2017-2018 Financial Report

Members of the Board of Trustees Claremont McKenna College Claremont, California

October 25, 2018

Dear Members of the Board:

The College ended another incredibly successful year with continued high demand for freshman admission and solid financial results. In the face of increasing competition for the best students, the admission yield rate for incoming freshman reached an all-time high of 56% in the Fall of 2018. The College continues to be one of the most selective liberal arts institutions in the country, with an admit rate of just over 9% for Fall of 2018, down from 10% in the prior year.

Academic and co-curricular programs were enhanced, including the launch of a new Quantitative and Computing Lab to expand expertise in computer and data science.

A record 344 CMC students received summer internship and experiential learning grants through the Soll Center for Student Opportunity, up 24% from the previous year.

The CMS Athletics program turned in one of the most successful years in its history, with a third- place finish in the Learfield Directors’ Cup ranking of NCAA Division III athletics programs, three Athena team national championships in volleyball, tennis, and golf, and two CMC individual titles in golf and track & field.

On the College’s financials, positive investment performance and successful fundraising contributed to an increase in net assets over the prior year of 6.7%. Net tuition per student continued to climb, in combination with a planned rise in the discount rate reflecting the College’s commitment to college affordability and meeting 100% of demonstrated financial need. As debt principal continued to be paid down, the College experienced positive momentum in key debt ratios including total spendable cash and investments to debt and annual debt service burden.

From a facilities standpoint, the College continued its practice of managing deferred maintenance through the annual set-aside of funds for renewal and replacement of assets and through regularly scheduled renovation projects. The College successfully acquired a strategically significant piece of vacant land on the east border of campus, advancing the long term campus master plan. These and many other remarkable accomplishments are reflected in the enclosed financial statements and financial highlights.

Statement of Financial Position

CMC maintains a healthy financial position. Total assets increased by 4.7%, primarily driven by an increase in the investment portfolio which is the College’s largest asset. The endowment ended the year at a record high of $835 million. CMC’s trailing 1-year return for the endowment as of June 30, 2018 was 9.2%, net of fees. This compares favorably to the 8.4% preliminary median return reported for college and university investment portfolios tracked within Cambridge Associates’ database. CMC’s trailing 5- and 10- year returns of 8.0% and 6.5%, respectively, exceeded both the portfolio’s policy custom benchmark return and Cambridge Associates’ college and university median returns over the same time periods.

Distributions from the endowment are governed by a Board approved “spending policy formula.” The formula is designed to preserve the endowment’s real (inflation-adjusted) purchasing power while providing a predictable, stable, and constant (in real terms) stream of operating budget support. CMC’s spending policy formula allows spending per unit in the investment pool to increase by 2% per year provided that the resulting increase falls within a collar of 4.5% to 5.5% of a twenty-quarter average unit market value. The spending rate was 4.8%, calculated by dividing the formula-based spending per unit by the beginning market value of a unit in the investment pool. The rate is consistent with the portfolio’s five year average spending rate of 4.9%.
Investment income, in the form of spending distributions from the endowment, contributes approximately 28% toward funding the College’s operating expenses.

The increase in plant facilities assets during the year was primarily due to the purchase of approximately 41 acres of land along the east border of CMC’s campus in Spring of 2018. The purchase is consistent with the College’s campus master plan and intended to eventually house CMC athletic fields. Perimeter improvements to the land are planned over the next 1-3 years. A significant renovation of CMC’s student apartments was completed in summer of 2018, which included a refresh of all internal casework, plumbing fixtures, appliances, flooring, lighting, and furniture. The apartments’ exterior was repainted and an outdoor patio/meeting area was constructed. The renovation was well received by students returning to campus.

Total liabilities decreased 3.0% from the prior year as the College made scheduled debt principal payments and there were no new borrowings during the fiscal year. The combination of increased investment assets and decreased outstanding debt had a positive impact on CMC’s total spendable cash and investments to total debt ratio. CMC’s annual debt service coverage ratio of 3.4 times (a measure of cash flows available to pay current debt obligations) continues to outpace the median value for private institutions within Moody’s Investors Service’s Aa rating category.

Statement of Activities

The statement of activities provides greater detail of the changes in net assets during the fiscal year. Total revenues increased by 19%, led primarily by increases in temporarily restricted private gifts and grants. Total expenses increased by 5.2% over the prior year, with varying degrees of changes in individual functional expense line items. The most significant changes in operating expenses related to changes in shared services within The Claremont Colleges. Networking operations services were recently consolidated into a central Information Technology unit at The Claremont Colleges, Inc. The Colleges also invested in a new Human Resources Information System which went live as of January 1, 2018. The undergraduate institutions in Claremont and Keck Graduate Institute recently agreed to move forward with implementation of a new student information system with a projected implementation timeline of about three years. The various system changes will ultimately provide valuable cloud based recordkeeping and analytic tools using modern technology.

Net student revenues increased by 2.3%-- a rate lower than the tuition increase due to growth in the tuition discount rate to 32.6%, up from 31.3% in the prior year. Total average undergraduate enrollment for 2017-18 was 1,319.8 FTE students which was above the College’s original budget target due to a high yield on the incoming class of 2017. CMC continues to maintain a need-blind admission policy and meet-all-need financial aid policy. College affordability remains a top institutional priority, and the College is making significant strides in this area. On the heels of CMC’s successful Student Imperative campaign, CMC joined the America Talent Initiative (ATI). ATI brings top colleges and universities together with philanthropic and research communities to expand college access and opportunity for talented low- and moderate-income students. In support of CMC’s ATI strategy, the College received a transformative $25 million pledge in Spring of 2018 from the Marie-Josée and Henry R. Kravis Foundation. The pledge dramatically expanded need-based scholarship resources and created the Kravis Opportunity Fund, which provides wide range of direct financial support to low- and moderate-income CMC students.

The College received $47.4 million in private gifts and grants during the year, which met the fundraising goals set by the Advancement Office. Private gifts and grants reported on the Statement of Activities incorporates actuarial adjustments for planned gifts as well as approximately $7.4 million in revenue related to net additional contributions receivable, recognized at present value. Spending policy income increased 4.1% due to the spending policy formula increase as well as incremental gifts to the endowment, including subsequent payments on prior year pledges.

CMC ended the year with a positive excess of revenues over expenses of $38.2 million. After incorporating other changes in net assets such as unrealized and realized investment gains, CMC had a positive excess of revenues over expenses of $71.1 million. Within unrestricted operations, prior to other changes in net assets, CMC ended the year with a positive excess of unrestricted revenues over unrestricted expenses of $13.5 million.

Statement of Cash Flows

Net cash flows increased by $345,000 in fiscal year 2017-18. The net cash used in operating activities of $23 million and financing activities of $3 million was offset by net cash provided by investing activities of $26.3 million. Net cash provided by investment activities was influenced by a drawdown of cash reserves to fund the land purchase as well as net proceeds from sales of investments over purchases of investments of $38.3 million. Cash outside of the investment pool is invested using a blended strategy that seeks to maintain an appropriate level of liquidity matching the timeline of expected use of the cash. Cash flow forecasts are reviewed regularly by the Finance Committee of the Board of Trustees.

Summary

The fiscal year was marked by impressive growth in assets and revenues, due in large part to the fantastic stewardship of the investment pool and the extraordinary support and investment by alumni and donors in CMC’s vision. Academic programs and student services support continue to be enhanced, perpetuating an increasingly high demand for admission and an impressive student body.

CMC enters fiscal year 2018-19 with positive momentum and a united focus on advancing the key institutional priorities of the College, including expansion of student opportunities, preparation of students for tomorrow’s world of affairs through freedom of expression, viewpoint diversity, and effective dialogue, and full integration of interdisciplinary science and data science into the academic fabric of the College. These initiatives carry forward CMC’s tradition of integrating the intellectual breadth of the liberal arts with acquisition of professional and technical skills, with the overall goal of educating students for thoughtful and productive lives and roles of responsible leadership in business, the government, and the professions.

Respectfully submitted,

Erin Watkins
Associate Vice President for Finance and Acting Treasurer

Report of Independent Auditors

The Board of Trustees
Claremont McKenna College

Report on the Financial Statements

We have audited the accompanying financial statements of Claremont McKenna College, which comprise the statements of financial position as of June 30, 2018 and 2017, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

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. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Claremont McKenna College as of June 30, 2018 and 2017, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Moss Adams LLP

Los Angeles, California
October 25, 2018

LIABILITIES AND NET ASSETS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Established in 1946, Claremont McKenna College (the “College”) is a highly selective, independent, coeducational, residential, liberal arts college. The College’s mission, within the mutually supportive framework of The Claremont Colleges (Note 17), is to prepare students for thoughtful and productive lives and responsible leadership in business, government, and the professions, and to support faculty and student scholarship that contributes to intellectual vitality and the understanding of public policy issues. The College pursues this mission by providing a liberal arts education that emphasizes economics and political science, a professoriate that is dedicated to effective teaching, a close student-teacher relationship that fosters critical inquiry, an active residential and intellectual environment that promotes responsible citizenship, and a program of research institutes and scholarly support that makes possible a faculty of teacher-scholars.

The College is a nonprofit corporation exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and corresponding California provisions. The objective of the College is to maintain and conduct a nonprofit educational institution. The primary purpose of the accounting and reporting is the recording of resources received and applied rather than the determination of net income.

The following accounting policies of the College are in accordance with those generally accepted for colleges and universities:

Basis of Presentation:

The accompanying financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).

Net Asset Categories:

The accompanying financial statements present information regarding the College’s financial position and activities according to three categories of net assets: unrestricted, temporarily restricted, and permanently restricted. The three categories are differentiated by donor restrictions. Unrestricted net assets are not subject to donor-imposed restrictions. Temporarily restricted net assets are subject to donor-imposed restrictions that either lapse or can be satisfied. Permanently restricted net assets are resources that a donor has required the College to retain in perpetuity. Generally, the donor of these assets permits the College to use all or a part of the income and gains earned on the gifted assets.

Revenue Recognition:

Student tuition and fees are recorded as revenues in the year during which the related academic services are rendered. Student tuition and fees received in advance of services to be rendered are recorded as deferred revenue.

Contributions, including unconditional promises to give, are recognized as revenue in the period pledged or received and are reported as increases in the appropriate category of net assets. Conditional promises to give are not recognized until they become unconditional, that is when the conditions on which they depend are substantially met. Contributions of assets other than cash are recorded at their estimated fair value at the date of gift. Contributions to be received are discounted at an appropriate discount rate.

Revenues from grants and contracts are reported as increases in unrestricted net assets, as allowable expenditures under such agreements are incurred.

Collectability of student accounts, notes receivable, and contributions receivable are reviewed both individually and in the aggregate. Allowances have been established based on experience, and balances deemed uncollectible are written off through a charge to bad debt expense or the provision for doubtful accounts and a decrease to accounts, notes, or contributions receivable. The College follows federal guidelines for determining when student loans are delinquent or past due for both federal and institutional loans.

Release of Donor-Imposed Restrictions:

The expiration of a donor-imposed restriction on a contribution or on endowment income is recognized in the period in which the restriction substantially expires. At that time, the related resources are reclassified to unrestricted net assets. A restriction expires when the stipulated time period has elapsed, when the stipulated purpose for which the resource was restricted has been fulfilled, or when unexpended endowment earnings are appropriated by the Board of Trustees. It is the College’s policy to release the restrictions on contributions of cash or other assets received for the acquisition of long-lived assets when the long-lived assets are placed into service.

Certain amounts previously received from donors have been transferred among net asset categories due to changes in donor restrictions.

Allocation of Certain Expenses:

Expenses are generally reported as decreases in unrestricted net assets. The Statements of Activities present expenses by functional classification. Depreciation and the cost of operation and maintenance of plant facilities are allocated to functional categories based on building square footage dedicated to that specific function. Interest expense is allocated based on the use of the related borrowings.

Cash:

For the purposes of reporting cash flows, cash includes demand deposit bank accounts. Resources invested in money market funds are classified as cash equivalents, except that any such investments managed as part of the investment pool are classified as investments.

Cash Held in Separate Accounts:

The California Student Aid Commission requires institutions participating in the Cal Grant program to maintain funds advanced in a separate interest bearing account to properly handle and manage the funds. The funds are the property of the State, and unspent funds are to be returned according to the State's required timelines along with interest earned.

Concentration of Credit Risk:

Financial instruments that potentially subject the College to concentrations of credit risk consist principally of cash deposits at financial institutions and investments in marketable securities. At times, balances in the College’s cash and investment accounts exceed the Federal Deposit Insurance Corporation (FDIC) or Securities Investors Protection Corporation (SIPC) insured limits. Concentration of credit risk with respect to receivables are limited due to the large number of students from which amounts are due, with no one account being significant.

Investments:

Where permitted by law, the College pools investments for management purposes. The remainder of investments are managed as separate investments. Marketable securities are reported at fair value. Non-marketable investments are carried at estimated fair value provided by the management of the non-marketable investment partnerships or funds at June 30, 2018 and 2017. The College reviews and evaluates the values provided by the investment managers and agrees with the valuation methods and assumptions used in determining the fair value of the investments. Because non-marketable investments are not readily marketable, the estimated value is subject to uncertainty and such differences could be material.

The cost of securities sold is determined by the average cost method and is used to compute realized gains and losses. Unrealized gains and losses reflect the changes in the fair values of investments from the prior year. Investment income and gains and losses on investments are reported as increases or decreases in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulation or by law. The date of record for investments is the trade date.

Derivatives:

Certain investments held by the College may include derivative instruments as part of their investment strategy, but the College does not invest directly in derivatives.

Management of Pooled Investments:

The College follows an investment policy which anticipates a greater long-term return through investing for capital appreciation, and accepts lower current yields from dividends and interest. In order to offset the effect of lower current yields for current operations, the Board of Trustees has adopted a spending policy for pooled investments. If the ordinary income portion of pooled investments return is insufficient to provide the full amount of investment return specified, the balance may be appropriated from realized gains of the pooled investments. Cumulative net realized gains and transfers of ordinary income in excess of the spending policy (“cumulative gains”) are held in their respective net asset categories and are available for appropriation under the College’s spending policy. At June 30, 2018 and 2017, these cumulative gains totaled approximately $44,531,000 and $77,438,000, respectively. The Board of Trustees may, at its discretion, approve additional spending for special projects. The amount of investment return available for current operations will be determined by applying an increase of 2.0% to the prior year unit spending rate, provided that the resulting calculation falls within a collar of 4.5% to 5.5% of a twenty quarter average unit fair value.

Endowment Funds:

The Board of Trustees of the College interpreted the California Uniform Prudent Management of Institutional Funds Act (UPMIFA) to state that the College, in the absence of explicit donor stipulations to the contrary, may appropriate for expenditure or accumulate so much of an endowment fund as the College determines prudent for the uses, benefits, purposes, and duration for which the endowment fund is established. As a result of this interpretation, the College classifies as permanently restricted net assets the original value of gifts donated to the endowment, original value of subsequent gifts to the endowment, and accumulations to the endowment made in accordance with the direction of the applicable donor gift instrument. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the College in a manner consistent with the standard of prudence prescribed by UPMIFA which includes consideration of the:

1. Duration and preservation of the fund
2. Mission of the College and the donor-restricted endowment fund
3. General economic conditions
4. Possible effects of inflation and deflation
5. Expected total return from income and appreciation of investments
6. Other resources of the College
7. Investment policy of the College

Plant Facilities:

Plant facilities consist of property, plant, equipment and works of art which are stated at cost, representing the original purchase price or the fair value at the date of the gift, less accumulated depreciation computed on a straight-line basis over the estimated useful lives of buildings, permanent improvements, and equipment. Plant purchases with a useful life of 5 years or more and a cost equal to or greater than $100,000 for land improvements and buildings and $25,000 for equipment are capitalized. Estimated useful lives are generally 7 years for equipment, 50 years for buildings and 25 years for permanent improvements. Building improvements that extend the remaining useful life of the building are depreciated over a period not to exceed 20 years. Assets are retired at their cost less accumulated depreciation at the time they are sold, impaired, or no longer in use. Each year the College transfers to its capital project reserves an amount to allow for the preservation of its existing facilities into the future. Asset retirement obligations are recorded based on estimated settlement dates and methods.

No significant property or equipment has been pledged as collateral or otherwise subject to lien for the years ended June 30, 2018 and 2017. Proceeds from the disposal of equipment acquired with federal funds are transferred to the federal awarding agency. No property or equipment has been acquired with restricted assets where title may revert to another party.

Annuity and Life Income Contracts and Agreements:

The College has legal title to annuity and life income contracts and agreements subject to life interests of beneficiaries. No significant financial benefit is now being or can be realized until the contractual obligations are released. However, the costs of managing these contracts and agreements are included in unrestricted expenses.

The College uses the actuarial method of recording annuity and life income contracts and agreements. Under this method, the asset is recorded at fair value when a gift is received. The present value of the aggregate annuity payable is recorded as a liability, based upon life expectancy tables, and the remainder is recorded as a contribution in the appropriate net asset category. The liability account is credited with investment income and gains and is charged with investment losses and payments to beneficiaries. Periodic adjustments are made between the liability account and the net asset account for actuarial gains and losses. The actuarial liability is based on the present value of future payments discounted at rates ranging from 1.2% to 7.6% and over estimated lives according to the IRS Annuity 2000 Mortality Tables.

The College is subject to additional legally mandated annuity reserve requirements by the State of California on its California gift annuity contracts. On December 2, 1998, the Insurance Commission Chief Counsel granted the College permission to invest its reserves for California annuities pursuant to Insurance Code Section 11521.2(b). This approval is subject to the following conditions: (1) maintain a nationally recognized statistical organization bond rating of “A” or better and (2) maintain an endowment to gift annuity ratio of at least 10:1.

Income Taxes:

The College had no unrecognized tax benefits and/or obligations at June 30, 2018 and 2017.

Redesignation of Net Assets:

Certain amounts previously received from donors have been transferred among net asset categories due to changes in donor designations and are reflected in the donor redesignations between net asset categories on the statements of activities.

Use of Estimates:

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments:

A financial instrument is defined as a contractual obligation that ultimately ends with the delivery of cash or an ownership interest in an entity. Disclosures included in these notes regarding the fair value of financial instruments have been derived using external market sources, estimates using present value or other valuation techniques. Determination of the fair value of notes receivables, which are primarily federally sponsored student loans with the U.S. government, mandated interest rates and repayment terms are subject to significant restrictions as to their transfer or disposition and are not practical because such a determination cannot be made without incurring excessive costs.

The College carries most investments at fair value in accordance with generally accepted accounting principles. Fair value is defined as the price that would be received to sell an asset (i.e. the "exit price") in an orderly transaction between market participants at the measurement date. Accounting standards have established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are as follows:

Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the College has the ability to access at the measurement date;
Level 2 – Inputs other than quoted prices that are observable for the asset either directly or indirectly, including inputs in markets that are not considered to be active;
Level 3 – Inputs that are unobservable.

Inputs are used in applying the valuation techniques and broadly refer to the assumptions that the College uses to make valuation decisions, including assumptions about risk. Inputs may include quoted market prices, recent transactions, manager statements, periodicals, newspapers, provisions within agreements with investment managers and other factors. An investment’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 categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and does not necessarily correspond to the College’s perceived risk of that investment.

Investments in cash equivalents, global fixed income funds, and certain domestic and international equities are valued based on quoted market prices, and are therefore typically classified within Level 1.

Investments in certain debt securities are valued based on quoted market prices of comparable assets and are typically classified within Level 2.

Investments in hedge funds, private equity funds, other private investments, and certain investment funds focused on domestic and international equities and fixed income are held primarily through limited partnerships and comingled funds for which fair value is estimated using net asset value (NAV) reported by fund managers as a practical expedient.

Certain private investments and the College's beneficial interest in trusts valued utilizing unobservable inputs, and which have had no trading activity or cannot be redeemed at NAV or its equivalent on or near the reporting date are classified within Level 3. These assets are presented in the accompanying financial statements at fair value. The College’s determination of fair value is based upon the best available information provided by the investment manager and may incorporate management assumptions and best estimates after considering a variety of internal and external factors. Such value generally represents the College’s proportionate share of the partner’s capital of the investment partnerships as reported by their general partners. For these investments, the College, through its monitoring activities, agrees with the fair value as determined by the investment managers.

June 30, 2018 and 2017 (in thousands)

Fair Value of Financial Instruments: Continued

The general partners and fund managers of the underlying investment partnerships generally value their investments at fair value and in accordance with US GAAP. Investments with no readily available market are generally valued according to the estimated fair value method, which attempts to apply a fair value standard by referring to meaningful third-party transactions, comparable public market valuations and/or the income approach. Consideration is also given to financial condition and operating results of the investment, the amount that the investment partnerships can reasonably expect to realize upon the sale of the securities, and any other factors deemed relevant. An investment can be carried at acquisition price (cost) if little has changed since the initial investment of the partnership and if it is most representative of fair value. Investments with a readily available market (listed on a securities exchange or traded in the over-the-counter market) are valued at quoted market prices or at an appropriate discount from such price if marketability of the securities is restricted.

Although the College uses its best judgment in determining fair value, the values presented herein are not necessarily indicative of the amount that the College could realize in a current transaction. Future events could affect the estimates of fair value and could be material to the financial statements. These events could also affect the amount realized upon redemption of the investments.

Reclassifications:

Certain prior year amounts have been reclassified for consistency with current year presentations.

Contributions receivable at June 30, 2018 and 2017 are intended for the following uses:

At June 30, 2018, 83.7% of the contributions receivable were due from three donors. At June 30, 2017, 81.2% of the contributions receivable were due from three donors.

At June 30, 2018 and 2017, the College had knowledge of conditional promises to give in the amount of $27,461 and $4,421, respectively. The promises will be recognized as revenue when the conditions are met.

Conditional promises to give at June 30, 2018 and 2017 are intended for the following uses:

At June 30, 2018 and 2017, the College held beneficial interest in outside trusts of $424 and $401, respectively. These trusts are administered by outside trustees, with the College deriving income and/or a residual interest from the assets. When an irrevocable trust is established or the College is notified of its existence, the College recognizes its beneficial interest in the trust as a contribution at fair value, which is measured as the present value of the estimated expected future benefits to be received when the trust assets are distributed. The contribution revenue recognized is classified as an increase in either temporarily or permanently restricted net assets based on the time or use restrictions placed by the donor upon the College's beneficial interest in the assets. Periodic adjustments to the beneficial interest to reflect changes in the fair value, life expectancy, and discount rate are recognized as actuarial gains or losses. The discount rates used are commensurate with the risks associated with the contribution.

(1) These categories include investments in commingled fund vehicles that invest in debt and equity securities. The debt funds serve as a deflation hedge for the portfolio, while the equity allocation seeks total return and growth. The fair values of the investments in these categories have been estimated using the net asset value per share as reported by each underlying fund. There are no significant redemption restrictions in place for these funds.

(2) This category includes investments in global long/short, event driven, diversified arbitrage, distressed securities, and other multi-strategy hedge fund vehicles. The hedge fund allocation is intended to reduce risk by mitigating volatility of the equity markets and targets positive and stable absolute returns. The fair values of the investments in this category have been estimated using the net asset value per share as reported by each underlying fund.

(3) These categories include investments in leveraged buyout, distressed securities, venture capital, real estate, and energy private limited partnership funds. The real estate and energy funds serve as an inflation hedge for the portfolio and the other private categories are included for total return enhancement. The fair values of the investments in these categories have been estimated using the College's ownership percentage of the total net asset value for each underlying fund. The contractual life of these funds ranges from ten to fifteen years and distributions will be received as the underlying investments are realized.

NOTE 9 - FUNDS HELD IN TRUST FOR OTHERS:

Funds held in trust for others totaled $2,851 and $3,883 at June 30, 2018 and 2017, respectively. These amounts represent the value of third-party remainder interests held in trust by the College.

NOTE 10 - LIFE INCOME AND ANNUITIES PAYABLE:

Life income and annuities payable of $48,199 and $50,911 at June 30, 2018 and 2017, respectively, represent actuarially determined liabilities for contractual obligations under gift annuities, unitrusts, and pooled income funds.

Matured annuity and life income agreements for the years ended June 30, 2018 and 2017 also include $5,007 and $1,740, respectively, of releases to endowment within permanently restricted net assets.

The CEFA Series 2007 bonds were partially defeased through the issuance of CEFA Series 2015 bonds and the remaining Series 2007 bonds are due in 2038. Annual installments range from $240 in 2019 to $1,025 in 2038. Interest is payable semi-annually at a rate of 5.0%, at June 30, 2018. Bonds maturing after January 1, 2018 with principal balances totaling $11,135 are subject to mandatory redemption at the outstanding principal balance plus accrued interest.

The CEFA Series 2011 bonds are due in 2030. Annual installments range from $285 in 2019 to $480 in 2030. Interest is payable semi-annually at rates ranging from 4.0% to 5.3%, at June 30, 2018. Bonds maturing after January 1, 2026 with principal balances totaling $1,770 are subject to mandatory redemption at the outstanding principal balance plus accrued interest.

The CEFA Series 2012 bonds are due in 2042. Annual installments range from $325 in 2019 to $22,260 in 2042. Interest is payable semi-annually at rates ranging from 2.3% to 4.0%, at June 30, 2018. Bonds maturing after January 1, 2033 are subject to mandatory redemption, in part, by lot, from mandatory sinking fund payments deposited. The Bonds maturing on January 1, 2042 are not subject to mandatory redemption prior to their stated maturity.

The CEFA Series 2015 bonds are due in 2039. Annual installments range from $2,670 in 2019 to $8,210 in 2038. Interest is payable semi-annually at rates ranging from 4.0% to 5.0%, at June 30, 2018. Bonds maturing after January 1, 2035 with principal balances totaling $37,135 are subject to mandatory redemption at the outstanding principal balance plus accrued interest.

In December 2013, the College signed a California Municipal Finance Authority (CMFA) Tax-Exempt Loan agreement, not to exceed $25,000,000, that matures December 2043. The College could make monthly draws through December 2016 and all funds were drawn as of February 2016. Interest is 3.50% per annum. The note requires monthly principal and interest payments. The loan was obtained for the purpose of financing the acquisition, construction, renovation, installation, and equipping of certain educational facilities.

The CMFA 2013 Tax Exempt Loan and the CEFA Series 2015, 2012, 2011, and 2007, bond agreements contain various restrictive covenants which include maintenance of certain financial ratios, as defined in the agreements.

In December 2013, the College entered into an unsecured $10,000,000 line of credit agreement with a bank. Any borrowings under the line would bear interest payable monthly at the Prime Rate less 100 basis points. There were no borrowings outstanding on the line at June 30, 2018 and 2017.

The College holds CEFA bonds that are reported at an amortized cost of $151,320 and $154,655 at June 30, 2018 and 2017, respectively, in the Statement of Financial Position. These CEFA bonds have an approximate fair value of $164,519 and $170,819 at June 30, 2018 and 2017, respectively. The College determined these CEFA bonds to be Level 2 measurements in the fair value hierarchy.

NOTE 12 - ASSETS WHOSE USE IS LIMITED:

Indenture requirements of bond financing (see Note 11, "Bonds Payable") provide for the establishment and maintenance of various accounts with trustees. The indenture terms limit the use of these funds to capital expenditures and debt service payments as outlined in the agreements. Assets whose use is limited are comprised of cash equivalents recorded at fair value, which approximates fair value. Assets whose use is limited, which is included in investments, totaled $3,363 and $3,433, respectively, at June 30, 2018 and 2017.

NOTE 13 - EMPLOYEE BENEFIT PLANS:

The College participates, with other members of The Claremont Colleges (Note 18), in a defined contribution retirement plan which provides retirement benefits to eligible personnel through Teachers Insurance and Annuity Association and The College Retirement Equity Fund. Under this defined contribution plan, College and participant contributions are used to purchase individual annuity contracts and investments equivalent to retirement benefits earned. Vesting provisions are full and immediate. Benefits commence upon retirement, and pre-retirement survivor death benefits are provided. College contributions to the plan for the years ended June 30, 2018 and 2017 totaled $4,585 and $4,478, respectively.

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the College to retain as a fund of perpetual duration. Deficiencies for donor-restricted endowment funds were $259 and $369 at June 30, 2018 and 2017, respectively. Deficiencies for donor-restricted endowment funds were recorded as a reduction in unrestricted endowments.

"Sponsored" aid consists of funds provided by external entities or income from endowment funds restricted for financial aid, whereas "unsponsored" aid consists of funds provided by the College.

NOTE 17 - INSTITUTIONAL SUPPORT FUNDRAISING EXPENSE:

Included in Institutional Support expenses are $4,807 and $4,570 of expenditures related to fundraising for the years ended June 30, 2018 and 2017, respectively.

NOTE 18 - AFFILIATED INSTITUTIONS:

The College is a member of an affiliated group of colleges known as The Claremont Colleges. Each college is a separate corporate entity governed by its own board of trustees. The Claremont Colleges, Inc. (formerly Claremont University Consortium), a member of this group, is the central coordinating institution which provides common student and administrative services, including certain central facilities utilized by all The Claremont Colleges. The costs of these services and facilities are shared by the members of the group. Amounts paid by the College for such services and use of facilities for the years ended June 30, 2018 and 2017 totaled $6,947 and $6,097, respectively.

During the fiscal year ended June 30, 2018, the College formed Claremont Investment Fund (the “Fund”), a California nonprofit public benefit corporation organized exclusively for charitable and education purposes within the meaning of IRC Section 501(C)(3). The Fund is a Type I supporting organization under IRC Section 509(a)(3) that shall be operated exclusively for the benefit of the College and those members of The Claremont Colleges (collectively, the “Supported Organizations”) that may be approved by the College’s Board of Trustees from time to time. On July 1, 2018, the Supported Organizations began pooling their endowment and other investment assets in the Fund in a diversified investment strategy approved by the College’s Board of Trustees.

NOTE 19 - RELATED PARTY TRANSACTIONS:

The College holds investments in certain limited partnerships in which certain members of the Board of Trustees are limited partners or are affiliated with management of the related partnerships. Investments at June 30, 2018 and 2017 totaled $20,940 and $21,063, respectively.

The College receives contributions and promises to give from members of the Board of Trustees. For the years ended June 30, 2018 and 2017, the College received $25,216 and $10,210, respectively, of total private gifts and grants from members of the Board of Trustees. For the years ended June 30, 2018 and 2017, private gifts and grants from the Board of Trustees were comprised approximately of 78% and 80% from one and three members, respectively. At June 30, 2018 and 2017, contributions receivable from members of the Board of Trustees totaled $112,369 and $105,272, respectively.

NOTE 20 - COMMITMENTS AND CONTINGENCIES:

Certain federal grants, including financial aid which the College administers and for which it receives reimbursements, are subject to audit and final acceptance by federal granting agencies. Current and prior year costs of such grants are subject to adjustment upon audit. The amount of expenditures that may be disallowed by the grantor, if any, cannot be determined at this time, although the College expects such amounts, if any, would not have a significant impact on the financial position of the College.

Occasionally, the College is involved in lawsuits arising in the ordinary course of its operations. The College's management does not expect the ultimate resolution of pending legal actions to have a material effect on the financial position or change in net assets of the College.

NOTE 21 - SUBSEQUENT EVENTS:

Subsequent events are events or transactions that occur after the statement of financial position date but before financial statements are available to be issued. The College recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the statement of financial position, including the estimates inherent in the process of preparing the financial statements. The College’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the statement of financial position but arose after the statement of financial position date and before financial statements are available to be issued.

Subsequent events have been evaluated through October 25, 2018, which corresponds to the date when the financial statements are available for issuance.