Combined Financial Statements Years Ended June 30, 2009 and 2008 Commonwealth Catholic Charities

Transcription

1 Combined Financial Statements Years Ended June 30, 2009 and 2008 Commonwealth Catholic Charities Certified Public Accountants Specialized Services Business Solutions

2 Commonwealth Catholic Charities Contents Page Report of Independent Auditors 1 Combined Financial Statements Combined Statements of Financial Position 2 Combined Statements of Activities 3-4 Combined Statements of Functional Expenses 5-6 Combined Statements of Cash Flows 7 Notes to Combined Financial Statements 8-16

3 Report of Independent Auditors Certified Public Accountants Specialized Services Business Solutions Board of Directors Commonwealth Catholic Charities We have audited the accompanying combined statement of financial position of Commonwealth Catholic Charities and related organizations, which are under common management (collectively, the Organization ) as of June 30, 2009, and the related combined statements of activities, functional expenses and cash flows for the year then ended. These combined financial statements are the responsibility of the management of Commonwealth Catholic Charities. Our responsibility is to express an opinion on these combined financial statements based on our audit. The prior year summarized comparative information has been derived from Commonwealth Catholic Charities 2008 combined financial statements which were audited by other auditors whose report dated August 29, 2008, expressed an unqualified opinion on those combined financial statements. We conducted our audit 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 combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Commonwealth Catholic Charities as of June 30, 2009, and the changes in its combined net assets and its combined cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America Richmond, Virginia August 26, Cox Road, Suite 200 Glen Allen, VA Ph: Fax: Accounting for Your Future

4 Commonwealth Catholic Charities Combined Statements of Financial Position June 30, 2009 and 2008 (Next Page)

5 Commonwealth Catholic Charities Combined Statements of Financial Position June 30, Assets Cash and cash equivalents $ 703,924 $ 857,649 Receivables - net Program and other 1,100, ,496 Promises to give 181, ,834 Prepaid expenses 4,586 19,820 Investments 2,705,230 2,804,297 Property and equipment - net 705, ,865 Other assets 18,538 42,280 $ 5,419,543 $ 5,872,241 Liabilities and Net Assets Liabilities Notes payables $ 165,523 $ 225,523 Accounts payable 461, ,860 Accrued expenses 217, ,541 Total liabilities 844, ,924 Net assets Unrestricted 846,680 1,227,770 Temporarily restricted 1,140,482 1,150,270 Permanently restricted 2,588,297 2,562,277 Total net assets 4,575,459 4,940,317 $ 5,419,543 $ 5,872,241 The accompanying notes are an integral part of these combined financial statements. 2

6 Commonwealth Catholic Charities Combined Statement of Activities Year Ended June 30, 2009 Temporarily Permanently Unrestricted Restricted Restricted Eliminations Total Revenues and other support Public support: Monetary contributions $ 144,308 $ 44,458 $ 26,020 $ - $ 214,786 United Way allocation and donor designated contributions 26, , ,295 Catholic Diocese of Richmond and Catholic churches 146, , ,886 Foundation grants 166, , ,043 Special events - net of related expenses 34, ,037 Non-monetary contributions 350, ,033 Total public support 868, ,272 26,020-1,679,080 Grants and contracts from govermental agencies 4,483, ,483,005 Revenues and other income: Program service fees 5,416, ,416,922 Investment income - including realized losses, net (676,854) (676,854) Unrealized gains on investments 2, ,019 Rental income 328, (210,464) 118,027 Other 83, (21,600) 61,586 Total revenues and other income 5,153, (232,064) 4,921,700 Net assets released from restrictions 794,060 (794,060) Total revenues and other support 11,299,617 (9,788) 26,020 (232,064) 11,083,785 Expenses Program services: Aging and disabilities 751, (47,840) 703,901 Children services 5,448, (21,288) 5,426,736 Family services 1,781, (49,656) 1,731,451 Specialized refugee services 2,130, (32,268) 2,098,421 Total program services 10,111, (151,052) 9,960,509 Support services: Development 394, (15,792) 378,904 Management and general 1,174, (65,220) 1,109,230 Total support services 1,569, (81,012) 1,488,134 Total expenses 11,680, (232,064) 11,448,643 Change in net assets (381,090) (9,788) 26,020 - (364,858) Net assets - beginning of year 1,227,770 1,150,270 2,562,277-4,940,317 Net assets - end of year $ 846,680 $ 1,140,482 $ 2,588,297 $ - $ 4,575,459 The accompanying notes are an integral part of these combined financial statements. 3

7 Commonwealth Catholic Charities Combined Statement of Activities Year Ended June 30, 2008 Temporarily Permanently Unrestricted Restricted Restricted Eliminations Total Revenues and other support Public support: Monetary contributions $ 129,731 $ 750,284 $ 105,847 $ (198,000) $ 787,862 United Way allocation and donor designated contributions 26, , ,496 Catholic Diocese of Richmond and Catholic churches 152,082 73, ,940 Foundation grants 170, ,396 12, ,680 Special events - net of related expenses 41, ,600 Non-monetary contributions 195, ,307 Total public support 716,053 1,542, ,681 (198,000) 2,178,885 Grants and contracts from govermental agencies 3,861,496 7, ,868,846 Revenues and other income: Program service fees 6,150,613 6, ,157,148 Investment income - including realized gains, net 433, ,127 Unrealized losses on investments (557,278) (557,278) Rental income 289, (187,464) 102,428 Other 22, (21,600) 1,302 Total revenues and other income 6,339,256 6,535 - (209,064) 6,136,727 Net assets released from restrictions 763,903 (763,903) Total revenues and other support 11,680, , ,681 (407,064) 12,184,458 Expenses Program services: Aging and disabilities 655, (42,564) 612,648 Children services 5,590, (11,628) 5,578,390 Family services 1,628, (43,356) 1,584,802 Specialized refugee services 2,097, (30,504) 2,066,849 Total program services 9,970, (128,052) 9,842,689 Support services: Development 451, (115,792) 335,768 Management and general 1,295, (163,220) 1,131,890 Total support services 1,746, (279,012) 1,467,658 Total expenses 11,717, (407,064) 11,310,347 Change in net assets (36,703) 792, , ,111 Net assets - beginning of year 1,264, ,137 2,443,596-4,066,206 Net assets - end of year $ 1,227,770 $ 1,150,270 $ 2,562,277 $ - $ 4,940,317 The accompanying notes are an integral part of these combined financial statements. 4

8 Commonwealth Catholic Charities Combined Statement of Functional Expenses Year Ended June 30, 2009 Program Services Support Services Total Program Specialized Total Management Total and Aging and Children Family Refugee Program and Support Support Disabilities Services Services Services Services Development and General Services Eliminations Expenses Compensation $ 411,086 $ 1,484,973 $ 756,794 $ 583,969 $ 3,236,822 $ 217,725 $ 701,283 $ 919,008 $ - $ 4,155,830 Employee benefits 91, , , , ,332 61, , ,570-1,047,902 Direct financial assistance 5, , , ,392 1,114, ,114,498 Purchase of service - 2,779, ,217 3,420, ,420,766 Professional fees 20, ,788 55,843 65, ,777 17,173 61,845 79, ,795 Transportation 21, ,239 11,490 45, , ,555 4, ,471 Occupancy and related expenses 93, , ,046 61, ,360 32,044 84, ,192 (210,464) 308,088 Operating and administrative expenses 69, , ,872 71, ,524 56, , ,650 (21,600) 617,574 Depreciation 38,500 56,292 24,968 14, ,345 9,305 36,646 45, ,296 $ 751,741 $ 5,448,024 $ 1,781,107 $ 2,130,689 $ 10,111,561 $ 394,696 $ 1,174,450 $ 1,569,146 $ (232,064) $ 11,448,643 The accompanying notes are an integral part of these combined financial statements. 5

9 Commonwealth Catholic Charities Combined Statement of Functional Expenses Year Ended June 30, 2008 Program Services Support Services Total Program Specialized Total Management Total and Aging and Children Family Refugee Program and Support Support Disabilities Services Services Services Services Development and General Services Eliminations Expenses Compensation $ 377,694 $ 1,585,184 $ 728,695 $ 522,179 $ 3,213,752 $ 213,350 $ 719,161 $ 932,511 $ - $ 4,146,263 Employee benefits 81, , , , ,753 51, , ,530-1,022,283 Direct financial assistance 1,265 97, , ,899 1,111, ,111,886 Purchase of service - 2,840,330 1, ,572 3,387, ,387,509 Professional fees 12,481 98,768 62,996 48, ,759 4,909 61,994 66, ,662 Transportation 14, ,373 12,267 51, ,608 1,173 8,330 9, ,111 Occupancy and related expenses 83,187 91, ,991 59, ,036 30,352 82, ,466 (187,464) 267,038 Operating and administrative expenses 59, , , , , , , ,070 (219,600) 704,772 Interest ,231 16,231-16,231 Depreciation 24,069 37,027 22,210 13,830 97,136 9,043 41,413 50, ,592 $ 655,212 $ 5,590,018 $ 1,628,158 $ 2,097,353 $ 9,970,741 $ 451,560 $ 1,295,110 $ 1,746,670 $ (407,064) $ 11,310,347 The accompanying notes are an integral part of these combined financial statements. 6

10 Commonwealth Catholic Charities Combined Statements of Cash Flows Years Ended June 30, Cash flows from operating activities Change in net assets $ (364,858) $ 874,111 Adjustments to reconcile to net cash from operating activities: Depreciation 180, ,592 Gain on disposal of property and equipment - 12,408 Unrealized (gains) losses on investments (2,019) 557,278 Realized losses (gains) on investments 755,278 (433,430) Unrealized loss on land held for sale - 5,300 Change in assets: Receivables - programs and other (136,009) 55,493 Receivables - pledges 187,796 96,290 Prepaid expenses 15,234 34,812 Accounts payables (11,579) (130,203) Accrued expenses (16,261) 133,367 Net cash from operating activities 607,878 1,353,018 Cash flows from investing activities Purchase of property and equipment (71,154) (369,058) Proceeds from sale of investments 2,148,294 1,492,267 Purchase of investments (2,778,743) (1,644,267) Net cash from investing activities (701,603) (521,058) Cash flows from financing activities Payments on line of credit - net - (163,388) Principal payments on notes payable (60,000) (30,000) (60,000) (193,388) Change in cash and cash equivalents (153,725) 638,572 Cash and cash equivalents - beginning of year 857, ,077 Cash and cash equivalents - end of year $ 703,924 $ 857,649 Supplemental disclosure of cash flow information Cash paid for interest $ 5,791 $ 17,497 The accompanying notes are an integral part of these combined financial statements. 7

11 Commonwealth Catholic Charities Notes to Combined Financial Statements June 30, Organization and Nature of Activities Commonwealth Catholic Charities and related organizations (collectively, the Organization) were established under the laws of the Commonwealth of Virginia for the purpose of conducting programs concerned with the treatment of personal, economic and social welfare needs of families, children and other individuals. It is the mission of the Organization to provide quality, compassionate human services to all people, especially the most vulnerable. The Organization's vision is to empower individuals, strengthen families and build the community through faith and service. The Organization primarily provides services through its offices located in Central and Southwestern Virginia. The Organization is supported by donor contributions, grants, several United Way Services organizations and grants/contracts from governmental agencies. Grants and contracts from governmental agencies for fiscal 2009 and 2008 represented approximately 40.4 % and 33.2 % of the Organization s total revenues, respectively. The accompanying combined financial statements include the resources and financial activities of Commonwealth Catholic Charities; Commonwealth Human Services Foundation (Foundation), a public charity; and CCR Realty, Inc. The Foundation was established to conduct and support financial development. CCR Realty, Inc. was established in 1994 for the purpose of holding real estate acquired through purchases and donations. 2. Summary of Significant Accounting Policies Financial Statement Presentation The Organization reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The combining financial statements report amounts separately by class of assets as follows: Unrestricted net assets impose no restriction on the Organization as to their use or purpose. Such net assets are expended for purposes deemed appropriate for operating purposes. Temporarily restricted net assets are those whose use by the Organization has been limited by donors to a specific time period or purpose. Permanently restricted net assets consist of endowment fund investments to be held indefinitely, the income from which may be expended to support the activities of the Organization. 8

12 Cash and Cash Equivalents The Organization's definition of cash equivalents includes items such as short-term, highly liquid investments with maturities of three months or less at the date of acquisition. Cash and cash equivalents designated for investment purposes are reported with investments. Recognition of Contributions and Grants Contributions and grants are recognized when the donor makes a promise to give to the Organization that is, in substance, unconditional. Contributions and grants that are restricted by the donor are reported as an increase in unrestricted net assets if the restriction expires in the fiscal year in which the contribution or grant is recognized. All other donor-restricted contributions and grants are reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires, temporarily restricted net assets are reclassified as unrestricted. The Organization uses the reserve method of accounting for bad debts for financial reporting and contractual write-offs. The reserve for doubtful accounts and contractual write-offs at June 30, 2009 and 2008 was $273,917 and $302,189, respectively. Property and Equipment Purchased property and equipment are stated at cost. Donated assets are stated at fair value at the time of the donation. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets as follows: Buildings Buildings and leasehold improvements Furniture, fixtures, equipment and vehicles 20 years years 3-10 years Contributed Materials and Services The value of contributed goods and the value of contributed services that either (a) created or enhanced a nonfinancial asset or (b) required specialized skills, was provided by individuals possessing those skills, and would have been purchased if not contributed, are recognized in the combined financial statements, if material. During fiscal years 2009 and 2008, approximately $351,033 and $195,307 of contributed materials and service transactions were recognized in the financial statements, respectively. Concentrations of Credit Risk Financial instruments that potentially subject the Organization to concentrations of credit risk consist principally of temporary cash investments and receivables. The majority of receivables at June 30, 2009 and 2008 are from federal, state and local government entities. The Organization maintains its cash balances in non-interest bearing accounts with one financial institution. These funds are insured by the Federal Deposit Insurance Corporation without limitation as to account balances through December 31, 2009 and a maximum of $250,000 thereafter. 9

13 Estimates The preparation of combined financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates and assumptions. Tax Status The Organization and related entities are exempt from income taxes under Sections 501(c)(2), 501(c)(3) and 509(a)(3) of the Internal Revenue Code and under the tax status of the Commonwealth of Virginia. Reclassifications Certain amounts from the prior year s statements have been reclassified to conform to the current year s statement presentation. Subsequent Events In preparing these financial statements, the Organization has evaluated events and transactions for potential recognition or disclosure through August 26, 2009 the date the financial statements were available to be issued. 3. Investments As of June 30, 2009, the Organization adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS 157 establishes 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 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The asset or liability s fair value 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 to maximize the use of observable inputs and minimize the use of unobservable inputs. 10

14 Investments are shown on the statement of financial position at fair value (level 1 measurements). As of June 30, 2009 and June 30, 2008, investments are composed of the following: Cost Market Cost Market Temporarily restricted investments: Cash and cash equivalents $ 650,930 $ 650,933 $ - $ - Fixed income securities 48,810 48, Marketable securities 13,185 13, Endowment funds: Cash and cash equivalents 1,817,570 1,817, Fixed income securities 136, , Marketable securities 36,815 38, Diocesan pooled investment fund - - 2,845,852 2,804,297 $ 2,703,602 $ 2,705,230 $ 2,845,852 $ 2,804,297 Investment income is reflected in the table below for the years ended June 30: Investment returns: Dividends and interest $ 78,424 $ 73,710 Net realized and unrealized losses (753,259) (197,861) Total return on investments $ (674,835) $ (124,151)) During fiscal year 2009, the Organization liquidated the investment in the Diocesan pooled investment fund and engaged an independent fund manager/advisor to actively manage the donor- restricted funds. In June 2009, the investment fund manager/advisor received their initial funds from the Organization and began the investment process, focusing primarily on fixed income securities. 4. Property and Equipment Property and equipment consisted of the following at June 30: Land $ 83,619 $ 83,619 Building 501, ,131 Building and leasehold improvements 720, ,047 Furniture, fixtures, equipment and vehicles 657, ,760 1,962,180 1,988,557 Less - accumulated depreciation and amortization (1,256,458) (1,173,692) $ 705,722 $ 814,865 11

15 5. Pledges Receivable Unconditional promises to give that are expected to be collected within one year are recorded at their net realizable values. At June 30, 2009 and 2008, all outstanding pledges were expected to be collected within one year. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of estimated future cash flows. Amortization of the discount is included in contributions revenues. Net pledges receivable include the following unconditional promises to give as of June 30: Amounts due in - Less than one year $ 181,038 $ 368, Line of Credit The Organization has a $750,000 uncollateralized line of credit with a bank bearing interest at the lower of prime, a London Interbank Offered Rate (LIBOR) based option plus.60% or the Bank s cost of funds plus.75%; endorsed by the Bishop of the Catholic Diocese of Richmond; expires December 31, On January 1, 2009, the LIBOR based option was changed from LIBOR plus.60% to 30 Day LIBOR plus.95%. There have been no borrowings under this agreement since June Notes Payable Notes payable consisted of the following at June 30: Note payable to a bank and endorsed by the Bishop of the Catholic Diocese of Richmond. Beginning January 5, 2008, the note is payable in monthly installments of $5,000 plus interest. On January 1, 2009, the interest rate was changed to 30-day LIBOR plus.95% (1.27% as of June 30, 2009). Prior to that time, the interest rate was the lower of LIBOR plus.60% or the bank s cost of funds plus.75% (3.3% as of June 30, 2008). $ 165,523 $ 225,523 Estimated maturities of the above long-term debt for succeeding years ending June 30 are as follows: 2010 $ 60, , ,523 $ 165,523 12

16 8. Operating Leases The Organization leases certain office space and equipment under non-cancelable operating lease agreements. Total rental expense under non-cancelable operating leases was $134,660 and $104,350 for the years ended June 30, 2009 and 2008, respectively. Future minimum lease payments are as follows: 2010 $ 141, , , , ,414 Thereafter 352,735 $ 968,195 On July 2, 2009, the Organization entered into lease agreement to relocate its Norton, Virginia office to a new facility. Under the terms of the lease, the Organization will pay a monthly rental of $ 2,000 for a period of 10 years from initial occupancy with two five-year renewal options. 9. Pension Plan The Organization has a defined contribution pension plan which covers substantially all employees. Employees can contribute up to 20% of their compensation to the plan, up to the Section 402(g) limit of the Internal Revenue Code. The Organization makes basic contributions equal to 4% of each participant's compensation and matches up to 4% of the participant s contributions to the plan based on the years of service of the employee. The participants become fully vested in the employer's contributions after three years of service. If an employee terminates employment prior to becoming vested, the employer's contribution becomes refundable to the Organization. The expense associated with this plan was $ 225,475 and $242,531 at 2009 and 2008, respectively. 10. Temporarily Restricted Net Assets Net assets were temporarily restricted for the following purposes at June 30: Aging and disabilities $ 641,786 $ 653,000 Family services 221,475 86,111 United Way services 134, ,834 Children s services 80,706 72,197 Disaster relief 32,805 40,956 Capital improvement grant 29,172 29,172 $ 1,140,482 $ 1,150,270 13

17 Temporarily restricted net assets were released from restrictions during the years ended June 30 for the following purposes: Family services $ 409,642 $ 318,103 United Way services 291, ,738 Children s services 52,092 18,085 Aging and disabilities 26,784 38,127 Disaster relief 8, Specialized refugee services 5, Capital improvement grant - 25,000 $ 794,060 $ 763, Permanent Restricted Net Assets Net assets were permanently restricted for the following purposes at June 30: Unrestricted endowment $ 2,082,005 $ 2,056,185 Pregnancy counseling 232, ,084 Scholarships 200, ,000 Necessitous children (Roanoke Valley) 74,008 74, Related Party Transactions $ 2,588,297 $ 2,562,277 During 2009 and 2008, the Catholic Diocese of Richmond paid $75,066 and $71,478, respectively, to CCR Realty, Inc. on behalf of Refugee and Immigration Services for rent related to office space. Refugee and Immigration Services is a charitable organization owned by the Bishop of Richmond. The Bishop of Richmond is sole corporate member of Commonwealth Catholic Charities and CCR Realty, Inc. 13. Endowment Funds The Organization s endowment consists of 4 individual funds held in permanently restricted funds. The endowment includes only donor-restricted endowment funds. These funds were established for a variety of purposes. As required by GAAP, net assets associated with these endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. The management of donor-restricted endowment funds is governed by state law under the Uniform Prudent Management of Institutional Funds (UPMIFA) law as adopted by the state legislature. Virginia s version of UPMIFA was enacted during The Organization has interpreted the relevant state law 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. 14

18 As a result of this interpretation, the Organization 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) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is 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 Organization in a manner consistent with the standard of prudence prescribed by the state UPMIFA law. Previously, the accumulations on endowment funds with no purpose restriction were classified as unrestricted net assets. As a result of the interpretation of the new law, the Organization reclassified $40,532 as of the beginning of the year from unrestricted net assets to temporarily restricted net assets representing accumulations on endowment funds with no purpose restrictions. A summary of the activity in endowment funds for the year ended June, is as follows: Unrestricted Temporarily Restricted Permanently Restricted Total Endowment net assets - beginning of year $ (20,643) $ - $ 2,562,277 $ 2,541,634 Net asset reclassification based on UPMIFA (40,532) 40, Endowment net assets after reclassification (61,175) 40,532 2,562,277 2,541,634 Investment return: Investment income (547,196) (40,532) - (587,728) Gifts ,020 26,020 (547,196) (40,532) 26,020 (561,708) Endowment net assets - end of year $ (608,371) $ - $ 2,588,297 $ 1,979,926 In accordance with state UPMIFA law, the Organization 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 Organization 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 Organization, and (7) the investment policies of the Organization. From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or state UPMIFA guidelines require the Organization to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were $608,371 as of June 30, These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of new permanently restricted contributions and continued appropriation for certain programs that was deemed prudent by the Organization. 15

19 During fiscal year ended June 30, 2009, the Organization formed the Investment Committee to review the existing investment policy and oversee the direct management of donor-restricted funds in accordance with its investment policy and the guidelines established under the Uniform Prudent Management of Institution Funds Act as enacted by the Commonwealth of Virginia. The primary objective of the investment policy is to preserve the purchasing power of the funds and maintain a competitive rate of return, relative to risk, by investing in fixed income and equity securities in accordance with specified asset allocation guidelines. The investment policy defines benchmarks and establishes a three-to-five year time horizon to quantitatively measure investment performance. The Investment Committee will review its investment asset allocation and investment objectives at least annually. The investment policy was designed to support a spending rate distribution policy of 4% based on the endowment average return over the preceding 12 quarters prior to the fiscal year in which the distribution is planned. The Investment Committee established an initial asset allocation target of equity to fixed income securities of 50 % plus a 20 % variance. The establishment of the initial asset allocation mix is estimated to provide an annual return of approximately 6.75 %, which is sufficient to preserve the funds balances and support the payment of a 4 % distribution. * * * * * 16