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 advisory services, 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 CHIEF FINANCIAL OFFICER FUNDS UNDER & COMPANY SECRETARY MANAGEMENT Tariq Kirmani Chairman Rahim Khakiani UBL Liquidity Plus Fund Launch Date: 21 June 2009 Mir Muhammad Ali, CFA REGISTERED OFFICE Chief Executive United Growth & Income Fund Launch Date: 2 March 2006 Mohammad Asghar 8th Floor, State Life Building Director Number 1, I. I. Chundrigar Road, Karachi, Pakistan. United Stock Advantage Fund Launch Date: 4 August 2006 Shabbir Hussain Hashmi Director CORPORATE OFFICE United Islamic Income Fund Launch Date: 20 October 2007 Aameer M. Karachiwalla 8th Floor, Executive Tower, Director Dolmen City Building, Block-4, United Composite Islamic Fund Clifton, Karachi, Pakistan. Launch Date: 24 December 2006 Ali Sameer Tel: (92-21) 35290080-95 Director Fax: (92-21) 35290070 UBL Capital Protected Fund-I Saeed Iqbal Launch Date: 23 March 2008 Director OPERATIONS OFFICE UBL Capital Protected Fund-II AUDIT COMMITTEE 4th Floor, STSM Building, Launch Date: 23 May 2010 Beaumont Road, Civil Lines, Shabbir Hussain Hashmi Karachi, Pakistan. UBL Retirement Savings Fund Chariman UAN: (92-21) 111-825-262 Launch Date: 10 May 2010 Fax: (92-21) 32214930 Aameer M. Karachiwalla UBL Islamic Retirement Member DATE OF Savings Fund INCORPORATION OF THE Launch Date: 10 May 2010 Saeed Iqbal MANAGEMENT COMPANY Member INVESTMENT PLANS Incorporated in Pakistan on RISK MANAGEMENT 3 April 2001 as a Public Limited UBL Principal Protected Plan-I COMMITTEE Company under the Conventional Companies Ordinance, 1984 Ali Sameer UBL Principal Protected Plan-II Chairman MANAGEMENT QUALITY Conventional RATING Aameer M. Karachiwalla Mahana Munafa Plan Member AM2 High Management Conventional & Islamic Mir Muhammad Ali, CFA Quality by JCR-VIS Credit Rating Member Company Sarmaya Izafa Plan Conventional & Islamic HR & COMPENSATION Profit + Growth Plan COMMITTEE Conventional & Islamic Tariq Kirmani Mera Kal - Children Savings Plan Chairman Conventional Shabbir Hussain Hashmi Member
Saeed Iqbal Member THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY TABLE OF CONTENTS
05 Fund Information
06 Directors Report
09 Fund Managers Report
10 Performance Table
11 Report of the Trustee to the Certificate holders
12 Statement of Compliance with Code of Corporate Governance
14 Review Report to the Certificate holders on Statement of Compliance
15 Independent Auditors Report to the Certificate holders
16 Statement of Assets and Liabilities
17 Income Statement
18 Statement of Comprehensive Income
19 Distribution Statement
20 Cash Flow Statement
21 Statement of Changes in Equity
22 Statement of Movements in Equity and Reserves Per Certificate
23 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 UBL Fund Managers Limited
Trustee MCB Financial Services Ltd. (formerly Muslim Commercial Financial Services Ltd.) 3rd Floor, Adamjee House, I.I. Chundrigar Road, Karachi. Tel: +92 (21) 32438441, 32428731
Auditors KPMG Taseer Hadi & Co. - Chartered Accountants
Registrar THK Associates (Pvt.) Ltd. Ground Floor, State Life Building No. 3, Dr. Ziauddin Ahmed Road, Karachi-75530 Tel: +92 (21) 111-000-322
Legal Advisor Sattar & Sattar (Attorneys at Law)
Bankers United Bank Limited Bank Alfalah Limited Deutsche Bank AG. Directors Report
The Board of Directors of UBL Fund Managers Limited is rates (US: 0.25% | UK: 0.5% | ECB:1%) and massive pleased to present to you the Annual Report of "UBL government bailouts / economic packages. However, Capital Protected Fund - 1" (UCPF-I) for the year ended the Dubai and Greek crisis during later part of the year June 30, 2010. put significant question-marks on the sustainability of the recovery. Concerns regarding the strength of Euro- Economy & Money Market Review - FY10 zone economy led to 12.8% depreciation in Eur/USD and a global sell-off in equities. Inflation in major emerging Pakistan's macro-economic indicators improved economies (India / China) also worried the policy makers significantly in fiscal year 2010 which can be termed as and monetary tightening in these regions further year of economic recovery for Pakistan. Majority of the dampened global economic growth. We expect global macro-economic indicators closed the year on a positive economic recovery to be a gradual / prolonged process. note after the chaos emanated in 2009. The country's As the re-payments of the bailout packages start coming GDP growth recovered to 4.1% in FY10 from a 10 year due, inflation will likely become a key concern in developed low of 1.2% in FY09. Headline inflation (CPI) declined to economies as well, reducing the probability of a quick 11.73%YoY from its peak of 20.8% in FY09 despite economic recovery. significant reduction in subsidies provided by the Government of Pakistan (GoP) - giving "State bank of Stock Market Review - FY'10 Pakistan" (SBP) the room to cut policy rate from 14% to 12.50% during the year. The current account deficit The KSE100 index closed the FY'10 at 9,722 points, up declined to US$3.5bn, down 62% YoY in FY10, which 35.7% - one of the best-performing markets during the helped reduce the pressure on balance of payments year. The performance of Islamic equity index for Pakistan significantly. Foreign exchange reserves increased to (DJIMPK) also followed the broad market and recorded USD16bn in FY10, from USD11.5bn in FY09. The rate of 36.9% return during FY'10. The daily average trading PKR / USD depreciation tapered down to 5.6% in FY10 volumes for KSE100 index during the period stood at from a staggering 19% in FY09. The stabilization in the 118mn shares. Majority of the gains (KSE100: 31.07% | local economy and improved risk-perception was also KMI30: 29.17%) were made in the first-half of the year, acknowledged by international markets as Pakistan Euro driven by improved economic indicators which fuelled bond yield declined by 600bps to 8.4% during FY10 and both domestic and foreign investor sentiment. The later "Credit Default Swap" (CDS) spread narrowed to 6.6%. half of the year was a period of consolidation as security However, Fiscal deficit continued to be a source of issues, political uncertainty and concerns regarding the concern as it widened to 4.2% of GDP in 9mFY10 and is impact of "value added tax" (VAT) and "Capital Gains likely to violate the IMF ceiling of 5.1% of GDP (GoP Tax" CGT dampened investor confidence. Foreign revised target: 5.8% of GDP). Healthy remittances inflow investors took exceptional interest in the market as foreign of USD8.9bn) and hefty inflow from the IMF program of portfolio investment inflow of USD 568mn was recorded USD3.53bn (Total disbursed: USD8.7bn | Remaining: during the year, a sharp contrast to the net outflows of USD2.6bn) in FY10 helped the GoP bridge its sizable USD 445mn last year. deficit. Disbursal of remaining tranches from IMF is conditional upon the implementation of the "Value Added The corporate sector's performance was fairly steady Tax" by GoP to improve the tax-to-GDP ratio which stood during the period, in-line with the gradual improvement at a subdued 8.8% in FY10. Improvement in tax collection in the real economy. Banking sector maintained its will be a gradual process as it will require a change in average net-interest margins above an impressive 7.3% mindset of the populace as well as an extensive despite decline in interest rate environment. NPL accretion infrastructure to minimize tax evasion. Although we continued to be a concern during the early part of the expect the officially recorded remittance figures to year; however it is expected to taper off during the later continue growing, we still expect GoP to resort to part of the period. Lower NPL accretion and potential borrowing from foreign and domestic institutions to provision reversals in the future can help boost the sector's meet its expenses - a second IMF program is likely on the earnings. The sector has shifted its preference to lending cards. to Government (investments) from lending to the private sector (advances) which has significantly reduced the risk Circular-debt and power shortage issues continued to inherent in the sector. OMC sector enjoyed high growth act as a drag on the economic activity during the year. in POL product offtake and inventory gains from rise in Circular debt stood at PKR130bn at the end of the year international oil prices during early part of the year. Oil & despite two TFC issues (PKR160bn) during the year to Gas (E&P) sector saw marginal decline in oil & gas resolve the problem. The power shortage in the country production; however it will be compensated by reasonably is estimated around 4,800MW and is a serious dampener strong international oil prices during large part of the on industrial production and exports - GoP plans to set- year as well as PKR / USD depreciation. E&P, being a cash up rental power plants as a temporary solution to the rich sector, continued to benefit from higher interest problem. rates that prevailed during the period. Fertilizer sector benefited from growth in urea prices and DAP offtake, The global economy exhibited signs of recovery during which compensated for the marginal growth in urea off- early part of the year, fuelled by historically low interest take 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 PKR 0.3 per certificate for the year ended 30 June 2009) sector recorded impressive recovery with 43%YoY growth as compared to PKR 10.27 per certificate last year. JCR- in sales. The Refining sector operated at low capacity VIS credit rating company Limited (JCR-VIS) has assigned utilization during the period due to liquidity constraints an AA+(cpf) rating to the Fund. created by circular-debt issue. This, along with 2.5% cut in deem duty (7.5%) and lower POL product margins The Board of Directors of the Management Company during earlier part of the year created tough operating have approved the distribution of Rs. 0.9 per certificate conditions for the sector. However, the refining margins for the year ended June 30, 2010 (Rs. 0.3 per certificate improved during later part of the year as the decline in for the year ended June 30, 2009), amounting to International oil price exceeded the decline in local POL Rs. 64.759 million(2009: Rs. 20.958 million) in their product prices. Cement sector, during first half of the meeting held on August 30, 2010. year, suffered massively from the collapse in local cement prices post break-up of cement cartel in the midst of Response to the Auditors qualification declining sales leading to low capacity utilizations. However, the prices have improved in the second half of Workers' Welfare Fund the year and local cement demand has also grown to compensate for fewer export avenues - a relief for the Through the Finance Act, 2008 an amendment was made heavily leveraged sector. in Section 2(f) of the Workers' Welfare Fund Ordinance, 1971 (the WWF Ordinance) whereby the definition of Global markets performance in FY10 was very volatile. 'Industrial Establishment' has been made applicable to The markets rallied sharply in the first half of the year, any establishment to which West Pakistan Shops and fuelled by improvement in macro-economic indicators Establishment Ordinance, 1969 applies. As a result of this and expectations of a quick economic recovery. However, amendment, auditors believe that all collective investment Greek crisis during the later half of the year brought schemes (CIS) are brought within the purview of the concerns regarding weaker members of Euro-zone into WWF Ordinance, thus rendering them liable to pay the lime light. This, along with monetary tightening in contribution to WWF at the rate of 2 percent of their major emerging markets resulted in a sharp correction accounting or taxable income, whichever is higher. MUFAP in global equity markets. Developed markets managed on behalf of its members i.e. various asset management to close the year in the positive zone (MSCI World Index: companies filed a constitutional petition in the High Court 9.53% | DJIA: 15.71% | FTSE: 15.71%). Pakistan's equity of Sindh on December 22, 2009, praying that since mutual market topped the performance charts among emerging funds are pass through vehicles, this levy should not be markets with a return of 35.7% during FY'10. Indian Sensex recorded a respectable return of 22.12% while made applicable on the mutual funds. However, in May the MSCI Emerging market index also returned 20.58%. 2010, Sindh High Court dismissed the petition on a Chinese markets performed dismally with a return of - technical ground that since MUFAP is not an aggrieved 19.07% during FY10. Global equity markets had over- party, therefore it cannot maintain a petition on behalf priced the improvement in economic indicators during of its member institution. Subsequent to the judgment, the early part of the year and the correction was justified MUFAP engaged Haidermota & Co., Barrister at Law & in our view. We have continued to state our view of a Corporate Counselors, who filed a fresh petition on June much more gradual / prolonged recovery in the global 30, 2010 on behalf of an asset management company, economy and therefore expect the global equity markets trustee and few investors of mutual funds for a favorable to reflect the same over the long-term. outcome.
Fund Performance and Announcements Subsequent to the year end, a clarification from the relevant Government Ministry was issued that the levy The Fund ended the year on a positive note and earned of WWF is not applicable to the CIS and an opinion was a net income of PKR 69.59 million for the year (includes also issued by Haidermota & Co. in this regard. Even then, unrealized loss on revaluation of PKR 17.01 million) as this was remained a matter of debate with the auditors, against a net income of PKR 29.02 million last year. The where we firmly believe that this levy is not supposed to earnings of the fund mainly include capital gains earned be paid by the mutual funds. from sale of securities amounting to PKR 37 million (2009: capital loss amounting to PKR 27 million) and profit on The Board agreed to take a qualified audit opinion for capital protected segment amounting to PKR 54 million not providing for this levy on the basis of the clarification (2009: PKR 53 million). The Fund yielded return of 9.44% issued by the relevant Government Ministry and opinion for the year ended June 30, 2010. received from the legal counsel.
The net assets of the Fund as at year end was PKR 787.13 Strategy, Review and Outlook of Funds million and net assets value per certificate was PKR 10.94 per certificate (adjusted for the final bonus dividend of For strategy, review and outlook of Funds, kindly review
Annual Report 2010 - UBL Capital Protected Fund I 07 Directors Report
the respective section of the Fund Manager's report on listing regulations; page no. 09 of the annual report. Performance table of Funds is given on page no. 10 Code of Corporate Governance of the Annual report; The details as required by the code of corporate governance regarding the pattern of holding in UCPF-I The value of Staff Provident Fund and Staff Gratuity are given in their respective financial statements. Fund based on their latest audited accounts are PKR 13 million and PKR 6.2 million, respectively; Further, the Board of Directors states that: There have been no trades in the certificates of the Financial Statements present fairly the statement of Fund's carried out by the Directors, CEO, CFO / affairs, the results of operations, cash flows and the Company Secretary and their spouses. changes in cerificate holder's fund; Meetings of the board of directors of the management Proper books of accounts have been maintained by company are held at least once in every quarter. the Fund; During the period under review 7 meetings were held. Attendance of directors in these meeting was as given Appropriate accounting policies have been below. consistently applied in the preparation of the financial statements and accounting estimates are based on Auditors reasonable and prudent judgments; M/s KPMG Taseer Hadi & Co., Chartered Accountants on Relevant International Accounting Standards, as the recommendation of the Audit Committee of the Board applicable in Pakistan, provision of the Non Banking of Directors are being eligible for re-appointment have Finance Companies (Establishment & Regulation) Rules, been appointed as auditors for the period ending April 2003, Non Banking Finance Companies and Notified 15, 2011 for UBL Capital Protected Fund - I (UCPF-I). Entities Regulations, 2008, requirement s of the Trust Deed and directives issued by the Securities & Acknowledgements Exchange Commission of Pakistan have been followed in the preparation of the financial statements; We would like to thank our valued certificate holders for their confidence and trust in UBL Fund Managers Limited. The system of internal control is sound in design and In addition, we would like to acknowledge the Securities has been effectively implemented and monitored; and Exchange Commission of Pakistan, State Bank of Pakis tan and MCB Financial Services Limited (formerly There are no significant doubts upon the Fund's ability Muslim Commercial Financial Services Private Limited) to continue as going concern; (Trustee) for their continued support, guidance and cooperation. The Board also likes to take this opportunity There has been no material departure from the best to express its appreciation to the employees for their practices of corporate governance, as detailed in the dedication, commitment, enthusiasm and hard work.
Name Total number of meetings Number of meetings eligible to attend attended Mohammad Asghar 7 6 Mir Muhammad Ali 7 6 Aameer M. Karachiwalla 7 6 Saeed Iqbal 7 7 Ali Sameer 7 6 Shabbir Hussain Hashmi 5 5 Tariq Kirmani N/A N/A Atif R. Bokhari (Ex-Director) 6 4
FOR & ON BEHALF OF THE BOARD
MIR MUHAMMAD ALI, CFA CHIEF EXECUTIVE OFFICER Karachi, Dated: August 30, 2010
08 Annual Report 2010 - UBL Capital Protected Fund I 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 UCPF - 1 Asset Allocation (As on June 30, 2010) (As on June 30, 2009)
Term Deposits, 72% Equities , 13% Term Deposits, 78% Equities , 15% Govt. Securities, 6% Cash & Equivalent , 5% Cash & Equivalent , 2% Other Assets, 5% Other Assets, 4%
Annual Report 2010 - UBL Capital Protected Fund I 09 PERFORMANCE TABLE
2010 2009 2008
Net Assets as at 30th June: (Rupees in '000) 787,134 717,633 688,617
Net Assets Value per certificate at 30th June: (Rupees) 10.94 10.27 9.86
AVERAGE ANNUAL RETURN (%) One Year 9.44 4.22 -1.43 Capital growth 6.52 4.22 -1.43 Income distribution 2.92 --
AVERAGE ANNUAL RETURN (%)
One Year 9.44 4.22 -1.43 Second Year 6.83 1.40 - Third Year 4.09 --
NET ASSETS VALUE PER CERTIFICATE (Rupees)
Highest NAV per certificate 11.22 10.37 10.01 Lowest NAV per certificate 10.30 9.34 9.71
PORTFOLIO COMPOSITION Percentage of Net Assets as at 30 June 2010
Portfolio composition by category: (%)
Bank Balances & Term Deposit Reciepts 82.54 80.40 85.81 Equity securities 13.19 14.50 11.12 Government security 6.15 --
Portfolio composition by market: (%)
Equity Market 13.19 14.50 11.12 Debt market 88.69 80.40 85.81
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.
10 Annual Report 2010 - UBL Capital Protected Fund I 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) the limitations imposed on the investment powers of the Management Company under the Constitutive Documents;
(ii) the valuation and pricing of Certificates are carried out in accordance with the requirements of the Trust Deed and the Offering Document;
(iii) the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 and Non- Banking 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.
Khawaja Anwar Hussain Chief Executive Officer Karachi: August 18, 2010 MCB Financial Services Limited (formerly: Muslim Commercial Financial Services Limited).
Annual Report 2010 - UBL Capital Protected Fund I 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 Annual Report 2010 - UBL Capital Protected Fund I 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 wh om 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 Karachi, Chief Executive Dated: August 30, 2010
Annual Report 2010 - UBL Capital Protected Fund I 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 KPMG Taseer Hadi & Co. Chartered Accountants 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.
14 Annual Report 2010 - UBL Capital Protected Fund I 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 mainta ining 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 KPMG Taseer Hadi & Co. Chartered Accountants KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan Mazhar Saleem Karachi and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Annual Report 2010 - UBL Capital Protected Fund I 15 STATEMENT OF ASSETS AND LIABILITIES AS AT 30 JUNE 2010
Note 2010 2009 (Rupees in '000) Assets
Capital protection segment
Investment in term deposit receipts 5 569,500 561,500 Investment in government security - 'Available-for-sale' 6 48,423 - Profit receivable on term deposit receipts 43,646 43,477 661,569 604,977
Investment Segment
Bank balances 7 36,552 15,462 Investments in equity securities- 'At fair value through Profit or loss' 8 103,860 104,072 Profit receivable on bank deposits 219 127 140,631 119,661
Advances, deposits and other receivables 9 2,575 3,485 Preliminary expenses and floatation costs 10 36 82 Total assets 804,811 728,205
Liabilities
Payable to the Management Company 11 6,577 9,300 Remuneration payable to the Trustee 12 91 86 Payable to Securities and Exchange Commission of Pakistan 13 580 580 Accrued expenses and other liabilities 14 10,429 606 Total liabilities 17,677 10,572
NET ASSETS 787,134 717,633
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) 719,543 698,585 Unrealised (loss) on available-for-sale investments (84) - Unappropriated profit 67,675 19,048
TOTAL CERTIFICATE HOLDER'S FUNDS 787,134 717,633
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)
Mir Muhammad Ali, CFA Saeed Iqbal Chief Executive Director
16 Annual Report 2010 - UBL Capital Protected Fund I INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2010
Note 2010 2009 (Rupees in '000) Income
Gain / (loss) on sale of equity securities-net 36,767 (26,995) Dividend income on 'at fair value through profit or loss upon initial recognition' - equity securities - 75 Dividend income on 'held for trading' - equity securities 4,122 4,460 Income from term deposit receipts - capital protection segment 53,929 53,192 Income from government securities - capital protection segment 3,898 - Profit on bank deposits 2,517 3,246 101,233 33,978
Unrealised (loss) / gain on revaluation of investments-net (17,011) 7,066 Total income 84,222 41,044
Expenses
Remuneration to the Management Company 16 10,094 8,736 Remuneration to the Trustee 12 1,093 1,023 Annual fee to Securities and Exchange Commission of Pakistan 13 580 580 Custody, settlement and bank charges 427 28 Brokerage expense 1,302 314 Auditors' remuneration 17 350 300 Fees and subscription 208 - Printing expense 348 724 Amortisation of preliminary expenses 10 46 46 Other expenses 189 277 Total expenses 14,637 12,028
Net income for the year 69,585 29,016
Net profit per certificate- basic and diluted 0.97 0.41
The annexed notes from 1 to 28 form an integral part of these financial statements.
For UBL Fund Managers Limited (Management Company)
Mir Muhammad Ali, CFA Saeed Iqbal Chief Executive Director
Annual Report 2010 - UBL Capital Protected Fund I 17 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010
2010 2009 (Rupees in '000)
Net income for the year 69,585 29,016
Other Comprehensive Income
Unrealised diminution in the revaluation of 'available-for-sale' investments (84) -
Total comprehensive income for the year 69,501 29,016
The annexed notes from 1 to 28 form an integral part of these financial statements.
For UBL Fund Managers Limited (Management Company)
Mir Muhammad Ali, CFA Saeed Iqbal Chief Executive Director
18 Annual Report 2010 - UBL Capital Protected Fund I DISTRIBUTION STATEMENT FOR THE YEAR ENDED 30 JUNE 2010
2010 2009 (Rupees in '000)
Undistributed income at beginning of the year (realised) 30,999 9,049
Accumulated loss at beginning of the year (un-realised) (11,951) (19,017) 19,048 (9,968)
Final distribution of bonus certificates for the year ended 30 June 2009 of Rs. 0.3 per certificate (2008:Nil) (20,958) -
Net income for the year 69,585 29,016
Undistributed income at end of the year 67,675 19,048
Undistributed income at end of the year (realised) 96,637 30,999
Accumulated loss at end of the year (un-realised) (28,962) (11,951)
67,675 19,048
The annexed notes from 1 to 28 form an integral part of these financial statements.
For UBL Fund Managers Limited (Management Company)
Mir Muhammad Ali, CFA Saeed Iqbal Chief Executive Director
Annual Report 2010 - UBL Capital Protected Fund I 19 CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2010
2010 2009 (Rupees in '000) CASH FLOWS FROM OPERATING ACTIVITIES Net income for the year 69,585 29,016 Adjustments for: Amortisation of preliminary expenses 46 46 Unrealized loss / (gain) on revaluation of investments-net 17,011 (7,066) 86,642 21,996
Increase in assets Investment in term deposit receipts (8,000) 15,125 Investment in government securities (48,507) - Investments in equity securities (16,799) (20,446) Profit receivable on term deposit receipts (169) (32,551) Profit receivable on bank deposits (92) (31) Advances, deposits and other receivables 910 9,010 (72,657) (28,893)
Increase in liabilities Payable to the Management Company (2,723) 7,292 Remuneration payable to the Trustee 5 2 Payable to Securities and Exchange Commission of Pakistan - 436 Accrued expenses and other liabilities 9,823 358 7,105 8,088 Net increase in cash and cash equivalents during the year 21,090 1,191
Cash and cash equivalents at beginning of the year 15,462 14,271
Cash and cash equivalents as at end of the year 36,552 15,462
The annexed notes from 1 to 28 form an integral part of these financial statements.
For UBL Fund Managers Limited (Management Company)
Mir Muhammad Ali, CFA Saeed Iqbal Chief Executive Director
20 Annual Report 2010 - UBL Capital Protected Fund I STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2010
Issued, Unappropriated Unrealised Total subscribed (loss) / profit (diminution) in and paid up the fair value of capital 'Available - for - sale' investments
------(Rupees in '000) ------
Balance as at 30 June 2008 698,585 (9,968) - 688,617
Changes in equity for the year ended 30 June 2009
Total comprehensive income for the year- Net income for the year - 29,016 - 29,016
Balance as at 30 June 2009 698,585 19,048 - 717,633
Changes in equity for the year ended 30 June 2010
Net income for the year - 69,585 - 69,585
Unrealised diminution in the revaluation of 'available-for-sale' investments - - (84) (84) Total comprehensive income for the year - 69,585 (84) 69,501
Final distribution of bonus certificates for the year ended 30 June 2009 at the rate of Rs. 0.3 per certificate - (20,958) - (20,958)
Issuance of bonus certificates 20,958 - - 20,958
Balance as at 30 June 2010 719,543 67,675 (84) 787,134
The annexed notes from 1 to 28 form an integral part of these financial statements.
For UBL Fund Managers Limited (Management Company)
Mir Muhammad Ali, CFA Saeed Iqbal Chief Executive Director
Annual Report 2010 - UBL Capital Protected Fund I 21 STATEMENT OF MOVEMENTS IN EQUITY AND RESERVES 'PER CERTIFICATE' FOR THE YEAR ENDED 30 JUNE 2010
2010 2009 (Rupees per certificate)
Net assets value per certificate at beginning of the year 10.27 9.86
Bonus Certificates issued during the year (0.30) -
Capital gain / (loss) on trading in marketable securities - net 0.52 (0.39)
Unrealised (loss) / gain on revaluation of investments-net (0.24) 0.09
Net gain for the year excluding gain / (loss) on sale of marketable securities and unrealised (loss) / gain on investments 0.69 0.71
Net income for the year 0.97 0.41
Net assets value per certificate at end of the year 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)
Mir Muhammad Ali, CFA Saeed Iqbal Chief Executive Director
22 Annual Report 2010 - UBL Capital Protected Fund I NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010
1. LEGAL STATUS AND NATURE OF BUSINESS
1.1 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 Non- Banking 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.
1.2 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 2011. The 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 as explained in more detail in the note below.
As per the Trust Deed, the Management Company may, after 15 April 2011, convert the Fund into an open- end fund with the approval of Certificate holders, Trustee and the SECP, after complying with the provisions of the NBFC Rules.
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.
Annual Report 2010 - UBL Capital Protected Fund I 23 1.5 As per Trust Deed of the Fund, the creditors of the Fund will have no claim against the assets of the Capital Protected Segment.
2. STATEMENT OF COMPLIANCE
2.1 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.
2.2 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
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 Annual Report 2010 - UBL Capital Protected Fund I - 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
3. BASIS OF PREPARATION
3.1 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.
3.2 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.
3.3 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.
Annual Report 2010 - UBL Capital Protected Fund I 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 non- owners 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 Annual Report 2010 - UBL Capital Protected Fund I 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
Annual Report 2010 - UBL Capital Protected Fund I 27 year, as reduced by capital gains, whether realised or unrealised, is distributed amongst its certificate holders.
4.4 Revenue recognition
4.4.1 Gains / (losses) on sale of investments are included in the Income Statement on the date at which the transaction takes place.
4.4.2 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.
4.4.3 Dividend income is recognised when the right to receive the dividend is established.
4.4.4 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.
4.5 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
28 Annual Report 2010 - UBL Capital Protected Fund I 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)
United Bank Limited (a related party) 5.1 551,500 551,500 Bank Alfalah Limited 5.2 18,000 10,000 569,500 561,500
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.
5.2 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.
6. INVESTMENT IN GOVERNMENT SECURITY
Available-for-sale 1 - Year Treasury Bill 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.
7. BANK BALANCES
Cash at banks
In local currency: - in profit and loss sharing bank accounts 7.1 36,552 15,462
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 m illion (2009: Rs. 0.1 million) held with United Bank Limited (a related party) which carry profit rate at 5 % per a nnum (2009: 5% per
8. INVESTMENTS IN EQUITY SECURITIES
At fair value through profit or loss: - Held for trading - equity securities 8.1 103,860 104,072
Annual Report 2010 - UBL Capital Protected Fund I 29 8.1 At fair value through profit or loss- Held for trading
Percentage in relation to Name of the Security (ordinary Balance Purchased / Sold Balance Carrying / Carrying / Net assets Total Issued shares of Rs. 10 each) as at 01 Bonus during the as at 30 Market Market investments Capital of July 2009 received year June 2010 amount as Investee amount as during the at 30 June company year 2010 at 30 June 2009
------(No. of Shares) ------(Rupees in '000)------
BANKS United Bank Limited (related party) 220,000 - 220,000 - - 8,424 --- National Bank of Pakistan 108,000 487,000 595,000 - - 7,239 --- MCB Bank Limited - 245,000 245,000 ------15,663 OIL & GAS Pakistan Oilfields Limited 32,000 682,500 639,500 75,000 16,193 4,669 2.06% 15.59% 0.03% * Pakistan State Oil Company Limited - 292,440 211,172 81,268 21,146 - 2.69% 20.36% 0.05% Oil & Gas Development Company Limited 455,000 55,000 510,000 --35,781 - - - Mari Gas Company Limited - 31,251 31,251 ------Pakistan Petroleum Limited - 132,500 132,500 ------* Attock Petroleum Limited - 87,300 19,300 68,000 19,703 - 2.50% 18.97% 0.12% Attock Refinery Limited - 210,000 210,000 -- -- 57,042 40,450
CHEMICALS Dawood Hercules Chemical Limited 8,800 100,000 83,800 25,000 4,386 1,131 0.56% 4.22% 0.02% Lotte Pakistan PTA Limited (formerly Pakistan PTA Limited) - 350,000 350,000 ------Engro Corporation Limited (formerly * Engro Chemicals Pakistan Limited) 329,000 120,000 449,000 --42,253 - - - Fauji Fertilizer Bin Qasim Limited - 250,000 250,000 ------Fauji Fertilizer Company Limited - 115,000 115,000 ------4,386 43,384
CONSTRUCTION AND MATERIALS Lucky Cement Limited - 550,000 550,000 ------DG Khan Cement Company Limited 50,000 575,000 625,000 --1,483 - - - Attock Cement Pakistan Limited - 135,000 250 134,750 8,826 - 1.12% 8.50% 0.16% 8,826 1,483
GENERAL INDUSTRIES Packages Limited 7,000 - 7,000 --1,099 - - -
PERSONAL GOODS Nishat Chunian Limited - 900,000 - 900,000 14,202 - 1.80% 13.67% 0.60% Nishat Mills Limited - 1,100,000 650,000 450,000 19,404 - 2.47% 18.68% 0.13% Nishat Mills Limited - 157,500 157,500 ------(Right Entitlement letters) 33,606 -
NON LIFE INSURANCE Adamjee Insurance Company Limited - 225,000 225,000 ------
FINANCIAL SERVICES Jahangir Siddiqui & Company Limited 85,945 - 85,945 --1,993 - - -
ELECTRICITY Hub Power Company Limited - 500,000 500,000 ------
Grand Total-'held for trading' 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 Annual Report 2010 - UBL Capital Protected Fund I 9. ADVANCES, DEPOSITS AND OTHER RECEIVABLES 2010 2009 (Rupees in '000)
Dividend receivable - 910 Security deposit with National Clearing Company of Pakistan Limited 2,500 2,500 Security deposit with Muslim Commercial Financial Services (Private) Limited 75 75 2,575 3,485
10. PRELIMINARY EXPENSES AND FLOATATION COSTS
Opening balance 82 128 Amortisation during the year (46) (46) Closing balance 36 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 11.1 6,577 9,101 Preliminary expenses and other cost 11.2 - 19 9 6,577 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 The balance outstanding at the beginning of the year has been paid during the year.
12. 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.
Annual Report 2010 - UBL Capital Protected Fund I 31 14. ACCRUED EXPENSES AND OTHER LIABILITIES 2010 2009 (Rupees in '000)
Payable against purchase of investments 14.1 9,538 - Auditors' remuneration 215 209 Printing expense 300 380 Professional tax payable 100 - Brokerage payable 276 - Other expenses - 17 10,429 606
14.1 This represents the amount payable for the equity securities purchased in the ready stock market. The amount was paid subsequent to the year end.
15. PATTERN OF CERTIFICATE HOLDERS 2010 Category of Certificate Holders Number of Number of Certificate Certificates Percentage holders held
Associated companies and other related parties 6 36,678,815 51% General public 4,110 32,836,795 46% Others 16 2,438,645 3% 4,132 71,954,255 100%
2009
Associated companies and other related parties 4 35,500,000 51% General public 4,125 25,364,500 36% Others 22 8,994,000 13% 4,151 69,858,500 100%
15.1 NET ASSET VALUE PER CERTIFICATE 2010 2009 (Rupees in '000)
Total net assets 787,134 717,633
(Certificates in '000)
Total certificates in issue 71,954 69,859
(Rupees)
Net assets value per certificate 10.94 10.27
16. REMUNERATION TO MANAGEMENT COMPANY (Rupees in '000)
Remuneration to Management Company 9,707 8,570 Mark-up on retained remuneration 387 16 6 10,094 8,736
17. AUDITORS' REMUNERATION
Annual audit fee 140 125 Fee for the review of half yearly financial statements 100 75 Fee for the review of Code of Corporate Governance 25 25 Fee for other certifications 35 25 Out of pocket expenses 50 50 350 300
32 Annual Report 2010 - UBL Capital Protected Fund I 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. TRANSACTIONS WITH RELATED PARTIES / CONNECTED PERSONS
19.1 Related parties / connected persons comprise the following:
Related party Relationship
UBL Fund Managers Limited The Management Company of the Fund
Key Management Personnel Directors and key management personnel of the Management Company
United Bank Limited Holding Company of the Management Company
MCB Financial Services Limited The Trustee of the Fund (formerly Muslim Commercial Financial Services (Private) Limited)
UBL Liquidity Fund Plus (ULPF) Fund managed by UBL Fund Managers Limited United Growth & Income Fund (UGIF) ------do ------United Stock Advantage Fund (USF) ------do ------United Islamic Income Fund (UIIF) ------do ------United Composite Islamic Fund (UCIF) ------do ------UBL Capital Protected Fund - II (UCPF-II) ------do ------UBL Retirement Savings Fund ------do ------UBL Islamic Retirement Savings Fund ------do ------
UBL Insurers Limited Associated Undertaking Allied Bank Limited Holder of more than 10% of outstanding certificates at year end Pakistan Steel Provident Fund Trust ------do ------Deutche Bank A.G. Sub-custodian of Government Securities held by the Fund Engro Corporation Limited Associated undertaking (common directorship) (formerly Engro Chemicals Pakistan Limited) Engro Polymer and Chemicals Limited ------do ------National Bank of Pakistan ------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.
Annual Report 2010 - UBL Capital Protected Fund I 33 19.2 Details of transactions during the year and balances with related parties as at the year are as follows:
2010 2009 2010 2009 (Certificates in '000) (Rupees in '000)
Bonus Certificates issued:
Associated Undertakings -UBL Fund Managers Limited 15 - 164 - -UBL Bank Limited 225 - 2,462 - -UBL Staff General Provident Fund 300 - 3,282 -
Related parties other than associated undertakings - Allied Bank Limited (Connected person) 225 - 2,462 - - Pakistan Steel Provident Fund Trust (Connected person) 300 - 3,282 -
Certificates held by:
Associated Undertakings -UBL Fund Managers Limited 628 500 6,870 5,000 -UBL Bank Limited 7,725 7,500 84,512 75,000 -UBL Staff General Provident Fund 10,300 10,000 112,682 100,000
Related parties other than associated undertakings - Allied Bank Limited (Connected person) 7,725 7,500 84,512 75,000 - Pakistan Steel Provident Fund Trust (Connected person) 10,300 10,000 112,682 100,000
19.3 Details of other transactions / balances with related parties are as follows: Note 2010 2009 (Rupees in '000) Transactions with related parties
United Bank Limited (associated undertaking) -Profit on Term deposits 52,432 52,119 -Profit on bank deposits 113 35
Management Company (associated undertaking) -Remuneration to the Management Company 16 10,094 8,736
Trustee (connected person) -Remuneration to the Trustee 12 1,093 1,023
National Bank of Pakistan -Capital loss on sale of securities 1,972 -
Engro Corporation Limited (formerly Engro Chemicals Pakistan Limited) -Capital gain on sale of securities 20,940 - -Dividend income 500 -
19.4 Balances with related parties - unsecured
United Bank Limited (associated undertaking) -Bank balances 145 107 -Profit on bank deposits 1 - -Term deposits receipts 5 551,500 551,500 -Profit on Term deposits 43,206 43,206
Management Company (associated undertaking) -Payable to the Management Company 11 6,577 9,300
Trustee (connected person) -Remuneration payable to the Trustee 12 91 86
34 Annual Report 2010 - UBL Capital Protected Fund I 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) Capital Protection Segment b) 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) Capital Protection segment Income from government securities 3,898 - Income from term deposit receipts 53,929 53,192 Total segment income 57,827 53,192 Total expenses (14,637) (12,028) Net segment income 43,190 41,164
Investment segment Gain / (loss) on sale of investments - net 36,767 (26,995) Dividend income 4,122 4,535 Profit on bank deposits 2,517 3,246 Unrealised (loss) / gain on revaluation of investments -net (17,011) 7,066 Total segment income/(loss) 26,395 (12,148) Total expenses - - Net segment income/(loss) 26,395 (12,148)
Total net segment income for reportable segments 69,585 29,016
20.2 Assets and liabilities related to the two segments are as follows:
2010 2009 Capital Capital Investment Investment Protection Total Protection Total Segment Segment Segment Segment ------(Rupees in '000) ------
Investment in term deposit receipts 569,500 - 569,500 561,500 - 561,500 Investment in government securities 48,423 - 48,423 --- Profit receivable on term deposit receipts 43,646 - 43,646 43,477 - 43,477 Bank balances - 36,552 36,552 - 15,462 15,462 Investments in equity securities - 103,860 103,860 - 104,072 104,072 Profit receivable on bank deposits - 219 219 -127127 Deposits, prepayments and other receivables - 2,575 2,575 - 3,485 3,485 Total assets 661,569 143,206 804,775 604,977 123,146 728,123
Payable to the Management Company 6,577 - 6,577 9,300 - 9,300 Remuneration payable to the Trustee 91 - 91 86 - 86 Payable to Securities and Exchange Commission of Pakistan 580 - 580 580 - 580 Accrued expenses and other liabilities 10,429 - 10,429 606 -606 Total liabilities 17,677 - 17,677 10,572 - 10,572
20.3 Assets of reportable segments are reconciled to total assets as follows: 2010 2009 (Rupees in '000)
Total net segment assets for reportable segments 804,775 728,123 Preliminary expenses and floatation costs 36 82 Total assets 804,811 728,205
Annual Report 2010 - UBL Capital Protected Fund I 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 30 June 2009 Statement of Maximum Statement of Maximum assets exposure assets exposure and liabilities and liabilities ------(Rupees in '000)------
Investment in term deposit receipts 569,500 569,500 561,500 561,500 Investment in government securities 48,423 - -- Profit receivable on term deposit receipts 43,646 43,646 43,477 43,477 Bank balances 36,552 36,552 15 , 4 6 2 15 , 4 6 2 Profit receivable on bank deposits 219 219 127 127 Advances, deposits and other receivable 2,575 2,575 3,485 3,485 700,915 652,492 624,051 624,051
36 Annual Report 2010 - UBL Capital Protected Fund I 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
Carrying Gross Less than 1 to 3 3 months amountnominal 1 monthmonthsor above inflow / outflow 30 June 2010 ------(Rupees in '000) ------
Non-derivative liabilities Remuneration payable to Management 6,577 6,577 - 4,253 2,324 Company - Remuneration payable to Trustee 91 91 91 - - Annual fee payable to Securities and Exchange Commission of Pakistan 580 580 - 580 - Creditors, accrued and other liabilities 10,429 10,429 10,164 265 - 17,677 17,677 10,255 5,098 2,324
30 June 2009
Non-derivative liabilities Remuneration payable to Management Company 9,300 9,300 - 6,836 2,464 Remuneration payable to Trustee 86 86 86 - - Annual fee payable to Securities and - Exchange Commission of Pakistan 580 580 - 580 - Creditors, accrued and other liabilities 606 606 17 589 - 10,572 10,572 103 8,005 2,464
Annual Report 2010 - UBL Capital Protected Fund I 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 36,552 15,462
Fixed rate instruments Investment in government securities 48,423 - Term deposit receipts 569,500 561,500 654,475 576,962
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 Annual Report 2010 - UBL Capital Protected Fund I 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 - 551,500 18,000 569,500 Investment in government securities - - 48,423 48,423 Bank balances 36,552 - - 36,552
Total assets 36,552 551,500 66,423 654,475
Liabilities
Payable to the Management Company - - 1,937 1,937
Total liabilities - - 1,937 1,937
Total interest sensitivity gap 36,552 551,500 64,486 654,475
30 June 2009 Less than 1 month to 3 months Total 1 month3 months to 1 year ------(Rupees in '000) ------
Assets
Investment in term deposit receipts - 551,500 10,000 561,500 Bank balances 15,462 - - 15,462
Total assets 15,462 551,500 10,000 576,962
Liabilities
Payable to the Management Company - - 2,095 2,095
Total liabilities - - 2,095 2,095
Total interest sensitivity gap 15,462 551,500 7,905 574,867
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.
Annual Report 2010 - UBL Capital Protected Fund I 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 Annual Report 2010 - UBL Capital Protected Fund I 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 103,860 --103,860
Available for Sale
1-Year Treasury Bills - 48,423 - 48,423
103,860 48,423 - 152,283
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 th e 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.
Annual Report 2010 - UBL Capital Protected Fund I 41 22. TOP TEN BROKER/ DEALERS BY PERCENTAGE OF COMMISSION PAID BY THE FUND
Name of Broker 2010 (Percentage)
Shehzad Chamdia Securities (Private) Limited 13.04% Foundation Securities (Private) Limited 12.05% IGI Finex Securities (Private) Limited 11.21% KASB Securities Limited 10.28% JS Global Capital Limited 9.83% ELIXIR Securities (Private) Limited 9.48% Crosby Securities Pakistan (Private) Limited 8.76% D.J.M Securities (Private) Limited 7.62% Arif Habib Limited 6.49% Global Securities (Private) Limited 5.28%
Name of Broker 2009 (Percentage)
Foundation Securities (Private) Limited 27.69% JS Global Capital Limited 24.45% KASB Securities Limited 12.36% D.J.M Securities (Private) Limited 11.41% Global Securities (Private) Limited 6.89% Standard Capital Securities (Private) Limited 6.39% ELIXIR Securities (Private) Limited 5.90% Shehzad Chamdia Securities (Private) Limited 2.65% Al-Habib Capital Markets (Private) Limited 2.25%
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 Annual Report 2010 - UBL Capital Protected Fund I 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.
Annual Report 2010 - UBL Capital Protected Fund I 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 care er 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 Dates
Meetings 6 July 21 Aug 21 Oct 13 J an 26 Jan 23 Feb 20 Apr attended 2009 2009 2009 2010 2010 2010 2010
Mr. Atif Bokhari * 4 - 1 1 - 1 1 N/A Mr. Mohammad Asghar 6 1 1 1 1 1 1 - Mr. Aameer Karachiwala 6 1 - 1 1 1 1 1 Mr. Saeed Iqbal 7 1 1 1 1 1 1 1 Mr. Ali Sameer Farooqi 6 1 1 1 1 - 1 1 Mr. Mir Muhammad Ali 6 - 1 1 1 1 1 1 Mr. Shabbir Hussain Hashmi * 5 N/A - 1 1 1 1 1 Mr. Tariq Kirmani * - N/A N/A N/A N/A N/A N/A 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 t heir 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 Annual Report 2010 - UBL Capital Protected Fund I 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.
For UBL Fund Managers Limited (Management Company)
Mir Muhammad Ali, CFA Saeed Iqbal Chief Executive Director
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