SafeWay Mutual Fund Limited - Annual Reports 2004

SAFEWAY MUTUAL FUND LIMITED

ANNUAL REPORT 2004

Dr. Wasim Azhar

Chariman

Mr. Tariq Aleem

Chief Executive Officer

Mr. Farooq Lakhani

Mr. Mahmood Ahmed

Mr. S. M. Yousuf

Mr. Shahid Latif Dar

Mr. Wasif Mustafa Khan

Audit Committee

Mr. Farooq Lakhani

Chairman

Mr. Mahmood Ahmed

Member

Mr. Shahid Latif Dar

Member

Company Secretary

Mr. Salman Haider

Chief Financial Officer

Mr. Moeen Arshad

Auditors

Syed Husain & Co.

Chartered Accountants

Bankers

Muslim Commercial Bank Limited

Investment Adivser

Safeway Fund Limited

Custodian

Central Depository Company of Pakistan Limited

8th Floor, Stock Exchange Building,

Stock Exchange Road,

Karachi.

Registered Office

4th Floor, Crescent Standard Tower

10-B, Block E-2, Gulberg III Lahore

Directors' Report & Chief Executive Review

The Board of Directors of Safeway Mutual Fund Limited (the "Company") is pleased to present the annual report

of the Company together with the audited accounts for the year ended June 30, 2004.

For the year

Correspond. year

Rupees

Return on investments

130,959,936

84,250,133

Operating expenses

9,699,555

5,341,756

Net profit after taxation

121,561,801

78,780,507

Earning per share

7.37

9.27

Net asset value

434,957,152

252,866,821

Net asset value per share

26.36

16.86

Dividend - bonus shares

25%

10%

The year under review witnessed a significant improvement in results as the Company secured a profit of Rs. 122

million against the corresponding year's profit of Rs. 79 million. This is mainly on account of capital gains realized

to the tune of Rs 33 million during the year as compared to Rs. 10 million in the last year and unrealised gains

amounting to Rs. 87 million (2003: Rs. 66 million) as on the balance sheet date. Keeping in view the post right issue

position the management has decided not to sale the investments with rising market prices trends. The Company

has adopted a cautious approach and capitalized on the opportunities in the capital market.

Appropriations

Keeping in view the good performance of the Company, the Directors are planned to issue Bonus Shares in proportion

of one share for every 4 shares held i.e. 25% (2003: one share for every 10 shares held i.e. 10%).

Right Issue

During the year the paid up share capital of the Company was raised by way of 150% Right Issue at a premium of

Rs. 5 per share. The issue was fully underwritten and as the closing dates were subsequent to the year end, therefore,

the significant results of the right issue will be reflected in the subsequent periods. The management has planned

that the right issue proceeds will be utilized to expand business operations of the Company and to take advantage

of the present attractive stock market conditions. It is envisaged that the additional capital will have a positive impact

on the business operation and financial performance of the Company in the growing market and hence would result

in improved return to the shareholders in future.

Stock Market

The primary and secondary equity market remained highly liquid. The initiative by the Government of Pakistan to

channelize the liquidity into productivity is clearly visible by the privatization of the government holdings in the public

sector. This has resulted in achieving a milestone of twenty billion dollar mark in terms of market capitalization.

The secondary market also witnessed a growth in the mutual fund sector with a number of investment houses

structuring there portfolios. The investment services industry is expected to grow and become more competitive.

The secondary market offers immense potential and opportunity for the players who want to be competitive in this

asset class.

The stock market, in line with the aforesaid achievements, reacted very well as the KSE-100 Index closed at 5,279

on June 30, 2004 as compared to 3,402 on June 30, 2003 showing an increase of 55%.

Future Outlook

Stock market investors are presently cautious because of the economic and political uncertainties in the region.

However, we expect that the stock market will continue to attract more inflows. It is also anticipated that the proposed

privatization of Kot Adu Power Project and Pakistan State Oil will positively contribute towards the stock performance.

Keeping in view the constantly improving regulatory environment of the capital markets, new reforms by the government

and other indicators such as increase in foreign exchange reserves and low interest rates scenarios, we look forward

that the stock market would continue to offer better returns to the investors.

Changes in Board of Directors

Mr. Mahmood Ahmed, Chief Executive of the Company tendered his resignation on 27 March 2004, however, he

will continue to act as Director on the Board of the Company. The Board accepted his resignation and appointed

Mr. Tariq Aleem as Chief Executive of the Company subject to the approval of SECP. In addition, Mr. Imran Kamal,

Director and Mrs. Samina Hamid, Director also resigned on February 28, 2004 and June 22, 2004 respectively and

the Board appointed Mr. Wasif Mustafa Khan and Mr. S. M. Yusuf in their place subject to the approval of SECP.

Code of Corporate Governance (CCG)

The Company for the year ended June 30, 2004 has duly complied with the provisions of the relevant code for good

corporate governance. The directors hereby confirm following as required by Clause (XiX) of the Code:

The preparation of financial statements is the responsibility of the management of the Company. The enclosed

financial statements fairly present its state of affairs, the result of operations, cash flow and changes in equity,

statement of movement in reserves and distribution statement of the Company.

Proper book of accounts have been maintained as required by the Companies Ordinance, 1984 and Non-Banking

Finance Companies (Establishment and Regulation) Rules 2003. The Company has followed the International

Accounting Standards (IAS) as applicable in Pakistan.

The management has applied appropriate accounting policies during the year, which are also consistent with the

last year, except those, which are changed due to adoption of new IAS by the Securities & Exchange Commission

of Pakistan.

The accounting estimates are based on reasonable and prudent judgment and are in accordance with the criteria

available in the respective IAS (as applicable in Pakistan).

There exist sound internal controls, which were effectively implemented and monitored during the year under review.

There are no doubts upon the Company's ability to continue as a going concern.

There has been no material departure from the best practices of CCG.

The key financial data of nine years are summarized in note 15 to the accounts.

There are no outstanding statutory payments on account of taxes, duties, levies and charges.

The statement as to the value of investments of provident fund, gratuity and pension funds is not applicable as the

Investment Adviser is managing the Fund.

The detailed pattern of share holding is enclosed.

During the year under review four Board meetings were held. The attendance of each director at the meetings of

the Board of Directors is as follows:

Directors

Number of Board meetings attended

Mr. Tariq Aleem

4

Mr. Mahmood Ahmed

4

Mr. Farooq Lakhani

1

Dr. Wasim Azhar

0

Mr. Wasif Mustafa Khan (newly appointed)

2

Mr. S.M. Yusuf (newly appointed)

0

Mr. Shahid Latif Dar

4

Mr. Imran Kamal (resigned)

2

Mst Saima Hamid Khan (resigned)

0

Grant of leave was given by the Board to the Directors, who could not attend the Board meeting.

During the year under review no trading in the Company's shares were carried out by the directors, CEO, CFO,

Company Secretary and their spouses including minor children.

Investment Policy

The Investment policy of the company is the same as stated in its Articles of Association duly approved by the

commission and respective stock exchanges which inter alia aims at achieving growth in assets to ensure regular

return to its shareholders. The company invests all its assets in listed securities, which comprise quality growth

stocks and fixed income securities. The ratio of distribution among securities depends on the prevailing market

conditions. The selection of stocks among different sectors is carried out on the basis of their past record in terms

of their performance, dividend payout and future growth potential under the directions of the Investment Adviser.

Auditors

The retiring auditors M/s Syed Husain and Company, Chartered Accountants being eligible offer themselves for re-

appointment. As suggested by the audit committee, the Board of Directors has recommended their appointment as

auditors of the Company for the year ending June 30, 2005.

Acknowledgment

The directors wish to place on record their appreciation to employees at all levels for their dedication and commitment,

thank all our shareholders and members stock exchanges for the commitment and trust reposed in us. Finally the

directors acknowledge the valuable assistance, support and guidance given by the Securities and Exchange

Commission of Pakistan.

Statement of Compliance with the

Code of Corporate Governance

This statement is being presented to comply with the Code of Corporate Governance contained in listing regulations

(regulation # 37) of Karachi Stock Exchange (Guarantee) Limited and Lahore Stock Exchange (Guarantee) Limited

for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance

with the best practices of corporate governance.

The Company has applied the principles contained in the Code in the following manner:

The board of directors comprise of seven directors. The Company encourages representation of independent non-

executive directors on its board. At present the board includes at least 3 independent non-executive directors.

The directors have confirmed that none of them is serving as a director in more than ten listed companies, including

this Company.

All the resident directors of the Company are registered as taxpayers and none of them has been convicted by a

Court of competent jurisdiction as a defaulter in payment of any loan to a banking company, a DPI or an NBFI. No

one is a member of Stock Exchange.

A casual vacancy occurring in the board on February 28, 2004 and June 22, 2004 by resignations of Mr. Imran

Kamal and Mrs. Samina Hamid Khan respectively was filled up by the directors within 30 days thereof by appointing

Mr. Wasif Mustafa Khan and Mr. S. M. Yusuf subject to the approval of SECP.

The Company has prepared a 'Statement of Ethics and Business Practices', which has been signed by all the

directors and employees of the Company.

The board has developed a vision/mission statement, overall corporate strategy and significant policies of the

Company. A complete record of particulars of significant policies along with the dates on which they were approved

or amended has been maintained.

All the powers of the board have been duly exercised and decisions on material transactions, including appointment

and determination of remuneration and terms and conditions of employment of the CEO and other executive directors,

have been taken by the board.

The meetings of the board were presided over by the Chairman and, in his absence, by a director elected by the

board for this purpose and the board met at least once in every quarter. Written notices of the board meetings, along

with agenda and working papers, were circulated at least seven days before the meetings. The minutes of the

meetings were appropriately recorded and circulated.

The Board arranged orientation courses for its directors during the year to apprise them of their duties and

responsibilities.

The Board has approved appointment of Company Secretary/ CFO/ Internal Auditor alongwith the terms and conditions

of employment, as determined by the CEO.

The directors' report for this year has been prepared in compliance with the requirements of the Code and fully

describes the salient matters required to be disclosed.

The financial statements of the Company were duly endorsed by CEO and CFO before approval of the Board.

The directors, CEO and executives do not hold any interest in the shares of the Company other than that disclosed

in the pattern of shareholding.

The Company has complied with all the corporate and financial reporting requirements of the Code.

Statement of Compliance with Best Practices Code of Corporate Governance

We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate

Governance prepared by the Board of Directors of SAFEWAY MUTUAL FUND LIMITED (the Company) to comply

with the Listing Regulation No. 37 of Karachi Stock Exchange and Chapter XI of the Listing Regulations of the

Islamabad Stock Exchange where the Company is listed.

The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of the

Company. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether

the Statement of Compliance reflects the status of the Company's compliance with the provisions of the Code of

Corporate Governance and report if it does not. A review is limited primarily to inquiries of the Company personnel

and review of various documents prepared by the Company to comply with the Code of Corporate Governance.

As part of our audit of financial statements we are required to obtain an understanding of the accounting and internal

control systems sufficient to plan the audit and develop an effective audit approach. We have not carried out any

special review of the internal control system to enable us to express an opinion as to whether the Board's statement

on internal control covers all controls and the effectiveness of such internal controls.

Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance

does not appropriately reflect the Company's compliance, in all material respects, with the best practices contained

in the Code of Corporate Governance, as applicable to the Company for the year ended June 30, 2004.

Auditors' Report to the Members

We have audited the annexed balance sheet of SAFEWAY MUTUAL FUND LIMITED as at June 30, 2004 and the

related profit and loss account, cash flow statement, distribution statement, Statement of movement in equity and

reserves 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 explanations 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 financial statements in conformity with the approved accounting standards, the requirements

of the Companies Ordinance, 1984 and the Non-Banking Finance Companies (Establishment and Regulation) Rules,

2003. Our responsibility is to express an opinion on these statements based on our audit.

We conducted our audit in accordance with the International Standards on Auditing as applicable in Pakistan. These

standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies

and significant estimates made by management, as well as, evaluating the overall presentation of the financial

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 the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;

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 Non-

Banking Finance Companies (Establishment and Regulation) Rules, 2003 and are in agreement with

the books of account and are further in accordance with accounting policies consistently applied;

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 objects 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, distribution statement, Statement of movement in equity

and reserves and statement of changes in equity together with the notes forming part thereof conform with

approved accounting standards as applicable in Pakistan, and, give the information required by the Companies

Ordinance, 1984 and the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 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, 2004 and of the profit, its cash flows, its distributions, Statement of movement in equity and reserves

and changes in equity for the year then ended; and

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

Balance Sheet

As at June 30, 2004

Note

2004

2003

Rupees

ASSETS

Current Assets

2,888,067

10,713,391

Bank balances

3

1 ,264,702

122,020

Advances, deposits and other receivables

4

23,478

4,724,867

Accounts receivable

5

_

4,039,471

Placements

248,608,334

145,834,719

Short term investments

6

252,784,581

165,434,468

Non Current Assets

188,849,099

91,561,178

Long term investments

6

441,633,680

256,995,646

Total Assets

Current Liabilities

6,139,609

3,918,698

Due to investment advisor

7

536,919

210,127

Accounts payable and accrued expenses

8

6,676,528

4,128,825

434,957,152

252,866,821

NET ASSETS

Share Capital and Reserves

500,000,000

200,000,000

Authorized share capital

165,000,000

150,000,000

50,000,000 (2003: 20,000,000)

41,250,000

15,000,000

ordinary shares of Rupees 10 each

122,408,757

42,096,956

Issued, subscribed and paid up share capital

9

106,298,395

45,769,865

Reserve for issue of bonus shares

434,957,152

252,866,821

Unappropriated profit

-

Gain on remeasurement of investments available for sale

6.1