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CONFIDENCE MUTUAL FUND LIMITED

ANNUAL REPORT 1997

CONTENTS

COMPANY INFORMATION

Chairman:

Esmail Ahmed Bagasrawala

Chief Executive:

Mohammad Saleem Adam

Investment Adviser:

Confidence Financial Services Limited

6th Floor, AL-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 AG Zurich

Shares Department:

5th Floor, Karachi Chamber,

Hasrat Mohani Road,

Karachi.

Ph: 2424826-2412754

Registered Office:

6th Floor, AL-Falah Court,

I. I. Chundrigar Road,

Karachi.

Ph : 2634249-51

Fax : 021-2631310

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Third Annual General Meeting of

Confidence Mutual Fund Limited will be held on Friday, 05 December, 1997 at

4:30 p.m. at Company's Registered Office, 6th Floor, Al - Falah Court, I. I.

Chundrigar Road, Karachi, to transact the following business:-

- To confirm the Minutes of the Second Annual General Meeting held on 20th

October, 1996.

- To receive, consider and adopt the Audited Accounts together with the

Directors' and Auditors' Reports for the year ended 30th June, 1997.

- To appoint Auditors for the ensuing year, and to fix their remuneration. The

present Auditors, Messrs Taseer Hadi Khalid & Co., Chartered Account-

ants, retire and being eligible, have offered themselves for re-appointment.

- To approve cash dividend @ Rs. 1.15 per share i.e. 11.5% as recom-

mended by the Directors.

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

the permission of the Chair.

Notes:

1. The Share Transfer Books of the Company will remain closed from 27

November, 1997 to 05 December, 1997 (Both days inclusive). Transfer

received in order at the Shares Department by the close of business hours

on 26 November, 1997 will be treated 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 in their addresses to ensure prompt delivery of mails. Further any

shares for transfer etc., should be lodged with the shares department of

Confidence Mutual Fund Ltd., situated at 5th Floor, Karachi Chamber,

Hasrat Mohani Road, Karachi. (Phone No. 2424826, 2412754)

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 30 June

1997 to the shareholders.

The year under review has not been favourable for the Capital Market. The few

short term bullish behaviour has shown positive trend, but the market has gen-

erally continued its declining position which commenced since 1st quarter of

1994. The relief package earlier announced by the Government could not be of

greater help to it. The management is pleased to mention that inspite of this

continued bearish spell in the market, the performance of your Fund has been

much better than the market's performance, during the year under review the net

asset value (NAV) of your Fund has not fallen from its par value. The Manage-

ment has been able to out perform the market due to constructive and viable

decisions on timely basis that's why we feel comfortable that our portfolio has

now been turn into more stronger which contains promises of an upward sen-

timent once the stability in the stock market takes a positive turn.

OPERATIONS REVIEW

For the

Year ended

period from

30 June

23 May 1995 to

1997

30 June 1996

(Rupees)

Financial Results:

Investment income

12,806,324

19,037,679

Reversal / (Provision) for diminution

in value of marketable securities

2,395,230

(12,386,588)

----------

15,201,554

6,651,091

Operating expenses

2,689,025

6,867,077

----------

Operating profit/(loss) for the

year/ period before taxation

12,512,529

(215,986)

Provision for taxation

- Current

(295,374)

- Prior

200,186

----------

Profit/(Loss) for the year/period

12,712,715

(511,360)

Accumulated loss brought forwarded

(511,360)

----------

Profit available for appropriation

12,201,355

(511,360)

Appropriation

Proposed cash dividend@ Rs. 1.15

per share i.e. 11.50% (1996: Nil)

11,500,000

Unappropriated profit/(Accumulated loss)

----------

carried forward

701,355

(511,360)

==========

Despite of the deteriorating economic and political conditions in the country

which have prevented investors from active participation in the equity markets.

Your fund has earned Rs. 12.713 million profit for the year. Our new market

operations strategy resulted profit of Rs. 2.395 million due to the reversal of

provision for diminution in value of marketable securities which has shown the

increase by the required provision. The Management has declared the cash

divided @ Rs. 1.15 per share i.e. 11.50% to its shareholders which is remark-

able under the present business climate.

FUTURE OUTLOOK

A relief package for Stock Market which has earlier announced by the Govern-

ment for the revival of Stock Market which includes exemption of taxes on in-

come from Mutual Fund has been taken positively by the Investors. The IMF

approved the USS 1.6 billion ESAF/EFF package for Pakistan which is part of

the three years structural adjustment program, the present Government move for

integrating for independent taxes for the revamping of tax administration further

the effects of devaluation by 8% are considerable factors for the growth of capital

market.

Government is considering to allow listing of state own corporations on Karachi

Stock Exchange and allow one time exemption from capital gains tax for cover-

ing their individual membership into corporate entity the listing of these compa-

nies at the bourses would surely attract heavy subscription and increase the

scope of buying for the local as well as Foreign Investors. Tax exemption on

investment in Term Finance Certificate issued by private sectors public limited

company should yield positive results for the Corporate Bond Market and con-

sequently the national savings scenario. As your fund is allowed to invest only

in listed securities, any improvements in the Stock Market will contribute directly

to the performance of the fund.

APPOINTMENT OF AUDITORS

The present auditors, Messrs. Taseer Hadi Khalid & Co., retire and offer them-

selves for reappointment. Members are requested to appoint auditors for the

ensuing year 1997-98 and fix their remuneration.

ACKNOWLEDGMENT

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 Or-

dinance, 1984 is enclosed.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed Balance Sheet of Confidence Mutual 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 account-

ing 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 Invest-

ment 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 Invest-

ment 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;

(i) the expenditure incurred was for the purpose of the Company's busi-

ness;

(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 contravened the provisions of Rule 8 of the

Investment Companies and Investment Adviser's Rules, 1971; and

explanations given to us, the Balance Sheet and the Profit and Loss Ac-

count and the Statement of Changes in the Financial Position together with

the notes forming part thereof give the information required by the Compa-

nies 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 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 deductable at source under the Zakat and

Ushr Ordinance, 1980.

Taseer Hadi Khalid & Co.

Karachi: 05 Nov, 1997

Chartered Accountants

BALANCE SHEET AS AT 30 JUNE 1997

30 June

Note

1997

1996

SHARE CAPITAL AND RESERVES

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

Unappropriated profit/Accumulated (loss)

701,355

(511,360)

----------

100,701,355

99,488,640

DEFERRED EXPENDITURE

PAYABLE

2,398,909

3,198,545

CURRENT LIABILITIES

Current' maturity of deferred

expenditure payable

799,636

Due to Investment Adviser

2,251,946

2,706,559

Accounts payable and

accrued expenses

290,355

1,250,480

Provision for taxation

295,374

Proposed dividend

11,500,000

----------

14,841,937

5,052,049

----------

Rupees

117,942,201

107,739,234

==========

CURRENT ASSETS

Marketable securities

- Equity Securities

19,044,363

26,999,860

- Term Finance Certificates

23,640,446

19,992,770

----------

42,684,809

46,992,630

Other investments

43,000,000

53,500,000

Accounts receivable - considered good

294,773

3,061,675

Advances and other receivables

4,857,787

2,784,200

Cash and bank balances

27,104,832

1,400,729

----------

117,942,201

107,739,234

----------

Rupees

117,942,201

107,739,234

==========

These account should be read in conjunction with the attached notes

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 30 JUNE 1997

Year

For the period from

ended

23 May 1995 to

30 June

Note

1997

1996

INVESTMENT INCOME

Capital (loss)/gain

(2,687,828)

3,718,647

Dividend income

1,263,248

641,175

Return on certificate of investment

and PLS account

9,849,551

12,011,365

Profit on Term Finance Certificates

4,381,353

2,666,492

----------

12,806,324

19,037,679

Reversal/(Provision) for diminution in

value of marketable securities

2,395,230

(12,386,588)

----------

15,201,554

6,651,091

OPERATING EXPENSES

----------

Administrative

168,836

4,157,347

Financial

506,162

719,957

Remuneration to Investment Adviser

2,014,027

1,989,773

----------

2,689,025

6,867,077

----------

OPERATING PROFIT/(LOSS) BEFORE TAXATION

12,512,529

(215,986)

Provision for taxation

Current

(295,374)

Prior

200,186

----------

PROFIT/(LOSS) FOR THE YEAR/PERIOD

12,712,715

(511,360)

Accumulated loss brought forward

(511,360)

----------

Profit available for appropriation

12,201,355

(511,360)

APPROPRIATION:

Proposed cash dividend @Rs. 1.15 per share

i.e. 11.50% (1996: Nil)

11,500,000

Unappropriated profit carried

----------

forward/(Accumulated loss)

Rupees

701,355

(511,360)

==========

These account should be read in conjunction with the attached notes

STATEMENT OF CHANGES IN FINANCIAL POSITION

FOR THE YEAR ENDED 30 JUNE 1997

Year

For the period

ended

from 23 May 1995

30 June

to 30 June

1997

1996

CASH FLOW FROM

OPERATING ACTIVITIES

Profit/(Loss) before taxation

12,512,529

(215,986)

Adjustments for:

Deferred cost

253,991

(Reversal)/Provision for diminution in value of

marketable securities

(2,395,230)

12,386,588

----------

Operating profit before working capital changes

10,117,299

12,424,593

(Increase)/Decrease in current assets

Marketable securities

6,703,051

(59,379,218)

Other investments

10,500,000

(53,500,000)

Accounts receivable

2,766,902

(3,061,675)

Advances and other receivables

(1,021,722)

(2,137,318)

Increase/(Decrease) in current liabilities

Due to Investment Adviser

(454,613)

2,706,559

Accounts payable and accrued expenses

(960,125)

1,245,480

----------

27,650,792

(101,701,579)

Tax paid

(1,147,053)

(646,882)

----------

Cash generated/(used) from operations

26,503,739

(102,348,461)

CASH FLOW FROM

FINANCING ACTIVITIES

Issuance of shares

99,965,000

Deferred expenditure payable

(79,636)

3,749,190

----------

Net cash (used)/generated from financing activities

(799,636)

103,714,190

----------

Net increase in cash and bank balance

25,704,103

1,365,729

Cash and bank balance at beginning

of the year / period

1,400,729

35,000

Cash and bank balance at the end

----------

of the year / period

Rupees

27,104,832

1,400,729

==========

NOTES TO THE ACCOUNT

FOR THE YEAR ENDED 30 JUNE 1997

1. STATUS AND NATURE OF BUSINESS

The company was incorporated on 16 June 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 23 May 1995 and is listed on

Karachi Stock Exchange. The company has entered into an agreement with an

associated company, Confidence Financial Services Limited to act as its "Invest-

ment Adviser".

2. ACCOUNTING POLICIES

The significant accounting policies are summarized below ·

2.1 Accounting convention

The accounts of the Company are prepared under the historical cost conven-

tion.

2.2 Marketable Securities

The Company has valued its investment 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 Revenue recognition

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

books of the company declaring the dividend and is shown net of Zakat

deducted.

(ii) Sale and purchase of securities are recognised on the date of contract.

Capital gain/loss on sale of investments is taken to income the year in

which it arises.

(iii) Income on Term Finance Certificates, Certificates of Investments and

Deposits is recorded on time proportion basis taking into account the

principal outstanding and the yield applicable.

(iv) Profit on bank PLS account is recorded on accrual basis.

2.4 Taxation

The Income Tax Ordinance, 1979 through Finance Act, 1997 has been

amended whereby, the income of Mutual Funds from assessment year 1997-

98 has been exempted from tax, subject to the condition that not less than

90% of its profit of that year distributed amongst the unit or share holders.

3. DEFERRED EXPENDITURE PAYABLE