Finance and Administration - Board of Trustees - The University of ...

Finance and Administration Committee - V. Annual Report of the Treasurer, 2011 - InformationLevel 3: Significant unobservable inputs that reflectmanagement’s assumptions that market participants would usein pricing an asset or liability.Table 23.5 below presents the recorded amount of assets andliabilities measured at fair value:Table 23.5Level 1 Level 2 Level 3 TotalInvestments $16,388,062.12 $2,714,163.64 $18,237,658.18 $37,339,883.94Table 23.6 below presents additional information about assetsand liabilities measured at fair value on a recurring basis by relianceon Level 3 inputs to determine fair value.Table 23.6Beginning balance $ 11,745,148.64Total realized and unrealized gains and losses included inearnings 2,890,083.90Purchases, issuances, and settlements 3,602,425.63Ending balance $ 18,237,658.17MORTGAGE NOTE PAYABLEThe foundation was gifted property in Weakley and Obioncounties in Tennessee. The property and its contents wereappraised at $376,000.00 with an attached mortgage note of$259,330.41. The property will be used and overseen by theUniversity of Tennessee at Martin. Payment on the note, whichbegan in January 2006, is $2,000.00 per month. The note hasa 4.68% interest rate. The balance of the note payable at June30, 2011, was $183,776.75. Future maturities of this note areas follows:Table 23.7 Year ended June 30 2011:2012 $ 15,733.892013 16,486.242014 17,274.562015 18,100.582016 18,966.102017–2021 97,215.40Total $ 183,776.75CONCENTRATION OF CREDIT RISKThe foundation had concentrated its credit risk for cash bymaintaining deposits at a bank, which may at times exceedamounts covered by insurance provided by the U. S. FederalDeposit Insurance Corporation (FDIC). The foundation hasnot experienced any losses in this account and believes it is notexposed to any significant credit risk to cash.REMAINDER INTERESTThe amounts described below are reported as investments onthe statement of net assets.In December 2002, a donor conveyed to the foundation aremainder interest in a limited liability company. The assetof the limited liability company is a fee simple interest in awarehouse in South Carolina. The remainder interest wasappraised at $7,740,000.00 with the interest vesting on January1, 2021. The value on the foundation’s statement of financialposition will be the present value calculation until the vestingdate. The IRS discount rate for December 2002 used indetermining the present value was 4%. The present value of theremainder interest at June 30, 2011, was $5,332,418.63.In September 2003, a donor conveyed to the foundationanother remainder interest in a limited liability company. Theasset of this limited liability company is an office buildingin Connecticut. The remainder interest was appraised at$22,440,000.00 with the interest vesting on January 1, 2025.The value on the foundation’s statement of financial positionwill be the present value calculation until the vesting date.The IRS discount rate for September 2003 was 4.20%. Thepresent value at June 30, 2011, was $12,741,125.90.NATURAL CLASSIFICATIONS WITHFUNCTIONAL CLASSIFICATIONSThe foundation’s operating expenses by functional classificationfor the year ended June 30, 2011, are as follows:Table 23.8Functional ClassificationUtilities,Supplies, andOther ServicesPayments toor on Behalfof UTTotalProgram expenses $ 799,047.16 $13,634,607.59 $14,433,654.75General and administrative 230,303.06 134,164.50 364,467.56Total expenses $1,029,350.22 $ 13,768,772.09 $ 14,798,122.31Note 24: Component Unit –University of Tennessee ResearchFoundationThe University of Tennessee Research Foundation, Inc., isa private nonprofit organization that reports under FinancialAccounting Standards Board (FASB) standards. As such, certainrevenue recognition criteria and presentation features are differentfrom revenue recognition criteria and presentation features asprescribed by the Governmental Accounting Standards Board(GASB). The financial statements of this foundation have beenreformatted into a GASB format and are reported in a separatecolumn to the right of the university’s statements.The University of Tennessee Research Foundation is a legallyseparate, tax-exempt organization supporting the University ofTennessee. The foundation was created as The UT ResearchCorporation (UTRC) in 1934 and incorporated in January,1935. The foundation’s stated purpose is, in conjunctionwith the university, to grow the University of Tennesseeresearch enterprise; harvest, manage, and market University33365