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Confidence Mutual Fund Limited

Annual Report 1998

CONTENTS

COMPANY INFORMATION

Board of Directors

Esmail Ahmed Bagasrawala (Chairman)

Mohammad Saleem Adam (Chief Executive)

Shafiq A. Khan (MCB Nominee)

Shah Abu Saad Ahmed

Haji Mohammad

Bilquies Saleem

Naveed Altaf (Company Secretary)

Investment Adviser

Confidence Financial Services Limited

6th Floor, AI-Falah Court,

I.I. Chundrigar Road,

Karachi.

Custodian

Faysal Bank Limited

I.I. Chundrigar Road,

Karachi.

Auditors

Taseer Hadi Khalid & Co.

Chartered Accountants

Bankers

Faysal Bank Limited

Metropolitan Bank Limited

Habib Bank A.G. Zurich

Shares Department

5th Floor, Karachi Chambers,

Hasrat Mohani Road,

Karachi.

Ph : 2424826-2412754

Registered Office

6th Floor, AI-Falah Court,

I.I. Chundrigar Road,

Karachi-74200. Pakistan.

Ph : 2634249-51

Fax No. 021-2631310

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Annual General Meeting of Confidence Mutual Fund

Limited will be held at the registered office of the company situated at 6th Floor, AI-Falah

Court, I.I. Chundrigar Road, Karachi on Friday, December 04, 1998 at 3:00 p.m. to transact

the following business:

ORDINARY BUSINESS

- To confirm the minutes of the Extraordinary General Meeting held on April 22, 1998.

- To receive, consider and adopt, the audited accounts together with Directors' and Auditors'

Reports thereon for the year ended June 30, 1998.

- To approve the payment of cash dividend; 10% for the year ended June 30, 1998. The

Directors have recommended the payment of final dividend @ 10% i.e. Rs.1 per share

on the ordinary share of Rs. 10 each.

- To appoint auditors for the year 1998-99 and to fix their remuneration. The present

auditors, M/s. Taseer Hadi Khalid & Co. Chartered Accountants, retire and being eli-

gible, have offered themselves for re-appointment.

- To transact such other business as may be placed before the meeting with the permission

of the Chair.

SPECIAL BUSINESS

To consider and pass the following resolution as a special resolution under section 208 of

the Companies Ordinance, 1984.

"RESOLVED that an investment of Rs.3,975,655 by way of purchase of 358,000 ordinary

modaraba certificates of Rs.10 each of First Confidence Modaraba (Managed by Con-

fidence Modaraba Management (Pvt.) Limited an associated company) at market value, by

doing the normal course of investment business through the brokers of Karachi Stock Ex-

change be and is hereby approved by abiding the provisions of section 208 of the Companies

Ordinance, 1984 and the rectification thereof as advised by the Corporate Law Authority

vide their letter No. 19(874)CF/ISS/95 dated September 14, 1998. Further RESOLVED

that the Chief Executive of the company be and is hereby authorised to liquidate such invest-

ments on the behalf of the company whenever he deems appropriate to do so".

A statement under section 160(1 )(b) of the Companies Ordinance, 1984 setting forth all the

material facts concerning the resolution contained in the Notice which will be considered for

adoption at the meeting is annexed to this Notice of Meeting being sent to Members.

Statement under section 160(1)(b) of the Companies Ordinance, 1984 in respect

of the special business.

The Directors of the company has made investments in the marketable modaraba certifi-

cates of First Confidence Modaraba [Managed by: Confidence Modaraba Management

(Pvt.) Limited an associated company) upto the tune of Rs.3,975,655 and such transactions

has been made from June 07, 1995 to July 23, 1995 [both days inclusive) through the

brokers of Karachi Stock Exchange at the prevailing market rates during the course of normal

investment transactions of the company without having any intentions to invest such amount

particularly in the associated company.

The idea behind this investment is to get the benefits of handsome returns on this investment

in the shape of cash dividends, bonus shares and earn the capital gains which would have

increased the profitability of the company and in turn return to shareholders be increased.

Since this investment the company has earned dividend income of Rs.895,000 and have

probable expectations of more dividend income after the announcement for the year ended

June 30, 1998. Further the management expects the capital gain from this investment if

the market gets the positive turn.

The market value of such investments is Rs.1,109,800 (@ Rs.3.10 each) as on June ;30,

1998 which is duly disclosed in the financial statement and it has shown significant increase

and the market value as on October 21, 1998 is Rs.I,4;32,000 (@ Rs.4 each) whereas the

break-up value of the each modaraba certificate of the First Confidence Modaraba is Rs. 12.97

as on June 30, 1998 before the declaration of dividend. The management of the company

did not liquidate this investment because of avoidance from the capital losses and have good

expectations about the increase in market price.

That was purely an indirect investment i.e. the company purchased shares from the open

market operations through the brokers of Karachi Stock Exchange at the prevailing market

rates. The investment has been made at such time(s) as and when the Chief Executive has

thought appropriate on behalf of the company by considering the market conditions, market

price and the expected return on the investment.

The directors of Confidence Mutual Fund Limited have no vested interest in the above invest-

ment. The directors of the company are also having their directorship in the Confidence

Modaraba Management (Pvt.) Limited an associated company but they represent the inter-

est of Confidence Mutual Fund Limited.

By order of the Board

sd/-

Karachi:

Naveed Altaf Hussain

Dated: October 30, 1998

Company Secretary

NOTES:

1. The share transfer books of the company will remain closed from November 25, 1998

to December 04, 1998 (both days inclusive) and no transfer will be accepted during this

period. Transfer received in order at the Shares Department of company upto the close

of business hours on November 24, 1998 will be considered in time for the entitlement

of cash dividend.

2. A member entitled to attend and vote at this Meeting may appoint another member as

his/her proxy to attend and vote on his / her behalf. Proxies in order to be valid must

be received at the registered office of the company 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 to the shares department, of any change of their

addresses to ensure prompt delivery of mails. Further any shares for transfer etc., should

lodged with the Shares Department of Confidence Mutual Fund Limited situated

at 5th Floor, Karachi Chambers, Hasrat Mohani Road, Karachi (Phone No. 2424826,

24127 54).

STATEMENT UNDER SECTION 241(2) OF

THE COMPANIES ORDINANCE, 1984

EXPLAINING THE REASONS FOR NON-COMPLIANCE

WITH THE PROVISIONS

OF SECTION 241(1) OF THE COMPANIES ORDINANCE, 1984

The Chief Executive of the company Mr. Mohammad Saleem Adam is out of

Pakistan in connection with the medical treatment of his son. As such the

Directors Report, Balance Sheet, Profit & Loss Account and Statement of

Changes in Financial Position of the Confidence Mutual Fund Limited for

the year ended June 30, 1998 have been signed by the other three directors

of the company.

DIRECTORS' REPORT

The Directors of Confidence Mutual Fund Limited are pleased to present the Annual

Report together with the Audited Accounts for the year ended June 30, 1998 to the shareholders.

This year the country has faced a difficult economic environment and the city un-satisfactory

law and order situation. The company continued to advance at an encouraging pace and its

overall performance remained well in line with the expectations of the management. This has

further strengthened the position of the company as a market leader in the category of

investment company in Pakistan.

The net asset value (NAV) of your Fund has not been below its par value since the inception

of the Fund and during the year it stood at between Rs.10 to Rs.11.08 and remain unchanged

till date.

MARKET REVIEW

The year under review began with a positive sentiment towards stock market with significant

interest of foreign buyers as well as local investors and financial institutions which is the

result of announcement of economic developmental measures in the Federal Budget 1997-

98 and the continued support from the donor agencies such as IMF and World Bank. As a

result the KSE-100 Index rose upto 2067.98 in October, 1997.

The capital market has been driven down 66% since May 11, 1998 (the day India conducted

its nuclear test). The combination of adverse fundamental developments, the IPP Government

tussle, the economic sanctions (as a result of nuclear test) and the resulting balance of

payment crisis continue to dampen stock market sentiment. An increase in perceived sovereign

and currency risk prompted script selling, which combined with local institutional and speculative

selling, pushed the KSE - 100 Index to its life low of 749 on 10th July, 1998.

The possibility of prolonged sanctions, and their adverse impacts on sovereign risk and

corporate earnings, has put brake on long term portfolio investments. Consequently, the

capital market has fallen prey to speculative forces. As a result the stock market volatility

has increased significantly.

OPERATIONS REVIEW

30 June

1998

1997

(Rupees)

Financial Results:

Investment income

19,617,674

12,806,324

(Provision) / Reversal for diminution

in value of marketable securities

(5,359,623)

2,395,230

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

13,258,051

15,201,554

Operating expenses

2,599,307

2,689,025

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

Operating profit for the year before taxation

10,659,744

12,512,529

Taxation - Prior year

200,186

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

Profit for the year

10,658,744

12,712,715

Unappropriate profit/Accumulated (loss) b/f

701,355

(511,360)

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

Profit available for appropriation

11,360,099

12,201,355

Appropriation

Proposed cash dividend @ Rs.1 per share

i.e. 10% (1997:11.5%)

10,000,000

11,500,000

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

Unappropriated profit c/f

1,360,099

701,355

==========

Despite the volatile stock market conditions your company has earned total investment income

of Rs.18.618 million as compared to 12.806 million last year which denotes significant increase

of 45.38% in the investment income but due to the sluggish market behaviour of few scripts

forced the market to fall downward resulting the provision for diminution in marketable securities

of Rs.5.360 million and it has eaten up the current earnings to a large extent.

The Directors have recommended a Final Cash Dividend of 10% i.e. Rs. 1 per ordinary share. So

rupees 10 million has to be distributed among the shareholders from the available profit of

rupees 10.659 million which comes to 93.82 % distribution from the total profit for the year,

FUTURE OUTLOOK

The stock market, being the barometer of the economic health of the country, will certainly

experience a resurgence in a favourable situation. As your fund invests in equity securities, any

improvement in the stock market will contribute positively to the future performance of the fund.

We hope the lifting of sanctions on the country the resolution of independent power project

problems, the government ability to enhance foreign exchange reserves and issuance of US

dollar special bonds on the attractive terms will prove a boom for the stock market. Pakistan

needs US dollar 5 billions to make the post sanctions balance of payment gap the IMF and the

Government of Pakistan is expected to agree on a package for precisely that amount which will

be the another upward push. Further the revival of Cement Sector a reduction in Central Excise

Duty on Cement production from 40% to 30% and the lifting of the antidumping duties on gray

cloth by the European Union will be the another factors for the improvement.

THE STATUS OF "THE YEAR 2000 COMPLIANCE OF COMPUTER SYSTEM"

We firmly believe that the financial accounting system installed in the fund will be ready for year

2000 compliance upto February, 1999. The software will duly comply with the year 2000

requirements and it will be integrated to process all sorts of accounting and financial transactions

beyond 31st December, 1999.

APPOINTMENT OF AUDITORS

The present auditors, Messrs. Taseer Hadi Khalid & Co., retire and offer themselves for

reappointment. Members are requested to appoint auditors for the ensuing year 1998-99 and

fix their remuneration.

ACKNOWLEDGEMENT

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

support. We wish to thank the Corporate Law Authority and other regulatory authorities for

their cooperation, guidance and support. We wish to place on record our appreciation of all the

shareholders of the Fund and the dedicated efforts made by all the Employees of the Fund.

The Pattern of Shareholding as required by section 236 of the Companies Ordinance, 1984 is

enclosed.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed Balance Sheet of Confidence Mutual Fund Limited as at 30

June 1998 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 Invest-

ment 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, investments 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 centravened the provisions of Rule 8 of the Investment

Companies and Investment Adviser's Rules, 1971; and

given to us, the Balance 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 fair view of the state of the Company's affairs as at 30 June 1998 and of

the profit and changes in the financial position for the year ended on that date;

(d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980

was deducted by the company and deposited in the central zakat fund established

under section 7 of that ordinance.

BALANCE SHEET

AS AT 30 JUNE 1998

Note

30 June

1998

1997

SHARE CAPITAL

Authorised

10,000,000 ordinary shares of

Rs.10/- each.

100,000,000

==========

Issued, subscribed & paid up

10,000,000 ordinary shares of

Rs.10/- each.

fully paid in cash

100,000,000

Un-appropriated profit

1,360,099

701,355

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

101,360,099

100,701,355

DEFERRED EXPENDITURE

PAYABLE

1,599,273

2,398,909

CURRENT LIABILITIES

Current maturity of deferred

expenditure payable

799,636

Due to Investment Adviser

2,302,911

2,251,946

Accounts payable and

accrued expenses

77,828

290,355

Unclaimed dividend

47,699

Proposed dividend

10,000,000

11,500,000

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

13,228,074

14,841,937

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

Rupees

116,187,446

117,942,201

==========

Note

30 June

1998

1997

CURRENT ASSETS

Marketable securities

- Equity Securities

13,205,366

19,044,363

- Term Finance Certificates

21,611,658

23,640,446

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

34,817,024

42,684,809

Other investments

65,000,000

43,000,000

Accounts receivable - considered good

294,773

Advances and other receivables

5,568,832

4,857,787

Cash and bank balances

10,801,590

27,104,832

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

116,187,446

117,942,201

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

Rupees

116,187,446

117,942,201

==========

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

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 30 JUNE 1998

Year ended

Note

30 June

1998

1997

INVESTMENT INCOME

Capital gain/(loss)

1,134,544

(2,687,828)

Dividend income

1,376,100

1,262,248

Return on Investments and PLS account

10,032,403

9,849,551

Profit on Term Finance 0ertificates

4,442,067

4,381,353

Profit on sale of Government Securities

1,632,560

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

18,617,674

12,806.32

(Provision)/Reversal for diminution in value of

marketable securities

(5,359,623)

2,395,230

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

13,258,051

15,201,554

OPERATING EXPENSES

Administrative

171,986

168,836

Financial

400,119

506,162

Remuneration to investment Adviser

2,027,202

2,014,027

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

2,599,307

2,689,025

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

OPERATING PROFIT BEFORE TAXATION

10,658,744

12,512,529

Provision for taxation: Prior year

200,186

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

PROFIT FOR THE YEAR

10,658,744

12,712,715

Unappropriated profit/Accumulated (loss)

brought forward

701,355

(511,360)

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

Profit available for appropriation

11,360,099

12,201,355

APPROPRIATION

Proposed cash dividend @ Rs.1 per share

i.e.10%(1997: 11.5%)

10,000,000

11,500,000

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

Unappropriated profit carried forward

Rupees

1,360,099

701,355

==========

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

STATEMENT OF CHANGES IN FINANCIAL POSITION

FOR THE YEAR ENDED 30 JUNE 1998

Year ended

30 June 1998

30 June 1997

CASH FLOW FROM OPERATING ACTIVITIES

Profit before taxation

10,658,744

12,512,529

Adjustments for:

Provision / (Reversal) for diminution in value of