a growing trend in Russia... case study:  St. Petersburg

1.  SUMMARY.  WITH AN INCREASE IN U.S. FIRMS
EXPRESSING INTEREST IN THE ST PETERSBURG MUNICIPAL
BOND MARKET, FCS ST PETERSBURG FOLLOWED UP WITH
LOCAL SOURCES.  WHERE DOES THE LOCAL BOND MARKET
CURRENTLY STAND?  FOLLOWING IS A BRIEF DESCRIPTION
OF THE ST PETERSBURG MUNICIPAL BOND MARKET , WITH A
SUMMARY OF LOCAL PROCEDURES AND REGULATIONS FOR
PARTICIPATION IN THE MARKET.  END SUMMARY.

2.  ON OCTOBER 31, 1995 FCS COMMERCIAL ASSISTANT
ALEXANDER KANSKY AND BISNIS REPRESENTATIVE ALEXEI
KIM MET WITH MS JANETTA KROLLY, DEPUTY CHAIRMAN,
COMMITTEE OF ECONOMY AND FINANCE, ST PETERSBURG
MAYOR'S OFFICE.  MS KROLLY HAS PRIMARY
RESPONSIBILITY FOR OVERSEEING THE DEVELOPMENT OF
THE LOCAL BOND MARKET.  SHE GAVE THE FOLLOWING
ACCOUNT OF THE FINANCIAL MARKET OF ST PETERSBURG,
THE HISTORY OF MUNICIPAL BONDS, AND LATEST
DEVELOPMENTS IN THIS FINANCIAL SECTOR.

3.  ACCORDING TO MS KROLLY, THE PERIOD OF 1994-1995
CHARACTERIZES THE CRISIS OF RUSSIA'S FINANCIAL
MARKET.  THE LACK OF FUNDS TO FINANCE FEDERAL AND
MARKET.  THE LACK OF FUNDS TO FINANCE FEDERAL AND
LOCAL GOVERNMENT PROJECTS MADE RESPONSIBLE
AUTHORITIES ATTRACT PRIVATE AND CORPORATE
INVESTMENTS AND DEVELOP A CIVILIZED SECURITIES
MARKET IN RUSSIA.  THE PROCESS RESULTED IN THE
ISSUANCE OF SHORT TERM STATE BONDS (OR GKO AS THEY
ARE CALLED IN RUSSIA) IN 1994.  THEIR IMMEDIATE
SUCCESS AND POPULARITY WITH RUSSIAN CORPORATE
INVESTORS MOTIVATED THE ST PETERSBURG CITY
GOVERNMENT TO START ISSUING SHORT TERM MUNICIPAL
BONDS (OR MKO AS THEY ARE CALLED IN RUSSIAN) IN
EARLY 1995.  SIX ISSUES TOTALLING APPROXIMATELY USD
500 MILLION HAVE SINCE BEEN MADE AND ALL WERE
HONORED WITHOUT DELAY.

4.  MS KROLLY EXPLAINED TO FCS HOW THE CITY
ADMINISTRATION GUARANTEES INVESTMENT REVENUES.
PRIMARILY, THE PAYMENTS ARE GUARANTEED BY THE
CITY'S BUDGET.  SECONDLY, LOCAL REPRESENTATION OF
THE CENTRAL BANK OF RUSSIA (CBR) AND ONE OF THE
LARGEST RUSSIAN BANKS, BANK ST PETERSBURG, ARE
KEEPING STAND-BY ACCOUNTS SPECIFICALLY ESTABLISHED
FOR THE PURPOSE OF HONORING CITY BONDS.  ALSO,
BONDS ARE GUARANTEED BY CITY REAL ESTATE THAT CAN
BE LIQUIDATED TO HONOR ALL PAYMENTS.

5.  ACCORDING TO MS KROLLY, PRIOR TO ISSUANCE OF
BONDS, THE MAYOR'S OFFICE COMMITTEE OF ECONOMICS
AND FINANCE (CEF) DETERMINES THE AMOUNT OF THE
UPCOMING ISSUE BASED ON IMMEDIATE NEEDS AND FUNDS
NECESSARY TO COVER THE CITY BUDGET DEFICIT.
PRIMARY DISTRIBUTION OF BONDS TAKES PLACE AT AN
AUCTION.  IN ADDITION TO CEF AS AN ISSUER, THE
CENTRAL CITY DEPOSITARY, THREE STOCK EXCHANGES, AND
AUTHORIZED BROKERS PARTICIPATE IN THE AUCTION.  THE
BROKERS (ABOUT 40 AT THE MOMENT) ARE CERTIFIED
BANKS AND INVESTMENT COMPANIES THAT HAVE A LICENSE
TO WORK WITH SECURITIES.  SEVEN DAYS BEFORE THE
AUCTION, CEF ANNOUNCES THE AMOUNT OF SECURITIES TO
BE SOLD AND THE DATE OF THE NEXT AUCTION.  ON THE
EVE OF THE AUCTION, ALL INTERESTED DEALERS TRANSFER
MONEY THEY ARE PREPARED TO SPEND AT THE AUCTION TO
A SPECIAL ACCOUNT AT THE ST PETERSBURG OFFICE OF
CBR.  THE CBR PROCESSES THE INFORMATION AND AFTER
CEF RECEIVES CONFIRMATION OF THE MONEY TRANSFER,
THE BROKERS CAN PLACE THEIR ORDERS.

6.  ALTHOUGH BOTH STATE AND MUNICIPAL BONDS ARE
SHORT-TERM WITH A FIXED TERM OF PAYMENT (3, 6, 9 OR
12 MONTHS), PROFITABILITY VARIES BETWEEN GKO AND
MKO BONDS.  THIS IS DUE TO THE FACT THAT STATE
BONDS ARE GUARANTEED BY THE RUSSIAN GOVERNMENT, AND
MUNICIPAL BONDS ARE GUARANTEED BY THE ST PETERSBURG
GOVERNMENT.  CONSEQUENTLY, THE MORE
SECURED/RELIABLE GKO IS 5-15 PERCENT LESS
PROFITABLE THAN THE MKO.  CURRENTLY, MKO
PROFITABILITY VARIES BETWEEN 80 AND 100 PERCENT PER
ANNUM.  ST PETERSBURG MUNICIPAL BONDS ARE BECOMING
MORE POPULAR NOT ONLY IN ST PETERSBURG AND NW
RUSSIA, BUT THROUGHOUT THE COUNTRY.  RECENTLY, ONE
OF THE MAJOR MOSCOW STOCK EXCHANGES PROPOSED TO CEF
TO START TIDING ST PETERSBURG MUNICIPAL BONDS ON
ITS PREMISES IN MOSCOW.

7.  THE VAST MAJORITY AND THE MOST ACTIVE BUYERS IN
THE MKO MARKET ARE BANKS, INVESTMENT AND INSURANCE
COMPANIES AND LARGE ENTERPRISES.  INDIVIDUALS CAN
PURCHASE MKO'S THROUGH DEALERS AND RECEIVE
CERTIFICATES OF OWNERSHIP.

8.   MKO LEGISLATION NEITHER ALLOWS NOR PROHIBITS
PURCHASING MKO'S BY FOREIGN ENTITIES.  HOWEVER, ST
PETERSBURG'S COMMITTEE ON ECONOMICS AND FINANCE IS
PLANNING TO MAKE A GRAND PRESENTATION OF MKO
AVAILABLE TO FOREIGN INVESTORS.  FOREIGN BUYERS
SHOULD REAR IN MIND THAT MKO'S MUST BE PAID IN
RUSSIAN ROUBLES AND THE REVENUES RECEIVED BY
INVESTORS WILL BE IN ROUBLES.  RUSSIAN LEGISLATION
PROVIDES THAT FOREIGN LEGAL ENTITIES OPERATING IN
RUSSIA WITHOUT RESIDENT REPRESENTATIVE OFFICES BUT
WISH TO PURCHASE RUSSIAN SECURITIES, MUST OPEN "I"-
TYPE ACCOUNTS IN AUTHORIZED RUSSIAN BANKS OVERSEAS,
WHICH ARE INTENDED FOR CURRENCY CONVERSION,
INTERNATIONAL INVESTMENTS AND REPATRIATION OF
REVENUES.  AFTER OPENING SUCH AN ACCOUNT, A FOREIGN
INVESTOR CONVERTS FOREIGN CURRENCY INTO RUSSIAN
ROUBLES AND TRANSFERS FUNDS TO A CERTIFIED BROKER
THAT PURCHASES MUNICIPAL BONDS.  WHEN REDEEMING
MUNICIPAL BONDS, A 20 PER CENT TAX APPLIES TO THE
PROFIT.  THIS TAX WILL BE AUTOMATICALLY IMPOSED BY
THE BROKER WHILE CONVERTING ROUBLES INTO HARD
CURRENCY.  THE BANK TRANSFERRING THE FUNDS OVERSEAS
WILL CHECK IF THE 20 PER CENT PROFIT TAX HAS BEEN
PAID.

9.  WHILE NOTHING REMAINS CONSTANT IN RUSSIA, AND
THERE ARE NO CERTAIN GUARANTEES WHEN INVESTING IN
RUSSIA, POST CONSIDERS ST PETERSBURG MUNICIPAL
BONDS TO BE A VERY ATTRACTIVE AND PROMISING
FINANCIAL INSTRUMENT IN TODAY'S RUSSIA FOR THE
FOLLOWING REASONS: (1) THE RUSSIA GOVERNMENT HAS
BEEN KEEPING THE ROUBLE RATE STABLE DURING THE LAST
SIX MONTHS; (2) ALL OF THE BONDS ARE GUARANTEED
EITHER BY THE STATE OR LOCAL RUSSIAN GOVERNMENT,
(3) ALL PREVIOUS ISSUES WERE REDEEMED WITHOUT ANY
COMPLICATIONS AND (4)  THE PROFITABILITY IS VERY
HIGH BY INTERNATIONAL STANDARDS.

10.  FOR ADDITIONAL INFORMATION ON THE ST
PETERSBURG MUNICIPAL BOND MARKET, CONTACT THE
FOLLOWING:

1. ST PETERSBURG MAYOR'S OFFICE
COMMITTEE ON ECONOMY AND FINANCE
SECURITIES DEPARTMENT
ADDRESS: 13 VOZNESENSKY AVE.
ST PETERSBURG 190000 RUSSIA
TEL: 7-812-319-9980
FAX: 7-812-314-4088
CONTACT: MS JANETTA KROLLY, HEAD OF THE DEPARTMENT

2.  ST PETERSBURG STOCK EXCHANGE
LIGOVSKY PROSPECT 274
ST PETERSBURG, 196084 RUSSIA
TEL: 7-812-298-8931
FAX: 7-812-296-1080
CONTACT: MR GRIGORY A. ROZHKOV,
DIRECTOR, EXTERNAL RELATIONS DEPARTMENT

3.  ST PETERSBURG BANK FOR RECONSTRUCTION AND
DEVELOPMENT
BUSINESS: OFFICIAL DEALER/BROKER
IZMAILOVSKY PROSPECT 14
ST PETERSBURG, 198052 RUSSIA
TEL: 7-812-119-2015/251-6904
FAX: 7-812-119-2010/119-2011
CONTACT: DMITRY V. PANKIN, CHAIRMAN OF THE BOARD
VIKTOR A. KUZNETSOV, VICE CHAIRMAN (MARKETING)

4.  DEVIZ FINANCIAL GROUP
BUSINESS: BROKER AND INVESTMENT CONSULTING FIRM
54 NEVSKY PROSPECT, SUITE 15
ST PETERSBURG, 191011 RUSSIA
TEL: 7-812-312-1200
FAX: 7-812-110-5520
CONTACT: DMITRY ROUMIANTSEV, MANAGING PARTNER
DENIS U. MINKIN, MANAGING PARTNER
VITALY YE. TSYPILEV, FINANCIAL SPECIALIST

(FCS ST PETERSBURG/DRAFTED:AKIM;AKANSKY/CLEARED:
RMAY)EVANS