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 October 31, 1995 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 October 31, 1995 and the results of its operations and its cash flows for the period that ended in accordance with International Accounting Standards.

ERNST & YOUNG
Budapest, Hungary
March 6, 1996

	OCTOBER 31, 1995*			DECEMBER 31, 1994
	UNRESTRICTED FUND	RESTRICTED FUND	TOTAL FUNDS	1994 TOTAL
ASSETS Current Assets:	.
Cash	1,032	531	1,563	1,985
Term deposits	1,549	*	1,549	1,648
Prepaid expences and accrued income	11	84	95	57
Interfund transfers	(132)	132	*	*
Bridging transfers	(149)	149	*	*
Total current assets	2,311	896	3,207	3,690
Fixed assets, net	213	*	213	218
TOTAL ASSETS	2,524	896	3,420	3,908
LIABILITIES AND FUND BALANCES Current Liabilities:	.
Accounts payable and accruals	156	258	414	154
Grants payable	718	65	783	744
Total current liabilities	874	323	1,197	898
Fund balances	1,650	573	2,223	3,010
TOTAL LIABILITIES AND FUND BALANCES	2,524	896	3,420	3,908

Note: This is a short form of the accounts. For the complete form see the audited financial statement.
* The accounting period for 1995 was shortened to 10 months in order to transfer the accounts of the foundation to a new legal entity.

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.

In accordance with an agreement concluded on October 23, 1995 between the Foundation and the government of The Republic of Hungary the status of the Foundation changed to that of an international organization which conveyed special privileges on the Foundation in relation to taxes, custom duties, foreign bank accounts and employment of foreign employees.

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 October 31, 1995 totalling ECU 1,494,111. 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.

Bridging Transfers Grants and awards are approved in certain instances from restricted funds at balance date for which cash contributions are yet to be received. Coverage for the temporary shortfall is provided by the restricted funds.

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:

Furniture and fixtures	10%
Office machinery and equipment	20%
Motor vehicles	20%
Computer equipment	33%

Foreign Currency Translation Transactions arising in foreign currencies are translated into Hungarian Forints at the rate of exchange ruling at the first day of the month in which the transaction occurred. Assets and liabilities denominated in foreign currencies are translated into Hungarian Forints at the rate of exchange prevailing at the first day of the Balance Sheet month. 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.