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THE NATIONAL MULTIPLE SCLEROSIS SOCIETYMICHIGAN CHAPTER

Financial Statementsand

Independent Auditors' ReportSeptember 30, 2016 and 2015

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Financial Statement Cover


Table of Contents

Page

Independent Auditors' Report....................................................................................................................1

Financial Statements

Statements of Financial Position....................................................................................................3

Statements of Activities.................................................................................................................4

Statements of Functional Expenses................................................................................................5

Statements of Cash Flows..............................................................................................................7

Notes to Financial Statements........................................................................................................8

INDEPENDENT AUDITORS' REPORT

To the Board of TrusteesThe National Multiple Sclerosis Society Michigan ChapterSouthfield, Michigan

We have audited the accompanying financial statements of The National Multiple Sclerosis SocietyMichigan Chapter (the "Chapter"), which are comprised of the statement of financial position as ofSeptember 30, 2016, and the related statements of activities, functional expenses, and cash flows forthe year 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 inaccordance with accounting principles generally accepted in the United States of America; thisincludes the design, implementation, and maintenance of internal control relevant to the preparationand fair presentation of financial statements that are free from material misstatement, whether due tofraud or error.

AUDITORS' RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe financial statements. The procedures selected depend on the auditors' judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditors consider internal control relevant to the entity'spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the entity's internal control. Accordingly, we express no such opinion. An audit also includesevaluating the appropriateness of accounting policies used and the reasonableness of significantaccounting estimates made by management, as well as evaluating the overall presentation of thefinancial statements.

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Denver

To the Board of TrusteesThe National Multiple Sclerosis Society Michigan ChapterPage Two

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

OPINION

In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of The National Multiple Sclerosis Society Michigan Chapter as of September 30,2016, and the changes in its net assets and its cash flows for the year then ended in accordance withaccounting principles generally accepted in the United States of America.

EMPHASIS OF MATTER REGARDING SOCIETY REALIGNMENT

As discussed in Note 11 to the financial statements, effective October 1, 2016, the Chapter combinedwith The National Multiple Sclerosis Society. Our opinion is not modified with respect to that matter.

PRIOR-PERIOD FINANCIAL STATEMENTS

The financial statements of the Chapter as of September 30, 2015, were audited by other auditorswhose report dated November 24, 2015, expressed an unmodified opinion.

EKS&H LLLP

December 20, 2016Denver, Colorado


Statements of Financial Position

September 30,2016 2015

Assets

Current assetsCash and cash equivalents $ 625,006 $ 400,908Contributions receivable 58,240 191,743Due from from home office - 9,485Due from other chapters - 100Prepaid expenses and other assets 36,512 46,643

Total current assets 719,758 648,879

Non-current assetsProperty and equipment, net 3,653 8,978Interest in The National Multiple Sclerosis Society's pooledinvestment fund 732,769 813,359

Due from home office - charitable gift annuities 44,477 46,247Total non-current assets 780,899 868,584

Total assets $ 1,500,657 $ 1,517,463

Liabilities and Net Assets

Current liabilitiesDue to home office $ - $ 3,209Accounts payable and accrued expenses 169,403 242,792Deferred revenue 353,200 133,380

Total current liabilities 522,603 379,381

Commitments and contingencies

Net assetsUnrestricted 696,949 878,055Temporarily restricted 156,105 135,027Permanently restricted 125,000 125,000

Total net assets 978,054 1,138,082

Total liabilities and net assets $ 1,500,657 $ 1,517,463

See notes to financial statements.

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Statements of Activities

For the Years EndedSeptember 30, 2016 September 30, 2015

Temporarily Permanently Temporarily PermanentlyUnrestricted Restricted Restricted Total Unrestricted Restricted Restricted Total

Support and revenuePublic support

Special events (includes in-kind donations of $245,578 (2016) and$256,102 (2015)) $ 2,919,866 $ - $ - $ 2,919,866 $ 2,728,156 $ - $ - $ 2,728,156

Less benefit-to-donor costs (412,547) - - (412,547) (381,658) - - (381,658)Total received directly 2,507,319 - - 2,507,319 2,346,498 - - 2,346,498

Contributions (includes in-kind donations of $0 (2016) and $22,464 (2015)) 833,039 6,495 - 839,534 676,694 2,000 - 678,694Legacies 92,099 - - 92,099 307,294 - - 307,294

Total public support 3,432,457 6,495 - 3,438,952 3,330,486 2,000 - 3,332,486

Other revenueInvestment income (loss) 34,603 16,353 - 50,956 (76,731) (11,675) - (88,406)Service program fees 4,572 - - 4,572 8,763 - - 8,763Miscellaneous income 11,130 - - 11,130 4,700 - - 4,700

Total other revenue 50,305 16,353 - 66,658 (63,268) (11,675) - (74,943)

Net assets released from restrictions 1,770 (1,770) - - 27,128 (27,128) - -Total support and revenue 3,484,532 21,078 - 3,505,610 3,294,346 (36,803) - 3,257,543

ExpensesProgram services

Research 902,312 - - 902,312 2,161,278 - - 2,161,278Client programs 669,012 - - 669,012 633,356 - - 633,356Community programs 433,374 - 433,374 463,107 - 463,107Professional education and training 138,123 - - 138,123 131,317 - - 131,317Public education 549,954 - - 549,954 587,906 - - 587,906

Total program services 2,692,775 - - 2,692,775 3,976,964 - - 3,976,964

Supporting servicesFundraising 620,632 - - 620,632 559,591 - - 559,591Management and general 352,231 - - 352,231 333,809 - - 333,809

Total supporting services 972,863 - - 972,863 893,400 - - 893,400Total expenses 3,665,638 - - 3,665,638 4,870,364 - - 4,870,364

Change in net assets (181,106) 21,078 - (160,028) (1,576,018) (36,803) - (1,612,821)

Net assets at beginning of year 878,055 135,027 125,000 1,138,082 2,454,073 171,830 125,000 2,750,903

Net assets at end of year $ 696,949 $ 156,105 $ 125,000 $ 978,054 $ 878,055 $ 135,027 $ 125,000 $ 1,138,082


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Statement of Functional ExpensesFor the Year Ended September 30, 2016

Program Services Supporting Services

ResearchClient

ProgramsCommunityPrograms

ProfessionalEducation and

TrainingPublic

Education Total FundraisingManagementand General

TotalPrograms and

SupportBenefit-to-

Donor Costs Grand Total

Salaries and related expensesSalaries $ - $ 254,649 $ 252,105 $ 66,380 $ 228,398 $ 801,532 $ 151,032 $ 203,881 $ 1,156,445 $ - $ 1,156,445Employee benefits - 33,172 32,840 8,647 29,752 104,411 19,674 26,559 150,644 - 150,644Payroll taxes - 20,262 20,060 5,282 18,174 63,778 12,018 16,223 92,019 - 92,019

Total salaries and related expenses - 308,083 305,005 80,309 276,324 969,721 182,724 246,663 1,399,108 - 1,399,108

ExpensesPrinting - 19,204 39 130 35 19,408 17,549 32 36,989 - 36,989Postage and shipping - 1,942 1,181 309 1,062 4,494 11,805 1,455 17,754 - 17,754Telephone - 1,513 820 216 743 3,292 491 663 4,446 - 4,446Supplies - 1,712 942 248 853 3,755 778 858 5,391 20,468 25,859Dues and memberships - 116 43 11 39 209 179 35 423 - 423Professional and other contract service fees - 18,262 6,496 1,711 5,895 32,364 95,329 5,686 133,379 - 133,379Donated public service announcements andadvertising - - - - - - 174,607 - 174,607 - 174,607

Travel - 9,387 8,243 527 1,502 19,659 24,534 1,520 45,713 171,092 216,805Meetings - 18,496 302 310 1,126 20,234 5,132 293 25,659 7,703 33,362Occupancy - 17,968 17,789 4,684 16,116 56,557 10,657 14,386 81,600 47,584 129,184Furniture and equipment - 1,872 1,853 488 1,679 5,892 1,110 1,499 8,501 - 8,501Funding of other organizations that supportindividuals with MS - - 4,250 - - 4,250 - - 4,250 - 4,250

Direct financial assistance - 120,722 - - - 120,722 - - 120,722 - 120,722Awards and prizes - 778 315 83 285 1,461 1,503 707 3,671 62,117 65,788Miscellaneous expense - 2,752 1,934 469 1,753 6,908 65,793 1,442 74,143 103,583 177,726Depreciation and amortization - 1,472 1,457 384 1,320 4,633 873 1,179 6,685 - 6,685Restricted contributions to Society researchinitiatives 144,186 - - - - 144,186 - - 144,186 - 144,186

Total expenses before Chapter supportof Society initiatives 144,186 524,279 350,669 89,879 308,732 1,417,745 593,064 276,418 2,287,227 412,547 2,699,774

Chapter support of Society initiatives 758,126 144,733 82,705 48,244 241,222 1,275,030 27,568 75,813 1,378,411 - 1,378,411

Total expenses $ 902,312 $ 669,012 $ 433,374 $ 138,123 $ 549,954 $ 2,692,775 $ 620,632 $ 352,231 $ 3,665,638 $ 412,547 4,078,185

Less direct benefit-to-donor costs (412,547)

Total expenses as reported on the statements ofactivities $ 3,665,638


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Statement of Functional ExpensesFor the Year Ended September 30, 2015

Program Services Supporting Services

ResearchClient

ProgramsCommunityPrograms

ProfessionalEducation and

TrainingPublic

Education Total Fund RaisingManagementand General

TotalPrograms and

SupportBenefit-to-

Donor Costs Grand Total

Salaries and related expensesSalaries $ - $ 246,763 $ 277,208 $ 66,498 $ 227,649 $ 818,118 $ 134,942 $ 191,482 $ 1,144,542 $ - $ 1,144,542Employee benefits - 49,461 55,563 13,329 45,630 163,983 27,048 38,380 229,411 - 229,411Payroll taxes - 21,909 24,612 5,904 20,212 72,637 11,981 17,001 101,619 - 101,619

Total salaries and related expenses - 318,133 357,383 85,731 293,491 1,054,738 173,971 246,863 1,475,572 - 1,475,572

ExpensesPrinting - 19,580 18 204 109 19,911 14,599 126 34,636 - 34,636Postage and shipping - 1,861 794 191 718 3,564 14,311 607 18,482 - 18,482Telephone - 2,706 2,363 567 1,941 7,577 1,150 1,633 10,360 - 10,360Supplies - 1,329 1,131 268 1,005 3,733 833 797 5,363 31,113 36,476Dues and memberships - 90 48 212 40 390 83 33 506 - 506Professional and other contract service fees - 15,854 3,788 851 2,923 23,416 88,922 2,598 114,936 - 114,936Donated public service announcements andadvertising - - - - 22,464 22,464 158,564 - 181,028 - 181,028

Travel - 9,037 5,307 679 1,796 16,819 11,392 1,625 29,836 127,463 157,299Meetings - 15,519 473 132 197 16,321 2,024 464 18,809 1,169 19,978Occupancy - 17,593 19,764 4,741 16,230 58,328 9,621 13,652 81,601 64,534 146,135Furniture and equipment - 2,331 2,618 628 2,150 7,727 1,275 1,809 10,811 - 10,811Funding of other organizations that supportindividuals with MS - - 4,500 - - 4,500 - - 4,500 - 4,500

Direct financial assistance - 109,966 - - - 109,966 - - 109,966 - 109,966Awards and prizes - 593 372 89 305 1,359 1,981 518 3,858 53,697 57,555Miscellaneous expense - 2,191 1,448 347 2,577 6,563 61,322 1,000 68,885 103,682 172,567Depreciation and amortization - 2,923 3,284 788 2,697 9,692 1,598 2,268 13,558 - 13,558Restricted contributions to Society researchinitiatives 1,491,342 - - - - 1,491,342 - - 1,491,342 - 1,491,342

Total expenses before Chapter supportof Society initiatives 1,491,342 519,706 403,291 95,428 348,643 2,858,410 541,646 273,993 3,674,049 381,658 4,055,707

Chapter support of Society initiatives 669,936 113,650 59,816 35,889 239,263 1,118,554 17,945 59,816 1,196,315 - 1,196,315

Total expenses $ 2,161,278 $ 633,356 $ 463,107 $ 131,317 $ 587,906 $ 3,976,964 $ 559,591 $ 333,809 $ 4,870,364 $ 381,658 5,252,022

Less direct benefit-to-donor costs (381,658)

Total expenses as reported on the statements ofactivities $ 4,870,364


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Statements of Cash Flows

For the Years EndedSeptember 30,

2016 2015

Cash flows from operating activitiesChange in net assets $ (160,028) $ (1,612,821)

Depreciation and amortization 6,685 13,558Net unrealized and realized (gain) loss on investments (33,674) 134,946Cash designated for long-term purposes - 125,000Due from home office - charitable gift annuities 1,770 11,128Changes in operating assets and liabilities

Contributions receivable 133,503 (104,067)Contributions receivable from home office 9,485 (8,357)Due from other chapters 100 18,951Prepaid expenses and other assets 10,131 (14,199)Due to home office (3,209) 579Accounts payable and accrued expenses (73,389) 33,112Deferred revenue 219,820 130,675

Net cash provided by (used in) operating activities 111,194 (1,271,495)

Cash flows from investing activitiesPurchases of property and equipment (1,360) (5,040)Purchases of investments (16,548) (3,103,768)Proceeds from sales of investments 130,812 2,155,463

Net cash provided by (used in) investing activities 112,904 (953,345)

Net increase (decrease) in cash and cash equivalents 224,098 (2,224,840)

Cash and cash equivalents at beginning of year 400,908 2,625,748

Cash and cash equivalents at end of year $ 625,006 $ 400,908


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Notes to Financial Statements

Note 1 - Organization and Summary of Significant Accounting Policies

Organization

The National Multiple Sclerosis Society (the "Society") is a not-for-profit voluntary health and welfareagency that mobilizes people and resources so that everyone affected by multiple sclerosis ("MS") canlive their best lives as we stop MS in its tracks, restore what has been lost, and end MS forever. TheMichigan Chapter (the "Chapter") raises funds in the state of Michigan. The Society has offices acrossthe country and is governed by a national board of directors and local boards of trustees. The Society'smission is fulfilled through funding cutting-edge research, driving change through advocacy,facilitating professional education, collaborating with MS organizations around the world, andproviding services designed to help people with MS and their families move their lives forward.

The Chapter qualifies as a charitable organization as defined by Internal Revenue Code ("IRC")Section 501(c)(3) and, accordingly, is exempt from federal income taxes under IRC Section 501(a).Additionally, since the Chapter is publicly supported, contributions qualify for the maximumcharitable contribution deduction under the IRC.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accountingprinciples ("U.S. GAAP") requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assets and liabilities and theamounts of revenues and expenses during the reporting period. The most significant include the fairvalues assigned to certain financial instruments, collectibility of contributions receivable, donatedpublic service announcements, and the useful lives assigned to property and equipment. Actual resultscould differ from those estimates.

Net Asset Classifications

Resources for various purposes are classified for accounting and financial reporting purposes into netassets categories established according to their nature and purpose as follows:

Unrestricted Net Assets: Unrestricted net assets represent funds that are fully available, at thediscretion of management and the Board of Trustees, for the Chapter to utilize in any of itsprogram or supporting services.

Temporarily Restricted Net Assets: Temporarily restricted net assets comprise funds that arerestricted by donors for specific purposes. The restrictions are satisfied either by the passage oftime or by actions of the Chapter.

Permanently Restricted Net Assets: Permanently restricted net assets include resources withpermanent donor-imposed restrictions, which require the assets to be maintained in perpetuitybut permit the Chapter to expend all or part of the income derived from the donated assets.

When both restricted and unrestricted resources are available for use, it is the Chapter's policy to userestricted resources first, then unrestricted resources as needed.

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Note 1 - Organization and Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents

The Chapter considers all highly liquid investments with a maturity of three months or less whenpurchased to be cash equivalents, unless otherwise encumbered.

Concentrations of Credit Risk

Deposits at the Chapter's financial institutions are insured by the FDIC up to $250,000. The Chapterhas not experienced any losses in such accounts and believes it is not exposed to any significant creditrisk on its cash and investments.

Investments

The Chapter's investments in equity and debt securities are stated at their quoted market prices, and thenet change in unrealized gains or losses is included on the statements of activities.

Contributions and Other Receivables

Contributions and other receivables consist of accruals of public support received after year-end thatpertained to fundraising events held during fiscal 2016 and 2015. Receivables are recorded at netrealizable value, net of an allowance for uncollectible amounts. The Chapter believes that the pledgesreceivable are fully collectible. All contributions receivable are expected to be collected within oneyear. Donated securities are liquidated upon receipt and recorded as contributions at their fair value.

At September 30, 2016, 43% of the Chapter's contributions receivable was from one donor. AtSeptember 30, 2015, there were no identifiable concentrations of credit risk related to receivables.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are provided on thestraight-line basis over the estimated useful lives of the assets or the terms of the lease, as appropriate.Expenditures for maintenance and repairs are charged to operations as incurred. The Chaptercapitalizes all equipment purchases exceeding $1,000 with useful lives in excess of one year.

Long-Lived Assets

The Chapter periodically evaluates the carrying value of long-lived assets for possible impairmentwhenever events or changes in circumstances indicate that the book value of the assets may not berecoverable. An impairment loss is recognized when the sum of the undiscounted future cash flows isless than the carrying amount of the asset, in which case a write-down is recorded to reduce the relatedasset to its estimated fair value. No impairment losses were recognized during the years endedSeptember 30, 2016 and 2015.

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Revenue Recognition and Deferred Revenue

Contributions are recorded as revenue when received or promised (pledged) unconditionally at theirfair value. The fair value of long-term contributions receivable is measured based on the present valueof future cash flows with consideration of expectation about possible variations in the amount and/ortiming of the cash flows and other specific factors that would be considered by market participants.The fair value measurements also consider donors' credit risk. Unconditional bequests (donationsreceived under terms of a will) are reported as revenues when notification of the bequest is received,the amount is reasonably determinable, and the probate court declares the will valid.

It is the Chapter's policy to record temporarily restricted contributions received and fulfilled in thesame accounting period in the unrestricted net asset class. When a prior year's donor restrictionexpires, that is, when a time restriction ends or purpose restriction is fulfilled, temporarily restrictednet assets are reclassified as unrestricted net assets and reported on the statements of activities as netassets released from restrictions. Conditional contributions are recognized as revenue when theconditions on which they depend have been substantially met.

All revenue received in advance for special events that are held subsequent to year-end is deferred andrecognized in the year of the event.

Donated Goods and Services

Donated goods and services, including public service announcements and donated advertising, used bythe Chapter in programs, special events, and supporting services are reflected as in-kind contributionsand expensed in the accompanying financial statements at their estimated fair value at the date ofreceipt.


2016 2015

Donated goods $ 238,499 $ 240,343Donated services 7,079 38,223

Total $ 245,578 $ 278,566

Public service announcements and donated advertising received in fiscal years 2016 and 2015 totaledapproximately $174,607 and $181,028, respectively, and are reflected above as donated goods andfundraising expenses on the accompanying statements of activities.

In addition, a number of volunteers have donated significant amounts of their time to the Chapter'sprogram services and supporting services. No amounts have been reflected in the accompanyingfinancial statements for those donated services because they do not meet the criteria for revenuerecognition in accordance with U.S. GAAP.

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Chapter Support of Society Initiatives (National Programs Expense)

The National Programs Expense ("NPE") is an allocation to chapters that funds a large portion of theSociety's budget in areas such as nationwide programs, services, centralized functions, and theSociety's research investments as well as investments in the Society's unified plan. The Society'sbudget is determined through an inclusive budget planning process. The Budget DevelopmentAdvisory Committee provides consensus advice to the CEO and comprises members of the SeniorLeadership Team, members of the national Board of Directors, and regional volunteer liaisonsresponsible for communicating with volunteer leadership in each region.

Revenue tiers with progressively higher percentages are used to determine the NPE allocationamounts. The remittance percentage is subject to adjustment each year to ensure that the Society meetsits programmatic goals and that all donor restrictions are honored. For the years ended September 30,2016 and 2015, the Chapter's NPE was calculated to be $1,378,411 and $1,196,315, respectively.These amounts are reflected as Chapter support of Society initiatives on the accompanying statementsof functional expenses. As the Society implements a single audit in fiscal year 2017 (Note 11), NPEwill no longer be calculated after September 30, 2016.

In addition to the allocated amount of NPE for fiscal years 2016 and 2015, the Chapter made anadditional investment in the Society's research initiatives in the amount of $144,186 and $1,491,342,respectively. These amounts are reflected in the research expense total on the accompanyingstatements of activities.

Multi-year contributions recognized prior to fiscal year 2016 that are restricted for research and othernational initiatives are remitted to the home office when received and reflected as expense when theincome is recorded at its present value and amortized over the respective periods.

Society Reserves Policy and Deployment of Excess Reserves

As required by the Society's Reserves Policy, the Chapter deployed $154,555 and $1,251,342 of itsexcess reserves in fiscal years 2016 and 2015, respectively, to fund initiatives in support of theSociety's strategic goals. The deployment of reserves contributed to the fiscal years 2016 and 2015negative change in net assets.

The Reserves Policy ensures financial stability and operating liquidity while optimizing the return onfinancial assets. The Society's Investment Committee provides oversight to the fund. The Societyidentifies expendable net assets in excess of 35% of its adjusted expenses as excess reserves availablefor deployment in support of Society initiatives.

Expense Allocations

Functional expenses that are not specifically attributable to program services or supporting services areallocated by management based on various allocation factors.

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Advertising

Advertising costs are expensed as incurred. Advertising expense was $187,310 and $193,447 in fiscalyears 2016 and 2015, respectively, consisting of $174,607 and $181,028 in donated advertising andpublic service announcements.

Reclassifications

Certain amounts in the 2015 financial statements have been reclassified to conform to the 2016presentation.

Note 2 - Income Taxes

Guidance in the area of "Accounting for Uncertainty in Income Taxes" under the Financial AccountingStandards Board (the "FASB") Accounting Standards Codification ("ASC") clarifies the accountingfor uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating tofinancial statement recognition and measurement. This standard provides that the tax effects from anuncertain tax position can be recognized in the financial statements only if the position is "more likelythan not" to be sustained if the position were to be challenged by a taxing authority. The standard alsoprovides guidance on measurement, classification, interest and penalties, and disclosure. The Chapterhas processes presently in place to ensure the maintenance of its tax-exempt status, to identify andreport unrelated income, to determine its filing and tax obligations in jurisdictions for which it hasnexus, and to identify and evaluate other matters that may be considered tax positions.

Note 3 - Fair Value Measurement

The Chapter adopted the provisions of ASC Topic 820-10. ASC Topic 820-10 (formerly known asFASB Statement of Financial Accounting Standards No. 157), Fair Value Measurement ("FAS 157"),effective October 1, 2008. FAS 157 establishes a fair value hierarchy for the inputs used to measurefair value based on the nature of the data input, which generally ranges from quoted prices for identicalinstruments in a principal trading market (Level 1) to estimates determined using related market data(Level 3). Multiple inputs may be used to measure fair value; however, the level of fair value of eachfinancial asset or liability presented below is based on the lower significant input level within this fairvalue hierarchy.

Level 1: Measurements that are most observable are based on quoted prices of identicalinstruments obtained from the principal markets in which they are traded. Closingprices are both readily available and representative of fair value. Markettransactions occur with sufficient frequency and volume to ensure liquidity.

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Note 3 - Fair Value Measurement (continued)

Level 2: Measurements derived indirectly from observable inputs or from quoted prices frommarkets that are less liquid are considered Level 2. Measurements may considerinputs that other market participants would use in valuing a portfolio, quoted marketprices for similar securities, interest rates, credit risks, and other factors.

Level 3: Measurements that are least observable are estimated from related market data,determined from sources with little or no market activity for comparable contracts,or are positions with longer durations.

The methods described above may produce a fair value calculation that may not be indicative of netrealizable value or reflective of future fair values. Furthermore, while the Chapter believes itsvaluation methods are appropriate and consistent with other market participants, the use of differentmethodologies or assumptions to determine the fair value of certain financial instruments could resultin a different fair value measurement at the reporting date.

The following tables provide the fair value hierarchy of the Chapter's financial assets as ofSeptember 30, 2016 and 2015:

September 30, 2016

Level 1 Level 2 Level 3 TotalInterest in the Society's pooledinvestment fund $ - $ - $ 732,769 $ 732,769

Charitable gift annuities - - 44,477 44,477

Total $ - $ - $ 777,246 $ 777,246

September 30, 2015

Level 1 Level 2 Level 3 TotalInterest in the Society's pooledinvestment fund $ - $ - $ 813,359 $ 813,359

Charitable gift annuities - - 46,247 46,247

Total $ - $ - $ 859,606 $ 859,606

The following is a description of the valuation methodologies used for assets measured at fair value:

The Society's pooled investment portfolio was classified within the FASB fair value hierarchyas 100% Level 1. While principally all of the underlying funds' investments are readilymarketable, based on quoted fair market values, since the Chapter's share of the Society'spooled investment fund cannot be priced on an active exchange, the interests in the trust areclassified as Level 3.

Charitable gift annuities: Valued using the present value of expected cash flows, which areunobservable inputs.

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Note 3 - Fair Value Measurement (continued)

The table below sets forth a summary of the changes in the fair value of the Chapter's Level 3 financialassets:


2016 2015

Fair value at beginning of year $ 859,606 $ 57,375Additions, withdrawals, and changes in present value (130,812) 902,606Interest and dividends 16,548 45,696Realized and unrealized gain (loss) 31,904 (146,071)

Fair value at end of year $ 777,246 $ 859,606

Note 4 - Interest in Pooled Investment Fund

As required by the Society's Reserves Policy, the Chapter transferred $2,168,951 into the Society'spooled investment fund during fiscal year 2015.

The Chapter holds a share of the overall portfolio of the Society's pooled investment fund rather thanin the individual financial instruments and, therefore, has the same composition of investments as thatof the Society's total pooled investment fund. The Chapter's share of the Society's pooled investmentfund pooled $732,769 and $813,359, respectively, which represents 1% of the Society's total pooledinvestment fund and 3% of the total endowment investment portfolio as of September 30, 2016 and2015, respectively.

Investment income totaled $50,222 for the year ended September 30, 2016, which included interestand dividends of $16,548 and net realized and unrealized gains of $33,674. Investment loss totaled$(89,250) for the year ended September 30, 2015, which included interest and dividends of $45,696,net realized and unrealized losses of $(126,386), and administration fees of $8,560.

Note 5 - Property and Equipment

Property and equipment consist of the following:


Furniture, fixtures, and equipment $ 224,014 $ 356,309Leasehold improvements 221,411 221,411

445,425 577,720Less accumulated depreciation (441,772) (568,742)

$ 3,653 $ 8,978- 14 -



Note 6 - Charitable Gift Annuities

The Chapter is the beneficiary of a number of charitable gift annuities with donors, whereby theSociety's home office controls and invests the donated assets and shares with the donor or the donor'sdesignee income generated from these assets until such time as stated in the agreement (usually uponthe death of the donor or the donor's designee).

The year-end values of the Chapter's charitable gift annuities for fiscal years 2016 and 2015 were$44,477 and $46,247, respectively. Loss derived from changes in value of the agreements for the yearsended September 30, 2016 and 2015 was $(1,770) and $(11,128), respectively.

Note 7 - Commitments and Contingencies

Operating Leases

The Chapter leases equipment and office facilities under various operating lease agreements. TheChapter generally recognized rent expense based on straight lining of the minimum lease paymentsover the respective terms of the leases.

Rent expense for the years ended September 30, 2016 and 2015 was $89,996 and $89,676,respectively.

The future minimum annual rental commitments under non-cancelable lease agreements at September30, 2016 are as follows:

Year Ending September 30, Total

2017 $ 81,6002018 20,400

Total $ 102,000

Note 8 - Retirement Plan

Effective January 1, 2016, the Chapter participates in the Society's Defined Contribution RetirementPlan, which covers substantially all of the Chapter's employees, based on defined eligibility forcovered employees. Temporary employees and independent contractors are not eligible. Upon the firstday of employment, covered employees receive a 100% matching employer contribution for the first3% of eligible compensation contributed and then 50% on the next 2% of eligible compensationcontributed for a maximum of a 4% employer contribution. All employer contributions are 100%vested for participants who complete at least one hour of service on or after January 1, 2016. Allemployees who have terminated employment prior to January 1, 2016 are subject to a five-year vestingschedule. Retirement expenses related to the plan are incurred by the Society rather than the Chapter.

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Note 8 - Retirement Plan (continued)

Prior to January 1, 2016, the Chapter participated in the Society's non-contributory DefinedContribution Retirement Plan, which covered substantially all of the Chapter's employees, based ondefined eligibility for covered employees. Temporary employees and independent contractors were noteligible. Employees became eligible on the first day of the first month after beginning employment,and all covered employees received an annual contribution (after September 30) if they worked 1,000hours during the fiscal year and were employed on the last day of the fiscal year. The contribution ratefor the three months ended December 31, 2015 and fiscal year 2015, as determined by the Society'sPresident and CEO, was 3% of gross annual salary. Chapter contributions to employees were vestedover five years. In accordance with the plan's provisions, contributions required in any given year werefirst offset by forfeitures of unvested Chapter contributions for terminated participants.

The Chapter's retirement expense for fiscal year 2015 was $58,257, while the retirement expense forfiscal year 2016 was incurred by the Society rather than the Chapter.

Note 9 - Temporarily Restricted Net Assets

Temporarily restricted net assets comprise the following:


ProgramPurpose restricted $ 8,495 $ 2,000Endowment fund 103,133 86,780

TimeCharitable gift annuities 44,477 46,247

Total $ 156,105 $ 135,027

Temporarily restricted net assets were released from restrictions as follows:


2016 2015Program

Purpose restricted $ - $ 1,000

TimeEndowment funds - 15,000Charitable gift annuities 1,770 11,128

Total $ 1,770 $ 27,128

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Note 10 - Endowments

The Chapter's endowment consists of funds established for a variety of purposes. As required by U.S.GAAP, net assets associated with endowment funds are classified and reported based on the existenceor absence of donor-imposed restrictions.

Interpretation of Relevant Law

The Chapter has interpreted the Michigan State Prudent Management of Institutional Funds Act("SPMIFA") as requiring the preservation of the fair value of the original gift as of the gift date of thedonor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of thisinterpretation, the Chapter classifies as permanently restricted net assets (1) the original value of giftsdonated to the permanent endowment, (2) the original value of subsequent gifts to the permanentendowment, and (3) accumulations to the permanent endowment made in accordance with thedirection of the applicable donor gift instrument at the time the accumulation is added to the fund. Theremaining portion of the donor-restricted endowment fund that is not classified in permanentlyrestricted net assets is characterized as temporarily restricted net assets until those amounts areappropriated for expenditure by the Chapter in a manner consistent with the standard for expenditureprescribed by SPMIFA. In accordance with SPMIFA, the Chapter considers the following factors inmaking a determination to appropriate or calculate donor-restricted endowment funds:

1. The duration and preservation of the fund2. The general purposes of the Chapter and the donor-restricted endowment fund3. General economic conditions4. The possible effect of inflation and deflation5. The expected total return from income and appreciation of investments6. Other resources of the Chapter7. The investment policies of the Chapter

The changes in endowment net assets for the years ended September 30, 2016 and 2015 are as follows:

September 30, 2016

UnrestrictedTemporarilyRestricted

PermanentlyRestricted Total

Endowment net assets atbeginning of year $ - $ 86,780 $ 125,000 $ 211,780

Investment income - 4,927 - 4,927Net realized and unrealizedgain - 11,426 - 11,426

Appropriation of endowmentassets for expenditure - - - -

Endowment net assets at endof year $ - $ 103,133 $ 125,000 $ 228,133

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Note 10 - Endowments (continued)

Interpretation of Relevant Law (continued)

September 30, 2015

UnrestrictedTemporarilyRestricted

PermanentlyRestricted Total

Endowment net assets atbeginning of year $ - $ 113,455 $ 125,000 $ 238,455

Investment income - 4,595 - 4,595Net realized and unrealizedloss - (16,270) - (16,270)

Appropriation of endowmentassets for expenditure - (15,000) - (15,000)

Endowment net assets at endof year $ - $ 86,780 $ 125,000 $ 211,780

Return Objectives and Risk Parameters

The Chapter's endowment fund consists of assets that must be held in perpetuity or for specified timeperiods stipulated by the donors. The Chapter maintains investment and spending policies for itsendowment assets aimed at providing predictable and steady support for the Society's research andprogrammatic and administrative activities. Under this policy, the endowment assets are invested in amanner intended to preserve their value consistent with such donor stipulations, minimize the effect ofhigh economic volatility and/or low investment return, and provide funding for the programs specifiedby the donors.

Endowment Investment Spending Policy

For all endowment funds that have a value greater than their original gift, the spending rate (stated as apercentage) will be reviewed by the Investment Committee of the Society's Board of Directors andestablished on an annual basis. The annual spending rate on endowed funds held by the Chapter mayrange from a minimum of 0% to a maximum of 7%. The Investment Committee will inform the ChiefFinancial Officers of the spending rate that will be incorporated into the budget review and approvalprocess.

In establishing the spending rate, the Investment Committee shall rely on the three-year rolling averagemarket value (12 quarters) of the endowment fund assets calculated as of six months prior to the fiscalyear commencement date.

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Note 11 - Society Realignment

As the Society continues to become unified, the organization is transitioning to a single Society entity,which will perform one audit and file a single IRS Form 990 under one federal employer'sidentification number effective October 1, 2016. The transition will better align Society resources sothe organization can maximize its impact. For accounting purposes, the transition will be treated as anacquisition of 100% of the assets and liabilities of the Chapter by the Society. No consideration wasgiven in exchange for the interests.

The assets and liabilities of the Chapter were recorded at fair value as of October 1, 2016, which wereestimated to approximate book value as recorded on the Chapter's books.

Recognized amounts of identifiable assets and liabilities assumed by the Society on October 1, 2016:

Cash and cash equivalents $ 625,006Contributions receivable $ 58,240Prepaid expenses and other assets $ 36,512Property and equipment, net $ 3,653Interest in Society's pooled investment fund $ 732,769Due from home office - charitable gift annuities $ 44,477Accounts payable and accrued expenses $ (169,403)Deferred revenue $ (353,200)Inherent contribution received $ 978,054

The excess fair value of assets received over liabilities assumed is reported as a contribution receivedin the acquisition of the Chapter on the statement of activities and changes in net assets of therealigned Society entity in fiscal year 2017.

Note 12 - Subsequent Events

The Chapter has evaluated subsequent events through the auditors' report date, which is the date thefinancial statements were available for issuance. There were no subsequent events that are required tobe recognized or disclosed in the accompanying financial statements other than that described inNote 11.

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