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Safeway Mutual Fund Limited

	About Safeway Mutual Fund Limited
	Financial Statements
	Investment Advisor’s Report on Fund Performance

About Safeway Mutual Fund Limited

Legal Status
Safeway Mutual Fund Limited is a public limited company incorporated in May 1994 under the Companies Ordinance, 1984 and has been registered with the Securities and Exchange Commission of Pakistan (SECP) as an Investment Company under the Investment Companies and Investment Advisers Rules, 1971 to carry on the business of a closed end investment company. The company is also registered under rule 38 of the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (NBFC Rules). The company commenced its business in July 1994 and is listed on Karachi and Islamabad Stock Exchanges. The company has entered into an agreement with Safeway Fund Limited to act as its Investment Adviser. Safeway Fund Limited is duly licensed under the NBFC Rules to act as an Investment Adviser.

Investment Objective
The investment objective of the Fund is to provide its shareholders a vehicle for long-term capital appreciation. The Funds seeks to achieve this objective through investment primarily in high quality equity issues and by diversifying across sectors poised to gain the most from the prevalent macro-economic trends. At the same time the Company promotes measures to stabilize revenues by investing an allowable portion of its assets in other non – equity securities including listed Fixed Income Securities and hybrid equity issues. The relevant asset allocation percentage is determined after considering market conditions and corroborating the basis for investment decisions through third parties and external research sources.

Fund Performance

Performance of KSE Index

Performance of NAV and Share Price

Performance of 6M Kibor

Relationship with Investment Advisor
As a closed end mutual fund regulated under the Non – Banking Finance Company Rules (Establishment and Regulation Rules) 2003, all aspects of the Fund’s operations are managed by its Investment Advisor, Asian Capital Fund Limited.

The Fund’s performance for 2006 was not in line with expectations and the Fund recorded a loss during the year. During the first half of the 2007 financial year, steps were taken to reconstitute the Board of Directors of the Investment Advisor and the Fund itself. This was done as part of a revamping and restructuring exercise which was commenced to regularize various aspects of operations, improve the control environment and improve the performance of the Investment Advisor and consequently the Fund itself. Similar steps were taken at Asian Stocks Fund Limited and for its Investment Advisor, Asian Capital Management Limited.

The Board of Directors of the above companies largely comprise of the same professionals who have been specifically appointed to facilitate this revamping and restructuring process. To date significant progress has taken place and includes:-

	Appointment of a Board of Directors approved by the Securities and Exchange Commission of Pakistan (SECP) on the Fund and the Investment Advisor.
	Reprofiling of portfolio to reduce exposure in any one group of companies.
	Diversification into non equity investments.
	Acquisition of an integrated software package.
	Improved coordination and communication between the Fund and its Investment Advisor.
	Review, identification and resolution of any non compliance and control weaknesses through the support of the newly reconstituted Board of Directors, a new management team, a more diversified panel of brokers and the appointment of internal auditors.

Various other steps are still in process to further strengthen the Company’s portfolio, risk management policies and control environment.

Relationship between Investment Advisor and Asian Capital management Limited
Being an NBFC, the Investment Advisor is required to seek renewal of its license on an annual basis. On July 5, 2005 the SECP advised the Investment Advisor that:
"the Commission in its recent meeting has decided that one license will be issued in a Group to undertake any of the activities given in the NBFC Rules and Investment Advisory and Asset Management Services are categorised as one activity, therefore the plan to undertake the said activities by two separate entities namely Safeway Fund Limited and Asian Capital Management Limited is not in line with the policy of the Commission. It is therefore advised to consider merger of these companies into one Investment Advisory/ Asset Management Company."

Asian Capital Management Limited in its extraordinary general meeting held on June 13, 2005 resolved that:

"the Investment Advisory Contract with Asian Capital Management Limited dated August 17, 2004 entered for the period of ten years commencing from August 17, 2004 be and is hereby terminated with effect from July 1, 2005 with the mutual consent of both parties and subject to the approval of the SECP."

"the Investment Advisory Contract with Safeway Fund Limited (SFL) for a period of ten years commencing from July 1, 2005 be and is hereby approved subject to the approval of the SECP. "

Approval for the above is pending subject to the completion of certain regulatory formalities. However, SECP has renewed the license of ACML to carry out the investment advisory services uptil November 30, 2007 or its merger with SFL, whichever is earlier.

Recent Developments
The Fund’s Investment Advisor – Safeway Fund Limited and Asian Capital Management Limited (Investment Advisor – Safeway Mutual Fund Limited) have both lodged an application to the SECP for the change in their shareholders from Crescent Standard Business Management (Private) Limited to a consortium comprising of Crescent Steel and Allied Products Limited and Shakarganj Mills Limited. Thereafter these companies plan to lodge a petition for merger. The merged Investment Advisory Company – Safeway Fund Limited would manage both Safeway Mutual Fund Limited and Asian Stocks Fund Limited This measure is expected to improve operational efficiency by reducing common costs and would therefore be of benefit to the investors of both Funds. In the meanwhile, the same management team is managing the operations of both Investment Advisor Companies.

Risk Management
Liquidity Risk - Liquidity risk is the risk that the Fund may encounter delays and difficulties in selling an asset and converting it to cash. Most securities owned by mutual funds can be sold easily and at a fair price. In highly volatile markets, such as in periods of sudden interest rate changes, securities may become less liquid, which means they cannot be sold as quickly or as easily. Some securities may be illiquid because of legal restrictions, the nature of the investment, or other features, like guarantees or a lack of buyers interested in the particular security. Difficulty in selling securities may result in a loss or reduced return for a fund.

The Investment Advisor manages this risk investing a major portion of the company's assets in highly liquid financial assets spread amongst a wide range of economic sectors. Securities with limited liquidity are only invested in to achieve a specified purpose or after having considered a suitable exit plan.

Market Risk - Market risk is the risk that the value of securities will fluctuate as a result of market interest rates or the market price of securities due to a change in credit rating of the issuer, speculative activities, supply and demand of securities and liquidity in the market. Significant fluctuations would result in a considerable reduction in return and would be contrary to the stated aim of the Fund which is to provide long term growth for its investors. To address this concern, the Company has adopted a portfolio diversification strategy which entails maximization of allowable limit for investment in other securities, diversification in stocks, limiting exposure in companies controlled by the same sponsors, and investment in different sectors. This approach is pursued to create a mix of high and low risk (beta) securities.

Risks relating to small companies - Small companies are considered riskier investments than larger companies. They are often newer, and do not have a track record, strong financial backing or a well-established market. In addition, these companies usually have a smaller market float making it difficult for the fund to buy or sell these stocks when it needs to. The Company manages this risk by investing largely in blue chip counters. Investments in smaller companies are limited and are made only after a detailed analysis and consideration of the risks and rewards associated with such an association.

Credit Risk - Credit risk arises from the inability of the issuer of the instruments, the relevant financial institutions or counter parties to fulfil their obligations.

Credit risk exists when changes in economic or industry factors affect groups of counter parties whose aggregate credit exposure is significant in relation to the company's total credit exposure. If a mutual fund invests heavily in a specific sector, the fund will be heavily reliant on the performance of that sector for example, world trading price, forces of nature, economic cycles, commodity prices, exchange rates and political events.

The Fund manages credit risk by keeping its portfolio diversified in accordance with the regulations laid down by the Securities and Exchange Commission of Pakistan. The Fund's portfolio of financial assets is broadly diversified and transactions are entered into with diverse credit worthy counter-parties thereby mitigating any significant concentration of credit risk. The Fund does not have more than 20% exposure in any one group of companies.

There is a possibility of failure of the financial markets/stock exchanges, the depositories, the settlements or the clearing system etc. Asian Capital Management Limited as Investor Advisor to Asian Stocks Fund Limited conducts it’s transactions with the brokers approved by the Fund’s Board of Directors. All applicable rules of the Non Banking Finance Companies (Establishment and Regulation) Rules, 2003 (NBFC Rules) are followed in this regard. The criteria for selecting a broker includes support services such as research, commission rates and reputation in the market place. No broker is given preferential treatment.

Interest Rate Risk and Inflation - In general, as prevailing interest rates fall, the price of fixed income securities will rise. When interest rates rise, the prices of fixed income securities will fall. Interest Rate Risk is the risk that if interest rates in the economy increase, the market value of the financial instrument will decline. Changes in levels of inflation may also affect the value of the instrument which will increase when inflation increases and tends to decrease when inflation decreases. This risk is mitigated by continuous monitoring of market conditions to ensure that appropriate decisions can be made on a daily basis as well as active asset allocation between equity and fixed income securities in view of prevailing and/or forecasted economic conditions.

Market Rate of Return Risk - This is the risk that the value of a financial instrument will fluctuate due to change in market interest rate. The Company is not exposed to a significant MROR risk

Financial Statements / Investment Advisor’s Report on Fund Performance


June 30, 2007 Annual Accounts

September 30, 2007 Quarterly Accounts

Safeway H-Yearly Report 08

More Financial Statements

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