POLK MUSEUM OF ART, INC.

FINANCIAL STATEMENTS

June 30, 2010 and 2009

 TABLE OF CONTENTS

Page

INDEPENDENT AUDITOR’S REPORT.......................................................................................................... 1

FINANCIAL STATEMENTS

Statements of Financial Position................................................................................................................... 2

Statements of Activities ................................................................................................................................ 3

Statement of Functional Expenses Current Year ......................................................................................... 4

Statement of Functional Expenses Prior Year.............................................................................................. 5

Statements of Cash Flows............................................................................................................................. 6

Notes to Financial Statements..................................................................................................................7-17

 INDEPENDENT AUDITOR'S REPORT

To the Board of Trustees

Polk Museum of Art, Inc.

We have audited the accompanying statements of financial position of Polk Museum of Art, Inc. (the
Museum) as of June 30, 2010 and 2009, and the related statements of activities, cash flows, and functional
expenses for the years then ended. These financial statements are the responsibility of the Museum's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of Polk Museum of Art, Inc. as of June 30, 2010 and 2009, and the changes in its net assets and its
cash flows for the years then ended in conformity with accounting principles generally accepted in the
United States of America.

October 19, 2010

 POLK MUSEUM OF ART, INC.
STATEMENTS OF FINANCIAL POSITION
June 30, 2010 and 2009

ASSETS
2010 2009
Current assets:
Cash and cash equivalents $ 482,863 $ 499,985
Governmental support receivable 54,362 24,089
Sponsorships receivable 31,985 7,130
Other receivables 12,034 9,255
Inventory - Museum shop 40,172 37,205
Prepaid expenses 38,954 6,204
Total current assets 660,370 583,868

Noncurrent assets:
Property, plant and equipment, net 2,984,832 3,090,729
Long-term investments, at fair value 3,841,539 3,651,298
Total noncurrent assets 6,826,371 6,742,027

Total assets $ 7,486,741 $ 7,325,895

LIABILITIES AND NET ASSETS

Current liabilities:
Accounts payable $ 27,648 $ 44,963
Accrued expenses 7,855 10,359
Deferred revenues 76,440 58,377
Total current liabilities 111,943 113,699

Net assets:
Unrestricted net assets:
Board designated for long-term investment 2,927,620 2,779,957
Other unrestricted 3,247,178 3,232,239
Total unrestricted net assets 6,174,798 6,012,196
Permanently restricted net assets 1,200,000 1,200,000
Total net assets 7,374,798 7,212,196

Total liabilities and net assets $ 7,486,741 $ 7,325,895

See accompanying notes to the financial statements.

2
 POLK MUSEUM OF ART, INC.
STATEMENTS OF ACTIVITIES
Years Ended June 30, 2010 and 2009

2010 2009

UNRESTRICTED SUPPORT AND REVENUES:

Realized and unrealized gain (loss) on investments $ 413,258 $ (912,272)
Governmental support 340,598 388,463
Fundraising 271,959 257,206
Sponsorships 217,257 222,336
Memberships 176,764 175,023
Contributions 159,579 194,103
Program revenue 108,386 109,406
Income on long-term investments 85,965 143,624
Other income and revenues 73,277 44,729
Gift shop sales 72,026 56,618
In-kind revenues 48,770 111,650

Total unrestricted support and revenues 1,967,839 790,886

EXPENSES:
Program expenses
Exhibitions 516,299 541,729
Education 270,402 282,828
Operations and administrative 658,564 713,347
Fundraising/Development 343,884 379,115

Total expenses 1,789,149 1,917,019

CHANGE IN UNRESTRICTED NET ASSETS

BEFORE CHANGES RELATED TO
ART COLLECTION NOT CAPITALIZED 178,690 (1,126,133)

CHANGES RELATED TO ART COLLECTION

NOT CAPITALIZED
Collection purchases 16,088 86,084

CHANGE IN UNRESTRICTED NET ASSETS 162,602 (1,212,217)

NET ASSETS, beginning of year 7,212,196 8,424,413

NET ASSETS, end of year $ 7,374,798 $ 7,212,196

See accompanying notes to the financial statements.

3
 POLK MUSEUM OF ART, INC.
STATEMENT OF FUNCTIONAL EXPENSES
Year Ended June 30, 2010

Operations
and Fundraising/
Exhibitions Education Administration Development Total

Salaries and benefits $ 171,804 $ 118,106 $ 404,254 $ 76,406 $ 770,570

Utilities 57,078 49,944 30,680 4,994 142,696
Depreciation 48,855 42,748 26,260 4,275 122,138
Printing / Promotional 45,358 1,145 10,750 32,679 89,932
Meetings / Hospitality 2,900 1,271 13,001 72,330 89,502
Repairs and maintenance 29,166 25,521 15,677 2,552 72,916
Licenses, fees and taxes 1,506 1,495 33,295 9,767 46,063
Other 17,252 9,798 2,400 36,586 66,036
In-kind expense 44,352 250 - 4,168 48,770
Security services 48,137 - - - 48,137
Miscellaneous 4,019 4,122 15,724 20,105 43,970
Travel 405 624 4,941 37,342 43,312
Museum shop - cost of sales - - 35,816 - 35,816
Supplies 1,363 13,273 14,558 6,181 35,375
Advertising 5,721 - 5,155 16,551 27,427
Postage and shipping 6,425 16 1,921 15,918 24,280
Class and lecture fees 20,269 1,150 - - 21,419
Professional fees / Contract fees 5,511 844 12,400 220 18,975
Insurance - - 18,406 - 18,406
Dues and subscriptions 1,150 95 7,540 3,415 12,200
Equipment rentals 5,028 - 5,786 395 11,209

$ 516,299 $ 270,402 $ 658,564 $ 343,884 $ 1,789,149

See accompanying notes to the financial statements.

4
 POLK MUSEUM OF ART, INC.
STATEMENT OF FUNCTIONAL EXPENSES
Year Ended June 30, 2009

Operations
and Fundraising/
Exhibitions Education Administration Development Total

Salaries and benefits $ 150,277 $ 108,933 $ 419,721 $ 88,812 $ 767,743

Utilities 57,512 50,323 30,912 5,032 143,779
Depreciation 48,986 42,863 26,330 4,286 122,466
Meetings / Hospitality 1,198 2,130 20,830 96,831 120,989
In-kind expense 52,702 - 8,716 50,232 111,650
Printing / Promotional 48,553 1,555 13,050 31,126 94,284
Other 7,138 19,907 10,929 32,048 70,022
Repairs and maintenance 27,836 24,357 14,962 2,436 69,590
Security services 45,848 - 24 - 45,872
Licenses, fees and taxes 720 1,415 33,279 8,660 44,074
Class and lecture fees 42,091 1,373 - - 43,464
Miscellaneous 3,131 6,350 23,527 9,595 42,603
Postage and shipping 22,101 12 11,267 7,366 40,746
Insurance 12,060 - 24,414 - 36,474
Travel - 8,945 3,121 23,368 35,434
Supplies 530 14,473 15,901 478 31,382
Museum shop - cost of sales - - 28,414 - 28,414
Equipment rentals 10,927 - 7,657 5,235 23,819
Professional fees / Contract fees 5,237 - 15,191 590 21,018
Advertising 4,029 148 532 10,659 15,368
Dues and subscriptions 853 45 4,569 2,361 7,828

$ 541,729 $ 282,828 $ 713,347 $ 379,115 $ 1,917,019

See accompanying notes to the financial statements.

5
 POLK MUSEUM OF ART, INC.
STATEMENTS OF CASH FLOWS
Years Ended June 30, 2010 and 2009

2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Change in unrestricted net assets $ 162,602 $ (1,212,217)
Adjustments to reconcile change in unrestricted net
assets to net cash used in operating activities:
Depreciation 122,138 122,466
Realized and unrealized (gain) loss on investments (413,258) 912,272
(Increase) decrease in assets:
Governmental support receivable (30,273) 10,400
Sponsorships receivable (24,855) (7,130)
Accounts
Other receivables
receivable (2,779) 13,784
Inventory - Museum shop (2,967) 1,678
Prepaid expenses (32,750) 12,962
Increase (decrease) in liabilities:
Accounts payable (17,315) (23,111)
Accrued expenses (2,504) 3,746
Deferred revenues 18,063 40,846
Net cash used in operating activities (223,898) (124,304)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment (16,241) (6,831)
Proceeds from sale of investments 529,293 908,259
Purchase of investments (306,276) (891,516)
Net cash provided by investing activities 206,776 9,913

Net decrease in cash (17,122) (114,391)

Cash and cash equivalents, beginning of year 499,985 614,376

Cash and cash equivalents, end of year $ 482,863 $ 499,985

Supplemental disclosure
Cash paid for interest $ 875 $ 2,117

See accompanying notes to the financial statements.

6
 POLK MUSEUM OF ART, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Museum

The Polk Museum of Art, Inc.'s (Museum) vision statement is “Polk Museum of Art will be a leading
innovator among Central Florida’s visual arts museums.” Polk Museum’s mission statement is "As an arts
leader in Florida, Polk Museum of Art educates and inspires the community through creative and diverse
exhibitions and collections, cultural alliances, and compelling events and programs". The Museum is
primarily supported through governmental, fundraising and sponsorship revenues.

The Museum was incorporated June 22, 1966, as Youth Museum of Imperial Polk County, Inc. It operated
under several names prior to changing to Polk Museum of Art, Inc. in July, 1985. The Museum opened its
current facility at 800 East Palmetto Street, Lakeland, Florida in September 1988. The American
Association of Museums renewed the Museum's ten year accreditation in April 1999. The Museum is
currently in the process of renewing its accreditation. This process typically takes two to three years to
complete.

Income Taxes
The Museum has received a determination of tax-exempt status from the Internal Revenue Service
under Code Section 501(c)(3) and, consequently, the earnings of the Museum are not taxed. The
Museum recognizes interest accrued related to unrecognized tax benefits in interest expense and
penalties in operating expenses. During the years ended June 30, 2010 and 2009, the Museum did not
incur interest and penalties related to tax positions.

Basis of Accounting
The financial statements of the Museum have been prepared on the accrual basis of accounting and,
accordingly, reflect all significant receivables, payables and other liabilities.

Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Basis of Presentation
The Museum has adopted Financial Accounting Standards Board Account Standards Codification, Not-for-
Profit Entities – presentation of financial statements. Under this codification, the Museum is required to
report information regarding its financial position and activities according to three classes of net assets:
unrestricted net assets, temporarily restricted net assets and permanently restricted net assets. The Museum
has no temporarily restricted net assets at June 30, 2010 and 2009.

Net Assets
The net assets of the Museum are reported in each of the following three classes: (a) unrestricted net assets,
(b) temporarily restricted net assets, and (c) permanently restricted net assets.

7
 POLK MUSEUM OF ART, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Net Assets (continued)

Net assets of the two restricted classes are created only by donor-imposed restrictions on their use. All
other net assets, including board-designated, are unrestricted and are reported as part of the unrestricted
class. Temporarily restricted net assets are restricted for (a) designated operating activities, (b) acquisition
of long-lived assets, or (c) use in a specific future period.

The Museum's permanently restricted net assets consist of two cultural endowment funds (Florida Fine Arts
and Cultural Endowment Funds). At June 30, 2010 and 2009, endowment principal was held for investment
in various banks and brokerage houses. Income earned on the endowment funds is used for operations, art
acquisition, scholarships and library purchases.

Revenue Recognition
The Museum recognizes all contributed support received as an increase in net assets in the period received.
Contributed support is reported as unrestricted or as restricted depending on the existence of donor
stipulations that limit the use of the support. When a donor restriction expires, that is, when a stipulated
time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified
to unrestricted net assets and reported in the Statement of Activities as net assets released from restrictions.
Donor-restricted contributions whose restrictions are met in the same reporting period are reported as
unrestricted support.

Long-lived assets acquired with gifts of cash restricted for those acquisitions are reported as unrestricted or
as temporarily restricted depending on whether there is an explicit, donor-imposed time requirement as to
how long the assets must be maintained. Long-lived assets are reported as permanently restricted only if the
Museum must maintain the assets in perpetuity or if the donor explicitly restricted the proceeds from any
future disposition of the assets to reinvestment in long-lived assets.

In-Kind Revenues
The Museum records various types of in-kind revenue including contributed facilities, professional services
in the amount of $6,674, advertising and materials. Contributed professional services are recognized if the
services received (a) create or enhance long-lived assets or (b) require specialized skills, are provided by
individuals possessing those skills, and would typically need to be purchased if not provided by donation.
Contributions of tangible assets are recognized at fair market value when received. The amounts reflected
in the accompanying financial statements as in-kind revenues are offset by like amounts included in
expenses.

A substantial number of volunteers have donated in excess of 3,500 hours to the Museum’s program
services during the year; however, these donated services are not reflected in the financial statements since
the services do not require specialized skills.

Additionally, the Museum receives a significant amount of skilled, contributed time which would otherwise
have to be purchased. The value of this contributed time has been estimated and is reflected in the
accompanying financial statements.

8
 POLK MUSEUM OF ART, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Deferred Revenue
Deferred revenue represents money which has been received for future activities. These revenues will be
recognized as income when the activities have occurred.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash held in checking and money market accounts and certificates of
deposit with maturities of less than three months.

Accounts Receivable
The Museum’s accounts receivable mainly consists of amounts receivable from governments and
governmental agencies for grants and appropriations and sponsors for sponsorships of various Museum
activities. The Museum considers its receivables to be fully collectible. Accordingly, no allowance for
doubtful accounts is required.

Inventory – Museum Shop

Inventory is valued at the lower of cost or market on a first in, first out basis.

Collection Items
The Museum added 45 works of art to its active permanent collection from July 1, 2009 through June 30,
2010. The works of art in the collection total 2,635 as of June 30, 2010. These works include paintings,
drawings, sculptures and other works with a total estimated value of $4,130,244 as of June 30, 2010, and
$4,022,494 as of June 30, 2009.

The Museum employs a full-time curator to manage stewardship of the collection, under the direction of the
Executive Director and the Board of Trustees’ collections and acquisitions policy with committee oversight.
Each piece is numbered and catalogued in a continuous inventory. However, due to standard industry
practice, the collection is not included on the Statements of Financial Position and is not capitalized. The
collection is never to be used as a financial asset for the Museum and is maintained for its inherent artistic,
cultural and educational value.

For the years ended June 30, 2010 and 2009 the Museum had accessions of contributed art of $93,450 and
$88,525, and purchases of $16,088 and $86,084, respectively. The difference between the Fiscal Year
2010 total of $109,538 of combined contributed and purchased art and the Fiscal Year 2010 addition of
$107,750 in total value to the collection is a result of discounted purchases made from individual artists,
studios and galleries.

Investments
Investments are recorded at fair market value, and realized and unrealized gains and losses are reflected in
the Statements of Activities.

9
 POLK MUSEUM OF ART, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property and Equipment

The Museum capitalizes all expenditures in excess of $1,000 for property and equipment at cost. Donated
property and equipment are capitalized at fair value at the date of the donation. Depreciation is computed
using the straight-line method over the following estimated useful lives:

Years
Building and improvements 39 - 50
Furniture and equipment 5 - 15
Automobiles 4

Advertising Costs
Advertising costs are expensed as incurred.

Comparative Data
Certain accounts in the prior year statements have been reclassified for comparative purposes to conform
with the presentation in the current year financials.

Functional Allocation of Expenses

The costs of providing the various programs, fundraising and other activities have been summarized on a
functional basis in the Statement of Functional Expenses. Costs that are directly related to the Museum’s
specific purpose have been recorded as a direct expense and included as program expenses. Certain
expenses are allocated among program, operations and administration and fundraising/development based
on the amount of employee time involved.

Adoption of New Accounting Standard

The Museum adopted the provisions of the Financial Accounting Standards Board’s “Accounting for
Uncertainty in Income Taxes” on July 1, 2009. No adjustments were necessary as a result of this
implementation as there are no positions for which it is reasonably possible that tax benefits and/or
burdens would significantly increase or decrease within 12 months of the reporting date.

Subsequent Events
Management has performed an analysis of the activities and transactions subsequent to June 30, 2010 to
determine the need for any adjustments to and/or disclosures within the audited financial statements for
the year ended June 30, 2010. Management has performed this analysis through October 19, 2010 and has
noted no subsequent events

NOTE B – CONCENTRATION OF CREDIT RISKS

The Museum maintains its cash in bank deposit accounts which, at times, may exceed federally insured
limits. The Museum has not experienced any losses in such accounts. Management believes the Museum is
not exposed to any significant credit risk on cash and cash equivalents.

10
 POLK MUSEUM OF ART, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009

NOTE C – PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

2010 2009
Land $ 684,399 $ 684,399
Building and improvements 4,160,942 4,160,942
Furniture and equipment 605,344 589,103
5,450,685 5,434,444
Less accumulated depreciation (2,465,853) (2,343,715)
$ 2,984,832 $ 3,090,729

Depreciation expense for the years ended June 30, 2010 and 2009 is $122,138 and $122,466, respectively.

NOTE D – INVESTMENTS

The Museum maintains investments in stocks, bonds, mutual and money market funds at various financial
institutions and brokerage houses. Of the total investments at June 30, 2010 and 2009, $286,081 and
$328,659 was invested in cash equivalents, respectively.

Long-term investments are held in two investment groups. Group A is for permanent endowments and
unappropriated net appreciation of those endowments. Group A investments are those primarily
associated with the Florida Fine Arts and Cultural Endowment Funds. Group B is for other amounts,
including the general endowment fund, which are designated by the Board of Trustees for long-term
investment.

Investments are carried at fair value and consist of the following as of June 30:

2010 2009
Fair Value Cost Fair Value Cost
Long-term investments -
Endowment fund
Stocks $ 752,231 $ 803,756 $ 836,682 $ 1,125,508
Government securities 363,868 355,241 356,094 408,548
Mutual funds 2,725,440 3,036,321 2,458,522 2,953,309
Total $ 3,841,539 $ 4,195,318 $ 3,651,298 $ 4,487,365

A summary of the return on investments is as follows as of June 30:

2010 2009
Realized and unrealized gain/(loss) $ 413,258 $ (912,272)

11
 POLK MUSEUM OF ART, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009

NOTE E – FAIR VALUE MEASUREMENTS

Financial Accounting Standards Board Account Standards Codification 820-10, Fair Value
Measurements and Disclosures (“FASB ASC 820-10”) defines fair value as the price that should be
received for an asset or paid to transfer a liability (an exit price) in the Museum’s principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date.

FASB ASC 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of observable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in
markets that are not active; or other inputs that are observable or can be corroborated by observable
market data.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow
methodologies and similar techniques that use significant unobservable inputs.

Fair values of assets measured on a recurring basis at June 30, 2010 are as follows:

Quoted Active Markets

Fair Value Identical Assets (Level 1)
Long-term investments - endowment fund
Stocks $ 752,231 $ 752,231
Government securities 363,868 363,868
Mutual funds 2,725,440 2,725,440
Total $ 3,841,539 $ 3,841,539

Fair values of assets measured on a recurring basis at June 30, 2009 are as follows:

Quoted Active Markets

Fair Value Identical Assets (Level 1)
Long-term investments - endowment fund
Stocks $ 836,682 $ 836,682
Government securities 356,094 356,094
Mutual funds 2,458,522 2,458,522
Total $ 3,651,298 $ 3,651,298

12
 POLK MUSEUM OF ART, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009

NOTE E – FAIR VALUE MEASUREMENTS (continued)

The carrying value of the Museum’s financial instruments not re-measured at fair value on a recurring
basis approximates their value at June 30, 2010 and 2009. Such financial instruments and the estimated
carrying value/fair value include:

Financial Assets 2010 2009

Cash and cash equivalents $ 482,863 $ 499,985
Accounts receivable 98,381 40,474
Inventory - Museum shop 40,172 37,205
Prepaid expenses 38,954 6,204

Financial Liabilities
Accounts payable $ 27,648 $ 44,963
Accrued expenses 7,855 10,359
Deferred revenues 76,440 58,377

NOTE F – LINE OF CREDIT

The Museum has a $225,000 revolving credit agreement with a bank. Principal payments are due upon
demand. The revolving credit agreement is unsecured, and bears interest at a variable rate equal to the Wall
Street Journal prime rate but at no time greater than 18% or less than 4%. At June 30, 2010, the prime rate
was 3.25%; therefore, the line of credit rate was 4% at that time. At June 30, 2010 and 2009, $225,000 was
available to the Museum for draws under this agreement. The interest paid on this line of credit during the
fiscal years ended June 30, 2010 and 2009, was $-0- and $2,117 respectively.

NOTE G – PERMANENTLY RESTRICTED NET ASSETS

Permanently restricted net assets as of June 30, 2010 and 2009 consisted of $1,200,000. These monies are
permanently restricted for the State of Florida's Fine Arts and Cultural Endowment Fund as further
described in Notes H and I.

NOTE H – FLORIDA FINE ARTS ENDOWMENT FUND

In September, 1986, the Museum entered into a Trust Agreement with the Division of Cultural Affairs, State
of Florida, Department of State, whereby the State of Florida granted $240,000 to the Museum, to be
matched with $360,000 of Museum funds, to make an endowment totaling $600,000. The Museum may
expend the investment proceeds of the endowment only for fine art activity operating costs. The Trust
Agreement imposes operating and financial reporting requirements on the Museum. The grant will revert to
the State of Florida if the Museum ceases to operate, is no longer a qualified sponsoring organization, files
for bankruptcy, expends a portion of the endowment principal, or willfully violates provisions of the Trust
Agreement.

13
 POLK MUSEUM OF ART, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009

NOTE I – CULTURAL ENDOWMENT FUND

In October, 2000, the Museum entered into a Trust Agreement with the Division of Cultural Affairs, State of
Florida, Department of State, whereby the State of Florida granted $240,000 to the Museum, to be matched
with $360,000 of Museum funds, to make an endowment totaling $600,000. The Museum may expend the
investment proceeds of the endowment only for cultural activity operating costs. The Trust Agreement
imposes operating and financial reporting requirements on the Museum. The grant will revert to the State of
Florida if the Museum ceases to operate, is no longer a qualified sponsoring organization, files for
bankruptcy, expends a portion of the endowment principal, or willfully violates provisions of the Trust
Agreement.

NOTE J – ENDOWMENT COMPOSITION

The Museum’s endowment consists primarily of funds established by the Board of Trustees in prior years
through donations and the growth of those funds over the years. These endowment funds are classified
and reported as unrestricted Board designated net assets. During 1986, the Museum entered into a Trust
Agreement with the Division of Cultural Affairs, State of Florida, Department of State to make an
endowment totaling $600,000 (see Note H above). During 2000, the Museum entered into another Trust
Agreement with the Division of Cultural Affairs, State of Florida, Department of State to make an
endowment totaling $600,000 (see Note I above). The two Trust Agreements with the Division of Cultural
Affairs, totaling $1,200,000, are classified as permanently restricted net assets. Income, realized and
unrealized gains and losses and unrestricted contributions have been classified as unrestricted net assets
designated by the Board of Trustees for endowment.

Endowment net asset composition by type of fund for the year ended June 30, 2010 is as follows:

Unrestricted: Total Net

Board Permanently Endowment
Designated Restricted Assets
Donor restricted $ - $ 1,200,000 $ 1,200,000
Board designated 2,927,620 - 2,927,620
Total $ 2,927,620 $ 1,200,000 $ 4,127,620

Endowment net asset composition by type of fund for the year ended June 30, 2009 is as follows:

Unrestricted: Total Net

Board Permanently Endowment
Designated Restricted Assets
Donor restricted $ - $ 1,200,000 $ 1,200,000
Board designated 2,779,957 - 2,779,957
Total $ 2,779,957 $ 1,200,000 $ 3,979,957

14
 POLK MUSEUM OF ART, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009

NOTE J – ENDOWMENT COMPOSITION (continued)

Changes in endowment net assets for the year ended June 30, 2010 consist of the following:

Unrestricted: Total Net

Board Permanently Endowment
Designated Restricted Assets
Endowment net assets,
beginning of year $ 2,779,957 $ 1,200,000 $ 3,979,957
Investment return: -
Investment income 85,965 - 85,965
Net appreciation (depreciation) 413,258 - 413,258
Investment fees (29,419) - (29,419)
Total investment return 469,804 - 469,804
Appropriation of endowment
Assets for expenditures (259,141) - (259,141)
Transfer to create certificate
of deposits (63,000) - (63,000)
Endowment net assets,
end of year $ 2,927,620 $ 1,200,000 $ 4,127,620

Changes in endowment net assets for the year ended June 30, 2009 consist of the following:

Unrestricted: Total Net

Board Permanently Endowment
Designated Restricted Assets
Endowment net assets,
beginning of year $ 3,857,001 $ 1,200,000 $ 5,057,001
Investment return: -
Investment income 143,624 - 143,624
Net appreciation (depreciation) (912,272) - (912,272)
Investment fees (30,287) - (30,287)
Total investment return (798,935) - (798,935)
Appropriation of endowment
Assets for expenditures (278,109) - (278,109)
Endowment net assets,
end of year $ 2,779,957 $ 1,200,000 $ 3,979,957

15
 POLK MUSEUM OF ART, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009

NOTE J – ENDOWMENT COMPOSITION (continued)

Interpretation of Uniform Prudent Management of Institutional Funds

The State of Florida has not enacted Uniform Prudent Management of Institutional Funds Act (UPMIFA);
however, the Museum has enacted the enhanced disclosure required by Accounting Standard Codification
Endowments of Not-for-Profit Organizations: Net Assets Classification of Funds Subject to an Enacted
Version of the UPMIFA, and Enhanced Disclosure for All Endowment Funds. However, the Board of
Trustees of the Museum is requiring the preservation of the fair value of the original gift as of the gift date
of the donor-restricted endowment funds absent explicit donor stipulations to the contrary which is a valid
interpretation of UPMIFA.

As a result of this interpretation, the Museum classifies as permanently restricted net assets (a) the
original value of gifts donated to 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 gift instrument at the time the accumulation is added to the fund.
The remaining portion of the donor-restricted endowment fund that is not classified in permanently
restricted net assets is classified as unrestricted Board designated until those amounts are appropriated for
expenditure by the Museum in a manner consistent with the standard of prudence prescribed by the Board
of Trustees. The Museum considers the following factors in making a determination to appropriate or
accumulate donor-restricted endowment funds:

1) The duration and preservation of the fund

2) The purposes of the organization and the donor-restricted endowment 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
7) The investment policies of the organization.

Investment Return Objectives and Risk Parameters

The Museum has adopted investment and spending policies for endowment assets that attempt to provide
a predictable stream 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 Museum must hold in perpetuity or for a donor-specified period(s) as well as Board-
designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are
invested in a manner that is according to the investment policies of the Board of Trustees. Acceptable
investments under the policy are intended to produce an absolute annualized rate of return of 8.5% and to
exceed the rate of inflation (as measured by the Consumer Price Index) by 6.0%.

Strategies Employed for Achieving Objectives

The purpose of the endowment fund is to facilitate donors’ desires to make substantial long-term gifts to
the Museum and to develop a new and significant source of revenue for the Museum. In so doing, the
endowment fund will provide a secure, long-term source of funds to use for: (a) operations; (b) art
acquisition; (c) scholarships; and (d) library purchases.

16
 POLK MUSEUM OF ART, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2010 and 2009

NOTE J – ENDOWMENT COMPOSITION (continued)

Spending Policy and How the Investment Objectives Relate to Spending Policy
The investment policies, as established by the Board of Trustees, allow for an amount equal to 6% of a three
year rolling average of the net market value of the endowments at March 31 to be allocated for the operating
and program budget of the Museum during the ensuing fiscal year. The Museum stayed within these Board-
adopted policies for the fiscal years ended June 30, 2010 and 2009.

Funds with Deficiencies

From time to time, the fair value of assets associated with individual donor restricted endowment funds
may fall below the level that the donor or Museum policies requires to retain as a fund of perpetual
duration. If this were to occur, the Museum would not expend any monies from the fund until the fair
market value of the fund returns to a level above the principal. The Museum does not have any
deficiencies as of June 30, 2010 and 2009.

NOTE K – RETIREMENT PLAN

The following brief description of the Polk Museum of Art, Inc. Teacher's Insurance and Annuity
Association/College Retirement Equities Fund Plan (TIAA-CREF) is provided for general information
purposes only. Participants should refer to the plan agreement for a more complete description of the plan's
provisions.

General - The Polk Museum of Art, Inc. TIAA-CREF Plan was established, effective July 1, 1997, to
provide benefits to all employees of the Museum who meet certain eligibility requirements. The TIAA-
CREF Plan is a defined contribution plan in which the Museum will make contributions for qualified
employees equaling 3% of gross pay after one year of service and one thousand hours worked. The monthly
contributions made by the Museum for vested employees are invested in separate annuity contracts chosen
by each member. Upon reaching retirement age, or separating from service, each employee may specify the
manner in which his or her funds are distributed within plan and legal restrictions. The cost to the Museum
of the plan for the years ended June 30, 2010 and 2009 is $15,638 and $12,909, respectively.

NOTE L – OPERATING LEASES

The Museum has leased equipment under various noncancellable agreements which expire between July
2010 and January 2012 and require various minimum annual rentals. The Museum paid $14,628 and
$15,727 for lease expense during the years ended June 30, 2010 and 2009, respectively. The following is a
schedule by years of future minimum rentals as of June 30, 2010:

Year Ending June 30:

2011 $ 11,710
2012 3,016
$ 14,726

17