LUTHERAN FOUNDATION OF THE SOUTHWEST. Financial Statements as of and for the Years Ended December 31, 2014 and 2013 and Independent Auditors Report

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1 LUTHERAN FOUNDATION OF THE SOUTHWEST Financial Statements as of and for the Years Ended December 31, 2014 and 2013 and Independent Auditors Report

2 MAXWELL LOCKE & RITTER L L P Accountants and Consultants An Affiliate of CPAmerica International tel (512) fax (512) Austin: 401 Congress Avenue, Suite 1100 Austin, TX Round Rock: 303 East Main Street Round Rock, TX INDEPENDENT AUDITORS REPORT To the Board of Trustees of Lutheran Foundation of the Southwest: We have audited the accompanying financial statements of Lutheran Foundation of the Southwest (a nonprofit organization) (the Foundation ), which comprise the statements of financial position as of December 31, 2014 and 2013, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Affiliated Company ML& R WEALTH MANAGEMENT L L C A Registered Investment Advisor This firm is not a CPA firm

3 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Foundation as of December 31, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Austin, Texas June 9, 2015

4 LUTHERAN FOUNDATION OF THE SOUTHWEST STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2014 AND ASSETS: Cash $ 414,191 $ 320,182 Accounts receivable 6,270 7,463 Prepaid insurance 10,612 10,116 Investments 52,557,378 52,270,543 Property, furniture and equipment 743, ,470 Total assets $ 53,731,628 $ 53,367,774 LIABILITIES: Accounts payable $ 8,455 $ 5,803 Trusts and managed assets 18,144,102 19,295,777 Endowments held for others 26,291,162 26,037,593 Total liabilities 44,443,719 45,339,173 NET ASSETS: Unrestricted 3,741,293 2,387,688 Temporarily restricted 273, ,769 Permanently restricted 5,272,944 5,269,144 Total net assets 9,287,909 8,028,601 TOTAL $ 53,731,628 $ 53,367,774 See notes to financial statements. 3

5 LUTHERAN FOUNDATION OF THE SOUTHWEST STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES, GAINS AND OTHER SUPPORT: Contribution revenue $ 1,019,547-3,800 1,023,347 Management fees 683, ,488 Investment income, net of related expenses 240, ,066 Other revenues 54, ,983 Net unrealized and realized (loss) gain on investments (223,313) 173,285 - (50,028) Net assets released from restrictions 271,382 (271,382) - - Total revenues, gains and other support 2,046,153 (98,097) 3,800 1,951,856 EXPENSES: Program services - development 451, ,895 Support services - management and general 240, ,653 Total expenses 692, ,548 CHANGE IN NET ASSETS 1,353,605 (98,097) 3,800 1,259,308 NET ASSETS, beginning of year 2,387, ,769 5,269,144 8,028,601 NET ASSETS, end of year $ 3,741, ,672 5,272,944 9,287,909 See notes to financial statements. 4

6 LUTHERAN FOUNDATION OF THE SOUTHWEST STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES, GAINS AND OTHER SUPPORT: Contribution revenue $ 88,310-23, ,605 Management fees 467, ,301 Investment income, net of related expenses 197, ,912 Other revenues 19, ,340 Net unrealized and realized gain on investments $ 187, , ,371 Net assets released from restrictions 250,709 (250,709) - - Total revenues, gains and other support 1,210, ,414 23,295 1,356,529 EXPENSES: Program services - development 346, ,910 Support services - management and general 313, ,050 Total expenses 659, ,960 CHANGE IN NET ASSETS 550, ,414 23, ,569 NET ASSETS, beginning of year 1,836, ,355 5,245,849 7,332,032 NET ASSETS, end of year $ 2,387, ,769 5,269,144 8,028,601 See notes to financial statements. 5

7 LUTHERAN FOUNDATION OF THE SOUTHWEST STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2014 AND CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ 1,259,308 $ 696,569 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 16,293 16,293 Net unrealized and realized loss (gain) on investments 50,028 (560,371) Contributions restricted for long-term investment (3,800) (23,295) Changes in operating assets and liabilities: Accounts receivable 1,193 (1,193) Prepaid insurance (496) 1,108 Investments held for others 774,620 (3,504,655) Accounts payable 2,652 (575) Trusts and managed assets (1,151,675) 804,782 Endowments held for others 253,569 2,668,248 Net cash provided by operating activities 1,201,692 96,911 CASH FLOWS FROM INVESTING ACTIVITIES- Net purchases of investments (1,111,483) (84,740) CASH FLOWS FROM FINANCING ACTIVITIES- Contributions restricted for long-term investment 3,800 23,295 NET CHANGE IN CASH 94,009 35,466 CASH, beginning of year 320, ,716 CASH, end of year $ 414,191 $ 320,182 See notes to financial statements. 6

8 LUTHERAN FOUNDATION OF THE SOUTHWEST NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2014 AND ORGANIZATION The Lutheran Foundation of the Southwest (the Foundation ) is a Texas nonprofit corporation organized to encourage public support for the following sponsoring organizations (the Sponsors ): Southwestern Texas Synod, ELCA Texas Lutheran University Lutheran Sunset Ministries Northern Texas-Northern Louisiana Mission Area, ELCA ELCA Foundation, ELCA Texas-Louisiana Gulf Coast Synod, ELCA Lutheran Social Services of the South, Inc. Cross Trails Ministry The Foundation offers no-cost, no-obligation estate planning for Lutherans residing in Texas and encourages Lutherans to establish planned or deferred gifts to benefit donors families and heirs, the ministries of its sponsoring agencies, and other designated charitable recipients. The Foundation is exempt from federal income taxes, except with respect to any unrelated business income, under Section 501(c)(3) of the Internal Revenue Code. The Foundation has been determined not to be a private foundation. The December 31, 2011 and subsequent tax years remain subject to examination by the Internal Revenue Service. 2. SUMMARY O F SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America ( U.S. GAAP ) as defined by the Financial Accounting Standards Board Accounting Standards Codification. Under the accrual basis of accounting, revenue is recognized when earned regardless of when collected, and expenses are recognized when the obligation is incurred regardless of when paid. Net assets, revenues, and expenses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Foundation and changes therein are classified and reported as follows: Unrestricted Net Assets - These types of net assets are not subject to donor-imposed stipulations. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law. 7

9 Temporarily Restricted Net Assets - These types of net assets are subject to donor imposed stipulations, which limit their use by the Foundation to a specific purpose and/or the passage of time. When a restriction is satisfied or expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Permanently Restricted Net Assets - These types of net assets are subject to donorimposed stipulations, which require them to be maintained permanently by the Foundation. Donor-imposed restrictions limiting the use of these assets or economic benefits can neither expire with the passage of time nor be removed by the Foundation s meeting of certain requirements. The Foundation classifies as permanently restricted net assets, all trusts in which the donor has granted the Board of Trustees ( the Board ) with variance power regarding beneficiaries selection. Furthermore, split-interest agreements having any charitable component that must be maintained in perpetuity as designated by the donor, are also classified as permanently restricted net assets. Use of Estimates - The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Accounts Receivable - Accounts receivable are recorded at the amount the Foundation expects to collect on outstanding balances. The Foundation has not recorded an allowance for uncollectible receivables at December 31, 2014 or 2013 because management estimates all balances to be collectible. At December 31, 2014 and 2013, all balances were due within a year. Investments - Investments in marketable securities with readily determinable fair values and all investments in debt securities are valued at their fair values in the statements of financial position. Any changes in fair value are reported in the statement of activities as unrealized gains or losses. Fair Value Measurements - The Foundation measures and discloses fair value measurements in accordance with the authoritative literature. Fair value is 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. Fair value accounting requires characterization of the inputs used to measure fair value into a three-level fair value hierarchy as follows: Level 1 - Inputs based on quoted market prices in active markets for identical assets or liabilities. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 - Observable inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent from the entity. Level 3 - Unobservable inputs that reflect the Foundation s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available. 8

10 There are three general valuation techniques that may be used to measure fair value: 1) market approach - uses prices generated by market transactions involving identical or comparable assets or liabilities, 2) cost approach - uses the amount that currently would be required to replace the service capacity of an asset (replacement cost), and 3) income approach - uses valuation techniques to convert future amounts to present amounts based on current market expectations. Property, Furniture and Equipment - Building, furniture and equipment are recorded at cost. Land which was donated for the construction of the office building was recorded at fair value as determined by an independent appraisal at the time of donation. Maintenance and repairs are charged to expense as incurred, while all additions or betterments over $10,000 that have a benefit over more than one year are capitalized. The Foundation provides for depreciation on the straightline method over the estimated useful lives of the assets as follows: Building Furniture Equipment 40 years 10 years 4 years The Foundation reviews assets for impairment at least annually. The Foundation has determined that there was no impairment loss during the year ended December 31, 2014 or Trusts and Managed Assets - The Foundation accepts cash and other financial assets from organizations and individuals and agrees to use those assets on behalf of or transfer those assets, the return on investment of those assets, or both, to specified beneficiaries. The Foundation records the fair value of the assets received and an offsetting liability for the same amount at the time the assets are received. Subsequent valuations of trust liabilities are determined annually based on the fair value of the trust assets. Charitable Remainder Trusts - The Foundation accepts cash and other financial assets from donors who establish trusts, from which specified distributions are made either from principal or earnings to one or more beneficiaries over a specified term or for life. At the time the gift is received, the Foundation records the trust assets at their fair value and a liability for the present value of any expected future cash distributions to the beneficiaries. The Foundation determines the present value of the future payments due to the beneficiaries based on assumptions about the projected rate of return on the investments in the trusts, the discount rate for the obligation, and the expected mortality of the individual on which termination of the agreement depends, if the agreement is life dependent. Significant increases or decreases in these inputs in isolation would result in a significantly lower or higher fair value measurement. The Foundation is named as co-beneficiary of certain charitable remainder trusts under its management. Upon gift receipt, the Foundation records the excess of the fair value of the assets and the estimated liability, as temporarily restricted contribution revenue. If the donor has permanently restricted the Foundation s use of its interest in the assets, contribution revenue will be classified as permanently restricted. If the Foundation has been given the immediate right to use its interest in the assets without restrictions, the contribution revenue is recognized as an increase in unrestricted net assets. On an annual basis, the Foundation revalues the liability due to the donors designated beneficiaries. Any changes resulting from the revaluation of this liability is recorded as actuarial gain or loss on the statement of activities. The discount rates used in determining fair value at December 31, 2014 and 2013 ranged from 2.0% to 1.2% and were set to equal the expected Applicable Federal Rate issued by the Internal Revenue Service ( IRS ). 9

11 Charitable remainder trusts are included as a component of trust and managed assets on the statements of financial position. Charitable Gift Annuities - Donors contribute assets in exchange for the right to receive a fixed dollar annual return for their benefit or for the benefit of third parties. Upon receipt of each such gift, the Foundation calculates the present value of the periodic payments due to the beneficiaries and classifies this amount as annuities payable. The Foundation determines the present value of the future periodic payments on an actuarial basis based on the annuitant s life expectancy. The discount rates used in determining fair value at December 31, 2014 and 2013 ranged from 2.0% to 1.2% and were set to equal the expected Applicable Federal Rate issued by the IRS. Significant increases or decreases in these inputs in isolation would result in a significantly lower or higher fair value measurement. Any income earned on charitable gift annuity investments is also credited to charitable gift annuities payable. The Foundation is named as co-beneficiary of certain charitable gift annuities under its management. Upon gift receipt, the Foundation records the excess of the fair value of the assets and the estimated liability, as temporarily restricted contribution revenue. If the donor has permanently restricted the Foundation s use of its interest in the assets, contribution revenue will be classified as permanently restricted. If the Foundation has been given the immediate right to use its interest in the assets without restrictions, the contribution revenue is recognized as an increase in unrestricted net assets. On an annual basis, the Foundation revalues the carrying value of the charitable gift annuities. Any changes resulting from the revaluation of this liability is recorded as actuarial gain or loss on the statement of activities. The Foundation is required by the State of Texas to maintain a reserve of at least $100,000 to make payments if the assets are depleted. This reserve is held in unrestricted net assets. Charitable gift annuities are included as a component of trust and managed assets on the statements of financial position. Endowments Held For Others - The Foundation accepts cash and other financial assets as a trustee of various endowment agreements. The Foundation records the fair value of the assets received at the time of receipt and an offsetting liability for the same amount. Subsequent valuations of the endowment liabilities are determined annually based on the fair value of the endowment assets. The portion of the endowment agreements for which the Foundation has no variance power is also included in this liability. Contributions - Contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support, depending on the existence and/or nature of any donor restrictions. Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statement of activities as net assets released from restrictions. Conditional promises to give are recognized only when the conditions on which they depend are substantially met and the promises become unconditional. Donated marketable securities and other noncash donations are recorded as contributions at their estimated fair values at the date of donation. 10

12 Management Fees - The Foundation charges both trust and managed assets and endowments held for others funds a fee for recovery of administrative expenses incurred by the Foundation. The fee is generally computed as 0.5% to 1% per annum of the fair value of fund assets and is collected quarterly. Recently Issued Accounting Pronouncements - In May 2014, the FASB issued Accounting Standards Update ( ASU ) No , Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance included in the ASC. The standard requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The standard is effective for fiscal years beginning after December 15, 2017, and is to be applied retrospectively, with early application permitted for fiscal years beginning after December 15, The Foundation is in the process of evaluating the impact the new standard will have on its financial statements. In August 2014, the FASB issued ASU No , Presentation of Financial Statements - Going Concern, which provides guidance about management s responsibility to evaluate on an annual basis whether there is substantial doubt about an entity s ability to continue as a going concern within one year after the date that the financial statements are available to be issued and to provide certain related footnote disclosures. The standard is effective for fiscal years ending after December 15, 2016, and due to the change in requirements for reporting, presentation and disclosure of future evaluations of the entity s ability to continue as a going concern may be different than under current standards. Reclassifications - Certain amounts in the prior year have been reclassified to conform to the presentation adopted in the current year. There was no impact on net assets. 3. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Foundation to credit risk consist of cash and investments. The Foundation places its cash with a limited number of high quality financial institutions and may exceed the amount of insurance provided on such deposits. Management believes no significant risk exists with respect to cash. Investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investments, it is at least reasonably possible that changes in the near-term could materially affect the amounts reported in the statements of financial position. 4. RELATED PARTY TRANSACTIONS Each Sponsor has a representative chosen by its respective Board who serves on the Foundation s Board of Trustees. The Foundation Board also appoints additional at-large trustees. Foundation Board members made personal contributions to the Foundation to support its operations and to the Permanent Operating Endowment Fund ( POEF ). During 2014, Board members personal contributions to the Foundation s operations and to the POEF were $3,800. During 2013, Board members personal contributions to the Foundation s operations and to the POEF were $4,

13 5. INVESTMENTS The Foundation records investments in debt and equity securities at their fair values with the related gains and losses included in the statements of activities. The income investment fund and the equity investment fund are unitized funds. Participations are purchased in $1 units. Income from the investments is allocated to participants based on the number of units held at the end of each calendar quarter. Additions to and withdrawals from the funds are made at the end of each quarter in accordance with donors restrictions. Investments are reported at fair value at December 31, 2014 as follows: Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Fair Value Measurements Using: Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Multi-asset fund $ 36,185,063 $ 36,185,063 $ - $ - Tax-exempt bonds 2,599,059 2,599, Taxable bond funds 2,368,692 2,368, Common stock 2,088,584 2,088, Certificates of deposit 1,819,350 1,819, Mutual funds 1,747,285 1,747, Taxable money market accounts 1,640,140 1,640, Real estate 1,547, ,547,679 Mission loan and development certificates 749, ,823 - Mortgage loans receivable 668, ,865 - Restricted cash 617, , U.S. government and agencies 346, , Insurance 133, ,993 - Private company stock 34, ,850 Limited partnership 10, ,207 Total Investments $ 52,557,378 $ 49,411,961 $ 1,552,681 $ 1,592,736 All Level 1, Level 2 and Level 3 investments have been valued using a market approach. Investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) were as follows: Balance, December 31, 2013 $ 1,749,328 Total net realized and unrealized losses (156,592) Balance, December 31, 2014 $ 1,592,736 12

14 Investments are reported at fair value at December 31, 2013 as follows: Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Fair Value Measurements Using: Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Multi-asset fund $ 35,241,420 $ 35,241,420 $ - $ - Tax-exempt bonds 2,715,231 2,715, Taxable bond funds 2,659,674 2,659, Certificates of deposit 2,522,000 2,522, Common stock 2,008,987 2,008, Mutual funds 1,726,479 1,726, Real estate 1,704, ,704,271 Restricted cash 784, , Taxable money market accounts 755, , Mission loan and development certificates 746, ,593 - Mortgage loans receivable 697, ,618 - U.S. government and agencies 539, , Insurance 124, ,352 - Private company stock 34, ,850 Limited partnership 10, ,207 Total Investments $ 52,270,543 $ 48,952,652 $ 1,568,563 $ 1,749,328 All Level 1, Level 2 and Level 3 investments have been valued using a market approach. Investments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) were as follows: Balance, December 31, 2012 $ 1,937,117 Additions 34,850 Total net realized and unrealized losses (222,639) Balance, December 31, 2013 $ 1,749,328 Cash, certificates of deposit, marketable investments, including publicly traded investments such as stock, bonds, mutual funds, bond funds, equity funds, exchange traded funds, U.S. governmental securities and agencies, mortgage receivable and mortgage-backed and asset-backed securities are classified within Level 1 of the fair market value hierarchy because they are valued using quoted market prices, broker dealer quotations or other alternative pricing sources with reasonable levels of price transparency. 13

15 Mission loan and development certificates, mortgage loans and cash value of life insurance policies are designated as Level 2 instruments since valuations are obtained from readily-available pricing sources for comparable instruments. Mission loan and development certificates and mortgage loans are valued based upon anticipated collectability which approximates fair value. The cash value of life insurance policies was reflected in the financial statements at fair value based on the cash value reflected on the policy statements at December 31, 2014 and Real estate, private company stock, mineral interests and the investment in the limited partnership are classified within Level 3 since observable inputs are minimal. Real estate and mineral interests carrying values are determined by taking into account appraised value, tax authorities valuations, annual income and the changes in these amounts over time. Real estate and mineral interests are not routinely re-appraised; thus, valuations are based upon the advice of real estate professionals and local conditions. Private company stock is carried at $25.00 per share. The limited partnership is reflected in the financial statements at fair value based on the audited financial statements of the limited partnership. Significant increases or decreases in either of these inputs in isolation would result in a significantly lower or higher fair value measurement. 6. TRUSTS AND MANAGED ASSETS The following summarizes the operating activity of the trusts and managed assets for the years ended December 31: Trusts and managed assets, beginning of year $ 19,295,777 $ 18,490,995 Additions 3,694,709 1,610,031 Investment income 370, ,289 Net realized gain on investments 397, ,992 Net unrealized gain on investments ,050 Disbursements to/for: Individual beneficiaries (2,556,619) (1,988,028) Sponsoring organizations (1,175,312) (45,068) Endowments held for others (1,506,037) (127,825) Management fees (376,748) (172,659) Trusts and managed assets, end of year $ 18,144,102 $ 19,295,777 14

16 7. SPLIT-INTEREST AGREEMENTS The Foundation is listed as a co-beneficiary for certain agreements under its management. These agreements contain provisions for the distribution of assets to remaindermen other than the Foundation. As of December 31, 2014, the assets and liabilities for these split-interest agreements were $1,654,682 and $1,531,057, respectively. As of December 31, 2013, the assets and liabilities for these split-interest agreements were $1,925,915 and $1,751,290, respectively. The following is a rollforward of the liabilities under split-interest agreements measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the year December 31: Balance, beginning of year $ 1,751,290 $ 1,783,774 Investment income 16,955 23,902 Net realized gain on investments 50,535 84,308 Net unrealized gain (loss) on investments (23,140) 30,059 Disbursements to beneficiaries (147,334) (153,289) Management fees (11,079) (39,737) Actuarial adjustment (106,170) 22,273 Balance, end of year $ 1,531,057 $ 1,751, ENDOWMENTS The Board has interpreted the Texas Uniform Prudent Management of Institutional Funds Act ( TUPMIFA ) 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. Permanently restricted net assets are classified at the original value of gifts donated to the permanent endowment, plus the original value of subsequent gifts to the permanent endowment. Also included are accumulations to the permanent endowment if directed by the donor gift instrument. The Foundation classifies the remaining portion of the donor restricted endowment fund as temporarily restricted net assets until those funds are appropriated for expenditure by the organization in a manner consistent with the standard of prudence prescribed by TUPMIFA. The investment policy adopted by the Board of the Foundation details the objectives, risk management, investment selection and monitoring procedures. The Foundation s investment philosophy is to exercise ordinary business care and prudence in its investment of Foundation assets considering the long and short-term needs of the Foundation in carrying out its charitable purposes, its present and anticipated financial requirements, expected total return on its investments, price level trends, and general economic conditions. The Foundation recognizes that the uncertainty of future events, volatility of investment assets, and the potential loss in purchasing power are present to some degree with all types of investments. While high levels of risk are to be avoided, the assumption of a moderate level of risk is warranted and encouraged in order to allow the opportunity to achieve satisfactory results consistent with the objectives and investment philosophy of the Foundation. 15

17 As of December 31, 2014, the Foundation had approximately 164 separate endowments under its management. Certain of these endowments earn income directly for the Foundation and are included in the POEF of the Foundation. The income earned on all other endowments was either paid to Sponsors and other nonprofit organizations or added to the corpus of the respective endowment in accordance with the donors restrictions. The spending policy of the POEF endowment is 5% of the fair market value of the fund on the first day of the fiscal year. The spending policy for all other endowments is 4% of the fair market value on the first day of the fiscal year. The aggregate amount of the deficiencies for all donor-restricted endowment funds for which the fair value of the assets at reporting date is less than the level required by donor stipulation was $406,233 and $299,857 at December 31, 2014 and 2013, respectively. Changes in Endowment net assets were the following for the year ended December 31, 2014: Temporarily Restricted Permanently Restricted Unrestricted Total Endowment net assets, beginning of year $ 196, ,729 5,231,746 5,682,216 Net unrealized and realized gain on investments - 173, ,285 Contributions - - 3,800 3,800 Appropriations for expenditures - (271,382) - (271,382) Endowment net assets, end of year $ 196, ,632 5,235,546 5,587,919 Changes in Endowment net assets were the following for the year ended December 31, 2013: Temporarily Restricted Permanently Restricted Unrestricted Total Endowment net assets, beginning of year $ 108, ,312 5,208,451 5,448,194 Net unrealized and realized gain on investments - 373, ,126 Contributions 88,310-23, ,605 Appropriations for expenditures - (250,709) - (250,709) Endowment net assets, end of year $ 196, ,729 5,231,746 5,682,216 16

18 9. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted amounts are those not available for use by the Foundation until commitments regarding their use have been fulfilled or lifetime beneficiary interests have ceased and were composed of the following at December 31: Time restricted $ 118,040 $ 118,040 Purpose restricted 155, ,729 Total temporarily restricted net assets $ 273,672 $ 371, PERMANENTLY RESTRICTED NET ASSETS Permanently restricted amounts are those restricted by donors in perpetuity as endowments and other trusts funds that will or have become endowments upon termination of the trust and were composed of the following at December 31: Endowment funds $ 5,235,546 $ 5,231,746 Other trust funds 37,398 37,398 Total permanently restricted net assets $ 5,272,944 $ 5,269, PENSION PLAN The Foundation participates in a pension plan covering various church institutions. The plan is a defined contribution plan covering employees of institutions affiliated with the Evangelical Lutheran Church in America. Employees qualify for the pension plan from the first day of employment as long as they are scheduled to work at least twenty hours per week for six months per year. Contributions paid to the plan by the Foundation totaled approximately $31,000 and $35,000 for the years ended December 31, 2014 and 2013, respectively. 12. SUBSEQUENT EVENTS The Foundation has evaluated subsequent events through June 9, 2015 (the date the financial statements were available to be issued), and no events have occurred from the statement of financial position date through that date that would impact the financial statements. 17