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2020 Financial Statements

Statements of Financial Position

December 31 2020 2019

Assets

Cash and cash equivalents $ 10,951,593 $ 11,854,651
Investments, net 586,444,103 574,066,440
Interest and dividends receivable 331,938 429,029
Federal excise tax 32,000 914,000
Other assets 137,205 138,022
Total assets $ 597,896,839 $ 587,402,142

Liabilities

Accounts payable and accrued expenses $ 977,964 $ 938,005
Grants payable 14,830,810 20,957,088
Deferred federal excise tax 1,968,000 1,969,000
Total liabilities 17,776,774 23,864,093

Net Assets

Net assets without donor restrictions 580,120,065 563,538,049
Total liabilities and net assets $ 597,896,839 $ 587,402,142

The accompanying notes are an integral part of the financial statements.

16 April 2021

East Cleveland Public Schools, Cleveland, OH.

Statements of Activities

December 31 2020 2019

Net Investment Income

Total investment income, net of expenses $ 60,745,343 $ 131,498,741

Expenses

Grants expensed 39,906,992 24,936,993
Program support and management and general (see note 10) 3,296,635 3,357,344
Loss on disposal of fixed assets 8,586
Total expenses 43,203,627 28,302,923
Increase in net assets before federal excise taxes 17,541,716 103,195,818
Federal excise tax (provision) benefit (959,700) 2,622,699
Change in net assets without donor restrictions 16,582,016 105,818,517
Net assets – beginning 563,538,049 457,719,532
Net assets – ending $ 580,120,065 $ 563,538,049

The accompanying notes are an integral part of the financial statements.

Statements of Cash Flows

December 31 2020 2019

Cash Flows from Operating Activities

Change in net assets $ 16,582,016 $ 105,818,517
Adjustments to reconcile change in net assets to net cash used in operating activities:
Depreciation and amortization 30,503 38,719
Net realized and unrealized losses (gains) on investments (58,602,805) (129,832,451)
Bad debt allowance 1,000,000
Loss on disposal of fixed assets 8,586
Deferred federal excise tax (1,000) (3,275,000)
Changes in assets and liabilities:
Interest and dividends receivables 97,091 (75,199)
Federal excise tax 882,000 (386,000)
Other assets (9,186) 66,733
Accounts payable and accrued expenses 39,959 102,880
Grants payable (6,126,278) (2,174,246)
Net cash used in operating activities (47,107,700) (28,707,461)

Cash Flows from Investing Activities

Proceeds from sale of investments 165,551,195 107,120,858
Purchases of investments (119,326,053) (79,955,874)
Purchase of equipment and improvements (20,500) (34,192)
Net cash provided by investing activities 46,204,642 27,130,792
Net decrease in cash and cash equivalents (903,058) (1,576,669)
Cash and cash equivalents – beginning 11,854,651 13,431,320
Cash and cash equivalents – ending $ 10,951,593 $ 11,854,651

Supplemental Disclosure of Cash Flow Information

Cash paid during the year:
Income taxes, excise $ 78,500 $ 1,038,083

The accompanying notes are an integral part of the financial statements.

9 April 2021

Erie Street Cemetery, Cleveland, OH.

Notes to Financial Statements — December 31, 2020 and 2019

Note 1
Summary of Significant Accounting Policies

Nature of operations The George Gund Foundation (the Foundation) is a private foundation located in Cleveland, Ohio that makes grants to educational, community service, and philanthropic organizations.

Basis of Accounting The Foundation’s financial statements are presented on the accrual basis of accounting. Accordingly, revenues are recorded when earned, and expenses are recognized when incurred.

Basis of presentation The Foundation has adopted ASU 2016-14. Under this provision, the Foundation is required to report information regarding its financial position and activities according to two classes of net assets: net assets without donor restrictions and net assets with donor restrictions.  Accordingly, net assets of the Foundation and changes therein are classified and reported as follows:

Net Assets without Donor Restrictions – Net assets without donor restrictions are available for use at the discretion of the Board of Trustees (the Board) and / or management for general operating purposes.  The Board may designate a portion of these net assets for specific purposes, which makes them unavailable for use at management’s discretion. 

Net Assets with Donor Restrictions – Net assets with donor restrictions consist of assets whose use is limited by donor-imposed, time and / or purpose restrictions. The Foundation did not have any assets with donor restrictions as of December 31, 2020 and 2019.

Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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.

Cash and cash equivalents Cash and cash equivalents consist of cash on deposit with financial institutions and highly liquid investments with maturity dates of three months or less, which are readily convertible into cash.

Investments in fixed maturity securities Investments in fixed maturity securities are classified at the acquisition date and the classification is re-evaluated at each balance sheet date. Trading investments are securities acquired with the intent to sell in the near term and are carried at fair value with changes in fair value reported in earnings. As of December 31, 2020 and 2019, all of the Foundation’s investments in fixed maturity securities were classified as trading.

Investments in equity securities Investments in equity securities are carried at fair value with changes in fair value reported in earnings.

Other Investments Investments include program-related loans, net of allowance, which are due from various not-for-profit organizations, valued at $8,580,617 and $5,324,058 at December 31, 2020 and 2019, respectively. The notes receivable are due at various dates, from 2021 through 2032 and carry interest at rates between 1% and 2%; principal and interest payment arrangements vary by note. As of December 31, 2020 and 2019, there were unfunded commitments   totaling $2,000,000 and $1,000,000, respectively. The Foundation has an additional mission-related loan due from a not-for-profit organization valued at $307,191 and $414,784 as of December 31, 2020 and 2019, respectively. This investment is secured by a deposit account and matures in 2021.

The Foundation invests in certain alternative investments, which include investments in limited partnerships. Market values represent the Foundation’s pro rata interest in the net assets of each limited partnership as of December 31, 2020 and 2019, as provided by the fund managers. Market values as of December 31, 2020 and 2019 are not based on audited financial information supplied by the general partner or manager of the funds. Audited information is only available annually based on the partnerships’ or funds’ year end. Management reviews monthly valuations provided by the general partner or manager of the funds and assesses the reasonableness of the fair values provided at the interim dates and included in the financial statements. At both December 31, 2020 and 2019, the Foundation had total unfunded capital commitments related to alternative investments of $1,037,500. There was a conditional unfunded capital commitment of $3,250,000 at both December 31, 2020 and 2019. Because of the inherent uncertainty of the valuation of alternative investments, the market values reflected in the accompanying financial statements may differ significantly from realizable values.

Allowance for uncollectible accounts Investments in program-related loans are stated at the present value of the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for uncollectible accounts, and a credit to a valuation allowance, based on its assessment of the current status of individual accounts. At December 31, 2020 and 2019, an allowance for uncollectible accounts in the amount of $-0- and $1,000,000, respectively, is netted against investments in notes receivable. 

Interest receivable is stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for uncollectible interest, and a credit to a valuation allowance, based on its assessment of the current status of individual accounts. At December 31, 2020 and 2019, management determined that no allowance for uncollectible interest was deemed necessary.

Furniture, equipment, and leasehold improvements Furniture, equipment, and leasehold improvements (included in other assets) are stated at cost. Amortization and depreciation is recorded using both straight-line and accelerated methods over the estimated useful lives of the assets. Depreciation and amortization expense amounted to $30,503 and $38,719 for the years ended December 31, 2020 and 2019, respectively.

Fair value measurement – definition and hierarchy The Foundation follows FASB Accounting Standard Codification (ASC) 820-10, Fair Value Measurements. Under this standard, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Foundation uses various valuation approaches, including market, income, and / or cost approaches. FASB ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs, and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Foundation. Unobservable inputs reflect the Foundation’s assumptions used in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels, based on the reliability of inputs, as follows:

  • Level 1 – Valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the Foundation has the ability to access.
    • Assets and liabilities utilizing Level 1 inputs include: exchange-traded equity securities that are actively traded.
  • Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
    • Assets and liabilities utilizing Level 2 inputs include:  government bonds, corporate bonds, foreign bonds, private equity investments in mutual funds, and program related savings.
  • Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
    • Assets and liabilities utilizing Level 3 inputs include:  equity securities that are not actively traded, private equity investments, and program related / other investments held in loans.

Adoption of a new accounting standard In August 2018, the FASB issued Accounting Standard Update (ASU) 2018-13, which simplifies the fair value measurement disclosure requirements of ASC 820.  This ASU is effective for all entities with fiscal years beginning after December 15, 2019, including interim periods therein. The key provisions of ASU 2018-13, include elimination of the following disclosures; valuation processes for Level 3 fair value measurements, policy for timing of transfers between levels of the fair value hierarchy, changes in unrealized gains and losses included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. Additionally, this ASU modified the following disclosure requirements; ability to disclose transfers into and out of the Level 3 and purchases and issues of Level 3 assets and liabilities in lieu of reconciling the opening balances to the closing balances of recurring Level 3 fair value measurements. The eliminated disclosures should be applied prospectively while all other amendments should be applied retrospectively.  The Foundation adopted ASU 2018-13 as of January 1, 2020. Refer to Note 3.

Recently issues accounting pronouncements In February 2016, the FASB issued ASU No. 2016-02 entitled “Leases (Topic 842),” which may change the Foundation’s statement of financial position by adding lease-related assets and liabilities. This may affect compliance with contractual agreements. This new standard is effective for the Foundation for annual reporting periods beginning after December 15, 2021, with early adoption permitted. Management has not yet determined whether this new standard will have a material effect on its financial statements.

11 January 2021

Twelve Literary Arts, Cleveland, OH—Daniel Gray-Kontar, Founder and Executive Artistic Director of Twelve, meets with staffer Stephanie Ginese and artist Terrell. The young people suggested services and institutions that could be built on empty or abandoned plots of land.

Note 2
Investments

Market values of investments were as follows at December 31:

2020 2019
Fixed income securities $18,826,870 $19,893,604
Common stocks and alternative investments 567,617,233 554,172,836
Total $586,444,103 $574,066,440

Market values of investments are based on December 31, 2020 and 2019 published quotations, except that estimates are used when quotations are not available. Fixed income securities consist of U.S. government securities, U.S. government guaranteed securities, and corporate securities. Common stocks and alternative investments consist principally of U.S. and international equity securities, program and mission-related investments, and investments in limited partnerships.

Published market quotations do not necessarily represent realizable values, particularly where sizable holdings of a company’s stock exist, as in the case of the Foundation’s holding of the Kellogg Company common stock.

Note 3
Fair Value Disclosure and Measurement

The Foundation’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with FASB ASC 820-10. See Note 1 for a discussion of the Foundation’s policies regarding this hierarchy.

The following fair value hierarchy tables’ present information about the Foundation’s assets and liabilities measured at fair value on a recurring basis:

Fair Value Measurements at Reporting Date
December 31, 2020 (Level 1) (Level 2) (Level 3) Balance

Corporate stock

Consumer goods $98,751,551 $ $ $98,751,551
Financial 22,602,713 22,602,713
Services 15,894,291 15,894,291
Industrial goods 12,989,521 12,989,521
Basic materials 8,910,054 8,910,054
Technology 32,444,192 32,444,192
Healthcare 7,398,400 7,398,400
Retail 2,363,981 2,363,981
Closely-held 100 100

Preferred stock

Preferred stock 134,400 134,400

Bonds

Corporate 3,785,249 3,785,249
United States Treasury and Agency 13,863,495 13,863,495
State and municipal 1,178,126 1,178,126

Limited partnerships

Limited partnerships 276,153,431 81,060,432 357,213,863

Other investments

Program-related savings 26,359 26,359
Program-related loans 8,580,617 8,580,617
Mission-related investment 307,191 307,191
Total fair value assets $201,354,703 $295,141,060 $89,948,340 $586,444,103
Fair Value Measurements at Reporting Date
December 31, 2019 (Level 1) (Level 2) (Level 3) Balance

Corporate stock

Consumer goods $117,893,001 $ $ $117,893,001
Financial 21,023,176 21,023,176
Services 20,594,379 20,594,379
Industrial goods 6,139,668 6,139,668
Basic materials 10,371,208 10,371,208
Technology 26,520,961 26,520,961
Healthcare 8,161,452 8,161,452
Retail 1,828,655 1,828,655
Closely-held 100 100

Preferred stock

Preferred stock 129,550 129,550

Bonds

Corporate 3,630,219 3,630,219
United States Treasury and Agency 15,627,825 15,627,825
State and municipal 635,560 635,560

Limited partnerships

Limited partnerships 253,165,314 82,580,689 335,746,003

Other investments

Program-related savings 25,841 25,841
Program-related loans, net of allowance 5,324,058 5,324,058
Mission-related investment 414,784 414,784
Total fair value assets $212,532,500 $273,214,309 $88,319,631 $574,066,440

The following table presents information about the Level 3 assets measured at fair value on a recurring basis for the years ended December 31, 2020 and 2019:

2020 2019
Limited Partnerships Other Investments Total Limited Partnerships Other Investments Total
Purchases $ $3,500,518 $3,500,518 $ $ $
Sales proceeds (4,457,894) (351,522) (4,809,446) (531,990) (332,195) (864,185)
$(4,457,894) $3,148,966 $(1,308,928) $(531,990) $(332,195) $(864,185)

At December 31, 2020, the Foundation’s limited partnerships are subject to withdrawal restrictions as follows:

Limited Partnerships
Available for redemption:
Monthly $351,525,181
Subject to distribution 5,688,682
Total $357,213,863

Investments that are available for redemption may be redeemed by the Foundation generally with 15 to 30 day advance notice on a monthly basis, subject to the terms of the investment agreement.

Investments subject to distribution cannot be redeemed by the Foundation, but rather will be distributed by the limited partnership upon the liquidation of the underlying assets of the partnership. Distributions are generally expected, but not guaranteed, over the next five years.

The investment objective for limited partnerships is long-term capital appreciation in excess of what is available in the public markets. Private equity funds generally hold illiquid debt and equity securities of public and / or privately held companies. This asset class includes venture capital, buyout, and distressed funds.

Gains and losses (realized) from Level 3 investments included in changes in net assets include net realized investment gains of $447,366 and $285,130 for the years ended December 31, 2020 and 2019, respectively.

As described in Note 1, the Foundation adopted ASU 2018-13 as of January 1, 2020. This ASU prospectively eliminated the following disclosures for 2020:  

The amount of total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses relating to the assets still held at the reporting date was $15,253,857 as of December 31, 2019.

The following table represents the Foundation’s Level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, and the ranges of values for those inputs at December 31, 2019:

Instrument 2019 Fair Value Prinicipal Valuation Technique Unobservable Inputs Range of (Weighted Average)
Closely held stock $100 Recent Sales Recent Sales
Program-related loans $5,324,058 Discounted Cash Flows Applicable interest and term; Recovery probability 0%-100% (16%)
Mission-related loan $414,784 Discounted Cash Flows Applicable interest and term; Recovery probability

Note 4
Credit Concentration

Aside from its holdings in the Kellogg Company, the Foundation’s portfolio of investments is highly diversified; however, at December 31, 2020 and 2019, 14% and 17% of the total market value of securities, and approximately 66%, respectively, of dividend income in each year are attributable to ownership of Kellogg Company stock.

Note 5
Grants

Grants are expensed upon approval by the Board of Trustees, payable upon the performance of specified conditions, and paid when the specified conditions are satisfied.  Discretionary grants in amounts up to $10,000 and cumulative for the year up to $700,000 for the years ended December 31, 2020 and 2019, respectively, are recommended by the program directors and approved by the president.  These discretionary grants are expensed upon approval and ratified by the Board of Trustees at the following board meeting. Grants that are cancelled or in excess of needed amounts are included as a reduction of grant expense in the year they are cancelled or returned.

Note 6
Leases

The Foundation occupies office space in the Landmark Office Towers. The lease was renewed in March of 2018, and was effective January 1, 2019. This renewal extended the lease through December 31, 2023. There is a renewal option for an additional period. Rental expense for the years ended December 31, 2020 and 2019 amounted to $154,582 and $153,025, respectively.

The future minimum lease commitments under leases with terms in excess of one year are as follows:

2021 $143,496
2022 147,849
2023 150,775
$442,120

Note 7
Net Assets

Contributions are recognized when cash, securities or other assets; an unconditional promise to give; or a notification of a beneficial interest is received.  Conditional promises to give – that is, those with a measurable performance or other barrier and a right of return – are not recognized until the conditions on which they depend have been met. The Foundation received no contributions for the years ended December 31, 2020 and 2019.

Note 8
Employee Benefit Plan

The Foundation has an employees’ tax-sheltered annuity plan for all eligible employees. Such a plan is intended to comply with the requirements of Section 403(b) of the Internal Revenue Code (IRC). Employer contributions are required at 9% of the participant’s compensation up to the social security wage base for the year, and 14.7% of the participant’s compensation in excess of this wage base, with a limit of $285,000 and $280,000 of compensation for the years ended December 31, 2020 and 2019, respectively. Employer contributions to the plan for the years ended December 31, 2020 and 2019 amounted to $162,598 and $135,494, respectively. Participants are also permitted to make salary reduction contributions to the plan.

Note 9
Excise Taxes

The Foundation is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code (IRC), but is subject to a 1.39% federal excise tax on net investment income, including net realized gains, as defined by the IRC for tax year 2020.  

On December 20, 2019, the Further Consolidated Appropriations Act was signed into law. Among other provisions, the Act changed the excise tax rate from 2% (1% if certain criteria are met) to a flat 1.39% for tax years beginning after the date of the law. For tax year 2019, the Foundation was subject to a 2% (1% if certain criteria are met) federal excise tax on net investment income. 

In 2019, the change in tax rate decreased the deferred tax liability by approximately $866,000.  

Deferred federal excise taxes are provided on the unrealized appreciation or depreciation of investments and interest, and dividend income and certain expenses being reported for financial statement purposes in different periods than for tax purposes.

Current excise taxes were provided at 1.39% and 1% (qualified for reduced excise tax rate) for 2020 and 2019, respectively; deferred excise taxes were provided at 1.39% for 2020 and 2019, respectively. The current and deferred portions of the excise tax provision (benefit) were $959,700 and $1,000 respectively, for a net provision of $959,700 in 2020. The current and deferred portions of the excise tax provision (benefit) were $652,301 and ($3,275,000) respectively, for a net benefit of ($2,622,699) in 2019.

The Foundation follows the provisions of FASB ASC 740-10, Income Taxes, which provides guidance on the recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition issues. Management has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the accompanying financial statements. 

Accrued interest relating to uncertain tax positions would be recorded as a component of interest expense, and penalties relating to uncertain tax positions would be recorded as a component of general and administrative expenses.

Note 10
Functional Expenses

The table below presents expenses by both their nature and function for the year ending December 31, 2020:

Grants Program Support Management & General Program Support and Management and General Totals
Salaries and benefits $ $2,005,678 $394,554 $2,400,232
Grants to other organizations 39,906,992
Office and occupancy 245,853 48,346 294,199
Services and professional fees 175,753 344,135 519,888
Travel, meetings, other 41,518 10,295 51,813
Depreciation and amortization 25,153 5,350 30,503
$39,906,992 $2,493,955 $802,680 $3,296,635

The table below presents expenses by both their nature and function for the year ending December 31, 2019:

Grants Program Support Management & General Program Support and Management and General Totals
Salaries and benefits $ $1,747,662 $367,993 $2,115,655
Grants to other organizations 24,936,993
Office and occupancy 318,455 67,737 386,192
Services and professional fees 240,790 376,790 617,580
Travel, meetings, other 158,951 40,247 199,198
Depreciation and amortization 31,928 6,791 38,719
$24,936,993 $2,497,786 $859,558 $3,357,344

Expenses are recorded as attributable to either grant support or administrative functions wherever possible; however, the financial statements report certain categories of expenses that are attributable to more than one function. Therefore, these expenses require allocation on a reasonable basis that is consistently applied. The allocations above are primarily based on management’s estimates of percentage of staffing costs attributable by function.

Note 11
Liquidity and Funds Available

As part of its liquidity management, the Foundation structures its financial assets to be available as grants and general expenditures come due. At December 31, 2020, the Foundation has approximately $484,991,000 of financial assets available to meet cash needs for general expenditures within one year of the statement of financial position date, which assets consist of cash and cash equivalents of $10,952,000, interest and dividends receivable of $332,000, and investments of $473,707,000. These financial assets are not subject to donor or other contractual restrictions that make them unavailable for general expenditures within one year.

Note 12
Subsequent Events

The Foundation has evaluated subsequent events from the statement of financial position date through May 3, 2021 which is the date the financial statements were available to be issued.

12 January 2021

University Settlement, Broadway Avenue, Cleveland, OH—Food pantry in Slavic Village neighborhood.

Independent Auditor’s Report

To the Board of Trustees, The George Gund Foundation

Report on the Financial Statements We have audited the accompanying financial statements of The George Gund Foundation (an Ohio private foundation), which comprise the statements of financial position as of December 31, 2020 and 2019, 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 audit 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 Foundation’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 Foundation’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 The George Gund Foundation as of December 31, 2020 and 2019, 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.

Rea & Associates, Inc.
Cleveland, Ohio
May 3, 2021