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PRUDENTIAL STOCKS FUND LIMITED

7TH ANNUAL REPORT 1996-97

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

Mr. Rashidullah Yacoob

Chairman

Mrs. Sanober Akhtar Yacoob

Vice Chairperson

Mr. Mohammad Asif Bar

Chief Executive

Haji Abdul Ghani

Director

Mr. Riaz Ahmed Longi

Director

( Nominee of I.C.P. )

Mr. Manzurul Haq

Director

( Nominee of N.D.F.C. )

Mr. Manzoor Saber

Director

( Nominee of N.D.F.C. )

INVESTMENT ADVISOR

PRUDENTIAL FUND MANAGEMENT LIMITED

Prudential House, Hassan All Street, Off: I.I. Chundrigar Road, Karachi.

COMPANY SECRETARY

REGISTRAR

Mr. Mohammad All Adil

Shares & Corporate Services (Pvt) Ltd.

Mehersons Estate, Block-E,

AUDITORS

On B-E-l, Talpur Road,

Taseer Hadi Khalid & Co.

Karachi.

Chartered Accountants

First Floor, Sheikh Sultan Trust Building,

Beaumount Road, Karachi.

STOCK EXCHANGE LISTING

Prudential Stocks Fund Limited is Listed on

LEGAL ADVISOR

Karachi, Lahore and Islamabad Stock

Advocate Incorporation.

Exchanges.

1st Floor, Assad Chambers,

Saddar, Karachi.

PUBLIC INFORMATION

BANKERS

Financial Analysts, Stock Brokers,

Prudent a Commercial Bank Ltd.

Interested Investors, Financial media desiring

Faysal Bank Ltd.

information about the Company should contact:

Askari Commercial Bank Ltd.

Mr. Mohammad All Adil at Company's

Industrial Development Bank of Pakistan.

registered office,

Karachi.

CUSTODIAN

Faysal Bank Limited,

I.I. Chundrigar Road, Karachi-74200

SHAREHOLDERS INFORMATION

Enquiries concerning lost share certificates,

REGISTERED OFFICE

change of address, verification of transfer

deeds and shares transfers should be directed

Prudential House, HaGan All Street,

to the Registrar M/s. Shares & Corporate

Off: I.I. Chundrigar Road, Karachi.

Services (Pvt) Limited.

Phones: 2628833-8 Lines

Fax: 2630873. Telex: 23984 PRUD PK

NOTICE OF MEETING

Notice is hereby given that the Seventh Annual General Meeting of Prudential

Stocks Fund Limited will be held on Wednesday, December 24, 1997 at

7:00 p.m. at Institute of Chartered Accountants of Pakistan, Clifton,

Karachi to transact the following business:

1. To confirm the Minutes of the Sixth Annual General Meeting of the Company

held on December 22, 1996.

2. To receive, consider and adopt Audited Accounts of the Company for the

year ended June 30, 1997 alongwith Auditor's and Director's report thereon.

3. To appoint Auditors of the Company for the year ending June 30, 1998. The

present Auditors M/s. Taseer, Hadi, Khalid & Company, Chartered

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

4. To elect Seven (7) Directors as fixed by the Board of Directors in

accordance with the provisions of section 178(1) of the Companies

Ordinance, 1984 for a period of three years. The retiring Directors are:

1) Mr. Rashidullah Yacoob (2) Mrs. Sanober Akhtar Yacoob (3) Mr.

Mohammad Asif Dar (4) Haji Abdul Ghani (5) Mr. Manzoor Saber

(Representing NDFC) (6) Mr. ManzuruI-Haq (Representing NDFC) (7) Mr.

Riaz Ahmad Longi (Representing ICP).

5. To transact any other business that may be placed before the meeting with

the permission of the chair.

NOTES:

1. Any person who seeks to Contest the election to the office of Director should

file with the Company, not later than 14 days before the date of meeting, a

notice of his intention to offer himself for election as Director in terms of

section 178(3) of the Companies Ordinance, 1984.

2. The share Transfer Books of the Company will remain closed from

December 24, 1997 to January 05, 1998. (both days inclusive).

3. A member entitled to attend and vote at the meeting is entitled to appoint

another member of the Company as a Proxy to attend and vote on his/her

behalf. Proxies in order to be effective must be received at the registered

office of the Company duly stamped not later than 48 hours before the

meeting.

4. Members are requested to notify the Company of any change in their

address.

DIRECTORS' REPORT

On behalf of the Board of Directors, we take pleasure in presenting the Seventh

Annual Report to the shareholders together with the audited accounts of the

company for the year ended June 30, 1997.

MARKET REVIEW

There were sharp declines and rise in equity values during the year under

review. The index movement was volatile as during the first half it lost 364

points from KSE index 1,703 as on June 30, 1996 to 1,339 as on December

31, 1996 - a fall of 27% By February 1997 the index bagged 436 points to

reach the 1,775 mark from 1,339 - a rise of about 32%. The index however

declined by 210 points to settle at 1,565 points as on June 30, 1997 - a fall of

about 21%. The market as such posed a healthier outlook than last year.

The bearish sentiments during the first half was mainly due to the political

uncertainty on account of which the investors by and large maintained a wait

and see policy. The surge and stability in price index during the second half

was mainly due to the i) adoption of number of measures by the interim

government to improve fiscal discipline and stimulate economy ii) timely

holding of general elections iii) political stability emanating from election of a

Government with strong public mandate and finally iv) various political and

economic reforms and packages initiated and announced by the present

Government. This resulted in substantial improvement in the company's

equity values and gains thereby as depicted in the marked reduction of loss

Before/After taxation given here under:

OPERATING RESULTS

RUPEES IN MILLION

1997

1996

Total (loss) / Income

(1.47)

0.87

Total Expenditure

(0.92)

(1.19)

----------

Loss for the year

(2.39)

(0.32)

Reversal / (Provision) for diminution in

value of marketable securities

1.48

(4.71)

----------

Loss before taxation

(0.91)

(5.03)

Taxation:

- Current

(0.05)

(0.04)

----------

Loss after taxation

(0.96)

(5.07)

Accumulated Loss brought forward

(32.69)

(27.62)

----------

Accumulated Loss carried to balance sheet

(33.65)

(32.69)

==========

Total value of shares sold during the period under review was Rs. 24.4 million.

The company suffered capital loss of Rs. 3.85 million on these sales against.

capital gain of Rs. 0.982 million. Major portion of loss has comes from sectors

like, Modaraba (0.765 M), Textile (0.791 M), Synthetic & Rayon (0.531 M), and

Cement (1.158 M).

During the period under review, purchases of Rs. 28.678 million were made.

Major investments were made in Fuel & energy (46.73%), Banks/Investment

companies (16.82%) and Chemical/Pharmaceuticals (13.71%). With this

restructuring, the management is confident that the investment portfolio of your

company will show much better results in future.

The diminution in company portfolio as on June 30, 1996 stood at Rs. 32.23

million. With the improvement in equity values, the diminution as on June 30,

1997 has been reduced to Rs. 30.75 million - a net improvement of Rs. 1.48

million. On reversal of this gain in diminution, the net loss has been reduced to

Rs. 0.91 million as against a loss of Rs. 5.03 million last year. After taxation

net loss of the company calculates to Rs. 0.96 million as against a net loss of

Rs. 5.07 million as on June 30, 1996. This marked improvement has been

achieved due to the prudent investment timings and quality investment by your

company.

Because of loss no dividend has been declared.

FUTURE OUTLOOK

As is well known that progress of any Capital Market largely depends on the

political stability and pursuance of prudent economic & financial policies. By the

Grace of ALLAH, the Government is saddled with an over-whelming public

mandate and the persons at the helm of affairs are dedicated & determined to

improve the economic lot of its people and the country as a whole. We have full

confidence that, with the various stringent steps taken and financial

policies/packages announced and pursued, the economic health of the country

in general and of the stocks in particular will surge forward positively in very

foreseeable future INSHALLAH.

ACKNOWLEDGMENTS

We sincerely thank the Shareholders, Government Agencies, Banks, Financial

Institutions and Board Members for the assistance extended and also appreciate

the services rendered by the staff of the company.

In the end, we pray to Almighty Allah Rehman-o-Rahim to shower His Blessings

on our Company, our Group and our Country.

For and on Behalf of the Board

AUDITORS' REPORT TO MEMBERS

We have examined the annexed balance sheet of PRUDENTIAL STOCKS FUND

LIMITED as at 30 June 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 standards and accordingly included such tests of the

accounting records and such other 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 was for the purpose of the Company's

business;

(iii) the business conducted, investment made and expenditure incurred

during the year were in accordance with the investment policy of the

company and Investment Companies and Investment Adviser's

Rules, 1971;

(iv) the company has not contravened the provisions of Rule 8 of the

Investment Companies and Investment Advisor's Rules, 1971;

explanations given to us, the balance sheet and the profit and loss account

and the statement of changes in 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 give respectively, a true and

fair view of the state of the Company's affairs as at 30 June 1997 and of

the loss and the changes in the financial position for the year ended on

that date; and

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

Ordinance, 1980.

BALANCE SHEET

As At June 30, 1997

1997

1996

Note

Rupees

SHARE CAPITAL

Authorised Capital

20,000,000 ordinary shares

of Rs. 10/- each

200,000,000

Issued, subscribed and paid-up capital

==========

6,000,000 Ordinary shares

of Rs. 10/- each

60,000,000

Accumulated loss

(33,649,100)

(32,689,973)

----------

26,350,900

27,310,027

CURRENT LIABILITIES

Due to Investment Adviser

263,509

342,130

Creditors, accrued expenses and

other liabilities

775,023

1,905,730

Unclaimed dividend

81,298

81,765

Provision for taxation

99,177

55,328

----------

1,219,007

2,384,953

----------

27,569,907

29,694,980

==========

DEFERRED EXPENDITURE

273,443

CURRENT ASSETS

Marketable Securities

24,953,754

[ 21,965,316

Advances, prepayments and

other receivables

685,148

4,243,636

Cash and bank balances

1,931,005

3,212,585

----------

27,569,907

29,421,537

----------

27,569,907

29,694,980

==========

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

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 30 JUNE 1997

1997

1996

Note

Rupees

SALES

24,382,880

31,020,118

LESS: COST OF SALES

27,216,454

31,488,633

----------

CAPITAL (LOSS)

(2,833,574)

(468,515)

OTHER INCOME

1,361,689

1,337,379

----------

(1,471,885)

868,864

LESS: OPERATING EXPENSES

----------

Administrative

660,438

845,227

Financial

951

70,426

Remuneration to the Investment Adviser

4.1

263,509

273,100

----------

924,898

1,188,753

----------

(2,396,783)

(319,889)

Reversal / (Provision) for diminution in Value

Of Marketable Securities

1,485,692

(4,706,395)

----------

Loss Before Taxation

(911,091)

(5,026,284)

TAXATION

- Current

48,036

48,242

----------

Loss After Taxation

(959,127)

(5,074,526)

Accumulated loss Brought Forward

(32,689,973)

(27,615,447)

----------

Accumulated Loss Carried Forward

(33,649,100)

(32,689,973)

==========

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

CASH FLOW STATEMENT

FOR THE YEAR ENDED 30 JUNE 1997

1997

1996

Rupees

CASH FLOWS FROM OPERATING ACTIVITIES

Loss before taxation

(911,091)

(5,026,284)

Adjustments for:

(Reversal)/Provision for diminution in value

of Marketable Securities

(1,485,692)

4,706,395

Amortisation of deferred expenditure

273,443

468,468

----------

(2,123,340)

148,579

(Increase) / Decrease in operating assets:

Marketable securities

(1,502,746)

9,246,812

Advances, prepayments and

other receivables

3,598,429

(4,210,089)

Increase / (Decrease) in operating liabilities:

Due to the investment advisor

(78,621)

(2,527,875)

Accounts payable, accrued expenses and

other liabilities

(1,130,707)

1,250,263

Deferred expenditure payable

(753,049)

----------

Cash (used for)/generated from operations

(1,236,985)

3,154,641

Dividend paid

(467)

Income Tax paid

(44,128)

(2,500)

Net (Decrease)/Increase in cash

----------

and bank balances

(1,281,580)

3,151,674

Cash and bank balances at beginning

of the year

3,212,585

60,911

Cash and bank balances at end

----------

of the year

1,931,005

3,212,585

==========

NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED 30 JUNE 1997

1. STATUS AND NATURE OF BUSINESS

The Company was incorporated on 05 September 1990 as a public limited

company under the Companies Ordinance, 1984 and was registered as an

investment company. under the Investment Companies and Investment

Adviser's Rules, 1971. The company has entered into an agreement with an

associated company, Prudential Fund Management Limited to act as its

Investment Advisor. The company is listed on all stock exchanges in

Pakistan.

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 valued at lower of average cost and market

value on an aggregate portfolio basis. Market value has been taken

from Karachi Stock Exchange quotation sheets on last working day

of the income year.

2.3 Deferred expenditure

The expenditure incurred on the incorporation and on the issue of

shares to the public have been deferred and are being amortised

over a period of sixty months from the month in which these

expenses were incurred.

2.4 Taxation

(i) The charge for current taxation is based on taxable income at

the current rates of taxation after taking into account tax credits

and tax rebates available, if any.

(ii) Deferred taxation, if any, is accounted for by using the liability

method on all timing differences. However, net deferred tax

debits are not recognised.

2.5 Revenue recognition

(i) Dividend income is recorded at the time of closure of share

transfer books of the company declaring dividend.

(ii) Sales and purchases of securities are recognised on the date

of contract. Capital gains and losses on sale of marketable

securities are taken to income in the period in which it arises.

1997

1996

Rupees

3. ISSUED, SUBSCRIBED AND PAID-UP CAPITAL

Ordinary shares of Rs. 10/- each

5,000,000

Shares issued as fully

paid in cash

50,000,000

1,000,000

Shares issued as fully paid

bonus shares

10,000,000

----------

6,000,000

60,000,000

==========

4. DUE TO INVESTMENT ADVISOR-

PRUDENTIAL FUND MANAGEMENT LIMITED -

AN ASSOCIATED COMPANY

Balance as on 01 July

342,100

2,870,005

Less: Amount paid during the year

342,100

2,870,005

----------

Remuneration @ 1% of net assets

(1996:1%)

4.1

263,509

273,100

----------

263,509

273,100

Interest on deferred expenditure payable

69,030

----------

263,509

342,130

==========

4.1 The remuneration of the investment advisor at the rate of 1% (1996:

1%) of the net assets of the company as at the end of its year of

accounts in term of clause 11(a) of the Investment Companies and

Investment Advisor's Rules, 1971 has been determined as follows:

1997

1996

ASSETS

Rupees

Deferred expenditure

273,443

Marketable securities at market value

24,953,754

21,965,316

Advances, prepayments and

accounts receivable

685,148

4,243,636