Russia 2H10

Russia 2H10Half-Time Report

Expect More Action In The Second Half

July 2010 James Beadle

Investment Summary

Russia's economic situation has improved steadily in 2H10, while it's equity markethas held its ground, and debt has performed well given the increase in sovereign worries globally. Yet, growth and financial market performance have fallen short of expectations, despite sharp disinflation. Looking forward, weaker than expectedgrowth may be exposed to the risk of a global economic or financial shock. Investors preparing for a sharp double dip, continued deflationary pressure or an uncontrolledsovereign default will want to avoid Russia as they avoid other risk assets. But for thoseexpecting a less catastrophic second half, Russia looks increasingly attractive. Accelerating growth and reform momentum are likely to bring strong, if volatilereturns over the remainder of the year.

Russia 2H10 – Half Time Report

About the Author

James Beadle is an investment professional with more thaneight years of experience working in and around the formerSoviet Union.A British national, he holds and MBA from Barcelona’s EADA,and an MSc in Financial Engineering from the InternationalUniversity of Monaco.Since first visiting Russia in 1999 he has worked in sell-sideequity research, as a consultant for the OECD, as a journalistand as a hedge fund manager.From 2006-09 he served as chief investment strategist for Pilgrim AssetManagement, where he co-managed $250 mln in funds and individual accounts.As the manager of the Pilgrim Russia Investment Fund and the Pilgrim Pacific Fundhe successfully outperformed equity benchmarks and most of his peer group. Hestepped down from direct fund control in July 2008 (before the market collapsedduring the war with Georgia) when fund principals rejected his call to liquidate marketpositions. The Russian market went on to fallanother 75%, bottoming in March 2009.James is currently based in Vilnius, Lithuania,from where he serves Russian and internationalclients with emerging and global marketstrategy.

- jamesdbeadle@yahoo.co.uk

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Russia Focussed Track-RecordPRIF* Vs RTS Index

60708090100110120130140150160

S e p - 0 6 O c t - 0 6 N o v - 0 6 D e c - 0 6 J a n - 0 7 F e b - 0 7 M a r - 0 7 A p r - 0 7 M a y - 0 7 J u n - 0 7 J u l - 0 7 A u g - 0 7 S e p - 0 7 O c t - 0 7 N o v - 0 7 D e c - 0 7 J a n - 0 8 F e b - 0 8 M a r - 0 8 A p r - 0 8 M a y - 0 8 J u n - 0 8 J u l - 0 8 A u g - 0 8 S e p - 0 8 O c t - 0 8 N o v - 0 8 D e c - 0 8

RTS PRIF

* PRIF continued to trade after July 2008, when James stepped-down as manager after making a market-wide sell recommendation.

Nothing contained herein constitutes an offer to sell or a solicitation of an offer to buy securities. Prospective investorsshould review the appropriate offering memorandum and subscription documents, and consult with their own counsel andadvisors as to all matters concerning investment in Russia.

Russia 2H10 – Half Time Report

Contents

Introduction...............................................................................................4Economic Situation...................................................................................5To The Present......................................................................................6Economic Policy........................................................................................62010-2011 Policy & Planning.................................................................7Market Performance..................................................................................8Global Play.............................................................................................9Domestic Opportunities........................................................................11Political Progress....................................................................................11Khodorkovsky & Reform.......................................................................12Old Guard Challenge...........................................................................13International Relations, The WTO........................................................13Conclusion..............................................................................................14

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