CONTENTS REPORT OF THE DIRECTORS OF THE INVESTMENT ADVISER... 3 STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE... 8

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2 CONTENTS FUND S INFORMATION...1 MISSION STATEMENT... 2 REPORT OF THE DIRECTORS OF THE INVESTMENT ADVISER... 3 REPORT OF THE TRUSTEE... 7 STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE... 8 REVIEW REPORT TO THE CERTIFICATE HOLDERS INDEPENDENT AUDITORS REPORT TO THE CERTIFICATE HOLDERS STATEMENT OF ASSETS AND LIABILITIES INCOME STATEMENT DISTRIBUTION STATEMENT CASH FLOW STATEMENT STATEMENT OF CHANGES IN EQUITY STATEMENT OF MOVEMENT IN EQUITY AND RESERVES - PER CERTIFICATE NOTES TO THE FINANCIAL STATEMENTS PATTERN OF CERTIFICATE HOLDING CATEGORY OF CERTIFICATE HOLDERS PATTERN OF CERTIFICATE HOLDING AS PER REQUIREMENTS OF CODE OF CORPORATE GOVERNANCE STATEMENT OF INCOME AND EXPENDITURE IN RELATION TO THE FUND... 30

3 FUND S INFORMATION Investment Adviser BMA Asset Management Company Limited 801 Unitower. I.I. Chundirgar Road, Karachi Board of Directors of the Investment Adviser Mr. Arif Masood Naqvi Chairman Mr. Muddassar Malik Chief Executive Mr. Waqar Hassan Siddique Director Mr. Mustafa Abdel Wadood Director Mr. Thomas James Speechley Director Mr. Farrukh Hussain Khan Director Mr. Moazzam Malik Director Mr. Muhammad Iqbal Director Company Secretary & CFO of the Investment Adviser Mr. Muhammad Amir Iqbal Audit Committee of the Investment Adviser Mr. Farrukh Hussain Khan Chairman Mr. Moazzam Malik Mr. Muhammad Iqbal Trustee Central Depository Company of Pakistan Limited House, 99-B, Block B, S.M.C.H.S, Main Shahra-e-Faisal, Karachi Bankers Habib Metropolitan Bank Limited My Bank Limited Auditors Ford Rhodes Sidat Hyder & Co. Chartered Accountants Progressive Plaza, Beaumont Road, Karachi Legal Adviser Haidermota & Co. D-79, Block 5, Clifton K.D.A. Scheme No.5 Karachi Registrar THK Associates (Private) Limited Ground Floor, State life Building 3. Dr. Ziauddin Ahmed Road, Karachi Management Quality Rating AM3- by JCR VIS Credit Rating Company Limited 1

4 MISSION STATEMENT The macro investment objective of BMA Principal Guaranteed Fund I is to guarantee the principal investment of investors and to simultaneously ensure a high level of total return relative to mean returns from a fixed income asset class. VISION STATEMENT BMA Asset Management seeks to establish itself as a leader within the asset management industry of Pakistan by following the principles of prudent investment practice and keeping our fiduciary responsibility towards our investors as the core belief to our investment philosophy. 2

5 REPORT OF THE DIRECTORS OF THE INVESTMENT ADVISER The Board of Directors of BMA Asset Management Company Limited, the Investment Adviser of BMA Principal Guaranteed Fund I (BPGF I) is pleased to present herewith its report and Annual audited financial statements of the Fund for the period ended June 30, Profile BPGF I is a closed-end scheme with a two year maturity period ending 23 December On the date of maturity, the fund will redeem the entire proceeds of the fund to its shareholders within one month of the maturity. The investment objective of BPGF I is to guarantee the principal investment of investors who invested at the inception date of the fund and to simultaneously ensure a high level of total return relative to mean returns from a fixed income asset class. This is the first principal guarantee fund to be structured in Pakistan s capital market history. The investment policy of BPGF I is designed to ensure that at maturity repayment of the Principal Amount invested is guaranteed, and for such purpose the Trust Property shall from time to time include Fixed Income Instruments to the extent (at a minimum) that the obligations of the issuers of Fixed Income Instruments are sufficient to repay at maturity the Principal Amount invested by the investors in the Fund. As per the objective of the Fund, asset allocation in the Fixed Income Instruments at all times shall not be less than 70% of the total Fund size to ensure that at the time of maturity a redemption amount of at least Rs.100 million is available. After ensuring that the Principal Amount is guaranteed through investments in Fixed Income Instruments, the remaining funds will be invested in equities in order to generate higher returns in the form of stock dividends, cash dividends and capital gains to be passed onto investors. Highlights of Income Statement 30 June 2007 Rupees Capital gain 4,539,869 Dividend Income 223,750 Total Income 10,546,182 Net profit for the period 7,964,638 Earnings (Rs. per certificate) 0.96 Relative Performance The annualized return of the fund is 15.7% which is higher compared to the bank deposits. Financial Performance For the period ended 30th June 2007, BPGF-I has earned a total income of Rs million. and was achieved through fixed income return of Rs.5.79 million and equity return of Rs.4.76 million. Expenditure for the period ended 30th June 2007 was Rs.2.58 million. The Fund earned net income of Rs.7.96 million since its inception at October 19, The earning per 3

6 certificate was Rs.0.96 and net asset value per certificate of the Fund at the end of the period stood at Rs Fixed income:-the fund manager on January 20, 2007 invested 80% of the initial fund size in structured fixed income instrument with an investment grade rated financial institution. The interest income on this instrument on a 2 year compounding basis is 13.88%. The total income from the fixed income instruments will allow the Fund to guarantee to investors the principal sum invested. Equity investment:- The equity component of the fund was up by 23%. Throughout the period under review the fund adopted a policy of actively managing the equity portion in both value and growth stocks to achieve attractive equity returns. The Fund s core sector exposures accounted for 94% to the total equity exposure and included Commercial Banking (25%), Oil and Gas Exploration (20%), Jute (16%), Engineering (10%), Fertilizer (10%), Refinery (7%) and Automobile Assemblers (6%). The equity portion of the fund remained fully invested and was thus able to capitalize market upside resulting in the equity component showing a 41.8% appreciation during the period. The equity portfolio at cost stood at Rs million and at market value stood at Rs million, resulting in an unrealized gain of Rs.1.50 million for the period ended 30th June Outlook As stated in our last report for the period ending 16 April, 2007, our outlook on equities was positive and this proved accurate as subsequent to the period under review the market has posted strong gains and stood at all time high level 14,466 points. On the political front, President General Musharraf scored a landslide victory in the presidential election. He is expected to be President of Pakistan for next 5 years pending approval from the Supreme Court. With Musharraf s landslide victory and national and provincial elections in early 2008, a clearer political roadmap is starting to emerge. Leaving aside politics, another round of strong quarterly results are expected and investors will be focusing on the performance of key sectors of the market. The quarterly results could act as a catalyst for further upside in the market. Moving forward, the strategy of the fund is to remain actively managed to exploit market volatility. The fund manager firmly believes that strong market fundamentals will form the basis of further market upside and this is reinforced by a strong valuation argument where the Pakistan market continues to be deeply discounted by upto 38% on PE basis, in comparison to other Asian emerging markets. The Fund will continue to remain over weight in E&P, Fertilizer, Banking and Cement stocks due to attractive valuations and earnings growth. 4

7 Corporate Governance The Fund being listed on the Karachi Stock Exchange, the Investment adviser is committed to observe the Code of Corporate Governance prescribed for listed companies. The financial statements, prepared by the management of the listed company, present fairly its state of affairs of the fund and result of its operations, cash flows and changes in equity. Proper books of account of the fund have been maintained during the year. Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment. International Accounting standards, as applicable in Pakistan have been followed in preparation of financial statements. The system of internal control is sound in design and has been effectively implemented and monitored. There is no doubt upon the Fund s ability to continue as going concern. There has been no material departure from the best practices of Corporate Governance, as detailed in listing regulations. Key financial data is summarized in note 21 of the financial statements. Fund has maturity period of two years. The statement as to the value of investments of provident fund is not applicable in the case of the fund as such expenses are borne by the Investment Adviser. The number of Board meetings held during the year and attendance by each director is disclosed. The detailed pattern of certificate holding, as required by the Companies Ordinance, 1984 and the Code of Corporate Governance is enclosed. Attendance of Board Meetings S.NO NAME DESIGNATION TOTAL MEETINGS ATTENDED LEAVE GRANTED 1 Mr. Muddassar Malik Director Mr. Farrukh H. Khan Director Mr. Moazzam Malik Director Mr. Muhammad Iqbal Director Mr. Mustafa Abdel Wadood Director Mr. Thomas James Speechly Director Mr. Arif Masood Naqvi Chairman Mr. Waqar Hassan Siddique Director Mr. Chafic Fawaz Najia Director Mr. Al-Waleed Abdul 10 Rehman Director Mr. Suha Dawood Najjar Director 5 4 A Casual vacancy occurred in the Board of BMA Asset Management Company Limted (Investment Advisor), due to resignation of Mr. Waleed Abdul Rehman, Mr Chafic Fawaz Najia and Suha Dawood Najjar as Directors of the company which was filled by Mr. Waqar Hassan Siddique, Mr Mustafa Abdel Wadood and Mr. Thomas James Speechly on 16 April

8 Transactions with Connected Persons In management s opinion, such consideration is an arms length price along with appropriate explanation in case of an exception to arm s length price. The fund has fully complied with the best practices on transfer pricing as contained in the Listing Regulation No.38 of Karachi Stock Exchange. Appointment of Auditors The board of Directors of BMA Asset Management Company Limited (the Investment Adviser) have reappointed Ford Rhodes Sidat Hyder & Co. Chartered Accountants, as the Fund s auditor for the period as recommended by the Audit Committee. KARACHI: October 03, 2007 Muddassar Malik Chief Executive Officer 6

9 REPORT OF THE TRUSTEE Report of the Trustee Pursuant to Rule 45(g) of the Non-Banking Finance Companies (Establishment and Regulation) Rules, BMA Principal Guaranteed Fund I, a closed end fund established under a trust deed executed between BMA Asset Management Company Limited as the Investment Adviser and Central Depository Company of Pakistan Limited as Trustee on 27 April, The scheme was authorized by Securities and Exchange Commission of Pakistan (SECP) on 31 July, In our opinion, BMA Asset Management Company Limited, the Investment adviser of BMA Principal Guaranteed Fund I has in all material respects managed BMA Principal Guaranteed Fund I during the period from October 19, 2006 to June 30, 2007 in accordance with the provisions of the Trust Deed (and the modifications authorized by the SECP from time to time) and Non-Banking Finance Companies (Established and Regulation) Rules, Karachi: October 24, 2007 Muhammad Hanif Chief Executive Officer Central Depository Company of Pakistan Limited 7

10 STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE FOR THE PERIOD ENDED 30 JUNE 2007 This statement is being presented by the Board of Directors of BMA Asset Management Company Limited, the Investment Adviser of the BMA Principal Guaranteed Fund to comply with the Code of Corporate Governance contained in Regulation No. 37, Chapter XIII and Chapter XI of listing regulations of Karachi 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 Investment Adviser has applied the principles contained in the Code in the following manner: 1. The Investment Adviser encourages representation of independent non-executive directors and directors representing minority interests on its Board of Directors. At present the Board includes seven non- executive directors, however, none of the directors on the Board represent minority shareholders. 2. The directors have confirmed that none of them is serving as a director in more than ten listed companies (including this Fund). 3. All the resident directors of the Investment Adviser are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFI or an NBFI or being a member of a stock exchange, has been declared as a defaulter by that stock exchange. 4. A casual vacancy occurred in the Board due to resignation of Mr. Al-Waleed Abdelrahman, Mr Chafic Fawaz Najia and Ms.Suha Dawood Najjar which was filled by appointing Mr. Waqar Hassan Siddique, Mr Mustafa Abdel Wadood and Mr Thomas James Speechly by the Board during the current period within 30 days. 5. The Investment Adviser has prepared a Statement of Ethics and Business Practices, which has been approved by the Board of Directors and signed by all the directors, management and employees of the Investment Adviser. 6. The Board has developed mission / vision statement and significant policies of the Fund. A complete record of particulars of significant policies along with the dates on which they 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 determination of remuneration and terms and conditions of employment of the CEO have been taken by the Board. 8. The meetings of the Board were presided over by the Chairman and, in his absence, by a director elected by the Board for this purpose 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 meeting. The minutes of the meetings were appropriately recorded and circulated. 9. The Board arranged an orientation course for new director during the year to apprise him of his duties and responsibilities. 10. The Board has approved the appointment of CFO, Company Secretary and appointment of M/s Yousuf Adil Saleem & Co.Chartered Accountants (Delloite) as internal auditors, including their remuneration and terms and conditions of employment as determined by the CEO. 8

11 11. The Directors report of the Fund for this period has been prepared in compliance with the requirements of the Code and fully describes the salient matters required to be disclosed. 12. The directors, CEO and executives of the Investment Adviser do not hold any interest in the certificates of the Fund other than that disclosed in the pattern of certificate holding. 13. The financial statements of the Fund were duly endorsed by CEO and CFO of the Investment Adviser before approval of the Board. 14. The Investment Adviser has complied with all the significant corporate and financial reporting requirements of the Code relevant to the Fund. 15. The Board has formed an audit committee. It comprises of three members, all of whom are non-executive directors including the Chairman of the committee. 16. The meetings of the audit committee were held at least once every quarter prior to approval of the interim and final results of the Fund and as required by the Code. The terms of reference of the committee have been formed and advised to the committee for compliance. 17. The Investment Advisor has outsourced the internal audit function to M/s Yousuf Adil Saleem & Co. Chartered Accountants (Delloite) who are considered suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the company. 18. 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, that they or any of the partners of the firm, their spouses and minor children do not hold certificates of the Fund and that the firm and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by Institute of Chartered Accountants of Pakistan. 19. 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. 20. We confirm that all other material principles contained in the Code have been complied with. For and on behalf of the Board KARACHI: October 03, 2007 Muddassar Malik Chief Executive Officer 9

12 REVIEW REPORT TO THE CERTIFICATE HOLDERS ON THE STATEMENT OF COMPLIANCE WITH THE BEST PRACTICES OF THE CODE OF CORPORATE GOVERNANCE We have reviewed the Statement of Compliance with the best practices (the Statement) contained in the Code of Corporate Governance (the Code) prepared by the Board of Directors of the Investment Advisor of the BMA Principal Guaranteed Fund I (the Fund) to comply with the Listing Regulation No. 37 (Chapter XI) of the Karachi Stock Exchange where the Fund is listed. The responsibility for compliance with the Code is that of the Board of Directors of the Investment Advisor of the Fund. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement reflects the status of the Investment Advisor s compliance with the provisions of the Code in respect of the Fund and report if it does not. A review is limited primarily to inquiries of the Investment Advisor s personnel and review of various documents prepared by the Investment Advisor 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 have not carried out any special review of the internal control system to enable us to express an opinion as to whether the Board s statement on internal control covers all controls and the effectiveness of such internal controls. Based on our review, nothing has come to our attention, which causes us to believe that the Statement does not appropriately reflect the status of the Investment Advisor s compliance, in all material respects, with the best practices contained in the Code in respect of the Fund for the period ended June 30, KARACHI: October 03, 2007 Ford Rhodes Sidat Hyder & Co. CHARTERED ACCOUNTANTS 10

13 INDEPENDENT AUDITORS REPORT TO THE CERTIFICATE HOLDERS We have audited the accompanying financial statements of BMA Principal Guaranteed Fund I (the Fund), which comprise the statement of assets and liabilities as at June 30, 2007, and the income statement, distribution statement, cash flow statement, statement of changes in equity and statement of movement in equity and reserves per certificate for the period then ended and a summary of significant accounting policies and other explanatory notes. Management s responsibility for the financial statements Investment Advisor of the Fund is responsible for the preparation and fair presentation of these financial statements in accordance with the requirements of the Trust Deed, the Non- Banking Finance Companies (Establishment and Regulation) Rules, 2003 (NBFC Rules) and approved accounting standards as applicable in Pakistan. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards as applicable in Pakistan. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the state of the Fund s affairs as at June 30, 2007, and of its financial performance, cash flows and transactions for the period then ended in accordance with approved accounting standards as applicable in Pakistan. Other matters In our opinion, the financial statements have been prepared in accordance with the relevant provisions of the Trust Deed and NBFC Rules. KARACHI: October 03, Ford Rhodes Sidat Hyder & Co. CHARTERED ACCOUNTANTS

14 ASSETS STATEMENT OF ASSETS AND LIABILITIES AS AT JUNE 30, 2007 Note June 30, 2007 Rupees Bank balances 5 84,506,484 Receivables and deposits 6 322,651 Preliminary expenses and floatation costs 7 1,180,737 Investments 8 24,986,175 TOTAL ASSETS 110,996,047 LIABILITIES Remuneration payable to the Investment Adviser 9 1,140,109 Remuneration payable to the Trustee 10 17,623 SECP annual fee 11 50,974 Accrued and other liabilities 12 1,822,703 TOTAL LIABILITIES 3,031,409 NET ASSETS 107,964,638 REPRESENTED BY: CERTIFICATE HOLDERS' EQUITY Issued, subscribed and paid-up capital 10,000,000 certificates of Rs. 10/- each issued as fully paid-up in cash 100,000,000 Reserves Unappropriated income 7,964,638 The annexed notes from 1 to 24 form an integral part of these financial statements. 107,964,638 (0) For BMA Asset Management Company Limited (Investment Adviser) Muddassar Malik Chief Executive Officer Farrukh Hussain Khan Director 12

15 INCOME STATEMENT FOR THE PERIOD ENDED JUNE 30, 2007 INCOME For the period from October 19, 2006 to June 30, 2007 Note Rupees Net gain on sale of marketable securities 2,979,310 Dividend income 223,750 Profit on PLS savings account 5,782,563 8,985,623 Unrealised gain on held-for-trading investments - net 1,464,559 Fair value of derivative financial instrument 96,000 1,560,559 EXPENSES 10,546,182 Remuneration of the Investment Adviser 9 1,201,359 Remuneration of the Trustee ,136 SECP annual fee 11 50,974 Amortization of preliminary expenses and flotation costs 7 411,735 Auditors' remuneration ,000 Brokerage and settlement charges 132,726 Legal and professional charges 18,000 Other operating expenses ,614 2,581,544 NET INCOME BEFORE TAX 7,964,638 Provision for taxation NET INCOME AFTER TAX 7,964,638 BASIC AND DILUTED EARNINGS PER CERTIFICATE The annexed notes from 1 to 24 form an integral part of these financial statements. For BMA Asset Management Company Limited (Investment Adviser) Muddassar Malik Chief Executive Officer Farrukh Hussain Khan Director 13

16 DISTRIBUTION STATEMENT FOR THE PERIOD ENDED JUNE 30, 2007 For the period from October 19, 2006 to June 30, 2007 Rupees Net income for the period 7,964,638 Unappropriated income carried forward 7,964,638 The annexed notes from 1 to 24 form an integral part of these financial statements. For BMA Asset Management Company Limited (Investment Adviser) Muddassar Malik Chief Executive Officer Farrukh Hussain Khan Director 14

17 CASH FLOW STATEMENT FOR THE PERIOD ENDED JUNE 30, 2007 Cash flows from operating activities For the period from October 19, 2006 to June 30, 2007 Note Rupees Net income for the period 7,964,638 Adjustments for: Unrealised gain on held-for-trading investments - net (1,464,559) Profit on PLS savings account (5,782,563) Dividend income (223,750) Amortization of preliminary expenses and flotation costs 411, ,501 Increase in assets Security deposit (125,000) Fair value of derivative financial instrument (96,000) Other receivable (500) (221,500) Increase in liabilities Remuneration payable to the Investment Adviser 1,140,109 Remuneration payable to the Trustee 17,623 SECP annual fee 50,974 Accrued and other payable 1,822,703 3,031,409 3,715,410 Preliminary expenses and floatation costs (1,592,472) Dividend received 130,000 Profit on PLS savings account received 5,775,162 Sale of held-for-trading investments 55,576,585 Purchase of held-for-trading investments (79,098,201) Net cash generated from operating activities (15,493,516) Cash flows from financing activities Proceeds from issue of certificates 100,000,000 Net cash generated from financing activities 100,000,000 Net increase in cash and cash equivalents during the period 84,506,484 cash and cash equivalents at the beginning of the period - cash and cash equivalents at the end of the period 5 84,506,484 - The annexed notes from 1 to 24 form an integral part of these financial statements. For BMA Asset Management Company Limited (Investment Adviser) Muddassar Malik Chief Executive Officer Farrukh Hussain Khan Director 15

18 STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD ENDED JUNE 30, 2007 Issued, subscribed and fully paidup Unappropriated capital income Total Rupees Amount received on issue of 10,000,000 certificates of Rs 10/- each 100,000, ,000,000 Net income for the period - 7,964,638 7,964,638 Balance as at June 30, ,000,000 7,964, ,964,638 The annexed notes from 1 to 24 form an integral part of these financial statements. For BMA Asset Management Company Limited (Investment Adviser) Muddassar Malik Chief Executive Officer Farrukh Hussain Khan Director 16

19 STATEMENT OF MOVEMENT IN EQUITY AND RESERVES - PER CERTIFICATE FOR THE PERIOD ENDED JUNE 30, 2007 For the period from October 19, 2006 to June 30, 2007 Rupees Proceeds from issue of certificates during the period Net income for the period 0.80 Net assets per certificate outstanding at the end of the period The annexed notes from 1 to 24 form an integral part of these financial statements. For BMA Asset Management Company Limited (Investment Adviser) Muddassar Malik Chief Executive Officer Farrukh Hussain Khan Director 17

20 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, LEGAL STATUS AND NATURE OF BUSINESS BMA Principal Guaranteed Fund I (the Fund) has been established under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the NBFC Rules) and has been authorized as a closed-end scheme by the Securities and Exchange Commission of Pakistan (SECP) on July 31, It has been constituted under a Trust Deed, dated April 27, 2006, between BMA Asset Management Company Limited (the Investment Adviser), a company incorporated under the Companies Ordinance, 1984 and Central Depository Company of Pakistan Limited (CDC) as the Trustee, also a public limited company incorporated under the Companies Ordinance, The Investment Adviser entered into a Supplemental Trust Deed with CDC on July 12, 2006 in order to change the name of the Fund from Metro BMA Principal Guaranteed Fund I to BMA Principal Guaranteed Fund I pursuant to a resolution passed at a meeting of the Board of Directors of the Investment Adviser held on June 19, The change of the name of the Fund was authorized by the SECP vide its letter no. NBFC-II/BMA/438 dated July 04, The Fund has received investment in Pre-IPO on October 19, 2006.The certificates of the Fund were offered for public subscription from December 21, 2006 to December 23, The Fund is a closed-end scheme with a two years maturity period. The investment objective of the Fund is to guarantee the principal investment of investors and to simultaneously ensure a high level of total return relative to mean returns from the fixed income asset class. The certificates of the Fund are listed on the Karachi Stock Exchange (Guarantee) Limited. The principal activity of the Fund is to make investment in equity securities and fixed income securities including money market instruments. 2. STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan and requirements of the Trust Deed, NBFC Rules and directives issued by the Securities and Exchange Commission of Pakistan (SECP). Approved accounting standards comprise of such International Accounting Standards as notified under the provisions of the Companies Ordinance, Wherever, the requirements of the Trust Deed, the NBFC Rules or directives issued by SECP differ with the requirements of the Trust Deed, the NBFC Rules or directives issued by SECP differ with the requirements of these standards, the requirements of the Trust Deed, NBFC Rules and the said directives take precedence. 3. BASIS OF PREPARATION These financial statements have been prepared under the historical cost convention, except for measurement at fair value of investments as stated in note SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 4.1 Investments The management of the Fund determines the appropriate classification of its investments at the time of purchase as follows: Held-to-maturity Investment securities with fixed maturities where management has both the intent and ability to hold-to-maturity, are classified as held-to-maturity investments. Available-for-sale Investments intended to be held for an indefinite period of time which may be sold in response to need for liquidity or changes to interest rates or equity prices are classified as available-for-sale. Investments at fair value through profit and loss Investments classified as held-for-trading are included in this category. Investments are classified as held-fortrading if they are acquired for the purpose of selling in the near term. All investments are initially measured at fair value plus, in the case of investments not at fair value through profit and loss, transaction costs that are directly attributable to acquisition. 18

21 After initial recognition, investments which are classified as held-for-trading and available-for-sale are remeasured at fair value. Gains or losses on investments held-for-trading are recognised in income. Gains or losses on available-for-sale investments are recognised in the certificate holders' funds until the investment is sold, derecognised or is determined to be impaired, at which time the cumulative gain or loss previously reported in certificate holders' funds is included in income. Investments classified as held-to-maturity are stated at amortised cost. For investments in quoted marketable securities, fair value is determined by reference to Stock Exchange quoted market prices at the close of business on the date of statement of assets and liabilities. Unquoted securities are valued at investment price or the break-up value as per last audited financial statements, whichever is later in accordance with the NBFC Rules. 4.2 Offsetting of financial assets and liabilities Financial assets and financial liabilities are only offset 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 intends to either settle on a net basis or to realise the asset and settle the liability simultaneously. 4.3 Derivatives These are measured at their fair values. Derivatives with positive market values (unrealised gains) are included in deposits and receivables and derivatives with negative market values (unrealised losses) are included in accrued and other payable in the statement of assets and liabilities. The resulting gains and losses are included in the income currently. 4.4 Financial instruments All the financial assets and financial liabilities are recognised at the time when the Fund becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the Fund looses control of the contractual rights that comprise the financial assets. Financial liabilities are derecognised when they are extinguished, that is, when the obligation specified in the contract is discharged, cancelled, or expired. Any gain or loss on derecognition of the financial assets and liabilities is taken to income currently. 4.5 Revenue recognition Gains / (losses) arising on sale of investments are included in the income statement on the date at which the transaction takes place. Unrealised gains / (losses) arising on mark to market of investments classified as 'Held-for-Trading' are included in the income statement in the year in which they arise as described in note 4.1 to these financial statements. Dividend income is recognised when the right to receive the dividend is established. Gains / (losses) arising on the revaluation of the derivatives to the fair value are taken to the income statement as discussed in note 4.3 to the financial statements. Profit on bank deposits shall be recognised on accrual basis. 4.6 Impairment The carrying amount of the Fund's assets are reviewed at each date of statement of assets and liabilities to determine whether there is an indication of impairment loss. Any impairment loss arising is recognized as expense in the income statement. 4.7 Cash and cash equivalents For the purpose of cash flow statement cash and cash equivalents comprise of bank balances. 4.8 Provisions Provisions are recognized when the Fund has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation and reliable estimate of the obligation can be made. Provisions are reviewed at each date of statement of assets and liabilities and adjusted to reflect the current best estimate. 4.9 Taxation The income of the Fund is exempt from taxation under clause 99 of the Part I of the Second Schedule of the Income Tax Ordinance, 2001, subject to the condition that not less than 90% of its accounting income for the year, as reduced by capital gains whether realized or unrealised, is distributed amongst the certificate holders. Accordingly, no provision for current and deferred taxation has been made in the financial statements as the fund intends to avail this tax exemption for the current and future periods. 19

22 4.10 Earnings per certificate Earnings per certificate is calculated by dividing the net income for the period by the weighted average number of certificates outstanding during the period Preliminary expenses and floatation costs All expenses incurred in connection with the incorporation and registration or establishment and authorisation of the Fund were borne by the Investment Adviser and are reimbursable to the Investment Adviser by the Fund in equal amounts to be paid annually over the period upto maturity. These preliminary expenses and floatation costs will be amortised over the period of the scheme Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the Fund operates. The financial statements are presented in Pakistani Rupees, which is the Fund's functional and presentation currency Trade date accounting All regular way purchases and sales of financial assets are recognized on the trade date i.e. the date the Fund commits to purchase or sale the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or market convention such as T Accounting estimates and judgments The preparation of financial statements in conformity with approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Fund's accounting policies. Estimates and judgments are continually evaluated and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In the process of applying the Fund's accounting policies, management has made the following estimates and judgments which are significant to the financial statements: (a) (b) Classification of investments (note 4.1); and Impairment of financial assets (note 4.4) Accounting standards not yet effective The following new standards and amendment of approved accounting standards are applicable in Pakistan from the dates mentioned below against the respective standard or amendment: IAS-1 Presentation of Financial Statements - effective from accounting period beginning on or amendments relating to capital disclosures after January 01, 2007 IAS-23 (Revised) Borrowing Costs IAS-41 Agriculture IFRS-2 Share based Payment IFRS-3 Business Combinations effective from accounting period beginning on or after January 01, 2009 effective from accounting period beginning on or after May 22, 2007 effective from accounting period beginning on or after December 06, 2006 effective for business combinations for which agreement date is on or after December 06, 2006 IFRS-5 Non-current Assets Held for Sale and effective from accounting period beginning on or Discontinued Operations after December 06, 2006 IFRS-6 Exploration for and Evaluation of Mineral effective from accounting period beginning on or Resources after December 06,

23 In addition, interpretations in relation to certain IFRSs have been issued by the International Accounting Standards Board that are not yet effective. The Fund expects that the adoption of the above standards, amendments and interpretations will have no impact on the Fund's financial statements in the period of initial application. 5. BANK BALANCES June 30, Note 2007 Rupees Cash at bank - local currency In PLS savings accounts with Connected person - Habib Metropolitan Bank Limited 37,277 Other ,469, ,506, This represents a deposit placed with My Bank Limited on January 20, 2007 for two years at a markup rate of 12.25% per anum on daily product basis. These carry mark-up ranging from 8.5% to 12.25% per annum. 6. RECEIVABLES AND DEPOSITS Security deposits 125,000 Dividend receivable 93,750 Accrued profit on PLS savings accounts 7,401 Fair value of derivative financial instrument ,000 Other receivable , This represents fair value of 750 right share options of Engro Chemical Pakistan Limited having an exercise price of Rs. 125 per option. 7. PRELIMINARY EXPENSES AND FLOATATION COSTS SECP fee 25,000 Underwriting commission 2 Bankers to issue commission 185,000 Stamp duty 188,750 Legal and professional charges 321,700 Brokers' commission 497,300 Others 374,720 1,592,472 Less: Amortization during the period (411,735) 1,180, The SECP has allowed the Formation Cost to exceed 1% of the Fund's size upto Rs. 1,633,752. The preliminary expenses and floatation costs as above are to be reimbursed to the investment adviser over the period of the Fund, and carry a nil rate of mark up. 8. INVESTMENTS At fair value through profit and loss Held-for-trading Quoted equity securities ,986,175 21

24 8.1 Held-for-trading - quoted equity securities (Number of shares / certificates) Balance as at Percentage in relation to June 30, 2007 Name of Investee Company Acquired Bonus / right Disposed Holding as at Market Net Assets Paid up capital Total market of the of Investee Value (carrying during the shares received during the June 30, Value Fund (with Company (with value) of period during the period period 2007 market value face value of investments (Rupees) of investments) investments) Ordinary shares / certificates have a face value of Rs 10 each unless stated otherwise Commercial Banks Allied Bank Ltd 7,000-7, Askari Commercial Bank Ltd 32,500 5,000 37, Bank of Punjab 37,500 3,250 40, Bank Alfalah Ltd 46,000 3,000 36,000 13, , Faysal Bank Ltd 10,000-10, National Bank of Pakistan Ltd 33,000-13,000 20,000 5,240, MCB Bank Ltd 5,000-5, ,086,300 Textile Composite Nishat Mills Ltd 20,000-20, Oil and Gas Exploration Companies Oil and Gas Development Company 100,000-62,500 37,500 4,492, Pakistan Petroleum Ltd 12,500-12, Pakistan Oilfields Ltd 25,000-25, ,492,500 Oil and Gas Marketing Companies Pakistan State Oil Company Ltd 5,000-5, Automobiles Assemblers Pak Suzuki Motor Co Ltd. 5,000-5, Indus Motors Ltd 15,000-10,000 5,000 1,527, Al-Ghazi Tractors Ltd 3,300-3, ,527,500 Fertilizer Fauji Fertilizer Bin Qasim Ltd 20,000-10,000 10, , Engro Chemical Pakistan Ltd 5, ,000 1,265, Fauji Fertilizer Co 30,000-22,500 7, , ,564,375 Chemicals ICI Pakistan Ltd 5, , , ,500 Insurance Adamjee Insurance 10,000-10, Refinery Attock Refinery Ltd 5,000-5, National Refinery Ltd 7,000-2,000 5,000 1,705, ,705,000 Engineering Crescent Steel Allied Products Ltd 40, ,000 2,840, ,840,000 Modaraba First Habib Bank Modaraba 10,000-10, Cement Fauji Cement Pakistan Ltd 50,000-50, Lucky Cement Ltd 5,000-5, Power Generation and Distribution Hub Power Co. 25,000-25, Kohinoor Energy 20, , , ,000 Investment Banks/Cos./Securities JOV & Co. 15,000-15, Paper and Board Packages Ltd 2,500-2, Jute Thal Ltd 17,500-2,500 15,000 4,185, ,185,000 TOTAL 24,986,175 22

25 8.1.1 Net unrealised gain during the period from holding and dealing in listed securities June 30, 2007 Rupees Market value of marketable securities at fair value through profit or loss- Held-for-trading 24,986,175 Less: cost of marketable securities at fair value (23,521,616) through profit or loss- Held-for-trading 1,464, REMUNERATION PAYABLE TO THE INVESTMENT ADVISER The Investment Adviser has charged its remuneration at the rate of 2% of the average annual net assets as defined under the NBFC Rules, 2003 during the lifespan till maturity of the Fund. This is stated net of a sum of Rs. 61,250 representing expenses incurred by the Fund on behalf of the Investment Advisor. 10. REMUNERATION PAYABLE TO THE TRUSTEE The Trustee is entitled to a monthly remuneration out of the Fund's property based on actual custodial charges / expenses and an annual tariff based on the slab rates given in the Trust Deed. Any upward increase in the Trustee s remuneration would require SECP s approval and amendment in the Trust Deed. However, any downward shift in the Trustee s remuneration will not require such an approval. 11. SECP ANNUAL FEE This represents annual fee payable to SECP in accordance with rule 54 of the NBFC Rules, at the rate of one tenth of one percent of the average annual net assets of the Fund. 12. ACCRUED AND OTHER LIABILITIES Note June 30, 2007 Rupees Preliminary expenses and floatation costs payable to the Investment Adviser ,592,472 Auditors' remuneration 125,000 Mutual fund rating fee ,725 Printing charges payable 36,500 Other payables 4,006 1,822, The preliminary expenses and floatation costs will to be reimbursed to the Investment Adviser by the Fund in equal amounts to be paid annually over a period upto maturity of the Fund As per the SECP Circular No. 11 of 2005 dated August 19, 2005, the Fund is liable to obtain mutual fund rating from approved credit rating company after completion of first year's operation and thereafter annually. This amount represents mutual fund rating fee allocated to current period. 13. AUDITORS' REMUNERATION June 30, 2007 Rupees Annual audit fee 100,000 Fee for half yearly review 50,000 Fee for special certifications 45, ,000 23

26 14. OTHER OPERATING EXPENSES June 30, 2007 Rupees Stock exchange listing fee 155,000 CDC fee 122,780 Printing and stationery 90,980 Mutual fund rating fee 64,725 Other expenses 18, , The above expenses are allowed to be charged to the Fund under Clause 14.4 of the Second Supplemental Trust Deed, which has been approved by SECP vide its letter No. SEC/NBFCII/BMA/511 dated July 16, BASIC AND DILUTED EARNINGS PER CERTIFICATE June 30, 2007 Rupees Net income for the period (Rupees) 7,964,638 Weighted average number of certificates outstanding during the period (Number) 8,333,333 Basic earnings per certificate (Rupees) No figure for diluted earnings per certificate has been presented as the Fund has not issued any instrument which could have an impact on earnings per certificate when exercised. 16. TRANSACTIONS WITH CONNECTED PERSONS Connected persons include BMA Asset Management Company Limited (the Investment Adviser), BMA Capital Management Company Limited (the holding company of the Investment Adviser), Abraaj Capital (the joint venture partner of the holding company), Magus Multimedia (Pvt) Limited, Al Abbas Sugar Mills Limited and ACME Mills (Pvt) Limited (under the common directorship), Habib Metropolitan Bank Limited (major certificate holder). Transactions with the connected persons during the period are as follows: Transactions and balances with connected persons June 30, 2007 Rupees - BMA Asset Management Company Limited (the Investment Advisor) Remuneration 1,140,109 Expenses incurred on behalf of the Investment Advisor 61,250 Preliminary expenses and floatation costs 1,592,472 Issue of certificates 10,000,000 - Habib Metropolitan Bank Limited Issue of certificates 50,000,000 Profit on PLS savings account 1,313,355 Balances with connected persons are disclosed in the respective notes to the financial statements. 24

27 17. INTEREST RATE SENSITIVITY POSITION The Fund's financial assets and financial liabilities that are exposed to interest rate risk are as follows: On- balance sheet financial instruments June 30, 2007 More than Interest Upto three three months More than Total rate months and upto one year % one year Rupees Financial Assets Bank balances ,506, ,506, MATURITIES OF ASSETS AND LIABILITIES June 30, 2007 More than three months Upto three and upto More than months one year one year Total Rupees ASSETS Bank balances 84,506, ,506,484 Receivables and deposits 197, , ,651 Preliminary expenses and floatation costs 196, , ,484 1,180,737 Investments 24,986, ,986, ,885, , , ,996,047 LIABILITIES Remuneration payable to the Investment Adviser 1,140, ,140,109 Remuneration payable to the Trustee 17, ,623 SECP annual fee 50, ,974 Accrued and other liabilities 230, , ,236 1,822,703 1,438, , ,236 3,031,409 Net Assets 108,446,936 (207,546) (274,752) 107,964, FINANCIAL RISK MANAGEMENT POLICIES 19.1 Market risk Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices. The Investment Adviser manages market risk by monitoring exposure on marketable securities by following the internal guidelines of the Investment Committee and regulations laid down by the SECP Interest rate risk Interest rate risk is the risk that the value of the financial instrument will fluctuate due to changes in the market interest rates. As at the date of statement of assets and liabilities, the Fund does not have any interest bearing financial asset and liability except bank balances. The effective interest rate on bank balances is disclosed in note Liquidity risk Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial instruments. The Investment Adviser manages liquidity risk by follow the internal guidelines of the Investment Committee and by investing in highly liquid financial assets Credit risk Credit risk arises from the inability of the counter parties to meet the terms of the Fund s financial instrument contracts and is generally limited to the amounts, if any, by which the counterparty's obligations exceed the obligations of the Fund. The Fund is not materially exposed to credit risk. 25