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Security Stock Fund Limited

Annual Report 1998

Contents

Company Information

Board of Directors

Mr. A. K. M. Sayeed

Mr. Asim lftikhar

Mr. Farrukh H. Khan

Mr. Iqbal Usman

Mr. Imran Iqbal

Mr. Jan Mohammad

Mr. Mohammad Rashid Zahir

Mr. Salim Rathod

Mr. Shahid A. Khan

Mr. Sikander Gulzar

Mr. Zulfiqar Hussain

Chief Executive

Mr. Iqbal Usman

Company Secretary

Mr. Anwar Zafar

Investment Advisor

Security Fund Management Limited

Auditors

M. Yousuf Adil Saleem & Co.

Legal Advisor

Mohsin Tayebaley

Custodian

Muslim Commercial Bank Ltd.

Registered Office

& Shares Department

220, 2nd Floor, Uni Tower,

I. I. Chundrigar Road,

Karachi.

Tel: 2417770 Fax: 2419296

E-mail: fund@cyber.net.pk

Notice of 4th Annual General Meeting

Notice is hereby given that the Fourth Annual General Meeting of the Security Stock Fund

Limited will be held on Thursday, the 24th December, 1998, at 12:30 P.M. at the Best Western

Plaza Hotel, Karachi, to conduct following business.

1. To receive, consider, and adopt Audited Accounts of the Company for the year ended

30th June, 1998.

2. To appoint Auditors of the Company for the year ending 30th June, 1998.

3. To appoint ten (10) directors as fixed by the Board of Directors in accordance with the

provisions of the section 178(1) of the Companies Ordinance, 1984, for a period of three years.

The retiring directors are:

I. Mr. A.K.M. Sayeed

II. Mr. Asim Iftikhar

III. Mr. Farrukh H. Khan

IV. Mr. Iqbal Usman

V. Mr. Imran Iqbal

VI. Mr. Muhammad Rashid Zahir

VII. Mr. Jan Muhammad

VIII. Mr. Salim Rathod

IX. Mr. Shahid Ahmed Khan

X. Mr. Sikander Gulzar

XI. Mr. Zulfiqar Hussain

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

By order of the Board

ANWAR ZAFAR

Karachi;

Company Secretary

November 20, 1998

Notes:

1. The share transfer books of the Company will remain closed from December 16, 1998

to December 23, 1998 (both days inclusive).

2. 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 reach the registered office of the Company duly stamped not later than

48 hours before the meeting.

Directors' Report

We are pleased to present results for the year

ending on 30th June 1998.

During the year the stock market persisted in its

overall declining trend after a brief rise at the

start when the KSE 100 index crossed 1900. But

the initial optimism primarily generated by some

measures from the government to build investors

confidence could not sustain the market due to

decline in interest all around the world in emerging

markets. The foreign investment in equities dropped

substantially taking a heavy toll. The decline

became suddenly sharper in the last quarter when

the market was overtaken by events impacting

Country's creditworthiness and deadlock with

international lending agencies. The KSE 100

index closed at 879, down from 1565 since 30th

June 1997. This makes a total drop of over 43%

for the year and over 60% since the launch of

the fund in August 1994 when the KSE index

was some 2100. There is no sector which is not

at a substantial discount to what it was worth

previously. The notable feature this year is the

losses in blue chips until recently considered

safe heavens. The chemical sector declined by

37%, synthetic by 40%, financial by 43%, Cement

by 56%, and the apple of market's eye fuel &

energy by more than 60%. The rest of the sectors

were not in any position to oblige by offering

further room for decline.

The performance of your fund has to be seen

against such a dismal backdrop. The drop in

NAV was limited to 20% in a market which

declined by 43%. This drop was solely the result

of provision for diminution in the market value

of securities - temporary to a certain extent. The

return of the portfolio in terms of dividend income

and profit on certificates remained the same.

This attests to basic soundness of the portfolio,

which will regain its apparent losses once the

market takes an upturn. During the period investment

policy of your directors has remained focused on

prudent investment and low level of portfolio

turnover. We continue to maintain a ratio of

equity and fixed income securities. As we write

this report there are some positive signals for the

market. The sanctions imposed on Pakistan have

been partly lifted and there are encouraging signs

that the international lending agencies will soften

their stand opening way for rescheduling of debt

and further line of credit so urgently required to

avert implosion of the economy.

The computers all around the world are expected

to face software problems at the turn of the

century commonly known a The Millennium

Bug. The problem primarily arises because of

lack of space originally allocated for dates in

computer programs. It is yet not clear as to what

extent companies will be affected -- estimates

vary. We however do not expect to face any

disruption in our internal computer system having

already acquired necessary upgrades from the

software supplier. And since we are not connected

on-line to another computer system our exposure

to the probable risk of system disruption remains

limited to the extent it affects other corporate

entities we deal with such as stock exchanges

and banks.

Financial Results

Amount (Rs)

Profit for the year

2,102,191

Provision for diminution in

Market value of securities

(23,061,458)

Loss before taxation

(20,959,267)

Taxation

(533,632)

Loss after Taxation

(21,492,899)

Profit brought forward

2,099,980

Loss carried forward

(19,392,919)

Because of loss for the year no dividend could

be declared:

Auditors

M/s M. Yousuf Adil Saleem & Co., Chartered

Accountants, retire and being eligible offer

themselves for reappointment.

Pattern of Shareholding

The Pattern of Shareholding of the Company is

attached.

For and on behalf of the Board.

(IQBAL USMAN)

Dated: Nov.20, 1998

Chief Executive

Place : Karachi.

*Pattern of Holding of the Shares held by the Shareholders

As at June 30, 1998

No. of Shares

Share Holdings

Total Shares

Holders

Held

312

From

100

31,200

14,381

From

101

500

7,147,600

From

501

1,000

22,600

From

1,001

5,000

54,700

From

5,001

10,000

81,700

From

10,001

15,000

11,300

From

40,001

45,000

84,000

From

995,001

1,000,000

From

1,565,001

1,570,000

1,566,900

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

14,752

10,000,000

==========

Categories of

Shareholders

Number

Held

Percentage

INDIVIDUALS

14,748

7,391,600

73.92%

INVESTMENT COMPANIES

41,500

0.42%

JOINT STOCK COMPANIES

1,000,000

10.00%

FINANCIAL INSTITUTIONS

1,566,900

15.67%

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

14,752

10,000,000

100.00%

==========

Auditors' Report to the Members

We have audited the annexed balance sheet of SECURITY STOCK FUND LIMITED as at June

30, 1998 and the related profit and loss account and statement of changes in financial position

(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 or

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 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 by applied;

(ii) the expenditure incurred during the year 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; and

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

Companies and Investment Adviser's Rules, 1971

to us, the balance sheet profit and loss account and the statement of changes in financial

position (cash flow statement) 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 June 30, 1998 and of the Profit

and the changes in financial position for the year then ended; and

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

M. Yousuf Adil Saleem & Co.

Karachi: 20 November, 1998

Chartered Accountants

Balance Sheet as at June 30, 1998

1998

1997

Note

Rupees

SHARE CAPITAL

Authorised

10,000,000 ordinary shares of Rs. 10/- each

100,000,000

==========

Issued, subscribed and paid-up

10,000,000 ordinary shares of Rs. 10/- each

fully paid in cash

100,000,000

Accumulated (loss) / profit

(19,392,919)

2,099,980

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

80,607,081

102,099,980

DEFERRED EXPENDITURE

441,515

1,427,203

CURRENT LIABILITIES

Current maturity of deferred expenditure

935,688

985.69

Due to Investment Adviser

7,081,764

5,507,088

Creditors and accrued expenses

78,143

41,219

Income Tax

652,000

2,384,287

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

8,797,595

8,918,282

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

89,846,191

112,445,465

==========

DEFERRED EXPENDITURE

1,052,540

2,038,228

CURRENT ASSETS

Marketable Securities

78,761,120

91,793,947

Certificate of investment

4,000,000

Advances and other receivables

1,678,828

1,246,959

Cash and bank balances

4,353,703

13,366,331

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

88,793,651

110,407,237

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

89,846,191

112,445,465

==========

The annexed notes from 1 to 17 form an integral part of these accounts.

IQBAL USMAN

SALIM RATHOD

Chief Executive

Director

Profit and Loss Account

For the Year Ended June 30, 1998

1998

1997

Note

Rupees

REVENUE

Capital loss on marketable securities

(3,098,171)

(158,779)

Dividend income - net of zakat

4,856,097

3,976,523

Return on investment and bank deposits

3,351,775

5,637,205

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

5,109,701

9,454,949

EXPENDITURE

Operating expenses

202,146

120,308

Amortization of deferred expenditure

985,688

Financial charges

207,534

304,324

Remuneration of investment advisor

1,612,142

2,042,000

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

3,007,510

3,452,320

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

Profit, for the year

2,102,191

6,002,629

(Provision) / Reversal of diminution in value

of marketable securities

(23,061,458)

10,780,273

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

(Loss) / Profit before taxation

(20,959,267)

16,782,902

Provision for taxation

Current year

(652,000)

1,245,115

Prior years'

118,368

833,014

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

(533,632)

(2,078,129)

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

(Loss) / Profit for the year after taxation

(21,492,899)

14,704,773

Accumulated profit/(loss) brought forward

2,099,980

(12,604,793)

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

Accumulated (loss) /profit carried forward

(19,392,919)

2,099,980

==========

The annexed notes from 1 to 17 form an integral part of these accounts

IQBAL USMAN

SALIM RATHOD

Chief Executive

Director

Statement of Changes in Financial Position

(Cash Flow Statement)

For the Year Ended June 30, 1998

1998

1997

Rupees

A. CASH FLOW FROM OPERATING ACTIVITIES

(Loss) / Profit before taxation

(20,959,267)

16,782,902

Adjustment for items not involving movement of funds

Amortization of deferred expenditure

985,688

Provision / Reversal of provision for diminution

in value of marketable securities

23,061,458

(10,780,273)

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

24,047,146

(9,794,585)

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

Operating profit before working capital changes

3,087,879

6,988,317

EFFECT ON CASH FLOW DUE TO WORKING

CAPITAL CHANGES

Increase in current assets

Advances and other receivables

(340,750)

(651,500)

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

2,747,129

6,336,817

Increase/(decrease) in current liabilities

Due to Investment Adviser

588,988

868,769

Accrued expenses

36,924

( 175,516)

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

625,912

693,253

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

Cash used in operations

3,373,041

7,030,070

Income tax paid

(2,357,037)

(1,012,959)

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

Net cash from operating activities

1,016,004

6,017,111

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

B. CASH USED IN INVESTING ACTIVITIES

Marketable securities

(10,028,632)

(32,112,109)

Short term investment

22,000,000

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

Net cash used in investing activities

(10,028,632)

(10,112,109)

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

Net decrease in cash and cash equivalents

(9,012,628)

(4,094,998)

Cash and bank balances at the beginning of the year

13,366,331

17,461,329

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

Cash and bank balances at the end of the year

4,353,703

13,366,331

==========

IQBAL USMAN

SALIM RATHOD

Chief Executive

Director

Notes to the Accounts

For the Year Ended June 30, 1998

1. STATUS AND NATURE OF BUSINESS

1.1 The Company was incorporated on January 29, 1994, as a public limited company under

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

'under the Investment Companies and Investment Adviser's Rufles, 1971. The Company

is listed on the Karachi, Lahore and Islamabad stock exchanges. The object of the

company is to carry on the business of a close-end mutual fund and to invest its assets

in securities which are listed or proposed to be listed on the stock exchanges.