Financial Information: Report of Independent Auditors

TO THE BOARD OF DIRECTORS
Regional Environmental Center for Central and Eastern Europe

We have audited the balance sheet of the Regional Environmental Center for Central and Eastern Europe (the Foundation) as at December 31, 1994 in accordance with International Standards on Auditing.

In our opinion, the balance sheet gives a true and fair view of the financial position of the Foundation at December 31, 1994 in accordance with International Accounting Standards.

ERNST & YOUNG
Budapest, Hungary
February 24, 1995

Regional Environmental Center for Central and Eastern Europe
BALANCE SHEETS (All amounts in HUF 000's)


1. Nature of Foundation

The Regional Environmental Center for Central and Eastern Europe (the Foundation) is an independent, non-advocacy, non-profit organization which was established to address environmental issues generally common to the region. The organization is registered as a foundation with the Court of Capital in Budapest, Hungary, and operates exclusively for charitable, scientific or educational purposes.

Various government agencies have approved funding for the Foundation as an independent, grant-making institution. The Foundation presently has contributions pledged for the period through to December 31, 1995 totalling US $3,642,190 (restricted pledges of US$ 792,190 and unrestricted pledges of US$ 2,850,000) and ECU 3,299,140 (restricted pledges of ECU 299,140 and unrestricted pledges of ECU 3,000,000). Realization of the pledges are contingent upon certain conditions being met by the Foundation and accordingly are not included as a receivable. Upon ultimate dissolution of the Foundation, any remaining assets are to be distributed to organizations operated exclusively for charitable, scientific or educational purposes.

2. Summary of Significant Accounting Policies

Fund Accounting

To ensure observance of limitations and restrictions placed on the use of resources available to the Foundation, the accounts of the Foundation are maintained in accordance with the principles of fund accounting. Separate accounts are maintained for each fund. The assets, liabilities, and fund balances of the Foundation are reported in self-balancing fund groups as follows:

Unrestricted Fund - A fund whose resources are available to support the Foundation's operations.

Restricted Funds - When the Foundation receives grants whereby the grantor restricts the use of the funds for a specialized purpose, a restricted fund is established.

Basis of Presentation

The Foundation prepares its financial statements in accordance with International Accounting Standards under the historical cost convention. The Foundation maintains its books and records in compliance with the Hungarian statutory regulations. There are no significant differences between the financial statements and the amounts determined under Hungarian statutory rules.

Term Deposits

Term deposits generally represent foreign currency balances in short-term interest bearing accounts.

Fixed Assets

Fixed assets are stated at cost if purchased or fair market value if received by donation, less accumulated depreciation. Leasehold improvements on premises occupied by the Foundation are written off in the period in which the expense is incurred. Fixed assets are accounted for in the Unrestricted Fund.

Depreciation is calculated using the straight-line method and charged over the expected useful lives as follows:

Foreign Currency Translation

Transactions arising in foreign currencies are translated into Hungarian Forints at the rate of exchange ruling at the date of the transaction. Assets and liabilities denominated in foreign currencies are translated into Hungarian Forints at the rate of exchange prevailing at the Balance Sheet date. Resulting gains and losses are recognized in the Statement of Revenue, Expense and Changes in Fund Balance.

Grants

Grants made to outside organizations are charged as an expense of the Foundation and recorded as liabilities on the date funds are committed.

Contributions

Contributions of cash to the Foundation and non-cash contributions (representing donated services and assets) are recorded in the period of entitlement.

Income Taxes

The Company is a not-for-profit organization and is not subject to income taxes.

REGIONAL ENVIRONMENTAL CENTER * ANNUAL REPORT 1994