Al-Meezan Mutual Funds

For business information, annual reports, laws, ordinances, regulations and articles.

Al Meezan Mutual Fund Limited

Annual Reports 2002

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

Mr. Irfan Siddiq

Chairman

Mr. Mohammad

Chief Executive

Mr. Arif-ul-Islam

Mr. Ather Medina

Ms. Hina Akhlaq

Mr. Manzoor Ahmed

Mr. Mazhar Sharif

Mr. Shafiq A. Khan

AUDIT COMMITTEE

Mr. Arif-ul-Islam

Chairman

Mr. Ather Medina

Mr. Manzoor Ahmed

CFO & COMPANY SECRETARY

Mr. Mazhar Sharif

INVESTMENT ADVISOR

Al Meezan Investment Management Limited

AUDITORS

A. F. Ferguson & Co.

Chartered Accountants

CUSTODIAN

Central Depository Company of Pakistan Limited

BANKERS

Bank AL Habib Limited

Meezan Bank Limited

Faysal Bank Limited

Muslim Commercial Bank Limited

Credit Agricole Indosuez

National Bank of Pakistan

REGISTERED OFFICE

4th Floor, Block "C", Finance & Trade Centre,

Shahrah-e-Faisal, Karachi 74400, Pakistan

Phone:(9221)5672997

Fax:(9221)5676143

E-mail: meezan@cyber.net.pk

REGISTRAR & SHARES DEPARTMENT

THK Associates (Pvt.) Limited

Ground Floor, Sheikh Sultan Trust Building No. 2,

Beaumont Road, Karachi 75530

Phone: (9221) 568 9021, 568 5681

Fax:(9221)5655595

NOTICE OF MEETING

Notice is hereby given that the 7th Annual General Meeting of Al Meezan Mutual Fund Limited

will be held on Friday, November 1, 2002 at 9:00 a.m., at 4th Floor, Block "C", Finance & Trade

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

ORDINARY BUSINESS:

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

and Auditors' Report thereon for the year ended June 30, 2002.

2. To consider and approve Final Cash Dividend of 16% for the year ended June 30, 2002, as

recommended by the directors.

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

2003. The present Auditors M/s A.F. Ferguson & Co., Chartered Accountants, retire and being

eligible, offer themselves for re-appointment.

4. To elect Eight (08) Directors for a period of three years commencing from December 30, 2002

in accordance with the provisions of Section 178 of the Companies Ordinance, 1984. The

names of retiring directors are as follows:

i) Mr. Irfan Siddiqui ii) Mr. Mohammad Shoaib

iii) Mr. Mazhar Sharif iv) Ms. Hina Akhlaq

v) Mr. Arif-ul-Islam vi) Mr. Manzoor Ahmed Shaikh

vii) Mr. Shafiq Ahmed Khan viii) Mr. Ather Medina

The Board of Directors has fixed the number of directors to be elected as Eight (08). All retiring

directors shall be eligible to offer themselves for re-election.

5. Any other business with the permission of the Chair.

By order of the Board.

Mazhar Sharif

Karachi

Company Secretary

September 27, 2002

Notes:

1. Any person who seeks to contest an election to the office of director shall, whether he is a

retiring director or otherwise, file with the Company at its Registered Office not later than

fourteen days before the day of meeting at which elections are to be held, a notice of his intention

to offer himself for election as a director along with written consent to act as a director on the

prescribed Form-28.

2. The Share Transfer Books of the Company will remain closed from October 22, 2002 to

November 1, 2002 (both days inclusive). Transfers received in order at the office of our Share

Registrar M/s. THK Associates (Private) Limited, Ground Floor, Sheikh Sultan Trust Building

No. 2, Beaumont Road, Karachi - 75530 by the close of business on October 21, 2002 will be

in time for the purpose of payment of final dividend to the transferees.

3. No person shall be appointed a proxy who is not a member of the Company and qualified to

vote, save that a Corporation or a Company being a member of the Company may appoint as

proxy or as its representative under Section 162 of the Ordinance any person though not a

member of the Company, and the person so appointed shall be entitled to exercise the same

powers on behalf of the Corporation which he represents, as that Corporation could exercise

if it was an individual member of the Company. Any such appointment shall be authorized by

a resolution of Directors of that Company or Corporation. Proxies in order to be effective must

be received at the registered office of the Company not later than 48 hours before the meeting.

4. Every proxy shall be appointed in writing under the hand of the appointer or by an agent duly

authorized under a Power of Attorney or if such appointer is a Company or Corporation under

the common seal of the Company or Corporation or the hand of its Attorney who may be

appointer.

5. Shareholders whose shares are deposited with Central Depository Company (CDC), or their

Proxies are requested to bring their original National Identity Card (NIC) or Passport along with

the Participant's I.D. number and their account number at the time of attending the Annual

General Meeting for verification.

6. Shareholders are requested to promptly notify any change in the mailing address to our Share

Registrar M/'s. THK Associates (Private) Limited.

FINANCIAL HIGHLIGHTS

Year ended

2002

2001

2000

1999

1998

1997

1996*

(Rupees in thousands from 1 to 6)

1 Investment Income

51049

36104

64203

9389

28427

32322

10663

2 Operating Expenses

6683

6454

8359

5632

4953

6851

5130

3 Gain / (Deficit) on revaluation of trading

investments

518

4 Reversal / (provision) for diminution in

the value of marketable securities

11376

33228

57730

90518

4766

5207

5 Profit / (loss)

43746

18273

89072

42709

67043

30237

326

6 Dividend

40000

16500

52500

16000

29500

7 Rate of dividend (%)

6.6

6.4

11.8

8 Net Asset Value (Rs.)

10.68

9.84

10.55

8.22

7.24

9.95

9 Appreciation.' (depreciation)

8.54

6.73

28.35

13.54

27.6

0.5

in NAV (%)

10 Total return (%)

24.8

0.47

53.9

22.38

27.6

13.36

11 KSE 100 Index

1770.12

1366.44

1520.74

1054.67

879.62

1565.73

1703.28

12 Appreciation/(depreciation) in

29.54

10.15

44.19

19.9

43.82

8.08

KSE 100 Index (%)

13 Outperformance / (underperfor

4.74

9.68

9.71

2.48

16.22

20.44

comparison to KSE 100 Index (°/o)

First year of operations from July 13,1995 to June 30,1996.

DIRECTORS' REPORT

The Board of Directors ofAl Meezan Mutual Fund Limited is pleased to present the Seventh Annual

Report together with the audited accounts for the year ended June 30, 2002.

STOCK MARKET REVIEW

The financial year ended June 30, 2002 was marred with a number of crises in the stock market,

which was the result of global and domestic events. The September 11 terrorist attacks in the USA

had a devastating impact on the stock markets across the globe and our market was no exception.

The sharp decline of 9.8% in KSE-100 index during the month of September almost resulted in a

financial collapse in the stock market before the five major commercial banks picked up stocks

worth Rs.2 billion to bail out the market. One must compliment the role played by Ministry of

Finance, State Bank of Pakistan and Securities and Exchange Commission of Pakistan to bring the

market out of the crisis.

However, Pakistan's role as a coalition partner supporting USA and its allies in the drive against

terrorism was applauded widely and economic support was provided in the form of loans, grants

and debt rescheduling by Pakistan's creditors. This resulted in considerable improvement in the

economic fundamentals of the country.

During December 2001, the military tension at the border between Pakistan and India led to another

mini crisis in the market, which resulted in 9.3% decline in the KSE-100 index over a period of 10

days.

The third quarter of the fiscal year was the most robust period for the market whereby the improvement

in economic fundamentals trickled down to improvement in stock prices and the KSE-100 index

turned out to be the best performing index in the world, recording an appreciation of 46.7% over

its December closing.

The market mostly remained subdued during early fourth quarter before the terrorist violence in

Karachi and other parts of the country in May 2002 led to another sharp decline in the market. The

foreign institutional investors remained net sellers during this period. During the month of June th"

market gradually recovered but the market activity was at its lowest ebb during the year. The average

daily volume fell from the high of 195 million in March 2002 to the low of 99 million in June 2002.

The declining interest rates and improving domestic liquidity improved the inflow of funds in the

equities. The KSE-100 index, which was 1366.4 as on June 30, 2001 appreciated to 1770.12 as

on June 30, 2002, depicting an increase of 29.5%.

On the initiative taken by SECP, the Karachi Stock Exchange introduced the T+3 trading system

and futures markets. In a bid to introduce financial discipline, SECP directed listed companies to

submit quarterly accounts to the shareholders.

Operating Results

The company posted a growth of 135% in net profit to Rs.43.75 million for the year from Rs. 18.27

million for the previous year. The operating results for the year are as follows:

(Rupees)

Investment Income

51,049,143

Operating Expenses

6,683,199

Profit / (Deficit) on revaluation of

518,656

Profit Before Taxation

43,847,288

Provision for Taxation

100,378

Net Profit for the Year

437,746,910

Proposed Dividend

40,000,000

During the year, the company realized capital gains ofRs.8.9 million, dividend income ofRs.38.6

million and other income ofRs.3.6 million.

Portfolio Performance Relative to KSE-100 Index

The portfolio of the company had out-performed its benchmark KSE-100 index every year since

the launch of the Fund on a year to year basis. Although the portfolio has performed very well

during this year as well, there has been an under-performance relative to the KSE-100 index.

The KSE-100 Index appreciated by 29.5% during the year whereas total return on Fund portfolio

was 24.8%. Thus the portfolio under-performed the benchmark index by 4.74%. It may be noted

here that the company's exposure to the stocks during the year has ranged between 50% to 80% of

the net assets, signifying a low risk strategy compared to the index.

It would however, be pertinent to mention here that despite the under-performance during the year,

the Fund has maintained its out-performance over the index on an overall basis, as depicted on

Pg.06. Since the launch of the Fund in 1995, the average total return on Fund portfolio has been

14.3% per annum as compared to the annualized index return of 5.3% per annum during the

corresponding period. Hence, on the whole, the return on the Fund's portfolio is 2.69 times the

return on a passively managed portfolio of KSE-100 companies. A summary of relative portfolio

performance is as follows:

(Year ended)

June 30,

1997

1998

1999

2000

2001

2002

Net Asset Value Per Share

7.24

8.22

10.55

9.84

10.68

Dividend Paid

1.18

0.64

2.1

0.66

1.6

Total Return on Fund Portfolio (%

12.36

-27.6

22.38

53.9

-0.47

24.8

KSE-100 Index

1565.73

879.62

1054.67

1520.74

1366.44

1770.12

Return on Index (%)

-8.08

-43.82

19.9

44.19

-10.15

29.54

Portfolio out-performance /

(under-performance) (%)

20.44

16.22

2.48

9.71

9.68

(4.74)

Composition of Net Assets

On June 30, 2002 the composition of net assets of your company at market value was as under:

COMPOSITION OF NET ASSETS

AS AT JLTME 30, 2002

Marketable Securities

Cash & Receivables

88.68%

11.32%

The top five holdings of the Company as on June 30, 2002 based on market value were as follows:

Company

Market Value

Percentage of net

Rs. In Millions

Assets

Pakistan State Oil Ltd.

30.7

11.49%

Hub Power Company Ltd.

29.5

11.05%

Lever Brothers Pakistan Ltd.

27.7

10,37%

Pakistan Telecommunication Co.

26.2

9.81%

Fauji Fertilizer Ltd.

22.3

8.35%

Code of Corporate Governance

An important development during the year was the enforcement of the Code of Corporate Governance.

On the initiative ofSECP, the stock exchanges inserted the clauses of the Code in their Listing

Regulations.

The Board of Directors welcomes these measures, which are aimed at bringing transparency in the

working of listed companies and in the long run, improvement of the capital market.

Compliance

The Board of Directors states that:

• These financial statements present fairly the state of affairs of the company, the result of its

operations, cash flow and changes in equity.

• The company has maintained proper books of accounts.

• Appropriate accounting policies have been consistently applied in preparation of financial

statements except for an accounting policy which was changed due to implementation of IAS

39, details of which are given in Note 3. Accounting estimates are based on reasonable and

prudent judgement.

• International Accounting Standards, as applicable in Pakistan, have been followed in preparation

of financial statements and any departure therefrom has been adequately disclosed.

• The system of internal control is sound in design and has been effectively implemented and

monitored.