THE GENESEO FOUNDATION, INC. GENESEO, NEW YORK AUDITED ... · INDEPENDENT AUDITORS’ REPORT Board of Directors The Geneseo Foundation, Inc. We have audited the accompanying consolidated

THE GENESEO FOUNDATION, INC.

GENESEO, NEW YORK

AUDITED CONSOLIDATED FINANCIAL STATEMENTS

AND

INDEPENDENT AUDITORS’ REPORT

JUNE 30, 2012

(With Comparative Totals for June 30, 2011)

CONTENTS AUDITED CONSOLIDATED FINANCIAL STATEMENTS PAGE Independent Auditors' Report 3 Consolidated Statement of Financial Position 4 Consolidated Statement of Activities and Changes in Net Assets 5 Consolidated Statement of Functional Expenses 6 Consolidated Statement of Cash Flows 7 Notes to Consolidated Financial Statements 8

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INDEPENDENT AUDITORS’ REPORT Board of Directors The Geneseo Foundation, Inc. We have audited the accompanying consolidated statement of financial position of The Geneseo Foundation, Inc. (the “Foundation”) as of June 30, 2012, and the related consolidated statements of activities and changes in net assets, functional expenses and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Foundation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The prior year summarized comparative information has been derived from the Foundation’s 2011 financial statements and, our report dated November 18, 2011, expressed an unqualified opinion on those 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 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Geneseo Foundation, Inc. as of June 30, 2012, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Rochester, New York October 26, 2012

ASSETS 2012 2011

Cash and cash equivalents 567,746$ 588,506$ Pledges receivable 3,230,496 2,511,296 Due from Campus Auxiliary Services 182,116 125,083 Other receivables and loans 51,376 24,825 Prepaid expenses 3,460 38,813 Investments 18,156,308 15,552,007 Capital assets and investment real estate 848,157 870,626 Cash value of life insurance and other assets 30,974 29,913 Capital assets for college 51,425 28,562 Art collection 807,955 806,787

TOTAL ASSETS 23,930,013$ 20,576,418$

LIABILITIES AND NET ASSETS

LIABILITIES Accounts payable and accrued expenses 83,660$ 56,974$ Due to the Alumni Association of the State University College at Geneseo, Inc. 446 533 Funds held in custody for others 40,241 40,241 Annuity and life income obligations 295,904 310,094

TOTAL LIABILITIES 420,251 407,842

NET ASSETS Unrestricted 3,491,369 3,146,085 Temporarily restricted 5,694,081 5,578,345 Permanently restricted 14,324,312 11,444,146

TOTAL NET ASSETS 23,509,762 20,168,576

TOTAL LIABILITIES AND NET ASSETS 23,930,013$ 20,576,418$

The accompanying notes are an integral part of the consolidated financial statements.

June 30,


JUNE 30, 2012(With Comparative Totals for 2011)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

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2011Temporarily Permanently

Unrestricted restricted restricted Total Total

Revenues: Gifts and pledge support 561,296$ 1,315,909$ 2,895,388$ 4,772,593$ 2,910,387$ Grants and government contracts - 50,903 - 50,903 44,483 Contributed services from College 2,190,231 - - 2,190,231 2,943,631 Donations from Campus Auxiliary Services, Inc. 485,220 - - 485,220 - Investment income (net of fees of $61,064 and $56,164, respectively) 47,283 272,412 - 319,695 281,904 Unrealized and realized (loss) gain on investments (11,333) (134,106) (15,222) (160,661) 2,173,085 College activity income 183 315,322 - 315,505 323,958 Net assets released from restrictions 1,702,032 (1,702,032) - - -

TOTAL REVENUES 4,974,912 118,408 2,880,166 7,973,486 8,677,448

Expenses: Scholarship and grant program 838,941 - - 838,941 782,137 College related activities 1,156,836 - - 1,156,836 1,115,664 General administration 897,066 - - 897,066 843,510 Fund raising 1,699,990 - - 1,699,990 1,800,022

TOTAL EXPENSES 4,592,833 - - 4,592,833 4,541,333 Change in split-interest agreements (36,795) (2,672) - (39,467) 20,837

CHANGE IN NET ASSETS 345,284 115,736 2,880,166 3,341,186 4,156,952

Net assets at beginning of year 3,146,085 5,578,345 11,444,146 20,168,576 16,011,624

NET ASSETS AT END OF YEAR 3,491,369$ 5,694,081$ 14,324,312$ 23,509,762$ 20,168,576$


2012


YEAR ENDED JUNE 30, 2012(With Comparative Totals for 2011)

CONSOLIDATED STATEMENT OF ACTIVITIES AND CHANGES IN NET ASSETS

Year ended June 30,

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2011Scholarship College Totaland Grant Related Program GeneralProgram Activities Services Administration Fundraising Total Total

Scholarships and prizes 491,846$ -$ 491,846$ -$ -$ 491,846$ 477,968$ Grants and awards 300,424 - 300,424 - - 300,424 278,991 College activities 13,437 191,303 204,740 36,613 128,145 369,498 496,745 Direct contributions to College - 30,669 30,669 - - 30,669 83,891 Compensation - 193,245 193,245 355,874 823,143 1,372,262 1,378,767 Payroll taxes - 14,807 14,807 28,952 63,043 106,802 107,136 Employee benefits - 62,908 62,908 136,950 326,182 526,040 539,027 Accounting and legal - - - 19,246 - 19,246 18,450 Conferences, conventions and meetings 30,297 283,292 313,589 13,379 44,897 371,865 362,269 Depreciation - 22,469 22,469 - - 22,469 22,469 Development assistants - - - 9,114 82,021 91,135 99,869 Equipment use - 2,681 2,681 10,723 12,236 25,640 25,359 Membership fees - 37,353 37,353 - - 37,353 31,125 Miscellaneous - 5,214 5,214 36,604 10,795 52,613 40,612 Occupancy - 1,987 1,987 4,389 13,134 19,510 18,564 Postage and shipping - 25,958 25,958 28,770 100,628 155,356 152,456 Printing and publications 107 61,217 61,324 26,490 92,713 180,527 105,416 Stewardship, college and community relations 967 113,869 114,836 188,292 - 303,128 109,605 Supplies 1,863 107,929 109,792 1,670 3,053 114,515 175,965 Telephone - 1,935 1,935 - - 1,935 16,649

838,941$ 1,156,836$ 1,995,777$ 897,066$ 1,699,990$ 4,592,833$ 4,541,333$


2012

CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES


YEAR ENDED JUNE 30, 2012(With Comparative Totals for 2011)

Year ended June 30,

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2012 2011CASH FLOWS - OPERATING ACTIVITIES Change in net assets 3,341,186$ 4,156,952$ Adjustments to reconcile change in net assets to net cash (used for) provided from operating activities: Depreciation 22,469 22,469 Capital assets transferred to College 27,848 50,507 Unrealized and realized loss (gain) on investments 160,661 (2,173,085) Contributions restricted for endowment (2,895,388) (935,017) Changes in certain operating assets and liabilities: Pledges receivable (719,200) (618,257) Due from Campus Auxiliary Services (57,033) (10,168) Other receivables and loans (26,551) (9,241) Prepaid expenses 35,353 (38,813) Cash value of life insurance and other assets (1,061) (1,624) Accounts payable and accrued expenses 26,686 20,711 Due to the Alumni Association of the State University College at Geneseo, Inc. (87) (62,360) Funds held in custody for others - (5,512) Annuity and life income obligations (14,190) (55,991)

NET CASH (USED FOR) PROVIDED FROM OPERATING ACTIVITIES (99,307) 340,571

CASH FLOWS - INVESTING ACTIVITIES Proceeds from sale of investments 134,709 127,804 Purchase of investments (2,899,671) (1,061,095) Purchase of capital assets for college (50,711) (27,848) Purchases for art collection (1,168) (2,350) Proceeds from contributions restricted for endowment 2,895,388 935,017

NET CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES 78,547 (28,472)

NET (DECREASE) INCREASE IN CASH

AND CASH EQUIVALENTS (20,760) 312,099

Cash and cash equivalents at beginning of year 588,506 276,407

CASH AND CASH EQUIVALENTS AT END OF YEAR 567,746$ 588,506$


Year ended June 30,


(With Comparative Totals for 2011)YEAR ENDED JUNE 30, 2012

CONSOLIDATED STATEMENT OF CASH FLOWS

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2012 (With Comparative Totals for 2011)

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NOTE A: THE ORGANIZATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Organizations The Geneseo Foundation, Inc. (the “Foundation”) was established in 1971 as a not-for-profit corporation to receive and administer various funds to promote and encourage education at the State University of New York College at Geneseo (the “College”). Effective July 14, 2006, Genfou Properties, LLC was formed, which is a single member limited liability company, of which The Geneseo Foundation, Inc. is the sole member. Genfou Properties, LLC was formed to hold and manage certain real estate previously owned by the Foundation.

The Foundation serves as the primary fundraising agent to SUNY Geneseo and as a repository for private gifts to benefit the College.

The Foundation maintains restricted accounts for most College departments into which certain activity revenues are deposited along with restricted private gifts. The Foundation furnishes administrative and oversight services related to the accounts. College departmental account expenditures must be used for activities which benefit faculty and students in the department and enrich the learning environment.

Principles of consolidation The accompanying consolidated financial statements include the accounts of The Geneseo Foundation, Inc. and its wholly-owned subsidiary, Genfou Properties, LLC (hereinafter referred to as the “Foundation”). All material intercompany balances and transactions have been eliminated in consolidation.

Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, and losses for the year then ended. Actual results could differ from those estimates.

Financial statement presentation The Foundation is required to report 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.

Unrestricted Net Assets: Represents all resources over which the Governing Board has discretionary control to use in carrying on the Foundation’s operations in accordance with the guidelines established for the Foundation. At June 30, 2012 and 2011, the Board has set aside approximately $1,255,000 and $1,258,000, respectively, for investment with the intention that only the income and gains generated from these assets will be used to support the operations of the Foundation.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Cont’d


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NOTE A: THE ORGANIZATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Cont’d

Temporarily Restricted Net Assets: Represents gifts of cash and other assets received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying statement of activities and changes in net assets as net assets released from restrictions. The Foundation’s policy is to imply a time restriction on long-lived assets that expires over the useful life of the donated assets. Temporarily restricted net assets are comprised principally of reserves that must be expended to support scholarships, grants and college related activities.

Permanently Restricted Net Assets: Results from donors who stipulate that their donated resources be maintained permanently. The Foundation is permitted to use up or expend part or all of the income derived from the donated assets, restricted only by the donors’ wishes. Donor restrictions placed on the use of income derived from permanently restricted net assets principally relate to the use of the income to support specific scholarships or college related activities.

Cash and cash equivalents The Foundation considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Foundation maintains cash balances at financial institutions located in upstate New York. Cash and certain money market account balances are insured by the Federal Deposit Insurance Corporation up to $250,000 at each institution. In addition, in accordance with the Federal Deposit Insurance Corporation’s Temporary Liquidity Program, certain non-interest bearing transaction accounts at the financial institutions are 100% insured through December 31, 2012. In the normal course of business, the interest bearing account balances may exceed insured limits. However, the Foundation has not experienced any losses in such accounts and management believes it is not exposed to any significant risk in cash.

Investments and investment income Investments are stated at fair value. Depreciation and appreciation are reported in the period in which they occur. The fair value of all debt and equity securities with a readily determinable fair value are based on quotations obtained from national securities exchanges. The alternative investments, which are not readily marketable, are carried at estimated fair values as provided by the investment managers. The Foundation reviews and evaluates the values provided by the investment managers and agrees with the valuation methods and assumptions used in determining the fair value of the alternative investments. Those estimated fair values may differ significantly from the values that would have been used had a ready market for these securities existed.

New York State law permits the use of gains on investments of permanently restricted net assets unless the donor stipulates that all or a portion of such gains be maintained in perpetuity. Accordingly, such realized and unrealized gains and losses, as well as gains and losses on temporarily restricted and unrestricted net assets, are reported as restricted or unrestricted, based on the presence or absence of donor stipulations as to their use.




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Real estate and related property is recorded at fair market value determined on the date of donation. Purchased real estate is recorded at cost.

Investments of unrestricted and restricted funds are pooled, except for certain funds that donors or the Board of Directors have designated to be segregated and maintained separately.

Contributions The Foundation records a contribution when a donor makes an unconditional promise to give to the Foundation.

Pledges receivable Pledges receivable represent unconditional promises to give. Those that are expected to be collected within one year are recorded at their realizable value. Those that are to be collected in future years are recorded at the present value of estimated future collections. Discounts on those amounts are computed using an interest rate applicable to the year in which the promise is received and averaged 1.00% for the year ended June 30, 2012. Discount amortization is included in contribution revenue.

Capitalization and depreciation Property and equipment are stated at cost, or at fair market value as of the donation date. Depreciation is provided under the straight-line method over the estimated useful lives of the assets which range from five to forty years. Minor expenditures for maintenance and repairs are expensed as incurred while renewals and betterments are capitalized.

Gifts of property and equipment designated for College use and ownership are expensed as “Direct Contributions to College” at the time they are actually transferred to the College.

Art collection Donated works of art are stated at their estimated fair market value at the time of the donation. Art works purchased by the Foundation are capitalized at cost. Gains and losses on the deaccession of donated collection items are classified in the statement of activities based on the absence or existence and nature of donor restrictions placed on the item at the time of donation.




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Scholarships and grants Scholarships and grants are recorded as program service expenses when the recipients have satisfied the conditions of the awards.

Expense allocation The costs of providing programs and supporting services have been summarized on a functional basis in the statement of activities.

Funds held in custody for others Funds administered in a custodial capacity for other organizations or individuals are reflected as assets with offsetting liabilities in the Foundation’s consolidated statement of financial position. The activity of such funds is not reflected in the Foundation’s consolidated statement of activities.

Comparatives for year ended June 30, 2011 The consolidated financial statements include certain prior year summarized comparative information in total but not by net asset class or functional classification. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Foundation’s financial statements for the year ended June 30, 2011, from which the summarized information was derived.

Income taxes The Foundation is tax-exempt under section 501(c)(3) of the Internal Revenue Code. The Foundation has filed for and received income tax exemptions in the various jurisdictions where it is required to do so. The Foundation files Form 990 tax returns in the U.S. federal jurisdiction and in New York State. With few exceptions, as of June 30, 2012, the Foundation is no longer subject to U.S. federal or state income tax examinations by tax authorities for years ended prior to June 30, 2009. The tax returns for the years ended June 30, 2009 through June 30, 2012 are still subject to potential audit by the IRS and the taxing authorities in New York State. Management of the Foundation believes it has no material uncertain tax positions and, accordingly it has not recognized any liability for unrecognized tax benefits.

Subsequent events The Foundation has conducted an evaluation of potential subsequent events occurring after the statement of financial position date through October 26, 2012, the date the financial statements are available to be issued. No subsequent events requiring disclosure were noted.




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NOTE B: PLEDGES RECEIVABLE

Pledges receivable are as follows:

2012 2011

Within one year 1,088,358$ 1,082,014$ In one to five years 2,370,498 1,480,187 In six or more years - 20,000

3,458,856 2,582,201 Less: Allowance for uncollectible pledges 191,869 17,857 Discounts to net present value 36,491 53,048

228,360 70,905

3,230,496$ 2,511,296$

June 30,

At June 30, 2012, approximately 37% of the above pledges receivable were due from one individual and one organization. At June 30, 2011, approximately 40% of the above pledges receivable were due from two individuals and one organization.

As of June 30, 2012 and 2011, the Foundation had also received bequest intentions that management estimated at $3,926,000 and $4,389,000, respectively. These conditional promises to give are not recognized as assets in the accompanying consolidated financial statements. Amounts received will generally be temporarily or permanently restricted to support scholarships or college related activities.




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NOTE C: INVESTMENTS

Investments are as follows:

UnrealizedMarket appreciationvalue Cost (depreciation)

June 30, 2012: Investments managed by the Foundation: Commonfund: Multi-Strategy Bond Fund 5,518,426$ 4,887,727$ 630,699$ Multi-Strategy Equity Fund 11,323,371 9,484,387 1,838,984 Custodian: Cash equivalents and short-term investments 5,997 5,997 - U.S. government securities 227,941 207,266 20,675 Corporate debt securities 243,429 227,180 16,249 Equity securities 407,265 356,338 50,927

17,726,429 15,168,895 2,557,534

Investments held in and managed by private foundation: Cash 10,536 10,536 - Fixed income 262,963 246,696 16,267 Equities 156,380 154,213 2,167

429,879 411,445 18,434 18,156,308$ 15,580,340$ 2,575,968$

June 30, 2011: Investments managed by the Foundation: Commonfund: Multi-Strategy Bond Fund 4,448,117$ 3,962,684$ 485,433$ Multi-Strategy Equity Fund 9,795,629 7,634,608 2,161,021 Custodian: Cash equivalents and short-term investments 20,613 20,613 - U.S. government securities 238,814 226,455 12,359 Corporate debt securities 210,957 196,247 14,710 Equity securities 392,777 340,551 52,226

15,106,907 12,381,158 2,725,749

Investments held in and managed by private foundation: Cash 15,034 15,034 - Fixed income 164,076 165,744 (1,668) Equities 265,990 235,361 30,629

445,100 416,139 28,961 15,552,007$ 12,797,297$ 2,754,710$




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NOTE C: INVESTMENTS, Cont’d

The private foundation distributed earnings and gains of $17,952 and $17,827 for the years ended June 30, 2012 and 2011, respectively. The distributions are considered investment income by the Foundation.

NOTE D: CAPITAL ASSETS AND INVESTMENT REAL ESTATE

Capital assets and investment real estate are summarized as follows:

2012 2011

Land 133,188$ 133,188$ Buildings and improvements 852,022 852,022 Computer software 36,000 36,000 Furniture, equipment and fixtures 34,399 34,399

1,055,609 1,055,609 Less accumulated depreciation 335,177 312,708

720,432 742,901 Investment real estate 127,725 127,725

848,157$ 870,626$

June 30,

Depreciation and amortization expense for each of the years ended June 30, 2012 and 2011 was approximately $22,500. Investment real estate recorded at $114,000 is subject to a lifetime use obligation valued at $24,893 and $27,565 at June 30, 2012 and 2011, respectively, which is reflected as a liability of the Foundation.

NOTE E: ANNUITY AND LIFE INCOME OBLIGATIONS

The Foundation’s obligation under charitable gift annuity agreements has been computed using the Ann2000 Table, which is the New York State minimum mortality standard for all annuity issues after December 31, 1999.

New York State requires the Foundation, as a provider of charitable gift annuities, to meet certain reserve requirements, and to maintain a minimum value of assets in a segregated bank custody account for the purpose of meeting its obligations under the annuity agreements. Additional state requirements limit the Foundation’s investment selection for the segregated account. The Foundation maintained total investments and cash in its segregated account totaling $693,952 and $703,014 at June 30, 2012 and 2011, respectively.




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NOTE F: RELATED PARTY TRANSACTIONS

Contributed services and facilities The College contributes personnel, office space, equipment, and other support to the Foundation as required in the pursuit of its affairs. The College pays compensation and related benefits of approximately nineteen full-time equivalent employees who devote their efforts to the activities of the Foundation. The value of the personnel time, facilities, equipment and other support contributed by the College has been estimated by Foundation management at $2,190,231 and $2,943,631 for the years ended June 30, 2012 and 2011, respectively.

The Foundation leases its real property at 11 Bank Street in the Village of Geneseo to the College. The College pays the operating expenses of the property under the agreement, but does not pay rent. The lease term ends on June 30, 2015, but either party may terminate the lease with six months written notice.

The Foundation leases a portion of its real property at 26 Main Street in the Village of Geneseo to the State University of New York (“SUNY”), acting by and on behalf of the college. The tenant is responsible for most operating expenses but does not pay rent. The Foundation is responsible for liability, fire and extended insurance coverages as detailed in the lease agreement. The lease term ends on July 31, 2015, but SUNY has the right to terminate this lease or its renewal at any time with written notice of at least 30 days prior to its intended termination.

Contract with the State University of New York The Foundation is bound by a contract with SUNY acting for and on behalf of the College. The contract provides guidelines for campus-related foundations in the areas of function and organization, administration of funds, fiscal management and accountability, and stipulates that any alteration or improvement to the premises, fixtures or replacement equipment paid for by the Foundation shall become the property of the State University.

The College has an ongoing economic interest in the net assets of the Foundation, and has the ability to influence the Foundation’s operating and financial decisions. Gifts administered by the Foundation which either directly or indirectly benefit the College are recognized as contributions received by the Foundation in accordance with the provisions of accounting principles generally accepted in the United States of America (“GAAP”).




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NOTE F: RELATED PARTY TRANSACTIONS, Cont’d

Geneseo Alumni Association The Geneseo Alumni Association invests some of its assets under the Foundation’s account with Commonfund Group. These investments are not reflected in the assets of the Foundation.

There is an amount due to the Geneseo Alumni Association at June 30, 2012 and 2011 of approximately $450 and $500, respectively, which is due to donations received by the Foundation on behalf of the Association.

Small Business Development Center The Small Business Development Center, administered by the State University of New York, provides management and technical assistance to start-up and existing small businesses in New York State. The Niagara Small Business Development Center, in conjunction with the Geneseo Foundation and the Business and Industry Center of SUNY Geneseo, opened the Small Business Development Center located on the SUNY Geneseo campus in October 1992.

The Foundation administers this program on the Geneseo campus, fulfilling the College’s obligation under a contract with Niagara County Community College, and subsidizes program expenses that are not reimbursed by Niagara County Community College. The Foundation did not provide a subsidy for the years ended June 30, 2012 and 2011.

Campus Auxiliary Services Funds are held at Campus Auxiliary Services for alumni relations activities. At June 30, 2012 and 2011, there is approximately $182,000 and $125,000, respectively, remaining to be used for this purpose. In addition, approximately $485,000 was donated by Campus Auxiliary Services during the year ended June 30, 2012 to be used by the Foundation for fundraising administration costs.

NOTE G: RETIREMENT PLAN

The Foundation has a defined contribution retirement plan covering all employees meeting eligibility requirements. Accrued retirement plan costs are funded currently and are calculated as a percentage of participants’ payroll. Retirement plan expense for the years ended June 30, 2012 and 2011 amounted to $5,260 and $7,101, respectively.

NOTE H: NET ASSET TRANSFERS

The Foundation transferred net assets received before the year ended June 30, 2011 amounting to $11,750 from the temporarily restricted to the permanently restricted designation. The transferred balances represent funds that were originally restricted by donors, but had not met the Foundation’s policy for minimum balance to establish a permanently restricted account until the current fiscal year.




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NOTE I: FAIR VALUE MEASUREMENTS

Accounting principles generally accepted in the United States of America (“GAAP”) establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 Measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under GAAP are described below:

Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or

liabilities in active markets.

Level 2 - Inputs to the valuation methodology include:

• Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in inactive markets; • Inputs other than quoted prices that are observable for the asset or liability; • Inputs that are derived principally from or corroborated by observable market data by

correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value

measurement. The asset’s 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 need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Following is a description of the valuation methodologies used for assets and liabilities measured at fair value. There have been no changes in the methodologies used at June 30, 2012 and 2011:

Cash equivalents and other investments: Fair value equals cost.

Equity Securities: Valued at the closing price reported on the active market on which the individual funds are traded.

Corporate bonds, U.S. government obligations and agency securities: Valued by third-party brokers based on terms and conditions using trades, bid price or spread, two sided markets, quotes, benchmark curves, discount rates, TRACE trade reports, financial statements and trustee reports.




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NOTE I: FAIR VALUE MEASUREMENTS, Cont’d

Common fund: Valued at the Foundation’s share of the net asset value of funds the Foundation is invested in. The funds have monthly liquidity and require five business days prior to month end redemption notification. The following are descriptions of the funds:

Multi-Strategy Equity Fund The investment objective is to offer an investment program that will provide, in a single fund, all of the strategy and manager diversification that an endowment would normally require for its equity allocation. The fund is designed to add value over long periods of time, above the return of the U.S. equity market as measured by the S&P 500 Index and, due to its strategy and manager diversification, to reduce volatility in comparison to that of investing in the index. Investors are not allowed to invest directly in an index.

Multi-Strategy Bond Fund The investment objective is to offer an actively managed, multi-manager investment program that will provide, in a single fund, broad exposure to global debt markets. The fund is designed to add value above the return of the broad U.S. bond market over a full market cycle, as measured by the Barclays Aggregate Bond Index, and due to its strategy and manager diversification, to reduce volatility in comparison to that of investing in the index.

Annuity and life income obligations: Valued at the present value of future cash flows expected to be paid to the donor.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Foundation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.




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The following table presents by level the financial instruments measured at fair value on a recurring basis at June 30, 2012 and 2011:

Level 1 Level 2 Level 3 Total

June 30, 2012 Equity securities: Consumer goods and services 128,016$ -$ -$ 128,016$ Business products and services 17,252 - - 17,252 Capital goods 20,815 - - 20,815 Energy 18,293 - - 18,293 Financial 91,445 - - 91,445 Utilities 28,190 - - 28,190 Technology 28,166 - - 28,166 Foreign equities 37,612 - - 37,612 Bank collective funds 156,380 - - 156,380 * Other equities 37,476 - - 37,476

Total equity securities 563,645 - - 563,645

Fixed income securities: U.S. Government and agency securities - 227,941 - 227,941 Corporate bonds - 243,429 - 243,429 Bank collective funds - 262,963 - 262,963

Total fixed income securities - 734,333 - 734,333

Common fund investments: Multi-Strategy equity fund - 11,323,371 - 11,323,371 Multi-Strategy bond fund - 5,518,426 - 5,518,426

Total common fund investments - 16,841,797 - 16,841,797

Money market accounts 16,533 - - 16,533

Total assets at fair value 580,178$ 17,576,130$ -$ 18,156,308$

Annuity and life income obligations -$ -$ 295,904$ 295,904$

Total liabilities at fair value -$ -$ 295,904$ 295,904$

* Based on an analysis of the nature and risks of these investments, it has been determined that presenting

them as a single class is appropriate.




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Level 1 Level 2 Level 3 Total

June 30, 2011

Equity securities:

Consumer goods and services 105,820$ -$ -$ 105,820$

Business products and services 20,914 - - 20,914

Capital goods 53,197 - - 53,197

Energy 47,650 - - 47,650

Financial 42,989 - - 42,989

Utilities 10,179 - - 10,179

Foreign equities 46,835 - - 46,835

Bank collective funds 265,990 - - 265,990

* Other equities 65,193 - - 65,193

Total equity securities 658,767 - - 658,767

Fixed income securities:

U.S. Government and

agency securities - 238,814 - 238,814

Corporate bonds - 210,957 - 210,957

Bank collective funds - 164,076 - 164,076

Total fixed income securities - 613,847 - 613,847

Common fund investments:

Multi-Strategy equity fund - 9,795,629 - 9,795,629

Multi-Strategy bond fund - 4,448,117 - 4,448,117

Total common fund investments - 14,243,746 - 14,243,746

Money market accounts 35,647 - - 35,647

Total assets at fair value 694,414$ 14,857,593$ -$ 15,552,007$

Annuity and life income obligations -$ -$ 310,094$ 310,094$

Total liabilities at fair value -$ -$ 310,094$ 310,094$

* Based on an analysis of the nature and risks of these investments, it has been determined that presenting

them as a single class is appropriate.




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The following sets forth a summary of changes in the fair value of the Foundation’s Level 3 liabilities for the years ended June 30, 2012 and 2011:

Annuity andlife incomeobligations

Balance at July 1, 2010 366,085$

New contracts 18,658 Split-interest adjustments (20,837) Annuity payments (53,812)

Balance at June 30, 2011 310,094

New contracts 1,779 Split-interest adjustments 39,467 Annuity payments (55,436)

Balance at June 30, 2012 295,904$




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NOTE J: ENDOWMENTS

The Foundation’s endowment consists of approximately 190 individual funds established for a variety of purposes. Its total endowment includes both donor-restricted endowment funds and funds designated by the Board of Directors to function as endowments. As required by accounting principles generally accepted in the United States of America, net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.

Interpretation of relevant law Effective September 17, 2010, the New York Prudent Management of Institutional Funds Act (NYPMIFA) was enacted to replace and update the Uniform Management of Institutional Funds Act (UMIFA), which was adopted in New York in 1978. The Board of Directors of the Foundation has interpreted NYPMIFA 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 Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) 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 a manner consistent with the standard of prudence prescribed by NYPMIFA. In accordance with NYPMIFA, the Foundation considers the following factors:

(1) The duration and preservation of the fund (2) The purposes of the Foundation and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the Foundation (7) Where appropriate and circumstances would otherwise warrant, alternatives to expenditure of the

endowment fund, giving due consideration to the effect that such alternatives may have on the Foundation; and

(8) The investment policies of the Foundation




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NOTE J: ENDOWMENTS, Cont’d

In accordance with NYPMIFA the Foundation may determine, after consideration of the eight objectives described above, it would be prudent to appropriate funds below the historical dollar value of the permanent endowment. However, the Foundation must inform all available donors of endowment gifts made pursuant to gift instruments executed before September 17, 2010 to opt out of the new rule permitting institutions to appropriate below the historic dollar value of endowment funds. The donor may or may not permit this additional appropriation. If the donor is unavailable or does not stipulate within 90 days the Foundation may appropriate below the historical dollar value of the permanent endowment if it is deemed prudent. As of June 30, 2012, the Foundation had restricted investments of $16,016,927 which are impacted by NYPMIFA.

Endowment net asset composition by type of fund as of June 30, 2012 and 2011:

Temporarily Permanently

Unrestricted restricted restricted TotalJune 30, 2012: Donor - restricted -$ 3,919,615$ 12,097,312$ 16,016,927$ Board - designated 1,254,749 - - 1,254,749

1,254,749$ 3,919,615$ 12,097,312$ 17,271,676$

June 30, 2011: Donor - restricted -$ 3,622,818$ 9,807,713$ 13,430,531$ Board - designated 1,258,315 - - 1,258,315

1,258,315$ 3,622,818$ 9,807,713$ 14,688,846$




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For the years ended June 30, 2012 and 2011, the Foundation had the following endowment - related activities:

Temporarily Permanently

Unrestricted restricted restricted Total

Endowment net assets, July 1, 2010 1,030,760$ 1,610,196$ 9,074,493$ 11,715,449$

Investment return: Interest and dividend income 26,655 41,639 234,665 302,959 Net appreciation 185,253 289,392 1,630,912 2,105,557

Total investment return 211,908 331,031 1,865,577 2,408,516

Contributions 312 - 633,688 634,000 Appropriations for expenditures (17,328) (27,068) (24,723) (69,119) Transfer of amount that endowment market value is above historic dollar value 32,663 1,720,409 (1,753,072) - Transfers - (11,750) 11,750 -

Endowment net assets,June 30, 2011 1,258,315 3,622,818 9,807,713 14,688,846

Investment return: Interest and dividend income 29,840 85,914 232,586 348,340 Net depreciation (14,707) (42,342) (114,629) (171,678)

Total investment return 15,133 43,572 117,957 176,662

Contributions - - 2,480,000 2,480,000 Appropriations for expenditures (12,923) (37,206) (23,703) (73,832) Transfer of amount that endowment market value is above historic dollar value (5,776) 290,431 (284,655) -

Endowment net assets,June 30, 2012 1,254,749$ 3,919,615$ 12,097,312$ 17,271,676$




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2012 2011Permanently Restricted Net Assets:The portion of perpetual endowment funds that is required to be retained permanently either by explicit donor stipulation or by NYS Not-For-Profit Corporation Law 12,097,312$ 9,807,713$

Total endowment funds classified aspermanently restricted net assets 12,097,312$ 9,807,713$

Temporarily Restricted Net Assets:The portion of perpetual endowment funds subject to a purpose restriction under NYS Not-For-Profit Corporation Law 3,919,615$ 3,622,818$

Total endowment funds classified astemporarily restricted net assets 3,919,615$ 3,622,818$

June 30,

Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor requires the Foundation to retain as a fund of perpetual duration. Typically, these deficiencies result from unfavorable market fluctuations that occur after the investment of permanently restricted contributions and continued appropriation for certain programs deemed prudent by the Board of Directors. In accordance with accounting principles generally accepted in the United States of America, there were no deficiencies of this nature as of June 30, 2012 and 2011.

Return Objectives and Risk Parameters The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Foundation must hold in perpetuity or for a donor-specified period(s) as well as board-designated funds. Under this policy, as approved by the Board of Directors, the endowment assets are invested in a manner that is intended to produce average investment results that exceed the spending needs of the Foundation by 2% to 3% annually while assuming a moderate level of investment risk. The Foundation expects its endowment funds, over time, to provide an average rate of return of approximately 5% after inflation annually. Actual returns in any given year may vary from this amount.




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Strategies Employed for Achieving Objectives To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Foundation targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints.

Spending Policy and How the Investment Objectives Relate to Spending Policy The Foundation has a policy of appropriating for distribution each year 5 percent of its endowment fund’s average fair value over the prior 12 quarters through the calendar year end preceding the fiscal year in which the distribution is planned. In establishing this policy, the Foundation considered the long term expected return on its endowment. Accordingly, over the long term, the Foundation expects the current spending policy to allow its endowment to grow at an average of 2% to 3% annually. This is consistent with the Foundation’s objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts and investment return.

Documents

THE GENESEO FOUNDATION, INC. GENESEO, NEW YORK AUDITED ... · INDEPENDENT AUDITORS’ REPORT Board of Directors The Geneseo Foundation, Inc. We have audited the accompanying consolidated