Annual Report 2010

Annual Report 2010
UBL Capital Protected Fund - I (UCPF-I)
Vision, Mission & Core Values
Vision
We will be the leader in the industry by being the first choice investment solution provider, offering investment advisor y ser vices, with an international presence; renowned for being client centric, quality conscious and innovative.
Mission
Offer value added products & services while adhering to the highest level of ethical standards Attract, develop & retain exceptional talent that shapes our passion for excellence and our commitment to teamwork Listen carefully to all our stakeholders and deliver winning solutions Be a responsible corporate citizen
Core Values
Respect Excellence Customer Focus Quality Honesty
CORPORATE INFORMATION
BOARD OF DIRECTORS
Tariq Kirmani Chairman Mir Muhammad Ali, CFA Chief Executive Mohammad Asghar Director Shabbir Hussain Hashmi Director Aameer M. Karachiwalla Director Ali Sameer Director Saeed Iqbal Director
CHIEF FINANCIAL OFFICER & COMPANY SECRETARY

Rahim Khakiani
FUNDS UNDER MANAGEMENT

UBL Liquidity Plus Fund Launch Date: 21 June 2009 United Growth & Income Fund Launch Date: 2 March 2006 United Stock Advantage Fund Launch Date: 4 August 2006 United Islamic Income Fund Launch Date: 20 October 2007 United Composite Islamic Fund Launch Date: 24 December 2006 UBL Capital Protected Fund-I Launch Date: 23 March 2008 UBL Capital Protected Fund-II Launch Date: 23 May 2010 UBL Retirement Savings Fund Launch Date: 10 May 2010 UBL Islamic Retirement Savings Fund Launch Date: 10 May 2010
REGISTERED OFFICE
8th Floor, State Life Building Number 1, I. I. Chundrigar Road, Karachi, Pakistan.
CORPORATE OFFICE
Floor, Executive Tower, Dolmen City Building, Block-4, Clifton, Karachi, Pakistan. Tel: (92-21) 35290080-95 Fax: (92-21) 35290070 8th
OPERATIONS OFFICE
4th Floor, STSM Building, Beaumont Road, Civil Lines, Karachi, Pakistan. UAN: (92-21) 111-825-262 Fax: (92-21) 32214930
AUDIT COMMITTEE
Shabbir Hussain Hashmi Chariman Aameer M. Karachiwalla Member Saeed Iqbal Member
DATE OF INCORPORATION OF THE MANAGEMENT COMPANY

Incorporated in Pakistan on 3 April 2001 as a Public Limited Company under the Companies Ordinance, 1984
INVESTMENT PLANS
UBL Principal Protected Plan-I Conventional UBL Principal Protected Plan-II Conventional Mahana Munafa Plan Conventional & Islamic Sarmaya Izafa Plan Conventional & Islamic Profit + Growth Plan Conventional & Islamic Mera Kal - Children Savings Plan Conventional
RISK MANAGEMENT COMMITTEE

Ali Sameer Chairman Aameer M. Karachiwalla Member Mir Muhammad Ali, CFA Member
MANAGEMENT QUALITY RATING

AM2 High Management Quality by JCR-VIS Credit Rating Company
HR & COMPENSATION COMMITTEE

Tariq Kirmani Chairman Shabbir Hussain Hashmi Member Saeed Iqbal Member
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TABLE OF CONTENTS
05 06 09 10 11 12 14 15 16 17 18 19 20 21 22 23 Fund Information Directors Report Fund Managers Report Performance Table Report of the Trustee to the Certificate holders Statement of Compliance with Code of Corporate Governance Review Report to the Certificate holders on Statement of Compliance Independent Auditors Report to the Certificate holders Statement of Assets and Liabilities Income Statement Statement of Comprehensive Income Distribution Statement Cash Flow Statement Statement of Changes in Equity Statement of Movements in Equity and Reserves Per Certificate Notes to the Financial Statements
UBL CAPITAL PROTECTED FUND-I

INVESTMENT OBJECTIVE
To protect the principal investment of the investors and aggressively partcipate in equity markets to provide investors a high level of total return over the Capital Protection Period.
FUND INFORMATION
Management Company Trustee UBL Fund Managers Limited MCB Financial Services Ltd. (formerly Muslim Commercial Financial Services Ltd.) 3rd Floor, Adamjee House, I.I. Chundrigar Road, Karachi. Tel: +92 (21) 32438441, 32428731 KPMG Taseer Hadi & Co. - Chartered Accountants THK Associates (Pvt.) Ltd. Ground Floor, State Life Building No. 3, Dr. Ziauddin Ahmed Road, Karachi-75530 Tel: +92 (21) 111-000-322 Sattar & Sattar (Attorneys at Law) United Bank Limited Bank Alfalah Limited Deutsche Bank AG.
Auditors Registrar
Legal Advisor Bankers
Directors Report
The Board of Directors of UBL Fund Managers Limited is pleased to present to you the Annual Report of "UBL Capital Protected Fund - 1" (UCPF-I) for the year ended June 30, 2010. Economy & Money Market Review - FY10 Pakistan's macro-economic indicators improved significantly in fiscal year 2010 which can be termed as year of economic recovery for Pakistan. Majority of the macro-economic indicators closed the year on a positive note after the chaos emanated in 2009. The country's GDP growth recovered to 4.1% in FY10 from a 10 year low of 1.2% in FY09. Headline inflation (CPI) declined to 11.73%YoY from its peak of 20.8% in FY09 despite significant reduction in subsidies provided by the Government of Pakistan (GoP) - giving "State bank of Pakistan" (SBP) the room to cut policy rate from 14% to 12.50% during the year. The current account deficit declined to US$3.5bn, down 62% YoY in FY10, which helped reduce the pressure on balance of payments significantly. Foreign exchange reserves increased to USD16bn in FY10, from USD11.5bn in FY09. The rate of PKR / USD depreciation tapered down to 5.6% in FY10 from a staggering 19% in FY09. The stabilization in the local economy and improved risk-perception was also acknowledged by international markets as Pakistan Euro bond yield declined by 600bps to 8.4% during FY10 and "Credit Default Swap" (CDS) spread narrowed to 6.6%. However, Fiscal deficit continued to be a source of concern as it widened to 4.2% of GDP in 9mFY10 and is likely to violate the IMF ceiling of 5.1% of GDP (GoP revised target: 5.8% of GDP). Healthy remittances inflow of USD8.9bn) and hefty inflow from the IMF program of USD3.53bn (Total disbursed: USD8.7bn | Remaining: USD2.6bn) in FY10 helped the GoP bridge its sizable deficit. Disbursal of remaining tranches from IMF is conditional upon the implementation of the "Value Added Tax" by GoP to improve the tax-to-GDP ratio which stood at a subdued 8.8% in FY10. Improvement in tax collection will be a gradual process as it will require a change in mindset of the populace as well as an extensive infrastructure to minimize tax evasion. Although we expect the officially recorded remittance figures to continue growing, we still expect GoP to resort to borrowing from foreign and domestic institutions to meet its expenses - a second IMF program is likely on the cards. Circular-debt and power shortage issues continued to act as a drag on the economic activity during the year. Circular debt stood at PKR130bn at the end of the year despite two TFC issues (PKR160bn) during the year to resolve the problem. The power shortage in the country is estimated around 4,800MW and is a serious dampener on industrial production and exports - GoP plans to setup rental power plants as a temporary solution to the problem. The global economy exhibited signs of recovery during early part of the year, fuelled by historically low interest rates (US: 0.25% | UK: 0.5% | ECB:1%) and massive government bailouts / economic packages. However, the Dubai and Greek crisis during later part of the year put significant question-marks on the sustainability of the recovery. Concerns regarding the strength of Eurozone economy led to 12.8% depreciation in Eur/USD and a global sell-off in equities. Inflation in major emerging economies (India / China) also worried the policy makers and monetar y tightening in these regions further dampened global economic growth. We expect global economic recovery to be a gradual / prolonged process. As the re-payments of the bailout packages start coming due, inflation will likely become a key concern in developed economies as well, reducing the probability of a quick economic recovery. Stock Market Review - FY'10 The KSE100 index closed the FY'10 at 9,722 points, up 35.7% - one of the best-performing markets during the year. The performance of Islamic equity index for Pakistan (DJIMPK) also followed the broad market and recorded 36.9% return during FY'10. The daily average trading volumes for KSE100 index during the period stood at 118mn shares. Majority of the gains (KSE100: 31.07% | KMI30: 29.17%) were made in the first-half of the year, driven by improved economic indicators which fuelled both domestic and foreign investor sentiment. The later half of the year was a period of consolidation as security issues, political uncertainty and concerns regarding the impact of "value added tax" (VAT) and "Capital Gains Tax" CGT dampened investor confidence. Foreign investors took exceptional interest in the market as foreign portfolio investment inflow of USD 568mn was recorded during the year, a sharp contrast to the net outflows of USD 445mn last year. The corporate sector's performance was fairly steady during the period, in-line with the gradual improvement in the real economy. Banking sector maintained its average net-interest margins above an impressive 7.3% despite decline in interest rate environment. NPL accretion continued to be a concern during the early part of the year; however it is expected to taper off during the later part of the period. Lower NPL accretion and potential provision reversals in the future can help boost the sector's earnings. The sector has shifted its preference to lending to Government (investments) from lending to the private sector (advances) which has significantly reduced the risk inherent in the sector. OMC sector enjoyed high growth in POL product offtake and inventory gains from rise in international oil prices during early part of the year. Oil & Gas (E&P) sector saw marginal decline in oil & gas production; however it will be compensated by reasonably strong international oil prices during large part of the year as well as PKR / USD depreciation. E&P, being a cash rich sector, continued to benefit from higher interest rates that prevailed during the period. Fertilizer sector benefited from growth in urea prices and DAP offtake, which compensated for the marginal growth in urea offtake and decline in DAP prices. Auto-sector was worst
06
Annual Report 2010 - UBL Capital Protected Fund I
Directors Report
hit during the last year's economic crunch - however the sector recorded impressive recovery with 43%YoY growth in sales. The Refining sector operated at low capacity utilization during the period due to liquidity constraints created by circular-debt issue. This, along with 2.5% cut in deem duty (7.5%) and lower POL product margins during earlier part of the year created tough operating conditions for the sector. However, the refining margins improved during later part of the year as the decline in International oil price exceeded the decline in local POL product prices. Cement sector, during first half of the year, suffered massively from the collapse in local cement prices post break-up of cement cartel in the midst of declining sales leading to low capacity utilizations. However, the prices have improved in the second half of the year and local cement demand has also grown to compensate for fewer export avenues - a relief for the heavily leveraged sector. Global markets performance in FY10 was very volatile. The markets rallied sharply in the first half of the year, fuelled by improvement in macro-economic indicators and expectations of a quick economic recovery. However, Greek crisis during the later half of the year brought concerns regarding weaker members of Euro-zone into the lime light. This, along with monetary tightening in major emerging markets resulted in a sharp correction in global equity markets. Developed markets managed to close the year in the positive zone (MSCI World Index: 9.53% | DJIA: 15.71% | FTSE: 15.71%). Pakistan's equity market topped the performance charts among emerging markets with a return of 35.7% during FY'10. Indian Sensex recorded a respectable return of 22.12% while the MSCI Emerging market index also returned 20.58%. Chinese markets performed dismally with a return of 19.07% during FY10. Global equity markets had overpriced the improvement in economic indicators during the early part of the year and the correction was justified in our view. We have continued to state our view of a much more gradual / prolonged recovery in the global economy and therefore expect the global equity markets to reflect the same over the long-term. Fund Performance and Announcements The Fund ended the year on a positive note and earned a net income of PKR 69.59 million for the year (includes unrealized loss on revaluation of PKR 17.01 million) as against a net income of PKR 29.02 million last year. The earnings of the fund mainly include capital gains earned from sale of securities amounting to PKR 37 million (2009: capital loss amounting to PKR 27 million) and profit on capital protected segment amounting to PKR 54 million (2009: PKR 53 million). The Fund yielded return of 9.44% for the year ended June 30, 2010. The net assets of the Fund as at year end was PKR 787.13 million and net assets value per certificate was PKR 10.94 per certificate (adjusted for the final bonus dividend of PKR 0.3 per certificate for the year ended 30 June 2009) as compared to PKR 10.27 per certificate last year. JCRVIS credit rating company Limited (JCR-VIS) has assigned an AA+(cpf) rating to the Fund. The Board of Directors of the Management Company have approved the distribution of Rs. 0.9 per certificate for the year ended June 30, 2010 (Rs. 0.3 per certificate for the year ended June 30, 2009), amounting to Rs. 64.759 million(2009: Rs. 20.958 million) in their meeting held on August 30, 2010. Response to the Auditors qualification Workers' Welfare Fund Through the Finance Act, 2008 an amendment was made in Section 2(f) of the Workers' Welfare Fund Ordinance, 1971 (the WWF Ordinance) whereby the definition of 'Industrial Establishment' has been made applicable to any establishment to which West Pakistan Shops and Establishment Ordinance, 1969 applies. As a result of this amendment, auditors believe that all collective investment schemes (CIS) are brought within the purview of the W WF Ordinance, thus rendering them liable to pay contribution to WWF at the rate of 2 percent of their accounting or taxable income, whichever is higher. MUFAP on behalf of its members i.e. various asset management companies filed a constitutional petition in the High Court of Sindh on December 22, 2009, praying that since mutual funds are pass through vehicles, this levy should not be made applicable on the mutual funds. However, in May 2010, Sindh High Court dismissed the petition on a technical ground that since MUFAP is not an aggrieved party, therefore it cannot maintain a petition on behalf of its member institution. Subsequent to the judgment, MUFAP engaged Haidermota & Co., Barrister at Law & Corporate Counselors, who filed a fresh petition on June 30, 2010 on behalf of an asset management company, trustee and few investors of mutual funds for a favorable outcome. Subsequent to the year end, a clarification from the relevant Government Ministry was issued that the levy of WWF is not applicable to the CIS and an opinion was also issued by Haidermota & Co. in this regard. Even then, this was remained a matter of debate with the auditors, where we firmly believe that this levy is not supposed to be paid by the mutual funds. The Board agreed to take a qualified audit opinion for not providing for this levy on the basis of the clarification issued by the relevant Government Ministry and opinion received from the legal counsel. Strategy, Review and Outlook of Funds For strategy, review and outlook of Funds, kindly review
07
Directors Report
the respective section of the Fund Manager's report on page no. 09 of the annual report. Code of Corporate Governance The details as required by the code of corporate governance regarding the pattern of holding in UCPF-I are given in their respective financial statements. Further, the Board of Directors states that: Financial Statements present fairly the statement of affairs, the results of operations, cash flows and the changes in cerificate holder's fund; Proper books of accounts have been maintained by the Fund; Appropriate accounting policies have been consistently applied in the preparation of the financial statements and accounting estimates are based on reasonable and prudent judgments; Relevant International Accounting Standards, as applicable in Pakistan, provision of the Non Banking Finance Companies (Establishment & Regulation) Rules, 2003, Non Banking Finance Companies and Notified Entities Regulations, 2008, requirement s of the Trust Deed and directives issued by the Securities & Exchange Commission of Pakistan have been followed in the preparation of the financial statements; The system of internal control is sound in design and has been effectively implemented and monitored; There are no significant doubts upon the Fund's ability to continue as going concern; There has been no material departure from the best practices of corporate governance, as detailed in the listing regulations; Performance table of Funds is given on page no. 10 of the Annual report; The value of Staff Provident Fund and Staff Gratuity Fund based on their latest audited accounts are PKR 13 million and PKR 6.2 million, respectively; There have been no trades in the certificates of the Fund's carried out by the Directors, CEO, CFO / Company Secretary and their spouses. Meetings of the board of directors of the management company are held at least once in every quarter. During the period under review 7 meetings were held. Attendance of directors in these meeting was as given below. Auditors M/s KPMG Taseer Hadi & Co., Chartered Accountants on the recommendation of the Audit Committee of the Board of Directors are being eligible for re-appointment have been appointed as auditors for the period ending April 15, 2011 for UBL Capital Protected Fund - I (UCPF-I). Acknowledgements We would like to thank our valued certificate holders for their confidence and trust in UBL Fund Managers Limited. In addition, we would like to acknowledge the Securities and Exchange Commission of Pakistan, State Bank of Pakis tan and MCB Financial Services Limited (formerly Muslim Commercial Financial Services Private Limited) (Trustee) for their continued support, guidance and cooperation. The Board also likes to take this opportunity to express its appreciation to the employees for their dedication, commitment, enthusiasm and hard work.
Name Mohammad Asghar Mir Muhammad Ali Aameer M. Karachiwalla Saeed Iqbal Ali Sameer Shabbir Hussain Hashmi Tariq Kirmani Atif R. Bokhari (Ex-Director)
Total number of meetings eligible to attend 7 7 7 7 7 5 N/A 6
Number of meetings attended 6 6 6 7 6 5 N/A 4

FOR & ON BEHALF OF THE BOARD
MIR MUHAMMAD ALI, CFA CHIEF EXECUTIVE OFFICER Karachi, Dated: August 30, 2010
08
FUND MANAGER'S REPORT
STRATEGY, REVIEW AND OUTLOOK OF UBL CAPITAL PROTECTED FUND (UCPF-1) UBL Capital Protected Fund-I follows the strategy of placing a certain percentage of funds in a term deposit to provide capital protection at the end of 3-year period, while the remaining amount is invested in equities to enhance the fund's return. The fund's equity portfolio was aggressively poised during the year to capture opportunities offered by the equity market and maximize returns for the fund's investors. Major equity exposure is concentrated in Oil & Gas (E&P) and "Personal Goods" sector. At the end of the year, 72% of assets were invested in the TDR, 6% in T-Bills and 13% were invested in equities with the remaining portion held as cash to be deployed in local equity market to capture any available opportunities.
UCPF - 1 Asset Allocation (As on June 30, 2010)
UCPF - 1 Asset Allocation (As on June 30, 2009)
Term Deposits, 72% Govt. Securities, 6% Other Assets, 4%
Equities , 13% Cash & Equivalent , 5%
Term Deposits, 78% Cash & Equivalent , 2%
Equities , 15% Other Assets, 5%
09
PERFORMANCE TABLE
2010 Net Assets as at 30th June: (Rupees in '000) Net Assets Value per certificate at 30th June: (Rupees)
787,134
2009
717,633
2008
688,617
10.94
10.27
9.86
One Year Capital growth Income distribution
AVERAGE ANNUAL RETURN (%)
9.44 6.52 2.92
4.22 4.22 -
-1.43 -1.43 -
AVERAGE ANNUAL RETURN (%)

One Year Second Year Third Year 9.44 6.83 4.09 4.22 1.40 -1.43 -
NET ASSETS VALUE PER CERTIFICATE (Rupees)

Highest NAV per certificate Lowest NAV per certificate 11.22 10.30 10.37 9.34 10.01 9.71
Percentage of Net Assets as at 30 June 2010 Portfolio composition by category: (%) Bank Balances & Term Deposit Reciepts Equity securities Government security Portfolio composition by market: (%) Equity Market Debt market Note : - The Launch date of the Fund is March 23, 2008. Disclaimer Past performance is not necessarily indicative of future performance and that certificate prices and investment returns may go down, as well as up. 13.19 88.69 14.50 80.40 11.12 85.81 82.54 13.19 6.15 80.40 14.50 85.81 11.12 -
PORTFOLIO COMPOSITION
10
REPORT OF THE TRUSTEE TO THE CERTIFICATE HOLDERS UBL CAPITAL PROTECTED FUND I Report of the Trustee Pursuant to Regulation 41(h) of the Non-Banking Finance Companies and Notified Entities Regulations, 2008 UBL Capital Protected Fund I, a closed-end Scheme established under a Trust Deed dated November 16, 2007 executed between UBL Fund Managers Limited, as the Management Company and MCB Financial Services Limited (formerly: Muslim Commercial Financial Services Limited), as the Trustee. The scheme was authorized by Securities & Exchange Commission of Pakistan on November 08, 2007. 1. UBL Fund Managers Limited, the Management Company of UBL Capital Protected Fund I has, in all material respects, managed UBL Capital Protected Fund I during the year ended 30th June 2010 in accordance with the provisions of the following: (i) (ii) (iii) the limitations imposed on the investment powers of the Management Company under the Constitutive Documents; the valuation and pricing of Certificates are carried out in accordance with the requirements of the Trust Deed and the Offering Document; the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 and NonBanking Finance Companies and Notified Entities Regulations, 2008; and the constitutive documents.
For the purpose of information, the attention of certificate holders is drawn towards auditors report wherein they have stated that provision for Workers' Welfare Fund has not been made in the accounts.
Karachi: August 18, 2010
Khawaja Anwar Hussain Chief Executive Officer MCB Financial Services Limited (formerly: Muslim Commercial Financial Services Limited).
11
STATEMENT OF COMPLIANCE BY UBL CAPITAL PROTECTED FUND-I WITH THE BEST PRACTICES OF CODE OF CORPORATE GOVERNANCE
FOR THE YEAR ENDED 30 JUNE 2010
This statement is being presented to comply with the Code of Corporate Governance (the Code) contained in chapter XI of Listing Regulations of Islamabad Stock Exchange for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of Corporate Governance. The Board of Directors (the Board) of UBL Fund Managers Limited (the Management Company), which is an unlisted public company, manages the affairs of UBL Capital Protected Fund-I(the Fund). The Fund being a certificate trust close end scheme does not have its own Board of Directors. The Management Company has applied the principles contained in the Code to the Fund, whose certificates are listed as a security on the Islamabad Stock Exchange, in the following manner: 1. The Management Company encourages representation of independent non-executive directors. All the directors, except the Chief Executive Officer of the Management Companyare non-executive directors, two of which are independent non-executive directors. 2. The existing directors have confirmed that none of them are serving as a director in more than ten listed companies, including the Management Company. 3. All the resident directors of the Management Company have confirmed that they are registered as taxpayers and none of them have defaulted in payment of any loan to a banking company, a DFI or an NBFC or, being a member of a stock exchange, have been declared as a defaulter by that stock exchange. 4. During the year one casual vacancy occurred on the Board, which was filled within 30 days thereof. 5. The Management Company has prepared a 'Statement of Ethics and Business Practices' which has been signed by all the directors and employees of the Management Company. 6. The Management Company has developed a vision/ mission statement, corporate strategy and significant policies for the Fund that has been approved by the Board. A complete record of particulars of significant policies along with the dates on which these were approved or amended has been maintained. 7. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment and terms and conditions of employment of the CEO has been taken by the Board. 8. The meetings of the Board were presided over by the Chairman and the Board met at least once in every quarter. Written notices of the Board meetings, along with agenda and working papers, were circulated at least seven days before the meetings. The minutes of the meetings were appropriately recorded and circulated. 9. The Management Company has an approved policy of related party transactions which states all necessary policy matters pertaining to related party transactions, separate consideration and maintenance of records and approval of transactions with related parties etc. All the related party transactions were placed before the Audit Committee and the Board of Directors for their review and approval on quarterly basis. 10. In order to apprise the directors on their duties and responsibilities and the requirements of the Code, the Management Company has a policy to conduct formal orientations for the new directors. Accordingly orientations of two newly appointed directors were arranged during the year. Furthermore, one director on the Board also completed three parts out of four of the certification "The Board Development Series" offered by the Pakistan Institute of Corporate Governance. The directors are conversant of the relevant laws applicable to the Management Company, its policies and procedures and provisions of memorandum and articles of association and are aware of their duties and responsibilities. 11. No new appointments of CFO, Company Secretary and Head of Internal Audit were made during the year.
12
12. The Directors' report relating to the Fund for the year ended 30June, 2010 has been prepared in compliance with the requirements of the Code and fully describes the salient matters required to be disclosed. 13. The financial statements of the Fund were duly endorsed by the CEO and CFO of the Management Company before approval of the Board. 14. The directors, CEO, and executives do not hold any interest in the certificates of the Fund and shares of the Management Company other than disclosed in the Directors Report. 15. The Management Company has complied with all the applicable corporate and financial reporting requirements of the Code. 16. The Board has formed an audit committee. It comprises of three members, all of whom are non-executive directors of the Management Company including the chairman of the committee who is an independent non-executive director. 17. The meetings of the audit committee were held at least once in every quarter and prior to the approval of interim and final results of the Fund as required by the Code. The terms of reference have been approved in the meeting of the board of directors and the committee has been advised to ensure compliance with those terms of reference. 18. The Management Company has outsourced the internal audit function of the Fund to M/s. M.Yousuf Adil Saleem & Co., Chartered Accountants, who are considered suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the Fund and they are involved in the internal audit function on full time basis. 19. The statutory auditors of the Fund have confirmed that they have been given a satisfactory rating under the Quality Control Review program of the Institute of Chartered Accountants of Pakistan (ICAP), that they or any of the partners of the firm, their spouses and minor children do not hold shares of the Management Company or certificates of the Fund and that the firm and all its partners are in compliance with the International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by the Institute of Chartered Accountants of Pakistan. 20.The statutory auditors or the persons associated with them have not been appointed to provide other services except in accordance with the listing regulations and the auditors have confirmed that they have observed IFAC guidelines in this regard. 21. We confirm that all other material principles contained in the Code have been complied with.
Mir Muhammad Ali, CFA Chief Executive
Karachi, Dated: August 30, 2010
13
Review Report to the Certificate Holders on Statement of Compliance with Best Practices of Code of Corporate Governance We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate Governance prepared by the Board of Directors of the Management Company of the UBL Capital Protected Fund - I (the Fund) to comply with the listing regulations of the Islamabad Stock Exchange, where the Fund is listed. The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of the Management Company of the Fund. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of the Funds compliance with the provisions of the Code of Corporate Governance and report if it does not. A review is limited primarily to inquiries of the Fund personnel and review of various documents prepared by the Fund to comply with the Code. As part of our audit of financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board statement on internal control covers all risks and controls, or to form an opinion on the effectiveness of such controls, the Funds corporate governance procedures and risks. Further sub-regulation (xiii-a) of Listing Regulations 35 notified by the Islamabad Stock Exchange (Guarantee) Limited requires the Fund to place before the Board of Directors for their consideration and approval related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in arms length transactions and transactions which are not executed at arms length price recording proper justification for using such alternate pricing mechanism. Further, all such transactions are also required to be separately placed before the audit committee. We are only required and have ensured compliance of requirement to the extent of approval of related party transactions by the board of directors and placement of such transactions before the audit committee. We have not carried out any procedures to determine whether the related party transactions were undertaken at arms length price or not. Based on our review, nothing has come to our attention, which causes us to believe that the Statement of Compliance does not appropriately reflect the Funds compliance, in all material respects, with the best practices contained in the Code of Corporate Governance as applicable to the Fund for the year ended 30 June 2010.
Date: 30 Aug 2010 Karachi

KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
KPMG Taseer Hadi & Co. Chartered Accountants
14
Independent Auditors' Report to the Certificate Holders

We have audited the accompanying financial statements of UBL Capital Protected Fund - I ("the Fund"), which comprise the statement of assets and liabilities as at 30 June 2010, and the income statement, statement of comprehensive income, distribution statement, statement of cash flows, statement of changes in equity and statement of movements in equity and reserves 'per certificate' for the year then ended and a summary of significant accounting policies and other explanatory notes. Management's responsibility for the financial statements Management Company of the Fund is responsible for the preparation and fair presentation of these financial statements in accordance with the requirements of the approved accounting standards as applicable in Pakistan. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial 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. Auditors' responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards as applicable in Pakistan. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Basis for Qualified Opinion Through Finance Act, 2008 an amendment was made in section 2(f) of the Workers' Welfare Fund Ordinance, 1971 (the WWF Ordinance) whereby the definition of 'Industrial Establishment' has been made applicable to any establishment to which West Pakistan Shops and Establishment Ordinance, 1969 applies which includes mutual funds. However, the Fund considers that it is not liable to contribute to the Workers' Welfare Fund for reasons as explained in note 26 to the financial statements. However, we have obtained an independent legal opinion on this matter which states that the Fund is required to contribute to the Workers' Welfare Fund. Accordingly, we consider that provision for Workers' Welfare Fund liability amounting to Rs. 1.365 million and Rs. 0.569 million for the years ended 30 June 2010 and 30 June 2009 respectively should have been made by the Fund. Had the said accrual been made, net assets of the Fund and net income of the Fund as of and for the year ended 30 June 2010 would have been lower by Rs. 1.934 million, while the Fund's liability as of 30 June 2010 would have been higher by the same amount. Similarly net assets per certificate of the Fund as of 30 June 2010 would have been lower by Rs.0.03 per certificate. Qualified Opinion In our opinion, except for the effects of the matter described in the basis of qualified opinion paragraph, the financial statements give a true and fair view of the state of the Fund's affairs as at 30 June 2010, and of its financial performance, cash flows and transactions for the year then ended in accordance with approved accounting standards as applicable in Pakistan. Other matter In our opinion, the financial statements have been prepared in accordance with the relevant provisions of the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 and Non-Banking Finance Companies and Notified Entities Regulations, 2008. Date: 30 Aug 2010
Karachi
KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
KPMG Taseer Hadi & Co. Chartered Accountants Mazhar Saleem
15
STATEMENT OF ASSETS AND LIABILITIES

AS AT 30 JUNE 2010
Note Assets Capital protection segment Investment in term deposit receipts Investment in government security - 'Available-for-sale' Profit receivable on term deposit receipts Investment Segment Bank balances Investments in equity securities- 'At fair value through Profit or loss' Profit receivable on bank deposits Advances, deposits and other receivables Preliminary expenses and floatation costs Total assets Liabilities Payable to the Management Company Remuneration payable to the Trustee Payable to Securities and Exchange Commission of Pakistan Accrued expenses and other liabilities Total liabilities NET ASSETS FINANCE BY CERTIFICATE HOLDER'S EQUITY Issued, subscribed and paid-up Capital 71,954,255 ordinary certificates of Rs. 10 each (2009: 69,858,500 ordinary certificates of Rs. 10 each) Unrealised (loss) on available-for-sale investments Unappropriated profit TOTAL CERTIFICATE HOLDER'S FUNDS 11 12 13 14 7 8 5 6
2010 2009 (Rupees in '000)
569,500 48,423 43,646 661,569
561,500 43,477 604,977
36,552 103,860 219 140,631 2,575 36 804,811
15,462 104,072 127 119,661 3,485 82 728,205
9 10
6,577 91 580 10,429 17,677 787,134
9,300 86 580 606 10,572 717,633
719,543 (84) 67,675 787,134
698,585 19,048 717,633
NET ASSETS VALUE PER CERTIFICATE
15.1
10.94
10.27
The annexed notes from 1 to 28 form an integral part of these financial statements.
For UBL Fund Managers Limited (Management Company)
Saeed Iqbal Director
16
INCOME STATEMENT
Note Income Gain / (loss) on sale of equity securities-net Dividend income on 'at fair value through profit or loss upon initial recognition' - equity securities Dividend income on 'held for trading' - equity securities Income from term deposit receipts - capital protection segment Income from government securities - capital protection segment Profit on bank deposits
2010
2009 (Rupees in '000) (26,995) 75 4,460 53,192 3,246 33,978 7,066 41,044
36,767 4,122 53,929 3,898 2,517 101,233 (17,011) 84,222
Unrealised (loss) / gain on revaluation of investments-net Total income Expenses Remuneration to the Management Company Remuneration to the Trustee Annual fee to Securities and Exchange Commission of Pakistan Custody, settlement and bank charges Brokerage expense Auditors' remuneration Fees and subscription Printing expense Amortisation of preliminary expenses Other expenses Total expenses Net income for the year Net profit per certificate- basic and diluted 16 12 13
17
10
10,094 1,093 580 427 1,302 350 208 348 46 189 14,637 69,585 0.97
8,736 1,023 580 28 314 300 724 46 277 12,028 29,016 0.41
17
STATEMENT OF COMPREHENSIVE INCOME

2010 2009 (Rupees in '000) Net income for the year Other Comprehensive Income Unrealised diminution in the revaluation of 'available-for-sale' investments Total comprehensive income for the year (84) 69,501 29,016 69,585 29,016
18
DISTRIBUTION STATEMENT
2010 2009 (Rupees in '000) Undistributed income at beginning of the year (realised) Accumulated loss at beginning of the year (un-realised) Final distribution of bonus certificates for the year ended 30 June 2009 of Rs. 0.3 per certificate (2008:Nil) Net income for the year Undistributed income at end of the year Undistributed income at end of the year (realised) Accumulated loss at end of the year (un-realised) 30,999 (11,951) 19,048 (20,958) 69,585 67,675 96,637 (28,962) 67,675 The annexed notes from 1 to 28 form an integral part of these financial statements. 9,049 (19,017) (9,968) 29,016 19,048 30,999 (11,951) 19,048
19
CASH FLOW STATEMENT

2010 2009 (Rupees in '000) CASH FLOWS FROM OPERATING ACTIVITIES Net income for the year Adjustments for: Amortisation of preliminary expenses Unrealized loss / (gain) on revaluation of investments-net 69,585 46 17,011 86,642 Increase in assets Investment in term deposit receipts Investment in government securities Investments in equity securities Profit receivable on term deposit receipts Profit receivable on bank deposits Advances, deposits and other receivables Increase in liabilities Payable to the Management Company Remuneration payable to the Trustee Payable to Securities and Exchange Commission of Pakistan Accrued expenses and other liabilities Net increase in cash and cash equivalents during the year Cash and cash equivalents at beginning of the year Cash and cash equivalents as at end of the year (8,000) (48,507) (16,799) (169) (92) 910 (72,657) (2,723) 5 9,823 7,105 21,090 15,462 36,552 29,016 46 (7,066) 21,996 15,125 (20,446) (32,551) (31) 9,010 (28,893) 7,292 2 436 358 8,088 1,191 14,271 15,462
20
STATEMENT OF CHANGES IN EQUITY

Issued, subscribed and paid up capital
Unappropriated (loss) / profit
Unrealised (diminution) in the fair value of 'Available - for sale' investments
Total
------------------------------ (Rupees in '000) ------------------------------Balance as at 30 June 2008 Changes in equity for the year ended 30 June 2009 Total comprehensive income for the yearNet income for the year Balance as at 30 June 2009 Changes in equity for the year ended 30 June 2010 Net income for the year Unrealised diminution in the revaluation of 'available-for-sale' investments Total comprehensive income for the year Final distribution of bonus certificates for the year ended 30 June 2009 at the rate of Rs. 0.3 per certificate Issuance of bonus certificates Balance as at 30 June 2010 698,585 (9,968) 688,617
698,585
29,016 19,048
29,016 717,633
69,585 69,585
(84) (84)
69,585 (84) 69,501
(20,958) 67,675
(84)
(20,958) 20,958
787,134
20,958
719,543
21
STATEMENT OF MOVEMENTS IN EQUITY AND RESERVES 'PER CERTIFICATE'

2010 2009 (Rupees per certificate) Net assets value per certificate at beginning of the year Bonus Certificates issued during the year Capital gain / (loss) on trading in marketable securities - net Unrealised (loss) / gain on revaluation of investments-net Net gain for the year excluding gain / (loss) on sale of marketable securities and unrealised (loss) / gain on investments Net income for the year Net assets value per certificate at end of the year 10.27 (0.30) 0.52 (0.24) 0.69 0.97 10.94 9.86 (0.39) 0.09 0.71 0.41 10.27
22
NOTES TO THE FINANCIAL STATEMENTS

1. 1.1
LEGAL STATUS AND NATURE OF BUSINESS UBL Capital Protected Fund - I (UCPF-I) was established under a trust deed executed between UBL Fund Managers Limited (UBL Funds) as the Management Company and MCB Financial Services Limited (formerly Muslim Commercial Financial Services (Private) Limited) as the Trustee on 16 November 2007. The Management Company of UCPF-I has obtained the requisite license from the Securities and Exchange Commission of Pakistan (SECP) to undertake Asset Management as well as Investment Advisory services under the NonBanking Finance Companies (Establishment and Regulation) Rules, 2003 (NBFC Rules). Formation of UCPF-I as closed-end fund was authorized by SECP on 08 November 2007. The Fund offered its certificates for public subscription from 01 March 2008 to 22 March 2008. The Fund is listed on Islamabad Stock Exchange. The Fund is a closed - end scheme and it commenced its operations from 16 April 2008. It has a maturity period of three years and will cease to operate on 15 April 201 The objective of the Fund is to protect the 1. principal investment of the investors and aggressively participate in equity markets to provide investors a high level of total returns over the three year protection period as explained in more detail in the note below. As per the Trust Deed, the Management Company may, after 15 April 201 convert the Fund into an open1, end fund with the approval of Certificate holders, Trustee and the SECP, after complying with the provisions of the NBFC Rules.
1.2
1.3
The Fund consists of two segments, an investment segment and a Capital Protection Segment. The Capital Protection is secured by investing the assets of the Fund (minimum of 70% and maximum of 85% of the initial size (issued, subscribed and paid-up Capital of the Fund) that will yield a future value equivalent to the initial size of the fund providing 100% protection of the total initial investment (net of all expenses) to the investors) in Pakistan Investment Bond, Structured Zero Coupon Bonds, Bank Deposits/ instruments or Term Finance Certificates having an appropriate life and at least an AA rating having equal or senior rights to the depositors (such that at the end of the above referred three years maturity period, the size of the fund representing its equity is at least equal to the issued, subscribed and paid up capital, net of dividend payments during the three years period). The remaining assets of the Fund are being allocated to the Investment Segment and invested in high risk assets that have the potential to give a high return to investors. The investment in high risk assets may be through derivatives, futures, etc subject to SECP approval. The investment segment may also be invested in international investments with in parameters recommended by the regulatory authorities. The Capital of the Fund is protected only in terms of the base currency i.e. the Pakistani Rupee. In addition, the Capital Protection is only valid in terms of the current tax and legal environment of Pakistan and is subject to force majeure factors such as bankruptcy of an 'AA' rated institution. The remaining fund (representing the investment segment) will be utilized to invest in higher return / higher risk investments in asset classes like domestic securities including shares and higher risk rated bonds and Term Finance Certificates, investments in derivatives and futures, international investments within the parameters recommended by regulatory authorities and any other investment that has a high potential return with the approval of the Securities and Exchange Commission of Pakistan (SECP).
1.4
The Securities and Exchange Commission of Pakistan vide its letter dated 4 February 2008 approved the offering document of the Fund had amongst other things, advised the management company as follows: The management company shall ensure that the protected portion of the fund is deposited in a bank with minimum long term rating of AA and the rate on such deposit shall not be lower than the rate being offered for similar size / tenor deposit. The management company shall ensure that the capital protection segment of the Fund shall remain unencumbered at all times.
23
1.5 2. 2.1
As per Trust Deed of the Fund, the creditors of the Fund will have no claim against the assets of the Capital Protected Segment. STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984, requirements of Trust Deed, Non Banking Finance Companies (Establishment and Regulation) Rules, 2003 (NBFC Rules) and Non-Banking Finance Companies and Notified Entities Regulations, 2008 and herein-after referred to as "NBFC Regulations, 2008". In case, the requirements differ, the provisions or directives of the Companies Ordinance, 1984, the requirements of the Trust Deed and NBFC Rules & NBFC Regulation, 2008 shall prevail. Standards, interpretations and amendments effective for annual reporting periods beginning after 1 July 2009 The following standards, interpretations and amendments of approved accounting standards are effective for accounting periods beginning on or after 1 January 2010. However, these are not relevant to the Fund except in few cases these may require additional disclosures: Improvements to IFRSs 2009 Amendments to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations Amendments to IFRS 8 Operating Segments Amendments to IAS 1 Presentation of Financial Statements Amendments to IAS 7 Statement of Cash Flows Amendments to IAS 17 Leases Amendments to IAS 36 Impairment of Assets Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards - Additional Exemptions for First-time Adopters Amendments to IFRS 2 Share-based Payment - Group Cash-settled Share-based Payment Transactions Amendment to IAS 32 Financial Instruments: Presentation - Classification of Rights Issues IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments Amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards - Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters
2.2
Improvements to IFRSs 2010 Amendments to IFRS 3 Business Combinations Amendments to IAS 27 Consolidated and Separate Financial Statements IAS 24 Related Party Disclosures (revised 2009) These amendments will result in increase in disclosures in the Fund's financial statements.
24
3. 3.1 3.2 3.3
Amendments to IFRIC 14 IAS 19 - The Limit on a Defined Benefit Assets, Minimum Funding Requirements and their Interaction Amendments to IFRS 1 First-time Adoption of IFRSs Amendments to IFRS 7 Financial Instruments: Disclosures Amendments to IAS 1 Presentation of Financial Statements Amendments to IAS 34 Interim Financial Reporting Amendments to IFRIC 13 Customer Loyalty Programmes
BASIS OF PREPARATION These financial statements have been prepared under the historical cost convention, except that investments ' At Fair value through Profit or Loss' and 'Available-for-sale' are measured at fair values. These financial statements are presented in Pakistani Rupees, which is also the functional currency of the Fund and have been rounded to the nearest thousand rupees. Critical accounting estimates and judgments The preparation of financial statements in conformity with approved accounting standards, as applicable in Pakistan, requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgments made by management in the application of approved accounting standards, as applicable in Pakistan, that have significant effect on the financial statements and estimates with a significant risk of material judgment in the next year are discussed below: Investments stated at fair value Management has determined fair value of certain investments by using quotations from active market. Fair value estimates are made at a specific point in time, based on market conditions and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matter of judgment (e.g. valuation, interest rates, etc.) and therefore, can not be determined with precision. Impairment of investments The Fund determines that investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgment. In making this judgment, the Fund evaluates among other factors, the normal volatility in prices. In addition the impairment may be appropriate when there is an evidence of deterioration in the financial health of the invested industry and sector performance, changes in technology and operational financial cash flows.
25
Other assets Judgment is also involved in assessing the reliability of the assets balances. 3.4 Changes in accounting policies a) Presentation of financial statements The Fund has adopted IAS - 1 "Presentation of Financial Statements (Revised)" which became effective during the year. The revised standard separates owner and non-owner changes in certificate holders' fund. The statement of changes in equity includes only details of transactions with owners, with nonowners changes in equity presented as a single line item in the statement of changes in equity. In addition, the standard introduces the statement of comprehensive income which presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Fund has elected to present two statements. Comparative information has been re-presented in conformity with the above revised IAS. The change in accounting policy only impacts presentation and disclosure aspects. b) Operating segments Effective annual period beginning 1 January 2009, International Financial Reporting Standard (IFRS) 8 dealing with "Operating Segment" also became applicable. Under this IFRS, the Fund determines and presents operating segments based on the information that internally is provided to the Board of Directors, which is the Fund's chief operating decision maker. The application of this standard has resulted in certain increased disclosures only as disclosed in note 20 to these financial statements. Comparative segment information has been re-presented in conformity with the above revised IAS / IFRS. 3.5 Other accounting developments Disclosures pertaining to fair values for financial instruments The Fund has applied Improving Disclosures about Financial Instruments (Amendments to IFRS 7), issued in March 2009, that require enhanced disclosures about fair value measurements in respect of financial instruments. The amendments require that fair value measurement disclosures use a three-level fair value hierarchy that reflects the significance of the inputs used in measuring fair values of financial instruments. Specific disclosures are required when fair value measurements are categorised as Level 3 (significant unobservable inputs) in the fair value hierarchy. The amendments require that any significant transfers between Level 1 and Level 2 of the fair value hierarchy be disclosed separately, distinguishing between transfers into and out of each level. Furthermore, changes in valuation techniques from one period to another, including the reasons therefore, are required to be disclosed for each class of financial instruments. Revised disclosures in respect of fair values of financial instruments are included in note 21.5. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements are set out below.
26
4.1
Investments All investments are initially recognised at fair value, being the cost of consideration given including transaction cost associated with the investment, except in case of financial assets at fair value through profit or loss, in which case the transaction costs are charged off to the Income Statement. All regular way of purchases and sales of investments are recognised on the trade date i.e. the date the Fund commits to purchase / sell the investments. Regular way of purchase and sale of investments require delivery of securities within two days after the transaction, as required by the Stock Exchange Regulations. The Fund classifies its investment in the following categories.
4.1.1
Financial assets at fair value through profit or loss This category has two sub-categories, namely; financial instruments held for trading, and those designated at fair value through profit or loss upon initial recognition. Investments which are acquired principally for the purposes of generating profit from short term fluctuation in price or are part of the portfolio in which there is recent actual pattern of short term profit taking are classified as held for trading. Investments designated at fair value through profit or loss upon initial recognition include those group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with the documented risk management / investment strategy.
After initial recognition, the investments in equity shares are remeasured at fair value determined with reference to the year-end rates quoted on the stock exchange. Gains or losses on re-measurement of these investments are recognised in the Income Statement. 4.1.2 Available-for-sale Investments which do not fall under the above categories are classified as available-for-sale. After initial recognition, investments in government securities (Treasury Bills) classified as available-for-sale are remeasured to fair value, determined with reference to the quotations obtained from the PKRV rate sheet on the Reuters page, based on the remaining tenor of the security. Gains or losses on remeasurement of these investments are recognised directly in the equity until the investment is sold, collected or otherwise disposed-off, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in Income Statement. 4.2 Derivative financial instrument Derivative instruments generally comprise of future contracts in the capital markets. These are initially recognised at cost and are subsequently re-measured at their fair value. The fair value of future contracts is calculated as being the net difference between the contract price and the closing price reported on the primary exchange of the future contract. Derivatives with positive market values (un-realised gains) are included in other assets and derivatives with negative market values (un-realised losses) are included in other liabilities in the balance sheet. The resultant gains and losses are included in the income currently. Derivative financial instruments entered into by the Fund do not meet the hedging criteria as defined by International Accounting Standard-39, Recognition and measurement of financial instruments, consequently hedge accounting is not used by the Fund. 4.3 Taxation The income of the fund is exempt from Income Tax under clause 99 of Part I of the Second Schedule to the Income Tax Ordinance, 2001 subject to condition that not less than 90% of its accounting income of that
27
year, as reduced by capital gains, whether realised or unrealised, is distributed amongst its certificate holders. 4.4 4.4.1 4.4.2 Revenue recognition Gains / (losses) on sale of investments are included in the Income Statement on the date at which the transaction takes place. Unrealised capital gain / (losses) arising from revaluation of securities classified as 'financial assets at fair value through profit or loss' are included in the Income Statement in the year in which they arise. While those on investments classified as 'Available-for-sale' are included in equity. Dividend income is recognised when the right to receive the dividend is established. Income on Term deposits certificates, Government securities (T-Bills) and bank deposits are recognised at rate of return implicit in the instrument on a time proportionate basis. Impairment Financial asset is assessed at each balance sheet date to determine whether there is any objective evidence that it is impaired. A financial assets is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of the asset. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit and loss account. 4.6 Provisions Provisions are recognised in the Statement of Assets & Liabilities when the Fund has a legal or constructive obligation as a result of past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the reliable estimate of the amount of the obligation can be made. Provisions are regularly reviewed and adjusted to reflect the current best estimate. 4.7 Preliminary expenses and floatation costs Preliminary expenses and floatation costs represents expenditure incurred prior to the commencement of operations of the Fund. These costs are being amortised over the life of the Fund commencing from 16 April 2008 (also refer note 10 to these financial statements). 4.8 Financial Instruments All the financial assets and liabilities are recognised at the time when the Fund becomes a party to the contractual provisions of the instrument. All financial assets and liabilities are initially measured at fair value and are subsequently measured at fair value or amortised cost as the case may be. The Fund de-recognises the financial assets and liabilities when it ceases to be a party to such contractual provision of the instrument. Any gain or loss on de-recognition of financial assets and liabilities is taken to income statement directly. 4.9 Offsetting of financial assets and financial liabilities Financial assets and liabilities are only off set and the net amount reported in the statement of assets and liabilities when there is a legally enforceable right to set off the recognised amount and the fund intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously. 4.10 Cash and cash equivalents Cash and cash equivalents comprise of bank balances including term deposits with banks (that are readily
4.4.3 4.4.4 4.5
28
convertible to known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short term cash commitments rather than for investment or other purposes). 4.11 Dividend distribution and appropriations Dividend distributions and appropriations are recorded in the period in which these distributions and appropriations are approved. 5. INVESTMENT IN TERM DEPOSIT RECEIPTS Note 2010 2009 (Rupees in '000) 551,500 18,000 569,500 551,500 10,000 561,500
United Bank Limited (a related party) Bank Alfalah Limited
5.1 5.2
5.1
This represents deposits held with United Bank Limited (a related party) with a maturity of 1 year carrying profit rate of 9.5% (2009: 9.5%) per annum. The profit shall be received on maturity of the deposit. The deposit will mature on 3 September 2010. This represents deposits held with the Bank Alfalah Limited with a maturity of 1 year carrying profit rate of 11.75% (2009: 13%) per annum. The profit shall be received on maturity of the deposit. The deposit will mature on 16 April 2011. INVESTMENT IN GOVERNMENT SECURITY Available-for-sale 1 - Year Treasury Bill
5.2
6.
6.1
48,423
6.1
This represents 1 Year Treasury bill of government carrying a fixed mark-up rate of 12.56% and will mature on 7 October 2010. The face value of the treasury bills held as at 31 December 2009 is Rs. 50 million. BANK BALANCES Cash at banks In local currency: - in profit and loss sharing bank accounts 36,552 15,462
7.
7.1
7.1
Profit rates on these profit and loss sharing accounts range between 5% to 8 % per annum (2009: 5% to 10% per annum). This includes a balance of Rs. 0.1 million (2009: Rs. 0.1 million) held with United Bank Limited (a related party) which carry profit rate at 5 % per annum (2009: 5% per INVESTMENTS IN EQUITY SECURITIES At fair value through profit or loss: - Held for trading - equity securities
8.
8.1
103,860
104,072
29
8.1
At fair value through profit or loss- Held for trading Percentage in relation to Net assets Total Issued investments Capital of Investee company
Name of the Security (ordinary shares of Rs. 10 each)
Balance Purchased / Sold Balance as at 01 Bonus during the as at 30 July 2009 received year June 2010 during the year ----------------------- (No. of Shares) ---------------------
Carrying / Carrying / Market Market amount as amount as at 30 June at 30 June 2010 2009
------------------------------(Rupees in '000)-----------------------------
BANKS United Bank Limited (related party) National Bank of Pakistan MCB Bank Limited OIL & GAS Pakistan Oilfields Limited * Pakistan State Oil Company Limited Oil & Gas Development Company Limited Mari Gas Company Limited Pakistan Petroleum Limited * Attock Petroleum Limited Attock Refinery Limited
220,000 108,000 -
487,000 245,000
220,000 595,000 245,000
16,193 21,146 19,703 57,042
8,424 7,239 15,663 4,669 35,781 40,450
32,000 455,000 -
682,500 292,440 55,000 31,251 132,500 87,300 210,000
639,500 211,172 510,000 31,251 132,500 19,300 210,000
75,000 81,268 68,000 -
2.06% 2.69% 2.50% -
15.59% 20.36% 18.97%
0.03% 0.05% 0.12%
CHEMICALS Dawood Hercules Chemical Limited Lotte Pakistan PTA Limited (formerly Pakistan PTA Limited) Engro Corporation Limited (formerly * Engro Chemicals Pakistan Limited) Fauji Fertilizer Bin Qasim Limited Fauji Fertilizer Company Limited
8,800 329,000 -
100,000 350,000 120,000 250,000 115,000
83,800 350,000 449,000 250,000 115,000
25,000 -
4,386 4,386
1,131 42,253 43,384
0.56% 4.22% -
0.02% -
CONSTRUCTION AND MATERIALS Lucky Cement Limited DG Khan Cement Company Limited 50,000 Attock Cement Pakistan Limited -
550,000 575,000 135,000
550,000 625,000 250
134,750
8,826 8,826
1,483 1,483
1.12% 8.50%
0.16%
GENERAL INDUSTRIES Packages Limited PERSONAL GOODS Nishat Chunian Limited Nishat Mills Limited Nishat Mills Limited (Right Entitlement letters)
7,000
7,000
1,099
900,000 1,100,000 157,500
650,000 157,500
900,000 450,000 -
14,202 19,404 33,606 -
1.80% 2.47% -
13.67% 18.68% -
0.60% 0.13% -
NON LIFE INSURANCE Adamjee Insurance Company Limited FINANCIAL SERVICES Jahangir Siddiqui & Company Limited ELECTRICITY Hub Power Company Limited Grand Total-'held for trading'
225,000
225,000
85,945
85,945
1,993
500,000
500,000
103,860
104,072
* These include 100,000 shares pledged with the National Clearing Company of Pakistan Limited against the exposure margin and the mark to market losses. 8.1.1 The cost of above investments as at 30 June 2010 amounted to Rs.120.871 million (30 June 2009: Rs. 97.006 million).
30
9.
ADVANCES, DEPOSITS AND OTHER RECEIVABLES Dividend receivable Security deposit with National Clearing Company of Pakistan Limited Security deposit with Muslim Commercial Financial Services (Private) Limited
2010 2009 (Rupees in '000) 2,500 75 2,575 910 2,500 75 3,485
10.
PRELIMINARY EXPENSES AND FLOATATION COSTS Opening balance Amortisation during the year Closing balance 82 (46) 36 128 (46) 82
Preliminary expenses represent expenditure incurred for the constitution and the launch of the Fund. As stated in note 4.7 of these financial statements, these expenses are being amortised over the life of the Fund commencing from 16 April 2008. 11. PAYABLE TO ASSET MANAGEMENT COMPANY - UBL FUND MANAGERS LIMITED Remuneration to the Management Company Preliminary expenses and other cost 11.1 11.2 6,577 6,577 9,101 199 9,300
11.1
The Fund has calculated remuneration to the Management Company at the rate of 1.25 % of the average daily net assets of the fund. However only 1% shall be paid and the remaining 0.25% will continue to accrue and will be paid on the termination of the fund and will attract a cost equal to average six month KIBOR offer rate from the date it should have been calculated bi-annually. Provided that the net amount to be paid to the certificate holders after termination of the fund completes the capital protection as given in the offering document of the Fund and explained in note 1.3 to these financial statements. In case the net amount is not sufficient to complete the capital protection, the fee plus interest cost accruing to the management company will be reduced to the extent such amount becomes so sufficient. The above liability as of 30 June 2010 includes mark-up of Rs. 0.553 million (2009: Rs. 0.17 million) only.
11.2 12.
The balance outstanding at the beginning of the year has been paid during the year. REMUNERATION PAYABLE TO THE TRUSTEE - MCB FINANCIAL SERVICES LIMITED (FORMERLY MUSLIM COMMERCIAL FINANCIAL SERVICES (PRIVATE) LIMITED) The Trustee is entitled to a monthly remuneration for services rendered to the Fund under the provisions of the Trust Deed at the rate of Rs. 0.875 million plus 0.08% per annum of the net assets exceeding Rs. 500 million.
13.
PAYABLE TO SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN (SECP) This represents annual fee payable to SECP in accordance with the NBFC Regulations, whereby the Fund is required to pay SECP fee at the rate of 0.075 percent of the average daily net assets of the fund in accordance with regulation 62 of NBFC regulations 2008.
31
14.
ACCRUED EXPENSES AND OTHER LIABILITIES Payable against purchase of investments Auditors' remuneration Printing expense Professional tax payable Brokerage payable Other expenses 14.1
2009 2010 (Rupees in '000) 9,538 215 300 100 276 10,429 209 380 17 606
14.1 15.
This represents the amount payable for the equity securities purchased in the ready stock market. The amount was paid subsequent to the year end. PATTERN OF CERTIFICATE HOLDERS Category of Certificate Holders Number of Certificate holders 6 4,110 16 4,132 2010 Number of Certificates held 36,678,815 32,836,795 2,438,645 71,954,255 2009 Associated companies and other related parties General public Others 4 4,125 22 4,151 35,500,000 25,364,500 8,994,000 69,858,500 51% 36% 13% 100%
Percentage 51% 46% 3% 100%
Associated companies and other related parties General public Others
15.1
NET ASSET VALUE PER CERTIFICATE Total net assets
2010 2009 (Rupees in '000) 787,134 717,633
(Certificates in '000) Total certificates in issue 71,954 (Rupees) Net assets value per certificate 16. REMUNERATION TO MANAGEMENT COMPANY Remuneration to Management Company Mark-up on retained remuneration 17. AUDITORS' REMUNERATION Annual audit fee Fee for the review of half yearly financial statements Fee for the review of Code of Corporate Governance Fee for other certifications Out of pocket expenses 140 100 25 35 50 350 125 75 25 25 50 300 10.94 (Rupees in '000) 9,707 387 10,094 8,570 166 8,736 10.27 69,859
32
18.
TAXATION The Fund's income is exempt from Income Tax as per clause (99) of part I of the Second Schedule of the Income Tax Ordinance, 2001 subject to the condition that not less than 90% of the accounting income for the year as reduced by capital gains whether realised or unrealised is distributed amongst the Certificate holders. Furthermore, as per regulation 63 of the Non-Banking Finance Companies and Notified Entities Regulations, 2008, the Fund is required to distribute 90% of the net accounting income other than unrealized capital gains to the certificate holders. The Fund intends to avail the tax exemption by distributing at least ninety percent of its accounting income as reduced by capital gains, whether realised or unrealised, to its certificate holders every year. Accordingly, no tax liability and deferred tax has been recognised in these financial statements. Details of dividend distribution are given in note 27 of these financial statements.
19. 19.1
TRANSACTIONS WITH RELATED PARTIES / CONNECTED PERSONS Related parties / connected persons comprise the following: Related party UBL Fund Managers Limited Key Management Personnel United Bank Limited MCB Financial Services Limited (formerly Muslim Commercial Financial Services (Private) Limited) UBL Liquidity Fund Plus (ULPF) United Growth & Income Fund (UGIF) United Stock Advantage Fund (USF) United Islamic Income Fund (UIIF) United Composite Islamic Fund (UCIF) UBL Capital Protected Fund - II (UCPF-II) UBL Retirement Savings Fund UBL Islamic Retirement Savings Fund UBL Insurers Limited Allied Bank Limited Pakistan Steel Provident Fund Trust Deutche Bank A.G. Engro Corporation Limited (formerly Engro Chemicals Pakistan Limited) Engro Polymer and Chemicals Limited National Bank of Pakistan Relationship The Management Company of the Fund Directors and key management personnel of the Management Company Holding Company of the Management Company The Trustee of the Fund
Fund managed by UBL Fund Managers Limited ------------------------ do --------------------------------------------------- do --------------------------------------------------- do --------------------------------------------------- do --------------------------------------------------- do --------------------------------------------------- do --------------------------------------------------- do ---------------------------Associated Undertaking Holder of more than 10% of outstanding certificates at year end ------------------------ do ---------------------------Sub-custodian of Government Securities held by the Fund Associated undertaking (common directorship) ------------------------ do --------------------------------------------------- do ----------------------------
Remuneration payable to the Management Company and the Trustee is determined in accordance with the provisions of Non Banking Finance Companies Rules, 2003, Non Banking Finance Companies and Notified Entities Regulations, 2008 and the Trust Deed respectively.
33
19.2
Details of transactions during the year and balances with related parties as at the year are as follows: 2009 2010 (Certificates in '000) Bonus Certificates issued: Associated Undertakings -UBL Fund Managers Limited -UBL Bank Limited -UBL Staff General Provident Fund Related parties other than associated undertakings - Allied Bank Limited (Connected person) - Pakistan Steel Provident Fund Trust (Connected person) Certificates held by: Associated Undertakings -UBL Fund Managers Limited -UBL Bank Limited -UBL Staff General Provident Fund Related parties other than associated undertakings - Allied Bank Limited (Connected person) - Pakistan Steel Provident Fund Trust (Connected person) 2009 2010 (Rupees in '000)
15 225 300
164 2,462 3,282
225 300
2,462 3,282
628 7,725 10,300
500 7,500 10,000
6,870 84,512 112,682
5,000 75,000 100,000
7,725 10,300
7,500 10,000 Note
84,512 112,682
75,000 100,000
19.3
Details of other transactions / balances with related parties are as follows: Transactions with related parties United Bank Limited (associated undertaking) -Profit on Term deposits -Profit on bank deposits Management Company (associated undertaking) -Remuneration to the Management Company Trustee (connected person) -Remuneration to the Trustee National Bank of Pakistan -Capital loss on sale of securities Engro Corporation Limited (formerly Engro Chemicals Pakistan Limited) -Capital gain on sale of securities -Dividend income
2010 2009 (Rupees in '000)
52,432 113 16 12 10,094 1,093 1,972
52,119 35 8,736 1,023 -
20,940 500
19.4
Balances with related parties - unsecured United Bank Limited (associated undertaking) -Bank balances -Profit on bank deposits -Term deposits receipts -Profit on Term deposits Management Company (associated undertaking) -Payable to the Management Company Trustee (connected person) -Remuneration payable to the Trustee
145 1 551,500 43,206 6,577 91
107 551,500 43,206 9,300 86
11 12
34
20.
SEGMENT INFORMATION The Investment Committee of the Fund separates the Fund into the following two operating segments, in line with the income generation structure of the Fund and strategic allocation of assets to generate income, as explained in note 1.3 to this financial information: a) b) Capital Protection Segment Investment Segment
20.1
An analysis is presented below, of the Fund's operating income as per these two operating segments:
2010 2009 (Rupees in '000) 3,898 53,929 57,827 (14,637) 43,190 53,192 53,192 (12,028) 41,164
Capital Protection segment Income from government securities Income from term deposit receipts Total segment income Total expenses Net segment income Investment segment Gain / (loss) on sale of investments - net Dividend income Profit on bank deposits Unrealised (loss) / gain on revaluation of investments -net Total segment income/(loss) Total expenses Net segment income/(loss) Total net segment income for reportable segments 20.2 Assets and liabilities related to the two segments are as follows: 2010 2009 Capital Capital Investment Investment Total Total Protection Protection Segment Segment Segment Segment ----------------------------------------- (Rupees in '000) -----------------------------------------------Investment in term deposit receipts 569,500 Investment in government securities 48,423 Profit receivable on term deposit receipts 43,646 Bank balances Investments in equity securities Profit receivable on bank deposits Deposits, prepayments and other receivables Total assets 661,569 Payable to the Management Company Remuneration payable to the Trustee Payable to Securities and Exchange Commission of Pakistan Accrued expenses and other liabilities Total liabilities 20.3 6,577 91 580 10,429 17,677 36,552 103,860 219 2,575 143,206 569,500 48,423 43,646 36,552 103,860 219 2,575 804,775 6,577 91 580 10,429 17,677 561,500 43,477 604,977 9,300 86 580 606 10,572 15,462 104,072 127 3,485 123,146 561,500 43,477 15,462 104,072 127 3,485 728,123 9,300 86 580 606 10,572 36,767 4,122 2,517 (17,011) 26,395 26,395 69,585 (26,995) 4,535 3,246 7,066 (12,148) (12,148) 29,016
Assets of reportable segments are reconciled to total assets as follows:
2010 2009 (Rupees in '000) 804,775 36 804,811 728,123 82 728,205
Total net segment assets for reportable segments Preliminary expenses and floatation costs Total assets
35
21.
FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES The Fund's objective in managing risks is the creation and protection of Certificate holders' value. Risk is inherent in the Fund's activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process of risk management is critical to the Fund's continuing profitability. Monitoring and controlling risks is primarily set up to be performed based on limits established by the internal controls set on different activities of the fund by the Board of Directors of Management Company through specific directives and constitutive documents. These controls and limits reflect the business strategy and market environment of the Fund as well as the level of the risk that the Fund is willing to accept. In addition, the Fund monitors and measures the overall risk bearing capacity in relation to the aggregate risk exposure across all risks type and activities. The investment objective of the Fund is to protect the principal investment of the investors and aggressively participate in equity markets to provide investors a high level of total returns over the three year protection period. The Fund is exposed to market risk, credit risk and liquidity risk arising from the financial instruments it holds.
21.1
Credit risk Credit risk arises from the inability of the issuers of the instruments, the relevant financial institutions or counter party to fulfil their obligations. The risk is generally limited to principal amount and accrued interest thereon. The Fund carries off its credit risk through the following criteria, controls and procedure: The Fund limits its exposure to credit risk by only investing in Pakistan Investment Bonds, structured zero coupon bonds, bank deposits / term deposits and term finance certificates having at least AA rating, as rated by a credit rating agency approved by SECP. In the absence of instrument's rating, the Fund ensures that the entity has at least AA rating as rated by a credit rating agency approved by SECP. Investment transactions are carried out with a large number of brokers, whose credit rating is taken into account so as to minimise the risk of default and transaction are settled or paid for only upon deliveries. The risk of counter party exposure due to failed trades causing a loss to the Fund is mitigated by a periodic review of trade reports, credit ratings and financial statements on a regular basis.
Cash is held only with reputable banks (including related party) with high quality external credit enhancement. The maximum exposure to credit risk before any credit enhancements at 30 June is the carrying amount of the financial assets as set out below:
30 June 2010 Statement of Maximum assets exposure and liabilities 30 June 2009 Maximum Statement of exposure assets and liabilities
--------------------(Rupees in '000)-------------------Investment in term deposit receipts Investment in government securities Profit receivable on term deposit receipts Bank balances Profit receivable on bank deposits Advances, deposits and other receivable 569,500 48,423 43,646 36,552 219 2,575 700,915 569,500 43,646 36,552 219 2,575 652,492 561,500 43,477 15,462 127 3,485 624,051 561,500 43,477 15,462 127 3,485 624,051
36
Currently Rs. 594.852 million ( 2009: Rs. 594.1 million) out of total credit exposure of Rs. 700.915 million (2009: Rs. 624.051 million ) is held with a related party having AA+ entity's credit rating. None of the above financial assets were considered to be past due or impaired as on 30 June 2009 and 30 June 2010. Concentration of credit risk Concentration is the relative sensitivity of the Fund's performance to developments affecting a particular industry or geographical location. Concentration of risks arise when a number of financial instruments or contracts are entered into 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 affected by changes in economic, political or other conditions. The Fund's transactions are entered into with diverse credit worthy counterparties thereby mitigating any significant concentration of credit risk. 21.2 Liquidity risk Liquidity risk is the risk that the Fund may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or can only do so on terms that are materially disadvantageous. The Fund is not materially exposed to liquidity risk as all obligations / commitments of the Fund are short term in nature and Fund has access to highly liquid financial assets to settle its obligations timely. Furthermore, the Management Company manages liquidity risk by following internal guidelines of the investment committee such as monitoring of financial assets and financial liabilities and investing in highly liquid financial assets. The table below analysis the Fund's financial liabilities into relevant maturity grouping based on the remaining period at the balance sheet date to the contractual maturity date. The amount in the table are contractual undiscounted cash flows: Maturity analysis for financial liabilities
Gross Less than 1 to 3 3 months nominal 1 month months or above inflow / outflow ------------------------------- (Rupees in '000) ------------------------------6,577 91 580 10,429 17,677 6,577 91 580 10,429 17,677 91 10,164 10,255 4,253 580 265 5,098 2,324 2,324 Carrying amount
30 June 2010 Non-derivative liabilities Remuneration payable to Management Company Remuneration payable to Trustee Annual fee payable to Securities and Exchange Commission of Pakistan Creditors, accrued and other liabilities 30 June 2009 Non-derivative liabilities Remuneration payable to Management Company Remuneration payable to Trustee Annual fee payable to Securities and Exchange Commission of Pakistan Creditors, accrued and other liabilities
9,300 86 580 606 10,572
9,300 86 580 606 10,572
86
6,836 580 589 8,005
2,464 2,464
17 103
37
21.3
Market risk Market risk is the risk that the value of the financial instrument may fluctuate as a result of changes in market interest rates or the market price of securities due to a change in credit rating of the issuer or the instrument, change in market sentiments, speculative activities, supply and demand of securities and liquidity in the market. The Fund manages market risk by monitoring exposure on marketable securities by following the internal risk management policies and investment guidelines approved by the Investment Committee and regulations laid down by the Securities and Exchange Commission of Pakistan. The Fund is exposed to interest rate risk and equity risk only.
21.3.1
Interest rate risk Interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rates on the fair value of financial assets and liabilities and future cash flows. As at 30 June 2010, details of the interest rate profile of the Fund's interest bearing financial instruments are as follows: 2010 2009 (Rupees in '000) Variable rate instruments Bank balances Fixed rate instruments Investment in government securities Term deposit receipts 36,552 48,423 569,500 654,475 15,462 561,500 576,962
Sensitivity analysis for variable rate instruments An increase / decrease of 100 basis points in interest rates at the year end would have increased / (decreased) the profits for the year and Fund's net assets by Rs. 27,402 (2009: Rs. 12,740). The analysis assumes that all other variables remain constant. The analysis is performed on the same basis for the comparative year. Sensitivity analysis for fixed rate instruments The Fund does not account for the term deposit receipts as "at fair value through profit or loss." Therefore, any change in interest rate at the balance sheet date would not affect the fair value of the term deposit receipt, accordingly no affect on profit and loss and net assets of the Fund. However, a change in 100 basis points in interest rates at year end would have increased / (decreased) the investment in government securities and certificate holders' equity by Rs 0.127 million (2009: Nil). The analysis assumes all other variables remaining constant. The composition of the Fund's financial assets, market interest rates are expected to change overtime. Accordingly, the actual trading results may differ from the above sensitivity analysis and the difference could be material.
38
A summary of the Funds interest rate gap position, categorised by the earlier of contractual re-pricing or maturity date, is as follows: 30 June 2010 Less than 1 month to 3 months Total 1 month 3 months to 1 year ---------------------------- (Rupees in '000) ---------------------------
Assets Investment in term deposit receipts Investment in government securities Bank balances Total assets Liabilities Payable to the Management Company Total liabilities Total interest sensitivity gap 30 June 2009 36,552 551,500 1,937 1,937 64,486 1,937 1,937 654,475 36,552 36,552 551,500 551,500 18,000 48,423 66,423 569,500 48,423 36,552 654,475
Less than 1 month to 3 months Total 1 month 3 months to 1 year --------------------------- (Rupees in '000) --------------------------
Assets Investment in term deposit receipts Bank balances Total assets Liabilities Payable to the Management Company Total liabilities Total interest sensitivity gap 15,462 551,500 2,095 2,095 7,905 2,095 2,095 574,867 15,462 15,462 551,500 551,500 10,000 10,000 561,500 15,462 576,962
21.3.2
Price risk Price risk of equity securities is the risk of unfavourable changes in the fair value of equity securities as a result of changes in the levels of equity indices and the value of individual shares. The Fund is exposed to listed securities price risk. Their arises from the investment held by the Fund for which prices in the future are uncertain. The Fund policy is to manage price risk through diversification and selection of securities within specified limits set by internal risk management guidelines.
39
The Fund policy is to manage this risk by limiting exposure to a single entity to 15 % of NAV and to a single stock exchange sector to 30% of NAV. A summary analysis of local investments by industry sector, the percentage in relation to Fund's assets and the issued capital of the investee company is presented in note 8 to these financial statements. Furthermore, the Fund's policy requires that the overall Fund position is monitored on a daily basis by the Fund Manager and is reviewed on weekly basis by the Investment Committee and by the Board of Directors in quarterly board meeting. Compliance with the Fund's investment policies are reported to the Board of Directors. The Fund's investments in equity securities are publicly traded and are valued at the rates quoted on the relevant stock exchanges. As at 30 June, the fair value of equity securities exposed to price risk are disclosed in note 8 to these financial statements Sensitivity Analysis The table below summarises the sensitivity of the Fund's net asset value attributable to certificate holders' to equity price movements as at 30 June. The analysis is based on the assumption that the KSE-100 index increases by 5% (30 June 2009: 5%), with all other variables remain constant and the fair value of equity securities moved according to their historical correlation with the index. This represents management's best estimate of a reasonable possible shift in the KSE-100 index having regards to the historical volatility of index of past 3 years (2009: 2 year). Effect on income statement, net assets attributable to unit holders of an increase / decrease in the index. 2010 2009 (Rupees in '000) Investments- 'At fair value through profit or loss' - Held for trading - equity securities 5,193 5,204
A decrease of 5 % would have equal but opposite effect to the amounts shown above, on the basis that all other variable remains same. The sensitivity analysis presented is based upon the portfolio composition as at 30 June and the historical correlation of the securities comprising the portfolio to the index. The composition of the Fund's investment portfolio and the correlation thereof to the KSE-100 index, is expected to change over time. Accordingly, the sensitivity analysis prepared as at 30 June is not necessarily indicative of the effect on the Fund's net assets attributed to certificate holders of future movement in the level of the KSE-100 index. 21.4 Certificate holder's fund risk management (Capital risk) Management's objective when managing certificate holder's funds is to safeguard the fund's ability to continue as a going concern so that it can continue to provide optimum returns to its certificate holders' and to ensure reasonable safety of certificate holders' funds in accordance with the guidelines in note 1 to these financial statements. The Fund manages its investment portfolio and other assets by monitoring return on net assets and makes adjustments to it in the light of changes in markets' conditions. The Fund is not exposed to externally imposed minimum capital maintenance requirements. 21.5 Fair value of financial instruments The Fund's accounting policy on fair value measurements of investments is discussed in note 4.1.1 & 4.1.2 to these financial statements.
40
The Fund measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1: Fair value measurements using quoted market price (unadjusted) in an active market for identical assets or liabilities. Level 2: Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Fair value measurements using inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs). The table below analyses financial instruments measured at fair value at the end of the reporting period by the level in the fair value hierarchy into which the fair value measurement is categorised: Level 1 Level 2 Level 3 Total ----------------------- (Rupees in '000) ----------------------Financial assets at fair value through profit or loss- held for trading Equity securities Available for Sale 1-Year Treasury Bills 103,860 21.6 OPERATIONAL RISKS Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the processes, technology and infrastructure supporting the Fund's operations either internally within the Fund or externally at the Fund's service providers, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of investment management behaviour. Operational risks arise from all of the Fund's activities. The Fund's objective is to manage operational risk so as to balance limiting of financial losses and damage to its reputation with achieving its investment objective of generating returns to investors. The primary responsibility for the development and implementation of controls over operational risk rests with the board of directors. The responsibility encompasses the controls in the following areas: requirements for appropriate segregation of duties between various functions, roles and responsibilities requirements for the reconciliation and monitoring of transactions compliance with regulatory and other legal requirements documentation of controls and procedures requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified - ethical and business standards - risk mitigation, including insurance where this is effective. 48,423 48,423 48,423 152,283 103,860 103,860
41
22.
TOP TEN BROKER/ DEALERS BY PERCENTAGE OF COMMISSION PAID BY THE FUND Name of Broker 2010 (Percentage) 13.04% 12.05% 11.21% 10.28% 9.83% 9.48% 8.76% 7.62% 6.49% 5.28% 2009 (Percentage) 27.69% 24.45% 12.36% 1 1.41% 6.89% 6.39% 5.90% 2.65% 2.25%
Shehzad Chamdia Securities (Private) Limited Foundation Securities (Private) Limited IGI Finex Securities (Private) Limited KASB Securities Limited JS Global Capital Limited ELIXIR Securities (Private) Limited Crosby Securities Pakistan (Private) Limited D.J.M Securities (Private) Limited Arif Habib Limited Global Securities (Private) Limited Name of Broker
Foundation Securities (Private) Limited JS Global Capital Limited KASB Securities Limited D.J.M Securities (Private) Limited Global Securities (Private) Limited Standard Capital Securities (Private) Limited ELIXIR Securities (Private) Limited Shehzad Chamdia Securities (Private) Limited Al-Habib Capital Markets (Private) Limited 23. INVESTMENT COMMITTEE Following are the members of investment committee: Mr. Mir Muhammad Ali, CFA - Chief Executive Officer Mr. Hasnain Raza Nensey - Chief Investment Officer Mr. Rahim Khakiani-Chief Financial Officer & Company Secretary Mr. Aly Osman- Head of Risk Management and Compliance Mr. Syed Ali Turab Alvi-Head of Research Mr. Asif Mobin -Fund Manager, UBL Capital Protected Fund-I Mr. Mir Muhammad Ali, CFA - Chief Executive Officer (CEO)
Mir Muhammad Ali has extensive experience in investment banking and fund management during the last 17 years. Prior to joining UBL Fund Managers (UBLFM), he was with Asian Development Bank. He represented ADB on the board of several companies including an asset management company. Prior to joining ADB, Mir worked as Divisional Head Investment Banking of United Bank Limited. During his career, he has also worked for various institutions such as Pakistan Kuwait Investment Company, IBM World Trade Corporation and ANZ Grindlays Bank. Mir is an MSc in Finance from University of Strathclyde in Glasgow, Scotland. He is an MBA from the Institute of Business Administration and is also a CFA Charter Holder.
42
Mr. Hasnain Raza Nensey - Chief Investment Officer (CIO) Hasnain Raza Nensey is the CIO at UBLFM. Prior to this, he was Chief Investment Officer at JS Investments Limited where he was also a member of the Investment Committee. Hasnain started his career in 1993 with JS Group where he worked as an Equity Analyst covering the Energy and Textile Sector companies listed on the Karachi Stock Exchange. Hasnain has also been involved in the textile and property development businesses for a number of years from 1997 onwards. Hasnain has a BSBA Degree with a concentration in Finance and Marketing from Boston University in Massachusetts, USA. He is also an MBA from Babson College in Massachusetts, USA. Mr. Rahim Khakiani - Chief Financial Officer & Company Secretary Rahim Khakiani brings with him a diversified experience of over eleven years of in finance, external audit and management consulting. Prior to joining UBL Fund Mangers, he was associated with JS Investments Limited as Head of Finance for over three years, where he was instrumental in running the entire finance department. His achievement includes (1) successful listing and IPO of ordinary shares of JS Investments Limited (2) securitization of future management fee of PKR 700 million (3) streamlining the systems and procedures of the finance department and implementation of full scale ERP based asset management software. Prior to JS Investments, he was associated with chartered accountancy practice with two of the leading accounting firms i.e. KPMG Taseer Hadi & Co. and Ford Rhodes Sidat Hyder & Co. There, he was involved in finalization of various important assignments which includes external audits, due diligence and business valuation and other management consulting assignments for leading clients. Rahim is a qualified Chartered Accountant and a Cost and Management Accountant. In addition to this he has passed MA (Economics) from Karachi University with concentration in mathematical economics and econometrics. He has also cleared Level 1 of CFA Institute. Mr. Aly Osman- Head of Risk Management and Compliance Mr. Aly Osman is the Head of Risk Management and Compliance at UBL Fund Managers Limited. He is primarily responsible for identifying, evaluating or measuring significant risks inherent in the organization as well establishing controls to mitigate such risks. He is also responsible for reviewing compliance with the laws, rules and regulations, internal organization policy and industry standards on an ongoing basis and reporting on compliance matters. Mr. Aly Osman is an Associate Member of Institute of Cost and Management Accountant Pakistan (ACMA). Mr. Aly Osman has over ten years of professional experience. Prior to his joining UBL Fund Managers Limited, he was working as the Chief Compliance & Risk Officer at JS Investments Limited for the last 2.5 years. Prior to that, he was working with the Securities and Exchange Commission of Pakistan (SECP) as Joint Director, Heading the Stock Exchanges, Depository and Clearing, Policy and Regulation Wing of the Securities Market Division. Mr. Aly Osman has also completed the United States SEC Institute of Securities Market Development Course 2004 in Washington DC which is a recognized course covering all aspects of securities market structures, systems and regulation. Mr. Syed Ali Turab Alvi - Head of Research Ali Alvi the Head of Research at UBL Funds where his responsibilities include devising portfolio strategies based on fundamental and technical analysis. Ali has over seven years of experience of managing investments both in the Pakistani and Global financial markets. Ali started his career as a technical analyst and later moved into portfolio management at Franklin Group, New York, US. After moving back to Pakistan, he joined AKD Investment management Ltd (AKDIML) and played a major role in setting up the Asset Management Company and launching equity, fixed income and index tracker funds, Ali honed his research skills as the key research analyst covering multiple sectors, and later held the designation of fund manager and a member of investment committee at AKDIML. Ali has Bachelors in computer Science and Electrical Engineering degree from Cornell university, New York, US. He also holds the Series 7 and Series 63 certification from NASD, US.
43
Mr. Asif Mobin -Fund Manager, UBL Capital Protected Fund-I Asif Mobin has eight years of experience in financial market of Pakistan. Prior to this, he was working for Global Securities Pakistan Limited. as "Vice President Equity sales" where his responsibilities were to advise and facilitate client's (both institution and retail) for buying and selling of shares, develop research material and perform technical analysis. Asif started his career in 2000 with Bank Alfalah Limited, as an equity dealer in the Treasury Department. In 2005, he moved to KASB Bank as an incharge Equity Desk in the Capital Market Department. He is also a visiting facility member of Iqra University. He is an MBA from Iqra University, Karachi. He is also serving as the fund manager of United Stock Advantage Fund and UBL Capital Protected Fund- II, open end funds being managed by the Management Company. 24. DIRECTORS' MEETING ATTENDANCE Meetings of the Board of Directors of the Asset Management Company of the Fund are held at least once in a each quarter. Details of the meetings of the Board of Directors of the Asset Management Company in relation to the Fund and details of the directors who attended the meetings are as follows: Name of Director Meetings attended Mr. Atif Bokhari * Mr. Mohammad Asghar Mr. Aameer Karachiwala Mr. Saeed Iqbal Mr. Ali Sameer Farooqi Mr. Mir Muhammad Ali Mr. Shabbir Hussain Hashmi * Mr. Tariq Kirmani * 4 6 6 7 6 6 5 Dates 6 July 21 Aug 21 Oct 13 Jan 26 Jan 23 Feb 20 Apr 2009 2009 2009 2010 2010 2010 2010 1 1 1 1 N/A N/A 1 1 1 1 1 N/A 1 1 1 1 1 1 1 N/A 1 1 1 1 1 1 N/A 1 1 1 1 1 1 N/A 1 1 1 1 1 1 1 N/A N/A 1 1 1 1 1 N/A
*Mr. Shabbir Hussain Hashmi and Mr. Tariq Kirmani were inducted in the Board of Directors on 19 August 2009 and 7 May 2010 respectively, while Mr. Atif Bokhari resigned on 08 April 2010. 25. CREDIT RATING The Fund has been rated at AA+(cpf) by JCR-VIS through their letter dated 10 November 2009. The Management Company has been rated at AM2 by JCR-VIS through their letter dated 04 February 2010. 26. CONTRIBUTION TO WORKERS' WELFARE FUND Through the Finance Act, 2008 an amendment was made in section 2(f) of the Workers' Welfare Fund Ordinance, 1971 (the WWF Ordinance) whereby the definition of 'Industrial Establishment' has been made applicable to any establishment to which West Pakistan Shops and Establishment Ordinance, 1969 applies. The Mutual Funds Association of Pakistan (MUFAP), on behalf of its members filed a constitutional petition in the High Court of Sindh (SHC) praying it to declare that the funds are not establishments and as a result are not liable to pay contribution to the WWF. The honourable court has rejected the petition on technical grounds stating that MUFAP is not the aggrieved party in this case and required the aggrieved parties to approach the courts for the said petition. In response a trustee on behalf of the funds under its trusteeship along with a few investors filed another petition in this regard with the honourable High Court of Sindh. However, subsequent to filing of the petition, the Ministry of Labour and Manpower issued a letter which states that mutual funds are not liable for WWF. The clarification went on to state that WWF Ordinance
44
1971 does not have any provisions for the applicability of WWF on those entities whose incomes are exempt from income tax under any provisions of any law, and West Pakistan Shops and Establishment Ordinance, 1969 is not applicable to any public limited company and any organized financial institutions because they are ruled and governed by separate laws as of mutual funds. The MUFAP, on behalf of its member AMCs, obtained a legal opinion to assess the implications of the letter issued by the Ministry of Labour and Manpower. The legal opinion, among other things, stated that mutual funds are not required to provide for contribution to WWF and earlier provisioning, if any, can be reversed and the terms of the letter suggests that provisioning was neither required nor necessary. Further, the opinion suggests that the petition filed with the High Court of Sindh be withdrawn. The management has not made any provision in respect of WWF and still maintains that mutual funds are not establishments for the purpose of WWF Ordinance and as a result are not liable to pay contribution to WWF. 27. DISTRIBUTION BY THE FUND - NON ADJUSTING EVENT The Board of Directors of the Management Company have approved the distribution of Rs. 0.9 per certificate for the year ended June 30, 2010 (Rs. 0.3 per certificate for the year ended June 30, 2009), amounting to Rs. 64.759 million(2009: Rs. 20.958 million) in their meeting held on August 30, 2010. These financial statements do not reflect the aforementioned distribution and will be recognised in the financial statements for the subsequent period. 28. DATE OF AUTHORIZATION FOR ISSUE These financial statements were authorised for issue by Board of the Directors of the Management Company on August 30, 2010.
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Annual Report 2010 - UBL Capital Protected Fund - I (UCPF-I)

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UBL Capital Protected Fund - I (UCPF-I)

Vision, Mission & Core Values

CHIEF FINANCIAL OFFICER & COMPANY SECRETARY

FUNDS UNDER MANAGEMENT

DATE OF INCORPORATION OF THE MANAGEMENT COMPANY

RISK MANAGEMENT COMMITTEE

MANAGEMENT QUALITY RATING

HR & COMPENSATION COMMITTEE

THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY

UBL CAPITAL PROTECTED FUND-I

Legal Advisor Bankers

Annual Report 2010 - UBL Capital Protected Fund I

Annual Report 2010 - UBL Capital Protected Fund I

Total number of meetings eligible to attend 7 7 7 7 7 5 N/A 6

Number of meetings attended 6 6 6 7 6 5 N/A 4

Annual Report 2010 - UBL Capital Protected Fund I

FUND MANAGER'S REPORT

UCPF - 1 Asset Allocation (As on June 30, 2010)

UCPF - 1 Asset Allocation (As on June 30, 2009)

Term Deposits, 72% Govt. Securities, 6% Other Assets, 4%

Equities , 13% Cash & Equivalent , 5%

Term Deposits, 78% Cash & Equivalent , 2%

Equities , 15% Other Assets, 5%

Annual Report 2010 - UBL Capital Protected Fund I

One Year Capital growth Income distribution

AVERAGE ANNUAL RETURN (%)

9.44 6.52 2.92

AVERAGE ANNUAL RETURN (%)

NET ASSETS VALUE PER CERTIFICATE (Rupees)

Annual Report 2010 - UBL Capital Protected Fund I

Karachi: August 18, 2010

Annual Report 2010 - UBL Capital Protected Fund I

Annual Report 2010 - UBL Capital Protected Fund I

Mir Muhammad Ali, CFA Chief Executive

Karachi, Dated: August 30, 2010

Annual Report 2010 - UBL Capital Protected Fund I

Date: 30 Aug 2010 Karachi

KPMG Taseer Hadi & Co. Chartered Accountants

Annual Report 2010 - UBL Capital Protected Fund I

Independent Auditors' Report to the Certificate Holders

KPMG Taseer Hadi & Co. Chartered Accountants Mazhar Saleem

Annual Report 2010 - UBL Capital Protected Fund I

STATEMENT OF ASSETS AND LIABILITIES

2010 2009 (Rupees in '000)

569,500 48,423 43,646 661,569

561,500 43,477 604,977

36,552 103,860 219 140,631 2,575 36 804,811

15,462 104,072 127 119,661 3,485 82 728,205

6,577 91 580 10,429 17,677 787,134

9,300 86 580 606 10,572 717,633

719,543 (84) 67,675 787,134

698,585 19,048 717,633

NET ASSETS VALUE PER CERTIFICATE

Mir Muhammad Ali, CFA Chief Executive

Saeed Iqbal Director

Annual Report 2010 - UBL Capital Protected Fund I

36,767 4,122 53,929 3,898 2,517 101,233 (17,011) 84,222

For UBL Fund Managers Limited (Management Company)

Mir Muhammad Ali, CFA Chief Executive

Saeed Iqbal Director

Annual Report 2010 - UBL Capital Protected Fund I

STATEMENT OF COMPREHENSIVE INCOME