Annual Report 2006 - AKD Investment

Annual Report2006

Fund’s Information

Mission & Vision Statement

Report of the Directors of the Management Company

Fund Manager’s Report

Details of Pattern of Holding (Units)

Report of the Trustee

Statement of Compliance with the Code of Corporate Governance

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

Auditor’s Report to the Unit Holders

Statement of Assets and Liabilities

Income Statement

Distribution Statement

Statement of Movement in Unit Holders’ Fund

Cash Flow Statement

Notes to the Financial Statements

1

2

3

6

11

12

13

15

16

17

18

19

20

21

22

CONTENTSCONTENTS

AKDOpportunity Fund

FUND’S INFORMATION

MANAGEMENT COMPANY

AKD Investment Management Limited606, Continental Trade Centre, Block-8, Clifton,Karachi-74000

BOARD OF DIRECTORS OF THE MANAGEMENT COMPANYMr. Mohammed Aliuddin Ansari ChairmanMr. Faisal Bengali Director and Chief ExecutiveMr. Sadiq Hussain DirectorMr. Kashif Shamim DirectorMr. Farrukh Shaukat Ansari DirectorMr. Farooq Ahmed Awan DirectorMr. Farrukh Hamid Sabzwari Director

COMPANY SECRETARY & CFO OF THE MANAGEMENT COMPANYMr. Muhammad Amin Hussain

AUDIT COMMITTEEMr. Mohammed Aliuddin Ansari ChairmanMr. Sadiq Hussain MemberMr. Kashif Shamim Member

TRUSTEECentral Depository Company of Pakistan LimitedRegistered Office: CDC House, 99-B, Block ‘B’,S.M.C.H.S., Main Shahra-e-Faisal, Karachi

BANKERS- Metropolitan Bank Limited- Mybank Limited- The Bank of Punjab

AUDITORSM. Yousuf Adil Saleem & Co.Chartered AccountantsCavish Court, A-35, Block 7 & 8KCHSU, Shahra-e-Faisal, Karachi.

LEGAL ADVISERSattar & SattarAttorneys -at –law3rd Floor, UBL Building,I.I. Chundrigar Road,Karachi

REGISTRARGangjees Associates413, Clifton Centre, Khayaban-e-Roomi,Kehkashan, Block-5, Clifton KarachiTel: 5375714 – 5836920

DISTRIBUTORS- AKD Investment Management Limited- Aqeel Karim Dhedhi Securities (Private) Limited- First International Investment Bank Limited (Interbank)- The Bank of Punjab

1

AKDOpportunity Fund

2

MISSION STATEMENTAKDOF aims to provide

investors premium access to opportunities offered by

equities class.

VISIONTo become the benchmark of excellence in

“equity based fund management”

through sustained industry out performance.

AKDOpportunity Fund

REPORT OF THE DIRECTORS OF THE MANAGEMENT COMPANY

The Board of Directors of AKD Investment Management Ltd (AKDIML), the management company of AKDOpportunity Fund (AKDOF) is pleased to present its report along with the audited accounts for the fund for thefiscal year ended 30th June 2006. The units of the fund were offered for public subscription on March 29 to 31, 2006and 4QCY06 was the first operational quarter for the fund.

Investment StrategyAKDOF filters through the opportunities presented in the capital markets, searching for the optimal combinationof investment strategies, mainly in equities, followed by fixed income and money markets to ensure we provideconsistent, industry leading returns.

Fund’s Financial PerformanceFor the period from April 01, 2006 to June 30, 2006, the fund has carried a loss of PkR 145.3 million to the distributionstatement. A major contributor to this figure is PkR 137.5 million of diminution of remeasurement of investment– held for trading. The fund size at the close of the year stands at PkR 1.13 billion, 25,462,550 units issued. The NetAsset Value per unit is PkR 44.30 as of June 30, 2006 closing.

Market Performance vs. Fund Performance2005/06 was a healthy year for the Pakistani capital markets. The KSE100 index started the year at 7450 and gained34% during the year, closing at 9989. AKDOF was launched on 31st March ’06 and was functional only during thelast quarter of the year. The fund outperformed the KSE100 index during this period by limiting its decline to 11.4%when the index declined by 13% during the same period.

EconomyOn the economic front, the GDP grew at 6.6% during FY 05/06. SBP adopted a monetary tightening stance to curbinflation. Inflation seems to be under control with inflation for FY06 at 7.92%, significantly lower than inflation forFY05 which stood at 9.28%. We will keep a close watch on the inflation data coming out as high oil prices couldtrigger another wave of inflationary trend.

Compliance with the Code of Corporate Governance

The Board of Directos states that:

a.) The Financial Statements prepared by the Management Company of the Fund, present fairly its state of affairs,the result of its operations, cash flows and movement in unit holders' Fund.

b.) Proper books of account of the Fund have been maintained.

c.) Appropriate accounting policies have been applied in preparation of financial statements and accountingestimates are based on reasonable and prudent judgment.

3

AKDOpportunity Fund

4

AKDOpportunity Fund

d.) International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financialstaments and any departure there from has been adequately disclosed.

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

f.) There is no doubt upon the Fund's ability as a going concern.

g.) There has been no material departure from the best practices of corporate governance, as detailed in the listingregulations.

h.) The Statement showing the attendance of Directs in BOD meetings is as under:

The trades in the Units of the Fund carried out by its Directors, CEO, CFO, Company Secretary and their spousesand minor children are as under:

Directors:

Mr. Faisal Bengali 30,000 Nil

Mr. Sadiq Hussain 40,000 Nil

Spouse:

Mrs. Shazia Faisal 30,000 Nil(Spouse of Mr. Faisal Bengali)

Traded By: Investment Redemption

----------No. of Units----------

Name of Director Total No. of Meetings Held Meetings Attended

Mr. Mohammed Aliuddin Ansari 5 5

Mr. Faisal Bengali 5 5

Mr. Sadiq Hussain 5 5

Mr. Kashif Shamim 5 3

Mr. Farrukh Shaukat Ansari 5 3

Mr. Farooq Ahmed Awan 5 -

Mr. Farrukh Hamid Sabzwari 5 -

Asset Management Rating of the Management CompanyAKD Investment Management Limited (AKDIML), the Management Company of AKD Opportunity Fund, has beenassigned Quality rating of 'AM3' by JCR-VIS in March 2006.

While assigning this rating JCR_VIS states "The management quality rating takes into consideration the qualityof personnel that have been inducted at key managerial positions. We have also observed the on going capacitybuilding measures taken by the company. We believe that the development and implementation of procedural manualsfor all operational areas will ensure proper risk management. Further, setting up of an inhouse research departmentcan provide the company a competitive edge."

Future OutlookWe are still cautiously optimistic on the future of the Pakistan’s capital market and choose to stay long in selectedsectors that offer exceptional earnings growth potential. We expect sustained earnings growth and recognition ofPakistan’s Capital Market as a thriving emerging market to be the main drivers of the index in the coming year.The difficult market conditions since the fund’s inception have negatively impacted the fund, but it gave the fundan ideal time to build a strong foundation for the portfolio. We choose to stick to our proven fundamental-baseddisciplined investment strategy, and will strive to outperform the KSE100 index and the mutual fund sector in theyear to come.

AcknowledgementsThe directors would like to take this opportunity to thank the Securities and Exchange Commission of Pakistan,the Ministry of Finance and the State Bank of Pakistan for their support to mutual fund community. We would alsolike to express our heartiest gratitude to our IPO investors whose exceptional interest in the IPO made it one ofthe most successful open-end mutual fund IPOs in Pakistan to date.

For and on behalf of the Board

Karachi: 12th July 2006Faisal BengaliChief Executive

5

AKDOpportunity Fund

Fund Manager’s Report

Fund Performance

As the KSE100 index enters consolidation phase after a sell-off that continued throughout the last quarter of FY05/06,

we are pleased to announce that AKD Opportunity Fund (AKDOF) was one of the few funds in the market that

outperformed the index in this difficult period. Despite being exposed to a bear trend right after its inception, the

AKDOF managed to limit its decline to 11.4% compared to the index that lost 13% in the same period.

Market Performance

2005/06 was a healthy year for the Pakistani capital market. Starting the financial year at 7450 on July 1st 2005,

the index had a strong rally, hitting an all-time high of 12,274 (on closing basis) on 17th of April ‘06. It closed the

year 34% up at 9,989. The market had a gradual rise this year as compared to the exponential appreciation of 2004/05

rally that led to March ‘05 crisis.

In hindsight, we see the market action of last year to be divided in 2 distinct phases:

1) August 05 ~ Mid April 06: Bull rally supported by strong fundamentals and earnings growth expectations.

2) Mid April 06 ~ June 06: Correction phase with index losing 19% of its value.

The bull rally was fuelled by strong earnings growth expectations (20% plus YoY), ahead of all regional and comparable

markets. Oil & Gas Exploration and Banking sectors led the rally and had a significant impact on the index as both

sectors are index heavy weights. Earnings growth expectations in Oil & Gas Exploration were based on sky rocketing

KSE 100

AKDOF

52.8

50.8

48.8

46.8

44.8

42.8

40.8

38.8

36.8

12,500

12,000

11,500

11,000

10,500

10,000

9,500

9,000

8,500

3-A

pr

10-A

pr

17-A

pr

24-A

pr

1-M

ay

8-M

ay

15-M

ay

22-M

ay

29-M

ay

5-Ju

n

12-J

un

19-J

un

26-J

un

KSE100 vs. AKDOF

6

AKDOpportunity Fund

oil prices and volumetric growth. Banking sector benefited from deposit growth and growth in demand for consumer

banking, both factors being the result of sustained GDP growth in the country during last 5 years. Other demand

driven sectors like Fertilizer, Cement and Automobile assemblers also followed through in the rally, benefiting from

demand growth and pricing power.

The correction phase this year was triggered by Fed rate hike that resulted in a global equities sell-off. Stumbling

blocks faced in the privatizations of Pak American Fertilizer Ltd and Pakistan Steel Mills contributed to the negative

sentiment by putting privatization commission’s abilities in doubt. Over-leveraged positions and investors facing

margin calls finally pushed the sell-off to unrealistic levels. After the decline, market followed its natural process

of finding new trading levels and consolidating in a trading range.

From a valuation point of view, KSE100 index traded within the Price to Earnings (PE) bands of 8x to 13x. The

chart below provides a PER band view of the market movement and also shows the steady growth in valuation

multiples of the index during the last 5 years.

Regional comparison of equity markets gives us another perspective to evaluate Pakistan’s capital market. KSE is

cheaper than other regional and comparative markets on PE valuation, while still offering higher dividend yield,

earning growth and return on equity.

Economy

The economy continued to grow at a robust pace of 6.6%YoY, albeit slower than last year’s 8.4% owing to the

headwinds of high international oil prices and the after math of the earthquake in October ’05. Major contributors

to this growth were the services and manufacturing sectors, growing at 8.8% and 8.6% respectively. Commodity

producing sector grew by 4.3%, and agricultural sector grew by 2.5%. The following graph shows growth in different

sectors that contribute to the GDP growth:

12

10

8

6

(X)Market PER (FY07)(PKR)

120

85

50

15Jul-02 Apr-03 Feb-04 Dec-04 Sep-05 Jul-06

(KSE100 index / Price to Earnings band graph)

7

AKDOpportunity Fund

Consumer spending remained buoyant and investors continue to take advantage of the robust subliminal strength

of the economic fundamentals. Pakistan’s economy has grown at an average rate of almost 7.0% per annum during

the last four years (2002/03 ~ 2005/06) and over 7.5 percent in the last three years (2003/04 ~ 2005/06), thus

positioning itself as one of the fastest growing economies of Asia. The robust growth of the last few years has

significantly improved the per capita income of the sixth most populated economy of the world. As a result, going

forward we continue to expect the domestic demand to be the key driver of real GDP growth. However, we feel that

despite the recently disclosed record fiscal spending program, real GDP growth is likely to fall short of the 7% growth

target owing to the tighter monetary policy by the central bank to curb internal and external imbalances. Looking

at the underlying strength of aggregate demand Pakistan is likely to post real GDP growth above the 6% mark,

which has a high correlation with the KSE100’s earnings growth. With our 6% plus GDP growth expectations we

expect the equity market to continue to produce its double digit earnings growth.

A view of the Fiscal Front:

The high pace of real GDP growth in the past few years has resulted in the over heating of the economy, which is

evident from the high capacity utilization of major industries, (sugar, cement, fertilizer, and autos to name a few)

frequency of power outages and significant infrastructure bottlenecks. As a result, for Pakistan to continue on its

robust growth trajectory the GoP had to address these infrastructure bottlenecks, which is why the GoP in its FY07

budget announced the largest Public Sector Development Program (PSDP) of PkR415bn, up 53%YoY. The budget

targeted mainly the middle and lower income groups to address the growing disparity between “haves and have

nots”, however, we feel the real reason behind the budget was the upcoming election. With devolution in place, the

fiscal delivery mechanism has a tangible improvement, furthermore with the additional incentive of the upcoming

elections, we feel this year there will be a high utilization of the budget. However, the fiscal deficit target of 4.2% is

still on the higher side and the risk of fiscal slippage can result in inflationary pressures and derail the nascent price

equilibrium. Furthermore, we feel that the GoP in order to finance their fiscal deficits should diversify its sources

of borrowing. It should improve and increase the issuance of long-term government paper, which should help create

a credible yield curve and thus improve the depth of the debt market, improve the national savings and augment

the saving-investment gap.

AgriclutureIndustry

Services

Sectoral growth rates: 1995-96 to 2005-06% YOY141210

86420

-2-4

1995-96 1997-98 1999-00 2001-02 2005-062003-04

Sources: DB Global Markets Research, FBS Pakistan

8

AKDOpportunity Fund

However, we feel that further tightening from here would create a hurdle for SBP’s dual objective of achieving price

stability and growth in the future. GOP should provide incentives to boost exports and try to curtail imports to

ensure our external imbalances are in check. If there is a need for additional tightening, it will be a drag on the real

economic growth, which is likely to fall short of the 7% growth target. However, even with our 6.4% growth expectation,

the equity market is likely to continue with its historic performance.

Monetary policy at a glance:

SBP has maintained a tight monetary stance since the release of the expansionary FY07 fiscal budget. SBP has

introduced two important stimuli to the market to further anchor the economic stability, streamline external

imbalances, reduce aggregate demand and contain inflation:

1) Effective 22nd July 2006, SBP has risen the Statutory Liquidity Requirement (SLR) requirements of commercial

banks from 15 to 18%, thus appetite for government paper will remain robust, preventing yields from rising. SBP

has also introduced separate Cash Reserve Requirement (CRR) on demand and time liabilities. Specifically, the CRR

has been set at 7% (weekly average) raised by 2% from the previous 5%, of total demand liabilities.

2) The central bank in the Monetary Policy Statement (MPS) has raised the discount rate by 50bps to 9.5%, which

will increase money market rates, while we do not expect any significant increase in 6 month T Bill rates. These

tightening measures give us the confidence that the 6.5% inflation target set by the central bank for FY07 is fairly

achievable.

The following graph shows growth in GDP over the last decade and a half, as well as inflation during the same period.

The graph shows that SBP’s tight policy is having an impact on inflation and has effectively curtailed the growing

trend in inflation figures.

% YOY

14

12

10

8

6

4

2

0

Sources: DS Global Markets Research, FBS Pakistan

1990-91 1996-971993-94 1999-00 2002-03 2005-06

Pakistan’s real GDP growth

CPI

Real GDP growth vs inflation 1990-91 to 2005-06

9

AKDOpportunity Fund

Future Outlook

Our future outlook on the market is cautiously positive. In our view, corporate earnings growth will be the driving

force behind the market in medium to long term. We are expecting earnings growth of 19% for FY07 and will keep

a close eye on earnings growth numbers for Q1FY07 results to give us further confidence in the sustainability of

earnings growth. The risk to this thesis is a resurgence of inflation, rising oil prices, and current account deficit.

Higher oil price will fuel current account deficit, while also hampering corporate growth. SBP has taken certain

steps in the current budget and in its monetary policy to keep a check on inflation and internal and external

imbalances. We believe that SBP is moving in the right direction and its policies will succeed in controlling inflation

and stop economy from over heating. However, SBP’s tight policies will take a toll on GDP growth and therefore

we have lowered our GDP growth expectation to 6.4%, versus GoP’s target of 7%. All these developments at

macro/micro economic level will reflect on KSE100 and we expect the index to return approx. 20% during FY07.

For now, we are accumulating stocks that have the potential to show exceptional earnings growth while benefiting

from a growing GDP. All our efforts are focused on maximizing our shareholder’s return.

Fund Activity

A disciplined approach to fund management, with fundamental valuations and optimal risk vs. return combination

at its core, helped the fund managers minimize the NAV decline. The fund managers focused on building a

fundamentally strong foundation for the portfolio during the 4QCY06, which was also the first operating quarter

for the fund. At the heart of the portfolio are the investments made in Oil & Gas E&P (Exploration and Production)

sector and the Banking sector, both of which were accumulated at attractive valuations and offer excellent earnings

growth prospects.

Following is a graphical representation of sector-wise exposure of the fund’s portfolio as it stands on 30th June 06:

10

AKDOF -Sectorwise Exposure17%

6%

9%

17%23%

24%

4%

Cash

Others

Tech & Comm

Oil& Gas Marketing

Fertilizer

Oil & Gas E&P

Commercial Banks

AKDOpportunity Fund

Units Held

DETAILS OF PATTERN OF HOLDING (UNITS)AS AT JUNE 30, 2006

Associated Companies

Aqeel Karim Dhedhi Securities (Pvt) Limited 4,600,000

Directors and CEO

Chief Executive

Mr. Faisal Bengali 30,000

Directors

Mr. Sadiq Hussain 40,000

Public Limited Companies 4,381,356

Banks and Financial Institutions 5,279,026

Retirement Funds 1,725,740

Other Corporate Sector Entities 3,418,056

Individuals 5,988,372

Total 25,462,550

11

AKDOpportunity Fund

Report of the Trustee pursuant to Rule 76(h) of the Non-Banking Finance Companies (Establishmentand Regulation) Rules, 2003.

AKD Opportunity Fund, an open-end fund was established under a trust deed executed between AKD InvestmentManagement Limited as the Asset Management Company and Central Depository Company of Pakistan Limited asTrustee on December 19, 2005. The Scheme was authorized by the Securities and Exchange Commission of Pakistanon January 9, 2006

In our opinion, AKD Investment Management Limited, the Asset Management Company of AKD Opportunity Fundhas in all material respects managed AKD Opportunity Fund during the period from April 1, 2006 to June 30, 2006in accordance with the provisions of the Trust Deed (and the modifications authorized by the SECP from time totime) and the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.

REPORT OF THE TRUSTEEAKD OPPORTUNITY FUND

12

Karachi: 12th July 2006

Mohammad Hanif JakhuraChief Executive Officer

Central Depository Company of Pakistan Limited

AKDOpportunity Fund

STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATEGOVERNANCE FOR THE PERIOD FROM APRIL 01, 2006 TO JUNE 30, 2006

This statement is being presented by the Board of Directors of AKD Investment Management Limited (Company),the Management Company of the AKD Opportunity Fund (Fund) to comply with the Code of Corporate Governanceas contained in Regulation No. 37 of the listing regulations of the Karachi Stock Exchange (Guarantee) Ltd. for thepurpose of establishing a framework of good governance, whereby a listed company is managed in compliance withthe best practices of corporate governance.

The company has applied the principles contained in the Code of Corporate Governance as follows:

1) The Company encourages representation of independent non-executive directors. At present the Board hasthree independent non-executive directors.

2) The directors have confirmed that none of them is serving as a director in more than ten listed companies,including this company.

3) All the resident directors of the Company are registered as taxpayers and none of them has defaulted in paymentof any loan to a banking company, a DFI or NBFI or, being member of stock exchange, has been declared asa defaulter by such stock exchange.

4) No casual vacancy has occurred in the Board during the year.

5) The Company has prepared a ‘Statement of Ethics and Business Practices’, which has been approved by theBoard of directors and employees of the company.

6) The Board has developed a vision and mission statement and significant policies of the Fund. A complete recordof particulars of significant policies along with dates on which they were approved of amended has beenmaintained.

7) All the powers of the Board have been duly exercised and decisions on material transactions, includingappointment and terms and conditions of employment of the Chief Executive Officer (CEO) have been takenby the Board.

8) The Management Company has already appointed Chief Financial Officer (CFO)/Company Secretary andInternal Auditor for the company under its management including their remuneration and terms and conditionof employment as determine by CEO.

9) The roles and responsibilities of the Chairman and Chief Executive have been approved by the Board of Directors.

10) The meetings of the Board were presided over by the Chairman and, in his absence, by a director elected by

13

AKDOpportunity Fund

the Board for this purpose. Written notices of the Board Meetings along with agenda and working papers werecirculated at least seven days before the meetings. The minutes of the meetings were appropriately recordedand circulated.

11) The Directors have been provided with the copies of the NBFC (Establishment and Regulation) Rules, 2003,Companies Ordinance 1984, Listing Regulations, Code of Corporate Governance, Prudential Regulations,Company’s Memorandum and Article of Association and all other relevant rules and regulations and hence areconversant with the relevant laws applicable to the Company and the Funds and are aware of theirduties and responsibilities.

12) The Report of the directors of the management company for the year ended June 30, 2006 has been preparedin compliance with the requirements of the Code of Corporate Governance.

13) The financial statements of the Company were duly signed by the CEO and CFO before approval of the Board.

14) The Directors, CEO and executives do not hold any interest in the units of the Fund other than that disclosedin the pattern of unit holding.

15) The Company has complied with all the corporate and financial reporting framework requirements of the Code.

16) The Board has formed an audit committee. It comprises of three members, majority of whom are non-executivedirectors including the Chairman of the committee.

17) The terms of reference of the committee have been formed and advised to the committee for compliance.

18) There exists an effective internal audit function within the Company.

19) The statutory auditors of the Fund have confirmed that they have been given a satisfactory rating under thequality control review program of the Institute of Chartered Accountants of Pakistan, that they or any of thepartners of the firm, their spouses and minor children do not hold units of the Fund and that the firm and allits partners are in compliance with International Federation of Accountants (IFAC) guidelines on code of ethicsas adopted by the Institute of Chartered Accountants of Pakistan.

20) The statutory auditors or the persons associated with them have not been appointed to provide other servicesexcept in accordance with the listing regulations and the auditors have confirmed that they have observedIFAC guidelines in this regard.

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

For and on behalf of the Board

Karachi: 12th July 2006Faisal BengaliChief Executive

14

AKDOpportunity Fund

REVIEW REPORT TO THE UNIT HOLDERS ON STATEMENT OF COMPLIANCEWITH BEST PRACTICES OF THE CODE OF CORPORATE GOVERNANCE

15

We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate Governanceprepared by the Board of Directors of AKD Investment Management Limited, (The Management Company) of theAKD Opportunity Fund to comply with the Listing Regulation No. 37 (Chapter XI) of the Karachi Stock Exchangewhere 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 to inquiriesof the Management Company’s personnel and review of various documents prepared by the Management Companyto comply with the Code.

As part of our audit of the 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 of Compliancedoses not appropriately reflect the compliance of the Management Company of the Fund, in all material respects,with the best practices contained in the Code of Corporate Governance for the period from April 01,2006 toJune 30, 2006.

KarachiDate: 12th July, 2006

M. Yousuf Adil Saleem & Co.Chartered Accountants

AKDOpportunity Fund

AUDITORS' REPORT TO THE UNIT HOLDERS

We have audited the annexed statement of assets and liabilities of AKD OPPORTUNITY FUND as at June 30,2006 and the related income statement, distribution statement, statement of movement in unit holdres' funds andcash flow statement together with the notes forming part thereof, for the period from April 01, 2006 to June 30,2006 and we state that we have obtained all the information and explanations which to the best of our knowledgeand belief, were necessary for the purposes of our audit.

It is the responsibility of the Management Company (AKD Investment Management Limited) to establish andmaintain a system of internal control, and prepare and present the above said statements in conformity with therequirements of the Trust Deed, the Non Banking Finance Companies (Establishment and Regulation) Rules, 2003and approved accounting standards as applicable in Pakistan. Our responsibility is to express an opinion on thesestatements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the above said statements arefree of any material misstatements. An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the above said statements. An audit also includes assessing the accounting policies used andsignificant estimates made by management, as well as evaluating the overall presentation of the above said statements.We believe that our audit provides a reasonable basis for our opinion and, after due verification we report that:

a. In our opinion, proper books of account have been kept by the Management Company in respect of AKDOpportunity Fund as required by the Trust Deed and the Non Banking Finance Companies (Establishmentand Regulation) Rules, 2003.

b. In our opinion, the statement of assets and liabilities, the income statement, distribution statement,statement of movement in unit holders' funds and cash flow statement have been drawn up in confirmitywith the Non Banking Finance Companies (Establishment and regulation) Rules, 2003 and are in agreementwith the books of account; 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, the income statement, distribution statement, statement of movementin unit holders' funds and cash flow statement together with the notes forming part thereof conform withapproved accounting standards as applicable in Pakistan, and, give the information required by the TrustDeed, the Non Banking Finance Companies (Establishment and Regulation) Rules, 2003 and approvedaccounting standards as applicable in Pakistan, in the manner so required and respectively give a trueand fair view of the state of the fund's affairs as at June 30, 2006 and of the transactions of the fund forthe period from April 01, 2006 to June 30, 2006.

KarachiDate: 12th July 2006

M. Yousuf Adil Saleem & Co.Chartered Accountants

16

AKDOpportunity Fund

Rupees in‘000’

The annexed notes from 1 to 23 form an integral part of these financial statements.

Note

STATEMENT OF ASSETS AND LIABILITIESAS AT JUNE 30, 2006

17

For AKD Investment Management Limited(Management Company)

Sadiq HussainDirector

Faisal BengaliChief Executive

ASSETS

Bank balances 4 97,407Investment - held for trading 5 1,076,923Dividend and profit receivable 6 8,372Preliminary and floatation costs 7 1,913Security deposit 100

Total assets 1,184,715

LIABILITIES

Payable against purchase of securities 44,158Payable on redemption of units 4,172Payable to management company 8 7,597Remuneration payable to trustee 172Annual fee payable to Securities and Exchange Commission of Pakistan 298Accrued expenses and other liabilities 9 451

Total liabilities 56,848

NET ASSETS 1,127,867

Unit holders' funds (as per statement attached) 1,127,867

(No. of Units)

Number of units in issue 25,462,550(Rupees)

Net assets value per unit (face value per unit is Rs. 50/-) 44.30

AKDOpportunity Fund

Rupees in‘000’


Note

INCOME STATEMENTFOR THE PERIOD FROM APRIL 01, 2006 TO JUNE 30, 2006

INCOMECapital loss on sale of investments - held for trading (15,580)Dividend income 8,362Return on bank balances 15,727Element of income and capital gains in prices of units

sold less those in units redeemed (2,440)6,069

Diminution on remeasurement of investment - held for trading (137,503)(131,434)

EXPENSESRemuneration to management company 10 8,952Remuneration to trustee 11 548Annual fee to Securities and Exchange Commission of Pakistan 298Securities transaction cost 2,459Auditors' remuneration 12 138Amortization of preliminary and floatation costs 7 638Others 793

13,826

Loss for the period carried to Distribution Statement (145,260)




18

AKDOpportunity Fund

Rupees in‘000’


DISTRIBUTION STATEMENTFOR THE PERIOD FROM APRIL 01, 2006 TO JUNE 30, 2006

Loss for the period brought from Income Statement (145,260)

Accumulated loss carried forward (145,260)




19

AKDOpportunity Fund

Rupees in‘000’


STATEMENT OF MOVEMENT IN UNIT HOLDERS' FUNDSFOR THE PERIOD FROM APRIL 01, 2006 TO JUNE 30, 2006

Issue of 30,130,802 units 1,491,389

Redemption of 4,668,252 units (220,702)

1,270,687

Element of income and capital gain in prices of units sold less those in units redeemed 2,440

Loss for the period (145,260)

Net assets as at the end of the period 1,127,867




20

AKDOpportunity Fund

Rupees in‘000’


CASH FLOW STATEMENTFOR THE PERIOD FROM APRIL 01, 2006 TO JUNE 30, 2006

CASH FLOWS FROM OPERATING ACTIVITIES

Loss for the period (145,260)

Adjustments for:Diminution on remeasurement of investment - held for trading 137,503Element of income and capital gain in prices of units sold less those in units redeemed 2,440Amortization of preliminary and floatation costs 638

(4,679)Increase in assets

Investment - held for trading (1,214,426)Dividend and profit receivable (8,372)Preliminary and floatation cost (2,551)Security deposit (100)

(1,225,449)Increase in liabilities

Payable against purchase of securities 44,158Payable on redemption of units 4,172Payable to management company 7,597Remuneration payable to trustee 172Annual fee payable to Securities and Exchange Commission of Pakistan 298Accrued expenses and other liabilities 451

56,848Net cash used in operating activities A (1,173,280)

CASH FLOWS FROM FINANCING ACTIVITIESAmount received on issue of units 1,491,389Amount paid on redemption of units (220,702)Net cash generated from financing activities B 1,270,687

Bank balances at the end of the period A+B 97,407




21

AKDOpportunity Fund

NOTES TO THE FINANCIAL STATEMENTSFOR THE PERIOD FROM APRIL 01, 2006 TO JUNE 30, 2006

1. LEGAL STATUS AND NATURE OF BUSINESS

AKD Opportunity Fund (AKDOF) was established under a Trust Deed executed between AKD InvestmentManagement Limited (AKDIML) as Management Company and Central Depository Company of PakistanLimited (CDC) as Trustee. The Securities and Exchange Commission of Pakistan (SECP) authorized toconstitute the Trust Deed on December 7, 2005 and it was executed on December 19, 2005 in accordance withthe Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (NBFC Rules).

AKDOF is an open-ended mutual fund and is listed on the Karachi Stock Exchange. Units are offered forpublic subscription on a continuous basis. The units are transferable and can be redeemed by surrenderingthem to the fund.

The policy of the fund is to invest primarily in listed securities and fixed income, money and capital marketinvestments.

The units of the fund were offered for public subscription on March 29 to 31, 2006. The fund property wasfully constituted on April 01, 2006, hence these are the first financial statements of the fund effective fromthat date.

2. STATEMENT OF COMPLIANCE

These financial statements have been prepared in accordance with requirements of the Trust Deed, NBFCRules, Companies Ordinance, 1984, directives issued by the SECP and approved accounting standards asapplicable in Pakistan. Approved Accounting Standards comprise of such International Accounting Standards(IAS) as are notified under the provisions of the Companies Ordinance, 1984. Wherever, the requirementsof the NBFC Rules, Companies Ordinance, 1984 or directives issued by SECP differ with the requirementsof these standards, the requirements of the NBFC Rules, Companies Ordinance, 1984 and the said directivestake precedence.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below :

3.1 Accounting convention

These financial statements have been prepared under the historical cost convention, except for investment -held for trading and derivative financial instrument, which are stated at fair value.

3.2 Investments

3.2.1 Investments - held for trading

An investment held for trading is acquired principally for the purpose of generating profit from short-termfluctuations in prices. These are initially measured at fair value which is the quoted bid price at stock exchange

22

AKDOpportunity Fund

at the date when the fund commits to purchase the investments, Subsequently, the resultant gain or loss onremeasurement of value of investment is recognised in the income statement.

3.2.2 Investments - available for sale

Other investments are classified as available for sale and are initially measured at fair value which is thequoted bid price at stock exchange at the date when the fund commits to purchase the investment. Changesin fair value of all available for sale investments are recognised in units holders' fund.

3.2.3 Investments - held to maturity

Only those securities are classified as held to maturity which have fixed or determinable payments and fixedmaturity that the fund has positive intent and ability to hold up to maturity.

Securities that are not traded in market and for which reliable quotes are not available, are carried at cost inaccordance with NBFC Rules 2-xxxiv (i).

All regular purchases / sales of investments are recognised on the trade date i.e. the date that the fund commitsto purchase / sell the asset. Purchases or sales of investment require delivery of securities within three daysafter the transaction date as per stock exchange regulations.

3.3 Derivatives

Derivative instruments held by the fund generally comprise of unpaid right letters. These are initially measuredat fair value. The fair value of a derivative is based on quoted bid price of the Stock Exchange ruling at thebalance sheet date. Subsequently, the resultant gain or loss on remeasurement of value of derivative financialinstrument is recognised in income statement.

Derivative financial instruments entered into by the fund do not meet the hedging criteria as defined byInternational Accounting Standard – 39, Recognition and Measurement of Financial Instruments (IAS - 39),consequently hedge accounting is not used by the fund.

3.4 Issue and redemption of units

Units are issued at the offer price prevalent at the end of the day in which the units are issued. The offer pricerepresents the net asset value of units at the end of the day plus the allowable sales load and such sum shallbe adjusted upwards to the nearest 5 paisa. The sales load is payable to the distribution company and themanagement company as processing fee. Issue of units is recorded on acceptance of application for sale.

Units redeemed are recorded at the redemption price prevailing at the end of the day in which the units areredeemed. The redemption price represents the net assets value at the end of the day and shall be adjusteddownwards to the nearest 5 paisa. Redemption of units is recorded on acceptance of application for redemption.

23

AKDOpportunity Fund

3.5 Element of income and capital gains in pricesof units sold less those in units redeemed

To prevent the dilution of per unit income and distribution of income already paid out on redemption asdividend, an equalization account called "element of income and capital gains in prices of units sold less thosein units redeemed" is created. The "element of income and capital gains in prices of units sold less those inunits redeemed "account is credited with the amount representing net income in capital gain accounted forin the last announced net assets value and included in the sale proceeds of units. Upon redemption of units,the "element of income and capital gains in prices of units sold less those in units redeemed" account isdebited with the amount representing net income and capital gains accounted for in the last announced netasset value and included in the redemption price.

The net "element of income and capital gain in prices of units sold less those in units redeemed" during anaccounting period is transferred to the income statement.

3.6 Revenue recognition

Capital gains / (losses) arising on sale of investments are included in the Income Statement on the date atwhich the transaction takes place.

Dividend income is recognised when the right to receive the dividend is established.

Income on debt securities is recognised on an accrual basis using the effective interest rate method.

Income on Continuous Funding System and bank deposits is recognised on a time proportionate basis.

3.8 Provisions

Provisions are recognized when the fund has a present legal or constructive obligation as a result of past eventsand it is probable that an outflow of resources embodying economic benefits will be required to settle theobligation and a reliable estimate of the obligation can be made. Provisions are regularly reviewed and adjustedto reflect the current best estimate.

3.9 Net Asset Value per Unit

The Net Asset Value per unit disclosed in the Statement of Assets and Liabilities is calculated by dividing thenet assets of the fund by the number of units in circulation at the year end.

3.10 Taxation

The charge for the current taxation is based on taxable income, if any, at the current rates of taxation aftertaking into account any available tax credits and tax rebates.

3.11 Preliminary expenses and floatation costs

Preliminary expenses and floatation costs represent expenditure incurred prior to the commencement ofoperations of the fund, and are stated at cost less accumulated amortisation. These costs are amortised overa period of twelve months.

24

AKDOpportunity Fund

Rupeesin '000

3.12 Offsetting of financial instruments

Financial assets and financial liabilities are only offset and the net amount reported in the Statement of Assetsand Liabilities when there is a legally enforceable right to set off the recognized amounts and the fund intendsto either settle on a net basis or to realize the asset and settle the liability simultaneously.

3.13 Financial assets and financial liabilities

Financial assets carried on the statement of assets and liabilities include bank balances, receivable againstsale of securities, investments - held for trading and dividend and profit receivable.

Financial liabilities carried on the statement of assets and liabilities include payable against purchase ofsecurities, payable on redemption of units, payable to management company, remuneration payable to trusteeand accrued expenses and other liabilities.

At the time of initial recognition, all financial assets and financial liabilities are measured at fair value. Allthe financial assets and financial liabilities are recognized at the time when the fund becomes a party to thecontract. The particular recognition method adopted for measurement of investments subsequent to initialrecognition is disclosed in the individual policy statement associated with each item.

3.14 Transactions with connected persons

Transactions between the fund and its "connected persons" , as defined in the NBFC Rules, are carried outon an arm's length basis and are disclosed in note 15 to these financial statements.

4. BANK BALANCES

In deposit accounts 97,382In current accounts 25

97,407

25

AKDOpportunity Fund

Nam

e of

in

vest

ee

5.M

AR

KE

TA

BL

E S

EC

UR

ITIE

S-H

EL

D F

OR

TR

AD

ING

(Fac

e va

lue

of R

s. 1

0/- e

ach

unle

ss o

ther

wis

e st

ated

)

Sale

sBo

nus/

Righ

tis

sue

Clos

ing

bala

nce

Cost

Book

valu

eM

arke

tva

lue

per

shar

e/ce

rtifi

cate

Mar

ket

valu

eN

et a

sset

of th

eFu

nd

Tota

l boo

kva

lue

ofIn

vest

men

t

Inve

stee

paid

up

capi

tal

Per

cen

tage

in

rel

atio

n t

oN

um

ber

of

Sh

ares

/ C

erti

fica

tes

Val

ue

of S

har

es /

Cer

tifi

cate

s

Purc

hase

sUn

real

ised

appr

ecia

tion/

(dim

inut

ion)

26

------

-(Rup

ees i

n ‘0

00’ )

------

-

Au

tom

obil

e A

ssem

ble

rA

L-G

hazi

Tra

ctor

s L

imit

ed *

57

,100

--

57,

100

12,5

5712

,557

204.

00 1

1,64

8 (

909)

1.0

30.

131.

03P

ak S

uzuk

i Mot

or C

ompa

ny L

imit

ed 8

2,50

0-

-82

,500

23,9

2623

,926

313.

00 2

5,82

3 1

,896

2.29

0.15

1.97

Cem

ent

D. G

. Kha

n C

emen

t C

ompa

ny L

imit

ed 5

25,0

0075

,000

-45

0,00

040

,864

40,8

6490

.00

40,

500

(364

) 3

.59

0.24

3.36

D. G

. Kha

n C

emen

t C

ompa

ny L

imit

ed (

R)

** 5

0,00

0-

-50

,000

2,11

82,

118

52.0

0 2

,600

483

0.23

0.03

0.17

Luc

ky C

emen

t L

imit

ed 3

00,5

0030

0,50

0-

--

-10

3.55

--

--

-M

aple

Lea

f Cem

ent

Fac

tory

Lim

ited

2

50,0

00-

-25

0,00

06,

138

6,13

825

.60

6,4

00

263

0

.57

0.08

0.5

1

Ch

emic

als

ICI

Pak

ista

n L

imit

ed30

5,90

0 -

- 3

05,9

0035

,974

35,9

7410

9.10

33,

374

(2,

600)

2.9

60.

222.

96

Com

mer

cial

Ban

ks

MC

B B

ank

Lim

ited

421,

200

80,

000

-34

1,20

067

,506

67,5

0621

0.30

71,7

544,

248

6.36

0.07

5.56

Nat

iona

l Ban

k of

Pak

ista

n 8

35,0

00 3

50,0

0050

,000

535,

000

123,

630

123,

630

215.

50 1

15,2

93(8

,338

)10

.22

0.08

10.1

8T

he B

ank

of P

unja

b 1

,250

,000

250

,000

-1,

000,

000

86,6

84 8

6,68

482

.70

82,

700

(3,9

84)

7.33

0.35

7.14

En

gin

eeri

ng

K.S

.B. P

umps

39,5

00 -

-39

,500

3,28

4 3

,284

94.9

0 3

,749

4

640.

330.

33 0

.27

Fer

tili

zer

Eng

ro C

hem

ical

s P

akis

tan

Lim

ited

380

,600

--

380,

600

77,0

18

77,

018

169.

40 6

4,47

4 (

12,5

44)

5.7

20.

25 6

.34

Fauj

i Fer

tiliz

er B

in Q

asim

Lim

ited

1,5

50,0

00-

-1,

550,

000

58,5

25

58,

525

29.2

5 4

5,33

8 (

13,1

88)

4.0

20.

17 4

.82

Fauj

i Fer

tiliz

er C

ompa

ny L

imit

ed 6

53,7

00-

-65

3,70

087

,437

8

7,43

712

1.00

79,

098

(8,

339)

7.0

10.

13 7

.20

Mod

arab

asSt

anda

rd C

hart

ered

Mod

arab

a49

8,50

0-

-49

8,50

0 8

,475

8

,475

17.4

0 8

,674

1

99

0.7

71.

270.

70

Oil

& G

as E

xplo

rati

on C

omp

anie

sO

il &

Gas

Dev

elop

men

t C

ompa

ny L

imit

ed 9

75,0

00 1

00,0

00-

875,

000

138,

542

138

,542

13

6.75

119

,656

(

18,8

86)

10.

610.

02 1

1.41

Pak

ista

n O

ilfie

lds

Lim

ited

266

,700

226

,700

80,0

0012

0,00

050

,970

5

0,97

0 33

4.80

40,

176

(10

,794

) 3

.56

0.06

4.2

0P

akis

tan

Pet

role

um L

imit

ed 6

35,0

00 1

50,0

00-

485,

000

127,

178

127

,178

21

1.85

102

,747

(

24,4

31)

9.1

10.

07 1

0.47

Oil

& G

as M

ark

etin

g C

omp

anie

sP

akis

tan

Stat

e O

il C

ompa

ny L

imit

ed16

5,00

065

,000

-10

0,00

028

,150

28,1

5030

9.00

30,9

002,

750

2.74

0.06

2.32

Sui N

orth

ern

Gas

Pip

elin

es L

imit

ed60

0,20

024

1,90

0-

358,

300

41,0

4241

,042

100.

0035

,830

(5,2

12)

3.18

0.07

3.38

Sui S

outh

ern

Gas

Com

pany

Lim

ited

1,03

0,50

0-

-1,

030,

500

43,7

9843

,798

28.9

029

,781

(14,

016)

2.64

0.15

3.61

Pap

er A

nd

Boa

rdC

entu

ry P

aper

and

Boa

rd M

ills

Lim

ited

200,

000

--

200,

000

11,6

0011

,600

48.4

59,

690

(1,9

10)

0.86

0.31

0.96

Pac

kage

s L

imit

ed66

,100

--

66,1

0013

,893

13,8

9320

9.35

13,8

38(5

5)1.

230.

091.

14

------

-(Rup

ees i

n ‘0

00’ )

------

-

AKDOpportunity Fund

Nam

e of

in

vest

ee

5.M

AR

KE

TA

BL

E S

EC

UR

ITIE

S-H

EL

D F

OR

TR

AD

ING

(Fac

e va

lue

of R

s. 1

0/- e

ach

unle

ss o

ther

wis

e st

ated

) Sale

sCl

osin

gba

lanc

eCo

stBo

okva

lue

Mar

ket

valu

e pe

rsh

are/

cert

ifica

te

Mar

ket

valu

eN

et a

sset

of th

eFu

nd

Tota

l boo

kva

lue

ofIn

vest

men

t

Inve

stee

paid

up

capi

tal

Purc

hase

sUn

real

ised

appr

ecia

tion/

(dim

inut

ion)

27

Pow

er G

ener

atio

n &

Dis

trib

uti

onK

ot A

ddu

Pow

er C

ompa

ny L

imit

ed48

5,50

0-

-48

5,50

020

,532

20,5

3242

.10

20,4

40(9

2)1.

810.

061.

69

S

uga

r &

All

ied

In

du

stri

es

J.

D.W

. Sug

ar M

ills

Lim

ited

123,

500

--

123,

500

12,4

86

12,

486

84.5

010

,436

(2,0

50)

0.93

0.47

1.03

Syn

thet

ics

and

Ray

onD

ewan

Sal

man

Fib

re L

imit

ed20

0,00

0-

-20

0,00

02,

225

2,22

511

.20

2,24

015

0.20

0.05

0.18

Tec

hn

olog

y &

Com

mu

nic

atio

nP

akis

tan

Tel

ecom

mun

icat

ion

Com

pany

Lim

ited

1,65

5,40

0-

-1,

655,

400

87,1

9087

,190

40.6

067

,209

(19,

981)

5.96

0.04

7.18

Tob

acco

Pak

ista

n T

obac

co C

ompa

ny L

imit

ed37

,400

--

37,4

002,

684

2,68

468

.35

2,55

6(1

28)

0.23

0.01

0.22

June

30,

200

613

,639

,800

1,83

9,10

013

0,00

011

,930

,700

1,21

4,42

61,

214,

426

1,07

6,92

3(1

37,5

03)

* O

rdin

ary

shar

es o

f fac

e va

lue

Rs.

5/- e

ach

** I

t re

pres

ents

unp

aid

righ

t le

tter

s

Nu

mb

er o

f S

har

es /

Cer

tifi

cate

sV

alu

e of

Sh

ares

/ C

erti

fica

tes

Per

cen

tage

in

rel

atio

n t

o

------

---(R

upee

s in

‘000

’ )---

------

------

--(Ru

pees

in ‘0

00’ )

------

--

Bonu

s/Ri

ght

issu

e

AKDOpportunity Fund

Rupeesin '000

6. DIVIDEND AND PROFIT RECEIVABLE

Dividend receivable 7,508Profit receivable 864

8,3727. PRELIMINARY AND FLOATATION COSTS

Total cost 2,551Less: Accumulated amortisation 638

1,9138. PAYABLE TO MANAGEMENT COMPANY

Management remuneration 2,697Sales load 2,247Preliminary and floatation costs 2,550Others 103

7,5979. ACCRUED EXPENSES AND OTHER LIABILITIES

Auditors' remuneration 138Withholding tax payable 78Payable to distributors 196Remuneration payable to Mutual Fund Association of Pakistan 30Billing charges payable to Central Depository Company of Pakistan Limited 9

45110. REMUNERATION TO MANAGEMENT COMPANY

Under the provisions of NBFC Rules, AKDIML is entitled to a remuneration, during the first five years of thefund, of an amount not exceeding three percent of the average annual net assets of the fund and thereafterof an amount equal to two percent of such assets of the fund. AKDIML has charged its remuneration at therate of three percent for the current period.

11. REMUNERATION TO TRUSTEE

The trustee is entitled to monthly remuneration for services rendered to the fund under the provisions of theTrust Deed as per the tariff specified there in based the daily Net Asset Value of the fund.

12. ANNUAL FEE TO SECURITIES ANDEXCHANGE COMMISSION OF PAKISTAN

Under the provision of NBFC Rules, open end fund is required to pay as annual fee to SECP, an amount equalto one-tenth of one percent of the average annual net assets of the fund.

28

AKDOpportunity Fund

Rupeesin '000

13. AUDITORS' REMUNERATION

Audit fee 125Out of pocket expenses 13

13814. TAXATION

The fund is exempt from tax under clause 99 of part 1 of Second Schedule of the Income Tax Ordinance, 2001,subject to the condition that not less than 90% of its accounting income for the year, as reduced by the capitalgains whether realized or unrealized, is distributed among its unit holders.

The fund is also exempt from the provisions of section 113 (minimum tax) under clause11 of Part IV of theSecond Schedule of the Income Tax Ordinance, 2001.

15. TRANSACTIONS WITH CONNECTED PERSONS

Connected persons include AKD Investment Management Limited being the Management Company and AKDSecurities (Pvt) Limited being a company under common management.

AKD Investment Management Limited - Management Company

Remuneration 8,952

Sales load 6,068

Aqeel Karim Dhedhi Securities (Pvt) Limited - Brokerage House

Brokerage 237

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

Investment - held for trading are carried at their fair value. The management is of the view that the fairmarket value of most of the remaining financial assets and liabilities are not significantly different from theircarrying values.

Rupeesin '000

29

AKDOpportunity Fund

17. YIELD / INTEREST RATE RISK

Yield risk is the risk of decline in earnings due to adverse movements of the yield curve. Interest/ markup raterisk is the risk that the value of the financial instruments will fluctuate due to changes in the market interestrates. Sensitivity to interest / mark-up rate risk arises from mismatches or gaps in the amounts of interest/mark-up based assets and liabilities that mature or reprice in a given period.

17.1 Mark-up / interest rate risk exposure

The management company manages this risk with the objective of limiting the potential adverse impacton the profitability of the fund.

The Fund's exposure to interest rate risk and the effective rates on its financial assets and liabilities aresummarized as follows:

18. MARKET RISK

Market risk is the risk that the value of financial instruments will fluctuate as a result of changes in marketprice. The fund manages its market risk by monitoring exposure on marketable securities as per the internalguidelines of the management company.

EffectiveYield /

Interestrates(%)

Mark-up/ Interestbearing

Upto threemonths

Nonmark-up /Interestbearing

Total

------------------------------(Rupees in ‘000’ )------------------------------Financial Assets

Bank balances 10% - 11.25% 97,382 25 97,407Investment - held for trading - 1,076,923 1,076,923Dividend and profit receivable - 8,372 8,372

97,382 1,085,320 1,182,702Financial Liabilities

Payable against purchase of securities - 44,158 44,158Payable on redemption of units - 4,172 4,172Payable to management company - 7,597 7,597Remuneration payable to trustee - 172 172Accrued expenses and other liabilities - 451 451

- 56,550 56,55097,382 1,141,870 1,239,252

AKDOpportunity Fund

30

19. CREDIT RISK

Credit risk arises from the inability of the counter-parties to meet the obligation fund enters into transactionswith diverse creditworthy counterparties thereby mitigating any significant concentration of credit risk.

20. LIQUIDITY RISK

Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitmentsassociated with financial instruments. The fund is not materially exposed to liquidity risk as allobligations/commitments of the fund are short term in nature are restricted to the extend of available liquidityand all assets of the fund are readily disposable in the market.

200621. PERFORMANCE TABLE

Net assets value (Rs. '000) 1,127,867Net assets Value per Unit (Rs.) 44.30Highest offer price per unit (Rs.) 52.55Lowest redemption price per unit (Rs.) 38.25

22. DATE OF AUTHORISATION FOR ISSUE

These financial statements were authorised for issue on 12 July, 2006 by the Board of Directors of theManagement Company.

23. FIGURES

This being first period of operation, there is no corresponding figures.

Figures have been rounded off to the nearest of thousand rupees.




31

AKDOpportunity Fund

Documents

Annual Report 2006 - AKD Investment