Pension Reform in Russia April 2003

1. Pension Reform in Russia April 2003 PIOGLOBAL Asset Managementт

2. Main Features of Russian Pension Reform 66 million participants Future pension will depend on the employee’s current salary State Pension Fund (SPF) collects contributions as a part of Unified Social Tax SPF keeps the individual employees’ accounts Part of the collected funds will be managed by private management companies PIOGLOBAL Asset Management

3. Russian Social Security System TodayEmployees Salary per month = RUR 1000 Unite Social Tax - 35.6% RUR 356 State Pension Fund - 28% State Medical Insurance Fund - 3.6% State Social Insurance Fund -4% RUR 40 RUR 280 RUR 60 Basic Part - 14% Insurance Part - 8% Funded Part - 6% PIOGLOBAL Asset Management

4. 1st Stage: 2002 Individuals Pension Fund of RF State Agents OFZ’s 2nd Stage: 2003 3d Stage: 2004 Capital market NPF Authorized AM companies Three Stages of Pension Reform PIOGLOBAL Asset Management

5. How it should work in 2003 Contributions SPF sends letters to employees by July 1 Employees send back applications by October 1 SPF sorts out applications by December 1 State Pension Fund Employer Transfers funds Employees AMC State AMC PIOGLOBAL Asset Management

6. How it really looks in 2003 • This year none of the scheduled 11 regulations have been passed yet. Only one Regulation appointing Minfin a regulator for investing of pension savings was signed in April. • Transfer of pension savings to private asset managers likely to be postponed. • Regulation on the open tender for AMCs is said to come out soon. • According to MinFin, Russian debt market will not be able to accept pension savings expected in 2003. • Investors have a small range of Russian securities to choose from, limited by both the pension legislation and market capacity. PIOGLOBAL Asset Management

7. Pension Savings Accumulated at SPF 2002 2003F Collected contributions $1.2bn $1.6 –2.0bn Interest on investment $80mn-95mn $1.2bn have been already invested in 30-years’ Russian Eurobonds.According to the World Bank, one of the pension system risks lies in the tendency of SPF to invest in state bonds and increased government’s dependency on pension funds. PIOGLOBAL Asset Management

8. Permitted Classes of Securities • Federal and Subfederal debts of Russian Federation • Russian Corporate bonds and stocks • Shares and units of index investment funds invested in foreign government debts, foreign corporate bonds and stocks • Mortgage securities • Bank deposits and investment in foreign currency The Government may set up any time in the future additional limitations on investing pension savings PIOGLOBAL Asset Management

9. Asset Management Company is required to: • Be licensed for pension funds management and have no negative records with the Regulator for the past 2 years • Have Liability Insurance Contract including Directors & Officers, Errors & Omissions liability and Crime insurance • Have no Affiliation with a Specialized Depositary • Follow the Code of Ethics • Meet Equity Capital Requirements • Disclose information on its Shareholding Structure • Win a tender held by Minfin PIOGLOBAL Asset Management

10. State PF 2. Reimburse expenses up to 1.1% of NAV 1. Funds Stock Market AMC Management Fee up to 10% of the Returns Reimbursement for Management PIOGLOBAL Asset Management

11. Marketing of the Pension Reform • Only 8-10 AMCs will be authorized to participate in the reform in 2003 • Government did nothing to inform people about the reform • Funds for marketing the reform were not budgeted in 2003 • Private sector will not have enough time for the marketing campaign if the tender will be held in Q303 -Q403 • Campaign should be started just now!!! PIOGLOBAL Asset Management