NATIONAL EQUITY FUND

Interim Report

For the Six months ended 30th September 2017

National Asset Management Limited

07,Glen Aber Place Colombo 03. Phone : 2445911 Fax : 2445903 Email : info@namal.lk

Table of Contents

Report of the Investment Manager 1

Statement of Comprehensive Income 2

Statement of Financial Position 3

Statement of Movement in Unit Holders Fund 4

Notes to the Accounts 5 - 8

Corporate Information 9

National Equity FundInterim Report 2017

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NAMAL EQUITY FUND INTERIM REPORT

1HFY18

Dear Investor, We take pleasure in presenting the interim report of the Namal Equity Fund (NEF) for the 6 months ended 30th September 2017. Performance review The NEF generated a return of 7.8% for the six month period ended September 2017, outperforming the benchmark All Share Price Index (ASPI) and the S&P Sri Lanka 20 Index (S&P SL20) by 1.6% and 0.4%, respectively. During 1HFY18, the Fund reported a profit of LKR 181.4 Mn, compared to LKR 424.5 Mn reported last year. Total investment income declined to LKR 212.6 Mn from LKR 453.7 Mn in last year, primarily as a result of the reduction in unrealized gains during the period. The Fund realized a gain of LKR 107.0 Mn in 1HFY18, compared to LKR 6.4 Mn gain last year. Market Review During the period under review, the ASPI gained 6.2% and the S&P SL20 gained 7.4%, led by continued foreign buying over the period. However, in September, the acquisition of a majority stake in Singer PLC by Hayleys led to net outflow LKR 9.5 Bn. For the 6 month period the CSE reported a net inflow of LKR 12.3 Bn. The average daily turnover increased to LKR 1,014 Mn from LKR 743 Mn in 1HFY17. Foreign participation accounted for 45.2% of turnover during the period. Benchmark 12 month Treasury bill yields continued to decline in primary market auctions in 1HFY18 and stood at 9.10% at the end of September. Further, the CBSL announced the removal of caps imposed on interest rates on credit products, effective from 3QCY2017, to curb private sector credit growth and inflationary pressures in the economy. Policy rates were held steady in 1HFY2018 amidst declining private sector credit growth. On the economic front, real GDP grew at 3.9% in 1HCY2017 compared to 3.7% growth in 1HCY2016. The growth was led by construction sector. External sector showed mixed performance in 1HFY2018. Exports gained momentum in Q2 and Q3 of CY2017. Nevertheless, trade deficit expanded by 12.1% to USD 6,184.0 Mn in the first 8 months, as a result of higher import expenditures. During the same period, tourism earnings grew 3.5% to USD 2,413.7 Mn, while worker remittances declined 6.3% to USD 4,503.3 Mn. The overall BoP position recorded a surplus of USD 2,174.9 Mn at the end of August compared to USD 211.5 Mn surplus reported in the comparative period of last year, mainly aided by foreign currency receipts on account of additional borrowings and grants. Portfolio Composition The Fund has 78.4% allocation to equity and 14.5% allocation to commercial papers and the remainder in debentures and repos. NEF’s highest equity concentrations are in Materials, Banking and Capital Goods sectors. Sincerely, The Fund Management Team 31th October 2017

Performance Comparison

(Non-annualised returns)

6M* (%)

12M (%)

24M (%)

36M (%)

ASPI 6.21 -1.48 -8.69 -11.22

S&P SL 20 7.44 2.14 -3.43 -8.51

NEF 7.87 0.88 6.89 8.17

* Six month period ending 30 September 2017

Asset Allocation

Top 5 Sector Allocations

78.4%

14.5%

5.0% 2.1%

Equity

Commercial Paper

Repos

Debentures

26.50%

16.87%

13.68%

9.89%

9.53%

0.0% 10.0% 20.0% 30.0%

Materials

Banks

Capital Goods

Chemicals

DiversifiedFinancials

1

For the Six month period ended 30 September

2017 2016Notes Rs. Mn. Rs. Mn.

INVESTMENT INCOMEDividend income 11.1 52.30 54.47 Interest income 11.2 37.52 33.60 Net realised (losses)/gains on financial assets held for trading 07.3 107.00 6.42 Net change in unrealised gains/(losses) on financial assets held for trading 07.4 15.85 359.24 Total investment income 212.68 453.74

EXPENSESManagement and Registrar fees (21.91) (21.16) Trustee fees (2.82) (2.66) Audit fee and expenses (0.26) (0.23) Bank charges (0.02) (0.03) Professional charges (0.05) (0.38) Other expenses (0.98) (1.94) Brokerage Expense (4.27) (2.80) Total operating expenses (30.32) (29.20)

Net operating profit/(loss) 182.36 424.54

FINANCE COSTInterest expense (0.05) - Distribution to unit holders

PROFIT/(LOSS) AFTER DEDUCTIONS AND BEFORE TAX 182.30 424.54

Income tax expense 12 (0.82) -

PROFIT/(LOSS) AFTER DISTRIBUTIONS AND TAX 181.48 424.54

INCREASE/(DECREASE) IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 181.48 424.54

Income Distribution 11

Net Increase /(Decrease) in Unit holders' FundsDue to Investment Activities - -

National Equity FundSTATEMENT OF COMPREHENSIVE INCOME

2

For the Six month period ended 30 September

2017 2016Rs. Mn. Rs. Mn.

UNIT HOLDERS' FUNDS AT THE BEGINNING OF THE YEAR 2,310.31 2,190.39

Increase/ (decrease) in net assets attributable to Unit Holders 181.48 424.54

Received on unit creations 75.01 67.52

Payments on unit redemptions (151.76) (97.26)

Income distribution to unit holders - -

UNIT HOLDERS' FUNDS AT THE END OF THE YEAR 2,415.04 2,585.20

National Equity FundSTATEMENT OF CHANGES IN UNITHOLDERS' FUNDS

4

For the period ended 30th September 2017

NOTES TO THE ACCOUNTS1

2 Income is recognised on accrual basis.

3

4

5

6

7 2017 2016

Net Assets Value per Unit 34.63 35.39 No. of units as at 30th September 68,503,592.2 71,954,528.4

National Equity FundNOTES TO THE FINANCIAL STATEMENTS

There are no material Contingent Liabilities or contingent Assets which require disclosure in the financialstatements.

No circumstances have arisen since the Balance Sheet date, which would require adjustments or disclosure in theFinancial Statements.

All figures are audited. Where necessary comparative figures have been adjusted to confirm with the changes inpresentation in the current period.

Interest on repurchase agreements is shown together with the applicable notional tax credit which is set off against the income tax payable by the fund.

The profit and income of the fund is liable for income tax at the rate of 10% for the year of assessment 2017/2018 as specified in part A of the Second Schedule to the Inland Revenue Act No. 10 of 2006.

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For the Six month period ended 30 September

7 FINANCIAL ASSETS - HELD FOR TRADING 2017 2016Rs. Mn. Rs. Mn.

Quoted equity securities (5.1) 1,849 2,050 Debt securities - quoted debentures (5.2) 49 66 Treasury bill - -

1,898 2,116 7.1 Quoted equity securities

Cost as at 30 Sep 1,594 1,611 Appreciation/(depreciation) of market value quoted equity securities 256 438 Market Value as at 30 Sep 1,849 2,050

2017 20167.1.1 Company Number of Market Holdings Number of Market Holdings

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

Rs. Mn. Value Rs. Mn. ValueBanks, Finance and InsuranceCentral Finance Company PLC 2,049,373 176.25 7% 2,049,373 235.68 9%Hatton National Bank PLC - Non Voting - - - 300,000 57.15 2%

Hatton National Bank PLC Voting 650,000 152.75 6% - - -

Sampath Bank PLC 55,000 16.97 - - - -

Nations Trust PLC 842,134 67.37 3% 842,134 70.66 3%Seylan Bank Non Voting 1,296,721 74.95 3% 1,253,265 80.71 3%

488.28 20% 444.20 17%

Beverages, Food and TobaccoSunshine HoldingsRenuka Agri Foods PLC - - 8,955,580 26.87 1%

- - 26.87 1%

Health Care Ceylon Hospitals PLC (Durdans) Voting - - - 997,019 99.70 4%Ceylon Hospitals PLC (Durdans) - Non Voting 481,000 33.67 1% 481,000 38.48 1%Lanka Hospital Corporation PLC 300,000 18.90 1% - - -

52.57 2% 138.18 5%

ManufacturingACL Cables PLC 2,264,314 102.12 4% 2,264,314 146.50 6%Tokyo Cement Company Lank PLC - Voting 3,600,000 255.24 11% 3,000,000 180.00 7%Tokyo Cement Company Lank PLC - Non Voting 3,720,000 223.57 9% 2,591,100 129.56 5%Textured Jercy 4,000,000 156.00 6% 4,000,000 189.20 7%Chevron Lubricant 1,500,000 183.00 8% 970,000 161.99 6%Alumex PLC 525,845 11.31 0% - - -

931.24 39% 807.25 31%

Power and EnergyLaugfs Gas PLC - Non Voting 663,000 14.98 1% 263000 9.13 0%Laugfs Gas PLC 1,318,182 33.88 1% 1,318,182 46.14 2%Lanka IOC 3,975,000 119.25 5% 3,975,000 143.50 6%

168.11 6% 198.77 7%

Diversified HoldingsHemas Holdings - - - 2,405,000 250.36 10%

- - 250.36 10%

TelecommunicationDialog Axiata PLC 4,819,882 58.32 2% 8,000,000 92.80 4%

58.32 2% 92.80 4%

Construction & EngineeringAccess Engineering PLC ########## 150.93 6% 3,350,000 91.46 4%

150.93 6% 91.46 4%Total value of quoted equity securities in (At Market Value) 1,849 77% 2,050 79%

National Equity FundNOTES TO THE FINANCIAL STATEMENTS

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For the Six month period ended 30 September

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

7.2 Quoted debentures

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

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

Lion Brewary PLC - - - 13.50 14.08 1%Lion Brewary PLC 18.00 18.88 1% 18.00 18.79 1%Access Engneering PLC 25.00 25.31 1% 25.00 24.23 1%Richard Pieris - - - 4.51 4.71 0%Hemas Holdings 4.26 4.47 0% 4.26 4.33 0%

47.26 48.67 2% 65.27 66.14 3%

7.3 Net realised (losses)/gains on financial assets held for trading 2017 2016Rs. Mn. Rs. Mn.

Equity securitiesProceeds on sale of equity shares 251.70 71.36 Average cost of equity shares sold (144.70) (64.94)

107.00 6.42

7.4 Net change in unrealised gains/(losses) on financial assets held for trading

Equity securities 13.63 357.43 Debt securities 2.23 1.81

15.85 359.24

8 FINANCIAL ASSETS - LOANS AND RECEIVABLES

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

Rs. Mn. Asset Value Rs. Mn. Asset Value 8.1 Investments in commercial papers

Dunamis Capital PLC 106.80 4% - - Dunamis Capital PLC 56.82 2% - - First Capital Treasuries Limited 53.25 2% 129.97 5%Softlogic Finance PLC 15.81 1% - 0%Softlogic Holdings PLC 53.32 2% 190.22 7%Softlogic Finance PLC 56.38 2% - 0%

342.40 10% 320.19 12%8.2 Repurchase agreements

Wealth Trust Securities Limited 118.88 5% 106.12 4%118.88 5% 106.12 4%

461.27 15% 426.31 16%

National Equity FundNOTES TO THE FINANCIAL STATEMENTS

2017 2016

2017 2016

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9 ACCRUED INCOME AND OTHER RECEIVABLES 2017 2016Rs. Mn. Rs. Mn.

Dividend receivable 0.36 6.40 Receivable on unit creations 0.19 3.64

0.55 10.04

10 ACCRUED EXPENSES 2017 2016Rs. Mn. Rs. Mn.

Fund management and registrar fee payable 11.06 10.85 Trustee fee payable 1.42 1.35 Audit fee 0.19 0.19 Payable on unit redemptions 0.22 0.03 Dividend payable - - Other payable - -

12.89 12.42 11 INVESTMENT INCOME 2017 2016

Rs. Mn. Rs. Mn.

11.1 Dividend income 52.30 54.47

11.2 Interest incomeInterest on Treasury bill repurchase agreements (6.2.1) 7.82 9.35 Interest on fixed deposits - - Interest on treasury bonds(6.2.1)Interest on commercial papers 26.21 17.99 Interest on debentures 3.23 6.10 Interest on savings account 0.26 0.16 Interest on Treasury bill (6.2.1) - -

37.52 33.60

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

12 TAXATION 2017 2016Rs. Mn. Rs. Mn.

12.1 Tax expense for the year 0.82 - 0.82 -

NOTES TO THE FINANCIAL STATEMENTSNational Equity Fund

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CORPORATE INFORMATION

Trustee & Custodian Deutsche Bank AG86 ,Galle RoadColombo 03

Auditors Ernst & YoungChartered Accountants201, De Saram PlaceColombo 10

Bankers Deutsche Bank AG86, Galle RoadColombo 03

Lawyers F J & G De SaramAttorneys-at-Law & Notries Public216, De Saram PlaceColombo 10

Managers & Registrars National Asset Management Limited (NAMAL)7, Glen Aber PlaceColombo 03

National Asset Management LimitedBoard of Directors (30th September 2017) Mr. Alexis Lovell Chairman

Mr. Indrajit Wickramasinghe DirectorMr. Palitha Gamage DirectorMr. Tyronne de Silva DirectorMr. Malinda Samaratunga DirectorMr. Wijenanda Dambawinne DirectorMr. Suren Madhanayake DirectorMr. Avancka Herat DirectorMs. Khoo Siew Bee Director

National Equity FundInterim Report 2017

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