Letter of Transmittal

April 12, 2010

Acknowledgement

First of all, we are thankful to our Lord and Sustainer “ALLAH” who bestowed on
us the powers of reading, writing, researching and presenting. Then, we are
grateful to our teacher Mr. Faisal Dhedhi who has provided many useful
suggestions and comments during the course of this project. Without his
assistance and proper guidance this project could not have been possible.

Also we wish to express a long felt gratitude to all those who were directly or
indirectly involved in the successful completion of this report.

In the end, whatever the difficulties we have faced, we have been able to over-
come them, just by the grace of “ALLAH”.
 MUTUAL FUND

Mutual fund is simply a financial intermediary that allows a group of investors to

pool their money together with a predetermined investment objective. The mutual
fund will have a fund manager who is responsible for investing the pooled money
into specific securities (usually stocks or bonds). When you invest in a mutual
fund, you are buying shares (or portions) of the mutual fund and become a
shareholder of the fund. Mutual funds are one of the best investments ever
created because they are very cost efficient and very easy to invest in (you don't
have to figure out which stocks or bonds to buy). These are divided in two
categories.

Open-End Fund

All mutual funds fall into one of two broad categories: open-end funds and
closed-end funds. Most mutual funds are open-end. The reason why these
funds are called "open-end" is because there is no limit to the number of new
shares that they can be issued. New and existing shareholders may add as
much money to the fund as they want and the fund will simply issue new
shares to them. Open-end funds also redeem, or buy back, shares from
shareholders. You purchase shares in open-end mutual funds from the
mutual fund itself or one of its agents; they are not traded on exchanges.

Close-End Fund
 Closed-end funds behave more like stock than open-end funds; that is to
say, closed-end funds issue a fixed number of shares to the public in an initial
public offering, after which time shares in the fund are bought and sold on a
stock exchange. Unlike open-end funds, closed-end funds are not obligated
to issue new shares or redeem outstanding shares. The price of a share in a
closed-end fund is determined entirely by market demand, so shares can
either trade below their net asset value ("at a discount") or above it ("at a
premium"). You can purchase shares in a closed-end fund through a broker,
just as you would purchase a share of stock.

Advantages of Mutual Funds:

• Mutual Funds substantially lower the investment risk of small investors

through diversification in which funds are spread out into various sectors,
companies, securities as well as entirely different markets. It is always the
objectives of a fund manager to maximize a funds return for a given level
of risk; however the dangers of "over-diversification" are always prevalent
which would inevitably lead to a reduced return on the portfolio.

• Mutual Funds mobilize the saving of small investors and channel them into
lucrative investment opportunities. As a result, mutual funds add liquidity
to the market. Moreover, given that the funds are long term investment
vehicles, they reduce market volatility by offering support to scrip prices.

• Mutual Funds are providing the small investor access to the whole market
which individually, would be difficult to achieve.

• The investors save a great deal in transaction cost given that he has
access to a large number of securities by purchasing a single share of
mutual fund.

• The investors can pick and choose a mutual fund to match his particular
needs.

MONEY MARKET:
Money market funds should be considered by investors seeking stability of
principal, total liquidity, and earnings that are as high, or higher, than those
available through bank certificates of deposit. And unlike bank cash deposits,
money market funds have no early withdrawal penalties.

Specifically, a money market fund is a mutual fund that invests its assets only in
the most liquid of money instruments. The portfolio seeks stability by investing in
very short-term, interest-bearing instruments issued by the state and local
governments, banks, and large corporations. The money invested is a loan to
these agencies, and the length of the loan might range from overnight to one
week or, in some cases, as long as 90 days. These debt certificates are called
"money market instruments"; because they can be converted into cash so
readily, they are considered the equivalent of cash.

There are several reason & advantages for choosing the money market fund
which are as follows:

• They are the safest for the novice investor,

• They are the easiest, least complicated to follow and understand
• Almost without exception, every mutual fund investment company offers
money market funds.
• Money market funds represent an indispensable investment tool for the
beginning investor.
• They are the most basic and conservative of all the mutual funds
available.

To understand why money market mutual funds are recommended as an ideal

investment, let reemphasize just seven of the advantages they offer:

• Safety of principal, through diversification and stability of the short-term

portfolio investments.
• Total and immediate liquidity, by telephone or letter.
• Better yields than offered by banks, 1% to 3% higher.
• Low minimum investment, some as low as $100.
• Professional management, proven expertise.
• Generally, no purchase or redemption fees, no-load funds.

STOCK MARKET:

In Stock Market, the stocks are listed and traded on stock exchanges which are
entities of a corporation or mutual organization specialized in the business of
bringing buyers and sellers of the organizations to a listing of stocks and
securities together.

The biggest Stock exchange of Pakistan located in Karachi is the Karachi Stock
Exchange (KSE). Due to the liquidity offered by the Karachi Stock Exchange, it is
stated as the “Best Performing Stock Market of the World for the year 2002”.
 Introduction to Our Fund

 Fund Name: ABC Fund

 Fund Type: Open Ended

 Fund Size PKR 200 mn

 Category: Balanced Fund

 Launch Date: Jan 2010

 Benchmark Fund: KSE 100 Index

 Benchmark Fund Return: --

 Our Expected Return: 19.46%

 Our Objective

The objective of our fund is to attain maximum rate of return by investing in a

combination of money market instruments and stock market. Whilst yielding
competitive rate of return we would also ensure to maintain a liquid profile and
prudently met redemption requests.

Our Mission Statement

Our Fund’s mission statement states that:

“It’s not whether you win or lose its how you play the
game so all it requires is due diligence and wisdom.”

Honesty, integrity and professionalism will be our guiding light.

Benchmark

KSE 100 INDEX

 Our Allocation

Our fund’s portfolio consists of investment in both money market instruments and
stock market. Investment of capital in both markets is described as under:

Total 200,000,000.0
Capital 0
Money Market 80,000,000.0
Stock Market 0
120,000,000.0
0
 ABC FUND
Money Market Stock Market

Money
Market
40%
Stock
Market
60%

MONEY MARKET:

Money Market Amount Invested % of Investment

T-Bills 70,000,000.00 35.00%
Cash 10,000,000.00 5.00%
Total 80,000,000.00 40.00%
MONEY MARKET ALLOCATION
T-Bills Cash

Cash
13%

T-Bills
87%

MONEY MARKET (DSS FUND)

STOCK MARKET:

Stock Market Amount Invested % of Investment

E&P 40,000,000.00 20.00%
OMC 20,000,000.00 10.00%
FERTILIZER 45,000,000.00 22.50%
POWER 15,000,000.00 7.50%
Total 120,000,000.00 60.00%

STOCK MARKET ALLOCATION

E& P OMC FERTILIZER POWER

POWER
13% E&P
33%

FERTILIZE
R
OMC
37%
17%
 IN V E S T M E N T IN C O M P A N IE S

HUB CO PPL
12.50% 8.33%
FFC PPL
POL
12.50% POL
25.00%
PSO
ENGRO
FFC
HUB CO
E NGRO
PSO
2 5 .0 0 %
1 6.67%
STOCK MARKET (DSS FUND)
 Conclusion

DSS Fund by utilizing a combination of money market and stock market

instruments in the ratio of 40:60 respectively expects to yield a rate of return of
about 19.46% which is a competitive market rate.

Our main focus remained in making our fund less risky and more liquid by using
the financial methods of diversifying our portfolio. The sectors and companies
that we choose to invest in are blue chip stocks giving us a good capital gain or
dividend gain and in some case both. The sectors chosen for investment are way
too different and are in no way co-related to each other giving us security that if
there is a downfall in a particular sector (way it is because of economic
disturbance or any other reason) it would not affect our earnings from other
sector.