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Security Stock Fund Limited

Annual Report 2001

Contents

COMPANY INFORMATION

Board of Directors

Mr. Abid Hussain Zuberi - Chairman

(from October 18, 2001)

Mr. Iqbal Usman - Chief Executive

Mr. Abdul Hamid Dagia

Mr. Aftab Q. Munshi

Mr. Ali H. Hamdani

Mr. Anis Wahab Zuberi

Mr. Basir Shamsie

Mr. Mohammad Sajid

Mr. Munaf Ibrahim

Mr. M. Habib-ur-Rahman

Company Secretary

Syed Owais Wasti

Investment Adviser

Security Fund Management Limited

Auditors

M. Yusuf Adil Saleem & Co.

Legal Adviser

Mohsin Tayebaly & Co.

Custodian

Muslim Commercial Bank Ltd.

Registered Office

1306-1307, Chapal Plaza,

Hasrat Mohani Road,

Karachi-74000.

Tel: 021-2441311-4

Fax: 021-2425652

Shares Department

404 Trade Tower,

Abdullah Haroon Road,

Near Metropole Hotel, Karachi-75530

Tel: 021-5687839 - 021-5685930

NOTICE OF THE ANNUAL GENERAL MEETING

Notice is hereby given that the Seventh Annual General Meeting of the Company will be held at 12.00 noon on Saturday,

December 22, 2001 at Beach Luxury Hotel, Karachi, to transact the following business:

1. To confirm the Minutes of the Sixth Annual General Meeting held on December 14, 2000.

2. To receive, consider and adopt the Audited Accounts of the Company together with the report of Directors and

Auditors for the year ended June 30, 2001.

3. To approve the payment of cash dividend @ 4% i.e., Rs. 0.40 per share of Rs. 10/- each for the year ended June

30, 2001.

4. To appoint Auditors and fix their remuneration for the year 2001-2002. The present Auditors Messrs. M. Yousuf

Adil Saleem & Co. Chartered Accountants retire and being eligible, offer themselves for re-appointment.

5. To elect seven (7) directors, as fixed by the Board of Directors, pursuant to section 178(1) of the Companies

Ordinance, 1984, for a period of three years.

6. To transact any other business with the permission of the Chair.

By order of the Board

Syed Owais Wasti

Karachi: November 10, 2001

Company Secretary

Notes:

1. The share transfer books of the Company will be closed from Saturday, December 15, 2001 to Saturday December

22, 2001 (both days inclusive) to determine the entitlement of cash dividend. Transfers received at the Share

Department of the Company at 404 Trade Tower, I. I. Chundrigar Road, Karachi at the close of the business on

Friday December 14, 2001 will be treated in time for the entitlement of 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. A corporation may appoint a person, who is not a member, as proxy.

3. Proxy forms in order to be effective must be received at the Company's Registered Office at 1306-1307, Chapal

Plaza, Hasrat Mohani Road, Karachi-74000, duly completed and signed not later than 48 hours before the meeting.

4. Account holders/sub-account holders holding book entry securities of the Company in Central Depository System

(CDS) of Central Depository Company of Pakistan Limited (CDC) who wish to attend the AGM are requested

to please bring their original National Identity Card or Passport with a photocopy duly attested by their bankers

for identification purposes. In case of corporate entity, the board of directors' resolution / power of attorney with

specimen signature of the nominee is required (unless it has been provided earlier) at the time of the meeting.

5. Members are requested to promptly communicate to the Company any change in their address to ensure prompt

delivery of mail.

DIRECTORS' REPORT

The Board of Directors of the Security Stock Fund Limited presents the Annual Report for the year ended June

30, 2001.

1. Change in Shareholding of Security Fund Management Limited

ABAMCO Limited and its subsidiary Confidence Financial Service Limited acquired the entire shareholding

of your investment adviser from BMA Capital Management Limited, Security Investment Bank Limited and

Saudi Pak Industrial and Agricultural Investment Company (Pvt.) Limited. ABAMCO, is a subsidiary of

Jahangir Siddiqui & Co. Limited, country's leading corporate brokerage house. Other share holders of ABAMCO

include International Finance Corporation, AMVESCAP plc., a leading global asset management company

and Muslim Commercial Bank Limited, Pakistan's leading commercial bank in the private sector. ABAMCO

is registered as an investment adviser and asset management company with the Securities and Exchange

Commission of Pakistan (SECP) and is managing a closed end mutual fund, BSJS balanced Fund Limited

(BBF) and an open-ended mutual fund, Unit Trust of Pakistan (UTP). BBF was offered to public in January

1996, with a paid up capital of Rupees one hundred fifty million. In September 2000, ABAMCO acquired

the controlling shares of Confidence Financial Services Limited, an investment advisor managing Confidence

Mutual Fund Limited (CMF), having a paid up capital of Rupees one hundred million. Subsequently CMF

was merged with BBF and the paid up capital of BBF was raised to Rupees two hundred fifty million. This

was the first merger of mutual funds in Pakistan. The open-ended mutual fund, UTP has a net assets of

Rupees seven hundred fifty million. Both UTP and BBF have been assigned AA(f) by PACRA, which denotes

"funds' ability to consistently outperform its peers with strong capacity to respond to future opportunities

and stress situation". The assets under management of ABAMCO are over Rupees one billion, which makes

it the biggest asset management company in the private sector in Pakistan.

Under the new management your investment adviser, Security Fund Management Limited (SFM), would

like to assure the valued shareholders of Security Stock Fund Limited that they will relentlessly work with

the objective of providing them value in terms of investment performance. Towards this objective, they stand

fully committed.

2. Change in Directorship

Consequent upon the change in the management, the Board of your company was re-constituted. Messrs.

Imran Iqbal, Farrukh H. Khan, Mudassar Malik, Abdul Sattar Raja, Abdul Samad Khan, Muhammad Saeed

Akhtar, Noman Ahmad Qureshi and Saleem Rathod resigned and in their place Messrs Abid Hussain Zuberi,

Mohammad Habib ur Rahman, Munaf Ibrahim, Basir Shamsie, Abdul Hamid Dagia, Mohammad Sajid, Ali

H. Hamdani and Aftab Q. Munshi have been co-opted as directors to serve the remaining term of the Board.

Mr. Iqbal Usman, your Chief Executive Officer and Mr. Anis Wahab Zuberi, who served the previous Board

continue on the reconstituted Board.

Mr. Abid Hussain Zuberi, who has served as a banker in very senior positions and is very well respected

in the banking and financial community has been elected as the new chairman of the Board of Directors.

Mr. Zuberi is also the Chairman on the Boards of BBF and SFM and a director of ABAMCO.

We thank the outgoing directors for their valuable service and also thank those directors who have kindly

agreed to Serve on the newly constituted Board. Their experience and cooperation has helped in smooth

management transition. We also welcome the new directors and hope that the new Board will give a direction

to the Company for its profitable operations.

3. Operating Results:

a) Profit for the year and distribution.

Your Company earned a net profit of Rupees 3,672,098 after adjustment of prior year over provision

of income tax. Your management proposed to pay a dividend of 4% for the year, which will involve

Rupees 4,000,000. A sum of Rupees 327,902 will be utilized from brought forward profit. Rupees

579,360 will be carried forward.

b) Composition of assets

53.44% of the assets of your Company at lower of cost or market value was invested in equity. The

investment was in 41 companies. The restructuring of equity portfolio has been undertaken with the

objective of maintaining the investment in selected key companies only, which have good track record,

maintained dividend pay out and growth prospects. 14.35% of investment was in term finance certificate.

29.78% of the assets was in profit and loss sharing account with bank and 2.43% constituted as other

receivables. Your management will continue with the "balanced fund" approach and the four constituent

of investments will be equity, Government Securities, term finance certificates and short term money

market or capital market instruments.

4. Auditors

Messrs M. Yousuf Adil Saleem & Co. retire and being eligible, offer themselves for re-appointment.

5. Shareholders

A statement showing pattern of shareholding is given on page 22.

6. Election of Directors

Election to constitute the new Board of Directors will be held on December 22, 2001 as per the requirement

of the Companies Ordinance, 1984, as the term of the re-constituted Board will then expire. The new directors

to the Board were co-opted to serve the remaining term of the Board. The Board of Directors has fixed the

number of directors to seven, as against the present number of ten.

7. Thanks

The Board of Directors of the Company thanks the Securities and Exchange Commission of Pakistan for

their valuable support, understanding and guidance.

For and on behalf of the Board

Iqbal Usman

Chief Executive

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of SECURITY STOCK FUND LIMITED as at June 30, 2001 and

the related profit and loss account, cash flow statement and statement of changes in equity together with the notes

forming part thereof. for the year then ended and we state that we have obtained all the information and expla-

nations which to the best of our knowledge and belief, were necessary for the purposes of our audit.

It is the responsibility of the Company's management to establish and maintain a system of internal control, and

prepare and present the above said statements in conformity with the approved accounting standards and the requirements

of the Companies Ordinance, 1984 and Investment Companies and Investment Advisers Rules, 1971. Our respon-

sibility is to express an opinion on these statements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require

that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free

of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and

disclosures in the above said statements. An audit also includes assessing the accounting policies and significant

estimates made by management, as well as, evaluating the overall presentation of the above said statements. We

believe that our audit provides a reasonable basis for our opinion and, after due verification, 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 Advisers 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 Investment Companies and Investment Advis-

ers Rules, 1971 and are in agreement with the books of account and are further in accordance with

accounting policies consistently applied except for the changes as stated in note 2.4 with which we

concur;

ii. the expenditure incurred during the year was for the purpose of the Company's business; and

iii. the business conducted, investments made and the expenditure incurred during the year were in accordance

with the objectives of the Company;

c. in our opinion and to the best of our information and according to the explanations given to us, the balance

sheet, profit and loss account, cash flow statement and statement of changes in equity together with the notes

forming part thereof confirm with approved accounting standards as applicable in Pakistan, and, give the

information required by the Companies Ordinance, 1984 and Investment Companies and Investment Advis-

ers 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, 2001 and of the profit, its cash flows and changes in equity for the year

then ended; and

d. in our opinion zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was

deducted by the Company and deposited in the Central Zakat Fund established under Section 7 of that Ordinance.

Karachi:

M. Yousuf Adil Saleem & Co.

Dated: November 10, 2001

Chartered Accountants

BALANCE SHEET AS AT JUNE 30, 2001

2001

2000

Note

Rupees

ASSETS

Current Assets

Marketable securities

78,656,701

114,423,489

Trade debts, advances and other receivables

2,818,708

1,548,722

Bank balances

34,554,452

17,931,621

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

TOTAL ASSETS

116,029,861

133,903,832

LIABILITIES

Current Liabilities

Due to investment adviser

9,262,019

12,206,462

Accounts payable and accrued expenses

86,489

586,520

Provision for taxation

1,131,246

Dividend payable

6,101,993

19,072,342

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

TOTAL LIABILITIES

15,450,501

32,996,570

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

NET ASSETS

100,579,360

100,907,262

==========

SHAREHOLDERS' EQUITY

100,579,360

100,907,262

==========

The annexed notes form an integral part of these accounts.

IQBAL USMAN

M. HABIB-UR-RAHMAN

Chief Executive

Director

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED JUNE 30, 2001

2001

2000

Note

Rupees

INCOME

Capital (loss)/gain on marketable securities

(9,037,790)

14,426,328

Dividend income - net of zakat

8,868,488

7,034,776

Return on other investments and bank deposits

5,270,760

14,718,469

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

5,101,458

36,179,573

OPERATING EXPENSES

Remuneration to investment adviser

2,239,725

6,009,073

Financial charges

5,059

5,299

Other expenses

660,059

387,240

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

2,904,843

6,401,612

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

2,196,615

29,777,961

Reversal of provision for diminution

in value of marketable securities

392,348

2,968,273

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

2,588,963

32,746,234

Provision for prior years'

taxation written back

1,083,135

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

PROFIT FOR THE YEAR

3,672,098

32,746,234

==========

Earning per share

0.37

3.27

The annexed notes form an integral part of these accounts.

IQBAL USMAN

M. HABIB-UR-RAHMAN

Chief Executive

Director

CASH FLOW STATEMENT

FOR THE YEAR ENDED JUNE 30, 2001

2001

2000

Rupees

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation

2,588,963

32,746,234

Adjustment for items not involving movement of funds

Amortization of deferred expenditure

66,851

Reversal of provision for diminution

in value of marketable securities

(392,348)

(2,968,273)

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

(392,348)

(2,901,422)

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

Operating profit before working capital changes

2,196,615

29,844,812

(Increase)/decrease in current assets

Marketable securities

36,159,133

(9,808,150)

Dividend/Profit receivable

(1,269,984)

(1,131,733)

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

34,889,149

(10,939,883)

Increase in current liabilities

Due to investment adviser

2,239,725

6,009,073

Creditor and accrued expenses

(500,031)

444,061

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

1,739,694

6,453,134

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

Cash generated from operations

38,825,458

25,358,063

Paid to investment advisor

(5,184,168)

(3,700,000)

Income tax refund / (paid)

(48,111)

481,750

Dividend paid

(16,970,348)

(13,427,658)

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

Net cash from operating activities

16,622,831

8,712,155

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

Net increase in cash and cash equivalents

16,622,831

8,712,155

Bank balances at the beginning of the year

17,931,621

9,219,466

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

Bank balances at the end of the year

34,554,452

17,931,621

==========

IQBAL USMAN

M. HABIB-UR-RAHMAN

Chief Executive

Director

STATEMENT OF CHANGE IN EQUITY

INCORPORATING DISTRIBUTION OF PROFIT

FOR THE YEAR ENDED JUNE 30, 2001

Issued

subscribed

and paidup

Accumulated

capital

Profit/(Loss)

Total

Rupees

Balance at July 1, 1999

100,000,000

661,028

100,661,028

Profit for the year

32,746,234

Interim cash dividend @ 15%

(15,000,000)

Final cash dividend @ 17.5%

(17,500,000)

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

Balance at June 30, 2000

100,000,000

907,262

100,907,262

Profit for the year

3,672,098

Proposed final cash dividend @ 4%

(4,000,000)

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

100,000,000

579,360

100,579,360

==========

IQBAL USMAN

M. HABIB-UR-RAHMAN

Chief Executive

Director

NOTES TO THE ACCOUNTS JUNE 30, 2001

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 is registered as an investment company under the Investment Companies and

Investment Adviser Rules, 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.

1.2 The Company has an agreement with the Security Fund Management Limited (an approved investment

adviser) to provide investment advisory services. Muslim Commercial Bank Limited is the custodian

of Fund's securities.

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Accounting Convention

These accounts have been prepared under the 'historical cost convention'.

2.2 Basis for preparation

These accounts have been prepared in accordance with International Accounting Standards as applicable

in Pakistan.

2.3 Taxation

Current

The charge for current taxation is based on taxable income at the current tax rates after taking into

account tax credits and rebates available. There is an exemption of income tax under clause 102D of

the Second Schedule to the Income Tax Ordinance, 1979, subject to the condition that not less than

90% of income of that year is distributed amongst the shareholders.

2.4 Marketable securities

The Company has changed its accounting policy with respect to valuation of investment as the management

consider it more appropriate to value its investments at lower of moving average cost and middle

market price on an individual investment basis. The provision, if any, required to bring marketable

securities to market value is charged to profit and loss account.

Middle market price means the average of highest and lowest quotation for the balance sheet date.

Had the accounting policy not been changed the profit before taxation for the year would have been

higher by Rs. 10,410,683/- (including effect of decrease in profit relating to current year amounting

to Rs. 78,056/-). The effect of this change has been charged to current year's profit.

The benchmark treatment in International Accounting Standard (IAS)-8 "Net Profit or Loss for the

Period, Fundamental Errors and Changes in Accounting Policies" requires that change in accounting

policy should be applied retrospectively and the restatement of the opening balance of retained earning

of the earliest period presented. The restatement was not practicable as the change in value of investment

would have affected the amount of net assets and remuneration to the investment adviser of last year,

the allowed alternative treatment of IAS-8 has been adopted. Had the benchmark treatment been followed,

the effect would have been as follows:

PROFORMA

2001

2000

Rupees

Restated

Unappropriated profit as at July 1

907,262

661,028

Cumulative effect of change in accounting

policy with respect to valuation of investment-

provision for diminution in value of marketable

securities

(10,608,890)

(8,281,896)

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

Opening retained earning as restated

(9,701,628)