Fondul Proprietatea SA Annual Sole Director’s Report For the Financial Year Ended 31 December 2020 This is a translation from the official Romanian version. This is a PDF version of the official Annual Sole Director’s Report issued in the European Single Electronic Format (i.e. xHTML format), which is available on the webpage of Fondul Proprietatea SA, www.fondulproprietatea.ro. FONDUL PROPRIETATEA SA Contents List of Abbreviations . 2 Sole Director’s Letter to Shareholders . 4 Company Information . 13 The Company. 13 Shareholder Information. 13 Share Capital Information. 14 Summary of Financial Results. 14 Contact Details. 16 Presentation and Activity of the Fund . 17 General Information . 17 Market for Securities Issued by the Fund . 23 Buy-back Programmes . 25 Distributions to Shareholders . 28 NAV Methodology and NAV Evolution. 30 Investment Strategy and Portfolio Analysis. 32 Energy Sector Updates. 34 Update on the Largest 10 Portfolio Holdings. 37 Key Financial Highlights. 45 Risk Management. 47 Overview of Main Risks. 47 Internal Control and Risk Management. 49 Risk Management Systems . 50 Liquidity Risk. 51 Leverage under AIFM Directive Considerations. 51 Corporate Governance. 52 Overview . 52 Management Structure of the Fund . 52 General Shareholders Meeting . 53 Board of Nominees and the Consultative Committees . 56 The Sole Director and AIFM. 59 The Depositary of the Fund. 66 Other Aspects. 67 Financial Statements Analysis . 69 Subsequent Events . 73 Annexes Annex 1 Financial Statements for the year ended 31 December 2020, prepared in accordance with the International Financial Reporting Standards as endorsed by the European Union and applying the Financial Supervisory Authority Norm 39/2015, regarding the approval of the accounting regulations in accordance with IFRS, applicable to the entities authorised, regulated and supervised by FSA – Financial Investments and Instruments Sector Annex 2 Statement of Assets and Obligations of Fondul Proprietatea SA as at 31 December 2020, prepared in accordance with CNVM Regulation 4/2010 (Annex no.4) Annex 3 Statement of persons responsible Annex 4 The Constitutive Act of Fondul Proprietatea SA in force as at 31 December 2020 Annex 5 Compliance with the corporate governance requirements Fondul Proprietatea SA Annual Sole Director’s Report 2020 1 FONDUL PROPRIETATEA SA List of Abbreviations AIF Alternative Investment Fund Romanian Law no. 243/2019 on the regulation of alternative investment funds and amending and AIF Law supplementing certain normative acts Regulation no. 7/2020 on the authorisation and function of alternative investment funds, issued by AIF Regulation the Financial Supervisory Authority AIFM Alternative Investment Fund Manager AIFM Directive Directive 2011/61/EU on Alternative Investment Fund Managers ALFI Association of the Luxembourg Fund Industry AML Anti-Money Laundering ANAR National Authority of Romanian Waters (ro: Administratia Nationala Apele Romane) ANRE Romanian Energy Regulatory Authority ASPAAS Romanian Authority for Public Monitoring of the Statutory Audit Activity ATS Alternative Trading System Brexit The withdrawal of the United Kingdom from the European Union BVB Bucharest Stock Exchange CAEN Classification of Economic Activities in Romania CNVM National Securities Commission (currently FSA) Companies’ Law Law 31/1990 regarding companies, with subsequent amendments DCM Discount Control Mechanism Depozitarul Central SA Romanian Central Depositary Depositary Bank/ Depositary BRD – Groupe Societe Generale SA EGM Extraordinary General Shareholders Meeting ESG Environmental, Social and Governance EU European Union FATCA The Foreign Account Tax Compliance Act Fondul Proprietatea/ the Fund/ FP Fondul Proprietatea SA FSA Romanian Financial Supervisory Authority FT Franklin Templeton FTIML Franklin Templeton Investment Management Limited United Kingdom, Bucharest Branch FTIS/ Alternative Investment Fund Franklin Templeton International Services S.à r.l. Manager/ Sole Director GDP Gross Domestic Product Regulation (EU) 2016/679 of the European Parliament and of the Council on the protection of GDPR natural persons with regard to the processing of personal data and on the free movement of such data (General Data Protection Regulation) GDR Global Depositary Receipt GEO Government Emergency Ordinance GEO 114/29 December 2018 on the implementation of certain measures in the field of public GEO 114/2018 investments and of fiscal-budgetary measures and the amendment and completion of certain normative acts GEO 1/9 January 2020 regarding some fiscal-budgetary measures and the amendment and GEO 1/2020 completion of some normative acts GEO 74/2020 GEO 74/ 19 May 2020 for modifying Romanian Energy Law no. 123/2012 GSM General Shareholders Meeting H1 First semester IFRS International Financial Reporting Standards as endorsed by the European Union IMF International Monetary Fund IPS Investment Policy Statement LSE London Stock Exchange Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets MiFID II in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU NAV Net Asset Value Q1/ Q2/ Q3/ Q4 First/ second/ third/ fourth quarter of the year respectively OCR Ongoing charge ratio OGM Ordinary General Shareholders Meeting Fondul Proprietatea SA Annual Sole Director’s Report 2020 2 FONDUL PROPRIETATEA SA PRIIPs Packaged retail and insurance-based investment products REGS Main market (Regular) of Bucharest Stock Exchange RRR Regulatory Rate of Return Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 SFDR on sustainability‐related disclosures in the financial services sector Shareholders Rights Directive II - Directive (EU) 2017/828 of the European Parliament and of the SRD II Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long- term shareholder engagement TO Tender Offer UCI Undertakings for Collective Investment UCITS Undertakings for Collective Investment in Transferable Securities Water Law Romanian Water Law no. 107/1996 Fondul Proprietatea SA Annual Sole Director’s Report 2020 3 FONDUL PROPRIETATEA SA Sole Director’s Letter to Shareholders Dear Shareholders, Our focus throughout 2020 has remained unwavered on protecting and creating shareholder value for the Fund’s shareholders through our active management approach, close supervision of the portfolio companies, and a constant focus on value-enhancing corporate actions. During this extremely challenging year, our efforts were directed towards protecting the underlying portfolio companies from the negative effects of the COVID-19 pandemic which generated a severe decline.