liabilities traded in active markets i.e. listed equity shares are based on the quoted market prices at the close of trading on the period end date. The quoted market prices used for financial assets held by the Fund is current bid price. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arms length basis. IFRS 13, 'Fair Value Measurements' requires the Fund to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: -
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date (level 1). Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (level 2). Unobservable inputs for the asset or liability (level 3).
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy.
59
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 2017 Carrying amount Fair value through profit and loss
On-balance sheet financial instruments
Loans and receivables
Fair Value
Other financial liabilities
Total
Level 1
Level 2
Total
------------------------------------------------ (Rupees) -----------------------------------------------Financial assets measured at fair value Government securities Exchange traded funds Financial assets not measured at fair value Bank balances Dividend receivables Markup accrued Financial liabilities not measured at fair value Payable to the Management Company Remuneration payable to the Trustee Accrued expenses and other liabilities
5 5
4 6
8 9 11
124,846,572 70,625,345 195,471,917
-
-
-
36,277,056 217,464 2,049,393 38,543,913
-
-
124,846,572 70,625,345 195,471,917
-
36,277,056 217,464 2,049,393 38,543,913
-
-
-
282,984 132,195 279,402 694,581
-
-
-
282,984 132,195 279,402 694,581
70,625,345 70,625,345
124,846,572 124,846,572
124,846,572 70,625,345 195,471,917
2016 Carrying amount Fair value through profit and loss
On-balance sheet financial instruments
Loans and receivables
Fair Value
Other financial liabilities
Total
Level 1
Level 2
Total
------------------------------------------------ (Rupees) -----------------------------------------------Financial assets measured at fair value Government securities Exchange traded funds Financial assets not measured at fair value Bank balances Dividend receivables Markup accrued Financial liabilities not measured at fair value Payable to the Management Company Remuneration payable to the Trustee Accrued expenses and other liabilities
5 5
4 6
8 9 11
137,323,915 79,143,576 216,467,491
-
-
-
76,770,410 243,203 4,718,543 81,732,156
-
-
137,323,915 79,143,576 216,467,491
-
76,770,410 243,203 4,718,543 81,732,156
-
-
-
380,385 65,407 275,345 721,137
-
-
-
380,385 65,407 275,345 721,137
79,143,576 79,143,576
137,323,915 137,323,915
137,323,915 79,143,576 216,467,491
19.6.1
The Fund has not disclosed the fair values for these financial assets and financial liabilities, as these are either short term in nature or repriced periodically. Therefore, their carrying amounts are reasonable approximation of their fair values.
20.
SUPPLEMENTARY NON FINANCIAL INFORMATION The information regarding unit holding pattern, top brokers, members of the Investment Committee, Fund manager, meetings of the Board of Directors of the management company and rating of the Fund and the management company are as follows:
60
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 20.1
Unit holding pattern of the Fund 2017 No. of unit Investment % of holders amount total ------------ (Rupees) ------------
Category Individuals Associated Companies and Directors Banks and DFIs NBFC's (Management Company) Retirement Funds Other corporates
9 15 24
452,442 226,883,349 227,335,791
0.20 99.80 100.00
2016 No. of unit Investment % of holders amount total ------------ (Rupees) ------------
Category Individuals Associated companies and Directors Banks and DFIs NBFCs Retirement funds Public limited companies Insurance companies Others 22.2
11 16 1 28
650,107 267,995,867 21,186,036 289,832,010
List of top ten brokers by percentage of commission paid Broker Name Habib Bank AG Zurich Invest Finance Securities {Private) Limited Vector Securities
61
0.22% 92.47% 7.31% 100.00%
2017 2016 Commission paid (Percentage) 97.46% 0.31% 2.23%
97.67% 2.33% -
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 20.3
Particulars of the Investment Committee and Fund manager Following are the members of the investment committee of the Fund: - Mr. Babar Ali Lakhani (Chairman Investment Committee) - Mr. Kashif Mustafa - Mr. Mustafa O. Pasha - Mr. Syed Saifullah Kazmi - Ms. Sana Abdullah - Mr. Hassan Bin Nasir (Fund Manager) - Ms. Tayyaba Azeem - Mr. Junaid Arshad Mr. Babar Ali Lakhani - Chief Executive Officer Mr. Lakhani has over seventeen years of investment and portfolio management experience in domestic and international equity and fixed income markets. Mr. Lakhani most recently served as the Chief Investment Officer of Century Insurance, a Public Limited Company listed on the Karachi and Lahore Stock Exchanges of Pakistan. He was an Investment Associate at High Street Advisors and a Research Analyst at Credit Suisse Equity Group (formerly Credit Suisse First Boston). Mr. Lakhani brings extensive investment experience, globally practiced portfolio management discipline, and a comprehensive understanding of the global asset management industry to Lakson Investments Limited. Mr. Lakhani received his BA in Finance from Bentley College, and his MBA from Brandeis University. Mr. Lakhani is a member of the Global Association of Risk Professionals (GARP), the Society of Financial Service Professionals and the Young Presidents' Organization (YPO). Mr. Lakhani is a member of the Alumni Trustee Committee of Brandeis University and is the schools representative in Pakistan. Mr. Kashif Mustafa Executive Director and COO Mr. Mustafa has more than nine years of experience working in the financial markets of Pakistan with local & international brokerage houses, and leading Asset Management Companies. Mr. Mustafas experience includes; Financial Analysis, Equity Research, Investment Advisory and Business Development. Before Lakson Investments, Mr. Mustafa worked for Askari Investments and Crosby Securities Pakistan Limited as Vice President and Head of Sales & Business Development respectively. He frequently appears on the media and has been featured on Express, Business Plus, CNBC, GEO, PTV, Aaj TV, Sindh TV & KTN. Mr. Mustafa did his graduation in Mathematics and Masters in Economics. Mr. Mustafa O. Pasha, CFA Head of Fixed Income Mr. Pasha has over nine years of experience in the asset management and investment advisory industry. He did his Bachelors in Economics from McGill University (Montreal, Canada) in 2006 and obtained his CFA charter in 2012. At Lakson Investments he is responsible for driving out performance of all fixed income portfolios against their respective benchmarks by formulating the investment outlook and implementing strategy through asset allocation. As a member of the Investment Committee he is a key member of the team that develops and executes the investment strategy for both fixed income and equity portfolios. He was previously associated with BMA where he initially served as a fixed income analyst and later became the in house economist for the entire BMA group. Between 2009 - 2012 he supervised fixed income/money market investments across all mutual funds and institutional/HNW accounts advised by BMA.
62
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND Mr. Syed Saifullah Kazmi - Head of Equities Mr. Saifullah has over nine years of experience and currently holds positions of Head of Equities Investments in Lakson Investments Limited. He is a qualified Finance major from Kingston University. He has experience in Emerging and Frontier Financial Markets, with focus in Pakistan, Strong Fixed Income background, with investment strategy and trading experience in instruments including, Government Securities, Corporate Bonds, Banking Products and Islamic Sukkuks. He is managing the following funds: Lakson Equity Fund Lakson Tactical Fund Lakson Islamic Tactical Fund (Formerly: Lakson Asset Allocation Emerging Markets Fund) Ms. Sana Abdullah, CFA Head of Research Ms. Sana Abdullah has over nine years of experience in the asset management and brokerage industry, focusing on equity research and advisory. She did her Masters in Business Administration from Iqra University in 2003, and obtained her CFA charter in 2015. At Lakson Investments she is responsible for driving the equity research function, formulating the fundamental investment outlook and generating investment ideas to generate alpha. As a member of the Investment Committee, she is a key member of the investments team that develops and executes the investment strategy for Lakson Investments' mutual funds and discretionary portfolios. Ms. Sana Abdullah was previously associated with Tundra Fonder, a Swedish asset manager having investments in frontier markets where she was heading the research function and was responsible for the Pakistan research desk. Before joining Tundra, she worked with broker/deals including Global Securities, IGI Finex Securities and Elixir Securities where she has also headed and supervised research teams. Mr. Hassan Bin Nasir (Fund Manager) Mr. Hassan Bin Nasir has over eight years of experience and currently holds positions of Vice President Fixed Income in Lakson Investments Limited. He completed his Masters in Business Administration in Finance major from Bahria University, Pakistan. He has immense experience in managing portfolios across Collective Investment Schemes, Separate Managed Accounts with Strong Fixed Income background, investment strategy and trading experience in instruments including, Government Securities, Corporate Debt Securities, Banking Products and Shariah Compliant Corporate Debt Securities. He is also managing the following funds: Lakson Income Fund Lakson Money Market Fund Ms. Tayyaba Azeem Ms. Tayyaba Azeem is currently working as an assistant portfolio manager and risk manager at Lakson Investments. She has done her MBA in Finance from Brandeis University (U.S.A.) and graduated with distinction (summa cum laude) on a Fulbright Scholarship. She has also worked in the fields of marketing, research and non-profits. She has over nine years of work experience. Mr. Junaid Arshad Mr. Arshad an ACCA member, having over nine years of experience in the asset management industry and currently holds the position of Manager Compliance. He possess sound Knowledge of financial management, tax regulations, financial procedures, and NBFC Rules & Regulations. He was actively involved in system development and implementation during his stay at different organizations. He was previously associated with JS Investments and Alfalah Investments as a finance professional.
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LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND 20.4
Directors meeting attendance 2017 Name of directors Mr. Iqbal Ali Lakhani Mr. Babar Ali Lakhani Mr. Amin Mohammed Lakhani Mr. A. Aziz H. Ebrahim Mr. Mahomed J. Jaffer Mr. Daniel Scott Smaller Mr. Zahid Zakiuddin Mr. Jacques Visser
20.5
Meeting Attended
August 26, 2016
October 21, 2016
February 28, 2017
April 25, 2017
3 4 2 4 4 4 4 3
X T X T T T T T 6
T T T T T T T T 8
T T T T T T T T 8
T T X T T T T X 6
Rating of the Fund and the management company Details of the ratings of the Fund and the management company are given in note 1.4.
21.
GENERAL These financial statements were authorized for issue by the Board of Directors of the Management Company on August 25, 2017.
For Lakson Investments Limited (Management Company)
Chief Executive Officer
Chief Financial Officer
64
Director
LAKSON ASSET ALLOCATION DEVELOPED MARKETS FUND Performance Table
FY17
FY16
FY15
FY14
FY13
FY12
Net Assets - Beginning (PKR Mil.)
290
321
598
541
329
Net Assets - Ending (PKR Mil.)
227
290
321
598
541
329
118.9544
113.2854
114.9738
106.6908
111.0748
106.4208
Net Asset value per share
253
Selling Price for units
121.9283
116.1176
117.8482
109.3581
113.8517
109.0814
Repurchase Price for units
118.9544
113.2854
114.9738
106.6908
111.0748
106.4208
Highest Offer Price (PKR)
127.2001
127.5054
118.7873
116.9237
114.8591
109.0655
Lowest Offer Price (PKR)
116.2507
107.5162
108.4261
106.8714
102.7875
100.0000
Highest Redemption Price (PKR)
124.0976
124.3955
115.8900
114.0719
112.0576
106.4053
Lowest Redemption Price (PKR)
113.4153
104.3846
105.7815
104.2647
100.2804
100.0230
Beginning NAV - Ex-Div. (PKR)
113.2854
115.0565
104.0389
100.5055
100.0000
4.5573
10.8068
Interim Distributions (PKR) Final Distribution (PKR) Ending NAV - Ex-Div. (PKR)
-
-
-
-
-
-
-
7.3744
7.0359
5.9153
-
119.5012
112.4897
106.6975
104.0389
100.5055
9.01%
8.00%
7.76%
9.64%
10.52%
6.42%
Net Income (PKR Mil.)
8
14
4
54
52
19
Income Distribution
6
22
-
70
18
-
35
33
41
37
53
19
10.52%
6.42%
Return
Accumulated Capital Growht Average Annual return of the Fund One Year
9.03%
8.00%
7.76%
9.64%
Two year
8.85%
8.18%
9.07%
10.58%
Three year
8.95%
9.19%
10.19%
Since inception
11.11%
10.59%
10.46%
10.63%
10.22%
6.42%
Distributions
FY17
FY16
FY15
FY14
FY13
FY12
Interim Distribution
4.5573
10.8068
Final Distribution
Nil Nil
7.3744 -
-
-
7.0359
5.9153
NAV before Distribution
124.0585
123.2965
Nil
114.0719
111.0748
106.4208
NAV after Distribution
119.5012
112.4897
Nil
106.6975
104.0389
100.5055
Distribution Date
22-Jun-17
27-Jun-16
N/A
25-Jun-14
08-Jul-13
05-Jul-12
Disclaimer Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up.
65
Lakson Investments Limited Lakson Square, Building No. 2, Sarwar Shaheed Road, Karachi-74200, Pakistan T +92.21 3569.8000 F +92.21 3568.1653
Lakson Investments Limited
(Regulated by the DFSA as a Representative Office)
Level 15, Gate Building DIFC, P.O. Box 507054 Dubai, U.A.E. T +971.4 401.9284 F +971.4 401.9578
