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ROBERTS WESLEYAN COLLEGE AND SUBSIDIARY. Consolidated Financial Statements as of June 30, 2006 Together with Independent Auditors Report

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ROBERTS WESLEYAN COLLEGE

AND SUBSIDIARY

Consolidated Financial Statements as of June 30, 2006

Together with

Independent Auditors’ Report

(2)

Corporate Crossings 171 Sully’s Trail Pittsford, NY 14534-4557 p (585) 381-1000 f (585) 381-3131 ROCHESTER • BUFFALO PERRY • GENEVA SYRACUSE www.bonadio.com

INDEPENDENT AUDITORS’ REPORT

August 23, 2006

To the Board of Trustees of Roberts Wesleyan College:

We have audited the accompanying consolidated statement of financial position of Roberts Wesleyan College (a New York not-for-profit corporation) and Subsidiary (the College) as of June 30, 2006, and the related consolidated statements of activities and change in net assets and cash flows for the year then ended. These consolidated financial statements are the responsibility of the College’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The prior year summarized comparative information has been derived from the College’s 2005 consolidated financial statements, and in our report dated August 25, 2005, we expressed an unqualified opinion on those financial statements.

We conducted our audit in accordance with auditing standards generally accepted in the United States and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Roberts Wesleyan College and Subsidiary as of June 30, 2006, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

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2006 2005

ASSETS

Cash and cash equivalents $ 7,032,928 $ 9,587,619

Accounts receivable, net 2,344,744 1,775,873

Prepaids, deferred expenses and other assets 574,645 261,886 Notes and loans receivable, net 1,997,092 1,998,368 Pledges and contributions receivable, net 2,557,874 4,234,704

Investments 27,909,089 22,770,230

Property and equipment, net 34,346,140 32,898,527

Remainder trusts receivable and interest in perpetual trusts 297,536 297,090

Due from Northeastern Seminary, net - 866,794

Total assets $ 77,060,048 $ 74,691,091

LIABILITIES AND NET ASSETS

LIABILITIES:

Accounts payable $ 1,082,179 $ 1,383,178

Accrued payroll and payroll taxes 277,167 809,315

Deferred revenue, deposits and agency funds 1,326,221 1,658,554

Long-term debt 1,250,013 1,350,013

Present value of annuities payable 1,404,626 1,366,238

Interest-rate swap liability 88,907 500,033

Asset retirement obligation 214,464

-Due to Northeastern Seminary, net 139,706

-Refundable grant 2,178,317 2,150,160 Total liabilities 7,961,600 9,217,491 NET ASSETS: Unrestricted: Operating 11,438,236 11,275,166 Quasi-endowment 9,143,876 8,077,217

Student loan programs 415,424 417,937

Net investment in plant 33,317,268 31,773,090

Annuity and life income 326,773 282,800

Total unrestricted 54,641,577 51,826,210

Temporarily restricted:

Operating 320,722 382,953

Capital campaign 8,279,443 7,674,880

Annuity, life income and endowment 608,840 606,906 Total temporarily restricted 9,209,005 8,664,739 Permanently restricted:

Endowment 4,331,107 4,047,653

Annuity and life income 916,759 934,998

Total permanently restricted 5,247,866 4,982,651

Total net assets 69,098,448 65,473,600

Total liabilities and net assets $ 77,060,048 $ 74,691,091

ROBERTS WESLEYAN COLLEGE AND SUBSIDIARY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION JUNE 30, 2006

(With Comparative Totals for 2005)

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Temporarily Permanently

Unrestricted Restricted Restricted 2006 2005 REVENUE AND SUPPORT:

Tuition and fees $ 30,697,058 $ - $ - $ 30,697,058 $ 29,063,898 Less: Institutional student aid (6,818,390) - - (6,818,390) (6,636,361)

Net tuition and fees 23,878,668 - - 23,878,668 22,427,537 Government appropriations 186,551 - - 186,551 198,210

Royalty income 468,160 - - 468,160 441,512

Sales and services of auxiliary enterprises 4,767,831 - - 4,767,831 4,868,771 Private gifts and contracts 584,350 70,975 - 655,325 736,717 Investment income allocated to operations 1,430,726 - - 1,430,726 495,655 Other 1,663,630 172,190 - 1,835,820 1,698,236 Total revenues and other additions 32,979,916 243,165 - 33,223,081 30,866,638 Net assets released from restrictions 315,163 (295,163) (20,000) - -Net revenue and support 33,295,079 (51,998) (20,000) 33,223,081 30,866,638 OPERATING EXPENSES:

Educational and general -

Instruction 16,005,018 - - 16,005,018 14,384,207 Academic support 1,871,343 - - 1,871,343 1,803,047 Student services 4,518,708 - - 4,518,708 4,151,054 Institutional support 4,624,818 - - 4,624,818 4,245,371

Fundraising 757,774 - - 757,774 602,189

Total educational and general 27,777,661 - - 27,777,661 25,185,868 Auxiliary enterprises 2,333,157 - - 2,333,157 2,217,162 Loan cancellations and provision for bad debts 105,894 - - 105,894 271,371

Interest 172,955 - - 172,955 230,200

2,612,006 - - 2,612,006 2,718,733 Total operating expenses 30,389,667 - - 30,389,667 27,904,601 SURPLUS/(DEFICIT) FROM OPERATING ACTIVITIES 2,905,412 (51,998) (20,000) 2,833,414 2,962,037 NON-OPERATING ACTIVITIES:

Private gifts and contracts 49,048 594,331 - 643,379 5,238,102 Endowment and life income gifts 1,673 - 242,668 244,341 276,288 Investment income, net of amounts allocated to operations 1,105,757 31,270 67,610 1,204,637 595,972 Contribution to Northeastern Seminary (1,042,500) - - (1,042,500) (42,500) Other (7,163) (29,337) (25,063) (61,563) (14,216) INCREASE FROM NON-OPERATING ACTIVITIES 106,815 596,264 285,215 988,294 6,053,646 CHANGE IN NET ASSETS BEFORE CUMULATIVE EFFECT OF

CHANGE IN ACCOUNTING PRINCIPLE 3,012,227 544,266 265,215 3,821,708 9,015,683 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (196,860) - - (196,860) -CHANGE IN NET ASSETS 2,815,367 544,266 265,215 3,624,848 9,015,683 NET ASSETS - beginning of year 51,826,210 8,664,739 4,982,651 65,473,600 56,457,917 NET ASSETS - end of year $ 54,641,577 $ 9,209,005 $ 5,247,866 $ 69,098,448 $ 65,473,600

Total

ROBERTS WESLEYAN COLLEGE AND SUBSIDIARY

CONSOLIDATED STATEMENT OF ACTIVITIES AND CHANGE IN NET ASSETS

(With Comparative Totals for 2005) FOR THE YEAR ENDED JUNE 30, 2006

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2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES:

Change in net assets $ 3,624,848 $ 9,015,683 Adjustments to reconcile change in net assets

to net cash flow from operating activities:

Depreciation 1,596,494 1,582,146

Contribution to Northeastern Seminary 1,042,500 42,500

Allowance for doubtful accounts 98,883 199,647

Contributions received for long-term investment (1,025,223) (5,703,487) Change in value of interest rate swap agreement (411,126) 334,047 Net realized and unrealized gain on investments (2,082,699) (804,106)

Adjustment to annuities payable 54,764 (64,234)

Asset retirement obligation 214,464

-Changes in:

Accounts receivable (667,754) 54,214

Pledges and contributions receivable 1,676,830 (2,401,710) Prepaids, deferred expenses and other assets (312,759) (89,593) Due to/ from Northeastern Seminary (36,000) (44,604)

Accounts payable (300,999) 108,335

Accrued payroll and payroll taxes (532,148) 53,161 Deferred revenue, deposits and agency funds (332,333) 21,119 Net cash flows from operating activities 2,607,742 2,303,118 CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities/ sales of investments 2,674,259 30,965,001

Purchase of investments (5,730,419) (33,951,805)

Student loans advanced (461,907) (475,162)

Student loans collected 458,518 413,445

Purchases of property and equipment (3,044,107) (1,348,569)

Other loans collected 4,665 8,210

Net change in remainder and perpetual trust agreements (446) 16,563 Net cash flows from investing activities (6,099,437) (4,372,317) CASH FLOWS FROM FINANCING ACTIVITIES:

Contributions received for long-term investment 1,025,223 5,703,487

Payments on annuities payable (68,740) (67,526)

Payment of debt principal (100,000) (100,000)

Annuities payable matured 52,364 368,661

Net change in refundable grant 28,157 19,123

Net cash flows from financing activities 937,004 5,923,745 CHANGE IN CASH AND CASH EQUIVALENTS (2,554,691) 3,854,546 CASH AND CASH EQUIVALENTS - beginning of year 9,587,619 5,733,073 CASH AND CASH EQUIVALENTS - end of year $ 7,032,928 $ 9,587,619

ROBERTS WESLEYAN COLLEGE AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(With Comparative Totals for 2005)

FOR THE YEAR ENDED JUNE 30, 2006

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ROBERTS WESLEYAN COLLEGE AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2006

1. THE ORGANIZATIONS

Roberts Wesleyan College is an independent, co-educational, Christian liberal arts college. College Greene Residences, Inc. (CGRI) is a for-profit wholly-owned subsidiary of Roberts Wesleyan College. CGRI is a general partner in College Greene Rental Associates, L. P. (CGRA), whose operations consist of retirement community real estate sales and rentals.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Roberts Wesleyan College and CGRI (collectively the College). All significant intercompany accounts and transactions have been eliminated.

Basis of Accounting

The financial statements of the College have been prepared in conformity with accounting principles generally accepted in the United States.

Financial Reporting

The College classifies its operations into the following net asset categories: • Unrestricted Net Assets

Unrestricted net assets are those assets that are available for use to support the operations of the College. Restricted contributions and investment income for which restrictions are met within the same year as the contribution is received are recorded as unrestricted revenue. • Temporarily Restricted Net Assets

Temporarily restricted net assets are those assets whose use by the College has been limited by donors to a specific time or purpose restriction. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified as unrestricted net assets and reported in the statements of activities as net assets released from restrictions. In the absence of donor specification that income and gains on donated funds are restricted, such income and gains are reported as unrestricted.

• Permanently Restricted Net Assets

Permanently restricted net assets are those assets that have been restricted by donors to be maintained by the College in perpetuity.

Cash and Cash Equivalents

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounts Receivable

Accounts receivable represents amounts due from students related to tuition and fees, and loans provided. The College records an allowance for doubtful accounts based on prior experience and a review of specific accounts. Accounts for which no payments are received for a period of time, which varies by the nature of the receivable, are considered delinquent and written-off or sent to collections, as appropriate.

Pledges and Contributions Receivable

Pledges and contributions receivable represent amounts due the College under the terms of unconditional promises to give. Payments to be received after June 30, 2006 are recorded at their estimated net present value using a discount rate of 5%.

Investments

Investments in equity securities with readily determinable fair values and all investments in debt securities are measured at fair market value. Alternative investments consist of funds of funds and investments in real estate and are stated at fair market value utilizing the net asset valuations provided by the underlying private investment companies, unless management determines some other valuation is more appropriate. Unrealized gains or losses on such securities result from differences between the cost and fair market value of securities on a specified valuation date. Investment securities are exposed to various risks, such as interest rate, market, economic conditions, world affairs and credit risks. Due to the level of risk associated with certain investment securities, it is possible that changes in their values could occur in the near term and such changes could materially affect the net assets of the College.

Property and Equipment

Property and equipment is stated at cost, or, in the case of gifts, at the fair value at the date of donation. Expenditures for maintenance, repairs and renewals of relatively minor items are not capitalized. The College’s policy is to capitalize property and equipment purchases greater than $10,000. Impairment losses are recognized when the carrying value of an asset exceeds its fair value. The College regularly assesses all of its long-lived assets for impairment and recognizes impairment losses in the period the loss occurs. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Such assets and lives are generally as follows:

Buildings and building improvements 25 - 50 years Furniture, fixtures, library books and equipment 3 - 20 years

Split-Interest Agreements

The College is the trustee and beneficiary of various charitable gift annuities and other split-interest agreements. The College’s beneficial split-interest is measured at the discounted value of its expected future cash flows and is reported as either unrestricted, temporarily restricted or permanently restricted net assets based on the donor’s gift agreements.

Deferred Revenue

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Refundable Grant

Refundable grant represents capital contributions received from the federal government to fund the Perkins loan program. This is a revolving fund that increases as students repay their loans and decreases as new loans are disbursed. These funds are ultimately due back to the federal government if the program were to cease.

Operating and Non-Operating Investment Income

Certain private gifts and contracts and investment related income items are segregated by management as operating or non-operating revenues. Generally, gifts such as annual fund campaign gifts support the annual scholarship activity of the College and are classified as operating. Additionally, some donors give temporarily restricted gifts designated to support on-going operations of the College beyond the annual fund campaign. With regards to investment income, the College allocates 5% of its 3-year rolling average of its endowment funds to operations to fund scholarships. Interest income on short-term working capital or interest income from student short-term payment plans also are designated as operating. Private gifts and contracts designated for capital purposes are classified as non-operating. Endowment and other restricted investment income is recorded as non-operating activity and is reported net of activity allocated to fund current operations as described above.

Income taxes

Roberts Wesleyan College is a not-for-profit corporation exempt from income taxes as an organization qualified under Section 501(c)(3) of the Internal Revenue Code. Roberts Wesleyan College has also been classified as an organization that is not a private foundation.

CGRI is a for-profit corporation organized under Section 402 of the New York State Business Corporation Law.

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation.

Comparative Information

The financial statements include certain prior year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the College’s financial statements for the year ended June 30, 2005, from which the summarized information was obtained.

Estimates

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3. RECEIVABLES Accounts Receivable

The allowance for doubtful accounts related to accounts receivable totaled $1,071,472 and $972,589 at June 30, 2006 and 2005, respectively.

Pledges and Contributions Receivable

Contributions of private support are recorded as revenue upon receipt of the unconditional promise to give. Contributions receivable are expected to be paid as follows for the years ending June 30: 2007 $ 921,805 2008 524,397 2009 554,022 2010 357,827 2011 164,356 Thereafter 390,728 2,913,135 Less: Discount (355,261) $ 2,557,874

Notes and Loans Receivable

Notes and loans receivable consist of the following at June 30:

2006 2005

Perkins loans receivable $ 2,288,678 $ 2,285,289

Other 52,302 56,967

2,340,980 2,342,256 Less: Allowance for doubtful accounts (343,888) (343,888)

$ 1,997,092 $ 1,998,368

4. INVESTMENTS

The cost and fair value of investments were as follows at June 30:

2006 2005

Fair Fair

Cost Value Cost Value Cash management funds $ 897,289 $ 892,566 $ 569,347 $ 569,407 Fixed income securities 5,436,754 5,581,643 3,900,200 3,938,712 Equity securities 15,750,402 16,752,206 13,736,862 14,123,168 Alternative investments 3,640,610 3,936,336 3,025,610 3,024,248 Cash surrender value of life insurance 722,562 722,562 686,817 686,817

Other 23,776 23,776 427,197 427,878

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4. INVESTMENTS (Continued)

Investment income is comprised of the following at June 30:

2006 2005

Interest and dividends, net $ 1,194,133 $ 835,923

Realized gains, net 358,421 297,078

Unrealized gains (losses), net 1,099,309 (24,873)

Management fees (16,500) (16,501)

2,635,363 1,091,627 Less: Investment income allocated to operations (1,430,726) (495,655) Non-operating investment income $ 1,204,637 $ 595,972 The College is currently spending five percent of the average endowment investment fair value for the preceding three years ($341,600 and $344,230 for 2006 and 2005, respectively). This allocation is recorded as operating revenue.

Total net assets of the endowment and quasi-endowment were $13,521,210 and $12,173,101 for 2006 and 2005, respectively.

5. PROPERTY AND EQUIPMENT

The major classifications of property and equipment were as follows at June 30:

2006 2005

Land and improvements $ 704,802 $ 704,802

Buildings 40,861,434 40,093,902

Equipment 9,501,306 9,213,008

Library books 2,699,889 2,482,396

Construction-in-progress 2,174,740 410,759

55,942,171 52,904,867 Less: Accumulated depreciation (21,596,031) (20,006,340)

$ 34,346,140 $ 32,898,527

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6. LONG-TERM DEBT

Long-term debt is comprised of the following at June 30:

2006 2005

Loans payable $ 1,024,013 $ 1,124,013

Notes payable 226,000 226,000

$ 1,250,013 $ 1,350,013

Loans Payable

The College constructed student housing in 1996 which was financed by a $1,100,000, 20-year mortgage at 7.25% interest and a $900,000 20-year bank loan at a floating interest rate (LIBOR + 75 basis points which was 6.44% at June 30, 2006) collateralized by quasi-endowment investments with a market value of approximately $2,600,000. Principal payments are $100,000 for each fiscal year through 2016 and $25,000 for fiscal year 2017.

Notes Payable

At June 30, 2006, notes payable consisted of unsecured notes to individuals, payable upon demand. Interest only payments are made quarterly based on a floating rate of interest adjusted semiannually based on the LIBOR rate, currently at 5.69%.

Line-of-Credit

The College has a $1,000,000 line of credit with HSBC Bank. Borrowings against the line bear interest at the bank’s prime rate (8.25% at June 30, 2006) or the LIBOR rate plus 1.50% (7.19% at June 30, 2006). There were no outstanding borrowings on the line at June 30, 2006 or 2005.

Interest

Cash paid for interest was approximately $173,000 and $229,000 for the years ended June 30, 2006 and 2005, respectively.

7. RESTRICTED NET ASSETS

Temporarily restricted net assets were released as follows at June 30:

2006 2005

Capital campaign $ - $ 2,063,551

Scholarships - 30,883

Operations 295,163 174,333

$ 295,163 $ 2,268,767

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8. EMPLOYEE BENEFIT PLANS

Retirement Plan

Employees are eligible to participate in a 403(b) contributory retirement plan under arrangements with the Teachers Insurance and Annuity Association and College Retirement Equities Fund and Fidelity Investments. The College contributes an amount equal to employee contributions, but not exceeding 5% of the respective employees’ annual gross income. The total plan expense amounted to approximately $531,000 and $453,000 in 2006 and 2005, respectively. All required contributions to these plans have been made.

Deferred Compensation Plan

The College sponsors a 457(b) deferred compensation plan for eligible employees. The College does not contribute to this plan.

9. NORTHEASTERN SEMINARY

Northeastern Seminary (the Seminary) is an independent, co-educational graduate school of theology whose Charter was issued by the University of the State of New York on July 17, 1998. The Seminary is located on the campus of Roberts Wesleyan College (the College) but is a legally separate organization with its own self-perpetuating Board of Trustees.

The Seminary owed the College $137,794 and $101,794 at June 30, 2006 and 2005, respectively, for expenses paid on the Seminary’s behalf.

The College and the Seminary entered into an annually renewable lease agreement for grounds. The lease agreement calls for the Seminary to pay rent of $10,000 a year, which is subject to price index adjustments beginning on July 1, 2004. In 2006, rent payments totaled $10,625. In 2003, the College and the Seminary entered into a one-year renewable operating lease for classrooms in Roberts Hall. Under the agreement, the College pays the Seminary $40,000 annually in equal monthly installments.

In 2003, the College entered into a Note Agreement (the Note) with the Seminary. This note receivable bears interest at the ninety day U.S. Treasury Bill rate (4.87% at June 30, 2006). The payments due in 2006 and 2005 were forgiven in the form of a contribution to the Seminary. The note is due from the Seminary in yearly payments noted below:

2007 $ 42,500 2008 42,500 2009 42,500 2010 42,500 2011 42,500 Thereafter 510,000 $ 722,500

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10. HOUSING FOUNDATION

During 2002, the College began providing residence hall management services for Davison Hall. Davison Hall is located on the College’s campus but is owned by HDF-RWC Project 1, LLC, (the Company) a limited liability company whose sole member is Housing Foundation Development, Inc. (the Foundation). The Foundation was formed to assist higher education institutions and other tax-exempt organizations address their housing needs with development, construction, financing and management services. The Company has leased land from the College for a 30-year term, and was the beneficiary of $5,880,000 in County of Monroe Industrial Development Agency (COMIDA) variable rate demand revenue bonds and $215,000 in COMIDA taxable variable rate demand revenue bonds to finance the cost of acquiring, constructing, furnishing and equipping the 200-bed residence hall and to pay the costs of issuance and other certain administrative costs. The bonds are secured by a mortgage on the facility, an assignment of the leases and rents and a letter of credit issued by a third party bank. The College is not liable for any payments related to the COMIDA revenue bonds. The ground lease expires on September 1, 2030 and provides for an annual rent equal to net available cash flow, as defined in the ground lease agreement. The College received approximately $199,000 and $309,000 in payments during the years ended June 30, 2006 and 2005, respectively, related to the ground lease agreements. These amounts are recorded as sales and services of auxiliary enterprises in the consolidated statement of activities and change in net assets.

The management agreement between the College and the Company provides for the College to supervise the renting of the dwelling units (including the collection of rents and other charges), oversee compliance by tenants, maintain the facility in good repair, make arrangements for utilities and other services (including computer network and telecommunication services) and provide minimum staffing within the residence hall. The College also makes disbursements from the funds collected to pay for amounts due under the COMIDA bonds, property taxes, insurance premiums and other such expenses. The College receives an annual management fee equal to 5% of collected revenues. This fee amounted to approximately $43,000 in both 2006 and 2005 and is recorded as sales and services of auxiliary enterprises in the consolidated statement of activities and change in net assets. The agreement continues on successive one-year terms unless either party elects to terminate the agreement.

11. DERIVATIVE INSTRUMENT

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12

11. DERIVATIVE INSTRUMENT (Continued)

The fair value of the interest swap agreement was $(88,907) and $(500,033) at June 30, 2006 and 2005, respectively, and was recorded as a liability on the consolidated statement of financial position. The change in the fair value of the interest rate swap agreement during fiscal 2006 and 2005 was included as investment income (loss) allocated to operations on the consolidated statement of activity. Risk management strategies, such as interest rate swap agreements, are reviewed by the College Business Affairs Committee and approved by the College’s Board of Trustees.

12. COMMITMENTS AND CONTINGENCIES Operating Lease Agreement

The College leases classroom space under the terms of an operating lease agreement with Pearce Memorial Free Methodist Church. Rental expense for fiscal 2006 and 2005 was approximately $45,000 and $37,000, respectively. Minimum payments under these lease agreements are as follows for the years ending June 30:

2007 $ 37,464 2008 37,464 2009 37,464 2010 37,464 2011 37,464 Thereafter 256,896 $ 444,216 Construction Agreement

In May 2006 the College entered into an agreement with The Pike Company, Inc. for construction services relating to the construction of the B. Thomas Golisano Library at an estimated cost of $8,300,000. As of June 30, 2006, approximately $300,000 has been expended for construction.

13. CHANGE IN ACCOUNTING PRINCIPLE

In March 2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (FIN 47), an interpretation of FASB 143, “Asset Retirement Obligations”. FIN 47 clarifies that the term “conditional asset retirement obligation” as used in the FASB 143 includes a legal obligation associated with the retirement of a tangible long-lived asset in which the timing and/ or method of settlement is conditional on a future event that may or may not be within the control of the entity. An entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated, even if conditional on a future event. The College has conditional asset retirement obligations primarily associated with asbestos abatement costs for certain of its facilities. The College adopted FIN 47 in 2006 and recognized the following:

Increase in buildings, net $ 3,433

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13. CHANGE IN ACCOUNTING PRINCIPLE (Continued)

Pro forma effects of retroactively applying FIN 47 (as if it had been applied during all years reports) are as follows:

Pro forma net income - 2005 $ 9,002,343 Asset retirement obligation at July 1, 2005 $ 188,597 Asset retirement obligation at June 30, 2005 $ 201,115

14. FUNCTIONAL EXPENSES

On a functional basis the College’s operating expenses are classified as follows for the years ended June 30:

2006 2005

Program services $ 25,007,075 $ 23,057,041

Management and general 4,624,818 4,245,371

Fundraising 757,774 602,189

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Corporate Crossings 171 Sully’s Trail Pittsford, NY 14534-4557 p (585) 381-1000 f (585) 381-3131 ROCHESTER • BUFFALO PERRY • GENEVA SYRACUSE www.bonadio.com 14

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN

ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

August 23, 2006

To the Board of Trustees of Roberts Wesleyan College:

We have audited the consolidated financial statements of Roberts Wesleyan College and Subsidiary as of and for the year ended June 30, 2006, and have issued our report thereon dated August 23, 2006. We conducted our audit in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting

In planning and performing our audit, we considered Roberts Wesleyan College’s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide an opinion on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether Roberts Wesleyan College’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

We noted other matters that we have reported to management in a separate letter dated August 2006.

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In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Oral Roberts University at April 30,

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the University at June 30, 2013 and

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pitzer College as of June

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of College Access Foundation of California