Filed with the Securities and Exchange Commission on June 30, 2004

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

                                  UNITED STATES
                       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, 2003

                         Commission file number 1-14748
                                   ----------
                            OPEN JOINT STOCK COMPANY
                         LONG-DISTANCE AND INTERNATIONAL
                               TELECOMMUNICATIONS
                                  "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.

<TABLE>
<S>                                                         <C>
      Title of each class of securities                    Name of each exchange on which registered

Ordinary shares, nominal value 0.0025 rubles per                 The New York Stock Exchange
share, represented by American Depositary Shares, each of
which represents 6 (six) ordinary shares of Rostelecom
</TABLE>

 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 ADVISORS.........5
Item 2.        OFFER STATISTICS AND EXPECTED TIMETABLE.......................5
Item 3.        KEY INFORMATION...............................................5
               3.A.  Selected Financial Data.................................5
               3.B.  Capitalization and Indebtedness.........................10
               3.C.  Reasons for Offer and Use of Proceeds...................10
               3.D.  Risk Factors............................................10
Item 4.        INFORMATION ON THE COMPANY....................................29
               4.A.  History and Development of the Company..................29
               4.B.  Business Overview.......................................38
               4.C.  Organizational Structure................................64
               4.D.  Property, Plant and Equipment...........................67
Item 5.        OPERATING AND FINANCIAL REVIEW AND PROSPECTS..................68
               5.A.  Operating Results ......................................68
               5.B.  Liquidity and Capital Resources ........................89
               5.C.  Research and Development, Patents and Licenses, etc. ...95
               5.D.  Trend Information ......................................97
               5.E.  Off-balance Sheet Arrangements .........................98
               5.F.  Tabular Disclosure of Contractual Obligations ..........99
Item 6.        DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES....................99
               6.A.  Directors and Senior Management ........................99
               6.B.  Compensation ...........................................107
               6.C.  Board Practices ........................................109
               6.D.  Employees ..............................................113
               6.E.  Share Ownership.........................................115
Item 7.        MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.............115
               7.A.  Major Shareholders .....................................115
               7.B.  Related Party Transactions .............................116
               7.C.  Interests of Experts and Counsel........................119
Item 8.        FINANCIAL INFORMATION.........................................119
               8.A.  Consolidated Statements and Other Financial Information.119
               8.B.  Significant Changes ....................................121
Item 9.        THE OFFER AND LISTING.........................................122
               9.A.  Listing Details ........................................124
               9.B.  Plan of Distribution ...................................124
               9.C.  Markets ................................................124
               9.D.  Selling Shareholders ...................................124
               9.E.  Dilution ...............................................124
               9.F.  Expenses of the Issue...................................124
Item 10.       ADDITIONAL INFORMATION........................................124
               10.A.  Share Capital .........................................124
               10.B.  Memorandum and Articles of Association ................124
               10.C.  Material Contracts ....................................129
               10.D.  Exchange Controls .....................................134
               10.E.  Taxation ..............................................137
               10.F.  Dividends and Paying Agents ...........................143
               10.G.  Statement by Experts ..................................143
               10.H.  Documents on Display ..................................143
               10.I.  Subsidiary Information.................................143
Item 11.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....143
Item 12.       DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES........144

                                      -2-
<PAGE>
Item 13.       DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES...............144
               13.A.  Defaults...............................................144
               13.B.  Dividend Arrearages and Delinguencies..................145
Item 14.       MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
               AND USE OF PROCEEDS...........................................145
Item 15.       CONTROLS AND PROCEDURES.......................................145
Item 16.A.     AUDIT COMMITTEE FINANCIAL EXPERT .............................145
Item 16.B.     CODE OF ETHICS ...............................................146
Item 16.C.     PRINCIPAL ACCOUNTANT FEES AND SERVICES .......................146
Item 16.D.     EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES ...147
Item 16.E.     PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND
               AFFILIATED PURCHASERS.........................................147
Item 17.       FINANCIAL STATEMENTS..........................................147
Item 18.       FINANCIAL STATEMENTS..........................................147
Item 19.       EXHIBITS......................................................148

                                      -3-
<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 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 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 regulation of the Russian
          telecommunications industry in light of future liberalization; 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:

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

     -    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;

     -    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

     -    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 are made 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.

                                      -4-
<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  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 (the "Annual
Report"),  "Rostelecom"  or "the  Company"  refers to Open Joint  Stock  Company
Long-Distance and International Telecommunications Rostelecom.

Any  reference in this Annual Report to "the Group" as used for the period after
December 1, 2003 refers to the Company and its current consolidated subsidiaries
OJSC RTComm.RU ("RTComm.RU") and CJSC Westelcom ("Westelcom").  Any reference to
"the Group" as used for any period up to and  including  December 1, 2003 refers
to the Company and its  consolidated  subsidiaries  as of December 1, 2003:  (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  ("AKOS");   (vii)  LLC   Spetzautoleasing   ("Spetzautoleasing");   (viii)
RTComm.RU;  and (ix) Westelcom.  For more information see Item 4.A. "History and
Development  of the  Company"  and  Item  10.C.  "Material  Contracts"  and  the
consolidated  financial  statements  of  Rostelecom  as of December 31, 2003 and
2002,  and for the three  years  ended  December  31,  2003,  2002 and 2001 (the
"consolidated financial statements") included elsewhere in this Annual Report.

Rostelecom publishes its consolidated 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; and (iv) references to
"EUR" and  "euro"  are to the  common  currency  of the  European  Economic  and
Monetary  Union.  As of December 31, 2002,  2001, 2000 and 1999 all RUR figures,
unless otherwise indicated,  have been restated in terms of the ruble purchasing
power current as of December 31, 2002.

For convenience  only (except where noted  otherwise),  certain RUR figures have
been converted into U.S. dollars at the rate of RUR 29.45 = $1.00,  converted at
the exchange rate published by the Central Bank of the Russian  Federation  (the
"Central Bank") effective on December 31, 2003. 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, 2003,
2002 and 2001  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  included  elsewhere in this Annual
Report.  Selected financial data as of and for the years ended December 31, 2000
and 1999 have been derived from Rostelecom's  previously published  consolidated
financial   statements  not  included  in  this  Annual   Report.   The  Group's
consolidated   financial  statements  have  been  prepared  in  accordance  with
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  notes  included
elsewhere in this Annual Report.

Prior to  January  1,  2003,  the  Russian  economy  was  hyperinflationary.  In
accordance  with  International  Accounting  Standard  ("IAS") 29, the financial
information  as of December 31, 2002,  2001,  2000 and 1999 has been restated in
terms of the ruble purchasing power current as of December 31, 2002 to take into
account the effect of inflation. 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.  Effective January 1, 2003,  according to
the International Task Force of the American Institute of Certified Public

                                      -5-
<PAGE>
Accountants,  the Russian economy ceased to be hyperinflationary and accordingly
no  adjustments  have  been  made for the year  ended  December  31,  2003.  The
inflation-adjusted  carrying  amounts of the  Group's  assets,  liabilities  and
equity items as of December 31, 2002 were assumed to be the carrying  amounts of
the respective  Group's  assets,  liabilities  and equity items as of January 1,
2003 for the purposes of the Company's consolidated financial statements.

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  35 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 6 to the consolidated financial statements
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.

In March 2004, the International  Accounting Standards Board (the "IASB") issued
International  Financial  Reporting Standard ("IFRS") No. 5, "Non-current Assets
Held for Sale and Discontinued Operations". IFRS No. 5 sets out requirements for
the  classification,  measurement  and  presentation  of non-current  assets and
disposal groups classified as held for sale and discontinued operations.

IFRS No. 5 requires  assets or disposal  groups that are expected to be sold and
meet specific  criteria to be measured at the lower of carrying  amount and fair
value less costs to sell.  Such assets should not be  depreciated  and should be
presented separately in the balance sheet. In addition,  IFRS No. 5 replaces IAS
No. 35, "Discontinuing Operations", with a requirement that operations forming a
major line of business or area of  geographical  operations  are  required to be
classified as  discontinued  when the assets in the operations are classified as
held for sale or when the  entity  has  disposed  of the  operation.  IFRS No. 5
specifies that the results of discontinued operations are to be shown separately
on the face of the  income  statement  and  requires  an entity to  re-represent
respective  amounts for prior periods  presented in the financial  statements so
that this  presentation  relates to all operations  that have been classified as
discontinued by the latest balance sheet date. IFRS No. 5 also requires  certain
disclosures in respect to assets and disposal groups classified as held for sale
and discontinued operations.

Entities are required to apply the requirements of IFRS No. 5 for annual periods
beginning on or after January 1, 2005, with earlier application encouraged.  The
Group has adopted  the  provisions  of IFRS No. 5 early and applied  them to the
financial  statements for the year ended  December 31, 2003. In connection  with
the early  adoption of provisions  of IFRS No. 5, the Group has adopted  certain
amendments to IAS and IFRS, which are directly affected by the new requirements,
early.

The following  selected financial data as of and for the year ended December 31,
2003 are  presented in millions of rubles,  except per share amounts and revenue
per employee  which are expressed in rubles.  The selected  financial data as of
and for the years ended December 31, 2002,  2001, 2000 and 1999 are presented in
million of rubles, restated in terms of the ruble purchasing power current as of
December 31, 2002.


                 STATEMENT OF OPERATIONS FOR THE YEARS 1999-2003

<TABLE>
<CAPTION>
                                                                 As of or for the Years Ended December 31
                                                      ----------------------------------------------------------------
                                                         2003         2002         2001         2000         1999
                                                      ------------ ------------ ------------ ------------ ------------
<S>                                                   <C>          <C>          <C>          <C>          <C>
Revenue from local operators
Telephone - international                                   5,171       5,025         5,364        4,086        3,817
Telephone - national                                        9,292       5,895         5,016        4,673        4,741
Other income from local operators                           1,952       1,838         1,760        1,726        1,486
Total revenue from local operators                         16,415      12,758        12,140       10,485       10,044
Revenue from subscribers
Telephone - international                                   3,027        3,462        4,951        6,318        7,443
Telephone -  national                                       3,678        3,513        3,697        4,040        3,835
Internet access                                             1,060          849            -            -            -
</TABLE>

                                      -6-
<PAGE>
<TABLE>
<CAPTION>
                                                                 As of or for the Years Ended December 31
                                                      ----------------------------------------------------------------
                                                         2003         2002         2001         2000         1999
                                                      ------------ ------------ ------------ ------------ ------------
<S>                                                   <C>          <C>          <C>          <C>          <C>
Rent of telecommunication channels to subscribers             853          712          639        1,230        1,064
Television and radio transmission                             584          546          558          541          340
Cellular services                                             117           89            -            -            -
Total revenue from subscribers                              9,319        9,171        9,845       12,129       12,682
Revenue from foreign operators
Telephone                                                   3,871        4,250        6,018        8,128       11,434
Telex, telegraph and other                                    431          622          571          830        1,144
Rent of telecommunications channels                           181          228          263          902        1,243
Total revenue from foreign operators                        4,483        5,100        6,852        9,860       13,821
Other revenue                                               1,673          860        1,236        1,192          484
Total Revenue                                              31,890       27,889       30,073       33,666       37,031
Wages, salaries, other benefits and payroll taxes           3,946        3,476        3,574        4,192        3,326
Depreciation                                                8,252        9,089        7,977        7,627        6,613
Charges by network operators - international                5,913        5,779        7,438        9,145       11,762
Charges by network operators - national                     4,780        1,707        2,190        2,274        2,398
Other operating expenses                                    6,640        5,904        5,957        6,992        6,993
Total operating expenses                                   29,531       25,955       27,136       30,230       31,092
Operating profit                                            2,359        1,934        2,937        3,436        5,939
Gain/(loss) from associates (before tax)                      207          314         (34)          634          383
Net interest and other non-operating income/loss,           1,516        1,547        2,499        1,175         (326)
including monetary gain
Income before tax and minority interest                     4,082        3,795        5,402        5,245        5,996
Income tax (expense) /benefit                                (373)        (948)        1,470      (4,318)          80
Income /(loss) after taxation                               3,709        2,847        6,872          927        6,076
Minority interest                                            (70)           82            -            -            -
Net income from continuing operations                       3,639        2,929        6,872          927        6,076
Net loss from discontinued operations, net of tax,
including write-down of property, plant and equipment*     (3,109)      (2,251)      (2,265)      (3,387)      (1,542)
Net income /(loss)                                            530          678        4,607       (2,460)       4,534
Earnings /(loss) per Share (rubles) - basic and              0.30         0.61         6.15        (3.85)        5.81
diluted  (1)
Earnings /(loss) per Share (rubles) - continuing             4.57         3.70         9.26         0.95         8.01
operations
Loss per Share (rubles) - discontinued operations           (4.27)       (3.09)       (3.11)       (4.80)       (2.20)
Earnings /(loss) per ADS (rubles) - basic and                1.80         3.66        36.90       (23.10)       34.86
diluted (2)
Earnings /(loss) per ADS (rubles) - continuing              27.42        22.20        55.56         5.70        48.06
operations
Loss per ADS (rubles) - discontinued operations            (25.62)      (18.54)       (18.66)     (28.80)       (13.20)
Per share dividend on Preferred Share (rubles) (3)           1.27         0.96         0.52         1.11            -
Per share dividend on Ordinary Share (rubles) (3)            0.54         0.22         0.20         0.22            -
Amounts in accordance with U.S. GAAP
Total revenues                                             31,890       27,889       30,073       33,666       37,031
</TABLE>

                                      -7-
<PAGE>
<TABLE>
<CAPTION>
                                                                 As of or for the Years Ended December 31
                                                      ----------------------------------------------------------------
                                                         2003         2002         2001         2000         1999
                                                      ------------ ------------ ------------ ------------ ------------
<S>                                                   <C>          <C>          <C>          <C>          <C>
Total operating expenses                                   30,365       26,580       27,710       30,257       31,648
Operating profit                                            1,525        1,309        2,363        3,409        5,383
Net income from continuing operations                       3,046        2,346        6,723          243        5,353
Net loss from discontinued operations                      (3,035)      (2,273)      (2,265)      (3,387)       (1,542)
Net income /(loss)                                            11           73         4,458       (3,144)       3,811
Earnings /(loss) per Share (rubles) - basic and             (0.41)       (0.22)        5.95        (4.85)        4.23
diluted (1)
Earnings /(loss) per Share (rubles) - continuing             3.75         2.90         9.06        (0.05)        6.43
operations
Loss per Share (rubles) - discontinued operations           (4.16)       (3.12)       (3.11)       (4.80)       (2.20)
Earnings /(loss) per ADS (rubles) - basic and               (2.46)       (1.32)       35.70       (29.10)       25.38
diluted (2)
Earnings /(loss) per ADS (rubles) - continuing              22.50        17.40        54.36        (0.30)       38.58
operations
Loss per ADS (rubles) - discontinued operations            (24.96)      (18.72)      (18.66)      (28.80)      (13.20)
Per ADS dividend on Ordinary Share (2) (U.S.$) (4)           0.11         0.04         0.04         0.04            -
BALANCE SHEET DATA
Amounts in accordance with IFRS
Non-current assets                                         52,135       62,359       64,592       71,659       73,068
Current assets                                             14,123       16,865       14,657       12,429       15,660
Total assets                                               66,258       79,224       79,249       84,088       88,728
Total shareholders' equity and minority interest           49,048       51,858       50,683       45,944       47,629
Current liabilities                                         7,496       14,484       15,847       16,685       19,042
Non-current liabilities                                     2,007        2,579        1,470        6,181        9,424
Deferred tax liability                                      7,707       10,303       11,249       15,278       12,633
Total shareholders' equity, minority interest and          66,258       79,224       79,249       84,088       88,728
liabilities
BALANCE SHEET DATA
Amounts in accordance with U.S. GAAP
Total assets                                               71,603       84,113       85,865       91,260       96,556
Long-term liabilities                                      10,229       13,500       13,475       22,687       23,264
Total shareholders' equity and minority interest           53,878       57,159       56,595       51,954       54,243
STATEMENT OF CASH FLOWS
Net cash provided by operating activities                   2,075        5,713       6,963        6,945         9,578
Net cash used in investing activities                      (6,640)      (3,501)      (2,768)      (3,748)      (5,585)
Net cash provided by /(used in) financing activities        3,486        (411)      (3,255)      (4,257)      (4,254)
Effect of exchange rate changes and inflation on              (34)         36           36        (149)        (376)
cash and cash equivalents
Net (decrease) /increase in cash and cash                  (1,113)       1,837          976      (1,209)        (637)
equivalents
SELECTED INDUSTRY STATISTICAL DATA
International telephone minutes (million)
Incoming                                                    1,207          973          869          897          929
Outgoing                                                    1,323        1,235        1,082          944          928
     Local operators                                          985          892          683          522          483
     Subscribers                                              338          343          399          422          445
</TABLE>

                                      -8-
<PAGE>
<TABLE>
<CAPTION>
                                                                 As of or for the Years Ended December 31
                                                      ----------------------------------------------------------------
                                                         2003         2002         2001         2000         1999
                                                      ------------ ------------ ------------ ------------ ------------
<S>                                                   <C>          <C>          <C>          <C>          <C>
Domestic long-distance minutes (million)
     Local operators                                        6,914        5,925        5,020        3,905        3,035
     Subscribers                                            1,306        1,211        1,159        1,055          880
Average number of employees                                26,742       31,729       35,410       36,595       37,038
Revenue per employee (rubles)                           1,192,506      878,975      849,280      931,411    1,018,090
</TABLE>

     (*)  Net loss from discontinued operations, net of tax includes write-down
          of property, plant and equipment of RUR 419 million for the year 2003.
     (1)  Please refer to Note 15 to the consolidated financial statements.
     (2)  Each American Depositary Share ("ADS") represents six ordinary shares
          ("Ordinary Shares").
     (3)  Per share data for the years ended December 31, 2002, 2001, 2000 and
          1999 has been restated in terms of the ruble purchasing power as of
          December 31, 2002 in accordance with IAS 29.
          The number of outstanding Ordinary Shares is 728,696,320.
          The number of outstanding class A preferred shares ("Preferred
          Shares") is 242,831,469.
     (4)  U.S. dollar per ADS amounts are computed using the exchange rate as of
          December 31, 2003.


Effective August 1, 2003, the  Anti-Monopoly  Ministry  abolished the use of the
Integral Settlement Rate ("ISR") for settlements between Rostelecom and regional
operators of the  Svyazinvest  Group and  replaced ISR with the new  settlements
system,  under  which  Rostelecom  began  to bill  other  operators  originating
domestic   long-distance   ("DLD")  calls  using  the  Linear   Settlement  Rate
established  by  the  Anti-Monopoly  Ministry  and to  pay  to  other  operators
terminating  the calls the  termination  fee  calculated  using the  Termination
Settlement  Rate also  established by the  Anti-Monopoly  Ministry.  Before this
change,  Rostelecom made no payments for termination and was recognizing revenue
for  processing  of traffic  originating  in networks of other  operators on the
basis of ISR.

The pro-forma  information  calculated on the basis of the new settlement system
as if it was applied  effective  January 1, 1999 is presented  below (in million
RUR).

<TABLE>
<CAPTION>
                                    2003            2002           2001           2000            1999
                               -------------- --------------- -------------- -------------- ---------------
<S>                            <C>             <C>             <C>           <C>            <C>
Revenue from local operators       12,396          11,159          8,239          5,692          5,767
Charges by network operators       (7,623)        (6,985)         (5,497)        (2,766)        (2,825)
</TABLE>

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 for the  purchase  of U.S.  dollars,
expressed in Russian rubles per one U.S. dollar.  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.  See also Item  10.D.  "Exchange
Controls".

<TABLE>
<CAPTION>
         Year ended          High               Low            Average(1)         Period-end
         December 31
----------------------- ----------------- ------------------ ----------------- -----------------
<S>                          <C>                <C>              <C>                <C>
            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
            2003             31.88             29.25              30.61              29.45
</TABLE>

     (1)  Average of month-end rates

                                      -9-
<PAGE>
The following  table sets forth,  for the period of December 1, 2003 to June 30,
2004, the monthly high, low and average period-end rates of the Central Bank for
the  purchase of U.S.  dollars.  The Central  Bank rate for the purchase of U.S.
dollars as of June 30, 2004 was U.S.$1 = RUR 29.03.

<TABLE>
<CAPTION>
      Year 2003 - 2004        High               Low              Average          Period-end
------------------------------------------ ------------------ ----------------- ------------------ ------------------
<S>                         <C>                <C>               <C>                <C>
December 2003                 29.70             29.25              29.43              29.45
January 2004                  29.45             28.49              28.84              28.49
February 2004                 28.62             28.49              28.51              28.52
March 2004                    28.67             28.49              28.53              28.49
April 2004                    29.00             28.50              28.69              28.88
May 2004                      29.08             28.87              28.99              28.99
June 2004 (through to         29.09             29.00              29.03              29.03
        June 30, 2004)
</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 ADSs  could  decline  because of such
factors, resulting in the loss of part or all of the value of its securities.


Risks Relating to the Russian Federation

Political and Social Risks

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

Throughout 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 to be 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  numerous
changes  of  prime  minister  since  March  1998,  as  well  as  the  unexpected
resignation of former  President  Boris N. Yeltsin on December 31, 1999 followed
by the election of President  Vladimir V. Putin on March 26, 2000. Mr. Putin was
re-elected  by a large  margin  on March 14,  2004.  While  President  Putin has
maintained  governmental  stability and implemented  policies generally oriented
towards the  continuation  of economic  reforms,  no assurance can be given that
such conditions will continue over time.

                                      -10-
<PAGE>
The latest State Duma elections resulted in the defeat of the opposition parties
(the Communist,  the  social-democratic  Yabloko and pro-business Union of Right
Forces  Parties).  The  majority  of  the  seats  in the  new  State  Duma  were
distributed between pro-presidential and nationalist parties (the United Russia,
Liberal  Democrats  and  Motherland  Parties).  Some  experts  believe that this
allocation of the State Duma seats will result in a lack of strong opposition to
the President and render impossible the blocking of any governmental initiatives
by the State Duma.

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. The value of investments in Russia,
including the ADSs,  could be reduced and the Group's  prospects could be harmed
if governmental instability recurs or if reform policies are reversed.


Recent changes in the structure of the Russian federal executive authorities may
lead to uncertainty in the regulation of the Group's activities

As part of a broader  administrative  reform of the  Russian  federal  executive
authorities, the Russian Government has designated new regulatory authorities to
oversee the Russian  telecommunications  and securities  markets. In the area of
telecommunications the Russian Government has abolished the role of the Ministry
of  Communications  as sole direct  regulator of the Russian  telecommunications
sector and has established two new supervisory  bodies:  the Federal Service for
the  Oversight  of  the   Communications   Sector  and  the  Federal  Agency  of
Communications,  each under the oversight of the Ministry of Communications.  In
the  event  these  supervisory  bodies  adopt  new or more  vigorous  regulatory
policies,  the Company may face increased regulatory scrutiny and may be subject
to increased administrative costs.

Pursuant to a decree dated March 1, 2004, the Russian  Government  abolished the
former regulatory agency charged with regulating the Russian securities markets,
the Federal  Commission for the Securities Market ("FCSM"),  and established the
Federal Service for the Financial Markets ("FSFM"),  having wider-ranging powers
to regulate the Russian  securities  market than its predecessor,  the FCSM. Any
change in policy by the FSFM may lead to changes in the regulatory framework for
the circulation of the Company's securities, including the shares underlying the
ADSs,  which may affect the rights of the ADS holders,  including  voting rights
and rights to nominate candidates to the Board of Directors of the Company.


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 could  adversely  affect the value of  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
undergoing change 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, results of operation 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
Russian armed forces currently remain in Chechnya to maintain law and order. The
escalation  of violence in Russia 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. Any declaration of a
state of emergency under this law could adversely impact the investment  climate
in Russia and thus could hinder the  Company's  operations  and the expansion of
its 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

                                      -11-
<PAGE>
effect on February 1, 2002,  provides 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  current  uncertainties  with
respect to salary payments in Russia  generally  could have negative  political,
social and economic  consequences,  such as increased support for a renewal of a
centralized  authority and increased  nationalism  with  restrictions on foreign
investments in Russia,  any of which could have a material adverse effect on the
Group.


Organized crime and corruption may adversely affect the Group

Political  and economic  changes in Russia since the  dissolution  of the Soviet
Union have resulted in a significant  redistribution of power and authority.  In
particular,   Russia  continues  to  experience  widespread  organized  criminal
activity and corruption,  which add to the uncertainties  faced by the Group and
may  increase  the  Group's  costs and  subject it to threats  of  violence  and
extortion.  In addition,  growing  political  pressure on the government to deal
with corruption and organized crime could precipitate  extraordinary  government
measures that could  increase the Group's costs and otherwise  adversely  affect
its business, financial condition and results of operations.


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  price  control,  reducing  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 and foreign trade and investment.

Since the  dissolution of the Soviet Union,  the Russian economy has experienced
declining industrial production,  significant  inflation,  an unstable currency,
rising  unemployment,  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  different  regions  of  Russia  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 Russian  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 value 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 economic reforms, which have been or will be undertaken by the Russian
Government.

                                      -12-
<PAGE>

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

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 had  maintained a policy of supporting  the ruble
within  a  certain  band  relative  to  the  U.S.  dollar.  However,  after  the
significant  August 1998 devaluation of the ruble, this exchange rate policy was
abolished by the Russian  Government.  The ability of the Russian Government and
the  Central  Bank to reduce the  volatility  of the ruble  will  depend on many
political and economic  factors,  including their ability to control  inflation,
the  sufficiency  of the currency  reserves of the Russian  Federation,  and the
global geopolitical situation.

The ruble is not convertible  outside Russia.  A market exists within Russia for
the  conversion of rubles into other  currencies,  however 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,  Russian foreign exchange regulations require that 25%
of foreign  currency  revenues  from export sales by Russian  companies  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 these
compulsory conversion  requirements,  however 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  has  exerted
considerable  downward  pressure on the ruble / U.S. dollar rate in Russia. As a
result the  Central  Bank  purchased  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 has increased the risk of inflation. In January 2003, the Central Bank
stopped ruble  interventions,  allowing the ruble to appreciate against the U.S.
dollar by approximately  11% in 2003. In 2004, the Central Bank resumed a policy
of currency stabilization, allowing the ruble to appreciate by 1.5% in the first
six months of 2004. The uncertainty of the future currency policy of the Central
Bank creates certain risks for the Group's activities.

In  2003,  approximately  14%  of  the  Group's  revenues  were  denominated  in
currencies  other than the Russian  ruble and 20% of the Group's  expenses  were
denominated in Russian rubles.  Revenues generated in foreign currency represent
income  received  from  foreign  operators,  and  foreign  currency  denominated
expenses consist  primarily of payments to foreign  operators for  international
long-distance  ("ILD")  traffic  termination and payments of interest on foreign
currency loans.  Accordingly,  the relative  movements of domestic inflation and
ruble  exchange  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.

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


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 which in turn could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operation.


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  Russian
Government is actively  realizing plans to reorganize the nation's  electricity,
rail and telephone systems. Any such

                                      -13-
<PAGE>
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 costs of
doing  business in Russia and can interrupt  business  operations,  all of which
could  have a  material  adverse  effect  on  the  Group's  business,  financial
conditions and results of operations.


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

Russia has received  substantial  financial  assistance in the past 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 an
adverse effect on the Russian  economy that in turn may have a material  adverse
effect on the economic development of the Group.

Due to favorable  conditions of the world oil market,  Russia currently receives
substantial revenues from the export of crude oil and currently does not require
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  efforts to reduce Russia's  external
debt, the burden of its debt servicing is still  considerable.  As of January 1,
2004,  Russia's  national  external  debt  amounted to  approximately  U.S.$ 118
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,  could have a material  adverse effect on the
Russian economy and, consequently,  on the Group's business, financial condition
and results of operations.


The Company may experience  liquidity  problems due to the size and structure of
the Russian banking system

Russian companies often face 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. A number of
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.
Some  Russian  companies  have also  resorted to paying their debts or accepting
settlement of accounts receivable through barter arrangements or through the use
of promissory notes.

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.

Even though the banking sector and the liquidity of financial  markets in Russia
have  significantly  improved over the last years, the Russian banking system is
still  underdeveloped as compared to the world's leading economies,  in terms of
both size of assets and diversification of operations.

An intensification of liquidity problems or a deterioration of the Russian
banking system could have a material adverse effect on the Company's business,
financial condition and result 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, the

                                      -14-
<PAGE>
lack of reliable statistics relating to trends in the Russian economy may have a
negative impact on the long-term plans of the Group.


The ongoing Government investigation of Yukos could have a negative effect on
the Russian economy

Since June 2003,  representatives of the Russian Government have been conducting
investigations  into Russia's  largest oil company  Yukos and its  subsidiaries,
which  culminated  in the filing of charges of tax evasion  against Yukos and in
the arrest on criminal  charges of some of Yukos's key  shareholders  (including
Yukos's ex-Chief Executive Officer,  Mikhail  Khodorkovsky).  On April 20, 2004,
S&P downgraded Yukos's long-term debt rating from BB- to CCC amid concern that a
Russian court order preventing the sale of most Yukos's assets could potentially
lead to the insolvency of Yukos or the effective  nationalization of its assets.
In June 2004,  Yukos stated that it would not be able to pay the $3.4 billion of
back taxes claimed by the tax authorities and that it could be forced to declare
bankruptcy if required to do so.  According to some  commentators,  these events
have called into  question the security of property and  contractual  rights and
the  independence  of the  judiciary  in Russia,  and raise  concerns  about the
revision of Russian tax and mineral resources legislation, the re-examination of
Russia's past  privatisations  and the  re-distribution  of the assets involved.
There has been  considerable  volatility in the Russian stock market as a result
of these events.  Some experts have noted a negative  impact of the Yukos affair
on the size of investments in the Russian economy, especially in the oil sector,
and forecast a decrease in Russia's  gross  domestic  product  ("GDP") growth in
2004. While the Company has no ongoing business  relationships with Yukos or its
principal  shareholders,  there can be  assurance  that any  impact of the Yukos
affair on the Russian  economy will not have an adverse  effect on the Company's
business, financial condition and results of operation.


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  applicable  laws;
(iv) a high degree of discretion on the part of  governmental  authorities;  (v)
conflicting local,  regional and federal laws and regulations;  (vi) the 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

                                      -15-
<PAGE>
expropriation  or  nationalization.  Some  government  entities  have  tried  to
re-nationalize  privatized  businesses.  Expropriation or nationalization of any
assets  of the Group  without  equivalent  compensation  would  have a  material
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, 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  applicable  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 have certain
powers  delegated to them allowing such  Government  officials to exercise broad
authority to determine matters of significance.  Such authority may be exercised
in an unpredictable  way and an 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 and not all Russian
legislation and court decisions are readily available to the public or organized
in a manner to facilitate  their  understanding.  Lastly,  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  and  court  decisions  are  not  always  enforced  by
law-enforcement  agencies.  Although  ongoing  judicial  reform,  the  Arbitrazh
Procedure  Code (which applies to commercial  disputes) and the Civil  Procedure
Code generally take into account some  practical  approaches to resolve  certain
issues, they also give rise to new problems,  in particular relating to the fact
that the  decisions  of the  Russian  commercial  courts  and  courts  of common
jurisdiction generally compete with the decisions of the Constitutional Court of
the Russian  Federation  with respect to cases  involving  the  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   relatively   inefficient,
characterized by numerous,  and often economically  unjustified,  taxes and many
conflicting tax laws.

The new tax code (the "Tax Code") aims at  improving  the Russian tax system and
reducing  the tax  burden.  The first part of the Tax Code was  enacted in 1999.
Certain  chapters of the second  part of the Tax Code came into  effect  between
2001 and 2003.  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%. On January 1,
2004, the new tax code chapter on corporate  property tax took effect,  changing
the method of calculation  and payment of corporate  property tax. The reform of
the Russian tax system is expected to be completed in 2004.

Tax reform in the Russian  Federation is being  implemented  through  continuing
amendments of tax legislation. Frequently, these amendments are not well drafted
and allow for 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 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.

                                      -16-
<PAGE>

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
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 FSFM, the Ministry of Finance, the Federal
Anti-Monopoly Service and the former Anti-Monopoly  Ministry of Russia (together
the "FAS"), the Central Bank, and the Ministry of Economic Development and Trade
apply to the Group and its  Russian  affiliates.  Moreover,  some of the Russian
subsidiaries  of the Group have  occasionally  not been in full  compliance with
applicable  securities  law  reporting  requirements,  which  may  result in the
imposition of fines on them.

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 proposals at a general shareholders meeting.

The Russian Law "On Joint Stock  Companies"  of December  26, 1995 (as  amended)
(the "JSC  Law"),  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

Currently there is no unified share 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 FCSM licensed  registrars  (as is the
case with the  Company).  In practice,  registrars  are not subject to effective
Government supervision.  Due to the lack of a central,  properly 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 may be jointly and severally  liable for  obligations  of certain of
its subsidiaries

The Russian  Civil Code,  the JSC 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 person capable of making such decisions for its effective  subsidiary
is an effective parent.  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  is  declared  insolvent  or  bankrupt  resulting  from the action or
inaction of an effective  parent which could have a material  adverse  effect on
the Group.

                                      -17-
<PAGE>

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") 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 the 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
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 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)  under
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 a full exemption or a lower rate
of withholding tax is provided for by an applicable  double tax treaty,  subject
to  certain  withholding  tax  considerations  as  described  under  Item  10.E.
"Taxation - Russian Income Tax and  Withholding  Tax  Considerations."  However,
obtaining  treaty benefits can be difficult due to the  requirements  imposed by
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 a  non-resident  entity  holder
generally will be subject to Russian  withholding  tax deducted at source by the
payer of such dividends at a rate of 15%. For a non-resident  individual  holder
the rate of withholding may potentially be 30%.

The  withholding tax rate may be reduced in accordance with the provisions of an
applicable double tax treaty,  subject to certain withholding tax considerations
as described under 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 a non-resident individual holder (and to 5% for a non-resident entity
holder  treated as a corporate body for U.S. tax purposes and that owns at least
10% of the voting stock of the company).

In addition there is a risk that trading in Russian securities would require the
registration by the ADS holder (in the form of a 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 Inter Regional Companies
("IRCs"), which are controlled by Svyazinvest and provide regional

                                      -18-
<PAGE>
telecommunications services in Russia, and government-funded  organizations,  as
well as to subscribers in Moscow.

In May 2004 during  bilateral talks between Russia and the European Union it was
agreed that, upon Russia's accession to the WTO, and by 2007,  Rostelecom should
lose its monopolistic position. This would result in Rostelecom:

     -    losing  the  exclusive  right to  carry  IRC's  wholesale  DLD and ILD
          traffic because IRCs and other  telecommunications  operators would be
          able to bypass Rostelecom's network;

     -    losing  the  exclusive  right  to  terminate   incoming  traffic  from
          international  operators which would result in increased  competition,
          reduced  termination  rates for  traffic  into  Russia and a potential
          decrease in Rostelecom's revenues;

     -    being  required to share a license  with OJSC  Moscow  City  Telephone
          Network  ("MGTS")  to provide  long-distance  communication  services,
          enabling  MGTS to offer its Moscow  subscribers  DLD and ILD  services
          directly, which is currently the exclusive right of Rostelecom.


The new law on  communications  which  came into  force on  January 1, 2004 (the
"Communications   Law")  imposes  new  levies  and  fees  on  telecommunications
operators,  in addition  to fees  previously  imposed by the former  Ministry of
Communications,  that  may  have a  material  adverse  effect  on the  Company's
financial condition

The Communications Law, which came into force on January 1, 2004, provides for a
number  of new  additional  fees  and  levies  on  telecommunications  operators
including fees for  interconnection  and transit traffic.  Such tariffs have not
yet  been  introduced  and  their  potential  financial  impact  on the  Russian
telecommunication  market is uncertain. The Communications Law also requires all
Russian  telecommunications  operators  to  make  payments  into  the  universal
services   fund,   which  is  aimed  to  replace   the   existing   practice  of
cross-subsidies.  The Communications Law contemplates that this new fund will be
formed from compulsory  levies on all  telecommunications  operators in order to
compensate operators for certain mandatory, loss-making local services. Although
the actual rate of such levies has yet to be determined, it may adversely affect
the financial performance of Russian telecommunications operators, including the
Company.   Additionally,  the  Communications  Law  provides  for  payments  for
numbering  capacity  allocation,  including  through auctions in instances where
numbering capacity is scarce. Because Russian telecommunications operators apply
for numbering  allocation on a regular basis,  the new payment  requirement  may
have a materially  adverse  effect on the Company's  results of  operations  and
financial condition.


Failure to comply  with  Section  404 of the  Sarbanes-Oxley  Act may  seriously
affect the listing of the Company's ADSs

Section 404 of the Sarbanes - Oxley Act ("Section  404") requires the Company to
include a formal  assessment  of its internal  financial  controls in its annual
report  for the  fiscal  years  ending on or after  July 15,  2005,  along  with
attestations by the Company's  external auditor as to the effectiveness of those
controls.

The Company's auditors have found material  weaknesses in the Company's internal
control system relating, in particlular, to:

     -    Processes employed by the Company,  which are not sufficient to ensure
          that all related  parties,  as defined by IFRS,  U.S.  GAAP and in the
          rules of the U.S.  Securities and Exchange  Commission (the "SEC") are
          identified  and that the nature of  related  party  relationships  and
          related party transactions are disclosed in the Company's consolidated
          financial statements and Annual Report.

     -    The size of the IFRS  financial  reporting  department of the Company,
          which  is not  adequate  to meet the  IFRS,  U.S.  GAAP and the  SEC's
          reporting requirements.

     -    The lack of an Audit  Committee,  comprised of independent  directors,
          pursuant to SEC requirements.

The costs involved in complying with Section 404 may be  substantial.  While the
Company is taking steps to create adequate internal  approval  procedures and is
working with an independent consultant to improve its internal controls, failure
to comply with the requirements of Section

                                      -19-
<PAGE>
404 may lead to penalties and other  disciplinary  actions levied on the Company
by the SEC including de-listing of the Company's ADSs from the NYSE.


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 "On the Securities  Market",  as amended (the "Securities Market
Law"),  provides  that  shares  may be  held by  nominees  entitled  to  receive
dividends  and to vote on behalf of the  beneficial  owners  upon  their  voting
instructions.  However,  regulations  governing nominee holders,  custodians and
depositaries  are not yet well  developed  in  Russia.  Russian  law  treats the
depositary  as the  beneficial  owner of the shares  underlying  the ADSs,  and,
hence,  does not  recognize  the holder of ADSs as the  beneficial  owner of the
underlying  shares,  in  contrast  to the law of the United  States and of other
jurisdictions.

Russian  law does not  recognize  a  distinction  between  legal and  beneficial
ownership and 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 the shares underlying ADSs, Russian courts may treat those underlying
shares as the assets of the depositary  open to seizure or arrest giving rise to
the risk that the relevant ADS holders could lose their rights to the underlying
shares.

Although recent changes have been introduced into Russian  legislation  aimed at
ensuring that  depositaries vote strictly in accordance with the instructions of
ADS holders,  the  depositary  remains the  beneficial  owner of the  underlying
shares  under  Russian law and,  among other  things,  has the right to nominate
candidates to a company's Board of Directors on behalf of ADS holders.  Pursuant
to the JSC Law, the number of  nominations  made by the  depositary on behalf of
ADS holders may not exceed the number of existing  seats on the Company's  Board
of  Directors.  If the number of  candidates  proposed  by the ADS  holders  for
nomination by the depositary exceeds the number of places on the Company's Board
of Directors, some of the ADS holders' candidates may be disregarded which could
result in such ADS holders  having  diminished  influence over the governance of
the Company.


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  privatization  of the Company began in 1992 and continued until 1997. Given
that privatization legislation has been vague, inconsistent and in conflict with
other applicable  legislation,  and that there have even been conflicts  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
was found to have been  improperly  privatized  and it was unable to defeat such
claims,  the holders of the ADSs might risk losing their ownership  interests in
the Company's shares underlying the 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  only had a single block vote in respect of all shares
underlying ADSs because Russian law prohibited a shareholder  from choosing more
than one voting option on any given agenda item. Certain changes were introduced
in 2003 into  Russian  legislation  that  amend the  procedure  for  voting by a
depositary holding shares with underlying ADSs. In particular, amendments to the
FCSM  regulation  governing the  procedure  for  convening  and holding  general
shareholders'  meetings  granted  depositaries  the  right  to split  the  votes
pertaining to the shares  registered in their name in order to reflect different
voting instructions received from the ADS holders.

However  there are  practical  limitations  on the  ability  of ADS  holders  to
exercise  voting rights due to the additional  procedural  steps involved in the
Company's process of communication  with them. For example,  the JSC 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 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

                                      -20-
<PAGE>
either  attending  a  general  shareholders'   meeting  in  person,   through  a
representative, or by sending a completed voting ballot.

In  contrast,  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  is to be  notified  by the Company of a
general  shareholders'  meeting. In turn the depositary is required,  as soon as
practicable  thereafter but not later than 30 calendar days prior to the date of
the meeting, to mail the notice of such meeting,  voting instruction forms and a
statement  as to the  manner  in which  instructions  may be  given,  to the ADS
holders.  To exercise  their  voting  rights,  ADS  holders  must  instruct  the
depositary on how to vote. 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 in respect  of which the  depositary  does not  receive
voting  instructions  in time  will not be  counted  in any vote at any  general
shareholders' meeting.

Additionally,  the FCSM has recently  promulgated  regulations that restrict the
total number of shares of  outstanding  stock  allowed to  circulate  outside of
Russia through an ADS program.  Under the regulations,  not more than 40% of the
total  number of shares  of  outstanding  stock of each  class  are  allowed  to
circulate  abroad in the form of  newly-issued  ADSs.  While, as of December 31,
2003, Rostelecom's existing ADS program accounted for 24% of the total number of
the Company's  outstanding Ordinary shares and previous ADS programs,  including
the Company's existing ADS program,  should be exempt under a grandfather clause
in the regulations, in the future the Company may be required to reduce the size
of its ADS program or to amend the depositary agreement for the ADSs.


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 its  directors  and  executive  officers  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 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 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  these
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 contains a provision allowing
for the arbitration of disputes in London in accordance with Rules of the 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   courts   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 can be no
assurance that an ADS holder could enforce a foreign  arbitral award against the
Company in Russia.


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

The corporate  governance of the Company is regulated 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

                                      -21-
<PAGE>
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 or other jurisdictions. Although the
Company is subject to the reporting requirements of the U.S. Securities Exchange
Act of 1934, as amended (the "Exchange Act"), 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.


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"  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 to be converted into U.S. dollars or other foreign
currencies  by the  depositary  for  distribution  to the  ADS  holders  without
restriction.  However,  the  ability of the  depositary  holding  ADSs and other
persons to convert rubles into foreign  currency  depends on the availability of
foreign currency in the Russian currency market. Although Russia has an exchange
market for the  conversion  of the ruble  into  foreign  currencies,  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 for the
hedging of ruble investments.


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

The limited liquidity of the Russian corporate securities market and the lack of
effective regulation thereof, among other factors, may lead to prices of Russian
corporate  securities  and  related  ADSs  being  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 underdeveloped, the prices of Russian corporate securities and related
ADSs may be affected by practices that are not used in other markets.


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

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 the 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  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 of the  Company's  securities,  even if the Russian
economy remains relatively stable.


The price of the ADSs may be volatile due to numerous  factors many of which are
beyond the Company's control

The price of the Company's ADSs has been extremely  volatile and may continue to
be so.  Although the Company's  ADSs are currently  listed on the New York Stock
Exchange (NYSE), and traded on the London Stock Exchange and the Frankfurt Stock
Exchange,  it is possible  that an active public market for the ADSs will not be
sustained.  Furthermore,  the price at which the ADSs trade  could be subject to
significant fluctuations caused by a wide variety of factors, including:

     -    variations in the Company's operating results or financial condition;

     -    announcements  by the Company of significant  acquisitions,  strategic
          partnerships, joint ventures or capital commitments;

     -    regulatory actions that are harmful to the Company's business;

                                      -22-
<PAGE>
     -    loss by the Company of major licenses for the provision of services;

     -    issue of licenses  to other  operators,  resulting  in the loss to the
          Company of its monopolistic position in the telecommunications market;

     -    changes in financial  estimates or  recommendations in relation to the
          Company by securities analysts;

     -    economic conditions in Russia;

     -    resignation of the Company's key personnel;

     -    future equity or debt offerings,  or  announcements  of equity or debt
          offerings by the Company;

     -    future sales of substantial  amounts of the ADSs on the open market or
          expectations that such sales may occur;

     -    loss or insufficient liquidity of the Company's shares and/or ADSs;

     -    general conditions or trends in the fixed telecommunications industry;

     -    emergence and rapid development of new competing technologies;

     -    investors' perception of risks associated with emerging markets; and

     -    other  events or  factors,  many of which  are  beyond  the  Company's
          control.

In addition,  the public  markets for the stock of  telecommunication  companies
have experienced  extreme price and volume  fluctuations in recent years.  These
fluctuations  have often been  unrelated or  disproportionate  to the  operating
performance of such companies.  These market and industry factors may materially
and  adversely  affect  the  price  of the  ADSs,  regardless  of the  Company's
operating performance.  In the past, securities class action litigation has been
instituted against companies following periods of volatility in the market price
of their securities.  This type of litigation, if initiated against the Company,
could result in substantial costs and a diversion of management's  attention and
resources.


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 JSC  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 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 assurance 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

In addition to 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 Russia are also  operated  by  TransTelecom  through a
network  based on FOLs and  satellite  operators,  such as Federal State Unitary
Enterprise Space  Communications  and  Zond-Holding.  Alternative  operators are
particularly  active in the more  profitable  segments  of the  Russian  market,
including mobile services,  documentary telecommunications and long-distance and
international  telecommunications services in major cities. In 2003, alternative
operators

                                      -23-
<PAGE>
continued to expand their  presence in the  communications  service  market.  In
particular,  the rapid  development of mobile  communications is allowing mobile
operators  greater  access to the end users of  telephone  services  nationwide.
Mobile operators have the technical capability (but, at present, no legal right)
to transit DLD traffic to public switched  telephone  networks  ("PSTN") through
the mobile transit  operator OJSC  Mezhregionalny  Transit Telecom  ("MTT").  In
addition,  mobile operators have the legal and technical  capability to directly
exchange   mobile-to-mobile   traffic  with  the  result  that  in  2003,   only
approximately  35% of mobile traffic was carried by Rostelecom.  Given that this
communications  sub-sector  has the highest  growth rate,  the above factors may
increase  the  risk  of  the  Company  losing  its  dominant   position  in  the
telecommunications market.

Currently,  the Company's position in the fixed communications  sector, where it
is protected by favorable legislation, is more stable. Regional operators do not
have licenses for DLD and ILD traffic transit. Nonetheless, there is a risk that
the  Company's  share in the fixed  communications  sector will be eroded by the
future liberalization of the market.


Violation   of   applicable   laws  by  other   participants   of  the   Russian
telecommunications  market infringing  Rostelecom's  monopoly rights may cause a
decline in the Company's revenues

Insufficient  action by  governmental  authorities in ensuring  compliance  with
applicable  laws allows  certain  companies to infringe the  Company's  monopoly
rights to DLD and ILD traffic  transit and to termination  of incoming  traffic.
The absence of social and  cross-subsidies  burdens  allows  these  companies to
offer  substantially  lower tariffs causing the Company's revenue to decline due
to:

     -    loss in  volume  of  traffic  received  as a result  of  traffic  that
          bypasses Rostelecom's networks; and

     -    the  reduction  of tariffs by the Company for its services in order to
          remain competitive.

The  inability  of the  Company to  protect  its  monopoly  rights may cause the
Company's revenues and profits to decrease considerably in the future.


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

Under the  existing  practice of  cross-subsidies,  IRCs,  which  provide  local
telephony  service to their customers at below market rates, are subsidized from
DLD and ILD  operations  as IRCs are able to set above  market rate  tariffs for
their  subscribers  for ILD and DLD  calls.  Also  IRCs  receive  payments  from
Rostelecom for traffic termination on their network at a Termination  Settlement
Rate which  exceeds costs and market rate profit,  and which  provides IRCs with
additional profit to subsidise loss-making local communications.

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 encourage
the Company's  customers to change the pattern of service  consumption  or avail
themselves of cheaper services from certain competitors,  and this, in turn, may
reduce the Company's revenues. The maintenance of the Company's leading position
as a main operator in the Russian  telecommunications market will largely depend
on  improvements  by  the  Company  of its  tariff  policy  and  on the  Russian
Government's adoption of laws and regulations to stimulate  competition,  remove
existing  imbalances and introduce  equal  treatment and rules of regulation for
all operators and communications services.


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 material adverse impact on
the performance and continuity of the Company's business

There is no  comprehensive  legal  framework  with  respect to the  provision of
telecommunications  services in Russia,  although a number of laws,  decrees and
regulations apply to the telecommunications sector.

On January 1, 2004, the Communications Law came into force. Although it contains
more detailed guidance on the behavior of participants in the telecommunications
sector than previous rules and regulations,  it also contains certain provisions
that may weaken its impact and lead to greater uncertainty.  Among other things,
the Communications Law contains a substantial number of rules which specifically
indicate that  implementation  of the rules require further decrees to be issued
by the Russian government and executive

                                      -24-
<PAGE>
authorities  in the  communications  sector.  The  rules  are  thus  subject  to
significant uncertainty pending the issuance of any such decrees.

A second  principal  legal act  regulating  telecommunications  in Russia is the
Federal  Law "On  Natural  Monopolies",  of August 17,  1995,  as  amended  (the
"Natural  Monopolies  Law"). The current  regulatory  framework does not clearly
establish how the Natural Monopolies Law and the Communications Law are intended
to interact  with each other,  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 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 the above could  increase the Company's  costs and could
have a material adverse effect on the Company's business,  financial  conditions
and results of operations.


The regulatory environment of the  telecommunications  industry in Russia may be
subject to political  influence,  resulting in negative regulatory  decisions on
grounds other than legal ones. In particular,  the telecommunications  system is
regulated by 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 influence on the Company

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 FAS 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 monopolies operating in the  telecommunications  industry.
Therefore,  since the Company is considered as a natural monopoly, it is subject
to the control of the FAS.

The Natural  Monopolies Law provides a legal basis for the federal regulation of
telecommunications  providers and provides for state control over the setting of
tariffs for  publicly-accessible  telecommunications  services and mail services
and other  activities.  This law may have a significant  impact on the Company's
ability to set tariffs  independently.  The Natural  Monopolies Law also governs
the types of transactions  into which a regulated  entity,  such as the Company,
may enter. In addition,  as a regulated entity,  the Company is not permitted to
refuse to conclude  contracts with particular  consumers if the FAS 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
regulate  tariffs or require the Company to enter into specified  contracts with
state-owned  entities.  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.

The  Communications  Law  provides  for the  possibility  of obtaining a license
authorizing  the  provision  of  communications  services  for a term of 3 to 25
years. At the same time, the Communications Law contains a broad list of grounds
for the  suspension  and  cancellation  of  licenses  issued  to  communications
operators,  including  grounds  such  as  the  detection  of any  violations  of
normative acts in the  communications  sector and discovery of false information
in documents submitted to a governmental  authority for the purpose of obtaining
a license. Such grounds may be broadly construed.

                                      -25-
<PAGE>
Regulatory  uncertainties  affecting the  maintenance and renewal of the Group's
licenses and certification of its  telecommunications  equipment could result in
difficulty  for,  or even  inability,  of the Group 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  deals  directly  with
end-users,  providing DLD and ILD services and billing subscribers directly. The
Moscow  telecommunications  market is highly  competitive,  particularly  in the
corporate customer segment. Rostelecom's share in the Moscow market has declined
in each of the last few years,  particularly in the corporate  customer segment,
resulting in the decrease of revenues from subscribers.  Because other operators
are  smaller  and tend to be more  flexible  in their  tariff  policy  and their
activities  are not subject to  antimonopoly  regulation,  it is likely that the
Company's market share in Moscow will decrease further.


If the demand for certain  communications  services  the  Company  has  recently
introduced  or is  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,  its Intelligent Network
which  provides  among others  toll-free,  mass-calling  enquiry  services,  and
Televoting service which provides a mass-calling service for TV, radio and other
press  events  which  involve a high volume of calls and its "Karta  Svyazi",  a
pre-paid  telephone  card  service,  have  potential for strong  growth.  If the
markets for these  services do 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.

In particular,  the Company plans to enter the transit market between Europe and
Asia,  which,  based on preliminary  estimates,  might partly compensate for the
reduction  of  revenues  caused  by the  potential  loss by the  Company  of its
dominant position in the Russian  telecommunications  services market. The scope
and potential of this market are currently being studied.  However,  even if the
large potential of this market is realized and the Company  successfully  enters
the market,  there is a risk of a future  decrease in the demand for Europe-Asia
transit services due to both economic crises as well as increases in competition
caused by other major  telecommunications  operators,  the  commissioning of new
cable systems and the rapid expansion of new services.  A loss by the Company of
a considerable part of Europe-Asia  traffic might restrict its planned growth in
revenues, or result in a reduction of its current revenues.


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

The Company  bills  end-users at set tariffs and IRCs and other local  telephone
operators  for domestic  long-distance  and  international  traffic at either an
agreed  proportion of the receipts that 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.  Possible 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 the Company  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.

                                      -26-
<PAGE>
The Company  engages in  transactions  with related  parties that need  specific
pre-approval under Russian law and may not be conducted on market terms.

The Company,  its principal  shareholders and their affiliates have engaged in a
number of significant  transactions  among themselves and may continue to do so.
Due to the technical requirements of Russian law, transactions between different
members of the Group may need to be approved as related party  transactions.  If
the value of a related  party  transaction  equals or exceeds 2% of the  balance
sheet value of the Company's assets,  such transaction must be approved prior to
its execution by a majority vote of the  disinterested  shareholders.  All other
related  party  transactions  need to be approved  prior to their  execution  by
disinterested members of the Company's Board of Directors.  The JSC Law provides
certain relief from the approval of related party transactions  concluded within
the scope of the  Company's  normal  business  operations.  For the avoidance of
doubt, the Company does not believe that the sale of its interest in RTC-Leasing
was a related party transaction under Russian law.


The failure to obtain  necessary  corporate  approvals prior to the execution of
relevant  transactions  could lead to the  challenge  and  invalidation  of such
transactions  in court  and  therefore  have a  material  adverse  effect on the
Company's operations

In addition,  the definition of a related party transaction is closely linked to
the complicated and rather vague concept of "affiliate", which may be subject to
different  interpretations,  as well as to other concepts used in Russian law to
describe  related  party  transactions  and the  procedure  for their  approval.
Although the Company has generally taken a reasonably  conservative  approach in
applying  these  concepts,  it cannot be certain that the  application  of these
concepts will not be challenged in court. Any such challenge could result in the
invalidation of transactions that are important to the Company's business.

For more  details on the  Company's  related  party  transactions  see Item 7.B.
"Related Party Transactions".

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

Although the Company has equipment  providing  back-up  capacity in the event of
the 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:

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

     -    power loss;

     -    natural disasters; and

     -    general transmission failures.

Any failure in the  Company's  network or other  systems or hardware that causes
significant interruptions in its operations could have a material adverse effect
on the Company's business,  financial  condition and results of operations.  The
Company's operations are also 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 the  attrition  of its customer
base, reduced margins and financial losses.


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

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 services available to the Company.

The Company is also dependent on its qualified  personnel required for financial
reporting in accordance  with IFRS,  U.S. GAAP and SEC  requirements.  In Russia
there is only a limited number of individuals  having  adequate IFRS,  U.S. GAAP
and SEC reporting expertise and there is an increasing demand for such personnel
as more Russian companies are beginning to prepare  financial  statements on the
basis of IFRS or U.S. GAAP. Such competition  makes it difficult for the Company
to hire and retain such personnel, and there is a risk that the Company will not
have sufficient qualified personnel to meet its needs.

                                      -27-
<PAGE>
Although  the  Company  believes  that it has a  solid  and  adequate  personnel
retention  system and 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.

Since the beginning of 2003,  the Company  insured its fixed  production  assets
(electronic  equipment and communications  facilities),  but such insurance does
not  provide  for  compensation  for damage  incurred in the event of a business
interruption  and does not  cover  liability  to third  parties  for  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 the 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)
changes to  engineering  designs,  (iv) demand for services at variance with the
Company's  expectations,  (v) adverse  regulatory,  technological or competitive
developments,  (vi) major changes in market conditions. The capital requirements
of the Company have and may continue to deviate  materially  from the  Company's
estimates of such requirements.


The new currency control regime could have an adverse effect on the Company

In June 2004,  most of the  provisions of the recently  adopted  Federal Law "On
Currency Regulation and Currency Control" (the "Currency Control Law") came into
force.  While the  Currency  Control  Law is intended  to  gradually  liberalize
Russian  currency  control  regulations  it also allows the  Government  and the
Central  Bank to  introduce  other  forms of  currency  regulation,  such as the
formation  of  mandatory  reserves  and the use of special  accounts  in Russian
banks. The reserve requirements are intended to give the Central Bank additional
tools to combat  asset-price  and currency  instability by curbing the inflow of
short-term  speculative  funds into,  and  preventing the outflow of funds from,
Russia.  The  implementation  of these new requirements may make certain foreign
currency  operations   burdensome  and  financially   unattractive  for  Russian
entities.  However,  until the  Russian  Government  and the  Central  Bank have
enacted and implemented  regulations  under the Currency  Control Law, it is not
clear  whether  and to what  extent the  Currency  Control  Law will  affect the
Company's business. Among other things, it is possible that the Currency Control
Law may hamper the company's ability to receive foreign funding.


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 foreign
investment  in the  telecommunications  industry.  However,  there  is a lack of
consensus   on  the  methods   and  scope  of   government   control   over  the
telecommunications  industry.  The Federal 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.

                                      -28-
<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 Economic Development and Trade, which holds
50% plus 1 share in OJSC Svyazinvest  ("Svyazinvest") and the Federal Agency for
Federal Property Management, which holds 25% plus 1 share in the charter capital
of Svyazinvest, effectively controls Svyazinvest and its group of companies (the
"Svyazinvest  Group").  Svyazinvest  holds  50.67% of the  voting  shares of the
Company.  Thus,  the  Government  of the  Russian  Federation  has 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 of the Company's Board of Directors and Management Board. The
interests  of the  Government  of the  Russian  Federation  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

Rostelecom 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.  The Government has indicated its readiness to further  decrease
its  interest  in  Svyazinvest.  In  addition  there  can be no  assurance  that
Svyazinvest  will not  decrease  its  interest in the Company  thereby no longer
maintaining  its present degree of control over  Rostelecom.  Any such change of
control may have a material adverse impact on the Company's business  activities
due to the following factors:

     -    A change in control of Svyazinvest may result in unpredictable changes
          within the Company,  including the change of the Company's  management
          and its business approach, as a result of 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
          maintenance  of 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 currently 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 IRCs that are
          subsidiaries of Svyazinvest.  Currently,  revenues generated from IRCs
          account for 47% of the Company's revenue; and

     -    The sale or potential  sale of a  significant  number of  Rostelecom's
          shares  out of the  50.67%  stake  held 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  Long-Distance  and  International  Telecommunications
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 rostelecom@rostelecom.ru.

Rostelecom's Charter capital is currently equal to 2,428,819.4725 nominal rubles
and is comprised of 728,696,320  Ordinary  Shares,  nominal value RUR 0.0025 per
share, and 242,831,469 Preferred Shares, nominal value RUR 0.0025 per share.

On November 27,  2000,  the  extraordinary  general  shareholders'  meeting (the
"GSM") of Rostelecom approved a revised version of the Company's Charter,  which
authorized  the issuance of an additional  905,330,221  Ordinary  Shares and 531
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

                                      -29-
<PAGE>
the  total  of  authorized  but  unissued  shares  without   obtaining   further
shareholders' approval. As of  June  30,  2004  Rostelecom  had not  issued  any
additional shares.

On June 15,  2003,  the annual GSM  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.

For  further   information,   see  Item  10.B.   "Memorandum   and  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.


Listing of the Company's Shares

The Company's ADRs have been listed on the New York Stock Exchange  (ticker ROS)
since February 17, 1997. Its common and preferred shares (tickers RTKM and RTKMP
respectively)  have been listed on the Russian Trading System Exchange (RTS) and
the Moscow  Interbank  Currency  Exchange  (MICEX)  since  October  27, 1997 and
February 27, 1997, respectively.  Its common shares have also been listed on the
Saint-Petersburg Stock Exchange (ticker RTKMG) since July 11, 2003.


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 business 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").


Automation of Business Processes

ERP-system Introduction and Development

In 2003, to improve the Company's  management  system,  Rostelecom  continued to
implement the finance  component of its Microsoft  Navision  Axapta  Enterprises
Resource Planning ("ERP") System.  Management  believes that the introduction of
its Axapta ERP System  will create a uniform  information  system for the entire
organization  and assure prompt access to  integrated  information,  which is of
critical  importance for the efficiency of  decision-making by the management of
the Company.


Personnel Management and Salary Calculation System

In 2003,  Rostelecom set up a uniform system of personnel  management and salary
calculation  based on  BOSS-Kadrovik  software  and rolled out the system to all
branches of the Company.


Corporate Governance Development

Throughout  2003 the  Company  undertook  to enhance  its  corporate  governance
standards by creating a number of  committees  under the control of its Board of
Directors and its Management Board and prepared drafts of a Corporate Governance
Code,  a Code  of  Ethics,  an  Insider  Trading  Policy  and a new  Information
Disclosure  Policy.  In April 2004, the drafts of the Corporate  Governance Code
and the Code of Ethics were approved by the Board of Directors of Rostelecom.

On July 10,  2003,  the  Management  Board of  Rostelecom  formed the  following
committees:

                                      -30-
<PAGE>
     o    Tariff Committee

The main purpose of the Tariff  Committee is to enhance the effective  operation
of the Company in making  tariff  policy  decisions  required for the  Company's
successful  implementation  of its business  plans,  strategies and  development
programs.

The main functions of the Committee include maintaining a flexible tariff policy
aimed at realizing the marketing plan of the Company,  organizing and optimizing
sales promotion  systems,  and preparing  proposals to the Company's  Management
Board on the above matters.

     o    Budget and Investment Committee

The main  purpose of the  Budget  and  Investment  Committee  is to enhance  the
effective  operation of the Company in making  budget and  investment  decisions
required for the  successful  implementation  of the Company's  business  plans,
strategies and  development  programs,  and the  financial,  business and tariff
policies of the Company.

The main  functions of the  Committee  include  maintaining  a  correlation  and
consistency  between  the  budgeting  and  investment  processes,  control  over
compliance with those  processes,  and preparation of proposals to the Company's
Management Board on the above matters.

     o    Compensation Committee

The purpose of the Compensation Committee is to create an effective compensation
system designed to manage human  resources so as to enhance the  competitiveness
and long-term success of the Company.

The main  function of the  Committee  is to maintain a  correlation  between the
overall strategy of the Company's development and the Company's policies related
to payment of salaries, and bonuses to employees.

     o    Information Disclosure Committee

The main purpose of the  Information  Disclosure  Committee is to formulate  and
implement  a  uniform   information  policy  consistent  with  applicable  legal
requirements, as well as with the Company's development strategy.

The main functions of the Committee include maintaining  consistency between the
Company's  information policy and its strategy and development goals,  enhancing
the accuracy and  timeliness of the  disclosure by the Company of information in
accordance  with  applicable  legal  requirements  and  the  Company's  internal
regulations,  as well as enhancing the conformity and consistency of information
to be publicly disclosed by the Company.

On September 16, 2003, the Board of Directors of Rostelecom formed the following
committees:

     o    Committee for Strategic Planning

The Committee for Strategic Planning, among other things, performs the following
duties:

     -    Preliminary  consideration and preparation of recommendations  for the
          drawing up of the Company's strategic  development plan for the period
          until 2010;

     -    Overseeing the implementation of the Company's  strategic  development
          plan;

     -    Preparing recommendations for the Company's dividend policy;

     -    Preparing  recommendations  for the implementation by the Company of a
          procedure for investment planning and monitoring;

     -    Appraisal of the Company's efficient operation in the long term;

     -    Preparing   recommendations   for  adjusting  the  Company's   current
          strategy; and

     -    Preparing  recommendations for the interaction between the Company and
          its affiliated and subsidiary companies.

                                      -31-
<PAGE>
     o    Nominating and Compensations Committee

The Nominating and  Compensations  Committee,  among other things,  performs the
following duties:

     -    Formulating the Company's  policy in respect of appointment of members
          of the  Board of  Directors,  the  General  Director,  members  of the
          Management Board and heads of the Company's key departments;

     -    Determining qualifications for candidates to the Board of Directors;

     -    Formulating the Company's  policy defining  principles and criteria to
          determine the salaries of members of the Board of Directors, the Audit
          Commission,  the General  Director,  members of the Management  Board,
          heads of key  departments,  as well as criteria for appraisal of their
          activity;

     -    Preparing   recommendations   for  the  Company's   personnel  policy,
          including the employee incentive system; and

     -    Formulating  appraisal  criteria and  appraisal of  activities  of the
          Company's management.

On April 28, 2004,  the Board of Directors of Rostelecom  approved the Corporate
Governance Code of Rostelecom setting forth the following principles  underlying
the corporate governance system of the Company:

     -    Compliance with the rights and interests of the Company's shareholders
          as provided in all applicable laws, rules and regulations;

     -    Compliance with ethical standards of business conduct;

     -    Transparency  of the  Company  with  respect  to  financial  and other
          information;

     -    Maintenance of an effective system of internal audit and controls;

     -    Accountability  of the Board of Directors and the Management  Board to
          shareholders; and

     -    Effective  cooperation  with the  Company's  employees  in  addressing
          safety issues and the provision of proper working conditions.

At its meeting  held on April 28, 2004,  the Board of  Directors  of  Rostelecom
approved the Code of Ethics of  Rostelecom  which set standards for the business
conduct and ethical  behavior  of members of the Board of  Directors,  the Audit
Commission, Officers and Employees of the Company including:

     -    Full compliance with the  requirements of all applicable  laws,  rules
          and regulations;

     -    Compliance  with a  required  standard  of  business  ethics  and with
          methods of  resolving  conflicts  of  interest  between  personal  and
          professional activities;

     -    Prompt and full  disclosure of  information to be submitted to Russian
          and  foreign  governments,   regulatory  agencies,   stock  exchanges,
          shareholders, investors and other stakeholders;

     -    Compliance with the requirements of the Company's internal regulations
          with respect to the safekeeping  and use of  confidential  information
          obtained as a result of the performance of official duties;

     -    Prohibitions  against the abuse of official  powers for personal gain,
          including the use of the Company's property; and

     -    Notification  to the  Nominations  and  Compensation  Committee of the
          Board of  Directors  of OJSC  Rostelecom  of  breaches  of the Code of
          Ethics.

Currently,  Rostelecom's  management is working to further improve the Company's
corporate  practices in an active 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 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,   composed  entirely  of
          independent directors;

     -    The revision of the existing Information Disclosure Policy;

                                      -32-
<PAGE>
     -    The enactment of an Insider Trading Policy; and

     -    The formalizing and streamlining of its internal controls system.

For details regarding the Audit Committee and the Code of Ethics please refer to
Item  16.A.  "Audit  Committee  Financial  Expert"  and to Item  16.B.  "Code of
Ethics."

In November  2003,  the SEC  approved  changes to the NYSE's  listing  standards
related to the corporate governance  practices of listed companies.  Under these
standards,  Rostelecom  is  required  to disclose  any  significant  differences
between the corporate governance practices that Rostelecom follows under Russian
law and  applicable  listing  standards  and  those  followed  by U.S.  domestic
companies  under  NYSE  listing  standards.  This  disclosure  is  posted on the
Company's  website   (http://www.rt.ru/en/icenter/administration/standard/index.
wbp).


New Standard & Poor's Ratings

On November 13, 2003, the  independent  rating agency  Standard & Poor's ("S&P")
upgraded  Rostelecom's  long-term credit rating to "B" from "B-" with a positive
outlook.

S&P  commented  in its report  that the  rating  upgrade  reflects  Rostelecom's
gradual  debt  reduction,  the  effects  of the  recent  change  in the  Russian
interconnection  regime,  and,  importantly,  its recent  restructuring  and the
elimination  of any  uncertainties  in respect of the Company's  yen-denominated
debt to the Russian Ministry of Finance.  S&P also noted that the overall strong
growth of the Russian  telecommunications market and the tangible results of its
management's efforts in cost reduction and securing Rostelecom's dominant market
position  have  further  contributed  to the  improved  credit  standing  of the
Company.

The positive  outlook  reflected an expectation  that  Rostelecom  would further
improve its capital structure through positive cash flow generation and the sale
of  RTC-Leasing.  The Company is also expected to increase  revenue growth above
the level of  inflation,  based on  improved  interconnection  arrangements  and
active protection of its market position in the major telecommunications  market
of Moscow.

On January 28, 2004,  Rostelecom was awarded a corporate governance score of 6.4
(out of a possible 10) by S&P.

S&P commented that this corporate  governance  score is driven by good financial
transparency,   timely  disclosures,  easy  access  to  most  of  the  Company's
information  via an  informative  bilingual  website,  and a proactive  approach
regarding  investor  relations.   According  to  S&P  analysts,   Rostelecom  is
noticeably  ahead of most of its domestic peers, and is in line with many of its
foreign peers in terms of transparency and investor relations.

S&P  also  strongly  commended  Rostelecom's  management  for its  diligence  in
upholding  shareholders' rights, the procedures governing shareholders' meetings
and  dividend  policy  and the  smooth  functioning  of its  relations  with its
financial stakeholders.

Rostelecom's  corporate  governance  score was the second  highest among Russian
companies at the time it was assigned by S&P and the highest currently  assigned
by S&P to any company within the Svyazinvest group.


Investor Relations development

At the first Annual IR Magazine Russia Conference and Awards 2004 held in Moscow
on January  29,  2004,  Rostelecom  was ranked  first in the  category  for most
progress in investor  relations,  while Anna Kareva,  Rostelecom's  Director for
Public  and  Investor  Relations,  won the  award  for best  investor  relations
officer.

Over 20 leading  Russian  companies  whose  shares  are  traded on  Russian  and
international  stock  exchanges  competed  for the  awards  in nine  categories.
Winners were  determined  on the basis of a survey of analysts and fund managers
covering the Russian equity market, conducted by an independent research firm.


Restructuring of Rostelecom's Obligations to RTC-Leasing and Sale of RTC-Leasing

In 2003, Rostelecom completed a series of transactions through which it divested
its remaining  interest in its former  consolidated  subsidiary  RTC-Leasing,  a
provider of  financial  leasing  services to Russian  companies  involved in the
telecommunications  industry.  RTC-Leasing  also holds  interests in a number of
companies

                                      -33-
<PAGE>
that  provide  leasing  services  in Russia,  engage in  financial  and  banking
activities, as well as in several telecommunications operators in Russia.

From  1998  to  2001,   Rostelecom   leased   most  of  its   telecommunications
infrastructure from RTC-Leasing  pursuant to various leasing agreements in order
to take  advantage  of  favorable  Russian tax  treatment.  During such  period,
leasing agreements with Rostelecom made up almost 100% of RTC-Leasing's  leasing
portfolio. As of the beginning of 2001, Rostelecom's gross lease payments due to
RTC-Leasing amounted to approximately RUR 13 billion.

From the beginning of 2001, Rostelecom began to purchase, rather than lease, its
telecommunications  equipment  from third  parties,  reducing the  importance of
Rostelecom's relationship with RTC-Leasing. In addition, RTC-Leasing became less
strategically important to Rostelecom as it was able to secure financing on more
favorable  terms from third  party  sources,  while  Rostelecom  maintained  its
guarantee of the majority of RTC-Leasing's  debt to third parties,  all of which
contributed  to  Rostelecom's   relationship  with  RTC-Leasing   becoming  less
economically viable. As a result, in September 2001, Rostelecom offered a number
of strategic  investors  interests in RTC-Leasing to finance the diversification
of  RTC-Leasing's  business and the  expansion of its client base with a view to
making RTC-Leasing a more profitable business. With the expansion of its leasing
business  with  third  party  customers,  RTC-Leasing's  leasing  business  with
Rostelecom fell to approximately 60% of RTC-Leasing's  overall leasing portfolio
as of end of 2002.

In May 2003, in light of RTC-Leasing's  business development,  Rostelecom agreed
with  RTC-Leasing's   other  shareholders  to  restructure  its  obligations  to
RTC-Leasing and sell its interest in RTC-Leasing to a third party. On October 2,
2003 and subsequently on December 26, 2003,  Rostelecom and RTC-Leasing  amended
the terms of the leasing  agreements  between  Rostelecom and  RTC-Leasing.  The
amended  leasing  agreements  stated that: (i) title to the equipment  leased by
Rostelecom under the leasing  agreements would be transferred to Rostelecom upon
the assignment of  RTC-Leasing's  rights to a third party, or the termination of
Rostelecom's  obligations,  under the leasing  agreements,  and (ii)  Rostelecom
would pay  RTC-Leasing  RUR 3,140.4  million (VAT exclusive) on January 28, 2004
and RUR 1,958.5 million (VAT exclusive) on January 30, 2034. The amended leasing
agreements  came into force upon receipt by Rostelecom of a letter dated October
7,  2003  from  RTC-Leasing  confirming  that  (i)  RTC-Leasing  had met all its
obligations  secured  by  guarantees  or  pledges  of  Rostelecom,  and (ii) the
equipment,  which was the subject of the leasing  agreements,  was free from any
security interests.

On October 22 and 27, 2003,  Rostelecom sold its 27% interest in RTC-Leasing for
RUR 740 million to CJSC Raiffeisenbank Austria  ("Raiffeisenbank"),  acting as a
broker for an undisclosed third-party purchaser. Raiffeisenbank orally confirmed
on the date of the  transaction  and in a letter  dated May 19,  2004,  that its
client was not, and had never been, a related  party of  Rostelecom.

Before December 31, 2003,  Rostelecom  effectively paid to RTC-Leasing RUR 3,520
million by purchasing promissory notes issued by RTC-Leasing.

On January 24, 2004,  Rostelecom  entered  into a number of novation  agreements
(the "Novation  Agreements") with RTC-Leasing whereby  Rostelecom's  obligations
under  the  leasing  agreements  to make a payment  of RUR  1,958.5  million  to
RTC-Leasing in 2034 were terminated and Rostelecom  assumed a debt obligation to
RTC-Leasing  of RUR 1,958.5  million (plus VAT at 18%) due in 2038 which accrued
interest at 0.1% per annum.

The conditions for the transfer of titleof the leased  property  pursuant to the
amended  leasing  agreements thus  satisfied,  on January 30, 2004,  RTC-Leasing
transferred to Rostelecom the title to the leased telecommunications  equipment.
On  February  12,  2004  RTC-Leasing   assigned  its  rights  over  Rostelecom's
substituted  obligation to Westelcom for consideration of RUR 368.1 million.  As
of June 30, 2004, the Group had no outstanding obligations to RTC-Leasing.

In connection with the disposal of subsidiaries,  Rostelecom  recognized loss of
RUR 1,398 million (including  write-down of property,  plant and equipmentof RUR
419 million).

For additional  details  regarding the sale of RTC-Leasing and the restructuring
of  Rostelecom's   leasing   agreements   details  please  refer  to  Item  4.A.
"Acquisitions",  Item 4.A.  "Divestitures",  Item 10.C "Material  Contracts" and
Note 23 to Rostelecom's  consolidated financial statements included elsewhere in
this Annual Report.


Introduction of the New Settlement System

In July 2003, the FAS abolished the ISR for settlements  between  Rostelecom and
regional  operators  and  approved  the new  settlement  system for DLD  traffic
transit with effect from August 1, 2003.

                                      -34-
<PAGE>
Under  the  ISR,  regional  operators  were  not  paid  by  Rostelecom  for  the
termination of incoming traffic.  Regional operators were instead compensated on
the basis of outgoing  traffic only  (although  incoming  traffic was considered
when setting the ISR). The ISR operated through offsetting  termination  charges
between regional operators based on the balance of incoming and outgoing traffic
between their respective regions, with settlements made for the outgoing traffic
only. As the ISR was calculated  once a year on the basis of the previous year's
traffic data, the ISR could not account for the frequent changes in incoming and
outgoing volumes of operators'  traffic during the year,  leading to distortions
in settlements.  While the ISR was used for settlements,  alternative  operators
were able to bypass  Rostelecom's  network and to offer regional  operators more
competitive settlement rates for DLD traffic than Rostelecom,  thus resulting in
the receipt of lower revenues by Rostelecom.

The new settlement  system is in line with  established  world  practices and is
expected  to provide a  stimulus  for the  further  development  of the  Russian
telecommunications  market.  The Company believes that the new settlement system
improved  pricing  transparency,  enhanced  the  degree  of  precision  by which
operators  can settle their  monetary  obligations  to each other and remove the
economic rationale for operators to bypass Rostelecom's  network with the result
that the Company's share of DLD traffic volume and its revenues will increase.

Under  the  new  settlements  system,  Rostelecom  began  to bill  the  regional
operators for the transit of DLD calls  calculated  using the Linear  Settlement
Rate and to pay regional  operators for the termination of DLD calls  calculated
using the Termination Settlement Rate.  Previously,  Rostelecom made no payments
for  termination  and  recognized  revenue for the transit of the traffic on the
basis of the ISR.

The  Company  expects  that  payments  to  regional  operators  for  all  actual
terminated  minutes of traffic will  encourage  operators to route their traffic
through Rostelecom's  network thereby increase  Rostelecom's traffic transit and
revenues.  In this way, the new settlement system should provide for equal terms
for all operators  interconnected  to  Rostelecom's  network on the trunk level,
irrespective of ownership. For more information,  please see Item 4.B. "Business
Overview."


Rostelecom Investment Policy Highlights

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

The investment program focuses on the following major areas:

     -    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;

     -    Expansion   of   existing   Automatic    Switching   Nodes   ("ASNs"),
          International   Switching  Centers   ("ISCs"),   and  Automatic  Trunk
          Exchanges ("ATEs");

     -    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;

     -    Construction of high-speed fiber optic  telecommunications trunk lines
          which  will  provide  the  Company  with  access to new  international
          routes,  link the Russia's major cities to the Company's  network,  as
          well as create a backup system for existing  telecommunications lines;
          and

     -    Phasing  out of analog  trunk lines  along with the  expansion  of the
          digital network.


Capital Expenditures

To achieve  its  strategic  objectives,  in the  mid-1990's  the  Company  began
construction of a modern telecommunications  infrastructure and expansion of its
primary network and implemented  new  technologies  which enabled the Company to
enlarge 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.

                                      -35-
<PAGE>

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 fiber optic
lines  (FOL),   long-distance  switches  with  10,800  channels,   international
telephone  exchanges with 1,320 channels,  one satellite station and a telephone
exchange with 2,600 numbers.

The most significant investment projects implemented in 2001 were as follows:

     -    Kizlyar to Grozny FOL;

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

     -    Lyuban to Issad FOL;

     -    Issad to Petrozavodsk FOL;

     -    Expansion of the three ATEs of Moscow and the Moscow Ring FOL; and

     -    The launch 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 were as follows:

     -    Russia  to  Kazakhstan  FOL  created  a  second  point  of  access  to
          Kazakhstan for Rostelecom's trunk network.  The line that connects the
          Russian   and  Kazakh  ISCs  has   completed   the  loop  of  existing
          telecommunications lines between Russia, Kazakhstan, and China.

     -    Baltic Cable System Project (first stage) was developed in conjunction
          with the  Swedish  firm  Telia  (now  TeliaSonera)  and  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.

     -    Expansion  of traffic  capacity of the Moscow to  Novosibirsk  FOL and
          Moscow to  Novorossiysk  FOL. 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.

     -    Flexible  Multiplexers  Network (First & Second stages) is expected to
          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.


Capital construction and investments in 2003

In 2003, the Company invested  approximately  RUR 3,579 million in its property,
plant and equipment.

The most significant investment projects implemented in 2003 were as follows:

     -    Yoshkar-Ola  to Kirov FOL with link to  Cheboksary  provides  a modern
          high-performance  transmission  line giving Kirov and Cheboksary  ATEs
          with access to the primary trunk  network and providing  Yoshkar-Ola's
          ATE with secondary access to the trunk network.

     -    Gatikha  to  Apastovo  FOL  (first  stage)  provides  a backup for the
          European  part of the Moscow to  Khabarovsk  trunk line,  and provides
          Nizhny Novgorod and Cheboksary ATEs with access to the Company's trunk
          network.

     -    International  Russia to  Azerbaijan  FOL  connects  the  Russian  and
          Azerbaijan  ISCs,  and  strengthens  Rostelecom's  market  position in
          traffic exchange in the Caucasus and the Middle East.

     -    Expansion  of ATEs and ASNs  increases  the  number  of the  Company's
          long-distance and international  channels and improves the quality and
          range of communications services.

     -    Conversion  of  an  analog   communications   system  into  a  digital
          communications  system. In 2003 the Company implemented the first part
          of its program  for the additional installation  of analog  to digital

                                      -36-
<PAGE>
          converter  equipment  as  a substitute  for  analog  communications in
          connection with the decommissioning of analog transmission lines.


Main directions of development in 2004 and beyond

Rostelecom plans to invest  approximately  RUR 4,000-5,000  million annually for
projects from 2004 to 2006.  The Company plans to use cash from  operations  and
external financing sources for this investment  program.  The investment program
for 2004 and subsequent years includes the following major projects:

     -    Kaliningrad  to Gvardeisk to Sovetsk FOL with a link to the Lithuanian
          border. This project, completed in February 2004, links Kaliningrad to
          Rostelecom's  network by a digital line thus  expanding  the Company's
          international  network.  The main goal of the project is to digitalize
          Kaliningrad's    trunk    network   and   to   ensure   high   quality
          telecommunications  connections  between  this  region and the rest of
          Russia.  The  introduction of the fiber-optic  line and  international
          switching center is expected to create the opportunity for substantial
          DLD and ILD traffic growth,  the  development of the Internet  network
          and the introduction of new services in the Kaliningrad region.

     -    Gatikha to  Apastovo  FOL  (second and third  stages)  will  provide a
          backup for the European part of the Moscow to  Khabarovsk  trunk line,
          and will provide Nizhny  Novgorod and  Cheboksary  ATEs with access to
          the Company's trunk network.

     -    Expansion of traffic  capacity of the  Novosibirsk  to Khabarovsk  FOL
          through the installation of DWDM equipment will expand the capacity of
          this  important  backbone  line of  Rostelecom's  network and which is
          expected  to allow the  Company  to  compete  for a greater  amount of
          transit traffic between Europe and Asia.

     -    Ekaterinburg  to Perm FOL will  complete  the loop for the  Moscow  to
          Khabarovsk line in the Volga and Urals regions.

     -    Kingissep  to  Smolensk to Moscow FOL with links to Belarus and Latvia
          will create a loop in the North-Western  region, and provide a back-up
          for the Baltic Cable System.

     -    Ufa to Orenburg FOL will create the second digital  interconnection to
          Orenburg's ATE.

     -    Construction  of ISCs and ITEs is expected to increase  the  Company's
          existing switching capacity, the number of the Company's long-distance
          and international channels and to improve the quality and range of its
          communications services.

     -    Modernization of ASNs will allow for the interconnection of additional
          operators,  the expansion of channel  capacity and  improvement in the
          quality of service offered.

     -    Creation  of a center  for  monitoring  the  Signaling  System (SS -7)
          network is expected to improve the management of the Company's network
          and enhance its billing capacity.

     -    Implementation of a new modern billing system designed to service both
          subscribers  and operators,  is expected to improve the quality of the
          Company's  customer  service,   optimize  receivables  settlement  and
          improve the system for monitoring  and  accounting for  communications
          traffic and revenues.


Acquisitions

No material acquisitions were made during 2003.

On January 30, 2004, the Company  finalized the acquisition  from RTC-Leasing of
the title to the  telecommunications  equipment  previously leased by Rostelecom
from RTC-Leasing. For details please refer to Item 10.C. "Material Contracts."

On April 27,  2004,  the  Company  and  Westelcom  entered  into a  substitution
agreement in relation to the Black Sea Fiber Optic Cable System (BSFOCS) whereby
Westelcom  was  replaced  by  Rostelecom  as a  participant  in the  BSFOCS.  In
accordance with the agreement Rostelecom paid Westelcom RUR 160 million.

On April 27,  2004,  the  Company  and  Westelcom  entered  into a  substitution
agreement in relation to the underwater  Russia to Georgia FOL whereby Westelcom
was replaced by Rostelecom as a participant in such FOL. In accordance  with the
agreement Rostelecom paid Westelcom RUR 134 million.

                                      -37-
<PAGE>
On April 27, 2004,  the Company and Westelcom  entered into an agreement for the
sale  of  two   International   Traffic   Exchanges   ("ITEs")   in  Moscow  and
Saint-Petersburg. In accordance with the agreement Rostelecom paid Westelcom RUR
54.9 million.

On April 27, 2004,  the Company and Westelcom  entered into an agreement for the
sale of  telecommunications  equipment  consisting of the data transfer node. In
accordance with agreement Rostelecom paid Westelcom RUR 17.7 million.

Divestitures

The Group made the  following  divestitures  during  2003 and during 2004 (as of
June 30, 2004):

On September 17, 2003, the Company and CJSC Sky Link (a Russian mobile  operator
company) entered into an agreement under which the Company undertook to transfer
to Sky Link 23,500  ordinary  shares and 5,875  preferred  shares in OJSC Mobile
Cellular  Communications (MCC) (a Russian mobile operator company),  each with a
nominal  value of RUR 10.  The  purchase  price  paid by Sky Link was U.S.$ 5.45
million (VAT not applicable).  The share transfer was registered in November 24,
2003.  As a result of the  transaction,  the Company  divested  its entire 23.5%
interest in MCC.

On October 22, 2003, the Company and  Raiffeisenbank,  acting as a broker for an
undisclosed  third party  purchaser  not related to the Company,  entered into a
Stock Sale and  Purchase  Agreement  in respect  of  669,554  common  registered
non-documentary  shares of  RTC-Leasing,  with a nominal value RUR 10 per share,
comprising,  16.038% of the charter capital of  RTC-Leasing.  The purchase price
paid by  Raiffeisenbank  was RUR 438.5  million  (value  added tax  ("VAT")  not
applicable).  The share transfer was registered on October 24, 2003. As a result
of the transaction, the Company's interest in RTC-Leasing decreased from 27.064%
to 11.026%. For details please refer to Item 10.C. "Material Contracts", and the
consolidated financial statements included elsewhere in this Annual Report.

On October 27, 2003,  the Company and  Raiffeisenbank,  acting as a broker for a
third party purchaser not related to the Company,  entered into a Stock Sale and
Purchase  Agreement  in  respect of 460,319  common  registered  non-documentary
shares of  RTC-Leasing,  with a nominal  value of RUR 10 per share,  comprising,
11.026%  of the  charter  capital of  RTC-Leasing.  The  purchase  price paid by
Raiffeisenbank  was RUR 301.5 million (VAT not  applicable).  The share transfer
was registered on October 27, 2003. As a result of the transaction,  the Company
divested its remaining 11.026% interest in RTC-Leasing. The decision on the sale
was taken by the Board of Directors of the Company on  September  30, 2003.  For
additional  details  please refer to Item 10.C.  "Material  Contracts",  and the
consolidated financial statements included elsewhere in this Annual Report.


4.B.  Business Overview

Overview

Rostelecom is Russia's national  long-distance  telecommunications  operator. It
owns and  operates a 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  operators and mobile  operators.  The Company currently is the only
telecommunications  operator  licensed  to  carry  wholesale  long-distance  and
international  traffic in Russia and therefore holds a monopolistic  position in
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  using the new  settlement  system,
effective August 1, 2003. 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  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  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 December 31, 2003, its digitalization  level in terms of
channel kilometers was 76.3% of its total network while the digitalization

                                      -38-
<PAGE>
level of its switching equipment exceeded 90%. The Company has completed a major
part of the construction of its domestic  long-distance  digital transit network
based on eight ASNs.  Today, 100% of the Company's ATEs, which are stations that
collect voice traffic and automatically  sort and retransmit it to the Company's
ASNs and 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  telecommunications  services in most geographic
locations  in  Russia.  The  Company  has  direct  access  to 72  countries  and
participates   in  30   international   cable  systems.   Rostelecom   maintains
relationships   with  more  than  440   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.  Rostelecom  also provides  multimedia  communications
services, offers digital channels for lease and distributes television and radio
programs  through its network among  broadcasters  in the whole territory of the
Russian Federation.

Rostelecom's principal markets are as follows:

     -    International market of communications operators;

     -    Russian market of traditional and alternative local operators; and

     -    Russian market of end-users of communications services in Moscow.

For details with regards to revenues on each principal  market,  please refer to
Note 22 to the consolidated financial statements.

Prior to December 1, 2003 the Group  conducted  certain  leasing and banking and
investments  activities.  As part of management's  efforts to concentrate on the
Company's  core  business   segment,   as  of  December  1,  2003,  the  Company
discontinued  its  leasing  and banking and  investing  business  segments.  The
operations in these business segments were conducted through RTC-Leasing and its
subsidiaries.   For  details,  see  Item  10.C.  "Material  Contracts"  and  the
consolidated financial statements included elsewhere in this Annual Report.


Seasonality

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


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"), a European standard used for long-range
data transmission, and 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 IRCs'
networks and to Rostelecom's  ISCs for connections  with foreign  operators,  as
well as a  satellite  communications  network.  As of  December  31,  2003,  the
Company's  digital  network  comprised  38,300   kilometers,   including  27,100
kilometers of FOLs

                                      -39-
<PAGE>
and 11,200 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  communication  lines are built,  the Company  regularly  phases-out its
analog  transmission  lines.  Thus,  8.6 thousand  kilometers of trunk lines and
19.25  thousand  kilometers  of analog  microwave  cables  were  phased-out  and
substituted by digital lines and cables during the period of 1998 through 2003.

The following  table details the principal lines of  communication  that make up
Rostelecom's primary network as of December 31, 2003:

<TABLE>
<CAPTION>
                    Line                     Type of line      Length (km)     Transmission      Channels
                                                                                  rate (Mbits/sec)
----------------------------------------- --------------------- ------------- ------------------ ------------
<S>                                        <C>                   <C>           <C>                <C>
Moscow to Khabarovsk                      Digital Microwave        7,977           6 x 155         11,340
Moscow to Novosibirsk                     Fiber Optic Cable        3,970            9,952          120,960
Moscow to St. Petersburg                  Fiber Optic Cable        1,163            9,952          120,960
Moscow to St. Petersburg (part of         Fiber Optic Cable        1,163            9,952          120,960
Baltic Cable System)
Nakhodka to Naoetsu to Pusan              Submarine Fiber          1,762             565           15,360
                                          Optic Cable
Nakhodka to Khabarovsk                    Fiber Optic Cable         897            2 x 622         15,120
Kingisepp to Copenhagen                   Submarine Fiber          1,210*          2 x 565         15,360
                                          Optic Cable
Kingisepp to St. Petersburg               Suspended Fiber           191            2 x 622         15,120
                                          Optic
St. Petersburg to Kingisepp to Moscow     Digital Microwave         949            3 x 140          5,760
Novorossiysk to Istanbul to Palermo       Submarine Fiber          3,420*            565           15,360
                                          Optic Cable
Novorossiysk to Odessa to Varna           Submarine Fiber          1,380             622            7,560
                                          Optic 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 Ekaterinburg                      Digital Microwave         565            2 x 155          3,780
Apastovo to Shigony                       Fiber Optic Cable         220              622            7,560
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     Fiber Optic Cable        220**             622            7,560
of border)
Vladimir to Vologda, with branches        Fiber Optic Cable         665              622            7,560
to Ivanovo, Kostroma and Yaroslavl
Overlay digital network in Moscow         Fiber Optic Cable         709            2 x 622         15,120
Region Tula to Kaluga                     Fiber Optic Cable         212             2,488          30,240
Kaluga to Belgorod up to Ukrainian        Fiber Optic Cable        974**            2,488          30,240
border, with branches to Bryansk,
Kursk and Belgorod
</TABLE>

                                      -40-
<PAGE>
<TABLE>
<CAPTION>
                    Line                          Type of line      Length (km)     Transmission      Channels
                                                                                  rate (Mbits/sec)
--------------------------------------------- --------------------- ------------- ------------------ ------------
<S>                                           <C>                   <C>           <C>                <C>
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
Kazan, Naberezhnyie Chelny, Izhevsk and       Fiber Optic Cable         661             2,488          30,240
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
Kropotkin to Pyatigorsk to Budennovsk with    Fiber Optic Cable         458             2,488          30,240
branches to Mineralnyie Vody, Kislovodsk
Budennovsk to Kizlyar to Makhachkala with
branches to Cherkessk, Nalchik, Nazran and    Fiber Optic Cable         901             2,488          30,240
Vladikavkaz
Aksay to Lugansk                              Fiber Optic Cable         36**             622            7,560
Samara to Saratov to Volgograd                Fiber Optic Cable         928           2,488 o 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
Yoshkar-Ola to Kirov                          Fiber Optic Cable         465             2,488          30,240
Moscow Ring                                   Fiber Optic Cable          8              9,952          120,960
Russia to Azerbaijan                          Fiber Optic Cable        201**             622            7,560
</TABLE>
     *    Length of link owned by Rostelecom. See also below - "Submarine
          Cables."
     **   Length to the state border.


Switches

Rostelecom  owns 11 ISCs  and  ITEs,  which  allow  for  efficient  ILD  traffic
management,  including three in Moscow,  two in St. Petersburg  (Lyuban) and one
each  in  Rostov-on-Don,  Samara,  Ekaterinburg,   Novosibirsk,  Khabarovsk  and
Murmansk.  The  combined  capacity  of these  switches is 123,940  channels.  In
addition,  the  Company has eight ASNs,  which allow for  efficient  DLD traffic
management,  and which are interconnected by digital channels and nine ATEs that
provide access to DLD service to local users,  including eight in Moscow and one
in Pavlov Possad. The ASNs and their connecting  digital channels  constitute an
integrated  services digital network ("ISDN") with channel switches to which the
networks of IRCs and alternative operators are connected. The ATEs of Moscow and
Pavlov Posad route domestic  long-distance  traffic between switching centers as
well as directly to and from end-users.

As of December 31, 2003,  the  Company's  domestic  long-distance  trunk network
consisted of 198,100 digital and 22,910 analog lines. Approximately 93.5% of all
digital   channels  are  connected   through  the  Signaling   System  ("SS-7").
Approximately  96.8% of all  Russian  ATEs have  access to the  digital  transit
network.

67 ATEs 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 77 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.

                                      -41-
<PAGE>

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 30, 2004, the Company had 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  ("FSUE SC"), a Russian  company.  The Company
leases  satellite  channels from CJSC  Teleport TP for an  indefinite  period of
time, which operates through three satellites in the Intelsat  systems.  FSUE SC
provides  Rostelecom  with  channels  through its 5 satellites  and 4 land-based
stations.

The  satellite  communications  network is operated  by 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 ASNs
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
services:

     -    Access to both ILD and DLD communication throughout Russia;

     -    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;

     -    Multimedia communications (videoconferencing);

     -    ISDN and intellectual network services; and

     -    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 its high-quality network services,
including the establishment of national and international roaming.

As of December  31, 2003,  the Company  provided  international  roaming for the
major Moscow-based and regional mobile communications  operators connecting them
with  362  international  mobile  operators  in  158  countries,  including  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.,  has launched the  development  of the Russian  segment of the
Globalstar Global System for Mobile Satellite Communications. In order to

                                      -42-
<PAGE>
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  ("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  2003  Rostelecom's  market  share  in the
international sector was as follows (measured by traffic minutes):

     -    Outgoing ILD traffic transit - 65%; and

     -    Incoming ILD traffic transit - 60%.

In 2003,  Rostelecom's  volume of outgoing ILD traffic amounted to 1,323 million
minutes  (including 338 million  minutes from end-users and 985 million  minutes
from Russian operators).  In 2003, outgoing ILD traffic increased by 7% from the
previous  year 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.

In  2003,  Rostelecom's  volume  of  incoming  ILD  traffic  from  international
operators  amounted to 1,207  million  minutes.  In 2003,  incoming  ILD traffic
increased by 24% from the previous year, reflecting  Rostelecom's growing market
share.

In  2003,  ILD  revenue  decreased  by 5% to  RUR  12,069  million,  or  38%  of
Rostelecom's  revenues,  compared to RUR 12,737 million,  or 46% of Rostelecom's
revenues in 2002 and to RUR 16,333 million, or 54% of Rostelecom's  revenues, in
2001.

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

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

<TABLE>
<CAPTION>
                                             2001                  2002                  2003
                                    --------------------- --------------------- ---------------------
<S>                                    <C>                   <C>                   <C>
Outgoing traffic                             287                  289.2                  309
Outgoing traffic growth (% per annum)         2%                   0.8%                  6.9%
Incoming traffic                             416                   485                   689
Incoming traffic growth (% per annum)        -1%                  16.6%                 42.1%
Total traffic                                703                  774.2                  998
</TABLE>

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

<TABLE>
<CAPTION>
                                             2001                 2002                  2003
                                     --------------------- -------------------- ---------------------
<S>                                    <C>                   <C>                  <C>
Outgoing traffic                             48.1                 44.4                   53
Outgoing traffic growth (% per annum)         27%                 -7.7%                  19%
Incoming traffic                              23                  25.3                   33
Incoming traffic growth (% per annum)        -18%                  10%                  30.5%
Total traffic                                 71.1                 69.7                  86
</TABLE>

                                      -43-
<PAGE>
        International traffic with the CIS countries (in million minutes,
                  except percentages) for the last three years

<TABLE>
<CAPTION>
                                              2001                 2002                  2003
                                      --------------------- -------------------- ---------------------
<S>                                     <C>                   <C>                  <C>
Outgoing traffic                              747                   901                  962
Outgoing traffic growth (% per annum)          19%                  20.6%                 6.7%
Incoming traffic                              430                   463                  485
Incoming traffic growth (% per annum)          -4%                  7.7%                  4.8%
Total traffic                                1,177                 1,364                 1447
</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                               2001                  2002                  2003
                              --------------------- --------------------- ---------------------
<S>                            <C>                   <C>                   <C>
Germany                               113                   108                   157
United States of America               72                   147                   129
United Kingdom                         29                    20                    60
France                                 25                    28                    33
Italy                                  31                    42                    42
Finland                                21                    20                    54
</TABLE>

In  2003,  approximately  29% and 10% 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.


International Tariffs

The Company  establishes the tariffs for outgoing  international  calls based on
the  destination  of the  call and 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.  Other  operators 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 on average 88% 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.

The tariffs for  international  calls by subscribers of local  operators did not
undergo any major changes during 2003, with two exceptions. The adjusted tariffs
for  St.  Petersburg  public  network   subscribers'   calls  to  fixed  network
subscribers  in Norway,  Finland  and Sweden  (calls  through  mobile  operators
included)  were reduced by 50%,  75% and 30%  respectively.  In addition,  as of
October 15, 2003, new tariffs have been introduced for Moscow subscribers,  as a
result tariffs increased by 5%.

                                      -44-
<PAGE>
The tables below illustrate the  international  tariffs effective as of December
31, 2003.

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

<TABLE>
<CAPTION>
           Region                                       Per minute tariff (nominal rubles)
----------------------------- ---------------------------------------------------------------------------------------
                                              For Moscow                             For Saint-Petersburg
                              ------------------------------------------- -------------------------------------------
                                  Peak         Off-Peak       Reduced         Peak         Off-Peak       Reduced
                              -------------- ------------- -------------- -------------- ------------- --------------
                              8 am - 8 pm,     8 pm - 8      24 hours,    8 am - 8 pm,     8 pm - 8      24 hours,
                               local time     am, local       during       local time     am, local       during
                                                 time        holidays                        time        holidays
                              -------------- ------------- -------------- -------------- ------------- --------------
<S>                           <C>            <C>           <C>            <C>            <C>           <C>
CIS countries:
Belarus, Ukraine                  10.50          7.00          7.00           10.50          7.00          5.25
Moldova                           12.00          8.00          8.00           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          8.00           12.00          8.00          6.00
Tajikistan, Turkmenistan,
Uzbekistan
Baltic states:
Latvia, Lithuania, Estonia        19.50         13.00          13.00          19.50         13.00          9.75
Foreign countries:
Europe            Tariff 1        15.00         10.00          10.00          15.00         10.00          7.50
                  Tariff 2*       21.90         14.60          14.60          21.90         14.60          10.95
Asia and          Tariff 1        29.40         19.60          19.60          29.40         19.60          14.70
Middle East       Tariff 2**      44.85         29.90          29.90          44.85         29.90          22.43
Vietnam                           22.50         15.00          15.00          15.00         29.90          22.43
Turkey                            15.00         10.00          10.00          10.00         10.00          7.50
Americas          Tariff 1        19.50         13.00          13.00          19.50         13.00          9.75
                  Tariff 2***     38.85         25.90          25.90          38.85         25.90          19.43
Australia, Oceania                35.40         23.60          23.60          23.60         23.60          17.70
Africa                            42.30         28.20          28.20          28.20         28.20          21.15
</TABLE>
<TABLE>
<CAPTION>
           Region                  For Moscow and Leningrad regions              For European part of Russia
----------------------------- ------------------------------------------- -------------------------------------------
<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
</TABLE>

                                      -45-
<PAGE>
<TABLE>
<S>                           <C>            <C>           <C>            <C>            <C>           <C>
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>
<TABLE>
<CAPTION>
           Region                            For Far East                                For Siberia
----------------------------- ------------------------------------------- -------------------------------------------
<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          Tariff 1        19.95         13.30          9.98           29.40         19.60          14.70
Middle 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>

Tariffs marked by asterisks 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

                                      -46-
<PAGE>
The following  tables set forth special  tariffs  offered by Rostelecom  for the
People's Republic of China and Scandinavia:

<TABLE>
<CAPTION>
  Region                                       Per minute tariff (nominal rubles)
------------ --------------------------------------------------------------------------------------------------------
                       For Moscow             For Irkutsk Region, Chita Region   For Khabarovsk Area, Primorski Area,
                                                  and Republic of Buriatiya        Amur Region, Sakhalin Region and
                                                                                      Jewish Autonomous District
             -------------------------------- ---------------------------------- ------------------------------------
               Peak       Off-Peak   Reduced     Peak      Off-Peak     Reduced     Peak      Off-peak      Reduced
             ---------- ----------- --------- ----------- ------------ --------- ----------- ------------ -----------
             8 am - 8   8 pm - 8    24 hours,  8 am - 8   8 pm - 8 am, 24 hours,  8 am - 8   8 pm - 8 am,  24 hours,
             pm, local  am, local    during    pm, local   local time   during    pm, local   local time    during
               time       time      holidays     time                  holidays     time                   holidays
             ---------- ----------- --------- ----------- ------------ --------- ----------- ------------ -----------
<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>

<TABLE>
<CAPTION>
        Region                                       Per minute tariff (nominal rubles)
                        ---------------------------------------------------------------------------------------------
                                         For Moscow                                For Saint-Petersburg
                        ---------------------------------------------- ----------------------------------------------
                             Peak            Off-Peak       Reduced         Peak          Off-Peak         Reduced
                        ---------------- --------------- ------------- --------------- --------------- --------------
                         8 am - 8 pm,      8 pm - 8 am,    24 hours,     8 am - 8 pm,    8 pm - 8 am,    24 hours,
                          local time        local time       during       local time      local time      during
                                                            holidays                                     holidays
<S>                     <C>              <C>             <C>           <C>             <C>             <C>
Norway                       9.00             6.00           6.00           7.50            5.00           3.75
Sweden                       10.50            7.00           7.00          15.00           10.00           7.50
Finland                      5.25             3.50           3.50           3.75            2.50           1.88
Finland (mobile)             10.50            7.00           7.00          15.00           10.00           7.50
</TABLE>

Since  April 1,  2004,  Rostelecom  has been  using the  following  two types of
tariffs for  international  calls to countries within and beyond CIS borders and
to the Baltic states:

     -    Reduced tariff effective on work days from 8 p.m. to 8 a.m. local time
          and twenty-four hours on weekends and holidays; and

     -    Business  tariff  (approximately  1.5  times as  large as the  reduced
          tariff) effective on work days from 8 p.m. to 8 a.m. local time.

Rostelecom has also implemented rate increases for international  calls that are
operator assisted.


Domestic Long-Distance Traffic

In  2003,  Rostelecom  carried  over  79%  of the  DLD  traffic  in the  Russian
Federation.

In 2003,  Rostelecom's  volume of DLD traffic  amounted to 8,220 million minutes
(including  1,306 million  minutes from end-users and 6,914 million minutes from
operators).  Domestic  long-distance traffic in 2003 increased by 15.2% from the
previous  year 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.

In  2003,  DLD  revenue  grew by  37.5%  to RUR  12,970  million,  or  40.7%  of
Rostelecom's  revenue,  compared to RUR 9,408 million,  or 34.0% of Rostelecom's
revenue, in 2002 and to RUR 8,713 million, or 28.8% of Rostelecom's  revenue, in
2001.

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

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

<TABLE>
<CAPTION>
                                                  2001               2002               2003
                                           ------------------ ------------------ ------------------
<S>                                          <C>                <C>                <C>
Volume of domestic long-distance traffic         6,178.9            7,136.2             8,220
Growth of volume of domestic long-distance        24.6%              15.5%              15.2%
traffic
</TABLE>

                                      -47-
<PAGE>

Domestic Tariffs

In all  regions of Russia  except  for  Moscow,  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 MGTS.  Rostelecom  has an agreement  with MGTS under
which  Rostelecom pays to MGTS an average of 12% 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.

Historically,  the  Linear  Settlement  Rate  that  Rostelecom  charged  for the
throughput  of  domestic  long-distance  traffic  from IRCs 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.

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

On January 1, 1997,  the ISR was  introduced  that took into  account the linear
charge  for the  throughput  of  traffic  based on a rate of one  minute  per 50
kilometers and also a termination  charge based on the balance between  incoming
and  outgoing  traffic  of each  local  operator.  The rate was  calculated  and
approved by the  Federal  Service for Control  over  Natural  Monopolies  in the
Communications Industry every year and took into account the balance of incoming
and outgoing traffic for the previous year.

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

In order to reduce cross-subsidies in the communications sector, the FAS in June
2001  decided to raise the ISR by 25%,  effective  July 1, 2001,  and in October
2001  increased  it by  another  25%,  effective  January  2002,  which were the
preliminary steps before phasing out of the ISR.

In August 2003, the FAS abolished the ISR for settlements between Rostelecom and
regional  operators  and  introduced  a new  settlement  system for DLD  traffic
transit,  with the result that Rostelecom and the regional  operators moved to a
more transparent direct payment system.

The new  settlement  system is similar to  established  world  practices  and is
expected  to provide a  stimulus  for the  further  development  of the  Russian
telecommunications  market.  The Company believes that the new settlement system
will  improve  pricing  transparency,  enhance the degree of  precision by which
operators  can settle their  monetary  obligations  to each other and remove the
economic rationale for operators to bypass Rostelecom's  network with the result
that the Company's share of DLD traffic volume and its revenues will increase.

Under  the  new  settlements  system,  Rostelecom  began  to bill  the  regional
operators for the transit of DLD calls  calculated  using the Linear  Settlement
Rate and to pay regional  operators for the termination of DLD calls  calculated
using the Termination Settlement Rate.  Previously,  Rostelecom made no payments
for  termination  and  recognized  revenue for the transit of the traffic on the
basis of the ISR.

The Company  expects that  payments to operators for all actual  originated  and
terminated  minutes of traffic will  encourage  operators to route their traffic
through  Rostelecom's  network thereby increasing  Rostelecom's  traffic transit
rates and revenues.  In this way, the new  settlement  system should provide for
equal terms for all  operators  interconnected  to  Rostelecom's  network on the
trunk level, irrespective of ownership.

There were only two changes in  Rostelecom's  DLD tariffs for end-users in 2003,
which became effective as of May 15, 2003 for customers in the Moscow market:

                                      -48-
<PAGE>
     -    DLD  tariffs  for  commercial  organizations  and  households  to  all
          destinations  other  than the  Moscow  region  during  peak hours were
          reduced from 10% to 33% (15% on average) depending on the distance.

     -    DLD  tariffs  for  commercial  organizations  and  households  to  all
          destinations  during  off-peak  hours were  brought  more in line with
          those of  competitors,  resulting  in an  average  increase  of 50% in
          average tariff.

As of January 1, 2004, DLD tariffs for organizations  financed by the state were
increased  to  the  level  of  DLD  tariffs  for  commercial  organizations  and
households.

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 2001

<TABLE>
<CAPTION>
                         Government-                   Households                            Organizations
         Zone            funded          --------------------------------------- --------------------------------------
                         organizations      Peak       Off-Peak    On Weekends      Peak       Off-Peak    On Weekends
------------------------ --------------- ------------ ------------ ------------- ------------ ------------ ------------
<S>                      <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 organizations             Households                      Organizations
                   -------------------------------- --------------------------------- ---------------------------------
                     Peak    Off-Peak  On Weekends    Peak    Off-Peak   On Weekends    Peak    Off-Peak  On Weekends
------------------ --------- --------- ------------ --------- ---------- ------------ --------- --------- -------------
<S>                <C>       <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 organizations             Households                      Organizations
                   -------------------------------- --------------------------------- ---------------------------------
                     Peak    Off-Peak  On Weekends    Peak    Off-Peak   On Weekends    Peak    Off-Peak  On Weekends
------------------ --------- --------- ------------ --------- ---------- ------------ --------- --------- -------------
<S>                <C>       <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>

                                      -49-
<PAGE>
                                  January 2004
<TABLE>
<CAPTION>
      Zone         Government-funded organizations             Households                      Organizations
                   -------------------------------- --------------------------------- ---------------------------------
                        Peak        Off-peak and         Peak       Off-peak and on        Peak       Off-peak and on
                                     on weekends                        weekends                          weekends
                   --------------- ---------------- --------------- ----------------- --------------- -----------------
<S>                <C>             <C>              <C>             <C>               <C>             <C>
     Zone 1             2.50            1.50             2.50             1.50             2.50             1.50
     Zone 2             4.50            2.50             4.50             2.50             4.50             2.50
     Zone 3             5.50            3.20             5.50             3.20             5.50             3.20
     Zone 4             6.50            3.80             6.50             3.80             6.50             3.80
     Zone 5             7.20            4.40             7.20             4.40             7.20             4.40
     Zone 6             7.20            4.40             7.20             4.40             7.20             4.40
</TABLE>


Additional and New Services

While domestic  long-distance and international  telephone services remained the
largest source of the Company's revenues in 2003, Rostelecom continued to expand
the range of services provided to both end-users and operators.


Additional Services

ISDN Service:  ISDN allows end-users to transfer voice and data traffic over the
same phone line.  In 2003,  Rostelecom  continued  to expand its ISDN  services,
connecting the following three Russian regions:  Volgograd  region  (Volgograd),
the Tver Region  (Tver) and the Republic of Buryatiya  (Ulan-Ude).  As a result,
ISDN is now accessible in 66 regions in Russia.

In 2003,  international  ISDN services were launched by Rostelecom  with several
new operators,  including:  AzTelecom (Azerbaijan),  KazakhTelecom (Kazakhstan),
Bezeq (Israel), and NTT (Japan).  Rostelecom also started providing ISDN traffic
through put service to a number of countries  in southeast  Asia and in the CIS.
Currently Rostelecom's international ISDN services are available in 33 countries
to 39 operators.

Flexible  Access  Multiplexer  Network  Development:  Due to the  creation  of a
modern,  flexible multiplexer network in 2002 and 2003,  Rostelecom is currently
able to offer its customers digital channels with a high throughput capacity. At
the end of 2003, digital channels were made available for customers in 110 major
Russian cities. As it becomes commercially viable,  Rostelecom expects to expand
its flexible multiplexers network, linking it to new cities and towns throughout
Russia.

Intelligent   Network   Services:   Rostelecom's   Intelligent   Network   is  a
technological  superstructure that interacts with its communications  network to
provide a certain  predetermined  range of  services  upon the request of an end
user.  Rostelecom continues to actively promote its "Free Phone" toll free (800)
services.  In 2003, the Company's revenues from this service increased by 71% to
RUR 48 million  from RUR 28 million  in 2002.  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 across the nation.

In 2002,  Rostelecom  set up an  "International  Free Service"  ("IFS")  between
Turkey and Russia for several Russian customers.  In 2003, the Company worked to
increase the number of countries from which this service will be available,  and
as of December 31, 2003,  22 operators  from 19 countries  signed  agreements to
provide IFS services for Rostelecom's customers in Russia.

International  Roaming:  Rostelecom routes international roaming signal messages
to 158 countries (362 international mobile communications  operators).  Russia's
three largest mobile operators,  Vimpelcom, Mobile TeleSystems and Megaphone use
the services of the Company's international signal network.

New Services:  In 2003,  Rostelecom  implemented a new service called Televoting
which is available from  practically  any point of the public network in Russia.
Televoting provides a mass-calling  service for TV, radio and other press events
which  involve a high  volume  of  calls.  Televoting  is  provided  by means of
Rostelecom's  Intelligent Network service which uses sophisticated equipment and
computer  software to process the high volume of calls and visually  display the
results. The advantage of Rostelecom's  Televoting service,  compared to similar
services of other  operators,  is that calls to Televoting  numbers are free for
end users of the PSTN and,  as a result,  the  Company  expects to  enlarge  the
number of its subscribers.

                                      -50-
<PAGE>
In 2003, Rostelecom integrated its existing card products. In February 2003, the
Company  released a new pre-paid  telephone card "Karta Svyazi" which offers all
the functions  provided by the Company's  previous  cards.  In 2003, the Company
also  executed  supplementary  agreements  with IRCs to  provide  access for the
Company's pre-paid telephone card service from Russia's PSTN.

The following chart lists all the services  currently  provided by Rostelecom to
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
communications                               customers                         except Afghanistan

Operator-assisted international telephone    Russian corporate and private     Access from Moscow to any country
communications                               customers                         except Afghanistan

Russia Director ("RD")                       Russian corporate and private
1. Payment by the destination subscriber     customers traveling abroad        1. Acess from 41 countries through
(Moscow)                                                                       47 operators to Moscow only
2. Payment by prepaid card                                                     2. Access:
3. Payment by bank payment card Visa                                           - from Moscow to any country in the
Electron Rostelecom (GUTA BANK)                                                world (except Afghanistan)
                                                                               - from 42 countries through
                                                                               48 operators to any point in Russia
                                                                               3. Access:
                                                                               -  from Moscow to any country in the
                                                                               world (except Afghanistan);
                                                                               -  from 41 countries through
                                                                               47 operators to any point in Russia

Home Country Direct Service ("HCD")          Foreign operators (for their      Access from 53 Russian regions to 43
                                             customers traveling to Russia)    countries through 49 operators

Collect Call (paid by foreign caller)        Russian corporate and private     United States
                                             customers.

IFS                                          Foreign operators for their       Access from 53 Russian regions to 19
                                             subscribers                       countries through 22 operators

IFS for Russian customers                    Russian corporate and private     Access from Turkey and Finland to
                                             customers and Russian operators   Moscow

International ISDN                           Russian corporate and private     Access to and from 66 Russian regions
                                             customers; Russian operators.     to/from 33 countries through 39
                                                                               operators

Leasing of international channels and        Russian corporate customers;      Direct digital flows for leases
circuits                                     Russian and foreign operators.    arranged to 29 countries through 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
traffic throughput services                  telephone network and             to any country
                                             associated networks

International roaming services for mobile    Russian operators of mobile       Available to five Russian mobile
network subscribers                          networks; foreign operators       network operators for 158 countries
                                                                               through 362 foreign operators

Direct unswitched transit of international   Foreign operators                 Can be arranged between points of
flows/channels via Russia                                                      access to Russia of all operating
                                                                               international trunk networks
</TABLE>

                                      -51-
<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 to 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  through 48
                                                                               operators to any location in Russia

VISA Electron card international             Russian private and coprorate     Access:
telephone communications                     customers, including those        - from Moscow to any country
                                             traveling abroad                  - from 21 countries through 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 66 regions
                                             customers; Russian operators of   and five associated networks of
                                             the public telephone network      alternative operators
                                             and 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         Throughout Russia
communications services                      agencies

Data transmission via MMTEL network          Corporate and private customers   Moscow

Open multimedia communications               Government authorities;           Services provided to a limited range of
network services                             Russian corporate and private     users and nine public access sites in 71
                                             customers                         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
</TABLE>

                                      -52-
<PAGE>
<TABLE>
<CAPTION>
   Principal types (groups) of services             Customer category                     Scope of service
-------------------------------------------- --------------------------------- ----------------------------------------
<S>                                          <C>                               <C>
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      Corporate and private customers   MMT buildings
its premises for telecommunications
equipment allocation
</TABLE>

Rostelecom plans to offer the following services in 2004:

<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
Direct Europe-Asia transit services                          Russian operators and corporate customers
</TABLE>

In 2003,  Rostelecom's  revenues from the provision of other services  excluding
the transit of DLD and ILD  traffic  amounted  to RUR 5,109  million,  or 17% of
Rostelecom's  revenue for the reporting period. In 2002, these services amounted
to RUR 5,146  million or 18% of  Rostelecom's  revenue and in 2001, to RUR 4,389
million or 14% of Rostelecom's revenue.


Business Strategy

Rostelecom's  priority  is to prepare  for the  upcoming  liberalization  of the
Russian  telecommunications  market. The Company plans to reposition itself as a
commercially  successful and competitive  operator in a free market.  One of the
key  conditions for the Company's  success under these new market  conditions is
the reduction of  cross-subsidies,  whereby  unprofitable  local  communications
networks are subsidized by revenue from DLD and ILD telecommunications services.
For 2004, the Company's main objectives are as follows.

The Company's global goals in the overall telecommunications market are:

     o    To optimize the system of  settlements  between  operators for DLD and
          ILD calls;

     o    To ensure an overall increase of the Company's revenues from all types
          of communication services; and

     o    To expand its client base and to formalize  procedures  to improve the
          quality and accuracy of the Company's services to its clients.

The Company's goals in the operators' market are:

(i)The Company's goals in the Russian market for regional operators are:

     o    To enhance the Company's leading position in the market of services to
          regional operators;

     o    To increase traffic from/to regional operators; and

     o    To increase its revenues from providing  transit  services for DLD and
          outgoing ILD traffic from regional operators.

(ii)The Company's goals in the Russian market for alternative operators are:

     o    To  expand  its  regional  client  base by adding  connections  to new
          alternative operators; and

     o    To increase its revenues from providing  transit  services for DLD and
          outgoing ILD traffic from alternative operators.

                                      -53-
<PAGE>
The Company's goals in the international market are:

     o    To  optimize  international  communications  tariffs  for end users in
          different  regions  of  Russia;

     o    To enter into the market for direct transit of traffic  between Europe
          and Asia by exploiting  its  geographical  position,  availability  of
          high-capacity  trunk lines along this route,  and competitive  pricing
          policy;

     o    To enhance cooperation with international operators;

     o    To  maintain  the trend of  increasing  traffic  using  the  Company's
          network;

     o    To achieve cost reductions, through optimizing existing relations with
          international operators,  closing unprofitable routes and transferring
          part of its traffic to transit modes which involves transmitting calls
          to traffic  exchange points instead of directly routing calls to their
          destination;

     o    To reduce the value of payables and receivables to/from  international
          operators; and

     o    To  expand  access  to  additional  international  points  of  traffic
          exchange  in  order  to  grow   business   with  major   international
          alternative operators.

The Company's goals in the market for end users in Moscow are:

     o    To  increase  the  Company's  share in the market for  services to end
          users in Moscow by optimizing tariff policies and improving quality of
          client services; and

     o    To increase revenues from end users in Moscow.

The Company's goals in the development of services based the intelligent network
service and prepaid cards are:

     o    To  promote  Rostelecom's  nationwide  single  telephone  card  "Karta
          Svyazi;"

     o    To promote  Televoting and to expand into new market segments for this
          service;

     o    To work efficiently with clients in the selling communication services
          based in INS.


Competition

The Company  currently  is the only  telecommunications  operator in the Russian
Federation licensed to carry wholesale DLD and ILD traffic and therefore holds a
natural  monopoly in this market.  Rostelecom  owns and operates the  nationwide
trunk  telecommunications  network in Russia.  All  operators  of PSTN and local
networks, including IRCs, are obliged to use Rostelecom's trunk network (subject
to  technical  availability  of the  Company's  network) for the  throughput  of
domestic long-distance and international traffic from their local subscribers.

However,  in addition to Rostelecom,  several operators are developing their own
primary network resources:

     -    Between  Moscow  and  St.   Petersburg,   several  major   alternative
          operators,  including CJSC  TeliaSonera  International  Carrier Russia
          ("TeliaSonera    Russia"),   CJSC   Rascom   and   CJSC   TransTelecom
          ("TransTelecom"), have developed their own FOLs;

     -    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,  have developed
          their own primary network resources; and

     -    Additionally,   MTT,  which  transits  traffic   generated  by  mobile
          operators, is expanding its network into various regions in Russia.

Unlike   Rostelecom,   these   operators   have  no  license  to  provide  trunk
long-distance  services (except for MTT, which has a trunk long-distance service
license  for mobile  operators  traffic  only),  which  limits the uses of their
networks.  The main  revenue  source  of these  operators  is the  leased  lines
business.

Rostelecom's   network  has  greater  territorial   coverage  than  any  of  its
competitors in Russia.  By keeping its network well  maintained and  technically
updated,  and the cost of its services  comparatively low,  management  believes
that the Company  will  retain its  current  position in the Russian DLD and ILD
market.

                                      -54-
<PAGE>
Rostelecom,  however,  does not have an absolute monopoly in the Moscow end-user
market, and faces intense competition from alternative operators,  especially in
the corporate customer segment.  It is also possible that in the future, 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 may compete against the  long-distance  communications  and leased line
services provided by the Company.

There are a number of  alternative  operators in the Russian  telecommunications
market that have either  built  their own primary  networks in certain  areas or
lease infrastructure from traditional operators,  including Rostelecom and IRCs.
In 2003,  alternative  operators  had a steady growth of income and an increased
presence in the Russian  telecommunications  market.  However,  the operation of
alternative  operators  is  confined  to  providing  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
traditional  operators  such as the  Company.  Alternative  operators  primarily
compete with Rostelecom in the Moscow end-user and 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 competitive  situation and the dynamics
of its  development  and the  activities  of  other  alternative  operators  and
operators of overlay  networks.  Currently  Rostelecom  considers  the following
alternative operators to be its main competition:


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.

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.


Sistema Telecom

Sistema  Telecom was  established in 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,    Internet   services,    cellular   communications,    satellite
communications and paging and trunking  communications.  Currently,  the biggest
alternative  and mobile  operators  in Russia in terms of revenue and  coverage,
such as CJSC MTU-Intel,  CJSC Comstar, CJSC MTU-Inform,  CJSC Telmos ("Telmos"),
CJSC MCC, and OJSC MTS, are  subsidiaries  and affiliates of the Sistema Telecom
group.


TeliaSonera Russia

TeliaSonera  Russia is a subsidiary of TeliaSonera,  the largest operator in the
Nordic region.  Since 1993,  TeliaSonera  Russia, with offices in Moscow and St.
Petersburg, has represented TeliaSonera in the Russian market.

TeliaSonera  Russia has created its own network  infrastructure  comprising  two
FOLs: the Finnish-Russian  Line ("FRL") and the Finnish-Russian  Optical Gateway
("FROG").  TeliaSonera  Russia 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  TeliaSonera  Russia are geared
toward operators and Internet providers,  as well as corporate customers seeking
high-quality communications services.


                                      -55-
<PAGE>
Golden Telecom, Inc.

Golden  Telecom,  Inc.  ("Golden  Telecom"),  established  in June  1999,  is an
operator  offering  integrated   communications  services  and  Internet  access
services  in the major  cities of  Russia  and the CIS.  In  December  2003,  it
acquired  100% of the equity  capital of OJSC  Comincom  (which in turn owns the
telecommunications  operator,  Combellga).  Since March 1, 2004, these operators
have started to offer clients integrated communication services under the single
brand "Golden Telecom."

Golden Telecom currently offers local, domestic  long-distance and international
telephone  communications  services through an allocated network and through the
PSTN, data transmission services,  cellular  communications  services,  Internet
access, ISDN services, videoconferencing and other services.

Rostelecom  currently owns 11% of the charter  capital of Golden Telecom and has
the right to appoint  two  directors  to Golden  Telecom's  ten-person  board of
directors.


Overview of Russia

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,  88 constituent
entities,  including 21 republic, 7 areas, 9 autonomous  districts,  48 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 CIS.

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.


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
economic  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 the 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,  economic growth in the Russian  Federation slowed. In 2001,
the Russian  economy grew by 5.1%. In 2002,  macroeconomic  indicators  showed a
slower growth of consumer prices as compared to

                                      -56-
<PAGE>
2001, a declining increase in GDP and investments in fixed assets, and a rise in
the population's  actual cash income. In 2002, the Russian economy grew by 4.7%.
The  positive  effect  of  these   developments   was  secured  by  the  Russian
Government's  monetary and credit policy aimed at reducing  inflation  rates and
smoothing out  fluctuations  in the ruble's  exchange rate. The payment  balance
remained  positive.  Government  budget  revenues  exceeded  expenditures  which
contribute to economic  stability.  The general  growth of the world economy and
favorable  external  market  conditions also  contributed to Russia's  generally
positive economic development.

Russia  experienced  favorable  economic growth throughout 2003. In 2003, Russia
recorded GDP growth of 7.3%, increased production of 7.0% and increases in fixed
assets  investments of 12.5%.  Foreign currency and gold reserves of the Central
Bank of the Russian  Federation  increased by more than 60% to U.S.$77  billion.
One of the main reasons for Russian  economic  growth in 2003 was the high price
for Russia's main exports,  which remained at relatively high levels  throughout
the year.  In 2003,  in order to defer  repayment  of a large number of external
debt  repayment  obligations,  Russia  restructured  much of the  debt  that the
Russian Government had incurred in previous years.

The financial  situation in Russia in 2003 was relatively  stable. For the first
time since the 1998 financial  crisis,  the growth of consumer  prices  remained
within the limits  forecasted by the Russian  Government  for the annual federal
budget.  The money supply,  although still under significant  pressure from high
levels  of  export  revenues,  generated  mainly  by high oil  prices,  was also
influenced  by such  factors  as  increased  nominal  personal  income,  deposit
services offered by Russian banks, and  "de-dollarization" of the economy. Other
positive  changes in the Russian  banking sector during 2003 included an overall
increase in the  capitalization  of the  banking  system,  an expanded  array of
lending  services  offered by Russian  banks  (including  consumer  loans),  and
reduced interest rates.

Important changes in Russia in 2003 included changes in the Government's foreign
currency  exchange  policy  and the  balance of payment  levels.  First,  at the
beginning  of 2003,  the  management  of the Central  Bank of Russia  declared a
change of its  monetary  policy  priorities  stating that the Central Bank would
focus on  controlling  the rate of inflation  instead of  maintaining  the ruble
exchange  rate.  Subsequently,  a  new  version  of  the  Currency  Control  Law
abolishing the procedure for licensing currency  operations was adopted and came
into force in June 2004. Lastly, along with the high positive levels of Russia's
current account in 2003, there was also a positive balance of capital operations
in the private  sector.  All these  factors  resulted in a  substantial  nominal
strengthening of the ruble against the U.S. dollar.  In addition,  the phenomena
of  "de-dollarization"  of the  Russian  economy  continued  with an  increasing
proportion of Russia's overall savings being represented by rubles.

In 2001,  2002 and  2003,  inflation  in  Russia  decreased  from the peak  that
followed  Russia's 1998  financial  crisis.  The total annual rates of inflation
were  18.8%,  15.1% and 12% in 2001,  2002 and 2003,  respectively.  The average
month-end ruble exchange rates to the U.S. dollar were 29.15, 31.39 and 30.61 in
2001, 2002 and 2003, respectively.


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 FSFM.  Pursuant to a decree  dated March 9, 2004,  the Russian
Government  established  the FSFM as a  replacement  for the  former  government
agency charged with the regulation of the Russian  securities  market, the FCSM,
providing it with a  wider-range  of powers than its  predecessor.  See Item 3.D
"Risk  Factors." In addition to this Securities  Market Law, the President,  the
Russian  Federation  Ministry of Finance,  the Russian Federation State Property
Committee, the Central Bank and the former FCSM have issued detailed regulations
and decrees applicable to the securities market. The applicable  regulations and
decrees  issued  by  the  FCSM  remain  for  the  most  part  unaffected  by the
replacement  of the FCSM  with the FSFM and the FCSM  will  continue  performing
certain of its  functions  until the final  transfer of  authority  to the FSFM,
which is expected to be in September, 2004.

Under the Securities  Market Law,  issuers are required to register any issuance
of  securities  and  register  with the FSFM a  prospectus  with respect to such
securities  (i) if the  shares  are  being  placed  with an  unlimited  group of
investors  or (ii) if the  shares  are  being  placed  with a group  of over 500
investors.

                                      -57-
<PAGE>
The former 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
such company's  board of directors as well as registration of amendments to such
company's Charter 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 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  ownership  is  evidenced  by an
extract from a custody  account  maintained by the custodian for the  beneficial
owner of such shares). The shareholder register includes data on each registered
person (i.e., the owner, nominal 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  shares,  such as  Rostelecom,  must be kept by a
specialized registrar.  Securities markets regulations prohibit such specialized
registrars  from carrying out any  activities  other than the  maintenance  of a
share  registrar,  and require that the specialized  registrar  obtain a license
from the FSFM.

Russian law currently contemplates the use of custodians who also act as nominal
holders of securities. Custodians are entitled to receive dividends and vote the
shares on behalf of the beneficial  owner upon receipt of instructions  from the
beneficial owner of such 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.

Over the last few years,  the Russian  Government  has moved in the direction of
enhancing  measures to protect  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 Criminal Code of 1997 has  criminalized  securities fraud and the
conducting   professional   activities  in  the  securities  market  without  an
appropriate  license.  To provide more stringent  protections  for 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 as well as  liability  of issuers and
other persons for violations of investors'  rights.  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.

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

The landmark  provisions of such amendments  were mainly aimed at  strengthening
the rights of  shareholders  and  correcting  the  inadequacies  of current  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  because the  issuance of  fractional  shares is now
permitted,  minority  shareholders are better protected  against squeeze 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 permit of the  regulatory  authority  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 FSFM permits.


                                      -58-
<PAGE>
Taxation and Duties

The tax system of Russia  includes  taxes  introduced  and  regulated by federal
authorities,  authorities  of  subjects  of the  Russian  Federation,  and local
(municipal) authorities.

Taxes payable by Russian  companies include VAT, income tax, unified social tax,
turnover tax,  property tax and other taxes. 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 within
the Group pays taxes  independently  and may not offset its  profits  and losses
against profits and losses of another company in the Group.

Currently,  the Russian tax system is currently  undergoing  fundamental reform.
The reform is aimed at making the tax system more  predictable and  transparent,
and  reducing  the tax burden on the  economy.  These  goals are to be  achieved
through reconciling  uncoordinated  separate statutory regulations and including
those  provisions  in a uniform Tax Code, a  significant  reduction in the total
number of taxes imposed and a reduction of the tax burden  through  reduction of
taxes.

As part of the reform of the Russian  tax system,  Part I of 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
2001-2004, regulate major taxes such as VAT, income tax, corporate property tax,
personal income tax and unified social tax.

Currently,  the administration of taxes is the responsibility of the Ministry on
Taxes and  Duties.  In the  course of 2004,  within  the  framework  of  ongoing
administrative  reform,  the Ministry on Taxes and Duties to be reorganized  and
renamed the "Federal Tax Service",  and will be  subordinated to the Ministry of
Finance of the Russian Federation.

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  in  Russia.  Starting  from  January 1, 2000,
Rostelecom  has kept  centralized  records of general  taxes and payments at its
Headquarters office.


The Telecommunications Industry in Russia

Generally, the Russian telecommunications market can be described as unsaturated
and rapidly developing. According to the Ministry of Communications, the Russian
market for telecommunications services grew by 48% to U.S.$ 13.3 billion in 2003
from U.S.$ 8.97 billion in 2002.  The  sub-sectors  that  expanded  most rapidly
included mobile network services and data transmission services.

In 2003, the telephone  penetration of Russia's  regions  continued to increase.
Automated  telephone  exchanges were built in urban areas,  increasing the total
capacity by 4 million phone numbers,  which is approximately  twice the level of
capacity created in 2002. Rural automated telephone exchanges introduced in 2003
had a total capacity of 355,600  numbers,  or 68.5% more than the total capacity
created in 2002. The rate of digitalization  for all operators amounted to 46.6%
in 2003, compared to 41.4% in 2002.

It is expected that further  investment  in, and capital  expenditure  on, fixed
assets in the Russian telecommunications industry will generate increased market
volume and sales in the future.


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.

                                      -59-
<PAGE>
Most ATEs in Russia 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 connecting Russia's telephone network with
foreign  networks are owned by Rostelecom.  Pursuant to applicable  law, all the
commercial  operators  that  transmit  phone  traffic  abroad  use  Rostelecom's
facilities and networks.

In Moscow,  the Company owns long-distance  switches and international  switches
and provides  services  directly to end users through the local network of MGTS.
Rostelecom  receives payments for its  long-distance and international  services
directly  from  subscribers  but has an agreement  with MGTS whereby  Rostelecom
makes monthly payments to MGTS of  approximately  12% of its Moscow revenues for
the right to pass its international and long-distance  traffic through the local
MGTS network.

There   are  also  a   number   of   alternative   operators   in  the   Russian
telecommunications  market,  as well as  several  major  specialized  operators.
Recently,  operators  providing  long-distance  and  international  voice packet
transmission services 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 by using their  primary
networks. Such potential competitors include Transtelecom and RAO UES, a Russian
energy supplier.  Currently applicable law prevents  specialized  operators from
entering the Russian telecommunications market.

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  via 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 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 the curtailment of anti-competitive practices by major
operators. This requirement directly affects the interests of Rostelecom,  which
currently holds a monopoly on long-distance and international wholesale services
in the Russian 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 loss-making sectors,  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.

Officials at the Ministry of  Communications  have repeatedly stated that market
liberalization  would be possible only after the practice of  cross-subsidies is
reformed  and  once  equal   conditions   exist  for  all  participants  in  the
communications  sector.  In connection with this, the Ministry of Communications
and the FAS have been working to gradually increase local tariffs,  which should
reduce the practice of cross-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  equal
distribution of costs.

Due to the necessity of reforms in the communications sector prior to the market
liberalization,   the   Ministry   of   Communications   has  stated   that  the
liberalization  of the Russian  telecommunications  market  would be achieved by
2007. In the interim,  integrated  measures will be taken in the  communications
industry which

                                      -60-
<PAGE>
will make it possible to  gradually  liberalize  the Russian  telecommunications
market.  These measures will include  phasing out  Rostelecom's  analog lines, a
gradual  increase of the tariffs for services  provided to  government  agencies
until  the  level  of  such  tariffs  matches  the  costs,  the  elimination  of
cross-subsidies  within  the  industry  and  clear  terms for  business  between
operators under the Communications  Law. In particular,  in 2004 the Ministry of
Communications stated that to obtain the relevant license,  operators willing to
access   DLD   communications   market   will   need   to   prove   that   their
telecommunications  equipment meets necessary technical requirements,  and their
communications  network meets requirements as to the length and capacity,  i.e.,
the  operators  can  ensure  provision  of DLD  services  throughout  the  whole
territory of Russia.


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
Communications  Law which  replaced  the  previously  effective  Federal Law "On
Communications"  of 1993, 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.  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 in the
Russian  telecommunications  market by foreign persons. All users and operators,
in compliance  with the terms of the licenses  issued to them, have the right to
access, and interconnect their networks with PSTN of Russia.

The  Natural  Monopolies  Law  establishes  the  legal  basis  for  the  federal
regulation of natural monopolies (such as  telecommunications)  and provides for
state control over  tariff-setting  and other activities of natural  monopolies.
The FAS and the Federal  Service on Tariffs oversee the  implementation  of this
law,  which 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.

As  the  primary  provider  of  long-distance   telecommunications   in  Russia,
Rostelecom has been, and will continue to be, subject to regulation  under these
laws.


Regulatory Authorities

The authorities  regulating the  telecommunications  industry often have vaguely
defined powers.

In March  2004 the  Ministry  of  Communications  was  briefly  merged  with the
Ministry   of   Transportation   into  the   Ministry  of   Transportation   and
Communications which was granted authority over the telecommunications industry.
In May 2004 the Government  reversed this decision and the separated Ministry of
Communications    currently    has    authority    to   regulate   the   Russian
telecommunications industry.

The  Ministry  of  Communications  is  currently   responsible  for  determining
governmental  policy for  telecommunications,  adopting rules and regulations on
the basis of  federal  laws and  proposing  the  allocation  of a portion of the
federal budget for the  telecommunications  industry. The Federal Service on the
Oversight   in   the   Sector   of   Communications   (FSOSC)   supervises   all
telecommunications  operators  in terms  of  licensing  The  Federal  Agency  on
Communications  (FAC) is responsible for the development and implementation of a
long-term policy for frequency  allocation.  The FAC also manages state property
relating to the telecommunications  industry. The Russian Government has control
over  tariffs,  through the Federal  Service on Tariffs.  However as the Federal
Service on Tariffs  only extends to operators  providing  general  public-access
telecommunications  services.  The FAS and the Federal  Service on Tariffs would
automatically cease

                                      -61-
<PAGE>
to have jurisdiction over the Russian  telecommunications  industry if it was no
longer deemed to be a natural monopoly.


Licensing to Provide Services

The    Communications    Law   generally   requires   that   any   provider   of
telecommunications  services  must  obtain a license  prior to  commencing  such
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 it also allows for the
enactment  of  legislation  specifying  certain   communications   networks  and
facilities  that can only be owned by the State.  Such  legislation  has not yet
been enacted.

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.
Currently,  renewals  may  be  obtained  upon  application  to the  Ministry  of
Communications  and upon  verification by appropriate  governmental  authorities
that the licensee has conducted its activities in accordance  with the licenses.
The Ministry of Communications  has 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:

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

     -    Provision of inaccurate information to consumers; or

     -    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:

     -    Failure to remedy the  circumstances  which  resulted in suspension of
          the license within the specified time;

     -    Established  practices  of  unfair  competition  by  the  licensee  in
          performing the licensed services; or

     -    Other grounds set forth by Russian law or international treaties.

Fees for issuing licenses are determined as follows:

     -    RUR 15,000 multiplied by the number of regions covered by the license;

     -    If the license is awarded as a result of a tender (auction),  based on
          the fee established during the tender process.

While these fees are nominal,  telecommunications  licenses  traditionally  also
require  financial  contributions  to the  development  of the  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 the revocation of such license.

Licenses  generally  contain  detailed  conditions  regarding  the date by which
services 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 one or more of its licenses,  which could have a material  adverse
effect on the business of Rostelecom.  See Item 5.C.  "Research and Development,
Patents and Licenses."


                                      -62-
<PAGE>
Radio Frequency Allocation

Regulation of the use of radio frequencies and spectrum allocation are under the
exclusive  control of the  Ministry  of  Communications  through  the  FSOSC.  A
frequency  allocation  by the FSOSC 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 FSOSC, the licensee
must  develop  its  frequency  allocation  and site  plan,  which is  subject to
approval. The licensee must also pay FSOSC 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 the FSOSC.  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 FAS are the two  principal  executive
authorities regulating 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 FAS is responsible for setting the tariffs
on which the Company's profitability, in significant part 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  communications
services."  The FAS 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 FAS, 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
telecommunications  operators, and specifically Rostelecom,  to freely determine
tariffs for the international  telephone services they provide.  Further,  since
January   25,   1999,   the   State   Communications   Committee   has   allowed
telecommunications  operators to determine  their own tariffs for  international
telegraph services.

Pursuant to Russian laws, the Company's  tariffs for the following  services are
currently subject to state regulation:

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

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

     -    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,  such as  digital  trunk  line  leases,  are used by other
operators as a benchmark to set prices for their own services.

                                      -63-
<PAGE>
In  accordance  with the  Communications  Law,  the FAS 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  confiscation for the federal budget of profits
derived  from  anti-competitive  practices  and the  imposition  of fines on the
Company and its executive  officers amounting to 5,000 and 200 times the minimum
monthly wage  ("MROT"),  respectively.  MROT  established by federal law for the
purpose of calculation of administrative fines currently  constitutes 100 rubles
(which is an equivalent of  approximately  U.S.$ 3.5). Civil or criminal actions
could also 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 breach which  management does not believe to be material  related to the
acquisition  by the  Company  of a 25%  interest  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  on a timely
basis.


Cross-Subsidies

Under the  existing  practice of  cross-subsidies,  IRCs,  which  provide  local
telephony  service to their customers at below market rates, are subsidized from
DLD and ILD  operations  as IRCs are able to set above  market rate  tariffs for
their  subscribers  for ILD and DLD  calls.  Also  IRCs  receive  payments  from
Rostelecom for traffic termination on their network at a Termination  Settlement
Rate which  exceeds costs and market rate profit,  and which  provides IRCs with
additional profit to subsidise loss-making local communications.

Representatives of the Ministry of Communications  have stated that Rostelecom's
monopolistic position in the DLD communications market will only be restructured
when the  cross-subsidies  system has been phased out.  However the  Ministry of
Communications will issue the relevant licenses to alternative operators wishing
to access the DLD  communications  market,  if they  satisfy  certain  criteria,
before any such restructuring of the Company occurs. For details,  see Item 4.B.
"Regulation  of  the  Russian  Telecommunications  Industry  -  Competition  and
Pricing".


4.C. Organizational Structure

The  Company is a member of the  Svyazinvest  Group.  As of December  31,  2003,
Svyazinvest,  a  telecommunications  holding  company  created  by  the  Russian
Government in 1995, held a 50.67% interest in Rostelecom.  In turn, the Ministry
of Property Relations, the Russian Federal Property Fund and Mustcom Ltd. held a
50%  interest  (plus one  share),  a 25%  interest  (less two  shares) and a 25%
interest (plus one share), respectively, in Svyazinvest.

Svyazinvest has a 50% interest or more in the following Russian entities:

     -    seven IRCs (OJSC Dalsvyaz,  OJSC Sibirtelecom,  OJSC  Uralsvyazinform,
          OJSC Southern  Telecommunications  Company,  OJSC North-West  Telecom,
          OJSC  Centertelecom,  OJSC  Volgatelecom) - 51% of the charter capital
          and more;

     -    OJSC Central Telegraph - 51% of the charter capital;

     -    OJSC Lensvyaz - 50.7% of the charter capital;

     -    OJSC Dagsvyazinform - 50.7% of the charter capital;

     -    OJSC Giprosvyaz - 50.7% of the charter capital;

     -    OJSC MobilTel - 100% of the charter capital; and

     -    Rostelecom - 50.7% of the charter capital.

Svyazinvest has less than a 50% interest in the following Russian entities:

     -    OJSC MGTS - 28% of the charter capital;

     -    OJSC Svyaz, Komi Republic - 25.3% of the charter capital;

     -    OJSC Kostroma City Telephone  Network - 37.3% of the charter  capital;
          and

     -    OJSC RusLeasingSvyaz - 38% of the charter capital.

                                      -64-
<PAGE>
As of the date of this Annual Report, the Group comprised Rostelecom itself, its
consolidated  subsidiaries Westelcom and RTComm.RU, an associate Golden Telecom,
Inc. (11%,  registered in the United States)  accounted on the equity method, as
well as forty-two  associates,  seven of which are  considered to be significant
associates.

     -    CJSC Incom - 54.4% of the charter capital (registered in Russia);

     -    CJSC GlobalTel - 51% of the charter capital (registered in Russia);

     -    CJSC  Telecom-Center  - 45%  of the  charter  capital  (registered  in
          Russia);

     -    CJSC Teleport-TP - 44% of the charter capital (registered in Russia);

     -    OJSC MMTS-9 - 36.9% of the charter capital (registered in Russia);

     -    CJSC Rustel - 25% of the charter capital (registered in Russia); and

     -    CJSC Telmos - 20% of the charter capital (registered in Russia).

These  associates are not  consolidated in the Company's  financial  statements,
even if the Company holds more than a 50% interest in an associate,  because the
aggregate  impact of net assets and results of operation  of these  companies is
not  material  to  the  Company's  financial  statements.  See  Note  8  to  the
consolidated financial statements included elsewhere in this Annual Report.

Prior to December 1, 2003, the Group comprised the Company and its  consolidated
subsidiaries:

     -    RTC-Leasing, in which Rostelecom held 27.13% of the charter capital;

     -    RTComm.RU,  in which Rostelecom held 31.1% of the charter capital, and
          RTC-Leasing held 49.76% of the charter capital;

     -    Westelcom, in which Rostelecom held 100% of the charter capital;

     -    RTCL, S.A. Switzerland,  in which RTC-Leasing held 100% of the charter
          capital;

     -    RTCL (Cyprus), in which RTC-Leasing held 100% of the charter capital;

     -    RTDC, in which RTC-Leasing held 100% of the charter capital;

     -    RIB, in which RTC-Leasing held 100% of the charter capital;

     -    AKOS, in which RTDC held 92% of the charter capital; and

     -    Spetzautoleasing,  in  which  RTC-Leasing  held  100%  of the  charter
          capital.

For details see Item 10.C. "Material  Contracts" and the consolidated  financial
statements included elsewhere in this Annual Report.


Branches

Rostelecom   operates  through  branches  located  throughout  Russia.  Most  of
Rostelecom's   branches,   with  the  exception  of  Moscow  Long  Distance  and
International   Telephone  ("MMT")  and  Professional   Education  Center,   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 2003, Rostelecom had two branches located in Moscow. Apart from
Rostelecom's  Central  Branch  there  are  also the  Moscow  Long  Distance  and
International  Telephone,  which  provides  DLD  and  ILD  services  for  Moscow
subscribers.  GTsUMS,  which coordinated the activities of operating branches in
order to resolve  technical  problems they may have, was liquidated in 2003. The
functions  performed by GTsUMS were divided  between the Company's  Headquarters
and the Central Branch.

Under  Russian  law,  a branch  functions  as a division  within  the  corporate
structure of a company. Although not a legal entity distinct from the company, a
branch may generally  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.

                                      -65-
<PAGE>
In order to expand  its  presence  in the area of  international  organizations,
Rostelecom joined the International  Telecommunications Union ("ITU") and opened
a  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.  In April 2002,
the  Company  registered  its  representative  office in  Yerevan,  Republic  of
Armenia,  in order to research the market and the  possibilities for introducing
high level telecommunications technology into the Armenian market.


Consolidated Subsidiaries

Westelcom

Westelcom,  a joint  venture  with the  Russian  Telecommunications  Development
Corporation,  registered in Russian Federation, was established in December 1992
to contribute to the development,  introduction, operation and management of the
Russian telecommunications infrastructure. Rostelecom acquired a 50% interest in
Westelcom in 1992.  In October  2002,  the Company  purchased  the remaining 50%
interest in Westelcom from Russian  Telecommunications  Development  Corporation
for U.S.$ 15 million.  As of June 30, 2004, the Company owned 100% of the voting
shares in Westelcom.

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

As of June 30, 2004,  Westelcom had two Russian  subsidiaries,  OJSC A-Svyaz and
OJSC InfoTeX Taganrog Telecom.

Westelcom  owns 81.9% of the  charter  capital of OJSC  A-Svyaz  which  provides
access to the PSTN, as well as local telephone network services,  ISDN services,
Internet access services and IP-telephony services.

Westelcom  owns 74.0% of the charter  capital of OJSC InfoTeX  Taganrog  Telecom
which  provides  access in the territory of the city of Taganrog to the PSTN, as
well as local telephone  network  services,  Internet access services,  lease of
communication channels and long-distance payphones.


RTComm.RU

RTComm.RU is a company registered in the Russian Federation providing integrated
Internet  technology  solutions.  RTComm.RU  currently  has  licenses  to  lease
communications  channels,  provide telematic and data transmission services, and
to engage in the technical protection of confidential  information.  RTComm.RU's
target  customers  are  Internet  service  providers,  corporate  customers  and
government entities.

As of June 30, 2004,  the Company owned 31.1% of the voting shares in RTComm.RU.
Despite of the fact that the Company  directly  owns less than 50% of the shares
of RTComm.RU. RTComm.RU is 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.

RTComm.RU  was  founded  in  February  2000  by  RTC-Leasing.   Changes  in  the
shareholder structure of RTComm.RU since then are set out in the table below:

<TABLE>
<CAPTION>
      Shareholders of OJSC       February 2,      January 1,      January 1,     March 1,         June 30,
          RTComm.RU                 2000            2001            2002          2003             2004
------------------------------ --------------- --------------- --------------- --------------- --------------
<S>                               <C>             <C>             <C>             <C>             <C>
RTC-Leasing                          100%            76%             40%            49.76%          49.76%
CJSC KFP-Finance                      -               4%              4%            4.98%            4.98%
Svyazinvest                           -              20%             20%            0.48%            0.48%
Rostelecom                            -               -              25%            31.10%          31.10%
Non-Profit Partnership                -               -              11%            13.68%          13.68%
Center for Telecommunications
Problems Research
</TABLE>

                                      -66-
<PAGE>
One of the principal  services that RTComm.RU has been  providing  since 2001 is
dedicated access,  which provides 24-hour connection of the customer's router to
a port of the RTComm.RU network node and permanent access to Internet resources.

RTComm.RU also provides data center services,  including  registration of domain
names,   "post-office"   services,   news  server  services,   virtual  hosting,
co-location, dedicated hosting and others.

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,  including to
communications  operators,  national  corporations  and federal  ministries  and
agencies  located in the more than 100 large cities in Russia where  RTComm.RU's
principal access nodes are located.


Principal Associate

Golden Telecom Inc.

The Company owns 11% of the voting shares in Golden  Telecom.  Two board members
nominated  by the  Company  currently  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.
Golden  Telecom is a Delaware  company and its operations are organized into the
four service groups below:

     -    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;

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

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

     -    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, namely 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 telecommunications  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.  See Item 4.B.
"Business Overview - Network and Facilities."

Rostelecom owns the building in which its principal executive and administrative
offices are located.  The address of its principal  executive and administrative
offices is 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

                                      -67-
<PAGE>
throughout Russia related to the operation of its business.  Management believes
that Rostelecom's 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, 2003,  2002 and 2001.  Values are  expressed in millions of rubles,
according to net book values under IFRS(1) .

<TABLE>
<CAPTION>
                                     December 31, 2003      December 31, 2002      December 31, 2001
                                  ---------------------- ---------------------- -----------------------
<S>                                 <C>                    <C>                    <C>
Buildings and sites                       7,915                  8,189                   8,711
Cables and transmission devices          29,534                 35,442                  40,519
Other                                     6,791                  8,775                   9,596
Total(2)                                 44,240                 52,406                  58,826
</TABLE>

     (1)  See Notes 5 and 35 to the consolidated financial statements for the
          year ended December 31, 2003 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
          as of December 31, 2002. These were fully depreciated during 2003. The
          aggregate value of pledged property which secures loans is RUR 2,158
          million as of December 31, 2003 (RUR 9,117 million as of December 31,
          2002). 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
Rostelecom's  primary network in Russia,  including in Moscow,  St.  Petersburg,
Novosibirsk, Ekaterinburg, Samara, Rostov-on-Don, and Khabarovsk.

The Company's capital expenditure approved by the Board of Directors for 2004 is
expected to be RUR 5,237 million.  See Item 4.A. "History and Development of the
Company."

Construction  in progress as of December 31, 2003, 2002 and 2001 amounted to RUR
5,345 million, RUR 3,872 million, and RUR 3,851 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 the
regeneration of forests, agricultural lands and other properties. 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 definitively 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  and the  notes to the  consolidated  financial  statements  included
elsewhere in this Annual  Report.  The  consolidated  financial  statements  are
comprised  of the results of  Rostelecom  and its  subsidiaries,  RTComm.RU  and
Westelcom.

Prior  to  December  1,  2003,   the  Group  also   included  its   consolidated
subsidiaries:  (i) RTC-Leasing, (ii) RTCL (Cyprus), (iii) RTCL, S.A., (iv) RTDC,
(v) RIB, (vi) AKOS, and (vii)  Spetzautoleasing,  each of which were disposed of
on that date.

For more  information see Item 10.C.  "Material  Contracts" and the consolidated
financial statements included elsewhere in this Annual Report.

On January 1, 2000,  the  operations of Rostelecom  and MMT were merged into one
entity.  The "pooling of interests" method of accounting was applied in relation
to the merger between MMT and Rostelecom

                                      -68-
<PAGE>
because both entities were under the common  control of  Svyazinvest  which held
50.67% of the voting shares in each of Rostelecom  and MMT. Under the pooling of
interests  method of  accounting  the financial  statement  items for the merged
entity for the  period of the  financial  year in which the merger had  occurred
were included in the consolidated  financial statements as if Rostelecom and MMT
had merged from the beginning of the first period presented.

The  accompanying  consolidated  financial  statements  have  been  prepared  in
accordance and comply with the IFRS,  which differ in certain respects from U.S.
GAAP. For a discussion of the differences  between IFRS and U.S. GAAP insofar as
they relate to Rostelecom,  see Note 35 to the consolidated financial statements
included elsewhere in this Annual Report.


Overview

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

     Principal markets               Percentages of total revenue represented by
                                      domestic long-distance and international
                                                      traffic
----------------------------------  --------------------------------------------
                                          2003                      2002
                                    ------------------          ----------------
Outgoing international traffic             26%                       30%
Incoming international traffic             12%                       15%
Domestic long-distance traffic             41%                       34%
Total revenue from domestic long-
distance  and  international               79%                       79%
traffic

Rostelecom owns and operates its network and the international  gateways through
which the majority of Russia's DLD and ILD traffic  passes.  Rostelecom  network
connects all of the IRCs in Russia 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 respective city of Moscow, Moscow region
and certain  business  customers and government  agencies  located  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
international  operators.  While these  improvements  have increased  access for
incoming  international  calls,  the need for further  development of Rostelecom
long-distance  trunk network and the IRCs' networks and the general state of the
Russian economy have continued to limit outgoing international traffic.

Before August 2003,  IRCs made  payments to  Rostelecom  for DLD and ILD traffic
either at a set per minute ISR for the use of the  Rostelecom  network  (for DLD
traffic)  or a  determined  proportion  of the  amounts  they  charge  to  their
subscribers (for ILD 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%.

In July 2003, the FAS abolished the ISR and approved the new  settlement  system
with effect from August 1, 2003.

                                      -69-
<PAGE>
The new settlement  system is in line with  established  world  practices and is
expected  to provide a  stimulus  for the  further  development  of the  Russian
telecommunications  market.  The Company believes that the new settlement system
improved  pricing  transparency,  enhanced  the  degree  of  precision  by which
operators can settle their  monetary  obligations  to each other and removed the
economic rationale for operators to bypass Rostelecom's  network with the result
that the Company's share of DLD traffic volume and its revenues will increase.

Under  the  new  settlements  system,  Rostelecom  began  to bill  the  regional
operators for the transit of DLD calls  calculated  using the Linear  Settlement
Rate and to pay regional  operators for the termination of DLD calls  calculated
using the Termination Settlement Rate.  Previously,  Rostelecom made no payments
for  termination  and  recognized  revenue for the transit of the traffic on the
basis of the ISR.

The  Company  expects  that  payments  to  regional  operators  for  all  actual
terminated  minutes of traffic will  encourage  operators to route their traffic
through Rostelecom's network thereby increase Rostelecom's traffic transit rates
and revenues.  In this way, the new  settlement  system should provide for equal
terms for all  operators  interconnected  to  Rostelecom's  network on the trunk
level,  irrespective of ownership.  For more  information,  please see Item 4.B.
"Business Overview."

Rostelecom has in the past experienced, and continues to experience, significant
delays in payment from subscribers located in Moscow, certain  government-funded
entities and government bodies and agencies,  and some international  operators.
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  the fully
developed business and regulatory infrastructure that would generally exist in a
more mature  market  economy.  The Russian  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 Russian  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 uncertainties, 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.


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 2001, 2002 and
2003, the ruble's value fluctuated  between 26.90 and 31.88 to 1 U.S. dollar. In
2003 the decline of the ruble was  reversed  and the ruble  appreciated  against
U.S. dollar by 7.33%. See Item 3.A.  "Selected  Financial Data - Exchange Rates"
for a summary of the exchange  rate of the ruble to 1 U.S.  dollar for the years
ended December 31, 2003, 2002, 2001, 2000 and 1999.

Previously,  the Central Bank 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

                                      -70-
<PAGE>
rubles. The Currency Control Law, which came into force in June 2004,  abolished
the procedure for licensing currency operations. For more information,  see Item
10.D. "Exchange controls."


Inflation

The following table  summarizes the annual rate of inflation for the years ended
December 31, 2003, 2002, 2001, 2000 and 1999:

For the years ended December 31           Annual inflation
---------------------------------  -------------------------------
              2003                              12.0%
              2002                              15.1%
              2001                              18.8%
              2000                              20.2%
              1999                              36.6%

Source: State Committee on Statistics of the Russian Federation.

Prior to January 1, 2003 the Russian Federation  economy was  hyperinflationary.
In  accordance  with IAS 29, the  financial  information  for  Rostelecom  as of
December 31, 2002,  2001,  2000 and 1999 has been restated in terms of the ruble
purchasing power current as of December 31, 2002 to take into account the effect
of inflation.

The Russian Federation ceased to be  hyperinflationary  with effect from January
1,  2003 and  accordingly  no  adjustments  have  been  made for the year  ended
December 31, 2003. The  hyperinflation-adjusted  carrying amounts of the Group's
assets,  liabilities and equity items as of December 31, 2002 were assumed to be
the carrying  amounts as of January 1, 2003 for the purpose of the  consolidated
financial statements.


Taxation

The tax system of Russia  includes  taxes  introduced  and  regulated by federal
authorities,  authorities  of  subjects  of the  Russian  Federation,  and local
(municipal) authorities.

Taxes payable by Russian  companies include VAT, income tax, unified social tax,
turnover tax,  property tax and other taxes. 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 within
the Group pays taxes  independently  and may not offset its  profits  and losses
against profits and losses of another company in the Group.

Currently,  the Russian tax system is undergoing  fundamental reform. The reform
is aimed at making the tax system more predictable and transparent, and reducing
the  tax  burden  on  the  economy.  These  goals  are  to be  achieved  through
reconciling  uncoordinated  separate  statutory  regulations and including those
provisions  in the Tax Code in order to reduce the total number of taxes imposed
and lower the rate of taxation. The reform of the Russian tax system is expected
to be completed in 2004.

For more information,  see Item 3.D. "Risk Factors - Legal Risks" and Item 10.E.
"Taxation."


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 IFRS. 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 has  identified  certain  critical  accounting  policies which require
management to make significant  estimates and  assumptions.  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 of inflation and changes in foreign  exchange  rates
has also been included by management as a critical  accounting policy because of
the material impact on the Group's financial statements for the years 1999-2002.
Management  believes that the following are some of the most critical accounting
policies that currently affect the Company's  financial condition and results of
operations.


                                      -71-
<PAGE>
Principles of Consolidation

The Group comprises the Company and its subsidiaries.  Transactions and balances
between the Company and its subsidiaries are eliminated, and accounting policies
of its subsidiaries are adjusted to conform to those of the Company.

A consolidated 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 such entity,  or by other means.  As of December 31, 2003,  the Group
comprised  the  Company  and  its  consolidated   subsidiaries,   RTComm.RU  and
Westelcom.

Prior to  December  1,  2003,  the  Group  comprised  the  Company  and its then
consolidated  subsidiaries:  (i)  RTC-Leasing;  (ii) RTCL (Cyprus);  (iii) RTCL,
S.A.; (iv) RTDC; (v) RIB; (vi) AKOS; (vii)  Spetzautoleasing  (viii)  RTComm.RU;
and (ix) Westelcom.

For more  information  see Item 4.A.  "History and  Development of the Company",
Item  10.C.  "Material  Contracts"  and the  consolidated  financial  statements
included elsewhere in this Annual Report.

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 of such company 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.  The Group must
exercise its judgment in making  determinations  as to those factors to analyze,
in determining whether a potential impairment of an investment has occurred. For
the purposes of such assessment, management uses the information relating to the
fair value of the  investment  rather than to its  carrying  value,  information
relating to 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.

If the  Company's  interest in an entity is between 20% to 50% and such interest
is  acquired  with the  intention  to sell it in the  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  subjective  by
nature and often  involves the use of  significant  estimates  and  assumptions.
Management engaged independent  appraisers to assist in the determination of the
fair  value of  certain  available-for-sale  investments.  The most  significant
estimates and assumptions used to determine fair value relate,  among others, to
the  estimation  of the amount and timing of future cash flows and then discount
rates and perpetual growth rates. Most of the assumptions are based on available
historical and market information.

Prior to  October  2003,  the  Company  owned  27.13%  of the  voting  shares of
RTC-Leasing.  However, as management believed that it exercised control over the
management,  policies and day-to-day  operations of  RTC-Leasing,  including the
right to appoint the  majority of the Board of  Directors  of  RTC-Leasing,  the
Company  continued  to  consolidate  the  results of  operations  and  financial
position of RTC-Leasing.  In October 2003, the Company sold its remaining equity
interest  in  RTC-Leasing.   As  a  result,   RTC-Leasing,   together  with  its
subsidiaries,  ceased to be treated as a consolidated entity for the purposes of
the  Company's  financial  statements.  For details  please  refer to Item 10.C.
"Material Contracts."

As of December 31, 2003,  Rostelecom held 31% of the voting shares of RTComm.RU.
However, in the opinion of management, the Company continues to exercise control
over the  management,  policies and  day-to-day  operations  of  RTComm.RU.  The
activities of RTComm.RU are conducted in accordance with the Company's  specific
business  and the Company  obtains  benefits  from,  and retains the majority of
risks related to, RTComm.RU.  Therefore the Company continues to consolidate the
results of operations and financial position of RTComm.RU.

For information,  please refer to the consolidated financial statements included
elsewhere in this Annual Report.


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 its
property, plant and equipment, as reliable historical cost

                                      -72-
<PAGE>
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:

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

     o    Cable and transmission devices - current replacement cost;

     o    Trunk network exchanges - modern equivalent asset; and

     o    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 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.
Expenditures for ongoing repairs and maintenance are charged to the statement of
operations  as  incurred.  Assets  acquired  to satisfy  the 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 (for details see Note 5 to the consolidated  financial statements).
The determination of the useful life of an asset involves a subjective  judgment
by management with respect to estimated  periods of its business use. Changes in
the  Group's  intended  period of use of  certain  assets as well as  changes in
technology may cause the estimated useful life of an 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 an asset  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 an asset 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 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 telecommunications 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, 2003,  increase  operating expenses and decrease the net income for the year
ended December 31, 2003.

For the purpose of evaluating impairment,  the Company reviewed property,  plant
and  equipment  to be held and used,  and based on this  analysis,  the  Company
believes that the carrying value of property,  plant and equipment  reflected in
the  consolidated  financial  statements as of December 31, 2003 does not exceed
their recoverable value.


                                      -73-
<PAGE>
Effects of Inflation and Changes in Foreign Exchange Rates

Prior to December 31,  2002,  the Russian  Federation  met the  definition  of a
hyperinflationary  economy  as  defined  by  International  Accounting  Standard
("IAS") 29, "Financial Reporting in  Hyperinflationary  Economies." Although the
cumulative inflation index for the three-year period ended December 31, 2002 was
less than 100%, it was considered  that the remaining  criteria set forth by IAS
29 indicated  that during 2002, the Russian  Federation  continued to experience
conditions that meet the definition of a hyperinflationary economy.

Effective  January  1,  2003,  the  International  Task  Force  of the  American
Institute of Certified Public Accountants determined that the Russian Federation
no longer meets the criteria of a hyperinflationary economy. Beginning 2003, the
Company ceased  applying IAS 29 and only  recognizes  the  cumulative  impact of
inflation  indexing  through  December 31, 2002 on non-monetary  elements of the
consolidated  financial  statements.   Transactions   undertaken  subsequent  to
December  31, 2002 are  reported  at actual,  nominal  amounts  except for those
involving non-monetary assets and liabilities acquired prior to January 1, 2003.
Results of operations  (including  gains and losses on disposal)  involving such
assets and  liabilities  are recognized  based on the restated  cost,  which was
calculated  by applying to the carrying  values of these assets and  liabilities
the change in the general  price index  through  December 31, 2002.  Comparative
financial  information  for the  years  ended  December  31,  2002  and  2001 is
presented in terms of the measuring unit current as of December 31, 2002.

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  consolidated  financial  statements  for the years ended December 31, 1999,
2000, 2001 and 2002, have been restated in terms of the purchasing  power of the
measuring  unit as of December 31, 2002,  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") as issued by Goskomstat,  the
State Committee on Statistics of the Russian  Federation,  in the application of
IAS 29.

Substantially  all of the Group's  revenue is denominated in rubles,  except for
its revenue from international  operators,  which is denominated in U.S. dollars
or other  foreign  currencies.  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. For example, 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 the period from 1999 to 2002,  it was less than the rate of
inflation.  Currently,  the  Company  does not use nor plans to use  hedging  to
insure against such foreign currency fluctuations.

The following  table  illustrates the effects from 1998 to 2002 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>
                                                                             Decrease                       Amount
                                                                            in value of     Increase       constant
                                             Rubles to                        Rubles         In GPI       Rubles in
                                U.S.$          U.S.$          Rubles         against          from         terms of
     Payment date              amount        exchange         amount       U.S.$ from        payment      purchasing
                                 of           rate at       initially        payment        date to       power as of
                              payment        time of        recognized       date to         December      December
                                             payment                        December        31, 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
</TABLE>

                                      -74-
<PAGE>
<TABLE>
<S>                          <C>           <C>          <C>              <C>             <C>             <C>
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>

As the  Russian  Federation  ceased to be  hyperinflationary  with  effect  from
January 1, 2003,  no  adjustments  in the  accompanying  consolidated  financial
statements   have  been  made  for  the  year  ended   December  31,  2003.  The
hyperinflation-adjusted  carrying amounts of the Company's  assets,  liabilities
and equity  items as of December 31, 2002 became  their  carrying  amounts as of
January 1, 2003 for the purpose of subsequent accounting.

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


Corresponding Figures

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


Monetary assets and liabilities

Cash  and  cash  equivalents,   available-for-sale   investments,   receivables,
payables,  interest  bearing loans,  current taxation and dividends had not been
restated as they are monetary  assets and  liabilities and were 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,  were 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  were 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 were
restated  by  applying  the change in the GPI from the dates when the items have
been initially recorded to the balance sheet date.


Revenue and Operating Costs Recognition

Revenue and operating  costs for all services had supplied and had received were
recognized at the time the services were rendered.  Revenue was recognized  when
it was probable that the economic benefits associated with the transaction would
flow to the  enterprise  and the amount of  revenue  can be  reliably  measured.
Revenue  recognition  required  judgment 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
revenue  recognition  policy was widely used in  telecommunications  industry in
connection with settlements with long-distance telecommunications 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.

                                      -75-
<PAGE>

Segment information

The primary business area of the Group is telecommunications services, including
international  and  domestic  long-distance  phone  calls  and  Internet-related
services.

Approximately   95%  of  the   revenues   of  the   Group   are   derived   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
generated from the Company's telecommunications services. The Company determined
the following  types of customers to be reported  separately:  local  operators,
subscribers,  and  foreign  operators.  For each type of  customer,  the Company
reports the following types of material services provided:


Local operators

     -    Telephone - international
     -    Telephone - domestic
     -    Other income from local operators

Subscribers

     -    Telephone - international
     -    Telephone - domestic
     -    Internet access
     -    Lease of channels
     -    Television and radio transmission
     -    Cellular services

Foreign operators

     -    Telephone
     -    Telex, telegraph and other
     -    Lease of channels

All other types of revenues are reported as other revenue.


Allowance for doubtful accounts

The Company  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 Company recorded the allowance for doubtful  accounts as of December 31,
2003 based on the same  pattern of the  percentage  of doubtful  accounts in the
total balance of trade  accounts  receivable as at December 31, 2002, the amount
of the allowance  for doubtful  accounts as of December 31, 2003 would have been
RUR 2,538  million,  i.e.  approximately  6% lower than the  allowance  actually
recorded.  This would  result in an increase of accounts  receivable  of RUR 151
million,  a decrease of bad debt expense of RUR 151 million,  and an increase of
net income of RUR 115 million, net of taxes.

The major reason for the increase of the allowance for doubtful accounts in 2003
in total accounts receivables as compared to the allowance recorded in 2002 is a
decrease  in the number of "good  payers",  such as  national  telecommunication
operators  which  settle  their  accounts on a timely  basis,  and a  respective
increase  in the  number of  "unstable  payers",  such as  television  and radio
broadcasting  companies and certain  government  bodies which are typically less
reliable in settling their accounts.


Related Party Transactions

The Group has entered  into a number of related  party  transactions,  including
transactions with RTC-Leasing and other subsidiaries and affiliates. See further
details of such transactions in Note 29 to the consolidated financial statements
and in Item 7.B. "Related Party Transactions."


                                      -76-
<PAGE>
Discontinued Operations

As part of the Company's  effort to  concentrate  on its core  business  segment
Rostelecom  completed a series of  transactions  through  which it divested  its
remaining   interest  in  its  former   consolidated   subsidiary   RTC-Leasing.
RTC-Leasing and its  subsidiaries  conducted  operations in the Russian leasing,
banking and investing business segments.

Based on this  development,  the results of operations of RTC-Leasing  have been
reported  separately  as  discontinued  operations  in the Group's  consolidated
financial  statements for the years ended December 31, 2003,  2002 and 2001. See
Note 23 to the  consolidated  financial  statements  included  elsewhere in thus
Annual Report.

The Group's  accompanying  statements of income for the years ended December 31,
2003, 2002 and 2001 include as discontinued  operations the post-tax  results of
operations carried out by RTC-Leasing and its subsidiaries,  which are comprised
of the following:
<TABLE>

                                                                   2003          2002          2001
------------------------------------------------------------------------------------------------------
<S>                                                               <C>           <C>           <C>
Revenue                                                            837           252           196
Operating expenses                                                (577)         (431)         (513)
Other gain /(loss), net                                         (1,021)         (329)       (1,037)
------------------------------------------------------------------------------------------------------
Loss before tax and minority interest                             (761)         (508)       (1,354)
------------------------------------------------------------------------------------------------------
Income tax expense benefit                                        (300)         (590)         (589)
Minority interest in the results of discontinued operations       (650)       (1,153)         (322)
Loss recognized on disposal                                       (804)             -             -
Income tax expense recognized on disposal                         (175)             -             -
Write down of carrying amount of additional interests in
fixed assets acquired to fair value                               (551)             -             -
Income tax benefit recognized on the write-down                    132              -             -
------------------------------------------------------------------------------------------------------
Net loss from the discontinued operations                       (3,109)       (2,251)       (2,265)
======================================================================================================
</TABLE>


The Company's  loss  recognized on the disposal of shares of RTC-Leasing in 2003
and the  respective  discontinuance  of operations  in the leasing,  banking and
investing segments consisted of the following:

Cash received from the acquirer of RTC-Leasing's shares                  740
Share in net assets of RTC-Leasing                                     (1,544)
--------------------------------------------------------------------------------
Total loss recognized on disposal                                        (804)
================================================================================


Financial Results for the Years Ended December 31, 2003 and 2002

Revenues

In 2003,  total revenues  increased by 14% to RUR 31,890 million from RUR 27,889
million in 2002. The growth in total revenue was largely due to the introduction
of the new settlement  system between the Company and local operators in Russia.
Revenue from the new  settlement  system  accounted for RUR 2,966 million of the
company's  total  revenues in 2003.


Local Operators

<TABLE>
<CAPTION>
                                                                                       Total Change
                                               Year ended         Year ended       ---------------------
                                              December 31,       December 31,           RUR
                                                  2003               2002             million      %
                                            -----------------  ------------------  ----------- ---------
<S>                                            <C>               <C>                <C>       <C>
 Telephone - international                        5,171             5,025              146         3%
 Telephone - national                             9,292             5,895            3,397        58%
 Other income from local operators                1,952             1,838              114         6%
 Total revenues from local operators              16,415            12,758           3,657        29%
</TABLE>


Revenues from local operators  represented  51.5% and 45.7% of total revenues in
2003 and 2002, respectively.

                                      -77-
<PAGE>
Revenues  from local  operators  for DLD traffic  increased  by 58% to RUR 9,292
million in 2003 as  compared  to RUR 5,895  million  in 2002.  The  increase  in
revenue from local operators for domestic  long-distance traffic transit was due
to a 15% growth in  traffic  and a 49%  increase  in the level of  tariffs.  The
principal  reason behind the growth in traffic was the  continued  growth of the
Russian  economy and greater  penetration  of fixed and mobile  telephony in the
Russian market.  With respect to tariffs,  on August 1, 2003, the  Anti-Monopoly
Ministry  (currently,  the  FAS)  abolished  the  ISR  for  settlements  between
Rostelecom,  on the one hand, and regional  operators and the Svyazinvest Group,
on the other.  Under the new settlements  system,  Rostelecom  began to bill the
regional  operators  for the  transit of DLD calls  calculated  using the Linear
Settlement  Rate and to pay regional  operators for the termination of DLD calls
calculated using the Termination Settlement Rate. Previously, Rostelecom made no
payments for termination  and recognized  revenue for the transit of the traffic
on the basis of the ISR.

Revenues from local  operators  for outgoing ILD traffic  increased by 3% to RUR
5,171  million  in 2003  from  RUR  5,025  million  in 2002.  In 2003,  outgoing
international  traffic from local  operators grew by 10% as compared to 2002. In
2003, tariffs were largely unchanged as compared to 2002.

Other income from local  operators  increased by 6% to RUR 1,952 million in 2003
compared to RUR 1,838 million in 2002.  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 leased lines prices charged.


Subscribers

<TABLE>
<CAPTION>
                                                                                     Total Change
                                             Year ended         Year ended      ------------------------
                                             December 31,      December 31,       RUR
                                                2003              2002          million           %
                                           ---------------   ----------------   ------------  ----------
<S>                                         <C>              <C>             <C>           <C>
 Telephone - international                       3,027            3,462           (435)        -13%
 Telephone - national                            3,678            3,513            165          5%
 Internet access                                 1,060             849             211          25%
 Rent of telecommunications channels to           853              712             141          20%
 subscribers
 Television and radio transmission               584              546             38           7%
 Cellular services                               117               89             28           31%
  Total revenues from subscribers               9,319            9,171            148          2%
</TABLE>

Revenues from Rostelecom's  subscribers,  which consist mainly of subscribers in
Moscow,  include  revenues  from  national  and  international  calls.  In 2003,
revenues from subscribers  represented 29.2% of total revenues compared to 32.8%
in 2002. In 2003, revenues from subscribers increased by 2% to RUR 9,319 million
from RUR 9,171 million in 2002.  Such growth was  principally due to an increase
in subscriber DLD revenues,  increased  Internet access revenues and rental fees
for telecommunications  channels,  partly offset by a decrease in subscriber ILD
revenues.

Revenues  from  subscribers  in  Moscow  for  international   telecommunications
services dropped 13% to RUR 3,027 million in 2003 from RUR 3,462 million in 2002
partially as a result of a slight  decrease in outgoing  international  traffic,
caused by continued  intense  competition in Moscow, a decrease in the effective
tariff level of 4% from the previous year and the impact of inflation.

Revenues  from  subscribers  in  Moscow  for  DLD  telecommunications   services
increased  by 4.7% to RUR 3,678  million in 2003 from RUR 3,513  million in 2002
due to the Company's more effective pricing policy,  the provision of additional
services to Moscow subscribers and other marketing efforts.

In 2002  revenues  from  subscribers  also  included  revenues from Internet and
mobile telecommunications  businesses,  representing the activities of RTComm.RU
and AKOS,  respectively,  which the Company started  consolidating  from January
2002  and  April  2002,  respectively.  The  revenues  of  RTComm.RU  are  still
consolidated  while the revenues of AKOS were  consolidated  until  December 01,
2003.  Internet  access revenues in 2003 increased by 24.9% to RUR 1,060 million
from RUR 849 million in 2002. Revenues from mobile

                                      -78-
<PAGE>
subscribers  in 2003  increased by 31% to RUR 117 million from RUR 89 million in
2002.  The Group  disposed of its holding in AKOS  together with its sale of its
remaining holding in RTC-Leasing in late 2003.

In 2003, revenues from the lease of channels to subscribers  increased by 20% to
RUR 853 million from RUR 712 million in 2002 due to an increase in tariff levels
for leasing channels.  In 2003,  revenues from television and radio transmission
amounted to RUR 584 million, an increase of 7.0% from 2002.


Foreign Operators

<TABLE>

                                                                                        Total Change
                                                     Year ended       Year ended    -----------------------
                                                     December 31,    December 31,      RUR
                                                        2003            2002         million      %
                                                     -------------  --------------  ---------- ------------
<S>                                                    <C>           <C>           <C>          <C>
 Telephone                                               3,871         4,250         (379)        -9%
 Telex, telegraph and other                                431           622         (191)        -31%
 Rent of telecommunications channels                       181           228          (47)        -21%
 Total revenues from international operators              4,483         5,100        (617)        -12%
</TABLE>

In 2003,  revenues from foreign  operators  represented  14.1% of total revenues
compared to 18.3% in 2002.  Revenues from foreign operators  decreased by 12% to
RUR 4,483 million in 2003 from RUR 5,100 million in 2002. Incoming international
traffic  increased by 24% in 2003 as compared to 2002.  In 2003,  tariff  levels
decreased by 23% from the previous  year.  Revenues from other  services such as
telex and telegraph  decreased by 31% to RUR 431 million from RUR 622 million in
2002 due to the outdated and inefficient technologies used in such services. The
Company is phasing out these outdated  services and expects to replace them with
its new services.


Operating Expenses

<TABLE>
                                                                                        Total Change
                                                      Year ended     Year ended    -----------------------
                                                     December 31,   December 31,       RUR
                                                         2003           2002         million      %
                                                    -------------  --------------  ---------- ------------
<S>                                                   <C>            <C>             <C>      <C>
 Wages, salaries, other benefits and payroll taxes       3,946          3,476           470      14%
 Depreciation                                            8,252          9,089          (837)     -9%
 Charges by network operators - international            5,913          5,779           134       2%
 Charges by network operators - national                 4,780          1,707         3,073     180%
 Administration and other costs                          3,782          3,336           446      13%
 Taxes other than on income                                507            793          (286)    -36%
 Repairs and maintenance                                   800            452           348      77%
 Bad debt expense                                          337            874          (537)    -61%
 Loss on sale of property, plant and equipment           1,214            449           765     170%
 Total operating expenses                               29,531         25,955         3,576      14%
</TABLE>

Total operating  expenses  increased by 13.8% to RUR 29,531 million in 2003 from
RUR  25,955  million  in  2002,   mainly  due  to  an  increase  in  charges  by
international and local network  operators,  wages and salaries,  administration
and other  costs.  This  increase in expenses  was partly  offset by  decreasing
depreciation, lower taxes other than on income and lower bad debt expense.

Charges by local  network  operators  increased by 180% to RUR 4,780  million in
2003 from RUR 1,707 million in 2002.  The new  settlement  system  accounted for
147%, or RUR 2,501 million, of the total increase.

Charges  by  international   network   operators  for  termination  of  outgoing
international  calls increased by 2% to RUR 5,913 million in 2003 from RUR 5,779
million in 2002.  The increase was  principally  due to the increase of outgoing
international traffic.

Wages, salaries and other staff costs increased by 13.5% to RUR 3,946 million in
2003 from RUR 3,476  million in 2002.  Although,  as of  December  31,  2003 the
number of employees decreased by 15.7% to 26,742 from 31,729, as of Decemebr 31,
2002,  the  increase  in wages,  salaries  and other  staff  costs was due to an
increase in average salaries of 31% in 2003 as compared to 2002.

                                      -79-
<PAGE>
Depreciation  of  property,  plant and  equipment  decreased  by 9% to RUR 8,252
million  in 2003  from RUR  9,089  million  in  2002.  During  2002 the  Company
formalized a plan to discontinue using certain satellite channels which resulted
in additional  depreciation expenses of RUR 897 million and RUR 210 million were
recognized  in  2002  and  2003,   respectively.   The  remaining   decrease  in
depreciation  in 2003  relates to property  plant and  equipment  disposed of in
2002.  During 2003,  the Company  ceased using certain analog cable systems with
the result that related losses  increased by 170.0% to RUR 1,214 million in 2003
from RUR 449 million in 2002.

Administration  and other expenses increased by 13% to RUR 3,782 million in 2003
from RUR 3,336  million in 2002.  This  increase  relates  primarily to expenses
incurred by RTComm.RU in connection with the governmental program  "Electronnaya
Rossia,"  which  is  aimed  at  enhancing  the  technical  capabilities  of  the
governmental  organizations  in the various  regions in Russia,  and sponsorship
payments  related to Russia's  national soccer team, which resulted in aggregate
expenses of RUR 446 million in 2003.

Taxes  other  than on  income  decreased  by 36% to RUR 507  million  in 2003 as
compared to RUR 793 million.  The principal  reason behind this decrease was the
abolition of the road users tax in 2003, which was partly offset by increases in
title duties paid by the Company.

Bad  debt  expense  decreased  by 61% to RUR 337  million  in 2003  from RUR 874
million in 2002. The decrease of the allowance for doubtful  accounts is largely
due to the effect of an  agreement  between  Rostelecom  and local  operator  in
Moscow  whereby the  parties  undertook  joint  efforts  for the  prevention  of
unauthorized access to the telecommunications network in the city.


Operating Profit

In 2003,  operating  profit  increased by RUR 425 million,  or 22%, to RUR 2,359
million from RUR 1,934 million in 2002. As a result,  the operating  margin grew
from 6.9% in 2002 to 7.4% in 2003.

Net interest expense and other  non-operating items decreased from a net gain of
RUR 1,547 million in 2002 to a net gain of RUR 1,516  million in 2003.  This was
primarily due to income from sale of investments  of RUR 25 million  compared to
income from sale of investments  of RUR 1,724 million in 2002,  which was partly
offset by gain from debt  restructuring  and foreign  exchange  gain compared to
foreign exchange loss in 2002.

In 2002 the Company  recognized  net income from the sale of  investments of RUR
1,724  million.  This gain  primarily  represented  income  from the sale of the
Company's  50% interest in Sovintel with a value of RUR 1,733 million and losses
from sale of other investments  amounting to RUR 9 million.  In exchange for its
interest  in  Sovintel  the  Company  received  cash  and  short-term  financial
instruments,  redeemed in 2002 for a total  amount of U.S.$ 56 million and a 15%
interest in Golden Telecom,  which acquired the Company's  interest in Sovintel.
After the transaction,  the Company  retained a significant  influence in Golden
Telecom.   Therefore  investments  in  Golden  Telecom  were  accounted  for  as
investments in associates  using the equity method.  During 2003, after a number
of additional share issues by Golden Telecom,  the Company's  interest in Golden
Telecom was diluted to 11.19%.  The Company  recognized  a gain of RUR 2 million
resulting from the dilution of its interest in Golden Telecom.

From January 1, 2003,  the Russian  Federation no longer met the criteria of IAS
29 for hyperinflation. As of January 1, 2003, the Company ceased applying IAS 29
and only recognizes the cumulative impact of inflation indexing through December
31, 2002 on  non-monetary  elements of the  consolidated  financial  statements.
Accordingly,  monetary  gain equals nil in 2003 compared to monetary gain of RUR
494 million in 2002.

Interest expense amounted to RUR 202 million in 2003 compared to RUR 348 million
in 2002. The decrease is explained by a reduction in the Company's total debt of
57% from RUR 8,383 million in 2002 to RUR 3,573 million in 2003.


Income Tax Expense

The Company's 2003 income tax expense related to continuing  operations amounted
to RUR 373 million as compared to RUR 948 million in 2002.  Such  variation  was
primarily  due to a decrease in current tax charge and  increase in deferred tax
benefit.  Deferred  tax  expenses  and  benefits  primarily  relate to temporary
differences between the carrying and tax basis of property,  plant and equipment
and  financial  instruments.  Russian  income  tax  applies  to all the  Group's
continuing operations.


                                      -80-
<PAGE>
Results from Discontinued Operations

Discontinued  operations  resulted from the Company's disposal of RTC-Leasing on
December 1, 2003.  In 2003,  the Company  recorded a net loss from  discontinued
operations  of RUR 3,109  million as compared to a net loss of RUR 2,251 million
in 2002. See note 23 to the consolidated financial statements included elsewhere
in this Annual Report.


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

In 2002, total revenues  decreased by 7.3% to RUR 27,889 million from RUR 30,073
million in 2001.  The decline in revenue was primarily due to 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  Company'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.


Local operators

<TABLE>
                                                                              Total Change
                                            Year ended      Year ended    -----------------------
                                           December 31,    December 31,      RUR
                                               2002            2001        million       %
                                        ----------------  --------------  ----------- -----------
<S>                                     <C>             <C>           <C>           <C>
 Telephone - international                    5,025           5,364         (339)        -6%
 Telephone - national                         5,895           5,016          879         18%
 Other income from local operators            1,838           1,760           78         4%
 Total revenues from local operators          12,758          12,140         618         5%
</TABLE>

Revenues from local operators  represented  45.7% and 40.4% of total revenues in
2002 and 2001, respectively.  Revenues from local operators increased by 5.1% to
RUR 12,758  million in 2002 compared to RUR 12,140  million in 2001, as a result
of an increase in DLD and ILD traffic and  increased  DLD  settlement  rates for
IRCs.

The  growth in  traffic,  both  outgoing  ILD and DLD,  is  attributable  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 DLD and ILD  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 DLD 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 DLD traffic transit was due to an 18% growth in
traffic and  increased  tariffs  (for the linear  component of the ISR) used for
settlements with IRCs, the effects of which,  however,  were partially offset by
the impact of inflation.

Revenues from local operators for outgoing ILD traffic  decreased by 6.3% to RUR
5,025 million in 2002 from RUR 5,364 million in 2001.  Outgoing ILD 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.

                                      -81-
<PAGE>
Other income from local operators increased by 4.4% to RUR 1,838 million in 2002
compared to RUR 1,760 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.


Subscribers

<TABLE>
<CAPTION>
                                                                                       Total Change
                                                  Year ended       Year ended       --------------------
                                                 December 31,      December 31,        RUR
                                                     2002             2001            million     %
                                                ---------------  ----------------  ----------- ---------
<S>                                             <C>              <C>          <C>           <C>
Telephone - international                           3,462            4,951        (1,489)      -30%
Telephone - national                                3,513            3,697         (184)       -5%
Internet access                                      849               -            849         -
Rent of telecommunications channels to               712              639           73         11%
subscribers
Television and radio transmission                    546              558          (12)        -2%
Cellular services                                     89               -            89          -
Total revenues from subscribers                     9,171            9,845         (674)       -7%
</TABLE>

Revenues from Rostelecom's  subscribers,  which consist mainly of subscribers in
Moscow,  represented  32.9% of total 2002 revenues compared to 32.7% in 2001. In
2002, revenues from subscribers  decreased by 6.8% to RUR 9,171 million from RUR
9,845  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.

Revenues  from  subscribers  in  Moscow  for  international   telecommunications
services  decreased by 30.1% to RUR 3,462 million in 2002 from RUR 4,951 million
in 2001 due to the  decrease  in the  outgoing  international  traffic  of 13.9%
(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%.

In 2002 the Group's  revenues  from  subscribers  also  included  revenues  from
Internet and mobile  telecommunications  businesses,  representing activities of
RTComm.RU and AKOS,  respectively,  which the Group started  consolidating  from
January  2002 and April 2002,  respectively.  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.

Revenues  from  rent of  channels  to  subscribers  increased  by 11% to RUR 712
million.  Revenues from television and radio transmission decreased by 2% to RUR
546 million.


Foreign Operators

<TABLE>
<CAPTION>
                                                                                    Total Change
                                                Year ended      Year ended    ------------------------
                                               December 31,     December 31,   RUR
                                                   2002            2001       million         %
                                            ---------------- --------------- ------------ ------------
<S>                                           <C>             <C>          <C>            <C>
 Telephone                                        4,250           6,018        (1,768)       -29%
 Telex, telegraph and other                         622             571            51          9%
 Rent of telecommunications channels                228             263           (35)        -13%
 Total revenues from international operators      5,100           6,852        (1,752)        -26%
</TABLE>

In 2002,  revenues from foreign  operators  represented  18.3% of total revenues
compared to 22.8% 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% was offset by the decline in

                                      -82-
<PAGE>
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.


Operating Expenses

<TABLE>
<CAPTION>
                                                                                           Total Change
                                                    Year ended       Year ended    --------------------------
                                                    December 31,     December 31,       RUR
                                                        2002             2001         million         %
                                                  ----------------  ---------------  -----------  -----------
<S>                                                <C>              <C>            <C>           <C>
Wages, salaries, other benefits and payroll taxes       3,476            3,574           (98)         -3%
  Depreciation                                          9,089            7,977         1,112          14%
  Charges by network operators - international          5,779            7,438        (1,659)        -22%
  Charges by network operators - national               1,707            2,190          (483)        -22%
  Administration and other costs                        3,336            3,214           122           4%
  Taxes other than on income                              793            1,579          (786)        -50%
  Repairs and maintenance                                 452              638          (186)        -29%
  Bad debt expense                                        874             (28)           902           -
  Loss on sale of property, plant and equipment           449              554          (105)        -19%
  Total operating expenses                             25,955           27,136        (1,181)         -4%
</TABLE>

Total  operating  expenses  decreased by 4.4% to RUR 25,955 million for the year
ended  December  31,  2002 from RUR  27,136  million  in 2001,  mainly  due to a
decrease in 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 2.7% to RUR 3,476  million in 2002 from RUR 3,574  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
optimizes its  organizational  structure,  modernizes its network and phases out
analogue lines. In 2002, the Company reduced its headcount by about 9%.

Depreciation  of property,  plant and equipment  increased by 13.9% to RUR 9,089
million in 2002 compared to RUR 7,977 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  optimization 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.

                                      -83-
<PAGE>
Administrative  and other  expenses  remained  the same,  amounting to RUR 3,336
million in 2002 compared to RUR 3,214 million in 2001.

Taxes other than on income  decreased by 49.8% to RUR 793 million from RUR 1,579
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 874 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 telecommunications network in Moscow.


Operating Profit

In 2002,  operating  profit  decreased by 34.2%,  to RUR 1,934  million from RUR
2,937 million in 2001. As a result,  the operating margin fell from 9.8% in 2001
to 6.9% in 2002.

Net interest expense and other  non-operating items decreased from a net gain of
RUR 2,499 million in 2001 to a net gain of RUR 1,547  million in 2002.  This was
primarily due to a decrease of monetary gain of RUR 2,971 million in 2001 to RUR
494 million in 2002, a foreign currency exchange loss of RUR 933 million in 2002
compared to a foreign  currency  exchange gain of RUR 221 million in 2001,  that
was partly offset by a gain from the sale of investments of RUR 1,724 million in
2002 (nil in 2001).  Interest paid decreased from RUR 903 million in 2001 to RUR
348 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 494 million and RUR 2,971  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).


Income Tax Expense

The Group's  2002 income tax expense  amounted to RUR 948 million as compared to
an income tax benefit of RUR 1,470 million  reflected in 2001. This decrease 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.


Results from Discontinued Operations

Discontinued  operations  resulted from the Company's disposal of RTC-Leasing on
December 1, 2003.  In 2002,  the Company  recorded a net loss from  discontinued
operations  of RUR 2,251 million as compared to a net loss of RUR 2,265 in 2001.
See note 23 to the consolidated  financial statements included elsewhere in this
Annual Report.

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 under U.S. GAAP. For the years
ended December 31, 2003 and 2002 net income  reported under IFRS amounted to RUR
530  million  and RUR 678  million,  respectively,  as  compared  to net  income
reported under U.S. GAAP in 2003 of RUR 11 million and net income in 2002 of RUR
73 million,  respectively.  As of December 31, 2003 and 2002 total shareholders'
equity reported under IFRS totaled to RUR 48,857 million and RUR 49,033 million,
respectively, as compared to total shareholders' equity reported under U.S. GAAP
of RUR 53,687 million and RUR 54,381 million, 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 35 to the accompanying consolidated financial statements.


                                      -84-
<PAGE>
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,  Statement of Financial  Accounting Standards ("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. Net  additional  expense  recognized due to these  differences
amounted to RUR 654 million in 2003  compared to RUR 502 million in 2002 and RUR
81 million in 2001.

During  the year  ended  December  31,  2003,  the  Group  executed  a series of
transactions that resulted in a sale by the Company of its controlling  interest
in RTC-Leasing for cash and a settlement by the Company of its lease obligations
to  RTC-Leasing.  The Group sold and  leasedback  to the Company  the  equipment
acquired by the Group from RTC-Leasing.

Under IAS No. 17,  "Leases",  for finance leases,  no adjustment is necessary if
the fair value at the time of a sale and leaseback  transaction is less than the
carrying  amount of the asset unless there has been an impairment  in value,  in
which case the carrying  amount is reduced to  recoverable  amount in accordance
with the International Accounting Standard dealing with impairment of assets.

Under  SFAS No. 28,  "Accounting  for sales  with  leasebacks",  if the lease is
accounted  for as a  capital  lease,  any  profit  or loss on the sale  shall be
deferred and amortized in proportion  to the  amortization  of the leased asset,
unless the fair value of the  property  at the time of the  transaction  is less
than  its  undepreciated  cost,  in  which  case  a  loss  shall  be  recognized
immediately up to the amount of the difference  between  undepreciated  cost and
fair value.

The effect of the  difference,  which equals to loss of RUR 1,395 million net of
income  tax of RUR 440  million  is  included  into net loss  from  discontinued
operations for the year ended December 31, 2003.


Accounting for investments in associates

In accordance with IAS No. 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 to the accompanying  consolidated  financial statements,
in 2002, the Group acquired and, in 2003, 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 RUR 1,632
million.  Negative goodwill attributable to these investments of RUR 455 million
was  included in the current  portion of  negative  goodwill as of December  31,
2002.

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 US 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 US 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 reported in the reconciliation of net income and shareholders'
equity for 2002 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 US GAAP,
net of tax and minority interest.

In 2003  these  investments  were  sold  (refer  to Note 13 to the  accompanying
consolidated financial statements).  Accordingly,  the differences in accounting
for  these  investments  under  IFRS and US  GAAP,  reported  in prior  periods,
reversed in 2003.

As described in Note 8 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  exercised  significant  influence  over
financial and operating  policies of Golden Telecom.  In accordance with IAS No.
28,  "Accounting for Investments in Associates",  the Group amortized 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 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
interest.  Amortization  of related  goodwill in 2002 amounted to RUR 3 million.
During 2003 the equity method  goodwill  related to investment in Golden Telecom
recognized in IFRS accounts amounted to RUR 95 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 and 2003.

                                      -85-
<PAGE>

New accounting pronouncements

International Financial Reporting Standards

In February 2004, the IASB issued International Financial Reporting Standard No.
2 ("IFRS  2"),  "Share-based  Payment" on  accounting  for  share-based  payment
transactions,  including  grants  of  share  options  to  employees.  IFRS No. 2
requires an entity to reflect in its profit or loss and  financial  position the
effects of share-based payment transactions,  including expenses associated with
transactions  in which share options are granted to  employees.  IFRS No. 2 will
apply to  accounting  periods  commencing  on or after  January  1,  2005 with a
restatement  of  comparatives.  Early  adoption of IFRS No. 2 is permitted.  The
Group is  currently  evaluating  the impact of this  standard  on its results of
operations,  financial  position  and  cash  flows  and  is in  the  process  of
developing an implementation strategy.

On  December  18,  2003,  the  IASB  published  thirteen  revised  International
Accounting  Standards  and gave notice of the  withdrawal  of one  International
Accounting  Standard.  These revised standards will apply to accounting  periods
commencing on or after January 1, 2005,  although  early  adoption is permitted.
The revised standards are:

     o    IAS No. 1, "Presentation of Financial Statements",
`    o    IAS No. 2, "Inventories",
     o    IAS No. 8, "Accounting Policies, Changes in Accounting Estimates and
          Errors",
     o    IAS No. 10, "Events after the Balance Sheet Date",
     o    IAS No. 16, "Property, Plant and Equipment",
     o    IAS No. 17, "Leases",
     o    IAS No. 21, "The Effects of Changes in Foreign Exchange Rates",
     o    IAS No. 24, "Related Party Disclosures",
     o    IAS No. 27, "Consolidated Financial Statements and Accounting for
          Investments in Subsidiaries",
     o    IAS No. 28, "Investments in Associates",
     o    IAS No. 31, "Interests in Joint Ventures",
     o    IAS No. 33, "Earnings per Share", and
     o    IAS No. 40, "Investment Property."

The withdrawn  standard was IAS No. 15,  "Information  Reflecting the Effects of
Changing Prices."

IAS No. 33, as revised,  requires the  application of the "two-class  method" to
determine earnings applicable to ordinary  shareholders,  the amount of which is
used as a nominator to calculate earnings per ordinary share. The application of
the  "two-class  method"  requires  that  the  profit  or loss  after  deducting
preferred  dividends  is allocated  to ordinary  shares and other  participating
equity  instruments to the extent that each instrument  shares in earnings as if
all of the profit or loss for the period had been distributed.  The total profit
or loss  allocated to each class of equity  instrument  is  determined by adding
together the amount  allocated  for  dividends  and the amount  allocated  for a
participation  feature.  When adopted,  the application of the provisions of IAS
No. 33, as revised, will require retrospective treatment.

Accordingly,  taking  into  account  that the  Company's  preferred  shares have
certain  participation  features  (see  Note  15 to the  consolidated  financial
statements)  and the fact  that IAS No.  33, as  revised,  does not  affect  the
Company's   discretion   in  relation  to   distributions   to  the  holders  of
participating  securities,  the  Group's  management  has  determined  that  the
adoption of this revised  standard will have a material  impact on the amount of
earnings per ordinary share being reported in accordance with IFRS. For details,
please  refer  to  Note  5 to the  consolidated  financial  statements  included
elsewhere in this Annual Report.

Except for the matters disclosed in preceding paragraphs, the Group is currently
evaluating  the impact of the changes  introduced by these revised  standards on
its  results  of  operations,  financial  position  and cash flows and is in the
process of developing an implementation strategy.

On December  17,  2003,  the IASB  released  its revised  standard,  IAS No. 32,
"Financial  Instruments:  Disclosure  and  Presentation  (revised  2003)".  This
standard   replaces  IAS  No.  32,   "Financial   Instruments:   Disclosure  and
Presentation (revised 2000)", and should be applied for annual periods beginning
on or after January 1, 2005.  Earlier  application  is  permitted.  The Group is
currently  evaluating  the  impact of the  changes  introduced  by this  revised
standard on its disclosure  requirements  and is in the process of developing an
implementation strategy.

The IASB  also  issued  IAS No.  39,  "Financial  Instruments:  Recognition  and
Measurement  (2003)" in December  2003.  This  standard  supersedes  IAS No. 39,
"Financial Instruments:  Recognition and Measurement (revised 2000)", and should
be applied for annual  periods  beginning on or after  January 1, 2005.  Earlier
application  is permitted.  The Group is currently  evaluating the impact of the
changes  introduced by this revised  standard on its results of operations,  and
financial  position  and cash  flows  and is in the  process  of  developing  an
implementation strategy.

On March 31, 2004, the IASB issued  International  Financial  Reporting Standard
No.  3  ("IFRS  3"),  "Business   Combinations",   on  accounting  for  business
combinations and revised IAS 36, "Impairment of Assets," and IAS 38, "Intangible
Assets".  The  main  features  of the new and  revised  standards  are  that all
business combinations within the scope of IFRS No. 3 must be accounted for using
the purchase method.  The pooling of interests  method is prohibited.  The costs
expected to be incurred to restructure an acquired

                                      -86-
<PAGE>
entity's  (or the  acquirer's)  activities  must be treated as  post-combination
expenses,   unless  the  acquired  entity  has  a  pre-existing   liability  for
restructuring   its  activities.   Intangible   items  acquired  in  a  business
combination  must be recognized as assets  separately from goodwill if they meet
the definition of an asset,  are either  separable or arise from  contractual or
other legal rights, and their fair value can be measured reliably.  Identifiable
assets acquired, and liabilities and contingent liabilities incurred or assumed,
must  be  initially  measured  at  fair  value.  Amortization  of  goodwill  and
intangible assets with indefinite useful lives is prohibited.  Instead they must
be tested for impairment  annually,  or more  frequently if events or changes in
circumstances indicate a possible impairment.  These standards apply to business
combinations  commencing on or after March 31, 2004. For  previously  recognized
goodwill the standards  will apply from the beginning of the first annual period
commencing  on or after March 31, 2004.  The Group is currently  evaluating  the
impact of these standards on its results of operations,  financial  position and
cash flows and is in the process of developing an implementation strategy.

On March 31, 2004, the IASB issued  International  Financial  Reporting Standard
No. 4 ("IFRS 4"),  "Insurance  Contracts",  that provides guidance on accounting
for insurance contracts. The adoption of this standard is not expected to have a
material  impact on the Group's  results of operations,  financial  position and
cash flows.


U.S. GAAP

In June 2001,  the FASB issued SFAS 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.
SFAS No. 143 is effective for fiscal years  beginning  after June 15, 2002.  The
adoption of the provisions of SFAS No. 143 did not have a material impact on the
Group's results of operations, financial position or cash flows.

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  replaces  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 did not have a material impact on the Group's results
of operations, financial position or cash flows.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation  -Transition  and  Disclosure - an amendment of FASB  Statement No.
123."  SFAS  No.  148  amends  SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation",  to provide  alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation.  It also amends the disclosure provisions of SFAS No. 123
to require  prominent  disclosure about the effects on reported net income of an
entity's  accounting  policy  decisions  with  respect to  stock-based  employee
compensation.  SFAS No. 148 also amends APB Opinion No. 28,  "Interim  Financial
Reporting",  to require  disclosure  about  those  effects in interim  financial
information.  The  amendments  to SFAS No.  123  introduced  in SFAS No. 148 are
effective for financial  statements  for fiscal years ending after  December 15,
2002.  The adoption of the provisions of SFAS No. 148 did not affect the Group's
disclosure requirements.

In  November  2002,  the  FASB  issued  FASB  Interpretation,  or FIN,  No.  45,
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect  Guarantees of  Indebtedness  of Others." FIN No. 45 requires that upon
issuance of a guarantee,  the guarantor  must recognize a liability for the fair
value  of the  obligation  it  assumes  under  that  guarantee.  The  disclosure
provisions  of FIN No.  45 are  effective  for  financial  statements  of annual
periods that end after December 15, 2002. The provisions for initial

                                      -87-
<PAGE>
recognition and measurement are effective on a prospective  basis for guarantees
that are issued or  modified  after  December  31,  2002.  The  adoption  of the
provisions of FIN No. 45 did not have a material  impact on the Group's  results
of operations, financial position or cash flows.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." FIN No. 46 amended Accounting Research Bulletin No. 51, "Consolidated
Financial  Statements",  and established  standards for  determining  under what
circumstances  a variable  interest,  or VIE,  should be  consolidated  with its
primary beneficiary. FIN No. 46 also requires disclosure about VIEs that are not
required to be consolidated  but in which the reporting entity has a significant
variable  interest.  In December 2003, the FASB revised  certain  implementation
provisions of FIN No. 46. The revised interpretation, FIN No. 46R, substantially
retained the requirements of immediate application of FIN No. 46 to VIEs created
after January 31, 2003.  There were no such  entities  created after January 31,
2003. With respect to older VIEs, the consolidation  requirements  under FIN No.
46R apply not later than for the first  financial  year or interim period ending
after December 15, 2003, if such a VIE is a special-purpose  entity, or SPE, and
no later than for the first  financial year or interim period ending after March
15, 2004, if such a VIE is not an SPE.

Nonetheless, the requirements to apply the provisions of FIN No. 46R to all SPEs
created  before  February  1, 2003 not later than for the first  financial  year
ending  after  December  15,  2003  are  applicable  only  to  U.S.  issuers  of
securities.  As  outlined  in a  letter  from SEC  Chief  Accountant  to  AICPA,
"Regarding  Effective Date Provisions of FASB  Interpretation No. 46 with Regard
to Foreign Private Issuers",  dated March 15, 2004, the SEC stated that it would
not object to effective dates of FIN No. 46 (and FIN No. 46R) in respect of VIEs
created before  February 1, 2003 for foreign private issuers having fiscal years
ending  December 31 and filing their U.S.  GAAP accounts only on an annual basis
as follows:  for SPEs - not later than January 1, 2004 and all other  entities -
not later than December 31, 2004.  The Group is still  assessing the impact that
FIN No. 46R will have on its results of operations,  financial position and cash
flows when applied to VIEs created before February 1, 2003.

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  to  Statement  133 on
Derivative  Instruments  and  Hedging  Activities."  This  statement  amends and
clarifies  financial  accounting  and  reporting  for  derivative   instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging  activities  under FASB  Statement No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities." It is effective for contracts entered into
or modified after June 30, 2003 and for hedging  relationships  designated after
June 30, 2003. All  provisions of SFAS No. 149 should be applied  prospectively,
except as stated  further.  Provisions  related to SFAS No.  133  implementation
issues that were effective for fiscal quarters beginning prior to June 15, 2003,
should continue to be applied in accordance with their respective  dates.  Rules
related to forward purchases or sales of when-issued securities or other similar
securities  should be also  applied to existing  contracts.  The adoption of the
provisions of SFAS No. 149 did not have a material impact on the Group's results
of operations, financial position or 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
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability  (or an asset in some  circumstances).  SFAS No. 150 is effective
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. The adoption of the provisions of SFAS No. 150 did not have
a material  impact on the Group's results of operations,  financial  position or
cash flows.

On March 17 to 18,  2004,  the EITF Task Force  reached a  consensus  on certain
issues  related  to  "participating  securities"  and  the  application  of  the
"two-class method" under FAS No. 128, "Earnings per share." EITF Issue No. 03-6,
"Participating  Securities  and the  Two-Class  Method Under FASB  Statement No.
128," provides guidance in determining when a security participates in dividends
such that the  two-class  method must be used to  calculate  earnings per share.
EITF Issue No. 06-3 clarifies that undistributed earnings for a period should be
allocated to a  participating  security based on the  contractual  participation
rights of the security to share in those current earnings.  Nonetheless,  if the
terms of a security do not specify  objectively  determinable,  nondiscretionary
participation  rights, then undistributed  earnings would not be allocated based
on  arbitrary  assumptions.  Also,  if an entity  could avoid  distributions  of
undistributed  earnings to participating security holders, then no allocation of
that period's earnings to the participating security would be made.

                                      -88-
<PAGE>
As the  management  of the Group is in a  position  to  influence  the amount of
dividends to be paid out to the preferred  shareholders,  the Group's management
determined that the  participation  rights of the preferred  shareholders in the
earnings  of the Group are at the  discretion  of the Group.  As in the past the
Group did not apply the  `two-class  method" to calculate  earnings per ordinary
share  for U.S.  GAAP  purposes  pursuant  to  similar  considerations,  the new
guidance  is not  expected to have a material  impact on the Group's  disclosure
regarding earnings per share.


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 2,075
million in 2003 and RUR 5,713 million in 2002.  Net of  discontinued  operations
operating  activities generated RUR 9,437 million in 2003 compared to RUR 11,571
million  in  2002.  In the  past  the  repayment  of  certain  vendor  financing
arrangements   was   secured  by   telecommunications   equipment   leased  from
RTC-Leasing.  As of December 31, 2002,  approximately 16% of its total property,
plant  and  equipment  were  pledged  to  secure  such  financing.  During  2003
Rostelecom  restructured its leasing obligations and as of December 31, 2003, 4%
of its total property,  plant and equipment were pledged.  For more information,
please  see Item  10.C.  "Material  Contracts"  and the  consolidated  financial
statements included elsewhere in this Annual Report.

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,  management  believes  that cash flows  generated  from  operations  in
2004-2005  will be sufficient to finance  working  capital needs and the Group's
existing obligations will be repaid as they fall due.

The  Group's  outstanding  indebtedness,   including  loans  related  to  vendor
financing and credit agreements decreased in real terms by RUR 4,810 million, or
57%, to RUR 3,573  million as of December 31, 2003 from RUR 8,383  million as of
December 31, 2002,  of which as of December 31, 2003,  RUR 1,932 million was due
within one year and RUR 1,641 million was due between one and four years.

As of December 31, 2003, approximately 82% of the Group's interest bearing loans
were  denominated  in foreign  currencies,  as  compared  to 59% in 2002.  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 telecommunications  companies,  while as of December
31, 2003 the Company had no such  borrowing.  The amount  available  for drawing
under the Group's  credit  agreements as of December 31, 2003 was JPY 95,638,204
(RUR 26 million). The large majority of these credit arrangements were taken not
for  general   corporate   purposes  but  only  for  the  purpose  of  acquiring
telecommunications equipment.

The Group had foreign currency denominated borrowings of RUR 2,918 million as of
December 31, 2003, which are required to be repaid over the next 5 years. Of the
total foreign currency denominated borrowings:

     -    90.4% was denominated in U.S. dollars,

     -    8.4% was denominated in Japanese Yen, and

     -    1.2% was denominated in Euros.

Between  January 1, 2004 and June 30, 2004, the Russian ruble increased in value
as compared to the U.S.  dollar,  by 1.5%,  as compared to the  Japanese  Yen by
approximately  4%, and as compared to the Euro by 4.6%,  and this has  increased
the  ruble  carrying  value  of  the  Group's  foreign  currency  borrowings  by
approximately  RUR 51 million or  approximately  1% of the  Group's  total debt.
However  any  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 also had Russian ruble denominated  borrowings of RUR 655 million,  as
of December 31, 2003.

                                      -89-
<PAGE>
The weighted  average  interest  rate of loans was 6.3% and 11.7% as of December
31,  2003  and  2002,  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, 2003 is presented  below
(in RUR million):

    Maturity                                                           2003
------------------------------------------------------------   -----------------
    Current portion of interest bearing loans and borrowings          1,932
    Between one to two years                                          1,088
    Between two to three years                                          518
    Between three to four years                                          35
    Between four to five years                                            -
    Non-current portion of interest bearing loans                     1,641
    Total interest bearing loans and borrowings                       3,573


Loans and Borrowings of the Company

In  the  1990s  the  Company  invested  significant  amounts  of  money  in  the
development  of its  telecommunications  network.  The Company raised funds from
external sources  entering into a number of credit  arrangements to finance such
development.  In 2003,  the Company  decreased  its  external  indebtedness.  In
particular, the following loans were discharged in full:

     o    A DEM 9.35 million (EUR 4.78 million)  credit  agreement  entered into
          between  Rostelecom and  Vnesheconombank in March 1996 for the purpose
          of purchasing  transmission systems. 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 guaranteed by the Government of
          the Russian  Federation.  The loan was fully  repaid by the Company in
          February 2003.

     o    A RUR 850 million credit agreement 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 was 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 were payable in 4
          equal  quarterly  installments.  In March 2003,  the interest rate was
          reduced to 16% per annum.  The loan was fully repaid by the Company in
          December 2003.

As of December 31, 2003,  the Group's  total  amount of interest  bearing  loans
outstanding was RUR 2,918 million compared with RUR 6,846 million as of December
31, 2002.


U.S. Dollar Denominated Loans of the Company

A U.S.  $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 interest rate was 4.36% as of December 31, 2003). The purpose of
the  loan  was to  finance  construction  of FOL  Novosibirsk-Khabarovsk.  As of
December 31, 2003, the outstanding amount of the loan was U.S.$7.68 million (RUR
226 million).


Japanese Yen Denominated Loans of the Company

JPY 11,601 million (RUR 3,194 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.  The interest
rate was 3% per

                                      -90-
<PAGE>
annum.  In 2000, a Russian  Federation  Government  Resolution  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  Federal  Government
Resolution,  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.

As of  December  31,  2002,  Rostelecom's  overdue  indebtedness  under the Debt
Obligation  was JPY 14,165  million,  including  JPY 11,601  million  (RUR 3,194
million) of principal, JPY 45 million (RUR 12 million) of interest and JPY 2,519
million (RUR 694 million) of fees and penalties.

On May 12 2003, the Company's Board of Directors  approved the  restructuring of
the Debt Obligation with OJSC Alfa Bank  ("Alfa-Bank")  to act as agent. In June
2003,  Rostelecom,  the  Russian  Government  and  Vnesheconombank  agreed  that
Rostelecom  would  restructure  the Debt  Obligation  pursuant to the terms of a
Russian  Government  resolution  adopted  pursuant  to the  Federal  Law "On the
Federal  Budget for the Year 2003" (the  "Resolution").  Rostelecom  agreed with
Alfa-Bank  to  restructure  the  Debt  Obligation,  on the  terms  of an  agency
agreement  dated June 2003 (the "Agency  Agreement").  Rostelecom's  obligations
under the Debt Obligation  would be terminated  (except with regards to interest
due on  overdue  payments)  upon  Alfa-Bank  repaying  the  Debt  Obligation  by
purchasing  from its own funds,  and  transferring  to the  Russian  Government,
certain  outstanding  Russian  Government  securities  or debts  denominated  in
foreign currencies,  as prescribed in the Resolution.  Such transfer was made in
June 2003 and the Russian  Government  confirmed the termination of Rostelecom's
obligations  under the Debt  Obligation.  In  exchange  for the  termination  of
Rostelecom's  obligations,  Rostelecom  issued promissory notes to Alfa-Bank for
approximately  U.S.$ 98.6 million at an interest rate of 5.94% per annum payable
in six equal  semi-annual  installments,  to be redeemed within 36 months of the
date of the Agency Agreement.  The Agency Agreement provides for the possibility
of  early  redemption  of the  promissory  notes  by  the  Company  at its  sole
discretion. Pursuant to the terms of the Agency Agreement, Rostelecom paid a fee
to Alfa-Bank of U.S.$ 100,000 (RUR 3 million).  On September 16, 2003,  pursuant
to a Russian Government  resolution,  the Russian Government waived Rostelecom's
obligation  to repay  interest  on  overdue  amounts  under the Debt  Obligation
because  Rostelecom's  obligations under the Debt Obligation had been satisfied.
As of  December  31,  2003,  Rostelecom's  overdue  indebtedness  under the Debt
Obligation  was nil. As of December  31, 2003,  the total value of  Rostelecom's
outstanding  promissory notes to Alfa-Bank equaled U.S.$ 81.9 million (RUR 2,412
million).

The Company entered into two credit agreements dated February 17, 2003 with OJSC
Vneshtorgbank  for JPY 105 million (RUR 29 million) and JPY 880 million (RUR 242
million),  respectively,  to finance equipment  deliveries and further equip the
Moscow-Novorossiisk  FOL. The interest  rate on the loans is 5.7% per annum with
principal and interest payable every six months. The loan is due to be repaid on
February 26, 2007. The equipment purchased with the proceeds of the loan was the
security  for  the  loans.  As of  December  31,  2003,  the  principal  amounts
outstanding  under  the two  credit  agreements  were JPY 9.4  million  (RUR 2.6
million) and JPY 880 million (RUR 242 million) respectively.


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 to purchase EWSD automatic switching
systems. The loan is payable in 15 semi-annual installments, beginning in August
1997 with the last installment  payment due in August 2004. The interest rate is
PLAFON-S,  a variable rate,  which as of December 31, 2003 was 8.5%. The loan is
guaranteed by the Government of the Russian Federation. As of December 31, 2003,
the principal amount  outstanding under the credit agreement was EUR 0.9 million
(RUR 34 million).


Ruble Denominated Loans of the Company

A RUR 777 million  non-interest bearing loan between Rostelecom and RTDC was due
to be repaid on November 15, 2005.  The loan was fully repaid by  Rostelecom  in
April  2004.  For  details  refer  to  Note  33 to  the  consolidated  financial
statements.

The only material restrictive clause in the credit agreements described above is
a provision  stating that the proceeds of the relevant loan must be used to fund
the project specified in the relevant credit agreement.


                                      -91-
<PAGE>
Cash Flows

A summary of the Group's cash flows is presented below (in RUR million):

                                          Year ended December 31,
                              --------------------------------------------------
                                   2003               2002             2001
                              -------------   -----------------   --------------
Net cash provided by
(vied in) operating activities    2,075              5,713             6,963
Net cash used in investing
activities                       (6,640)            (3,501)           (2,768)
Including purchase of property,
plant and equipment              (3,328)            (2,281)           (2,020)
Net cash provided by (used in)
 financing activities             3,486              (411)            (3,255)

Net cash provided by operating  activities amounted to RUR 2,075 million in 2003
as compared to net cash provided by operating activities of RUR 5,713 million in
2002. The principal  reason behind such a decrease in positive  operations  cash
flow was due to changes in  working  capital  including  increases  in  accounts
receivable and decrease in payables and accruals.

Net cash used in investing activities during 2003 increased by RUR 3,139 million
or 90% compared to 2002,  primarily due to repayment of lease obligations of RUR
3,520  million  and  increase  in  payments  for  acquired  property,  plant and
equipment by RUR 1,047  million.  This  increase was partly offset by decreasing
amounts spent to acquire subsidiaries by RUR 496 million and increasing net cash
flow from  available-for-sale  investments by RUR 953 million.  The Group's 2003
capital expenditures  amounted to RUR 3,328 million,  representing growth of 46%
over 2002 investments in property, plant and equipment.

Net cash used in  financing  activities  amounted to RUR 411 million in 2002 and
net cash  provided by financing  activities  amounted RUR 3,486 million in 2003,
primarily  due to drawdown  of loans by  RTC-Leasing.  For details  refer to the
"Loans and borrowings" section above. The net effect of discontinued  operations
on cash flows for the years ended December 31, 2003 and 2002 was as follows:

Cash flows from discontinued operations:           2003                 2002
---------------------------------------        -------------        ------------
Net cash provided (used) by/ (in)
operating activities                             (7,362)              (5,858)
Net cash provided (used) by/ (in)
investing activities                             (2,380)                596
Net cash provided (used) by/ (in)
financing activities                              7,011               2,062


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,
2003 amounted to RUR 7,899 million.

While the JSC Law amended in 2002 allows quarterly payments of the dividend, the
Company has so far declared  annual  dividends  only.  For details refer to Item
10.B. "Memorandum and Articles of Association."


Capital Expenditures

The Group's  capital  expenditure  program,  approved by the Board of Directors,
projects  capital  expenditures  of  approximately  RUR 5.2 billion for the year
ending December 31, 2004, compared to capital expenditures of RUR 4.5 billion in
2003,  which is  expected  to be  funded by cash from  operations  and  external
financing.

The capital  expenditure  program for 2004  includes the  implementation  of the
following major projects:

Kaliningrad  -  Gvardeisk - Sovetsk  FOL with a link to the  Lithuanian  border,
completed in February  2004,  links  Kaliningrad  to  Rostelecom's  network by a
digital line expanding the Company's international network. The main goal of the
project was to digitalize Kaliningrad's trunk network and to ensure high quality
telecommmunications  connections between this region and the rest of Russia. The
introduction  of a FOL and ISC creates the  opportunity  for substantial DLD and
ILD traffic  growth,  dynamic  development  of the  Internet  network and a more
aggressive introduction of new services in the Kaliningrad region.

Gatikha -  Apastovo  FOL  (second  and third  stages)  provides a backup for the
European  part of the Moscow to  Khabarovsk  trunk  line,  and  provides  Nizhny
Novgorod and Cheboksary  Automatic  Trunk Exchanges with access to the Company's
trunk network.

                                      -92-
<PAGE>
Expansion  of traffic  capacity  of  Novosibirsk  -  Khabarovsk  FOL through the
installation  of DWDM  equipment  will  expand the  capacity  of this  important
backbone  line of  Rostelecom's  network  and allow the Company to compete for a
greater amount of Europe to Asia traffic transition from Europe to Asia.

Ekaterinburg - Perm FOL will complete the loop for the Moscow to Khabarovsk line
in the Volga and Urals regions.

Kingissep - Smolensk - Moscow FOL with links to Belarus and Latvia will create a
loop in the  North-Western  region,  and provide a back-up for the Baltic  Cable
System.

Ufa - Orenburg FOL will create the second digital  interconnection to Orenburg's
ATE.

Construction  of ISCs and ITEs increases the existing  switching  capacity,  the
number of the Company's  long-distance and  international  channels and improves
the quality and range of communications services.

Modernization of ASNs will allow the  interconnection  of additional  operators,
expand channel capacity, and improve the quality of the service offered.

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

All the major newly constructed FOLs will be equipped with DWDM.

The  Company  plans to spend  U.S.$  150-170  million  in  capital  expenditures
annually for 2004 and 2005. Currently the Company expects that such expenditures
will be funded from cash from operations and external financing.


Development Strategy

The Group's strategic  objective is to become a leader in the future unregulated
telecommunications  market in  Russia 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 2004  Rostelecom  will  continue  optimizing  the  internal  structure of its
business units, phasing out the use of analog equipment,  and improving business
processes.


Improving Business Processes

In 2004 the Company is aiming:

     o    to improve corporate governance system;

     o    to optimize and perfect the Company's budgeting processes;

     o    to further develop the internal control system;

     o    to  conduct  further   restructuring   of  financial   investments  in
          subsidiaries and affiliated  companies and improve their  performance;
          and

     o    to further develop the corporate information system.


Development of Personnel Management Systems

In 2004 Rostelecom is planning:

     o    to further  optimize  its  organizational  structure  and  quantity of
          personnel;

     o    to develop and introduce a system for evaluating the  effectiveness of
          corporate training (on the basis of feedback, competency, etc.);

     o    to develop a system for employee growth (i.e. career planning,  skills
          reserve, etc); and

     o    to further develop social programs and enhance the Company's corporate
          culture.


                                      -93-
<PAGE>
Company Network Development

The top priorities for 2004 and going forward for the Company are as follows:

     o    to reconstruct existing  telecommunication  backbones with the help of
          DWDM equipment;

     o    to increase the  capacity of existing  automatic  switching  nodes and
          automatic long distance telephone stations;

     o    to  enhance  the  network  of  flexible  multiplexes  with the goal of
          optimizing backbone  communications  network and facilitating clients'
          ability to lease digital channels with optimal number of channels;

     o    to build high-speed fiber-optic lines equipped with SDH for links with
          new  international  directions  and  creating a system of reserves and
          ties to major cities with the Company's network; and

     o    to gradually  decline the use of analogue line as the existing network
          allows.


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  DLD and ILD
telecommunications  services.  Hence,  during 2004 the Company's main objectives
are:

     o    Optimizing the system of settlements between operators for DLD and ILD
          traffic aimed at creating a balanced market model; and

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


Regional Operators Market

In 2003, in order to enhance  transparency  and ensure  accuracy of  settlements
between  Rostelecom  and  IRCs,  the  ISR,  introduced  in  1997  as a rate  for
settlements   between   Rostelecom  and  regional   operators  for  transit  and
termination of traffic was annulled.  The new  settlement  system is compiled of
two rates:  a linear  settlement  rate and an termination  settlement  rate. The
linear settlement rate is the rate which Rostelecom  receives for each minute of
traffic,  the amount of the rate depends on the call distance.  The  termination
settlement  rate is the rate which is charged  by a  regional  operator  for the
termination of telephone traffic on its network.

In 2004,  Rostelecom plans to further optimize the new settlement procedure in a
number of ways, including:

     o    introducing  more competitive  linear  settlement rates for transit of
          DLD calls from regional operators; and

     o    introducing more competitive  rates for ILD calls for end users across
          the country.

In relation to Rostelecom's other regional services,  in 2004,  Rostelecom plans
to strengthen its position in the market by:

     o    promoting the use of its "Karta Svyazi" telephone card;

     o    advertising its Intelligent Network services;

     o    expanding  its  client  base  by  developing  a  network  of  flexible
          multiplexers; and

     o    increasing  tariffs for governmental  organization from loss-making to
          zero-profit level.


Moscow Market

Moscow is the only  region  where  Rostelecom  provides  its  telecommunications
services to end users directly, providing them with DLD and ILD services through
local operators' communications networks.

In light of increased  competition,  the Company's  share in the Moscow  market,
particularly the corporate client sector, has decreased over the past few years.
However, for the year ended December 31, 2003,  Rostelecom's revenues level from
the Moscow market remained largely unchanged from the previous year.

                                      -94-
<PAGE>
In 2004,  Rostelecom  plans to  consolidate  its  position in the Moscow  market
generally and to increase  revenues from ILD and DLD services provided to Moscow
end users by:

     o    introducing a more competitive tariff policy;

     o    increasing  the  number of  subscribers  for its  Intelligent  Network
          services; and

     o    improving the level of its customer service.


International Operators Market

In 2002, Rostelecom intensified  cooperation with major international  operators
and  agreed on mutual  rates  reduction.  That  approach  helps the  Company  to
increase its share in the incoming ILD traffic from 54% in 2002 to 60% in 2003.

In 2004  Rostelecom  expects to  strengthen  its  position in the  international
communication market by:

     o    entering the Europe-Asia transit traffic market;

     o    optimizing the settlement system for ILD traffic terminated by Russian
          operators;

     o    increasing  its  presence  at major  international  points of  traffic
          exchange   to  receive  a  greater   volume  of  traffic   from  major
          international operators; and

     o    reducing the cost of outgoing ILD traffic.


5.C Research and Development, Patents and Licenses

Research and Development

Rostelecom  is  involved  in research  and  development  relating 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:

     o    to increase the Group's revenues from telecommunications services;

     o    to expand the capacity of the existing  telecommunications network and
          to  ensure  improved  quality  of  the   telecommunications   services
          provided; and

     o    to develop data transfer  facilities and alarm systems thus increasing
          the range of services provided and allowing  subscribers to manage the
          network functions of data transfer independently.

Research and development  expenses of the Group amounted to RUR 65 million,  RUR
102 million,  and RUR 47.7 million, for the years ended December 31, 2003, 2002,
and 2001 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 the with
MMT, the Company also obtained MMT's trademark  registered in 2000. Please refer
to the Company's  website at  http://www.rostelecom.ru/en/icenter  for pictorial
reproductions of such trademarks.

                                      -95-
<PAGE>

Licenses

Certain  regulations  of the  Russian  Government  and  of  local  and  regional
authorities  require  licensed  telecommunications  operators to provide,  among
others,  the following  services:  domestic  long-distance  telephone  services,
international telephone services, local telephone services, television and radio
broadcasting services and cellular  telecommunications  services.  Substantially
all of Rostelecom revenues are derived from operations conducted pursuant to the
licenses  granted.  These licenses have scheduled  expiration dates ranging from
2004 to 2013. 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:

<TABLE>
License
Number           Types of Services                  Territory             Date Issued        Expiration Date
--------------------------------------------------------------------------------------------------------------------
  <S>         <C>                                 <C>                      <C>                   <C>
     29777       DLD and ILD Communications            Russian Federation      December 11, 2003    December 11, 2013
     29778       Channel Leasing                       Russian Federation      December 11, 2003    December 11, 2013
     8701        Local Telephone Communications     5 republics, 32 regions,    October 17, 1997    November 01, 2005
                                                    3 areas and 1 autonomous
                                                      region of the Russian
                                                           Federation
     13378       TV and Radio Broadcasting              34 regions of the      November 30, 1999    November 30, 2004
                                                       Russian Federation
     3226        Telematic Services                    Russian Federation         May 15, 1997         May 15, 2007
     3227        Data Transmission Services            Russian Federation         May 15, 1997         May 15, 2007
     27895       Telegraph Communication Services      Russian Federation      September 05, 2003   September 05, 2008
     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
</TABLE>

Pursuant to License No. 29777, Rostelecom is authorized to provide the following
public switch network communications  services:  long-distance and international
telephone  communications;  and  telephone  communications  with  the use of the
intelligent  communications  network (ICN) of the licensee.  The capacity of the
licensee's  ICN at the end of the term of the  license  should  be not less than
85,000 simultaneous calls.

Pursuant to License No. 29778,  Rostelecom  is  authorized to provide  customers
with local,  long-distance  and  international  channels and routes,  as well as
physical circuits for transmitting telecommunications signal. Under the license,
the total number of allocated voice frequency  channels (main digital channels),
including those included into digital routes, should be not less than 100,000.

                                      -96-
<PAGE>
Pursuant to License No. 8701,  Rostelecom is authorized to use 109,570 telephone
numbers throughout the local telephone network. This license requires Rostelecom
to provide  local  telephone  services  to all  categories  of users  subject to
technical capability.

Pursuant to License No. 13378,  Rostelecom is authorized to provide services for
transmitting television and radio programs and ancillary information 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 the
expiration date of such licenses.

Pursuant to License  No.  3136,  Rostelecom  is  authorized  to provide a Global
System for Mobile Communication ("GS") cellular  telecommunications  services in
the 900 MHz bandwidth in the territory of the  Novosibirsk  Region.  By December
31, 2006, the network  capacity is required to be at least 12,300 numbers with a
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 Russian Federation for
the development of the public telecommunications network.

Pursuant to License No. 3137,  Rostelecom  is  authorized to provide GS cellular
telecommunications  services in the 900 MHz  bandwidth  in the  territory of the
Khabarovsk Area. By December 31, 2006, the network capacity is required to be at
least 11,000 numbers with a 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
Russian Federation for the development of the public telecommunications network.

Pursuant to License No. 3138,  Rostelecom  is  authorized to provide GS cellular
telecommunications  services in the 900 MHz  bandwidth  in the  territory of the
Amur Region.  By December 31,  2006,  the network  capacity is required to be at
least 7,000 numbers with a 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
Russian Federation for the development of the public telecommunications network.

The total amount of fees due under the three licenses (No. 3136,  3137 and 3138)
is  U.S.$16,459,500  million.  As of December 31, 2003, no payments were made to
the Federal  Committee  of GSM 900  operators.  The payments are due upon notice
from the Federal Committee of GS 900 operators which is subject to the Company's
plans for the use of these licenses.

Pursuant to License No. 27895,  Rostelecom  is  authorized to provide  telegraph
services,   including   the  passing  and   processing  of   international   and
long-distance telegraph traffic and to provide AT/Telex network services.

Under  the  terms  of its  licenses,  except  in the case  for  local  telephone
communications services, Rostelecom may refuse to provide all other types of its
services to customers where: (i) the provision of such services may endanger the
national  security and defense  system;  (ii) the  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

Cross-subsidizing  represents a practice whereby certain losses generated by the
local networks of interregional  communications companies are compensated by the
proceeds from  long-distance and international  communications  services.  It is
expected  that,  as local  operators'  local  access  tariffs  continue to rise,
long-distance  tariffs  for end users  will  either  decrease  or lag behind the
Russian  economy's rate of inflation.  This is expected to increase the usage of
Rostelecom's long-distance services.

In 2003, in order to enhance  transparency  and accuracy of settlements  between
Rostelecom and interregional  communications  companies,  the ISR was abolished.
Under the new settlement system, mutual settlements for traffic are based on two
basic components - a linear charge and a termination  charge.  The linear charge
is the rate charged by Rostelecom per minute of domestic  long-distance traffic,
the amount of the rate depending on the call distance. The termination charge is
the rate charged by the regional  operator for the termination of traffic on its
network.  The reform of the settlement system was performed within the framework
of the

                                      -97-
<PAGE>
Russian  Federation  Government's  initiatives to enhance the  transparency  and
precision of settlements between operators.

In 2003,  the  Company  continued  to bring  the  settlement  rates  imposed  on
international  operators for the termination of incoming  international  traffic
closer to competitive  market levels. In 2003, the Company's  improvement of its
business  processes and customer service enabled it to increase its share of the
market to 60%.  The  Company  expects  that the average  market  level of mutual
settlement rates between international operators will continue to drop in 2004.

In 2003,  the  communication  line lease rates were increased to be in line with
the market rate and made uniform,  making the pricing of the Company's  services
more transparent.  The Company expects future trends with respect to the traffic
line lease rate services  provided to  alternative  operators to remain  largely
unchanged,  adjusted  to  reflect  charges  in  the  settlement  rates  for  the
throughput of domestic long-distance and international traffic.

The structure of the rates for international  communication services provided by
the Company to its  subscribers  in Moscow also changed in 2003.  These  changes
were made so as to raise the  competitiveness  of the Company's services on this
market in light of the ongoing reduction by alternative operators of their rates
for end users.

The revenues of the Company are mostly  derived from  operations  under licenses
issued by government agencies. The term of some licenses for certain,  non-basic
services  expires prior to 2007. The Company has no grounds to believe that such
licenses will not be renewed or that any of them will be suspended or withdrawn.

The expected liberalization of the Russian telecommunications market by 2007 and
the  growth of  competition  could  result  in the  Company  losing  some of the
advantages  it  currently  enjoys  as the  principal  supplier  of DLD  and  ILD
communication  services in Russia.  These new market  conditions  will  directly
affect the  interests of  Rostelecom  which,  at present,  has a monopoly on the
Russian market for wholesale DLD and ILD services. The Company believes that the
probability  of such  changes  occurring  in the near future is  relatively  low
because,  as repeatedly  stated by officials of the Ministry of  Communications,
liberalization  of the market will only become possible after the elimination of
cross subsidies - the mechanism  whereby local networks  operating at a loss are
subsidized  out  of  the  proceeds  generated  by  domestic   long-distance  and
international  communications - and the establishment of equal competitive terms
for all market operators.  If the cross subsidies are not abolished,  and in the
event of market  liberalization,  the Company will be unable to compete on equal
terms with other operators not paying cross subsidies.

Additional  measures for  liberalization  of the market may include  phasing out
Rostelecom's  analog  lines,  a gradual  increase of the  tariffs  for  services
provided to  government  agencies  until the level of such  tariffs  matches the
costs and  defining  clearer  terms for  business  between  operators  under the
Communications  Law. In  particular,  in 2004,  the  Ministry of  Communications
stated  that to obtain the  relevant  license,  operators  willing to access DLD
communications market will need to prove that their telecommunications equipment
meets necessary technical  requirements,  and their communications network meets
requirements  as to the length and  capacity,  i.e.,  the  operators  can ensure
provision of DLD services throughout the whole territory of Russia.

The demand for DLD and ILD  communication  services  is  expected to continue to
grow in Russia along with an increase in the fixed  communication lines over the
country.  The Russian market for  telecommunication  services  currently has the
potential for further growth. The Company believes that a continuing improvement
of the economic  situation in Russia will help  increase the traffic of IRCs and
alternative  operators'  DLD  traffic.  Further  modernization  of  Rostelecom's
communications  networks  should  enable  the  Company  to handle  the  expected
increase in volume of DLD and ILD traffic in Russia.

For more details about risks the Company  faces please refer to Item 3.D.  "Risk
Factors."


5.E. Off-Balance Sheet Arrangements

Not applicable.


                                      -98-
<PAGE>
5.F. Tabular Disclosure of Contractual Obligations

The following table summarizes the contractual  principal  maturities of debt of
the Company, including its current portion, and purchase obligations, each as of
December  31,  2003.  The  Company  expects to meet its  contractual  obligation
payment requirements with cash flows from operations.

<TABLE>
<CAPTION>
                                                             Payments due by period (RUR in millions)
                                             ------------------------------------------------------------------------
                                  Total      Prior to     Prior to    Prior to     Prior to     Prior to       After
                                             December     December    December     December     December     December
                                             31, 2004     31, 2005     31, 2006    31, 2007     31, 2008     31, 2008
                                ---------    --------     --------    ---------    --------     --------     --------
<S>                             <C>          <C>          <C>         <C>          <C>           <C>         <C>
Amounts  payable  as a result      520          520           -           -            -            -            -
of discontinued operations
Contractual obligations           3,269        2,947         143          56          50           23           50
Loans and borrowings              3,573        1,932        1,088        518          35            -            -
Interest payable                   87           43           30           14           -            -            -
Total                             7,449        5,442        1,261        588          85           23           50
</TABLE>



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,
(ii) the Management Board and the General Director  (together  "Management Board
members") and (iii) other  executive  officers of Rostelecom  not serving on the
Management Board. 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  such strategies
and the overall management of Rostelecom. There are no service contracts between
the  Company  and  members  of its  Board  of  Directors.  There  are no  family
relationships  between  any of the  members  of the Board of  Directors  and the
Management Board members.


Board of Directors

As of June 30, 2004, the Board of Directors consisted of the following persons:

<TABLE>
<CAPTION>
        Name                                       Position*                                Year of Birth
--------------------------- --------------------------------------------------------------- --------------
<S>                         <C>                                                               <C>
Stanislav P. Avdiyants      Executive Director - Director of Economic and Tariff Policies       1946
                            of Svyazinvest
Vadim Y. Belov              Deputy General Director of Svyazinvest                              1958
Valery V. Degtyarev         General Director of OJSC Professional TeleCommunications.           1957
Grigory M. Finger           Executive Director of NCH Advisors, Inc.                            1966
Stanislav N. Panchenko      Deputy General Director of Svyazinvest                              1945
Victor A. Polischuk         President of OJSC Russian Telecommunications Network                1938
Irina M. Ragozina           Director of Corporate Governance Department of Svyazinvest          1950
Mikhail V. Slipenchouk      General Director of LLC Metropol Investment Financial Company       1965
Valery N. Yashin**          General Director of Svyazinvest                                     1941
Dmitry Ye. Yerokhin***      General Director of Rostelecom                                      1950
Evgeny V. Yurchenko         Deputy General Director of Svyazinvest                              1968
</TABLE>

*    Under Russian legislation Rostelecom must disclose information about the
     positions of the members of the Board of Directors of Rostelecom at other
     companies which are their primary employees.

**   Chairman of the Board of Directors of Rostelecom

***  Also a Management Board member of Rostelecom


On June 26,  2004,  at the annual GSM the new members of the Board of  Directors
were elected.  So as of June 30, 2004, the following persons no longer served on
the Board of Directors of Rostelecom:

                                      -99-
<PAGE>
<TABLE>
<CAPTION>
         Name                                           Position                                   Year of
                                                                                                    Birth
------------------------- --------------------------------------------------------------------- ------------
<S>                        <C>                                                                   <C>
Nikolai P. Yemelianov     Regional Director of NovgorodTelecom, a branch of OJSC North-West          1948
                          Telecom
Sergey I. Kuznetsov       General Director of North-West Telecom (before November 03, 2003, was      1953
                          General Director of Rostelecom)
Alexander V. Lopatin      Retired from the position of Deputy General Director of Svyazinvest        1964
                          in September 2003
</TABLE>


Stanislav P. Avdiyants.  Mr. Avdyants has been a member of the Rostelecom  Board
of Directors since June 15, 2003.

From 1998 Stanislav  Avdiyants worked for Svyazinvest.  Currently he is a Member
of  the   Board  at   Rostelecom,   OJSC   CenterTelecom,   and  OJSC   Southern
Telecommunications Company.

He graduated from the Tashkent Electric Engineering  Institute with a diploma in
Telecommunications.

As of June 30,  2004,  Mr.  Avdiyants  owned  1,100  ordinary  shares  and 6,800
preferred  shares in Rostelecom.  He had no shares either in any of Rostelecom's
legal subsidiaries or its other affiliated entities.


Vadim Y. Belov. Mr. Belov has been a member of the Rostelecom Board of Directors
since November 18, 2000.

Since 1999 Vadim  Belov has been  working as Deputy  General  Director  and as a
member of the Management Board of OJSC Svyazinvest.

Currently  Vadim Belov holds the  following  positions  at the  following  legal
entities:

     Since 1999:    Chairman of the Board, OJSC Southern Telecommunications
                    Company (OJSC KubanElectrosvyaz).

     Since 2000:    Member, Board of Directors, OJSC CenterTelecom (OJSC
                    Electrosvyaz, Moscow region); and Member, Board of
                    Directors, Rostelecom.

     Since 2002:    Member, Boards of Directors, OJSC Central Telegraph, and
                    OJSC North-Western Telecom; Chairman of the Board, OJSC
                    Uralsvyazinform; Chairman of the Council, non-profit
                    partnership Center of Studies for Communications Development
                    Problems.

He graduated from the Murmansk Higher  Engineering Navy School with a diploma in
Engineering and received a diploma in Law from the Russian Academy of Government
Service.

As of June 30, 2004,  Mr. Belov had no shares in either  Rostelecom or in any of
its legal subsidiaries or other affiliated entities.


Valery V. Degtyarev Mr.  Degtyarev has been a member of the Rostelecom  Board of
Directors since June 26, 2004.

From 1995 to 2000 Mr.  Degtyarev  worked as the Section  Head of  Marketing  and
Development  at the Metrocom  company.  In 2000 he served as the First Deputy of
General  Director,  CJSC  Komkor-TV.  From 2000 to 2001 he held the  position of
Deputy General  Director LLC DTS. In 2001 Mr.  Degtyarev worked as an Advisor to
the President,  CJSC Company TransTelecom.  Since 2001 Valery Degtyarev has been
working as General Director of OJSC Professional TeleCommunications.

He  graduated  from the Omsk  Institute  of Railway  Transport  with a degree of
Candidate in  Engineering  Science.  In 2000 he graduated from the Department of
Economics and National Economy Management of the St. Petersburg State University
of Economics and Finance with the Candidate's degree in Economics.

As of June 30, 2004,  Valery Degtyarev had no shares in either  Rostelecom or in
any of its legal subsidiaries or other affiliated entities.


Grigory  M.  Finger.  Mr.  Finger has been a member of the  Rostelecom  Board of
Directors since June 26, 2004.

                                     -100-
<PAGE>
Since 1995 Grigory  Finger has been working as  Executive  Director,  the Moscow
Representative Office, NCH Advisors, Inc.

Graduated from the Moscow Chemical and Technological Institute with a diploma in
Computing.

Currently  Mr.  Finger  holds the  following  positions at the  following  legal
entities:

     Since 1996:    Member, Board of Directors, OJSC Abrazivniy Zavod Ilyich;

     Since 1999:    Member, Board of Directors, OJSC Center Telegraph;

     Since 2002:    Member, Board of Directors, OJSC Polimerbyt;

     Since 2003:    Member, Board of Directors, OJSC Central Telecommunication
                    Company; Member, Board of Directors, OJSC Aeroflot.

As of June 30, 2004, Mr. Finger had no shares in either Rostelecom or any of its
legal subsidiaries or other affiliated entities.


Stanislav N. Panchenko.  Mr. Panchenko has been a member of the Rostelecom Board
of Directors since July 1997.

From 1971 to 1996 Stanislav Panchenko served in the military.  Since 1996 he has
held the position of Deputy General  Director,  Svyazinvest,  and since 1996 has
been a Member of the Management Board of Svyazinvest.

Currently Mr.  Panchenko  holds the following  positions at the following  legal
entities:

     Since 1999:    Member, Board of Directors, OJSC Rostelecom; and Chairman of
                    the Board of Directors, OJSC Lensvyaz.

     Since 2001:    Chairman of the Board of Directors, OJSC Dagsvyazinform.

     Since 2003:    Member, Board of Directors, OJSC Southern Telecommunications
                    Company.

He graduated from Chelyabinsk Polytechnic Institute with a diploma in Electrical
Engineering.

As of June 30, 2004,  Stanislav  Panchenko had no shares either in Rostelecom or
in any of its legal subsidiaries or other affiliated entities.


Victor A. Polischuk.  Mr. Polischuk has been a member of the Rostelecom Board of
Directors since November 18, 2000.

Since 1992 Mr.  Polischuk has served in the capacities of President and Chairman
of the Board of Directors of OJSC Russian Telecommunications Network.

Currently Mr.  Polishchuk  holds the following  positions at the following legal
entities:

     Since 1998:    Member, Board of Directors, OJSC Aerocom.

     Since 2000:    General Director, LLC Eniks-N; Member, Board of Directors,
                    Rostelecom.

     Since 2002:    General Director, CJSC Trillprom; Member, Board of
                    Directors, CJSC CenterTelecomService Moscow region; and CJSC
                    Na Ilyinke.

     Since 2003:    General Director, LLC Group Office; General Director, LLC
                    Belyaevo Center.

He   graduated   from  the  Moscow   Aviation   Institute   with  a  diploma  in
Radio-Engineering  of Electronic Devices for Aircraft Control.  Victor Polischuk
holds a Candidates'  degree in Engineering  Sciences,  and he is a Member of the
International Academy of Communications.

As of June 30, 2004,  Victor  Polischuk had no shares either in Rostelecom or in
any of its legal subsidiaries or other affiliated entities.


Irina M. Ragozina.  Ms.  Ragozina has been a member of the  Rostelecom  Board of
Directors since June 1, 2002.

From 1997 to 1999 Ms.  Ragozina served as the Head of Securities  Service,  OJSC
Svyazinvest.  Since  1999 she has been  working  as  Director  of the  Corporate
Governance Department of Svyazinvest.

                                     -101-
<PAGE>
Ms. Ragozina has held the following positions at the following legal entities:

Currently  Ms.  Ragozina  holds the following  positions at the following  legal
entities:

     Since 1998:    Member, Board of Directors, OJSC St. Petersburg Telephone
                    Network (OJSC North-Western Telecom).

     Since 2000:    Member, Board of Directors, OJSC MGTS.

     Since 2002:    Member, Board of Directors, Rostelecom; Chairman of the
                    Committee for Corporate Governance, OJSC North-Western
                    Telecom.

She graduated from Moscow Electric Engineering  Institute of Communications with
a diploma in Engineering and Economics.

As of June 30, 2004,  Irina Ragozina had no shares in either in Rostelecom or in
any of its legal subsidiaries or other affiliated entities.


Mikhail V.  Slipenchouk.  Mr.  Slipenchouk  has been a member of the  Rostelecom
Board of Directors since June 1, 2002.

Since 1998  Mikhail  Slipenchouk  has been  working as General  Director  of LLC
Metropol  Investment  Financial  Company.  Since 2000 he has also  served as the
General  Director of LLC Varna-95,  since 2002 - as the General  Director of LLC
Donskaya  13; and since 2004 - as the  President  of the  Kekusin-kan  Karate-do
Federation.

Currently Mr.  Slipenchouk holds the following  positions at the following legal
entities:

     Since 2000:    Member, Moscow Stock Exchange Board.

     Since 2002:    Chairman of the Board of Directors, OJSC Electroistochnik;
                    Member, Board of Directors, OJSC Ulyanivskenergo; Member,
                    Board of Directors, Rostelecom; Member, Management Board,
                    MOO Western Center Oyama Kiokushinkai Karate-Do; Member,
                    Coordination Council, Regional Public Organization Bamboo,
                    Society of Disabled People with Spinal Injuries and
                    Diseases.

     Since 2003:    Member, Board of Directors, LLC Metropol.

He graduated from the Geography Department of the Moscow State University.

As of June 30, 2004, Mr.  Slipenchouk had no shares in either  Rostelecom or any
of its legal subsidiaries or other affiliated entities.


Valery  N.  Yashin.  Mr.  Yashin  has been a member of the  Rostelecom  Board of
Directors since November 18, 2000.

From 1993 to 1999 Mr.  Yashin held the  position of General  Director,  OJSC St.
Petersburg Telephone  Communications.  Since 1999 he has been working as General
Director and Chairman of the Management Board of Svyazinvest.

Currently  Mr.  Yashin  holds the  following  positions at the  following  legal
entities:

     Since 1998:    Chairman of the Board of Directors, CJSC St. Petersburg
                    Payphones and OJSC Telecominvest; Chairman of the Council,
                    NPF Telecom-Soyuz

     Since 2000:    Chairman of the Board of Directors, Rostelecom and OJSC
                    CenterTelecom; Member, Board of Directors, OJSC MGTS.

     Since 2001:    Chairman of the Board of Directors, OJSC RTComm.RU and OJSC
                    National Payphones Network.

     Since 2002:    Chairman of the Board of Directors, OJSC North-Western
                    Telecom; Member of the Management Board, Russian Fund of
                    History of Communications.

     Since 2003:    Member, Board of Directors, CJSC Football Club Zenit.

                                     -102-
<PAGE>
     Since 2004:    Member of the Council, Non-profit partnership Center of
                    Studies for Communications Development Problems.

He graduated from the Leningrad Electric Engineering Institute of Communications
with a diploma in Communications Engineering.

As of June 30, 2004, Mr. Yashin had no shares in either Rostelecom or any of its
legal subsidiaries or other affiliated entities.


Dmitry Ye. Yerokhin  (Please see information in "Management Board" below)


Evgeny V. Yurchenko.  Mr. Yurchenko has been a member of the Rostelecom Board of
Directors since June 15, 2003.

From 1998 to 2001 Mr. Yurchenko served as the Executive Director of a subsidiary
of Menatep SPb Bank. From 2001 to 2002 he was the Head of Regional South-Western
Center,  Vice  President and Member of the  Management  Board,  OJSC Menatep SPb
Bank. Since 2002 Evgeny Yurchenko has been working as Deputy General Director of
Svyazinvest.

Since 2003 Mr.  Yurchenko  holds the following  positions at the following legal
entities:

     -    Chairman of the Board of Directors, OJSC VolgaTelecom.

     -    Chairman of the Board of Directors, CJSC RTC-Invest.

     -    Member, Management Board, Svyazinvest.

     -    Member, Board of Directors, Rostelecom.

     -    Member, Board of Directors, OJSC Giprosvyaz.

     -    Member, Board of Directors, OJSC Sibirtelecom.

     -    Member, Board of Directors, OJSC Far East Communications Company.

     -    Member, Board of Directors, OJSC RTComm.RU.

     -    Member, Board of Directors, CJSC RusLeasingSvyaz.

     -    Member, Board of Directors, OJSC CB Svyaz-Bank.

     -    Member of the Council, NPF Telecom-Soyuz.

He graduated from the Voronezh State University with diplomas in Radio Physics &
Electronics and Accounting.

As of June 30, 2004, Mr.  Yurchenko owned 300,000 ordinary shares in Rostelecom.
He had no shares either in any of Rostelecom's  legal  subsidiaries or its other
affiliated entities.


Management Board

As of June 30, 2004, the Management  Board of Rostelecom  included the following
persons:

<TABLE>
<CAPTION>
        Name                                         Position                                   Year of
                                                                                                 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 M. Gurevich        Deputy General Director - Director for Project Management of           1971
                          Rostelecom
Vadim Y. Izotov           Deputy General Director - Director for Information Technologies of     1968
                          Rostelecom
Igor A. Kalugin           First Deputy General Director of Rostelecom - Director of              1964
                          Rostelecom's branch MMT
Gioulnara Sh. Khasianova  Deputy General Director - Commercial Director of Rostelecom            1970
Alexander A. Lutsky       Chief Accountant of Rostelecom                                         1972
</TABLE>

                                     -103-
<PAGE>
<TABLE>
<S>                       <C>                                                                     <C>
Vladimir K. Mironov       Deputy General Director of Rostelecom                                  1956
Grigory A. Romsky         Deputy General Director of Svyazinvest                                 1956
Galina V. Rysakova        Deputy General Director - Director for Structure Development and HR    1967
                          of Rostelecom
Dmitry V. Sigalov         Deputy General Director for Legal Affairs of Rostelecom                1973
Vladimir V. Terekhov      Deputy General Director - Technical Director of Rostelecom             1958
Dmitry Ye. Yerokhin       General Director of Rostelecom*                                        1950
</TABLE>

*    Also a Board of Directors member of Rostelecom


Vladimir I.  Androsik.  Mr.  Androsik was appointed  Deputy  General  Director -
Finance Director in September 2001.

In  1997-2001 he occupied the  position of finance  manager and,  later,  deputy
finance director for the management accounting of CJSC PeterStar.  In April 2001
Vladimir  Androsik  became an advisor to the General  Director for Economics and
Finance of  Rostelecom,  and in  September  2001 was  appointed  Deputy  General
Director - Finance Director of the Company.

Since  2002 Mr.  Androsik  has been a member  of the Board of  Directors  of the
following  companies:  CJSC Rustel;  OJSC Moscow Cellular  Communications;  CJSC
Globalstar - Space  Telecommunications;  Joint-Stock Commercial Bank Svyaz-Bank;
OJSC RTComm.RU; CJSC Telecom-Center; Golden Telecom, Inc.

Since 2003 Mr. Androsik has also been a member of the Board of Directors of CJSC
Moscow Center of New Telecommunications  Technologies, OJSC MMTS-9, and Chairman
of the Board of Directors of OJSC InfoTeX Taganrog Telecom and OJSC A-Svyaz.

In 1997 he graduated from St.  Petersburg  State  University with a degree as an
economist-mathematician,  and later  completed  courses under the program of the
Chartered Institute of Management Accountants.

As of June 30, 2004, Mr. Androsik did not hold any  participatory  shares in the
charter capital of the Company or in its subsidiaries or dependent companies.


Sergey  L.  Akopov.   Mr.  Akopov  was  appointed   Deputy  General  Director  -
Administrative Director of Rostelecom in February 2003.

From 1977 to 1998 Mr. Akopov served as a radio operator, and then as an economic
manager in the Baltic Shipping Company,  St. Petersburg.  In 2000 he joined CJSC
PeterStar.  From April 2001 Mr.  Akopov held the  positions  of manager,  deputy
administrative  director and administrative  director at CJSC Petersburg Transit
Telecom.  In February 2003 Mr. Akopov was appointed as Deputy General Director -
Administrative Director of Rostelecom.

In 1977 he graduated from Leningrad Maritime School of the Ministry of Sea Fleet
with the degree of a radio technician.

As of June 30, 2004,  Mr.  Akopov did not hold any  participatory  shares in the
charter capital of the Company or in its subsidiaries or dependent companies.


Dmitry M.  Gurevich.  Mr.  Gurevich  was  appointed  Deputy  General  Director -
Director for Project Management at Rostelecom in May 2003.

Mr. Gurevich worked in joint venture  enterprise AT&T St. Petersburg and the St.
Petersburg  branch of CJSC Lucent  Technologies  where he started as a technical
contract manager,  and was ultimately promoted to project director.  In May 2003
Mr. Gurevich joined Rostelecom as a Project Management Director.

In 1993 he graduated  with honors from Leningrad  Electrotechnical  Institute of
Communications  named  after  Professor  Bonch-Bruevich  with a degree in Radio-
Engineering.  He received an MBA from St. Petersburg  International Institute of
Management in 1997 and Masters Certificate in project management from the George
Washington  University  School of Business and Public  Management  in the United
States.

As of June 30, 2004, Mr. Gurevich did not hold any  participatory  shares in the
charter capital of the Company or in its subsidiaries or dependent companies.


                                     -104-
<PAGE>
Vadim Y. Izotov. Mr. Izotov was appointed Deputy General Director - Director for
Information Technology in September 2001.

From 1996 to 2001 Mr. Izotov worked as a senior engineer, head of a group in the
information  technologies department and then as a deputy director in North-West
GSM company.  Since  September 2001, Mr. Izotov has been holding the position of
Deputy General  Director - Director for Information  Technologies of Rostelecom.
In 2002 and 2003 Mr. Izotov was a Director of CJSC NTs Comset, of CJSC Inkom and
of CJSC TsNIIS-RTC.

In 1994 he graduated  from St.  Petersburg  State  Technical  University  with a
degree as an engineer-system technician.

As of June 30, 2004,  Mr.  Izotov did not hold any  participatory  shares in the
charter capital of the Company or in its subsidiaries or dependent companies.


Igor A. Kalugin.  Mr. Kalugin was appointed  First Deputy Director - Director of
Rostelecom's Branch MMT in February 2003.

Previously   Mr.   Kalugin  has  held   executive   positions  in  a  number  of
telecommunications  companies,  including  CJSC  PeterStar  and CJSC  Petersburg
Transit Telecom.

In 1989 he graduated from Leningrad  Institute of  High-Precision  Mechanics and
Optics with a degree in automatics and technical systems. He received his second
higher  education degree in economics from St.  Petersburg  Finance and Economic
Institute. He also obtained a degree in corporate finance from the London School
of Economics.

As of June 30, 2004,  Mr. Kalugin did not hold any  participatory  shares in the
charter capital of the Company or in its subsidiaries or dependent companies.


Gioulnara Sh.  Khasianova Ms. Khasianova was appointed Deputy General Director -
Commercial Director of Rostelecom in April 2003.

From  1992,  Mrs.  Khasianova  worked in OJSC  Long-Distance  and  International
Telephone,  which  became  Rostelecom's  branch  MMT  from  2000,  consecutively
occupying  the  positions  of  marketing  specialist,   head  of  the  marketing
department,  head of economic  and  marketing  service and head of the  business
development department.  In 2001 she became the head of the marketing department
of Rostelecom and in 2002 she was appointed  deputy  Commercial  Director of the
Company.

Since 2003, Mrs.  Khasianova has been a member of the Board of Directors of CJSC
MTs NTT and CJSC NTTs Komset.

In 1992 she graduated from Moscow  Technical  University of  Communications  and
Informatics with the degree in economics and management in communications.

As of June 30, 2004, Mrs.  Khasianova held 964 common shares and 1,503 preferred
shares in Rostelecom.  She did not hold any participatory  shares in the charter
capital of the Company's subsidiaries or dependent companies as of that date.


Alexander A. Lutsky.  Mr. Lutsky was appointed Chief Accountant of Rostelecom in
July 2001.

In 1996 and 1997 Mr. Lutsky worked as a financial  analyst and then as a finance
manager in OJSC  Telecominvest.  In September 1997 Mr. Lutsky became the finance
director  of  CJSC  Saint-Petersburg  Payphones.  In mid  2000  he  joined  CJSC
Petersburg Transit Telecom as a finance director of the company.

In 1995 he obtained a degree in  economics  from St.  Petersburg  University  of
Economics and Finance. In 1997 he completed his postgraduate education.

As of June 30, 2004,  Mr.  Lutsky did not hold any  participatory  shares in the
charter capital of the Company or in its subsidiaries or dependent companies.


Vladimir K.  Mironov.  Mr.  Mironov was  appointed  Deputy  General  Director of
Rostelecom in March 2002.

In 2001 and 2002 he held a position as a director for the working conditions and
security in CJSC PeterStar.

                                     -105-
<PAGE>
As of June 30, 2004,  Mr. Mironov did not hold any  participatory  shares in the
charter capital of the Company or in its subsidiaries or dependent companies.


Grigory  A.  Romsky.  Mr.  Romsky  was  appointed  Deputy  General  Director  of
Svyazinvest in June 2000.

From  1978 to 2000 Mr.  Romsky  worked  in OJSC  Saint-Petersburg  MMT  where he
consecutively occupied the positions from engineer to technical director.

In 1978 he graduated from Leningrad Electrotechnical Institute of Communications
named   after   Professor   Bonch-Bruevich   with  a  degree  in   Multi-channel
Communications.   In  1996  he  graduated  from  Saint-Petersburg  International
Institute of Management.

As of June 30, 2004,  Mr.  Romsky did not hold any  participatory  shares in the
charter capital of the Company or in its subsidiaries or dependent companies.


Galina V.  Rysakova Ms.  Rysakova was  appointed  as Deputy  General  Director -
Director for Organizational Development and HR of Rostelecom in September 2003.

From  1989  to  2001  Mrs.  Rysakova  worked  in  OJSC   International   Airport
Sheremetyevo where she consecutively  occupied the positions of senior engineer,
head of a group, and head of the HR department.  In December 2001 Mrs.  Rysakova
took the position as the head of the HR department of Rostelecom.

In 1999 she graduated from the law department of Moscow State University.

As of June 30, 2004, Mrs. Rysakova did not hold any participatory  shares in the
charter capital of the Company or in its subsidiaries or dependent companies.


Mr. Dmitry V. Sigalov Mr.  Sigalov was  appointed  Deputy  General  Director for
Legal Affairs of Rostelecom in April 2003.

From 1994 Mr.  Sigalov  worked as a lawyer in OJSC  North-Western  Office of the
Medical  Trade.  In  October  1996  he  joined  OJSC   Telecominvest   where  he
consecutively held the positions of lawyer,  deputy head of the legal department
and head of the legal department. In December 2002 Mr. Sigalov became an advisor
on legal issues to the General Director of Rostelecom.

In 1996 he  graduated  from St.  Petersburg  State  University  with a degree in
jurisprudence.  From  1997 to 2000 Mr.  Sigalov  continued  his  studies  in the
postgraduate  department  of St.  Petersburg  University in the  commercial  law
division. He holds a degree of candidate of Science in law.

As of June 30, 2004,  Mr. Sigalov did not hold any  participatory  shares in the
charter capital of the Company and its subsidiaries and dependent companies.


Vladimir V. Terekhov Mr. Terekhov was appointed First Deputy General Director of
Rostelecom in November 2003.

After his  discharge  from the Armed Forces in 1994,  Mr.  Terekhov  joined CJSC
PeterStar  as an  engineer.  Later  he  occupied  executive  positions  in  CJSC
PeterStar and CJSC Petersburg  Transit Telecom.  In April 2002 Mr. Terekhov took
the position of Deputy General Director - Technical Director of Rostelecom.

Since  2003,  Mr.  Terekhov  has held the  position  of a member of the Board of
Directors in CJSC NTTs Komset.

He graduated from Kiev Higher Military Engineering  Communications School with a
degree in radio communications. In 1990 he continued his education in the Higher
Academy of Communications.

As of June 30, 2004, Mr. Terekhov did not hold any  participatory  shares in the
charter capital of the Company and its subsidiaries and dependent companies.


Dmitry E. Yerokhin. Mr. Yerokhin was appointed General Director of Rostelecom in
November 2003.

In 1997 Mr. Yerokhin became the head of the Rostelecom  branch in Rostov-on-Don.
Starting  in October  2001 he served as First  Deputy  General  Director  of the
Company.  On November 3, 2003 he was appointed General Director of Rostelecom by
the decision of the Board of Directors of the Company.

Currently  Mr.  Yerokhin  occupies  positions  in the  management  bodies of the
following companies:

                                     -106-
<PAGE>
     Since 2002:    Member of the Board of Directors of CJSC Globalstar - Space
                    Communications;

     Since 2002:    Chairman of the Board of Directors of OJSC MMTS-9;

     Since 2002:    Member of the Board of Directors of CJSC SK Costars;

     Since 2002:    Chairman of the Board of Directors of CJSC MTs NTT.

In 1977 he graduated  with honors from  Dagestan  Polytechnic  Institute  with a
degree as an engineer-radio equipment constructor.

As of June 30, 2004, Mr. Yerokhin held 3,600 preferred shares in Rostelecom.  He
did not hold any  participatory  shares in the charter  capital of the Company's
subsidiaries or dependent companies as of that date.


6.B. Compensation of Directors and Management Board Members

The members of the Board of Directors and  Management  Board of Rostelecom  were
paid a total of RUR 100.4 million by the Group for all the services performed by
them during the fiscal year ended December 31, 2003.

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 2003, 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 Rostelecom
during the year ended December 31, 2003 on an individual basis:

<TABLE>
<CAPTION>
            Name                                Position                                Compensation (RUR)
-------------------------- ----------------------------------------------------------- ---------------------
<S>                        <C>                                                          <C>
Stanislav P. Avdiyants     Executive Director - Director of Economic and Tariff            1,337,762
                           Policies of Svyazinvest
Vadim Y. Belov             Deputy General Director of Svyazinvest                          3,303,514
Valery V. Degtyarev        General Director of OJSC Professional TeleCommunications            0
Grigory M. Finger          Executive Director of NCH Advisors, Inc.                         759,404
Victor A. Polischuk        President of OJSC Russian Telecommunications Network            2,097,166
Stanislav N. Panchenko     Deputy General Director of Svyazinvest (The date of             2,097,166
                           resignation from the board is June 26, 2004)
Irina M. Ragozina          Director of Corporate Governance Department of Svyazinvest      2,097,166
Mikhail V. Slipenchouk     General Director of LLC Metropol Investment Financial           2,097,166
                           Company
Valery N. Yashin           General Director of Svyazinvest                                 3,378,812
Dmitry Ye. Yerokhin*       General Director of Rostelecom                                  4,505,790
Evgeny V. Yurchenko        Deputy General Director of Svyazinvest                          2,805,110
Anton I. Osipchuk          First Deputy General Director of Svyazinvest (The date of        933,404
                           resignation from the board is June 15, 2003)


Nikolai P. Yemelianov      Regional Director of Novgorodtelecom, a branch of               2,097,166
                           North-West Telecom (The date of resignation from the board
                           is June 26, 2004)
</TABLE>

                                 -107-
<PAGE>
<TABLE>
<S>                        <C>                                                          <C>
Sergey I. Kuznetsov*       General Director of North-West Telecom  (The date of           15,928,027
                           resignation from the board is June 26, 2004)
Alexander V. Lopatin*      Retired from the position of Deputy General Director of         3,321,053
                           Svyazinvest in September 2003 (The date of resignation
                           from the board is June 26, 2004)
</TABLE>

*    Also served as a Management Board member

On June 26,  2004,  the annual GSM elected the new Board of  Directors.  The new
members are: Mr. Degtyarev,  Mr. Yerokhin,  and Mr. Finger (has been a member of
the Company's  Board of Directors in 2002).  The following  persons ceased to be
members of the Company's Board of Directors: Mr. Yemelianov,  Mr. Kuznetsov, and
Mr. Lopatin.

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, 2003 on an individual basis:

<TABLE>
<CAPTION>
            Name                                     Position                               Compensation
                                                                                               (RUR)
--------------------------- ------------------------------------------------------------ -----------------
<S>                         <C>                                                            <C>
Vladimir I. Androsik        Deputy General Director - Financial Director of Rostelecom       6,056,945
Sergey L. Akopov            Deputy General Director - Administrative Director of             5,738,419
                            Rostelecom
Dmitry M. Gurevich          Deputy General Director - Director for Project Management        4,225,920
                            of Rostelecom
Vadim Y. Izotov             Deputy General Director - Director for Information               4,324,114
                            Technologies of Rostelecom
Igor A. Kalugin             First Deputy General Director of Rostelecom - Director of        6,538,920
                            Rostelecom's branch MMT
Gioulnara Sh. Khasianova    Deputy General Director - Commercial Director of Rostelecom      3,934,121
Alexander A. Lutsky         Chief Accountant of Rostelecom                                   4,270,181
Vladimir K. Mironov         Deputy General Director of Rostelecom                            4,183,061
Grigory A. Romski           Deputy General Director of Svyazinvest                               0
Galina V. Rysakova          Deputy General Director - Director for Structure                 1,858,228
                            Development and Personnel Administration of Rostelecom
Dmitry V. Sigalov           Deputy General Director for Legal Affairs of Rostelecom          5,682,628
Vladimir V. Terekhov        Deputy General Director - Technical Director of Rostelecom       4,303,981
Dmitry Ye. Yerokhin         General Director of Rostelecom                                   4,505,790


Alexander V. Mikhalev       Former Deputy General Director - Administrative Director          335,155
                            of Rostelecom
Marina D. Oleshek           Former Deputy General Director - Director for Structure          1,969,486
                            Development and Personnel Administration of Rostelecom
Igor V. Zabolotny           Former member of the Management Board.                            200,897
</TABLE>

On April 28, 2004,  the Board of Directors  resolved to exclude Mr. Lopatin from
the  Management  Board and to include Mr.  Romsky,  Deputy  General  Director of
Svyazinvest.

To date, the Company does not have a bonus or  profit-sharing  plan with respect
to members of its Board of Directors or the Management  Board Members.  Nor does
the Company have an employee stock option program in place. Please see Item 6.D.
"Employees" for details concerning pension benefits provided by the Company.

                                     -108-
<PAGE>
In  accordance  with the  regulations  of the FSFM,  Rostelecom  is  required to
disclose information  regarding the compensation of its directors and Management
Board members.  Such information is included in quarterly  reports  submitted by
Rostelecom to FSFM and is available to shareholders and to the general public on
the Company's website.


6.C. Board Practices

Board of Directors

In accordance with Rostelecom's  Charter, the Board of Directors of the Company,
which consists of eleven members, is elected by cumulative voting at the GSM and
remains in office until the next annual or extraordinary  GSM, which will decide
on the election of new members of the Board of Directors. Directors may serve on
the Board for an unlimited number of terms. For details on expiration of current
service,  periods  of service  and  service  contracts  relating  to  applicable
persons, see Item 6.A. "Directors and Senior Management."

Since the Board of Directors is to be elected by cumulative  voting, the GSM may
adopt a  decision  on the early  termination  of powers  only in  respect of all
members of the Board of  Directors.  Each member of the Board of  Directors  may
voluntarily  resign with prior written  notification to the other members of the
Board of Directors.

The Company's  Charter provides that Management Board members may not constitute
more than one quarter 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  Board  of  Directors  has  responsibility  for:  (i)  calling  a GSM,  (ii)
increasing  the Company's  charter  capital,  (iii)  formation of the Management
Board and its early termination,  (iv) formation and liquidation of subsidiaries
and  representative  offices,  (v) decisions  regarding  participation  in other
entities,  and (vi)  approval  of  certain  major  transactions,  related  party
transactions and (vii) other issues.

With a view to assuring  continuous internal control over the performance of any
business   operations,   the  Company  is  to  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 and regulations
of such  structural  subdivision,  and the procedure for the  appointment of its
employees shall be determined  pursuant to an internal  document approved by the
Board of Directors of the Company.

Pursuant to the Company's  Charter,  meetings of the Board of Directors  must be
held at least  quarterly.  During 2003 the  Company's  Board of  Directors  held
altogether  18 meetings  (including  meetings of actual  presence  and  absentee
voting). The major decisions made by the Board of Directors in 2003 included:

     -    Decision on the primary objectives of restructuring  Company debt with
          RTC-Leasing.

     -    Decision on approving  Rostelecom's debt  restructuring with long-term
          obligations  between  Rostelecom  and  Russian  Federation  Council of
          Ministers,   the   Government   of   the   Russian   Federation,   and
          Vnesheconombank  and on signing an agreement  between  Rostelecom  and
          Alfa-Bank.

     -    Decision on the  liquidation of Rostelecom  branch GTsUMS (Main Center
          for the Management of Long Distance  Communications  and  Television),
          and  transferring  its  functions  to the  Headquarters,  MMT  and the
          Central Branch.

     -    Decision on the  implementation  of new  approaches  to the  Company's
          investment planning.

     -    Decision on the Rostelecom's  economic development forecast for 2004 -
          2010.

     -    Decision on the approval of the Company's  transactions  in connection
          with optimizing investments in the Company's subsidiaries.

     -    Decision on the creation of various  committees of the Company's Board
          of Directors.

A Board  meeting  relating to convening  the annual GSM must take place no later
than one month after the filing of the annual  accounting  report with the state
authorities (this should be done on or before March 31), in order to allow Board
members to review of the Company's draft annual report to  shareholders,  annual
balance sheet, profit and loss statement and auditor's report.

                                     -109-
<PAGE>
The Board of Directors may be convened by the Chairman of the Board of Directors
on his/her own initiative or by request of any member of the Board of Directors,
the Audit Commission,  the Company's  external 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 minutes of the meetings of the Board of Directors  must be executed
within three 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 or other person acting as General Director
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 in
accordance with 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 his appointment by the Board of Directors.

Members of the  Management  Board are  supervised  by the Board of Directors and
report to the Board of  Directors.  The  Management  Board,  in  particular,  is
responsible for the following:  preliminary  discussion of issues to be resolved
at a GSM;  preparation of agenda items of the Board of Directors with respect to
(i) the  establishment,  reorganization  and  liquidation  of  subsidiaries  and
representative offices, (ii) the amount of dividends to be paid on each category
of shares, and (iii) major and related 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.  During 2003 the  Management  Board held 14
meetings. The main decisions of the Management Board in 2003 included:

     -    Review  of  Company  plan for  further  development  of the  Company's
          digital network systems from 2004 through 2006;

     -    Acceptance of a decision to remove analog lines from operation;

     -    Acceptance  of  a  decision  to  optimize  the  Company's   subsidiary
          structure;

     -    Acceptance  of  a  decision  to  create  various   committees  of  the
          Management Board;

     -    Review of changes in pension  program  administration  and a deal with
          non-state sponsored pension funds.

The minutes of the Management Board must be executed within three days after the
meeting.  The decisions of the Management Board are adopted by a simple majority
of votes.  Pursuant to the Company's  Regulations on the Management Board it may
adopt  decisions  if a quorum of at least half of the members are present at the
meeting.  In a case of a split vote the Chairman of the Management Board has the
decisive vote. No Member of the  Management  Board can be a member of a board of
directors,  a member of a  management  board or a general  director  of  another
company without the prior consent of the Board of Directors.


Audit Committee

As of June 30, 2004, the Audit Committee of the Company had not yet been formed.

Prior to June 26,  2004,  the Board of  Directors  did not include a  sufficient
number of independent directors to form an Audit Committee.

                                     -110-
<PAGE>
At the annual GSM held on June 26,  2004,  new members of the Board of Directors
were elected. It is anticipated that three members of the new Board of Directors
will be  considered  as  independent  directors  (subject to the decision of the
Board of Directors), namely:

     -    Valery  V.   Degtyarev,   General   Director   of  OJSC   Professional
          TeleCommunications.

     -    Nikhail V.  Slipenchouk,  General Director of LLC Metropol  Investment
          Financial Company.

     -    Grigory M. Finger, Executive Director of NCH Advisors, Inc.

The Company  expects that the Audit Committee will be formed by the end of 2004.
Until the  Committee is formed,  the entire  Board of Directors  will act as the
Company's Audit Committee.


Nominating and Compensation Committee

In September 2003, to improve the efficiency of the main activities of the Board
of Directors,  the Company  established a Nominating and Compensation  Committee
that performs the following functions:

     -    Formulation  of the  Company's  policy in  respect of  appointment  of
          members of the Board of Directors,  the General  Director,  members of
          the Management Board and heads of the Company's key departments.

     -    Determination  of  qualifications  for  candidates  for the  Board  of
          Directors.

     -    Formulation of the Company's  policy defining  principles and criteria
          to determine  compensation  of members of the Board of Directors,  the
          Audit  Commission,  the General  Director,  members of the  Management
          Board,  and  heads of key  departments,  as well as  criteria  for the
          appraisal of their activity.

     -    Preparation  of  recommendations  on  the  Company  personnel  policy,
          including the employee incentive system.

     -    Appraisal of activities of the Company's management.

As of June 30, 2004, the members of the Nominating  and  Compensation  Committee
were as follows:

     1.   Mikhail V. Slipenchouk - the Chairman,  the Board of Directors member,
          General Director of METROPOL Investment Financial Company Ltd.;

     2.   Stanislav N. Panchenko - the Board of Directors member, Deputy General
          Director of Svyazinvest;

     3.   Vladimir I. Androsik - the  Management  Board member,  Deputy  General
          Director - Finance Director, OJSC Rostelecom;

     4.   Galina V.  Rysakova - the  Management  Board  member,  Deputy  General
          Director - Director for Organizational Development & HR of Rostelecom;

     5.   Nadezhda  V.  Fillippova  -  Executive   Director  -  HR  Director  of
          Svyazinvest.


Strategic Planning Committee

In September  2003,  to improve the  efficiency of the main lines of activity of
the  Board  of  Directors,   the  Company  established  the  Strategic  Planning
Committee, which performs the following functions:

     -    Preliminary  consideration of and preparation of  recommendations  for
          the drawing up of the  Company's  strategic  development  plan for the
          period until 2010.

     -    Oversight of implementation of the strategic development plan.

     -    Preparation of recommendations for the Company's dividend policy.

     -    Preparation  of  recommendations  for the  implementation  of  Company
          procedure for investment planning and monitoring.

     -    Appraisal of the Company's long-term operational efficiency.

     -    Preparation  of  recommendations  for adjusting the Company's  current
          strategy.

     -    Preparation  of  recommendations  for  procedures  for  the  Company's
          interaction with affiliated and subsidiary companies.

As of June 30, 2004,  the members of the  Strategic  Planning  Committee  are as
follows:

                                     -111-
<PAGE>
     1.   Vadim Ye. Belov - the Chairman,  the Board of Directors member, Deputy
          General Director of Svyazinvest;

     2.   Yevgeny V. Yurchenko - the Board of Directors  member,  Deputy General
          Director of Svyazinvest;

     3.   Mikhail  V.  Slipenchouk  - the  Board of  Directors  member,  General
          Director of METROPOL Investment Financial Company Ltd.;

     4.   Vladimir I. Androsik - the  Management  Board member,  Deputy  General
          Director -- Finance Director of Rostelecom;

     5.   Andrey N.  Rudenko - Deputy  General  Director of METROPOL  Investment
          Financial Company Ltd.


Audit Commission

Pursuant to the Company's  Charter the Audit Commission is elected by the annual
GSM for a term expiring on the date of the next annual GSM. In  accordance  with
the Company's  Charter,  the Audit  Commission  consists of three  members.  Any
shareholder or any other person nominated by shareholders may be a member of the
Audit  Commission  provided  that a  member  of the  Audit  Commission  may  not
simultaneously  be the 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 Audit Commission are elected by decision of the GSM approved by a
majority of the votes of the shareholders taking part in such meeting. The Audit
Commission elects its Chairman and Secretary.

The  position  of each member of the Audit  Commission  may be  terminated  by a
decision  of the GSM.  If the Audit  Commission  is  reduced  to fewer  than two
members,  an  extraordinary  GSM shall be convened to appoint new members of the
Audit  Commission.  For the year ended  December  31,  2003,  the Group paid the
members of the Company's Audit Commission a total of RUR 1,769,592.

Pursuant to the decision of the GSM, the current Audit Commission of the Company
was elected on June 26, 2004, being Irina V. Prokofieva,  Director of Department
of Internal Auditing of Svyazinvest,  Konstantin V. Belyaev, Chief Accountant of
Svyazinvest, and Evgueni A. Pelymski, Deputy Chief Accountant of Rostelecom.


Irina V. Prokofieva.  Ms.  Prokofieva has been serving as an Audit  Commission's
member  since June 1, 2002.  Since April 2003,  she has been the Director of the
Department of Internal Auditing of Svyazinvest. Her previous position was Deputy
Head of Department of Internal  Auditing 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 has been serving as an Audit  Commission's
member since 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.


Evgueni A.  Pelymski.  Mr.  Pelymski has been  serving as an Audit  Commission's
member  since  June 26,  2004.  Since  May 2002 he has  been  the  Deputy  Chief
Accountant  of  Rostelecom.  Prior to that he worked as an auditor with KPMG. Mr
Pelymski  is a member of the  Association  of  Chartered  Certified  Accountants
(ACCA)  since  2001 and  holds a degree  from the  Financial  Academy  under the
Government of Russia.

The Audit  Commission  reviews the  financial  and  business  operations  of the
Company and, in particular:  audits the financial and business  documents of the
Company;  reviews  the  legal  force of  agreements  executed  on  behalf of the
Company,   transactions  and  settlements  with  counterparties;   analyzes  the
accounting  statements and  statistical  records for compliance  with applicable
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,  and its profit and loss  statements;  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
Audit  Commission  has the  right to  request,  and  officers  of the  Company's
governing bodies must provide, documents on the financial and business operation
of the Company, including confidential documents.

                                     -112-
<PAGE>
Upon completion of the financial  review,  the Audit 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
preparing the financial statements. All documents of the Audit Commission (acts,
opinions,  instructions,  etc.)  must be  executed  by all  members of the Audit
Commission.

Members of the Audit  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  Rostelecom's  staff on the payroll in the year 2003 was
28,185  (compared to 36,617 in 2000,  35,764 in 2001 and 31,072 in 2002).  As of
December 31, 2003,  Rostelecom  employed 27,016 full-time employees (compared to
36,595 in 2000, 33,987 in 2001, and 30,993 in 2002).

Rostelecom employs 16,430 specialists with a higher and secondary education. 33%
of all its  employees are aged below 40, 34% aged 40 to 50 and 33% aged over 50.
The average monthly salary as compared to 2002 grew by 31% to RUR 8,269.

As of December 31, 2003,  the breakdown of employees  according to  Rostelecom's
branches (or geographic location) was as follows:

     -    Central Branch - 10,142 employees;

     -    North-Western Branch - 3,052 employees;

     -    Volga Branch - 2,721 employees;

     -    Southern Branch - 2,022 employees;

     -    Ural Branch - 1,905 employees;

     -    Siberian Branch - 3,989 employees; and

     -    Far East Branch - 3,185.

As June 30, 2004,  Rostelecom  had no overdue wage payments to its employees and
the  management  of  Rostelecom  believes  that  it is in  compliance  with  all
applicable  labor laws.  Rostelecom has not  experienced  any  significant  work
stoppage  since its  formation and the  management  of  Rostelecom  believes the
Company has good relations with its employees.

In  2003,   5,776  employees  were  trained  at  foreign  schools   operated  by
manufacturers,  at Rostelecom's educational centers 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 for
special  scholarships for 30-35 students  specializing in basic professions each
semester.

All of Rostelecom's  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 and of their
benefits, guarantees and working conditions.

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 Telecom-Soyuz (the assignee of Rostelecom-Garantiya which serviced this
program before 2003), a non-governmental

                                     -113-
<PAGE>
pension fund.  Under the said Agreement  Telecom-Soyuz  is implementing  various
pension  programs  for  Rostelecom  the  terms  of  which  are set  forth in the
Regulations on Pension Programs attached to the Agreement.

As of January 1, 2004, the number of former  employees of the Company  receiving
non-state pensions was 5,526.

Since January 1, 2004,  Rostelecom has maintained  four pension plans within the
framework of its non-state pension fund program.

The Joint  Participation  Program  envisages  a fixed  amount of  contributions.
Pension   payments  by  the  Company   amount  to  RUR  100  for  each  employee
participating  in the Program (each  individual's  contribution is not less than
RUR 100) and the size of the pension depends on the amount of accumulated funds.
The right to  participate  in the Program is available to employees  who work at
the Company on a full-time basis and who have signed the Non-State  Pension Fund
Agreement with NPF Telecom-Soyuz. As of January 1, 2004, 14,158 employees of the
Company were participating in the Fund.

The other three programs  envisage  termination  benefits.  The Company acquires
pensions under these pension programs, as listed below, and expense them when it
terminates the employment of an employee  before the normal  retirement  date or
when termination  benefits are provided as a result of an offer made in order to
encourage voluntary redundancy.

     o    Base Pension  Program.  The current  amount of the Base Pension is RUR
          568; it is regularly  adjusted,  most recently in August 2003. In 2003
          the Company granted 581 Base Pensions;

     o    Program of Provision of Non-State  Pensions to former employees of the
          Company  who became  disabled  due to an  occupational  accident.  The
          amount of the  pension  is equal to the Base  Pension.  1 pension  was
          granted under the Program in 2003.

     o    Program of Provision of  Non-State  Pensions to managing  employees of
          Rostelecom.  The  amount  of the  pension  under the  Program  varies,
          depending  on the  manager's  position,  from RUR  2,000 to RUR  4,000
          roubles. 17 pensions were granted in 2003 under the Program.

In order to have a pension granted under the Base Pension Program and Program of
Provision of Non-State Pensions to managing employees of Rostelecom, an employee
must meet certain requirements in respect of length-of-service,  and participate
in the Joint Participation Program.

Since 1995,  Rostelecom  has had an automatic  corporate  insurance plan for its
employees and members of their families. Since 1999, this plan has been operated
through Skart,  a Russian  insurance  company.  In 2002,  medical  insurance was
effected  through  RESO-Garantia,  a Russian  insurance  company,  selected as a
corporate insurer on the basis of a tender. In 2003 and 2004, the tender was won
by ROSNO,  a Russian  insurance  company,  which also  provides  the  employees'
mandatory medical insurance.

In addition,  since January 1, 1998,  Rostelecom  operates,  through Costars,  a
Russian  insurance  company  affiliated with Rostelecom,  an accident  insurance
program covering all its employees.

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 2003, pursuant to resolutions of the Board of Directors,  efforts to optimize
the organizational structure of the Company aimed at improving the efficiency of
management and reducing costs to Rostelecom  continued.  One of the main focuses
of this optimization process was the enlargement of territorial  departments and
establishment  of  integrated   units,   with  optimization  of  the  number  of
administrative and management personnel.

In the course of the restructuring in 2003, the Company closed its branch GTsUMS
and  transferred  its functions to other  branches and the  Headquarters  of the
Company.

To achieve  control and operation of equipment and digital  transmission  system
paths (DTSP) in the zone of operation of the Company's branches, the Company has
optimized the technical  block of the  organizational  structure of its regional
branches and organized new units - Regional Centers of DTSP Control.

                                     -114-
<PAGE>
Pursuant to the current and strategic  goals pursued by the Company in 2003, the
Company  determined  new  lines  of  operation  and  created  new  units  within
Headquarters, including:

     -    Directorate of State Authorities' Relations;

     -    Project Management Directorate;

     -    Public Relations and Investor Relations Directorate;

     -    Quality Control and Business Procedures Management Department.

Along  with  shaping  new  directions,  the  Company  has  updated  the areas of
responsibility and prioritized tasks of all managers of the operating units.

Within the framework of a single system of personnel  management and calculation
of  salaries  for all of  Rostelecom's  branches,  the  Company  put modules for
automation of these processes into operation in 2003.


6.E. Share Ownership

Mr.  Avdiyants has been a member of the Board of Directors of  Rostelecom  since
June 15,  2003.  As of June 30,  2004,  he owned  1,100  Ordinary  Shares in the
Company  (0.00015 % of the  Company's  outstanding  ordinary  shares)  and 6,800
Preferred Shares in the Company (0.0028 % of the Company's outstanding Preferred
Shares).

Mr.  Yurchenko has been a member of the Board of Directors of  Rostelecom  since
June 15, 2003.  As of June 30, 2004,  he owned  300,000  Ordinary  Shares in the
Company (0.041 % of Ordinary Shares).

Mr. Yerokhin is a member of the Management Board of the Company.  As of June 30,
2004,  he  owned  3,600  Preferred  Shares  in  the  Company  (0.00049  % of the
outstanding Preferred Shares).

Ms.  Khasianova is a member of the Management  Board of the Company.  As of June
30, 2004 she owned 964 Ordinary Shares  (0.00013% of Ordinary  Shares) and 1,503
Preferred Shares (0.00062% of the outstanding Preferred Shares).

Therefore,  as of June 30,  2004,  none of  members  of the  Company's  Board of
Directors or the Management Board beneficially owned more than 1.0% of any class
of the Company's shares.

The Company's  Ordinary  Shares owned by Mr.  Avdiyants,  Mr.  Yurchenko and Ms.
Khasianova have equal voting rights with the other Company's  shares of the same
class.

The Company's  Preferred  Shares owned by Mr.  Avdiyants,  Mr.  Yerokhin and Ms.
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 with a nominal value of RUR 0.0025 per share.  The  following  table sets
forth,  as of May 11, 2004 (the record  date),  information  with respect to the
ownership of the  outstanding  Ordinary Shares by (i) each person or entity that
owns in excess of 5% of Ordinary  Shares and (ii) all members of the  Management
Board and the Board of 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       197,867,291        27.16%
National Depositary Center, a non-commercial partnership, as a nominee    55,884,946          7.67%
holder
CJSC Depositary Clearing Company, as a nominee holder                     39,217,661          5.38%
Other holders in total                                                    66,501,515          9.12%
     Out of them - members of the Management Board and the Board of         302,064           0.04%
     Directors
</TABLE>

                                     -115-
<PAGE>
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").
JPMorgan  Chase Bank serves as the depositary for the sponsored ADR program with
ING Bank (Eurasia) serving as the custodian. As of May 11, 2004, 30,458,322 ADSs
were outstanding, representing 25.1% of all placed Ordinary Shares.

As of June 30,  2004,  the Company had a total of  728,696,320  Ordinary  Shares
issued  and  outstanding.  As of May 11,  2004,  the  register  of  shareholders
included 20  shareholders  registered in the United States.  They held 3,406,320
Ordinary  Shares of the Company  (0.5% of all  Ordinary  Shares)  and  6,830,870
Preferred Shares (2.8% of all Preferred Shares of the Company). Since certain of
these  Ordinary  Shares  and ADSs were held by brokers  or other  nominees,  the
number of record holders in the United States may not be  representative  of the
number of  beneficial  holders nor of the place of residence of such  beneficial
holders.

Svyazinvest  is the biggest  shareholder  in the Company,  holding 50.67% of all
Ordinary  Shares.  The total number of all the holders of Rostelecom's  Ordinary
Shares as of May 11, 2004 was 13,592,  including  12,361  individuals  and 1,231
legal entities.

The Russian  Government  has  exercised,  and is likely to continue to exercise,
significant  influence  over 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 its 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 to consolidate the Government's majority interests in
various  telecommunications  companies  throughout  Russia.  The transaction was
consummated on July 25, 1997, when the Russian Government also sold 25% plus one
share of  Svyazinvest  at auction  for  approximately  $1.87  billion to a newly
formed investment  consortium.  In addition,  the Russian Government has 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 the  Government's  ability to use its regulatory
powers to influence  providers of  telecommunications  services,  the  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. For additional  information
see Item 3.D. "Risk Factors".

The Company is not aware of any existing arrangements, which may cause a change
of control over Rostelecom.


7.B. Related party transactions

In certain aspects the Company's  internal control system may lacks a sufficient
level of control  relating in  particular  to  identification  of related  party
transactions. For more information see Item 3.D. "Risk Factors."

On January 24, 2003, the Company and RTComm.RU entered into an agreement for the
purchase and sale of  equipment,  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 was paid in 11 equal  installments  with the last
installment paid in November 2003.

On January 24, 2003, the Company and RTComm.RU entered into an agreement for the
assignment to RTComm.RU of  Rostelecom`s  rights and  obligations  under certain
leasing  agreements  previously made between  Rostelecom and  RTC-Leasing.  As a
result, RTComm.RU acquired all rights,  obligations and assets which the Company
had under  these  leasing  agreements,  and  became a party to such  agreements.
RTComm.RU  paid  Rostelecom  U.S.$ 1.7 million in cash  (excluding  VAT) for the
above assignment.  The amount of the Company's  indebtedness to RTC-Leasing with
respect to the lease payments was reduced by U.S.$ 3.1 million (including VAT).

                                     -116-
<PAGE>
On February 27, 2003, the Company entered into a loan agreement in the principal
amount of U.S.  $1,250,000 with interest at 8% per annum,  maturing  February 1,
2004 with CJSC  GlobalTel  which used the funds  received to make lease payments
under agreements with RTC-Leasing and to expand its activities. In January 2004,
the maturity date was extended to December 31, 2004.

On April 1, 2003, the Company and Svyazinvest  entered into an agreement for the
lease of non-residential  premises in the City of Moscow, under which Rostelecom
acts as lessor and Svyazinvest acts as lessee. The term of the agreement was for
eleven  months.  The fee paid by  Svyazinvest  to Rostelecom  was RUR 13,048,534
(excluding VAT) per term. The parties renewed the lease  arrangements on similar
terms in March, 2004.

In June-August  2003, in order to redeem its liability to Vietnam  Telecom,  the
Company paid to OJSC Svyazbankm acting as an agent of an unrelated party,  U.S.$
15.1  million  (RUR  462  million  at  the  exchange   rates  at  the  dates  of
settlements).  Certain  managers of the Company and Svyazinvest are directors of
OJSC Svyazbank.

In June 2003 OJSC Svyazbank, an entity controlled by Svyazinvest, purchased from
the company Vietnam Telecom  International amounts payable by the Company of SDR
10.8 million (RUR 466 million at the exchange rate as of  settlement  dates) and
claimed the amount to be paid by the Company in U.S. dollars.  The payments made
in June and in August 2003,  totaled  U.S.$ 15.1 million (RUR 462 million at the
exchange rate as of settlement dates).

On June 9, 2003, the Company and MGTS, in which  Svyazinvest has a 28% interest,
entered into an agreement in relation to the transit of traffic  under which the
Company undertook to pay MGTS:

     -    a one-off payment of RUR 52,050,000  (excluding VAT) for  establishing
          the technical capability for transmitting traffic;

     -    RUR 20 for every unit of correctly transmitted end-user's data;

     -    RUR 200,000 per month to allow Rostelecom's staff to access MGTS sites
          for lines and cables maintenance.

On June 9, 2003,  the Company and MGTS  entered into an agreement in relation to
procedures for handling customer complaints and preventing non-authorized access
to Rostelecom's  network.  The term of the agreement is one year, subject to any
extension  agreed.  Under the agreement,  Rostelecom pays a fee of RUR 5,416,667
per month to MGTS.

On June 25, 2003,  the Company and  RTC-Leasing  amended two leasing  agreements
dated May 20, 1999.  Certain parts of the equipment leased under the two leasing
agreements were excluded and the value of the two lease agreements was decreased
to RUR  91.9  million  and  U.S.$  650,829.08,  and  RUR 24  million  and  U.S.$
489,539.55 respectively.

On June  27,  2003,  the  Company  and  RTC-Leasing  with  the  consent  of CJSC
Telesoft-Russia entered into an assignment agreement in relation to an equipment
purchase   agreement   dated  May  20,  1999   between   RTC-Leasing   and  CJSC
Telesoft-Russia, replacing RTC-Leasing as a party with Rostelecom. In accordance
with the assignment agreement, Rostelecom paid RTC-Leasing RUR 182 million.

On  October 2, 2003,  Rostelecom  and  RTC-Leasing  entered  into a  termination
agreement  relating to the termination of a number of Rostelecom's lease payment
obligations  with a value of RUR  302.85  million,  which  arose  pursuant  to a
leasing  agreement  dated  May 24,  1999  between  Rostelecom  and  RTC-Leasing.
Rostelecom,  as  consideration  for the termination of such payments,  furnished
RTC-Leasing  with four  Rostelecom-held  promissory  notes  totaling  RUR 302.85
million previously issued by RTC-Leasing.  The time frame for payments under the
Lease Agreements (defined below) was also adjusted.
For details of this transaction please refer to Item 10.C. "Material Contracts".

On October 2, 2003,  Rostelecom and RTC-Leasing  entered into forty-seven  first
amended  agreements  relating to forty-seven  lease agreements made between 1997
and  2001  between   Rostelecom   and   RTC-Leasing   with  respect  to  various
telecommunications  equipment (the "Lease  Agreements").  The terms of the Lease
Agreements were amended so that Rostelecom  would make a first payment  totaling
RUR 3,677  million  under the Lease  Agreements  on  October  1, 2005 and make a
second  payment  totaling  RUR 1,421.7  million  under the Lease  Agreements  on
October 1, 2015. The above  agreements  also specified terms for the transfer of
title to the  property  leased  by  Rostelecom  under the  Lease  Agreements  to
Rostelecom.  These first amended lease agreements were subsequently  amended, as
described below.
For details of these transactions please see Item 10.C. "Material Contracts".
                                     -117-
<PAGE>

On December  25,  2003,  the Company and  RTC-Leasing  entered into an agreement
amending  the terms of a  repayment  schedule  for a loan owed by the Company to
RTC-Leasing.  The new repayment terms were: (i) eight equal payments of RUR 95.5
million on August 15, 2000,  on November 15, 2000,  on February 15, 2001, on May
15, 2001, on August 15, 2001,  on November 15, 2001,  on February 15, 2002,  May
15,  2002;  (ii) one  payment of RUR 368.5  million on May 31,  2002;  (iii) one
payment of RUR 95.5  million on August 15,  2004;  (iv) one payment of RUR 286.5
million on November  15,  2004;  one payment of RUR 95.5 million on February 15,
2005;  one payment of RUR 108.9 million on May 15, 2005;  two equal  payments of
RUR 95.5 million on August 15, 2005, and on November 15, 2005.

On December 26, 2003, Rostelecom and RTC-Leasing entered into forty-seven second
amended  agreements  relating  to the Lease  Agreements.  The terms of the Lease
Agreements were amended so that Rostelecom  would make a first payment  totaling
RUR 3,140.4 million under the Lease  Agreements on January 28, 2004 and a second
payment totaling RUR 1,958.5 million under Lease Agreements on January 30, 2034.
On  January  28,  2004,  Rostelecom  paid  RTC-Leasing  RUR  3,140.4  million in
accordance with the second amended Lease Agreements to Rostelecom.
For details of these transactions please see Item 10.C. "Material Contracts."

On April 27,  2004,  the  Company  and  Westelcom  entered  into a  substitution
agreement in relation to BSFOCS whereby Westelecom was replaced as a participant
in BSFOCS by  Rostelecom.  In  accordance  with the  agreement  Rostelecom  paid
Westelcom RUR 160 million.

On April 27,  2004,  the  Company  and  Westelcom  entered  into a  substitution
agreement in relation to the underwater Russia to Georgia FOL whereby Westelecom
was replaced as a participant in such FOL by Rostelecom.  In accordance with the
agreement Rostelecom paid Westelcom RUR 134 million.

On April 27, 2004,  the Company and Westelcom  entered into an agreement for the
sale of two  ITEs  in  Moscow  and  Saint-Petersburg.  In  accordance  with  the
agreement Rostelecom paid Westelcom RUR 54.9 million.

On April 27, 2004, the Company and CJSC Westelcom  entered into an agreement for
the sale of a data transfer  node. In accordance  with the agreement  Rostelecom
paid Westelcom RUR 17.7 million.


Description of agreements entered into by entities affiliated with the Company:

In 2003, RTDHC, a subsidiary of RTC-Leasing, and VolgaTelecom, an IRC controlled
by  Svyazinvest,  entered into an agreement for the sale by RTDHC of a 50% stake
in NCC, a mobile operator company, to VolgaTelecom for a purchase price of U.S.$
20,000,000 (RUR 589 million).

In 2003, RTDHC, and SibirTelecom, an IRC controlled by Svyazinvest, entered into
an  agreement  for the  sale by RTDHC of a 49%  stake in CJSC  Baikalwestcom,  a
mobile operator company, to SibirTelecom for U.S.$ 8,500,000 (RUR 250 million).

In 2003, RTDHC, and SibirTelecom entered into an agreement for the sale by RTDHC
of  a  49%  stake  in  CJSC  Yeniseitelecom,   a  mobile  operator  company,  to
SibirTelecom for U.S.$ 12,500,000 (RUR 368 million).

                                     -118-
<PAGE>

During 2003, RTC-Leasing and each of the IRCs controlled by Svyazinvest (namely,
CenterTelecom,   Southern   Telecommunications   Company,   North-West  Telecom,
VolgaTelecom,  Uralsvyazinform, Dalsvyaz, and SibirTelecom) entered into leasing
agreements  for a  total  amount  of  RUR  8,666  million  for  the  leasing  of
telecommunications equipment.

In 2003,  RTC-Leasing and RTComm.RU  entered into a leasing  agreement for U.S.$
1,753,313 (RUR 52 million) for the leasing of telecommunications equipment.


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  the  consolidated  financial  statements  included
elsewhere in this Annual Report.


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 a
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.

     -    In May 2000,  Rostelecom filed a claim against  Sberbank,  the Russian
          state bank,  with the Moscow City Arbitrazh  Court for the recovery of
          RUR  29,580,850  in relation to  Sberbank's  performance  under a bank
          account  agreement,  whereby  Sberbank  debited the Company's  account
          under a forged  electronic  payment order.  On July 6, 2001, the court
          ordered  that  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.  On March 11, 2003, the
          court rejected Rostelecom's claim. Rostelecom filed an appeal on April
          11, 2003 with the appellate court which was subsequently  rejected and
          a  further  appeal  with the  higher  Federal  Arbitrazh  Court of the
          District  of Moscow  in June  2003.  That  appeal  was also  rejected.
          Currently Rostelecom is looking for further ways to defend its rights.

     -    In January,  2002,  CJSC Telecros filed a claim in the Arbitrazh Court
          of the City of  Moscow  against  Rostelecom  for the  recovery  of RUR
          21,060,000 for communication  services allegedly provided during March
          to December  1998 without a written  agreement.  In the court  hearing
          held on June 28,  2002 the  plaintiff  dropped its claim and the court
          closed proceedings.

     -    In November 2002  Rostelecom  filed a claim against the  Interregional
          Inspectorate of the Russian  Federation  Ministry for Taxes and Duties
          No. 40 for the City of Moscow (the  "Inspectorate")  arguing  that the
          Inspectorate's  penalty  of 20% of the  amount of unpaid tax being RUR
          384,293.23,  and unpaid tax claim of RUR 1,921,466.16 were invalid. In
          the opinion of the Inspectorate, Rostelecom, in calculating and making
          advance  payments  of the tax for the  first  six  months  of 2002 had
          incorrectly  calculated  the  amount  of  expenses  for  state  social
          insurance.  By decision of the court of first  instance  dated January
          22,  2003,  the  Inspectorate's  unpaid  tax  claim and  penalty  were
          declared  invalid as  contradicting  tax law.  On appeal,  on June 17,
          2003, the Federal Arbitrazh Court of the District of Moscow upheld the
          decision of the court of first instance and dismissed the appeal filed
          by the Inspectorate.

                                     -119-
<PAGE>
     -    In December  2002,  Rostelecom  filed a claim  against  Sberbank,  JSC
          Saules Bank (Latvia) and its successor, Rietumu Bank), JSC Lateco Bank
          (Latvia) and JSC Elmex LLC (USA) for a loss of RUR  29,580,871  due to
          banking  operation  procedures  in relation  to a payment  order dated
          August  2,  1999,  and the  removal  by a  third  party  of cash  from
          Rostelecom's   settlement   account  under  that  payment  order.  The
          Arbitrazh  Court of the City of Moscow on  September  23,  2003  ruled
          against Rostelecom and Rostelecom's  subsequent appeal was rejected by
          the appellate court.

     -    In February 2003, Rostelecom filed a claim against the Russian Defense
          Ministry  in  relation  to the  Russian  Defense  Ministry's  debt  to
          Rostelecom  in the amount of RUR  32,822,803.56  and  interest  of RUR
          12,485,622.71.  The debt  was due to the  Russian  Defense  Ministry's
          failure to pay for tonal  frequency  channels  provided by the Company
          under an agreement of March 24, 2000. The Arbitrazh Court of Moscow by
          its decision of June 2, 2003 upheld an amended  claim by Rostelecom in
          the amount of RUR  32,822,803.56 of principal and RUR 12,783,859.27 of
          interest. In accordance with the court's decision the principal amount
          was paid by the Russian Defense  Ministry,  but the Federal  Arbitrazh
          Court of the District of Moscow  ruled,  on the basis of a decision by
          the High Arbitrazh Court,  against Rostelecom in relation to its claim
          for interest and sent the case to the first  instance for a new trial.
          After a retrial and related court hearings in 2004, the court of first
          instance awarded  Rostelecom a total amount of RUR 6,391,929.63  (half
          the value of the initial claim).

     -    In July 2003, the Company filed the claim against the Russian  Defense
          Ministry in the Arbitrazh Court of the City of Moscow for the recovery
          of a debt for  communication  services  provided by the Company in the
          amount of RUR 194,888,838.65, including RUR 166,218,501.6 of principal
          and RUR  28,670,337.06  of  interest.  Upon the payment by the Russian
          Defense  Ministry  of RUR  109,732,890,  the  value of the  claim  was
          reduced to RUR  56,485,611.59  of principal and RUR  32,615,613.91  of
          interest.  On  September  11,  2003 the claim by the  Company  for RUR
          56,485,611.59 of principal was upheld,  and the claim for interest was
          dismissed.  Rostelecom was paid RUR  56,485,611.59  by the Specialized
          Branch  of the  Federal  Treasury  for the  City of  Moscow  with  the
          Ministry of Finance of the Russian Federation on March 31, 2004.

     -    In October 2003, the Company filed the claim against the  Inspectorate
          in the Arbitrazh Court of the City of Moscow for a tax claim up to RUR
          2,488  million of  additional  taxes,  including  fines and  penalties
          payable by Rostelecom,  to be declared  invalid.  On January 12, 2004,
          the  court  ruled  that the tax  claim  (except  for an  insignificant
          amount) was  invalid.  The  Arbitrazh  Court's  decision was upheld on
          appeal on March 29, 2004. On June 7, 2004, a further  appeal was filed
          by the Inspectorate, and as of June 30, 2004, the date for the hearing
          has not been set yet.

     -    In December 2003, Rostelecom filed a claim against the Russian Defense
          Ministry in the Arbitrazh Court of the City of Moscow for the recovery
          of a debt for  communications  services provided by the Company in the
          amount of RUR 73,811,788.75 under a state contract,  dated February 4,
          2003. On February 2, 2004, the claim of the Company was upheld for the
          full  amount  by the  court  and a writ of  execution  was  issued  to
          commence execution proceedings.

     -    In February 2004, Rostelecom filed a claim against the Russian Defense
          Ministry in the Arbitrazh Court of the City of Moscow for the recovery
          of a debt for  communications  services provided by the Company in the
          amount of RUR 57,069,824.32 under a state contract,  dated February 4,
          2003.  Due to partial  payment  of RUR  42,691,241.30  by the  Russian
          Defense  Ministry,  the  amount  of the  claim  was  decreased  to RUR
          14,378,583.02.  On April 13, 2004, the claim of the Company was upheld
          in full by the court.

As of June 30, 2004, 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.


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 JSC Law
prevail). Annual dividends are proposed by the Board of Directors of Rostelecom,
based  on the  Company's  year-end  statutory  accounting  reports  prepared  in
accordance with Russian  accounting  regulations,  and are approved by an annual
GSM which is  usually  convened  by the Board of  Directors  during  the  second
quarter

                                     -120-
<PAGE>
of  each  year.  The  right  to  receive   dividends  is  attributable  only  to
shareholders  included in the  register of  shareholders  as of the record date,
which is May 11, 2004 for dividends in respect of 2003.

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 the GSM. See
also Item 10.B. - "Memorandum and Articles of Association."

Dividends  payable on 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, divided by the total number of Preferred Shares.  Rostelecom
may not pay dividends on Ordinary  Shares unless  dividends on Preferred  Shares
are paid in full.  Furthermore,  in the event the amount of  dividends  paid per
Ordinary Share exceeds  dividends  payable per Preferred  Share,  the GSM should
increase  the  amount  of  dividends  per  Preferred  Share up to the  amount of
dividends per Ordinary Share.

As a general rule, 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 Preferred  Shares,  including  changes in  dividends  payable and the
issuance of additional  Preferred Shares. Such resolutions require three fourths
approval of all shareholders including the owners of Preferred Shares.

The  Preferred  Shares have no rights of  redemption  or  conversion.  Owners of
Preferred  Shares also have the right to  participate in the GSM and vote on all
issues  within the  competence  of such  meetings,  beginning  with the  meeting
following  the GSM at which the decision not to pay, or to make partial  payment
only, in respect of dividends on Preferred  Shares was made. See also Item 10.B.
- "Memorandum and Articles of Association."


8.B. Significant Changes

In 2003, Rostelecom completed a series of transactions through which it divested
its remaining  interest in its former  consolidated  subsidiary  RTC-Leasing,  a
provider of  financial  leasing  services to Russian  companies  involved in the
telecommunications  industry.  From 1998 to 2001,  Rostelecom leased most of its
telecommunications  infrastructure from RTC-Leasing  pursuant to various leasing
agreements in order to take advantage of favorable  Russian tax treatment.  From
the  beginning of 2001,  Rostelecom  began to purchase,  rather than lease,  its
telecommunications  equipment  from third  parties,  reducing the  importance of
Rostelecom's relationship with RTC-Leasing. In addition, RTC-Leasing became less
strategically important to Rostelecom as it was able to secure financing on more
favorable  terms from third  party  sources,  while  Rostelecom  maintained  its
guarantee of the majority of RTC-Leasing's  debt to third parties,  all of which
contributed  to  Rostelecom's   relationship  with  RTC-Leasing   becoming  less
economically viable. As a result, in September 2001, Rostelecom offered a number
of strategic  investors  interests in RTC-Leasing to finance the diversification
of  RTC-Leasing's  business and the  expansion of its client base with a view to
making  RTC-Leasing  a more  profitable  business.  In May  2003,  in  light  of
RTC-Leasing's  business development,  Rostelecom agreed with RTC-Leasing's other
shareholders to restructure its obligations to RTC-Leasing and sell its interest
in RTC-Leasing to a third party. On October 24 and 27, 2003, Rostelecom sold its
interest of 27.06% in RTC-Leasing for RUR 740 million to Raiffeisenbank,  acting
as a broker for an undisclosed third party purchaser.

On October 2,  2003,  Rostelecom  paid RUR  302.85  million  to  RTC-Leasing  in
settlement of a portion of its lease  obligations  to RTC-Leasing in the form of
promissory notes previously  issued to Rostelecom by RTC-Leasing.  On October 2,
2003 and December 26, 2003,  Rostelecom and RTC-Leasing entered into a series of
amended leasing  agreements  which amended the repayment terms of existing lease
agreements  with  RTC-Leasing  such  that  Rostelecom  became  obligated  to pay
RTC-Leasing  RUR 3,140.4  million  (VAT  exclusive)  on January 28, 2004 and RUR
1,958.5  million  (VAT  exclusive)  on  January  30,  2034.  The  amended  lease
agreements also specified that title to the property leased by Rostelecom  under
the existing  RTC-Leasing  lease  agreements  would be transferred to Rostelecom
upon the  termination  of  Rostelecom's  obligations  under the  existing  lease
agreements.

On January 30, 2004,  Rostelecom and RTC-Leasing agreed to replace  Rostelecom's
obligations  under the lease  agreements  valued at RUR  1,958.5  million due on
January 30, 2034 with a loan payable by Rostelecom to  RTC-Leasing  with a value
of RUR 1,958.5  million  (plus VAT at 18%) due in 2038 with interest of 0.1% per
annum,  and  RTC-Leasing  transferred  to  Rostelecom  the  title to the  leased
property.  On the terms of certain assignments between RTC-Leasing and Westelcom
dated February 12, 2004, RTC-Leasing

                                     -121-
<PAGE>
transferred to Westelcom, a wholly owned subsidiary of Rostelecom, its rights to
Rostelecom's  outstanding debt of RUR 1,958.5 million due 2038 for consideration
of RUR 368  million.  As of June 30,  2004,  the  Group had no  indebtedness  to
RTC-Leasing and held title to the telecommunications equipment previously leased
to it by RTC-Leasing.

On February  23,  2004,  the Company and ING  BHF-bank AG entered  into a credit
agreement to finance the Novosibirsk-Khabarovsk-Chinese  border FOL project. The
loan was  guaranteed by Hermes,  a German export  credit  agency.  The principal
amount  of the  loan  is EUR  6,838,774.73  and  the  interest  rate  is 6 month
EURIBOR+0.875%  per  annum.  The  loan is  scheduled  to be  repaid  in 10 equal
semi-annual installments over five years.

On  March  26,  2004,  the  Company  and the  Japanese  Bank  for  International
Cooperation  ("JBIC")  entered into a loan  agreement to finance the purchase of
equipment for the  reconstruction  of the  Tyumen-Surgut  microwave  line.  JBIC
provided  Tranche A of the loan with a value of U.S.$  1,597,495.95 and Sumitomo
Mitsui Banking  Corporation,  a Japanese  commercial bank, provided Tranche B of
the loan with a value of U.S.$  1,064,997.30.  The  Tranche A  interest  rate is
fixed at 4.67% per annum and the Tranche B interest  rate is six months'  LIBOR.
The  Tranche B of the loan is  guaranteed  by NEXI,  a  Japanese  credit  export
agency. Repayment of principal is scheduled to occur every six months from April
7, 2005 to October 7, 2008.

On April 27,  2004,  the  Company  and  Westelcom  entered  into a  substitution
agreement in relation to BSFOCS.  In accordance  with the  agreement  Rostelecom
paid Westelcom RUR 160 million.

On April 27, 2004,  the Company and CJSC  Westelcom  entered into a substitution
agreement in relation to the underwater  Russia to Georgia FOL whereby Westelcom
was replaced as a participant in such FOL by Rostelecom.  In accordance with the
agreement Rostelecom paid Westelcom RUR 134 million.

On June 26, 2004,  the  Company's  annual GSM was held. A new Board of Directors
was elected.  The restated  Regulations on the Board of Directors were approved.
The amount of dividends for 2003 was determined as follows:

     -    RUR 3.25301 per Preferred  Share to be paid from July 15, 2004 through
          December 15, 2004 (total  preferred  dividends amount to 10 percent of
          net profit according to Russian Accounting Standards); and

     -    RUR 0.87807 per  Ordinary  Share to be paid from July 15, 2004 through
          December 15, 2003 (total ordinary  dividends  amount to 8.1 percent of
          net profit according to Russian Accounting Standards).


Item 9. The Offer and Listing

Not applicable.


9.A. Listing Details

The table  below  shows the  highest  and lowest  prices  and the daily  average
trading volumes of turnover in U.S.  dollars of Rostelecom's  Ordinary Shares on
the RTS for each fiscal year since 1998.

<TABLE>
<CAPTION>
           Period             Highest price         Lowest price        Average volume
 ------------------------- --------------------- -------------------- -------------------
<S>            <C>          <C>                   <C>                   <C>
  1998         Annual              3.780                0.290              762,759
  1999         Annual              1.990                0.610              273,081
  2000         Annual              4.900                0.850              437,311
  2001         Annual              1.145                0.450              521,403
  2002         Annual              1.670                0.925              511,852
              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         Annual              2.235                1.122              414,710
              Quarter 1            1.415                1.122              491,041
              Quarter 2            1.990                1.327              680,286
              Quarter 3            1.835                1.500              116,224
</TABLE>

                                     -122-
<PAGE>
<TABLE>
<CAPTION>
           Period              Highest price          Lowest price       Average volume
 ------------------------ --------------------- --------------------- ----------------
<S>           <C>             <C>                 <C>                   <C>
             Quarter 4             2.235                 1.720            371,291
  2004       January               2.310                 2.090            231,849
             February              2.405                 2.160            175,206
             March                 2.460                 2.290            154,357
             April                 2.650                 2.170            393,885
             May                   2.220                 1.930            295,240
             June (through         2.225                 1.955            195,881
             to June 30)
</TABLE>


The table  below  shows the  highest  and lowest  prices  and the daily  average
trading volumes of turnover in U.S.  dollars of Rostelecom's  Ordinary Shares on
MICEX for each fiscal year since 1998.

<TABLE>
<CAPTION>
       Period                  Highest price       Lowest price       Average volume
------------------------- --------------------- ------------------ -------------------
<S>            <C>           <C>                    <C>               <C>
  1998          Annual             3.800              0.281              124,787
  1999          Annual             2.004              0.638               71,332
  2000          Annual             4.827              0.840              563,532
  2001          Annual             1.148              0.452             1,768,179
  2002          Annual             1.684              0.906             4,565,243
              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          Annual             2.244              1.107             11,889,805
              Quarter 1            1.413              1.107             6,551,081
              Quarter 2            2.027              1.307             11,896,507
              Quarter 3            1.846              1.453             8,129,495
              Quarter 4            2.244              1.684             20,982,137
  2004         January             2.320              2.048             19,961,620
               February            2.411              2.158             23,156,729
                March              2.464              2.260             22,776,102
                April              2.665              2.138             25,296,292
                 May               2.279              1.899             15,084,025
                June (through      2.232              1.952             11,460,625
                to June 30)
</TABLE>


On July 11, 2003, Rostelecom's Ordinary Shares were listed on the St. Petersburg
Stock  Exchange.  The table below  shows the  highest and lowest  prices and the
daily average  trading volumes in U.S.  dollars of Rostelecom's  Ordinary Shares
for each fiscal year since 2003.

<TABLE>
<CAPTION>
      Period                 Highest price       Lowest price       Average volume
--------------------------- ----------------- ------------------ ---------------------
<S>            <C>            <C>                <C>               <C>
 2003       Quarter 3            1.496            1.894               100,354
            Quarter 4            1.713            2.234               124,126
 2004       January              2.123            2.312               154,017
            February             2.165            2.403               210,689
            March                2.268            2.457               119,439
            April                2.131            2.806               111,849
            May                  1.927            2.227                35,791
            June (through        2.226            1.964                24,529
            to June 30)
</TABLE>


On February 17, 1998, Rostelecom was listed on the New York Stock Exchange.  The
table below shows the highest and lowest  prices and the daily  average  trading
volumes in U.S.  dollars of the Company's ADS (quoted in accordance with the 1:6
ratio of ADR to ordinary  shares) on the New York Stock Exchange for each fiscal
year since 1998.

<TABLE>
<CAPTION>
         Period                Highest price         Lowest price       Average volume
------------------------ ----------------------- -------------------- -------------------
<S>            <C>            <C>                 <C>                  <C>
  1998        Annual            23.060               1.506                188,078
  1999        Annual            11.750               3.690                130,486
  2000        Annual            27.440               4.880                189,785
  2001        Annual            6.860                2.720                 99,986
  2002        Annual            9.890                5.330                 80,132
</TABLE>

                                     -123-
<PAGE>
<TABLE>
<CAPTION>
      Period                  Highest price          Lowest price      Average volume
----------------------- ------------------------ -------------------- --------------
<S>         <C>              <C>                   <C>                 <C>
             Quarter 1         7.750                 5.330                63,920
             Quarter 2         9.890                 5.840               132,692
             Quarter 3         7.250                 5.700                79,082
             Quarter 4         7.950                 5.810                44,834
 2003          Annual          13.20                 6.590               636,255
             Quarter 1         8.450                 6.590               305,479
             Quarter 2         11.200                7.860               498,293
             Quarter 3         11.000                8.850               412,835
             Quarter 4         13.200                10.300             1,328,415
 2004        January           13.950                12.380             1,639,747
             February          14.430                12.920             1,147,645
             March             15.010                13.500             1,336,763
             April             15.920                12.710             2,337,792
             May               13.38                 11.00              1,251,182
             June (through     13.32                 11.93                788,332
             to June 30)
</TABLE>


9.B. Plan of Distribution

Not applicable.


9.C. Markets

The Ordinary and Preferred Shares of Rostelecom are listed on the RTS, the MICEX
and the Saint Petersburg Stock Exchange.

ADSs on the Ordinary Shares are listed on the NYSE, and are also traded on the
London Stock Exchange, the Deutsche Bourse and other exchanges.


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. Memorandum and Articles of Association

Described  below are the material  provisions of the Charter,  with a summary of
certain requirements of Russian legislation also applicable thereto.


Registering Authority; Company's Objects and Purposes

Rostelecom was registered with the Moscow Registration Chamber on September 23,
1993, under registration number 021.833.

                                     -124-
<PAGE>
In 2002, the Russian system for the  registration of legal entities was changed.
Federal  Law  No.129-FZ  "On  the  State  Registration  of  Legal  Entities  and
Individual  Entrepreneurs"  dated August 8, 2001 (the "Registration Law"), which
entered into force on July 1, 2002,  stated that legal  entities are required to
be registered by a  registration  agency  authorized by the Government of Russia
and information concerning the establishment,  reorganization and liquidation of
legal entities must be entered in the State register.  The Registration Law also
required legal entities established prior to July 1, 2002 to furnish, by the end
of 2002, information specified in the Registration Law. Under its Resolution No.
319 dated May 17, 2002, the Government of Russia determined that the Ministry of
Taxes and  Collections  would be the state authority to register legal entities.
In  compliance  with the  Registration  Law,  on  September  9, 2002  Rostelecom
obtained a Ministry of Taxes and Collections Certificate Series 77 No. 004891969
on registration in the Uniform State Register of Legal Entities, and the Company
was allocated a state registration number of 1027700198767.

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 powers of members of the  Company's  Board of Directors to borrow  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 JSC Law and the Charter.

Pursuant  to the JSC Law and the  Charter,  depending  on the value of  property
involved or number of the  Company's  securities  involved,  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  GSM.  Since  the  number  of
shareholders  holding voting shares in the Company is currently more than 1,000,
decisions on the approval of related party transactions are typically adopted by
the Board of  Directors  of the Company by a majority of votes of  disinterested
directors (i.e. who do not have an interest in the transaction) or by a majority
of votes of independent directors.  According to JSC Law an independent director
is one who does not hold,  and whose close  relatives do not hold,  and have not
held during the year preceding the adoption of the relevant decision, a position
in any  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 is required to
be approved by the GSM by a simple majority vote of shareholders.

A related  party  transaction  should  also be  approved  by the GSM 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 Board of Directors is able to make recommendations
pertaining to the  compensation  of members of the Audit  Commission  within the
limits set by the Regulations on the Audit  Commission and can give direction on
the  performance-related  remuneration  of the General  Director  pursuant to an
agreement  between the General Director and the Company.  In accordance with the
Charter,   the  Management  Board  determines  each  Management  Board  Member's
quarterly  compensation  upon the  proposal of the  Chairman  of the  Management
Board.

Pursuant  to the  Charter,  the  members of the Board of  Directors  are elected
annually by the GSM. The Charter provides that members of the Board of Directors
are elected by cumulative vote, as provided for in

                                     -125-
<PAGE>
the Regulations on the General  Shareholders' Meeting and the Regulations on the
Board of Directors (the "Board Regulations"). The GSM 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  GSM 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  the  GSM  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  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  Preferred  Shares)  grant equal
rights to the holders of shares of the 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
Preferred Shares:

     (i)  to vote on all issues  within the  competence of the GSM, save for the
          limitations on voting on certain matters provided by the JSC Law;

     (ii) if holding, alone or together with other shareholders,  10% or more of
          the voting shares of the Company,  demand that an extraordinary GSM be
          convened; and

     (iii)to demand  redemption  by the Company of their  shares  under  certain
          circumstances.

Preferred Shares of the Company  generally confer on their holders the following
principal rights:

     (i)  to receive a fixed dividend,  except in certain cases envisaged by the
          JSC Law and the Charter; and

     (ii) to enjoy  preference  over  Ordinary  Shares  in any  distribution  of
          profits and any proceeds  from the Company's  liquidation.  Generally,
          Preferred  Shares of the  Company do not vest their  holders  with any
          voting rights.

Pursuant  to the JSC  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 JSC Law prevail  over
those of the Charter.  Dividends  payable on  Preferred  Shares are fixed by the
Charter  in the  amount  of 10%  of  Rostelecom's  net  profits,  calculated  in
accordance  with Russian  Accounting  Standards,  divided by the total number of
Preferred  Shares.  Furthermore,  in the event the amount of dividends  paid per
Ordinary  Share  exceeds  dividends  payable  per  Preferred  Share,  the GSM of
Rostelecom should increase the amount of dividends per Preferred Share up to the
amount of  dividends  per  Ordinary  Share.  No  dividends  are paid on treasury
shares.

While there are no limits on admission of  shareholders  to GSMs,  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.  Preferred Shares of
the Company  confer no voting  rights unless the Charter and the JSC Law provide
otherwise. Holders of Preferred Shares are entitled to vote on:

     (i)  the adoption of amendments to the Charter that 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 Preferred Shares; or

     (ii) the reorganization or liquidation of the Company.

                                     -126-
<PAGE>
They  may also  vote at GSMs  following  the  shareholders'  meeting  at which a
decision was adopted not to pay  dividends  on  Preferred  Shares or to pay them
only in part.  Such right to vote  continues  until the  dividends  to which the
holders of Preferred Shares are entitled are paid in full.

The holders of both Ordinary Shares and Preferred Shares of the Company may:

     (i)  freely  dispose  of their  shares  without  any  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 the  settlement  of all the of the  Company's
outstanding debts (including payment of all outstanding taxes and salaries).  In
the event that the assets of the Company are insufficient to pay the accrued but
unpaid  dividends  and the  liquidation  value of the  Preferred  Shares  to all
holders  thereof,  the property shall be distributed  among holders of Preferred
Shares in proportion to the number of shares held by them.

The  assets  remaining  after the  creditors'  claims  have been  satisfied  are
distributed, in the order of priority, to pay:

     (i)  declared but unpaid dividends on the Preferred Shares;

     (ii) the nominal value of the Preferred Shares to their respective  holders
          (which will be the liquidation value of Preferred Shares).

The remaining assets are to be distributed among the holders of 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 Preferred Shares.

According  to the JSC Law and the  Charter,  holders of voting  shares  have the
right to demand that the Company redeem all or part of their shares in the event
that the GSM adopts a decision on certain  issues and the  relevant  shareholder
voted against or did not  participate  in voting on such  decision.  Such issues
include a decision to reorganize the Company,  to make amendments to the 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 JSC 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 the GSM 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, the GSM
will  have  to  adopt  a  decision  to  reduce  the  charter  capital  by way of
cancellation of the relevant shares.

The JSC 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.


                                     -127-
<PAGE>
General Shareholders' Meeting

The Company holds an annual GSM and  extraordinary  GSMs pursuant to the Charter
and the Regulations on General Shareholders' Meetings.

The  authority  of the GSM of the  Company  is set  forth in the JSC Law and the
Charter.

At the annual  GSM,  shareholders  must  decide on the  election  of  directors,
election and  confirmation  of members of the  Company's  Audit  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 the annual GSM is  determined by the Board of Directors so that such
date is not earlier than four months and not later than six months following the
end of the previous  fiscal year of the  Company.  An  extraordinary  GSM 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 Audit
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 GSM
should be held not later than forty 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 GSM should be held
within seventy days following the day on which the request was made.

Under the  Charter,  the list of  persons  entitled  to  participate  in the GSM
includes  (i)  holders  of fully  paid  Ordinary  Shares of the  Company or (ii)
holders 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  Shares  are
entitled to vote or if holders of Preferred  Shares  became  entitled to vote on
all  issues  within  the  competence  of the  GSM due to a  decision  not to pay
dividends or to pay only a part of dividends on Preferred Shares).

The list of persons  entitled to participate in the GSM is compiled on the basis
of the shareholders  register of the Company.  The record date 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 GSM by the Board of Directors,  nor may it
be more than fifty days prior to the date of the GSM 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
days prior to the date of the GSM.  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 days prior to the date of the
GSM.

All  shareholders  of the  Company  entitled to  participate  in the GSM must be
notified of such meeting not less than thirty days prior to the date of the GSM.
If the agenda  includes the election of the  Company's  Board of Directors  such
notification should be made to the shareholders at least fifty days prior to the
date of the GSM.

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 GSM.

Shareholders may participate in the GSM either in person or by proxy.


Limitations on the Right to Own Securities

Neither  Russian law nor the 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 JSC Law  imposes  certain  requirements  on a  person  who  individually  or
together with its  affiliates  purchases  30% or more of Ordinary  Shares in the
Company.

                                     -128-
<PAGE>
A person  intending to purchase  such number of Ordinary  Shares must notify the
Company not  earlier  than ninety days and not later than thirty 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 JSC Law,
a company's  Charter or a decision  of the GSM  adopted by a simple  majority of
votes  (excluding  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.

The buyer who  purchased  shares in violation of the JSC Law may vote at the GSM
only with those shares that it acquired in compliance with the JSC Law.

Pursuant to the JSC 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 Preferred Shares participating in the relevant GSM.


Ownership Disclosure

Pursuant to Russian securities legislation,  the Company is required to disclose
in its quarterly  reports to the FSFM information on its shareholders  owning 5%
or more of its Ordinary Shares or charter capital.  In addition,  the Company is
required  to  disclose  within  one day the fact of  appearance  of a person (i)
owning more than 25% percent of the Ordinary  Shares or Preferred  Shares in the
shareholders  register;  (ii) owning more than 5% percent of the Ordinary Shares
in the shareholders register.

Pursuant to 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 FSFM not later than five
days after the date of acquisition.  The FSFM may also require that  information
on such acquisition be published in a separate publication.


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 JSC Law, 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 made.


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.


Agreements regarding Rostelecom's interest in Golden Telecom, Inc

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 ("Sovintel"),
a  Russian  company  engaged  in  providing  integrated  telecommunications  and
Internet  services.  The Company sold its interest in Sovintel's charter capital
by way of a Sale and Purchase Agreement among the Company and SFMT-CIS,  Inc., a
US  subsidiary of Golden  Telecom,  and LLC  Teleross,  a Russian  subsidiary of
Golden  Telecom  which  is  a  US  company   engaged  in  providing   integrated
telecommunications  and  Internet  services in Russia.  In exchange  for its 50%
interest  in  Sovintel's  charter  capital,  Rostelecom  received  15% of Golden
Telecom's shares,  U.S.$ 10 million in cash and U.S.$ 46 million in non-interest
bearing  promissory  notes issued by LLC Teleross payable 90 days after the date
of transfer of shares.  These promissory notes were guaranteed by Golden Telecom
and were paid in full on the expiration date. In addition,  Rostelecom  became a
party to (i) the Shareholders Agreement and

                                     -129-
<PAGE>
Standstill  Agreement  between  Golden  Telecom  and  its  shareholders,   being
Rostelecom,  Alfa Telecom  Limited  ("Alfa  Telecom"),  a British Virgin Islands
company, Capital International Global Emerging Markets Private Equity Fund, L.P.
("Capital  International"),  a Delaware limited partnership,  Cavendish Nominees
Limited  ("Cavendish"),  a limited liability company organized under the laws of
Guernsey,   and  First  NIS  Regional  Fund  SICAV  ("First   NIS"),  a  private
institutional  fund  registered  under  the  laws of  Luxembourg,  and  (ii) the
Registration Rights Agreement,  made between Rostelecom and Golden Telecom.  The
transaction  was  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
the sale of the 50% interest in Sovintel  were used by the Company to reduce its
external indebtedness.


Shareholders Agreement

The  Shareholders  Agreement was signed on September 5, 2002 for a term of three
years.  The  Shareholders  Agreement  provides that: (i) any  shareholder  whose
interest is reduced to less than 1.5% of placed  common shares shall cease to be
a party to the  Shareholders  Agreement;  (ii) in the event  Alfa  Telecom,  the
biggest  shareholder,  transfers shares to any third parties and, as a result of
such transfer,  such third parties hold at least  one-third of Golden  Telecom's
issued  and  outstanding  shares,  the other  shareholders  who are party to the
Shareholders  Agreement will acquire rights to sell to such third parties, a pro
rated  portion of their  shares at the same price and on the same terms as those
governing the sale of Alfa  Telecom's  shares to such third  parties;  (iii) the
Board  of  Directors  will  consist  of  nine  members  nominated  by the  major
shareholders in accordance  with their  proportional  interests.  Rostelecom may
appoint two nominees to the Board of Directors, one of whom is required to be an
independent Director with financial expertise;  (iv) if Rostelecom's interest in
Golden  Telecom  falls  below  10%,  then  the  number  of  Rostelecom-appointed
directors will be reduced to one; and (v) in relation to the Directors' approval
of a transaction or a series of interrelated transactions directly or indirectly
connected  with  property  with  a  value  in  excess  of  5% of  the  aggregate
consolidated value of the assets of Golden Telecom and its subsidiaries, any two
directors  of the company have the right to postpone  such  approval for 45 days
and  to  engage  an  independent   consultant  to  examine  the  merit  of  such
transactions for Golden Telecom.


Standstill Agreement

The  Standstill  Agreement  was signed on  September 5, 2002 for a term of three
years.  Pursuant to the Standstill  Agreement,  Rostelecom,  Alfa Telecom,  CIG,
Cavendish and First NIS Fund agreed,  among other things,  not to: (i) engage in
"business  combinations"  with Golden  Telecom (which has the meaning set out in
Section 203 of the Delaware  General  Corporation  Law);  (ii) acquire shares of
voting  stock of Golden  Telecom in excess of certain  levels  specified  in the
Standstill Agreement, 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 a pro rated share of new securities (on a
fully  diluted  basis)  issued by Golden  Telecom  from time to time  during the
duration of the Standstill Agreement.  Such right will expire: (i) by the mutual
agreement of the parties to the Standstill  Agreement;  (ii) by the voluntary or
involuntary  filing of a petition for bankruptcy by or against  Golden  Telecom;
(iii) on an event of insolvency affecting Golden Telecom or the appointment of a
receiver of Golden Telecom, or (iv) on September 5, 2004.


Registration Rights Agreement

The  Registration  Rights  Agreement  was  signed  on  September  5,  2002.  The
Registration  Rights Agreement  provides that: (i) Golden Telecom is required to
register, at its own cost and expense and at the request of Rostelecom,  a block
of Rostelecom's shares in Golden Telecom for the purposes of public placement in
the United States. Rostelecom is entitled to two registrations "on demand," each
in  relation  to a minimum of  1,000,000  shares,  and (ii)  Rostelecom  will be
granted an  additional  registration  of its shares in Golden  Telecom if Golden
Telecom registers,  in its name,  authorized but unissued common shares in order
to raise capital or Golden  Telecom  registers  issued but  unregistered  common
shares on instructions from other shareholders.


                                     -130-
<PAGE>
Restated  Shareholders  Agreement,  Standstill Agreement and Registration Rights
Agreement

On August 19, 2003, Nye Telenor East Invest AS (Norway)  ("Telenor"),  SFMT-CIS,
Inc.  and  Golden  Telecom  entered  into a Stock  Swap  Agreement  whereby  (i)
SFMT-CIS, Inc. acquired from Telenor a 100% interest in Comincom which, in turn,
holds a 100%  interest in Combellga  and (ii) Golden  Telecom  issued  shares in
favor of Telenor  constituting  approximately  19.5% of Golden Telecom's charter
capital.  One of the conditions to the closing of the Share  Exchange  Agreement
was the execution of a restated Shareholders Agreement, Standstill Agreement and
Registration Rights Agreement.

On August 19, 2003,  Telenor as a new shareholder,  Golden Telecom,  Rostelecom,
Alfa Telecom, Capital International, Cavendish and First NIS executed a restated
Shareholders Agreement,  Standstill Agreement and Registration Rights Agreement.
The  restated  versions  of  these  agreements  preserve  the  legal  status  of
Rostelecom  as a  major  shareholder  of  Golden  Telecom  as  specified  in the
Shareholders  Agreement,  the Standstill  Agreement and the Registration  Rights
Agreement, each dated September 5, 2002. The restated versions of the agreements
were  approved by the  Rostelecom  Board of Directors on September  16, 2003 and
came into force on December 1, 2003.


Restated Shareholders Agreement

The restated  Shareholders  Agreement  was entered into by the  shareholders  of
Golden Telecom for an indefinite term. The restated Shareholders Agreement makes
certain amendments and additions to the original  Shareholders  Agreement which,
among others,  include:  (i) any  shareholder  whose  interest falls below 3% of
Golden  Telecom's  issued and  placed  shares  shall  cease to be a party to the
restated Shareholders Agreement;  (ii) the restated Shareholders Agreement shall
cease to apply in the event a  shareholder  acquires an interest of greater than
50% of Golden  Telecom's  charter  capital;  (iii) the Board of Directors  shall
consist of ten members.  The number of Directors may be increased at any time by
the Board of  Directors;  (iv) if  Rostelecom's  interest  falls below 10%,  the
number of Rostelecom-appointed directors is to be reduced in accordance with the
terms of the restated Shareholders Agreement.  For two years following the entry
into force of the restated Shareholders Agreement,  Rostelecom retains the right
to appoint two  directors  provided  Rostelecom's  interest in Golden  Telecom's
charter  capital  equals at least 10%;  (v) the sale of a 10% interest in Golden
Telecom by a shareholder to a third party is subject to the preemption rights of
other  shareholders  holding at least a 10% interest in Golden Telecom;  (vi) no
shareholder may acquire a 50% or greater  interest in Golden Telecom unless such
acquisition is by way of a tender offer to other shareholders.


Restated Standstill Agreement

The restated  Standstill  Agreement did not  materially  change the terms of the
Standstill  Agreement.   The  provisions  designed  to  preserve  the  level  of
shareholders'  current  interests in Golden Telecom were  incorporated  into the
restated Shareholders Agreement rather than the restated Standstill Agreement.


Restated Registration Rights Agreement

The restated  Registration  Rights Agreement did not materially change the terms
of the Registration  Rights Agreement.  The minimum number of shares that Golden
Telecom is required to register at the request of  Rostelecom  was reduced  from
1,000,000 to 500,000.

For details please refer to the restated  Shareholders  Agreement,  the restated
Registration  Rights  Agreement and the restated  Standstill  Agreement filed as
exhibits to this Annual Report.


Agreements regarding interest in RTC-Leasing

Consortium Agreement

On September 3, 2001, a tripartite  agreement (the  "Consortium  Agreement") was
executed among Rostelecom and  Rostelecom-Garantia,  which  collectively  held a
100% interest in  RTC-Leasing  as of September 3, 2001  (together,  the "Initial
Shareholders"), CJSC CB Severo-Zapadny (North-West) Telecombank, NP TSIPRT, CJSC
CB Russian  Industrial Bank, CJSC  Gamma-Invest and CJSC KFP-Finance  (together,
the "Consortium") and RTC-Leasing.  The primary goal of the Consortium Agreement
was to increase the market value of the shares of RTC-Leasing.

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

                                     -131-
<PAGE>
     -    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,  on market terms,  sufficient to acquire
          assets necessary to meet the demands of the new clients; and

     -    within three years of the date of the Consortium Agreement, to provide
          RTC-Leasing   with   access  to  the  leasing   market  for   regional
          telecommunications  companies.  Such obligation  would be fulfilled in
          the event that RTC-Leasing  entered into a cooperation  agreement with
          Svyazinvest  and entered  into new leasing  agreements  with  regional
          telecommunications companies with a collective value to RTC-Leasing of
          no less than U.S.$ 200 million.

Since  2001,  Rostelecom  has not used  leasing to finance  its  acquisition  of
telecommunications  equipment.  The share of contracts  with  Rostelecom  in the
portfolio of RTC-Leasing decreased from almost 100% to approximately 60%.

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

At the  beginning  of 2003,  Rostelecom  proposed a revision of the terms of the
Consortium  Agreement  and  formulated  new,  more  specific  objectives  to  be
specified in the Supplement 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  "Supplement   Agreement"),   which  obligated  the
Consortium to perform certain actions, which should result in:

     -    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;

     -    Selling shares of RTC-Leasing  owned by the Initial  Shareholders to a
          third party for a total amount of not less than RUR 750 million within
          a 6 month period from the Signing Date; and

     -    Canceling 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 the 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 a nominal price.

The signing of the Supplement Agreement marked the second stage of the long-term
development  program of RTC-Leasing,  through which  Rostelecom aimed 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, sell a non-core asset on favorable terms and
receive  a  substantial  amount  of cash to be  invested  in  Rostelecom's  main
business development.

The Consortium  Agreement and the Supplement Agreement were filed as exhibits to
the annual report on Form 20-F for 2002.


Stock Sale and Purchase Agreements

On October 24 and 27, 2003, Rostelecom,  Rostelecom-Garantia and Raiffeisenbank,
acting as a broker for an undisclosed third party purchaser,  signed a number of
stock sale and purchase agreements (the "Stock Sale and Purchase Agreements") in
accordance  with the terms of the Consortium and  Supplement  Agreements,  given
that the following  pre-requisites  set forth in the  Consortium  and Supplement
Agreements had been fulfilled:

     -    RTC-Leasing had satisfied in full its third-party  obligations secured
          by Rostelecom's guarantees and pledges; and

                                     -132-
<PAGE>
     -    Governing  bodies of Rostelecom  and  RTC-Leasing  had approved  terms
          regarding   the   restructuring   of   Rostelecom's   liabilities   to
          RTC-Leasing, and the existing leasing agreements between the companies
          had been amended accordingly.

Pursuant   to  the  Stock   Sale  and   Purchase   Agreements   Rostelecom   and
Rostelecom-Garantiya sold their interests in RTC-Leasing, being 27.06% and 3.02%
respectively, to Raiffeisenbank for RUR 790 million.

For details  please  refer to the Stock Sale and  Purchase  Agreements  filed as
exhibits to this Annual Report.


Restructuring of Rostelecom's Obligations to RTC-Leasing under the Lease
Agreements

Termination Agreement

On  October 2, 2003,  Rostelecom  and  RTC-Leasing  entered  into a  termination
agreement  relating to the termination of a number of Rostelecom's lease payment
obligations  with a value of RUR  302.85  million,  which  arose  pursuant  to a
leasing  agreement  dated  May 24,  1999  between  Rostelecom  and  RTC-Leasing.
Rostelecom, as consideration for the termination of such payments,  delivered to
RTC-Leasing  promissory notes totaling RUR 302.85 million  previously  issued by
RTC-Leasing to Rostelecom.


Amended Lease Agreements dated October 2, 2003

On October 2, 2003,  Rostelecom and RTC-Leasing  entered into forty-seven  first
amended  agreements  relating  to the Lease  Agreements.  The terms of the Lease
Agreements were amended so that:

     -    a first payment  totaling RUR 3,677 million under the Lease Agreements
          would be made by Rostelecom to RTC-Leasing on October 1, 2005;

     -    a  second  payment  totaling  RUR  1,421.7  million  under  the  Lease
          Agreements  would be made by Rostelecom to  RTC-Leasing  on October 1,
          2015.

The agreements  also specified  terms for the transfer of title to Rostelecom of
the  property  leased by  Rostelecom  under the Lease  Agreements.  Title to the
leased equipment would be transferred to Rostelecom in the event of:

     (i)  discharge by Rostelecom of its obligations under the Lease Agreements;
          or

     (ii) assignment by RTC-Leasing of its rights under the Lease  Agreements to
          a third party, or

     (iii)termination of Rostelecom's  obligations under the Lease Agreements on
          any other grounds.


Amended Lease Agreements dated December 26, 2003

On December 26, 2003, Rostelecom and RTC-Leasing entered into forty-seven second
amended  agreements  relating  to the Lease  Agreements.  The terms of the Lease
Agreements were amended so that:

     -    a  first  payment   totaling  RUR  3,140.4  million  under  the  Lease
          Agreements  would be made by Rostelecom to  RTC-Leasing on January 28,
          2004;

     -    a  second  payment  totaling  RUR  1,958.5  million  under  the  Lease
          Agreements  would be made by Rostelecom to  RTC-Leasing on January 30,
          2034.

On  January  28,  2004,  Rostelecom  paid  RTC-Leasing  RUR  3,140.4  million in
accordance with the second amended Lease Agreements.


Novation Agreements

On January 29, 2004,  Rostelecom and  RTC-Leasing  entered into the  forty-seven
Novation   Agreements  with  respect  to  the  Lease  Agreements.   Rostelecom's
obligation  to make the second  payment  pursuant  to the second  amended  Lease
Agreements on January 30, 2003 was substituted by Rostelecom's obligation,  as a
borrower  under the Novation  Agreements,  to pay RUR 2,311 million (RUR 1,958.5
million  plus VAT at 18%) plus  interest  of 0.1% per annum on June 30,  2038 to
RTC-Leasing.

On January 30, 2003, following the termination of Rostelecom's obligations under
the Lease  Agreements,  RTC-Leasing  transferred  to Rostelecom the title to the
property leased by Rostelecom under the Lease Agreements.


                                     -133-
<PAGE>
Assignments

On February 12, 2004,  RTC-Leasing  and  Westelcom,  a 100% owned  subsidiary of
Rostelecom,  entered into forty-seven  Assignments whereby RTC-Leasing undertook
to  assign  to  Westelcom   its  rights  under  the  Novation   Agreements   for
consideration   of  RUR  368  million.   Westelcom  was  required  to  pay  such
consideration  within 30 business days of the assignment  date. The  Assignments
were   conditional   upon   Westelcom   obtaining   approval  from  the  Russian
anti-monopoly government authority.  Such anti-monopoly approval was obtained on
March 23,  2004.  On March 24, 2004,  RTC-Leasing  assigned its rights under the
Novation  Agreements  to  Westelcom.  Westelcom  paid  consideration  of RUR 368
million to RTC-Leasing on April 29, 2004.

As of June 30, 2004, the Group had no indebtedness to RTC-Leasing.


Restructuring of Rostelecom's Obligations to Vnesheconombank

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.  The interest
rate was 3% per  annum.  In 2000,  a Russian  Federation  Government  Resolution
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  Federal
Government Resolution, 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.

As of  December  31,  2002,  Rostelecom's  overdue  indebtedness  under the Debt
Obligation  was 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.

On May 12 2003, the Company's Board of Directors  approved the  restructuring of
the Debt Obligation with OJSC Alfa Bank  ("Alfa-Bank")  to act as agent. In June
2003,  Rostelecom,  the  Russian  Government  and  Vnesheconombank  agreed  that
Rostelecom  would  restructure  the Debt  Obligation  pursuant to the terms of a
Russian  Government  resolution  adopted  pursuant  to the  Federal  Law "On the
Federal  Budget for the Year 2003" (the  "Resolution").  Rostelecom  agreed with
Alfa-Bank  to  restructure  the  Debt  Obligation,  on the  terms  of an  agency
agreement  dated June 2003 (the "Agency  Agreement").  Rostelecom's  obligations
under the Debt Obligation  would be terminated  (except with regards to interest
due on  overdue  payments)  upon  Alfa-Bank  repaying  the  Debt  Obligation  by
purchasing  from its own funds,  and  transferring  to the  Russian  Government,
certain  outstanding  Russian  Government  securities  or debts  denominated  in
foreign currencies,  as prescribed in the Resolution.  Such transfer was made in
June 2003 and the Russian  Government  confirmed the termination of Rostelecom's
obligations  under the Debt  Obligation.  In  exchange  for the  termination  of
Rostelecom's  obligations,  Rostelecom  issued promissory notes to Alfa-Bank for
approximately  U.S.$ 98.6 million at an interest rate of 5.94% per annum payable
in six equal  semi-annual  installments,  to be redeemed within 36 months of the
date of the Agency Agreement.  The Agency Agreement provides for the possibility
of  early  redemption  of the  promissory  notes  by  the  Company  at its  sole
discretion. Pursuant to the terms of the Agency Agreement, Rostelecom paid a fee
to Alfa-Bank of U.S.$  100,000.  On  September  16, 2003,  pursuant to a Russian
Government resolution,  the Russian Government waived Rostelecom's obligation to
repay interest on overdue amounts under the Debt Obligation because Rostelecom's
obligations  under the Debt  Obligation had been  satisfied.  As of December 31,
2003, Rostelecom's overdue indebtedness under the Debt Obligation was nil. As of
December 31, 2003, the total value of Rostelecom's  outstanding promissory notes
to Alfa-Bank equaled U.S.$ 81.9 million.


10.D.  Exchange Controls

Restrictions on Capital Imports and Exports

The Russian  currency control regime has recently changed and is currently based
on the Currency Control Law. Most of the Currency Control Law provisions entered
into force on June 18,  2004.  The Currency  Control Law is  generally  aimed at
liberalizing the currency control regime established by the previously effective
Federal Law "On Currency  Regulation  and Currency  Control",  dated  October 9,
1992.


                                     -134-
<PAGE>
Main principles of the currency control law

The  Currency  Control Law  applies to foreign  currency  and ruble  settlements
between  residents and  non-residents  and  transfers of  securities  and equity
interests,  among other  matters.  While  containing a number of  provisions  of
direct application (including restrictions on certain currency operations),  the
Currency Control Law is mainly a framework law that establishes the scope within
which the Russian  Government  and the Central Bank will  introduce  measures of
currency  regulation.  Such  measures  may only be  introduced  with  respect to
certain  regulated  operations set forth in the Currency Control Law and only as
specifically allowed by it.

Under the Currency  Control  Law,  foreign  currency  payments  between  Russian
residents  and  non-residents  that  are not  regulated  operations  may be made
freely.  The same applies to foreign currency payments that qualify as regulated
operations but have not yet been restricted.  Furthermore,  the Currency Control
Law  specifically  prohibits the  introduction of an individual  currency permit
requirement.  The only  limited  exception is related to the opening of offshore
accounts by Russian legal entities during a transitional period of one year from
the effective date of the main provisions of the Currency Control Law.

The Currency Control Law, however,  "grandfathered"  individual currency permits
granted prior to the entry of the Currency Control Law into force.  Restrictions
or  prohibitions  under the  Currency  Control  Law will not  apply to  currency
payments and  non-repatriation  authorized  by such  permits,  provided  that no
changes are made to the terms based on which the initial  permission  was issued
(including contracting parties, nature and amount of the currency operation, its
terms, regime of an offshore account, etc.)


Regulated currency operations

Regulated  currency  operations  that fall  within the  control  of the  Russian
Government  (in  coordination  with  the  Central  Bank,  as the  case  may be),
generally include:

     (i)  settlements  in  connection  with  the use of  commercial  credits  in
          foreign trade (e.g.  advance  payments and grace periods in export and
          import  operations and external trade in services) over a special term
          (180 days, 3 or 5 years); and

     (ii) acquisition of equity  participations by residents from non-residents,
          and resident's contributions to foreign simple partnerships.

Payments  within the scope of  regulations  issued by the Central  Bank  broadly
include  debt  financing,  securities  and banking  operations  between  Russian
residents and non-residents.

The regulated operations must be carried out in accordance with the procedure to
be established by the Government or the Central Bank, that may include:

     (i)  a requirement on residents or  non-residents to use a special account;
          and

     (ii) a mandatory reserve requirement.


Special Account

A special account is an account opened with an authorized  Russian bank, a share
registrar or depository, for settlements under certain regulated operations. The
Currency  Control  Law leaves it for the  Central  Bank to define the regimes of
special accounts for particular operations.


Mandatory reserve requirement

Under this requirement,  Russian residents and, in certain cases,  non-residents
involved  in the  regulated  operations  may be  required  to  deposit  with  an
authorized Russian bank, a  non-interest-bearing  reserve of Rubles in an amount
between 20% to 100% of the amount of payment (or value of the  operation)  for a
period of up to 12 months,  either in  advance or in the course of the  relevant
operation.


Preliminary registration

The Currency Control Law introduces a preliminary  registration  requirement for
certain types of currency operations. For instance, if a resident wishes to open
an account in  countries  which are not members  states of the  Organization  of
Economic Cooperation and Development ("OECD") or the Financial Action Task Force

                                     -135-
<PAGE>
on Money Laundering ("FATF"), then the resident must first register such account
with the tax authorities at the place of that resident's location.


Securities

All  securities  are divided into  internal and  external  securities.  Internal
securities  include:  (i)  "mass-issue"  securities  registered  in  Russia  and
denominated in Rubles;  and (ii) other securities issued in Russia and entitling
their holders to receive  payments in Rubles.  All other types of securities are
treated by the Currency Control Law as external securities.

Currently  regulated  operations  with securities  include:  (i) operations with
external securities, including settlements and payments relating to the transfer
of  external  securities  (or rights  attached  thereto);  (ii)  performance  by
residents  of  obligations  under  external  securities;  and  (iii)  operations
relating to the acquisition by  non-residents  from residents (or vice versa) of
internal securities, including settlements and payments relating to the transfer
of internal  securities (or rights attached thereto) or performance by residents
of their obligations under internal securities.

The CBR may restrict the above operations by introducing:  (i) a special account
requirement and/or,  with the consent of the Russian Government,  (ii) mandatory
reserve requirement.


Mandatory conversion

The  Currency  Control  Law sets out the  maximum  portion of  foreign  currency
proceeds that may be subject to mandatory conversion into rubles at 30% of total
foreign  currency  proceeds (less permitted  expenses and payments listed in the
Currency Control Law). However,  the recent March 2004 CBR Instruction No. 111-I
has lowered this amount to 25%.


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.

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.

Pursuant to the Currency  Control Law, the special  account  requirement  may be
applicable to transactions  whereby foreign investors sell shares denominated in
rubles such as the Common Shares of the Company underlying the ADSs, in favor of
Russian  residents.  If a special  account is used, the foreign  investor may be
obliged: (i) where securities are written off from the special account, creation
of a reserve,  for no more than 60 days, in the amount not exceeding 100 percent
of the value of the securities to be written off from the account; or (ii) where
the purchase  price is deposited in the special  account,  creating the reserve,
for no more than one year, in the amount not exceeding 20 percent of the cash so
deposited.

Cash  received  from the sale of Russian  shares may be  converted  into foreign
currency via authorized banks without  restriction.  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.

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.


                                     -136-
<PAGE>
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 U.S.  Treasury  regulations  promulgated
thereunder, and judicial and administrative interpretations thereof, (b) Russian
tax law,  and (c) 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.


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.


                                     -137-
<PAGE>
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  telecommunications  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

In  accordance  with the Russian tax  legislation  dividends on ADSs or Ordinary
Shares of Russian  companies paid to Non-residents  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 and for Non-resident  Individuals the rate
of withholding tax may generally be 30%.

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).

                                     -138-
<PAGE>
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 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.


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, such as:

     -    financial institutions,

     -    insurance companies,

     -    real estate investment trusts,

     -    regulated investment companies,

     -    grantor trusts,

     -    tax-exempt entities,

     -    dealers or traders in securities or currencies,

     -    persons  that  received  the  Company's  Ordinary  Shares  or  ADSs as
          compensation for the performance of services,

     -    holders  that own (or are deemed to own) 10% or more (by voting  power
          or value) of the Company's Ordinary Shares or ADSs,

     -    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:

     -    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

     -    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

     -    a citizen or resident of the United States;

     -    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;

                                     -139-
<PAGE>
     -    an  estate  the  income of which is  subject  to U.S.  federal  income
          taxation regardless of its source; or

     -    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;

     -    Non-U.S.  Holder is a beneficial owner of Ordinary Shares or ADSs that
          is not 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", non-corporate U.S. Holders generally will be
taxed on such  distributions at the lower rates applicable to long-term  capital
gains (i.e.,  gains from the sale of capital assets held for more than one year)
with respect to taxable years beginning on or before December 31, 2008. However,
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 to the U.S. Holder.

Dividends  received by a U.S.  Holder  with  respect to the  Company's  Ordinary
Shares or ADSs will be treated as foreign source  income,  which may be relevant
in  calculating  such holder's  foreign tax credit  limitation.  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

                                     -140-
<PAGE>
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  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  dividends) if such U.S.  Holder's  holding  period for such
Ordinary Shares or ADSs exceeds one year (i.e.,  such gain is long-term  capital
gain). 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 for U.S. federal income tax
purposes 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:

     -    such gain is  effectively  connected  with the  conduct  of a trade or
          business in the United States; or

     -    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.

Moreover,   a  corporate   non-U.S.   Holder  may  be  subject,   under  certain
circumstances,  to an additional branch profits tax on any effectively connected
gains at a 30% rate,  or at a lower  rate if the  corporate  non-U.S.  Holder is
eligible  for the  benefits  of an income tax treaty that  provides  for a lower
rate.


                                     -141-
<PAGE>
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

     -    at least 75% of its gross income is "passive income"; or

     -    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 taxable year
ending  December 31, 2003. 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  certain of 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 28% for years 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

                                     -142-
<PAGE>
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.


10.H. Documents on display

Rostelecom is subject to the informational requirements of the Exchange Act, and
in accordance  therewith files periodic  reports and other  information with the
U.S. Securities and Exchange Commission (the "SEC").

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 SEC 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 SEC at 450 Fifth  Street,  N.W.,  Washington,  D.C.  20549 at  prescribed
rates.  The public may also obtain  information  from the operation of the SEC's
Public Reference Room by calling 1800-SEC-0330.

The SEC also maintains a website at http://www.sec.gov that contains reports and
other information that registrants file  electronically with the SEC through the
Electronic Data  Gathering,  Analysis and Retrieval  system (EDGAR).  Also these
materials,  including  this  Annual  Report  and the  exhibits  hereto  filed by
Rostelecom  as well as other  internal  documents  are usually  available on the
Company's website at http://www.rt.ru/en.

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. Qualitative and Quantitative Disclosures About Market Risk

Rostelecom'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,  2003,
approximately  7% of the  Company's  interest  bearing  loans  carried  floating
interest  rates,  as compared to  approximately  12% as of  December,  31, 2002.
Exchange rate risk relates to the Company'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,
2003,  approximately  82%  of  total  borrowings  were  denominated  in  foreign
currencies,  as  compared to  approximately  48% as of December  31,  2002.  The
Company 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.

Rostelecom's  consolidated financial statements are presented in Russian rubles.
For the year  ended  December  31,  2003,  approximately  14%,  as  compared  to
approximately  18% for the  year  ended  December  31,  2002,  of the  Company'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.  For the year
ended December 31, 2003,  approximately  28% of  Rostelecom's  costs  (excluding
depreciation  and bad debt expense) are denominated in currencies other than the
Russian ruble, principally SDR and U.S. dollar, as compared to approximately 35%
for the year ended  December  31, 2002.  Rostelecom  receives  foreign  currency
revenues  from  incoming  ILD calls and incurs  foreign  currency  expenses  for
outgoing  ILD calls.  In 2003,  the Company was a net payer of foreign  currency
because the volume of outgoing  ILD traffic  exceeded the volume of incoming ILD
traffic and the Company paid more foreign currency to foreign  operators than it
received. The net balance,  denominated in foreign currencies (principally,  SDR
and U.S.  dollars),  payable by the  Company to  foreign  operators  was RUR 565
million as of December 31,  2003,  as compared to RUR 805 million as of December
31, 2002. To the extent that

                                     -143-
<PAGE>
Rostelecom is not naturally hedged against changes in exchange rates, Rostelecom
is exposed to foreign  exchange  gains and losses.  Rostelecom 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, 2003,  Rostelecom  had  outstanding  borrowings  of RUR 3,573
million of which  approximately RUR 260 million bore interest at floating rates,
as  compared  to   outstanding   borrowings   of  RUR  6,846  million  of  which
approximately  RUR 884 million bore interest at floating  rates,  as of December
31, 2002.  The interest rate on the  Company's  floating rate debt is determined
principally by reference to London Inter Bank Offered Rate (LIBOR). For the year
ended December 31, 2003,  the  additional  net financing  expense to the Company
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 3 million,  as compared to approximately RUR 9 million for the
year ended  December 31, 2002.  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.  As of December 31, 2003,  RUR
2,918 million of the Company's  interest bearing loans, as compared to RUR 4,065
million  as of  December  31,  2002,  are  denominated  in  foreign  currencies,
including RUR 245 million in Japanese Yen, RUR 2,639 million in U.S. dollars and
RUR 34 million in euros.  The  additional  interest  expense to the Company that
would result from a hypothetical 10% change in foreign  currency  exchange rates
would be  approximately  RUR 11 million.  For the year ended  December 31, 2003,
such a change would also have resulted in an estimated  foreign exchange loss of
approximately  RUR 292 million as compared to RUR 407 million for the year ended
December  31,  2002.  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, 2004 and June 30, 2004,  the
Russian ruble has increased in value by  approximately  2.86% as compared to the
Japanese  Yen,  by  approximately  1.45%  as  compared  to the U.S.  dollar  and
approximately 4.87% as compared to the euro.


Item 12. Description of Securities Other Than Equity Securities

None


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.  The interest
rate was 3% per  annum.  In 2000,  a Russian  Federation  Government  Resolution
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  Federal
Government Resolution, 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.

As of  December  31,  2002,  Rostelecom's  overdue  indebtedness  under the Debt
Obligation  was 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.

On May 12 2003, the Company's Board of Directors  approved the  restructuring of
the Debt Obligation with OJSC Alfa Bank  ("Alfa-Bank")  to act as agent. In June
2003,  Rostelecom,  the  Russian  Government  and  Vnesheconombank  agreed  that
Rostelecom  would  restructure  the Debt  Obligation  pursuant to the terms of a
Russian  Government  resolution  adopted  pursuant  to the  Federal  Law "On the
Federal Budget for the Year

                                     -144-
<PAGE>
2003" (the  "Resolution").  Rostelecom  agreed with Alfa-Bank to restructure the
Debt  Obligation,  on the  terms of an  agency  agreement  dated  June 2003 (the
"Agency Agreement"). Rostelecom's obligations under the Debt Obligation would be
terminated  (except  with  regards to  interest  due on overdue  payments)  upon
Alfa-Bank  repaying the Debt  Obligation by purchasing  from its own funds,  and
transferring to the Russian  Government,  certain outstanding Russian Government
securities  or debts  denominated  in foreign  currencies,  as prescribed in the
Resolution.  Such  transfer  was made in June  2003 and the  Russian  Government
confirmed the termination of Rostelecom's obligations under the Debt Obligation.
In exchange for the termination of Rostelecom's  obligations,  Rostelecom issued
promissory  notes to  Alfa-Bank  for  approximately  U.S.$  98.6  million  at an
interest rate of 5.94% per annum payable in six equal semi-annual  installments,
to be redeemed within 36 months of the date of the Agency Agreement.  The Agency
Agreement  provides for the  possibility  of early  redemption of the promissory
notes by the Company at its sole discretion. Pursuant to the terms of the Agency
Agreement, Rostelecom paid a fee to Alfa-Bank of U.S.$ 100,000. On September 16,
2003, pursuant to a Russian Government resolution, the Russian Government waived
Rostelecom's  obligation  to repay  interest on overdue  amounts  under the Debt
Obligation because  Rostelecom's  obligations under the Debt Obligation had been
satisfied.  As of December 31, 2003, Rostelecom's overdue indebtedness under the
Debt  Obligation  was  nil.  As  of  December  31,  2003,  the  total  value  of
Rostelecom's  outstanding  promissory  notes to  Alfa-Bank  equaled  U.S.$  81.9
million.

As of June 30, 2004, the Company is not in a default on any payment of principal
or interest, a sinking or purchase fund installment.


13.B. Dividend Arrearages and Delinquencies

None.


Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds

None.


Item 15. Controls and Procedures

As of December 31, 2003, the General  Director (CEO) and Chief  Accountant (CFO)
of the Company  carried out an evaluation of the  effectiveness  of  "disclosure
controls and procedures" (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the
Exchange Act). Based on that  evaluation,  these officers have concluded that as
of December 31, 2003,  the Company's  disclosure  controls and  procedures  were
effective  and  designed to ensure  that  material  information  relating to the
Company and its consolidated  subsidiaries would be made known to them by others
within these entities and that  disclosure  controls and procedures are designed
to provide  reasonable  assurance that  information  required to be disclosed in
this Annual Report is recorded,  processed,  summarized and reported on a timely
basis.

There were no  significant  changes in the Company's  internal  controls,  or in
other  factors that could  significantly  affect these  controls  subsequent  to
December  31,  2003,  and no  corrective  actions  with  regard  to  significant
deficiencies and material weaknesses were undertaken.

In connection with the audit of the Company's financial  statements for the year
ended December 31, 2003, the Company's  auditors have found material  weaknesses
in the Company's internal control system relating in particular to related party
transactions,  the Company's  understaffed IFRS financial reporting  department,
and the lack of an Audit Committee  comprised of independent  directors pursuant
to SEC requirements.

The  Company  is taking  steps,  including  creating  more  formalized  internal
approval  procedures and working with an  independent  consultant to improve its
internal controls, to address these weaknesses. See Item 3.D "Risk Factors."


Item 16.A. Audit committee financial expert

As of June 30, 2004, the Audit Committee of the Company had not yet been formed.

Prior to June 26,  2004,  the Board of  Directors  did not include a  sufficient
number of independent directors to form an Audit Committee.

                                     -145-
<PAGE>
At the annual GSM held on June 26,  2004,  new members of the Board of Directors
were elected. It is anticipated that three members of the new Board of Directors
will be  considered  as  independent  directors  (subject to the decision of the
Board of Directors), namely:

     -    Valery V. Degtyarev, General Director of OJSC Professional
          TeleCommunications.

     -    Mikhail V.  Slipenchouk,  General Director of LLC Metropol  Investment
          Financial Company.

     -    Grigory M. Finger, Executive Director of NCH Advisors, Inc.

According to the Rule 10A-3 of the Exchange Act Rostelecom as a foreign  private
issuer is required to create an Audit  Committee by July 31,  2005.  The Company
expects that the Audit  Committee  will be formed by the end of 2004.  Until the
Committee is formed,  the entire Board of  Directors  will act as the  Company's
Audit  Committee.  As of June 30, 2004, none of the current members of the Board
of Directors meets  qualifications  of an "audit committee  financial expect" as
defined by the SEC.


Item 16.B. Code of Ethics

On April  28,  2004,  the  Board of  Directors  adopted  the Code of  Ethics  of
Rostelecom.

The Code of Ethics  prepared with the aim of  satisfying  the  requirements  and
recommendations  of the New York  Stock  Exchange  and the U.S.  Securities  and
Exchange Commission.

According to the Code of Ethics the Company's officers and employees, members of
the Board of Directors and Audit  Commission shall act honestly and abide by the
following principles:

     -    full compliance with the  requirements of all applicable  laws,  rules
          and regulations;

     -    compliance  with  high  standards  of  business  ethics  and  ways  of
          resolving   conflicts   of  interest   arising  out  of  personal  and
          professional activities;

     -    prompt and full  disclosure  of  information  to be  submitted  to the
          Russian and foreign governments, regulatory agencies, stock exchanges,
          shareholders, investors and other stakeholders;

     -    compliance with the requirements of the Company's  internal  documents
          with respect to the safekeeping  and use of  confidential  information
          obtained as a result of performance of official duties;

     -    no abuse of official  powers for personal  gain,  including the use of
          Company property; and

     -    notification  to the  Nominations  and  Compensation  Committee of the
          Board of Directors of OJSC  Rostelecom  of any breaches of the Code of
          Ethics and, if required,  of any  consideration  of a possible  waiver
          from the Code of Ethics.

A copy of the Code of Ethics is attached to this Annual Report as an exhibit.

The text of the Code of  Ethics is also  accessible  on the  Company's  Internet
website: http://www.rt.ru/en.

As of June 30, 2004, no waivers, including implicit waivers, from the provisions
of the Code of Ethics had been granted.


Item 16.C. Principal Accountant Fees and Services

Audit fees

For professional services rendered for the audits of the financial statements of
the  Company  and its  consolidated  subsidiaries  for the  fiscal  years  ended
December 31, 2003 and 2002,  Ernst & Young (CIS)  Limited and its  affiliate ZAO
Ernst & Young Vneshaudit (hereinafter collectively referred to as Ernst & Young)
billed a total of U.S.$  1,458,900  and  U.S.$  1,163,200,  respectively.  These
amounts are net of VAT and include fees billed for audits of the  Company's  and
certain of its consolidated  subsidiaries'  financial  statements prepared under
both  International   Financial   Reporting   Standards  and  Russian  statutory
accounting  regulations  and the  reading  of the  information  included  in the
Company's Annual Reports.

                                     -146-
<PAGE>
Audit-related fees

For  professional  audit-related  services  rendered,  Ernst & Young  billed the
Company and its  consolidated  subsidiaries  a total of U.S.$  255,000 and U.S.$
153,000,  net of VAT,  in 2003 and 2002,  respectively.  Audit-related  services
included the review of interim financial statements.


Tax fees

None


All other fees

For other  services  rendered,  Ernst & Young billed the Company's  consolidated
subsidiaries a total of U.S.$ 1,636 and U.S.$ 539, net of VAT, in 2003 and 2002,
respectively.  Other  services  included  the  services  related to provision of
training programs.


Pre-approval policies and procedures

The Company's Board of Directors pre-approved all of the audit and audit-related
services described above that were provided after the pre-approval  requirements
under the Sarbanes-Oxley Act became effective on May 6, 2003.

The Company's Board of Directors  post-approved  other services in the amount of
U.S.$ 20,000  rendered in 2003 which in the aggregate  amount  constituted 1% of
the total fees paid to Ernst & Young during 2003.

No hours expended by Ernst & Young to audit the Company's  financial  statements
for 2003 were  attributed to work  performed by persons other than the principal
accountant's full-time, permanent employees.

The  Board  of  Directors   is  directly   responsible   for  the   appointment,
compensation,  retention,  and oversight of the Company's  independent  auditors
while  according to the Russian  legislation  the  candidacy of the  independent
auditor requires approval of the General Shareholders' Meeting.

The Board of Directors  considered  whether the non-audit  services  rendered by
Ernst & Young (CIS) Limited were compatible with maintaining its independence as
auditors of the Company's financial statements and determined that they were.


Item 16.D. Exemptions from the Listing Standards for Audit Committees

In accordance with Rule 10A-3(d) of the Exchange Act, the Company is required to
disclose  all  exemptions  from  independent  standards  relating  to the  Audit
Committee.  As of June 30, 2004, no  exemptions  were relied upon by the Company
since the Audit Committee had not been formed.

For details related to the creation of the Audit Committee  please refer to Item
16.A. "Audit Committee Financial Expert".


Item 16.E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers

As of June 30,  2004,  no  purchase of shares or other units of any class of the
Company's  equity  securities  were made by or on behalf of the  Company  or any
"affiliated purchaser".

As of June 30,  2004,  no plans or programs for  employees  and  directors  with
regard to the Company's securities were publicly announced.


Item 17. Financial Statements

Not applicable.


Item 18. Financial Statements

See pages F-1 to F-67 of the consolidated  financial  statements which are filed
as part of this Annual Report.

                                     -147-
<PAGE>
Item 19. Exhibits

List of exhibits

Exhibit No.    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 No. 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.3), approved by the General
               Shareholders Meeting on June 26, 2004 +

1.4            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 * +

1.4.1          Amendments to the Regulations on the Management Board of Open
               Joint Stock Company Long-Distance and International
               Telecommunications Rostelecom (restated version No. 1) approved
               by the Annual General Shareholders Meeting of OJSC Rostelecom on
               June 15, 2003 ** +

1.5            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* +

1.6            Regulations On the Audit Commission of OJSC Rostelecom (restated
               version), approved by the Annual General Shareholders Meeting of
               OJSC Rostelecom on June 30, 2001 ** +

1.6.1          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            Consortium Agreement, dated as of 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 ** +

4.1.1          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 ** +

4.2            Stock Sale and Purchase Agreement, dated October 22, 2003, among
               Rostelecom and CJSC Raiffeisenbank Austria

4.3            Stock Sale and Purchase Agreement, dated October 27, 2003, among
               Rostelecom and CJSC Raiffeisenbank Austria

4.4            Termination Agreement, dated October 2, 2003, among Rostelecom
               and RTC-Leasing +

4.5            Form of Agreement to Amend Financial Lease Agreement dated
               October 2, 2004, among Rostelecom and RTC-Leasing +

4.6            Form of Agreement to Amend Financial Lease Agreement dated
               December 26, 2003 among Rostelecom and RTC-Leasing +

4.7            Form of Agreement to Novate Obligations under the Financial
               Lease Agreements, dated January 29, 2004, among RTC-Leasing and
               Rostelecom +

4.8            Form of an Assignment, dated February 12, 2004 among RTC-Leasing
               and Westelcom +

4.9            Ownership Interest Purchase Agreement, dated as of March 13,
               2002, by and among SFMT-CIS, Inc., LLC Teleross and
               Rostelecom***

                                     -148-
<PAGE>
4.10           Subscription Agreement, dated as of September 5, 2002 by and
               among Golden Telecom, Inc. and Rostelecom***

4.11           Shareholders Agreement, dated as of September 5, 2002 by and
               among Golden Telecom Inc., Alfa Telecom Limited, Rostelecom,
               Capital International Global Emerging Markets Private Equity
               Fund, L. P., Cavendish Nominees Limited and First NIS Regional
               Fund SICAV***

4.11.1         Restated Shareholders Agreement, dated as of August 19, 2003,
               between and among Golden Telecom, Inc., Alfa Telecom Limited, Nye
               Telenor East Invest AS, Rostelecom, Capital International Global
               Emerging Markets Private Equity Fund, L.P., Cavendish Nominees
               Limited and First NIS Regional Fund SICAV

4.12           Standstill Agreement, dated as of September 5, 2002 by and among
               Golden Telecom Inc., Alfa Telecom Limited, Rostelecom, Capital
               International Global Emerging Markets Private Equity Fund, L. P.,
               Cavendish Nominees Limited and First NIS Regional Fund SICAV***

4.12.1         Restated Standstill Agreement dated as of August 19, 2003,
               between and among Alfa Telecom Limited, Nye Telenor East Invest
               AS, OAO Rostelecom, Capital International Global Emerging Markets
               Private Equity Fund, L.P., Cavendish Nominees Limited, First NIS
               Regional Fund SICAV and Golden Telecom, Inc.

4.13           Registration Rights Agreement, dated as of September 5, 2002 by
               and between Golden Telecom, Inc. and Rostelecom***

4.13.1         Restated Registration Rights Agreement dated as of August 19,
               2003, between and among Golden Telecom, Inc., Alfa Telecom
               Limited, Nye Telenor East Invest AS, Rostelecom, Capital
               International Global Emerging Markets Private Equity Fund, L.P.,
               Cavendish Nominees Limited and First NIS Regional Fund SICAV

4.14           Loan Agreement ("Debt Obligation"), dated August 16, 1994, among
               Rostelecom, the Council of Ministers of the Russian Federation
               and Vnesheconombank +

4.15           Agency Agreement dated June 5, 2003, among Rostelecom and OJSC
               Alfa-Bank +

4.15.1         Amendment to Agency Agreement, dated June 17, 2003, among
               Rostelecom and OJSC Alfa-Bank +

4.16           Debt Repayment Agreement among Ministry of Finance of the Russian
               Federation, Vnesheconombank and Rostelecom, dated June 19, 2003 +

8.             List of subsidiaries

11.1           The Code of Ethics of Rostelecom +

12.1           Certification of the CEO pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002 ("Section 302")

12.2           Certification of the CFO pursuant to Section 302

13.1           Certification of the CEO and CFO pursuant to 18 U.S.C.
               Section 1350, as adopted pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002 ("Section 906")


     -------------------------------------------------------------------

     *    Incorporated by reference to the Annual Report on form 20-F of OJSC
          Rostelecom for the fiscal year ended December 31, 2001.

     **   Incorporated by reference to the Annual Report on Form 20-F of OJSC
          Rostelecom for the fiscal year ended December 31, 2002.

     ***  Incorporated by reference to the Schedule 13D filed by Rostelecom with
          the Securities and Exchange Commission on September 5, 2002

     +    English translation

                                     -149-
<PAGE>
                                   SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this Annual Report on its behalf.

Date:    June 30, 2004

                                        OPEN JOINT STOCK COMPANY OF
                                        LONG-DISTANCE AND INTERNATIONAL
                                        TELECOMMUNICATIONS ROSTELECOM


                                        By:     /signed/ Dmitry Ye. Yerokhin
                                           ------------------------------------
                                           Name:   Dmitry Ye. Yerokhin
                                           Title:  General Director (CEO) of
                                                   OJSC Rostelecom


                                        By:     /signed/ Alexander A. Lutsky
                                           ------------------------------------
                                           Name:   Alexander A. Lutsky
                                           Title:  Chief Accountant (CFO) of
                                                   OJSC Rostelecom

                                     -150-
<PAGE>

      OAO Rostelecom

      CONSOLIDATED FINANCIAL STATEMENTS
      PREPARED IN ACCORDANCE WITH
      INTERNATIONAL FINANCIAL REPORTING STANDARDS


      FOR THE YEAR ENDED DECEMBER 31, 2003


                                        F-1
<PAGE>


--------------------------------------------------------------------------------
OAO ROSTELECOM
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2003
--------------------------------------------------------------------------------


Index

                                                                     Pages

Statement of Directors' Responsibilities                              F-3

Report of Independent Auditors                                        F-4

Consolidated Balance Sheets                                           F-5

Consolidated Statements of Income                                     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-67



                                        F-2

<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-67, 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:




     D.E. Erokhin,
     General Director

     OAO Rostelecom
     1st Tverskaya-Yamskaya, 14,
     Moscow
     Russian Federation

     June 29, 2004


                                      F-3
<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, 2003 and 2002, and the related consolidated
statements of income, cash flows and changes in shareholders' equity for each of
the three years in the period ended December 31, 2003. 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.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, 2003 and 2002, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 2003
in conformity with International Financial Reporting Standards as published by
the International Accounting Standards Board.

International Financial Reporting Standards vary in certain significant respects
from accounting principles generally accepted in the United States of America.
Information relating to the nature and effect of such differences is presented
in Note 35 to the consolidated financial statements.

/signed/ Ernst & Young (CIS) Limited

Moscow, Russia
June 29, 2004


                                      F-4
<PAGE>


OAO Rostelecom
CONSOLIDATED BALANCE SHEETS
(In millions of Russian Rubles, refer to Note 4)
--------------------------------------------------------------------------------




<PAGE>

<TABLE>
<CAPTION>

                                                                    Notes       December 31,     December 31,
                                                                                        2003             2002
----------------------------------------------------------------------------------------------------------------
ASSETS
<S>                                                                   <C>             <C>             <C>
Property, plant and equipment, net                                    6               49,585          56,278
Investments in associates                                             8                2,381           2,635
Long-term financial investments                                       9                  126             578
Goodwill                                                            7, 10                 17              39
Negative goodwill, net of current portion                           7, 10                  -            (240)
Lease receivables                                                     11                   -           2,713
Other non-current assets                                                                  26             356
----------------------------------------------------------------------------------------------------------------
Non-current assets                                                                    52,135          62,359
----------------------------------------------------------------------------------------------------------------

Inventory                                                                                548             502
Accounts receivable, net                                             12                8,291           8,617
Short-term investments                                               13                2,755           4,575
Short-term portion of negative goodwill                             7, 10                  -            (471)
Cash and cash equivalents                                            14                2,529           3,642
----------------------------------------------------------------------------------------------------------------

Current assets                                                                        14,123          16,865
----------------------------------------------------------------------------------------------------------------

Total assets                                                                          66,258          79,224
----------------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY, MINORITY INTEREST AND LIABILITIES
Share capital                                                        15                  100             100
Retained earnings                                                                     48,757          48,933
----------------------------------------------------------------------------------------------------------------

Total shareholders' equity                                                            48,857          49,033
----------------------------------------------------------------------------------------------------------------

Minority interest                                                    16                  191           2,825
----------------------------------------------------------------------------------------------------------------

Accounts payable and accrued expenses                                17                3,510           5,162
Amounts owed to customers                                                                  -           1,003
Taxes payable                                                                          2,054           2,253
Current portion of interest bearing loans                            18                1,932           4,529
Short-term borrowings                                                19                    -           1,537
----------------------------------------------------------------------------------------------------------------

Current liabilities                                                                    7,496          14,484
----------------------------------------------------------------------------------------------------------------

Interest bearing loans - net of current portion                      18                1,641           2,317
Non-current accounts payable                                                             366             262
Deferred tax liability                                               20                7,707          10,303
----------------------------------------------------------------------------------------------------------------

Non-current liabilities                                                                9,714          12,882
----------------------------------------------------------------------------------------------------------------

Total liabilities                                                                     17,210          27,366
----------------------------------------------------------------------------------------------------------------

Total shareholders' equity, minority interest and liabilities                         66,258          79,224
================================================================================================================
                                                                  30 and
Commitments and contingencies                                     31                       -                -
----------------------------------------------------------------------------------------------------------------
</TABLE>



                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                      F-5
<PAGE>


OAO Rostelecom
CONSOLIDATED STATEMENTS OF INCOME
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                Year ended December 31,
---------------------------------------------------------------------------------------------------------------
                                                               Notes          2003         2002          2001
---------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>          <C>           <C>
Revenue
Local operators                                                            16,415       12,758        12,140
Subscribers                                                                 9,319        9,171         9,845
Foreign operators                                                           4,483        5,100         6,852
Other                                                                       1,673          860         1,236
---------------------------------------------------------------------------------------------------------------
Total revenue                                                   21         31,890       27,889        30,073
---------------------------------------------------------------------------------------------------------------
Operating expenses
Wages, salaries, other benefits and payroll taxes                          (3,946)      (3,476)       (3,574)
Depreciation                                                               (8,252)      (9,089)       (7,977)
Charges by network operators - international                               (5,913)      (5,779)       (7,438)
Charges by network operators - national                                    (4,780)      (1,707)       (2,190)
Administration and other costs                                             (3,782)      (3,336)       (3,214)
Taxes other than on income                                                   (507)        (793)       (1,579)
Repairs and maintenance                                                      (800)        (452)         (638)
Bad debt (expense) /recovery                                                 (337)        (874)           28
Loss on sale of property, plant and equipment                              (1,214)        (449)         (554)
---------------------------------------------------------------------------------------------------------------
Total operating expenses                                                  (29,531)     (25,955)      (27,136)
---------------------------------------------------------------------------------------------------------------
Operating profit                                                            2,359        1,934         2,937
---------------------------------------------------------------------------------------------------------------
Gain /(loss) from associates (before tax)                        8            207          314           (34)
Interest expense                                                             (202)        (348)         (903)
Interest income                                                               402          310           107
Income from sale of investments                                                25        1,724             -
Other non-operating income, net                                 24          1,219          300           103
Foreign exchange gain /(loss), net                                             72         (933)          221
Monetary gain                                                                   -          494         2,971
---------------------------------------------------------------------------------------------------------------
Income before tax and minority interest                                     4,082        3,795         5,402
Current tax charge                                              25         (2,002)      (2,363)       (2,305)
Deferred tax benefit                                            25          1,721        1,530         3,936
Share in income taxes of associates                            8, 25          (92)        (115)         (161)
---------------------------------------------------------------------------------------------------------------
Income tax (expense) /benefit                                                (373)        (948)        1,470
---------------------------------------------------------------------------------------------------------------
Income after taxation                                                       3,709        2,847         6,872
Minority interest                                               16            (70)          82             -
---------------------------------------------------------------------------------------------------------------
Net income from continuing operations                                       3,639        2,929         6,872
---------------------------------------------------------------------------------------------------------------
Net loss from discontinued operations, net of tax, including write-down of
property, plant and equipment of 419, nil and
nil for 2003, 2002 and 2001, respectively                       23         (3,109)      (2,251)       (2,265)
---------------------------------------------------------------------------------------------------------------
Net income                                                                    530          678         4,607
===============================================================================================================
                                                                            Rubles       Rubles        Rubles
Earnings per share - basic and diluted                          27           0.30         0.61          6.15
Earnings per share - continuing operations                      27           4.57         3.70          9.26
Loss per share - discontinued operations                        27          (4.27)       (3.09)        (3.11)
---------------------------------------------------------------------------------------------------------------
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-6
<PAGE>


OAO Rostelecom
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of Russian Rubles, refer to Note 4)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                                                                      Year ended December 31,
--------------------------------------------------------------------------------------------------------------------
                                                                        Note          2003         2002        2001
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>          <C>         <C>
Cash flows from operating activities
Net income before tax, minority interest and discontinued operations                4,082        3,795       5,402

Adjustments to reconcile net income before tax, minority interest and
discontinued operations to cash generated from operating activities:
Net loss from discontinued operations before tax and minority            23        (2,116)        (508)     (1,354)
interest
Depreciation                                                             6          8,276        9,106       7,997
Bad debt expense /(recovery)                                             12           339          863         (28)
(Gain) /loss from associates, before tax                                 8           (295)        (393)         35
Loss on sale of property, plant and equipment                                       1,214          449         554
Loss /(income) from sale of investments                                                98       (1,840)          -
Net interest and other non-operating income, including loss from discontinued         864         (117)      1,300
operations of 804 and write-down of property, plant and equipment of 551 in 2003
Equity-based compensation                                                               -             -        279
Other non-monetary income                                                             (42)         (77)          -
Foreign exchange (gain) /loss, net                                                    (13)         983        (291)
Gain on net monetary position                                                           -         (165)     (2,472)
Changes in net working capital:
(Increase) /decrease in accounts receivable                                        (2,837)         600        (260)
(Increase) /decrease in lease receivables                                          (3,685)      (3,408)        482
(Increase) /decrease in inventories                                                   (46)         187          72
(Decrease) /increase in payables and accruals                                      (1,212)         691        (661)
--------------------------------------------------------------------------------------------------------------------
Cash generated from operations                                                      4,627       10,166      11,055
Interest paid                                                                        (956)      (1,270)     (1,375)
Interest received                                                                     577          375         131
Income tax paid                                                                    (2,173)      (3,558)     (2,848)
--------------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                                           2,075        5,713       6,963
--------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
Purchase of property, plant and equipment                                          (3,328)      (2,281)     (2,020)
Proceeds from sale of property, plant and equipment                                    21           23          25
Purchase of subsidiaries, net of cash acquired                                       (642)      (1,138)          -
Purchase of available-for-sale investments (securities), net                       (8,415)      (2,198)     (1,637)
Proceeds from sale of available-for-sale investments, net of direct                 9,140        1,970         766
costs
Advances to investee and other companies issued                                         -       (1,020)          -
Advances to investee and other companies received                                       -        1,046           -
Dividends received from associates                                                     13           97          98
Repayment of lease obligations                                           23        (3,520)           -           -
Cash received on discontinuance of segments, net of cash disposed of                   91            -           -
--------------------------------------------------------------------------------------------------------------------

Net cash used in investing activities                                              (6,640)      (3,501)     (2,768)
--------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
Proceeds from issuance of bonds                                          19             -        1,532       1,669
Redemption of bonds                                                      19             -       (1,021)       (576)
Drawdown of interest bearing loans                                                  9,939        5,879       3,389
Repayment of interest bearing loans                                                (6,471)      (6,165)     (7,288)
Proceeds from issuance of notes                                                     2,208        1,344           -
Redemption of notes                                                                (1,455)      (1,347)          -
Dividends paid                                                                       (706)        (363)       (248)
Dividends paid to minority shareholders of a subsidiary                               (29)        (294)          -
Proceeds from sale of additional ordinary shares by a subsidiary                        -           24           -
Cash paid for acquisition of minority interest                                          -            -        (201)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by /(used in) financing activities                                3,486         (411)     (3,255)
--------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents                          (34)          36          36
--------------------------------------------------------------------------------------------------------------------
Net (decrease) /increase in cash and cash equivalents                              (1,113)       1,837         976

Monetary effects on cash                                                                -         (417)       (329)

Cash and cash equivalents at beginning of year                                      3,642        2,222       1,575
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of year                                        2,529        3,642       2,222
====================================================================================================================

Non-monetary transactions:
Non-cash additions to property, plant and equipment                                   316          103       1,882
Financial instruments received in connection with disposition of property,              -          545           -
plant and equipment
--------------------------------------------------------------------------------------------------------------------
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-7
<PAGE>


OAO Rostelecom
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In millions of Russian Rubles, refer to Note 4)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                               Note      Share capital             Retained                Total
                                                                                   earnings
------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                 <C>              <C>                  <C>
Balance at December 31, 2000                                       100              44,316               44,416

Dividends                                                            -                (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

Dividends                                       15                   -                (706)                (706)
Net income for the year                                              -                 530                  530
------------------------------------------------------------------------------------------------------------------

Balance at December 31, 2003                                       100              48,757               48,857
==================================================================================================================
</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, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------

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, 2003, 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 (Rbl). 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.

     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, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------

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, 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 - 2003,
     the Ruble's value fluctuated between 26.9 and 31.8 to 1 US Dollar. As of
     June 29, 2004, the exchange rate was 29.02 Rubles to 1 US Dollar.

     The following table summarizes the exchange rate of the Ruble to 1 US
     Dollar as of December 31, 2003, 2002 and 2001.

                                                         Exchange Rate
     As of December 31,
                                                        ---------------
     2003                                                       29.45
     2002                                                       31.78
     2001                                                       30.14
     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 partial conversion of
     foreign currency sales to Rubles.

                                      F-10
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     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
                                                        ----------------
         2003                                                     12.0%
         2002                                                     15.1%
         2001                                                     18.8%
     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 (for example,
     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 31 for description of possible tax contingencies.


4.   ACCOUNTING FOR THE EFFECTS OF INFLATION

     Prior to December 31, 2002, the Russian Federation met the definition of a
     hyperinflationary economy as defined by International Accounting Standard
     ("IAS") No. 29, "Financial Reporting in Hyperinflationary Economies".

     IAS No. 29 requires that financial statements prepared on a historical cost
     basis be adjusted to take into account the effects of inflation, for
     entities reporting in hyperinflationary economies. 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 No. 29.

     Effective January 1, 2003, the economy of the Russian Federation ceased to
     meet the criteria of hyperinflationary economy. Accordingly, beginning
     January 1, 2003, the Company ceased to apply IAS No. 29 on a prospective
     basis.

                                      F-11
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     As a result of this change, the carrying amounts of non-monetary assets
     expressed in the Russian Rubles current at December 31, 2002 formed the
     basis for the respective assets at January 1, 2003.

     Transactions undertaken subsequent to December 31, 2002 are reported at
     actual, nominal amounts except for those involving non-monetary assets and
     liabilities acquired and incurred prior to January 1, 2003. Results of
     operations (including gains and losses on disposal) involving such assets
     and liabilities are recognized based on the restated cost, which was
     calculated by applying to the carrying values of these assets and
     liabilities the change in the general price index through December 31,
     2002. Comparative financial information for the years ended December 31,
     2002 and 2001 is presented in terms of the measuring unit current as of
     December 31, 2002.

     The application of IAS No. 29 to specific categories of transactions and
     balances within the consolidated financial statements prepared prior to
     2003 was set out as follows:

     Monetary assets and liabilities

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

     Gains or losses on the net monetary position of assets and liabilities
     which arise as a result of inflation, have been 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 acquired prior to December 31, 2002
     have been restated from their historical cost or valuation by applying the
     change in the general price index from the date of recognition through
     December 31, 2002.

     Consolidated statements of income and cash flows

     Items included in the consolidated statements of income and cash flows for
     the years ended December 31, 2002 and 2001 have been restated by applying
     the change in the general price index from the dates when the items were
     initially recorded through December 31, 2002.

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. 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 other means. Transactions and balances between
     the Company and its subsidiaries are eliminated. The accounting policies of
     the subsidiaries were adjusted to conform to those of the Group.

                                      F-12
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     The excess of purchase price paid over the 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.

     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 ownership
     interest 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 income, and the Group's share of the net assets
     of associates is included in the consolidated balance sheet. An assessment
     of investments in associates for possible impairment or reversal of
     impairment recognized previously 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 to fund future losses. Unrealized profits that arise
     from transactions between the Group and its associates are eliminated in
     the proportion to the Group's share in such associates, and unrealized
     losses are 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 a case the share in an entity is acquired with intention to sell it in
     the foreseeable future, such investment is accounted for as
     available-for-sale asset.

     Property, plant and equipment

     For the purpose of determining the opening balances on the first
     application of IFRS at 1 January 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 historical 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 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. Expenditure for continuing repairs and maintenance are charged
     to the statement of income 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, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------

     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 income. Any subsequent increase in the recoverable amount of
     the assets are reversed 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 or value in use. The value in use of the asset is estimated
     based on forecast of future cash inflows and outflows to be derived from
     continued use of the asset 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
     lease, 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


                                      F-14
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------

     investment in the lease.

     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.

     Finance leases, which transfer to the Group substantially all the risks and
     benefits incidental to ownership of the leased item, are capitalized at the
     inception of the lease at the fair value of the leased property or, if
     lower, at the present value of the minimum lease payments. Lease payments
     are apportioned between the finance charges and reduction of the lease
     liability so as to achieve a constant rate of interest on the remaining
     balance of the liability. Finance charges are charged directly against
     income. Capitalized leased assets are depreciated over the shorter of the
     estimated useful life of the asset or the lease term.

     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 its 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 repair and maintenance and other costs in the accompanying
     consolidated statements of income.

     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 income based on the stage of completion. Losses expected from
     the construction contracts are recognized in the statement of income
     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 recoverability
     of significant accounts.

     Financial instruments

     Financial instruments carried on the balance sheet include cash and bank
     balances, investments (other than in consolidated subsidiaries and equity
     method investees), receivables, accounts payable and borrowings. The
     particular recognition methods adopted for financial instruments are
     disclosed in the individual policy statements associated with each item.

     Financial instruments 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 in debt instruments 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 in debt and equity instruments 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.

                                      F-15
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------

     The Group had no securities classified as held-to-maturity or trading at
     December 31, 2003 and 2002. 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 income. Interest income from investments is
     accrued during the period in which it is earned.

     The Company and the Group do not enter into hedging transactions.

     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.

     Deferred income taxes

     Deferred income tax is provided, using the liability method, on all
     temporary differences at the balance sheet date between the tax bases of
     assets and liabilities and their carrying amounts for financial reporting
     purposes.

     Deferred income tax liabilities are recognized for all taxable temporary
     differences:
          o    except where the deferred income tax liability arises from
               goodwill amortization or the initial recognition of an asset or
               liability in a transaction that is not a business combination
               and, at the time of the transaction, affects neither the
               accounting profit nor taxable profit or loss; and
          o    in respect of taxable temporary differences associated with
               investments in subsidiaries, associates and interests in joint
               ventures, except where the timing of the reversal of the
               temporary difference can be controlled and it is probable that
               the temporary difference will not reverse in the foreseeable
               future.

     Deferred income tax assets are recognized for all deductible temporary
     differences, carry-forward of unused tax assets and unused tax losses, to
     the extent that it is probable that taxable profit will be available
     against which the deductible temporary differences, carry-forward of unused
     tax assets and unused tax losses can be utilized:

          o    except where the deferred income tax asset relating to the
               deductible temporary difference arises from the initial
               recognition of an asset or liability in a transaction that is not
               a business combination and, at the time of the transaction,
               affects neither the accounting profit nor taxable profit or loss;
               and
          o    in respect of deductible temporary differences associated with
               investments in subsidiaries, associates and interests in joint
               ventures, deferred tax assets are only recognized to the extent
               that it is probable that the temporary differences will reverse
               in the foreseeable future and taxable profit will be available
               against which the temporary difference can be utilized.

     The carrying amount of deferred income tax assets is reviewed at each
     balance sheet date and reduced to the extent that it is no longer probable
     that sufficient taxable profit will be available to allow all or part of
     the deferred income tax asset to be utilized. Any such previously
     recognized reduction is reversed to the extent that it becomes probable
     that sufficient taxable profit will be available.

     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.


                                      F-16
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------

     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. Revenues and expenses are reported net of respective
     value added tax.

     The Company charges and pay to regional telephone operators and other
     telecommunication service providers in Russia either an agreed proportion
     of the amounts they bill its subscribers or an agreed settlement rate based
     on traffic minutes (refer to Note 21). For outgoing telephone traffic
     originating in Moscow, subscribers are charged directly by the Company
     based on pre-set per minute tariffs.

     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 the accompanying consolidated financial
     statements.

     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

     Through December 31, 2003 the Company made certain payments to employees on
     retirement, or when they otherwise left the employment of the Company.
     These obligations, which were unfunded, represented obligations under a
     defined benefit pension scheme. For such plans, the pension accounting
     costs were assessed using the projected unit credit method. Under this
     method, the cost of providing pensions is charged to the statement of
     income so as to spread the regular cost over the average service lives of
     employees. Actuarial gains and losses were recognized in the statement of
     income immediately.

     Where such post-employment employee benefits fell due more than 12 months
     after the balance sheet date, they were discounted using a discount rate
     determined by reference to market yields on Government bonds at the balance
     sheet date. This benefit plan was curtailed and settled on December 31,
     2003 (refer to Note 26).

     The Company also participates in a defined contribution plan. Contributions
     made by the Company on defined contribution plans (in amount of up to a
     maximum of 2% of salary for each employee per month) are charged to
     expenses when incurred. Effective January 1, 2004, maximum contribution is
     established at 100 Rubles per month per employee.

     The Company recognizes termination benefits as a liability and an expense
     when it terminates the employment of an employee before the normal
     retirement date or when termination benefits are provided as a result of an
     offer made in order to encourage voluntary redundancy.

     The Company accrues for the employees' compensated absences (vacations) as
     the additional amount that the Company expects to pay as a result of the
     unused vacation that has accumulated at the balance sheet date.

     Advertising costs

     Advertising costs are charged to the statement of income as incurred.


                                      F-17
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     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
     capitalization is determined by applying a capitalization rate to the
     expenditures on that asset. The capitalization 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 the 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 income 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 currency exchange gains or
     losses in the period in which they arise.

     As at December 31, 2003 and 2002, the rates of exchange used for
     translating foreign currency balances were (in Russian Rubles for one unit
     of foreign currency):

                                                         2003            2002
     --------------------------------------------------------------------------
     US Dollars                                          29.45           31.78
     Japanese Yen                                       0.2754          0.2663
     Special Drawing Rights (SDR)                        43.60           42.95
     EURO                                                36.82           33.11
     --------------------------------------------------------------------------
     Source: the Central Bank of Russia


     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
     No. 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.


                                      F-18
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------

     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 Leasing 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.

     Effective December 1, 2003, the Company discontinued two of its components
     represented by the leasing and banking and investing business segments
     (refer to Notes 22 and 23).

     Discontinued operations

     In March 2004, the International Accounting Standards Board issued an
     International Financial Reporting Standard No. 5 (IFRS No.5), "Non-current
     Assets Held for Sale and Discontinued Operations". IFRS No. 5 sets out
     requirements for the classification, measurement and presentation of
     non-current assets and disposal groups classified as held for sale and
     discontinued operations.

     IFRS No. 5 requires assets or disposal groups that are expected to be sold
     and meet specific criteria to be measured at the lower of carrying amount
     and fair value less costs to sell. Such assets should not be depreciated
     and should be presented separately in the balance sheet.

     In addition, IFRS No. 5 withdraws IAS No. 35 (IAS No. 35), "Discontinuing
     Operations", and replaces it with requirement that operations forming a
     major line of business or area of geographical operations to be classified
     as discontinued when the assets in the operations are classified as held
     for sale or when the entity has disposed of the operation. IFRS No. 5
     specifies that the results of discontinued operations are to be shown
     separately on the face of the income statement and requires an entity to
     re-represent respective amounts for prior periods presented in the
     financial statements so that this presentation relate to all operations
     that have been classified as discontinued by the latest balance sheet date.

     IFRS No. 5 also requires certain disclosures in respect to assets and
     disposal groups classified as held for sale and discontinued operations.

     Entities shall apply requirements of IFRS No. 5 for annual periods
     beginning on or after January 1, 2005, with earlier application encouraged.

     The Group has early adopted provisions of IFRS No. 5 and applied them to
     the financial statements for the year ended December 31, 2003. In
     connection with early adoption of provisions of IFRS No. 5, the Group has
     early adopted certain amendments to existing current International
     Accounting and International Reporting Standards, which are directly
     affected by the new requirements.

                                      F-19
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------

     Reclassifications

     Certain amounts reported in the prior period consolidated financial
     statements have been reclassified to conform with the current year
     presentation.

     As described above, the Group has early adopted provisions of IFRS No.5 and
     re-presented respective amounts for prior periods.

     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.

     New accounting pronouncements

     In February 2004, the IASB issued International Financial Reporting
     Standard No. 2 ("IFRS No. 2"), "Share-based Payment" on accounting for
     share-based payment transactions, including grants of share options to
     employees. IFRS No. 2 requires an entity to reflect in its profit or loss
     and financial position the effects of share-based payment transactions,
     including expenses associated with transactions in which share options are
     granted to employees. IFRS No. 2 will apply to accounting periods
     commencing on or after January 1, 2005 with a restatement of comparatives.
     Early adoption of IFRS No. 2 is permitted. The Group is currently
     evaluating the impact of this standard on its results of operations,
     financial position and cash flows and is in the process of developing an
     implementation strategy.

     On December 18, 2003, the IASB published thirteen revised International
     Accounting Standards and gave notice of the withdrawal of one International
     Accounting Standard. These revised standards will apply to accounting
     periods commencing on or after January 1, 2005, although early adoption is
     permitted. The revised standards are:

          o    IAS No. 1, "Presentation of Financial Statements",
          o    IAS No. 2, "Inventories",
          o    IAS No. 8, "Accounting Policies, Changes in Accounting Estimates
               and Errors",
          o    IAS No. 10, "Events after the Balance Sheet Date",
          o    IAS No. 16, "Property, Plant and Equipment",
          o    IAS No. 17, "Leases",
          o    IAS No. 21, "The Effects of Changes in Foreign Exchange Rates",
          o    IAS No. 24, "Related Party Disclosures",
          o    IAS No. 27, "Consolidated Financial Statements and Accounting for
               Investments in Subsidiaries",
          o    IAS No. 28, "Investments in Associates",
          o    IAS No. 31, "Interests in Joint Ventures",
          o    IAS No. 33, "Earnings per Share", and
          o    IAS No. 40, "Investment Property."

     The withdrawn standard was IAS No. 15, "Information Reflecting the Effects
     of Changing Prices."

                                      F-20
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     IAS No. 33, as revised, requires the application of the "two-class method"
     to determine earnings applicable to ordinary shareholders, the amount of
     which is used as a nominator to calculate earnings per ordinary share. The
     application of the "two-class method" requires that the profit or loss
     after deducting preferred dividends is allocated to ordinary shares and
     other participating equity instruments to the extent that each instrument
     shares in earnings as if all of the profit or loss for the period had been
     distributed. The total profit or loss allocated to each class of equity
     instrument is determined by adding together the amount allocated for
     dividends and the amount allocated for a participation feature. When
     adopted, the application of the provisions of IAS No. 33, as revised, will
     require retrospective treatment.

     Accordingly, taking into account that the Company's preferred shares have
     certain participation features (see Note 15) and the fact that IAS No. 33,
     as revised, does not make a difference whether the Company has or not a
     discretion over distributions to the holders of participating securities,
     the Group's management has determined that the adoption of this revised
     standard will have the material impact on the amount of earnings per
     ordinary share being reported in accordance with IFRS.

     The effects of the application of IAS No. 33, as revised, on the amounts of
     earnings per share reported in the accompanying consolidated financial
     statements as if it had been adopted in respect to all periods presented
     are as follows:
<TABLE>
<CAPTION>

                                                                               2003               2002              2001
     -------------------------------------------------------------------------------------------------------------------

     <S>                                                                      <C>                <C>             <C>
     Net income applicable to all equity instruments holders                  530                678             4,607
     Less: preferred dividends                                               (310)              (235)             (124)
     Less: undistributed net income applicable to the                           -                  -            (1,028)
     preferred shareholders
     -------------------------------------------------------------------------------------------------------------------
     Net income applicable to ordinary shareholders                           220                443             3,455
     -------------------------------------------------------------------------------------------------------------------
     Weighted-average number of ordinary shares outstanding           728,696,320        728,696,320       728,696,320

     -------------------------------------------------------------------------------------------------------------------
     Earnings per ordinary share                                             0.30               0.61              4.74
     -------------------------------------------------------------------------------------------------------------------

     Earnings per ordinary share, as reported in the                         0.30               0.61               6.15
     accompanying consolidated financial statements
     -------------------------------------------------------------------------------------------------------------------
</TABLE>

     Except for the matter disclosed in preceding paragraphs, the Group is
     currently evaluating the impact of the changes introduced by these revised
     standards on its results of operations, financial position and cash flows
     and is in the process of developing an implementation strategy.

     On December 17, 2003, the IASB released its revised standard, IAS No. 32,
     "Financial Instruments: Disclosure and Presentation (revised 2003)". This
     standard replaces IAS No. 32, "Financial Instruments: Disclosure and
     Presentation (revised 2000)", and should be applied for annual periods
     beginning on or after January 1, 2005. Earlier application is permitted.
     The Group is currently evaluating the impact of the changes introduced by
     this revised standard on its disclosure requirements and is in the process
     of developing an implementation strategy.

     The IASB also issued IAS No. 39, "Financial Instruments: Recognition and
     Measurement (2003)", in December 2003. This standard supersedes IAS No. 39,
     "Financial Instruments: Recognition and Measurement (revised 2000)", and
     should be applied for annual periods beginning on or after January 1, 2005.
     Earlier application is permitted. The Group is currently evaluating the
     impact of the changes introduced by this revised standard on its results of
     operations, and financial position and cash flows and is in the process of
     developing an implementation strategy.

                                      F-21
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     On March 31, 2004, the IASB issued International Financial Reporting
     Standard No. 3 ("IFRS 3"), "Business Combinations", on accounting for
     business combinations and revised IAS 36, "Impairment of Assets", and IAS
     38, "Intangible Assets". The main features of the new and revised standards
     are that all business combinations within the scope of IFRS No. 3 must be
     accounted for using the purchase method. The pooling of interests method is
     prohibited. The costs expected to be incurred to restructure an acquired
     entity's (or the acquirer's) activities must be treated as post-combination
     expenses, unless the acquired entity has a pre-existing liability for
     restructuring its activities. Intangible items acquired in a business
     combination must be recognized as assets separately from goodwill if they
     meet the definition of an asset, are either separable or arise from
     contractual or other legal rights, and their fair value can be measured
     reliably. Identifiable assets acquired, and liabilities and contingent
     liabilities incurred or assumed, must be initially measured at fair value.
     Amortization of goodwill and intangible assets with indefinite useful lives
     is prohibited. Instead they must be tested for impairment annually, or more
     frequently if events or changes in circumstances indicate a possible
     impairment. These standards apply to business combinations commencing on or
     after March 31, 2004. For previously recognized goodwill the standards will
     apply from the beginning of the first annual period commencing on or after
     March 31, 2004. The Group is currently evaluating the impact of these
     standards on its results of operations, financial position and cash flows
     and is in the process of developing an implementation strategy.

     On March 31, 2004, the IASB issued International Financial Reporting
     Standard No. 4 ("IFRS 4"), "Insurance Contracts", that provides guidance on
     accounting for insurance contracts. The adoption of this standard is not
     expected to have a material impact on the Group's results of operations,
     financial position and cash flows.


                                      F-22
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


6.         PROPERTY, PLANT AND EQUIPMENT, NET

The net book value of property, plant and equipment as of December 31, 2003 and
2002 was as follows:

<TABLE>
<CAPTION>

                                                                      Buildings and site            Cable and                Other
                                                                                services         transmission
                                                                                                      devices
------------------------------------------------------------------------------------------------------------------------------------
Cost or valuation
<S>                                                                              <C>                 <C>                   <C>
At January 1, 2003                                                               24,012              127,811               23,635
Additions                                                                             -                    -                    -
Additions with acquired subsidiaries                                                580                    -                    -
Disposals                                                                        (1,294)              (5,646)                (784)
Disposal of subsidiaries and write-down of property, plant and                     (580)                (551)                (291)
equipment
Transfer                                                                            668                  676                  706
------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2003                                                             23,386              122,290               23,266
------------------------------------------------------------------------------------------------------------------------------------

Accumulated Depreciation
At January 1, 2003                                                               15,823               92,369               14,860
Depreciation                                                                        546                5,353                2,377
Disposals                                                                          (898)              (4,966)                (659)
Disposal of subsidiaries                                                              -                    -                 (103)
------------------------------------------------------------------------------------------------------------------------------------
At December 31, 2003                                                             15,471               92,756               16,475
------------------------------------------------------------------------------------------------------------------------------------
Net book value at December 31, 2003                                               7,915               29,534                6,791
===================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                                         Construction in                  Total
                                                                                progress
----------------------------------------------------------------------------------------------------------------
Cost or valuation
<S>                                                                               <C>                  <C>
At January 1, 2003                                                                3,872                179,330
Additions                                                                         3,579                  3,579
Additions with acquired subsidiaries                                                  -                    580
Disposals                                                                           (56)                (7,780)
Disposal of subsidiaries and write-down of property, plant and                        -                 (1,422)
equipment
Transfer                                                                         (2,050)                     -
----------------------------------------------------------------------------------------------------------------
At December 31, 2003                                                              5,345                174,287
----------------------------------------------------------------------------------------------------------------

Accumulated Depreciation
At January 1, 2003                                                                    -                123,052
Depreciation                                                                          -                  8,276
Disposals                                                                             -                 (6,523)
Disposal of subsidiaries                                                              -                   (103)
----------------------------------------------------------------------------------------------------------------
At December 31, 2003                                                                  -                124,702
----------------------------------------------------------------------------------------------------------------
Net book value at December 31, 2003                                               5,345                 49,585
================================================================================================================
</TABLE>

                                      F-23
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>


                                                                                                    Cable and
                                                                      Buildings and site         transmission
                                                                                services              devices                Other
-----------------------------------------------------------------------------------------------------------------------------------
Cost or valuation
<S>                                                                              <C>                 <C>                   <C>
At January 1, 2002                                                               24,299              127,849               22,266
Additions                                                                             -                    7                    -
Property, plant and equipment of acquired subsidiaries                               10                1,022                  206
Disposals                                                                          (441)              (2,120)                (379)
Transfer                                                                            144                1,053                1,542
-----------------------------------------------------------------------------------------------------------------------------------
At December 31, 2002                                                             24,012              127,811               23,635
-----------------------------------------------------------------------------------------------------------------------------------

Accumulated Depreciation
At January 1, 2002                                                               15,588               87,330               12,671
Depreciation                                                                        584                6,132                2,390
Accumulated deprecation on property, plant and equipment of                           1                  270                  108
acquired subsidiaries
Disposals                                                                          (350)              (1,363)                (309)
-----------------------------------------------------------------------------------------------------------------------------------
At December 31, 2002                                                             15,823               92,369               14,860
-----------------------------------------------------------------------------------------------------------------------------------
Net book value at December 31, 2002                                               8,189               35,442                8,775
====================================================================================================================================
</TABLE>



<TABLE>
<CAPTION>
                                                                            Construction in
                                                                                   progress                Total
-----------------------------------------------------------------------------------------------------------------
Cost or valuation
<S>                                                                                  <C>                <C>
At January 1, 2002                                                                   3,851              178,265
Additions                                                                            2,689                2,696
Property, plant and equipment of acquired subsidiaries                                 114                1,352
Disposals                                                                              (43)              (2,983)
Transfer                                                                            (2,739)                   -
-----------------------------------------------------------------------------------------------------------------
At December 31, 2002                                                                 3,872              179,330
-----------------------------------------------------------------------------------------------------------------

Accumulated Depreciation
At January 1, 2002                                                                       -              115,589
Depreciation                                                                             -                9,106
Accumulated deprecation on property, plant and equipment of                              -                  379
acquired subsidiaries
Disposals                                                                                -               (2,022)
-----------------------------------------------------------------------------------------------------------------
At December 31, 2002                                                                     -              123,052
-----------------------------------------------------------------------------------------------------------------
Net book value at December 31, 2002                                                  3,872               56,278
=================================================================================================================
</TABLE>


                                      F-24
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     During 2002, the Company formalized a plan to discontinue using satellite
     channels beginning from February 2003. Payments for rent of these channels
     were included in the carrying value of cable and transmission devices. The
     Company has accordingly revised its estimate of the remaining period of use
     of the satellite channels. Depreciation expense of 210 (2002: 897) was
     recognized in the accompanying consolidated financial statements. Amounts
     receivable from the lessor for partial return of prepayments of 525 (2002:
     545) are included in other accounts receivable as of December 31, 2003 and
     in other non-current assets (356) and other accounts receivable (189) as of
     December 31, 2002. The Company received a payment of 178 in April 2004 and
     of 100 in June 2004.

     Included in the roll-forward of fixed assets movements for the year ended
     December 31, 2003 as the effects of the disposal of subsidiaries and
     write-down of property, plant and equipment is the amount of (551)
     representing the effect of writing down to fair value of the carrying
     amount of additional interest in fixed assets acquired as a result of
     discontinuance of leasing, and banking and investing segments (refer to
     Note 23).

     Interest amounting to 123, 57 and 92 was capitalized in property, plant and
     equipment for the years ended December 31, 2003, 2002 and 2001. The
     capitalisation rate used to determine the amount of borrowing costs
     eligible for capitalisation is 6.3%, 6.9% and 9.0%, respectively.

     Property, plant and equipment with a carrying value of 2,158 and 9,117 was
     pledged in relation to loan agreements entered into by the Group as of
     December 31, 2003 and 2002, respectively (refer to Note 18).

     The carrying value of telecommunication equipment held by RTComm.RU, a
     consolidated subsidiary, under finance leases with RTC-Leasing was 218 and
     146 as of December 31, 2003 and 2002, respectively.

7.   SUBSIDIARIES

     The accompanying consolidated financial statements include the assets,
     liabilities and results of operations of Rostelecom and the following of
     its subsidiaries:

<TABLE>
<CAPTION>
                                                                                    Effective          Effective
                                                               Country of        share of the       share of the
                        Subsidiary                            registration        Group as of        Group as of
                                                                                 December 31,  December 31, 2002
                                                                                         2003
-----------------------------------------------------------------------------------------------------------------

<S>                                                          <C>                     <C>                  <C>
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%               100%
IAI RTComm.RU ("RTComm.RU")                                  Russia                       31%             37.91%
ZAO AKOS ("AKOS")                                            Russia                         -             29.68%
OOO "Spetsautoleasing"                                       Russia                         -             32.27%
</TABLE>

     The Company owned 32.27% and 27% of outstanding voting shares of
     RTC-Leasing as of December 31, 2002 and 2001, respectively, which
     constituted 27% of total issued voting shares as of those dates. The
     principal activity of RTC-Leasing is the leasing of equipment to
     telecommunications companies in Russia. Until the middle of 2003, the
     principal counterparty as lessee to finance leases entered into


                                       F-25
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     by RTC-Leasing was Rostelecom. In the accompanying consolidated financial
     statements finance lease transactions between RTC-Leasing and Rostelecom
     and other companies of the Group for the years ended December 31, 2001 and
     2002 and for the 11 months ended November 30, 2003 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%.

     During 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, the Group recognized 279
     as compensation expense and recorded it in wages, salaries, other benefits
     and payroll taxes in the consolidated statement of income for the year
     ended December 31, 2001. 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 a result of dividend payment and
     redemption of the preferred shares, the holders of preferred shares
     received additional compensation of 21. The share of the Group in that
     compensation amounted to 6 and was included in wages, salaries, other
     benefits and payroll taxes in 2002.

     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 direct
     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
     (the "Agreement") among: (1) Rostelecom and non-state pension fund
     "Rostelecom-Garantiya" (the "Initial shareholders"), (2) RTC-Leasing, and
     (3) a consortium of the shareholders (the "Consortium"). 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
     ZAO "Gamma-Invest"                                                                                       15.93
     ZAO "KFP-Finance"                                                                                        15.77
     RIB                                                                                                      15.93
     Treasury shares held by RTC-Leasing                                                                       0.48
     -------------------------------------------------------------------------------------------------------------------
     Total ordinary shares                                                                                   100.00
     -------------------------------------------------------------------------------------------------------------------
</TABLE>

     CB "Severo-Zapadniy Telecombank" and Non-commercial partnership "The
     Telecommunications Development Research Center" are related parties of the
     Group as several representatives of Svyazinvest and its subsidiaries are
     directors of these companies.

                                      F-26
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     Shares owned by RIB, a wholly-owned subsidiary of RTC-Leasing, are treated
     as treasury shares. 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.

     RTC-Leasing together with its subsidiaries operates primarily in leasing,
     and banking and investing segments. Effective December 1, 2003, the Group
     discontinued these segments as a result of discontinuance of RTC-Leasing
     (refer to Note 23).

     RTCL S.A. is a 100% subsidiary of RTC-Leasing established in 2000 under
     legislation of Switzerland. RTCL S.A. 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. were consolidated by the Group from January 1, 2002
     till December 1, 2003 (refer to Note 23).

     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). As of the date of its acquisition,
     RTDC had 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 as 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 financial statements beginning from April
     2002 till December 1, 2003 (refer to Note 23).

     At the date of acquisition in April 2002, RTDC owned 50% of ordinary shares
     of Westelcom. The main activity of Westelcom is provision of international
     traffic transition services. Rostelecom owned remaining 50% of Westelcom
     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 paid by
     the Group in April 2002 was split as follows:

     Amount attributable to acquisition of RTDC                      839
     Amount attributable to acquisition of Westelcom                 278
     --------------------------------------------------------------------
     Total purchase price                                          1,117
     --------------------------------------------------------------------


                                      F-27
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     In April 2002, RTDC owned 92% of ordinary shares of AKOS, whose main
     activity constituted provision of cellular services in the Primorskiy
     region of Russia. Assets and liabilities of AKOS were included in purchase
     price allocation for RTDC. Accordingly, the results of operations and
     financial position of AKOS were consolidated by the Group beginning from
     April 2002 till December 1, 2003 (refer to Note 23).

     The excess of fair value of the acquired identifiable net assets of RTDC
     and AKOS over purchase price paid was identified as follows:

<TABLE>
<CAPTION>
                                                              Acquisition of        Purchase of
                                                             94.9% of shares           minority
                                                                of RTDC             interest in RTDC        Total
     --------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                 <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)
     ==============================================================================================================
</TABLE>

     As of December 31, 2002, Rostelecom and RTC-Leasing owned 25% and 40% of
     voting shares of RTComm.RU, respectively. In January 2003, RTComm.RU issued
     additional shares that resulted in an increase of interest of Rostelecom
     and RTC-Leasing in voting stock of RTComm.RU up to 31% and 49%,
     respectively. The additional issuance was accounted for as purchase of
     minority interest using the purchase method. Goodwill of 3 was recognized
     in relation to this transaction. Starting December 1, 2003, as a result of
     the discontinuance of business (refer to Note 23), Rostelecom owned 31% of
     voting shares of RTComm.RU. In the opinion of management, the Company
     continues to exercise control over the management, policies and day-to-day
     operations of RTComm.RU. The Company provides the major part of channels
     used by RTComm.RU for rendering of services to its customers. The
     activities of the RTComm.RU are being conducted on behalf of the Company
     according to its specific business needs so that the Company obtains
     benefits from the special purpose entity's operations and retains the
     majority of risks related to RTComm.RU. Therefore, the Company continues to
     consolidate the results of operations and financial position of RTComm.RU.

     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). This transaction was accounted for as purchase of
     minority interest using the purchase method. After completion of this


                                      F-28
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     purchase, the share of the Company in net assets of Westelcom became equal
     to 100%.

     In March 2002, RTC-Leasing acquired 80% of ordinary shares of 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 till December
     1, 2003 (refer to Note 23). In July 2002, RTC-Leasing acquired the
     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.

     The purchase price allocation to acquired identifiable net assets of
     Westelcom and RIB was calculated as follows:
<TABLE>
<CAPTION>

                                                                   Acquisition of
                                                                       minority
                                                                     interest in
                                                                   Westelcom from
                                                     Acquisition     minority                   Acquisition of
                                                     of 50% of     shareholders    Acquisition    minority
                                                      Westelcom   of RTC-Leasing  of 80% of RIB  interest in RIB  Total
     -------------------------------------------------------------------------------------------------------------------
     <S>                                                     <C>            <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 net 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
     ===================================================================================================================
</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 acquisition of minority interest in Westelcom in October
     2002.

                                      F-29
<PAGE>

OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     In November 2003, RTC-Leasing acquired 100% of ordinary shares of ZAO
     Stroitelnaya Kompania "Absolut" ("Absolut") for a cash payment of 715. Main
     activity of Absolut is rent of office premises. The acquisition was
     accounted for using the purchase method.

     Based on preliminary purchase price allocation, the excess of consideration
     paid over fair value of the acquired identifiable net assets of Absolut was
     identified as follows:

     Total consideration                                              715
     ---------------------------------------------------------------------

     Fair value of identifiable assets and liabilities:
              Property                                               581
              Accounts receivable                                     49
              Long-term liabilities                                  (72)
                                                                     ----
     Total net assets (100% acquired by the Group)                   558
     ---------------------------------------------------------------------
     Goodwill                                                        157
     =====================================================================


8.   INVESTMENTS IN ASSOCIATES

     Movements in investments in associates during the years ended December 31,
     2003 and 2002 were as follows:

<TABLE>
<CAPTION>
                                                                                     2003                    2002
------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                     <C>
   Beginning of year                                                               2,635                   1,239
   Additions                                                                           -                   2,123
   Dividends received                                                                (13)                    (97)
   Share in income/ (loss) before income taxes included in continuing                128                     (68)
   operations
   Share in income before income taxes included in discontinued operations            88                      79
   Share of income taxes included in continuing operations                           (92)                     (5)
   Share of income taxes included in discontinued operations                           3                     (18)
   Sale of investments                                                              (145)                      -
   Disposal of subsidiaries (refer to Note 23)                                      (223)                      -
   Acquisition of subsidiaries                                                         -                    (618)
------------------------------------------------------------------------------------------------------------------
   End of year                                                                     2,381                   2,635
==================================================================================================================
</TABLE>

     Total gain / (loss) from associates presented in the consolidated
     statements of income is composed of the following:
<TABLE>
<CAPTION>

                                                                                      2003        2002        2001
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>        <C>         <C>
Share in income/ (loss) of associates included in movements in investments in          128        (68)        (35)
associates
Income from GlobalTel                                                                   79          -           -
Share in income of EDN Sovintel from 1 January 2002 through the date of
disposal                                                                                 -        382           -
-------------------------------------------------------------------------------------------------------------------
Total gain /(loss) from associates (before tax)                                        207        314         (35)
-------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-30
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     Total share in income taxes of associates presented in the consolidated
     statements of income is composed of the following:
<TABLE>
<CAPTION>

                                                                                    2003        2002        2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>          <C>       <C>
Share in income taxes of associates included in movements in investments in           92           5         161
associates
Share in income taxes of EDN Sovintel from 1 January 2002 through the date
of disposal                                                                            -         110           -
-----------------------------------------------------------------------------------------------------------------
Total share in income taxes of associates                                             92         115         161
-----------------------------------------------------------------------------------------------------------------
</TABLE>


     Investments in associates as of December 31, 2003 and 2002 were as follows:
<TABLE>
<CAPTION>

                                                                   Voting share                2003        2002
                                                                       capital,            Carrying    Carrying
 Associate                       Main activity                                %              amount      amount
 ---------------------------------------------------------------------------------------------------------------
<S>                              <C>                                         <C>              <C>         <C>
 ZAO Telmos                      Telecommunication services                  20               177         210
 OAO Moscow Cellular                                                                            -         145
 Communications ("MCC")          Mobile telecommunications                    -
                                                                    (2002: 45.5)
 OAO Delta Telecom               Mobile telecommunications                    -                 -         161
                                                                    (2002: 42.5)
 ZAO Uralwestcom                 Mobile telecommunications                    -                 -          67
                                                                      (2002: 49)
 Golden Telecom, Inc., USA       Telecommunication services
 ("Golden Telecom") (refer to                                             11.19             2,066       1,874
 Note 9)                                                              (2002: 15)
 ZAO Telecom - center            Telecommunication services                  45                46          40
 OAO MMTS-9                      Telecommunication services                  49                47          39
 GlobalTel                       Satellite telecommunications                51                 -           -
 Other                           Various                                                       45          99
 ---------------------------------------------------------------------------------------------------------------
 Total investments in associates                                                            2,381       2,635
 ===============================================================================================================
</TABLE>

     All associates except for specially mentioned otherwise are registered in
     the Russian Federation.

     As of December 31, 2003, the shares of Telmos owned by Rostelecom were
     pledged.

     As of December 31, 2002, the Group owned 45.5% of shares of Moscow Cellular
     Communications ("MCC"), of which RTDC owned 22% and Rostelecom owned 23.5%.
     In November 2003, Rostelecom sold its 23.5% interest in MCC to ZAO Sky
     Link, which is a related party to RTC-Leasing, for a cash payment of 162.
     Gain on sale of 25 was included in income from sale of investments in the
     accompanying consolidated statement of income for the year ended December
     31, 2003.

     The disposal of the remaining 22% ownership interest in MCC as well as a
     disposal of investments in Delta Telecom and Uralwestcom, owned by RTDC,
     was conducted through the divestiture of a business of RTC-Leasing on
     December 1, 2003 (refer to Note 23).


                                      F-31
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     In September 2002, as a result of a sale of its 50% interest in EDN
     Sovintel to Golden Telecom, Inc. the Company acquired 4,024,067 ordinary
     shares of the latter (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 income for the year ended December 31, 2002. In November 2002,
     two representatives of Rostelecom have been elected to the Board of
     Directors of Golden Telecom.

     At the date of exchange transactions, the Group's management believed that
     the Group had the ability to exercise significant influence over the
     financial and operating policies of Golden Telecom through representation
     on its Board of Directors. Accordingly, investment into Golden Telecom was
     accounted for using the equity method in the accompanying consolidated
     financial statements.

     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
     determined to be amortized over the period of 8 years. Amortization charge
     of 95 and 32 reduced gain from associates (before tax) for the years ended
     December 31, 2003 and 2002, respectively. The unamortized part of 635 and
     730 was included in carrying amount of investment in Golden Telecom as of
     December 31, 2003 and 2002, respectively.

     During 2003, as a result of a number of transactions initiated by the
     shareholders of Golden Telecom, the Company's share in the voting stock of
     Golden Telecom experienced a dilution of 3.7% from 14.9% as of December 31,
     2002 to 11.2% as of December 1, 2003. The dilution of interest was
     accounted for as sale of interest in the associate. Gain of 2 resulting
     from the dilution of interest was included in gain from associates in the
     accompanying consolidated statement of income for the year ended December
     31, 2003. Management performed the analysis of the changes in the
     shareholders' structure of Golden Telecom during 2003, and concluded that
     Rostelecom continues to exercise significant influence over Golden Telecom.
     Subsequent to the year end, Golden Telecom declared dividends of which 47
     are attributable to Rostelecom.

     The Group owns 51% 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% 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 share in net losses of GlobalTel of 467 in
     2001. The Group did not recognize its share in losses of GlobalTel in 2003
     and 2002 as the accumulated share in losses of GlobalTel exceeded the
     investment of the Group in GlobalTel. Loans and other accounts receivable
     from GlobalTel are fully provided for. Any receipts from GlobalTel are
     recognized as gain from associates in the period they are received.


                                      F-32
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     The summary of sale of investments in associates during 2003 is presented
     below:

<TABLE>
<CAPTION>
                                                                   Proceeds     Carrying value            Gain
                                                                  from sale     of investments
---------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>               <C>
Sale of shares of MCC                                                 162              (137)             25
Other                                                                   8                (8)              -
---------------------------------------------------------------------------------------------------------------
Total                                                                 170              (145)             25
===============================================================================================================
</TABLE>

     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 the
     investments in Golden Telecom as of December 31, 2002, initial investment
     in which was valued at its market value. All associates have a December 31
     year-end.

     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.

9.   LONG-TERM FINANCIAL INVESTMENTS

     Long-term financial investments as of December 31, 2003 and 2002 comprised
     the following:

<TABLE>
<CAPTION>
                                                                       2003               2002
-----------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>
Loans provided to associates and other companies                          -                204
Loans provided to customers                                               -                 69
Notes receivable                                                         29                165
Other long-term financial investments                                    97                140
-----------------------------------------------------------------------------------------------
Total long-term financial investments                                   126                578
===============================================================================================
</TABLE>

     As of December 31, 2002, loans provided to associates and other companies
     included loans provided by the Group to Uralwestcom (refer to Note 8) of
     31.

     As of December 31, 2002, loans provided to customers represented loans
     provided by RIB to Russian companies, mainly telecommunication and
     industrial, and to individuals.

     As of December 31, 2002, other long-term financial investments include
     investment in Volga Telecom of 139, which are stated at fair value. As of
     December 31, 2003 and 2002 other long-term financial investments include
     investment in OAO Sberbank of Russia of 60 and nil, respectively, which are
     stated at fair value.

10.  GOODWILL AND NEGATIVE GOODWILL

     Goodwill was recognized in connection with acquisition of Westelcom and RIB
     in 2002 and Absolut in 2003 and represents the excess of the purchase price
     paid over fair value of identifiable net assets acquired.

     Negative goodwill resulted from acquisition of interest in RTDC in 2002 and
     changes in ownership interest in RTC-Leasing during 2002. It represented
     the excess of fair value of the net identifiable assets acquired over the
     purchase consideration paid.


                                      F-33
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     Goodwill and negative goodwill are amortized using straight-line method
     over periods ranging from 3 to 10 years, except for goodwill and negative
     goodwill related to investments available-for-sale, which is amortized to
     income when the underlying investments are sold.

     Amortization of goodwill and negative goodwill is included in
     administration and other cost, except for amortization of goodwill and
     negative goodwill related to available-for-sale investments, which is
     included in income from sale of investments in the consolidated statements
     of income.

     Changes in amounts of goodwill and negative goodwill during the year ended
     December 31, 2003 were as follows:

<TABLE>
<CAPTION>

                                                                                    Negative       Negative
                                                                                   goodwill,      goodwill,
                                                                                  short-term      long-term
                                                                    Goodwill         portion        portion
------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>             <C>            <C>
Balance as of December 31, 2001                                           -               -              -
Addition due to acquisition of subsidiaries                             (91)           (540)          (166)
Additions due to purchase of minority interest                          133             (16)           (74)
Amortization                                                             (3)             85
Balance as of December 31, 2002                                          39            (471)          (240)
------------------------------------------------------------------------------------------------------------
Additions due to acquisition of subsidiaries                            157                -              -
Additions due to purchase of minority interest                            4                -              -
Reclassification of negative goodwill                                     -             (51)            51
Amortization   of   negative   goodwill   due   to   sale   of
available-for-sale investments (refer to Note 13)                          -            455               -
Amortization                                                            (14)             51               -
Disposal of subsidiaries (refer to Note 23)                            (169)             16            189
------------------------------------------------------------------------------------------------------------
Balance as of December 31, 2003                                          17               -              -
============================================================================================================
</TABLE>

11.  LEASE RECEIVABLES

     As discussed in Note 7, the principal activity of RTC-Leasing is the
     leasing of equipment to telecommunication companies. Prior to 2002, the
     Company was a principal lessee of such equipment. During 2002, RTC-Leasing
     concluded a number of new agreements with companies, other than Rostelecom,
     primarily with regional telecommunication subsidiaries of OAO Svyazinvest
     (see also Note 29), and with certain non-related entities.

     As of December 31, 2002, lease receivables comprised the following:

     Gross investment in leases                                    4,200
     Less: unearned finance lease income                          (1,508)
     ----------------------------------------------------------------------
     Net investment in leases                                      2,692
     Equipment purchased for leasing purposes                      1,303
     ----------------------------------------------------------------------
     Total lease receivables                                       3,995
     ======================================================================
     Including:
        Non-current portion of lease receivables                   2,713
     ----------------------------------------------------------------------
        Current portion of lease receivables                       1,282
     ======================================================================

     Current portion of lease receivables as of December 31, 2002 is included in
     accounts receivable in the accompanying balance sheet (refer to Note 12).

                                      F-34
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------

     As a result of discontinuance of the leasing segment in 2003 (refer to
     Notes 7 and 23), there are no lease receivables reported in the
     accompanying balance sheet as of December 31, 2003.

12.  ACCOUNTS RECEIVABLE, NET

     Accounts receivable as of December 31, 2003 and 2002 comprised the
     following:

<TABLE>
<CAPTION>
                                                                                          2003             2002
----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>              <C>
Trade accounts receivable                                                               7,594            7,192
Less: allowance for doubtful trade accounts receivable                                 (2,406)          (2,214)
----------------------------------------------------------------------------------------------------------------
Trade accounts receivable, net                                                          5,188            4,978
Prepayments                                                                               425              218
Prepaid taxes                                                                           2,030            1,447
Current portion of lease receivables                                                        -            1,282
Other accounts receivable                                                                 931              921
Less: allowance for doubtful other accounts receivable                                   (283)            (229)
----------------------------------------------------------------------------------------------------------------
Other accounts receivable, net                                                          3,103            3,639
----------------------------------------------------------------------------------------------------------------
Total accounts receivable, net                                                          8,291            8,617
================================================================================================================
</TABLE>

     Trade accounts receivable, net of allowances for doubtful accounts, include
     amounts totaling 761 (2002: 1,027) due from foreign telecommunications
     operators which are denominated in foreign currencies, principally
     represented by Special Drawing Rights ("SDR") and US dollars, and amounts
     totaling 3,181 (2002: 2,685) due from local telephone operators. As of
     December 31, 2003 and 2002, the carrying value of trade accounts receivable
     approximated their fair value.

     The following table summarizes the changes in the allowance for doubtful
     accounts receivable for the years ended December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                          2003              2002            2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>             <C>
Balance, beginning of year                                              2,443             1,825           2,201
Impact of inflation on opening balance                                      -              (240)          (348)
Provision for /(recovery of) doubtful accounts receivable                 339               863            (28)
Accounts receivable written-off                                           (93)               (5)             -
-----------------------------------------------------------------------------------------------------------------
Balance, end of year                                                    2,689             2,443           1,825
=================================================================================================================
</TABLE>


                                      F-35
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


13.  SHORT-TERM INVESTMENTS

     Short-term investments include investments available-for-sale, which are
     stated at fair value. Short-term investments comprised the following as of
     December 31, 2003 and 2002:
<TABLE>
<CAPTION>

                                                                                          2003             2002
----------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                 <C>
Baykalwestcom                                                                              -              410
Eniseytelecom                                                                              -              420
Nizhogorodskaya Cellular Communication ("NCC")                                             -              802
VEB bonds (USD denominated)                                                              199              197
Eurobonds (USD denominated)                                                                -              127
Liquid bills of exchange                                                               1,855            2,085
Bonds of the companies of the Svyazinvest Group  (Ruble denominated)                       -               69
Other corporate securities (Ruble denominated)                                             -               51
Short-term deposits                                                                      700                -
Other                                                                                      1              414
----------------------------------------------------------------------------------------------------------------
Total short-term investments                                                           2,755            4,575
================================================================================================================
</TABLE>

     Liquid bills of exchange as of December 31, 2003 include promissory notes
     of the following companies of the Svyazinvest Group:

                                                        Carrying value
-----------------------------------------------------------------------
OAO Dalsvyaz                                                      12
OAO Centertelecom                                                  2
OAO Sibirtelecom                                                   2
-----------------------------------------------------------------------
                                                                  16
=======================================================================

     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) with the intent to be sold in the
     near future. In the first half of 2003, RTDC sold its investments in these
     companies to other subsidiaries of OAO Svyazinvest with the following
     results:

<TABLE>
<CAPTION>
                                            Proceeds     Carrying value        Amortization of
                                           from sale     of investments       negative goodwill    (Loss)/gain
----------------------------------------------------------------------------------------------------------------
<S>                                            <C>              <C>                      <C>             <C>
Baykalwestcom                                  267              (410)                    111             (32)
Eniseytelecom                                  393              (420)                    117              90
NCC                                            632              (802)                    227              57
----------------------------------------------------------------------------------------------------------------
Total                                        1,292            (1,632)                    455             115
================================================================================================================
</TABLE>

     Gain/(loss) from sale of investments was included in net loss from
     discontinued operations, net of tax, in the consolidated statement of
     income for the year ended December 31, 2003.

     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.

                                      F-36
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     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
     the next year. The bills of exchange bear interest in the range from 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.

14.  CASH AND CASH EQUIVALENTS

     Cash and cash equivalents as of December 31, 2003 and 2002 included cash on
     hand and at bank accounts as follows:

                                                      2003             2002
-----------------------------------------------------------------------------
Cash on hand                                              2               19
Cash at bank - Rubles                                 1,736              227
Cash at bank - Foreign currencies                       236              572
Short term deposits - Rubles                            405            1,447
                        - Foreign currencies            147               96
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
Other                                                     3                -
-----------------------------------------------------------------------------
Total                                                 2,529            3,642
=============================================================================

     As of December 31, 2003, cash at bank in foreign currencies included
     amounts of 105 (2002: 120) 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, 2003 and
     2002 comprised 1,634,026,541 ordinary shares and 242,832,000 non-redeemable
     preferred shares. The par value of both ordinary and preferred shares
     amounted to Rbl 0.0025 per share.

     As of December 31, 2003 and 2002, the issued and outstanding share capital
     was as follows:

<TABLE>
<CAPTION>
                                                          Number of shares       Nominal value  Carrying amount
----------------------------------------------------------------------------------------------------------------
<S>                  <C>                                       <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 transactions with own shares during 2003, 2002 and 2001.


                                      F-37
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     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 approval of shareholders.

     The nominal share capital of the Company recorded 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, 2003 and
     2002 amounted to 2,428,819 nominal Rubles.

     Ordinary shares carry voting rights with no guarantee of dividends.

     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 reported in the Russian statutory
     accounts divided by the number of preferred shares and the dividends paid
     on one ordinary share. If the holders of preferred shares receive dividends
     of less than 10% of the net income after taxation as reported in the
     Russian statutory accounts, no dividends to the holders of ordinary shares
     are declared. 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
     partly) 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, 2003
     and 2002 amounted to 14,452 and 6,797, 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, 2002 and 2001 were as follows:

                                              2002           2001
--------------------------------------------------------------------
Dividend - preferred shares                    310            235
Dividend - ordinary shares                     396            164
--------------------------------------------------------------------
                                               706            399
====================================================================

                                               Rbl            Rbl
Dividend per preferred share                  1.27           0.96
====================================================================
Dividend per ordinary share                   0.54           0.22
====================================================================

                                      F-38
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


On June 26, 2004 the Annual General Shareholders' Meeting declared dividends in
respect of 2003. Ordinary shares dividends amounted to 0.88 Ruble per share
(640) and dividends on the preferred shares amounted to 3.25 Ruble per share
(790). The accompanying consolidated financial statements do not reflect the
dividend payable in respect of 2003, which will be accounted for in
shareholders' equity as an appropriation of retained earnings in the year ending
December 31, 2004.


16.  MINORITY INTEREST

<TABLE>
<CAPTION>
                                                                                     2003        2002       2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>          <C>        <C>
At beginning of year                                                              2,825        1,929      1,530
Minority interest in net assets of acquired subsidiaries                              -          224           -
Minority interest in net income/ (loss) of subsidiaries                              70          (82)          -
- continuing operations
Minority interest in net income of subsidiaries -                                   650        1,153        322
discontinued operations (refer to Note 23)
Minority effect of preferred shares  issued by subsidiary                             -            -        279
Dividends paid to minority shareholders of subsidiaries                             (29)        (129)         -
Purchase of minority interest                                                        (3)         (79)      (202)
Re-purchase of own preferred shares by a subsidiary                                    -        (191)         -
Minority interest in discontinued subsidiaries (refer to Note 23)                (3,322)           -          -
-----------------------------------------------------------------------------------------------------------------
At the end of year                                                                  191        2,825      1,929
=================================================================================================================
</TABLE>


17.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts payable and accrued expenses consisted of the following as of
     December 31, 2003 and 2002:

                                                     2003           2002
---------------------------------------------------------------------------
Trade accounts payable                             3,122           3,114
Accrued expenses                                     156           1,865
Compensation related accruals                        183             135
Dividends payable                                     49              48
---------------------------------------------------------------------------
Total accounts payable and accrued expenses        3,510           5,162
===========================================================================

     As of December 31, 2003, trade accounts payable included amounts totaling
     1,326, which are denominated in foreign currencies, principally represented
     by Special Drawing Rights and US Dollars (2002: 1,832).

     Trade accounts payable as of December 31, 2003 include accounts payable to
     RTC-Leasing of 520, which were repaid in 2004 (refer to Note 34).

     Trade accounts payable as of December 31, 2003 include lease payable by
     RTComm.RU to RTC-Leasing of 147. The non-current portion of lease payable
     of 79 is included in non-current accounts payable in the accompanying
     consolidated balance sheet as of December 31, 2003, and matures in 2005.


                                      F-39
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


18.  INTEREST BEARING LOANS

     The interest bearing loans as of December 31, 2003 and 2002 were as
     follows:

Maturity                                                  2003             2002
--------------------------------------------------------------------------------

Current portion of interest bearing loans                1,932            4,529
--------------------------------------------------------------------------------

Between one to two years                                 1,088              919
Between two to three years                                 518              641
Between three to four years                                 35              479
Between four to five years                                   -              278
--------------------------------------------------------------------------------
Non-current portion of interest bearing loans            1,641            2,317
--------------------------------------------------------------------------------

Total interest bearing loans                             3,573            6,846
================================================================================

     As of December 31, 2003 and 2002, interest bearing loans, which are mostly
     denominated in foreign currencies, were as follows:


                                                Note       2003          2002
------------------------------------------------------------------------------
US Dollars (US$)                                (a)       2,639           826
Japanese Yen (JPY)                              (b)         245         3,089
EURO                                            (c)          34           150
                                                        ----------------------
Foreign currency denominated loans                        2,918         4,065

Russian Ruble denominated loans                 (d)         655         2,781
------------------------------------------------------------------------------

Total interest bearing loans                              3,573         6,846
==============================================================================

As of December 31, 2003, the Group had the following loans outstanding:

a) This includes the following amounts:

     o    US$ 7.68 million (226) on a credit agreement between Rostelecom and
          Sumitomo Corporation entered into in March 1997. The loan is secured
          by the related equipment with carrying value of 1,873 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 189.

     o    US$ 81.9 million (2,413) on promissory notes issued to Alfa-bank in
          2003. In June 2003, according to the Government decision #221 dated
          April 16, 2003, Rostelecom's overdue debt (with a principal of 11,601
          million Japanese Yen (2,976 at the exchange rate as of June 30, 2003)
          and accrued interest of 20) payable to Vnesheconombank, acting as an
          agent of the Ministry of Finance of Russian Federation, was
          restructured by converting it into promissory notes issued to
          Alfa-Bank. Upon conversion, the carrying amount of debt amounted to
          US$ 98.6 (2,991 at the exchange rate as of June 30, 2003). As a result
          of conversion, Rostelecom's principal debt to the Ministry of Finance
          and interest accrued thereon were repaid in full. Upon extinguishment
          of debt to the Ministry of Finance, the Company ceased to be in
          technical default in respect of this debt. According to the Ministry
          of Finance's resolution dated September 16, 2003, fines and penalties
          of 2,837 million Japanese Yen (749 at the exchange rate as of date of
          transaction) due from Rostelecom were forgiven and written off.

                                      F-40
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     In connection with this transaction the gain of 752 was recognized and
     included in other non-operating income in the consolidated statement of
     income (refer to Note 24). The promissory notes to Alfa-Bank are repayable
     within 36 months in six semi-annual installments, beginning from December
     2003, and bear interest of 5.94% per annum. Promissory notes amounting to
     982 were included in the current portion of interest bearing loans.

b) This includes the following amounts:

     o    JPY 9.36 million (3) within a credit line provided by Vneshtorgbank
          with maximum amount of JPY 105 million open through February 25, 2005.
          The facility bears annual interest rate of 5.75%. To secure the debt,
          the Company pledged its telecommunication equipment with carrying
          value of 43. The final payment date on this credit line is to be not
          later than February 26, 2007. 3 relates to current portion.

     o    JPY 880.13 million (242) within a credit line provided by
          Vneshtorgbank with maximum amount of JPY 880.13 million open through
          February 25, 2005. The facility bears annual interest rate of 5.75%.
          To secure the debt, the Company pledged its telecommunication
          equipment with carrying value of 242. The final payment date on this
          credit line is to be not later than February 26, 2007. 69 relates to
          current portion.

c) This includes the following:

     o    EURO 0.927 million (34) 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 was taken for the
          purchase of EWCD automatic switches. The loan is secured by guarantee
          of Government of Russia. 34 relates to current portion.

d) This includes the following:

     o    655 on a credit agreement between Rostelecom and RTDC. The loan, with
          principal amount of 777, was assigned by RTC-Leasing to RTDC in
          accordance with the assignment agreement entered into in December
          2003. Total amount relates to current portion. The loan was fully
          repaid in April 2004 (refer to Note 34).

As of December 31, 2003 and 2002, the weighted average interest rates of loans
were 6.3% and 11.7%, 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 interest bearing loans 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 October - November 2002, the Group early extinguished the loan payable to
Siemens AG of EURO 31.6 million (986 at the exchange rate as of December 31,
2002). The transaction involved RTCL Cyprus and T&IB Equities (Cyprus) Limited,
the subsidiary of the commercial bank Trust Bank (Russia). Gain from the
transaction of 230 was included in other non-operating income in the
consolidated statement of income for the year ended December 31, 2002 (refer to
Note 24).


                                      F-41
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     There are no specific affirmative or negative covenants (including
     financial covenants) under the existing loan agreements. There were no
     loans in default as of December 31, 2003.


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. The early
     redemption option was not exercised by the bonds' holders. Annual interest
     on bonds is 18% and 16% for the first and second years, respectively,
     payable semi-annually. Interest accrued up to December 31, 2002 was
     included in short-term borrowings as of December 31, 2002. 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. The
     outstanding amount of bonds as of December 31, 2003 was nil due to disposal
     of the subsidiary.


20.  INCOME TAXES

     The components of net deferred tax assets and liabilities at December 31,
     2003 and 2002, and the respective movements during 2003, were as follows:

<TABLE>
<CAPTION>
                                                                    Movement during
                                                     December 31,          the year   December 31,
                                                             2002                             2003
 --------------------------------------------------------------------------------------------------

 Tax effects of future tax deductible items:

<S>                                                           <C>               <C>           <C>
 Accounts payable and accrued liabilities                     224               70            294
 Accounts receivable                                            -               37             37
 Investment valuation difference                                -               44             44
 Other                                                          -                3              3

 ------------------------------------------------------------------------------------------------
 Gross deferred tax asset                                     224              154            378
 ------------------------------------------------------------------------------------------------

 Tax effects of future tax liability items:
 Property, plant and equipment, net                         8,704           (1,014)         7,690
 Accounts receivable                                          192             (192)             -
 Investment valuation difference                              449             (449)             -
 Leasing arrangements                                       1,015             (620)           395
 Other                                                        167             (167)             -
 -----------------------------------------------------------------------------------------------
 Gross deferred tax liability                              10,527           (2,442)         8,085
 -----------------------------------------------------------------------------------------------
 Net deferred tax liability                                10,303           (2,596)         7,707
 ===============================================================================================
</TABLE>


                                      F-42
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


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 and profits tax purposes. The tax
effect of these temporary differences is recorded at the rate of 24%, 18%, 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, 2003:

<TABLE>
<CAPTION>
                                                                                       2003
--------------------------------------------------------------------------------------------
<S>                                                                                  <C>
Deferred tax benefit (Note 25)                                                       1,721
Deferred tax benefit of disposed subsidiaries                                          373
Deferred tax liabilities of acquired subsidiaries                                     (71)
Deferred tax liabilities of disposed subsidiaries                                      441
Deferred tax benefit allocated to discontinued operations (refer to Note 23)           132
--------------------------------------------------------------------------------------------
Total movement during the year                                                       2,596
============================================================================================
</TABLE>

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, 2003 and 2002 were as
follows:

                                                    2003            2002
-------------------------------------------------------------------------
Income tax payable                                 (118)           (184)
Income tax receivable                               433             818

Income taxes payable and receivable are included in taxes payable and other
accounts receivable, respectively, in the accompanying consolidated balance
sheets.


                                      F-43
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


21.  REVENUE

Revenue comprised the following for the years ending December 31, 2003, 2002 and
2001:
<TABLE>
<CAPTION>

                                                         2003             2002             2001
------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>
Revenue from local operators
Telephone - international                              5,171            5,025            5,364
Telephone - national                                   9,292            5,895            5,016
Other income from local operators                      1,952            1,838            1,760
------------------------------------------------------------------------------------------------
                                                      16,415           12,758           12,140
------------------------------------------------------------------------------------------------

Revenue from subscribers
Telephone - international                              3,027            3,462            4,951
Telephone - national                                   3,678            3,513            3,697
Internet access                                        1,060              849                -
Rent of telecommunications channels to subscribers       853              712              639
Television and radio transmission                        584              546              558
Cellular services                                        117               89                -
------------------------------------------------------------------------------------------------
                                                       9,319            9,171            9,845
------------------------------------------------------------------------------------------------

Revenue from foreign operators
Telephone                                              3,871            4,250            6,018
Telex, telegraph and other                               431              622              571
Rent of telecommunications channels                      181              228              263
------------------------------------------------------------------------------------------------
                                                       4,483            5,100            6,852
------------------------------------------------------------------------------------------------

Other revenue                                          1,673              860            1,236
------------------------------------------------------------------------------------------------
Total revenue                                         31,890           27,889           30,073
================================================================================================
</TABLE>

Effective August 1, 2003, the Anti-Monopoly Ministry abolished the use of the
Integral Settlement Rate ("ISR") for settlements between Rostelecom and other
domestic operators. Under the new settlements system, Rostelecom began to bill
other operators originating domestic long-distance ("DLD") calls using the
Linear Settlement Rate ("LSR") regulated by the Anti-Monopoly Ministry of the
Russian Federation and to pay to other operators terminating the calls the
termination fee calculated using the Termination Settlement Rate ("TSR") also
regulated by the Anti-Monopoly Ministry.

Prior to August 1, 2003, revenues and expenses related to DLD calls were
recognized on the basis of ISR, i.e. on the net basis. The introduction of the
new settlements system represents a change in business practice resulting in new
accounting for changed practice. The pro-forma information calculated on the
basis of the new settlement system as if it was applied effective January 1,
2001 is presented below.
<TABLE>
<CAPTION>
                                                                       2003               2002            2001
                                                                (unaudited)        (unaudited)     (unaudited)
----------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                <C>              <C>
Revenue from local operators: telephone - national                  12,396             11,159           8,239
Charges by network operators - national                             (7,623)            (6,985)         (5,497)

</TABLE>


                                      F-44
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


22.  SEGMENT INFORMATION

     In years prior to 2002, the Group operated in one industry segment, being
     the provision of intercity and international telecommunication services in
     the Russian Federation. There were no banking and investing operations,
     while leasing operations outside the Group were immaterial.

     In 2002 and the most part of 2003, the Group operated in three industry
     segments, net income of which is presented below:


                  Telecommunications         Leasing      Banking and Investing
--------------------------------------------------------------------------------
2003                          3,639          (3,036)                       (73)
2002                          2,929          (2,776)                       525
2001                          6,872          (2,265)                          -

     As a result of divestiture of business of RTC-Leasing and discontinuance of
     the leasing, banking and investing segments (refer to Notes 7 and 23),
     effective December 1, 2003 the Group operates in one industry segment,
     being the provision of intercity and international telecommunication
     services in the Russian Federation. The results of this segment and assets
     and liabilities as of December 31, 2003 are presented in the consolidated
     statements of income and the consolidated balances sheet, respectively.

     The aggregate leasing and banking and investing segments' results, assets
     and liabilities are presented in Note 23.

     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, 2003, 2002 and 2001 is as follows:

<TABLE>
<CAPTION>
                                                          Western        Eastern
                    Russia         CIS           USA       Europe         Europe             Others       Total
----------------------------------------------------------------------------------------------------------------

<C>                 <C>          <C>             <C>              <C>             <C>           <C>      <C>
2003                26,767       2,926           220              862             252           863      31,890
2002                22,789       2,846           403              881             240           730      27,889
2001                23,221       3,752           375            1,448             419           858      30,073
</TABLE>

     Leasing and banking and investing segments' revenue was principally earned
     in Russia.

     The Group had no individual customers, other than the Government of the
     Russian Federation and its related parties (see Note 29), that accounted
     for greater than 10% of its revenue during the years ended December 31,
     2003, 2002 and 2001.

     Substantially all of the Group assets are located within the territory of
     the Russian Federation.


23.  DISCONTINUED OPERATIONS

     As part of management's efforts to concentrate on the Company's core
     business segment and as part of the Company's drive to decrease total debt,
     effective December 1, 2003, the Company discontinued two of its components
     represented by the leasing and banking and investing business segments. The
     operations in these business segments were conducted through RTC-Leasing
     and its subsidiaries.


                                      F-45
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     The results of operations and loss on discontinuance of the above mentioned
     business segments of 3,109, net of income tax expense of 343, was included
     in the accompanying consolidated statement of income for the year ended
     December 31, 2003 and reported in discontinued operations. The comparative
     results of operations of the discontinued segments for the years ended
     December 31, 2001 and 2002 are re-presented in the accompanying statements
     of income, to conform to the current year presentation.

     In February 2002, RTC-Leasing performed an additional issuance of ordinary
     shares which was made in accordance with trilateral agreement (the
     "Shareholders' Agreement") between Rostelecom and non-state pension fund
     Rostelecom-Garantiya (the initial shareholders in RTC-Leasing), RTC-Leasing
     and a consortium of new shareholders in RTC-Leasing (the "Consortium").
     After this additional issuance of shares, Rostelecom, Rostelecom-Garantiya
     and the Consortium owned 32.27%, 3.60% and 64.13%, respectively, of
     outstanding ordinary voting shares of RTC-Leasing.

     Under the Shareholders' Agreement, the control over RTC-Leasing was to pass
     to the Consortium after the latter performs certain actions intended to
     increase capitalization and investing attractiveness of RTC-Leasing. The
     Shareholders' 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.

     To define specific obligations of the Consortium, the parties re-negotiated
     the terms of the Shareholders' Agreement and signed in May 2003 an
     additional agreement (the "Additional Agreement") which stipulated that the
     Consortium is obliged to perform certain actions which should have resulted
     in the following within timeframe specified:

     o    Decreasing Rostelecom's future lease payments to RTC-Leasing by the
          amount not less than 1,800, including 300 of VAT, within 6 months;
     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;
     o    Cancellation of all guarantees and pledges provided by Rostelecom in
          respect of loans payable by RTC-Leasing within 12 months.

     Rostelecom continued to maintain control over RTC-Leasing through its right
     to appoint the majority of the board of directors of RTC-Leasing until the
     Consortium fulfills its obligations under the Additional Agreement. In
     addition, Rostelecom and Rostelecom-Garantiya had the right to purchase
     from the Consortium at par value all the shares in RTC-Leasing issued to
     the Consortium if the Consortium did not fulfill its obligations on
     decreasing future lease payments and selling of shares by November 30,
     2003.

     The discontinuance of the leasing and banking and investing business
     segments was executed in a series of transactions that constituted an
     exchange, involving cash consideration, by the Company of its controlling
     interest in RTC-Leasing to an additional interest in certain items of
     telecommunications equipment previously owned by RTC-Leasing. To execute
     this the following actions were undertaken.

     On October 24 and 27, 2003, Rostelecom sold all of its shares in
     RTC-Leasing to the third party for 740.


                                      F-46
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     On October 2, 2003 and on December 26, 2003, Rostelecom and RTC-Leasing
     signed agreements restructuring the future lease payments of Rostelecom to
     RTC-Leasing of 6,018, including VAT of 918. Before the restructuring, the
     liabilities were payable through 2012. As a result of the restructurings,
     3,705 became due on January 28, 2004, and 2,313 became due on January 30,
     2034.

     Before December 31, 2003, Rostelecom effectively paid to RTC-Leasing the
     amount of 3,520 by purchasing promissory notes issued by RTC-Leasing. The
     amount due under the promissory notes was offset against the restructured
     lease obligation due on January 28, 2004.

     On January 29, 2004, Rostelecom and RTC-Leasing signed an agreement
     replacing the restructured lease obligation of 2,313 due in 2034 with a
     loan payable by Rostelecom to RTC-Leasing in 2038 bearing interest at a
     rate of 0.1% per annum. Upon execution of this step, the title to the
     equipment passed from RTC-Leasing to Rostelecom.

     On February 12, 2004, Westelcom and RTC-Leasing executed a loan assignment
     agreement under which Westelcom purchased from RTC-Leasing all rights to
     the loan for 368, including VAT of 57.

     Managements of Rostelecom and RTC-Leasing finalized negotiating the above
     series of transactions by December 1, 2003. On December 1, 2003, the
     Company accepted the performance by the Consortium of its obligations under
     the Additional Agreement. The settlements continued through April 2004 due
     to the timing requirements for formal approvals of certain transactions.

     The results of operations and cash flows of RTC-Leasing were included in
     the accompanying consolidated financial statements through December 1,
     2003. Net income of the discontinued business segments for the period
     starting from late October 2003, the date the Company transferred legal
     ownership of its voting shares of RTC-Leasing, through December 1, 2003 was
     allocated to minority interest in full. Amounts payable by the Company to
     RTC-Leasing were recorded in the accompanying consolidated balance sheet as
     of December 31, 2003 at fair value determined as actual amounts paid by
     Rostelecom and Westelcom to RTC-Leasing in January-April 2004.

     The accompanying statements of income for the years ended December 31,
     2003, 2002 and 2001 include as discontinued operations the post-tax results
     of operations of the discontinued business segments, which comprised the
     following:
<TABLE>
<CAPTION>

                                                                            2003         2002            2001
---------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>          <C>             <C>
Revenue                                                                     837          252             196
Operating expenses                                                         (577)        (431)           (513)
Other losses, net of gains                                               (1,021)        (329)         (1,037)
---------------------------------------------------------------------------------------------------------------
Loss before tax and minority interest                                      (761)        (508)         (1,354)
---------------------------------------------------------------------------------------------------------------
Income tax expense                                                         (300)        (590)           (589)
Minority interest in the results of discontinued operations                (650)      (1,153)           (322)
Loss recognized on disposal                                                (804)           -               -
Income tax expense recognized on disposal                                  (175)           -               -
Write-down of carrying amount of additional interest in fixed              (551)           -               -
assets acquired to fair value
Income tax benefit recognized on the write-down to fair value               132            -               -
---------------------------------------------------------------------------------------------------------------
Net loss from the discontinued operations                                (3,109)      (2,251)         (2,265)
===============================================================================================================
</TABLE>

     The write-down of property, plant and equipment in the amount of 551
     represents the difference between the carrying amount of the
     telecommunication equipment, as restated for hyperinflation (refer to Note
     4), and its respective fair value determined by the reference to the
     replacement cost of this equipment.

                                      F-47
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     The net cash flows for the years ended December 31, 2003, 2002 and 2001
     pertaining to the discontinued business segments as reported in the
     accompanying consolidated statements of cash flows, were as follows:

<TABLE>
<CAPTION>
                                                                            2003         2002            2001
---------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>          <C>             <C>
Cash flows from the discontinued operations:
Net cash used in operating activities                                    (7,362)      (5,858)         (3,379)
Net cash (used in)/ provided by investing activities                     (2,380)         596            (126)
Net cash provided by/ (used in) financing activities                      7,011        2,062          (1,069)
</TABLE>

     Total assets and liabilities of discontinued operations other than cash and
     cash equivalents as of December 1, 2003 (before the disposition) and
     December 31, 2002 as reported in the accompanying consolidated financial
     statements, were as follows (by major categories):

<TABLE>
<CAPTION>
                                                                         December 31,
                                                 December 1, 2003                2002
----------------------------------------------------------------------------------------

<S>                                                       <C>                  <C>
Lease receivables, non-current portion                    10,411               4,759
Long-term investments                                        132                 742
Other non-current assets                                   1,242                 490
Lease receivables, current portion                         2,257               2,843
Other current assets                                       4,652               2,687
----------------------------------------------------------------------------------------
Total assets                                              18,694              11,521
========================================================================================

Interest bearing loans, non-current portion               (5,192)             (2,042)
Other long-term liabilities                                 (477)               (991)
Interest bearing loans, current portion                   (7,033)             (3,126)
Other current liabilities                                 (2,265)             (2,853)
---------------------------------------------------------------------------------------=
Total liabilities                                        (14,967)             (9,012)
========================================================================================
</TABLE>

     Cash and cash equivalents as of December 1, 2003 in subsidiaries disposed
     of were as follows:

Cash and cash equivalents of RTC-Leasing and its subsidiaries       1,057
Cash and cash equivalents held by Rostelecom in RIB                  (408)
-----------------------------------------------------------------------------
Total cash disposed of                                                649
=============================================================================


24.  OTHER NON-OPERATING INCOME, NET

     Other non-operating income consisted of the following for the years ended
     December 31, 2003, 2002 and 2001:


<TABLE>
<CAPTION>
                                                                              2003          2002      2001
-------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>           <C>       <C>
Unrealized gain on available-for-sale investments                              69            41        48
Fair value of contributions received                                          316           103         -
Gain on extinguishment of loans payable (refer to Note 18)                    752           230         -
Other non-operating gain / (loss), net                                         82           (74)       55
-------------------------------------------------------------------------------------------------------------
Total other non-operating income, net                                       1,219           300       103
=============================================================================================================
</TABLE>

                                      F-48
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     In July 2003, the Company received telecommunication equipment from a
     company, which is not a related party, free of charge. Fair value of the
     equipment was estimated as equal to 316. 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.

     In October 2002, the Company received telecommunication equipment from a
     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.


25.  INCOME TAX EXPENSE

     The components of income tax expense for the years ended December 31, 2003,
     2002 and 2001 were as follows:
<TABLE>
<CAPTION>

                                                                       2003             2002              2001
---------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>              <C>               <C>
Current tax charge                                                   2,002            2,363             2,305
Deferred tax benefit (Note 20)                                      (1,721)          (1,530)           (3,936)
Share in income taxes of associates (Note 8)                            92              115               161
---------------------------------------------------------------------------------------------------------------
Income tax expense /(benefit)                                          373              948            (1,470)
===============================================================================================================
</TABLE>

     The reconciliation of the theoretical amount that would arise using the
     Russian statutory rates (24% for 2003 and 2002 and 35% for 2001) to the
     total actual income tax were as follows for the years ending December 31,
     2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                        2003             2002             2001
---------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>            <C>
Income tax expense at statutory rate                                    980              911            1,891
Non-temporary elements of monetary loss                                    -           1,439            3,186
Effect of change in tax rate on deferred tax balance                       -                -          (4,899)
Effect of lease arrangements between Rostelecom and
RTC-Leasing                                                            (620)            (931)          (2,930)
Non-deductible expenses                                                 261              973            3,643
Other non-temporary differences                                        (248)               -                -
Inflation effect on deferred tax balance at beginning of
year                                                                      -           (1,444)          (2,361)
---------------------------------------------------------------------------------------------------------------
Income tax expense /(benefit)                                           373              948           (1,470)
===============================================================================================================
</TABLE>

     Other non-deductible expenses comprise various costs that are
     non-deductible for Russian profits tax purposes, including depreciation of
     certain property, plant and equipment, certain employee costs, promotional
     and sponsorship expenditures, travel expenditures in excess of certain
     statutory allowances and other expenses.

26.  EMPLOYEES

     The numbers of employees of the Group was equal to 26,742 as at December
     31, 2003 (2002: 31,729).

     The Group makes payments to the Government pension fund for its employees.
     Such contributions are calculated using regressive scale and are charged to
     expense when incurred during the employee's service period.


                                      F-49
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     The Group 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 not less than two months' salary at the
     date of retirement. These obligations, which are unfunded, represent
     obligations under a defined benefit pension scheme. An accrual of 80,
     representing the net present value of the future benefits the Group
     expected to be paid, was included in compensation related accruals as of
     December 31, 2002. As of December 31, 2003, the Company ceased to use this
     pension plan and settled all its obligations. In relation to the plan
     curtailment, a gain of 121 was recognized and deducted from wages,
     salaries, other benefits and payroll taxes in consolidated statement of
     income for the year ended December 31, 2003.

     In addition, the Company participates in the non-state Joint Participation
     Program which is a pension plan with defined contributions. To participate
     in the program, individuals should be full-time employees of the Company
     and should enter into non-state pension insurance agreement with NPF
     "Telecom-Soyuz", which is the successor of NPF "Rostelecom-Garantiya".

     The Company also offers certain of its employees termination benefits which
     are payable by the Company to the pension fund upon employee's acceptance
     of voluntary termination pursuant to the offer.

     Total expenses of the Group related to the non-state pension plans amounted
     to 148 during the year ended December 31, 2003 (2002: 85, 2001: 167) and
     are included in wages, salaries, other benefits and payroll taxes in the
     accompanying consolidated statements of income.


27.  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 220 (2002: 443, 2001: 4,483) divided
     by the weighted average number of ordinary shares outstanding during the
     year of 728,696,320. Dividends on preferred shares are fully attributable
     to earnings from continuing operations.

     There are no potentially dilutive securities, therefore, diluted earnings
     per share equal basic earnings per share.

     Refer to Note 5 for the effects of application IAS 33, as revised, on
     earnings per share.


28.  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.

     The carrying amounts of cash and cash equivalents approximate their
     respective fair values due to their short-term nature and negligible credit
     losses.


                                      F-50
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


29.  RELATED PARTY TRANSACTIONS

     (a) The Government and OAO Svyazinvest as a shareholder

     As indicated in Note 1, the immediate parent company of the Company is OAO
     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% less one share of
     the voting capital of OAO Svyazinvest and, therefore, is the ultimate owner
     of the Company. It is a matter of the 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 OAO
     Svyazinvest. No action with respect to the Group has so far been taken
     (refer to Note 31).

     (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 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 Federal Anti-Monopoly Service (former the Anti-Monopoly
     Ministry), has the general authority to regulate domestic tariffs, and does
     regulate tariffs. The Ministry of Information Technologies and
     Telecommunications of the Russian Federation 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.

     The Group also consumes design services from certain companies of the
     Svyazinvest Group which are included in 2003 in additions of property,
     plant and equipment in amount of 37 (2002: nil).

     The Group makes certain contributions to non-for-profit organizations which
     are companies of the Svyazinvest Group.

     In 2002, the Group, acting as a lessor, through RTC-Leasing, entered in a
     number of lease agreements with companies of the Svyazinvest Group.


                                      F-51
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     The amounts of revenue and expenses relating to the transactions with the
     Svyazinvest Group were as follows:
<TABLE>
<CAPTION>

                                                                        2003             2002              2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>               <C>
Revenue                                                              13,218            9,376             8,047
Lease revenue (included in loss from discontinued operations)           472               18                 -
Charges by network operators - national                              (3,379)            (264)             (144)
Administration and other costs                                            -             (160)                -
Contributions to non-for-profit organizations (included in               54               94               120
administration and other costs)
</TABLE>

     In addition, OAO Svyazinvest participates in the dividends declared by the
     Company, commensurate with its shareholding.

     The amounts of receivables and payables due from and to the Svyazinvest
     Group were as follows:
<TABLE>
<CAPTION>

                                                                        2003             2002
-----------------------------------------------------------------------------------------------
<S>                                                                      <C>             <C>
Lease receivables - non-current portion                                    -             972
Lease receivables - current portion                                        -             688
Long-term financial investments                                            -             140
Short-term investments                                                   16               69
Amounts owed to customers                                                  -            (662)
Accounts receivable, net                                              2,244            1,879
Accounts payable                                                       (192)               -
</TABLE>

     (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 rent of telecommunication channels for
     which the Group charges below market rates.

     The Company makes certain contributions to State Research and Development
     Funds.

     The amounts of revenue and expenses relating to the transactions with the
     Government were as follows:
<TABLE>
<CAPTION>

                                                                        2003             2002              2001
----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>                 <C>
Revenue                                                               1,388            1,211               571
Contributions to State Research and Development Fund                    (65)            (102)              (48)
(included in administration and other costs)
</TABLE>

     The amounts of receivables and payables due from and to such organizations
     were as follows:

                                                     2003              2002
----------------------------------------------------------------------------
Accounts receivable, net                             651               563
Accounts payable                                     (22)                -


                                      F-52
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     (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 of telecommunication equipment and the provision of
     pension arrangement to employees.

     A summary of these transactions is as follows:

<TABLE>
<CAPTION>
                                                                       2003              2002               2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>               <C>                <C>
Revenue                                                                796               666                872
Lease income (included in loss from discontinued                         -                 -                 74
operations)
Charges by network operators - national                               (126)              (26)              (437)
Contribution in pension fund included in wages, salaries,             (148)              (85)              (167)
other benefit and payroll taxes
</TABLE>

     Amounts included in the consolidated balance sheets relating to the
     operations with these entities were as follows:
<TABLE>
<CAPTION>

                                                                       2003              2002
----------------------------------------------------------------------------------------------
<S>                                                                    <C>               <C>
Accounts payable and accrued expenses                                  (44)              (12)
Accounts receivable, net                                               143               109
Loans receivable                                                          -               60
Payable to pension fund (included in compensation related             (30)              (80)
accruals)
</TABLE>

     (f) Directors' remuneration

     During the year the Board of Directors consisted of the following members:

     Until June 1, 2003                      Until December 31, 2003
     --------------------------------------- ----------------------------------

     Yashin V.N.                             Yashin V.N.
     Belov V.Y.                              Avdiyants S.P.
     Yemelianov N.P.                         Belov V.Y.
     Kuznetsov S.I.                          Yemelianov N.P.
     Lopatin A.V.                            Kuznetsov S.I.
     Osipchuk A.I.                           Lopatin A.V.
     Panchenko S.N.                          Panchenko S.N.
     Polischuk V.A.                          Polischuk V.A.
     Ragozina I.M.                           Ragozina I.M.
     Slipenchuk M.V.                         Slipenchuk M.V.
     Finger G.M.                             Yurchenko E.V.

     In 2003, the total remuneration of the directors amounted to 39 (2002: 21,
     2001: 5).


                                      F-53
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     (g) Other related party transactions

     In June-August 2003, in order to redeem its liability to Vietnam Telecom,
     the Company paid to OAO Svyazbank, acting in the capacity of the agent of
     an unrelated party, USD 15.1 million (462 at the exchange rates at the
     dates of settlement). Certain managers of the Company and OAO Svyazinvest
     are directors of OAO Svyazbank.

     In 2002 and 2003 the Company purchased software from ZAO Peter-Service, net
     book value of which amounted to 142 and 133 as of December 31, 2003 and
     2002, respectively. Also during 2003 the Company incurred additional
     expenses in relation to this software in amount of 11 which were included
     in administration and other costs in the accompanying statement of income
     for the year ended December 31, 2003. Prepayments made to ZAO Peter-Service
     included in the accompanying balance sheet amounted to 27 and nil as of
     December 31, 2003 and 2002, respectively. Certain directors of the Company
     are directors of the company that controls ZAO Peter-Service.


30.  CAPITAL COMMITMENTS

     The Group's capital expenditure program approved by the Board of Directors
     for the year ending December 31, 2004 projects capital expenditures of
     5,237.


31.  CONTINGENCIES

     a) 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.

     As a result of the recently performed comprehensive tax inspection covering
     the periods of 1999, 2000 and 2001, the Ministry of Taxes and Levies of the
     Russian Federation assessed 2,488 of additional taxes, including fines and
     penalties payable by Rostelecom. In the opinion of the management of the
     Group, the tax positions taken by the Company are appropriate, and the
     Company will prevail in court. Management cannot measure reliably the total
     amount of potential losses. Accordingly, no accrual has been made for the
     assessment in the accompanying consolidated financial statements as of
     December 31, 2003 and for the year then ended.

     b) 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.

     In 2003 the Accounting Chamber of Russian Federation started the inspection
     of Svyazinvest and its subsidiaries, including the Company. At the date of
     approval of these financial statements the inspection was not completed.
     Consequently there is uncertainty regarding to results of the inspection
     and the conclusions made on its basis. Management cannot measure reliably
     the total amount of

                                      F-54
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     potential losses. Accordingly, no accrual has been made for the results of
     the inspection in the accompanying consolidated financial statements as of
     December 31, 2003 and for the year then ended.

     c) Licenses

     Substantially all of the Company's revenues are derived from operations
     conducted pursuant to licenses granted by the Russian Government. These
     licenses expire in various years ranging from 2004 to 2013. The Company has
     no reasons 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.

     In August 1996, the Company was granted three cellular licenses for
     operation in the 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 these three licenses. No payments were made as
     of December 31, 2003.

     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 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. According to the latest Government announcements
     in view of entrance of Russia to World Trade Organization the change of the
     Group's status as a monopoly supplier of long distance and international
     communications will occur in 2007 at the earliest.

     In addition to industry restructuring plans, the Government announced plans
     to privatize Svyazinvest in 2004. Effects of the industry reform will be
     reflected in the Group's financial statements as they become known and
     estimable.

     e) Insurance matters

     In early 2003, the Company has insured the most of its telecommunication
     equipment. In the opinion of directors, the insurance coverage is
     sufficient to compensate direct losses which could arise from technical
     breakdown.


                                      F-55
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     f) Asset retirement obligations

     The Company may incur cost related to retirement of telecommunication lines
     and other assets and restoration of environment. Such costs may arise in
     connection with registration of title by landlords based on the Land Code
     of the Russian Federation, which came into force effective 2001. The
     management believes that occurrence of such events is unlikely. In
     addition, the timing and amount of such costs may not be identified and
     measured reliably. Therefore, such costs will be recognized as expense when
     they are incurred.

32.  CREDIT RISK MANAGEMENT

     A portion of the Group's accounts receivable is from the State and other
     public organizations. Collection of these receivables is influenced by
     political and economic factors. Management believes there were no
     significant unprovided losses relating to these or other receivables at
     December 31, 2003.

     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 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 held.


33.  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.


34.  SUBSEQUENT EVENTS

     In January 2004, the Group redeemed short-term accounts payable to
     RTC-Leasing by a cash payment of 152. In April 2004, the Group redeemed the
     remaining part of liabilities to RTC-Leasing for a cash payment of 368.

     In April 2004, the Group early extinguished its obligations under the
     credit agreement with RTDC. The amount paid to RTDC was 695.

     In April 2004, the Company entered into credit line agreement with ING-Bank
     with maximum amount of EURO 7 million. The credit line is EURO denominated
     and carries interest rate of EURIBOR plus 0.875% per annum. Amounts drawn
     by the Company in April 2004 amounted to EURO 4.4 million (150 at the
     exchange rate as of April 9, 2004 and April 26, 2004) and were used for
     purchase of equipment. The amounts drawn are to be repaid within 5 years.

                                      F-56
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


35.  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
     of America ("US 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 US 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 US GAAP are presented below
     together with explanations of certain adjustments that affect total
     shareholders' equity and net income as of and for the years ended December
     31, 2003, 2002 and 2001.

Reconciliation of net income (loss)
<TABLE>
<CAPTION>

                                                                                  2003         2002         2001
-----------------------------------------------------------------------------------------------------------------

<S>                                                                               <C>          <C>        <C>
 Net income reported under IFRS                                                   530          678        4,607

US GAAP adjustments:
 Reversal of impairment of property, plant and equipment (a)                     (800)        (602)        (554)
 Deferred tax effects of reversal of impairment of property, plant and
 equipment (a)                                                                    146          100          473
 Unrealized gains on available-for-sale investments, net of tax (b)                (1)         (41)         (48)
 Pension expense, net of tax (c)                                                  (30)         (20)         (20)
 Impact of difference in accounting for investments acquired for resale,
 net of tax and minority interest (d)                                              22          (22)           -
 Impact of goodwill amortization, net of minority interest (d)                     92           35            -
 Partial gain recognition, net of tax (e)                                           -           (3)           -
 Reversal of impairment on investment in equity method
 investee, net of tax (f)                                                          52          (52)           -

-----------------------------------------------------------------------------------------------------------------
 Total                                                                           (519)        (605)        (149)
-----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------
Net income under US GAAP                                                           11           73        4,458
=================================================================================================================
</TABLE>

     Earnings 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.

     Preferred shares carry dividends amounting to the higher of 10% of the net
     income after taxation of the Company as reported 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 partly) dividends on preferred shares has been taken.

                                      F-57
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                          2003             2002            2001
-----------------------------------------------------------------------------------------------------------------

<S>                                                                     <C>              <C>             <C>
Net income from continuing operations under US GAAP                     3,046            2,346           6,723
Dividends on preferred shares                                            (310)            (235)           (124)
-----------------------------------------------------------------------------------------------------------------
Net income from continuing operations applicable to common              2,736            2,111           6,599
shareholders under US GAAP
-----------------------------------------------------------------------------------------------------------------

Weighted average number of ordinary shares outstanding             728,696,320      728,696,320     728,696,320

-----------------------------------------------------------------------------------------------------------------
Net income from continuing operations per share - basic and              3.75             2.90            9.06
diluted
-----------------------------------------------------------------------------------------------------------------

Net loss from discontinued operations under US GAAP                    (3,035)          (2,273)         (2,265)

Weighted average number of ordinary shares outstanding             728,696,320      728,696,320     728,696,320
-----------------------------------------------------------------------------------------------------------------
Net loss from discontinued operations per share - basic and
diluted                                                                 (4.16)           (3.12)          (3.11)
-----------------------------------------------------------------------------------------------------------------
Total net income under US GAAP                                             11               73           4,458
-----------------------------------------------------------------------------------------------------------------

=================================================================================================================
Net (loss) / income per share - basic and diluted                       (0.41)           (0.22)           5.95
=================================================================================================================
</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

<TABLE>
<CAPTION>
                                                                                      2003               2002
-----------------------------------------------------------------------------------------------------------------

<S>                                                                                <C>                <C>
Total shareholders' equity under IFRS                                              48,857             49,033

US GAAP adjustments:
     Reversal of impairment of property, plant and equipment, net of
     related deferred tax liability (a)                                             4,706              5,360
     Pension obligations, net of tax (c)                                                -                 30
     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)                    127                 35
     Partial gain recognition, net of tax (e)                                          (3)                (3)
     Reversal of impairment on investment in equity method investee, net
     of tax (f)                                                                         -                (52)
-----------------------------------------------------------------------------------------------------------------
 Total                                                                              4,830              5,348
-----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------
Total shareholders' equity under US GAAP                                           53,687             54,381
=================================================================================================================
</TABLE>


                                      F-58
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     (a) Reversal of impairment on property, plant and equipment

     In 1998, in accordance with IAS No. 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%.

     IAS No. 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 US 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), requires 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 US GAAP reporting purposes. 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 US GAAP in 1998, a different
     asset base is used to compute US 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, 2003, 2002 and 2001, thus, no
     impairment loss was recognized under US GAAP.

     Deferred tax effect was computed using tax rate of 24% for 2003, 2002 and
     2001. Deferred tax benefit recognized on reversal of impairment on
     property, plant and equipment in 2003, 2002 and 2001 represents the effects
     of reversal of the temporary differences associated with disposals and
     additional depreciation. In 2001, deferred tax benefit also includes the
     benefit of 346 representing the effect of the change in tax rate effective
     from 2002 from 35% to 24%.

     (b) Unrealized gains on available-for-sale investments

     In accordance with IAS No. 39, "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 US GAAP, SFAS No. 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, to
     be 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. Declines in
     value of available-for-sale securities judged to be other than temporary
     are recognized in the statement of operations.


                                      F-59
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     (c) Pension expense and obligations

     The Company makes certain payments to employees on retirement. This
     obligation is substantially similar to that typically existing under a
     defined benefit pension scheme.

     IAS No. 19, "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 US GAAP, similar issues are
     covered by SFAS No. 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
     statement of income 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
     No. 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. SFAS No. 87 provides for recognition
     of prior service cost 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 US GAAP accounts, unrecognized transition
     amounts were amortized over 20 years.

     As of December 31, 2003 the Company ceased to use this pension plan. All
     existing obligations were settled. In relation to this transaction a gain
     of 121 was recognized in IFRS accounts. In US GAAP accounts, the Company
     recognized a gain of 111.

     The details of net periodic pension cost (benefit) included in the Group's
     US GAAP net income for 2003, 2002 and 2001 are presented below.

<TABLE>
<CAPTION>
                                                                    2003              2002             2001
---------------------------------------------------------------------------------------------------------------

<S>                                                                   <C>               <C>              <C>
Service cost                                                          7                 5                8
Interest on projected benefit obligation                             16                30               43
Net amortization of transitional amount                              20                20               20
Actuarial losses/ (gains) recognized in year                         23              (100)            (102)
Gain on curtailment of the pension plan                            (111)                -                -
---------------------------------------------------------------------------------------------------------------
Net periodic pension benefit                                        (45)              (45)             (31)
===============================================================================================================
</TABLE>


                                      F-60
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     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 US GAAP as of
     December 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                                                       2003             2002
------------------------------------------------------------------------------------------------

<S>                                                                     <C>             <C>
Accrued pension cost at beginning of year                               50              100
Net periodic pension benefit                                           (45)             (45)
Paid during the year                                                    (5)              (5)
------------------------------------------------------------------------------------------------
Accrued pension cost at end of year                                      -               50
================================================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                                       2003             2002
------------------------------------------------------------------------------------------------

<S>                                                                      <C>            <C>
 Projected benefit obligations                                           -              174
 Plan assets at fair value                                               -                -
------------------------------------------------------------------------------------------------
 Deficit of plan assets over projected benefit obligation                -              174
 Unrecognized net transition amount                                      -             (124)
------------------------------------------------------------------------------------------------
 Accrued pension cost                                                    -               50
================================================================================================
</TABLE>

     In calculating projected benefit obligations as of December 31, 2002, the
     Group assumed weighted average discount rate in determining present values
     being equal to 20%.

     (d) Accounting for investments in associates

     In accordance with IAS No. 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, in 2002, the Group acquired and, in 2003, 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
     as of December 31, 2002.

     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 US 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 US 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 for 2002 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 US GAAP, net of tax and minority interest.


                                      F-61
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     In 2003 these investments were sold (refer to Note 13). Accordingly, the
     differences in accounting for these investments under IFRS and US GAAP,
     reported in prior periods, reversed in 2003.

     As described in Note 8, during 2002, the Group acquired 15% of voting stock
     of Golden Telecom, Inc. In the opinion of management, the Group exercised
     significant influence over financial and operating policies of Golden
     Telecom. In accordance with IAS No. 28, "Accounting for Investments in
     Associates", the Group amortized 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. During 2003 the equity method
     goodwill related to investment in Golden Telecom recognized in IFRS
     accounts amounted to 95.

     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 and 2003.

     (e) Partial gain recognition

     As disclosed in Note 8, 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.

     In its US 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 US 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

     During 2002 due to certain changes in management's estimates and in
     accordance with provisions of IAS No. 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.

     US GAAP prohibits reversals of previously recognized impairment losses.

     As disclosed in Note 8, in 2003, the investment in MCC was sold.
     Accordingly, all differences in accounting for this investment under IFRS
     and US GAAP reported in prior periods reversed in 2003.


                                      F-62
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


     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 2001 and for the period from January 1, 2002 to September 16,
     2002 (the date of its disposal, refer to Note 8) and as of December 31,
     2001, respectively (translated into Rubles using exchange rate as of
     December 31, 2002):


                                                2002                      2001
-------------------------------------------------------------------------------

Income statement information
         Revenues                              3,218                    3,677
         Operating income                        822                      945
         Net income                              607                      706

Financial position information
         Current assets                            -                    1,440
         Non-current assets                        -                    2,009
         Current liabilities                       -                      696
         Non-current liabilities                   -                      101
         Net assets                                -                    2,652

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):

--------------------------------------------------------

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)


                                      F-63
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


The following table presents summarized income statement and balance sheet
information of the Group's significant equity method investee, Golden Telecom,
Inc, for 2003 and as of December 31, 2003 (translated into Rubles using exchange
rate as of December 31, 2003):

--------------------------------------------------------

Income statement information
  Revenues                                     10,619
  Operating income                              2,054
  Net income                                    1,633

Financial position information
  Current assets                                5,542
  Non-current assets                           15,937
  Current liabilities                           2,944
  Non-current liabilities                       1,365
  Net assets                                   17,090


New accounting pronouncements

In June 2001, the FASB issued SFAS 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.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The
adoption of the provisions of SFAS No. 143 did not have a material impact on the
Group's results of operations, financial position or cash flows.

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 did not have a material impact on the Group's results
of operations, financial position or cash flows.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -Transition and Disclosure - an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of SFAS No. 123
to require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. SFAS No. 148 also amends APB Opinion No. 28, "Interim Financial
Reporting", to require disclosure about those effects in interim


                                      F-64
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


financial information. The amendments to SFAS No. 123 introduced in SFAS No. 148
are effective for financial statements for fiscal years ending after December
15, 2002. The adoption of the provisions of SFAS No. 148 did not affect the
Group's disclosure requirements.

In November 2002, the FASB issued FASB Interpretation, or FIN, No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires that upon
issuance of a guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. The disclosure
provisions of FIN No. 45 are effective for financial statements of annual
periods that end after December 15, 2002. The provisions for initial recognition
and measurement are effective on a prospective basis for guarantees that are
issued or modified after December 31, 2002. The adoption of the provisions of
FIN No. 45 did not have a material impact on the Group's results of operations,
financial position or cash flows.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." FIN No. 46 amended Accounting Research Bulletin No. 51, "Consolidated
Financial Statements", and established standards for determining under what
circumstances a variable interest, or VIE, should be consolidated with its
primary beneficiary. FIN No. 46 also requires disclosure about VIEs that are not
required to be consolidated but in which the reporting entity has a significant
variable interest. In December 2003, the FASB revised certain implementation
provisions of FIN No. 46. The revised interpretation, FIN No. 46R, substantially
retained the requirements of immediate application of FIN No. 46 to VIEs created
after January 31, 2003. There were no such entities created after January 31,
2003. With respect to older VIEs, the consolidation requirements under FIN No.
46R apply not later than for the first financial year or interim period ending
after December 15, 2003, if such a VIE is a special-purpose entity, or SPE, and
no later than for the first financial year or interim period ending after March
15, 2004, if such a VIE is not an SPE.

Nonetheless, the requirements to apply the provisions of FIN No. 46R to all SPEs
created before February 1, 2003 not later than for the first financial year
ending after December 15, 2003 are applicable only to the US domestic filers. As
outlined in a letter from SEC Chief Accountant to AICPA, "Regarding Effective
Date Provisions of FASB Interpretation No. 46 with Regard to Foreign Private
Issuers", dated March 15, 2004, the SEC stated that it would not object to
effective dates of FIN No. 46 (and FIN No. 46R) in respect of VIEs created
before February 1, 2003 for foreign private issuers having fiscal years ending
December 31 and filing their US GAAP accounts only on an annual basis as
follows: for SPEs - not later than January 1, 2004 and all other entities - not
later than December 31, 2004. The Group is still assessing the impact that FIN
No. 46R will have on its results of operations, financial position and cash
flows when applied to VIEs created before February 1, 2003.

In April 2003, the FASB issued SFAS No. 149, "Amendment to Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." It is effective for contracts entered into
or modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. All provisions of SFAS No. 149 should be applied prospectively,
except as stated further. Provisions related to SFAS No. 133 implementation
issues that have been effective for fiscal quarters beginning prior to June 15,
2003, should continue to be applied in accordance with their respective dates.
Rules related to forward purchases or sales of when-issued securities or other
similar securities should be also applied to existing contracts. The adoption of
the provisions of SFAS No. 149 did not have a material impact on the Group's
results of operations, financial position or cash flows.


                                      F-65
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS No. 150 is effective
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. The adoption of the provisions of SFAS No. 150 did not have
a material impact on the Group's results of operations, financial position or
cash flows.

At the March 17 - 18, 2004 meeting, the EITF Task Force reached a consensus on
certain issues related to "participating securities" and the application of the
"two-class method" under FAS No. 128, "Earnings per share." EITF Issue No. 03-6,
"Participating Securities and the Two-Class Method Under FASB Statement No.
128," provides guidance in determining when a security participates in dividends
such that the two-class method must be used to calculate earnings per share.
EITF Issue No. 06-3 clarifies that undistributed earnings for a period should be
allocated to a participating security based on the contractual participation
rights of the security to share in those current earnings. Nonetheless, if the
terms of a security do not specify objectively determinable, nondiscretionary
participation rights, then undistributed earnings would not be allocated based
on arbitrary assumptions. Also, if an entity could avoid distributions of
undistributed earnings to participating security holders, then no allocation of
that period's earnings to the participating security would be made.

As the management of the Group is in a position to influence the amount of
dividends to be paid out to the preferred shareholders, the Group's management
determined that the participation rights of the preferred shareholders in the
earnings of the Group are not nondiscretionary of the Group. As in the past the
Group did not apply the `two-class method" to calculate earnings per ordinary
share for US GAAP purposes pursuant to similar considerations, the new guidance
is not expected to have a material impact on the Group's disclosure regarding
earnings per share.

Consolidated statements of changes in shareholders' equity and comprehensive
income under US GAAP for the years ended December 31, 2003, 2002 and 2001 are as
follows:

                                      F-66
<PAGE>
OAO Rostelecom
Notes to Consolidated Financial Statements for the year ended December 31, 2003
(In millions of Russian Rubles unless otherwise stated, refer to Note 4)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>

                                                                         Common shares            Preferred shares
                                                                       Number of   Share          Number of   Share       Retained
                                                                          shares    capital          shares    capital     earnings
------------------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                                         <C>                 <C>    <C>                 <C>     <C>
   Balance as of January 1, 2001                                     728,696,320         75     242,831,469         25      50,106
------------------------------------------------------------------------------------------------------------------------------------

   Comprehensive income
     Net income                                                                -          -               -          -       4,458
     Net change in unrealized gain on available-for-sale investments           -          -               -          -            -
------------------------------------------------------------------------------------------------------------------------------------
          Comprehensive income                                                 -          -               -          -       4,458

   Dividends for 2000                                                          -          -               -          -        (269)

------------------------------------------------------------------------------------------------------------------------------------
   Balance as of December 31, 2001                                   728,696,320         75     242,831,469         25      54,295
------------------------------------------------------------------------------------------------------------------------------------


   Comprehensive income
     Net income                                                                -          -              -          -           73

     Net change in unrealized gain on available-for-sale investments           -          -              -          -             -
------------------------------------------------------------------------------------------------------------------------------------
          Comprehensive income                                                 -          -              -          -           73

   Dividends for 2001                                                          -          -              -          -         (399)

------------------------------------------------------------------------------------------------------------------------------------
   Balance as of December 31, 2002                                   728,696,320         75    242,831,469         25       53,969
------------------------------------------------------------------------------------------------------------------------------------

   Comprehensive income
     Net income                                                                -          -              -          -           11
     Net change in unrealized gain on available-for-sale                       -          -              -          -            -
     investments
------------------------------------------------------------------------------------------------------------------------------------
         Comprehensive income                                                  -          -              -          -           11

   Dividends for 2002                                                          -          -              -          -         (706)

------------------------------------------------------------------------------------------------------------------------------------
   Balance as of December 31, 2003                                   728,696,320         75    242,831,469         25       53,274
====================================================================================================================================
</TABLE>


<TABLE>
<CAPTION>

                                                                                                       Total
                                                                         Accumulated other      shareholders'
                                                                       comprehensive income           equity
----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>          <C>
   Balance as of January 1, 2001                                                        223          50,429
----------------------------------------------------------------------------------------------------------------

   Comprehensive income
     Net income                                                                           -           4,458
     Net change in unrealized gain on available-for-sale investments                     48              48
----------------------------------------------------------------------------------------------------------------
          Comprehensive income                                                           48           4,506

   Dividends for 2000                                                                     -            (269)

----------------------------------------------------------------------------------------------------------------
   Balance as of December 31, 2001                                                      271          54,666
----------------------------------------------------------------------------------------------------------------

   Comprehensive income
     Net income                                                                           -              73

     Net change in unrealized gain on available-for-sale investments                     41              41
----------------------------------------------------------------------------------------------------------------
          Comprehensive income                                                           41             114

   Dividends for 2001                                                                     -            (399)

----------------------------------------------------------------------------------------------------------------
   Balance as of December 31, 2002                                                      312          54,381
----------------------------------------------------------------------------------------------------------------

   Comprehensive income
     Net income                                                                           -              11
     Net change in unrealized gain on available-for-sale                                  1               1
     investments
----------------------------------------------------------------------------------------------------------------
         Comprehensive income                                                             1               12

   Dividends for 2002                                                                     -            (706)

----------------------------------------------------------------------------------------------------------------
   Balance as of December 31, 2003                                                      313          53,687
================================================================================================================

</TABLE>

                                             F-67