Filed with the Securities and Exchange Commission on June 27, 2003

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 20-F

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   for the fiscal year ended December 31, 2002

                         Commission file number 1-14748

                                   ----------
                           OPEN JOINT STOCK COMPANY OF
                         LONG-DISTANCE AND INTERNATIONAL
                          TELECOMMUNICATIONS ROSTELECOM
                          Doing Business as Rostelecom
             (Exact name of Registrant as specified in its Charter)
                                   ----------
                             THE RUSSIAN FEDERATION
                 (Jurisdiction of incorporation or organization)
                                   ----------

                         14, 1st TVERSKAYA-YAMSKAYA ST.
                              125047 MOSCOW, RUSSIA
                    (Address of principal executive offices)
                                   ----------
              Securities registered or to be registered pursuant to
                           Section 12(b) of the Act.

Title of each class of                            Name of each exchange on which
      securities                                            registered
Ordinary shares, nominal value 0.0025              The New York Stock Exchange
rubles per  share, represented by
American Depositary Shares, each of
which represents six ordinary shares
of Rostelecom

              Securities registered or to be registered pursuant to
                           Section 12(g) of the Act:
                                      None

        Securities for which there is a reporting obligation pursuant to
                           Section 15(d) of the Act:
                                      None

       Indicate the number of outstanding shares of each of the issuer's
        classes of capital or common stock as of the close of the period
                         covered by the annual report:

      Ordinary shares issued and outstanding: 728,696,320 ordinary shares,
                 nominal value 0.0025 Russian rubles per share

     Indicate by check mark whether the registrant (1) has filed all reports
   required to be filed by Section 13 or 15(d) of the Securities Exchange Act
     of 1934 during the preceding 12 months (or for such shorter period that
      the registrant was required to file such reports), and (2) has been
            subject to such filing requirements for the past 90 days.

                               Yes [X]     No [ ]

            Indicate by check mark which financial statement item the
                        registrant has elected to follow.

                           Item 17 [ ]     Item 18 [X]
<PAGE>

                                TABLE OF CONTENTS


                                                                            Page

Item 1.   Identity of Directors, Senior Management and Advisers................4
Item 2.   Offer Statistics and Expected Timetable..............................4
Item 3.   Key Information......................................................4
Item 4.   Information on the Company..........................................22
Item 5.   Operating and Financial Review and Prospects........................67
Item 6.   Directors, Management Board Members and Employees...................95
Item 7.   Major Shareholders and Related Party Transactions..................109
Item 8.   Financial Information..............................................114
Item 9.   The Offer and Listing..............................................116
Item 10.  Additional Information.............................................118
Item 11.  Quantitative and Qualitative Disclosures about Market Risk.........133
Item 12.  Description of Securities Other Than Equity Securities.............133
Item 13.  Defaults, Dividend Arrearages and Delinquencies....................134
Item 14.  Material Modifications to the Rights of Security Holders and
          Use of Proceeds....................................................134
Item 15.  Controls and procedures............................................134
Item 16.  Reserved...........................................................135
Item 17.  Financial Statements...............................................135
Item 18.  Financial Statements...............................................135
Item 19.  Exhibits...........................................................137
<PAGE>

              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Certain statements in this document are "forward-looking statements" within
the meaning of the U.S.  federal  securities laws and are intended to be covered
by the safe harbors created thereby.

     Those forward-looking statements include, but are not limited to:

     o    the  Company's  expectations  as to the  decrease in its  indebtedness
          under credits and loans;

     o    the Company's anticipated capital expenditures;

     o    the Company's plans to construct and modernize its network;

     o    the  Company's  plans  relating to the  expansion  of the range of its
          services;

     o    the Company's plans with respect to improving its corporate governance
          practices;

     o    the Company's expectations concerning the effects of the restructuring
          of its branch network;

     o    the Company's expectations as to pricing of its services;

     o    the   Company's    expectations    as   to   its   position   in   the
          telecommunications market;

     o    the Company's  expectations as to the future of the telecommunications
          industry and the regulation of the telecommunications industry; and

     o    other statements regarding matters that are not historical facts.

     These  forward-looking  statements are subject to risks,  uncertainties and
other factors,  which could cause actual results to differ materially from those
expressed  or  implied  by  these  forward-looking   statements.   These  risks,
uncertainties and other factors include:

     o    risks relating to changes in political, economic and social conditions
          in Russia and global economic conditions;

     o    risks  relating  to  Russian  legislation,  regulation  and  taxation,
          including  laws,  regulations,  decrees and  decisions  governing  the
          Russian telecommunications industry and currency and exchange controls
          relating to Russian  entities  and their  official  interpretation  by
          regulatory bodies;

     o    risks  relating  to the  Company,  including  the  achievement  of the
          anticipated levels of profitability and growth; the timely development
          of demand for and market  acceptance  of,  its  services,  competitive
          pressure  and the  ability of the Company to remain  competitive  in a
          liberalized telecommunications market; and

     o    other risks and uncertainties.

Many of these  factors are beyond the  Company's  ability to control or predict.
Given these and other  uncertainties,  readers are  cautioned not to place undue
reliance on any of the forward-looking statements contained herein or otherwise.
The Company does not undertake any obligation to release  publicly any revisions
to these forward-looking  statements (which speak only as of the date hereof) to
reflect  events  or  circumstances  after  the date  hereof  or to  reflect  the
occurrence of unanticipated  events,  except as may be required under applicable
securities laws.

                                      -3-
<PAGE>

                                     PART I

Item 1.  Identity of Directors, Senior Management and Advisers

     Not applicable

Item 2.  Offer Statistics and Expected Timetable

     Not applicable

Item 3.  Key Information

     Open   Joint   Stock   Company   of   Long-Distance    and    International
Telecommunications Rostelecom is incorporated as an open joint stock corporation
organized  under  the laws of the  Russian  Federation.  As used in this  Annual
Report,  "Rostelecom"  or the  "Company"  refers to Open Joint Stock  Company of
Long-Distance  and International  Telecommunications  Rostelecom and "the Group"
refers   to  the   Company   and  its   subsidiaries,   (i)   OJSC   RTC-Leasing
("RTC-Leasing"),  (ii)  Rostelecomleasing  (Cyprus)  Limited ("RTCL  (Cyprus)"),
(iii)  Rostelecomleasing,  S.A., Switzerland ("RTCL, S.A."), (iv) RTDC Holdings,
Inc. USA ("RTDC"),  (v) CJSC Russian  Industrial  Bank ("RIB"),  (vi) CJSC AKOS,
(vii) OJSC RTComm.RU ("RTComm.RU"), and (viii) CJSC Westelcom ("Westelcom").

     Rostelecom  publishes its financial  statements in Russian rubles.  In this
Annual  Report,  (i)  references  to "RUR",  "Rbl" and  "rubles"  are to Russian
rubles; (ii) references to "U.S.$",  "$" and "U.S. dollars" are to United States
dollars;  (iii)  references to "JPY" are to Japanese yen; (iv) and references to
"EUR" and "euro" are to European Union euros. All RUR figures,  unless otherwise
indicated,  have been restated into real ruble  purchasing  power as of December
31, 2002. In addition,  for  convenience  only (except  where noted  otherwise),
certain RUR figures have been  converted  into U.S.  dollars at the rate of RUR
31.78 = $1.00,  converted at the Date of Exchange Rate (published by the Central
Bank of the  Russian  Federation,  referred  to in  this  Annual  Report  as the
"Central Bank") effective on December 31, 2002. These conversions should not be
construed as a representation  that the RUR amounts actually represent such U.S.
dollar  amounts or could be converted into U.S.  dollars at the rate  indicated.
The ruble is not a  convertible  currency  outside the  territory of the Russian
Federation. For more information, see Item 10.D. "Exchange Controls."

     3.A. Selected Financial Data

     The  selected  financial  data as of and for the years ended  December  31,
2002,  2001, 2000, 1999 and 1998 presented below have been derived from, and are
qualified by reference to, the consolidated  financial  statements including the
notes  thereto,  of  Rostelecom  and its  subsidiaries  (the  "Group")  included
elsewhere in this annual report. The Group's  consolidated  financial statements
have been  prepared in accordance  with the  International  Financial  Reporting
Standards  ("IFRS").  The information  below should be read in conjunction  with
Item 5 - "Operating and Financial  Review and  Prospects"  and the  consolidated
financial statements and the notes thereto appearing elsewhere herein.

     In  accordance  with IAS 29, the financial  information  as of December 31,
2002,  2001, 2000, 1999 and 1998 has been restated in constant Russian rubles as
of December  31, 2002 to take into  account the effects of Russian  inflation as
determined  by movements in the General  Price Index.  See Item 5.A.  "Operating
Results"  for  inflation  indices  and  Note  4 to  the  consolidated  financial
statements for information on the methodology of such  restatements.

     IFRS differs in certain  significant  respects from  accounting  principles
generally  accepted in the United States ("U.S.  GAAP"). For a discussion of the
principal  differences  between  IFRS and U.S.  GAAP  inasmuch as they relate to
Rostelecom,  see  Note  34 to the  consolidated  financial  statements  included
elsewhere  in this  annual  report  together  with  such  financial  statements,
including the notes  thereto.  In addition,  the valuation of certain  property,
plant and equipment described in Note 5 to the consolidated financial statements
for the year ended December 31, 2002  represents a departure from U.S. GAAP that
has not been quantified in the  reconciliation  to U.S. GAAP or reflected in the
U.S. GAAP amounts shown below  because,  prior to January 1, 1994, the Company's
predecessor did not maintain  sufficiently  detailed  historical cost records to
enable the original  historical  costs of the assets now employed by the Company
to be determined with sufficient accuracy.

     The following selected financial data are expressed in millions of constant
rubles as of December 31, 2002  purchasing  power,  except per share amounts and
revenue per employee which are expressed in constant rubles.

                                      -4-
<PAGE>

<TABLE>
<CAPTION>
                 STATEMENT OF OPERATIONS FOR THE YEARS 1998-2002

--------------------------------------------------------------------------------------------------------------
                                                             For the Years Ended December 31
--------------------------------------------------------------------------------------------------------------
                                                   2002         2001         2000          1999         1998
--------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>          <C>           <C>          <C>
Revenue from local operators
--------------------------------------------------------------------------------------------------------------
Telephone - international                          5,025        5,364        4,086         3,817        2,375
--------------------------------------------------------------------------------------------------------------
Telephone - long-distance national                 5,895        5,016        4,673         4,741        9,289
--------------------------------------------------------------------------------------------------------------
Other income from local operators                  3,096        2,957        3,497         2,890        4,318
--------------------------------------------------------------------------------------------------------------
Total revenue from local operators                14,016       13,337       12,256        11,448       15,982
--------------------------------------------------------------------------------------------------------------
Revenue from subscribers
--------------------------------------------------------------------------------------------------------------
Telephone - international                          3,462        4,951        6,318         7,443        4,374
--------------------------------------------------------------------------------------------------------------
Telephone - long-distance national                 3,513        3,697        4,040         3,835        7,772
--------------------------------------------------------------------------------------------------------------
Internet access                                      849            -            -             -            -
--------------------------------------------------------------------------------------------------------------
Cellular services                                     89            -            -             -            -
--------------------------------------------------------------------------------------------------------------
Total revenue from subscribers                     7,913        8,648       10,358        11,278       12,146
--------------------------------------------------------------------------------------------------------------
Revenue from foreign operators
--------------------------------------------------------------------------------------------------------------
Telephone                                          4,250        6,018        8,128        11,434       10,891
--------------------------------------------------------------------------------------------------------------
Telex, telegraph and other                           850          834        1,732         2,387        1,550
--------------------------------------------------------------------------------------------------------------
Total revenue from foreign operators               5,100        6,852        9,860        13,821       12,441
--------------------------------------------------------------------------------------------------------------
Other revenue                                      1,112        1,432        1,611         1,161          318
--------------------------------------------------------------------------------------------------------------
Total Revenue                                     28,141       30,269       34,085        37,708       40,887
--------------------------------------------------------------------------------------------------------------
Wages, salaries, other benefits and
payroll taxes                                      3,704        3,877        4,210         3,336        4,599
--------------------------------------------------------------------------------------------------------------
Depreciation                                       9,106        7,997        7,627         6,613        7,011
--------------------------------------------------------------------------------------------------------------
Impairment of property, plant and equipment            -            -            -             -        9,263
--------------------------------------------------------------------------------------------------------------
Charges by network operators -
international                                      5,779        7,438        9,145        11,762        9,986
--------------------------------------------------------------------------------------------------------------
Charges by network operators -
long-distance national                             1,707        2,190        2,274         2,398        3,611
--------------------------------------------------------------------------------------------------------------
Other operating expenses                           6,090        6,147        7,479         7,358        9,474
--------------------------------------------------------------------------------------------------------------
Total operating expenses                          26,386       27,649       30,735        31,467       43,944
--------------------------------------------------------------------------------------------------------------
Operating profit                                   1,755        2,620        3,350         6,241      (3,057)
--------------------------------------------------------------------------------------------------------------
Gain/(loss) from associates (excluding
related tax)                                         393         (35)          634           383          189
--------------------------------------------------------------------------------------------------------------
Net interest and other non-operating
income/loss, including monetary gain               1,139        1,463        (166)       (1,398)     (17,518)
--------------------------------------------------------------------------------------------------------------
Income before tax and minority interest            3,287        4,048        3,818         5,226     (20,386)
--------------------------------------------------------------------------------------------------------------
Income tax benefit/(expense)                     (1,538)          881      (5,088)         (352)      (8,458)
--------------------------------------------------------------------------------------------------------------
Income/(loss) after taxation                       1,749        4,929      (1,270)         4,874     (28,844)
--------------------------------------------------------------------------------------------------------------
Minority interest                                (1,071)        (322)      (1,190)         (340)            -
--------------------------------------------------------------------------------------------------------------
Net income/(loss)                                    678        4,607      (2,460)         4,534     (28,844)
--------------------------------------------------------------------------------------------------------------
Earnings/(loss) per Share (rubles) -
basic and diluted (1)                               0.61         6.15       (3.85)          5.81      (40.01)
--------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -5-
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                             For the Years Ended December 31
--------------------------------------------------------------------------------------------------------------
                                                   2002         2001         2000          1999         1998
--------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>          <C>           <C>          <C>
Earnings /(loss) per ADS (rubles) - basic
and diluted (2)                                     3.66        36.89      (23.06)         34.88     (240.07)
--------------------------------------------------------------------------------------------------------------
Per share dividend on Preferred Share
(rubles) (3)                                        0.96         0.52         1.11             -            -
--------------------------------------------------------------------------------------------------------------
Per share dividend on Ordinary Share
(rubles) (3)                                        0.22         0.20         0.22             -            -
--------------------------------------------------------------------------------------------------------------
Amounts in accordance with U.S. GAAP
--------------------------------------------------------------------------------------------------------------
Total revenues                                    28,141       30,269       34,085        37,708       40,887
--------------------------------------------------------------------------------------------------------------
Total operating expenses                          27,008       28,221       30,762        32,023       35,667
--------------------------------------------------------------------------------------------------------------
Operating profit                                   1,133        2,048        3,323         5,685        5,220
--------------------------------------------------------------------------------------------------------------
Net income/(loss)                                     73        4,458      (3,144)         3,811      (22,278)
--------------------------------------------------------------------------------------------------------------
Earnings/(loss) per Share (rubles) -
basic and diluted (1)                             (0.22)         5.95       (4.85)          4.23       (32.61)
--------------------------------------------------------------------------------------------------------------
Earnings/(loss) per ADS (rubles) - basic
and diluted (2)                                   (1.32)        35.71      (29.06)         25.36     (195.66)
--------------------------------------------------------------------------------------------------------------
Per ADS dividend on Ordinary Share (2)
(U.S.$) (4)                                         0.04         0.04         0.04             -           -
--------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
--------------------------------------------------------------------------------------------------------------
Amounts in accordance with IFRS
--------------------------------------------------------------------------------------------------------------
Non-current assets                                62,359       64,592       71,659        73,068       73,883
--------------------------------------------------------------------------------------------------------------
Current assets                                    16,865       14,657       12,429        15,660       14,267
--------------------------------------------------------------------------------------------------------------
Total assets                                      79,224       79,249       84,088        88,728       88,150
--------------------------------------------------------------------------------------------------------------
Total  shareholders'  equity  and  minority
interest                                          51,858       50,683       45,944        47,629       42,757
--------------------------------------------------------------------------------------------------------------
Current liabilities                               14,484       15,847       16,685        19,042       15,048
--------------------------------------------------------------------------------------------------------------
Non-current liabilities                            2,579        1,470        6,181         9,424       16,106
--------------------------------------------------------------------------------------------------------------
Deferred tax liability                            10,303       11,249       15,278        12,633       14,239
--------------------------------------------------------------------------------------------------------------
Total shareholders' equity, minority
interest and liabilities                          79,224       79,249       84,088        88,728       88,150
--------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
--------------------------------------------------------------------------------------------------------------
Amounts in accordance with U.S. GAAP
--------------------------------------------------------------------------------------------------------------
Total assets                                      84,113       85,865       91,260        96,556       96,849
--------------------------------------------------------------------------------------------------------------
Long-term liabilities                             13,500       13,475       22,687        23,264       31,867
--------------------------------------------------------------------------------------------------------------
Total  shareholders' equity and minority
interest                                          57,159       56,595       51,954        54,243       49,852
--------------------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities          5,713        6,963        6,945         9,578        9,408
--------------------------------------------------------------------------------------------------------------
Net cash used in investing activities            (3,501)      (2,768)      (3,748)       (5,585)      (7,177)
--------------------------------------------------------------------------------------------------------------
Net cash used in financing activities              (411)      (3,255)      (4,257)       (4,254)      (2,993)
--------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes and
inflation on cash and cash equivalents             (381)        (293)        (149)         (376)        (298)
--------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash
equivalents                                        1,420          647      (1,209)         (637)      (1,060)
--------------------------------------------------------------------------------------------------------------
SELECTED INDUSTRY STATISTICAL DATA
--------------------------------------------------------------------------------------------------------------
International telephone minutes (million)
--------------------------------------------------------------------------------------------------------------
Incoming                                             973          869          897           929        1,025
--------------------------------------------------------------------------------------------------------------
Outgoing                                           1,235        1,082          944           928          439
--------------------------------------------------------------------------------------------------------------
         Local operators                             892          683          522           483          248
--------------------------------------------------------------------------------------------------------------
         Subscribers                                 343          399          422           445          191
--------------------------------------------------------------------------------------------------------------
Domestic long-distance minutes (million)
--------------------------------------------------------------------------------------------------------------
         Local operators                           5,925        5,020        3,905         3,035        2,787
--------------------------------------------------------------------------------------------------------------
         Subscribers                               1,211        1,159        1,055           880        1,013
--------------------------------------------------------------------------------------------------------------
Average number of employees                       31,729       35,410       36,595        37,038       39,162
--------------------------------------------------------------------------------------------------------------
Revenue per employee (rubles)                    886,917      854,831      931,424     1,018,080    1,044,039
--------------------------------------------------------------------------------------------------------------
</TABLE>

     (1)  Please refer to Note 26 to the consolidated financial statements.
     (2)  Each American Depositary Share ("ADS") represents six outstanding
          ordinary shares (the "Ordinary Shares").
     (3)  Per share data is stated in constant rubles as of December 31, 2002.
          The number of Ordinary Shares outstanding is 728,696,320. The number
          of outstanding Class A Preferred Shares (the "Class A Preferred
          Shares") is 242,831,469.
     (4)  U.S. $ per ADS amounts are computed using exchange rate as of December
          31, 2002.

                                      -6-
<PAGE>

          Exchange Rates

     Since 1991,  the Russian ruble has  experienced a substantial  devaluation.
The tables  below set forth,  for the periods and dates  indicated,  high,  low,
average,  and period-end rates of the Central Bank of Russia for the purchase of
U.S.  dollars,  expressed in Russian rubles per one U.S. dollar.  The rates have
not been restated in constant  currency units. All amounts are stated in rubles.
No representation is made that the Russian ruble or U.S. dollar amounts referred
to herein  could have been or could be  converted  into U.S.  dollars or Russian
rubles,  as the case may be, at any particular  rate. The Russian ruble is not a
convertible  currency  outside the  territory of the Russian  Federation  and is
subject to significant  restrictions  on trading within the territory of Russia.
On January 1, 1998,  the ruble was  re-denominated  so that one thousand  rubles
existing at December 31, 1997 became equivalent to one re-denominated ruble. See
also Item 10.D. "Exchange Controls".

--------------------------------------------------------------------------------
Year ended           High             Low          Average(1)       Period-end
December 31
--------------------------------------------------------------------------------
1998                 20.99            5.96             9.71            20.65
--------------------------------------------------------------------------------
1999                 27.00           20.65            24.61            27.00
--------------------------------------------------------------------------------
2000                 28.87           26.90            28.13            28.16
--------------------------------------------------------------------------------
2001                 30.30           28.16            29.15            30.14
--------------------------------------------------------------------------------
2002                 31.86           30.14            31.39            31.78
--------------------------------------------------------------------------------
     (1) Average of month-end rates

The following table sets forth,  for the six-month period of December 1, 2002 to
June 25, 2003, the high, low and average period-end rates of the Central Bank of
Russia for the purchase of U.S. dollars. The Central Bank of Russia rate for the
purchase of U.S. dollars as of June 25, 2003 was U.S.$1 = RUR 30.35.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Year 2002-2003                                 High               Low              Average          Period-end
-----------------------------------------------------------------------------------------------------------------
<S>                                            <C>               <C>                <C>                <C>
December 2002                                  31.86             31.78              31.83              31.78
-----------------------------------------------------------------------------------------------------------------
January 2003                                   31.88             31.78              31.82              31.82
-----------------------------------------------------------------------------------------------------------------
February 2003                                  31.85             31.55              31.70              31.58
-----------------------------------------------------------------------------------------------------------------
March 2003                                     31.60             31.38              31.45              31.38
-----------------------------------------------------------------------------------------------------------------
April 2003                                     31.38             31.10              31.21              31.10
-----------------------------------------------------------------------------------------------------------------
May 2003                                       31.12             30.62              30.91              30.71
-----------------------------------------------------------------------------------------------------------------
June 2003 (as of June 25, 2003)                30.76             30.32              30.51              30.35
-----------------------------------------------------------------------------------------------------------------
</TABLE>

     3.B. Capitalization and Indebtedness

     Not applicable

     3.C. Reasons for the Offer and Use of Proceeds

     Not applicable

     3.D. Risk Factors

     The risks  described  below,  and any other  risks set forth in this Annual
Report,  are not the only risks  facing the  Company  and the Group.  Additional
risks not  presently  known to the  Company  and the Group or that it  currently
deems immaterial may also impair its business operations.

     In general,  issuers  with  substantial  operations  in Russia  encounter a
higher  degree of risk than issuers with  substantial  operations  in the United
States or similar jurisdictions. The Company and the Group's business, financial
condition or results of  operations  could be materially  adversely  affected by
such factors, and the trading price of its shares and American Depositary Shares
could decline  because of such factors,  resulting in the loss of part or all of
the value of its securities.

                                      -7-
<PAGE>

          Risks Relating to the Russian Federation

     Political Risks

     Political and social changes and uncertainty in Russia may adversely affect
the Group.

     During the past decade,  Russia has been undergoing a substantial political
transformation from a centrally  controlled command economy under Communist rule
to a pluralist  market-oriented  democracy.  Many changes were undertaken during
these years but there is still no  assurance  that the  political  and  economic
reforms  necessary to complete  such a  transformation  will continue or will be
successful.  In its current  relatively  unstable stage,  the Russian  political
system is vulnerable to the population's  dissatisfaction  with reforms,  social
and ethnic unrest and changes in governmental  policies, any of which could have
a material adverse effect on the Group.

     During this transformation, legislation has been enacted to protect private
property against expropriation and nationalization.  However, due to the lack of
experience  in enforcing  these  provisions  in the short time they have been in
effect and due to  potential  political  changes in the future,  there can be no
assurance  that such  provisions  would be enforced in the event of an attempted
expropriation  or  nationalization.  Expropriation  or  nationalization  of  any
substantial  assets of the Group,  potentially  without  adequate  compensation,
would have a material adverse effect on the Group.

     The Russian  Government has been highly unstable,  having  experienced four
changes in prime minister since March 1998, as well as the resignation of former
President Yeltsin on December 31, 1999 and the subsequent  election of President
Putin on March 26, 2000. The various  government  institutions and the relations
between  them,  as well as the Russian  Government's  policies and the political
leaders who formulate and implement them, are subject to rapid change. Any major
changes in, or rejection of, current  policies  favoring  political and economic
reform by the  Russian  Government  may have a  material  adverse  effect on the
Group.

     Conflict between federal and regional authorities and other conflicts could
create  an  uncertain  operating  environment  that  would  hinder  the  Group's
long-term planning ability and investments in Russia and consequently, the value
of the Company's securities.

     Russia is a federation  of  republics,  regions,  areas,  cities of federal
importance,  autonomous  districts and one autonomous region. The delineation of
authority among the constituent  entities of the Russian  Federation and federal
governmental authorities is subject to change from time to time and is currently
being  adjusted in order to bring it in compliance  with the law "On  Principles
and Procedure for  Delineation  of  Responsibilities  and Powers among Bodies of
State  Authority  of the Russian  Federation  and Bodies of State  Authority  of
Constituent  Entities of the Russian Federation" of 1999.  However,  the lack of
consensus  between local and regional  authorities and the federal  governmental
authorities often results in the enactment of conflicting legislation at various
levels, and may result in political instability. This lack of consensus may have
negative  economic  effects on the Group,  which  could have a material  adverse
effect on its business,  financial condition or ability to fulfill its financial
obligations.

     In addition,  ethnic,  religious,  and other social divisions  periodically
give rise to tensions  and, in certain  cases,  armed  conflicts.  In  Chechnya,
Russian armed forces have  conducted  anti-terrorist  operations for a number of
years,  and some of them still  remain  there to  maintain  law and  order.  The
escalation of violence may entail grave political  consequences.  In particular,
the Federal  Constitutional  Law "On  Emergency"  of 2001 allows  under  certain
circumstances  the declaration of a state of emergency in the whole territory of
the Russian  Federation or in any part thereof,  which may adversely  impact its
investment  climate.  This  could  hinder the  operation  and  expansion  of the
Company's business.

     Labor unrest in Russia may adversely affect the Group.

     The failure of many Russian companies to pay full salaries on a regular and
timely  basis,  and the failure of salaries  and  benefits to keep pace with the
increasing cost of living,  could lead to labor and social unrest in the future.
To avoid such extreme  consequences,  the Labor Code of the Russian  Federation,
which took effect on February 1, 2002, provided for a transition to a new system
of labor  remuneration,  under which the minimum wage would not be less than the
cost of living in a specific  region.  Nevertheless,  the above  distortions may
have political, social and economic consequences,  such as increased support for
a renewal of centralized  authority and increased  nationalism with restrictions
on involvement of foreign investments in the Russian economy, any of which could
have a material adverse effect on the Group.

     Economic Risks

     The  Russian  Government  may not be  able to  implement  its  policies  of
economic reforms and stabilization.

     Simultaneously  with  the  enactment  of  political  reforms,  the  Russian
Government  has been  attempting  to implement  policies of economic  reform and
stabilization.  These  policies  have  involved  liberalizing  prices,  reducing

                                      -8-
<PAGE>

defense  expenditures  and  subsidies,   privatizing  state-owned   enterprises,
reforming the tax and  bankruptcy  systems,  and  introducing  legal  structures
designed to  facilitate  private,  market-based  activities,  foreign  trade and
investment.

     Despite the  implemented  reform  policies,  the  Russian  economy has been
characterized by declining  industrial  production,  significant  inflation,  an
unstable but managed currency,  rising  unemployment and  underemployment,  high
government  debt relative to gross  domestic  product,  high levels of corporate
insolvency  with little recourse to  restructuring  or liquidation in bankruptcy
proceedings,  a weak  banking  system  providing  limited  liquidity  to Russian
enterprises,   widespread  tax  evasion,  high  levels  of  corruption  and  the
penetration of organized  crime into the economy,  and the  impoverishment  of a
large portion of the Russian population.

     The Russian  economy has been subject to abrupt  downturns.  The events and
aftermath of August 17, 1998 relating to the Russian Government's default on its
short-term   ruble-denominated   treasury  bills  and  other   ruble-denominated
securities,  the  abandonment by the Central Bank of the ruble currency band and
efforts to maintain  the  ruble/U.S.  dollar  rate  within it and the  temporary
moratorium on certain hard-currency  payments to foreign counterparties led to a
severe devaluation of the ruble, a sharp increase in the rate of inflation,  the
significant deterioration of the country's banking system,  significant defaults
on hard currency  obligations,  a dramatic decline in the prices of Russian debt
and equity securities,  and an inability to raise funds in international capital
markets.

     Although  since 1999,  economic  conditions  in Russia have been  gradually
improving,  the prospect still exists of widespread,  mass  unemployment and the
collapse of certain sectors of the Russian economy.  Economic development within
the regions is still very uneven,  which results in maintaining  the practice of
subsidies  to  dependent  regions  at the  expense  of  donor  regions  that are
economically better off. Moreover, there is a lack of consensus as to the scope,
content and pace of economic  and  political  reform.  It is still  unclear what
actions the Government  will take to reform major public  institutions  like the
Russian armed forces and other government-funded organizations. No assurance can
be  given  that  reform  policies  will  continue  to  be  implemented  and,  if
implemented,  will be successful,  that Russia will remain  receptive to foreign
trade and investment, or that the economy in Russia will improve. Any failure of
the current policies of economic reform and stabilization  could have a material
adverse effect on the operations of the Group. In addition,  the  recoverability
of the Group's assets,  including  collection of debt and  receivables,  and the
ability  of  the  Group  to  pay  its  debts  as  they  mature,  depend  on  the
effectiveness of the fiscal measures and other governmental actions,  which have
been or will be undertaken to achieve economic recovery.

     The Group  faces  risks  related to  fluctuations  in the  Russian  rate of
inflation and ruble exchange rates.

     In recent  years,  the ruble has  experienced  a  significant  depreciation
relative to the U.S.  dollar,  particularly  following the  financial  crisis of
August 1998. Before August 1998, the Central Bank of the Russian  Federation had
been  trying to support  the ruble  within a certain  band.  However,  after the
significant  August 1998 devaluation of the ruble,  the band was cancelled.  The
ability of the Russian Government and the Central Bank of the Russian Federation
to reduce the volatility of the ruble will depend on many political and economic
factors,  including  their  ability to  control  inflation,  sufficiency  of the
currency reserves of the Russian Federation,  and geopolitical  situation in the
world.

     The ruble is not convertible  outside Russia. A market exists within Russia
for the  conversion of rubles into other  currencies,  but it is limited in size
and is  subject to rules  limiting  the  purposes  for which  conversion  may be
effected.   There  can  be  no  assurance  that  such  a  market  will  continue
indefinitely. Currently, 50% of foreign currency revenues from export sales must
be converted  into rubles.  The relative  stability of the exchange  rate of the
ruble against the U.S. dollar since 1999 has mitigated risks associated with the
compulsory  conversion,  but no assurance can be made that such  stability  will
continue.  Moreover,  the banking  system in Russia is not as  developed  as its
Western counterparts, and considerable delays may occur in the transfer of funds
within, and the remittance of funds out of, Russia.

     Significant   currency  proceeds  resulting  from  high  oil  prices  exert
considerable  pressure on the ruble / U.S.  dollar  rate in Russia.  It made the
Central Bank of the Russian Federation purchase a great quantity of dollars from
export  operations  throughout  2002 in order to limit the  appreciation  of the
ruble.  The growing  ruble supply  along with the absence of adequate  financial
instruments to absorb it increases the risk of inflation.  However since January
2003,   the  Central  Bank  of  the  Russian   Federation   has  stopped   ruble
interventions,  allowing  the ruble to  appreciate  against  the U.S.  dollar by
approximately  5% by June 2003. The uncertainty of the future currency policy of
the Central Bank of the Russian  Federation creates certain risk for the Group's
activities.

     In 2002,  approximately  18% of the Group's revenues and 35% of the Group's
expenses  (excluding  depreciation  and bad debt  expense) were  denominated  in
currencies other than the Russian ruble.  Revenues generated in foreign currency
represent  income  received  from  foreign   operators,   and  foreign  currency
denominated  expenses consist primarily of payments to foreign operators for the
international long-distance ("ILD") traffic termination and payments of interest
on the foreign currency loans.  Accordingly,  the relative movements of domestic
inflation and ruble exchange

                                      -9-
<PAGE>

rates might have a material  adverse affect on the Group's  business,  financial
conditions  and results of  operations.  The  restrictions  on conversion of its
ruble revenues into foreign  currencies,  or on the purchase of U.S.  dollars or
other foreign  currencies,  could also have a material adverse effect on Group's
business, financial condition and results of operations.

     Approximately  45% of the Group's  obligations  are  denominated in foreign
currencies.  To the extent  that  Rostelecom  is not  naturally  hedged  against
changes in exchange  rates,  the Group is exposed to foreign  exchange gains and
losses.  The Group is not engaged in any active hedging of the foreign  exchange
risk arising out of its operating  activities.  As a result,  devaluation of the
ruble against the U.S. dollar may adversely  affect the Group's ability to repay
its foreign-currency denominated indebtedness, and increase the Group's expenses
in ruble terms.  The devaluation of the ruble might also result in losses in the
value of ruble-denominated assets.

     Fluctuations in the global economy may adversely  affect  Russia's  economy
and the Company's business.

     Russia's economy is vulnerable to market  downturns and economic  downturns
elsewhere  in the world.  Financial  problems,  or an increase in the  perceived
risks  associated  with  investing in emerging  economies  could reduce  foreign
investment  in Russia and  adversely  affect the Russian  economy.  In addition,
because Russia is a large oil exporter, the Russian economy is vulnerable to oil
prices in the world market and a decline in oil prices could  negatively  affect
the Russian  economy.  These  developments  could limit the Company's  access to
capital and affect demand for the Company's services.

     The Group faces risks  related to the  deterioration  of Russia's  physical
infrastructure.

     Russia's physical infrastructure largely dates back to Soviet times and has
not been adequately  funded and maintained  over the past decades.  Particularly
affected are the power generation and transmission  systems,  the communications
systems,  and the  building  stock  and  rail  and road  networks.  The  federal
Government is actively considering plans to reorganize the nation's electricity,
rail and  telephone  systems.  Any such  reorganization  may result in increased
charges and tariffs while failing to generate the anticipated capital investment
needed to repair, maintain and improve these systems.

     The  deterioration of Russia's physical  infrastructure  harms the national
economy,  disrupts the transportation of goods and supplies, adds to the cost of
doing  business in Russia and can interrupt  business  operations,  all of which
could have a material adverse effect on the Group.

     Any   disruption  of  Russia's   receipt  of  funding  from   international
organizations  or  Russia's  inability  to access to the  international  capital
markets may adversely affect economic development of the Group.

     Russia  in the past has  received  substantial  financial  assistance  from
several  foreign  governments  and  international  organizations,  including the
International  Monetary  Fund. No assurance can be given that further  financial
assistance  will be provided to Russia.  A refusal of or delay in such financing
may have a material adverse effect on the economic development of the Group.

     Due to favorable  conditions  of the world oil market,  Russia is receiving
substantial  revenues from export of crude oil and is currently  uninterested in
seeking  financing  from  international  capital  markets or from  international
lenders.  However,  possible  adverse  fluctuations in oil prices may negatively
impact Russia's balance of payments and entail the necessity of raising external
financing.

     Notwithstanding  the Russian  Government's  constant  efforts to  refinance
Russia's external debt the burden of its servicing is still considerable.  As of
January 1, 2003,  Russia's  national  external  debt  amounted to  approximately
U.S.$126 billion.

     Russia's  significant  external  debt and its  limited  ability  to attract
financing from foreign  governments and  international  lenders,  and the likely
growth of inflation and ruble  depreciation  which may occur if the money supply
is increased to ease budget strains, might have a material adverse effect on the
Russian economy and, consequently, on the Group's business.

     The Group may experience liquidity problems due to the deterioration of the
Russian banking system.

     Russian companies face significant  liquidity  problems due to, among other
factors, a limited supply of domestic savings, limited foreign sources of funds,
high taxes and limited  lending by the banking sector to the industrial  sector.
Many Russian companies cannot make timely payments for goods or services and owe
large amounts of overdue federal and local taxes, as well as wages to employees.
Many  Russian  companies  have also  resorted to paying their debts or accepting
settlement of accounts  receivables  through barter  arrangements or through the
use of promissory notes.

                                      -10-
<PAGE>

     These  problems were  aggravated by the 1995 Russian  banking crisis and by
the impact on the Russian  banking  system of the events of August  1998,  which
further impaired the ability of the banking sector to act as a consistent source
of liquidity to Russian companies. An intensification of liquidity problems or a
further  deterioration  of the  Russian  banking  system  could  have a material
adverse  effect on the  Group's  business,  financial  condition  and results of
operations.

     Lack of  reliability  of  official  data from the  Russian  Government  and
agencies may affect the plans of the Group and its strategy.

     Official  statistics and other data published by Russian federal,  regional
and local  governments,  and federal agencies are substantially less complete or
reliable than those of Western countries, and there can be no assurance that the
official sources from which certain  information set forth herein has been drawn
are reliable or complete.  Official statistics may also be produced on different
bases than those used in Western  countries.  Any discussion of matters relating
to Russia herein must therefore be subject to uncertainty  due to concerns about
the completeness or reliability of available official and public information. In
addition, unavailability of reliable statistics of trends of the Russian economy
may affect  performance of long-term  plans of the Group and  feasibility of the
investment strategy being implemented.

     Legal Risks

     Weaknesses in the Russian legal system could affect the Group's  ability to
enforce its rights or defend itself against  claims or could affect  enforcement
by the ADS holders of their rights against the Company.

     The risks  related to the Russian  legal  system  include (i) the  unproved
nature of the  independence  of the judiciary  and its immunity  from  economic,
political  or  nationalistic   influences;   (ii)  inconsistencies  among  laws,
Presidential  decrees,  and Government and ministerial orders,  directives,  and
resolutions;   (iii)  the  lack  of  judicial  or  administrative   guidance  on
interpreting  the applicable  laws; (iv) a high degree of discretion on the part
of governmental  authorities;  (v) conflicting local,  regional and federal laws
and regulations; (vi) lack of conformity among judges and courts in interpreting
legal norms; and (vii) the  unpredictability of enforcement of foreign judgments
and foreign arbitral awards.

     The laws in Russia regulating  ownership,  control and corporate governance
of Russian  companies are relatively new and, by large,  have not yet been fully
tested in the courts.  Disclosure  and reporting  requirements  do not guarantee
that  material  information  will always be available  and antifraud and insider
trading legislation is generally rudimentary. The concept of fiduciary duties on
the part of the management or directors to their  companies or the  shareholders
is not well developed.

     In addition,  substantive  amendments to several  fundamental  Russian laws
(including those relating to the tax regime, labor relations, state registration
of legal entities, arbitrazh courts (i.e., state commercial courts) proceedings,
administrative misdemeanors,  insolvency, delineation of the state property, and
licensing  have only  recently  become  effective.  The recent nature of much of
Russian legislation,  the lack of consensus about the scope, content and pace of
economic and  political  reform,  and the rapid  evolution of the Russian  legal
system in ways that may not always coincide with market  developments may result
in  ambiguities,  inconsistencies  and  anomalies,  the  enactment  of laws  and
regulations without a clear  constitutional or legislative basis, and ultimately
in investment  risks that do not exist in more developed  legal systems.  All of
these weaknesses  could affect the Group's ability to enforce its rights,  or to
defend itself against claims by others,  and could affect  enforcement in Russia
of any rights of the  holders  of the ADSs  against  the  Company.  Further,  no
assurance can be given that the development or  implementation or application of
legislation  (including Government resolutions or Presidential decrees) will not
have a  material  adverse  effect on foreign  investors  (or  private  investors
generally).

     These  uncertainties  also  extend  to  property  rights.  During  Russia's
transformation from a centrally planned economy to a market economy, legislation
has  been  enacted  to  protect  private  property  against   expropriation  and
nationalization.  However,  it is possible that due to the lack of experience in
enforcing  these  provisions  and  due to  potential  political  changes,  these
protections would not be enforced in the event of an attempted  expropriation or
nationalization.   Some  government   entities  have  tried  to   re-nationalize
privatized  businesses.  Expropriation or  nationalization  of any assets of the
Group without an equivalent  compensation would have an extremely adverse effect
on its activities.

     Many Russian laws are  structured  in a way that  provides for  significant
administrative  discretion in their application and enforcement.  Reliable texts
of laws and  regulations  at the regional and local levels may not be available,
and usually are not updated or catalogued.  As a result, applicable law is often
difficult to ascertain and apply,

                                      -11-
<PAGE>

even after reasonable effort. In addition, the laws are subject to different and
changing interpretations. As a result of these factors, even the best efforts to
comply with the laws may not always result in full compliance.

     Russian laws often provide general  statements of principles  rather than a
specific guide to  implementation  and Government  officials may be delegated or
exercise broad authority to determine  matters of  significance.  Such authority
may be exercised in an unpredictable  way and effective appeal processes may not
be available.  In addition,  breaches of Russian law,  especially in the area of
currency  control,  may involve severe penalties and consequences  that could be
considered as disproportionate to the violation committed. Judges and courts are
generally  inexperienced  in the areas of business and corporate  law.  Judicial
precedents  generally  have no binding effect on subsequent  decisions.  Not all
Russian  legislation and court decisions are readily  available to the public or
organized in a manner to facilitate  understanding.  The Russian judicial system
can be slow.

     All of these factors make judicial decisions in Russia difficult to predict
and effective redress  uncertain.  Additionally,  court claims are often used to
further  political  aims.  Also,  court  decisions  are not always  enforced  by
law-enforcement  agencies.  Although the ongoing judicial reform,  in connection
with which the new Arbitrazh  Procedure Code and Civil  Procedure Code have been
adopted, takes into account some practical approaches to resolve certain issues,
it also gives rise to new  problems,  related in particular to the fact that the
decisions of the  arbitrazh  courts and courts of general jurisdiction  actually
compete with the decisions of the Constitutional Court of the Russian Federation
on cases on invalidation  of normative acts issued by governmental  authorities.
There is no guarantee that the proposed  judicial  reform aimed at balancing the
rights of private  parties and  governmental  authorities in courts and reducing
grounds for  re-litigation  of decided cases will be implemented  and succeed in
building a reliable and independent judicial system.

     The uncertainty of new Russian tax regulations complicates tax planning and
may result in sanctions despite compliance efforts.

     Taxes payable by Russian companies include value added tax,  corporate tax,
unified social tax, turnover tax, property tax and other taxes.  Until recently,
the tax  system of the  Russian  Federation  was rather  inefficient,  which was
characterized by numerous, and often economically unjustified, taxes and far too
many normative acts which  regulated  taxes that were in frequent  conflict with
each other.

     However,  there is a reform  underway,  aimed at improving and facilitating
the Russian tax system and reducing the tax burden. The reform is a codification
of the tax laws in the form of the Tax Code, the first part of which was enacted
in 1999.  Certain  chapters of its second part came into effect  between 2001 to
2002. In particular, the Tax Code chapter on individual income tax providing for
a flat income tax rate of 13% was made  effective on January 1, 2001. On January
1, 2002, the Tax Code chapter on corporate income tax took effect,  reducing the
corporate income tax rate from 35% to 24%. The reform of the Russian  Federation
tax system is expected to be completed in 2004.

     The tax reform of the Russian Federation is implemented  through continuing
amendments of the tax  legislation.  Frequently,  these  amendments are not well
drafted and allow varied interpretation.  The uncertainty of new tax regulations
and lack of practice in the  application  thereof may lead to conflicts  between
the  views  of the  Group  and tax  authorities  as to the  application  of such
regulations,  and cause  sanctions  to be imposed on the Group  despite its best
efforts to comply with the tax law.

     In  addition,  the tax reform  complicates  the tax  planning  and decision
making process in Russian companies.

     At the same  time,  the  possible  negative  impact  of the tax  reform  on
taxpayers   is   mitigated   by  the  legally   established   principle  of  the
non-retroactive  effect of laws imposing new taxes or otherwise  adding an extra
burden on taxpayers, and that all unresolved doubts and controversies of laws on
taxes and duties should be interpreted in favor of taxpayers.

     In contrast to the U.S. tax system, Russian companies that are members of a
group of  companies  do not  consolidate  their  financial  reports for taxation
purposes.  As a result,  each company of the Group pays taxes  independently and
may not offset its  profits  and losses  against  profits  and losses of another
organization in the Group.

     The  uncertainty of new Russian  securities and corporate  regulations  may
result in sanctions despite compliance efforts.

     The  regulation  and  supervision  of  the  securities  market,   financial
intermediaries and issuers are considerably less developed in Russia than in the
United  States  and  Western  Europe.  Disclosure  and  reporting  requirements,
anti-fraud  safeguards,  insider trading  restrictions  and fiduciary duties are
relatively  new to Russia  and are  unfamiliar  to many  Russian  companies  and
managers.  While some important areas are subject to virtually no oversight, the
regulatory

                                      -12-
<PAGE>

requirements  imposed on Russian  companies  in other areas  result in delays in
conducting  securities offerings and in accessing capital markets. It is unclear
whether  certain  regulations,  decisions  and  letters  issued  by the  various
regulatory authorities, such as the Federal Commission for the Securities Market
("FCSM"),  Ministry of Finance, Ministry for Anti-Monopoly Policy, Central Bank,
and the  Ministry  of  Property  Relations  apply to the Group  and its  Russian
affiliates.  As a result, the Group may be subject to sanctions despite its best
efforts at compliance, which could have a material adverse effect on the Group's
business,   financial   condition  and  results  of  operations.   Additionally,
inconsistencies  among,  and the limited  enforcement  of,  securities  laws and
regulations  create  uncertainty that may also discourage foreign investors from
investing in the Group.

     Minority  shareholders have some protection under Russian law, but they may
be limited  in their  ability  to pursue  legal  action  against  the  Company's
management.

     Although  Russian  law  provides  some  protection  of rights  of  minority
shareholders,  corporate  governance  standards for many Russian  companies have
proven to be inefficient.  Minority  shareholders in some Russian  companies are
known to have suffered  losses due to abusive share  dilutions,  asset transfers
and  transfer-pricing   practices  within  corporate  structures.   Where  major
shareholders  effectively control 75% or more of the voting shares of a company,
they are in a position  to approve  amendments  to the  Charter of the  company,
which could be  prejudicial  to the interests of minority  shareholders,  and to
veto  all  other  decisions  which  are  within  the  authority  of the  general
shareholders meeting.

     Russian Law No. 208-FZ "On Joint Stock  Companies" of December 26, 1995 (as
amended),  provides that  shareholders  owning not less than 1% of the company's
ordinary  shares may bring an action for damages  against the  management of the
company on the grounds of breach of fiduciary  duties.  However,  Russian courts
are still inexperienced with respect to such cases.  Accordingly,  the practical
ability of minority  shareholders  to pursue legal action  against the Company's
management may be limited.

     The  Company's  shareholders  may  face  risks  resulting  from the lack of
effective governmental supervision over share registrars.

     Ownership of uncertificated  shares in Russian joint stock companies arises
by  registration  in a share  register  and is evidenced by an extract from such
register.   Currently  there  is  no  unified  registration  system  in  Russia.
Maintenance of share  registries is carried out by the companies  themselves or,
if the number of  company's  shareholders  exceeds 50, by  specialized  licensed
registrars (as it is the case with the Company). Regulations have been issued by
the FCSM  regarding the licensing of the  registrars and the rules on performing
the functions of a registrar.  In practice,  however,  these rules have not been
strictly enforced.  Nevertheless,  as a consequence of non-compliance  with such
rules and  regulations,  the  registrar's  license may be  revoked,  which would
result in  termination  of the  trades  with the  Company's  shares on all stock
exchanges.  Furthermore,  registrars  are not subject to effective  governmental
supervision.  Due to the  lack  of a  central  and  rigorously  regulated  share
registration  system in Russia,  transactions in respect of the Company's shares
could be improperly or inaccurately  recorded,  and share  registration  entries
could be lost through  fraud,  negligence or even mere oversight of a registrar.
The Company's  register is insured for RUR 10,000,000  against the risks related
to the maintenance of the register.

     The Company may be jointly and severally  liable for obligations of certain
of its subsidiaries.

     The Civil  Code,  the Joint  Stock  Companies  Law and the  Federal  Law on
Limited Liability Companies generally provide that the shareholders in a Russian
joint stock company or participants in a Russian limited  liability  company are
not liable for the  obligations of the joint stock company or limited  liability
company and bear only the risk of loss of their investment. An exception to this
rule,  however,  is  when  the  shareholder  of a  joint  stock  company  or the
participant in a limited liability  company is capable of determining  decisions
for such  company.  A company  capable  of making  such  decisions  is called an
effective parent. The company whose decisions are capable of being so determined
is called an effective  subsidiary.  Under certain  circumstances  the effective
parent bears joint and several  liability for  transactions  entered into by the
effective subsidiary in carrying out these decisions.  In addition, an effective
parent is secondarily liable for an effective subsidiary's debts if an effective
subsidiary  becomes insolvent or bankrupt  resulting from the action or inaction
of an effective  parent.  This liability could have a material adverse effect on
the Group.

     The United  States - Russia Tax  Treaty may be not  applicable  to the U.S.
holders of ADSs.

     Russian tax rules applicable to the U.S. holders of ADSs are  characterized
by significant  uncertainties  and by absence of  interpretative  guidance.  The
Russian tax authorities have not provided any reasonable  guidance regarding the
treatment of ADS arrangements, and there can be no certainty as to how they will
ultimately treat those  arrangements.  In particular,  it is unclear whether the
Russian tax authorities will treat the U.S. holders as the beneficial  owners of
the  underlying  shares for the  purposes of the Tax Treaty.  If the Russian tax
authorities  do not  treat  the U.S.  holders  as the  beneficial  owners of the
underlying  shares,  then the U.S. holders would not be able to benefit from the

                                      -13-
<PAGE>

provisions of the Tax Treaty.  However,  even if the U.S. holders are treated by
the Russian tax authorities as the beneficial  owners of the underlying  shares,
the U.S.  holders still may be unable to benefit from the  provisions of the Tax
Treaty, or may experience  significant expense and effort due to the complicated
administrative  procedures  on  the  Russian  side  for  claiming  these  treaty
benefits.

     Further,  capital  gains from  disposal of ADSs or  ordinary  shares in the
Company  (the  "Ordinary  Shares")  may be subject to Russian  withholding  tax.
Dividends  received  by the  holders of ADSs or  Ordinary  Shares are subject to
Russian withholding tax.

     A purchaser  of ADSs or Ordinary  Shares may be required to withhold 20% of
the  purchase  price or 24% of any gain if the cost  basis can be  confirmed  as
required  by Russian  law,  if ADSs or Ordinary  Shares are sold,  exchanged  or
disposed of outside a stock exchange by a Non-resident Entity Holder. No Russian
withholding tax is payable on shares sold on a foreign exchange.

     Capital  gains (or  proceeds  if costs can not be  confirmed)  realized  by
Non-resident  Individual  Holders  from the sale of Ordinary  Shares or ADSs are
subject to 30% withholding tax if the securities are sold in Russia.

     Relief from  withholding  tax may be available  if full  exemption or lower
rate of  withholding  tax is provided  for by an  applicable  double tax treaty,
subject to the risk mentioned in Item 10.E. - "Taxation - Russian Income Tax and
Withholding  Tax  Considerations."  However,  obtaining  treaty  benefits can be
difficult due to the requirements imposed by the Russian tax legislation. If any
such  tax is  assessed,  the  value  of an ADS or an  Ordinary  Share  could  be
materially adversely affected.

     Dividends  on  ADSs  or  Ordinary  Shares  paid  to  Non-resident  Entities
generally will be subject to Russian  withholding  tax deducted at source by the
payer of such dividends at a rate of 15%. For Non-resident  Individuals the rate
of  withholding  may be 30% if the  payer of  income  chooses  the  conservative
approach.

     The  withholding  tax rate can be reduced in accordance with the provisions
of an applicable double tax treaty,  subject to the risks outlined in Item 10.E.
"Taxation - Russian  Income Tax and  Withholding  Tax  Considerations."  The Tax
Treaty reduces the rate of withholding tax on dividends to 10% for  Non-resident
Individuals  (and to 5% if the  holder is a  Non-resident  Entity  treated  as a
corporate  body for the U.S.  tax  purposes  and that  owns at least  10% of the
voting stock of the company).

     In  addition,  technically,  there  is  a  risk  that  trading  in  Russian
securities  will  require  registration  by the  ADS  holder  (in  the  form  of
notification) with the Russian tax authorities.

For additional information, see Item 10.E. "Taxation."

     Russia's  accession  to the WTO  may  cause  the  Company  to lose  certain
protections it currently  enjoys as the primary  provider of  international  and
domestic long-distance telecommunications services in Russia.

     In 1993, the Russian  Government  officially stated its intention to accede
to the General Agreement on Tariffs and Trade (GATT).  After the creation of the
World Trade  Organization  ("WTO"),  Russia  expressed  its  intention to accede
thereto.  Currently,  a working group created in 1995 is working out  conditions
for Russia's future accession to the WTO.

     The major risk for the Company is that, upon Russia's accession to the WTO,
the Company may lose the protective measures it currently enjoys. Currently, the
Company   has  a   monopolistic   position   in  the   wholesale   long-distance
telecommunications  market of Russia.  At the same time, a considerable  part of
the services provided by the Company are subject to government  regulation.  The
main  bulk of  tariff-regulated  services  is  provided  to  regional  IRCs  and
government-funded organizations, as well as to subscribers in Moscow. Such terms
of the business  result from the existing  practice of  cross-subsidies  whereby
unprofitable  local  communication  networks  are  subsidized  by  support  from
domestic long-distance ("DLD") and international  long-distance ("ILD") revenues
received by IRCs.  Because of the  existence of the  cross-subsidy  system,  the
Company will not be able to compete on equal terms with other  operators that do
not have such burden in the event the market is liberalized.

     Therefore,  if the WTO working group fails to negotiate special  conditions
for  Rostelecom  upon  Russia's  accession to the WTO,  Rostelecom  may lose its
monopolistic  position,  while the  cross-subsidy  system remains in place. This
would result in:

     - losing the exclusive  right to carry IRC's  wholesale DLD and ILD traffic
because IRCs will receive an opportunity to bypass Rostelecom's network;

                                      -14-
<PAGE>

     -  losing  the  exclusive   right  to  terminate   incoming   traffic  from
international  operators  which would  result in increased  competition  on this
market,   reduction  of  rates  for  termination  of  traffic  to  Russia,   and
consequently decrease in Rostelecom's revenues;

     - granting OJSC Moscow City Telephone Network ("MGTS") a license to provide
long-distance  communication services which would allow MGTS to offer its Moscow
subscribers DLD and ILD services directly, which is currently an exclusive right
of Rostelecom  (today  Rostelecom  gets 100% of ILD and DLD revenues from Moscow
subscribers and then shares  approximately 10% with MGTS). Given that Rostelecom
does not own a local  access  network  in  Moscow,  if MGTS gets such a license,
relations  between  Rostelecom  and MGTS will  change  dramatically.  Instead of
getting 100% of the ILD and DLD revenues and paying out 10%, Rostelecom will act
just as a wholesale operator receiving payment for transit of traffic,  which is
substantially lower than 90%. For example, Rostelecom receives approximately 18%
of the DLD tariff collected by IRCs from end-users.

     Any of the above  circumstances could have a material adverse effect on the
Company's business, financial condition and results of operations.

     Risks Relating to the ADSs

     If the beneficial  ownership of ADS holders over the shares  underlying the
ADSs is not  recognized  under  Russian  law, the ADS holders may not be able to
exercise their rights with respect to the underlying shares.

     The Federal Law No.  39-FZ "On the  Securities  Market",  as amended by the
Federal Law No.  185-FZ of  December  28, 2002 (the  "Securities  Market  Law"),
provides that shares may be held by nominees  entitled to receive  dividends and
to vote the  shares  on  behalf  of the  beneficial  owners  upon  their  voting
instructions. However, the regulations governing nominee holders, custodians and
depositaries  are not yet well  developed  in Russia.  Russian law may treat the
depositary  as the  beneficial  owner of the shares  underlying  the ADSs,  and,
hence,  may not  recognize  the holder of ADSs as such.  This would be different
from the way other  jurisdictions,  such as the states of the  United  States of
America, treat ADSs. In those jurisdictions,  although shares may be held in the
depositary's  name or to its order and the  depositary  is  therefore  a "legal"
owner of the shares,  the ADS holders are the  "beneficial",  or real owners. In
those  jurisdictions,  no action  against  the  depositary  would  result in the
beneficial owners losing rights to the underlying shares.

     Russian  law does not  recognize  the same  distinction  between  legal and
beneficial  ownership.  Thus, it may only recognize the rights of the depositary
in whose name the shares are registered,  but not the rights of ADS holders,  to
the underlying shares.  Therefore,  in proceedings brought against a depositary,
whether or not related to shares underlying ADSs, Russian courts may treat those
underlying  shares as the assets of the depositary open to seizure or arrest. If
this lawsuit is decided against the depositary bank involved, the respective ADS
holders would lose their rights to the underlying shares.

     Attempts to view a depositary  as nominee  holder of the shares  underlying
ADSs might be interpreted as requiring such nominee to obtain a license from the
Russian  authorities  to act in that  capacity  with  respect to the  underlying
shares.  However,  it is unlikely the Russian law licensing  provisions could be
effectively  applied to foreign  nominee  holders  and  depositaries.  All these
uncertainties   of  a  depositary's   activities   regulation  could  result  in
difficulties or inability of ADS holders to exercise their rights arising out of
the shares underlying ADSs.

     A challenge to the  privatization  of the  Company,  if  successful,  could
result in ADS holders losing their ownership in the Company's shares  underlying
the ADSs.

     The Company's privatization began in 1992 and was completed in 1997. To the
extent  that  privatization   legislation  has  been  vague,   inconsistent  and
conflicting with other applicable  legislation,  and with conflicts even between
federal and local privatization  legislation,  most, if not all,  privatizations
that have taken place are arguably  deficient and  therefore  are  vulnerable to
challenge,  at least on  technical  grounds.  Currently,  there  are no  pending
challenges to the privatization of the Company. In the event that the Company is
charged as having  been  improperly  privatized  and it is unable to defeat such
claims,  the  holders of the ADSs might  face a risk of losing  their  ownership
interests in the Company's shares underlying ADSs.

     ADS holders may be  restricted  in their  ability to exercise  their voting
rights and influence the governance of the Company.

     Before  2003, a depositary  could vote shares  underlying  ADSs only as one
block,  because Russian law prohibits a shareholder  from choosing more than one
voting option on an agenda item. Recently,  certain changes were introduced into
Russian  legislation  that amend the procedure  for voting by a depositary  that
holds shares underlying  depositary receipts.  In particular,  amendments to the
FCSM  regulation  governing the  procedure  for  convening  and holding  general
shareholders  meetings  granted to the depositaries the right to split the votes
pertaining to the shares  registered in their name in order to reflect different
voting instructions received

                                      -15-
<PAGE>

from the ADS holders.  The amendments  introduced into the Securities Market Law
that became  effective in January 2003,  might be  interpreted as evidencing the
current  view  of the  FCSM to  exercise  more  control  over  the  depositaries
following the voting instructions of the ADS holders.

     There are practical limitations on ADS holders,  ability to exercise voting
rights  due  to  the  additional   procedural  steps  involved  in  the  Company
communicating  with them.  For example,  the Joint Stock  Companies  Law and the
Company's  Charter require the Company to notify its shareholders of any general
shareholders  meeting  at least 30 or, in certain  cases,  50  calendar  days in
advance of such meeting. The Company's shareholders will be notified directly by
the  Company,  and  will be able to  exercise  their  voting  rights  by  either
attending the general shareholders meeting in person,  through a representative,
or by sending a filled-in voting ballot.

     On  the  contrary,  ADS  holders  will  not  receive  notice  of a  general
shareholders  meeting directly from the Company.  In accordance with the Amended
and Restated  Deposit  Agreement,  dated  December 30, 2002,  among  Rostelecom,
JPMorgan Chase Bank, as depositary  and the owners and beneficial  owners of the
ADRs (the "Deposit  Agreement"),  the depositary will be notified by the Company
of a general shareholders meeting. The depositary has undertaken in turn to mail
the notice of such meeting,  voting  instruction forms and a statement as to the
manner in which  instructions  may be given,  to ADS  holders.  The  Company has
requested  that the  depositary  mail such  notice to the ADS  holder as soon as
practicable after being notified of the general  shareholders  meeting,  but not
later than 30 calendar days prior to the date of such meeting. To exercise their
voting  rights,  ADS holders  should  instruct the  depositary how to vote their
shares.  Due to this additional  procedural  step involving the depositary,  the
process for  exercising  voting  rights may take longer for ADS holders than for
shareholders.  As a result,  holders of ADSs may have less  ability to influence
the governance of the Company than direct holders of the Company's shares.  ADSs
for which the depositary does not receive voting  instructions in time, will not
be voted at any general shareholders meeting.

     ADS holders may face difficulties in enforcing any judgment obtained in the
United States against the Company, its directors and officers.

     The  Company  is  incorporated  under  the  laws of  Russia  and all of its
directors and executive officers reside outside the United States. Virtually all
of its assets and the assets of many of these  persons are  located  outside the
United  States.  As a result,  an ADS holder may be unable to effect  service of
process  upon the  Company  outside of  Russia,  or against  its  directors  and
officers outside their jurisdiction of residence, or enforce against the Company
outside  of  Russia,  or  against  its  directors  and  officers  outside  their
jurisdiction  of residence,  judgments  obtained in courts of the United States,
including  judgments  predicated solely upon the federal  securities laws of the
United States.  In addition,  civil  liabilities  based on U.S. Federal or state
securities laws may not be enforceable  against the Company or its directors and
officers in Russia. If an original action is brought in Russia,  based solely on
U.S. Federal or state  securities laws,  Russian courts may not necessarily have
the jurisdiction to grant the remedies sought.

     ADS holders may not be able to enforce foreign arbitral awards in Russia.

     The Russian  Federation  is not a party to any  multilateral  or  bilateral
treaties with most Western  jurisdictions  for the mutual  enforcement  of court
judgments.  Consequently,  should a judgment be obtained  from a court in any of
such  jurisdictions  it is highly  unlikely to be given direct effect in Russian
courts.  However, the Russian Federation (as successor to the Soviet Union) is a
party to the 1958 New York  Convention on the  Recognition  and  Enforcement  of
Foreign  Arbitral  Awards  and the  Deposit  Agreement  between  Rostelecom  and
JPMorgan  Chase Bank, as Depositary,  and Owners and  Beneficial  Owners of ADS,
which contains a provision  allowing for the  arbitration  disputes in London in
accordance with Rules of London Court of International  Arbitration.  The United
Kingdom is also a party to the New York  Convention.  A foreign  arbitral  award
obtained in a state which is a party to that Convention should be recognized and
enforced by a Russian court (subject to the  qualifications  provided for in the
Convention and compliance  with Russian civil  procedure  regulations  and other
procedures and requirements  established by Russian  legislation).  In practice,
reliance  upon  international  treaties  may meet with  resistance  or a lack of
understanding  on  the  part  of  Russian  court  or  other  officials,  thereby
introducing delay and unpredictability into the process of enforcing any foreign
judgment or any foreign  arbitral  award in the Russian  Federation.  Therefore,
there is no assurance  that an ADS holder may enforce a foreign  arbitral  award
against the Company in Russia.

     There is less  publicly  available  information  about the Company than for
public companies in the United States and certain other jurisdictions.

     The  corporate  affairs of the Company are  governed by Russian laws and by
the charters of companies  comprising the Group,  as well as by  recommendations
outlined  in  the  Corporate   Conduct  Code  issued  by  FCSM.  The  rights  of
shareholders and the  responsibilities  of members of the Board of Directors and
the Management Board under Russian law are different from, and may be subject to
certain requirements not generally applicable to, corporations  organized in the
United  States and other  jurisdictions.  Although the Company is subject to the
reporting  requirements  of the Exchange Act in the United States,  the periodic
disclosure required of non-U.S. companies under the Exchange Act is more limited
than the disclosure  required of U.S.  companies.  Therefore,  there may be less
publicly available  information about the Company than is regularly published by
or about other public companies in the United States.

                                      -16-
<PAGE>

     Currency exchange rate fluctuations and changes in the repatriation  policy
may affect the price of the Company's ADSs.

     The  Federal  Law  on  Foreign   Investments  in  the  Russian   Federation
specifically guarantees foreign investors the right to repatriate their earnings
from Russian  investments.  Russian  currency control  legislation  allows ruble
dividends to be paid to the  depositary or its nominee and  converted  into U.S.
dollars or other foreign  currencies by the depositary for  distribution  to the
ADS holders without  restriction.  However,  the Russian exchange control regime
may materially affect their ability to do so.

     For as long as the buyer is not a Russian resident, ADSs or Ordinary Shares
of the Company may be sold by  non-residents  for foreign  currency  outside the
Russian  Federation  without being  restricted by the Russian  currency  control
regulations.  However,  the Russian currency legislation limits the ability of a
non-resident to sell ADSs or Ordinary Shares of the Company  underlying its ADSs
to Russian residents. Without a license from the Central Bank, Russian residents
(unless  they are  Russian  authorized  banks or  individuals)  may,  generally,
purchase securities for rubles only and may not purchase securities  denominated
in foreign currency, such as the Company's ADSs.

     Foreign investors may sell  ruble-denominated  shares, such as the Ordinary
Shares of the Company underlying its ADSs, to Russian  residents,  via their own
special ruble accounts  (called K-type  accounts) or K- type accounts  opened by
the Russian  authorized  banks for non-resident  banks.  Ruble proceeds from the
sale of such shares,  transferred to the non-resident's  K-type account,  may be
converted into foreign currency without limitations.

     However, the ability of the depositary of the ADS program and other persons
to  convert  rubles  into  foreign  currency  depends  on the  foreign  currency
availability in Russia's currency market. Although Russia has an exchange market
where the ruble is converted into foreign  currency,  the future  development of
this market is  uncertain.  At  present,  the ruble is not  convertible  outside
Russia.  Also, there is no working market in Russia to hedge ruble  investments.
Furthermore,  no assurance  can be given that the Russian  currency  legislation
will  not be  amended  in a way  affecting  foreign  investors'  activities.  In
particular,  these risks imply potential  limitation on the amount of investment
proceeds  allowed  to  be  repatriated,   a  more   complicated   procedure  for
ruble-denominated   share   transactions   with  Russian   residents,   and  new
restrictions  on  converting  ruble  earnings  into a foreign  currency  for the
purpose of dividend payments.

     Practices  occurring  in the  Russian  securities  market  due to  lack  of
effective regulation may affect the price of the Company's ADSs.

     Due, among other reasons, to the limited liquidity of the Russian corporate
securities  market  and the lack of  effective  regulation  thereof,  prices  of
Russian corporate securities and related ADSs may be significantly affected by a
relatively  small  amount  of buying  and  selling  activity  and  favorable  or
unfavorable press  commentaries.  Since regulation of insider trading and market
making is undeveloped,  the prices of Russian  corporate  securities and related
ADSs may be affected by practices that are not permitted in other markets.

     Sales of the Company equity  securities  may adversely  affect the price of
the Company's equity shares and the ADSs.

     Currently,  the Company does not anticipate  offering equity  securities in
the near future.  However,  a future  offering,  or the  perception  of a future
offering of a substantial  number of the Company's  shares in the public market,
could have an adverse effect on the market price of the ADSs. Furthermore,  such
equity offerings may dilute shareholding of the Company's current  shareholders.
If the Company issues  additional  preferred  shares,  such preferred shares may
have  rights,  preferences  or  privileges  senior to those of existing  Class A
Preferred Shares and/or Ordinary Shares.

     The price of the ADSs may be  affected by  economic  developments  in other
emerging market countries.

     Financial  turmoil  in Russia and other  emerging  markets in 1997 and 1998
adversely  affected the securities  markets in developing  economies  worldwide.
Continued  or  increased  financial  downturns  in these  countries  could cause
further  decreases in prices for securities of the Company,  even if the Russian
economy remains relatively stable.

     An active and liquid trading market for the Company's ADSs is not assured.

     An  active or  liquid  trading  market  for the  Company's  ADSs may not be
maintained  in the  long  term.  Loss of  liquidity  could  increase  the  price
volatility of the Company's ADSs.

     An investor in the  Company's  ADSs may not be able to exercise  preemptive
rights for  additional  shares and may therefore  suffer  dilution in his or her
equity interests in the Company.

     Under the Joint Stock Companies Law, existing shareholders of a joint stock
company enjoy preemptive rights to subscribe and pay for a proportionate  number
of shares to maintain their existing ownership percentages prior to the

                                      -17-
<PAGE>

issuance  of any new equity  shares.  Holders of ADSs may be unable to  exercise
preemptive  rights for equity shares  underlying  the ADSs unless a registration
statement  under the  Securities Act is effective with respect to such rights or
an exemption  from the  registration  requirements  under the  Securities Act is
available.  The Company is not obligated to prepare or file such a  registration
statement  and the  Company's  decision  to do so would  depend on the costs and
potential liabilities associated with any such registration  statement,  as well
as the perceived  benefits of allowing ADS holders to exercise their  preemptive
rights,  and any other factors the Company considers at that time. No assurances
can be given that the Company  will file a  registration  statement  under these
circumstances.  If the Company  issues any such  securities in the future,  such
securities  may be issued to the  depositary,  which may sell the securities for
the benefit of the ADS holders.  There can be no  assurances as to the value the
depositary  would  receive,  if any,  upon the sale of such  securities.  To the
extent that the ADS holders are unable to exercise  preemptive rights granted in
respect of equity  securities  represented  by their  ADSs,  their  proportional
interest in the Company will be reduced.

     Risks Relating to the Telecommunications Industry

     The  Company  may not be able to  maintain  its  dominant  position  in the
Russian  telecommunications  market  due to  increasing  competition  and  rapid
technological advances.

     Apart from the Company,  several operators in Russia have their own primary
network  resources.  Major alternative  operators such as Sonera Rus, Rascom and
TransTelecom  operate  their own fiber optic  lines  ("FOLs").  Primary  network
resources  in the  rest  of  the  territory  of  Russia  are  also  operated  by
TransTelecom  through a network  based on FOL and satellite  operators,  such as
Federal State Unitary Enterprise Space Communications and Zond-Holding. The role
of alternative operators is particularly visible in the more profitable segments
- mobile and  documentary  telecommunications.  The overall results of 2002 show
that  alternative  operators  continue  showing a steady growth of income and an
increased presence in the telecommunications  market. The risk exists that these
competitors  will embark on an  aggressive  price  policy,  which may reduce the
Company's  proceeds  if  operators  provide  new  communications  services  (for
example,  telematics  services) at competitive  prices  resulting in the overall
price reduction for telecommunication  services.  Although alternative operators
continue expanding to regional markets,  for the time being their primary market
for the fixed-line  communications  still remains Moscow and St. Petersburg.  In
2002,  approximately  36% and  10.5%  of  outgoing  international  traffic  were
intiated  from  Moscow  and  St.  Petersberg,  respectively.   Accordingly,  any
reduction in the traffic volume and the tariffs level for outgoing international
calls, as well as the rate level for outgoing  international  calls in these two
cities resulting from increased  competition would have a material impact on the
Company's results of operations.  Currently in the voice communication  services
sector the Company does not face these risks because  regional  operators do not
hold domestic  long-distance  ("DLD") and  international  long-distance  ("ILD")
licenses.

     The  continued  practice  of  cross-subsidies   and  the  resulting  tariff
imbalance  could  cause the  Company's  customers  to obtain  services  from the
Company's competitors.

     The lack of consistency in the regulation of the Russian telecommunications
market over the last few years and, in  particular,  the  practice of  providing
cross-subsidies for  telecommunications  services,  which causes an imbalance in
the tariffs for related services in domestic and external markets,  may push the
Company's  customers  to change  the  pattern of  service  consumption  or avail
themselves of cheaper  services from certain  competitors,  which may reduce the
overall  volume  of  the  telecommunications  services  market  in  Russia  and,
consequently, the Company's revenues. The Company's success as a major player in
the Russian  telecommunications market will largely depend on improvement of its
tariff policy and on the adoption by the Russian Government of market-regulating
acts meeting the interests of the market  participants and treating them equally
in terms of business conduct.

     The  uncertainty  of the  regulatory  environment  in Russia  may result in
sanctions despite  compliance  efforts and may result in changes in the laws and
regulations  in the  telecommunications  industry which could have a significant
material impact on the performance and continuity of the Company's business.

     The Company's  business  operates in an uncertain  regulatory  environment.
There is no  comprehensive  legal  framework  with  respect to the  provision of
telecommunication  services  in Russia,  although a number of laws,  decrees and
regulations  apply to the  telecommunications  sector.  The principal legal acts
regulating telecommunications in Russia are the Federal Law "On Communications",
of February 16, 1995, as amended (the "Communications Law"), and the Federal Law
on Natural  Monopolies,  of August 17, 1995, as amended (the "Natural Monopolies
Law").  The  current  regulatory   framework  does  not  clearly  establish  the
interaction  between  these  two  laws,  which  has  resulted  in  a  number  of
contradictory  decrees and decisions.  As the primary  provider of long-distance
telecommunications in Russia, the Company has been, and continues to be, subject
to regulation  under these laws as well as other Russian  legislation.  Although
the Company uses its best efforts to comply with laws,  decrees and regulations,
there is no  guarantee  that in the course of future  inspections  conducted  by
governmental  authorities,  the Company  will not be found to have  violated any
laws,  decrees and  regulations  and that the Company  will be able to cure such
violations

                                      -18-
<PAGE>

within any grace periods permitted by such  authorities,  and that such findings
will  not  result  in the  imposition  of  fines  or  penalties  or more  severe
sanctions,  including the suspension or withdrawal of the Company's licenses and
other  permits,  any of which  could  increase  the  Company's  costs and have a
material  adverse  effect on the Company's  business,  financial  conditions and
results of operations.

     The regulatory  environment for telecommunications in Russia may be subject
to political influence, resulting in negative regulatory decisions on other than
legal grounds. In particular,  the telecommunications system is regulated by the
Ministry  of  Communications  of  the  Russian   Federation  (the  "Ministry  of
Communications"),  largely through the issuance of licenses and instructions. As
a result,  officials  of the  Ministry of  Communications  have a high degree of
discretion.

     Currently,  the Company is subject to regulations  pertaining to licensing,
competition,  frequency allocation and other general operational matters related
to providing  telecommunications  networks for public consumption.  For example,
the  Communications  Law  provides  for equal  rights of  individuals  and legal
entities to participate in telecommunications  operations and does not currently
contain  any  special  restrictions  with  regard to  participation  by  foreign
persons.  There can be no guarantee,  however,  that the Russian Government will
not  change  this  policy.   Changes  in  the  laws  and   regulations   in  the
telecommunications  industry,  and other  decisions by regulators  regarding the
Company's business and that of its competitors could have a significant material
impact on the performance and continuity of its business.

     The Company is subject to the  regulation  and control of the  Ministry for
Anti-Monopoly  Policy and Support of  Entrepreneurship of the Russian Federation
and its failure to comply with these  regulations  could have a material adverse
effect on the Company.

     Under  Russian  law,  the state has  authority  to  regulate,  to a certain
extent,  activities of natural monopolists  operating in the  telecommunications
industry.  Therefore,  since the Company is considered as a natural monopoly, it
is subject to the control of the Ministry for  Anti-Monopoly  Policy and Support
of  Entrepreneurship  of the Russian  Federation  ("Ministry  for  Anti-Monopoly
Policy" or "MAP").

     The Natural Monopolies Law provides a legal basis for federal regulation of
telecommunications providers and provides for state control over setting tariffs
and other  activities.  This law may have a significant  impact on the Company's
ability to set tariffs  independently.  The Natural Monopolies Law also controls
the types of transactions  into which a regulated  entity,  such as the Company,
may enter into. In addition, as with all regulated entities, the Company may not
refuse to conclude  contracts  with  particular  consumers  if the  Ministry for
Anti-Monopoly  Policy so  requires.  Any failure to comply with such  regulation
could  materially  adversely  affect the  business of the  Company.  The Russian
Government  may exercise its authority and set tariffs or require the Company to
enter into  specified  contracts.  Any of the above  circumstances  could have a
material  adverse  effect on the Company's  business,  financial  conditions and
results of operations.

     The  Group's  operation  is  dependent  on its  licenses  and  governmental
permits.

     All of the Group's activities in the telecommunications industry and almost
all telecommunications  equipment used by the Group are subject to licensing and
certification  requirements.  Regulatory uncertainties affecting the maintenance
and renewal of the Group's licenses and certification of the  telecommunications
equipment could result in the Group's difficulty, or even inability, to maintain
and renew such licenses or to import and use such equipment.

          Risks Relating to the Company's Business

     The Company faces risks related to its end-user business in Moscow.

     Moscow is the only region in Russia  where  Rostelecom  has a  relationship
with end-users,  providing domestic and international long-distance services and
billing subscribers directly. The Moscow  telecommunications  market is fiercely
competitive, particularly in the corporate customer segment. Rostelecom's Moscow
market share has persistently declined,  particularly in this corporate customer
segment,  resulting in  deteriorating  revenues from  subscribers.  Although the
Company assembled a new management team for its Moscow business unit in February
2003, the Company may not be able to strengthen,  or even maintain, its position
in the Moscow market. The Company also faces the problem of unauthorized  access
to its  telecommunications  network  in Moscow  which  results  in the risk that
certain  amounts  billed to the customers  will become  non-collectable.  If the
revenues  from the Moscow  business  unit  continue to decline,  it could have a
material adverse effect on the Company's results of operations.

                                      -19-
<PAGE>

     If the demand for certain communications  services the Company has recently
introduced  or are  developing  does not grow  strongly,  its ability to achieve
further revenue growth may be limited.

     The Company  believes that the markets for certain services it has recently
introduced or is  developing,  including in particular  intelligent  network and
integrated services digital network ("ISDN") services, have potential for strong
growth.  If the  markets  for  these  services  does not grow as  expected,  the
Company's   ability  to  achieve   further   revenue  growth  may  be  impaired.
Furthermore, the Company may be unable to take advantage of any growth in demand
for these  services  if it fails to develop  and market  its own  services  on a
timely basis.

     The Company faces risks resulting from significant delays in the collection
of receivables.

     The Company  bills IRCs and other local  telephone  operators  for domestic
long-distance  and  international  traffic at either an agreed proportion of the
receipts the IRCs collect from  subscribers or an agreed rate based upon minutes
of traffic for the use of the Company's  network.  As is the case for many other
Russian  companies,  the Company has in the past  experienced,  and continues to
experience,   significant  delays  in  payment  from  certain  government-funded
entities and government ministries, and some international operators.  Delays in
payments by customers,  as well as any significant level of bad debt, may have a
material  adverse  effect on the Company's  business,  financial  conditions and
results of operations.

     The Company is dependent on certain key suppliers for its equipment.

     The operation of the Company's network depends upon its obtaining  adequate
supplies of switching and other network equipment on a timely basis. At present,
the  Company  purchases  component  parts  for  switching  and  certain  network
equipment  from  Siemens AG, NEC  Corporation,  Alcatel,  Fujitsu  Ltd.,  Huawei
Technologies Co, Ltd.,  Ericsson Nikola Tesla.  The Company's  business could be
adversely  affected  if it is  unable  to  obtain  adequate  component  parts or
equipment  in a timely  manner from its  current  suppliers  or any  alternative
supplier, or if there were significant increases in the costs of such equipment.

     The Company engages in transactions with related parties, which may present
conflicts  of interest,  resulting in the  conclusion  of  transactions  on less
favorable terms than could be obtained in arm's-length transactions.

     The Company,  its principal  shareholders and their affiliates have engaged
in several significant  transactions among themselves and may continue to do so.
As a result,  conflicts of interest may arise between it, its affiliates and its
principal  shareholders  or their  affiliates,  resulting in the  conclusion  of
transactions  on terms not determined by market forces.  See Item 7.B.  "Related
Party   Transactions"   for  more  details  on  the   Company's   related  party
transactions.

     The Company faces the risk of network and systems  equipment  failure which
could significantly interrupt its operations.

     Although the Company has equipment  providing back-up capacity in the event
of disruption  of its  operations,  the Company's  network is still subject to a
number or risks, several of which are outside of its control, such as:

     o    the risk of damage to software and hardware resulting from fire;

     o    power loss;

     o    natural disasters; and

     o    general transmission failures.

     Any failure in the  Company's  network or other  systems or  hardware  that
causes  significant  interruptions  in operations  could have a material adverse
effect on the Company's business, financial condition and results of operations.
The  Company's  operations  also  are  dependent  on its  ability  to  integrate
successfully new and emerging technologies and equipment into the network, which
could  increase the risk of system failure and result in further strain upon the
network. Prolonged or significant system failures, or difficulties for customers
in accessing  and  maintaining  connection  with the  Company's  network,  could
seriously  damage its  reputation  and  result in  customer  attrition,  reduced
margins and financial losses.

     The Company's  business  operations could be significantly  disrupted if it
lost key members of its management team.

     The Company is dependent on its senior management for the implementation of
its  strategy and  operation  of its  day-to-day  activities.  In addition,  the
personal  connections  and  relationships  of members of senior  management  are
important  to the  conduct  of its  business.  No  assurance  can be given  that
management  will  continue  to make their

                                      -20-
<PAGE>

services  available to the Company.  Although the Company believes that it could
replace key employees in an orderly  fashion should the need arise,  the loss of
such key  personnel  could  have a  material  adverse  effect  on its  business,
financial condition and results of operations.

     The Company does not maintain insurance for all of its existing asset base.

     The Company does not maintain third party insurance for all of its existing
asset base. Currently,  the Company's insurance policies cover approximately 40%
of cable and transmission  devices and  approximately 25% of its total property,
plant and  equipment.  Any  significant  damage to the Company's  facilities and
networks or any significant  difficulties  in operations  through its facilities
and networks, whether as a result of fire, flooding, earthquake or other causes,
could have a material  adverse  effect on the  financial  condition,  results of
operations and cash flows of the Company.

     In January and February of 2003, the Company  insured its fixed  production
assets (electronic equipment and communications facilities),  but such insurance
does not provide  for  compensation  for the damages  incurred in the event of a
business  interruption  and does not cover  liability  to third  parties for the
damage to property or the environment resulting from breakage or other accidents
connected with the Company's property or activities.

     Risks Relating to the Company's Financial Condition

     The actual amount and timing of the Company's  future capital  requirements
may differ materially from its current estimates due to various factors, many of
which are beyond the Company's control.

     The actual amount and timing of the Company's  future capital  requirements
may differ  materially from current  estimates due to various  factors,  many of
which are beyond control of the Company. Additional financing may be required in
the event of further  departures  from current  business plans and  projections,
including  those caused by (i)  unforeseen  delays,  (ii) cost  overruns,  (iii)
engineering  design  changes,  (iv)  demand for  services  that  varies from the
Company's  expectations,  (v) adverse  regulatory,  technological or competitive
developments,  and (vi) major  changes in market  conditions.  The  Company  has
experienced  and may continue to  experience  material  deviation of its capital
requirements from its estimates.

     If any of the Company's Central Bank permits is revoked,  or if the Company
breaches  any of the terms of such  permits  or fails to  receive  Central  Bank
permits when needed,  the Company may face delays in  purchasing  equipment  and
suffer cash flow difficulties.

     Many    capital    transactions    with    foreign    currencies    require
transaction-specific  permits  from the Central  Bank of Russia.  Applying for a
Central Bank permit is a burdensome and time-consuming process. The Central Bank
of Russia may impose additional  requirements or deny the Company's  application
for such  permits,  which  could harm the  Company's  business.  The Company was
required to obtain Central Bank permits in connection  with its  vendor-financed
equipment  purchases  ultimately  paid for  with  U.S.  dollars  or  euros.  The
revocation  of a Central Bank permit,  the breach of the terms of a Central Bank
permit or the failure to obtain  Central Bank permits in the future could result
in significant delays in purchasing equipment,  cash flow difficulties and fines
and penalties, and could harm the Company's business.

     Central Bank of Russia  regulations also limit  investments in most foreign
currency denominated  instruments.  Consequently,  there are a limited number of
low risk  instruments  in which the Company can invest its excess cash.  Putting
the Company's  excess cash at risk could  interfere  with its ability to conduct
operations and could adversely affect the Company's business.

     Government  regulation over foreign  investments could hinder the Company's
access to foreign equity markets.

     Russian  legislation on foreign  investments  does not prohibit or restrict
such investments in the telecommunications industry. However, there is a lack of
consensus   over  the  methods  and  scope  of   government   control  over  the
telecommunications  industry.  The Law on  Foreign  Investments  in the  Russian
Federation  of July 9, 1999,  does not provide for any specific  protections  of
investors  in the  telecommunications  industry.  Since  the  telecommunications
industry is widely viewed as strategically  important to the Russian Federation,
governmental control over the  telecommunications  industry might increase,  and
foreign  investment  in the  industry  might be limited in the future.  Any such
increase in  governmental  control or  limitation  on foreign  investment  could
impair the value of foreign  investments in the Company and hinder the Company's
access to additional capital in foreign equity markets.

                                      -21-
<PAGE>

     Risks  Relating  to the  Control  of the  Company  by  Svyazinvest  and the
Government of the Russian Federation

     The  Company  could  be  influenced  by  the   Government  of  the  Russian
Federation.

     The Government, through the Ministry of Property Relations, which holds 50%
plus 1 share in OJSC Svyazinvest ("Svyazinvest") and the Russian Fund of Federal
Property,  which holds 25% plus 1 share in the charter  capital of  Svyazinvest,
effectively  controls  Svyazinvest.  Svyazinvest  holders  50.67% of the  voting
shares of the Company.  Thus, the Government of the Russian Federation will have
the power to influence  matters  submitted to a vote of shareholders,  including
the  approval of the annual  financial  statements,  declaration  of  dividends,
capital increases in connection with acquisitions, take-over offers, investments
and the election  and removal of members the  Company's  Board of Directors  and
Management  Board.  The interest of the Government of the Russian  Federation in
deciding  these matters and the factors it considers  when  exercising its votes
could be different from the interests of the Company's other shareholders.

     The Company's business  operations could be significantly  disrupted if its
major shareholder  undergoes a change of control or reduces its control over the
Group.

     The Group is effectively  controlled by  Svyazinvest  which holds 50.67% of
the voting  shares of the Company.  Further,  the  Government  has a controlling
interest in Svyazinvest.  There can be no assurance that the Government will not
further  decrease  its  interest in  Svyazinvest  or that  Svyazinvest  will not
decrease its interest in the Company  thereby no longer  maintaining its present
degree of control over the Group. Any such change of control may have a material
adverse impact on the Group's business activities due to the following factors:

-    Change in control  over  Svyazinvest  may result in  unpredictable  changes
     within  the  Group  dependent  on the  business  strategy  of the new major
     shareholder  of  Svyazinvest   and  its  dependent   companies.   Currently
     Rostelecom is viewed as a strategic  asset by the  Government and therefore
     enjoys  its   protection  in  terms  of  licensing  and   maintaining   its
     monopolistic  position.  If  there  is a  change  of  control,  there is no
     assurance  that the Company  will be able to maintain  the  protection  and
     position it enjoys.

-    Decreasing or eliminating  Svyazinvest's controlling position in Rostelecom
     may  jeopardize  business  relations  between  the  Company and major local
     telephone  operators  currently  represented  by  InterRegional   Companies
     ("IRCs")  that  are  subsidiaries  of  Svyazinvest.   Currently,   revenues
     generated from IRCs account for 33% of the Company's revenue.

     Svyazinvest  currently  holds a  50.67%  stake in  Rostelecom.  The sale or
potential sale of a significant number of Rostelecom's shares by Svyazinvest may
cause the market price of Rostelecom's shares and ADSs to decline significantly.

     Item 4. Information on the Company

     4.A. History and Development of the Company

     General Information

     Open   Joint   Stock   Company   of   Long-Distance    and    International
Telecommunications  Rostelecom,  ("Rostelecom"),  is an open joint stock company
organized  under the laws of the Russian  Federation on September 23, 1993.  Its
principal  executive  offices  are  located at 14, 1st  Tverskaya-Yamskaya  St.,
125047  Moscow,  Russia,  and  its  telephone  number  is +7 095 972  8283,  its
facsimile   number   is  +7  095  787   2850   and   its   e-mail   address   is
info@rostelecom.ru.

     Rostelecom's  Charter capital is currently equal to 2,428,819.4725  nominal
rubles  and  is  comprised  of  728,696,320  outstanding  ordinary  shares  (the
"Ordinary  Shares"),  nominal  value  RUR  0.0025  per  share,  and  242,831,469
outstanding Class A Preferred Shares (the "Class A Preferred  Shares"),  nominal
value RUR 0.0025 per share.

     On  November  27,  2000,  the Annual  Shareholders  Meeting  of  Rostelecom
approved a revised  version  of the  Company's  Charter,  which  authorized  the
issuance of  additional  905,330,221  Ordinary  Shares and 531 Class A Preferred
Shares,  each with a nominal  value of RUR  0.0025 per  share.  Pursuant  to the
Charter, the Board of Directors of Rostelecom was authorized to issue additional
Ordinary  Shares up to the  total of  authorized  but  unissued  shares  without
obtaining further shareholder approval.

     On June 15, 2003, the Annual Shareholders Meeting adopted a revised version
of the Company's Charter.  The submission of matters concerning  approval of the
Company's  revised  Charter was due primarily to the  introduction of additional
legislative  requirements  with respect to the procedure for the convocation and
conduct  of  general  shareholders  meetings,  as well as to the  results of the
2002-2003  restructuring  of the Company's  branches.  Another  objective of the
Company's  revised  Charter is to consolidate  in a fundamental  document of the
Company  legal  mechanisms   making  it  possible  to  implement  the  principal
recommendations  contained in the Corporate  Conduct Code approved by the Expert
Panel of FCSM.

                                      -22-
<PAGE>

     For further information,  see Item 10.B. "Additional  Information-Articles
of Association."

     In  accordance  with  the  Registration  Statement  on Form F-6  under  the
Securities Act of 1933 (the "Act")  relating to the  registration of the ADSs of
Rostelecom,  the  Company  appointed  Puglisi  &  Associates  as its  authorized
representative  in the United States in connection with the ADSs pursuant to the
requirements of the Act.

     Register of the Company's Shareholders

     From May 1997 to February 14, 2003, the register of Rostelecom shareholders
was  kept  by  RTC-Registrar,  a  specialized  registrar  and a  branch  of CJSC
Registrar-Svyaz  ("Registrar-Svyaz").  Due to the  liquidation  of the branch in
February  2003,  the  Company's  shareholder  register  was  transferred  to the
principal  office  of  Registrar-Svyaz.   Registrar-Svyaz  has  been  conducting
activity as a registrar  since  October  1996.  Currently,  the operation of the
registrar is based on FCSM license No.  10-000-1-00258 issued on October 1, 2002
for an indefinite  term. Since 1996,  Registrar-Svyaz  has also been a member of
the  Professional  Association of Registrars,  Transfer Agents and  Depositaries
("PARTAD").  The  registrar  enjoys the status of a registrar  authorized by the
Russian Ministry of Property Relations.

     Corporate Governance Principles

     At its meeting held on April 11, 2002, the Board of Directors of Rostelecom
approved the "Declaration on Corporate Governance  Principles"  addressed to the
Company's   shareholders,   customers,   personnel,   investors   and  financial
institutions,  as well as to the other parties  interested in the  operations of
the Company.

     The Declaration on Corporate Governance  Principles provides that, in light
of the  importance of high  corporate  governance  standards for the  successful
operation of the Company's business and for reaching a mutual understanding with
the parties  interested in the  operations of the Company,  Rostelecom  plans to
prepare   and  adopt  a  Code  of   Corporate   Conduct   consistent   with  the
internationally accepted principles of corporate governance by the end of 2003.

     The  management of  Rostelecom is clearly aware that the  confidence of the
shareholders,  investors  and partners of the Company in its economic  stability
and effective and practical corporate  governance are essential for Rostelecom's
further development.

     Currently,  Rostelecom  management  is  working to  improve  the  Company's
corporate  practices  in an  effort  to  comply  with  the  requirements  of the
Sarbanes-Oxley  Act of  2002,  which  established  new  standards  of  corporate
governance and disclosure for companies  required to file periodic  reports with
the U.S. Securities and Exchange Commission (the "SEC").

     Rostelecom's  management is working  towards  compliance with the corporate
governance  requirements of the Sarbanes-Oxley Act by taking,  among others, the
following  steps: the  establishment  of an Audit Committee,  the enactment of a
Code of Ethics for  management,  the  formalizing  and  streamlining of internal
controls  and  more   extensive  and  detailed   disclosure  of  information  on
Rostelecom's financial and business operations.

     Initiatives to Promote Investor and Shareholder Relations

     The  Company  focuses  extensively  on the  promotion  of  shareholder  and
investor relations and the maintenance of high standards of disclosure. In 2002,
an Investor  Relations  Department  was  established  and an investor  relations
program  ("IR  Program")  was  launched.  The IR  Program  is  mostly  aimed  at
maintaining  an ongoing  dialogue with the investor  community and promoting the
Company's transparency and availability of information.

     In 2002, a standard  disclosure  package was developed and  formalized.  It
includes both  information to be disclosed in accordance with applicable law and
the requirements of Russian and US regulatory agencies and any other information
of interest and  importance  to the investor  community.  Today,  the package of
information disclosed to the public market by the Company includes:

     o    reports on quarterly and annual  financial and production  performance
          results  both in  accordance  with the  Russian  Accounting  Standards
          ("RAS")  and  pursuant  to  the  International   Financial   Reporting
          Standards ("IFRS");

     o    quarterly  reports by the issuer of  securities  forwarded to FCSM and
          the Russian and U.S stock exchanges;

     o    annual report on Form 20-F and Form 6-K reports;

     o    the Company's annual public report;

     o    presentations for investors and analysts; and

                                      -23-
<PAGE>

     o    press   releases   on   key   developments    capable   of   affecting
          decision-making on investment matters.

     In 2002,  the  Company  began,  for the first  time,  to arrange  quarterly
conference calls regarding its financial  performance  results.  Since 2003, the
Company has been accompanying conference calls with webcasts.

     It is  important  to note  that in 2002,  the  Investor  Center,  a special
section in the Rostelecom corporate website,  was developed and launched.  It is
available  at  www.rt.ru/en/icenter/.  It  offers  essential  information  about
Rostelecom,  including the Company's financial reports, current share quotations
and data on corporate governance, the share capital and the dividend policy. All
the latest press releases  promptly appear in the "News" section.  Presentations
by the management are available in the relevant  section of the Investor Center.
Visitors  to the site can use  interactive  tools to plot  graphs of  historical
quotations of the  Company's  Ordinary  Shares and Class A Preferred  Shares and
ADSs,  to calculate  the amount of dividends  due and to obtain  information  on
trading  sessions on a specified  date.  The  "Questions  and  Answers"  section
contains the most frequently  featured  questions and answers.  If a shareholder
cannot  find an  answer to his or her  question  on the  website,  he or she can
always contact the Company's IR team directly or via the "Feedback"  function at
the site.

     Business Processes of the Company

     Development and Automation of Business Processes

     Within the framework of the Company's  restructuring  program, 2002 saw the
introduction  of new  business  processes.  In  particular,  unified  accounting
policies were introduced  during the year at the Company's  principal  executive
office ("the  Headquarters")  and business  unit levels,  and unified  budgeting
procedures were also put in place.

In order  to  improve  the  Company's  management  systems,  in 2002  Rostelecom
launched a project to introduce an Enterprise  Resource Planning ("ERP") system.
This will provide a unified  information  system for the entire  organization as
well as rapid access to integrated information,  which is critical for efficient
management decision-making.

In 2002,  the efforts of various  divisions  were combined to develop  automated
business  processes  in  finance,  analytical,  tax and general  reporting.  All
modules  of  the  system  have  already  been  rolled  out at  Headquarters  and
North-Western  Branch , which is the branch located in St. Petersburg,  while in
the rest of the branches, only some modules have been implemented.

In 2003,  the project  group will  implement the ERP system  throughout  all the
Company's business units, and also create a unified database.

The Company  understands  the  importance of efficient  human  resources  ("HR")
management. In 2002, Rostelecom was rolling out the HR management system. During
the course of the year,  work on fine-tuning the system's  personnel  module was
completed,  and adjustments were made to the salary  calculation  function.  The
system has already been  introduced at the corporate level and in several of the
Company's business units.

     In 2003,  Rostelecom  intends to introduce  these  systems  throughout  the
Company as a whole, and integrate them with each other and the existing systems,
to create a unified,  transparent information platform which embraces all of the
Company's divisions and business units.

     Introduction of Activity Based Costing

     In 2002, Rostelecom introduced a separate cost accounting system by type of
service (ABC cost  accounting),  on the basis of a study completed by McKinsey &
Company.  This resulted in the identification and elimination of inaccuracies in
cost  accounting  and closer  coordination  between all the Company's  divisions
responsible for cost accounting.  The separate  accounting of costs will provide
information for further cost analysis and tariff negotiation.  The data obtained
not only  facilitates  determination  of areas for future  improvement in tariff
policy,  but also  comparisons  of expenses  incurred by the  Company's  various
divisions on servicing the same type of equipment.  This, in turn,  will lead to
further optimization of the Company's costs.

     The introduction of separate accounting for costs is the first stage in the
process of calculating  economically justified expenses and normative profit for
telecommunications  services.  At the next stage  which  will take place  during
2003-2004,  the Company is planning to work with regulatory authorities to agree
on tariffs that account for economically  justified  expenses and required rates
of return on capital.

                                      -24-
<PAGE>

     Rostelecom Investment Policy Highlights

The main objective of Rostelecom's  investment program is to further develop and
modernize the integrated digital telecommunications  network, which will in turn
strengthen  the  Company's  position in all  segments of Russia's  long-distance
telecommunications market.

The investment program focuses on the following major areas:

     o    Construction of high-speed fiber optic  telecommunications trunk lines
          which  will  provide  the  Company  with  access to new  international
          routes,  link the country's major cities to the Company's network,  as
          well as create a backup system for existing telecommunications lines.
     o    Reconstruction of existing  telecommunications trunk lines using dense
          wavelength  division  multiplexing  ("DWDM")  technology  aimed  at an
          increase in the network's  throughput  capacity by a multiple of 10 or
          even 100. Networks using this technology  operate much faster,  have a
          larger capacity, and relatively low production costs.
     o    Expansion of the existing  Automatic  Switching  Nodes,  International
          Switching Centers, and the Automatic Trunk Exchanges.
     o    Construction  of a modern  flexible  multiplexers  network in order to
          optimize operation of the trunk network, and to provide customers with
          the option to lease digital channels with optimal throughput capacity.
     o    Phasing  out of analog  trunk lines  along with the  expansion  of the
          digital network.

     Capital Expenditures

     To achieve  its  strategic  objectives,  in the 1990's  the  Company  began
construction of a modern telecommunications infrastructure, began developing its
primary network and was implementing new technologies  which enabled the Company
to expand the scope of services it provided to various customers.  The Company's
investment policy was to focus primarily on utilizing internal sources,  such as
cash from operations, and possibly external debt financing.

     Capital construction and investments in 2000

     In 2000, the Company  proceeded to develop and upgrade its fiber optic line
("FOL") network.  Rostelecom invested approximately RUR 5,273 million to develop
and upgrade its FOL networks.

     The most important  investment projects put into operation in 2000 were the
following:

     o    Novorozhdestvenskaya to Stavropol to Makhachkala FOL;

     o    Perm to Izhevsk FOL;

     o    Samara to Saratov to Volgograd FOL; and

     o    Aksay to Lugansk FOL.

     In addition,  the Company completed the construction of the East Segment of
the satellite  communications network owned by the Company and the second launch
facility of its public multimedia communications network. The Company also began
to  operate  land-based  stations  of the  Rostelecom  satellite  communications
network and an  international  switching  center in Lyuban with the  capacity of
9,510  channels.  In 2000,  Rostelecom also completed the  establishment  of the
digital domestic  long-distance and integrated  network which connects to nearly
all local switches.

     Capital construction and investments in 2001

     In 2001,  the  Company  invested  approximately  RUR 3,663  million  in the
development of several fiber optic line networks and communications  facilities.
The following  facilities  were put into operation:  1,686.8  kilometers of FOL,
long-distance switches with 10,800 channels,  international  telephone exchanges
with 1,320  channels,  one satellite  station and telephone  exchange with 2,600
numbers.

     The most important  investment projects put into operation in 2001 were the
following:

     o    Kizlyar to Grozny FOL;

     o    two sections of Volgograd to Rostov-on-Don FOL and Volgograd to Elista
          to Budennovsk FOL;

     o    Lyuban to Issad FOL;

     o    Issad to Petrozavodsk FOL;

                                      -25-
<PAGE>

     o    expansion of the three Automatic  Trunk Exchanges  ("AMTSs") of Moscow
          and the Moscow Ring FOL; and

     o    launching of a telephone exchange in Murmansk.

     Capital construction and investments in 2002

     In 2002,  the  Company  invested  approximately  RUR 2,696  million  in its
property, plant and equipment.

     The  most  significant  investment  projects  implemented  in  2002  are as
follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                      Capacity
         Investment project description              (number of      Transfer rate     Completion
                                                     channels)           Mbps            date
-------------------------------------------------- ---------------- --------------- ---------------
<S>                                                    <C>              <C>
Russia to Kazakhstan FOL                               30,240           2,488         Completed
---------------------------------------------------------------------------------------------------
Baltic Cable System Project (first stage)              60,480           4,976         Completed
---------------------------------------------------------------------------------------------------
Expansion of traffic capacity of the Moscow to         241,920          19,906           2003
Novosibirsk FOL
---------------------------------------------------------------------------------------------------
Expansion of traffic capacity of the Moscow to         120,960          9,952            2003
Novorossiysk FOL
---------------------------------------------------------------------------------------------------
Flexible Multiplexers Network                            652              41             2003
---------------------------------------------------------------------------------------------------
</TABLE>

Russia to Kazakhstan FOL

The  construction  of a new FOL between Russia and  Kazakhstan  created a second
point of access to Kazakhstan for Rostelecom's trunk network.  The line that now
connects  the Russian and Kazakh  International  Switching  Centers  ("ISC") has
completed  the loop of  existing  telecommunications  lines  between the Russian
Federation, the Republic of Kazakhstan, and the People's Republic of China.

Baltic Cable System (First Stage)

The first stage of the Baltic Cable  System  project,  developed in  conjunction
with the  Swedish  firm Telia  (now  TeliaSonera),  was  completed  in 2002.  It
included the  modernization  of the Moscow to St.  Petersburg to Kingissep  line
using DWDM technology,  as well as the expansion of the Company's  participation
in  international  cable systems.  The subsequent  stages of the project will be
undertaken by TeliaSonera.

Modernization of the Moscow to Novosibirsk and Moscow to Novorossiysk Lines

In 2002,  the Company  started  implementing  projects to expand the  throughput
capacity of the Moscow to  Novosibirsk  and Moscow to  Novorossiysk  lines using
DWDM technology.  In addition to expanding the capacity of these important trunk
lines,  these  projects  also include the creation of new lines,  as well as the
expansion of existing  digital links, to Russia's major cities.  During 2002 the
modernization  of the route from  Moscow to Samara on the Moscow to  Novosibirsk
line was completed  using DWDM  equipment  produced by Huawei  Technologies.  In
October 2002, the Company received this DWDM equipment from a non-related party,
free of charge.

Construction of a Flexible Multiplexers Network

In  2002,   Rostelecom   began   constructing  a  network  of  modern   flexible
multiplexers.  This equipment with digital cross-switching functions will enable
the Company to optimize  network  operations  and satisfy  customer needs to the
highest standards by increasing its ability to provide digital channels with the
necessary throughput capacity.

                                      -26-
<PAGE>

     Main directions of development in 2003

     Rostelecom plans to invest  approximately  RUR 4,521 million in 2003 in the
development  of its fiber optic line network and in the expansion and upgrade of
its  services.  The  Company  plans to use cash  from  operations  and  external
financing  sources to fund these projects.  The investment  program for the year
2003 includes the following major projects:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
       Investment project description           Capacity (number    Transfer rate      Estimated
                                                  of channels)          Mbps        completion date
----------------------------------------------------------------------------------------------------
<S>                                                 <C>                 <C>              <C>
Gatikha to Apastovo FOL                            120,960             9,952            2003
----------------------------------------------------------------------------------------------------
Kaliningrad to Gvardeisk FOL                         7,560               622             2003
----------------------------------------------------------------------------------------------------
International Russia to Azerbaijan FOL               7,560               622             2003
----------------------------------------------------------------------------------------------------
Expansion of 4 AMTSs in Moscow                      51,120                               2003
----------------------------------------------------------------------------------------------------
</TABLE>

     Gatikha to Apastovo FOL

     The  completion  of the Gatikha to  Apastovo  line in the Central and Volga
regions, with a branch to Nizhny Novgorod and Cheboksary,  will provide a backup
for the European part of the Moscow to Khabarovsk trunk line, and provide Nizhny
Novgorod and Cheboksary  Automatic  Trunk Exchanges with access to the Company's
trunk network.

     Kaliningrad to Gvardeisk FOL

     The  completion  of the  Kaliningrad  to Gvardeisk FOL with a branch to the
Lithuanian  border,  will link Kaliningrad to Rostelecom's  network by a digital
line, and expand the Company's international network.

     International Russia to Azerbaijan FOL

     The completion of the Russia to Azerbaijan FOL will connect the Russian and
Azerbaijan  International  Switching Centers,  and also strengthen  Rostelecom's
market position in traffic exchange in the Caucasus and the Middle East.

     Expansion of four AMTSs in Moscow

     The  expansion of four AMTSs in Moscow,  construction  of an AMTS in Pavlov
Possad,  and  commissioning  of an  International  Trunk  Exchange  ("MNTS")  in
Kaliningrad  will  increase  the  number  of  the  Company's  long-distance  and
international  channels  and improve  the  quality  and range of  communications
services.

     Further Plans

     In addition,  Rostelecom  plans to invest between  approximately  RUR 4,500
million to RUR 5,000  million  annually  for the  following  projects  and other
projects  in  2003-2005.  The  Company  plans to use cash  from  operations  and
external financing sources for this investment program.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                         Capacity (number of   Transfer rate        Estimated
    Investment project description           channels)             Mbps         completion date
---------------------------------------------------------------------------------------------------
<S>                                            <C>                 <C>                <C>
Yekaterinburg to Perm FOL                      120,960             9,952              2004
---------------------------------------------------------------------------------------------------
Kingisepp   to  Pskov  to  Smolensk  to
Moscow FOL                                     120,960             9,952              2004
---------------------------------------------------------------------------------------------------
Expansion   of  traffic   capacity   of
submarine Russia to Denmark FOL                120,960             12,440             2004
---------------------------------------------------------------------------------------------------
Expansion   of  traffic   capacity   of
Novosibirsk  to  Khabarovsk to Nakhodka
FOL                                            120,960             9,952              2005
---------------------------------------------------------------------------------------------------
</TABLE>

                                      -27-
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                         Capacity (number of   Transfer rate        Estimated
    Investment project description           channels)             Mbps         completion date
---------------------------------------------------------------------------------------------------
<S>                                            <C>                 <C>                <C>
Construction of an ISC in Moscow                9,000                -                2004
---------------------------------------------------------------------------------------------------
Expansion of UAKs:
UAK-3                                           1,440
UAK-5                                           15,000               -                2004
UAK-6                                           15,120
UAK-8                                           10,000
---------------------------------------------------------------------------------------------------
Creation  of a  center  for  monitoring
the SS-7 network                                 829                 -                2004
---------------------------------------------------------------------------------------------------
</TABLE>

     Yekaterinburg to Perm FOL

     The  construction of the  Yekaterinburg  to Perm FOL will complete the loop
for the Moscow to Khabarovsk line in the Volga and Ural regions.

     Kingisepp to Pskov to Smolensk to Moscow FOL

     The  construction of the Kingisepp to Pskov to Smolensk to Moscow FOL, with
a branch to Belarus and Latvia, will create a loop in the North-western  region,
and provide a back-up for the Baltic Cable System.

     Expansion of traffic capacity of submarine Russia to Denmark FOL

     The upgrading of submarine Russia to Denmark FOL and construction of a link
to Kaliningrad  based on DWDM technology  will increase FOL throughput  capacity
and create back up for Kaliningrad region.

     Expansion of traffic capacity of Novosibirsk to Khabarovsk to Nakhodka FOL

     The expansion of traffic  capacity of Novosibirsk to Khabarovsk to Nakhodka
FOL based on DWDM  technology  will allow the  Company to  compete  for  greater
amount of Europe to Asia traffic transition.

     Construction of an ISC in Moscow

     The  construction of an  International  Switching  Center ("ISC") in Moscow
will increase the existing  switching  capacity in the Moscow  region,  which is
constantly growing.

     Expansion of 4 UAKs

     The expansion of 4 Automatic  Switching  Nodes ("UAKs") out of 8 will allow
the  interconnection  of additional  operators,  expand  channel  capacity,  and
improve the quality of service offered.

     Creation of a center for monitoring the SS-7 network

     The creation of a center for monitoring the  Signaling  System-7  ("SS-7")
network (in Moscow) will improve management of Company's network and enhance its
billing capacity.

     All backbone  network lines are under  construction in order to provide for
the installation of DWDM equipment.

     The Company is also planning to direct  investments for the  implementation
of the new modern  billing  systems  designed to service  both  subscribers  and
operators,  which will improve the quality of the Company's  customer  services,
optimize  receivables  settlement  and  improve  the system for  monitoring  and
accounting for communications traffic and revenues.

     Acquisitions

     The Company made the following acquisitions during 2002 and 2003:

     On February 26, 2002, the Company and RTC-Leasing entered into an agreement
for  the  Company's  purchase  of  1,075,873   ordinary   registered  shares  in
RTC-Leasing  representing 25.83% of its charter capital for a total value of RUR

                                      -28-
<PAGE>

12 million.  The transfer of ownership to the shares in RTC-Leasing  took effect
on March 25,  2002.  The funds  received  by  RTC-Leasing  were used to increase
RTC-Leasing's working capital.

     On May 6, 2002,  the Company and  RTC-Invest  entered into an agreement for
the purchase and sale of securities,  under which RTC-Invest  transferred to the
Company 30 ordinary  shares in MTsNTT,  with the nominal  value of RUR 1,000 per
share and for a total  purchase  price of RUR 1.4 million.  On May 6, 2002,  the
Company and CJSC Sovet-Holding  ("Sovet-Holding")  entered into an agreement for
the purchase and sale of securities,  under which  Sovet-Holding  transferred to
the Company 30 ordinary  shares in MTsNTT,  with the nominal  value of RUR 1,000
per share.  The Company  paid a total  purchase  price of RUR 1.4  million.  The
transfers of the shares in MTsNTT, which together constituted 40% of its charter
capital, were effected on October 9, 2002. Accordingly,  the share of Rostelecom
in the  joint-stock  capital  of  MTsNTT  was  increased  from  20% to 60%.  The
principal  activity of MTsNTT is research and development in the field of modern
telecommunications.

     On June 25, 2002,  the Company and Russian  Telecommunications  Development
Corporation,  Inc.  ("RTDC") entered into an agreement for the purchase and sale
of shares in Westelcom, under which RTDK Holdings, Inc., the sole stockholder of
RTDC, undertook to transfer to the Company 50 ordinary shares in Westelcom, with
the total value of U.S.$15,000,000.  (RUR 489 million) The transfer of ownership
to the shares in  Westelcom  took  effect on October 10,  2002,  after which the
Company's  share in the equity of  Westelcom  increased  from 50% to 100%.  As a
result,  the Company  acquired  complete  control over a number of strategically
important assets,  including international telephone exchanges in Moscow and St.
Petersburg and the right to participate in international cable systems.

     For details  with regard to  acquisitions  during 2002 and 2003 made by the
Group please refer to Item 4.C. "Organizational  Structure",  Item 7.B. "Related
Party Transactions".

     Divestitures

     The Company made the following divestitures during 2002 and 2003:

     OJSC Giprosvyaz

     On March  13,  2002,  the  Board of  Directors  of  Rostelecom  decided  to
terminate its  participation  in OJSC  Giprosvyaz,  a Russian company engaged in
scientific  research  and  design,  through  the  sale  of its  65,326  ordinary
registered shares constituting 22% of the charter capital of Giprosvyaz, under a
Sale and Purchase  Agreement between the Company and the Non-Profit  Partnership
Center for  Telecommunications  Problems Research.  The value of the transaction
was RUR 105 million. In accordance with the terms of the agreement, on March 26,
2002, Rostelecom terminated its entire participation in Giprosvyaz.

     EDN Sovintel

     On March 29, 2002, Rostelecom's Board of Directors decided to terminate the
Company's participation in Limited Liability Company EDN Sovintel ("Sovintel" or
"EDN   Sovintel"),   a  Russian   company   engaged  in   providing   integrated
telecommunications  and  Internet  services  by selling the  Company's  stake in
Sovintel's charter capital under a Sale and Purchase Agreement among the Company
and  SFMT-CIS,  Inc., a US holding  company and LLC Teleross,  a subdivision  of
Golden  Telecom,  Inc.  ("Golden  Telecom")  which is a U.S.  company engaged in
providing  integrated  telecommunications  and Internet services in Russia. As a
result of the transaction,  in exchange for its 50% stake in Sovintel's  charter
capital, Rostelecom received 15% of Golden Telecom's shares (RUR 1,786 million),
U.S.  $10  million  (RUR 335  million) in cash and  U.S.$46  million  (RUR 1,527
million) in  non-interest  bearing  notes  issued by LLC  Teleross  payable upon
expiration of 90 days after the date of transfer of shares. The promissory notes
were redeemed in full in December 2002.  The sale of shares of Sovintel  enabled
the Company to repay a portion of its external  debt.  The sale of the Company's
stake in EDN  Sovintel and  acquisition  of shares of Golden  Telecom,  Inc. was
completed on September 5, 2002. For more details please see Item 10.C. "Material
Contracts".

     Intersputnik

     During 2002, the Company  formalized a plan to discontinue  using satellite
channels leased from Lockheed-Martin  Intersputnik beginning from February 2003.
The Company has accordingly  revised its estimate of the remaining period of use
of the satellite channels.  Additional  depreciation  expense of RUR 897 million
was  recognized  in the  accompanying  consolidated  financial  statements.  For
details please refer to Note 6 to consolidated financial statements.

     For details  regarding  the  divestitures  during 2002 and 2003 made by the
Group  please  refer  to  Item  7.B.   "Related  Party   Transactions"  and  the
accompanying consolidated financial statements.

                                      -29-
<PAGE>

          4.B. Business Overview

Overview

     Rostelecom is Russia's national long-distance  telecommunications operator.
It owns and operates the nationwide trunk telecommunications network. Rostelecom
holds the leading position in this market in the Russian  Federation and carries
the bulk of Russia's  long-distance  and international  traffic.  Throughout the
country the Company renders  international  and domestic  long-distance  traffic
throughput services to Russian operators, including each of Russia's seven IRCs,
alternative   and  mobile   operators.   The  Company   currently  is  the  only
telecommunications  operator  licensed  to  carry  wholesale  long-distance  and
international  traffic  and  therefore  holds a  monopolistic  position  on this
market.  Local  operators,  including  IRCs,  bill their own local customers for
outgoing domestic  long-distance and international calls, while Rostelecom bills
the operators for the traffic  throughput.  In Moscow,  Rostelecom also provides
domestic   long-distance  and  international   telecommunications   services  to
end-users  through  the local  access  network  of a local  operator,  and bills
customers directly. In addition, Rostelecom provides telecommunications services
to various  government-funded  entities and government  ministries across Russia
and ensures the operation of the  ground-based  network of most  television  and
radio  broadcasting  channels.  Rostelecom  also  has  the  exclusive  right  to
terminate the incoming international voice traffic from international operators.

     The  Company's  trunk  network,  which  transmits  the majority of Russia's
domestic and international traffic, is comprised of nearly 200,000 kilometers of
digital and analog lines.  As of the end of 2002,  its  digitalization  level in
terms of  channel  kilometers  was 76% of its total  network.  The  Company  has
completed a major part of the construction of its domestic long-distance digital
transit network based on eight Automatic Switching Nodes ("UAKs").  Today, 96.5%
of the Automatic Trunk Exchanges ("AMTS"), which are stations that collect voice
traffic and  automatically  sort and  retransmit  it to the  Company's  UAKs and
International Switching Centers ("ISCs"), are connected with them through two or
more paths. For additional information, see "Switches" and "Current Structure of
the Russian Telecommunications Industry" below.

     Rostelecom   has  completed   the   construction   of  a  fully   connected
international  digital network based on 11 ISCs. The Rostelecom  network ensures
the  availability  of  international  telecommunication  services in the most of
geographic  locations in Russia.  The Company has direct  access to 72 countries
and  participates  in  30  international  cable  systems.  Rostelecom  maintains
relationships  with 400  international  operators  and network  administrations.
Russia is a member of the  International  Telecommunications  Union  ("ITU"),  a
specialized intergovernmental organization under the United Nations Organization
which facilitates guidelines and agreements regulating  telecommunications.  The
ITU is designed to  coordinate,  standardize  and  internationally  regulate the
telecommunications   industry  on  a   worldwide   scale.   Though   established
international  standards are  sufficiently  effective to regulate  communication
services and settle disputes,  Rostelecom is seeking to strengthen its relations
with  all  international  operators  to which it has  direct  channels,  through
relevant written arrangements.

     Rostelecom has implemented and is developing a variety of services, largely
complementing   its   existing    international   and   domestic   long-distance
communications  services.  Also Rostelecom  provides  multimedia  communications
services,  offers  digital  channels  for  lease  and  distributes  TV and radio
programs  through its network among  broadcasters  in the whole territory of the
Russian Federation.

     Rostelecom's principal markets are as follows:

     o    international market of communications operators;
     o    Russian market of traditional and alternative local operators; and
     o    Russian market of end-users of communications services in Moscow.

For details with regards to revenues on each  principal  market  please refer to
Note 21 to the accompanying consolidated financial statements.

     Seasonality

     The demand for Rostelecom services can be characterized as stable,  without
any marked seasonal fluctuations. Any notable seasonal fluctuations in demand on
telecommunications  services are seen only on particular dates - public holidays
or nationwide  events.  Meanwhile,  the entire range of the  Company's  services
minimizes fluctuations in the market for Rostelecom services.

                                      -30-
<PAGE>

     Network and Facilities

     Rostelecom   provides  its   international   and   domestic   long-distance
telecommunications  services through its ground and submarine cables,  microwave
lines and satellites.  The resources of the trunk transportation  network ensure
the transfer of any type of information.  Rostelecom's  digital network based on
Synchronous Digital Hierarchy ("SDH" - European standard FOL used for long-range
data  transmission)  and  dense  wavelength   division   multiplexing   ("DWDM")
technologies covers practically the entire territory of the Russian Federation.

     Primary Communications Network

     Rostelecom's  primary network  consists of trunk cables linked to the IRC's
networks and to Rostelecom's  ISCs for connections  with foreign  operators,  as
well as a  satellite  communications  network.  As of  December  31,  2002,  the
Company's  digital  network   comprised  37,000   kilometers   including  26,000
kilometers  of fiber  optic  lines  ("FOL")  and  11,000  kilometers  of digital
microwave lines. A fundamental  component of the network are high-capacity  FOLs
between  Moscow  and  Novorossiysk,  Moscow and St.  Petersburg,  and Moscow and
Khabarovsk,  as well as a satellite  communications  network that includes three
junction  centers in  Moscow,  Novosibirsk  and  Khabarovsk  and nine  periphery
switches  in  Barnaul,  Kirov,   Gorno-Altaysk,   Kyzyl,   Minusinsk,   Yakutsk,
Novokuznetsk, Yuzhno-Sakhalinsk and Salekhard.

     The Company has installed  international FOLs accessing  Finland,  Denmark,
Turkey,  Italy, Japan, Korea, China, Estonia,  Kazakhstan,  Ukraine and Belarus.
Major foreign operators can now send their unswitched traffic through Russia. As
new digital communications lines are built, the Company regularly phases-out its
analog transmission lines. Thus, 5.6 thousand kilometers of trunk lines and 11.9
thousand  kilometers of analog  microwave cables were phased-out and substituted
by digital ones during the period of 1998 through 2002.

The following  table details the principal lines of  communication  that make up
Rostelecom's primary network as of December 31, 2002:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                   Line                             Type of line         Length (km)   Transmission rate     Channels
                                                                                          (Mbits/sec)
-----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                              <C>                  <C>         <C>
Moscow to Khabarovsk                         Digital Microwave                 7,977               6 x 155      11,340
-----------------------------------------------------------------------------------------------------------------------
Moscow to Yekaterinburg                      Fiber Optic Cable                 2,400                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Moscow to St. Petersburg                     Fiber Optic Cable                 1,163                19,904     241,920
-----------------------------------------------------------------------------------------------------------------------
Nakhodka to Naoetsu to Pusan                 Submarine Fiber Optic             1,762                   565      15,360
                                             Cable
-----------------------------------------------------------------------------------------------------------------------
Nakhodka to Khabarovsk                       Fiber Optic Cable                   897               2 x 622      15,120
-----------------------------------------------------------------------------------------------------------------------
Kingisepp to Copenhagen                      Submarine Fiber Optic            1,210*               2 x 565      15,360
                                             Cable
-----------------------------------------------------------------------------------------------------------------------
Kingisepp to St. Petersburg                  Suspended Fiber Optic               191               2 x 622      15,120
-----------------------------------------------------------------------------------------------------------------------
St. Petersburg to Kingisepp to Moscow        Digital Microwave                   949               3 x 140       5,760
-----------------------------------------------------------------------------------------------------------------------
Novorossiysk to Istanbul to Palermo          Submarine Fiber Optic            3,420*                   565      15,360
                                             Cable
-----------------------------------------------------------------------------------------------------------------------
St. Petersburg to Finland                    Fiber Optic Cable                 197**                   622       7,560
-----------------------------------------------------------------------------------------------------------------------
Kingisepp to Tallinn                         Fiber Optic Cable                  26**                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Moscow to Novorossiysk                       Fiber Optic Cable                 1,653                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Khabarovsk to Harbin (China)                 Fiber Optic Cable                 150**                   622       7,560
-----------------------------------------------------------------------------------------------------------------------
Perm to Yekaterinburg                        Digital Microwave                   565               2 x 155       3,780
-----------------------------------------------------------------------------------------------------------------------
Apastovo to Shigony                          Fiber Optic Cable                   220                   622       7,560
-----------------------------------------------------------------------------------------------------------------------
Yekaterinburg to Novosibirsk                 Fiber Optic Cable                 1,572                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Ivanovka to Vladivostok                      Fiber Optic Cable                    61                   622       7,560
-----------------------------------------------------------------------------------------------------------------------
St. Petersburg to Lyuban to Luga             Fiber Optic Cable                   289                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Zadonsk to Lipetsk to Tambov                 Fiber Optic Cable                   270                   622       7,560
-----------------------------------------------------------------------------------------------------------------------
Apastovo to Kazan                            Fiber Optic Cable                   132                   622       7,560
-----------------------------------------------------------------------------------------------------------------------
Russia to Kazakhstan (eastern segment of     Fiber Optic Cable                 220**                   622       7,560
border)
-----------------------------------------------------------------------------------------------------------------------
Vladimir to Vologda, with branches to        Fiber Optic Cable                   665                   622       7,560
Ivanovo, Kostroma and Yaroslavl
-----------------------------------------------------------------------------------------------------------------------
Overlay digital network in Moscow Region     Fiber Optic Cable                   709               2 x 622      15,120
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -31-

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                   Line                             Type of line         Length (km)   Transmission rate     Channels
                                                                                          (Mbits/sec)
-----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                              <C>                  <C>         <C>
Region
-----------------------------------------------------------------------------------------------------------------------
Tula to Kaluga                               Fiber Optic Cable                   212                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Kaluga to Belgorod up to Ukrainian border,   Fiber Optic Cable                 974**                 2,488      30,240
with branches to Bryansk, Kursk and
Belgorod
-----------------------------------------------------------------------------------------------------------------------
Moscow to Minsk, with branch to Smolensk     Fiber Optic Cable                 480**                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Tyumen to Surgut                             Digital Microwave                   712               2 X 155       3,780
-----------------------------------------------------------------------------------------------------------------------
Samara to Orenburg                           Digital Microwave                   386                   155       1,890
-----------------------------------------------------------------------------------------------------------------------
Apastovo to Malaya Purga, with branches to   Fiber Optic Cable                   661                 2,488      30,240
Kazan, Naberezhnyie Chelny, Izhevsk and
Yoshkar-Ola
-----------------------------------------------------------------------------------------------------------------------
Novosibirsk to Khabarovsk                    Fiber Optic Cable                 5,480                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Novorozhdestvenskaya to Stavropol to         Fiber Optic Cable                   270                 2,488      30,240
Makhachkala
-----------------------------------------------------------------------------------------------------------------------
Novorozhdestvenskaya to Stavropol to         Fiber Optic Cable                   458                 2,488      30,240
Kropotkin to Pyatigorsk to Budennovsk with
branches to Mineralnyie Vody, Kislovodsk
-----------------------------------------------------------------------------------------------------------------------
Budennovsk to Kizlyar to Makhachkala with    Fiber Optic Cable                   901                 2,488      30,240
branches to Cherkessk, Nalchik, Nazran and
Vladikavkaz
-----------------------------------------------------------------------------------------------------------------------
Aksay to Lugansk                             Fiber Optic Cable                  36**                   622       7,560
-----------------------------------------------------------------------------------------------------------------------
Samara to Saratov to Volgograd               Fiber Optic Cable                   928             2,488 x 2      60,480
-----------------------------------------------------------------------------------------------------------------------
Perm to Izhevsk                              Fiber Optic Cable                   657                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Volgograd to Rostov-on-Don                   Fiber Optic Cable                   516                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Volgograd to Elista to Budennovsk            Fiber Optic Cable                   560                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Kizlyar to Grozny                            Fiber Optic Cable                   140                   155       1,890
-----------------------------------------------------------------------------------------------------------------------
Lyuban to Issad                              Fiber Optic Cable                   140                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Issad to Petrozavodsk                        Fiber Optic Cable                   319                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Russia to Kazakhstan (Western segment)       Fiber Optic Cable                 455**                 2,488      30,240
-----------------------------------------------------------------------------------------------------------------------
Moscow Ring                                  Fiber Optic Cable                     8                 9,953     120,960
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

     *    Length  of link  owned  by  Rostelecom.  See also  below -  "Submarine
          Cables."
     **   Length to the state border.

     Switches

     Rostelecom owns 11 International Switching Centers ("ISCs") which allow for
efficient  ILD  traffic  management,  including  three  in  Moscow,  two  in St.
Petersburg  (Lyuban)  and one  each  in  Rostov-on-Don,  Samara,  Yekaterinburg,
Novosibirsk, Khabarovsk and Murmansk. The combined capacity of these switches is
104,830 channels.  In addition,  the Company has eight Automatic Switching Nodes
("UAK"),  which  allow  for  efficient  DLD  traffic  management,  and which are
interconnected  by digital channels and five Automatic Trunk Exchanges  ("AMTS")
that provide access to DLD service to local users,  including four in Moscow and
one in Pavlov  Possad.  The UAKs and their  connecting  channels  constitute  an
integrated  services digital network ("ISDN") with channel switches to which the
networks of IRCs and  alternative  operators are connected.  The AMTSs of Moscow
and Pavlov Posad route domestic  long-distance traffic between switching centers
as well as directly to and from end-users.

     As of March 15, 2003, the Company's  domestic  long-distance  trunk network
consisted of 103,049 digital and 25,760 analog lines. Approximately 92.4% of all
digital  channels  are  connected   through  the  Signaling   System  ("SS-7").
Approximately  96.5% of all Russian  AMTSs have  access to the  digital  transit
network.

     Sixty-seven  AMTSs are able to provide ISDN  services  through the domestic
long-distance   network.  The  Company  uses  the  open  network  of  multimedia
communications.  Connected  to this network are  subscriber  units in 73

                                      -32-
<PAGE>

Russian  regions  and nine retail  outlets.  Subscribers  connected  to the open
network  of  Rostelecom's  multimedia  communications  can  participate  in, and
arrange, both bilateral and multilateral video conferences,  discuss and jointly
edit textual and graphic documents, receive and send files, and receive and send
various audio and video information.

     Submarine Cables

     As  part  of  its  program  to  expand  and   upgrade   its   international
telecommunications capabilities,  Rostelecom utilizes modern submarine cables to
establish  traffic links between Russia and other countries.  The Company is the
terminal party and the major capacity owner in three  international  fiber optic
cable  systems:   Denmark-Russia  1  (DK-R1),   Russia-Japan-Korea  (R-J-K)  and
Italy-Turkey-Ukraine-Russia  (ITUR).  Rostelecom owns approximately 50%, 33% and
30% of the  DK-R1,  R-J-K  and ITUR  systems,  respectively.  The  remainder  is
controlled by various international operators.

     In  order to  provide  access  to these  systems  and to  establish  direct
high-quality  international  lines  to  remote  sites of the  world,  Rostelecom
participates   in  the   construction   of,  and  acquires   capacity  in,  many
international cable systems.

     As of June 25, 2003, the Company has interests in, or an indefeasible right
of use of, 27 other cable systems,  including  global cable system projects such
as Fiber Line Around the Globe (UK - Middle East - Japan),  Asia-Pacific  Cable,
Canada-Transatlantic  system, Trans-Pacific Cable (Japan - USA), South-East Asia
- Middle East - Western Europe system, and Trans-Atlantic system.

     Satellite Communications

     Before January 2003,  Rostelecom  leased  satellite  channels from Lockheed
Martin Intersputnik. In 2002, the Company formalized a plan to discontinue using
Intersputnik's satellite LMI-1 from February 2003. In February 2003, the Company
switched its  satellite  communications  system from the LMI-1  satellite to the
Russian earth satellite vehicle Express-A.

     Rostelecom also arranged for international  fixed satellite  channels using
land-based  space  telecommunications  stations  owned  by CJSC  Teleport  TP, a
Russian  satellite  telecommunications  company,  and the Federal  State Unitary
Enterprise Space Communications, a Russian company. The Company leases satellite
channels from CJSC Teleport TP, which operates  through three  satellites in the
Intelsat  systems.  The Federal State Unitary  Enterprise  Space  Communications
provides  Rostelecom  with  channels  through its 5 satellites  and 4 land-based
stations. The term of the agreement was not specified.

     The  satellite  communications  network  is  operated  within  three  nodal
land-based  stations  and nine  periphery  land-based  stations  in the  Russian
territory.  The  composition  and  the  locations  of the  land-based  satellite
communications  stations  were  determined by the Company based on the secondary
network  requirements  for,  among  other  things,  access to the trunk  network
through UAKs and trunk digital communications.

     Rostelecom,  being the principal operator of the public network system that
provides  all types of  telecommunications  services  and  connects  state-owned
networks and communications operators, is able to provide the following:

o    access to both  international  and long-distance  communications throughout
     Russia;

o    testing and  passing of signal  load  through  SS-7,  which  allows for the
     coordinated operation of all types of digital networks based on the digital
     transit network;

o    multimedia communications (videoconferencing);

o    ISDN and intellectual network services; and

o    lease of channels with any throughput capacity.

     Rostelecom's Cooperation with Mobile Communications Network Operators

     The  Company's  cooperation  with Russian  operators of  land-based  mobile
communications networks is aimed at expanding the high-quality network services,
including the establishment of national and international roaming.

                                      -33-
<PAGE>

     As of December  31,  2002,  the Company had  international  roaming for the
major  Moscow-based  and  regional  (Russian)  mobile  communications  operators
connecting  them  with 316  international  mobile  operators  in 135  countries,
including 11 CIS countries and the Baltic states.

     In order to broaden the  spectrum  of its  communications  services  and to
upgrade communications with Russia's remote regions,  Rostelecom, in partnership
with Globalstar  L.P., a worldwide  consortium,  has launched the development of
the  Russian  segment of the  Globalstar  Global  System  for  Mobile  Satellite
Communications.  In order to implement the project for the  establishment of the
Russian  segment  of  Globalstar  and  subsequently   provide  mobile  satellite
communications  services in Russia, in 1996, the Company and Globalstar L.P. set
up CJSC  GlobalTel,  a US-Russian  joint venture.  Rostelecom  believes that the
pooling of Globalstar's modern global mobile satellite communications facilities
with the capacity of the Company's domestic  long-distance trunk network creates
additional opportunities for establishing national and international roaming and
for selling communications services to Russian users. The Russian segment of the
Globalstar system has been in commercial operation since the end of 2000.

Services

     International Traffic

The Company is the primary provider of international telecommunications services
in Russia.  It provides  the  switching  and  transmission  infrastructure  that
connects  the Russian  domestic  telecommunications  trunk  network with foreign
networks  and,  in  coordination  with  foreign  telecommunications   operators,
facilitates the transmission of global telecommunications  traffic. According to
Company  estimates,  at  the  end  of  2002  Rostelecom's  market  share  in the
international  sector was as follows (measured by traffic  minutes):

o    Outgoing international long-distance traffic transit - 80%;

o    Incoming international traffic - 54%;

     In 2002, revenues from international  telecommunications  services totalled
RUR 13,587  million,  or 48% of  Rostelecom's  total revenues as compared to RUR
17,167 or 57% Rostelecom's total revenues in 2001. In 2000 these amounted to RUR
20,264 million, or 59% of Rostelecom's total revenues.

     Outgoing ILD traffic  increased by 14.1% in 2002 to 1,234.6 million minutes
from 1,082 million minutes in 2001. Outgoing ILD traffic in 2000 was 945 million
minutes.

     Rostelecom's  ILD revenue  from  Russian  customers  and  operators in 2002
decreased by 17.7% to RUR 8,487 million  compared to RUR 10,315  million in 2001
and RUR 10,404 million in 2000.

     In 2002,  Rostelecom's incoming ILD traffic totalled 973.3 million minutes,
growing  12% from 869  million  minutes  in 2001.  In 2000 this  figure  was 897
million minutes.

     Revenue  from  international  operators  (from voice  traffic  termination)
amounted to RUR 4,250 million,  decreasing by 29% from RUR 6,018 million in 2001
and RUR 8,128 million in 2000.

     In 2002, Rostelecom's incoming traffic amounted to 25.3 million minutes, to
463  million  minutes  and 485  million  minutes  from the  Baltic  states,  the
Commonwealth  of  Independent  States (CIS)  countries,  and from other  foreign
countries, respectively. Outgoing traffic was distributed as follows: traffic to
the Baltic  states  totaled 44.4 million  minutes,  to the CIS  countries to 901
million minutes and to other foreign countries to 289.2 million minutes.

     The  charts  below  show  data  on   Rostelecom's   incoming  and  outgoing
international traffic:

     International traffic with foreign countries, excluding traffic to and
            from the CIS countries and the Baltic states, (in million
              minutes, except percentages) for the last three years

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                          2000                  2001                  2002
-------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                   <C>                  <C>
Outgoing traffic                                          281                   287                  289.2
-------------------------------------------------------------------------------------------------------------------
Outgoing traffic growth (% per annum)                     -4%                    2%                   0.8%
-------------------------------------------------------------------------------------------------------------------
Incoming traffic                                          421                   416                   485
-------------------------------------------------------------------------------------------------------------------
Incoming traffic growth (% per annum).                    8.5%                  -1%                  16.6%
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -34-
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                          2000                  2001                  2002
-------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                   <C>                  <C>
Total traffic                                             702                   703                  774.2
-------------------------------------------------------------------------------------------------------------------
</TABLE>

        International traffic with the Baltic states (in million minutes,
                  except percentages) for the last three years

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                           2000                  2001                  2002
--------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                  <C>                   <C>
Outgoing traffic                                            38                   48.1                  44.4
--------------------------------------------------------------------------------------------------------------------
Outgoing traffic growth (% per annum)                       0%                   27%                  -7.7%
--------------------------------------------------------------------------------------------------------------------
Incoming traffic                                            28                    23                   25.3
--------------------------------------------------------------------------------------------------------------------
Incoming traffic growth (% per annum).                     -3%                   -18%                  10%
--------------------------------------------------------------------------------------------------------------------
Total traffic                                               66                   71.1                  69.7
--------------------------------------------------------------------------------------------------------------------
</TABLE>

        International traffic with the CIS countries (in million minutes,
                  except percentages) for the last three years

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                           2000                  2001                  2002
--------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                   <C>                   <C>
Outgoing traffic                                           626                   747                   901
--------------------------------------------------------------------------------------------------------------------
Outgoing traffic growth (% per annum)                       5%                   19%                  20.6%
--------------------------------------------------------------------------------------------------------------------
Incoming traffic                                           448                   430                   463
--------------------------------------------------------------------------------------------------------------------
Incoming traffic growth (% per annum).                     -13%                  -4%                   7.7%
--------------------------------------------------------------------------------------------------------------------
Total traffic                                             1,074                 1,177                 1,364
--------------------------------------------------------------------------------------------------------------------
</TABLE>

     Rostelecom's  largest  international  traffic routes are between Russia and
Germany,  the United States of America,  the United Kingdom,  France,  Italy and
Finland.  The chart  below  sets  forth the total  number of billed  minutes  of
international incoming and outgoing calls for these countries.

    Minutes of international incoming and outgoing calls (in million minutes)
                            for the last three years

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Country                                                   2000                  2001                  2002
-------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                   <C>                   <C>
Germany                                                   110                   113                   108
-------------------------------------------------------------------------------------------------------------------
United States of America                                   95                    72                   147
-------------------------------------------------------------------------------------------------------------------
United Kingdom                                             46                    29                    20
-------------------------------------------------------------------------------------------------------------------
France                                                     29                    25                    28
-------------------------------------------------------------------------------------------------------------------
Italy                                                      29                    31                    42
-------------------------------------------------------------------------------------------------------------------
Finland                                                    17                    21                    20
------------------------------------------------- --------------------- --------------------- ---------------------
</TABLE>

     In 2002, approximately 36% and 10.5% of outgoing international traffic were
initiated from Moscow and St. Petersburg, respectively. Accordingly, the traffic
volume and the tariffs level for outgoing  international  calls,  as well as the
rate level for outgoing international calls in these two cities, have a material
impact on the Company's results of operations.

     Tariffs

     The Company establishes the tariffs for outgoing  international calls based
on the  destination  of the  call,  the day and the time of the  call.  For each
outgoing  call from IRCs,  Rostelecom  receives 50% of the total amount that the
relevant IRC charges the subscriber  initiating the call.  Alternative oparators
pay  Rostelecom  for each  minute of the  outgoing  international  traffic  at a
pre-determined   settlement  rate.  For  international   calls  made  by  Moscow
subscribers  using  MGTS,  the  Company  keeps  approximately  90% of the tariff
proceeds after settlement with the Moscow operator.  In turn, Rostelecom pays an
agreed  termination charge to a foreign operator receiving the outgoing traffic.
For  incoming  international  calls,  Rostelecom  charges  foreign  operators  a
pre-determined termination rate.

                                      -35-
<PAGE>

     During  2002,  there were no changes in  tariffs  for  international  calls
except for the tariffs for calls to China,  which were reduced by 30% for Moscow
end-users  as of June 1, 2002 and were also  reduced  by  approximately  60% for
areas  bordering  China as of June 20, 2002. The tariff  reduction was caused by
the low  competitiveness  of the  Rostelecom  tariffs  established  for calls to
China.  As a result  of  tariff  changes,  traffic  to China  from  those  areas
increased, which resulted in the increase in the aggregate revenues.

     The charts  below  illustrate  the  international  tariffs  effective as of
December 31, 2002.

               Tariffs for International Telephone Communications
             with Foreign Countries, CIS Countries and Baltic States

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
             Region                                            Per minute tariff (nominal rubles)
-------------------------------------------------------------------------------------------------------------------------------
                                   For Moscow, St. Petersburg, Moscow Region                 For European Russia
                                             and Leningrad Region
-------------------------------------------------------------------------------------------------------------------------------
                                       Peak         Off-Peak       Reduced          Peak          Off-Peak         Reduced
-------------------------------------------------------------------------------------------------------------------------------
                                      8 a.m.         8 p.m.                    8 a.m. through  8 p.m. through     24 hours
                                    through 8      through 8       24 hours     8 p.m., local   8 a.m., local
                                   p.m., local    a.m., local                       time            time
                                       time           time
-------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>             <C>            <C>            <C>             <C>             <C>
CIS countries:
-------------------------------------------------------------------------------------------------------------------------------
Belarus, Ukraine                      10.50           7.00           5.25           10.50           7.00            5.25
-------------------------------------------------------------------------------------------------------------------------------
Moldova                               12.00           8.00           6.00           12.00           8.00            6.00
-------------------------------------------------------------------------------------------------------------------------------
Azerbaijan, Armenia, Georgia          16.00          16.00          16.00           16.00           16.00           16.00
-------------------------------------------------------------------------------------------------------------------------------
Kazakhstan, Kyrgyzstan,               12.00           8.00           6.00           12.00           8.00            6.00
Tajikistan, Turkmenistan,
Uzbekistan
-------------------------------------------------------------------------------------------------------------------------------
Baltic states:
-------------------------------------------------------------------------------------------------------------------------------
Latvia, Lithuania, Estonia            19.50          13.00           9.75           19.50           13.00            9.75
-------------------------------------------------------------------------------------------------------------------------------
Foreign countries:
-------------------------------------------------------------------------------------------------------------------------------
    Europe     (tariff 1)             15.00          10.00           7.50           19.50           13.00            9.75
-------------------------------------------------------------------------------------------------------------------------------
               (tariff 2)*            21.90          14.60          10.95           21.90           14.60           10.95
-------------------------------------------------------------------------------------------------------------------------------
   Asia and    (tariff 1)             29.40          19.60          14.70           29.40           19.60           14.70
 Middle East
-------------------------------------------------------------------------------------------------------------------------------
               (tariff 2)**           44.85          29.90          22.43           44.85           29.90           22.43
-------------------------------------------------------------------------------------------------------------------------------
Vietnam                               44.85          29.90          22.43           44.85           29.90           22.43
-------------------------------------------------------------------------------------------------------------------------------
Turkey                                15.00          10.00           7.50           19.50           13.00            9.75
-------------------------------------------------------------------------------------------------------------------------------
Americas       (tariff 1)             19.50          13.00           9.75           24.00           16.00           12.00
-------------------------------------------------------------------------------------------------------------------------------
               (tariff 2)***          38.85          25.90          19.43           38.85           25.90           19.43
-------------------------------------------------------------------------------------------------------------------------------
Australia, Oceania                    35.40          23.60          17.70           35.40           23.60           17.70
-------------------------------------------------------------------------------------------------------------------------------
Africa                                42.30          28.20          21.15           42.30           28.20           21.15
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -36-
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
             Region                                            Per minute tariff (nominal rubles)
--------------------------------------------------------------------------------------------------------------------------------
                                                  For Far East                                   For Siberia
--------------------------------------------------------------------------------------------------------------------------------
                                       Peak         Off-Peak       Reduced           Peak          Off-Peak         Reduced
--------------------------------------------------------------------------------------------------------------------------------
                                  8 a.m. though      8 p.m.        24 hours     8 a.m. through  8 p.m. through     24 hours
                                  8 p.m., local     through                     8 p.m., local    8 a.m., local
                                       time      8.a.m., local                       time            time
                                      time
--------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>             <C>            <C>              <C>             <C>
CIS countries:
--------------------------------------------------------------------------------------------------------------------------------
Belarus, Ukraine                      18.00          12.00           9.00           15.00            10.00           7.50
--------------------------------------------------------------------------------------------------------------------------------
Moldova                               18.00          12.00           9.00           18.00            12.00           9.00
--------------------------------------------------------------------------------------------------------------------------------
Azerbaijan, Armenia, Georgia          16.00          16.00          16.00           16.00            16.00           16.00
--------------------------------------------------------------------------------------------------------------------------------
Kazakhstan, Kyrgyzstan,               15.00          10.00           7.50           12.00            8.00            6.00
Tajikistan, Turkmenistan,
Uzbekistan
--------------------------------------------------------------------------------------------------------------------------------
Baltic states:
--------------------------------------------------------------------------------------------------------------------------------
Latvia, Lithuania, Estonia            25.50          17.00          12.75           19.50            13.00            9.75
--------------------------------------------------------------------------------------------------------------------------------
Foreign countries:
--------------------------------------------------------------------------------------------------------------------------------
Europe            (tariff 1)          25.50          17.00          12.75           19.50            13.00            9.75
--------------------------------------------------------------------------------------------------------------------------------
                  (tariff 2)*         29.40          19.60          14.70           21.90            14.60           10.95
--------------------------------------------------------------------------------------------------------------------------------
Asia and Middle   (tariff 1)          19.95          13.30           9.98           29.40            19.60           14.70
East
--------------------------------------------------------------------------------------------------------------------------------
                  (tariff 2)**        30.90          20.60          15.45           44.85            29.90           22.43
--------------------------------------------------------------------------------------------------------------------------------
Vietnam                               30.90          20.60          15.45           44.85            29.90           22.43
--------------------------------------------------------------------------------------------------------------------------------
Turkey                                25.50          17.00          12.75           19.50            13.00            9.75
--------------------------------------------------------------------------------------------------------------------------------
Americas          (tariff 1)          18.00          12.00           9.00           24.00            16.00           12.00
--------------------------------------------------------------------------------------------------------------------------------
                  (tariff 2)***       18.00          12.00           9.00           38.85            25.90           19.43
--------------------------------------------------------------------------------------------------------------------------------
Australia, Oceania                    35.40          23.60          17.70           35.40            23.60           17.70
--------------------------------------------------------------------------------------------------------------------------------
Africa                                42.30          28.20          21.15           42.30            28.20           21.15
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
             Region                                           Per minute tariff (nominal rubles)
------------------------------------------------------------------------------------------------------------------------------
                                     For cities bordering on Kazakhstan                        For Belgorod
------------------------------------------------------------------------------------------------------------------------------
                                      Peak       Off-Peak       Reduced           Peak           Off-Peak         Reduced
------------------------------------------------------------------------------------------------------------------------------
                                     8 a.m.       8 p.m.        24 hours     8 a.m. through   8 p.m. through     24 hours
                                   through 8     through 8                   8 p.m., local    8 a.m., local
                                  p.m., local   a.m., local                       time             time
                                      time         time
------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>           <C>            <C>             <C>              <C>             <C>
CIS countries:
------------------------------------------------------------------------------------------------------------------------------
Ukraine                              15.00         10.00          7.50             9.00             6.00            4.50
------------------------------------------------------------------------------------------------------------------------------
Belarus                              15.00         10.00          7.50            10.50             7.00            5.25
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -37-
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
             Region                                           Per minute tariff (nominal rubles)
------------------------------------------------------------------------------------------------------------------------------
                                     For cities bordering on Kazakhstan                        For Belgorod
------------------------------------------------------------------------------------------------------------------------------
                                      Peak       Off-Peak       Reduced           Peak           Off-Peak         Reduced
------------------------------------------------------------------------------------------------------------------------------
                                     8 a.m.       8 p.m.        24 hours     8 a.m. through   8 p.m. through     24 hours
                                   through 8     through 8                   8 p.m., local    8 a.m., local
                                  p.m., local   a.m., local                       time             time
                                      time         time
------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>           <C>            <C>             <C>              <C>             <C>
Moldova                              18.00         12.00          9.00            12.00             8.00            6.00
------------------------------------------------------------------------------------------------------------------------------
Azerbaijan, Armenia, Georgia         16.00         16.00         16.00            16.00            16.00           16.00
------------------------------------------------------------------------------------------------------------------------------
Kazakhstan                            9.75         6.50           4.88            12.00             8.00            6.00
------------------------------------------------------------------------------------------------------------------------------
Kyrgyzstan, Tajikistan,              12.00         8.00           6.00            12.00             8.00            6.00
Turkmenistan, Uzbekistan
------------------------------------------------------------------------------------------------------------------------------
Baltic states:
------------------------------------------------------------------------------------------------------------------------------
Latvia, Lithuania, Estonia           19.50         13.00          9.75            19.50            13.00            9.75
------------------------------------------------------------------------------------------------------------------------------
Foreign countries:
------------------------------------------------------------------------------------------------------------------------------
Europe            (tariff 1)         19.50         13.00          9.75            19.50            13.00            9.75
------------------------------------------------------------------------------------------------------------------------------
                  (tariff 2)*        21.90         14.60         10.95            21.90            14.60           10.95
------------------------------------------------------------------------------------------------------------------------------
Asia and Middle   (tariff 1)         29.40         19.60         14.70            29.40            19.60           14.70
East
------------------------------------------------------------------------------------------------------------------------------
                  (tariff 2)**       44.85         29.90         22.43            44.85            29.90           22.43
------------------------------------------------------------------------------------------------------------------------------
Vietnam                              44.85         29.90         22.43            44.85            29.90           22.43
------------------------------------------------------------------------------------------------------------------------------
Turkey                               19.50         13.00          9.75            19.50            13.00           9.75
------------------------------------------------------------------------------------------------------------------------------
Americas          (tariff 1)         24.00         16.00         12.00            24.00            16.00           12.00
------------------------------------------------------------------------------------------------------------------------------
                  (tariff 2)***      38.85         25.90         19.43            38.85            25.90           19.43
------------------------------------------------------------------------------------------------------------------------------
Australia, Oceania                   35.40         23.60         17.70            35.40            23.60           17.70
------------------------------------------------------------------------------------------------------------------------------
Africa                               42.30         28.20         21.15            42.30            28.20           21.15
------------------------------------------------------------------------------------------------------------------------------
Tariffs marked (*), (**) and (***) apply to the following countries:
------------------------------------------------------------------------------------------------------------------------------
*    Bosnia and Herzegovina,  Hungary, Greenland, Ireland, Iceland, Liechtenstein,  Macedonia, Romania, Slovakia, Slovenia and
     Croatia
------------------------------------------------------------------------------------------------------------------------------
**   Bangladesh,  India, Indonesia (incl. Timor), Jordan, Iraq, Iran, Yemen, Cambodia, China, Kuwait, Laos, Lebanon, Maldives,
     Nepal, Pakistan, Saudi Arabia, Syria, Thailand, Philippines, Sri Lanka
------------------------------------------------------------------------------------------------------------------------------
***  all countries of North and South America except the United States and Canada
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                             -38-
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
     Region                                           Per minute tariff (nominal rubles)
------------------------------------------------------------------------------------------------------------------------------
                             For Moscow                For Irkutsk Region, Chita Region     For Khabarovsk Area, Primorski
                                                          and Republic of Buriatiya       Area, Amur Region, Sakhalin Region
                                                                                            and Jewish Autonomous District
------------------------------------------------------------------------------------------------------------------------------
                    Peak     Off-Peak     Reduced       Peak      Off-Peak     Reduced       Peak      Off-peak     Reduced
------------------------------------------------------------------------------------------------------------------------------
                 8 a.m.      8 p.m.       24 hours    8 a.m.     8 p.m.       24 hours    8 a.m.      8 p.m.       24 hours
                 through     through                  through
                 8 p.m.,     8 a.m.,                  8 p.m.,    through 8                through 8   through 8
                  local       local                    local      a.m.,                    p.m.,       a.m.,
                  time        time                     time      local time               local time  local time
------------------------------------------------------------------------------------------------------------------------------
<S>                <C>         <C>         <C>          <C>        <C>          <C>         <C>          <C>         <C>
     China         30.00       20.00       15.00        16.50      11.00        8.25        14.25        9.50        7.13
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

     Domestic Long-Distance Traffic

     In 2002,  Rostelecom  carried  over 87% of the DLD  traffic in the  Russian
Federation.

     In 2002,  Rostelecom's  volume of DLD  traffic  amounted  to 7,136  million
minutes  (including  1,211  million  minutes from  end-users  and 5,925  million
minutes from operators).  Domestic long-distance traffic growth in 2002 equalled
15.5% and was primarily due to the further  upgrade of the  Rostelecom  network,
expansion of local access  networks by the IRCs and the overall  increase of per
capita income in Russia. For additional information see table below.

     2002 DLD revenue grew by 8% to RUR 9,408  million,  or 34% of  Rostelecom's
revenue,  compared to RUR 8,713 million,  or 28.8% of Rostelecom's  revenue,  in
2001 and to RUR 8,713 million, or 25.6% of Rostelecom's revenue, in 2000.

     The table below sets forth data on domestic long-distance traffic.

           Domestic Long-Distance Communications (in million minutes)
                            for the last three years

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                 2000                2001                2002
---------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>               <C>                 <C>
Volume of domestic long-distance traffic                         4,960             6,178.9             7,136.2
---------------------------------------------------------------------------------------------------------------------
Growth of volume of domestic long-distance traffic               26.7%              24.6%               15.5%
---------------------------------------------------------------------------------------------------------------------
</TABLE>

     Tariffs

     In all regions of Russia except for Moscow and Moscow region, Rostelecom is
paid by IRCs and  alternative  operators  for the  throughput  of  outgoing  DLD
traffic at a specified settlement rate.

     In Moscow,  Rostelecom owns  international and  long-distance  switches and
renders customer  services through OJSC Moscow City Telephone  Network ("MGTS").
Rostelecom  has an  agreement  with MGTS  under  which  Rostelecom  pays to MGTS
approximately  10% of the  revenues  collected  from  end-users  in  Moscow on a
monthly  basis for  Rostelecom's  right to use MGTS' local access  network while
providing DLD and ILD services to its subscribers.

     The  tariff  that  Rostelecom   charged  for  the  throughput  of  domestic
long-distance  traffic from IRCs (the "Linear  Settlement  Rate") was based on a
fixed ruble  amount for each 50  kilometers  of  distance.  Rostelecom's  Linear
Settlement Rate was set in 1993 in compliance with directives of the Ministry of
Communications.  Prior to 1996, it was regularly indexed according to inflation.
However,  the rate remained  unchanged  during the period  between July 1996 and
July 2001,  despite its reduction in real terms due to the continuing  inflation
in Russia.

                                      -39-
<PAGE>

     Prior  to  January  1,  1997,  local  telephone   operators  ("LTOs")  paid
Rostelecom  for  outgoing  traffic  at  the  Linear   Settlement  Rate  and  for
termination  of such  traffic by another  LTO at the set rate (the  "Termination
Settlement Rate"),  while Rostelecom paid the terminating LTO for each minute of
incoming  traffic.  Both  the  Linear  and  Termination  Settlement  Rates  were
regulated  and  could  only  be  changed  through  a  procedure  established  by
governmental bodies of regulation.

     On January 1, 1997, a special  settlement  rate (the  "Integral  Settlement
Rate" or "ISR") was introduced  that took into account the linear charge for the
throughput of traffic  based on a 1 minute per 50 kilometers  basis and also the
termination charge based on the balance between incoming and outgoing traffic of
each LTO.  Since then,  Rostelecom  has stopped  charging the initiating LTO and
paying the terminating LTO for termination of each domestic long-distance call.

     Since January 1, 1999, domestic long-distance tariffs for all categories of
customers,  as well as settlement  rates used by  Rostelecom  and LTOs for their
settlement for domestic long-distance traffic transit and termination, have been
regulated by the Ministry for Anti-Monopoly Policy.

     With a view  to  reducing  cross-subsidies  in the  communications  sector,
Russia's  Ministry  for  Anti-Monopoly  Policy in June 2001 decided to raise the
linear component of the Integral Settlement Rate by 25%, effective July 1, 2001,
and in October 2001 to raise it by another 25%,  effective  January 2002,  which
were the preliminary steps before the ISR will be completely phased out.

     There were two changes in DLD tariffs for end-users in 2002.  The first one
was a 20% increase in long-distance tariffs for government-funded  organizations
effective  January 10,  2002.  Additionally,  in December  2002 the Ministry for
Anti-Monopoly  Policy decided to increase the DLD tariffs for  government-funded
organizations during peak hours (8 a.m. - 8 p.m. on working days) by another 20%
on average, effective January 1, 2003.

     In  April  2002,  DLD  traffic   throughput   tariffs  were  decreased  for
alternative  operators by 30-40%.  A new  procedure for the  calculation  of the
minimum  settlement  rate for guaranteed  volumes of traffic was also introduced
for those alternative operators.

The table below illustrates the minute-based  tariffs charged by Rostelecom from
2000 to 2003 to government-funded organizations and other customers for domestic
long-distance  calls between Moscow and other  territories  divided into various
zones. Rostelecom tariffs are set and charged in rubles.

                Domestic long-distance tariffs in nominal rubles

                                  January 2000

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Zone                       Government-funded            Individuals                            Organizations
                           organizations
--------------------------------------------------------------------------------------------------------------------------
                                              Peak       Off-Peak     On Weekends     Peak       Off-Peak     On Weekends
--------------------------------------------------------------------------------------------------------------------------
<S>           <C>               <C>           <C>          <C>           <C>          <C>          <C>           <C>
         Zone 1                 0.75          2.01         0.67          0.44         2.43         0.81          0.81
--------------------------------------------------------------------------------------------------------------------------
         Zone 2                 1.50          4.17         1.39          0.90         4.98         1.66          1.66
--------------------------------------------------------------------------------------------------------------------------
         Zone 3                 1.90          5.46         1.82          1.18         6.42         2.14          2.14
--------------------------------------------------------------------------------------------------------------------------
         Zone 4                 2.30          6.09         2.03          1.32         7.59         2.53          2.53
--------------------------------------------------------------------------------------------------------------------------
         Zone 5                 3.10          7.17         2.39          1.55         8.76         2.92          2.92
--------------------------------------------------------------------------------------------------------------------------
         Zone 6                 3.90          8.34         2.78          1.81         10.77        3.59          3.59
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -40-
<PAGE>

                                  January 2001

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Zone                       Government-funded            Individuals                            Organizations
                           organizations
--------------------------------------------------------------------------------------------------------------------------
                                              Peak       Off-Peak     On Weekends     Peak       Off-Peak     On Weekends
--------------------------------------------------------------------------------------------------------------------------
<S>           <C>               <C>           <C>          <C>           <C>          <C>          <C>           <C>
         Zone 1                 0.90          2.01         0.67          0.44         2.43         0.81          0.81
--------------------------------------------------------------------------------------------------------------------------
         Zone 2                 1.80          4.17         1.39          0.90         4.98         1.66          1.66
--------------------------------------------------------------------------------------------------------------------------
         Zone 3                 2.30          5.46         1.82          1.18         6.42         2.14          2.14
--------------------------------------------------------------------------------------------------------------------------
         Zone 4                 2.80          6.09         2.03          1.32         7.59         2.53          2.53
--------------------------------------------------------------------------------------------------------------------------
         Zone 5                 3.70          7.17         2.39          1.55         8.76         2.92          2.92
--------------------------------------------------------------------------------------------------------------------------
         Zone 6                 4.70          8.34         2.78          1.81         10.77        3.59          3.59
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                  January 2002

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Zone                       Government-funded            Individuals                            Organizations
                           organizations
--------------------------------------------------------------------------------------------------------------------------
                             Peak    Off-Peak   On Weekends                          Peak     Off-Peak  On Weekends
--------------------------------------------------------------------------------------------------------------------------
<S>           <C>               <C>           <C>          <C>           <C>          <C>          <C>           <C>
         Zone 1              1.32       0.81        0.81       2.43      0.81        0.81        2.43     0.81        0.81
--------------------------------------------------------------------------------------------------------------------------
         Zone 2              2.64       1.66        1.66       4.98      1.66        1.66        4.98     1.66        1.66
--------------------------------------------------------------------------------------------------------------------------
         Zone 3              3.36       2.14        2.14       6.42      2.14        2.14        6.42     2.14        2.14
--------------------------------------------------------------------------------------------------------------------------
         Zone 4              4.08       2.53        2.53       7.59      2.53        2.53        7.59     2.53        2.53
--------------------------------------------------------------------------------------------------------------------------
         Zone 5              5.34       2.92        2.92       8.76      2.92        2.92        8.76     2.92        2.92
--------------------------------------------------------------------------------------------------------------------------
         Zone 6              6.78       3.59        3.59       10.77     3.59        3.59        10.77    3.59        3.59
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                  January 2003

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Zone                       Government-funded            Individuals                            Organizations
                           organizations
--------------------------------------------------------------------------------------------------------------------------
                             Peak    Off-Peak   On Weekends                          Peak     Off-Peak  On Weekends
--------------------------------------------------------------------------------------------------------------------------
<S>           <C>               <C>           <C>          <C>           <C>          <C>          <C>           <C>
         Zone 1              1.60       0.81        0.81       2.43      0.81        0.81        2.43     0.81        0.81
--------------------------------------------------------------------------------------------------------------------------
         Zone 2              3.20       1.66        1.66       4.98      1.66        1.66        4.98     1.66        1.66
--------------------------------------------------------------------------------------------------------------------------
         Zone 3              4.05       2.14        2.14       6.42      2.14        2.14        6.42     2.14        2.14
--------------------------------------------------------------------------------------------------------------------------
         Zone 4              4.90       2.53        2.53       7.59      2.53        2.53        7.59     2.53        2.53
--------------------------------------------------------------------------------------------------------------------------
         Zone 5              6.40       2.92        2.92       8.76      2.92        2.92        8.76     2.92        2.92
--------------------------------------------------------------------------------------------------------------------------
         Zone 6              8.15       3.59        3.59       10.77     3.59        3.59        10.77    3.59        3.59
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

     Additional and New Services

     While domestic long-distance and international  telephone services remained
the largest source of the Company's  revenues in 2002,  Rostelecom  continued to
expand the range of services provided to both end-users and operators.

     Additional Services

     Integrated Service Digital Network ("ISDN") Service:  ISDN allows end-users
to transfer voice and data traffic through the same line using one interface. In
2002,  Rostelecom  connected the following four Russian  regions to ISDN:  North
Ossetia (Vladikavkaz), Amur Region (Blagoveshchensk), Murmansk Region (Murmansk)
and the Republic of Karelia (Petrozavodsk). As a result, ISDN is accessible from
57 Russian regions.

     In 2002,  international  ISDN services  were  launched with China  Telecom.
Currently,  international  ISDN  services  are  available  in 31 countries to 35
international operators.

Flexible  Access  Multiplexer  Network  Development:  Due to the  creation  of a
modern, flexible multiplexers network in 2002, Rostelecom is today in a position
to offer its  customers  digital  channels  with the  throughput  capacity  they
require.  At the end of 2002, digital channels were made available for customers
in 110 Russian cities, including Moscow, Yaroslavl, Tver, Kostroma, Kaliningrad,
Kazan,  Izhevsk,  Sochi,  Stavropol,   Volgograd,  Saratov,  Samara,  Ulyanovsk,
Togliatti, Ulan-Ude, Chita and Yoshkar-Ola.

     As it becomes  commercially  viable,  Rostelecom  will expand its  flexible
multiplexers network, linking it to new cities and towns throughout Russia.

                                      -41-
<PAGE>

Intelligent Network Services: Rostelecom continues to actively promote its "Free
Phone"  (800)   services.   2002  revenues   from  this  service   increased  by
approximately  ten times  from RUR 3 million  to RUR 28  million,  with  traffic
surging by almost 50 times  compared to 2001.  Due to the scope of its  network,
Rostelecom is the only company in the Russian  Federation  that is in a position
to support this service on a federal scale. In addition,  in 2002 Rostelecom set
up an  "International  Free  Service"  (IFS)  from  Turkey for  several  Russian
customers.  In 2003,  the Company plans to increase the number of countries from
which this service will be available.  The Company also provides "For-Pay" (809)
information services, leveraging its intelligent network technology.

International  Roaming:  Rostelecom routes international roaming signal messages
to 135 countries (316 international mobile communications operators). Russia's 3
largest mobile operators such as Vympelcom, Mobile TeleSystems and Megaphone use
the services of the Company's international signal network.

     New Services

     In 2002,  in order  to meet the  demand  and  improve  the  quality  of the
services  provided under telephone  cards  services,  the following new services
were introduced:

     o    "Payment of Rostelecom Bills with Service Telephone Card ("STC Card")"
          service  allows  subscribers  to use  pre-paid  STC  Cards as means of
          paying Rostelecom bills for DLD and ILD services;

     o    "Replenishment  of Service  Telephone Card" service allows the user to
          re-charge his/her STC Card instead of buying a new one; and

     o    Rostelecom-The   Moscow  Long-Distance  and  International   Telephone
          ("MMT")  service  for  the  24-hour  provision  of  19  reference  and
          inquiries services payable with STC Cards,  (i.e., bills for the calls
          at premium rate could be settled with the STC Card).

The  following  chart lists all the services  provided by  Rostelecom to the end
users and operators:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
    Principal types (groups) of services              Customer category                       Scope of service
----------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                                 <C>
International telecommunications services
----------------------------------------------------------------------------------------------------------------------------
Automated international telephone             Russian corporate and private       Access from Moscow to any country except
communications                                customers                           Afghanistan
----------------------------------------------------------------------------------------------------------------------------
Operator-assisted international telephone     Russian corporate and private       Access from Moscow to any country except
communications                                customers                           Afghanistan
----------------------------------------------------------------------------------------------------------------------------
Russia Direct ("RD")                          Russian customers traveling         Access from 42 countries (49 operators)
                                              abroad                              to Moscow only
----------------------------------------------------------------------------------------------------------------------------
Home Country Direct Service ("HCD")           Foreign operators (for their        Access from 54 Russian regions to 43
                                              customers traveling to Russia)      countries (50 operators)
----------------------------------------------------------------------------------------------------------------------------
Collect Call (paid by foreign caller)         Russian corporate and private
                                              United States customers.
----------------------------------------------------------------------------------------------------------------------------
International FreePhone Service ("IFS")       Foreign operators for their         Access from 54 Russian regions to 16
                                              subscribers                         countries (17 operators)
----------------------------------------------------------------------------------------------------------------------------
International FreePhone Service ("IFS") for   Russian corporate and private       Access from Turkey to Moscow
Russian customers                             customers and Russian operators
----------------------------------------------------------------------------------------------------------------------------
International integrated service digital      Russian corporate and private       Access to and from 57 Russian regions
network ("ISDN")                              customers; Russian operators.       to/from 31 countries (35 operators)
----------------------------------------------------------------------------------------------------------------------------
Leasing of international channels and         Russian corporate customers;        Direct digital flows for leases arranged
circuits                                      Russian and foreign operators.      to 29 countries (34 operators).
                                                                                  For other countries, leased channels are
                                                                                  arranged by transit through third
                                                                                  countries
----------------------------------------------------------------------------------------------------------------------------
Other operators' international telephone      Russian operators of the public     Available from any location in Russia to
traffic throughput services                   telephone network and associated    any country
                                              networks
----------------------------------------------------------------------------------------------------------------------------
International roaming services for mobile     Russian operators of mobile         Available to five Russian mobile network
network subscribers                           networks; foreign operators         operators for 135 countries (316 foreign
                                                                                  operators)
----------------------------------------------------------------------------------------------------------------------------
Direct unswitched transit of international    Foreign operators                   Can be arranged between points of access
flows/channels via Russia                                                         to Russia of all operating international
                                                                                  trunk networks
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -42-
<PAGE>


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
    Principal types (groups) of services              Customer category                       Scope of service
----------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                                 <C>
Switched transit of  international  traffic   Foreign operators                   Direct international exchange lines
via Russia                                                                        opened for 71 countries. Transit
                                                                                  services provided to 69 foreign
                                                                                  operators, including 12 CIS countries
----------------------------------------------------------------------------------------------------------------------------
Prepaid card international telephone          Russian private and corporate       Access:
communications                                customers, including those          - from Moscow to any country
                                              traveling abroad                    - from 43 countries (48 operators) to
                                                                                  any location in Russia
----------------------------------------------------------------------------------------------------------------------------
VISA Electron card international telephone    Russian private and corporate       Access:
communications                                customers, including those          - from Moscow to any country
                                              traveling abroad                    - from 21 countries (21 operators) to
                                                                                  any location in Russia
----------------------------------------------------------------------------------------------------------------------------
Domestic long-distance telecommunications services
----------------------------------------------------------------------------------------------------------------------------
Automated domestic long-distance telephone    Russian corporate and private       Access from Moscow to any location in
communications                                customers                           Russia
----------------------------------------------------------------------------------------------------------------------------
Operator-assisted domestic long-distance      Russian corporate and private       Access from Moscow to any location in
telephone communications                      customers; Russian operators of     Russia
                                              the public telephone network and
                                              associated networks
----------------------------------------------------------------------------------------------------------------------------
Other operators' domestic long-distance       Russian operators of the public     Throughout Russia
telephone traffic throughput services         telephone network and associated
                                              networks
----------------------------------------------------------------------------------------------------------------------------
Intellectual Communication Network ("ICN")    Russian corporate and private       Access to services from 68 Russian
national services                             customers                           regions
----------------------------------------------------------------------------------------------------------------------------
ISDN domestic long-distance services          Russian corporate and private
                                              Access to services from/to 59
                                              regions customers; Russian
                                              operators of and five associated
                                              networks of the public telephone
                                              network and alternative operators
                                              associated networks
----------------------------------------------------------------------------------------------------------------------------
Leasing of domestic long-distance channels    Russian corporate customers;        Throughout Russia
and circuits                                  special users; Russian
                                              communications operators;
                                              television and radio companies
----------------------------------------------------------------------------------------------------------------------------
Group domestic long-distance telephone        Government ministries and agencies  Throughout Russia
communications ("GDLDTC") services
----------------------------------------------------------------------------------------------------------------------------
Data transmission via MMTEL network           Corporate and private customers     Moscow
----------------------------------------------------------------------------------------------------------------------------
Open multimedia communications network        Government authorities; Russian     Services provided to a limited range of
services                                      corporate and private customers     users and nine public access sites in 71
                                                                                  Russian regions
----------------------------------------------------------------------------------------------------------------------------
Prepaid card domestic long-distance           Russian corporate and private       Access from Moscow to any location in
telephone communications                      customers                           Russia
----------------------------------------------------------------------------------------------------------------------------
Radio and television broadcasting services
----------------------------------------------------------------------------------------------------------------------------
Broadcasting                                  Television and radio companies      Moscow
----------------------------------------------------------------------------------------------------------------------------
References and inquiries
----------------------------------------------------------------------------------------------------------------------------
Reference and inquiry desks of                Russian corporate and private       Throughout Russia
international entities (8, dial tone, 190)    customers; foreign operators
----------------------------------------------------------------------------------------------------------------------------
MMT references and inquiries (07)             Russian corporate and private       Moscow
                                              customers; Russian operators
----------------------------------------------------------------------------------------------------------------------------
MMT references and inquiries (245 0015)       Russian corporate and private       Moscow
                                              customers; Russian operators
----------------------------------------------------------------------------------------------------------------------------
Additional services
----------------------------------------------------------------------------------------------------------------------------
MMT additional services such as rent of its   Corporate and private customers     MMT buildings
premises for telecommunications equipment
allocation
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

     Rostelecom plans to offer the following services in 2003:

                                      -43-
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Principal types (groups) of services             Customer category
------------------------------------------------------------------------------------------
<S>                                              <C>
IP-telephony services                            Internet provider companies
------------------------------------------------------------------------------------------
Expanded intellectual network services           Russian operators and corporate customers
------------------------------------------------------------------------------------------
</TABLE>

     In 2002,  the  Group's  revenues  from  the  provision  of  other  services
excluding  the  transit of  domestic  long-distance  and  international  traffic
amounted to RUR 5,146 million, or 18% of Rostelecom's  revenue for the reporting
period.  In  2001,  these  services  amounted  to RUR  4,389  million  or 14% of
Rostelecom's  revenue and in 2000, to RUR 5,108  million or 15% of  Rostelecom's
revenue.

     Business Strategy

     Rostelecom's top priority is to prepare for the forthcoming  liberalization
of the Russian telecommunications market. The Company is undertaking substantial
measures to reposition  Rostelecom as a commercially  successful and competitive
operator.  One of the key conditions  for the Company's  success under these new
market conditions is the elimination of  cross-subsidies,  whereby  unprofitable
local  communications  networks  are  subsidized  by  revenue  from  DLD and ILD
telecommunications  services.  Hence,  during 2003 the Company's main objectives
are:

     o    Optimizing  the system of settlements  between  operators for domestic
          and international  long-distance  traffic aimed at creating a balanced
          market model;

     o    Fostering new business  processes and a culture of customer service in
          order to achieve high quality service standards.

     Regional Market

     One of the main  priorities of Rostelecom in 2003 will be the reform of the
DLD settlement  system through the phasing out of the Integral  Settlement  Rate
("ISR").  ISR was  introduced in 1997 for  settlements  between  Rostelecom  and
regional   operators  for  domestic   long-distance   traffic   throughput   and
termination.  ISR is calculated  using two basic  components  which are a linear
charge and a termination  charge.  The linear charge is the rate that Rostelecom
receives  for each minute of DLD traffic  sent through its network by an IRC and
is  calculated  as a certain  amount of rubles  per  minute  per 50  kilometers.
Termination  charge  is the rate  that is  calculated  based on the  balance  of
incoming and outgoing traffic between each two regions during a one-year period.
ISR  lacks  transparency  and  leads  to  distortions  in  settlements   between
Rostelecom  and IRCs.  This opens  opportunities  for  alternative  operators to
bypass Rostelecom's network, thus resulting in lower revenues.

     The  reform of the  settlement  system  lies  within the  framework  of the
Russian Government's initiatives to improve transparency and ensure precision of
settlements  between  operators  and implies the phasing out of ISR and resuming
use  of  the  Linear  Settlement  Rate  and  Termination  Settlement  Rate  as a
tariff-setting  mechanism. This move will significantly improve the transparency
of  settlements,  ensure  ability  to account  for trends of traffic  growth and
incoming vs. outgoing traffic changes between the regions.  For more information
on the Linear  Settlement Rate and  Termination  Settlement Rate please refer to
discussion above within Item 4.B. "Business Overview".

     After phasing out of ISR, Rostelecom plans to take several additional steps
to optimize the settlement system between operators, including:

     o    optimizing the level of the Linear Settlement Rate charged for traffic
          transit by Rostelecom;

     o    bringing the Termination Settlement Rate charged by regional operators
          in line with the local access tariffs;

     o    changing  the  settlement  system  for   international   long-distance
          traffic; and

     o    optimizing  end  user  tariffs  for  international  telecommunications
          services   (introducing  flexible  tariff  schemes  and  an  incentive
          system).

Moscow Market

     Moscow and the Moscow region is the only region in Russia where  Rostelecom
has  a  relationship  with  end-users,   providing  domestic  and  international
long-distance   services   and   billing   subscribers   directly.   The  Moscow
telecommunications market is fiercely competitive, particularly in the corporate
customer segment.

     Rostelecom's Moscow market share has persistently declined, particularly in
this  corporate  customer  segment,  resulting in  deteriorating  revenues  from
subscribers.

                                      -44-
<PAGE>

     In February 2003, the Company  completed  assembling a new management  team
for its Moscow  business  unit,  MMT.  The  professional  skills and  commercial
experience of the new team will  facilitate  changes in MMT needed to strengthen
Rostelecom's position in the Moscow market.

     The new  team's  main  objective  for 2003 is to  stabilize  the  Company's
present  position in the Moscow  long-distance  services  market and reverse the
persistent decline in revenue.

     In  order  to  achieve  this  objective  it will be  necessary  to  address
weaknesses with the following measures:

1.   Reorganize the technological and business  processes within MMT in order to
     raise the quality of client services through:

     -    A  customer-focused  organizational  structure with a dedicated center
          responsible for sales and client servicing; and

     -    Introduction  of a new  information and billing system to optimize the
          settlement process with subscribers,  facilitate the introduction of a
          flexible tariff policy for different  customer groups, and gather data
          to monitor and improve service quality.

2.   Prevent the loss of  international  and domestic  long-distance  traffic to
     alternative operators by:

     -    Pursuing a flexible  tariff  policy  for  international  long-distance
          services;

     -    Lobbying for new methods of state  regulation  of tariffs for domestic
          long-distance  services  that  will  account  for the  current  market
          conditions; and

     -    Introducing a relationship management approach to key customers.

3.   Offset the impact of lost  long-distance  traffic by  developing  high-tech
     telecommunications services such as:

     -    Intelligent network services ("FreePhone", "televoting", etc.); and

     -    Universal service telephone card:

          o    complete creation of a unified  technical  platform for telephone
               service cards (integration of telephony with Internet access),

          o    introduction  of additional  information  services using the card
               platform, and

          o    lobbying for de-regulation of telephone card services.

International Operators Market

In 2002, Rostelecom reviewed its international operators strategy and stepped up
cooperation with the largest providers.  This approach successfully reversed the
downward  trend  in  incoming  international  traffic.  In 2002,  the  Company's
incoming international traffic rose by 12% over 2001.

Rostelecom's main objectives for 2003 in the international market segment are as
follows:

     o    Further  optimization of settlement  rates,  closing down unprofitable
          routes,  terminating  satellite  channels and  redirecting  traffic to
          terrestrial cable systems,  as well as more efficient traffic routing;
          and

     o    Securing  and  expanding  access  to  international  traffic  exchange
          points,   including  London  and  Stockholm,  in  order  to  establish
          agreements with large international alternative operators.

     Until mid-2002  Rostelecom worked exclusively with international  operators
that operated on a national scale. At the same time, the  liberalization in most
European  countries and in the USA has led to the emergence of large alternative
operators with significant subscriber bases and traffic volumes, including calls
to Russia. One of Rostelecom's main objectives is to develop business with these
operators  in  the  international  market.  To  achieve  this,  the  Company  is
establishing  a  presence  in  the  main  European   traffic   exchange  points.
Cooperation  with  alternative  operators  will  enable  Rostelecom  to  acquire
additional traffic volume that at present bypass its network, and also to reduce
the cost of outgoing international traffic.

                                      -45-
<PAGE>

     Restructuring of the Svyazinvest Holding Company

     Rostelecom is a subsidiary of  Svyazinvest,  a holding  company that owns a
controlling interest in IRCs, and owns 50.67% of voting shares of Rostelecom. As
part  of  its  pre-privatization  strategy  in  2002,  Svyazinvest  completed  a
large-scale program to restructure its subsidiaries.

     During  the  first   stage  of  the   restructuring   from  1999  to  2000,
Svyazinvest's  subsidiaries  providing  services  within the same  territory  or
region were consolidated. The integration involved one research institute and 11
local  telephone  operators  ("LTOs")  located in four Federal  Districts of the
Russian Federation (St.  Petersburg,  Novosibirsk Region,  Sverdlovsk Region and
Rostov Region).

     During  the  second  stage of the  restructuring  from  2001 to  2002,  the
consolidation  process  involved  consolidation  of  72  LTOs  into  seven  IRCs
providing the entire range of basic telecommunications services in seven Federal
Districts of the Russian Federation.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
            Region                  Number of merged (or              Base company             Share conversion/ merger
                                  consolidated) companies                                      (or consolidation) date
--------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>              <C>                            <C>
North-West                                   9                OJSC North-West Telecom        October 31, 2002
--------------------------------------------------------------------------------------------------------------------------
Center                                       17               OJSC CenterTelecom             November 30, 2002
--------------------------------------------------------------------------------------------------------------------------
Volga                                        11               OJSC VolgaTelecom              November 30, 2002
--------------------------------------------------------------------------------------------------------------------------
Northern Caucasus                            10               OJSC STC                       October 31, 2002
--------------------------------------------------------------------------------------------------------------------------
Ural                                         7                OJSC Uralsvyazinform           September 30, 2002
--------------------------------------------------------------------------------------------------------------------------
Siberia                                      11               OJSC SibirTelecom              November 30, 2002
--------------------------------------------------------------------------------------------------------------------------
Far East                                     7                OJSC Dalsvyaz                  October 1, 2002
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

     The main  objective  of the  consolidation  is to increase the value of the
consolidated  companies'  share  capital  by having the  consolidated  companies
obtain  additional  advantages  in a number of areas,  including  financial  and
operating  results,   competitiveness,   investment   attractiveness,   R&D  and
development prospects.  Aside from enhancing the market value and the investment
attractiveness  of  the  IRCs,  the  consolidation  of  the   telecommunications
companies  is to  step  up the  development  of the  Russian  telecommunications
market's  infrastructure  and to  improve  the  quality  and expand the range of
services provided by the traditional operators.

     The  reorganization  of LTOs is proceeding  along two principal  paths: (i)
formal reorganization,  which refers to the legal consolidation of the LTOs into
seven IRCs, which process has been completed,  and (ii) corporate restructuring,
which involves the actual consolidation of the LTOs' operations and the creation
of an integrated corporate environment, which process is still ongoing.

     The LTOs within one Federal  District  have been legally  merged around the
region's biggest and most  investor-attractive  LTO ("base company") through the
conversion  of the merging LTOs' shares into  additionally  issued shares of the
base  company.  At  present,   all  the  statutory  procedures  related  to  the
consolidation, including the approval of the transactions by the shareholders of
the LTOs,  creditors  and  anti-monopoly  authorities,  the  exchange  of shares
between the base companies and the LTOs and election of new governing  bodies in
accordance with the new distribution of voting shares, have been completed.

     Rostelecom does not expect any significant  consequences resulting from the
Svyazinvest restructuring before the market is liberalized. IRCs will remain the
largest  customers of Rostelecom  across  Russia,  as they continue to use their
local access infrastructure to collect domestic and international  long-distance
traffic from end-users and then channel it through Rostelecom's network. Despite
the creation of IRCs, Rostelecom is likely to continue to carry all the domestic
long-distance  traffic  within  enlarged  regions  as it is  stipulated  in  the
licenses  of  both  IRCs  and  Rostelecom  and is  monitored  by the  regulating
authorities and Svyazinvest.

     Competition

     The  Company  currently  is the  only  telecommunications  operator  in the
Russian Federation  licensed to carry wholesale  long-distance and international
traffic and therefore holds a monopolistic  position on this market.  Rostelecom
owns and operates the nationwide trunk telecommunications network. All operators
of common use local

                                      -46-
<PAGE>

networks,  including IRCs, are obliged to use Rostelecom's trunk network for the
throughput of domestic long-distance and international traffic that they collect
from their local subscribers.

     However by the end of 2002, in addition to  Rostelecom,  several  operators
developed their own primary network resources:

     o    In the  Moscow to St.  Petersburg  direction,  the  major  alternative
          operators   CJSC  Sonera  Rus,  CJSC  Rascom  and  CJSC   TransTelecom
          ("TransTelecom")  developed their own fiber optic communications lines
          ("FOLs").

     o    Throughout  the rest of Russia,  TransTelecom,  which has a  FOL-based
          network and satellite communications operators,  Federal State Unitary
          Enterprise Space Communications and CJSC Zond-Holding, developed their
          own primary network resources.

     Unlike  Rostelecom,  these  operators  have no  license  to  provide  trunk
long-distance  services,  which  limits  the  uses of their  networks.  The main
revenue source of these operators is the leased lines business.

     The leased line tariff policy of TransTelecom  and other operators  depends
on the tariff policy of  Rostelecom.  This enables the Company to retain most of
the  market  because  the  tariffs  charged  by  all  the  operators,  including
Rostelecom,  are approximately at the same level while Rostelecom network offers
the broadest coverage.

     Compared to its biggest competitors,  Rostelecom's network has the greatest
territorial  coverage.  As it maintains  its network at a high quality level and
keeps the costs of its  services  comparatively  low,  the Company can expect to
retain its market  share under  current  competitive  conditions.  In  addition,
Rostelecom  continues  to  technically  upgrade its  network,  resulting  in the
improvement  of the quality  and,  ultimately,  an increase in the volume of the
services provided.

     Rostelecom,  however, does not have a monopolistic position in the end-user
Moscow  market, and faces intense competition from alternative  operators there,
especially in the corporate  customer segment.  It is also expected that part of
the long-distance and international services will be replaced by the services of
virtual private networks provided by alternative operators. Virtual networks can
be used to transmit various types of data and voice traffic. In the future, such
services  therefore may compete  against the  long-distance  communications  and
leased lines services provided by the Company.

     There   are  a   number   of   alternative   operators   in   the   Russian
telecommunications market existing as separate legal entities or consolidated in
various holding companies.  Alternative operators are either companies that have
built their own primary networks in certain areas or lease  infrastructure  from
traditional  operators,  including  Rostelecom and IRCs. The overall  results of
2002 show that alternative  operators continue showing a steady growth of income
and an increased presence in the Russian telecommunications market. However, the
operation of alternative operators is confined to provision of services within a
limited  territory or to a narrow segment of customers.  It is only within these
territories or segments that such operators represent full-scale  competition to
the  traditional  operators  and the Company.  Alternative  operators  primarily
compete with Rostelecom in the Moscow end-user and in the leased lines markets.

     The  Company   acknowledges  and  conducts   research  on  the  competitive
environment in the  communications  market for purposes of monitoring the impact
of  competitors  on  Rostelecom's  activities.  In the  course of  building  its
development  strategy,  the Company takes into  consideration  the activities of
other  alternative  operators  and  operators  of overlay  networks.  Rostelecom
focuses on the following alternative operators in particular:

     TransTelecom

     TransTelecom  was  incorporated  in 1997 for the purpose of  upgrading  the
information  and technology  segments in the  infrastructure  of the Ministry of
Railways of the Russian  Federation by means of  constructing  a  high-bandwidth
telecommunications  networks in the railroad precinct, as well as exploiting the
networks'  profit-making  capabilities.  Currently,  TransTelecom is licensed to
lease communications  channels and provide telematic services, data transmitting
services  (ATM,   Frame  Relay,  IP,  X.25)  as  well  as  local,  and  domestic
long-distance communications services.

     Initially,  TransTelecom planned to use part of its capacity to satisfy the
need  for  telecommunications  services  by the  Ministry  of  Railways  and the
remaining  part of the  capacity  was to be used to  provide  telecommunications
services to third parties on a commercial basis. However,  TransTelecom does not
currently possess a license to provide trunk communications services.

                                      -47-
<PAGE>

     Sistema Telecom

     Sistema  Telecom was  incorporated  on July 1, 1998 as a subsidiary of OJSC
Aktsionernaya  Finansovaya  Kompania  Sistema ("AFK  Sistema").  Sistema Telecom
provides  services in the  telecommunications  market  segments,  which  include
telephony, data transmission,  the Internet, cellular communications,  satellite
communications and paging and trunking  communications.  The biggest alternative
and mobile  operators in terms of revenue and coverage,  such as CJSC MTU-Intel,
CJSC Comstar,  CJSC  MTU-Inform,  CJSC Telmos  ("Telmos") , CJSC Moscow Cellular
Communications  ("MCC"),  and OJSC MTS are  subsidiaries  and  affiliates of the
Sistema Telecom group.

     CJSC Sonera Rus

     CJSC Sonera Rus ("Sonera Rus") is a subsidiary of Telia Sonera, the Swedish
national  operator  (formerly Sonera Telecom,  prior to the merger between Telia
and Sonera in December 2002). Since 1993, Sonera Rus, with offices in Moscow and
St. Petersburg, has been representing Telia Sonera in the Russian market.

     Sonera Rus has created its own network infrastructure  comprising two FOLs:
the  Finnish-Russian  Line  ("FRL")  and  the  Finnish-Russian  Optical  Gateway
("FROG"). Sonera Rus is licensed to lease channels in Moscow, St. Petersburg and
the North-Western  region of Russia. It provides data transmission and telematic
services  but does not hold a license  to  provide  international  communication
services.  Services  provided  by Sonera Rus are  geared  toward  operators  and
Internet  providers,   as  well  as  corporate  customers  seeking  high-quality
communications services.

     Golden Telecom, Inc.

     Golden  Telecom,  Inc.  ("Golden  Telecom")  is an operator  of  integrated
communications  services  and  Internet  access  services in the major cities of
Russia and the CIS. It was established in June 1999. In particular,  the company
provides local access services using its own overlay  networks in Moscow,  Kiev,
St. Petersburg and Nizhny Novgorod.  It also provides data transmission Internet
access services, domestic long-distance telecommunications services and cellular
communications services.

     Golden Telecom conducts its operations through its three main subsidiaries,
TeleRoss, Sovintel and Golden Telecom-Ukraine, and it conducts its activities in
Russia and the CIS  through a network  belonging  to its  controlled  structures
comprised of regional  branches and joint  ventures.  Currently,  Golden Telecom
provides  a full  range  of data and  voice  transmission  services  in 15 major
Russian cities.

     Rostelecom  currently owns 15% of the charter capital of Golden Telecom and
has the right to  appoint  two  directors  of the board of  directors  of Golden
Telecom.

     OJSC Comincom

     OJSC  Comincom  ("Comincom")  has Telenor,  a Norwegian  telecommunications
company, as a majority shareholder.  Comincom was established in 1990. The basis
for Comincom's  communications  network is an integrated  transportation network
mostly  built on landline  communications  facilities  that  provides  for joint
transmission of any traffic, and a satellite  communication network.  Currently,
Comincom  services  include the following:  local,  domestic  long-distance  and
international telephone  communications through an allocated network and through
the public services network; data transmission,  Internet access, ISDN services,
videoconferencing and other services.  The main Internet provider of Comincom in
Moscow is Combellga, its subsidiary.

     Russian Federation

     The Russian Federation is the largest country in the world in terms of land
area,  with a land area of 6.6 million square miles.  Spanning 11 time zones, it
stretches across the continents of Europe and Asia and borders Poland,  Belarus,
Ukraine and the Baltic  states to the west,  Finland and Norway to the north and
Georgia,  Azerbaijan,  Kazakhstan,  Mongolia, the People's Republic of China and
North Korea to the south.

     The  Russian  Federation  is  divided  into  seven  federal  districts,  89
constituent entities, including 21 republic, six areas, 10 autonomous districts,
49 regions,  one autonomous region and two cities of federal  importance (Moscow
and St. Petersburg).

     The Russian  Federation was the dominant member of the former Soviet Union.
Following the disintegration of the Soviet Union in 1991, the Russian Federation
emerged as one of the 15 newly independent former Soviet republics, and is now a
member of the Commonwealth of Independent States.

     A new Russian Constitution was approved by referendum on December 12, 1993,
creating a presidential republic with the President wielding extensive executive
powers. Russia's legislature, the Federal Assembly, consists of a lower chamber,
the State Duma, and an upper chamber, the Federation Council.

                                      -48-
<PAGE>

     The Economy

     Russia has exceptionally  rich natural  resources,  such as oil,  diamonds,
gold, copper, rare metals,  manganese,  bauxite,  uranium,  silver, graphite and
platinum,  all of which  are a source  of hard  currency  because  of  worldwide
demand.  In  particular,  about 10% of the world's oil  reserves  are located in
Russia.  The Russian  Federation  is a major  producer of most types of minerals
and, in many cases, it is the world's leading producer and exporter.

     According to Federal  Statistics  Committee,  industrial  production in the
late 1990s was only 45% of the levels achieved in 1990.  Among those sectors hit
the  hardest by this severe  decline  were the  military-industrial  complex and
light industry.

     One of the effects of the August 1998 financial crisis was the facilitation
of progress,  at least  temporarily  and only for some sectors,  by  stimulating
local production and import  substitution.  Industrial output in 1999, and again
in 2000,  reflected  this  influence and other  factors.  Although the output at
medium  and  large  Russian  enterprises  for the most  part  steadily  declined
throughout  the 1990s,  while small  companies  and joint  ventures were largely
responsible for increased output,  the Russian financial crisis somewhat altered
this dynamic,  with some of the medium- and large-sized  enterprises  ramping up
production and increasing their market  orientation  towards  stronger  domestic
competitiveness.

     Russia's economic growth in 2000 was the highest achieved in the last three
decades, but many analysts are reluctant to proclaim that this growth - or other
isolated macroeconomic  indicators showing improvement in 2000 - indicate a real
economic  turnaround.  Higher  world  prices  for  fuel and  metals  facilitated
improvements,  as did  ongoing  effects  of the 1998  ruble  devaluation,  which
rendered  Russian  products  relatively  less expensive  compared to imports and
contributed to increased domestic purchases and exports, as well as a decline in
barter transactions.

     At the end of 2000,  the economic  growth slowed down. In 2001,  the annual
economic growth was 5.1%. In 2002, the macroeconomic  indicators showed a slower
growth of consumer  prices as compared  to 2001,  declining  increase in GDP and
investments in fixed assets, and a rise in the population's  actual cash income.
In 2002,  the annual  economic  growth was 4.3%.  The  positive  effect of these
developments was secured by the Russian Government's  monetary and credit policy
aimed at  reducing  inflation  rates and  smoothening  out  fluctuations  in the
ruble's  exchange  rate.  The  payment  balance  remained  positive.  The budget
revenues exceeding  expenditures  ensured economic stability.  The growing world
economy  and  favorable  external  market  conditions  also  contributed  to the
generally positive economic development.

     In 2000,  2001 and 2002,  inflation in Russia was decreasing  from the peak
that followed Russia's 1998 financial crisis. The total annual rate of inflation
was 20.2%, 18.8% and 15.1% in 2000, 2001 and 2002, respectively.  The average of
month-end  ruble  exchange  rates to the U.S.  dollar was  28.13:1,  29.15:1 and
31.39:1 in 2000, 2001 and 2002, respectively.

     In  2003,  the  Central  Bank  of the  Russian  Federation  began  reducing
inflation  levels by limiting  the increase of money supply due to the inflow of
exporters'  currency  proceeds,  which led to a decrease of the US dollar  value
against the ruble. At the same time, the Central Bank of the Russian  Federation
is maintaing a policy of accumulating  currency reserves,  providing the Russian
economy with extra flexibility.

     Securities Market

     The Russian  securities  market is governed  principally  by the Securities
Market Law. The  Securities  Market Law  regulates  the  activities  of brokers,
dealers,  custodians  and other  "professional  participants  in the  securities
market"  including stock  exchanges,  as well as the issuance and circulation of
securities.   The  Securities  Market  Law  also  addresses  various  disclosure
requirements  (including  those  applicable  to the  Russian  issuers)  and  the
functions of the FCSM. In addition to this overarching piece of legislation, the
President,  the Russian Federation  Ministry of Finance,  the Russian Federation
State  Property  Committee,  the Central Bank and the FCSM have issued  detailed
regulations and decrees applicable to the securities market.

                                      -49-
<PAGE>

     Under the  Securities  Market Law, the issuers are required to register any
issuance of shares and register with the FCSM a prospectus  with respect to such
shares (i) if the shares are being placed with an  unlimited  group of investors
or, (ii) if the shares are being placed with a limited group of  investors,  the
number of which exceeds five hundred.

     The FCSM has issued  detailed  procedures to be followed in connection with
the  registration  and  issue  of  shares  of a  joint  stock  company,  thereby
implementing  the more general  provisions of the  Securities  Market Law. These
procedures  require  prior  registration  of the share issue  (which may include
registration  of a  prospectus)  and,  following  the  placement  of the shares,
require  registration  of a report on the results of the share issue approved by
the board of directors as well as  registration  of amendments to the Charter of
the company reflecting the capital increase.

     Shares are normally issued in  non-documentary  ("paperless")  form and are
always  registered  securities.  Ownership  of shares in  Russian  companies  is
generally  established by registration in the company's shareholder register and
is evidenced by extracts  from the  register.  The extracts  themselves  are not
securities,  and thus, the share register provides the only conclusive  evidence
of share ownership (unless a custodian is recorded in the registrar as a nominee
holder,  in which case the  ownership  is evidenced by an extract from a custody
account  maintained by the custodian for the securities  owner). The shareholder
register  includes  data on each  registered  person (i.e.,  the owner,  nominee
holder, pledgee or trust manager), the number,  categories and classes of shares
recorded in the name of each such registered person, and certain other data.

     Russian law currently requires that the share register of Russian companies
with more than fifty holders of ordinary  shares,  such as  Rostelecom,  must be
kept by a specialized registrar.  The FCSM regulations prohibit such specialized
registrars  from carrying out any activities  other than  maintenance of a share
registrar,  and require that the specialized registrar obtain a license from the
FCSM.

     Russian law currently  contemplates  the use of custodians  who also act as
nominee holders of securities.  Custodians are entitled to receive dividends and
vote the shares on behalf of the beneficial  owner upon receipt of  instructions
from a beneficial owner of shares. Pursuant to the Securities Market Law, shares
held by  custodians  do not form part of their  assets  and are not  subject  to
distribution upon the custodian's liquidation or bankruptcy.

     The Russian  Government over the last few years has  consistently  moved in
the direction of enhancing protection of investors,  shareholders and depositors
in the securities  market and the banking system. On July 1, 1996, the President
issued a decree  approving the "Concept for the  Development  of the  Securities
Market  in  the  Russian   Federation"   which  focuses  on  the  protection  of
shareholders.  In addition,  the new Criminal Code has  criminalized  securities
fraud and conducting professional activities in the securities market without an
appropriate license.

     To  provide  more  stringent   protection  to  investors  and  prevent  the
possibility of infringement of minority  shareholders'  rights,  the Law "On the
Protection of the Rights and Legitimate Interests of Investors in the Securities
Market" (the "Investors Protection Law") became effective on March 11, 1999. The
law  establishes  additional  requirements  with  regard  to  the  placement  of
securities  to an  unlimited  number of  investors,  and  introduces  additional
investor  protection measures and the liability of issuers and other persons for
violations of the investors' rights.

                                      -50-
<PAGE>

Furthermore,  the Investors  Protection Law places  additional  requirements  on
professional  participants  of services to investors in the  securities  market.
Additionally, most of the provisions of this law were incorporated into the Code
on Administrative Violations,  which took effect on July 1, 2002, and were taken
into account while amending the Securities Market Law.

     The  long-awaited  amendments  to the  Joint  Stock  Companies  Law  became
effective  on January 1, 2002,  except  for  certain  provisions  related to the
general shareholders meetings, which became effective on August 9, 2001.

     The  landmark   provisions   of  such   amendments   are  mainly  aimed  at
strengthening  the rights of shareholders and correcting the inadequacies of the
existing law related to the  establishment,  reorganization  and  liquidation of
joint stock companies,  charter capital  increases,  and placement of shares and
other securities.  Pursuant to such provisions,  the existing  shareholders of a
joint  stock  company  enjoy   pre-emptive   rights  in  both  open  and  closed
subscriptions  for  additional  shares  and  certain  other  securities  of such
company.  They also retain proportionate rights in any new companies formed as a
result of a corporate restructuring.  Furthermore, as a result of the permission
of the issuance of fractional shares,  minority shareholders will no longer face
forced buy-outs in the event of shares consolidation.

     Pursuant to the Securities  Market Law and FCSM  regulation No. 03-17/ps of
April 1, 2003,  a FCSM permit is  required  for  placement  or  arranging  for a
circulation by a Russian issuer of its securities  abroad  directly or by way of
depositary  receipt or similar  program or  instrument  where  rights to Russian
securities  are  certified  by foreign  securities.  The  Securities  Market Law
details the conditions for issuance of such FCSM permits.

     Taxation and Duties

     Currently,  the Russian tax system is undergoing  fundamental  reform.  The
reform is  intended  to provide a solid  basis for  investment  and trade and to
improve the stability, transparency and fairness of the Russian tax system. This
is to be  achieved  by a  simplification  of  the  Russian  tax  system  through
consolidating  the  various  tax  legislations  into a  single  body of tax law,
significant  cutting of the total number of taxes imposed,  and reduction of the
tax burden through reduction of tax rates.

     As part of the  reform,  Part I of  Russia's  new tax code (the "Tax Code")
became  effective  on January 1,  1999.  This part of the Tax Code  establishes,
among others, basic principles of imposing taxes, tax calculations and relations
between tax authorities and taxpayers.  In particular,  among other  principles,
Part I of the  Tax  Code  provides  that  (i)  all  doubts,  contradictions  and
ambiguities of legislative  acts relevant to taxes and fees shall be interpreted
in favor of  taxpayers;  (ii) any  taxpayer is presumed  innocent  until  proven
otherwise  in a court  of law and the  burden  of proof  is  carried  by the tax
authorities;   and  (iii)  the  tax  authorities  maintain   confidentiality  of
information.

     Certain  chapters of Part II of the Tax Code,  which  became  effective  in
2001-2002,  regulate  major  taxes such as Value  Added Tax (VAT),  income  tax,
personal income tax and unified social tax.

     Rostelecom is registered  with the division of the Ministry of Taxation and
Charges - Specialized  State Tax  Inspectorate  No. 40, which was established to
deal with the largest companies.  Starting from January 1, 2000,  Rostelecom has
been  keeping   centralized  records  of  general  taxes  and  payments  in  its
Headquarters office.

          The Telecommunications Industry in Russia

     Generally,   the  Russian   communications   market  can  be  described  as
unsaturated and rapidly developing. According to the Ministry of Communications,
in 2002 the volume of the  Russian  market of  communications  services  totaled
U.S.$ 8.97 billion -  approximately  40% more than in 2001 (U.S.$ 6.45 billion).
The subsectors that expanded more rapidly  included mobile network  services and
data transmission services.

     In 2002,  the  telephone  penetration  of  Russia's  regions  continued  to
increase.  Automated  telephone exchanges were built in urban areas with a total
capacity of 2,052,000  numbers or 46% more than the total  capacity of 1,405,000
numbers created in 2001. Rural automated telephone exchanges  introduced in 2002
had a total  capacity of 211,000  numbers or 19% more than the total capacity of
177,000 numbers created in 2001. As a result, the number of access lines per 100
inhabitants in Russia rose from 24.1 in 2001 to 25.6 in 2002.

     In 2002,  7,844  kilometers of cable  communication  lines were laid, which
represents a 40% increase  over 5,600  kilometers of cable  communication  lines
laid in 2001.

     Therefore,  the  growth of the  market  volume  generally  conforms  to the
changes in these basic  indicators.  It follows that the Russian  market remains
unsaturated.  In the near future,  investments and capital expenditures in fixed
assets in the industry will remain firmly  interrelated with increases in market
volume and sales.

                                      -51-
<PAGE>

Current Structure of the Russian Telecommunications Industry

     IRCs which are  territorial  associations  of  Russia's  traditional  local
telephone  operators,  install  and  maintain  local  and  zonal  communications
networks,  access  networks and subscriber  lines,  provide local  switching and
transmission  services and interconnect  subscribers with Rostelecom's  domestic
long-distance and international network.

     Most  Automatic  Trunk  Exchanges  ("AMTSs")  belong to IRCs  which  switch
traffic  between  their  networks and the domestic  long-distance  trunk network
operated by Rostelecom.  IRCs bill  end-users for the services  rendered and pay
Rostelecom  for traffic  transit based on the number of minutes  passed  through
Rostelecom network.

     The international  telephone switches through which interaction is effected
with foreign  networks are owned by Rostelecom.  Pursuant to applicable law, all
the  commercial   operators  that  transmit   traffic  abroad  use  Rostelecom's
facilities and networks.

     In  Moscow,   the  Company   owns   certain   long-distance   switches  and
international  switches and provides  services directly to end users through the
local  network  of OJSC  Moscow  City  Telephone  Network  ("MGTS").  Rostelecom
receives payments for its long-distance and international services directly from
subscribers but has an agreement with MGTS whereunder  Rostelecom  makes monthly
payments to MGTS of  approximately  10% of its Moscow proceeds for  Rostelecom's
right to pass its international and long-distance traffic through the local MGTS
network.

     There are also a number of alternative  operators  consolidated  in various
holding companies in the Russian  telecommunications  market, as well as several
major specialized operators.  Recently, operators that provide long-distance and
international voice packet  transmission  services also have been gaining market
share.  Generally,  the  operation of  alternative  operators is confined to the
provision  of  services  within a limited  territory  or to a narrow  segment of
customers.  It is only within these  territories or segments that such operators
present full-scale competition to the traditional operators and the Company.

     At the same  time,  specialized  operators  with  wide  coverage  areas are
capable of  developing  and  entering the  telecommunications  market with their
primary networks.  Such potential  competitors include CJSC Transtelecom and RAO
UES.  Currently  applicable  law  prevents  this and,  in the near  future,  the
opportunities  will be  hampered  by the low  economic  return  since  the still
underdeveloped condition of the Russian telecommunications market and low demand
for telecommunications services may eventually lead to an oversupply.

     Rostelecom   collaborates   with  many   international   telecommunications
operators.  This cooperation enables the Company to transmit international calls
originating in Russia and to terminate incoming  international calls through the
Company's network through the lines of IRCs and alternative operators.

     Russia's Accession to the WTO

     Russia's  Government,  represented by the Ministry of Economic  Development
and Trade,  is currently  negotiating  with member  countries of the World Trade
Organization  ("WTO")  conditions for Russia acceding to the WTO,  including the
accession terms applicable to its  telecommunications  sector. The key objective
is the liberalization of the telecommunications market in Russia and development
of competition  which would mean access to the market by new operators and equal
conditions   for  all   market   participants,   as  well   as   limitation   of
anti-competition  activities  by  major  operators.  This  requirement  directly
affects  the  interests  of  Rostelecom  which  currently  holds a  monopoly  on
long-distance and international wholesale services (operator market).

     There are some factors attributable to Russia's fixed communications sector
which inhibit its immediate  liberalization.  One such factor is the practice of
cross-subsidies  which  occurs when sectors  operating at a loss,  such as local
networks,  are  supported  at the  expense of  international  and  long-distance
operations.  In addition,  Rostelecom and IRCs are  substantially  burdened with
supporting  and  developing  unprofitable  operations  including the delivery of
services  to  remote  and  sparsely  populated  areas.  Furthermore,  Rostelecom
provides  services  to various  government  agencies  at tariff  rates below the
market rates and below cost.

     Officials at the Ministry of Communications have repeatedly stated that the
market liberalization would be possible only after the cross-subsidies mechanism
is removed  and equal  conditions  for all  participants  in the  communications
sector are in place. In connection with this, the Ministry of Communications and
Ministry  for  Anti-Monopoly  Policy are  working to  gradually  increase  local
tariffs, which should reduce the cross-subsidies  practice.  Rostelecom not only
provides  industrial  cross-subsidies but also "internal"  subsidies.  Currently
there  are  also  plans  to  organize  a  universal   service  fund  to  finance
construction  and maintenance of  telecommunications  networks in low-profit and
unprofitable  sectors.  The universal service fund concept has been used in some
developed  countries and in Eastern  Europe.  This fund is to be formed  through
contributions from all operators in Russia, thereby allowing the distribution of
the cost among them evenly.

                                      -52-
<PAGE>

     Due to the necessity of reforms in the  communications  sector prior to the
market  liberalization,  the Ministry of  Communications  has emphasized that it
will not contemplate a change in Rostelecom's  status as a monopoly  supplier of
long-distance  and international  telecommunications  services until 2010 at the
earliest.   In  the  interim,   integrated   measures   will  be  taken  in  the
communications  industry which will make it possible to gradually and completely
liberalize the Russian  telecommunications  market.  These measures will include
phasing out Rostelecom's  analog lines, a gradual increase of the charges billed
for services  provided to  government  agencies  until the level of such charges
matches the costs,  the elimination of  cross-subsidies  within the industry and
determination  of clear-cut  terms for the  interaction of operators under a new
Federal Law "On Communications."  Significantly,  these measures should be taken
with minimal social unrest.

     As to opening the Russian  telecommunications market for operators from WTO
member countries,  the Ministry of  Communications is actively  cooperating with
the Ministry of Economic Development and Trade in the continuing negotiations.

          Regulation of the Russian Telecommunications Industry

     In   accordance   with  the  Russian   Constitution,   the   provision   of
telecommunications services in Russia is governed by federal legislation,  which
includes codes, federal laws, presidential and governmental decrees,  government
regulations  and  orders,   procedures,   letters  and  instructions  issued  by
ministries and other federal executive authorities.

     Rostelecom's business operates in an uncertain regulatory environment.  The
principal legal acts regulating telecommunications in Russia are the Federal Law
"On Communications" of February 16, 1995, as amended, (the "Communications Law")
and the Federal Law "On Natural Monopolies" of August 17, 1995, as amended, (the
"Natural Monopolies Law").

     The  Communications  Law establishes the legal basis for state  supervision
and development of the communications  industry,  including granting licenses to
provide   telecommunications   services,   allocation   of  radio   frequencies,
certification of equipment  compatibility,  development of comprehensive  public
networks  and  supervision  of fair  competition  among  the  telecommunications
providers.  Under the  Communications  Law,  the  interconnected  communications
network (the "ICN") forms the basis for the Russian telecommunications industry.
The   ICN  is  a   centrally   managed   complex   of   technologically   linked
telecommunications  networks belonging to the IRCs,  Rostelecom and governmental
agencies  in  Russia.  The  Communications  Law  provides  for  equal  rights of
individuals and legal entities to participate in  telecommunications  operations
and  does  not  currently  contain  any  special  restrictions  with  regard  to
participation  by foreign  persons.  All users and operators  may, in compliance
with the terms of the  licenses  issued to them,  have  access  and the right to
interconnect their networks with the ICN.

     The  Natural  Monopolies  Law  establishes  the  legal  basis  for  federal
regulation of natural  monopolies  such as  telecommunications  and provides for
state control over  tariff-setting  and other activities of natural monopolies.
Subject  to  the  oversight  of  the  Ministry  for  Anti-Monopoly  Policy,  the
implementation  of this law may have a  significant  impact  on the  ability  of
telecommunications  providers to set tariffs.  The Natural  Monopolies  Law also
controls  the types of  transactions  into which a regulated  entity,  such as a
telecommunications  provider,  may  enter.  Regulated  entities  are  subject to
continuous  reporting  requirements,  which include the  submission of plans for
capital  investments.  In addition,  regulated  entities may not refuse to enter
into  contracts  with  particular   consumers  if  required  by  the  regulatory
authority.

     The current regulatory framework does not clearly establish the interaction
between  the  Communications  Law and the  Natural  Monopolies  Law,  which  has
resulted  in a number of  contradictory  decrees and  decisions.  As the primary
provider of long-distance telecommunications in Russia, Rostelecom has been, and
will  continue to be,  subject to regulation  under these laws.  There can be no
assurance that current or future government regulations will not have a material
adverse effect on Rostelecom.

     Regulatory Authorities

     The  authorities  regulating  the  telecommunications  industry  are  often
empowered  with  overlapping  and vaguely  defined  authority.  The  Ministry of
Communications  has power over the  telecommunications  industry  generally.  In
addition,  the Federal Agency of  Governmental  Communications  and  Information
under the  President of Russia  ("FAPSI")  and the  Ministry  for  Anti-Monopoly
Policy are charged with oversight of the industry.

     The  Ministry  of  Communications,  in  conjunction  with other  regulatory
agencies,  particularly the State Commission for Electrical  Communications,  is
responsible  for proposing the allocation of resources of the federal budget and
budgets of federal  subjects in the  telecommunications  industry budget and has
supervisory  responsibility  over the technical condition and development of all
types  of  communications.   The  Ministry  of  Communications   supervises  all
telecommunications operators in terms of

                                      -53-

licensing.  The Russian  Government,  through  the  Ministry  for  Anti-Monopoly
Policy,  has control over  tariffs,  although the  authority of the Ministry for
Anti-Monopoly  Policy only extends to operators providing general  public-access
telecommunications   services.  The  Ministry  for  Anti-Monopoly  Policy  would
automatically  cease  to  have  jurisdiction  over   telecommunications  if  the
telecommunications industry was no longer deemed to be a natural monopoly.

     In  accordance   with  the  Law  "On  Federal   Agencies  of   Governmental
Communications  and  Information,"  of February 19, 1993,  as amended,  FAPSI is
primarily  responsible for the organization of governmental  communications  for
the  federal  authorities  of Russia,  particularly  the federal  agencies  with
executive power.

     The State Radio  Frequencies  Service ("SRFS") and the Department for State
Supervision of Communications in the Russian Federation are regulatory  agencies
supervised by the Ministry of Communications.  The SRFS is primarily responsible
for the  development  and  implementation  of a long-term  policy for  frequency
allocation.   The  Department  for  State   Supervision  of   Communications  is
responsible  for  technical  supervision  of networks and  equipment  throughout
Russia, including supervision of compliance by network operators with applicable
regulations and by licensees with the terms of their licenses.

     Russian  Government  Resolution No. 715 "On Improvement of the Mechanics of
State  Supervision of Communication  Services  Tariffs" of October 11, 2001 (the
"Resolution  No.  715")  granted to the Ministry  for  Anti-Monopoly  Policy the
authority to regulate tariffs on certain telecommunications  services, including
(i) the provision of access to local telephone networks,  regardless of the type
of line the  customer  is  using  (wire  or  radio);  (ii)  local  and  domestic
long-distance  connections to fixed-line customers;  and (iii)  distribution and
broadcasting of public TV programs.

     Licensing to Provide Services

     The  Communications  Law requires  that any provider of  telecommunications
services must obtain a license prior to commencing service, unless such services
are essentially for internal uses (such as within an automobile, on a vessel, in
an airplane, or in another means of transportation), are for internal production
or technological  purposes, or are used solely to service public administration,
defense, security, and law enforcement authorities.

     The Communications Law expressly allows any entity, foreign or domestic, to
own and  operate  communications  facilities  in Russia,  although  the law also
allows the  promulgation  of legislation  to establish a list of  communications
networks and facilities  that can only be owned by the state.  Such  legislation
has not been  enacted,  although no  assurance  can be given that it will not be
enacted  in the  future.  Further,  no  assurance  can be  given  that no law or
regulation  will be enacted that would impose  limitations  or  restrictions  on
activities  of foreign  entities  in the  communications  market of the  Russian
Federation.

     Licenses to provide telecommunications  services are issued by the Ministry
of Communications in accordance with the Regulation on Licensing in the Field of
Telecommunications in Russia, which was enacted by Decree No. 642 of the Russian
Government on June 5, 1994 as amended (the "Licensing Regulation").

     Under the Licensing Regulation,  telecommunications licenses are issued and
renewed  for  periods  ranging  from  three to ten years and  several  different
licenses to provide varying communications services may be issued to one entity.
Renewals may be obtained upon application to the Ministry of Communications  and
verification  by  appropriate  governmental  authorities  that the  licensee has
conducted  its  activities in  accordance  with the  licenses.  Officials of the
Ministry of  Communications  have fairly broad  discretion  with respect to both
issuance and renewal  procedures.  Both the Communications Law and the Licensing
Regulation provide that a license may not be transferred or assigned.

     In  accordance   with  the  Licensing   Regulation,   licenses  to  provide
telecommunications  services may be suspended by the Ministry of  Communications
for a variety of reasons, including:

     o    failure   to   provide   services   within   three   months   of   the
          start-of-service date set forth in the license;

     o    provision of inaccurate information to consumers; or

     o    refusal  to  provide   documents   requested   by  the   Ministry   of
          Communications.

     Pursuant  to the  Licensing  Regulation,  licenses  may be  revoked  by the
Ministry of Communications for the following reasons:

     o    failure to remedy the  circumstances  which  resulted in suspension of
          the license within the specified time;

     o    established  practices  of  unfair  competition  by  the  licensee  in
          performing the licensed services; or

     o    other grounds set forth by Russian law or international treaties.

                                      -54-
<PAGE>

     Fees for  registering  licenses are established as multiples of the Russian
minimum  monthly  wage,  which  is  currently  RUR  100.  Currently,   fees  for
registering  licenses  range from 20 times the  minimum  monthly  wage for local
telephone  services,  to 40 times the minimum monthly wage for data transmission
and/or telematic  services and to 90 times the minimum monthly wage for domestic
and international long-distance communication services.

     While these fees are  nominal,  telecommunications  licenses  traditionally
also require  financial  contributions to the development of the public switched
telecommunications   network  ("PSTN")  of  Russia.  Certain  licenses  held  by
Rostelecom's  jointly owned  entities for cellular and mobile  services  require
Rostelecom's jointly owned entities to make financial  contributions towards the
development  of the PSTN in the regions  covered by those  licenses.  Failure by
Rostelecom's jointly owned entities to make any of these financial contributions
in accordance with the terms of the applicable  license could lead to revocation
of such license.

     Licenses generally contain detailed conditions  regarding the date by which
service  must begin,  technical  standards,  the number of lines that must be in
service and the percentage capacity, which must be operative by specified dates.
Failure  by  Rostelecom  to  satisfy  any such  requirements  could  lead to the
revocation  of the license,  which could have a material  adverse  effect on the
business of Rostelecom.  See Item 5.C.  "Research and  Development,  Patents and
Licenses."

     Radio Frequency Allocation

     Regulation  of the use of radio  frequencies  and spectrum  allocation  are
under the exclusive control of the MOC through the SRFS. A frequency  allocation
by the SRFS is  necessary  to receive a license  to  provide  telecommunications
services.  Once a licensee receives a license for use of a radio frequency and a
general  frequency  allocation  from the SRFS,  the  licensee  must  develop its
frequency  allocation and site plan, which is subject to approval.  The licensee
must also pay SRFS certain fees.

     Equipment Certification

     Certain telecommunications  equipment used in Russia is subject to periodic
mandatory  certification  in order to confirm its  compliance  with  established
standards  and  technical   requirements  of  the  Ministry  of  Communications.
Certificates  of  compliance  are  issued to the  supplier  by the  Ministry  of
Communications.  Moreover, all radio-electronic equipment (involving frequencies
in excess of 9 KHz)  manufactured or used in, or imported into,  Russia requires
special permission from SRFS. Special permissions are non-transferable.  Failure
to receive such certification could result in the mandatory cessation of the use
of such equipment.  To date, Rostelecom has not experienced significant problems
as a result of the failure of any of its equipment suppliers to obtain necessary
certification.

     Competition and Pricing

     The Ministry of Communications  and the Ministry for  Anti-Monopoly  Policy
are two principal executive  authorities  exerting the greatest influence on the
Company's  activities.  In particular,  the Ministry of  Communications,  as the
principal  governmental  agency  for the  industry,  determines  the  level  and
principal features of competition in the  telecommunications  market,  while the
Ministry  for  Anti-Monopoly  Policy is  responsible  for setting the tariffs on
which profitability of the Company's service depends.

     The Communications Law requires federal regulatory authorities to encourage
and promote fair  competition  in the provision of  communications  services and
prohibits  abuse  of  a  dominant  position  to  hinder,   limit,  or  eliminate
competition. The Communications Law provides that tariffs for telecommunications
services may be established on a contractual  basis between the provider and the
user  of   telecommunications   services,   thus   confirming   the   policy  of
liberalization of prices for telecommunications services initially introduced by
Presidential decree in 1991. However,  the Communications Law also provides that
"tariffs  may be  regulated  by the state for  specific  types of  communication
services."  The  Ministry for  Anti-Monopoly  Policy is  authorized  to regulate
tariffs  for   telecommunications   services  in  accordance  with  the  Natural
Monopolies Law and may require that telecommunications services must be provided
to certain customers.

     Presidential  Decree No. 221 "On Measures for Streamlining State Regulation
of Prices  (Tariffs)"  of February 28, 1995,  and the  Resolution of the Russian
Government No. 239 of March 7, 1995, as amended, provide that prices and tariffs
for  certain  telecommunications  services  are  subject  to  state  regulation.
Resolution   No.  715   delegates   tariff   control  over   certain   types  of
telecommunications  services provided in the domestic market to the Ministry for
Anti-Monopoly  Policy,  while previous  regulations divided tariff control among
federal executive bodies and the executive bodies of the subjects of the Russian
Federation.  To encourage fair  competition,  the supervising  authorities  have
reduced their control over international  tariffs.  Thus, the order of the State
Communications   Committee  No.  142  "On  Tariffs  On  International  Telephone
Services",  of August 19,  1998,  allows  telecom  operators,  and  specifically
Rostelecom, to freely determine

                                      -55-
<PAGE>

tariffs to be imposed upon the  international  telephone  services they provide.
Further, on January 25, 1999, the State Communications Committee allowed telecom
operators  to  determine  tariffs to be  imposed  upon  international  telegraph
services.

     Pursuant to Russian  Federation laws, the following services of the Company
are currently subject to state regulation:

     o    provision  of  long-distance  telephone  communications  to fixed line
          subscribers in the City of Moscow;

     o    transit  of  international  and  domestic  long-distance  traffic  for
          subscribers   serviced  by  regional  operators  through  Rostelecom's
          network; and

     o    distribution  and  broadcasting  of  nationwide  television  and radio
          programs.

     Tariffs for other  services are  determined by the Company  itself,  taking
into account the cost of service and market  prices.  As a result,  Rostelecom's
tariffs on certain services,  like digital trunk lines leases, are used by other
operators as a benchmark to set prices for their own services.

     In accordance with the  Communications  Law, the Ministry for Anti-Monopoly
Policy is responsible for the  encouragement  and support of fair competition in
the  telecommunications  industry.  As Rostelecom has a dominant position in the
telecommunications  market, it is subject to anti-monopoly laws and regulations.
In  the  event  Rostelecom  is  found  to be in  violation  of any  such  law or
regulation,  sanctions for such violation could include  recovery to the federal
budget of profits gained as a result of actions limiting  competition as well as
the imposition of fines on the Company and its executive  officers in the amount
of up to 5,000 and 200 times the minimum monthly wage, respectively. Also, civil
or criminal actions could be brought against the Company's executive officers.

     As of the date of this report,  Rostelecom is not aware of any violation of
anti-monopoly laws and regulations which could lead to any such penalty,  except
for one  immaterial  breach  related to the  acquisition of 25% of the shares in
CJSC  Uraltel.  The breach  occurred in 2001,  for which a fine in the amount of
less than U.S.$ 1,000 was imposed on the Company and which was fully paid by the
Company.

                                      -56-
<PAGE>

          Branches

     Rostelecom  operates through branches located  throughout  Russia.  Most of
Rostelecom's  branches,  with the  exception  of MMT,  GTsUMS  and  Professional
Education  Center (each,  as defined  below),  are  structures  responsible  for
performing  operations  with the IRCs and  other  operators,  particularly  with
respect to providing  telecommunications services to the IRCs, and participating
in the Company's  joint  projects in areas where the  Company's  own  facilities
connect with relevant regional communication networks. Rostelecom's branches are
also  responsible  for settling bills with the IRCs. The branches may operate in
one or more geographically  separate subdivisions to facilitate their operations
within a specific region.

     As of the end of 2002,  Rostelecom  had three  branches  located in Moscow.
Apart from the Central  Branch  there are the MMT,  which  provides  DLD and ILD
services  for  Moscow   subscribers,   and  the  Main  Center  of  the  Domestic
Long-Distance  Telecommunications  Management ("GTsUMS"),  which coordinates the
activities of operating branches in order to resolve technical problems they may
have.

     Under Russian law, a branch is not a legal entity  distinct from its parent
company but can be compared to a division  within the  corporate  structure of a
company.  A branch may,  however,  own assets,  incur  liability  and enter into
contractual  relationships.  Rostelecom's  branches operate pursuant to internal
regulations  approved by the General  Director of Rostelecom,  while  Rostelecom
bears full liability for their operations.

     In order to expand its presence in the area of international organizations,
Rostelecom joined the International  Telecommunication  Union ("ITU") and opened
its  representative  office in  Geneva  Switzerland  in August  1999 in order to
secure the Company's position with  international  authorities and organizations
as well as promote  international  trade and research  cooperation.  The Company
registered its representative  office in Yerevan,  Republic of Armenia, in April
2002 in order to,  initially,  research  the  market and the  possibilities  for
introducing high level telecommunications technology into the Armenian market.

4C. Organizational Structure

     The branches of Rostelecom are (i) North-Western  Branch (St.  Petersburg);
(ii) Southern Branch (Rostov-on-Don);  (iii) Siberian Branch (Novosibirsk); (iv)
Far East Branch  (Khabarovsk);  (v) Central  Branch  (Moscow);  (vi) Ural Branch
(Ykaterinburg);  (vii) Volga Branch (Samara);  (viii) Educational Center (Moscow
Oblast); (ix) MTT (Moscow);  and (x) GTsUMS (Moscow). The Representative offices
are (i) Representative  Office in Switzerland  (Geneva) and (ii)  Representative
Office in Armenia (Yerevan).

          Optimization of the Organizational Structure

     To ensure its  successful  development  in a competitive  environment,  the
Company needs a manageable and flexible organizational structure, which would be
able to respond to any changes in the market.

     In  October  2001,  the  Company  started   restructuring  its  territorial
(regional) branches.  The Board of Directors of Rostelecom,  at its meeting held
on November 2, 2001, approved as one of the priorities for 2001 through 2003 the
optimization  of the  Rostelecom  structure.  The  restructuring  of the  branch
network has been carried out through a stage-by-stage  process, in line with the
technological,   organizational  and  economic  optimization  of  the  Company's
structure.

     By the end of 2002, the Company  completed the  restructuring of its branch
network,  which  resulted in the formation of seven  regional  branches from the
already  existing 17 regional  ones.  Thus,  the total  branch  structure of the
Company was consolidated into 10 branches from the original 24 ones. The Company
expects  that  the  restructuring  will  significantly   enhance  the  Company's
manageability and allow it to cut its operating costs.

     On January 1, 2002, the Company opened its Central Branch Office in Moscow.
On July 1, 2002, the Company opened the Southern Branch Office which operates in
Rostov-on-Don.  On January 1, 2003, the Company opened the North-Western  Branch
Office which operates in St. Petersburg,  the Volga Branch Office which operates
in Samara,  the Siberian Branch Office which operates in  Novosibirsk,  the Ural
Branch Office which operates in Yekaterinburg,  and Far East Branch Office which
operates in Khabarovsk.

     The former  branches  represented by Territorial  Centers of  International
Communications and Television ("TTsMSs") were all closed by January 1, 2003. The
operational divisions of TTsMSs were consolidated into new enlarged branches.

     On April 1, 2002, the Network Construction branch ("SOMES") was closed, but
the  Company  retained  its  functions  within  other  branches.  The Center for
Informational  Technology  and Main  Computing  Center  branches  were closed on
February 19, 2002,  but the Company  retained the functions of these branches as
well.

The year  2002 has  marked a key  benchmark  in  implementing  the  optimization
program for the  Company's  organizational  structure  since the Company  almost
completed the development of the principles of interaction between  Rostelecom's
consolidated  branches and IRCs,  including the general plan to interconnect the
Company's  network  with  IRCs,  which  will  enable  the  Company  to create an
effective system of cooperation with IRCs in a non-regulated market environment.

                                      -57-
<PAGE>

The Company  intends to continue  the  optimization  and  consolidation  process
within its branches in 2003.

Jointly owned entities

     A majority (50.67%) of Rostelecom's Charter capital is held by Svyazinvest,
a telecommunications  holding company created by the Russian Government in 1995,
which is in turn held by the Ministry of Property  Relations  (50% plus 1 share)
and the Russian Federal Property Fund (25% minus 2 shares) and Mustcom Ltd. (25%
plus 1 share).

     For the  purpose  of this  annual  report the term  "subsidiary"  refers to
entities which are consolidated by the Company into its financial statements.

     As of June 25, 2003, the Group comprises the Company,  its subsidiaries and
associates:

     (i)  RTC-Leasing, in which Rostelecom holds 27.13% of the charter capital;

    (ii)  RTComm.RU, in which Rostelecom holds 31.1% of the charter capital, and
          RTC-Leasing holds 49.76% of the charter capital;

   (iii)  Westelcom, in which Rostelecom holds 100% of the charter capital;

    (iv)  Rostelecomleasing,  S.A. Switzerland,  in which RTC-Leasing holds 100%
          of the charter capital;

     (v)  Rostelecomleasing  Cyprus,  in  which  RTC-Leasing  holds  100% of the
          charter capital;

    (vi)  RTDC  Holdings,  Inc.  USA,  in which  RTC-Leasing  holds  100% of the
          charter capital;

   (vii)  Commercial Bank Russian  Industrial Bank, in which  RTC-Leasing  holds
          100% of the charter capital;

  (viii)  AKOS, in which RTDC holds 92% of the charter capital.

     All of the  subsidiaries  are  registered in Russia except for RTCL,  S.A.,
which is  registered  in  Switzerland,  RTCL  (Cyprus),  which is  registered in
Cyprus, and RTDC, which is registered in State of Delaware, USA.

     Rostelecom  also holds varied  stakes in 63 other  entities  referred to as
"associates",  which are not consolidated in the Company's financial statements,
even if the Company owns more than 50% of such entity's  charter  capital due to
reasons discussed in detail in Note 5 to the consolidated  financial statements.
Some  entities in which Company holds stakes are described in this Form 20-F for
the following reasons:

     -    the Company has  significant  influence  with regard to such  entity's
          financial and operating policy decisions or;

     -    the   entity's   considerable   amount  of   operations   (more   than
          U.S.$1,000,000 of revenues per annum); or

     -    the entity's strategic importance for the Company for other reasons.

     These associates include the following companies  registered in the Russian
Federation:  (i) GlobalTel,  in which Company holds 51% of the charter  capital;
(ii) CJSC  Telecom-Center,  in which Company  holds 45% of the charter  capital;
(iii)  CJSC  Teleport-TP  ("Teleport-TP"),  in which  Company  holds  44% of the
charter  capital;  (iv) OJSC MMTS-9,  in which  Company holds 37% of the charter
capital;(v) MCC, in which Company holds 23.5% of the charter  capital,  and RTDC
holds 22% of the charter  capital;  and (vi) Telmos,  in which the Company holds
20% of the charter capital.  The Company also has an associate registered in the
State of Delaware,  USA, Golden Telecom, Inc., in which Company holds 15% of the
charter capital.

Subsidiaries

RTC-Leasing (registered in the Russian Federation)

The Company's  stake of voting shares in  RTC-Leasing  was 27.13% as of June 25,
2003.

The principal  activities of RTC-Leasing are the provision of financial  leasing
services  to Russian  companies  involved  in the  telecommunications  industry.
RTC-Leasing holds stakes in companies that provide leasing services,  and engage
in  independent  financial  and  banking  activities,  as  well  as  in  several
telecommunications  operators  in Russia.  At present,  the core  businesses  of
RTC-Leasing  and  its  subsidiaries   are  the  leasing  of   telecommunications
equipment,  computer  hardware and motor  vehicles,  as well as the provision of
financial and banking services (RIB).

                                      -58-
<PAGE>

RTC Leasing is a specialized  financial  intermediary  that provides or arranges
financing for its clients for leasing operations.  It also provides clients with
a number of services  that relate to project  financing and are ancillary to the
leasing transactions.  From the outset,  revenues from leasing transactions have
made up virtually all the income of RTC Leasing.

Prior to 2001 the Company acted as RTC Leasing's  principal counter party in its
finance lease services.  This activity involved  RTC-Leasing as Lessor assisting
the  Company  in  arranging  for and  raising  of long  term  financing  for the
implementation of the Company's investment  programs,  primarily with respect to
the financing of telecommunication equipment purchases.

For  a  number  of  years,   the   Company   has  been   leasing   most  of  its
telecommunications infrastructure through RTC-Leasing in order to take advantage
of  favorable  tax  treatment  because  Rostelecom  was  able  to  recognize  an
accelerated  amortization  which in turn  reduced tax  payments.  The Company is
generally  entitled to purchase the leased  equipment at the residual value upon
the  expiration  of the lease.  Fixed assets are leased on terms that are set by
and between the Company and RTC-Leasing.

As of June 25, 2003 Rostelecom  effectively holds 32.27% of the share capital of
RTC-Leasing.  27.13% is a direct ownership and 5.14% is the effect of the shares
held by RIB (which is 100%  owned by  RTC-Leasing)  and  treated by the Group as
treasury shares.

Restructuring

As  of  the  beginning  of  2001,  Rostelecom's  gross  lease  payments  due  to
RTC-Leasing amounted to approximately RUR 13 billion,  however, the debt service
terms were less  favorable  to  Rostelecom  than the  prevailing  market  terms.
Besides,  substantially  all the  external  debt of  RTC-Leasing  was secured by
guarantees  of  Rostelecom  or by  pledges of the  telecommunications  equipment
leased by  Rostelecom.  Considering  these facts,  in 2001,  the  management  of
Rostelecom  made a  decision  to  restructure  the  indebtedness  and the  lease
agreements.


As the  contracts  with  Rostelecom  made  up  almost  100%  of the  RTC-Leasing
portfolio,  the  indebtedness  could only be restructured  by  diversifying  the
business and expanding the client base of  RTC-Leasing.  With this goal in view,
in the  summer  of 2001 the  Rostelecom  Management  Board  asked  the  Board of
Directors to approve a new long-term  program for the development of RTC-Leasing
to provide for the involvement of a strategic  investor so as to finance efforts
to expand the  business of  RTC-Leasing  and  restructure  Rostelecom's  debt to
RTC-leasing. In September 2001, a new program for the development of RTC-Leasing
was approved by an extraordinary meeting of its shareholders.


As a first  stage  of  implementation  of the  development  program  in 2001 the
Company reached an agreement with RTC-Leasing for the  restructuring of the part
of lease  agreements  following  the results of the  analysis  of the  financial
condition of RTC-Leasing performed by an outside consultant.  As a result of the
lease  restructuring,  payment schedule of gross lease payments of approximately
RUR 3.9 billion was extended up to 2012.

Consortium Agreement

On September 3, 2001, a tripartite  agreement (the  "Consortium  Agreement") was
executed among Rostelecom and the Non-State  Pension Fund  "Rostelecom-Garantia"
("Rostelecom-Garantia"),  both of which originally held in the aggregate 100% in
the share  capital of  RTC-Leasing  as of September 3, 2001  (collectively,  the
"Initial Shareholders"),  CJSC CB North-West Telecombank, Non-Profit Partnership
Center for Telecommunications Problems Research, RIB, CJSC Gamma-Invest and CJSC
KFP-Finance (collectively,  the "Consortium") and RTC-Leasing.  The primary goal
of the  Consortium  Agreement  was  the  increase  of the  market  value  of the
RTC-Leasing shares.

Additional Shares

To implement the development program contemplated by the terms of the Consortium
Agreement, upon the resolution of the extraordinary general shareholders meeting
of  RTC-Leasing,  the charter  capital of  RTC-Leasing  was increased by placing
3,964,714   ordinary  shares  (the   "Additional   Shares")   through  a  closed
subscription  among the Initial  Shareholders  and the  Consortium.  The nominal
value of ordinary shares was 10 rubles each.

In February 2002,  RTC-Leasing issued and sold an additional  3,964,714 ordinary
shares at par value of RUR 10 per share.  The Company  retained  its interest in
the  voting  stock of  RTC-Leasing,  which at that  time  was  also  27.13%,  by
purchasing the respective part of issued shares.

Immediately  after the issuance the following  companies were owners of ordinary
shares of RTC-Leasing:

% of ordinary shares
--------------------------------------------------------------------------------
Rostelecom                                                          27.13
Rostelecom-Garantia                                                 3.03
CJSC CB "North-West Telecombank"                                    18.91
Non-Profit Partnership Center for Telecommunications
Problems Research                                                   2.82

                                      -59-
<PAGE>

% of ordinary shares
--------------------------------------------------------------------------------
Treasury shares on the balance sheet of RTC-Leasing                 0.48
CJSC "Gamma-Invest"                                                 15.93
CJSC "KFP-Finance"                                                  15.77
RIB                                                                 15.93
--------------------------------------------------------------------------------
Total ordinary shares                                               100
--------------------------------------------------------------------------------

The  management of the Company  believes  that it continues to exercise  control
over the management,  policies and day-to-day operations of RTC-Leasing.  Income
from  leases  generated  by the  Company  forms  the major  part of the  overall
revenues of RTC-Leasing.  The Company guarantees  significant amounts of debt of
RTC-Leasing  and in accordance  with the  Consortium  Agreement,  has a right to
appoint the majority and the Chairman of the Board of Directors of  RTC-Leasing,
as well as its General Director.  Therefore the Company continues to consolidate
the results of operations and financial position of RTC-Leasing.

Undertakings of the Consortium

Under the Consortium Agreement, the Consortium undertook, among other things:

     -    within three years of the date of the Consortium Agreement, to procure
          for  RTC-Leasing  new  clients  contributing  not less than  U.S.$ 330
          million under lease agreements;

     -    within three years of the date of the Consortium Agreement, to provide
          RTC-Leasing  with financing  sufficient to acquire assets necessary to
          meet the demands of the new clients, on market terms; and

     -    within three years of the date of the Consortium Agreement, to provide
          RTC-Leasing  with  access  to  the  lease  market  involving  regional
          telecommunications   companies;   such  obligation   would  be  deemed
          fulfilled  in the event that  RTC-Leasing  enters  into a  cooperation
          agreement with  Svyazinvest and enters into new lease  agreements with
          the regional  telecommunications  companies,  which would collectively
          provide  RTC-Leasing  with lease  payments  amounting  to no less than
          U.S.$ 200 million.

Results of the Restructuring

RTC-Leasing  considerably expanded its business and diversified its client base.
Since 2001,  Rostelecom  has not been using  leasing to finance  acquisition  of
telecommunications  equipment, and the share of contracts with Rostelecom in the
portfolio of RTC-Leasing decreased from 100% to 60%.

At the same time,  Rostelecom  maintained  control over RTC-Leasing  through its
ability to appoint a majority  and the  Chairman  of the Board of  Directors  of
RTC-Leasing and the General Director of RTC-Leasing.

In the  beginning  of 2003,  Rostelecom  proposed a revision of the terms of the
Consortium  Agreement and  formulated  new, more specific  objectives  that were
specified in the Supplemental Agreement (as defined below).

Supplement Agreement

To define specific obligations of the Consortium,  the parties re-negotiated the
terms of the Consortium Agreement. In May 2003 (the "Signing Date"), the Initial
Shareholders,  the  Consortium  and  RTC-Leasing  signed  a  supplement  to  the
Consortium   Agreement  (the  "Supplemental   Agreement")  which  obligated  the
Consortium to perform certain actions which should result in:

     o    Writing-off the Company's  liabilities to RTC-Leasing in the amount of
          not less than RUR 1.8 billion within a 6-month period from the Signing
          Date;
     o    Selling    shares   of    RTC-Leasing    owned   by   Rostelecom   and
          Rostelecom-Garantia to a third party for total amount of not less than
          RUR 750 million within a 6-month period from the Signing Date;
     o    Cancellation  of all guarantees and pledges  provided by Rostelecom in
          respect of loans payable by RTC-Leasing  within a 12-month period from
          the Signing Date.

The Consortium  Agreement  provides that, in the event that Consortium  fails to
duly fulfill any of its above undertakings,  the Initial  Shareholders will have
the right to repurchase  from the Consortium  the Additional  Shares placed with
the Consortium at nominal price.

The  signing  of the  Supplemental  Agreement  marks  the  second  stage  of the
long-term  development  program of  RTC-Leasing,  in which  Rostelecom  aims to:
improve  the  transparency  of its  business  portfolio,  reduce debt as well as
reduce  credit  risks  associated  with the  guarantees  and  pledges  issued by
Rostelecom to secure  RTC-Leasing's  external  obligations;  and sell a non-core
asset on favorable terms and receive a substantial amount of cash to be invested
in Rostelecom's main business development.

For  details  please  refer to the  Consortium  Agreement  and the  Supplemental
Agreement filed as exhibits to this annual report.

                                      -60-
<PAGE>

Under  the new  development  program,  RTC-Leasing  is  engaged  in a number  of
transactions  to acquire the new  assets.  For more  information,  see Item 7.B.
"Related Party Transactions."

OJSC RTComm.RU (registered in the Russian Federation)

The Company owns 31.1% of the voting shares in OJSC RTComm.RU ("RTComm.RU").

Despite of the fact that the Company  directly  owns less than 50% of the shares
of  RTComm.RU.  RTComm.RU  has  been  consolidated  in the  Company's  financial
statements  on the  basis  of the  Company's  control  over  the  financial  and
operating  policy  decisions  of  RTComm.RU  and due to  49.8%  stake  owned  by
RTC-Leasing.

The core  business of  RTComm.RU is the  provision  to  customers of  integrated
solutions in the sphere of Internet technologies. To engage in these activities,
RTComm.RU obtained licenses to lease communication  channels,  provide telematic
and data  transmission  services,  and to  engage  in  technical  protection  of
confidential  information.  RTComm.RU's  target  customers are Internet  service
providers, corporate customers and government entities.

OJSC RTComm.RU was founded in February 2000 by  RTC-Leasing.  From the moment of
its establishment in February 2002 and until 2003, the  shareholders'  structure
of RTComm.RU underwent material changes:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
  Shareholders of OJSC RTComm.RU     February 2, 2000    January 1, 2001     January 1, 2002      June 25, 2003
------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                 <C>                 <C>               <C>
OJSC RTC-Leasing                           100%                76%                 40%               49.76%
------------------------------------------------------------------------------------------------------------------
CJSC KFP-Finance                             -                  4%                  4%                4.98%
------------------------------------------------------------------------------------------------------------------
Svyazinvest                                  -                 20%                 20%                0.48%
------------------------------------------------------------------------------------------------------------------
Rostelecom                                   -                  -                  25%               31.10%
------------------------------------------------------------------------------------------------------------------
Non-Profit Partnership Center For
Telecommunications Problems Research         -                  -                  11%               13.68%
------------------------------------------------------------------------------------------------------------------
</TABLE>

In December 2002, pursuant to a resolution of its general shareholders' meeting,
RTComm.RU issued additional ordinary registered shares with an aggregate nominal
value of RUR 50 million, of which 4 billion shares were placed and paid for. The
shares with a nominal  value of RUR 0.01 per share were placed with  Rostelecom,
RTC-Leasing,  Non-Profit  Partnership  Center  for  Telecommunications  Problems
Research and CJSC  KFP-Finance  at a nominal price and paid for as follows.  The
aggregate amount paid by Rostelecom exceeded RUR 12.5 million,  RTC-Leasing paid
approximately   RUR   20   million,    Non-Profit    Partnership    Center   for
Telecommunications  Problems  Research paid RUR 5.5 million and CJSC KFP-Finance
paid RUR 2 million. For more information, see Item 4.A. - "Capital Expenditures"
and Item 7.B. - "Related Party Transactions".

RTComm.RU  plans to use the capital  raised  from the  placement  of  additional
shares to develop the network of RTComm.RU's regional representatives in various
federal  districts  of  Russia  and  to  further  improve  its  information  and
communication  infrastructure  comprised  of  the  transmission
network, network management center and data centers.

One of the principal  services that RTComm.RU has been  providing  since 2001 is
the dedicated access, which means providing 24-hour connection of the customer's
router  with the port of the  RTComm.RU  network  node and  permanent  access to
Internet  resources.  The volume of the  dedicated  access  service in the total
volume of RTComm.RU services is growing and as of 2002, accounted for 98% of the
total volume of services.

The  remaining 2% of the total  volume of services  consisted of the data center
services.  Services  rendered by the Data Center include  registration of domain
names,   "post-office"   services,   news  server  services,   virtual  hosting,
co-location,  dedicated hosting and others.  Apart from being a source of direct
income for RTComm.RU,  services rendered by the data center reduce traffic costs
for RTComm.RU.

By providing  Internet services through Internet access nodes and communications
channels  provided by RTComm.RU  for lease,  RTComm.RU  pursues a technical  and
marketing  policy  aimed at meeting  the  growing  market  demand for  dedicated
Internet  access  service and preserving the quality and wide range of its other
services.  In  October  2002,  RTComm.RU  launched  its node in  London.  In the
domestic  market,  RTComm.RU  provides  services  to more  than  1,000  business
customers that are communications  operators,  national corporations and federal
ministries and agencies in more than 100 large cities of the Russian  Federation
where the principal RTComm.RU access nodes are located. In the

                                      -61-
<PAGE>

aggregate,  the  transmission  network of RTComm.RU  currently  has a throughput
capacity of Internet national channels in excess of 3.7 Gb per second.

CJSC Westelcom (registered in the Russian Federation)

The Company owns 100% of the voting shares in Westelcom.

Westelcom,  a joint  venture  with the  Russian  Telecommunications  Development
Corporation  ("RTDC"),  was  established  in December  1992 to contribute to the
development,   introduction,   operation   and   management   of   the   Russian
telecommunications  infrastructure.  The  share  of  Rostelecom  in the  charter
capital of Westelcom in 1992 amounted to 50%. In June 2002, the Company  entered
into an agreement  with RTDC to purchase the remaining 50% interest in Westelcom
for U.S.$ 15,000,000. In October 2002, the Company completed the transaction.

Westelcom provides communications channel and telecommunications equipment lease
services and processes incoming traffic information via international  telephone
exchanges.

Westelcom has two subsidiaries, OJSC A-Svyaz and OJSC InfoTeX Taganrog Telecom.

OJSC A-Svyaz is registered in the Russian  Federation.  Westelcom  owns 81.9% of
the charter capital of OJSC A-Svyaz.  OJSC A-Svyaz provides access to the public
telephone  network,  as well as local  telephone  network  services,  Integrated
Service  Digital  Network  ("ISDN")  services,   Internet  access  services  and
IP-telephony services.

OJSC InfoTeX  Taganrog  Telecom is also  registered  in the Russian  Federation.
Westelcom owns 74% of the charter capital of OJSC InfoTeX Taganrog Telecom. OJSC
InfoTeX  Taganrog  Telecom  provides  in the  territory  of the city of Taganrog
access to the  public  telephone  network,  as well as local  telephone  network
services,   Internet  access  services,  lease  of  communication  channels  and
long-distance payphones.

Commercial Bank Russian Industrial Bank (registered in the Russian Federation)

RTC-Leasing owns 100% of the charter capital of Russian Industrial Bank ("RIB").

RIB was founded in 1992. The core business of RIB is financial operations,  cash
and  settlement  services,  asset  management,  foreign  currency  transactions,
corporate  and  private  credit/debit  cards.  The  main  customers  of RIB  are
Svyazinvest,  Rostelecom,  RTC-Leasing, CJSC Globus-Telecom,  and Non-Commercial
Partnership Center for Telecommunications Problems Research.

Rostelecomleasing S.A. (registered in Switzerland)

RTC-Leasing owns 100% of the charter capital of Rostelecomleasing S.A.

Rostelecomleasing  S.A.  specializes  in  the  investment  activity,  mainly  by
investing its own funds and borrowed  capital in the different  financial assets
(such  as  interest  in  others  entities,  purchase  of  indebtedness,  various
financial instruments) and serving as financial intermediary.  Rostelecomleasing
S.A. owns 100% of the charter capital of RTDC Holdings, Inc.

Rostelecomleasing (Cyprus) Limited (registered in Cyprus)

Rostelecomleasing  S.A.  owns 100% of the charter  capital of  Rostelecomleasing
(Cyprus) Ltd.

The core business of Rostelecomleasing  (Cyprus) Limited is investment activity,
mainly by investing  its own funds and borrowed  capital in different  financial
assets  (such as  interest in other  entities,  purchase  of  indebtedness,  and
various  financial  instruments)  and  serving  as  a  financial   intermediary.
Rostelecomleasing (Cyprus) Limited began its operations in September 2002.

RTDC Holdings, Inc. (registered in the State of Delaware, USA)

Rostelecomleasing S.A. owns 100% of the charter capital of RTDC Holdings, Inc.

     U.S.  telecommunications  company US WEST through several  investment funds
founded RTDC Holdings,  Inc. in 1995, and in 1996 RTDC Holdings,  Inc. began its
commercial  activity.  In April 2002,  Rostelecomleasing  S.A. purchased a 94.9%
interst in RTDC Holdings, Inc.'s charter capital for U.S.$ 33 million (RUR 1,117
million)  and  in  October  2002,   International   Financial  Company  sold  to
Rostelecomleasing S.A. the remaining 5.1% of shares of RTDC

                                      -62-
<PAGE>

Holdings,  Inc. for U.S.$ 1.3 million (RUR 43 million).  The main  activities of
RTDC Holdings, Inc. are investing and development of prospective projects in the
Russian telecommunications markets.

RTDC Holdings, Inc. exercises 100% direct control over the following companies:

Russian Telecommunication  Development Holding Corporation ("RTDHC"). RTDHC is a
holding  company that manages  investments  in certain  cellular  communications
companies in the different regions of Russia;

Russian Telecommunication  Development Finance Corporation ("RTDFC"). RTDFC is a
company  which  finances  telecommunication  projects of RTDC  Holdings,  Inc.'s
affiliated companies;

Russian Telecommunication Development Management Corporation ("RTDMC"). RTDMC is
a management company of RTDC Holdings, Inc. with a Moscow representative office.
The core activity of the Moscow  representative  office is the  coordination and
management of all structures of RTDC Holdings, Inc. in Russia, and the provision
of managerial  services and management  consulting  services to the subsidiaries
and associates of RTDC Holdings, Inc.;

Russian  Telecommunication  Asset Management Corporation  ("RTAMC").  RTAMC is a
company  which was founded for the purpose for the  acquisitions  and control of
telecommunications assets.

In addition, RTDC Holding Inc. holds stakes in the following companies:

CJSC AKOS.  AKOS was  founded  to  design,  construct  and  operate a  dedicated
cellular  telecommunication  network in the  Primorsky  Territory of the Russian
Federation  (standard  D-AMPS-1800/GSM  1800). In addition,  AKOS sells cellular
telephones for use in the network serving both businesses and individuals.  AKOS
was officially  incorporated  on October 20, 1994 and began operation in January
1995. RTDC Holding Inc.'s stake in CJSC AKOS's charter capital is 92.266%.

CJSC Delta  Telecom.  The main  activities of Delta  Telecom are the  designing,
construction  and  operation  of a  cellular  network  in  the  St.  Petersburg,
Leningrad,  Novgorod  and  Pskov  regions  and in the Karel  republic  using the
standard 450 MHz. On 2002, Delta Telecom constructed the cellular network in the
same standard 450 MHz in the city of St.  Petersburg and Leningrad  region.  The
commercial  operation of this cellular  network  started in December 2002.  RTDC
Holding Inc.'s stake in CJSC Delta Telecom is 42.5% of the voting shares.

MCC.  The core  activities  of MCC are  construction  and  operation of cellular
network  and  cellular  telephone  connection  services in Moscow and the Moscow
region using the standard 450 MHz and engaged in  construction  of CDMA cellular
phone  network in Moscow and the Moscow  Region.  It is also  engaged in selling
telephone sets and accessories. RTDC Holding Inc. holds 22% of the voting shares
in MCC.

RTDC  Holdings,  Inc.  has indirect  control  through  RTDHC over the  following
companies:

     -    CJSC   Baikalwestcom   ("Baikalwestcom").   The  core   activities  of
          Baikalwestcom  are  the  development  and  operation  of the  cellular
          network in Irkutsk  and the Irkutsk  region  using NMT 450 MHz and GSM
          900/1800 MHz standard,  the leasing and selling of cellular  telephone
          sets and domestic and international  long-distance  telecommunications
          services  in  Irkutsk  and  the  Irkutsk  region.   RTDHC's  stake  in
          Baikalwestcom is 49% of the voting shares.

     -    CJSC  Yeniseitelecom   ("Yeniseitelecom").   The  core  activities  of
          Yeniseitelecom  are the  construction  and  operation  of the cellular
          network  using  NMT  450  MHz  and  GSM  900/1800  MHz  standard,  and
          development of other  telecommunication  projects in the  Krasnoyarsky
          region. Yeniseitelecom sells cellular telephone sets. On October 2002,
          Yeniseitelecom  acquired from RTDHC 65% of LLC Sayantelecom's  charter
          capital,  the sole cellular operator in the Republic  Khakassia in the
          Krasnoyarsk  region.  RTDHC's;  stake in  Yeniseitelecom is 50% of the
          voting shares.

     -    CJSC  Nizhegorodskaya   Cellular   Communication   ("NCC").  The  core
          activities of NCC are the  construction  and operation of the cellular
          network in Nizhny Novgozod  region and provision of  telecommunication
          services using GSM 900/1800 MHz standard.  RTDHC's stake in NCC is 49%
          of the voting shares.

During 2003, the stakes in Baikalwestcom,  Yeniseitelecom,  and NCC were sold to
VolgaTelecom  and  SibirTelecom,  the  subsidiaries  of  Svyazinvest.  For  more
information,  refer to Item 7.B. "Related party transactions" and Note 33 to the
accompanying consolidated financial statements.

                                      -63-
<PAGE>

     -    CJSC Uralwestcom.  The core activities of Uralwestcom are construction
          and  operation  of  the  cellular  telecommunication  network  in  the
          Sverdlovsk  region using the NMT 450 MHz standard,  and development of
          other sectors of telecommunication market in the city of Yekaterinburg
          and the Sverdlovsk region.  RTDHC's stake in Uralwestcom is 49% of the
          voting shares.

Associates

CJSC GlobalTel (registered in the Russian Federation)

The Company owns 51% of the voting shares in CJSC Globaltel ("GlobalTel").

GlobalTel,  established in 1996 by Rostelecom  (51%) and Globalstar LP (49%), is
the exclusive operator of global mobile and stationary satellite  communications
of the Globalstar system in Russia.  The shareholding  structure has not changed
since.

Globalstar  LP has veto rights  that would  prevent  the  Company  from  causing
GlobalTel to take any action that is significant  in the ordinary  course of its
business.  Since effective  control of GlobalTel's  operation does not rest with
the  Company,  and the Company  cannot have  meetings  of  GlobalTel's  Board of
Directors or  shareholders  meetings to approve  decisions  without  taking into
account the interests of the minority  shareholder,  management accounts for the
investment in GlobalTel under the equity method.

The  equipment of  GlobalTel is  integrated  with various  modern  communication
systems  and  can be  used in  cellular  networks,  in  public  networks  and in
departmental and corporate communication systems.

The  infrastructure  of the Russian segment of the global mobile system includes
(i) three interconnected gateways which are coupled with public networks and are
located near Moscow,  Novosibirsk and Khabarovsk and, (ii) subscriber management
and  support  centers.  By  early  2002,  GlobalTel  signed  agreements  for the
provision of roaming  services with  practically  all domestic  operators of GSM
cellular  phones and with  international  operators of the Globalstar  worldwide
satellite system. This enables the subscribers of the Russian segment to use the
services  of the  system  in more  than 50  countries.  GlobalTel's  network  is
interconnected to the public telephone network through Rostelecom.

GlobalTel's services are mostly used by corporate customers,  many of which need
complete  technological  solutions  rather  than  just  communication  services.
Generally,  these  customers  operate  in the  mining,  oil and gas,  geological
prospecting, transport, construction and power industries. As present, GlobalTel
has almost 7,000 subscribers.  The services of the Russian segment of Globalstar
are provided at uniform rates in Russia,  Central Asia, the Caucasus,  Mongolia,
Afghanistan,  the  Pacific and the Baltic,  the  Caspian and the  Northern  Seas
areas.

CJSC Telecom-Center  (registered in the Russian Federation) The Company owns 45%
of the voting shares in CJSC Telecom-Center ("Telecom-Center").

Telecom-Center, established in 1994, provides communications services, including
the lease of communications  channels,  data transmission services and telematic
services.  Telecom-Center  arranges for customers to have access to the Internet
network  via its  own,  as well as  leased,  lines  and  channels  and  provides
technical  support and hosting services.  Telecom-Center  has its own network of
digital channels consisting of fiber optic lines and relay communication lines.

CJSC Teleport-TP (registered in the Russian Federation)

The Company owns 44% of the voting shares in CJSC Teleport-TP ("Teleport-TP").

Teleport-TP was established in 1992 to provide access to international satellite
communications  channels.  The principal founders of Teleport-TP were Rostelecom
(44%),  Technocom  Ltd. of Ireland  (38.5%),  Roscomm  Limited  (10%) and LLC JV
Technopark  (7.5%).  The shareholders'  structure of Teleport-TP has not changed
since.

Teleport-TP  is the  official  Russian  operator of the  INTELSAT  and  EUTELSAT
international  satellite  communications  systems. It provides long-distance and
international  digital  communications  services,  data  transmission  services,
Internet  access  services,  services  involving  the  lease  of  communications
channels and corporate network formation services.

                                      -64-
<PAGE>

The Company is a counter  party of  Teleport-TP  in the  provision  of satellite
communications  channels to lessees and the termination of traffic.  The Company
also  uses  the  services  of   Teleport-TP  in  areas  where  it  lacks  direct
ground-based  communications  and where the laying of ground-based  lines is not
commercially  expedient.  In such cases,  Teleport-TP  provides  Rostelecom with
access to high-quality digital international networks,  which are not accessible
through Russian satellite and land-based operators.

OJSC Moscow  Long-Distance  Telephone  Exchange No -9 (registered in the Russian
Federation)

The Company owns 37% of the voting shares in OJSC Moscow Long-Distance Telephone
Exchange No. 9 ("MMTS-9").

MMTS-9  has been in  operation  since  1994.  Pursuant  to its  Charter  and the
licenses  issued by the  Russian  Federation  Ministry  of  Communications,  the
principal   activities   of   MMTS-9   are  the   provision   of   long-distance
telecommunications  services to various  groups of users and  telecommunications
operations.  MMTS-9 also engages in  maintaining  the equipment of its users and
the leasing of  production  facilities  and  telecommunications  equipment.  The
principal  shareholders  of  MMTS-9  are  Rostelecom  (36.86%)  and the  Russian
Federation Ministry of Property Relations (38%).

OJSC Moscow Cellular Communications (registered in the Russian Federation)

The  Company  owns  23.5%  of  the  voting   shares  in  OJSC  Moscow   Cellular
Communications ("MCC").

Rostelecom  acquired  ownership  over 23.5% of the  charter  capital of MCC as a
result of Rostelecom's merger with MMT. Shares in OJSC MCC are also held by MGTS
(23.5%),  RTDC,  member of the Group (22%),  Telco Overseas  Limited (20%),  LLC
NefTechCom C (8%), and Gamma Group (3%).

MCC is engaged in the operation of NMT 450 MHz cellular network and construction
of CDMA cellular  phone network in Moscow and the Moscow  Region.  It also sells
and leases cellular phones that operate within its network and provides cellular
radio-telephony communications services in Moscow and the Moscow Region.

CJSC Telmos (registered in the Russian Federation)

The Company owns 20% of the voting shares in OJSC Telmos ("Telmos").

Telmos was  established  in April 1993 as a closed  joint stock  company by AT&T
Communication  Services International  Incorporated ("AT&T"),  registered in the
United States, and MGTS.

Prior to June 2001,  the Company's  stake in Telmos was 20%. In June 2001,  AT&T
sold its 40% block of ordinary  shares in CJSC Telmos,  to the Company for U.S.$
17,500,000.  In September  2001, the Company entered into an agreement with OJSC
Aktsionernaya  Finansovaya Kompania Sistema ("AFK Sistema") for the sale of this
entire block of shares for U.S.$ 17,171,000.  Therefore,  as of the end of 2002,
the ordinary  shares of CJSC Telmos were  distributed  as follows:  Rostelecom -
20%,  MGTS - 40%  and AFK  Sistema  - 40%  (See  also  Item  4.A.  "History  and
Development of the Company-Divestures").

The  principal  business  activities  of Telmos  include  the  provision  to its
customers of local,  long-distance  and  international  telephone  services with
dedicated  telephone  numbers out of the Telmos  digital  pool "095" via its own
digital switching system, forming the basis of a primary fiber optic network.

Golden Telecom Inc. (registered in the State of Delaware, USA)

The  Company  owns 15% of the voting  shares in Golden  Telecom,  Inc.  ("Golden
Telecom").  Two  board  members  nominated  by the  Company  sit on the Board of
Directors of Golden Telecom.

Golden Telecom is a facilities-based  provider of integrated  telecommunications
and  Internet  services  to  businesses  and  other  high-usage   customers  and
telecommunications  operators in Moscow,  Kiev, St. Petersburg,  Nizhny Novgorod
and other major population  centers  throughout  Russia and other CIS countries.
Its operations are organized into the four service groups below:

     o    Competitive  Local Exchange  Carrier  ("CLEC")  Services.  Using local
          access overlay  networks in Moscow,  Kiev,  St.  Petersburg and Nizhny
          Novgorod,  Golden Telecom provides a range of services including local
          exchange and access services, international and domestic long-distance
          services,  data  communications,  Internet  access  and the  design of
          corporate networks;

                                      -65-
<PAGE>

     o    Data and  Internet  Services.  Using fiber  optic and  satellite-based
          networks, including 140 combined points of presence in Russia, Ukraine
          and other  countries  of the CIS,  Golden  Telecom  provides  data and
          Internet services including:  (i) Business to Business services,  such
          as data  communications,  dedicated  Internet access,  web design, web
          hosting,  co-location  and  data-warehousing:  and  (ii)  Business  to
          Consumer  services,  such as dial-up  Internet  access and web content
          offered through a family of Internet portals;

     o    Long-Distance Services. Using fiber optic and satellite-based network,
          Golden Telecom provides long-distance voice services in Russia; and

     o    Mobile  Services.  Using mobile networks in Kiev and Odessa,  Ukraine,
          Golden Telecom  provides  mobile services with  value-added  features,
          such as voicemail,  roaming and messaging  services on a  subscription
          and prepaid basis.

Golden Telecom  facilities in Moscow are fully  integrated with its domestic and
international  networks,  as well as with the  networks  of  Rostelecom  and the
Moscow city public telephone network.  Its Moscow metropolitan area networks are
operated by the CLEC Services division of TeleRoss and EDN Sovintel.

Golden  Telecom  consists  of three major  operating  companies,  TeleRoss,  EDN
Sovintel and Golden Telecom  (Ukraine),  and conducts its business in Russia and
the CIS through a network of affiliated or controlled structures.

     4.D. Property, Plant and Equipment

     The principal facilities and properties of Rostelecom consist of buildings,
sites and  telecommunication  facilities such as switches of various capacities,
cable and transmission  devices,  television and radio  broadcasting  equipment,
transportation  vehicles and various mechanisms located throughout Russia. There
are no major encumbrances on the properties owned by Rostelecom.  For additional
information, see Item 4.A. "Business Overview - Network and Facilities."

Rostelecom owns the building in which its principal executive and administrative
offices are located at 14 1st  Tverskaya-Yamskaya  St., 125047 Moscow,  Russia.
Under  Russian  law,  any  transfer of  Rostelecom's  title to this  property is
subject to the prior approval of competent government agencies.  Rostelecom also
owns  offices  and  operational  facilities  throughout  Russia  related  to the
operation of its business. Rostelecom feels that its facilities are adequate for
its present needs.

          Fixed Assets

     The table below shows the value of fixed  assets owned by the Company as of
December 31,  2002.  Values are  expressed in millions of constant  rubles as of
December 31, 2002 purchasing power, according to net book values under IFRS.(1).

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                    December 31, 2002     December 31, 2001      December 31, 2000
------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                     <C>                    <C>
Buildings and sites                                       8,189                   8,711                  9,524
------------------------------------------------------------------------------------------------------------------------
Cables and transmission devices                           35,442                 40,519                  44,186
------------------------------------------------------------------------------------------------------------------------
Other                                                     8,775                   9,596                  11,522
------------------------------------------------------------------------------------------------------------------------
Total(2)                                                  52,406                 58,826                  65,232
------------------------------------------------------------------------------------------------------------------------
</TABLE>

     (1) Refer to Notes 5 and 34 to the  consolidated  financial  statements for
the year ended  December  31, 2002 for details of  differences  of  valuation of
property, plant and equipment under IFRS and U.S. GAAP.

     (2) The Group owns all the property,  plant and equipment listed except for
rented satellite  transponders  which are included under "cable and transmission
devices" and are valued at  approximately  RUR 210 million and RUR 1,757 million
as of December 31, 2002 and 2001,  respectively.  The aggregate value of pledged
property  which  secures loans is RUR 9,117 million as of December 31, 2002 (RUR
15,097  million as of December 31,  2001).  Refer to Note 6 to the  consolidated
financial statements for details.

     Locations of principal property,  plant and equipment are described in Item
4.A.  "History  and  development  of the  Company"  and Item  4.B.  -  "Business
overview".  Major offices of Rostelecom are located in the destination cities of
the  primary  network  located  in Russia,  including  Moscow,  St.  Petersburg,
Novosibirsk, Yekaterinburg, Samara, Rostov-on-Don, and Khabarovsk.

                                      -66-
<PAGE>

     The  Company's  capital  expenditure  program  approved  by  the  Board  of
Directors for the year ending December 31, 2003 projects a capital  expenditures
of RUR 4,521  million.  Refer to Item 4.A. -  "History  and  development  of the
Company" for details of the program. Construction in progress as of December 31,
2002,  2001 and 2000  amounted to RUR 3,872  million,  RUR 3,851 million and RUR
2,023 million, respectively.

          Environmental Compliance

     The Company  believes it is in  compliance  with all material  requirements
relating  to   environmental   protection   and  is  not  in  violation  of  any
environmental  protection laws. Under various  construction  agreements to which
the Company is a party, it assumes obligations to effect payments to cover costs
for regeneration of forests,  agricultural lands etc. In the absence of specific
regulations requiring the Company to separately account for such expenses and as
long  as  certain  amounts  of  such  payments   established  in  the  Company's
construction agreements significantly differ from each other, neither the exact,
nor the average amount of such costs can be positively determined.

Item 5.  Operating and Financial Review and Prospects

     5.A. Operating Results

     The following  discussion of the Group's financial  position and results of
operations should be read in conjunction with the Group's consolidated financial
statements  as of  December  31,  2002 and 2001 and for the  three  years  ended
December  31,  2002,  together  with the  accompanying  notes  and  supplemental
information   appearing   elsewhere   herein   ("the   consolidated    financial
statements"). The consolidated financial statements are comprised of the results
of Rostelecom and its subsidiaries:

     -    RTC-Leasing;

     -    Westelcom;

     -    RIB;

     -    RTComm.RU;

     -    RTDC Holdings, Inc.;

     -    Rostelecomleasing S.A.;

     -    Rostelecomleasing Cyprus; and

     -    AKOS.

     On  January  1,  2000,   the   operations  of  Rostelecom  and  The  Moscow
Long-Distance and  International  Telephone ("MMT") were merged into one entity.
The "pooling of interests" method of accounting was applied in the course of the
merger  with  MMT as  Rostelecom  and MMT  were  under  the  common  control  of
Svyazinvest  which held  50.67% of the voting  shares in each of the  companies.
Under the  pooling of  interests  method the  financial  statement  items of the
merged entities for the period in which the merger occurred were included in the
consolidated  financial statements as if they had been merged from the beginning
of the first period presented.

     The accompanying  consolidated  financial  statements have been prepared in
accordance  and comply  with the  International  Financial  Reporting  Standards
("IFRS"),  which  differ in  certain  respects  from the  accounting  principles
generally  accepted in the United States ("U.S.  GAAP"). For a discussion of the
differences between IFRS and U.S. GAAP insofar as they relate to Rostelecom, see
Note 34 to the accompanying consolidated financial statements.

     Overview

     Rostelecom's  principal  sources of income are revenues  generated from the
provision  of  domestic   long-distance  and  international   telecommunications
services.  Throughout the country the Company renders international and domestic
long-distance  traffic throughput services to Russian operators,  including each
of Russia's seven IRCs, alternative and mobile operators.  The Company currently
is  the  only   telecommunications   operator   licensed   to  carry   wholesale
long-distance  and  international  traffic and  therefore  holds a  monopolistic
position on this market.  Rostelecom  also has the exclusive  right to terminate
the incoming  international  voice traffic from international  operators.  Local
operators,  including IRCs, bill their own local customers for outgoing domestic
long-distance and international  calls, while Rostelecom bills the operators for
the traffic throughput.  International  operators pay Rostelecom for termination
of the incoming  international  traffic to Russia at a  pre-determined  rate per
minute of traffic.  In Moscow,  Rostelecom  provides domestic  long-distance and
international  telecommunications services to end-users through the local access
network  of a  local  operator,  and  bills  customers  directly.  In  addition,
Rostelecom  provides  long-distance   telecommunications   services  to  various
government-funded  entities  and  government   ministries  across  Russia.  In
aggregate,  revenues from

                                      -67-
<PAGE>

domestic  long-distance and  international  traffic (both outgoing and incoming)
represented  approximately  79% and 83% of total revenues  during 2002 and 2001,
respectively.   Revenues  from  outgoing   international   traffic   represented
approximately  30%  and  34%  of  the  total  revenues  during  2002  and  2001,
respectively,   revenues  from  incoming   international   traffic   represented
approximately  15% and 20% of the total  revenues  during  2002 and 2001,  while
revenues from domestic  long-distance  traffic amounted to approximately 34% and
29% of Rostelecom's total revenues during 2002 and 2001, respectively.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Principal markets                                                       Percentages of total revenue represented by
                                                                     domestic long-distance and international traffic
------------------------------------------------------------------------------------------------------------------------
                                                                              2002                       2001
------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                       <C>
Outgoing international traffic                                                 30%                       34%
------------------------------------------------------------------------------------------------------------------------
Incoming international traffic                                                 15%                       20%
------------------------------------------------------------------------------------------------------------------------
Domestic long-distance traffic                                                 34%                       29%
------------------------------------------------------------------------------------------------------------------------
Total revenue from domestic long-distance and international                    79%                       83%
traffic
------------------------------------------------------------------------------------------------------------------------
</TABLE>

Rostelecom owns and operates its network and the international  gateways through
which  the  majority  of  Russia's  domestic  and  international   long-distance
telecommunications  traffic passes.  Rostelecom network connects all of the IRCs
which  in turn  own  and  operate  local  telephone  networks  in  their  areas.
Consequently, Rostelecom does not bill the majority of telephone users directly,
except in the City of Moscow,  Moscow region and certain business  customers and
government agencies elsewhere in Russia.  Instead,  Rostelecom receives payments
from the IRCs or other  entities,  which  bill  their  own local  customers  for
outgoing  domestic  long-distance  and international  calls.  Historically,  the
growth in the volume of  international  traffic  was  limited as a result of the
capacity  constraints  on  the  Russian  telecommunications  network  previously
regulated  under the former Soviet Union.  In recent years,  Rostelecom has made
significant  investments to improve channel capacity for international calls and
to enhance  interconnections  with other  international  operators.  While these
improvements  have increased access for incoming  international  calls, the need
for further development of Rostelecom  domestic  long-distance trunk network and
the IRCs'  networks and the general state of the Russian  economy have continued
to limit outgoing international traffic.

     IRCs  make  payments  to   Rostelecom   for  domestic   long-distance   and
international  traffic  either at a set per minute  rate  ("Integral  Settlement
Rate")  for  the  use of the  Rostelecom  network  (for  domestic  long-distance
traffic)  or a  determined  proportion  of the  amounts  they  charge  to  their
subscribers (for international  long-distance traffic). In July 2001, the linear
component of the ISR was increased by 25%. Effective January 1, 2002, the linear
component of the ISR was  increased by another  25%. For more  information,  see
Item 4.B. "Business Overview."

     Rostelecom  has in the  past  experienced,  and  continues  to  experience,
significant  delays in  payment  from  certain  government-funded  entities  and
government bodies and agencies,  and some international  operators.  The Company
also faces the problem of unauthorized access to its  telecommunication  network
in Moscow which results in the risk that certain amounts billed to the customers
will become non-collectable. Management believes that appropriate allowances for
doubtful accounts receivable were established to cover potential exposure.

     Economic Environment in the Russian Federation

     General

     Over the past decade, Russia has undergone substantial political,  economic
and social  changes.  As an  emerging  market,  Russia  does not possess a fully
developed business and regulatory infrastructure that would generally exist in a
more mature  market  economy.  The current  Government  is attempting to address
these issues. However, it has not yet fully implemented the reforms necessary to
create  banking,  judicial and  regulatory  systems  that usually  exist in more
developed  markets.  As a result,  and as  reflected  in the  Government's  debt
default and ruble  devaluation in 1998,  operations in Russia involve risks that
are not typically associated with those in developed markets. Such risks persist
in the current environment with results that include,  but are not limited to, a
currency that is not freely convertible outside of the country, various currency
controls,  low  liquidity  levels for debt and equity  markets,  and  continuing
inflation.  The Group will continue to be affected,  for the foreseeable future,
by these  risks  and their  consequences.  As a  result,  there are  significant
uncertainties  that may affect  future  operations,  the  recoverability  of the
Group's  assets,  and the  ability of the Group to  maintain or pay its debts as
they mature. For a more detailed discussion of these risks and uncertainies, see
Item  3.D.  "Risk  Factors."  The  Company's   historical   results  and  the
accompanying  consolidated  financial  statements do not include any adjustments
that may  result  from the future  clarification  of these  uncertainties.  Such
adjustments,  if any,  will be reported in the  Group's  consolidated  financial
statements in the period when they become known and can be reasonably estimated.

                                      -68-
<PAGE>

     Currency Exchange and Control

     Foreign currencies,  in particular the U.S. dollar, play a significant role
in the underlying economics of many business  transactions in Russia.  Following
the 1998 economic crisis,  the ruble's value dropped  significantly  against the
U.S. dollar,  falling from a pre-crisis rate of approximately 6 rubles to 1 U.S.
dollar,  to 27 rubles to 1 U.S. dollar by the end of 1999. During 2000, 2001 and
2002, the ruble's value fluctuated between 26.9 and 31.8 to 1 U.S. dollar.

The following table  summarizes the exchange rate of the ruble ("RUR") to 1 U.S.
dollar for the years ended December 31, 2002, 2001, 2000, 1999 and 1998

----------------------------------------------------------------------
As of December 31                                   Exchange rate
----------------------------------------------------------------------
2002                                                    31.78
----------------------------------------------------------------------
2001                                                    30.14
----------------------------------------------------------------------
2000                                                    28.16
----------------------------------------------------------------------
1999                                                    27.00
----------------------------------------------------------------------
1998                                                    20.65
----------------------------------------------------------------------
     Source: Central Bank of Russia

Previously,  the  Central  Bank of Russia  imposed  stringent  currency  control
regulations  designed to promote the commercial  utilization of the ruble.  Such
regulations  placed  restrictions  on the  conversion  of  rubles  into  foreign
currencies  and  established  requirements  for mandatory  conversion of foreign
currency sales into rubles. Aware of the need to expand the operation of Russian
businesses and their access to foreign markets,  the Russian Government has been
regularly amending the Currency Control Law. However,  the amendments to the law
have  been  minor.  According  to the  Central  Bank  of  Russia,  the  currency
regulation  system  is  expected  to be  fully  liberalized  by  2007.  For more
information, see Item 3.D. "Risk Factors - Economic Risks."

     Inflation

     The Russian  economy has been  characterized  by  relatively  high rates of
inflation.  The following table  summarizes the annual rate of inflation for the
years ended December 31, 2002, 2001, 2000, 1999 and 1998:

----------------------------------------------------------------------
For the years ended December 31 -                 Annual inflation
----------------------------------------------------------------------
2002                                                    15.1%
----------------------------------------------------------------------
2001                                                    18.8%
----------------------------------------------------------------------
2000                                                    20.2%
----------------------------------------------------------------------
1999                                                    36.6%
----------------------------------------------------------------------
1998                                                    84.8%
----------------------------------------------------------------------
     Source: State Committee on Statistics of Russian Federation

     Taxation

     Russia  currently  has a number of laws related to various taxes imposed by
both federal and regional governmental authorities. The ongoing tax reform tends
to  simplify  tax  legislation,  reduce the number of taxes and tax rates,  and,
thus, the overall tax burden on businesses.

     The  reform  is  connected  to the  enforcement  of the Tax  Code  which is
intended to replace all the existing  tax laws.  The first part of the Tax Code,
which deals with the fundamentals of the tax system, became effective on January
1, 1999.  The second part of the Tax Code became  effective  on January 1, 2001,
while several chapters became effective on January 1, 2002.

     Applicable  taxes  include value added tax,  corporate  income tax (profits
tax),  turnover based taxes,  and unified social tax, among others.  Legislation
related to these  taxes is  relatively  new and  untested,  in  contrast to more
developed  market  economies.  Tax  declarations,   together  with  other  legal
compliance  areas (for  example,  customs and  currency  control  matters),  are
subject  to  review  and  investigation  by a  number  of  authorities,  who are
authorized  by law to impose  extremely  severe  fines,  penalties  and interest
charges.  These  circumstances  create  tax risks in Russia  substantially  more
significant  than typically  found in countries with more developed tax systems.
For a more detailed discussion of these tax risks, see Item 3.D. "Risk Factors -
Legal Risks."

                                      -69-
<PAGE>

     Critical Accounting Policies

     The Group's discussion and analysis of its financial  condition and results
of operations are based upon its consolidated  financial  statements prepared in
accordance with the International  Financial Reporting  Standards.  The reported
financial  condition and results of operations of the Group are sensitive to the
accounting  methods,   assumptions  and  estimates   generally   underlying  the
preparation  of financial  statements.  The  management of the Group  identified
several  "critical  accounting  policies" to assist in understanding the Group's
consolidated  financial statements.  These policies have the potential to have a
significant  impact on the Group's  financial  statements  either because of the
significance  of the financial  statement item to which they relate,  or because
they require  judgement and use of  estimates.  The Group bases its estimates on
historical  experience and on various other  assumptions that the Group believes
are reasonable under the  circumstances.  These results and assumptions form the
basis for making  judgments  about the carrying values of assets and liabilities
not readily  apparent from other  sources.  Actual results may differ from these
estimates under different assumptions or conditions.

     Accounting  for the effects on  inflation  and changes in foreign  exchange
rates  was also  determined  as the  "critical  accounting  policy"  as it has a
pervasive  impact on the Group's  financial  statements  taken as a whole and is
important  for better  understanding  of the  financial  position and results of
operations of the Group as well as for analysis of trends and making comparisons
of current year information with prior years data.

     Principles of Consolidation

     The  Group  comprises  the  Company,   its   subsidiaries  and  associates.
Transactions   and  balances  between  the  Company  and  its  subsidiaries  are
eliminated,  and accounting policies of the subsidiaries are adjusted to conform
to those of the Group.  A  subsidiary  is an entity  that is  controlled  by the
Company, either through ownership,  directly or indirectly,  of more than 50% of
the voting share  capital of the entity,  or by other means.  As of December 31,
2002, the Group comprised the following subsidiaries:

     -    RTC-Leasing;

     -    Westelcom;

     -    RIB;

     -    RTComm.RU;

     -    Rostelecomleasing S.A.;

     -    Rostelecomleasing (Cyprus);

     -    RTDC Holdings, Inc; and

     -    AKOS.

The company owns 27.13% of the voting shares of RTC-Leasing.  Nevertheless,  the
management of the Company  believes  that it continues to exercise  control over
the management,  policies and day-to-day operations of RTC-Leasing.  Before 2001
the  principal  counterparty  as  lessee  to  finance  leases  entered  into  by
RTC-Leasing was Rostelecom.  The Company guarantees  significant amounts of debt
of RTC-Leasing and has a right to appoint the majority of the Board of Directors
of  RTC-Leasing.  Therefore the Company  continues to consolidate the results of
operations and financial position of RTC-Leasing.

Associates  in which the Group has  significant  influence but not a controlling
interest are accounted for using the equity  method of  accounting.  Significant
influence is usually  demonstrated by the Group owning,  directly or indirectly,
between  20% and 50% of the  voting  share  capital or by  exerting  significant
influence  through other means. The Group's share of the net income or losses of
associates  is included in the  consolidated  statement of  operations,  and the
Group's share of the net assets of  associates  is included in the  consolidated
balance  sheet.  An assessment of  investments  in

                                      -70-
<PAGE>

associates  is  performed  when there is an  indication  that the asset has been
impaired or the impairment  losses  recognized in prior years no longer exist. A
judgmental  aspect of accounting for investments is involved when  determination
of factors,  which may indicate the potential  impairment of the investment,  is
made.  For the purposes of such  assessment the management of the Group uses the
information  on the fair value of the  investment  as compared  to its  carrying
value, information on the financial condition of the investee company as well as
other  known  factors  which  may have an impact  on the  carrying  value of the
investment in the near future.

In case the  share in an  entity  is  between  20% to 50% and is  acquired  with
intention to sell it in a foreseeable  future,  such investment is accounted for
as investment  available-for-sale and is stated at the fair value. Determination
of the fair value of assets is  judgmental  by nature and often  involves use of
significant  estimates  and  assumptions.  The  management  of the Group engaged
independent  appraisers  to assist  in the  determination  of the fair  value of
certain   available-for-sale   investments   (such   as   investments   in  NCC,
Baikalwestcom   and   Yeniseitelecom).   The  most  significant   estimates  and
assumptions  used to determine fair value relate to the estimation of the amount
and timing of future cash flows,  discount rate,  determination of the perpetual
growth rate and some others.  Most of the assumptions are based on the available
historic and market information.

     Property, Plant and Equipment

     For the  purpose of  determining  the  opening  balance  sheet on the first
application of IFRS on January 1, 1994, the Company performed a valuation of the
property,  plant and equipment,  as reliable  historical  cost  information  and
information  regarding  their  acquisition  dates  was  not  available.  A brief
description of the  methodology  applied in performing this valuation is set out
below for each major asset category:

     -    Buildings and on-site engineering communications - current replacement
          cost;

     -    Cable and transmission devices - current replacement cost;

     -    Trunk network exchanges - modern equivalent asset; and

     -    Assets in the course of construction - indexed historic cost.

     Cost or valuation of the network  comprises all the  expenditures up to and
including  the cabling and wiring to the local  telephone  operator's  intercity
exchange, and includes contractors' charges and payments on account,  materials,
direct labour,  and interest costs on specific project  financing up to the date
of commissioning of the relevant assets.

     Subsequent  expenditures are capitalized if it can be clearly  demonstrated
that they  extend the life of the asset or  significantly  increase  its revenue
generating  capacity  beyond its originally  assessed  standard of  performance.
Expenditures for ongoing repairs and maintenance are charged to the statement of
operations as incurred.  Assets acquired to satisfy basic needs of the Company's
employees (for example, in remote districts) are expensed upon acquisition.

     Items of  property,  plant and  equipment  that are  retired  or  otherwise
disposed of are eliminated  from the balance sheet along with the  corresponding
accumulated  depreciation.  Any gain or loss resulting  from such  retirement or
disposal is included in the determination of net income.

     Depreciation   of  property,   plant  and  equipment  is  calculated  on  a
straight-line  basis from the time the assets are  available for use, over their
estimated useful lives (see Note 5 to the consolidated  financial statements for
details).  Determination  of  useful  lives of the  assets  involves  subjective
judgment of management with respect to estimated  periods of their business use.
Changes  in the  Group's  intended  period of use of a certain  asset as well as
changes  in  technology  may cause  the  estimated  useful  life of the asset to
change. The useful lives and depreciation  methods are reviewed  periodically to
ensure that the methods and the periods of depreciation  are consistent with the
expected  pattern  of  economic  benefits  from  items of  property,  plant  and
equipment.

     At each balance sheet date an assessment is made as to whether there is any
indication  that the  Group's  assets may be  impaired.  If any such  indication
exists, an assessment is made to establish whether the recoverable amount of the
assets has declined  below the  carrying  amount of those assets as disclosed in
the financial statements. Where such a decline has occurred, the carrying amount
of the  assets is  reduced  to the  recoverable  amount.  The amount of any such
reduction  is  recognized   immediately  as  an  expense  in  the  statement  of
operations.  Any  subsequent  increase in the  recoverable  amount of the assets
would be  written  back when the  circumstances  that led to the  write-down  or
write-off  cease  to  exist  and  there  is  persuasive  evidence  that  the new
circumstances and events will persist for the foreseeable future.

     Determination  of fixed  assets'  impairment  involves the use of estimates
which include,  but are not limited to, the cause,  the timing and the amount of
the  impairment.  In  evaluating  impaired  fixed  assets,  the Group  typically

                                      -71-
<PAGE>

     considers  technological  obsolescence,  suspension  of services  and other
changes in circumstances.  The recoverable amount is determined as the higher of
the assets' net  selling  price and value in use.  The value in use of assets is
estimated  based on forecast future cash inflows and outflows to be derived from
continued  use of the assets and from the  estimated  net  proceeds on disposal,
discounted to present value using an appropriate discount rate. Management makes
judgments and estimates regarding amount and timing of the future cash flows and
the discount rate to be used.  Management  uses  estimates as to future  revenue
streams,  effects of liberalization of the Russian  telecommunication  industry,
discount rates and others. Had management used different estimates,  these could
have  resulted in the need to recognize  impairment  charge.  Recognition  of an
impairment  charge  would  reduce  the  carrying  value of  property,  plant and
equipment as of December 31, 2002,  increase operating expenses and decrease the
net income for the year ended December 31, 2002.

     The Group reviewed for impairment property,  plant and equipment to be held
and used, and based on this analysis, the Group believes that the carrying value
of  property,  plant  and  equipment  reflected  in the  consolidated  financial
statements as of December 31, 2002 does not exceed their recoverable value.

     Effects of Inflation and Changes in Foreign Exchange Rates

     IAS 29, "Financial Reporting in Hyperinflationary Economies," requires that
financial statements prepared by companies in  hyperinflationary  economies on a
historical  cost basis be adjusted to take account of the effects of  inflation.
The accompanying  consolidated  financial statements have been restated in terms
of the purchasing  power of the measuring  unit current at the latest  presented
balance  sheet  date,  and the net gains or losses  arising on the net  monetary
position  of assets and  liabilities  during  the  periods  presented  have been
included in the statement of operations and disclosed separately.  The Group has
utilized  the  General  Price  Index  ("GPI")  issued by  Goskomstat,  the State
Committee on Statistics of Russian Federation, in the application of IAS 29.

     Substantially  all of the  Group's  revenue,  except for the  revenue  from
international  operators,  which is denominated in U.S. dollars or other foreign
currencies or equivalents,  is denominated in rubles.  Most of its costs,  other
than  payments to other  international  operators and certain  domestic  service
providers and interest paid on foreign  denominated  debt,  are  denominated  in
rubles.  Therefore,  Rostelecom's performance results from international traffic
and,   accordingly,    year-to-year   comparisons   of   Rostelecom's   incoming
international  traffic  revenues  are  significantly  affected  by the  relative
movements of domestic inflation and ruble exchange rates.

     The following example  illustrates the effects of relative movements of the
inflation  and ruble  exchange  rates on the  revenues  annually  received  from
foreign operators:  if foreign currency  international incoming traffic revenues
for any periods being compared  remain at the same level but between the periods
the rate of  devaluation  of the  ruble  is  slower  than  the  rate of  Russian
inflation,  the related  revenues  expressed in constant rubles decline from one
period to the next.  Conversely,  if the rate of devaluation exceeds the rate of
inflation,  such revenues  expressed in constant rubles increase from one period
to the next.  During  1998,  the ruble  devaluation  rate  exceeded  the rate of
inflation, while in 1999 - 2002, it was less than the rate of inflation.

     Currently,  the  Group  does not use nor  plans to use  hedging  to  insure
against such foreign currency fluctuations.

     The following  table  illustrates the effects of both exchange rate changes
and the  indexation of historical  amounts to adjust for Russian  inflation on a
fixed amount of U.S. dollar revenues:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
     Payment date             U.S.$      Rubles to     Rubles amount      Decrease       Increase        Amount in
                            amount of      U.S.$         initially        in value        in GPI          constant
                             payment     exchange        recognized       of Rubles        from          Rubles in
                                          rate at                          against        payment         terms of
                                          time of                        U.S.$ from       date to        purchasing
                                          payment                          payment       December       power as of
                                                                           date to       31, 2002       December 31,
                                                                          December                          2002
                                                                          31, 2002
------------------------------------------------------------------------------------------------------------------------
<S>                              <C>           <C>                <C>           <C>         <C>                 <C>
January 1, 1998                  100           5.96               596           433%        315.23%             2,475
------------------------------------------------------------------------------------------------------------------------
December 31, 1998                100          20.65             2,065            54%        124.64%             4,639
------------------------------------------------------------------------------------------------------------------------
December 31, 1999                100          27.00             2,700            18%         64.32%             4,437
------------------------------------------------------------------------------------------------------------------------
December 31, 2000                100          28.16             2,816            13%         36.79%             3,852
------------------------------------------------------------------------------------------------------------------------
December 31, 2001                100          30.14             3,014             5%         15.12%             3,470
------------------------------------------------------------------------------------------------------------------------
December 31, 2002                100          31.78             3,178              -              -             3,178
------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -72-
<PAGE>

     The  application  of IAS 29 to  specific  categories  of  transactions  and
balances within the consolidated financial statements is set out as follows:

     Corresponding Figures

     Corresponding figures for the previous reporting periods have been restated
by applying to the amounts included in the previous years' financial  statements
the change in the GPI. Comparative  financial information is therefore presented
in terms of the measuring unit current as of December 31, 2002, being the latest
date for which financial statements are presented.

     Monetary assets and liabilities

     Cash and cash  equivalents,  available-for-sale  investments,  receivables,
payables,  interest bearing loans,  current taxation and dividends have not been
restated as they are monetary  assets and  liabilities  and are stated in rubles
current at the balance sheet date.

     Gains or losses on the net  monetary  position  of assets  and  liabilities
which arise as a result of inflation, are computed by applying the change in the
GPI to the monetary assets and monetary liabilities during the period.

     Non-monetary assets and liabilities

     Non-monetary  assets and  liabilities are restated from their historic cost
or valuation by applying the change in the GPI from the date of  recognition  to
the balance sheet date.

     Consolidated statements of operations and cash flows

     Items included in the  consolidated  statement of operations and cash flows
are  restated  by  applying  the change in the GPI from the dates when the items
were initially recorded to the balance sheet date.

     Revenue and Operating Costs Recognition

     Revenue and  operating  costs for all  services  supplied  and received are
recognized at the time the services are rendered.  Revenue is recognized when it
is probable that the economic benefits associated with the transaction will flow
to the  enterprise and the amount of revenue can be reliably  measured.  Revenue
recognition requires judgement to be used as to the probability of the inflow of
economic benefits to the Group,  i.e. expected  conversion of revenue streams to
cash  collected.  Use of such judgment for the purpose of establishing a revenue
recognition policy is widely used in  telecommunications  industry in connection
with settlements with long-distance telecommunication operators.

     The   Company   charges    regional    telephone    operators   and   other
telecommunications  service  providers in Russia either an agreed  proportion of
the amounts they  collect  from  subscribers  or an agreed  settlement  rate per
minute of  traffic.  For  outgoing  telephone  traffic  originating  in  Moscow,
subscribers are charged directly by the Company.

     The Company  charges fees to foreign  network  operators for incoming calls
and other  traffic  that  originate  outside  Russia.  The Company is charged by
foreign operators for completing international calls.

     These  revenues  and costs are shown in gross  amounts in the  accompanying
consolidated financial statements,  and exclude value added tax. Amounts payable
to and  receivable  from the same  operators  are shown net in the balance sheet
where a legal right of offset exists.

Segment information

The primary segments of the Group are as follows:

     -    Telecommunications services
     -    Lease services
     -    Banking and investing activities

Approximately   99%  of  the   revenues   of  the   Group  are   received   from
telecommunications  services.  Revenues  from  telecommunications  services  are
reported according to the types of customers and the types of services provided.
In the opinion of management, this is the most relevant presentation of revenues
from the telecommunication services. The Group determined the following types of
customers to be reported  separately:  subscribers,  local operators and foreign
operators.  Under these types of customers the Group reports the following types
of services provided, based on their materiality:

                                      -73-
<PAGE>

Subscribers

- Telephone - international
- Telephone - domestic
- Internet access
- Cellular services

Local operators

- Telephone international
- Telephone domestic

- Other income from local operators

Foreign operators

- Telephone
- Telex, telegraph and other
- Leased lines

All other types of revenues are reported as other revenue.

     Allowance for doubtful accounts

     The Group analyzes its accounts  receivable for recoverability on a regular
basis. The allowance  estimation process requires management to make assumptions
based on the  historical  results,  future  expectations,  assessment of general
economic environment and changes in the creditworthiness of the Group's debtors.
Such estimates and assumptions may have significant impact on the carrying value
of the accounts receivable and on the amount of bad debt expense. The percentage
of general allowance is based on types of customers,  history of debt collection
per customer types and age of debt.  Specific  allowance is established based on
the analysis of significant  debtors on an individual basis.  Historically,  the
major part of allowance  for doubtful  accounts  relates to accounts  receivable
from subscribers in Moscow.

     Had the Group  recorded the allowance for doubtful  accounts as of December
31, 2002 based on the same pattern of the percentage of doubtful accounts in the
total balance of trade  accounts  receivable as at December 31, 2001, the amount
of the allowance  for doubtful  accounts as of December 31, 2002 would have been
RUR 1,575  million,  i.e.  approximately  29% lower than the allowance  actually
recorded.  This would  result in an increase of accounts  receivable  of RUR 639
million,  a decrease of bad debt expense of RUR 639 million,  and an increase of
net income of RUR 485 million, net of taxes.

     The major reason for the increase of the allowance for doubtful accounts in
2002 as compared to the allowance  recorded in 2001 is the  unauthorized  access
problem  faced by the  Company  in Moscow  which  resulted  in more  collections
problems in 2002. At the end of 2002  Rostelecom  entered into an agreement with
other local  operators in Moscow to undertake  joint  efforts for  prevention of
unauthorized access to the telecommunication network in the city.

     Related Party Transactions

     The  Group  has  entered  into a  number  of  related  party  transactions,
including  transactions  with the Svyazinvest  Group and other  affiliates.  See
further details of such  transactions in Note 28 to the  consolidated  financial
statements and in Item 7.B. "Related Party Transactions."

Financial Results for the Years Ended December 31, 2002 and 2001

     In accordance with IAS 29, Rostelecom's  financial information for 2002 and
2001 has been  restated in constant  Russian  rubles as of December  31, 2002 to
take into account the effects of Russian inflation. This restatement in constant
rubles affects reported amounts. Under IAS 29, even if comparable amounts of the
financial  statements  in 2002 and 2001 in  nominal  rubles had been at the same
level, because of inflation of 15.1% in 2002, such amounts expressed in constant
rubles would have declined from 2001 to 2002.

     Revenues

     The Group's  total 2002  revenues  decreased by 7.0% to RUR 28,141  million
from RUR 30,269 million in 2001.  The decline in revenue is primarily  explained
by inflation of 15.1% in 2002 and 18.8% in 2001,  since most of the tariffs were
not adjusted for the  inflation  rate.  Furthermore,  the Group's  revenues from
local  operators  increased due to rapidly  growing  traffic  volumes and rising
settlement   rates,  but  this  was  offset  by  a  decrease  in  revenues  from
international  operators for incoming international traffic as well as a decline
in revenues from Moscow subscribers.

     Revenues from local operators represented 49.8% and 44.1% of total revenues
in 2002 and 2001, respectively.  Revenues from local operators increased by 5.1%
to RUR 14,016  million in 2002  compared  to RUR  13,337  million in 2001,  as a
result of an increase in domestic  long-distance and  international  traffic and
increased  domestic  long-distance  settlement  rates  for IRCs.  The  growth in
traffic, both outgoing international and domestic long-distance, is attributable

                                      -74-
<PAGE>

to the increase in fixed-line penetration level in Russia, ongoing growth in the
number  of  mobile  subscribers,  and a surge in income  per  capita in  Russia,
accompanied by the ongoing  modernization of Rostelecom network.  Surging income
per  capita  and  growth in the  number of  fixed-line  and  mobile  subscribers
resulted in growing demand for domestic and international long-distance services
in Russia.  This led to the  growth of local  operators'  need for  Rostelecom's
transit services and therefore had a positive impact on the Company's  revenues.
By modernizing its network,  Rostelecom enhances its ability to meet the growing
demand.  The effects of the increased domestic  long-distance  settlement rates,
however, were partially offset by the impact of inflation.

     Revenues from local operators for domestic  long-distance traffic increased
by 17.5% to RUR 5,895  million in 2002 as compared to RUR 5,016 million in 2001.
The increase in revenue from local operators for domestic  long-distance traffic
transit  was due to an 18%  growth in  traffic  and  increased  tariffs  (linear
component of the Integral  Settlement  Rate) used for settlements  with IRCs (as
noted in the "Overview"  section  above),  the effects of which,  however,  were
partially offset by the impact of inflation.

     Revenues from local operators for outgoing  international traffic decreased
by 6.3% to RUR 5,025  million in 2002 from RUR 5,364  million in 2001.  Outgoing
international traffic from local operators grew by 30.5% to 892 million minutes.
The impact of this traffic  growth on the  revenues was offset by reduced  rates
charged to  alternative  operators as  Rostelecom  introduced a new  competitive
pricing  policy.  The revenues were also  otherwise  negatively  impacted by the
effects of inflation.

     Other income from local operators increased by 4.7% to RUR 3,096 million in
2002 compared to RUR 2,957 million in 2001. Income from local operators consists
of revenues  from leased  lines  services and other  services  rendered to local
operators including equipment rent and maintenance. The growth in revenue is due
to higher prices for leased lines and increased sales volumes.

     Revenues from Rostelecom's subscribers, which mainly consist of subscribers
in Moscow,  represented  28.1% of total 2002 revenues compared to 28.6% in 2001.
In 2002,  revenues from subscribers  decreased by 8.5% to RUR 7,913 million from
RUR 8,648  million in 2001.  The decline in revenue from Moscow  subscribers  is
explained by an extremely competitive situation in the Moscow market, especially
in the corporate customer segment.  For a more detailed  discussion of the risks
and uncertainties related to revenues from Moscow, see Item 3.D. "Risk Factors -
Risks  Relating to the  Company's  Business - The Company faces risks related to
its end-user business in Moscow".

     Revenues from  subscribers in Moscow for  international  telecommunications
services  dropped 30.1% to RUR 3,462 million in 2002 from 4,951 million 2001 due
to the  decrease in the outgoing  international  traffic of 13.9% to 343 million
minutes  (caused  by  intense  competition  in  Moscow) as well as the impact of
inflation.

     Revenues   from   subscribers   in  Moscow   for   domestic   long-distance
telecommunications  services decreased by 5.0% to RUR 3,513 million in 2002 from
RUR 3,697 million in 2001 due to the impact of inflation which was partly offset
by traffic growth of 4.5% to 1,211 million minutes.

     In 2002 the Group's revenues from  subscribers also included  revenues from
Internet and mobile  telecommunication  businesses,  representing  activities of
RTComm.RU and AKOS,  respectively,  which the Group started  consolidating  from
January  2002  and  April  2002,  respectively  (please,  refer to Note 7 to the
accompanying  consolidated  financial  statements).  Internet access revenues in
2002 amounted to RUR 849 million, while revenues from mobile subscribers reached
RUR 89 million for the nine months ended December 31, 2002.

     In  2002,  revenues  from  foreign  operators  represented  18.1%  of total
revenues compared to 22.6% in 2001. Revenues from foreign operators decreased by
25.6% to RUR 5,100 million in 2002 from RUR 6,852 million in 2001. The growth in
the incoming  international  traffic of 12% from 869 million  minutes in 2001 to
973.3  million in 2002 was offset by the  decline  in  international  settlement
rates and impact of inflation.  The growth in traffic is  attributable to a more
active  interaction  with  international  operators  in  2002  as  well  as  the
introduction of a flexible market-based pricing strategy.

     Rostelecom's  incoming  international  traffic  revenues are  significantly
affected by the relative  movements  of domestic  inflation  and ruble  exchange
rates. In accordance with IAS 29,  Rostelecom's  financial  information for 2002
and 2001 has been restated in constant Russian rubles as of December 31, 2002 to
take into account the effects of Russian inflation.  Therefore,  even if foreign
currency  international  incoming  traffic revenues in 2002 and 2001 were at the
same level, but the rate of devaluation of the ruble was slower than the rate of
Russian  inflation,  as it was in the period of 2001 to 2002,  then the  related
revenues expressed in constant rubles would have declined from 2001 to 2002.

                                      -75-
<PAGE>

     Revenues from the leasing services  amounted to RUR 297 million in 2002 and
were  insignificant  in 2001.  The main reason for the growth was the signing by
RTC-Leasing a number of contracts with Svyazinvest's IRCs in 2002, while in 2001
most of the revenue of RTC-Leasing  was received from  Rostelecom and eliminated
in consolidation.

     Revenues from banking and investing  activities  amounted to RUR 23 million
in 2002 which represent  consulting  services  rendered by RTDC.  Since RTDC was
only acquired in 2002, the Group did not account for such services in 2001.

     Operating Expenses

     Total operating expenses decreased by 4.6% to RUR 26,386 million during the
year ended  December  31,  2002 from RUR 27,649  million in 2001,  mainly due to
decrease in following expense lines:  Charges by international and local network
operators,  Taxes other than on income, and Wages, salaries,  other benefits and
payroll  taxes.   This  reduction  in  expenses  was  partly  offset  by  higher
depreciation expense and bad debt expense.

     During the year ended  December 31, 2002,  wages,  salaries and other staff
costs  decreased by 4.5% to RUR 3,704  million in 2002 from RUR 3,877 million in
2001,  generally due to the effects of inflation partly offset by the indexation
of salaries and termination benefits, or "redundancy payments",  paid to retired
or  terminated  employees,  resulting  from  headcount  reductions as Rostelecom
optimises its  organizational  structure,  modernizes its network and phases out
analogue lines. These processes are likely to continue,  and in 2003 the Company
expects  that its  staff  costs  will  remain  flat as  decreases  in  number of
employees will be offset by termination  benefits and further salary indexation.
In 2002, the Company reduced headcount by about 9%.

     Depreciation  of property,  plant and  equipment  increased by 13.9% to RUR
9,106  million in 2002  compared to RUR 7,997  million in 2001.  During 2002 the
Company  formalized  a plan to  discontinue  using  certain  satellite  channels
beginning in February 2003. The Company has accordingly  revised its estimate of
the  remaining  period  of  use of  the  satellite  channels.  As a  result,  an
additional depreciation expense of RUR 897 million was recognized.  In addition,
depreciation of property, plant and equipment of RTComm.RU and Westelcom,  which
were consolidated beginning in 2002, amounted to RUR 96 million in 2002.

     Charges by  international  network  operators for  termination  of outgoing
international calls during the year ended December 31, 2002,  decreased by 22.3%
to RUR 5,779  million  in 2002 from RUR 7,438  million in 2001.  This  reduction
resulted  from a  decrease  in  the  tariffs  billed  by  international  network
operators.  Tariff decreases are  attributable to Rostelecom's  interaction with
international  operators on mutual  optimisation of settlement rates. The impact
of the  tariff  decrease  was  partly  offset by the 14%  increase  in  outgoing
international traffic.

     Charges by local network  operators during the year ended December 31, 2002
decreased by 22.1% to RUR 1,707  million in 2002 from RUR 2,190 million in 2001.
This decrease was primarily due to the impact of inflation on ruble  denominated
settlement rates as well as the elimination of costs charged by Westelcom,  as a
result of consolidation. Rostelecom began consolidating Westelcom in April 2002.
For more information on consolidation of Westelcom please refer to Note 7 to the
accompanying consolidated financial statements.

     Administrative and other expenses generally remained flat - the increase by
3% to RUR  3,454  million  in 2002  compared  to RUR  3,349  million  in 2001 is
explained  primarily by the effect of consolidation of subsidiaries  acquired in
2002.

     Taxes other than on income  decreased  by 46.7% to RUR 872 million from RUR
1,635 million in 2001 as tax risk allowance was reduced in 2002 compared to 2001
due to a change in management's view on taxation related risks.

     Bad debt  expense  amounted  to RUR 863  million in 2002 as compared to the
recovery of bad debts of RUR 28 million recognized in 2001. The major reason for
the increase of the  allowance  for  doubtful  accounts is  unauthorized  access
problem faced by the Company in Moscow.  At the end of 2002  Rostelecom  entered
into an  agreement  with other  local  operators  in Moscow to  undertake  joint
efforts for prevention of unauthorized access to the  telecommunication  network
in the city.  For a more  detailed  discussion  of the  risks and  uncertainties
related to doubtful  accounts  related to Moscow,  see Item 3.D. "Risk Factors -
Risks  Relating to the  Company's  Business - The Company faces risks related to
its end-user business in Moscow".

     Operating Profit

     In 2002,  operating  profit  decreased by RUR 865  million,  or 33%, to RUR
1,755 million from RUR 2,620 million in 2001. As a result,  the operating margin
fell from 8.7% in 2001 to 6.2% in 2002.

                                      -76-
<PAGE>

          Net Interest Expense and Other Non-Operating Items, including
          Income from Sale of Investments, Other Non-Operating Income,
               Net Foreign Exchange Gain (Loss) and Monetary Gain

     Net interest  expense and other  non-operating  items  decreased from a net
gain of RUR 1,463  million  in 2001 to a net gain of RUR 1,139  million in 2002.
This was  primarily  due to a decrease of monetary  gain of RUR 2,472 million in
2001 to RUR 165 million in 2002,  a foreign  currency  exchange  loss of RUR 983
million in 2002 compared to a foreign currency  exchange gain of RUR 291 million
in 2001,  that was partly offset by a gain from the sale of  investments  of RUR
1,840  million in 2002 (zero in 2001).  Interest paid  decreased  from RUR 1,515
million in 2001 to RUR 869  million,  mainly due to the  decrease of the average
balance of  outstanding  loans and the  decrease  of  interest  rates in 2002 as
compared to 2001.

     The  monetary  gain of RUR 165 million and RUR 2,472  million for the years
ended December 31, 2002 and 2001, respectively, resulted from the application of
IAS 29 and represents the gain on holding net monetary  liabilities  denominated
in  rubles  and  other  currencies  during  an  inflationary  year.  The gain is
calculated  by  applying  the  change  in the GPI to the  average  net  monetary
position   (i.e.,   the  difference   between   monetary   assets  and  monetary
liabilities).

     In 2002 the Group recognized net income from the sale of investments of RUR
1,840 million. This gain represented primarily income from sale of the Company's
50% share in  Sovintel  of RUR 1,733  million  and income from sale of its 33.3%
interest in  Dontelecom,  an entity  owned by RTDC  Holdings,  Inc.,  of RUR 116
million.  For  more  details  please  refer  to  Note  13  to  the  accompanying
consolidated financial statements.

     Interest  expense  amounted  to RUR 869  million in 2002.  This  amount was
allocated between industry segments of the Group as follows (in RUR million):

                                  Before                               After
Segment                     eliminations       Eliminations     eliminations

Telecommunications                 2,839            (2,576)              263
Leasing                              473                  -              473
Banking and Investing                133                  -              133
Total                              3,445            (2,576)              869

     Eliminated  interest  expense  principally  represents  interest charged by
RTC-Leasing for telecommunication equipment leased to the Company.

     Income Tax Expense

     The  Group's  2002  income tax  expense  amounted  to RUR 1,538  million as
compared  to an income tax benefit of RUR 881 million  reflected  in 2001.  Such
variation  was  primarily due to a change in the income tax rate from 35% to 24%
as of January 1, 2002, and consequential gain of RUR 5,000 million recognized in
2001 in  connection  with the decrease of deferred tax  liability as of December
31, 2001.

     About 94% of income tax of the Group is charged  under  legislation  of the
Russian  Federation.  Management of the Group  believes that it is unlikely that
income tax rate of 24% effective in the Russian  Federation from January 1, 2002
will be changed in the foreseeable future.

     Subsequent Events

     In February 2003, due to the fire in one of the Moscow  telephone  stations
equipment of the Group's associates, Telmos and Golden Telecom was significantly
damaged.  The  Group's  share of the losses  incurred by these  associates  as a
result of this event in 2003 will be limited to RUR 150 million.

     In  2003,  the  Group  sold  its  investments  in  NCC,  Baikalwestcom  and
Yeniseitelecom  to  companies  within the  Svyazinvest  Group for the  following
prices (in RUR million):

<TABLE>
<CAPTION>
Investment                   Interest sold      Sales price received         Carrying value of investments as of
                                                                             December 31, 2002 net of associated
                                                                                      negative goodwill
---------------------------------------------------------------------------------------------------------------------
<S>                                <C>                       <C>                             <C>
NCC                                50%                       636                             574
Baikalwestcom                      49%                       270                             300
Yeniseitelecom                     49%                       397                             303
---------------------------------------------------------------------------------------------------------------------
Total                                                      1,303                           1,177
---------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -77-
<PAGE>

     Two credit  facility  agreements  were entered into between  Rostelecom and
Vneshtorgbank  in  February  2003 under which  maximum  amounts of up to JPY 880
million and JPY 105 million,  respectively,  were  available in order to finance
the  modernization of the Moscow to Novorossiysk FOL. Both credit facilities are
available  until February 25, 2005. The amounts drawn are payable in seven equal
semi-annual  installments,  beginning February 2003, and must be fully repaid by
February 26, 2007.  The interest rate on both  arrangements  is 5.75% per annum.
Interest of 0.25% per annum is accrued on the unused amount of each facility. As
of June 25, 2003, the principal amounts drawn and outstanding under these credit
facilities were JPY 880 million (RUR 226 million at the exchange rate as of June
25, 2003) and JPY 9.36 million (RUR 2.4 million at the exchange  rate as of June
25, 2003), respectively.

On September 3, 2001, a tripartite  agreement (the  "Consortium  Agreement") was
executed among Rostelecom and Rostelecom-Garantia, both of which originally held
in the  aggregate  100% in the share capital of  RTC-Leasing  as of September 3,
2001 (collectively,  the "Initial  Shareholders"),  CJSC North-West Telecombank,
Non-Profit  Partnership Center for  Telecommunications  Problems Research,  RIB,
CJSC  Gamma-Invest and CJSC CFP-Finance  (collectively,  the  "Consortium")  and
RTC-Leasing.  The primary goal of the  Consortium  Agreement was the increase of
the market value of the RTC-Leasing shares.

In May, 2003 (the "Signing Date"), the Initial Shareholders,  the Consortium and
RTC-Leasing  signed a supplement to the Consortium  Agreement (the "Supplemental
Agreement")  which  obligated the  Consortium to perform  certain  actions which
should result in:

     o    Writing-off the Company's liabilities to RTC-Leasing in the amount not
          less than RUR 1.8  billion  within a 6-month  period from the Signing
          Date;
     o    Selling    shares   of    RTC-Leasing    owned   by   Rostelecom   and
          Rostelecom-Garantia  for total amount of not less than RUR 750 million
          within a 6-month period from the Signing Date;
     o    Cancellation  of all guarantees and pledges  provided by Rostelecom in
          respect of loans payable by RTC-Leasing  within a 12-month period from
          the Signing Date.

     For  additional  information,  see Item 4.C.  "Organizational  Structure  -
RTC-Leasing".

     In June 2003, the Group signed an agreement with Alfa Bank (Russia) related
to the restructuring of debt owed to Vnesheconombank. Pursuant to the agreement,
the  Group  debt to  Alfa-bank  shall be  converted  into  5.94%  notes  payable
totalling US$ 100 million (RUR 3,178 million)  repayable within 36 months in six
equal  semi-annual  installments  of  US$  16.7  (RUR  530  million)  each.  For
additional information see Item 5.B - "Liquidity and Capital Resources" and Note
18 to the accompanying consolidated financial statements.

     Results of Operations for the Years Ended December 31, 2001 and 2000

Revenues

The Group's total  revenues for the year ended December 31, 2001 amounted to RUR
30,269  million  compared to RUR 34,085  million  during  2000.  The decrease of
11.19% is explained by inflation rates of 20.2% and 18.8% for the years 2000 and
2001,  respectively,  exceeding tariffs  increases.  Further,  while there was a
substantial  increase in revenues  from local  operators  both for  domestic and
outgoing  international  traffic driven by healthy traffic growth and settlement
rates  increases,  it was offset by the decrease in revenues from  international
operators  for the  incoming  international  traffic as well as the  decrease in
revenues from subscribers in Moscow.

Revenues from local  operators  represented  44.06% and 35.96% of total revenues
during the years ended December 31, 2001 and 2000,  respectively.  Revenues from
local  operators  increased by 8.82% to RUR 13,337 million during the year ended
December  31,  2001,  from RUR 12,256  million  during  2000,  as a result of an
increase in domestic and international long-distance traffic volumes and tariffs
for local operators.

Revenues from local operators for outgoing  international  traffic  increased by
31.28% to RUR 5,364 million  during the year ended  December 31, 2001,  from RUR
4,086  million  during  2000,  as a  result  of a  30.8%  increase  in  outgoing
international traffic and higher tariffs. During 2001, the Company implemented a
more  flexible  tariff  policy.  As a result,  tariffs used in  settlements  for
traffic to the  United  States,  Canada  and  several  European  countries  were
reduced.  However, tariffs used in settlements for traffic to CIS countries were
increased.

Revenues from local operators for domestic  long-distance  traffic  increased by
7.34% to RUR 5,016  million  during the year ended  December  31,  2001 from RUR
4,673 million during 2000.  The increase in revenue from domestic  long-distance
traffic is  attributable  to an  increase  in the linear  component  of internal
settlements rate (as mentioned in section

                                      -78-
<PAGE>

and an  increase  in domestic  long-distance  traffic  volumes by 28.55% in 2001
compared  to  2000.  The  main  reasons  for the  traffic  growth  were  further
modernization  of  Rostelecom  network,  including  an increase in the number of
automatic   connections,   extension  of  local  access   networks  by  regional
telecommunications  operators  and the  overall  increase  in per capita  income
throughout Russia.

Revenues from subscribers in Moscow  represented  28.6% of total revenues during
the year ended December 31, 2001,  compared to 30.4% during 2000. These revenues
decreased by 16.51% to RUR 8,648 million during the year ended December 31, 2001
from RUR 10,358 million during 2000. Revenues from subscribers for international
traffic  decreased by 21.63% to RUR 4,951 million during the year ended December
31,  2001 from RUR  6,318  million  during  2000 as a result  of a  decrease  in
international  traffic,  as well as a decrease in tariffs for  subscribers  as a
result of the  implementation  of the Company's  flexible  tariff policy and the
impact of inflation.

Revenues from subscribers for domestic  long-distance traffic decreased by 8.49%
to RUR 3,697  million  during the year ended  December  31,  2001 from RUR 4,040
million  during  2000 as a result  of impact of  inflation  which was  partially
offset by the increase in traffic.

Telephone revenue from foreign operators represented 19.88% of the Group's total
revenues during the year ended December 31, 2001 compared to 23.85% during 2000.
Telephone  revenue  from  foreign  operators  decreased  by  25.96% to RUR 6,018
million  during the year ended  December 31, 2001 from RUR 8,128 million  during
2000  as  a  result  of  a  decrease  in  international   tariffs  and  traffic.
International  incoming traffic decreased by 3.12% to 869 million minutes during
the year ended December 31, 2001 from 897 million minutes during 2000.

Operating Expenses

Total  operating  expenses  decreased by 10.05% to RUR 27,649 million during the
year ended  December  31, 2001 from RUR 30,375  million  during 2000 mainly as a
result  of  a  decrease   in  charges  by   international   network   operators,
administration  and other costs,  collection of previously  reserved debts and a
decrease in wages,  salaries  and other staff  costs.  The  decrease  was partly
offset by an increase  in  depreciation  expense  and loss on sale of  property,
plant and equipment.

Charges by international network operators for completing outgoing international
calls during the year ended December 31, 2001 decreased by RUR 1,707 million, or
18.67%,   compared  to  2000.   This  decrease   resulted  from  a  decrease  in
international   traffic  and  tariffs  billed  by  other  international  network
operators.

Charges by national  network  operators  during the year ended December 31, 2001
decreased by RUR 84 million,  or 3.70%,  compared to 2000.  The decrease  mainly
resulted  from the impact of  inflation  on flat  expenses  which was  partially
offset by an increase in traffic volumes through national operators' network.

Administration  and other  costs  decreased  by RUR 1,543  million,  or  31.54%,
compared to 2000 as a result of cost reduction policy implemented by the Group's
management during 2001.

As a result of improved collectibility of debts in 2001 as compared to 2000, the
Group's bad debt provision decreased from RUR 2,201 million to RUR 1,825 million
as of December 31, 2000 and 2001,  respectively,  and a recovery of bad debts of
RUR  28  million  was  recognized  in  the  Group's  consolidated  statement  of
operations for 2001.

During the year ended December 31, 2001,  wages,  salaries and other staff costs
decreased by RUR 333 million, or 7.90%,  compared to 2000 as a result of a 3.24%
decrease  in the  number of  personnel  as a result of the  Company's  policy to
enhance attrition and the effect of inflation of prior year payroll expenses for
their  presentation in accordance with IAS 29. The decrease was partially offset
by the cost of  issuance  of  preferred  shares in  subsidiary  as  equity-based
compensation amounting to RUR 279 million.

Depreciation  of property,  plant and  equipment,  including  buildings and site
services,  cable and  transmission  devices,  exchanges  and other fixed assets,
increased during the year ended December 31, 2001 by RUR 370 million,  or 4.85%,
compared to 2000. The increase resulted mainly from inflationary  effects on the
Group's historical cost of property,  plant and equipment in accordance with IAS
29.

Other  operating  expenses  during the year ended December 31, 2001 increased by
RUR 600 million,  or 26.89%,  in real terms as compared to 2000, mostly due to a
greater loss on sale of property, plant and equipment.

                                      -79-
<PAGE>

Operating Profit

Operating profit decreased by RUR 730 million,  or 21.73%,  to RUR 2,620 million
during the year ended December 31, 2001 from RUR 3,350 million during 2000. This
represents a decrease in the operating  profit margin from 9.83% during the year
ended December 31, 2000 to 8.66% during 2001.

Net  Interest   Expense  and  Other   Non-Operating   Items,   including   Other
Non-Operating Income, Net Foreign Exchange Gain (Loss) and Monetary Gain

Net interest expense and other  non-operating items increased from a net loss of
RUR 166  million  in 2000 to net income of RUR 1,463  million  in 2001.  This is
primarily due to a decrease in gross interest  expense by RUR 1,533 million,  or
48.83%,  to RUR 1,607 million during the year ended December 31, 2001,  compared
to RUR 3,140  million  during 2000,  of which the Group has  capitalized  RUR 92
million and RUR 315 million during 2001 and 2000, respectively.

Monetary  gain of RUR 2,472  million  and RUR 1,782  million for the years ended
December 31, 2001 and 2000,  respectively,  resulted from  application of IAS 29
and  represents  gains  on  holding  net  monetary  liabilities  in  rubles  and
currencies other than ruble during an inflationary  year. The gain is calculated
by applying  the change in the GPI to the average net monetary  position  (i.e.,
the difference between monetary assets and monetary liabilities).

Income Tax Expense

The  Group's  income tax  expense  decreased  during  2001 from a net income tax
expense of RUR 5,088  million  for 2000 to a net  income tax  benefit of RUR 881
million for 2001.  The  decrease was mostly the result of a change in the income
tax rate from 35% to 24% as of January  1,  2002.  The  decrease  was  partially
offset by an increase in the Group's  current tax charge by RUR 758 million,  or
34.04%,  during the year ended December 31, 2001 compared to 2000 as a result of
change in the income tax rate from 30% to 35% during 2001.

     U.S. GAAP information

     The Group's  consolidated  financial  statements are prepared in accordance
with  International  Financial  Reporting  Standards,  which  differ in  certain
respects from accounting principles generally accepted in the United States ("US
GAAP"). For the years ended December 31, 2002 and 2001 net income reported under
IFRS  amounted  to RUR 678  million  and RUR  4,607  million,  respectively,  as
compared to net income  reported under U.S. GAAP of RUR 73 million and RUR 4,458
million,  respectively.  As of December  31,  2002 and 2001 total  shareholders'
equity  reported  under IFRS  totalled  to RUR 49,033  million  and RUR  48,754,
respectively, as compared to total shareholders' equity reported under U.S. GAAP
of RUR 54,381 million and RUR 54,666, respectively.

     The most significant  differences  between IFRS and U.S. GAAP, which affect
financial position and results of operations of the Group,  relate to accounting
for property,  plant and equipment and investments in associates.  Brief summary
of such differences is presented below. For more detailed  information  refer to
Note 34 to the accompanying consolidated financial statements.

     Accounting for Property, Plant and Equipment

     As  described  in  Note  5  to  the  accompanying   consolidated  financial
statements,  certain  property,  plant  and  equipment  has been  recorded  at a
valuation  amount in accordance with IFRS rather than at historical  cost, which
is required  under U.S. GAAP. The Group was unable to quantify the effect of the
difference in accounting  treatment as reliable  historical cost information and
information regarding acquisition dates was not available.

     In 1998,  in  accordance  with IAS 36,  "Impairment  of Assets",  the Group
recognized  an impairment  loss of RUR 8,699 million on its property,  plant and
equipment  other  than  construction  in  progress.   The  impairment  loss  was
calculated  based on the present  value of estimated  future cash flows from the
continuing use of the assets using a real-terms  (inflation  adjusted)  discount
rate of 20%. IAS 36 requires an assessment of the recoverable amount of an asset
whenever  there  is an  indication  that the  Group's  assets  may be  impaired.
Management believed that the Russian economic crisis in 1998 constituted such an
indication.

     Under U.S. GAAP, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (superseded by SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets",  effective for
financial statements issued for fiscal years beginning after December 15, 2001),
required an initial  assessment of impairment  based on undiscounted  cash flows
whenever there is an indication that impairment may exist.  Due to the fact that
the sum of undiscounted expected future cash flows was in excess of the carrying
amount of the Group's property,  plant and equipment as of December 31, 1998, an
impairment loss was not recognized for U.S. GAAP

                                      -80-
<PAGE>

reporting.  Management  considers  that all of the Group's  property,  plant and
equipment, with the exception of construction in progress,  represent the lowest
level for which there are largely independent and identifiable cash flows.

     Since no  impairment  loss  was  recognized  under  U.S.  GAAP in  1998,  a
different asset base is used to compute U.S. GAAP depreciation  expense, loss on
disposal of property, plant and equipment and the related deferred tax liability
commencing  1999. Net  additional  expense  recognized due to these  differences
amounted to RUR 502  million in 2002  compared to RUR 81 million in 2001 and RUR
681 million in 2000.

     Accounting for Investments in Associates

     In accordance with IAS 28,  "Accounting for Investments in Associates",  an
investment in associate that is acquired and held exclusively with a view to its
disposal in the near future  should be  accounted  for as an  available-for-sale
financial asset in accordance with IAS 39, "Financial  Instruments:  Recognition
and Measurement".

     As described in Notes 13 and 33 to the accompanying  consolidated financial
statements,  the Group  acquired in 2002 and,  after  December  31,  2002,  sold
certain of the investments which in the normal course of business, would qualify
for equity method accounting. In IFRS accounts these investments were classified
and accounted for as available-for-sale  and their fair value as of December 31,
2002 was RUR 1,632 million.  Negative goodwill attributable to these investments
of RUR 455 million was included in the current portion of negative goodwill.

     Effective January 1, 2002, SFAS No. 144,  "Accounting for the Impairment of
Long-Lived Assets", eliminated the exception to application of the equity method
for an  investment  in associates  where  significant  influence is likely to be
temporary.  Accordingly,  in  U.S.  GAAP  accounts,  the  investments  in  these
associates were accounted for using equity method of accounting applied from the
date of the business  combination  with RTDC  Holdings,  Inc. As of December 31,
2002, the carrying amount of RUR 1,071 million related to the Group's investment
in these  associates was included in U.S. GAAP balance sheet.  The Group's share
in net income / loss of these associates  amounted to a gain of RUR 157 million.
The loss of RUR 22 million  represents the difference between the amount of gain
from  changes  in  the  fair  value  of  these  available-for-sale  investments,
recognized in the IFRS accounts, and the amount of equity income, reported under
the U.S. GAAP, net of tax and minority interest.

     As described in Notes 8 and 13 to the accompanying  consolidated  financial
statements,  during  2002,  the Group  acquired  15% of  voting  stock of Golden
Telecom,  Inc. In the opinion of  management,  the Group  exercises  significant
influence on financial and operating  policies of Golden Telecom.  In accordance
with IAS 28, "Accounting for Investments in Associates", the Group amortizes the
equity method  goodwill  related to its  investment  in Golden  Telecom over its
estimated useful life of 8 years.  During 2002, in its IFRS accounts,  the Group
recognized a related amortization expense in the amount of RUR 32 million. Also,
during  2002,  in its IFRS  accounts,  the Group  recognized  goodwill of RUR 42
million in  connection  with  certain  business  combinations  and  purchases of
minority interests. Amortization of goodwill in 2002 amounted to RUR 3 million.

     In accordance with SFAS No. 142,  "Goodwill and Other  Intangible  Assets",
goodwill  is  not  amortized  and is  subject  to  annual  impairment  tests  in
accordance with SFAS No. 142. The Group performed the annual  impairment test in
respect to  recoverability  of the  carrying  amount of goodwill at December 31,
2002. No impairment was  recognized as of December 31, 2002, as the  recoverable
amount exceeded the carrying amount of goodwill.

     As  disclosed  in  Note  8  to  the  accompanying   consolidated  financial
statements, during 2002, due to certain changes in management's estimates and in
accordance  with  provisions  of IAS 36  "Impairment  of  Assets",  in its  IFRS
accounts the Group recorded a partial  reversal of an impairment  loss of RUR 52
million, net of tax, recognized in 2001 in connection with its investment in MCC
which was accounted for using the equity method.  U.S. GAAP prohibits  reversals
of previously recognized impairment losses.

New accounting pronouncements

In June 2001, the FASB issued  Statement of Financial  Accounting  Standards No.
143,  "Accounting  for  Asset  Retirement  Obligations",   which  addresses  the
financial   accounting  and  reporting  for  obligations   associated  with  the
retirement of tangible  long-lived  assets and the associated  asset  retirement
costs. This standard applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction, development
or normal  use of the  asset.  SFAS No.  143  requires  that the fair value of a
liability  for an asset  retirement  obligation  be  recognized in the period in
which it is incurred  if a  reasonable  estimate of fair value can be made.  The
fair value of the  liability is added to the carrying  amount of the  associated
long-lived  asset and is depreciated over the asset's useful life. The liability
is accreted  to its  present  value each  period  through  charges to  operating
expense.  If the obligation is settled for other than the carrying amount of the
liability, a gain or loss on settlement is recognized. The

                                      -81-
<PAGE>

Group is required and plans to adopt the  provisions of SFAS No. 143,  effective
January  1,  2003.  To  accomplish  this,  the  Group  must  identify  all legal
obligations  for asset  retirement  obligations,  if any, and determine the fair
value of these  obligations on the date of adoption.  The  determination of fair
value  is  complex  and  will  require  gathering  market  information  and  the
development  of cash flow  models.  Additionally,  the Group will be required to
develop  processes to track and monitor  these  obligations.  The Group is still
assessing  the impact that SFAS No. 143 will have on its results of  operations,
financial position and cash flows.

In April 2002,  the Financial  Accounting  Standards  Board issued SFAS No. 145,
"Rescission  of FASB  Statements 4, 44, and 64,  Amendment of FASB Statement 13,
and Technical Corrections". This statement is effective for financial statements
issued for fiscal years beginning after May 15, 2002. It amends certain existing
authoritative  pronouncements  in  respect to debt  extinguishments,  intangible
assets of motor carriers,  leases,  etc. to make various technical  corrections,
clarify meanings, or describe their applicability under changed conditions.  The
Group  elected to early adopt this new standard  beginning  from January 1, 2002
and, as disclosed in Note 18,  classified a gain from early  extinguishments  of
debt payable to Siemens AG as non-operating income.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities",  which replaces  Emerging  Issues Task Force
(EITF)  Issue  94-3,  Liability  Recognition  for Certain  Employee  Termination
Benefits and Other Costs to Exit an Activity  (including  Certain Costs Incurred
in a  Restructuring).  The  types of costs  affected  by this  Standard  include
certain  employee  severance  costs,  contract  termination  costs  and costs to
consolidate  or close  facilities or relocate  employees.  SFAS No. 146 requires
that a  liability  for costs  associated  with exit or  disposal  activities  be
recognized only when the liability is irrevocably  incurred  (rather than at the
date of  management's  commitment to an exit or disposal  plan).  The recognized
liability is to be initially  measured at fair value and  subsequently  adjusted
for  changes  in  estimated  cash  flows.  The  provisions  of SFAS No.  146 are
effective for exit or disposal  activities that are initiated after December 31,
2002.  The Group does not expect the adoption of SFAS No. 146 to have a material
impact on its results of operations, financial position and cash flows.

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of  Others".  FIN 45  clarifies  and  expands  the
disclosure  requirements  related to  guarantees  and  product  warranties,  and
requires  a  guarantor  to  recognize  a  liability  for the  fair  value of the
obligation it assumes  under that  guarantee.  The Group adopted the  disclosure
requirements  applicable  to  financial  statements  for  periods  ending  after
December  15, 2002.  The initial  recognition  and  measurement  provisions  are
applicable  prospectively  to guarantees  issued or modified  after December 31,
2002. The Group does not expect the adoption of FIN 45 to have a material impact
on its results of operations, financial position and cash flows.

In December  2002,  the Emerging  Issues Task Force  reached a consensus in EITF
Issue  00-21,  "Revenue  Arrangements  with  Multiple  Deliverables".  The Issue
addresses a vendor's accounting for transactions  involving the delivery of more
than  one  product  or  service,  and  when  it is  necessary  to  separate  the
transaction into individual component  deliverables,  each with its own separate
earnings  process.  If the conditions  requiring  separate  revenue  recognition
exist,  revenue is allocated  among the  different  deliverables  based on their
relative  fair  values  (the  relative  fair  value  of  each  of the  component
deliverables to the aggregated relative fair value of the bundled deliverables),
with  revenue  for each  component  deliverable  recognized  when the revenue is
realized and earned.  The Group is required and plans to adopt the provisions of
EITF 00-21, effective July 1, 2003. The Group is still assessing the impact that
EITF 00-21 will have on its results of operations,  financial  position and cash
flows.

In  January   2003,   the  FASB  issued   Interpretation   No.  46  ("FIN  46"),
"Consolidation  of Variable  Interest Entities  ("VIEs")".  This  interpretation
changes the  accounting and  requirements  for  consolidation  and disclosure of
certain entities,  including special purpose entities ("SPEs"). Under FIN 46, an
entity is considered a VIE (and subject to consolidation) if its total equity at
risk is determined  insufficient  to finance its activities  without  additional
subordinated  financial  support,  or  if  its  equity  investors  lack  certain
characteristics that represent a controlling  financial interest. An entity that
is considered a VIE would be required to be  consolidated by the enterprise that
holds a majority of its "variable  interests"  (that is, the enterprise that has
the most exposure to the economic  risks and the potential  rewards from changes
in the  values of the  VIE's  assets  and  liabilities).  The Group has  adopted
Interpretation's  disclosure provisions,  effective for all financial statements
issued after January 31, 2003,  which require all holders of variable  interests
in VIEs to  disclose  the  nature,  purpose,  size and  activities  of the VIEs,
including the maximum exposure to losses.  The consolidation  requirements apply
to all new VIEs  created  on and  after  February  1,  2003,  with  transitional
provisions  for VIEs that existed  prior to that date.  The Group plans to adopt
the transition consolidation provisions of FIN 46 on July 1, 2003. To accomplish
this, the Group and its operating  subsidiaries  must identify all VIEs, if any,
and determine the expected loss and expected  residual  returns  associated with
the  variable  interests.  The  determination  of expected  losses and  expected
residual  returns is complex  and will  require  the Group to develop  cash flow
models.  The Group is still  assessing  the impact  that FIN 46 will have on its
results of operations, financial position and cash flows.

                                      -82-
<PAGE>

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation   --Transition  and   Disclosure",   which  amends  SFAS  No.  123,
"Accounting for  Stock-Based  Compensation".  SFAS No. 148 provides  alternative
methods of transition  for a voluntary  change to the fair value based method of
accounting for  stock-based  employee  compensation.  In addition this statement
amends  the  disclosure  requirements  of  SFAS  No.  123 to  require  prominent
disclosures  in the  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results.  The transition  provisions are effective for financial  statements for
fiscal  years  ending  after   December  15,  2002.   The  enhanced   disclosure
requirements  are effective for periods  beginning  after December 15, 2002. The
Group does not expect the adoption of SFAS No. 148 to have a material  impact on
its results of operations, financial position and cash flows.

     In May  2003,  the  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS
No. 150 improves the accounting for certain  financial  instruments  that, under
previous guidance,  companies could only account for as equity and requires that
these  instruments  be  classified  as  liabilities  in  statements of financial
position.  The statement is effective  prospectively  for financial  instruments
entered  into or modified  after May 31, 2003 and  otherwise is effective at the
beginning  of the first  interim  period  beginning  after June 15,  2003.  This
statement shall be implemented by reporting the cumulative effect of a change in
an accounting  principle for financial statements created before the issuance of
this  statement  and still  existing at the  beginning of the interim  period of
adoption.  The Group is currently assessing the impact that the adoption of SFAS
No. 150 will have on its  results of  operations,  financial  position  and cash
flows.

     5.B Liquidity and Capital Resources

     Rostelecom's  principal sources of funds  historically have been cash flows
from its  operating  activities  and vendor  financing  arrangements  related to
capital  expenditures.  Rostelecom's  operating activities generated net cash of
RUR 5,713  million  in 2002 and RUR 6,963  million  in 2001.  The  repayment  of
certain vendor financing arrangements is secured by telecommunications equipment
leased from  RTC-Leasing.  As of December 31, 2002,  approximately  16% of total
property, plant and equipment were pledged to secure such financing.  Rostelecom
expects to continue financing a significant portion of its capital  expenditures
from its  internal  sources,  such as cash  from  operations,  and to raise  the
remaining amounts through external sources. There can be no assurance,  however,
that such external  financing  will be available to  Rostelecom on  commercially
acceptable terms. For a more detailed  discussion of the risks and uncertainties
related to  external  financing,  see Item 3.D.  "Risk  Factors".  However,  the
management  believes that cash flows  generated from operations in 2003 and 2004
will be sufficient  to finance  working  capital needs and the Group's  existing
obligations will be repaid as they come due.

     The  Group's   outstanding   indebtedness,   including   bonds   issued  by
RTC-Leasing,  loans related to vendor financing and credit agreements  decreased
in real terms by RUR 621 million,  or 6.9%,  to RUR 8,383 million as of December
31, 2002 from RUR 9,004 million as of December 31, 2001, of which as of December
31, 2002,  RUR 6,066  million was due within one year and RUR 2,317  million was
due between one and five years.  As of December 31, 2002,  approximately  60% of
the Group's interest bearing loans were  denominated in foreign  currencies,  as
compared to 83% in 2001. As of December 31, 2001,  loans consisted  primarily of
vendor  financing  related to  capital  expenditures  and the credit  facilities
provided  by  various  credit  institutions,  while  as of  December  31,  2002,
approximately  30% of  borrowings  related  to  the  financing  of  new  leasing
agreements  incurred by RTC-Leasing with the companies of the Svyazinvest  Group
and other telecommunication companies.

     The amount available for drawing under the Group's credit  agreements as of
December  31,  2002  was RUR  2,965  million.  Virtually  none of  these  credit
arrangements were available for general corporate  purposes but instead were for
leasing services only.

     The Group had foreign currency denominated  borrowings of RUR 4,065 million
as of December 31, 2002,  which are required to be repaid over the next 5 years.
Of the total foreign  currency  denominated  borrowings,  76% was denominated in
Japanese Yen, 20% - in U.S. dollars,  and 4% - in Euros. Between January 1, 2003
and June 25,  2003,  the  Russian  ruble  increased  in value as compared to the
Japanese  Yen by  approximately  4% and as  compared  to  the  U.S.  dollar,  by
approximately  4.5%,  but  declined  as  compared  to the  Euro by 6%,  and this
cumulatively  has  decreased  the ruble  carrying  value of these  borrowings by
approximately  RUR 144 million.  However,  there is a risk that a decline in the
value of the Russian ruble as opposed to major world  currencies  may occur.  An
additional  devaluation  would  both  increase  the  Group's  effective  cost of
borrowing and make it more difficult to incur additional  indebtedness and repay
or re-finance existing indebtedness.

     The  Group  had also  Russian  ruble  denominated  borrowings  of RUR 4,318
million, as of December 31, 2002.

                                      -83-
<PAGE>

The weighted average interest rate of loans was 11.7% and 9.4% as of December
31, 2002 and 2001, respectively. The Group does not use any financial
instruments to hedge against its exposure to fluctuations in interest and
foreign exchange rates.

The maturity profile of interest bearing loans, their currency and the interest
rate structure is presented in Note 18 to the accompanying consolidated
financial statements. The summarized maturity profile of the Group's interest
bearing loans and other borrowings as of December 31, 2002 is presented below
(in RUR million):

                                                                     2002
------------------------------------------------------------------------------
Maturity
Current portion of interest bearing loans and borrowings            6,066
------------------------------------------------------------------------------

Between one to two years                                              919
Between two to three years                                            641
Between three to four years                                           479
Between four to five years                                            278
------------------------------------------------------------------------------
Non-current portion of interest bearing loans                       2,317
------------------------------------------------------------------------------

Total interest bearing loans and borrowings                         8,383
==============================================================================

     Loans and borrowings of the Company

     In the 1990s the Company was investing  significant amounts of money in the
development of its backbone network. Such development could not be financed from
internal  sources only, so the Company had to raise funds externally and entered
into a number of credit  arrangements.  In 2002 and early 2003, the Company made
significant efforts to decrease its external  indebtedness.  In particular,  the
following loans were discharged in full:

     A U.S. $78.5 million credit  agreement was entered into between  Rostelecom
and Telecom Italia in May 1994. The purpose of the financing was to construct an
underwater  cable  between  Italy,  Turkey,  Ukraine and Russia.  Proceeds  from
certain specified  international  traffic were used as security for this credit,
and such proceeds were regularly deposited into an escrow account to satisfy the
repayment  condition.  Repayment was due in 14 semi-annual  installments in June
and December of each year,  beginning in 1995. The last installment was required
to be made no later than December  2002.  The interest rate was LIBOR+3%.  As of
December 31, 2001, the outstanding  principal amount was U.S. $10.2 million.  In
January 2002,  the  indebtedness  was fully repaid by the Company.  There was no
gain or loss on early extinguishment of this loan.

     A U.S. $28.25 million credit agreement between Rostelecom and Merrill Lynch
was entered into in February 2000 to finance working capital. The obligation was
unsecured and was to be repaid in quarterly  installments  of 1/16 of the loan's
principal  amount,  commencing  August 2000, with the final payment due no later
than May 2004.  The interest  rate was  LIBOR+6%.  As of December 31, 2001,  the
outstanding  principal amount was U.S. $17.7 million.  In May 2002, the debt was
fully repaid by the Company.  There was no gain or loss on early  extinguishment
of this loan.

     A revolving  credit  agreement,  dated  September 6, 1993, was entered into
between  Rostelecom  and Siemens  Aktiengesellschaft  ("Siemens")  (the  "Credit
Agreement"),  under  which a maximum of DEM 170 million  was  available  for the
purposes of financing  the purchase by Rostelecom of equipment and services from
Siemens,   including  certain  telephone,   cable,  transmission  and  switching
equipment. The credit line was secured by the proceeds due to Rostelecom under a
service agreement between Rostelecom and Deutsche  Bundespost Telecom AG and the
Agreement to Transfer  Rights and Grant  Security,  dated  September 6, 1993, as
amended,  between  Rostelecom and Siemens.  The borrowings  bore interest at the
rate  of  EURIBOR  plus 2% per  annum.  The  principal  of and  interest  on the
borrowings   under  the  Credit   Agreement  were  to  be  repaid  in  quarterly
installments  in  amounts  calculated  pursuant  to the Trust  Agreement,  dated
September  8,  1993,  as  amended,   among  Rostelecom,   Siemens  and  Ost-West
Handelsbank, a German bank, until such borrowings were fully repaid. The amounts
owed under the Credit  Agreement had no stated maturity date. In September 2002,
Rostelecom  decided to repay the outstanding  amounts under the Credit Agreement
in  order  to  minimize  losses  from the  expected  continued  rise of the euro
exchange rate and to reduce costs related to debt servicing and future  interest
payments.  The repayment of the outstanding  amounts under the Credit Agreement,
which as of September 30, 2002 was EUR 31.6  million,  was carried out through a
series of related transactions in which (i)  Rostelecomleasing  (Cyprus) Limited
("Rostelecomleasing"),  a subsidiary of  RTC-Leasing,  acquired  Siemens' rights
under the Credit Agreement pursuant to a Transfer Agreement, dated September 30,
2002, between Siemens and Rostelecomleasing,  and acknowledged by Rostelecom and
(ii) subsequently,  T&IB Equities (Cyprus) ("T&IB"),  a financing company (which
also  served  as  a  financial  advisor  to  this  transaction)   acquired  from
Rostelecomleasing  its rights  under  Credit  Agreement,  pursuant to a Transfer
Agreement,  dated  October  1, 2002,  between  T&IB and  Rostelecomleasing,  and
acknowledged  by  Rostelecom  and on the same day,  T&IB entered into a Novation
Agreement

                                      -84-
<PAGE>

(the "Novation  Agreement")  with Rostelecom.  On November 29, 2002,  Rostelecom
delivered to T&IB  promissory  notes in the  aggregate  fair value amount of EUR
24.5 million issued by two members of the Group,  RTC-Leasing and RIB, and other
third parties,  in order to extinguish its  obligations to T&IB under the Credit
Agreement and the Novation Agreement. The promissory notes issued by RTC-Leasing
were in the aggregate  amount of EUR 21.4 million,  bore interest at the rate of
12% per annum and were payable upon  request,  but no earlier than  December 25,
2002. The promissory notes issued by RIB were in the aggregate amount of EUR 1.0
million,  bore  interest  at the rate of 10% per  annum  and were  payable  upon
request,  but no  earlier  than  January  10,  2003.  The  RTC-Leasing  and  RIB
promissory  notes were paid in full on December  25, 2002 and January 10,  2003,
respectively.  Rostelecom recognized a gain on this transaction in the amount of
approximately  EUR 7 million  (RUR 230 million) in 2002 (refer to Note 18 to the
consolidated financial statements).

     A DEM 9.35 million (EUR 4.78  million)  credit  agreement  was entered into
between  Rostelecom  and  Vnesheconombank  in March 1996. The amounts drawn were
payable in 15 equal  semi-annual  installments of EUR 0,3 million,  beginning in
September  1996. The interest rate was 7% per annum.  The last repayment was due
on  February  2003.  The  loan  was  incurred  for  the  purpose  of  purchasing
transmission  systems.  The loan was guaranteed by the Government of the Russian
Federation.  As of December 31, 2002, the principal  amount  outstanding was EUR
0.3 million (RUR 11 million). The loan was fully repaid in February 2003.

     The  Group's  total  amount of interest  bearing  loans  outstanding  as of
December 31, 2002,  was RUR 6,846 million  compared with RUR 7,800 million as of
December 31, 2001.

     The outstanding loans are as follows:

     U.S. Dollar Denominated Loans of the Company

     A US $40.8 million credit agreement was entered into between Rostelecom and
Sumitomo  Corporation  in March  1997.  The  loan is  secured  by the  equipment
purchased  through the loan and by cash balances  deposited in designated escrow
accounts.  The loan will be repaid in 25 quarterly payments,  beginning in 1999,
the last of which is to be made not later than July 2005.  The interest  rate is
LIBOR+3.2%.  The  purpose  of  the  loan  was  to  finance  construction  of FOL
Novosibirsk-Khabarovsk.  As of  December  31,  2002,  the amount of  outstanding
principal was U.S.$15.9 million (RUR 507 million).

     Japanese Yen Denominated Loans of the Company

     JPY 11,601 million (RUR 3,089 million) credit  agreement,  dated August 16,
1994,  was  entered  into  among  Rostelecom,  the  Council  of  Ministers  (the
Government of the Russian  Federation)  and  Vnesheconombank  (hereinafter,  the
"Debt  Obligation").  The  principal  of the loan was  repayable in equal annual
instalments  of JPY 2,105  million,  with the final  payment  due not later than
October 2001. The interest rate was 3% per annum. In 2000, a Russian  Federation
Government  decree  provided for the  restructuring  of the  indebtedness to the
Russian Federation  Government  administered by  Vnesheconombank  over a 10-year
period at an interest rate of 3% per annum. In accordance with the provisions of
the  decree,  in 2001,  the Group  entered  into  negotiations  with  respect to
restructuring this credit agreement on said terms. As the abovementioned  decree
did not specify the procedure of the debt restructuring, as of December 31, 2002
and 2001 the Group was  technically in default with respect to the principal and
interest  on Debt  Obligation.  In 2002 the Group  repaid  several  other  loans
totalling to RUR 1,909 million which  contained  cross  default  provisions  and
therefore  were also  technically  defaulted.  As of December 31, 2002 the Group
does not have loans which contain cross default provisions.

     Concurrently    Rostelecom   held    negotiations   with   OJSC   Alfa-Bank
("Alfa-Bank"),  a Russian bank,  in order to  restructure  the Debt  Obligation,
pursuant to which Rostelecom executed an Agency Agreement with Alfa-Bank in June
2003 (the "Agency  Agreement").  As a result of negotiations  between Rostelecom
and Alfa-Bank,  the Board of Directors of Rostelecom  approved the restructuring
plans on May 12,  2003.  This  restructuring  will  involve the  termination  of
Rostelecom's  obligations to the Russian  Federation  Government  under the Debt
Obligation through a transfer,  in accordance with Russian Federation Government
Resolution No. 221, of the Russian Federation  Government's  rights to such Debt
Obligation to the Russian Federation Finance Ministry,  with Alfa-Bank acting as
an agent under the Agency Agreement. The Agency Agreement obligates Alfa-Bank to
settle the entire  outstanding  indebtedness  under the Debt  Obligation  to the
federal  budget.  Under  the  terms of the  Agency  Agreement,  Rostelecom  will
reimburse  to  Alfa-Bank  costs  associated  with  the  settlement  of the  Debt
Obligation  by  issuing  seven  promissory  notes  in the  aggregate  amount  of
approximately U.S.$100 million (RUR 3,178 million) bearing interest of 5.94% per
annum and repayable within 36 months period in 6 equal  semi-annual  instalments
of U.S.$ 16.7 million (RUR 530 million) each. The Agency Agreement  provides for
the early  redemption of the promissory  notes by the Company at its sole option
within the 36 month period. The one-time fee to Alfa-Bank will be U.S.$ 100,000.
As of  December  31,  2002,  Rostelecom's  overdue  indebtedness  under the Debt
Obligation  is JPY  14,165  million,  including  JPY 11,601  million  (RUR 3,089
million) of principal, JPY 45 million (RUR 12 million) of interest and JPY 2,519
million (RUR 667 million) of fees and penalties.

                                      -85-
<PAGE>

     Euro Denominated Loans of the Company

     A DEM 13.6 million (EUR 6.95  million)  credit  agreement  was entered into
between  Rostelecom and  Vnesheconombank in June 1995. The loan was incurred for
the purpose of purchasing  automatic switching systems EWSD. The loan is payable
in  15  semi-annual  installments,   beginning  in  August  1997  and  the  last
installment  payment is due in August  2004.  The interest  rate is PLAFON-S,  a
variable rate,  which as of December 31, 2002 was 6.5%. The loan is secured by a
guarantee of the Government of the Russian Federation.  As of December 31, 2002,
the principal amount outstanding under the credit agreement was EUR 1.85 million
(RUR 61 million).

     Ruble Denominated Loans of the Company

     A RUR 850 million credit agreement was entered into between  Rostelecom and
Sberbank  in  April  1999  for  the  purpose  of  purchasing  telecommunications
equipment.  The loan is  secured by the  purchased  equipment.  Originally,  the
principal was payable in 9 quarterly installments,  beginning in March 2000. The
last installment  payment was due no later than April 2002. The interest rate is
20% per annum. In March 2002, the indebtedness was restructured and the maturity
date was extended to December 2003. The payment schedule was amended so that the
principal  repayments  began in July 2002 and was  payable in 4 equal  quarterly
installments.  In March 2003, the interest rate was reduced to 16% per annum. In
accordance  with  the  new  payment  schedule,  as of  December  31,  2002,  the
outstanding principal amount under the credit agreement was RUR 50 million.

     The only material restrictive clause in all the credit agreements described
above  is that  the  proceeds  of the  loans  must be used to fund  the  project
specified.

     Loans and borrowings of subsidiaries

     U.S. Dollar Denominated Loans of RTC-Leasing

     A credit  facility  agreement was entered into between  RTC-Leasing and ING
Bank (Eurasia) in October 2000 under which a maximum amount of U.S.$ 4.3 million
was  available  in order  to  finance  the  purchase  of the  telecommunications
equipment to be leased to Rostelecom and RTComm.RU. The maturity date is October
2003.  Interest  rate is LIBOR  multiplied  by 365/360  plus 6% per  annum.  The
undrawn balance does not accrue interest.  The loan is guaranteed by Rostelecom.
In  addition,  the loan is secured  by  telecommunications  equipment  leased to
Rostelecom  and  RTComm.RU.  As of  December  31,  2002,  the  principal  amount
outstanding under the credit facility was U.S.$ 1.4 million (RUR 46 million).

     A credit  facility  agreement was entered into between  RTC-Leasing and ING
Bank  (Eurasia) in March 2000 under which a maximum amount of U.S.$ 10.0 million
was  available  in order  to  finance  the  purchase  of the  telecommunications
equipment  from  Hewlett-Packard.  The maturity date is March 2004. The interest
rate is 15% per annum. The undrawn balance does not accrue interest. The loan is
guaranteed  by  Rostelecom.  As of  December  31,  2002,  the  principal  amount
outstanding under the credit facility was U.S.$ 2.9 million (RUR 93 million).

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Russian  Commercial  Bank,  Zurich,  Switzerland  in April 2002 (the "April 2002
Credit Facility  Agreement") under which a maximum amount of a U.S.$ 1.9 million
was  available in order to finance the purchase of the equipment to be leased by
RTC-Leasing to Vneshtorgbank. The maturity date is March 2005. The interest rate
is LIBOR  divided by 0.95 plus 6.316% per annum.  As of December 31,  2002,  the
principal  amount  outstanding  under the credit  facility was U.S.$ 1.6 million
(RUR 52 million).

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Vneshtorgbank in July 2001 under which a maximum amount of U.S.$ 4.1 million was
available in order to finance the purchase of the  telecommunications  equipment
to be leased by  RTC-Leasing  to OJSC MGTS.  The maturity date is July 2004. The
interest rate is LIBOR plus 8% per annum.  The undrawn balance accrues  interest
at the rate of 0.6% per annum.  As of December 31, 2002,  the  principal  amount
outstanding under the credit facility was U.S.$ 3.1 million (RUR 98 million).

                                      -86-
<PAGE>

     A credit  facility  agreement was entered into between  RTC-Leasing and ING
Bank  (Eurasia)  in August 2001 under which a maximum  amount of JPY 259 million
was  available  in order  to  finance  the  purchase  of the  telecommunications
equipment to be leased by RTC-Leasing to Rostelecom. The maturity date is August
2004. The interest rate is LIBOR plus 3.5% per annum.  The undrawn  balance does
not accrue interest.  As of December 31, 2002, the principal amount  outstanding
under the credit  facility  was U.S.$ 0.9 million  (RUR 29  million),  since all
settlements are made in U.S. dollars.

     Euro Denominated Loans of RTC-Leasing

     A credit  facility  agreement was entered into between  RTC-Leasing and ING
Bank  (Eurasia) in May 2002 under which a maximum  amount of EUR 2.9 million was
available in order to finance the purchase of the  telecommunications  equipment
to be leased by RTC-Leasing to  CenterTelecom.  The maturity date is April 2003.
The interest  rate is LIBOR plus 5% per annum.  In April 2003 the loan was fully
repaid.

     Ruble Denominated Loans of RTC-Leasing

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank  in August  1999 under  which a maximum  amount of RUR 953  million was
available in order to finance the purchase of the  telecommunications  equipment
to be leased by RTC-Leasing  to Rostelecom.  The maturity date was January 2003.
The interest rate was 20% per annum. In January 2003, the indebtedness was fully
repaid.

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank  in April 2000 under  which a maximum  amount of RUR 1,112  million was
available in order to finance the purchase of the  telecommunications  equipment
to be leased by RTC-Leasing to Rostelecom.  The maturity date was February 2003.
The interest rate was 20% per annum.  In February  2003,  the  indebtedness  was
fully repaid.

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank  in  August  2002  under  which a  maximum  amount  of RUR 963  million
(equivalent  to U.S.$  30.3  million)  was  available  in order to  finance  the
purchase of the telecommunications equipment to be leased by RTC-Leasing to OJSC
Megafone. The maturity date is August 2006. The interest rate was 20% per annum.
As of June 25, 2003, it was reduced to 14%. The undrawn balance accrues interest
at the rate of 0.4% per annum.  As of December 31, 2002,  the  principal  amount
outstanding under the credit facility was RUR 764 million.

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank  in April  2002 under  which a maximum  amount of RUR 152  million  was
available in order to use for working capital. The maturity date was April 2003.
The interest rate was 18% per annum. In April 2003, the  indebtedness  was fully
repaid.

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank  in October  2002 under  which a maximum  amount of RUR 66 million  was
available for working  capital.  Equipment leased out to Rostelecom was pledged.
The  maturity  date is October  2003.  The interest  rate is 18% per annum.  The
undrawn balance accrues  interest at the rate of 0.85% per annum. As of December
31, 2002, the principal amount  outstanding under the credit facility was RUR 66
million.

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank  in August  2002 under  which a maximum  amount of RUR 489  million was
available in order to finance the purchase of the  telecommunications  equipment
to be leased by RTC-Leasing to OJSC Uralsvyazinform. The maturity date is August
2007.  The interest rate was 20% per annum.  As of June 25, 2003, it was reduced
to 14%.  The  indebtedness  is  secured  by a pledge  of the  telecommunications
equipment  leased out to  Uralsvyazinform  (a  subsidiary of  Svyazinvest).  The
undrawn balance accrues  interest at the rate of 0.85% per annum. As of December
31, 2002, the principal amount outstanding under the credit facility was RUR 287
million.

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank  in August  2002 under  which a maximum  amount of RUR 314  million was
available in order to finance the purchase of the  telecommunications  equipment
to be leased by RTC-Leasing to OJSC Southern Telecommunications Company ("STC").
The maturity  date is August 2007.  The interest  rate was 20% per annum.  As of
June 25, 2003, it was reduced to 14%. The undrawn  balance  accrues  interest at
the rate of 0.85% per  annum.  The  indebtedness  is  secured by a pledge of the
telecommunication equipment leased out to STC (a subsidiary of Svyazinvest).  As
of December 31, 2002, the principal amount outstanding under the credit facility
was RUR 226 million.

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank  in August  2002 under  which a maximum  amount of RUR 583  million was
available in order to finance the purchase of the  telecommunications  equipment
to be leased by RTC-Leasing to OJSC  CenterTelecom.  The maturity date is August
2007.  The interest rate was 20% per annum.  As of June 25, 2003, it was reduced
to 14%. The undrawn balance accrues interest at the rate of 0.85% per annum. The
indebtedness is secured by a pledge of the  telecommunication  equipment  leased
out to CenterTelecom (a subsidiary of Svyazinvest). As of December 31, 2002, the
principal amount outstanding under the credit facility was RUR 307 million.

                                      -87-
<PAGE>

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank  in August  2002 under  which a maximum  amount of RUR 540  million was
available in order to finance the purchase of the  telecommunications  equipment
to be leased by RTC-Leasing to OJSC North-West  (Severno-Zapadniy)  Telecom. The
maturity date is August 2007.  The interest  rate was 20% per annum.  As of June
25, 2003,  it was reduced to 14%. The undrawn  balance  accrues  interest at the
rate of 0.85%  per  annum.  The  indebtedness  is  secured  by a  pledge  of the
telecommunication  equipment  leased out to North-West  Telecom (a subsidiary of
Svyazinvest).  As of December 31, 2002, the principal amount  outstanding  under
the credit facility was RUR 56 million.

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank  in August  2002 under  which a maximum  amount of RUR 631  million was
available in order to finance the purchase of the  telecommunications  equipment
to be leased by RTC-Leasing  to OJSC Volga Telecom.  The maturity date is August
2007.  The interest rate was 20% per annum.  As of June 25, 2003, it was reduced
to 14%. The undrawn balance accrues interest at the rate of 0.85% per annum. The
indebtedness is secured by a pledge of the  telecommunication  equipment  leased
out to Volga Telecom (a subsidiary of Svyazinvest). As of December 31, 2002, the
principal amount outstanding under the credit facility was RUR 260 million.

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank  in August  2002 under  which a maximum  amount of RUR 309  million was
available in order to finance the purchase of the  telecommunications  equipment
to be leased by RTC-Leasing to OJSC Dalsvyaz.  The maturity date is August 2007.
The interest rate was 20% per annum. As of June 25, 2003, it was reduced to 14%.
The  undrawn  balance  accrues  interest  at the rate of 0.85%  per  annum.  The
indebtedness is secured by a pledge of the  telecommunication  equipment  leased
out to Dalsvyaz (a  subsidiary  of  Svyazinvest).  As of December 31, 2002,  the
principal amount outstanding under the credit facility was RUR 90 million.

     A credit  facility  agreement  was entered  into  between  RTC-Leasing  and
Sberbank in August 2002 under  which a maximum  amount of RUR 1,090  million was
available in order to finance the purchase of the  telecommunications  equipment
to be leased by  RTC-Leasing to OJSC  Sibirtelecom.  The maturity date is August
2007.  The interest rate was 20% per annum.  As of June 25, 2003, it was reduced
to 14%. The undrawn balance accrues interest at the rate of 0.85% per annum. The
indebtedness is secured by a pledge of the  telecommunication  equipment  leased
out to Sibirtelecom (a subsidiary of Svyazinvest).  As of December 31, 2002, the
principal amount outstanding under the credit facility was RUR 347 million.

     Ruble Denominated Bonds of RTC-Leasing

     In 2001,  RTC-Leasing  issued  two series of  short-term  bonds in order to
increase its working  capital.  The first bond issuance was in April 2001, in an
aggregate principal amount of RUR 500 million and with a par value of RUR 1,000.
The bonds were fully repaid in October 2001.

     The second bond  issuance was in October  2001,  in an aggregate  principal
amount of RUR 1,000 million and with par value of RUR 1,000. The bonds were sold
at par.  Interest  was fixed at 23% per annum.  The bonds  were fully  repaid in
October 2002.

     In  November  2002,  RTC-Leasing  issued  1,500,000  bonds in an  aggregate
principal amount of RUR  1,500,000,000 in order to increase its working capital.
The bonds  were sold at par.  The bonds  mature in  November  2004 with an early
redemption option exercisable in November 2003. The interest was 18% and 16% per
annum for the first and second years, respectively, payable semi-annually. As of
December 31, 2002, the aggregate  principal amount of bonds  outstanding was RUR
1,500  million.  This  amount  includes  RUR 15  million of bonds held by RIB, a
member of the Group, which amount was eliminated in consolidation.

     Other  loans  of  the  Group   amount  to   approximately   RUR  9  million
(approximately U.S. $242,400).

     Cash Flows

     A summary of the Group's cash flows is presented below (in RUR million):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                           Year ended December 31
------------------------------------------------------------------------------------------------------------------------
                                                           2002                 2001                2000
------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                  <C>                 <C>
Net cash provided by operating activities                  5,713                6,963               6,945
------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                      (3,501)              (2,768)             (3,748)
------------------------------------------------------------------------------------------------------------------------
   Including purchase of property, plant and equipment     (2,281)              (2,020)             (3,491)
------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities                      (411)                (3,255)             (4,257)
------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -88-
<PAGE>

     Net cash provided by operating activities decreased by RUR 1,250 million or
18% to RUR 5,713 million in 2002 compared to RUR 6,963 million in 2001. The main
reasons of such  decrease  were growth of income tax paid from RUR 2,848 million
in 2001 to RUR 3,558  million in 2002 as well as  substantial  increase in lease
receivables  of RUR 3,408  million in 2002 with the  corresponding  increase  of
accounts payable of only RUR 691 million.

     Net cash used in  investing  activities  during 2002  increased  by RUR 733
million  or 26%  compared  to  2001,  primarily  due to the use of cash  for the
acquisition  of  subsidiaries  of RUR 1,138  million.  The Group's  2002 capital
expenditures  amounted  to RUR  2,281  million,  representing  growth of RUR 261
million over 2001  investments  in property,  plant and  equipment.  At the same
time, net cash outflow from the  operations  with  available-for-sale  financial
instruments  (primarily promissory notes) amounted in 2002 to RUR 228 million as
compared to RUR 871 million in 2001.

     Net  cash  used  in  financing  activities  in 2001  of RUR  3,255  million
decreased to RUR 411 million in 2002,  primarily due to the raising of borrowing
by  RTC-Leasing  in the second half of 2002 to finance  acquisition of equipment
for new lease  agreements  entered into in 2002. For details refer to "Loans and
borrowings" section above.

     Restrictions on Dividend Distribution

The  Company's   statutory   accounting   reports  are  the  basis  of  dividend
distribution.   Russian   legislation   identifies   the  limit   for   dividend
distributions as the amount of retained  earnings,  as mandated by the statutory
accounting rules. Statutory retained earnings for the Company as of December 31,
2002 amounted to RUR 6,797 million.

It should be noted that the Joint  Stock  Companies  Law was  amended in 2002 to
allow  quarterly  payments  of the  dividend.  For  details  refer to Item 10.B.
"Articles of Association".

     Capital Expenditures

     The  Group's  capital  expenditure  program,   approved  by  the  Board  of
Directors,  projects capital  expenditures of approximately  RUR 4.5 billion for
the year ending December 31, 2003,  compared to capital  expenditures of RUR 2.3
billion in 2002, and which is expected to be funded by cash from operations.

     The  capital   expenditure  program  for  2003  and  further  includes  the
implementation of the following major projects:

     Completion  of the  Gatikha  to  Apastovo  line in the  Central  and  Volga
     regions, with a branch to Nizhny Novgorod and Cheboksary.  The construction
     of this high-speed digital line, which is 933 km in length,  will provide a
     backup for the European  part of the Moscow to Khabarovsk  trunk line,  and
     provide  Nizhny  Novgorod and  Cheboksary  Automatic  Trunk  Exchanges with
     access to the Company's trunk network.

     Completion of the FOL from  Kaliningrad  to Gvardeisk  with a branch to the
     Lithuanian border, which will link Kaliningrad to Rostelecom's network by a
     digital line, and expand the Company's international network.

     Completion  of the FOL from  Russia to  Azerbaijan  that will  connect  the
     Russian and Azerbaijan International Switching Centers, and also strengthen
     Rostelecom's  market  position in traffic  exchange in the Caucasus and the
     Middle East.

     Construction of the FOL from  Yekaterinburg  to Perm that will complete the
     loop for the Moscow-Khabarovsk line in the Volga and Urals regions.

     Construction  of the  Kingisepp to Pskov to Smolensk to Moscow FOL,  with a
     branch to Belarus  and Latvia,  which will create a loop in the  North-West
     region, and provide a back-up for the Baltic Cable System.

     All the major newly constructed FOLs will be equipped with dense wavelength
     division multiplexing technology.

     In 2003,  Rostelecom  intends  to  complete  these  projects  to expand the
     throughput   capacity  of  the   Moscow-Novorossiysk   and  the  Moscow  to
     Novosibirsk lines.

In  addition,  in 2003 the Company is planning a  large-scale  expansion  of its
switching  capacity  on  the  secondary  network  and  the  construction  of new
switching centers.  In particular,  the Automatic Trunk Exchanges in Moscow will
be  expanded,  which will enable the Company to increase  the volume of services
offered to the capital's operators and

                                      -89-
<PAGE>

subscribers.  Furthermore,  the capacity of the  Company's  Automatic  Switching
Nodes and  International  Switching  Centers will be substantially  increased to
enhance the existing  long-distance  and  international  routes.  These capacity
expansions will aid the Company in meeting expected increases in demand.

Rostelecom also plans to invest in new billing systems, both for subscribers and
operators.  This will  significantly  upgrade the  quality of customer  service,
optimize receivable collections,  and improve the monitoring,  and accounting of
traffic and revenue. Overall the Company plans to spend U.S.$ 150-170 million as
capital expenditures annually for years 2003-2005. Currently the Company expects
that it will be funded from the cash from operations.

     Development Strategy

     The Group's  strategic  objective  is to become a leader in an  unregulated
telecommunications  market  by  setting  up an  efficient  competitive  business
capable of  anticipating  its customers'  needs,  maintaining  profit growth and
maximizing Rostelecom's value for its shareholders and investors.

     The main components of this strategy include the following:

Efficiency Improvements and Cost Optimization

     In 2003 Rostelecom will continue  optimizing the internal  structure of its
business units, phasing out the use of analog equipment,  and improving business
processes.

     Reducing Headcount

     Decreases  in headcount  will be achieved by  streamlining  the  management
structure of the  Company's  operating  units and also by releasing  low-skilled
staff. In 2002, the Company  reduced  headcount by about 9%, and plans to reduce
it by a further 8% in 2003. In conjunction  with these plans the Company is also
implementing a program to systematize  remuneration benefit packages,  including
salary increases for key professionals.

Phasing out of Analogue Lines

     A priority for 2003 and going  forward is to optimize the  Company's  asset
base and divest non-core or underperforming  assets. In 2003 the Company intends
to phase out analog lines and other transmission  devices - amounting to a total
length of over 22,000 km,  which are 100%  depreciated  as of December 31, 2002.
This will help to reduce operating costs significantly,  and cut the size of the
maintenance staff.

Strengthening Rostelecom's Position in its Key Markets

     Rostelecom's top priority is to prepare for the forthcoming  liberalization
of the Russian telecommunications market. The Company is undertaking substantial
measures to reposition  Rostelecom as a commercially  successful and competitive
operator.  One of the key conditions  for the Company's  success under these new
market conditions is the elimination of  cross-subsidies,  whereby  unprofitable
local  communications  networks are  subsidized  by revenue from  domestic  long
distance and international  long-distance  telecommunications  services.  Hence,
during 2003 the Company's main objectives are:

     - Optimizing the system of settlements  between  operators for domestic and
     international  long-distance  traffic  aimed at creating a balanced  market
     model; and

     - Fostering  new business  processes  and a culture of customer  service in
     order to achieve high quality service standards.

Regional Operators Market

     One of the main  priorities of Rostelecom in 2003 will be the reform of the
DLD settlement  system through the phasing out of the Integral  Settlement  Rate
("ISR").  ISR was  introduced in 1997 for  settlements  between  Rostelecom  and
regional   operators  for  domestic   long-distance   traffic   throughput   and
termination.  ISR is calculated using two basic components - a linear charge and
a termination  charge.  The linear charge is the rate that  Rostelecom  gets for
each minute of DLD traffic sent through its network by an IRC and is  calculated
as a certain  amount of rubles per minute per 50 km.  Termination  charge is the
rate that is  calculated  based on the balance of incoming and outgoing  traffic
between each two regions during a one-year  period.  ISR lacks  transparency and
leads to  distortions  in settlements  between

                                      -90-
<PAGE>

Rostelecom  and IRCs.  This opens  opportunities  for  alternative  operators to
bypass Rostelecom's network, thus resulting in lower revenues.

     The  reform of the  settlement  system  lies  within the  framework  of the
Russian government's initiatives to improve transparency and ensure precision of
settlements  between  operators  and implies the phasing out of ISR and resuming
use  of  the  Linear  Settlement  Rate  and  Terminaiton  Settlement  Rate  as a
tariff-setting  mechanism. This move will significantly improve the transparency
of  settlements,  ensure  ability  to account  for trends of traffic  growth and
incoming vs. outgoing traffic changes between the regions.  For more information
on the Linear  Settlement Rate and  Termination  Settlement Rate please refer to
Item 4.B. "Business overview".

After the phasing out of the ISR,  Rostelecom  plans to take several  additional
steps to optimize the settlement system between operators, including:

     -    Optimizing the level of the Linear Settlement Rate charged for traffic
          transit by Rostelecom;

     -    Bringing the Termination Settlement Rate charged by regional operators
          in line with the local access tariffs;

     -    Changing  the  settlement  system  for   international   long-distance
          traffic; and

     -    Optimizing  end  user  tariffs  for  international  telecommunications
          services   (introducing  flexible  tariff  schemes  and  an  incentive
          system).

     Moscow Market

     Moscow is the only region in Russia  where  Rostelecom  has a  relationship
with end users,  providing  domestic and  international  long-distance  services
through  the local  provider's  network and billing  subscribers  directly.  The
Moscow  telecommunications  market is fiercely competitive,  particularly in the
corporate customer segment.

     Rostelecom's Moscow market share has persistently declined, particularly in
this  corporate  customer  segment,  resulting in  deteriorating  revenues  from
subscribers.

     In February 2003, the Company  completed  assembling a new management  team
for its Moscow business unit - The  Long-Distance  and  International  Telephone
(MMT).  The professional  skills and commercial  experience of the new team will
facilitate  changes in MMT needed to  strengthen  Rostelecom's  position  in the
Moscow market.

     The new  team's  main  objective  for 2003 is to  stabilize  the  Company's
present  position in the Moscow  long-distance  services  market and reverse the
persistent decline in revenue.

     In  order  to  achieve  this  objective  it will be  necessary  to  address
weaknesses with the following measures:

1.   Reorganize the technological and business  processes within MMT in order to
     raise the quality of customer services through:

     -    A  customer-focused  organizational  structure with a dedicated center
          responsible for sales and customer servicing;

     -    Introduction  of a new  information and billing system to optimize the
          settlement process with subscribers,  facilitate the introduction of a
          flexible tariff policy for different  customer groups, and gather data
          to monitor and improve service quality.

2.   Prevent the loss of  international  and domestic  long-distance  traffic to
     alternative operators by:

     -    Pursuing a flexible  tariff  policy  for  international  long-distance
          services;

     -    Lobbying for new methods of state  regulation  of tariffs for domestic
          long-distance  services  that  will  account  for the  current  market
          conditions; and

     -    Introducing a relationship management approach to key customers.

3.   Offset the impact of lost  long-distance  traffic by  developing  high-tech
     telecommunications services such as:

     -    Intelligent network services ("free phone", "tele-voting", etc.); and

     -    Universal service telephone card:

          -    complete creation of a unified  technical  platform for telephone
               service cards (integration of telephony with Internet access),

          -    introduction  of additional  information  services using the card
               platform, and

          -    lobbying for de-regulation of telephone card services.

                                      -91-
<PAGE>

     International Operators Market

     In 2002,  Rostelecom  reviewed  its  international  operators  strategy and
stepped up cooperation with the largest international  operators.  This approach
successfully  reversed the falling trend in incoming  international  traffic. In
2002, the Company's incoming  international traffic rose by 12% to 973.3 million
minutes over 869 million minutes in 2001. The  international  traffic  increased
for the first time in several years because  Rostelecom changed its approach and
introduced a competitive pricing strategy.  The growth in traffic,  however, was
offset by a decline in settlement rates.  Prior to 2002,  Rostelecom's rates for
international traffic were significantly higher than the market rates.

        Rostelecom's main objectives for 2003 in the international market
segment are as follows:

     -    Further  optimization of settlement  rates,  closing down unprofitable
          routes,  terminating  satellite  channels and  redirecting  traffic to
          terrestrial cable systems, as well as more efficient traffic routing;

     -    Reducing  the  amount  of  accounts  payable  to and  receivable  from
          international operators; and

     -    Securing  and  expanding  access  to  international  traffic  exchange
          points,   including  London  and  Stockholm,  in  order  to  establish
          agreements with large international alternative operators.

     Until mid-2002  Rostelecom worked exclusively with international  operators
that operated on a national scale. At the same time, the  liberalization in most
European  countries and in the USA has led to the emergence of large alternative
operators with significant subscriber bases and traffic volumes, including calls
to Russia. One of Rostelecom's main objectives is to develop business with these
operators  in  the  international  market.  To  achieve  this,  the  Company  is
establishing  a  presence  in  the  main  European   traffic   exchange  points.
Cooperating  with  alternative  operators  will  enable  Rostelecom  to  acquire
additional  traffic  volumes  that at present  bypass its  network,  and also to
reduce the cost of outgoing international traffic.

     Item 5.C Research and Development, Patents and Licenses

Research and Development

     Rostelecom is involved in research and  development  related to the Group's
technical  development  program  using the  following  research and  development
organizations:    The   Central   Research   Institute   of   Telecommunications
("TsNIIS-RTC"), a state enterprise, OJSC Giprosvyaz, CJSC Engineering Center and
OJSC  Institute  of  Automatic  Systems.   The  purposes  of  the  research  and
development program are:

     -    to increase the Group's revenues from telecommunications services;

     -    to expand the capacity of the existing  telecommunications network and
          to  ensure  improved  quality  of  the   telecommunications   services
          provided; and

     -    to develop data transfer  facilities and alarm systems thus increasing
          the range of services  provided  and  allowing  subscribers  to manage
          independently the network functions of data transfer.

     Research and development expenses of the Group amounted to RUR 102 million,
RUR 47.7 million and RUR 82.9 million, respectively for the years ended December
31, 2002, 2001 and 2000, respectively.

     Trademarks

     On April 10, 1995, the Company  registered its trademark with Rospatent,  a
government  register of patents and trademarks.  As a result of merger with MMT,
the Company also obtained the trademark registered by MMT in 2000.

     Licenses

     The Russian Government,  as well as operators which hold local and regional
authorities,  have regulations that require telecommunications  generators which
hold  licenses  to provide,  among  others,  the  following  services:  domestic
long-distance   telephone  service,   international   telephone  service,  local
telephone  service,  television  and radio  broadcasting  service  and  cellular
telecommunications service.  Substantially all of Rostelecom revenue are derived
from  operations  conducted  pursuant to the  licenses  that they  grant.  These
licenses have scheduled  expiration  dates from 2003 to 2007. The Company has no
reason to believe that the licenses will not be renewed or that any license will
be suspended or terminated.

The following  table  summarizes  the terms of the principal  telecommunications
licenses currently held by Rostelecom:

                                      -92-
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
License                                                                                               Expiration Date
Number                Types of Services                 Territory              Date Issued
----------------------------------------------------------------------------------------------------------------------
<S>            <C>                               <C>                         <C>                   <C>
    8777       Domestic and International        Russian Federation          October 17, 1997      January 1, 2004
               Long-Distance Communications
----------------------------------------------------------------------------------------------------------------------
    8701       Local Telephone Communications    5 republics, 32             October 17, 1997      November 1, 2005
                                                 regions, 3 areas and 1
                                                 autonomous region of
                                                 Russia
----------------------------------------------------------------------------------------------------------------------
    13378      TV and Radio Broadcasting         Russian Federation         November 30, 1999     November 30, 2004
----------------------------------------------------------------------------------------------------------------------
    3226       Telematic Services                Russian Federation            May 15, 1997          May 15, 2007
----------------------------------------------------------------------------------------------------------------------
    3227       Data Transmission Services        Russian Federation            May 15, 1997          May 15, 2007
----------------------------------------------------------------------------------------------------------------------
    3136       Cellular telecommunications       Novosibirsk Region          August 16, 1996       October 1, 2006
               services in the 900MHz
               bandwidth
----------------------------------------------------------------------------------------------------------------------
    3137       Cellular telecommunications       Khabarovsk Region           August 16, 1996       October 1, 2006
               services in the 900MHz bandwidth
----------------------------------------------------------------------------------------------------------------------
    3138       Cellular telecommunications       Amur Region                 August 16, 1996       October 1, 2006
               services in the 900MHz bandwidth
----------------------------------------------------------------------------------------------------------------------
    10857      Telegraph communications          Russian Federation          October 9, 1998       October 9, 2003
               services
----------------------------------------------------------------------------------------------------------------------
</TABLE>

     Pursuant to License  No.  8777,  Rostelecom  has a  non-exclusive  right to
operate the  domestic  long-distance  and  international  public  communications
network  of  Russia  (except  for radio  communications  networks  installed  on
vessels)  and to settle  accounts  with  foreign  telecommunications  providers,
companies  and  international  organizations  in  accordance  with the  rules of
international telecommunications.

     License No. 8701  authorizes  Rostelecom  to put into use 89,570  telephone
numbers  through  the  local  telephone  network.   Pursuant  to  this  license,
Rostelecom is required to provide local telephone  services to all categories of
users subject to technical capability.

     Pursuant  to  License  No.  13378,  Rostelecom  is  authorized  to  provide
television and radio broadcasting  services to the public and develop television
and radio broadcasting stations in Russia.

     Pursuant to Licenses No. 3226 and No. 3227,  Rostelecom  is  authorized  to
provide  telematic and data  transmission  services to its customers.  Under the
terms of these licenses,  Rostelecom is required to develop network  capacity to
provide telematic and data transmission services to at least 100,000 subscribers
by such licenses' expiration date..

     Pursuant to License  No.  3136,  Rostelecom  is  authorized  to provide GSM
cellular  telecommunications  services in 900 MHz  bandwidth in the territory of
the Novosibirsk  Region.  By December 31, 2006, the network  capacity must be at
least 12,300 numbers with 7% coverage of the  territory.  During the term of the
license, Rostelecom is required to make a contribution of U.S. $8,409,000 to the
State for the development of the public telecommunications network.

     Pursuant to License  No.  3137,  Rostelecom  is  authorized  to provide GSM
cellular  telecommunications  services in 900 MHz  bandwidth in the territory of
Khabarovsk  Area.  By December 31, 2006,  the network  capacity must be at least
11,000  numbers  with 7%  coverage  of the  territory.  During  the  term of the
license, Rostelecom is required to make a contribution of U.S. $4,863,000 to the
State for the development of the public telecommunications network.

     Pursuant to License  No.  3138,  Rostelecom  is  authorized  to provide GSM
cellular  telecommunications  services in 900 MHz  bandwidth in the territory of
Amur Region.  By December 31, 2006, the network  capacity must be at least 7,000
numbers  with 7%  coverage  of the  territory.  During the term of the  license,
Rostelecom is required to make a  contribution  of U.S.$  3,187,500 to the State
for the development of the public telecommunications network.

     Total amount of fees due under three licenses (No. 3136,  3137 and 3138) is
U.S.$16,459,500  million.  As of December 31, 2002, no payments were made to the
Federal  Committee of GSM 900  operators.  The payments are due upon notice from
the Federal  Committee of GSM 900  operators  which is subject to the  Company's
plans for using these licenses.

                                      -93-
<PAGE>

     License No. 10857  authorizes  Rostelecom  to provide  telegraph  services,
including  passing and  processing  international  and  long-distance  telegraph
traffic and provide AT/Telex network services.

     Under the terms of its licenses,  except for local telephone communications
services,  Rostelecom  may refuse to provide all other types of its  services to
customers  where: (i) provision of such services may endanger the state security
and  defense  system;  (ii)  provision  of such  services  is  precluded  by any
physical,  topographical or other natural circumstance;  (iii) the customer does
not agree with the terms and  conditions  on which such services are provided or
does not make timely  payments for the  services;  and (iv) the customer uses or
intends  to use the  communications  equipment  for  unlawful  purposes  or uses
communications  channels,  trunks and  equipment in  violation of the  technical
rules of the suggested  services under  Rostelecom's  licenses or uses equipment
which is not certified by the Ministry of Communications.

     5.D. Trend Information

     Currently,  there  is an  existing  business  practice  of  cross-subsidies
whereby unprofitable local telecommunications  businesses of IRCs are subsidized
by  revenues  from  DLD  and  ILD   telecommunications   services.  Due  to  the
government's   initiatives   to  eliminate   cross   subsidies  in  the  Russian
communications  industry,  the  percentage of Rostelecom  revenues from end user
tariffs for  domestic  long-distance  calls  increased in 2002,  because,  as of
January 2002,  the rates used by Rostelecom  for  settlements  with IRCs for the
throughput of domestic  long-distance traffic were raised by 25%. It is expected
that,  as IRCs' local  tariffs  continue to rise,  settlement  rates  charged by
Rostelecom to IRCs for DLD traffic transit will increase as well.

     Additionally,  in order to improve  transparency  and ensure  precision  of
settlements  between  Rostelecom and IRCs, the Russian government plans to phase
out the  Integral  Settlement  Rate  (IRS)  which  was  introduced  in 1997  for
settlements between Rostelecom and regional operators for domestic long-distance
traffic throughput and termination. ISR is calculated using two basic components
which are a linear  charge and a  termination  charge.  The linear charge is the
rate that  Rostelecom  gets for each  minute of DLD  traffic  sent  through  its
network by an IRC and is calculated as a certain amount of rubles per minute per
50 km. Termination charge is the rate that is calculated based on the balance of
incoming and outgoing traffic between each two regions during a one-year period.
ISR  lacks  transparency  and  leads  to  distortions  in  settlements   between
Rostelecom  and IRCs.  This opens  opportunities  for  alternative  operators to
bypass Rostelecom's network, thus resulting in lower revenues.

     The reform of the  settlement  system  implies  the  phasing out of ISR and
resuming use of the Linear Settlement Rate and Termination  Settlement Rate as a
tariff-setting mechanism. For more information on the Linear Settlement Rate and
Termination Settlement Rate please refer to Item 4.B. "Business overview".  This
move will significantly improve the transparency of settlements,  ensure ability
to account  for  trends of traffic  growth and  incoming  vs.  outgoing  traffic
changes between the regions.

     In 2002,  Rostelecom decreased the settlement rate charged to international
operators for the incoming  international  traffic termination.  Because of this
tariff decrease, the volume of incoming traffic in Russia through the Rostelecom
network  increased  by 12% from 2001.  The  Company's  management  expects  that
settlements  rates charged to international  operators for incoming traffic will
continue to decrease in 2003. Management believes that the historical decline in
revenues  from  international  operators  will, in the long term, be reversed as
declines  in  settlement  rates  will be offset by the  growth in  international
incoming traffic volumes.

     In 2002,  the tariffs for leased  lines  services  provided to  alternative
operators  were  increased,  and the  settlement  rates  for the  throughput  of
long-distance  and international  traffic charged to alternative  operators were
adjusted to conform this level.  This increased  traffic volume from alternative
operators  and, as a result,  increased  the  Company's  revenues  derived  from
traffic volume from such  alternative  operators.  The Company  expects that the
future  trend for  tariffs  for leased line  services  provided  to  alternative
operators is likely to remain relatively flat, adjusting only for the changes in
the settlement rate for the through put of DLD and ILD traffic.

     Effective May 15, 2003,  the tariff  structure  for domestic  long-distance
services  provided by the Company to Moscow  subscribers was changed.  The rates
for long-distance  calls during  peak-hours were lowered.  During the next year,
the DLD tariffs are expected to be further reduced. This tariff-cutting  measure
is aimed at making Rostelecom's position in the Moscow marketmore competitive in
light of continued price cuts by alternative operators for end users.

     Substantially  all of  Rostelecom  revenues  are  derived  from  operations
conducted pursuant to licenses granted by the Russian Government. These licenses
expire in various years ranging from 2003 to 2007.  The Company has no reason to
believe  that the  licenses  will not be  renewed  or that any  license  will be
suspended or  terminated.  However,  suspension or  termination of the Company's
main  licenses or any failure to renew any or all of these main  licenses  could
have a material  adverse effect on the financial  position and operations of the
Company.  For more information  about the Company's  licenses,  see " - Item 5.C
Research and Development, Patents and Licenses - Licenses".

                                      -94-
<PAGE>

The expected future  liberalization of the  telecommunications  market in Russia
and the development of competition  would mean access to the  telecommunications
market by new operators, equal conditions for all market participants and it may
cause the Company to lose certain protections it currently enjoys as the primary
provider of international and domestic long-distance telecommunications services
in Russia.  This new access  requirement  would directly affect the interests of
Rostelecom,  which currently holds a monopoly on long-distance and international
wholesale  services  markets  in  Russia.  This is  unlikely  to  happen  in the
immediate future because accession to the WTO, which requires the liberalization
of certain  sectors in the  Russian  market,  including  the  telecommunications
sector,   has  been  delayed.   In  addition,   officials  at  the  Ministry  of
Communications  have repeatedly stated that the market  liberalization  would be
possible only after the cross-subsidies  mechanism,  whereby  unprofitable local
communication   networks   are   subsidized   by  domestic   long-distance   and
international  revenues is removed and equal  conditions for all participants in
the  communications  sector  are in place.  Unless the  cross-subsidy  system is
eliminated,  the Company  would not be able to compete on equal terms with other
operators  that would not have such burden if the market were  liberalized.  The
Ministry of Communications and Ministry for Anti-Monopoly  Policy are working to
gradually  increase  local  tariffs,  which  would  reduce  the  cross-subsidies
practice.

     The cellular  communications  market has been rapidly developing in Russia.
The  rapid  development  of  cellular  communications  makes it  easier to reach
subscribers and, consequently, increases the overall volume of domestic traffic.
The development of cellular  communications  will increase the volume of traffic
routed through Rostelecom's network.

     Demand for domestic and international  long-distance services in Russia are
expected  to  continue  to grow.  Fixed-line  penetration  levels in Russia  are
expected to  continue to  increase.  The market for  communications  services in
Russia is now far from  saturated  and  there is room for  further  growth.  The
Company  believes  that the overall  improvement  of the  economic  situation in
Russia will  increase  the volume of  long-distance  traffic  generated by IRCs,
alternative  operators and  subscribers.  The  continuing  modernization  of the
Rostelecom  network should allow it to handle the expected  increased  volume of
domestic and international  long-distance traffic in Russia. In 2002, Rostelecom
invested  approximately  RUR 2,696 million in its property,  plant and equipment
and it plans to invest  approximately  RUR 4,521  million in 2003,  and  between
approximately  RUR 4,500  million  and RUR 5,000  million  annually  to  further
develop its network in 2004-2005.

     Management  currently  can not  predict the  effects of  restructuring  and
potential  deconsolidation  of  RTC-Leasing  on the  financial  position and the
results of operations of the Group due to  significant  uncertainties  as to the
timing of deconsolidation,  the financial position of RTC-Leasing and the status
of  settlements  between  the  Company  and  RTC-Leasing  at  that  moment.  The
disclosure of such effects will be made as they become known and estimable.  For
more  information  on the  restructuring  of  RTC-Leasing  and the  Supplemental
Agreement, see Item 4.C. "Organizational structure - RTC-Leasing".

Item 6.  Directors, Management Board Members and Employees

6.A. Directors and Management Board Members

Rostelecom  is governed by its (i) Board of Directors  consisting  of 11 members
and (ii) the Management  Board, the General Director and certain other executive
officers of Rostelecom  ("Management  Board members").  Pursuant to Rostelecom's
corporate  documents,  members of the Board of Directors are responsible for the
strategic   development  of  Rostelecom   while  Management  Board  members  are
responsible  for  implementing  these  strategies and the overall  management of
Rostelecom.  There are no service  contracts  between the Company and members of
its Board of Directors.

Board of Directors

As of December 31,  2002,  the Board of  Directors  consisted  of the  following
persons:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------

              Name                                         Position*                             Year of Birth
------------------------------------------------------------------------------------------------------------------
<S>                                <C>                                                               <C>
Vadim Y. Belov                     Deputy General Director of Svyazinvest                            1958
------------------------------------------------------------------------------------------------------------------
Nikolai P. Yemelianov              Regional  Director  of  North-West  Telecom,  a branch of         1948
                                   OJSC Novgorodtelecom
------------------------------------------------------------------------------------------------------------------
Sergei I. Kuznetsov**              General Director of Rostelecom                                    1953
------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -95-
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
              Name                                         Position*                             Year of Birth
------------------------------------------------------------------------------------------------------------------
<S>                                <C>                                                               <C>
Alexander V. Lopatin**             Deputy General Director of Svyazinvest                            1964
------------------------------------------------------------------------------------------------------------------
Anton I. Osipchuk                  First Deputy General Director of Svyazinvest                      1967
------------------------------------------------------------------------------------------------------------------
Stanislav N. Panchenko             Deputy General Director of Svyazinvest                            1945
------------------------------------------------------------------------------------------------------------------
Victor A. Polischuk                President of OJSC Russian Telecommunication Network               1938
------------------------------------------------------------------------------------------------------------------
Irina M. Ragozina                  Director   of   Corporate   Governance    Department   of         1950
                                   Svyazinvest
------------------------------------------------------------------------------------------------------------------
Mikhail V. Slipenchuk              General  Director of LLC  Metropol  Investment  Financial         1965
                                   Company
------------------------------------------------------------------------------------------------------------------
Grigory M. Finger                  Authorized   Representative   of   Lindsell   Enterprises         1966
                                   Limited
------------------------------------------------------------------------------------------------------------------
Valery N. Yashin***                General Director of Svyazinvest                                   1941
------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------
* Under Russian  legislation  Rostelecom must disclose the information about the
positions  of the  members  of the Board of  Directors  of  Rostelecom  at other
companies which is their main place of employment.

** Also a member of the Management Board of Rostelecom

*** Chairman of the Board of Directors of Rostelecom

Vadim Y.  Belov.  Mr.  Belov  has been a member  of the  Board of  Directors  of
Rostelecom since November 18, 2000. In 1999, Mr. Belov was appointed as a Deputy
General Director and member of the Management Board of Svyazinvest. From 1998 to
1999,  he was a managing  director  of the Moscow  representative  office of SPK
Capital  Limited,  an investment  company.  From 1997 to 1998,  Mr. Belov held a
position  of the  Deputy  Chairman  of the  Management  Board of  "International
Financial  Company",  a commercial bank. During the period from 1995 to 1997, he
served  as  a  Deputy  Head  of  the  Anti-Monopoly  Committee  of  the  Russian
Federation.  Mr. Belov holds a degree of in  engineering  from  Murmansk  Higher
Marine  Engineering  School as well as a law degree from the Russian  Academy of
State  Service.  He is a member of the  Management  Board of  Svyazinvest  and a
member  of the Board of  Directors  of OJSC  Uralsvyazinform  (a  subsidiary  of
Svyazinvest and an IRC), OJSC Southern  Telecommunications Company (Chairman) (a
subsidiary of Svyazinvest and an IRC),  OJSC Central  Telegraph (a subsidiary of
Svyazinvest and a telecommunication  company),  OJSC Central  Telecommunications
Company (a subsidiary of Svyazinvest  and an IRC),  OJSC  North-West  Telecom (a
subsidiary of Svyazinvest  and an IRC),  RTC-Leasing (a subsidiary of Rostelecom
and a leasing  services  company) and CJSC  RTC-Invest  (Chairman) (an associate
company of Rostelecom and an investment company).  Mr. Belov is also a member of
the  Council of the  Non-Commercial  Partnership  Center for  Telecommunications
Problems Research, a member of the Council of  Rostelecom-Garantia  and a member
of the Council of the Non-Governmental Pension Fund Telecom Soyuz.

Nikolai  P.  Yemelianov.  Mr.  Yemelianov  has  been a  member  of the  Board of
Directors of  Rostelecom  since  November 18, 2000.  In 2002,  he was  appointed
Regional  Director  of  Novgorod  Telecom,  a branch of  North-West  Telecom  (a
subsidiary  of  Svyazinvest  and an IRC).  Mr.  Yemelianov  has been the General
Director of OJSC  Novgorodtelecom (a subsidiary of Svyazinvest and an IRC) since
1995.  He  holds  a  degree  in  radio  engineering  from  Novgorod  Polytechnic
Institute.

Grigory M.  Finger.  Mr.  Finger has been a member of the Board of  Directors of
Rostelecom  since June 24, 2000 till June 15, 2003.  Mr. Finger has been Head of
the Moscow Representative  Office of NCH Advisors,  Inc. (an investment company)
since 1995.  In 1995,  Mr.  Finger was elected to the Board of Directors of OJSC
Trading  House  GUM,  a retail  business.  He is also a member of the  Boards of
Directors of OJSC  Abrazivniy  Zavod  Ilyich (an  industrial  enterprise),  OJSC
Polimerbyt  (an  industrial  enterprise),  Central  Telegraph (a  subsidiary  of
Svyazinvest and a telecommunication company), Central Telecommunications Company
(a subsidiary of Svyazinvest and an IRC) and OJSC Aeroflot (an airline company).
He holds a degree in  computer  science  from the Moscow  Institute  of Chemical
Engineering.

                                      -96-
<PAGE>

Sergei  I.  Kuznetsov.  Mr.  Kuznetsov  has been on the  Board of  Directors  of
Rostelecom  since June 1, 2002. On February 23, 2001,  he was  appointed  Acting
General  Director  of  Rostelecom.  Mr.  Kuznetsov's  powers were up held by the
Annual  General  Shareholders  Meeting  of June 30,  2001.  During  the years of
1998-2001  Mr.  Kuznetsov  held  the  position  of  General  Director  of a  St.
Petersburg  company  CJSC  Peterstar  (a  telecommunication  company),  and in
1995-1998  was a General  Director of OJSC  Telecominvest  (a  telecommunication
holding).   Mr.   Kuznetsov  is  a  member  of  the  Board  of  Directors   CJSC
Interfax-Telecom  (an  information  agency),  RTComm.RU  (an  Internet  services
company),  CJSC  Telmos  (a  telecommunication  company),  and a  member  of the
Management  Board of  Svyazinvest.  Mr.  Kuznetsov is a Chairman of the Board of
Directors of Globalstar - Space Telecommunications (a telecommunication company)
and RTC-Leasing (a subsidiary of Rostelecom and a leasing services company).  He
is also a member of the  Council of the  Non-Commercial  Partnership  Center for
Telecommunications  Problems  Research  and a  member  of  the  Council  of  the
Non-Governmental Pension Support with NPF Rostelecom-Garantia. He holds a degree
in computer  engineering  and has studied  business  administration  at Columbia
University and Fuqua Business School at Duke University.

Alexander V. Lopatin. Mr. Lopatin has been a member of the Board of Directors of
Rostelecom  since  June 24,  2000.  From 1995 to 1999,  Mr.  Lopatin  was Deputy
Director for Assets  Management,  Director for Assets  Management  and Financial
Director of RAO UES Russia (an unified energy system company). Since 1999 he has
been  the  First  Deputy  General  Director  of  Svyazinvest,  a  member  of the
Management  Board of  Svyazinvest  and  Rostelecom,  a member  of the  Boards of
Directors  of CJSC  MobiTel (a mobile  telecommunication  company  in  Ukraine),
Central  Telecommunications  Company (a subsidiary of  Svyazinvest  and an IRC),
MGTS (a subsidiary of  Svyazinvest  and a  telecommunication  company).  He is a
Chairman of the Board of Directors of OJSC Dalsvyaz (a subsidiary of Svyazinvest
and an IRC), OJSC SibirTelecom (a subsidiary of Svyazinvest and an IRC), Central
Telegraph (a subsidiary of Svyazinvest and a  telecommunication  company),  CJSC
RusLeasingSvyaz  (an associates  company of Svyazinvest  and a leasing  services
company)  and  the  Director  of  the  Non-Commercial   Partnership  Center  for
Telecommunications Problems Research.

Anton I.  Osipchuk.  Mr.  Osipchuk  has been a member of Board of  Directors  of
Rostelecom since June 30, 2001 till June 15,2003. Mr. Osipchuk held the position
of the First Deputy General  Director of Svyazinvest from April 2000 to November
2002 and has been a member of the  Management  Board of  Svyazinvest  from April
2000 to  November  2002.  He is a member  of the  Boards  of  Directors  of OJSC
North-West  Telecom (a subsidiary of Svyazinvest and an IRC), MobiTel (Chairman)
(a mobile  telecommunication  company in Ukraine),  Southern  Telecommunications
Company (a subsidiary  of  Svyazinvest  and an IRC),  RTComm.RU (a subsidiary of
Rostelecom  and an Internet  services  company),  RTC-Leasing  (a  subsidiary of
Rostelecom and a leasing services company),  OJSC Uralsvyazinform  (Chairman) (a
subsidiary of Svyazinvest  and an IRC),  MGTS (a subsidiary of Svyazinvest and a
telecommunication  company),  OJSC  VolgaTelecom  (Chairman)  (a  subsidiary  of
Svyazinvest  and an IRC),  Svyaz-Bank  Moscow-based  commercial  bank,  and CJSC
North-West Telecombank (a commercial bank). From 1997 through 2000, Mr. Osipchuk
was Deputy General  Director for Economics and Finance of OJSC  Telecominvest (a
holding managing company, which unites enterprises  telecommunication services).
He held the  position of Head of Economic  Department  and,  from 1996-  through
1997,  the  position  of the  Deputy  Administrator  at  OJSC  AB  Inkombank  (a
commercial bank) from 1995 through 1996.

Stanislav  N.  Panchenko.  Mr.  Panchenko  has  been a  member  of the  Board of
Directors of Rostelecom since July 1997. He has been the Deputy General Director
of Svyazinvest since 1996. He is an engineer in telecommunications  and has been
working in the  telecommunications  industry for several decades. He is a member
of the Management  Board of  Svyazinvest,  a member of the Board of Directors of
South  Telecommunication  Company (a subsidiary of  Svyazinvest  and an IRC) and
Chairman of the Board of  Directors  of OJSC  Dagsvyazinform  (a  subsidiary  of
Svyazinvest and an IRC) and OJSC Lensvyaz (a subsidiary of OJSC  Svyazinvest and
a telecommunication company).

Victor A. Polischuk.  Mr.  Polischuk has been a member of the Board of Directors
of Rostelecom  since November 18, 2000. Mr. Polischuk has been President of OJSC
Russian Telecommunication Network 9 (a telecommunication company) since 1995 and
is a member  of the  Boards of  Directors  of OJSC  AEROCOM  (a  company,  which
provides  telecommunication services and equipment for airports), CJSC MOTEKO (a
telecommunication  company),  CJSC Na  Ilyinke,  and  General  Director  of OJSC
ENIKS-N  (a  telecommunication   company)  and  CJSC  Trillprom  (an  industrial
enterprise).  He is also the  Chairman of the Board of Director of CJSC  Company
Diacom, CJSC Octagon Tekhnologies (a telecommunication  company) and CJSC Rusnet
Labs (an internet provider  company).  In addition,  he is a Doctor of Technical
Sciences of Moscow Aviation Institute.

Irina M. Ragozina.  Ms.  Ragozina has been a member of the Board of Directors of
Rostelecom since June 1, 2002. She has been Director of the Corporate Governance
Department of Svyazinvest since 1999; prior to that, from 1997, she was the Head
of  Securities  Department  of  Svyazinvest's.  She is a member of the Boards of
Directors of MGTS (a subsidiary of Svyazinvest and a telecommunication  company)
and North-West Telecom (a subsidiary of Svyazinvest and an IRC).

                                      -97-
<PAGE>

Mikhail V. Slipenchuk. Mr. Slipenchuk has been a member of Board of Directors of
Rostelecom  since June 1, 2002. Since 1998 he is a General Director and a member
of the Board of Directors  of LLC METROPOL  Investment  Financial  Company.  Mr.
Slipenchuk  is the General  Director of LLC Donskay,  13 (a rent  company),  LLC
Varna-95 (a financial intermediary) and the Chairman of the Board of Director of
OJSC Elektroistochnik (an electrotechnical company) and a member of the Board of
Directors of OJSC Ulianovskenergo (an energy company).

Valery N. Yashin.  Mr. Yashin was appointed  Chairman of the Management Board of
Rostelecom on November 18, 2000. Since October 22, 1999, Mr. Yashin has held the
position  of  General   Director  and  Chairman  of  the  Management   Board  of
Svyazinvest.  He  started  as  a  head  of  department  in  OJSC  Peterburgskaya
Telefonnaya Svyaz (a  telecommunication  company) in 1978 and became the General
Director of that company in 1995. He is a Chairman of the Boards of Directors of
North-West  Telecom (a  subsidiary  of  Svyazinvest  and an IRC),  OJSC National
Payphones (a telecommunication  company),  Central Telecommunications Company (a
subsidiary of Svyazinvest and an IRC), RTComm.RU (a subsidiary of Rostelecom and
an internet services company) and CJSC Saint-Petersburg  Payphones. He is also a
member of the Board of Directors of Telekominvest (a telecommunications holding)
and MGTS (a subsidiary of Svyazinvest, a telecommunication company) and a member
of the  Management  Board of the  Fund  "Russian  Fund of the  Telecommunication
History".  He is the Chairman of the Council of the  Non-Commercial  Partnership
Center  for  Telecommunications   Problems  Research  and  the  Council  of  the
Non-Governmental Pension Fund Rostelecom-Garantia and a member of the Council of
the  Non-Governmental  Pension Fund Telecom Soyuz.  Mr. Yashin holds a degree in
communications  engineering from the Leningrad Electrical Technical Institute of
Communications.

In early 2002, Mssrs. S.P.  Avdiyants,  V.S. Vasin and N.M. Korolev were members
of the  Board of  Directors.  They are  currently  not  members  of the Board of
Directors.

Stanislav P. Avdiyants.  On June 15, 2003, Mr. Avdiyants was elected as a member
of Board of Directors of  Rostelecom.  Prior to that,  Mr.  Avdiyants was also a
member of Board of Directors of  Rostelecom  from June 30, 2001 to June 1, 2002.
Since Since 2000, Mr. Avdiyants had been executive  director and director of the
department of economic  forecasting  and  consolidated  planning of Svyazinvest.
From 1998 to 2000,  Mr.  Avdiyants  held the position of deputy  director of the
department of economic forecasting and consolidated planning of Svyazinvest. Mr.
Avdiyants  held the position of the head of the marketing  service in Rostelecom
from 1993 until 1998, and after that he worked as executive director and head of
department  for  organization  and planning of services and tariffs for domestic
long-distance  communications.  He is a member of Board of  Directors of Central
Telecommunications Company (a subsidiary of Svyazinvest and an IRC) and Southern
Telecommunications Company (a subsidiary of Svyazinvest and an IRC). He was born
in 1946.

Vladislav S. Vasin.   Mr. Vasin was a member of Board of Directors of Rostelecom
from July 18, 1997 to June 1, 2002.  Mr. Vasin has been the First Deputy General
Director of  Svyazinvest  and a member of the  Management  Board of  Svyazinvest
since  1998.  From 1994 to 1997,  he was the First  Deputy  General  Director of
Rostelecom and, from 1997 to 1998, was also a director of MnSRT,  the Rostelecom
branch responsible for international  communications.  From 1993 to 1994, he was
the First Deputy Minister in Ministry of Communications of Belarus.  He was born
in 1950.

Nikolai M. Korolev.  Mr.   Korolev  was  a  member  of  Board  of  Directors  of
Rostelecom  from January 15, 1993 to June 1, 2002.  Mr.  Korolev was the General
Director and the Chairman of the  Management  Board of  Rostelecom  from 1999 to
2001.  From 1993 through 1999, Mr. Korolev held the position of the First Deputy
General  Director of  Rostelecom  and Director of GTsUMS  (Chief  Center for the
Management of Main Line Communications and Television).  Prior to this position,
he was the Head of the Central  Department  of Main Trunk  Network of the Soviet
Ministry  of  Communications.  In  1992,  Mr.  Korolev  became  the  Head of the
Information  Technologies  Department  of  the  Ministry  of  Communications  of
Belarus.  Mr. Korolev is a member of the Boards of Directors of several  Russian
telecommunications  companies,  including GlobalTel and Sovintel. He was born in
1945.

Management Board Members

As of December 31, 2002,  the  Management  Board of Rostelecom  consisted of the
following members:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                                        Year of
            Name                                            Position*                                    Birth
------------------------------------------------------------------------------------------------------------------
<S>                           <C>                                                                        <C>
Vladimir I. Androsik          Deputy General Director - Financial Director of Rostelecom                 1975
------------------------------------------------------------------------------------------------------------------
Dmitry E. Yerokhin            First Deputy General Director of Rostelecom                                1950
------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -98-
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                                        Year of
            Name                                            Position*                                    Birth
------------------------------------------------------------------------------------------------------------------
<S>                           <C>                                                                        <C>
Igor V. Zabolotny             General Director of OJSC Dalsvyaz                                          1967
------------------------------------------------------------------------------------------------------------------
Vadim Y. Izotov               Deputy General  Director - Director for  Information  Technologies  of     1968
                              Rostelecom
------------------------------------------------------------------------------------------------------------------
Sergei I. Kuznetsov           General Director of OJSC Rostelecom, Chairman of Management Board          1953
------------------------------------------------------------------------------------------------------------------
Alexander V. Lopatin          Deputy General Director of Svyazinvest                                     1964
------------------------------------------------------------------------------------------------------------------
Alexander A. Lutsky           Chief Accountant of Rostelecom                                             1972
------------------------------------------------------------------------------------------------------------------
Vladimir K. Mironov           Deputy General Director for Personnel and Security of Rostelecom           1956
------------------------------------------------------------------------------------------------------------------
Alexander V. Mikhalev         Deputy General Director - Administrative Director of Rostelecom            1958
------------------------------------------------------------------------------------------------------------------
Marina D. Oleshek             Deputy  General  Director - Director  for  Structure  Development  and     1961
                              Personnel Administration of Rostelecom
------------------------------------------------------------------------------------------------------------------
Vladimir V. Terekhov          Deputy General Director - Technical Director of Rostelecom                 1958
------------------------------------------------------------------------------------------------------------------
</TABLE>

* Under Russian  legislation  Rostelecom must disclose the information about the
positions  of the  members  of the  Management  Board  of  Rostelecom  at  other
companies companies which is their main place of employment.

Vladimir I. Androsik. Mr. Androsik was appointed Deputy General Director-Finance
Director in September 2001. From April 2001 through September 2001, Mr. Androsik
held the position of advisor to General  Director  for Economy and Finance.  Mr.
Androsik joined CJSC Peterstar (a telecommunication  company) in 1997. He became
deputy  financial  director of Peterstar in 2001. Mr. Androsik holds a degree of
economist-mathematician  from St. Petersburg  University.  He is a member of the
Board of Directors of Globalstar - Space Telecommunications (a telecommunication
company), Moscow Cellular Communications ("MCC") (a telecommunication  company),
CJSC SK  Costars  (an  insurance  company),  CJSC  Rustel  (a  telecommunication
company), CJSC Inkom (a telecommunication company),  Joint-Stock Bank Svyaz-Bank
(a commercial  bank),  OJSC  Giprosvyaz (a company  which  provides  services of
systems   telecommunication   engineering),   RTComm.RU  (an  internet  services
company), CJSC Telecom-Center (a telecommunication company), CJSC RTC-Invest (an
investment company).  He is also a member of the Council of the Non-Governmental
Pension  Support  with NPF  Rostelecom-Garantia  and a Chairman  of the Board of
Director of  Westelcom  (a  subsidiary  of  Rostelecom  and a  telecommunication
company).

Dmitry E.  Yerokhin.  Since  October  2001,  Mr.  Yerokhin has been First Deputy
General  Director of Rostelecom.  He started working in the TTsMS-9 branch,  and
became the branch  director in May 1997.  Before that, he worked for 18 years in
TUSM-6 of TTsMS-9 of the Ministry of  Communications of the USSR and for 5 years
- in GPSI  Rossvyazinform (a  telecommunication  company).  He holds a degree in
radio design engineering from Dagestan Polytechnic Institute.  Mr. Yerokhin is a
member of the Boards of Directors of  Globalstar - Space  Telecommunications  (a
telecommunication company), SK Costars (an insurance company) and Telecom-Center
(a  telecommunication  company).  He is a Chairman of the Boards of Directors of
Inkom (a telecommunication  company), CJSC MTs NTT (a telecommunication company)
and MMTS-9 (a telecommunication  company).  Mr. Yerokhin is also a member of the
Management  Boards of the Association of  Telecommunications  Association of the
Central Chernozem Region.

Igor V. Zabolotny.  In December 2002, Mr. Zabolotny was elected General Director
of Dalsvyaz.  Mr. Zabolotny was dismissed from the position of the member of the
Management Board of Rostelecom on May 15, 2003. From 1997 to 1999, Mr. Zabolotny
was employed by Rostelecom as a member of the  Management  Board of  Rostelecom.
From December  1999 to January 2003, he was Executive  Director in charge of the
Marketing and Service Sales  Department of Svyazinvest.  In December 2002 he was
elected  General  Director of Dalsvyaz (a subsidiary of Svyazinvest and an IRC).
He is a Chairman of the Boards of Directors of  VolgaTelecom  (a  subsidiary  of
Svyazinvest and an IRC) and MobiTel (a mobile operator in Ukraine), and a member
of Boards of Directors of Dalsvyaz (a subsidiary of Svyazinvest  and an IRC) and
Giprosvyaz  (a company  which  provides  services  of systems  telecommunication
engineering).  Mr.  Zabolotny was dismissed  from the position of the Management
Board Member of Rostelecom from May 15, 2003.

Vadim Y.  Izotov.  Since May 2001,  Mr.  Izotov held the  position of advisor to
General Director on information  technologies in Rostelecom.  In September 2001,
he  was  appointed   Deputy   General   Director  -  Director  for   Information
Technologies.  Starting from 1996 and until he joined  Rostelecom,  he worked in
CJSC North-West GSM (a

                                      -99-
<PAGE>

telecommunication  company).  Mr. Izotov holds a degree of systems engineer from
Leningrad  Polytechnic  Institute.  He is  General  Director  of CJSC  Rospac (a
telecommunication  company),  and member of the Boards of  Directors of Inkom (a
telecommunication  company), and Autonomous Non-commercial  organization Central
Scientific and Technical Center "Central Research Institute of Telecommunication
- RTC".

Sergey I. Kuznetsov (see above)

Alexander V. Lopatin (see above)

Alexander A. Lutsky.  Mr. Lutsky was appointed as Chief Accountant of Rostelecom
in  July  2001.   Before   that,   he  was  the   financial   director  in  CJSC
Saint-Petersburg  Payphones  from  September  1997 to June 2000 and the  finance
director in CJSC  Petersburg  Transit  Telecom  (starting  from July 2000).  Mr.
Lutsky is an economist  and holds a degree from  Leningrad  Institute of Finance
and  Economics.  He is a member of the  Board of  Directors  of Moscow  Cellular
Communications ("MCC") (a mobile operator).

Vladimir K. Mironov.  Mr.  Mironov was appointed  Deputy  General  Director (for
personnel and security) for  Rostelecom in March 2002.  Prior to that he was the
director  in  charge  of  workplace  safety of  Peterstar  (a  telecommunication
company) from 2001. Prior to joining Peterstar, he served in the Armed Forces of
the Russian Federation from 1972.

Alexander V. Mikhalev. Mr. Mikhalev has been the advisor to the General Director
since  February 2001. In April 2002 he was appointed  Deputy General  Director -
Administrative  Director  and was  dismissed  from that  position in January 31,
2003. He has worked in the communications  industry since 1978, from 1999 he was
Deputy Director for General Matters of Peterstar (a  telecommunication  company)
and  from  2001  he  was  Director  of the  Administrative  Department  of  CJSC
Petersburg Tranzit Telecom.

Marina D. Oleshek. Ms. Oleshek was the head of personnel  departments at various
major Russian  companies  from 1990 to 1999. In January 1999,  she was appointed
Personnel Director of OJSC Vympelcom (a mobile telecommunication company). Since
September  2001,  Ms.  Oleshek has been Deputy  General  Director - Director for
Structure  Development and Personnel  Administration of Rostelecom.  Ms. Oleshek
holds a degree in engineering from the Moscow  Communications  Institute and has
pursued further education in personnel management.  She is a member of the Board
of  Directors of Costars (an  insurance  company) and a member of the Council of
the Non-Governmental Pension Support with NPF  Rostelecom-Garantia.  In May 2003
she resigned from the Company.

Vladimir V. Terekhov.  Since 2001, Mr. Terekhov has been Deputy General Director
for Technical  Development at CJSC Petersburg Tranzit Telecom. From 1994 to 2001
he was  employed by Peterstar (a  telecommunication  company),  lastly as Deputy
Technical  Director for Development and Engineering.  Mr. Terekhov was appointed
Deputy  General  Director - Technical  Director of Rostelecom in April 2002. Mr.
Terekhov holds a degree in radio  communications  from the Kiev Higher  Military
Communications Engineering School.

In early 2002 the Management  Board also included  Mssrs.  A.F.  Aliokhin,  P.I.
Alpetyan,  V.S. Vasin,  S.I.  Glushko,  B.V. Zverev,  and V.A. Petrov.  They are
currently not members of the Management Board.

Alexei F. Aliokhin.  Mr.  Aliokhin was the Deputy General  Director - Commercial
Director of Rostelecom  from September 2001 to June 2002, when he ceased being a
Management Board Member. Mr. Aliokhin was the Commercial  Director of Rostelecom
from  June  to  September  of  2001.  From  to  2001 he  worked  in  Comstar  (a
telecommunication company) as, among other positions, a commercial director. Mr.
Aliokhin holds degrees from Karaganda  Polytechnic Institute and the Academy for
Foreign Trade.

Pavel I. Alpetyan. Mr. Alpetyan has been a Deputy General Director of Rostelecom
since  March 1998 utill  April 2002.  From  September  2001 to April 2002 he was
Deputy General Director - Technical Director. From 1993 to 1996, he was the head
of  the  Center  for  International  Settlements  of  Rostelecom.  Prior  to his
appointment  as Deputy  General  Director of  Rostelecom,  Mr.  Alpetyan was the
General   Director  of  CJSC  RTC-Centre  (a   telecommunication   company),   a
wholly-owned  subsidiary of  Rostelecom.  Mr.  Alpetyan  holds a degree in radio
engineering from the Polytechnic Institute of the City of Yerevan.

Vladimir A. Petrov.  Mr.  Petrov was the Deputy  General  Director - Director of
Central  Branch of  Rostelecom  from October  2001 until the  present.  He was a
Management  Board Member from September 2000 to June 2002. He was Deputy General
Director of Rostelecom  from May 2000 to October 2001.  From June 6, 1997 to May
12,   2000  he  was  a  member  of  the   Boards  of   Directors   of  Inkom  (a
telecommunication  company), MMTS-9 (a telecommunication  company), EDN Sovintel
(a   telecommunication   company)  and  CJSC  Telebarents  (a  telecommunication
company). He graduated from the engineering  department of the Kirov Polytechnic
Institute.

                                     -100-
<PAGE>

Boris  V.  Zverev.  Mr.  Zverev  was  a  director  of  Rostelecom's  branch  MMT
(previously  named  MMTS-10) from January 2000 to October  2002,  when he ceased
being a Management  Board  Member.  Since 1974,  Mr.  Zverev has been working in
telecommunications  companies.  In 1994,  he was appointed  General  Director of
State Enterprise Moscow  Long-Distance  and  International  Telephone and served
until January 2000. He holds a degree in telegraphs and telephone communications
from Leningrad Electrotechnical Institute of Communications.

Sergei I.  Glushko.  Since  September  2001,  Mr.  Glushko  was a  Director  for
Development and Administrative Matters of Rostelecom from September 2001 through
August 2002, when he ceased being a Management Board member.  From April 2001 to
April 2002, Mr. Glushko was General  Director - Director of Rostelecom's  branch
SOMES.  He has been working in the  telecommunications  industry  since 1996: in
PeterStar (a telecommunication company) (from 1996 to 2001, latest position held
being Deputy Technical Director for Line Facilities).  Through April-May 2001 he
was the Manager of the Access  Service  with  Petersburg  Transit  Telecom.  Mr.
Glushko  holds a degree  in radio  engineering  from  the Kiev  Higher  Military
Engineering School of Communications.

As of June 25, 2003 the  Management  Board of Rostelecom  included the following
persons:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                                        Year of
            Name                                             Position                                    Birth
------------------------------------------------------------------------------------------------------------------
<S>                           <C>                                                                        <C>
Vladimir I. Androsik          Deputy General Director - Financial Director of Rostelecom                 1975
------------------------------------------------------------------------------------------------------------------
Sergey L. Akopov              Deputy General Director - Administrative Director of Rostelecom            1953
Dmitry E. Yerokhin            First Deputy General Director of Rostelecom                                1950
------------------------------------------------------------------------------------------------------------------
Vadim Y. Izotov               Deputy General  Director - Director for  Information  Technologies  of     1968
                              Rostelecom
------------------------------------------------------------------------------------------------------------------
Sergei I. Kuznetsov           General Director of Rostelecom, Chairman of Management Board               1953
------------------------------------------------------------------------------------------------------------------
Igor A. Kalugin               First   Deputy   General   Director  of   Rostelecom   -  Director  of     1964
                              Rostelecom's branch MMT
------------------------------------------------------------------------------------------------------------------
Alexander V. Lopatin          Deputy General Director of Svyazinvest                                     1964
------------------------------------------------------------------------------------------------------------------
Alexander A. Lutsky           Chief Accountant of Rostelecom                                             1972
------------------------------------------------------------------------------------------------------------------
Vladimir K. Mironov           Deputy General Director for Personnel and Security of Rostelecom           1956
------------------------------------------------------------------------------------------------------------------
Marina D. Oleshek             Deputy  General  Director - Director  for  Structure  Development  and     1961
                              Personnel Administration of Rostelecom
------------------------------------------------------------------------------------------------------------------
Gioulnara Sh. Khasianova      Deputy General Director - Commercial Director of Rostelecom                1970
------------------------------------------------------------------------------------------------------------------
Vladimir V. Terekhov          Deputy General Director - Technical Director of Rostelecom                 1958
------------------------------------------------------------------------------------------------------------------
</TABLE>

The following individuals are new Management Board Members:

Sergey L. Akopov.  Mr.  Akopov was  appointed to the position of Deputy  General
Director -  Administrative  Director of Rostelecom in February 2003 and became a
Management  Board  Member in April  2003.  From April 2001 to August  2000,  Mr.
Akopov  held  the  position  of  the  Deputy  Administrative  Director  of  CJSC
Petersburg  Transit  Telecom  (a  telecommunication   company).   Prior  to  his
appointment Mr. Akopov held senior management positions in food companies.

Igor A.  Kalugin.  Mr.  Kalugin  was  appointed  to the  position of Director of
Rostelecom's branch MMT in February 2003 and became a Management Board Member in
April  2003.  Since April 2003,  he also held the  position of the First  Deputy
General  Director  of  Rostelecom.  Prior  to his  appointment  as  Director  of
Rostelecom's  branch MMT,  Mr.  Kalugin  held senior  management  positions in a
number of large  Russian and  multinational  companies:  from June 1999

                                     -101-
<PAGE>

to March 2001 he was the  Financial  Director of PeterStar (a  telecommunication
company),  and from April 2001 to January  2003,  Mr.  Kalugin  was the  General
Director of Petersburg Transit Telecom.  He graduated in 1989 from the Institute
of Fine  Mechanics  and  Optics  (major  in  automation  and  technical  systems
management). He received a degree in Economics from the Institute of Finance and
Economics and a degree in Corporate Finance from the London School of Economics.

Gioulnara Sh. Khasianova. Since 2002 she has been the Deputy Commercial Director
of the  Company  and became a  Management  Board  Member in April  2003.  She is
currently a member of the Board of  Directors  of  Westelcom  (a  subsidiary  of
Rostelecom,  a  telecommunication  company).  From 2001 to 2002, Ms.  Khasianova
served as Head of the Marketing Department of Rostelecom. From 2000 to 2001, she
held the  positions of Marketing  specialist  in the  Marketing,  Advertising  &
Information Laboratory,  Head of the Marketing Department, Head of the Economics
and Marketing Division, and Head of the Business Development Division. From 1996
to 2000 she worked for Long-Distance and International Telephone (MMT).

6.B. Compensation of Directors and Management Board Members

The members of the Board of Directors and  Management  Board of Rostelecom  were
paid by the  Group a total  of RUR  63,839,568  for all the  services  performed
during the fiscal year ended December 31, 2002.

This  amount  includes  the  annual  salaries  of the  members  of the  Board of
Directors and Management Board, as well as other compensation paid in accordance
with the  internal  regulations  of the Board of  Directors  and the  Management
Board.

This amount also includes  conditional and deferred  salaries and  compensations
accrued for the year of record,  even if such  salaries  and  compensations  are
payable at a later date.

Directors of Rostelecom do not receive salaries,  bonuses or other payments from
the Company unless they are also Management Board members.  However, the Company
pays fees to its directors in accordance  with its internal  Regulations  on the
Board of Directors, which fees are reflected in the table below.

The following  table discloses the aggregate  amounts of compensation  and other
amounts  paid by the  Group to each  member of the  Board of  Directors  of OJSC
Rostelecom during the year ended December 31, 2002 on an individual basis:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                            Compensation from
              Name                                       Position                            Rostelecom (RUR)
------------------------------------------------------------------------------------------------------------------
<S>                                <C>                                                           <C>
Vadim Y. Belov                     Deputy General Director of Svyazinvest                        1,849,438
------------------------------------------------------------------------------------------------------------------
Nikolai P. Yemelianov              Regional Director of OJSC Novgorodtelecom, a branch           1,883,934
                                   of North-West Telecom
------------------------------------------------------------------------------------------------------------------
Sergei I. Kuznetsov*               General Director of Rostelecom                                5,293,576
------------------------------------------------------------------------------------------------------------------
Alexander V. Lopatin*              Deputy General Director of Svyazinvest                        2,444,802
------------------------------------------------------------------------------------------------------------------
Anton I. Osipchuk                  First Deputy General Director of Svyazinvest                  1,971,572
------------------------------------------------------------------------------------------------------------------
Stanislav N. Panchenko             Deputy General Director of Svyazinvest                        1,569,372
------------------------------------------------------------------------------------------------------------------
Viktor A. Polischuk                President of OJSC Russian Telecommunications Network          1,569,371
------------------------------------------------------------------------------------------------------------------
Irina M. Ragozina                  Director, Corporate Governance Department of                    880,680
                                   Svyazinvest
------------------------------------------------------------------------------------------------------------------
Mikhail V. Slipenchuk              General Director,  LLC METROPOL Investment Financial            913,730
                                   Company
------------------------------------------------------------------------------------------------------------------
Grigory M. Finger                  Executive Director of NCH Advisors, Inc.                      1,569,371
------------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -102-

                                       1
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                            Compensation from
              Name                                       Position                            Rostelecom (RUR)
------------------------------------------------------------------------------------------------------------------
<S>                                <C>                                                           <C>
Valery N. Yashin                   General  Director of Svyazinvest,  Chairman of Board          2,214,082
                                   of Directors
------------------------------------------------------------------------------------------------------------------
Stanislav P. Avdiyants             Executive  Director  -  Director  of  Department  of            655,645
                                   Economic and Tariff Policy of Svyazinvest  (The date
                                   of resignation was June 1, 2002).  Ms. Avdiyants was
                                   elected to the Board of Directors on June 15, 2003.
------------------------------------------------------------------------------------------------------------------
Vladislav S. Vasin                 First Deputy General  Director of  Svyazinvest  (The            887,701
                                   date of resignation was June 1, 2002)
------------------------------------------------------------------------------------------------------------------
Nikolai M. Korolev                 Shareholder  of Rostelecom  (The date of resignation            694,245
                                   was June 1, 2002).
------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------
*    Also a member of the Management Board

The following  table discloses the aggregate  amounts of compensation  and other
amounts paid by the Group to each Management  Board Member of Rostelecom  during
the year ended December 31, 2002 on an individual basis:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                            Compensation from
              Name                                       Position                            Rostelecom (RUR)
------------------------------------------------------------------------------------------------------------------
<S>                                <C>                                                       <C>
Vladimir I. Androsik               Deputy  General  Director -  Financial  Director  of      3,434,060
                                   Rostelecom
------------------------------------------------------------------------------------------------------------------
Dmitry E. Yerokhin                 First Deputy General Director of Rostelecom               3,404,249
------------------------------------------------------------------------------------------------------------------
Igor V. Zabolotny                  General Director of OJSC Dalsvyaz                          524,288
------------------------------------------------------------------------------------------------------------------
Vadim Y. Izotov                    Deputy General  Director - Director for  Information      3,044,781
                                   Technologies of Rostelecom
------------------------------------------------------------------------------------------------------------------
Alexander A. Lutsky                Chief Accountant of Rostelecom                            3,419,775
------------------------------------------------------------------------------------------------------------------
Vladimir K. Mironov                Deputy  General  Director for Personnel and Security      4,574,071
                                   of Rostelecom
------------------------------------------------------------------------------------------------------------------
Alexander V. Mikhalev              Deputy General  Director -  Administrative  Director      4,114,711
                                   of Rostelecom
------------------------------------------------------------------------------------------------------------------
Vladimir V. Terekhov               Deputy  General  Director -  Technical  Director  of      4,568,506
                                   Rostelecom
------------------------------------------------------------------------------------------------------------------
Marina D. Oleshek                  Deputy  General  Director - Director for  Structural      3,322,797
                                   Development   and   Personnel    Administration   of
                                   Rostelecom
------------------------------------------------------------------------------------------------------------------
Alexey F. Alekhin                  Deputy  General   Director-Commercial   Director  of      1,637,071
                                   Rostelecom.  (The  date of  resignation  was June 1,
                                   2002)
------------------------------------------------------------------------------------------------------------------
Pavel I. Alpetyan                  Deputy   General   Director-Technical   Director  of      1,640,118
                                   Rostelecom.  (The  date of  resignation  was June 1,
                                   2002)
------------------------------------------------------------------------------------------------------------------
Sergei I. Glushko                  Deputy  General   Director-Commercial   Director  of      1,077,989
                                   Rostelecom.  (The  date of  resignation  was June 1,
                                   2002)
------------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -103-

                                       2
<PAGE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                            Compensation from
              Name                                       Position                            Rostelecom (RUR)
------------------------------------------------------------------------------------------------------------------
<S>                                <C>                                                       <C>
Boris V. Zverev                    Director  of   Rostelecom's   Branch  -  The  Moscow      4,788,641
                                   Long-Distance  and  International  Telephone ("MMT")
                                   (The date of resignation was June 1, 2002)
------------------------------------------------------------------------------------------------------------------
Vladimir A. Petrov                 Deputy  General   Director  -  Director  of  Central      2,155,094
                                   Branch of Rostelecom  (The date of  resignation  was
                                   June 1, 2002)
------------------------------------------------------------------------------------------------------------------
Sergey L. Akopov                   Deputy General  Director -  Administrative  Director          0
                                   of Rostelecom
------------------------------------------------------------------------------------------------------------------
Igor A.Kalugin                     First  Deputy  General   Director  of  Rostelecom  -          0
                                   Director of Rostelecom's branch MMT
------------------------------------------------------------------------------------------------------------------
Gioulnara Sh. Khasianova
                                   Deputy  General  Director -  Commercial  Director of          0
                                   Rostelecom
------------------------------------------------------------------------------------------------------------------
</TABLE>

To date, the Company does not have a bonus or  profit-sharing  plan with respect
to members of its Board of Directors and the Management  Board Members.  Neither
does the Company have an employee stock option program in place.

In  accordance  with the  regulations  of the FCSM,  Rostelecom  is  required to
disclose  information  regarding the  compensation  of each of its directors and
Management  Board Members.  Such  information  is included in quarterly  reports
submitted by  Rostelecom  to FCSM and is available  to  shareholders  and to the
general public on the FCSM website.  In addition,  FCSM  Resolution No. 32 dated
August 12, 1998, requires entities such as Rostelecom to disclose and forward to
FCSM any  decisions  of the  board  of  directors  establishing  the  amount  of
compensation  and other payments to executive  officers  within five days of the
adoption of such decisions.

     On June 15, 2003 the Annual General Shareholders Meeting of the Company was
held.  Pursuant to the  decision of the General  Shareholders  Meeting,  the new
Board of  Directors  of the  Company  was  elected,  including  one  independent
director Mikhail V. Slipenchuk. Thus, starting from June 15, 2003, the following
persons  served on the  Company's  Board of Directors:  Stanislav P.  Avdiyants,
Vadim Y.  Belov,  Nikolai  P.  Yemelianov,  Sergey I.  Kuznetsov,  Alexander  V.
Lopatin, Stanislav N. Panchenko,  Victor A. Polischuk, Irina M. Ragozina, Evgeny
V. Yurchenko,  Valery N. Yashin, Mikhail V. Slipenchuk.  On June 15, 2002, after
the Annual General Shareholders Meeting of the Company, the first meeting of the
Company's newly elected Board of Directors was held,  where Valery N. Yashin was
elected as Chairman of the Company's  Board of Directors and Sergey I. Kuznetsov
was elected as Deputy Chairman of the Company's Board of Directors.

6.C. Board Practices

Board of Directors

In  accordance  with the  Rostelecom's  Charter,  the Board of  Directors of the
Company,  which consists of eleven members,  is elected by cumulative  voting at
the annual  general  shareholders  meeting and remains in office  until the next
annual general meeting of shareholders. There is no limit to the number of terms
which  directors  may serve on the  Board.  The  general  shareholders  meeting,
however,  may adopt a decision to  terminate  the existing  Board of  Directors,
provided  that such decision is adopted with respect to all members of the Board
of Directors.  Each member of the Board of Directors may voluntarily resign with
prior written  notification to other members of the Board. The Company's Charter
provides that members of the Management Board may not constitute the majority of
the  Board  of  Directors  and  that the  General  Director  may not also be the
Chairman of the Board of Directors.

The Chairman of the Board of  Directors  is elected by a simple  majority of the
members of the Board of Directors  and may be  re-elected at any time by members
of the Board of Directors.

The powers of the Board of Directors includes the following:  convocation of the
General Meeting of Shareholders;  increases in charter capital; formation of the
Management  Board  and its  early  termination;  formation  and  liquidation  of
subsidiaries  and  representative  offices;   adoption  of  decisions  regarding
participation  in  other  entities;   adoption  of  decisions   regarding  major
transactions, interested party transactions and other issues.

                                     -104-
<PAGE>

With a view to assuring  continuous internal control over the performance of any
business   operations,   the  Company  shall  establish  a  special   structural
subdivision  independent  of  the  Company's  executive  bodies  and  controlled
directly by the Board of Directors of the Company

The functions of such structural  subdivisions,  its regulations,  the procedure
for the  appointment  of its  employees  shall be  determined  under an internal
document approved by the Board of Directors of the Company.

Pursuant to the Company's Charter the meetings of the Board of Directors must be
held at least quarterly.  A Board meeting related to convening an annual general
shareholders  meeting  must take place no later than 1 month after the filing of
the accounting  report,  to allow a review of the Company's draft annual balance
sheet, profit and loss statement and auditor's report.

The Board of Directors may be convened by the Chairman of the Board of Directors
on his own initiative or by request of any member of the Board of Directors, the
Auditing  Commission,  the  Company's  auditor,  the  General  Director  or  any
shareholder  (or  group of  shareholders)  owning  at least 2% of the  Company's
voting  shares.  A quorum of the Board of Directors is reached if more than half
of the elected  members are present at the meeting.  Each member of the Board of
Directors has one vote which may not be assigned to another  member or any other
person.  All meeting  minutes of the Board of Directors must be executed  within
ten days after the meeting.

Management Board

The Company's  Management Board Members are elected and replaced by the Board of
Directors.  The number of  Management  Board  Members is also  determined by the
Board of Directors. The Chairman of the Management Board is the General Director
or, in his  absence,  his first  deputy acts as the  Chairman of the  Management
Board,  pursuant to an approval of the General  Director.  The Management  Board
Members are elected for a term of up to five years, and may be re-elected for an
unlimited number of terms.

The General  Director is appointed by the Board of Directors of the Company by a
majority  vote of the  members  of the  Board of  Directors  taking  part in the
meeting,  for a term of no more than five (5) years and may be reelected  for an
unlimited  number of terms.  The rights  and  duties,  the term in  office,  the
liability and the compensation of the General Director shall be determined under
the  agreement  between the General  Director and the Company.  On behalf of the
Company  the  agreement  with the  General  Director  shall be  executed  by the
Chairman  of the  Board of  Directors  or a person  authorized  by the  Board of
Directors. The Board of Directors may at any time effect an early termination of
the powers of the General  Director.  The term of office of the General Director
will commence at the time of such appointment by the Board of Directors.

The General  Director of the Company is appointed and dissmissed by the Board of
Directors.

The powers of the  Management  Board extends,  in particular,  to the following:
preliminary  discussion  of issues  to be  resolved  at a  general  shareholders
meeting;  preparation of draft  decisions of the Board of Directors with respect
to  (i)  establishment,  reorganization  and  liquidation  of  subsidiaries  and
representative  offices of the Company,  (ii) the amount dividends to be paid on
each category of shares,  and (iii) major and interested party  transactions and
other issues.

The meetings of the  Management  Board may be held as often as necessary but not
less frequently than once a month.  The minutes of the Management  Board must be
executed  within ten days after the meeting.  The  decisions  of the  Management
Board are  adopted by a simple  majority  of votes.  Pursuant  to the  Company's
Regulation  "On the Management  Board" it may adopt  decisions if a quorum of at
least half of the members are  present at the  meeting.  In case of a split vote
the  Chairman of the  Management  Board has the decisive  vote.  Pursuant to the
Regulation "On the Management Board" the members of the Management Board may not
engage in any business  activity similar to business  activities of the Company.
Members  of the  Management  Board may not be  members  of boards of  directors,
management  boards or directors of other companies  without the prior consent of
the Board of Directors.

Members of the  Management  Board are  supervised  by the Board of Directors and
report to the Board of  Directors  on,  among  others,  the  Company's  internal
policies and commercial activities. At the beginning of each financial year, the
Management  Board is required to provide the Board of  Directors  with an annual
statement and report on the Company's activities for the previous financial year
and proposals for the distribution of profits.

     Auditing Commission

Pursuant to the  Company's  Charter the  Auditing  Commission  is elected by the
annual general  shareholders meeting for a term expiring on the date of the next
annual general  shareholders  meeting. In accordance with the Company's Charter,
the Auditing Commission consists of three members.  Any shareholder or any other
person nominated by shareholders

                                     -105-
<PAGE>

may be a  member  of the  Auditing  Commission  provided  that a  member  of the
Auditing Commission may not simultaneously be General Director,  a member of the
Board  of  Directors,  a member  of the  Management  Board  or a  member  of the
Liquidation  Commission.  Members  of the  Auditing  Commission  are  elected by
decision of the general shareholders meeting approved by a majority of the votes
of the shareholders taking part in such meeting.  The Auditing Commission elects
its Chairman and Secretary.

Each member of the Auditing  Commission  may be  terminated by a decision of the
general  shareholders  meeting  for  willful  misconduct  causing  injury to the
Company.  If the Auditing  Commission  is reduced to fewer than two members,  an
extraordinary  general  shareholders  meeting  shall be  convened to appoint new
members of the Auditing Commission.  The Auditing Commission elects its Chairman
and  Secretary.  For the year ended  December 31, 2002,  members of the Auditing
Commission were compensated RUR 869,210.

Pursuant to the decision of the General  Shareholders  Meeting, the new Auditing
Commission of the Company was elected on June 15, 2003:

     o    Irina V. Prokofieva - Deputy Director, Department of internal auditing
          and economic analysis, Svyazinvest.

     o    Konstantin V. Belyaev - Chief Accountant, Svyazinvest

Irina V. Prokofieva.  Ms. Prokofieva was elected the Auditing  Commission Member
in June 15, 2003. Since March 2003, she has been the Deputy Director, Department
of internal auditing and economic analysis of Svyazinvest. Her previous position
was Deputy Head of  Department  of internal  auditing and  economic  analysis of
Svyazinvest.  From July 1998 to July 2001 Ms.  Prokofieva  was  employed by OJSC
Telecominvest  as a specialist.  She is an economist and holds a degree from St.
Petersburg University of Economics and Finance.

Konstantin V. Belyaev. Mr. Belyaev was elected the Auditing Commission Member in
June 15, 2003. Since March 2001 he has been the Chief Accountant of Svyazinvest.
Prior to that he was the Deputy Chief  Accountant and than the Chief  Accountant
of OJSC Artelecom. Mr. Belyaev holds a degree from All-Russian distance learning
institute of Finance and Economy.

The Audit  Commission  reviews the  financial  and  business  operations  of the
Company to the extent  provided for in the  Regulations on the Audit  Commission
and, in particular:  audits the financial and business documents of the Company;
reviews  the legal  force of  agreements  executed  on behalf of the Company and
transactions  and  settlements  with counter  parties;  analyzes the  accounting
statements  and   statistical   records  for  compliance   with  the  respective
regulations;  checks  whether  payments  to  suppliers  of goods  and  services,
payments to the budget, calculation and payments of dividends, and redemption of
other  obligations  are made  accurately  and in due course;  audits the balance
sheets of the Company, its annual accounting statement, profit and loss account,
reports to the tax inspectorate  and  governmental  authorities for accuracy and
performs other functions  related to financial issues. In the performance of its
duties,  the Auditing  Commission has the right to request,  and officers of the
Company's  governing  bodies  shall  provide,  documents  on the  financial  and
business operation of the Company, including confidential documents.

Upon completion of the financial review, the Auditing Commission issues a report
which confirms that the data contained in the Company's financial  statements is
true  and  correct  and/or  provides  information  on  whether  there  were  any
violations  of the  legislation  of  the  Russian  Federation  with  respect  to
bookkeeping.   All  documents  of  the  Auditing  Commission  (acts,   opinions,
instructions, etc.) are executed by all members of the Auditing Commission.

Members of the  Auditing  Commission  are  jointly and  severally  liable to the
Company for the  accuracy  and  reliability  of each audit when they execute the
acts, opinions or other documents on the basis of the performed audit.

6.D. Employees

The average number of staff on the payroll in the year 2002 was 31,729 (compared
to 35,764 in 2001 and  36,617 in 2000).  As of  December  31,  2002,  Rostelecom
employed 30,993  full-time  employees  (compared to 33,987 in 2001 and 36,595 in
2000) and 1,343 temporary employees.  Rostelecom employs 18,376 specialists with
a higher and secondary education,  including 33% of all employees aged below 40,
36% aged 40 to 50 and 31% aged over 50. The average  monthly salary was equal to
RUR 6,325.

As of December 31, 2002, the breakdown of employees by Rostelecom's branches (or
geographic location) was as follows:

Central Branch - 12, 262 employees;

North-Western Branch - 3,323 employees;

                                     -106-
<PAGE>

Volga Branch - 3,492 employees;

Southern Branch - 2,204 employees;

Ural Branch - 2,094 employees;

Siberian Branch - 4,488 employees; and

Far East Branch 3,736.

In  2002,   4,695  employees  were  trained  at  foreign  schools   operated  by
manufacturers, at educational centers of Rostelecom and through training courses
and  seminars   conducted  by  various  colleges  and  universities  in  Russia.
Rostelecom  has contracts  for training  specialists  with several  colleges and
universities  specializing  in  communications.  In  addition,  Rostelecom  pays
special  scholarships to 30-35 students  specializing in basic  professions each
semester.

All  Rostelecom  employees  are  covered by a  collective  bargaining  agreement
between Rostelecom and the Central Committee of the Telecommunications  Union of
Russia,  which  guarantees a minimum level of salaries and benefits,  as well as
acceptable  working  conditions  for  employees.  The agreement is  renegotiated
periodically,  but  its  terms  have  not  changed  significantly.  Rostelecom's
collective  bargaining  agreement  for 2001 was entered into on May 31, 2001. On
January 31, 2002, the collective  bargaining agreement was extended to 2002, and
its material provisions remained unchanged, except a provision on an increase of
the minimum wage for employees in the basic  occupations of the Company.  On the
basis of this  agreement  certain  branches  of  Rostelecom  have  entered  into
collective  bargaining agreements with the employees of such branches to provide
for  additional  social  guarantees  and  benefits.  On February 20,  2003,  the
agreement  was replaced  with an uniform  Collective  Bargaining  Agreement  for
2003-2005 which includes,  among other things, a provision on an increase of the
minimum wage for employees in the basic  occupations  of the Company,  benefits,
guarantees and working conditions.

As of December  31,  2002,  and June 25,  2003,  Rostelecom  had no overdue wage
payments to its employees and is in compliance  with all applicable  labor laws.
Rostelecom has not experienced any significant work stoppage since its formation
and the  management of Rostelecom  considers its relations with its employees to
be good.

Prior to January 1, 1997, Rostelecom did not have pension liabilities other than
those payable  under Russian law to the Russian  government to provide funds for
pension plans administered by the state. On January 1, 1997,  Rostelecom adopted
an  additional  non-state  pension  program for its  employees.  Currently,  the
program is functioning  under an Agreement on  Non-Governmental  Pension Support
with NPF  Rostelecom-Garantia,  also a non-governmental  pension fund. Under the
said Agreement  Rostelecom-Garantia is implementing various pension programs for
Rostelecom  the  terms of which  are set  forth in the  Regulations  on  Pension
Programs attached to the Agreement.

Several other pension programs are currently in operation.  Participation in the
Joint  Participation  Program  is  voluntary  and calls on the  participants  to
contribute  at least 2% of their  salaries  per  month to the  personal  pension
account in the Fund. As of January 1, 2003, 17,008 employees of the Company were
participants  in the Fund,  5,128  former  employees  received  non-governmental
pensions under the various corporate pension programs. In 2002, non-governmental
pensions were awarded to 1,526 former employees.

Under the  Non-state  Pension Fund programs  financed by the Company,  most 2002
pensions were awarded  under the Basic Pension  Program to 690 persons and under
the Program for Additional  Pension Support,  for former employees who worked at
least 15 years for Rostelecom - to 737 persons.  The amount of  non-governmental
Basic Pensions  currently awarded is RUR 526 and it is regularly  adjusted.  The
latest adjustment occurred in February 2003. The amount of the  non-governmental
pension  under the Program for  Additional  Pension  Support is  equivalent to 2
monthly salaries as of retirement dates.

These  obligations,  which are unfunded,  represent  obligations under a defined
benefit  pension  scheme.  For such  plans,  the  pension  accounting  costs are
assessed using the projected unit credit method.  Under this method, the cost of
providing pensions is charged to the statement of operations so as to spread the
regular cost over the average service lives of employees.

Since 1995,  Rostelecom  has had an automatic  corporate  insurance plan for its
employees  and  members of their  families.  Since  1999,  this plan is operated
through Skart, a Russian insurance company. In addition,  as of January 1, 1998,
Rostelecom  launched,  through  Costars,  an insurance  company  affiliated with
Rostelecom,  an accident insurance program covering all its employees.  In 2002,
medical  insurance  was  effected  through  RESO-Garantia,  a Russian  insurance
company,  chosen as a corporate  insurer on the basis of a tender.  In 2003, the
tender was won by ROSNO, a Russian  insurance  company,  which also provides the
employees' mandatory medical insurance.

                                     -107-
<PAGE>

In addition to the supplementary  pension,  social and medical insurance schemes
described  above, the Company made  contributions  to the Government  social and
medical insurance funds and pension fund.

Optimization of the Personnel Structure of the Company

In 2001  Rostelecom  commenced  optimizing  the  structure  of the  Company  and
restructuring its branches. Simultaneously, the Company is optimizing the number
of its personnel.

The main  components of  optimization  of the Company's  structure and number of
personnel are the following:

     o    reform of  administrative  departments  and  structural  divisions  of
          branches;

     o    reduction of technical personnel through the modernization of networks
          (retiring analog communication lines from service);

     o    workforce reduction through retirement;

     o    reorganization of workloads and reduction of low-qualified personnel;

     o    implementation  of a system for  preparing  financial  and  management
          accounting statements;

     o    increasing the efficiency of investments; and

     o    modifications  to  personnel   policy,   including   training,   skill
          improvements, motivational schemes, etc.

In  accordance  with the policy to increase  the  manageability  of the Company,
focus its business goals and use its human resources efficiently, the Company is
changing its principles of personnel  management.  The Company  believes that it
must retain qualified personnel, managed by highly qualified managers within the
framework  of an  optimized  structure  in order to  realize  its  strategy  and
accomplish its goals.  These are the main priorities for Rostelecom's  personnel
policies that it aims to accomplish by 2005.

An important  component of the Company's  system of personnel  management is the
Program for Multilevel Training.

In 2002,  Rostelecom  personnel  training was aimed at  increasing  productivity
through  new  methods of  technical  service  for  communication  lines,  and of
personnel  who work with  advanced  technologies  at new  facilities.  Corporate
educational  centers based at Rostelecom branches play a significant role in the
process of retraining personnel.  Substantial attention was paid to the training
of executive personnel of the Company, aimed at installing management skills for
new economic realities and rapidly changing environment.

In  2002,  the  Company  established  a  Rostelecom   Corporate   University  to
restructure  training  expenses  and  tailor  all  educational  programs  to the
particulars  and special tasks of the Company.  While  increasing  the technical
qualifications  of  specialists,  the Corporate  University is devising  special
programs  for acting  managers  and  establishing  a reserve of skilled  workers
committed to the obtaining of knowledge and  development  of skills in strategic
planning and management of resources, the creation of strong management teams in
all  branches of  Rostelecom,  and the  building of a training  system  aimed at
increasing profitability. The RTC Master program is used as the basic program of
Rostelecom Corporate University.

In 2002, top management teams were formed at the Company's  branches.  The newly
appointed  managers are  professional  managers  with  experience in Russian and
Western communications companies.

One of  Rostelecom's  main  tasks of is to  achieve  the image of an  attractive
employer in the market of highly skilled personnel, and the Company expects that
meeting this goal will increase  loyalty and retention of key  specialists,  and
attract young  talented  workers,  thereby  increasing the  professionalism  and
efficiency of the Company's human resources.

A component of the Company's new personnel  management system is the development
of a compensation scheme aimed at increasing the efficiency of its personnel and
establishing appropriate remuneration for work.

In 2002 and 2003, the Company is:

     o    Developing and implementing a system of personnel evaluation up to the
          level of mid-level managers;

                                      -108-
<PAGE>

     o    Creating a bonus plan aimed at  increasing  profitability,  quality of
          work  and   professionalism   of  work;  in  2002,  the  structure  of
          compensations  changed - the share of bonuses rose by 4.32  percentage
          points; and

     o    Implementing a system of goal management for managers; a pilot project
          was implemented in 2002.

6.E. Blocks of Shares

Mr.  Yemelianov has been a member of the Board of Directors of Rostelecom  since
November 18, 2000.  As of June 25, 2003,  he owns 6,100  Ordinary  Shares in the
Company (0.00084 % of Ordinary Shares).

Mr. Dmitry E. Yerokhin is a member of the Management Board of the Company. As of
June 25, 2003, he owns 3,600 Class A Preferred  Shares in the Company (0.00049 %
of Class A Preferred Shares).

Ms Gioulnara Sh.  Khasianova is a member of the Management Board of the Company.
As of June 25, 2003 she owns 964 Ordinary Shares  (0.00013% of Ordinary  Shares)
and 1,503 Class A Preferred Shares (0.00062% of Class A Preferred Shares).

Mr. Korolev has been a member of Board of Directors of Rostelecom  since January
15, 1993 till June 1, 2002. As of June 25, 2003, he owns 7,200 Class A Preferred
Shares in the Company (0.00297 % of Class A Preferred Shares).

Mr. Alpetyan has been a Deputy General  Director of Rostelecom  since March 1998
till April 2002. As of June 25, 2003, he owns 480 Ordinary Shares in the Company
(0.000066 % of  Ordinary  Shares)  and 1,440  Class A  Preferred  Shares in  the
Company (0.00059 % of Class A Preferred Shares).

The Company's  Ordinary  Shares owned by Mr.  Yemelianov,  Mr.  Alpetyan and Ms.
Gioulnara  Sh.  Khasianova  have equal  voting  rights with the other  Company's
shares of the same class.

The Company's Class A Preferred Shares owned by Mr. Yerokhin,  Mr. Korolev,  Mr.
Alpetyan and Ms.  Gioulnara  Sh.  Khasianova  have equal voting  rights with the
other Company's shares of the same class.

Item 7.  Major Shareholders and Related Party Transactions

7.A. Major Shareholders

     The only voting securities presently  outstanding are Rostelecom's Ordinary
Shares,  nominal value RUR 0.0025 per share.  The following table sets forth, as
of June 20, 2003,  information  with respect to the beneficial  ownership of the
outstanding  Ordinary Shares by (i) each person or entity that beneficially owns
in excess of 5% of  Ordinary  Shares  and (ii) all newly  elected  officers  and
directors of Rostelecom as a group.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                      Identity of Person or Group                          Number of Ordinary               %
                                                                              Shares Owned
------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                       <C>
Svyazinvest                                                                    369,224,907               50.67%
------------------------------------------------------------------------------------------------------------------------
ING Bank (Eurasia) /ING DEPOSITARY ING Barings as a nominee holder*            187,243,440               25.70%
------------------------------------------------------------------------------------------------------------------------
National Depositary Center, a non-commercial  partnership, as a nominee         83,411,717               11.45%
holder
------------------------------------------------------------------------------------------------------------------------
Other holders in total                                                          88,816,256               12.19%
------------------------------------------------------------------------------------------------------------------------
     Out of them - principal  executive  officers and  directors                    7,064                 0.00097%
     as a group
------------------------------------------------------------------------------------------------------------------------
</TABLE>

     * Rostelecom's  American Depositary Shares ("ADSs"),  each representing six
(6) Ordinary  Shares,  are publicly  traded on the New York Stock Exchange under
the symbol  "ROS".  Each ADS is  evidenced  by an  American  Depositary  Receipt
("ADR").  The JPMorgan Chase Bank serves as the depositary for the sponsored ADR
program with ING Bank (Eurasia)  serving as the  custodian.  As of May 28, 2003,
29,966,784  ADSs were  outstanding,  representing  24.6% of all placed  Ordinary
Shares. Since certain of these Ordinary Shares and ADSs were held by the brokers
or  other  nominees,  the  number  of  record  holders  in the  U.S.  may not be
representative  of the number of beneficial  holders or of where the  beneficial
holders are resident.

                                      -109-
<PAGE>

     As of June 20, 2003, the Company had a total of 728,696,320 Ordinary Shares
issued and  outstanding.  As of June 20,  2003,  the  register  of  shareholders
included 23  shareholders  registered  in the United  States.  They hold 273,930
Ordinary Shares of the Company (0.038% of all Ordinary Shares) and 2,800 Class A
Preferred Shares (0.001% of Class A Preferred shares of the Company).

     Svyazinvest is the biggest  shareholder  in the Company,  holding 50.67% of
all Ordinary Shares. All the holders of record of Rostelecom as of June 20, 2003
are totaling to 20,484, including 20,281 individuals and 203 legal entities.

     The Russian Federation Government has exercised,  and is likely to continue
to exercise, significant influence on the operation of the Company:

Prior to April 1997, the Russian Federation Government directly owned 38% of the
Charter  capital  (Ordinary and Preferred  Shares) of  Rostelecom,  representing
50.67% of voting shares. In April 1997, the Government announced the transfer of
its  ownership  interest in  Rostelecom  to  Svyazinvest,  the  holding  company
established  by the  Ministry  of  Communications  ("MOC")  to  consolidate  the
Government's   majority  interests  in  various   telecommunications   companies
throughout  Russia.  The  transaction was consummated on July 25, 1997, when the
MOC sold 25% plus one share of  Svyazinvest at auction for  approximately  $1.87
billion to a newly  formed  investment  consortium.  In  addition,  the  Russian
Federation  Government  has  the  general  authority  to  regulate  tariffs  and
regulates  domestic  long-distance  tariff-setting  to  a  limited  extent.  The
Government  also  regulates  licensing of the  provision  of  telecommunications
services in Russia.  Despite the  uncertainties  associated  with respect to the
Government's  ability to use its  regulatory  powers to  influence  providers of
telecommunications  services,  increased  involvement  of the  Government in the
management and operations of Rostelecom remains a possibility.  In addition, the
Government  is a  significant  customer of the Company,  and any decrease in the
Government's  utilization of Rostelecom's  network could have a material adverse
effect on the Company's operations.

No significant change in the percentage  ownership held by any major shareholder
has occurred during the past three years.  Further,  as a statutory matter,  all
voting  Ordinary Shares have equal rights,  including  voting rights and none of
the major shareholders have different voting rights. However, see Item 3.D "Risk
Factors".  ADS  holders may be  restricted  in their  ability to exercise  their
voting rights and influence the governance of the Company.

     The Company is not aware of any  existing  arrangements,  which may cause a
change of control over Rostelecom.

     7.B. Related party transactions

     During the  financial  year 2002,  Rostelecom  entered  into the  following
related party transactions:

     On January 1, 2002, the Company  entered into an agreement for the lease of
non-residential premises in the City of Moscow, under which Rostelecom acts as a
lessee and Open Joint Stock Company Moscow International  Telephone Exchange No.
9 ("OJSC MMTS-9") acts as a lessor.  The premises (168,947 square feet) are used
for office and  telecommunications  equipment storage. The term of the agreement
is one year and has been renewed for 2003. The fee is RUR 55,000,000  (excluding
VAT) per annum. A material  condition of the agreement is that MMTS-9 must lease
to the Company a non-residential  premise in the building at 9 Butlerova Street,
Moscow.

     On January 1, 2002, the Company and  Svyazinvest  entered into an agreement
for the provision of services by the Company relating to automated processing of
accounting   documents  and   statistical   reports  for   Svyazinvest  and  its
subsidiaries.  The  agreement  expired on December  31,  2002,  but was mutually
extended by the parties until December 31, 2003. The fees paid by Svyazinvest to
the Company under the agreement are RUR 114,555 (excluding VAT) per quarter.

     On February 26, 2002, the Company and RTC-Leasing entered into an agreement
for  the  Company's  purchase  of  1,075,873   ordinary   registered  shares  in
RTC-Leasing  representing 25.83% of its charter capital for a total value of RUR
12 million.  The transfer of ownership to the shares in RTC-Leasing  took effect
on March 25, 2002. The funds  received by RTC-Leasing  were used to increase its
working capital.

On March 20,  2002,  the  Company  and  Non-Commercial  Partnership  Center  for
Telecommunications   Problems  Research  (the  "Partnership")  entered  into  an
agreement  under  which the  Company  agreed to make  contributions  to  finance
implementation  of  the   industry-wide   projects,   telecommunications   field
development  projects,  and other projects within the scope of the Partnership's
activities envisaged in its charter. Total contribution for 2002 amounted to RUR
160 million.

                                      -110-
<PAGE>

     On  March  26,  2002,  the  Company  and the  Partnership  entered  into an
agreement  for the  purchase  and sale of  securities,  under  which the Company
transferred to the Partnership  65,326 ordinary shares  representing  22% of the
charter capital of OJSC  Giprosvyaz.  The purchase price received by the Company
was approximately RUR 105 million.

     On March 31,  2002,  the Company and CJSC Rospac  entered into an agreement
for the purchase and sale of Rospac's network, under which Rospac transferred to
the  Company  all of the  equipment  in its  data  transmission  network,  which
equipment is used to provide communication services, for a purchase price of RUR
11 million.

     On April 3, 2002, the Company entered into a loan agreement for a principal
amount of U.S. $1,329,811 with CJSC GlobalTel ("GlobalTel").  GlobalTel used the
funds to make lease payments under agreements with RTC-Leasing. The loan matured
on December 30, 2002. The interest rate was 8% per annum.  On December 30, 2002,
the loan was fully paid.

     On May 6, 2002,  the Company and  RTC-Invest  entered into an agreement for
the purchase and sale of securities,  under which RTC-Invest  transferred to the
Company 30 ordinary  shares in MTs NTT,  with the nominal value of RUR 1,000 per
share and for a total  purchase price of RUR 1.4 million.  In addition,  also on
May 6, 2002, the Company and CJSC Sovet-Holding  ("Sovet-Holding")  entered into
an agreement for the purchase and sale of securities,  under which Sovet-Holding
transferred to the Company 30 ordinary shares in MTs NTT, with the nominal value
of RUR  1,000  per  share for a total  purchase  price of RUR 1.4  million.  The
transfers  of the  shares  in MTs NTT,  which  together  constituted  40% of its
charter  capital,  were effected in October 9, 2002.  Accordingly,  the share of
Rostelecom in the joint-stock  capital of MTs NTT was increased from 20% to 60%.
The  principal  activity of MTsNTT is research and  development  in the field of
modern telecommunications.

     On   May   28,    2002,    the   Company    and   OJSC    Svyazinvest-Media
("Svyazinvest-Media"),  a subsidiary of  Svyazinvest,  entered into an agreement
for the  placement  of  advertising  information  about the  Company in regional
issues of the "Yellow  Pages"  directory  published  by  Svyazinvest-Media.  The
agreement  was  executed  in  February   2003.  The  one-time  fee  amounted  to
U.S.$198,000 (RUR 6.7 million) (excluding VAT).

     On   June   21,    2002,    the   Company   and   CJSC    Registrator-Svyaz
("Registrator-Svyaz"),  the principal  registrar of the whole Svyazinvest group,
entered into an agreement for the sale and purchase of  securities,  under which
Registrator-Svyaz   transferred   to   Rostelecom   265   ordinary   shares   in
Registrator-Svyaz,  for a total purchase price of RUR 1.6 million.  The transfer
of the shares in  Registrator-Svyaz  took effect on July 3, 2002. The additional
shares in Registrator-Svyaz were issued due to the adoption of Resolution No. 15
of the FCSM "On Normative  Standards of Sufficiency of Own Funds of Professional
Participants at the Securities  Market," dated July 18, 2001,  pursuant to which
Registrator-Svyaz  is  required  to  maintain a charter  capital of at least RUR
10,000,000.  This offer was also made to Registrator-Svyaz'  other shareholders.
As a result, the Company increased its shareholdings in Registrator-Svyaz from 5
% to 8.64%. Cash received by  Registrator-Svyaz  has been deposited in a reserve
account  in  accordance  with  Regulations  issued  by FCSM in order  to  offset
possible damages to third parties.

     On June 25, 2002,  the Company and Russian  Telecommunications  Development
Corporation,  Inc.  ("RTDC Inc.") entered into an agreement for the purchase and
sale of  shares  in  Westelcom,  under  which  RTDC  Holdings,  Inc.,  the  sole
stockholder  of RTDC,  Inc.,  undertook  to  transfer to the Company 50 ordinary
registered   uncertified   shares  in   Westelcom,   with  the  total  value  of
U.S.$15,000,000  (RUR 489  million).  The transfer of ownership to the shares in
Westelcom  took effect on October 10, 2002,  after which the Company's  share in
the equity of Westelcom  increased  from 50% to 100%.  As a result,  the Company
acquired 100% control over a number of strategically important assets, including
international  telephone exchanges in Moscow and St. Petersburg and the right to
participate in international cable systems.

     On August 1, 2002, the Company and RTComm.RU  entered into an agreement for
the  performance  by the Company,  upon  instructions  of RTComm.RU,  of actions
relating  to the  (i)  entering  into  agreements  for  the  provision  of  data
transmission and to telematic services in the Company's name, but at RTComm.RU's
expense, to international operators; (ii) arranging for customers' connection to
RTComm.RU's  network; and (iii) entering into settlements with clients that have
agreements with Rostelecom.  The agency commission fee is 30% of total amount of
invoices paid by customers to Rostelecom.  The agreement will expire in December
2006.

     On August 5, 2002, the Company and Westelcom  entered into an agreement for
the  allocation  to the Company of capacity in the  international  cable  system
BSFOCS (Black Sea Fiber Optics Cable System), which is owned by Westelcom, for a
term of 25 years. The total amount of the agreement is U.S.$ 560,008  (excluding
VAT) to be paid in 12 equal quarterly payments beginning in August,  2002, until
June,  2005.  Moreover,  Rostelecom  annually  pays up to U.S.  $30,000  for the
maintenance service provided by Westelcom.

                                      -111-
<PAGE>

     On October 10, 2002, the Company,  Westelcom, and RTDC, Inc. terminated the
Definitive  Agreement,  entered  into in March  1993  between  the  Company  and
Westelcom,  with the consent of RTDC,  under which the Company had agreed to pay
Westelcom  as an RTDC Inc.'s  agent in Russia rent for use of its  international
switching  centers.  The  average  monthly  fees were up to U.S.$  130,000.  The
termination of this agreement resulted in a decrease of Rostelecom  expenses for
switching services.

     On November 1, 2002, the Company and Westelcom  signed an agreement for the
termination  of the agreement  concluded in March 1993,  under which the Company
leased equipment from Westelcom for the expansion of the Company's international
switching  centers  capacity,  and entered into a new equipment lease agreement,
under which CJSC Westelcom  leases to the Company  telecommunication  equipment.
The above  transactions were entered into in order to reduce the Company's costs
under the previous  agreement for the lease of equipment.  Under the  terminated
agreement,  the payments were  determined  based on the actual volume of traffic
passed through the exchanges, whereas under the new agreement, a monthly rent is
fixed at U.S.$ 26,000  (exclusive of VAT), which is considerably  lower than the
Company's charges under the previous agreement.

     On November  15,  2002,  the Company and Globus  Telecom,  an  affiliate of
RTC-Leasing,  entered into an agreement for the  connection of Globus  Telecom's
network  to  the  Company's  network  in  order  for  Globus-Telecom  to  render
international and long-distance  telecommunications services to its subscribers.
The fees under of the  agreement  were  based on the  amount of traffic  passed,
which  was  determined  by the  Company  at the  market  price  for  ILD and DLD
services. The agreement was terminated on May 1, 2003.

     On December 6, 2002, an agreement  between the Company and RTComm.RU became
effective  under which the Company  undertook to perform,  upon  instructions of
RTComm.RU,  actions  relating to: (i) entering into an agreement  with the Chief
Administration  of  Information  Resources  of Russian  Federation  State  Power
Authorities of the Federal Agency of Governmental Communications and Information
under the President of the Russian  Federation ("GUIR FAPSI") for providing data
transmission  and telematic  services in the Company's  name but at  RTComm.RU's
expense  and (ii)  entering  into  settlements  with GUIR FAPSI  under the state
contracts  with  the  governmental  agencies.  The  agency  commission  paid  to
Rostelecom  is 10% of total  amount of  invoices  paid by GUIR  FAPSI  amount of
invoices paid by to Rostelecom, which amount is withheld by Rostelecom. The term
of the agreement was not specified.

     On December 10, 2002, the Company and RTC-Leasing entered into an agreement
to reduce future lease  payments due to  RTC-Leasing by the amount of road users
tax which was abolished  effective January 1, 2003. The amount of road users tax
was initially  included in the lease  payments.  Pursuant to the agreement,  the
total amount of gross lease payments  payable by the Company to RTC-Leasing  was
reduced by RUR 75 million (excluding VAT).

     On December 25, 2002,  the Company and RTComm.RU  entered into an agreement
under  which  RTComm.RU  undertook  to  transfer  to the  Company  1,250,000,001
ordinary  shares  in  RTComm.RU,  each with a  nominal  value of RUR  0.01.  The
purchase price paid by the Company was RUR 12.5 million.  The share transfer was
registered in January 2003. As a result of the transaction,  the Company's share
in the equity of RTComm.RU  increased from 25% plus 1 share to 31.1%.  The funds
received by RTComm.RU were used for the further  construction and development of
its network.

     On December  26,  2002,  the Company and the  Partnership  entered  into an
agreement under which Rostelecom undertook to transfer to the Partnership 50,000
ordinary shares in RTC-Invest  with a nominal value of RUR 75,000,  which shares
represent 0.5% of the charter capital in RTC-Invest. The purchase price received
by the  Company  was RUR  805,000.  Prior to 2002,  the  Company  owned 13.5% of
RTC-Invest's  charter  capital.  After  the  issuance  of  additional  shares in
September  of 2002,  in which the  Company did not  participate  pursuant to the
decision  of its Board of  Directors,  the above  interest  was diluted to 0.5%.
Therefore, upon selling the 50,000 shares in RTC-Invest to the Partnership,  the
Company ceased to be a shareholder of RTC-Invest.

     On January 24, 2003,  the Company and  RTComm.RU  entered into an agreement
for the purchase and sale of equipment on an installment  basis, under which the
Company  undertook  to transfer  Internet  unit  equipment  to  RTComm.RU  for a
purchase price of U.S.$ 650,000  (excluding  VAT). The amount will be paid in 11
equal installments beginning in January until fully repaid in November 2003.

     On January 24, 2003,  the Company and  RTComm.RU  entered into an agreement
for the  substitution  of obligors under which  Rostelecom,  with  RTC-Leasing's
consent, undertook to transfer to RTComm.RU all its rights and obligations under
certain leasing  agreements with RTC-Leasing,  so Rostelecom cease to be a party
thereto. RTComm.RU acquired all rights, obligations and assets which the Company
had under these leasing agreements,  and became a party to such agreements. As a
result of the  transaction,  RTComm.RU paid Rostelecom U.S.$ 1.7 million in cash
(excluding  VAT).  In  addition,  the amount of the  Company's  indebtedness  to
RTC-Leasing  with respect to the lease  payments  have been reduced by U.S.$ 3.1
million (including VAT).

                                     -112-
<PAGE>

     For more information,  please see Item 4.C. "Organizational  Structure" and
Item 5.B. "Liquidity - Loans and Borrowings".

     Description  of  agreements  entered into by entities  affiliated  with the
Company:

     In March 2002,  RTC-Leasing  acquired  79.94% of the shares in CJSC Russian
Industrial  Bank  ("RIB")  from several  non-related  legal  entities for RUR 93
million.  The  transaction  was aimed at the creation of a  consolidated  group,
consisting of RTC-Leasing and RIB, to specialize in providing  fully  integrated
services for funding the  development  of  enterprises  and to  implement  major
investment projects in various sectors of the economy. In July 2002, RTC-Leasing
paid RUR 11 million to several  non-related  legal entities to acquire ownership
over the remaining 20.06% of shares in RIB. As a result, RTC-Leasing's aggregate
interest in the charter capital of the bank increased from 79.94% to 100%.

     In 2001, RTC-Leasing,  jointly with Svyazinvest,  started to work out a new
strategy  for the  development  of a  telecommunication  holding  company,  RTDC
Holdings  Inc. A  significant  part of this  strategy  is the  consolidation  of
certain assets of RTDC Holding Inc. with  telecommunication  companies belonging
to  Svyazinvest.  In April 2002,  RTC-Leasing  paid U.S.$  33,000,000 (RUR 1,117
million)   for   the    acquisition,    through   its   100%-owned    subsidiary
Rostelecomleasing S.A. (Switzerland) ("Rostelecomleasing S.A."), of 94.9% of the
shares in  telecommunication  holding RTDC Holdings Inc. (USA), which owns major
blocks of shares in several Russian telecommunication  operators including: CJSC
Westelcom, NCC, MCC, Delta Telecom, Dontelecom,  Yeniseitelecom,  Baikalwestcom,
Uralwestcom, AKOS and LLC Sayan Telecom. In October 2002, Rostelecomleasing S.A.
(Switzerland)  completed a transaction for the acquisition of the remaining 5.1%
of the  shares  in RTDC  Holdings  Inc.  (USA)  from the  International  Finance
Corporation  (IFC)  for  U.S.$  1.3  million  (RUR  43  million).  As a  result,
Rostelecomleasing  S.A.'s  total share in the charter  capital of RTDC  Holdings
Inc. (USA) increased from 94.9% to100%.

     During the period from February 2000 to July 2002,  RTComm.RU  entered into
several agreements with RTC-Leasing on the long-term lease of  telecommunication
equipment by RTComm.RU  from  RTC-Leasing,  with a total value of  approximately
U.S.$  9,000,000.  The term of these  agreements  extend  up to 2005.  The usual
RTC-Leasing  agreement for lease includes equal quarterly  payments and transfer
of property rights to lessee upon full payment.

     From  1998  to  2000,   GlobalTel  and  RTC-Leasing  entered  into  several
agreements for the long-term lease of  telecommunication  equipment by GlobalTel
from  RTC-Leasing,  with the  total  value of about  U.S.$10,700,000.  The usual
RTC-Leasing  agreement for lease includes equal quarterly  payments and transfer
of property  rights to lessee upon full  payment.  The term of these  agreements
extend up to 2008.

     From June through August of 2002, OJSC Central  Telegraph,  an associate of
Svyazinvest,  and RTC-Leasing  entered into several agreements for the long-term
lease of telecommunication equipment by Central Telegraph from RTC-Leasing, with
the total value of US$  7,600,000.  The usual  RTC-Leasing  agreement  for lease
includes equal quarterly payments and transfer of property rights to lessee upon
full payment. The term of these agreements extend up to 2007.

     During  2002,  RTC-Leasing  and  Svyazinvest's  IRCs  entered  into several
agreements   for  the  long-term   lease  of   telecommunication   equipment  by
Svyazinvest's  IRCs  from  RTC-Leasing,  with the  total  value  of about  U.S.$
180,000,000.  The usual RTC-Leasing agreement for lease includes equal quarterly
payments and transfer of property  rights to lessee upon full payment.  The term
of the agreements extends up to 2008.

     From April to August 2002,  RTComm.RU  and LLC  Nau-Tour,  a subsidiary  of
RTC-Leasing,  entered into several agreements for the long-term lease of movable
property by RTComm.RU from LLC Nau-Tour,  with the total value of  approximately
U.S.$ 320,000.  LCC Nau-Tour uses the standard  RTC-Leasing  agreement for lease
which  includes  equal  quarterly  payments and  transfer of property  rights to
lessee upon full payment. The term of these agreements extend up to 2005.

     During  1998,  Westelcom  and OJSC  InfoTeCS  Taganrog  Telecom  ("InfoTeCS
Taganrog  Telecom"),  a 74% owned  subsidiary of Westelcom  entered into several
agreements  for the lease of  telecommunication  equipment by InfoTeCS  Taganrog
from Westelcom,  with the total value approximately U.S.$ 12,000,000.  The usual
RTC-Leasing  agreement for lease includes equal quarterly  payments and transfer
of  property  rights to lessee  upon full  payment.  The term of the  agreements
extend up to 2007.

                                     -113-
<PAGE>

     In 1998 and 1999,  Westelcom  and InfoTeCS  Taganrog  Telecom  entered into
several loan agreements for a principal amount of approximately U.S.$ 7,500,000.
The purpose of the loans was to finance  construction  of digital network in the
city of Taganrog.  The usual  RTC-Leasing  agreement  for lease  includes  equal
quarterly  payments and transfer of property rights to lessee upon full payment.
The loan extend up to 2006 at an interest rate of 10% per annum.

     On March 17,  1998,  Westelcom  and OJSC  Elektrosvyaz  of the  Republic of
Adyghe  ("Electrosvyaz  Adyghe"),  a  subsidiary  of  Svyazinvest,  entered into
agreements for the leasing of telecommunication equipment by Elektrosvyaz Adyghe
from  Westelcom  with the total value of U.S.$  2,300,000.  The usual  Westelcom
agreement for lease includes equal  quarterly  payments and transfer of property
rights to lessee upon full payment.  The term of these agreements  extends up to
2004.

     On February 18, 2000, Telmos and CJSC Teleport-TP entered into an agreement
for the mutual  interconnection of their networks. The parties entered into this
agreement for their mutual benefit, and no cash consideration was involved.  The
agreement will expire upon the earlier of February 18, 2004 or can be terminated
by notice given to the other party.

     On  September  4,  2001,  Telmos and MGTS  entered  into an  agreement  for
connection of Telmos' network to the city telephone network of MGTS. The parties
entered into this agreement for their mutual benefit,  and no cash consideration
was  involved.  The  term  of the  agreement  was  not  specified  and it can be
terminated by notice given to the other party.

     On June 1, 2000,  Telmos and EDN Sovintel entered into an agreement,  under
which EDN  Sovintel's  network was to connect  with  Telmos'  network on a local
level in exchange for the use of Telmos' switching capacity by EDN Sovintel. The
agreement also stipulated that the parties mutually provide additional resources
to each of their  networks.  The parties  entered into this  agreement for their
mutual  benefit,  and no  cash  consideration  was  involved.  The  term  of the
agreement  was not  specified  and it can be  terminated  by notice given to the
other party.

     On July 29, 2002,  RTComm.RU and Svyazinvest  entered into an agreement for
the creation and  maintenance  of operation of integrated  hardware  designed to
collect,  integrate and structure financial and technical information.  The term
of the agreement is four years.  In accordance  with the agreement,  the monthly
fee paid by Svyazinvest is U.S.$ 52,800 (excluding VAT).

     In 2001 and 2002,  Russian  Industrial Bank entered into several agreements
for cash  and  settlement  services  with the  following  entities:  Rostelecom,
Svyazinvest,  Non-Profit  Partnership  Center  for  Telecommunications  Problems
Research, RTComm.RU,  GlobalTel, Central Telegraph, and RTC-Leasing. The term of
the agreements was not defined and it can be terminated by notice given to other
party. The fees paid by Rostelecom and its subsidiaries were nominal.

     From 1998 to 2002,  Rostelecom-Garantia entered into several agreements for
additional  provision  of  pensions  with the  following  entities:  Rostelecom,
RTC-Leasing,  Central Committee of the Telecommunication  Professional Unions of
Russia, Westelcom, EDN Sovintel, Central Telegraph, and Svyazinvest. The term of
the agreements was not defined and it can be terminated by notice given to other
party.  Fees paid by the Company were based on the number of its employees.  The
usual  RTC-Leasing  agreement for lease  includes equal  quarterly  payments and
transfer of property rights to lessee upon full payment.

     In 2003, RTDHC, a subsidiary of RTC-Leasing,  and OJSC VolgaTelecom entered
into an agreement for the sale by RTDHC of a 50% stake in NCC, a mobile operator
company, to OJSC VolgaTelecom for a purchase price of U.S.$ 20,000,000 (RUR 636
million).

     In 2003,  RTDHC,  and OJSC  SibirTelecom  entered into an agreement for the
sale by RTDHC of a 49% stake in CJSC  Baikalwestcom,  a mobile operator company,
to OJSC SibirTelecom for U.S.$ 8,500,000 (RUR 270 million).

     In 2003,  RTDHC,  and OJSC  SibirTelecom  entered into an agreement for the
sale by RTDHC of a 49% stake in CJSC Yeniseitelecom,  a mobile operator company,
to OJSC SibirTelecom for U.S.$ 12,500,000 (RUR 397 million).

     For more information,  please see Item 4.C. "Organizational  Structure" and
Item 5.B. "Liquidity - Loans and Borrowings."

     7.C. Interests of Experts and Counsel

Not applicable.

Item 8.  Financial Information

For information with regard to financial  statements,  please refer to Item 18 -
"Financial statements" and "Index to consolidated financial statements".

                                     -114-
<PAGE>

8.A. Consolidated Statements and Other Financial Information

          Legal Proceedings

     Rostelecom is currently involved in various legal  proceedings.  Rostelecom
does not anticipate that the outcome of any of these legal proceedings will have
material impact on its financial  condition or results of operation.  Other than
as  described  below,  the  Company  does not  believe  that any of these  legal
proceedings have arisen other than in the ordinary course of its business.

     On April 1998, the Moscow Inter-District  Prosecutor filed a claim with the
Tverskoi  Intermunicipal  (District)  Court of Moscow for the benefit of Ms V.P.
Yershova  (the  plaintiff)  against   Rostelecom  for   acknowledgement  of  the
plaintiff's  ownership  over 18 Preferred  Shares of Rostelecom and the transfer
thereof to the plaintiff.  The Company rejected the claim and requested that the
court  denies the claim.  According  to the  plaintiff,  the shares in  question
should have been transferred to her in the course of Rostelecom's privatization.
The Company  believes that the claim is without  grounds.  On November 17, 2000,
the court upheld the claim and affirmed the plaintiff's ownership right to 7,200
rubles  worth of  Preferred  Shares of the  Company.  The Appeal  Court left the
decision unchanged. Currently, the Company is planning to file an application to
appeal these court decisions with the Supervision Court.

     On May 2000,  Rostelecom  filed a claim against  Sberbank,  a Russian bank,
with the Moscow City  Arbitrazh  Court for the recovery of RUR  29,580,850.  The
claim charged Sberbank with improper performance under a bank account agreement,
whereby  Sberbank  debited the Company's  monies under a forged payment order in
electronic  form. On July 6, 2001, the court ordered a technical  examination of
Sberbank's  electronic  settlements  system be conducted.  The initial technical
examination  failed to determine whether the monies could have been debited as a
result of fraudulent actions of third parties. Following the court hearings held
after an expert opinion was obtained, on March 11, 2003, the claim was rejected.
Currently, the Moscow City Arbitrazh Court is considering Rostelecom's appeal.

     On  January  2002,  CJSC  Telecross  filed a claim  with  the  Moscow  City
Arbitrazh  Court  against  Rostelecom  for recovery of RUR  21,060,000 of unjust
enrichment.  The  plaintiff  claims  that  Rostelecom  failed to pay for certain
telecommunications  services in 1998.  Rostelecom rejected the claim because the
plaintiff  failed to provide any  evidence of the alleged  services  rendered to
Rostelecom.  These  proceedings  have now been  terminated  as the plaintiff has
withdrawn its claims in full.

     For the fiscal year ended  December 31, 2002 and as June 25, 2003, to date,
there  have  been no  court  proceedings  involving  a  member  of the  Board of
Directors,  or a member of the Management Board of the Company,  or an affiliate
of the Company acting as an opposing party to the Company or its subsidiaries or
as a party,  who has  material  interests  different  from the  interests of the
Company or its subsidiaries.

     Policy on Dividend Distribution

     In accordance  with the amendments to the Joint Stock  Companies Law, which
entered  into force on November 16,  2002,  dividends on Ordinary  Shares may be
paid on a  quarterly  basis.  Pursuant to its  Charter,  the Company may pay the
dividends on an annual basis  (although  the  relevant  provisions  of the Joint
Stock  Companies  Law  prevail).  Annual  dividends are proposed by the Board of
Directors of Rostelecom,  based on the Company's year-end  statutory  accounting
reports,  and  are  approved  by  an  annual  general  shareholders  meeting  of
Rostelecom which is usually convened by the Board of Directors during the second
quarter of each year.

     Under Russian law,  dividends  payable to  shareholders  may not exceed the
amount proposed by the Board of Directors. The decision on payment of dividends,
as well as the amount and form of the dividend payable,  is adopted by a general
shareholders meeting. See also Item 10.B. - "Articles of Association".

     Dividends  payable on Class A  Preferred  Shares are fixed by  Rostelecom's
Charter in the amount of 10% of Rostelecom's net profits,  based on its year-end
statutory  accounting  reports  prepared in accordance  with Russian  accounting
regulations, divided by the total number of Class A Preferred Shares. Rostelecom
may not pay dividends on Ordinary  Shares unless  dividends on Class A Preferred
Shares are fully paid.  Furthermore,  in the event the amount of dividends  paid
per Ordinary Share exceeds  dividends  payable per Class A Preferred  Share,  an
annual general  shareholders meeting of Rostelecom should increase the amount of
dividends per Class A Preferred Share up to the amount of dividends per Ordinary
Share.

     Class A  Preferred  Shares  carry no voting  rights  except on  resolutions
regarding the liquidation or reorganization of the Company and amendments to the
Charter of  Rostelecom  in a manner  which  adversely  affects the rights of the
holders of Class A Preferred Shares,  including changes in dividends payable and
the issuance of additional Class A Preferred  Shares.  Such resolutions  require
three fourth approval of all shareholders  including the owners of the preferred
shares.  Dividends on preferred  shares are determined by Rostelecom's  charter.
The  preferred  shares have no rights of  redemption  or  conversion.  Owners of
preferred  shares  also have the right to  participate  in general  shareholders

                                     -115-
<PAGE>

meetings  and  vote on all  issues  within  the  competence  of  such  meetings,
beginning with the meeting following the annual general  shareholders meeting at
which the decision not to pay, or to make partial  payment  only,  in respect of
dividends on Class A Preferred  Shares is made.  See also Item 10.B. - "Articles
of Association".

8.B. Significant Changes

     On February 26, 2003  Rostelecom  and RTComm.RU  entered into a transaction
whereby  Rostelecom  was  selling  data  transmission  equipment  to  RTComm.RU.
Previously  RTComm.RU had leased this  equipment  from  Rostelecom.  Part of the
equipment was owned by Rostelecom,  the other part was under lease in accordance
with leasing agreements between Rostelecom and RTC-Leasing.  As a result of this
deal,   Rostelecom   received  U.S.$  1.7  million  in  cash  (excluding   VAT).
Additionally, Rostelecom's leasing obligations to RTC-Leasing decreased by U.S.$
3.1 million  (including  VAT).  Terms of this  transaction were approved by both
companies'  Boards of  Directors  as well as  RTComm.RU's  general  shareholders
meeting.

     On February 28, 2003  Rostelecom and MGTS reached an agreement on financial
relationship  between  Rostelecom  and MGTS for  2003.  In  accordance  with the
agreement,  for 2003 the basic  amount of  Rostelecom's  payments  to MGTS would
remain at the 2002 level.  It is  important  to note that the new  agreement  is
aimed at active  stimulation of outgoing and incoming  traffic growth in Moscow.
The  agreement  reached with MGTS is aimed at  increasing  the revenues from the
region and strengthening Rostelecom's positions in the Moscow market.

On September 3, 2001, a tripartite  agreement (the  "Consortium  Agreement") was
executed among Rostelecom and  Rostelecom-Garantiya  ("the Fund"), both of which
originally  held in the aggregate 100% in the share capital of RTC-Leasing as of
September 3, 2001 (collectively,  the "Initial  Shareholders"),  CJSC North-West
Telecombank,  NP TSIPRT,  CJSC CB Russian Industrial Bank, CJSC Gamma-Invest and
CJSC CFP-Finance (collectively,  the "Consortium") and RTC-Leasing.  The primary
goal of the  Consortium  Agreement  was the  increase of the market value of the
RTC-Leasing shares.

On May, 2003 (the "Signing Date"), the Initial Shareholders,  the Consortium and
RTC-leasing  signed a supplement to the Consortium  Agreement (the "Supplemental
Agreement")  which  obligated the  Consortium to perform  certain  actions which
should result in:
     o    Writing-off the Company's liabilities to RTC-Leasing in the amount not
          less than RUR 1.8  billion  within a 6 months  period from the Signing
          Date;
     o    Selling  shares of  RTC-Leasing  owned by Rostelecom  and the Fund for
          total amount of not less than RUR 750 million  within a 6 month period
          from the Signing Date;
     o    Cancellation  of all guarantees and pledges  provided by Rostelecom in
          respect of loans payable by RTC-Leasing  within a 12 month period from
          the Signing Date.

     For additional information, see Item 4.C. "Organizational Structure".

Item 9.  The Offer and Listing

     Not applicable.

9.A. Listing Details

The table  below shows the  highest  and lowest  prices in U.S.  dollars and the
volumes of transactions with Rostelecom's Ordinary Shares in the Russian Trading
System (RTS).

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                        Period                 Highest price               Lowest price              Average volume
-------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                          <C>                         <C>                      <C>
    1998              Annual                       3.78                        0.29                     762,759
-------------------------------------------------------------------------------------------------------------------------
    1999              Annual                       1.99                        0.61                     273,081
-------------------------------------------------------------------------------------------------------------------------
    2000              Annual                        4.9                        0.85                     437,311
-------------------------------------------------------------------------------------------------------------------------
    2001              Quarter 1                    1.145                      0.825                     427,369
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 2                    0.967                      0.695                     506,560
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 3                    0.907                      0.505                     439,444
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 4                    0.955                       0.45                     712,240
-------------------------------------------------------------------------------------------------------------------------
    2002              Quarter 1                    1.285                      0.925                     774,832
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 2                    1.670                      0.970                     625,007
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 3                    1.215                      0.948                     314,376
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 4                    1.293                      0.990                     333,193
-------------------------------------------------------------------------------------------------------------------------
    2003              January                      1.281                      1.122                     367,332
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                     -116-
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                        Period                 Highest price               Lowest price              Average volume
-------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                          <C>                         <C>                      <C>
                      February                     1.359                      1.160                     407,863
-------------------------------------------------------------------------------------------------------------------------
                      March                        1.400                      1.290                     102,572
-------------------------------------------------------------------------------------------------------------------------
                      April                        1.463                      1.327                     304,077
-------------------------------------------------------------------------------------------------------------------------
                      May                          1.990                      1.420                     668,562
-------------------------------------------------------------------------------------------------------------------------
                 June (as of June 25)              1.860                      1.680                     308,209
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

The table  below shows the  highest  and lowest  prices in U.S.  dollars and the
average trading volume of Rostelecom's  Ordinary Shares on the Moscow  Interbank
Currency Exchange ("MICEX").

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                        Period                 Highest price               Lowest price              Average volume
-------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                           <C>                        <C>                      <C>
    1998              Annual                        3.80                       0.281                    124,787
-------------------------------------------------------------------------------------------------------------------------
    1999              Annual                       2.004                       0.638                     71,332
-------------------------------------------------------------------------------------------------------------------------
    2000              Annual                       4.827                       0.84                     563,532
-------------------------------------------------------------------------------------------------------------------------
    2001              Quarter 1                    1.148                       0.76                     871,545
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 2                    0.974                       0.687                   1,836,267
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 3                    0.703                        0.5                     941,446
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 4                    0.957                       0.452                   3,423,459
-------------------------------------------------------------------------------------------------------------------------
    2002              Quarter 1                    1.290                       0.906                   4,441,817
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 2                    1.684                       0.977                   5,508,252
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 3                    1.230                       0.956                   3,675,046
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 4                    1.299                       0.972                   4,636,859
-------------------------------------------------------------------------------------------------------------------------
    2003              January                      1.295                       1.108                   3,834,502
-------------------------------------------------------------------------------------------------------------------------
                      February                     1.361                       1.134                   6,107,836
-------------------------------------------------------------------------------------------------------------------------
                      March                        1.413                       1.163                   5,410,311
-------------------------------------------------------------------------------------------------------------------------
                      April                        1.470                       1.307                   5,405,576
-------------------------------------------------------------------------------------------------------------------------
                      May                          2.027                       1.411                   10,330,094
-------------------------------------------------------------------------------------------------------------------------
                 June (as of June 25)              1.875                       1.584                    6,823,529
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

On February 17, 1998, Rostelecom was listed on the New York Stock Exchange.  The
table below shows the highest and lowest sale prices in U.S.  dollars at closing
and the average trading volume of the Company's  American  Depositary  Shares on
the New York Stock Exchange.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                        Period                 Highest price               Lowest price              Average volume
-------------------------------------------------------------------------------------------------------------------------
<S>                   <C>                          <C>                         <C>                      <C>
    1998              Annual                       23.06                       1.56                     188,078
-------------------------------------------------------------------------------------------------------------------------
    1999              Annual                       11.75                       3.69                     130,486
-------------------------------------------------------------------------------------------------------------------------
    2000              Annual                       27.44                       4.88                     189,785
-------------------------------------------------------------------------------------------------------------------------
    2001              Quarter 1                    6.86                        4.50                     137,034
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 2                    5.80                        4.13                      91,972
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 3                    5.40                        2.95                      53,851
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 4                    5.65                        2.72                     117,088
-------------------------------------------------------------------------------------------------------------------------
    2002              Quarter 1                    7.75                        5.33                      63,920
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 2                    9.89                        5.84                     132,692
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 3                    7.25                        5.70                      79,082
-------------------------------------------------------------------------------------------------------------------------
                      Quarter 4                    7.95                        5.81                      44,834
-------------------------------------------------------------------------------------------------------------------------
    2003              January                      7.78                        6.59                      30,514
-------------------------------------------------------------------------------------------------------------------------
                      February                     8.25                        6.88                      24,768
-------------------------------------------------------------------------------------------------------------------------
                      March                        8.45                        5.75                      48,438
-------------------------------------------------------------------------------------------------------------------------
                      April                        8.80                        7.88                      44,367
-------------------------------------------------------------------------------------------------------------------------
                      May                          11.02                       8.50                      52,386
-------------------------------------------------------------------------------------------------------------------------
                 June (as of June 25)              10.98                      10.05                      49,589
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

9.B. Plan of Distribution

     Not applicable

                                     -117-
<PAGE>

9.C. Markets

     The Ordinary Shares of Rostelecom are listed on the New York Stock Exchange
in the form of ADSs,  The  Russian  Trading  System and on the Moscow  Interbank
Currency Exchange.

9.D. Selling Shareholders

     Not applicable

9.E. Dilution

     Not applicable

9.F. Expenses of the Issue

     Not applicable

Item 10.  Additional Information

     10.A. Share Capital

     Not applicable

10.B. Articles of Association

     On June 15, 2003,  the Annual General  Shareholders  Meeting of the Company
approved the revised Charter (revised version # 6), the restated  Regulations on
General  Shareholders  Meetings  (revised  version  # 2) and  amendments  to the
internal  corporate  documents of the Company,  including the Regulations on the
Board of Directors, and the Regulations on the Management Board.

     As of June 25, 2003 the Charter is still subject to the  registration  with
the competent registration  authority,  which is a rather formal procedure.  The
revised version # 6 of the Charter will,  generally,  become effective for third
parties upon such registration. The restated Regulations on General Shareholders
Meetings and  amendments  to the  Regulations  on the Board of Directors and the
Regulations on the Management Board (jointly, the "Internal Regulations") do not
require  registration  with any  authorities.  As of June 25, 2003,  the revised
version # 6 of the Charter and the Internal  Regulations as amended and restated
are binding on the Company.

     Described below are the material provisions of the Charter,  with a summary
of certain  requirements of Russian  legislation  also applicable  thereto.  The
Charter is filed as an exhibit to this Annual Report.

          Registering Authority; Company's Objects and Purposes

     Rostelecom was registered with the Moscow Registration Chamber on September
23, 1993, under registration number 021.833.

     Pursuant to Article 3.1 of the Charter, the main objective of the Company's
activities  is to satisfy the demand of  individuals,  businesses,  governmental
bodies,  other public agencies of the Russian  Federation,  and other consumers,
for  services  of  long-distance  and  international  communications,  radio and
television broadcast and data transfer, and to earn a profit.

          Directors' Powers

     The  borrowing  powers  of  members  of the  Company's  Board of  Directors
correlate with their powers to vote on a proposal,  transaction or contract,  in
which they are a related  party,  in accordance  with the  provisions on related
party transactions of the Joint Stock Companies Law and the Charter.

     Pursuant to the Joint Stock Companies Law and the Charter, depending on the
value of property involved or number of the Company's securities,  a decision to
enter into a related party  transaction  (being,  generally,  a transaction with
senior managers of the Company or a person  affiliated with the Company) must be
adopted by the  Company's  Board of  Directors  or by its  general  shareholders
meeting.  Since the number of shareholders  holding voting shares in the Company
is currently  more than 1,000,  a decision on the approval of the related  party
transaction is adopted by the Board of Directors of the Company by a majority of
votes of independent  directors who do not have an interest in the

                                     -118-
<PAGE>

transaction.  An independent  director is one who does not hold, and whose close
relatives do not hold,  and have not been holding  during the year preceding the
adoption of the relevant decision, a position in another management or executive
body of the Company,  and who is not affiliated with the Company (except through
the directorship).

     If all members of the Board of Directors are deemed to be interested in the
transaction  and/or  are  not  independent  directors,  the  transaction  may be
approved  by a  general  shareholders  meeting  by a  simple  majority  vote  of
shareholders.

     A  related  party  transaction   should  also  be  approved  by  a  general
shareholders'  meeting by a simple  majority vote of  shareholders  that are not
interested  in the  transaction  if such  transaction  or  several  interrelated
transactions:

     (i) involves the Company's assets having a value of 2% or more of the total
balance sheet value of the Company's  assets shown in its accounting  reports as
of the latest reporting date; or

     (ii)  constitutes  a  subscription  for or  sale  of the  Company's  shares
amounting to more than 2% of the aggregate number of Ordinary Shares  previously
placed by the  Company and the  Ordinary  Shares  into which  previously  placed
convertible securities may be converted; or

     (iii) constitutes a subscription for the Company's  securities  convertible
into Ordinary Shares that amount to more than 2% of Ordinary  Shares  previously
placed by the  Company and the  Ordinary  Shares  into which  previously  placed
convertible securities may be converted.

     Pursuant to the Charter,  the members of the Board of Directors are elected
annually by a general shareholders meeting. The Charter provides that members of
the Board of Directors  are elected by  cumulative  vote, as provided for in the
Regulations on the General Shareholders Meeting and the Regulations on the Board
of Directors (the "Board  Regulations").  A general  shareholders meeting of the
Company is entitled to adopt a resolution on the early  termination of powers of
the members of the Board of  Directors,  provided  that such  resolution  may be
taken only with regard to all members of the Board of Directors  simultaneously.
While there is no any age limit set for the retirement of directors, each member
of the Board of  Directors  may at any time  resign  voluntarily  with a written
notice to all other  members of the Board of Directors  and to the  Company.  In
such event, the authority of the remaining  members of the Board of Directors of
the Company will not terminate. However, in the event that the membership of the
Board of Directors falls below the half of its initial membership,  the Board of
Directors must adopt a decision to convene an extraordinary general shareholders
meeting to elect the new Board of Directors.

     Pursuant to the  Charter,  any issues  concerning  the legal  status of the
Company's  Board of  Directors  that are not  covered  by the  Charter  shall be
governed by the Board Regulations adopted by a general shareholders meeting by a
simple majority of votes of shareholders participating in the meeting.

          Rights Attaching to the Company's Shares

     Pursuant to the  Charter,  the  Company's  charter  capital is comprised of
728,696,320 Ordinary Shares and 242,831,469 Class A Preferred Shares (issued and
placed). All shares of the Company have an equal nominal value of 0.0025 rubles.
Shares of each  category  (Ordinary  Shares and Class A Preferred  Shares) grant
equal rights to the holders of shares of a respective category.

     Ordinary Shares of the Company,  except for treasury  shares,  grant to the
holders thereof the following principal rights, which generally distinguish them
from Class A Preferred  Shares:  (i) to vote on all issues within the competence
of a general shareholders  meeting, save for the limitation on voting on certain
matters  provided by the Joint Stock  Companies  Law; (ii) if holding,  alone or
together  with  other  shareholders,  10% or more of the  voting  shares  of the
Company,  demand that an extraordinary general shareholders meeting be convened;
and (iii) to demand  redemption  by the Company of their  shares  under  certain
circumstances.

     Class A Preferred  Shares of the Company  generally confer to their holders
the following  principal  rights:  (i) to receive a fixed  dividend,  except for
cases  envisaged by the Joint Stock  Companies Law and the Charter;  and (ii) to
enjoy  preference over Ordinary Shares in the distribution of profits and in the
Company's liquidation. Generally, Class A Preferred Shares of the Company do not
vest their holders with any voting rights.

                                     -119-
<PAGE>

     Pursuant to the Joint Stock  Companies Law,  dividends may be declared on a
quarterly  basis.  Although the Company's  Charter  currently  provides that the
Company may declare dividends only once a year, relevant provisions of the Joint
Stock Companies Law will prevail over those of the Charter. Dividends payable on
Class A Preferred Shares are fixed by Rostelecom's  Charter in the amount of 10%
of  Rostelecom's  net  profits,  calculated  in  accordance  with the  statutory
accounting  rules,  divided  by the total  number of Class A  Preferred  Shares.
Rostelecom may not pay dividends on Ordinary Shares unless  dividends on Class A
Preferred  Shares  are fully  paid.  Furthermore,  in the  event  the  amount of
dividends  paid  per  Ordinary  Share  exceeds  dividends  payable  per  Class A
Preferred  Share, an annual general  shareholders  meeting of Rostelecom  should
increase the amount of dividends per Class A Preferred Share up to the amount of
dividends per Ordinary Share. No dividends are paid on treasury shares.

     Class A  Preferred  Shares  carry no voting  rights  except on  resolutions
regarding liquidation or reorganization of the Company,  introducing changes and
addendums in the Charter of Rostelecom,  which limit rights of  shareholders  of
preferred  shares of Class A including  changes to dividend  levels of preferred
shares, or the issuance of additional  preferred stock. Such resolutions require
three fourth approval of all shareholders  including the owners of the preferred
shares.  Dividends on preferred  shares are determined by Rostelecom's  charter.
The  preferred  shares have no rights of  redemption  or  conversion.  Owners of
preferred  shares  also have the right to  participate  in general  shareholders
meetings  and  vote on all  issues  within  the  competence  of  such  meetings,
beginning with the meeting following the annual general  shareholders meeting at
which the decision not to pay, or to make partial  payment  only,  in respect of
dividends on the preferred shares is made.

     The  Charter  does not  establish  any time  limit on the right to  receive
dividends.

     While  there  are no  limits  for  admission  of  shareholders  to  general
shareholders  meetings, in accordance with the Charter, only holders of Ordinary
Shares of the Company have the right to vote on any matter within the competence
of the meeting.  Class A Preferred Shares of the Company confer no voting rights
unless the Charter and the Joint Stock Companies Law provide otherwise.  Holders
of Class A Preferred Shares are entitled to vote on:

     (i) the adoption of amendments to the Charter, which would adversely affect
their rights as preferred shareholders, including the issuance of any other type
of preferred  shares that would enjoy a priority in right of payment of dividend
and/or a preference in respect of  liquidation  value over the Class A Preferred
Shares; or

     (ii) the reorganization or liquidation of the Company.

     They  may  also  vote  at  general  shareholders   meetings  following  the
shareholders'  meeting at which the decision was adopted not to pay dividends on
Class A  Preferred  Shares  or to pay  them  only in  part.  Such  right to vote
continues  until the dividends to which the holders of Class A Preferred  Shares
are entitled are paid in full.

     The holders of both  Ordinary  Shares and Class A  Preferred  Shares of the
Company may:

     (i)  freely  alienate  their  shares  without  prior  approval  from  other
shareholders;

     (ii)  participate  in the  distribution  of the  Company's  net profits (as
reported under statutory  accounting  rules) in the form of dividends and in the
distribution of the Company's assets in the event of liquidation;

     (iii)  enjoy the right of first  refusal in respect  of  additional  shares
being  placed by the  Company  through  an open  subscription  and,  in  certain
circumstances, by way of a closed subscription; and

     (iv) freely access the Company's documents and receive copies thereof for a
reasonable charge.

     The  Company's  shareholders  may also  exercise  other rights  provided by
Russian law and the Charter.

     The Charter  does not provide  for any  distribution  of the profits of the
Company other than in the form of dividends. The Charter provides, however, that
each  shareholder  of the Company  may receive a pro-rata  portion of the assets
upon  liquidation of the Company after  settlement with all Company's  creditors
(including payment of all outstanding taxes and salaries). In the event that the
assets of the Company are insufficient to pay the accrued but not paid dividends
and the  liquidation  value  of the  Class A  Preferred  Shares  to all  holders
thereof,  the property shall be  distributed  among holders of Class A Preferred
Shares in proportion to the number of shares held by them.

     The assets  remaining  after the creditors'  claims have been satisfied are
distributed to effect, in the order of priority, the payments of:

     (i) declared but unpaid dividends on Class A Preferred Shares;

                                     -120-
<PAGE>

     (ii) the nominal value of the Class A Preferred  Shares to their respective
holders (liquidation value of Class A Preferred Shares).

     The assets then remaining are to be distributed  among the holders of Class
A  Preferred  Shares  and  holders of  Ordinary  Shares in  proportion  to their
shareholdings in the total number of shares placed by the Company,  adjusted for
the previously paid nominal value of the Class A Preferred Shares.

     According  to the Joint Stock  Companies  Law and the  Charter,  holders of
voting  shares have the right to demand that the Company  redeems all or part of
their shares in the event that a general  shareholders meeting adopts a decision
on certain issues and the relevant  shareholder  voted against or refrained from
voting on such  decision.  Such  issues  include a decision  to  reorganize  the
Company, to make amendments to Charter which limit such shareholder's rights, or
to enter into major  transactions  that have not been  approved by a decision of
the Board of Directors of the Company.

     Pursuant to the Joint Stock Companies Law and the Charter,  the Company may
buy back its own placed  shares.  If the Company buys back its shares based on a
decision of a general  shareholders  meeting to decrease the  Company's  charter
capital,  such shares shall be cancelled immediately upon their buy back. If the
Company  wishes  to buy back its  shares  but does not  intend to  decrease  its
charter capital, it may do so upon a decision of the Board of Directors provided
that such  decision may be adopted only if shares  constituting  at least 90% of
the existing charter capital remain in circulation. Shares that were bought back
but not  cancelled  immediately  must be sold by the Company  within one year at
their market value. Otherwise, a general shareholders meeting will have to adopt
a decision to reduce the charter  capital by way of cancellation of the relevant
shares.

     The  Charter  does not provide  for any  discrimination  with regard to any
existing or potential  holders of the securities in the event that a shareholder
owns a significant block of shares.

     The Joint Stock Companies Law requires the Company to create and maintain a
permanent  reserve  fund to be used  solely to cover the  Company's  losses  and
redeem the  Company's  shares in cases when other funds are not  available.  The
Charter  provides  for a  reserve  fund in the  amount  of 15% of the  Company's
charter capital, funded through mandatory annual transfers of at least 5% of the
Company's net profits (as reported under statutory  accounting  rules) until the
reserve fund has reached the required 15%.

     The  provisions  of the  Charter  governing  the  rights of  holders of the
Company's  shares do not provide for any actions  necessary to modify the rights
of the  Company's  shareholders,  as  compared to the  requirements  provided by
Russian law.

          General Shareholders Meeting

     The Company holds annual general  shareholders  meetings and  extraordinary
general  shareholders  meetings  pursuant to the Charter and the  Regulations on
General  Shareholders  Meetings.  As compared to its previous version, the newly
adopted  Regulations on the General  Shareholders  Meeting  contains more detail
information on:

     -    the  procedures  for the  submission of proposals for the inclusion of
          items  in the  agenda  of the  Annual  General  Meeting  Shareholders'
          meeting and on the nomination of candidates to the Company's bodies;

     -    preparation for the holding of a General Shareholders' Meeting;

     -    voting groups at the general shareholders meeting; and

     -    voting ballot at the general shareholders meeting.

     The authority of general  shareholders  meeting of the Company is set forth
in the Joint Stock Companies Law and the Charter.

     At an annual general shareholders meeting,  shareholders must decide on the
election of  directors,  election and  confirmation  of members of the Company's
Auditing Commission and approval of the Company's external auditor. Shareholders
must also consider the annual report and financial  statements  for the previous
fiscal year submitted by the Board of Directors.

     The date of an Annual General  Shareholders'  Meeting, is determined by the
Board of  Directors so that such date is not earlier than two (2) months and not
later than six (6) months  following the end of the previous  fiscal year of the
Company.

                                     -121-
<PAGE>

     An Extraordinary  General Shareholders' Meeting may be convened by decision
of the Board of Directors adopted by a simple majority of its members present at
the meeting.  Such  decision can be taken (i) at the  initiative of the Board of
Directors or (ii) upon the request of the  Auditing  Commission,  the  Company's
auditor or the  holder(s) in the aggregate of not less than 10% of the Company's
voting shares as of the date such request is made.  Such requests  shall be made
in the manner and within time  periods  provided for in the  Regulations  on the
General Shareholders Meetings.  Such Extraordinary General Shareholders' Meeting
should be held not later than forty (40) days following the day when the request
was made by the said  persons.  However,  if the  proposed  agenda  includes the
election of the Board of Directors of the Company,  such  extraordinary  general
shareholders  meeting must be held within seventy (70) days following the day on
which the request was made by the said persons.

     Under the  Charter,  the list of persons  entitled  to  participate  in the
general  shareholders meeting includes (i) holders of fully paid Ordinary Shares
of the Company or (ii)  holders of any class of fully paid  Preferred  Shares of
the Company (in the event there is a particular item in the meeting's  agenda on
which the  Preferred  Share of that class is  entitled  to vote or if holders of
Preferred  Shares became entitled to vote on all issues within the competence of
the general  shareholders  meeting due to a decision not to pay  dividends or to
pay only a part of dividends on shares held by them).

     The list of persons  entitled to participate  in the general  shareholders'
meeting is compiled on the basis of the  shareholders  register of the  Company.
The date as of which such list should be prepared is to established by the Board
of  Directors  and may neither  fall  earlier than the date of the adoption of a
decision on holding the general shareholders' meeting by the Board of Directors,
nor may it be more  than  fifty  (50)  days  prior  to the  date of the  general
shareholders' meeting to be called. However, if the proposed agenda includes the
election of the Board of Directors of the Company,  such list should be prepared
as of the  date no more  than  sixty  five  (65)  days  prior to the date of the
general shareholders'meeting. Where the proposed agenda includes issues that are
to be voted by different  composition of shareholders,  the list of shareholders
entitled to take part in such general shareholders meeting should be prepared as
of the date at least  forty  five  (45)  days  prior to the date of the  general
shareholders meeting.

     All  shareholders  of the Company  entitled to  participate  in the general
shareholders  meeting must be notified of such meeting not less than thirty (30)
days prior to the date of the general  shareholders  meeting.  Such notification
should be made to the shareholders at least fifty (50) days prior to the date of
the general  shareholders  meeting,  if the agenda  includes the election of the
Company's Board of Directors.

     The Company is required to grant to its shareholders access to information,
including the Company's annual report,  audited  financial  statements  (balance
sheet and profits and loss  statement)  and  auditor's  report,  information  on
candidates to the Board of Directors,  and any draft amendments or modifications
to the Company's Charter, in advance of the general shareholders meeting.

     Shareholders  may participate in a general  shareholders  meeting either in
person or by proxy.

          Limitations on the Right to Own Securities

     Neither  Russian  law or Charter  provide for any  limitations  or specific
requirements  with respect to foreign  shareholders  of the  Company,  including
their rights to vote the Company's shares.

          Anti Take-Over Provisions

     Acquisition  of more than 20% of shares in a Russian  joint stock  company,
including the Company, is regulated by Russian anti-monopoly legislation.

     The Joint Stock Companies Law imposes certain  requirements on a person who
individually  or together with its affiliates  purchases 30% or more of Ordinary
Shares in the Company.

     A person  intending to purchase such number of Ordinary  Shares must notify
the  Company  not  earlier  than ninety (90) days and not later than thirty (30)
days before the date of purchase. After the purchase of the shares, the buyer is
obliged to make an offer to all other  shareholders  of the  Company to purchase
their Ordinary  Shares and securities  convertible  into Ordinary  Shares.  Such
requirement  applies  only to the  purchase of shares in joint  stock  companies
having  more than  1,000  shareholders,  which is the case with  respect  to the
Company.  Under the Joint Stock Companies Law, a company's charter or a decision
of a  general  shareholders'  meeting  adopted  by a  simple  majority  of votes
(without counting in the buyer's and its affiliates' votes) may exempt the buyer
from the  obligation  to offer to  purchase  the shares.  The  Charter  does not
provide for such exemption.

     Further,  the  same  requirements  apply  for the  purchase  of every 5% of
Ordinary Shares over 30% of the Company's  Ordinary Shares,  already held by the
buyer and its affiliates.

                                     -122-
<PAGE>

     The buyer who  purchased  shares in violation of the Joint Stock  Companies
Law may vote at a general  shareholders  meeting  only with those shares that it
acquired in compliance with the Joint Stock Companies Law.

     Pursuant to the Joint Stock  Companies  Law and the Charter,  a decision on
the  reorganization  or  liquidation  of the Company  must be approved by 75% of
votes of the  holders  of both  Ordinary  Shares  and Class A  Preferred  Shares
participating in the relevant general shareholders meeting.

          Ownership Disclosure

     Pursuant to the Russian securities legislation,  the Company is required to
disclose in its quarterly  reports to the FCSM  information on its  shareholders
owning  20% or more of its  shares.  In  addition,  from  that,  the  Company is
required to disclose  the fact of  appearance  of a person  owning more than 25%
percent of the Ordinary Shares or Class A Preferred  Shares in the  shareholders
register.

Pursuant to the Russian securities  legislation,  a person that has acquired 20%
or more of shares or other issue  securities of a Russian  joint stock  company,
such as the Company,  should report such  acquisition to the FCSM not later than
five (5) days  after the date of  acquisition.  The FCSM may also  require  that
information  on such  acquisition  be  published in a separate  publication.  In
addition,  any further 5% increase or decrease in such 20% shareholding  must be
disclosed within the same 5-day period.

          Charter Capital

The amount of charter capital of the Company  significantly  exceeds the minimum
requirement  established  by the laws of the Russian  Federation  for open joint
stock companies. In the event that the Company adopts a decision to decrease its
charter  capital in  accordance  with the Joint  Stock  Companies,  its  General
Director  must notify all creditors of the Company of such  decrease.  The state
registration of the relevant amendments to the Company's Charter, which would be
necessary for  decreasing  the Charter  capital,  would be carried out only upon
confirmation that such notification to the creditors has been mad.

Item 10.C. Material Contracts

     The following  summarizes  the  Company's  material  contracts,  other than
contracts  entered  into in the ordinary  course of business,  for the two years
prior to the date of filing this annual  report.  Since the  following is only a
summary,  you should read  carefully  each of the material  contracts  which are
filed as exhibits to this annual report.

     Purchase Agreement and Subscription Agreement

On March 29,  2002,  Rostelecom's  Board of Directors  decided to terminate  the
Company's  participation  in Limited  Liability  Company EDN ("Sovintel" or "EDN
Sovintel"), a Russian company engaged in providing integrated telecommunications
and  Internet  services by selling the  Company's  stake in  Sovintel's  charter
capital  under a Sale and  Purchase  Agreement  among the Company and  SFMT-CIS,
Inc., a US holding  company and LLC Teleross,  a subdivision  of Golden  Telecom
which is a US company  engaged in providing  integrated  telecommunications  and
Internet services in Russia. As a result of the transaction, in exchange for its
50% stake in  Sovintel's  charter  capital,  Rostelecom  received  15% of Golden
Telecom's  shares,  US $10  million in cash and US$46  million  in  non-interest
bearing  notes issued by LLC Teleross  payable upon  expiration of 90 days after
the date of transfer of shares.  The  promissory  note was  guaranteed by Golden
Telecom  and was paid in full at the  maturity  date.  In  addition,  Rostelecom
acquired the right to appoint two  directors to the Board of Directors of Golden
Telecom, one of which shall be independent and financially literate. The results
for the  transaction  were reflected in the financial  statements of the Company
for the  year  2002.  The  sale  of the  Company's  stake  in EDN  Sovintel  and
acquisition  of shares of Golden Telecom was completed on September 5, 2002. The
proceeds  from sale of the 50%  ownership  interest in Sovintel were used by the
Company to reduce its external indebtedness.

     Standstill Agreement

     In connection with the purchase by Rostelecom of the Golden Telecom shares,
Golden Telecom,  Rostelecom, Alfa Telecom Limited, a company incorporated in the
British Virgin Islands ("Alfa Telecom"),  Capital  International Global Emerging
Markets  Private  Equity Fund,  L.P., a Delaware  limited  partnership  ("CIG"),
Cavendish Nominees Limited, a limited liability company organized and registered
under the laws of Guernsey  ("Cavendish")  and First NIS Regional Fund SICAV,  a
private institutional fund organized and registered under the laws of Luxembourg
("First NIS Fund") entered into a Standstill Agreement, dated as of September 5,
2002 (the "Standstill Agreement").

                                     -123-
<PAGE>

     Pursuant to the Standstill  Agreement,  Golden  Telecom,  Rostelecom,  Alfa
Telecom,  CIG,  Cavendish and First NIS Fund agreed,  among other things, not to
(i) engage in "business combinations" with Golden Telecom (within the meaning of
such term in Section 203 of the Delaware General  Corporation Law), (ii) acquire
shares of voting stock of Golden Telecom in excess of specified levels and (iii)
engage in proxy  contests in respect of shares of voting stock of Golden Telecom
in each  case for a period  of two years  following  the date of the  Standstill
Agreement.  In addition,  the Standstill Agreement grants to each of Rostelecom,
Alfa Telecom,  CIG, Cavendish and First NIS Fund a limited  pre-emptive right to
acquire its pro rata share of new  securities  (on a fully diluted basis) issued
by Golden Telecom from time to time during the term of the Standstill Agreement,
which  expires  upon the  occurrence  of any of the  following:  (i) the  mutual
agreement of the parties thereto,  (ii) the voluntary or involuntary filing of a
petition in bankruptcy by or against Golden Telecom (iii) an event of insolvency
affecting  Golden Telecom or the appointment of a receiver for Golden Telecom or
(iv) on the second anniversary of the date of the Standstill Agreement.

Consortium Agreement

On September 3, 2001, a tripartite  agreement (the  "Consortium  Agreement") was
executed among  Rostelecom and  Rostelecom-Garautiya,  both of which  originally
held in the aggregate  100% in the share capital of  RTC-Leasing as of September
3,  2001  (collectively,   the  "Initial  Shareholders"),   CJSC  CB  North-West
Telecombank,  NP TSIPRT,  CJSC CB Russian Industrial Bank, CJSC Gamma-Invest and
CJSC KFP-Finance (collectively,  the "Consortium") and RTC-Leasing.  The primary
goal of the  Consortium  Agreement  was the  increase of the market value of the
RTC-Leasing shares.

Undertakings of the Consortium

Under the Consortium Agreement, the Consortium undertook, among other things:

     -    within three years of the date of the Consortium Agreement, to procure
          for  RTC-Leasing  new  clients  contributing  not less than  U.S.$ 330
          million under lease agreements;

     -    within three years of the date of the Consortium Agreement, to provide
          RTC-Leasing  with financing  sufficient to acquire assets necessary to
          meet the demands of the new clients, on market terms; and

     -    within three years of the date of the Consortium Agreement, to provide
          RTC-Leasing  with  access  to  the  lease  market  involving  regional
          telecommunications   companies;   such  obligation   would  be  deemed
          fulfilled  in the event that  RTC-Leasing  enters  into a  cooperation
          agreement with  Svyazinvest and enters into new lease  agreements with
          the regional  telecommunications  companies,  which would collectively
          provide  RTC-Leasing  with lease  payments  amounting  to no less than
          U.S.$ 200 million.

Results of the Restructuring

RTC-Leasing  considerably expanded its business and diversified its client base.
Since 2001,  Rostelecom  has not been using  leasing to finance  acquisition  of
telecommunications  equipment, and the share of contracts with Rostelecom in the
portfolio of RTC-Leasing decreased from 100% to 60%.

At the same time,  Rostelecom  maintained  control over RTC-Leasing  through its
ability to appoint a majority  and the  Chairman  of the Board of  Directors  of
RTC-Leasing and the General Director of RTC-Leasing.

In the  beginning  of 2003,  Rostelecom  proposed a revision of the terms of the
Consortium  Agreement and  formulated  new, more specific  objectives  that were
specified in the Supplemental Agreement (as defined below).

Supplement Agreement

To define specific obligations of the Consortium,  the parties re-negotiated the
terms of the Consortium Agreement. In May 2003 (the "Signing Date"), the Initial
Shareholders,  the  Consortium  and  RTC-leasing  signed  a  supplement  to  the
Consortium   Agreement  (the  "Supplemental   Agreement")  which  obligated  the
Consortium to perform certain actions which should result in:

     o    Writing-off the Company's  liabilities to RTC-Leasing in the amount of
          not less than RUR 1.8 billion within a 6 month period from the Signing
          Date;
     o    Selling   shares  of   RTC-Leasing   owned  by   Rostelecom   and  the
          Rostelecom-Garautiya  to a third  party for  total  amount of not less
          than RUR 750 million within a 6 month period from the Signing Date;
     o    Cancellation  of all guarantees and pledges  provided by Rostelecom in
          respect of loans payable by RTC-Leasing  within a 12 month period from
          the Signing Date.

The Consortium  Agreement  provides that, in the event that Consortium  fails to
duly fulfill any of its above undertakings,  the Initial  Shareholders will have
the right to repurchase  from the Consortium  the Additional  Shares placed with
the Consortium at nominal price.

The  signing  of the  Supplemental  Agreement  marks  the  second  stage  of the
long-term  development  program of  RTC-Leasing,  in which  Rostelecom  aims to:
improve  the  transparency  of its  business  portfolio,  reduce debt as well as
reduce

                                     -124-
<PAGE>

credit risks  associated with the guarantees and pledges issued by Rostelecom to
secure RTC-Leasing's  external  obligations;  sell a non-core asset on favorable
terms and receive a  substantial  amount of cash to be invested in  Rostelecom's
main business development.

For details, please, see Item 4.C. "Organizational  Structure - RTC-Leasing" and
refer to the Consortium Agreement and the Supplemental  Agreement filed as filed
as exhibits to this annual report.

10.D. Exchange Controls

Capital Import and Export Restrictions

     The main regulatory body charged with overseeing and implementing  currency
and exchange controls in the Russian Federation is the Central Bank of Russia.

     Foreign exchange operations are governed by the Law No. 3615-1 "On Currency
Regulation and Currency  Control",  dated October 9, 1992 (the "Currency Control
Law") and numerous Central Bank letters, instructions, and orders. Certain other
laws establish  exemptions from the general  currency control regime but, absent
implementing legislation, their application remains untested.

     Russian  currency  legislation  distinguishes  between  "residents"  (i.e.,
Russian persons and entities  having  permanent  residence in Russia,  including
Russian entities with foreign ownership) and "nonresidents"  (i.e.,  persons and
entities  established  under  foreign  law not having a permanent  residence  in
Russia, including foreign company representation offices and branches).

     Transactions using foreign currency among residents,  and between residents
and nonresidents, must be conducted only through Russian banks that are licensed
to engage in foreign currency transactions  ("authorized banks"). The exemptions
available under this rule are limited.

     The  operations  of Russian  residents  using  foreign  currency  and other
"currency  valuables"  such as  foreign  currency  denominated  securities,  and
precious metals and stones are regulated  primarily by the Currency Control Law.
Any  transaction  involving  the  transfer of title or other rights to "currency
valuables" or comprising an  international  money transfer,  import or export of
such valuables,  is deemed to be a "currency operation".  In addition,  currency
operations include ruble settlements between residents and non-residents.

     The regulation of operations using foreign currency and currency  valuables
is based on the  distinction  between  those  operations  that are "current" and
those  that are  carried  out "in  connection  with  the  movement  of  capital"
("capital currency operations").

     Current  operations  are defined by the  Currency  Control Law by way of an
exhaustive  list and may be carried out by Russian  residents  without a license
from the Central Bank.

     Under the Currency Control Law,  capital currency  operations are comprised
of: (i) direct  investments;  (ii)  portfolio  investments;  (iii)  transfers of
foreign  currency  for the  purchase of immovable  property;  (iv)  deferrals of
payments in foreign  currency  under  export-import  contracts  for more than 90
days;  (vi) financial  credits in foreign  currency by  institutions  other than
Russian  authorized  banks for periods  exceeding 180 days;  and (vii) all other
operations  with foreign  currency that are not  classified as current  currency
operations.

     Capital  currency  operations  may be  performed  on the  basis of either a
transaction-specific   Central  Bank  permit  or  an  exemption  established  by
regulations  of the Central Bank. The process of obtaining a Central Bank permit
is  time-consuming  and may  require a number of  consents  from  other  Russian
governmental agencies.

     Russian  exchange  control  legislation  limits the  exchange of rubles for
foreign currency and the use of foreign currency in Russia. Cash transactions in
foreign currency are generally prohibited within Russia. Foreign currency may be
freely  exchanged  for rubles in Russia,  but the exchange of rubles for foreign
currency in Russia is restricted.

     Russian  legal  entities  may purchase  foreign  currency  through  Russian
authorized  banks only to effect  payments  for  certain  operations  defined by
regulations of Central Bank. The lawful purpose of the intended  payment must be
proven to the account bank that is requested to purchase foreign  currency.  The
purchase  of foreign  currency  to effect  payments  for works and  services  or
intellectual  property rights worth more than U.S.$ 10,000 (or the equivalent in
other foreign currencies) is subject to additional procedural regulations.

                                     -125-
<PAGE>

     The procedure for  purchasing  foreign  currency by  non-residents  differs
depending on the type of the ruble accounts held by a non-resident  with Russian
authorized banks, to which the ruble payments are made. Generally, non-residents
may open the following  types of accounts  with Russian  authorized  banks:  (i)
K-type accounts  (convertible  accounts);  (ii) N-type accounts  (nonconvertible
accounts); and (iii) F-type accounts (accounts for individuals only).

     While  non-residents may freely buy foreign currency using ruble amounts in
their K- and F-type accounts,  similar operations  involving N-type accounts may
not be carried out prior to 365 days after the date of the purchase instructions
given to an account  bank.  The  incoming  payments to such ruble  accounts  are
strictly regulated and certain payments may be received in N-type accounts only.

     In addition,  substantial amounts of rubles owned by non-residents are kept
in  S-type  accounts.  The  restrictions  on  the  investment,   conversion  and
repatriation  of such funds,  which were frozen after the August 1998  financial
crisis, are being slowly eased.

     Russian legal  entities are  generally  required to repatriate of all their
foreign currency revenues to Russia,  where such proceeds must be deposited into
accounts with  authorized  banks. A part of this  requirement is the requirement
that all export  revenues of Russian  legal  residents in a foreign  currency be
remitted to their onshore bank accounts. Once the foreign currency proceeds from
the exports of goods,  services,  or intellectual  property,  among others,  are
repatriated,  a certain  percentage must be promptly sold in the domestic market
for rubles.  In August 2001, three years after the August 1998 financial crisis,
the percentage of foreign  currency  export  revenues  subject to this mandatory
conversion  was  decreased  to its  pre-crisis  level  of  50%.  Currently,  the
mandatory conversion requirement remains the same.

     A Russian  entity may open or  maintain  offshore  bank  accounts in freely
convertible foreign currencies only upon a prior approval of the Central Bank.

     As a consequence  of the Russian  economy's  progressive  recovery from the
negative  consequences of the 1998 financial turmoil,  the currency  regulations
have been gradually  liberalized.  A number of capital currency  operations were
exempted  from  restrictive  Central Bank permit and  registration  requirements
(such as raising of loans for more than 180 days by Russian  corporate  entities
and the opening of  accounts  abroad in a foreign  currency  that is "not freely
convertible"  (in accordance  with the list of such  currencies  approved by the
Central Bank). However, despite of the steps towards liberalization, a number of
existing omissions and uncertainties as to the interpretation and implementation
of  provisions  of the  Russian  currency  regulations  may negate the  positive
effects of these amendments.

          Restrictions  on  the  Remittance  of  Dividends,  Interest  or  Other
          Payments to Non-Residents

     The Federal Law on Foreign Investments in the Russian Federation guarantees
foreign  investors'  right to repatriate  their earnings from investments in the
Russian economy.  However, Russia's currency legislation may impose considerable
restrictions on the repatriation rights of foreign investors.

     Pursuant to the regime of non-residents' ruble accounts, ruble dividends on
Ordinary Shares of the Company underlying its ADSs may be credited to the K-type
account  with  the   depositary  of  the  ADS  program  and  converted   without
restrictions into a foreign currency for distribution to ADS holders.

     For as long as the buyer is not a Russian resident, ADSs or Ordinary Shares
of the Company may be sold by  non-residents  for foreign  currency  outside the
Russian  Federation  without being  restricted by the Russian  currency  control
regulations.  However,  the Russian currency legislation limits the ability of a
non-resident to sell ADSs or Ordinary Shares of the Company  underlying its ADSs
to Russian residents.  Without a permit from the Central Bank, Russian residents
(unless  they are  Russian  authorized  banks or  individuals)  may,  generally,
purchase securities for rubles only and may not purchase securities  denominated
in foreign currency, such as the Company's ADSs.

     Foreign investors may sell  ruble-denominated  shares, such as the Ordinary
Shares of the Company underlying its ADSs, to Russian  residents,  via their own
K-type accounts or K-type accounts  opened by the Russian  authorized  banks for
non-resident banks. Ruble proceeds from the sale of such shares,  transferred to
the  non-resident's  K-type  account,  may be converted  into  foreign  currency
without restrictions.

     However,  the ability of the depositary and other persons to convert rubles
into foreign currency  depends on the foreign currency  availability in Russia's
currency  market.  Although  Russia has an  exchange  market  where the ruble is
converted  into  foreign  currency,  the future  development  of this  market is
uncertain.  At present, the ruble is not convertible outside Russia. Also, there
is no working market in Russia to hedge ruble investments.

                                     -126-
<PAGE>

Furthermore,  no assurance  can be given that the Russian  currency  legislation
will  not be  amended  in a way  affecting  foreign  investors'  activities.  In
particular,  these risks imply potential  limitation on the amount of investment
proceeds  allowed  to  be  repatriated,   a  more   complicated   procedure  for
ruble-denominated   share   transactions   with  Russian   residents,   and  new
restrictions on converting into a foreign currency dividends paid in rubles.

10.E. Taxation

     The following discussion  summarizes certain material United States federal
income and Russian income and  withholding  tax  consequences  to the beneficial
owners arising from the ownership and disposal of ADSs or Ordinary  Shares.  The
discussion which follows is based on (a) the United States Internal Revenue Code
of 1986,  as amended  (the  "Code"),  the US  Treasury  regulations  promulgated
thereunder, and judicial and administrative interpretations thereof, (b) Russian
tax law,  and (c) the  Convention  between  the United  States  and the  Russian
Federation  for the  Avoidance of Double  Taxation and the  Prevention of Fiscal
Evasion with Respect to Taxes on Income and Capital (the "Tax  Treaty"),  all as
in effect and  available  on the date  hereof,  and is  subject  to any  changes
(possibly on a retroactive  basis) in these or other laws  occurring  after such
date.  It is also based,  in part, on  representations  of the  Depositary,  and
assumes that each obligation in the Deposit Agreement and any related agreements
will be performed in accordance  with its terms.  The discussion with respect to
the Russian law is based on the Company's  understanding  of current Russian law
and  Russian  tax rules,  which are  subject  to  frequent  change  and  varying
interpretations.

     The following  discussion is intended as a general  description only and is
not intended as tax advice to any particular investor. It is also not a complete
analysis or listing of all  potential  United States  federal  income or Russian
income  tax and income  withholding  tax  consequences  to the owners of ADSs or
Ordinary  Shares.  Each holder should consult its own tax adviser  regarding the
specific United States federal income tax  consequences,  as well as Russian tax
consequences  of the ownership and disposal of the ADSs or Ordinary Shares under
its own particular factual circumstances.

          Russian Income Tax and Withholding Tax Considerations

     The following is a summary of certain Russian tax considerations  regarding
the ownership and disposal of ADSs or Ordinary  Shares by a holder who is either
a foreign citizen, not residing in the Russian Federation for more than 183 days
in a  given  calendar  year  (a  "Non-resident  Individual")  or  is  a  foreign
corporation  (a legal entity  incorporated  outside of Russia),  partnership  or
other entity  established  outside of Russia which does not conduct its business
in the Russian  Federation  via a  "permanent  establishment"  (a  "Non-resident
Entity"). Under Russian tax law, a "permanent establishment" for tax purposes is
deemed to include a branch,  subdivision,  bureau,  office,  agency or any other
permanent  location in which  activities  are carried out on a regular basis for
the  purpose  of  deriving  income in the  Russian  Federation  or  abroad.  The
definition  of a permanent  establishment  also  includes any  organizations  or
individuals  that has and  regularly  use the powers to  conclude  contracts  or
negotiate  their  essential  provisions  in Russian  Federation in the name of a
foreign corporation or other entity creating legal consequences for such foreign
corporation or other entity (dependent  agent).  Where there is no difference in
the treatment of a Non-resident Individual and a Non-resident Entity any of them
may be referred to as a "Non-resident".

     Russian  tax  rules  applicable  to  securities,  and in  particular  those
applicable to Non-residents  holding Russian  securities,  are  characterized by
significant uncertainties and by an absence of interpretative guidance. Both the
substantive provisions of Russian tax law and the interpretation and application
of those  provisions by the Russian tax authorities may be subject to more rapid
and unpredictable  change compared to jurisdictions  with more developed capital
markets, legal and tax systems.

     Applicability of the Tax Treaty to the U.S. ADS Holders

     Russian tax rules applicable to the U.S. holders of ADSs are  characterized
by  significant  uncertainties  and by an  absence of  interpretative  guidance.
Russian tax authorities have not provided any reasonable  guidance regarding the
treatment of ADS arrangements, and there can be no certainty as to how they will
ultimately  treat  those  arrangements.  In  particular,  it is unclear  whether
Russian tax authorities will treat the U.S. holders as the beneficial  owners of
the  underlying  shares for the  purposes  of the Tax  Treaty.  If  Russian  tax
authorities  do not  treat  the U.S.  holders  as the  beneficial  owners of the
underlying  shares,  then the U.S. holders would not be able to benefit from the
provisions of the Tax Treaty.  However,  even if the U.S. holders are treated by
the Russian tax authorities as the beneficial  owners of the underlying  shares,
the U.S. holders still may be not able to benefit from the provisions of the Tax
Treaty, or may experience  significant expense and effort due to the complicated
administrative procedures on the Russian side claiming these treaty benefits.

                                     -127-
<PAGE>

     Taxation of Income from Disposal of ADSs or Ordinary Shares

     The tax treatment of sales,  exchange or other disposal of ADSs or Ordinary
Shares will be different for Non-resident Individuals and Non-resident Entities.

     Taxation of Capital  Gains from  Disposal  of ADSs or  Ordinary  Shares for
Non-resident Individuals

     Non-resident individual holders of ADSs or Ordinary Shares generally should
not be subject to any Russian income tax or withholding tax on the gain realized
on the sale,  exchange or other  disposal of ADSs or Ordinary  Shares outside of
Russia if the ADSs or Ordinary Shares are disposed to Non-residents (arguably, a
sale outside Russia to a Russian resident would also be exempt).

     Sale,  exchange or other  disposal  of ADSs or  Ordinary  Shares to Russian
residents  may be  subject  to  Russian  income or  withholding  taxes.  In case
Non-resident Individual holder sells, exchanges or in other way disposes ADSs or
Ordinary Shares to a Russian resident  purchaser,  the latter may be required to
withhold  30% of the gain  realized  on  disposal  of ADSs or  Ordinary  Shares.
Although  Russian tax rules  provide for a procedure to determine a holder's tax
basis for the  purpose  of  determining  taxable  gain,  there is a risk that in
practice a Russian resident purchaser may arbitrarily  withhold tax on the gross
proceeds of the transaction.

     A refund of tax withheld may  technically  be available for a  Non-resident
Individual  holder of ADSs or Ordinary  Shares  pursuant to the provisions of an
applicable tax treaty, upon submission of a relevant  application.  In practice,
however,  the procedure for obtaining such refunds is not defined.  The law does
not  provide  for  advance   treaty   clearance  of  payments  to   Non-resident
Individuals.

     Taxation of Capital Gains or Other Income from Disposal of ADSs or Ordinary
Shares for Non-resident Entities

     Any capital gain or other  income  received by a  Non-resident  Entity as a
result of sale,  exchange or other disposal of ADSs or Ordinary Shares through a
non-Russian   stock  exchange   generally  should  not  be  subject  to  Russian
withholding tax for a Non-resident Entity.

     In case of sale,  exchange or other  disposal  of ADSs or  Ordinary  Shares
outside a stock  exchange  the  purchaser  is required  to  withhold  20% of the
purchase  price (or 24% of the gain if the seller can  confirm the cost basis of
the security in accordance  with Russian rules) if more than 50% of Rostelecom's
assets consists of immovable property located in Russia. There is an uncertainty
in the Russian law as to whether  telecommunication  lines,  comprising  a large
part of Rostelecom  assets,  are considered to be immovable  property,  thus the
risk  of  withholding  exists.  The  mechanism  for  withholding  of the tax and
remittance of the tax withheld to the Russian tax  authorities is not defined in
case the payer of income is a Non-resident with no tax registration in Russia.

     Many tax treaties  provide for relief from withholding tax on capital gain,
though the Tax Treaty contains limitation similar to that in Russian law, and if
not less than 50% of the assets is recognized to be immovable property no relief
is available.

     To  claim  the  benefit  of a  reduced  rate of  withholding  tax  under an
applicable tax treaty,  a Non-resident  normally should provide a certificate of
tax residence  confirming the  eligibility for the treaty  benefits,  which must
meet the requirements of Russian law. If such certificate has not been presented
to the payer  prior to the  payment  date,  the payer of income is  required  to
withhold tax at the full rate of 20% of the  purchase  price (or 24% of the gain
if the seller can confirm  the cost basis of the  security  in  accordance  with
Russian rules).  Non-resident holders eligible for a reduced rate under a double
tax treaty are then entitled to file claims for refund which must be lodged with
the Russian tax authorities within 3 years after withholding was made. There are
practical  problems  in  obtaining  both the advance  exemptions  and the refund
claims  particularly  where the beneficial  owner of the dividend income and the
registered  owner are  different  entities.  In  addition  there is  significant
uncertainty  regarding the  availability and timing of refunds even if the claim
is approved.

     No withholding  tax should  generally  apply if 50% or less of Rostelecom's
assets  consist of  immovable  property  located in Russia even in case of sale,
exchange or other disposal of ADSs or Ordinary Shares outside a stock exchange.

     Taxation of Dividends

     Dividends  on  ADSs  or  Ordinary  Shares  paid  to  Non-resident  Entities
generally will be subject to Russian  withholding  tax deducted at source by the
payer  of  such  dividends  at a rate  of 15%  for  Non-resident  Entities.  For
Non-resident Individuals the rate of withholding tax may generally be 30% if the
payer of income chooses the conservative approach.

                                     -128-
<PAGE>

     The  withholding  tax rate can be reduced in accordance with the provisions
of an applicable double tax treaty, subject to the risks outlined in the section
"Russian Income Tax and Withholding Tax  Considerations"  above.  The Tax Treaty
reduces  the  rate  of  withholding  tax on  dividends  to 10%  (and  to 5% if a
Non-resident  holder is an entity  treated  as a body  corporate  for the US tax
purposes that owns at least 10% of the voting stock).

     To claim the benefit of a reduced rate of withholding tax under  applicable
tax treaty,  a Non-resident  Entity normally should provide a certificate of tax
residence  confirming the eligibility for the treaty  benefits,  which must meet
the  requirements of Russian law. If such  certificate has not been presented to
the payer prior to the dividend  payment date, the payer is required to withhold
tax at the full rate 15% for Non-resident Entities.  Non-resident Entity holders
eligible for a reduced rate under a double tax treaty are then  entitled to file
claims  for  refund,  with the  Russian  tax  authorities  within 3 years  after
withholding  was made.  There are practical  problems in obtaining  both advance
exemptions  and refund claims  particularly  where the  beneficial  owner of the
dividend and the registered owner are different  entities.  In addition there is
significant uncertainty regarding the availability and timing of refunds even if
the claim is approved.

     A refund of tax withheld may  technically  be available for a  Non-resident
Individual  holder of ADSs or Ordinary  Shares  pursuant to the provisions of an
applicable tax treaty, upon submission of a relevant  application.  In practice,
however,  the procedure for obtaining such refunds is not defined.  The law does
not provide for advance treaty clearance of payments to Individuals.

     United States Federal Income Tax Considerations

     The following is a  description  of the  principal  United  States  federal
income tax  consequences  that may be relevant with respect to the  acquisition,
ownership and disposition of Ordinary  Shares or ADSs by a holder thereof.  This
summary only applies to Ordinary  Shares or ADSs held as capital assets and does
not address,  except as set forth below, aspects of U.S. federal income taxation
applicable to holders that may be subject to special tax rules, including:

     o    financial institutions,

     o    insurance companies,

     o    real estate investment trusts,

     o    regulated investment companies,

     o    grantor trusts,

     o    tax-exempt entities,

     o    dealers or traders in securities or currencies,

     o    persons  that  received  the  Company's  Ordinary  Shares  or  ADSs as
          compensation for the performance of services;

     o    holders  that own (or are deemed to own) 10% or more (by voting  power
          or value) of the Company's Ordinary Shares or ADSs,

     o    persons that will hold the Company's  Ordinary  Shares or ADSs as part
          of a position  in a straddle  or as part of a hedging,  or  conversion
          transaction for U.S.  federal income tax purposes or persons that have
          a functional currency other than the U.S. dollar.

     Moreover,  this  description  does not address the U.S.  federal estate and
gift tax or alternative  minimum tax consequences of the acquisition,  ownership
or retirement of Ordinary Shares or ADSs.

     This description is based

     o    on the  Internal  Revenue  Code of  1986,  as  amended  (the  "Code"),
          existing,  proposed and temporary  United States Treasury  Regulations
          and judicial and administrative  interpretations thereof, in each case
          as in effect and available on the date hereof; and
     o    in part, on the  representations  of the depositary and the assumption
          that  each  obligation  in  the  deposit  agreement  and  any  related
          agreement will be performed in accordance with its terms.

The United States tax laws and the interpretation thereof are subject to change,
which change  could apply  retroactively  and could affect the tax  consequences
described below.

     For purposes of this description,  a "U.S. Holder" is a beneficial owner of
Ordinary Shares or ADSs who for U.S. federal income tax purposes is

     o    a citizen or resident of the United States;

                                     -129-
<PAGE>

     o    a corporation or partnership created or organized in or under the laws
          of the United States or any state  thereof,  including the District of
          Columbia;

     o    an  estate  the  income of which is  subject  to U.S.  federal  income
          taxation regardless of its source; or

     o    a trust if such  trust (1)  validly  elects to be  treated as a United
          States  person for U.S.  federal  income tax  purposes or if (1) court
          within the United States is able to exercise primary  supervision over
          its  administration  and 2) one or more United States persons have the
          authority to control all of the substantial decisions of such trust.

     A Non-U.S.  Holder is a beneficial  owner of Ordinary  Shares or ADSs other
than a U.S. Holder.

     If a partnership  (or any other entity  treated as a  partnership  for U.S.
federal income tax purposes) holds Ordinary Shares or ADSs, the tax treatment of
the partnership and a partner in such  partnership  will generally depend on the
status of the partner and the  activities  of the  partnership.  Such partner or
partnership should consult its own tax advisor as to its consequences.

     Each  holder  should  consult  its tax  advisor  with  respect  to the U.S.
federal,  state,  local and foreign tax  consequences of acquiring,  holding and
disposing of Ordinary Shares or ADSs.

     Ownership of ADSs in General

     For United States federal  income tax purposes,  a holder of ADSs generally
will be treated as the owner of the Company's  Ordinary  Shares  represented  by
such ADSs.

     The  United  States   Treasury   Department  has  expressed   concern  that
depositaries for American depositary receipts,  or other intermediaries  between
the holders of shares of an issuer and the issuer,  may be taking  actions  that
are inconsistent  with the claiming of United States foreign tax credits by U.S.
holders of such  receipts or shares.  Accordingly,  the analysis  regarding  the
availability  of a United  States  foreign  tax  credit  for  Russian  taxes and
sourcing rules  described  below could be affected by future actions that may be
taken by the United States Treasury Department.

     Distributions

     Subject to the discussion below under "Passive Foreign  Investment  Company
Considerations",  for United States federal income tax purposes,  a U.S.  holder
will  include in income the gross amount of any  distribution  made to such U.S.
holder of cash or  property,  other than certain  distributions,  if any, of the
Company's  Ordinary Shares  distributed pro rata to all Company's  shareholders,
including holders of ADSs, with respect to such U.S. Holder's Ordinary Shares or
ADSs,  before  reduction for any Russian taxes withheld  therefrom,  as dividend
income to the extent such distributions are paid out of the Company's current or
accumulated  earnings  and profits as  determined  under United  States  federal
income tax principles.  Subject to the discussion  below under "Passive  Foreign
Investment  Company  Considerations",  individuals  who are U.S.  Holders may be
taxed on certain dividends  received in a taxable year ending after December 31,
2002 at the lower rates  applicable to long-term  capital gains.  Such dividends
will not be eligible for the dividends received  deduction  generally allowed to
corporate U.S.  Holders.  Subject to the discussion below under "Passive Foreign
Investment  Company  Considerations,"  to the extent, if any, that the amount of
any distribution by the Company exceeds its current and accumulated earnings and
profits as determined under United States federal income tax principles, it will
be treated first as a tax-free return of such U.S.  Holder's  adjusted tax basis
in Ordinary  Shares or ADSs and thereafter as capital gain. The Company does not
maintain  calculations  of its earnings and profits under United States  federal
income tax principles.

     If the Company pays a dividend in Russian rubles, any such dividend will be
included in a U.S. Holder's gross income in an amount equal to the United States
dollar  value of Russian  rubles on the date of receipt,  which,  in the case of
ADSs,  is the date  they are  received  by the  depositary.  The  amount  of any
distribution  of property  other than cash will be the fair market value of such
property on the date of distribution. Generally, any gain or loss resulting from
currency exchange  fluctuations  during the period from the date the dividend is
received to the date such payment is converted into U.S. Dollars will be treated
as ordinary income or loss.

     The 10% Russian  withholding tax provided under the Tax Treaty (and 5% if a
Non-resident  holder is an entity  treated as a body  corporate for the U.S. tax
purposes that owns at least 10% of the voting stock)  generally  will be treated
as a foreign  income tax, and subject to certain  limitations,  generally may be
claimed as a credit  against a U.S.  Holder's  United States  federal income tax
liability.  In the event  Russian tax is  withheld at a 15% or 30% rate,  a U.S.
Holder  may not be  entitled  to claim a credit  for the  excess  of the  amount
withheld over the 10% rate provided in the Tax Treaty,  since the procedures for
claiming  refunds  and  the  practical  likelihood  that  refunds  will  be made
available in a timely fashion are uncertain. A U.S. Holder who does not elect to
claim a foreign tax credit for foreign income tax

                                     -130-
<PAGE>

withheld,  may instead claim a deduction,  for United States  federal income tax
purposes, in respect of such withholding, but only for a year in which such U.S.
Holder elects to do so for all creditable foreign income taxes.

     The   limitation  on  foreign  taxes  eligible  for  credit  is  calculated
separately  with  respect  to  specific  classes of  income.  For this  purpose,
dividends  that the  Company  distributes  generally  will  constitute  "passive
income," or, in the case of certain U.S. Holders, "financial services income."

     Subject  to  the  discussion  below  under  "Backup   Withholding  Tax  and
Information  Reporting  Requirements,"  a Non-U.S.  Holder generally will not be
subject to United States federal income or withholding tax on dividends received
with  respect to Ordinary  Shares or ADSs,  unless such U.S.  Holder  conducts a
trade or business in the United States and such income is effectively  connected
with that trade or business.

     Sale or Exchange of Ordinary Shares or ADSs

     Subject to the discussion below under "Passive Foreign Investment  Company"
Considerations,  a U.S. Holder generally will recognize gain or loss on the sale
or exchange of the Ordinary  Shares or ADSs equal to the difference  between the
amount  realized on such sale or exchange  and such U.S.  Holder's  adjusted tax
basis in the Ordinary  Shares or ADSs. Such gain or loss will be capital gain or
loss. The maximum  marginal  United States federal income tax rate applicable to
gain  realized  by a  non-corporate  U.S.  Holder will be lower than the maximum
marginal  United States  federal income tax rate  applicable to ordinary  income
(other  than  certain  distributions  received in a taxable  year  ending  after
December 31, 2002) if such U.S. Holder's holding period for such Ordinary Shares
or ADSs exceeds one year.  Gain or loss,  if any,  recognized by a United States
Holder  generally  will be treated as United  States  source  income or loss for
United States foreign tax credit purposes.  The  deductibility of capital losses
is subject to limitations.

     The initial tax basis of a U.S.  Holder's  Ordinary  Shares or ADSs will be
the United States dollar value of the Russian rubles denominated  purchase price
determined on the date of purchase.  If the Ordinary  Shares or ADSs are treated
as traded on an "established  securities  market," a cash basis U.S. Holder, or,
if it elects,  an accrual basis U.S. Holder,  will determine the dollar value of
the cost of such Ordinary  Shares or ADSs by translating  the amount paid at the
spot rate of exchange on the settlement  date of the purchase.  If a U.S. Holder
converts  United  States  dollars to Russian  rubles and  immediately  uses that
currency to purchase Ordinary Shares or ADSs, such conversion generally will not
result in taxable gain or loss to the U.S. Holder.

     With respect to the sale or exchange of Ordinary Shares or ADSs, the amount
realized  generally  will be the  United  States  dollar  value  of the  payment
received  determined on (1) the date of receipt of payment in the case of a cash
basis  U.S.  Holder  and (2) the date of  disposition  in the case of an accrual
basis U.S.  Holder.  If the Ordinary  Shares or ADSs are treated as traded on an
"established  securities  market," a cash basis taxpayer,  or, if it elects,  an
accrual  basis  taxpayer,  will  determine the United States dollar value of the
amount  realized by translating the amount received at the spot rate of exchange
on the settlement date of the sale.

     Subject  to  the  discussion  below  under  "Backup   Withholding  Tax  and
Information  Reporting  Requirements,"  a Non-U.S.  Holder generally will not be
subject to United States federal income or withholding  tax on any gain realized
on the sale or exchange of such Ordinary Shares or ADSs unless:

     o    such gain is  effectively  connected  with the  conduct  of a trade or
          business in the United States; or

     o    such  Non-U.S.  Holder is an  individual  and has been  present in the
          United States for 183 days or more in the taxable year of such sale or
          exchange and certain other conditions are met.

     Passive Foreign Investment Company Considerations

     A Non-U.S.  corporation will be classified as a "passive foreign investment
company,"  (a "PFIC"),  for United  States  federal  income tax  purposes in any
taxable year in which, after applying certain look-through rules, either

     o    at least 75% of its gross income is "passive income"; or

     o    at least  50% of the gross  value of its  assets  is  attributable  to
          assets that produce "passive income" or are held for the production of
          passive income.

     Passive income for this purpose  generally  includes  dividends,  interest,
royalties, rents and gains from commodities and securities transactions.

     Based on certain  estimates of the Company's  gross income and gross assets
and the  nature  of the  Company's  business,  the  Company  believes,  and this
description assumes,  that it will not be classified as a PFIC for the Company's

                                     -131-
<PAGE>

taxable year ending December 31, 2002. The status of the Company in future years
will  depend on its assets and  activities  in those  years.  The Company has no
reason to believe  that its assets or  activities  will  change in a manner that
would cause it to be classified as a PFIC, but there can be no assurance that it
will not be  considered a PFIC for any taxable year. If the Company were a PFIC,
a U.S. Holder  generally would be subject to imputed  interest charges and other
disadvantageous  tax treatment  (including the denial of the taxation of certain
dividends  received  from such PFIC at the lower rates  applicable  to long-term
capital gains (as discussed  above under  "Distributions"))  with respect to any
gain from the sale or exchange  of, and certain  distributions  with respect to,
the U.S. Holder's Ordinary Shares or ADSs.

     If the Company were a PFIC, a U.S. Holder could make a variety of elections
that may  alleviate  the tax  consequences  referred to above,  and one of these
elections may be made retroactively. However, it is expected that the conditions
necessary for making certain of such elections will not apply in the case of the
Company's  Ordinary  Shares or ADSs. A U.S.  Holder  should  consult its own tax
advisor  regarding  the tax  consequences  that would arise if the Company  were
treated as a PFIC.

     Backup Withholding Tax and Information Reporting Requirements

     United States backup withholding tax and information reporting requirements
generally apply to certain payments to certain non-corporate holders of Ordinary
Shares or ADSs.  Information  reporting  generally  will  apply to  payments  of
dividends on, and to proceeds from the sale or redemption of, Ordinary Shares or
ADSs made within the United States to a holder of Ordinary Shares or ADSs, other
than an exempt recipient,  including a corporation, a payee that is not a United
States  person that  provides an  appropriate  certification  and certain  other
persons.  A payor will be required to withhold  backup  withholding tax from any
payments  of  dividends  on, or the  proceeds  from the sale or  redemption  of,
Ordinary  Shares or ADSs made  within the United  States to a holder of Ordinary
Shares or ADSs that is a United States person,  other than an exempt  recipient,
if such holder fails to furnish its correct  taxpayer  identification  number or
otherwise  fails to comply with,  or establish  an exemption  from,  such backup
withholding tax requirements. Payments within the United States of dividends and
the proceeds from the sale or redemption of Ordinary  Shares to a holder that is
not a United  States  person will not be subject to backup  withholding  tax and
information reporting  requirements if an appropriate  certification is provided
by the holder to the payer and the payer  does not have  actual  knowledge  or a
reason to know that the  certificate is incorrect.  The backup  withholding  tax
rate is 30% for the year 2002 and 28% for years 2003 through 2010.

     In the case of such  payments  made  within the United  States to a foreign
simple  trust,  a foreign  grantor  trust or a foreign  partnership,  other than
payments  to a  foreign  simple  trust,  a  foreign  grantor  trust  or  foreign
partnership  that qualifies as a  "withholding  foreign trust" or a "withholding
foreign  partnership"  within  the  meaning  of  the  applicable  U.S.  Treasury
Regulations and payments to a foreign simple trust, a foreign grantor trust or a
foreign  partnership that are effectively  connected with the conduct of a trade
or business in the United States, the beneficiaries of the foreign simple trust,
the persons  treated as the owners of the foreign  grantor trust or the partners
of the foreign partnership,  as the case may be, will be required to provide the
certification  discussed  above in order to establish  an exemption  from backup
withholding tax and information  reporting  requirements.  Moreover, a payor may
rely on a  certification  provided by a payee that is not a United States person
only if the payor does not have  actual  knowledge  or a reason to know that any
information or certification stated in the certificate is incorrect.

     The above  description is not intended to constitute a complete analysis of
all tax consequences  relating to acquisition,  ownership and disposition of the
Company's Ordinary Shares or ADSs.  Purchasers of Ordinary Shares or ADSs should
consult  their  own tax  advisors  concerning  the  tax  consequences  of  their
particular situations.

     10.F. Dividends and Paying Agents

     Not applicable.

10.G. Statement by Experts

     Not applicable.

Item 10.H. Documents on Display

     Rostelecom  is  subject  to the  informational  requirements  of  the  U.S.
Securities  Exchange  Act of 1934,  as  amended  (the  "Exchange  Act"),  and in
accordance  therewith files periodic reports and other information with the U.S.
Securities  and  Exchange  Commission  (the   "Commission").   These  materials,
including this annual report and the exhibits  hereto filed by Rostelecom may be
examined  without charge at the public  reference  facilities  maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington,  D.C. 20549. Copies
of such  materials  may  also be  obtained  from  the  principal  office  of the
Commission  at 450 Fifth  Street,  N.W.,  Washington,  D.C.  20549 at prescribed
rates.  The  public

                                     -132-
<PAGE>

may also  obtain  information  from the  operation  of the  Commission's  Public
Reference Room by calling 1800-SEC-0330. The Commission also maintains a website
at   http://www.sec.gov   that  contains  reports  and  other  information  that
registrants file  electronically with the Commission through the Electronic Data
Gathering,  Analysis and Retrieval system (EDGAR). In addition, such material is
available  for  inspection  and  copying  at the  offices  of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.

10.I. Subsidiary Information

Not applicable.

Item 11.  Quantitative and Qualitative Disclosures about Market Risk

     The Group's  significant  market risk  exposures are interest rate risk and
exchange  rate risk.  Interest  rate risk mainly  relates to floating  rate debt
denominated  primarily  in U.S.  dollars  and euros.  As of December  31,  2002,
approximately  12%  of the  Group's  interest  bearing  loans  carried  floating
interest  rates.  Exchange  rate risk  relates to the Group's  foreign  currency
indebtedness  and, to a lesser extent,  its foreign currency  denominated  cash,
receivables and payables and foreign currency denominated revenues and costs. As
of December 31, 2002,  approximately  48% of total borrowings  (including bonds)
were  denominated  in  foreign  currencies.  The  Group  does not use  financial
instruments,  such as  foreign  exchange  forward  contracts,  foreign  currency
options,  interest rate swaps or forward rate agreements, to manage these market
risks.

     The Group's  consolidated  financial  statements  are  presented in Russian
rubles.  At  the  same  time,  approximately  18% of the  Group's  revenues  are
denominated in currencies other than the Russian ruble,  principally U.S. dollar
and Special Drawing Rights ("SDR"),  which is valued on the basis of a basket of
key international  currencies and serves as a settlement unit between Rostelecom
and a number of foreign telecommunications operators. In addition, approximately
35% of the Group's  costs  (excluding  depreciation  and bad debt expense) are
denominated in currencies other than the Russian ruble, principally SDR and U.S.
dollar.  Due to the imbalance  between incoming  international  calls (for which
Rostelecom receives foreign currency revenues) and outgoing  international calls
(for which it incurs foreign currency expenses),  the Company was a net payer of
foreign  currency  during  2002,  i.e.  it paid to foreign  operators  more than
received since outgoing ILD traffic  exceeded  incoming.  Net balance payable to
foreign operators which is denominated in foreign currencies  (principally,  SDR
and US $) is RUR 805  million  as of  December  31,  2002.  To the  extent  that
Rostelecom is not naturally  hedged against changes in exchange rates, the Group
is exposed to foreign exchange gains and losses. The Group is not engaged in any
active  hedging  of the  foreign  exchange  risk  arising  out of its  operating
activities.

Interest Rate Sensitivity

     As of December 31, 2002, the Group had outstanding  borrowings of RUR 6,846
million of which  approximately RUR 884 million bore interest at floating rates.
The interest rate on the Group's floating rate debt is determined principally by
reference  to London  Inter  Bank  Offered  Rate  (LIBOR).  The  additional  net
financing  expense to the Group that would have  resulted  from a  hypothetical,
instantaneous  and  unfavorable  change of 100 basis points in the interest rate
applicable to these loans is approximately RUR 9 million.  The above sensitivity
analysis is based on the assumption of an  unfavorable  100 basis point movement
of the  interest  rates  applicable  to each  homogeneous  category of financial
assets and  liabilities.  A  homogeneous  category is defined  according  to the
currency in which  financial  assets and liabilities are denominated and assumes
the same interest rate movement within each category.

Exchange Rate Sensitivity

     Rostelecom   has  exchange   rate  exposure   primarily   with  respect  to
indebtedness  denominated in currencies  other than the ruble. RUR 4,065 million
of the Group's  interest  bearing loans are  denominated in foreign  currencies,
including RUR 3,089  million in Japanese  Yen, RUR 826 million in U.S.  dollars,
and RUR 150 million in euros. The additional  interest expense to the Group that
would result from a hypothetical 10% change in foreign  currency  exchange rates
would be approximately RUR 30 million. Such a change would also have resulted in
an estimated  foreign  exchange  loss of  approximately  RUR 407  million.  This
sensitivity  analysis  assumes an  unfavorable  10%  fluctuation in the exchange
rates affecting the foreign currencies in which the indebtedness is denominated.
Between  January 1, 2003 and June 25, 2003,  the Russian  ruble has increased in
value as compared to the  Japanese Yen by  approximately  4%, as compared to the
U.S.  dollar - by  approximately  4.5%,  but  declined  as compared to Euro - by
approximately 6%.

Item 12.  Description of Securities Other Than Equity Securities

     None

                                     -133-
<PAGE>

Item 13.  Defaults, Dividend Arrearages and Delinquencies

13.A. Defaults

     JPY 11,601 million (RUR 3,089 million) credit  agreement,  dated August 16,
1994,  was  entered  into among  Rostelecom,  the  Council of  Ministers  of the
Government of the Russian Federation and Vnesheconombank (hereinafter, the "Debt
Obligation").   The  principal  of  the  loan  was  repayable  in  equal  annual
instalments  of JPY 2,105  million,  with the final  payment  due not later than
October 2001. In 2000, a Russian  Federation  Government decree provided for the
restructuring  of  the  indebtedness  to  the  Russian   Federation   Government
administered by Vnesheconombank  over a 10-year period at an interest rate of 3%
per annum. In accordance  with the provisions of the decree,  in 2001, the Group
entered into negotiations with respect to restructuring this credit agreement on
said terms.  As the  abovementioned  decree did not specify the procedure of the
debt  restructuring,  as of December 31, 2002 and 2001 the Group was technically
in default with respect to the  principal  and interest on Debt  Obligation.  In
2002 the Group repaid  several other loans  totalling to RUR 1,909 million which
contained  cross  default   provisions  and  therefore  were  also   technically
defaulted.  As of December 31, 2002, no cross-defaults have been triggered under
any other loan agreements.

     Concurrently    Rostelecom   held    negotiations   with   OJSC   Alfa-Bank
("Alfa-Bank"),  a Russian bank,  in order to  restructure  the Debt  Obligation,
pursuant to which Rostelecom executed an Agency Agreement with Alfa-Bank in June
2003 (the "Agency  Agreement").  As a result of negotiations  between Rostelecom
and Alfa-Bank,  the Board of Directors of Rostelecom  approved the restructuring
plans on May 12,  2003.  This  restructuring  will  involve the  termination  of
Rostelecom's  obligations to the Russian  Federation  Government  under the Debt
Obligation through a transfer,  in accordance with Russian Federation Government
Resolution No. 221, of the Russian Federation  Government's  rights to such Debt
Obligation to the Russian Federation Finance Ministry,  with Alfa-Bank acting as
an agent under the Agency Agreement. The Agency Agreement obligates Alfa-Bank to
settle the entire  outstanding  indebtedness  under the Debt  Obligation  to the
federal  budget.  Under  the  terms of the  Agency  Agreement,  Rostelecom  will
reimburse  to  Alfa-Bank  costs  associated  with  the  settlement  of the  Debt
Obligation  by issuing  promissory  notes for  approximately  U.S.$ 100  million
bearing  interest  of 5.94%  per  annum  and to be  redeemed  in up to 36 months
period.  The Agency Agreement  provides  possibility for early redemption of the
notes by the Company at its sole option.  The one-time fee to Alfa-Bank  will be
U.S.$ 100,000. As of December 31, 2002,  Rostelecom's overdue indebtedness under
the Debt  Obligation is JPY 14,165  million,  including JPY 11,601  million (RUR
3,089 million) of principal, JPY 45 million (RUR 12 million) of interest and JPY
2,519 million (RUR 667 million) of fees and penalties.

13.B. Dividend Arrearages and Delinquencies

None.

Item 14.  Material  Modifications  to  the Rights of Security Holders and Use of
          Proceeds

     The rights of  shareholders  were  amended  significantly  by virtue of the
revised  Federal Law "On Joint Stock  Companies" (the "Joint Stock Company Law")
enacted on August 7, 2001. Most of the amendments became effective as of January
1, 2002.

     The  material  changes  made to the Joint Stock  Company Law  affected  the
following:  (i) the  procedure  for  increasing  the Charter  capital;  (ii) the
procedure for paying for shares at the company's  founding;  (iii) the manner of
voting at a general  shareholders  meeting;  and (iv) the procedure for open and
closed share  subscriptions.  Also, in accordance with the further amendments to
the Joint Stock  Companies  Law,  which entered into force on November 16, 2002,
dividends may be paid on a quarterly basis.

     Under the revised Joint Stock Company Law,  shareholders  have been granted
preemptive  rights to  acquire  additional  shares  through  an open and  closed
subscription.  In the  event  of a  corporate  reorganization  resulting  in the
formation of a new company, shareholders have been granted the right to maintain
their  shareholdings  in  the  new  company  in the  same  proportion  as  their
shareholdings  in the old company.  Furthermore,  as the issuance of  fractional
shares has been  permitted,  minority  shareholders  will no longer  face forced
buy-outs in the event of a share consolidation.

     See also Item 4.B "Business Overview - Russian  Federation." and Item 10.B.
- "Articles of Association".

Item 15.  Controls and procedures

     Within the Group's report (the "Evaluation  date") Chief Executive  Officer
and  Chief   Accountant  of   Rostelecom   carried  out  an  evaluation  of  the
effectiveness of the Group's  disclosure  controls and procedures (as defined in
Sections 240.13a-15(c) and 240.15d-15(c)) of the U.S. Securities Exchange Act of
1934, as amended).  Based on that  evaluation,  the Chief Executive  Officer and
Chief Accountant of Rostelecom have concluded that as of the Evaluation

                                     -134-
<PAGE>

Date, the Group's disclosure controls and procedures were effective and designed
to ensure that material information relating to the Group would be made known to
them by others within these entities.

     There were no significant  changes in the Group's internal controls,  or in
other factors that could  significantly  affect these controls subsequent to the
Evaluation Date, nor were there significant  deficiencies or material weaknesses
in the Group's internal controls requiring corrective action.

Item 16.

     Reserved

Item 17.  Financial Statements

     Not applicable.

Item 18.  Financial Statements

See pages F-1 to F-72 of the  consolidated  financial  statements which are
filed as part of this annual report.

                                     -135-
<PAGE>

INDEX TO FINANCIAL STATEMENTS                                              Pages

OAO ROSTELECOM CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2002

Statement of Directors' Responsibilities                                   F-2

Report of Independent Auditors for the year ended
  December 31, 2002 and 2001                                               F-3

Report of Independent Accountants for the years ended
   December 31, 2000                                                       F-4

Consolidated Balance Sheets                                                F-5

Consolidated Statements of Operations                                      F-6

Consolidated Statements of Cash Flows                                      F-7

Consolidated Statements of Changes in Shareholders' Equity                 F-8

Notes to Consolidated Financial Statements                           F-9 - F-59


EDN SOVINTEL LLC FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 2001 AND
THE PERIOD FROM JANUARY 1 TO SEPTEMBER 16, 2002

Report of Independent Auditors for each of the two years
ended December 31, 2001 and for the period from January 1
to September 16, 2002                                                     F-60

Balance Sheet                                                             F-61

Statements of Income                                                      F-62

Statements of Cash Flows                                                  F-63

Notes to Financial Statements                                      F-64 - F-72

                                     -136-
<PAGE>

Item 19.  Exhibits

Number         Description

1.1            Charter  (Articles of  Association)  of Open Joint Stock  Company
               Long-Distance   and   International   Communications   Rostelecom
               (restated  version  No.6),  approved by the General  Shareholders
               Meeting on June 15, 2003.*

1.2            Regulations on the General Shareholders Meeting of the Open Joint
               Stock Company Long-Distance and International  Telecommunications
               Rostelecom  (restated  version  # 2),  approved  by  the  General
               Shareholders Meeting on June 15, 2003.*

1.3            Regulations  on the Board of  Directors  of the Open Joint  Stock
               Company   Long-Distance  and   International   Telecommunications
               Rostelecom  (restated  version  No.2),  approved  by the  General
               Shareholders Meeting on June 1, 2002.*

1.4            Amendment  to the  Regulations  on the Board of Directors of OJSC
               Rostelecom  (restated  version  No.  2)  approved  by the  Annual
               General  Shareholders  meeting  of OJSC  Rostelecom  on June  15,
               2003.*

1.5            Regulations  on the  Management  Board  of the Open  Joint  Stock
               Company   Long-Distance  and   International   Telecommunications
               Rostelecom  (restated  version  No.1),  approved  by the  General
               Shareholders Meeting on June 1, 2002.*

1.6            Amendments to the  Regulations  on the  Management  Board of OJSC
               Rostelecom  (restated  version  No.  1)  approved  by the  Annual
               general  Shareholders  Meeting  of OJSC  Rostelecom  on June  15,
               2003.*

1.7            Regulations  on the  General  Director  of the Open  Joint  Stock
               Company   Long-Distance  and   International   Telecommunications
               Rostelecom  (restated  version  No. 1),  approved  by the General
               Shareholders Meeting on June 30, 2001.**

1.8            Amendment  and  Additions  to  the   Regulations   on  the  Audit
               Commission of OJSC Rostelecom  (restated)  approved by the Annual
               General Shareholders meeting on June 30, 2001.**

4.1            Ownership  Interest  Purchase  Agreement,  dated as of March  13,
               2002,   by  and  among   SFMT-CIS,   Inc.,   LLC   Teleross   and
               Rostelecom.***

4.2            Standstill Agreement, dated as of September 5, 2002, by and among
               Alfa Telecom Limited, Rostelecom,  Capital International,  Global
               Emerging  Markets Private Equity Fund, L.P.,  Cavendish  Nominees
               Limited,  First NIS  Regional  Fund  SICAV,  and Global  Telecom,
               Inc.***

4.3            Consortium  Agreement,  dated September 3, 2001, among Rostelecom
               and  NPF  Rostelecom-Garantia,  ZAO  North-West  Telecombank,  NP
               TSIPRT,  OOO CB Russian  Industrial Bank, ZAO  Gamma-Invest,  ZAO
               CFP-Finance and RTC-Leasing.*

4.4            Supplement to the Consortium Agreement, dated May 29, 2003, among
               Rostelecom   and   NPF   Rostelecom-Garantia,    ZAO   North-West
               Telecombank,  NP TSIPRT,  OOO CB  Russian  Industrial  Bank,  ZAO
               Gamma-Invest, ZAO CFP-Finance and RTC-Leasing.*

8.1            List of significant subsidiaries*

10.1           Certification  of the  Chief  Executive  Officer  pursuant  to 18
               U.S.C.  ss.  1350,  as adopted  pursuant  to  Section  906 of the
               Sarbanes-Oxley Act of 2002.*

10.2           Certification of the Chief  Accountant  pursuant to 18 U.S.C. ss.
               1350,  as adopted  pursuant to Section 906 of the  Sarbanes-Oxley
               Act of 2002.*


---------------------------------------

     *    Provided herewith.

     **   Incorporated  by reference  to the Annual  Report on Form 20-F for the
          fiscal  year ended  December  31, 2001 filed with the  Securities  and
          Exchange Commission on July 1, 2002.

     ***  Incorporated by reference to the Schedule 13D filed by Rostelecom with
          the Securities and Exchange Commission on September 5, 2002.

                                     -137-
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements  of Section 12 of the  Securities  Exchange Act of
1934, the Registrant  hereby certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused  this annual  report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Dated:   June 27, 2003

                                OPEN JOINT STOCK COMPANY OF
                                LONG-DISTANCE AND INTERNATIONAL
                                TELECOMMUNICATIONS ROSTELECOM

                                By:/s/ Sergei I. Kuznetsov
                                   ---------------------------------------------
                                   Name:   Sergei I. Kuznetsov
                                   Title:  General Director of OJSC "Rostelecom"

                                By:/s/ Alexander A. Lutsky
                                   ---------------------------------------------
                                   Name:   Alexander A. Lutsky
                                   Title:  Chief Accountant of OJSC "Rostelecom"

                                     -138-
<PAGE>

                                  CERTIFICATION

     I, Sergei I. Kuznetsov, certify that:

     1. I have reviewed this annual report on Form 20-F of Open Stock Company of
Long-Distance and International Telecommunications Rostelecom;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the registrant's disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     (c) presented in this annual report our conclusions about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     (a) all  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  June 27, 2003

                                By:/s/ Sergei I. Kuznetsov
                                  ----------------------------------------------
                                   Name:   Sergei I. Kuznetsov
                                   Title:  General Director of OJSC "Rostelecom"

                                     -139-
<PAGE>

                                  CERTIFICATION

     I, Alexander A. Lutsky, certify that:

     1. I have reviewed this annual report on Form 20-F of Open Stock Company of
Long-Distance and International Telecommunications Rostelecom;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report.

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     (a)  designed  such  disclosure  controls  and  procedures  to ensure  that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the registrant's disclosure controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

     (c) presented in this annual report our conclusions about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

     (a) all  significant  deficiencies  in the design or  operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the registrant's internal controls; and

     6. The registrant's other certifying  officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  June 27, 2003

                                By:/s/ Alexander A. Lutsky
                                   ---------------------------------------------
                                   Name:   Alexander A. Lutsky
                                   Title:  Chief Accountant of OJSC "Rostelecom"

                                     -140-
<PAGE>

INDEX TO

OAO ROSTELECOM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2002
                                                                         Pages

Statement of Directors' Responsibilities                                 F-2

Report of Independent Auditors for the years ended December 31,
2002 and 2001                                                            F-3

Report of Independent Accountants for the year ended December 31, 2000   F-4

Consolidated Balance Sheets                                              F-5

Consolidated Statements of Operations                                    F-6

Consolidated Statements of Cash Flows                                    F-7

Consolidated Statements of Changes in Shareholders' Equity               F-8

Notes to Consolidated Financial Statements                        F-9 - F-59

EDN SOVINTEL LLC FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 2001 AND
THE PERIOD FROM JANUARY 1 TO SEPTEMBER 16, 2002

Report of Independent Auditors for each of the two years ended
December 31, 2001 and for the period from January 1 to September
16, 2002                                                                 F-60

Balance Sheet                                                            F-61

Statements of Income                                                     F-62

Statements of Cash Flows                                                 F-63

Notes to Financial Statements                                     F-64 - F-72

                                       F-1
<PAGE>

                    STATEMENT OF DIRECTORS' RESPONSIBILITIES

     To the Shareholders of OAO Rostelecom

1.   International  convention  requires that  management  prepare  consolidated
     financial  statements which present fairly, in all material  respects,  the
     state of  affairs of the Group at the end of each  financial  period and of
     the results and cash flows for each period.  Management are responsible for
     ensuring that all Group  entities keep  accounting  records which  disclose
     with  reasonable  accuracy the financial  position of each entity and which
     enable them to ensure that the  consolidated  financial  statements  comply
     with International  Financial  Reporting Standards and that their statutory
     accounting reports comply with Russian laws and regulations. They also have
     a general  responsibility  for taking such steps as are reasonably  open to
     them to  safeguard  the assets of the Group and to prevent and detect fraud
     and other irregularities.

2.   Management   considers  that,  in  preparing  the  consolidated   financial
     statements  set out on pages F 5 to F 59,  the Group  has used  appropriate
     accounting  policies,  consistently applied and supported by reasonable and
     prudent  judgments  and  estimates,  and  that  appropriate   International
     Financial Reporting Standards have been followed.

3.   The  consolidated  financial  statements,  which are based on the statutory
     accounting  reports  adjusted  to  comply  with   International   Financial
     Reporting  Standards,  are  hereby  approved  on  behalf  of the  Board  of
     Directors.

     For and on behalf of the Board of Directors:




     S.I.Kuznetsov
     General Director




     OAO Rostelecom
     1st Tverskaya-Yamskaya, 14,
     Moscow
     Russian Federation

     June 6, 2003

                                       F-2
<PAGE>

Report of Independent Auditors

To the Board of Directors and Shareholders of OAO Rostelecom

We have audited the accompanying consolidated balance sheets of OAO Rostelecom,
an open joint stock company, and subsidiaries (hereinafter referred to as the
"Group"), as of December 31, 2002 and 2001, and the related consolidated
statements of operations, cash flows and changes in shareholders' equity for
each of the two years in the period ended December 31, 2002. These financial
statements are the responsibility of the Group's management. Our responsibility
is to express an opinion on these financial statements based on our audits. The
consolidated financial statements of the Group as of December 31, 2000, and for
the year then ended, were audited by other auditors whose report dated May 18,
2001, except for Note 4, as to which the date is June 6, 2003, expressed an
unqualified opinion on those statements.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Group as of
December 31, 2002 and 2001, and the consolidated results of its operations and
its cash flows for each of the two years in the period ended December 31, 2002
in conformity with International Financial Reporting Standards as published by
the International Accounting Standards Board.

International Financial Reporting Standards vary in certain important respects
from accounting principles generally accepted in the United Sates of America.
The application of the latter would have affected the determination of
consolidated net income for each of the two years in the period ended December
31, 2002 and the determination of consolidated shareholders' equity as of
December 31, 2002 and 2001 to the extent summarized in Note 34 to the
consolidated financial statements.

/s/ Ernst & Young (CIS) Limited




Moscow, Russia
June 6, 2003

                                       F-3
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

          To the Board of Directors and Shareholders of OAO Rostelecom

In our opinion, the related consolidated  statements of operations,  and of cash
flows and of changes in  shareholders'  equity for the period ended December 31,
2000  (appearing  on pages F 6  through F 8 of this  2002  Annual  Report of OAO
Rostelecom on Form 20-F) present fairly, in all material respects, the financial
position of OAO Rostelecom and its subsidiaries  (the "Company") at December 31,
2000,  and the  results of its  operations  and cash flows for the period  ended
December  31,  2000,  in  conformity  with  International  Accounting  Standards
("IFRS").  These financial  statements are the  responsibility  of the Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We conducted our audits of these statements in
accordance with auditing  standards  generally  accepted in the United States of
America  which  require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

IFRS vary in certain  important  respects from accounting  principles  generally
accepted in the United States of America.  The  application  of the latter would
have affected the  determination of consolidated net income for the period ended
December 31, 2000 and the determination of consolidated  stockholders' equity at
December  31,  2000 to the  extent  summarized  in  Note 34 to the  consolidated
financial statements.

As described in Note 4, the Company's consolidated financial statements prepared
under IFRS are  expressed in Russian  roubles  adjusted to take into account the
effects of inflation. These consolidated financial statements have been restated
in terms of purchasing power of the Russian rouble at December 31, 2002.

/s/PricewaterhouseCoopers





Moscow, Russia
May 18, 2001, except for Note 4, which is as of June 6, 2003

                                       F-4
<PAGE>

<TABLE>
<CAPTION>
OAO Rostelecom
CONSOLIDATED BALANCE SHEETS
(In millions of Russian Rubles in terms of purchasing power of the Ruble at December 31, 2002)
----------------------------------------------------------------------------------------------------------------
                                                                    Notes       December 31,     December 31,
                                                                                        2002             2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                  <C>
ASSETS
Property, plant and equipment, net                                    6              56,278            62,677
Investments in associates                                             8               2,635             1,239
Long-term financial investments                                       9                 578                 -
Goodwill                                                            7, 10                39                 -
Negative goodwill, net of current portion                           7, 10              (240)                -
Lease receivables                                                    11               2,713               676
Other non-current assets                                              6                 356                  -
----------------------------------------------------------------------------------------------------------------
Non-current assets                                                                   62,359            64,592
----------------------------------------------------------------------------------------------------------------
Inventory                                                                               502               664
Accounts receivable, net                                             12               8,617             8,533
Short-term investments                                               13               4,575             3,238
Short-term portion of negative goodwill                             7, 10              (471)                -
Cash and cash equivalents                                            14               3,642             2,222
----------------------------------------------------------------------------------------------------------------
Current assets                                                                       16,865            14,657
----------------------------------------------------------------------------------------------------------------
Total assets                                                                         79,224            79,249
----------------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY, MINORITY INTEREST AND LIABILITIES
Share capital                                                        15                 100               100
Retained earnings                                                                    48,933            48,654
----------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                           49,033            48,754
----------------------------------------------------------------------------------------------------------------
Minority interest                                                    16               2,825             1,929
----------------------------------------------------------------------------------------------------------------
Accounts payable and accrued expenses                                17               5,162             5,862
Amounts owed to customers                                                             1,003                 -
Taxes payable                                                                         2,253             2,072
Current portion of interest bearing loans                            18               4,529             6,709
Short-term borrowings                                                19               1,537             1,204
----------------------------------------------------------------------------------------------------------------
Current liabilities                                                                  14,484            15,847
----------------------------------------------------------------------------------------------------------------
Interest bearing loans - net of current portion                      18               2,317             1,091
Non-current accounts payable                                                            262               379
Deferred tax liability                                               20              10,303            11,249
----------------------------------------------------------------------------------------------------------------
Non-current liabilities                                                              12,882            12,719
----------------------------------------------------------------------------------------------------------------

Total liabilities                                                                    27,366            28,566
----------------------------------------------------------------------------------------------------------------

Total shareholders' equity, minority interest and liabilities                        79,224            79,249
================================================================================================================

Commitments and contingencies                                     29 and 30                -                -
----------------------------------------------------------------------------------------------------------------
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       F-5
<PAGE>

<TABLE>
<CAPTION>
OAO Rostelecom
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions of Russian Rubles in terms of purchasing power of the Ruble at December 31, 2002)
---------------------------------------------------------------------------------------------------------------
                                                                                Year ended December 31,
---------------------------------------------------------------------------------------------------------------
                                                               Notes          2002         2001          2000
---------------------------------------------------------------------------------------------------------------
<S>                                                             <C>        <C>          <C>           <C>
Revenue
Local operators                                                            14,016       13,337        12,256
Subscribers                                                                 7,913        8,648        10,358
Foreign operators                                                           5,100        6,852         9,860
Other                                                                       1,112        1,432         1,611
---------------------------------------------------------------------------------------------------------------
Total revenue                                                   21         28,141       30,269        34,085
---------------------------------------------------------------------------------------------------------------
Operating expenses
Wages, salaries, other benefits and payroll taxes                          (3,704)      (3,877)       (4,210)
Depreciation                                                     6         (9,106)      (7,997)       (7,627)
Charges by network operators - international                               (5,779)      (7,438)       (9,145)
Charges by network operators - national                                    (1,707)      (2,190)       (2,274)
Administration and other costs                                             (3,454)      (3,349)       (4,892)
Taxes other than on income                                                   (872)      (1,635)       (1,445)
Repairs and maintenance                                                      (452)        (637)         (656)
Bad debt (expense) / recovery                                               (863)           28          (361)
Loss on sale of property, plant and equipment                                (449)        (554)         (125)
---------------------------------------------------------------------------------------------------------------
Total operating expenses                                                  (26,386)     (27,649)      (30,735)
---------------------------------------------------------------------------------------------------------------
Operating profit                                                            1,755        2,620         3,350
---------------------------------------------------------------------------------------------------------------
Gain/(loss) from associates (excluding related tax)              8            393          (35)          634
---------------------------------------------------------------------------------------------------------------
Interest expense                                                              (869)      (1,515)       (2,825)
Interest income                                                               430          131           158
Income from sale of  investments                                13          1,840            -             -
Other non-operating income, net                                 23            556           84            92
Foreign exchange (loss)/gain, net                                            (983)         291           627
Monetary gain                                                                 165        2,472         1,782
---------------------------------------------------------------------------------------------------------------
Income before tax and minority interest                                     3,287        4,048         3,818

Current tax charge                                              24         (2,998)      (2,987)       (2,229)
Deferred tax benefit/(charge)                                   24          1,593        4,029        (2,644)
Share in income taxes of associates                             24           (133)        (161)         (215)
---------------------------------------------------------------------------------------------------------------
Income tax (expense)/benefit                                               (1,538)         881        (5,088)
---------------------------------------------------------------------------------------------------------------
Income/(loss) after taxation                                                1,749        4,929        (1,270)
Minority interest                                               16         (1,071)        (322)       (1,190)
---------------------------------------------------------------------------------------------------------------
Net income/(loss)                                                             678        4,607        (2,460)
===============================================================================================================
                                                                             Rubles       Rubles        Rubles
Earnings /(loss) per share - basic and diluted                  26            0.61         6.15         (3.85)
---------------------------------------------------------------------------------------------------------------
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       F-6
<PAGE>

<TABLE>
<CAPTION>
OAO Rostelecom
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of Russian Rubles in terms of purchasing power of the Ruble at December 31, 2002)
----------------------------------------------------------------------------------------------------------------
                                                                                   Year ended December 31,
----------------------------------------------------------------------------------------------------------------
                                                                  Note           2002        2001        2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>        <C>         <C>         <C>
Cash flows from operating activities
Net income before taxation and minority interest                               3,287       4,048       3,818

Adjustments to reconcile net income before taxation and minority interest to
 cash generated from operating activities:
Depreciation                                                        6          9,106       7,997       7,627
Bad debt expense/(recovery)                                         12           863         (28)          -
(Gain)/loss from associates                                         8           (393)         35        (634)
Loss on disposal of property, plant and equipment                                449         554         125
Income from sale of investments                                               (1,840)          -           -
Net interest and other non-operating (income)/expense                           (117)      1,300       2,575
Equity-based compensation                                                           -        279           -
Other non-monetary income                                                        (77)          -           -
Foreign exchange loss/(gain)                                                     983        (291)       (633)
Gain on net monetary position                                                   (165)     (2,472)     (1,782)
Changes in net working capital:
Decrease/(increase) in accounts receivable                                       600        (260)      1,365
(Increase)/decrease in lease receivables                                      (3,408)        482      (1,040)
Decrease/(increase) in inventories                                               187          72        (340)
Increase/(decrease) in payables and accruals                                     691        (661)        342
----------------------------------------------------------------------------------------------------------------

Cash generated from operations                                                10,166       11,055      11,423
Interest paid                                                                 (1,270)     (1,375)     (3,144)
Interest received                                                                375         131         158
Income tax paid                                                               (3,558)     (2,848)     (1,492)
----------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                                      5,713        6,963       6,945
----------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
Purchase of property, plant and equipment                                     (2,281)     (2,020)     (3,491)
Proceeds from sale of property, plant and equipment                               23          25           -
Purchase of subsidiaries, net of cash acquired                                (1,138)          -           -
Purchase of available-for-sale investments (securities), net                  (2,198)     (1,637)     (1,460)
Proceeds from sale of available-for-sale investments, net of                   1,970         766       1,529
direct costs
Advances to investee and other companies                                      (1,020)          -           -
Advances to investee and other companies returned                              1,046           -           -
Purchase of investments                                                            -           -        (326)
Dividends received from associates                                                97          98           -
----------------------------------------------------------------------------------------------------------------

Net cash used in investing activities                                         (3,501)     (2,768)     (3,748)
----------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
Proceeds from bonds issue                                              16      1,532       1,669           -
Redemption of bonds                                                    16     (1,021)       (576)          -
Drawdown of interest bearing loans                                             5,879       3,389       3,847
Repayment of interest bearing loans                                           (6,165)     (7,288)     (7,665)
Proceeds from notes issue                                                      1,344           -           -
Redemption of notes                                                           (1,347)          -           -
Dividends paid                                                                  (363)       (248)       (439)
Dividends paid to minority shareholders of subsidiary                           (294)          -           -
Proceeds from sale of additional ordinary shares by subsidiary                    24           -           -
Cash paid for acquisition of minority interest                                     -        (201)          -
----------------------------------------------------------------------------------------------------------------

Net cash used in financing activities                                           (411)     (3,255)     (4,257)
----------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash and cash equivalents                      36          36           9
----------------------------------------------------------------------------------------------------------------

Net increase/(decrease) in cash and cash equivalents                           1,837         976      (1,051)

Monetary effects on cash  and cash equivalents                                  (417)       (329)       (158)

Cash and cash equivalents at beginning of period                               2,222       1,575       2,784
----------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at the end of period                                 3,642       2,222       1,575
================================================================================================================

Non-monetary transactions:
Non-cash additions to property, plant and equipment                              103       1,882       1,782
----------------------------------------------------------------------------------------------------------------

Financial instruments received in connection with disposition                    545           -           -
of property, plant and equipment
----------------------------------------------------------------------------------------------------------------
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       F-7
<PAGE>

<TABLE>
<CAPTION>
OAO Rostelecom
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In millions of Russian Rubles in terms of purchasing power of the Ruble at December 31, 2002)
-------------------------------------------------------------------------------------------------------------------
                                               Note      Share capital       Treasury       Retained        Total
                                                                               shares       earnings
-------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>            <C>        <C>          <C>
Balance at December 31, 1999                                       100            (2)        47,192       47,290

Treasury shares elimination                                          -              2            (2)            -
Dividends                                                            -              -          (414)        (414)
Net loss for the year                                                -              -        (2,460)      (2,460)
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000                                       100              -        44,316       44,416

Dividends                                       15                   -              -          (269)        (269)
Net income for the year                                              -              -         4,607        4,607
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                                       100              -        48,654       48,754

Dividends                                       15                   -              -          (399)        (399)
Net income for the year                                              -              -           678          678
-------------------------------------------------------------------------------------------------------------------

Balance at December 31, 2002                                       100              -        48,933       49,033
===================================================================================================================
</TABLE>

        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       F-8
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
-------------------------------------------------------------------------------

1.   REPORTING ENTITY

The accompanying consolidated financial statements are presented by OAO
"Rostelecom" ("Rostelecom" or the "Company"), and its subsidiaries (together the
"Group"), which are incorporated in the Russian Federation ("Russia"),
Switzerland, the Republic of Cyprus ("Cyprus") and the United States of America
("USA"). The principal activity of the Group is the provision of intercity and
international telecommunications services to the Government, businesses and
people of Russia. The Group operates the main intercity network and the
international telecommunications gateways of the Russian Federation, carrying
traffic that originates on other national and international operators networks
to other national and international operators for completion.

The Company's headquarters are located in Moscow at 1st Tverskaya-Yamskaya
street, 14.

The accompanying consolidated financial statements incorporate the results of
operations of the Company and its subsidiaries, as detailed in Note 7.

Rostelecom was established as an open joint stock company on September 23, 1993
in accordance with the Directive of the State Committee on the Management of
State Property of Russia No. 1507-r, dated August 27, 1993. As of December 31,
2002, the Government of the Russian Federation controlled indirectly 50.67% of
the voting share capital of the Company, by virtue of its 75% less one share
direct holding in OAO Svyazinvest ("Svyazinvest"), the parent company of
Rostelecom.

2.   BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in
accordance with and comply with International Financial Reporting Standards
("IFRS"), as published by the International Accounting Standards Board.

The Group maintains its accounting records and prepares its statutory accounting
reports in accordance with Russian accounting legislation and instructions in
Russian Rubles. The accompanying consolidated financial statements are based on
the underlying accounting records, appropriately adjusted and reclassified for
fair presentation in accordance with the standards and interpretations
prescribed by the International Accounting Standards Board.

The consolidated financial statements have been prepared using the historical
cost convention, restated for the effects of inflation and modified by the
initial valuation of property, plant and equipment as further disclosed in Note
5 to the accompanying consolidated financial statements. The functional currency
of the Group and the reporting currency for the accompanying consolidated
financial statements is the Russian Ruble (Rbl).

The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and operating costs during the
reporting period. The most significant estimates relate to the recoverability
and depreciable lives of property, plant and equipment, allowance for doubtful
accounts, and deferred taxation. Actual results could differ from these
estimates.

                                       F-9
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

3.   OPERATING ENVIRONMENT OF THE COMPANY

General

Over the past decade Russia has undergone substantial political, economic and
social changes. As an emerging market, Russia does not possess a fully developed
business and regulatory infrastructure that would generally exist in a more
mature market economy. The current Government is attempting to address these
issues; however, it has not yet fully implemented the reforms necessary to
create banking, judicial and regulatory systems that usually exist in more
developed markets. As a result, and as reflected in the Government's debt
default and Ruble devaluation in 1998, operations in Russia involve risks that
are not typically associated with those in developed markets. Such risks persist
in the current environment with results that include but are not limited to, a
currency that is not freely convertible outside of the country, various currency
controls, low liquidity levels for debt and equity markets, and continuing
inflation. The Group will continue to be affected, for the foreseeable future,
by these risks and their consequences. As a result, there are significant
uncertainties that may affect future operations, the recoverability of the
Group's assets, and the ability of the Group to maintain or pay its debts as
they mature. The accompanying consolidated financial statements do not include
any adjustments that may result from the future clarification of these
uncertainties. Such adjustments, if any, will be reported in the Group's
consolidated financial statements in the period when they become known and can
be reasonably estimated.

Currency exchange and control

Foreign currencies, in particular the US Dollar ("USD" or "US$"), play a
significant role in the underlying economics of many business transactions in
Russia. Following the 1998 economic crisis, the Ruble's value fell significantly
against the US Dollar, falling from a pre-crisis rate of approximately 6 Rubles
to 1 US Dollar, to 27 Rubles to 1 US Dollar by the end of 1999. During 2000,
2001 and 2002, the Ruble's value fluctuated between 26.9 and 31.8 to 1 US
Dollar. As of June 6, 2003, the exchange rate was 30.65 Rubles to 1 US Dollar.

The following table summarizes the exchange rate of the Ruble to 1 US Dollar for
the years ended December 31, 2002, 2001 and 2000.

                                                 Exchange
  As of December 31,                                 Rate
                                                 --------
  2002                                              31.78
  2001                                              30.14
  2000                                              28.16
Source: Central Bank of Russia

The Central Bank of Russia has established strict currency control regulations
designed to promote the commercial utilization of the Ruble. Such regulations
place restrictions on the conversion of Rubles into foreign currencies and
establish requirements for conversion of foreign currency sales to Rubles.

                                      F-10
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Inflation

The Russian economy has been characterized by relatively high rates of
inflation. The following table summarizes the annual rate of inflation for the
past three years:

                                                    Annual
  For the year ended December 31,                inflation
                                                 ----------
           2002                                      15.1%
           2001                                      18.8%
           2000                                      20.2%
Source: Goskomstat of Russia

The Group's principal inflation rate risk relates to the Group's ability to
recover the investments in non-monetary assets, specifically property, plant and
equipment, as well as to raise tariffs for services in line with the growth of
operating expenses caused by inflation. In the event high levels of inflation
continue, the Group could have financial difficulties accompanied by
deterioration in its results of operations and liquidity position.

Taxation

Russia currently has a number of laws related to various taxes imposed by both
federal and regional governmental authorities. Applicable taxes include value
added tax, corporate income tax (profits tax), turnover based taxes, and payroll
(social) taxes, together with others. Laws related to these taxes have not been
in force for significant periods, in contrast to more developed market
economies. Therefore, the government's implementation of these regulations is
often inconsistent or nonexistent. Accordingly, few precedents with regard to
tax rulings have been established. Tax declarations, together with other legal
compliance areas (as examples, customs and currency control matters), are
subject to review and investigation by a number of authorities, who are enabled
by law to impose extremely severe fines, penalties and interest charges. These
facts create tax risks in Russia substantially more significant than typically
found in countries with more developed tax systems. In recent years, the Russian
government has initiated revisions of the Russian tax system. Effective January
1, 1999, the first part of the Tax Code was enacted. Effective January 1, 2001,
the second part of the Tax Code was enacted. The new tax system is generally
intended to reduce the number of taxes and, thus, the overall tax burden on
businesses, and to simplify the tax laws.

Refer to Note 30 for description of possible tax contingencies.

4.   ACCOUNTING FOR THE EFFECTS OF INFLATION

IAS 29, "Financial Reporting in Hyperinflationary Economies", requires that
financial statements prepared on a historic cost basis be adjusted to take
account of the effects of inflation, for entities reporting in hyperinflationary
economies. The accompanying consolidated financial statements have been restated
in terms of the measuring unit current at the latest presented balance sheet
date and the net gains or losses arising on the net monetary position of assets
and liabilities during the periods presented have been included in the statement
of operations and disclosed separately. The Group has utilized the general price
index reported by the State Committee on Statistics of the Russian Federation
("Goskomstat") in the application of IAS 29. The application of IAS 29 to
specific categories of transactions and balances within the consolidated
financial statements is set out as follows:

                                      F-11
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Corresponding figures

Corresponding figures for the previous reporting periods have been restated by
applying to the amounts included in the previous years' financial statements the
change in the general price index. Comparative financial information is
therefore presented in terms of the measuring unit current as of December 31,
2002, being the latest date for which financial statements are presented.

Monetary assets and liabilities

Cash and cash equivalents, available-for-sale investments, receivables,
payables, interest bearing loans, current taxation and dividends payable have
not been restated as they are monetary assets and liabilities and are stated in
Rubles current at the balance sheet date.

Gains or losses on the net monetary position of assets and liabilities which
arise as a result of inflation, are computed by applying the change in the
general price index to the monetary assets and monetary liabilities during the
period.

Non-monetary assets and liabilities

Non-monetary assets and liabilities are restated from their historic cost or
valuation by applying the change in the general price index from the date of
recognition to the balance sheet date.

Consolidated statements of operations and cash flows

Items included in the consolidated statements of operations and cash flows are
restated by applying the change in the general price index from the dates when
the items were initially recorded to the balance sheet date.

5.   PRINCIPAL ACCOUNTING POLICIES

Set out below are the principal accounting policies used to prepare the
accompanying consolidated financial statements:

Principles of consolidation

The Group comprises the Company, its subsidiaries and associates. Transactions
and balances between the Company and its subsidiaries are eliminated, and
accounting policies of the subsidiaries are adjusted to conform to those of the
Group. A subsidiary is an entity that is controlled by the Company, either
through ownership, directly or indirectly, of more than 50 percent of the voting
share capital of the entity, or other means.

The excess of purchase price paid over the acquirer's interest in the fair value
of the identifiable assets and liabilities acquired is recognized as goodwill
and is depreciated during its expected useful life. The excess of the fair value
of acquired identifiable net assets over purchase price paid is reflected as
negative goodwill and is depreciated over the remaining weighted average useful
life of identifiable non-current assets acquired, unless other method is more
appropriate based on the expected use of non-current assets. The excess of
negative goodwill over fair value of identifiable non-monetary assets acquired
is recognized as income in the period of acquisition.

                                      F-12
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Associates in which the Group has significant influence but not a controlling
interest are accounted for using the equity method of accounting. Significant
influence is usually demonstrated by the Group owning, directly or indirectly,
between 20 per cent and 50 per cent of the voting share capital or by exerting
significant influence through other means. The Group's share of the net income
or losses of associates is included in the consolidated statement of operations,
and the Group's share of the net assets of associates is included in the
consolidated balance sheet. An assessment of investments in associates is
performed when there is an indication that the asset has been impaired or the
impairment losses recognized in prior years no longer exist. When the Group's
share of losses exceeds the carrying amount of the investment, the investment is
reported at nil value and recognition of losses is discontinued except to the
extent of the Group's commitment. Unrealized profits that arose from
transactions between the Group and its associates were eliminated in the
proportion to the Group's share in such associates, and unrealized losses were
excluded in the proportion to the Group's share in such associates, if there is
no evidence of indicators of impairment of an asset transferred.

In case the share in an entity is acquired with the intention to sell it the
foreseeable future, such investment is accounted for as available-for-sale.

Property, plant and equipment

For the purpose of determining the opening balances on the first application of
IFRS at January 1, 1994, the Company performed a valuation of the property,
plant and equipment, as reliable historical cost information and information
regarding acquisition dates was not available. A brief description of the
methodology applied in performing this valuation is set out below for each major
asset category:

o    Buildings and site services - current replacement cost;
o    Cable and transmission devices - current replacement cost;
o    Telephone exchanges - modern equivalent asset;
o    Assets in course of construction - indexed historic cost.

Cost or valuation of the network comprises all expenditures up to and including
the cabling and wiring to the local telephone operator's intercity exchange, and
includes contractors' charges and payments on account, materials, direct labor,
and interest costs on specific project financing up to the date of commissioning
of the relevant assets.

Subsequent expenditures are capitalized if it can be clearly demonstrated that
they extend the life of the asset or significantly increase its revenue
generating capacity beyond its originally assessed standard of performance.
Expenditure for continuing repairs and maintenance are charged to the statement
of operations as incurred. Social assets are expensed on acquisition.

Items of property, plant and equipment that are retired or otherwise disposed of
are eliminated from the balance sheet along with the corresponding accumulated
depreciation. Any gain or loss resulting from such retirement or disposal is
included in the determination of net income.

                                      F-13
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Depreciation is calculated on property, plant and equipment on a straight-line
basis from the time the assets are available for use, over their estimated
useful lives as follows:

                                                                 Number of years
Buildings and site services                                          10-50
Cable and transmission devices:
     o     Channels                                                  10-40
     o     Cable                                                     30-40
     o     Radio and fixed link transmission equipment               15-20
     o     Telephone exchanges                                         15
Other                                                                 5-10

The useful lives and depreciation methods are reviewed periodically to ensure
that the methods and the periods of depreciation are consistent with the
expected pattern of economic benefits from items of property, plant and
equipment.

At each balance sheet date an assessment is made as to whether there is any
indication that the Group's assets may be impaired. If any such indication
exists, an assessment is made to establish whether the recoverable amount of the
assets has declined below the carrying amount of those assets as disclosed in
the financial statements. When such a decline has occurred, the carrying amount
of the assets is reduced to the recoverable amount. The amount of any such
reduction is recognized immediately as an expense in the statement of
operations. Any subsequent increase in the recoverable amount of the assets
would be written back when the circumstances that led to the write-down or
write-off cease to exist and there is persuasive evidence that the new
circumstances and events will persist for the foreseeable future. Increase of
the recoverable amount is limited to the lower of its recoverable amount and
carrying amount that would have been determined had no impairment loss been
recognized for the asset in prior years.

The recoverable amount is determined as the higher of the assets' net selling
price and value in use. The value in use of the assets is estimated based on
forecast future cash inflows and outflows to be derived from continuing use of
the assets and from the estimated net proceeds on disposal, discounted to
present value using an appropriate discount rate.

Construction in progress represents properties under construction and is stated
at cost. This includes cost of construction, plant and equipment and other
direct costs. Construction in progress is not depreciated until the constructed
or installed asset is ready for its intended use.

Finance leases

Upon inception of a finance lease the Group records the net investment in
leases, which consists of the sum of the minimum lease payments and unguaranteed
residual value (gross investment in lease) less the unearned finance lease
income. The difference between the gross investment and its present value is
recorded as unearned finance lease income. The unearned finance lease income is
amortized over the life of the lease using the constant interest rate method.

With the exception noted below, the date of inception of the lease is considered
to be the date of the lease agreement or commitment, if earlier. For purposes of
this definition, a commitment shall be in writing, signed by the parties to the
transaction, and shall specifically set forth the principal terms of the
transaction. However, if the property covered by the lease has yet to be
constructed or has not been acquired by the Group at the date of the lease
agreement or commitment, the inception of the lease shall be the date when
construction of the property is completed or the property is acquired by the
Group. Any advance payments made by the lessee prior to commencement of the
lease reduce the net investment in lease.

                                      F-14
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

The Group records capital expenditures related to acquisition of equipment
subject to leasing as equipment purchased for leasing purposes. These
expenditures are being accumulated until the equipment is ready for use and
being transferred to the lessee.

Inventory

Inventory principally consists of fuel and spare parts for the network.
Inventory is stated at the lower of cost incurred in bringing each item to its
present location and net realizable value. Cost is calculated on a first in
first out basis. Items used in the construction of new plant and equipment are
capitalized as part of the related asset. Inventory used in the maintenance of
equipment is charged to operating costs as utilized and included in repairs and
maintenance and other costs in the accompanying consolidated statements of
operations.

Construction contracts

When the result from a construction contract can be measured reliably, revenues
and expenses from it are accounted for in the consolidated statement of
operations based on the stage of completion of the contract. Losses expected
from the contract are recognized in the statement of operations immediately.

Accounts receivable

Receivables are stated in the balance sheet at the fair value of the
consideration given and are carried at amortized cost, after provision for
impairment. Bad debts are written off in the period in which they are
identified.

Provision for impairment is created based on the historical pattern of
collections of accounts receivable and specific analysis of significant
accounts.

Investments

Investments are classified into the following categories: loans and receivables
originated by the Group, held-to-maturity, trading and available-for-sale. Loans
and receivables originated by the Group are financial assets created by
providing money, goods or services directly to a debtor, unless they are
originated with the intent to be sold immediately. Investments with fixed or
determinable payments and fixed maturity that the Group has the positive intent
and ability to hold to maturity are classified as held-to-maturity investments.
Investments acquired principally for the purpose of generating a profit from
short-term fluctuations in price are classified as trading. All other
investments are classified as available-for-sale.

The Group had no securities classified as held-to-maturity or trading at
December 31, 2002 and 2001. Loans and receivables originated by the Group,
including lease receivables are stated at amortized cost determined on
individual basis. Available-for-sale investments are stated at fair value
determined on an individual investment basis. Unrealized gains and losses are
included in the determination of net income. Income from available-for-sale
investments is included in other non-operating income in the consolidated
statement of operations. Interest income from investments is accrued during the
period in which it is earned.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, balances with banks, and
highly liquid investments with original maturities of three months or less, with
insignificant risks of diminution in value.

                                      F-15
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Deferred income taxes

Deferred income taxes are determined utilizing the balance sheet liability
method. This method gives consideration to the future tax consequences
associated with the differences between the carrying amounts of assets and
liabilities for financial reporting purposes and their tax bases. Under this
method deferred taxes are required to be recognized for all temporary
differences with certain specific exceptions. Temporary timing differences
primarily arise on the recognition of property, plant and equipment, receivables
and payables in different accounting periods to those permitted under the
appropriate tax regulations.

Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply to the period when the asset will be realized or the liability
settled. Tax rates are based on laws that have been enacted or substantively
enacted at the balance sheet date. Deferred tax assets are recognized when it is
probable that taxable profits will be available against which the deductible
temporary differences can be utilized.

Revenue and operating costs recognition

Revenue and operating costs for all services supplied and received are
recognized at the time the services are rendered. Revenue is recognized when it
is probable that the economic benefits associated with the transaction will flow
to the enterprise and the amount of revenue can be reliably measured.

The Company charges regional telephone operators and other telecommunication
service providers in Russia either an agreed proportion of the amounts they
collect from subscribers or an agreed settlement rate based on traffic minutes.
For outgoing telephone traffic originating in Moscow, subscribers are charged
directly by the Company.

The Company charges amounts to foreign network operators for incoming calls and
other traffic that originate outside Russia.

The Group is charged by foreign operators for completing international calls.

These revenues and costs are shown gross in these consolidated financial
statements, and exclude value added tax. Amounts payable to and receivable from
the same operators are shown net in the balance sheet where a legal right of
offset exists.

Employee benefits

The Company makes certain payments to employees on retirement, or when they
otherwise leave the employment of the Company. These obligations, which are
unfunded, represent obligations under a defined benefit pension scheme. For such
plans, the pension accounting costs are assessed using the projected unit credit
method. Under this method, the cost of providing pensions is charged to the
statement of operations so as to spread the regular cost over the average
service lives of employees. Actuarial gains and losses are recognized in the
statement of operations immediately.

Where such post-employment employee benefits fall due more than 12 months after
the balance sheet date, they are discounted using a discount rate determined by
reference to market yields on Government bonds at the balance sheet date.

The Company also participates in a defined contribution plan under which the
Company has committed to contribute up to a maximum of 2% of salary for each
employee choosing to participate in the plan.

                                      F-16
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Contributions made by the Company on defined contribution plans are charged to
expense when incurred.

The Group contributed 85 to these plans during the year ended December 31, 2002
(2001: 167, 2000: 182).

The Group does not accrue for the employees' compensated absences (vacations)
since the information on the accrued unused vacations cannot be reasonably
estimated due to unavailability of detailed records. Costs related to the
compensated absences of employees are expensed as incurred.

Advertising costs

Advertising costs are charged to the statement of operations as incurred.

Borrowing costs

Borrowing costs are expensed except for those that would have been avoided if
the expenditure to acquire the qualifying asset had not been made. To the extent
that funds are borrowed generally and used for the purpose of obtaining a
qualifying asset, the amount of borrowing costs eligible for capitalisation is
determined by applying a capitalisation rate to the expenditures on that asset.
The capitalisation rate is the weighted average of the borrowing costs
applicable to the borrowings of the enterprise that are outstanding during the
period, other than borrowings made specifically for the purpose of obtaining a
qualifying asset. Qualifying borrowing costs are capitalized with the relevant
qualifying asset from the date the activities to prepare the asset are in
progress and expenditures and borrowing costs are being incurred until the
related asset is substantially ready for its intended use. Capitalized borrowing
costs are subsequently charged to the statement of operations in the period over
which the asset is depreciated.

Foreign currency transactions

Transactions denominated in foreign currencies are translated into Rubles at the
exchange rate as of the transaction date. Foreign currency monetary assets and
liabilities are translated into Rubles at the exchange rate as of the balance
sheet date.

Exchange differences arising on the settlement of monetary items, or on
reporting the Group's monetary items at rates different from those at which they
were initially recorded in the period, or reported in previous financial
statements, are recorded as foreign exchange gains or losses in the period in
which they arise.

As at December 31, 2002 and 2001 the rates of exchange used for translating
foreign currency balances were (in Russian Rubles for one unit of foreign
currency):
                                                      2002      2001
---------------------------------------------------------------------
US Dollars                                           31.78     30.14
German Marks                                             -     13.54
Japanese Yen                                        0.2663    0.2287
Special Drawing Rights (SDR)                         42.95     37.86
EURO                                                 33.11     26.49
---------------------------------------------------------------------
Source: the Central Bank of Russia

Reclassifications

Certain amounts reported in the prior period consolidated financial statements
have been reclassified to conform with the current year presentation.

                                      F-17
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Financial instruments

Financial instruments carried on the balance sheet include cash and bank
balances, available-for-sale investments, receivables, accounts payable and
borrowings. The particular recognition methods adopted are disclosed in the
individual policy statements associated with each item.

The Company and the Group do not enter into hedging transactions.

Dividends

Dividends are recognized when the shareholder's right to receive payment is
established. Dividends stated to be in respect of the period covered by the
financial statements and that are proposed or declared after the balance sheet
date but before approval of the financial statements are not recognized as a
liability at the balance sheet date in accordance with IAS 10, "Events After the
Balance Sheet Date". The amount of dividends proposed or declared after the
balance sheet date but before the financial statements were authorized for issue
is disclosed in Note 15.

Minority interest

Minority interest includes that part of the net results of operations and of net
assets of subsidiaries attributable to interests which are not owned, directly
or indirectly through subsidiaries, by the Company. Minority interest is carried
at the minority's proportion of the pre-acquisition carrying amounts of the net
identifiable assets and liabilities of the subsidiaries. The losses applicable
to the minority in a consolidated subsidiary may exceed the minority interest in
the equity of the subsidiary. The excess, and any further losses applicable to
the minority, are charged against the majority interest except to the extent
that the minority has a binding obligation to, and is able to, make good the
losses. If the subsidiary subsequently reports profits, the majority interest is
allocated all such profits until the minority's share of losses previously
absorbed by the majority has been recovered. If a subsidiary or an associate has
outstanding cumulative preferred shares which are held outside the Group, the
Company computes its share of profit or losses after adjusting for the preferred
dividends, whether or not the dividends have been declared.

Segment information

Operating segments are the primary segments of the Group. The Group identifies
the following operating segments:

     o    Telecommunications services
     o    Lease services
     o    Banking and investing activities

Operating segments were identified based on the organizational structure of the
Group and types of activities the Company and its subsidiaries are engaged in.

The accounting principles used to reflect transactions between reportable
segments are the same as those used for transactions with external parties.

Stock-based compensations

The Group accounts for stock-based compensations using the fair value method.
Except for the issue of preferred shares by RTC-Leasing in 2001, as more fully
described in Note 7 below, the Group did not develop any stock-based
compensation plans.

                                      F-18
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

6.   PROPERTY, PLANT AND EQUIPMENT, NET

The net book value of property, plant and equipment as of December 31, 2002 and
2001 was as follows:

<TABLE>
<CAPTION>
                                                                 Buildings and      Cable and     Other   Construction in      Total
                                                                 site services   transmission                    progress
                                                                                      devices
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>        <C>                <C>      <C>
Cost or valuation
At January 1, 2002                                                     24,299        127,849    22,266             3,851    178,265
Additions                                                                   -              7         -             2,689      2,696
Property, plant and equipment of acquired subsidiaries                     10          1,022       206               114      1,352
Disposals                                                                (441)        (2,120)     (379)              (43)    (2,983)
Transfers                                                                 144          1,053     1,542            (2,739)         -
------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2002                                                   24,012        127,811    23,635             3,872    179,330
------------------------------------------------------------------------------------------------------------------------------------

Accumulated Depreciation
At January 1, 2002                                                     15,588         87,330    12,670                 -   115,588
Depreciation expense                                                      584          6,132     2,390                 -     9,106
Relative share in accumulated depreciation on property, plant               1            270       109                 -       380
and equipment of acquired subsidiaries accounted for using the
equity method before acquisition
Disposals                                                                (350)        (1,363)     (309)                -    (2,022)
------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2002                                                   15,823         92,369    14,860                 -   123,052
------------------------------------------------------------------------------------------------------------------------------------

Net book value at December 31, 2002                                     8,189         35,442     8,775             3,872     56,278
====================================================================================================================================
</TABLE>

                                      F-19
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                 Buildings and      Cable and     Other   Construction in      Total
                                                                 site services   transmission                    progress
                                                                                      devices
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>        <C>                <C>      <C>
Cost or valuation
At January 1, 2001                                                     26,589        128,396    22,678             2,023    179,686
Additions                                                                   -            336        20             3,643      3,999
Disposals                                                              (2,326)        (2,094)     (933)              (67)    (5,420)
Transfers                                                                  36          1,211       501             1,748)         -
------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2001                                                   24,299        127,849    22,266             3,851    178,265
------------------------------------------------------------------------------------------------------------------------------------

Accumulated Depreciation
At January 1, 2001                                                     17,065         84,210     11,156                -    112,431
Additions                                                                 536          5,042      2,419                -      7,997
Disposals                                                              (2,013)        (1,922)     (905)                -     (4,840)
------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2001                                                   15,588         87,330     12,670                -    115,588
------------------------------------------------------------------------------------------------------------------------------------

Net book value at December 31, 2001                                     8,711         40,519     9,596             3,851     62,677
====================================================================================================================================
</TABLE>

                                      F-20
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Payments for rent of satellite channels in the amount of 1,757 were included in
the carrying value of cable and transmission devices as of December 31, 2001.
The Company uses composite depreciation method to amortize the prepaid satellite
channels.

During 2002 the Company formalized a plan to discontinue using these satellite
channels beginning from February 2003. The Company has accordingly revised its
estimate of the remaining period of use of the satellite channels. Additional
depreciation expense of 897 was recognized in the accompanying consolidated
financial statements. The carrying amount of prepaid rent as of December 31,
2002 was 210. Amounts receivable from the lessor for partial return of
prepayments of 545 are included in other non-current assets (356) and other
accounts receivable (189) (refer to Note 12). Non-current portion of amounts
receivable was discounted using discount rates of 18% for Ruble denominated
amounts and 3% for US Dollar denominated amounts.

Capitalized interest amounting to 57, 92 and 315 for the years ended December
31, 2002, 2001 and 2000, respectively, is included in property, plant and
equipment additions.

Property, plant and equipment with a carrying value of 9,117 (2001: 15,097) has
been pledged in relation to loan agreements entered into by the Group (refer to
Note 18).

7.   SUBSIDIARIES

The accompanying consolidated financial statements include the assets,
liabilities and results of operations of Rostelecom and the following of its
subsidiaries:

                                                          Effective share of the
                                            Country of         Group as of
                           Subsidiary      registration     December 31, 2002
--------------------------------------------------------------------------------

OAO RTC-Leasing ("RTC-Leasing")            Russia                         32.27%
RosTeleComLeasing S.A. ("RTCL S.A.")       Switzerland                    32.27%
RosTeleComLeasing Cyprus ("RTCL Cyprus")   Cyprus                         32.27%
RTDC Holdings, Inc. ("RTDC")               USA                            32.27%
ZAO Russian Industrial Bank ("RIB")        Russia                         32.27%
ZAO Westelcom ("Westelcom")                Russia                           100%
OAO RTComm.RU ("RTComm.RU")                Russia                         37.91%
ZAO AKOS ("AKOS")                          Russia                         29.68%

As of December 31, 2001 and 2002 the Company owned 27% of the voting shares of
RTC-Leasing. The principal activity of RTC-Leasing is the leasing of equipment
to telecommunications companies in Russia. The principal counterparty as lessee
to finance leases entered into by RTC-Leasing is Rostelecom. In the accompanying
consolidated financial statements finance lease transactions between RTC-Leasing
and Rostelecom and other companies of the Group have been eliminated.

During 2001, RTC-Leasing purchased for a cash payment of 201 10% of its ordinary
shares from shareholders other than Rostelecom and held them in treasury as of
31 December 2001. As a result of this transaction the Group's effective share in
RTC-Leasing increased to 30%.

In 2001 RTC-Leasing issued 10,000 preferred shares with a par value of 10 Rubles
each and sold them at par to individuals, which were related parties to
RTC-Leasing. No future service was required from the holders of the preferred
shares. Preferred shares issued carried dividends amounting to the higher of 10%
of the net income after taxation as disclosed in the Russian statutory accounts
of RTC-Leasing and the dividends payable on ordinary shares. In connection with
the issuance, in 2001

                                      F-21
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

the Group recognized 279 as compensation expense and recorded it in wages,
salaries, other benefits and payroll taxes in the consolidated statement of
operations. In 2002, RTC-Leasing declared and paid preferred dividends in the
amount of 109.

In December 2002 the Board of Directors of RTC-Leasing approved a purchase of
preferred shares. The purchase price of 191 was paid to the holders of preferred
shares in December 2002. As of June 6, 2003 preferred shares are not cancelled.
As a result of dividend payment and redemption of the preferred shares the
holders of the preferred shares received additional compensation of 21.

In February 2002 RTC-Leasing issued and sold additional 3,964,714 ordinary
shares at par value of 10 Rubles per share. The Company retained its interest in
voting stock of RTC-Leasing of 27% by purchasing the respective part of issued
shares.

The additional issuance was made in accordance with trilateral agreement
("Agreement") between Rostelecom and non-state pension fund
"Rostelecom-Garantiya" ("Initial shareholders"), from one side, RTC-Leasing from
the other side, and a consortium of the shareholders ("Consortium"), from the
third side. The Agreement called for certain actions aimed to increase
capitalization of RTC-Leasing.

Immediately after the issuance the following companies were owners of ordinary
shares of RTC-Leasing:

<TABLE>
<CAPTION>
                                                                                               % of ordinary shares
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                           <C>
Rostelecom                                                                                                    27.13
Non-state pension fund "Rostelecom-Garantiya"                                                                  3.03
CB "Severo-Zapadniy Telecombank"                                                                              18.91
Non-commercial partnership "The Telecommunications Development Research Center"                                2.82
Treasury shares on the balance sheet of RTC-Leasing                                                            0.48
ZAO "Gamma-Invest"                                                                                            15.93
ZAO "KFP-Finance"                                                                                             15.77
RIB                                                                                                           15.93
------------------------------------------------------------------------------------------------------------------------
Total ordinary shares                                                                                           100
------------------------------------------------------------------------------------------------------------------------
</TABLE>

Shares owned by RIB are treated as treasury shares (see below details of RIB
acquisition). Accordingly, the Group's effective share in RTC-Leasing increased
to 32.27%. The purchase of minority interest was accounted for using the
purchase method. Negative goodwill of 74 was recognized in relation to this
transaction and included in negative goodwill, net of current portion, in the
accompanying consolidated balance sheet as of December 31, 2002.

The management of the Company believes that it continues to exercise control
over the management, policies and day-to-day operations of RTC-Leasing. Finance
income from leases generated by the Company forms the major part of overall
revenues of RTC-Leasing. The Company guarantees significant amounts of debt of
RTC-Leasing and has a right to appoint the majority of the Board of directors of
RTC-Leasing. Therefore the Company continues to consolidate the results of
operations and financial position of RTC-Leasing.

Under the Agreement the control over RTC-Leasing was planned to pass to the
Consortium after the latter performs certain actions intended to increase
capitalization and investing attractiveness of RTC-Leasing. The Agreement
defined in general the obligations of the Consortium. The Consortium was to
expand customer base of RTC-Leasing, to develop new lease contracts for the
amount of US$ 330 million, to facilitate financing and increase effectiveness of
the business of RTC-Leasing.

                                      F-22
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

To define specific obligations of the Consortium the parties re-negotiated the
terms of the original Agreement and signed in May 2003 an additional agreement
which stipulated that the Consortium is obliged to perform certain actions which
should result in:

     o    Decreasing the Company's liabilities to RTC-Leasing in the amount not
          less than 1,800 within 6 months period;
     o    Selling shares of RTC-Leasing owned by Rostelecom and non-state
          pension fund "Rostelecom-Garantiya" for total amount of proceeds not
          to be less than 750 within 6 months period;
     o    Cancellation of all guarantees and pledges provided by Rostelecom in
          respect of loans payable by RTC-Leasing within 12 months period.

As of December 31, 2002, the Consortium had not provided any of the services
under the Agreement. As of December 31, 2002 none of the shares issued to the
Consortium were vested. The Group plans to recognize stock-based expense in
connection with the Agreement as services are provided. As of December 31, 2002,
the Group has not recognized stock-based compensation expense in connection with
the Agreement.

RTCL S.A. is a 100% subsidiary of RTC-Leasing established in 2000 under
legislation of Switzerland. The company was established with the purpose to
develop leasing activities of RTC-Leasing, maintain relationships with foreign
vendors and fundraising activities. The results of operations and net assets of
RTCL S.A. are consolidated by the Group from January 1, 2002, since in prior
years the results of operations and net assets of RTCL S.A. were not material.

In April 2002 RTCL S.A. acquired from AT&T for a cash payment of USD 33 million
(1,117 at the exchange rate at date of transaction) 94.9% of ordinary shares in
telecommunications holding company RTDC and all rights under the loan receivable
from RTDC of USD 48 million (1,615 at the exchange rate at date of transaction).
RTDC has significant investments in a number of Russian cellular
telecommunications companies which depending on the intentions of management
were accounted for as investments in associates (refer to Note 8) or investments
available-for-sale (refer to Note 13). The acquisition was accounted for as
business combination using the purchase method.

In October 2002 RTCL S.A. purchased the remaining 5.1% shares of RTDC for a cash
payment of USD 1.3 million (43 at the exchange rate at date of transaction) from
International Finance Corporation. After this purchase the Group owned 100% of
voting shares of RTDC. This transaction was accounted for as purchase of
minority interest using the purchase method. The results of operations and
financial position of RTDC were consolidated by the Group in the accompanying
consolidated financial statements beginning from April 2002.

At the date of acquisition in April 2002, RTDC owned 50% of ordinary shares of
Westelcom, which main activity is provision of international traffic transition
services. Rostelecom owned remaining 50% of ordinary shares, investment in which
was treated as an investment in associate using the equity method of accounting.
Therefore, in April 2002 the Group obtained control over financial and operating
policies of Westelcom. Accordingly, the results of operations and financial
position of Westelcom were consolidated by the Group beginning from April 2002.

For the purpose of accounting for acquisition the purchase price was split as
follows

Amount attributable to acquisition of RTDC                          839
Amount attributable to acquisition of Westelcom                     278
------------------------------------------------------------------------
Total purchase price                                              1,117
------------------------------------------------------------------------

                                      F-23
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

At the date of acquisition RTDC owned 92% of ordinary shares of AKOS, whose main
activity constitutes provision of cellular services in Primorskiy region of
Russia. The acquisition was accounted for using the purchase method.
Accordingly, the results of operations and financial position of AKOS were
consolidated by the Group beginning from April 2002.

The excess of fair value of the acquired identifiable net assets of RTDC and
AKOS over contribution paid (negative goodwill) was identified as follows:

<TABLE>
<CAPTION>
                                                       Acquisition of       Purchase of           Total
                                                       94.9% of shares       minority
                                                           of RTDC       interest in RTDC
-------------------------------------------------------------------------------------------------------
<S>                                                              <C>                 <C>
Purchase price                                                     839                 43           882
Transaction cost                                                     1                  -             1
-------------------------------------------------------------------------------------------------------
Total consideration                                                840                 43           883

Fair value of identifiable assets and liabilities:
         Property, plant and        equipment                       43                  37
         Long-term investments                                   2,063               1,163
         Other non-current assets                                    1                  13
         Accounts receivable                                       117                 108
         Cash                                                        9                  34
         Other current assets                                       33                  98
         Short-term liabilities                                  (436)               (197)
         Long-term liabilities                                 (1,899)               (101)
                                                              --------               -----
Total net assets (liabilities)                                    (69)               1,155
Share of the Group in net assets (liabilities)                   94.9%                5.1%
acquired
Fair value of acquired share of identifiable net                  (69)                  59         (10)
assets (liabilities)
Indebtedness of RTDC acquired                                    1,615                   -        1,615
-------------------------------------------------------------------------------------------------------
Negative goodwill                                                (706)                (16)        (722)
Amortization of negative goodwill from the date of
acquisition to December 31, 2002                                    85                  -            85
-------------------------------------------------------------------------------------------------------
Net book value of negative goodwill at December 31,
2002                                                             (621)               (16)         (637)
-------------------------------------------------------------------------------------------------------
</TABLE>

RTComm.RU was established in 2000. Initially, RTC-Leasing owned 100% of ordinary
shares of RTComm.RU. As of December 31, 2002 RTC-Leasing and Rostelecom owned
40% and 25% of voting shares of RTComm.RU, respectively. The main activity of
RTComm.RU is provision of Internet access services to enterprises and people.
The accompanying consolidated financial statements include assets and
liabilities of RTComm.RU as of December 31, 2002 and results of its operations
beginning from January 1, 2002. Net assets and results of operations of
RTComm.RU in earlier periods were not significant.

In October 2002, Rostelecom purchased 50% of ordinary shares of Westelcom from
RTDC for a cash payment of USD 15 million (489 at the exchange rate at date of
transaction). Management expects significant synergies from obtaining control
over the core assets of Westelcom. This transaction was accounted for as
purchase of minority interest using the purchase method. The share of the
Company in net assets of Westelcom became equal to 100% after completion of this
purchase.

In March 2002 RTC-Leasing acquired 80% of ordinary shares of ZAO Russian
Industrial Bank ("RIB") for a cash payment of 93. Acquisition was accounted for
using the purchase method. Accordingly, the results of operations and financial
position of RIB were consolidated by the Group beginning from March 2002. In
July 2002 RTC-Leasing acquired remaining 20% for 11. This transaction was
accounted for as purchase of minority interest using the purchase method. The
purpose of the acquisition was diversification of activities and expanding the
range of services provided by RTC-Leasing to its customers.

                                      F-24
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

The purchase price allocation to acquired identifiable net assets of Westelcom
and RIB was calculated as follows:

<TABLE>
<CAPTION>
                                                 Acquisition    Acquisition of   Acquisition  Acquisition    Total
                                                  of 50% of    minority interest  of 80% of   of minority
                                                  Westelcom    in Westelcom from     RIB      interest in
                                                                   minority                       RIB
                                                                shareholders of
                                                                  RTC-Leasing
------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                  <C>      <C>          <C>
 Purchase price                                          278                 330          93           11      712
 Pre-acquisition share in Westelcom                      553                   -           -            -      553
------------------------------------------------------------------------------------------------------------------
 Total consideration                                     831                 330          93           11    1,265

    Fair value of identifiable assets and
    liabilities (*):
          Property, plant and equipment                  852                 587           4            4
          Long-term investments                          131                 178           -            -
          Other non-current assets                         -                   -          10           11
         Accounts receivable                             139                 124           -            -
         Cash                                             28                   8       1,047          749
         Other current assets                             35                  21         958        1,006
         Short-term liabilities                        (171)                (73)     (1,943)      (1,698)
         Long-term liabilities                          (60)                 (20)          -            -
                                                    --------                ----   ---------     --------
 Total net assets                                        954                 825          76           72
 Share of the Group in net assets acquired              100%                 23%         80%          20%
 Fair value of acquired share of identifiable            954                 194          61           14    1,223
net assets
-------------------------------------------------------------------------------------------------------------------
 Goodwill                                              (123)                 136          32          (3)        42
 Amortization of goodwill from the date of                 8                 (4)         (8)           .1       (3)
acquisition to December 31, 2002
-------------------------------------------------------------------------------------------------------------------
 Net book value of goodwill at December 31, 2002       (115)                 132          24          (2)        39
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(*) - Except for a case of acquisition of 50% of Westelcom, in which
identifiable assets and liabilities were measured at the aggregate of fair
values to the extent of the Group's interest acquired in a business combination
(50%), and the Company's share in the pre-acquisition carrying amounts (50%).

The share of minority in the amount of cash paid by Rostelecom to RTDC for
shares of Westelcom was used as purchase price for the purposes of accounting
for goodwill in acquisition of minority interest in Westelcom.

Below is the unaudited pro forma information, which has been prepared as if all
2002 business combinations had occurred on January 1, 2001:

                                    2002 (Unaudited)    2001 (Unaudited)
-------------------------------------------------------------------------
Total assets                                79,167              83,472
Total revenue                               28,169              30,387
Net income                                     657               4,357
Earnings per share (Rubles)                   0.58                5.81

                                      F-25
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

8.   Investments in associates

Movements in investments in associates during the years ended December 31, 2002
and 2001 were as follows:

                                                                2002      2001
-------------------------------------------------------------------------------
Beginning of year                                             1,239     3,029
Additions, net of dividends received                          2,026         4
Share in results before income taxes                             11       (35)
Share of income taxes (Note 24)                                 (23)     (161)
Decrease due to consolidation of Westelcom                     (618)         -
Reclassification of investments in EDN Sovintel
and OAO Giprosvyaz (Note 13)                                       -   (1,598)
-------------------------------------------------------------------------------
End of year                                                   2,635     1,239
===============================================================================

Total gain /(loss) from associates in the consolidated statements of operations
is composed as follows:
<TABLE>
<CAPTION>
                                                                                           2002             2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>             <C>
Share in income (loss) of associates included in movements in investments in                 11             (35)
associates
Share in income of EDN Sovintel from 1 January 2002 through the date of
disposal (Note 13)                                                                          382                -
-----------------------------------------------------------------------------------------------------------------
Total gain /(loss) from associates                                                          393             (35)
-----------------------------------------------------------------------------------------------------------------
</TABLE>

Total share in income taxes of associates in the consolidated statements of
operations is composed as follows:

<TABLE>
<CAPTION>
                                                                                           2002             2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>              <C>
Share in income taxes of associates included in movements in investments in                  23              161
associates
Share in income taxes of EDN Sovintel from 1 January 2002 through the date of
disposal (Note 13)                                                                          110                -
-----------------------------------------------------------------------------------------------------------------
Total share in income taxes of associates                                                   133              161
-----------------------------------------------------------------------------------------------------------------
</TABLE>

Investments in associates as of December 31, 2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                                Voting share              2002             2001
                                                                    capital.          Carrying         Carrying
                                                                           %            amount           amount
 --------------------------------------------------------------------------------------------------------------
 <S>                                                            <C>                      <C>              <C>
 Westelcom                    Telecommunication services                 100                 -              618
                                                                  (2001: 50)
 Telmos                       Telecommunication services                  20               226              199

 Moscow Cellular                                                        45.5
 Communications ("MCC")       Mobile telecommunications          (2001: 23.5)              145              107
 Delta Telecom                Mobile telecommunications                 42.5               161                -
 Uralwestcom                  Mobile telecommunications                   49                67                -
 Golden Telecom, Inc., USA    Telecommunication services
 (refer to Note 13)                                                       15             1,874                -
 GlobalTel                    Satellite telecommunications
                                                                          51                 -                -
 Other                        Various                                                      162              315
 --------------------------------------------------------------------------------------------------------------
 Total investments in associates                                                         2,635            1,239
 ==============================================================================================================
</TABLE>

                                      F-26
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

All associates except for specially mentioned otherwise are registered in the
Russian Federation.

In April 2002 the Group obtained control over Westelcom (Note 7), therefore the
Group ceased to account for Westelcom using the equity method.

The Group owns 45.5% of shares of MCC, of which Rostelecom owns 23.5% and RTDC
owns 22%. In 2001 the Group assessed the recoverable amount of its investment in
MCC and determined that it was below its carrying amount. Impairment loss of 334
was recognized in 2001 and included in gain /(loss) from associates in the
accompanying consolidated statement of operations. As of December 31, 2002 the
Group determined that recoverable amount of investment in MCC increased due to
beginning of CDMA network development. As of December 31, 2002 the Group
reversed impairment loss of 55 recognized in prior period and included this
amount in gain /(loss) from associates.

The Group owns 51 per cent of the ordinary shares of GlobalTel, a Russian closed
joint stock company. GlobalTel was created in 1996 to provide access to a
US-based global mobile satellite telephone network. Since the time of its
launch, the global satellite network has experienced technical problems and low
subscriber interest, as the result of which GlobalTel has only recently
developed its operations beyond the development stage. The US owner of the
satellite network also owns the remaining 49 per cent of GlobalTel. The charter
of GlobalTel, its by-laws and the way GlobalTel historically conducted its
operations provide for substantive participation of both shareholders in the
economic activities of GlobalTel. The minority shareholder has effective veto
rights that would prevent the Group from causing GlobalTel to take an action
that is significant in the ordinary cause of its business. Because effective
control of GlobalTel does not rest with the Group, management accounts for the
investment in GlobalTel under the equity method. The Group recognized equity in
net losses of GlobalTel of 467 and 302 in 2001 and 2000, respectively. The Group
did not recognize its share in losses of GlobalTel in 2002 as the accumulated
share in losses of GlobalTel exceeded the investment of the Group in GlobalTel.
Loans and other accounts receivable from GlobalTel were fully provided for. Any
receipts from GlobalTel are recognized as income in the period they are
received.

Investments in Delta Telecom and Uralwestcom were acquired as a result of the
acquisition of RTDC by RTC-Leasing in 2002 (refer to Note 7).

The carrying amount of investments in associates in the accompanying
consolidated financial statements is equal to the Group's share of underlying
equity in the net assets of investee companies, except for investments in Golden
Telecom, Inc. ("Golden Telecom"). The initial investment in Golden Telecom was
valued at its market value (refer to Note 13). All associates have a December 31
balance sheet date.

Accounting policies of associates may not comply with accounting policies used
by the Group in preparation of the accompanying consolidated financial
statements. In the opinion of management, differences in accounting policies of
associates do not materially affect the identification of the Group's share in
income (loss) of associates.

                                      F-27
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

9.   Long-term financial investments

Long-term financial investments as of December 31, 2002 comprised the following:

                                                                2002
---------------------------------------------------------------------

Loans provided to associates and other companies                 204
Loans provided to customers                                       69
Notes receivable                                                 165
Other long-term financial investments                            140
---------------------------------------------------------------------
---------------------------------------------------------------------
Total long-term financial investments                            578
---------------------------------------------------------------------

Loans provided to associates and other companies include loans provided by the
Group to Uralwestcom (refer to Note 8) of 31.

Loans provided to customers represent loans provided by RIB to Russian
companies, mainly telecommunication and industrial, and to individuals.

Other long-term financial investments include investment in VolgaTelecom. As of
December 31, 2002 these investments are stated at fair value.

10.  Goodwill and negative goodwill

Goodwill was recognized in connection with acquisition of Westelcom and RIB and
represents the excess of the purchase price paid over the fair value of
identifiable net assets acquired.

Negative goodwill resulted from acquisition of the interest in RTDC and changes
in ownership interest in RTC-Leasing and represents the excess of the fair value
of the net identifiable assets acquired over the purchase consideration paid.

Goodwill and negative goodwill are amortized using straight-line method over
periods ranging from 3 to 10 years.

Portion of negative goodwill related to investments in associates classified as
available-for-sale shall be amortized to income when the underlying investments
are sold. In the opinion of the Group's management this method better reflects
the economic nature of the respective negative goodwill (refer to Note 13). This
respective portion was determined pro-rata to relative fair values of such
investments in the fair value of acquired identifiable net assets of RTDC and is
included as of December 31, 2002 in the current portion of negative goodwill in
the following amounts:

                                                                   2002
------------------------------------------------------------------------
Nizhegorodskaya Cellular Communication ("NCC")                    (228)
Eniseytelecom                                                     (117)
Baykalwestcom                                                     (110)
Other assets                                                       (16)
------------------------------------------------------------------------
------------------------------------------------------------------------
Total                                                             (471)
========================================================================

Amortization of goodwill and negative goodwill is included in administration and
other cost, except for amortization of negative goodwill related to
available-for-sale investments, which is included in income from sale of
investments in the consolidated statements of operations.

                                      F-28
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

11.  Lease receivables

As discussed in Note 7, the principal activity of RTC-Leasing is the leasing of
equipment to telecommunication companies. In prior years, the Company was a
principal lessee of such equipment. During 2002 RTC-Leasing concluded a number
of new agreements with companies, other than Rostelecom, including Russian
regional telecommunication companies of the Svyazinvest Group (see also Note 28)
as well as non-related entities.

As of December 31, 2002 and 2001 lease receivables comprised of the following:

----------------------------------------------------------------------------
                                                          2002         2001
----------------------------------------------------------------------------
Gross investment in leases                               4,200          638
Less: unearned finance lease income                     (1,508)        (220)
----------------------------------------------------------------------------
Net investment in leases                                 2,692          418
Equipment purchased for leasing purposes                 1,303          258
----------------------------------------------------------------------------
Total lease receivables                                  3,995          676
============================================================================
Including:
   Non-current portion of lease receivables              2,713          676
----------------------------------------------------------------------------
   Current portion of lease receivables                  1,282            -
============================================================================

Current portion of lease receivables is included in accounts receivable, net, in
the accompanying consolidated balance sheet (see also Note 12).

The table below provides the maturity profile of the future minimum lease
payments as of December 31, 2002:

--------------------------------------------------------------------------------
                                    Less than 1 year     1-5 years      Total
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Gross investment in leases                     1,515         2,685      4,200
================================================================================

12.  ACCOUNTS RECEIVABLE, net

Accounts receivable as of December 31, 2002 and 2001 comprised the following:

                                               2002             2001
---------------------------------------------------------------------
Trade accounts receivable                    7,192            8,336
Less: allowance for doubtful accounts       (2,214)          (1,825)
---------------------------------------------------------------------
Trade accounts receivable, net               4,978            6,511
Prepayments                                    218              563
Prepaid taxes                                1,447              505
Current portion of lease receivables         1,282                -
Other accounts receivable                      921              954
Less: allowance for doubtful accounts         (229)               -
---------------------------------------------------------------------
Other accounts receivable, net               3,639            2,022
---------------------------------------------------------------------
Total accounts receivable, net               8,617            8,533
=====================================================================

Trade accounts receivable, net of allowances for doubtful accounts, include
amounts totaling 1,027 (2001: 1,586) due from foreign telecommunications
operators which are denominated in foreign

                                      F-29
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

currencies, principally represented by Special Drawing Rights ("SDR") and US
Dollars, and amounts totaling 2,685 (2001: 3,086) due from local telephone
operators. As of December 31, 2002 and 2001 the carrying value of trade accounts
receivable was equal to their fair value.

The following table summarizes the changes in the allowance for doubtful
accounts for the years ended December 31, 2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                          2002             2001             2000
-----------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>              <C>
Balance, beginning of year                                              1,825            2,201            2,781
Impact of inflation on opening balance                                   (240)            (348)            (466)
Provision for / (recovery of) doubtful accounts                           863              (28)             361
Accounts receivable written-off                                            (5)                -            (475)
-----------------------------------------------------------------------------------------------------------------
Balance, end of year                                                    2,443            1,825            2,201
-----------------------------------------------------------------------------------------------------------------
</TABLE>

13.  short-term Investments

Short-term investments include investments available-for-sale, which are stated
at fair value (except for investment in EDN Sovintel, which was accounted for
using the equity method). Short-term investments comprised the following as of
December 31, 2002 and 2001:

                                                             2002        2001
------------------------------------------------------------------------------

     EDN Sovintel (Note 8)                                    -       1,493
     OAO Giprosvyaz (Note 8)                                  -         105
     Baykalwestcom                                          410           -
     Eniseytelecom                                          420           -
     NCC                                                    802           -
     VEB bonds (USD denominated)                             197        172
     Eurobonds (USD denominated)                            127           -
     Liquid bills of exchange                             2,085       1,317
      Bonds of the companies of the Svyazinvest Group
      (Ruble denominated)                                    69           -
     Other corporate securities (Ruble  denominated)
                                                             51           -
     Other                                                  414         151
------------------------------------------------------------------------------
Total short-term investments                              4,575       3,238
==============================================================================

Fair value of investments, which are traded on active markets, is based on the
market quotes for such investments. Fair value of investments, which are not
traded on active market, is based on estimated discounted future cash flows. The
discount rate is identified individually for each company and is based on the
weighted average cost of capital.

Transactions with financial instruments are recognized using settlement date
accounting. Assets are recognized on the day they are transferred to the Group
and derecognized on the day that they are transferred by the Group.

Income from sale of investments during the year ended December 31, 2002 was as
follows:

Income from sale of investment in EDN Sovintel                     1,733
Income from sale of investment in Dontelecom                         116
Loss from sale of other investments                                   (9)
----------------------------------------------------------------------------
Total income from sale of investments                              1,840
============================================================================

                                      F-30
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

In September 2002 the Company completed a sale of its 50% interest in EDN
Sovintel to Golden Telecom, Inc. Purchase consideration paid by Golden Telecom
comprised of cash of US$ 10 million (335 at the exchange rate as of the date of
transaction), no-interest bearing US$ 46 million promissory note (1,527 at the
exchange rate as of the date of transaction) settled in full amount in December
2002 and 4,024,067 ordinary shares of Golden Telecom (1,786 at average market
quotes at the transaction date). Ordinary shares of Golden Telecom were valued
at the average of NASDAQ closing quotes two days before and after the
measurement date, which was determined to be September 5, 2002. Transaction
costs amounted to 172. In connection with this sale the Company recognized a
gain of 1,733, which was included in income from sale of investments in the
consolidated statement of operations. In November 2002 two representatives of
Rostelecom have been elected to the Board of Directors of Golden Telecom.

Management believes that the Group has the ability to exercise significant
influence on the financial and operating activities of Golden Telecom, through
representation on its Board of Directors. Therefore, investments into Golden
Telecom are accounted for using the equity method.

The excess of purchase price paid for shares of Golden Telecom over the fair
value of identifiable net assets acquired in amount of 762 was identified and
shall be amortized over the period of 8 years. Amortisation charge of 32 is
included in gain /(loss) from associates (excluding related tax) in the year
ended December 31, 2002. The remaining part of 730 is included in carrying
amount of investment in Golden Telecom as of December 31, 2002.

In May 2002 the Company sold for 105 its 22% interest in the voting capital of
OAO Giprosvyaz to one of the companies of the Svyazinvest Group.

In September 2002 the Group sold for 246 its 33.3% interest in ordinary shares
of Dontelecom, an entity acquired as part of the acquisition of RTDC, to
unrelated party. Income from the transaction amounted to 116 and was included in
income from sale of investments in the consolidated statement of operations.

Investments in Baykalwestcom (49% of voting shares), Eniseytelecom (49% of
voting shares) and NCC (50% of voting shares) were acquired by the Group as part
of the acquisition of RTDC (Note 7) and were targeted to be sold in the near
future to the companies of the Svyazinvest Group (refer to Note 33).

Vnesheconombank (VEB) bonds are bearer securities guaranteed by the Ministry of
Finance of Russia, and are commonly referred to as "MinFin Bond". The bonds
carry an annual coupon interest rate of 3%. Vnesheconombank bonds are stated at
market value based on quotations obtained from the over the counter market.

The Group invests temporarily available funds in bills of exchange issued by
various Russian companies maturing within 12 months after the balance sheet date
or with no fixed maturity, which the Group plans to sell during one year. The
bills of exchange bear interest in the range from 5.5% to 17.5% and are
denominated in Rubles, as well as in foreign currencies. The Group uses bills of
exchange as a financial instrument primarily for the purpose of receiving
financial income.

                                      F-31
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

14.  CASH AND CASH EQUIVALENTS

Cash and cash equivalents as of December 31, 2002 and 2001 included cash on hand
and in bank accounts as follows:
                                                           2002     2001
-------------------------------------------------------------------------
Cash on hand                                                 19        2
Cash at bank - Rubles                                       227      899
Cash at bank - Foreign currencies                           572      413
Short term deposits - Rubles                              1,447      617
                    - Foreign currencies                     96      277
Current account with the Central Bank of Russia             433        -
Obligatory reserves with the Central Bank of Russia         171        -
Time deposit with the Central Bank of Russia                355        -
Letters of credit                                           322       14
-------------------------------------------------------------------------
                                                          3,642     ,222
=========================================================================

Cash at bank in foreign currencies includes amounts of 120 (2001: 261) held in
escrow accounts on behalf of providers of loans to the Company.

15.  SHAREHOLDERS' EQUITY

Share capital

The authorized share capital of the Company as of December 31, 2002 and 2001
comprised 1,634,026,541 ordinary and 242,832,000 non-redeemable preferred
shares. The par value of both ordinary and preferred shares amounted to Rbl
0.0025.

As of December 31, 2002 and 2001 the issued and outstanding share capital was as
follows:

<TABLE>
<CAPTION>
                                                                   Number             Nominal          Indexed
                                                                 of Shares               Value            Value
----------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                       <C>                 <C>
Ordinary Shares, Rbl 0.0025 par value                          728,696,320               1.822               75
Preferred Shares, Rbl 0.0025 par value                         242,831,469               0.607               25
----------------------------------------------------------------------------------------------------------------
Total                                                          971,527,789               2.429              100
================================================================================================================
</TABLE>

There were no share transactions during 2002 and 2001.

The Board of Directors of Rostelecom is authorized under its Charter to issue
additional ordinary shares up to the total of the authorized share capital
without further shareholder approval.

The share capital of the Company on its incorporation has been indexed, to
account for the effects of inflation from that date. The share capital in the
Russian statutory accounts at December 31, 2002 and 2001 amounted to 2,428,819
nominal Rubles.

Ordinary shares carry voting rights with no guarantee of dividends.

                                      F-32
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Distributions

Preferred shares have priority over ordinary shares in the event of liquidation
but carry no voting rights except on resolutions regarding liquidation or
reorganization of the Company, changes to dividend levels of preferred shares,
or the issuance of additional preferred stock. Such resolutions require
two-thirds approval of preferred shareholders. The preferred shares have no
rights of redemption or conversion.

Preferred shares carry dividends amounting to the higher of 10% of the net
income after taxation of the Company as disclosed in the Russian statutory
accounts divided by the number of preferred shares and the dividends paid on one
ordinary share. Owners of preferred shares have the right to participate in and
vote on all issues within the competence of general meetings following the
annual general meeting at which a decision not to pay (or to pay partially)
dividends on preferred shares has been taken.

In a case of liquidation, the property remaining after settlement with
creditors, payment of preferred dividends and redemption of the par value of
preferred shares is distributed among preferred and ordinary shareholders
proportionately to number of owned shares.

Distributable earnings of all entities included in the Group are limited to
their respective retained earnings, as mandated by statutory accounting rules.
Statutory retained earnings of the Company as of December 31, 2002 and 2001
amounted to 6,797 and 4,376, respectively.

Treasury Shares

In accordance with the Company's Charter, Rostelecom is permitted to repurchase,
on the open market, ordinary and preferred shares as long as 90% of the nominal
value of its issued Charter Capital remains in circulation. Repurchased shares
must either be sold or cancelled within one year of being purchased.

Dividends

Dividends payable to holders of preferred and ordinary shares in respect of the
years ending December 31, 2001 and 2000 were as follows:

                                          2001          2000
-------------------------------------------------------------
Proposed dividend - preferred shares       235           124
Proposed dividend - ordinary shares        164           145
-------------------------------------------------------------
                                           399           269
=============================================================

                                           Rbl           Rbl
Proposed dividend per preferred share     0.96          0.52
=============================================================
Proposed dividend per ordinary share      0.22          0.20
=============================================================

In April 2003, the Board of directors of the Company proposed the dividends in
respect of 2002. Ordinary shares dividends amounted to 0.54 Ruble per share
(396) and dividends on the preferred shares amounted to 1.27 Ruble per share
(310). The accompanying consolidated financial statements do not reflect the
dividend payable in respect of 2002, which will be accounted for in
shareholders' equity as an appropriation of retained earnings in the year ending
December 31, 2003.

                                      F-33
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

16.  MINORITY INTEREST

                                                              2002       2001
-----------------------------------------------------------------------------
At beginning of year                                         1,929      1,530
Minority interest in net assets of acquired subsidiaries       224          -
Minority interest in net income  of subsidiaries             1,071        322
Dividends paid to minority shareholders of subsidiaries       (129)      279
Purchase of minority interest                                  (79)     (202)
Re-purchase of own preferred shares by subsidiary             (191)         -
-----------------------------------------------------------------------------
At the end of year                                           2,825      1,929
=============================================================================

17.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following as of December
31, 2002 and 2001:
                                   2002             2001
--------------------------------------------------------
Trade accounts payable            3,114            3,364
Accrued expenses                  1,865            2,179
Compensation related accruals       135              238
Notes payable                         -               58
Dividends payable                    48               23
--------------------------------------------------------
Total accounts payable
and accrued expenses              5,162            5,862
========================================================

Trade accounts payable include amounts totaling 1,832, which are denominated in
foreign currencies, principally represented by Special Drawing Rights and US
Dollars (2001: 2,197).

18.  INTEREST BEARING LOANS

The interest bearing loans as of December 31, 2002 and 2001 were as follows:

                                                        2002             2001
-----------------------------------------------------------------------------
Maturity
Current portion of interest bearing loans              4,529            6,709
-----------------------------------------------------------------------------

Between one to two years                                 919              797
Between two to three years                               641              294
Between three to four years                              479                -
Between four to five years                               278                -
Greater than five years                                    -                -
-----------------------------------------------------------------------------
Non-current portion of interest bearing loans          2,317            1,091
-----------------------------------------------------------------------------
Total interest bearing loans                           6,846            7,800
=============================================================================

                                      F-34
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

As of December 31, 2002 and 2001 interest bearing loans, which are mostly
denominated in foreign currencies are summarized as follows:

                                       Note                2002             2001
--------------------------------------------------------------------------------
US Dollars (US$)                       (a)                  826            2,183
German Marks (DM)                                             -              114
Japanese Yen (JPY)                     (b)                3,089            3,163
EURO                                   (c)                  150            1,014
                                               ---------------------------------
Foreign currency denominated loans                        4,065            6,474

Russian Ruble denominated loans        (d)                2,781            1,326
--------------------------------------------------------------------------------

Total interest bearing loans                              6,846            7,800
================================================================================

As of December 31, 2002 the Group had the following loans outstanding:

a)   This includes the following amounts:

Rostelecom:
     o    US$ 15.95 million, (507), on a credit agreement between Rostelecom and
          Sumitomo Corporation entered into in March 1997. The loan is secured
          by the related equipment and by cash balances deposited in designated
          escrow accounts, and is repayable in quarterly installments with the
          final payment due not later than July 2005. Interest is payable at
          LIBOR plus 3.2%. The purpose of the loan is financing of construction
          of fiber optic cable line Novosibirsk - Khabarovsk. Current portion is
          263.

RTC-Leasing:
     o    US$ 1.4 million (46) within a credit line provided by ING Bank
          (Eurasia) with maximum amount of USD 4.3 million. Maturity date is
          October 12, 2003. Interest rate equals LIBOR multiplied by 365/360
          plus 6% p.a. The loan is secured by a guarantee of Rostelecom. Also,
          the Group pledged its telecommunication equipment leased out to
          Rostelecom and RTComm.RU. The entire balance relates to current
          portion.

     o    US$ 2.9 million (93) within a credit line provided by ING Bank
          (Eurasia) with maximum amount of USD 10 million. Maturity date is
          March 31, 2004. Interest rate equals 15% p.a. The loan is secured by a
          guarantee of Rostelecom. 81 relates to current portion.

     o    US$ 1.6 million (52) within a credit line provided by Russian
          Commercial Bank, Zurich, Switzerland, with maximum amount of USD 1.9
          million. Maturity date is March 21, 2005. Interest rate equals
          LIBOR/0.95 plus 6.316% p.a. 21 relates to current portion.

     o    US$ 3.1 million (98) within a credit line provided by Vneshtorgbank
          with maximum amount of USD 4.1 million. Maturity date is July 6, 2004.
          Interest rate equals LIBOR plus 8% p.a. The loan is secured by a
          guarantee of OAO MGTS. Also, the Group pledged its telecommunication
          equipment leased out to OAO MGTS. 49 relates to current portion.

     o    US$ 0.9 million (29) on a credit line agreement for JPY 259 million
          with ING Bank Eurasia open to August 2004. Annual interest rate equals
          LIBOR plus 3.5%. The loan is guaranteed by Rostelecom. 17 relates to
          current portion.

                                      F-35
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------


b)   This includes the following amounts

Rostelecom:
     o    JPY 11,601 million, (3,089), on a credit agreement between Rostelecom
          and Vnesheconombank entered into in 1994. It was repayable in equal
          annual installments of JPY 2,105 million, with a final payment due not
          later than October 2001. The Government decree provides for the
          possibility of a restructuring of Government's debts administered by
          Vnesheconombank over a 10-year period at an interest rate of 3% per
          annum. In accordance with the provisions of the decree, in 2001 the
          Group entered in negotiations with respect to restructuring this
          credit agreement on said terms. As of December 31, 2002 and 2001 the
          Group was in technical default on payments of principal and interest.
          In 2002 the Group repaid several other loans totaling 1,909 which
          contained cross default provisions and therefore were also technically
          defaulted. As of December 31, 2002 the Group does not have loans which
          contain cross default provisions. In 2003, the Ministry of Finance of
          the Russian Federation rejected the restructuring. As of June 6, 2003,
          the Group restructured this credit agreement (refer to Note 33). The
          entire amount of the loan was classified as current obligation.

c)   This includes the following amounts

Rostelecom:
     o    EURO 1.85 million, (61), on a credit agreement between Rostelecom and
          Vnesheconombank entered into in June 1995. It is repayable in
          semi-annual installments of EURO 0.46 million each with a final
          payment due not later than August 2004. The loan is taken for the
          purchase of EWSD automatic switches. The loan is secured by guarantee
          of Government of Russia. 33 relates to current portion.

     o    EURO 0.3 million, (11), on a credit agreement between Rostelecom and
          Vnesheconombank entered into in March 1996. It is repayable in
          semi-annual installments of EURO 0.3 million each with a final payment
          due not later than February 2003. The loan is taken for the purchase
          of telecommunication equipment. The loan is secured by the guarantee
          of the Government of the Russian Federation. In February 2003 the
          Company repaid the loan. 11 relates to current portion.

RTC-Leasing:
     o    A loan of EURO 2.6 million (78) provided by ING Bank (Eurasia) under
          financing agreement secured by assignment of monetary claim. Also, the
          Group pledged its telecommunication equipment purchased for leasing to
          CenterTelecom. Maturity date is April 30, 2003. Interest rate equals
          EURIBOR plus 5% p.a. 78 represents current portion. In April 2003 the
          loan was repaid.

d)   This includes the following amounts:

Rostelecom:
     o    50 on a credit agreement between Rostelecom and Sberbank entered into
          in April 1999. It is secured by the equipment and repayable in
          quarterly installments on principal and monthly installments on
          interest with the final payment in April 2002. Interest is payable at
          20%. The loan was taken for the purchase of telecommunication
          equipment. In March 2002, the loan was restructured to allow equal
          principal repayments through December 2003, beginning July 2002. In
          March 2003 an interest rate was reduced to 16%.

                                      F-36
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

RTC-Leasing:
     o    70 on a credit line provided by Sberbank with maximum amount of USD 30
          million (953) maturing on January 20, 2003. The interest rate equals
          20% p.a. The loan is secured by a guarantee of Rostelecom. Also, the
          Group pledged its telecommunication equipment leased out to
          Rostelecom. The loan is denominated in rubles at the exchange rate as
          of the date when corresponding portion of the loan is received. 70
          relates to current portion. In January 2003, the loan was fully
          repaid.

     o    98 on a credit line provided by Sberbank with maximum amount of USD 35
          million (1,112) maturing on February 10, 2003. The interest rate
          equals 20% p.a. The loan is secured by a guarantee of Rostelecom.
          Also, the Group pledged its telecommunication equipment leased out to
          Rostelecom. The loan is denominated in rubles at the exchange rate as
          of the date when corresponding portion of the loan is received. 98
          relates to current portion. In February 2003, the loan was fully
          repaid.

     o    764 on a credit line provided by Sberbank with maximum amount of USD
          30.3 million (963) maturing on August 12, 2006. The interest rate
          equals 20% p.a. The loan is denominated in rubles at the exchange rate
          as of the date when corresponding portion of the loan is received. The
          Group pledged its telecommunication equipment leased out to Megafon.
          The balance amounting to 218 represents current portion.

     o    152 on a credit line provided by Sberbank with maximum amount of 152
          million rubles maturing on April 14, 2003. The interest rate equals
          18% p.a. The Group pledged its telecommunication equipment leased out
          to Rostelecom. The balance amounting to 152 represents current
          portion. In April 2003, the loan was fully repaid.

     o    66 on a credit line provided by Sberbank with maximum amount of 66
          million rubles maturing in October 2003. The interest rate equals 18%
          p.a. The Group pledged its telecommunication equipment leased out to
          Rostelecom. 66 relates to current portion.

     o    287 on a credit line provided by Sberbank with maximum amount of 489
          maturing on August 15, 2007. The interest rate equals 20% p.a. The
          Group pledged its telecommunication equipment leased out to
          Uralsvyazinform. 34 relates to current portion.

     o    226 on a credit line provided by Sberbank with maximum amount of 314
          maturing on August 7, 2007. The interest rate equals 20% p.a. The
          Group pledged its telecommunication equipment leased out to Southern
          Telecommunication Company. 27 relates to current portion.

     o    307 on a credit line provided by Sberbank with maximum amount of 583
          maturing on August 15, 2007. The interest rate equals 20% p.a. The
          Group pledged its telecommunication equipment leased out to
          CenterTelecom. 36 relates to current portion.

     o    56 on a credit line provided by Sberbank with maximum amount of 540
          maturing on August 15, 2007. The interest rate equals 20% p.a. The
          Group pledged its telecommunication equipment leased out to
          Severo-Zapadniy Telecom. 7 relates to current portion.

     o    260 on a credit line provided by Sberbank with maximum amount of 631
          maturing on August 15, 2007. The interest rate equals 20% p.a. The
          Group pledged its telecommunication equipment leased out to
          VolgaTelecom. 31 relates to current portion.

     o    90 on a credit line provided by Sberbank with maximum amount of 309
          maturing on August 15, 2007. The interest rate equals 20% p.a. The
          Group pledged its telecommunication equipment leased out to Dalsvyaz.
          11 relates to current portion.

     o    347 on a credit line provided by Sberbank with maximum amount of 1,090
          maturing on August 15, 2007. The interest rate equals 20% p.a. The
          Group pledged its telecommunication equipment leased out to
          Sibirtelecom. 41 relates to current portion.

                                      F-37
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Other loans of the Group, all Ruble denominated, amount to 9.

As of December 31, 2002 and 2001, the weighted average interest rates of loans
were 11.7% and 9.4%, respectively. Under IAS 39, "Financial Instruments:
Recognition and Measurement", loans should be reflected in the financial
statements at amortized cost, i.e. the amount at which they were measured at
initial recognition less principal repayments, plus or minus the cumulative
amortization of any difference between that initial amount and the maturity
amount. The carrying amount of debts equals their amortized cost.

The Group does not utilize financial instruments to hedge against its exposure
to fluctuations in interest and foreign exchange rates.

During 2002 the Group early extinguished loans payable to Telecom Italy (337)
and Merrill Lynch (612) which contained cross default provisions. There was no
gain or loss on these extinguishments.

During October - November 2002 the Group early extinguished the loan payable to
Siemens AG of EURO 31.6 million (986). The transaction involved RTCL Cyprus and
T&IB Equities (Cyprus) Limited, the subsidiary of the commercial bank Trust and
Investment Bank (Russia). Gain from the transaction of 230 is included into
other non-operating income, net, in the consolidated statement of operations.

19.  SHORT-TERM BORROWINGS

During 2001, RTC-Leasing placed two issues of short-term bonds payable. The
first issue of 500,000 bonds with par value of 1,000 Rubles each was placed and
redeemed during 2001.

The second issue of 1,000,000 bonds with par value of 1,000 Rubles each was sold
at par in October 2001. Interest was fixed at 23% per annum. The bonds were
redeemed in October 2002.

In November 2002 RTC-Leasing issued 1,500,000 bonds with par value of 1,000
Rubles each and sold them at par. The bonds mature in November 2004 with early
redemption option exercisable in November 2003, which was approved by the Board
of directors of RTC-Leasing. Annual interest on bonds is 18% and 16% for the
first and second years, respectively, payable semi-annually. The principal
amount of the bonds of 1,485 is included in short-term borrowings in the
accompanying consolidated balance sheet as of December 31, 2002.

                                      F-38
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

20.  INCOME TAXES

The components of net deferred tax assets and liabilities at December 31, 2002
and 2001, and the movement during 2002, were as follows:

<TABLE>
<CAPTION>
                                                                  December 31,   Movement during    December 31,
                                                                          2001          the year            2002
-----------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>             <C>               <C>
Tax effects of future tax deductible items (temporary differences):

Accounts payable                                                           892             (668)             224

-----------------------------------------------------------------------------------------------------------------
Gross deferred tax asset                                                   892             (668)             224
-----------------------------------------------------------------------------------------------------------------

Tax effects of future tax liability items (temporary differences):
Property, plant and equipment, net                                       8,624                80           8,704
Accounts receivable                                                        896             (704)             192
Investment valuation difference                                            434               15              449
Leasing arrangements                                                     1,946             (931)           1,015
Other                                                                      241              (74)             167
-----------------------------------------------------------------------------------------------------------------

Gross deferred tax liability                                            12,141           (1,614)          10,527
-----------------------------------------------------------------------------------------------------------------

Net deferred tax liability                                              11,249             (946)          10,303
-----------------------------------------------------------------------------------------------------------------
</TABLE>

Differences between IFRS and statutory taxation and reporting regulations give
rise to certain temporary differences between the carrying value of certain
assets and liabilities for financial reporting purposes and for profits tax
purposes. The tax effect of these temporary differences is recorded at the rate
of 24%, which became effective beginning January 1, 2002, 9%, 35% and 4.25%
applicable to the Company and its subsidiaries incorporated in Russia,
Switzerland, the United States of America and Cyprus, respectively.

The net movement of deferred tax assets and liabilities was as follows during
the year ended December 31, 2002:

Deferred tax benefit (Note 24)                                    1,593
Deferred tax liabilities of acquired subsidiaries                  (647)
-------------------------------------------------------------------------
Total movement during the year                                      946
=========================================================================

Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities,
and the deferred income tax assets and deferred income tax liabilities relate to
the income taxes levied by the same fiscal authority on the same taxable entity.

Income taxes payable and receivable as of December 31, 2002 and 2001 were as
follows:
                                                     2002             2001
---------------------------------------------------------------------------

Income tax payable                                  (184)            (374)
Income tax receivable                                818              144

Income taxes payable and receivable are included in taxes payable and other
accounts receivable, respectively, in the accompanying consolidated balance
sheets.

                                      F-39
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

21.  REVENUE

Revenue comprised the following for the years ending December 31, 2002, 2001 and
2000:

                                        2002             2001             2000
-------------------------------------------------------------------------------
Revenue from local operators
Telephone - international              5,025            5,364            4,086
Telephone - national                   5,895            5,016            4,673
Other income from local operators      3,096            2,957            3,497
-------------------------------------------------------------------------------
                                      14,016           13,337           12,256
-------------------------------------------------------------------------------

Revenue from subscribers
Telephone - international              3,462            4,951            6,318
Telephone - national                   3,513            3,697            4,040
Internet access                          849                -                -
Cellular services                         89                -                -
-------------------------------------------------------------------------------
                                       7,913            8,648           10,358
-------------------------------------------------------------------------------

Revenue from foreign operators
Telephone                              4,250            6,018            8,128
Telex, telegraph and other               622              571              830
Leased lines                             228              263              902
-------------------------------------------------------------------------------
                                       5,100            6,852            9,860
-------------------------------------------------------------------------------

Other revenue                          1,112            1,432            1,611
-------------------------------------------------------------------------------
Total revenue                         28,141           30,269           34,085
===============================================================================

                                      F-40
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

22.  SEGMENT INFORMATION

In years prior to 2002 the Group operated in one industry segment, being the
provision of intercity and international telecommunications services in the
Russian Federation, since there were no banking and investing operations,
leasing outside the Group was immaterial. Since 2002, the Group operates in
several industry segments, as shown below:

<TABLE>
<CAPTION>
                                    Telecommuni-cations     Leasing      Banking and Eliminations   Consolidated
                                                                           Investing
-----------------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>               <C>      <C>            <C>
Revenue from external customers             27,821            297               23            -         28,141
Inter-segment revenue                            -          2,257                -       (2,257)             -
-----------------------------------------------------------------------------------------------------------------
Total revenue                               27,821          2,554               23       (2,257)        28,141
-----------------------------------------------------------------------------------------------------------------

Segment depreciation and
amortization                                (9,099)            (5)              (2)           -         (9,106)
Bad debt expense                              (863)             -                -            -           (863)
Segment result                                1,911          2,273            (154)      (2,275)          1,755
-----------------------------------------------------------------------------------------------------------------
Operating profit                              1,911          2,273            (154)      (2,275)         1,755
-----------------------------------------------------------------------------------------------------------------
Interest expense                            (2,839)          (473)            (133)       2,576           (869)
Interest income                                329              -               402        (301)           430
Gain from associates                            418             -                49         (74)           393
Foreign exchange loss, net                                                                                (983)
Monetary gain                                                                                              165
Income from sale of investments                                                                          1,840
Other non-operating income, net                                                                            556
Income tax expense                            (928)          (480)            (130)            -        (1,538)
Minority interest                                                                                       (1,071)
-----------------------------------------------------------------------------------------------------------------
Net income for the year                                                                                    678
-----------------------------------------------------------------------------------------------------------------

Segment assets                               69,912         10,509            3,030      (7,008)        76,443
Income tax asset (current and
deferred)                                      818              -                -            -            818
Investments in associates                     2,407             -               305         (77)         2,635
Goodwill                                        17              -               22            -             39
Negative goodwill                                -              -             (711)           -           (711)
-----------------------------------------------------------------------------------------------------------------
Total assets                                 73,154         10,509            2,646      (7,085)        79,224
-----------------------------------------------------------------------------------------------------------------

Segment liabilities                          15,821          6,486            1,580      (7,008)         16,879
Income tax liability (current and
deferred)                                     9,560            251              676           -          10,487
-----------------------------------------------------------------------------------------------------------------
Total liabilities                            25,381          6,737            2,256      (7,008)        27,366
-----------------------------------------------------------------------------------------------------------------

Capital expenditure                           2,679             16               1            -          2,696
</TABLE>

An analysis of revenue by service type is disclosed in Note 21. A geographical
analysis of revenue by the country or region of the customer for the years
ending December 31, 2002, 2001 and 2000 was:

        Russia      CIS    USA    Western    Eastern    Others     Total
                                   Europe     Europe
-------------------------------------------------------------------------

2002    23,041    2,846    403        881        240       730    28,141
2001    23,417    3,752    375      1,448        419       858    30,269
2000    24,225    3,270    799      2,232        981     2,578    34,085

                                      F41
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Other segments' revenue is principally earned in Russia.

The Group had no individual customers, other than the Government of the Russian
Federation and its related parties (see Note 28), that accounted for greater
than 10% of its revenue during the years ended December 31, 2002, 2001 and 2000.

Substantially all of the Group assets are located within the territory of the
Russian Federation.

23.  OTHER NON-OPERATING INCOME, NET

Other non-operating income, net, consisted of the following for the years ending
December 31, 2002, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                       2002             2001             2000
--------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                <C>              <C>
Unrealized gain on available-for-sale investments                      304               48               92
Unrealized loss on available-for-sale investments                     (109)               -                -
Fair value of contributions received                                   103                -                -
Gain on early extinguishment of loans payable                          230                -                -
Other non-operating gain, net                                           28               36                -
--------------------------------------------------------------------------------------------------------------
                                                                       556               84               92
==============================================================================================================
</TABLE>

In October 2002 the Company received telecommunication equipment from the
company, which is not a related party, free of charge. Fair value of the
equipment was estimated as equal to 103. The Group recognized fair value of the
contribution received in other non-operating income, since the contribution was
unconditional and the equipment could be utilized to generate future revenue.

24.  INCOME TAX EXPENSE

The components of income tax expense for the years ending December 31, 2002,
2001 and 2000 were as follows:

                                               2002        2001       2000
---------------------------------------------------------------------------
Current income taxes                         2,998       2,987      2,229
Deferred tax (benefit)/charge (Note 20)     (1,593)     (4,029)     2,644
Share of tax of associates (Note 8)            133         161        215
---------------------------------------------------------------------------
Income tax expense /(benefit)                1,538        (881)     5,088
==========================================================================

                                      F-42
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

The reconciliation of the theoretical amount that would arise using the Russian
statutory rates (24% for 2002, 35% for 2001, and 30% for 2000) to the total
actual income tax were as follows for the years ending December 31, 2002, 2001
and 2000:

<TABLE>
<CAPTION>
                                                                        2002             2001             2000
---------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>             <C>               <C>
Income tax expense at statutory rate                                    789             1,417            1,145
Non-temporary elements of monetary loss                               1,537             3,320            3,030
Effect of change in tax rate on deferred tax balance                       -          (5,000)            2,183
Tax losses utilized in the year not previously recognized
as deferred tax assets                                                     -                -            (203)
Other non-deductible expenses                                           689             1,802            1,050
Inflation effect on deferred tax balance at beginning of
year                                                                 (1,477)          (2,420)           (2,117)
---------------------------------------------------------------------------------------------------------------
Income tax expense /(benefit)                                         1,538             (881)            5,088
===============================================================================================================
</TABLE>

Other non-deductible expenses comprise various costs that are non-deductible for
Russian profits tax purposes, including certain employee costs, promotional
expenditures, travel expenditures in excess of certain statutory allowances and
losses on operations with certain bills of exchange.

25.  EMPLOYEES

The average number of employees during the year was 31,729 (2001: 35,410). The
Group has agreed with the Central Committee of the Telecommunications Trade
Union of Russia to make payments to employees with fifteen or more years
service, on retirement, amounting to no less than 2 months' salary as at the
date of retirement. Further, the Company, at its discretion, makes payments to
employees with less than 15 years service, on retirement, or who otherwise leave
the employment of the Group. These obligations, which are unfunded, represent
obligations under a defined benefit pension scheme. An accrual of 80 (2001:
149), representing the net present value of the future benefits the Group
expects to pay, has been included in compensation related accruals as of
December 31, 2002.

26.  Earnings per share

In accordance with IAS 33, "Earnings per share", the calculation of basic and
diluted earnings per ordinary share is based on net profit for the period
attributable to ordinary shareholders (net profit for the period less dividends
on preferred shares) of 443 (2001: 4,483, 2000: (2,717)) divided by the weighted
average number of ordinary shares outstanding during the year of 728,696,320
(2001: 728,696,320, 2000: 706,584,862). There are no potentially dilutive
securities, therefore, diluted earnings per share equal basic earnings per
share.

27.  FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the amount at which a financial instrument could be exchanged in a
current transaction between willing parties, other than in a forced sale or
liquidation, and is best evidenced by a quoted market price.

For monetary assets and liabilities, the carrying amounts approximate their fair
value and balance sheet items denominated in foreign currencies have been
translated at appropriate period end exchange rates.

                                      F-43
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

The carrying amounts of cash and cash equivalents approximate their respective
fair values due to their short-term nature and negligible credit losses.

28.  RELATED PARTY TRANSACTIONS

(a)  The Government and OAO Svyazinvest as shareholder

As indicated in Note 1, the immediate parent company of the Group is Svyazinvest
which holds 50.67% of the voting capital of the Company, and its representatives
comprise a majority of the Board of Directors. The Government of the Russian
Federation in turn holds 75% of the voting capital of Svyazinvest and therefore
is the ultimate owner of the Group. It is a matter of Government policy to
retain a controlling stake in sectors of the economy, such as
telecommunications, that it views as strategic.

In the past, a number of Government statements have indicated that it is
considering restructuring the telecommunications sector controlled by
Svyazinvest. No action with respect to the Group has so far been taken (refer to
Note 30).

(b) Interest of the Government in the telecommunications sector in the Russian
Federation and the protection of that interest

Effective telecommunications and data transmission are of great importance to
Russia for various reasons including economic, social, strategic and national
security considerations. The Government therefore has exercised and may be
expected to exercise significant influence over the operations of the
telecommunications sector and consequently, the Group. The Government, acting
through the Ministry of Communications and the Anti-Monopoly Committee, has the
general authority to regulate domestic tariffs, and does regulate tariffs to a
limited extent. The Ministry of Communications has control over the licensing of
providers of telecommunications services.

(c) Transactions with the Svyazinvest Group

The Svyazinvest Group uses the Group's network to carry traffic between its
regional and other operators and to and from these regional operators, and to
and from international operators.

The Group uses the regional networks of the Svyazinvest Group to complete calls
and other traffic including that originating from its direct subscribers in the
city of Moscow.

Tariffs for services between the Company and the Svyazinvest Group are
materially affected with governmental regulation as disclosed in paragraph (b)
of this note.

In 2002 the Group, acting as a lessor, entered in a number of lease agreements
with companies of the Svyazinvest Group.

                                      F-44
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

The amounts of revenue and costs relating to the transactions with the
Svyazinvest Group were as follows:

<TABLE>
<CAPTION>
                                                                        2002             2001              2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>               <C>
Revenue                                                               9,394            8,047             7,721
Expenses related to services provided by other network                 (264)            (144)             (116)
operators
Administration and other costs                                         (160)               -                 -
</TABLE>

In addition, Svyazinvest participates in the dividends declared in the year,
commensurate with its shareholding.

The amounts of receivables and payables due from the Svyazinvest Group were as
follows:

                                             2002     2001
----------------------------------------------------------
Lease receivables - non-current portion       972        -
Lease receivables - current portion           688        -
Long-term financial investments               140        -
Short-term investments                         69        -
Amounts owed to customers                   (662)        -
Accounts receivable, net                    1,879      976

There are no trade payables due to the Svyazinvest Group.

(d) Transactions with the Government

Other state bodies ("Budget Organizations"), such as the Ministry of Defense and
entities affiliated to the Government, primarily state controlled TV and radio
companies, use the Group's network to carry communications traffic and to
broadcast across the country. In some cases, the service is in the nature of
leased lines for which the Group charges below market rates.

The revenues arising from these services were as follows:

                  2002               2001                2000
-------------------------------------------------------------
Revenue          1,211                571                 489

The amounts of receivables due from such organizations were as follows:

                                  2002               2001
---------------------------------------------------------
Accounts receivable, net           563                802

There are no payables due to such organizations.

The Government also uses the Group's expertise in acquiring communications
equipment for various budget organizations. No charge is levied for these
services.

                                      F-45
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

(e)  Transactions with Investees

The Group also transacts a wide variety of business with entities and companies
in which it has investments, including associates over which it exerts
significant influence. Such business includes telecommunications services,
leasing telecommunication equipment and the provision of pension arrangement to
employees. In the opinion of the directors, such business is conducted on arms'
length terms and at rates prevailing in the open market.

A summary of these transactions is as follows:

                                            2002      2001      2000
--------------------------------------------------------------------
Lease income                                   -       74        28
Charges by network operators - national     (26)     (437)     (191)
Pension payments                            (85)     (167)     (182)

Amounts included in the consolidated balance sheets relating to the operations
with these entities were as follows:

                                               2002     2001
------------------------------------------------------------
Accounts payable                               (12)     (97)
Lease receivables                                -      113
Accounts receivable, net                        69      578
Loans receivable                                60        -
Leased property, plant and equipment             -      759

(f)  Directors' remuneration

During the year the Board of Directors consisted of the following members:

Until June 1, 2002                      Until December 31, 2002
----------------------------------------------------------------------------

Yashin V.N.                             Yashin V.N.
Belov V.Y.                              Belov V.Y.
Yemelianov N.P.                         Yemelianov N.P.
Vasin V.S.                              Kuznetsov S.I.
Lopatin A.V.                            Lopatin A.V.
Osipchuk A.I.                           Osipchuk A.I.
Panchenko S.N.                          Panchenko S.N.
Polischuk V.A.                          Polischuk V.A.
Korolev N.M.                            Ragozina I.M.
Avdiyants S.P.                          Slipenchuk M.V.
Finger G.M.                             Finger G.M.

In 2002, the total remuneration of the directors amounted to 21 (2001: 5, 2000:
7).

29.  CAPITAL COMMITMENTS

The Group's capital expenditure program approved by the Board of Directors for
the year ending December 31, 2003 projects capital expenditures of 4,521.

                                      F-46
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

30.  CONTINGENCIES

a)   Legal proceedings

The Group is subject to a number of proceedings arising in the course of the
normal conduct of its business. Management believes that the ultimate resolution
of these matters will not have a material adverse effect on the results of
operations or the financial position of the Company or the Group.

b)   Taxation environment

Russian tax legislation is subject to varying interpretations and changes
occurring frequently. Further, the interpretation of tax legislation by tax
authorities as applied to the transactions and activity of the Group's entities
may not coincide with that of management. As a result, tax authorities may
challenge transactions and the Group's entities may be assessed additional
taxes, penalties and interest, which can be significant. The periods remain open
to review by the tax and customs authorities with respect to tax liabilities for
three years. However, management believes that adequate provision has been made
for all material taxation liabilities.

c)   Licenses

Substantially all of Rostelecom revenues are derived from operations conducted
pursuant to licenses granted by the Russian Government. These licenses expire in
various years ranging from 2003 to 2007. The Company has no reason to believe
that the licenses will not be renewed or that any license will be suspended or
terminated. However, suspension or termination of the Company's main licenses or
any failure to renew any or all of these main licenses could have a material
adverse effect on the financial position and operations of the Group.

It is also a matter of public record that the Government intends to promote
competition within the telecommunications industry, which may include the
granting of additional long distance and international licenses to other
operators. At present, it is not possible to determine the effects, if any, of
changes in these matters on the results of operations or financial position of
the Group.

In August 1996, the Company was granted three cellular licenses for operation in
Novosibirsk, Khabarovsk and Amurskaya areas. The licenses gave the Company the
right to provide wireless services on the GSM 900 standard for 10 years from the
date of license registration (until October 2006). The Company was obliged to
make the license fee payment in total amount of $16.5 million for three
licenses. No payments were made as of December 31, 2002.

The obligation would arise upon receiving a notice from the Federal Committee of
GSM 900 operators. The Company has not yet received any invoices for payment.
Management is confident that negotiations concerning the eventual fees due will
result in significant reduction of the liability. As such, no accruals for
cellular licenses have been included in the accompanying consolidated financial
statements. Management believes that until such uncertainty is resolved, such
non-accrual and non-payment will not have significant effect on the Company's
operations.

d)   Restructuring

There have been a number of announcements by the Government and the Svyazinvest
Group with respect to the planned restructuring of the national
telecommunications sector. In its Program of Development of the
Telecommunications Industry, presented to the Federal Government in December
2000, the Ministry of Communications indicated that it will not contemplate a
change to the Group's status as monopoly supplier of long distance and
international communications until 2005-2006 at the earliest.

                                      F-47
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

In addition to industry restructuring plans, the Government announced plans to
privatize Svyazinvest in 2003 or 2004. Effects of the industry reform will be
reflected in the Group's consolidated financial statements as they become known
and estimable.

e)   Insurance matters

In 2003 the Company has insured approximately 40% of cable and transmission
devices. In the opinion of directors the insurance coverage is sufficient to
compensate direct losses which could arise from technical breakdown.

31.  CREDIT RISK MANAGEMENT

A portion of the Group's accounts receivable is from state and other public
organizations. Collection of these receivables is influenced by political and
economic factors. Management believes there are no significant unprovided losses
relating to these or other receivables at December 31, 2002.

Financial instruments that could expose the Group to concentrations of credit
risk are mainly trade and other receivables. The credit risk associated with
these assets is limited due to the Group's large customer base and ongoing
procedures to monitor the credit worthiness of customers and other debtors.

The Group deposits available cash with several non-state owned Russian banks.
Deposit insurance is not offered to banks operating in Russia. To manage the
credit risk, the Group allocates its available cash to a variety of Russian
banks and management periodically reviews the credit worthiness of the banks in
which such deposits are made.

32.  INTEREST RATE RISK MANAGEMENT

Trade and other receivables and payables are non-interest bearing financial
assets and liabilities. Interest rates payable on the Group's loans and other
borrowings are disclosed in Notes 18 and 19.

33.  SUBSEQUENT EVENTS

In February 2003 due to the fire in one of the Moscow telephone stations,
equipment of the Group's associates, Telmos and Golden Telecom, was
significantly damaged. The Group's share of losses incurred by these associates
as a result of this event in 2003 would be limited to 150.

In 2003 the Group sold its investments in NCC, Baykalwestcom and Eniseytelecom
to companies of the Svyazinvest Group for the following price:

Investment             Interest sold     Sales price received
--------------------------------------------------------------
NCC                         50%                        636
Baykalwestcom               49%                        270
Eniseytelecom               49%                        397

In June 2003 the Group signed an agreement with Alpha Bank (Russia) related to
restructuring of debt to Vnesheconombank (refer to Note 18). Under the
agreement, the Group debt shall be converted into notes payable totalling US$
100 million (3,178) repayable within 36 months in 6 equal semi-annual
installments of US$ 16.7 (530) each.

                                      F-48
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

34.  DIFFERENCES BETWEEN INTERNATIONAL FINANCIAL REPORTING STANDARDS AND
     ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES

     The Group's  consolidated  financial  statements are prepared in accordance
with  International  Financial  Reporting  Standards  which  differ  in  certain
respects  from  accounting  principles  generally  accepted in the United States
("U.S. GAAP").

     As described  in Note 5, certain  property,  plant and  equipment  has been
recorded at a valuation amount in accordance with IFRS rather than at historical
cost,  which is required  under U.S.  GAAP. The Group was unable to quantify the
effect of the  difference in accounting  treatment as reliable  historical  cost
information and information regarding acquisition dates was not available.

     The principal  differences  between IFRS and U.S. GAAP are presented  below
together with explanations of certain  adjustments that affect net income (loss)
and total shareholders'  equity as of and for the years ended December 31, 2002,
2001 and 2000.

Reconciliation of net income (loss)

<TABLE>
<CAPTION>
                                                                                  2002         2001         2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>         <C>        <C>
 Net income (loss) reported under IFRS                                             678        4,607      (2,460)

U.S. GAAP adjustments:
 Reversal of impairment of property, plant and equipment - impact of
 additional depreciation and loss on disposal (a)                                 (602)        (554)        (659)
 Deferred tax effect of reversal of impairment of property, plant and
 equipment (a)                                                                     100          473          (22)
 Unrealized gains on available-for-sale investments, net of tax (b)                (41)         (48)         (78)
 Pension expense, net of tax (c)                                                   (20)         (20)          75
 Impact of difference in accounting for investments acquired for resale,
 net of tax and minority interest (d)                                              (22)           -            -
 Impact of goodwill amortization, net of minority interest (d)                      35            -            -
 Partial gain recognition, net of tax (e)                                           (3)           -            -
 Reversal of impairment on investment in equity method
 investee, net of tax (f)                                                          (52)           -            -

                                                                         ----------------------------------------
 Total                                                                            (605)        (149)        (684)
                                                                         ----------------------------------------
 Net income/(loss) under U.S.AAP                                                    73        4,458       (3,144)
</TABLE>

Net income/(loss) per common share

Basic income per common share is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. In accordance with Statement on Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share", income available to common shareholders
is calculated by deducting dividends declared in the period on preferred shares
(whether or not paid) from the net income for the period.

                                      F-49
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

The charter of Rostelecom provides that preferred shareholders receive a
dividend which is equal in total to 10% of net income as reported in the
financial statements prepared in accordance with Russian accounting regulations,
but dividend per preferred share should not be less than the dividend per share
declared in favor of the common shareholders.

<TABLE>
<CAPTION>
                                                                           2002             2001            2000
-----------------------------------------------------------------------------------------------------------------

<S>                                                                 <C>              <C>             <C>
Net income /(loss) under U.S. GAAP                                          73            4,458          (3,144)
Dividends on preferred shares                                             (235)            (124)           (284)
                                                                -------------------------------------------------
Net (loss) / income applicable to common shareholders under US
GAAP                                                                     (162)            4,334          (3,428)
                                                                -------------------------------------------------

Weighted average number of ordinary shares outstanding              728,696,320      728,696,320     706,584,862

                                                                -------------------------------------------------
       Net (loss) / income per share - basic and diluted                (0.22)             5.95           (4.85)
                                                                -------------------------------------------------
</TABLE>

Basic and diluted earnings per share are the same for all periods presented as
there are no ordinary shares equivalents.

Reconciliation of shareholders' equity

Below is the reconciliation of shareholders' equity reported under IFRS with
those reported under U.S. GAAP as of December 31, 2002 and 2001.

<TABLE>
<CAPTION>
                                                                                      2002               2001
-----------------------------------------------------------------------------------------------------------------

<S>                                                                                 <C>                <C>
Total shareholders' equity under IFRS                                               49,033             48,754

U.S. GAAP adjustments:
     Reversal of impairment of property, plant and equipment, net of
     related deferred tax liability (a)                                             5,360               5,861
     Pension obligations, net of tax (c)                                               30                  51
     Impact of difference in accounting for investments acquired for
     resale, net of tax and minority interest (d)                                     (22)                  -
     Impact of goodwill amortization, net of minority interest (d)                     35                   -
     Partial gain recognition, net of tax (e)                                          (3)                  -
     Reversal of impairment on investment in equity method investee, net
     of tax (f)                                                                       (52)                  -
                                                                           --------------------------------------
 Total                                                                               5,348              5,912

                                                                           --------------------------------------
Total shareholders' equity under U.S. GAAP                                          54,381             54,666
                                                                           --------------------------------------
</TABLE>

(a)  Reversal of impairment on property, plant and equipment

In 1998, in accordance with IAS 36, "Impairment of Assets", the Group recognized
an impairment loss of 8,699 on its property, plant and equipment other than
construction in progress. The impairment loss was calculated based on the
present value of estimated future cash flows from the continued use of the
assets using a real-terms (inflation adjusted) discount rate of 20%.

                                      F-50
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

IAS 36 requires an assessment of the recoverable amount of an asset whenever
there is an indication that the Group's assets may be impaired. Management
believed that the Russian economic crisis in 1998 constituted such an
indication.

     Under U.S. GAAP, SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (superseded by SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", effective for
financial statements issued for fiscal years beginning after December 15, 2001),
required an initial assessment of impairment based on undiscounted cash flows
whenever there is an indication that impairment may exist. Due to the fact that
the sum of undiscounted expected future cash flows was in excess of the carrying
amount of the Group's property, plant and equipment as of December 31, 1998, an
impairment loss was not recognized for U.S. GAAP reporting. Management considers
that all of the Group's property, plant and equipment, with the exception of
construction in progress, represent the lowest level for which there are largely
independent and identifiable cash flows.

     Since no impairment loss was recognized under U.S. GAAP in 1998, a
different asset base is used to compute U.S. GAAP depreciation expense, loss on
disposal of property, plant and equipment and the related deferred tax liability
commencing 1999.

Based on management's analysis, the sum of undiscounted expected future cash
flows was in excess of the carrying amount of the Group's property, plant and
equipment as of December 31, 2002, 2001 and 2000, thus, no impairment loss was
recognized under U.S. GAAP.

Deferred tax effect was computed using tax rates of 24% for 2002 and 2001, and
35% for 2000. Deferred tax benefit recognized on reversal of impairment on
property, plant and equipment in 2002 and 2001 represents the effects of
reversal of the temporary differences associated with disposals and additional
depreciation, and in 2001, the effect of the change in tax rate effective from
2002 amounting to 346.

(b)  Unrealized gains on available-for-sale investments

In accordance with IAS 39 (Revised 2000), "Financial Instruments: Recognition
and Measurement", gains or losses from change in the fair value of securities
classified as available-for-sale investments are included in net profit and loss
for the period in which they arise.

     Under U.S. GAAP, SFAS 115, "Accounting for Certain Investments in Debt and
Equity Securities", provides that such available-for-sale securities are
reported at fair value with unrealized gains and losses net of tax excluded from
earnings and reported as a separate component of comprehensive income.
Unrealized gains and losses represent the net change in fair value of
investments classified as available-for-sale not yet realized. Declines in value
of available-for-sale securities judged to be other than temporary are
recognized in the statement of operations.

(c)  Pension expense and obligations

The Company makes certain payments to employees on retirement. This obligation
is substantially similar to those typically existing under a defined benefit
pension scheme.

     IAS 19 (revised 2000), "Employee Benefits", was issued by the International
Accounting  Standards Board to revise existing  standards relating to retirement
benefits cost, and became effective for the financial statements beginning on or
after January 1, 1999. In accordance with U.S. GAAP,  similar issues are covered
by SFAS 87, "Employer's Accounting For Pensions". Under both standards,  pension
expense  is based  upon a  specified  methodology  that  includes  a  designated
actuarial  approach  and  reflects  the concept of accrual  accounting.  Pension
expense is reflected in the consolidated

                                      F-51
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

statement of operations systematically over the working lives of employees
covered by the plan. Plan amendments (including initiation of a plan) often
include provisions that grant increased benefits based on services rendered in
prior periods. Because plan amendments are granted with the expectation that the
employer would realize economic benefits in future periods, SFAS 87 does not
require the cost of providing such retroactive benefits (that is, prior service
cost) to be included in net periodic pension cost entirely in the year of the
amendment. The Standard provides for recognition during the future service
periods of employees who are expected to receive benefits under the plan.

In accordance with IAS 19, prior service cost is recognized as an expense on a
straight-line basis over the average period until the benefits become vested
(i.e. become no longer conditional on future employment). To the extent that the
benefits are already vested immediately following the introduction of, or
changes to, a defined benefit plan, an enterprise should recognize prior service
cost immediately.

     As of December 31, 2002,  prior  service cost as recorded in IFRS  accounts
have been fully  recognized.  In U.S.  GAAP  accounts,  unrecognized  transition
amounts are being amortized over 20 years.  The details of net periodic  pension
cost (benefit)  included in the Group's U.S. GAAP net income for 2002,  2001 and
2000 are presented below.

                                              2002     2001     2000
------------------------------------------------------------------------

Service cost                                    5        8       17
Interest on projected benefit obligation       30       43       68
Net amortization of transitional amount        20       20       20
Actuarial gains recognized in year           (100)     102)      (6)
------------------------------------------------------------------------
Net periodic pension (benefit) cost           (45)     (31)      99
------------------------------------------------------------------------

     The following tables set forth the status of the Group's  obligations under
defined  benefit  pension  plans and the amounts that would be recognized in the
Group's  consolidated balance sheets in accordance with U.S. GAAP as of December
31, 2002 and 2001.

                                                                 2002      2001
-------------------------------------------------------------------------------

Accrued pension cost at beginning of year                        100       140
Net periodic pension benefit                                     (45)      (31)
Paid during the year                                              (5)       (9)
-------------------------------------------------------------------------------
Accrued pension cost at end of year                               50       100
-------------------------------------------------------------------------------

                                                                 2002      2001
-------------------------------------------------------------------------------

 Projected benefit obligations                                   174       244
 Plan assets at fair value                                         -         -
                                                               -----------------
 Deficit of plan assets over projected benefit obligation        174       244
 Unrecognized net transition amount                             (124)     (144)
--------------------------------------------------------------------------------
 Accrued pension cost                                             50       100
--------------------------------------------------------------------------------

In calculating projected benefit obligations as of December 31, 2002 and 2001,
the Group assumed weighted average discount rate in determining present values
being equal to 20%.

                                      F-52
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

(d)  Accounting for investments in associates

In accordance with IAS 28, "Accounting for Investments in Associates", an
investment in associate that is acquired and held exclusively with a view to its
disposal in the near future should be accounted for as an available-for-sale
financial asset in accordance with IAS 39, "Financial Instruments: Recognition
and Measurement".

As described in Note 13 and 33, the Group acquired in 2002 and subsequent to
December 31, 2002 sold certain investments which in the normal course of
business would qualify for equity method accounting. In IFRS accounts these
investments were classified and accounted for as available-for-sale and their
fair value as of December 31, 2002 was 1,632. Negative goodwill attributable to
these investments of 455 was included in the current portion of negative
goodwill.

     Effective January 1, 2002, SFAS No. 144, "Accounting for the Impairment of
Long-Lived Assets", eliminated the exception to application of the equity method
for an investment in associates where significant influence is likely to be
temporary. Accordingly, in U.S. GAAP accounts, the investments in these
associates were accounted for using equity method of accounting applied from the
date of the business combination with RTDC Holdings, Inc. As of December 31,
2002, the carrying amount of 1,071 related to the Group's investment in these
associates was included in U.S. GAAP balance sheet. The Group's share in net
income / (loss) of these associates amounted to 157. Amount of (22) reported in
the reconciliation of net income and shareholders' equity above represents the
difference between the amount of gain from changes in the fair value of these
available-for-sale investments, recognized in the IFRS accounts, and the amount
of equity income, reported under the U.S. GAAP, net of tax and minority
interest.

As described in Note 8 and 13, during 2002, the Group acquired 15% of voting
stock of Golden Telecom, Inc. In the opinion of management, the Group exercises
significant influence over financial and operating policies of Golden Telecom.
In accordance with IAS 28, "Accounting for Investments in Associates", the Group
amortizes the equity method goodwill related to its investment in Golden Telecom
over its estimated useful life of 8 years. During 2002, in its IFRS accounts,
the Group recognized related amortization expense in the amount of 32. Also,
during 2002, in its IFRS accounts, the Group recognized goodwill of 42 in
connection with certain business combinations and purchases of minority
interest. Amortization of related goodwill in 2002 amounted to 3.

In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets",
goodwill is not amortized and is subject to annual impairment tests in
accordance with SFAS No. 142. The Group performed the annual impairment test in
respect to recoverability of the carrying amount of goodwill at December 31,
2002.

(e)  Partial gain recognition

As disclosed in Note 13, during 2002, the Group completed a sale of its 50%
interest in EDN Sovintel to Golden Telecom in exchange for a cash payment of US$
10 million, no-interest bearing US$ 46 million promissory note and 15% of then
outstanding ordinary shares of Golden Telecom.

In connection with this transaction, in its IFRS accounts, the Group recognized
a gain of 1,733, which represented a difference between fair value of the total
consideration received and the carrying amount of the investment in EDN Sovintel
as of the date of sale, net of direct costs associated with the transaction.
Before the sale to Golden Telecom, the Group accounted for its investment in EDN
Sovintel using equity method.

                                      F-53
<PAGE>

As disclosed in Note 13, management determined that the Group has the ability to
exercise significant influence over the financial and operating policies of
Golden Telecom and accounted for its investment in ordinary shares of Golden
Telecom using equity method.

     In its U.S. GAAP accounts, in accordance with requirements of Emerging
Issues Task Force Issue No. 01-02, "Interpretations of APB 29", the Group
recognized a gain of 1,730. The difference of 3 between the amount of gain
recognized under IFRS and U.S. GAAP pertains to a portion of the gain
represented by the economic interest retained by the Group.

(f)  Reversal of impairment on investment in equity method investee

As disclosed in Note 8, during 2002 due to certain changes in management's
estimates and in accordance with provisions of IAS 36, "Impairment of Assets",
in its IFRS accounts the Group recorded a partial reversal of impairment loss of
52, net of tax, recognized in 2001 in connection with its investment in MCC,
which is accounted for using equity method.

U.S. GAAP prohibits reversals of previously recognized impairment losses.

Investments in associates

Refer to Note 8 to the consolidated financial statements for detailed
information about the Group's investments in associates.

The following table presents summarized income statement and balance sheet
information of the Group's significant equity method investee, EDN Sovintel, for
the period from January 1, 2002 to September 16, 2002 and as of December 31,
2001, respectively (translated into Rubles using exchange rate as of December
31, 2002):

                                          EDN Sovintel
-------------------------------------------------------

Income statement information
         Revenues                              3,218
         Operating income                        822
         Net income                              607

Financial position information
         Current assets                        1,440
         Non-current assets                    2,009
         Current liabilities                     696
         Non-current liabilities                 101
         Net assets                            2,652

                                      F-54
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

Summarized financial information for 2002 for the Group's unconsolidated
investment in GlobalTel was as follows (translated into Rubles using exchange
rate as of December 31, 2002):

                                              GlobalTel
                                                  2002
--------------------------------------------------------

Income statement information
  Revenues                                       395
  Operating loss                                (294)
  Net loss                                      (344)

Financial position information
  Current assets                                 259
  Non-current assets                           1,283
  Current liabilities                          2,417
  Non-current liabilities                        134
  Accumulated deficit                         (1,009)

New accounting pronouncements

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations", which addresses the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. This standard applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction, development
or normal use of the asset. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
fair value of the liability is added to the carrying amount of the associated
long-lived asset and is depreciated over the asset's useful life. The liability
is accreted to its present value each period through charges to operating
expense. If the obligation is settled for other than the carrying amount of the
liability, a gain or loss on settlement is recognized. The Group is required and
plans to adopt the provisions of SFAS No. 143, effective January 1, 2003. To
accomplish this, the Group must identify all legal obligations for asset
retirement obligations, if any, and determine the fair value of these
obligations on the date of adoption. The determination of fair value is complex
and will require gathering market information and the development of cash flow
models. Additionally, the Group will be required to develop processes to track
and monitor these obligations. The Group is still assessing the impact that SFAS
No. 143 will have on its results of operations, financial position and cash
flows.

In April 2002, the Financial Accounting Standards Board issued SFAS No. 145,
"Rescission of FASB Statements 4, 44, and 64, Amendment of FASB Statement 13,
and Technical Corrections". This statement is effective for financial statements
issued for fiscal years beginning after May 15, 2002. It amends certain existing
authoritative pronouncements in respect to debt extinguishments, intangible
assets of motor carriers, leases, etc. to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions. The
Group elected to early adopt this new standard beginning from January 1, 2002
and, as disclosed in Note 18, classified a gain from early extinguishments of
debt payable to Siemens AG as non-operating income.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which replaces Emerging Issues Task Force
(EITF) Issue 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). The types of costs affected by this Standard

                                      F-55
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

include certain employee severance costs, contract termination costs and costs
to consolidate or close facilities or relocate employees. SFAS No. 146 requires
that a liability for costs associated with exit or disposal activities be
recognized only when the liability is irrevocably incurred (rather than at the
date of management's commitment to an exit or disposal plan). The recognized
liability is to be initially measured at fair value and subsequently adjusted
for changes in estimated cash flows. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated after December 31,
2002. The Group does not expect the adoption of SFAS No. 146 to have a material
impact on its results of operations, financial position and cash flows.

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". FIN 45 clarifies and expands the
disclosure requirements related to guarantees and product warranties, and
requires a guarantor to recognize a liability for the fair value of the
obligation it assumes under that guarantee. The Group adopted the disclosure
requirements applicable to financial statements for periods ending after
December 15, 2002. The initial recognition and measurement provisions are
applicable prospectively to guarantees issued or modified after December 31,
2002. The Group does not expect the adoption of FIN 45 to have a material impact
on its results of operations, financial position and cash flows.

In December 2002, the Emerging Issues Task Force reached a consensus in EITF
Issue 00-21, "Revenue Arrangements with Multiple Deliverables". The Issue
addresses a vendor's accounting for transactions involving the delivery of more
than one product or service, and when it is necessary to separate the
transaction into individual component deliverables, each with its own separate
earnings process. If the conditions requiring separate revenue recognition
exist, revenue is allocated among the different deliverables based on their
relative fair values (the relative fair value of each of the component
deliverables to the aggregated relative fair value of the bundled deliverables),
with revenue for each component deliverable recognized when the revenue is
realized and earned. The Group is required and plans to adopt the provisions of
EITF 00-21, effective July 1, 2003. The Group is still assessing the impact that
EITF 00-21 will have on its results of operations, financial position and cash
flows.

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities ("VIEs")". This interpretation
changes the accounting and requirements for consolidation and disclosure of
certain entities, including special purpose entities ("SPEs"). Under FIN 46, an
entity is considered a VIE (and subject to consolidation) if its total equity at
risk is determined insufficient to finance its activities without additional
subordinated financial support, or if its equity investors lack certain
characteristics that represent a controlling financial interest. An entity that
is considered a VIE would be required to be consolidated by the enterprise that
holds a majority of its "variable interests" (that is, the enterprise that has
the most exposure to the economic risks and the potential rewards from changes
in the values of the VIE's assets and liabilities). The Group has adopted
Interpretation's disclosure provisions, effective for all financial statements
issued after January 31, 2003, which require all holders of variable interests
in VIEs to disclose the nature, purpose, size and activities of the VIEs,
including the maximum exposure to losses. The consolidation requirements apply
to all new VIEs created on and after February 1, 2003, with transitional
provisions for VIEs that existed prior to that date. The Group plans to adopt
the transition consolidation provisions of FIN 46 on July 1, 2003. To accomplish
this, the Group and its operating subsidiaries must identify all VIEs, if any,
and determine the expected loss and expected residual returns associated with
the variable interests. The determination of expected losses and expected
residual returns is complex and will require the Group to develop cash flow
models. The Group is still assessing the impact that FIN 46 will have on its
results of operations, financial position and cash flows.

                                      F-56
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation --Transition and Disclosure", which amends SFAS No. 123,
"Accounting for Stock-Based Compensation". SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition this statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in the financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition provisions are effective for financial statements for
fiscal years ending after December 15, 2002. The enhanced disclosure
requirements are effective for periods beginning after December 15, 2002. The
Group does not expect the adoption of SFAS No. 148 to have a material impact on
its results of operations, financial position and cash flows.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150
improves the accounting for certain financial instruments that, under previous
guidance, companies could only account for as equity and requires that these
instruments be classified as liabilities in statements of financial position.
The statement is effective prospectively for financial instruments entered into
or modified after May 31, 2003 and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. This statement shall be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial statements created before the issuance of this statement
and still existing at the beginning of the interim period of adoption. The Group
is currently assessing the impact that the adoption of SFAS No. 150 will have on
its results of operations, financial position and cash flows.

     Consolidated statements of changes in shareholders' equity and
comprehensive income under U.S. GAAP for the years ended December 31, 2002, 2001
and 2000 are as follows:

                                      F-57
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                            Common shares         Preferred shares    Treasury shares             Accumulated other         Total
                          Number of    Share    Number of   Share   Number of    Share  Retained     comprehensive  shareholders'
                             shares  capital       shares  capital     shares  capital  earnings            income         equity
---------------------------------------------------------------------------------------------------------------------------------
<C>                     <C>               <C> <C>               <C> <C>            <C>    <C>                 <C>        <C>
Balance as of January
1, 2000                 700,312,800       75  233,437,600       25  (115,959)      (2)    53,666              145        53,909

Comprehensive income
 Net loss                         -        -            -        -          -        -   (3,144)                -       (3,144)
 Net change in
 unrealized gains on
 available-for-
 sale investments                 -        -            -        -          -        -         -               78            78
---------------------------------------------------------------------------------------------------------------------------------
  Comprehensive income            -        -            -        -          -        -   (3,144)               78       (3,066)

Dividends for 1999                -        -            -        -          -        -     (414)                -         (414)

Issue of shares          28,420,179        -    9,473,169        -          -        -         -                -             -

Cancellation of
treasury shares            (36,659)        -     (79,300)        -    115,959        2       (2)                -             -

                        ---------------------------------------------------------------------------------------------------------
Balance as of December
31, 2000                728,696,320       75  242,831,469       25          -        -    50,106              223        50,429
                        ---------------------------------------------------------------------------------------------------------

Comprehensive income
 Net income                      -        -            -        -          -        -     4,458                -         4,458
 Net change in
 unrealized gains on
 available-for-
 sale investments                -        -            -        -          -        -         -               48            48
---------------------------------------------------------------------------------------------------------------------------------
  Comprehensive income           -        -            -        -          -        -     4,458               48         4,506

Dividends for 2000                -        -            -        -          -        -     (269)                -         (269)

                        ---------------------------------------------------------------------------------------------------------
Balance as of December
31, 2001                728,696,320       75  242,831,469       25          -        -    54,295              271        54,666
                        ---------------------------------------------------------------------------------------------------------
</TABLE>

                                      F-58
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2002
(In millions of Russian Rubles in terms of purchasing power of the Ruble at
December 31, 2002)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                            Common shares         Preferred shares    Treasury shares             Accumulated other         Total
                          Number of    Share    Number of   Share   Number of    Share  Retained     comprehensive  shareholders'
                             shares  capital       shares  capital     shares  capital  earnings            income         equity
---------------------------------------------------------------------------------------------------------------------------------
<C>                     <C>              <C> <C>               <C>          <C>      <C>  <C>                 <C>        <C>
Balance as of December
31, 2001                728,696,320       75  242,831,469       25          -        -    54,295               271         54,666
                        ---------------------------------------------------------------------------------------------------------

Comprehensive income
 Net income                       -            -         -         -        -        -        73                 -             73
 Net change in
 unrealized gains on
 available-for-sale
 investments                      -        -            -         -         -        -         -                41             41
---------------------------------------------------------------------------------------------------------------------------------
  Comprehensive income            -        -            -         -         -        -        73                41            114

Dividends for 2001                -        -            -         -         -        -     (399)                 -           (399)
                        ----------------------------------------------------------------------------------------------------------
Balance as of December
31, 2002                728,696,320       75  242,831,469         25        -        -    53,969               312          54,381
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      F-59
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
EDN Sovintel LLC

We have audited the accompanying balance sheet of EDN Sovintel LLC as of
December 31, 2001, and the related statements of income and cash flows for each
of the two years in the period ended December 31, 2001 and for the period from
January 1 to September 16, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EDN Sovintel LLC at December
31, 2001, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 2001 and for the period from January
1 to September 16, 2002, in conformity with accounting principles generally
accepted in the United States of America.

/s/   ERNST & YOUNG (CIS) LIMITED

Moscow, Russia
March 6, 2003

                                       F-60
<PAGE>

EDN SOVINTEL LLC
BALANCE SHEET
--------------------------------------------------------------------------------
                                                                    December 31,
                                                                            2001
--------------------------------------------------------------------------------
                                                           (IN THOUSANDS OF US$)

ASSETS

Current assets
Cash                                                                    16,793
Accounts receivable, net of allowance for doubtful
accounts of $ 4,951                                                     14,518
Due from affiliated companies                                            1,912
Due from employees                                                         721
Inventories                                                              7,519
Inventory consigned to others                                            1,063
VAT receivable, net                                                        207
Prepaid expenses and other current assets                                2,586
-------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                    45,319
-------------------------------------------------------------------------------

Property and equipment, net                                             60,125
Other non-current assets                                                 3,069
-------------------------------------------------------------------------------
TOTAL ASSETS                                                         $ 108,513
===============================================================================

LIABILITIES AND MEMBERS' EQUITY

CURRENT LIABILITIES:
Trade payables                                                          12,058
Accrued expenses                                                         4,926
Due to affiliated companies                                              3,048
Deferred income taxes                                                    1,861
-------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                               21,893
-------------------------------------------------------------------------------
Non-current liabilities                                                  3,172
===============================================================================
TOTAL LIABILITIES                                                       25,065
===============================================================================

MEMBERS' EQUITY                                                         83,448

TOTAL LIABILITIES AND MEMBERS' EQUITY                                $ 108,513
===============================================================================

   The accompanying notes are an integral part of these financial statements.

                                       F-61
<PAGE>

EDN SOVINTEL LLC
STATEMENTS OF INCOME
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                               Year ended              Period from
---------------------------------------------------------------------------------      January 1 to
                                                      December 31,  December 31,       September 16,
                                                              2000          2001          2002
--------------------------------------------------------------------------------------------------
                                                                   (IN THOUSANDS OF US$)
<S>                                                       <C>          <C>               <C>
REVENUES:
Telecommunication services                                $ 87,823     $ 108,363         $ 96,610
Revenue from affiliates                                      6,066         7,343            4,651
--------------------------------------------------------------------------------------------------
                                                            93,889       115,706          101,261

OPERATING COSTS AND EXPENSES:
Service costs (excluding depreciation)                      49,713        63,909           56,013
Selling, general and administrative (excluding
depreciation)                                               16,768        13,025           11,856
Depreciation                                                 8,615         9,025            7,517
--------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS AND EXPENSES                          75,096        85,959           75,386

INCOME FROM OPERATIONS                                      18,793        29,747           25,875

OTHER INCOME (EXPENSE):
Interest income                                                115           321              508
Interest expense                                             (141)          (12)              (3)
Foreign currency losses                                    (1,308)         (355)            (618)
--------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE)                               (1,334)          (46)            (113)

Net income before taxes                                     17,459        29,701           25,762
Income taxes                                                 7,277         7,490            6,647
--------------------------------------------------------------------------------------------------
NET INCOME                                                $ 10,182      $ 22,211         $ 19,115
==================================================================================================

</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                       F-62
<PAGE>

EDN SOVINTEL LLC
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                            Year ended              Period from
------------------------------------------------------------------------------------------------  January 1 to
                                                                 December 31,  December 31,       September 16,
                                                                         2000          2001          2002
------------------------------------------------------------------------------------------------
                                                                                (IN THOUSANDS OF US$)
<S>                                                                     <C>          <C>            <C>
OPERATING ACTIVITIES
Net income                                                              $ 10,182      $ 22,211       $ 19,115
Adjustments to reconcile net income to net cash provided
by operating activities:
   Depreciation                                                            8,615         9,025          7,517
   Deferred income taxes                                                       -         1,175        (2,193)
   Provision for doubtful accounts                                         1,908           708              -
   Provision for obsolete inventory                                            -           200            650
   Foreign exchange loss                                                   1,308           355            618
Changes in operating assets and liabilities:
   Accounts receivable                                                     1,410       (2,175)        (6,407)
   Inventories                                                           (2,596)       (4,220)          2,459
   Inventory consigned to others                                               -       (1,063)          1,063
   Prepaid expenses and other assets                                       (557)         (843)            119
   VAT receivable, net                                                     (569)         2,185           (26)
   Trade payables                                                        (2,870)         4,532          5,377
   Accrued liabilities and other payables                                  1,874         2,645          1,093
   Decrease amounts due to affiliated companies, net                     (1,454)         (607)        (1,239)
--------------------------------------------------------------------------------------------------------------

   NET CASH PROVIDED BY OPERATING ACTIVITIES                              17,251        34,128         28,146

--------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
   Purchases of property and equipment                                   (9,344)      (17,059)       (18,126)
   Loan to affiliated company                                                  -             -        (9,983)
--------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                                    (9,344)      (17,059)       (28,109)

FINANCING ACTIVITIES
   Payment of debt                                                       (3,322)          (22)              -
   Payment of dividends                                                  (3,021)       (4,000)        (4,000)
--------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES                                    (6,343)       (4,022)        (4,000)

Effect of exchange rate changes on cash                                    (195)         (267)          (204)

Net (decrease) increase in cash                                            1,369        12,780        (4,167)
Cash at beginning of period                                                2,644         4,013         16,793
--------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD                                                    $ 4,013      $ 16,793       $ 12,626

</TABLE>

                     The accompanying notes are an integral
                      part of these financial statements.

                                       F-63
<PAGE>

EDN SOVINTEL LLC
Notes to Financial Statements
--------------------------------------------------------------------------------

                          NOTES TO FINANCIAL STATEMENTS
                      (US$ AMOUNTS EXPRESSED IN THOUSANDS)

NOTE 1. DESCRIPTION OF BUSINESS

EDN Sovintel LLC (the "Company", "Sovintel"), which became a wholly owned
subsidiary of Golden Telecom, Inc. ("GTI") on September 17, 2002, was created in
1990 to design, construct, and operate a telecommunications network in Moscow
and later expanded its operations to other regions of Russia, including St.
Petersburg, Pskov and Kaliningrad. This network provides worldwide
communications services, principally to major hotels, business offices and
mobile communication companies.

Effective September 17, 2002, subsidiaries of GTI completed the acquisition of
the remaining 50% of the Company previously held by Open Joint Stock Company
Rostelecom ("Rostelecom"), pursuant to an Ownership Interest Purchase Agreement,
dated March 13, 2002, by and among subsidiaries of GTI and Rostelecom, bringing
GTI's ownership interest in the Company to 100%.

The accompanying financial statements are presented for purposes of complying
with the requirements of the U.S. Securities and Exchange Commission for
separate financial statements under Rule 3-09 of Regulation S-X. In that regard,
the statements of operations and cash flows for 2002 have been presented for the
period from January 1 to September 16, 2002.

NOTE 2. BASIS OF PRESENTATION

The Company maintains its records and prepares its financial statements in
Russian rubles in accordance with the requirements of Russian accounting and tax
legislation. The accompanying financial statements differ from the financial
statements used for statutory purposes in Russia in that they reflect certain
adjustments, not recorded on the Company's books, which are appropriate to
present the financial position, results of operations and cash flows in
accordance with generally accepted accounting principles in the United States of
America ("U.S. GAAP"). The principal adjustments are related to revenue
recognition, certain accrued expenses, foreign currency translation, deferred
taxation, and depreciation and valuation of property and equipment.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements, in conformity with U.S. GAAP, requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.

Foreign Currency Translation

The Company's functional currency is the US dollar because the majority of its
revenues, costs, property and equipment purchased, and debt and trade
liabilities are either priced, incurred, payable or otherwise measured in US
dollars. Accordingly, transactions and balances not already measured in US
dollars (primarily Russian rubles) have been re-measured into US dollars in
accordance with the relevant provisions of Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation".

                                       F-64
<PAGE>

EDN SOVINTEL LLC
Notes to Financial Statements (CONTINUED)
--------------------------------------------------------------------------------

Under SFAS No. 52, revenues, costs, capital and non-monetary assets and
liabilities are translated at historical exchange rates prevailing on the
transaction dates. Monetary assets and liabilities are translated at exchange
rates prevailing on the balance sheet date. Exchange gains and losses arising
from re-measurement of monetary assets and liabilities that are not denominated
in US dollars are credited or charged to operations.

The ruble is not a convertible currency outside the territory of Russia.
Official exchange rates are determined daily by the Central Bank of Russia
("CBR") and were considered to be a reasonable approximation of market rates
until mid-August 1998. Since that date, liquidity in the CBR currency trading
and inter-bank trading has varied as have bid and offer exchange rates. As a
result, the market rates have fluctuated significantly and have diverged from
the CBR rate. Nonetheless, the various market-related rates are based on the CBR
rate. Accordingly, CBR rates have been used for translation purposes in these
financial statements. The translation of ruble denominated assets and
liabilities into US dollars for the purpose of these financial statements does
not indicate that the Company could realize or settle in US dollars the reported
values of the assets and liabilities. Likewise, it does not indicate that the
Company could return or distribute the reported US dollar values of capital and
retained earnings to its shareholders.

The official exchange rate as of December 31, 2001 and September 16, 2002 was
30.14 and 31.64 rubles per US dollar, respectively.

Accounts Receivable

Accounts receivable are shown at their estimated net realizable value which
approximates fair value. The Company generally does not require collateral to
extend credits to its customers.

Inventories

Inventories consist of telecommunication equipment held for resale and are
stated at the lower of cost or market. Cost is computed on a weighted average
basis. At December 31, 2001, the Company held no legal title to the $1,063
inventory consigned to others, recorded as such on the balance sheet.

Property and Equipment

Property and equipment are recorded at their historical cost. Depreciation is
provided on the straight-line method over the following estimated useful lives:

---------------------------------- -------------------- ------------------------
Network equipment                                                      10 years
---------------------------------- -------------------- ------------------------
Other property and equipment                                           3-5 years
---------------------------------- -------------------- ------------------------

There is no depreciation charge for construction-in-progress. Depreciation
commences upon completion of the related project.

Revenue Recognition

The Company records as revenue the amount of telecommunications rendered, as
measured primarily by the minutes of traffic processed, after deducting an
estimate of the traffic that are partial minutes and test traffic which will be
neither billed nor collected. Revenue from service contracts is accounted for
when the services are provided. Billings received in advance of service being
performed are deferred and recognized as revenue as the service is performed.
Revenues are stated net of any value-added-taxes ("VAT") charged to customers.
Certain other taxes that are based on revenues earned were incurred at rates
ranging from 1.0% to 4.0% during 2000, 2001 and for the period from January 1 to
September 16, 2002, and amounted to $3,972, $1,131 and $1,016, respectively, and
are charged to selling, general and administrative expenses since these are
incidental to the revenue cycle.

                                       F-65
<PAGE>

EDN SOVINTEL LLC
Notes to Financial Statements (CONTINUED)
--------------------------------------------------------------------------------

In accordance with the provisions of the Securities and Exchange Commission
Staff Accounting Bulletin No. 101, the Company has deferred telecommunication
connection fees and capitalized direct incremental costs related to connection
fees, not exceeding the revenue deferred. The deferral of revenue and
capitalization of cost of revenue is recognized over the estimated life of the
customer, three years. The total amount of deferred revenue was $4,758 as of
December 31, 2001 and $6,648 as of September 16, 2002. The total amount of
deferred cost of revenue was $4,604 as of December 31, 2001 and $4,653 as of
September 16, 2002.

The Company recognizes revenue from equipment sales when title to the equipment
passes to the customer. The Company defers the revenue on installed equipment
until installation and testing are completed and accepted by the customer.

Advertising

The Company expenses the cost of advertising as incurred. Advertising expenses
for the years ended December 31, 2000 and 2001 and for the period from January 1
to September 16, 2002 were $870, $934 and $1,286, respectively, and are included
in selling, general and administrative expenses.

Income Taxes

The Company computes and records income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes."

Investment Incentive Deductions

Up to the end of the fiscal year ended December 31, 2001 Russian legislation
allowed for certain additional tax deduction related to new asset investments.
These deductions were accounted for in the accompanying statements of income for
the years ended December 31, 2000 and 2001 as a reduction to current income
taxes in the year in which they arose. The new asset related investment
deductions were abolished effective in the fiscal years starting after December
31, 2001.

Government Pension Funds

The Company contributes to the Russian Federation state pension fund, social
fund, medical insurance fund, unemployment fund and transport fund on behalf of
all its Russian employees. Contributions were 38.8% from base payroll for 2000
and were ranging from 35.6% to 5% regressive to the respective individual
employee's base payroll in 2001 and from 35.6% to 2% regressive to the
respective individual employee's base payroll for the period from January 1 to
September 16, 2002.

Fair Value of Financial Instruments

The fair value of financial instruments included in current assets and
liabilities approximates the carrying value.

Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise
during a period from non-owner sources. For the years ended December 31, 2000
and 2001 and for the period from January 1 to September 16, 2002, comprehensive
income for the Company is equal to net income.

                                       F-66

<PAGE>

EDN SOVINTEL LLC
Notes to Financial Statements (CONTINUED)
--------------------------------------------------------------------------------

Business Segments

Effective January 1, 1998, the Company adopted the SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information". It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. Management believes the Company's operations comprise only
one segment and as such adoption of SFAS No. 131 did not impact the disclosures
made in the Company's financial statements.

Derivative Instruments and Hedging Activities

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which was
amended in June 1999. The Company adopted the new statement effective January 1,
2001. The statement requires the Company to recognize all derivatives on the
balance sheet at fair value. The adoption of this new statement did not have an
effect on the Company's results of operations or financial position.

Goodwill and Intangible Assets

In July 2001, the FASB issued SFAS's No. 141, "Business Combinations", and No.
142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives are no longer amortized but are subject
to annual impairment tests in accordance with the Statements. Other intangible
assets continue to be amortized over their useful lives. The Company adopted the
new rules on accounting for goodwill and other intangible assets beginning in
the first quarter of 2002. The adoption of the new statements had no effect on
the Company's results of operations or financial position.

Asset Retirement Obligations

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement deals with the costs of closing facilities and
removing assets. SFAS No. 143 requires entities to record the fair value of a
legal liability for an asset retirement obligation in the period it is incurred.
This cost is initially capitalized and amortized over the remaining life of the
asset. Once the obligation is ultimately settled, any difference between the
final cost and the recorded liability is recognized as a gain or loss on
disposition. SFAS No. 143 is effective for years beginning after June 15, 2002.
The adoption of SFAS No. 143 will not have an impact on the Company's
consolidated financial position or results of operations.

Long-Lived Assets

Long-lived assets to be held and used by the Company are reviewed to determine
whether an event or change in circumstances indicates that the carrying amount
of the asset may not be recoverable. For long-lived assets to be held and used,
the Company bases its evaluation on such impairment indicators as the nature of
the assets, the future economic benefit of the assets, any historical or future
profitability measurements, as well as other external market conditions or
factors that may be present. If such impairment indicators are present or other
factors exist that indicate that the carrying amount of the asset may not be
recoverable, the Company determines whether an impairment has occurred through
the use of an undiscounted cash flows analysis of assets at the lowest level for
which identifiable cash flows exist. During the years ended December 31, 2000
and 2001 and the eight and a half months ended September 16, 2002, no impairment
expense was recognized.


In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment of disposal of long-lived assets and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations -

                                      F-67
<PAGE>

EDN SOVINTEL LLC
Notes to Financial Statements (CONTINUED)
--------------------------------------------------------------------------------

Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," for the disposal of
a segment of a business (as previously defined in that opinion). This statement
also amends Accounting Research Bulletin No. 41, "Consolidated Financial
Statements", to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. The provisions of the statement became
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The Company adopted this new standard on January 1, 2002. The
adoption of the new standard had no effect on the Company's results of operation
or financial position.

Rescission and amendments of certain FASB statements

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This statement rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishments of Debt," and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers." This statement amends SFAS No. 13, "Accounting for Leases", to
eliminate an inconsistency between the required accounting for sale-lease-back
transactions. This statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this
statement became effective for financial statements issued on or after May 15,
2002. The Company adopted this new standard from May 15, 2002. The adoption of
the pronouncement did not have an effect on the Company's results of operations
or financial position.

Exit or Disposal Activities

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. This statement nullifies Emerging Issues Task Force No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring," which
required that a liability for an exit cost be recognized upon the entity's
commitment to an exit plan. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of the
provisions of SFAS No. 146 is not expected to have a material impact on the
Company's results of operations, financial position or cash flow.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities". FIN No. 46 defines the concept of "variable interests" and requires
existing unconsolidated variable interest entities to be consolidated into the
financial statements of their primary beneficiaries if the variable interest
entities do not effectively disperse risks among the parties involved. FIN No.
46 applies immediately to variable interest entities created after January 31,
2003. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. If it is reasonably possible
that an enterprise will consolidate or disclose information about a variable
interest entity when FIN No. 46 becomes effective, the enterprise must disclose
information about those entities in all financial statements issued after
January 31, 2003. The interpretation may be applied prospectively with a
cumulative-effect adjustment as of the date on which it is first applied or by
restating previously issued financial statements for one or more years, with a
cumulative-effect adjustment as of the beginning of the first year restated. The
adoption of the provisions of FIN No. 46 will not have an impact on the
Company's financial statements.

                                       F-68
<PAGE>

EDN SOVINTEL LLC
Notes to Financial Statements (CONTINUED)
--------------------------------------------------------------------------------

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2001:

Network equipment                                                     $ 81,686
Other property and equipment                                            10,019
-------------------------------------------------------------------------------
                                                                        91,705
Accumulated depreciation                                              (40,003)
Construction-in-progress                                                 8,423
-------------------------------------------------------------------------------
Net book value                                                        $ 60,125
===============================================================================


NOTE 5. INCOME TAXES

The Russian Federation was the only tax jurisdiction in which the Company's
income was taxed. The income tax expense reported in the accompanying statements
of income, for the years ended December 31, 2000 and 2001 and for the period
January 1 to September 16, 2002, represents the provision for current and
deferred taxes.

Significant components of the provision for income taxes for the years ended
December 31, 2000 and 2001 and for the period ended January 1 to September 16,
2002 are as follows:

<TABLE>
<CAPTION>

                                                          2000             2001            2002
---------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>             <C>
Current tax expense                                       $ 7,277          $ 6,315         $ 8,840
Deferred tax expense (benefit)                                  -            1,175         (2,193)
---------------------------------------------------------------------------------------------------
Provision for income taxes                                $ 7,277          $ 7,490         $ 6,647
===================================================================================================

</TABLE>

A reconciliation between the statutory rate and the effective income tax rate is
as follows for the years ended December 31 2000 and 2001 and for the period
January 1 to September 16, 2002:

<TABLE>
<CAPTION>
                                                             2000             2001            2002
<S>                                                       <C>             <C>              <C>
Income tax expense at statutory tax rate of 30%           $ 5,238         $ 10,395         $ 6,183
from April 1, 1999 through December 31, 2000,
35% in 2001, and 24% from January 1 through
September 16, 2002
Tax effect of permanent differences:
   Effect of change in tax rate                             (431)              304               -
   Investment incentive deductions                        (1,814)          (4,563)               -
   Depreciation differences due to revaluation
    of fixed assets                                         1,074            1,010             708
   Taxes on local currency exchange gains                       -              596             358
   Other permanent differences                                334              928             576
Increase (decrease) in the valuation allowance for          2,876          (1,180)         (1,178)
   deferred tax assets
---------------------------------------------------------------------------------------------------
Income tax expense reported in the
 financial statements                                     $ 7,277          $ 7,490         $ 6,647
===================================================================================================
</TABLE>

The deferred tax balances are calculated by applying the statutory tax rates in
effect at the respective balance sheet dates to the temporary differences
between the tax basis of assets and liabilities and the amount reported in the
accompanying financial statements, and consist of the following at December
31,2001:

                                       F-69
<PAGE>

EDN SOVINTEL LLC
Notes to Financial Statements (CONTINUED)
--------------------------------------------------------------------------------

Deferred tax assets (liabilities):
   Deferred revenue                                                    $ 1,400
   Depreciation                                                            785
   Inventory write-downs and allowances                                     96
   Accrual of expenses                                                     717
   Reserve for bad debt                                                  1,033
-------------------------------------------------------------------------------
Gross tax assets                                                       $ 4,031
===============================================================================

   Accrual of revenue                                                  (2,158)
   Deferred cost of revenue                                            (1,210)
-------------------------------------------------------------------------------
Gross tax liabilities                                                $ (3,368)
===============================================================================

Net deferred tax assets                                                 $  663
===============================================================================

Valuation allowance for deferred tax assets                            (2,524)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Net deferred tax liabilities                                          $(1,861)
===============================================================================

For financial reporting purposes, a valuation allowance has been recognized to
reflect management's estimate of the deferred tax assets that are less likely
than not to be realized.

The Company paid Russian profits tax of $7,231, $4,572 for 2000 and 2001 and
$9,657 in for the period from January 1 to September 16, 2002, respectively.


NOTE 6. MEMBERS' EQUITY

The Company's capital structure as specified in the charter document is as
follows as of December 31:

Registered capital in Russian rubles                                       2001
   Rostelecom                                                               600
   Golden Telecom, Inc                                                      600
--------------------------------------------------------------------------------
                                                                          1,200
Historical value of the Company's capital in US dollars                 $ 2,000
================================================================================

As a Russian limited liability company, the Company has no capital
rather, it has only contributed and registered capital in accordance with its
charter. As such, no earnings per share data are presented in these financial
statements.

Retained earnings available for distribution at December 31, 2001 amounted to
948 million rubles or approximately $31,453 at applicable year-end exchange
rate.

NOTE 7. RELATED PARTY TRANSACTIONS

Transactions and balances with Rostelecom (one of the Company's members prior to
September 17, 2002) and its affiliates were as follows, as of and for the years
ended December 31, 2000 and 2001 and for the period from January 1 to September
16, 2002:

                                       F-70
<PAGE>

EDN SOVINTEL LLC
Notes to Financial Statements (CONTINUED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                2000               2001            2002
                                                 -------------------- ------------------ ---------------
<S>                                                            <C>               <C>              <C>
Sales                                                          $ 719              $ 854           $ 155
Telecommunication lease and traffic costs                      9,470             11,723           7,056
Amounts due to member and affiliates                           1,581              1,552           1,085

</TABLE>

Transactions and balances with GTI and its affiliates were as follows, as of and
for the years ended December 31, 2000 and 2001 and the eight and a half months
ended September 16, 2002:

<TABLE>
<CAPTION>
                                                              2000               2001            2002
                                                 ------------------- ------------------ ---------------
<S>                                                         <C>               <C>              <C>
Sales                                                       $ 5,347            $ 6,489         $ 4,496
Telecommunication services                                    8,456              8,902           7,387
Management service fees and reimbursements
of expenses of expatriate staff                                 468                468             452
Amounts due from affiliates                                     507              1,912           2,403
Amounts due to member and affiliates                            536              1,496           1,188
Short-term loan due from affiliate                                -                  -           9,970
</TABLE>

The Company held a portion of cash and cash equivalents in Alfa Bank, which is a
major shareholder of GTI. The related amount of cash and cash equivalents held
at Alfa Bank at December 31, 2001 was $6,460.

In July 2002, the Company entered into a short-term loan agreement with TeleRoss
LLC ("TeleRoss"), a wholly owned subsidiary of GTI. Under this agreement the
Company provided TeleRoss with a working capital loan in the amount of 315.5
million rubles (equal to approximately $9,970, at applicable exchange rate at
September 16, 2002) to be repaid by March 31, 2003. The Company and TeleRoss
have the right to prolong the term of the loan for one month and the number of
such prolongations is not limited. The loan bears an interest rate of 21% per
annum calculated based on the ruble denominated loan principle. The interest is
payable monthly starting October 2002. The Company included the respective
accrued interest income of $70 in the accompanying statement of income for the
period from January 1 to September 16, 2002.

NOTE 8. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of temporary cash deposits and trade accounts
receivable. The Company deposits the majority of its available cash with two
foreign-owned financial institutions in Russia and maintains certain balances
with several Russian financial institutions. The Company's sales and accounts
receivable are made to and due from a variety of international and Russian
business customers within Russia. As of December 31, 2001, one customer
accounted for 10% of revenues and 6% of accounts receivable and that same
customer accounted for 8% of revenue and 9% of accounts receivable September 16,
2002. The Company has no other significant concentrations of credit risk except
for transactions with related parties as discussed in Note 7.

NOTE 9. COMMITMENTS

The Company has several cancelable operating leases for office and warehouse
space and telecommunications lines with terms ranging from one to five years.

                                       F-71
<PAGE>

EDN SOVINTEL LLC
Notes to Financial Statements (CONTINUED)
--------------------------------------------------------------------------------

Total rent expense for 2000, 2001 and the period from January 1 to September 16,
2002 was $3,958, $2,860 and $2,549, respectively.

NOTE 10. CONTINGENCIES

The tax, legal and banking regulatory system continues to evolve in the Russian
Federation as the Russian government manages the transformation from a command
to a market-oriented economy. There were many new tax and foreign currency laws
and related regulations introduced during 2001, 2002 and previous years which
were not always clearly written and were, at times, conflicting. In addition,
their interpretation is subject to the opinions of a variety of local, regional
and federal tax inspectors, the Central Bank of Russia officials and the
Ministry of Finance. Instances of inconsistent opinions among and between these
authorities are not unusual.

The Company's policy is to accrue contingencies in the accounting period in
which a loss is deemed probable and the amount is reasonably determinable. In
this regard, because of the uncertainties associated with the Russian tax and
legal systems, the ultimate taxes as well as penalties and interest, if any,
assessed may be in excess of the amounts paid to date and accrued as of
September 16, 2002. Management believes, based upon its best estimates, that the
Company has paid or accrued all taxes that are applicable for the current and
prior years, and complied with all essential provisions of laws and regulations
of the Russian Federation. In management's opinion, the ultimate determination
of the Company's overall tax liability and potential loss contingencies, to the
extent not previously provided for, will not have a material effect on the
financial position of the Company.

The Company's operations and financial position will continue to be affected by
Russian political developments including the application of existing and future
legislation and tax regulations, which significantly impact the Russian economy.
The likelihood of such occurrences and their effect on the Company could have a
significant impact on the Company's current activity and its overall ability to
continue operations. The Company does not believe that these contingencies, as
related to its operations, are any more significant than those of similar
enterprises in Russia.

In the ordinary course of business, the Company may be party to various legal
and tax proceedings, and subject to claims, certain of which relate to the
developing markets and evolving fiscal and regulatory environments in which the
Company operates. In the opinion of the management, the Company's liability, if
any, in all pending litigation, other legal proceeding or other matter other
than what is discussed above, will not have a material effect upon the financial
condition, results of operations or liquidity of the Company.

                                       F-72