2

Following His LeadIn Matthew 28, Jesus challenges allof His followers with a great commission:“Go and make disciples of all the nations.”But He didn’t just command us to discipleothers—He showed us how.

Jesus spent quality time with all of hisdisciples, personally teaching them thescriptures and mentoring them. He not only taught them how to pray, but prayedwith them. He didn’t hesitate to talk to the lepers, the Pharisees, or the outcasts.And He was not afraid to get His handsdirty doing His Father’s work—even washing the feet of His disciples.

Jesus led by example. And through Hisleadership, He raised up leaders who then changed the course of history and became martyrs as a result oftheir faith. And the Apostle Paul—a violent man whose life was dramatically changed by Christ—went on to takethe Gospel beyond the Jewish world, establishing the emerging church.

At Prison Fellowship®, we aspire to follow Jesus’ lead. We want to dive into the trenches of prison and meet prisoners where they are—desperately in need of the transforming power of God’s love. We want to reach out to their families with the hope and restorative promise of the Gospel.

And in doing so, we strive to raise up leaders—laborers in the harvest—who will carry this work forward. Leaders in prisons, families, churches, communities, and nations. Leaders who will disciple others and standup with us to bring the Gospel into the darkest places, bring hope to innocent children, and bring restoration to communities torn apart by crime.

Jesus is leading the way. Let’s follow Him.

Mark EarleyPresident and CEO

L e a d \ v e r b : t o g o b e f o r e o r w i t h t o s h o w t h e w a y3

Sharing the Good NewsAfter His resurrection, Jesus commanded His disciples: “Go into all the world and preach the Gospel to all creation” (Mark16:15). At Prison Fellowship we work to fulfill this great commissionby going into the dark places where others aren’t able to go—behindprison walls. Our volunteers and partnering churches lead Bible studies in prisons all across the country, bringing the life-changingmessage of Jesus Christ directly to prisoners.

Through Operation Starting Line (OSL) in-prison evangelismevents, Prison Fellowship collaborates with a network of ministriesto share the Gospel message with prisoners across the nation.Working alongside 43 collaborators this past year, each event

provided spiritual food for prisoners—along withthe invitation to changetheir lives forever.

In April, Prison Fellowship announced an exciting new partner-ship with former Wash-ington Redskins headcoach and currentNASCAR racing teamowner Joe Gibbs(pictured, top photo) to conduct these OSL evangelism events. Drawing from his experi-

ences, Joe parallels the sport of football with common life issues.He shares that his guide to living a successful, purpose-filled life isthe Bible—life’s “playbook.” To date, Joe has conducted evangelismevents in four prisons across three states!

“I’ve had the opportunity to partner with Prison Fellowship andspend some time with prisoners,” says Joe, “and one of the thingsthat has stood out to me is how you can see in their eyes that theyare thirsting for something more. We serve a God of second chancesand I’m grateful for the opportunity to partner with Prison Fellowshipto share that message.”

Operation Starting Line is a tribute toChuck Colson’s vision for ministries networking together. Collaboration isnot competitive or turf conscious, but aHoly Spirit-inspired eagerness and expectation to see how much more Godcan do through us working together thanby slugging it out alone. This networkingprinciple has become a core value atCrossroad Bible Institute . . . and we learned it from Prison Fellowship.

—David Schuringa, PhD, President, Crossroad Bible Institute

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Commiss ion \ n o u n : a n a u t h o r i t a t i v e o r d e r, c h a r g e , o r d i r e c t i o n4

Getting the Gospel Inside• 32 Operation Starting Line events held• 5,686 inmates in attendance• 215 made first-time decisions

to follow Christ• 481 reported rededication decisions• 425 signed up for correspondence

Bible studies

Change from the Inside Out• 8 InnerChange Freedom

Initiative programs in 5 states

• 883 in-prison members (773 men, 110 women)

• 341 post-release members(314 men, 27 women)

• 5,790 inmates enrolled since inception

• 83% of graduates in mentoring relationships

• 59% of graduates employed• 60% of graduates active

in churches

A Reflection of ChangeIf you walk into the Lansing Correctional Facility in Kansas, youmight be reminded of an old James Cagney film—each cold cellblockstacked on top of another in the dark, ominous corridor. It’s the veryprison where the two infamous murderers profiled in Truman Capote’s In Cold Blood were hanged in 1965. A dire feeling of desolation perme-ates within the walls of this maximum-security penitentiary.

But after walking through the rants and hollers of the general popula-tion, you enter a separate housing unit. And in-stantly the atmosphere of the prison changes.

This housing unit holds 150 inmates en-rolled in the InnerChange Freedom Initiative®(IFI)—an intensive, values-based reentry pro-gram developed by Prison Fellowship. Each inmate has volunteered to participate in the 18-month course that uses the life and teach-ings of Jesus as the model for real, lifelongchange. In addition, they receive 12 months ofreentry services and mentoring to ensure thatthe life skills learned in prison are applied suc-cessfully on the outside.

The groundbreaking program receives no government funding and is supported solely byPrison Fellowship and IFI donors and volunteers.This year, IFI Arkansas made a vital move fromrural Tucker to the Little Rock metropolitan area,garnering more volunteer and church involve-ment. In just the three months following themove, that IFI unit trained 62 new volunteers.

Apart from its cinematic appeal, the stark difference between Lansing’s main prison and

the IFI housing unit is a reflection of the transformed lives of each prisoner. IFI is seeing lives change and recidivism rates fall—down to 8 percent according to a landmark Texas study.

IFI graduates are returning to society with better odds for successthan ever before. This gives them the opportunity to become leaders in their families, their jobs, their churches, and their communities—anopportunity many thought they’d never be given.

Opportunity \ noun: a good position, chance, or prospect, as for advancement or success

The best part of working in an IFI unitis witnessing firsthand as inmates voluntarily change their own lives forthe better with the assistance of a program—one that asks for nothing inreturn except dedication, yet offersnew ways of thinking that lead to better communities. I’ve worked in cellhouses ranging from minimum securitytherapeutic programs to maximum security units with the worst of theworst, and I can say without a doubt W-Unit [which houses IFI members]has the most well behaved inmatesthat I’ve worked with. It’s an absolutepleasure to be an officer in charge in W-Unit, and I can’t imagine a better program to work with than IFI.

—Officer Matthew Coil [COII], Lansing Correctional Facility

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Working TogetherWe’re not in this alone. Prison Fellowship understands the importance of partnerships in making this ministry successfuland impactful. That’s why we rely daily on our ministry colleagues:volunteers, churches, donors, prayer partners, prison chaplains, corrections officials, and community organizations.

After all, we’re part of one body. The Apostle Paul wrote to the church at Corinth: “Just as a body, though one, has many parts, but all its many parts form one body, so it is with Christ” (1 Corinthians 12:12). One part can’t work without the others. And we are at our best when we choose to work together. A prime

example of this is foundin our TransformationalMinistry.

Based on the successof the InnerChangeFreedom Initiative (IFI),Prison Fellowship has developed a scalable and reproducible modelthat implements the bestpractices of IFI at a lower

cost. Run primarily by volunteers with staff oversight, these in-prisonTransformational Ministry programs are easier to implement andare continuing to grow across the country. There are currently sevenprograms in California and four in Florida!

It’s a thrilling new initiative and we’re especially excited to seeministry leaders taking ownership of these efforts in their areas. By giving them the tools they need to run successful in-prison programs, we’re raising up leaders that will carry this significant outreach forward in the years to come.

State Assemblyman Mike Villinesvisited the Transformational Ministryprogram in Solano, California, andhad this to say:Your program is doing for inmates what government should be doing for them . . . I believe this program is really making a difference.”

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Trans fo r m \ ve r b : t o c h a n g e i n c o n d i t i o n , n a t u r e , o r c h a r a c t e r8

A TransformationalApproach• 375 inmates currently enrolled

in 22 prisons across 10 states• 764 inmates enrolled

since inception• 228 post-release members

since inception• 81 matched with mentors

on the outside this year• 315 partnering volunteers• 134 partnering churches• 81 partnering non-church

organizations

A Nationwide Reach• 1,329 prisons with an active Prison Fellowship presence• 50 states with some form of PF ministry

(prison, family, reentry)• 14,718 volunteers (certified prison volunteers and

Angel Tree coordinators)• 711 new volunteers trained this year• 10,227 prison volunteers trained since 2000• 14,931 letters received by prisoners• 10,684 letters written to prisoners

It Takesan ArmyPrison Fellowship partners withthousands of churches and volunteersacross the country to help bring the Gospelof Jesus Christ into prisons through Biblestudies and in-prison programs. We raise up and train volunteers that will help lead the way into prisons across the country—prisons that we would never be able to reach without their help.

Leaders of TomorrowThe Next Generation Initiative (NGI)is creating awareness among young

people, engagingthem in the missionof PrisonFellowshipin strategic

and relevant ways. There are currently 20 college campuses involved in some form of Prison Fellowship ministry. This year, NGI exhibited at 15 youth conferences across 10 states, spread-ing the word about in-prison ministry.Through these conferences, socialnetworking, and grassroots campaigns, NGI reached 22,000 young adults withPF’s message this year alone!

Partner \ verb: to share or associate with another in some action or endeavor

Writing History• 245,000: circulation for Jubilee (monthly printed newsletter)• 48,000: circulation for Inside Out (monthly e-newsletter)• Launched Frontlines e-newsletter for volunteers

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Leading the WayThrough Prayer

A question each believer should ask themselves is: Do I really believe in theGod of the impossible?

At Prison Fellowship, we know that nothing is impossible for God because we seemiracles happening every day. We see hardened criminals transform into followers ofJesus by accepting His love and forgiveness, and we witness children of incarcerated parents find love and hope through the volunteers that reach out to them. We know that we serve the God of the impossible because miracles like these are possible onlythrough the transforming power of Jesus Christ.

I am constantly asked by people: How can I get involved in Prison Fellowship? My first answer is always the same: through prayer. When we begin to pray regularly for prisoners, their families, their victims, and their communities, we begin to see them through the eyes of Jesus.

Our ministry is successful because of the power of prayer. When we witness inmates meeting Jesus,over and over again we find that someone was faithfully praying for them on the outside. When we see anAngel Tree child reconciled with his or her parent in prison, again we find out how prayers of others have affected that reunion.

Throughout the Gospel we see Jesus leading others by praying to the Father. And at Prison Fellowship we believe that in order to see the transformation of prisoners in this country and around the world, we must follow Jesus’ lead and persevere in prayer.

We invite you to join with us.

Michael TimmisChairman of the Board

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Pray that God will continue to grant Prison Fellowship favor with corrections officials and prison staff

Pray that more churches would obey Christ’s call to “visit those in prison” to proclaim the Gospel

Pray for the growth of the InnerChange Freedom Initiative and Transformational Ministry programs

Pray for Out4Life coalitions to be created across the country

Pray that more churches will capture the life-changingvision of Angel Tree

Pray that victims of crime will find full healing and restoration in Christ

Pray that Justice Fellowship will succeed in changing legislation to reflect restorative justice

Pray that our worldview teaching will ignite and fuel apowerful movement within the Church

Pray that Prison Fellowship’s leadership team will lead with humility and wisdom

Sharing the Gift of God’s Love• 363,845 children served

at Christmas 2009• 202,669 incarcerated

parents in 1,324 prisonsserved

• 7,763 churches and other organizations participated

• 5,003 kids sent to Christian summer camps

Mending the BrokenPrisoners’ children are innocent victims of crime forced tolive with the shame and loneliness of having an incarcerated parent.Approximately 1.5 million children in the U.S. had a parent inprison last Christmas. The number is great, and the need for loveis greater.

Angel Tree® is more than just a gift-giving campaign. It is a program that helps restore relationships between children and their

incarcerated parents. And it helpsreconcile these families to God—the true Mender of broken hearts.

Angel Tree uses an intricate network of Prison Fellowship staff,prison chaplains, churches, and volunteers across the nation to bring Christmas to children of incarcerated parents. A gift is givento each child in the name of theirmom or dad in prison, along with a personal message written for the child. Then the gift is delivered to

each child along with the Gospel message—a chance to share about the true meaning of Christmas, Jesus Christ.

Beyond Christmas, churches often continue their relationshipswith Angel Tree kids—embracing them into their church families.Angel Tree works year-round to recruit churches and volunteers for this critical ministry. We also help send prisoners’ children to various Christian summer camps, giving them a new opportunity to learn about Jesus, to make lasting friends, and to enjoy a varietyof enriching activities.

Through Angel Tree, God is miraculously mending families oncetorn apart by crime. And He’s raising up fathers and mothers thatwill lead their families with integrity, and churches that will lead theway in caring for families of the incarcerated.

Mend \ verb: to make (something broken, worn, torn,or otherwise damaged) whole or sound by repairing it

Children are God’s precious gift,but sometimes they don’t know it.By delivering gifts and the Gospelthrough Prison Fellowship’s AngelTree program, our church helps thechildren of prisoners understandthat the most precious gift of all—God’s Son—was given just for them.

—David Jeremiah, Senior Pastor, Shadow Mountain Community Church

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A FightingChance at SuccessIf you’ve ever been fishing, you’ve probably heard of a popularrecreational technique called “catch and release,” or freeing the fish backinto the water after catching him. The fisherman has to be careful, though,in order to give the fish a fighting chance. If he rips the hook out of thefish’s mouth too harshly or removes him from thewater for too long, the fish’s chance for survival arecompromised.

With over 7.3 million people currently lockedup or under corrections supervision across thecountry, we do a good job of catching the criminals.But with a national recidivism rate of more than 60 percent, our releasing techniques could usesome improvement.

Out4Life is tackling this problem by conveningkey stakeholders in statewide conferences, formingreentry coalitions in key regions of each state, andthen networking these coalitions around the stateand nation. These coalitions—which include gov-ernment agencies, businesses, community groups,and faith-based organizations—work together tohelp released offenders make a successful transi-tion back into the community, in turn helping reduce recidivism and increase public safety.

Out4Life is raising up leaders in the commu-nity: businesses who will not discriminate againstex-offenders in the hiring process; churches thatwill embrace ex-offenders with God’s love; and civicgroups that will help ex-offenders obtain basic ne-cessities like housing, clothing, and transportation.

Through Prison Fellowship’s partnershipwith these regional coalitions, Out4Life is settingthe standard for successful “catch and release,”and we are making tremendous strides in giving ex-prisoners a fightingchance and helping them stay Out4Life.

Coa l i t i on \ n o u n : a u n i o n i n t o o n e b o d y o r m a s s ; a p a r t n e r s h i p

A Partnership with GoodwillIn April, Prison Fellowship and GoodwillIndustries International signed an

agreement toestablish acooperativerelationshipto improveaccess to jobs,

housing, and other opportunities forpersons reentering their communitiesafter incarceration. The partnership aims to help ex-prisoners succeed, thusreducing recidivism rates nationwide.President and CEO of Goodwill Industries International Jim Gibbons says, “Thepartnership with Prison Fellowship willhelp ensure that people with a criminalhistory have the tools they need to become productive and independentmembers of society so that they cansupport themselves and their families.”

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Keeping Ex-Prisoners Out4Life• 8 Out4Life conferences held, all conducted

in partnership with the Department ofCorrections

• 1,783 total participants• 1,027 church leaders attended a

Pastors Dinner• 594 joined hands with us in

reentry coalitions• 49 regional coalitions formed

or expanded since inception

Sharing Our Expertise• 11 legislative hearings and national

conferences where JF presentedexpert testimony

• 2 Friend of the Court briefs filed instate and federal courts defendingprisoners’ access to religiousmaterials and programs

• 2 governors elect (1 R and 1 D)asked JF to assist in developing thecriminal justice policies for theirnew administrations

• 25,000 subscribers to the Justice eReport

• 53 radio, television, andnewspaper interviews

And Justice for AllJustice Fellowship seeks to reform our criminal justice systemto reflect biblical principles, working with government officials to changetheir policies so that offenders leave prison better than they go in, making our communities safer. JF has become a respected voice in the nation’s capital and in states across the country. Our reputation

for fairness and bipartisanship has led to some exciting victories for Justice Fellowship this year.

Congress finally passed the Fair Sentenc-ing Act, which JF had worked 14 years to pass. We also were successful in convincing Congressto fund the mentoring programs of the SecondChance Act. Despite the tight economic times,leaders of both parties agreed with JF that mentors will help offenders make good, moraldecisions—benefitting both the inmates and the community.

JF also worked for important reforms in several states. For instance, in South Carolinawe supported legislation that reserves expen-

sive prison beds for the truly dangerous. It passed with bipartisan support and the state will save over $400 million.

We have continued the fight to end the atrocity of rape in our prisons,organizing groups on the Left and the Right to join with us in calling onAttorney General Eric Holder to adopt strong standards to eliminaterape from our prisons. We brought together leaders of conservative andliberal groups at a press conference urging the Attorney General to actquickly. The sight of such disparate leaders united in one cause was sounusual that dozens of TV, radio, and newspaper outlets covered thepress conference.

JF also works hard to protect prisoners’ access to religious programsand materials. For instance, one jail in southern Virginia was removing all Bible verses from letters from home—literally cutting them out of the pages. JF and other groups intervened and scripture is once againgetting to the prisoners.

God is opening hearts and minds to restorative justice across thecountry. It is exciting for Justice Fellowship to be a part of this mightymovement of God.

Justice \ noun: rightfulness or lawfulness; conformity to truth or reason

Unanimously JustifiedThe City of Sinton, Texas, prohibiteda church-sponsored halfway housefrom locating anywhere within thecity limits. Justice Fellowship tookthe fight all the way to the TexasSupreme Court and won with aunanimous decision allowing thechurch to operate the halfwayhouse—which welcomes ex-prisonersduring their reentry transition.

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Living Monuments of God’s Grace

Mark Earley and I were preaching in a southern prison a while back to 400-someinmates. When the event was over, we mingled with the men. One red-headed fellow came upto me. He was missing a couple of teeth, had a few scars on his face, and definitely had thelook of somebody who had lived a hard life. He looked me in the eye and said, “Mr. Colson,when Mark Earley said today that I could be a leader of the church . . .” and then he hesitated,but went on, with a joyous look on his face. “Nobody ever told me I could be any good. My parents told me I’d never amount to anything. Today’s the first time I’ve ever heard that I couldbe worth something.”

Most prisoners feel worthless. They see nothing but the underside of life: gangs, brokenfamilies, addictions. In prison they may have been abused and beaten. I will never forget howworthless I felt when I served time. The bottom line is: the prison experience for most is demeaning and dehumanizing.

What reached the young, red-headed inmate that day was the hope that he could become a leader in Christ’schurch. This wasn’t an empty promise by Mark Earley. We’ve seen hundreds of ex-prisoners become leaders. I remem-ber when Prison Fellowship celebrated its 25th anniversary. I was asked whether we should name something in myhonor. My response was no; I want nothing named for me. I want nothing but living monuments. And that’s what we’vebeen seeing—men and women gloriously transformed by the love of Christ.

Take my colleague Pat Nolan. Here’s a guy who was active in politics, broken, and then spent 29 months in prison. I first met him in Spokane, Washington, where he’d been released for a few hours to speak at a lunch gathering. Therehe was in prison dungarees speaking powerfully about justice and God’s grace. The moment he stepped out of prison, I tapped him to lead Justice Fellowship. There’s probably nobody in America today who has done as much to trans-form the criminal justice system as Pat. He has worked to protect prisoners’ religious rights, fought against prison rape,and led the effort to pass the Second Chance Act and the Fair Sentencing Act of 2010.

And then there’s Tom Tarrants, who came through our discipleship program, became a pastor, and for years servedas the president of the C. S. Lewis Institute, training others to think Christianly about all of life. Tom was a former KKKbomber, wanted by the FBI! But he now embodies everything this ministry believes in.

No one could have dreamed up this idea of ex-prisoners becoming leaders of the church. That’s God’s way of confounding the wisdom of the world, proving that He, not we, makes these kinds of things happen. Likewise, Prison

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Fellowship and BreakPoint have set two ambitious goals before us: first, seeing prisoners transformed by the Gospeland raising up leaders for the church; and second, to train men and women to see life through a biblical worldview andto change the culture accordingly. After all, the very cause of crime is the fact that we live by a false worldview which is undermining our moral standards. That’s why we run our Centurions Program, where each year believers with leadership potential undergo rigorous training in Christian worldview, and then take what they learn and apply it to theirsphere of influence in the world.

All of these men and women—these living monuments—are making the invisible Kingdom of God visible, changingthe world. And their lives give me great joy because they tell me that my life has counted for something by God’s grace.

How humbled and grateful I am to be a part of Prison Fellowship and BreakPoint. And how grateful I am to all of youfor joining us in this great work of God.

Charles W. ColsonFounder

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Broadcasting a Biblical Worldview• “BreakPoint” and “The Point”

commentaries broadcast onover 1,300 radio outlets nationwide, reaching8 million listeners per week

• The Colson Center launchedits online worldview libraryand training center

• 74 participants commissionedin 2009 Centurions Program

• 84 participants began 2010 Centurions Program

• 556 total certified Centurions since inception

Standing Up for TruthBreakPoint seeks the transformation of believers as they develop and articulate a thoroughly biblical worldview, enabling them to transform their communities through the grace and truth of JesusChrist. By equipping and training these men and women, we are raising up leaders that will in turn affect the world and lead others in the years to come.

This year, Chuck Colson helped launch the Manhattan Declaration, a new 501(c)(3) organization that speaks in defense of the sanctity of human life, traditional marriage, and religious liberty. Supporters from all across the nation are joining the movement, and 475,000 have signed the declaration thus far. In its ongoing effort to affect our culture for Christ, BreakPointis working alongside ministries such as Focus on the Family, the American Family Association, and Family Research Councilto spread this fundamental message of God’s truth.

Along with daily radio commentaries by Chuck Colson and Mark Earley, BreakPoint producedChuck’s “Two Minute Warning” videocommentaries, which are posted forviewing online. The weekly videos continue to grow in popularity and one video on religious freedom wentviral—viewed over 180,000 times to date!

In 2004, Chuck Colson launched the Centurions Program—an intensive,year-long course designed to prepare believers to think and live the Christian

worldview. The program, which is now in its seventh year, continuesto develop leaders that will stand up for the truth in today’s ever-changing world—leaders that will declare: “I am not ashamed of the Gospel!” (Romans 1:16).

Integrity \ noun: adherence to moral and ethical principles, soundness of moral character

“In an increasingly hostile, secular culture, Christians are faced with issues and choices we’ve never had to deal with before. BreakPoint is hereto help you develop a robust Christianworldview—seeing, understanding,and engaging the world from abiblical perspective.”

—Chuck Colson

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Allocation of Financial Support For Fiscal Year July 1, 2009—June 30, 2010 (In Thousands)

Program Services Program Ministry $20,355 46.5%

Public Education $5,733 13.1%

International Prison Ministry $3,296 7.5%

Total Program Services $29,384 67.1%

Support ServicesManagement and General $5,546 12.7%

Fundraising $8,829 20.2%

Total Support Services $14,375 32.9%

Total Expenses $43,759

Percentages are rounded to the nearest .1 %

The chart below shows how Prison Fellowship used the funds God provided over the past fiscal year.

Report of Independent Certified Public AccountantsAudit Committee and Board of DirectorsPrison Fellowship Ministries and Affiliates

We have audited the accompanying consolidated statement of financial position of Prison Fellowship Ministries and Affiliates (the “Organization”), as of June 30,2010, and the related consolidated statements of activities and changes in net assets, functional expenses and cash flows for the year then ended. These fi-nancial statements are the responsibility of the Organization’s management. Our responsibility is to express an opinion on these financial statements based onour audit. The prior year summarized comparative information has been derived from the Organization’s fiscal 2009 consolidated financial statements. The con-solidated financial statements of the Organization as of and for the year ended June 30, 2009 were audited by other auditors. Those auditors expressed an un-qualified opinion on those financial statement in their report dated February 23, 2010.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America established by the American Institute of Cer-tified Public Accountants. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization’s internal control over financial re-porting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the fi-nancial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementpresentation. 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 Prison Fellowship Ministriesand Affiliates as of June 30, 2010, and the changes in their net assets and their cash flows for the year then ended in conformity with accounting principles gen-erally accepted in the United States of America.

Grant Thornton, LLPMcLean, VirginiaDecember 14, 2010

Consolidated Financial Statements ($’s in Thousands)

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Prison Fellowship Ministries and Affiliates Consolidated Statement of Financial PositionAs of June 30, 2010, with comparative totals as of June 30, 2009 (In Thousands)

Temporarily Permanently 2010 2009Unrestricted Restricted Restricted Total Total

ASSETSCash and cash equivalents $2,774 $2,269 $ - $ 5,043 $ 5,733 Cash and cash equivalents, board-designated 545 - - 545 237

TOTAL CASH AND CASH EQUIVALENTS 3,319 2,269 - 5,588 5,970

Investments - 4,590 - 4,590 2,834 Investments, board-designated 206 - - 206 257

TOTAL INVESTMENTS 206 4,590 - 4,796 3,091

Assets held in charitable remainder trusts - 25 - 25 24 Contributions receivable, net of allowance

of $168 and $279 for 2010 and 2009, respectively 1,240 1,904 - 3,144 3,815 Program advances and other receivables 72 - - 72 56 Prepaid expenses and other assets 431 - - 431 598 Inventory of publications and supplies 405 - - 405 351

TOTAL CURRENT ASSETS 5,673 8,788 - 14,461 13,905

Cash and cash equivalents held for long-term use - 252 - 252 32Investments held for long-term use - 4,195 3,106 7,301 7,410Assets held in charitable remainder trusts - 200 - 200 197Contributions receivable, net of current portion - 1,526 - 1,526 284Beneficial interest in remainder trusts - 615 154 769 1,048Cash surrender value of life insurance policies 77 - - 77 80Property and equipment,

net of accumulated depreciationof $14,121 and $13,328 for 2010 and 2009, respectively 20,935 - - 20,935 21,608

TOTAL ASSETS $26,685 $15,576 $3,260 $45,521 $44,564

LIABILITIES AND NET ASSETSLiabilities:

Accounts payable and accrued expenses $ 3,007 $ - $ - $3,007 $2,995 Accrued salaries and benefits 813 - - 813 1,333Line of credit 1,950 - - 1,950 -Deferred revenue 72 - - 72 92Annuities payable - 678 - 678 679Liability under trust agreements - 25 - 25 24

TOTAL CURRENT LIABILITIES 5,842 703 - 6,545 5,123

Annuities payable - 4,236 - 4,236 4,336Liability under trust agreements - 116 - 116 118TOTAL LIABILITIES 5,842 5,055 - 10,897 9,577

Net assets:Unrestricted 20,843 - - 20,843 23,132Temporarily restricted - 10,521 - 10,521 8,595Permanently restricted - - 3,260 3,260 3,260

TOTAL NET ASSETS 20,843 10,521 3,260 34,624 34,987

TOTAL LIABILITIES AND NET ASSETS $26,685 $15,576 $3,260 $45,521 $44,564

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The accompanying notes are an integral part of these consolidated financial statements.

Prison Fellowship Ministries and Affiliates Consolidated Statement of Activities and Changes in Net AssetsFor the Year Ended June 30, 2010 (with comparative totals for the Year Ended June 30, 2009) (In Thousands)

Temporarily Permanently 2010 2009Operating Restricted Restricted Total Total

REVENUESContributions $31,926 $8,961 $ - $40,887 $40,766Investment return (loss) 713 305 - 1,018 (3,693)Gain on sale of property - - - - 15Other revenue 1,267 - - 1,267 1,127In-kind contributions 35 - - 35 6Net assets released from restrictions 7,561 (7,561) - - -

TOTAL REVENUE 41,502 1,705 - 43,207 38,221

EXPENSESServices and programs

Program ministry 20,355 - - 20,355 21,189 Program education 5,733 - - 5,733 6,136 International prison ministry 3,296 - - 3,296 3,717

29,384 - - 29,384 31,042

Supporting servicesManagement and general 5,546 - - 5,546 5,506 Fundraising 8,829 - - 8,829 7,750

Total supporting services 14,375 - - 14,375 13,256

TOTAL EXPENSES 43,759 - - 43,759 44,298

Change in net assets from operations (2,257) 1,705 - (552) (6,077)

Unrealized net market gain on equity investments 346 160 - 506 740Change in value of split-interest agreements (378) 61 - (317) (247)

CHANGE IN NET ASSETS (2,289) 1,926 - (363) (5,584)

NET ASSETS, beginning of year 23,132 8,595 3,260 34,987 40,571

NET ASSETS, End of year $20,843 $10,521 $3,260 $34,624 $34,987

Prison Fellowship Ministries and Affiliates Consolidated Statement of Functional ExpensesFor the Year Ended June 30, 2010 (with comparative totals for the Year Ended June 30, 2009) (In Thousands)

Services and Programs Supporting ServicesInternational Total

Program Public Prison and Fund Supporting 2010 2009Ministry Education Ministry General Raising Services Total Total

Salaries and related expenses $12,241 $1,478 $ - $13,719 $3,192 $2,248 $5,440 $19,159 $21,907 OTHER EXPENSES

Consulting 1,085 436 - 1,521 129 599 728 2,249 1,975Donations 99 33 3,296 3,428 28 69 97 3,525 3,742Materials and supplies 2,937 43 - 2,980 157 65 222 3,202 2,036Occupancy 437 72 - 509 237 59 296 805 1,084Other 288 37 - 325 60 73 133 458 508Postage 333 844 - 1,177 121 1,443 1,564 2,741 2,343Printing 206 1,107 - 1,313 178 2,038 2,216 3,529 3,100Professional fees 426 1,334 - 1,760 730 1,795 2,525 4,285 3,559Repair and maintenance 111 24 - 135 57 23 80 215 198Telephone 501 61 - 562 95 65 160 722 902Travel 1,042 70 - 1,112 81 168 249 1,361 1,465

19,706 5,539 3,296 28,541 5,065 8,645 13,710 42,251 42,819

Depreciation and amortization 649 194 - 843 481 184 665 1,508 1,479

TOTAL EXPENSES $20,355 $5,733 $3,296 $29,384 $5,546 $8,829 $14,375 $43,759 $44,298

ManagementTotalServices

and Programs

26The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

Prison Fellowship Ministries and Affiliates Consolidated Statement of Cash FlowsFor the Year Ended June 30, 2010 (with comparative totals for the Year Ended June 30, 2009) (In Thousands)

2010 2009CASH FLOWS FROM OPERATING ACTIVITIESChanges in net assets $(363) $(5,584)Adjustments to reconcile change in net assets to net cash from operating activities:

Depreciation and amortization 1,508 1,479Change in contributions receivable discount and allowance (109) 38Contributed investments (345) (208)Realized and unrealized (gains) losses on investments (1,054) 3,614Actuarial loss on annuity obligations 253 163Change in value of charitable trusts (5) 11Unrealized loss on beneficial interest in remainder trusts 279 73Contribution of beneficial interest in remainder trusts - (1,121)Change in cash surrender value of life insurance policies 3 (80)G ain on sale of property - (15)Changes in operating assets and liabilities:

(Increase) decrease in contributions receivable (462) 794(Increase) decrease in program advances and other receivables (16) 8Decrease (Increase) in prepaid expenses and other assets 167 (143)(Increase) decrease in inventory of publications and supplies (54) 284Increase in accounts payable and accrued expenses 12 54(Decrease) Increase in accrued salaries and benefits (520) 32(Decrease) Increase in deferred revenue (20) 39

Net cash used in operating activities (726) (562)

CASH FLOWS FROM INVESTING ACTIVITIESTransfers (to) from cash and cash equivalents held for long term use (220) 142

Acquisitions of property and equipment (835) (1,204)Proceeds from sale of investments 5,936 19,013 Purchase of investments (6,133) (17,394)

Net cash (used in) provided by investing activities (1,252) 557

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from investments subject to annuity agreements 295 64Payment of annuity obligations (649) (666) Proceeds from draws on line of credit 3,300 5,800Repayment of line of credit (1,350) (5,800)

Net cash provided by (used in) financing activities 1,596 (602)

NET DECREASE IN CASH AND CASH EQUIVALENTS (382) (607)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,970 6,577

CASH AND CASH EQUIVALENTS, END OF YEAR $5,588 $5,970

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest paid $ 16 $32

Payment of charitable trust obligations from assetsheld in charitable remainder trusts $ 25 $27

27

The accompanying notes are an integral part of these consolidated financial statements.

June 30, 2010 and 2009

NOTE A: ORGANIZATIONPrison Fellowship Ministries, a corporation organized underthe laws of the District of Columbia, is a not-for-profit organi-zation founded in 1976 to exhort, assist and equip the Churchin its ministry to prisoners, ex-prisoners, victims and their fam-ilies and in its promotion of Biblical standards of justice in thecriminal justice system.

Its charitable purposes include the transformation ofprisoners and their reconciliation to God, family and commu-nity through the power and truth of Jesus Christ and the trans-formation of believers as they apply Biblical thinking to all oflife — enabling them to transform their communities throughthe grace and truth of Jesus Christ.

It is a publicly supported organization exempt from fed-eral income taxes under Section 501(c)(3) of the InternalRevenue Code (“IRC”). It also performs ministry through three(two in 2010 and 2009) related not-for-profit operating enti-ties organized as Virginia non-stock corporations:

� InnerChange Freedom Initiative (“IFI”), which pro-vides voluntary Christ-centered and values-based programservices to prisoners. While Prison Fellowship Ministries doesnot control the activities of IFI, IFI’s accounts are includedherein because of the significant financial support Prison Fel-lowship Ministries provides to IFI and because Prison Fellow-ship Ministries appoints a majority of IFI Board members.

� Prison Fellowship Ministries Foundation (“PFMF”),which manages and administers planned giving programs tosupport Prison Fellowship Ministries. In addition, PFMF ownsproperty in Lansdowne, Virginia used by Prison Fellowship Min-istries as office space.

� As of July 1, 2010 (see Note B), BreakPoint, Inc.,(“BreakPoint”), which has the purpose of increasing aware-ness, understanding and application of biblical worldview inall spheres of life.

Prison Fellowship Ministries provides administrative andmonetary support to each of the above organizations. Each isincorporated under the laws of the Commonwealth of Virginia.IFI and PFMF are tax-exempt under Section 501(c)(3) of theIRC. BreakPoint has applied for exemption.

The consolidated financial statements presented hereinclude the accounts of Prison Fellowship Ministries and theabove related organizations in existence at June 30, 2010(together, the “Organization,” the “Ministry,” and/or “PFM”). Allsignificant intercompany transactions have been eliminated.

Funding for PFM is obtained primarily from private con-tributors.

NOTE B: SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting • PFM maintains its records using theaccrual basis of accounting, where support is recognized whenearned and expenses are recognized when incurred.

Financial Statement Presentation • PFM classifies net as-sets into three categories: unrestricted, temporarily restrictedand permanently restricted. All contributions are consideredavailable for unrestricted use unless specifically restricted bythe donor. Temporarily restricted net assets are contributionswith temporary donor-imposed time and/or program restric-tions. These temporary restrictions require that resources beused for specific purposes and/or in a later period or after aspecified date. Temporarily restricted net assets become unre-stricted when the time restrictions expire or the funds are usedfor their restricted purpose and are reported in the statementof activities and changes in net assets as net assets releasedfrom restrictions. When a restriction on a contribution is met inthe same period in which the contribution was received, thecontribution is reported in the statement of activities and

changes in net assets as temporarily restricted revenue and asnet assets released from restrictions. Permanently restricted netassets represent endowments to be held in perpetuity.

Cash and Cash Equivalents • PFM considers all highly liquidinvestments purchased with an original maturity of 90 days orless to be cash and cash equivalents. PFM maintains cashbalances that may exceed federally insured limits at certaintimes during the year, but doesn’t believe that this results inany significant credit risk.

Investments • Investments are stated at fair value. The fairvalue of all debt and equity securities with a readily deter-minable market value are based on published market prices.The alternative investments are limited partnerships formed forthe purpose of investing in a variety of investment vehicles including but not limited to limited partnerships, limited liability companies, offshore corporations and other foreigninvestment vehicles, registered investment companies and direct investments in marketable securities and derivative instruments. PFM’s alternative investments, which are notreadily marketable, are carried at estimated fair values as pro-vided by the investment managers. Those estimated fair values may differ significantly from the values that would havebeen used had a ready market for these securities existed.

PFM records investments received with a donor-imposed restriction that limits their use to long-term purposesas temporarily or permanently restricted investments.

Charitable Trusts • Assets held in charitable trusts are invest-ments and are stated at fair value. The liability under trust agree-ments is calculated as the present value of the estimated futurepayments. The present value calculation uses discount ratesranging from 8.3% to 7.2% and life expectancy tables from theInternal Revenue Service. The change in value of split interestagreements includes the investment income and realized andunrealized gains and losses on assets held in charitable trustsand actuarial adjustments to the calculated liabilities.

Contributions Receivable • The face amount of contributionsreceivable is reduced by an allowance for doubtful accounts.The allowance for doubtful accounts reflects the best estimateof probable losses determined principally on the basis of his-torical experience and specific allowances for known troubledaccounts. All contributions or portions thereof that are deemeduncollectible or that require an excessive collection cost arewritten off to the allowance for doubtful accounts.

Inventory • Inventory consists of general office supplies, pam-phlets, books and training materials available for sale and forministry purposes and similar items. Inventory is valued at av-erage cost based upon the first-in, first-out method.

Beneficial Interest in Remainder Trusts • PFM is named asthe beneficiary in remainder trusts held by third parties. Thetrusts, which are invested in cash equivalents, equity and fixedincome funds, and other assets are measured at the presentvalue of future distributions expected to be received over theterm of the agreement.

Fixed Assets • Land is carried at cost; all other property andequipment in excess of fifteen hundred dollars in value iscarried at cost less accumulated depreciation. Depreciationof property and equipment is computed on the straight-linebasis over the estimated useful lives of the assets: buildingsand improvements, 10 - 40 years; furniture and equipment,five years; vehicles, five years; and computer hardware andsoftware, three years.

Annuities Payable • The liability for annuities is based on actuarially determined present values considering the incomebeneficiaries and applicable discount rates based on federal ta-bles. An actuarial adjustment is recognized in the statement ofactivities and changes in net assets for the change in the value.

Contributions • PFM records pledges as contributions receivable at net present value when there is documentationor other evidence for the amount, timing and nature of thecontribution. Donated securities are recorded as contributionsat their estimated fair market value on the date control is re-linquished by the donor. Other contributions, if not previouslypledged, are recognized as support when cash is received.PFM reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limitthe use of the donated assets.

PFM records any contribution to another organizationas an expense in the year an unconditional promise to give ismade.

PFM has established a policy that all contributions restricted for specific projects may be assessed ten percent(10%) to help cover the cost of general administrative overhead and, as required by PFM’s charter fee agreementwith Prison Fellowship International, six percent (6%) for international ministry.

Donated Services • The work of PFM is multiplied manytimes over through the efforts of thousands of volunteers, whoannually donate significant time to the Organization’s programs and services. No amounts have been recorded in the consolidated financial statements for these donatedservices, in accordance with current accounting standards.

Allocation of Costs • PFM classifies costs between the vari-ous program services and support services in order to clearly,consistently and accurately reflect its activities. Managementreviews the allocation methods each year to ensure their pro-priety. Various factors – including the implementation of newprograms or support systems, the general economic environ-ment or the scheduling of capital fund raising projects – willhave an effect on the overall allocation of costs between pro-gram services and support services. While it is the Ministry’sintention to minimize the funds expended toward supportservices so that program services may be maximized, year-by-year fluctuations in the allocation should be expected.

Costs are allocated as follows:

Program ServicesProgram Ministry – Assisting local church congrega-tions, volunteers and collaborating partners in ministryactivity, including in-prison events (Bible studies andseminars; InnerChange Freedom Initiative® operations;Operation Starting Line® evangelism; mentoring andongoing discipleship); re-entry support (mentoring,community-of-care building and case management);and Angel Tree® (including both Christmas ministry andactivities beyond Christmas – such as supporting sum-mer camping programs). The majority of costs relate tosalaries, benefits, travel and operating expenses forstaff who recruit, train and assist local churches andvolunteers to deliver ministry, and for necessary mate-rials and resources for that ministry.

Public Education — Costs related to communicatingthe various issues in which PFM is involved to churches,volunteers, donors and the general public. This is performed through various media and includes directmail, publications, internet, The Chuck Colson Center

for Christian Worldview®, blogs, public meetings andconferences and radio programming (e.g., Breakpoint®and The Point®). Additionally, certain costs of donorcommunications are recorded as public educationwhen they meet specific requirements under generallyaccepted accounting principles (see “Costs of Joint Activities” below).

International Prison Ministry – Donations made to Prison Fellowship International (“PFI”) for charterfees and grants for specific PFI purposes and projects(see Note Q).

Supporting ServicesManagement and general – Support costs (adminis-tration, finance, information technology, human resources, etc.) not directly attributable to specific pro-grams. Costs attributable to specific programs are re-ported as part of program services. For example, thecosts of information technology tools to assist in localAngel Tree® ministry are classified as program servicescosts, while the costs of maintaining donor records aremanagement and general expenses. Other manage-ment and general activities include overall corporateadministration, planning and budgeting.

Fundraising – Costs of specific activities to generate financial contributions (e.g., fundraising appeals) are classified as fundraising costs. See “Costs of JointActivities” (below) for additional information on allo-cations to other categories when a donor communica-tion serves more than one purpose.

Costs of Joint Activities • PFM records the costs of joint activities that have elements of fundraising and one or moreother functions (such as program or management and general) in conformity with U.S Generally Accepted Account-ing Principles (US GAAP), which establishes accounting stan-dards for recording costs associated with joint activities. US GAAP requires that the criteria of purpose, audience andcontent be met in order to allocate any portion of the costs ofjoint activities to a functional area other than fundraising. SeeNote P for the dollar amounts of joint cost activities reportedin the financial statements.

Advertising • Costs incurred for advertising are expensed as incurred. For the years ended June 30, 2010 and 2009,advertising costs approximated $120 and $21, respectively.

Summarized Information • The financial statements includecertain 2009 summarized comparative information in total,but not by each class of net assets. Such information doesnot include sufficient detail to constitute a presentation in con-formity with generally accepted accounting principles. Ac-cordingly, such information should be read in conjunction withthe Organization’s financial statements for the year ended June30, 2009, from which summarized information was derived.

Tax Status • The Internal Revenue Service has recognizedPrison Fellowship Ministries, IFI and PFMF as Section501(c)(3) not-for-profit corporations exempt from Federal income taxes as provided under the Internal Revenue Codeand applicable regulations of the Commonwealth of Virginia.Therefore, PFM has made no provision for income taxes.

Use of Estimates • The preparation of financial statementsin conformity with accounting principles generally acceptedin the U.S. requires management to make estimates and

Notes to Consolidated Financial Statements ($’s in Thousands)

28

assumptions that affect the reported amounts of assets andliabilities, disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differ from those estimates.

Income Tax • Effective in 2010, PFM adopted guidance issuedby the Financial Accounting Standards Board (FASB) which cre-ates a single model to address uncertainty in tax positions andclarifies the accounting for income taxes by prescribing the min-imum recognition threshold a tax position is required to meetbefore being recognized in its consolidated financial state-ments. Under the requirements of this guidance, organizationscould now be required to record an obligation as the result oftax positions they have historically taken on various tax expo-sure items. Prior to this pronouncement, the determination ofwhen to record a liability for a tax exposure was based onwhether a liability was considered probable and reasonably es-timable. The impact of the adoption did not have a material ef-fect on the consolidated financial statements of PFM.

NOTE C: INVESTMENTSMarketable securities (including assets held in charitable re-mainder trusts) as of June 30, 2010 and 2009, are as follows:

2010 2009Equity $6,722 $5,369Fixed income mutual funds/Government securities 4,027 3,866Alternative investments 1,564 1,473Cash held for long-term use 252 32Money market funds 9 14Total $12,574 $10,754

Investment income from all investment sources for theyears ended June 30 is as follows:

2010 2009Interest and dividends $470 $661Net realized and unrealized gains (losses) on investments (excludinginvestments in affiliate) 1,054 (3,614)Total $1,524 $(2,953)

NOTE D: FAIR VALUEEffective July 1, 2008, PFM adopted guidance that definesfair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the inputs used tomeasure fair value and enhances disclosure requirements forfair value measurements. The guidance maximizes the use ofobservable inputs and minimizes the use of unobservable inputs by requiring observable inputs be used when available.

Observable inputs are inputs that market participantswould use in pricing the asset or liability based on market dataobtained from independent sources. Unobservable inputs re-flect assumptions that market participants would use in pric-ing the asset or liability based on the best information availablein the circumstances. The hierarchy is broken down into threelevels based on the transparency of inputs as follows:

• Level 1 – Quoted prices are available in active marketsfor identical assets or liabilities as of the report date. Aquoted price for an identical asset or liability in an activemarket gives the most reliable fair value measurementbecause it is directly observable to the market.

• Level 2 – Pricing inputs are other than quoted prices inactive markets, which are either directly or indirectlyobservable as of the report date. The nature of thesesecurities include investments for which quoted pricesare available but traded less frequently and investmentsthat are fair valued using other securities, the parameters of which can be directly observed.

• Level 3 – Securities that have little to no pricingobservability as of the report date. These securities are measured using management’s best estimate of fair value, where the inputs into the determination of fair value aren’t observable and require significantmanagement judgment or estimation.

Inputs are used in applying the various valuation techniquesand broadly refer to the assumptions market participants useto make valuation decisions, including assumptions aboutrisk. Inputs may include price information, volatility statistics,specific and broad credit data, liquidity statistics, and otherfactors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the entity.

PFM considers observable data to be that market data thatis readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevantmarket. The categorization of a financial instrument within thehierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the entity’s perceived risk of that instrument.

The fair value of assets as of June 30, 2010, is as follows:Fair Value Measurements at Reporting Date

Money market funds $ 9 $ 9 $ - $ -Cash held for long-term use 252 252 - -Federal governmentbonds and notes 2,307 - 2,307 -Equity mutual funds 3,526 3,526 - -Fixed incomemutual funds 1,720 1,720 - -Equity common stock 3,196 3,196 - -Beneficial interestin remainder trusts 769 - - 769Alternative investments 1,564 - - 1,564

Total $13,343 $8,703 $2,307 $2,333

• Level 2 federal government bonds values were devel-oped utilizing prices from assets in markets without activetrading volumes.• Level 3 beneficial interest in remainder trusts, which are invested in equity and fixed income funds, and other as-sets are measured at the present value of the future distri-butions expected to be received over the term of theagreement.• Level 3 alternative investments are based on net assetvalues as reported by the investment managers. The ma-jority of the alternative investments are “fund of funds” in-vestments. Net asset values are established based on thefair value of the underlying assets, which generally eitherhave quoted prices or are developed using discounted cashflow models.

Beginning balance $2,520 $443 $11 $1,017 $2 $1,047Total gains(realized/unrealized) 91 45 - 46 - -Purchases, sales,issuance andsettlements (278) - - - -Total $2,333 $488 $11 $1,063 $2 $769

The fair value of assets as of June 30, 2009, is as follows:Fair Value Measurements at Reporting Date

Money market funds $ 14 $ 14 $ - $ -Cash held for long-term use 32 32 - -Federal governmentbonds and notes 2,185 - 2,185 -Equity mutual funds 1,658 1,658 - -Fixed incomemutual funds 1,681 1,681 - -Equity common stock 3,708 3,708 - -Equity preferred stock 3 3 - -Beneficial interestin remainder trusts 1,048 - - 1,048Alternative investments 1,473 - - 1,473Total $11,802 $7,096 $2,185 $2,521

Beginning balance $1,138 - $12 $1,124 $2 $ -Total gains(realized/unrealized) (90) 18 (1) (107) - -Purchases, sales,issuance andsettlements 1,473 425 - - - 1,048Total $2,521 $443 $11 $1,017 $2 $1,048

NOTE E: CONTRIBUTIONS RECEIVABLEAs of June 30, 2010 and 2009, contributions receiv-

able included amounts due to be collected within one year of$3,144 and $3,815, respectively. As of June 30, 2010 and2009, gross contributions receivable of $1,541 and $300,respectively, are due to be collected after one year, but in lessthan five years. The discounts related to contributions receiv-able in two-to-five years totaled $15 and $16, as of June 30,2010 and 2009, respectively. The allowance for doubtful accounts totaled $168 and $279, as of June 30, 2010 and2009, respectively.

NOTE F: FIXED ASSETSThe following comprised property and equipment at June 30:

2010 2009Land $ 3,306 $ 3,306Buildings and improvements 19,121 18,813Furniture and equipment 3,268 3,266 Vehicles 103 103Computer hardware 3,183 3,120Computer software 7,111 6,658

36,092 35,266Accumulated depreciation and amortization (15,523) (14,121)

20,569 21,145Construction in progress 366 463Net property and equipment $ 20,935 $ 21,608

NOTE G: SPLIT INTEREST AGREEMENTSPFM has established a Planned Giving Fund to account for giftannuities and charitable trusts.

Annuities Payable • Under the gift annuities program, in re-turn for a contribution PFM agrees to pay the donor an annuityfor the donor’s lifetime. The liability for future payments to donors at 2010 and 2009, based on an independent actuarial valuation, is $4,914 and $5,015, respectively.

The liability is calculated using mortality rates from the1983 Individual Annuity Mortality Table (“IAMT”) for annuitiesissued prior to July 2000, and from the 2000 IAMT for an-nuities issued on or after July 1, 2000. A discount rate of6.5% is used for annuities issued prior to July 2002, and 5%for those issued on or after July 1, 2002.

PFM sets its interest rate commitments under its giftannuities program based on those set by the American Coun-cil of Gift Annuities (“ACGA”) at the time of issuance. TheACGA rates are based on specific assumptions regarding,among other things, net investment returns and expected lifespan so that, upon the annuitant’s death, half of the originalcontribution remains available for PFM’s general operations.Because of the nature of gift annuities, it is possible that thetotal payments to an annuitant over his/her lifespan can ex-ceed the net investment income and expected residual valueof the segregated assets, if lower than expected long-term in-vestment returns and/or higher than expected life spans areexperienced. Management believes there are sufficient as-sets to meet the expected future obligations without usingassets intended for daily operations.

Charitable Trusts • As of June 30, 2010 and 2009, PFM main-tained assets totaling $225 and $221, respectively, in con-junction with charitable remainder annuity trusts and charitableremainder unitrusts. Under these agreements, PFM is desig-

nated as the trustee and is required to make payments equalto a percentage of the net fair market value of the trust as of thevaluation date over either the donor’s estimated life or a certainnumber of years, as specified in the trust agreement. Upon termination of the trust, PFM will receive remaining assets. Thetrust assets are initially recorded at fair market value as of thedate of donation. The liability for future payments to donors atJune 30, 2010 and 2009 was $141 and $142, respectively.

NOTE H: DONATED ADVISED FUNDSAs of June 30, 2010 and 2009, unrestricted net assets included $34 and $80, respectively, of donor advised funds.These funds are unrestricted by the donor but have been designated by management for specified purposes.

NOTE I: TEMPORARILY RESTRICTED NET ASSETSTemporarily restricted net assets at June 30, 2010 and 2009,are available for the following purposes:

2010 2009Program Assistance $1,959 $1,710Time restricted for periods after June 30 4,485 3,273Cumulative unappropriated endowment income – time restricted 4,077 3,612

Total $10,521 $8,595

For the years ended June 20, 2010 and 2009, net assetswere released from donor restrictions by incurring expensessatisfying the restricted purposes or by the passage of time releasing time restrictions:

2010 2009Program Assistance $6,729 $4,763Time restrictions expired 832 1,474Total $7,561 $6,237

NOTE J: PERMANENTLY RESTRICTED NET ASSETSPermanently restricted net assets consist of donations madewith the restriction that the principal be maintained in perpetuity. The income earned on this principal can be usedin the unrestricted operations of PFM; it is held as temporar-ily restricted pending distribution by the Board of Directors.

NOTE K: NOTES PAYABLE AND LINES OF CREDITPFM has a $3,500 line of credit that matures on April 5, 2011and is secured by a covenant not to encumber or conveyPFM’s Lansdowne, Virginia real property. At June 30, 2010,$1,950 was outstanding on this line of credit. There were noamounts outstanding at June 30, 2009. This line of creditbears interest at the one-year LIBOR rate, plus 1.95%. Underthe terms of the line of credit agreement, PFM must maintaina minimum tangible net worth of $25,000.

NOTE L: CONCENTRATION OF CREDIT RISKFinancial instruments which potentially subject PFM to concentrations of credit risk consist primarily of cash, cashequivalents, investments and contributions receivable. PFMmaintains substantially all of its cash, cash equivalents andinvestments in high credit-quality financial institutions. The total cash and investments balance in the financial institutions are insured by the Federal Deposit Insurance Corporation up to $250 and Securities Investor ProtectionCorporation up to $500. At June 30, 2010 and 2009, sub-stantially all of PFM’s cash, cash equivalents and investmentbalances were uninsured. For the composition of investmentbalances at June 30, 2010 and 2009, see Note C.

Contributions receivable consist of numerous pledgesfrom donors which are payable over several years. At June 30,2010, four donors maintained pledges totaling approximately$2,143, or 58%, of outstanding pledges and at June 30,2009, three donors maintained pledges totaling approxi-mately $1,756, or 56%, of outstanding pledges.

Total

Quoted Pricesin Active Markets

for IdenticalAssets (Level 1)

Significant OtherObservable

Inputs (Level 2)

SignificantUnobservable

Inputs (Level 3)

TotalEndowment

TEI Fund

SphinXAccess

LTD CL CH Majesty I

LPHugh MacRae

Land Trust

BeneficialInterest in Remainder

Trust

Total

Quoted Pricesin Active Markets

for IdenticalAssets (Level 1)

Significant OtherObservable

Inputs (Level 2)

SignificantUnobservable

Inputs (Level 3)

TotalEndowment

TEI Fund

SphinXAccess

LTD CL CH Majesty I

LPHugh MacRae

Land Trust

BeneficialInterest in Remainder

Trust

29

(278)

NOTE M: RETIREMENT PLANPFM maintains a defined contribution plan that covers allqualifying employees, as defined within the plan agreement.The plan is based on mandatory employee contributions of 2% of annual salary—with PFM contributing 2% and 4%of annual salary, respectively, for the years ended June 30,2010 and 2009. Employees are 100% vested in contribu-tions they make to the defined contribution plan and invest-ment income earned thereon. Contributions by PFM on theirbehalf and investment income earned are immediatelyvested.

Total mandatory and voluntary employee contributionswere $261 and $378, respectively, for the year ended June30, 2010, compared to $281 and $475, respectively, forthe year ended June 30, 2009. Total PFM contributions were$342 and $648 for years ended June 30, 2010 and 2009,respectively.

NOTE N: OBLIGATIONS UNDER OPERATING LEASESPFM has entered into various operating lease agreements,primarily for office space and office equipment. Operatinglease expense incurred under these operating leases were$261 and $811 in 2010 and 2009, respectively.

PFM’s future minimum payments for the equipmentunder non-cancelable operating leases as of June 30, 2010,are as follows:

2011 $ 932012 4

Total $ 97

NOTE O: SUBLEASE RENTAL INCOMEPFM has entered into sublease rental agreements with two or-ganizations for office space, office equipment and for the useof a portion of the building during off-business hours. Sub-lease rental income received by PFM was $825 and $764 in2010 and 2009, respectively.

PFM’s future sublease income receipts for the use ofthe facilities as of June 30, 2010, are as follows:

2011 $ 7862012 367

Total $1,153

NOTE P: ALLOCATION OF JOINT COSTSDuring 2010 and 2009, PFM incurred joint costs of $7,540and $6,421, respectively, for informational materials, pri-marily related to direct mailings that included fundraisingappeals. Pursuant to GAAP, these costs were allocated to thefunctional areas as follows:

2010 2009

Program Assistance $2,643 $2,366

Supporting Services:

Fundraising 4,741 3,870

Management and general 156 185

Total $7,540 $6,421

NOTE Q: RELATED PARTIESPFM is a chartered member and affiliated organization ofPrison Fellowship International (“PFI”), the association ofPrison Fellowship organizations in 116 countries. The assets,liabilities, and net assets of PFI are not consolidated withthose of Prison Fellowship. PFM provides monetary supportto PFI consisting of an annual charter fee and donations forspecific program support. The charter agreement with PFI includes charter fees approximating six percent of qualifyingrevenue from the preceding year. Coinciding with the term ofthe charter, the charter fee is payable to PFI on a calendaryear basis.

The total amount of monetary support provided to PFIwas $3,296 and $3,717 in 2010 and 2009, respectively.

At June 30, 2010 and 2009, PFM had a contribution payablein less than one year to PFI of approximately $1,148 and$1,358, respectively, which is included in accounts payablein the accompanying consolidated statements of financialposition. The amount generally represents the charter feesexpected to be remitted to PFI during the remainder of thecalendar year on which the charter is based, as well as othersupport.

NOTE R: RISKS AND UNCERTAINTIESPFM invests in various investments. Investments are exposedto various risks, such as interest rate, market and credit risks.Due to the level of risk associated with certain investments,it is at least reasonably possible that changes in the valuesof investments will occur in the near term and that suchchanges could materially affect the amounts reported in theConsolidated Statement of Financial Position.

NOTE S: ENDOWMENTPrison Fellowship Ministries had donor-restricted endow-ment funds totaling $3,260 at June 30, 2010 and 2009.As required by GAAP, net assets associated with endowmentfunds, including funds designated by the Board of Directorsto function as endowments, are classified and reportedbased on the existence or absence of donor-imposed restrictions.

Interpretation of Relevant LawThe PFM Board of Directors has interpreted the Common-wealth of Virginia Uniform Prudent Management of Institu-

tional Funds Act (“UPMIFA”) as requiring the preservation ofthe fair value of the original gift as of the gift date of thedonor-restricted endowment funds, absent explicit donorstipulations to the contrary. As a result of this interpretation,Prison Fellowship Ministries classifies as permanently restricted net assets (a) the original value of gifts donatedto the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor giftinstrument at the time the accumulation is added to thefund. The remaining portion of the donor-restricted endow-ment fund that is not classified in permanently restrictednet assets is classified as temporarily restricted net assetsuntil those amounts are appropriated for expenditure by theorganization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the organization considers the following factors inmaking a determination to appropriate or accumulatedonor-restricted endowment funds:

1. The duration and preservation of the fund;

2. The purposes of the organization and the donor-restrictedendowment fund;

3. General economic conditions;

4. The possible effect of inflation and deflation;

5. The expected total return from income and the appreciation of investments;

6. Other resources of the organization; and

7. The investment policies of the organization.

Endowment net assets composition by Type of Fund as ofJune 30, 2010:

Donor-restricted endowment funds $ - $ - $3,260 $3,260

Change in value ofsplit-interest agreements - 18 - 18

Endowment income reservedby Board for endowment(not appropriated) - 4,077 - 4,077

Total funds $ - $4,095 $3,260 $7,355

Changes in Endowment Net Assets for the Fiscal Year EndedJune 30, 2010

Endowment net assets, beginning of year $ - $3,612 $3,260 $6,872

Change in value ofsplit-interest agreements - 18 - 18

Investment return:Investment income - 124 - 124Net appreciation(realized and unrealized) - 341 - 341

Endowment net assets,end of year $ - $4,095 $3,260 $7,355

Endowment net assets composition by Type of Fund as ofJune 30, 2009:

Donor-restricted endowment funds $ - $ - $3,260 $3,260

Endowment income reservedby Board for endowment(not appropriated) - 3,612 - 3,612

Total funds $ - $3,612 $3,260 $6,872

Changes in Endowment Net Assets for the Fiscal Year EndedJune 30, 2009:

Endowment net assets, beginning of year $ - $ - $3,106 $3,106

Net asset reclassification based on change in law - 4,821 - 4,821

Endowment net assets after reclassification - 4,821 3,106 7,927

Split interest agreements - - 154 154

Investment return:Investment income - 181 - 181Net depreciation(realized and unrealized) - (1, 390) - (1, 390)

Endowment net assets,end of year $ - $3,612 $3,260 $6,872

Description of amounts classified as permanently restrictednet assets and temporarily restricted net assets (endow-ment only):

2010 2009

Permanently Restricted Net Assets(1) The portion of perpetual endowment funds that is required to be retainedpermanently either by explicit donor stipulation or by UPMIFA $3,260 $3,260

Total endowment funds classified aspermanently restricted net assets $3,260 $3,260

Temporarily Restricted Net Assets(1) The portion of perpetual endowmentfunds subject to a time restriction under UPMIFA: without purpose restrictions 4,095 3,612

Total endowment funds classified astemporarily restricted net assets $4,095 $3,612

Funds with DeficienciesFrom time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall belowthe level that the donor or UPMIFA requires the PFM to retain as a fund of perpetual duration. There were no such deficiencies as of June 30, 2010 and 2009.

Return Objectives and Risk ParametersPFM has adopted investment and spending policies for endowment assets that attempt to provide a predictablestream of funding to programs supported by its endowment,

while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor- restricted funds that the organization musthold in perpetuity or for a donor-specified period(s), as wellas board-designated funds. Under this policy, as approvedby the Board of Directors, the endowment assets are invested in a manner that is intended to produce resultsthat exceed the price and yield results of the S&P 500index, while assuming a moderate level of investment risk—with the expectation of limiting capital losses to no more than ten percent (10%) over a rolling 12-month period. Actual returns in any given year may vary from thisamount.

Strategies Employed for Achieving ObjectivesTo satisfy its long-term rate-of-return objectives, PFM relieson a total return strategy in which investment returns areachieved through both capital appreciation (realized andunrealized) and current yield (interest and dividends). TheOrganization targets a diversified asset allocation thatplaces a greater emphasis on equity-based investments toachieve its long-term return objectives within prudent riskconstraints.

Spending Policy and How the Investment Objectives Relate to the Spending PolicyNone of PFM’s endowment earnings is donor-restricted. PFM has a policy of maintaining undistributed endowmentearnings sufficient to cover annual inflation, plus 2.5% of endowment principal. In accordance with UPMIFA, theseundistributed earnings are reported as temporarily restrictedassets. Any remaining earnings each year are held as tem-porarily restricted income until appropriated for distributionby the Board. In establishing this policy, the Organizationconsidered the long-term expected return on its endowment.Accordingly, over the long term, the Organization expects thecurrent spending policy to allow its restricted endowmentbalances to grow at an average rate of four percent (4%) or more annually. This is consistent with the Organization’sobjective to maintain the purchasing power of the endow-ment assets held in perpetuity or for a specified term aswell as to provide additional real growth through new giftsand investment return.

NOTE T: SUBSEQUENT EVENTSManagement has evaluated subsequent events for disclo-sure in these consolidated financial statements through December 14, 2010, which is the date the consolidated financial statements are available to be issued.

On July 1, 2010, the PFM Board of Directors estab-lished BreakPoint, Inc., (“BreakPoint”), a related subsidiaryVirginia non-stock corporation which has the purpose of increasing awareness, understanding, and application ofbiblical worldview in all spheres of life. Through its radioministries, Centurion Program and the Chuck Colson Centerfor Christian Worldview®, BreakPoint provides essentialChristian worldview scholarship and education that under-girds the holistic transformation model of ministry to pris-oners, parolees and their families that is PFM’s mission.Funding for BreakPoint will be derived primarily from publicdonations, sales of materials and educational fees and support from PFM. It has applied for exemption from federal income taxes under Section 501(c)(3) of the Inter-nal Revenue Code. PFM transferred the net assets of itsBreakPoint operations ($1,649) to the new corporation asof July 1, 2010 and will provide continuing administrativeand monetary support. The operations of BreakPoint, Inc.will be included in the 2011 consolidated financial state-ments of Prison Fellowship Ministries.

PFM is not aware of any additional subsequent eventswhich would require recognition or disclosure in the accom-panying consolidated financial statements.

UnrestrictedTemporarilyRestricted

PermanentlyRestricted Total

UnrestrictedTemporarilyRestricted

PermanentlyRestricted Total

UnrestrictedTemporarilyRestricted

PermanentlyRestricted Total

UnrestrictedTemporarilyRestricted

PermanentlyRestricted Total

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Board of Directors

Charles W. ColsonFounder and Chairman EmeritusPrison Fellowship MinistriesLansdowne, Va.

Michael T. Timmis Chairman of the BoardFormer Co-Owner and Vice-ChairmanTalon LLCDetroit, Mich.

Mark L. Earley President and CEOPrison Fellowship MinistriesLansdowne, Va.

Peter M. OchsChair of the Executive CommitteeCo-Founder and ChairmanTFC Holdings, LLCNewport Beach, Calif.

Terry L. Van Der AaTreasurerChairmanProvidence BankHinsdale, Ill.

Edwin J. SimcoxSecretaryPresidentIndiana Energy AssociationIndianapolis, Ind.

Henry J. AbeytaGlobal Security Program DirectorSandia National LaboratoriesAlbuquerque, N. Mex.

David E. CauwelsFounder and Former ChairmanCauwels & AssociatesAlbuquerque, N. Mex.

Dr. Timothy F. GeorgeFounding DeanBeeson Divinity SchoolSamford UniversityBirmingham, Ala.

Erika N. HaroldLawyerMiss America 2003Chicago, Ill.

Marten S. HoekstraFinancial ServicesNew York, New York

Heidi A. HuizengaFamily ConsultantOakbrook, Ill.

Joanne M. KempHomemakerBethesda, Md.

Bishop Jerry W. MacklinFounder & PastorGlad Tidings Church of God in ChristHayward, Calif.

Robert S. MilliganFounder & ChairmanM.I. IndustriesLincoln, Nebr.

Dallen W. PetersonFounder and Former ChairmanMerry MaidsNaples, Fla.

Philippe G. VallerandThe PGV Group, Inc. Snohomish, Wash.

Mark D. WilkersonWilkerson & Bryan, P.C.Montgomery, Ala.

Emeritus Directors

Dr. Donald K. Cheek

Jack Eckerd(deceased)

Robert Garcia

Rev. Dr. Richard C. Halverson(deceased)

Dr. Carl F. H. Henry(deceased)

Rev. Neal T. Jones

Pat MacMillan

Dr. John M. Perkins

Thomas C. Pratt

Graham Purcell

Hon. Albert H. Quie

Fred B. Rhodes(deceased)

Dois I. Rosser Jr.

Dr. R. C. Sproul

Rose W. Totino(deceased)

Kenneth T. Wessner(deceased)

George M. Wilson(deceased)

Officers

Mark L. EarleyPresident and CEO

Richard K. CampbellSenior Vice-President of Financeand Chief Financial Officer

Curtis A. KempChief Operating Officer

David E. LawsonSenior Vice-PresidentPrison Fellowship

Timothy P. RobisonSenior Vice-PresidentMinistry Services

Karen A. StrongSenior Vice-PresidentMarketing & Communications

Alan B. TerwillegerSenior Vice-PresidentMinistry Relations

Gregory S. BruceVice-PresidentMinistry Initiatives

David R. CarlsonVice-PresidentCorporate Communications

Norman R. Cox, Jr.Vice-PresidentReentry Initiatives

Norman W. HawnVice-PresidentInformation Technology

James J. Heigl, Jr.Vice-PresidentStrategic Gifts

Giselle A. JenkinsVice-PresidentHuman Resources

Kerry S. MorganVice-PresidentMarketing & Communications

Patrick J. NolanVice-PresidentJustice Fellowship

Susan T. RaeVice-PresidentMinistry Programs

Allen C. ThornburghVice-PresidentDirect Marketing

2009-2010 PRISON FELLOWSHIP ANNUAL REPORT STAFF: Writer & Editor, Ruth Chodniewicz; Creative Director, Peter A. Gross.PHOTOGRAPHY: Courtesy of Lee Beers, page 10; Russ Busby, page 13; Courtesy of Community Baptist Church, page 11; Designpics.com, pages 13,17; MichaelDrager, page 6; Alan Eason, page 22; Michele Farmer, page 5; Courtesy of Joe Gibbs, page 5; Peter Gross, cover, pages 17, 18; Chris Hancock, page 15; Steve Harmon, page 10; Courtesy of IFI, pages 9, 13, 14; Matt Larson, page 5; Judy Mills, page 13; Sean Noonan, page 21; Jeff Peck, pages 6, 7, 8, 10, 11, 12, 13, 14,16, 17, 18, 19, 23, 27; Kevin Vandivier, pages 3, 9, 10; Roman Roth, page 9; Barry Staver, pages 4, 25; Michael Stewart, page 22; Courtesy of Zondervan, page 22.

The Leadership Team Designations reflect fiscal year 2009-2010.

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Prison Fellowship’s Statement of Faith

We believe in one God, Creator and Lord of the Universe, the co-eternal Trinity: Father, Son, and Holy Spirit.

We believe that Jesus Christ, God’s son, was conceived by the Holy Spirit, born of the Virgin Mary, lived a sinless life, died a substitutionary atoning death

on the cross, rose boldly from the dead, and ascended to heaven where, as truly God and truly man, He is the only mediator between God and man.

We believe that the Bible is God’s authoritative and inspired Word. It is without error in all its teachings, including creation, history, its own origins, and salvation.

Christians must submit to its divine authority, both individually and corporately, in all matters of belief and conduct, which is demonstrated by true righteous living.

We believe in the sanctity of human life from conception to natural death. We also uphold the holy institution of marriage between one man and one woman,

rooted as it is in God’s creation of man and woman in His image and in the relationship between Christ and His Church.

We believe that all people are lost sinners and cannot see the Kingdom of God exceptthrough the new birth. Justification is by grace through faith in Christ alone.

We believe in one holy, universal, and apostolic Church. Its calling is to worship Godand witness concerning its Head, Jesus Christ, preaching the Gospel among all

nations and demonstrating its commitment by compassionate service to the needs of human beings and promoting righteousness and justice.

We believe in the necessity of the work of the Holy Spirit for the individual’s new birth and growth to maturity, for the Church’s constant renewal

in truth, wisdom, faith, holiness, love, power, and mission.

We believe that Jesus Christ will personally and visibly return in glory to raise the dead and bring salvation and judgment to completion. God will fully

manifest His kingdom when He establishes a new heaven and new earth, in which He will be glorified forever and exclude all evil, suffering, and death.

44180 Riverside Parkway, Lansdowne, VA 20176 • (703) 478-0100 • www.prisonfellowship.org