Content: 1. Introductory Word of the Chairman of the Management Board 3

Content: 1. Introductory Word of the Chairman of the Management Board 3 2. Basic Data of the Company 5 3. Authorized Representative Bodies of the Company 10 4. Company s Development and Position in 2003 and Previous Years 11 5. Anticipated Future Development of BH CAPITAL, a.s., in 2004 And in Future Years 15 6. Supervisory Board s Report of 2003 16 7. Report of Relations with Interconnected Persons 19 8. Auditor s Statement to the 2003 Annual Report 22 9. Data on Persons Responsible for the Annual Report And Annual Financial Statement Audit 23 10. Selected Financial Data for the Evaluated Period 24 11. Footnotes to the 2003 Annual Financial Statement in Full Version 27 2

1. Introductory Word of the Chairman of the Management Board Shareholders, The decision of the Company s Ordinary General Meeting convened in April 2003 has launched a completely principal change in the Company s future development The General Meeting has decided upon reduction of the registered capital down to the share nominal value of CZK 20 and about compensation of the difference to the Company s shareholders after covering the loss from previous periods. The Company has made all legal and commercial steps for meeting of the aforementioned resolution, but however, it was prevented from successful completion of the registered capital reduction. After entering the General Meeting s resolution in the Commercial Register that became effective on 1 st October 2003, the same decision was publicized in the Commercial Bulletin in compliance with the law. As of the date the Company settled all its recognized financial obligations and made all steps necessary to implementation of the registered capital reduction. Unfortunately, Investiní spolenost podnikatel, a.s. raised its claim within the legal three-month deadline amounting to CZK 150 million plus accessions, while it required to have this financial receivable settled or secured by BH CAPITAL, a.s. BH CAPITAL did not recognize this claim and therefore it refused either to settle or secure. The performance is required by BH CAPITAL from a title of a guarantee provided for a debtor s financial obligation where the debtor is eskoslovenská obchodní banka, a.s. This institution did not recognize the receivable either, and it refused to pay for. The guarantee had been formed upon statute of law due to assignment of an alleged financial obligation of Banka Haná in 1998 to IPB within the sale of a part of the company and subsequently its integration to SOB. Investiní spolenost podnikatel, a.s. enforces payment of the receivable in court way both from BH CAPITAL, and SOB. With a view to the decision of the BH CAPITAL s registered capital reduction Investiní spolenost podnikatel applied at a court for a preliminary measure to be issued in which the court would prohibit payment of financial means to the shareholders exceeding a limit of CZK 300 million until the legal action is decided. The Municipal Court in Brno has issued the preliminary measure. Therefore, as a consequence of this fact, the process of the registered capital reduction has been interrupted until the date of the legal litigation for the aforementioned receivable is settled and shall continue after completion of the legal action. Despite of the problems related to the registered capital reduction the financial management of BH CAPITAL, a.s., in 2003 ended up well, in particular with a profit amounting to CZK 47,127 thousand. All areas of the Company s activities have contributed to this great result; in particular financial asset management, real estate management and last, but not least, sale of real property. In 2003 in compliance with the strategy of asset liquidation real estates in Opava, Plze, Nový Jiín and at the end of the year also in Prostjov, Újezd 12 were sold with a total yield exceeding CZK 77 million. A book-keeping value was achieved only from sale of a building in Prostjov in the amount of CZK 21,520. In 2003 a sale in Kromíž was 3

negotiated, which was however implemented not earlier than by 7 th January 2004 due to decrease of the real estate transfer tax since 2004. (A building in Prostjov was sold to a state organization in December 2003 and therefore it was exempt from the real estate transfer tax). The Company consistently achieves extremely good results in its asset management activity. The realized rate of BH CAPITAL s financial assets without shares for the whole year of 2003 was equal to 5.27%, which is significantly higher than results of the specialized investment companies and almost 2.5 times more than the average interest rate on interbank market, which is 2.28% per annum. Absolute profit gained within financial asset management amounted to CZK 56,027 thousand. Revenues from lease of real estates and inventory in 2003 amounted in total to CZK 10,125 thousand, which is, despite of the continuous process the real estates sale, only by CZK 968 thousand less than in the previous year, even with a view to the real estate that were sold in 2003. The rate of return of the long-term tangible assets in the residual prices shows a value of 8.15% per annum for 2003 and thereby it exceeded the rate of return of financial assets for the first time. Other sales of the real estates from BH CAPITAL property are implemented only in case, when the total rate of return of assets increases due to such sale. I believe that you would agree and allow me, at the end, to express my thanks to all our business partners for their trust in our business cooperation and to thank the employees for the all-year intensive and good work. The facts that we may present positive financial results for 2003 again and that we may declare a growth of the Company s assets are, in particular, merits of their intensive work. And allow me to thank to our shareholders for their confidence entrusted to us and enabling us to manage this Company. I would like to promise them positive results in 2004 as well. Marian K l á s e k Chairman of the Management Board 4

2. Basic Data of BH CAPITAL, a.s. Name of Company: BH CAPITAL, a.s. Registered Office: Brno, Píkop 834, Post Code 602 00 Identification number: 00546682 Legal form: stock company Period of duration: the Company has been established for unlimited period of time The Company was founded upon a Deed of Incorporation dated of 25 June 1990 and upon a permission of the State Czechoslovak Bank in Prague ( Státní Banka eskoslovenská v Praze") dated of 28 December 1990. 11 January 1991 is the date of Company s registration in the Commercial Register held by the Regional Court in Brno, Section B, Entry 230, under a trade name AGROBANKA HANÁ, a.s. Since 15 December 1992 the Company operated under a trade name BANKA HANÁ, a.s. Since the Contract on a Sale of a Part of the Company dated of 31 December 1998 had been applied and since it had become effective as of 1 January 1999 the Company executed its banking activities in limited extents. Then based upon a decision of the General Meeting dated of 30 November 2000 and a prior consent by the Czech National Bank the Company s operation as a bank was terminated as of 30 November 2000. Object of the Company s Business Activities: Purchase of goods for resale and the sale Company and financial/ economy consultants services Lease of real estates including other than basic services Provision of leasing services Services in the area of factoring and forfeiting Registered Capital The registered capital of BH CAPITAL, a.s., was as of 31 December 2003 equal to CZK 1,020,247,600. It has fully been paid in and it is formed of 5,101,238 bearer shares of a nominal value equal to CZK 200. The shares of BH CAPITAL, a.s., are not publicly tradable. Development in the Registered Capital of BH CAPITAL, a.s. Date of change Increase (reduction) of the RC Registered capital ( RC ) 04.03.1998 CZK + 900,000,000 CZK 3,601,238,000 11.06.1998 CZK + 1,500,000,000 CZK 5,101,238,000 20.12.1999 CZK 4,080,990,400 CZK 1,020,247,600 The Ordinary General Meeting of the Company held on 18 April 2003 has decided upon the registered capital reduction as follows: 1. The Company s registered capital is reduced for the purposes of covering the previous periods loss and for stabilization of its amount in compliance with the 5

Company s needs within its business activities. The Company s registered capital is reduced by CZK 918,222,840 (in words: nine hundred and eighteen million two hundred and twenty two thousand eight hundred and forty Czech crowns), in particular from its original amount equal to CZK 1,020,247,600 (in words: one billion twenty million two hundred and forty seven six hundred Czech crowns) down to CZK 102,024,760 (one hundred and two million twenty four thousand seven hundred and sixty Czech crowns. The sum of CZK 112,131,470 (in words: one hundred and twelve million one hundred and thirty one thousand four hundred and seventy Czech crown) will be used for reimbursement of the previous periods loss and a sum of CZK 806,091,370 (in words: eight hundred and six million ninety one thousand three hundred and seventy Czech crowns) will be distributed among the shareholders. 2. The registered capital is reduced pursuant to provisions of the section 213, item a) of the Commercial Code by reduction of a nominal value of the booked bearer shares in such a way that we reduce the nominal value of each original share amounting to CZK 200 (two hundred of Czech crown) down to a nominal value of CZK 20 (twenty Czech crowns). Decrease of the share nominal value will be executed by an entry of the nominal share value in the Booked Securities Register stipulated by the law. 3. The decision of the General Meeting upon the registered capital reduction was, in compliance with provisions of the section 215, paragraph 2 of the Commercial Code, publicized in the Commercial Bulletin No. 42 dated of 22 October 2003 and then in a Bulletin No. 47 dated of 26 November 2003. After decision of the General Meeting concerning the registered capital reduction had become effective in respect of the third persons (publication in the Commercial Bulletin No. 43 dated of 29 October 2003) a notification of the scope of the registered capital reduction was sent to all known creditors, receivables to whom had been originated until the date of 28 October 2003 together with an appeal to apply for in a method set forth by the law. All known receivables registered in the Company s book-keeping as of 28 October 2003 have been settled. 4. On 14 November, 2003 an application for receivable of a creditor Investiní spolenost podnikatel, a.s. being in the winding up process, registered office Plze, Americká 49, Company Registration Number (IO): 49241516, in a total value of CZK 269,000,000 (CZK 150 million was a principal, CZK 119 million were accessions) was delivered to the Company s registered office. In the application the company required to be sent the sum of concern on its account or to the notary s trusteeship until the valid lawful decision of the litigation held by the Municipal Court in Brno, file number 51 C 138/2003, or security interest to real estate or securities possessed by the Company to be established for meeting the applied receivable the market value of which, according to the expert s opinion, corresponds to the nominal value of the applied receivable including its accessions. A copy of this application has been sent to the Regional Court in Brno, which keeps the Commercial Register. The applied receivable has become the subject of legal procedure that is held by the Municipal Court in Brno, file number 51C 138/2003 upon a petition dated of 8 March 2002. BH CAPITAL, a.s., is sued as a guarantor to a release of unjustified enrichment amounting to CZK 150 million plus accessions that was allegedly originated as a 6

consequence of the fact that BANKA HANÁ, a.s., was to use in compliance with the relevant contractual documentation on 11 March 1998 financial means of Podnikatelský tržní fond deposited on a term deposit for settlement of unpaid current account credit of Investiní spolenost podnikatel, a.s., which was managed by Investiní spolenost podnikatel, a.s.. This alleged obligation however was passed to upon The Contract for the Sale of a Part of the Company dated of 31 December 1998 under provisions of the section 477, paragraph 3 of the Commercial Code. With a view to the amount of the claimed receivable and its contentiousness, this was rejected as unjustified. But however, under the present situation, it will be sufficient for ISP, a.s., which is presently in a winding-up process, to persist its claim and require its securing. As a result of the fact the whole process of the registered capital reduction is thereby interrupted until the date the litigation for the aforementioned receivable is resolved. On 26 November 2003, a Resolution of the Municipal Court in Brno, file number 51 C 138/2003 dated of 20 November 2003 was delivered to the Company s registered office, which prohibits to BH CAPITAL a.s. to distribute and pay the sum of CZK 309,250,000 among its shareholders out of the total amount of CZK 809,091,370 that is to be distributed among the BH CAPITAL s shareholders pursuant to decision of the Ordinary General Meeting held on 18 April 2003 on the registered capital reduction by a sum of CZK 918,222,840 from the original amount of CZK 1,020,247,600 down to CZK 102,024,760 until the date of a lawful judgment of the Municipal Court in Brno, issued under a file number 51 C 138/2003 imposing a duty to the sued party to pay a sum of CZK 150,000,000 plus accessions in the full extension by which is the lawfully recognized receivable of the petitioner for release of unjustified enrichment with accessions satisfied. An appeal has been filed against the Resolution on 1 December 2003 and the case has been submitted to the Regional Court in Brno for being tried. No result of the litigation has been received yet. Shareholder Structure as of 31 December 2003 Owners (shareholders) of more than 5% BH CAPITAL a.s. shares. ID. No. Name Street City State Shares (No. items) % from RC Total nom. Value in CZK 70109966 eská konsolidaní agentura Janovského 438/2 Prague 7 R 3,667,041 71.885 733,408,200 00001350 SOB, a.s. stock management Na píkop 14 Prague 1 CR 717,300 14.061 143,460,000 48136450 eská národní banka Na píkop 28 Prague 1 CR 393,550 7.715 78,710,000 In total 4,777,891 93.661 955,578,200 BH CAPITAL, a.s., does not control any company, but it is a controlled entity. The Company s controlling entity is a legal entity established upon a special law - eská konsolidaní agentura (Czech Consolidation Agency) with its registered office in 7

Prague 7, Janovského 438/2, I (Company Registration Number) 70109966, the capital share of which represents 71.88 % voting rights in the Company. The controlling person has gained the concerned share in the Company s voting rights in the course of August 2003. The Contract of Control by virtue of the section 190, item b) and subsequent provisions of the Commercial Code has not been entered into between the Controlling Person and the Company. The report of relations with the interconnected persons in compliance with provisions of the section 66, item a), paragraph 9 and subsequent provisions of the Act No. 513/ 1991 Coll., Commercial Code, as subsequently amended (hereinafter referred to as The Commercial Code ) is presented in a separate chapter of this Annual Report. 8

Ownership Interests as of 31 December 2003 The Company has no participation interests with substantial influence in any other companies. Information Technologies Until the end of 2000, and then for processing of the Annual Financial Statement of 2000 BH CAPITAL, a.s., used the information system AXA DBS. With regard to termination of operation as a bank and with a view to the fact that AXA DBS was a banking system, the Company was forced to start using another accounting system. Therefore, the Company started to use a system called Helios IQ of LCS International, a.s., in January 2001. This system fully covers the Company s needs in the area of business accounting, registration of wages and salaries, reporting and statistics. In 2003 a complex renovation of the user hardware has been made that contributed to acceleration of processes and securing the information systems because the old hardware did not meet the required parameters any longer. Other hardware and software remained unchanged. As for the area of security trading the Company has abandoned using a passive service Reuters of the Reuters Agency in the area of securities trading and it started using of a service called Reuters Spektrum. 9

3. Authorized Representative Bodies and Structure of BH CAPITAL, a.s. Management Board: Supervisory Board Situation as of 1 January 2003 Situation as of 1 January 2003 Ing. Marian Klásek - Chairman Vladimír Ferles - Chairman Otto Bureš - Deputy Chairman Jaroslav Strnad - Deputy Chairman Mgr. Libor Hronek - Member Ing. Mikuláš Végh - Member Situation as of 20 February 2003 Organizational Structure of BH CAPITAL, a.s. Vladimír Ferles - Chairman Ing. Martin Kala - Member Situation as of 18 April 2003 Ing. Martin Kala - Chairman JUDr. Milan Houžvika - Deputy Chairman Ing. Mikuláš Végh - Member Situation as of 5 February2004 Ing. Martin Kala - Chairman JUDr. Milan Houžvika - Deputy Chairman Ing. Pavel Pešek - Member As of 1 April 2001 a Department of Operation and Trade and a Financial Department have merged in one department. A position of an Executive Director has been established, who has taken over part of competence and responsibilities of the Director General for the Company s operational activities. Management Board Director General Executive Director Organizational and Legal Department Department of Trade and Administration The Company s registered office is in Brno, real estate management, accounting offices and financial asset management and the archive are located in Prostjov. The Director General has his office in Prague. Out of these reasons some of the competences had to be delegated and the structural scheme had to be accommodated in order to maintain the Company sufficiently functional. 10

4. Company s Development and Position in 2003 and Previous Years The Company s business activities are in certain extents limited either by the strategy approved and adopted by the general meeting in 1999 and confirmed on our further general meetings. The Company could manage financial assets as well as movable and immovable assets with partial limitation. Other activities of the enterprise have been recessed to certain extents so that the Company would not create any other business relations that might represent a burden for the Company times of revitalization of its activities or during liquidation of the Company. The Company has not any position developed on the Czech market. Maximum liquidity of assets is its major objective. The resolution of the General Meeting from April 2003 has even strengthened this trend as it determined the future procedure for the Company to lead to the registered capital reduction. Financial and Capital Markets Company s trading on money and capital market was the elementary pillar of the Company s revenues in 2003. The average amount of financial resources, apart from investments in stock, was in 2003 equal to CZK 734.7 million, which represented for the Company in 2003 a yield amounting to approximately CZK 39.3 million at the average rate of return of portfolio without stock amounting to 5.27 % p.a. Situation on the money market was relatively stable during the year at gradually decreasing interest rates. In 2003 the rate of return of deposits amounted to 2.086 per cent per annum, which shall not be considered a success in any case with a view to the average interest rates of deposit savings. Situation on the capital market in the Czech Republic, and especially the debenture market, was in 2003 volatile significantly. The monthly realized averages of the debenture portfolio rate of return fluctuated in the interval from 6.8 per cent to 12.60 per cent per annum, while the annual average rate of return of BH CAPITAL debenture portfolio is equal to 8.84 % p.a. This yield is highly above average in comparison to the average 6M PRIBOR in 2002 as well as in comparison to the unit trusts with similar investment strategy. Situation on the capital market in the Czech Republic, and especially the debenture market, was in 2003 volatile significantly. The monthly realized averages of the debenture portfolio rate of return fluctuated in the interval from 0.36 per cent to 11.11 per cent per annum, while the annual average realized rate of return of BH CAPITAL debenture portfolio is equal to 5.54 % p.a. This yield is highly above average in comparison to the average 6M PRIBOR in 2003 as well as in comparison to the unit trusts with similar investment strategy. Outline Showing the Rate of Return of Trading on Money and Capital Market in 2003 Instrument Average situation Volume of Trades Rate of Return (thousand CZK) 11

Debentures 677,517 3,454,464 5.538 Deposits 57,208 8,028,300 2.086 In total 734,725 11,482,764 5.270 Tangible Asset Management Immovable assets and movable assets located in both long and short-term form is a less significant item in terms of the volume of revenues, and the most significant item in terms of expenses of BH CAPITAL s managed assets. Two contradicting elements are meeting in the real estate management. Leasing of as largest as possible amount of building and surface areas is the Company s interest on one side but at the same time the Company shows its intention to sell buildings regardless whether leased or not because liquidation of all assets while achieving the maximum effectiveness of the managed assets are the Company s principal objectives. Though revenues from lease of real estates have moderately dropped in their absolute values, financial assets have grown by almost CZK 77 million, which on the other hand will positively reflect in the amount of profit from financial assets. The received revenues from lease of both immovable and movable assets forms a fair percentage of the Company s revenues and it amounted to CZK 10,125 thousand in 2003. Though it is by CZK 968 thousand less than in the previous year, but it is significantly less than the drop of the leased area in the BH CAPITAL possession. The drop of the yields from rents is only by 8.7 per cent in comparison to 2002 confirms a successful strategy of BH CAPITAL within the sale of real estates when an emphasis was put especially on not leased buildings. In this relation it must also be mentioned that most of the sales are always realized by the end of a year and the drop of revenues from rents therefore reflects not earlier than in the next year. In 2003 a building in Plze was sold for CZK 11 million. The building was unused and empty on long-term basis. Partially leased buildings were sold in Opava for CZK 14.5 million, Nový Jiín for CZK 8.5 million and Prostjov, Újezd 12 for a price of CZK 43 million. Sale of real estates contributed to meeting a resolution of the General Meeting, which was to create a sufficient amount of idle financial means for payment to shareholders after the registered capital reduction under careful asset management. The task was fulfilled as by the end of 2003 the instantly liquid financial assets of BH CAPITAL exceeded the amount necessary to be distributed among the shareholders. Outline of Immovable Assets of BH CAPITAL, a.s. In thousand CZK Buildings including land (without fixed interior or other property) Acquisition price Adjustments (depreciations) Adjustment Residue Price after adjustments Brno, Lidická 63 60,120 0 60,120 0 Kromíž, Riegrovo nám. 182 29,362 1,417 12,596 15,349 Prostjov Kollárova 9 7,871 2,139 0 5,732 Perov echova 4 15,219 3,800 1,454 9,965 Frýdek-Místek Radniní 13 13,642 3,461 3,309 6,873 12

Prostjov Sádky 4 17,740 4,216 8,230 5,294 Olomouc Krapkova 4 17,327 3,991 0 13,336 Šumperk t.17.listopadu 9 10,497 2,303 2,895 5,299 Zábeh Osvobození 2 8,343 1,903 4,008 2,433 Vsetín Smetanova 810 14,199 3,026 7,138 4,035 Znojmo Kuchaovická 11 30,485 6,353 20,304 3,827 Vyškov Dobrovského 2 12,479 1,428 5,288 5,762 In total: 237,284 34,038 125,242 77,904 As it is obvious from the outline above, adjustments to some of the real estates have been created so that the residual prices after adjustments were in harmony with the assessed market prices of the real estates in the individual regions in the Czech Republic. Sale of real estates without negative consequences to the Company s future financial management should be the result of this step. The Company had a Contract of Lease of a real estate with a subsequent transfer of the ownership right concluded with a company of Haná Leasing, a.s. until 1 October 2001. Lease of a building in Kromiž with a subsequent transfer of the ownership rights to the building was the object of the Company. According to the Contract the building was to be transferred to the Company s ownership in October 2001. A bankruptcy proceeding was adjudicated to the Lesser s property HANÁ Leasing, a.s., which was in a liquidation process, and the concerned real estate was included in the list of the bankruptcy estate. All receivables were applied for. On 26 February 2003 a Sale and Buy Agreement of real estate in Kromíž has been concluded with the bankruptcy trustee of HANÁ Leasing, a.s., and the sum of receivable secured with lien to the real estate in Kromíž amounting to CZK 6,841,701.75 was deposited in a notary custody. As of the date of the General Meeting of 2002, i.e. in April 2003, the transfer of the real estate to BH CAPITAL, a.s., has already been implemented as well as expungement of the pledge attaching to the real estate was executed. The value of secured receivable amounting to CZK 6,841.7 thousand was applied to the bankruptcy proceedings. Acquisition of long-term assets in a form of financial leasing Real estate of Kromíž, Riegrovo nám. 182 Sum of installments for the whole period of the anticipated lease in CZK (including advances for 5 % VAT) Real paid installments of rent from financial leasing in CZK (including advances for 5 % VAT) Remaining installments in CZK (including advances for 5 % VAT) 26,720,268.00 26,720,268.00 0.00 With effectiveness starting from 28 February 2003 the building has been transferred in the ownership of BH CAPITAL, a.s. The pledge has been expunged already too. The building is registered in the BH CAPITAL, a.s., records in the acquisition price amounting to CZK 25,447,876 without VAT. Adjustments to the real estate equal to CZK 9,754,590 have been made to the real estate, which correspond to the real value of the real estate on market in the particular region. The building was sold in January 2004. 13

Ownership of a building situated on Lidická Street 63 in Brno is problematic. This building was acquired in 1998 and immediately after that, a bankruptcy proceeding was adjudicated to the seller MEKO, kožedlné družstvo Olomouc. The bankruptcy trustee included the concerned building in the bankruptcy estate. A dispute concerning exclusion of the building from the list of the bankruptcy estate of a bankrupt MEKO, kožedlné družstvo Olomouc, belongs among the most significant lawsuits. The dispute was started on 12 February 1999 by filing of a petition by BANKA HANÁ. The first instance court rejected the petition by a decision dated of 27 February 2002 due to absolute invalidity of the Contract for the Sale. An appeal to this judgment was filed. A real estate in Brno, Lidická Street 63 is the object of the dispute, the purchasing price of which is equal to CZK 60 million. Adjustments in full amount to the purchasing price have been created as of the date of the Annual Financial Statement. Any result of this dispute may not negatively impact the Company s financial management. Other activities of the Company Other activities of the Company have no significant impact on its financial management. The Company has held many active and passive lawsuits with former clients, business partners or shareholders. These are for example lawsuits on declaration of invalidity of the general meetings, adjudicating of bankruptcy proceedings on the Company, protest against sale of the part of the Company, monetary receivables and so on. Rate of risk in these cases may not be either measured or assessed. Assessment of possible negative impacts on the Company is very problematic, while possible negative impacts not included in the accounting of BH CAPITAL are of low probability. A receivable claimed at the court in relation to implementation of the registered capital reduction is described separately in this Annual Report. 14

5. Anticipated Future Development of the Company in 2004 and in Future Years The Company continues in following the strategy defined by the General Meeting, i.e. liquidation of assets with an emphasis of enhancement of its value with a view to the resolution of the General Meeting dated of April 2003, which decided upon the registered capital reduction down to CZK 102,024,760, which is a reduction down to a 10-per-cent value of the present nominal value of the shares. The Company s financial management in 2004 will significantly be influenced by the fact whether the process of the registered capital reduction is successful and the financial means are distributed to the shareholders. Due to a significant drop of yields on financial markets and BH CAPITAL s portfolio structure, where an emphasis is put on a high liquidity rate, the rate of return in 2004 is planned in the amount of 3.5 per cent per annum. If the sale of buildings will continue as intensively as it is planned in the Company s business and financial plan, recession shall not have any negative impacts on the Company s financial management and contrary to the trend, the Company plans to achieve profit from the sale of the real estates. Due to adjustments created to the real estates their book-keeping value does not exceed the real amount so that devaluation of these assets shall neither be a threat for the Company in 2004 nor in any other future years from the real estate sale. With a view to the chosen strategy, however, no financial grows shall be anticipated as the Company manages only immovable assets and it has already sold its significant part, and financial means on the financial and capital market. Business activities are to be even more narrowed by limitations of risks especially on the capital market. A profit of almost CZK 6 million is planned for 2004. This result of financial management may however be achieved only under provision of preservation of the existing structure and volume of assets. Sales of real estates, prevailingly in a positive way, may even influence creation of profit. As it is obvious the plan is based upon a fact that the court has suspended the process of the registered capital reduction. However, the process of the registered capital reduction and distribution of financial means among the shareholders remains the Company s unilateral priority. Equity Development The Company has recently gone through significant changes that however had no principle impact on size of equity. However, the year of 2001 impacted this indicator as it dropped by 6.3 %, in particular from CZK 920,742 thousand down to CZK 863,103 thousand. Creation of adjustments to real estates that has already been mentioned in the text several times was the reason in particular both to real estates included in the list of bankruptcy estate to which adjustments of CZK 46.4 million in total have been created, and to other real estates where prices of those were made realistic in the amount of CZK 12.5 million. Adjustments to real estates should not be created in 2002. Due to profit in 2002 equity has grown up to almost 1998 level, when a part of the Company had been sold and idle assets remained in the Company, while the book value of the real estates was disproportionately high in respect to the market environment. Maintenance of the equity level in the period when our Company had practically not been developing shall definitely be evaluated very positively. Positive development may be expected in 2004 as well as in the future years. 15

Equity Development (in thousand CZK) developed as follows: 1998 1999 2000 2001 2002 2003 Equity 5,101,238 1,020,248 1,020,24 1,020,248 1,020,248 1,020,248 Capital Funds 6,396 6, 396 6, 396 275 275 3, 684 Undistributed profit - 3,184,316-108,840-108,652-9,978-157,420-112,132 Profit (loss) - 1,005,514 108 2,750-57,638 48,697 47,127 Equity in total 917,804 917,992 920,742 863,103 911,800 958,927 The impacts of prices that may influence the Company s financial development in future have practically been declined by creation of adjustments to real estates ready to be sold as well as to real estates included in the bankruptcy estate, in particular, even in case of resolution concerning the Company s winding up and liquidation. The equity value has got very close to the value of BH CAPITAL, a.s. real value expressed in market prices. The Company s financial management in 2003 is its evidence. Dividend Policy Despite of the fact that the Company reported a profit amounting to 47,127 thousand, no prerequisites for distribution of dividends were created. With a view to the Company s strategy it seems even more rational to distribute finances among the shareholders in a form of payment of their percentage on the registered capital reduction, or as the case may be, in any other appropriate form. Company s Payables The Company has neither any credits nor loans. The reported payables concern in principle the tenants advances to the Company. The payable, that has suspended the process of the registered capital reduction, is not recognized by the Company and therefore it is not registered in the book-keeping. As payment of the receivable is enforced to paid by BH CAPITAL due to its alleged guarantee for meeting an obligation, in case of the court s lawful judgment to BH CAPITAL s disadvantage, which will impose an obligation to BH CAPITAL to pay the sued receivable, a title for compensation in respect to the main debtor (i.e. eskoslovenská obchodní banka, a.s.) will be originated in favor of the Company. This is the reason why BH CAPITAL has not concerned creation of an adjustment in this relation with the respective lawsuit. 16

6. Supervisory Board s Report of 2003 The Supervisory Board of BH CAPITAL, a.s., has practically been completely changed in the course of 2003. From 1 January 2003 to 14 February 2003 worked in a composition of: Mr. Vladimír Ferles, Chairman of the Supervisory Board, Mr. Jaroslav Strnad, Deputy Chairman of the Supervisory Board and Mr. Mikuláš Végh, a member of the Supervisory Board. As of 14 February Ing. Mikuláš Végh resigned for the function of a member of the Supervisory Board while Mr. Martin Kala was co-opted as of the same date in the Supervisory Board, in particular as a member of the Supervisory Board. Subsequently as of 19 February 2003 Mr. Jaroslav Strnad resigned for a function of a member of the Supervisory Board. As of 18 April Mr. Vladimír Ferles resigned for his function of the Chairman of the Supervisory Board. On the General Meeting of the Company held on 18 April 2003 the following were appointed in the Supervisory Board: Mr. Martin Kala as a Chairman of the Supervisory Board, Mr. Milan Houžvika as Deputy Chairman of the Supervisory Board and Mr. Mikuláš Végh as a member of the Supervisory Board. As of 31 January Mr. Mikuláš Végh resigned for a function of a member of the Supervisory Board and Mr. Pavel Pešek was co-opted in the Company s Supervisory Board. Despite of these significant changes in the Supervisory Board s personnel the Board had its regular meetings and it discussed and decided upon solutions of problems together with the Management Board both in regular and irregular dates of meetings. The Supervisory Board actively worked in all areas of its competence. It discussed issues concerning sale of real estates owned by BH CAPITAL, a.s., most often, especially the price and contractual issues. It also concentrated on sale of shares and on the limit levels and a circle of the business titles in relation to securities trading. In 2003 the Supervisory Board fully supported the Management Board in using the financial means, movable and immovable assets. Like in the previous years it reserved its approval competences in creation of guidelines and boundaries within which the Company implemented its business activities. The Company was successful both in financial asset management and the sale and lease of movable and immovable assets. A profit reported for the evaluated period is then the result of its efforts. The main Company s objective after the General Meeting held on 18 April 2003 was implementation of its registered capital reduction down to the level of a CZK 20 nominal value of a share, covering of the Company s loss from previous periods and distribution of the remaining portion of funds among the shareholders. These operations were the foundation stone of the Supervisory Board s activities in a period after the General Meeting. Interruption of the registered capital reduction that occurred after release of the Regional Court s in Brno resolution could not be changed within the Supervisory Board s competence. The Company shall wait until the contentious receivable is resolved, which was claimed at a court by Investiní spolenost podnikatel, a.s., in a liquidation process and after rejection of the petition it is to continue immediately in further steps leading to the registered capital reduction. The Supervisory Board continued to pay its attention to the development of the bankruptcy proceedings of MEKO k.d. Olomouc and Haná Leasing, a.s., in a liquidation process, where assets of BH CAPITAL, a.s., were included in the bankruptcy estate in an 17

acquisition price exceeding CZK 85 million. The Company filed petitions to relevant courts upon which it claims and enforces confirmation of the ownership rights to the relevant real estates. The Supervisory Board evaluates positively completion of a lawsuit with HANÁ LEASING, a.s., in liquidation. The real estate in Kromíž was transferred to the BH CAPITAL s a.s. ownership in February 2003 and it was sold in January 2004. A dispute with Meko, k.d. Olomouc continues while BH CAPITAL, a.s., has created an adjustment in full extension to the contentious property. Prerequisites to out-of-court settlement have been created between the bankruptcy trustee of MEKO, k.d. Olomouc and BH CAPITAL, a.s. An agreement of sale of a building and mutual settlement is valid until the end of 2004 and its performance may be anticipated under provision that the building is sold for a price higher than CZK 30 million. The sale has not been realized until the date of the Annual Report s issuance. The Supervisory Board, upon a proposal of the Management Board, has appointed BDO CS s.r.o., as an auditor for the fiscal period 2003. The Supervisory Board has got acquainted with the Auditor s Report certifying the Annual Financial Statement as of 31 December 2003 with a proposal of the Management Board for profit distribution and with the Annual Report for 2003. On its meeting held on 17 February 2004, the Supervisory Board discussed and reviewed the Report of Relations between the Interconnected Persons and it states that all business relations between the interconnected persons were held upon regular contract, correctly and under conditions usual in business contacts. Based upon the aforementioned facts the Supervisory Board states that the Company worked well in 2003 and the Supervisory Board within its auditing and inspection activities has not discovered any deviations or faults. Therefore, it recommends to the Ordinary General Meeting to approve the 2003 Annual Financial Statement submitted by the Company s Management Board and the Management Board s proposal on distribution of profit generated by the Company during 2003. Done in Prague on 25 March 2004 Martin K a l a Chairman of the Supervisory Board 18

7. Report of Relations with Interconnected Persons 1. A legal entity established under a special law eská konsolidaní agentura (The Czech Consolidation Agency), registered office Prague 7, Janovského 438/2. I (Company Registration Number): 70109966, is the Company s controlling person, the capital of which represents 71.88 % voting rights in the Company. The controlling person has gained the respective percentage in the Company s voting rights in the course of August 2003. The Controlling Contract by virtue of provisions of the section 190, item b) and subsequent provisions of the Commercial Code between the Controlling Person and the Company has not been concluded. 2. The following contracts have been concluded between the interconnected persons in the course of the 2003 fiscal period: a) An Agreement of Cooperation concluded on 10 September 2003 between the Company and a trading company eská finanní, s.r.o., registered office Prague, V jám 6, I (Company Registration Number): 47450622, which regulates the mutual cooperation during completion of legal relations in respect of receivables that were assigned to eská finanní, s.r.o. upon contracts dated of 12 March, 1997, 24 July, 1997 and 28 July, 1998 within a program of the Czech Republic s Banking Sector Stability Enhancement. Based upon this Agreement, the Company assures submitting proposals for entrance of a new participant in the proceedings pursuant to provisions of the section 107, item a) of the Rules of Civil Procedure, submitting of proposals for a replacement of the mortgagee and execution of acts proving transition of rights pursuant to provisions of the section 256 of the Rules of Civil Procedure during execution of a decision. A contractual remuneration is charged per each act of the provided collaboration. b) A Contract of Mandatory Sale of Real Estates concluded between the Company and IPB REAL INVESTNENT, a.s., registered office Rybná 14, Prague 1 concluded on 12 July 2001 also affected the evaluated fiscal period. Its validity expired by notice of termination on 18 January 2004. Based upon the respective Contract, the mandatary has undertaken to assure for the Company on its account a sale of real estates and movable assets in compliance with the specified list. The mandatary was entitled to remuneration for this activity amounting to 1.5 per cent of the selling price of movable property. This remuneration was duly paid in all cases when the mandatary met the contractual prerequisites. (eská konsolidaní agentura is a controlling company of IPB REAL INVESTMENT, a.s.) c) A business case of purchase of debentures from eská kosolidaní agentura 5.05/07 also falls to the evaluated period. The Company purchased these debentures in the course of 2002 in a volume of CZK 40 million and it included them in its trading portfolio. In the course of January 2004 another CZK 50 million of these securities were purchased. These debentures are included in the Company s trading portfolio as well. 3. No property loss was incurred to the Company by the aforementioned contracts and agreements. Neither other legal acts were executed nor other measures adopted or 19

executed by the Company in favor of or at suggestion of the aforementioned controlling person or other interconnected persons. Done in Brno on 17 February 2004 Ing. Marian K l á s e k Chairman of the Management Board In own hand Otto B u r e š Deputy Chairman of the Management Board In own hand Mgr. Libor H r o n e k Member of the Management Board In own hand 20

8. Auditor s Statement to the 2003 Annual Report Auditor s Statement Intended to the shareholders of BH Capital, a.s. In compliance with the Act No. 254/2000 Coll., a firm of auditors BDO CS, s.r.o., has carried out an audit of the attached Annual Financial Statement of BH Capital a.s. compiled as of 31 December 2003. The authorized representative body is responsible for compilation of the Annual Financial Statement. Our role is to issue a statement to this Annual Financial Statement based upon the audit. The regulations binding for the auditors require that an audit is planned and executed in such a way that the auditor gains a reasonable surety that the annual financial statement does not contain any significant incorrectness. The audit includes by a selective manner verification of completeness and provability of sums and information presented in the annual financial statement. The audit also includes evaluation of the used book-keeping methods and procedures and significant assessments made by the Company and evaluation of the overall presentation of the annual financial statement. We are sure that the carried-out audit will provide a reasonable supporting material for issuance of our statement the Auditor s Statement. In our opinion the Annual Financial Statement provides a true and fair picture of current assets, payables, equity and financial situation of the Company of BH Capital, a.s., as of 31 December 2003 and profit/ loss of its financial management for the fiscal period of 2003 in compliance with the Accounting Legislation and relevant legal regulation of the Czech Republic. We have verified and compared harmony of information about the audited company for the past period presented in this Annual Report with the audited Annual Financial Statement. This information is, in our opinion, in accordance with the Annual Financial Statement in all significant respects from which they were taken. The Company s authorized representative body is responsible for completeness and correctness of the Report of Relations with the Interconnected Persons. We have verified the material correctness of data presented in this report and we did not discover any significant incorrectness. Done in Prague on 10 March, 2004 BDO CS s.r.o. Illegible handwritten signature Illegible handwritten signature Olbrachtova 1980/5 Ing. Radomír Kosina, CSc. Doc. Ing. Jan Doležal, CSc. 140 00 Prage 4 Auditor certificate No.0119 Auditor Certificate No.0070 Certificate KAR No. 18 Partner of BDO CS s.r.o. Partner of BDO CS s.r.o. 21

Brno, P íkop 834, 602 00, tel. 545 215 976, fax 545 215 969, www.bhcapital.cz Company Registration Number (I O): 00546682, Tax Identification Number (DI ): 288/00546682 22

9. Data of Persons Responsible for the Annual Report and Certification of the Annual Financial Statement Ing. Marian K l á s e k Birth Number: 740201/5522 Residing at Ostrava - Poruba, Komenského 667/16 Chairman of the Management Board and Director General BH CAPITAL, a.s. Responsible for parts of: Introductory Word, data The authorized representatives and supervisory bodies of the Company Ing. Martin K a l a Birth Number: 760112/1121 Residing at Cetyn 43 Chairman of the Supervisory Board Responsible for the 2003 Supervisory Board s Report Ing. Miroslav L a t ý n Birth Number: 710522/4478 Residing at Prostjov, K. Svolinského 11 Business and Administration Dpt. Director BH CAPITAL, a.s., Responsible for the Footnotes to the Annual Financial Statement and Financial Reports Ing. Stanislav Ž a l m á n e k Birth Number 441023/434 Residing at Brno, Rozárka 19 Executive Director BH CAPITAL, a.s. Responsible for other parts of the Annual Report Data of Auditors for the Period from 1999 to 2003 Annual Financial Statement Audit for 1999 Auditor Ing. Vra V l a s á k o v á Certification No. 820 ERNST & YOUNG AUDIT s.r.o. Mánesova 28 120 00 Prague Auditor s License KA R. 137 Annual Financial Statement Audit for 2000 Auditor Doc. Ing. Jan D o l e ž a l, CSc. 2001, 2002 a 2003 Certification No. 70 Director of BDO CS s.r.o. BDO cs s.r.o. Kvestorská 2 Prague 4 Auditor s License KA R. 18 23

10. Annual Financial Statement and Footnotes to the 2003 AnnualFinancial Statement in fullversion Vyhláška. 500/2002 Sb. BH CAPITAL, a.s. Píkop 834, 602 00 Brno B A L A N C E S H E E T as at 31.12.2003 (in CZK thousand) Rozvaha Ú POD 1-01 S.I.C.: 00546682 Net! " #$ %% &'!( ) %%'' (&"*&* ( ((& +, %%! *-!' )(!!( -"-"! ""!! "#$"%" &%$'#()"*+#,$%" -$ ". %! --&-&( )*&% -*(*%( *(-" %. $+. %, -$%$,% /+ -$.0.$%$)",.0.$$.$ 1 $+,+ 2. ' % ' '! 2 2* 3%%"%+ $/0/$// 12/3 ' & #$$/0/$// (&"*&* ( ((& 3 4. ('-( * (-%% 3 4%* 3 4%* 3!,"# " "$"%+ * 3!,"56 " " 30 4*+*' 3%%"+"+*,"' 30 75+%"' $5 '*&( (& $+ % 7' +*' %%"' *' " 7' " 7' %..55 * %. 3%%"* 2%+ ""$ 7* %%"**$%+ 8+"9: &=>1 %$+$ % + &!?1 ++ $ % &,!; %%<+< :

Vyhláška. 500/2002 Sb. P R O F I T & L O S S A C C O U N T as at 31.12.2003 (in CZK thousand) Výsledovka Ú POD 2-01 BH CAPITAL, a.s. S.I.C.: 00546682 Píkop 834, 602 00 Brno Denotation T E X T Row Current accounting period Previous accounting period a b c 1 2 II. Production 04 II.1. Sale of own products and services 05 B. Purchased consumables and services 08 B.1. Consumables 09 B.2. Services 10 + Added value 11 C. Staff costs 12 C.1. Wages and salaries 13 C.2. Remuneration of board members 14 C.3. Social insurance 15 C.4. Social benefits 16 D. Taxes and charges 17 E. Depreciation of intangible and tangible fixed assets 18 III. Sale of fixed assets and material 19 III.1. Sale of fixed assets 20 F. Net book value of fixed assets and material sold 22 F.1. Net book value of fixed assets sold 23 G. Change in operating provisions and deferred expenses 25 IV. Other operating income 26 H. Other operating expenses 27 * Operating profit or loss 30 VI. Proceeds from sale of securities and ownership interests 31 J. Cost of securities and ownership interests sold 32 VIII. Income from short-term investments 37 K. Cost of investments 38 IX. Gains from revaluation of securities and derivatives 39 L. Losses from revaluation of securities and derivatives 40 M. Change in financial provisions 41 X. Interest income 42 XI. Other financial income 44 O. Other financial expenses 45 * Financial profit or loss 48 ** Profit or loss from ordinary activities 52 XIII. Extraordinary income 53 R. Extraordinary expenses 54 * Extraordinary profit or loss 58 *** Profit or loss of current year 60 Sent off Signature of authorities Person responsible for accounting and for preparation of the financial statements (name and signature): Ing. Marian Klásek chairman of the board of directors and general manager Mgr. Libor Hronek member of the board of directors Ing. Miroslav Latýn director of a section "trade - administration" tel.: 582 302 940