Contents

Vision
Governing Board of Directors
Chairman's Review
Directors' Report
Stock Market Performance
Performance of Listed Companies
Balance Sheet
Income & Expenditure Account
Cash Flow Statement
Notes to the Accounts

Vision Mission

Governing Board of Directors

	Ch. Mohammad Sharif Ch. Muhammad Sharif is on tfie Board of Directors of Islamabad Slock Exchange since 2002. He was elected Chairman of the ISE Board for the 2003 term. He is Chief Executive of M/s Progressive Securities (Pvt) Limited, a Corporate Memberof the Exchange since 1997.		Mr. Aftab Ahmad Ch. Mr. Aftab Ahmad Ch. has been the Managing Director of Islamabad Stock Exchange since October 2002. He is also the director of National Clearing Company of Pakistan I imited and internationally well-known Credit Rating ncyJCR-VIS.
	Mr. Zahid Latif Khan Mr. Zahid Latif Khan was elected to the iSE board for the second time for the 2003 term He also served on the ISE board during 2001. Mr. Zahid Latif is the CEO of M/s Zahid Latif Khan Securities (Pvt) Limited, a Corporate Member of the Exchange since 1999.		Mr. Mohammad Rashid Zahir Mr. Mohammad Rashid Zahir is the SECP's nominee on the Board of ISE since 2001. Currently, he is serving as the General Manager/Chief Executive Officer of Saudi Pak industrial and Agricultural i nvestment Co <Pvt.) Ltd.
	Mr. Ahsan Imtiaz Bhatty Mr. Ahsan Imtiaz Bhatty is on the Board of Directors of the ISE since January 2002. He is the Chief Executive of M/s Millennium Securities (Pvt.) Limited, a member of the Exchange since 1998.		Mr. Kaiser H. Naseem Mr. Kaiser H. Naseem is a nominee of the SECP on the Board of ISE since 2001. Mr. Kaiser has been a former Managing Director of SBFC and the President of SME Bank. Currently, he is the Managing Director of M/s KHH Associates (Pvt.) Limited, a financial and management consultant company.
	Mr. Tariq Mahmood Sheikh Dr. Tariq Mahmood was elected as a director of the ISE for the 2003 term. He has been the Individual Member of the Exchange since 1998.		Mr. Mohammad Akbar Mr. Mohammad Akbar is a nominee of the SECP on the Board of ISE since 2001. A career banker who initially served in UBL and BCCI. He is Fellow of the Institute of Bankers of Pakistan and is currently serving as Director of the First International Bank Limited.
	Mr. Jawad Aslam Ch. Mr. Jawad Aslam Ch. was elected on the Board of ISE for 2003 term. He runs a brokerage house under his own name and has been a member of the ISE since 1999.		Mr. Ejaz Hussain Rathore Mr. Ejaz Hussain Rathore is a nominee of the SECP on the Board of ISE since 2000. A former Director of 0GDCL who is a Chartered Accountant by profession. He is also a member of Islamabad Chambers of Commerce.

Chairman's Review

Towards our efforts to promote further business at our Exchange, the ISE intends to enhance the scope of operations of our members through a strategy that will enable the entire group of our active members to start providing Internet Trading facilities to their investors. Forthis purpose, not only a dedicated effort is planned to be undertaken for enhancing the presence of all of our members on the World Wide Web, but the ISE is also attempting to bring further liquidity to the market through the activation of some renowned corporate brokerage houses at the ISE. The ISE is also looking at improving the price discovery process amongst the three stock exchanges so as to enable our investors to trade at the ISE with better certainty of execution of their orders at or around the Best Prices prevailing at the KSE. Improvement in the listing business of the Exchange is also being pursued vigorously and the ISE is expected to get all the new companies listed at our Exchange that are being planned to be floated at the Stock Exchanges by the Privatization Commission.

With the improvement in the business climate, the ISE is aiso showing gradual improvement in its financial position. The year under review proved to be the second best year in terms of the earning of the Exchange and brought us a step closerto completeiy erasing the accumulated losses of the Exchange. The Exchange has also increased its investment on the Human Resources besides large-scale technological advancements. Ail these investments are likely to further boost the business of the Exchange during the nextfew years.

In the past, the best practices of risk management by the ISE had been widely acknowledged by all concerned that has encouraged us to continue our advance towards distinguishing our market as the best regulated market in Pakistan. I am very happy to note that the ISE under an independent management made remarkable progress in this area during the year under review. Moreover, keeping with our traditional pro-reform approach towards the strengthening of the capital market in Pakistan, the ISE has also adopted a policy to support any effort aimed at the creation of a National Market System in the country. The year under review witnessed some initial efforts in this direction and I am glad to report that the ISE took a iead in promoting the policy of the SECP inthis regard.

Ch. Mohammad Sharif

Chairman ISE BOD

Director's Report

With the end of another momentous year for the ISE, I am sure that the performance of the ISE has been more than satisfactory. As the Chairman of the Board of Directors, I consider it my duty to thank all those who helped me in accomplishing a great deal of work for the ISE. My thanks are especially to all the members of the Exchange, the Directors, the Managing Director and the dedicated team of the ISE staff.

The Board of Directors of |s|amabad Stock Exchange (Guarantee) Limited is pleased to present Fourteenth Annual Report along with the audited accounts and the Auditor's Report forthe year ended June 30,2003.

Overview of the Economy

During the period under review, the macro economic indicators of the Country showed a healthy growth. The Country witnessed a broad based economic recovery that further strengthened the macroeconomic stability and eased external account vulnerability that had plagued the economy for quite some time.

Some of the major successes of the outgoing fiscal year 2002-03 were a sharp pick-up in growth aided by stellar growth in manufacturing and a robust recovery in agriculture; double-digit growth in per capita income, low inflation, highly conducive interest rates environment, record tax collection, reduction in fiscal deficit, impressive growth in exports, record overseas remittances, increase in surplus in current account, addition of more than $4 billion to the country's foreign exchange reserves, strengthening of rupee by almost four per cent, a decline in both domestic and external debt, substantial rise in foreign direct investment and the improved credit rating in international capital markets. These achievements were quite significant in the backdrop of several downside risks that prevailed on the international and national economic scenes.

The year-old elected government through its economic managers has time and again expressed its resolve to continue the economic policies and structural reforms of the previous government. As a result of such pronouncements, market sentiment has remained buoyant resulting into an increased activity in all the stock markets of the country.

Stock Market Performance

The outgoing year was spectacular forthe stock markets of the Country. During the year, all the three markets including the Islamabad stock Exchange (ISE) witnessed record hikes both in terms of surge in the respective benchmark indexes and the market capitalization. During the year under review, the share index of the ISE rose from 4,683.98 points to a new height of 8,210,13 points at the end of June 2003, thereby registering an increase of 3526.15 points or 75 %. At the same time, the aggregate market capitalization of the ISE also rose by 85.95 % from Rs.292.201 billion to Rs.543.371 billion. In terms of US dollars, the market capitalization increased from $5,038 billion to $9,368 billion during the period.

While it is a matter of pride that the leading Stock Exchange of the Country i.e, Karachi Stock Exchange emerged as the best performing market amongst the major stock markets in the world, however, it is noteworthy that together with Lahore and Islamabad Stock Exchanges, the performance of the stock markets of our Country clearly eclipsed the showing of the markets in many other leading countries of the World. Thus seen in the context of overall performance of the stock markets in a particular country, Pakistan had the singular achievement of outpacing the performance of the stock markets in many other countries in the

There is no doubt that such a stellar performance of the stock markets of our Country was largely the result of the strong showing of the economy of the country. However, a series of sustained reforms leading to improved transparency and governance of the stock exchanges and increased focus on monitoring corporate disclosures by the country's securities regulator-the SECR also played their due role in restoring the confidence of the people in the stock market investments to a great deal.

Financial Highlights

During the year under review, the Exchange earned an income of Rs. 30.96 million showing a decline of about 25% as compared to the revenue collected during the last financial year (LFY). This deciine was mainly due to the reason that during the last year (2001-2002), the Exchange had earned a one time listing fee of about Rs. 18 million whereas during the year under review, the Exchange's earning from the listing source stayed within its historic range due to which the income forthe year shows

a decline. Moreover, during the year under review, no new listing came to the Exchange and the number of companies delisted on account of merger and buy back of shares from the Exchange also rose to four as compared to three companies during the preceding year. However, it may be noted that during the current year, the Exchange recorded its highest ever revenue from trading fee source which was Rs. 3.2 million as compared to last year's earning of Rs. 1.7 million under this head. Similarly, the miscellaneous income also recorded an increase of 183 % during the year under review.

It may be mentioned that for the next financial year, the Exchange has already raised some of the fees payable by the Listed Companies and by the Inactive Members, as is the case with the other two stock Exchanges. The ISE, since ever its inception had not raised these fees whereas the other two Exchanges of the country had already revised their fee structures on more than one occasion. As such, the Exchange's revenue from these sources is likely to show a reasonable increase from the next year onward. Moreover, during the current year our Exchange has already received many letters of interests from the companies intending to be listed on the ISE. Similarly, the ISE has also framed Over the Counter Market regulations to attract smali-cap companies for a listing at our Exchange. With these initiatives, the Exchange is likely to get a boost in its earnings for the next financial year.

As regards the expenditures of the Exchange, the audited accounts show an increase of 17.5 % vis-a-vis the expenditures of the Exchange during the 2001 -2002 FY The main reasons of the rise in the expenditures are the augmenting of human resources of the Exchange as well as expenditures on improving thetrading platforms forthe members of the Exchange. Similarly, during the year, the Exchange invested substantial funds on the establishment of investors' Information Center and holding of Investment Seminars and briefings to promote a culture of stock market investments in the region. Moreover, the ISE also refurbished its web-site and has also installed an Investors' Hotline forthe purpose of educating the general public about the stock market investments. The focus of investment on all these initiatives was to promote the ISE as a reliable venue for investment by the people of our region. The ISE believes that within few years our investment in these areas will not only position the ISE as a comparatively transparent market place but will also result in bringing more and more investors to our market.

With this analytical overview of the financial statement, it is a matter of satisfaction that the ISE recorded a sizeable surplus, which has enabled the ISE to aim for complete elimination of the long standing deficit on our account books. With a favorable business environment during the current year and due to our effective policies, the ISE aims to bring substantial improvement in its financial condition from the next year onward, in future, we hope to attract more issuers and investors to the ISE, which will help us in leading our way to an affluent and heaithy financial marketplace.

Corporate Governance At ISE

Although the code of corporate governance applies over the listed corporate entities, but the ISE being a seif-reguiatory organization also made it a point to apply the edicts of this code upon itself on voluntarily basis. Recognizing its role as a front line regulator, the ISE has not only carried out internal restructuring but has also adopted policies to ensure a more transparent monitoring of stocktrading activities of its Members so as to safeguard the interests of its investors. It is a matter of pride that the Board and the Management of the ISE continue to remain the forefront drivers to ensure the highest standard of corporate governance in our affairs. In this direction, the ISE Board has already adopted a mission as well as a vision statement in line with the objects of the company to inculcate transparent practices and promote ethical standards. In accordance with the requirement of code of corporate governance, we the Board of directors further declare that:

The ISE has been able to incorporate and uphold the edicts of good corporate disclosures and there has been no material departure from the best practices of corporate governance.

Proper books of accounts, which are the indicators of the financial wholeness, have been maintained at the ISE. The financial statements, for the year ended June 30, 2003, together with the notes thereon have been prepared in conformity with the Companies Ordinance 1984.

Generally applicable and appropriate accounting policies have been consistently applied in preparation of financial
statements and all accounting estimates are based on reasonable and prudent financial judgment.

The system of internal control is sound in its design and structure. Furthermore its effective implementation and monitoring has been ensured.

• The ISE has consistently followed a uniform pattern of revenue recognition from the trading fee source. The trading fee
  charged from the members is divided in three equal parts-1/3rd is recognized as income of the Exchange
  whereas the remaining is equally transferred to fund the investors' and Members' Protection Funds maintained by the
  Exchange.

• The oversight and risk management functions of the Exchange are adequately sound in design and the independent
  management of the Exchange carries out their implementation on behalf of the Board.

• The regulation/oversight of the Members of the Exchange is carried out regularly under the authority of the SECP/ISE
  regulations.

• All the listed companies are properly regulated to ensure their compliance with the appropriate disclosure practices and
  accounting policies.

• The Board of Directors held regular meetings during the year. In all 9 meetings were held during the year and 74%
  attendance was observed.

• The Board members, with the exception of the Managing Director who serves as the full time paid executive of the
  Exchange, are not paid any honoraria/remuneration for serving on the Board.

Election of Directors

As per the existing Articles of Association of the Exchange, all the elected, nominated, appointed and co-opted Directors' including the Chairman retire on 31 st December every year and the election of Member Directors also takes place during the Annual General Meeting of the Exchange. However, consequent upon the amendment in the Section 158(1) of the Companies Ordinance 1984, the stipulated time for holding of AGMs by the companies has been reduced to four months from six months after the close of the financial year of a company. As such, the 14th AGM of the Exchange is being held to present and pass the Annual Accounts of the Exchange for the year 2002-2003 and appoint the auditors for the next financial year (NFY) along with the approval of certain consequential amendments in the Articles of Association of the Exchange pertaining to the election of Directors. The Board of Directors' in its 8th meeting held on 27 August, 2003 has decided thatforthe current year, the election of Directors would be held through an Extra-Ordinary General Meeting of the Exchange. Nevertheless, from the next year onward, the election of Directors' of the Exchange would be conducted in the Annual General Meeting as per the amended Articles of Association of the Exchange.

Acknowledgements

The Board of Directors' of the Exchange records its appreciation for the wholehearted support from afl the members of the Exchange. We welcome all newly inducted members of the Exchange during the year and wish them to contribute positively for enhancing the corporate image of ISE. We deem it our utmost responsibility to pay our gratitude to all the outgoing members for their valued services and support during the period of their association with the Exchange.

As Board of Directors, we are pleased to applaud and thank every member of a very wide community of our stakeholders. In Ibis regard, we place on record our gratitude to the entire team of the Securities and Exchange Commission of Pakistan and especially pay our sincere thanks to the outgoing Chairman Mr. Khalid Mirza, and the Acting Chairman Mr. Abdul Rehman Qureshi

for their support to the ISE. We also take this opportunity to welcome Dr. Tariq Hassan as the new Chairman of the SECR We are also grateful forthe valuable support rendered by Mr. Shaukat Aziz, the Minister of Finance and his team at the Ministry of Finance, the Governor State Bank of Pakistan and other government functionaries/departments/agencies fortheir continuous support and guidance in all matters related to the Exchange throughout the year.

We are indebted to ail the employees of the ISE for their dedicated services towards the Exchange. In this regard, we record our appreciation forthe outgoing staff members Mr Ahsan Ali Ahmed (IT Consultant) and Mr. Zeeshan Umar (Associate Manager) of the Exchange for their valuable services to the Exchange. We are confident that all the old and the new staff members of the Exchange will continue to serve the ISE with the same zeal and devotion.

The Board also places on record its appreciation forthe support of the representatives of all those staff members of the print and electronic media who were responsible for covering and reporting on the ISE activities. Their coverage about the ISE greatly helped in promoting the image of the ISE and in spreading the confidence of our investors.

Conclusion

The Board of Directors hopes that all the stakeholders will find the progress made by the Exchange during the outgoing financial year as satisfactory. The Board hopes that all the stakehoiders will continue their patronage for making the ISE as one of the important markets for capital generation in accordance with our motto, "Prosperity Through Transparent Market."

For and on behalf of the Board of Directors

Stock Exchange Performance

PERFORMANCE INDICATORS

Note: - All the figures in the table are rounded to their nearest value.

GRAPHICAL PERFORMANCE PRESENTATION

ISE MARKET CAPITALIZATION

Key Financial Data For The Last Six Years

(Rupees in Millions}

Performance of Listed Companies

Note:*The decline in number of companies declaring payout for the FY 2003 is due to the reason that the results of most of the companies are still awaited.

Balance Sheet

Income and Expenditure Account

Cash Flow Statement

Notes on the Accounts

1  THE COMPANY AND ITS OPERATIONS

The Islamabad Stock Exchange (Guarantee) Limited was incorporated in Islamabad, Pakistan on October 25,1989, under the Companies Ordinance, 1984, as a company limited by guarantee. The principal activity of the company is to conduct, regulate and control the trade and business of stocks, shares, securities, bonds, government papers, loans and other investments and securities of like nature.

2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1   Statement of Compliance

These financial statements have been prepared in accordance with Accounting Standards issued by International Accounting Standards Committee (IASC) and interpretations issued by Standing Interpretation Committee of IASC, as adopted in Pakistan, the requirements of Companies Ordinance 1984 and the requirements of Securities and Exchange Ordinance 1969 and Rules 1971.

2.2  Accounting Convention

These accounts have been prepared under historical cost convention.

2.3  Staff Gratuity

The company maintains an unfunded gratuity scheme for all of its employees who have completed one year of service other than those hired on contract basis. Gratuity is paid at the time of retirement or resignation on the basis of last drawn gross salary multiplied by each completed year of service. Furthermore the board has decided to change basis of payment of gratuity from basic salary to gross salary from this year.

2.4  Taxation

Provision for current taxation is based on taxable income at the current rates of taxation after taking into account tax credits and rebates available, if any.

2.5   Investments

Long term investments are stated at cost less provision for diminution in value. In arriving at the provision in respect of any diminution in the value of !ong term investments, consideration is given only if there is a permanent impairment in the value of the investment.

2.6   Fixed assets

These are stated at cost less accumulated depreciation except land and capital work in progress which are stated at cost. Depreciation is charged to income applying diminishing balance method at the rates specified in note 11 to write off the cost of assets over their remaining useful life. Normal repairs and maintenance costs are charged to income as and when incurred, however, major renewals are capitalized. Gains and losses on disposal of assets, if any, are included in currentincome and expenditure account.

2.7   Revenue recognition

Revenue is recognised on accrual basis. One third of trading fee (Laga), after deducting SECP's share, is recognized as income and the balance is allocated equally between the Members' Protection Fund and Investors' Protection Fund.

2.8   Foreign currency translations

Transactions in the foreign currencies are converted into Pak rupees at the rates ruling on the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Pak rupees at the rate ruling on the balance sheet date. Exchange differences arising on settlement of monetary items are recognized as income or expense in the period in which they arise.

3  MEMBERS1 FUND

Opening balance

Memberships finalized duringthe year

4 MEMBERS1 CONTRIBUTION FOR NEW BUILDING

This represents contributions made by members towards the payment of cost of the land forthe new building of the ISE.

5 BUILDING PROJECT PREMIUM

A contract for the construction ot ISE building was entered into between ISE and S.S Estate Developers (SSED) In 1998. According to the terms and conditions of the agreement, SSED was to pay Rs. 26 million as upfrontfee, out of which SSED has paid Rs. 8 million.

6 MEMBERS1 PROTECTION FUND

ISE transfers one third of the trading fee (LAGA) after deducting SECP's share to this account. The amount is kept for protection of those members who are facing financial constraints.

7 INVESTORS1 PROTECTION FUND

ISE transfers one third of the trading fee (LAGA) after deducting SECP's share to this account. The amount is kept for protection of those investors who are facing financial constraints.

11 Fixed Assets

16 FINANCIAL INSTRUMENTS AND RELATED DISCLOSURE

16.1  Interest Rate Risk Management

a.          Financial assets of the Exchange amounted to Rs. 77.6 miflion (2002: Rs.60.5 million), out of which financial
assets of Rs. 40.2 million (2002: Rs.21.6 million) carries interest of 1.6% to 6% percent per annum.

b.          Financial liabilities of the Exchange amounted to Rs.52.6 million (2002 : Rs.37.6 million). These
liabilities are non-interest bearing.

16.2 Fair Value

The estimated fair value of financial instruments are not significantly different from their book value as shown in these accounts.

16.3 Credit Risk Management

The Exchange's credit risk exposure is not significantly different from that reflected in the financial statements. The management limits the Exchange's exposure to credit risk in the form of member's various security deposits and advances. Further defaulted member's payments are dealt through Member's and Investor's Protection Fund Account.

17 GENERAL

-The figures have been rounded off to the nearest of rupee.

-Prioryearfigures have been rearranged and regrouped wherevernecessaryforthe purpose of comparison.