FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

Transcription

1 FINANCIAL STATEMENTS

2 CONTENTS Independent Auditors Report Financial Statements Statements of Financial Position... 3 Statements of Activities and Changes in Net Assets... 4 Statements of Cash Flows... 5 Notes to Financial Statements

3 INDEPENDENT AUDITORS REPORT To the Board of Directors of Flora Family Foundation Report on the Financial Statements We have audited the accompanying financial statements of Flora Family Foundation (a nonprofit organization), which comprise the statements of financial position as of December 31, 2016 and 2015, and the related statements of activities and changes in net assets and cash flows for the years 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 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 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. 1 Marcum LLP n 111 West Saint John Street n Suite 1010 n San Jose, California n Phone n Fax n marcumllp.com

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Flora Family Foundation as of December 31, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. San Jose, CA October 30,

5 STATEMENTS OF FINANCIAL POSITION Assets Cash and cash equivalents $ 5,665,901 $ 6,662,536 Other assets 36,205 28,335 Excise tax receivable 247, ,433 Investments 101,053, ,501,017 Total Assets $ 107,003,493 $ 109,439,321 Liabilities and Net Assets Liabilities Accounts payable and accrued expenses $ 82,665 $ 54,276 Grants payable 1,573,500 1,171,000 Deferred excise tax 58,348 60,338 Total Liabilities 1,714,513 1,285,614 Unrestricted Net Assets 105,288, ,153,707 Total Liabilities and Net Assets $ 107,003,493 $ 109,439,321 The accompanying notes are an integral part of these financial statements. 3

6 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS Investment Income Net realized and unrealized gains on investments $ 2,842,496 $ 1,782,298 Interest and dividends 679,940 1,693,996 Investment management fees (70,183) (56,504) Net Investment Income 3,452,253 3,419,790 Expenses Grants approved 5,451,574 5,405,407 General and administrative 847, ,197 Total Expenses 6,298,890 6,224,604 Change in Net Assets Before Federal Excise Tax Expense (2,846,637) (2,804,814) Federal Excise Tax Expense 18,090 23,556 Change in Net Assets (2,864,727) (2,828,370) Unrestricted Net Assets - Beginning 108,153, ,982,077 Unrestricted Net Assets - Ending $ 105,288,980 $ 108,153,707 The accompanying notes are an integral part of these financial statements. 4

7 FLORA FAMILY FOUNDATON STATEMENTS OF CASH FLOWS Cash Flows From Operating Activities Change in net assets $ (2,864,727) $ (2,828,370) Adjustments to reconcile change in net assets to net cash used by operating activities: Net realized and unrealized gains on investments (2,842,496) (1,782,298) Deferred excise taxes (1,990) (28,767) Changes in operating assets and liabilities: Interest receivable and other (7,870) 40,714 Investment proceeds receivable ,732 Excise tax receivable (248) (87,677) Accounts payable and accrued expenses 28,389 (62,246) Grants payable 402, ,500 Net Cash Used in Operating Activities (5,286,442) (3,740,412) Cash Flows From Investing Activities Purchase of investments (6,505,881) (3,286,768) Proceeds from sale or maturity of investments 10,795,688 10,193,077 Net Cash Provided by Investing Activities 4,289,807 6,906,309 Net (Decrease) Increase in Cash and Cash Equivalents (996,635) 3,165,897 Cash and Cash Equivalents - Beginning 6,662,536 3,496,639 Cash and Cash Equivalents - Ending $ 5,665,901 $ 6,662,536 Supplemental Cash Flow Disclosure Federal excise taxes paid $ 20,000 $ 140,000 The accompanying notes are an integral part of these financial statements. 5

8 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PURPOSE AND ORGANIZATION The Flora Family Foundation (the Foundation ) was established in December 1998 by William R. Hewlett with the Statement of Purpose to promote the well-being of people everywhere by supporting selected activities of charitable organizations and institutions as determined by members of the Board of Directors and the Family Council, with a belief that each individual has an obligation to go beyond one s personal interests and be mindful of the broader concerns of humanity. The Foundation has no geographic or subject area constraints upon awarding grants as long as they are consistent with the philanthropic interests of the Board of Directors and the Family Council and comply with the requirements of the Internal Revenue Service. BASIS OF ACCOUNTING The Foundation prepares its financial statements in accordance with accounting principles generally accepted in the United States of America ( U.S. GAAP ), which involves the application of the accrual method of accounting; consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. CLASSIFICATION OF NET ASSETS U.S. GAAP requires that the Foundation report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. The Foundation does not presently have any net assets or activities meeting the definition of temporarily restricted or permanently restricted. ESTIMATES The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. The most significant estimates involve the valuation of non-marketable securities. 6

9 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The carrying amounts of cash and cash equivalents, receivables, and accounts payable approximate fair value because of the short maturity of these instruments. CASH AND CASH EQUIVALENTS The Foundation considers all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. INVESTMENTS Investments traded on national exchanges are recorded at fair value as determined by the exchanges quoted prices; unrealized gains and losses are included in the statements of activities and changes in net assets. The Foundation also has investments with organizations that do not have readily determinable fair values available, and include limited partnerships and limited liability companies (Notes 2 and 3). Consequently, these investments are valued at their estimated fair value as reported to the Foundation by the general partners of the limited partnerships and the investment managers under the supervision of the respective funds Boards of Managers of those limited liability companies. Accordingly, their values are based upon guidelines established by those organizations. Because these investments are not readily marketable, the estimated fair value is subject to uncertainty and, therefore, may differ from the value that would have been used had a ready market for the investment existed, and such differences could be material. The estimated fair values are reviewed and evaluated by the Foundation and the Foundation s Investment Committee. REVENUE RECOGNITION Revenue is recognized in the period in which it is earned. The Foundation derives its revenue from the interest and dividends earned from its investments and from the change in fair value of its investment assets. Realized and unrealized gains (losses) and investment income (losses) derived from investment transactions are included as income in the year earned. 7

10 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) GRANT AWARDS Grant awards of $25,000 or more are recognized when the award is approved by the Board of Directors. If under $25,000, the award is recognized when approved by the President of the Foundation; however, if a Family Council member sponsors a small grant (under $25,000) to an organization on which he/she serves on the Board of Directors, it must be approved by the Board of Directors. ACCRUED ANNUAL LEAVE The Foundation s employees may accumulate up to 20 hours per month of leave time and are entitled to payment of any unused time up to 480 hours upon separation from employment. INCOME TAXES The Foundation is a qualified organization exempt from federal income taxes and state franchise taxes under 501(c)(3) of the Internal Revenue Code ( IRC ) and 23701d of the California Revenue and Taxation Code, respectively. The Foundation also qualifies as a private foundation under the provisions of 509(a) of the IRC, and as such, is subject to either a 1% or 2% federal excise tax on its net investment income based upon the Foundation s history of grants paid. U.S. GAAP requires management to evaluate the tax positions taken and recognize a tax liability if the organization has taken an uncertain tax position that more likely than not would not be sustained upon examination by taxing authorities. Management has analyzed the tax positions taken and has concluded that as of December 31, 2016, there are no uncertain tax positions taken or expected to be taken that would require recognition of a tax liability (or asset) or disclosure in the financial statements. The Foundation is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. CONCENTRATIONS OF RISK Financial instruments which potentially subject the Foundation to concentrations of credit risk consist principally of cash and short-term investments. Cash in bank accounts may, at times, exceed federally-insured limits. The Foundation has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to concentrations. 8

11 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CONCENTRATIONS OF RISK (CONTINUED) The Foundation invests in various investments that are not covered by federal insurance. Investments are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the Foundation s balances and the amounts reported in the statements of financial position. The Foundation and the Foundation s Investment Committee closely monitor all its investments. NOTE 2 - FAIR VALUE MEASUREMENTS The Foundation s financial assets and liabilities carried at fair value have been classified, for disclosure purposes, based on a hierarchy that gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset s or a liability s classification is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows: Level 1 - Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads, and yield curves. Level 3 - Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Foundation s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date. 9

12 NOTE 2 - FAIR VALUE MEASUREMENTS (CONTINUED) The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2016 and Fixed Income Funds: Fixed income funds listed on a national market or exchange are valued at the last sales price, or if there is no sale and the market is still considered active, at the mean of the last bid and asked prices on such exchange. The Foundation s interests in such investments are categorized as money market funds, corporate bond funds and government obligation funds. Such securities are classified within Level 1 of the valuation hierarchy. Alternative Investments: Alternative investments consist of investments in various funds. The funds underlying investments are aggregated into distressed credit, global equities, private credit, private equities, and real assets. The fair value of such investments is determined using the net asset value (NAV) per share as reported by the general partners of the limited partnerships and the investment managers under the supervision of the respective funds Boards of Managers of those limited liability companies. The investments, which are redeemable at or near year-end at NAV per share, are generally classified within Level 3 of the fair value hierarchy. The following tables provide information as of December 31, 2016 and 2015, about the Foundation s financial assets measured at fair value on a recurring basis: Assets at Fair Value as of December 31, 2016 Level 1 Level 2 Level 3 Total Fixed income $ 21,979,806 $ -- $ -- $ 21,979,806 Global equity 10,916, ,916,932 Real assets 1,611, ,611,593 Total Assets in the Fair Value Hierarchy $ 34,508,331 $ -- $ -- 34,508,331 Investments measured at NAV * 66,545,375 Total Investments at Fair Value $ 101,053,706 * see page 11 10

13 NOTE 2 - FAIR VALUE MEASUREMENTS (CONTINUED) Assets at Fair Value as of December 31, 2015 Level 1 Level 2 Level 3 Total Fixed income $ 21,249,001 $ -- $ -- $ 21,249,001 Global equity 13,781, ,781,176 Real assets 1,485, ,485,336 Total Assets in the Fair Value Hierarchy $ 36,515,513 $ -- $ -- 36,515,513 Investments measured at NAV * 65,985,504 Total Investments at Fair Value $ 102,501,017 *Certain investments that were measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line item amounts presented in the statements of financial position. The following table summarizes the investments whose net asset value approximates fair value, the related unfunded commitments, and redemption restrictions at December 31, 2016: Description Total Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Distressed credit: Commonfund Global Distressed Investors, L.L.C. $ 538,113 $ 305,200 N/A N/A Davidson Kempner Distressed Opportunities International, Ltd. 4,385, N/A N/A Farallon Capital Institutional Partners, L.P. 4,246, N/A N/A Kildare European Partners II -- 3,000,000 N/A N/A Lone Star Fund V (U.S.), L.P. 850, N/A N/A Lone Star Fund VI (U.S.), L.P. 430, ,572 N/A N/A Lone Star Fund X (8,023) 2,000,000 N/A N/A Lone Star U.S. Investments, L.P. 213, N/A N/A Torchlight Value Fund, Inc. 1,957, N/A N/A 12,612,859 5,704,772 N/A - Not applicable, these funds are in private organizations with no redemption eligibility. 11

14 NOTE 2 - FAIR VALUE MEASUREMENTS (CONTINUED) Description December 31, 2016 Total Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Global equity: Parvus European Opportunities Fund $ 3,166,467 $ -- N/A N/A The Children s Investment Fund 14,107, Tri-annually 120 days ValueAct Capital International I, L.P. 4,385, N/A N/A 21,658, Private credit: Barak Impact Finance Segregated Portfolio 615, N/A N/A Colchis P2P Income Fund, Ltd. 542, N/A N/A 1,157, Private equity: Allied Inventors Fund, LLC 242,389 74,843 N/A N/A ATA Ventures I, L.P. 14,084 30,000 N/A N/A Axiom Asia Private Capital Fund I, L.P. 775, ,966 N/A N/A Axiom Asia Private Capital Fund II, L.P. 911, ,984 N/A N/A Clean Growth Fund III, L.P. 422, ,000 N/A N/A Commonfund: Capital Private Equity Partners VI, L.P. 1,956, ,750 N/A N/A Capital Private Equity Partners VII, L.P. 2,051, ,250 N/A N/A Capital Private Equity Partners VIII, L.P. 336, ,500 N/A N/A Capital International Partners V, L.P. 1,397, ,750 N/A N/A Capital International Partners VI, L.P. 1,036, ,000 N/A N/A Capital International Partners VII, L.P. 337, ,000 N/A N/A Capital Venture Partners VII, L.P. 1,196,751 51,000 N/A N/A Capital Venture Partners VIII, L.P. 1,096,299 62,500 N/A N/A Capital Venture Partners IX, L.P. 802,437 41,250 N/A N/A Elevar Equity III, L.P. 112, ,750 N/A N/A IIF Financial Investor Fund II, L.L.C. 797, ,650 N/A N/A Legacy Venture III, L.L.C. 2,297, ,000 N/A N/A Legacy Venture IV, L.L.C. 4,185, ,000 N/A N/A Legacy Venture V (QP), L.L.C. 2,035,085 80,000 N/A N/A Legacy Ventures VIII, LLC 53, ,000 N/A N/A New Energy Capital 205, ,312 N/A N/A Rethink Education II, L.P. 38, ,316 N/A N/A SJF Ventures IV 32, ,000 N/A N/A TPG Alternative and Renewable Technologies Partners, L.P. 122, ,764 N/A N/A 22,458,168 4,591,585 N/A - Not applicable, these funds are in private organizations with no redemption eligibility. 12

15 NOTE 2 - FAIR VALUE MEASUREMENTS (CONTINUED) Description December 31, 2016 Total Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Real assets: Alliance Fund II, L.P. $ 50,948 $ 200,000 N/A N/A Commonfund: Capital Natural Resources Partners VI, L.P. 737,441 32,250 N/A N/A Capital Natural Resources Partners VII, L.P. 786,959 95,191 N/A N/A Capital Natural Resources Partners VIII, L.P. 348,328 44,982 N/A N/A Capital Natural Resources Partners IX, L.P. 348, ,750 N/A N/A Capital Natural Resources Partners X, L.P. 112, ,000 N/A N/A Global Energy Efficiency and Renewable Energy Fund 315, ,113 N/A N/A Lone Star Real Estate Fund (U.S.), L.P. 123, ,223 N/A N/A Merit Energy Partners F-II, L.P. 515, N/A N/A Metropolitan Real Estate Partners: II, L.P. 782, ,000 N/A N/A III-B, L.P. 778,932 50,000 N/A N/A IV-A, L.P. 675,616 41,250 N/A N/A VII, L.P. 239,848 44,884 N/A N/A IX, L.P. 376,467 66,551 N/A N/A Europe, L.P. 104,495 37,003 N/A N/A Global I, L.L.C. 545, ,330 N/A N/A Global II, L.P. 729, ,586 N/A N/A Global III, L.P. 240,821 52,979 N/A N/A Global V, L.P. 318,230 70,565 N/A N/A SAF Investor, L.P. 215, ,540 N/A N/A TCI Real Estate Partners II 178,185 2,828,626 N/A N/A The Lyme Forest Fund IV TE, L.P. 134, ,500 N/A N/A 8,657,916 5,839,323 Total $ 66,545,375 $ 16,135,680 N/A - Not applicable, these funds are in private organizations with no redemption eligibility. 13

16 NOTE 2 - FAIR VALUE MEASUREMENTS (CONTINUED) The following table summarizes the investments whose net asset value approximates fair value, the related unfunded commitments, and redemption restrictions at December 31, 2015: Description Total Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Distressed credit: Commonfund Global Distressed Investors, L.L.C. $ 648,329 $ 305,200 N/A N/A Davidson Kempner Distressed Opportunities International, Ltd. 3,593, N/A N/A Farallon Capital Institutional Partners, L.P. 4,089, N/A N/A Lone Star Fund V (U.S.), L.P. 1,279, N/A N/A Lone Star Fund VI (U.S.), L.P. 420, ,572 N/A N/A Lone Star U.S. Investments, L.P. 219, N/A N/A Torchlight Value Fund, Inc. 1,886, N/A N/A 12,137, ,772 Global equity: The Children s Investment Fund 12,470, Tri-annually 120 days ValueAct Capital International I, L.P. 4,220, N/A N/A 16,690, Private credit: Barak Impact Finance Segregated Portfolio 571, N/A N/A Colchis P2P Income Fund, Ltd. 511, N/A N/A 1,082, Private equity: ATA Ventures I, L.P. 1,412,040 30,000 N/A N/A Axiom Asia Private Capital Fund I, L.P. 1,221, ,966 N/A N/A Axiom Asia Private Capital Fund II, L.P. 1,035, ,129 N/A N/A Clean Growth Fund III, L.P. 230, ,000 N/A N/A Commonfund: Capital Private Equity Partners VI, L.P. 2,482, ,250 N/A N/A Capital Private Equity Partners VII, L.P. 2,139, ,000 N/A N/A Capital Private Equity Partners VIII, L.P. 276, ,000 N/A N/A Capital International Partners V, L.P. 1,845, ,750 N/A N/A Capital International Partners VI, L.P. 1,188, ,000 N/A N/A Capital International Partners VII, L.P. 303, ,000 N/A N/A Capital Venture Partners VII, L.P. 1,568,821 86,000 N/A N/A Capital Venture Partners VIII, L.P. 1,264,286 80,000 N/A N/A Capital Venture Partners IX, L.P. 776,091 58,750 N/A N/A Elevar Equity III, L.P. 45, ,500 N/A N/A IIF Financial Investor Fund II, L.L.C. 1,062, ,650 N/A N/A N/A - Not applicable, these funds are in private organizations with no redemption eligibility. 14

17 NOTE 2 - FAIR VALUE MEASUREMENTS (CONTINUED) Description December 31, 2015 Total Fair Value Unfunded Commitments Redemption Frequency Redemption Notice Period Private equity (continued): Allied Inventors Fund, LLC $ 240,878 $ 270,066 N/A N/A Legacy Venture III, L.L.C. 2,587, ,000 N/A N/A Legacy Venture IV, L.L.C. 4,511, ,000 N/A N/A Legacy Venture V (QP), L.L.C. 2,151, ,000 N/A N/A Rethink Education II, L.P. 32, ,789 N/A N/A TPG Alternative and Renewable Technologies Partners, L.P. 101, ,034 N/A N/A 26,476,413 3,955,884 Real assets: Alliance Fund II, L.P. 21, ,000 N/A N/A Commonfund: Capital Natural Resources Partners VI, L.P. 731,391 32,250 N/A N/A Capital Natural Resources Partners VII, L.P. 726, ,750 N/A N/A Capital Natural Resources Partners VIII, L.P. 324,360 66,257 N/A N/A Capital Natural Resources Partners IX, L.P. 179, ,500 N/A N/A Capital Natural Resources Partners X, L.P. 1, ,000 N/A N/A Global Energy Efficiency and Renewable Energy Fund 138, ,205 N/A N/A Lone Star Real Estate Fund (U.S.), L.P. 134, ,223 N/A N/A Merit Energy Partners F-II, L.P. 816, N/A N/A Metropolitan Real Estate Partners: II, L.P. 957, ,000 N/A N/A III-B, L.P. 1,101,508 50,000 N/A N/A IV-A, L.P. 965,652 41,250 N/A N/A VII, L.P. 322,912 59,079 N/A N/A IX, L.P. 313, ,558 N/A N/A Europe, L.P. 130,924 42,503 N/A N/A Global I, L.L.C. 870, ,330 N/A N/A Global II, L.P. 942, ,961 N/A N/A Global III, L.P. 308,404 66,065 N/A N/A Global V, L.P. 322, ,119 N/A N/A SAF Investor, L.P. 158, ,110 N/A N/A The Lyme Forest Fund IV TE, L.P. 129, ,435 N/A N/A 9,598,374 3,723,595 Total $ 65,985,504 $ 8,384,251 N/A - Not applicable, these funds are in private organizations with no redemption eligibility. 15

18 NOTE 3 - INVESTMENTS Investments consist of the following at December 31: Distressed credit: Commonfund Global Distressed Investors, L.L.C. $ 538,113 $ 648,329 Davidson Kempner Distressed Opportunities International, Ltd. 4,385,186 3,593,562 Farallon Capital Institutional Partners, L.P. 4,246,212 4,089,408 Lone Star Fund V (U.S.), L.P. 850,413 1,279,203 Lone Star Fund VI (U.S.), L.P. 430, ,933 Lone Star Fund X (8,023) -- Lone Star U.S. Investments, L.P. 213, ,557 Torchlight Value Fund, Inc. 1,957,522 1,886,925 12,612,859 12,137,917 Global equity: Aperio 1,412, ,371 Artisan International Fund -- 3,902,520 Frontier MFG Global Equity Fund 9,504,344 9,128,285 The Children s Investment Fund 14,107,000 12,470,000 Parvus European Opportunities Fund 3,166, ValueAct Capital International I, L.P. 4,385,030 4,220,149 32,575,429 30,471,325 Private credit: Barak Impact Finance Segregated Portfolio 615, ,600 Colchis P2P Income Fund, Ltd. 542, ,051 1,157,935 1,082,651 16

19 NOTE 3 - INVESTMENTS (CONTINUED) Fixed income: Blackrock U.S. Debt Fund B $ 13,422,468 $ 13,069,531 Latino Credit Union 204, ,048 Pimco Real Return Bond Fund 7,620,623 7,261,686 Self Help Credit Union 204, ,636 TIAA-CREF Social Choice Bond Fund 528, ,100 21,979,806 21,249,001 Private equity: ATA Ventures I, L.P. 14,084 1,412,040 Axiom Asia Private Capital Fund I, L.P. 775,995 1,221,635 Axiom Asia Private Capital Fund II, L.P. 911,568 1,035,007 Clean Growth Fund III, L.P. 422, ,086 Commonfund Capital Private Equity Partners VI, L.P. 1,956,300 2,482,480 Commonfund Capital Private Equity Partners VII, L.P. 2,051,301 2,139,504 Commonfund Capital Private Equity Partners VIII, L.P. 336, ,235 Commonfund Capital International Partners V, L.P. 1,397,267 1,845,982 Commonfund Capital International Partners VI, L.P. 1,036,592 1,188,060 Commonfund Capital International Partners VII, L.P. 337, ,507 Commonfund Capital Venture Partners VII, L.P. 1,196,751 1,568,821 Commonfund Capital Venture Partners VIII, L.P. 1,096,299 1,264,286 Commonfund Capital Venture Partners IX, L.P. 802, ,091 Elevar Equity III, L.P. 112,224 45,660 IIF Financial Investor Fund II, L.L.C. 797,506 1,062,467 Allied Inventors Fund, LLC 242, ,878 Legacy Venture III, L.L.C. 2,297,671 2,587,409 Legacy Venture IV, L.L.C. 4,185,851 4,511,114 Legacy Venture V (QP), L.L.C. 2,035,085 2,151,442 Legacy Venture VIII, L.L.C. 53, New Energy Capital 205, SJF Ventures IV 32, Rethink Education II, L.P. 38,386 32,682 TPG Alternative and Renewable Technologies Partners, L.P. 122, ,027 22,458,168 26,476,413 17

20 NOTE 3 - INVESTMENTS (CONTINUED) Real assets: Alliance Fund II, L.P. $ 50,948 $ 21,943 Commonfund Capital Natural Resource Partners VI, L.P. 737, ,391 Commonfund Capital Natural Resource Partners VII, L.P. 786, ,246 Commonfund Capital Natural Resource Partners VIII, L.P. 348, ,360 Commonfund Capital Natural Resource Partners IX, L.P. 348, ,239 Commonfund Capital Natural Resource Partners X, L.P. 112,265 1,974 Global Energy Efficiency and Renewable Energy Fund 315, ,343 Lone Star Real Estate Fund (U.S.), L.P. 123, ,212 Merit Energy Partners F-II, L.P. 515, ,942 Metropolitan Real Estate Partners II, L.P. 782, ,332 Metropolitan Real Estate Partners III-B, L.P. 778,932 1,101,508 Metropolitan Real Estate Partners IV-A, L.P. 675, ,652 Metropolitan Real Estate Partners VII, L.P. 239, ,912 Metropolitan Real Estate Partners IX, L.P. 376, ,957 Metropolitan Real Estate Partners Europe, L.P. 104, ,924 Metropolitan Real Estate Partners Global I, L.L.C. 545, ,644 Metropolitan Real Estate Partners Global II, L.P. 729, ,605 Metropolitan Real Estate Partners Global III, L.P. 240, ,404 Metropolitan Real Estate Partners Global V, L.P. 318, ,029 SAF Investor, L.P. 215, ,050 TCI Real Estate Partners II 178, The Lyme Forest Fund IV TE, L.P. 134, ,707 Vanguard REIT Fund 1,611,593 1,485,336 10,269,509 11,083,710 Total $ 101,053,706 $ 102,501,017 18

21 NOTE 4 - FEDERAL EXCISE TAX The Foundation prudently pays estimated federal excise taxes during the year at the 2% rate. The provision for federal excise tax was calculated at 1% for the years ended December 31, 2016 and Deferred excise taxes arise primarily from the difference in the tax accounting basis of investments and this temporary difference is provided at the 1% tax rate at December 31, 2016 and The change in deferred excise taxes is due to the net market fluctuations in investments in 2016 and The components of the federal excise tax expense (benefit) are as follows: Current federal excise tax expense $ 19,752 $ 52,323 Deferred federal excise tax (benefit) liability (1,662) (28,767) Total $ 18,090 $ 23,556 The Tax Reform Act of 1984 requires that certain minimum distributions be made in accordance with a specified formula. For the years ended December 31, 2016 and 2015, the Foundation made charitable distributions in excess of the required minimum. As of December 31, 2016, the Foundation has estimated carry forwards to meet future charitable distribution requirements which expire as follows: For the Years Ending December 31, Amount 2017 $ , , , ,884 Total $ 2,468,028 19

22 NOTE 5 - RELATED PARTY TRANSACTIONS The Foundation has a Conflict of Interest Policy, whereby Directors, Family Council members, and employees are expected to make full disclosure whenever a prospective grantee is one with which they have a close professional or family relationship. The individual is expected to leave the room, and abstain from the decision to be made relating to that grant. All members are prohibited from benefiting from any grants awarded by the Foundation. Various Board Directors of the Foundation are also board members or officers of organizations that have been awarded grants from the Foundation. For the year ended December 31, 2016, $110,000 was paid to three separate organizations and for the year ended December 31, 2015, $160,500 was paid to six separate organizations, respectively, of which a Foundation Board Director was also a board member or officer of the grantee. The Foundation also has a matching gift policy that will match, at the individual s choice, $1 for every $1, $2 for every $1, or $3 for every $1 donated by directors, employees, or members of the Family Council up to a maximum of $15,000 for each individual. For the years ended December 31, 2016 and 2015, the Foundation made $286,140 and $223,704, respectively, of such matching gifts. NOTE 6 - RETIREMENT PLAN The Foundation has a defined contribution plan (the Plan ) established under IRC 403(b). The Plan covers all employees who work 50% of full-time or more. The Foundation contributes up to 15% of each eligible employee s annual compensation. For the years ended December 31, 2016 and 2015, the Foundation contributed $54,527 and $52,695, respectively, to the Plan. 20

23 NOTE 7 - COMMITMENTS GRANTS The following table lists grant awards by year authorized and the year that they are expected be paid: For the Years Ending December 31, Total 2013 $ 7,500 $ -- $ 7, , , ,163,500 98,000 1,261,500 Total $ 1,475,500 $ 98,000 $ 1,573,500 The Foundation does not discount grant awards payable over more than one year as the majority of the grants awarded are expected to be paid within one year. LEASE The Foundation has a lease agreement with the William and Flora Hewlett Foundation for its office space at a monthly rent of $1,400 through April The following is a schedule of future minimum lease commitments as of December 31: For the Years Ending December 31, Amount 2017 $ 16, ,600 Total $ 22,400 Rent expense for the years ended December 31, 2016 and 2015, was $16,800 each year. NOTE 8 - SUBSEQUENT EVENTS The Foundation has evaluated all subsequent events through October 30, 2017, the date the financial statements were available to be issued. No events requiring recognition or disclosure in the financial statements have been identified. 21