| Prudential Stocks Fund Limited |
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| Annual
Report 1999 |
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| CONTENTS |
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| Corporate
Information |
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| Notice
of meeting |
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| Board
of Directors' Report. |
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| Auditors'
Report |
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| Balance Sheet |
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| Profit and Loss Account |
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| Cash Flow Statements |
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| Statement of Movement
in Equity and Reserves |
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| Distribution
Statement |
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| Notes to the Accounts |
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| Statement of
Income and Expenditure(Investment Advisor) |
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| Pattern of Certificate Holdings |
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| CORPORATE
INFORMATION |
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| BOARD
OF DIRECTORS |
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|
| Mr.
Rashidullah Yacoob |
|
Chairman |
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| Mrs.
Sanober Akhter Yacoob |
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Vice Chairperson |
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| Syed
Samir Rauf |
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Chief Executive |
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| Haji
Abdul Ghani |
|
Director |
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| Mr.
Shahid Nasim |
|
Director |
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(Nominee of I.C.P.) |
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| Mr.
Manzurul Haq |
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Director |
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(Nominee of N.D.F.C.) |
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| Mr.
Manzoor Saber |
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Director |
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(Nominee of N.D.F.C.) |
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| Mr.
Muhammad Asif Dar |
|
Director |
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| INVESTMENT
ADVISOR |
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| Prudential
Fund Management Limited |
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| Prudential
House, Hassan All Street, Off: I. I. Chundrigar Road, Karachi. |
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| COMPANY
SECRETARY |
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REGISTRAR |
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| Mr.
Muhammad Yunus |
|
Shares & Corporate
Services (Pvt) Ltd. |
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|
Mehersons Estate,
Block-E, |
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On B-E-l, Talpur Road, |
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|
Karachi |
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| AUDITORS |
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| Taseer
Hadi Khalid & Co. |
|
STOCK EXCHANGE LISTING |
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| Chartered
Accountants |
|
Prudential Stocks Fund
Limited is Listed on |
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| First
Floor, Sheikh Sultan Trust Building, |
|
Karachi, Lahore and
Islamabad Stock |
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| Beaumount
Road, Karachi. |
|
Exchanges. |
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| LEGAL
ADVISOR |
|
PUBLIC INFORMATION |
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| M/s.
Fazl-e-Ghani Khan & Co., |
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Financial Analysts, Stock
Brokers, |
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| F-72/1,
Block-8, KDA Sch-5, |
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Interested Investors,
Financial media desiring |
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| Kehkashan,
Clifton, Karachi. |
|
information about the
Company should contact: |
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|
Mr. Muhammad Yunus at
Company's |
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| BANKERS |
|
registered office, |
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| Prudential
Commercial Bank Ltd. |
|
Karachi. |
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| Faysal
Bank Ltd. |
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| Askari
Commercial Bank Ltd. |
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| Industrial
Development Bank of Pakistan. |
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SHAREHOLDERS INFORMATION |
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|
Enquiries concerning lost
share certificates, |
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| CUSTODIAN |
|
change of address,
verification of transfer |
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| Faysal
Bank Limited |
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deeds and shares
transfers should be directed |
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| I.
I. Chundrigar Road, Karachi-74200 |
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to the Registrar M/s.
Shares & Corporate |
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|
Services (Pvt) Limited. |
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| REGISTERED
OFFICE |
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| Prudential
House, Hasan Ali Street, |
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| Phones:
2628833-8 Lines |
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| Fax:
2630873. Telex: 23984 PRUD PK |
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| NOTICE
OF MEETING |
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| Notice
is hereby given that the Ninth Annual General Meeting of PRUDENTIAL STOCKS |
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| FUND
LIMITED will be held on Friday, March 31, 2000 at 3.30 p.m. at Beach Luxury
Hotel, |
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| Moulvi
Tamizuddin Khan Road, Karachi to transact the following business: |
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| 1.
To confirm the Minutes of the Eight Annual General Meeting of the Company
held on |
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| February
27, 1999. |
|
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| 2.
To receive, consider and adopt the Audited Accounts of the Company for the
year |
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| ended
June 30, 1999 along with Auditors' and Directors' Report thereon. |
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| 3.
To appoint Auditors to hold office till the conclusion of next Annual General
Meeting |
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| and
to fix their Remuneration. |
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| 4.
To transact any other business that may be placed before the meeting with the |
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| permission
of the chair. |
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|
By order of the Board |
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|
Muhammad Yunus |
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| Karachi:
March 10, 2000 |
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Company Secretary |
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| NOTES: |
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| 1.
The Share Transfer Books of the Company will remain closed from March 30,
2000, |
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| to
April 10, 2000. (both days inclusive). |
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| 2.
A member entitled to attend and vote at the meeting is entitled to appoint
another |
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| member
of the Company as a proxy to attend and vote on his/her behalf. Proxies in |
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| order
to be effective must be received at the registered office of the Company duly |
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| stamped
no later than 48 hours before the meeting. |
|
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| 3.
Members are requested to notify the company of any change in their addresses. |
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| DIRECTORS'
REPORT TO THE SHARE HOLDERS |
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| Your
Directors take pleasure in presenting the Annual Report of the Company
together with |
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| the
Audited Accounts for the financial year ended June 30, 1999. The total value
of |
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| investment
has increased by 18.39% during the year as compared to 19.90% rise for the |
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| index
in the same period. The Next Assets Value increased by 23%. |
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| In
the second & third quarter of the fiscal year the economic sanctions
imposed by the world |
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| were
partially lifted and the process of recovery started and KSE-100 Index broke
the barrier |
|
| of
1400 points. In the forth quarter, the market could not sustain its recovery
due to the |
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| tension
on the Pakistan India. border. |
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|
| OPERATIONAL
PERFORMANCE: |
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| The
Company showed an operating profit before Tax Rs. 3.552 million as compared
to last |
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| year's
operating loss of Rs. 10.577 million due to reversal of provision for
diminution in value |
|
| of
marketable securities. |
|
|
| AUDITORS'
REPORT: |
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| We
do not agree with Auditors' qualifications appearing in the Auditors' report,
our point of |
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| view
for the above is as under: |
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| In
fact balance payment of Rs. 1,296,000/- out of Rs. 1,406,875/- were trading
difference |
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| lying
in credit with Prudential. Securities Limited hence this balance is in
connection with |
|
| normal
business transactions which has been adjusted against purchase of shares on
4th |
|
| July,
1999. An other balance Rs. 110,000/- debited by company to its advisor has
also |
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| subsequently
been adjusted against the accrued remuneration for the year ending June 30th |
|
| 1999. |
|
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| Faysal
Bank did not have a well developed facility to handle CDC related
transactions and |
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| subcontract
them to the third party. Commission of physical shares to CDC were done at
Rs. |
|
| 0.30
paisa per share. Prudential Stocks Fund Limited opted to give this task to
Prudential |
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| Securities
Limited with Faysal Bank consent at cost of Rs. 0.03 per share. These shares |
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| were
subsequently held on the Central Depository Company. The same policy was
adopted |
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| with
all group companies and resulted in substantial saving to the fund. |
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| With
regard to Rule 8 (K) of IAR, Prudential Securities Limited is a group company
of |
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| Prudential
Stocks Fund Limited, but not an Associated concern. The decision to trade |
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| through
Prudential Securities Limited was in the knowledge of the Board. In addition, |
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| Prudential
Securities Limited has not charged any commission to Prudential Stocks Fund |
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| Limited,
only cost payable, resulting in improvement in the bottom line. |
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| Moreover.
regarding auditors' qualifications your company has obtained independent
opinion |
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| of
Mr. Iqbal L. Bawaney, Bawaney & Partners (advocates & investment
& corporate advisers), |
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| 205-208,
Imperial Hotel Building Queens Road, Karachi which is being set out below: |
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|
| "Pursuant
to your letter dated January 3, 2000 and your recent meeting with the
undersigned, |
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| we
have deliberated upon the moot points emerging out of the qualifications of
the Annual |
|
| Accounts,
of Prudential Stocks Fund Limited (PSFL) for the year ended June 30, 1999 by
the |
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| Auditors.
M/s. Taseer Hadi, Khalid & Company (THK)." |
|
|
| We
appreciate THK's concern as their meticulous approach is to ensure proper
legal compliance |
|
| by
PSFL. However, the audit observations seem to have been made in a broad
perspective. From |
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| the
legal standpoint, our interpretation of the Rules 8(c) and 8(k) of the
Investment Companies |
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| and
Investment Advisors Rules, 1971, leads us to a conclusion that these Rules
have not been |
|
| violated.
Our views on the three issues are as follows:- |
|
|
| 1. Rule 8(c) |
|
| There
is no doubt that Rule 8(c) of the said Rules contains a categorical embargo
on |
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| making
of any "loan" or "advance" to any person by an investment
company. Such |
|
| prohibition
is however subject to an exception i.e. making of a loan or an advance in |
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| connection
with the normal business of the investment company and we are of view that |
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| the
PSFL's credit balance appearing in the books of Prudential Securities Limited
(PSL) |
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| is
neither a loan nor an advance and even otherwise falls within the exemption. |
|
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| The
terms "loan" and "advance" have been defined in many
Legal Dictionaries. The |
|
| Black's
Law Dictionary, which is most authentic defines "loan" to mean
"delivery by one |
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| party
to and receipt by another party of a sum of money upon an agreement, express
or |
|
| implied,
to repay it with or without interest". The definition further goes on to
state that |
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| loan
includes "creation of a debt by the lender, payment or an agreement to
pay money |
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| to
the debtor or any other party for the account of the debtor". Hence, a
loan would only |
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| be
created if one party hands over a certain sum of money to another party or
makes |
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| payment
on the account of the other party and which is repayable over a certain
period |
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| of
time' under an express or an implied agreement, which is not the case here.
Likewise, |
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| the
term "advance" has been defined to mean "money or value paid
before it is due or to |
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| furnish
something before an equivalent is received". Advances have been defined
to |
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| mean
"monies paid before or in advance of the proper time of payment".
You have |
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| clarified
that PSFL had not made any advance payment to PSL but this is the case of a |
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| trading
difference. If so, it cannot be regarded as advance from PSFL to PSL. |
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| The
terms "loan" or "advance" have not been defined under the
said Rules or even under |
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| the
Securities & Exchange Ordinance, 1969, pursuant to which the Rules have
been |
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| made
by the Federal Government. Hence, reliance on a para materia law becomes |
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| essential
for a proper construction of the Rule and the determination of intent of the |
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| Federal
Government behind this Rule. Section 208 of the said Ordinance, which relates |
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| to
an investment in an associated undertaking therefore becomes relevant. The |
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| explanation
in sub-section 1 of Section 208 of the said Ordinance defines investment to |
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| include
loan, advance or equity by whatever name called or any amount which is not in |
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| the
nature of normal trade credit. Although, this definition is not exhaustive
and covers |
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| other
categories of advance, yet normal trade credit is specifically excluded from
the |
|
| preview
of the term "investment". Consequently, even Section 208, which
apart from |
|
| being
a substantive law and is even more severe and onerous, necessitating passing
of |
|
| a
Special Resolution for making an investment in a associated company, excludes |
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| normal
trade credit. Hence, any trade credit allowed by one company to another in |
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| normal
course of its business, would be excluded from the term "loan" or
"advances" for |
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| the
purpose of Section 208, which means that every book debt does not become an |
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| investment.
On the other hand, in this case, the sum that was lying to the credit of PSL |
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| in
the books of PSFL was not even on account of trade credit but was on account
of |
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| trading
difference, as explained by you, which has been created by sale and purchase
of |
|
| securities
from time to time. The balance payable by one company to another and vice |
|
| versa
under such situation can be expected to keep shifting from time to time. A
credit |
|
| balance
at a given time would not become a loan or an advance. |
|
|
| PSFL
is an investment company as defined under the Securities & Exchange
Ordinance |
|
| and
is engaged primarily in buying and selling of and trading in securities.
Hence |
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| purchase
and sale of securities through a stock broker, being the primary business of |
|
| PSFL,
there is bound to be trading differences payable or receivable by PSFL to and
from |
|
| the
stock broker. Any difference recoverable from the stock broker at any stage
can by |
|
| no
stretch of imagination be considered as a loan or an advance by PSFL to PSL
as its |
|
| stock broker. |
|
|
| We
also concur with you that for the purpos3 of Section 195 of the Companies
ordinance, |
|
| 1984,
which prohibits making of loan or granting of advance or furnishing of
securities by |
|
| a
company to its directors or firm of directors or a private company of its
directors etc., |
|
| specifically
excludes a book debt, which at the inception was not in the nature of loan or |
|
| advance
as mentioned in sub-section 7 of Section 195. More specifically, only a book |
|
| debt,
which was created by virtue of a loan or an advance would fall within the
prohibition |
|
| of
sub-section 1 of Section 195 but other kinds of book debts would be excluded
for the |
|
| purpose
of the prohibition contained in sub-section 1 of Section 195. |
|
|
| It
is therefore our considered opinion that trading difference lying to the
credit of PSFL in |
|
| the
books of PSL cannot be considered as a loan or an advance within the preview
of |
|
| Rule
8(c) of the said Rules. |
|
|
| 2. Rule 8(k) |
|
| It
is correct that direct or even indirect appointment of any director, officer
Or employee of |
|
| PSFL
as an investment company of a broker is forbidden under Rule 8(k) of the said |
|
| Rules.
However, the embargo is clearly on the appointment of individual directors,
officers |
|
| and
employees of the investment company or its investment advisor but there seems
to |
|
| be
no bar on the employment of a corporate stock brokerage house with no common |
|
| directors
and in which the stake of the investment company is negligible. The Rules
were |
|
| framed
in 1971 and at that juncture, the concept of corporate members of Stock |
|
| Exchanges
was perhaps not even visualised and it is for this reason that the Government |
|
| had
perhaps not included "companies" for the purpose of prohibition
under Rule 8(k). |
|
| Hence,
appointment of a company like PSL does not seem to run counter to Rule 8(k).
The |
|
| scope
of Rule 8(k) cannot be enlarged so as to encompass a limited company in which |
|
| PSFL
has no stake whatsoever, as stated by you, with no common directors. |
|
|
| 3. Rule 15 |
|
| Rule
15 unequivocally makes it mandatory for PSFL to place and maintain its
securities |
|
| with
a custodian with the approval of the Corporate Law Authority (now Securities
& |
|
| Exchange
Commission). In fact the custodial service agreement is also required to be
got |
|
| approved
by the Commission and to go a step further even the custodian has been |
|
| saddled
with responsibility of the reporting the matter to the Commission (formerly
CLA) |
|
| in
case release of any securities is sought in contravention to the provisions
of the said |
|
| Rules.
Hence, we are inclined to concur with the observations of the Auditors. |
|
|
| You
have explained that the Custodian, namely Faysal Bank Limited did not have a |
|
| properly
developed facility for CDC related transactions on account of which the PSFL |
|
| opted
to give this task to Prudential Securities Limited with the consent of the
Board. This |
|
| also
ought to have been done with the approval of the Commission However, in case
this |
|
| is
questioned by the Commission, PSFL will have to justify the above on the
grounds of |
|
| necessity
and cost savings as this was obviously done in good faith and in the best |
|
| interest
of PSFL as an investment company and its shareholders. After all this was
done |
|
| in
good faith without having any fraudulent or improper motive whereas the
public interest |
|
| would
be upper most. |
|
|
| We
are confident that the preceding analysis would serve to clarify the
position. Should you need |
|
| any
further assistance in this matter, please let us know". |
|
|
| FUTURE
OUT LOOK: |
|
| The
future prospect of the company is dependent on the behavior of the stock
market. The |
|
| performance
of the stock market is expected to improve with the induction of technocrats
in |
|
| the
National Security Council. The agenda given for the economic revival focusing
on |
|
| resolution
of IPP's issue complete deregulation of "petroleum sector" curbing
Tax evasion, |
|
| getting
the money back from the defaulters selling of government sponsored industrial
& |
|
| financial
institutions through stock exchanges and restoring the confidence of foreign |
|
| investors
is expected to improve the fundamentals |
|
|
| Y2K
COMPLIANCE: |
|
| By
the Grace of Allah the company is now fully Y2K compliant in all its
operations. |
|
|
| AUDITORS: |
|
| Our
present auditors, M/s. Taseer Hadi Khalid & Company retire and are
eligible, for re- |
|
| appointment. |
|
|
| SHAREHOLDING
PATTERN: |
|
| The
pattern of shareholding as required by section 236 of the companies
ordinance, 1984 is |
|
| enclosed. |
|
|
|
On behalf of the Board of
Directors |
|
|
|
SYED SAMIR RAUF |
|
| Dated:
January 13th, 2000 |
|
Chief Executive |
|
|
|
| AUDITORS'
REPORT TO MEMBERS |
|
|
| We
have audited the annexed balance Sheet of Prudential Stocks Fund Limited as
at 30 |
|
| June
1999 and the related Profit and Loss account and Cash Flow Statement,
together with |
|
| the
notes to the accounts, 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 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 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 applied; |
|
|
| (ii)
the expenditure incurred 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 except that as at 30
June |
|
| 1999
the company has a receivable of Rs. 1,406,875 from an associated brokerage
house |
|
| which
we consider is a non compliance of Rule 8(c) of Investment Companies and |
|
| Investment
Adviser's Rules, 1971. The said rule prohibits an investment company from |
|
| making
a loan or advancing of money to any person except in connection with the
normal |
|
| business
of the investment company. Further, during the year all securities were
traded |
|
| through
an associated brokerage house and at 30 June 1999 securities with a value of
Rs. |
|
| 7,956,366
were physically held by an associated brokerage house which we consider is
non |
|
| compliance
of Rule 8 (k) and Rule 15 of Investment Companies and Investment Advisor's |
|
| Rules,
1971. Rule 8 (k) prohibits employment as a broker, directly or indirectly,
any director, |
|
| officer,
or employee of investment company or its investment advisor or any director,
officer |
|
| or
employee thereof. Rule~5 requires that all the securities owned or held by
the company |
|
| should
be placed and maintained with the custodian 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 and the Profit and Loss account and the 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 give respectively, a true and |
|
| fair
view of the state of the Company's affairs as at 30 June 1999 and of the
profit |
|
| and
cash flows for the year ended on that date; and |
|
|
| (d)
in our opinion, no zakat was deductible at source under the Zakat and Ushr |
|
| Ordinance,
1980. |
|
|
| Karachi: |
|
Taseer Hadi Khalid &
Co. |
|
|
Chartered Accountants |
|
|
|
|
| BALANCE
SHEET |
|
| AS
AT 30 JUNE 1999 |
|
|
|
1999 |
1998 |
|
|
Note |
Rupees |
Rupees |
|
|
| CURRENT
ASSETS |
|
|
| Marketable
securities |
|
3 |
18,156,069 |
16,430,790 |
|
| Advances,
prepayments and other receivables |
|
4 |
1,637,848 |
113,650 |
|
| Cash
and bank balances |
|
5 |
127,231 |
253,960 |
|
|
----------- |
----------- |
|
| Total assets |
|
19,921,148 |
16,798,400 |
|
|
| CURRENT
LIABILITIES |
|
|
| Due
to Investment Adviser |
|
6 |
193,264 |
157,734 |
|
| Creditors,
accrued expenses and other liabilities |
7 |
181,645 |
688,822 |
|
| Unclaimed
dividend |
|
|
81,298 |
81,298 |
|
| Provision
for taxation |
|
8 |
138,554 |
97,097 |
|
|
----------- |
----------- |
|
| Total
Liabilities |
|
594,761 |
1,024,951 |
|
|
----------- |
----------- |
|
| NET ASSETS |
|
19,326,387 |
15,773,449 |
|
|
========== |
========== |
|
| Authorised
capital |
|
| 20,000,000
ordinary shares of Rs. 10 each |
|
200,000,000 |
200,000,000 |
|
|
========== |
========== |
|
| Issued,
subscribed and paid up capital |
|
| 6,000,000
ordinary shares of Rs. 10/- each |
|
9 |
60,000,000 |
60,000,000 |
|
|
| Accumulated
loss |
|
(40,673,613) |
(44,226,551) |
|
|
----------- |
----------- |
|
|
19,326,387 |
15,773,449 |
|
|
========== |
========== |
|
| These
accounts should be read in conjunction with the attached notes. |
|
|
| SYED
SAMIR RAUF |
|
MOHAMMAD ASIF DAR |
|
| Chief
Executive |
|
Director |
|
|
|
| PROFIT
AND LOSS ACCOUNT |
|
| AS
AT 30 JUNE 1999 |
|
|
|
1999 |
1998 |
|
|
Note |
Rupees |
Rupee5 |
|
|
| SALES |
|
46,772,555 |
22,871,051 |
|
| LESS:
COST OF SALES |
|
50,638,169 |
22,967,874 |
|
|
| CAPITAL
(LOSS) |
|
(3,865,614) |
(96,823) |
|
| OTHER
INCOME |
|
11 |
795,076 |
1,192,541 |
|
|
|
|
----------- |
----------- |
|
|
(3,070,538) |
1,095,718 |
|
| LESS:
OPERATING EXPENSES |
|
| Administrative |
|
12 |
175,566 |
317,396 |
|
| Financial |
|
13 |
-- |
7,080 |
|
| Remuneration
to the Investment Adviser |
|
6.1 |
193,264 |
157,734 |
|
|
----------- |
----------- |
|
|
368,830 |
482,210 |
|
|
----------- |
----------- |
|
|
(3,439,368) |
613,508 |
|
| (Provision)/Reversal
of provision for diminution |
|
| in
value of Marketable securities |
|
7,033,763 |
10,986,764) |
|
|
----------- |
----------- |
|
| Profit/(Loss)
before taxation |
|
3,594,395 |
(10,373,256) |
|
|
| Taxation |
|
| - Current |
|
(41,457) |
(41,975) |
|
| - Prior |
|
-- |
(162,220) |
|
|
----------- |
----------- |
|
| Profit/(Loss)
for the year |
|
|
3,552,938 |
(10,577,451) |
|
|
========== |
========== |
|
| These
accounts should be read in conjunction with the attached notes. |
|
|
| SYED
SAMIR RAUF |
|
MOHAMMAD ASIF DAR |
|
| Chief
Executive |
|
Director |
|
|
|
| CASH
FLOW STATEMENT |
|
| AS
AT 30 JUNE 1999 |
|
|
|
1999 |
1998 |
|
|
Rupees |
Rupees |
|
|
| CASH
FLOW FROM OPERATING ACTIVITIES |
|
| Profit/'
(Loss) before taxation |
|
3,594,395 |
10,373,256) |
|
| Adjustments
for: |
|
|
|
| Provision/(Reversal)
of provision for diminution in value of |
|
|
|
| Marketable
securities |
|
(7,033,763) |
10,986,764 |
|
|
----------- |
----------- |
|
|
(3,439,368) |
613,508 |
|
| · |
|
|
| (Increase)/Decrease
in operating assets: |
|
|
| Marketable
securities |
|
5,308,484 |
(2,463,800) |
|
| Advances,
prepayments and other receivables |
|
(1,523,160) |
590,457 |
|
|
|
|
| Increase/(Decrease)
in operating liabilities |
|
|
|
| Due
to the Investment adviser |
|
35,530 |
105,775) |
|
| Accounts
payable, accrued expenses & other liabilities |
|
(507,177) |
(86,201 |
|
|
----------- |
----------- |
|
|
| Cash
(used for) operations |
|
(125,691) |
(1,451,811) |
|
|
|
|
| Income
tax paid |
|
(1,038) |
(225,234) |
|
|
----------- |
----------- |
|
| Net
cash flows from operating activities |
|
(126,729) |
(1,677,045) |
|
|
| Cash
and bank balances at beginning of the year |
|
253,960 |
1,931,005 |
|
|
----------- |
----------- |
|
