Table of contents

ADDRESS OF CHIEF EXECUTIVE OFFICER TO SHAREHOLDERS 04

BOARD OF DIRECTORS OJSC “MEGAFON” 06

MANAGEMENT BOARD OF OJSC “MEGAFON” 08

ABOUT COMPANY 10

KEY PERFORMANCE INDICATORS OF OJSC “MEGAFON” IN 2003 11

RESULTS OF TECHNICAL DEVELOPMENT 14

FINANCING 15

IT-SOLUTIONS IN MEGAFON NETWORK 15

MEGAFON-2003 CALENDAR 18

STRENGTHENING MEGAFON BRAND 22

MEGAFON. HISTORY 24

FINANCIAL PERFORMANCE 30

ANNUAL REPORT 2003

ADDRESS OF CHIEF EXECUTIVE OFFICER TO SHAREHOLDERS BOARD OF DIRECTORS OJSC “MEGAFON” MANAGEMENT BOARD OF OJSC “MEGAFON” ABOUT COMPANY KEY PERFORMANCE INDICATORS OF OJSC “MEGAFON” IN 2003 RESULTS OF TECHNICAL DEVELOPMENT FINANCING IT-SOLUTIONS IN MEGAFON NETWORK ADDRESS of Chief Executive Officer to Shareholders

Sergey Soldatenkov

Chief Executive Officer OJSC “MegaFon”

Dear Ladies and Gentlemen!

Let me present to you the Annual Report of OJSC “MegaFon” that summarizes the results of the Company's performance in 2003. 2003 laid a landmark into the Company's history: the number of regions covered by MegaFon grew almost 1.5 times: from 40 to 66 in the beginning and the end of the year respectively. More than 1000 communities across use MegaFon services. ANNUAL REPORT 2003

This success of MegaFon's regional expansion was planned in the Sinosure, Chinese Export Credit Agency. Mutually beneficial cooperation Company's business-strategy; the main directions of the strategy in between MegaFon and the RF Sberbank continues: two loan agreements 2003 included strengthening the Company's position as an all-national were signed for the total amount of 120 million US Dollars. operator, expanding the geography of operation and retaining high profitability. Global Trade Review magazine included the Export Facility Agreement between MegaFon and Citibank and ING Bank guaranteed by Export In 2003 26 networks were built, 11 of which for visiting guest subscribers Credit Agencies of Germany, Austria and Italy in 16 best deals of 2003 - roamers at the beginning of their operation, with local subscribers in the world market and noted specifically that MegaFon is the only planned for 2004. Russian company that was included in GTR Best Deals list within the latest seven years. Penza region and the republics of Mariy-El and Tatarstan were included -free space of “MCC-Povolzhie”, and “Uralskyi GSM” launched I am sure that last year achievements will lay a foundation for a profitable mobile services in the Republic of Komi. Worth mentioning is MegaFon and reliable business in Russia. Next year we plan to expand our territory development in Central Russia: in 2003 networks were built in 15 out of presence in Siberia and the Far East, and to finish developing our of 17 regions. Last December the uniform space license territories in Volga region and the Urals. Therefore, there will created by MegaFon spread to the east of the Urals Chain, to the Asian be no “blank spots” on MegaFon's map of covered territory in the part of Russia, as “MegaFon-Siberia” launched services in Novosibirsk European part of Russia and in the Urals, and the first stage of regional and Kemerovo regions. According to the regional development plan, development strategy will be over. the Far East network will start commercial operations in the beginning of 2004. In 2003 MegaFon subscribers grew 108%, and analysts say In the environment of severe competition the most important operator's market general growth was 101%. The Company's market share grew from features will include ability of flexible response to changes in the market 16 % up to 18% by the beginning and the end of the year respectively. situation, forecast of demand for new services and products as well as MegaFon regional subsidiaries use local markets potential effectively: their timely implementation. Next year MegaFon plans to strengthen last autumn the number of subscribers of “MegaFon-Caucasus” and its position as an innovation leader of the market. The Company looks “MegaFon-Volga-region” exceeded one million. forward to obtain licenses for construction and operation of networks.

In June 2003 an important event took place: for the first time in MegaFon's In spite of the magnitude of future achievements, I am sure of their history the Company placed its bonds in the domestic market. Success successful performance. The Company may rely upon the support from of the first ruble bonds issue testifies to the fact that investors highly the shareholders and high potential of united team of professionals, evaluated MegaFon's position as one of the major mobile operators in and it will continue to expand the size of its business in the future. Russia. The issue affected positively the Company's information transparency, which, in turn, strengthened its goodwill and investment appeal.

MegaFon raised long-term financing from the leading Russian and international financial institutions. Facility agreement was signed with Citibank and ING Bank for 75 mln Euros in loans for supply of Siemens network equipment guaranteed by national Export Credit Agencies of Germany (Hermes), Austria (OeKB) and Italy (SACE).

Vneshtorgbank of Russia provided for MegaFon the credit limit at the amount of 40 mln.USD for financing the supplies of Chinese Huawei Technologies. Within this limit two facility agreements for the total amount of 7.4 million US Dollars were signed under guarantees by

04 05 Annika Aimo Nikolay Christiansson Eloholma Pevtsov

Member of the Chairman of the Member of the Board of Directors Board of Directors Board of Directors

BOARD OF DIRECTORS OJSC “MegaFon” ANNUAL REPORT 2003

Erdal Leonid Peter Christofer Otuzbir Rozhetskin Schuchardt Charlier

Member of the Member of the Member of the Member of the Board of Directors Board of Directors Board of Directors Board of Directors

06 07 Sergey Dmitry Igor Alexei Soldatenkov Kononov Nikodimov Nichiporenko

Chief Executive Chief Financial Officer Deputy CEO for Foreign Deputy CEO for Technology Officer of OJSC Economic Affairs and Development “MegaFon”

MANAGEMENT BOARD of OJSC “MegaFon” ANNUAL REPORT 2003

Edward Lubov Ruslan Ostrovsky Rudnitskaya Filatov

Deputy CEO for Chief Accountant Deputy CEO for Commercial Issues federal subsystem of encrypted GSM communication

08 09 ABOUT COMPANY

OJSC “MegaFon” is the first all-Russian mobile operator in GSM 900/1800 standard

Licensed coverage of the Company includes the entire territory of the Within less than two years of its existence MegaFon proved that all- Russian Federation with population of 145 mln. people. MegaFon is Russian network is extremely advantageous, and this fact is supported building its business based on the principles of maximum satisfaction by MegaFon' dynamic growth - about half a million people became of subscribers' demands, fair competition and informational MegaFon subscribers in December 2003 only. transparency. As its strategic target MegaFon perceives creation of a uniform MegaFon's network uses advanced technology that opens new telecommunications space in Russia and getting rid of the concept of capabilities of communications and information handling for its “national roaming”. subscribers. The spectrum of services that is unique for the Russian telecommunications market is addressed both at consumers in general and at corporate clients. ANNUAL REPORT 2003

KEY PERFORMANCE INDICATORS OF OJSC “MegaFon” IN 2003

During 2003 subscriber base increased more than two-fold, from 3 mln. in January 2003 to 6.35 mln. in January 2003. The planned number of subscribers for 2003 was exceeded by over 300 000. In general MegaFon subscriber base increased 108% in 2003.

Within 2002 MegaFon's share in the Russian mobile market surged up Distribution of MegaFon subscribers’ to 18% (16% in the beginning of 2003). In some of the regions market base between regions (thousand persons) share growth was higher than the mean figure for the federal network 7000 - 5% in the Urals and 4% in the South. MegaFon business is growing 6395 faster than the others of the “Big III”. 6000

MegaFon subscribers' base increased 108% in 2003. 5000

4000 Distribution of MegaFon subscribers base between regions 3051

3000 2522 MegaFon- North-West 40% MegaFon- 13% 2000 1702

MegaFon-Centre 1% 1234 1106 939 489 MegaFon-Urals 9% 1000 544 410 329 121 15 0 0 WEST TOTAL URALS VOLGA CENTRE REGION NORTH- MegaFon-Caucasus 19% SIBERIA CAUCASUS MegaFon-Volga-region 18% 2002 2003

MegaFon subscribers’ base increased 2003 2002 MegaFon 108% 222% Entire Market 101% 124%

Distribution of MegaFon subscribers base between regions (thousand persons) NORTH- VOLGA FAR CENTREWEST CAUCASUS REGION URALS SIBERIA EAST RUSSIA 2002 329 1 702 489 410 121 0 0 3 051 2003 939 2 522 1 234 1 106 544 15 0 6 359 Growth 185% 48% 152% 170% 349% - - 108%

10 11 Murmansk

Pskov Kaliningrad St. Petersburg

Veliki Novgorod Petrozavodsk Smolensk Arkhangelsk Tver Vologda “MegaFon-North-West” Kaluga Moscow Nar’jan-Mar Braynsk Yaroslavl Kursk Oryol “MegaFon-Moscow” Tula Vladimir Belgorod Lipetsk Syktyvkar Ryazan Ivanovo Kostroma Voronezh“MegaFon-Centre” Nizhni Novgorod Tambov Kirov Rostov-on-Don Yoshkar-Ola Salekhard Krasnodar Kudimkar Penza Norilsk “MegaFon-Caucasus” Saratov Izhevsk Perm Majkop Stavropol Volgograd Samara “MegaFon-Volga-region” “MegaFon-Urals”

Nalchik Ufa Elista Ekaterinburg Khanty-Mansiysk Vladikavkaz Astrakhan Orenburg Tyumen Groznyj Kurgan Makhachkala

Omsk “MegaFon-Siberia”

Tomsk Novosibirsk Kemerovo Krasnoyars

Barnaul

Abakan

Kyzyl

MAP OF LICENSED TERRITORY

network operated till 2003 network provides roaming network started its operation in 2003 network not available yet ANNUAL REPORT 2003

Anadyr

orilsk Palana

“MegaFon-Far East” Magadan

Tura

Petropavlovsk-Kamchatsky Yakutsk

oyarsk

Blagoveshensk Irkutsk Yuzhno-Sakhakinsk Chita Ulan Ude Khabarovsk Birobidzhan

Vladivostok

12 13 RESULTS OF TECHNICAL DEVELOPMENT MegaFon's main technical achievement last year was increasing its network two-fold as compared to 2002

Intensive development in network equipment was based on active and external roaming on GPRS platform basis was launched in the growth of existing networks and construction of new networks in the networks of 9 operators in 8 countries. Center, Urals, Volga and Siberia regions. The most considerable growth was in number of TRX in 1800 band which resulted from implementing Roll-out of GPRS infrastructure in the regions is planned to be completed the strategy of network technical development, in particular expansion in 2004. of its coverage and capacity. In 2003 construction of basic packet network was started that will In 2003 MegaFon started to render roaming services for pre-paid increase considerably utilization of the network. The first fragment was subscribers on the basis of CAMEL 2(3) protocol - a standard protocol deployed in the Caucasus. for mobile networks services constructed upon intellectual platforms. Upgrades of the switching equipment resulted in intra-net roaming Growth of equipment during the year: arranged for pre-paid subscribers of MegaFon subsidiaries in Moscow and Caucasus. Tests of intra-net roaming on the basis of CAMEL in other Equipment Growth, % regions are expected to finish in 2004. HLR, number 50 Simultaneously with developing intranet roaming for pre-paid HLR, capacity 127 subscribers, preliminary tests of international roaming in MegaFon's MSC, number 82 foreign partners took place. MSC, capacity 123 BSC, number 127 By the end of 2003 roaming is available for contract subscribers in 324 BSC, capacity 95 operators' networks in 167 countries. BTS, sites 86 Sectors 101 In 2003 commercial operation of GPRS in MegaFon network was TRX 900 71 launched. Since spring 2002 GPRS-based services had been available TRX 1800 153 in Moscow, and in spring 2003 - in Saint-Petersburg; besides, intra-net TRX (900+1800) 94

Dynamics of launching new base stations in the regions

шт.

1600

1400 1178 1200

1000 748

800 664 590 600

400 236 188

200 113

0 WEST URALS VOLGA CENTRE REGION NORTH- SIBERIA FAR EAST FAR MOSCOW CAUCASUS 2001 2002 2003 2004 ANNUAL REPORT 2003 FINANCING

Well-balanced investment policy of the company is one of the most financing the supplies of network equipment manufactured by Chinese important factors of MegaFon's dynamic development in 2003, which Huawei Technologies for construction of networks in Siberia and Far East. provided for growth of regional networks of over one and a half times It is planned to continue cooperation with the RF Vneshtorgbank and the and for doubling of the subscriber base. Industry and Commerce Bank of China in 2004 for obtaining financing for development of MegaFon network in Siberia and Far East. MegaFon was successful in raising debt financing under its investment program for 2003. In October 2003 the 7-year facility agreement was signed with Citibank and ING Bank for 75 mln Euros in loans guaranteed by national export Important event for the company took place in June 2003: for the first and credit agencies of Germany (Hermes), Austria (OeKB) and Italy (SACE). time MegaFon placed debt securities in the domestic market - bearer The proceeds are intended for financing the supply of Siemens equipment bonds with total face value of 1.5 billion Rubles and coupon rate of 11.5% for MegaFon's networks in Volga region and the Urals. per annum. As a result of the auction the placement price was 105.04% from the bonds face value. Yield-to-maturity was 9.75% per annum. In December 2003 MegaFon and Sberbank of Russia signed two loan The total number of the bonds was placed through an auction, the scope agreements for 70 and 50 million USD. The tenor of both agreements of demand exceeded 2.5 billion Rubles. was 5 years. The loans are intended for financing the working capital of the Company. In August 2003 MegaFon signed facility agreements with the RF Vneshtorgbank for 4.1 and 3.3 mln. US Dollars under guarantees Successful placement of securities in the Russian stock market as well of Sinosure, Chinese export and credit agency, within Vneshtorgbank's as raising long-term loans from the leading Russian and international limit of credit at the amount of 40 million USD. The tenor of both agreements institutions testifies without any doubt to the fact that market position was 6 years. Vneshtorgbank acted as the Russian bank that transferred of one of the largest mobile operators in our country has been positively a loan from the Industry and Commerce Bank of China to MegaFon for perceived by investors.

IT-SOLUTIONS IN MegaFon NETWORK

Further to developing the license territory MegaFon pursues the policy By the end of the last year the System for Roaming Support was launched; of business processes unification, brings them to uniform standards as the system supports commercial roaming o the basis of pre-paid platform well as implements the uniform management system. MegaFon's first and GPRS services outside of the “home net”. step in this direction is implementation of the project of Automated System for Enterprise Resource Planning (on the basis of SAP R/3, 1С: Enterprise) - this is the way to enable the Company to switch to the new Chart of Accounts, as well as to consolidate its accounting statements (Russian and international (US GAAP) standards).

In 2003 information and billing solution was implemented, providing informational support for subscribers in intra-net roaming, as well as accepting cash payments from intra-net guest subscribers. Since December 2003 the system has been operating in “MegaFon-Moscow” and “MegaFon-Volga-region” networks.

14 15 MEGAFON 2003 CALENDAR STRENGTHENING MEGAFON BRAND MEGAFON. HISTORY ANNUAL REPORT 2003 MegaFon-2003 CALENDAR

January “MegaFon-Caucasus” implemented the satellite navigation system The number of subscribers in “MegaFon-Volga-region” and “MegaFon- GPS/GSM “Auto-Navigator”. This is the first controlling team in North Caucasus” networks was half a million each, the number of “MegaFon- Caucasus who will be working in real time. North-East" subscribers in Murmansk and Murmansk region exceeded 100 000. New services “Favorite” were launched for “MegaFon-North-West” subscribers, new technologies-based (GPRS, MMS, LBS) were launched “MegaFon-Urals” started connected subscribers in Yamalo-Nenetsky into commercial use. Autonomous Disctrict. Connection fee for “MegaFon-Caucasus” contract subscribers lowered MegaFon in the Northern Caucasus launched WAP and Mobile Internet two times; the “Mask” project enables “MegaFon-Caucasus” subscribers services. to publish private announcements in mass media and the Internet through SMS. Contract subscribers of “MegaFon-Caucasus” can now refill their accounts in roaming in Moscow and Moscow region. New tariff plan “Jazz” for subscribers in Caucasus with direct city numbers was launched. In Perm “MegaFon-Urals” opened a Call-Center for its subscribers.

New services were launched for “MegaFon-Urals” subscribers: SMS- February paging and receiving information on your account balance at your e-mail “MegaFon-Volga-region” started its work in the Republic of Tatarstan. address. New Customer Care Centers were opened in Samara (Volga-region), For “MegaFon-North-West” subscribers uniform intranet tariff - 0,05 USD Novorossiysk (Caucasus) and , (MegaFon-Urals). - was launched.

May New tariffs “JUST!LIGHT”, “WEEK&LIGHT” and “ZOOM/LIGHT” joined At “Szyaz-Expocom” Exhibition “MegaFon-Moscow” for the first time in “GSMLIGHT” family in Saint-Petersburg and Leningrad region. Russia demonstrates mobile TV (video streaming technology). New services were launched in “MegaFon-Caucasus” network - “Favorite Number” giving discounts for calls to a certain numbers, and “SMS to Customer Care Centre was opened in Naberezhny Chelny (Tatarstan), e-mailbox”. New tariff plans launched in “MegaFon-Caucasus” - “Active” “MegaFon-Volga-region”. with federal and city numbers. Network in the Urals was expanded: network launched in Novouralsk Uniform emergency number was created in “MegaFon-Urals” - 911. and Nev'yansk (Sverdllov region), Nefteyugansk and Nizhnevartovsk (Khanty-Mansyisk region). March First Russian illustrated mobile guide across Moscow “City Atlas” was June created. For the first time MegaFon placed debt securities in the domestic market - bearer bonds with total face value of 1.5 billion Rubles. April “MegaFon-Urals” had connected 200 000 subscribers. The number of “MegaFon-Caucasus” subscribers amounted to 700 000. ANNUAL REPORT 2003

June 1 to July 31 a promo action “Two months without monthly fee” was “MegaFon-Moscow” and “Megafon-Volga region” subscribers got an organized for subscribers in the region of “MegaFon-North-West”. opportunity to credit a personal account in roaming of MegaFon's Urals network. New tariffs were introduced for “MegaFon-Caucasus” subscribers: contract tariff plans “Megapolis” (6 tariffs with federal and local phone numbers), “MegaFon-North-West” introduced a new tariff plan “Subscriber” for unlimited tariff plan “Magnat” and a new pre-paid tariff “NEO Light”. subscribers having federal numbers. The option saves up to 30% of New program for corporate subscribers provided for 4 tariff plans and subscriber fee; a discount. Coverage area has been expanded in Urals: communication was provided A new service center for “MegaFon-Caucasus” subscribers was set up in in the town of Artemovsky (Sverdlovsk region), Surgut, Poikovsky (Khanti- the town of Kamensk-Shahtinsky (Rostov region). Mansiysky Autonomy), Korkino (Chelyabinsk region). According to the program of expanding network capacity a new switching center was put July into operation in Surgut. The number of subscribers in “MegaFon-Volga-region” exceeded 800 000, of “MegaFon-Moscow” - 500 000, of “MegaFon-North-West” in September Vologda region - 100 000. MegaFon network was launched in the town of (Chelyabinsk region). “MegaFon” introduced a new tariff plan “Telemetria” in St. Petersburg, which does not provide services of voice traffic, but makes it possible to All outgoing calls in All-Russia “MegaFon” network are rated as “home” operate remotely automated equipment using GPRS. ones.

For “MegaFon-Center” subscribers new tariff plans of “PRIYOM” family For “MegaFon-North-West” subscribers unlimited tariff plan has been (all incoming calls are free) were introduced in Nizhniy Novgorod. introduced “Zero.net” with unlimited traffic of outgoing calls within All- Russia "MegaFon" network. Wall Street Journal Europe notes bright marketing ideas of “MegaFon- Moscow”. “MegaFon-Caucasus” contract subscribers got an opportunity to pay for the mobile services when they were in roaming in Volga, Central and A new service center for “MegaFon-Caucasus” subscribers was set up in Urals regions. the town of Maikop, the capital of the Republic of Adygeya. For “MegaFon-Urals” subscribers a new service “Date of last call” was August introduced as well as mobile games “SMS-Flirt” и “Love arrow”. MegaFon signed facility agreements with the RF Vneshtorgbank for 4.1 and 3.3 mln. US Dollars under guarantees of Sinosure, Chinese export For “MegaFon-Caucasus” subscribers a service center was set up in the and credit agency, within Vneshtorgbank's limit of credit at the amount town of Gelendzhik, Krasnodarsky region. of 40 million USD. October “MegaFon-Moscow” introduced a tariff О'LIGHT - for the first time in The 7-year facility agreement was signed with Citibank and ING Bank for Russia the operator starts to pay subscribers for the calls of certain 75 mln Euros in loans guaranteed by national export and credit agencies duration. of Germany (Hermes), Austria (OeKB) and Italy (SACE).

“MegaFon-Caucasus” became the first Russian mobile network, providing “MegaFon-Caucasus” network had one million subscribers “MegaFon- unique service on the basis of JUST technology. The service called Urals” network had 400 000 subscribers. “Infomania” enables subscribers to get all kinds of information via USSD- commands or SIM-cards with embedded JUST-browser: news, currency “MegaFon-Volga region” network started operation in Penza region. exchange rate, weather forecast, TV program etc. For “MegaFon-North-West” subscribers a new tariff plan with federal

18 19 numbers was introduced “Present.ru” with preferential rates for calls in and 50 million USD. The tenor of both agreements was 5 years. the evening and at night. A new tariff plan “Comfort Light” with unlimited The number of subscribers of MegaFon in the Urals reached 500 000. validity period was introduced. “MegaFon-Volga region” started providing services in the Republic “МegaFon-Urals” improves the quality of service: call-center service of Mari El. started operation and a new service “SMS payment” was introduced. New service centers were set up in Samara (Volga-region) Nizhnevartovsk “MegaFon-Center” network was put into operation in Tver, Belgorod, (Urals). Lipetsk, Tambov, Tula, Kaluga, Ryazan and Kursk regions.

Coverage area was expanded: mobile communication was introduced in Common space, being built by “MegaFon”, spread the town of Kachkanar (Sverdlov region). to the east of the Urals range to the Asian part of Russia. On December 16 “MegaFon-Siberia” started operating in Novosibirsk, on December November 18 - in Kemerovo and Novokuznetsk. “MegaFon-Volga-region” subscribers exceeded 1 000 000. “MegaFon-North-West” introduced a new tariff plan “Online.ru” for “MegaFon-Urals” started operating in the Republic of Komi; “MegaFon- subscribers, actively using data transmission. “Online.ru” includes a Center” started connecting subscribers in Vlaimir. number of non-voiced services, the cost of “Mobile Internet” service was lowered; For “MegaFon-North-West” subscribers a new tariff plan “Abonement-3” was introduced in St. Petersburg, which makes it possible to save up “GPRS-corporate network” was introduced in “MegaFon-North-West” for to 90% of monthly fee on the tariffs for federal numbers. corporate customers;

For the 2nd anniversary of “MegaFon-Moscow” the first “cellular palm O'LIGHT tariff working in “MegaFon-Moscow” got a prestigious prize tree” in Russia was made (a huge pole with cell antenna, disguised as “Proposal of the Year 2003”. an exotic tree). For pre-paid subscribers of “MegaFon-Caucasus” roaming was introduced “MegaFon-Moscow” was the first in Russia to introduce a new service in the network of “MegaFon-Moscow". “Who called?”. For “MegaFon-Volga region” a center of mobile communication was set “MegaFon-Caucasus” cancelled charges for incoming calls from up in the Republic of Kalmykia, town of Elista (Povolzhie), Rostov-on-Don subscribers of other mobile operators, for subscribers of corporate tariffs (Caucasus), Surgut (Urals). such as “Corporation” and “Monopoly” all the incoming calls are free. For “MegaFon-Urals” subscribers a new service center was set up in Service centers for “MegaFon-Caucasus” subscribers were set up in the Surgut; coverage area expanded to the town of Kasli, Troitsk, town of Volgodonsk (Rostov region) and in the town of Nalchik, the capital Emanzhelinsk, Ozersk and (Chelyabinsk region), Suhoi Log of Kabardino-Balkariya; (Sverdlovsk region), Ekarerinburg - Tyumen.

Range of services for “MegaFon-Urals” was expanded: a service “Logos and ring tones” was introduced. Coverage area expanded: the town of , , and (Chelyabinsk region), Noyabrsk (Yamalo-Nenetsky Autonomy), Krasnokamsk (Perm region), Serov (Sverdlovsk region).

December MegaFon and Sberbank of Russia signed two loan agreements for 70 ANNUAL REPORT 2003

20 21 Murmansk

Pskov Kaliningrad St. Petersburg

Veliki Novgorod Petrozavodsk Smolensk Arkhangelsk Tver “MegaFon-North-West” Vologda Kaluga Nar’jan-Mar MOSCOW Braynsk Yaroslavl Kursk Oryol Tula “MegaFon-Moscow” Vladimir Ivanovo Belgorod Lipetsk Syktyvkar Ryazan Kostroma “MegaFon-Centre” Voronezh Kirov Nizhni Novgorod Tambov Rostov-on-Don Yoshkar-Ola Salekhard Krasnodar Penza Kudimkar Izhevsk “MegaFon-Caucasus” “MegaFon-Volga-region” “MegaFon-Urals” Volgograd Majkop Stavropol Saratov Perm Kazan Samara

Nalchik Ufa Elista Khanty-Mansiysk Vladikavkaz Ekaterinburg Orenburg Astrakhan Chelyabinsk Tyumen Groznyj Kurgan Makhachkala

Omsk

Tomsk Novosibirsk Notes: Kemerovo

Borders of super-region, are shown in accordance with territorial division of the Ministry for Communications and Informatization of the RF. Barnaul MegaFon in Povolzhie is represented by such companies as OJSC "MSS - Povolzhie" and OJSC "Volzhsky GSM". MegaFon in the Urals is represented by the companies CJSC "Uralsky GSM" and CJSC "Mobicom-Kirov". Ab

STRENGTHENING MegaFon BRAND

2003 was the year of a successful MegaFon federal image promotion Tariff policy campaign. MegaFon's presence on the federal channels as well as A major advantage was created in MegaFon tariff policy in 2003: in adjusting regional promotion campaigns to uniform standards December new uniform intra-net roaming tariffs were launched in strengthened the Company's positioning as a federal operator. MegaFon regional networks. MegaFon Brand Book was also targeted at creation of a uniform brand Regional tariff plans are based upon uniform tariff principles mark in all regions of the country. characterized by flexibility and transparency, as well as by their unique status in the market. Last year foundation was laid for developing a uniform proposal for major corporate subscribers with subsidiaries in more than one region. This will enable the Company to develop a uniform scheme of serving both corporate and private subscribers across the entire coverage territory. ANNUAL REPORT 2003

Anadyr

Norilsk Palana

“MegaFon-Far East” Magadan

Tura

“MegaFon-Siberia” Petropavlovsk-Kamchatsky Yakutsk

ovo Krasnoyarsk

Abakan Blagoveshensk Yuzhno-Sakhakinsk Irkutsk Chita Kyzyl Ulan Ude Khabarovsk Birobidzhan

Vladivostok

Products and services market transparency, as well as emplementing promising telecom- Value added services create one of the most profitable income sources munications technologies. of mobile operators - new multimedia technologies, lower equipment prices, which brought about fast spread of mobile terminals with color The Company's business activities last year resulted in more than 50% displays and polyphonic ring tones, allow development of new attractive growth of revenue from value-added services, which comprised about services. This results, on the one hand, in increased users' interest 7% of total revenue by the end of 2003. towards multimedia applications, and on the other hand, in a growing number of content- and services providers involved in the business - that means, the value-added services market is expanding.

MegaFon takes all relevant steps to promote and directly organize value added services market - this implies, first of all, creating conditions for

22 23 MegaFon. HISTORY

“MegaFon-North-West”

1993 1999 On June 17 CJSC “North-West GSM” was registered in St. Petersburg In May the number of the North-West GSM subscribers exceeded 100 administration. thousand. In July there were active roaming agreements with all GSM operators in Europe. Acquisition of North-West DCS company was the 1994 most important event of the year and it allowed to expand the licensed A tender for vendor selection was held, and as a result of which the territory to Pskov, Novgorod and Kaliningrad areas, besides, it became winner was from . In early August North-West GSM possible to launch dual-band network GSM 900/1800. started its operation in St. Petersburg. By the start of the test Quantitative parameters of the year: 130 thousand subscribers, 284 network operation, the network included 5 base stations. First base stations in the network, 166 active roaming agreements. commercial subscribers came in mid-December, by that time the network included 13 base stations. 2000 By the end of the year the North-West GSM network had over 250 1995 thousand subscribers, 364 base stations and 200 roaming agreements. Commercial operation of GSM network in Saint-Petersburg officially started on January 17. The first year of operation 2001 resulted in 8 thousand subscribers. There were 23 base stations in the In July 2001 networks in Kaliningrad, Pskov and Kaliningrad were network. launched.

1996 On August 14 Russian companies Telecominvest, CT-Mobile, Finnish By the beginning of summer over 10 thousand customers were using Sonera and Swedish Telia announced an event that was unprecedented North-West GSM service. By the end of the year the number of for the Russian market: creation of a single operator that would provide subscribers was close to 25 thousand, there were roaming service for the entire Russian territory. Within the framework of this agreements with 30 mobile operators; the network included 63 base project it was planned to consolidate CJSC “North-West GSM” with CJSC stations. “Sonic Duo”, CJSC “Mobikom-Kavkaz”, CJSC “Mobikom-Center”, CJSC “Mobikom-Novosibirsk”, CJSC “Mobikom-Khabarovsk”, CJSC “Mobikom- 1997 Kirov”, OJSC “MCC-Povolzhye”, CJSC “Volzhsky GSM” and CJSC “Uralskyi In summer North-West GSM networks were launched for commercial GSM”. That was the start of MegaFon project. operation in Arkhangelsk, Murmansk and Petrozavodsk. In November the number of the company's subscribers exceeded the level of fifty By the end of the year number of the North-West GSM subscribers thousand. The year was finished with the following parameters: 55 reached 800 thousand, the number of base stations exceeded 500. thousand subscribers, 79 active roaming agreements, 146 base stations in the network. 2002 On May 2 the number of subscribers connected to North-West GSM 1998 network was one million. In July operation of network in Cherepovets was started. On May14 a decision was taken by the General Meeting of Shareholders Network in Vologda was launched in December. Results of the year: 92 to rename the company to OJSC “MegaFon”. thousand subscribers, 245 base stations and 118 active roaming On July 1 the North-West Branch of OJSC “MegaFon” was established agreements. on the basis of North-West GSM infrastructure and personnel. ANNUAL REPORT 2003

“MegaFon-Volga-region” subscribers. 5 base stations (4 of them were in Saratov and one of them was in the city of Rusaevka) were integrated into the network.

1995 2000 On January 18 OJSC “MCC-Saratov” was registered in the City In January “МСС-Saratov” acquired and launched its own switchboard Administration of Saratov. in Saratov. The subscribers received full-fledged local numbers. In May the second stage of network construction started - 8 more base stations 1997 were included (in the cities of Saratov, Balakovo, Elgels, Marks, Vol'sk). On March 7 OJSC “MCC-Saratov” obtained license № 6416 for providing cellular communication services in 900 MHz frequency range on the On October 13 “МСС-Saratov” obtained license №16338 of the Ministry territory of Saratov and Saratov area. of the Russian Federation for Communications and Informatization for providing cellular communications services in 900/1800 МHz frequency 1998 range on the territory of Volga region that includes 12 regions of the On March 26 CJSC “Volzhsky GSM” was registered in . The Russian Federation. They are Saratov, Samara, Volgograd, Ulianovsk, founders of the company were OJSC “Telecominvest” (St. Petersburg) Astrakhan and Penza areas, Mordovia, Bashkortostan, Kalmykiya, and OJSC “Svyazinform” (Saransk, Mordovia). The activity of the company Tatarstan, Mari El and Chuvashia that cover 25% of the population of as a commercial representative of OJSC “Svyazinform”, was based on Russia. license № 3114 dated 26.04.1996 for providing cellular communications services in 900 MHz frequency range on the territory of Mordovia. On November 29 on the basis of the decision taken by the General In 1998 the supply contract with Nokia Telecommunications was signed. Shareholders' meeting, OJSC “MCC-Saratov” was renamed to OJSC In June the first base station in Saratov was put into operation. On “МСС-Povolzhye”. August 7 the first subscriber was connected to the network of CJSC “Volzhsky GSM”. In 1998 subscribers' number exceeded 100, the On December 1 the company began to operate under the new brand of number of base stations comprised 5. “MegaFon”. At the end of the year MegaFon subscribers' base in Saratov comprised 2 445 and the annual subscribers' growth amounted to 1 On July 1 the control stake of OJSC “MCC-Saratov” shares was transferred 946. The network included 15 base stations. to OJSC "Telecominvest".

1999 In November “Volzhsky GSM” began to provide cellular communications A tender for supply of telecommunications equipment for network services under the “MegaFon” brand. construction in Saratov was won by Siemens from Germany. Network construction started in May 1999 года. On August 25 the commercial In 2000 MegaFon subscribers' number in Mordovia exceeded 600, the operates of OJSC “MCC-Saratov” network that was the first network of number of base stations amounted to 5. GSM standard in the area, started. By the beginning of the commercial exploitation, 6 base stations provided the coverage of 70% of the The technological and commercial integration of CJSC “Volzhsky GSM” territory of Saratov. In October one more base station in the city of into OJSC “МСС-Povolzhye” started. Engels was put into operates. 2001 The results of the year: subscribers' base comprised 449, the network On April 2 the Head office of OJSC “МСС-Povolzhie” was moved to the included 7 base stations. city of Samara.

On November 11 CJSC “Volzhsky GSM” obtained license № 13282 of On July 30 subscribers' number in Saratov amounted to 5 000. On the State Committee of the Russian Federation for Telecommunications November 2 MegaFon network in Samara area was launched into for providing cellular communications services in 900 MHz frequency commercial operates. This is the date of the beginning of the commercial range on the territory of Mordovia. The results of 1999: over 250 operates of MegaFon network in enlarged Volga region. MegaFon network operates in Samara and Saratov areas and in Mordovia.

24 25 2002 2002 The year 2000 was the year of MegaFon's active expansion into th parts Two contracts - one for equipment supply with Siemens, Germany and of Volga region. On March 21 the commercial operates of the network the other one for constructions works on network of extended Ural in Bashkortostan started. On March 27 MegaFon subscribers' number region with OJSC “Giprosvyaz-4” - were signed. The first base stations exceeded 100 000. According to the growth rate of the subscribers' were launched in May. In June OJSC “MegaFon” became its sole shareholder. base, the company become the leader among the cellular companies in the regional cellular market. On July 17 the commercial operation of MegaFon network in Extended Ural region started. On that day “MegaFon-Ural” began to connect its On July 4 MegaFon subscribers' base in Volga region exceeded 200 first subscribers in Yekaterinburg, Nizhniy Tagil and Tchelyabinsk. On 000. For three months of work the company doubled its subscribers' August 30 the number of subscribers amounted to 10 000. On that base. very day the network in Khanti-Mansiysk autonomous area was launched. In December MegaFon began to operate in Perm and Tumen areas. On August 29 MegaFon - the first All-Russian network of the cellular By the end of the year subscribers' number comprised 107 000. communications - started to operate in Volgograd area. On October 17 the network in Ulianovsk area was launched. On December “MegaFon-Moscow” MegaFon came to Kalmykia, and on December 19 - to Astrakhan area. 1999 “MegaFon-Urals” In December CJSC “Sonic Duo” was registered. 2000 1998-1999 In May “Sonic Duo” obtained license № 15002 of the Ministry of the On March 23, 1998 the Constituent Agreement on establishment of CJSC Russian Federation for Communications for providing cellular “Uralskyi GSM” was signed. On March 26 the company was registered in communications services in GSM 900/1800 standard on the territory the Administration of Tchkalov district of Yekaterinburg. of Moscow and Moscow area.

On April 28 the company received license № 10010 for providing cellular 2001 communications services in GSM standard - that was the license that entitled In March “Sonic Duo” joined Russian National Association 3G the company to provide cellular communications services in GSM standard In August “Sonic Duo” became the part of MegaFon - the first All-Russian on the territory of all 12 regions of Urals. In 1998-1999 the telecoms of mobile operator. On November 21 the commercial operation of almost all of the parts of Ural Federal Okrug, namely OJSC “Tumentelecom”, “MegaFon-Moscow” network started. OJSC “Khantymansyiskokrtelecom”, OJSC “Uralsvyazinform” and CJSC “Digital networks of Udmurtia - 900” became the shareholders of the company. 2002 However, due to financial difficulties that arose after August 1998, local In February the international credit institutions began to finance MegaFon operators could not continue to finance the development of the company, network in Moscow area. In February in “MegaFon-Moscow” network so the network construction was actually frozen. the first in Eastern Europe video-call between 3G test systems in Moscow and St. Petersburg was made. 2000 CJSC “Mobikom-Kirov” was registered in the Registration Chamber of Kirov On March 1 in “MegaFon-Moscow” network the first pre-paid tariff plan City Administration on April 27, 2002. In July the company obtained a license “GSMLIGHT” was introduced. In September “MegaFon-Moscow” was No. 15409 rendering mobile communications service in GSM standard. First the first Russian mobile operator that made GPRS services available to subscribers joined in the network in 2001. all the subscribers, including pre-paid ones. In November in “MegaFon- Moscow” network the legendary game BotFighters, based on mobile 2001 positioning, was introduced. In “MegaFon-Moscow” network tariff plans The local operators seized to be shareholders of the company. In March OJSC “PRIYOM” with free incoming calls were introduced. For the first time “Telecominvest” became the shareholder of the company. in Russia, in December MMS services with real content started in ANNUAL REPORT 2003

“MegaFon-Moscow” network. On the basis of “MegaFon-Moscow” “MegaFon-Centre” network the first in Eastern Europe dispatching Internet system WEB-

Locator, using GSM network recourses was introduced. “PRIYOM” tariff 2001 plan received a prestigious prize “Proposal of the Year”. CJSC “Mobikom-Centre” was registered in the City Administration of Voronezh. OJSC “MegaFon” possesses 100% shares of this company. “MegaFon-Caucasus” On December 10 CJSC “Mobikom-Centre” obtained license № 20377 for providing cellular communications services in 900/1800МHz frequency range on the territory of 17 areas of the Central region 2000 of Russia. The licensed territory of CJSC “Mobikom-Centre” includes CJSC “Mobicom-Kavkaz” obtained license of the Ministry of the Russian Belgorod, Bryansk, Vladimir, Voronezh, Ivanovo, Kaluga, Kostroma, Federation for Communication and Informatization for providing cellular Kursk, Lipetsk, Nizhniy Novgorod, Orel, Ryazan, Smolensk, Tambov, communication services in GSM 900/1800 standard. CJSC “Mobicom- Tver, Tula and Yaroslavl areas. Kavkaz” was founded by OJSC “MTT-Invest”. In October 2000 OJSC “Telecominvest” acquired 51% of shares in CJSC “Mobicom-Kavkaz”. 2002 CJSC “Mobikom-Centre” central office was moved to the city of Nizhniy 2001 Novgorod. Telecominvest raised its share in Charter capital of CJSC “Mobicom- Kavkaz” to 74.5%. On December 10 the first subscriber was connected to “Mobikom- In April equipment supply contract with Nokia, Finland was signed. Centre” network in Nizhniy Novgorod. The commercial operation of On August 3 the test operation of the network started, which was the "Mobikom-Centre" network in Central region started. On December 19 official start of the project “MegaFon” in North Caucasus. Initially, Krasnodar MegaFon network began to operate in Voronezh. and Stavropol Territories, Rostov area and Adygeya Republic were covered. After two weeks of test operation, on August 17, the commercial 2003 connections started. For five days one thousand subscribers were This was the year of MegaFon active expansion to Central Russia. connected to the network. On September 14 subscribers' base comprised During the year the commercial operates of MegaFon network started 10 000. It took the company only 6 months to get 100 000 subscribers in a number of areas: on November 20 - in Vladimir area, on December connected to the network. The line of tariff plans was at that moment 20 - in Tver area, on December 23 - in Belgorod, Lipetsk and Tambov introduced by two contract tariffs and by “GSMLIGHT” that was the pre- areas, on December 26 - in Tula and Kaluga areas, on December 27 - paid communication services system. in Ryazan area, on December 29 - in Kursk area. During 47 days networks in 9 areas of the Central region were put into operation. The results of 2002 the year: the subscribers' base exceeded 70 000. OJSC “MegaFon” became the owner of the shares in CJSC “Mobicom-Kavkaz” that used to be owned by CJSC "Telecominvest". In December OJSC “MegaFon” “MegaFon-Siberia” raised its share in Charter capital of CJSC “Mobicom-Kavkaz” to 100%. In February “MegaFon” began to operate in Karachaevo-Circassia. In April 2000-2001 the test operation of network in confidential communication subsystem in CJSC “Mobikom-Novosibirsk” was registered on March 03, 2000 in City GSM 900/1800 standard started in Chechen Republic. In July the network Registration Board of Novosibirsk. The sole founder of the company is was launched in Dagestan, in October - in Kabardino-Balkaria, in late December - OJSC “МТТ-Invest”. In July the company obtained a license No. 15410 - in North Osetia-Alaniya. By the end of the year 320 base stations provided for rendering mobile communications service in the range of 900/1800 persistent communication in over 160 settlements of North Caucasus. The MHz at the territory of Siberian super-region that includes 12 subjects subscribers' base of “Mobicom-Kavkaz” increased five times for a year, of the RF. In October 2000 OJSC “Telecominvest” became the owner exceeded half million mark in the first days of January, 2003. of the controlling stock in CJSC “Mobikom-Novosibirsk”.

26 27 2002 2003 CJSC “North-West GSM” became the holder of 51% of CJSC “Mobikom- On September 22 CJSC “Mobikom-Khabarovsk” registered its Primorsk Novosibirsk” shares that were in possession of OJSC “Telecominvest” branch in the city of Vladivostok. OJSC “MegaFon” and Chinese company before. Due to conversion of CJSC “North-West GSM” into OJSC “MegaFon”, Huawei Technologies signed a contract for equipment supply for MegaFon became the owner of 51% shares in CJSC “Mobikom- MegaFon Novosibirsk”. networks in Siberia and Far East. The construction of MegaFon network started in Khabarovsk, Primorie Territories and Yevreysky Autonomous area. 2003 At the beginning of the year CJSC “Mobikom-Novosibirsk” became The beginning of commercial operation of “MegaFon-Far East” network 100% subsidiary of OJSC “MegaFon”. OJSC “MegaFon” and Chinese is planned for the beginning of 2004. company Huawei Technologies signed a contract for telecommunications equipment supply for MegaFon networks in Siberia and Far East. The MegaFon network construction started in Novosibirsk, Kemerovo and Novokuznetsk.

MegaFon network began to operate in Siberia on December, 2003.

“MegaFon-Far East”

2000-2001 In May CJSC “Mobikom-Khabarovsk” was registered in Administration of Justice of Khabarovsk area by Registration Board for state registration of legal entities of Khabarovsk area. OJSC “MTT-Invest” was the founder of CJSC “Mobikom-Khabarovsk”.

In July CJSC “Mobikom-Khabarovsk” obtained license № 15411 for providing cellular communications services in 900/1800 МHz frequency range at the territory of the Far East Super-region that included 16 subjects of the Russian Federation.

In October “Telecominvest” acquired 51% of CJSC “Mobikom- Khabarovsk” shares .

2002 CJSC “North-West GSM” became the holder of 51% shares that was in possession of OJSC “Тelecominvest”. In May CJSC “North-West GSM” was reorganized into OJSC “MegaFon”, so OJSC “MegaFon” became the holder of 51% of CJSC “Mobikom-Khabarovsk” shares. In December OJSC “MegaFon” became the holder of 100% of CJSC “Mobicom- Khabarovsk” shares. ANNUAL REPORT 2003

28 29 FINANCIAL PERFORMANCE ANNUAL REPORT 2003 BALANCE SHEET

ASSETS Indicator Beginning of End of code reporting period reporting period 1234 I. NON-CURRENT ASSETS Intangible assets 110 369 083 336 309 Fixed assets 120 3 172 417 4 893 214 Construction in process 130 937 565 2 008 159 Investments into materials and equipment 135 1 004 587 Long-term financial investment 140 4 711 696 8 898 853 Deferred tax assets 145 8539 242 586 Other non-current assets 150 1 214 930 1 938 893 TOTAL Section I 190 10 414 230 19 322 601 II. CURRENT ASSETS Inventories 210 163 617 628 234 including: (Raw) materials and other similar values 211 121 698 323 634 domestic animals for raising and fattening 212 expenses for production in process 213 finished products and goods for resale 214 shipped products 215 deferred expenses 216 41 919 304 600 other stocks and costs 217 VAT on aquired values 220 437 053 1 011 096 Accounts receivable (to be received more in than 12 months 230 384 079 384 079 after the reporting date) including buyers and customers 231 other 232 384 079 384 079 Accounts receivable (to be received more within 12 months after 240 967 962 1 071 128 the reporting date) including buyers and customers 241 511 768 576 937 other 242 456 194 494 191 Short-term financial investment 250 295 977 3 662 454 Cash 260 264 405 408 509 Other current assets 290 2 513 093 7 165 500 TOTAL Section II 300 12 927 323 26 488 101 BALANCE ANNUAL REPORT 2003

LIABILITIES Indicator Beginning of End of code reporting period reporting period 1234

III. EQUITY AND RESERVES Equity capital 410 62 000 62 000 Own shares purchased from shareholders 411 ( ) ( ) Additional paid-in capital 420 2 544 159 2 542 858 Reserve capital 430 3100 3100 including: reserves generated in accordance with the law 431 3100 3100 reserves generated in accordance with constitutive documents 432 Retained earnings 470 6 406 529 10 115 161 TOTAL Section III 490 9 015 788 12 723 119 IV. LONG-TERM LIABILITIES Loans and credits 510 1 749 300 5 554 444 Deferred tax liabilities 515 62 022 72 401 Other long-term liabilities 520 492 483 492 480 TOTAL Section IV 590 2 303 805 6 119 325 V. SHORT-TERM LIABILITIES Loans and credits 610 2 759 082 Accounts payable 620 1 607 730 4 701 050 including: vendors and suppliers 621 506 878 3 356 375 debt to employees 622 17 892 19 404 debt to state non-budget funds 623 3567 8107 tax debts 624 102 756 156 275 other creditors 625 331 815 440 723 advance payments received 626 644 822 720 166 Debts to participants (constitutors) in repayment of income 630 Deffered income 640 185 525 Reserves for future expenses 650 Other short-term liabilities 660 TOTAL Section V 690 1 607 730 7 645 657 BALANCE 700 12 927 323 26 488 101 Report on available values on out-of-balance accounts Rented fixed assets 910 28 021 including leasing 911 Material valuables accepted for secured storage 920 Goods accepted on commission 930 Receivables from insolvent creditor accounted as loss 940 69 651 91 345 Collateral for liabilities and payments received 950 2 747 989 3 819 698 Collateral for liabilities and payments provided 960 3 532 867 12 213 667 Depreciation of housing 970 Depreciation of items of outdoor 980 accomplishment and other items Intangible assets in use 990

32 33 PROFIT AND LOSS STATEMENT

Same Code Reporting period period last year 1234

Profit and loss, ordinary activities Revenue (net) from sale of goods (products, services) 010 13 504 088 9 670 580 (minus VAT. excises and other mandatory payments) Cost of services 020 (6 044 135) (4 203 454) Cross income 029 7 459 953 5 467 126 Commercial expenses 030 (1 261 809) (276 376) Administrative expenses 040 (961 181) (1 170 204) Profit (loss) from sales 050 5 236 963 4 020 546 Other income and expenses Interest receivable 060 331 404 40 355 Interest payable 070 (310 982) (56 849) Income from sharing other organization 080 376 3046 Other operating income 090 20 854 7628 Other operating expreses 100 (329 845) (334 320) Non-operating profit 120 597 881 103 256 Non-operating expenses 130 (704 512) (177 597) Profit (loss) before taxes 140 4 842 139 3 606 065 Deferred tax assets 141 61 295 8539 Deferred tax liabilities 142 (11 464) (67 228) Current income tax 150 (1 197 849) (885 003) Clearing off dererred tax liabilities 160 553 5206 Net profit (loss), reporting period 190 3 694 674 2 667 579 BY REFEENCE Permanent tax liabilities (assets) 200 (14 095) 78 236 Gross profit (loss) per share 596 430 Watered profit (loss) per share

DETALIZATION OF CERTAIN PROFITS AND LOSSES Reporting period Same period last year Code Profit Loss Profit Loss

13562 4 Charges, fines and forfeits asknowledged 1724 (104) 7351 (225) or ordered by court (arbitration) Income (losses) past periods 33 (65 996) (22 764) Reimbursement of losses 964 (1) from negligence or defaults on obligation Effect of exchange loss during transcation in foreign currency 590 382 (517 543) 94 823 (113 030) Allocations to evaluative reservs X (143 172) X (132 859) Clearing off debit and credit liabilities due to end 1628 (91 345) (69 651) of limitation period ANNUAL REPORT 2003

CNANGE OF CAPITAL

CodeEquity Additional Reserve Retained Total earning

1234567 Balance as of Desember 31, 2 years before reporting 31 000 693 783 4650 3 704 752 4 434 185 2001 Changes in accounting principles X X X Result of fixed assets reevaliation X X Balance as of January 1, previous year 100 31 000 693 783 4650 3 704 752 4 434 185 2002 Result of foreing currency ecaculations X X X Net profit X X X 2 755 260 2 755 260 Dividends X X X To reserve fund 110 X X Increase of capital value due to: additional issue of shares 121 31 000 X X X 31 000 increasing share nominal value 122 X X X legal reorganization 123 X X earnings referred to direct 124 1 850 376 1 850 376 increase of capitalin accordance with accounting norms Decrease of capital value due to: decreasing share nominal value 131 X X X decreasing share number 132 X X X legal reorganization 133 X X expenses referred to direct decrease 140 (1550) (1550) of capital in accordance with accounting norms Ballance as of December 31, previous year - 62 000 2 544 159 3100 6 460 012 9 069 271 2003 (reporting year) Changes in accounting principles X X X Result of fixed assets reevaliation X X Formation of in-coming balance for X (53 483) (53 483) Balance as of January 1, reporting 62 000 2 544 159 3100 6 406 529 9 015 788 Result of foreing currency ecaculations X X X Net profit X X X 3 694 674 3 694 674 Dividends X X X Assignement to reserve fund X X Increase of capital value due to: additional issue of shares X X X increasing share nominal value X X X legal reorganization X X Free profit balance 111 13 958 14 069 Decrease of capital value due to: decreasing share nominal value X X X decreasing share number X X X legal reorganization X X Retired FA reevaluation (1412) (1412) Balance as of December 31 reporting year 62 000 2 542 858 3100 10 115 161 12 723 119

34 35 Reserves Code Balance Received Used Balance

13562 4 Reserves generated in accordance with law: (Reserve capital) previous year data 3100 3 100 reporting year data 3100 3 100 Reserves generated in accordance with regulatory documents: previous year data reporting year data Evaluative reserves: reserved for doubtful debts previous year data 132 859 132 859 reporting year data 132 859 258 562 (248 248) 143 173

By reference CodeBalance BOP Balance EOP

123 4 1. Assets net: 200 9 015 788 12 723 119 From budget From non-budget funds Reporting Previous Reporting Previous period year period year 3443 2. Received for: expenses for ordinary activities - including 210 capes into non-current - including 220 ANNUAL REPORT 2003

CASH FLOW STATEMENT

CodeReporting Same period period last year 1234 Opening cash balance BOP 010 264 405 150 277 Cash flow for current activities Earning from buyers and customers 020 15 675 628 11 493 418 Other earnings 050 963 316 1 673 556 Cash outflow: payments for aquired goods, 150 (6 535 533) (5 935 622) works and services salaries paid 160 (596 535) (336 322) dividends and interest paid 170 (142 067) (183 860) charges and taxes paid 180 (2 913 150) (2 153 271) other payments 190 (744 566) (1 932 589) Net cash flow 200 5 707 093 2 625 310 Investment activity cash flow Revenue from sales of fixed assets 210 9271 16 223 and other non-current assets Revenue from sales of securities 220 0 Dividends received 230 376 3046 Interest received 240 220 448 31 912 Revenue from repayments 250 2 087 733 21 241 of loans to other organizations Purshase of sudsidiaries 280 (469 987) Purshase of fixed assets, material values 290 (3 876 451) (1 941 804) and intangible assets Purshase of securities 300 (377 207) (436 860) Loans to other organizations 310 (8 937 855) (2 558 292) Net cashflow from investment activity 340 (11 343 672) (4 864 534) Financial cash flow Earnings from isue of shares and other securities 350 Earnings from loans 360 8 881 650 1 868 695 received from other organizations Earnings from short-term deposits 52 896 12 266 472 Repayment of loans (interest excluded) 390 (2 204 133) (149 506) Payments of financial leasing 400 (648 444) (127 303) For short-term investments (301 287) (11 505 006) Net cashy flow from financial activity 410 5 780 682 2 353 352 Net increase (decrease) of cash and its equivalents 420 144 104 114 128 Closing cash balance EOP 430 408 509 264 405 Effect from changes in foreing currency rates 440 of exchange against RIB

36 37 SUPPLEMENT TO BALANCE SHEET

Intangible assets CodeOpening Received Repaid Closing balance balance BOP EOP 123456 Rights for intellectual (industrial) 010 12 388 23 725 (55) 36 058 property including rights arising from: patent right and industrial samples 011 software and database rights 012 12 333 1026 13 359 integral microschemes topology rights 013 trademarks and service 014 55 22 669 (55) 22 669 markes right selective progress rights 015 Organization expenses 020 Goodwill 030 Other 040 526 713 24 (4) 526 733 TOTAL 539 101 23 749 (59) 562 791

CodeOpening Closing balance BOP balance EOP 1234 Amortization of intangible assets - total 050 170 018 226 482 including: trademarks and service marks 7 999 those with owner of rights for PC software, database 7274 9820 other 162 737 215 663

Fixed assets Code Opening Received Repaid Closing balance balance BOP EOP 1 2 34 5 6 Buildings 7891 17 791 25 682 Structures and transmission devices 352 254 259 014 (125) 611 143 Machinery and equipment 3 358 343 2 070 887 (10 566) 5 418 664 Transport 63 525 37 240 (23 495) 77 270 Production and household equipment 4894 1121 (17) 5998 Working cattle Productive cattle Perennial plantations Other types of fixed assets 406 519 181 508 (3021) 585 006 Land sites and separate natural facilities Capex for soil fertilization TOTAL 4 193 426 2 567 561 (37 224) 6 723 763 ANNUAL REPORT 2003

CodeOpening Closing balance BOP balance EOP 1234 Amortization of fixed assets - total: 140 1 021 009 1 830 549 including: buildings and constructions 19 661 58 098 machines, equipment and transport 915 592 1 555 036 other 85 756 217 415 Fixed assets rented - total: 16 223 16 015 including: buildings constructions machines and equipment 16 233 16 015 Fixed assets transferred to conservation Fixed assets received as rent - total: 28 021 Items of real estate property used in process for state registration Be reference Results of fixed assets reevaluation: 171 original cost 172 amortization Changes on fixed assets value due to finishing construction, 83 988 162 061 reconstruction, partial liquidation

Proffitable investment in material values Code Opening Closing balance In Out balance BOP EOP 1 2 34 5 6

Property for leasing Property under rent contract Other 1 016 770 1 016 770 TOTAL 1 016 770 1 016 770 Code Opening Closing balance BOP balance EOP 1 2 34 12 183 Amortization of profitable investment in material values

Expenses for research, experimental Code Opening In Out Closing and technology-related works balance BOP balance EOP 1 2 34 5 6 TOTAL 310 91 (91) Code Opening Closing balance BOP balance EOP 1 2 34 By reference Total expenses for non-finished research, 320 experimental and technology-related works Code За отчетный За аналогичный период период преды- дущего года 1 2 34 Total expenses without results for research, 91 experimental and technology-related works

38 39 Expenses for natural resources development Code Opening In Out Closing balance balance BOP EOP 1 2 34 5 6 Expenses for natural resources development - total: 410 Code Opening Closing balance BOP balance EOP 1 2 34 By reference Expenses for non-finished research and evaluation of natural deposits, explorations and/or hydrogeological or similar works Expenses for natural resources without results

Financial investments Long-term Short-term Code Opening Closing Opening Closing balance BOP balance balance BOP balance EOP EOP 123456 Sharing other companies’equity 510 2 300 989 2 772 085 including subsidiaries and dependent organizations 511 2 300 989 2 772 085 State and municipal securities 515 Securities of other companies - total: 520 including bonds and other similar securities 521 Loans provided 525 2 320 122 6 126 768 225 728 1 559 266 Deposits 530 90 585 70 249 2 103 188 Other 535 TOTAL 540 4 711 696 8 898 853 295 977 3 662 454 Financial investments with current market value: Investments into equities of other companies - total: 550 including subsidiaries and related companies 551 Sate and municipal securities 555 Securities of other companies - total 560 including bonds and other similar securities 561 Other 565 TOTAL 570 By reference On financial investments, with current market value, 580 change of value due to adjustments of evaluation On debt securities the difference between the original value and nominal value 590 is assigned to the financial result of the reporting period ANNUAL REPORT 2003

Accounts receivables and payable Code Opening Closing balance BOP balance EOP 1 2 34 Accounts receivable: short-term total 967 962 1 071 128 including: settlements with vendors and customers: 511 768 576 937 advances provided 185 164 110 079 other 271 030 384 112 long-term total: 384 079 384 079 including: settlements with vendors and customers: advances provided other 384 079 384 079 Total 1 352 041 1 455 207 Accounts payable: short-term total 1 607 730 7 460 132 including: settlements with vendors and customers: 506 878 3 356 375 advances provided 644 822 720 166 charges and taxes 102 756 156 275 credits 1 034 670 loans 1 724 412 other 353 274 468 234 long-term total 2 241 783 6 046 924 including: credits 1 510 693 4 014 447 loans 238 607 1 539 997 other 492 483 492 480 TOTAL 3 849 513 13 507 056

Expenses on ordinary types of activitiy CodeOpening Closing balance BOP balance EOP 1234 Material expenses 710 466 221 292 667 Wage costs 720 638 724 382 024 Assignements for social needs 730 88 411 63 372 Amortization 740 889 048 367 215 Other 750 6 184 721 4 544 756 TOTAL 760 8 267 125 5 650 034 Change (+, -) 765 production in process deferred expenses 766 262 681 19 779 deferred expenses reserves 767

40 41 Collateral Code Opening Closing balance BOP balance EOP 1 2 34 Received - total: 2 747 989 3 819 698 including: bonds Property pledged including: fixed assets securities and other financial investment other Provided - total: 3 532 867 12 213 667 including: bonds Property pledged 1 328 681 including: fixed assets 1 328 681 securities and other financial investment other

State aid CodeOpening Closing balance BOP balance EOP 1234 Budget funds received - total: 910 Budget loans - total: 920 ANNUAL REPORT 2003

OJSC “MegaFon”

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