VISION STATEMENT MISSION STATEMENT. First Prudential Modaraba. First Prudential Modaraba

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1 CORPORATE INFORMATION Board of s of Prudential Capital Management Ltd. Mr. Asad Iqbal Siddiqui Mr. Muhammad Asif Mr. Fazal M. Mughal Mr. Ataullah Khan Dr. Muhammad Hussain COMPANY SECRETARY Mr. Muhammad Musharraf Khan AUDIT COMMITTEE Mr. Muhammad Asif Chairman Mr. Fazal M. Mughal Member Mr. Ataullah Khan Member AUDITORS M.Yousuf Adil Saleem & Co. Chartered Accountants LEGAL ADVISORS Mohammad Zubair Quraishy S. Tauqir Hassan & Co. BANKERS Standard Chartered Bank Faysal Bank Ltd. MCB Bank Al Baraka Bank (Pak.) Ltd. Summit Bank Ltd. MANAGEMENT COMPANY Prudential Capital Management Limited REGISTERED OFFICE Office No. 54, Ground Floor, Beverly Centre, 56G, Blue Area, Islamabad. Tel: Fax: info@firstprudentialmodaraba.com STOCK EXCHANGE is managed by Prudential Capital Management Ltd. and is listed on Karachi, Lahore and Islamabad Stock Exchanges. Daily quotation of the company s stock can be obtained from leading newspapers, listed under modarabas. PUBLIC INFORMATION Financial analysts, Stock, broker, interested investors and financial media desiring information about should contact Syed Imran Ali (Chief Finanacial Officer) Mehersons Estate, st Floor, Block No., Talpur Road, P.O. Box 62, Karachi74000 Tel: PABX Fax: info@firstprudentialmodaraba.com CERTIFICATE HOLDERS INFORMATION Enquiries concerning lost Modaraba certificates, dividend payment, change of address, verification of transfer deeds and certificate transfer should be directed to the Registrar of i.e. Shares & Corporate Services (Pvt) Ltd. Mehersons Estate, Block E, Talpur Road, Karachi74000 Tel: PABX Fax: info@firstprudentialmodaraba.com KARACHI OFFICE Mehersons Estate, st Floor, Block No., Talpur Road, P.O. Box 62, Karachi74000 Tel: PABX Fax: info@firstprudentialmodaraba.com VISION STATEMENT To play a leading role in the Modaraba Sector by providing Sharia based Islamic modes of financing through quality service at competitive rates, meeting religious and social obligations and delivering higher returns to the certificates holders. MISSION STATEMENT Our mission is to create and maintain a progressive position in the modaraba sector in Pakistan and endeavour to promote interestfree economy in the country. This will be achieved through quality services using innovative Sharia compliant products, financial discipline and good corporate governance with high levels of professional and ethical standards being maintained at all times. 2

2 The Board of s of Prudential Capital Management Limited, Manager of are pleased to present the 22nd Annual Report of together with audited accounts, auditor and directors report for the period ended June 30, 20 before the certificate holders. KEY FINANCIAL HIGHLIGHTS: Figures in Rs. Total Income from Operations Operating Expenses Profit for the period Unrealized gain/(loss) on remeasurement of investment Net profit /(loss) Earning Per Certificate Rs. REVIEW OF OPERATIONS: DIRECTOR S REPORT June 20 87,75,626 43,553,743 33,269,590 (3,48,669) 33,269, June ,635,874 52,993,736 32,834,898 (,603,000) 33,292, During the Year ended on 30th June, 20, the overall operating performance of the First Prudential Modaraba reflects that Operating Income Rs Million against Rs Million. Profit from Operation stands to Rs Million as against profit of Rs Million last year. The period under review saw the continuation in the economic pressures and adverse security environment being one of the most difficult periods for the country due to prevailing situation. Our economic wizards failed to keep the inflatory pressures under control which has resulted in the considerable rise in the cost of production and eventually recession in the economic growth. During the year under review, the much required foreign direct investment kept at the low side in view of the uncertainty and ongoing army operations in the tribal belt. In the absence of any position economic development and lack of incentives for business growth the capital markets too remained under pressure through out the year. Financial Year 20 started with an upheaval for the economy of Pakistan as the nation suffered the worst natural disaster (floods) in the entire history which resulted in relentless short and longterm consequences for our economy. The devastating July 200 floods swept across the length and breadth of the country. The total investment has declined, gross fixed investments has decreased during last year. On the other hand, national savings notched up above total investments for the first time in the last five years. Apart from above, in the month of October 200, the Registrar Modaraba on the basis of Show Cause Notice, the legality of which was challenged by your Modaraba, issued an order for change of Management Company of the Modaraba. Since Board of s of Modaraba strongly felt that this order was legally invalid and that the sweeping powers under Section 20 of the Modaraba Ordinance vested in the Registrar Modaraba were against the Constitution of Pakistan which guarantees a fair trial and due process, we challenged the order in the Sindh High Court who was kind to issue a Stay Order for the implementation of Registrar Modaraba Order handing over the Management to another Management Company. These Constitution Petitions are pending with the Sindh High Court. Meanwhile your Modaraba has filed another Constitution Petition in Islamabad High Court challenging Section 20 of the Modaraba Ordinance which, in our opinion, is against the Constitution of Pakistan and therefore void to that extent. This action of Registrar Modaraba / Securities & Exchange Commission of Pakistan has caused reduction in income as well as panic in staff. In view of the order for change of Management Company of the Modaraba by Registrar Modaraba, activities of your Modaraba presently are almost at a standstill. We understand that this is damanging the interest of certificate holders but we have very little in our hands to counter the situation. Let us pray together that the situation of the country changes as soon as possible. Despite all that, your Modaraba has performed well and managed to post a net profit of Rs million as against a profit of Rs million during the last year. Keeping in view the adverse economic indicators, your management adopted strict credit policies and conservative approach for fresh disbursement. Similarly, trading in the stock market was done on a very calculated manner, thus earning a net income of Rs. 5.5 million in 20 as against an income of Rs. 5.8 million in the year 200. Your Modaraba has also earned Rs million on deposit accounts maintained with different banks and Islamic Financial Institutions. During the year, Modaraba had to reversal of provisioning on account of Ijarah portfolio and other receivables amounting to Rs million respectively. However, your management is of the view that most of these accounts are not willful defaulters and Modaraba is pursuing them actively and is fully geared up to recover these amounts. Moreover, your management has recovered Rs million during the year from the non performing portfolio. An amount of Rs million is appearing as investment in property which relates to an office premises added as a result of merger with Second Prudential Modaraba. Our management does not intend to keep this property however; the disposal of property will be done on realization of a better market price. I am pleased to announce that your Modaraba has adopted Islamic Financial Accounting Standard IFAS Murabaha and IFAS2 Ijarah. Modaraba has accordingly changed its accounting policy for revenue recognition and associated assets in relation to disbursement of Murabaha Finance with effect from July 0, Adoption of above mentioned new standards will have no material impact on the Modaraba's financial statements except disclosure relating to future lease rentals. The Accumulated Losses have continuously been decreasing for the last years except of 2009, having been reduced from Rs million in 2002 to Rs million in The reserves of the Modaraba during the same period have increased from Rs million to Rs.3.59 million, which illustrates the profitability of the Modaraba. It was only in 2009 that the losses of the Modaraba increased because of the worldwide financial crises, almost all financial institutions, including those in Pakistan suffered huge losses. However in 200 and 20 the accumulated losses of the Modaraba once again decreased by over Rs million compared to figures in 2009 and Reserves also increased to Rs million. Observations of External Auditors: The amount outstanding on accounts of Prudential Securities Limited (PSL) is still recoverable. Modaraba has logged claim with Karachi Stock Exchange (KSE) and the Management is confident to recover full amount as the Modaraba holds charge on the room at KSE as a security against the outstanding amounts. Further the impairment in value of investment in shares of PSL has been valued as per their last audited accounts. The case filed against the Ex. Managing is still under hearing therefore, an amount of Rs..799 million is still outstanding. The Management is however, confident that the outcome of this case will be in favor of the Modaraba. Corporate Governance: The Board has adopted Code of Corporate Governance for listed companies issued by the Securities and Exchange Commission of Pakistan and implemented in wherever applicable during the year. Statement on Corporate and Financial Reporting Framework:. The Financial Statements prepared by the Management of the Modaraba, present fairly its state of affairs, the result of its operation, cash flow and change in equity. 2. Proper books of accounts of the Modaraba have been maintained. 3. Appropriate accounting policies have been consistently applied in preparations of Financial Statements and accounting estimates are based on reasonable and prudent judgment. 3 4

3 4. International Accounting Standards, as applicable in Pakistan have been followed in preparation of Financial Statements and any departure there from has been adequately disclosed. 5. The system of Internal Control is sound in design and has been effectively implemented and monitored. Summary of key Operating and Financial data of the Modaraba for last six years. Year ended June 30, in millions There have been no significant doubts upon the Modaraba s ability to continue as a going concern. 7. There has been no material departure from the best practices of Corporate Governance, as detailed in the listing regulations. 8. Key operating and financial data of last six years in a summarized form is annexed. 9. During the year == meetings of the Board of s were held. Attendance of each director was as follows: Name of Number of Meeting Attended.. Mr. Asad Iqbal Siddiqui 2. Mr. Muhammad Asif 8 3. Mr. Fazal M. Mughal 4. Mr. Attaullah Khan 5. Dr. Muhammad Hussain 2 Year Paidup Capital Statutory Reserve Certificate Holders' Equity Certificate Current Liabilities NonCurrent Assets Current Assets Profit / ( Loss) before taxation Taxation Earning / (Loss) per Certificate (Rs.) (0.457) (03.77) (.9) The Statement of pattern of certificate holders of the Modaraba as at 30th June 20 as per code of corporate governance is annexed. Future Outlook: The financial year 202 is not expected to bring any respite from the already adverse economic situation in the country. The last year effect of floods will be more visible in the future. The management is keeping a vigilant eye on the economic front but at the same time exploring opportunities to do sound and secure business based on principles of good credit. The management is cautiously monitoring its investment portfolio to maximize the returns while adopting the timely decision making techniques to minimize the risks associated with the capital markets. Recoveries of the outstanding amounts will remain a high priority for the management during the current financial year. With the self sufficient in funds and better liquidity, we are looking forward to explore more profitable avenues for employment of funds. Acknowledgement: The Board of s express their thanks for the continuous guidance and support extended by the Registrar Modaraba and other officials of Security and Exchange Commission of Pakistan. The Board is also thankful to its Certificate Holder for reposing their confidence in the Management of the Modaraba and also appreciates the hard work and dedication of the staff of the Modaraba. Prudential Capital Management Limited, Manager For & on behalf of the Board of s of Karachi. Dated: September 6,

4 STATEMENT OF COMPLIANCE WITH BEST PRACTICES OF THE CODE OF CORPORATE GOVERNANCE Name of Modaraba FIRST PRUDENTIAL MODARABA Year Ended 30th JUNE, 20 This statement is being presented to comply with the Code of Corporate Governance (the code) contained in listing regulations of Karachi, Lahore & Islamabad Stock Exchanges for the purpose of establishing a framework of good governance, whereby listed Modaraba is managed in compliance with the best practices of corporate governance. The Prudential Capital Management Limited (the Modaraba Management Company); Manager of First Prudential Modaraba, (the Modaraba) has applied the principles contained in the code in the following manner The Modaraba Management Company encourages representation of independent nonexecutive directors on its Board of s. At present the Board consists of five directors. All of the directors are non executive directors. The directors of the Modaraba Management Company have confirmed that none of them are serving as directors in ten or more listed companies including the Modaraba Management Company. All the resident s of the Modaraba Management Company are registered as tax payer 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. During the year no casual vacancy has occurred in the Board of the Modaraba Management Company. A casual vacancy of Chief Executive Officer occurred in the year 2008 have not been filled yet. The Modaraba Management Company has prepared a Statement of Ethics and Business Practice for Modaraba which has been approved by the Board of s and is signed by all the s of the Modaraba Management Company and employees of the Modaraba. The Board has adopted a mission and vision statements, overall corporate strategy and significant policies of the Modaraba. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment, terms and conditions of employment and roles and responsibilities of the Chief Executive Officer (CEO), have been taken by the Board. However the office of the CEO is vacant since July 2008 and application filed of the CEO of the company has been refused twice by the Securities And Exchange Commission of Pakistan (SECP). Further fresh application made on June 23, 20 for the appointment is pending with the SECP. The related party transactions are made on terms equivalent to those that prevail in the arm s length transactions and have been discussed in the audit committee and approved by the Board No orientation courses were arranged for the directors during the year. However, the Board encourages the participation of its s and Executives in the orientation courses to apprise them of their duties and responsibilities. The directors of the Board of the Company are individuals with vast diversified experience of the financial and corporate affairs. They are also directors in other companies and are well conversant with their duties and responsibilities. Copies of Memorandum of Association, Article of Association and Prudential Regulations for Modaraba have been provided to them. There was no new appointment of Chief Financial Officer and Company Secretary during the year. The appointment, remuneration and terms and conditions of employment of the Chief Financial Officer and the Company Secretary have been approved by the Board of s. The s report of the Modaraba for this year has been prepared in compliance with the requirement of the Code and fully describes the salient matters required to be disclosed. As the Modaraba Management Company has no Chief Executive Officer (CEO), the financial statements of the Modaraba were duly endorsed by a in the absence of CEO and by the Chief Financial Officer before approval of the Board. The s, Chief Financial Officer and Executives do not hold any interest in the certificates of the Modaraba other than disclosed in the pattern of certificate holdings. The Modaraba has complied with all the corporate and financial reporting requirements of the Code. The Board has formed an Audit Committee. It comprises of three members, all of whom are nonexecutive s including the Chairman of the Committee. The meetings of the Audit Committee were held at least once every quarter prior to approval of interim and final results of the Modaraba and as required by the Code. The terms of reference of the Committee have been formed and advised to the committee for compliance. The Board has established an internal audit function which currently comprise of one person only, who is considered suitably qualified and experienced for the purpose and is conversant with the policies and procedures of the Modaraba and report to Audit Committee on quarterly basis. The statutory auditors of the Modaraba have confirmed that i) they have been given a satisfactory rating under the quality control review program of the Institute of Chartered Accountants of Pakistan, ii) they or any of the partners of the firm, their spouses and minor children do not hold certificates of the Modaraba and iii) 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. The statutory auditor or the persons associated with them have not been appointed to provide other service except in accordance with the listing regulations and the auditors have confirmed that they have observed IFAC guidelines in this regards. We confirm that all other material principles contained in the Code have been complied with. 9. The Meetings of the Board of s were presided over by the Chairman elected by the Board of s 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 meetings. The minutes of the Meeting were appropriately recorded and circulated. Karachi Date: September 6, 20 For and on behalf of the Board DIRECTOR DIRECTOR 7 8

5 REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCE WITH BEST PRACTICES OF CODE OF CORPORATE GOVERNACE We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate Governance prepared by the Board of s of Prudential Capital Management Limited (the Modaraba Management Company) representing [The Modaraba], for the year ended June 30, 20, to comply with the relevant Listing Regulations of the respective Stock Exchange where the Modaraba is listed. The responsibility for compliance with the Code of Corporate Governance is that of the Board of s of the Modaraba Management Company. 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 Modaraba s 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 Modaraba personnel and review of various documents prepared by the Modaraba 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. Further, Subregulation (xiii) of Listing Regulation 37 notified by The Karachi Stock Exchange (Guarantee) Limited vide circular KSE/N269 dated January 9, 2009 requires the company to place before the Board of s for their consideration and approval related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in arm s length transactions and transactions which are not executed at arm s length price recording proper justification for using such alternate pricing mechanism. Further, all such transactions are also required to be separately placed before 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 arm s length price or not. 4. Clause (xviii) of the Code of Corporate Governance requires that the Chief Financial Officer and Company Secretary of the Modaraba shall attend meetings of Board of s. However Chief Financial Officer of the Modaraba attended only three meetings out of eleven. Except for the matters stated above, nothing has come to our attention, which causes us to believe that the Statement of Compliance does not appropriately reflect the Modaraba s compliance, in all material respects, with the best practices contained in the Code of Corporate Governance as applicable to the Modaraba for the year ended June 30, 20. Chartered Accountants Karachi Dated: September 6, 20 We report that. Clause (vi) of the Code of Corporate Governance requires that any casual vacancy is to be filled with in 30 days. The position of chief executive officer is vacant since July 2, After rejection of proposed appointments by the Securities And Exchange Commission of Pakistan (SECP) on April 29, 200 and August 24, 200, the Modaraba Management Company has applied again on June 23, 20 for approval of appointment of a chief executive officer to SECP, which is pending. Further, Clause (xxiv) of the Code of Corporate Governance requires the financial statements of the Modaraba to be presented for Board s approval under signature of Chief Executive Officer and Chief Financial Officer. Further Clause (ix) of the Code requires Board of s to define the respective roles and responsibilities of the Chairman and Chief Executive Officer. Due to non appointment of Chief Executive Officer these requirements have not been met Subclause (b) of Clause (viii) of the Code of Corporate Governance requires the Modaraba Management Company to maintain a complete record of particulars of the significant policies, as may be determined, along with the dates on which they were approved or amended by the Board of s. The Modaraba Management Company has not kept such record of significant policies. However the draft investment and credit policies have been prepared and are in process of Board approval. Clause (xxxv) of the Code of Corporate Governance requires the Modaraba Management Company to establish an internal audit function. The internal audit function of the Modaraba is carried out by only one person and needs to be strengthened to make it more effective. 9 0

6 AUDITORS REPORT TO THE CERTIFICATE HOLDERS We have audited the annexed balance sheet of (the Modaraba) as at June 30, 20 and the related profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof (hereinafter referred to as the financial statements), for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. These financial statements are the Modaraba company s [Prudential Capital Management Limited] responsibility who is also responsible to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards as applicable in Pakistan and the requirements of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 980 (XXXI of 980), and the Modaraba Companies and Modaraba Rules, 98. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of any material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies and significant estimates made by the Modaraba Company, as well as, evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that: a) b) Advances, prepayments and other receivables include a long outstanding balance of Rs.8.43 million receivable from Prudential Securities Limited (PSL). Further long term deposit includes security deposits receivable of Rs 3 million from the said company. The said company has ceased its operations and the Modaraba has filed claim with Karachi Stock Exchange for these amounts. In our opinion, there is a remote chance of recoverability of Rs 2.43 million; however no provision has been made by the Modaraba. Long term investments include investment of Rs.3.38 million (,07,244 shares of Rs.0/ each) in Prudential Securities Limited (PSL)an unlisted public company. The company has ceased its operations; therefore, in our opinion this investment should be fully impaired. However no impairment has been made in respect of this amount. e) f) g) h) in our opinion: i. the balance sheet and the related profit and loss account together with the notes thereon have been drawn up in conformity with the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 980 (XXXI of 980) and the Modaraba Companies and Modaraba Rules, 98, and are in agreement with the books of account and are further in agreement with accounting policies consistently applied; ii. the expenditure incurred during the year was for the purpose of the Modaraba s business; and iii. except for the matters stated in paragraph h(ii) below, the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects, terms and conditions of the Modaraba; in our opinion, except for the effects of the matters stated in paragraphs (a), (b) and (c) the balance sheet, profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan and give the information required by the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 980 (XXXI of 980), and the Modaraba Companies and Modaraba Rules, 98, in the manner so required and respectively give a true and fair view of the state of the Modaraba's affairs as at June 30, 20 and of the profit, its cash flows and changes in equity for the year then ended; and in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 980 (XVIII of 980), was deducted by the Modaraba and deposited in the Central Zakat Fund established under section 7 of that Ordinance. We draw attention to the following matters: c) d) Advances, prepayments and other receivables include Rs..8 million paid for the purchase of a motor vehicle for the exmanaging director of the Modaraba. The said amount was paid wrongfully without approval of the board and is receivable from the ex managing director. The Modaraba has initiated criminal proceedings against the ex managing director. In our opinion, recovery of the said amount is doubtful however no provision has been made in respect of this amount. In respect of matters stated in paragraphs (a), (b) and (c), had the provision been made advances, prepayments and other receivables would have been reduced by Rs million, long term deposit by Rs 3 million, long term investments by Rs 3.38 million profit for the year would have been reduced and accumulated losses would have been increased by Rs 26.6 million. in our opinion, proper books of account have been kept by the Modaraba company in respect of as required by the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 980 (XXXI of 980), and the Modaraba Companies and Modaraba Rules, 98; i. The position of chief executive officer is vacant since July 2, After rejection of proposed appointments by the SECP on April 29, 200 and August 24, 200, the Modaraba has applied again on June 23, 20 for approval of appointment of a chief executive officer to Registrar Modaraba, which is pending. ii. Modaraba has contravened the object clauses of the prospectus of Modaraba and the Modaraba (Floatation and Control) Ordinance, 980 (XXXI of 980) which prohibits holding of immovable properties for business purpose, indulging in brokerage of securities and also prohibit from carrying on any business opposed to injunctions of Islam, Instances of contravention are as under : 2

7 In the process of merger with the Second Prudential Modaraba in the year 2003, the Modaraba acquired a property through assignment by the court. Since then the Modaraba has treated this property as Investment Property and has been earning rental income from it. Currently, the investment property is valued at Rs million. The Modaraba acquired membership of Lahore Stock Exchange in 200 with a room against investor s claim of Rs million from Prudential Securities Limited. ASSETS Current Assets Cash and bank balances Investments Musharika, morabaha and other finance Ijarah rentals receivable Advances, prepayments and other receivables BALANCE SHEET AS AT JUNE 30, 20 Note ,763,563 95,75,493 28,750,70 2,286,32 4,506, ,557,336 73,43,76 3,473,662 2,762,272 34,50,437 The Modaraba has deposits of Rs.90 million in commercial banks. Total Current Assets 462,48, ,375,423 Chartered Accountants Our report is not qualified in respect of paragraph h above. Non Current Assets Long term investments Long term portion of musharika,morabaha and other finance Long term deposits Intangible asset Property and equipment owned Property, plant and equipment Ijarah Investment property Total Non Current Assets ,640,072,08,235 3,066,92 22,326,567 35,22 66,85,463 0,027,500 09,642,24 7,277,249,530,633 3,066,92 22,326, ,04 85,79,37 9,922,500 39,590,526 Engagement Partner: Mushtaq Ali Hirani TOTAL ASSETS 572,23, ,965,949 LIABILITIES Karachi Dated: September 6, 20 Current Liabilities Current portion of long term ijarah deposits Accrued and other liabilities Unclaimed profit distribution Total Current Liabilities Noncurrent Liabilities Long term ijarah deposits TOTAL LIABILITIES NET ASSETS 5 6 8,537,957 8,090,97 5,649,085 32,278,03 26,849,367 59,27,380 52,996,453 29,0,346 3,874,360 2,436,849 45,42,555 9,065,990 64,478, ,487,404 REPRESENTED BY Certificate Capital 87,27,660 Modaraba Certificates of 0/ each Statutory reserve Accumulated loss 7 872,76,600 26,898,620 (486,078,767) 52,996, ,76,600 20,244,702 (486,933,898) 505,487,404 Contingencies and commitments 8 The annexed notes form an integral part of these financial statements. These financial statements have been signed by three directors instead of chief executive officer and two directors as approval of appointment of chief executive officer is pending with the Securities and Exchange Commission of Pakistan. 3 4

8 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED JUNE 30, 20 CASH FLOW STATEMENT FOR THE YEAR ENDED JUNE 30, 20 INCOME Note A. CASH FLOWS FROM OPERATING ACTIVITIES Ijarah rentals Return on term deposit receipts and PLS accounts Income on musharika, morabaha and other finance Gain on sale of investments Dividend income Rental income from an investment property Other income Share of loss from associate Unrealized loss on changes in fair value of held for trading investments at fair value through profit and loss Unrealized gain on remeasurement of investment property Impairment losses and (Provision) / Reversal against doubtful receivablesnet 2 EXPENDITURE Amortization on ijarah assets Administrative expenses Workers welfare fund Bank and other charges ,9,803 37,305,9 3,268,744 8,303,62 2,878,3,006,236 2,22,98 87,75,626 (3,48,669) 05,000 (3,62,003) 80,59,954 (25,700,205) (7,46,78) (677,588) (29,69) (43,553,743) 33,42,423 30,832,882 9,297,886 6,784,292 3,45, ,500 3,27,330 (42,23) 87,635,874 (,603,000),522,500 (,726,740) 85,828,634 (33,43,84) (8,85,267) (670,00) (40,555) (52,993,736) Profit before taxation Adjustments for noncash changes and other items: Dividend income Gain on disposalown assets Gain on disposalijarah assets Unrealized loss on changes in fair value of held for trading investments at fair value through profit and loss (Gain)/loss on sale of investments Impairment losses and (Provision) / Reversal against doubtful receivablesnet Share of loss from associate Unrealised gain on remeasurement of investment property Depreciationowned Amortization on ijarah assets Cash flows before movements in working capital 33,269,590 (2,878,3) (9,902) (243,252) 3,48,669 (8,303,62) 3,62,003 (05,000) 232,339 25,700,205 2,43,328 54,42,98 32,834,898 (3,45,792) (93,499) (772,760),603,000 (6,784,292),726,740 42,23 (,522,500) 76,232 33,43,84 25,03,74 57,866,072 Profit for the period Modaraba company's management fee Profit before taxation Provision for taxation Profit after taxation 23 36,966,2 (3,696,62) 33,269,590 33,269,590 32,834,898 32,834, ,80 33,292,699 (Increase) / decrease in operating assets Musharika, morabaha and other finance Ijarah rentals receivable Advances, prepayments and other receivables 2,959,750,209,00 (5,430,0) 8,738,749 26,694,93 38,342,764 20,009,85 85,047,50 Other comprehensive income Surplus on revaluation of available for sale investment Total comprehensive income for the year Earnings per certificate The annexed notes form an integral part of these financial statements ,652 33,674, ,865 33,426, Increase/(decrease) in operating liabilities Ijarah deposits Accrued and other liabilities Cash generated from operations Income tax paid Net cash generated from operating activities (2,780,02) 4,26,6 (8,563,40) 64,588,266 (,939,344) 62,648,922 (22,040,30) (22,269,80) (44,30,) 98,603,47 (7,809,876) 90,793,595 These financial statements have been signed by three directors instead of chief executive officer and two directors as approval of appointment of chief executive officer is pending with the Securities and Exchange Commission of Pakistan. 5 6

9 `B. CASH FLOWS FROM INVESTING ACTIVITIES Dividend received Investments (made) / encashed net Proceeds from disposalown assets Proceeds from disposalijarah assets Purchase of own assets Purchase of ijarah assets Purchase of intangible asset Net cash (used in) / generated from investing activities C. CASH FLOWS FROM FINANCING ACTIVITIES Profit distribution Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year The annexed notes form an integral part of these financial statements. 20 2,89,860 (6,588,80) 20,000 7,732,347 (259,635) (37,285,500) (33,489,738) (22,952,957) (22,952,957) 6,206, ,557, ,763, ,373,045 30,04, ,000 40,083,898 (34,500) (40,793,500) (22,326,567) 0,57,2 (420,7) (420,7) 00,890,536 87,666, ,557,336 These financial statements have been signed by three directors instead of chief executive officer and two directors as approval of appointment of chief executive officer is pending with the Securities and Exchange Commission of Pakistan. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED JUNE 30, 20 Revenue Resrves Capital Total Sub total Accumulated loss Unrealized gain on available for sale investments *Statutory reserve Certificate capital ,060,840 33,292,699 (53,70,922) 33,292,699 (53,70,922) 33,292,699 3,586,62 872,76,600 33,865 33, ,487,404 33,865 (6,658,540) (486,933,898) (6,658,540) (487,067,763) 33,865 6,658,540 20,244, ,76,600 Balance at July, 2009 Profit for the year ended June 30, 200 Other comprehensive income for the year ended June 30, 200 Transfer to statutory reserve Balance at June 30,200 33,269,590 33,269,590 33,269, , , ,652 (6,653,98) (6,653,98) 6,653,98 Profit for the year ended June 30, 20 Other comprehensive income for the year ended June 30, 20 Transfer to statutory reserve 3 % declared for the year ended June 30, 200 Balance at June 30,20 (26,65,93) 52,996,453 (26,65,93) (486,078,767) (26,65,93) (486,67,284) 538,57 26,898, ,76,600 *Statutory reserve represents profit set aside to comply with the Prudential Regulations for Modarabas issued by the SECP. These regulations require the Modaraba to transfer not less than 20% and not more than 50% of its after tax profit till such time that reserves equals 00% of the paid up capital. Thereafter, a sum not less than 5% of the after tax profit is to be transferred. During the current year, the Modaraba has transferred an amount of Rs. 6,653,98 which represents 20% of the profit after tax. The annexed notes form an integral part of these financial statements. These financial statements have been signed by three directors instead of chief executive officer and two directors as approval of appointment of chief executive officer is pending with the Securities and Exchange Commission of Pakistan. 7 8

10 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 20. LEGAL STATUS AND NATURE OF BUSINESS. (the modaraba) is a multipurpose, perpetual Modaraba. The Modaraba is registered under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 980 and the Modaraba Companies and Modaraba Rules, 98 and is managed by Prudential Capital Management Limited, a company incorporated in Pakistan under the Companies Ordinance 984. The Modaraba is listed on the Karachi, Lahore and Islamabad Stock Exchanges. The Modaraba is currently engaged in various modes of Islamic fundings and businesses which include ijarah financing, deployment of fund in musharika, morabaha, investment in securities. Registered office of the modaraba is situated at Beverly Centre, 56 G, Blue Area, Islamabad..2 The financial statements is presented in Pak, which is the Modaraba's functional and presentation currency. 2. SIGNIFICANT ACCOUNTING POLICIES 2. STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with the requirements of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 980, the Modaraba Companies & Modaraba Rules, 98 Trust Deed and directives issued by the Securities and Exchange Commission of Pakistan (SECP) ['the Modaraba Regulations'] together with approved accounting standards as applicable in Pakistan to Modarabas. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) and Islamic Financial Accounting Standards (IFAS) as notified under the provisions of the Companies Ordinance, 984 and made applicable to Modarabas under 'the Modaraba Regulations'. Wherever the requirements of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 980, Modaraba Companies and Modaraba Rules, 98 and directives issued by SECP differ with the requirements of IFRS, the requirements of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 980, Modaraba Companies and Modaraba Rules, 98 or the directives issued by SECP prevail. 2.2 Adoption of new International Financial Reporting Standards In the current period, the Modaraba has adopted all new Standards issued by the IASB and as notified by the Securities and Exchange Commission of Pakistan that are relevant to its operations and effective for Modaraba's accounting period beginning on July 0, 200. Effective for accounting period beginning on or after Amendments to IFRS 5 Noncurrent Assets Held for Sale January 0, 200 and Discontinued Operations The IASB clarified (as part of Improvements to IFRSs (2009)) that the disclosure requirements in Standards other than IFRS 5 do not generally apply to noncurrent assets classified as held for sale and discontinued operations. Had there been any such assets classified under IFRS 5, the adoption of this amendment would only have affected the disclosures and would have no impact on earnings per share. The amendments (part of Improvements to IFRSs (2009)) specify that only expenditures that result in a recognised asset in the balance sheet can be classified as investing activities in the statement of cash flows. Consequently, any cash flows in respect of items that do not qualify for recognition as an asset (and, therefore, are recognised in profit or loss as incurred) would be reclassified from investing to operating activities in the statement of cash flows and prior year amounts restated for consistent presentation. There is no such classification in financial statements of Modaraba for the year ended June 30, 20. Following new and revised Standards and Interpretations have also been adopted in these financial statements. Their adoption has no significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements. Amendments to IFRS 2 Share based Payment January 0, 200 Amendments to IFRS 5 Noncurrent Assets Held for Sale and January 0, 200 Discontinued Operations Amendments to IAS 7 Statement of Cash Flows January 0, 200 IFRIC 9 Extinguishing Financial Liabilities with Equity Instruments July 0, 200 New accounting standards and IFRS interpretations that are not yet effective The following International Financial Reporting Standards and Interpretations as notified by the Securities and Exchange Commission of Pakistan are only effective for accounting periods, beginning on or after the date mentioned against each of them IFRS 9 Financial Instruments January 0, 203 IFRS 9 specifies how an entity should classify and measure its financial assets. It requires all financial assets to be classified in their entirety on the basis of the entity s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Financial assets are measured either at amortised cost or fair value. The adoption of this standard would affect the recognition and classification of existing financial assets The directors anticipate that these amendments will be adopted in the Modaraba s financial statements on the effective date. The directors have not yet had an opportunity to consider the potential impact of the adoption of this Standard Amendments to IAS 24 Related Party Disclosures January 0, 20 The amendments modify the definition of a related party and simplify related party disclosures for government related entities. The directors anticipate that these amendments will be adopted in the Modaraba's financial statements for the period beginning January 200. The Modaraba is not governmentrelated, therefore the disclosure exemptions will not affect its financial statements. However, some disclosures may be affected by the changes in the detailed definition of a related party. This may result in amendments to the relevant related party disclosures in the financial statements. IAS 27 (Revised) Separate Financial Statements January 0, 203 IAS 28 Investment in Associates and Joint Ventures January 0, 203 Amendments to IAS 2 Income Taxes January 0, 202 Amendments to IAS 7 Statement of Cash Flows January 0,

11 3. BASIS OF PREPARATION These financial statements have been prepared under the historical cost convention, except for certain investments which have been measured at fair value / equity method. 4. SIGNIFICANT ACCOUNTING POLICIES 4. Property, plant and equipment (i) Ijarah and amortisation Ijarah assets are stated at cost less accumulated amortisation and impairment loss (if any). Amortisation is charged to income applying the straight line method whereby the cost of an asset, less its residual value, is written off over its lease period. In respect of additions and disposals during the year, amortisation is charged proportionately to the period of lease. (ii) In own use and depreciation Operating assets are stated at cost less accumulated depreciation and impairment loss (if any). Depreciation is charged to profit and loss account applying the straightline method whereby the cost of an asset is written off over its estimated useful life. In respect of additions and disposal during the year, depreciation is charged proportionately to the period of use. Profit or loss on disposal of assets is recognised as income or expense. Assets residual values, if significant and their useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. Maintenance and normal repairs are charged to income as and when incurred. 4.2 Investment properties Investment property, which is property held to earn rentals and/or for capital appreciation, is measured initially at its cost, including transaction costs. Subsequent to initial recognition, it is measured at its fair value. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise. 4.3 Intangible Intangible assets with indefinite useful lives are carried at cost less accumulated impairment losses, if any. No amortisation is charged on such assets The useful life of an intangible asset that is not being amortised is reviewed at the end of each period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. 4.4 Investments i) Held for trading ''at fair value through profit or loss'' These investments are initially recognised at fair value and subsequently measured at fair value. As per requirement of IAS39 "Financial Instruments, Recognition and Measurement" the gain or loss on revaluation of investment held for trading is to be included in profit and loss account. ii) Available for sale Investment securities held by the Modaraba which may be sold in response to needs for liquidity or changes in interest rates or equity prices are classified as available for sale. These investments are initially recognised at fair value plus transaction cost and subsequently measured at fair value. The investments for which quoted market price is not available, are measured at costs as it is not possible to apply any other valuation methodology. Gains and losses arising from remeasurement at fair value is recognised in profit and loss as other comprehensive income. 2 iii) Held to maturity These are investments with fixed or determinable payments and fixed maturity, and which, the Modaraba has positive intent and ability to hold till maturity. Held to maturity investments are initially recognised at fair value plus transaction cost and are subsequently measured at amortized cost using effective interest rate method, less any impairment loss recognized to reflect irrecoverable amounts. iv) Derecognition All investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Modaraba has transferred substantially all risks and rewards of ownership. v) Investment in associates These investments are accounted for using equity method of accounting and initially are recognized at cost. 4.5 Ijarah rentals receivable, ijarah, morabaha and musharika finances Receivables considered doubtful are provided for in accordance with the requirement of the Prudential Regulations for Modarabas. Specific provision is also made for receivables considered doubtful. 4.6 Staff retirement benefits Defined contribution plan The modaraba operates a defined contribution provident fund for all employees. Equal monthly contributions are made both by the Modaraba and the employees to the fund at the rate of 0% of basic salary. 4.7 Provisions Provisions are recognised when the Modaraba has a present, legal or constructive obligation as a result of past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. However, provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. 4.8 Impairment Financial Assets Impairment is recognised by the Modaraba on the basis of provision requirements given under Prudential Regulations for Modaraba and subjective evaluation carried out on an ongoing basis. A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset 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 that 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. Availableforsale financial investments For availableforsale financial investments, the Modaraba assesses at each balance sheet date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as availableforsale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the profit and loss account is removed from equity and recognised in the profit and loss account. Impairment losses on equity investments are not reversed through the profit and loss account; increases in their fair value after impairment are recognised directly in equity. 22