Pic Doverie Ad

PIC DOVERIE AD

CONTENTS Page

TO

THE SHAREHOLDERS

OF PIC DOVERIE AD

SOFIA

Independent Auditor’s Report

We have audited the accompanying financial statements of Pension Insurance Company Doverie AD, including the balance sheet as of December 31, 2006 and the related statements of income, shareholders’ equity and cash flows for the year then ended, as well as the generalized description of the essential accounting policies and the other explanatory addenda.

Responsibility of the Company’s management

The reliability of these financial statements and their preparation in accordance with the International Financial Reporting Standards are the responsibility of the Company’s management. This responsibility includes: development, implementation and maintenance of an internal control system related with the preparation and the faithful presentation of financial statements that do not contain material misstatements, no matter whether they result from frauds or errors; selection and application of appropriate accounting policies; and preparation of accounting estimations, that are reasonable in the particular circumstances.

Responsibility of the Auditor

Our responsibility is to independently express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the professional requirements of the International Auditing Standards. Those standards require keeping with the requirements of ethics, as well as that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes procedures examining evidence supporting the amounts and disclosures in the financial statements. The choice of the procedures depends on the auditor’s judgment including assessment of the risks of material misstatement in the financial statements irrespective of whether they result from frauds or errors. When assessing the risk, the auditor takes into account the internal control system related with the preparation and the faithful presentation of financial statements on the part of the Company in order to develop the auditing procedures that are appropriate for the circumstances but not with the purpose of expressing opinion on the effectiveness of Company’s the internal control system. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

Opinion

As a result of that we officially state that the financial statements referred to above present fairly, in all material respects, the financial position of Pension Insurance Company Doverie AD as of December 31, 2006, and the results of their operations and their cash flows for the year then ended in conformity with the International Financial Reporting Standards.

Sofia, March 21st, 2007

BDO AKERO Ltd.

Stoyanka Apostolova, ManagerBogdanka Sokolova, Manager

CPA, registered auditorCPA, registered auditor

STATEMENT OF INCOME

For the year ended December 31, 2006

The appendices on pp. 8 – 23 are an integral part of the financial statements

BALANCE SHEET

as of December 31, 2006

The appendices on pp. 8 – 23 are an integral part of the financial statements

PIC DOVERIE AD

STATEMENT OF CASH FLOWS for 2006

The appendices on pp. 8 – 23 are an integral part of the financial statements

PIC DOVERIE AD

STATEMENT OF CHANGES IN EQUITY as of December 31, 2006

The appendices on pp. 8 – 23 are an integral part of the financial statements

1.Company information

PIC DOVERIE AD (the Company) is a joint stock company registered on May 9th, 1994 in Sofia.

The registered office of the Company is in Sofia, OborishteMunicipality, 5 Dounav Street.

The core activity of the Company covers administration and management of pension funds within the meaning of the Social Insurance Code (the Code).

As of the date of the financial statements the Company manages the following pension funds:

Voluntary Pension Fund (VPF) – registered on November 3rd, 2000;

ProfessionalPension Fund (PPF) – registered on November 28th, 2000;

GeneralPension Fund (GPF) – registered on February 13th, 2001.

The General meeting of the Shareholders of PIC Doverie AD held on June 24th, 2002 resolved on the merger of the Bulgarian Pension Insurance Company and the pension fundsmanaged by it with Pension Insurance Company Doverie and the respective pension funds under its management. After finalization of the necessary procedures, on May 28th, 2003 the merger between the two companies was completed.

The registered capital of PIC Doverie was increased to BGN 15,004,000. The new 2,500,000 shares issued are registered dematerialized shares. The shareholders of BPIC received 1 share in PIC Doverie for every 1.8 shares held in BPIC.

2.Legal framework

Pension insurance companies are joint-stock companies registeredunder the Trade Act with minimum required capital of BGN 5 million,licensed for the only activity of pension fund management. The operation of the company and the administered pension funds is regulated by the Social Insurance Code and the respective secondary legislation and is controlled by the Financial Supervision Commission.

Since August 2nd, 2004 according to the Social Insurance Code the minimum required amount of capital of a pension insurance company was increased to BGN 5,000,000.

In accordance with the amendments to the Code the pension insurance companies were given a period ending May 2nd, 2004 to bring theiractivities in compliance with the provisions on:

Concluding contracts with custodian banks of the pension funds;

Transferring all assets kept in the depository banks to be kept in the custodian bank;

Bringing in compliance with the amended investment restrictions and bans.

In this connection UBB AD sold its shares of the capital of PIC Doverie AD which allowed the signing of a contract with the bank for custodian services for all pension funds managed by the Company.

As of May 2nd, 2004 the activity of the Company and the funds under its management was set in conformity with the provisions of the Social Insurance Code.

In line with ORDINANCE No 3 of September 24, 2003 on the terms and procedures for switching participation and transferring the amounts accrued in an insured person’s individual account from one supplementary pension fund to another fund of the same type, managed by another pension insurance companyin 2006 four transfers of funds were made to supplementary mandatory pension funds managed by other pension companies.

In conformity with the requirements of the Code and ORDINANCE No 9 of November 19, 2003 on the terms and procedures for valuation of assets and liabilities of supplementary pension funds and pension insurance companies, the value of the fund's net assets, on calculation and announcement of the value of a unit, as well as on the requirements for maintaining individual accounts (ORDINANCE No 9) issued by the Chairperson of the Financial Supervision Commission (the Commission) from July 1, 2004 the assets of the insured persons have been accounted both in BGN and in number of units. The Companies should daily determine the number of units in each fund as well as the value of their net assets, and also the value of one unit as a resultative value. The unit values are calculated every day by 6.00 pm and are announced in every office of the company and in its web page. Ordinance 9 introduced common rules for valuation of the financial assets by their fair value which gave an additional possibility for comparing the investment results of the funds.

Significant changes in the framework of the investment regime of the pension funds were adopted with the amendments to the Code, issued in SG 17/24.02.2006, part of them coming into effect after the Republic of Bulgaria’s Accession to the European Union.

The main amendments are as follows:

The requirement for the minimum amount of investments in government securities became invalid;

The securities issued in the Republic of Bulgaria were given the same status with those of EU;

Additional liberalization of the investment regime of the pension funds by increasing the amounts of the restricted classes of allowed assets.

The Management of the Company estimates positively the changes with regard to the expanding of the possibilities for diversification of the portfolios of the pension funds and more flexible risk management.

3.Accounting principles

Pension Insurance Company Doverie keeps its accounting in compliance with the accounting principles and methods set in the Law of Accounting, ORDINANCE No 9 of November 19, 2003 on the terms and procedures for valuation of assets and liabilities of supplementary pension funds and pension insurance companies, the value of the fund's net assets, on calculation and announcement of the value of a unit, as well as on the requirements for maintaining individual accounts, issued by the Chairperson of the Financial Supervision Commission (the Commission) (Ordinance No 9) and the International Financial Reporting Standards(IFRS).

The financial statements are prepared in accordance with the International Financial Reporting Standards(IFRS), 2005, approved by the European Union Commission. They include the InternationalAccountingStandards(IAS), the InternationalFinancialReportingStandards (IFRS) and the SIC – IFRICInterpretations for their application.The InternationalFinancialReportingStandardsinclude also the further amendments and supplements to those standards and the interpretations for their application as well as the future standards and interpretations developed by the InternationalAccountingStandardsBoard (IASB).

The Company makes the entry input of the operations in chronological order as they are performed.

The company follows a policy consistent with the following major accounting principles:

The accruals concept–the revenues and the expenses resulting from transactions and events are recorded at the time of their occurrence irrespective of the time of the receipt or the payment of cash or cash equivalents and are included in the financial statements for the period they are incurred;

The going concern concept – it is assumed that the entity is a going concern, meaning it will continue in operation for the foreseeable future; the entity functions without the intention or threat of liquidation or a significant reduction of the business;

In preparing its accounts the Company adheres to the following accounting concepts:

Prudence concept – assessment and reporting the presumable risks and the expected possible losses during the accounting treatment of the operations for the purposes of achieving the actual financial result;

Matching of income and expense - each expense item related to revenue earned must be recorded in the same accounting period as the revenue it helped to earn and each revenue item must be recorded in the same period as the related expense.

pre-eminence of content over form –the transactions and the events are recorded according to their economic content, nature and financial reality rather than formally according to their legal form;

preservation, if possible, of the accounting policyfrom the previous accounting period – to achieve compatibility of the accounting data and measurements in the different accounting periods.

The Company’s accounting is based on documentary substantiation of the reported transactions and facts, observing the requirements for document make-out in conformity with the effective legislation.

The accounting system of the Company provides:

comprehensive chronological registration of accounting transactions;

systematic accounting registers for generalization of the accounting information that are opened at the beginning of the accounting period and are closed at the end of it;

synthetic and analytical accounting registers, as well as their equation and interrelation;

interim and annual closing of the accounting ledgers; trial balance;

revision of the entry inputs by making adjusting book entries.

applying an individual chart of accounts.

For the purposes of accounting the Company uses accounting software in Bulgarian language developed in accordance with the requirements of the Accountancy Act.

3.1.Unit of account

Unless otherwise indicated, the financial statements are presented in BGN ‘000.

3.2.Cash

The Company considers all financial instruments with a period of liquidity up to three months as cash equivalents.

In 2006 cash in foreign currency is evaluated according to the central exchange rate of the Bulgarian National Bank (BNB) on the day of the transaction.

3.3.Financial instrument transactions

During 2006 the Company invested its free financial resources in government securities, bank deposits, corporate bonds and instruments on the financial market. The deals were made with licensed banks and investment intermediaries and are recorded as financial instruments in accordance with IFRS 32 and IFRS 39.

Inventory

The Company’s activity does not involve acquisition of inventory the value of which to be included in the book value of the goods sold. The Company records as inventory only the currently undistributed advertising materials.

The inventory is recorded at acquisition value as of the time of purchase and then it is recorded as expenses for the period according to the FIFO method.

3.4.Property, plant and equipment

Property, plant and equipmentitems consist mainly in land and buildings, computer equipment, office equipment and vehicles.

According to IFRS 16 the items of property, plant and equipment are recorded at their acquisition cost which includes the original purchase price and all direct costs.

The company defines as property, plant and equipment those assets having initial measurement above the materiality threshold. The accepted materiality threshold for the year 2006 is BGN 500.

On disposal of an item of property, plant and equipmentor when it is withdrawn from use the book value and the aggregate depreciation are eliminated from the accounts.

The repair expenses are recorded as maintenance expenses at the time they are incurred.

For property, plant and equipmentitems the straight-line method of depreciationis used. The depreciation rates applied are defined on the basis of the following periods of service life by asset groups:

3.5.Intangible fixed assets

The intangible fixed assets include mainly know-how, licenses and software. According to IFRS 38 the Company recognizes the intangible fixed assetsat their acquisition cost and amortizes them using the straight-line method for a period of 5 to 10 years.

The company defines as intangible fixed assets those assets having initial measurement above the materiality threshold. The accepted materiality threshold for the year 2006 is BGN 500.

3.6.Liabilities

The liabilities are recorded at their expected value.

The liabilities are accrued and the incomes and expenditures for future periods are recorded in the balance sheet at the time they are incurred.

3.7.Pension reserves

In conformity with the requirements of the Social Insurance Code the Company established a reserve for covering the minimum required yield for the supplementary mandatory pension funds, the rate for the year 2005 being 0.6% and that for 2006 0.8% of the assets of the respective fund. The allowances for establishment of that reserve are recognized as expenses of the pension insurance company and are not taxable under the Corporate Income Tax Act.

3.8.Income

The income of the Company is formed from fees charged for management and investment of the assets of the Voluntary Pension Fund, the Professional Pension Fund and the General Pension Fund, as well as from the return on investment of the Company’s own assets.

Voluntary Pension Fund (VPF) revenues

The income of the Company (managing the pension fund) is recorded as of the time of receipt of the contributions of the fund members. The revenues from contributions are recorded on the date of receipt.