The St. Anthony Hospital Foundation, Inc.

Transcription

1 The St. Anthony Hospital Foundation, Inc. Financial Statements as of and for the Years Ended December 31, 2014 and 2013, and Independent Auditors Report

2 THE ST. ANTHONY HOSPITAL FOUNDATION, INC. TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 1 2 FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013: Statements of Financial Position 3 Statements of Activities 4 5 Statements of Cash Flows 6 Page Notes to Financial Statements 7 18

3 Deloitte & Touche LLP Suite South 4th Street St. Louis, MO USA Tel: INDEPENDENT AUDITORS REPORT To the Board of Directors of SSM Health Care St. Louis, Missouri We have audited the accompanying financial statements of the St. Anthony Hospital Foundation, Inc. (the Foundation ) which comprise the statements of financial position as of December 31, 2014 and 2013, and 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. 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 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 Foundation 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 Foundation 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. Member of Deloitte Touche Tohmatsu Limited

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the St. Anthony Hospital Foundation, Inc. as of December 31, 2014 and 2013, 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. June 26,

5 THE ST. ANTHONY HOSPITAL FOUNDATION, INC. STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2014 AND 2013 ASSETS CASH $ 19,928 $ 24,255 PLEDGES RECEIVABLE Net 985, ,546 INVESTMENTS 26,568,857 26,475,456 PROPERTY AND EQUIPMENT Net of accumulated depreciation of $233,054 and $232,930, respectively 126, ,505 OTHER ASSETS 293, ,843 TOTAL $ 27,994,021 $ 27,730,605 LIABILITIES AND NET ASSETS LIABILITIES: Accounts payable and accrued expenses $ 644,291 $ 351,507 Gift annuity liability 269, ,772 Total liabilities 913, ,279 NET ASSETS: Unrestricted 13,868,342 14,403,741 Temporarily restricted 13,166,556 12,618,012 Permanently restricted 45,573 75,573 Total net assets 27,080,471 27,097,326 TOTAL $ 27,994,021 $ 27,730,605 See notes to financial statements

6 THE ST. ANTHONY HOSPITAL FOUNDATION, INC. STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2014 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES, GAINS, AND OTHER SUPPORT: Contributions $ 34,679 $ 954,473 $ - $ 989,152 Special fundraising events net of direct donor benefits of $174, , ,460 Change in unrealized losses on investments net (238,814) (183,853) (422,667) Investment income net 1,225, ,039-1,889,837 Total investment income 986, ,186-1,467,170 Actuarial gain on gift annuity liability 13, ,095 Net assets released from restriction: Operating purposes 684,036 (684,036) - - Capital purposes 232,079 (232,079) - - Total revenues, gains, and other support 2,317, ,544-2,835,877 EXPENSES: Contributions to the Hospital: Donor restricted for operations 684, ,036 Donor restricted for capital 232, ,079 Board designated for operations 1,030, ,030,341 Total contributions to the Hospital 1,946, ,946,456 Management and general 346, ,966 Fundraising 559, ,310 Total expenses 2,852, ,852,732 TRANSFERS TO/(FROM) - 30,000 (30,000) - CHANGE IN NET ASSETS (535,399) 548,544 (30,000) (16,855) NET ASSETS Beginning of year 14,403,741 12,618,012 75,573 27,097,326 NET ASSETS End of year $ 13,868,342 $ 13,166,556 $ 45,573 $ 27,080,471 See notes to financial statements

7 THE ST. ANTHONY HOSPITAL FOUNDATION, INC. STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2013 Temporarily Permanently Unrestricted Restricted Restricted Total REVENUES, GAINS, AND OTHER SUPPORT: Contributions $ 82,653 $ 629,519 $ - $ 712,172 Special fundraising events net of direct donor benefits of $83, , ,010 Change in unrealized gains on investments net 1,201, ,742-1,846,982 Investment income net 1,077, ,615-1,686,702 Total investment income 2,278,327 1,255,357-3,533,684 Actuarial gain on gift annuity liability 11, ,507 Net assets released from restriction: Operating purposes 682,946 (682,946) - - Capital purposes 93,568 (93,568) - - Total revenues, gains, and other support 3,705,011 1,108,362-4,813,373 EXPENSES: Contributions to the Hospital: Donor restricted for operations 682, ,946 Donor restricted for capital 93, ,568 Board designated for operations 666, ,320 Total contributions to the Hospital 1,442, ,442,834 Management and general 127, ,202 Fundraising 581, ,698 Total expenses 2,151, ,151,734 CHANGE IN NET ASSETS 1,553,277 1,108,362-2,661,639 NET ASSETS Beginning of year 12,850,464 11,509,650 75,573 24,435,687 NET ASSETS End of year $ 14,403,741 $ 12,618,012 $ 75,573 $ 27,097,326 See notes to financial statements

8 THE ST. ANTHONY HOSPITAL FOUNDATION, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND CASH FLOWS FROM OPERATING ACTIVITIES: Change in net assets $ (16,855) $ 2,661,639 Adjustments to reconcile change in net assets to net cash (used in) provided by operating activities: Depreciation expense Provision for uncollectible pledges 43,720 20,250 Gains on investments net (871,670) (2,996,100) Actuarial (gain) loss on gift annuity liability (13,095) (11,507) Changes in assets and liabilities: Pledges receivable (220,644) 190,828 Other assets 2,458 (30,116) Accounts payable and accrued expenses 345,928 17,329 Net cash (used in) provided by operating activities (730,034) (147,498) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investments (65,336,091) (31,087,010) Proceeds from sales of investments 66,114,360 31,275,211 Net cash provided by investing activities 778, ,201 CASH FLOWS FROM FINANCING ACTIVITIES Payments to gift annuitants (52,562) (48,813) NET CHANGE IN CASH (4,327) (8,110) CASH Beginning of year 24,255 32,365 CASH End of year $ 19,928 $ 24,255 See notes to financial statements

9 THE ST. ANTHONY HOSPITAL FOUNDATION, INC. NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2014 AND ORGANIZATION AND PURPOSE The St. Anthony Hospital Foundation, Inc. (the Foundation ) was founded in 1963 to benefit St. Anthony Hospital (the Hospital ). The Foundation also provides support for other SSM Health Care of Oklahoma, Inc. (SSMOK) hospitals and for charitable purposes conducted primarily within the metropolitan Oklahoma City, Oklahoma area. The sole member of the Foundation is SSMOK. The Hospital is an operating division of SSMOK. SSM Health Care Corporation (SSMHC), as corporate member of SSMOK, reserves certain powers over SSMOK and the Foundation. The Foundation is exempt from income taxes under Section 501(a) of the Internal Revenue Code (the Code ) as an organization described in Section 501(c)(3) of the Code. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Foundation s significant accounting policies is as follows: Basis of Accounting The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Investments Investments in equity securities with readily determinable fair values and all investments in debt securities are measured at fair value. Investments in mutual funds are valued at quoted market prices, which represent the net asset value of shares held by the Foundation. A majority of the real estate investments and hedge funds are recorded at the net asset value (NAV), which is the estimated fair value of the investments. Due to the volatility of the U.S. economy and the financial markets, there is uncertainty regarding the long-term impact market conditions will have on the Foundation s investment portfolio. The Foundation holds its investments in a pooled investment program managed by SSMHC. The earnings are allocated proportionately according to ownership percentages as defined in the pooled investment agreements. The Foundation s investments account for less than 1% of the pooled investments. The Foundation has elected the fair value option for financial investments in limited partnerships and limited liability corporations made through the pooled investment program that would otherwise be recorded using either the cost or equity methods. The Foundation made this election in order to ensure that the accounting treatment of these investments was comparable between categories, regardless of the current organizational structure of the various investments. Pledges Receivable Unconditional promises to give which are expected to be collected within one year are recorded at estimated net realizable value. Unconditional promises to give which are expected to be collected in future years are recorded at the present value of their estimated future cash flows. The Foundation considers past collection experience and creditworthiness of the donor in estimating the future cash flows of promises to give. The discounts on those amounts are computed using risk-free - 7 -

10 interest rates applicable to the years in which the promises are received. Amortization of the discounts is included in contribution revenue. Property and Equipment Property and equipment are recorded at cost, or if donated, at fair value at the date of receipt. Depreciation expense is determined by the straight-line method over the estimated useful life of the asset: 3 to 20 years. Property includes land of $124,100 that is held for investment purposes. Temporarily and Permanently Restricted Net Assets Temporarily restricted net assets are those whose use has been limited by donors to a specific time period or purpose. These assets are restricted for the purpose of acquiring long-lived assets and for specific program purposes. Permanently restricted net assets have been restricted by donors to be maintained by the Foundation in perpetuity. Income earned on permanently restricted net assets is classified as temporarily restricted. Contributions Contributions, including unconditional promises to give, are recognized at their fair value at the time of receipt. For financial reporting purposes, the Foundation distinguishes between contributions that are unrestricted, temporarily restricted, or permanently restricted based on the restrictions placed on their use by the donors. Contributions restricted for additions to property and equipment are recorded as temporarily restricted assets. When their restrictions have been met by the Foundation, these temporarily restricted contributions are recorded as net assets released from restrictions for capital purposes. Contributions temporarily restricted for other purposes are reported as temporarily restricted contributions. When such donor-imposed restrictions are met by the Foundation, they are reported as net assets released from restrictions and are added to unrestricted net assets. Contributions of assets that donors have stipulated must be maintained permanently, with only the income earned thereon available for current use, are classified as permanently restricted assets. Contributions for which donors have not stipulated restrictions are reported as unrestricted revenues, gains, and other support. Investment Income Investment income from unrestricted funds is reported as investment income (loss) net. The cost of investments sold is based on the specific-identification method. Investment income on investments of donor-restricted funds, other than endowments, is included in total investment income unless the income or loss is restricted by donors. Investment income that is restricted by the donor is recorded directly to temporarily or permanently restricted net assets, in accordance with the donor-imposed restrictions. Income Taxes The Foundation evaluates its uncertain tax positions on an annual basis. There have been no uncertain tax positions recorded in 2014 or Use of 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. Estimates also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include allowance for uncollectible pledge receivables, gift annuity liability and investment valuation. Endowment The Foundation preserves 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, if applicable, (c) accumulations to the permanent endowment made in accordance with - 8 -

11 specific donor instructions. 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 Foundation. The Foundation considers the following factors in making determinations to appropriate or accumulate donor-restricted endowment funds. (1) State Law (2) The duration and preservation of the fund (3) The purposes of the donor-restricted endowment funds and how they relate to the Foundation s priorities for carrying out its mission within the communities it serves (4) General economic conditions (5) The possible effects of inflation and deflation (6) The expected total return from income and the appreciation of investments (7) Other resources available to the entity and its beneficiary, if applicable (8) The investment policies of the entity Subsequent Events For the year ended December 31, 2014, the Foundation has evaluated subsequent events for potential recognition and disclosure through June 26, 2015, the date the financial statements were available for issuance. New Accounting Pronouncements In April 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No , Not-for-Profit Entities (Topic 958): Services Received from Personnel of an Affiliate (ASU ) to specify the guidance that not-for-profit entities apply for recognizing and measuring services received from personnel of an affiliate. ASU requires a recipient entity to recognize all services received from personnel of an affiliate that directly benefit the recipient entity. The adoption of ASU is effective prospectively as of January 1, The adoption of ASU is not expected to have a material impact on the Foundation s financial statements. In October 2012, the FASB issued ASU No , Statements of Cash Flows (Topic 230), Not-for-Profit Entities: Classification of the Sales Proceeds of Donated Financial Assets in the Statement of Cash Flows (ASU ) to address diversity in practice about how to classify cash receipts arising from the sale of certain donated financial assets, such as securities, in the statement of cash flows of not-for-profit entities. The adoption of ASU is effective prospectively for the Foundation as of January 1, The adoption of ASU did not have a material impact on the Foundation s financial statements

12 3. INVESTMENTS Investments are comprised of the following investment classifications: Cash and cash equivalents $ 814,923 $ 331,179 Corporate obligations 4,214,303 3,705,011 Government securities 4,603,199 1,794,460 Commingled funds: Domestic 1,992,143 - International 5,713,757 1,645,577 Mutual funds: Domestic - 5,066,173 International 1,826,897 3,126,417 Emerging markets 832,589 1,197,563 Equities: Small cap 448, ,725 Mid cap 1,138,453 1,842,345 Large cap 2,838,104 4,957,933 Credit derivatives (22,764) - Hedge funds 1,263,070 1,294,046 Real estate investments 905, ,256 Unsettled investment transactions - 24,771 Total $ 26,568,857 $ 26,475,456 The Foundation has reevaluated the presentation of certain investments within the investment table disclosure above for 2013, reflecting the fact that certain investments previously disclosed as partnership interests of $996,478 are now properly disclosed as domestic mutual funds and $1,669,853 of previously reported international mutual funds are now properly disclosed as commingled funds. A summary of investment income for the years ended December 31, 2014 and 2013, are as follows: Interest and dividends $ 595,500 $ 537,584 Realized and unrealized gains on investments net 871,670 2,996,100 Total $ 1,467,170 $ 3,533,

13 4. PLEDGES RECEIVABLE The Foundation recognizes pledges receivable for unconditional promises to give from donors. Pledges receivable is comprised of the following unconditional promises to give: Gross unconditional promises $ 1,034,395 $ 855,971 Less unamortized discount (13,225) (13,225) Less allowance for doubtful pledges (35,700) (34,200) Net unconditional promises $ 985,470 $ 808,546 Gross amounts due in: Less than one year $ 524,459 $ 480,520 One to five years 509, ,451 $ 1,034,395 $ 855,971 The Foundation wrote off as uncollectible pledges totaling $42,221 and $17,550 for the years ended December 31, 2014 and 2013, respectively. 5. FAIR VALUE MEASUREMENTS The Foundation defines fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including the Foundation s own credit risk. The fair values of all assets recognized or disclosed at fair value are classified based on the lowest level of significant inputs. The Foundation used the following methods to determine fair value: Level 1 Quoted prices (unadjusted) in active markets for identical assets that the Foundation has the ability to access on the report date. Level 2 Inputs (financial matrices, models, valuation techniques) other than quoted market prices included in Level 1, that are observable for the asset, either directly or indirectly. If the asset has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market. Level 3 Inputs (such as professional appraisals, quoted prices from inactive markets that require adjustment based on significant assumptions or data that is not current data from independent sources) that are unobservable for the asset

14 Assets and liabilities measured at fair value on a recurring basis as listed in the following tables use the following valuation methodologies: Cash and Cash Equivalents Restricted Cash equivalents that trade on a regular basis in active markets are classified as Level 1 in the fair value hierarchy. Cash equivalents also include investments in highly liquid debt instruments that trade on a regular basis and are valued using the closing price reported on the applicable exchange on which the security is traded, which are classified as Level 2 investments within the fair value hierarchy. Corporate Obligations Corporate obligations are valued using quoted market prices and/or other market data for the same or comparable securities and transactions in establishing the prices, discounted cash flow models, and other pricing methods. These models are primarily industry-standard models that consider various assumptions, including time value and yield curve, as well as other relevant economic measures. Due to the nature of pricing methods utilized, corporate obligations are classified as Level 2 within the fair value hierarchy. Government Securities Government securities are valued using quoted market prices and/or other market data for the same or comparable securities and transactions in establishing the prices, discounted cash flow models, and other pricing methods. These models are primarily industry-standard models that consider various assumptions, including time value and yield curve, as well as other relevant economic measures. Due to the nature of pricing methods utilized, government securities are classified as Level 2 within the fair value hierarchy. Commingled Funds Commingled funds are valued using the net asset value based on the value of the underlying assets owned by the fund, minus liabilities, multiplied by the current percentage ownership of the fund. The underlying investments are valued in accordance with the corresponding valuation method for the investments held. Commingled funds are classified as Level 2 within the fair value hierarchy. Mutual Funds Mutual funds are valued using the net asset value based on the value of the underlying assets owned by the fund, minus liabilities, divided by the number of shares outstanding, and multiplied by the number of shares owned and are classified as Level 1 within the fair value hierarchy. Equities Equity securities are valued at the closing price reported on the applicable exchange on which the security is traded and are classified as Level 1 within the fair value hierarchy. Credit Derivatives Credit derivatives consist of interest rate and credit default swaps, for which fair values are estimated utilizing the terms of the swaps and publicly available market yield curves along with the Foundation s nonperformance risk as observed through the credit default swap market and bond market and based on prices for recent trades. These credit derivatives are classified as Level 2 within the fair value hierarchy. Hedge Funds Hedge funds are valued primarily using net asset values, which approximate fair value, as determined by an external fund manager based on quoted market prices, operating results, balance sheet stability, growth and other business and market sector fundamentals. Hedge funds are categorized as Level 2 unless they have a redemption restriction greater than 90 days, in which they are categorized as Level 3. Real Estate Investments A portion of real estate investment funds are valued using net asset values, which approximate fair value, as determined by an external fund manager based on quoted market prices, operating results, balance sheet stability, growth and other business and market sector

15 fundamentals. These investment funds have a redemption notice period of days. Other real estate investment funds are valued based on the most current financial statements issued by each fund adjusted for cash flow to and from the fund subsequent to the financial statement reporting date. Real estate investment funds that are valued using net asset values have redemption restrictions greater than 90 days, therefore, all real estate investments are categorized as Level 3 within the fair value hierarchy. The Foundation has reevaluated the presentation of certain investments within the investments fair value classification disclosure for 2013, reflecting the fact that certain investments previously determined to be Level 3 investments are in fact Level 2 investments. In the accompanying 2013 fair value disclosure $254,810 of investments previously presented as Level 3 investments have now been properly presented as Level 2 investments. Following is a summary of assets measured at fair value on a recurring basis by level of significant input for 2014 and 2013: 2014 Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents restricted $ - $ 814,923 $ - $ 814,923 Corporate obligations - 4,214,303-4,214,303 Government securities - 4,603,199-4,603,199 Commingled funds: Domestic - 1,992,143-1,992,143 International - 5,713,757-5,713,757 Mutual funds: International 1,826, ,826,897 Emerging markets 832, ,589 Equities: Small cap 448, ,449 Mid cap 1,138, ,138,453 Large cap 2,838, ,838,104 Credit derivatives - (22,764) - (22,764) Hedge funds - 253,719 1,009,351 1,263,070 Real estate investments , ,734 Total assets $ 7,084,492 $ 17,569,280 $ 1,915,085 $ 26,568,

16 2013 Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents restricted $ 331,179 $ - $ - $ 331,179 Corporate obligations - 3,705,011-3,705,011 Government securities - 1,794,460-1,794,460 Commingled international - 1,645,577-1,645,577 Mutual funds: Domestic 5,066, ,066,173 International 3,126, ,126,417 Emerging markets 1,197, ,197,563 Equities: Small cap 561, ,725 Mid cap 1,842, ,842,345 Large cap 4,957, ,957,933 Hedge funds - 254,810 1,039,236 1,294,046 Real estate investments , ,256 Total assets $ 17,083,335 $ 7,399,858 $ 1,967,492 $ 26,450,685 It is the Foundation s policy that transfers between levels will occur when revised information regarding the lowest level of significant inputs becomes available. There were no transfers between levels in 2014 or Changes related to the fair values based on Level 3 inputs for 2014 and 2013, are summarized as follows. Real 2014 Hedge Estate Funds Investments Beginning balance $ 1,039,236 $ 928,256 Total gains (losses) realized/unrealized 19,416 8,930 Purchases/additions 452,509 19,241 Sales/payments (501,810) (50,693) Ending balance $ 1,009,351 $ 905,734 Real 2013 Hedge Estate Funds Investments Beginning balance $ 1,166,573 $ 794,010 Total gains (losses) realized/unrealized 157,381 35,040 Purchases/additions 2,546, ,338 Sales/payments (2,830,882) (130,132) Ending balance $ 1,039,236 $ 928,

17 Unrealized gains on Level 3 investments were $20,166 and $38,648 for 2014 and 2013, respectively, and is recorded as investment income. The hedge funds and certain real estate investments are redeemable at NAV under the original terms of the agreements. However, it is possible that these redemption rights may be restricted or eliminated by the funds in the future in accordance with the underlying fund agreements. In addition, the unfunded commitments to these funds are $27,185 and $41,307 at December 31, 2014 and 2013, respectively. Assets recorded at NAV at December 31, 2014 and 2013, are as follows: Redemption Frequency Redemption Fair (if Currently Notice December 31, 2014 Value Eligible) Period Hedge funds (a) $ 1,263,070 Monthly, Quarterly days Real estate investments (b) 568,602 Quarterly days Total $ 1,831,672 Redemption Frequency Redemption Fair (if Currently Notice December 31, 2013 Value Eligible) Period Hedge funds (a) $ 1,294,046 Monthly, Quarterly days Real estate investments (b) 576,297 Quarterly days Total $ 1,870,343 (a) (b) This category includes investments in hedge funds that maintain positions both long and short in equity and equity derivative securities. A wide variety of investment processes can be employed to arrive at an investment decision, including both quantitative and fundamental techniques, and the managers can maintain net long or net short exposure levels based on market views. The strategy designs a diversified portfolio of managers and strategies with the objective of significantly lowering the risk and volatility of investing with an individual manager. This category includes investments in real estate funds that invest in the following: underperforming and distressed real estate assets at well below potential replacement cost and which create significant value-added upside through extensive repositioning and capital improvements; distressed real estate and real estate-related debt, companies, securities, and other assets; high quality properties in major metropolitan areas; participating mortgages secured by core real estate properties. Investments in real estate are valued based upon independent appraisals using a cost approach, market approach or income approach as well as consideration of other third party evidence

18 6. TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS Temporarily and permanently restricted net assets were available for the following Hospital purposes at December 31, 2014 and 2013: Temporarily restricted net assets: Bone and Joint Hospital $ 6,417,938 $ 6,367,062 Sisters Fund Patient Care 3,124,040 2,921,295 Heritage Fund 924, ,856 Chapel 171, ,220 Campus Development 306, ,714 Mental Health 203, ,933 Saints Pavilion 647, ,454 Education 101, ,095 Women and Children 183, ,888 Laboratory 61, ,965 Raulston Lectureship Fund 110, ,730 Oncology 122, ,409 Other 792, ,391 Total temporarily restricted net assets 13,166,556 12,618,012 Permanently restricted net assets: Nursing education 45,573 45,573 Charity care - 30,000 Total permanently restricted net assets 45,573 75,573 Total temporarily and permanently restricted net assets $ 13,212,129 $ 12,693, GIFT ANNUITIES Gift annuities consist of contributed amounts subject to obligations to make fixed periodic payments to beneficiaries over their lifetimes or a fixed term. The gift annuity liability is recorded at the actuarial present value of the aggregate liability for annuitants based on life expectancy tables. The discount rate in effect as of the date the annuities were established is used to determine the present value of the gift annuity liability. These discount rates are based on the December Applicable Federal Rate of each year. The adjustment to the liability is included in the accompanying statements of activities. Payments made to gift annuity beneficiaries for the years ended December 31, 2014 and 2013, were $52,562 and $48,813, respectively

19 8. ENDOWMENTS The Foundation s endowments consist of two individual donor-restricted endowment funds established for nursing education and charity care. Donor-Restricted Endowment Net Asset Composition by Type of Fund Permanently restricted $ 45,573 $ 75,573 Total $ 45,573 $ 75,573 Changes in Endowment Net Assets for the Year Ended Temporarily Permanently December 31, 2014 Unrestricted Restricted Restricted Total Endowment net assets beginning of year $ - $ - $ 75,573 $ 75,573 Realized and unrealized loss - (355) - (355) Management fee - (4) - (4) Investment income Transfer to/(from) - 30,000 (30,000) - Appropriated for expenditures - (29,782) - (29,782) Endowment net assets end of year $ - $ - $ 45,573 $ 45,573 Changes in Endowment Net Assets for the Year Ended Temporarily Permanently December 31, 2013 Unrestricted Restricted Restricted Total Endowment net assets beginning of year $ - $ - $ 75,573 $ 75,573 Realized and unrealized gain - 8,842-8,842 Management fee - (362) - (362) Investment income - 1,652-1,652 Appropriated for expenditures - (10,132) - (10,132) Endowment net assets end of year $ - $ - $ 75,573 $ 75,573 Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or state law based on the Uniform Prudent Management of Institutional Funds Act of 2006 (SPMFIA) requires the Foundation to retain as a fund of perpetual duration. In accordance with U.S. GAAP, deficiencies of this nature are reported in unrestricted net assets. There were no such deficiencies as of December 31, 2014 and Return Objectives and Risk Parameters The Foundation has adopted investment and spending practices 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 Foundation must hold in perpetuity or for a donor-specified period(s) as well as to be invested in a manner that is intended to produce results that exceed the price and yield results of the allocation index while assuming a moderate

20 level of investment risk. The Foundation expects its endowment funds to provide a rate of return that preserves the gift and generates earnings to achieve the endowment purpose. 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 interest and dividend income. The Foundation uses a diversified asset allocation to achieve its long-term return objectives within prudent risk constraints to preserve capital. Spending Policy and How the Investment Objectives Relate to Spending Policy The Foundation has a practice of appropriating for distribution the current year earnings on the endowment fund, if the restrictions have been met. 9. RELATED-PARTY TRANSACTIONS The following transactions occurred between the Foundation and SSMOK for the years ended December 31, 2014 and 2013: Contributions to the Hospital for: Operating purposes $ 1,714,377 $ 1,349,266 Capital purchases 232,079 93,568 $ 1,946,456 $ 1,442,834 The Foundation reimburses the Hospital for all fundraising and management and general expenses of the Foundation. For the years ended December 31, 2014 and 2013, the Foundation reimbursed the Hospital $1,080,478 and $792,678, respectively, related to these expenses. Included within the 2014 reimbursed expenses are $141,434 of one time moving expenses. The December 31, 2014 and 2013, balances of accounts payable and accrued expenses are primarily due to the Hospital. In addition, the Foundation uses a property of the Hospital at no charge, but pays for all maintenance and operating expenses. ******