ST. MARY S COLLEGE OF MARYLAND FOUNDATION, INC. St. Mary s City, Maryland. FINANCIAL STATEMENTS June 30, 2017 and 2016

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1 ST. MARY S COLLEGE OF MARYLAND FOUNDATION, INC. St. Mary s City, Maryland FINANCIAL STATEMENTS

2 TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS REPORT... 1 FINANCIAL STATEMENTS... 3 Statements of Financial Position... 4 Statements of Activities... 5 Statements of Cash Flows... 7 Notes to Financial Statements... 8

3 CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS REPORT To the Board of Directors St. Mary s College of Maryland Foundation, Inc. St. Mary s City, Maryland We have audited the accompanying financial statements of St. Mary's College of Maryland Foundation, Inc. (the Foundation ), which comprise the statements of financial position as of, 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. Auditors 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 auditors 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.

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Foundation as of, 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. a CliftonLarsonAllen LLP Arlington, Virginia September 19,

5 FINANCIAL STATEMENTS 3

6 STATEMENTS FINANCIAL POSITION ASSETS Cash $ 2,939,366 $ 3,054,112 Investments 35,398,571 31,393,315 Investments gift annuity 1,066,586 1,017,417 Accrued interest receivable 3,697 12,796 Other assets 145, ,204 Promises to give, net 2,309,153 2,845,734 Receivable for pending investment sale 613,017 Property and equipment, net 1,201 1,201 Art collection (Note 1) TOTAL ASSETS $ 41,864,238 $ 39,076,796 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued expenses $ 89,577 $ 364,853 Gift annuity 763, ,977 Total liabilities 852,865 1,133,830 NET ASSETS Unrestricted Undesignated 1,115, ,929 Board designated quasi endowment 201, ,847 Total unrestricted 1,317, ,776 Temporarily restricted 12,119,912 9,675,389 Permanently restricted 27,574,445 27,301,801 Total net assets 41,011,373 37,942,966 TOTAL LIABILITIES AND NET ASSETS $ 41,864,238 $ 39,076,796 The accompanying notes are an integral part of the financial statements. 4

7 STATEMENTS OF ACTIVITIES Years Ended Unrestricted Temporarily Restricted Permanently Restricted Total Unrestricted Temporarily Restricted Permanently Restricted Total SUPPORT AND REVENUE Contributions $ 202,589 $ 896,770 $ 297,644 $ 1,397,003 $ 187,398 $ 3,195,521 $ 468,820 $ 3,851,739 Donated services 1,592,792 1,592,792 1,503,390 1,503,390 Event revenue 160, , , ,700 Other revenues 18,425 18,425 17,800 17,800 Investment income 164,774 3,822,427 3,987,201 4,854 (578,645) (573,791) Net assets released from restrictions 2,318,099 (2,293,099) (25,000) 2,524,609 (2,524,609) Total support and revenue 4,438,281 2,444, ,644 7,155,448 4,365, , ,820 4,944,838 EXPENSES Program services: Support to St. Mary's College of Maryland Academic chair 102, , , ,606 Alumni activities 85,489 85,489 79,022 79,022 Arts alliance 13,289 13,289 12,636 12,636 Applied physics 65,676 65,676 77,330 77,330 Athletics 34,560 34,560 62,486 62,486 Center for the Study of Democracy 277, , , ,347 College department/division support 233, , , ,535 Crew team 11,800 11,800 10,450 10,450 Faculty support 9,135 9,135 72,345 72,345 Lectureship series ,108 13,108 Sailing 19,128 19,128 27,366 27,366 Scholarships and awards 756, ,318 1,024,219 1,024,219 Student activities 11,258 11,258 5,784 5,784 Waterfront Total 1,621,190 1,621,190 2,355,361 2,355,361 The accompanying notes are an integral part of the financial statements. 5

8 STATEMENTS OF ACTIVITIES Years Ended Unrestricted Temporarily Restricted Permanently Restricted Total Unrestricted Temporarily Restricted Permanently Restricted Total EXPENSES (Continued) Other Program Services Family weekend ,629 2,629 Gift annuities 76,355 76,355 71,550 71,550 Governor's Cup 6,928 6,928 Bad debt expense 25,000 25,000 River Concert Series 39,577 39,577 35,867 35,867 Total 141, , , ,974 Total program services 1,762,595 1,762,595 2,472,335 2,472,335 Supporting services: Management and general 1,473,761 1,473,761 1,241,169 1,241,169 Fundraising 850, , , ,770 Total supporting services 2,324,446 2,324,446 1,929,939 1,929,939 Total expenses 4,087,041 4,087,041 4,402,274 4,402,274 Change in net assets 351,240 2,444, ,644 3,068,407 (36,323) 110, , ,564 NET ASSETS Beginning 965,776 9,675,389 27,301,801 37,942,966 1,002,099 9,565,322 26,832,981 37,400,402 Ending $ 1,317,016 $ 12,119,912 $ 27,574,445 $ 41,011,373 $ 965,776 $ 9,675,389 $ 27,301,801 $ 37,942,966 The accompanying notes are an integral part of the financial statements. 6

9 STATEMENTS OF CASH FLOWS Years Ended CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 3,068,407 $ 542,564 Adjustments to reconcile change in net assets to net cash used in operating activities: Contributions received for endowment (297,644) (468,820) Realized and unrealized (gains) losses on investments (3,261,576) 1,143,248 Donated securities (58,515) (112,144) Proceeds from sale of donated securities 58, ,955 Discount and allowance on promises to give (22,132) 12,830 Bad debts 25,000 4,000 Loss on disposal of property and equipment 7,618 Effect of changes in operating assets and liabilities: Promises to give 533,713 (1,414,466) Accrued interest receivable 9,099 31,511 Other assets (6,460) (12,149) Accounts payable and accrued expenses (275,276) 136,896 Gift annuity (5,689) 8,102 Net cash used in operating activities (232,761) (8,855) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (10,457,585) (9,477,011) Proceeds from sale of investments 10,277,956 9,525,300 Net cash (used by) provided by investing activities (179,629) 48,289 CASH FLOWS FROM FINANCING ACTIVITIES Contributions received for endowment 297, ,820 Net cash provided by financing activities 297, ,820 NET (DECREASE) INCREASE IN CASH (114,746) 508,254 CASH, BEGINNING OF YEAR 3,054,112 2,545,858 CASH, END OF YEAR $ 2,939,366 $ 3,054,112 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Donated securities $ 58,515 $ 112,144 Transfer of property and equipment to College $ 14,750 $ 37,554 The accompanying notes are an integral part of the financial statements. 7

10 NOTE 1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES Nature of Activities St. Mary's College of Maryland Foundation, Inc. (the Foundation) is a not for profit corporation founded in Maryland in The Foundation's principal activity is to provide support for the faculty and students of St. Mary's College of Maryland (the College). The Foundation raises funds and receives, holds, invests, manages, uses, disposes of, and administers property, as appropriate. All funds are used for the furtherance of the mission of the College. A summary of the Foundation's significant accounting policies follows: Basis of Accounting The accompanying financial statements are prepared on the accrual basis of accounting, whereby, revenue is recognized when earned and expenses are recorded when incurred. Basis of Presentation The Foundation follows the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic , Presentation of Financial Statements for Not for Profit Entities. The codification requires financial statements to present balances and transactions according to the existence or absence of member imposed restrictions. This has been accomplished by aggregating all funds into one set of financial statements and classifying transactions into three classes of net assets unrestricted, temporarily restricted, or permanently restricted as follows: Unrestricted Net Assets net assets that are not subject to donor imposed stipulations. Temporarily Restricted Net Assets net assets that are subject to donor imposed stipulations that require passage of time or the occurrence of a specific event. When conditions of the restrictions are satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Contributions received and unconditional promises to give are measured at their fair values and are reported as an increase in net assets. Permanently Restricted Net Assets net assets that are subject to donor imposed restrictions that require the principal balance to be kept in perpetuity while permitting the Foundation to use or expend part or all of the income derived from the assets. These restrictions neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the Foundation. Contributions received are measured at their fair values and are reported as an increase in net assets. 8

11 NOTE 1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Use of Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with accounting principles generally accepted in the United States of America. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities, and the reported revenue and expenses. Accordingly, actual results could differ from the estimates that were used. Cash All cash and investments, regardless of maturity, held by investment advisors, are considered investments. Financial Risk The Foundation invests in a professionally managed portfolio that contains fixed income, money market funds, equities, and alternative investments. Such investments are exposed to various risks such as market and credit. Due to the level of risk associated with such investments and the level of uncertainty related to changes in the value of such investments, it is at least reasonably possible that changes in risks in the near term could materially affect investment balances and the amounts reported in the financial statements. Investments Investments with readily determinable fair values are reflected at fair market value. The Foundation also holds positions in alternative investments. These alternative investments are recorded at estimated fair value based on net asset value and fund manager estimates. There are inherent limitations in any valuation technique for non readily marketable securities. Therefore, the value is not necessarily indicative of the amount that could be realized in a current transaction. Future events will also affect the estimates of fair value, and the effect of such events on the estimates of fair value could be material. To adjust the carrying value of the investments, unrealized gains and losses are reported in the statements of activities as a part of investment income. Interest and dividends from investments are recorded as investment income when earned. Investment Pools The Foundation maintains master investment accounts for its donor restricted endowments and combines these assets into a common investment pool which closely resembles a mutual fund. Beginning July 1, 2011, the Foundation adopted a unitization approach to the pool. Each endowment owns a number of units in the pool. Purchases and sales of shares in the pool are based upon the market value per share at the beginning of the quarter the transaction takes place. All net investment income (interest, dividends, realized and unrealized gains and losses, investment manager and Foundation service and administrative fees) from securities in the master investment accounts are allocated quarterly to the individual endowments based upon the number of units each endowment fund holds. 9

12 NOTE 1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Promises to Give Unconditional promise to give are recognized as revenue or gains in the period acknowledged. Conditional promises to give are only recognized when the conditions on which they depend are substantially met. Unconditional promises to give are carried at fair value less an estimate made for doubtful promises based on a review of all outstanding promises on a monthly basis. Management determines the allowance for doubtful promises by using the historical experience applied to an aging of promises. Promises are written off when deemed uncollectible. The provision for doubtful promises based on management's evaluation of the collection of promises was 0.26 percent of the gross value of the promises due beyond the year ending June 30, 2017, and 0.41 percent of the gross value of the promises due beyond the year ending June 30, Property and Equipment Purchased property and equipment are recorded at cost. Donated property and equipment are recognized at appraised value when received. Ownership of purchased or donated property and equipment is routinely transferred to the College. If not transferred, any item with an individual cost exceeding $1,500 is capitalized, and depreciated using the straight line method over estimated useful lives of the assets, ranging from five to ten years. Impairment of Long lived Assets The Foundation accounts for the valuation of long lived assets by reviewing for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long lived asset is measured by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. Art Collection The Art Collection owned by the Foundation was acquired through contributions in the fiscal year ended June 30, These items are not included as assets in the statements of financial position because these assets will be transferred to the College or otherwise disposed. The cost of these items is not readily available, and the Foundation is of the opinion that, because of the intrinsic value of the items, it is impractical to assign values to the components. Gift Annuities Payable Carrying amounts represent the present value of the contractual payments over the estimated remaining term. 10

13 NOTE 1 NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue Recognition Contributions received are recorded as permanently restricted, temporarily restricted, or unrestricted support, depending on the existence and/or nature of any donor restrictions. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support that increases those net asset classes. Unconditional promises to give that are expected to be collected within one year are recorded at their net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts are computed using risk free interest rates applicable to the years in which the promises are received. Amortization of the discounts is included in contribution revenue. Conditional promises to give are not included as support until the conditions are met. Event revenue is recognized when the particular event occurs. Donated Services and Facilities Donated services are recorded as revenue and expense in the financial statements for services received from the College. Donated services from the College are principally related to shared staff time. Contributed office space and facilities are also recorded at their estimated fair value. Service Fees The Foundation applies an annual service fee of up to 2 percent on the total value of its endowed funds. The actual service fee rate is fixed annually at a level that is sufficient to cover the core Foundation expenses, including, but not limited to, insurance, accounting, legal, and investment management. Functional Expenses The costs of providing various programs and other activities have been summarized on a functional basis in the statements of activities. Income Taxes The Foundation is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code (IRC) as an organization, which is not a private foundation. The Foundation is generally exempt from federal and state income taxes. Unrelated business income may be subject to federal and state income taxes. Management believes that it has no material uncertain tax positions that would require recognition under the accounting codification guidance. 11

14 NOTE 2 FAIR VALUE MEASUREMENTS The Fair Value Topic of the FASB Codification (the Codification) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and sets out a fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Inputs are broadly defined as assumptions market participants would use in pricing an asset or liability. The three levels of the fair value hierarchy are described below: 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 at the measurement date. 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 observable quoted prices 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 measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used must maximize the use of observable inputs and minimize the use of unobservable inputs. 12

15 NOTE 2 FAIR VALUE MEASUREMENTS (CONTINUED) In determining the appropriate levels, the Foundation performs a detailed analysis of the assets and liabilities that are subject to the fair value disclosures of the Codification. Level 1 Level 2 Level 3 Total Equities $ 16,026,446 $ $ $ 16,026,446 Cash and money market funds 1,686,729 1,686,729 Fixed income securities U.S. corporate bonds 8,689,535 8,689,535 Global corporate bonds 136, ,317 Foreign exchange and non USD fixed income 191, ,888 Total fixed income securities 9,017,740 9,017,740 Alternative Investments Hedge funds 334,401 3,219,038 3,553,439 Real estate 1,859, ,000 2,159,151 Hard assets 545, ,488 Private Investments 2,011,714 2,011,714 Total alternative investments 2,739,040 5,530,752 8,269,792 Interest held in perpetual trust 1,464,450 1,464,450 Total assets $ 29,469,955 $ $ 6,995,202 $ 36,465,157 Gift annuity liability $ $ $ 763,288 $ 763,288 Level 1 Level 2 Level 3 Total Equities $ 13,715,577 $ $ $ 13,715,577 Cash and money market funds 1,178,319 1,178,319 Fixed income securities U.S. corporate bonds 7,718,569 7,718,569 Global corporate bonds 137, ,311 Total fixed income securities 7,855,880 7,855,880 Alternative Investments Hedge funds 488,126 4,088,811 4,576,937 Real estate 2,057,492 2,057,492 Hard assets 310, ,104 Private Investments 1,342,494 1,342,494 Total alternative investments 2,855,722 5,431,305 8,287,027 Interest held in perpetual trust 1,373,929 1,373,929 Total assets $ 25,605,498 $ $ 6,805,234 $ 32,410,732 Gift annuity liability $ $ $ 768,977 $ 768,

16 NOTE 2 FAIR VALUE MEASUREMENTS (CONTINUED) Following is a description of the valuation methodologies used for assets measured at fair value at June 30, 2017 and The equity securities, cash and money market funds, fixed income securities, real estate and hard assets above classified as Level 1 are classified as such due to the underlying assets being publicly traded instruments with observable market based inputs. The hedge funds, real estate, private investments, and interest held in perpetual trust are classified as Level 3 due to the fact that the valuation of these assets is based on significant unobservable inputs. The following table provides a summary of changes in fair value of the Foundation s Level 3 financial assets for the years ended June 30: Beginning balance $ 6,805,234 $ 8,395,140 Purchases of investments 2,110,985 1,360,480 Redemptions/sales of investments (2,289,137) (2,291,347) Unrealized gains (losses) 277,599 (562,291) Change in value of perpetual trust 90,521 (96,748) Ending balance $ 6,995,202 $ 6,805,234 The following table provides a summary of changes in fair value of the Foundation s Level 3 financial liabilities for the years ended June 30: Beginning balance $ 768,977 $ 760,875 Additions to gift annuity liabilities 15,687 29,860 Change in value of gift annuity liabilities (21,376) (21,758) Ending balance $ 763,288 $ 768,977 14

17 NOTE 2 FAIR VALUE MEASUREMENTS (CONTINUED) Fair value measurements of investments in certain entities that calculate net asset value per share (or its equivalent) for the years ended June 30 are as follows: Net Asset Net Asset Value Value Unfunded Redemption Redemption Commitments Frequency Notice Period Bridgewater Private Investors Offshore Ltd. $ 286,266 $ 370,508 N/A Quarterly 45 days Equinox FDS TR 268,255 N/A Quarterly 65 days Lakewood Capital Offshore Fund 285,488 N/A Quarterly 65 days Coatue Offshore Fund, Ltd., Class B 501, ,912 N/A Monthly Due by last day of a fiscal month Eton Park Overseas Fund, Ltd., Class E 155, ,625 N/A Quarterly 65 days Southpaw Credit Opportunity Fund 401, ,984 N/A Semi annually 65 days Third Point Offshore Fund Ltd. 597, ,784 N/A Quarterly 65 days Winton Futures Fund, Ltd. Class B 252, ,607 N/A Monthly 7 days York Credit Opportunities Unit Trust 610, ,674 N/A Annually 65 days JPM Access Multi Strategy Fund II 127, ,461 N/A Quarterly Due by the 25th day of 2nd preceding month GSO Private Investors Offshore II 265, , ,495 Illiquid 7 10 years investment horizon KKR Asian Fund II Private Investors Offshore, LP, Class A 528, ,436 83,402 Illiquid 7 10 years investment horizon PEG Global Private Equity Institutional Investors VI Offshore Special L.P. 73, ,779 Illiquid 7 10 years investment horizon Global Private Equity Institutional Investors V Offshore Special L.P. 1,143, , ,817 Illiquid 7 10 years investment horizon Clarion Private Investors, LLC 300,000 N/A Quarterly 95 days Hedge funds, real estate and private investments use a variety of strategies, including hedged equity, global trading, market neutral, long and short biased, event driven, and global asset allocation. Hedge funds, real estate and private investments can invest in a wide variety of both public and private securities including equities, fixed income, commodities, private placements, currencies, real estate, derivatives and special situation investments. During 2000, the Foundation became a named beneficiary to one fourth of a trust held by a third party. The trust is restricted to scholarships. Under the terms of the trust, the Foundation will receive a distribution each year of one fourth of 5 percent of the value of the trust, even if the 5 percent is to be paid from the principal. The Foundation records one fourth of the annual changes in the market value of the trust as investment income. The value of the Foundation's share of the trust was $1,464,450 and $1,373,929 as of, respectively. The Foundation received distributions of $70,000 for each of the years ended June 30, 2017 and

18 NOTE 2 FAIR VALUE MEASUREMENTS (CONTINUED) Investment income consists of the following components for the years ended June 30: Interest and dividends $ 725,625 $ 569,457 Realized and unrealized gains 3,101,055 (1,116,500) Change in value of interest in perpetual trust 160,521 (26,748) Total $ 3,987,201 $ (573,791) NOTE 3 PROMISES TO GIVE Promises to give consist of the following at June 30: Planned gifts $ 1,800,000 $ 1,700,000 Restricted to $2.5M Building Challenge Campaign 68, ,464 Restricted to other programs 1,468,154 1,393,831 Restricted to scholarships 68,800 28,700 Restricted to endowed scholarships 230, ,475 Restricted for the Center for the Study of Democracy 25,000 25,000 Unconditional promises to give before unamortized discount and allowance for uncollectibles 3,660,757 4,219,470 Less: unamortized discount at 1.4% for prior years, 1.6% for FY14 and FY15, and 0.86% for FY16, and 1.89% for FY17 1,349,056 1,366,046 Less: allowance for uncollectibles 2,548 7,690 Total promises to give $ 2,309,153 $ 2,845,734 Promises to give are due to be collected in the following periods: Less than one year $ 944,408 $ 609,031 One to five years 996,349 1,910,439 Five to ten years 20,000 More than ten years 1,700,000 1,700,000 Total $ 3,660,757 $ 4,219,470 The Foundation has $3,616,421 and $3,467,041 in conditional pledges as of, respectively. Due to the conditional nature of these pledges, they are not recorded in the Foundation s financial statements. 16

19 NOTE 4 PROPERTY AND EQUIPMENT Property and equipment and accumulated depreciation are as follows at June 30: 2017 Category Estimated Lives Cost Accumulated Depreciation Net Depreciation Expense Office equipment and other 3 7 years $ 14,001 $ 12,800 $ 1,201 $ Estimated 2016 Accumulated Depreciation Category Lives Cost Depreciation Net Expense Office equipment and other 3 7 years 14,001 12,800 1,201 Total $ 14,001 $ 12,800 $ 1,201 $ NOTE 5 ASSETS HELD IN CHARITABLE GIFT ANNUITIES The Foundation has established 40 gift annuity programs. The programs allow the Foundation to accept a gift from a donor in exchange for the Foundation agreeing to pay the donor's annuity payments until the donor's death. The Foundation evaluates each potential annuity prior to acceptance with the consideration of the age of the donor, terms of the annuity payments, required payments terms, and the gift acceptance policy. Upon execution of the charitable gift annuities, the Foundation records an asset for the fair market value of charitable gift annuities, and a liability based upon the actuarial present value of amounts expected to be paid to the donors. The net of the gift annuity asset and liability is the remainder interest, the residual amount the Foundation expects to receive from the annuities. The present value is re adjusted annually, with the value based on an actuarial calculation. Gift annuities remainder interest expected to be paid out (based on life expectancy tables) in: Less than one year $ 99,156 $ 97,750 One to five years 398, ,000 Over 5 years 265, ,227 Total $ 763,288 $ 768,977 17

20 NOTE 5 ASSETS HELD IN CHARITABLE GIFT ANNUITIES (CONTINUED) The following table summarizes activity in the gift annuities for the years ended : Charitable gift annuities balance at July 1, 2015 $ 1,092,771 Contributions 60,000 Annuity payments (95,562) Change in value (39,792) Charitable gift annuities balance at June 30, ,017,417 Contributions 30,000 Annuity payments (97,750) Change in value 116,919 Charitable gift annuities balance at June 30, 2017 $ 1,066,586 Pursuant to charitable gift annuity regulations COMAR , the Foundation maintains sufficient assets to equal the sum of the reserves on its outstanding annuity agreements, as noted above. The reserves on the outstanding annuity agreements are consistent with the assumptions underlying the respective rates adopted by the American Council on Gift Annuities which were in effect at the time of the issuance of the respective annuity contracts. The liabilities are determined based upon the donor's life expectancy and using a discount rate on the date of receipt, provided by IRS valuation tables. At the time of the donor's death, any remaining unamortized liability is recorded as additional donations. NOTE 6 CONCENTRATION OF REVENUE RISK For the years ended, the Foundation received approximately 45% and 57%, respectively, of its total contributions revenue from a single source. NOTE 7 BOARD DESIGNATED NET ASSETS Board designated unrestricted net assets represent funds placed in an endowment for the following purposes and consist of the following as of : Anne Skone Weaver Endowed Scholarship Fund $ 56,924 $ 56,924 Maurine Holbert Hogaboom Endowed Scholarship Fund 25,434 25,434 Goodpastor Lectureship Fund 95,000 95,000 Ruth Cooper Memorial Scholarship Fund 24,489 24,489 $ 201,847 $ 201,847 18

21 NOTE 8 RESTRICTED NET ASSETS Temporarily restricted net assets activity consists of the following: Balance, June 30, 2016 Additions Investment Activity Restriction Accomplished Balance, June 30, 2017 $2.5M Building Challenge Campaign $ 2,500,000 $ $ $ $ 2,500,000 Arts Alliance 15,148 18,485 (18,182) 15,451 Center for the Study of Democracy 369,788 78, ,342 (319,884) 501,910 Endowed chairs 245, ,682 (161,444) 514,870 River Concert Series 12,229 29,262 (29,451) 12,039 Waterfront 108,694 84, (67) 192,891 Library support 536,991 1, ,798 (138,115) 678,889 Other programs 2,424, , ,228 (434,711) 2,803,539 Scholarships and awards 3,462, ,183 2,358,233 (1,191,244) 4,900,324 Total $ 9,675,389 $ 915,195 $ 3,822,427 $ (2,293,099) $ 12,119,912 Balance, June 30, 2015 Additions Investment Activity Restriction Accomplished Balance, June 30, 2016 $2.5M Building Challenge Campaign $ 817,410 $ 1,682,590 $ $ $ 2,500,000 Arts Alliance 9,937 18,050 (12,839) 15,148 Center for the Study of Democracy 737,574 66,076 (57,984) (375,878) 369,788 Endowed chairs 748,176 (69,691) (432,853) 245,632 River Concert Series 18,779 27,713 (34,263) 12,229 Waterfront 144,205 10,060 (45,571) 108,694 Library support 704, (45,218) (122,076) 536,991 Other programs 1,530,616 1,291,930 (38,468) (359,322) 2,424,756 Scholarships and awards 4,854, ,782 (367,284) (1,141,807) 3,462,151 Total $ 9,565,322 $ 3,213,321 $ (578,645) $ (2,524,609) $ 9,675,389 The Foundation adopted a unitization approach to its common endowment investment pool. This approach closely resembles a mutual fund where each individual endowment fund owns shares in the pool. The investment income balance includes the temporarily restricted, as well as the permanently restricted components of each fund. Investment income is only allocated to funds with a permanently restricted component. An allocation of investment loss, in excess of the temporarily restricted balance in the fund, is absorbed by the Foundation's unrestricted net assets. The Center for the Study of Democracy, jointly with Historic St. Mary's City, offers academic and civic engagement opportunities unique to the legacy of the College. The Waterfront Program provides recreational and athletic opportunities to the College students. Library support funds are restricted to support library acquisitions and other library resources. Other programs includes support for, but not limited to the Art, Music, Theater, Biology, Chemistry, Physics, English and Archaeology departments, Study Abroad, Museum Studies, Facilities, Faculty Innovation and Development, and Undergraduate Research. 19

22 NOTE 8 RESTRICTED NET ASSETS (CONTINUED) Scholarships and awards are restricted contributions to assist the students of the College based on merit and/or financial need. A special emergency assistance fund was established during fiscal year 2009 to assist with extraordinary needs of students resulting from the difficult economic times. During the years ended, net assets were released from donor restriction when expenses satisfying the restricted purposes were incurred, or by occurrence of other events specified by donors. Permanently restricted net assets activity consists of the following: Balance, June 30, 2016 Additions Restriction Accomplished Balance, June 30, 2017 Center for the Study of Democracy $ 3,110,827 $ 14,335 $ $ 3,125,162 Endowed chairs 3,213,720 1,000 3,214,720 Library support 1,788, ,789,010 Other programs 2,729,611 25,773 2,755,384 Scholarships and awards 16,458, ,456 (25,000) 16,690,169 Total $ 27,301,801 $ 297,644 $ (25,000) $ 27,574,445 Balance, June 30, 2015 Additions Restriction Accomplished Balance, June 30, 2016 Center for the Study of Democracy $ 3,081,951 $ 28,876 $ $ 3,110,827 Endowed chairs 3,213,720 3,213,720 Library support 1,788, ,788,930 Other programs 2,708,479 21,132 2,729,611 Scholarships and awards 16,039, ,762 16,458,713 Total $ 26,832,981 $ 468,820 $ $ 27,301,801 Permanently restricted net assets represent donor restricted contributions in which the donor has stipulated that the principal be maintained intact. Unless otherwise stated by the donor, investment income is recorded into temporarily restricted net assets to be used for specific purposes. 20

23 NOTE 9 ENDOWMENT NET ASSETS Interpretation The Foundation has interpreted the Maryland enacted version of Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gifts as of the gift date of the donor restricted endowment funds, absent explicit donor stipulations to the contrary. Management has interpreted UPMIFA as requiring the preservation of the fair value of original donor restricted contributions as of the date of the gift, absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of permanently restricted cash contributions and (b) the discounted value of future permanently restricted cash contributions, net of allowance for uncollectible pledges. The remaining portion of donor restricted cash contributions are classified as temporarily restricted net assets until those amounts are appropriated for expenditure in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Foundation considers the following factors in making a determination to appropriate or accumulate donor restricted cash contributions: The purposes of the Foundation and donor restricted endowment fund The duration and preservation of the fund General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments Other available financial resources Investment policies The Foundation has adopted investment and spending policies for permanently restricted cash contributions that attempt to provide a predictable stream of funding to programs, while maintaining purchasing power. Spending Policy For the years ended, the Foundation approved a spending policy of 3.00% and 4.25%, respectively, and applied a service fee of 1.25% and 1.75%, respectively, to the earnings of the permanently restricted assets based on a twelve quarter rolling average. The service fee rate is fixed at a level that is sufficient to cover the core Foundation expenses, including, but not limited to, insurance, accounting, legal, and investment management. The permanently restricted earnings are used in accordance with either the donor's stated purpose or to support the Foundation's operations in general as described in Note 8 to the financial statements. During the year ended June 30, 2017, the Board resolved to set the spending rate to 3.25% and the service fee to 1.50% for fiscal year

24 NOTE 9 ENDOWMENT NET ASSETS (CONTINUED) Investment Policy The Foundation's investment policy is approved by the joint investment advisory committee which was established by the Foundation's Board of Director's. The committee analyzes risk and return and determines target asset allocation. The committee selects investment advisors and provides them with the approved asset allocations. The portfolio must offer sufficient liquidity to meet payments of philanthropic endeavors and operating expenses. The Foundation's intent is to remain in perpetuity, and as such, the portfolio should support this goal. Endowment fund activity, including funds designated by the board of directors to function as endowments as described in Note 7, for the years ended, consists of the following: Unrestricted Board Designated Endowment Temporarily Restricted Permanently Restricted Total Endowment net assets, June 30, 2015 $ $ 201,847 $ 4,490,379 $ 25,671,238 $ 30,363,464 Contributions 706, ,476 Net investment loss (520,876) (520,876) Appropriation of endowment assets for expenditure (1,757,164) (1,757,164) Deficiencies in donor restricted endowment funds (120,966) 120,966 Endowment net assets, June 30, 2016 (120,966) 201,847 2,333,305 26,377,714 28,791,900 Contributions 461, ,530 Net investment gain 3,674,570 3,674,570 Appropriation of endowment assets for expenditure (1,253,123) (1,253,123) Deficiencies in donor restricted endowment funds 78,661 (78,661) Endowment net assets, June 30, 2017 $ (42,305) $ 201,847 $ 4,676,091 $ 26,839,244 $ 31,674,877 The permanently restricted balances above do not include pledges receivables of $735,201 and $924,087 for the years ended, respectively. The endowment assets are primarily comprised of the Foundation's investments, as detailed in Note 2. The remaining endowment assets are comprised of cash. 22

25 NOTE 10 RELATED PARTY TRANSACTIONS The Foundation receives services from various individuals whose salaries and benefits are paid by the College. In addition, the College provided the Foundation available administrative office space and use of facilities. These donated services and facilities amounted to $1,592,792 and $1,503,390 for the years ended June 30, 2017 and 2016, respectively. Such amounts are recorded as both donated services revenue and supporting services expenses. Additionally, the Foundation provides reimbursements to the College for expenses incurred on behalf of the Foundation and the Foundation supports the College for various programmatic expenses. These reimbursements and support amounted to $2,199,161 and $2,360,080 for the years ended June 30, 2017 and 2016, respectively. Such amounts are recorded as program expenses and supporting services expenses. At, the Foundation had a payable outstanding with the College in the amounts of $83,335 and $332,512, respectively, for such reimbursements. These amounts have been included in the accounts payable balance on the statement of financial position for the current year. NOTE 11 SUBSEQUENT EVENTS Management evaluated subsequent events through September 19, 2017, the date the financial statements were available to be issued. Events or transactions occurring after June 30, 2017, but prior to September 19, 2017, that provided additional evidence about conditions that existed at June 30, 2017, have been recognized in the financial statements for the year ended June 30, Events or transactions that provided evidence about conditions that did not exist at June 30, 2017, but arose before the financial statements were available to be issued, have not been recognized in the financial statements for the year ended June 30, This information is an integral part of the accompanying financial statements 23