Vision...

Connecting people,
ideas and capital, we will be our clients'

First Choice
for achieving their financial aspirations"

Mission...
"We will put interest of our stakeholders above our own; and measure our success by how much we help them in achieving theirs".

C O N T E N T S

04- Company Information 06- Notice of Annual General Meeting 08- Director Report 12- Financial Statistical Summary 13- Statement of Compliance 15- Review Report to Member 16- Auditors Report 17- Balance Sheet 18- Profit & Loss Account 19- Statement of Comprehensive Income 20- Cash Flow Statement 21- Statement of Changes of Equity 22- Notice to Financial Statement 57- Pattern of Shareholding 59- Branch Network - Form of Proxy

Annual Report '10

COMPANY INFORMATION
Board of Directors: 1. Mr. Ali A. Malik 2. Mr. Muhammad Iqbal Khan 3. Malik Attiq-ur-Rehman 4. Mr. Shahzad Akbar 5. Mr. Mohammad Ali Khan 6. Mr. Rais Ahmed Dar 7. Mr. Amir Shahzad Audit Committee: 1. Mr. Muhammad Iqbal Khan 2. Malik Attiq-ur-Rehman 3. Mr. Shahzad Akbar 4. Mrs. Amna Butt Chief Financial Officer Mr. Rais Ahmed Dar Company Secretary Mr. Asif Mumtaz Mian, FCMA Auditors: Anjum Asim Shahid Rahman & Co. Chartered Accountants Lahore. Legal Advisor: Minto & Mirza, Advocates Registrar: Technology Trade (Pvt,) Limited. Dagia House, 241-C, Block 02, P.E.C.H.S. Off: Main Shahrah-e-Quaideen, Karachi. Tel: (92-21) 34391316-7 & 34387960-61 Fax: (92-21) 34391318 Chairman/ Director/ CEO Director Director Director Executive Director Executive Director Executive Director

Chairman Member Member Secretary Audit Committee

Annual Report '10

Page No. 4

Bankers: Allied Bank Limited. Summit Bank Limited. Bank Alfalah Limited. Bank Islami Pakistan Limited. Habib Metropolitan Bank Limited. KASB Bank Limited. JS Bank Limited. MCB Limited. My Bank Limited. NIB Bank Limited. The Bank of Punjab United Bank Limited. Principal Office: FNE House, 179-B, Abu Bakar Block, New Garden Town, Lahore Tel: (92-42) 35843722-27, 35845011-15 Fax: (92-42) 35843730. Registered Office: FNE HOUSE, 19-C, Sunset Lane 6, South Park Avenue, Phase II Extension, D.H.A. Karachi Tel: (92-21) 35395901-05 Fax: (92-21) 35395920 KSE Office: Room No. 135-136, 3rd Floor, New Stock Exchange Building, Karachi Tel: (92-21) 32472119, 32472014, 32472758 Fax: (92-21) 32472332

Page No. 5

Annual Report '10

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Annual General Meeting of the members of First National Equities Limited will be held at the registered office be located at 19-C, Sunset Lane-6, South Park Avenue, Phase II, Ext: D.H.A, Karachi on Saturday, October 30, 2010 at 7:00 p.m. to transact the following business:ORDINARY BUSINESS: 1. 2. 3. To confirm the minutes of the last Extra Ordinary General Meeting held on June 26, 2010 To receive, consider and adopt the audited annual financial statements of the company together with the directors and auditors reports thereon for the year ended June 30, 2010. To appoint auditors of the company for the year ending June 30, 2011 and to fix their remuneration. The present auditor namely Anjum Asim Shahid Rahman & Co. Chartered Accountants, retire and being eligible, has offered themselves for reappointment as auditors of the company.

SPECIAL BUSINESS. 1. 2. 3. To consider and approve the remuneration of whole-time working directors. To consider and approve authorization for the proposed sale of fixed asset of the company. To transact any other business of the company that may be placed before the meeting with the permission of the chair. Attached to this notice is a statement of material facts covering the above mentioned special business, as required under section 160(1) (b) of the Companies Ordinance, 1984.

By Order of the Board Asif Mumtaz Mian, FCMA (Company Secretary) Karachi: October 09, 2010 Notes: 1. 2. The Shares Transfer Books will remain closed from October 23, 2010 to October 30, 2010 (both days inclusive) to enable the Company to determine the right of members to attend the above meeting. Transfer received in order at office of the Companys Shares Registrar, Technology Trade (Pvt.) Ltd. Dagia House, 241-C, P.E.C.H.S. Block-2, Karachi by the close of business hours on October 22, 2010 will be treated in time for the entitlement of Vote and attending AGM. Members are also requested to immediately notify of any change in their registered addresses by writing to the office of Companys Share Registrar. A member entitled to attend and vote at this meeting may appoint another member as his/her proxy who shall have same rights as available to a member. In order to be a valid, the duly stamped, signed and witnessed instrument of proxy and the power of attorney or a notarially certified copy of such power of attorney or other authority under which it is signed must be deposited at the registered office of the company, not later than 48 hours before the time of holding the meeting. Central Depository Company account holders will further have to follow the under mentioned guidelines as laid down by the Securities and Exchange Commission of Pakistan. For Attending the Meeting In case of individual beneficial owners of CDC entitled to attend and vote at the meeting must bring his/her participant ID and account/sub account number along with valid original CNIC or valid original passport to authenticate his /her identity at the time of meeting In case of corporate entity, the Board of Directors resolution/ power of attorney with specimen signature of the nominee shall be produced (unless it has been provided earlier) at the time of the meeting. For Appointing Proxies In case of individuals beneficial owners of CDC shall submit the proxy form as per above requirements along with participant IDS and account sub account number together with attested copy of the valid CNIC or passport. The proxy shall be witnessed by two persons whose names, addresses and CNIC numbers shall be mentioned on the form. In case of corporate entity, the Board of Directors resolution/ power of attorney with specimen signature of the proxy member shall be submitted (unless it has been submitted earlier ) along with proxy form. The proxy shall produce his/her valid original CNIC or valid original passport at the time of the meeting.

3.

4.

A i.

ii. B i. ii. iii. iv.

Annual Report '10

Page No. 6

STATEMENT UNDER SECTION 160(1) (b) OF THE COMPANIES ORDINANCE OF 1984 This statement sets out the material facts concerning the special business, given in agenda items, to be transacted at the Annual General Meeting of the Company which will be held on October 30, 2010. 1. The approval of the members of the company is being sought for the directors remunerations as recommended by the Board of Directors of the Company for performing extra services as whole-time working directors. The material facts including the nature and extent of the directors interest are as follows: No. 1 Director Names Mr. Rais Ahmad Dar Extra Services Chief Financial Officer Monthly Compensation (Rs) 80,000 100,000 2 Mr. Muhammad Ali Khan Head of Sales A Company maintained Car with 150/- liters Petrol Allowance. 75,000 Chief Equity Trader A Company maintained Car with 125/- liters Petrol Allowance.

Other Benefits A Company maintained Car with 150/- liters Petrol Allowance.

Mr. Amir Shehzad

Therefore it is proposed to pass the following resolution with or without modification: Resolved that the remunerations of the whole time working directors Mr. Rais Ahmad Dar, Mr. Muhammad Ali Khan and Mr. Amir Shehzad as recommended by the board of directors be and are hereby post facto approved. 2: With a view to strengthen the liquidity position of the company as well as the efforts of decreasing the liabilities, the Board has decided to sale out the fixed asset of the company the detail of which is appended below as required under SRO 1227(1)2005 dated December 12, 2005. The consent of the members is required as per section 196(3) to sale out the fixed asset of the company.

Description Location

Commercial Plot with Boundary Wall/Main Gate Plot No. 54, Survey No. 666/C, Main Mall Road, Peshawar Cantt. Peshawar.

Area Cost Book Value Current Market Price/ Fair Value Proposed manner of selling Reason for the sale Expected Benefits to the shareholders

1100.677 S. yds (36.42 Marlas) Rs. 36.157 (ml) Rs. 36.157 (ml) Rs. 61.90 (ml) (Approximately) Negotiation. To improve the liquidity position of the company. Expected Capital Gain.

The members are requested to authorize the Chief Executive Officer of the company to finalize the sale process and other necessary requirements by passing the following resolution with or without modification: Resolved That the Chief Executive Officer of the Company be and is hereby fully authorized to sell / or otherwise dispose off in the manner he deems appropriate and finalize the sale process and other necessary requirements as required for sale or otherwise dispose off Plot No. 54, Survey No. 666/C, Main Mall Road, Peshawar Cantt. Peshawar.

Page No. 7

Annual Report '10

DIRECTORS REPORT
Dear Shareholders, On behalf of the Board of Directors, I am pleased to present the Annual Report of your Company for the year ended June 30, 2010, together with the auditors report thereon. The year 2010 was also very difficult year for the Pakistani economy that remained slow. Violence, terrorism, inflation as well as law and order incidents continued. Power outage and its shortage proved a damaging factor for the economy. Rising interest and parity rates, low availability of credits and uncertainty on political front badly affected the productivity of the different sectors. Resultantly the business sentiment was at low fade. The Stock Market as pulse of the economy also remained sluggish. Poor public interest in shares trading resulted in the low volumes of the exchange and that resulted lower income for the members. Moreover the non availability of leverage products kept the market performance under severe pressure. Financial Results Gross revenue Operating revenue (Loss) before taxation Less: taxation Profit/ (Loss) after tax Accumulated Profit/ (Loss) brought forward Accumulated Profit/ (Loss) carried forward Final Cash Dividend Final Stock Dividend Earning per share 2010 2009 (Rupees in Million) 286.5 (90.7) 75.2 (94.7) (65.09) (1,141.4) (62.6) (112.7) (127.7) (1028.7) (927.4) 101.2 (1,055.1) (927.4) (2.22) (17.89)

We are thankful to Almighty Allah that despite lack of leverage products and poor business sentiments in the country, we have succeeded to turn around the companys results. The gross and operating revenues have converted into positive figures. The net loss which was more then a billion last year has reduced to only Rs.127.7 millions. This is due to increase in other operating income, revival of receivables, and reduction in financial and administrative cost. We hope that our restructuring process of arrangements with lenders which was started in the current year will be completed in the coming period. On brokerage side we are continuously in the process of building a solid clientele base by enlarging our branches network and enhancing the business volumes from the exiting and new clientele. The leverage products which are in final phase of approval form the regulators will definitely prove a big boost for the business volumes and brokerage income. The process of successful revival of the receivables started in this period would be one of our top priorities in coming period which would ease the liquidity position .The efforts for the injection of new equity from the current and new investors are in advance stages which will definitely improve the financial health of the company. We are very positive that the results of these measures will turn the net loss into net profit in the coming period. Owing company financial position the Board of Directors has decided not to declare any dividend, bonus and not to approve any appropriation for reserves. There have been no material changes since June 30. 2010 to the date of this report. At FNE Human Resources in its business partner role, endorses strategies to raise the performance of each team member to its maximum potential. The continuous review of the organizational structure ensured the business' stability. Employees are rewarded based on performance, resulting enhanced retention and motivation at all levels. The Company is committed towards fulfilling its Corporate Social Responsibility and has been actively performing its Corporate Social Responsibility in areas of healthcare, education, environment community welfare, sports & relief work and aims to enhance its scope and contribution in the future. We at FNEL are well aware of the well being of our employees

Annual Report '10

Page No. 8

as well as the community at large. Pollution reduction and waste management processes have been distinct and are being applied to ensure minimal impact on our environment. The Company focuses on energy conservation and all departments and employees adhere to the power conservation measures. Your Company takes its contribution towards national economy seriously and has always discharged its obligations in a transparent accurate and timely manner. The Directors are pleased to confirm that: The financial statements prepared by the management of the Company, present fairly its state of affairs, the result of its operations, cash flows and changes in equity. Proper books of account of the Company have been maintained. Appropriate accounting policies have been consistently applied in preparation of financial statements and the accounting estimates are based on reasonable and prudent judgment. International Accounting Standards, as applicable in Pakistan, have been followed in preparation of the financial statements and there has been no departure from them. The system of internal control is sound in design and has been effectively implemented and monitored. Mitigating factors for significant doubts upon the companys ability to continue as going concern have been detailed in note 2.2 to the financial statements. There has been no material departure from the best practices of corporate governance, as detailed in listing regulations. Key historical data is summarized and attached. There is no material statuary payment outstanding on account of taxes, duties, levies and charges. A total of five board meetings were held during the year details of which together with attendance by each director are as follows: S. No. Name of Director Total No. of Board Meeting Number of Meeting(s) attended

1 2 3 4 5 6 7 8

Mr. Ali Aslam Malik Malik Attiq-ur-Rehman Mr. Shahzad Akbar Mr. Muhammad Iqbal khan Mr. Saad Khalid Tawab Sheikh Tajamal Rashid Mr. Muhammad Ali Khan Mr. Yoshihiro Saito

5 5 5 5 5 5 5 5

5 5 5 4 2 5 5 0

Leave of absence was granted to the Directors who could not attend the Board Meetings. As required under the Code of Corporate Governance, the Audit Committee continued to perform as per its terms of reference duty approved by the Board. Six meetings of the Audit Committee were held during the year, details of which together with attendance by each member are as follows: S. No. Name of Director Total No. of Board Meeting Number of Meeting(s) attended

1 2 3 4

Muhammad Iqbal Khan Malik Attiq-ur-Rehman Mr. Shahzad Akbar Miss Najam Raza

6 6 6 6

5 6 6 6

Page No. 9

Annual Report '10

The statement showing pattern of share holding in the company, as on June 30, 2010 is attached. The trades in the shares of the Company carried out by its Directors, CEO, CFO, Company Secretary & their spouses & minor children during the year under review are as under: Trades By: Directors, CEO, their Spouses and Minor Children Mr. Ali Aslam Malik Malik Attiq-ur-Rehman Muhammad Iqbal Khan Mr. Shahzad Akbar Mohammad Ali Khan Sheikh Tajamal Rashid Mr. Saad Khalid Tawab Yoshihiro Saito Mrs. Adeela Ali Omer Ali Malik Fatima Ali Malik Purchases/ Allotment Sales

----------------------(No. of Shares)---------------------81,476 _ _ _ 500 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

The Company Secretary furnished a Secretarial Compliance Certificate, in the prescribed form, as required under listing regulation 35(xxv) of Karachi Stock Exchange, as part of the annual return filed with the Registrar of Companies to certify the secretarial and corporate requirements of the Companies Ordinance, 1984 and listing regulations have been duly complied with. The three years term of directors elected on July 01, 2007 was ended on June 30, 2010. The following directors had been elected in EOGM held on June 26, 2010 for next term of three (3) years commencing from July 01, 2010: 1. 2. 3. 4. 5. 6. 7. Mr. Ali A. Malik Malik Attiq-ur-Rehman Mr. Muhammad Iqbal Khan Mr. Shahzad Akbar Mr. Amir Shehzad Mr. Mohammad Ali Khan. Mr. Rais Ahmad Dar.

Pursuant to Section 218 of the Companies Ordinance, 1984, it is hereby notified that the Board of Directors of the Company in its meeting held on July 08, 2010 has approved the re-appointment of Mr. Ali. A. Malik as Chief Executive Officer of the Company and appointments of Mr. Rais Ahmad Dar, Mr. Muhammad Ali khan and Mr. Amir Shehzad as Whole-Time Directors of the Company for a period of three years. The Board has also approved / recommended their remunerations as follows which shall be presented in the forthcoming AGM of the Company for the approval of the shareholders:
Monthly- Gross Salaries Rs. =400,000/=80,000/=70,000/= 75,000/Special Allowances Rs. =100,000/nil =30,000/nil

Mr. Ali A Malik Mr. Rais Ahmad Dar Mr. Muhammad Ali Khan Mr. Amir Shehzad

Chief Executive Officer Chief Financial Officer Head of Sales Chief Equity Trader

Annual Report '10

Page No. 10

These officials are also entitled some other benefits as per their terms of appointments/contracts and be subject to such adjustments, bonuses, increments and other entitlements as may be granted from time to time by the Board of Directors of the Company and/or in accordance with the Service Rules and Policies of the Company for the time being in force or amended from time to time In order to comply with the requirements of listing regulations, the Company presented all related party transactions before the Audit Committee and Board for their review and approval. These transactions have been approved by the Audit Committee and Board of Directors in their respective meetings. The details of all related party transactions have been provided in note 34 of the annexed audited separate financial statements. The present external auditors Messrs Anjum Asim Shahid Rehman & Co. Chartered Accountants shall retire at the conclusion of annual general meeting on October 30, 2010 and being eligible, have offered themselves for reappointment for the year ending on June 30, 2011. We are grateful to the Company's stakeholders for their long-lasting confidence and support. We record our appreciation and thanks to our Associated Companies, Bankers & Financial Institution, Securities and Exchange Commission of Pakistan, Central Depository Company of Pakistan and the Managements of Karachi Stock Exchange for their support and guidance. We also appreciate the valuable contribution and active role of the members of the audit and other committee in supporting and guiding the management on matters of great importance leading to growth with sustainability of the Company. Ali A. Malik (Chairman & CEO) Lahore October 08, 2010

Page No. 11

Annual Report '10

Financial Statistical Summary (2004 - 2010)

PARTICULARS 2010 OPERATING RESULTS Operating Revenues Other Operating income Gross Revenue Administrative Expenses Finance Cost Other Operating Expenses Fair value loss on remeasurement of held for trading investment - net Impairment loss on available for sale securities Unrealised gain on mark to market of derivative financial instruments Unrealised gain - letter of right Share of profit of associates - net of tax Profit / (Loss) before Tax Taxation - net Profit / (Loss) after Tax Payout Ratio BALANCE SHEET SUMMARY Non-Current Assest Fixed assets Long term Investment Deferred cost Receivable from associates Long term loans & advances Long Term deposits Current assets Short term investments Other investments Receivable against CFS/cary over transaction Trade debts Loans & advances Trade deposits & short term prepayments Accrued mark up Other Receivables Taxation Recoverable - net Cash and bank balance CURRENT LIABILITIES Trade & other payables Interest and mark-up accrued on borrowings Payable in respect of continuous funding system Short term borrowings Pre-IPO subscription towards proposed issue of term finance certificate Current maturity on long term loans Current portion of liabilities against assests subject to finance lease Net Current Assets Non-current liabilities Liabilities against assest subject to finance lease Loan from director Defferred liabilites Long Term Borrowings Net Assets REPRESENTED BY Issued, subscribed and paid-up capital Share application money Unappropriated profit / (Accumulated losses) Surplus/(deficit) on revaluation of investmentavailable for sale Total Equity and Liabilities 575,000 (1,055,103) (111,368) (591,471) 575,000 (927,418) (87,288) (439,706) 575,000 101,292 (105,236) 571,056 500,000 245,791 221,335 967,126 500,000 366,460 335,451 1,201,911 500,000 129,838 (12,541) 617,297 125,000 83,845 (22,410) 186,435 75,209 211,288 286,497 (78,707) 207,790 (164,329) (11,796) 31,665 (6,436) (90,830) (97,266) 511 (65,090) (62,595) (127,685) 2009 (94,734) 4,001 (90,733) (93,518) (184,251) (218,027) (365,259) (767,537) (40,987) (309,872) (350,859) (23,033) (1,141,429) (1,141,429) June 30, (Rupees '000) 2007 2008

2006 974,632 7,558 982,190 (140,323) 841,867 (254,919) (29,217) 557,731 (106,241) 993 (105,248) 135 452,618 (40,996) 411,622 60%

2005 440,544 16,197 456,741 (78,756) 377,985 (97,088) (11,008) 269,889 (35,551) (35,551) 234,338 (32,090) 202,248 25%

2004 11,350 198 11,548 (6,261) 5,287 (65) (638) 4,584 4,584 (14) 4,570 -

392,414 16,215 408,629 (141,960) 266,669 (196,640) (46,113) 23,916 (11,021) (11,021) 5,947 18,842 (13,341) 5,501 -

615486 21899 637,385 (143,570) 493,815 (206,433) (203,362) 84,020 20,403 595 20,998 2,088 107,106 (27,775) 79,331 30%

223,681 30,438 65,874 175,411 2,863 498,267 194,720 208,436 4,681 1,066 28,989 25,520 10,039 473,451 160,041 9,181 484,976 654,198 (180,747) 4,449 3,515 901,027 908,991 (591,471)

230,894 28,442 126,806 2,629 388,771 443,783 284,716 1,875 150 2,723 23,364 5,555 762,166 115,265 40,417 808,160 40,322 1,004,164 (241,998) 3,209 583,270 586,479 (439,706)

239,611 68,170 12,198 3,557 323,536 1,088,442 844,228 4,500 29,464 3,255 20,722 20,232 2,010,843 490,889 17,139 410,667 840,487 1,759,182 251,661 4,141 4,141 571,056

189,670 42,223 125 2,616 234,634 1,677,850 536,346 1,869 304,999 6,062 2,514 39,207 2,568,847 1,203,683 5,108 390,810 235,127 1,834,728 734,119 1,627 1,627 967,126

145,151 40,135 10,849 1,889 198,024 1,598,176 402,485 89,774 5,686 28,018 9,866 20,980 111,949 2,266,934 316,299 30,801 678,823 235,127 1,261,050 1,005,884 1,997 1,997 1,201,911

114,810 18,712 2,229 135,751 531,505 1,292,972 517,945 452,008 1,696 45,752 5,059 2,122 158,120 3,007,179 1,558,803 19,711 938,269 1,697 2,518,480 488,699 3,968 3,185.00 7,153 617,297

83,080 2,635 756 86,471 52,037 244,399 1,377 189 1,645 421 350 300,418 162,003 38,451 200,454 99,964 186,435

Annual Report '10

Page No. 12

Statement of Compliance with the Code of Corporate Governance For the year ended on June 30, 2010
This statement is being presented to comply with the Code of Corporate Governance contained in Regulation No. 35 of listing regulations of Karachi Stock Exchange 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: 1. The Board encourages the representation of independent non-executive directors on its Board. At present Board includes three independent non-executive directors. The directors of the Company 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 defaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member of a stock exchange, has been declared as a defaulter by that stock exchange. One casual vacancy occurred during the period under review and was dully filled up within stipulated time as per the requirements of the Companies Ordinance, 1984. The Company has prepared a Statement of Ethics & Business Practices, which has been signed by l 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 the determination of remuneration and terms and conditions of employment of the CEO 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 meeting, along with agenda and working papers, were circulated at least seven days before the meeting. The minutes of the meeting were appropriately recorded and circulated. The Board arranged an orientation course for the directors during the year to apprise them of their duties and responsibilities.

2.

3.

4.

5.

6.

7.

8.

9.

10.

The Board has approved the appointment of CFO, Company Secretary and Head of Internal Audit including their remuneration and 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.

11.

Page No. 13

Annual Report '10

12.

The financial statements of the Company were duly endorsed by the 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. The Board has formed an audit committee. It comprises three members all of whom are non-executive directors including the Chairman of the Committee. The meetings of the Audit Committee were held at least once every quarter prior to approval of interim and final results of the Company and as required by the Code. The terms of reference of the Committee have been formed and advised to the Committee for compliance. The Board has set-up an effective internal audit function in the company. The statutory auditors of the Company have confirmed that they have been given a satisfactory rating under the quality control review programme of the Institute of Chartered Accountants of Pakistan, that they or any of the partners of the firm, their spouses and minor children do not hold shares of the Company and that the firm and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by Institute of Chartered Accountants of Pakistan. The related party transactions carried out during the year have been placed before the audit committee and approved by the board of directors in their meeting held to approve the annual accounts with necessary justification for non arms length transactions and pricing methods for transactions that were made on the terms equivalent to those that prevail in the arms length transactions only if such terms can be substantiated. In future all related party transactions will be placed before the Audit Committee and the Board of Directors on quarterly basis. The statutory auditors or the persons associated with them have not been appointed to provide other services, except in accordance with the listing regulations and the auditors have observed IFAC guidelines in this regard. We confirm that all other material principles contained in the Code have been duly complied with.

13.

14. 15.

16.

17. 18.

19.

20.

21.

Ali A. Malik (Chief Executive) October 08, 2010

Annual Report '10

Page No. 14

REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCE WITH THE BEST PRACTICES OF 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 First National Equities Limited (the Company) to comply with the Listing Regulations of Karachi 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. 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 are not required to consider whether the Board's statement on internal control covers all risks and controls, or to form an opinion on the effectiveness of such internal controls, the Company's corporate governance procedures and risks. Further, Listing Regulations of the Karachi Stock Exchange require the Company to place before the Board of Directors for their consideration and approval related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in arm's length transactions and transactions which are not executed at arm's length price recording proper justification for using such alternate pricing mechanism. Further, all such transactions are also required to be separately placed before the audit committee. We are only required and have ensured compliance of requirement to the extent of approval of related party transactions by the Board of Directors and placement of such transactions before the audit committee. We have not carried out any procedures to determine whether the related party transactions were under taken at arm's length price or not. 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 30 June 2010.

CHARTERED ACCOUNTANTS Engagement Partner: Asim Iftikhar Lahore Dated:

Page No. 15

Annual Report '10

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of First National Equities Limited (the Company) as at June 30, 2010 and the related profit and loss account, statement of comprehensive income, 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 explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. It is the responsibility of the Companys 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. Our responsibility 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) b) in our opinion, proper books of account have been kept by the Company as required by the Companies Ordinance, 1984; 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 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 objects of the Company; 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, statement of comprehensive income, cash flow statement 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, 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, 2010 and of the loss, its cash flows and changes in equity for the year then ended; and in our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980).

c)

d)

Without qualifying our opinion, we draw attention to note 2.2 to the financial statements which indicates that during the year the Company incurred significant loss amounting to Rs. 127.685 million and has accumulated losses amounting to Rs. 1,055.103 million at the year end. In addition, the Company has negative equity at the year end. The going concern of the Company is dependent upon profitable operations, continued support from the sponsors/directors of the Company, satisfactory settlement of its long term loans from banks and compliance with the arrangements agreed with the financial institutions. These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Companys ability to continue as going concern. The financial statements for the year ended June 30, 2009 were audited by another firm of Chartered Accountants who vide their audit report dated October 14, 2009 expressed an unqualified opinion in all respects. However, an emphasis of matter paragraph was added indicating that the Company had incurred significant operational losses and has substantial accumulated losses and negative equity at the year end. The auditors had stated that the conditions indicate the existence of a material uncertainty which may cast significant doubt on the Companys ability to continue as a going concern.

CHARTERED ACCOUNTANTS Engagement Partner: Asim Ifitkhar Lahore Dated:

Annual Report '10

Page No. 16

BALANCE SHEET
AS AT JUNE 30, 2010
Note 2010 Rupees 2009 Rupees

NON-CURRENT ASSETS Property and equipment Capital work in progress Intangible assets Receivable from associates Long term investments Long term deposits Deferred taxation CURRENT ASSETS Short term investments Trade debts Loans and advances Trade deposits and short term prepayments Other receivables Advance tax Cash and bank balances Total Assets CURRENT LIABILITIES Trade and other payables Accrued mark-up Short term borrowings Current portion of long term financing NON-CURRENT LIABILITIES Long term financing Loan from director Deferred liabilities Total Liabilities CONTINGENCIES AND COMMITMENTS Net Assets REPRESENTED BY: Issued, subscribed and paid-up capital Unappropriated loss carried forward Unrealized diminution on re-measurement of investments classified as available for sale

4 5 6 7 8 9 10

86,048,883 69,496,614 68,135,225 175,411,452 30,438,452 2,862,429 65,873,931 498,266,986 194,720,352 208,435,589 4,681,119 1,065,796 28,988,804 25,520,458 10,038,746 473,450,864 971,717,851

93,262,268 69,496,614 68,135,225 28,441,812 2,628,720 126,805,864 388,770,503 443,781,840 284,716,967 1,875,025 149,510 2,724,068 23,363,634 5,554,749 762,165,793 1,150,936,296

11 12 13 14 15 16

17 18 19 20

160,041,543 9,181,155 484,976,169 654,198,867 901,027,024 4,449,224 3,514,591 908,990,839 1,563,189,706 (591,471,856) 575,000,000 (1,055,103,508) (480,103,508) (111,368,348) (591,471,856)

115,265,364 40,416,688 808,159,035 40,322,000 1,004,163,087 583,270,370 3,209,180 586,479,550 1,590,642,637 (439,706,341) 575,000,000 (927,418,387) (352,418,387) (87,287,954) (439,706,341)

20 21 22

23

24

11.1.3

The annexed notes from 1 to 43 form an integral part of these financial statements.
As more fully explained in note 11.2.2, remaining impairment loss amounting to Rs. 90.830 million on available for sale equity securities has been fully charged in this financial information.

Chief Executive
Page No. 17

Director
Annual Report '10

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED JUNE 30, 2010
Note 2010 Rupees 60,415,310 14,793,374 211,288,450 286,497,134 78,707,521 207,789,613 164,329,057 11,796,031 90,830,000 (59,165,475) (6,435,937) 511,184 (65,090,228) 62,594,893 (127,685,121) (2.22) 2009 Rupees 73,291,680 (168,025,440) 4,000,017 (90,733,743) 93,518,763 (184,252,506) 218,027,840 365,258,910 309,872,623 (1,077,411,879) (40,986,521) (23,033,000) (1,141,431,400) (112,718,959) (1,028,712,441) (17.89)

Operating revenue Gain/(loss) on sale of investments Other operating income Administrative expenses Operating profit/(loss) Finance costs Other operating expenses Impairment loss on available for sale securities Unrealised loss on re-measurement of investments classified as financial assets at fair value through profit or loss'-held for trading-net Share of profit/(loss) of associate-net Loss before tax Taxation Loss after tax Loss per share

25 26 27 29 30 11.1

11.2 8.1 31 32

The annexed notes from 1 to 43 form an integral part of these financial statements.
As more fully explained in note 11.2.2, remaining impairment loss amounting to Rs. 90.830 million on available for sale equity securities has been fully charged in this financial information.

Chief Executive
Annual Report '10

Director
Page No. 18

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED JUNE 30, 2010
Note 2010 Rupees (127,685,121) (43,576,099) 14,705,249 8.1 4,790,456 (24,080,394) (151,765,515) 2009 Rupees (1,028,712,441) (117,368,098) 132,011,144 3,305,000 17,948,046 (1,010,764,395)

Loss for the year Unrealised diminution during the year in the market value of investments classified as available for sale Reclassification adjustment of realised loss on sale of investments-available for sale share of unrealised surplus - investment in associate Total comprehensive loss for the year-net of tax

The annexed notes from 1 to 43 form an integral part of these financial statements.
As more fully explained in note 11.2.2, remaining impairment loss amounting to Rs. 90.830 million on available for sale equity securities has been fully charged in this financial information.

Chief Executive
Page No. 19

Director
Annual Report '10

CASH FLOW STATEMENT

FOR THE YEAR ENDED JUNE 30, 2010 CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation Adjustment for non cash items Depreciation Gain on disposal of property and equipment Loss / (gain ) on disposal of investments Share of (Loss) / profit of associate - net of tax Unrealised loss on investments at fair value through profit or loss' - held for trading - net Impairment loss on available for sale investments Provision for gratuity Provision for doubtful trade debts Dividend receivable written off Finance costs Provision written back Dividend income Mark-up income on fixed income securities Mark-up income on exposure deposits Mark-up income from related party Mark-up income on fixed deposits Changes in working capital Decrease / (increase) in current assets Trade debts Loans and advances Trade deposits and short-term prepayments Other receivables Increase / (decrease) in current liabilities Trade and other payables Payable in respect of continuous funding system transactions Mark-up paid Leave fare paid Gratuity paid Income taxes paid Long-term deposits Receivable from associates Net cash used in the operating activities CASH FLOWS FROM INVESTING ACTIVITIES Investment in available for sale financial assets - net Investment in marketable securities - net Investments in associates Fixed capital expenditure incurred Proceeds from disposal of property and equipment Mark-up received Dividend received Net cash generated from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Borrowing under repurchase agreements Long-term financing Loan from director Dividends paid Net cash generated from financing activities NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR

Note

2010 Rupees

2009 Rupees

(65,090,228) 9,434,045 (449,524) (14,793,374) (511,184) 6,435,937 90,830,000 1,304,063 391,187 164,329,057 (140,180,214) (3,715,865) (80,696) (28,065,832) (696) 84,926,904 19,836,676 216,461,592 (2,806,094) (916,286) (26,655,924) 186,083,288 44,776,179 250,696,143 (195,564,590) (998,652) (3,819,784) (233,709) (175,411,452) (125,332,044) 48,459,767 87,376,486 5,186,823 (3,183,136) 1,412,000 28,147,224 3,715,865 171,115,029

(1,141,431,400) 11,325,149 (1,078,113) 168,025,440 23,033,000 40,986,521 309,872,623 1,206,000 353,986,260 218,027,840 (9,304,477) (523,529) (1,467,731) (54,094) 1,114,034,889 (27,396,511) 205,525,325 2,625,521 29,315,587 534,854 238,001,287 (374,446,632) (410,666,906) (574,508,762) (194,750,034) (834,091) (2,138,155) (4,530,264) 928,500 (775,832,806) 212,590,546 (52,167,000) (5,702,371) 4,163,000 2,045,354 9,304,789 170,234,318

(190,000,000) 277,434,654 4,449,224 C (A+B+C) 91,883,878 137,666,863 (602,604,286) 35 (464,937,423)

200,000,000 623,592,000 (342,825) 823,249,175 217,650,687 (820,254,973) (602,604,286)

The annexed notes from 1 to 43 form an integral part of these financial statements.

Chief Executive
Annual Report '10

Director
Page No. 20

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED JUNE 30, 2010
Reserves Issued, subscribed Accumulated Sub-total and paid-up (loss) / profit capital Unrealised surplus / (deficit) on remeasurement of investments classified as available for sale (105,236,000) Total

----------------------------------------(Rupees)--------------------------------------------------Balance as at June 30, 2008 Loss for the year ended June 30, 2009 Reclassification adjustment realised loss on disposal of investments during the year Unrealised diminution during the year in the market value of investments classified as 'available for sale' Share of unrealised surplus investment in associate Balance as at June 30, 2009 Loss for the year ended June 30, 2010 Reclassification adjustment realised loss on disposal of investments during the year Unrealised diminution during the year in the market value of investments classified as 'available for sale' Share of unrealised surplus investment in associate Balance as at June 30, 2010 575,000,000 101,294,054 101,294,054 571,058,054 (1,028,712,441)

(1,028,712,441) (1,028,712,441)

132,011,144

132,011,144

(927,418,387) (127,685,121) -

(117,368,098) 3,305,000 (87,287,954) 14,705,249

(117,368,098) 3,305,000 (439,706,341) (127,685,121) 14,705,249

575,000,000 (927,418,387) (127,685,121) -

(43,576,099) 4,790,456

(43,576,099) 4,790,456 (591,471,856)

575,000,000 (1,055,103,508) (1,055,103,508) (111,368,348)

The annexed notes from 1 to 43 form an integral part of these financial statements.

Chief Executive
Page No. 21

Director
Annual Report '10

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2010

THE COMPANY AND ITS OPERATIONS

First National Equities Limited is a limited liability company incorporated in Pakistan under the Companies Ordinance, 1984. The registered office of the company is situated at 19-C, Sunset Lane-6, South Park Avenue, Phase-II Extension, DHA, Karachi. The company is listed on the Karachi Stock Exchange (Guarantee) Limited. The company is a corporate member of the Karachi Stock Exchange (Guarantee) Limited. The principal activities of the company include shares brokerage, consultancy services and underwriting.

2
2.1

ACCOUNTING CONVENTION AND BASIS FOR PREPARATION

Statement of compliance These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions and directives issued under the Companies Ordinance, 1984. In case requirements differ, the provisions or directives of the Companies Ordinance, 1984 prevail.

2.2

Going concern The Company has incurred significant operational losses during the year ended June 30,2010 and its accumulated losses as at June 30, 2010 are amounting to Rs 1,055,103,508/- due to unrealized losses on investment in the listed companies in the year ended June 30, 2009 which has resulted in negative equity of Rs 591,471,856/- (2009: Rs. 439,706,341/-). However, the financial statements of the Company for the year ended June 30, 2010 have been prepared on a going concern basis as the management believes that due to potential increase in prices of the listed Companies' shares and restructuring of borrowing facilities from banks during the year (as more explained in notes 19 and 20 to the financial statements) and consequent to the new viable business plans for future operations, the Company will be able to generate sufficient profits in the future enabling it to set-off the accumulated losses. Accounting convention These financial statements have been prepared under the historical cost convention, except for investments and derivative financial instruments which have been marked to market and carried at fair value to comply with the requirements of IAS 39: "Financial Instruments : Recognition and measurement".

2.3

2.4

Initial application of new standards, interpretations and amendments to existing standards and forthcoming requirements IAS 1 (Revised) - Presentation of financial statements (effective for annual periods beginning on or after 1 January 2009). The revised standard prohibits the presentation of items of income and expenses (that is, non-owner changes in equity) in the statement of changes in equity, requiring non-owner changes in equity to be presented separately from owner changes in equity. All non-owner changes in equity are required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and the statement of comprehensive income). Where entities restate or reclassify comparative information, they are required to present a restated balance sheet as at the beginning of comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. The company has opted to present two statements i.e. a profit and loss account (income statement) and a statement of comprehensive income. Comparative information has also been re-presented so that it is in conformity with the revised standard. As this change only impacts presentation aspects, there is no impact on the earnings per share.
Page No. 22

Annual Report '10

IAS 23 (Amendment) 'Borrowing costs' (effective for annual periods beginning on or after 1 January 2009). It requires an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs has been removed. The Companys current accounting policy for borrowing costs is in compliance with this amendment and there fore there is no effect on the financial statements. IFRS 7 (Amendment), 'Financial Instruments: Disclosures' (effective for annual periods beginning on or after 1 January 2009). The amendment requires enhanced disclosures regarding fair value measurement and liquidity risk. As the change only results in additional disclosures, there is no impact on earnings per share. Standards, interpretations and amendments not yet effective The following standards, interpretations and amendments of approved accounting standards are effective for accounting periods beginning on or after 1 January 2010.

2.5

Improvements to IFRSs 2009 Amendments to IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations' (effective for annual periods beginning on or after 1 January 2010). The amendments clarify that the required disclosures for non-current assets (or disposal groups) classified as held for sale or discontinued operations are specified in IFRS 5. These amendments are unlikely to have an impact on the Companys financial statements. Improvements to IFRSs 2009 Amendments to IFRS 8 'Operating Segments' (effective for annual periods beginning on or after 1 January 2010). The amendments clarify that segment information with respect to total assets is required only if such information is regularly reported to the chief operating decision maker. The amendment is unlikely to have an impact on Companys financial statements. Improvements to IFRSs 2009 Amendments to IAS 1 Presentation of Financial Statements (effective for annual periods beginning on or after 1 January 2010). The amendments clarify that the classification of the liability component of a convertible instrument as current or non-current is not affected by terms that could, at the option of the holder of the instrument, result in settlement of the liability by the issue of equity instruments. These amendments are unlikely to have an impact on the Companys financial statements. Improvements to IFRSs 2009 Amendments to IAS 7 Statement of Cash Flows (effective for annual periods beginning on or after 1 January 2010). The amendments clarify that only expenditures that result in the recognition of an asset can be classified as a cash flow from investing activities. These amendments are unlikely to have a significant impact on the Companys financial statements. Improvements to IFRSs 2009 Amendments to IAS 17 Leases (effective for annual periods beginning on or after 1 January 2010). The IASB deleted guidance stating that a lease of land with an indefinite economic life normally is classified as an operating lease, unless at the end of the lease term title is expected to pass to the lessee. The amendments clarify that when a lease includes both the land and building elements, an entity should determine the classification of each element based on paragraphs 7 13 of IAS 17, taking account of the fact that land normally has an indefinite economic life. The amendment is unlikely to have an impact on Companys financial statements. Improvements to IFRSs 2009 Amendments to IAS 36 Impairment of Assets (effective for annual periods beginning on or after 1 January 2010). The amendments clarify that the largest unit to which goodwill should be allocated is the operating segment level as defined in IFRS 8 before applying the aggregation criteria of IFRS 8. The amendments apply prospectively. The amendment is not relevant to the Companys operations.

Page No. 23

Annual Report '10

Improvements to IFRSs 2009 Amendments to IAS 39 'Financial Instruments: Recognition and Measurement' (effective for annual periods beginning on or after 1 January 201 0). The amendments provide additional guidance on determining whether loan prepayment penalties result in an embedded derivative that needs to be separated; clarify that the scope exemption in IAS 39 paragraph 2(g) is restricted to forward contracts, i.e. not options, between an acquirer and a selling shareholder to buy or sell an acquiree that will result in a business combination at a future acquisition date within a reasonable period normally necessary to obtain any required approvals and to complete the transaction; and clarify that the gains or losses on a cash flow hedge should be reclassified from other comprehensive income to profit or loss during the period that the hedged forecast cash flows impact profit or loss. The amendments apply prospectively to all unexpired contracts from the date of adoption. These amendments are unlikely to have an impact on the Companys financial statements. Amendments to IFRS 1 'First-time Adoption of International Financial Reporting Standards Additional Exemptions for First-time Adopters' (effective for annual periods beginning on or after 1 January 2010). The IASB provided additional optional exemptions for first-time adopters of IFRSs that will permit entities not to reassess the determination of whether an arrangement contains a lease if the same assessment as that required by IFRIC 4 was made under previous GAAP; and allow entities in the oil and gas industry to use their previous GAAP carrying amounts as deemed cost at the date of transition for oil and gas assets. The amendment is not relevant to the Companys operations. Amendment to IFRS 2 'Share-based Payment Group Cash-settled Share-based Payment Transactions (effective for annual periods beginning on or after 1 January 2010). Amendment provides guidance on the accounting for share based payment transactions among group entities. The amendment is not relevant to the Companys operations. Amendments to IAS 32 'Financial Instruments: Presentation Classification of Rights Issues' (effective for annual periods beginning on or after 1 January 2010). The IASB amended IAS 32 to allow rights, options or warrants to acquire a fixed number of the entitys own equity instruments for a fixed amount of any currency to be classified as equity instruments provided the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. These amendments are unlikely to have an impact on the Companys financial statements. IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments' (effective for accounting periods beginning on or after 1 July 2010). This interpretation provides guidance on the accounting for debt for equity swaps. The amendment is not relevant to the Companys operations. Amendment to IFRS 1 'First-time Adoption of International Financial Reporting Standards Limited Exemption from Comparative' IFRS 7 'Disclosures for First-time Adopters' (effective for accounting periods beginning on or after 1 July 201 0). The amendment provides the same relief to first-time adopters as was given to current users of IFRSs upon adoption of the Amendments to IFRS 7. The amendment also clarifies the transitional provisions of the Amendments to IFRS 7. The amendment is not relevant to the Companys operations. Improvements to IFRSs 2010 (effective for annual periods beginning on or after 1 July 2010). The IASB issued amendments to various standards effective. Below is a summary of the amendments that are effective for either annual periods beginning on or after 1 July 2010 or annual periods beginning on or after 1 January 2011. Improvements to IFRSs 2010 Amendments to IFRS 3 Business Combinations (effective for accounting periods beginning on or after 1 July 2010). The amendments clarify that contingent consideration arising in a business combination previously accounted for in accordance with IFRS 3 (2004) that remains outstanding at the adoption date of IFRS 3 (2008) continues to be accounted for in accordance with IFRS 3 (2004); limit the accounting policy choice to measure non-controlling interests upon initial recognition at fair value or at the non-controlling interests proportionate share of the acquirees identifiable net assets to instruments that give rise to a present ownership interest and that currently entitle the holder to a share of net assets in the event

Annual Report '10

Page No. 24

Improvements to IFRSs 2010 IFRIC 13 'Customer Loyalty Programmes' (effective for accounting periods beginning on or after 1 January 2011). The amendments clarify that the fair value of award credits takes into account the amount of discounts or incentives that otherwise would be offered to customers that have not earned the award credits. The amendment is not relevant for the Company's operation. Critical accounting estimates and judgments The preparation of financial statements in conformity with approved accounting standards requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and income and expense. It also requires the management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are as follows: a). Property and equipment The Company's management determines the estimated useful lives and related depreciation charge for its property and equipment. The Company estimates with respect to residual values and depreciable lives. Further, the Company reviews the value of the assets for possible impairment on an annual basis. Any change in the estimate in the future years might affect the carrying amounts of the respective item of property and equipment with a corresponding affect on the depreciation charge and impairment. b). Income taxes In making the estimates for income taxes currently payable by the Company, the management looks at the current income tax law and the decisions of appellate authorities on certain issues in the past. c). Trade debts and other receivables Impairment loss against doubtful trade and other debts is made on a judgement basis, which provisions may differ in the future years based on the actual experience. The difference in provision if any, is recognized in the future period. d). Classification and valuation of investments The Company has determined fair value of investments from active market. Fair value estimates are made at a specific point of time based on market conditions and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matter of judgments (e.g. valuation, interest rates, etc.) and therefore, can not be determined with precision. e). Staff retirement benefits Liability under defined benefit plan is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases and mortality rates. Due to the long term nature of this plan, such estimates are subject to uncertainty. Further details are given in Note. 28.

2.6

SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Annual Report '10

Page No. 26

3.10

Staff retirement benefits The Company operates an unfunded gratuity scheme covering all employees. The liability recognised in the balance sheet in respect of defined benefit gratuity scheme is the present value of the defined benefit obligation at the balance sheet date together with the adjustments for unrecognised actuarial gains or losses and past service costs, if any. The defined benefit obligation is calculated by an independent actuary using the Projected Unit Credit Method. The unrecognised actuarial gains or losses at each valuation date in excess of the 10% of the present value of the defined benefit obligation are amortised over the average remaining working lives of the employees in the following year.

3.11

Borrowings These are recorded at the proceeds received. Finance costs are accounted for on accrual basis and are disclosed as accrued interest / mark-up to the extent of the amount remaining unpaid.

3.12

Proposed dividend and transfer between reserves Dividends declared and transfer between reserves made subsequent to the balance sheet date are considered as non-adjusting events and are recognised in the financial statements in the period in which such dividends are declared / transfers are made.

3.13

Impairment The carrying amount of assets is reviewed at each balance sheet date to determine whether there is any indication of impairment of any asset or group of assets. If any such indication exists, the recoverable amount of such assets is estimated and impairment losses are recognised immediately in the financial statements. The resulting impairment loss is taken to the profit and loss account.

3.14

Borrowing cost Borrowing costs are recognised as an expense in the period in which these are incurred except to the extent of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Such borrowing costs, if any, are capitalised as part of the cost of the relevant asset.

3.15

Fiduciary assets Assets held in trust or in a fiduciary capacity by the Company are not treated as assets of the Company.

3.16

Revenue recognition Brokerage income is recognised when brokerage services are rendered. Dividend income is recognised when the right to receive the dividend is established. Commission income is recognised on an accrual basis. Return on deposits is recognised using the effective interest method. Income on fixed term investments is recognised using the effective interest method. Income on KSE exposure deposits is recognised using the effective interest method.

Annual Report '10

Page No. 30

3.17

Foreign currency transaction and translation Transactions in foreign currencies are translated into the functional currency at the rates of exchange ruling on the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transaction and from translation at year end exchange rates of monetary assets and liabilities in foreign currencies are recognised in income.

3.18

Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the Company operates. The financial statements are presented in Pakistani Rupees, which is the Company's functional and presentation currency.

3.19

Financial instruments a). Financial assets and liabilities Financial instruments carried on the balance sheet include investments, loans, deposits, continuous funding system, trade debts, other receivables, cash and bank balances, trade and other payables payable in respect of continuous funding system transactions, short-term borrowings and accrued mark-up on borrowings. At the time of initial recognition, all the financial assets and liabilities are measured at fair value. The particular recognition method for subsequent re-measurement of significant financial assets and liabilities is disclosed in the individual policy statements associated with each item. b). Derivative financial instruments Derivative financial instruments are recognised at their fair value on the date on which a derivative contract is entered into. Subsequently, any changes in fair values arising on marking to market of these instruments are taken to the profit and loss account. c). Off setting Financial assets and liabilities are offset and the net amount is reported in the financial statements only when the Company has a legally enforceable right to offset the recognised amounts and the Company intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Page No. 31

Annual Report '10

2010 Rupees

2009 Rupees

CAPITAL WORK IN PROGRESS

Commercial space - Karachi Financial Towers Property acquired through auction 33,340,000 36,156,614 69,496,614 33,340,000 36,156,614 69,496,614

INTANGIBLE ASSETS
Cost Membership card License to use Tenancy rights Total of Karachi Stock Room at Karachi Stock Building Exchange Exchange ---------------------------------------------------Rupees-----------------------------------------Balance as at June 30, 2010 Total 31,220,225 31,220,225 22,000,000 22,000,000 14,915,000 14,915,000 68,135,225 68,135,225

Cost Membership card License to use Tenancy rights Total of Karachi Stock Room at Karachi Stock Building Exchange Exchange ---------------------------------------------------Rupees-----------------------------------------Balance as at June 30, 2009 Total 31,220,225 31,220,225 22,000,000 22,000,000 14,915,000 14,915,000 68,135,225 68,135,225

6.1

Room at Karachi Stock exchange represents the consideration paid for the situated at Stock Exchange Building, Karachi. The Karachi Stock Exchange absolute owner of the said rooms and has granted full rights to occupy the License agreement for the purposes of the Company's business. The Company these rooms in favour of commercial bank securing financing facilities.

right to occupy two rooms (Guarantee) Limited is the premises under Leave and has hypothecated license of

6.2

Tenancy rights of building represent the consideration paid by the Company in connection with the transfer of tenancy rights in favour of the Company against properties situated at Bank Square, Peshawar and Mall Road, Nowshera. The ownership of these properties continue to vest with the original owner. The Company has hypothecated the tenancy rights of Bank Square Peshawar in favour of commercial bank for securing financing facilities.

Page No. 33

Annual Report '10

2010 Rupees

2009 Rupees

RECEIVABLE FROM ASSOCIATES

First Pakistan Securities Limited Switch Securities (Private) Limited 90,993,620 84,417,832 175,411,452 -

These receivables carry markup at the rate not less than the borrowing rate of the company and are recoverable over a maximum period of three years. Note 2010 Rupees 2009 Rupees

LONG TERM INVESTMENTS - RELATED PARTIES

Long term National Asset Management Company Limited (NAMCO) Short term NAMCO Income fund - Available for sale Opening Unrealised (loss) / gain Sold during the year Closing Less: Investment shown under short-term investments 8.1 30,438,452 20,000,000 (46,380) (5,186,823) 14,766,797 45,205,249 14,766,797 30,438,452 28,441,812 20,000,000 382,540 20,382,540 48,824,352 20,382,540 28,441,812

8.1

Investment in associate accounted for under equity method - National Asset Management Company Limited holding 40% [4,000,000 ordinary shares (2009: 4,000,000 ordinary shares) of Rs 10 each fully paid-up. Cost of investment Rs 40,000,000 (2009: 40,000,000)] Note 2010 Rupees 2009 Rupees

Investment as at July 1, 2009 Share in reserves of associate Share of profit / (loss) Balance as at June 30, 2010 8.2

8.2

25,136,812 48,169,812 4,790,456 3,305,000 511,184 (23,033,000) 30,438,452 28,441,812

The share of the Company in National Asset Management Company Limited (an associated undertaking / related party) has been accounted for under the equity method of accounting based on its audited financial statements for the year ended June 30, 2010 in accordance with the treatment specified in International Accounting Standard 28: "Accounting for Investment in Associates". Summarised financial information of associate The gross amounts of assets, liabilities, revenue and profit of the associate are as follows:

Annual Report '10

Page No. 34

Assets

Liabilities

Income

Profit/(Loss) Percentage of after taxation Interest held

----------------------------------------------Rupees----------------------------------June 30, 2010 National Asset Management Company Limited 135,716,106 60,041,571 46,072,050 June 30, 2009 National Asset Management Company Limited 199,783,153 129,707,024 34,173,469 1,277,959 (59,056,914) 40% 40%

2010 Rupees

2009 Rupees

LONG TERM DEPOSITS

Central Depository Company Limited Karachi Stock Exchange (Guarantee) Limited National Clearing Company of Pakistan Limited Others 150,000 1,100,000 300,000 1,312,429 2,862,429 2010 Rupees 150,000 1,100,000 300,000 1,078,720 2,628,720 2009 Rupees

10

DEFERRED TAX ASSETS - NET

Deductible temporary differences on: Provision for gratuity Provision for doubtful debts Investment in associate Taxable temporary differences on: Accelerated tax depreciation (13,534,743) 65,873,931 (1,232,480) 126,805,864 1,230,107 74,832,025 3,346,542 79,408,674 97,944 123,895,100 4,045,300 128,038,344

The balance of available tax losses as at June 30, 2010 amounted to Rs 211,714,081/- The Company has not recognised any deferred tax debit balance on these losses on account of prudence. The management intends to review the outcome of the revised business plans based on the potential new capital injections and restructuring and rescheduling of arrangements with the banks after which the management will reassess the deferred tax assets on unabsorbed tax losses during the year ending borrowing recognition of June 30, 2010. Note 2010 Rupees 2009 Rupees

11

SHORT-TERM INVESTMENTS - NET

Available for sale At fair value through profit or loss- held for trading Investment - related party 11.1 11.2 8 124,916,825 55,036,730 14,766,797 194,720,352 303,967,380 119,431,920 20,382,540 443,781,840

Page No. 35

Annual Report '10

11.1

Available for sale Detail of investments in shares / certificates / units of listed Companies / mutual funds:

No. of Shares Jun-10 Jun-09

Name of Script/ Company

2010 2009 Average Cost Market Value Average Cost Market Value

23,400 11,900

Investment banks / Companies / securities Arif Habib Securities Limited Jahangir Siddiqui and Company Limited

1,464,509 1,435,290

646,776 275,961

Commercial banks 3,200,000 3,206,500 Bank Islami Pakistan Limited - note 11.1.2 150 United Bank Limited Cement 16,064,000 19,659,641 Pioneer Cement Limited - note 11.1.2 5,000 D.G. Khan Cement Company Limited 20,000 Lucky Cement Limited 3,000 Fauji Cement Company Limited Leasing Companies 1,353,525 1,353,525 SME Leasing Limited - note 11.1.2 Insurance Pakistan Reinsurance Company Limited

40,136,850 -

10,272,000 -

62,833,070 4,705

20,425,405 5,744

283,231,929 -

102,327,680 612,062,600 118,174 1,356,696 15,911

266,977,925 148,250 1,170,600 19,770

6,767,625

10,814,665

14,888,775

6,767,625

328

7,217

11,490

376,500

Textile composite 200,000 Redco Textiles Limited Chemicals I.C.I Pakistan Limited Closed-end mutual fund NAMCO Balanced Fund - related party Support services TRG Pakistan Transport Pakistan International Airlines Corporation Miscellaneous Diamond Industries Limited

528,650

357,675

500,865

100,000

52,700

10,092,279

7,391,175

244,000

772,680

849,120

71,000

396,515

291,810

500

2,205

1,660

500

500

25,000 331,859,249

3,875

33,202

25,000 303,967,381

21,309,525 24,537,144

124,916,825 704,815,498

Total deficit Impairment loss recognised in profit and loss account - note 11.2.2 Unrealised loss on re-measurement of investments classified as 'available for sale

(90,830,000)

(309,872,623)

(90,975,494) (116,112,424) (400,848,117) (206,942,424) 124,916,825 124,916,825 303,967,381 303,967,381

Annual Report '10

Page No. 36

11.1.1 Securities having average cost of Rs 239,699,177 (2009: Rs 689,257,000) and fair value of Rs 123,701,138 (2009: Rs 296,980,000) have been pledged with various commercial banks for obtaining finance facilities under mark-up arrangements as specified in note 19 and 20. 11.1.2 Some of the securities are not held in the name of the Company and have been kept as security with one of the commercial banks for securing financing facilities under mark-up arrangement. 11.1.3 Movement in unrealised loss on investments classified as 'available for sale' Note 2010 Rupees (116,112,424) (46,380) 4,790,456 (111,368,348) 2009 Rupees (90,975,494) 382,540 3,305,000 (87,287,954)

Short-term investments Long-term investments Share in reserves of associate 11.2 Financial assets at 'fair value through profit or loss'

11.1 8 8.1

Details of investments in shares / certificates / units of listed Companies / mutual funds:

No. of Shares Jun-10 Jun-09 Name of Script/ Company Closed-end mutual fund NAMCO Balanced Fund - related party 2010 2009 Average Cost Market Value Average Cost Market Value

208,000

208,000

981,760

723,840

623,030

981,760

200,000

Modarabas 200,000 First I.B.L Modaraba - IPO Investments Insurance 298,400 EFU General Insurance Textile composite 397,000 Redco Textiles Limited Cement Pioneer Cement Limited

1,090,000

560,000

2,060,000

1,090,000

324,347

26,286,056

15,938,412

40,697,134

26,286,056

397,000

198,500

377,150

706,660

198,500

52,500

1,000

735,225

334,425

8,312

13,580

142,427

Oil & gas marketing Companies 389,900 Pakistan State Oil Company Limited Transport Pakistan International Airlines Corporation

32,143,157

37,059,505

108,480,123

83,302,135

500

1,420

1,660

100 1,000

Fertilizers 1,000 Engro Chemical Pakistan Limited 420,000 Fauji Fertilizer Bin Qasim Limited

20,279 17,690 61,472,667

17,358 26,040 55,036,730

133,316 7,708,447 160,418,442

128,430 7,429,800 119,431,921

1,325,374 1,915,800 Unrealized loss on re-measurement of investments classified as 'financial assets at fair value through profit or loss'-held for trading

(6,435,937) 55,036,730 55,036,730

(40,986,521) 119,431,921 119,431,921

Page No. 37

Annual Report '10

11.2.1 Securities having average cost of Rs 59,085,283 (2009: Rs 156,728,000) and fair value of Rs 53,298,451 (2009: Rs 116,893,000) have been pledged with various commercial banks for obtaining finance facilities under mark-up arrangements as specified in note 19 and 20. 11.2.2 International Accounting Standard 39, Financial Instruments: Recognition and Measurement (IAS 39) requires an entity to assess at each balance sheet date whether there is any objective evidence that a financial asset or liability is impaired. A significant decline in the fair value of an investment in an equity security below its cost is objective evidence of such impairment. When a decline in the fair value of an investment in equity securities classified as available for sale has been recognized directly in equity and there is objective evidence that the investment is impaired, the cumulative loss that had been recognized directly in equity is removed from equity and is recognised in the profit and loss account even though the investment has not been derecognized. Impairment losses recognized in the profit and loss account for an investment in an equity security classified as available for sale are not reversed through the profit and loss account but are recognized in the available for sale reserve in equity. As at December 31, 2008, deficit arising on revaluation of investments classified as available for sale amounting to Rs 207.09 million should have been charged to the profit and loss account as impairment loss in accordance with the requirements of IAS 39. However, the Securities and Exchange Commission of Pakistan (SECP), vide its SRO 150(I)/2009 dated February 13, 2009 gave an option to Companies and mutual funds to either follow the requirements of IAS 39 and charge the impairment loss to the profit and loss account as at December 31, 2008 or to show this impairment loss under equity as per the following allowed alternative treatment: The amount taken to equity as specified above, including any adjustment / effect for price movements during the quarter of calendar year 2009 shall be taken to Profit and loss account on quarterly basis during the calendar year ending on December 31, 2009. The amount taken to equity as specified above shall be treated as a charge to Profit and loss account for the purposes of distribution as dividend. The Company opted not to charge the impairment loss of Rs 207.09 million in the profit and loss account at December 31, 2008 but to show it under equity and to charge it on a quarterly basis during the calendar year 2009. At June 30, 2009, an amount of Rs 90.830 million still remained to be charged to the profit and loss account which has been duly charged off during the year ended June 30, 2010. Note 2010 Rupees 2009 Rupees

12

TRADE DEBTS
Considered good Considered doubtful Less: provision for bad and doubtful debts 12.1 208,435,589 406,032,445 614,468,034 (406,032,445) 208,435,589 284,716,967 546,212,659 830,929,626 (546,212,659) 284,716,967

12.2

12.1

This includes receivable from National Clearing Company of Pakistan Limited (NCCPL) amounting to Rs 2,254,434 million (2009: Rs 4,993,000) in respect of trading in securities settled subsequent to the year end. Amounts due from related parties at the year end amounted to Rs. Nil (2009: Rs 175,412,000). This includes an amount of Rs 69,245 (2009: Nil) receivable from Karachi Stock Exchange (Guarantee) Limited in respect of trading in securities.

Annual Report '10

Page No. 38

2010 Rupees

2009 Rupees

12.2

Movement in provision against trade debts

Opening balance (Reversed) / Charge for the year Closing balance Note 546,212,659 (140,180,214) 406,032,445 2010 Rupees 192,226,399 353,986,260 546,212,659 2009 Rupees

13

LOANS AND ADVANCES

Considered good: Loans to related parties Executive Loans to others Employees Advances Suppliers and others 13.1 13.1 88,842 1,329,087 3,263,190 4,681,119 519,182 1,355,843 1,875,025

13.1

These represent interest-free loans given to employees of the Company in accordance with the employee service rules and are recovered through deductions from salaries up to a maximum period of 12 months. Note 2010 Rupees 2009 Rupees

14

TRADE DEPOSITS AND SHORT-TERM PREPAYMENTS

Exposure deposit Prepayments 14.1 800,190 265,606 1,065,796 149,510 149,510

14.1

This represents amount deposited with Karachi Stock Exchange (Guarantee) Limited against exposure arising out of the transactions entered into by the Company in respect of which settlements have not taken place as at the year end. The Company has deposited the exposure amount in the form of securities in accordance with the regulations of the Karachi Stock Exchange (Guarantee) Limited. Note 2010 Rupees 2009 Rupees

15

OTHER RECEIVABLES
Dividend receivable Mark up on receivable from associates Others 15.1 28,065,832 922,972 28,988,804 391,188 2,332,880 2,724,068

Page No. 39

Annual Report '10

15.1

This mark up is charged on receivable from associates as more fully explained in note 7. 2010 Rupees 2009 Rupees

16

CASH AND BANK BALANCES

Cash at bank in: Current accounts PLS accounts Stamps in hand Note 10,016,562 20,127 10,036,689 2,057 10,038,746 2010 Rupees 5,522,198 19,500 5,541,698 13,051 5,554,749 2009 Rupees

17

TRADE AND OTHER PAYABLES

Creditors Accrued expenses Unclaimed dividends Others 17.1 17.2 132,419,079 19,445,835 2,544,013 5,632,616 160,041,543 96,245,843 14,192,462 2,544,013 2,283,046 115,265,364

17.1

Amounts due to related parties at the year end are as follows: First Pakistan Securities Limited Switch Securities (Private) Limited 1,584,849 4,837,650 6,422,499 20,032 2010 Rupees 2009 Rupees -

17.2

Amounts due to related party at the year end is as under: National Asset Management Company Limited

18

ACCRUED MARK-UP
Mark-up accrued on: Short-term borrowings Repurchase agreement borrowings Note Sanctioned Limit Rupees

9,069,374 111,781 9,181,155 2010 Rupees

36,916,688 3,500,000 40,416,688 2009 Rupees

19

SHORT-TERM BORROWINGS
From banking Companies-Secured Bank Alfalah Ltd Allied Bank Ltd Arif Habib Bank Ltd NIB Bank Ltd United Bank Limited Bank of Punjab 19.1 19.2 19.3 19.4 19.5 19.6 272,000,000 200,000,000 140,665,593 2,936,000 300,000,000 500,000,000 271,964,745 2,555,309 7,170,024 193,286,091 272,000,000 179,288,842 143,720,762 3,269,099 9,880,332 -

Annual Report '10

Page No. 40

Note

Sanctioned Limit Rupees

2010 Rupees

2009 Rupees

From non-banking Company-unsecured Sindh Industrial Trade Estates From others-unsecured Miss. Benish Batool 19.7

10,000,000 484,976,169

200,000,000 808,159,035

19.1

The borrowing has been obtained for investment in shares/ NCCPL settlement/ securities requirements. The borrowing is secured against pledge of shares with 30% margin, 1st registered hypothecation charge on present and future receivables of the company and personal guarantee of Mr. Ali Aslam Malik (CEO). The mark-up rate is 6 Month KIBOR + 1%.

19.2

The borrowing has been obtained for finance investments / working capital requirements of the company. The borrowing is secured against pledge of ABL's approved marketable shares in CDC with requisite margin, pledge of minimum 'A' rated listed TFCs and treasury bills with 25% margin and equitable mortgage of the above mentioned properties with full marked up amount of the borrowing, exclusive charge on the project land situated at Mouza Halloki Defence Road, Lahore with 25% margin for Rs. 400,000,000, personal guarantees of directors, personal guarantee of the owner of the property, noting of bank's charge in the concerned revenue authority. 1 Month KIBOR + 2.15% to be reset monthly / charged quarterly. KIBOR rate is determined one day prior to the commencement of each mark-up payment period.

19.3 19.4

The borrowing has been reclassified as long term finacing this year as fully explained in note 20.4 The borrowing has been obtained for renewal for adjustment of outstanding liability. The borrowing is secured against pledge of shares of companies at 30% - 50% margin, Demand Promissory Note and letter of pledge, lien and authority for securities. The mark-up rate is 3 Month KIBOR + 2.50%.

19.5

The borrowing has been obtained to finance daily clearing obligations of Karachi Stock Exchange and settlement of client's trade. The borrowing are secured against pledge of shares through CDC as per list approved by UBL's Treasury Middle Office with minimum margin of 30%. The mark-up rate is 1 Month KIBOR + 2.25%.

19.6

The financing facility has been obtained for Working capital requirement and improvement in liquidity. The facility is secured against pledge of shares, 10 Marla house at Johar Town, Lahore and personal guarantee of Mr. Ali Aslam Malik (CEO). The mark-up rate is 3 Months KIBOR + 1.5%. According to management they have filed a counter claim against the bank based on non performace of their obligation to sell the shares on the call margin. Management and legal advisor do not anticipate any loss(es) or claim(s) arising from the instant litigation.

19.7

This represents repurchase borrowings obtained from an individual person. This carries mark-up at the rate of 17% per annum and is repayable by March 2010. The management has paid this amount subsequent to the year ended June 30, 2010. The facility is secured against NAMCO income fund.

Page No. 41

Annual Report '10

Note

Sanctioned Limit Rupees

2010 Rupees

2009 Rupees

20

LONG-TERM FINANCING
From banking Companies-secured Bank Alfalah-TF-I Bank Alfalah-TF-II Bank Alfalah-TF-III Bank of Punjab Arif Habib Bank Ltd-TF From non-banking Company-unsecured Sindh Industrial Trade Estates Over due interest on long term loan Less: Current portion of long term borrowings 20.1 20.2 20.2 20.3 20.4 20.5 150,000,000 200,208,000 49,792,000 500,000,000 200,000,000 150,000,000 230,589,075 49,792,204 140,665,593 200,000,000 129,980,152 901,027,024 901,027,024 150,000,000 230,589,075 49,792,204 193,211,091 623,592,370 (40,322,000) 583,270,370

20.1

The finance facility has been obtained for Working capital requirement and improvement in liquidity. The facility is secured against equitable mortgage of commercial plot of land bearing # 19-C, Sun set lane # 6, phase-2, DHA, Karachi, equitable mortgage of room # 135 & 136, Stock Exchange Building, Karachi, equitable mortgage of room # 306, 3rd Floor, Business & Finance Centre, I.I Chundrigar Road, Karachi, EM of showroom (commercial), municipal showroom # 2, ground floor, adjacent to Askari Bank Ltd, Bank Square, Chowk Yadgar, Peshawar City and Personal guarantee of Mr. Ali Aslam Malik (CEO). The mark-up rate is 6 Months KIBOR + 1%. Its tenure is 7 years with 2 years grace period.

20.2

These finances have been obtained for Working capital requirement and improvement in liquidity. These facilities are secured against pledge of shares with 30% margin, 1st registered hypothecation charge on present and future receivables of the company and personal guarantee of Mr. Ali Aslam Malik (CEO). The mark-up rate is 6 Months KIBOR + 1%. Its tenure is 5 years with 2 years grace period.

20.3

The financing facility has been obtained to finance the working capital / short term investment requirements. The facility is secured against pledge of shares with 30% margin and property / shares worth Rs. 25 Million to be provided as a token of acceptance of restructuring of facility an unconditional undertaking by Mr. Ali Aslam Malik (CEO) to comply with the restructuring terms. The mark-up rate is 3 Months KIBOR (average offer side). Its tenure is 5 years in 14 equal instalments in arrears after completion of grace period of 18 months.

20.4

This represents repurchase borrowing agreement with Sindh Industrial Trade Estates. This carries mark-up at the rate of 14% per annum and is repayable by August 2009. The facility is secured against pledge of owned equity shares of the Company. This represents overdue interest on long term loan. Under an agreement reached with the Bank Alfalah Limited and Arif Habib Bank Limited, this over due interest amounting to Rs. 94,727,525 and Rs. 35,252,627 is payable after two years and one and half years respectively.

20.5

Annual Report '10

Page No. 42

2010 Rupees

2009 Rupees

21

LOAN FROM DIRECTOR

Carrying value of loan Less: present value adjustment Less current portion shown under current liabilities 9,169,000 4,719,776 4,449,224 -

This represents present value of unsecured loan obtained from Mr. Ali Aslam Malik CEO of the Company amounting to Rs. 9,169,000 recognised at amortised cost after discounting at average rate of borrowing. 2010 Rupees 2009 Rupees

22

DEFERRED LIABILITIES
Gratuity 3,514,591 3,514,591 3,209,180 3,209,180

23

CONTINGENCIES AND COMMITMENTS Contingencies Income tax assessment of the Company for tax years 2005 and 2006 has been amended by the Taxation Officer on account of allocation of expenses and disallowance of certain items resulting in a tax demand of Rs 78,448,561. The Company has filed an appeal with the CIT (appeals) in respect of the above mentioned disallowance which is pending to date. No provision has been made against this tax demand in these financial statements as the Company is contesting the order before the appellate forums and the management and the tax advisor is hopeful for a favourable decision in appeal. The Bank of Punjab has filed a suit under section 16 of the Financial Institutions Ordinance, 2001(Recovery of Finance) in the Sindh High Court against the Company during the year for the principal and markup of short term borrowings amounting to Rs. 157,225,000/- and Rs. 35,986,000/- respectively. The amounts were transfered to long term financing by the Company. The Company availed the short term borrowings facility against the pledge of listed Company shares (Trust Investment Bank shares 259,000 and Pioneer Cement Shares 8,508,500). Due to financial crunch in the country the Company was unable to payback the principal and markup on due date. Against the subject case of Bank of Punjab, the Company has also filled the counter claim against the bank on the ground that the bank has failed to recover the amount by selling off the pledged shares even the margin on the pledged shares reduced below the agreed limit of 30%. Commitment Capital expenditure contracted for but not incurred

100,020,000

100,020,000

This represents amount contracted to be paid to ENSHAANLC Developers (Private) Limited for acquiring commercial space, being paid in instalment, in Karachi Financial Tower. 2010 2009 Rupees Rupees

24
24.1 24.2

SHARE CAPITAL
Authorised capital 100,000,000 Ordinary shares of Rs. 10 each Issued, subscribed and paid-up share capital 50,000,000 Ordinary shares of Rs. 10 each issued for cash 7,500,000 Ordinary shares of Rs. 10 each issued as fully paid bonus shares 1,000,000,000 500,000,000 75,000,000 575,000,000 1,000,000,000 500,000,000 75,000,000 575,000,000

Page No. 43

Annual Report '10

24.3

The following shares were held by the related parties of the Company: 2010 Shares held Percentage First Florance Developers (Pvt.) Limited F. Rabbi Steel (Pvt.) Limited Yarmouk Paper & Board Industry (Pvt.) Limited MCD Pakistan Limited First Pakistan Securities Limited Switch Securities (Pvt.) Limited 5,747,650 1,787,361 345,000 4,798,950 13,240,890 7,422,899 9.996% 3.108% 0.600% 8.346% 23.028% 12.909% 2009 Shares held Percentage 5,747,650 1,740,000 345,000 4,798,950 13,242,040 7,422,899 9.996% 3.026% 0.600% 8.346% 23.030% 12.909%

24.4

The directors, their spouses and minor children hold 4,085,801 shares as at June 30, 2010 (2009: 4,004,525 shares). 2010 2009 Rupees Rupees

25

OPERATING REVENUE
Brokerage Dividend income Commission earned Underwriting commission Other Note 55,280,942 3,715,865 1,418,503 60,415,310 2010 Rupees 44,839,886 9,304,477 7,024,737 1,000,000 11,122,580 73,291,680 2009 Rupees

26

OTHER OPERATING INCOME

Income from financial assets Mark-up on: Fixed income securities Fixed deposits Exposure deposits Receivable from associates Income from non-financial assets Gain on disposal of property and equipment Provision written back Mark-up waived off Amortization of director's loan Miscellaneous 696 80,696 28,065,832 28,147,224 449,524 140,180,214 36,830,614 4,719,776 961,098 211,288,450 523,529 54,094 1,467,731 2,045,354 1,078,113 876,550 4,000,017

26.1

26.1

This includes rent received from National Asset Management Company Limited amounting to Rs 600,000 (2009: Rs 600,000), a related party. Note 2010 2009 Rupees Rupees

27

ADMINISTRATIVE EXPENSES
Salaries, allowances and other benefits Rent, rates and taxes Fuel and repairs and maintenance Utilities Fees and subscription KSE, clearing house and CDC charges Corporate expenses Insurance charges Travelling and conveyance Depreciation Communication, printing and stationery 27.1 39,839,345 6,150,578 5,277,855 6,001,720 1,126,379 1,608,150 50,000 121,209 1,108,680 9,434,045 3,361,547 41,458,091 8,472,367 7,408,952 7,569,974 1,147,851 3,897,143 32,000 475,991 1,112,904 11,325,149 3,737,217

Annual Report '10

Page No. 44

Note

2010 Rupees 1,285,800 2,106,994 164,672 1,070,547 78,707,521

2009 Rupees 4,136,673 1,795,928 110,897 837,626 93,518,763

Legal and professional charges Entertainment Advertisement expenses Others 27.1

Salaries, allowances and other benefits include Rs 1,304,063 (2009: Rs 1,683,572) in respect of staff retirement benefits. 2010 Rupees 2009 Rupees

28

EMPLOYEE BENEFITS
Unfunded gratuity scheme: As mentioned in note 3.10, the Company operates an unfunded gratuity scheme. The latest actuarial valuation of the scheme was carried out as at June 30, 2010. Projected Unit Credit method using the following significant assumptions, was used for the valuation of the scheme: a) Discount rate b) Expected rate of increase in salary Amount recognised in the profit and loss account Current service cost Interest cost Recognition of actuarial (gains) / losses Expense Amount recognised in the balance sheet Present value of defined benefit obligation Add: unrecognised actuarial gains Add: benefits payable to outgoing members Liability recognised as at June 30, 2010 Movement in the present value of defined benefit obligation Present value of defined benefit obligation as at July 1, 2009 Current service cost Interest cost Actuarial gains Benefits due but not paid Benefits paid Present value of defined benefit obligation as at June 30, 2010 Movement of liability Liability as at July 1, 2009 Add: expense for the year Less: payments made during the year Liability as at June 30, 2010 Five year data on experience adjustments
2010 Present value of defined benefit obligation, June 30 Experience adjustment arising on plan liabilities gains / (losses) 2009 2008 2007 2006

12% 12% 1,006,538 297,525 1,304,063 3,474,244 40,347 3,514,591 2,479,375 1,006,538 297,525 689,458 (998,652) 3,474,244 3,209,180 1,304,063 (998,652) 3,514,591

12% 12% 832,292 373,748 1,206,040 2,479,375 729,805 3,209,180 3,114,567 832,292 373,748 (477,903) (1,363,329) 2,479,375 4,141,335 1,206,040 (1,363,329) 3,984,046

----------------------------------------Rupees-----------------------------------------

3,474,244 2,479,375 3,114,567 689,458 (477,903) 133,433

4,680,677 2,881,000 118,469 45,000

Page No. 45

Annual Report '10

Based on actuarial advice the Company intends to charge an amount of approximately Rs 2,187,178 in respect of the gratuity scheme in the financial statements for the year ending June 30, 2011. The information provided in this note has been obtained from the valuation carried out by an independent actuary as at June 30, 2010. 2010 Rupees 2009 Rupees

29

FINANCE COST
Mark-up on: Short term borrowing facilities Long term financing facilities Repurchase agreement borrowings Continuous funding system transactions Bank and other charges Documentation charges Note 14,927,713 117,400,041 29,103,836 2,819,357 78,110 164,329,057 2010 Rupees 183,818,228 24,500,000 8,845,497 763,855 100,260 218,027,840 2009 Rupees

30

OTHER OPERATING EXPENSES

Auditors' remuneration Donations Provision for doubtful trade debts Trade debts written off Advance to suppliers written off Dividends receivable written off Commission to trading agents 30.1 30.2 950,000 5,000 391,187 10,449,844 11,796,031 925,000 13,000 353,986,260 1,475,000 808,230 8,051,420 365,258,910

30.1

Auditors' remuneration Statutory audit fee Half yearly review fee Special reports, certifications and sundry services Code of corporate governance Out of pocket expenses

550,000 200,000 100,000 75,000 25,000 950,000

550,000 200,000 75,000 100,000 925,0000

30.2

None of the directors or any of their spouses had any interest in the donees. 2010 Rupees 2009 Rupees

31

TAXATION
Current for the year for prior years Deferred 3,488,052 (1,825,092) 60,931,933 62,594,893 2,790,540 (901,600) (114,607,899) (112,718,959)

Relationship between tax expenses and accounting profit Numerical reconciliation between the average tax rate and the applicable tax rate has not been presented as provision for current year income tax has been made under the provisions of minimum tax under Section 233(A) of the Income Tax Ordinance, 2001.

Annual Report '10

Page No. 46

2010 Rupees

2009 Rupees

32

LOSS PER SHARE - BASIC AND DILUTED

Loss per share is calculated by dividing loss after tax for the period by weighted average number of shares outstanding during the period as follows: Loss after taxation attributable to ordinary shareholders Weighted average number of ordinary shares in issue during the year Loss per share (127,685,121) 57,500,000 (2.22) (1,028,712,441) 57,500,000 (17.89)

No figure for diluted earnings per share has been presented as the Company has not issued any instruments carrying options which would have an impact on earnings per share when exercised.

33

REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES

The aggregate amounts charged in the financial statements for remuneration, including benefits to the chief executive, directors and executives of the Company are as follows: 2010 Chief Directors Executives Chief executive executive 2009 Directors Executives

---------------------------------------------Rupees--------------------------------------Managerial remuneration Retirement benefits Utilities Conveyance and travelling No of persons 6,000,000 1,795,162 11,431,129 759,231 32,040 36,326 688,019 267,967 2,417,376 788,359 7,476,378 2,099,455 14,639,776 1 2 9 6,000,000 1,200,000 8,927,000 547,923 21,000 1,102,995 180,857 1,287,225 7,650,918 9,031,775 10,235,225 1 7 10

The chief executive, all directors and all executives are provided with the free use of Company's owned and maintained cars. Remuneration to other directors Aggregate amount charged in the financial statements for fee to directors was 50,000 as at June 30, 2010 (2009: Rs 24,000).

34

RELATED PARTY TRANSACTIONS

2010
Key Associates Management Other related Total parties --------------------------------Rupees----------------------------------930,000 16,409,839 600,000 321,143,707 481,087,846 630,226 600,000 321,143,707 481,087,846 630,226 930,000 600,000 16,409,839 600,000

Transactions during the year Purchase of marketable securities for and on behalf of Sale of marketable securities for and on behalf of Brokerage income Fixed assets having book value of Rs 609,958 disposed off for Rent received Charge in respect of defined contribution plan Remuneration to key management personnel Payment made to defined contribution plan Gratuity charged

Page No. 47

Annual Report '10

2009
Key Management Transactions during the year Purchase of marketable securities for and on behalf of Sale of marketable securities for and on behalf of Brokerage income Fixed assets having book value of 1,291,000 disposed off for Rent received Charge in respect of defined contribution plan Remuneration to key management personnel Payment made to defined contribution plan Gratuity charged Other related Total parties --------------------------------Rupees----------------------------------925,380 14,926,700 570,000 6,601,801,405 6,462,577,414 948,433 869,000 600,000 473,939 368,818 6,601,801,405 6,462,577,414 948,433 1,794,380 600,000 473,939 14,926,700 368,818 570,000 Associates

The Company has related party relationship with its associated undertakings, employee benefit plans and its directors and executive officers. Transactions with associated undertakings essentially entail sale and purchase of marketable securities. Key management personnel are those persons having authority and responsibility for planning, directing and controlling activities of the entity. The Company considers all members of their management team, including the Chief Executive Officer and Directors to be its key management personnel. There are no transactions with key management personnel other than under their terms of employment / entitlement. Balances outstanding from / to related parties as at the year end have been disclosed in the relevant balance sheet notes.

2010 Rupees

2009 Rupees

35

CASH AND CASH EQUIVALENTS

5,554,749 10,038,746 (474,976,169) (608,159,035) (464,937,423) (602,604,286) Cash and cash equivalents included in the cash flow statement comprise of the above balance sheet amounts: Cash and bank balances Short-term borrowings

36

FINANCIAL INSTRUMENTS BY CATEGORY

2010

Loans and Available At fair value At amortised receivables for sale through profit cost and loss Assets Non-current assets Long-term deposits Receivable from associates Current assets Short-term investments Trade debts - net Loans and advances Trade deposits Other receivables Cash and bank balances

Total

-----------------------------------------Rupees-------------------------------------------2,862,429 175,411,452 55,036,730 2,862,429 175,411,452 194,720,352 208,435,589 4,681,119 800,190 28,988,804 10,036,689

139,683,622 208,435,589 4,681,119 800,190 28,988,804 10,036,689

Annual Report '10

Page No. 48

2010

Loans and Available At fair value At amortised receivables for sale through profit cost and loss

Total

-----------------------------------------Rupees-------------------------------------------Liabilities Current liabilities Trade and other payables Accrued mark-up Short-term borrowings Current portion of long-term borrowings Non-current liabilities Long-term financing Loan from director 2009

160,041,543 9,181,155 484,976,169 901,027,024 4,449,224

160,041,543 9,181,155 484,976,169 901,027,024 4,449,224 Total

Loans and Available for At fair value At amortised receivables sale through profit cost and loss Assets Non-current assets Long-term deposits Current assets Short-term investments Trade debts - net Loans and advances Other receivables Cash and bank balances Liabilities Current liabilities Trade and other payables Accrued mark-up Short-term borrowings Current portion of long-term financing Non-current liabilities Long-term financing 2010

----------------------------------------Rupees--------------------------------------------

2,628,720

119,431,920 -

2,628,720 443,781,840 284,716,967 1,875,025 2,724,068 5,541,698

324,349,920 284,716,967 1,875,025 2,724,068 5,541,698 -

115,265,364 40,416,688 808,159,035 40,322,000 583,270,370

115,265,364 40,416,688 808,159,035 40,322,000 583,270,370 Total

Loans and Available At fair value At amortised receivables for sale through profit cost and loss Income / other items Operating revenue Other operating income Gain on sale of investments-held for trading 1,418,503 28,147,224 29,417,233 -

----------------------------------------Rupees--------------------------------------------

1,418,503 28,147,224 29,417,233

Page No. 49

Annual Report '10

2010

(Expenses / other items) Loss on sale of investments available for sale Finance cost Impairment loss on available for sale securities Unrealized loss on re-measurement of investments

Loans and Available At fair value At amortised Total receivables for sale through profit cost and loss -----------------------------------------Rupees--------------------------------------------

Loans and receivables

(14,623,858) (90,830,000) -

(6,435,937)
2009

(44,031,549) -

(14,623,858) (44,031,549) (90,830,000) (6,435,937) Total

Available for At fair value At amortised sale through profit cost and loss

-----------------------------------------Rupees-------------------------------------------Income / other items Operating revenue Other operating income Gain on sale of investments (Expenses / other items) Loss on sale of investments Finance cost Impairment loss on available for sale securities Unrealized loss on re-measurement of investments (132,011,144) (36,014,296) (168,025,440) 211,437,000 211,437,000 (309,872,623) (40,986,521) (309,872,623) (40,986,521) 11,122,580 2,045,354 11,122,580 2,045,354 -

37

FINANCIAL RISK MANAGEMENT

Financial risk factors The Company's activities are exposed to a variety of financial risks namely market risk, credit risk and liquidity risk. The Company has established adequate procedures to manage each of these risks as explained below.

37.1

Market risk Market risk is the risk that the value of the financial instrument may fluctuate as a result of changes in market interest rates or the market price of securities due to a change in credit rating of the issuer or the instrument, change in market sentiments, speculative activities, supply and demand of securities and liquidity in the market. Market risk comprises of three types of risk: currency risk, interest rate risk and other price risk.

37.1.1 Currency risk Currency risk mainly arises where receivables and payables exist due to transactions with foreign undertakings. The Company believes that it is not exposed to major foreign exchange risk in this respect.

Annual Report '10

Page No. 50

37.1.2 Yield / Interest rate risk Yield risk is the risk of decline in earnings due to adverse movements of the yield curve. Interest rate risk is the risk that the value of the financial instruments will fluctuate due to changes in the market interest rates. Sensitivity to interest / mark-up rate risk arises from mismatches or gaps in the amounts of interest / mark-up based assets and liabilities that mature or reprice in a given period. The Company manages this risk by matching the repricing of financial assets and liabilities through appropriate policies. As at June 30, 2010 Exposed to Yield / Not exposed to Total Interest risk Yield / Interest rate risk Up to one More than year one year ---------------------------------------Rupees------------------------------------------Financial assets Non-current assets Long-term deposits Receivable from associates Current assets Short-term investments Trade debts - net Loans and advances Trade deposits Other receivables Cash and bank balances Sub Total Financial liabilities Current liabilities Trade and other payables Accrued mark-up Short-term borrowings Current Maturity of long term borrowings Non current liabilities Long term financing Loan from director Sub Total On-balance sheet gap Off-balance financial instruments Off-balance sheet gap Total interest rate sensitivity gap Cumulative interest rate sensitivity gap 484,976,169 484,976,169 484,976,169 (484,155,852) (484,155,852) (484,155,852) 901,027,024 4,449,224 905,476,248 905,476,248 (905,476,248) (905,476,248) (905,476,248) 160,041,543 9,181,155 169,222,698 169,222,698 (455,893,609) 160,041,543 9,181,155 484,976,169 654,198,867 901,027,024 4,449,224 905,476,248 1,559,675,115 933,738,491 800,190 20,127 820,317 820,317 2,862,429 175,411,452 178,273,881 194,720,352 208,435,589 4,681,119 28,988,804 10,016,562 446,842,426 625,116,307 2,862,429 175,411,452 178,273,881 194,720,352 208,435,589 4,681,119 800,190 28,988,804 10,036,689 447,662,743 625,936,624

Page No. 51

Annual Report '10

As at June 30, 2009 Exposed to Yield / Not exposed to Total Interest risk Yield / Interest rate risk Up to one More than year one year ----------------------------------------Rupees------------------------------------------Financial assets Non-current assets Long-term deposits Current assets Short-term investments Trade debts - net Loans and advances Other receivables Cash and bank balances Sub Total Financial liabilities Current liabilities Trade and other payables Accrued mark-up Short-term borrowings Current Maturity of long term borrowings Non current liabilities Long term financing Sub Total On-balance sheet gap Off-balance financial instruments Off-balance sheet gap Total interest rate sensitivity gap Cumulative interest rate sensitivity gap 808,159,035 40,322,000 848,481,035 848,481,035 (848,461,535) (848,461,535) (848,461,535) 583,270,370 583,270,370 (583,270,370) (583,270,370) (583,270,370) 115,265,364 40,416,688 155,682,052 155,682,052 585,566,766 585,566,766 115,265,364 40,416,688 808,159,035 40,322,000 1,004,163,087 583,270,370 1,587,433,457 (846,165,139) (846,165,139) 19,500 19,500 19,500 2,628,720 443,781,840 284,716,967 1,875,025 2,724,068 5,522,198 738,620,098 741,248,818 2,628,720 443,781,840 284,716,967 1,875,025 2,724,068 5,541,698 738,639,598 741,268,318

37.1.2.1The mark-up rates per annum on financial assets and liabilities are as follows: 2010 2009

-------------Percentage---------Short term borrowings Long term financing Receivable from associates Bank balances Exposure deposits with KSE 14.85-17.26 14.77-16.35 16 17 14.00-18.00 -

Annual Report '10

Page No. 52

37.1.2.2 Sensitivity analysis for variable rate instruments

In case of 100 basis points increase / decrease in KIBOR on June 30, 2010, with all other variables held constant, the net assets of Company would have been higher / lower by Rs. 1,614,316 (2009: Rs. 7,075,000) and net loss for the year would have been lower / higher by the same amount. The sensitivity analysis prepared as of June 30, 2010 is not necessarily indicative of the impact on Company's net assets of future movements in interest rates. 37.1.3 Price Risk The Company is exposed to equity price in respect of investments classified as available for sale and at fair value through profit or loss. To manage price risk arising from these equity investments the Company applies appropriate internal polices. The investment of the Company classified as available for sale and at fair value through profit or loss would normally be affected due to fluctuation of equity prices in the stock exchange. In case of 5% increase / decrease in KSE 100 index on June 30, 2010, the net loss for the year relating to securities classified as fair value through profit and loss would decrease / increase by Rs. 321,797 (2009: Rs. 5,839,000) and net assets of the Company would increase / decrease by the same amount . In case of 5% increase / decrease in KSE 100 index on June 30, 2010, the net loss for the year relating to securities classified as available for sale and other components of equity and net assets of the Company would increase / decrease by Rs. 5,805,621 (2009: Rs. 12,657,000) as a result of gains / losses on equity securities classified as available for sale. The above analysis is based on the assumption that the equity index had increased / decreased by 5% with all other variables held constant and all the Company's equity instruments moved according to the historical correlation with the index. This represents management's best estimate of a reasonable possible shift in the KSE 100 index, having regard to the historical volatility of the index. The composition of the Company's investment portfolio and the correlation thereof to the KSE index, is expected to change over time. Accordingly, the sensitivity analysis prepared as at June 30, 2010 is not necessarily indicative of the effect on the Company's net assets of future movements in the level of KSE100 index. 37.2 Credit risk Credit risk represents the accounting loss that would be recognised at the reporting date if counter parties failed to perform as contracted. All the financial assets of the Company except Rs 2,057 (2009: Rs 13,051) are exposed to credit risk. To manage the exposure to credit risk, the Company applies credit limits to its customers and in certain cases obtains margins and deposits in the form of cash and marketable securities. The Company has established internal policies for extending credit which captures essential details regarding customers. Based on the review of borrower's credentials as available internally and value of collaterals held as security, the management is confident that credit quality of debts which are not past due nor impaired remains sound at the balance sheet date. The carrying amount of financial assets that would otherwise be past due or impaired whose terms have been renegotiated was Rs NIL (2009: Rs NIL million). The Company is making its concerted efforts for entering into settlement agreement with certain outstanding debtors who had not paid on time." Apportion of the outstanding amounts of trade debts are secured against pledge of customers securities. The Company is entitled to sell these securities, at its own discretion, in case of default by the customers. During the year the Company has disposed off certain securities of its clients in case of non-payment to the Company . The outstanding receivables settled on this account and the amount of securities realized through disposal / transfer to the Company's own account have not been disclosed as it was not practicable to determine the amount of these collaterals / outstanding receivable due to the quantum of transactions that had taken place on these arrangement . The management intends to take appropriate measures for determining these amount in future periods. A reconciliation of provision made during the year in respect of outstanding trade debts and certain investments categorized as available for sale is given in notes 12.2 and 11.1 to these financial statements.

Page No. 53

Annual Report '10

The Company hold certain collaterals which are permitted by the customer for repledge in the absence of default .The fair value of such collateral held as at June 30, 2010 and those which have been repledged along with the details of the Company's obligation as to their return and the significant terms and condition associated with their use are given in note 39 to the financial statements. The maximum exposure to credit risk , by class of financial instrument , at the end of the reporting period without taking into account any collateral held or other credit enhancement is given in note 36 to the financial statements. The Company does not hold any collateral in respect of these assets except for certain trade debts which have been collateralized against certain equity securities. An analysis of the age of significant financial assets that are past due but not impaired are as under. 2010 2009 Payment over due (in days)

Total Payment over Outstanding outstanding due (in days) amount amount Rupees Rupees Financial instruments carried at amortised cost Trade debts - net

208,435,589

1-360

284,716,967

1-360

An analysis of the significant financial assets that are individually impaired are as under. The factors in determining the impairment loss mainly comprises management's assessment of potential loss which is expected to arise on these financial assets. Such assessment is mainly based on the potential recoveries / cash flows from the customers. 2010 Total Up to one One to three More than outstanding month months three months amount -------------------------------------Rupees-----------------------------------Financial instruments carried at amortised cost Trade debts - net

120,665,587

7,748,741

483,730,025

2009 Total Up to one One to three More than outstanding month months three months amount -------------------------------------Rupees-----------------------------------Financial instruments carried at amortised cost Trade debts - net

21,556,000

4,308,000

520,348,659

Although the Company has made provision against the aforementioned portfolio , the Company still holds certain collateral to be able to enforce in recovery. 37.3 Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Company currently is not exposed to significant level of liquidity risk keeping in view the current market situation. Negotiations are in progress with the financial institutions to meet any deficit required to meet the short-term liquidity commitments. The table below analyses the Company's financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows.

Annual Report '10

Page No. 54

Up to three months

2010 More than three More than months and up to one year one year

Total

-------------------------------------Rupees-----------------------------------Current liabilities Trade and other payables Accrued mark-up Payable in respect of continuous funding system transactions Short-term borrowings Current maturity of long term financing Non current liabilities Long term financing Loan from director 160,041,543 9,181,155 160,041,543 9,181,155

484,976,169 Up to three months

484,976,169 -

901,027,024 901,027,024 4,449,224 4,449,224 2009 More than three More than Total months and up to one year one year

-------------------------------------Rupees-----------------------------------Current liabilities Trade and other payables Accrued mark-up Payable in respect of continuous funding system transactions Short-term borrowings Current maturity of long term financing Non current liabilities Long term financing Loan from director 115,265,364 40,416,688 115,265,364 40,416,688

808,159,035 -

40,322,000 -

808,159,035 40,322,000

583,270,370 583,270,370 -

During the year, the Company had restructured and rescheduled certain borrowing arrangement entered between the banks and the Company. These mainly occurred consequent to the unprecedented shortfall in liquidity of the Company which are mainly due to losses incurred and significant deterioration in the value of assets used to generate cash flows. The Company had also deferred the mark-up amounting to Rs. 129,980,152 on these borrowings.

37.4

Fair value of financial assets and liabilities

The carrying value of all financial assets and liabilities reflected in the financial statements approximate their fair values.

38

CAPITAL RISK MANAGEMENT

The objective of managing capital is to safeguard the Company's ability to continue as a going concern, so that it could continue to provide adequate returns to shareholders and benefits for other stakeholder and to maintain an optimal capital structure to reduce the cost of capital.

Page No. 55

Annual Report '10

39

USE OF COLLATERAL AND TRADING SECURITIES

The Company utilises customers margin able securities for meeting the exposure deposit requirements of the Karachi Stock Exchange (Guarantee) Limited, for meeting securities shortfall at the time of settlements on behalf of the customers and for securing financing facilities from bank. These securities are utilised by the Company with theconsent of the customers. As at June 30, 2010, securities amounting to Rs 32,514,798 and Rs 200,388,712 were pledged / utilised by the Company for meeting the exposure deposit requirement of the Karachi Stock Exchange (Guarantee) Limited and for securing financing facilities from banks respectively.

40

FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISKS

The Company purchases and sells securities as either principal or agents on behalf of its customers. If either the customer or a counterparty fails to perform, the Company may be required to discharge the obligation on behalf of the non-performing party. In such circumstances, the Company may sustain a loss if the market value of the security is different from the contracted value of the transaction. The Company also gives customer securities to brokers . If a broker fails to return a security on time, the Company may be obligated to purchase the securities in order to return to the owner. In such circumstances, the Company may incur a loss equal to the amount by which the market value of the security on the date of non-performance exceeds the value of the collateral received from the broker. The majority of the Company's transactions, and consequently, the concentration of its credit exposure are with the customers, brokers and other financial institutions. These activities primarily involve collateralised arrangement and may result in credit exposure in the events as mentioned above or if the counter party fails to meet its contracted obligations. The Company's exposure to credit risk can also be directly impacted by volatile securities markets which may impair the ability of counterparties to satisfy their contractual obligations. The Company seeks to control its credit risk through a variety of reporting and controls procedures, including establishing credit limits based upon a review of the counterparties' financial condition. The Company monitors collateral levels on a regular basis and requests changes in collateral level as appropriate or if considered necessary.

41 42
42.1 42.2

NUMBER OF EMPLOYEES
Number of employees at the year end. 122 123

GENERAL AND CORRESPONDING FIGURES

Amounts have been rounded off to the nearest rupees unless otherwise stated. Some corresponding figures have been rearranged and reclassified for better presentation.

43

DATE OF AUTHORISATION

These financial statements have been authorized for issue on 08 Oct 2010 by the Board of Directors of the Company.

Chief Executive
Annual Report '10

Director
Page No. 56 Page No. 4

PATTERN OF SHAREHOLDING
As at June 30, 2009

NUMBER OF SHAREHOLDERS
111 109 102 77 12 7 4 3 4 6 1 2 2 1 2 2 2 1 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 478

From
1 101 501 1001 5001 10001 15001 20001 25001 45001 55001 65001 70001 85001 90001 95001 100001 105001 120001 195001 200001 260001 270001 300001 315001 335001 340001 365001 410001 545001 600001 845001 885001 1145001 1160001 1225001 1415001 2010001 2435001 2800001 2910001 4795001 4835001 5745001 6255001 12275001

To
100 500 1000 5000 10000 15000 20000 25000 30000 50000 60000 70000 75000 90000 95000 100000 105000 110000 125000 200000 205000 265000 275000 305000 320000 340000 345000 370000 415000 550000 605000 850000 890000 1150000 1165000 1230000 1420000 2015000 2440000 2805000 2915000 4800000 4840000 5750000 6260000 12280000

TOTAL SHARES HELD

4,678 31,868 70,532 164,676 85,982 80,907 78,400 67,200 110,065 290,591 56,000 135,227 140,551 86,500 186,700 200,000 206,963 107,500 242,363 397,879 202,048 261,850 271,726 302,525 320,000 338,014 345,000 367,361 415,000 546,150 600,500 848,966 888,350 1,150,000 1,164,950 1,229,349 1,420,000 2,014,500 2,436,200 2,801,350 2,912,000 4,798,950 4,835,990 5,747,650 6,257,949 12,279,040 57,500,000

Page No. 57

Annual Report '10

Categories of Shareholders
As at June 30, 2010.

Categories Related Parties

First Florance Developers (Pvt.) Limited F. Rabbi Steel (Pvt.) Limited Yarmouk Paper & Board Industry (Pvt.) Limited MCD Pakistan Limited First Pakistan Securities Limited Switch Securities (Pvt.) Limited Directors, Chief Executive and their Spouse and Minor Children Ali Aslam Malik Malik Atiq-ur-Rehman Muhammad Iqbal Khan Shahzad Akbar Mohammad Ali Khan Rais Ahmed Dar Amir Shehzad Mrs. Adeela Ali Omer Ali Malik (M) Through Guardian Ali A. Malik Fatima Ali (M) Through Guardian Ali A. Malik Mrs. Ghazala Rais Dar Executives Banks/DFIs/NBFIs Modarabas/ Mutual Funds & Foreign Investors Joint Stock Companies Insurance Companies NIT & ICP Individual

Number

Shares Held

Percentage

1 1 1 1 1 1

5,747,650 1,787,361 345,000 4,798,950 13,241,540 7,422,899

9.996 3.108 0.600 8.346 23.029 12.909 0.000

1 1 1 1 1 1 1 1 1 1 1 0 6 2 23 1 1 395

2,558,001 262,350 1,150 6,325 500 600 1,000 1,150,575 94,300 11,000 546,150 602,289 848,966 4,874,711 46,591 65,227 13,086,865 57,500,000

4.449 0.456 0.002 0.011 0.001 0.001 0.002 2.001 0.164 0.019 0.950 0.000 1.047 0.000 1.476 0.000 8.478 0.000 0.081 0.113 0.000 22.760 100.000

Detail of Shareholding 10% & more First Pakistan Securities Limited Switch Securities (Pvt.) Limited 1 1 13,241,540 7,422,899 23.029 12.909

Annual Report '10

Page No. 58

Branch Network
of First National Equities Limited
Lahore Office
1. FNE House, 179-B, Abu Bakar Block, New Garden Town, Lahore Tel: 042-35843722-27,042-35845011-15 Fax: 042-35843730. Office No. 2, 1st Floor, Sharif Complex, Main Market, Gulberg-II, Lahore Tel: 042-35754013

Abbottabad Office
1st Floor, Goher Sons Arcade, Mansehra Road Supply Bazaar, Abbottabad, Tel#:0992-341305, 0992-341104

2.

Mardan Office
Shop No 22-24, Cantonment Plaza, The Mall, Mardan Tel: 0937-875827-29 Fax: 0937-875830

Karachi Offices
1. FNE HOUSE, 19-C, Sunset Lane 6, South Park Avenue, Phase II Extension, D.H.A. Karachi Tel: 021-35395901-05 Fax: +92-021-35395920 Room No. 135-136, 3rd Floor, New Stock Exchange Building, Karachi Tel: 021-32472119, 32472014, 32472758 Fax: 021- 32472332

Daska Office
Basement Nagina Suiting, Kachehri Road, Daska, Sialkot. Tel: 052-6617585, 052-6600021

2.

Peshawar offices
1. 2nd Floor, State Life Building, 34 The Mall, Peshawar Cantt, Peshawar Tel: 091-5260935, 5260965 Fax: 091-5260977 Office # 2, Ground Floor, Bank Square , Chowk Yadgar, Peshawar City, Peshawar Tel: 091-2580746-51 Fax: 091-2580750 Room # 508, 5th Floor, Jasmine Arcade, Fakhr-e-Alam Road, Peshawar Saddar, Peshawar Tel: 091-5275661,5274695,5275055 Fax: 091-5275632

Mirpur (Azad Kashmir) Office

2nd Floor, Haji Lal Din City Plaza, Plot No. 114, Sector F/1, Kotli Road, Mirpur Azad Jammu Kashmir Tel: 058610-39655-58 Fax: 0586-39656

2.

3.

Mandi Bhauddin
Hassan Siddique Plaza, 1st Floor, Office # 2, Back Street NIB Bank, Ward No. 5, Mandi Bhauddin. Tel # 0546-501185 Fax # 0546-500185

Rawalpindi Offices
1. 53/7, Haider Road, Rawalpindi Cantt, Rawalpindi. Tel: 051-5563195-96 Fax: 051-5563194 Ground Floor, Kings Plaza, 50 Judicial Colony Rawalpindi. Tel# 051-5954939

2.

Islamabad Office
Room # 508, 5th Floor, ISE Tower, Blue Area, Islamabad. Tel# 051- 2894545 Fax #051-2894549

Page No. 59

Annual Report '10

FORM OF PROXY
FIRST NATIONAL EQUITIES LIMITED
I/ We First National Equities Limited and holder of as per Share Register Folio No. For Beneficial Owners As per CDC List CDC Particiapant I.D. No. N I C No. Hereby appoint Sub-Account No. or Passport No. of being a member of Ordinary Shares

of or failing him/ her of as my/ our proxy to vote and act for me/ our behalf at the Annual General Meeting of the Company to be held at FNE House, 19 C, Sunset Lane 6, South Park Avenue, Phase II Ext. DHA Karachi on Saturday, October 30, 2010 at 07:00 p.m. and at any adjournment thereof.
Please affix rupees five revenue stamp

(Signatures should agree with the specimen signature) day of ,2010

Dated this

Signature of Shareholder Signature of Proxy 2.WITNESS Signature: Name: Address: NIC NO: or Passport No.

For beneficial owners as per CDC list 1.WITNESS Signature: Name: Address: NIC NO: or Passport No.

Important: 1 This Proxy Form, duly completed and signed, must be received at the Registered Office of the Company at FNE House, 19-C Sunset Lane 6, South Park Avenue, Phase II, Ext DHA. Karachi, not less than 48 hours before the time of holding the meeting. No person shall act as proxy unless he/she himself/ herself is a member of the Company, except that a corporation may appoint a person who is not a member. If a member appoint more than one proxy and more than one instruments of proxy are deposited by a member with the Company, all such instruments of proxy shall be rendered invalid.

2 3

For CDC Account Holders/ Corporate Entities: In addition to the above the following have to be met: i) The proxy form shall be witnessed by two persons whose names, addresses and NIC numbers shall be mentioned on the form.

ii) Attested copies of NIC or the passport of the beneficial owners and the proxy shall be furnished with the proxy form. iii) The proxy shall produce his/ her original NIC or passport at the time of the Meeting. iv) In case of corporate entity, the Board of Directors' resolution/ power of attorney with specimen signature shall be submitted (unless it has provided earlier) alongwith proxy form of the Company.

Annual Report '10

FIRST NATIONAL EQUITIES LIMITED

FNE House: 19-C, Sunset Lane-06, South Park Avenue Phase II, Extension, D.H.A. Karachi.