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BSJS BALANCED FUND LIMITED

ANNUAL REPORT 1997

Table of Contents

Company Information

Board of Directors:

Mr. M.W. Farooqui

Chairman

Mr. Abid Hussain Zuberi

Mr. Shaikh Mukhtar Ahmed

Mr. Ayaz-ul-Haque

Mr. Munaf Ibrahim

Mr. Khawaja Muhammad Jawed

Mr. M. Habib-ur-Rahman

Chief Executive

Company Secretary:

Mr. All H. Hamdani

Investment Adviser:

ABAMCO Limited

Auditors:

Taseer Hadi Khalid & Co.

Chartered Accountants

Legal Adviser:

Aman Law Associates

Custodian:

Muslim Commercial Bank Limited

Bankers:

Muslim Commercial Bank Limited

Faysal Bank Limited

Registered Office:

1306-1307, Chapal Plaza,

Hasrat Mohani Road,

Karachi-74000, Pakistan.

Tel: 2441311-3, Fax: 2425652

Share Department:

4th Floor, Bank House, No.2,

Habib Square, M. A. Jinnah Road,

Karachi-74000, Pakistan.

Notice of Meeting

Notice is hereby given that the 3rd Annual General Meeting of BSJS Balanced Fund Limited will be held on Saturday,

December 20, 1997 at 9:30 A.M. at the registered office of the Company, 13th Floor, Chapal Plaza, Hasrat Mohani

Road, Karachi, to transact the following business:

1. To confirm the Minutes of the Second Annual General Meeting held on December 22, 1996.

2. To receive, consider, and adopt the Audited Accounts of the Company together with the Directors' Report for

the year ended June 30, 1997.

3. To approve the payment of cash dividend @ Rs. 1.30 per share of Rs. 10/- each for the year ended June 30,

1997.

4. To appoint Auditors and fix their remuneration. The present Auditors Messrs. Taseer Had i Khalid & Co., Chartered

Accountants, retire and being eligible, offer themselves for re-appointment.

5. To transact any other business with the permission of the Chair.

Notes:

1. The share transfer books of the Company will remain closed from December 11, 1997 to December 20, 1997

(both days inclusive) to determine the names of members entitled to attend the meeting.

2. A member entitled to attend and vote at the meeting is entitled to appoint another member of the Company

as a Proxy to attend, speak and vote on his/her behalf. A corporation may appoint a person as proxy who is

not a member. A form of proxy is attached.

3. Forms of proxy to be valid must be received at the Company's registered office duly stamped not later than

48 hours before the meeting.

4. If a member appoints more than one proxy and/or deposits more than one instruments of proxy with the Company,

all such instruments of proxy shall be rendered invalid.

5. The shareholders are advised to notify the share department of any change in their address to ensure prompt

delivery of mail.

Financial Highlights

Year ended

Period from

June 30, 1997

August 8, 1995

to June 30, 1996

(Rupees in thousands except VII)

I Operating income

25,054

9,340

II Operating expense

4,547

8,905

III Profit before tax

20,507

435

IV Profit / (Loss) after tax

19,694

(33)

V Dividend

19,500

VI Rate of Dividend

13%

VII NAV at year end

10.60

10.10

VIII Appreciation in NAV

IX Total Return

18%

Directors' Report

The Board of Directors of the BSJS Balanced Fund Limited present the Third Annual Report on the working of the

Company, together with the audited accounts for the year ended June 30, 1997.

I. Operating Results

(i) Profit during the year

The year under review was the first full year of operation. The Company earned a pre-tax profit of Rs. 20.507

million. This is after providing for a sum of Rs. 1.068 million for diminution in the market value of securities,

on the basis of lower of cost or market value, on an individual portfolio basis. Over ninety percent o~' the income

of the Company has been appropriated for distribution as dividend to the shareholders, therefore, no provision

for income tax has been made, as pet' the provisions of the Income Tax Ordinance, 1979. The Company is,

however', making a provision of Rs. 0.814 million for tax in respect of the last completed financial period (August

8, 1995 to June 30, 1996) i.e. assessment year 1996-97. After providing for tax and setting off carried forward

loss, the amount available for appropriation works out to Rs. 19.660 million.

The profit-after tax translates into an earning. per share of Rs. 1.31. Your directors recommend a cash dividend

of 13 percent (Rs. 1.30 per share). Rs. 19.5 million has been appropriated as dividend, that works out to 99.18

percent of available surplus of the Company.

As stated above, the Company is providing for tax of Rs. 0.814 million in respect of previous year. This provision

has arisen, because, the Deputy Commissioner of Income Tax has charged to tax certain capital gains and

disallowed expenses, such as remuneration of investment adviser and custodian, financial cost, commission on

sale of shares, advertisement, registrar services, etc., which are legitimate business expenses. We have appealed

against these arbitrary add backs. The Company has a very strong case, however, as a measure of prudence,

full provision has been made in the accounts on the basis of the assessment order.

(ii) Composition of Assets

On June 30, 1997, the composition of assets of your Company, at market value, was as under:

Rs. in million

(%) Percent

Equity Securities

74,275

Term Finance Certificates

5,326

Federal Investment Bonds

55,000

Cash at bank in PLS. Account

6,281

Receivable against sale of

shares-subsequently received

48,975

----------

189.857

100.00

(iii) Year under review

Fiscal year 1996-97 was a challenging year for us, with the market experiencing periods of considerable volatility

amidst an overall declining trend. Nonetheless, our investment policies paid off for a second year in a row,

with your company's total income increasing by 168 percent over Rs. 9.344 million recorded in the previous

financial period. The Company's balanced approach towards investing in debt and equity helped us achieve

this result. A major portion of the growth in the Company's income is attributable to secondary money market

activity, and dividend income.

(iv) The Company's performance relative to the KSE-100 Index

The Net Asset Value (NAV) of the shares of your Company was Rs. 10.10 on July I, 1996 and by June 30,

1997 it had risen to Rs. 10.60 after appropriation of dividend. Together with the dividend pay-out, this reflects

an appreciation of 18 percent. During the same period, the KSE-100 index declined 8.1 percent, from 1703

to 1565. Therefore, your Company has outperformed the benchmark KSE- 100 index by approximately 26 percent.

According to the Mutual Fund Association of Pakistan (MUFAP), the BSJS Balanced Fund Limited, had the

highest NAV as on June 30, 1997, among the thirteen listed private sector investment companies, whose NAV

are announced on a monthly basis.

* Source: Karachi Stock Exchange (Guarantee) Limited.

II. The New Economic Environment

Various economic packages have been announced, slashing personal and corporate income taxes, reducing tariff

barriers, freezing power tariffs, curtailing subsidies on agri-products, etc. The 'supply side' policies are aimed

at stimulating economic growth. They have thus far been positively received by both foreign investors and donor

agencies, although they are still holding to a wait and see attitude until it becomes possible to assess the actual

impact of the announced economic reforms.

The Government-IMF negotiations were finalized on a low-cost medium term Extended Structural Adjustment

Facility (ESAF). The ESAF is likely to be the key element of the economic policies, as the current economic

reforms are unlikely to help significantly improve the balance of payments problems in the short run. However,

given the government's strong commitment to economic liberalization and relatively prudent policies, we believe

that the reforms will indeed bear fruit in the longer term.

III. Stock Market

In the year under review, the market witnessed two short rallies due to some foreign and local index based

buying. While this rally topped off at the 1775 level, it is important to note that the prospect of the economic

revival has resulted in an up-rating of the market floor.

After the positive outcome of the ESAF-Agreement with the IMF, and once the newly implemented economic

reform packages start to show some positive results, we anticipate new investment coming into the market,

which could help in triggering a rally in the market.

Another important development during the fiscal year was the re-composition of the KSE- 100 index that saw

PTCL's representation increasing to 33 percent, in line with its share in the market capitalization. While the

new index is more representative of the market, the heavy weightage of PTCL has increased its volatility, with

just few stocks dominating the index's movements.

* Source: Karachi Stock Exchange (Guarantee) Limited.

IV. Positive Developments in the Mutual Fund Industry

As mentioned in the last years' report, the mutual fund industry was subjected to double taxation and taxation

anomalies existed between public and private sector mutual funds. The Government has announced the following

measures in Finance Act 1997:

-- The private sector mutual funds (investment companies) and unit trusts have been exempted from tax

on the income derived from the term finance certificates, listed on the stock exchanges, including

withholding tax.

-- The private sector mutual funds (investment companies) and unit trusts will not be taxed on their income,

if they distribute at least 90 percent of their income, in the form of dividends, to the share holders/unit

holders.

The dividend to be paid by the mutual funds (investment companies) and unit trusts will however be subjected

to tax in the hands of recipients at the applicable rates.

We are hopeful that the Investment Advisers / Asset Management Companies will now be able to pay a good

return to their investors and thus pave the way for the growth of mutual fund industry.

We are grateful to the Government for cooperating in this matter. We are also grateful to the Asian Development

Bank who has supported these measures. We are particularly thankful to the Corporate Law Authority for their

continued support and has all along played a very positive role in the development of capital markets of the

country.

V. Board of Directors

Mr. Ariful Islam and Mr. Nasir Ali Shah, both directors of the Company and representing Muslim Commercial

Bank Limited resigned and they were co-opted with Mr. Shaikh Mukhtar Ahmed and Mr. Khawaja Muhammad

Jawed, both nominees of Muslim Commercial Bank Limited.

The Board wishes to place on record the valuable services rendered to the Company by Mr. Ariful Islam and

Mr. Nasir Ali Shah and welcomes Mr. Shaikh Mukhtar Ahmed and Mr. Khawaja Muhammad Jawed.

VI. Auditors

Messrs. Taseer Hadi Khalid & Co., Chartered Accountants resign, and being eligible, offer themselves for re-

appointment.

VII. Share Holding

A statement showing pattern of share holding in the Company as at June 30, 1997 is given on page 18 of this

report.

Auditors' Report to the Members

We have audited the annexed Balance Sheet of BSJS Balanced Fund Limited as at June 30, 1997 and the related

Profit and Loss Account and Statement of Changes in Financial Position together with the notes to the accounts for

the year then ended. Our examination was made in accordance with the generally accepted auditing procedures as

were considered necessary in the circumstances and we state that we have obtained all the information and explanations

which to the best of our knowledge and belief were necessary for the purpose of our audit and we report that:

(a) In our opinion, proper books of account have been kept by the Company as required by the Companies Ordinance,

1984 and Rule 16 of the Investment Companies and Investment Adviser's Rules, 1971;

(b) In our opinion:

(i) the Balance Sheet and Profit and Loss Account together with the notes thereon have been drawn up in

conformity with the Companies Ordinance, 1984 and in accordance with the provisions of the investment

Companies and Investment Adviser's Rules, 1971 and are in agreement with the books of account and

are further in accordance with accounting policies consistently applied;

(ii) the expenditure incurred during the year was for the purpose of the Company's business;

(iii) the business conducted, investments made and expenditure incurred during the year were ill accordance

with the investment policy of the Company and Investment Companies and Investment Adviser's Rules,

(iv) the Company has not contravened the provisions of Rule 8 of the Investment Companies and Investment

Adviser's Rules, 1971;

Sheet and the Profit and Loss Account and the Statement of Changes in the Financial Position together with

the notes forming part thereof give the information required by the Companies Ordinance, 1984 and Investment

Companies and Investment Adviser's Rules, 1971 in the manner so required and respectively give a true and

fail- view o1' the state of the Company's affairs as at June 30, 1997 and of the profit and changes in the financial

position for the year ended on that date;

(d) In our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980.

Balance Sheet

As at June 30, 1997

Note

1997

1996

SHARE CAPITAL

Authorised

25,000,000 ordinary shares of Rs. 10/- each

250,000,000

==========

Issued, subscribed & paid up

15,000,000 (1996: 15,000,000) ordinary shares of Rs. 10/- each

fully paid in cash

150,000,000

Accumulated Profit/(Loss)

160,797

(32,969)

----------

150,160,797

149,967,031

DEFERRED EXPENDITURE PAYABLE

3,552,347

4,736,462

CURRENT LIABILITIES

Current maturity of deferred expenditure payable

1,184,115

Due to Investment Adviser

4,066,753

2,796,657

Accounts payable and accrued expenses

1,272,464

459,924

Proposed dividend

19,500,000

Provision for taxation

1,281,878

468,148

----------

27,305,210

4,908,844

----------

Rupees

181,018,354

159,612,337

==========

CURRENT ASSETS

Marketable securities

- Equity Securities

65,437,842

26,255,811

- Term Finance Certificates

5,324,000

1,999,000

----------

70,761,842

28,254,811

Investment in unquoted company

5,000,000

Other investments

55,000,000

25,000,000

Trade debts-considered good

47,143,829

9,486,715

Advances and other receivables

1,831,183

298,240

Cash and bank balances

6,281,500

91,572,571

----------

Rupees

181,018,354

159,612,337

==========

These accounts should be read in conjunction with the attached notes.

Profit and Loss Account

For the year ended June $0, 1997

Note

Year ended

Period from

June 30,

August 8, 1995

1997

to June 30, 1996

Operating Income

Capital gain

7,375,839

7,532,435

Dividend

4,540,763

352,802

Mark-up on bank deposits

4,355,300

1,290,096

Profit on money market transactions

9,023,922

2,985,098

Profit on Term Finance Certificates

826,636

162,920

----------

26,122,460

12,323,351

Provision for diminution in value of

marketable securities

(1,067,982)

(2,983,027)

----------

25,054,478

9,340,324

Operating Expenses

Administrative

455,521

6,091,031

Financial

911,461

614,114

Remuneration to Investment Adviser

3,180,000

2,200,000

----------

4,546,982

8,905,145

----------

Profit before taxation

20,507,496

435,179

Provision for taxation

----------

- Current

(468,148)

- Prior year

(813,730)

----------

(813,730)

(468,148)

----------

Profit/(Loss) after taxation

19,693,766

(32,969)

Accumulated loss brought forward

(32,969)

----------

19,660,797

(32,969)

Appropriation:

Final cash dividend @ 13% (1996: Nil)

(19,500,000)

----------

Accumulated Profit/(Loss) carried forward

Rupees

160,797

(32,969)

==========

These accounts should be read in conjunction with the attached notes. -;~

Statement of Changes in Financial Position

For the year ended June 30, 1997

Year ended

Period from

June 30,

8-Aug-95

1997

to June 30, 1996

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation

20,507,496

435,179

Adjustments for:

Deferred cost

1,353,173

Provision for diminution in value of

marketable securities

1,067,982

2,983,027

Mark up on deferred expenditure

905,848

596,657

----------

Operating profit before working capital changes

22,481,326

5,368,036

(Increase)/decrease in current assets

Marketable securities

(43,575,013)

(31,237,838)

Investment

5,000,000

(5,000,000)

Other investments

(30,000,000)

(25,000,000)

Trade debts

(37,657,114)

(9,486,715)

Advances and other receivables

(1,063,975)

(167,420)

Increase in current liabilities

Due to Investment Adviser

3,160,905

2,200,000

Accounts payable and accrued expenses

812,540

432,494

----------

Cash used in operations

(80,841,331)

(62,891,443)

Paid to Investment Adviser

(3,980,772)

Taxes paid

(468,968)

(130,820

----------

Net cash used in operating activities

{85,291,171)

(63,022,263)

CASH FLOWS FROM FINANCE ACTIVITIES

Share capital

149,999,930

Deferred expenditure payable

4,589,404

----------

Net cash generated from financing activities

154,589,334

----------

Net (decrease)/increase in cash and bank balances

(85,291,071)

91,567,071

Cash and bank balances at the beginning of the year

91,572,571

5,500

Cash and bank balances at the end

----------

of the year

Rupees

6,281,500

91,572,571

==========

Notes to the Accounts

For the year ended June 30, 1997

1. STATUS AND NATURE OF BUSINESS

The Company was incorporated on March 26, 1994 as a public limited company under Companies Ordinance,

1984 and was registered as an investment company under the Investment Companies and Investment Adviser's

Rules, 1971. The Company obtained certificate of commencement of business on August 8, 1995 and is listed

on the Karachi Stock Exchange. The Company is a closed end mutual fund. The Company has entered into

an agreement with an associated company, ABAMCO Limited to act as its 'Investment Adviser' and Muslim

Commercial Bank Limited as its Custodian. The principal activity of the Company is to make investment in

securities.

2. SIGNIFICANT ACCOUNTING POLICIES