DIOCESE OF NEW JERSEY BISHOP'S DISCRETIONARY FUND...

DIOCESE OF NEW JERSEY BISHOP'SDISCRETIONARY FUND

Financial Statementsand

Supplementary Information

December 31, 2015

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Exhibit XII

DIOCESE OF NEW JERSEY BISHOP'S DISCRETIONARY FUND

TABLE OF CONTENTS

December 31, 2015____________________________________________________________________________

Page Number

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

Financial Statements

Statement of Financial Position.................................................................................................. 3

Statement of Activities.................................................................................................................4

Statement of Cash Flows........................................................................................................... 5

Notes to Financial Statements................................................................................................... 6

Supplementary Information

Schedules of Visitations and Offerings..................................................................................... 12

• AMECAN INSTITLIFE OF

CER11FIEO PuBuc ACCOUNTANTS

• Nea JERSEY SOCiETY OF

CERTiFIED PUBLIC ACCOUNTANTS

• NEWYORESOCETYOF

CERTiFIED PuBLIc AccOuNTANTs

• PENNSYLVANiA NS1TTUTE OF

CERTiFiED Puauc ACCOUNTANTS

• REGISTERED WIN THE PCAOB

1MERCAdIEN, PC. CERTIrILd Public ACCOUrTANTS

INDEPENDENT AUDITORS' REPORT

To the Audit Committee of Diocese of New Jersey Bishop's Discretionary Fund

Report on the Financial Statements

We have audited the accompanying financial statements of the Diocese of New Jersey Bishop's Discretionary Fund (the "Fund") which comprise the statement of financial position as of December 31, 2015, and the related statements of activities and cash flows for the 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 in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. 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 financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

LEADING BY EXAMPLE FOR MORE THAN 50 YEARS

P.O. Box 7648 Princeton, NJ 08543-7648 • 609.689.9700 • Fax 609.689.9720 • Mercadien. corn

INDEPENDENT AUDITORS' REPORT (CONTINUED)

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of the Fund as of December 31, 2015, and the changes in its net assets, and itscash flows for the year then ended in accordance with accounting principles generally accepted in theUnited States of America.

Other Matter

Our audit was conducted for the purpose of forming an opinion on the financial statements as awhole. The supplementary information is presented for purposes of additional analysis and is not arequired part of the financial statements. Such information has not been subjected to the auditingprocedures applied in the audit of the financial statements, and accordingly, we do not express anopinion or provide any assurance on it.

Report on Summarized Comparative Information

We have previously audited the Fund's 2014 financial statements, and we expressed an unmodifiedaudit opinion on those audited financial statements in our report dated September 19, 2015. In ouropinion, the summarized comparative information presented herein as of and for the year endedDecember 31, 2014, is consistent, in all material respects, with the audited financial statements fromwhich it has been derived. Mercadien, P.C.Certified Public Accountants

December 19, 2016

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STATEMENT OF FINANCIAL POSITIONDecember 31, 2015(With Comparative Totals for December 31, 2014)_________________________________________________________________________________

2015 2014

ASSETS

Cash $ 19,071 $ 29,250

Diocesan Investment Trust (3,918.81 shares at $46.63 (2015)

and $50.15 (2014) per share) 182,734 196,528

Dividends receivable - related party (Note E) 10,573 10,699

Total Assets $ 212,378 $ 236,477

NET ASSETS

Unrestricted $ 20,983 $ 31,288

Temporarily restricted 191,395 205,189

Total Net Assets $ 212,378 $ 236,477

See notes to financial statements. 3


STATEMENT OF ACTIVITIESYear Ended December 31, 2015(With Comparative Totals for the Year Ended December 31, 2014)_________________________________________________________________________________

2015 2014

UnrestrictedTemporarilyRestricted Total Total

Revenues and support

Visitations and offerings $ 11,252 $ - $ 11,252 $ 18,350

Other Income 330 - 330 -

Investment (loss) return - (6,035) (6,035) 12,759

Net assets released fromrestrictions 7,759 (7,759) - -

Total revenues and support 19,341 (13,794) 5,547 31,109

Expenses

Contributions and gifts 17,950 - 17,950 15,449

Donations 4,926 - 4,926 8,604

Other 6,770 - 6,770 5,637

Total expenses 29,646 - 29,646 29,690

Change in net assets (10,305) (13,794) (24,099) 1,419

Net assets, beginning of year 31,288 205,189 236,477 235,058

Net assets, end of year $ 20,983 $ 191,395 $ 212,378 $ 236,477



STATEMENT OF CASH FLOWSYear Ended December 31, 2015(With Comparative Totals for the Year Ended December 31, 2014)_________________________________________________________________________________

2015 2014

Cash Flows from Operating Activities

Change in net assets $ (24,099) $ 1,419

Adjustments to reconcile change in net assets to net cashused in operating activities:

Unrealized loss (gain) on investments 13,794 (4,937)

Increase in cash from Dividends receivable - related party 126 1,896

Net cash from operating activities (10,179) (1,622)

Cash, beginning of year 29,250 30,872

Cash, end of year $ 19,071 $ 29,250



NOTES TO FINANCIAL STATEMENTS_________________________________________________________________________________

A. NATURE OF ORGANIZATION

Revenues of the Bishop's Discretionary Fund (the "Fund"), are derived primarily from thefollowing sources:

Visitations and Offerings - receipts from plate offerings and contributions from parishesand missions in connection with visitations and services by the Bishop.

Contributions - receipts from organizations and individuals, including the Bishop, otherthan visitations and offerings.

Temporarily Restricted Investment Return - subject to donor restrictions.

The existence and use of clergy discretionary funds originated with Canon III.9 5(b)(6) of theEpiscopal Church regarding “almoner’s funds.” While the practices described in that canonhave evolved and while it refers specifically to discretionary funds of congregations, currentauthoritative guidance relating it to the administration of revenue and expenditures from theFund is found in the Episcopal Church’s guidelines for administration of discretionary fundsincluded in the Manual of Business Methods in Church Affairs (the "Manual"). Chapter V of theManual, last updated in 2012, states: “The thrust of this Chapter is to deal with funds given toand used by rectors of parishes, but the guidelines generally would also apply to other clergy,including bishops, serving in other church capacities.” In summary, those guidelines include:

The traditional uses of clergy discretionary funds are to relieve the poor of the parishchurch and the larger parish community. Payments for food, rent, utilities, medical bills,and the like for persons in need are always appropriate uses of the fund.

Clergy may also use the fund for expenses related to the exercise of ministry not otherwiseprovided for in the church budget, provided such an understanding is agreed to in generalby the vestry. Attendance at conferences, purchase of books and journals, entertainmentof individuals directly related to the church’s ministry, and membership in groups that arerelated to the exercise of ministry are examples of appropriate discretionary use in thesecircumstances. However, discretionary funds should not be used to sustain the ongoingoperations of the church.

Management has the responsibility to exercise appropriate internal controls to ensurecompliance with these guidelines.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of PresentationThe financial statements of the Fund have been prepared on the accrual basis of accountingin accordance with accounting principles generally accepted in the United States of America("U.S. GAAP"). Net assets and revenues, gains and losses are classified based on theexistence or absence of donor-imposed restrictions.

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B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basis of Presentation (Continued)The Fund is required to report information regarding its financial position and activitiesaccording to three classes of net assets:

Unrestricted net assets - net assets not subject to donor-imposed stipulations, andtherefore are expendable for operating purposes.

Temporarily restricted net assets - net assets subject to donor-imposed stipulations thatwill be met by actions of the Fund and/or by the passage of time.

Permanently restricted net assets - net assets subject to donor-imposed stipulations thatthey be maintained permanently by the Fund. Generally, the donors of these assets permitthe Fund to use all or part of the income earned on related investments for general ordonor-specified purposes. The Fund has no permanently restricted net assets.

Comparative Financial InformationThe financial statements include certain prior year summarized comparative information intotal, but not by net asset class. Such information does not include sufficient detail toconstitute a presentation in conformity with U.S. GAAP. Accordingly, such information shouldbe read in conjunction with the Fund's financial statements for the year ended December 31,2014, from which the summarized information was derived.

CashCash includes highly liquid debt instruments with original maturities of ninety days or less.

Use of EstimatesThe preparation of financial statements in conformity with U.S. GAAP requires management tomake estimates and assumptions that affect certain reported amounts and disclosures.Accordingly, actual results could differ from those estimates.

Investments The Fund carries investments in the Diocesan Investment Trust (the "DIT"), which consists ofmoney market funds, common stocks, fixed income and mutual funds with readilydeterminable fair values, at their fair values in the statement of financial position. Dividendsand unrealized gains and losses are included in the change in net assets in the accompanyingstatement of activities.

Fair Value MeasurementFair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. In determining fairvalue, the Fund uses various methods including market, income and cost approaches. Basedon these approaches, the Fund often utilizes certain assumptions that market participantswould use in pricing the asset or liability, including assumptions about risk and or the risksinherent in the inputs to the valuation technique. These inputs can be readily observable,market corroborated, or generally unobservable inputs. The Fund utilizes valuation techniquesthat maximize the use of observable inputs and minimize the use of unobservable inputs.Based on the observability of the inputs used in the valuation techniques the Fund is requiredto provide the following information according to the fair value hierarchy. The fair valuehierarchy ranks the quality and reliability of the information used to determine fair values.Financial assets and liabilities carried at fair value are classified and disclosed in one of thefollowing three categories:

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Fair Value Measurements (Continued)Level 1 — Quoted prices for identical assets and liabilities traded in active exchange markets.

Level 2 — Observable inputs other than Level 1 including quoted prices for similar assets orliabilities, quoted prices in less active markets, or other observable inputs that can becorroborated by observable market data. Level 2 also includes derivative contracts whosevalue is determined using a pricing model with observable market inputs or can be derivedprincipally from or corroborated by observable market data.

Level 3 — Unobservable inputs supported by little or no market activity for financialinstruments whose value is determined using pricing models, discounted cash flowmethodologies, or similar techniques, as well as instruments for which the determination of fairvalue requires significant management judgment or estimation; also includes observableinputs for nonbinding single dealer quotes not corroborated by observable market data.

Public Support and Revenue RecognitionContributions, visitations and offerings are recognized when the donor makes a promise togive to the Fund that is, in substance, unconditional.

Support that is restricted by the donor is reported as an increase in unrestricted net assets ifthe restriction expires in the reporting period in which the support is recognized. All otherdonor-restricted support is reported as an increase in temporarily restricted net assets. Whena restriction expires, temporarily restricted net assets are reclassified to unrestricted netassets and reported in the statement of activities as net assets released from restrictions.

Income TaxesThe Fund and its related parties and missions are exempt from income taxes under Section501(c)(3) of the Internal Revenue Code and applicable state law. Income generated byactivities that would be considered unrelated to the Fund's mission would be subject to tax,which, if incurred, would be recognized as a current expense. No such tax has beenrecognized as of December 31, 2015 or 2014.

U.S. GAAP requires management to evaluate tax positions taken by the Fund and recognize atax liability if the Fund has taken an uncertain position that more likely than not would not besustained upon examination by taxing authorities. Management evaluated the Fund’s taxpositions and concluded that the Fund had taken no uncertain tax positions that requireadjustment to the financial statements to comply with the provisions of this guidance.

The Fund did not record any interest or penalties on uncertain tax positions in theaccompanying statement of financial position as of December 31, 2015 or 2014 or theaccompanying statement of activities for the years then ended. If the Fund were to incur anyincome tax liability in the future, interest on any income tax liability would be reported asinterest expense and penalties on any income tax liability would be reported as income taxes.

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Recent Accounting PronouncementIn August 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-14,Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-ProfitEntities, which now requires net assets to be presented in two classes, instead of three. Thetwo classes will be net assets with donor restrictions and net assets without donor restrictions. Additional enhanced disclosures will be required to present the amounts and purposes ofboard designations, composition of net assets with donor restrictions and how the restrictionsaffect the use of resources. ASU 2016-14 requires the entity to communicate qualitative andquantitative information on how it manages its liquid resources available to meet the cash flowneeds for general expenditures within one year of the statement of financial position date,including disclosure of the availability of financial assets at the statement of financial positiondate, affected by 1) its nature, 2) external limits imposed by donors, grantors, laws andcontracts with others, and 3) internal limits imposed by governing board decisions. ASU 2016-14 requires reporting of expenses by both their natural and functional classification. ASU2016-14 also requires reporting of investment returns net of external and direct internalinvestment expenses and removes the requirement to disclose the netting of such investmentexpenses. ASU 2016-14 is effective for the Fund for the year ending December 31, 2018, withearly adoption permitted.

Subsequent EventsManagement has evaluated events for potential recognition and disclosure that occurred afterDecember 31, 2015, and through December 19, 2016, the date the financial statements wereavailable to be issued. No items were determined by management to require disclosure.

C. DIOCESAN INVESTMENT TRUST

Investments are shares of the DIT. The fair value of the DIT is based on the fair value of theunderlying pooled investments which are comprised of money market funds, common stocks,fixed income and mutual funds using the net asset value per share ("NAV") practical expedient.

The table below sets forth a summary of changes in the fair value of the Fund's DIT investmentsfor the years ended December 31, 2015 and 2014:

2015 2014Fair value, beginning of year $ 196,528 $ 191,591Investment activity

Unrealized (loss) gain (13,794) 4,937Fair value, end of year $ 182,734 $ 196,528

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C. DIOCESAN INVESTMENT TRUST (CONTINUED)

In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosuresfor Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent).ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investmentsfor which fair value is measured using the net asset value per share practical expedient. ASU2015-07 is effective for the year ending December 31, 2017. The Fund previously elected to adoptthe provisions of ASU 2015-07. In accordance with ASU 2015-07, investments measured at fairvalue using the NAV per share practical expedient have not been classified in the fair valuehierarchy. The following table presents quantitative information about the DIT investments:

Fair Value atDecember 31, 2015

Fair Value atDecember 31, 2014

UnfundedCommitments

RedemptionFrequency(if Currently

Eligible)

RedemptionNoticePeriod

DIT $ 182,734 $ 196,528 $ 0 Daily 1 day

Investments in the DIT are stated at fair value. Fair values and unrealized gains for the yearsended December 31, 2015 and 2014, are summarized as follows:

Fair ValueDecember 31

2015 2014Edward Baker Fund $ 19,037 $ 20,473Mrs. J. Conover Fund 24,757 26,626Estate of Elizabeth Ink 26,521 28,523Merrit Memorial Fund 11,668 12,549Hanford Smith Fund 5,176 5,567Louisa Vought Fund 40,500 43,557Bishop Discretionary Funds 55,075 59,233

$ 182,734 $ 196,528

The following schedule summarizes the investment (loss) return for the years ended December31, 2015 and 2014, and its classification in the statement of activities:

2015 2014Dividend Income $ 7,759 $ 7,822Unrealized gain (13,794) 4,937

Total investment (loss) return $ (6,035) $ 12,759

D. RESTRICTIONS ON NET ASSETS

Temporarily restricted net assets are comprised of the following:

December 31,2015 2014

Fair value of shares in DIT $ 182,734 $ 196,528Hurricane Sandy Relief Assistance 8,661 8,661

$ 191,395 $ 205,189

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D. RESTRICTIONS ON NET ASSETS (CONTINUED)

Fair value of shares in DIT are available for the purposes of the Fund as described in the Natureof Organization disclosure in Note A.

Net assets were released from donor restrictions as follows:

December 31,2015 2014

Purpose restriction accomplishedDiocesan programs $ 7,759 $ 7,822

E. RELATED PARTY

The Administrative Offices of the Diocese of New Jersey (the "Diocese") received dividend incomeon behalf of the Fund and remits payments to the Fund for the dividend income from time to time.The dividends receivable from the Diocese totaled $10,573 and $10,699 as of December 31, 2015and 2014, respectively. Dividend income paid from the Diocese totaled $7,885 and $9,718 for theyears ended December 31, 2015 and 2014, respectively.

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SUPPLEMENTARY INFORMATION


SCHEDULE OF VISITATIONS AND OFFERINGSYear Ended December 31, 2015_________________________________________________________________________________

All Saints' Church Princeton $ 154Christ Church Shrewsbury 312Church of Redeemer Longport 1,411Church of Resurrection Vineland 60Grace Episcopal Pemberton 426Holy Cross North Plainfield 175Merciful Savior Penns Grove 250San Andres Camden 175St. Andrew's Church Mt. Holly 120St. Barnabas' Church Villas 100St. Bartholomew's Church Cherry Hill 216St. Bernard's Church Bernardsville 206St. John's Church Bernardsville 327St. John's Church Little Silver 87St. John's Church Salem 373St. Martin's Church Bridgewater 348St. Mary's Church Clementon 150St. Mary's Church Stone Harbor 170St. Michael's Church Wall 156St. Peter's Church Trenton 400St. Raphael's Church Brick 244St. Simon's Church Mantoloking 975St. Stephens's Church Whiting 268St. Stephen's Church Waretown 305St. Stephen's Church Florence 60St. Thomas' Church Red Bank 237Trinity Church Cranford 300Trinity Church Delran 300Watchung Convocation Watchung 407Donations Various 2,540

$ 11,252



SCHEDULE OF VISITATIONS AND OFFERINGSYear Ended December 31, 2014_________________________________________________________________________________

Advent Church Cape May $ 307All Saints' Church Bay Head 449Calvary Church Flemington 230Christ Church Somers Point 110Christ Church South Amboy 250Christ Church Toms River 250Christ the King Church Willingboro 150Episcopal Church Princeton 51Grace Episcopal Church Pemberton 71Holy Trinity Church Collingswood 380Holy Trinity Church South River 30Holy Trinity Church Wenonah 100St. Augustine's Church Atlantic City 311St. Barnabas' Church Monmouth Junction 118St. David's Church Cranbury 350St. Elisabeth's Chapel Ortley Beach 309St. Elizabeth's Church Elizabeth 100St. George's Church Rumson 498St. James' Church Bradley Beach 400St. James' Church Long Branch 250St. John's Church Salem 327St. John's Church Sewaren 250St. John's Church Somerville 936St. John's Church Bernardsville 705St. John's Church Avon 2,000St. Luke's Church Gladstone 500St. Luke's Church Woodstown 213St. Mark's Church Plainfield 300St. Mark's Church Basking Ridge 57St. Mark's Church Basking Ridge 398St. Mary's Church Point Pleasant 266St. Matthew's Church Pennington 359St. Paul's Church Westfield 631St. Peter's Church Spotswood 173St. Peter's Church Freehold 273St. Stephen's Church Whiting 300St. Stephen's Church Florence 100Trinity Church Matawan 276Trinity Church Princeton 767Donations Various 4,805

$ 18,350


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