1. 1 The development of asset management business under the conditions of the economy reforming Ukrainian Association of Investment Business Dmytro Leonov Chairman, Ukrainian Association of Investment Business (UAIB), Member of the Committee on Economic Reforms under the President of Ukraine Challenges of Collective Investment Business in CEE 27-28th October 2011 – Kyiv Workshop – 3rd session

2. 2 UAIB Overview Specific Regulatory Framework Developments and predominant trends in the Asset Management Industry in Ukraine How does the current structure of the Industry look like? Restrictions and Opportunities Agenda

3. 3 UAIB History and Aims Established in April 1995 by 3 investment companies; Self-regulatory organization since October 1997, securities market SRO of asset management companies since June 2002; Currently has 339 AMC-members; Main aims: Maintaining high professional level of activities of securities market participants, AMCs in particular. Representation of the members and protection of their professional interests. Developing of and overseeing compliance with the norms and rules of conduct of AMCs as well as improving legislation and regulatory framework of the securities market. Developing and introducing measures of protection of the members’ clients and other investors, as well as of observance of ethical norms and rules of conduct by the members in their relations with clients.

4. 4 Regulatory Framework The Law of Ukraine On Securities and Stock Market (2006); The Law of Ukraine On Securities and Stock Market (2006); The Law of Ukraine On Collective Investment Institutions (Unit Trusts/Mutual Funds and Corporate Investment Funds) (2001, new version - 2008); The Law of Ukraine On Collective Investment Institutions (Unit Trusts/Mutual Funds and Corporate Investment Funds) (2001, new version - 2008); Law of the Ukraine On non state pension provision (2003); Law of the Ukraine On non state pension provision (2003); Tax Code (2011); Tax Code (2011); Currency legislation; Currency legislation; Regulatory acts of the Securities and Stock Market State Commission (SSMSC); Regulatory acts of the Securities and Stock Market State Commission (SSMSC);

5. 5 CII Asset Management Industry Dynamics in 2004 – Q2 2011 * At the average official EUR-UAH rate over the proper period

6. 6 NPF Asset Management Industry Dynamics in 2005 – Q2 2011 * At the average official EUR-UAH rate over the proper period

7. 7 Collective Investment Institutions as of 01.01.2011 * At the NBU official EUR-UAH rate of 10.5731 as of 01.01.2011. ** 2 open-end and 5 interval CII. There were 15 more funds (9 open-end and 6 interval) which have equity exposure of 70% to 85%. Their NAV amount to 7.73 EUR mln. Therefore the total NAV of funds with minimum 70% of equities amount to 9.82 EUR mln). Accoring to Ukrainian Fund Classification NAV, EUR mln* Share within the total NAV No. of funds Open-end (all - diversified) funds 26.60.30%36 Interval (all - diversified) funds 23.20.26%42 Close-end (non-venture) funds including: 725.88.12%167 diversified 111.21.24%9 non-diversified 614.66.88%158 Sub-Total (non-venture funds) 775.68.68%245 Venture funds 8 158.391.32%744 Total (venture funds included) 8 933.9100.00%989 Accoring to the European Fund Classification (Open-end & Interval Funds only) Equity funds**2.094.19% 7 Bond funds0.260.53% 2 Balanced / Mixed funds (other than equity and bond funds) 47.3695.09% 68 Other (interval funds that don't include any securities)0.100.19%1 Total 49.80100.00%78

8. 8 Non-state Pension Funds Assets Under Management as of 01.01.2011 NPF type, Accoring to Ukrainian Fund Classification NPF Assets Under Management, EUR mln* Share within the total NPF Assets No. of funds Open44,9075,13%7474 Corporate8,0513,47%10 Professional6,8211,40%9 Total59,77100,00%93

9. 9 * At the average official EUR-UAH rate over the proper period Non-venture CII NAV Non-venture CII NAV, EUR mln

10. 10 Venture CII NAV Venture CII NAV, EUR mln * At the average official EUR-UAH rate over the proper period

11. 11 Public CII Asset Management Industry Dynamics in 2005 – Q2 2011 * At the average official EUR-UAH rate over the proper period

12. 12 Investments in Ukrainian CII by Types of Investors

13. 13 Ukrainian Rezident Natural Persons’ Investments * At the average official EUR-UAH rate over the proper period Year On Bank Deposits, EUR mln* In Non-venture Public CII NAV, EUR mln Money on Deposits to Investments in Public CII Ratio 200511 443.32.54 646 200616 892.914.11 198 200723 713.764.5368 200827 393.354.0507 200919 410.274.4261 201025 756.6102.0252

14. 14 Annual Rates of return of Ukrainian Open-end CII, bank deposits, PFTS index and CPI Dynamics in 2006-2010 * Calculation of rates of return on open-end funds included: in 2006 - 4 CII data, in 2007 – 7, in 2008 – 13, in 2009 – 20, in 2010 – 30. Over 2006-2010 the average annual rate of return on open-end funds was 20,2%, CPI - 14,5%, on deposits - 18,3%, PFTS Index - 52,5%.

15. 15 CII Assets Allocation by types of funds as of 01.01.2011

16. 16 Assets Allocation by types of NPF as of 01.01.2011

17. 17 Investment tools available at stock exchanges as of 18 Oct. 2011 PTFS 952 securities listed: 413 equities; 413 equities; 246 securities in 1 st and 2 nd lists; 246 securities in 1 st and 2 nd lists; index basket – 20 equities index basket – 20 equitiesUX 301 securities listed: 185 equities; 185 equities; 73 securities in 1st and 2 nd lists 73 securities in 1st and 2 nd lists index basket – 15 equities index basket – 15 equities

18. 18 Most popular securities by presence in non-venture CII portfolios as of 30.06.2011 №Security typeIssuer's name Number of CII holding the security 1Internal state loan bondsCabinet of Ministers of Ukraine101 2EquitiesOJSC "Azovstal Metallurgical Works"89 3EquitiesOJSC "DEK Tsentrenergo"86 4EquitiesOJSC "Motor-Sich"79 5EquitiesOJSC “Avdiyivsky By-Product Coke Plant”70 6EquitiesOJSC "Donbasenergo"66 7EquitiesOJSC "Alchevsky Metallurgical Works"64 8EquitiesOJSC “Yasynivsky By-Product Coke Plant”63 9EquitiesOJSC "Poltavsky GZK"62 10EquitiesOJSC "Kriukivsky Wagon-Building Works”61

19. 19 Privatization of state property has brought into the State budget more than 11 bln UAH in 2011 The State budget of Ukraine have received 11 bln UAH from privatization of state property, carried out by the State Property Fund of Ukraine and its regional offices, over 9 months in 2011. The State budget of Ukraine have received 11 bln UAH from privatization of state property, carried out by the State Property Fund of Ukraine and its regional offices, over 9 months in 2011. The most profitable sale was the one of 92.79% shares of JSC "Ukrtelecom" which has brought 10.58 bln UAH into the Budget. Under the terms of the contract, the buyer is obliged to invest 450 mln USD dollars into the company during the next five years. The most profitable sale was the one of 92.79% shares of JSC "Ukrtelecom" which has brought 10.58 bln UAH into the Budget. Under the terms of the contract, the buyer is obliged to invest 450 mln USD dollars into the company during the next five years. The rest of more than 400 mln UAH have been raised, in particular, by selling: The rest of more than 400 mln UAH have been raised, in particular, by selling: 42.12% shares of JSC "Central Enrichment Plant "Kindrativska" (10.2 mln UAH); 42.12% shares of JSC "Central Enrichment Plant "Kindrativska" (10.2 mln UAH); 50% of "Ukrainian Institute of Marine Engineering Technology" (0.67 mln UAH); 50% of "Ukrainian Institute of Marine Engineering Technology" (0.67 mln UAH); 99.4% of "Feodosia instrument-making plant" (0.49 mln UAH); 99.4% of "Feodosia instrument-making plant" (0.49 mln UAH); 100% shares of JSC "test factory "Test" (1.32 mln UAH); 100% shares of JSC "test factory "Test" (1.32 mln UAH); 93.08% shares of JSC "Dniprospetsmash" (1.72 mln UAH). 93.08% shares of JSC "Dniprospetsmash" (1.72 mln UAH). 18 mln UAH of investments have been attracted into the companies under the terms of sale agreements. 18 mln UAH of investments have been attracted into the companies under the terms of sale agreements.

20. 20 The plan of privatization of energy companies as of 20/10/2011 №Energy companies privatization Date of privatizationBlock of shares 1 Kyivenergo 25.11.2011 27 091 070 shares, 25% of equity. Starting price 39.20 mln EUR Zahidenergo 5 768 977 shares, 45.10% of equity. Starting price 175.18 mln EUR 2Zakarpatyaoblenergonot agreed with the MFU 62 301 621 shares, 50% of equity. Starting price 12.24 mln EUR 3 Dniproenergo 20.10.2011 meeting of competition commissions - Donetskoblenergo- 4 Chernivtsyoblenergo 21.10.2011 meeting of competition commissions - Vinnitsaoblenergo- 5 Ternopiloblenerg Krymenergo Dniprooblenergo preparatory work is performed -

21. 21 Ukrainian Stock Market Problems  Low market liquidity, small free-float  Lack of internal IPO  Slow implementation of the 2nd pillar of the pension system  Weak protection of investors and creditors  Currency system “overregulation”  Low level of potential investors’ stock market awareness

22. 22 Changes for the Better Laws aimed at lowering investors’ risks are adopted Laws aimed at lowering investors’ risks are adopted New version of the Law On CII is currently being drafted New version of the Law On CII is currently being drafted Drafts of the Law On Derivatives and the Law On Ukrainian Depository Receipts have been prepared Drafts of the Law On Derivatives and the Law On Ukrainian Depository Receipts have been prepared SSMSC has finished the Draft of the Law On Raising Requirements to the Issuers SSMSC has finished the Draft of the Law On Raising Requirements to the Issuers Tax stimulation of investments Tax stimulation of investments

23. 23 Tax Code (2011) Transactions with assets CII under management are NOT object of taxation Transactions with assets CII under management are NOT object of taxation Setting up attractive conditions for CII investors Setting up attractive conditions for CII investors * 21% (2012) ; 19%(2013); 16 % (2014 and next years) ** changes at case of the agreement on eliminating the double taxation Assessment basis Tax rate Personal income tax Corporation income tax Investment profit5%23% * Dividends5% 0 % (residents) 23 % (non-residents)**

24. 24 Thank you for your attention and Welcome to Ukraine! Ukrainian Association of Investment Business Self-regulatory organization 28 Predslavynska Str, off. 304, Kyiv, 03150, Ukraine Tel./ fax: +38 (044) 5287266; 5287270 e-mail: office@uaib.com.ua office@uaib.com.ua http://www.uaib.com.ua