CONTENTS. Independent Auditors Report Statements of Financial Position Statements of Activities Statements of Cash Flows...

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2 CONTENTS Independent Auditors Report... 1 Statements of Financial Position... 2 Statements of Activities Statements of Cash Flows... 5 Notes to the Financial Statements Supplementary Financial Information: Schedule of Net Assets Schedule of Revenues, Expenses, and Changes in Net Assets Other Information

3 Landmark Square 111 West Ocean Boulevard Twenty-Second Floor Long Beach, CA T: (562) F: (562) Other Offices: Irvine Torrance INDEPENDENT AUDITORS REPORT To the Board of Directors of Cal State Fullerton Philanthropic Foundation: We have audited the accompanying statements of financial position of Cal State Fullerton Philanthropic Foundation (a nonprofit organization, the Foundation) as of June 30, 2010 and 2009, and the related statements of activities, and cash flows for the years then ended. These financial statements are the responsibility of the Foundation s management. 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Foundation s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cal State Fullerton Philanthropic Foundation as of June 30, 2010 and 2009, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules of net assets, revenues, expenses, and changes in net assets, and other information on pages 20 through 33 are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Long Beach, California September 28,

4 STATEMENTS OF FINANCIAL POSITION ASSETS June 30, ASSETS Cash and cash equivalents, including restricted cash $ 10,569,531 $ 2,913,215 Investments 28,669,501 32,070,475 Contributions receivable, net of allowance for doubtful pledges 17,031,103 17,780,623 Accounts receivable 39,765 26,552 Prepaid expenses 3,716 1,979 Other receivables 207, ,478 Other assets 18,165 TOTAL ASSETS $ 56,538,988 $ 53,002,322 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued liabilities $ 457,738 $ 933,870 Total Liabilities 457, ,870 NET ASSETS Unrestricted ( 275,804) ( 1,493,569) Temporarily restricted 19,528,280 18,738,847 Permanently restricted 36,828,774 34,823,174 Total Net Assets 56,081,250 52,068,452 TOTAL LIABILITIES AND NET ASSETS $ 56,538,988 $ 53,002,322 The accompanying notes are an integral part of these financial statements. 2

5 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2010 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES AND SUPPORT Contributions and gifts $ 6,646,289 $ 2,001,677 $ 8,647,966 Campus programs 673, ,383 Alumni Association membership fees and programs 213, ,050 Investment income, net $ 1,494, ,655 2,210,882 Other income 2,136 33,443 2,135 37,714 Change in value of split interest agreements 4,580 1,788 6,368 Net assets released from restrictions 7,497,967 ( 7,497,967) Total Revenues and Support 8,994, ,433 2,005,600 11,789,363 EXPENSES Program Expenses: Campus 5,592,661 5,592,661 Scholarships 1,658,267 1,658,267 Alumni association 247, ,039 Total Program Expenses 7,497,967 7,497,967 Supporting Services: General and administrative 278, ,598 Total Supporting Services 278, ,598 Total Expenses 7,776,565 7,776,565 CHANGES IN NET ASSETS 1,217, ,433 2,005,600 4,012,798 NET ASSETS AT BEGINNING OF YEAR ( 1,493,569) 18,738,847 34,823,174 52,068,452 NET ASSETS AT END OF YEAR ( $ 275,804) $ 19,528,280 $ 36,828,774 $ 56,081,250 The accompanying notes are an integral part of these financial statements. 3

6 STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2009 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES AND SUPPORT Contributions and gifts $ 7,739,298 $ 5,248,904 $ 12,988,202 Campus programs 1,099,874 1,099,874 Alumni Association membership fees and programs 330, ,721 Investment income (loss), net ( $ 3,617,892) 601,025 4,700 ( 3,012,167) Other income ,500 1,129 89,514 Change in value of split interest agreements ( 14,686) ( 38,391) ( 53,077) Net assets released from restrictions 8,412,431 ( 8,412,431) Total Revenues and Support 4,795,424 1,431,301 5,216,342 11,443,067 EXPENSES Program Expenses: Campus 6,873,194 6,873,194 Scholarships 1,308,697 1,308,697 Alumni association 230, ,540 Total Program Expenses 8,412,431 8,412,431 Supporting Services: General and administrative 616, ,956 Total Supporting Services 616, ,956 Total Expenses 9,029,387 9,029,387 CHANGES IN NET ASSETS ( 4,233,963) 1,431,301 5,216,342 2,413,680 NET ASSETS AT BEGINNING OF YEAR 2,740,394 17,307,546 29,606,832 49,654,772 NET ASSETS AT END OF YEAR ( $ 1,493,569) $ 18,738,847 $ 34,823,174 $ 52,068,452 The accompanying notes are an integral part of these financial statements. 4

7 STATEMENTS OF CASH FLOWS For the Year Ended June 30, CASH FLOWS FROM OPERATING ACTIVITIES Changes in net assets $ 4,012,798 $ 2,413,680 Adjustments to reconcile changes in net assets to net cash from operating activities: Contributions of investments ( 288,860) ( 235,963) Reinvested investment income ( 480,329) Contributions restricted for long-term investments ( 2,001,677) ( 5,248,904) Change in discount on contributions receivable ( 544,141) 505,732 Change in allowance for doubtful pledges 7,588 39,965 Noncash change in split-interest agreements ( 6,368) 53,077 Realized loss on sale of contributed investments 1, Unrealized (gain) loss on investments ( 1,478,263) 3,630,770 Net (increase) decrease in: Contributions receivable 1,166,923 ( 248,866) Accounts receivable ( 13,213) 2,046 Prepaid expenses ( 1,737) 6,806 Other assets and receivables ( 15,894) 6,606 Net increase (decrease) in: Accounts payable and accrued liabilities ( 476,132) 610,108 Net Cash Provided By (Used In) Operating Activities ( 118,288) 1,535,648 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments ( 3,734,093) ( 15,635,931) Proceeds from sale of investments 7,662,249 Proceeds from sale of contributed investments 287, ,372 Change in short-term investments 1,431,410 ( 1,431,410) Proceeds from split-interest agreements 125,518 Net Cash Provided By (Used In) Investing Activities 5,772,927 ( 16,831,969) CASH FLOWS FROM FINANCING ACTIVITIES Contributions restricted for long-term investments 2,001,677 5,248,904 Net Cash Provided By Financing Activities 2,001,677 5,248,904 NET CHANGE IN CASH AND CASH EQUIVALENTS 7,656,316 ( 10,047,417) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,913,215 12,960,632 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 10,569,531 $ 2,913,215 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for: Income taxes None None Interest None None The accompanying notes are an integral part of these financial statements. 5

8 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 1 Nature of Activities and Significant Accounting Policies Nature of Activities The Cal State Fullerton Philanthropic Foundation (the Foundation), formerly known as the University Advancement Foundation, is a nonprofit organization serving as an auxiliary to California State University, Fullerton (the University). The mission of the Foundation is to actively promote, pursue and steward private support, mainly in Southern California, for the advancement of the University. Financial Statement Presentation In June 2009, the Financial Accounting Standards Board (FASB) established the Accounting Standards Codification (Codification or ASC) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with US Generally Accepted Accounting Principles (GAAP). Existing GAAP is not intended to be changed as a result of the Codification and, accordingly, the change did not impact the Foundation s financial statements. The ASC does change the way the guidance is organized and presented. The Foundation is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. Contributions Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted 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. Contributions 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. When a donor s stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Donorrestricted contributions whose restrictions are met in the same reporting period are reported as unrestricted support. Permanently restricted contributions and net assets have restrictions stipulated by the donor that the corpus be invested in perpetuity and only income be made available for operations. 6

9 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 1 Nature of Activities and Significant Accounting Policies (Continued) Use of Estimates and Assumptions Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets, liabilities, and net assets, the disclosure of contingent assets, liabilities, and net assets and the reported revenues and support and expenses. Actual results can vary from the estimates that were assumed in preparing the financial statements. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions. Cash and Cash Equivalents For purposes of the statements of cash flows, the Foundation considers all highly liquid, short-term investments purchased with an original maturity of three months or less to be cash equivalents. As of June 30, 2010 and at times throughout the year, the Foundation has maintained cash balances at its financial institutions in excess of federally insured limits. Given the current economic environment and risks in the banking industry, there is a risk that these deposits may not be readily available or covered by insurance. Included in cash and cash equivalents at June 30, 2010 and 2009 is $1,532,369 and $250,573, respectively, restricted for endowment purposes. Investments The Foundation manages a significant number of individual endowment fund accounts. The purpose of the endowment fund is to ensure that the original contribution is held in perpetuity, its value grows consistent with inflation, and that a portion of the investment income is used for scholarships or other University support. The Foundation pools all of the endowment funds for investment purposes and annually sets a percentage of endowment investment income that may be spent on scholarships and other University support. Substantially all investments are directed toward funds managed by the Commonfund, or in certificates of deposit. Investments in marketable securities with readily determinable fair values and all investments in debt securities are valued at their fair value in the statements of financial position. Investments in the Commonfund, where the fair value is not readily determinable, are valued using third-party pricing sources and/or as determined by the pricing committee of the Commonfund. Unrealized gains and losses are included in the statements of activities. Investment income is allocated to unrestricted, temporarily restricted, and permanently restricted as stipulated by the individual agreements. 7

10 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 1 Nature of Activities and Significant Accounting Policies (Continued) Charitable Remainder Trusts The Foundation is the beneficiary of certain charitable remainder trusts held and administered by others. The present value of the estimated future cash receipts from the trusts are recognized as assets and contribution revenues at the dates the trusts are established. (See Note 6.) Distributions from the trusts are recorded as investment returns and the carrying value of the assets is adjusted for the changes in the estimates of future amounts. Charitable remainder trusts amount to approximately $468,000 and $587,000 on June 30, 2010 and 2009, respectively, and are included in contributions receivable in the statements of financial position. Promises to Give The two forms of pledges receivable are unconditional promises to give and conditional promises to give. Unconditional promises to give are recognized as receivables and as revenues in the period in which the Foundation is notified by the donor of his or her commitment to make a contribution. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Functional Allocation of Expenses The costs of providing the various programs and activities have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Fair Value Measurements On July 1, 2008, the Foundation adopted the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC Topic 820 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. ASC Topic 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements. (See Note 6.) 8

11 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 1 Nature of Activities and Significant Accounting Policies (Continued) Fair Value Measurements (Continued) The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment. On July 1, 2009, the Foundation was required to apply the provisions of ASC Topic 820 to fair value measurements of nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. Tax Status The Foundation is exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code and 23701(d) of the Revenue and Taxation Code, respectively. In addition, the Foundation has been determined by the Internal Revenue Service to be a public charity and not a private foundation. The Foundation recognizes the financial statement benefit of tax positions, such as its filing status as tax-exempt, only after determining that the relevant tax authority would more likely than not sustain the position following an audit. The Foundation is subject to potential income tax audits on open tax years by any taxing jurisdiction in which it operates. The statute of limitations for federal purposes is three years and for state purposes is generally three to four years. Subsequent Events The Foundation s management has evaluated subsequent events through September 28, 2010, the date the financial statements were available to be issued for the year ended June 30, 2010, and determined that there were no other items to disclose. 9

12 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 2 Investments Investments consists of the following: June 30, Government securities fund $ $ 2,366,349 Multi-strategy equity fund 11,723,780 9,358,807 Multi-strategy bond fund 7,384,310 5,335,417 Multi-strategy international equity fund 2,184,013 1,969,701 Certificates of deposit 7,115,015 11,122,226 Realty fund 341,207 Short-term common fund 1,431,410 Capital partners fund 262, ,357 Other 1,001 $ 28,669,501 $ 32,070,475 Of the investments, $22,154,487 and $18,410,586 are permanently restricted for endowment purposes as of June 30, 2010 and 2009, respectively. Investment income (loss), net, is comprised of the following amounts in the accompanying statements of activities: For the Year Ended June 30, Endowment investment income $ 503,138 $ 514,177 Less endowment investment expenses ( 59,453) ( 49,623) Net endowment investment income 443, ,554 Realized loss on sale of contributed investments ( 1,017) ( 591) Unrealized gain (loss) on endowments and other investments 1,478,263 ( 3,630,770) 1,920,931 ( 3,166,807) Short-term interest income 289, ,640 $ 2,210,882 ( $ 3,012,167) 10

13 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 3 Contributions Receivable Contributions receivable includes pledges and trusts that have been discounted at rates ranging from 4.23% to 5.05%. The following is a summary of the Foundation s contributions receivable classified by the expected date of collection: June 30, Receivable in less than one year $ 3,867,872 $ 3,469,822 Receivable in one to five years 10,211,013 9,895,986 Receivable in more than five years 4,800,000 6,680,000 18,878,885 20,045,808 Less discount to reflect present value ( 2,225,673) ( 2,769,814) Less allowance for doubtful pledges ( 89,620) ( 82,032) Net pledges receivable 16,563,592 17,193,962 Net charitable remainder trusts receivable 467, ,661 $ 17,031,103 $ 17,780,623 NOTE 4 Net Assets The following is a summary of the Foundation s temporarily and permanently restricted net assets: Temporarily Restricted Net Assets June 30, Time and performance restriction contributions receivable $ 4,143,704 $ 3,392,784 Scholarships and campus programs 14,156,162 14,672,818 Quasi/term endowments 1,228, ,245 Permanently Restricted Net Assets $ 19,528,280 $ 18,738,847 Receivable endowments $ 13,184,226 $ 14,679,349 Scholarships 13,024,888 11,734,266 Other University support 10,619,660 8,409,559 $ 36,828,774 $ 34,823,174 11

14 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 5 Related-Party Transactions The University processes certain transactions on behalf of the Foundation, which consist mainly of payroll-related and contract-service transactions. The Foundation reimburses the University for these transactions on a monthly basis. For the years ended June 30, 2010 and 2009, these reimbursements were $850,405 and $676,610, respectively. At June 30, 2010 and 2009, the Foundation had $157,623 and $767,138, respectively, payable to the University, which is included in accounts payable and accrued liabilities on the accompanying statements of financial position. At June 30, 2010 and 2009, the Foundation had $0 and $556, respectively, receivable from the University, which is included in accounts receivable on the accompanying statements of financial position. The Foundation receives payments from the University for various advancement activities that totaled $54,505 and $275,172, for the years ended June 30, 2010 and 2009, respectively. The Foundation purchases equipment for various campus program accounts and then transfers title to the University. For the years ended June 30, 2010 and 2009, these purchases were $181,130 and $126,296, respectively. NOTE 6 Fair Value Measurements As discussed in Note 1, the Foundation adopted the provisions for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC Topic 820 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 measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Foundation has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety. 12

15 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 6 Fair Value Measurements (Continued) The following is a description of valuation methodologies used for assets and liabilities recorded at fair value: Investments: The fair value of the investments is measured using significant other observable inputs. Contributions receivable from charitable remainder trusts: The fair value of the contributions receivable from charitable remainder trusts is estimated as the present value of the projected proceeds that will be received from the charitable remainder trust. Contributions receivable from promises to give: The fair value of the contributions receivable from promises to give is estimated as the present value of the projected proceeds that will be received from the promise to give. The following table presents assets that are measured at fair value on a recurring basis at June 30, 2010 and 2009: Fair Value Measurements at Reporting Date Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets at Assets Inputs Inputs June 30, 2010: Fair Value (Level 1) (Level 2) (Level 3) Investments (see Note 2) $ 28,669,501 $ 28,669,501 Contributions receivable from charitable remainder trusts 467,511 $ 467,511 Cash and cash equivalents 10,569,531 $ 10,569,531 $ 39,706,543 $ 10,569,531 $ 28,669,501 $ 467,511 13

16 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 6 Fair Value Measurements (Continued) Fair Value Measurements at Reporting Date Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets at Assets Inputs Inputs June 30, 2009: Fair Value (Level 1) (Level 2) (Level 3) Investments (see Note 2) $ 32,070,475 $ 32,070,475 Contributions receivable from charitable remainder trusts 586,661 $ 586,661 Cash and cash equivalents 2,913,215 $ 2,150, ,215 $ 35,570,351 $ 2,150,000 $ 32,833,690 $ 586,661 The following table presents assets that are measured at fair value on a nonrecurring basis at June 30, 2010 and 2009: Fair Value Measurements at Reporting Date Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets at Assets Inputs Inputs June 30, 2010: Fair Value (Level 1) (Level 2) (Level 3) Contributions receivable from promises to give $ 1,797,176 $ 1,797,176 $ 1,797,176 None None $ 1,797,176 14

17 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 6 Fair Value Measurements (Continued) Fair Value Measurements at Reporting Date Using Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets at Assets Inputs Inputs June 30, 2009: Fair Value (Level 1) (Level 2) (Level 3) Contributions receivable from promises to give $ 4,695,773 $ 4,695,773 $ 4,695,773 None None $ 4,695,773 As of June 30, 2010 and 2009, the Foundation has no liabilities measured at fair value. ASC Topic 820 requires a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period. For the Level 3 assets, the reconciliation is as follows: Contributions Receivable From Charitable Remainder Trusts Balance at July 1, 2008 $ 639,738 Change in value ( 53,077) Balance at June 30, ,661 Realization of Trust proceeds ( 125,518) Change in value 6,368 Balance at June 30, 2010 $ 467,511 15

18 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 7 Endowments The Foundation s endowments consist of individual donor-designated funds established for the purpose of supporting education. Net assets associated with the endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Through December 31, 2008, the Foundation s management and investment of donor-restricted endowment funds was subject to the provisions of the Uniform Management of Institutional Funds Act (UMIFA). In 2006, the Uniform Law Commission approved the model act, Uniform Prudent Management of Institutional Funds Act (UPMIFA) that serves as a guideline to states to use in enacting legislation. Among UPMIFA s most significant changes is the elimination of UMIFA s concept of historic dollar value threshold, the amount below which an organization could not spend from a donor-designated endowment fund, in favor of a more robust set of guidelines about what constitutes prudent spending. Effective January 1, 2009, the state of California has enacted UPMIFA, the provisions of which apply to endowment funds existing on or established after that date. The Foundation has interpreted the California Uniform Prudent Management of Institutional Funds Act as requiring the preservation of the fair value of the original gift as of the gift date of the donorrestricted endowment fund, 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 the 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 Foundation. In accordance with UPMIFA, the Foundation considers the following factors in making a determination to appropriate or accumulate donorrestricted endowment funds: (1) The duration and preservation of the endowment fund (2) The purposes of the institution and the endowment fund (3) General economic conditions (4) The expected total return from income and the appreciation of investments (5) Other resources of the institution (6) The investment policy of the institution The Finance and Investment Committee of the Board of Governors is charged with the responsibility of managing the investment of endowment assets for the Foundation. The objective in management of these funds is to achieve an average annual rate of return, over a period of five years, of the S&P 500 Index plus 1% for the aggregate equity investments, and the Lehman Intermediate Bond Index plus 0.5% for the aggregate fixed income investments. 16

19 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 7 Endowments (Continued) The Finance and Investment Committee of the Board of Governors adheres to modern portfolio theory, which has, as its basis, risk reduction through diversification. Diversification is obtained through the use of multiple asset classes, as well as multiple investments within these asset classes. Asset classes that may be used include (but are not limited to) domestic and international corporate stocks and bonds, hedge funds, and government-issued debt securities. The investment strategy is implemented through the selection of external advisors and managers with the expertise and successful histories in the management of specific asset classes. The Foundation s investment policy stipulates that the Board of Governors will distribute earnings on an annual basis to further the purposes of the individual donor-designated funds. The intent of this policy is to provide a stable spending distribution policy to allow university departments to effectively manage programs funded by endowment funds, while maintaining the purchasing power of the endowment funds assets. For the fiscal year ended June 30, 2008, the Foundation s Board of Governors approved an earnings distribution equal to 1.50% of the endowment funds market value over a rolling threeyear average. The total amount was distributed during the year ended June 30, 2009 in the amount of $279,783. For the fiscal year ended June 30, 2009, the Foundation s Board of Governors approved an earnings distribution equal to 1.29% of the endowment funds market value over a rolling threeyear average. The total amount distributed during the year ended June 30, 2010 was $210,894. For the fiscal year ended June 30, 2010, the Foundation s Board of Governors has approved an earnings distribution equal to 3.00% of the endowment funds market value over a rolling five-year average. The total amount to be distributed subsequent to June 30, 2010 was $686,

20 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 7 Endowments (Continued) Net changes in endowment funds for the year ended June 30, 2010 were as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year ( $ 2,155,910) $ 673,245 $ 34,823,174 $ 33,340,509 Investment return: Investment income 443, ,685 Net appreciation (realized and unrealized) 737, ,967 1,174,979 Total investment return 1,180, ,967 1,618,664 Contributions 101,833 2,001,677 2,103,510 Change in value of charitable remainder trusts receivable 1,788 1,788 Other income 15,369 2,135 17,504 Appropriated for expenditure ( 210,894) ( 210,894) Endowment net assets, end of year ( $ 1,186,107) $ 1,228,414 $ 36,828,774 $ 36,871,081 Net changes in endowment funds for the year ended June 30, 2009 were as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 1,670,238 $ 492,371 $ 29,606,832 $ 31,769,441 Investment return: Investment income 459,854 4, ,554 Net depreciation (realized and unrealized) ( 4,006,219) 138,852 ( 3,867,367) Total investment return ( 3,546,365) 138,852 4,700 ( 3,402,813) Contributions 27,120 5,248,904 5,276,024 Change in value of charitable remainder trusts receivable ( 38,391) ( 38,391) Other income 14,902 1,129 16,031 Appropriated for expenditure ( 279,783) ( 279,783) Endowment net assets, end of year ( $ 2,155,910) $ 673,245 $ 34,823,174 $ 33,340,509 18

21 NOTES TO THE FINANCIAL STATEMENTS JUNE 30, 2010 AND 2009 NOTE 7 Endowments (Continued) Included in the Endowment net assets are contributions receivable restricted to the endowment of $13,184,226 and $14,679,349 as of June 30, 2010 and 2009, respectively. 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 UPMIFA requires the Foundation to retain as a fund of perpetual duration. Deficiencies of this nature, which were reported in unrestricted net assets, were $1,186,107 and $2,155,910 as of June 30, 2010 and 2009, respectively, which resulted in a deficit in unrestricted net assets. These deficiencies resulted from unfavorable market fluctuations that occurred after the investment of permanently restricted contributions and continued appropriations for certain programs that were deemed prudent by the Foundation. As of June 30, 2010 and 2009, there are no Board-designated endowment funds. 19

22 SUPPLEMENTARY FINANCIAL INFORMATION

23 SUPPLEMENTARY FINANCIAL INFORMATION SCHEDULE OF NET ASSETS JUNE 30, 2010 ASSETS CURRENT ASSETS Cash and cash equivalents $ 10,569,531 Short-term investments 3,515,014 Accounts receivable, net 0 Leases receivable, current portion 0 Notes receivable, current portion 0 Pledges receivable, net 3,867,872 Prepaid expenses and other assets 250,688 Total Current Assets 18,203,105 NONCURRENT ASSETS Restricted cash and cash equivalents 0 Accounts receivable, net 0 Leases receivable, net of current portion 0 Notes receivable, net of current portion 0 Student loans receivable, net 0 Pledges receivable, net 13,163,231 Endowment investments 22,154,487 Other long-term investments 3,000,000 Capital assets, net 0 Other assets 18,165 Total Noncurrent Assets 38,335,883 TOTAL ASSETS 56,538,988 LIABILITIES CURRENT LIABILITIES Accounts payable 457,738 Accrued salaries and benefits payable 0 Accrued compensated absences current portion 0 Deferred revenue 0 Capitalized lease obligations current portion 0 Long-term debt obligations current portion 0 Self-insurance claims liability current portion 0 Depository accounts 0 Other liabilities 0 Total Current Liabilities 457,738 NONCURRENT LIABILITIES Accrued compensated absences, net of current portion 0 Deferred revenue 0 Grants refundable 0 Capitalized lease obligations, net of current portion 0 Long-term debt obligations, net of current portion 0 Self-insurance claims liabilities, net of current portion 0 Depository accounts 0 Other postemployment benefits obligation 0 Other liabilities 0 Total Noncurrent Liabilities 0 TOTAL LIABILITIES 457,738 See Independent Auditors Report 20

24 SUPPLEMENTARY FINANCIAL INFORMATION SCHEDULE OF NET ASSETS JUNE 30, 2010 (Continued) NET ASSETS Invested in capital assets, net of related debt 0 Restricted for: Nonexpendable endowments 36,828,774 Expendable: Scholarships and fellowships 3,155,593 Research 0 Loans 0 Capital projects 0 Debt service 0 Other 16,372,687 Unrestricted ( 275,804) TOTAL NET ASSETS $ 56,081,250 See Independent Auditors Report 21

25 REVENUES CAL STATE FULLERTON PHILANTHROPIC FOUNDATION SUPPLEMENTARY FINANCIAL INFORMATION SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS FOR THE YEAR ENDED JUNE 30, 2010 OPERATING REVENUES Student tuition and fees (net of scholarship allowances of $0) $ 0 Grants and contracts, noncapital: Federal 0 State 0 Local 0 Nongovernmental 0 Sales and services of educational activities 0 Sales and services of auxiliary enterprises (net of scholarship allowances of $0) 0 Other operating revenues 926,592 Total Operating Revenues 926,592 EXPENSES OPERATING EXPENSES Instruction 1,687,356 Research 126,791 Public service 160,632 Academic support 338,558 Student services 1,235,215 Institutional support 2,291,148 Operation and maintenance of plant 0 Student grants and scholarships 1,658,267 Auxiliary enterprise expenses 278,598 Depreciation and amortization 0 Total Operating Expenses 7,776,565 OPERATING INCOME (LOSS) ( 6,849,973) NONOPERATING REVENUES (EXPENSES) State appropriations, noncapital 0 Federal financial aid grants, noncapital 0 State financial aid grants, noncapital 0 Local financial aid grants, noncapital 0 Nongovernmental and other financial aid grants, noncapital 0 Other federal nonoperating grants, noncapital 0 Gifts, noncapital 6,646,289 Investment income (loss), net 2,210,882 Endowment income (loss) net 2,029 Interest expenses 0 Other nonoperating revenues (expenses) 0 Net Nonoperating Revenues (Expenses) 8,859,200 See Independent Auditors Report 22

26 SUPPLEMENTARY FINANCIAL INFORMATION SCHEDULE OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS FOR THE YEAR ENDED JUNE 30, 2010 (Continued) INCOME (LOSS) BEFORE OTHER ADDITIONS 2,009,227 STATE APPROPRIATIONS, capital 0 GRANTS AND GIFTS, capital 0 ADDITIONS (REDUCTIONS) TO PERMANENT ENDOWMENTS 2,003,571 INCREASE (DECREASE) IN NET ASSETS 4,012,798 NET ASSETS NET ASSETS AT BEGINNING OF YEAR, as previously reported 52,068,452 RESTATEMENTS 0 NET ASSETS AT BEGINNING OF YEAR, as restated 52,068,452 NET ASSETS AT END OF YEAR $ 56,081,250 See Independent Auditors Report 23

27 SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION 1. RESTRICTED CASH AND CASH EQUIVALENTS AT JUNE 30, 2010: Portion of restricted cash and cash equivalents related to endowments $ 1,532,369 All other restricted cash and cash equivalents 0 Total restricted cash and cash equivalents $ 1,532, COMPOSITION OF INVESTMENTS AT JUNE 30, 2010: Current Current Total Noncurrent Noncurrent Total Unrestricted Restricted Current Unrestricted Restricted Noncurrent Total State of California Surplus Money Investment Fund (SMIF) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 State of California Local Agency Investment Fund (LAIF) 0 Wachovia Short Term Fund 0 Wachovia Medium Term Fund 0 Wachovia Equity Fund 0 US Bank SWIFT pool 0 Common Fund - Short Term Fund 0 Common Fund Others ,554,487 21,554,487 21,554,487 Debt securities 0 Equity securities 0 0 Fixed income securities (Treasury notes, GNMA's) 0 Land and other real estate 0 Certificates of deposit 3,515, ,000 4,115,014 3,000, ,000,000 7,115,014 Notes receivable 0 Mutual funds 0 Money Market funds 0 Collateralized mortgage obligations: Inverse floaters 0 Interest-only strips 0 Agency pass-through 0 Private pass-through 0 Other major investments: 0 Total investments 3,515, ,000 4,115,014 3,000,000 21,554,487 24,554,487 28,669,501 Less endowment investments 0 ( 600,000) ( 600,000) 0 ( 21,554,487) ( 21,554,487) ( 22,154,487) Total investments $ 3,515,014 $ 0 $ 3,515,014 $ 3,000,000 $ 0 $ 3,000,000 $ 6,515, INVESTMENTS HELD BY THE UNIVERSITY UNDER CONTRACTUAL AGREEMENTS AT JUNE 30, 2010: Portion of investments in Note 2.1 held by the University under contractual agreements at June 30, 2010 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 See Independent Auditors Report 24

28 SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION (Continued) 2.3 RESTRICTED CURRENT INVESTMENTS AT JUNE 30, 2010 RELATED TO: Amount Citizens Business Bank CDARS $ 600, Total restricted current investments at June 30, 2010 $ 600, RESTRICTED NONCURRENT INVESTMENTS AT JUNE 30, 2010 RELATED TO: Amount Endowment investment $ 21,554, Total restricted noncurrent investments at June 30, 2010 $ 21,554,487 See Independent Auditors Report 25

29 SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION (Continued) 3.1 COMPOSITION OF CAPITAL ASSETS AT JUNE 30, 2010: Balance Balance Prior Period Reclassi- June 30, 2009 June 30, 2009 Adjustments fications (Restated) Additions Nondepreciable capital assets Land and land improvements $ 0 $ 0 $ 0 $ 0 $ 0 Works of art and historical treasures 0 0 Construction work in progress (CWIP) 0 0 Intangible assets 0 0 Total nondepreciable capital assets $ 0 $ 0 $ 0 $ 0 $ 0 Depreciable capital assets Buildings and building improvements $ 0 $ 0 $ 0 $ 0 $ 0 Improvements, other than buildings 0 0 Infrastructure 0 0 Leasehold improvements 0 0 Personal property: Equipment 0 0 Library books and materials 0 0 Intangible assets 0 0 Total depreciable capital assets 0 0 Total capital assets $ 0 $ 0 $ 0 $ 0 $ 0 Less accumulated depreciation Buildings and building improvements $ 0 $ 0 $ 0 $ 0 $ 0 Improvements, other than buildings 0 0 Infrastructure 0 0 Leasehold improvements 0 0 Personal property: Equipment 0 0 Library books and materials 0 0 Intangible assets 0 0 Total accumulated depreciation 0 0 Total capital assets, net $ 0 $ 0 $ 0 $ 0 $ 0 See Independent Auditors Report 26

30 Transfers of Completed Balance Reductions CWIP June 30, 2010 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

31 SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION (Continued) 3.2 DETAIL OF DEPRECIATION AND AMORTIZATION EXPENSE FOR THE YEAR ENDED JUNE 30, 2010: Depreciation and amortization expense related to capital assets $ 0 Amortization expense related to other assets 0 Total depreciation and amortization $ DETAIL OF INTANGIBLE ASSETS AS OF JUNE 30, 2010: Accumulated Nonamortizable Amortizable Amortization Easements $ 0 $ 0 $ 0 Rights Website s Computer software Licenses and permits Patents Copyrights Trademarks Others Total Intangible Assets $ 0 $ 0 $ 0 See Independent Auditors Report 27

32 4. LONG-TERM LIABILITIES ACTIVITY SCHEDULE: SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION (Continued) Balance Balance Prior Period Reclassi- June 30, 2009 June 30, 2009 Adjustments fications (Restated) Additions Reductions Accrued compensated absences $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Capitalized lease obligations: Gross balance Unamortized premium/(discount) on capitalized lease obligations Total capitalized lease obligations Long-term debt obligations: Revenue Bonds Other bonds (non-revenue Bonds) Commercial Paper Other: Total long-term debt obligations Unamortized bond premium/(discount) Unamortized loss on refunding Total long-term debt obligations, net Total long-term liabilities $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 See Independent Auditors Report 28

33 Balance Current Long-term June 30, 2010 Portion Portion $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

34 SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION (Continued) 5. FUTURE MINIMUM LEASE PAYMENTS CAPITAL LEASE OBLIGATIONS: Year Ending Principal and June 30, Principal Interest Interest 2011 $ 0 $ 0 $ Total minimum lease payments 0 Less amounts representing interest 0 Present value of future minimum lease payments 0 Less: current portion 0 Capitalized lease obligation, net of current portion $ 0 See Independent Auditors Report 29

35 6. LONG-TERM DEBT OBLIGATION SCHEDULE: SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION (Continued) Year ending June 30, All Other Long-Term Revenue Bonds Debt Obligations Principal Principal Principal Interest and Interest Principal Interest and Interest 2011 $ 0 $ 0 $ 0 $ 0 $ 0 $ Total $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 See Independent Auditors Report 30

36 Total Principal Principal Interest and Interest $ 0 $ 0 $ 0 $ 0 $ 0 $ 0

37 7. CALCULATION OF NET ASSETS: SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION (Continued) 7.1 CALCULATION OF NET ASSETS INVESTED IN CAPITAL ASSETS, NET OF RELATED DEBT Auxiliary Organizations Total GASB FASB Auxiliaries Capital assets, net of accumulated depreciation $ 0 $ 0 $ 0 Capitalized lease obligations current portion Capitalized lease obligations, net of current portion Long-term debt obligations current portion Long-term debt obligations, net of current portion Portion of outstanding debt that is unspent at year-end Other adjustments: Net assets invested in capital assets, net of related debt $ 0 $ 0 $ CALCULATION OF NET ASSETS RESTRICTED FOR NONEXPENDABLE - ENDOWMENTS Portion of restricted cash and cash equivalents related to endowments $ 0 $ 1,532,369 $ 1,532,369 Endowment investments 0 22,154,487 22,154,487 Other adjustments: 0 Pledges receivable 0 13,014,960 13,014,960 Other receivables 0 169, ,266 Quasi-endowments reclassified to restricted other 0 ( 642,192) ( 642,192) Accumulated losses reclassified to unrestricted 0 1,167,312 1,167,312 Accumulated gains reclassified to temporarily restricted 0 ( 567,428) ( 567,428) Accumulated gains reclassified to temporarily restricted Net assets restricted for nonexpendable endowments per SNA $ 0 $ 36,828,774 $ 36,828,774 See Independent Auditors Report 31

38 SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION (Continued) 8. TRANSACTIONS WITH RELATED ENTITIES Amount Payments to University for salaries of University personnel working on contracts, grants, and other programs $ 724,894 Payments to University for other than salaries of University personnel $ 1,855,290 Payments received from University for services, space, and programs $ 54,505 Gifts-in-kind to the University from Auxiliary Organizations $ 181,130 Gifts (cash or assets) to the University from recognized Auxiliary Organizations $ 0 Accounts (payable to) University ( $ 114,867) Other amounts (payable to) University ( $ 42,756) Accounts receivable from University $ 0 Other amounts receivable from University $ 0 9. OTHER POSTEMPLOYMENT BENEFITS OBLIGATION (OPEB): Annual required contribution (ARC) $ 0 Contributions during the year 0 Increase (decrease) in net OPEB obligation (NOO) 0 NOO - beginning of year 0 NOO - end of year $ POLLUTION REMEDIATION LIABILITIES UNDER GASB STATEMENT NO. 49: Description Amount $ 0 Total pollution remediation liabilities 0 Less: current portion 0 Pollution remediation liabilities, net of current portion $ 0 See Independent Auditors Report 32

39 SUPPLEMENTARY FINANCIAL INFORMATION OTHER INFORMATION (Continued) 11. THE NATURE AND AMOUNT OF THE PRIOR PERIOD ADJUSTMENT(S) RECORDED TO BEGINNING NET ASSETS Net Asset Class Amount Net assets as of June 30, 2009, as previously reported $ 52,068,452 Prior period adjustments: 0 Net assets as of June 30, 2009, as restated $ 52,068,452 PROVIDE A DETAILED BREAKDOWN OF THE JOURNAL ENTRIES BOOKED TO RECORD EACH PRIOR PERIOD ADJUSTMENT: Debit Credit Net asset class: 1) (breakdown of adjusting journal entry) $ 0 $ 0 Net asset class: 2) (breakdown of adjusting journal entry) $ 0 $ 0 Net asset class: 3) (breakdown of adjusting journal entry) $ 0 $ 0 See Independent Auditors Report 33