2013 - 2014 annual report...annual report 2013 / 2014 4 dear investors, it is my pleasure to send...

2013 - 2014ANNUAL REPORT

ANNUAL REPORT 2013 / 2014

Contents

About NAMAL

Chairman's Review

Board of Directors

Management Team

NAMAL Funds

Investment Manager’s Report

Fund Reports

National Equity Fund

NAMAL Growth Fund

NAMAL Income Fund

NAMAL Money Market Fund

NAMAL IPO Fund

NAMAL High Yield Fund

NAMAL Sharia Fund

Corporate Information 158

124

105

88

69

48

26

25

16

12

09

05

03

01

141

About

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About NAMAL

National Asset Management Limited (NAMAL) is the pioneer Unit Trust management company in Sri Lanka

established in 1991. Over 20 years of experience and a successful track record of investing in equity and �xed

income markets, NAMAL launched the �rst Unit Trust to be licensed in Sri Lanka (National Equity Fund) and the

�rst listed Unit Trust (NAMAL Acuity Value Fund). We operate eight Unit Trusts and o�er private portfolio

management services as well. A subsidiary of Union Bank of Colombo PLC, our shareholders include

DFCC Bank and Ennid Capital (Pvt) Limited. We have a highly experienced and professional management

team with widespread experience in domestic and international capital markets.

Our Investment Philosophy

“Value Investing” is an in-grained investment philosophy at NAMAL. It is a rigorous and disciplined investment

management process involving Fundamental Research and Valuations, Asset Allocation, Portfolio

Implementation, Monitoring and Reallocation Strategies. The core investment team is guided by the

Investment Committee which includes eminent independent investment professionals.

Our Unit Trusts

Unit Trusts enable individual investors to bene�t from professional fund management, investment

performance, portfolio diversi�cation, additional investment alternatives and risk management for a low

minimum investment. In addition, investors have the ability to redeem their investments on a daily basis in the

event of an emergency. Investing in Unit Trusts allows you to plan and invest for your future �nancial wealth,

signi�cant life milestones and your prosperous retirement while enjoying peace of mind.

All NAMAL Unit Trusts are licensed and regulated by the Securities and Exchange Commission of Sri Lanka.

Chairman’s Review

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Dear Investors,It is my pleasure to send this Report and accounts of the Funds to our investors for the year ended 31st March 2014.

The Company achieved an impressive 155% growth in Assets under Management (AUM) to Rs. 13.1 Bn from Rs. 5.1Bn during the year under review. The Company passed the Rs. 10Bn AUM level for the �rst time in its history. NAMAL was selected as the Best Investment Management Company in Sri Lanka by World Finance at the Investment Management Awards 2013 con�rming our pre-eminent position in the country.

The �agship, National Equity Fund, yet again ranked No 1 in the entire industry (46 Funds) with total returns of 17.1% in FY13. The NAMAL Growth Fund and NAMAL Acuity Value Fund also outperformed the All Share Price Index. Our �xed income funds, NAMAL High Yield Fund and NAMAL Income Fund continue to provide attractive tax adjusted returns.

While foreseeing some near term challenges stemming from both global and domestic macro-economic issues, we are optimistic about the future growth trajectory of the Sri Lankan economy and the capital markets. We remain committed to delivering long term capital appreciation and income to our investors by adopting conservative, fundamental based investment management.

I wish to take this opportunity to thank our sta�, Securities and Exchange Commission, the Trustees and our market counterparties for their contribution. Most importantly I

wish to extend my sincere appreciation to our loyal investors, many of whom have remained with NAMAL since inception, for the trust they have placed in us. I am con�dent NAMAL will repay your trust by continuing to deliver excellent performance in the future.

Alexis Lovell, MBEChairman

“We remain committed to delivering

long term capital appreciation and

income to our investors by adopting

conservative, fundamental based

investment management”.

Board of Directors

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Board of Directors

Anil AmarasuriyaAjith WijeyesekeraDeputy Chairman

Ms Khoo Siew Bee

Alexis LovellChairman

Not in picture: Jitendrakumar Warnakulasuriya Tyrone De Silva

Avancka HeratPalitha Gamage


7

Alexis Lovell, MBE - Chairman

Mr. Lovell is the Chairman of Union Bank of Colombo PLC. He counts over thirty years of experience in Finance and Investment Banking. Mr. Lovell is a Chartered Management Accountant, UK and holds a post graduate degree in Business Administration. He was awarded the MBE (Most Distinguished Order of the British Empire) by Her Majesty the Queen of England for services to Investment Banking.

Ajith Wijeyesekera - Deputy Chairman

Mr. Wijeyesekera is a renowned entrepreneur/ business leader with over 30 years experience in business management. An eminent personality in the Sri Lankan apparel industry, he is the Founder Chairman/Managing Director of Union Apparels (Pvt) Limited, a well established manufacturer of garments for export markets, consisting of �ve manufacturing units with a turnover of Rs. 4 billion and a workforce of over 3500.

He is also the Founder Chairman/Managing Director of Union Resorts, the owning company of The Blue Water, Wadduwa, a luxury �ve star resort hotel, NorthStar Holdings an investment company, Union Industrial Washing (Pvt) Limited and the elite fashion store, Dilly's Fashions (Pvt) Ltd.

Anil Amarasuriya

Mr. Amarasuriya is the Director / Chief Executive O�cer of Union Bank of Colombo PLC (UBC). A veteran banker and former Managing Director / Chief Executive O�cer of Sampath Bank. His association with UBC dates back to 2003 when he spearheaded its restructure, when Sampath Bank and a group of investors infused capital to the Bank. He has been instrumental in the Bank's business re-engineering process through a new strategic direction to reposition UBC as the preferred Bank for the SME and Retail Banking Sectors. He is a Fellow of the Institute of Chartered Accountants, Sri Lanka and the Chartered Institute of Management Accountants, UK and an Honorary Fellow of the Institute of Bankers, Sri Lanka. He was a member of the Sri Lanka Accounting and Auditing Standards Monitoring Board. He is currently the vice chairman of the Sri Lanka Bank's Association and a Director of Financial Ombudsman Guarantee Ltd. Mr. Amarasuriya was also a former Chairman of the Sri Lanka Banks' Association and Financial Ombudsman Sri Lanka Guarantee Limited. He also served as a Director of Sampath Surakum Ltd, SC Securities Ltd, Sampath Trade Services (HK) Ltd and Lanka Bangla Finance Ltd.

Jit Warnakulasuriya

Mr. Warnakulasuriya is the Chairman of Just in Time Group and counts many years experience in management and over 25 years experience in the �eld of IT. Mr. Warnakulasuriya is a Fellow member of the Institute of Certi�ed Professional Managers, Chartered Institute of Marketing.

Pro�les of the Board of Directors


8

Ms. Khoo Siew Bee

Ms. Siew Bee has extensive experience in all aspects of corporate �nance work in Asia, the US and Europe. Her previous positions include Director & Country Manager of Schroders Taiwan, Director of Schroders Hong Kong, Director of Schroders Singapore and Mergers & Acquisitions Director (Asia Paci�c) of Monsanto Singapore Pte. Ltd. Ms. Siew Bee is a Director of BP De Silva Holdings Pte Ltd., and a number of its subsidiary and associate companies.

Tyrone De Silva

Mr. De Silva is a Senior Vice President and Head of the Corporate Banking and Investment Banking Departments at DFCC Bank. He joined the Bank in 1989 and has been involved throughout in the Bank's Corporate Finance and Capital Markets business.

He serves as a member of Bank's Credit, Investment and Asset Liability Committees and as nominee Director on the Boards of some of the Bank's other subsidiary and associate companies.

Mr. De Silva holds a Master's Degree in Business Administration from the University of Warwick, UK. He is also a Graduate Member of the Institute of Mechanical Engineers, UK.

Palitha Gamage

Mr. Palitha Gamage is a career banker with over 25 years of experience at DFCC Bank. He has served in several senior managerial positions in Corporate Banking, SME Banking, Investment Banking and Planning within the bank. In addition, he also served as Head of Corporate Credit at DFCC Vardhana Bank. Presently, he holds the position Executive Vice President (Planning and Operations) at DFCC Bank; a post he has held since 2013. Prior to joining DFCC Bank, he worked as a Civil Engineer at State Engineering Corporation of Sri Lanka. He served as a member of the Governing Board of the National Institute of Business Management for three years from 2010. During his career, Mr. Gamage has attended a multitude of local and foreign training programs and workshops covering various aspects of banking.

Mr. Gamage holds a B. Sc (Engineering) Hons degree from the University of Moratuwa, Sri Lanka and a MBA from the Asian Institute of Technology, Thailand. He is an Associate of the Chartered Institute of Management Accounts (CIMA), UK and a Corporate Member of the Institute of Engineers, Sri Lanka.

Avancka Herat

Mr. Herat is the Executive Director of NAMAL. (Please refer management team pro�le.)

Management Team

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Avancka Herat, Executive Director/Chief Investment O�cer

Mr. Herat has over 20 years experience in the �nancial services sector in the areas of investments banking, investment management and corporate �nance. He has extensive regional experience having worked for investments banks and MNC’s including Jardine Fleming, JP Morgan and Caltex. He has worked in Singapore, Hong Kong and Thailand specializing in key sectors such as Petroleum, Telecoms, Power and Energy, Cement, MNC’s and Small Caps. Prior to joining NAMAL, Mr. Herat was the Chief Investment O�cer/Director of Aegis Fund Management (Pvt) Ltd, managing the funds of DCSL Group, including Sri Lanka Insurance Corporation Ltd.

Mr. Herat holds a BSc (Hon) Degree in Business Management from University of Swansea, Wales and MSc in Business Finance from University of London, Uxbridge.

Charana Jayasuriya, Head – Sales & Structuring

Mr. Jayasuriya has more than 12 years experience in the capital markets of Sri Lanka and United Kingdom in asset management, investment banking and �nancial regulation. Prior to joining NAMAL, Mr. Jayasuriya was Fund Manager for Aegis Fund Management (Pvt) Ltd managing the funds of DCSL Group, including Sri Lanka Insurance Corporation Ltd specialising in �xed income and foreign currency.

Mr. Jayasuriya holds a LLB (Hons) Law and LLM in Banking & Finance Law from University College, University of London.

Mrs. Pushpika Jeevaratne, Head of Compliance

Mrs. Jeevaratne has over 9 years of experience in the �nancial services sector including investment banking. She has worked for Vanik and DP Capital Management prior to joining NAMAL.

Mrs. Jeevaratne holds a BSc. (Eng) from University of Moratuwa and is a member of the Chartered Institute of Management Accountants (UK)

Dinesh Fernando, Fund Manager

Mr. Fernando has 20 years experience in the �nancial services sector in the areas of equity research, investment banking and portfolio management. He has worked for HSBC, KPMG, DFCC Bank, NDB Investment Bank and First Guardian Equities in Sri Lanka and overseas. Prior to joining NAMAL he was with Standard Chartered Bank.

Mr. Fernando is a CFA Charterholder and a member of the Association of Chartered Certi�ed Accountants (UK) and Chartered Institute of Management Accountants (UK).

Pro�les of the Management Team


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Tharaka Mudalige, Senior Sales Manager – Retail Sales

Mr. Mudalige has over 8 years experience in Financial Services Sales including Life Insurance and General Insurance specialising in Bancassurance. Prior to joining NAMAL, Mr. Mudalige was the Manager Sales - Bancassurance for AVIVA NDB Insurance PLC.

Mr. Mudalige is an Associate Member of the Chartered Institute of Management Accountants (UK).

Mrs. Menaka Fernando, Finance Manager

Mrs. Fernando has more than six years experience in Accounting, Auditing and Advisory Services at Kreston MNS & Co.

Mrs. Fernando is a member of the Institute of Chartered Accountants of Sri Lanka and the Association of Accounting Technicians of Sri Lanka.

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Funds


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NAMAL Funds

Name of Fund National Equity Fund

Fund Type

Objective

Invest In

Time Frame ofInvestment

Risk-Return

Dividends

MinimumInvestment

Front-End Fee

Management Fee

Exit Fee

Registrar Fee

Trustee Fee

Advantages

NAMAL IPO FundNAMALSharia Fund

NAMALGrowth Fund

Growth

Capital Growth

Medium to Long Term

No Set Pattern

2.50%

1.25% (Additional 1.5% ifNet Return exceeds 15% p.ain a Quarter)

No

No

0.20%

Invest in ProfessionallySelected IPO Securities

Daily Liquidity

Rs. 10,000

High to ModerateRisk / Return

Listed Equity & Fixed IncomeSecurities

Rs.1,000

Balanced

Income and Long Term Growth

Listed Equity & FixedIncome Securities

Medium to Long Term

High to ModerateRisk / Return

Annual

5.00%

1.50%

No

0.25%

0.20%

Provides current incomeand long term capital growth

Flexibility to invest upto 80%in the stock market

Minimum investment is low

Rs.5,000

5.00%

1.50%

No

0.25%

0.25%

Invest in high qualityhandpicked stocks

Flexibility to invest upto90% in the stock market

Ability to participate in adiversi�ed portfolio oflisted shares

Growth

Long Term Capital Growth

Listed Equity

Medium to Long Term

High Risk - High Return

No Set Pattern

Rs.10,000

3.50%

1.75% (Additional 1.5%if Net Return exceeds15% p.a in a Quarter)

No

No

0.20%

Access the ColomboStock Exchange in aSharia CompliantManner

Growth

Capital Growth

Sharia CompliantListed Equity &Income Securities

Medium to Long Term

High to ModerateRisk/Return

-


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Name of Fund NAMAL Income Fund

Fund Type

Objective

Invest In

Time Frame ofInvestment

Risk-Return

Dividends

MinimumInvestment

Front-End Fee

Management Fee

Exit Fee

Registrar Fee

Trustee Fee

Advantages

NAMALHigh Yield Fund

NAMALMoney Market Fund

Rs.10,000

Income

Income

Fixed IncomeSecurities

Medium to Long Term

Medium to Long Term

Semi Annual

No

1.25%

1.00%(If withdrawn prior to 1 year)

0.25%

Rs.200,000 per annum

Invest in high qualityincome producinginstruments

Receive regulardividend income

Rs.1,000,000

Money Market

Cash Management

Fixed Income Securitiesof less than 12 months

Short Term

Low Risk / Return

Quarterly

No

0.25%

No

0.05%

0.15%

Provides currentincome at minimum risk

Dividends paidquarterly

Rs. 10,000

Fixed Income

Income

Short Term Commercial Papers,Trust Certi�cates & Corporate Debt

Short Term

Moderate toLow Risk - Returns

Regular

No

0.50%

No

No

0.15%

Obtains Signi�cantly HigherYields than Treasury Bills &Fixed Deposits

Daily Liquidity


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Highlights of NAMAL Funds

National Equity Fund NAMAL Growth Fund NAMAL Acuity Value Fund NAMAL IPO Fund

Fund Performance YoYGrowth / (decline) 24.53% 19.46% 18.33% 13.03%

Fund Size Rs. 2.02 Bn 286.1 Mn 1.14 Bn 6.8 Mn

Dividend (Rs. Per unit) 1.00No dividend paid in line

with fund objectives 0.50 -

Return per unit holder(since inception)

15.06%*Rs. 100,000 invested at

inception is worthRs. 2.2 Mn today

16.82%**Rs. 100,000 invested at

inception is worthRs. 1.3 Mn today

20.25%** (returns are annualised

since 2009)

17.74%(returns are annualised since

2011)* assuming re-investment of dividends since 1991 and returns are annualised** assuming re-investment of dividends since 1997 and returns are annualised

NAMAL Income Fund NAMAL High Yield FundNAMAL Money Market Fund

Fund Performance YoYGrowth / (decline) 9.38% 7.92%

Fund Size Rs. 321.0 Mn 488.0 Mn

Dividend (Rs. Per unit) 0.55 0.77

Tax Equivalent Yield 13.03%* 11.00%*

12.07%

7.38 Bn

-

16.77%*

* for institutional investors who pay 28% corporate tax

Investment Manager’sReport

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Economic growth accelerates

Sri Lanka’s real GDP growth rebounded to 7.3% in 2013 from a moderate 6.3% in 2012, with growth accelerating across the four quarters of the year. Economic growth was broad based with strong growth in the Industry sector, continued expansion in Services sector. Agriculture sector showed dismal performance due to adverse weather conditions.

Expansion in the Services sector (constituting 58.1% of GDP) has been key with sector posting a better than expected growth rate with 6.4% (compared to 4.6% 2012). The wholesale and retail subsector (23% of GDP in 2013) showed impressive turnaround while visible improvements in transport and telecommunication services sectors also helped. Increased contribution from fast growing hotels & restaurants sector was also visible (CAGR of 24% during 2008-2013), though its contribution as the share of GDP was just 0.8% in 2013.

Continued expansion in construction activities and the manufacturing sector supported by strong external demand from advanced economies, enabled the industry sector (constituting 31.1% of GDP) to record a growth of 9.9%.

Adverse weather conditions a�ected the growth in Agricultural sector (constituting 10.8% of GDP) with its annual growth rate slowing to 4.7% in CY13, compared to 5.4% in the previous year.

Sri Lanka continues to reap the bene�ts from the end of con�ict with average GDP growth of 7.5% in the past �ve years compared to 4.7% GDP growth during the con�ict period of 26 years.

Per Capita GDP (US$) at market prices increased to US$3,280 in 2013, growth of 10.3% (CAGR) for last 5 years.

Investment Manager’s Report

Economic outlook

Fig 01: GDP growth recovers to 7.3% in FY2013

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Source: CBSL Annual Report & Website


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External sector improves

The external sector performed well in 2013 supported by the gradual recovery in advanced economies and improved performance in domestic environment. Signi�cant growth in export earnings together with a sharp decline in import expenditure resulted in a dramatic improvement in the country’s external trade performance in 2013. Exports increased 6.4% YoY to US$ 10.3 Bn while imports declined 6.2% to US$ 18 Bn, resulting in a trade de�cit of US$ 7.6 Bn (11.3% GDP) in CY13 compared to US$ 9.4 Bn in CY12 (15.8% of GDP).

Export growth was driven by Industrial exports (primarily textiles and garments), and Agricultural exports (primarily from tea and spice exports) to advanced economies. The contraction in the import bill was aided by lower fuel bill, transport equipment, and textile and textile imports. Continued growth in worker remittances (6.6% YoY to US$ 6.4 Bn in CY13) together with increased earnings from tourism, transport and IT related services helped to narrow the current account de�cit to US$ 2.6 Bn (3.8% of GDP) in CY13 from US$ 4 Bn (6.6% of GDP) from previous year.

These developments together with increased in�ow to �nancial account (both Portfolio and FDI) helped to improve the overall BOP surplus of US$ 1 Bn in CY13 compared to US$ 151 Mn in 2012. Gross o�cial reserves rose to US$7.5 Bn by CY13, amounting �ve months of imports.

Fig 02: Services sector expansion the primary cause of higher GDP growth in CY2013


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Fig 03: Trade de�cit improves in 2013


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Stable Rupee during the year

The improvement in BOP together with higher international reserve positions resulted in a stable rupee during the year despite currency volatility in other emerging market economies.

The Sri Lanka Rupee depreciated by only 2.8% against US$ during the year to close the year at 130.7. The currency came under some pressure in the middle of the year due to expectation of unwinding of positions by foreign investors (FII’s) from the government securities market in anticipation of possible tapering of the US bond buying program. Such pressure was short lived as Sri Lanka showed resilience to tapering pressure and the currency recovered later in the year.

FII’s continued to be net buyers of rupee denominated government securities during the year, increasing their holdings from Rs. 476 Bn at the end of March 2013 to Rs. 491 Bn by March 2014.

Fig 04: : Currency stable in 2013 despite a mid-year wobble


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DepreciationLKR/USD

LKR/USD (LHS) Depreciation YTD (RHS)

Fig 05: FII Investments in Treasury Bills and Bonds


0%

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%USD mForeign investments in treasury bills and bonds (USD Mn)Gross official reserve (USD m)FI as a % of gross official reserve


20

In�ation

In�ation remained at single digit levels for the �fth consecutive year. Headline in�ation was 4.7% YoY and 6.9% on annual average basis by year and supported by stable domestic supply conditions, due to favorable weather patterns and prudent demand management by policy makers. Core in�ation stood at 2.1% YoY and 4.4% on annual average basis by December 2013.

Monetary policy easing to continue

A stable economic environment coupled with benign in�ation expectations allowed Central Bank to continue easing monetary policy during the year. Overall policy rates were reduced by further 100 points during 2013 with Repurchase and Reverse Repurchase rates coming down to 6.50% and 8.50% respectively in by October 2013. This was further supported by a 2% reduction in Statutory Reserve Requirement to improve the liquidity conditions in the market.

Monetary policy easing coupled with lower credit demand by private sector led to excess rupee liquidity averaging around Rs. 23 Bn in the money market during the year. This led to downward adjustment in market rates, with the benchmark one year Treasury bill yield declining 400 basis points YoY to 7.05% by March 2014. Both prime lending and borrowing rates followed same trend, albeit with a considerable time lag. Yields on government securities across all maturities declined throughout the year, re�ecting the clear trend in lower policy rates, excess liquidity and moderating in�ation expatiations.

Fig 06: In�ation remains single digit


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2010 2011 2012 2013 2014

CCPI (Point to Point) CCPI (Annual Average)


Fig 07: Policy rates reduced further in 2013

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The removal of credit growth ceilings in banks did not yield any positive impact on credit growth during the year.


21

Budget de�cit declines further but need improvement in revenue collection

Steady progress on �scal consolidation and reduction in public debt is key for macroeconomic stability in Sri Lanka. Fiscal de�cit declined signi�cantly to 5.9% of GDP in 2013 from 6.5% in 2012, the lowest since 1977. However further reforms are needed in government �scal policy to meet the long term social and infrastructure development needs of the country.

Government revenue collection as percentage of GDP declined further to 13.1% in 2013 and continues to fall short of the budgetary targets. Low tax revenue mobilization remains an issue especially given the high debt service levels (80% of GDP) as well as shift from concessional borrowings to commercial borrowing. Further reforms are needed in extending VAT coverage (while reducing the thresholds) and automation of tax collection. Reducing the debt levels of State run corporations and better public �nancial management will also help to improve countries lagging �scal discipline.

Fig 08: Banking sector credit growth was below potential in 2013


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Loan-deposit gap Loan/deposits ratio

Fig 09: Real interest rates declines


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22

Equity Market Review

ASPI gathers momentum

The ASPI gained 4.8% YoY to close the year at 5,912 while more liquid S&P SL20 gained 5.8% YoY to close the year at 3,264 in CY13. Daily average turnover fell 6.2% YoY to Rs. 828.4 Mn per day in CY13 compared to Rs. 883.6 Mn per day in CY12. Foreign Funds (FII’s) were net buyers in CY13, continuing the momentum from CY12 although increased selling pressure was evident in the latter part of the year. Foreign participation improved to 36.1% in CY13 compared to 24.9% in the previous year but net FII fell by 40.9% YoY.

Market was trading at 15.9X historical earnings in CY13 as per market earnings reported by the CSE. In terms of sector performance, Food & Beverages showed highest returns with 18.1%, followed by Power & energy (19.5%), Healthcare Sector (16.9%) and Land & property Sector (11.6%). Information Technology (-27.1%) and Trading (-21.4%) were worst sectors with negative returns.

Despite aggregate market returns being weak in 2012 and 2013, the ASPI has performed well compared to regional markets in the recent times. The out performance is likely to be attributable for the returns during CY09-10 but in relative terms, market continues hold its momentum, despite some lackluster performance in the region. India (Sensex up 8.9% YoY), Singapore (Straits Times up 0.01% YoY) and Hong Kong (Hang Seng up 2.9% YoY) have shown weaker performance during the year. US markets continued its strong rally, gaining 29.6% YoY (S&P 500) in CY13.

The removal of credit growth ceilings in banks did not yield any positive impact on credit growth during the year.

ASPI continue to trade attractively valued around 10X-12X forward earnings (with assumption of 12% growth in corporate earnings in CY14) while the yield ratio has further narrowed due to falling interest rates signaling further upside in equities.

Fig 10: Budget de�cit continues to decline

Source: CBSL Annual Report

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Fig 11: ASPI outperforms Regional Indices

Source: The Wall Street Journal

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Fig 12: Foreign Funds (FIIs) remain Net Buyers

Source: CSE

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r-07

1-Ja

n-08

1-O

ct-0

8

1-Ju

l-09

1-Ap

r-10

1-Ja

n-11

1-O

ct-1

1

1-Ju

l-12

1-Ap

r-13

1-Ja

n-14

LKR m

Fig 13: Yield Ratio improves

Source: CBSL Website & CSE

0

2

4

6

8

10

12

14

16

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

%

Post Tax TB Yield

Post Tax Dividend Yield


24

Future market outlook

Sri Lanka will continue to be amongst the most attractive frontier market due to economic growth. The investment in infrastructure and increased productivity will sustain higher growth rates relative to frontier market peers. Credit growth has been weak in the previous years but lower interest rates and a competitive currency will generate further growth momentum with the ongoing recovery in the global economic cycle. The biggest medium term risk is a slower than expected global recovery together with tightening of external liquidity which could a�ect borrowing costs. Nevertheless we believe Sri Lanka is likely to maintain current economic momentum in the next 12-18 months with expectations of improved corporate earnings in the coming quarters.

As institutional investors, we attempt to price macroeconomic risks into individual investments while maintaining our distinct investment philosophy and style. We continue to focus on identifying investments that are attractively valued which could outperform both in relative basis and absolute basis while looking at opportunities to exit from counters that we consider expensive relative to their underlying value. We continue to be bullish on Health Care, Food and beverage, Banking, Oil & Gas, and infrastructure services where we see lot of growth potential in the medium to long term.

Fig 14: ASPI Data CY12-CY13

Source: CSE

% ChangeCY2013 CY2012

ASPI

S&P SL20

Average Daily Turnover

Net FII

Foreign participation

5,913

3,264

828,381,432

22,878,501,584

36.09%

5,643

3,085

883,583,465

38,681,213,541

24.93%

4.8%

5.8%

-6.2%

-40.9%

44.7%

Fig 15: Market PER multiples attractive on forward earnings

Source: CSE & NAMAL Estimates

1.4

1.7

2.0

2.3

2.6

2.9

3.2

3.5

3.8

4.1

4.4

Jan-

85

Jan-

86

Jan-

87

Jan-

88

Jan-

89

Jan-

90

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Log scale

25x

10x

5x

2x

Fund Reports

25

26

NationalEquity Fund

Fund Performance Review

The National Equity Fund (NEF) is a balanced fund which aims to provide capital appreciation and current income for investors. The Fund allocates a maximum of 80% to equity with the balance invested in �xed income securities.

The investment strategy is market neutral and based on fundamental research to identify stocks trading below intrinsic value. The Fund has invested in fundamentally strong companies that are exposed to the key sectors of the economy. These investments will enable the Fund to perform strongly notwithstanding any short-term market volatility.

The Fund aims to deliver consistent returns to investors in the long run rather than track the index.

Asset Allocation The Fund invested 76.5% in equities, 4.8% in Treasury Bills and 8.6% in Repos with the balance in Debentures & Fixed Deposits by end March 2014. The main sector allocations in equity are Healthcare (43.2%), Banks, Finance & Insurance (23.5%), Manufacturing (13.9%) and Power and Energy (8.3%).

Performance ReviewThe All Share Price Index increased by 4.06% while the 3 month Treasury Bill yields declined by 2.61% for the year ending 31st March 2014. The Fund outperformed the ASPI by 20.48% with the Fund’s NAV per unit increasing by 21.66% during the period under review.

The Fund value was Rs. 2.02 billion at 31st March 2014. Net assets attributable to unit holders increased by Rs. 418.5 million during the year, compared to an increase of Rs. 192.0 million the prior year.

Return to InvestorsThe Fund has provided an annualised return of 15.06% to investors since inception in 1991 (Fig4). An investment of Rs. 100,000 at inception is worth Rs. 2.22 million today (assuming re-investment of dividends).The Fund paid a tax free dividend of Rs. 1.00 per unit for FY2014, bringing the cumulative dividends paid to Rs. 27.55 per unit.

Investment Management Team, National Asset Management Ltd


27

Fig 1: Fund Performance

Fund Performance and Market Returns as at 31st March 2014

National Equity Fund

ASPI

NDBIB-CRISIL 3 month T-Bill Index

Benchmark

12 months

24.53%

4.06%

9.00%

5.04%

24 months

38.35%

10.11%

21.52%

12.39%

36 months

10.55%

(17.41%)

31.26%

(7.67%)

*Note

1) Performance up to 31st March 2014 as published by the Unit Trust Association of Sri Lanka

2) Benchmark consists of 80% return of ASPI and 20% return NDBIB-CRISIL 3 month T-Bill Index.

3) All returns are adjusted for dividends

4) Returns are not annualised

5) Past performance should not be taken as a guide to future performance

The Company

Asiri Hospital Holdings PLC

Central Finance Company PLC

Ceylon Hospital PLC (Durdans)

Lanka IOC PLC

Sampath Bank PLC

22,750,781

674,632

1,028,900

2,500,000

500,000

505,067,338

122,108,392

118,323,500

96,250,000

91,050,000

24.95%

6.03%

5.85%

4.76%

4.50%

Fig 2: Top Five Equity Holdings

No of Shares Value (RS.) % of NAV


28

Fig 3: Sector Allocation

as a % of Total Equity

43.20%

23.53%

13.95%

8.31%

3.35%

2.62%

1.84%

1.82%

1.38%

0% 10% 20% 30% 40% 50%

Health Care

Banks Finance And Insurance

Manufacturing

Power And Energy

Construction & Engineering

Investment And Trusts

Hotel And Travels

Beverage Food And Tobacco

Diversi�ed Holdings

Sect

or

Fig 4: Holding Period Return

-10%

0%

10%

20%

30%

40%

50%

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Rate of Return Value of Investment (Rs.)

Cumulative Value of Investment Compunded Annual Growth Rate


29


30

ADBT/CPEG/KWS/AD

INDEPENDENT AUDITORS’ REPORTTO THE UNIT HOLDERS OF NATIONAL EQUITY FUND

Report on the Financial Statements

We have audited the accompanying �nancial statements of National Equity Fund which comprise the statement of �nancial position as at 31 March 2014 and statement of comprehensive income, statement of changes in unit holder’s funds, statement of cash �ows, for the year then ended and a summary of signi�cant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

National Asset Management Limited, the Managers of the Unit Trust are responsible for the preparation and fair presentation of these �nancial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of �nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Scope of Audit and Basis of Opinion

Our responsibility is to express an opinion on these �nancial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the �nancial statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the �nancial statements. An audit also includes assessing the accounting policies used and signi�cant estimates made by management, as well as evaluating the overall �nancial statement presentation.

We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, so far as appears from our examination, the Fund maintained proper accounting records for the year ended 31 March 2014 and the �nancial statements give a true and fair view of the Fund’s �nancial position as at 31 March 2014 and its �nancial performance and cash �ows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory Requirements

These �nancial statements also comply with the requirements of Section 151(2) of the Companies Act No. 07 of 2007 and Unit Trust Deed.

28 May 2014Colombo

Ernst & YoungChartered Accountants201 De Saram PlaceP.O. Box 101Colombo 10Sri Lanka

Tel : +94 11 2463500Fax Gen : +94 11 2697369Tax : +94 11 [email protected]

Partners: A D B Talwatte FCA FCMA M P D Cooray FCA FCMA R N de Saram ACA FCMA Ms. N A De Silva ACA Ms. Y A de Silva ACA W R H Fernando FCA FCMAW K B S P Fernando FCA FCMA A P A Gunasekera FCA FCMA A Herath FCA D K Huhangamuwa FCA FCMA LLB (Lond) H M A Jayesinghe FCA FCMAMs. A A Lodowyke FCA FCMA Ms. G G S Manatunga ACA N M Sulaiman ACA ACMA B E Wijesuriya ACA ACMA


31

National Equity FundSTATEMENT OF FINANCIAL POSITIONAs at 31 March 2014

28 May 2014

Colombo

*The Accounting Policies and Notes on pages 35 to 47 form an integral part of these Financial Statements.

Notes 2014 2013ASSETS Rs. Rs.

Cash and cash equivalents 2,000,738 1,101,622 Financial assets - Held for trading 4 1,764,570,522 1,368,715,350 Financial assets - Loans and receivables 5 233,565,557 277,752,859 Accrued income and other receivables 7 16,652,067 57,775,761 Income tax recoverable 28,890,690 25,374,835 Total Assets 2,045,679,574 1,730,720,427

UNIT HOLDERS' FUNDS & LIABILITIES

LIABILITIESAccrued expenses 8 21,824,900 71,842,315 Total Liabilities (Excluding net assets attributable to Unit Holders) 21,824,900 71,842,315

UNIT HOLDERS' FUNDSNet assets attributable to Unit Holders 2,023,854,674 1,658,878,112

2,045,679,574 1,730,720,427

These Financial Statements were approved by the Management Company, and adopted by the Trustees.

………………………………..

Trustee

…………………………

Director

Management Company

Director

…………………………

Management Company

Di t

………………………… …………………………


32

National Equity FundSTATEMENT OF COMPREHENSIVE INCOMEYear ended 31 March 2014


2014 2013Notes Rs. Rs.

INVESTMENT INCOMEDividend income 9.1 38,923,083 41,541,992 Interest income 9.2 59,027,396 59,921,901Net realised gains on �nancial assets held for trading 4.3 188,167,932 54,291,924Net change in unrealised gains on �nancial assets held for trading 4.4 181,361,048 76,221,798Total investment income 467,479,459 231,977,615

EXPENSESManagement and Registrar fees (31,861,720) (31,574,184) Trustee fees (4,002,986) (3,804,300) Audit fee and expenses (387,685) (284,557) Bank charges (11,575) (31,094) Professional charges (93,834) (31,248) Other expenses (519,441) (2,382,348) Brokerage Expense (10,929,988) - Total operating expenses (47,807,227) (38,107,731)

Net operating pro�t 419,672,231 193,869,884

FINANCE COSTInterest expense (8,296) (48,778)

PROFIT AFTER DEDUCTIONS AND BEFORE TAX 419,663,935 193,821,106

Income tax expense 10 (1,210,957) (1,787,255)

PROFIT AFTER DISTRIBUTIONS AND TAX 418,452,978 192,033,851

INCREASE IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 418,452,978 192,033,851


33

National Equity FundSTATEMENT OF CHANGES IN UNITHOLDERS' FUNDSYear ended 31 March 2014


2014 2013Rs. Rs.

UNIT HOLDERS' FUNDS AT THE BEGINNING OF THE YEAR 1,658,878,112 1,659,528,070

Increase in net assets attributable to Unit Holders 418,452,978 192,033,851

Received on unit creations 76,750,972 54,835,070

Payments on unit redemptions (66,786,567) (184,503,360)

Income distribution to unit holders (63,440,821) (63,015,519)

UNIT HOLDERS' FUNDS AT THE END OF THE YEAR 2,023,854,674 1,658,878,112


34

National Equity FundSTATEMENT OF CASH FLOWSYear ended 31 March 2014


2014 2013Rs. Rs.

Cash Flows from Operating ActivitiesDividend received 37,086,924 27,596,802 Interest received 52,865,563 56,460,889 Proceeds from sale of investments 19,403,959,771 2,101,140,762 Payments on purchase of investments (19,385,119,704) (1,945,310,382) Taxation paid (1,665,321) (3,514,412) Operating expenses paid (95,697,248) (39,118,072) Net Cash generated from Operating Activities 11,429,985 197,255,587

Cash Flows from Financing ActivitiesIncome distribution (63,440,821) (68,222,120) Amount received on unit creations 119,710,825 55,723,340 Amount paid on unit redemptions (66,792,577) (184,121,066) Interest paid on borrowings (8,296) (48,778) Net Cash used in Financing Activities (10,530,869) (196,668,624)

Net Increase in cash and cash equivalents 899,116 586,963 Cash and cash equivalents at the beginning of the year 1,101,622 514,659 Cash and Cash Equivalents at the end of the year 2,000,738 1,101,622


35

1. GENERAL INFORMATION

National Equity Fund is an open ended unit trust fund approved by the Securities and Exchange Commission of Sri Lanka. The fund was launched on 16th December 1991.

The fund is managed by National Asset Management Limited, which is incorporated and domiciled in Sri Lanka. The registered o�ce of the management company is located at 7th Floor, Union Bank Head O�ce, No. 64, Galle Road, Colombo 03. The Trustee of the fund is Deutsche Bank AG having its place of business at No. 86, Galle Road, Colombo 03.

The primary objective of the fund is to achieve long term fund appreciation and provide investors with current income through prudent investment in a portfolio of listed shares and �xed income securities.

2. ACCOUNTING POLICIES

2.1 BASIS OF PREPARATION

The �nancial statements are prepared in accordance with and comply with the Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka and adopted as directed by the Securities and Exchange Commission of Sri Lanka.

The �nancial statements have been prepared on the historical cost basis except for the �nancial assets at fair value through pro�t or loss. The �nancial statements are presented in Sri Lankan rupees. The statement of �nancial position is presented broadly in order of a liquidity basis.

2.1.1 Statement of compliance

These �nancial statements have been prepared in accordance with Sri Lanka Accounting Standards comprising SLFRSs and LKASs (hereafter "SLFRS") which are e�ective from 01 January 2012.

2.1.2 Comparative information

This is funds’ �rst �nancial statements prepared in accordance with (SLFRSs) and SLFRS 1 – First time Adoption of Sri Lanka Financial Reporting Standards has been applied.

2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.2.1 Financial instruments – initial recognition and subsequent measurements

2.2.1.1 Date of recognition

All �nancial assets are initially recognized on the trade date, i.e the date that the fund becomes a party to the contractual provisions of the instrument. This includes purchases of �nancial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

2.2.1.2 Initial measurement of �nancial instruments

The classi�cation of �nancial instruments at initial recognition depends on their purpose and characteristics and the management intention in acquiring them. All �nancial assets are measured initially at the fair value plus transaction costs, except in the cases of �nancial assets recorded at fair value through pro�t or loss.

National Equity FundNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2014


36

2.2.1.3 Financial assets - Loans and receivables

Loans and receivables are non derivative �nancial assets with �xed or determinable payments that are not quoted on an active market. Loans and receivables in the statement of �nancial position comprise of repurchase agreements, commercial papers and placements with other banks.

After initial measurement, loans and receivables are subsequently measured at amortized cost using the e�ective interest rate, less allowance for impairment. The amortization is included in the “interest income” in the statement of comprehensive income. The losses arising from impairment is recognized in the statement of comprehensive income in “credit loss expense”.

Interest income is recognized by applying the e�ective interest rate, except for short term receivables when the recognition of interest would be immaterial.

2.2.1.4 Financial assets at fair value through pro�t or loss

Financial assets are classi�ed as fair value through pro�t or loss (FVTPL) if they are held for trading or are designated at fair value though pro�t or loss. Financial assets are classi�ed as held-for-trading if they are acquired for the purpose of selling or repurchasing in the near term. Up on the initial recognition, transaction cost are directly attributable to the acquisition are recognized in pro�t or loss as incurred.

• Financial assets held for trading

Financial assets, held for trading are recorded in the statement of �nancial position at fair value. Changes in fair value are recognized in the ‘net change in �nancial assets held for trading’ in the statement of comprehensive income. Interest income or expense and dividend income are recorded in “investment income’ according to the terms of the contract. Included in this classi�cation are quoted equity securities and quoted debentures.

2.2.1.5 Determination of fair value

The fair value for �nancial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For all other �nancial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash �ow method, comparison with similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models.

An analysis of fair values of �nancial instruments and further details as to how they are measured are provided in Note 6.

2.2.1.6 Derecognition of �nancial assets

A �nancial asset is derecognized when,

1) The rights to receive cash �ows from the asset have expired.2) The fund has transferred its rights to receive cash �ows from the asset or has assumed an obligation to pay the received cash �ows in full without material delay to a third party under a ‘pass–through’ arrangement; and either,

• The fund has transferred substantially all the risks and rewards of the asset or• The fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.



37

2.2.2 Recognition of income

Revenue is recognized to the extent that it is probable that the economic bene�ts will �ow to the fund and the revenue can be reliably measured.

Interest income

For all �nancial instruments measured at amortized cost, interest income is recorded using the e�ective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the �nancial instrument or a shorter period, where appropriate, to the net carrying amount of the �nancial asset.

Interest income from repurchase agreements and government treasury bills are recognized at gross of notional tax credit or withholding tax.

Dividend income

Income is recognized when the right to receive the dividend is established, normally being the ex-dividend date. Dividend income is recognized net of withholding tax, if any.

2.2.3 Cash and cash equivalents

Cash and cash equivalents in the statement of �nancial position comprise cash at bank.

For the purpose of the statement of cash �ows, cash and cash equivalents consist of cash and cash equivalents as de�ned above.

2.2.4 Income tax

Current tax assets and liabilities for the current and prior year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. The fund is liable to pay income tax at the rate 10% in accordance with the Inland Revenue Act No. 10 of 2006.

2.2.5 Expenses

The management participation fee of the fund is as follows:

Management Fee - 1.5% of Net Asset Value of the Fund

Trustee Fee - 0.2% of Net Asset Value of the Fund Registrar Fee - 0.25% of Net Asset Value of the Fund

2.2.6 Accrued expenses

Payables are initially recognized at fair value, which is the fair value of the consideration to be paid in the future for service received, whether or not billed to the fund, and subsequently at amortized cost.



38

2.2.7 Unit Holders’ funds and net assets attributable to Unit Holders

Unit Holders’ funds has been calculated as the di�erence between the carrying amounts of the assets and the carrying amounts of the liabilities, other than those due to Unit Holders as at the reporting date.

Units can be issued and redeemed based on the fund’s net asset value per unit, calculated by dividing the net assets of the fund calculated in accordance with the valuation guidelines issued by the Unit Trust Association of Sri Lanka and approved by the Securities and Exchange Commission of Sri Lanka, by the number of units in issue. Income not distributed is included in net assets attributable to Unit Holders.

2. 3 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

2.3.1 Fair value of �nancial instruments

Management considers credit, liquidity and market risk and assesses the impact on valuation of investments when determining the fair value. Following are the key sources of estimation uncertainty at the reporting date that have signi�cant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next �nancial year.

a) Fair value of securities not quoted in an active market and over the-counter derivative instrumentsManagement uses its judgment in determining the appropriate valuation technique for �nancial instruments that are not quoted in an active market. Valuation techniques commonly used by market practitioners are applied. Other �nancial instruments are valued using a discounted cash �ow analysis based on the assumptions supported, where possible, by observable market prices or rates.

2.3.2 Impairment losses on �nancial assets – Loans and receivables

The fund reviews its �nancial investments classi�ed as loans and receivables at each reporting date to assess whether they are impaired. In particular management judgment is required in the estimation of the amount and timing of future cash �ows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may di�er, resulting future changes to the allowance.

2.4 NEW ACCOUNTING STANDARDS ISSUED BUT NOT EFFECTIVE AS AT STATEMENT OF FINANCIAL POSITION DATE

Standards issued but not yet e�ective up to the date of the Fund’s �nancial statements are given below. The company will adopt these standards when they become e�ective. Pending a detailed review the �nancial impact is not reasonably estimable as at the date of publication of these �nancial statements.

SLFRS 9 – Financial Instruments : Classi�cation and MeasurementSLFRS 10 – Consolidated Financial StatementsSLFRS 11 – Joint ArrangementsSLFRS 12 – Disclosure of Interests in Other EntitiesSLFRS 13 – Fair Value Measurements

The Manager believes that there would be no impact on the �nancial statement of the Fund from SLFRS 10 and SLFRS 11 one such standard become e�ective.

SLFRS 9 will be e�ective for �nancial periods beginning on or after 01 January 2015 whilst SLFRS 10, 11, 12 and 13 will be e�ective for �nancial periods beginning on or after 01 January 2014.



39

3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

(a) Financial instruments

The Fund’s principal �nancial assets comprise investments in trading securities, repurchase agreements, commercial papers, �xed deposits and cash at bank. The main purpose of these �nancial instruments is to generate a return on the investment made by Unit holders. The Fund’s principal �nancial liabilities comprise amounts attributable to Unit holders, which are the amounts owed to Unit holders of the Fund. The Fund also has other �nancial instruments such as receivables and payables which arise directly from its operations.

In accordance with LKAS 39 Financial Instruments: Recognition and Measurement, the Fund’s bank balance, repurchase agreements, �xed deposits and commercial papers are classi�ed as ‘loans and receivables’ and valued at amortized cost. Trading securities are classi�ed as ‘held for trading’, meaning they are valued at fair value through pro�t or loss. Amounts attributable to Unit holders are classi�ed as ‘other �nancial liabilities’ and are carried at the redemption amount being net asset value. Payables are designated as ‘other �nancial liabilities’ at amortized cost.

(b) Financial risk management objectives, policies and processes

Risks arising from holding �nancial instruments are inherent in the Fund’s activities, and are managed through a process of ongoing identi�cation, measurement and monitoring. The Fund is exposed to credit risk, market risk, and liquidity risk.

Financial instruments of the Fund comprise investments in trading securities for the purpose of generating a return on the investment made by Unit holders, in addition to cash at bank, and other �nancial instruments such as receivables and payables, which arise directly from its operations.

The manager is responsible for identifying and controlling the risk that arise from these �nancial instruments. The Manager agrees policies for managing each of the risks identi�ed below.

The risks are measured using a method that re�ects the expected impact on the Statement of Comprehensive Income and Statement of Financial Position of the Fund from reasonably possible changes in the relevant risk variables. Information about these risk exposures at the reporting date, measured on this basis, is disclosed below.

The manager also monitors information about the total fair value of �nancial instruments exposed to risk, as well as compliance with established investment mandate limits. These mandate limits re�ect the investment strategy and market environment of the Fund, as well as the level of risk that the fund is willing to accept, with additional emphasis on selected industries. This information is prepared and reported to relevant parties within the Manager on a regular basis as deemed appropriate, including the Fund manager, other key management, Risk and Investment Committees, and ultimately the Trustees of the Fund.

Concentration of risk arises when a number of �nancial instruments or contracts are entered in to with the same counterparty, or where a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly a�ected by changes in economics, political or other conditions.

(c) Credit risk

Credit risk is the risk that the counterparty to the �nancial statement will fail to discharge an obligation and cause the Fund to incur a �nancial loss. The Fund’s exposure to credit risk from its �nancial assets arises from default of the counterparty, with the current exposure equal to the fair value of these instruments as detailed below. It is the fund’s policy to enter into �nancial instruments with reputable counterparties. The details are as follows.



40

Counter Party Credit Rating Rating AgencyUnion Bank of Colombo PLC BBB Ram Rating

Risk concentration of credit risk exposureConcentration of credit risk is managed by counterparty and by market sector. The fund is also subject to credit risk on its bank balance and receivables. The credit risk exposure on these instruments is not deemed to be signi�cant.

The Fund’s maximum exposure to credit risk can be analyzed as follows:

2014 2013 Rs.000 Rs.000 National Equity Fund Investments Conservative 267,072 93,134 Balanced 61,730 184,618 Growth 1,669,333 1,368,715

(d) Market risk

Market risk represents the risk that the value of the Fund’s investments portfolios will �uctuate as a result of changes in market prices.

This risk is managed by ensuring that all investment activities are undertaken in accordance with established mandate limits and investments strategies. As such, Unit holders can manage this risk through their choices of which investment portfolios to participate in.

The Fund uses a range of di�erent fund managers for investment assets. Where a Unit holder is invested in more than one investment portfolio, this reduces the impact of a particular manager underperforming. Within the underlying investment portfolio, diversi�cation is achieved at a number of levels. The diversi�ed portfolios are invested across a range of investment sectors. Within each sector of the diversi�ed portfolios, the fund managers invest in a variety of securities.

Price risk

Price risk is the risk that the fair value of the fund’s investment in trading securities will �uctuate as a result of changes in the price of the Fund’s investments in trading securities. Price risk exposure arises from the fund’s investment portfolios.

The table below shows the impact on the statement of Comprehensive Income and Statement of Financial Position due to a reasonably possible change in the price of the Fund’s investment in trading securities in Note 4, with all other variables held constant:


31 March 2014

Increase/ (decrease)in pro�t before tax

Rs. 000

Increase/ (decrease)in net assets

attributable toUnit Holders

Rs. 000

31 March 2013


Rs. 000



Rs. 000Change in priceof the fund’sinvestment intrading securities:

+10%-10%

152,860 152,860 132,957(152,860) (152,860) (132,957)

132,957(132,957)


41

The above �gures are calculated across the entire investment portfolio on an annual basis. There is a corresponding change to the fair value of trading securities within the Statement of Financial Position.

Interest rate risk

Interest rate risk is the risk that the value of a �nancial instrument will �uctuate as a result of changes in market interest rates.

The Fund’s exposure to interest rate risk primarily arises from changes in interest rates applicable to the balance held at the bank and the listed debentures.

Foreign exchange risk

Foreign exchange risk is the risk that value of a �nancial instrument will �uctuate as a result of changes in foreign exchange rates.

The Fund is not exposed to foreign exchange risk due to trading securities denominated in Sri Lankan Rupees.

(e) Liquidity risk

Liquidity risk is the risk that the fund will encounter di�culty in raising funds to meet its obligation to pay Unit Holders.

Due to the nature of a unit trust, it is unlikely that a signi�cant number of Unit Holders would exit at the same time. However, to control liquidity risk, the fund investments in �nancial instruments, which under normal market conditions are readily convertible to cash. In addition, the fund invests within established limits to ensure there is no concentration of risk.

Payables have no contractual maturities but are typically settled within �ve market days. Receivables outstanding at balance date are due to be settled within seven market days of balance date. Due to the short term nature of these �nancial instruments, carrying value approximates fair value. The e�ect of discounting is not signi�cant as there is little di�erence between undiscounted and discounted cash �ows.



42


4. FINANCIAL ASSETS - HELD FOR TRADING 2014 2013Rs. Rs.

Quoted equity securities (4.1) 1,528,602,507 1,329,572,057Debt securities - quoted debentures (4.2) 140,730,964 39,143,293 Treasury bill 95,237,050 -

1,764,570,522 1,368,715,350

4.1 Quoted equity securities

Cost as at 31 March 1,211,257,427 1,185,132,487 Appreciation of market value quoted equity securities 317,345,081 144,439,570 Market Value as at 31 March 1,528,602,507 1,329,572,057

2014 20134.1.1 Company Number of Market Holdings Number of Market Holdings

Shares Value as a % of Shares Value as a % of Net Asset Net Asset

Rs. Value Rs. ValueBanks, Finance and InsuranceCentral Finance Company PLC 674,632 122,108,392 6% 674,632 121,433,760 7%Commercial Bank of Ceylon PLC - Non Voting 204,514 19,837,858 1% 337,456 32,699,486 1%

Commercial Bank of Ceylon PLC -Voting 330,367 40,635,141 2% 50,000 5,650,000 - Nations Trust PLC - - - Sampath Bank PLC 500,000 91,050,000 4% - - - HNB 574,060 86,109,000 4% 274,060 45,850,238 4%

359,740,391 18% 205,633,484 12%

Beverages, Food and TobaccoDistilleries Company of Sri Lanka PLC - - - 936,843 155,984,360 9%Lion Brewery Ceylon PLC - - - 601,825 200,407,725 12%Renuka Agri Foods PLC 8,955,580 27,762,298 1% 7,515,480 30,813,468 2%

27,762,298 1% 387,205,553 23%

Chemicals and Pharmaceuticals CIC Holdings PLC - - - 150,000 9,150,000 1%

- - 9,150,000 1%

Health Care Ceylon Hospitals PLC (Durdans)-Voting 1,028,900 118,323,500 6% 1,028,900 102,890,000 6%Ceylon Hospitals PLC (Durdans)-Non Voting 481,000 37,037,000 2% 481,000 36,123,100 2%Asiri Hospitals PLC 22,750,781 505,067,338 25% 22,750,781 259,358,903 16%

660,427,838 33% 398,372,003 24%

Hotels and TravelsHotel Services (Ceylon) PLC 2,200,000 28,160,000 1% 2,200,000 29,480,000 2%

28,160,000 1% 29,480,000 2%


43


4. FINANCIAL ASSETS - HELD FOR TRADING (Contd..)

2014 2013Number of Market Holdings Number of Market Holdings

Shares Value as a % of Shares Value as a % of Net Asset Net Asset

Rs. Value Rs. ValueManufacturingACL Cables PLC 959,157 58,508,577 3% 845,000 55,347,500 3%Tokyo Cement Company Lank PLC - Voting 1,974,309 71,469,986 4% 1,401,000 24,517,500 1%Tokyo Cement Company Lank PLC - Non Voting 2,591,100 75,141,900 4% - - - Kelani Tyres PLCAlumex PLC 571,400 8,113,880 0% - - -

213,234,343 11% 79,865,000 4%

PlantationKegalle Plantations PLC - - - 100,000 11,200,000 1%

- - 11,200,000 4%

Investment TrustsRenuka Holdings PLC 1,270,581 40,023,302 2% 1,197,954 37,136,574 2%

40,023,302 2% 37,136,574 2%

Power and EnergyLaugfs Gas PLC 945,000 30,712,500 1% - - - Lanka IOC PLC 2,500,000 96,250,000 5% - - -

126,962,500 6% - -

Diversi�ed HoldingsHemas Holdings PLC 558,051 21,038,523 1% - - - CT Holding PLC - - - 1,003,600 126,654,320 8%

21,038,523 1% 126,654,320 8%

Construction and EngineeringAccess Engineering PLC 2,277,925 51,253,313 3% 2,277,925 44,875,123 3%

51,253,313 3% 44,875,123 3%Total value of quoted equity securities in (At Market Value) 1,528,602,507 76% 1,329,572,057 80%


44


4. FINANCIAL ASSETS - HELD FOR TRADING (contd..)

4.2 Quoted debentures

Cost Market Holding as a Cost Market Holding as aValue % of Net Value % of Net

Rs. Rs. Asset Value Rs. Rs. Asset Value

Lion Brewery PLC 45,000,000 49,614,883 17% - - - Lanka Orix Leasing Company PLC 40,000,000 41,600,493 15% 40,000,000 39,143,293 2%Haylys PLC 45,000,000 49,515,589 17% - - -

130,000,000 140,730,964 49% 40,000,000 39,143,293 2%

4.3 Net realised gains on �nancial assets held for trading 2014 2013Rs. Rs.

Equity securitiesProceeds on sale of equity shares 761,333,130 190,304,746 Average cost of equity shares sold (573,165,198) (136,012,822)

188,167,932 54,291,924

4.4 Net change in unrealised gains on �nancial assets held for trading

Equity securities 172,905,519 74,614,238

Debt securities 8,455,529 1,607,560 181,361,048 76,221,798

5. FINANCIAL ASSETS - LOANS AND RECEIVABLES

Carrying Holding as a Carrying Holding as aValue % of Net Value % of Net

5.1 Investments in commercial papers Rs. Asset Value Rs. Asset Value

Hayieys PLC - - 50,993,700 3%Peoples Leasing and Finance Company PLC - - 14,372,535 1%

Softlogic Holdings PLC - - 51,754,658 3%Asia Capital PLC - - 35,695,203 2%

- - 152,816,096 9%5.2 Repurchase agreements

First Capital Treasuries Limited 98,291,734 5% 79,993,020 5%National Savings Bank - - 13,141,390 1%Wealth Trust Securities Limited 73,542,894 4% - -

171,834,629 9% 93,134,410 6%5.3 Placements with other banks - �xed deposits

Union Bank of Colombo PLC 61,730,928 3% 31,802,353 2%61,730,928 3% 31,802,353 2%

233,565,557 12% 277,752,859 17%

2014 2013

2014 2013


45


As at 31 March 2014 Level 1 Level 2 Level 3 TotalRs. Rs. Rs. Rs.

Financial assets - held for trading

Quoted equity investments 1,528,602,507 - - 1,528,602,507 Quoted debentures - 140,730,964 - 140,730,964 Treasury bills 95,237,050 - 95,237,050

As at 31 March 2013


Quoted equity investments 1,329,572,057 - - 1,329,572,057 Quoted debentures - 39,143,293 - 39,143,293

7. ACCRUED INCOME AND OTHER RECEIVABLES 2014 2013Rs. Rs.

Dividend receivable 16,531,350 14,695,190 Receivable on unit creations 120,718 43,080,571

16,652,067 57,775,761

8. ACCRUED EXPENSES 2014 2013Rs. Rs.

Fund management and registrar fee payable 8,325,449 7,293,636 Trustee fee payable 1,044,344 933,586 Audit fee 274,344 217,280 Payable on unit redemptions 376,284 382,294 Dividend payable - 63,015,519 Other payable 11,804,479 -

21,824,900 71,842,315

6. FAIR VALUE OF FINANCIAL INSTRUMENTS Determination of fair value and fair value hierarchy SLFRS 7 Financial Instruments: Disclosures require fair value measurements to be disclosed by the source of inputs, using a three level hierarchy. The hierarchy for measuring fair value consists of Levels 1 to 3: Level 1 – An investment in a fund is classi�ed in Level 1 of the hierarchy when that investment is quoted in an active market and measured at the unadjusted quoted price at the reporting date. Level 2 – An investment in a fund is classi�ed in Level 2 of the hierarchy when that investment is measured using inputs that are directly observable at the reporting date.

Level 3 – An investment in a fund is classi�ed in Level 3 of the hierarchy when the investment is measured using unobservable inputs at the reporting date. The following table shows an analysis of �nancial instruments recorded at fair value by level of the fair value hierarchy:


46


2014 20139. INVESTMENT INCOME Rs. Rs.

9.1 Dividend income 38,923,083 41,541,992

9.2 Interest incomeInterest on Treasury bill repurchase agreements (9.2.1) 20,844,892 21,957,949 Interest on �xed deposits 6,570,120 2,997,848 Interest on treasury bonds (9.2.1) - 895,877 Interest on commercial papers 7,493,288 29,337,712 Interest on debentures 14,244,288 4,680,000 Interest on savings account 104,770 52,515 Interest on Treasury bill (9.2.1) 9,770,038 -

59,027,396 59,921,901

9.2.1 Interest income on Treasury bill repurchase agreements has been recognised gross of notional taxes.

10 TAXATION 2014 2013Rs. Rs.

10.1 Tax expense for the year 1,210,957 1,787,255 - -

1,210,957 1,787,255

10.2 is as follows:

Operating pro�t before tax 419,663,935 193,869,884 Aggregate allowable expenses/ net gains (368,631,280) (130,562,500) Allowable tax credits (38,923,083) (41,541,992) Total statutory income 12,109,572 21,765,392

Utilisation of previously unrecognized tax losses - (3,892,838) Taxable income 12,109,572 17,872,554

Income tax at the rate of 10% (2014 -10%)Income tax expense reported in the Statement of Comprehensive Income 1,210,957 1,787,255

11. DISTRIBUTIONDividend per Unit

Date of declaration

No of units in issue

Total dividend

Rs. Rs.1.0 26 March 2014 63,440,821 63,440,821

(Over)/ under provision of tax with respect to previous year

A reconciliation between the tax expense and the product of taxable pro�t multiplied by the statutory tax rate


47

NAMAL IPO FundNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2014

12. CONTINGENCIES

There are no material contingencies existing as at the reporting date that require adjustments to or disclosures in the Financial Statements.

13. POST BALANCE SHEET EVENTS

There have been no material events occurring after the reporting date that require adjustments to or disclosure on the Financial Statements.

14. CAPITAL COMMITMENTS

The Fund does not have signi�cant capital commitments at the reporting date.

15. UNITS IN ISSUE AND UNIT PRICE

Units in issue and deemed to be issue as at 31 March 2014 is 64,852,102.5 (2013 - 64,672,992.6) and the creation and redemption price were Rs. 32.58 and Rs. 30.49 (2013 - Rs. 27.03 and Rs. 25.28) respectively.

16. RELATED PARTY TRANSACTIONS

National Asset Management Ltd.(Managing Company)

Deutsche Bank(Trustee)

DFCC Bank

Union Bank of Colombo PLC

Ennid Capital (Private) Limited

Fund has paid Rs. 30,829,907/- as management and registrar fees during the year. The fee payable as at 31 March 2014 is Rs. 8,325,449/-.

Fund has paid Rs. 3,892,228/- as trustee and custodial fees during the year. The fee payable as at 31 March 2014 is Rs. 1,044,344/-.

DFCC holds 30% of equity of National Asset Management Ltd. Value of the units held by DFCC Bank in National Equity Fund as at 31.03.2014 is Rs. 15,249,150/-.

Union Bank of Colombo Ltd. holds 51% of equity of National Asset Management Ltd.The value of Fixed deposit investments during the year with Union Bank of Colombo PLC is Rs.264,640,708/-.Interest received during the year is Rs.6,415,447/-. Investments in �xed deposits as of March 31,2014 is Rs.61,730,928/-

Ennid Capital (Pvt) Limited holds 19% of equity of National Asset Management Limited.

Mr. I. J. P. Gamage(Executive Vice President) Mr. T. W. De Silva(Senior Vice President)

Nature of TransactionsNames of Directors / ManagersCompany / Fund

Mr. Alexis LovellMr. Anil Amarasuriya

Acuity Stock Brokers (Pvt) Ltd. Rs. 12,943,359/- worth of purchases were made through Acuity Stock Brokers (Pvt) Ltd. which is a subsidiary of Acuity Partners (Pvt)Ltd. Brokerage to the Acuity Stock Brokers (Pvt) during the year is Rs. 81,920/-. Acuity Partners (Pvt) Ltd. is a joint venture between DFCC Bank and Hatton National Bank PLC.

Mr. T. W. De Silva

Mr. Avancka Herat

48

Growth Fund


Investment StrategyNAMAL Growth Fund (NGF) is a growth fund which aims to provide long term capital appreciation by investing in equity. The Fund allocates a maximum of 90% to equity with the balance invested in �xed income securities.

The investment strategy is market neutral and based on fundamental research to identify stocks trading below intrinsic value. The Fund has invested in fundamentally strong companies that are exposed to the key sectors of the economy. These investments will enable the Fund to perform strongly notwithstanding any short-term market volatility.

The Fund aims to deliver consistent capital appreciation to investors whilst ensuring preservation of capital.

Asset Allocation The Fund allocated 86.0% in Equities, 9.3% in Repos and the remainder in debentures by end March 2014. The main sector allocations in equity are Healthcare (30.6%), Manufacturing (23.1%), Banks Finance &Insurance (20.4%) and Power and Energy (18.3%).

Performance ReviewThe All Share Price Index increased by 4.06% whilst the 3 month Treasury bill yields declined by 2.61% for the year ending 31st March 2014. The Fund outperformed the ASPI by 15.41% with the Fund’s NAV increasing by 14.43%for the period under review.

The Fund value was Rs. 286.1 million as at 31st March 2014. Net assets attributable to unit holders increased by Rs. 49.7 million during the year, compared to an increase of Rs. 27.1 million the prior year.

Return to InvestorsThe Fund has provided an annualised return of 16.82% to investors since inception in 1997. An investment of Rs. 100,000 at inception is worth Rs.1.32 million today (assuming re-investment of dividends).



49



NAMAL Growth Fund

ASPI

NDBIB-CRISIL 91 Day T-Bill Index

Benchmark

12 months

19.46%

4.06%

9.00%

4.55%

24 months

33.16%

10.11%

21.52%

11.25%

36 months

3.24%

(17.41%)

31.26%

(12.54%)

*Note


2) Benchmark returns consist of 90% return of ASPI and 10% return of NDBIB-CRISIL 91 Day T-Bill Index




The Company

Asiri Hospital Holdings PLC

Lanka IOC PLC

Sampath Bank PLC

Tokyo Cement Company (Lanka) PLC

Tokyo Cement Company (Lanka) PLC - NV

2,611,000

1,050,000

200,000

400,000

488,000

57,964,200

40,425,000

36,420,000

14,480,000

14,152,000

20.26%

14.13%

12.73%

5.06%

4.95%

Fig 2: Top Five Equity Holdings



50


30.64%

23.13%

20.36%

18.27%

2.58%

2.09%

1.49%

1.43%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00%

Health Care

Manufacturing

Banks, Finance and Insurance

Power and Energy

Investment Trusts

Hotels and Travels


Beverages, Food and Tobacco


Sect

or

Fig 4: Holding Period Return

-20%-15%-10%-5%0%5%10%15%20%25%

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Rate of Return Value of Investment

(Rs.)

Cumulative Value of Investment Compounded Annual Growth Rate %


51

ADBT/CPEG/KWS/KAS

INDEPENDENT AUDITORS’ REPORTTO THE UNIT HOLDERS OF NAMAL GROWTH FUND


We have audited the accompanying �nancial statements of NAMAL Growth Fund which comprise the statement of �nancial position as at 31 March 2014 and statement of comprehensive income, statement of changes in unit holder’s funds, statement of cash �ows, for the year then ended and a summary of signi�cant accounting policies and other explanatory notes.


National Asset Management Limited, the Managers of the Unit Trust are responsible for the preparation and fair presentation of these �nancial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implement-ing and maintaining internal control relevant to the preparation and fair presentation of �nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making account-ing estimates that are reasonable in the circumstances.





Opinion




26 May 2014Colombo


52





53

NAMAL Growth FundSTATEMENT OF FINANCIAL POSITIONAs at 31 March 2014

26 May 2014

Colombo



Cash and cash equivalents 748,022 389,712 Financial assets - Held for trading 4 253,713,650 224,793,612 Financial assets - Loans and receivables 5 26,099,872 19,772,763 Accrued income and other receivables 7 1,492,853 1,565,218 Income tax recoverable 4,727,492 4,279,065 Total assets 286,781,889 250,800,370

Unit Holders' Funds & Liabilities

LIABILITIESAccrued expenses 8 698,942 792,370 Total Liabilities (Excluding net assets attributable to Unit Holders) 698,942 792,370

Unit Holders' FundsNet assets attributable to Unit Holders 286,082,947 250,008,000

286,781,889 250,800,370


………………………………..

Trustee

…………………………

Director

Management Company

Director

…………………………

Management Company

Di t

………………………… …………………………


54

NAMAL Growth FundSTATEMENT OF COMPREHENSIVE INCOMEYear ended 31 March 2014



Investment IncomeDividend income 9.1 6,506,388 5,732,365 Interest income 9.2 5,693,210 5,904,571Net realised (losses)/gains on �nancial assets held for trading 4.3 33,250,554 (3,819,169)Net change in unrealised gains on �nancial assets held for trading 4.4 14,146,125 24,714,973Total investment income 59,596,277 32,532,740

ExpensesManagement and Registrar fees (4,674,783) (4,389,696) Trustee fees (733,001) (643,503) Audit fee and expenses (285,676) (233,288) Professional charges (62,093) (8,660) Other expenses (89,265) (66,940) Brokerage expense (4,048,205) - Total operating expenses (9,893,022) (5,342,087)


Finance CostInterest expense - (6,667)

Pro�t After Deductions and Before Tax 49,703,255 27,183,986

Income tax expense 10 - (36,128)

Pro�t After Distributions and Tax 49,703,255 27,147,858

Increase in Net Assets Attributable to Unit Holders 49,703,255 27,147,858


55

NAMAL Growth FundSTATEMENT OF CHANGES IN UNITHOLDERS' FUNDSYear ended 31 March 2014


2014 2013Rs. Rs.

Unit Holders' Funds at the Beginning of the Year 250,008,000 219,478,311




Unit Holders' Funds at the End of the Year 286,082,947 250,008,000


56

NAMAL Growth FundSTATEMENT OF CASH FLOWSYear ended 31 March 2014


2014 2013Rs. Rs.

Cash Flows from Operating ActivitiesDividend received 6,482,227 4,695,476 Interest received 5,097,374 5,904,988 Proceeds from sale of investments 3,026,790,135 248,713,814 Payments on purchase of investments (3,014,299,907) (256,766,123) Taxation paid (193,286) (424,889) Operating expenses paid (9,798,788) (5,330,155) Net Cash generated from /(used in) Operating Activities 14,077,754 (3,206,889)

Cash Flows from Financing Activities

Amount received on unit creations 5,379,927 10,284,888 Amount paid on unit redemptions (19,099,370) (6,739,191) Interest paid on borrowings - (6,667)

Proceeds from borrowings - 11,500,000

Repayment of borrowings - (11,500,000)

Net Cash (used in) /generated from Financing Activities (13,719,444) 3,539,030

Net Increase in cash and cash equivalents 358,310 332,141

Cash and cash equivalents at the beginning of the year 389,712 57,571

Cash and Cash Equivalents at the end of the year 748,022 389,712


57


NAMAL Growth Fund is an open ended unit trust fund approved by the Securities and Exchange Commission of Sri Lanka. The fund was launched on 20th August 1997.


The investment objective of the fund is to achieve medium to long term capital appreciation through prudently investing in a portfolio of quoted shares.






These �nancial statements have been prepared in accordance with Sri Lanka Accounting Standards comprising SLFRSs and LKASs (hereaf-ter "SLFRS") which are e�ective from 01 January 2012.


This is funds’ �rst �nancial statements prepared in accordance with (SLFRSs/LKASs) and SLFRS 1 – First time Adoption of Sri Lanka Financial Reporting Standards has been applied.







NAMAL Growth Fund NOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2014


58




After initial measurement, loans and receivables are subsequently measured at amortized cost using the e�ective interest rate, less allowance for impairment. The amortization is included in the “interest income” in the statement of comprehensive income. The losses arising from impairment is recognized in the statement of comprehensive income in “credit loss expense”.





Financial assets, held for trading are recorded in the statement of �nancial position at fair value. Changes in fair value are recognized in the ‘net change in �nancial assets held for trading’ in the statement of comprehensive income. Interest income or expense and dividend income are recorded in “investment income’ according to the terms of the contract. Included in this classi�cation are quoted equity securities and quoted debentures.










59




Interest income

For all �nancial instruments measured at amortized cost, interest income is recorded using the e�ective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the �nancial instrument or a shorter period, where appropriate, to the net carrying amount of the �nancial asset.

Interest income from repurchase agreements is recognized at gross of notional tax credit or withholding tax.

Dividend income

Income is recognized when the right to receive the dividend is established, normally being the ex-dividend date. Dividend income is recognized net of withholding tax, if any.




2.2.4 Income tax


2.2.5 Expenses


Management Fee - 1.5% of Net Asset Value of the FundTrustee Fee - 0.25% of Net Asset Value of the FundRegistrar Fee - 0.25% of Net Asset Value of the Fund







60


2.3 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS


Management considers credit, liquidity and market risk and assesses the impact on valuation of investments when determining the fair value. Following are the key sources of estimation uncertainty at the reporting date that has signi�cant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next �nancial year.

a) Fair value of securities not quoted in an active market and over the-counter derivative instruments

Management uses its judgment in determining the appropriate valuation technique for �nancial instruments that are not quoted in an active market. Valuation techniques commonly used by market practitioners are applied. Other �nancial instruments are valued using a discounted cash �ow analysis based on the assumptions supported, where possible, by observable market prices or rates.










The fund’s principal �nancial assets comprise investments in trading securities, repurchase agreements, commercial papers, �xed deposits and cash at bank. The main purpose of these �nancial instruments is to generate a return on the investment made by Unit Holders. The fund’s principal �nancial liabilities comprise amounts attributable to Unit Holders, which are the amounts owed to Unit Holders of the fund. The fund also has other �nancial instruments such as receivables and payables which arise directly from its operations.


61


In accordance with LKAS 39 Financial Instruments: Recognition and Measurement, the fund’s bank balance, repurchase agreements, �xed deposits and commercial papers are classi�ed as ‘loans and receivables’ and valued at amortized cost. Trading securities are classi�ed as ‘held for trading’, meaning they are valued at fair value through pro�t or loss. Amounts attributable to Unit Holders are classi�ed as ‘other �nancial liabilities’ and are carried at the redemption amount being net asset value. Payables are designated as ‘other �nancial liabilities’ at amortized cost.


Risks arising from holding �nancial instruments are inherent in the fund’s activities, and are managed through a process of ongoing identi�cation, measurement and monitoring. The fund is exposed to credit risk, market risk, and liquidity risk.

Financial instruments of the fund comprise investments in trading securities for the purpose of generating a return on the investment made by Unit Holders, in addition to cash at bank, and other �nancial instruments such as receivables and payables, which arise directly from its operations.

The Manager is responsible for identifying and controlling the risk that arise from these �nancial instruments. The Manager agrees policies for managing each of the risks identi�ed below.

The risks are measured using a method that re�ects the expected impact on the statement of comprehensive income and statement of �nancial position of the fund from reasonably possible changes in the relevant risk variables. Information about these risk exposures at the reporting date, measured on this basis, is disclosed below.

The Manager also monitors information about the total fair value of �nancial instruments exposed to risk, as well as compliance with established investment mandate limits. These mandate limits re�ect the investment strategy and market environment of the fund, as well as the level of risk that the fund is willing to accept, with additional emphasis on selected industries. This information is prepared and reported to relevant parties within the Manager on a regular basis as deemed appropriate, including the Fund manager, other key management, Groups’ integrated risk management committee of the Manager, and ultimately the Trustees of the fund.


(c) Credit risk

Credit risk is the risk that the counterparty to the �nancial statement will fail to discharge an obligation and cause the Fund to incur a �nancial loss.

The Fund’s exposure to credit risk from its �nancial assets arises from default of the counterparty, with the current exposure equal to the fair value of these instruments as detailed below. It is the fund’s policy to enter into �nancial instruments with reputable counterparties. The details are as follows

Counter Party Credit Rating Rating AgencyAsia Capital Plc* Unrated -

*As per SEC Directive investments in companies that do not have a rating is limited to a maximum 10% of NAV

Risk concentration of credit risk exposure:Concentration of credit risk is managed by counterparty and by market sector. The fund is also subject to credit risk on its bank balance and receivables. The credit risk exposure on these instruments is not deemed to be signi�cant.


62


The fund’s maximum exposure to credit risk can be analyzed as follows: 2014 2013 Rs. 000 Rs. 000 NAMAL Growth Fund - Investments Conservative 26,100 9,758Balanced - 10,015Growth 253,258 224,794

(d) Market risk

Market risk represents the risk that the value of the fund’s investments portfolios will �uctuate as a result of changes in market prices.

This risk is managed by ensuring that all investment activities are undertaken in accordance with established mandate limits and investments strategies. As such, Unit Holders can manage this risk through their choices of which investment portfolios to participate in.

The Fund uses a range of di�erent fund managers for investment assets. Where a Unit Holder is invested in more than one investment portfolio, this reduces the impact of a particular manager underperforming. Within the underlying investment portfolio, diversi�cation is achieved at a number of levels. The diversi�ed portfolios are invested across a range of investment sectors. Within each sector of the diversi�ed portfolios, the fund managers invest in a variety of securities.

Price risk


The table below shows the impact on the statement of comprehensive income and statement of �nancial position due to a reasonably possible change in the price of the Fund’s investment in trading securities in note 5, with all other variables held constant:

31 March 2014


Rs. 000



Rs. 000

31 March 2013


Rs. 000




+10%-10%

24,062 24,062 22,284(24,062) (24,062) (22,284)

22,284(22,284)

The above �gures are calculated across the entire investment portfolio on an annual basis. There is a corresponding change to the fair value of trading securities within the statement of �nancial position.

Interest rate risk


The fund’s exposure to interest rate risk primarily arises from changes in interest rates applicable to the balance held at the bank and the listed debentures.


63




The fund is not exposed to foreign exchange risk due to trading securities denominated in Sri Lankan Rupees.

(e) Liquidity risk


Due to the nature of a unit trust, it is unlikely that a signi�cant number of Unit Holders would exit at the same time. However, to control liquidity risk, the Fund investments in �nancial instruments, which under normal market conditions are readily convertible to cash. In addition, the fund invests within established limits to ensure there is no concentration of risk.

Payables have no contractual maturities but are typically settled within �ve market days. Receivables outstanding at balance date are due to be settled within seven market days of balance date. Due to the short term nature of these �nancial instruments, carrying value approx-imates fair value. The e�ect of discounting is not signi�cant as there is little di�erence between undiscounted and discounted cash �ows.


64



Quoted equity securities (4.1) 240,619,127 222,836,447Debt securities - quoted debentures (4.2) 13,094,522 1,957,165

253,713,650 224,793,612

4.1 Quoted equity securitiesCost as at 31 March 208,125,075 203,696,677 Appreciation of market value quoted equity securities 32,494,052 19,139,770 Market Value as at 31 March 240,619,127 222,836,447

2014 20134.1.1 Company Number Market Holdings Number Market Holdings

of Value as a % of of Value as a % of Shares Net Asset Shares Net Asset

Rs. Value Rs. ValueBanks, Finance and InsuranceCentral Finance Company PLC - - - 103,333 18,599,940 7%

Commercial Bank of Ceylon PLC - Non Voting - - - 29,920 2,899,248 1%Commercial Bank of Ceylon PLC -Voting - - - 332,500 37,572,500 15%People's Leasing & Finance Company PLC 379,600 5,428,280 2% 158,100 2,071,110 1%Nations Trust PLC 110,000 7,139,000 2% - - - Sampath Bank PLC 200,000 36,420,000 13% - - - Union Bank of Colombo PLC - - - - - -

48,987,280 17% 61,142,798 24%

Beverages, Food and TobaccoLanka Milk Foods PLC 20,000 2,142,000 1% - - - Distilleries Company of Sri Lanka PLC - - - 100,000 16,650,000 7%Lion Brewery Ceylon PLC - - - 100,000 33,300,000 13%Renuka Agri Foods PLC 420,000 1,302,000 0% 420,000 1,722,000 1%

3,444,000 1% 51,672,000 21%

Chemicals and Pharmaceuticals CIC Holdings PLC - - - 1,000 61,000 0%

- - 61,000 0%

Health Care Ceylon Hospitals PLC (Durdans) Voting 100,763 11,587,745 4% 100,763 10,076,300 4%Ceylon Hospitals PLC (Durdans) - Non Voting 54,360 4,185,720 1% 54,360 4,082,436 2%Asiri Hospitals PLC 2,611,000 57,964,200 20% 2,200,000 25,080,000 10%

73,737,665 25% 39,238,736 16%

Hotels and TravelsHotel Services (Ceylon) PLC 392,700 5,026,560 2% 392,700 5,262,180 2%

5,026,560 2% 5,262,180 2%

ManufacturingACL Cables PLC 171,653 10,470,833 4% 121,700 7,971,350 3%Tokyo Cement Company Lank PLC - Voting 400,000 14,480,000 5% 80,000 1,400,000 1%

Tokyo Cement Company Lank PLC - Non Voting 488,000 14,152,000 5% - - - Royal Ceramic PLC 150,000 11,895,000 4% - - - Kelani Tyres PLC 50,400 2,630,880 1% - - - Alumex PLC 142,800 2,027,760 1% - - -

55,656,473 20% 9,371,350 4%

PlantationKegalle Plantations PLC - - - 50,000 5,600,000 2%Horana Plantations PLC - - - 75,000 1,987,500 1%

- - 7,587,500 3%

Investment TrustsRenuka Holdings PLC 197,403 6,218,195 2% 197,403 6,119,493 2%

6,218,195 2% 6,119,493 2%


65


4. FINANCIAL ASSETS - HELD FOR TRADING (contd..)2014 2013

4.1.1 Company (Contd…) Number Market Holdings Number Market Holdingsof Value as a % of of Value as a % of

Shares Net Asset Shares Net AssetPower and Energy Rs. Value Rs. Value

Laugfs Gas PLC 109,173 3,548,123 1% - - - Lanka IOC PLC 1,050,000 40,425,000 14% - - -

43,973,123 15% - -

TelecommunicationDialog Axiata PLC - - - 500,000 4,500,000 2%

- - 4,500,000 2%

Construction & EngineeringAccess Engineering PLC 50,000 1,125,000 0% - - - MTD Walkers 81,423 2,450,832 1% - - -

3,575,832 1% - -

Total value of quoted equity securities in (At Market Value) 240,619,127 83% 222,836,447 89%

4.2 Quoted debenturesCost Market Holding as a Cost Market Holding as a

Value % of Net Value % of Net Rs. Rs. Asset Value Rs. Rs. Asset Value

Lanka Orix Leasing Company PLC 2,000,000 2,080,025 1% 2,000,000 1,957,165 1%Lion Brewary PLC 5,000,000 5,512,765 2% - - - Haylys PLC 5,000,000 5,501,732 2% - - -

12,000,000 13,094,522 5% 2,000,000 1,957,165 1%

4.3 Net realised gains / (losses)on �nancial assets held for trading 2014 2013Rs. Rs.

Equity securitiesProceeds on sale of equity shares 196,529,633 25,640,281 Average cost of equity shares sold (163,279,078) (29,459,450)

33,250,554 (3,819,169)

4.4 Net change in unrealised gains on �nancial assets held for tradingEquity securities 13,354,281 24,634,595

Debt securities - quoted debentures 791,844 80,378 14,146,125 24,714,973

5. FINANCIAL ASSETS - LOANS AND RECEIVABLESCarrying Holding as a Carrying Holding as a

Value % of Net Value % of Net Rs. Asset Value Rs. Asset Value

5.1 Investments in commercial papersAsia Capital PLC - - 10,015,096 4%

- - 10,015,096 4%5.2 Repurchase agreements

First Capital Treasuries Limited - - 5,354,846 2%NSB Asset Management Limited - - 4,402,821 2%Wealth Trust Securities Limited 14,217,687 5% - - Capital Alliance Limited 11,882,184 4% - -

26,099,872 9% 9,757,667 4%

26,099,872 9% 19,772,763 8%

2014 2013

2014 2013


66


6. FAIR VALUE OF FINANCIAL INSTRUMENTS

Determination of fair value and fair value hierarchy

SLFRS 7 Financial Instruments: Disclosures require fair value measurements to be disclosed by the source of inputs, using a three level hierarchy. The hierarchy for measuring fair value consists of Levels 1 to 3:

Level 1 – An investment in a fund is classi�ed in Level 1 of the hierarchy when that investment is quoted in an active market and measured at the unadjusted quoted price at the reporting date.

Level 2 – An investment in a fund is classi�ed in Level 2 of the hierarchy when that investment is measured using inputs that are directly observable at the reporting date.

Level 3 – An investment in a fund is classi�ed in Level 3 of the hierarchy when the investment is measured using unobservable inputs at the reporting date.

The following table shows an analysis of �nancial instruments recorded at fair value by level of the fair value hierarchy:



Quoted equity investments 240,619,127 - - 240,619,127 Quoted debentures - 13,094,522 - 13,094,522

As at 31 March 2013


Quoted equity investments 222,836,447 - - 222,836,447 Quoted debentures - 1,957,165 - 1,957,165

7 ACCRUED INCOME AND OTHER RECEIVABLES 2014 2013Rs. Rs.

Dividend receivable 1,436,051 1,411,889 Receivable on unit creations 56,803 153,329

1,492,853 1,565,218

8 ACCRUED EXPENSES 2014 2013Rs. Rs.

Fund management and registrar fee payable 412,696 370,681 Trustee fee payable 64,711 59,307 Audit fee 221,536 174,720 Payable on unit redemptions - 187,662 Other payable - -

698,942 792,370


67


9. INVESTMENT INCOME 2014 2013Rs. Rs.

9.1 Dividend income 6,506,388 5,732,365

9.2 Interest incomeInterest on Treasury bill repurchase agreements (9.2.1) 2,551,399 1,719,651 Interest on �xed deposits 971,741 41,622 Interest on commercial papers 811,966 3,877,990 Interest on debentures 1,296,699 234,019 Interest on savings account 61,404 31,289

5,693,210 5,904,571

9.2.1 Interest income on Treasury bill repurchase agreements has been recognised gross of notional taxes.

10. TAXATION 2014 2013Rs. Rs.

10.1 Tax expense for the year - 36,128 - 36,128

10.2

Operating pro�t before tax 49,703,255 27,190,653

Aggregate allowable expenses/ net gains (43,348,474) (20,902,471) Allowable tax credits (7,569,087) (5,732,365) Total statutory income (1,214,307) 555,817

Utilisation of previously unrecognized tax losses - (194,536) Taxable income (1,214,307) 361,281

Income tax at the rate of 10% (2013 -10%)- 36,128

Carried forward unutilised tax losses 5,476,368 5,670,904 Add: Incurred during the year 1,214,307 - Less: Tax losses claimed - (194,536) Brought forward unutilized tax losses 6,690,675 5,476,368

Income tax expense reported in the statement of Comprehensive Income

A reconciliation between the tax expense and the product of taxable pro�t multiplied by the statutory tax rate isas follows:


68


11. CONTINGENCIES There are no material contingencies existing as at the reporting date that require adjustments to or disclosures in the Financial Statements. 12. POST BALANCE SHEET EVENTS There have been no material events occurring after the reporting date that require adjustments to or disclosure on the Financial Statements. 13. CAPITAL COMMITMENTS The Fund does not have signi�cant capital commitments at the reporting date. 14. UNITS IN ISSUE AND UNIT PRICE Units in issue and deemed to be issue as at 31 March 2014 is 2,594,368.1 (2013 - 2,773,776.0) and the creation and redemption price were Rs. 114.96 and Rs. 107.41 (2013 - Rs. 96.28 and Rs. 89.87) respectively.

15. RELATED PARTY TRANSACTIONS 15.1 The following have been identi�ed as related parties of NAMAL Growth Fund as at 31 March 2014 in accordance with LKAS 24 - "Related Party Disclosures"



DFCC Bank



Fund has paid Rs. 4,632,768/- as management & registrar fees during the year. The fee payable as at 31 March 2014 is Rs. 412,696/-.

Fund has paid Rs. 727,597/- as trustee fees during the year. The fee payable as at 31 March 2014 is Rs. 64,711/-.

"DFCC holds 30% of equity of National Asset Management Limited. Value of the units held by DFCC Bank in NAMAL Growth Fund as at 31 March 2014 is Rs. 16,648,379/-.

Union Bank of Colombo PLC holds 51% of equity of National Asset Management Limited.

Ennid Capital (Private) Limited holds 19% of equity of National Asset Management Limited from 24th February 2011.




Acuity Stock Brokers (Pvt) Ltd. Rs. 4,497,080/- worth of purchases were made through Acuity Stock Brokers (Pvt) Ltd. which is a subsidiary of Acuity Partners (Pvt)Ltd. Brokerage to the Acuity Stock Brokers (Pvt) during the year is Rs. 28,781/-. Acuity Partners (Pvt) Ltd. is a joint venture between DFCC Bank and Hatton National Bank PLC.

Mr. T. W. De Silva

Mr. Avancka Herat

69

Income Fund


70


Investment StrategyNAMAL Income Fund (NIF) obtains higher yields by investing in short to medium term government securities, high grade corporate debt, asset back securities and bank deposits. Investments are subject to a detailed analysis to manage duration, ensure credit quality and investor protection. The Fund has a signi�cant tax advantage for corporate investors.

Asset Allocation The Fund had 53% invested in Government Securities and 47% in Corporate Debt at end of March 2014. The fund maintains a minimum 50% exposure to government securities with the remainder in high grade (rated A- and above) corporate debt instruments.

Performance ReviewThe Fund generated a tax-free return of 9.38% for the year ended 31st March 2014 which corresponds to a tax equivalent yield of 13.03% for corporate investors, who are liable to pay tax rate of 28%.

The Fund paid dividends of Rs 0.55 per unit for FY2014 bringing the cumulative dividends paid to Rs 17.83 since inception.



71


Fund Performance as at 31st March 20142

NAMAL Income Fund1

91-day Treasury Bill3

12 months

9.38%

8.10%

24 months

19.31%

18.84%

36 months

26.30%

26.70%

*Note

1) Performance up to 31st March 2014 as published by the Unit Trust Association of Sri Lanka. Fund returns are adjusted for dividends


3) Treasury Bill rates published by Central Bank of Sri Lanka

Fig 2: Asset Allocation

Fig 3: Maturity Pro�le

Treasury Bill30.4%

Repo9.8%

Debentures22.8%

Commercial Paper24.0%

Treasury Bond13.0%

More than 1 year21.2%

6 to 9 months0.0%

9 months to 1 year3.2%

3 to 6 months17.0%

Less than 3 months58.5%

ADBT/CPEG/KWS/KAS

INDEPENDENT AUDITORS’ REPORTTO THE UNIT HOLDERS OF NAMAL INCOME FUND


We have audited the accompanying �nancial statements of NAMAL Income Fund which comprise the statement of �nancial position as at 31 March 2014 and statement of comprehensive income, statement of changes in unit holder’s funds, statement of cash �ows, for the year then ended and a summary of signi�cant accounting policies and other explanatory notes.


National Asset Management Limited, the Managers of the Unit Trust are responsible for the preparation and fair presentation of these �nancial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implement-ing and maintaining internal control relevant to the preparation and fair presentation of �nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making account-ing estimates that are reasonable in the circumstances.





Opinion




23 June 2014Colombo


72





73

NAMAL Income FundSTATEMENT OF FINANCIAL POSITIONAs at 31 March 2013

-



Cash and cash equivalents 354,084 795,726 Financial assets - Held for trading 4 208,415,653 183,467,618 Financial assets - Loans and receivable 5 106,594,503 171,230,156 Accrued income and other receivables 7 - 7,453 Income tax recoverable 6,407,938 5,827,191 Total assets 321,772,178 361,328,144


LIABILITIESAccrued expenses 8 739,163 763,956 Total liabilities (Excluding net assets attributable to Unit Holders) 739,163 763,956

UNIT HOLDERS' FUNDSNet assets attributable to Unit Holders 321,033,015 360,564,188

321,772,178 361,328,144


23 June 2014Colombo

………………………………..

Trustee

…………………………

Director

Management Company

Director

…………………………

Management Company

Di t

………………………… …………………………


74

NAMAL Income FundSTATEMENT OF COMPREHENSIVE INCOMEYear ended 31 March 2014



INVESTMENT INCOMEInterest income 9.1 39,759,571 44,226,454Net change in unrealised gains on �nancial assets held for trading 4.4 3,393,945 294,643Total investment income 43,153,515 44,521,097

EXPENSESManagement and Registrar fees (5,075,942) (5,585,866) Trustee and Custodian fees (425,600) (425,600) Audit fee and expenses (287,840) (294,999) Other expenses (252,898) (92,016) Total operating expenses (6,042,280) (6,398,481)


FINANCE COSTInterest expense (370) (13,696)






75

NAMAL Income FundSTATEMENT OF CHANGES IN UNITHOLDERS' FUNDSYear ended 31 March 2014


Notes 2014 2013Rs. Rs.

UNIT HOLDERS' FUNDS AT THE BEGINNING OF THE YEAR 360,564,188 299,952,263

Increase in net assets attributable to unit holders 34,183,796 34,327,499



Income distribution to unit holders 11 (15,539,151) (25,747,255)

UNIT HOLDERS' FUNDS AT THE END OF THE YEAR 321,033,015 360,564,188


76

NAMAL Income FundSTATEMENT OF CASH FLOWS Year ended 31 March 2014


2014 2013Rs. Rs.

Cash Flows from Operating ActivitiesInterest received 36,538,951 38,587,293 Proceeds from sale of investments 2,309,615,464 1,374,138,750 Payments on purchase of investments (2,265,113,056) (1,428,855,051) Taxation paid (1,708,043) (3,059,720) Operating expenses paid (6,067,073) (6,369,079) Net Cash Generated from/(Used in) Operating Activities 73,266,244 (25,557,807)

Cash Flows from Financing ActivitiesIncome Distribution (15,539,151) (25,747,255) Amount received on unit creations 85,024,078 110,220,835 Amount paid on unit redemption (143,192,443) (58,189,207) Interest paid on borrowings (370) (13,696) Proceeds from Borrowings 1,500,000 35,800,000 Repayment of Borrowings (1,500,000) (35,800,000) Net Cash (Used in)/Generated from Financing Activities (73,707,886) 26,270,677

Net Increase in Cash and Cash Equivalents (441,642) 712,870 Cash and Cash Equivalents at the beginning of the year 795,726 82,856 Cash and Cash Equivalents at the end of the year 354,084 795,726


77


NAMAL Income Fund is an open ended unit trust fund approved by the Securities and Exchange Commission of Sri Lanka. The fund was launched in the month of 1st March 1998.


The investment objective of the fund is to provide investors with a semi-annual income at low level of risk through prudently investing in �xed income securities.






These �nancial statements have been prepared in accordance with Sri Lanka Accounting Standards comprising SLFRSs and LKASs (hereaf-ter "SLFRS") which are e�ective from 01 January 2012.


The accounting policies have been consistently applied by the Fund with those of the previous �nancial year in accordance with LKAS 01 Presentation of Financial Statements. Further, comparative information is reclassi�ed wherever necessary to conform to the current presentation.







NAMAL Income Fund NOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2014


78



After initial measurement, loans and receivables are subsequently measured at amortised cost using the e�ective interest rate, less allowance for impairment. The amortisation is included in the “interest income” in the statement of comprehensive income. The losses arising from impairment is recognised in the statement of comprehensive income in “credit loss expense”.





Financial assets, held for trading are recorded in the statement of �nancial position at fair value. Changes in fair value are recognised in the ‘net change in �nancial assets held for trading’ in the statement of comprehensive income. Interest income or expense is recorded in “investment income’ according to the terms of the contract. Included in this classi�cation are Treasury bills, Treasury bonds and quoted debentures.






A �nancial asset is derecognised when,

1) The rights to receive cash �ows from the asset have expired.2) The fund has transferred its rights to receive cash �ows from the asset or has assumed an obligation to pay the received cash �ows in full without material delay to a third party under a ‘pass–through’ arrangement; and either,• The fund has transferred substantially all the risks and rewards of the asset or• The fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.



79


Revenue is recognised to the extent that it is probable that the economic bene�ts will �ow to the fund and the revenue can be reliably measured.

Interest income

For all �nancial instruments measured at amortised cost, interest income is recorded using the e�ective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the �nancial instrument or a shorter period, where appropriate, to the net carrying amount of the �nancial asset.

Interest income from repurchase agreements, treasury bills and treasury bonds are recognised at gross of notional tax credit or withhold-ing tax.




2.2.4 Income tax


2.2.5 Expenses

The management participation fees of the fund is as follows:

Management Fee - 1.25% of Net Asset Value of the FundTrustee Fee - A �at fee of Rs. 200,000 per annumRegistrar Fee - 0.25% of Net Asset Value of the Fund


Payables are initially recognised at fair value, which is the fair value of the consideration to be paid in the future for service received, whether or not billed to the fund, and subsequently at amortised cost.






80



Management considers credit, liquidity and market risk and assesses the impact on valuation of investments when determining the fair value. Following are the key sources of estimation uncertainty at the reporting date that has signi�cant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next �nancial year.

a) Fair value of securities not quoted in an active market and over the-counter derivative instruments

Management uses its judgment in determining the appropriate valuation technique for �nancial instruments that are not quoted in an active market. Valuation techniques commonly used by market practitioners are applied. Other �nancial instruments are valued using a discounted cash �ow analysis based on the assumptions supported, where possible, by observable market prices or rates.










The fund’s principal �nancial assets comprise investments in treasury bills, repurchase agreements commercial papers, treasury bonds, quoted debentures and cash at bank. The main purpose of these �nancial instruments is to generate a return on the investment made by Unit Holders. The fund’s principal �nancial liabilities comprise amounts attributable to Unit Holders, which are the amounts owed to Unit Holders of the fund. The fund also has other �nancial instruments such as receivables and payables which arise directly from its operations.



81

In accordance with LKAS 39 Financial Instruments: Recognition and Measurement, the fund’s bank balance, commercial papers, repurchase agreements, �xed deposits and trust certi�cates are classi�ed as ‘loans and receivables’ and are valued at amortised cost. The fund’s quoted debentures, treasury bills and treasury bonds are classi�ed as “held for trading” and valued at fair value.

Amounts attributable to Unit Holders are classi�ed as ‘other �nancial liabilities’ and are carried at the redemption amount being net asset value. Payables are designated as ‘other �nancial liabilities’ at amortised cost.



Financial instruments of the fund comprise investments in commercial papers, �xed deposits, quoted debentures, treasury bills and repurchase agreements for the purpose of generating a return on the investment made by Unit Holders, in addition to cash at bank, and other �nancial instruments such as receivables and payables, which arise directly from its operations.

The Manager is responsible for identifying and controlling the risk that arise from these �nancial instruments. The Manager agrees policies for managing each of the risks identi�ed below.


The Manager also monitors information about the total fair value of �nancial instruments exposed to risk, as well as compliance with established investment mandate limits. These mandate limits re�ect the investment strategy and market environment of the fund, as well as the level of risk that the fund is willing to accept, with additional emphasis on selected industries. This information is prepared and reported to relevant parties within the Manager on a regular basis as deemed appropriate, including the fund manager, other key management, Group’s integrated risk management committee of the Manager, and ultimately the Trustees of the fund.


(c) Credit risk

Credit risk is the risk that the counterparty to the �nancial statement will fail to discharge an obligation and cause the fund to incur a �nancial loss.

The fund’s exposure to credit risk from its �nancial assets arises from default of the counterparty, with the current exposure equal to the fair value of these instruments as detailed below. It is the fund’s policy to enter into �nancial instruments with reputable counterparties. The details are as follows;

Counter Party Credit Rating Rating Agency

Central Finance PLC A+ Fitch Rating Softlogic Holdings PLC BBB+ Fitch Rating



82


The fund’s maximum exposure to credit risk can be analysed as follows: 2014 2013 Rs. 000 Rs.000 NAMAL Income Fund - Investments Conservative - Treasury bills, Treasury bonds & Repurchase agreements 167,510 180,641 Balanced - Commercial papers & �xed deposits 75,571 168,185 Growth - Quoted debentures 71,928 5,872

(d) Market risk



The fund uses a range of di�erent fund managers for investment assets. Where a Unit Holder is invested in more than one investment portfolio, this reduces the impact of a particular manager underperforming. Within the underlying investment portfolio, diversi�cation is achieved at a number of levels. The diversi�ed portfolios are invested across a range of investment sectors. Within each sector of the diversi�ed portfolios, the fund managers invest in a variety of securities.

Price risk

Price risk is the risk that the fair values of the fund’s investment in trading securities in �uctuate as a result of changes in the price of the fund’s investments in trading securities. Price risk exposure arises from the fund’s investment portfolios.

NAMAL Income Fund is not authorized to invest in equities and is not subject to price risk.

Interest rate risk


The fund’s exposure to interest rate risk primarily arises from changes in interest rates applicable to quoted debentures, Treasury bills and Treasury bonds since they are valued at fair value and the balance held at the bank.






83

(e) Liquidity risk



Payables have no contractual maturities but are typically settled within �ve market days. Receivables outstanding at balance date are due to be settled within seven market days of balance date. Due to the short term nature of these �nancial instruments, carrying value approx-imates fair value. The e�ect of discounting is not signi�cant as there is little di�erence between undiscounted and discounted cash �ows.



84

NAMAL Income FundNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2014


Debt securities - Government Treasury bills (4.1) 95,637,690 177,595,957 Debt securities - Quoted debentures (4.2) 71,928,313 5,871,661 Debt securities - Government Treasury bonds (4.3) 40,849,650 -

208,415,653 183,467,618

4.1 Treasury bills 2014 2013Rs. Rs.

Government Treasury bills 95,637,690 177,595,957 95,637,690 177,595,957

4.2 Quoted debenturesCost Market Holding as a Cost Market Holding as a

Value % of Net Value % of Net Rs. Rs. Asset Value Rs. Rs. Asset Value

Hatton National Bank PLC 6,334,300 7,462,721 2% - - - Central Finance Company PLC 4,600,000 5,055,074 2% - - - Lion Brewary PLC 3,000,000 3,292,933 1% - - - Lion Brewary PLC 3,000,000 3,315,551 1% - - - Lion Brewary PLC 4,000,000 4,417,045 1% - - - Hayleys PLC 10,000,000 11,003,464 3% - - - Central Finance Company PLC 3,430,000 3,711,310 1% - - - Merchant Bank of Sri lanka PLC 5,000,000 5,404,421 2% - - - NDB Bank PLC 5,870,000 6,195,063 2% - - - Nations Trust Bank PLC 15,000,000 15,830,656 5% - - - Lanka Orix Leasing Company PLC 6,000,000 6,240,074 2% 6,000,000 5,871,661 1%

66,234,300 71,928,313 22% 6,000,000 5,871,661 1%

4.3 Treasury bonds 2014 2013Rs. Rs.

Government Treasury bonds 40,849,650 - 40,849,650 -

2014 20134.4 Net change unrealised gains on �nancial assets held for trading Rs. Rs.

Debt securities - Quoted debentures 3,315,050 234,103 Debt securities - Government Treasury bonds 25,489 (61,765) Debt securities - Government Treasury bills 53,405 122,305

3,393,945 294,643

5. FINANCIAL ASSETS - LOANS AND RECEIVABLESCarrying Holding as a Carrying Holding as a

5.1 Investments in commercial papers Value % of Net Value % of Net Rs. Asset Value Rs. Asset Value

Asia Capital PLC - - 21,872,027 6%LB Finance PLC - - 18,772,988 5%Hayleys PLC - - 36,491,221 10%Central Finance PLC 32,741,692 10% - - Softlogic Holdings PLC 42,829,879 13% 37,342,905 10%

75,571,571 23% 114,479,141 32%

5.2 Repurchase agreements

First Capital Treasuries Limited 31,022,932 10% 3,045,000 1%31,022,932 10% 3,045,000 1%

5.3 Placements with other banks - �xed deposits

Union Bank of Colombo PLC - - 53,706,015 15%- - 53,706,015 15%

106,594,503 33% 171,230,156 48%

2014 2013

2014 2013


85





Financial assets - Held for trading

Quoted debentures - 71,928,313 - 71,928,313 Government Treasury bills 95,637,690 - - 95,637,690 Government Treasury bonds 40,849,650 - - 40,849,650

As at 31 March 2013


Quoted debentures - 5,871,661 - 5,871,661 Government Treasury bills 177,595,957 - - 177,595,957

7. ACCRUED INCOME AND OTHER RECEIVABLES 2014 2013

Rs. Rs.

Receivable on unit creations - 7,453 - 7,453


Fund manager and Registrar fee payable 408,405 455,598 Trustee and Custodian fee payable 36,147 36,147 Audit fee 246,400 224,000 Other payable 48,211 48,211

739,163 763,956


86


9. INVESTMENT INCOME2014 2013Rs. Rs.

9.1 Interest income on,Interest on Treasury bill repurchase agreements (9.2.1) 1,715,974 10,121,868 Interest on Treasury bills (9.2.1) 15,529,309 11,398,618 Interest on Treasury bonds (9.2.1) 746,445 219,954 Interest on �xed deposits 494,029 4,542,007 Interest on trust certi�cates - 2,341,124 Interest on commercial papers 16,051,826 14,827,620 Interest on debentures 5,148,229 746,235 Interest on saving accounts 73,758 29,028

39,759,571 44,226,454

9.2.1


10.1 Tax expense for the year 2,927,069 3,781,421 2,927,069 3,781,421

10.2

2014 2013Rs. Rs.

Operating pro�t before tax 37,110,865 38,108,920 Aggregate allowable expenses/ net gains (3,393,945) (294,710) Allowable tax credits (4,446,229) - Total stutory income 29,270,692 37,814,210

Utilisation of previously unrecognised tax losses - Taxable income 29,270,692 37,814,210

Income tax expense reported in the Statement of Comprehensive Income 2,927,069 3,781,421

11. DISTRIBUTION

Rs. Rs.

0.35 29 July 2013 29,124,343.90 10,193,520

0.2 3 March 2014 26,728,155.30 5,345,631

Interest income on Treasury bill repurchaseagreements,Treasury bills and Treasury bondshave beenrecognisedgross ofnotional taxes.

Total dividend

Dividend per Unit No. of units in issue

Income tax at the rate of 10% (2013-10%)

Date of declaration

A reconciliation betweenthe tax expenseand the product of taxable pro�t multiplied by the statutory tax rate isas follows:


87


12. CONTINGENCIES

There are no material contingencies existing as at the reporting date that require adjustments to or disclosures in the Financial Statements. 13.EVENTS AFTER THE REPORTING DATE. There have been no material events occurring after the reporting date that require adjustments to or disclosure on the Financial Statements. 14. CAPITAL COMMITMENTS The fund does not have signi�cant capital commitments at the reporting date. 15. UNITS IN ISSUE AND UNIT PRICE Units in issue and deemed to be in issue as at 31 March 2014 is 26,807,079.4 (2013 - 31,880,742.4). The creation price was Rs. 11.74 (2013 - 11.23) per unit and cancellation price was Rs. 11.61 (2013 - 11.12) per unit after deducting an exit fee of Rs. 0.11 (2013 - Rs. 0.11) as at 31 March 2014.



DFCC Bank



Fund has paid Rs. 5,123,135/- as management & registrar fees during the year. The fee payable as at 31 March 2014 is Rs. 408,405/-.

Fund has paid Rs. 425,600/- as trustee & custodian fees during the year. The fee payable as at 31 March 2014 is Rs.36,147/-

DFCC holds 30% of equity of National Asset Management Limited. Value of the units held by DFCC Bank in NAMAL Income Fund as at 31 March 2014 is Rs. 164,325,846/-.

Union Bank of Colombo PLC holds 51% of equity of National Asset Management Limited. The value of �xed deposit investments during the year with Union Bank of Colombo PLC is Rs. 52,266,885/-. Interest received during the year is Rs. 444,627/-. Investments in �xed deposits as of 31 March 2014 is Rs. Nil.

Ennid Capital (Pvt) Ltd. holds 19% of equity of National Asset Management Limited.



Mr. Alexis Lovell Mr. Anil Amarasuriya

Mr. Avancka Herat

88

Money Market Fund


89


Investment Strategy

NAMAL Money Market Fund (NMMF) invests exclusively in short term government securities. The Fund provides a highly liquid cash management solution for investors. The Fund has a signi�cant tax advantage for corporate investors.

Asset Allocation The Fund had 76% invested in Treasury Bills & Bonds and 24% in Repos at end March 2014. All investments were less than one year to maturity.

Performance ReviewThe Fund generated a tax-free return of 7.92% for the year ended 31st March 2014 which corresponds to a tax equivalent yield of 11.00% for corporate investors, who are liable to a tax rate of 28%.

The Fund paid dividends of Rs 0.77 per unit for FY2014 bringing the cumulative dividends paid to Rs 9.29 since inception.



90





NAMAL Money Market Fund1

Overnight Repo2

3 months

7.01%

6.78%

6 months

7.54%

7.12%

12 months

7.92%

7.87%

*Note

1) Performance up to 31st March 2014 as published by the Unit Trust Association of Sri Lanka. Fund returns are adjusted for dividends

2) Overnight repo rates are based on transactions among commercial banks and primary dealers(Source: CBSL)

3) All returns are annualised

Treasury Bond30%

Repo24%

Treasury Bill46%

6 - 12 months8%

Less than 1 month45%

1 - 2 months0%

2 - 3 months24%

3 - 6 months23%


91

ADBT/CPEG/KWS/TIF

INDEPENDENT AUDITORS’ REPORTTO THE UNIT HOLDERS OF NAMAL MONEY MARKET FUND


We have audited the accompanying �nancial statements of NAMAL Money Market Fund which comprise the statement of �nancial position as at 31 March 2014 and statement of comprehensive income, statement of changes in unit holders’ funds, statement of cash �ows, for the year then ended and a summary of signi�cant accounting policies and other explanatory notes.


National Assets Management Limited, the Managers of the Unit Trust are responsible for the preparation and fair presentation of these �nancial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of �nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.





Opinion

In our opinion, so far as appears from our examination, the Fund maintained proper accounting records for the year ended 31 March 2014 and the �nancial statements give a true and fair view of the Fund’s �nancial position as at 31 March 2014 and its performance and cash �ows for the year then ended in accordance with Sri Lanka Accounting Standards.


These �nancial statements also comply with the requirements of Section 151(2) of the Companies Act No. 07 of 2007, Unit Trust Deed and Unit Trust code of the Securities and Exchange Commission of Sri Lanka.

28 May 2014Colombo





92

Namal Money Market FundSTATEMENT OF FINANCIAL POSITIONAs at 31 March 2014

28 May 2014

Colombo



Cash and cash equivalents 386,629 485,833 Financial assets - Held for trading 4 366,820,098 327,381,352 Financial assets - Loans and receivables 5 116,321,128 118,052,215 Income tax recoverable 4,860,392 4,536,198 Total assets 488,388,247 450,455,598


LIABILITIESAccrued expenses 7 427,772 343,908 Total Liabilities (Excluding net assets attributable to Unit Holders) 427,772 343,908

UNIT HOLDERS' FUNDSNet assets attributable to Unit Holders 487,960,475 450,111,690

488,388,247 450,455,598

These Financial Statements were approved by the Management Company, and adopted by the Trustees.- -

………………………………..

Trustee

…………………………

Director

Management Company

Director

…………………………

Management Company

Di t

………………………… …………………………


93

Namal Money Market FundSTATEMENT OF COMPREHENSIVE INCOMEYear ended 31 March 2014



INVESTMENT INCOMEInterest income 8 52,264,460 58,052,221

Net change in unrealised gains on �nancial assets held for trading 4.1 777,614 -

Total investment income 53,042,074 58,052,221

EXPENSESManagement and Registrar fees (1,580,529) (1,637,984) Trustee fees & Custodian fee (1,136,194) (1,107,569) Audit fee and expenses (351,479) (228,032) Bank charges (18,304) (17,629) Professional charges (62,093) - Other expenses (85,673) (160,847) Total operating expenses (3,234,271) (3,152,061)




Income tax expense 9.1 (4,902,252) (5,476,283)

PROFIT AFTER TAX 44,897,885 49,286,544



94

Namal Money Market FundSTATEMENT OF CHANGES IN UNITHOLDERS' FUNDSYear ended 31 March 2014


2014 2013Rs. Rs.





Income distribution to unit holders (38,458,048) (43,420,556)



95

Namal Money Market FundSTATEMENT OF CASH FLOWS Year ended 31 March 2014


2014 2013Rs. Rs.

Cash Flows from Operating ActivitiesInterest received 36,342,326 47,742,022 Proceeds from sale of investments 10,543,381,204 1,094,402,309 Payments on purchase of investments (10,564,708,873) (1,003,527,283) Taxation paid (4,436) (2,552) Operating expenses paid (8,052,659) (3,200,206) Net cash generated from operating activities 6,957,562 135,414,290

Cash Flows from Financing ActivitiesCash received on creation of units 218,495,318 262,676,729 Cash paid on redemption of units (187,086,369) (354,250,623) Income distribution (38,458,048) (43,420,556) Interest paid on borrowings (7,666) (137,333) Proceeds from borrowings 10,500,000 200,100,000 Repayment of borrowings (10,500,000) (200,100,000) Net cash used in �nancing activities (7,056,766) (135,131,783)

Net (Decrease) /Increase in cash and cash equivalents (99,204) 282,507 Cash and cash equivalents at the beginning of the year 485,833 203,326 Cash and Cash Equivalents at the end of the year 386,629 485,833


96


NAMAL Money Market Fund is an open ended unit trust fund approved by the Securities and Exchange Commission of Sri Lanka. The fund was launched on 10 September 2004.

The fund is managed by National Asset Management Limited, which is incorporated and domiciled in Sri Lanka. The registered o�ce of the management company is located at 7th Floor, Union Bank Head O�ce, No. 64, Galle Road, Colombo 03. The Trustee of the fund is Deutsche Bank AG having its place of business at No 86, Galle Road, Colombo 03.

The investment objective of the fund is to provide investors with current income in the short term, consisting of interest income, by investing in money market instruments such as, Government securities, asset back securities, bank deposits, repurchase agreements and corporate debt having maturities within one year, while providing liquidity to the investors.


2.1 Basis of Preparation


The �nancial statements have been prepared on the historical cost basis. The �nancial statements are presented in Sri Lankan rupees. The statement of �nancial position is presented broadly in order of a liquidity basis.


These �nancial statements have been prepared in accordance with Sri Lanka Accounting Standards (SLFRSs and LKASs) which are e�ective from 01 January 2012.

2.1.2 Comparative Information

This is funds’ �rst �nancial statements prepared in accordance with (SLFRSs/LKASs) and SLFRS 1 – First time Adoption of International Financial Reporting Standards has been applied.




All �nancial assets are initially recognized on the trade date, i.e. the date that the fund becomes a party to the contractual provisions of the instrument. This includes purchases of �nancial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.



NAMAL Money Market FundNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2014


97

2.2.1.3 Financial assets - loans and receivables

Loans and receivables are non derivative �nancial assets with �xed or determinable payments that are not quoted on an active market. Loan and receivables in the statement of �nancial position comprise of repurchase agreements and trust certi�cates.

After initial measurement, loans and receivable are subsequently measured at amortised cost using the e�ective interest rate, less allowance for impairment. The amortization is included in the “interest income” in the statement of comprehensive income. The losses arising from impairment is recognised in the statement of comprehensive income in “credit loss expense”.


2.2.1.4 Financial assets – held for trading

Financial assets held for trading are recorded in the statement of �nancial position at fair value. Changes in fair value are recognised in the ‘net change in net change in �nancial assets at fair value through pro�t loss’ in the statement of comprehensive income. Interest income or expense is recorded in “Investment income’ according to the terms of the contract. Included in this classi�cation are government treasury bills and bonds.


The fair value for �nancial instruments traded in active markets at the reporting date is based on their quotedmarket price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.








Revenue is recognised to the extent that it is probable that the economic bene�ts will �ow to the fund and the revenue can be reliably measured.



98

Interest Income

For all �nancial instruments measured at amortised cost, interest income is recorded using the e�ective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the �nancial instrument or a shorter period, where appropriate, to the net carrying amount of the �nancial asset.

Interest income from repurchase agreements and government treasury bills are recognised at gross of notional tax credit or withholding tax.


Cash and cash equivalents in the statement of �nancial position and statement of cash �ows comprise cash at bank.

2.2.4 Income tax

Current tax assets and liabilities for the current and prior year are measured at the amount expected to be recovered from or paid to the taxation authorizes. The tax rates and tax laws used to compute the amount are those that are enacted to substantively enacted, at the reporting date. The fund is liable to pay income tax at the rate of 10% in accordance with the Inland Revenue Act No10 of 2006.

2.2.5 Expenses


Management Fee - 0.25% of Net Asset Value of the FundRegistrar Fee - 0.05% of Net Asset Value of the FundTrustee Fee - 0.15% of Net Asset Value of the FundCustody Fee - Flat Fee of Rs. 240,000 per annum Management fees are detailed in the fund’s statement of comprehensive income. The Manager pays Trustee’s fees and custodian fees for services rendered on behalf of the fund to Trustees.




Unit Holders’ funds has been calculated as the di�erence between the carrying amounts of the assets and the carrying amounts of the liabilities, other than those due to Unit Holders as at the balance sheet date.

Units can be issued and redeemed based on the fund’s net asset value per unit, calculated by dividing the net assets of the fund calculated in accordance with the valuation guidelines issued by the Unit Trust Association of Sri Lanka and approved by the Securities and Exchange Commission of Sri Lanka, by the number of units in issue. Income not distributed is included in net assets attributable to unit holders.



99



Management considers credit, liquidity and market risk and assesses the impact on valuation of investments when determining the fair value. Following are the key sources of estimation uncertainty at the statement of

�nancial position date, that have signi�cant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next �nancial year.


2.3.2 Impairment losses on �nancial assets – loans and receivables








(a) Financial Instruments

The fund’s principal �nancial assets comprise investments in treasury bills, repurchase agreements and treasury bonds and cash at bank. The main purpose of these �nancial instruments is to generate a return on the investment made by Unit Holders. The fund’s principal �nancial liabilities comprise amounts attributable to Unit Holders, which are the amounts owed to Unit Holders of the fund. The fund also has other �nancial instruments such as receivables and payables which arise directly from its operations.



100

In accordance with LKAS 39 Financial Instruments: Recognition and Measurement, the fund’s bank balance, repurchase agreements and trust certi�cates are classi�ed as ‘loans and receivables’ and are valued at amortised cost .The fund’s treasury bills and treasury bonds are classi�ed as “held for trading” and valued at fair value.

Amounts attributable to Unit Holders are classi�ed as ‘other �nancial liabilities’ and are carried at the redemption amount being net asset value. Payables are designated as ‘other �nancial liabilities’ at amortised cost.



Financial instruments of the fund comprise investments in treasury bills and repurchase agreements, for the purpose of generating a return on the investment made by Unit Holders, in addition to cash at bank, and other �nancial instruments such as receivables and payables, which arise directly from its operations.


The risks are measured using a method that re�ects the expected impact on the Statement of Comprehensive Income and Statement of Financial Position of the fund from reasonably possible changes in the relevant risk variables. Information about these risk exposures at the reporting date, measured on this basis, is disclosed below.

The manager also monitors information about the total fair value of �nancial instruments exposed to risk, as well as compliance with established investment mandate limits. These mandate limits re�ect the investment strategy and market environment of the fund, as well as the level of risk that the fund is willing to accept, with additional emphasis on selected industries. This information is prepared and reported to relevant parties within the Manager on a regular basis as deemed appropriate, including the fund manager, other key management, Risk and Investment Committees, and ultimately the Trustees of the fund.


(c) Credit risk


The Fund’s exposure to credit risk from its �nancial assets arises from default of the counterparty, with the current exposure equal to the fair value of these instruments as detailed below. It is the fund’s policy to enter into �nancial instruments with reputable counterparties.

NAMAL Money Market Fund’s investments are only in Government securities.

Risk concentration of credit risk exposure :Concentration of credit risk is managed by counterparty and by market sector. The fund is also subject to credit risk on its bank balance and receivables. The credit risk exposure on these instruments is not deemed to be signi�cant.



101

The fund’s maximum exposure to credit risk can be analysed as follows:

2014 2013 Rs.000 Rs.000 NAMAL Money Market Fund Investments Conservative 483,141 445,433

(d) Market risk




Price risk

Price risk is the risk that the fair values of the fund’s investment in trading securities in �uctuate as a result of changes in the price of the Fund’s investments in trading securities. Price risk exposure arises from the fund’s investment portfolios.NAMAL Money Market Fund is not authorized to invest in equities and is not subject to price risk.

Interest rate risk


The Fund’s exposure to interest rate risk primarily arises from changes in interest rates applicable to treasury bills /treasury bonds since they are valued at fair value and the balance held at the bank.




(e) Liquidity risk

Liquidity risk is the risk that the Fund will encounter di�culty in raising funds to meet its obligation to pay Unit Holders.

Due to the nature of a unit trust, it is unlikely that a signi�cant number of Unit Holders would exit at the same time. However to control liquidity risk, the fund investments in �nancial instruments, which under normal market conditions are readily convertible to cash. In addition, the fund invests within established limits to ensure there is no concentration of risk.




102

Namal Money Market FundNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2014


Treasury bill 220,114,395 327,381,352 Treasury bond 146,705,703 -

366,820,098 327,381,352

4.1

Debt securities 777,614 - 777,614 -

5.

Carrying Holding as a Carrying Holding as aValue % of Net Value % of Net

Rs. Asset Value Rs. Asset Value

5.1 Repurchase agreements

First Capital Treasuries Limited 49,598,106 10% 118,052,215 26%Wealth Trust Securities Limited 19,960,973 4% - - Capital Alliance Limited 46,762,049 10% - -

116,321,128 24% 118,052,215 26%

116,321,128 24% 118,052,215 26%

Net change in unrealised gains on �nancial assets held for trading

FINANCIAL ASSETS - LOANS AND RECEIVABLES20132014

6. FAIR VALUE OF FINANCIAL INSTRUMENTS Determination of fair value and fair value hierarchy SLFRS 7 Financial Instruments: Disclosures require fair value measurements to be disclosed by the source of inputs, using a three level hierarchy. The hierarchy for measuring fair value consists of Levels 1 to 3: Level 1 – An investment in a fund is classi�ed in Level 1 of the hierarchy when that investment is quoted in an active market and measured at the unadjusted quoted price at the reporting date. Level 2 – An investment in a fund is classi�ed in Level 2 of the hierarchy when that investment is measured using inputs that are directly observable at the reporting date. Level 3 – An investment in a fund is classi�ed in Level 3 of the hierarchy when the investment is measured using unobservable inputs at the reporting date.


103


6. FAIR VALUE OF FINANCIAL INSTRUMENTS (contd..)



Government Treasury bills 220,114,395 - - 220,114,395 Government Treasury bonds 146,705,703 - - 146,705,703

As at 31 March 2013


Government Treasury bills 327,381,352 - - 327,381,352


Fund management and registrar fee payable 148,277 113,922 Trustee fee & Custody fees payable 104,204 86,626 Audit fee 175,291 143,360

427,772 343,908


Interest onTreasury bill repurchase agreements (8.1) 12,501,932 26,795,815 Fixed deposits - 28,564 Treasury bonds(8.1) 5,178,212 1,919,054 Savings account 44,365 - Treasury bill (8.1) 34,539,951 29,308,788

52,264,460 58,052,221

8.1 Interest income on Treasury bill repurchase agreements has been recognised gross of notional taxes.


9.1 Tax expense for the year 4,902,252 5,476,283 4,902,252 5,476,283

9.1.2

49,800,138 54,762,827 (777,614) -

- - 49,022,524 54,762,827

49,022,524 54,762,827

Income tax at the rate of 10% (2013 -10%)Income tax expense reported in the statement of Comprehensive Income 4,902,252 5,476,283

10. DISTRIBUTION

Dividend per unit Date of declaration No of units in Total dividendRs. issue Rs.

0.22 26 April 2013 42,925,082.70 9,443,518 0.22 24 July 2013 43,248,439.10 9,514,657 0.18 28 October 2013 61,434,518.80 11,058,213 0.15 28 January 2014 56,277,734.70 8,441,660

Total statutory income

Utilisation of previously unrecognized tax lossesTaxable income

The following table shows an analysis of �nancial instruments recorded at fair value by level of the fair value hierarchy:

A reconciliationbetweenthe tax expenseand the product of taxable pro�t multiplied by the statutory tax rate is asfollows:Operating pro�t before taxAggregate allowable expenses/ net gainsAllowable tax credits


104


11. CONTIGENCIES There are no material contingencies existing as at the Balance Sheet date that require adjustments to, or disclosure in the Financial Statements. 12. POST BALANCE SHEET EVENTS There have been no material events occurring after the Balance Sheet date that require adjustments to or disclosure in the Financial Statements. 13. CAPITAL COMMITMENTS The Fund does not have signi�cant Capital Commitments at the Balance Sheet date. 14. UNITS IN ISSUE AND UNIT PRICE Units in issue and deemed to be issued as at 31 March 2014 is 45,895,876.2 (2013 -2,773,776.0) and the unit price is Rs. 10.5090 (2013 - Rs. 10.4514). 15. RELATED PARTY TRANSACTIONS The following institutions have been identi�ed as related parties to the Fund in accordance with Sri Lanka Accounting Standards LKAS 24 - "Related Party Disclosures".



DFCC Bank



Fund has paid Rs. 1,546,174/- as management & registrar fees during the year. The fee payable as at 31.03.2014 is Rs. 148,277/-.

National Asset Management Ltd. holds Rs. 708,533/- worth of units of NAMAL Money Market Fund as at 31.03.2014.

DFCC holds 30% of equity of National Asset Management Ltd. Value of the units held by DFCC Bank in NAMAL Money Market Fund as at 31.03.2014 is Rs.105,407,295/-.

Fund has paid Rs. 1,118,616/- as trustee and custodian fees during the year. The fee payable as at 31.03.2014 is Rs. 104,204/-.

Union Bank of Colombo Ltd. holds 51% of equity of National Asset Management Ltd. Union Bank does not hold any investments in NAMAL Money Market Fund as at 31.03.2014.

Ennid Capital (Pvt) Ltd. holds 19% of equity of National Asset Management Ltd. Value of units held by Ennid Capital in NAMAL Money Market Fund as at 31.03.2014 is Rs.674,901/-

Mr. I. J. P Gamage(Executive Vice President )Mr. T. W. De Silva(Senior Vice President)


Mr. Avancka Herat


105

IPO Fund


106


Investment StrategyNAMAL IPO Fund (NIPO) is a growth fund which aims to achieve growth of capital by investing primarily in equity securities at the Initial Public O�er (IPO) stage and post IPO stage.

The Fund aims to deliver consistent returns to investors in the long run whilst ensuring preservation of capital.

Asset Allocation The Fund allocated 83.7% in Equities, 16.3% in Government securities by end March 2014.The main sector allocations in equity are in Construction & Engineering (52.6%), Diversi�ed Holdings (25.9%) and Power and Energy (19.6%)

Performance ReviewThe All Share Price Index increased by 4.06% while the 3 Month Treasury Bill yields declined by 2.61% for the year ending 31st March 2014.The Fund outperformed the ASPI by 9.0%with the Fund’s NAV per unit increasing by 15.56% during the period under review.

The Fund value was Rs. 6.80 million at 31st March 2014. Net assets attributable to unit holders increased by Rs. 1.26 million during the year compared to an increase of Rs. 1.32 million the prior year.

Return to InvestorsThe Fund has provided a return of 17.74% to investors since inception in 2011.



107



NAMAL IPO Fund

ASPI

S&P SL 20

12 months

13.03%

4.06%

(0.41%)

24 months

20.96%

10.11%

9.86%

Since inception

17.74%

(12.70%)

(6.07%)

*Note


2) Benchmark returns are ASPI return


4) Past performance should not be taken as a guide to the future

The Company

Access Engineering PLC

Laugfs Gas PLC

Expolanka Holdings PLC

120,000

31,000

85,600

2,700,000

1,007,500

744,720

39.70%

14.81%

10.95%

Fig 2: Top Equity Holdings



52.57%

25.85%

19.62%

1.96%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%



Power & Energy

Manufacturing

SECT

OR


108

ADBT/CPEG/KWS/JJ

INDEPENDENT AUDITORS’ REPORTTO THE UNIT HOLDERS OF NAMAL IPO FUND


We have audited the accompanying �nancial statements of NAMAL IPO Fund which comprise the statement of �nancial position as at 31 March 2014 and statement of comprehensive income, statement of changes in unit holder’s funds, statement of cash �ows, for the year then ended and a summary of signi�cant accounting policies and other explanatory notes.







Opinion

In our opinion, so far as appears from our examination, the Fund maintained proper accounting records for the year ended 31 March 2014 and the �nancial statements give a true and fair view of the Fund’s �nancial position as at 31 March 2014 and its performance and cash �ows for the year then ended in accordance with Sri Lanka Accounting Standards.


These �nancial statements also comply with the requirements of Section 151(2) of the Companies Act No. 07 of 2007, Unit Trust Deed and Unit Trust code of the Securities and Exchange Commission of Sri Lanka.

23 May 2014Colombo





109

NAMAL IPO FundSTATEMENT OF FINANCIAL POSITIONAs at 31 March 2014

Notes 2014 2013

ASSETS Rs. Rs.

Cash and Cash Equivalents 606,055 736,210

Financial Assets - Held for Trading 4 5,136,040 7,994,110

Financial Assets - Loans and Receivables 5 1,002,367 8,689,222

Income Tax Receivable 223,062 159,476

Total Assets 6,967,525 17,579,018


LIABILITIES

Accrued Expenses 7 166,415 156,446

Total Liabilities (Excluding net assets attributable to Unit Holders) 166,415 156,446

UNIT HOLDERS' FUNDS

Net Assets Attributable to Unit Holders 6,801,110 17,422,572

6,967,525 17,579,018

These Financial Statements were approved by the Management Company, and adopted by the Trustee.

23 May 2014

Colombo


………………………………..

Trustee

…………………………

Director

Management Company

Director

…………………………

Management Company

Di t

………………………… …………………………


110

NAMAL IPO FundSTATEMENT OF COMPREHENSIVE INCOMEYear ended 31 March 2014


Notes 2014 2013Rs. Rs.

INVESTMENT INCOMEDividend Income 8 107,076 101,127

Interest Income 8 1,024,508 2,186,376

Net Realised Gains on Financial Assets - Held for Trading 4.2 (80,951) -

4.3 1,013,443 (93,215)

2,064,076 2,194,288

EXPENSES

Management Fees (177,754) (235,352)

Trustee Fees (31,219) (38,678)

Custody Fees (268,800) (268,800)

Audit Fees (157,394) (124,375)

Other Expenses (68,622) (41,849)

Brokerage Expenses (61,993) -

Bank Charges (3,288) (11,000)

Total Operating Expenses (769,071) (720,054)

NET PROFIT 1,295,005 1,474,234

FINANCE COSTInterest Expense (251) (4,636)

(251) (4,636)


Income Tax Expense (31,391) (146,496)


1,263,364 1,323,102 INCREASE IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS

Net Change in Unrealised Gains/(Losses) Financial Assets - Held for Trading


111

NAMAL IPO FundSTATEMENT OF CHANGES IN UNITHOLDERS' FUNDSYear ended 31 March 2014


2014 2013Rs. Rs.


Increase in Net Assets Attributable to Unit Holders' Funds 1,263,364 1,323,102

Payments on Cancellation of Units (11,884,826) (1,760,452)



112

NAMAL IPO FundSTATEMENT OF CASH FLOWSYear ended 31 March 2014


2014 2013

Rs. Rs.

Cash Flows from Operating Activities

Dividend Received 107,076 101,127

Interest Received 1,083,040 2,067,024

Proceeds from Sale of Investments 263,301,011 99,086,099

Payment on Purchase of Investments (251,917,103) (97,941,002)

Taxation Paid (28,609) (143,304)

Operating Expenses Paid (790,493) (723,486)

Net Cash Generated from Operating Activities 11,754,922 2,446,458

Cash Flows from Financing Activities

Cash Paid on Redemption of Units (11,884,826) (1,760,452)

Interest Paid on Borrowings (251) (4,636)

Net Cash Generated from Financing Activities (11,885,077) (1,765,088)

Net Increase in Cash and Cash Equivalents (130,155) 681,370

Cash and Cash Equivalents at the Beginning of the Year 736,210 54,840

Cash and Cash Equivalents at the end of the Year 606,055 736,210


113


NAMAL IPO Fund is an open ended unit trust fund approved by the Securities and Exchange Commission of Sri Lanka. The fund was launched on 15th August 2011.


The investment objective of the fund is to achieve growth of capital by investing primarily in equity securities at the initial o�ering stage and post IPO stage for a period of one year. To target preferential allocations, that may be mandated by the SEC, in IPO’s thus enabling retail investors to bene�t by being part of a large single application by the fund.





2.1.1 Statement of Compliance



This is funds’ �rst �nancial statements prepared in accordance with (SLFRSs/LKASs) and SLFRS 1 – First time Adoption of International Financial Reporting Standards has been applied.


2.2.1 Financial Instruments – Initial Recognition and Subsequent Measurements

2.2.1.1 Date of Recognition


2.2.1.2 Initial Measurement of Financial Instruments




114

2.2.1.3 Financial Assets - Loans and Receivables


After initial measurement, loans and receivable are subsequently measured at amortized cost using the e�ective interest rate, less allowance for impairment. The amortization is included in the “interest income” in the statement of comprehensive income. The losses arising from impairment is recognized in the statement of comprehensive income in “credit loss expense”.


2.2.1.4 Financial assets – Held for Trading

Financial assets, fair value through pro�t and loss are recorded in the statement of �nancial position at fair value. Changes in fair value are recognized in the ‘net change in �nancial assets held for trading’ in the statement of comprehensive income. Interest income or expense, dividend income are recorded in ‘investment income’ according to the terms of the contract. Included in this classi�cation are government treasury bills and quoted equity securities.

2.2.1.5 Determination of Fair Value

The fair value for �nancial instruments traded in active markets at the reporting date is based on their quotedmarket price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transac-tion costs.



2.2.1.6 Derecognition of Financial Assets






115

2.2.2 Recognition of Income


Interest IncomeFor all �nancial instruments measured at amortized cost, interest income is recorded using the e�ective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the �nancial instrument or a shorter period, where appropriate, to the net carrying amount of the �nancial asset.

Interest income from repurchase agreements and government treasury bills are recognized at gross of notional tax credit or withholding tax.

Dividend IncomeIncome is recognized when the right to receive the dividend is established, normally being the ex-dividend date. Dividend income is recognized net of withholding tax, if any.

2.2.3 Cash and Cash Equivalents

Cash and cash equivalents in the statement of �nancial position and statement of cash �ows comprise cash at bank.

2.2.4 Income Tax

Current tax assets and liabilities for the current and prior year are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. The fund is liable to pay income tax at the rate of 10% in accordance with the Inland Revenue Act No.10 of 2006.

2.2.5 Expenses

The management participation fees of the fund is as follows:

Management Fee - 1.25% of Net Asset Value of the Fund

Trustee Fee - 0.2% of Net Asset Value of the Fund Custody Fee - Flat Fee of Rs. 240,000 per annum Management fees are detailed in the Fund’s Statement of Comprehensive Income. The Manager pays Trustee’s fees and Custodian fees for services rendered on behalf of the fund to Trustees.

2.2.6 Accrued Expenses

Payables are initially recognised at fair value, which is the fair value of the consideration to be paid in the future for service received, whether or not billed to the fund, and subsequently at amortized cost.

2.2.7 Unit Holders’ Funds and Net Assets Attributable to Unit Holders

Unit Holders’ funds has been calculated as the di�erence between the carrying amounts of the assets and the carrying amounts of the liabilities, other than those due to Unit Holders as at the balance sheet date.




116


2.3.1 Fair Value of Financial Instruments

Management considers credit, liquidity and market risk and assesses the impact on valuation of investments when determining the fair value. Following are the key sources of estimation uncertainty at the statement of �nancial position date, that have signi�cant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next �nancial year.


2.3.2 Impairment Losses on Financial Assets – Loans and Receivables

The fund reviews its �nancial investments classi�ed as loans and receivables at each reporting date to assess whether they are impaired. If particular management judgment is required in the estimation of the amount and timing of future cash �ows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may di�er, resulting future changes to the allowance.




The Manager believes that there would be no impact on the �nancial statement of the Fund from SLFRS 10 and SLRFS 11 one such standard become e�ective.




The fund’s principal �nancial assets comprise investments in trading securities, repurchase agreements, commercial papers and cash at bank. The main purpose of these �nancial instruments is to generate a return on the investment made by Unit Holders. The fund’s principal �nancial liabilities comprise amounts attributable to Unit holders, which are the amounts owed to Unit Holders of the fund. The fund also has other �nancial instruments such as receivables and payables which arise directly from its operations.

In accordance with LKAS 39 Financial Instruments: Recognition and Measurement, the fund’s bank balance, repurchase agreements, commercial papers and placements with other banks are classi�ed as ‘loans and receivables’ and valued at amortized cost. Trading securities are classi�ed as ‘held for trading’, meaning they are valued at fair value through pro�t or loss. Amounts attributable to Unit Holders are classi�ed as ‘other �nancial liabilities’ and are carried at the redemption amount being net asset value. Payables are designated as ‘other �nancial liabilities’ at amortized cost.



117

(b) Financial Risk Management Objectives, Policies and Processes


Financial instruments of the fund comprise investments in trading securities for the purpose of generating a return on the investment made by Unit Holders, in addition to cash at bank, and other �nancial instruments such as receivables and payables, which arise directly from its operations.



The manager also monitors information about the total fair value of �nancial instruments exposed to risk, as well as compliance with established investment mandate limits. These mandate limits re�ect the investment strategy and market environment of the fund, as well as the level of risk that the fund is willing to accept, with additional emphasis on selected industries. This information is prepared and reported to relevant parties within the Manager on a regular basis as deemed appropriate, including the fund manager, other key management, Risk and Investment Committees, and ultimately the Trustees of the fund.


(c) Credit risk


The fund’s exposure to credit risk from its �nancial assets arises from default of the counterparty, with the current exposure equal to the fair value of these instruments as detailed below. It is the fund’s policy to enter into �nancial instruments with reputable counterparties. The details are as follows:

Counter Party Credit Rating Rating AgencyMercantile Investments and Finance PLC BBB+ Ram RatingSoftlogic Finance PLC BBB- Ram RatingAlliance Finance Company PLC BBB Ram RatingLB Finance PLC A- Ram Rating


The fund’s maximum exposure to credit risk can be analyzed as follows:

2014 2013 Rs. 000 Rs.000NAMAL IPO Fund Investments Conservative 1,002 4,872Balanced - 7,289Growth 5,136 3,126



118

(d) Market risk




Price risk


The table below shows the impact on the statement of comprehensive income and statement of �nancial position due to a reasonably possible change in the price of the fund’s investment in trading securities in note 4, with all other variables held constant:

The above �gures are calculated across the entire investment portfolio on an annual basis. There is a corresponding change to the fair value of trading securities within the statement of �nancial position.

Interest rate risk


The fund’s exposure to interest rate risk primarily arises from changes in interest rates applicable to the balance held at the bank and the treasury bill portfolio.





31 March 2014


Rs. 000



Rs. 000

31 March 2013


Rs. 000




+10%-10%

513.604(513.604)

513.604(513.604)

312.642(312.642)

312.642(312.642)


119

(e) Liquidity risk






120



Equity Securities 5,136,040 3,126,420 Debt Securities - Government Treasury Bills - 4,867,690

5,136,040 7,994,110

4.1 Investments in Quoted Equity Securities (4.1.1)

Cost as at 31 March 4,554,300 3,570,000

Provision for Depreciation of Quoted Equity Securities 581,740 (443,580) Market Value as at 31 March 5,136,040 3,126,420

4.1.1 Company Number of Market Holdings Number of Market HoldingsShares Value as a % of Shares Value as a % of

Net Asset Net AssetRs. Value Rs. Value

Banks, Finance and InsurancePeople's Leasing Company PLC - - - 58,200 762,420 4%

DiverSi�ed HoldingsExpo Lanka Holdings PLC 85,600 744,720 11% - - -

Soft Logic Holdings PLC 55,000 583,000 9% - - -

Manufacturing Alumex PLC 7,100 100,820 1% - - -

Power and EnergyLaugfs Gas PLC 31,000 1,007,500 15% - - -

Construction and EngineeringAccess Engineering Limited 120,000 2,700,000 40% 120,000 2,364,000 14%

5,136,040 76% 3,126,420 18%

4.2 Net realised in losses on �nancial assets held for trading2014 2013Rs. Rs.

Equity Securities Proceeds on sale of equity shares 2,934,863 - Average cost of equity shares sold (3,015,814) -

(80,951) -

4.3 Net change in unrealised gains /(losses) on �nancial assets - Held for Trading2014 2013Rs. Rs.

Equity Securities 1,013,443 (105,100) Debt Securities - Government Treasury Bills - 11,885

1,013,443 (93,215)

2014 2013


121


5. FINANCIAL ASSETS - LOANS AND RECEIVABLES

5.1 Repurchase Agreements 2013 2013Rs. Rs.

Wealth Trust Securities 1,002,367 1,399,494 1,002,367 1,399,494

5.2 Investment in Commercial Papers

Asia Capital PLC - - Alliance Finance Company PLC - 1,865,656 People's Leasing and Finance Company PLC - - Mercantile Investments and Finance PLC - 1,715,690 Softlogic Holdings PLC - - Softlogic Finance PLC - 1,935,378 LB Finance PLC - 1,773,004

- 7,289,728

1,002,367 8,689,222 6. FAIR VALUE OF FINANCIAL INSTRUMENTS


Financial Assets - Held for Trading

Quoted Equity Securities 5,136,040 5,136,040

As at 31 March 2013Quoted Equity Securities 3,126,420 - - 3,126,420 Government Treasury Bills 4,867,690 - - 4,867,690


Fund Manager Payable 7,115 18,331 Trustee and Custodian Fee Payable 24,081 26,115 Audit Fee 135,218 112,000

166,415 156,446

The following table shows an analysis of �nancial instruments recorded at fair value by level of the fair value hierarchy.

Determination of fair value and fair value hierarchy SLFRS 7 Financial Instruments: Disclosures require fair value measurements to be disclosed by the source of inputs, using a three level hierarchy. The hierarchy for measuring fair value consists of Levels 1 to 3: Level 1 – An investment in a fund is classi�ed in Level 1 of the hierarchy when that investment is quoted in an active market and measured at the unadjusted quoted price at the reporting date. Level 2 – An investment in a fund is classi�ed in Level 2 of the hierarchy when that investment is measured using inputs that are directly observable at the reporting date. Level 3 – An investment in a fund is classi�ed in Level 3 of the hierarchy when the investment is measured using unobservable inputs at the reporting date.


122



Dividend Income 107,076 101,127

Interest onTreasury Bill Repurchase Agreements (8.1) 320,365 571,115 Treasury Bills (8.1) 343,333 125,662 Commercial Papers 322,713 1,448,386 Deposits - 23,008 Savings 38,097 18,205

1,024,508 2,186,376

9. INCOME TAX 2014 2013Rs. Rs.

Tax expense for the year 31,718 146,496 (327) -

31,391 146,496

Operating pro�t before tax 1,294,755 1,469,598 Aggregate allowable expenses/ net gains (870,499) 96,489 Allowable tax credits (107,076) (101,127) Total statutory income 317,180 1,464,960

Utilisation of previously unrecognized tax losses - - Taxable income 317,180 1,464,960

Income tax at the rate of 10% (2013 -10%)31,718 146,496

10. CONTINGENCIES

11. POST BALANCE SHEET EVENTS

(Over)/ under provision of tax with respect to previous year

Income tax expense reported in the Statement of Comprehensive Income

There are no material contingencies existing as at the Balance Sheet date that require adjustments to or disclosures in the�nancial statements.

There have been no material events occurring after the reporting date that require adjustments to or disclosure on theFinancial Statements.

8.1 Interest on Treasury bill repurchase agreements, Treasury bills and Treasury bonds have been accounted for gross of notional tax.

9.1 A reconciliation between the tax expense and the product of taxable pro�t multiplied by the statutory tax rate is as follows:


123


12. CAPITAL COMMITMENTS

The Fund does not have signi�cant capital commitments at the reporting date.

13. UNITS IN ISSUE AND UNIT PRICE

Units in issue and deemed to be issue as at 31 March 2014 is 559,729.30 (2013 - 1,656,917.30 ) and the creation and redemption price were Rs.12.17 and Rs.11.67 (2013 - Rs. 10.70 and Rs. 10.40) respectively.

14. RELATED PARTY TRANSACTIONS

The fund does not have signi�cant Capital Commitments at the Balance Sheet date.

14.1 UNITS IN ISSUE AND UNIT PRICE

The following have been identi�ed as related parties of NAMAL IPO Fund as at 31 March 2014 in accordance with LKAS 24 - "Related Party Disclosures"

14.2 Unit Holdings of the related parties of NAMAL IPO Fund as at 31 March is as follows.



DFCC Bank



Fund has paid Rs. 188,970/- as management & registrar fees during the year. The fee payable as at 31.03.2014 is Rs. 7,115/-.

Fund has paid Rs. 302,053/- as trustee fees and custodian fees during the year. The fee payable as at 31.03.2014 is Rs. 24,081/-.

DFCC holds 30% of equity of National Asset Management Limited.

Union Bank of Colombo PLC holds 51% of equity of National Asset Management Limited.

Ennid Capital (Pvt) Limited holds 19% of equity of National Asset Management Limited.



Mr. Avancka Herat


Rs. 25,987/-(2,500 Units)

Name Relationship Value of Unit Holding

As at 31.03.2013

Mr. H. A. HeratExecutive Director of NationalAsset Management Limited

As at 31.03.2014

124

High Yield Fund


125


Investment StrategyNAMAL High Yield Fund (NHYF) invests in short-term corporate debt securities for yield enhancement. Investments are subjected to detailed analysis to ensure credit quality and investor protection. The Fund has a signi�cant tax advantage for corporate investors.

Asset Allocation The Fund invested 81% in Corporate Debt and 19% in Government Securities at end March 2014. The majority of investments were less than one month to maturity, with all fund assets maturing within one year.

Performance ReviewThe Fund generated tax-free return of 12.07% for the year ended 31st March 2014 which corresponds to a tax equivalent yield of 16.77% for corporate investors, who are liable to a tax rate of 28%.



126





NAMAL High Yield Fund1

91-day Treasury Bill3

6 months

4.91%

3.66%

12 months

12.07%

8.10%

24 months

28.26%

18.84%

*Note



3) Treasury Bill rates published by Central Bank of Sri Lanka

Repo19%

Trust Certi�cates4%

Fixed Deposit23%

Corporate Debt4%

Commercial Papers50%

Less than 1 month45%

1 - 2 months22%

2 - 3 months28%

More than 3months

5%


127

ADBT/CPEG/KWS/KAS

INDEPENDENT AUDITORS’ REPORTTO THE UNIT HOLDERS OF NAMAL HIGH YIELD FUND


We have audited the accompanying �nancial statements of NAMAL High Yield Fund which comprise of the statement of �nancial position as at 31 March 2014, and the statement of comprehensive income, statement of changes in unit holder’s funds and statement of cash �ows for the year then ended, and a summary of signi�cant accounting policies and other explanatory notes.







Opinion

In our opinion, so far as appears from our examination, the Fund maintained proper accounting records for the year ended 31 March 2014 and the �nancial statements give a true and fair view of the Fund’s �nancial position as at 31 March 2014 and its performance and cash �ows for the period then ended in accordance with Sri Lanka Accounting Standards.



23 June 2014Colombo





128

NAMAL High Yield FundSTATEMENT OF FINANCIAL POSITIONAs at 31 March 2014

23 June 2014

Colombo


Note 2014 2013ASSETS Rs. Rs.

Cash and cash equivalents 1,112,977 2,244,777

Financial assets - Loans and receivables 4 7,390,475,294 1,004,508,971

Receivables 5 18,573 64,239 Income tax recoverable 4,643,506 1,479,725

7,396,250,350 1,008,297,712

UNIT HOLDERS' FUNDS & LIABILITIES LIABILITIES

Accrued expenses 6 4,389,085 722,593

Payable on unit redemptions 15,002,001 - Total liabilities (Excluding net assets attributable to Unit Holders) 19,391,086 722,593

UNIT HOLDERS' FUNDSNet assets attributable to Unit Holders 7,376,859,264 1,007,575,119

7,396,250,350 1,008,297,712

These Financial Statements were approved by the Management Company, and adopted by the Trustee.

………………………………..

Trustee

…………………………

Director

Management Company

Director

…………………………

Management Company

Di t

………………………… …………………………


129

NAMAL High Yield FundSTATEMENT OF COMPREHENSIVE INCOMEYear ended 31 March 2014


Note Year ended15 Months

Period ended31.03.2014 31.03.2013

Rs. Rs.INVESTMENT INCOMEInterest income 6 474,022,513 115,975,185

474,022,513 115,975,185EXPENSESManagement and registrar fees (20,036,941) (3,972,322) Trustee and custodian fees (6,866,561) (1,551,925) Audit fees (134,400) (134,094) Professional charges (113,337) (317,039) Other expenses (107,006) (189,734) Total operating expenses (27,258,245) (6,165,114)

NET OPERATING PROFIT 446,764,268 109,810,071




PROFIT AFTER TAX FOR THE YEAR/PERIOD 402,068,342 98,767,494



130*The Accounting Policies and Notes on pages 132 to 140 form an integral part of these Financial Statements.

NAMAL High Yield FundSTATEMENT OF CHANGES IN UNIT HOLDERS' FUNDSYear ended 31 March 2014

Year ended15 Months Period

ended31.03.2014 31.03.2013

Rs. Rs.

UNIT HOLDERS' FUNDS AT THE BEGINNING OF THE YEAR/PERIOD 1,007,575,119 -

Increase in net assets attributable to Unit holders 402,068,342 98,767,494

Received on Creation of Units 10,861,658,736 1,634,874,165

Paid on Redemption of Units (4,894,442,933) (726,066,540)

Net Increase due to Unit holders' Transactions 5,967,215,803 908,807,625

UNIT HOLDERS' FUNDS AT THE END OF THE YEAR/PERIOD 7,376,859,264 1,007,575,119


131*The Accounting Policies and Notes on pages 132 to 140 form an integral part of these Financial Statements.

NAMAL High Yield FundSTATEMENT OF CASH FLOWSYear ended 31 March 2014

Year ended15 Months Period

ended31.03.2014 31.03.2013

Rs. Rs.Cash Flows from Operating ActivitiesInterest received 397,607,248 105,370,278 Management fees and Trustee fees paid (23,236,828) (4,936,236) Other expenses paid (354,925) (506,773) Taxation paid (41,747,456) (11,707,856)

Cost of investments purchasedTreasury bill repurchase agreements (79,822,029,078) (10,950,028,269) Treasury bonds - (8,489,840) Commercial papers (13,710,725,561) (7,245,507,381) Fixed deposits (4,135,781,111) (42,000,000) Trust Certi�cates (484,815,598) - Treasury bills (29,934,215) -

Sale proceeds on investments disposedTreasury bill repurchase agreements 78,211,985,638 10,811,432,121 Treasury bonds - 8,489,840 Commercial papers 10,992,389,487 6,389,453,921 Fixed deposits 2,440,935,424 42,000,000 Trust Certi�cates 192,399,155 - Treasury bill 29,934,215 -

Net Cash Flow generated from Operating Activities (5,983,373,604) (906,430,195)

Cash Flows from Financing ActivitiesInterest paid on reverse repo borrowings (21,666) (68,414) Cash received on creation of units 10,861,704,402 1,634,809,926 Cash paid on redemption of units (4,879,440,932) (726,066,540) Net Cash generated from Financing Activities 5,982,241,804 908,674,972

Net increase in cash and cash equivalents (1,131,800) 2,244,777 Cash and cash equivalents at the beginning of the year/period 2,244,777 - Cash and cash equivalents at the end of the year /period 1,112,977 2,244,777


132


NAMAL High Yield Fund is an open ended unit trust fund approved by the Securities and Exchange Commission of Sri Lanka. The fund was launched on 20 January 2012.


The investment objective of the fund is to obtained yield enhancement above the one year Treasury bills rate by investing in commercial papers, corporate debentures, trust certi�cates, asset back securities and other �xed income securities and government securities.








The accounting policies have been consistently applied by the Fund with those of the previous �nancial year in accordance with LKAS 01 Presentation of Financial Statements. Further, comparative information is reclassi�ed wherever necessary to conform to the current presentation.


2.2.1 Financial Instruments – initial recognition and subsequent measurements

2.2.1.1 Date of Recognition


2.2.1.2 Initial Measurement of Financial Instruments


NAMAL High Yield FundNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2014


133

2.2.1.3 Financial Assets - Loans and Receivables

Loans and receivables are non-derivative �nancial assets with �xed or determinable payments that are not quoted on an active market. Loans and receivables in the statement of �nancial position comprise of commercial papers and Treasury bill repurchase agreements.

After initial measurement, loans and receivable are subsequently measured at amortized cost using the e�ective interest rate, less allowance for impairment. The amortization is included in the “interest income” in the statement of comprehensive income. The losses arising from impairment is recognized in the statement of comprehensive income in “credit loss expense”.


2.2.1.4 Derecognition of Financial Assets


1) The rights to receive cash �ows from the asset have expired.2) The fund has transferred its rights to receive cash �ows from the asset or has assumed an obligation to pay the received cash �ows in full without material delay to a third party under a ‘pass–through’ arrangement; and either,• The fund has transferred substantially all the risks and rewards of the asset or• The fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

2.2.2 Recognition of Income


Interest Income

For all �nancial instruments measured at amortized cost, interest income is recorded using the e�ective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the �nancial instrument or a shorter period, where appropriate, to the net carrying amount of the �nancial asset. Interest income of treasury bills repurchase agreements and corporate debt securities are recognized at gross of notional tax credit or withholding tax.

2.2.3 Cash and Cash Equivalents



2.2.4 Income Tax




134

2.2.5 Expenses

The management and registrar fees, trustee and custodian fees of the fund as per the trust deed is as follows,

Management fee - 0.5% per annum of the net asset value of the fundTrustee fee - 0.15% per annum of the net asset value of the fundCustodian fee - Flat Fee of Rs. 20,000/- per month

Management fees are detailed in the Fund’s Statement of Comprehensive Income. The Manager pays Trustee’s fees and Custodian fees for services rendered on behalf of the fund to Trustees.

2.2.6 Accrued Expenses


2.2.7 Unit holders’ funds and net assets attributable to unit holders

Unit holders’ funds has been calculated as the di�erence between the carrying amounts of the assets and the carrying amounts of the liabilities, other than those due to Unit holders as at the reporting date.

Units can be issued and redeemed based on the fund’s net asset value per unit, calculated by dividing the net assets of the fund calculated in accordance with the valuation guidelines issued by the Unit Trust Association of Sri Lanka and approved by the Securities and Exchange Commission of Sri Lanka, by the number of units in issue. Income not distributed is included in net assets attributable to unit holders.


2.3.1 Impairment losses on �nancial investments – Loans and Receivables







135





The Fund’s principal �nancial assets comprise investments in repurchase agreements, commercial papers, trust certi�cates, �xed deposits and cash at bank. The main purpose of these �nancial instruments is to generate a return on the investment made by Unit holders. The Fund’s principal �nancial liabilities comprise amounts attributable to Unit holders, which are the amounts owed to Unit holders of the Fund. The Fund also has other �nancial instruments such as receivables and payables which arise directly from its operations.

In accordance with LKAS 39 Financial Instruments: Recognition and Measurement, the Fund’s bank balances, repurchase agreements and commercial papers, investments in trust certi�cates and �xed deposits are classi�ed as ‘loans and receivables’ and valued at amortized cost. Amounts attributable to Unit holders are classi�ed as ‘other �nancial liabilities’ and are carried at the redemption amount being net asset value. Payables are designated as ‘other �nancial liabilities’ at amortized cost.



Financial instruments of the Fund comprise investments in �xed income securities for the purpose of generating a return on the investment made by Unit holders, in addition to cash at bank, and other �nancial instruments such as receivables and payables, which arise directly from its operations.



The manager also monitors information about the total fair value of �nancial instruments exposed to risk, as well as compliance with established investment mandate limits. These mandate limits re�ect the investment strategy and market environment of the Fund, as well as the level of risk that the Fund is willing to accept, with additional emphasis on selected industries. This information is prepared and reported to relevant parties within the Manager on a regular basis as deemed appropriate, including the Fund manager, other key management, Risk and Investment Committees, and ultimately the Trustees of the Fund.




136

(c) Credit risk


The Fund’s exposure to credit risk from its �nancial assets arises from default of the counterparty, with the current exposure equal to the fair value of these instruments as detailed below. It is the fund’s policy to enter into �nancial instruments with reputable counter parties. The details are as follows:

Counter Party Credit Rating Rating AgencyAbans Limited A - Fitch RatingLanka Orix Leasing Company PLC A- ICRA RatingMercantile Investments and Finance PLC BBB+ Ram RatingPeople’s Leasing & Finance PLC AA- Fitch RatingSoftlogic Holdings PLC BBB+ Fitch RatingSiyapatha Finance Limited A Fitch RatingOrient Finance PLC BBB- ICRA RatingFirst Capital Holdings PLC BBB Ram RatingMerchant Bank of Sri Lanka PLC AA Ram RatingUnion Bank of Colombo PLC BBB Ram RatingMelstra Regal Finance Limited A+ Fitch RatingDunamis Capital PLC BBB+ Ram RatingCommercial Leasing & Finance PLC A- Ram RatingDFCC Vardhana Bank PLC AA- (lka) Fitch Rating

Risk concentration of credit risk exposure:

Concentration of credit risk is managed by counterparty and by market sector. The fund is also subject to credit risk on its bank balance and receivables. The credit risk exposure on these instruments is not deemed to be signi�cant.


2014 2013 Rs.000 Rs.000 NAMAL High Yield Fund Investments Conservative-Repurchase Agreements 1,751,405 138,725Balanced- Commercial Papers, Fixed Deposits, Trust Certi�cates 5,639,070 865,784Growth - -

(d) Market risk

Market risk represents the risk that the value of the Fund’s investments portfolios will �uctuate as a result of changes in market prices.

Price riskPrice risk is the risk that the fair value of the Fund’s investment in trading securities in �uctuates as a result of changes in the price of the Trust’s investments in trading securities. Price risk exposure arises from the trust’s investment portfolios. NAMAL High Yield Fund is not authorized to investment in equities and is not subject to price risk.



137

Interest rate risk


The Fund’s exposure to interest rate risk primarily arises from changes in interest rates applicable to the balance held at the bank.




(e) Liquidity risk

Liquidity risk is the risk that the Fund will encounter di�culty in raising funds to meet its obligation to pay Unit holders.

Due to the nature of unit trust, it is unlikely that a signi�cant number of unit holders would exit at the same time. However, to control liquidity risk, the Fund investments in �nancial instruments, which under normal market conditions are readily convertible to cash. In addition, the Fund invests within established limits to ensure there is no concentration of risk.




138


4. FINANCIAL ASSETS - LOANS AND RECEIVABLES 2014 2013Rs. Rs.

Repurchase agreements (Note 4.1) 1,751,404,978 138,725,073 Commercial papers (Note 4.2) 3,635,435,951 865,783,898 Fixed deposits (Note 4.3) 1,710,191,321 - Trust certi�cates (Note 4.4) 293,443,044 -

7,390,475,294 1,004,508,971

4.1 Repurchase Agreements

4.1.1 Treasury Bill Repurchase AgreementsCapital Alliance Limited 8,340,295 - National Savings Bank - 111,751,327 First Capital Treasuries Limited 394,219,474 1,347,004 DFCC Vardhana Bank PLC 757,624,255 - Wealth Trust Securities Limited 278,507,633 25,626,742

1,438,691,657 138,725,073 4.1.2 Debenture Repurchase Agreements

DFCC Vardhana Bank PLC 312,713,321 - 1,751,404,978 138,725,073

4.2 Commercial PapersFirst Capital Holdings PLC 572,694,971 - Lanka Orix Leasing Co PLC 495,498,051 - Asia Capital PLC - 97,437,403 Alliance Finance Company PLC - 121,232,032 Softlogic Finance PLC - 10,585,587 Abans Limited 464,222,279 - People's Leasing & Finance PLC 98,698,276 99,329,900 Merchant Bank of Sri lanka PLC 427,700,769 - Siyapatha Finance PLC 528,316,434 - LB Finance PLC - 63,975,171 Dunamis Capital PLC 101,016,467 - Melsta Regal Finance Limited 100,734,718 - Hayleys PLC - 129,680,971 Softlogic Holdings PLC 559,337,880 93,970,228 Orient Finance PLC 79,185,418 130,795,483 Mercantile Investments & Finance PLC 208,030,688 118,777,123

3,635,435,951 865,783,898

4.3 Fixed DepositsCommercial Leasing & Finance PLC 605,674,517 - Orient Finance PLC 280,041,824 - Union Bank of Colombo PLC 617,139,099 - People's Leasing & Finance PLC 207,335,881 -

1,710,191,321 -

4.4 Trust Certi�catesPeople's Leasing & Finance PLC 234,526,743 - Mercantile Investments & Finance PLC 58,916,301 -

293,443,044 -

7,390,475,294 1,004,508,971


139


5. RECEIVABLES 2014 2013Rs. Rs.

Receivable on unit creations 18,573 64,239 18,573 64,239


Fund management fees payable 3,183,568 423,040 Trustee fee and custodian fee payable 1,071,117 164,971 Audit fee payable 134,400 134,094 WHT payable - 488

4,389,085 722,593

7. INVESTMENT INCOME Year ended15 Months Period

ended31.03.2014 31.03.2013

Rs. Rs.Interest on

Treasury bill repurchase agreements (Note 7.1) 68,547,834 7,399,707 Trust certi�cates 12,198,528 - Treasury bonds - 55,733 Government Treasury bills 73,094 - Commercial papers 324,428,800 107,770,201 Savings account 240,331 58,455

Fixed deposits 68,533,926 691,089 474,022,513 115,975,185

7.1

8. INCOME TAX 2014 2013Rs. Rs.

8.1 Tax expense for the year 44,674,260 10,974,163 Under / (over) provision for the previous year/period - -

44,674,260 10,974,163

8.2

2014 2013Rs. Rs.

Operating pro�t before tax 446,742,602 109,741,657 Aggregate allowable expenses/ net gains - - Allowable tax credits - - Total statutory income 446,742,602 109,741,657

Utilisation of previously unrecognized tax losses - - Taxable income 446,742,602 109,741,657

Income tax at the rate of 10% (2013 -10%)Income tax expense reported in the Statement of Comprehensive Income 44,674,260 10,974,163

9.

10.

Interest on Treasury bill repurchase agreements and Treasury bonds have been accounted for gross of notional tax.

A reconciliation between the tax expense and the product of taxable pro�t multiplied by the statutory tax rate is as follows:

CONTINGENCIES

There are no material contingencies existing as at the reporting date that require adjustments to, or disclosure in the Financial Statements.

EVENTS AFTER THE REPORTING DATE

There have been no material events occurring after the reporting date that require adjustments to or disclosure in the Financial Statements.


140


11. CAPITAL COMMITMENTS The Fund does not have signi�cant Capital Commitments at the reporting date.

12. UNITS IN ISSUE AND UNIT PRICE Units in issue and deemed to be in issue as at 31 March 2014 is 563,979,529.8 (2013 - 86,281,759.3) Unit price as at this date is Rs. 13.0791 (2013 - 11.6705). 13. RELATED PARTY TRANSACTIONS

13.1 The following institutions have been identi�ed as related parties to the Fund in accordance with Sri Lanka Accounting Standards LKAS 24 - "Related Party Disclosures".


DFCC Bank



Fund has paid Rs. 17,276,413/- as management fees during the year. The fee payable as at 31 March 2014 is Rs.3,183,568/-.

National Asset Management Limited holds Rs. 62,925,098/- worth of units of NAMAL High Yield Fund as at 31 March 2014.


Fund has paid Rs.5,960,415/- as trustee and custodian fees during the year. The fee payable as at 31 March 2014 is Rs. 1,071,117/-.

"DFCC holds 30% of equity of National Asset Management Ltd. The value of investments in debenture repurchase agreements during the year with DFCC Vardhana Bank is Rs.909,959,496/-. Interest received during the year is Rs.5,976,579/-. Investments in Debenture Repurchase Agreements as of 31 March 2014 is Rs. 312,713,321/-. The value investments in treasury bill repurchase agreements during the year is Rs 2,381,958,290/-. Interest received during the year is Rs 7,329,406/-. Investment in Treasury Bill Repurchase Agreements as of 31 March 2014 is Rs. 757,624,255/- DFCC Vardhana Bank is a subsidiary of DFCC Bank.

"Union Bank of Colombo PLC holds 51% of equity of National Asset Management Limited. The value of �xed deposit investments during the year with Union Bank of Colombo PLC is Rs.900,000,000/-. Interest received during the year is Rs.18,669,452/-. Investments in �xed deposits as of 31 March 2014 is Rs.617,139,009/-.

Ennid Capital (Pvt) Ltd. holds 19% of equity of National Asset Management Limited. Value of the units held by Ennid Capital (Pvt) Ltd. in NAMAL High Yield Fund as at 31 March 2014 is Rs. 4,784,360/-.




Mr. Avancka Herat

13.2 Transactions between the NAMAL High Yield Fund and the Directors of the Managing Company. Mr. H. A. Herat, Executive Director of the Managing Company hold Rs.10,633,181/- worth of units of NAMAL High Yield Fund as at 31 March 2014.

141

Sharia Fund

142


NAMAL Sharia Fund (NSF) is a growth fund which aims to achieve long term capital growth by investing in Sharia compliant equity and income securities. The Fund has �exibility to allocate up to 97% of assets to CSE listed equity investments.

The NSF seeks to deliver consistent returns to the investors in the long run.

Asset Allocation The Fund’s portfolio is invested 67.5% in equity and remaining fund assets in Mudarabah investments and cash as at 31st March 2014. The main sector allocations in equity are Diversi�ed Holdings (47.2%), Manufacturing (31.1%) and Land & Property (21.6%).

Performance ReviewThe All Share Price Index (ASPI) increased by 4.06% while the S&P SL20 marginally declined by -0.41% for the year ended 31st March 2014. The fund underperformed the ASPI by 0.2% with the Fund’s NAV per unit amounting to Rs. 9.58 as at the end of the period under review. The fund value stood at Rs 0.46 Mn as at 31st March 2014.



143



NAMAL Sharia Fund

ASPI

S&P SL20

3 months

21.69%

0.94%

0.49%

6 months

15.68%

2.84%

2.04%

12 months

3.81%

4.06%

(0.41%)

1) Performance up to 31st March 2014




The Company

Hemas Holdings PLC

ACL Cables PLC

CT Land Development PLC

2,700

1,100

1,600

101,790

67,100

46,560

22.26%

14.67%

10.18%

Fig 2: Equity Holdings


47.25%

31.14%

21.61%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00%


Manufacturing

Land & Property


Sect

or



ADBT/CPEG/KWS/AD

INDEPENDENT AUDITORS’ REPORTTO THE UNIT HOLDERS OF NAMAL SHARIA FUND


We have audited the accompanying �nancial statements of NAMAL Sharia Fund which comprise of the statement of �nancial position as at 31 March 2014, and the statement of comprehensive income, statement of movement in unit holder’s fund and statement of cash �ows for the 15 months period then ended, and a summary of signi�cant accounting policies and other explanatory notes.







Opinion

In our opinion, so far as appears from our examination, the Fund maintained proper accounting records for the 15 months period ended 31 March 2014 and the �nancial statements give a true and fair view of the Fund’s state of a�airs as at 31 March 2014 and its pro�ts and cash �ows for the 15 months period then ended in accordance with Sri Lanka Accounting Standards.


In our opinion, these �nancial statements also comply with the requirements of Section 151(2) of the Companies Act No. 07 of 2007 and Unit Trust Deed.

16 June 2014Colombo


144





145

NAMAL Sharia FundSTATEMENT OF FINANCIAL POSITIONAs at 31 March 2014


Notes 2014ASSETS Rs.

Cash and cash equivalents 213,746 Financial assets - Held for trading 4 215,450 Financial assets - Financing and receivable 5 103,701

Total assets 532,897


LIABILITIESAccrued expenses 7 75,605 Total Liabilities (Excluding net assets attributable to Unit Holders) 75,605

UNIT HOLDERS' FUNDSNet assets attributable to Unit Holders 457,292

532,897

- These Financial Statements were approved by the Management Company, and adopted by the Trustee.

16 June 2014Colombo

………………………………..

Trustee

…………………………

Director

Management Company

Director

…………………………

Management Company

Di t

………………………… …………………………


146

NAMAL Sharia FundSTATEMENT OF FINANCIAL POSITIONFor the 15 months period ended 31 March 2014


Notes15 Months

Period Ended

31.03.2014Rs.

INVESTMENT INCOMEDividend income 8 6,437Pro�t from Mudharaba investment 3,701Net change in unrealised gains on �nancial assets held for trading 4.2 20,830Total investment income 30,968

EXPENSESManagement and Registrar fees (18,076) Trustee fees (3,736) Audit fee and expenses (75,000) Brokerage expenses (2,180) Other expenses (58,025) Total operating expenses (157,016)

LOSS AFTER DEDUCTIONS AND BEFORE TAX (126,048)

Income tax expense 9 -

LOSS AFTER DISTRIBUTIONS AND TAX (126,048)

DECREASE IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS (126,048)


147

NAMAL Sharia FundSTATEMENT OF CHANGES IN UNITHOLDERS' FUNDSFor the 15 months period ended 31 March 2014


15 Months Period Ended

31.03.2014Rs.

UNIT HOLDERS' FUNDS AT THE BEGINNING OF THE PERIOD -

Decrease in net assets attributable to Unit Holders (126,048)

Received on unit creations 2,563,144

Payments on unit redemptions (1,979,804)

UNIT HOLDERS' FUNDS AT THE END OF THE PERIOD 457,292


148

NAMAL Sharia FundSTATEMENT OF CASH FLOWS For the 15 months period ended 31 March 2014


2014Rs.

Cash Flows from Operating ActivitiesDividend received 6,437 Payments on purchase of investments (294,620) Operating expenses paid (81,411) Net Cash used in Operating Activities (369,594)

Cash Flows from Financing ActivitiesAmount received on unit creations 2,563,144 Amount paid on unit redemptions (1,979,804) Net Cash generated from Financing Activities 583,340

Net Increase in cash and cash equivalents 213,746 Cash and cash equivalents at the beginning of the period - Cash and Cash Equivalents at the end of the period 213,746


149


NAMAL Sharia Fund is an open ended unit trust fund approved by the Securities and Exchange Commission of Sri Lanka. The fund was launched on 11 January 2013.

The fund is managed by National Asset Management Limited, which is incorporated and domiciled in Sri Lanka. The registered o�ce of the management company is located at 7th Floor, Union Bank Head O�ce, No. 64, Galle Road, Colombo 03. The Trustee of the fund is Deutsche Bank AG having its place of business at No 86, Galle Road, Colombo 03.

The investment objective of the fund is to obtain medium to long term capital appreciation by investing in a portfolio of Sharia compliant shares listed in a Recognized Stock Exchange and in other non-interest bearing �nancial instruments, in a Sharia compliant manner.



The �nancial statements are prepared in accordance with and comply with the Sri Lanka Accounting Standards comprising LKAS and SLFRS’s issued by the Institute of Chartered Accountants of Sri Lanka and adopted as directed by the Securities and Exchange Commission of Sri Lanka.

The �nancial statements have been prepared on the historical cost basis except for �nancials assets held at fair value through pro�t or loss which have been measured at fair value. The �nancial statements are presented in Sri Lankan rupees. The statement of �nancial position is presented broadly in order of a liquidity basis.




2.2.1 Impairment losses on �nancial investments – Financing and receivables





All �nancial assets are initially recognized on the trade date, i.e. the date that the fund becomes a party to the contractual provisions of the instrument. This includes purchases of �nancial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

NAMAL Sharia FundNOTES TO THE FINANCIAL STATEMENTSFor the 15 months period ended 31 March 2014


150


The classi�cation of �nancial instruments at initial recognition depends on their purpose and characteristics and the management intention in acquiring them. All �nancial assets are measured initially at the fair value plus transaction costs, except in the cases of �nancial assets recorded at faire value through pro�t or loss.



• Financial assets held at fair value through profit or loss

Financial assets at fair value through pro�t or loss are recorded in the statement of �nancial position at fair value. Changes in fair value are recognised in the ‘net change in unrealised gain/(loss) on �nancial assets held at fair value through pro�t or loss’ in the statement of comprehensive income. Dividend income is recorded in “investment income’ according to the terms of the contract. Included in this classi�cation are quoted equity securities.

2.3.1.4 Financial investments - Financing and receivables

Financing and receivables are non derivative �nancial assets with �xed or determinable payments that are not quoted on an active market. Financing and receivables in the statement of �nancial position comprise of Mudharaba Term Deposits.

After initial measurement, �nancing and receivable are subsequently measured at amortised cost using the e�ective pro�t rate, less allowance for impairment. The amortization is included in the “Pro�t Sharing on Mudharaba” in the statement of comprehensive income. The losses arising from impairment is recognised in the statement of comprehensive income in “credit loss expense”.






Revenue is recognised to the extent that it is probable that the economic bene�ts will �ow to the fund and the revenue can be reliably measured. The following speci�c criteria must also be met before revenue is recognised.

(i) Pro�t from Mudharaba investments

Pro�ts on Mudharaba investments are recognised when it is declared.



151

(ii) Dividend Income

Dividend income is recognised when the fund’s right to receive payment is established.

(iii) Net change in unrealised gains/(losses) on �nancial assets held at fair value through pro�t and loss

Net change in unrealised gain/(losses) on �nancial assets held at fair value through pro�t and loss includes all gains and losses arise from changes in fair value for �nancial assets held at fair value through pro�t or loss”.

(iv) Net realised gains/(losses) on �nancial assets held at fair value through pro�t and loss

Net realised gains/(losses) on �nancial assets held at fair value through pro�t and loss includes results of buying and selling of quoted equity securities.


Cash and cash equivalents in the statement of �nancial position comprise cash at bank. For the purpose of the statement of cash �ows, cash and cash equivalents consist of cash and cash equivalents as de�ned above.

2.3.4 Income tax


2.3.5 Expenses

The management and registrar fees, trustee and custodian fees of the fund as per the trust deed is as follows,

Management & - 1.75% p.a of net asset value of the fundRegistrar fee Trustee fee - 0.2% p.a of net asset value of the fund



2.3.7 Unit Holders’ funds

Unit holders’ funds has been calculated as the di�erence between the carrying amounts of the assets and the carrying amounts of the liabilities, other than those due to Unit holders as at the balance date.

Units can be issued and redeemed based on the fund’s net asset value per unit, calculated by dividing the net assets of the fund calculated in accordance with the valuation guidelines issued by the Unit Trust Association

of Sri Lanka and approved by the Securities and Exchange Commission of Sri Lanka, by the number of units in issue. Income not distributed is included in net assets attributable to unit holders.



152



The Fund’s principal �nancial assets comprise investments in trading securities, Mudharaba investments and cash at bank. The main purpose of these �nancial instruments is to generate a return on the investment made by Unit holders. The Fund’s principal �nancial liabilities comprise amounts attributable to Unit holders, which are the amounts owed to Unit holders of the Fund. The Fund also has other �nancial instruments such as receivables and payables which arise directly from its operations.

In accordance with LKAS 39 Financial Instruments: Recognition and Measurement, the Fund’s bank balance and mudharaba investments are classi�ed as ‘Financing and receivables’ and valued at amortised cost. Quoted equity securities as contained in the white list are classi�ed as ‘�nancial assets at fair value through pro�t and loss’, meaning they are valued at fair value through pro�t or loss. Amounts attributable to Unit holders are classi�ed as ‘other �nancial liabilities’ and are carried at the redemption amount being net asset value. Payables are designated as ‘other �nancial liabilities’ at amortized cost.



Financial instruments of the Fund comprise investments in trading securities for the purpose of generating a return on the investment made by Unit holders, in addition to cash at bank and other �nancial instruments such as receivables and payables, which arise directly from its operations.



The manager also monitors information about the total fair value of �nancial instruments exposed to risk, as well as compliance with established investment mandate limits. These mandate limits re�ect the investment strategy and market environment of the Fund, as well as the level of risk that the Fund is willing to accept, with additional emphasis on selected industries. This information is prepared and reported to relevant parties within the Manager on a regular basis as deemed appropriate, including the Fund manager, other key management, Risk and Investment Committees, and ultimately the Trustees of the Fund.


(c) Credit risk


The Fund’s exposure to credit risk from its �nancial assets arises from default of the counterparty, with the current exposure equal to the fair value of these instruments as detailed below. It is the Fund’s policy to enter into �nancial instruments with reputable counter parties. The details are given below.



153

Counter Party Credit Rating Rating Agency

Amana Bank A - Fitch Rating

Risk concentration of credit risk exposure:

Concentration of credit risk is managed by counterparty and by market sector. The fund is also subject to credit risk on its bank balance and receivables. The credit risk exposure on these instruments is not deemed to be signi�cant.


2014 Rs. 000 NAMAL Sharia Fund Investments Balanced 104 Growth 215

(d) Market risk

Market risk represents the risk that the value of the Fund’s investments portfolios will �uctuate as a result of changes in market prices. While market risk cannot be eliminated the fund manager will attempt to reduce this risk by diversifying the fund’s investment portfolio in line with investment objectives of the Fund.

Price risk

Price risk is the risk that the fair value of the Fund’s investment in trading securities in �uctuates as a result of changes in the price of the Fund’s investments in trading securities. Price risk exposure arises from the Fund’s investment portfolios.

The table below shows the impact on the Statement of Comprehensive Income and Statement of Financial Position due to a reasonably possible change in the price of the Fund’s investment in �nancial assets at fair value through pro�t and loss in note 4, with all other variables held constant:


(e) Liquidity risk

Liquidity risk is the risk that the Fund will encounter di�culty in raising funds to meet its obligation to pay Unit holders.

Due to the nature of a unit Fund, it is unlikely that a signi�cant number of unit holders would exit at the same time. However in order to control liquidity risk, the Fund investments in �nancial instruments, which under normal market conditions are readily convertible to cash. In addition, the Fund invests within established limits to ensure there is no concentration of risk.

Payables have no contractual maturities. Due to the short term nature of these �nancial instruments, carrying value approximates fair value.

31 March 2014


Rs. 000




+10%-10%

22(22)

22(22)


154


4. FINANCIAL ASSETS - HELD FOR TRADING 2014Rs.

Quoted equity securities (4.1) 215,450215,450

4.1 Quoted equity securities

Cost as at 31 March 194,620 Appreciation of market value of quoted equity securities 20,830 Market Value as at 31 March 215,450

4.1.1 Company Number of Market HoldingsShares Value as a % of

Net AssetRs. Value

ManufacturingACL Cables PLC 1,100 67,100 15%

67,100 15%

Diversi�ed HoldingsHemas Holdings PLC 2,700 101,790 22%

101,790 22%

Land & PropertyCT Land Development PLC 1,600 46,560 10%

46,560 10%

Total value of quoted equity securities(At Market Value) 215,450 47%


31.03.20144.2 Unrealised gains on �nancial assets held for trading Rs.

Equity securities 20,830 20,830

5. FINANCIAL ASSETS - FINANCING AND RECEIVABLES

Mudharaba Investment Carrying Holding as aValue % of Net

Rs. Asset Value 5.1 Investments in term investments

Amana Bank PLC 103,701 23%103,701 23%

103,701 23%

2014

2014


155






Quoted equity investments 215,450 - - 215,450

7. ACCRUED EXPENSES 2014Rs.

Fund management and registrar fee payable 538 Trustee fee payable 67 Audit fee 75,000

75,605

8. INVESTMENT INCOME15 Months

Period Ended31.03.2014

Rs.

8.1 Dividend Income 6,437 6,437


156


9. TAXATION15 Months

Period Ended31.03.2014

Rs.

9.1 Tax expense for the period - -

9.2 A reconciliation between the tax expense and the product of taxable pro�t multiplied by the statutory tax rate is as follows:


31.03.2014Rs.

Operating loss before tax (126,048) Aggregate allowable expenses/ net gains (23,010) Allowable tax credits (6,437) Total statutory income (155,495)

Utilisation of previously unrecognized tax losses - Taxable income -

Income tax at the rate of 10% (2013 -10%)Income tax expense reported in the Statement of Comprehensive Income -

Carried forward unutilized tax losses - Tax Losses incurred during the period 155,495 Less: Tax losses claimed - Brought forward unutilized tax losses 155,495

10. CONTINGENCIES There are no material contingencies existing as at the reporting date that require adjustments to, or disclosure in the Financial Statements. 11. EVENTS AFTER THE REPORTING DATE There have been no material events occurring after the reporting date that require adjustments to or disclosure in the Financial Statements. 12. CAPITAL COMMITMENTS

The Fund does not have signi�cant Capital Commitments at the reporting date. 13. UNITS IN ISSUE AND UNIT PRICE Units in issue and deemed to be in issue as at 31 March 2014 is 47,724.3 . Unit creation and redemption price as at this date was Rs. 7.47 and Rs. 7.11 respectively.


157



DFCC Bank



Fund has paid Rs. 17,538/- as management & registrar fees during the period. The fee payable as at 31.03.2014 is Rs. 538/-.

Fund has paid Rs. 3,668/- as trustee fees and custodian fees during the period. The fee payable as at 31.03.2014 is Rs. 67/-.

DFCC holds 30% of equity of National Asset Management Limited.

Union Bank of Colombo Ltd. holds 51% of equity of National Asset Management Limited.

Ennid Capital (Pvt) Ltd. holds 19% of equity of National Asset Management Limited.




Mr. Avancka Herat

NATIONAL ASSET MANAGEMENT LIMITED

DIRECTORS

Mr. Alexis Lovell – Chairman

Mr. Ajith Wijesekera – Deputy Chairman

Mr. Anil Amarasuriya

Mr. Jitendrakumar Warnakulasuriya

Mr. I. J. P. Gamage

Mr. T. W. De Silva

Mr. Avancka Herat

Ms. Khoo Siew Bee

Corporate Information

UNIT TRUST INFORMATIONMANAGEMENT COMPANY

TRUSTEE & CUSTODIAN

AUDITORS

BANKERS

LAWYERS

National Asset Management Ltd7th Floor, Union Bank Head O�ce64,Galle Road ,Colombo 3.

Deutsche Bank AG86 Galle Road, Colombo 3.

Ernst and YoungChartered Accountants201, De Saram PlaceColombo 10.

Union Bank Of Colombo PLC64,Galle Road, Colombo 3

Deutsche Bank AG86, Galle Road, Colombo 3.

F J & G de SaramAttorneys-at-Law & Notaries Public216, De Saram Place, Colombo 10


158

Declaration By Trustees And Managing Company

Declaration by Trustees and Management Company as per SEC Circular No: 02/2009 on Guidelines for Trustees and Managing Companies of Unit Trusts Funds.

Deutsche Bank AG, the Trustee and National Asset Management Ltd, the Managers of the National Equity Fund, NAMAL Growth Fund, NAMAL Income Fund, NAMAL Money Market Fund, NAMAL IPO Fund, NAMAL High Yield Fund and NAMAL Sharia Fund hereby declare that

the requirements and guidelines for Trustees and Managing Companies of Unit Trust Funds set by the Securities and Exchange Commission of Sri Lanka have been complied with during the year..

the transactions were and will be carried out at an arm’s length basis and on terms which are best available for the fund, as well as act, at all times, in the best interest of the fund’s unit holders.

1.

2.


159

……………………………..……………………………..

DirectorManagement Company

DirectorManagement Company

……………………………………………

Authorised SignatoriesTrustee

……………………………..

Director

"The SEC in approving this Annual Report has taken reasonable care to ensure the accuracyof the information included herein. However, National Asset Management Limitedis at all times responsible for the information included in this Annual Report"

National Asset Management Ltd. | No.64 Galle Road, Colombo 03. | T: 9411 2445911 | www.namalfunds.com

2013 - 2014 annual report...annual report 2013 / 2014 4 dear investors, it is my pleasure to send...

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