ALL MEMBERS OF THE INSTITUTE

Dear Member

APPLICATION OF IAS 39 TO MUTUAL FUNDS

A letter dated December 4, 2002 on the above subject received from the Specialized Companies Division of the Securities and Exchange Commission of Pakistan is hereby reproduced below for the information and compliance by the members:

"The SEC, vide its letter dated December 2, 2002, has withdrawn the relaxation given to mutual funds from the requirements of IAS 39, whereby they were allowed to recognize unrealized gains on financial assets ‘held-for-trading’ directly in equity. Consequently, IAS 39 is now fully applicable to mutual funds. The relaxation has been withdrawn in view of appropriate amendments made in the Income Tax Ordinance, 2001 through S.R.O 728(I)/2002 dated October 23, 2002.”

The SECP letter dated December 2, 2002 referred to above is reproduced over-leaf.

The members are advised to consider the above while preparing the financial statements of the above mutual funds or issuing the statutory audit reports / review reports for the second quarter.

Thanking you.

Yours truly,

Shahid Hussain

Manager Technical Services

Mr. Zaigham Mahmood Rizvi
Chairman
Mutual Funds Association of Pakistan
Fifth Floor, Block C
Finance and Trade Center
Shahrah-e-Faisal
Karachi

Dear Mr. Rizvi,

APPLICATION OF IAS 39

Please refer to our letter dated October 28, 2002, whereby comments of MUFAP were sought on the suggested withdrawal of relaxation allowed to mutual funds, vide our letter dated June 19, 2002, from certain requirements of IAS 39.

While no comments have been furnished by MUFAP despite the elapse of extended time period requested vide MUFAP’s letter dated November 2, 2002, the SEC considers that there is no sufficient justification to continue the relaxation given to mutual funds in view of suitable amendments made in the Income Tax Ordinance, 2001. The recent amendments in clause (99) of Part I of the Second Schedule to the Income Tax Ordinance, 2001 through S.R.O 728(I)/2002 dated October 23, 2002 have resolved the tax anomalies faced by mutual funds in fully complying with the requirements of IAS 39. We would, therefore, like to withdraw the relaxation given to mutual funds vide our letter dated June 19, 2002. Clarifications given in our subsequent letters dated July 4 and September 12, 2002 also stand withdrawn.

The mutual funds are now required to fully comply with IAS 39 in preparing and presenting their accounts. Accordingly, quarterly accounts for the period ended December 31, 2002 should be prepared in accordance with IAS 39.

You are requested to circulate the above requirements to the members of MUFAP.

Yours truly

Jaweria Ather

Director