ALPHA CHI OMEGA FOUNDATION, INC.

Transcription

1 FINANCIAL STATEMENTS

2 TABLE OF CONTENTS Report of Independent Auditors... 1 Page Financial Statements Statements of Financial Position... 3 Statements of Activities... 4 Statements of Cash Flows... 6 Notes to Financial Statements... 7

3 REPORT OF INDEPENDENT AUDITORS Board of Trustees Alpha Chi Omega Foundation, Inc. Indianapolis, Indiana We have audited the accompanying financial statements of Alpha Chi Omega Foundation, Inc. (the Foundation), which comprise the statements of financial position as of July 31, 2018 and 2017, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4 REPORT OF INDEPENDENT AUDITORS (Continued) Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Foundation as of July 31, 2018 and 2017, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Carmel, Indiana November 6,

5 STATEMENTS OF FINANCIAL POSITION ASSETS Cash $ 2,764,472 $ 3,312,005 Investment income receivable from perpetual trust ,891 Contributions receivable, net 738, ,824 Notes receivable from related parties 663, ,352 Other assets 107,905 48,659 Cash surrender value of life insurance policies 125, ,874 Property and equipment, net 20,023 25,035 Artwork 52,950 52,950 Investments 15,534,810 14,468,720 Beneficial interest in perpetual trust 3,658,977 3,408,943 $ 23,667,297 $ 22,478,253 LIABILITIES AND NET ASSETS Liabilities Accounts payable to Alpha Chi Omega Fraternity, Inc. $ 619,282 $ 433,410 Accounts payable and other liabilities 132, ,483 Total liabilities 751, ,893 Net assets Unrestricted Undesignated 2,608,286 2,555,824 Board designated 1,133,527 1,212,384 3,741,813 3,768,208 Temporarily restricted 5,921,059 5,320,180 Permanently restricted 13,253,077 12,754,972 Total net assets 22,915,949 21,843,360 $ 23,667,297 $ 22,478,253 See accompanying notes to financial statements. 3

6 STATEMENT OF ACTIVITIES YEAR ENDED JULY 31, 2018 (With Comparative Total for the Year Ended July 31, 2017) 2018 Temporarily Permanently 2017 Unrestricted Restricted Restricted Total Total Support and revenues Contributions $ 1,068,810 $ 1,571,435 $ 263,071 $ 2,903,316 $ 2,692,708 Provision for uncollectible contributions receivable -0- (15,555) (15,000) (30,555) (19,083) Investment return, net 78, , ,031,827 1,419,815 Change in cash surrender value of life insurance policies 8, ,698 3,061 Interest income on notes receivable 11, ,123 11,806 Interest income on cash 4, ,526 3,396 Investment income from perpetual trust 19, , , ,891 Change in value of beneficial interest in perpetual trust , ,034 21,470 1,190,748 2,683, ,105 4,372,172 4,322,064 Net assets released from restrictions 2,082,440 (2,082,440) Total support and revenues 3,273, , ,105 4,372,172 4,322,064 Expenses Program and educational 2,132, ,132,321 1,677,959 Management and general 534, , ,590 Fundraising 633, , ,709 Total expenses 3,299, ,299,583 2,497,258 Change in net assets (26,395) 600, ,105 1,072,589 1,824,806 Net assets, beginning of year 3,768,208 5,320,180 12,754,972 21,843,360 20,018,554 Net assets, end of year $ 3,741,813 $ 5,921,059 $ 13,253,077 $ 22,915,949 $ 21,843,360 See accompanying notes to financial statements. 4

7 STATEMENT OF ACTIVITIES YEAR ENDED JULY 31, 2017 Temporarily Permanently Unrestricted Restricted Restricted Total Support and revenues Contributions $ 745,489 $ 1,306,188 $ 641,031 $ 2,692,708 Provision for uncollectible contributions receivable -0- (19,083) -0- (19,083) Investment return, net 119,439 1,300, ,419,815 Change in cash surrender value of life insurance policies 3, ,061 Interest income on notes receivable 11, ,806 Interest income on cash 3, ,396 Investment income from perpetual trust 17, , ,891 Change in value of beneficial interest in perpetual trust ,470 21, ,363 2,759, ,501 4,322,064 Net assets released from restrictions 1,732,943 (1,732,943) Total support and revenues 2,633,306 1,026, ,501 4,322,064 Expenses Program and educational 1,677, ,677,959 Management and general 419, ,590 Fundraising 399, ,709 Total expenses 2,497, ,497,258 Change in net assets 136,048 1,026, ,501 1,824,806 Net assets, beginning of year 3,632,160 4,293,923 12,092,471 20,018,554 Net assets, end of year $ 3,768,208 $ 5,320,180 $ 12,754,972 $ 21,843,360 See accompanying notes to financial statements. 5

8 STATEMENTS OF CASH FLOWS YEARS ENDED Operating activities Change in net assets $ 1,072,589 $ 1,824,806 Adjustments to reconcile change in net assets to net cash flows from operating activities: Depreciation 8,507 8,507 Provision for uncollectible contributions receivable 30,555 19,083 Change in cash surrender value of life insurance policies (8,698) (3,061) Realized and unrealized gains on investments, net (758,896) (1,153,155) Contributions restricted for investment in endowment (270,550) (637,750) Change in value of beneficial interest in perpetual trust (250,034) (21,470) Changes in assets and liabilities: Investment income receivable from perpetual trust 188,891 (188,891) Contributions receivable, net (210,593) (185,199) Other assets (59,246) (11,393) Accounts payable and other liabilities 116,455 (260,086) Net cash flows from operating activities (141,020) (608,609) Investing activities Purchases of property and equipment (3,495) -0- Proceeds from sale of investments 4,374,887 3,602,634 Purchases of investments (4,682,081) (3,932,329) Collections under notes receivable 33,626 47,948 Advances under note receivable (400,000) -0- Net cash flows from investing activities (677,063) (281,747) Financing activities Contributions restricted for investment in endowment 270, ,750 Net change in cash (547,533) (252,606) Cash, beginning of year 3,312,005 3,564,611 Cash, end of year $ 2,764,472 $ 3,312,005 See accompanying notes to financial statements. 6

9 1. NATURE OF ACTIVITIES Alpha Chi Omega Foundation, Inc. (the Foundation) is a corporation organized to support charitable, literary and educational purposes, including, but not limited to, scholarships, leadership and educational programs and other charitable purposes. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements report net assets and changes in net assets in three classes that are based upon the existence or absence of restrictions on use that are placed by the Foundation s donors, as follows: Estimates Unrestricted net assets - Unrestricted net assets are resources available to support operations. The only limits on the use of unrestricted net assets are the broad limits resulting from the nature of the Foundation, the environment in which it operates, the purposes specified in its corporate documents and its application for tax-exempt status, and any limits resulting from contractual agreements with creditors and others that are entered into the course of its operations. Temporarily restricted net assets - Temporarily restricted net assets are resources that are restricted by a donor for use for a particular purpose or in a particular future period. The Foundation s unspent contributions are classified in this class if the donor limited their use, as is the unspent appreciation of its donor-restricted endowment funds. When a donor s restriction is satisfied, either by using the resources in the manner specified by the donor or by the passage of time, the expiration of the restriction is reported in the statements of activities by reclassifying the net assets from temporarily restricted to unrestricted net assets. Net assets restricted for acquisition of buildings or equipment (or the contribution of those assets directly) are reported as temporarily restricted until the funds have been expended on the specified asset, unless the donor provides more specific directions about the period of its use. Permanently restricted net assets - Permanently restricted net assets are resources whose use by the Foundation is limited by restrictions that neither expire by being used in accordance with a donor s restriction nor by the passage of time. Included in this classification are endowment funds, which are subject to the restrictions of gift instruments requiring that the principal be maintained in perpetuity, and invested for the purpose of producing present and future income. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported 7

10 amounts of support, revenues and expenses during the reporting period. Actual results could differ from those estimates. Contributions Receivable Contributions receivable consist of amounts that have been unconditionally promised to the Foundation. Contributions receivable are initially recorded at fair value based on estimated future cash flows of the unconditional pledges and are reported net of an allowance for uncollectible amounts and net of the discount to present value. Contributions receivable were discounted to present value using the United States Treasury Bill rates with maturities commensurate to the time period of expected collection of the contributions. During the years ended July 31, 2018 and 2017, rates used ranged from 0.6% to 2.85%. Amortization of the resulting discount is recognized as additional contribution income. Management estimates an allowance for uncollectible contributions receivable based on an evaluation of current economic conditions, historical trends, and current and past experience with their donor base. Property and Equipment The Foundation capitalizes at cost all significant purchases of property and equipment, including expenditures that substantially increase the useful lives of existing assets. Costs of ordinary maintenance and repairs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives, which range from 3 to 20 years. Artwork The Foundation has capitalized its artwork collection since its inception. When purchased, items accessioned into the artwork collection are capitalized at cost, and if donated, they are capitalized at their appraised or fair value on the accession date. Investments and Investment Return Investments are reported at fair value for financial reporting purposes. Investment return includes interest, dividends, and realized and unrealized gains and losses. Changes in unrealized appreciation or depreciation of investments are recorded in the period such changes occur. Realized gains and losses are recorded based on the cost of the specific securities sold. Interest and dividend income is recorded when earned. Investment return is recorded as increases and decreases in unrestricted net assets unless its use is temporarily or permanently restricted by donors to a specified purpose or future period. Investment return is allocated to funds (endowment and non-endowment) based upon the percentage relationship of each fund s quarterly investment balance to the aggregate investment balances for all funds. 8

11 Accounting for Contributions Contributions, which include contributions receivable, are recognized as support in the period the contribution is received or the promise is made. Contributed investments are recorded at the fair value of each investment on the date it is received. Support that is not restricted by the donor is reported as an increase in unrestricted net assets. All donor-restricted support is reported as an increase in temporarily or permanently restricted net assets depending on the nature of the restriction. Unconditional promises with payments due in future years have an implied restriction to be used in the year the payment is due, and therefore are reported as temporarily restricted until the payment is due unless the contribution is clearly intended to support activities of the current fiscal year or is received with permanent restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported as net assets released from restrictions. Functional Allocation of Expenses The costs of providing the programs and services of the Foundation have been summarized on a functional basis in the statement of activities. Certain costs have been allocated among the program service and supporting services categories based on actual direct expenditures and cost allocations based upon estimates of time spent by Foundation personnel. Although the method used was appropriate, other methods could produce different results. Scholarships and Fellowships The Foundation accrues and expenses scholarships and fellowships, which are included in program and educational expense, based upon date of approval by the Board of Trustees. Income Taxes The Foundation is organized as a not-for-profit corporation that is exempt from income taxes under Section 501(c)(3) of the United States Internal Revenue Code and similar state law. Accounting principles generally accepted in the United States of America require management to evaluate tax positions taken by the Foundation and recognize a tax liability if the Foundation has taken an uncertain position that more likely than not would not be sustained upon examination by various federal and state taxing authorities. Management has analyzed the tax positions taken by the Foundation, and has concluded that as of July 31, 2018 and 2017, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the accompanying financial statements. The Foundation is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Foundation has filed its federal and state income tax returns for periods through July 31, These income tax returns are generally open to examination by the relevant taxing authorities for a period of three years from the later of the date the return was filed or its due date (including approved extensions). 9

12 Recently Issued Accounting Standards In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No , Presentation of Financial Statements of Not-for-Profit Entities (Topic 958) that amends how a not-for-profit organization classifies its net assets, as well as the information it presents in financial statements and notes about its liquidity, financial performance, and cash flows. This new standard, which the Foundation is required to adopt during its year ending July 31, 2019, requires improved presentation and disclosures to help not-for-profits provide more relevant information about their resources (and the changes in those resources) to donors, grantors, creditors, and other users. This ASU completes the first phase of a two phase project to amend not-for-profit financial reporting requirements. In February 2016, the FASB issued ASU No , Leases (Topic 842). This new standard, which the Foundation is required to adopt during its year ending July 31, 2021, is intended to improve financial reporting about leasing transactions by requiring entities that lease assets to recognize on their statement of financial position the assets and liabilities for the rights and obligations created by those leases, and to provide additional disclosures regarding the leases. Leases with terms (as defined in the ASU) of twelve months or less are not required to be reflected on an entity s statement of financial position. The Foundation is presently evaluating the effects that these ASUs will have on its future financial statements, including related disclosures. Subsequent Events The Foundation evaluates events occurring subsequent to the date of the financial statements in determining the accounting for and disclosure of transactions and events that affect the financial statements. Subsequent events have been evaluated through November 6, 2018, which is the date the financial statements were available to be issued. 10

13 3. CONTRIBUTIONS RECEIVABLE Contributions receivable consist of the following at July 31: For Now / Forever campaign $ 75,281 $ 107,329 For Now / Forever campaign - endowments -0-15,000 Educational funds 694, ,158 Educational funds - endowments 44,662 57, , ,628 Less unamortized discount (35,032) (20,323) Less allowance for uncollectible contributions (40,732) (30,481) Contributions receivable, net $ 738,862 $ 558,824 Amounts due in: Past due $ 76,016 $ 73,814 Less than one year 244, ,432 One to five years 493, ,382 $ 814,626 $ 609, NOTES RECEIVABLE FROM RELATED PARTIES Notes receivable dues from related parties consist of the following at July 31: Notes receivable from Alpha Chi Omega Fraternity, Inc. due in monthly or quarterly installments of principal and interest at 4.25% with balloon payments due at maturity in January 2023, unsecured (Note 11) Note receivable from Pearl Stone Partners, LLC (subsidiary of Alpha Chi Omega Fraternity, Inc.) due in monthly installments of principal and interest at 4.75% through July 2028, unsecured (Note 11) $ 263,726 $ 297, , $ 663,726 $ 297,352 11

14 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following at July 31: Office equipment and furnishings $ 66,075 $ 62,580 Leasehold improvements 171, , , ,969 Accumulated depreciation (217,441) (208,934) $ 20,023 $ 25, INVESTMENTS Investments consist of the following at July 31: Money market mutual fund $ 316,264 $ 698,528 Corporate obligations 1,212, ,170 Mortgage and asset backed securities 8,103 13,381 Common stocks and other equities 5,961,008 5,634,513 Government obligations 1,379,270 1,081,501 Exchange-traded funds 2,640,250 2,594,343 Mutual funds 4,016,946 3,473,284 $ 15,534,810 $ 14,468,720 The following schedule summarizes investment return for the years ended July 31: Interest and dividend income $ 368,083 $ 329,047 Realized gains on sale of investments, net 559, ,500 Unrealized gains on investments, net 199, ,655 Investment fees (95,152) (62,387) $ 1,031,827 $ 1,419, BENEFICIAL INTEREST IN PERPETUAL TRUST The Foundation is the sole beneficiary of a perpetual trust created by an alumna. The assets of the trust are held and managed by a third party trustee, and are primarily invested in common stocks and other equities. Under the terms of the trust, the Foundation has the irrevocable right 12

15 to receive income earned on the trust assets in perpetuity, but never receives the assets held in the trust. The income received from the trust is utilized as outlined in a proposal submitted annually by the Foundation to the trustee. For the years ended July 31, 2018 and 2017, the Foundation s investment income from the trust was $193,203 and $188,891, respectively. The Foundation s beneficial interest in the trust is reflected as an asset in the statements of financial position in the amount of $3,658,977 and $3,408,943 at July 31, 2018 and 2017, respectively. This asset represents the fair value of the assets in the trust at August 31, 2017 and 2016, respectively, which is the latest date for which such information is available. Three common stocks represent 70% and 71% of the trust s assets at August 31, 2017 and 2016, respectively. 8. NET ASSETS Unrestricted - Board Designated Included in the unrestricted net assets are funds which have been designated by the Board of Trustees for the following purposes at July 31: Endowment net assets Member assistance fund $ 51,129 $ 50,000 Headquarters staff education assistance fund 52,693 50, , ,000 Future operations 814, ,286 Specific projects 215, ,098 $ 1,133,527 $ 1,212,384 13

16 Temporarily Restricted Temporarily restricted net assets are available to support the following purposes or periods at July 31: Endowment net assets Scholarships, grants and awards, trust charges and administrative fees $ 2,832,665 $ 2,844,996 General operations 527, ,132 3,360,077 3,360,128 Scholarships, grants and awards, trust charges and administrative fees 2,521,750 1,856,256 Unrestricted contributions receivable in future years - For Now / Forever campaign 39, ,796 $ 5,921,059 $ 5,320,180 Permanently Restricted Permanently restricted net assets are restricted to investment in perpetuity, with the income expendable to support the following at July 31: Endowment net assets Scholarships, grants and awards, trust charges and administrative fees $ 7,849,002 $ 7,579,379 General operations 1,695,460 1,694,533 9,544,462 9,273,912 Contributions receivable 49,638 72,117 Operations as investment income is distributed by trustee of perpetual trust 3,658,977 3,408,943 $ 13,253,077 $ 12,754,972 14

17 Released From Restrictions Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by appropriation by the Board of Trustees related to the following for the years ended July 31: Scholarships, grants and awards $ 1,654,406 $ 1,268,236 Administrative fees 280, ,123 General operations 86,721 88,257 Other 6, Collection of unrestricted multi-year contributions receivable - For Now / Forever campaign 53,862 91,327 $ 2,082,440 $ 1,732, ENDOWMENT The Foundation s endowment consists of 198 donor-restricted funds (187 at July 31, 2017) plus two funds designated by the Board of Trustees to function as endowments. One of the donorrestricted endowment funds has been established to support general operations and the remaining funds have been established to support scholarships, grants and awards, trust charges, and administrative fees. As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The Board of Trustees has interpreted the Uniform Prudent Management of Institutional Funds Act (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 the interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulation to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulations are added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by UPMIFA. 15

18 In accordance with UPMIFA, the Foundation 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 Foundation 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 Foundation 7) The investment policies of the Foundation Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor requires the Foundation to retain as a fund of perpetual duration. Deficiencies of this nature are reported in unrestricted net assets. There were no funds with deficiencies at July 31, 2018 and Return Objectives and Risk Parameters The Foundation has adopted investment and spending policies for assets held for endowment that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Under this policy, as approved by the Board of Trustees, the endowment investments are invested in a manner that is intended to produce a total return which protects the purchasing power of the endowment investments and which allows spending under the terms of each endowment fund. Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the Foundation 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 Foundation, as it relates to its endowment investments, targets a diversified asset allocation that places emphasis on equity and fixed income investments to achieve its long-term return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy The Foundation has a policy for its endowment funds of appropriating for distribution each year an established percentage of its endowment fund s average fair value over the prior three years through the January 31 preceding the fiscal year in which the distribution is planned, plus a management fee applied to the average annual balance as of January 31. A management fee is not charged to a fund that has a deficiency (the fund has fallen below the level that the donor requires the Foundation to retain as a fund of perpetual duration). A management fee of 2% was charged in fiscal 2018 and The draw percentage is established annually by the Board of Trustees and was set at 4% for fiscal 2018 and In establishing this policy, the Foundation considered the long-term expected return on its assets held for endowment. The 16

19 Foundation s objective is to maintain the purchasing power of the endowment assets held in perpetuity as well as to provide additional real growth through new gifts and investment return. The composition of endowment net assets is as follows at July 31: Unrestricted Temporarily Restricted 2018 Permanently Restricted Total Board designated endowment funds $ 103,822 $ -0- $ -0- $ 103,822 Donor-restricted endowment funds -0-3,360,077 9,544,462 12,904,539 $ 103,822 $ 3,360,077 $ 9,544,462 $ 13,008,361 Unrestricted Temporarily Restricted 2017 Permanently Restricted Total Board designated endowment funds $ 100,000 $ -0- $ -0- $ 100,000 Donor-restricted endowment funds -0-3,360,128 9,273,912 12,634,040 $ 100,000 $ 3,360,128 $ 9,273,912 $ 12,734,040 The change in endowment net assets is as follows for the years ended July 31: Unrestricted Temporarily Restricted 2018 Permanently Restricted Total Endowment net assets, beginning of year $ 100,000 $ 3,360,128 $ 9,273,912 $ 12,734,040 Contributions -0-3, , ,404 Investment return, net 5, , ,063 Distributions (1,500) (925,646) -0- (927,146) Endowment net assets, end of year $ 103,822 $ 3,360,077 $ 9,544,462 $ 13,008,361 Unrestricted Temporarily Restricted 2017 Permanently Restricted Total Endowment net assets, beginning of year $ -0- $ 2,760,238 $ 8,636,162 $ 11,396,400 Establishment of new board designated endowment funds 100, ,000 Contributions -0-11, , ,431 Investment return, net -0-1,253, ,253,642 Distributions -0- (665,433) -0- (665,433) Endowment net assets, end of year $ 100,000 $ 3,360,128 $ 9,273,912 $ 12,734, FAIR VALUE MEASUREMENTS The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the 17

20 lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described as follows: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Foundation has the ability to access. Level 2 Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability s fair value measurement level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Following is a description of the valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodologies used at July 31, 2018 and Money market mutual funds: Generally transact subscription and redemption activity at a $1 stable net asset value (NAV), however, on a daily basis the funds are valued at their daily NAV calculated using the amortized cost of the securities held in the fund. Corporate and government obligations and mortgage and asset backed securities: Valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings. Common stocks, other equity securities, and exchange-traded funds: Valued at the closing price reported on the active market on which the individual securities are traded. Mutual funds: Valued at the daily closing price as reported by the fund. Mutual funds held by the Foundation are open-end mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily NAV and to transact at that price. The mutual funds held by the Foundation are deemed to be actively traded. Beneficial interest in perpetual trust: The fair value determination is based on the underlying assets, as reported by the trustee, held within the trust, substantially all of which are valued on a mark-to-market basis. 18

21 The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Foundation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in different fair value measurements at the reporting date. The following tables segregate all financial assets measured at fair value into the most appropriate level within the fair value hierarchy as of July 31: 2018 Level 1 Level 2 Level 3 Total Investments: Money market mutual fund $ -0- $ 316,264 $ -0- $ 316,264 Corporate obligations -0-1,212, ,212,969 Mortgage and asset backed securities -0-8, ,103 Common stocks and other equities Financial 802, ,002 Health care 775, ,093 Consumer discretionary 818, ,195 Information technology 1,417, ,417,135 Industrials 735, ,893 Other 1,412, ,412,690 5,961, ,961,008 Government obligations -0-1,379, ,379,270 Exchange-traded funds Equity Large cap 332, ,098 Mid cap 631, ,288 Small cap 478, ,494 International 1,010, ,010,624 Non-traditional strategies Convertible securities 187, ,746 2,640, ,640,250 Mutual funds Equity 1,434, ,434,206 Fixed income 463, ,507 Non-traditional strategies Real estate 242, ,477 Arbitrage 594, ,353 Equity long/short 352, ,074 Unconstrained bond 464, ,001 Reinsurance 229, ,505 Other 236, ,823 4,016, ,016,946 $ 12,618,204 $ 2,916,606 $ -0- $ 15,534,810 Beneficial interest in perpetual trust $ -0- $ -0- $ 3,658,977 $ 3,658,977 19

22 2017 Level 1 Level 2 Level 3 Total Investments: Money market mutual fund $ -0- $ 698,528 $ -0- $ 698,528 Corporate obligations , ,170 Mortgage and asset backed securities -0-13, ,381 Common stocks and other equities Financial 870, ,705 Consumer staples 619, ,830 Health care 839, ,975 Consumer discretionary 760, ,983 Information technology 1,203, ,203,520 Industrials 591, ,124 Other 748, ,376 5,634, ,634,513 Government obligations -0-1,081, ,081,501 Exchange-traded funds Equity Large cap 621, ,160 Mid cap 337, ,320 Small cap 240, ,948 International 1,140, ,140,065 Non-traditional strategies Convertible securities 254, ,850 2,594, ,594,343 Mutual funds Equity 1,147, ,147,999 Fixed income 563, ,594 Non-traditional strategies Arbitrage 477, ,380 Equity long/short 289, ,089 Senior bank loans 279, ,071 Unconstrained bond 284, ,228 Reinsurance 218, ,981 Other 212, ,942 3,473, ,473,284 $ 11,702,140 $ 2,766,580 $ -0- $ 14,468,720 Beneficial interest in perpetual trust $ -0- $ -0- $ 3,408,943 $ 3,408,943 The Foundation s policy is to recognize transfers between levels as of the end of the reporting period. There were no significant transfers between levels at July 31, 2018 and

23 The following table sets forth the change in assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended July 31: Balance, beginning of year $ 3,408,943 $ 3,387,473 Investment return, net of trust expenses 443, ,361 Distributions (193,203) (188,891) Change in value 250,034 21,470 Balance, end of year $ 3,658,977 $ 3,408, TRANSACTIONS WITH ALPHA CHI OMEGA FRATERNITY, INC. AND SUBSIDIARY Alpha Chi Omega Fraternity, Inc. (the Fraternity) an affiliated national women s fraternity, is a legally separate entity. The Foundation Board of Trustees is comprised of up to eleven members and divided into three classes of voting members; National Council Trustees, Immediate Past National President Trustee and Alumnae Trustees. All Trustees are elected in accordance with the Foundation s By-laws. Three of the eleven members are appointed National Council Trustees: the National President and two National Vice Presidents of the Fraternity. The Immediate Past National President of the Fraternity shall remain on the Foundation s Board of Trustees for a one-year term following the completion of her term as National President. The remaining seven members of the Board of Trustees (Alumnae class) are recommended and selected from the general membership of Alpha Chi Omega. Members of the Alumnae class shall serve, unless earlier removed, for a term of three years and/or until their successors are qualified. Pearl Stone Partners, LLC, a wholly-owned subsidiary of the Fraternity, was formed during fiscal 2018 primarily to employ the individuals deployed to work at Alpha Chi Omega chapter facilities. The accounts of the Fraternity and Pearl Stone Partners, LLC have not been consolidated with the Foundation in the accompanying financial statements. As authorized by the Board of Trustees of the Foundation, the fiscal 2018 and 2017 statements of activities include $742,985 and $532,232, respectively, of expenses representing reimbursement to the Fraternity by the Foundation for administrative services and employees. The Foundation also paid its portion of allocated Lyre expenses to the Fraternity of $25,498 and $15,000 for the years ended July 31, 2018 and 2017, respectively. The Foundation incurred $82,666 in convention related expenses with the Fraternity during the year ended July 31, 2018, which were included in the payable to the Fraternity at July 31, The Foundation leases office space within the national headquarters facility from the Fraternity. The quarterly rental payment under this lease was $10,428 through July 31, Subsequent to July 31, 2018, the Foundation signed a new lease agreement with the Fraternity, which requires quarterly rental payments of $17,660 from August 1, 2018 through July 31,

24 Rent expense incurred under the terms of the office space lease was $41,712 and $27,529 for the years ended July 31, 2018 and 2017, respectively. The minimum future rental payments due to the Fraternity under the terms of the office space lease, based on the rental rates in the new lease agreement are $70,638 through July 31, During the years ended July 31, 2018 and 2017, the Fraternity contributed from its set-aside account to the Foundation $127,346 and $108,286, respectively. The Foundation had amounts due to the Fraternity of $619,282 at July 31, 2018, which include grants payable of $331,948, as well as $287,334 for the reimbursement of expenses. The Foundation had amounts due to the Fraternity of $433,410 at July 31, 2017, which include grants payable of $275,777, as well as $157,633 for the reimbursement of expenses. The Foundation had $41,816 and $521 due from the Fraternity at July 31, 2018 and 2017, respectively, which are included in other assets. The Foundation made a conditional promise at July 31, 2018 to grant funds in the amount of $1,108,727 to the Fraternity. The gift is conditioned upon the Fraternity performing certain programs in fiscal 2019, and has not been recorded as of July 31, The Foundation also made conditional promises at July 31, 2017 and 2016, to grant funds in the amount of $716,783 and $646,311, respectively, to the Fraternity. These gifts were also conditioned upon the Fraternity performing certain programs in fiscal 2018 and 2017, respectively. The Foundation granted $735,334 and $635,799 to the Fraternity during the years ended July 31, 2018 and 2017, respectively, which includes amounts related to performance under the conditional grants described above. The Foundation loaned $500,000 to the Fraternity under two notes receivable during the year ended July 31, In addition, the Foundation loaned $400,000 to Pearl Stone Partners, LLC under a note receivable during the year ended July 31, The outstanding balance of these notes aggregated $663,726 and $297,352 at July 31, 2018 and 2017, respectively (Note 4). Interest income on these notes amounted to $11,123 and $11,806 during the years ended July 31, 2018 and 2017, respectively. 12. TRANSACTIONS WITH ALPHA CHI OMEGA NATIONAL HOUSING CORPORATION Alpha Chi Omega National Housing Corporation (affiliated with Alpha Chi Omega Fraternity, Inc.) (the NHC) was established to promote, support and develop appropriate, desirable and safe facilities to enhance the Alpha Chi Omega experience. The NHC was also organized to facilitate, foster, and encourage friendship, recreation, social interaction, the pursuit of knowledge, and other non-profit purposes and activities among its members. The accounts of the NHC have not been consolidated with the Foundation in the accompanying financial statements. During the year ended July 31, 2017, the NHC contributed $52,846 from its set-aside account to the Foundation. 22

25 13. RISKS AND UNCERTAINTIES The Foundation s investments (Note 6) and beneficial interest in perpetual trust (Note 7) are exposed to various risks such as interest rate, market and credit. Due to the level of risk associated with these assets and the level of uncertainty related to changes in the value, it is at least reasonably possible that changes in the various risk factors will occur in the near term that could materially affect the amounts reported in the accompanying financial statements. In addition, as discussed in Note 7, the beneficial interest in perpetual trust is presented in the financial statements at the fair value of the assets in the trust at August 31, 2017 and 2016, which is the latest date for which such information is available. Because of the volatility in investment markets, it is at least reasonably possible that changes in the market value of the assets in the trust have occurred between the valuation date and the Foundation s fiscal year end of July 31, 2018 and 2017, and such changes could be material. 14. CONCENTRATIONS The Foundation s investments (Note 6) are held with one investment manager. The Foundation has not experienced any credit losses in its accounts and believes it is not exposed to any significant credit risk. The Foundation maintains cash in an interest-bearing account which regularly exceeds federally insured limits. The Foundation has not experienced any losses in such account and believes it is not exposed to any significant credit risk on cash. At July 31, 2018, two donors made up 24% of net contributions receivable with individual percentages of 14% and 10%. During the year ended July 31, 2017, 13% of the Foundation s contributions were from one donor. Another donor made up 18% of net contributions receivable at July 31,