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AL - Meezan MUTUAL FUND LIMITED

(Annual Report 1997)

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

Mr. A. K. M. Sayeed

Chairman

Mr. Mohammad Shoaib

Chief Executive

Mr. Irfan Siddiqui

Mr. Julian M. I. Reid

Mr. Shahid Ghaffar

Mr. Jonathan Boyer

Mr. Tasnim ul Haq Farooqui

Company Secretary

INVESTMENT ADVISER

A1-Meezan Investment & Financial Services (Pvt.) Limited

AUDITORS

A. F. Ferguson & Co.,

Chartered Accountants

CUSTODIAN

Muslim Commercial Bank Limited

BANKERS

Faysal Bank Limited

Muslim Commercial Bank Limited

National Bank of Pakistan

Prime Commercial Bank Limited

REGISTERED OFFICE & SHARES DEPARTMENT

4th Floor, Block "C",

Finance & Trade Centre,

Shahrah-e-Faisal, Karachi-74400.

NOTICE OF SECOND ANNUAL GENERAL MEETING

Notice is hereby given that the Second Annual General Meeting of the members of A1-Meezan Mutual Fund

Limited will be held on Saturday, 13th September 1997, at 9:00 a.m. at 4th Floor, Block "C", Finance & Trade

Centre, Shahrah-e-Faisal, Karachi-74400, to transact the following business:

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

Auditors' Report thereon for the year ended 30th June 1997.

2. To approve the payment of cash dividend ~ Rs 1.18 per share of Rs 10 each for the year ended Both

June 1997.

3. To appoint Auditors of the Company and fix their remuneration for the year ending 30th June 1998.

The present Auditors M/s A.F. Ferguson & Company, Chartered Accountants, retire and being eligible,

offer themselves for re- appointment.

4. To transact any other business that may be placed before the meeting with the permission of the Chain

By order of the Board,

TASNIM UL HAQ FAROOQUI

Karachi:

Company Secretary

19th August 1997

Notes:

1. The share transfer books of the Company will remain closed from 30th August 1997 to 13th September

1997 (both days inclusive).

2. A member entitled to attend and vote at the meeting may appoint a proxy to attend and vote instead of

him / her at the meeting, Proxies must be deposited at the Company's Registered Office not less than

48 hours before the time for holding the meeting. A proxy must be a member.

3. The shareholders are advised to notify Shares Department, Al-Meezan Mutual Fund Limited, 4th

Floor, Block "C", Finance & Trade Centre, Shahrah-e-Faisal, Karachi-74400, of any change in their

addresses to ensure prompt delivery of mail. Any shares for transfer etc. should be lodged with the

Shares Department, A1-Meezan Mutual Fund Limited.

DIRECTORS' REPORT

On behalf of the Board of Directors, we take pleasure in presenting the second annual report together with

the audited accounts for the year ended June 30, 1997.

The period under review was the first full year of operations of the Company. By the grace of Allah, the

Company recorded a net profit of Rs.30.7 million while a net loss of Rs. 1.2 million had been recorded in the

preceding period. This has been made possible due to prudent asset allocation and investment timing, which

has allowed the Company to attain the landmark of being the first to declare cash dividend among the private

sector mutual funds floated since 1994.

OPERATIONS REVIEW

As highlighted in the Directors' Report for the half year ended December 31, 1996, the Company had, during

the first half of accounting year, increased its exposure in equity securities to the extent of 70% of total

portfolio due to attractive valuations of shares of fundamentally strong companies. This strategy paid off as

per our expectations. Due to improvement in economic and political conditions resulting from timely general

elections in the country, a strong public mandate for the elected government and announcement of various

economic and political reforms, the stock market recorded substantially better performance in the first quarter

of 1997. The KSE-100 index which was quoted at 1339 as on December 31, 1996, increased to 1775 in

February 1997 before settling down to 1565 at the end of the accounting year. This improvement in the stock

market resulted in substantial improvement in the market value of the Company's equity portfolio. As a result

the Company managed to realize capital gains of Rs. 12.6 million. Further, provision in the diminution of value

of marketable securities which had been provided for during the last one year was written back to the extent

of Rs. 26.7 million.

FINANCIAL HIGHLIGHTS:

The financial results depicted by the Company are as given below:

(Rupees)

Investment income

32,322,337

Operating expenses

2,085,280

-----------

Profit before taxation

30,237,057

Provision for taxation

(526,732)

-----------

Net Profit for the year

30,763,789

Profit / (Loss) brought forward

(1,243,303)

-----------

Profit available for appropriation

29,520,486

===========

APPROPRIATIONS:

Proposed dividend @ Rs. 1.18 per share

29,500,000

-----------

Unappropriated profit carried forward

20,486

==========

During the year, your Company earned Rs. 12.6 million as capital gains, Rs.6.6 million as dividend income,

Rs. 11.4 million as profit on bank deposits, Rs. 1.0 million as underwriting income and Rs.0.7 million as profit

on Term Finance Certificates. After accounting for administrative expenses of Rs. 1.3 million and remuneration

of investment adviser amounting to Rs.5.6 million accrued as per Investment Companies & Investment

Advisors' Rules, 1971, the net profit for the year was Rs.30.8 million.

It is worth mentioning here that despite the sluggish market at year end as reflected by KSE - 100 index being

quoted at 1565, the Company managed, due to better quality of its investment portfolio, to write back provision

for diminution in the market value of its investments to the extent of Rs. 26.7 million out of a cumulative

provision of Rs. 27.2 million provided for during last one year. Hence a nominal provision of Rs.0.44 million

remains at year end.

In order to reward the investors for supporting the Company in a bearish market, the Board of Directors has

recommended 100% payout of earnings for the year by declaring a cash dividend of 11.8%. Hence an

amount of Rs. 29.5 million will be distributed among the shareholders subject to their approval in the annual

general meeting of the shareholders.

COMPARISON OF PORTFOLIO PERFORMANCE VIS-A-VIS KSE-100 INDEX

The year under review turned out to be another year of volatile movement for the benchmark KSE-100 index

which declined from 1703 as on June 30, 1996 to 1339 as on December 31, 1997. Subsequently, the index

increased to 1775 in February 1997 before declining to 1565 as on June 30, 1997. Hence the index declined

by approximately 8.10% on the basis of year end values. By the grace of Allah, the portfolio of your Company

once again managed to outperform the KSE-100 index. The out performance during the year under review

was 20.47% compared to 11.7% during the period ended June 30, 1996.

FUTURE PROSPECTS

The general elections in February 1997 and a strong public mandate for the present elected government has

improved the perception of the foreign and domestic investors towards the country in general and the stock

market in particular. The announcement of various policy measures and packages by the present government

in order to streamline the economic and political conditions in the country reflects its sincere efforts to

improve the economic health of the country. The supply side economic policy being pursued by the government

with the focus on providing adequate incentives to industrial, agricultural and service sectors of the economy

in order to boost the Gross Domestic Product (GDP) of the country and to increase the exportable surplus is

likely to improve the corporate profitability.

We are hopeful that if the announced economic and political reforms are implemented in true sense, the

perceptions about economic improvement will turn into reality and we will witness a substantial improvement

in the country on the economic and political fronts. The stock market, being the barometer of the economic

health of the country, will certainly experience a resurgence in such a situation. As your Company invests

mainly in equity securities, any improvement in the stock market will contribute positively to the future

performance of the Company.

ACKNOWLEDGMENT

We offer our sincere gratitude to the Board of Directors for their continued guidance and support. We also

wish to place on record our appreciation for the auditors, shareholders and investment adviser of the Company.

Mohammad Shoaib

A.K.M. Sayeed

Chief Executive

Chairman

Karachi: July 21, 1997

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of A1-Meezan Mutual Fund Limited as at June 30, 1997 and

the related profit and loss account and cash flow statement, together with the notes forming part thereof,

for the year then ended 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 purposes of our audit and, after due verification

thereof, we report that:

a) in our opinion, proper books of account have been kept by the company as required by the

Companies Ordinance, 1984;

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 are in agreement with

the books of account and are further in accordance with the accounting policies consistently

applied;

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

and

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

were in accordance with the objects of the company;

c) in our opinion and to the best of our information and according to the explanations given to us, the

balance sheet, profit and loss account and the cash flow statement, together with the notes forming

part thereof, give the information required by the Companies Ordinance, 1984 in the manner so

required and respectively give a true and fair view of the state of the company's affairs as at June

30, 1997 and of the profit and the cash flows for the year then ended; and

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

AF. FERGUSON & CO.

Chartered Accountants

Karachi: August 06, 1997

BALANCE SHEET AS AT JUNE 30, 1997

1997

1996

Note

(Rupees)

SHARE CAPITAL AND RESERVES

Authorised share capital

25,000,000 ordinary shares

of Rs. 10 each

250,000,000

===========

Issued, subscribed and paid up share capital

25,000,000 (1996:12,500,000) ordinary shares

of Rs. 10 each fully paid in cash

250,000,000

125,000,000

Share deposit money

125,000,000

250,000,000

Unappropriated profit / (loss for the period

July 13, 1995 to June 3 0, 1996)

20,486

(1,243,303)

-----------

250,020,486

248,756,697

LONG TERM LIABILITY

2,817,902

3,757,202

CURRENT LIABILITIES

Current maturity of a long term liability

939,300

Due to the Investment Adviser- an

associated undertaking

5,590,410

Creditors, accrued expenses and other liabilities

39,672,050

14,685,364

Taxation

1,506,981

Proposed dividend

29,500,000

75,701,760

17,131,645

-----------

328,540,148

269,645,544

===========

CURRENT ASSETS

Accounts receivable - unsecured and considered good

86,922,823

9,789,950

Marketable securities

177,218,846

98,877,142

Other receivables

4,113,832

5,818,049

Bank balances

60,284,647

155,160,403

-----------

328,540,148

269,645,544

===========

The annexed notes form an integral part of these accounts.

PROFIT AND LOSS ACCOUNT

For the Year Ended June 30, 1997

For the year

For the period

ended June

July 13,

30, 1997

1995 to

June 30, 1996

Note

(Rupees)

INVESTMENT INCOME

Capital gain

12,646,868

3,222,085

Dividend income

6,554,048

1,025,450

Profit on bank deposits

11,382,815

6,415,077

Underwriting income

1,009,986

Profit on term finance certificates

709,420

Other income

19,200

32,322,337

10,662,612

OPERATING EXPENSES

Administrative expenses

1,261,364

5,129,563

Remuneration to the Investment Adviser

5,590,410

Provision for diminution in the value of

marketable securities (investments)

(4,766,494)

5,207,180

2,085,280

10,336,743

-------------

PROFIT BEFORE TAXATION

30,237,057

325,869

PROVISION FOR TAXATION

Current - for the year/period

1,569,172

for prior period

(526,732)

1,569,172

-------------

PROFIT/(LOSS) FOR THE YEAR/PERIOD

30,763,789

(1,243,303)

(LOSS) BROUGHT FORWARD

(1,243,303)

-------------

PROFIT AVAILABLE FOR APPROPRIATION/(LOSS)

29,520,486

(1,243,303)

APPROPRIATION:

Proposed Dividend ~ 11.80% (1996: NIL)

29,500,000

-------------

UNAPPROPRIATED PROFIT/(LOSS) CARRIED FORWARD

20,486

(1,243,303)

=============

The annexed notes form an integral part of these accounts.

CASH FLOW STATEMENT

For the Year Ended June 30, 1997

For the period

For the year

July 13,

ended June

1995 to

30, 1997

June 30, 1996

Note

(Rupees)

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation

30,237,057

325,869

Adjustments for:

Provision for diminution in the value of marketable

securities (investments)

(4,766,494)

5,207,180

Dividend income

(6,554,048)

(1,025,450)

Financial income

(11,382,815)

(6,415,077)

Profit on term finance certificates

(709,420)

Dividends received

5,379,498

798,250

Financial income received

15,854,450

824,228

Profit on term finance certificates received

463,502

-------------

Profit before changes in working capital

28,521,730

(285,000)

(Increase) in current assets

Accounts receivable

(77,132,873)

(9,789,950)

Marketable securities

(73,575,210)

(104,084,322)

(150,708,083)

(113,874,272)

Increase in current liabilities

Creditors, accrued expenses and other liabilities

24,986,686

14,685,364

Due to the Investment Adviser - an associated undertaking

5,590,410

30,577,096

14,685,364

-------------

Cash used for operations

(91,609,257)

(99,473,908)

Income tax paid

(2,327,199)

(62,191)

-------------

Net cash used for operations

(93,936,456)

(99,536,099)

-------------

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from the issue of shares

125,000,000

Share deposit money

125,000,000

Long term liability

(939,300)

4,696,502

Net cash (outflow) / inflow from financing activities

(939,300)

254,696,502

-------------

Total cash (outflow) / inflow for the year/period

(94,875,756)

155,160,403

Bank balances at the beginning of the year/period

155,160,403

-------------

Bank balances at the end of the year/period

60,284,647

155,160,403

=============

The annexed notes form an integral part of these accounts.

NOTES TO AND FORMING PART OF THE ACCOUNTS

For the Year Ended June 30, 1997

1. STATUS AND NATURE OF BUSINESS

1.1 The company was incorporated on July 13, 1995 as a public limited company under the Companies

Ordinance, 1984 and has been registered as an 'Investment Company' under the Investment Companies

and Investment Advisers Rules, 1971. The 'certificate of commencement of business' was obtained

by the company on January 1, 1996. The object of the company is to carry on the business of a closed-

end mutual fund and to invest its assets in securities which are listed or proposed to be listed on the

stock exchanges.

1.2 The company has an agreement with A1 - Meezan Investment and Financial Services (Private) Limited,

an associated undertaking, to provide investment advisory services.

1.3 The company was formally listed on the Karachi Stock Exchange on September 16, 1996 as a closed-

end mutual fund.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Accounting convention

These accounts have been prepared under the historical cost convention.

2.2 Marketable securities

Marketable securities are stated at the lower of cost and market value determined on an aggregate

portfolio basis. Cost is determined on a moving average basis. The market value refers to the Karachi

Stock Exchange closing quotations, on the last working day of the financial year.

2.3 Revenue recognition

(i) Dividend income is stated net of zakat deduction thereon at source and is recognized at the

time of closure of the share transfer books of the investee company.

(ii) Sale and purchase of marketable securities are recorded on the date of contract. Gains or

losses on sale of marketable securities are also recorded on the date of contract.

(iii) Profit on bank deposits is recognized on accrual basis.

2.4 Taxation

Current:

The charge for current taxation, if any, in the accounts is based on taxable income at the current rates

of taxation after taking into account tax credits and tax rebates available, if any.

No charge for current taxation is made in the accounts if the company intends to distribute 90 percent

or more of its current profit amongst its shareholders in accordance with the exemption available

under clause 102D of the Second Schedule to the Income Tax Ordinance, 1979.

Deferred:

The company accounts for deferred taxation arising on major timing differences, if any, by using the

liability method.

3. SHARE DEPOSIT MONEY

This account represented amounts received towards initial public offering of shares. During the year 12,500,000

shares of Rs. 10 each were allotted against the share deposit money.

4. LONG TERM LIABILITY

1997

1996

(Rupees)

Expenses incurred on incorporation and

floatation - note 4.1

3,757,202

4,696,502

Less: Current maturity

939,300

-------------

2,817,902

3,757,202

=============

4.1 The expenditure incurred on the incorporation and fioatation of A1-Meezan Mutual Fund Limited has

been paid by A1-Meezan Investment and Financial Services (Private) Limited (the Investment Adviser).

According to rule 7(3) of the Investment Companies and Investment Advisers Rules, 1971 these

expenses are to be repaid by A1- Meezan Mutual Fund Limited over a period of five years in equal