UTP income actt - JS Investmentspolicy by raising interest rates. However, this may come about at a measured pace so as to ensure that However, this may come about at a measured pace

ANNUAL REPORT 2006

UTP-Income Fund

CONTENTSVision and Mission Statement

Organization

Directors' Report

Performance Table / Key Financial Data

Statement of Compliance with the Code of Corporate Governance

Review Report to the Unit Holders on Statement of Compliancewith Best Practices of Code of Corporate Governance

Report of the Trustee

Auditor's Report

Financial Statements

Statement of Assets and Liabilities

Income Statement

Statement of Movement in Unit Holders’ Fund

Distribution Statement

Cash Flow Statement

Notes to the Financial Statements

Branch Network

01

02

03

07

12

14

15

16

17

19

20

21

22

23

24

42

UTP-Income Fund1

To be Industry Leaders in Financial Services

mission

vision

core values

Pursuit of Professional Excellence

Shareholder Value Integrity Commitment

Annual Report 2006 2

ORGANIZATIONManagement Company

JS ABAMCO Limited(Formerly ABAMCO Limited)7th Floor, The Forum, G-20Khayaban-e-Jami, Block-9, CliftonKarachi-75600Tel: (92-21) 111-222-626 Fax: (92-21) 5361724E-mail: [email protected]: www.abamco.com

Board of Directors

Munawar Alam Siddiqui ChairmanMuhammad Najam Ali Chief Executive OfficerAli Raza Siddiqui Executive DirectorMunaf IbrahimNazar Mohammad ShaikhLt. General (R) Masood ParvaizWilliam H. Kleh

Audit Committee

Nazar Mohammad Shaikh ChairmanMunawar Alam Siddiqui MemberMunaf Ibrahim Member

Chief Financial Officer & Company Secretary

Suleman Lalani

Trustee

Central Depository Company of Pakistan LimitedCDC House, 99-B, Block, 'B' S.M.C.H.S.,Main Shahra-e-Faisal, Karachi-74400, Pakistan.Tel : (92-21) 111-111-500 Fax: (92-21) 4326005

Auditors

KPMG Taseer Hadi & Co.Chartered Accountants1st Floor, Sheikh Sultan TrustBuilding - 2, Beaumont Road, Karachi.

Legal Adviser

Bawaney & PartnersRoom No.404, 4th floor,Beaumont Plaza,Beaumont Road, Civil Lines Karachi-75530.

Bankers

MCB Bank LimitedBank Al Falah LimitedFaisal Bank LimitedNIB Bank LimitedMybank LimitedSoneri Bank LimitedThe Bank of PunjabMetropolitan Bank Limited

Transfer Agent

Technology Trade (Private) Limited 241-C, Block 2, P.E.C.H.S, KarachiTel: (92-21) 4391316-7Fax: (92-21) 4391318

UTP-Income Fund3

DIRECTORS REPORT TO THE UNIT HOLDERS

1. Market Outlook

The SBP kept a firm hand on interest rates and controlled supply side issues in its bid to fight againstinflation. In view of rising international oil prices and Pakistan's growing machinery demand for its largescale manufacturing sector, the country's trade deficit may suffer further which in turn will put pressure onthe exchange rate. As a result, going forward the central bank may opt for further tightening of the monetarypolicy by raising interest rates. However, this may come about at a measured pace so as to ensure thateconomic growth and capacity expansion along with domestic demand are not stifled too much.

The long awaited auction of the Pakistan Investment Bonds was conducted on May 18, 2006. This was thefirst successful auction in 23 months. The State Bank accepted Rs. 10.161 billion for tenure of 3, 5 and 10 years.The coupon rate was revised upward from 6%, 7% and 8% to 9.1%, 9.3% and 9.6%, whereas the cutoff yieldswere 9.45%, 9.67% and 9.87% for 3, 5 and 10 years paper respectively. Immediately after the auction results,the secondary market yield rose by approximately 10 basis points for all three papers. The PIB auction islikely to become a regular feature now, and should provide the government with a non-banking financingsource, establishing a long term treasury yield curve for the market.

The average CFS rate of return was 16.16% and average daily volumes in CFS market were PKR 38.74 bnfor FY06. Average ready future spreads were 14.00% over the same period. These two instruments shouldprovide the fund manager with better risk adjusted return than government securities and corporate bonds,along with the diversification of the portfolio.

The stock market remained highly volatile between March and June 2006. The Budget 2006-07 doubled theCapital Value Tax on share purchases to 0.02% and Withholding Tax on sale of shares to 0.01% from 0.005%.These measures led to a negative market sentiment in the short term; however its long term impact willbecome clear in the following months. At the same time, tax exemption for mutual funds on income fromCFS financing was proposed to be withdrawn in the Finance Bill 2006, however this clause has beensubsequently removed in the Finance Act 2006. The deadline for the demutualization of bourses wasextended to December 2006.

Significant progress was made on the privatization front as the much awaited privatization of PakistanTelecommunication Corporation Limited (PTCL) and Karachi Electric Supply Corporation (KESC) werecompleted. On the flip side, the Supreme Court (SC) cancelled Pakistan Steel Mills (PSM) sell-off citingcertain irregularities in the privatization process. We are optimistic that the apex Court's ruling will not alterthe privatization plans of the government.

Based on the given scenario, we remain optimistic on how the future economic cycle will develop and lookforward to provide the best investment solutions to the investors.

2. Fund Performance & Distribution

The net assets of the Fund as on June 30, 2006 were Rs. 3.529 billion compared to Rs. 1.378 billion on June 30,2005. Balances in short-term deposits and savings accounts with banks were Rs. 1.490 billion or 42% of thenet assets as on June 30, 2006. The relatively high investment in short-term bank deposits is in view of theexpected increase in interest rates. Receivables in respect of transactions in marketable securities were Rs.1.564 billion or 44% of the net assets as on June 30, 2006.

The Board of Directors of JS ABAMCO Limited (formerly ABAMCO Limited), the ManagementCompany of UTP - Income Fund ("UTP - IF"), is pleased to present the Fourth Annual Report forthe year ended June 30, 2006.


Realized income for the year ended June 30, 2006 was Rs. 438.093 million comprising of net gain fromtransactions in marketable securities of Rs. 155.503 million, element of income and capital gains in pricesof units sold less those in units redeemed of Rs. 173.912 million, dividend income of Rs. 2.829 million,return on bank deposits of Rs. 65.836 million and interest income on other fixed income securities of Rs.40.009 million. Total operating expenses for the year were Rs. 42.330 million. Income for the year endedJune 30, 2006 was Rs. 395.762 million, which works out to Rs. 63.70 per unit of the par value of Rs. 500 (2005:Rs. 52.92 per unit). This translates into an effective return of 12.49% on the beginning net asset value perunit of Rs. 509.91 on July 1, 2005.

Stock dividend of 12.10% has been declared (Rs. 60.50 per unit of par value of Rs. 500), which entitles unitholders 0.1192 additional units for each existing unit held on June 30, 2006. Unit Holders who have optedto receive cash dividend will receive cash accordingly. After the distribution of stock dividend, the net assetvalue per unit will be Rs. 507.60 on June 30, 2006.

As the above distribution is more than 90% of the income for the year, the income of UTP - IF will not besubject to tax under Clause 99 of the Part I of the Second Schedule of Income Tax Ordinance, 2001.

Non-Banking Finance Companies (Establishment & Regulation Rules, 2003 provides that "a security listedon a stock exchange shall be valued at its last sale price on such exchange on the date on which it is valuedor if such exchange is not open on such date, then at its last sale price on the next preceding date on whichsuch exchange was open and if no sale is reported for such date the security shall be valued at an amountneither higher than the closing asked price nor lower than the closing bid price". TFCs quoted on the stockexchange are neither actively traded on the exchange nor the quotes available are indicative of fair valueof the underlying security. According to the guidelines of IAS-39, to reflect the reliable measure of fairvalue to Term Finance Certificates, the Management Company has adopted policy of valuation of TFCsbased on the average quotes available from reputable brokerage houses dealing in money markettransactions.

3. Investment Strategy

UTP - IF aims at achieving a high rate of current income consistent with reasonable concern for safety ofcapital. The Fund invests in a diversified portfolio of investment grade debt securities, GovernmentSecurities and money market instruments, which are normally an exclusive domain of large-scale(wholesale) investors. In selecting portfolio securities, the Fund considers individual credit risks. Theweightings of the investment mix of the portfolio is managed in a manner that reduces the risks of loss inmarket value of the investment as a result of prevailing market situation, including any major shift inlending rates.

4. Fund and Asset Manager Rating

The Pakistan Credit Rating Agency (PACRA) has assigned a 5-Star fund rating to UTP-Income Fund (UTP-IF), which reflects a superior performance relative to its peers. The rating is a composite measure of threefactors namely a) returns, b) risk associated with the returns measured by Sharpe Ratio, and c) creditquality of the assets.

Pakistan Credit Rating Agency (PACRA) has awarded an AM2 asset management rating to JS ABAMCOLtd on February 15th 2006, which reflects our strong capacity to manage the risks inherent in assetmanagement and to meet very high standards and benchmarks.

5. Compliance

The Board of Directors of the Asset Management Company states that:

a. The financial statements, prepared by the Asset Management Company, present fairly the state ofaffairs of the Fund, the results of its operations, cash flows and movement in net assets of the Fund.

b. Proper books of accounts of the Fund have been maintained.c. Appropriate accounting policies have been consistently applied in preparation of financial

statements, and financial estimates are based on reasonable and prudent judgment.d. International Accounting Standards, as applicable in Pakistan, provisions of the Non-Banking

Finance Companies (Establishment & Regulation) Rules, 2003, requirements of the Trust Deed anddirectives of the Securities and Exchange Commission of Pakistan have been followed in preparationof the financial statements (except as explained above for valuation of TFCs).

e. The system of internal control is sound in design and has been effectively implemented andmonitored.

f. There are no significant doubts upon the Fund's ability to continue as a going concern.g. There has been no material departure from the best practices of the Code of Corporate Governance,

as detailed in the listing regulations.h. A performance table / key financial data is given on page 07 of this annual report.i. The Directors have signed the "Statement of Ethics and Business Practices."j. Particulars of all investments and redemptions by the Chief Executive, directors and executives, their

spouses and minor children during the year ended June 30, 2006:

k. The value of investments of the staff provident fund of ABAMCO Limited, as per the auditedaccounts for the year ended June 30, 2006 was Rs. 10.127 million.

6. Meetings of the Directors

During the year 11 meetings of the Board of Directors were held. The attendance of each director for thesemeetings is as follows:

UTP-Income Fund5

Name Number of units acquired Number of units redeemedMr. Suleman Lalani 10,302.51 222.80

Name Eligible to attend Meetings attendedMr. Munawar Alam Siddiqui 11 11Mr. Muhammad Najam Ali 11 11Mr. Ali Raza Siddiqui 11 11Mr. Munaf Ibrahim 11 10Mr. William H. Kleh 11 01Mr. Muhammad Arshad 09 0Mr. Nazar Mohammad Shaikh 05 02Lt. General (Retired) Masood Parvaiz 01 01

7. External Auditors

The Fund's external auditors, Messers. KPMG Taseer Hadi & Co., Chartered Accountants, have expressedtheir willingness to continue as the Fund's auditors for the ensuing year ending June 30, 2007. The AuditCommittee of the Board has recommended reappointment of KPMG Taseer Hadi & Co., CharteredAccountants as auditors of the Fund for the year ending June 30, 2007.

8. Acknowledgment

The Directors expresses their gratitude to the Securities and Exchange Commission of Pakistan for itsvaluable support, assistance and guidance. The Board also thanks the employees of the Asset ManagementCompany and the Trustee for their dedication and hard work and the unit holders for their confidence inthe Management.

Muhammad Najam AliChief Executive Officer

Karachi: July 15, 2006


PERFORMANCE TABLE /KEY FINANCIAL DATA

UTP-Income Fund7

Year ended June 30 2006 2005 2004 2003 *

Net Assets 3,529,702,243 1,377,869,309 1,285,952,920 383,261,827Net Income 395,762,293 129,933,686 75,501,120 36,134,364 Net asset value per unit 568 561 540 509 Earning per unit 64 53 32 48 Dividend Distribution 12.10% 10.25% 6.20% 9.50%Highest Offer price per unit 579.22 568.75 549.25 556.00 Lowest offer price per unit 522.25 520.00 520.25 500.00 Highest repurchase price per unit 567.85 557.25 538.25 544.75 Lowest repurchse price per unit 511.50 509.50 509.75 500.00 Number of Units in issue 6,213,173 2,455,380 2,381,930 753,219


UTP-Income Fund9


UTP-Income Fund11

FOR THE YEAR ENDED JUNE 30, 2006

This Statement is being presented in compliance with the Code of Corporate Governance ('the Code') contained inRegulation 43 of the Listing Regulations of the Lahore Stock Exchange. The purpose of the Code is to establish aframework of good governance, whereby a listed company is managed in compliance with the best practices ofcorporate governance.

JS ABAMCO Limited (Formerly ABAMCO Limited), the Management Company of UTP-Income Fund ('the Fund')although an unlisted company, complies with the Code as the Fund is listed on the Lahore Stock Exchange. TheBoard of Directors of the Management Company manages the affairs of the Fund and has appointed the ChiefExecutive Officer (CEO), Chief Financial Officer (CFO), Company Secretary and other necessary personnel tomanage its affairs.

The Management Company has applied the principles contained in the Code in the following manner:

1. The Management Company encourages representation of independent non-executive directors. Presently,the Board includes five non-executive directors. The Management Company, being an unlisted company,does not have minority interest.

2. The directors have confirmed that none of them is serving as a director in more than ten listed companies,including the Management Company.

3. All the resident directors of the Management Company are registered as taxpayers and none of them hasdefaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member of a stockexchange, has been declared as a defaulter by that stock exchange.

4. During the year under review two casual vacancies occurred in the Board which were duly filled in by otherdirectors.

5. The Management Company has prepared a "Statement of Ethics and Business Practices", which has beensigned by all the directors and employees of the Management Company.

6. The Management Company has developed a vision / mission statement, overall corporate strategy andsignificant policies of the Fund which have been approved by the Board. A complete record of particulars ofsignificant 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, includingappointment and determination of remuneration and terms and conditions of employment of the CEO andother Executive Directors, 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 bythe Board for this purpose and the Board met at least once in every quarter during the year. Written noticesof the meetings of the Board of Directors, along with agenda and working papers, were circulated at leastseven days before the meetings. The minutes of the meetings were appropriately recorded and circulated.

STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE


9. The Management Company arranged an orientation course for its directors during the year to apprisethem of their responsibilities and roles.

10. During the year, there was no change of CFO / Company Secretary and Head of Internal Audit. Theirremuneration and terms and conditions of employment have been approved by the board.

11. The directors' report has been prepared in compliance with the requirements of the Code and fullydescribes the salient matters required to be disclosed.

12. The financial statements of the Fund were duly endorsed by the CEO and CFO before approval of theBoard.

13. The directors, CEO and Executives do not hold any interest in the certificates of the Fund other than thosedisclosed in the directors' report.

14. The Management Company has complied with all the corporate and financial reporting requirements ofthe Code with respect to the Fund.

15. The Board has formed an Audit Committee comprising of three non-executive directors including thechairman of the Committee.

16. The meetings of the Audit Committee are held every quarter prior to approval of interim and annualresults of the Fund as required by the Code. The Board has approved terms of reference of the AuditCommittee.

17. The Board of the Management Company has setup an effective internal audit function.

18. The statutory auditors of the Fund have confirmed that they have been given a satisfactory rating underthe quality control review program of the Institute of Chartered Accountants of Pakistan, that they or anyof the partners of the firm, their spouses and minor children do not hold Certificates of the Fund and thatthe firm and all its partners are in compliance with International Federation of Accountants (IFAC)guidelines on Code of Ethics as adopted by the Institute of Chartered Accountants of Pakistan.

19. The statutory auditors or the persons associated with them have not been appointed to provide otherservices except in accordance with the listing regulations and the auditors have confirmed that they haveobserved IFAC guidelines in this regard.

20. We confirm that all other material principles contained in the Code have been complied with.

Muhammad Najam AliChief Executive Officer

Karachi:Dated: July 15, 2006

UTP-Income Fund13


We have reviewed the Statement of Compliance with the best practices contained in the Code of CorporateGovernance prepared by the Board of Directors of the Management Company of the UTP-Income Fund tocomply with the listing regulation of the Lahore Stock Exchange, where the Fund is listed.

The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of theManagement Company of the Fund. Our responsibility is to review, to the extent where such compliance can beobjectively verified, whether the Statement of Compliance reflects the status of the Fund's compliance with theprovisions of the Code of Corporate Governance and report if it does not. A review is limited primarily toinquiries of the Management Company's personnel and review of various documents prepared by theManagement Company to comply with the Code.

As part of our audit of financial statements we are required to obtain an understanding of the accounting andinternal control systems sufficient to plan the audit and develop an effective audit approach. We have not carriedout any special review of the internal control system to enable us to express an opinion as to whether the Board'sstatement 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 ofCompliance does not appropriately reflect the Fund's compliance, in all material respects, with the best practicescontained in the Code of Corporate Governance.

KPMG Taseer Hadi & Co.Karachi: Chartered AccountantsJuly 15, 2006

REVIEW REPORT TO THE UNIT HOLDERSON STATEMENT OF COMPLIANCE WITH BEST PRACTICES OFCODE OF CORPORATE GOVERNANCE

UTP-Income Fund15

Report of the Trustee Pursuant to Rule 76(h) of the Non-Banking Finance Companies (Establishment andRegulation) Rules, 2003.

The UTP-Income Fund, an open-end fund established under a trust deed executed between JS ABAMCO Limited(Formerly ABAMCO Limited) as the Asset Management Company and Muslim Commercial FinancialServices(Private) Limited as the Trustee on July 18, 2002. The scheme was authorized by Securities and ExchangeCommission of Pakistan (SECP) on August 2, 2002.

As per the Deed of change of Trustee and amendment of Trust Deed dated May 28, 2005 Muslim CommercialFinancial Services (Private) Limited retired as the Trustee and Central Depository Company of Pakistan Limitedwas appointed as the Trustee of UTP-Income Fund.

In our opinion, JS ABAMCO Limited (Formerly ABAMCO Limited), the Management Company of UTP-IncomeFund has in all material respects managed UTP-Income Fund during the year ended June 30, 2006 in accordancewith the provisions of the Trust Deed (and the modifications authorized by the SECP from time to time) and Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.

For the purpose of information, the attention of the Unit Holders is drawn towards the Auditor's report where init is specified that Term Finance Certificates have been valued on the basis of average rate obtained from brokersinstead of the closing rate quoted on stock exchange in accordance with Non-Banking Finance Companies(Establishment and Regulation) Rules, 2003.

Mohammad Hanif JakhuraChief Executive Officer

Karachi: July 15, 2006 Central Depository Company of Pakistan Limited

REPORT OF THE TRUSTEE


We have audited the annexed statement of assets and liabilities of UTP-Income Fund as at 30 June 2006 and therelated income statement, distribution statement, cash flow statement and statement of movement in unitholders' funds together with the notes forming part thereof (here-in-after 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 thebest of our knowledge and belief, were necessary for the purposes of our audit.

It is the responsibility of the Management Company [JS ABAMCO Limited (formerly ABAMCO Limited)] toestablish and maintain a system of internal control and prepare and present the above said statements inconformity with the requirements of the Trust Deed, the Non-Banking Finance Companies (Establishment andRegulation) Rules, 2003 and approved accounting standards as applicable in Pakistan. Our responsibility is toexpress an opinion on these statements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the above saidstatements are free of any material misstatements. An audit includes examining on a test basis, evidencesupporting the amounts and disclosures in the above said statements. An audit also includes assessing theaccounting policies and significant estimates made by management, as well as, evaluating the overallpresentation of the above said statements. We believe that our audit provides a reasonable basis for our opinionand after due verification, we report that:

a) in our opinion, proper books of account have been kept by the Management Company in respect of UTP-Income Fund as required by the Trust Deed and the Non-Banking Finance Companies (Establishment andRegulation) Rules, 2003;

b) in our opinion, the statement of assets and liabilities, income statement, distribution statement, cash flowstatement and statement of movement in unit holders' funds have been drawn up in conformity with theNon-Banking Finance Companies (Establishment and Regulation) Rules, 2003 and are in agreement withthe books of account and are further in accordance with accounting policies consistently applied, exceptfor the changes indicated in notes 4.1 and 4.15 to the financial statements, with which we concur; and

c) in our opinion, and to the best of our information and according to the explanations given to us, thestatement of assets and liabilities, income statement, distribution statement, cash flow statement andstatement of movement in unit holders' funds, together with the notes forming part thereof, conform withapproved accounting standards as applicable in Pakistan, and, give the information required by the TrustDeed and the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003, in the mannerso required and respectively give a true and fair view of the state of the Fund's affairs as at 30 June 2006and of the transactions of the Fund for the year then ended.

Without qualifying our report, we draw attention to note 7.2.1 to the financial statements. The investment of theFund in Term Finance Certificates (TFCs) was not marked to market on the basis of the rates quoted on the stockexchange as per the requirements of the Non-Banking Finance Companies (Establishment and Regulation)Rules, 2003. Instead, the investment of the Fund in TFCs was valued on the basis of the rates obtained frombrokers' quotations. Had the Term Finance Certificates been valued at the last sale price quoted on the stockexchange, the net assets and the unit holders' fund would have been lower by Rs 1.212 million.

The financial statements of the Fund for the year ended 30 June 2005 were audited by another firm of charteredaccountants whose report dated 18 July 2005 expressed a qualified opinion on those financial statements.

KPMG Taseer Hadi & Co.Karachi: Chartered AccountantsJuly 15, 2006

AUDITORS’ REPORT TO THE UNIT HOLDERS

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIESAs at June 30, 2006

Note 2006 2005 ------- Rupees -------

Assets

Bank balances 5 1,490,499,809 117,166,048 Receivables 6 1,611,329,498 1,074,696,329 Investments 7 439,890,935 249,517,826 Advance tax 1,211,188 1,308,496 Security deposits 8 1,100,000 1,100,000

Total assets 3,544,031,430 1,443,788,699

Liabilities

Amount payable on redemption of units 2,686,367 36,162,388 Remuneration payable to the

Management Company 9 4,207,128 2,183,116 Remuneration payable to the Trustee 10 374,955 384,431 Creditors, accrued and other liabilities 11 7,060,737 27,189,455

Total liabilities 14,329,187 65,919,390

Net assets Rupees 3,529,702,243 1,377,869,309

Unit holders' funds (as per statement attached) Rupees 3,529,702,243 1,377,869,309

Commitments 12

Number of units in issue 13 Number 6,213,173 2,455,380

Net assets value per unit Rupees 568.10 561.16

The annexed notes 1 to 25 form an integral part of these financial statements.

For JS ABAMCO Limited (Formerly ABAMCO Limited)(Management Company)

Muhammad Najam Ali Munawar Alam Siddiqui Munaf IbrahimChief Executive Officer Chairman Director

UTP-Income Fund19

INCOME STATEMENTFor the year ended June 30, 2006

Note 2006 2005 ------- Rupees -------

Income

Net gain / income from transactions in marketable securities 14 155,502,934 139,453,491

Dividend income 2,828,875 - Return on:

- term finance certificates 19,939,436 7,663,534 - government securities 8,899,999 8,900,000 - certificates of investment 8,684,487 707,604 - money market transactions 2,485,517 3,333,762 - bank balances 65,835,744 6,119,327

Commission income - 2,388,960 Other income 3,619 - Element of income and capital gains in prices of units sold

less those in units redeemed 173,912,147 (8,463,619)438,092,758 160,103,059

Expenses

Remuneration of the Management Company 9 30,004,009 14,074,482 Remuneration of the Trustee 10 3,059,353 3,920,138 Brokerage expense 2,095,099 22,703 Financial charges on borrowing under

repurchase transactions - 4,582,615 Bank and settlement charges 565,436 1,730,585 SECP annual fee 2,062,184 1,422,591 Auditors' remuneration 15 335,976 297,765 Amortisation of premium on investments 3,218,874 2,678,251 MUFAP subscription fee 17,059 18,332 NCCPL charges 748,580 1,404,411 Listing fee 30,000 15,000 Others 193,895 2,500

42,330,465 30,169,373

Net income Rupees 395,762,293 129,933,686

Net income per unit 16 Rupees 63.70 52.92





STATEMENT OF MOVEMENT IN UNIT HOLDERS' FUNDSFor the year ended June 30, 2006

Note 2006 2005------- Rupees -------

Net assets at the beginning of the year 1,377,869,309 1,285,952,920

Amount received on issuance of *5,485,537 units (2005: 1,234,058 units) 2,869,749,351 570,123,714

Amount paid / payable on redemption of1,727,744 units (2005: 1,160,608 units) (941,144,408) (615,796,165)

1,928,604,943 (45,672,451)3,306,474,252 1,240,280,469

Element included in prices of units sold less those in unitsredeemed - amount representing accrued income andrealised capital gains transferred to the income statement (173,912,147) 8,463,619

Surplus / (deficit) on revaluation of available-for-saleinvestments 1,377,845 (808,465)

Net income for the year 395,762,293 129,933,686 Recognised income for the year 397,140,138 129,125,221

Net assets at end of the year Rupees 3,529,702,243 1,377,869,309

* Includes 246,783 units (2005: 145,299 units) issued as bonus units.




UTP-Income Fund21

DISTRIBUTION STATEMENTFor the year ended June 30, 2006

Note 2006 2005 ------- Rupees -------

Undistributed income brought forward as previously stated 6,113,212 2,017,751

Change in accounting policy with respect to the treatment of bonus units declared after the balance sheet date - (for the years ended 30 June 2005 and 2004 respectively) 125,838,225 73,839,830

Undistributed income brought forward as restated 131,951,437 75,857,581

Final distribution of bonus units for the year ended 30 June 2005 and 2004 respectively (125,838,225) (73,839,830)

Net income for the year 395,762,293 129,933,686

Undistributed income carried forward Rupees 401,875,505 131,951,437





CASH FLOW STATEMENTFor the year ended June 30, 2006

Note 2006 2005 ------- Rupees -------

Cash Flows from operating activitiesNet income 395,762,293 129,933,686Adjustments for:Net gain on sale of investments (27,974,919) (21,113,481)Amortisation of premium on investments 3,218,874 2,678,251 Element of income and capital gains in prices

of units sold less those in units redeemed (173,912,147) 8,463,619Cash flows from operation before

working capital changes 197,094,101 119,962,075

Working capital changes

Increase in current assets - receivables (536,633,169) (110,753,264)

Increase / (decrease) in liabilitiesPayable in respect of reverse repurchasetransactions - net - 10,611,908 Borrowing under repurchase agreement - (100,000,000)Remuneration payable to management company 2,024,012 2,183,116 Remuneration payable to trustee (9,476) (547,328)Creditors, accrued and other liabilities (53,604,739) (6,236,018)

(51,590,203) (93,988,322)Cash used in operations (391,129,271) (84,779,511)

Sale of investments 2,445,530,277 1,943,537,324Purchase of investments (2,609,769,496) (1,814,197,250)Security deposits - 100,000 Advance tax 97,308 (1,188,487)Cash generated from / (used in) operating activity (555,271,182) 43,472,076

Cash flows from financing activitiesAmounts received on issue of units 2,869,749,351 588,450,356 Payment against redemption of units (941,144,408) (605,130,937)Cash generated from / (used in ) financing activities 1,928,604,943 (16,680,581)

Net increase in cash and cash equivalentsduring the year 1,373,333,761 26,791,495Cash and cash equivalents at the beginning of the year 117,166,048 90,374,553Cash and cash equivalents at theend of the year Rupees 1,490,499,809 117,166,048




UTP-Income Fund23

NOTES TO THE FINANCIAL STATEMENTSFor the year ended June 30, 2006


1. LEGAL STATUS AND NATURE OF BUSINESS

UTP-Income Fund (the Fund) has been established under the Asset ManagementCompanies Rules, 1995 [replaced by the Non-Banking Finance Companies (Establishmentand Regulation) Rules, 2003] and has been approved as an investment scheme by theSecurities and Exchange Commission of Pakistan on 2 August 2002. It has been constitutedunder a Trust Deed, dated 18 July 2002 between ABAMCO Limited (now JS ABAMCOLimited) as the Management Company, a company incorporated under the CompaniesOrdinance, 1984 and the Muslim Commercial Financial Services (Private) Limited (MCFSL)as the Trustee, also incorporated under the Companies Ordinance, 1984 and a whollyowned subsidiary of Muslim Commercial Bank Limited. Last year, MCFSL voluntarilyretired as trustee of the Fund and Central Depository Company of Pakistan Limited (CDC)was appointed as a new trustee vide an agreement of change of trustee dated 28 May 2005.

The Fund is an open ended mutual fund and offers units for public subscription on acontinuous basis. The units are transferable and can also be redeemed by surrenderingthem to the Fund. The units are listed on the Lahore Stock Exchange.

The Fund invests primarily in fixed-rate securities and other avenues of investment, whichinclude corporate debt securities and Government securities, spread transactions,repurchase agreements and transactions under continuous funding system, which is aform of financing through the stock exchange.

The registered office of the management company is situated in Karachi, Pakistan.

2. STATEMENT OF COMPLIANCE

These financial statements have been prepared in accordance with the requirements of theTrust Deed, the Non Banking Finance Companies (Establishment & Regulation) Rules,2003, directives issued by the SECP and approved accounting standards as applicable inPakistan. Approved accounting standards comprise of such International FinancialReporting Standards as notified under the provisions of the Companies Ordinance, 1984.Wherever, the requirements of the Non Banking Finance Companies (Establishment &Regulation) Rules, 2003 and the said directives differ with the requirements of thesestandards, the requirements of the Non Banking Finance Companies (Establishment &Regulation) Rules, 2003 and the said directives take precedence.

3. BASIS OF PREPARATION

3.1 These financial statements have been prepared under the historical cost convention,except that investments held for trading and available for sale are measured at fairvalues.

3.2 The preparation of financial statements in conformity with approved accountingstandards, as applicable in Pakistan, requires management to make judgments,estimates and assumptions that affect the application of policies and the reportedamounts of assets, liabilities, income and expenses. The estimates and associatedassumptions are based on historical experience and various other factors that arebelieved to be reasonable under the circumstances, the results of which form the basisof making the judgments about the carrying values of assets and liabilities that are

UTP-Income Fund25

not readily apparent from other sources. Actual results may differ from theseestimates. The estimates and underlying assumptions are reviewed on an ongoingbasis. Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period, or in the period of therevision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of approved accountingstandards, as applicable in Pakistan, that have significant effect on the financialstatements and estimates with a significant risk of material judgment in the nextyear are discussed in note 22 to these financial statements.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

4.1 Investments

Investments which are acquired principally for the purpose of generating a profitfrom short term fluctuations in price or dealer's margin are classified as held-for-trading. Investments which are intended to be held for an indefinite period but maybe sold in response to the need for liquidity or changes in interest rates areclassified as available-for-sale. Investments with fixed maturity where managementhas both the intent and ability to hold to maturity, are classified as held-to-maturity.

All investments are initially recognised at cost, being the fair value of theconsideration given including acquisition charges associated with the investment.

After initial recognition, investments which are classified as held-for-trading andavailable-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-saleinvestments are recognised in the unit holders' funds until the investment is sold,collected or otherwise disposed of, or until the investment is determined to beimpaired, at which time the cumulative gain or loss previously reported in unitholders' funds is included in income. Investments classified as held-to-maturity arestated at amortised cost.

All regular way purchases / sales of investments are recognised on the trade date,i.e., the date that the fund commits to purchase / sell the investment. Regular waypurchases or sales of investment require delivery of securities within three daysafter the transaction date as required by stock exchange regulations.

For investments in quoted marketable securities, fair value is determined byreference to Stock Exchange quoted market prices at the close of business on balancesheet date except for those term finance certificates not actively traded on the StockExchanges, in respect of which rates quoted by brokers are used. (Also see note7.2.1).


Change in accounting policy

The Fund has changed its accounting policy in relation to transaction costs (such asbrokerage, fee, commission etc.) that are directly attributable to the acquisition of heldfor trading investments. From current period transaction costs are being recognised inthe income statement for the period. Previously, the same were added to theacquisition costs of held for trading investments. This change is made to bring theaccounting policy in line with the requirements of the revised InternationalAccounting Standard 39 "Financial Instruments - Recognition and Measurement". Thischange did not have any material impact on the comparative figures.

4.2 Derivatives

Derivative instruments held by the fund primarily comprise of futures contracts in thecapital market. These are initially recognised at cost and are subsequently remeasuredat their fair value. The fair value of futures contracts is calculated as being the netdifference between the contract price and the closing price reported on the primaryexchange of the futures contract. Derivatives with positive market values (unrealisedgains) are included in other assets and derivatives with negative market values(unrealised losses) are included in other liabilities in the balance sheet. The resultantgains and losses are included in the income currently.

Derivative financial instruments entered into by the fund do not meet the hedgingcriteria as defined by "International Accounting Standard - 39, Recognition andMeasurement of Financial Instruments" (IAS - 39), consequently hedge accounting isnot used by the fund.

4.3 Securities under repurchase / resale agreements (including those purchased / sold under continuous funding system)

Transactions of purchase under resale (reverse-repo) of marketable and governmentsecurities, including the securities purchased under continuous funding system, areentered into at contracted rates for specified periods of time. Securities purchasedwith a corresponding commitment to resell at a specified future date (reverse-repos)are not recognised in the statement of assets and liabilities. Amounts paid under theseagreements are included in receivable in respect of reverse repurchase transactions /against continuous funding system. The difference between purchase and resale priceis treated as income from reverse repurchase transactions and accrued over the life ofthe reverse-repo agreement.

Transactions of sale under repurchase (repo) of marketable and government securitiesare entered into at contracted rates for specified periods of time. Securities sold witha simultaneous commitment to repurchase at a specified future date (repos) continueto be recognised in the statement of assets and liabilities and are measured inaccordance with accounting policies for investment securities. The counterpartyliabilities for amounts received under these transactions are recorded as liabilities.The difference between sale and repurchase price is treated as borrowing charges andaccrued over the life of the repo agreement.

UTP-Income Fund27

4.4 Issue and redemption of units

Units are issued at the offer price prevalent on the day in which the units are issued.The offer price represents the net assets value of units at the end of the day plus theallowable sales load. The sales load is payable to the Distribution Companies andthe Management Company as processing fee. Issue of units is recorded onacceptance of application for sale.

Units redeemed are recorded at the redemption price prevalent on the day in whichthe units are redeemed. The redemption price represents the net assets value at theend of the day. Redemption of units is recorded on acceptance of application forredemption.

4.5 Net asset value per unit

The net assets value per unit disclosed in the statement of assets and liabilities iscalculated by dividing the net assets of the Fund by the number of units in issue atthe year-end.

4.6 Revenue recognition

Gains / (losses) arising on sale of investments are included in the Income Statementon the date at which the transaction takes place.

Income from reverse repurchase and continuous funding system lendingarrangements, returns on certificates of investment, placements, bank deposits andinvestments in debt securities are recognised at rate of return implicit in theinstrument on a time proportionate basis.

4.7 Element of income and capital gains in prices of units sold less those in unitsredeemed

To prevent the dilution of per unit income and distribution of income already paidout on redemption, as dividend, an equalization account called “element of incomeand capital gains in prices of units sold less those in units redeemed” is created.

The "element of income and capital gains in prices of units sold less those in unitsredeemed" account is credited with the amount representing net income and capitalgains accounted for in the last announced net assets value and included in the saleproceeds of units. Upon redemption of units, the element of income and capitalgains in prices of units sold less those in units redeemed account is debited with theamount representing net income and capital gains accounted for in the lastannounced net assets value and included in the redemption price.

The net "element of income and capital gains in prices of units sold less those in unitsredeemed" during an accounting period is transferred to the income statement.


4.8 Taxation

The Fund is exempt from taxation under clause 99 of the Part I of the 2nd Scheduleto the Income Tax Ordinance, 2001, subject to the condition that not less than 90percent of its income excluding realised and unrealised capital gain for the year isdistributed amongst the unit holders.

4.9 Financial instruments

All the financial assets and financial liabilities are recognised at the time when theFund becomes a party to the contractual provisions of the instrument. Any gain orloss on derecognition of the financial assets and financial liabilities is taken toincome directly.

4.10 Offsetting of financial assets and liabilities

Financial assets and financial liabilities are only offset and the net amount reportedin the statement of assets and liabilities when there is a legally enforceable right toset off the recognised amount and the Fund intends to either settle on a net basis, orto realise the asset and settle the liability simultaneously.

4.11 Cash and cash equivalents

Cash and cash equivalents comprise of bank balances including term deposits.

4.12 Impairment

The carrying amount of the Fund's assets are reviewed at each balance sheet date todetermine whether there is any indication of impairment. If such indication exists,the assets recoverable amount is estimated. An impairment loss is recognisedwhenever the carrying amount of an asset exceed its recoverable amount.Impairment losses are recognised in the income statements.

4.13 Provision

A provision is recognised in the balance sheet when the Fund has a legal orconstructive obligation as result of past event and it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligation anda reliable estimate can be made of the amount of the obligation.

4.14 Other assets

Other assets are stated at cost less impairment losses, if any.

4.15 Change in accounting policy relating to distribution of cash dividend / bonusunits

The Fund during the year changed its accounting policy whereby distribution ofcash and bonus units is now recognised in the year in which it is declared.Previously, the financial statements were adjusted for cash and bonus units

UTP-Income Fund29

distribution approved subsequent to the year-end. The change was considerednecessary in light of Circular number 6 of 2006, issued by the Institute of CharteredAccountants of Pakistan, whereby the requirement of International AccountingStandard 10, “Events after the balance sheet date”, are now fully applicable to themutual funds. The comparative statements for 30 June 2005 have been restated toconform to the changed policy under the requirements of International AccountingStandard 8, "Accounting Policies, Changes in Accounting Estimates and Errors".Had there been no change in accounting policy, appropriation for bonus unitsapproved for the years ended 30 June 2006 and 30 June 2005 would have been higherby Rs. Rs. 375.897 million and Rs. 125.838 million respectively, while theundistributed income as of those dates would have been lower by Rs. 375.897million and Rs. 125.838 million, respectively. The unit holder's funds as of the abovedates would have remained the same as reported.

Note 2006 2005 ------- Rupees -------

5. BANK BALANCES - local currency

On saving accounts 5.1 390,499,809 117,166,048 On term deposits 5.2 1,100,000,000 -

Rupees 1,490,499,809 117,166,048

5.1 Saving accounts carry profit rates ranging from 1% to 9.90% (2005: 1% to 7%) perannum.

5.2 Term deposit accounts carry profit rates ranging from 11% to 11.60% per annum(2005 : Nil) and will mature from 18 July 2006 to 30 September 2006.

Note 2006 2005 ------- Rupees -------

6. RECEIVABLES - considered good

In respect of transaction in marketablesecurities (including reverse repurchasetransactions) 6.1 1,564,017,886 1,060,555,984

Receivable against issue of units 85,273 2,852,987

Mark-up / return receivable on:

- bank balances 17,694,265 934,432 - reverse repurchase transactions 1,571,407 1,371,029 - term finance certificates 4,189,555 1,959,174 - government securities 4,196,169 4,195,670 - certificates of investment 1,198,460 535,617 - money market transactions 461,033 176,436

Dividend receivable 17,900,450 2,100,000 Prepaid listing fee 15,000 15,000

Rupees 1,611,329,498 1,074,696,329


Note 2006 2005 ------- Rupees -------

6.1 Securities held under reverserepurchase transactions

Equity securities 6.1.1 1,516,608,721 1,001,055,984 Government securities - 50,000,000 Debt securities 6.1.2 47,409,165 9,500,000

Rupees 1,564,017,886 1,060,555,984

6.1.1 The market value of securities held in respect of these aggregates to Rs.1,584,988,630(2005: Rs.1,157,228,810). These have rates of return ranging from 10.01% to 13.50%(2005: 5.99% to 16.50%) per annum.

6.1.2 The market value of debt securities held in respect of these aggregates to Rs.52,383,259 (2005: Rs.9,531,673) carrying a rate of return from 10.25% to 10.75% (2005:8.75%) per annum maturing with in four days after the balance sheet date.

Note 2006 2005 ------- Rupees -------

7. INVESTMENTS

Held for tradingQuoted equity securities 7.1 40,062,150 -

Available for saleQuoted debt securities 7.2 149,480,698 75,950,865 Unquoted debt securities 7.3 35,000,000 -

Held to maturityGovernment securities 7.4 120,348,087 123,566,961 Unquoted certificate of investment 7.5 95,000,000 50,000,000

Rupees 439,890,935 249,517,826

UTP-Income Fund31

7.1 Quoted equity securities 7.1.1

Acquired Market value As at 01 July during the Disposed As at 30 June as at 30 June % of

2005 year during the year 2006 2006 net assets -------------Number of shares------------- (Rupees)

Commercial banksBank of Punjab - 561,500 561,500 - - - Faysal Bank Limited - 211,000 211,000 - - - Askari Commercial

Bank Limited - 5,000 5,000 - - - National Bank of Pakistan - 823,500 823,500 - - - MCB Bank Limited - 1,150,500 960,000 190,500 40,062,150 1.14

Oil and gas explorationcompaniesOil and Gas Development

Company Limited - 1,321,500 1,321,500 - - Pakistan Oilfields Limited - 343,500 343,500 - - - Pakistan Petroleum Limited - 2,175,000 2,175,000 - - -

Oil and gas marketingcompaniesSui Southern Gas

Company Limited - 200,000 200,000 - - - Pakistan State Oil Limited - 406,000 406,000 - - -

Power generation anddistributionThe Hub Power Company

Limited - 47,000 47,000 - -

FertilizerEngro Chemicals Pakistan

Limited - 361,000 361,000 - - - Fauji Fertilizer Company

Limited - 42,000 42,000 - - - Fauji Fertilizer Bin Qasim - 1,171,000 1,171,000 - - -

CementD. G. Khan Cement

Company Limited - 285,000 285,000 - - - Lucky Cement Limited - 115,000 115,000 - - -

Technology andcommunicationPakistan Telecommunication

Company Limited - 8,372,000 8,372,000 - - -

Textile compositeNishat Mills Limited - 309,000 309,000 - - -

40,062,150 1.14

Cost of held-for-trading investments as at 30 June 2006 40,062,150

7.1.1 These represent transactions of purchase and simultaneous sale in futures market witha view to generate a spread on the transaction. These securities had been recognised asheld for trading securities as they did not meet the derecognition criteria given in IAS- 39 "Financial Instruments - Recognition and Measurement".


7.2 Quoted debt securities

Matured/ CarryingAs at Acquired disposed As at value

Note 01 July during the during 30 June as at 30 % of2005 year the year 2006 June 2006 net assets

--------------Number of certificates-------------- (Rupees)

Term finance certificates - face valueof Rs.5,000/- each 7.2.1

Leasing companiesTrust Leasing and Investment Bank 7.2.2 - 2,000 - 2,000 9,092,100 0.26

Commercial banksAskari Commercial Bank Limited 7.2.3 5,000 - - 5,000 24,981,670 0.71 United Bank Limited 6,400 - 6,400 - - -

Oil and gas exploration companiesFirst Oil and Gas Securitisation

Company Limited 7.2.4 1,350 - - 1,350 1,161,237 0.03 Chanda Oil and Gas SecuritisationCompany Limited 7.2.5 724 - - 724 3,234,971 0.09

Naimat Basal Oil and Gas Securitisation Company Limited 7.2.6 1,000 - - 1,000 4,203,546 0.12

ServicesPakistan Services Limited 7.2.7 1,494 - - 1,494 5,340,155 0.15

Technology and communicationPakistan Mobile Communication Limited 7.2.8 - 15,000 - 15,000 76,151,250 2.16

Textile compositeAzgard Nine Limited 7.2.9 - 5,000 5,000 25,315,769 0.72

149,480,698 4.23

Cost of available for sale investments as at 30 June 2006 147,905,127

7.2.1 As stated in note 4.1 term finance certificates are valued with reference to quotationobtained from reputable brokerage houses. However, the Non-Banking FinanceCompanies (Establishment and Regulation) Rules, 2003 require the same to be valued onthe basis of the closing price of the stock exchange on which the same are listed. Hadthese been valued on this basis, the net assets and unit holders' funds as at year-endwould have been lower by Rs.1,211,655.

7.2.2 These term finance certificates carry a rate of mark-up equal to the simple average of sixmonths offered rate of KIBOR plus 200 basis points per annum with no floor and no capreceivable semi-annually in arrears and will mature in November 2010. These termfinance certificates are secured by a first charge by way of hypothecation over specificleased assets of the Company with 25% margin in favour of the Trustee.

7.2.3 These term finance certificates carry a rate of mark-up equal to the simple average of sixmonths ask rate of KIBOR plus 1.50% per annum with no floor and no cap receivablesemi-annually in arrears and will mature in February 2013. These term financecertificates are unsecured, subordinated as to the payment of principal and profit toother indebtness of the bank, including deposits and is not redeemable before maturitywithout prior approval of the State Bank of Pakistan.

UTP-Income Fund33

7.2.4 These term finance certificates carry a mark-up equal to the State Bank of Pakistandiscount rate plus 2.50% per annum with a floor of 10.50% per annum and a cap of14.50% per annum receivable monthly in arrears and will mature in December 2006.These term finance certificates are secured by a hypothecation charge on futurereceivables of the Orient Petroleum Inc. (originator) which has been assigned to FirstOil and Gas Securitisation Company Limited (issuer).

7.2.5 These term finance certificates carry a mark-up equal to the simple average of thelast seven days of ask side of three months daily average KIBOR rates plus 325 basispoints with a floor of 8.95% per annum and a cap of 13% per annum receivablequarterly in arrears and will be matured in February 2012.These term financecertificates are secured by a first exclusive hypothecation charge on futurereceivables of the Zaver Petroleum Corporation Limited (originator) which has beenassigned to Chanda Oil and Gas Securitisation Company Limited (issuer).

7.2.6 These term finance certificates carry a mark-up equal to the ask side of six monthsdaily average KIBOR rates plus 2.50% per annum with a floor of 7.50% per annumand a cap of 13% per annum receivable monthly in arrears and will mature in April2010. These term finance certificates are secured by a hypothecation charge on futurereceivables of the Orient Petroleum Inc. (originator) which has been assigned toNaimat Basal Oil and Gas Securitisation Company Limited (issuer).

7.2.7 These term finance certificates carry a rate of mark-up equal to the State Bank ofPakistan discount rate plus 2.25% per annum with a floor of 9.75% per annum anda cap of 13.75% per annum receivable semi-annually in arrears and will mature inNovember 2006. These term finance certificates are secured by way of first equitablemortgage on all immovable assets of Pearl Continental Hotel, Karachi with 25%margin and first pari-passu charge by way of hypothecation over all current andfuture movable assets of the Pearl Continental Hotel, Karachi with 25% margin.

7.2.8 These term finance certificates carry a rate of mark-up equal to 6 month KIBORaverage ask rate plus 285 basis points per annum receivable semi annually in arearsand these certificates will mature in May 2013 including 4 years grace period. Theseterm finance certificates are secured by first ranking pari passu floating charge,along with a 25% margin, on all its present and future movable fixed assets(excluding land, building and vehicles).

7.2.9 These term finance certificates carry a rate of mark-up equal to the average of the sixmonths KIBOR ask rate plus 240 basis points per annum with no floor and no cap,receivable semi-annually in arrears and will mature in May 2013 including 2 yearsgrace period. These term finance certificates are secured by first pari passu chargeon the future and present fixed assets of the Company with a 25% margin in favourof the Trustee. The TFC Holders will have recourse on the assets of the Companythrough the Memorandum acknowledging the creation of the Mortgage through theDeposit of Title Deed on Land and Building in the favour of the Trustee.


7.3 Unquoted debt securitiesMatured/ Carrying

As at Acquired disposed As at value Note 01 July during the during 30 June as at 30 % of

2005 year the year 2006 June 2006 net assets--------------Number of certificates-------------- (Rupees)

Term finance certificates

Technology and communication

Optimus Limited (Rs.1,000,000/- each) 7.3.1 - 35 - 35 35,000,000 0.99 Pakistan Mobile Communication Limited

(Rs. 5,000,000/- each) - 22 22 - - - Rupees 35,000,000 0.99

Cost of available for sale investments as at 30 June 2006 Rupees 35,000,000

7.3.1 These unquoted term finance certificates carry a rate of mark-up equal to 14.00% perannum receivable at maturity and these certificate will mature in December 2006. Theseterm finance certificates are secured by a first pari passu floating charge over all presentand future assets of the Issuer.

7.4 Government securities - at amortised cost

Pakistan Investment Bonds (face value of Rs.100,000/- each) 7.4.1 1,000 - - 1,000 120,348,087 3.41

Market value of government securities as at 30 June 2006 Rupees 95,993,030

7.4.1 These bonds carry a rate of mark-up ranging from 8% to 9% per annum receivable semi-annually and will mature in year 2013.

7.5 Certificates of Investment - unsecured

Crescent Leasing Corporation Ltd 7.5.1 25,000,000 - First Dawood Investment Bank 7.5.2 25,000,000 - Modaraba Al Mali - Certificate

of Musharika 7.5.3 20,000,000 - Al Zamin Leasing Modaraba 7.5.4 25,000,000 - Security Leasing Corporation Ltd - 50,000,000

Rupees 95,000,000 50,000,000

7.5.1 These certificates carry mark up rate of 11.95% per annum and will mature on 21 July2006.

7.5.2 These certificates carry mark up rate of 11.30% per annum and will mature on 17 August2006.

7.5.3 These certificates carry mark up rate of 13.00% per annum and will mature on 28 July2006.

7.5.4 These certificates carry mark up rate of 12.00% per annum and will mature on 30 August2006.

UTP-Income Fund35

Note 2006 2005 ------- Rupees -------

8. SECURITY DEPOSITS

National Clearing Company ofPakistan Limited 1,000,000 1,000,000

Central Depository Company ofPakistan Limited 100,000 100,000

Rupees 1,100,000 1,100,000

9. REMUNERATION TO THE MANAGEMENT COMPANY

The management Company is entitled to remuneration for services rendered to the Fundunder the provisions of the Non Banking Finance Companies (Establishment &Regulation) Rules, 2003, of an amount not exceeding three percent per annum of theaverage daily net assets of the Fund during first five years of the Fund's existence andthereafter an amount equal to two percent per annum of such assets of the Fund. The rateused by the Fund is 1.5% (2005: 1.%) per annum of the average daily net assets of the Fund.

10. REMUNERATION TO THE TRUSTEE

The trustee is entitled to a monthly remuneration for services rendered to the Fund underthe provisions of the Trust Deed.

The trustee has charged its remuneration at the rate of Rs 2 million plus 0.1% per annumon amount exceeding Rs. 1 billion of the daily average net assets of the Fund.

Note 2006 2005 ------- Rupees -------

11. CREDITORS ACCRUED AND OTHER LIABILITIES

Payable in respect of listed securities 1,628,408 24,708,733 Sales load payable 898,999 396,540 SECP annual fee payable 11.1 2,062,184 1,422,591 Settlement charges payable 47,615 240,570 Auditors' remuneration 175,000 175,000 Other liabilities 2,248,531 246,021

Rupees 7,060,737 27,189,455

11.1 This represents annual fee payable to Securities and Exchange Commission ofPakistan (SECP) in accordance with rule 79 of the Non Banking Finance Companies(Establishment and Regulation) Rules, 2003 whereby the Fund is required to paySECP an amount equal to one tenth of 1% of the average daily net assets.


12. COMMITMENTS

12.1 Deals in respect of Continuous Funding System (CFS) entered into by the Fund, inrespect of which transactions will be settled after the year-end.

Note 2006 2005 ------- Rupees -------

- Sales Rupees 787,336,876 573,999,055

- Purchases Rupees 725,370,870 597,365,750

12.2 Securities sold under future contracts

- 190,500 shares of MCB Bank Limited Rupees 40,062,150 -

13. NUMBER OF UNITS IN ISSUE

Total outstanding at beginning of the year 2,455,380 2,381,930 Sales during the year 5,238,754 1,088,759 Bonus units issued 246,783 145,299 Redemption during the year (1,727,744) (1,160,608)Total units in issue at the end of the year Number 6,213,173 2,455,380

14. NET GAIN / INCOME FROM TRANSACTIONS IN MARKETABLE SECURITIES

Net gain on sale of investments 27,974,919 21,113,481 Income from reverse repurchase transactions

in quoted securities 127,528,015 118,340,010 Rupees 155,502,934 139,453,491

15. AUDITORS' REMUNERATION

Audit fee 185,350 175,000 Other services 150,626 114,784 Out of pocket expenses - 7,981

Rupees 335,976 297,765

16. NET INCOME PER UNIT

Net income for the year Rupees 395,762,293 129,933,686

Number of units in issue Number 6,213,173 2,455,380

Net income per unit Rupees 63.70 52.92

UTP-Income Fund37

17. TAXATION

For tax year 2005, the fund has filed tax return which is deemed to be assessed under section120 of the Income Tax Ordinance, 2001. No provision for taxation has been made in thefinancial statements in view of the exemption under clause 99 of the Part I of the 2ndSchedule of the Income Tax Ordinance, 2001, subject to the condition that not less than 90percent of its income excluding realised and unrealised capital gains for the period isdistributed among unit holders.

18. TRANSACTIONS WITH RELATED PARTIES

Related parties include JS ABAMCO Limited (Formerly ABAMCO Limited) being themanagement company, Central Depository Company of Pakistan Limited being the trustee,Jahangir Siddiqui and Company Limited being the holding company of the managementcompany, Jahangir Siddiqui Capital Markets Limited and Jahangir Siddiqui InvestmentBank Limited being the subsidiaries of the holding company of the management company,and Unit Trust of Pakistan, UTP Islamic Fund, UTP Aggressive Asset Allocation Fund, UTPFund of funds, UTP A 30+ Fund, UTP Growth Fund, ABAMCO Composite Fund, BSJSBalanced Fund Limited being the funds under common management.

Details of transactions with related parties during the year are as follows:

2006 2005 ------- Rupees -------

JS ABAMCO Limited (Formerly ABAMCOLimited) - Management Company

Remuneration of the Management Company Rupees 30,004,009 14,074,482 Sales load Rupees 1,326,680 5,618,397

Jahangir Siddiqui & Company Limited- related party

Term finance certificates outright sales Rupees 32,589,574 40,956,542 Government securities outright purchases Rupees - 172,033,004 Government securities outright sales Rupees - 194,256,880 Listed debt securities purchased under resale

commitments Rupees 577,884,830 197,855,550 Listed debt securities purchased under resale

commitments matured Rupees 539,975,665 217,982,690 Return on money market transactions Rupees 2,485,517 3,333,762 Government securities purchased under resale

commitments Rupees - 1,308,958,900 Government securities purchased under resale

commitments matured Rupees - 1,308,958,900 Listed debt securities sold under repurchase

commitments Rupees - 20,000,000


Note 2006 2005 ------- Rupees -------

Listed debt securities sold under repurchase commitments matured Rupees - 20,000,000

Government securities sold under repurchasecommitments Rupees - 452,800,000

Government securities sold under repurchasecommitments matured Rupees - 552,800,000

Borrowing charges on repurchase transactions Rupees - 4,582,615 Redemption of units (3,925 units) Rupees - 2,035,289 Issue of units (including 225 units as

bonus units) Rupees - 114,698

Jahangir Siddiqui Capital Market Limited- related party

Brokerage paid on reverse repurchasetransactions Rupees 2,703,436 3,037,388

Jahangir Siddiqui Investment Bank Limited(JSIBL) - related party

Redemption of units (169,745 units) Rupees - 88,861,293 Issue of bonus units to JSIBL Rupees - 1,730,340

The amount disclosed represents the amount of brokerage paid to related party and notthe purchase or sale value of securities transacted through them. The purchase or salevalue have not been treated as transactions with related party as ultimate counter-partiesare not related parties.

Details of balances with related parties at the year end are as follows:

JS ABAMCO Limited (Formerly ABAMCO Limited) - Management Company

Remuneration payable 4,207,128 2,183,116 Sales load payable 220,600 396,540

Jahangir Siddiqui & Company Limited

Receivable in respect of money market transactions 47,870,198 59,676,436

UTP-Income Fund39

19. MARK-UP / PROFIT RATE RISK

The Fund's exposure to mark-up / profit rate risk based on contractual repricing andmaturity dates, whichever is earlier at 30 June 2006, is as follows:

Interest bearingEffective rate Upto three three months More than Non mark up Totalof mark up / months to one year one year bearing

return - %

Financial Assets

Bank balances 5% - 11.60% 1,490,499,809 - - - 1,490,499,809 Receivables 10.01% to 13.50% 1,564,017,886 - - 47,311,612 1,611,329,498 Investments 8% to 14% 171,151,250 69,407,869 159,269,666 40,062,150 439,890,935 Security Deposits - - - 1,100,000 1,100,000

3,225,668,945 69,407,869 159,269,666 88,473,762 3,542,820,242

Financial Liabilities

Remuneration payable toManagement Company - - - 4,207,128 4,207,128

Remuneration payable toTrustee - - - 374,955 374,955

Creditors, accrued andother liabilities - - - 7,060,737 7,060,737

Amount payable onredemption of units - - - 2,686,367 2,686,367

- - - 14,329,187 14,329,187

Balance Sheet gap - 2006 3,225,668,945 69,407,869 159,269,666 74,144,575 3,528,491,055

Balance Sheet gap - 2005 1,232,655,532 59,968,733 134,615,593 (50,679,045) 1,376,560,813

20. RISK MANAGEMENT

The Fund primarily invests in a diversified portfolio of government securities, ratedcorporate debts, Certificate of Investments, Continuous funding system and other moneymarket instruments. Such investments are subject to varying degrees of risk. These risksemanate from various factors that include but are not limited to:

20.1 Market risk

Market risk is the risk that the value of the financial instrument may fluctuate as aresult of changes in market interest rates or the market price of securities due to achange in credit rating of the issuer or the instrument, change in market sentiments,speculative activities, supply and demand of securities and liquidity in the market.

The Fund manages market risk by monitoring exposure on securities by followingthe internal risk management policies and investment guidelines approved by itsboard of directors and regulations laid down by the Securities and ExchangeCommission of Pakistan.

20.2 Credit risk

Credit risk arises from the inability of the issuers of the instruments, the relevantfinancial institutions or counter party in case of reverse repurchase agreementtransactions and receivable against continuous funding system or otherarrangements, to fulfill their obligations. The risk is generally limited to principalamounts and accrued interest thereon, if any


The Fund’s policy is to enter into financial contracts in accordance with theinternal risk management policies and investment guidelines approved by theboard of directors. In addition, the risk is managed through assignment of creditlimits, obtaining adequate collaterals and by following strict credit evaluationcriteria laid down by the management. The Fund does not expect to incurmaterial credit losses on its financial assets.

20.3 Concentration of credit risk

Concentration of credit risk exists when changes in economic or industry factorsaffect the group of counterparties whose aggregate credit exposure is significantin relation to the Fund’s total credit exposure. The Fund’s portfolio of financialassets is broadly diversified and transactions are entered into with diverse creditworthy counterparties thereby mitigating any significant concentration of creditrisk.

20.4 Liquidity risk

Liquidity risk is the risk that the Fund may encounter difficulty in raising fundsto meet its obligations and commitments. The Fund manages the liquidity risk bymaintaining maturities of financial assets and financial liabilities and investing amajor portion of the Fund’s assets in highly liquid financial assets.

20.5 Market rate of return (MROR) risk

MROR risk is the risk that the value of a financial instrument will fluctuate dueto changes in the market interest rates. The Fund manages its investmentportfolio in order to reduce the risk of loss in market value of investments as aresult of changes in market interest rates. In case the Fund expects economicuncertainty, the portfolio is restructured so as to comprise short term debtsecurities, money market instruments, short maturity repurchase transactions,etc.

21. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Fund is of the view that the fair market value of the financial assets and liabilities,other than held to maturity investments are not significantly different from theircarrying values as its assets and liabilities are essentially short term in nature.

22. ACCOUNTING ESTIMATES AND JUDGMENTS

Held to maturity investment

The Fund has classified certain investment as held to maturity. In this regard,management's judgment is involved in evaluating the intention and ability to holdthese investment till their respective maturities.

Available-for-sale investments

Management has classified certain investments as available-for-sale. In this regard, thejudgement has been exercised by the management evaluating the intention in respectof timeframe of holding such investments.

UTP-Income Fund41

Other assets

Judgement is also involved in assessing the realisability of the assets balances.

23. NON-ADJUSTING EVENT AFTER THE BALANCE SHEET DATE

The Board of Directors of the management company has approved a stock dividend of Rs.60.50 per unit for the year ended 30 June 2006, amounting to Rs. 375.897 million in total intheir meeting held on 15 July 2006. These financial statements do not reflect this proposedissue of units, as explained in note 4.15

24. DATE OF AUTHORIZATION FOR ISSUE

These financial statements were authorized for issue by Board of Directors of theManagement Company on July 15, 2006.

25. GENERAL

Figures have been rounded off to the nearest rupee.




BRANCH NETWORK OF THE MANAGEMENT COMPANY

JS ABAMCO Head Office7th Floor, The Forum,G-20Khayaban-e-Jami, Block-9, CliftonKarachi-75600Tel: (92-21) 111-222-626Fax: (92-21) 5361724

JS ABAMCO (Shahra - e -Faisal branch)Shop No. 8, Ground Floor,Plot No 26-A, Block 6,Business Avenue, PECHS, Main Shahra - e -Faisal, Karachi - 75350Ph: 021-4322094-96Fax: 021-4322093

JS ABAMCO LahoreGround Floor, 307-Upper Mall, Lahore - 54000UAN: 042-111-222-626Fax: 042-5789108

JS ABAMCO IslamabadShop No 6&7, Razia Sharif Plaza,Blue Area, Islamabad - 44000Ph: 051-2802095-96Fax: 051-2802094

JS ABAMCO HyderabadProperty No 97, Ground Floor,Saddar, Hydrabad Cantonment, Hyderabad - 71000Ph: 022-2720250, 2720077, 2720010Fax: 022-2720581

JS ABAMCO Gujranwala40, Trust Plaza, GT. Road, Gujranwala - 52250Ph: 055-3252953Fax: 055-3253373

JS ABAMCO Sialkot27th Paris Road,Sialkot - 53100Ph: 052-4298501-02Fax: 052-4298503

UTP income actt - JS Investmentspolicy by raising interest rates. However, this may come about at a measured pace so as to ensure that However, this may come about at a measured pace

Documents