MILITARY OFFICERS ASSOCIATION OF AMERICA SCHOLARSHIP FUND FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2015 AND 2014

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1 MILITARY OFFICERS ASSOCIATION OF AMERICA SCHOLARSHIP FUND FINANCIAL STATEMENTS YEARS ENDED

2 TABLE OF CONTENTS YEARS ENDED INDEPENDENT AUDITORS REPORT 1 FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION 3 STATEMENTS OF ACTIVITIES 4 STATEMENTS OF CASH FLOWS 5 6

3 CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS REPORT Board of Directors Military Officers Association of America Scholarship Fund Alexandria, Virginia We have audited the accompanying financial statements of the Military Officers Association of America Scholarship Fund ( Scholarship Fund ), which comprise the statements of financial position as of December 31, 2015 and 2014, 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. (1)

4 Board of Directors Military Officers Association of America Scholarship Fund Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Military Officers Association of America Scholarship Fund as of December 31, 2015 and 2014, and the changes in its net assets and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. CliftonLarsonAllen LLP Arlington, Virginia April 7, 2016 (2)

5 STATEMENTS OF FINANCIAL POSITION ASSETS Cash and Cash Equivalents $ 407,345 $ 513,991 Investments 42,316,200 35,455,871 Student Loans, Net of Allowance 50,712,496 49,321,505 Contributions and Bequests Receivable 3,084,371 5,715,495 Due from Military Officers Association of America - 1,181 Split Interest Bequests Receivable 1,330,283 1,307,518 Beneficial Interest in Perpetual Trusts 799, ,074 Beneficial Interest in Remainder Trusts 1,918,081 2,071,496 Beneficial Interest in Annuity Trusts 432, ,597 Total Assets $ 101,000,547 $ 95,742,728 LIABILITIES AND NET ASSETS LIABILITIES Due to Military Officers Association of America $ 4,657 $ - Split-Interest Liabilities 2,023,519 2,110,643 Total Liabilities 2,028,176 2,110,643 NET ASSETS Unrestricted Net Assets 85,272,175 79,028,110 Temporarily Restricted Net Assets 6,335,490 7,224,647 Permanently Restricted Net Assets 7,364,706 7,379,328 Total Net Assets 98,972,371 93,632,085 Total Liabilities and Net Assets $ 101,000,547 $ 95,742,728 See accompanying Notes to Financial Statements. (3)

6 STATEMENTS OF ACTIVITIES YEARS ENDED CHANGE IN UNRESTRICTED NET ASSETS Revenue, Gains and Other Support: Contributions and Bequests $ 7,150,528 $ 9,500,018 In-Kind Support from MOAA 1,219,580 1,201,251 Investment Earnings, Net (351,123) 1,227,672 8,018,985 11,928,941 Net Assets Released From Restrictions 538,195 1,860,878 Total Unrestricted Revenue, Gains and Other Support 8,557,180 13,789,819 Expenses Grants: American Patriot 45,000 28,000 Senior 70,500 66,000 Designated Scholar 312, ,500 McCormick - 80,000 Ryan 6,000 6,000 Cliffs 185, ,000 Mason 50,000 30,000 Crozier 100,000 75,000 Goldenrath 95,000 70,000 Ratay 57,195 20,000 Total Grants 921, ,500 General Operations and Fundraising 1,219,580 1,201,251 Provision for Uncollectible Accounts 34,765 13,514 Total Expenses 2,175,540 2,014,265 Change in Unrestricted Net Assets Before Non-Operating Items 6,381,640 11,775,554 Change in Split-Interest Agreement Liabilities (137,575) (79,316) Change in Unrestricted Net Assets 6,244,065 11,696,238 CHANGE IN TEMPORARILY RESTRICTED NET ASSETS Contributions and Bequests 41,369 79,227 Investment Earnings, Net (233,597) 348,447 Change in Beneficial Interest in Annuity Trusts (158,734) 66,480 Net Assets Released from Restrictions (538,195) (1,860,878) Change in Temporarily Restricted Net Assets (889,157) (1,366,724) CHANGE IN PERMANENTLY RESTRICTED NET ASSETS Contributions and Bequests 79,563 2,640,000 Change in Beneficial Interest in Perpetual Trusts (95,815) (38,159) Investment Earnings, Net 1,630 10,947 Change in Permanently Restricted Net Assets (14,622) 2,612,788 CHANGE IN NET ASSETS 5,340,286 12,942,302 Net Assets - Beginning of Year 93,632,085 80,689,783 NET ASSETS - END OF YEAR $ 98,972,371 $ 93,632,085 See accompanying Notes to Financial Statements. (4)

7 STATEMENTS OF CASH FLOW YEARS ENDED CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets $ 5,340,286 $ 12,942,302 Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Provision for Uncollectible Accounts 6,990 9,914 Unrealized Gains on Investments (700,562) (773,402) Realized Losses (Gains) on Investments 1,177,442 (905,979) Contributions of Securities (29,229) (359,517) Beneficial Interest in Perpetual Trusts 95,815 38,159 Beneficial Interest in Annuity Trusts 28,085 1,443,008 Beneficial Interest in Remainder Trusts 153,415 (6,399) Changes in Operating Assets and Liabilities: Student Loan Repayments 6,642,089 6,331,977 Student Loans Issued (8,040,070) (8,314,751) Contributions Receivable 2,631,124 (3,130,622) Bequests Receivable (22,765) (56,208) Due from/to MOAA 5,838 (774) Split-Interest Liabilities (87,124) 338,153 Accounts Payable - (10) Net Cash Provided by Operating Activities 7,201,334 7,555,851 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Investments (17,138,680) (14,956,875) Proceeds from Sale of Investments 9,830,700 7,315,459 Net Cash Used in Investing Activities (7,307,980) (7,641,416) NET CHANGE IN CASH AND CASH EQUIVALENTS (106,646) (85,565) Cash and Cash Equivalents - Beginning of Year 513, ,556 CASH AND CASH EQUIVALENTS - END OF YEAR $ 407,345 $ 513,991 SUPPLEMENTAL INFORMATION Donated Services $ 1,219,580 $ 1,201,251 Donated Stock $ 29,229 $ 359,517 See accompanying Notes to Financial Statements. (5)

8 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Military Officers Association of America Scholarship Fund ( the Scholarship Fund ) is a nonprofit organization as defined under Section 501(c)(3) of the Internal Revenue Code. The Scholarship Fund became a separate legal entity from Military Officers Association of America ( MOAA or the Association ) in The Scholarship Fund is operated exclusively for purposes of providing interest-free scholarship loans and grants to undergraduate students who are children of members of the Association or of enlisted personnel. Basis of Accounting These financial statements were prepared on the accrual basis of accounting. Consequently, revenue is recognized when earned and expense is recognized when the obligation is incurred. Cash and Cash Equivalents Cash equivalents generally include highly liquid investments with original maturities of three months or less. Cash equivalents included in the Scholarship Fund investment portfolio are included in the investment presentation within the statements of financial position. Concentrations of Credit Risk Financial deposits, which subject the Scholarship Fund to concentrations of credit risk, consist of demand deposits with federally insured institutions. From time to time, cash balances exceed FDIC insurance limits of $250,000. Management monitors these balances and believes they represent neither unusual nor significant credit risk. Investments Investments are stated at fair value. Interest, dividends and all realized and unrealized gains and losses are recognized within the statements of activities. Allowance for Doubtful Student Loans The Scholarship Fund maintains an allowance for doubtful student loans based on the Scholarship Fund s historical collection results. Management believes that its allowance for aggregate student loans represents its best estimate of such amounts; however, ultimate results could vary significantly from such amounts. As adjustments to these estimates become necessary, such adjustments are reflected in current activities. (6)

9 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Bequest and Contribution Receivables Bequest and contribution receivables represent unconditional promises to give that are acknowledged in writing by donating parties prior to December 31, but not transmitted to the Scholarship Fund until after that date. Conditional promises to give are recognized when the condition on which the pledges depend are substantially met. Unconditional promises to give that are to be collected within one year are recorded at 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 or estimated future value of non-cash donations. Management believes that as of December 31, 2015, all bequest and contribution receivables are fully collectible. Net Assets All current contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Long-term contributions received via split-interest trust agreements are classified as either temporarily or permanently restricted due to inherent time restrictions. 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. Temporarily Restricted Net Assets represent gifts that have been restricted by the donors for purpose or time and similarly restricted investment income. When funds have been disbursed in accordance with the donor s restriction, temporarily restricted net assets are reclassified to unrestricted net assets and are reported within the statements of activities as net assets released from restrictions. Permanently Restricted Net Assets consist of funds that have been restricted by the donor for use in the student loan and grant programs in perpetuity. The donors of the Ratay, Crozier, Miller, and Goldenrath endowments have specified that the corpus of their original gift and subsequent gifts be maintained in perpetuity and that the net earnings from the investment of their contributions be used to fund the student loan and grant programs. The donors of the Mason endowment specified that the corpus of their original gift and a specified percentage of the annual earnings be maintained in perpetuity, while the remainder of the annual earnings be used to fund grants. The donor of the Cloud endowment specified that the corpus of the gift plus a CPI adjustment annually be maintained in perpetuity, while the remainder of the annual earnings be used to fund student loans and grants. The Petersen and Stead funds represent perpetual trusts in which annual earnings are to be used to support scholarships. (7)

10 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Contributions Contributions, including unconditional promises to give, are recognized as revenue in the period received. All donor-restricted contributions are reported as increases in temporarily or permanently restricted net assets depending upon the nature of the restrictions. When a restriction expires, (i.e. the donor-stipulated purposes has been fulfilled and/or the stipulated time period has elapsed) temporarily restricted net assets are reported as net assets released from restrictions. Contributions received in the same year they are released from restriction are presented as unrestricted contributions in the statements of activities. Permanently restricted net assets are restricted by the donor in perpetuity. In-Kind Support MOAA contributes the use of facilities, administrative, accounting and fundraising services to the Scholarship Fund. These contributed in-kind support services have been recognized within the statements of activities as in-kind support and general operations and fundraising expenses. The value of these services is based upon actual costs incurred. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States require management to make estimates, assumptions and judgments that affect the reported balances, classifications and disclosures in the financial statements. Actual results could differ from these estimates. Income Taxes The Scholarship Fund is exempt from the payment of income taxes on its exempt activities under Section 501(c)(3) of the Internal Revenue Code (IRC). The Scholarship Fund has adopted the guidance on the income tax standard regarding the recognition and measurement of uncertain tax positions. The adoption of this standard had no impact on the Scholarship Fund s financial statements. Fair Value of Financial Instruments The Scholarship Fund accounts for certain financial assets and liabilities at fair value under various accounting literature. Fair Value Hierarchy The Scholarship Fund has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level 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). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. (8)

11 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value Hierarchy (Continued) Financial assets and liabilities recorded within the statements of financial position are categorized based on the inputs to the valuation techniques as follows: Level 1 Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Scholarship Fund has the ability to access (examples include active exchange-traded equity securities). Level 2 Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following: Quoted prices for similar assets or liabilities in active markets (for example, restricted stock); Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently); Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (examples include certain residential and commercial mortgage related assets, including loans, securities and derivatives). Level 3 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management s own assumptions about the assumptions a market participant would use in pricing the asset or liability (examples include certain private equity investments, long-term promises to give, split interest agreements, bequest receivables and long-term grants payable). Fair Value Option Accounting standards provide a fair value option election that allows companies to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. Changes in fair value for assets and liabilities for which the election is made will be recognized in earnings as they occur. This standard permits the fair value option election on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. As discussed above, certain Scholarship Fund financial instruments are required to be accounted for at fair value. (9)

12 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value Option (Continued) For certain financial instruments that are not accounted for at fair value under other applicable accounting guidance, this fair value option has been elected. In particular, the Scholarship Fund elected to recognize split interest agreement liabilities at fair value under this standard. Uniform Prudent Management of Institutional Funds Act During 2008 Virginia enacted the Uniform Prudent Management of Institutional Funds Act (UPMIFA). In August 2008 the FASB released Endowments of Not-for-Profit Organizations which provides guidance on the classification of endowment fund net assets for states that have enacted versions of UPMIFA. Under UPMIFA all unappropriated endowment fund assets are considered restricted. Subsequent Events In preparing these financial statements, the Scholarship Fund has evaluated events and transactions for potential recognition or disclosure through April 7, 2016, the date the financial statements were available to be issued. NOTE 2 FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the Scholarship Fund s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, Level 1 Level 2 Level 3 Total Investments - Cash and Money Market $ 2,949,579 $ - $ - $ 2,949,579 Investments - Fixed Income 5,629,911 9,563,141-15,193,052 Investments - Domestic Stock 368,470 13,057,535-13,426,005 Investments - International Stock 2,634,517 5,966,142-8,600,659 Investments - REITs - 2,146,905-2,146,905 Bequest Receivable - - 1,330,283 1,330,283 Beneficial Interest in Perpetual Trusts , ,259 Beneficial Interest in Remainder Trusts - - 1,918,081 1,918,081 Beneficial Interest in Annuity Trusts , ,512 Split-Interest Liability - - (2,023,519) (2,023,519) $ 11,582,477 $ 30,733,723 $ 2,456,616 $ 44,772,816 (10)

13 NOTE 2 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The following table provides a summary of changes in fair value of the Scholarship Fund s Level 3 financial assets and liabilities for the year ended December 31, 2015: Beneficial Interest Beneficial Interest Beneficial Interest Split-Interest in Perpetual in Annuity in Remainder Bequest Liability Trusts Trusts Trusts Receivable Balance as of January 1, 2015 $ (2,110,643) $ 895,074 $ 460,597 $ 2,071,496 $ 1,307,518 Unrealized and Realized (Losses) Gains - (95,815) (28,085) (153,415) 22,765 Change in Allowance/PV Discount (165,375) Payments to Annuitants 232, Change due to death of beneficiaries 20, Balance as of December 31, 2015 $ (2,023,519) $ 799,259 $ 432,512 $ 1,918,081 $ 1,330,283 The following table presents the Scholarship Fund s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, Level 1 Level 2 Level 3 Total Investments - Cash and Money Market $ 1,928,733 $ - $ - $ 1,928,733 Investments - Fixed Income 4,611,371 8,119,000-12,730,371 Investments - Domestic Stock 380,715 11,354,532-11,735,247 Investments - International Stock 2,309,847 4,918,463-7,228,310 Investments - REITs - 1,833,210-1,833,210 Bequest Receivable - - 1,307,518 1,307,518 Beneficial Interest in Perpetual Trusts , ,074 Beneficial Interest in Remainder Trusts - - 2,071,496 2,071,496 Beneficial Interest in Annuity Trusts , ,597 Split-Interest Liability - - (2,110,643) (2,110,643) $ 9,230,666 $ 26,225,205 $ 2,624,042 $ 38,079,913 The following table provides a summary of changes in fair value of the Scholarship Fund s Level 3 financial assets and liabilities for the year ended December 31, 2014: Beneficial Interest Beneficial Interest Beneficial Interest Split-Interest in Perpetual in Annuity in Remainder Bequest Liability Trusts Trusts Trusts Receivable Balance as of January 1, 2014 $ (1,772,490) $ 933,233 $ 1,903,605 $ 2,065,095 $ 1,251,309 Unrealized and Realized Gains (Losses) - (38,159) 3,870 6,401 56,209 Distribution - - (1,446,878) - - New Contributions (516,277) Change in Allowance/PV Discount (135,317) Payments to Annuitants 257, Change due to death of beneficiaries 56, Balance as of December 31, 2014 $ (2,110,643) $ 895,074 $ 460,597 $ 2,071,496 $ 1,307,518 The split-interest liability and the Palmer Trust, which is included in beneficial interest in trust, are calculated based upon the Internal Revenue Service December 2015 and 2014, discount rates (2.0%) and the standard mortality table 90CM which is the table used in the past to perform this analysis. The beneficial interest in trusts (see Note 6) valuation was based on the fair value of the underlying trust investments. Bequests receivable (Rhodes Trust) was calculated based upon a discount rate of 5.5% which approximates the expected return for the underlying investment portfolio. (11)

14 NOTE 2 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The Scholarship Fund has historically measured the split-interest liability at fair value, engaging an actuary to perform the annual valuation using current inflation rates. The variance between GAAP and this annual fair value adjustment is immaterial to the overall financial statements in the past. The rationale for electing to account for split-interest liabilities at fair value was simplification of record keeping. NOTE 3 INVESTMENTS The Scholarship Fund carries its investments at fair value and realized and unrealized gains and losses are reflected in the statement of activities. The Scholarship Fund invests in a variety of investment vehicles. In general, investments are exposed to various risks, such as interest rate, credit and overall market volatility risk. Due to the level of risk associated with certain investments, it is reasonably possible that changes in the values of the investments will occur in the near term and that such changes could materially affect the amounts reported in the statement of financial position. At December 31, 2015 and 2014, investments consisted of the following: Fair Value Cost Basis Fair Value Cost Basis Cash and Money Market Funds $ 2,949,579 $ 2,949,579 $ 1,928,733 $ 1,928,733 Fixed Income 15,193,052 14,981,604 12,730,371 12,409,497 Equities 22,026,664 19,537,732 18,963,557 15,419,167 Real Estate Investment Trust 2,146,905 1,600,181 1,833,210 1,273,693 Total Investments $ 42,316,200 $ 39,069,096 $ 35,455,871 $ 31,031,090 Total return on investments is comprised of the following for the years ended December 31: Interest and Dividend Income $ 95,600 $ 66,906 Realized (Loss) Gain (1,177,442) 905,979 Unrealized Gains 700, ,402 Investment Fees (201,810) (159,221) Total Return on Investments $ (583,090) $ 1,587,066 (12)

15 NOTE 4 STUDENT LOANS Student loans, which are evidenced by executed notes receivable, are reported net of an allowance for doubtful accounts of $254,837 and $247,847 at December 31, 2015 and 2014, respectively. Student loan write-offs totaled $27,775 and $3,600 in 2015 and 2014, respectively. Student loans are provided with a zero percent interest rate; therefore there is no related loan interest income recorded within the statements of activities. As of December 31, 2015 and 2014, student loans represent 50% and 52% of the total assets, respectively. At December 31, student loans consist of the following: Student Loans Receivable $ 50,967,333 $ 49,569,352 Less Allowance for Doubtful Accounts Beginning of Year (247,847) (237,933) Increases (34,765) (13,514) Write-offs 27,775 3,600 End of Year (254,837) (247,847) Student Loans Receivable, Net $ 50,712,496 $ 49,321,505 At December 31, 2015 and 2014, the following amounts were past due under student loan programs: Year Current Days Past Due Days Past Due 90+ Days Past Due Total 2015 $ 49,411,952 $ 537,119 $ 368,839 $ 649,423 $ 50,967, $ 48,441,912 $ 256,586 $ 481,096 $ 389,758 $ 49,569,352 Students in repayment status making payments on account, students in school and receiving disbursements from the Scholarship Fund, and students in deferred status are considered current. There are five types of deferments available to loan recipients: In-school deferments are for full time students who are currently in an undergraduate or graduate program. Recent graduate deferments are for students who have been receiving disbursements and have recently graduated. A 3 to 4 month grace period is given to those students upon graduation. Internship deferments are for students who have an internship or fellowship and are making less than $20,000/year. This also applies to students performing community service through such programs as the Peace Corps or AmeriCorps. Service deferments are given to students who are in the military and have a pay grade below E4. (13)

16 NOTE 4 STUDENT LOANS (CONTINUED) Hardship deferments are for students who are either unemployed or underemployed or have requested medical deferments days past due amounts include amounts due from any student who is not making payments on their account. 90+ days past due amounts include amounts due from any student who has not made a payment in over 90 days nor been in contact with the Scholarship Fund regarding delinquent payment, or whose account has been sent to a collection agency or who has declared bankruptcy (and bankruptcy paperwork has been received by the Scholarship Fund). NOTE 5 TEMPORARILY RESTRICTED AND PERMANENTLY RESTRICTED NET ASSETS Temporarily restricted and permanently restricted net assets are available for the following purposes as of December 31: Temporarily Restricted: Cliffs Fund $ 241,215 $ 437,533 American Patriot Fund 2,017,867 2,069,528 Rhodes Trust 1,330,282 1,307,517 P. Cook Trust 373, ,637 R. Cook Fund 27,211 25,022 McCormick Fund - 5,163 Palmer Trust 58,663 58,960 Ryan Fund 106, ,272 Crozier Fund 68, ,910 Cloud Fund 83,759 90,752 Estate of Richard Crabbe 756, ,482 Dallal Remainder UniTrust 158, ,693 Pope Remainder UniTrust 122, ,590 Ratay Fund 89, ,695 Mason Fund 19,908 81,944 Scotto Remainder Family Trust 881, ,730 Goldenrath Fund - 194,219 Total Temporarily Restricted $ 6,335,492 $ 7,224,647 (14)

17 NOTE 5 TEMPORARILY RESTRICTED AND PERMANENTLY RESTRICTED NET ASSETS (CONTINUED) Permanently Restricted: Crozier Fund $ 1,401,191 $ 1,401,191 Cloud Fund 918, ,524 Ratay Fund 516, ,184 Petersen Perpetual Trust 626, ,853 Stead Perpetual Trust 172, ,221 Mason Fund 457, ,301 Miller Fund 5,000 5,000 Goldenrath Fund 3,267,616 3,188,054 Total Permanently Restricted $ 7,364,706 $ 7,379,328 Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes specified by donors for the years ended December 31: Temporarily Restricted: Cliffs Fund $ 185,000 $ 105,000 American Patriot Fund 45,000 28,000 McCormick Fund - 80,000 Ryan Fund 6,000 6,000 Crozier Fund 100,000 75,000 Goldenrath Fund 95,000 70,000 Mason Fund 50,000 30,000 Guhl Annuity Trust - 1,446,878 Ratay Fund 57,195 20,000 Total Net Assets Released from Restriction $ 538,195 $ 1,860,878 NOTE 6 SPLIT-INTEREST AGREEMENTS Held by Scholarship Fund The Scholarship Fund administered thirty and thirty-one charitable gift annuities as of December 31, 2015 and 2014, respectively. The terms of the trust agreements provide for an annuity to be paid for life to each beneficiary named by the contributor. The total fair value of the assets was $4,032,638 and $4,361,507 at December 31, 2015 and 2014, respectively. Collectively, the estimated present values of annuities payable pursuant to the charitable gift annuity agreements were $2,023,519 and $2,110,643 as of December 31, 2015 and 2014, respectively. The present values of the liabilities discussed above were calculated using a discount rate of 2.0% for 2015 and 2014, and actuarial life expectancies based on the ages of the beneficiaries. (15)

18 NOTE 6 SPLIT-INTEREST AGREEMENTS (CONTINUED) Unrestricted contribution income of $0 and $186,503 was recognized within the statements of activities for 2015 and 2014 as a result of split-interest agreement activities. Held by Third Party Trustee Rhodes Charitable Remainder Unitrust In 2008, the Scholarship Fund was named as the beneficiary of the remaining assets of the Rhodes Charitable Remainder Unitrust upon its termination. Termination of the Trust occurs upon the tenth anniversary of Ms. Rhodes death (who is now deceased), or upon there being no living beneficiary, whichever shall occur first. The present value of the Scholarship Fund s share of the fair value of the trust, $1,480,637 and $1,535,340 for the years ended 2015 and 2014, respectively, totaled $1,330,282 and $1,307,517 at December 31, 2015 and 2014, respectively, and is included in bequests receivable in the accompanying statements of financial position. The present value was calculated using an interest rate of 5.50% over two and three years for 2015 and 2014, respectively. Petersen Perpetual Trust The Scholarship Fund has been named as an income beneficiary of the fair value of the Petersen Perpetual Trust. The Scholarship Fund's share of the fair value of the Trust assets, which are maintained in perpetuity, totaled $626,350 and $685,853 at December 31, 2015 and 2014, respectively, and is included in beneficial interest in perpetual trusts in the accompanying statements of financial position. Income from this Trust totaled $33,009 and $20,742 for the years ended December 31, 2015 and 2014, respectively, and is recorded as unrestricted income in the accompanying statements of activities. Percival Cook Charitable Remainder Annuity Trust The Scholarship Fund has been named as the sole beneficiary of the Cook Charitable Remainder Annuity Trust. Under this agreement, the Scholarship Fund receives the net income annually and at the conclusion of ninety-nine years will receive the remaining Trust corpus. The estimated value of this split interest agreement was deemed to approximate fair value similar to a perpetual trust. The Scholarship Fund s share of the fair value of the Trust assets totaled $373,849 and $401,637 at December 31, 2015 and 2014, respectively, and is included in beneficial interest in annuity trusts in the accompanying statements of financial position. No income from this Trust was recorded for the years ended December 31, 2015 and Palmer Charitable Lead Annuity Trust The Scholarship Fund has been named as the beneficiary of the Palmer Charitable Lead Annuity Trust in which the Organization receives an annual annuity of $1,476 for ninety-nine years. The present value of this annuity stream totaled $58,663 and $58,960 at December 31, 2015 and 2014, respectively, and is included in beneficial interest in annuity trusts in the accompanying statements of financial position. The present value was calculated using an interest rate of 2.0% and 2.0% and an eighty and eighty-one year time horizon for the years ended December 31, 2015 and 2014, respectively. (16)

19 NOTE 6 SPLIT-INTEREST AGREEMENTS (CONTINUED) Held by Third Party Trustee (Continued) Bertha V. Guhl Trust The Scholarship Fund was named as a 65% beneficiary of the remaining assets of the Bertha V. Guhl Trust upon its termination. Termination of the Trust occurred after the tenth anniversary of Ms. Guhl s death (who deceased on April 12, 2003). The estimated value of this split interest agreement was deemed to approximate fair value of 65% of the Trust assets. As of December 31, 2014, the trust funds had been fully disbursed. Estate of Richard Crabbe The Scholarship Fund was named as the beneficiary of the remaining assets of the Crabbe Trust estate upon its termination. Termination of the Trust estate occurs after the passing of the donor s daughter who receives annual income from the Trust totaling $24,000. The estimated value of this split interest agreement was deemed to approximate fair value of the Trust estate assets. The Scholarship Fund s share of the fair value totaled $756,231 and $785,482, at December 31, 2015 and 2014, respectively, and is included in beneficial interest in remainder trusts in the accompanying statements of financial position. Joseph Martin Dallal Unitrust The Scholarship Fund was named as a beneficiary of 50% of the remaining assets of the Joseph Martin Dallal Unitrust upon its termination. Termination of the Trust occurs after the passing of the donor s son who is currently receiving income earned from the Trust. The estimated value of this split interest agreement was deemed to approximate 50% of the remaining Trust assets. The Scholarship Fund s share of the fair value totaled $158,478 and $168,693, at December 31, 2015 and 2014, respectively, and is included in beneficial interest in remainder trusts in the accompanying statements of financial position. Eugene J. and Mary W. Pope Unitrust The Scholarship Fund was named as a beneficiary of 25% of the remaining assets of the Eugene J. and Mary W. Pope Unitrust upon its termination. Termination of the Trust occurs after the passing of Ms. Pope s sister who is currently receiving income earned from the Trust. The estimated value of this split interest agreement was deemed to approximate 25% of the fair value of the Trust assets. The Scholarship Fund s share of the fair value totaled $122,202 and $134,590 at December 31, 2015 and 2014, respectively, and is included in beneficial interest in remainder trusts in the accompanying statements of financial position. (17)

20 NOTE 6 SPLIT-INTEREST AGREEMENTS (CONTINUED) Held by Third Party Trustee (Continued) Michael G. Scotto Family Trust The Scholarship Fund was named as the beneficiary of the remaining assets of the Michael G. Scotto Family Trust upon its termination. Termination of the Trust occurs upon the death of the beneficiaries who are currently receiving income earned from the Trust. The estimated value of this split interest agreement was deemed to approximate fair value of the Trust assets. The Scholarship Fund s share of the fair value totaled $881,170 and $982,730, at December 31, 2015 and 2014, respectively, and is included in beneficial interest in remainder trusts in the accompanying statements of financial position. Dr. & Mrs. George Owen and Ruth Elizabeth Stead Perpetual Trust The Scholarship Fund has been named as an income beneficiary of the fair value of the Dr. & Mrs. George Owen and Ruth Elizabeth Stead Perpetual Trust. The Scholarship Fund's 25% share of the fair value of the Trust assets, which are maintained in perpetuity, totaled $172,910 and $209,221 at December 31, 2015 and 2014, respectively, and is included in beneficial interest in perpetual trusts in the accompanying statements of financial position. Income from this Trust totaled $13,000 and $16,250 for the years ended December 31, 2015 and 2014, respectively, and is recorded as unrestricted income in the accompanying statements of activities. NOTE 7 FUNCTIONAL EXPENSES The costs of providing various programs and other activities have been summarized on a functional basis and are provided below for the years ended December 31, 2015 and Accordingly, overhead expenses have been allocated among the activities benefited based upon time spent on each activity: Program Services $ 1,560,648 $ 1,406,874 Supporting Services: General and Administrative 276, ,318 Fundraising 338, ,073 Total Supporting Services 614, ,391 Total Functional Expenses $ 2,175,538 $ 2,014,265 (18)

21 NOTE 8 ENDOWMENT The Scholarship Fund has a donor-restricted endowment fund established for the purposes of providing income to support general operations. As required by GAAP, net assets of the endowment fund are classified and reported based on the existence or absence of donor-imposed restrictions. The Board of Directors of the Scholarship Fund has interpreted the Virginia s 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 this interpretation, the Scholarship Fund 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 Scholarship Fund in a manner consistent with the standard of prudence prescribed by UPMIFA. The Scholarship Fund considers all direct grant and student loan awards related to these endowment funds to be appropriated for current use. The Scholarship Fund s endowment investment policy is focused on preservation of capital as well as providing income for operations and amounts are invested in equities, fixed income securities, and cash equivalents. To satisfy its long-term rate-of-return objectives, Scholarship Fund 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). In early 2009, the Scholarship Fund adopted a spending rate policy to comply with UPMIFA that will be calculated as a percentage of the rolling average market value of the endowment funds for the previous three years. It will take into consideration (1) the rolling average return including interest/dividends, capital gains, and realized gains/losses, and (2) the rate of inflation, as measured by the Consumer Price Index (CPI). The spending rate will be reviewed annually by the Investment Committee prior to the preparation of the budget and adjusted as appropriate and recommended to the Executive Committee for approval. (19)

22 NOTE 8 ENDOWMENT (CONTINUED) The endowment net assets and activity for 2015 and 2014 consisted of the following: Temporarily Permanently Unrestricted Restricted Restricted Total Balances as of December 31, 2013 $ (12,896) $ 745,609 $ 4,766,540 $ 5,499,253 Contributions - 2,750 2,640,000 2,642,750 Earnings: Investment Earnings, net - 208,205 10, ,152 Change in Value of Split-Interest Agreements - - (38,159) (38,159) - 208,205 (27,212) 180,993 Appropriations - (195,000) - (195,000) Earnings restricted for corpus - (3,759) - (3,759) Endowment Funds with Deficiencies 263 (263) - - Balances as of December 31, 2014 (12,633) 757,542 7,379,328 8,124,237 Contributions - 2,750 79,563 82,313 Earnings: Investment Earnings, net - (167,676) 1,630 (166,046) Change in Value of Split-Interest Agreements - - (95,815) (95,815) - (167,676) (94,185) (261,861) Appropriations - (302,195) - (302,195) Earnings restricted for corpus - (1,630) - (1,630) Endowment Funds with Deficiencies (21,081) 21, Balances as of December 31, 2015 $ (33,714) $ 309,872 $ 7,364,706 $ 7,640,864 Fund 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 Scholarship Fund to retain as a fund of perpetual duration. In accordance with accounting standards, deficiencies of this nature that are reported in unrestricted net assets were $33,714 and $12,633 as of December 31, 2015 and 2014, respectively. These deficiencies resulted from unfavorable market fluctuations. NOTE 9 RELATED PARTY TRANSACTIONS As discussed in Note 1, the Military Officers Association of America provides significant in-kind support to the Scholarship Fund to include the use of facilities, staff time, and various administrative, accounting, and fundraising services. The total in-kind support provided as of December 31, 2015 and 2014, was $1,219,580 and $1,201,251, respectively, and is reported in the statement of activities. (20)