Ukraine-Moldova American Enterprise Fund

“Business Relationships There was a business relationship during the year between Lenna Koszarny (Executive Vice President of WNISEF) as she was owner and/or officer of Horizon Capital Associates LLC (HCA) and Natalie Chaus (CFO & administrative officer of WNISEF) as she was the officer of HCA, the investment management company which has entered into a contract approved by the WESTERN NIS Board of directors and USAID, to provide investment management services to WESTERN NIS. These two individuals were also owners and/or officers of Horizon Capital Advisors, LLC (HCAD), a subadvisor entity providing services to the management company.”

“Members The corporate members of Western NIS consist of the directors who are US citizens. The members have the rights to elect and remove directors.”

“Approval by Members USAID has the authority to, and in fact does, approve certain Western NIS' decisions, including the long-term equity incentive plan, the privatization of Horizon Capital in 2006, the terms of the HCA investment management and shared services agreements with Western NIS, and the contribution of certain investments to the Emerging Europe Growth Fund, LP, a regional private equity fund launched in 2006 and sale at cost of two warehoused investments to EEGF III, LP, a regional private equity fund launched in 2017. USAID conducts quarterly reviews of Western NIS and reviews monthly reports and annual audited financial statements and annual reports submitted by Western NIS.”

“Form 990 Review Policy Western NIS Enterprise Fund's Form 990 is prepared by an independent accounting firm in conjunction with its finance staff. The Chief Financial Officer (CFO) reviews, edits, and approves the draft Form 990 prior to review by the President/Chief Executive Officer (CEO). Once the CEO completes review of the draft Form 990 and any revisions are incorporated, the draft Form 990 is distributed to a subcommittee of the Board formed to review and approve the Form 990 on behalf of the full Board of Directors. Once their comments are incorporated and the Form 990 is approved, a copy of the Form 990 that will be filed with the IRS is provided to all members of the Board of Directors, as well as external corporate counsel, prior to filing.”

“Conflict of Interest Policy Officers are appointed on an annual basis by the Board of Directors of Western NIS Enterprise Fund, and the terms of appointment include compliance with the policies and procedures of the Fund, including the conflict of interest policy. The Grant Agreement with USAID includes the conflict of interest policy and identifies which matters must be discussed with USAID. Compliance is monitored via the annual audit process, conducted by an independent big 4 public accounting firm, through review of transactions, including related party transactions and internal control procedures. Any potential conflict would be reviewed and handled by the board of directors and outside legal counsel. If a conflict was related to a board member, then that board member would be required to abstain from discussion and abstain from voting on the conflicted matter.”

“Compensation Western NIS has a special compensation structure that reflects its tax-exempt mission. As noted in Part III of Form 990, one of Western NIS' key accomplishments was fulfilling the directive from USAID to establish a private follow-on fund, Emerging Europe Growth Fund LP (EEGF). This directive followed the precedent of USAID-financed enterprise funds in Central and Eastern Europe, which successfully attracted significant private capital. As described in Schedule O, Western NIS was nearing its wind-down phase, and the founding of EEGF was a significant accomplishment towards Western NIS' mission. A private investment management company, Horizon Capital Associates LLC (HCA), was formed to manage the investments of EEGF and Western NIS. Following the founding of EEGF, all employees of Western NIS (except those located in the US) became employees of HCA's subadvisor entity, Horizon Capital Advisors, LLC (HCAD), resulting in the transfer of employee compensation, operating and other expenses from Western NIS to HCA and HCAD. Accordingly until January 2015, Western NIS did not have employees, other than an administrative assistant and a part-time accountant in the US. HOWEVER, DURING FISCAL 2015 THE FUND HAS HIRED CERTAIN EMPLOYEES FOR LEGACY PROGRAMS REALIZATION. Both the formation of the Horizon Capital entities and outsourcing of investment management functions to HCA were approved by USAID. Western NIS pays HCA an annual management fee, as disclosed in Schedule L. The investment management agreement with HCA was approved by the Board of Directors of Western NIS, after review and approval of its key terms, including the management fee, by USAID, which had prior experience reviewing and approving similar investment management agreements entered into by other enterprise funds that it regulates. The management fee formula is identical to that in the investment management agreement between HCA and EEGF, which also was reviewed and approved by the WESTERN NIS Board and USAID (as well as by other investors in EEGF). IN FEBRUARY 2015, THE FUND ENTERED INTO A SHARED SERVICES AGREEMENT WITH HCA, APPROVED BY THE BOARD OF DIRECTORS, TO PROVIDE ADDITIONAL PROGRAM MANAGEMENT AND ADMINISTRATIVE SERVICES FOR LEGACY PROGRAMS. WESTERN NIS PAYS HCA AN ANNUAL PROGRAM MANAGEMENT FEE, AS DISCLOSED IN SCHEDULE L. The fund became an anchor investor of EEGF III, the third private fund launched by Horizon Capital. Based on USAID approval, in 2016, the Board of Directors of the Fund committed $30 million to EEGF III and approved the warehousing of up to 100% of its $30 million commitment of investments within WNISEF, which subsequently were transferred to EEGF III at cost upon its first closing. In 2002, the board members of Western NIS established a long-term equity incentive plan ("LTEI"), which was based on similar arrangements at other USAID-financed enterprise funds and was approved by the US Congress and USAID. The LTEI Plan is not compensation from government grant funds but a separately USAID-approved incentive plan funded from investment sales proceeds. LTEI compensation is not contingent on revenues or net earnings, but rather on a profitable exit of a portfolio company that exceeds the baseline value set by the board of directors and approved by USAID. Upon the spin-off of employees to HCAD, the LTEI plan remains in effect as long as 1) the investment management agreement between Western NIS and HCA continues; 2) the specific employee remains in the employ of WNISEF or HCAD and 3) the board of directors does not amend, alter or terminate the plan. This is intended to maximize Western NIS' returns on its remaining portfolio. LTEI payments during the 2016 calendar year are set forth in the following paragraph. There were no payments under the long-term equity incentive plan(LTEI) during the 2016 calendar year and before the 9/30/17 fiscal year end. It should be noted that US Government Grant Agreement with USAID provides that US Gover”

“Joint Ventures The tax-exempt mission of Western NIS Enterprise Fund established by the US Congress and USAID is directly furthered by the Fund's investments in small-to mid-sized companies in the Ukraine and Moldova, and also by its investments in EEGF and EEGF III, regional private equity funds whose establishment was encouraged, reviewed and approved by USAID. Under the terms of its grant agreement from USAID, Western NIS takes a commercial approach to its investment activities in portfolio companies in the Western Newly Independent States, as a matter of operating philosophy. The written grant agreement also provides numerous terms and conditions to ensure that the portfolio companies it invests in further its tax-exempt mission and USAID guidelines. Western NIS has a written policy that requires, among other things, that all investments be in accord with the grant agreement, which expressly defines permissible investments as well as prohibited transactions consistent with Western NIS' congressionally - mandated charitable mission. In addition to this written policy, Western NIS has adopted various measures that safeguard its exempt status with respect to its investments. These measures include ensuring that investment agreements with portfolio companies are on an arm's length basis and contain provisions to assure compliance with relevant clauses within the grant agreement. USAID specifically reviewed and approved in writing Western NIS' investments in EEGF and EEGF III as an integral part of its tax exempt mission.”

“Disclosures As a USAID recipient, Western NIS' governing documents, including its conflict of interest policy, and its financial statements are provided to USAID and are made available to the public through this organization.”

“Investment management fees investment management fees in the amount of $ 626,076 paid to horizon capital associates llc represent investment management fees paid in calendar year 2016 as this is the calendar year ending within western nis' tax year beginning 10/01/2016 and ending 9/30/2017. This amount differs from the investment management fee reported in schedule l part iv business transactions involving interested persons as this latter amount reflects actual payments made in fiscal 2017. Program management fees program management fees in the amount of $525,000 paid to horizon capital associates llc represent program management fees paid in calendar year 2016 as this is the calendar year ending within western nis' tax year beginning 10/01/2016 and ending 9/30/2017. It differs from the program management fee reported in schedule l part iv business transactions involving interested persons as this latter amount reflects actual payments made in fiscal 2017.”

“Organization Mission The Western NIS (New Independent States) Enterprise Fund (the "Fund") is a not-for-profit corporation formed pursuant to the support for East European Democracy Act of 1989 (the "SEED Act") and the 1992 Freedom for Russia and Emerging Eurasian Democracies and Open Markets Support Act (the "Freedom Support Act"). Western NIS' primary purpose is promoting the development of the private sector, and the policies and practices conducive to such development, of the Western NIS region (the "Region"), which consists of Ukraine, Moldova and Belarus. The U.S. Congress authorized appropriations of $150 million, which were committed by the United States Agency for International Development ("USAID") for Western NIS program purposes and administrative expenditures (the "Grant"). Amounts received from USAID were conditioned upon Western NIS' compliance with the requirements of the grant agreement with USAID and the Seed and Freedom Support Acts, which imposed certain U.S. policy objectives and reporting obligations. Western NIS is engaged in a broad private investment program in the region which, through equity investments, loans, leases, technical assistance and other measures, emphasizes a commitment to small-and medium-sized private businesses. Western NIS provides technical assistance to companies in which it has invested. Through its direct role in investments in the region's private sector, Western NIS seeks to generate profits that will further support its activities and attract investments by others. As part of its investment operations, Western NIS may obtain representation on management and supervisory councils of investee companies. Western NIS' Grant agreement with USAID states that the success of Western NIS will be characterized by the extent to which it causes or contributes to: (1) The successful establishment, or strengthening of, a wide array of small and medium-sized firms across the different sectors of the economies in the Western NIS Republics; (2) The generation of new employment opportunities in the private sector of the Western NIS Republics; (3) Investment by other private companies in sectors where Western NIS took an initial lead; (4) The completion of a wide array of transactions that develop and strengthen financial markets in the Western NIS Republics; (5) Development by Western NIS of a number of key joint ventures between private companies of the US and the Western NIS Republics; and (6) Consistent with Western NIS' sound business judgment, the conduct of activities intended to further investment in each of the Western NIS Republics. One of Western NIS' key accomplishments was fulfilling the directive from USAID to enable the establishment of a private successor fund, Emerging Europe Growth Fund LP (EEGF). A new private investment management company, Horizon Capital Associates LLC (HCA), was formed to support EEGF and Western NIS. This approach followed the precedent of USAID-financed enterprise funds in Central and Eastern Europe, which successfully attracted significant private capital. Based on USAID and Congressional approval, Western NIS' board of directors committed $25 million to EEGF and approved the sale of certain investments to EEGF in 2006. EEGF now functions as a mid-cap private equity fund making investments in Ukraine, Moldova, and Belarus. WNISEF is a cornerstone limited partner in EEGF. EEGF has invested between $5 to $25 million in expansion and buy-out opportunities in the following industries: financial services, fast moving consumer goods, retail and industrial goods. USAID has already distributed the full grant of $150 million to Western NIS, with the final tranche received in fiscal year 2007. According to the grant agreement, USAID may establish the date after which Western NIS shall commence the winding up of its affairs and sale of its assets. Under this authority, USAID originally established Western NIS' termination commencement date as August 26, 2009. During”

“In February 2015 the Fund started Legacy Programs specified by proposal that envisioned a $30 million three-year legacy program funded by a portion of the reflows earned by the Fund from its investment activities. In April 2016, as a result of a Grant Modification, the Fund was allowed to use an additional $5 million for Legacy Programs, increasing total allowable to $35 million. The goals and objectives of the legacy program are to assist Ukraine and Moldova with further development of sound economic policies and leadership during this critical time in their respective histories. Both Ukraine and Moldova signed Deep and Comprehensive Free Trade Agreements (DCFTA) with the European Union (EU) and must now undertake significant changes to their economic policies and to build cadres of well-trained leaders to fully benefit from the DCFTA. The four programs set forth in the Funds proposal to USAID focus on: i) mobilizing capital to address complex social issues (Impact Investing Program); ii) developing innovative market-based solutions linking local government and the business community to improve the provision of services to citizens while supporting the SME sector (Local Economic Development Program); iii) investing in people to broaden and deepen the human capacity necessary to advance private sector development in Ukraine and Moldova (Economic Leadership Program); and iv) improving the ability of Ukrainian exporters to access new markets (Export Promotion Policy Program).”

“Fund balance presentation in 2015 the fund started its activities under legacy programs and started to follow the accounting standard codification (asc) topic 958, not-for-profit entities, which requires additional disclosures, resulting in related changes in the presentation of the financial statements and notes to them.”