CHI PHI EDUCATIONAL TRUST ATLANTA, GEORGIA REPORT ON REVIEW OF FINANCIAL STATEMENTS

Transcription

1 ATLANTA, GEORGIA REPORT ON REVIEW OF FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2014 WITH SUMMARIZED FINANCIAL INFORMATION FOR THE YEAR ENDED JUNE 30, 2013

2 INDEX TO FINANCIAL STATEMENTS JUNE 30, 2014 WITH SUMMARIZED FINANCIAL INFORMATION AS OF JUNE 30, 2013 PAGE INDEPENDENT ACCOUNTANT'S REVIEW REPORT STATEMENT OF ASSETS, LIABILITIES AND NET ASSETS MODIFIED CASH BASIS 1 STATEMENT OF SUPPORT, REVENUES AND EXPENSES MODIFIED CASH BASIS 2-3 STATEMENTS OF CASH FLOWS MODIFIED CASH BASIS

3 Jones and Kolb Certified Public Accountants Atlanta, Georgia INDEPENDENT ACCOUNTANT'S REVIEW REPORT To the Board of Trustees Chi Phi Educational Trust Atlanta, Georgia We have reviewed the accompanying statement of assets, liabilities and net assets modified cash basis of Chi Phi Educational Trust (the "Trust") as of June 30, 2014, and the related statements of support, revenues and expenses modified cash basis and cash flows modified cash basis for the year then ended. A review includes primarily applying analytical procedures to management's financial data and making inquiries of Trust management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion. Management is responsible for the preparation and fair presentation of the financial statements in accordance with the modified cash basis of accounting and for designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements. Our responsibility is to conduct the review in accordance with Statements of Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Those standards require us to perform the procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements. We believe that the results of our procedures provide a reasonable basis for our report. Based on our review, we are not aware of any material modifications that should be made to the accompanying 2014 financial statements in order for them to be in conformity with the modified cash basis of accounting, as described in Note 1. We previously reviewed Chi Phi Educational Trust 2013 financial statements and in our report dated December 17, 2013, stated that based on our procedures, we were not aware of any material modifications that should be made to the 2013 financial statements in order for them to be in conformity with the modified cash basis of accounting. We are not aware of any material modifications that should be made to the summarized comparative information presented herein as of and for the year ended June , for it to be consistent with the reviewed financial statements from which it has been derived. June 2, 2015

4 STATEMENT OF ASSETS, LIABILITIES AND NET ASSETS MODIFIED CASH BASIS JUNE 30, 2014 WITH SUMMARIZED FINANCIAL INFORMATION AS OF JUNE 30, 2013 ASSETS 2013 General Ramsaur 2014 Total Fund Fund Total (Memo Only) ASSETS Cash $ 28,470 $ - $ 28,470 $ 25,809 Prepaid expenses and other assets 15,810-15,810 23,195 Notes receivable, net 333, , ,296 Investments 3,354, ,586 3,609,283 3,478,673 Property and equipment, net 979, , ,157 Cash surrender value of life insurance 89,255-89,255 83,884 Total assets $ 4,801,304 $ 254,586 $ 5,055,890 $ 4,877,014 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued expenses $ 104,862 $ - $ 104,862 $ 71,963 Due to (from) Ramsaur Fund (10,462) 10, Deferred lease income 11,000-11,000 27,500 Due to Chi Phi National Fraternity 42,768-42,768 32,264 Total liabilities 148,168 10, , ,727 NET ASSETS Unrestricted 1,373,480-1,373,480 1,445,098 Temporarily restricted 3,135,467 25,632 3,161,099 2,903,183 Permanently restricted 144, , , ,006 Total net assets 4,653, ,124 4,897,260 4,745,287 Total liabilities and net assets $ 4,801,304 $ 254,586 $ 5,055,890 $ 4,877,014 See Independent Accountant's Review Report and accompanying Notes to Financial Statements. 1

5 STATEMENT OF SUPPORT, REVENUES AND EXPENSES - MODIFIED CASH BASIS FOR THE YEAR ENDED JUNE 30, 2014 WITH SUMMARIZED FINANCIAL INFORMATION FOR THE YEAR ENDED JUNE 30, General Ramsaur 2014 Total Fund Fund Total (Memo Only) UNRESTRICTED SUPPORT AND REVENUES Support Annual fund contributions $ 234,211 $ - $ 234,211 $ 152,385 Memorials, gifts and other 27,190-27,190 29,183 Total support 261, , ,568 Investment income 234, , ,241 Total unrestricted support and revenues 496, , ,809 NET ASSETS TRANSFERRED TO RESTRICTIONS (2,597) NET ASSETS RELEASED FROM RESTRICTIONS 575,332 20, , ,711 EXPENSES Awards and grants 669, , ,373 Leadership and educational programs 57,206-57,206 46,572 Total program 726, , ,945 Management and general 209,955 20, , ,640 Fundraising 206, , ,320 Total expenses 1,143,335 20,983 1,164,318 1,249,905 Change in unrestricted net assets before prior period adjustment (71,618) - (71,618) (207,982) PRIOR PERIOD ADJUSTMENT (92,984) Change in unrestricted net assets (71,618) - (71,618) (300,966) See Independent Accountant's Review Report and accompanying Notes to Financial Statements. 2

6 STATEMENT OF SUPPORT, REVENUES AND EXPENSES - MODIFIED CASH BASIS FOR THE YEAR ENDED JUNE 30, 2014 WITH SUMMARIZED FINANCIAL INFORMATION FOR THE YEAR ENDED JUNE 30, General Ramsaur 2014 Total Fund Fund Total (Memo Only) TEMPORARILY RESTRICTED NET ASSETS Contributions 397, , ,843 Investment income 358,369 28, , ,712 Net assets transferred from (to) unrestricted net assets ,597 Net assets transferred from (to) permanently restricted net assets - 7,682 7,682 29,027 Net assets released from restrictions (512,593) (20,983) (533,576) (630,711) Prior period adjustment ,984 Change in temporarily restricted net assets 243,089 14, , ,452 PERMANENTLY RESTRICTED NET ASSETS Contributions 22,419-22,419 8,313 Investment income - 13,677 13,677 8,050 Net assets transferred - (7,682) (7,682) - Net assets released from restrictions (62,739) - (62,739) (29,027) Change in permanently restricted net assets (40,320) 5,995 (34,325) (12,664) CHANGE IN NET ASSETS 131,151 20, ,973 1,822 NET ASSETS Beginning of year 4,521, ,302 4,745,287 4,743,465 NET ASSETS End of year $ 4,653,136 $ 244,124 $ 4,897,260 $ 4,745,287 See Independent Accountant's Review Report and accompanying Notes to Financial Statements. 3

7 STATEMENTS OF CASH FLOWS - MODIFIED CASH BASIS CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 151,973 $ 1,822 ADJUSTMENTS TO RECONCILE CHANGE IN NET ASSETS TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Depreciation 42,866 39,442 Gain on investments (484,683) (395,694) Change in prepaid expenses and other assets 7,385 (9,194) Change in cash surrender value of life insurance (5,371) (4,939) Change in accounts payable and accrued expenses 32,899 30,309 Change in deferred lease income (16,500) 20,742 Change in due to Chi Phi National Fraternity 10,504 3,982 Total adjustments (412,900) (315,352) Net cash used in operating activities (260,927) (313,530) CASH FLOWS FROM INVESTING ACTIVITIES Payments collected on notes receivable 22,579 19,076 Accrued interest on notes receivable (14,192) (13,950) Payments for the purchase of property (98,872) (18,318) Proceeds from sales of investments 973,957 1,745,412 Purchases of investments (619,884) (1,504,777) Net cash provided by investing activities 263, ,443 NET INCREASE (DECREASE) IN CASH 2,661 (86,087) CASH, Beginning of year 25, ,896 CASH, End of year $ 28,470 $ 25,809 See Independent Accountant's Review Report and accompanying Notes to Financial Statements. 4

8 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. The Chi Phi Educational Trust (the "Trust") is a publicly supported 501(c)(3) taxexempt organization established in 1930, and its purpose is (1) to assist and supplement the work of universities, colleges and schools in the promotion of scholarship and the development of character and morale of students, (2) to provide improved educational facilities, opportunities and conveniences for students in universities, colleges and schools, (3) to make donations and/or loan money to universities, colleges and schools, (4) to assist needy and deserving students to complete their education, (5) to aid and assist aged or disabled former students who are in need and who are worthy of assistance and (6) charitable purposes which are not inconsistent with the foregoing specific purposes. The Trust is located in Atlanta, Georgia, and it supports educational activities throughout the United States. B. The Trust financial statements are prepared using the modified cash basis of accounting; consequently, capital campaign contributions are recognized when received, rather than when pledged. At June 30, 2014 and 2013, approximately $5,450,000 and $5,096,000 of pledges receivable have not been recorded in accordance with the modified cash basis of accounting. At June 30, 2014 and 2013, the Trust has received total pledges to the capital campaign of approximately $9 million and $7.9 million, respectively, which consist of cash pledges, planned gifts, bequests, life insurance policies and being named as beneficiary on life insurance policies. C. The financial statements have been prepared in accordance with the AICPA Audit and Accounting Guide "Not-for-Profit Organizations" and the modified cash basis of accounting. Under these provisions, net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. The Trust records all revenues and gains that are spent in the same fiscal year as unrestricted revenue. Any amounts not spent are recorded as temporarily restricted revenue if donor restrictions exist. Accordingly, net assets of the Trust and changes therein are classified and reported as follows: Unrestricted net assets - Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets - Net assets subject to donor-imposed stipulations that may or will be met either by actions of the Trust and/or the passage of time. Permanently restricted net assets - Net assets subject to donor-imposed stipulations that are required to be maintained permanently by the Trust. Generally, the donors of these assets permit the Trust to use all or part of the income earned on related investments for general or specific purposes. D. The financial statements include certain prior year summarized comparative information in total, but not by net asset class. Such information does not include sufficient information to constitute a presentation in accordance with the modified cash basis of accounting. Accordingly, 5

9 such information should be read in conjunction with the Trust's financial statements for the year ended June 30, 2013, from which the summarized information was derived. E. Contributions are recorded as collected. All contributions are available for unrestricted use unless specifically restricted by the donor. Contributions are recorded at estimated fair value as of the date of the gift. F. Notes receivable, net of allowance for doubtful accounts, are recorded at the amount of cash estimated as realizable. The Trust provides an allowance for doubtful accounts when specific accounts are deemed uncollectible based on the past due payments of the notes receivable. Notes receivable balances are considered delinquent after thirty days from the due date of the payment. Interest income is recognized monthly for all current notes receivable. G. Investments in mutual funds are valued at quoted market prices and pooled investment funds are valued at per unit market value basis of the underlying assets as determined by Sanford C. Bernstein & Co., LLC, which reflects the fair value of the investments. The hedge fund is valued based on the net asset value of the underlying assets using the best information available as of the valuation date as provided by the portfolio managers. However, the accuracy of the valuation of the hedge fund cannot be independently verified. The cost assigned to investments received by gift is the market value at the date the gift is received. The net realized and unrealized gains (losses) on investments are reflected in the Statement of Support, Revenues and Expenses Modified Cash Basis. H. Property and equipment are stated at cost. The policy of the Trust is to capitalize, at cost, all expenditures for property and equipment in excess of $500. Depreciation, including amortization of a capital lease, is calculated using the straight-line method over the estimated useful life of the asset, which is estimated to be 30 years for real property and between three and seven years for equipment. I. The Trust considers all unrestricted highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. J. The preparation of financial statements in conformity with the modified cash basis of accounting requires management to make certain estimates and assumptions relating to the reporting and the disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. K. The Trust is exempt from income taxes under Section 501(a) as an organization described in Section 501(c)(3) of the Internal Revenue Code of In management's opinion, the Trust has not taken any uncertain tax positions that could result in a material income tax liability. The Trust is subject to examinations of its tax returns by the U.S. Federal, state and 6

10 local authorities for three years after the returns are filed. Tax years prior to 2011 are no longer open to examination. The Trust is not currently under audit, nor has it been contacted by any taxing authorities. L. The costs of providing the Trust's programs and supporting services has been summarized on a functional basis; accordingly, certain costs have been allocated among the programs and services benefited. M. Subsequent events have been evaluated by management through June 2, 2015, the date these financial statements were available to be issued. 2. NOTES RECEIVABLE As of June 30, 2014 and 2013, the Trust had the following notes receivable: 3. INVESTMENTS Notes and mortgages $ 346,655 $ 354,121 Student loans 5,979 6,900 Allowance for doubtful accounts (18,725) (18,725) $ 333,909 $ 342,296 U.S. generally accepted accounting principles establish a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Level 1 within the hierarchy states that valuations are based on unadjusted quoted market prices for identical assets or liabilities in active markets. Level 2 within the valuation hierarchy states that valuations are based on quoted prices for similar assets or liabilities in active markets or observable inputs other than quoted market prices. Level 3 within the hierarchy states that valuations are based on significant unobservable inputs. As of June 30, 2014 and 2013, the only assets or liabilities that are measured at fair value on a recurring basis in periods subsequent to initial recognition are investments, which consist of cash equivalents, common stocks, equity funds and a hedge fund. Cash equivalents, common stocks and a portion of the equity funds, which are classified as Level 1, are valued based on unadjusted quoted market prices in an active market. The other equity funds, which are classified as Level 2, are valued based on the net asset value of the underlying assets as determined by the equity fund issuer. The Trust has the ability to redeem these Level 2 investments at the reported per unit net asset value. The investment in the hedge fund, a fund of funds, which is classified as Level 3, is valued at the net asset value of 7

11 the underlying assets as of the close of the regular trading on the New York Stock Exchange on the last business day of each calendar month. Quantitative information about the significant unobservable inputs used to determine the fair values of the funds included in the hedge funds is not available. The hedge fund's shares are not listed on any securities exchange or traded in other markets, shares are subject to substantial restrictions on transfers, and the Trust may be unable to sell their shares for prolonged periods of time. The following tables set forth by level, within the fair value hierarchy, the Trust's investments at fair value as of June 30, 2014 and 2013: 2014 Level 1 Level 2 Level 3 Total Cash equivalents $ 14,501 $ - $ - $ 14,501 Common stocks 1,074, ,074,782 Equity funds 404,444 1,306,788-1,711,232 Fixded income fund 445, ,855 Hedge fund , ,913 Total $ 1,939,582 $ 1,306,788 $ 362,913 $ 3,609, Level 1 Level 2 Level 3 Total Cash equivalents $ 14,153 $ - $ - $ 14,153 Common stocks 1,060,711 5,700-1,066,411 Equity funds 357,344 1,263,000-1,620,344 Fixded income fund 436, ,225 Hedge fund , ,540 Total $ 1,868,433 $ 1,268,700 $ 341,540 $ 3,478,673 Investment income for the years ended June 30, 2014 and 2013 consisted of the following: Temporarily Permanently Total Unrestricted Restricted Restricted Total (Memo Only) Interest and dividends $ 18,649 $ 42,514 $ 1,505 $ 62,668 $ 79,249 Note interest 16, ,307 16,802 Realized/unrealized gains (losses) from investments 128, ,983 12, , ,694 Rental income 71, ,500 67,258 $ 234,984 $ 386,497 $ 13,677 $ 635,158 $ 559,003 8

12 The table below sets forth a reconciliation of the beginning and ending balances of the Trust's Level 3 assets, which consist of a hedge fund, for the years ended June 30: Balance, beginning of year $ 341,540 $ - Purchases - 330,000 Sales - - Unrealized gains 21,373 11, PROPERTY AND EQUIPMENT Property and equipment consists of the following at June 30: $ 362,913 $ 341, Building $ 999,466 $ 999,466 Land 63,900 63,900 Building improvements 131,640 73,215 Furniture and equipment 68,951 53,600 Total 1,263,957 1,190,181 Less accumulated depreciation (284,794) (267,024) Total property and equipment, net $ 979,163 $ 923,157 9

13 5. RESTRICTED NET ASSETS Restricted net assets at June 30, 2014 and 2013 are available for the following purposes: Temporarily Permanently Temporarily Permanently Restricted Restricted Restricted Restricted Alpha $ 304,524 $ - $ 271,622 $ - Alpha Academy 5,930-5,747 - Alpha Alpha Alpha Chi 9,500 25,000 3,357 25,000 Alpha Delta 1,905-1,480 - Alpha Sigma Alpha Tau 19,923-18,188 - Alpha Theta Chi 31,824-22,685 - Alpha Zeta 8,619-7,693 - Beta 101,279-77,360 - Bisz 1,520 5, ,000 Brown Scholarship 15,033 15,081 10,338 15,081 Byers Scholarship 6,874-5,967 - Chakett (143) College of Excellence Craft 3,696 6,000 2,331 6,000 David Walsh Fund Delta Delta Pi 8,975-6,815 - Delta Xi 7,303-5,486 - Delta Zeta 9,354-6,814 - Education 132,115-95,754 - Eta ,283 2,813 Eta Delta Epsilon Epsilon Delta 7,701-7,375 - Epsilon Theta Epsilon Zeta Eta Theta Fred Kieser Fund (295) 14, ,500 Gamma 120, ,342 - Gamma Zeta Greek Museum 23,022-34,240 - Hageman 27,539 38,338 18,794 38,338 Heinlein 74,628 20,000 62,392 20,000 Hutchinson - - 3,032 50,000 Iota 4,843-1,822-10

14 Temporarily Permanently Temporarily Permanently Restricted Restricted Restricted Restricted Iota Delta 10,724-8,759 - Iota Theta Jefferson 31,565-27,597 - Kappa 7,521-4,715 - Kappa Delta 26,937-20,347 - Kappa Theta 4,482-3,376 - Kappa Zeta 7,893-6,782 - Krannert 4,495 15,000 1,603 15,000 Lamda 9,987-7,143 - Lamda Theta 3, Lamda Zeta Mu 1, Mu Delta 6,323-5,289 - Mu Theta Mu Zeta 2,029-1,724 - Neel 370, ,332 - Nu 670, ,269 - Nu Delta 20,479-15,374 - Nu Theta Nu Zeta 1,822-1,540 - Omega 6,810-7,580 - Omega Zeta 8,350-7,477 - Omicron Delta 1, Omicron Theta Parry 39,778-31,679 - Phi Delta 1, Phi Lamda Delta Pi 5,401 2,636 4,579 2,636 Pi Theta 1, Psi 4,480-1,352 - Psi Delta 1, Psi Zeta Rho 9,581-7,355 - Rho Delta 11,361-9,246 - Rho Iota Kappa 2,752-2,159 - Scholarship Fund 51, , Sigma Sigma Delta 1, Sigma Zeta Soderquist 20,

15 Temporarily Permanently Temporarily Permanently Restricted Restricted Restricted Restricted Spaur 503, ,447 - Tau 22,784-19,653 - Tau Zeta 1, Theta 37,266-29,529 - Theta Delta 190, ,638 - Theta Zeta 6,557-5,598 - Tinsley 13,183-11,978 - Tolleson 41,106-35,882 - Upsilon 1,588-1,309 - Xi Xi Delta 36,931-32,838 - Xi Theta Zeta 930 1, ,865 Zeta Delta 2,690-2,074 - Zeta Theta Subtotal 3,135, ,189 2,799, ,509 Ramsaur 25, ,492 10, ,497 Prior period adjustment, see Note , ENDOWMENT Total $ 3,161,099 $ 362,681 $ 2,903,183 $ 397,006 The Trust's endowment consists of sixteen donor-restricted individual funds established for a variety of purposes at June 30, 2014 and Endowment assets of these donor-restricted funds are to be held in perpetuity for a donor-specified purpose. As required by U.S. generally accepted accounting principles, net assets associated with endowment funds are classified and reported based on the existence of donor-imposed restrictions. The Board of Trustees of the Trust has interpreted the Georgia Uniform Prudent Management of Institutional Funds Act of 2006 ("UPMIFA") as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Trust classifies the original value of gifts donated to the permanent endowment, the original value of subsequent gifts to the permanent endowment and accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the 12

16 accumulation is added to the fund as permanently restricted net assets. The remaining portion of the donor-restricted endowment fund that is not classified as permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Trust in a manner consistent with the standard of prudence prescribed by UPMIFA. The Board of Trustees will appropriate funds from the endowment funds based on the terms of the restricted fund agreements, specific needs and budgeting requirements from year to year. In accordance with UPMIFA, the Trust considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund; (2) The purposes of the Trust and the donor-restricted endowment fund; (3) General economic conditions; (4) The possible effect of inflation and deflation; (5) The expected total return from income and the appreciation of investments; (6) Other resources of the Trust; and, (7) The investment policies of the Trust. The composition of and changes in endowment net assets for the year ended June 30, 2014 are as follows: Temporarily Permanently Restricted Restricted Total Endowment net assets, beginning of year $ 129,301 $ 397,006 $ 526,307 Contributions 209,110 22, ,529 Investment return: Investment income 16,579 1,520 18,099 Net realized and unrealized gain 132,658 12, ,815 Amounts appropriated for expenditure (313,567) (62,739) (376,306) Allocations from unrestricted 78,283-78,283 Transfers 7,682 (7,682) - Endowment net assets, end of year $ 260,046 $ 362,681 $ 622,727 13

17 The composition of and changes in endowment net assets for the year ended June 30, 2013 are as follows: Temporarily Permanently Restricted Restricted Total Endowment net assets, beginning of year $ 115,057 $ 409,670 $ 524,727 Contributions 18,555 8,313 26,868 Investment return: Investment income 6,471 1,202 7,673 Net realized and unrealized gain 36,669 6,848 43,517 Amounts appropriated for expenditure (17,621) - (17,621) Other Transfers 29,027 (29,027) - Prior period adjustment (59,454) - (59,454) Endowment net assets, end of year $ 129,301 $ 397,006 $ 526,307 The Trust has adopted investment and spending policies that attempt to preserve endowment assets by using funding only when operating cash is insufficient. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed common benchmarks for a balanced portfolio, while assuming a moderate level of risk. To satisfy its long-term rate-of-return objectives, the Trust relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Trust targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. 7. SPLIT-INTEREST AGREEMENT During 1995, the Trust received a contribution in the form of an agreement whereby it received $95,000 in securities in exchange for a quarterly payment of $1,566 to the donor and his spouse over their remaining lives. The term of this agreement was originally estimated to be 18 years, and the payments were discounted at 8.8%. As of June 30, 2014, the current estimated remaining life for the donor is estimated to be 3 years. Payments made under this agreement are charged to expense. 14

18 8. COMMITMENTS AND CONTINGENCIES The Trust leases office space to Chi Phi National Fraternity, Inc. (the "Fraternity") for a term of 10 years with an annual rent of $55,000, which escalates to $67,080 and $76,148 upon the 37 th and 73 rd month, respectively. The parties agreed to review the rental rate at the 37 th and 73 rd month to determine if it needs to be changed to reflect prevailing market rental rates and use of the building by the parties. During the year ended June 30, 2010, the lease was amended so that the annual rent remains $55,000 for the 37 th through 72 nd months. In October 2013, the lease was amended so that the annual rent payments would stay at $55,000 until use of the office space changes. The Trust also leases office space to an unrelated party for a term of 4 years with an annual rent of $23,870, increasing 4% each year. In November 2012, the unrelated party agreed to extend the lease for a term of 2 years with a onetime renewal payment of $33,000. This lease was extended again in September 2014 with a onetime renewal payment of $16,500. The new lease term is set to expire in February Rental income derived from these leases totaled $71,500 and $67,258 for the years ended June 30, 2014 and 2013, respectively. Future minimum payments under these lease agreements are as follows: Year ending June 30, Amount 2015 $ 71, , , ,166 Total $ 190,666 The Trust has authorized future grants to designated recipients contingent upon certain performance by recipients and associated entities. Certain individuals have donated life insurance policies that the Trust now owns and has been designated as the beneficiary. Generally, the premiums on these policies are paid from policy dividends. The Trust recognizes as an asset only the guaranteed cash surrender values of the policies. The face value of the policies is approximately $375,

19 9. RELATED PARTY TRANSACTIONS The Trust makes a number of grants to the Fraternity to assist it in carrying out its exempt functions. The Trust paid grants to the Fraternity totaling $219,224 and $247,184 for the years ended June 30, 2014 and 2013, respectively. The Trust also paid the Fraternity $17,639 and $12,560 under an administrative service agreement for the years ended June 30, 2014 and 2013, respectively. The Trust has an advance due to the Fraternity of $42,768 and $32,264 as of June 30, 2014 and 2013, respectively. The Trust also has a lease agreement with the Fraternity (see Note 8). 10. RISKS AND UNCERTAINTIES The capital markets continue to experience a high degree of volatility that is causing significant fluctuations in the market value of investments. These conditions could impact the classification, liquidity and valuation of cash, cash equivalents and investments. Investments and cash equivalents are subject to interest rate risk, credit risk and market risk. Due to the level of risk associated with certain investments and cash equivalents, it is likely that the market volatility in the near term will affect the amounts reported in the accompanying financial statements. It is possible such trends will continue. 11. PRIOR PERIOD ADJUSTMENT During the year ended June 30, 2014, it was determined that investment income had been improperly allocated to certain individual restricted net asset fund balances. The allocation algorithm had been set up incorrectly when the Trust transitioned to new software in prior years. Corrections have been made to the software and a prior period adjustment has been made to correctly state unrestricted and temporarily restricted net assets as of June 30,