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.