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Rudolf Steiner Foundation, Inc.dba: RSF Social Finance and Affiliates

Consolidated Financial Statementsyear ended december 31, 2010

(with summarized comparative totals for 2009)

(with independent auditor's report thereon)

RUDOLF STEINER FOUNDATION, INC. dba: RSF SOCIAL FINANCE AND AFFILIATES

Year Ended December 31, 2010 (With Summarized Comparative Totals for 2009)

Table of Contents

Page Independent Auditors’ Report 1 Consolidated Statements of Financial Position 2 Consolidated Statements of Activities and Changes in Net Assets 3 Consolidated Statements of Cash Flows 4 Notes to Consolidated Financial Statements 5-26

INDEPENDENT AUDITORS’ REPORT

TO THE BOARD OF TRUSTEES

RUDOLF STEINER FOUNDATION, INC.

We have audited the accompanying consolidated statement of financial position of

dba: RSF SOCIAL FINANCE AND AFFILIATES

RUDOLF STEINER FOUNDATION, INC. dba: RSF SOCIAL FINANCE AND AFFILIATES, a nonprofit benefit organization, as of December 31, 2010 and the related consolidated statements of activities and changes in net assets and cash flows for the year then ended. These consolidated financial statements are the responsibility of the management of RUDOLF STEINER FOUNDATION, INC. dba: RSF SOCIAL FINANCE AND AFFILIATES. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The prior year summarized comparative information has been derived from the RUDOLF STEINER FOUNDATION, INC. dba: RSF SOCIAL FINANCE AND AFFILIATES 2009

consolidated financial statements and, in our report dated May 12, 2010 we expressed an unqualified opinion on those financial statements.

We conducted our audit 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 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 RUDOLF STEINER FOUNDATION, INC. dba: RSF SOCIAL FINANCE AND AFFILIATES

as of December 31, 2010, and the changes in their net assets and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

SHEA LABAGH DOBBERSTEIN Certified Public Accountants, Inc.

April 28, 2011 505 Montgomery Street, 5th Floor San Francisco, CA 94111 Tel 415 397 4444 Fax 415 981 0898

Cash and cash equivalents $ 2,541,216 $ 1,995,318

Restricted cash equivalents 723,000 500,000

Loans receivable - borrower funds, net 68,963,817 69,149,127

Investments, at fair value 45,039,363 41,581,249

Prepaid expenses and other assets 280,911 281,805

Furniture and equipment, net 41,753 69,837

Total assets $ 117,590,060 $ 113,577,336

Liabilities

Notes payable - investor funds $ 64,124,552 $ 64,785,080

Note payable - other 1,020,647 1,010,496

Other liabilities 298,698 250,507

Total liabilities 65,443,897 66,046,083

Commitments - -

Net assets

Unrestricted 33,247,119 29,805,969

Temporarily restricted 18,799,044 17,625,284

Permanently restricted 100,000 100,000

Total net assets 52,146,163 47,531,253

Total liabilities and net assets $ 117,590,060 $ 113,577,336

2009 (Note 2)

See accompanying notes to consolidated financial statements.

Consolidated Statements of Financial Position

December 31, 2010

RUDOLF STEINER FOUNDATION , INC.


Liabilities and Net Assets

(With Summarized Comparative Totals for 2009)

2010

Assets

2

Revenues, gains and other support:

Fee and management fees income $ 34,619 $ 717,772 $ - $ 752,391 $ 298,997

Net interest and investment income:

Interest income - borrower funds 450,039 4,254,698 - 4,704,737 4,387,446

Investment income, net 822,090 1,255,417 - 2,077,507 4,311,342

Net interest and investment income 1,272,129 5,510,115 - 6,782,244 8,698,788

Grants and contributions 9,671,554 2,623,845 - 12,295,399 14,656,794

Net assets released from restrictions 7,677,972 (7,677,972) - - -

Total revenues, gains and other support 18,656,274 1,173,760 - 19,830,034 23,654,579

Expenses:

Program services:

Grants made to programs 10,850,620 - - 10,850,620 13,113,068

Personnel costs 2,970,257 - - 2,970,257 2,908,225

Interest expense - investor funds and other 959,928 - - 959,928 911,557

Loan loss provision (recovery), net (895,000) - - (895,000) 4,603,175

Other projects and program expenses 263,628 - - 263,628 216,903

Total program services 14,149,433 - - 14,149,433 21,752,928

Supporting services:

Management and general 1,065,691 - - 1,065,691 1,050,439

Total expenses 15,215,124 - - 15,215,124 22,803,367

Changes in net assets 3,441,150 1,173,760 - 4,614,910 851,212

Net assets at beginning of year 29,805,969 17,625,284 100,000 47,531,253 46,680,041

Net assets at end of year $ 33,247,119 $ 18,799,044 $ 100,000 $ 52,146,163 $ 47,531,253

2009

Restricted

Permanently

Restricted Total


RUDOLF STEINER FOUNDATION , INC.


Consolidated Statements of Activities and Changes in Net Assets

(With Summarized Comparative Totals for 2009)

Year Ended December 31, 2010

TotalUnrestricted

2010

Temporarily

3

Cash flows from operating activities

Changes in net assets $ 4,614,910 $ 851,212

Adjustments to reconcile changes in net assets

to net cash provided by (used in) operating activities:

Net realized and unrealized gains on investments

and derivative financial instrument (2,086,436) (4,159,033)

Income from RSF Charitable Asset Management, LLC (993,126) (3,429,983)

Depreciation and amortization 32,690 50,013

Donated securities (3,680,203) (2,103,648)

Loan loss provision (recovery) (895,000) 4,603,844

Deferred income taxes (73,000) (106,000)

Accrued interest on loans receivable-borrower funds (141,213) (163,503)

Accrued interest on notes payable - others 10,151 146

(Increase) decrease in operating assets:

Prepaid expenses and other assets 73,894 77,253

Increase (decrease) in operating liabilities:

Other liabilities 48,191 (190,215)

Net cash used in operating activities (3,089,142) (4,569,914)

Cash flows from investing activities

Restricted cash equivalents (223,000) -

Payments from loans receivable - borrower funds 27,767,326 28,112,162

Increase in loans receivable - borrower funds (26,545,803) (25,818,188)

Proceeds from sale of investments 5,472,826 7,668,398

Purchase of investments (2,234,575) (3,189,355)

Net investment in RSF Charitable Asset Management, LLC 63,400 (3,811,432)

Purchase of furniture and equipment (4,606) (23,733)

Net cash provided by investing activities 4,295,569 2,937,852

Cash flows from financing activities

Proceeds from notes payable - investor funds 14,705,994 5,322,157

Payments on notes payable - investor funds (15,366,522) (5,700,430)

Payments on notes payable - other - (4,000,000)

Net cash used in financing activities (660,528) (4,378,273)

Net increase (decrease) in cash and cash equivalents 545,898 (6,010,335)

Cash and cash equivalents at beginning of year 1,995,318 8,005,653

Cash and cash equivalents at end of year $ 2,541,216 $ 1,995,318

2009

RUDOLF STEINER FOUNDATION, INC.

Consolidated Statements of Cash Flows

Increase (Decrease) in Cash and Cash Equivalents

2010


Year Ended December 31, 2010


4


Notes to Consolidated Financial Statements

December 31, 2010

5

(1) Organization Rudolf Steiner Foundation, Inc. dba: RSF Social Finance (RSF) was incorporated in 1936. As a nonprofit benefit organization, RSF creates social benefit through innovative approaches to working with money that reflect the highest aspirations of the human spirit. RSF fosters relationships, collaboration, and community building as the basis for the movement of money and the cultivation of living economies. RSF provides ways for donors, investors, borrowers, and grant recipients to use money to integrate their values with practical objectives. To further this mission, RSF carries out its services on a worldwide basis through philanthropic services, social investment, lending, grant making, advising, and educational programs. RSF’s focus areas include: sustainable agriculture, education and the arts, and ecological stewardship. The consolidated financial statements include the following affiliates: RSF Global Community Fund, Inc. (GCF); RSF Social Investment Fund, Inc. (SIF); RSF Charitable Asset Management, LLC. (CAM LLC); RSF Social Enterprise Inc. (SEI); RSF Capital Management, Inc. (CMI); RSF Mezzanine Management, LLC (MML); and RSF Mezzanine Fund, LP (MFL). GCF and SIF are California nonprofit public benefit corporations established for the special and exclusive purpose of supporting financial and charitable activities of RSF. CAM LLC, a California limited liability company is an investment portfolio entity that was created by RSF to consolidate the investments of RSF and its affiliates relative to their philanthropic services activities. CMI is a Delaware C corporation established by RSF to manage its for-profit activities and to act as managing member of MML. SEI is a California C corporation, a wholly owned subsidiary of CMI, which was created to originate and acquire social enterprise loans that may be considered non-charitable. MML is a Delaware limited liability company, which is the general partner of MFL. MFL, a Delaware limited partnership, is an investment portfolio entity that was created to raise capital through limited partner contributions in order to provide lending opportunities to borrowers.

(2) Summary of Significant Accounting Policies

(a) Principles of Consolidation In accordance with Financial Accounting Standards Board Accounting Standards Codification (the “FASB ASC”) Not-for-Profit Entities, these consolidated financial statements include the accounts of RSF, GCF, SIF, SEI, CMI and MML (collectively, RSF and affiliates). RSF appoints the majority of the directors of GCF, SIF and CMI and has an economic interest in these entities. All significant intercompany transactions and accounts have been eliminated in the consolidation. RSF is the managing member of CAM LLC. CMI is the sole member of MML. MML is the General Partner of MFL. The accounts of CAM LLC and MFL, investee portfolio entities of RSF and affiliates, are included as investments in the consolidated financial statements.



December 31, 2010

6

(b) Basis of Presentation The consolidated financial statements have been prepared on an accrual basis of accounting, in accordance with accounting principles generally accepted in the United States of America. Accounting principles generally accepted in the United States of America require that RSF and affiliates report information regarding their financial position and activities according to three classes of net assets: unrestricted net assets which represent the expendable resources that are available to support the operations of RSF and affiliates at management’s discretion; temporarily restricted net assets which represent resources that are donor-restricted as to purpose or passage of time; and permanently restricted net assets which represent resources whose use is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of RSF and affiliates.

(c) Use of Estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(d) Cash and Cash Equivalents

RSF and affiliates consider all highly liquid investments with an initial maturity of three months or less when purchased to be cash equivalents. Money market accounts and certificates of deposit that are intended for long-term investment purposes are classified separately under investments.

(e) Restricted Cash Equivalents Restricted cash equivalents were held by RSF and affiliates as a requirement on their interest rate swap agreements in their investment in CAM LLC (Note 4).

(f) Loans Receivable - Borrower Funds

Borrower funds are assets representing loans made by RSF and affiliates to for-profit social enterprises and nonprofit organizations. The loans are mission related and generally collateralized by mortgages, business assets, guarantees and pledges from individuals, for-profit enterprises and nonprofit organizations. These loans are reported at their outstanding principal balances, net of any unamortized costs on originated loans.



December 31, 2010

7

These loans mature after variable periods and may be renewed by the borrowers. Between January 1, 2009 and September 30, 2009 the interest rate was fixed for each calendar quarter based on the three-month London Interbank Offered Rate (LIBOR) on the second business day before the start of each calendar quarter, plus a spread up to 3.25% added to the discount rate. Beginning October 1, 2009, variable rate borrowers are charged a base rate called the RSF Prime Rate, which is calculated by taking the quarterly investor fund rate and adding a 4.00% spread. At December 31, 2010 and 2009, the RSF Prime Rate was 5.00%. Based on borrower’s risk profile, certain loans may be charged more than the RSF Prime Rate. The carrying value of borrower funds includes the principal amount of all loans made to the organizations, together with accrued interest and fees, reduced by repayments. The carrying amount of loans receivable may be reduced by a valuation allowance that reflects management’s best estimate of the probability of collecting those accounts. A valuation allowance consists of the allowance for loan losses and the reserve for unfunded credit commitments to the extent that RSF and affiliates’ investment in the loans exceeds the estimated fair value of the collateral securing such loan receivable inherent in the loan portfolio at the statement of financial position date. Impairment is considered to exist when it is probable that all amounts due under the terms of the loan receivable will not be collected. Management reviews outstanding loans which have been delinquent for 30 days or more and determines recoverability of outstanding principal, interest and fees on an ongoing basis. Management identifies a loan as impaired based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases RSF and affiliates uses the current fair value of the collateral, less selling costs when foreclosure is probable, instead of discounted cash flows. If management determines that the value of the impaired loan is less than the recorded investment in the loan, RSF and affiliates recognize impairment through an allowance estimate or a charge-off to the allowance.

(g) Investments

RSF and affiliates state investments with readily determinable fair values at their fair values in the consolidated statements of financial position. Stock gifts received from donors are recorded as gift income at the fair value of the stock gifts on the date of donation. Gains and losses and investment income derived from investments are accounted for as unrestricted, temporarily restricted, or permanently restricted based on restrictions, if any, in the accompanying consolidated statements of activities and changes in net assets. The Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) section for Fair Value Measurements and Disclosures defines fair value of an investment as the amount that would be received upon sale of the investment in an orderly transaction between market participants at the measurement date (i.e. the exit price).



December 31, 2010

8

The FASB ASC Fair Value Measurements and Disclosures establishes a hierarchal disclosures framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The FASB ASC Fair Value Measurements and Disclosures requires investments measured and reported at fair value to be classified and disclosed in one of the following categories:

Level 1 – Quoted prices are available in active markets for identical investments as of the reporting date. The types of investment included in Level 1 are publicly traded debt and equity securities. As required by FASB ASC Fair Value Measurements and Disclosures, RSF and affiliates do not adjust the quoted price for these investments even in situations where RSF and affiliates hold a large position and a sale could reasonably impact the quoted price. Level 2 – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments which are generally included in this category are publicly traded equity securities with restrictions. Level 3 – Pricing inputs are unobservable and include situations where there is little, if any, market activity for the investment. Fair value for these investments are estimated by RSF and affiliates using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, financial condition and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant judgment by RSF and affiliates. Due to the inherent uncertainty of these estimates, these values may differ materially from the fair values that would have been used had a ready market for these investments existed. Investments that are included in this category generally include limited liabilities companies, general and limited partnerships and member equity interests in corporate private equity and debt securities. For the year ended December 31, 2010 there has been no changes in RSF and affiliates’ valuation techniques and related inputs considered in the valuation process when compared to the amounts reported during the year ended December 31, 2009.



December 31, 2010

9

In certain cases fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Realized gains or losses on investments represent the difference between the original cost of the securities on a specific identified cost basis and the related fair market value on the date of sale or distribution. They include the original cost of the investments written-off, if any. When the investments are sold, gains or losses are classified as realized. The deemed gains or losses from any distribution of securities represent the difference between the fair value of the securities distributed as of the date of distribution and the original cost. The difference between the original cost and the fair value of investments held at the end of the year represents unrealized appreciation or depreciation.

(h) Furniture and Equipment Furniture and equipment in excess of $1,500 with a useful life in excess of one year are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives, which range from five to seven years. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. RSF and affiliates regularly evaluate long-lived assets for indicators of possible impairment. Should impairment exist, the impairment loss would be measured based on the excess carrying value of the asset’s fair value or discounted estimates of future cash flows. RSF and affiliates have not identified any such impairment losses to date.

(i) Notes Payable Notes payable are liabilities consisting of investor funds and other loans made to RSF and affiliates by individuals and organizations for specified periods.

(j) Revenue Recognition

Grants and Contributions – Grants and contributions consist principally of donations from individuals and organizations. Grants and contributions are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of any donor restrictions. Restricted net assets are reclassified to unrestricted net assets upon satisfaction of the time or purpose restrictions. Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction.



December 31, 2010

10

When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities and changes in net assets as net assets released from restrictions. Interest and Fee Income – Lending provides most of RSF and affiliates’ income. The spread between loans receivable and notes payable is adjusted periodically to balance fluctuations in interest rates in relation to inflation, cost of financing and market rates. For the years ended December 31, 2010 and 2009, the base rate charged to borrower funds was 5.00% and the investor fund rate was 1.00%. RSF and affiliates also generate one-time origination fees ranging from 1.00% to 2.00% of the loan balance on processed new loans. Loan origination fees are amortized to interest income over the contractual life of the loan using the effective interest method. Donated Services – RSF and affiliates generally pay for services requiring specific expertise. However, many individuals volunteer their time and perform a variety of tasks that assist RSF and affiliates with fundraising solicitations. The services of volunteers, while often significant in value, do not meet the criteria for financial statement recognition and accordingly are not recorded on these consolidated financial statements.

(k) Grants Made

Grants are recognized when they are approved by RSF and affiliates.

(l) Functional Expense Allocation The costs of RSF and affiliates’ various programs and other activities have been summarized on a functional basis in the accompanying consolidated statements of activities and changes in net assets. Expenses directly identifiable with programs and all personnel costs are charged to program services. Supporting services include overhead expenses not directly identifiable with programs but which provide for overall support and direction of RSF and affiliates.

(m) Concentration of Credit Risk Financial instruments, which potentially subject RSF and affiliates to concentration of credit risk, consist principally of cash and cash equivalents with high credit quality financial institutions, restricted cash equivalents, loans receivable - borrower funds, equity securities, corporate bonds, mutual funds and derivative financial instruments. These instruments are also subject to other market conditions such as interest rate risk, equity market risks and their implied volatilities, mortgage risks and market liquidity and funding risks.



December 31, 2010

11

Cash and cash equivalents on deposit with financial institutions are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 for all cash accounts with each financial institution and/or by the Securities Investor Protection Corporation (“SIPC”) as of December 31, 2010 and 2009, respectively. At various times during 2010 and 2009, RSF and affiliates had cash balances in excess of the insured limits. RSF and affiliates have not experienced any losses in such accounts and believe they are not exposed to any significant credit risk to cash.

(n) Income Taxes

RSF and affiliates (excluding SEI, CAM LLC and CMI) are qualified organizations exempt from federal and California income taxes under the provisions of Internal Revenue Code (IRC) Section 509(a)(2) as an organization described under Section 501(c)(3) and Section 23701d of the California Revenue and Taxation Code. CMI and SEI pay both federal and state income tax on its taxable income. Income taxes are provided for the tax effect of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial and income tax reporting purposes. The deferred tax assets and liabilities represent future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Federal or state income tax liability has been recognized as of December 31, 2010 and 2009. Accounting principles generally accepted in the United States of America provide accounting and disclosure guidance about positions taken by RSF and affiliates in their tax returns that might be uncertain. Management has considered its tax positions and believes that all of the positions taken by RSF and affiliates in their federal and state tax returns are more likely than not to be sustained upon examination. RSF and affiliates are subject to examination for the 2007 through 2009 tax years by federal taxing authorities and for the 2006 through 2009 tax years by state taxing authorities. If such examination results in changes to RSF and affiliates’ reported income or loss, the tax liability could be changed accordingly.

(o) Comparative Financial Information

The consolidated financial statements include certain prior year summarized comparative information in total, but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with RSF and affiliates’ consolidated financial statements for the year ended December 31, 2009, from which the summarized information was derived.



December 31, 2010

12

(p) Recent Accounting Pronouncements

The FASB ASC issued an Accounting Standards Update (ASU) 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20). ASU 2010-20 requires enhanced disclosures for the allowance for loan losses and financing receivables, which include certain loans and long-term accounts receivable. Organizations are required to disaggregate credit quality information, including receivables on nonaccrual status and aging of past due receivables by class of financing receivable, and rollforward the allowance for loan losses by portfolio segment. Portfolio segment is defined as the level at which an entity develops and documents a systematic method to determine its allowance for credit losses. The adoption did not affect the consolidated financial statement results since it amends only the disclosure requirements for financing receivables and allowance for loan losses.

(q) Reclassifications

The previously issued consolidated financial statements in 2009 reported the line of credit of $8,764,000 and other liabilities of $591,983 of CAM LLC separately on the consolidated financial statements. CAM LLC is an investment portfolio entity of RSF and the investment in CAM LLC is accounted for under the equity method of accounting. The 2009 consolidated financial statements have been restated to reflect the investment in CAM LLC at the equity method. Such reclassification in the 2009 consolidated financial statements had no effect on the previously reported consolidated statement of activities and changes in net assets or net assets.



December 31, 2010

13

(3) Loans Receivable – Borrower Funds, Net At December 31, RSF and affiliates’ loans receivable - borrower funds consist of the following:

2010 2009 Performing loans receivable: Collateralized borrower funds, bearing an interest rate ranging from 3.00% to 13.00% and from 3.50% to 12.00% as of December 31, 2010 and 2009, respectively, various monthly principal and interest payments, and due in 2011 through 2016. $ 65,238,669 $ 69,270,336 Non-performing loans receivable: Collateralized borrower funds, bearing an interest rate ranging from 3.25% to of 7.00% as of December 31, 2010 and 2009, respectively, various monthly principal and interest payments, and due between 2011- 2012. 5,988,424 5,034,988 71,227,093 74,305,324 Less: allowance for loan losses 2,263,276 5,156,197 Loans receivable – borrower funds, net $ 68,963,817 $ 69,149,127

RSF and affiliates extend credit to organizations that are mission related. RSF and affiliates perform ongoing credit evaluations of their borrowers, maintaining allowances, when applicable, for potential credit losses, which, when realized, have been within management’s expectations. For certain extensions of credit, RSF and affiliates may require collateral, based on their assessment of a borrower’s credit risk. RSF and affiliates hold various types of collateral including accounts receivable, inventory, real estate, equipment, guarantees and financial instruments. Collateral requirements for each borrower may vary according to the specific credit underwriting, terms and structure of loans funded immediately or under a commitment to fund at a later date. Loans are considered past due when contractually required principal or interest payments have not been made on the due dates. RSF and affiliates generally place loans on nonaccrual status when the full and timely collection of interest or principal becomes uncertain and the loans are 90 days past due for interest or principal. A loan will remain in accruing status provided it is both secured and in the process of collection. RSF and affiliates return the loan to accrual status when all delinquent interest and principal become current under the terms of the loan agreement and the collectibility of the remaining principal and interest is no longer doubtful.



December 31, 2010

14

Certain commitments are subject to loan agreements with covenants regarding the financial performance of the borrower or borrowing base formulas that must be met before RSF and affiliates are required to fund the commitment. RSF and affiliates use the same credit policies in extending credit for unfunded commitments in funding loans. In addition, RSF and affiliates manage the potential risk in credit commitments by limiting the total amount of arrangements, both by organizations and/or affiliates, by monitoring the size and maturity structure of these loans and by applying the same credit standards for all loan activities. Although RSF and affiliates believe the related collateral to be adequate, there is no assurance that the underlying assets have sufficient value to fully collateralize the outstanding balances. As of December 31, 2010, the contractual amount of the unfunded credit commitments is approximately $5,252,000.

Investors are also able to enter into a limited guarantee agreement with RSF and affiliates to cover any risk of possible losses to organizations that apply for loans. In February 2010, RSF and affiliates terminated a limited guarantee agreement for $5,000,000 with one of its investors. RSF and affiliates received a $1,000,000 gift to its allowance for loan losses as consideration for the termination of this agreement. The guarantee was available to provide additional coverage for the risk of possible losses on loans granted by RSF and affiliates. RSF and affiliates intends to replace this guarantee with additional net asset reserve funds to protect against possible loan losses An analysis of the allowance for loan losses for the years ended December 31, are as follows:

2010 2009

Balance at beginning of year $ 5,156,197 $ 552,353 Provision charged to operations:

Sustainable Agriculture - 4,034,988 Education and Arts 425,985 164,134 Other 429,015 404,722

Total provision charged to operations

855,000 4,603,844 Amounts written off: Sustainable Agriculture (1,997,921) - Amounts recovered: Sustainable Agriculture (1,750,000) - Balance at end of year $ 2,263,276 $ 5,156,197



December 31, 2010

15

Management has established a process to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in their portfolio, economic uncertainties, historical loss experience and other subjective factors, including industry trends, calculated to better reflect the risk in each loan portfolio. Management has an experienced work-through team that works with borrowers to help them through tough economic times. These policies have allowed RSF and affiliates to have a very low loan default rate over its 27 year history. If the financial position of certain borrowers improves over time, it may be possible to recover part of the allowance for loan losses and take the recovered amount back into income. As of December 31, RSF and affiliates’ total borrower funds and approximate collateral are summarized by loan category in the following tables:

2010 Originated

Loans Participation

Loans

Total

Collateral Mortgage loans – variable $ 37,679,844 $ 1,699,286 $ 39,379,130 $ 101,374,000 Mortgage loans – fixed 9,655,480 5,780,609 15,436,089 35,290,000 Accounts receivable and inventory

financing line of credit

10,912,119

764,694

11,676,813

20,793,000 Community pledge loans 3,229,713 - 3,229,713 4,469,000 Line of credit facilities 671,727 833,621 1,505,348 3,732,000 $

62,148,883

$

9,078,210

$

71,227,093

$

165,658,000

2009 Originated

Loans Participation

Loans

Total

Collateral Mortgage loans – variable $ 34,924,020 $ 1,992,583 $ 36,916,603 $ 85,928,000 Mortgage loans – fixed 10,532,084 - 10,532,084 42,201,000 Accounts receivable and inventory

financing line of credit

15,059,814

510,773

15,570,587

40,516,000 Community pledge loans 8,486,185 - 8,486,185 5,692,000 Construction loans 1,564,480 - 1,564,480 12,300,000 Line of credit facilities 1,235,385 - 1,235,385 2,658,000 $

71,801,968

$

2,503,356

$

74,305,324

$

189,295,000



December 31, 2010

16

Loan concentrations may exist when there are amounts loaned to borrowers engaged in similar activities or similar types of loans extended to a diverse group of borrowers that would cause them to be similarly impacted by economic or other conditions. Concentration in loans to Waldorf and charter schools in RSF and affiliates was approximately 33% and 40% at December 31, 2010 and 2009, respectively. Based on current economic conditions, schools may be subject to a drop in tuition revenue and/or state funding. RSF and affiliates monitor the underlying economic or market conditions for these areas within their credit risk management process including schools financial health by reviewing reports submitted by the schools as required by their loan covenants, conducting site visits and staying in regular contact with the school administrators. Of the principal payments on borrower funds due to mature in 2011, RSF and affiliates’ management project that 47% will be repaid and 53% will be renewed and extended. Future principal payments to be received on loans receivable - borrower funds are as follows:

Year Ending December 31,

2011 $ 23,446,765 2012 20,298,341 2013 9,867,541 2014 4,180,614 2015 12,167,259

Thereafter 1,266,573 $ 71,227,093

Interest income on loans receivable - borrower funds for the years ended December 31, 2010 and 2009 was approximately $4,705,000 and $4,387,000 respectively.

(4) Investments

RSF and affiliates’ investments are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. Investments in limited liability companies or partnerships that do not have a readily determinable fair value are accounted using the equity method of accounting. Under the equity method, the investment is originally recorded at cost and adjusted to recognize the RSF and affiliates’ share of net realized and unrealized earnings or losses and distributions. Since these investments follow the fair value of accounting, the use of the equity method generally should approximate the fair value of its ownership interests. Such instruments are classified within Levels 1-3 of the fair value hierarchy (Note 11).



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Fair value, cost and unrealized gains (losses) as of December 31, are as follows:

2010

Fair

Value Cost Unrealized

Gains (Losses)

Cash and cash equivalents $ 1,740,343 $ 1,740,343 $ - Corporate securities 5,404,507 3,617,137 1,787,370 Government securities 1,734,707 1,682,434 52,273 Other 4,234,087 4,950,825 (716,738) CAM LLC, (net of eliminations)

31,925,719

31,810,280

115,439

$ 45,039,363 $ 43,801,019 $ 1,238,344

2009

Fair

Value Cost Unrealized

Gains (Losses)

Cash and cash equivalents $ 553,933 $ 553,933 $ - Corporate securities 5,812,852 5,197,921 614,931 Government securities 2,011,129 2,003,658 7,471 Other 915,772 856,561 59,211 CAM LLC, (net of eliminations)

32,287,563

32,005,700

281,863

$ 41,581,249 $ 40,617,773 $ 963,476

For the years ended December 31, net investment income consists of the following:

2010 2009

Interest and dividends $ 669,648 $ 826,028 Net realized and unrealized gains on investments 2,086,436 4,159,033 2,756,084 4,985,061 Less: investment fees 678,577 673,719 Investment income, net $ 2,077,507 $ 4,311,342



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18

(a) Investment in CAM LLC

A summary of the unconsolidated financial information for CAM LLC as of and for the years ended December 31, is as follows:

2010 2009

Assets: Cash and cash equivalents $ 1,260,900 $ 513,200 Investments, at fair value 40,222,400 41,383,400 Advances to related parties and other receivables 1,812,800 9,480,500

43,296,100 51,377,100 Liabilities: Line of credit 1,964,000 8,764,000 Other liabilities 599,400 592,000

2,563,400 9,356,000

Members’ equity $ 40,732,700 $ 42,021,100 Investment income:

Realized and unrealized gains on investments

$ 673,700 $ 3,101,800

Interest and dividends 563,800 630,700

1,237,500 3,732,500

Expenses:

Investment fees 233,200 270,900 Other expenses 11,200 31,600

244,400 302,500

Net income

$ 993,100 $ 3,430,000

Consolidated ownership percentage 100% 100%



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19

A condensed schedule of investments for CAM LLC as of and for the years ended December 31, is as follows:

2010 2009 Cost Fair Value Cost Fair Value

United States government and corporate

securities (21.70% (2010) and 20.00% (2009))

$ 8,465,800

$ 8,730,800 $ 8,043,200

$ 8,216,900

United States mutual funds (2.62% (2010)

and 2.68% (2009)) 1,019,200 1,052,200 1,052,300 1,107,900

Cash and cash equivalents (44.66% (2010)

and 51.73% (2009)) 17,964,000 17,964,000 21,409,100 21,409,100 Partnerships and limited liability

companies(10.35% (2010) and 22.57% (2009)):

Generation IM Global Equity Fund - - 5,000,000 5,071,500 Limited liability companies and

partnerships 4,607,100 4,163,500 4,347,000 4,109,000 Total partnership and limited

liability companies 4,607,100 4,163,500 9,347,000 9,180,500

Variable rate loan funds (20.67% (2010) and 3.02% (2009)) 8,027,700 8,311,900 1,250,000 1,469,000

Total investments $ 40,083,800 $ 40,222,400 $ 41,101,600 $ 41,383,400

As of December 31, 2010 and 2009, CAM LLC has the following commitments:

Line of Credit CAM LLC entered into a discretionary line of credit agreement with a financial institution for borrowings up to $15,000,000 and secured by the investments of CAM LLC. Borrowings against this line of credit bear interest at one month LIBOR plus 1.00%. Borrowings are limited to the short term financing needs of RSF and affiliates’ projects. The line of credit agreement matures in July 2015 and renews automatically for next seven years. As of December 31, 2010 and 2009 the outstanding borrowings under this line of credit were $1,964,000 and $8,764,000, respectively.



December 31, 2010

20

Interest Rate Swap Agreements CAM LLC has entered into interest rate swap agreements with a commercial bank to reduce the effect of changes in interest rates on its floating rate long-term debt on behalf of RSF and affiliates. At December 31, 2010 and 2009, the interest rate swap agreements had total notional principal amounts of approximately $4,534,000 and $4,880,000, respectively. A $4,000,000 swap agreement matured in October 2009, with interest income of $106,589 earned for the year ended December 31, 2009. The interest rate swap agreement effectively changed CAM LLC’s interest rate exposure on the approximate $4,534,000 in fixed rate borrower fund notes, due in August 2016, to a variable interest rate of U.S. Treasury bill or LIBOR plus 99 basis points. The interest rate swap agreements mature at the time the related borrower funds and note payable mature. CAM LLC is exposed to a credit loss in the event of nonperformance by the other parties to the interest rate swap agreements. However, CAM LLC does not anticipate nonperformance by the counterparties. At December 31, 2010 and 2009, the fair values of derivative financial instruments in CAM LLC were $548,089 and $548,898, respectively, and are included as other liabilities in CAM LLC’s unconsolidated financial information above.

RSF and affiliates manage their mission related investments according to the RSF Global Investment Policy Statement. This policy establishes the overall investment objectives, social impact goals, and asset allocation and diversification parameters, due diligence requirements, performance management and policy compliance management.

(5) Furniture and Equipment

As of December 31, furniture and equipment consist of the following:

2010 2009

Computer equipment and software $ 320,550 $ 315,944 Furniture and fixtures 134,306 134,306 Office equipment 56,378 56,378 511,234 506,628 Less: accumulated depreciation and amortization 469,481 436,791 $ 41,753 $ 69,837

Depreciation and amortization expense for the years ended December 31, 2010 and 2009 was $32,690 and $50,013, respectively.



December 31, 2010

21

(6) Income Taxes

Income taxes pertain to CMI and SEI are provided for the tax effects of transactions reported in the consolidated financial statements, and consist of taxes currently due plus or minus deferred taxes. Deferred taxes relate primarily due to temporary differences in loan losses, amortization, certain accrued expenses and net operating loss carryforwards. The deferred taxes represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. The provision for (benefit from) income taxes consisted of the following for the years ended December 31, which is included as part of management and general expenses:

2010 2009

Current: Federal $ 9,183 $ 34,463 State 2,500 8,614

Total current tax provision 11,683 43,077 Deferred:

Federal (46,000) (67,000) State (27,000) (39,000)

Total deferred tax benefit

(73,000) (106,000)

Benefit from income taxes

$ (61,317) $ (62,923)

The accompanying consolidated statements of financial position include the following deferred tax assets and liabilities at December 31, which is included as part of prepaid expenses and other assets:

2010 2009

Total deferred tax assets $ 179,000 $ 106,000 Total deferred tax liabilities - - Less: valuation allowance - -

Net deferred tax assets $ 179,000 $ 106,000 CMI had approximately $357,000 and $447,000 of federal and state net operating loss carryforwards at December 31, 2010 and 2009. These federal and state net operating loss carryforwards expire in 2020 and 2030, respectively.



December 31, 2010

22

(7) Notes Payable

(a) Investor Funds

Investor funds are monies received by RSF and affiliates from individuals, organizations and/or corporations that choose or elect to invest in RSF and affiliates’ mission related projects. Investor funds are carried at historical cost, which includes the total value of the principal investments plus accrued interest. Under the FASB ASC Financial Instruments the fair value of these notes is equal to the amount payable on demand at the measurement date. As of December 31, 2010 and 2009, RSF and affiliates have unsecured notes payable - investor funds of $64,124,552 and $64,785,080, respectively, bearing an effective interest rate of 1.00%. Principal and interest payments are due between 2011 through 2040. From January 1, 2009 through September 30, 2009 the interest rate was fixed for each calendar quarter based on the three-month London Interbank Offered Rate (LIBOR) on the second business day before the start of each calendar quarter, minus a spread up to 3.75%. Beginning October 1, 2009, investors received a rate of return, determined each calendar quarter by RSF management, taking into account the needs of investors in the RSF and affiliates; investors, borrowers and RSF itself, as well as considering market and macro-economic conditions. On renewal, the principal amount of the note will include any elected reinvested quarterly interest. Investor funds have a three-month renewable term and upon maturity these notes are expected to renew for an additional three-month term unless RSF and affiliates receives a request from the investors for repayment before the maturity date. Investors may opt for a longer maturity period. The summary of future principal payments required is based on investors’ commitments. In prior years, RSF and affiliates’ management has observed that the average term of RSF and affiliates’ active investor fund is 7.2 years and that over the past three years only an average of 10% of total investor funds have been withdrawn annually by their investors. Investors can request for repayment before maturity date or within 30 days of that date or 15 days after quarterly statements are mailed to the investors. In the event that investor requests for repayment are in excess of management’s expectations, management is able to fund these requests by utilizing available cash and cash equivalents, access its reserve funds, its line of credit and sell liquid investments. Interest expense on notes payable - investor funds for the years ended December 31, 2010 and 2009 was $622,778 and $549,972, respectively.

(b) Other As of December 31, 2010 and 2009, notes payable - other consists of an unsecured unrelated party note payable of $1,020,647 and $1,010,496, respectively, bearing an effective interest rate of 1.00%. Principal and interest payments are due in December 2011.



December 31, 2010

23

Interest expense on notes payable - others for the years ended December 31, 2010 and 2009 was $10,151 and $127,151, respectively. Future principal payments required on all notes payable are as follows:


Investor Funds Others Total

2011

$ 49,892,612 $ 1,020,647 $ 50,913,259

2012 6,073,870 - 6,073,870 2013 2,119,801 - 2,119,801 2014 2,545,952 - 2,545,952 2015 2,327,357 - 2,327,357

Thereafter 1,164,960 - 1,164,960 $ 64,124,552 $ 1,020,647 $ 65,145,199

(8) Temporarily Restricted Net Assets

Accounting principles generally accepted in the United States of America require that the unrestricted net assets of the consolidated affiliates arising from contributions be reported as temporarily restricted net assets. Contributions received by RSF and affiliates are typically for the support of specific operating activities of the affiliates’ purpose and mission.

As of December 31, temporarily restricted net assets consist of the following:

2010 2009

Advised funds $ 10,717,957 $ 12,284,061 Operations and reserve funds 8,081,087 5,341,223 $ 18,799,044 $ 17,625,284

(9) Net Assets Released from Restrictions

Assets which have been temporarily restricted are released from their restrictions due to time restriction, by incurring expenses satisfying the restricted purposes or by the occurrences of other events specified by donors.



December 31, 2010

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Temporarily restricted assets transferred to unrestricted funds for the years ended December 31, are as follows:

2010 2009

Advised funds $ 1,566,104 $ 9,237,275 Operations and reserve funds 6,111,868 3,448,425 $ 7,677,972 $ 12,685,700

(10) Lease Commitments

RSF and affiliates lease their office facility in San Francisco, California under a non-cancelable operating lease through October 2010 which has been extended through April 2012 with an option to extend for one additional year. The operating lease requires minimum monthly rental payments of $18,407 subject to annual increases based on defined increases in the Department of Labor’s Bureau of Labor Statistics Consumer Price Index. In addition to minimum rental payments, the lease agreement provides for percentage rents based on tenant operating expenses exceeding stated amounts. Rent expense under the operating lease totaled approximately $221,000 and $222,000 for the years ended December 31, 2010 and 2009, respectively.

The future minimum payments for the operating lease are as follows:


2011 $ 221,000

2012 74,000

$ 295,000



December 31, 2010

25

(11) Fair Values of Assets and Liabilities

Assets and liabilities measured at fair value on a recurring basis are summarized below as of December 31:

2010 Level 1 Level 2 Level 3 Total Investment in RSF Charitable

Asset Management, LLC., net of eliminations $ - $ - $ 31,925,719 $ 31,925,719

Investments:

Cash and cash equivalents 1,740,343 - - 1,740,343 Corporate securities 5,404,507 - - 5,404,507

Government securities 1,734,707 - - 1,734,707 Other - - 4,234,087 4,234,087

$

8,879,557 $ - $ 36,159,806 $ 45,039,363

2009 Level 1 Level 2 Level 3 Total Investment in RSF Charitable

Asset Management, LLC., net of eliminations $ - $ - $ 32,287,563 $ 32,287,563

Investments:

Cash and cash equivalents 553,933 - - 553,933 Corporate securities 5,812,852 - - 5,812,852

Government securities 2,011,129 - - 2,011,129 Other - - 915,772 915,772

$

8,377,914 $ - $ 33,203,335 $ 41,581,249 The changes in the investments classified as Level 3 as of December 31, are as follows:

Balance, January 1, 2010 $ 33,203,335 Purchase/sales, net (1,711,550) Realized/unrealized gains (losses), net 4,668,021 Balance, December 31, 2010 $ 36,159,806 Changes in unrealized gains included in earnings relating to investments at December 31, 2010

$

184,535



December 31, 2010

26

(12) Related Party Transactions

(a) Investments

RSF and affiliates’ investments consist of investments of which certain members of the Board of Trustees are either board members of these Companies and/or serve in an advisory capacity for certain members of the limited liability companies/nonprofit organizations. In addition, one of the board members is a co-owner of one of the borrower’s funds that is outstanding as of December 31, 2010 and 2009 of approximately $2,000,000.

(b) Investors Funds

Certain members of the Board of Trustees and employees participate in the activities of RSF and affiliates by loaning money to RSF and affiliates as notes payable - investor funds. As of December 31, 2010 and 2009, RSF and affiliates owed such Trustees and employees approximately $171,000 and $144,000, respectively, in notes payable - investor funds.

(13) Retirement Plan

RSF and affiliates have established a defined contribution plan and a retirement annuity money purchase covering all RSF and affiliates’ full-time employees. RSF and affiliates’ contribution to the Plan is limited to 7% of the employees’ salaries. For the years ended December 31, 2010 and 2009, RSF and affiliates contributed $115,879 and $139,276, respectively, to the retirement plan.

(14) Supplemental Disclosures of Cash Flow Information

RSF and affiliates made the following cash payments during the years ended December 31:

2010 2009

Net interest on notes payable – investor funds and others $ 960,981

$ 1,086,959

Income Taxes Paid $ 40,594 $ 13,480

(15) Subsequent Events

RSF and affiliates has evaluated subsequent events through April 28, 2011, the date the financial statements were available to be issued.

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