September 2007

September 2007

Russia & CIS Equity Fund Structuring a Shari’ah-compliant product

Rinat Gainoulline,Equity Analyst

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Contents

Regional Overview

Global macro backdrop and the region

The main markets: Russia, Kazakhstan, Ukraine

The Fund

Research Team, Style & Process

Shari’ah Investing Process

Example of Gazprom

Conclusions

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Asset allocation decision—the key drivers

Strong local growth across the region

Region geared to global resources

Political stability

Reforms and restructuring

Development of local markets

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The China Effect

China has overtaken OECD as prime mover for commodities.

Russia & CIS regions will be large beneficiaries of this trend!

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The China Effect (Cont’d)

China forecast to account for 30%+ of world commodity demand by 2010

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The Main Markets

Russia

Kazakhstan

Ukraine

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Russia

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Russia is the main focus

Population of 144 mln and the fastest growth rate in disposable income in

Europe over the past six years--2007 is expected to see the ninth

consecutive year of real GDP growth.

Fastest growing consumer/services market in Europe.

Stable currency since early 2000 – Ruble is now fully convertible.

Politically stable since early 2000 (“smooth transfer of power expected in

March 2008).

Best performing “open” stock market since 1999 – outperforming the GEM

average every year except in 2004.

$15 bln raised at international IPOs in 2006 – projected to be at least $30

bln in 2007 ($9 bln already raised by Sberbank in February).

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Russia: Capital Markets Reform is Ongoing

Companies must now have a local listing before they may have an ADR

issue. ADR issuance is restricted to 35% of the issued equity.

Local bourses account for about 70% of average daily activity in Russian

shares.

Mutual fund investment is steadily growing – boosted by rising

disposable income and stability in the Ruble.

Reform of the pension funding system is one of the key financial reforms

proposed by the government. A substantial amount of local and stable

investment liquidity in the future!

Market reforms, including legislation governing the operation of the

market and conduct of investors, are continuing.

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Russia: Structure of Equity Market

Sector weightings*

Oil & Gas 45%

Metals 12%

Financials 11%

Utilities 7%

Telecoms 4%

Consumer 2%

Other 19%

Largest equities**

Gazprom $253 bln

Rosneft $91 bln

Sberbank $82 bln

LUKoil $66 bln

Unified Energy (UES) $48 bln

Surgutneftegaz $45 bln

Norilsk Nickel(Metals) $43 bln

Vimpelcom (Telecoms) $28 bln

MTS (Telecoms) $26 bln

Novolipetsk Steel $20 bln

Novatek (Gas) $16 bln

Sistema (Diversified) $15 bln

* As at close on Sep 17 2007. Source: Bloomberg,Alfa Bank Research

** As at close Sep 17 2007; Source: Bloomberg

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Kazakhstan

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Kazakhstan: Solid Macroeconomic Environment

Kazakhstan vs. Russia: Real GDP growth, Y-o-Y, 2004-10E

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2004 2005 2006 2007F 2008F 2009F 2010F

%

Kazakhstan Russia

Second-largest economy in the CIS

Economic growth 9.4% in ’05 and 10.6% in ’06 outpaced Russia Per capita income to reach $7,000 in ‘07 2007 inflation forecast is 9.1% vs. GDP growth of 9.7% International reserves/GDP ratio 43-64% in 2006-2010E External government debt/GDP ratio eased to less than 4% in 2006 from 24% in 1999 First CIS country to receive investment grade rating from Fitch (October 2004)Strong FDIs (~$15 bln per year in 2008-10) to contain upside in current account deficit

Source: Bloomberg, Alfa Bank Research


Kazakhstan: International Reserves, 2004-10E

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2004 2005 2006 2007F 2008F 2009F 2010F

$ bln

0

10

20

30

40

50

60

70

%

Forex reserves, eop, $ bln (lhs) Stab. Fund, eop, $ bln (lhs) Int'l Reserves incl. NFRK/ GDP, % (rhs)

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Kazakh Equities: Market structureSector Weightings – Foreign Listings*

Metals 47%

Financials 26%

Oil & Gas 24%

Other 3%

Largest Equities MCAP*

Kazakhmys $12.0 bln

KazMunaiGas E&P $8.9 bln

TuranAlem Bank $6.1 bln

Uranium One $5.7 bln

Halyk Bank $4.9 bln

Kazakommertsbank $3.9 bln

Whilst dominated by financial companies locally (45% of local MCAP), Kazakh equities listed in London, New York and Toronto provide the fund manager with plenty of opportunities to gain Kazakh exposure outside of the banking sector.

*Sector weightings and MCAP data at close September 17 2007Source: Bloomberg, Alfa Bank Research

Out of the total free float of $25.6 bln only on-fifth, or less than $5 bln is traded on a local bourse in Almaty

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Ukraine

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Ukraine: Industrial Growth To Drive Economy

Key Economic Data 08/2007 YE 2007F

GDP, 6M07 to 6M06, % 7.9 6.6

Industrial output, 6M07 to 6M06 12.5 7.3

CPI, June y-o-y 10.1 7.6

PPI, June y-o-y 17.7 12.7

S&P rating BB- BB-

Moody’s rating B1 B1

Exchange Rates, $/UAH 5.1 5.1

EMBI+ Ukraine spread 142 132

Stock MCAP, $ bln 57 64

Source: Moody’s, S&P, Ukrainian State Statistics Committee, Alfa Bank Research

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Ukrainian Equities: Market Structure

Sector Weightings*

Metals 18%

Banking 15%

Power Utilities 10%

Oil and Gas 7%

Telecoms 6%

Pipes 5%

Iron ore & Coke 4%

Machinery 3%

Largest Equities MCAP** (Free Float)

Kryvorizhstal (Steel) $8.9 bln($224m)

Ukrnafta (Oil) $4.1 bln ($328m)

Ukrtelecom $3.6 bln ($72m)

Mariupol Illich (Steel) $3.8 bln ($393m)

Azovstal (Steel) $3.3 bln ($76)

NITR (Steel pipes) $2.0 bln($271m)

Poltavsky GOK (Mining) $1.9bln ($20m)

*Sector weightings at close June 22 2007Source: Bloomberg, Alfa Bank Research

** MCAP data at close Sep 17 2007Source: Bloomberg, Alfa Bank Research

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The Fund: Philosophy and Approach

Philosophy

“We believe in bottom-up stock picking, with a value bias for optimal risk protection and higher-than-average returns over time”

“Assets are frequently mis-priced in less liquid emerging markets – With our experience, skills and contacts we can exploit these undervaluations”

Fund Strategy

Equity long only

Absolute return

Zero leverage

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Portfolio Construction

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Stock Picking: Some Key Criteria

Managements track records Share holder accountability Leverage with government

Assets How much investment is needed Scale, ramp up potential Real book value

Country risks Clan relations Politically stable Taxes

Growth potential Barriers to entry, competition Sector issues

News Flow New acquisitions, spin-offs IPO’s and corporate actions

Valuations DCF fair value—which assumptions? Ratio analysis, comps with peers (PER, EV/EBITDA….) Asset values (EV/bbl of 2p res) Sum of parts

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Compliance

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Shari’ah Process

Core Principles• Islamic finance recognises capital as a factor of production but it does not allow the factor to make a prior or predetermined claim on the productive surplus in the form of interest

• Founded on the “productive” use of money for community benefit

• An “asset based” system where money is not a commodity in itself

• Financiers are party to the underlying transaction

• Transactions must be transparent with all details agreed in advance and ownership undisputed

• Uncertainty, Risk or Speculation is prohibited Source: Islamic Finance – A New Profit Opportunity, a joint proposal prepared by Islamic Finance Consultants E..C. (Bahrain) and Rinat Gainoulline, January 2004

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Shari’ah Process

Our team, specifically the work of Rinat Gainoulline, is a solid

reference in Russia and CIS regions for Shari’ah investing

The process has been developed, refined, and back tested with a

high degree of success

Shari’ah investing is also good risk control in emerging regions

(operational leverage already strong—high levels of financial

leverage are dangerous)

This product is a first in this large and fast growing region

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Fund Strategy & ComplianceThe Alfa Bank local research team, together with an independent Shari’ah Advisory Board will offer investors peace of mind and the knowledge that their investments are in compliance with Shari’ah principles. They will work to establish guidelines for the fund manager as regards ideology of investing and operations of the Fund and to monitor compliance on an ongoing basis.

Preferred shares are seen as corporate debt from the Shari’ah perspective and as such are excluded from coverage

Day-trading, short-selling and other speculative operations based on profiteering from factors other than growth in real asset valuation are unacceptable and impermissible

Hedging techniques such as options are impermissible due to a high degree of uncertainty or Gharar involved

The fund’s cash position should be limited to a minimum required to either increase positions in acceptable stocks or pay redemption without the need to sell undervalued ones

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Screening Stocks (1)

The vast majority of Shari’ah scholars are in agreement that investing in equities is allowed, provided the portfolio’s holdings pass certain screens designed to minimize un-Islamic activities to the greatest extent possible.

Some industries are completely excluded from coverage such as banking, insurance - financials in general - as dealing in Riba

Ensure Shari’ah compliance of each individual stock by using the respective sector and financial screens and to make regular updates of such compliance

Provide the fund manager with a 1 to 3 year compatibility outlook for the stocks covered by the equity research team based on proprietary forward- looking models

Ensure reliability and timeliness of corporate financial data to be used in the stock screens

Set proper accounting/dividend cleansing procedures as required

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Sector screen – based on a list of industry groups as defined by the Dow Jones Global Industry Structure and FTSE Global Islamic Indices with further refinements. Eligible industrial sectors include: oil & gas, petro-chemicals, metals & mining, steel pipes, construction, cement, pulp and paper, fertilizers, automotive, engineering, utilities. Eligible consumer sectors include: pharmaceuticals, household chemicals, cosmetics, dairy products, juices, baby food, telecoms Alfa Bank Islamic Debt Filter – based on debt screens used by the Dow Jones Islamic Markets and FTSE Global Islamic Indices with some refinements (see next slide). Financial Debt ⁄ Owner’s Equity = No more than 33.33%.

Interest Income Filter - based on Saudi Arabia’s National Commercial Bank (NCB) methodology: Interest Income ⁄ Total operating revenue = Less than 5%.

Cash (Liquid Funds) Filter – based on Dow Jones Islamic Markets methodology: (Cash+Interest Bearing Securities) ⁄ 52-week Avg Market Capitalization = Less than 33%.

The screens outlined below contained in research by Rinat Gainoulline and approvedby the Academic Committee of Al Rajhi Banking & Investment Corporation on November 2003. Overall, they are in line with AAOIFI current guidelines.

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How do stock screens work?

Financial screens are calculated based on actual and forecast data derived from financial models for a particular company and is updated by equity analysts on a regular basis. Market data whenever necessary is derived from Bloomberg or Reuters on a real time basis

Using financial estimates for each company covered allows the fund manager to adopt a pro-active approach by removing stocks before they exceed the limits set out by the financial ratios. This process also enables the portfolio manager to make longer-term decisions

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Screening Stocks: Example of Gazprom*GAZPROM

Ticker GAZP RU GAZP RU GAZP RU

2006E 2007E 2008E

Number of common shares outstanding 23,673,510,000 23,673,510,000 23,673,510,000

Current common stock price, $ 10.6300 10.6300 10.6300

Industry group gas producer & supplier gas producer & supplier gas producer & supplier

The result of Industry screen Acceptable Acceptable Acceptable

Alfa Bank Debt ScreenTotal financial debt/Owners' equity net of 52-week ave market value of pref stock, % 30.19 25.32 21.46

The result of Debt screen Acceptable Acceptable Acceptable

Interest Income Screen (2nd Debt Screen)

Interest Income/Total operating revenue, % 0.89 1.43 1.64

Cash screenLiquid funds / 52-Week Average Market capitalization of common stock, % 6.20 7.44 9.06

The result of Cash screen Acceptable Acceptable Acceptable

Unlawful investment screen

S-T + L-T Investment / Total Assets, % 7.54 7.47 7.28

The result of Unlawful Investment screen Acceptable Acceptable Acceptable

The combined result of Debt, Cash and Unlawful Investment screens Acceptable Acceptable Acceptable

Sector screen PASSED

Alfa Bank debt filterPASSED

2nd debt filterPASSED

Cash filter PASSED

Final result PASSED

Unlawful investment filter

PASSED

*Using market prices at close September 17 2007, Source: Bloomberg, Alfa Bank Research

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Russia Islamic Equity Index

We screened Russia’s 50 to 60 most liquid stocks, all the constituents of RTS Index as of March ’03 and March ’07 using screens described earlier in this presentation. The stocks that had passed the screens were then tested for price performance 1 year backwards and 2 year onwards from March ’03, as well as 2 years backwards from March ’07, thereby making up for total track period of 5 years

Of the total 50 stocks constituents of RTS Index as of March’07, 38% (19 stocks) are acceptable based on our methodology

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Stocks on Russia Islamic Equity Index accounted for 54% of the broader RTS Index as of March ‘07


Market capitalization - Russia Islamic Index Stocks, % in Total RTS MCap, Mar '02 - Mar '07

0

10

20

30

40

50

60

70

80

90

100

Mar-02

Jun-02

Sep-02

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Mar-05

Jun-05

Sep-05

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Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

%

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Overall, since March ’02 Russian Islamic equities have performed in line with the broader RTS Index


Islamic RTS Index vs. Modified RTS Index, Mar '02 - Mar '07

0

100

200

300

400

500

600

700

800

900

1,000

1,100

Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07

Points

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

$US mln

MCap - Modified RTS Index, $ mln

MCap - Russia Islamic Equities, US$ mln

Modified RTS Index assuming Index=100 on Mar 1, 2002

RTS Islamic Index assuming Index=100 on Mar 1, 2002

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Russia’s Largest Shari’ah-compliant Equities as of Mar ‘07


Industry MCAP, $ mln at of 1-Mar-07 MCAP as of 17-Sep-07, $ mln% in Total Russia Islamic

MCAP as of Mar '07Gazprom, common Natural gas producer 242,213 251,649 55.4LUKoil, common Oil producer 65,493 65,068 15.0Norilsk Nickel, common Base metals 34,313 42,796 7.8Novatek, common Natural gas producer 17,003 15,850 3.9Novolipetsk Steel, common Steel maker 15,582 19,058 3.6Severstal, common Steel maker 13,554 17,987 3.1Polyus Gold, common Gold miner 9,627 8,054 2.2Tatneft, common Oil producer 9,368 11,547 2.1Irkutskenergo, common Power utility 4,910 4,338 1.1OGK-3, common Power utility 4,394 6,363 1.0Mechel, common Steel maker 4,163 6,390 1.0Uralkaliy, common Potassium maker 3,643 6,798 0.8VSMPO-AVISMA, common Titanium maker 3,545 3,344 0.8Nizhny Tagil Metallurgical Combine, common Steel maker 2,777 3,144 0.6Bashneft, common Oil producer 2,433 2,718 0.6Lebedyansky, common Juice producer 1,643 1,817 0.4Severstal-Auto, common Auto maker 1,062 1,484 0.2Irkut, common Aircraft maker 976 880 0.2RITEK, common Oil producer 898 1,134 0.2Total 437,599 470,420 100.0

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Ukraine: Compliant equities performed better vs broader PFTS from Mar ’05 to Mar ’07 due to overweight in metals

Source: PFTS, Bloomberg, Alfa Bank Research

Islamic PFTS Index vs. Modified PFTS Index, Mr '05 - Mar '07

0

50

100

150

200

250

Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07

Points

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

$US mln

MCap, Ukraine Islamic Equities, $ mln

Market capitalization - Modified PFTS Index Stocks, $ mln

Ukraine Islamic Index assuming Index=100 on Mar 1, 2005

Modified PFTS Index assuming Index=100 on Mar 1, 2005

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Some of Ukraine’s Shari’ah-compliant Equities as of Mar ‘07

Source: PFTS, Bloomberg, Alfa Bank Research

Industry MCAP, $ mln at of 1-Mar-07 MCAP as of 17-Sep-07, $ mln% in Total Ukraine Islamic

MCAP as of Mar '07Kryvorozh Stahl, common Steel maker 5,502 8,851 31.0Ukrtelekom, common Telecoms 3,930 3,658 22.1Ukrnafta, common Oil & Gas 3,812 4,031 21.5MMK Iliicha, common Steel maker 2,236 3,757 12.6Poltava Ore Mining Factory, common Iron ore miner 1,142 1,844 6.4Total 16,622 22,141 93.6

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Some of Kazakh Shari’ah-compliant Equities as of Sep ‘07

Source: Bloomberg, Reuters, Alfa Bank Research* MCAP data at close September 17 2007

Industry Stock ExchangeMCAP as of 17-Sep-07, $

mln

Financial Debt/Equity

Ratio, %

Latest Reporting

Period

52-week stock performance, %

Kazakhmys Copper producer LSE 12,062 4.7 1H07 10.3KazMunaiGas - GDR Oil producer LSE 8,793 8.9 1H07 44.7Max Petroleum Oil producer LSE 713 27.6 1H07 23.6Oriel Resources Chome and ferroalloy producer LSE 680 25.9 1H07 49.6European Minerals Gold miner Toronto 343 20.6 1H07 95.3BMB Munai Oil producer US 257 0.0 1H07 -0.9Celtic Resources Gold miner LSE 226 2.2 2H06 16.3Hambledon Mining Gold miner LSE 133 0.0 1H06 40.5Caspian Services Seismic data/Marine base developer US 124 7.6 1H07 -32.9Alhambra Resources Gold miner Vancouver 103 0.0 2H06 -11.0Caspian Energy Oil producer US 44 16.4 3Q06 -67.6Frontier Mining Gold miner LSE 41 1.6 1H06 -6.2Big Sky Energy Oil producer US 19 4.3 3Q05 -82.2Total 23,538Kazakh foreign listed, total 44,453Share of compliant stocks in total MCAP, % 53.0

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Conclusion

The time is right for an investment fund using Shari’ah principles for Russia & the CIS equities to capture a unique opportunity

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Appendix

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Terms fact sheet - Preliminary

Target investors Shari’ah-minded investors worldwide

Fund size US$30-50 mln

Strategy Equities long-only, Shari’ah compliant stocks

Liquidity Monthly subscriptions, quarterly redemptions

Fees 2% management , 20% performance fees

High water mark Yes

Style Actively managed, absolute performance

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Shari’ah Research

Rinat GainoullineEquity Research

(+7 495) 795 [email protected]

The Shari’ah research effort at Alfa Bank is managed by Rinat Gainoulline, a local specialist on Shari’ah investing. Rinat is acting as a link between the Shari’ah Board, the Fund manager and Alfa Bank’s in-house research to ensure in-house Shari’ah compliance in all aspects of Fund’s investments and operations including the Shari’ah investment screening process.

A few years after joining the Equity Research Team of Russia’s Alfa Bank, Rinat conducted extensive research on Russian Shari’ah-compliant equities with the assistance of Al Rajhi Banking & Investment Corporation of Saudi Arabia.

In October 2003 Rinat took a course in Islamic Fund Management in Manama organized by Bahrain Institute of Banking and Finance. Rinat Gainoulline is the author of “C.I.S. Shari’ah compliant equities: Guidelines for picking acceptable stocks”.

Rinat has worked for several years in the research department of Alfa Bank covering Kazakh equity strategy. Before joining Alfa Bank Rinat worked for Middle East Team at The Gorbachev Foundation in Moscow. Rinat is a graduate of Moscow State Institute for Foreign Relations (MGIMO) with majors in International Economic Relations, Middle Eastern issues and Arabic language. Rinat speaks English and Arabic.

Disclosures

IMPORTANT INFORMATIONThis document is provided for information purposes only and shall not be used as a basis for any investment decisions. This report and the information contained herein are the exclusive property of Alfa Bank. Unauthorised duplication, replication and dissemination of this report, in whole or in part, without the express written consent of Alfa Bank is strictly prohibited. This report, which is a financial promotion for purposes of section 21 of the Financial Services and Markets Act 2000, as amended, is being issued by Alfa Bank and has been approved for distribution in the United Kingdom by Alfa Capital Markets (“ACM”). ACM is regulated by the Financial Services Authority (“FSA”) for the conduct of UK designated investment business and is the trading name of the UK branch of Alfa Capital Holdings (Cyprus) Limited (“ACC”) which is authorised by the Cyprus Securities and Exchange Commission. ACM’s address in the United Kingdom is Level 21, City Tower, 40 Basinghall Street, London, EC2V 5DE. Although ACM has approved this announcement as a financial promotion, it is not by doing so providing any investment advice and it has no responsibility in respect of any decision or investment the recipient may make. ACM is acting exclusively for Alfa Bank and for no one else in relation to the offer and will not be responsible to anyone other than Alfa Bank for providing the protections afforded to clients of ACM or for giving advice in relation to any other matter referred to in this report. Although the information in this report has been obtained from, and is based on, sources Alfa Bank believes to be reliable, no representation or warranty, express or implied, is made by Alfa Bank, ACM or the authors. All information and opinions stated herein are subject to change without notice. ACM makes no warranty or representation that the securities and/or opinions referred to herein are suitable for all recipients. This document has not been approved for distribution to private customers as defined by FSA Rules and may not be communicated to such persons. Alfa Bank, ACC and their associated companies, officers and directors, from time to time, may deal in, hold or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to the securities, financial instruments and companies mentioned in this report, or may have been, or may be represented on the board of such companies. Some investments may not be readily realisable as the market in such securities may be illiquid and therefore valuing the investment and quantifying the risk to which customers are exposed may be difficult. Some investments may be subject to sudden and large falls in value and on realisation customers may receive less than originally invested or, in some cases, be required to pay more. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of the investment, or the income derived from it. Investing in Russia and Russian securities involves a high degree of risk and investors should perform their own investigations and due diligence before investing. Investors should consult with their professional advisors as to the risks involved in making such a purchase. Alfa Bank, ACM, ACC and their associated companies may issue this publication in other countries. The distribution of this publication in such other jurisdictions may be restricted by law and persons coming into possession of this document should inform themselves about, and observe, any such restrictions. Any failure to comply with these restrictions might result in a violation of the securities laws of such jurisdictions. For complete disclosure of material interests and conflicts of interest of Alfa Bank, ACM and their respective affiliates in relation to the investments discussed in this Guide, please review http://alfabank.com/disclaimers before acting on any information contained in this document.

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September 2007