ESKENAZI HEALTH FOUNDATION, INC. FINANCIAL STATEMENTS December 31, 2012 and 2011

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1 FINANCIAL STATEMENTS December 31, 2012 and 2011

2 Indianapolis, Indiana FINANCIAL STATEMENTS December 31, 2012 and 2011 CONTENTS INDEPENDENT AUDITOR S REPORT... 1 FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION... 2 STATEMENTS OF ACTIVITIES... 3 STATEMENTS OF CASH FLOWS

3 INDEPENDENT AUDITOR S REPORT Board of Directors Eskenazi Health Foundation, Inc. Indianapolis, Indiana Report on the Financial Statements We have audited the accompanying financial statements of Eskenazi Health Foundation, Inc. (Foundation), which comprise the statements of financial position as of December 31, 2012 and 2011, the related statements of activities 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. Auditor s 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 auditor s 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Eskenazi Health Foundation, Inc. as of December 31, 2012 and 2011, 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. Indianapolis, Indiana May 17, 2013 Crowe Horwath LLP 1.

4 STATEMENTS OF FINANCIAL POSITION December 31, 2012 and ASSETS Cash and cash equivalents $ 4,581,194 $ 5,619,110 Certificates of deposit 256, ,527 Other assets 56,495 51,253 Contributions and grants receivable, net (Note 2) 53,566,661 46,125,006 Investments Foundation 8,511,981 7,495,153 Agency funds - Midtown (Note 6) 4,374,860 4,017,344 Total investments (Note 3) 12,886,841 11,512,497 Beneficial interest in assets held by Central Indiana Community Foundation (Note 4) 2,034,227 1,835,796 Beneficial interest in perpetual trust (Note 5) 764, ,547 $ 74,146,493 $ 66,147,736 LIABILITIES AND NET ASSETS Liabilities Accounts and scholarships payable $ 933,575 $ 429,273 Agency funds - Midtown (Note 6) 4,374,860 4,017,344 Total liabilities 5,308,435 4,446,617 Net assets Unrestricted 6,133,839 4,013,590 Temporarily restricted (Note 7) 59,190,845 54,189,881 Permanently restricted (Note 9) 3,513,374 3,497,648 Total net assets 68,838,058 61,701,119 $ 74,146,493 $ 66,147,736 See accompanying notes to financial statements 2.

5 STATEMENTS OF ACTIVITIES Year ended December 31, 2012 with summary totals for 2011 Temporarily Permanently Unrestricted Restricted Restricted Total Total Revenues Contributions and grants $ 2,001,118 $ 13,852,715 $ - $ 15,853,833 $ 46,355,740 Special events, net 83, , ,646 Administrative fees 37, ,000 35,648 Interest income, net of fees of $51,948 98, , , ,400 Realized gain on sale of investments 31,095 47,640-78,735 1,497,073 Change in value of interest in perpetual trust ,726 15,726 (40,517) Net assets released from restriction (Note 8) 9,168,392 (9,168,392) Total revenues 11,419,555 4,838,431 15,726 16,273,712 48,384,990 Expenses Program services: Grants and program support to the Corporation 7,809, ,809,168 17,863,047 Administrative support of Corporation programs 38, ,586 40,408 Scholarships 213, , ,501 Total program services 8,061, ,061,592 18,085,956 Fund raising 874, ,168 1,114,710 General and administrative 813, , ,049 Total expenses 9,749, ,749,183 20,096,715 Change in net assets before unrealized gain (loss) on investments 1,670,372 4,838,431 15,726 6,524,529 28,288,275 Unrealized gain (loss) on investments 449, , ,410 (1,534,820) Change in net assets 2,120,249 5,000,964 15,726 7,136,939 26,753,455 Net assets, beginning of year 4,013,590 54,189,881 3,497,648 61,701,119 34,947,664 Net assets, end of year $ 6,133,839 $ 59,190,845 $ 3,513,374 $ 68,838,058 $ 61,701,119 See accompanying notes to financial statements 3.

6 STATEMENTS OF ACTIVITIES Year ended December 31, 2011 Temporarily Permanently 2011 Unrestricted Restricted Restricted Total Revenues Contributions and grants $ 1,848,212 $ 44,507,528 $ - $ 46,355,740 Special events, net 129, ,646 Administrative fees 35, ,648 Interest income, net of fees of $63, , , ,400 Realized gain on sale of investments 61,676 1,435,397-1,497,073 Change in value of interest in perpetual trust - - (40,517) (40,517) Net assets released from restriction (Note 8) 18,482,474 (18,482,474) - - Total revenues 20,753,388 27,672,119 (40,517) 48,384,990 Expenses Program services: Grants and program support to the Corporation 17,863, ,863,047 Administrative support of Corporation programs 40, ,408 Scholarships 182, ,501 Total program services 18,085, ,085,956 Fund raising 1,114, ,114,710 General and administrative 896, ,049 Total expenses 20,096, ,096,715 Change in net assets before unrealized loss on investments 656,673 27,672,119 (40,517) 28,288,275 Unrealized loss on investments (221,499) (1,313,321) - (1,534,820) Change in net assets 435,174 26,358,798 (40,517) 26,753,455 Net assets, beginning of year 3,578,416 27,831,083 3,538,165 34,947,664 Net assets, end of year $ 4,013,590 $ 54,189,881 $ 3,497,648 $ 61,701,119 See accompanying notes to financial statements 4.

7 STATEMENTS OF CASH FLOWS Cash flows from operating activities Change in net assets $ 7,136,939 $ 26,753,455 Adjustments to reconcile change in net assets to net cash provided by operating activities: Realized gain on sale of investments (78,735) (1,497,073) Unrealized (gain) loss on investments (612,410) 1,534,820 Stock contributions 124,519 91,065 Change in value of interest in perpetual trust (15,726) 40,517 Depreciation expense 8,675 8,063 Bad debt expense 32,724 28,392 Changes in other assets and liabilities: Contributions receivable (7,474,379) (37,147,406) Advance to Wishard Health Services - 176,526 Interest receivable and other assets (13,917) 19,719 Accounts payable 504,302 (472,593) Agency funds 357,516 (149,518) Net cash from operating activities (30,492) (10,614,033) Cash flows from investing activities Purchase of certificates of deposit (256,802) (255,527) Purchase of investments (2,793,066) (3,731,604) Proceeds from maturity of certificates of deposit 255, ,750 Proceeds from sale of investments 1,786,917 18,544,266 Net cash from investing activities (1,007,424) 14,810,885 Net increase (decrease) in cash and cash equivalents (1,037,916) 4,196,852 Cash and cash equivalents at beginning of year 5,619,110 1,422,258 Cash and cash equivalents at end of year $ 4,581,194 $ 5,619,110 Supplemental schedule of non-cash activities: In-kind contributions $ 93,236 $ 88,934 Stock contributions 124,519 91,065 See accompanying notes to financial statements 5.

8 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Organization: On February 19, 1985 the Indianapolis Health Institute, Inc., a not-for-profit foundation, was formed exclusively for the benefit of the Health and Hospital Corporation of Marion County, Indiana (Corporation). Effective December 14, 1990, the Indianapolis Health Institute, Inc. changed its name to Wishard Memorial Foundation, Inc. Subsequently, effective September 13, 2011, the Wishard Memorial Foundation, Inc. changed its name to Eskenazi Health Foundation, Inc. (Foundation) in recognition of Sidney and Lois Eskenazi s gift to the Foundation. The activities of the Foundation include the raising, administration and expenditure of funds for Wishard Health Services (Wishard), which supports programs of health care and health services in Marion County and is a part of the Corporation. The Foundation creates relationships with donors, raises funds, engages volunteers and manages resources so that Wishard may improve the quality of life for patients regardless of their ability to pay. In 2009, the Foundation began preparations for a campaign to raise funds for a new hospital facility (Sidney & Lois Eskenazi Hospital). The campaign will continue through The Foundation is also responsible for ongoing efforts that include fund raising for hospital centers such as Richard M. Fairbanks Burn Center and programs which provide services to patients such as Prescription for Hope and EMBRACE. Basis of Accounting: The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). Revenues are recognized when earned and expenses are recognized when incurred. GAAP requires, among other things, that assets that are held on the behalf of another organization are to be recorded as a liability when the assets are received from the donor if the beneficial organization maintains variance power over the funds. The Foundation has been granted variance power with respect to the transfer of, or donation of certain assets, which are held for the benefit of the Corporation. Therefore, the Foundation has not recorded a liability on the statement of financial position and accordingly, these funds are included on the statement of financial position as net assets. Funds held on behalf of Midtown, which are recorded as a liability on the statement of financial position, are discussed in Note 6. Income Taxes: The Internal Revenue Service (IRS) has determined that the Foundation is a tax-exempt organization as defined in Section 501(c)(3) of the Internal Revenue Code and is exempt from federal and state income taxes on related income. The Foundation has been classified as an organization that is not a private foundation under Section 509(a) of the Code. In 2012, the IRS further recognized the Foundation as a public charity as described in sections 509 (a)(1) and 170(b)(1)(A)(vi) of the Code. Current accounting standards require the Foundation to disclose the amount of potential benefit or obligation to be realized as a result of an examination performed by a taxing authority. For the years ended December 31, 2012 and 2011, management has determined that the Foundation does not have any tax positions that result in any uncertainties regarding the possible impact on the Foundation s financial statements. The Foundation is no longer subject to examination by taxing authorities for years before The Foundation does not expect the total amount of unrecognized tax benefits to significantly change in the next 12 months. The Foundation recognizes interest and/or penalties related to income tax matters in income tax expense. The Foundation did not have any amounts accrued for interest and penalties at December 31, 2012 and

9 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates in Preparation of Financial Statements: The preparation of financial statements in conformity with 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 amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Functional Allocation of Expenses: The costs of supporting the various programs and other activities have been summarized on a functional basis in the statement of activities. Certain costs have been allocated among the program, management and general, and fund raising categories based on the actual direct expenditures and cost allocations based upon estimates by management. Cash and Cash Equivalents: Cash includes cash on hand and less than 90 day deposit balances with banks. All certificates of deposit are reported separately from cash and investments. Concentration of Credit Risk: The Foundation maintains cash balances in financial institutions which, at times, may exceed the $250,000 amount insured by the Federal Deposit Insurance Corporation (FDIC). Additionally, the Foundation holds funds at financial institutions in non-interest bearing accounts that are FDIC insured in full. Also, the Foundation maintains accounts with a stock brokerage firm which contains cash and securities. Balances are protected up to $500,000 (with a limit of $250,000 for cash) by the Securities Investor Protection Corporation (SIPC). Contributions and Grants Receivable: Contributions and grants receivable that are expected to be collected within one year are recorded at net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The discounts on those amounts are computed using a discount rate commensurate with the risks involved. Amortization of discounts is included in contribution revenue. Conditional promises to give are not included as support until the conditions are substantially met. Allowance for Uncollectible Contributions: The allowance for uncollectible contributions receivable is determined by management based upon the Foundation s historical losses, specific circumstances and economic conditions. Management of the Foundation has estimated that an allowance was not needed at December 31, 2012 and Investments: Investments are reported at their fair value based on quoted market prices in the statements of financial position. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. These investments are initially recorded at cost if they were purchased or at their fair value on the date of the gift if they were received as a donation. Realized and unrealized gains and losses are included in the statement of activities. Net Asset Classifications: GAAP requires, among other things, that the financial statements report the changes in and total of each of the net asset classes, based upon donor restrictions, as applicable. Net assets are to be classified as unrestricted, temporarily restricted, and permanently restricted. The following classes of net assets are used to reflect donor intent: Unrestricted Net Assets - The unrestricted net asset class includes general assets and liabilities of the Foundation. The unrestricted net assets may be used to support the Foundation s purposes and operations. 7.

10 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Temporarily Restricted Net Assets - The temporarily restricted net asset class includes assets of the Foundation with explicit donor-imposed restrictions that have not been met as to specified purpose, or to later periods of time or after specified dates. Temporarily restricted net assets released from restriction during the year ended December 31, 2012 and 2011 were $9,168,392 and $18,482,474, respectively. The Corporation is closely involved in determining the appropriate usage of these restricted funds. Permanently Restricted Net Assets - The permanently restricted net asset class includes assets of the Foundation which the donor has stipulated be maintained in perpetuity. Donor-imposed restrictions limiting the use of the assets or its economic benefit neither expire with the passage of time nor can be removed by satisfying a specific purpose. Support and Revenue: All contributions are considered available for unrestricted use unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted or permanently restricted support. If a restriction is fulfilled in the same time period in which the contribution is received, the contribution is reported as temporarily restricted and the fulfillment of the restriction is reported as a release of restriction. In-Kind Contributions: The Foundation receives in-kind contributions from the Corporation and various other donors. The Foundation records the estimated fair value of in-kind contributions as a contribution and expense in its financial statements. For the years ended December 31, 2012 and 2011, these amounted to $93,236 and $88,934. Advertising Costs: Advertising costs paid for the benefit of the Corporation and to support the Foundation s operations are expensed when incurred. The advertising costs, supported by sponsorships, for the year ended December 31, 2012 and 2011 were $113,766 and $90,775, respectively. Reclassifications: Certain reclassifications have been made to present last year s financial statements on a basis comparable to the current year s financial statements. These reclassifications had no effect on the change in net assets or total net assets. Subsequent Events: Management has performed an analysis of the activities and transactions subsequent to December 31, 2012, to determine the need for any adjustments or disclosures to the audited financial statements for the year ended December 31, Management has performed their analysis through May 17, 2013, the date the financial statements were available to be issued. 8.

11 NOTE 2 - CONTRIBUTIONS AND GRANTS RECEIVABLE Contributions and grants receivable consist of the following at December 31: Contributions and grants receivable $ 60,860,916 $ 53,854,723 Less present value discount (7,294,255) (7,729,717) $ 53,566,661 $ 46,125,006 Amounts due in: Past due $ 39,846 $ 7,496 Less than one year 9,114,091 4,881,525 One to five years 17,321,978 13,715,702 More than five years 34,385,000 35,250,000 60,860,916 53,854,723 Less present value discount (7,294,255) (7,729,717) $ 53,566,661 $ 46,125,006 Qualifying contributions receivable pledged in 2012 and 2011 were discounted using a discount rate of 1.5%, and contributions receivable pledged prior to 2011 were discounted using a discount rate of 3.4%. The Foundation had contributions and grants receivable from three contributors that represented approximately $52,330,000, or 86%, of gross contributions and grants receivable at December 31, One of these contributions is a five-year grant from the Corporation that will be used to support the operations of the Foundation from 2013 through The Foundation had contributions and grants receivable from two contributors that represented $44,250,000, or 82%, of gross contributions and grants receivable at December 31, NOTE 3 - INVESTMENTS The Foundation s investments at fair value consisted of the following as of December 31, 2012 and 2011: Money markets for Midtown $ 318,719 $ 56,192 Accrued interest receivable 38,999 38,620 Corporate and government bonds 4,225,294 3,952,831 Mutual funds 6,192,378 5,621,395 Common stocks 1,549,759 1,336,559 Beneficial interest in funds held by CICF for Midtown 561, ,900 Totals $ 12,886,841 $ 11,512,497 9.

12 NOTE 4 - BENEFICIAL INTEREST IN ASSETS HELD BY THE CENTRAL INDIANA COMMUNITY FOUNDATION The Foundation previously transferred assets to the Central Indiana Community Foundation (CICF) for investment in CICF's pooled endowment. Variance power was transferred to CICF. The Foundation may withdraw up to 5% of the fund's balance plus any prior years carryover, as long as the withdrawal would not lower the fund's balance below the original corpus. This asset transfer is recorded in accordance with GAAP, and accordingly is recorded as a beneficial interest in assets held by CICF in the accompanying statements of financial position. The fair value of this beneficial interest is $2,034,227 and $1,835,796 at December 31, 2012 and 2011, respectively. As disclosed in Note 3, additional funds held by CICF are for the benefit of Midtown. Midtown has variance power over these funds, and accordingly, they are not recorded as part of the beneficial interest asset on the Foundation s books. These amounts are recorded as part of investments held for Midtown, as well as the related agency fund liability. NOTE 5 - BENEFICIAL INTEREST IN PERPETUAL TRUST The Foundation is the beneficiary under a perpetual trust administered by outside parties. Under the terms of the trusts, the Foundation has the irrevocable right to receive 50% of the income earned on the trust s assets in perpetuity, but the Foundation will never receive the assets held in trust. The estimated value of the expected future cash flows from the income on this trust is $764,273 and $748,547 at December 31, 2012 and 2011, which represents 50% of the fair value of the trust s assets at year end. The change in value of the Foundation s beneficial interests in the trust for the years ended December 31, 2012 and 2011 was $15,726 and $(40,517), which is reflected on the statement of activities as the change in value of interest in perpetual trust. NOTE 6 - AGENCY FUNDS In 2001, the Foundation entered into an agency relationship with Midtown Community Health Center. The Foundation acts as the agent for Midtown and administers funds at the direction of Midtown. The funds held by the Foundation for Midtown are only a portion of Midtown s assets, and Midtown maintains their own operating account. Any resources provided by Midtown are deposited into separate investment accounts and are recorded as increases to the agency fund s balance. Distributions by Midtown to third parties are paid from the investment accounts and recorded as decreases to the agency funds balance. As a part of the agreement with Midtown, the Foundation receives a one percent commission on the year end value of Midtown s investment balance. The change in the agency funds balance was comprised of the following for December 31: Balance, beginning of year $ 4,017,344 $ 4,166,862 Investment return, net of fees 302,723 (146,888) Change in the value of CICF assets 54,793 (2,630) Balance, end of year $ 4,374,860 $ 4,017,

13 NOTE 6 - AGENCY FUNDS Investments held on behalf of Midtown, which are also part of the Note 3 disclosure, are comprised of the following as of December 31: Money markets $ 318,719 $ 56,192 Accrued interest receivable 14,914 17,937 Corporate and government bonds 1,640,500 1,738,016 Mutual funds 1,732,105 1,698,299 Common stocks 106,930 - Beneficial interest in assets held by CICF 561, ,900 Balance, end of year $ 4,374,860 $ 4,017,344 NOTE 7 - TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets consist of the following items at December 31: Restricted by time: Eskenazi Gift Fund $ 31,638,905 $ 32,044,487 Health and Hospital Corporation operating grant 9,656,219-41,295,124 32,044,487 Restricted by purpose: Scholarships 860, ,872 Our Kids, Our Community 1,195,127 1,044,391 Research 412, ,766 Community/Mental Health Centers 332,112 1,057,568 Sidney & Lois Eskenazi Hospital 12,024,787 15,868,748 Support of Wishard Health Services programs 3,070,741 2,940,049 17,895,721 22,145,394 $ 59,190,845 $ 54,189,

14 NOTE 8 - RELEASES FROM RESTRICTION Net assets were released from donor restrictions by incurring expenses satisfying the following restricted purposes or by the passage of time during the years ended December 31: Time restriction released: Eskenazi Gift Fund $ 875,000 $ 750,000 Purpose restriction released: IU Medical Group - 6,848,167 IU Medical Group support of Sidney & Lois Eskenazi Hospital - 8,371,659 Sidney & Lois Eskenazi Hospital 6,431,591 1,987,011 Scholarships, research, and support of Wishard Health Services programs 1,861, ,637 8,293,392 17,732,474 $ 9,168,392 $ 18,482,474 NOTE 9 - PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets consist of the following at December 31: Rawls scholarship endowment $ 2,429,401 $ 2,429,401 Krannert endowment 250, ,000 Butler Snow endowment 69,700 69,700 Beneficial interest in perpetual trust 764, ,547 $ 3,513,374 $ 3,497,648 NOTE 10 - RELATED PARTY TRANSACTIONS The Foundation s staff members are employees of the Corporation, therefore, the Foundation is charged for salary and benefit reimbursements. Reimbursement to the Corporation for salaries and benefits was $1,010,575 and $1,028,072 for the year ended December 31, 2012 and 2011, respectively. The Foundation supports and administers various funds which have been created for the benefit of the Corporation. During 2012 and 2011, the Foundation recorded $7,809,168 and $17,863,047, respectively, of expense in relation to grants and program support to the Corporation. The Foundation received $1,825,000 and $1,725,000 from the Corporation as operating support during 2012 and 2011 and has a grant receivable from the Corporation of $9,656,219 and $0 as of December 31, 2012 and In addition, the Foundation received in-kind services from the Corporation as follows: The Foundation utilizes personnel support from the Corporation for information technology services, human resource issues, and legal consulting services at no charge. The value of these services has been determined by management to be immaterial to the financial statements. 12.

15 NOTE 10 - RELATED PARTY TRANSACTIONS The Foundation s administrative office spaces are provided by the Corporation at no charge for the duration of its occupancy. The value of the office space was estimated at $36,453 and $36,453 for the year ended December 31, 2012 and 2011, respectively. These amounts are recorded as in-kind revenue and expense in the statement of activities. NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the Foundation s principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a reporting entity s own assumptions about the assumptions that market participants would use in pricing an asset or liability. In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. GAAP provides guidance on how companies should estimate the fair value of certain alternative investments. The fair value of such investments can now be determined using Net Asset Value (NAV), unless it is probable that the asset will be sold at something other than NAV. In addition, the guidance has been interpreted to include other assets that use NAV, such as the beneficial interest in assets or trusts. GAAP also requires disclosure of certain attributes of all investments within its scope, regardless of whether NAV is used to measure the fair value of these investments and indicates that liquidity of the assets should be an input in determining the level classification. The fair value of money markets, mutual funds, and common stock are based on quoted prices in active markets. This is considered a level 1 input. The fair value of certificates of deposit is based on similar investments over the same period at specific rates. The fair value of U.S. government agency bonds and corporate bonds are based on quoted market prices of similar securities with similar due dates using the market approach. This is considered a level 2 input. The fair value of beneficial interest in perpetual trust uses the income approach and is based on a valuation model that calculates the present value of estimated distributed income. The valuation model incorporates assumptions that market participants would use in estimating future distributed income. The Foundation is able to compare the valuation model inputs and results to widely available published industry data for reasonableness. The corpus of this trust will be held in perpetuity and only an annual distribution of investment returns is available to the Foundation (Level 3 inputs). 13.

16 NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the beneficial interest in assets held by CICF is based upon the Foundation s proportionate share of the fair value of CICF s pooled investment portfolio using the market approach. The Foundation s management and Investment Committee review the valuations and returns in comparison to industry benchmarks and other information provided by CICF, but do not receive a detailed listing of the holdings in which CICF is invested. The Foundation does not have the ability to redeem this beneficial interest on a short-term basis. Withdrawals are limited to the terms of the Foundation's agreement with CICF. (Level 3 inputs). Distributions from the beneficial interest in assets held by CICF are made in accordance with the agreement between the Foundation and CICF, which states that the Foundation may withdraw up to 5% of the fund's balance plus any prior years carryover annually, as long as the withdrawal would not lower the fund's balance below the original corpus. Assets measured at fair value on a recurring basis are summarized below: Fair Value Measurements December 31, 2012 Using Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Total Investments: Money markets for Midtown $ 318,719 $ - $ - $ 318,719 Accrued interest receivable 38, ,999 U.S. government agency bonds - 790, ,308 Corporate bonds - 3,434,986-3,434,986 Mutual funds fixed income 777, ,027 Mutual funds equity 5,415, ,415,351 Common stock: Small cap 418, ,308 Large cap 404, ,964 Mega cap 553, ,545 International stocks 172, ,942 Total common stock 1,549, ,549,759 Beneficial interest in funds held by CICF for Midtown , ,692 Total amount classified as investments 8,099,855 4,225, ,692 12,886,841 Certificates of deposit - 256, ,802 Beneficial interest in assets held by CICF - - 2,034,227 2,034,227 Beneficial interest in perpetual trust , ,273 $ 8,099,855 $ 4,482,096 $ 3,360,192 $ 15,942,

17 NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS Fair Value Measurements December 31, 2011 Using Quoted Prices in Significant Active Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs (Level 1) (Level 2) (Level 3) Total Investments: Money markets for Midtown $ 56,192 $ - $ - $ 56,192 Accrued interest receivable 38, ,620 U.S. government agency bonds - 856, ,330 Corporate bonds - 3,096,501-3,096,501 Mutual funds fixed income 703, ,696 Mutual funds equity 4,917, ,917,699 Common stock: Small cap 386, ,032 Large cap 317, ,288 Mega cap 480, ,104 International stocks 153, ,135 Total common stock 1,336, ,336,559 Beneficial interest in funds held by CICF for Midtown , ,900 Total amount classified as investments 7,052,766 3,952, ,900 11,512,497 Certificates of deposit - 255, ,527 Beneficial interest in assets held by CICF - - 1,835,796 1,835,796 Beneficial interest in perpetual trust , ,547 $ 7,052,766 $ 4,208,358 $ 3,091,243 $ 14,352,

18 NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS The table below presents a reconciliation and statement of activities classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2012 and 2011: 2012 Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Beneficial interest Beneficial Beneficial in assets interest in interest in held by CICF assets held perpetual for Midtown by CICF trust Total Beginning balance $ 506,900 $ 1,835,796 $ 748,547 $ 3,091,243 Change in value of beneficial interest in perpetual trust ,726 15,726 Investment income 58, , ,199 Fees (3,672) (13,304) - (16,976) Ending balance $ 561,692 $ 2,034,227 $ 764,273 $ 3,360, Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Beneficial interest Beneficial Beneficial in assets interest in interest in held by CICF assets held perpetual for Midtown by CICF trust Total Beginning balance $ 509,530 $ 1,845,319 $ 789,064 $ 3,143,913 Change in value of beneficial interest in perpetual trust - - (40,517) (40,517) Investment income 1,068 3,868 4,936 Fees (3,698) (13,391) - (17,089) Ending balance $ 506,900 $ 1,835,796 $ 748,547 $ 3,091,

19 NOTE 12 - ENDOWMENT COMPOSITION The Foundation s endowment consists of both donor-restricted endowment funds and funds designated by the Board of Directors to function as endowments for the following purposes: CICF (unrestricted) Pediatrics/Our Kids, Our Community (temporarily restricted) Butler Snow (temporarily and permanently restricted portions) Krannert (permanently restricted) Rawls scholarships (unrestricted, temporarily restricted and permanently restricted portions) Orthopedic care (beneficial interest in perpetual trust) The Foundation has one perpetual trust recorded as permanently restricted net assets that it considers as part of the endowment. However, the perpetual trust is not subject to UPMIFA, because the Board does not have the ability to control the investments and spending policy of this fund. As required by GAAP, net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law: The Board of Directors of the Foundation has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the organization considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the organization and the donor-restricted endowment fund (3) General economic conditions and the possible effect of inflation and deflation (4) The expected total return from income and the appreciation of investments (5) The investment policies of the organization and other resources of the organization Endowment net asset composition by type of fund as of December 31, 2012: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds and unappropriated earnings $ - $ 2,136,921 $ 2,749,101 $ 4,886,022 Beneficial interest in perpetual trust , ,273 Board-designated funds 3,128, ,128,030 Total funds $ 3,128,030 $ 2,136,921 $ 3,513,374 $ 8,778,

20 NOTE 12 - ENDOWMENT COMPOSITION DISCLOSURE Endowment net asset composition by type of fund as of December 31, 2011: Temporarily Permanently Unrestricted Restricted Restricted Total Donor-restricted endowment funds and unappropriated earnings $ - $ 1,840,596 $ 2,749,101 $ 4,589,697 Beneficial interest in perpetual trust , ,547 Board-designated funds 2,889, ,889,790 Total funds $ 2,889,790 $ 1,840,596 $ 3,497,648 $ 8,228,034 Changes in endowment net assets for year ended December 31, 2012: Temporarily Permanently Unrestricted Restricted Restricted Total Net assets, beginning of year $ 2,889,790 $ 1,840,596 $ 3,497,648 $ 8,228,034 Investment return: Interest income, net of fees 33, , ,330 Realized gains 12,903 46,304-59,207 Unrealized gains 242, , ,688 New gifts - 64,430-64,430 Change in value of interest in perpetual trust ,726 15,726 Appropriation for expenditure (50,076) (84,014) - (134,090) Net assets, end of year $ 3,128,030 $ 2,136,921 $ 3,513,374 $ 8,778,325 Changes in endowment net assets for year ended December 31, 2011: Temporarily Permanently Unrestricted Restricted Restricted Total Net assets, beginning of year $ 2,865,242 $ 1,522,873 $ 3,538,165 $ 7,926,280 Investment return: Interest income, net of fees 259, , ,506 Realized gains 260, , ,683 Unrealized losses (338,705) (668,544) - (1,007,249) New gifts - 24,968-24,968 Change in value of interest in perpetual trust - - (40,517) (40,517) Appropriation for expenditure (157,028) 28,391 - (128,637) Net assets, end of year $ 2,889,790 $ 1,840,596 $ 3,497,648 $ 8,228,

21 NOTE 12 - ENDOWMENT COMPOSITION DISCLOSURE Return Objectives and Risk Parameters: The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organization must hold in perpetuity as well as board-designated funds. Under this policy, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of the S&P 500 index while assuming a moderate level of investment risk. The Foundation expects its endowment funds, over time, to provide an average rate of return exceeding the Consumer Price Index by two to five percent annually, depending on the type of security. Actual returns in any given year may vary from this amount. Prior to July 1, 2011, investment earnings were allocated to the Rawls Scholarship Endowment annually based on the one-year trailing return as of June 30 in the Eskenazi Health Foundation Investment Pool. For June 30, 2011, the one-year trailing return was approximately 19%. Beginning July 1, 2011, investment earnings were allocated to the Rawls Scholarship Endowment on a quarterly basis, similar to the other endowments. For 2012 and 2011, investment earnings were allocated to all other endowments on a quarterly basis based upon that quarter s investment return. At December 31, 2012 and 2011, the average annual return was approximately 9% and 0%, respectively. Strategies Employed for Achieving Objectives: To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Foundation targets a diversified asset allocation that places an emphasis on equity-based investments to achieve its longterm return objectives within prudent risk constraints. Spending Policy and How the Investment Objectives Relate to Spending Policy: Distributions are made for the purposes of awarding scholarships, supporting program services, and paying certain administrative expenses. The amount available for distribution in the current year is based on the interest allocated and other income earned, plus any unspent earnings from previous years. Scholarships are awarded by a selection committee, based upon stated criteria. Distributions from Board-designated funds are made subject to Board approval. Distributions from the CICF operating endowment are made in accordance with the agreement between the Foundation and CICF, which states that the Foundation may withdraw up to 5% of the fund's balance plus any prior years carryover annually, as long as the withdrawal would not lower the fund's balance below the original corpus. 19.