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FLORIDA ATLANTIC UNIVERSITY FOUNDATION, INC.NOTES TO FINANCIAL STATEMENTSJune 30,2009 and 2008NOTE 1 - ORGANIZATION AND OPERATIONSFlorida Atlantic University Foundation (the "Foundation") is organized under Florida Law as adirect support organization to Florida Atlantic University (the "University"). Our mission is toreceive, hold, invest and administer private gifts on behalf of the University. We operateindependently from the University, and have qualified under Internal Revenue Code Section 501(c)(3), and Florida Statutes Chapter 1004.28. Any person or organization contributing money, stockor any other property in support of the University does so through the Foundation.NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of presentation:Financial statement presentation follows the recommendation of the Financial AccountingStandards Board in its Statement of Financial Accounting Standards (SFAS) No. 117, FinancialStatements of Not-for-Profit Organizations. Under SFAS No. 117, we are required to reportinformation 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.Restricted and unrestricted revenue and sumort:Contributions received are recorded as unrestricted, temporarily restricted, or permanentlyrestricted support, depending on the existence andfor nature of any donor restrictions.Support that is restricted by the donor is reported as an increase in unrestricted net assets if therestriction expires in the reporting period in which the support is recognized. All other donorrestricted support is reported as an increase in temporarily or permanently restricted net assets,depending on the nature of the restriction. When a restriction expires (that is, when a stipulated timerestriction ends or purpose restriction is accomplished), temporarily restricted net assets arereclassified to unrestricted net assets and reported in the statements of activities as net assets releasedfi-om restrictions.Pledges:Unconditional pledges are recognized as revenues or gains in the period received and as assets,decreases of liabilities, or expenses depending on the form of the benefits received. These amounts,less an allowance for potentially uncollectible pledges are reported on a net present value basis usingthe Federal Reserve discount rate in effect at year-end. Conditional pledges are recognized when theconditions on which they depend are substantially met.Cash and cash equivalents:We consider all highly liquid investments with a maturity of three months or less whenpurchased to be cash equivalents. We routinely maintain balances with financial institutions in excessof federally insured amounts.

FLORIDA ATLANTIC UNIVERSITY FOUNDATION, INC.NOTES TO FINANCIAL STATEMENTSJune 30,2009 and 2008NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Donated goods and services:We receive donated goods and services, paying for most services requiring specific expertise.The value of donated goods is recorded in the financial statements as revenue and is either capitalizedor expensed to the University. Donated goods, including art and library collections, and servicesother than in-kind resources contributed by the University were approximately 382,000 and 408,000 and were recorded at their fair market value for the years ended June 30,2009 and 2008,respectivelyArt and librarv collections:We capitalize certain donated art and library collections at their appraised or fair value on theacquisition date. Because of the particular purpose of the donation, some collections are transferredimmediately to the University.Use of estimates:The preparation of financial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affect certain reportedamounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.Real property and improvements:Real property and improvements are carried at cost if purchased or, if donated, at the fair valueon the date of the donation, less accumulated depreciation. Our policy is to provide for depreciationusing the straight-line method over the estimated life of the asset as follows:Buildings and improvements45-50 yearsDonated property and equipment are reported as unrestricted support unless the donor hasrestricted the donated asset to a specific purpose. Assets donated with explicit restrictions regardingtheir use and contributions of cash that must be used to acquire property and equipment are reported asrestricted support. Without donor stipulations regarding how long those donated assets must bemaintained, we report expirations of donor restrictions when the donated assets are placed in service,reclassifying temporarily restricted net assets to unrestricted net assets at that time. We generallytransfer title of donated property and equipment to the recipient college or school. Examples of giftsin-kind that we may retain as our property are real estate, certain artwork and library collections andproperty that we hold for future sale.Additions and major renewals to property and equipment are capitalized if greater than 1,000. Maintenance and repairs are charged to expense when incurred. The cost and accumulateddepreciation of assets sold or retired are removed from the respective accounts and any gain or loss isreflected in the change in net assets.Funds held in trust by others:We are the sole beneficiary of certain trusts that are not in our possession or under our control,but are held and administered by outside trustees. We recognize the estimated fair value of the assetsor the present value of the future cash flows when the irrevocable trust is established or when we arenotified of its existence.8

FLORIDA ATLANTIC UNIVERSITY FOUNDATION, INC .NOTES TO FINANCLAL STATEMENTSJune 30,2009 and 2008NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)Joint costs of fundraising ameals:The Foundation conducts activities that include requests for contributions, as well as programand management and general components. Those activities included direct mailings, special eventsand award ceremonies. The costs of conducting those activities include a total of 92,859 of jointcosts in 2009 and 371,537 in 2008, which are not specifically attributable to particular componentsof activities (joint costs). These joint costs were allocated as follows:FundraisingManagement and GeneralProgramTotalRefundable advances:We record any cash collected on conditional pledges or grants as a refundable advance untilsuch time as the condition has been met (Note 5). Refundable advances as of June 30,2009 and 2008were 267,005 and 2,690, respectively.Advertising costs :We invest in direct response solicitations through our annual fund program. Our expectation isto solicit an immediate response from our constituents. Therefore, all advertising costs are expensedimmediately and are not capitalized. The total cost of advertising in 2009 and 2008 was 69,493 and 58,131, respectively. These costs include advertising for vacant positions, requests for proposalsand events, as well as solicitations.Reclassifications:Certain prior year amounts have been reclassified to be consistent and comparable with thecurrent year financial statement presentation.Investments :Our investment policy provides for our investment portfolio to be managed by professionalmoney managers and to be invested primarily in domestic and international equity, fixed incomesecurities, and alternative investments such as hedge funds, private equity and real assets, according tospecified allocations, except where donor restrictions may apply. These investments are recorded attheir fair value based on publicly available trading values, where applicable (Note 3). All investmentsecurities are held in the Foundation's name or in custody ("for the benefit of ') in the Foundation'sname.In accordance with this policy, net unrealized appreciation or depreciation for the year isreflected in the accompanying statements of activities. Investment income and losses are allocated toeach fund on a monthly basis, based on the average daily balance for each fund.We had net unrealized losses of ( 38,855,222) and net realized losses of ( 1,004,803) at June30, 2009 and net unrealized losses of ( 20,036,489) and net realized gains of 13,206,468 at June30,2008. These amounts are included in the statements of activities under net realized and unrealizedgains (losses) on investments.

FLORIDA ATLANTIC UNIVERSITY FOUNDATION, INC.NOTES TO FINANCIAL STATEMENTSJune 30, 2009 and 2008NOTE 3 - INVESTMENTS AND INVESTMENTS RETURNInvestments at June 30, 2009 and 2008 consisted of the following at their fair value:United States large cap stocksUnited States small cap stocksTotal United States stocksInternational large and mid cap stocksInternational emerging marketsInternational small cap stocksTotal international stocksTotal equitiesUnited States fixed incomeCertificates of depositInternational fixed incomeTotal fixed incomeHedge fundsReal assetsPrivate equityTotal otherTotal investmentsFunds held in trust by others at June 30,2009 and 2008 consisted of the following at their fairvalue:United States equitiesInternational fixed incomeCash and cash equivalentsTotal investments

FLORIDA ATLANTIC UNIVERSITY FOUNDATION, INC.NOTES TO FINANCIAL STATEMENTSJune 30, 2009 and 2008NOTE 3 - INVESTMENTS AND INVESTMENTS RETURN (continued)We invest in hedging activities in order to mitigate the risk inherent with market fluctuations.Our hedge fund managers may invest in derivative instruments. At June 30,2009 we invested 13.8%of our managed portfolio with hedge fund managers. The different strategies employed by eachmanager was allocated as follows: total absolute return strategies 6.5 % , longlshort credit 3 % ,longlshort equity 2.5 % , emerging markets 1.0% , and short credit 0.8 % .As of June 30, 2009 we have approximately 8,500,000 in commitments related toinvestments in private equity and real assets.Fair Value Measurement:Effective July 1, 2008, the Foundation adopted Statement of Financial Accounting StandardsNO. 157 ("FAS 157"). FAS 157 establishes a fair value hierarchy that prioritizes the inputs tovaluation t

Florida Atlantic University Foundation, Inc . Boca Raton, Florida We have audited the accompanying statements of financial position of Florida Atlantic University