UNIVERSITY OF ALASKA
and
UNIVERSITY OF ALASKA FOUNDATION
CONSOLIDATED ENDOWMENT FUND
Financial Statements
June 30, 2009 and 2008
(With Independent Auditor’s Report Thereon)
UNIVERSITY OF ALASKA
and
UNIVERSITY OF ALASKA FOUNDATION
CONSOLIDATED ENDOWMENT FUND
TABLE OF CONTENTS
Page
Statements of Assets and Liabilities
1
Statements of Operations and Changes in Net Assets
2
Statements of Cash Flows
3
Notes to Financial Statements
4
KPMG LLP
Suite 600
701 West Eighth Avenue
Anchorage, AK 99501
Independent Auditors' Report
The Board of Trustees
University of Alaska and University of Alaska
Foundation Consolidated Endowment Fund:
We have audited the accompanying statements of assets and liabilities of the University of Alaska and
University of Alaska Foundation Consolidated Endowment Fund as of June 30, 2009 and 2008, and the
related statements of operations and changes in net assets and cash flows for the years then ended.
These financial statements are the responsibility of the University of Alaska and University of Alaska
Foundation Consolidated Endowment Fund's management. 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. These standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the University of Alaska and University of Alaska Foundation Consolidated Endowment
Fund at June 30, 2009 and 2008, and the changes in its net assets and cash flows for the years then
ended, in conformity with U.S. generally accepted accounting principles.
December 15, 2009
KPMG LLP, a U.S. limited liability partnership, is the U.S.
member firm of KPMG International, a Swiss cooperative.
UNIVERSITY OF ALASKA
and
UNIVERSITY OF ALASKA FOUNDATION
CONSOLIDATED ENDOWMENT FUND
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2009 and 2008
2009
Assets
Cash and cash equivalents
Fixed income securities
Equity securities
Alternative investments
Real estate partnerships and investment trusts
Other investments
Interest and dividends receivable
$
Total assets
2008
23,851,939
36,680,276
79,449,850
52,316,633
6,049,368
198,348,066
Liabilities
-
$
6,255
56,269,967
114,187,940
74,218,437
12,811,410
1,776,243
22,433
259,292,685
-
Net Assets
University of Alaska
University of Alaska Foundation
Total net assets
108,861,995
89,486,071
143,071,174
116,221,511
$ 198,348,066
$ 259,292,685
$188.10
Net Asset Value Per Unit
The accompanying notes are an integral part of the financial statements
1
$251.89
UNIVERSITY OF ALASKA
and
UNIVERSITY OF ALASKA FOUNDATION
CONSOLIDATED ENDOWMENT FUND
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
For the years ended June 30, 2009 and 2008
Investment Income
2009
Interest and dividend income
Operating losses from alternative investments
Other investment income
$
Net investment income before expenses
3,440,598
(390,375)
-
2008
$
4,499,772
(199,099)
201,627
3,050,223
4,502,300
182,656
53,106
1,061
21,349
366,013
50,000
17,521
9,699
258,172
443,233
2,792,051
4,059,067
(63,860,375)
(13,047,254)
(61,068,324)
(8,988,187)
(8,358,942)
(1,936,501)
10,419,148
(7,321,197)
(1,293,555)
10,351,674
Net Decrease in Net Assets
(60,944,619)
(7,251,265)
Net assets, beginning of year
259,292,685
Expenses
Management fees
Investment consulting fees
Custodial fees
Audit fees
Total expenses
Net investment income
Realized and Unrealized Investment Losses
Net realized and unrealized investment losses
Net Decrease in Net Assets Resulting from Operations
Distributions for endowment spending
Distributions for endowment assessments
Additional investments
Net assets, end of year
$
198,348,066
The accompanying notes are an integral part of the financial statements
2
266,543,950
$
259,292,685
UNIVERSITY OF ALASKA
and
UNIVERSITY OF ALASKA FOUNDATION
CONSOLIDATED ENDOWMENT FUND
STATEMENTS OF CASH FLOWS
For the years ended June 30, 2009 and 2008
Cash flows from operating activities:
2009
Net decrease in net assets from operations
Adjustments to reconcile net decrease in net assets resulting
from operations to net cash provided by (used in) operating activities:
Purchases of investments
Proceeds from distributions or sale of investments
Net realized and unrealized loss on investments
Decrease in interest and dividends receivable
$
Net cash provided by (used in) operating activities
2008
(61,068,324)
$
(8,988,187)
(14,332,583)
35,240,078
63,860,375
22,432
(99,268,010)
93,395,795
13,047,254
81,812
23,721,978
(1,731,336)
10,419,148
(8,358,941)
(1,936,501)
10,351,674
(7,321,197)
(1,293,555)
Cash flows from financing activities:
Additions
Spending distributions
Endowment assessments
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
123,706
1,736,922
23,845,684
5,586
6,255
669
23,851,939
The accompanying notes are an integral part of the financial statements
3
$
6,255
UNIVERSITY OF ALASKA
and
UNIVERSITY OF ALASKA FOUNDATION
CONSOLIDATED ENDOWMENT FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
1. Organization
The Consolidated Endowment Fund (fund) was established July 1, 1997 to combine, for
investment purposes, certain assets of the University of Alaska (university) Land-Grant
Endowments and the University of Alaska Foundation (foundation) Pooled Endowment Fund.
The fund is managed by the foundation through its investment committee and treasurer.
The university’s Land-Grant Endowments consist of the Endowment Trust Fund, which is codified
in Alaska Statute 14.40.400, and its companion Inflation-Proofing Fund. The source of the
funding consists of income from the sale or lease of land granted to the university by an Act of
Congress approved January 21, 1929, other gifts and bequests and funds dedicated to the
purposes of the Endowment Trust Fund by the Board of Regents.
The Foundation Pooled Endowment Fund includes endowment and similar funds contributed to
the foundation that do not have specific investment restrictions. Earnings from the Pooled
Endowment Fund are for the support of the university, subject to donor imposed restrictions.
Investments of the fund may be held in the name of the foundation, the university, the fund, or
any fund or nominee as may be authorized by the foundation’s treasurer.
In preparing the financial statements, management is required to make estimates that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of
the date of the statements of assets and liabilities and operations for the period. Actual results
may differ from those estimates and those differences could be material. The more significant
accounting and reporting policies and estimates applied in the preparation of the accompanying
financial statements are discussed below.
2. Summary of Significant Accounting Policies
The financial statements are prepared using the accrual basis of accounting.
Due to the endowment nature of the fund, all assets, including cash and cash equivalents, are
considered non-current assets held for long-term investment. Cash and cash equivalents include
highly liquid short-term investments including an overnight repurchase agreement and a money
market account that invests in short-term US Treasury securities.
The fund is managed under the “total return” concept of investment management intended to
preserve and maintain the purchasing power of the principal. This approach emphasizes total
investment return - traditional yield or investment income, and net realized and unrealized gains
and losses.
The fund uses a unitized system to account for each participant’s interest. Contributions to and
withdrawals from the fund result in an increase or decrease in the number of units owned and are
based on the unit value at the beginning of the month in which the contribution or withdrawal is
made. Large additions to the fund are initially invested in cash and cash equivalents and dollar –
cost-averaged into the investment pool over a ten month period. Investment income, fees and
realized and unrealized gains and losses are allocated monthly to participating funds on a per
unit basis. Investment income net of fees increases the number of units outstanding, while
realized and unrealized gains and losses affect the per unit value.
4
UNIVERSITY OF ALASKA
and
UNIVERSITY OF ALASKA FOUNDATION
CONSOLIDATED ENDOWMENT FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
2. Summary of Significant Accounting Policies, continued
Valuation
Investments in fixed income and equity marketable securities are stated at fair value based on
quoted market prices. Investments in private partnership interests are valued at fair value, as
determined in good faith by the general partner. The general partner’s evaluation of fair value is
based upon the most recent available financial information provided to the partnership, adjusted
by amounts necessary to reflect the fair value of the investment at the measurement date, if any.
The fair value of each partnership does not necessarily represent the amounts that may
ultimately be realized since such amounts depend upon future circumstances that cannot
reasonably be determined until the investment is actually liquidated. Real estate partnerships and
funds are valued based on appraisals of properties held and conducted by third-party appraisers
retained by the general partner or investment manager. General partners of marketable
alternatives provide values based on quoted market prices and exchange rates for publicly held
securities and valuation estimates of derivative instruments. General partners of oil and gas
partnerships use third-party appraisers to value properties. Valuations provided by the general
partners and investment managers are evaluated by management and management believes
such values are reasonable at June 30, 2009. The net realized and unrealized appreciation
(depreciation) in fair value of investments is reflected in the statement of operations.
Fair value estimates are made at a point in time, based on relevant market data as well as the
best information available about the financial instrument. Fair value estimates for financial
instruments for which no or limited observable market data is available are based on judgments
regarding current economic conditions, liquidity discounts, currency, credit and interest rate risks,
loss experience and other factors. These estimates involve significant uncertainties and
judgments and cannot be determined with precision. As a result, such calculated fair value
estimates may not be realizable in a current sale or immediate settlement of the instrument. In
addition, changes in the underlying assumptions used in the fair value measurement technique,
including discount rates, liquidity risks, and estimates of future cash flows, could significantly
affect these fair value estimates. Because of the inherent uncertainty of valuation, this estimated
value may differ from the value that would have been used had a ready market for these
investments existed, and the differences could be material.
Fair Value Measurement
Effective July 1, 2008, the fund adopted Statement of Financial Accounting Standards No. 157,
Fair Value Measurements (FAS 157). This standard clarifies the definition of fair value for
financial reporting, establishes a hierarchal disclosure framework for measuring fair value and
requires additional disclosures about the use of fair value measurements.
The hierarchy established under FAS 157 requires the classification of the fund’s investments into
three levels, based on the lowest level of input that is significant to each fair value measurement.
The FAS 157 hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The
three levels of the fair value hierarchy under FAS 157 are described below:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement
date for identical assets or liabilities.
5
UNIVERSITY OF ALASKA
and
UNIVERSITY OF ALASKA FOUNDATION
CONSOLIDATED ENDOWMENT FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
2. Summary of Significant Accounting Policies, continued
Level 2 – Quoted prices for similar assets or liabilities, or inputs that are observable, either
directly or indirectly, in markets that are either active or inactive. This includes alternative
investments valued at net asset value or equivalent in accordance with FAS 157-g.
Level 3 – Pricing inputs are unobservable for the asset or liability and are based on the fund’s
own assumptions about the assumptions that market participants would use in pricing the asset
or liability. Level 3 includes investments that are supported by little or no market activity.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. The inputs or methodology used for
valuing investments are not necessarily an indication of the risk associated with investing in those
investments.
The following table presents the investments carried on the Statement of Assets and Liabilities by
caption and by level within the valuation hierarchy as of June 30, 2009.
Level 1
Fixed income
Equity securities
Alternative investments
Real estate
$
Total
$
Level 2
-
$
-
$
Level 3
35,708,073
79,449,850
17,008,244
1,675,967
$
133,842,134
$
972,203
Total
$
36,680,276
79,449,850
52,316,633
6,049,368
$
174,496,127
35,308,389
4,373,401
40,653,993
The following table includes a rollforward of the amounts for the year ended June 30, 2009 for
investments classified within Level 3.
Balance, July 1, 2008
Additions
Withdrawals
Net investment losses included in Investment Income
Net realized gain
Net change in unrealized loss
$
64,791,237
11,601,865
(17,926,672)
(316,445)
367,025
(17,863,017)
Balance, June 30, 2009
$
40,653,993
All net realized and unrealized gains and losses in the table above are reflected in the
accompanying Statement of Operations and Changes in Net Assets in net realized and
unrealized investment losses and relate to investments still held at the reporting date.
Effective June 30, 2009, the fund elected to apply the concepts of the proposed FASB Staff
Position No. FAS 157-g, Estimating the Fair Value of Investments in Investment Companies That
Have Calculated Net Asset Value per Share in Accordance with the AICPA Audit and Accounting
Guide, Investment Companies, to its alternative investments including hedge funds, private
equity funds, real estate funds, venture capital funds and fund of funds. The guidance amends
6
UNIVERSITY OF ALASKA
and
UNIVERSITY OF ALASKA FOUNDATION
CONSOLIDATED ENDOWMENT FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
2. Summary of Significant Accounting Policies, continued
FAS 157 and permits, as a practical expedient, fair value of investments within its scope to be
estimated using net asset value (NAV) or its equivalent. The NAV reported by each fund is used
as a practical expedient to estimate the fair value of the fund’s interest therein and its
classification in Level 2 or 3 is based on the fund’s ability to redeem its interest at or near the
date of the Statement of Assets and Liabilities. If the interest can be redeemed in the near term,
the investment is classified in Level 2. The classification of investments in the fair value
hierarchy is not necessarily an indication of the risks, liquidity, or degree of difficulty in estimating
the fair value of each investment’s underlying assets and liabilities.
As of June 30, 2009, the estimated fair value of the fund’s alternative investments totaled $174.5
million. The limitations and restrictions on the fund’s ability to redeem or sell these investments
vary by investment and range from required notice periods (generally 30 to 90 days after initial
lock-up periods) for certain absolute return or hedge funds, to specified terms at inception
(generally 12 years) associated with private capital interests. Based upon the terms and
conditions in effect at June 30, 2009, the fund’s alternative investments can be redeemed or sold
as follows:
Fiscal Year
2010
2011
2012
2013
2014
2015-2019
Thereafter
Amounts
$
$
145,819,532
2,370,209
4,411,933
1,868,672
5,279,958
9,488,597
5,257,226
174,496,127
Included in Fixed Income is an investment in Commonfund Short Term Fund. On September 29,
2008, the Fund received notice from Commonfund that Wachovia Bank, in its capacity as trustee,
would initiate the termination of the fund, stop accepting deposits, establish a process for orderly
termination of the fund’s assets, and resign as trustee. As part of this action the trustee placed a
limit on participant withdrawals. This limit was initially 10 percent of the value of collected
participant balances on September 26, 2008, and had risen to approximately 89 percent, as of
June 30, 2009, based on cash availability from sales and maturities within the portfolio. The limit
was at 92 percent as of October 19, 2009. The fund’s balance in Commonfund Short Term Fund
was $1.0 million and $0.7 million as of June 30, 2009 and October 19, 2009, respectively. The
fund expects to collect the remaining balance in fiscal year 2010.
Included in Alternative Investments is an investment in Crestline Event Arbitrage Offshore Fund,
Ltd. On February 23, 2009, the Fund received notice that Crestline would be unable to meet the
liquidity requirements for June 30, 2009 redemption requests. Those investors who did not
choose to transfer to another Crestline fund would be compulsorily redeemed and would begin to
receive cash distributions from Crestline as liquidity improved. The Fund has received
distributions from Crestline subsequent to June 30, 2009 totaling $4.3 million and this amount is
included in the redemption schedule above for fiscal year 2010. The fund’s balance in Crestline
Event Arbitrage Offshore Fund, Ltd was approximately $8.1 million and $3.9 million as of June
7
UNIVERSITY OF ALASKA
and
UNIVERSITY OF ALASKA FOUNDATION
CONSOLIDATED ENDOWMENT FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
2. Summary of Significant Accounting Policies, continued
30, 2009 and October 19, 2009, respectively. The remaining balance of $3.9 million is included in
the redemption schedule above for redemptions after 2019 due to the uncertain timing.
Subsequent Events
In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165,
Subsequent Events, (FAS 165). FAS 165 establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date but before financial statements are
issued or are available to be issued. It requires disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date. FAS 165 is effective for interim or
annual financial periods ending after June 15, 2009. In connection with the adoption of FAS 165,
management has evaluated subsequent events through December 15, 2009, the date the
financial statements were available to be issued, and no subsequent events were identified which
required accrual or disclosure. The fund is heavily dependent upon the investment markets. In
general, public market conditions have rebounded substantially and private capital valuations
have improved but lagged the public markets. Real estate continues to be challenged by tight
credit markets, low valuations and occupancy issues. These investments could experience
further declines in value.
3. Commitments
The fund had commitments to make capital contributions to various alternative investments and
real estate investment trusts totaling $16 and $21 million at June 30, 2009 and 2008.
4. Asset Allocation
The asset allocation of the fund’s investments was as follows:
Cash and equivalents
Fixed income, domestic
Equities, domestic
Equities, foreign
Equities, global
Alternative investments
Real estate partnerships and investment trusts
Other investments
8
2009
12.0%
18.5%
24.6%
11.7%
3.7%
26.4%
3.1%
-
2008
21.7%
26.8%
11.8%
5.5%
28.6%
4.9%
.7%
100%
100%
UNIVERSITY OF ALASKA
and
UNIVERSITY OF ALASKA FOUNDATION
CONSOLIDATED ENDOWMENT FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2009 and 2008
5. Changes in Net Asset Balances
Changes in net asset balances by participant were as follows:
6. Distributions
Distributions from the fund are based on spending policies established by each participant and
assessments charged by the foundation to cover administrative and fundraising expenses.
9