Contents

Company Information

Board of Directors

Company Secretary

Mr. Yousuf H. Maldidum Legal Advisors

M/s. Hassan & Hassan Advocates M/s. Amhrust Brown

Bankers

• Muslim Commercial Bank Limited 
• P1CIC Commercial Bank Limited 
• Allied Bank of Pakistan Limited 
• Saudi Pak Commercial Bank Limited

Auditors

M/s. Jamil & Co, Chartered Accountants Registered Office

Stock Exchange Building 101-E,Fazal-uI-HaqRoad Islamabad, Pakistan PABX: (92-51)2275045-48 UAN: 111-600-800 Telefax: (92-51)2275044 E-mail: ise@ise.com.pk Website: www.ise.com.pk

Governing Board of  Dimctors F©rttheKear2003-04

Sitting from Left to Right: Mr. Muhammad Rashid Zahir, Mr. Aftab Ahmad Ch. (Managing Director), Mr. Omer Iqba] Pasha (Chairman), Mr. Saeed A. MirzaandMr. Najam-ulHaq Malik

Standing from Left to Right: Syed Kaukab Mohuyddin, Syed Nooh Adnan, Dr. Iftikhar Ahmad, Mr. Rafaquat Ali Ch, Mr. Shaharyar Ahmad, Mr. Yousaf H. Makhdum (Secretary)

Ctoirinan's Review

B y the grace of Almighty Allah, I feel pleasure to present my performance to the members at the eve of 15th Annual General Meeting of the Islamabad Stock Exchange.

A lot of events sensitive to the securities market occurred this year. Side by side with the record boom in the securities market, there were copious challenges for the Exchange. The real test of any institution is its ability to overcome the challenges and I feel proud to say that the ISE performed splendidly during the year.

With the induction of technocrats/professionals at the helm of affairs of the country, the economy of country took a great boost. Pro-development economic policies coupled with structural reforms started bearing fruits. Sharp pick up in the GDP growth rate, single digit inflation, continuously decreasing interest rates, record hike in the foreign reserves, significant rise in the exports magnitude resulting in narrowing difference of the balance of payments, sizeable cut in the cost of domestic as well as international borrowing, a modest spending on developmental activities paved a way for a sustainable economic growth in future. For all this macro economic achievements, full credit goes to the sitting Prime Minister Mr. Shaukat Aziz who also holds the portfolio of Ministry of Finance since 1999 and his team of economic managers and financial market regulators especially Dr. Tariq Hasan, Chairman SECP and Dr. Ishrat Hussain, Governor State Bank of Pakistan.

The banking sector and capital market reforms have brought over all efficiency and transparency in the systems. All these measures have given our stock market new vistas. Ever increasing volumes as well as values of listed stocks speak well of the investors confidence over our securities market. The ISE has always welcomed the reforms agenda introduced by the Federal Government whether it be the restructuring of the Board or it may be pertaining to the trade disciplines and at times the ISE has been the leader to adopt the best international practices of the field in Pakistan. Unfortunately despite all out efforts, the ISE's market could not grow proportionately coiTesponding with the premier market in terms of trade volumes due to endogenous as well as exogenous factors. Most of all, lack of liquidity remained the major hindrance in this respect. On the other hand, the Exchange is also working on the development of new products for trading so that the investors could have better alternatives to be traded in the prevailing circumstances. The process for elimination of carry over transaction system (badla) will have the great impact over the future outlook of the stock markets in Pakistan. Although this system had some merits like easy availability of money at competitive rates etc. but the demerits of the badla were far more than its advantages. Most of the times this factor had a sheer role to destabilize the stock market in the past. The badla has also proved to be an impediment for the growth of the ISE's market and a cause for shifting volumes from TSE to more liquid bourses. Irrespective of the initial pressures and jerks being faced by the market as a consequence of phasing out of such a deep rooted product, I have quite optimistic view that the market would have a soothing effect for sustainable growth in the long run. The pre-trade margin-financing mode through banking channels would bring stability in the market. On the other hand the SECP has allowed trading in Futures to 29 scrips thereby raising the maximum limit of number of scrips from 15 and it is expected that the futures market would prove to be a real substitute of badla for hedging purposes. All these developments would bring healthier change in the market.

Coining to the new building project, first of all I would like to thank my all the members/colleagues who gave us their overwhelming support while passing a special resolution in the recent Extraordinary General Meeting of the Exchange to execute compromise agreement with M/s. S. S. Estate Developers to get rid of BLT Agreement dated March 16,1998. Although the decision came at a-very high price but for the sake of long term economic and commercial benefits of the ISE, a tough decision was considered to be far better than the legal recourse which could have taken indefinite time with no assurance of a favorable verdict. In accordance with this decision, a sum of Rs.225 Million was paid to the Contractor as the cost of settlement and towards the cost of its expenses incurred on premium paid to the ISE, designing and approval of architectural/structural/building plans, on site excavations, pi le testing, soil investigation, lease deed related expenses executed with CDA, construction/furnishing of site office and other administrative expenses. Thanks to Almighty Allah, the issue has been finally resolved and the project has now taken the headway. The ISE has already appointed a well renowned firm i.e., M/s. Nespak as the consultants for the project. Moreover, the ISE has also received a very good response to our advertisement for the pre-qualification of building contractor and the same is expected to be appointed in consultation with M/s. Nespak. The LSE has also made a substantial headway in arranging project financing for the building besides raising money through advance booking

of space. As the building is being constructed in the form of twin towers, therefore, the Board of Directors of the Exchange has given it the name "ISE Towers". It is expected that the construction work will start by February 2005 and the building would be completed within the time frame of three years.

The question most sensitive to the fate of the organization is the demutualization and integration with other bourses in order to transform the Exchanges into National Market. For over a couple of years, the issue is under debate at various forums. After formation of a high level Committee by the SECP this year with di versed terms of reference inclusive of making necessary recommendations on both of these issues, the Exchange with a view to form a consensus opinion of the stakeholders arranged a briefing for the members wherein detailed presentation was given by the Managing Director. In the best national interest, the members were also fully supportive for the demutualization and integration of bourses after taking into account the other options. The same message was also conveyed to the above Committee. In this connection a joint meeting of the high-ups of three Exchanges was also arranged in Lahore which also ended on a positive note. Of late, the SECP's nominated Committee has recommended simultaneous demutualization and integration of three Stock Exchanges. In this regard, the Exchange is well poised to obtain legitimate stake for all the members in,the time to come.

The most significant event concerning the future business of brokers and Exchanges was the imposition of transactions based capital value tax and other taxes. The ISE had been making the budgetary proposal for quite some time for seeking waiver of withholding tax from the dividends paid by the listed companies terming it double taxation besides recommending some additional benefits for the listed companies. The Federal Government in the fiscal bill 2004 imposed some additional taxes. Initially, capital value tax at the rate of 0.1% was suggested. However, due to the joint efforts and several representations made to the Federal Government, the tax rate was curtailed to a rational extent and some other taxes were rationalized too effective July 01, 2004. However, the effect of this direct taxation has proved to be alarming in view of shift of capital flow from the stock market to other inefficient investment channels particularly the real estate and foreign exchange etc. I feel no hesitation to state that the documentation of the economy should also be made in other spheres including real estate and equivalent taxes be imposed thereon by providing a level playing field for all types of investments.

As regards the financial health of the institution, it is the matter of satisfaction and gratitude for all of us that for the first time for the past many years the Exchange has accumulated a surplus and all successive losses have vanished. The Exchange has earned a record revenue of Rs.46.7 million which was 21% higher as compared to the last year. On the expenditure side, strict controls were imposed resulting into record surplus of Rs.12.4 million after taxation. Since the income of the Exchange can not be disbursed except for utilization in developmental activities, therefore, the Exchange would endeavor more vigorously having sufficient financial breath in the coming days to achieve its corporate objectives.

In the end, I would like to record my sincere gratitude for Dr. Tariq Hasan, Chairman SECP and Mr. Shahid Ghaffar, Commissioner (SMD) SECP whose valuable suggestions guided us to perform our responsibilities more objectively. I would also like to thank my all colleagues on the Board of the 1SE especially the non-member Directors for their positive and developmental role for the uplift of the institution. Full credit also goes to Mr. Aftab Ahmad Ch., Managing Director and his dedicated team for managing the affairs of the Exchange proficiently. I am quite optimist to state here that the future of this institution is very bright in the years to come if we all perform our due role for the bettemient of the Exchange with same zeal.

Omer Iqbal Pasha Chairman

Directors' Report

The Board of Directors of the Islamabad Stock Exchange is pleased to present Fifteenth Annual Report together with the audited accounts and the auditors report thereon for the year ended June 30,2004.

The year under review witnessed record financial performance by the ISE since its inception. Not only that the ISE completely erased its accumulated loss that had plagued the ISE over the last many years, but the rising seat values offered for auction by the ISE also enabled the Exchange to add substantial cash flows to our balance sheet. Overall due to strong economic performance of the country, the Stock Exchanges of our country continued with their ascending show, and remained upbeat throughout the year.

Overview of the Economy

The strong-macro economic fundamentals of the country continued to lead the growth in our economy during 2003-04. On the basis of a very strong GDP growth, the year witnessed an overall improvement in almost all the sectors of the economy. The industrial production particularly the large scale manufacturing showed very strong growth that also led to a sharp rise in the exports of goods and services. A notable decline in the public and external debt burden, pre-paym"e"nt of high cost external debt, and a successful return to the international capital markets through the floatation of a Eurobond were the hallmarks of this year. The direction of interest rate and inflation also remained downward thereby boosting the pace of economic development. Good governance, diligent fiscal management, and steps to boost investor confidence contributed largely to this significant performance. Wide-ranging structural reforms, prudent macroeconomic policies, financial discipline and consistent policies transformed Pakistan into a stable and resurgent economy in 2003-04.

Stock Market Performance

Side by side the robust performance of our economy, the securities market of the country also performed exceedingly well during the year. Except for the concluding days of the fiscal year when the market faced some pressure as a consequence of imposition of transactions based capital value and other taxes, the indexes of all the three stock markets of the country recorded new highs. Like the other leading indexes of the country, the ISE-Network Index also showed an increase of 45% during this term. Starting the year at a level of 8,210.13, the index rose to 11894.39 at the end of June 2004. Elowever, during the year, the volume of shares traded at the TSE suffered a sharp decline despite the fact that the volume of trading at the other exchanges exhibited a stunning growth. The average daily traded volume at the JSE remained 5.17 Million shares which was 39% less as compared to the last year. In an order driven market, the business of an Exchange entirely depends on the number of trades and the quantum of the trading volume executed through its trading platform. Despite best efforts to encourage the members to trade at ISE platform, a continuous shift of trade volumes to more liquid market was seen. Being poised of this fact, the Exchange endeavored to encourage more and more members to activate their houses as presently less than 40% of the total strength of the members are in business at the ISE. However, the efforts of the Exchange could not bear fruit with the result that whereas the volume of trades at the other markets surged, the ISE trading volume declined sharply during the year.

Financial Highlights

During the year under review, the Exchange earned record revenue of Rs.46.73 Million, surpassing the income figures of the last year by 21 % after restatement for the purpose of facilitating comparison. This hike on the revenue side can mainly be attributed to a modest increase in the annual listing fee structure besides handsome gain in the trading fee income of the Exchange during the year. Both of these resources showed respective increases of 135% and 97% as compared to the last year. The profit eamed on bank deposits also surged by 91% over the last year. On the other hand the expenditure of the Exchange showed a slight increase of 4.8% primarily due to the provisions for writing off the receivables of long outstanding listing fees on account of irrecoverable or doubtful recovery. During the year under review, the Exchange also recorded the highest ever surplus of Rs.9.39 million in its short financial history. The salient highlights of the income and expenditure account of the Exchange during the last six years is given hereunder:

On the balance sheet side, a gigantic rise of 102% was witnessed on account of rise in the Membership Fund from Rs.120.45 million to Rs.243.26 million as a consequence of grant of new memberships during the year. Overall, the Exchange issued a total of 15 more membership cards during the year for the purpose of inducting new quality members to the Exchange. Mainly due to that consequence, the footing of the balance sheet showed an overall rise of 112% as compared to the last year. The balances in the Members Protection Fund and Investors Protection Fund also increased by 41 % and 51% respectively from the last corresponding figures. Both of these funds have become fully funded from this year onward. Another distinctive feature of the financial performance of the Exchange has been that 29% reduction in the account receivables was achieved during the year due to hectic efforts of the management.

Future Outlook

The Islamabad Stock Exchange faces many challenges in the perspective of short, medium and long term future strategy. A look at the performance of the Stock Exchange

during the last many years reveals that not only the Exchange struggled to develop itself into a respectable alternative trading venue but it also could not achieve a desired financial strength that is critical for any competitive business these days. The declining trading volume coupled with a falling trend in the listed companies witnessed at the 1SE during the last year points to an uncertain future for the exchange during the times ahead. Together with the growing call for the merger and demutualization of the existing Stock Exchanges in Pakistan, it is clear that our Exchange would also need to adopt many changes in its structure and /or business model in the future. Whereas in case of a decision for the merger of the existing stock exchanges in one form or the other, the ISE is determined to press ahead for a merger on equal basis, however, in case of demutualization of the Stock Exchanges on stand alone or separate basis, the ISE would need to explore a new business models or any combination of the existing business model with an innovative approach to minimize its dependence on traditional sources of revenue, such as listing fee etc. In this connection, any decision on the future strategy of the ISE is dependent upon the regulator's choice for any particular market structure in the country.

Regardless of the above uncertain challenges, the long term viability of our Exchange was and is still dependent on achieving diversification in our future revenue stream. In the past, the ISE had remained unsuccessful in exploiting the true potential of its investment in the real estate property meant for constructing the ISE building. It was due to the problem associated with our old construction agreement any progress on the construction of the building had remained stalled for years. However, after fruitless negotiations of the last six years, the ISE has very recently entered into a compromise agreement with the contractor that has enabled the ISE to terminate the contract upon a payment of Rs.225.00 Million. With this decision, it has now become possible to make use of our most prized asset to the ultimate financial advantage of the ISE as an institution. The financial feasibility for the project reveals that the project would add a substantial stream of excess cash flow to the ISE even after meeting the construction expenses and after leaving more than fifty percent property for the use by the ISE and its members. In this way, what is clear is that the ISE has managed to improve both the medium and long term financial outlook of the institution. However, in the short run, the ISE would continue to face the same financial and competitive challenges that it has been facing in the past. But, during this intervening period, the ISE is seriously engaged in considering the expansion of its market out reach to many important cities of the northern region that could lead to more market activity at the ISE.

Corporate Governance

Being a front line regulatory organization, the corporate governance mechanism at the ISE is built upon two tiers. Whereas one aspect of our corporate governance responsibility requires us to continuously monitor the conduct of the listed companies in accordance with the Code of Corporate Governance, the other aspect deals with the internal mechanism of our governance with a view to promote best business practices and the protection of the interests of the investors.

In its capacity as a regulator for the listed corporate sector, the TSE is quite vigilant to monitor/enforce the listing regime including the code of corporate governance. However, for effective results on this front, a close coordination amongst all Exchanges is considered to be the need of the time. It could enable all the Stock Exchanges to share and monitor the corporate sector more intrusively leading to the development of a well governed corporate sector in the country. In this connection, the ISE has also decided to participate as a sponsor/promoter for the establishment of the Institute of Corporate Governance in Pakistan.

From the self regulatory aspect, the Exchange continued to make strides in two of its most important functions that inter-alia related to the settlement of investors complaints as well as action against the members for violation of Rules/Regulations. The Exchange also continued with its policy of the periodic system audit of the ISE members with regular intervals. Moreover, during the year, all major policy matters were dealt with by the Board with adequate assistance of the respective Committees. During the year, the ISE not only welcomed the decision of the SECP for setting up of an Expert Committee for demutualization and integration of the Exchanges, but many members of the Exchange also took a keen interest in the proceedings of the Committee upon its call for soliciting comments from the ISE members.

During the year, twelve meetings of the Board were held till October 08, 2004. The frequency of the Directors' participation in the meeting was as under:

Election of Directors

All elected and nominated Directors shall retire in the forthcoming AGM scheduled for October 30, 2004 and election of Directors would be conducted in pursuance of Article 63 of the Articles of Association of the ISE whereby five Directors would be elected by the members. Four Directors shall be nominated by the SECP in terms of the provisions contained in the Articles of Association of the Exchange. The Managing Director would be an ex-officio member of the Board.

Appointment of Auditors

M/s. Jamil and Co, Chartered Accountants, auditors of the Exchange for the term 2003-04 retire in theAGM and being eligible offer themselves for re appointment.

Acknowledgment

The Board places on record its sincere thanks and appreciation for the continued guidance of the Securities and Exchange Commission of Pakistan towards the betterment of the capital market of the country. The Board also appreciates the valuable role of different advisory committees and their members for assisting in framing appropriate policies. The Board also acknowledges the positive role played by every stakeholder including the Members and the Listed Companies for patronizing the Exchange in the development of the Capital Market in general and our Institution in particular.

We would also like to eulogize the services rendered by each and every employee of the Exchange during the last year, and hope that all the staffof the exchange would continue to serve the institution with same zeal and the zest in the future as well.

For and on behalf of the Board of Directors.

Aftab Ahmad Ch. Managing Director

KEY STOCK MARKET DATA GRAPHICAL VIEW

Total Listed Paid up Capital

KEY FINANCIAL CHARTS

FOR LAST SEVEN YEARS

Glimpses of the Year

Meeting of the Board in progress. Mr. Aftab Ahmad Ch. Managing Director, presiding over the meeting before election of the Chairman of the Exchange for the year 2003-04.

Mr. Omer Iqbal Pasha after assuming the office of the Chairman receiving symbolic key of the ISE from Mian Parvez Aslam founder member of ISE

Mr. Hafeez A. Sheikh, Federal Minister for Privatization, receiving ISE crest at the eve of inauguration of regular trading of Oil and Gas Development Company Limited.

Joint celebration by ISE and Rawal pindi Chamber of Commerce and Industry at the eve of 14* Raising Day of the ISE

A members' get togethar at the site of New Building at the eve of taking over the possession from the previous Contractor after the settlement agreement.

Mr. Omer Iqbal Pasha Chairman giving ISE crest to Ms. Faiza Batta, Senior Country Officer of International Finance Corporation in a farewell arranged in her honor.

Managpment of Stock Exchange

Mr. Aftab Ch. has been the Managing Director of Islamabad Stock Exchange since October 2002. Mr. Aftab Ch. holds a MBA degree from Nichollas State University, LA, USA. He is also the Director of National Clearing Company of Pakistan Limited and i1 JCR- VIS Credit Rating Company of Pakistan Limited.

Mr. Makhdum is an investment banker by profession and has been the Secretary of the Board of ISE since December 1995. Mr. Makhdum holds a MBAdegree from Punjab University, Lahore. He also performs the duties of Chief Administrative Officer (CAO) and manages the affairs of Department of General Administration.

Mr. Ahmed Noman holds a Masters degree in Statistics. He has been associated with the Exchange since 1992. He is managing the overall trading, operations and risk management functions of  the Exchange.

Mr. Kamran Anwar heads the Department of General 1 Administration. He is a Commerce Graduate and an MBA student 1 who has been serving in ISE since 1992. I

Mr. Waris Niazi heads the Department of Investor Relations of the Exchange. He is a Commerce Graduate and has been associated with the Exchange since 1995. Ii

Mr. Saqib Malik heads the Department of Companies Affaires of the Exchange. He holds Masters degree in Economics and has been associated with the Exchange since 1999.

Mr. Asghar Naqvi serves as the Office Incharge, Department of Internal Control and Head of Internal Audit. He is a business management graduate from Bahria University. Mr. Naqvi has been associated with the Exchange since 2003. fi

Mr. Azam Saeed is serving as the Incharge of I.T. Section of the Exchange. Mr. Azam holds Masters degree in Computer Science and is a qualified Database Administrator. He has been associated with the ISE since 2001.

OPERA130MAL REVIEW

I. STOCK MARKET OPERATIONS

a. Risk Management

Risk management is known as the back bone for every Stock Exchange. The Exchange laid down great emphasis on this aspect. The growing prices of the scrips had reduced the exposures of the members and there was a need to review the margin slabs rationally. Accordingly, in order to encourage members to trade through ISECTS, the Exchange reviewed the exposure margin slabs upward after taking into account the associated potential risks. However, the Exchange maintained the loss limit upto Rs. 100,000/- which is a most effective measure to control the risk. By the grace of Almighty Allah, no default occurred during the year.

So far the Exchange has been managing the risks through traditional measures by retaining deposits/securities based on certain criteria and having a vigilant check over the positions/concentrations, however, the Exchange is actively pursuing to adopt value at risk model in near future which will help in managing the job more systematically in line with statistical principles.

b. Surveillance and Monitoring

The Exchange being a SRO also endeavored to control the malpractice through price and position monitoring of the participants. The Exchange also conducted investigations on certain issues. The Board of the Exchange also took cognizance of two cases as reported as a consequence of surveillance and monitoring regarding market manipulations and short-selling etc and imposed fines and reprimanded such participants who were found involved in these cases.

c. Enforcement and System Audit of Brokers

The good governance is the core of success for every business. As a part of good governance, the brokers are supposed to abide by the systems and norms devised for the trade and business in transparent manner. Deviations from the systems lead to failure of the venture. The ISE is well poised to play its due role as a front line regulator to enforce good governance at all tiers and echelons. The ISE took a leading step to conduct the system audits of the members and the programme of system audit by the practicing chartered accountant firms which was initiated in late 2002.

The same programme continued during this year. In this context following functioning brokers of the Exchange were audited:

The exercise of system audit of members has proved very beneficial to both the members and the Exchange as well. It enabled in recognizing the weaknesses of the system which has led to an overall effort to remove the observed deficiencies. Of late, the SECP has also issued detailed regulations on the subject which have also been adopted by the ISE. The next phase of system audit would be conducted as per the regulations.

An ideal index is a true barometer of the stock market. As such the composition of an index should be such like that it should not be affected by extreme values and its sample should be a true representative of the total strength. Presently the ISE is managing two distinct indexes viz ISE Network Index and ISE-10 Index. The former was launched in the year 1995 with 10,000 base points comprising all listed scrips whereas ISE-10 has been launched during January 2004. It comprises the most liquid scrips being quoted at the ISE. The ISE Network Index registered a change of 45% while closing at 11894.39 at the end of the June 2004. On the other hand, the ISE-10 index which started from 1411.64 as on January 01,2004 made a surge of 12% while closing at 1587.80 by 30th June 2004. The ISE is still in the process o develop a more efficient market indicator. In next phase index on the basis of free float would be introduced by the ISE.

f. Listing Regime

For the past few years, the growth of listed sector has stayed below par. This year seven companies applied for listing whereas last year only one new entity was listed at the ISE. This sluggish growth of the corporate sector is due to enforcement of strict securities laws and monitoring measures besides the shift from equity raising to cheap borrowing through the money market. Moreover during the year, 35 companies were de-listed mostly due to mergers and buy back of shares by the sponsors.

This year gigantic increase in the listed capital and market capitalization occurred due to the listing of state owned companies by way of privatization. The Exchange as well as members played a very significant role for making the privatization process of the Government successful and all such issues were subscribed like hotcakes. The increase in the paid-up capital and market capitalization as compared to last year was 26% and 95% respectively. As such the privatization has helped in broadening the market base to a great extent.

From the enforcement aspect, the Exchange adopted proactive measures. This year the Board of Directors of the ISE also approved to establish a counter for the defaulting companies for which the modus operandi is being set out. The Board of Directors of the Exchange has also approved to make some amendments in the Listing Regulations of the ISE with the objective of strengthening the enforcement mechanism. This amendment pertains to the statement of compliance to be reported in the annual reports of the companies that the company is not in default of any provision of the Listing Regulations of the Exchange inclusive of the payment of listing fee etc and in case of any such scenario, the company would elaborate the reasons thereof. Efforts are on way to develop a consensus on the issue amongst the Stock Exchanges in this regard so that the matter could be referred to the Commission for further needful action.

In order to encourage small and medium scale enterprises in the country, regulations for OTC market were framed by the Exchange. At the behest of the SECP, it was decided in the Coordination Committee meeting that three stock exchanges shall establish a unified OTC market. So far no progress could be achieved in this respect and no company could be listed at the OTC market.

PERFORMANCE INDICATORS

*ISE -10 Index was launched on January 01, 2004 with 1000 base points and it recordedl411.64 points on first day of commencement.

g. Change in Tick Size

As part of the exercise to create liquidity and make the market more active, a change in tick was affected this year by reducing the tick from paisa five to paisa one. This measure has been appreciated by the participants and has helped to an extent in the enhancement of the trade activities.

II. INVESTORS EDUCATION & SERVICES

a. Expansion of Stock Market Outreach and Investors Education

The Exchange remained fully committed to this cause during this term. Keeping in view the importance of public awareness about the stock investments, the ISE

continued its awareness campaign. Briefings and information sessions continued during the whole year. Besides giving day to day information to the visitors, regular weekly information sessions were conducted in the Investors Information Centre of the Exchange wherein a large number of participants were briefed about the stock market functions. In order to make the Investors Hotline trouble-free, a new telephone exchange of enhanced capacity was installed in the ISE. The investors at large availed the facility of Investors Hotline for learning about the basics of the stock market.

The Exchange also continued to expand its outreach to other locations. During the year, the following branches were renewed/ approved by the Exchange:-

b. Briefings to the Students of Educational Institutions:

During the year, the students from following institutions visited our Exchange for briefings/lectures on stock market investments/operations:

Institute of Management Sciences, University of Peshawar. NUST Institute of Information Technology, Rawalpindi. Beaconhouse School System, Peshawar Campus, Peshawar. COMS ATS Institute of Information Technology, Lahore. Iqra University, Islamabad.

COMSATS Institute of Information Technology, Islamabad. CECOS University of IT & Emerging Sciences, Peshawar. Beaconhouse School System, Islamabad. International Islamic University, Islamabad. Islamabad College of Management & Commerce, Islamabad. NUST Institute of Management Sciences, Rawalpindi. Hazara University, Mansehra.

Bahria Institute of Management & Computer Sciences, Islamabad.

City University of Science & I.T.Peshawar. >

National University of Modern Languages, Islamabad.

c. Investors Complaints

The Exchange is endeavoring to offer best services to the investors. In the event of any dispute relating to stock transactions between the investor and the broker, the investor having any grievances may approach the Exchange for redressal of the same. All the disputes among the investors and members, which could not be resolved amicably or through mediation, are referred to the arbitration. The Exchange was quite active to resolve such disputes under the Regulations. The following is the status of investors' complaints for the fiscal year 2003-04:

Following is the status of investors' complaints as at Sep 30, 2004 for the fiscal year 2004-05:

IU. H.R. INITIATIVES

a. Human Resource Development

The Exchange provided a conducive working environment to all employees. Professional and Educational Development Plan for the Human Resources which was initiated in the year 2002 for capacity building has started bearing fruit in the form of availability of professional/skilful human resource capable to meet the future challenges of the organization. The ISE is of candid opinion that employees training is a long term investment of the Institution as such this policy would be continued in future. During the year, following employees of the Exchange were provided tuition

assistance for the courses shown against their names:

B. Internship Program:

In continuation to its efforts to provide learning opportunities to fresh graduates to start their career in a variety of challenging corporate areas, the ISE continued providing internship facilities to the students of different educational institutions. This year the following 16 students completed the internship at the ISE:-

IV. MEMBERSHIP MATTERS

The following changes occurred in the membership register of the Exchange which are being presented for endorsement by the members in the general meeting in terms of Article 82 of the Articles of Association of the ISE:

In addition to above, the membership of M/s. Soneri Bank Limited is also under process as the Bank is in the process of forming a subsidiary for capital market operation. The Bank had competed the bid in response to the new membership seats offered by the ISE during February 2004 and the same had been accepted by the ISE Board of Directors.

2004-03

ADMINISTRATION AND FINANCE COMMITTEE

MEMBERSHIP COMMITTEE

TRADING, REGULATIONS AND TECHNOLOGY COMMITTEE

NEW BUILDING COMMITTEE

ARBITRATION COMMITTEE

DEFAULT MANAGEMENT COMMITTEE

We have audited the annexed Balance Sheet of ISLAMABAD STOCK EXCHANGE

(GUARANTEE) LIMITED (the Exchange) as at June 30, 2004 and the relative Income and Expenditure Account, Cash Flow Statement 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 Exchange's 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 po the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that:-

(a) in our opinion, proper books of licies and significant estimates made by the management, as well as, evaluating the overall presentation ofaccounts have been kept by the Exchange as required by the Companies Ordinance, 1984;

(b) In our opinion: -

(i) the balance sheet and income and expenditure 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;

(ii) the expenditure incurred during the year was for the purpose of Exchange's business; and

(iii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the company;

(c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet and Income and Expenditure account, cash flow statement together with the notes forming part thereof conform with the 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 Exchange's affairs as at June 30,2004 and of the surplus and its cash flow for the year then ended; and

(d) in our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980)

Date: 08-10-2004 Place: Islamabad

Jamil & Co. Chartered Accountant

BALANCE SHEET

AS AT. JUNE 3t, 20M

The annexed accounting policies and explanatory notes form an integral part of these financ ial statements.

INCOME AND EXPENDITURE ACC0UM

FOR THE YEAR ENDED JUNE 30, 2004

CASH FLOW STATEMENT 

FOR THE YEAR ENEDED JUNE JO, 2004

1. THE COMPANY AND ITS OPERATIONS

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 Change in accounting policy

During the current year, the company changed its accounting policy in respect of leasehold land to comply with the requirements of International Accounting Standard (IAS) 17 (Leases). As a result of the adoption of the said IAS, the company changed its accounting policy to account for the amortization of lease premium over the period lease (including the extended lease period) in accordance with the provisions of the same IAS as apposed to the past policy of not accounting for the same. Henceforth, lease premium paid for the leasehold land shall be amortized anually over the maximum lease period of Ninety nine (99) years. This policy has been applied retrospectively in order to conform with the benchmark treatment prescribed by International Accounting Standards (IAS) - 8 "Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies". Accordingly, unrecorded amortization arisen in the previous years and the opening balance of the accumulated deficit have been adjusted as shown in the Income and Expenditure Account. The effect of the change is a reduction in the surplus for the year by Rs. 937,456 (Note 11) whereas the opening balance of accumulated deficit has been increased by Rs. 3,749,824 as shown in the income and expenditure account, which is the amount of adjustment relating to periods up to June 30,2003.

2.4 Staff Gratuity

The company maintains an unfunded gratuity scheme for all of its employees who have completed one year of service. Gratuity is paid at the time of retirement or resignation of the employees on the basis of last drawn gross salary multiplied by each completed year of service.

2.5 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.

2.6 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 long term investments, consideration is given only if there is a permanent impairment in the value of the investment.

2.7 Fixed assets

These are stated at cost less accumulated depreciation except capital work in progress which is 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 whereas leasehold land is being amortized equally over the lease term. Full year depreciation is charged on fixed assets capitalized during the year whereas no depreciation is charged in the year of disposal. 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 current income and expenditure account.

2.8 Changes in the allocation of Transaction Fee (LAGA)

In their meeting held on January 07, 2004 the Board of Directors of the exchange decided to change the allocation of transaction fee w.e.f. the same date in the following manner;

1. a) Income of the Exchange (trading fee) 56.52% old 33.33%
2. b) Members'Protection Fund 21.74%old33.33%
3. c) Investors'Protection Fund 21.74% old 33.33%

2.9 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.

MEMBERS CONTRIBUTION FOR NEW BUILDING

This represents contributions made by members towards the payment of cost of the land and for the allotment/acquisition of offices in the new building of the ISE.

BUILDING PROJECT PREMIUM

A contract for the construction of 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 liable to pay Rs. 26 million as upfront fee, out of which SSED had paid Rs. 8 million. Please also refer to note 12.

MEMBERS' PROTECTION FUND

This represents the amount which the company allocates to this fund out of trading fee (LAGA) after deducting share of the Securities and Exchange Commission of Pakistan in accordance with the ratios as mentioned in Note 2.8 above. The amount is kept for meeting the counter party liabilities caused by the Clearing House default of a member.

7. INVESTORS PROTECTION FUND

This represents the amount, which the company allocates to this fund out of trading fee (LAGA) after deducting share of Securities and Exchange Commission of Pakistan in accordance with the ratios as mentioned in Note 2.8 above. The amount is kept for distribution to those investors who might suffer loss due to the default of members of the Exchange.

11 FIXED ASSETS

12 BUILDING PROJECT-CAPITAL WORK IN PROGRESS

This includes the costs incurred and payments made in respect of construction of Stock Exchange's building on Plot No. 3035 situated at Blue Area Islamabad. In its meeting held on July 24,2004 the Board of Directors (BOD) has resolved that the Exchange shall pay an amount of 225 Millions to M/s S.S. Estate Developers (SSED) in consideration of the termination of the construction agreement dated March 16,1998 and absolute release of the parties from their respective obligations, rights and interests under the said agreement. Afterwards, it was further resolved through Board resolution that the net amount of Rs. 225 Millions paid to the SSED would be charged to the Building Project Premium up to the extent of 8 Millions and the remaining 217 Millions would be charged to the Building Project- Work In Progress as the cost of the said project

13. FUND INVESTMENT

According to the instructions given by Securities and Exchange Commission of Pakistan (the Commission) through its letter No. SMD/SE/2(20)/2002 dated December 15, 2003 and in accordance with the requirements of Directives of the Commission bearing No. SMD/2(44) 97 and SMD/2(23) 99, the Management of the company has decided to fully fund the Investors' Protection Fund and invest the same in a separate bank account.

14.1 Due from members includes amounting to Rs. 2,800,000 which is accounted for as a prior year adjustment against NCCPL dues recovery.

15. ADVANCES, DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLE

19.1 This includes salary of Managing Director (MD). The MD received during the year net off tax salary amounting to Rs. 852,141(2003: Rs. 524,219 for Nine months) along with a company maintained car and mobile phone.

19.2 These includes annual listing fee and additional listing fee which is unrecoverable.

19.3 This Provision is made for annual listing and additional listing fee, recovery of which is doubtful.

20. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURE 20.1 Interest Rate Risk Management

A. Financial assets of the Exchange amounted to Rs. 277.3 million (2002 : Rs.77.6 million), out of which financial assets of Rs. 245 million (2002 : Rs.40.2 million) carries interest of 1 % to 4% percent per annum.

b. Financial liabilities of the Exchange amounted to Rs.115.7 million (2002 : Rs.52.6 million). These liabilities are non-interest bearing.

20.2 Fair Value

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

20.3 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.

21. GENERAL

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

Prior year figures have been rearranged and regrouped wherever necessary for the

purpose of comparison.

Chairman

Managing Director

Minutes of Fifteenth Annual General Meeting

Notice is hereby given that the Fifteenth Annual General Meeting of the Islamabad Stock Exchange (Guarantee) Limited will be held on Saturday, October 30, 2004 at 4:30 P.M. at Serena Hotel, Islamabad to transact the following business: -

Ordinary Business

1) To confirm the minutes of Fourteenth Extraordinary General Meeting held on July 15,2004.

2) To receive, consider and adopt the audited accounts for the year ended June 30,2004 together with the Directors' and Auditors' Reports.

3) To appoint Auditors for the ensuing year, and to fix their remuneration. The retiring Auditors, M/s. Jamil & Co., Chartered Accountants being eligible, offer themselves for re-appointment.

4) To elect five (5) directors from amongst the validly nominated candidates under Articles 63(a), 64 and 67 of the Articles of Association of the Exchange for the year 2004-05.

5) To transact any other ordinary business with the permission of the Chair.

By order of the Board

-t—°-~7

Yousuf H. Makhdum Islamabad, October 08,2004 Secretary

Notes:-

1. There will be no proxy for an individual Member. An entitled Member wishing to participate the meeting must attend the meeting in person. A Corporate Member may send a representative in the meeting with proper authorization executed in favor of

such representative. However, no authorization will be required for the Nominees to attend the said meeting who have already been appointed by the Corporate Members to represent the corporate memberships at the ISE.

2. Pursuant to Article 61, no disentitled Member is allowed to be present, vote or contest for the election of Directors in the AGM.

3. Any Member who desires to contest the election for the office of a Director shall file his nomination with the Secretary of the Exchange, not later than 15 days before the date of election i.e. on or before October 15, 2004. Nomination papers must be proposed and seconded by two Members and must also indicate the consent of the candidate in writing.

4. Pursuant to Article 65, only those members are eligible for election to the post of Director who have more than one year standing of Membership.

5. The following were Directors of the Exchange during the year 2004:

Except for the Managing Director who is an ex-officio member of every Board by virtue of his office in terms of Article 63a(iii) of the Articles of Association of the ISE, all the above Board Members including the Chairman would stand retired in the AGM.

From amongst the above Member Directors, only the following are eligible for reelection as Directors pursuant to Article 63(e) of the Articles of Association of the Exchange:

i) Mr. Omer Iqbal Pasha

ii) Mr. Najam-ul Haq Malik

iii) Mr. Rafaquat Ali Ch.

iv) SyedNoohAdnan

v) Dr. Iftikhar Ahmad

The SECP shall also make its nominations on the Board of the ISE afresh. Whereas the Managing Director shall be tenth Director on the Board by virtue of his office. In

Terms of Article 63 (f), all the elected and nominated Directors shall have the equal rights and privileges.

The Members will be required to elect only five (5) Directors in the AGM. The Board after the induction of non-member Directors nominated by the SECP for the corresponding term, shall elect amongst the elected Directors, a Chairman in terms of provision contained in the Articles of Association of the Exchange.

The Members are requested to inform the ISE Secretariat about the change in their respective addresses, if any.

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