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Report of Independent Auditors and Financial Statements for

Saint Martin's University

June 30, 2013 and 2012

CONTENTS PAGEREPORTOFINDEPENDENTAUDITORS 1–2FINANCIALSTATEMENTS Statementoffinancialposition 3 Statementofactivities 4–5 Statementofcashflows 6 Notestofinancialstatements 7–24

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REPORTOFINDEPENDENTAUDITORSTotheBoardofTrusteesSaintMartin'sUniversityReportontheFinancialStatements

We have audited the accompanying financial statements of Saint Martin's University (the University),which comprise the statements of financial position as of June30, 2013 and 2012, and the relatedstatements of activities and cash flows for the years then ended, and the relatednotes to the financialstatements.Management’sResponsibilityfortheFinancialStatements

Management is responsible for the preparation and fair presentation of these financial statements inaccordancewithaccountingprinciplesgenerallyaccepted in theUnitedStatesofAmerica; this includesthe design, implementation, and maintenance of internal control relevant to the preparation and fairpresentationof financial statements that are free frommaterialmisstatement,whetherdue to fraudorerror.Auditor’sResponsibility

Our responsibility is to express an opinion on these financial statements based on our audits. Weconducted our audits in accordancewith auditing standards generally accepted in theUnited States ofAmerica. Those standards require thatweplan andperform the audits to obtain reasonable assuranceaboutwhetherthefinancialstatementsarefreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthe financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks ofmaterialmisstatement of the financial statements, whether due to fraud orerror. Inmaking those risk assessments, the auditor considers internal control relevant to the entity’spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’s internalcontrol.Accordingly,weexpressnosuchopinion.Anauditalso includesevaluatingthe appropriateness of accounting policies used and the reasonableness of significant accountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.Webelievethattheauditevidenceobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

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Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancialpositionoftheUniversityasofJune30,2013and2012,andthechangesinitsnetassetsanditscash flows for theyears thenended inaccordancewithaccountingprinciplesgenerallyaccepted in theUnitedStatesofAmerica.Yakima,WashingtonSeptember30,2013

Seeaccompanyingnotes. 3

SAINTMARTIN'SUNIVERSITYSTATEMENTOFFINANCIALPOSITION

2013 2012

CashandcashequivalentsOperatingcash 2,000,579$ 1,574,982$Investmentcash 3,365,917 4,965,839

Totalcashandcashequivalents 5,366,496 6,540,821

Prepaidsandinventories 321,988 274,309Studentaccountsreceivable,netofallowance

of$289,169in2013and$253,994in2012 1,876,718 1,696,291Gateloanreceivable,netofallowanceof

$347,026in2013and$334,252in2012 116,330 129,104Studentloansreceivable‐PerkinsLoanProgram 1,040,373 1,018,541Contributionsreceivable,net 591,209 4,507,651Otherreceivables 332,490 373,835Investments 14,684,068 12,725,739Bondissuancecosts,net 371,471 386,949Bondreserve 2,567,007 2,566,732Fixedassets,net 59,930,071 59,497,796

87,198,221$ 89,717,768$

LIABILITIESAccountspayableandaccruedexpenses 2,727,833$ 3,424,048$Deferredrevenues 1,336,536 1,248,126Lineofcredit ‐ 2,774,235Annuitiespayable 1,104,993 1,040,962Related‐partynotespayable 586,937 618,474Governmentalgrantsrefundable 972,178 972,178Interestrateswappayable 9,203,180 12,203,040Bondspayable 32,520,000 33,185,000

Totalliabilities 48,451,657 55,466,063

NETASSETSUnrestricted 20,029,574 17,663,755Unrestricted‐designated 4,936,147 4,343,748

Totalunrestricted 24,965,721 22,007,503

RestrictedTemporarily 3,781,618 3,890,193Permanently 9,999,225 8,354,009

Totalnetassets 38,746,564 34,251,705

Totalliabilitiesandnetassets 87,198,221$ 89,717,768$

June30,

ASSETS

LIABILITIESANDNETASSETS

4 Seeaccompanyingnotes.

SAINTMARTIN'SUNIVERSITYSTATEMENTOFACTIVITIES

Temporarily PermanentlyUnrestricted Restricted Restricted Total

REVENUESANDGAINSTuitionandfees 40,457,137$ ‐$ ‐$ 40,457,137$Lessscholarshipallowance (15,724,889) ‐ ‐ (15,724,889)

24,732,248 ‐ ‐ 24,732,248

Governmentgrantsandcontracts 19,640 ‐ ‐ 19,640Contributions 1,134,258 1,904,794 1,408,656 4,447,708Contributionsfromrelatedparty 25,200 200,000 ‐ 225,200Auxiliaryenterprises 4,978,084 ‐ ‐ 4,978,084Investmentincomeandrealizedgains 548,809 1,457,591 ‐ 2,006,400Unrealizedgain(loss)oninvestments,

net (33,594) (257,820) ‐ (291,414)Othersources 840,548 ‐ ‐ 840,548Changeinvalueofsplit‐interest

agreements 10,173 ‐ ‐ 10,17332,255,366 3,304,565 1,408,656 36,968,587

Netassetsreleasedfromrestrictions 2,671,680 (2,671,680) ‐ ‐34,927,046 632,885 1,408,656 36,968,587

EXPENSESProgramexpenses

Instruction 11,408,551 ‐ ‐ 11,408,551Research 14,725 ‐ ‐ 14,725Studentservices 6,848,152 ‐ ‐ 6,848,152Auxiliaryenterprises 4,155,451 ‐ ‐ 4,155,451

SupportexpensesAcademic 4,130,518 ‐ ‐ 4,130,518Institutional 8,916,191 ‐ ‐ 8,916,191

35,473,588 ‐ ‐ 35,473,588

OTHERUnrealizedgainoninterestrateswap 2,999,860 ‐ ‐ 2,999,860

CHANGEINNETASSETS 2,453,318 632,885 1,408,656 4,494,859

NETASSETS,beginningofyear 22,007,503 3,890,193 8,354,009 34,251,705

RECLASSIFICATIONOFNETASSETS 504,900 (741,460) 236,560 ‐

NETASSETS,endofyear 24,965,721$ 3,781,618$ 9,999,225$ 38,746,564$

YearEndedJune30,2013


SAINTMARTIN'SUNIVERSITYSTATEMENTOFACTIVITIES


REVENUESANDGAINSTuitionandfees 38,731,301$ ‐$ ‐$ 38,731,301$Lessscholarshipallowance (14,162,269) ‐ ‐ (14,162,269)

24,569,032 ‐ ‐ 24,569,032

Governmentgrantsandcontracts 19,048 ‐ ‐ 19,048Contributions 5,658,291 63,250 124,281 5,845,822Contributionsfromrelatedparty 3,000 157,060 ‐ 160,060Auxiliaryenterprises 4,572,921 ‐ ‐ 4,572,921Investmentincomeandrealizedgains 453,076 664,963 ‐ 1,118,039Unrealizedgainoninvestments,

net 162,825 (793,704) ‐ (630,879)Othersources 603,410 ‐ ‐ 603,410Changeinvalueofsplit‐interest

agreements (163,025) ‐ ‐ (163,025)35,878,578 91,569 124,281 36,094,428

Netassetsreleasedfromrestrictions 1,118,182 (1,118,182) ‐ ‐36,996,760 (1,026,613) 124,281 36,094,428

EXPENSESProgramexpenses

Instruction 10,682,133 ‐ ‐ 10,682,133Research 22,699 ‐ ‐ 22,699Studentservices 6,018,145 ‐ ‐ 6,018,145Auxiliaryenterprises 4,149,539 ‐ ‐ 4,149,539

SupportexpensesAcademic 3,880,071 ‐ ‐ 3,880,071Institutional 8,341,611 ‐ ‐ 8,341,611

33,094,198 ‐ ‐ 33,094,198

OTHERUnrealizedlossoninterestrateswap (3,848,254) ‐ ‐ (3,848,254)

CHANGEINNETASSETS 54,308 (1,026,613) 124,281 (848,024)

NETASSETS,beginningofyear 21,953,195 4,916,806 8,229,728 35,099,729

NETASSETS,endofyear 22,007,503$ 3,890,193$ 8,354,009$ 34,251,705$

YearEndedJune30,2012


SAINTMARTIN'SUNIVERSITYSTATEMENTOFCASHFLOWS

YearEndedJune30,2013 2012

CASHFLOWSFROMOPERATINGACTIVITIESChangeinnetassets 4,494,859$ (848,024)$Adjustmentstoreconcilechangeinnetassetstonetcashfrom

operatingactivitiesDepreciationandamortization 2,877,489 2,764,787Unrealizedlossoninvestments,net 291,414 630,879Baddebtexpense 128,333 131,744Contributionsrestrictedforlong‐termpurposes (1,408,656) (124,281)Lossondisposaloffixedassets 18,031 ‐Cashsurrendervalueoflifeinsurance (305) (230)Changeinfairvalueofinterestrateswap (2,999,860) 3,848,254Changeincashduetochangesinassetsandliabilities

Studentaccountsreceivable (308,760) (262,289)Contributionsreceivable 3,916,442 (2,786,762)Otherreceivables 54,119 (123,189)Prepaidsandinventories (47,679) (31,128)Accountspayableandaccruedexpensesandannuitiespayable (706,388) 1,199,566Deferredrevenues 88,410 99,830

Netcashfromoperatingactivities 6,397,449 4,499,157

CASHFLOWSFROMINVESTINGACTIVITIESPurchaseoffixedassets (3,312,317) (6,559,314)Purchaseofinvestments (16,525,995) (10,327,374)Saleofinvestments 14,276,557 9,458,101Changeinstudentloansreceivable‐PerkinsLoanProgram (21,832) (22,301)Netchangeinbondreserve (275) (68,747)

Netcashfrominvestingactivities (5,583,862) (7,519,635)

CASHFLOWSFROMFINANCINGACTIVITIESPrincipalpaymentsonbondsandotherpayables (696,537) (654,265)Proceedsfromlineofcredit 2,211,740 2,774,235Paymentsonlineofcredit (4,985,975) ‐Contributionsreceivedrestrictedforlong‐termpurposes 1,408,656 124,281Increaseinliabilityfornewannuityagreement 176,249 ‐Changeinvalue/paymentsinannuityagreements (102,045) (163,025)

Netcashfromfinancingactivities (1,987,912) 2,081,226

CHANGEINCASHANDCASHEQUIVALENTS (1,174,325) (939,252)

CASHANDCASHEQUIVALENTS,beginningofyear 6,540,821 7,480,073

CASHANDCASHEQUIVALENTS,endofyear 5,366,496$ 6,540,821$

SUPPLEMENTALDISCLOSUREOFCASHFLOWINFORMATIONCashpaidforinterest 1,612,387$ 1,735,693$

SAINTMARTIN'SUNIVERSITYNOTESTOFINANCIALSTATEMENTS

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Note1–OrganizationalBackground

Saint Martin's University (the University) is a nonprofit, charitable institution of higher learning,which operates in accordance with its Catholic and Benedictine heritage. The main campus islocatedon300+acresinLacey,WA.ExtensioncampusesarelocatedattheJointFortLewisMcChord(JBLM)basenearTacoma,WAandCentralia.TheUniversitywasestablishedin1895bythemonksof the Saint Martin’s Benedictine monastic community, who have continued to support theeducationinstitution.

Note2–SummaryofSignificantAccountingPolicies

Basis of accounting – The University prepares its financial statements in accordance withaccounting principles generally accepted in the United States of America, which involves theapplicationof accrual accounting. Consequently, revenues andgains are recognizedwhenearned,andexpensesandlossesarerecognizedwhenincurred.

Useofestimates–Thepreparationoffinancialstatementsinconformitywithaccountingprinciplesgenerally accepted in the United States of America requiresmanagement tomake estimates andassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosureofcontingentassets and liabilities, if any, at the date of the financial statements, and the reported amounts ofrevenuesandexpensesduringthereportingperiod.Actualresultscoulddifferfromthoseestimates.

Cashandcashequivalents–Demanddepositaccounts(checkingaccounts)heldatJune30,2013and 2012 are classified as operating cash on the accompanying statements of financial position.Investedcashconsistsofshort‐term,highlyliquidinvestmentsthatarereadilyconvertibletoknownamountsofcash,includingsavingsaccounts,moneymarketaccounts,andshort‐termcertificatesofdepositwithanoriginalmaturityofthreemonthsorless.

TheUniversitymaintains its cash inbankdeposit accounts,which, at times,mayexceed federallyinsuredlimits.TheUniversityhasnotexperiencedanylossesinsuchaccountstodate.

Student loans receivable and student accounts receivable – Student accounts receivable arecarriedattheunpaidbalanceoftheoriginalamountbilledtostudentsandstudentloansreceivablearecarriedattheamountofunpaidprincipal.Studentaccountsreceivablearelessanestimatemadefor doubtful accounts based on a review of all outstanding amounts. The allowance for doubtfulaccounts represents theUniversity's best estimate of the amount of probable credit losses in theUniversity'sexistingaccountsreceivableandstudentloansreceivable.Managementdeterminestheallowancefordoubtfulaccountsbyidentifyingtroubledaccountsandbyusinghistoricalexperienceapplied to an aging of accounts. Student accounts receivable are written off when deemeduncollectible and student loans receivable may be assigned to the United States Department ofEducation (USDE). Recoveries of student accounts receivable previouslywritten off are recordedwhenreceived.Interestischargedonallpast‐dueaccountsforstudentswhoarenolongerenrolledintheUniversityuntiltheaccountisturnedovertoacollectionagency.Latechargesarechargedonallstudentaccountsreceivableunderapaymentplanthatisoutstandingformorethan20daysaftertheduedate.

Afterastudentisnolongerenrolledinaninstitutionofhighereducation,andafteragraceperiod,interestischargedonstudentloansreceivableandrecognizedasitischarged.Latefeesarechargedifpaymentsarenotpaidbythepaymentduedateandrecognizedastheyarecharged.Studentloansreceivableareconsideredtobepastdueifapaymentisnotmadewithin90daysofthepaymentduedate.Afterreceivablesbecomepastdue,theaccrualoflatechargesissuspended.Studentsmaybegranted a deferment, forbearance or cancellation of their student loans receivable based oneligibilityrequirementsdefinedbytheUSDE.


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Note2–SummaryofSignificantAccountingPolicies(continued)

Fairvalueoffinancialinstruments–Thecarryingvaluesofcash,cashequivalents,bondreserves,receivables, accounts payables and accrued liabilities, including deferred revenues, annuitiespayable and related‐party notes payable, are reasonable estimates of their fair value due todiscounting or the short‐term nature and terms of these financial instruments. Investments arerecordedat fair value asdiscussed inNote5.The fair valueofbondspayableapproximates theircarryingvalue,asitisbasedoncurrentratesofferedtotheUniversityforsimilardebtofthesameremainingmaturitiesand,additionally,theUniversityconsidersitscreditworthinessindeterminingthe fair value of the bonds payable. The bonds are considered a Level 2 within the fair valuehierarchyasdescribedinNote11.Theinterestrateswap(usedforpurposesotherthantrading)iscarriedatfairvalueandistheestimatedamounttheUniversitywouldreceiveorpaytoterminatethe swap agreement at the reporting date, taking into account current interest rates and thecreditworthinessofthecounterpartyforassetsandcreditworthinessoftheUniversityforliabilities.TheseinvestmentsarecategorizedasLevel2inthefairvaluehierarchy(seeNote5).TheUniversityrecognizesthechangeinfairmarketvalueoftheinterestrateswaponthestatementsofactivities.Itisnotpractical toestimate the fairvalueof student receivablesandthe liability forgovernmentalgrantsrefundable,astheseloansaresubjecttorestrictionsoninterestratesandtransferability.

Fairvaluemeasurements – TheFairValueMeasurementsandDisclosuresTopic of the FinancialAccounting Standards Board’s (FASB) Accounting Standards Codification defines fair value,establishes a framework for measuring fair value and expands disclosure of fair valuemeasurements,whichapplies toallassetsand liabilities thataremeasuredandreportedona fairvaluebasis.SeeNote5foradditionalinformation.

Interestrateswap–TheUniversitymaintainsaninterestrateriskmanagementstrategythatusesderivative instruments to minimize significant, unanticipated earnings fluctuations caused byinterest rate volatility. The University’s specific goal is to lower (where possible) the cost of itsborrowedfunds.TheUniversityhasaninterestrateswapagreementtoconvertvariable‐ratedebttoafixedrate,asdescribedinNote11.

Deferredcompensation–AclauseintheUniversityPresident'scontractentitleshimtooneyear'scompensationatthecompletionofa5‐yearterm,startingin2011.AsofJune30,2013and2012,thevalueoftheaccruedpresident'sdeferredcompensationwas$88,000and$44,000,respectively.Theliabilityisincludedinaccountspayableonthestatementoffinancialposition.

Federalincometaxes–Noprovisionforincometaxeshasbeenmadeinthefinancialstatementssince the University is exempt from federal income taxes under Internal Revenue Code Section501(c)(3). Additionally, the University has done an assessment of any uncertain tax positions asrequiredunderFASBaccountingstandardonAccountingforUncertaintyinIncomeTaxes(ASC740),andhasdetermineditcurrentlyhasnouncertaintaxbenefitstorecordasaliabilityatJune30,2013and2012. In addition, theUniversityhasnomaterialunrelatedbusiness incomesubject to taxatJune30,2013and2012.

Forms990and990T filedby theUniversity are subject to examinationsby the InternalRevenueService(IRS)uptothreeyearsfromtheextendedduedateofeachreturn.Generally,Forms990and990T filed by the University are no longer subject to examination for fiscal years ended prior toJune30,2010.


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Financialstatementpresentation–Netassets,revenues,expenses,gainsandlossesareclassifiedbasedontheexistenceorabsenceofdonor‐imposedrestrictions.NetassetsoftheUniversity,andchangestherein,areclassifiedintothefollowingthreecategories:

Unrestricted net assets – Unrestricted net assets represent expendable funds available tosupporttheUniversity’soperationsandareresourcesnotsubjecttodonor‐imposedrestrictions.

Certain funds included in theseamountshavebeendesignatedby theboardof trustees tobeutilizedforvariousprograms.

Temporarilyrestrictednetassets–Temporarilyrestrictednetassetsconsistofcontributionsrestricted by the donor for specific purposes or not available for use until a specific time.Temporarily restricted net assets include income derived from donated assets, if specificallyrestrictedbythedonor.Thisclassificationalsoincludesaccumulatednetinvestmentincomeinexcess of the original value of donor‐restricted investments unless such income is explicitlyrestrictedbythedonortobeaddedtotheendowmentcorpus.

Permanentlyrestrictednetassets–Permanentlyrestrictednetassetsconsistofcontributionswithdonor restrictions that stipulate thedonatedassetsbemaintainedpermanentlybutmaypermittheUniversitytouseorexpendpartoralloftheincomederivedfromthedonatedassetsforeitherspecifiedorunspecifiedpurposes.

Revenues are reported as increases in unrestricted net assets unless use of the related assets islimited by donor‐imposed restrictions. Expenses are reported as decreases in unrestricted netassets. Gains or losses on donor‐restricted endowment investments are reported as increases ordecreasesintemporarilyrestrictednetassetsuntilappropriatedbytheboardoftrustees.Gainsandlosses on nonendowment investments and other assets or liabilities are reported as increases ordecreases in unrestricted net assets unless their use is restricted by explicit donor stipulation.Expirations of temporary restrictions on net assets (i.e., the donor‐stipulated purpose has beenfulfilledorthestipulatedtimeperiodhaselapsed)arereportedonthestatementsofactivitiesasnetassetsreleasedfromrestriction.

Tuitionandfees–Studenttuitionandfeesarerecordedasrevenueonaratablebasisoverthetermofinstruction.ThemajorityoftheUniversity’sstudentsrelyonfundsreceivedfromvariousfederalfinancialaidprogramsunderTitleIVoftheHigherEducationActof1965,asamended,topayforasubstantial portion of their tuition. These programs are subject to periodic review by the USDE.DisbursementsundereachprogramaresubjecttodisallowancebytheUSDEandrepaymentbytheUniversity. In addition, as an educational institution, the University is subject to licensure fromvariousaccreditingandstateauthoritiesandotherregulatoryrequirementsoftheUSDE.Deferredrevenues represent primarily tuition from enrollment in summer school classes, which isattributabletothefollowingfiscalyear,andtuitiondepositsmadebystudentsinthecurrentfiscalyearthataretobeusedinfollowingyears.

Contributedservicesandlong‐livedassets–Thefairvalueofcontributedservicesisrecognizedinthefinancialstatementswhentheservicesreceivedcreateorenhancenonfinancialassets,requirespecializedskills,whichareprovidedby individualspossessing thoseskills,andwouldhavebeenpurchasedifnotdonated.TherewerenosignificantcontributedservicesreceivedbytheUniversityfortheyearsendedJune30,2013and2012.


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Contributions of long‐lived assets are reported at fair value in the period received. It is theUniversity’spolicytorecordgiftsof long‐livedassetsreceivedwithoutstipulationofhowlongthedonatedassetmustbeusedasunrestrictedsupport.Therewerenosignificantcontributionsoflong‐livedassetsreceivedbytheUniversityfortheyearsendedJune30,2013and2012.

Contributions–Contributions,includingunconditionalpromisestogive,arerecordedwhenithasbeendeterminedthatthereisalegalrighttothecontribution,andtheactualamounttobereceivedhas been determined. All contributions are available for unrestricted use unless specificallyrestrictedbythedonor.Conditionalpromisestogivearerecognizedwhentheconditionsonwhichtheydependaresubstantiallymet.Unconditionalpromisestogivedueafteroneyeararereportedatthepresentvalueofnetrealizablevalue,usingappropriateinterestratesapplicabletotheyearsinwhich the promises were received. Amortization of discounts is recorded as an additionalcontribution.

ItistheUniversity’spolicytotreatalltemporarilyrestrictednetassetsreceived,whoserestrictionsexpirewithinthecurrentaccountingperiod,asunrestricted.

Auxiliary enterprises – Auxiliary enterprises consist of revenues and expenses relating tooperationoftheresidencehalls, foodservicesandbookstore,andtherentaloffacilities.Revenuesfromauxiliaryenterprisesarerecordedatthetimetherelatedservicesareprovided.

Expense allocation – The cost of operations and maintenance of the physical plant includingdepreciationand interestcostrelated toplanthasbeenallocatedto functionalexpensecategoriesbasedoneachfunctionalexpensecategory'spercentoftotalexpenses.

Fundraising costs – The University incurred fundraising costs of approximately $520,000 and$570,000 for the years ended June30, 2013 and 2012, respectively, which are included ininstitutional support on the statements of activities. The related revenue from these activities isrecordedinothersources.

Subsequentevents–Subsequenteventsareeventsortransactionsthatoccurafterthestatementoffinancialpositiondatebutbeforefinancialstatementsareissued.TheUniversityrecognizesinthefinancial statements the effects of all subsequent events that provide additional evidence aboutconditions that existed at the date of the statement of financial position, including the estimatesinherentintheprocessofpreparingthefinancialstatements.TheUniversity’sfinancialstatementsdonotrecognizesubsequenteventsthatprovideevidenceaboutconditionsthatdidnotexistatthedateof the statementof financialpositionbut aroseafter the statementof financialpositiondateandbeforefinancialstatementsaretobeissued.

TheUniversityhasevaluatedsubsequenteventsthroughSeptember30,2013,whichisthedatethefinancialstatementsaretobeissued.


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Note3–StudentLoansandStudentAccountsReceivable

Student loans receivable represents loans from the Perkins loan fund that are generally payablewith interest between 3.00% and 5.00% over approximately 11 years following Universityattendance.Principalpayments,interest,andlossesduetocancellationaresharedbytheUniversityandtheU.S.governmentinproportiontotheirshareoffundsprovided.Theprogramprovidesforcancellationofloansifthestudentisemployedincertainoccupationsfollowinggraduation.Lossesfromemploymentcancellationsareabsorbed in fullby theU.S.government.At June30,2013and2012, student loans funded through the Perkins loan programwere $1,040,373 and $1,018,541,respectively.

Theavailabilityof funds for loansunderthePerkinsprogramisdependentonreimbursementstothe pool from repayments on outstanding loans. Funds advanced by the Federal government of$972,178atJune30,2013and2012areultimatelyrefundabletothegovernmentandareclassifiedas liabilities inthestatementof financialposition.Outstanding loanscancelledundertheprogramresult in a reduction of the funds available for loans and a decrease in the liability to thegovernment.

AtJune30,2013and2012,thefollowingamountswerepastdueunderstudentloanprograms:

Total1‐60Days 60‐90Days 90+Days PastDue

June30,2013 37,264$ 24,111$ 53,053$ 114,428$June30,2012 27,971 29,362 17,922 75,255

AmountsdueunderthePerkinsloanprogramareguaranteedbythegovernmentand,therefore,noreservesareplacedonanypastduebalancesundertheprogram.

Studentaccountsreceivablepolicyisthattuitionandfeesareduebythefirstdayofthesemester.Students and their families are offered monthly payment plans through Tuition ManagementSystems(TMS)and,insomecases,throughtheUniversityitself.AmountsowedthrougheitherTMSortheUniversityarerecordedasstudentaccountsreceivable.Areserveforbaddebtsiscalculatedeach year. For 2013, historical trends over several prior yearswereused to calculate an averagepercentage of the allowance for doubtful accounts. This percentage was applied to the currentbalance of student accounts to determine the allowance. For 2012, it was assumed 100% of theaccounts on the books for less than 60 days would be collectible, 75% of those on the booksbetween60and90dayswouldbecollectible,and65%of thoseon thebooksmore than90dayswould be collectible. Per the University's policy, an accountwith an established payment plan isdefinedaspastduewhenanyscheduledpaymentismorethantwoweekslate.

Total1‐60Days 60‐90Days 90+Days PastDue

June30,2013 1,988$ 111,808$ 554,317$ 668,113$June30,2012 909 16,280 422,374 439,563


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Note4–Investments

AtJune30,2013and2012,investmentsinequitysecuritiesthathavereadilydeterminablemarketvalues and all investments in debt securities are accounted for and reported at fair value.Investmentsreceivedbygiftareinitiallyrecordedatfairvalueatthedatethegiftisreceived.Cashsurrendervalueoflifeinsuranceisrecordedatcost.

Dividends,interestandotherinvestmentincomearereportedintheperiodearnedasincreasesinunrestrictednetassets,unlessdonor‐imposedrestrictionslimittheuseoftheassets,inwhichcasetheyarereportedasincreasesintemporarilyorpermanentlyrestrictednetassets.Gainsandlossesondonor‐restrictedendowmentinvestmentsarereportedasincreasesordecreasesintemporarilyrestricted net assets until appropriated by the board of trustees. Gains and losses on otherinvestments are reported as increases or decreases in unrestricted net assets, unless their use istemporarilyorpermanentlyrestrictedbyexplicitdonorstipulationorlaw.

TheaggregatecarryingamountofinvestmentsbymajortypeatJune30isasfollows:

2013 2012

InvestedcashSavingsaccounts 2,654,444$ 3,639,178$Moneymarketfunds 711,473 1,326,661

3,365,917 4,965,839

InvestmentsMutualfunds 9,856,824 1,423,192Commonstocks 4,533,938 6,934,472CertificatesofDeposit 281,078 ‐Cashsurrendervalueoflifeinsurance 12,228 11,923Bonds ‐ 4,356,152

14,684,068 12,725,739

18,049,985$ 17,691,578$

During2013, theUniversitymoved their investments toanewcustodianwhich invests inmutualfundsratherthanbonds.

The University also maintains a bond reserve investment totaling $2,567,007 and $2,566,732 atJune30, 2013 and 2012, respectively. These funds are invested in an interest‐bearing depositaccountandarecarriedatcost.

TheUniversityinvestsinvariousinvestmentsecurities,whichareexposedtovariousriskssuchasinterest rate,market and credit risks. Due to the level of risk associatedwith certain investmentsecurities, it isat leastreasonablypossiblethatchangesinthevaluesof investmentsecuritieswilloccur in thenear termand that such change couldmaterially impact the valueof the investmentsecuritiesheld.

Investmentincomehasbeenpresentednetofmanagementfees.Managementfeestotaled$55,255and$52,694fortheyearsendedJune30,2013and2012,respectively.


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Note5–FairValueMeasurements

Fairvalueisdefinedasthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityin an orderly transaction betweenmarket participants at themeasurement date. Fair value alsoestablishes a hierarchy which requires an entity to maximize the use of observable inputs andminimizetheuseofunobservableinputswhenmeasuringfairvalue.Thestandarddescribesthreelevelsofinputsthatmaybeusedtomeasurefairvalue:

Level1 – Quotedpricesinactivemarketsforidenticalassetsorliabilities.

Level2 – ObservableinputsotherthanLevel1prices,suchasquotedpricesforsimilarassetsorliabilities; quoted prices in markets that are not active; or other inputs that areobservableorcanbecorroboratedbyobservablemarketdataforsubstantiallythefulltermoftheassetsorliabilities.

Level3 – Unobservable inputs that are supported by little or nomarket activity and that aresignificanttothefairvalueoftheassetsorliabilities.

Thefollowingisadescriptionofthevaluationmethodologiesusedforinstrumentsmeasuredatfairvalueona recurringbasisandrecognized in theaccompanyingstatementof financialposition,aswell as the general classification of such instruments pursuant to the valuation hierarchy. TherehavebeennochangesinvaluationmethodologiesusedatJune30,2013and2012.

Investments

Where quotedmarket prices are available in an activemarket, investments are classifiedwithinLevel1 of the valuation hierarchy. In certain cases where Level 1 inputs are not available,investmentsareclassifiedwithinLevel2ofthehierarchy.TherewerenoLevel3investmentsasofJune30,2013orJune30,2012.

Common stock: Common stock is valued at the closing price reported on the activemarkets onwhichtheindividualsecuritiesaretraded.

Mutualfunds:Sharesofmutualfundsarevaluedatthenetassetvalue(NAV)ofsharesheldbythePlan and are valued at the closing price reported on the active market on which the individualsecuritiesaretraded.

Certificatesofdeposit:Certificatesofdepositarevaluedatfairvaluebydiscountingtherelatedcashflows based on current yields of similar instrumentswith comparable durations considering thecredit‐worthinessoftheissuer

InterestRateSwap

Thefairvalueoftheinterestrateswapiscalculatedandreportedbytheissuingbankasthepresentvalue of the difference between the fixed‐rate payments to be made by the University and thevariable‐ratepaymentstobereceivedbytheUniversityunderthetermsoftheswap.Thefixed‐ratepaymentsareknown,andthevariable‐ratepaymentsareestimatedbasedonthemarketyieldcurvethatareobservableorthatcanbecorroboratedbymarketdataand,therefore, isclassifiedwithinLevel2ofthevaluationhierarchy.


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Note5–FairValueMeasurements(continued)

The followingpresents thebalancesofassetsand liabilitiesmeasuredat fairvalueona recurringbasisbylevelwithinthehierarchyfortheyearsendedJune30.

QuotedPrices SignificantinActive Other SignificantMarketsfor Observable Unobservable

IdenticalAssets Inputs InputsFairValue (Level1) (Level2) (Level3)

Assets

InvestmentsCommonstock

U.S.marketableequities 3,182,454$ 3,182,454$ ‐$ ‐$Globalmarketequities 1,351,483 1,351,483 ‐ ‐

EquitymutualfundsSmallcapfunds 143,895 143,895 ‐ ‐Midcapfunds 652,420 652,420 ‐ ‐Largecapfunds 1,257,408 1,257,408 ‐ ‐Realestate 55,187 55,187 ‐ ‐Other 44,540 44,540 ‐ ‐Internationalfunds 2,145,059 2,145,059 ‐ ‐

FixedincomemutualfundsDebtfunds 4,958,667 4,958,667 ‐ ‐Assetallocationfunds 599,649 599,649 ‐ ‐

CertificatesofDeposit 281,078 ‐ 281,078 ‐

14,671,840$ 14,390,762$ 281,078$ ‐$

Liability

Interestrateswap 9,203,180$ ‐$ 9,203,180$ ‐$

FairValueMeasurementsasofJune30,2013


15

Note5–FairValueMeasurements(continued)

QuotedPrices SignificantinActive Other SignificantMarketsfor Observable Unobservable

IdenticalAssets Inputs InputsFairValue (Level1) (Level2) (Level3)

Assets

InvestmentsCommonstock

U.S.marketableequities 6,400,254$ 6,400,254$ ‐$ ‐$Globalmarketequities 534,217 534,217 ‐ ‐

EquitymutualfundsSmallcapfunds 146,605 146,605 ‐ ‐Midcapfunds 84,717 84,717 ‐ ‐Largecapfunds 511,916 511,916 ‐ ‐Realestate 88,570 88,570 ‐ ‐Internationalfunds 135,738 135,738 ‐ ‐

Fixedincomemutualfunds 455,646 455,646 ‐ ‐Bonds

U.S.Treasurybonds 949,202 ‐ 949,202 ‐Federalgovernmentagency 350,515 ‐ 350,515 ‐Corporatebonds 3,056,436 ‐ 3,056,436 ‐

12,713,816$ 8,357,663$ 4,356,153$ ‐$

Liability

Interestrateswap 12,203,040$ ‐$ 12,203,040$ ‐$

FairValueMeasurementsasofJune30,2012

Cashsurrendervalueoflifeinsuranceof$12,228and$11,923fortheyearsendedJune30,2013and2012,respectively,arenotincludedabove,asitiscarriedatcost.

Note6–ContributionsReceivable

Contributions receivable,whichareunconditionalpromises togive, are summarizedas followsatJune30:

2013 2012

ContributionstobecollectedInoneyearorless 393,392$ 3,990,500$Betweenoneyearandfiveyears 204,639 530,845

598,031 4,521,345

Lessdiscount 6,822 13,694

Netcontributionsreceivable 591,209$ 4,507,651$

Managementbelievesallbalancesarecollectible,andthereforenoallowancefordoubtfulaccountsisnecessary.


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Note7–ConditionalContributions

During the year ended June 30, 2011, the University received conditional pledges totaling$4,500,000,contingentontheUniversitymeetingcertainconditionsrelatedtotheconstructionofanewengineeringbuilding.ConditionsweremetduringtheyearendedJune30,2012andthepledgewasrecognizedascontributionrevenue.

Note8–FixedAssets

Landimprovements,buildingsandequipmentwithacostgreaterthan$2,500ormoreandausefullifeofoneyeararerecordedatcostor, ifdonated,at fairvalueat thedateofgift.Depreciation iscomputed on the straight‐line basis over the estimated useful lives of buildings and landimprovements(15to50years)andequipment(3to15years).Equipmentretirementsareremovedfromtherecordsatthetimeofdisposal.

FixedassetscomprisethefollowingatJune30:

2013 2012

Landimprovements 3,577,329$ 3,526,731$Buildings 72,012,307 64,846,905Equipment 16,163,284 14,940,998Constructioninprogress 59,815 5,253,298

91,812,735 88,567,932Lessaccumulateddepreciation 31,882,664 29,070,136

59,930,071$ 59,497,796$

Constructioncommitments –During the2011 fiscalyear, theUniversityentered intoacontractforconstructionoftheengineeringbuilding.Constructioninprogressforbothyearsrelatedtotheengineeringbuilding.Theprojectwascompletedduring the2013 fiscalyear.Asof June30,2013,therewerenooutstandingconstructioncommitments.

Capitalizedinterest–TheUniversityfollowsthepolicyofcapitalizinginterestasacomponentoffixedassetsforself‐constructedprojects. Interest incurredonfundsusedduringconstruction,lessinterest earned on related interest‐bearing investments, is capitalized as a cost of construction.Interest of $132,000 and zero was capitalized for the years ended June30, 2013 and 2012,respectively.

Note9–LineofCredit

During the year ended June 30, 2012, the University entered into a non‐revolving line of creditagreementwithU.S.Bankwithamaximumadvancementof$5,000,000foruseinconstructingtheengineering building. The line of credit included interest at 3% plus one month LIBOR ratecollateralizedbyaleaseholddeedoftrustontheengineeringbuilding.DuringtheyearendedJune30, 2013, the engineering building was completed and placed into service and the outstandingbalancewaspaiddowntozero.ThelineofcreditexpiredJune30,2013.


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Note10–AnnuitiesPayable

Assets received under trusts are recorded at fair value in the investment account and totaled$1,546,583and$1,539,967atJune30,2013and2012,respectively.Oftheseamounts,$876,980and$611,628 relate to charitable gift annuities at June30, 2013 and 2012, respectively. The relatedreceivableorliabilityiscalculatedbasedonthelifeexpectancyofthebeneficiaryorthetermoftheagreement,discountedattheapplicablefederalratepertheIRStables.AtJune30,2013and2012,liabilities under the charitable trusts are reported as annuities payable, totaling $1,104,993 and$1,040,962, respectively. Of these amounts, $709,228 and $565,787 relate to charitable giftannuitiesatJune30,2013and2012,respectively.

TheUniversity'sunrestrictednetassetsmeet theminimumamountrequired to issueannuities inthestateofWashington.

Note11–BondsandOtherPayables

BondsandotherpayablesconsistofthefollowingatJune30:

2013 2012

32,520,000$ 33,185,000$

PayabletoSt.Martin'sAbbey(Note16). 586,937 618,474

33,106,937$ 33,803,474$

SaintMartin'sUniversity2007WashingtonHigherEducationFacilitiesAuthorityVariableRateDemandRevenueandRefundingRevenuebondspayabletoWellsFargoBank,astrustee,issuedJune28,2007.Interestshallbepaidmonthlyonthefirstbusinessdayofeachmonthaslongasthebondsbearinterestattheweeklyordailyrate.Variableannualprincipalpayments($625,000in2012and$665,000in2013)commencedFebruary1,2008andextendthroughfinalmaturityofthebondsFebruary1,2037.ThebondsaresecuredbyanirrevocabledirectpayletterofcreditissuedbyUSBankinfavorofthetrusteetotaling$34,753,763,whichshallbeequaltotheprincipalamountofthebondsoutstandingplusanamountequalto37daysofaccruedinterest.Unlessextended,theletterofcreditissettoexpireJune15,2014.Additionally,theUniversityhaspledgedasecurityinterestintheunrestrictedrevenues,gains,andothersupportforcollateralforthebonds.


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Note11–BondsandOtherPayables(continued)

In the event the University is unsuccessful in renewing the letter of credit, the following is asummaryoftheannualmaturitiesofthebondsandotherpayables,basedonthestatedtermsofthebondsandtheletterofcreditagreementatJune30,2013:

2014 32,554,000$2015 37,0002016 39,0002017 43,0002018 46,000Thereafter 387,937

33,106,937$

A summary of the approximate annualmaturities of the bonds andother payables, assuming thedebtispaidasagreed,forfutureyearsendingJune30isasfollows:

2014 739,000$2015 787,0002016 834,0002017 883,0002018 936,000Thereafter 28,927,937

33,106,937$

OnJune28,2007,WashingtonHigherEducationFacilitiesAuthority(theAuthority),pursuanttoanIndenture of Trust dated June 1, 2007, between the Authority and Wells Fargo Bank, NationalAssociation, as trustee, issued$36,000,000of tax‐exempt, variable‐ratedemandbonds toprovidefundstotheUniversityforthefollowingpurposes:1)refundthefollowingbonds:a)RevenueBonds(SaintMartin’sCollege)Series1995C (theSeries1995Bonds),b)VariableRateDemandRevenueBonds(SaintMartin’sCollegeProject),Series2002(theSeries2002Bonds),andc)RevenueBond(Streamlined Tax‐Exempt Placement Program: Saint Martin’s College Project), Series 2005 (theSeries 2005 Bonds); 2) finance the construction and equipping of facilities on the University’scampus in Lacey, Washington (the Nonprofit Facilities); 3) reimburse the University forpredevelopment and capital costs expended for the Nonprofit Facilities; 4) fund a debt servicereservefund;and5)paythecostsofissuingtheBonds(collectively,theProject).

The interest rate was 0.15% and 0.18% at June30, 2013 and 2012, respectively. Issuance costs,aggregating $464,338, have been capitalized and are being amortized over the 30‐year life.Accumulatedamortizationtotaled$92,867and$77,389atJune30,2013and2012,respectively.

TheUniversity’screditagreement,associatedwiththeissuanceofthebonds,containsseveralratioandcovenantrequirements.Requirementsincludecashflowcoverageandliquidityratios.

TheUniversityenteredintoaninterestswapagreementwithUSBank,withafixedinterestrateof4.965%perannum.TheinterestrateswapagreementmaturesJuly2025.Thefairvalueoftheswapagreementwasaliabilityof$9,203,180and$12,203,040atJune30,2013and2012,respectively.


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Note11–BondsandOtherPayables(continued)

Asdiscussedpreviously,theUniversityhasenteredintointerestrateswapagreementstohedgetheUniversity’sexposuretointerestrateriskrelatedtoitsvariable‐ratebonds.TheUniversity’sspecificgoalistolower(wherepossible)thecostofitsborrowedfundsovertheborrowingterm.Theswapisrecordedonthestatementsoffinancialpositionasaninterestrateswapatitsfairmarketvalue,with changes in fair value recognized in current period change in unrestricted net assets. ThefollowingamountshavebeenincludedonthestatementofactivitiesfortheyearsendedJune30:

2013 2012

Interestexpense 1,630,000$ 1,610,488$Unrealized(gains)lossesoninterestrateswap (2,999,860) 3,848,254

(1,369,860)$ 5,458,742$

As of June30, 2013 and 2012, the total notional amount of the University’s pay‐fixed, receive‐variableinterestrateswapwas$32,520,000and$33,185,000,respectively.

Note12–GovernmentGrantsRefundable

Government grants refundable represent refundable advances made by the federal governmentunder the University’s Perkins Federal Loan Program. There were no new advances under theprogramduringtheyearsendedJune30,2013and2012.

Note13–TemporarilyRestrictedandPermanentlyRestrictedNetAssets

TemporarilyrestrictednetassetsaresubjecttothefollowingdonorrestrictionsatJune30:

2013 2012

Scholarshipsandfellowships 2,598,343$ 2,581,576$Investmentinplant 871,961 988,583Other 311,314 320,034

3,781,618$ 3,890,193$

PermanentlyrestrictednetassetsasofJune30,2013and2012representtheoriginalcorpusoftheendowmentgifts.Thefundsarerestrictedforthefollowingpurposes:

2013 2012

Endowmentscholarships 9,661,558$ 7,883,381$Other 337,667 470,628

9,999,225$ 8,354,009$


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Note14–Board‐DesignatedUnrestrictedNetAssets

During the year ended June 30, 2004, the board committed to using designated unrestricted netassetstofundconstructionofthenewdormitory,SpanglerHall.Thisrequiredareclassificationof$4,500,000board‐designatedfundsfrom“Endowment/Scholarships”to“MaintenanceofPlant.”Theboard intends to restore the amount reclassified from Endowment/Scholarships in full over 20years.Atransferof$54,308wasmadeduringtheyearendedJune30,2013.

Note15–EndowmentFundandNetAssetClassification

The University’s endowments consist of various donor restricted endowment funds and fundsdesignatedasquasiendowmentsbytheboardoftrustees.

The University’s endowment consists of approximately 100 individual funds established for avariety of purposes. Its endowment includes both donor‐restricted endowment funds and fundsdesignated by the board of trustees to function as endowments. As required byGAAP, net assetsassociatedwithendowmentfunds, includingfundsdesignatedbytheboardoftrusteestofunctionas endowments, are classified and reported based on the existence or absence of donor‐imposedrestrictions.

Interpretationofrelevantlaw–TheUniversityhasinterpretedtheUniformPrudentManagementof InstitutionalFundsAct (UPMIFA)adoptedby the2009Washington legislatureasrequiring thepreservation of the fair value of the original gift as of the gift date of the donor‐restrictedendowment funds absent explicit donor stipulations to the contrary. As a result of thisinterpretation,theUniversityclassifiesaspermanentlyrestrictednetassets:(a)theoriginalvalueofgifts donated to the permanent endowment, (b) the original value of subsequent gifts to thepermanentendowment, and (c)accumulations to thepermanentendowmentmade inaccordancewiththedirectionoftheapplicabledonorgiftinstrumentatthetimetheaccumulationisaddedtothe fund. The remaining portion of the donor‐restricted endowment fund that is not classified inpermanently restricted net assets is classified as temporarily restricted net assets until thoseamounts are appropriated for expenditure by the University in a manner consistent with thestandardof prudenceprescribedby the stateofWashington in its enactedversionofUPMIFA. InaccordancewithUPMIFA,theUniversityconsidersthefollowingfactorsinmakingadeterminationtoappropriateoraccumulatedonor‐restrictedendowmentfunds:(1)thedurationandpreservationof theEndowmentFund; (2) thepurposesof theUniversityand thedonor‐restrictedEndowmentFund; (3) general economic conditions; (4) the possible effect of inflation and deflation; (5) theexpectedtotalreturnfromincomeandtheappreciationof investments;(6)otherresourcesoftheUniversity;and(7)theinvestmentpoliciesoftheUniversity.


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Note15–EndowmentFundandNetAssetClassification(continued)

EndowmentnetassetcompositionbytypeoffundasofJune30:

Temporarily PermanentlyUnrestricted Restricted* Restricted Total

2013

Donor‐restrictedendowmentfunds ‐$ 2,232,741$ 9,999,225$ 12,231,966$Board‐designatedendowment\

scholarshipfunds 2,887,793 ‐ ‐ 2,887,793

Totalfunds 2,887,793$ 2,232,741$ 9,999,225$ 15,119,759$

2012

Donor‐restrictedendowmentfunds ‐$ 1,716,237$ 8,354,009$ 10,070,246$Board‐designatedendowment\

scholarshipfunds 2,603,604 ‐ ‐ 2,603,604

Totalfunds 2,603,604$ 1,716,237$ 8,354,009$ 12,673,850$

*Thesefundsconsistofaccumulatedearningsavailabletofundfuturescholarships.

ChangesinendowmentnetassetsforthefiscalyearsendedJune30:


2013

Endowmentnetassets,beginningofyear 2,603,604$ 1,716,237$ 8,354,009$ 12,673,850$

InvestmentreturnInvestmentincome 255,661 1,333,334 ‐ 1,588,995Netdepreciation,realized

andunrealized (80,347) (79,931) ‐ (160,278)175,314 1,253,403 ‐ 1,428,717

InterestonQuasi‐endowmentloanpayment 252,450 (252,450) ‐ ‐

Quasi‐endowmentloanpayment 54,308 ‐ ‐ 54,308306,758 (252,450) ‐ 54,308

TransferfromAnnuity ‐ ‐ 236,560 236,560Contributions 10,000 ‐ 1,408,656 1,418,656

Expendituresappropriated (207,883) (484,449) ‐ (692,332)

Endowmentnetassets,endofyear 2,887,793$ 2,232,741$ 9,999,225$ 15,119,759$


22



2012

Endowmentnetassets,beginningofyear 2,053,141$ 2,308,549$ 8,229,728$ 12,591,418$

InvestmentreturnInvestmentincome 28,239 149,898 ‐ 178,137Netappreciation(depreciation),

realizedandunrealized 6,543 (297,407) ‐ (290,864)34,782 (147,509) ‐ (112,727)

InterestonQuasi‐endowmentloanpayment 252,450 (252,450) ‐ ‐

Quasi‐endowmentloanpayment 454,471 ‐ ‐ 454,471706,921 (252,450) ‐ 454,471

Contributions 10,200 ‐ 124,281 134,481

Expendituresappropriated (201,440) (192,353) ‐ (393,793)

Endowmentnetassets,endofyear 2,603,604$ 1,716,237$ 8,354,009$ 12,673,850$

Fundswithdeficiencies–From time to time, the fair value of assets associatedwith individualdonor‐restrictedendowmentfundsmayfallbelowthelevelthatthedonorrequirestheUniversityto retain as a fund of perpetual duration. Deficiencies, should they occur,would be the result ofunfavorable market fluctuations that occurred shortly after the investment of new, permanentlyrestricted contributions and continued appropriation for certain programs that were deemedprudentbytheboardoftrustees.AtJune30,2013and2012,theUniversityhadnosuchdeficienciestobereportedinunrestrictednetassets.

Returnobjectivesandriskparameters–TheUniversityhasadopted investmentand spendingpoliciesforendowmentassetsthatattempttoprovideapredictablestreamoffundingtoprogramssupported by its endowmentwhile seeking tomaintain the purchasing power of the endowmentassets. Endowment assets include those assets of donor‐restricted funds that theUniversitymustholdinperpetuityorforadonor‐specifiedperiod(s)aswellasboard‐designatedfunds.Underthispolicy,asapprovedbytheboardoftrustees,theendowmentassetsareinvestedinamannerthatisintendedtoproduceappropriateresultswhileassumingamoderatelevelofinvestmentrisk.

Strategiesemployedforachievingobjectives–Tosatisfyitslong‐termrate‐of‐returnobjectives,theUniversity relies on a total return strategy inwhich investment returnsareachieved throughbothcapitalappreciation(realizedandunrealized)andcurrentyield(interestanddividends).TheUniversity targets a diversified asset allocation that places a greater emphasis on equity‐basedinvestmentstoachieveitslong‐termreturnobjectiveswithinprudentriskconstraints.


23


Spendingpolicyandhowtheinvestmentobjectivesrelatetospendingpolicy–TheUniversityhas a policy of appropriating for distribution each year 5%of its endowment fund’s average fairvalueovertheprior16quartersthroughthefiscalyear‐endprecedingthefiscalyearinwhichthedistributionisplanned.By2017,thespendingpercentagewillbereducedto4%byreducingitby25basis points per year. The amount of the distribution in 2013was 4.75%. In establishing thispolicy, the University considered the long‐term expected return on its endowment. Accordingly,over the long term, theUniversityexpects thecurrent spendingpolicy toallow itsendowment togrowatanaverageof3%annually.ThisisconsistentwiththeUniversity’sobjectivetomaintainthepurchasingpoweroftheendowmentassetsheldinperpetuityorforaspecifiedtermaswellastoprovideadditionalrealgrowththroughnewgiftsandinvestmentreturn.

Note16–Related‐PartyTransactions

Related‐PartyLeases

St.Martin’sAbbey(theAbbey)holds title toand is landlord forall realestateassociatedwith theUniversity’s campus. It has been the policy and practice of the Abbey to allow the University toutilizetherealestateforpurposesofoperatinganinstitutionofhighereducation.

Atvarioustimes,theAbbeyhasenteredintoleaseagreementswiththeUniversityfortheuseofthepremises under and surrounding certain buildings located on the University’s campus. The leaseagreementsaregenerallylongterminnatureandprovideforrenewaloptionsattheconclusionoftheoriginalleaseterm.Additionally,byspecificprovisionoftheleasedocuments,anannualrentfortheleaseperiodisnotrequiredtobepaidbytheUniversity.ManagementhasdeterminedthatthefairvalueofthecontributionofsuchlandtotheUniversity,atthedateoftheunderlyinglease,wasnotmaterialtothefinancialstatementsand,assuch,hasnotrecordedthelandasadonation.

PayablestoSt.Martin'sAbbey

Duringtheyears1993through1996,theAbbey,asownerofthepropertyknownasSaintMartin’sCampus, developed and constructed new potable and storm water, and sanitary and irrigationsystemsnecessarytomeettheneedsoftheAbbeyandtheUniversity.Thisconstructionwasdoneinthreephases:Phase I ‐domesticwater;Phase II ‐ sanitarysewerandwastewater;andPhase III ‐irrigation.

TheUniversity’sallocatedshareofcostsunderthethreephasesrepresentstheinfrastructurecostsfromtheAbbey.

NotespayableduetotheAbbeyfortheUniversity’sshareof infrastructurecostsatJune30areasfollows:

2013 2012

Notepayable,datedOctober19,1994,forPhaseIandPhaseIIcosts,withmonthlypaymentsof$5,220includinginterestat7.5%perannum,dueJune1,2024,unsecured. 468,314$ 494,753$

Notepayable,datedOctober22,1996,forPhaseIIIcosts,withmonthlypaymentsof$1,184includinginterestat7.5%perannum,dueSeptember1,2026, 118,623 123,721

586,937$ 618,474$


24

Note16–Related‐PartyTransactions(continued)

Related‐Party–Other

FortheyearsendedJune30,2013and2012,theUniversityreceivedvariousgifts fromtheAbbeytotaling $225,200 and $160,060, respectively. As of June30, 2013 and 2012, the University hadaccountsreceivablefromtheAbbeyof$24,255and$38,927.

MembersoftheUniversity’sBoardofTrusteesandseniormanagementmay,fromtimetotime,beassociated either directly or indirectly with companies doing business with the University. Forseniormanagement,theUniversityrequiresannualdisclosureofsignificantfinancialinterestsin,oremployment or consulting relationships with, entities doing business with the University. Theseannualdisclosurescoverbothseniormanagementandtheirimmediatefamilymembers.Whensuchrelationshipsexist,measuresaretakentoappropriatelymanagetheactualorperceivedconflictinthe best interests of the University. The University has a written conflict of interest policy thatrequires, among other things, that no member of the Board of Trustees can participate in anydecision in which he or she (or an immediate family member) has a material financial interest.When such relationships exist, measures are taken to mitigate any actual or perceived conflict,including requiring that such transactions be conducted at arm’s length, for good and sufficientconsideration,basedontermsthatarefairandreasonabletoandforthebenefitoftheUniversity,andinaccordancewithapplicableconflictof interest laws.Nosuchassociationsareconsideredtobesignificant.

Note17–PensionPlan

The University has a defined contribution pension plan under Internal Revenue Code Section403(b). The plan covers all regular employees,working at least 1,000 hours per year, who havecompleted one year of service with the University and reached 21 years of age. The Universitycontributionratewas8%asofJune30,2013and2012,resultingintotalcontributionsfor2013of$815,135andfor2012of$832,693.

Note18–CommitmentsandContingencies

Regulationandlitigation–TheUniversityreceivesfundingorreimbursementfromgovernmentalagenciesforvariousactivitieswhicharesubjecttonumerouslawsandregulationsoffederal,state,and localgovernments.Compliancewiththese lawsandregulationscanbesubjecttogovernmentreviewandinterpretation,aswellasregulatoryactions.TheUniversityissubjecttosuchregulatoryreviews and, while these reviews may result in repayments and/or civil remedies, managementbelieves, based on its current knowledge and information, that such repayments and/or civilremedies,ifany,wouldnothaveamaterialeffectontheUniversity’sfinancialposition.

AsofJune30,2013and2012,theUniversityisnotcurrentlyinvolvedinlegalproceedingsarisinginthe ordinary course of operations. In the opinion ofmanagement, there are nomatters thatwillmateriallyaffecttheUniversity’sfinancialposition.

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