Report of Independent Auditors and Financial Statements. The Henry J. Kaiser Family Foundation

Report of Independent Auditors and Financial Statements The Henry J. Kaiser Family Foundation December 31, 2014 and 2013

CONTENTS PAGE REPORT OF INDEPENDENT AUDITORS...1 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...6

REPORT OF INDEPENDENT AUDITORS To the Board of Trustees The Henry J. Kaiser Family Foundation Report on Financial Statements We have audited the accompanying financial statements of The Henry J. Kaiser Family Foundation (the Foundation ), which comprise the statements of financial position as of December 31, 2014 and 2013, 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. 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 audits 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 The Henry J. Kaiser Family Foundation 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. San Francisco, California June 10, 2015 Page 1

FINANCIAL STATEMENTS

STATEMENTS OF FINANCIAL POSITION December 31, 2014 and 2013 ASSETS Cash and cash equivalents $ 7,086,188 $ 14,700,996 Receivable for unsettled investment transactions 6,550,653 21,978,388 Investment income receivable 299,416 456,053 Investments, at fair value 593,616,310 539,147,405 Contributions receivable 8,139,027 10,159,094 Accounts receivable, prepaid employee benefits, and other assets 2,495,078 3,695,982 Property and equipment, net 32,047,585 32,466,686 Total assets $ 650,234,257 $ 622,604,604 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable, accrued benefits, and other liabilities $ 5,665,963 $ 5,196,884 Derivative liabilities 15,705,261 8,886,002 Postretirement liability 32,658,485 19,529,759 Deferred federal excise taxes 4,510,180 2,369,189 Bonds payable 42,000,000 42,000,000 Notes payable 31,500,000 31,500,000 Total liabilities 132,039,889 109,481,834 NET ASSETS Unrestricted 506,963,707 499,372,588 Temporarily restricted 11,230,661 13,750,182 Total net assets 518,194,368 513,122,770 Total liabilities and net assets $ 650,234,257 $ 622,604,604 Page 3 See accompanying notes.

STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS Years Ended December 31, 2014 and 2013 CHANGES IN UNRESTRICTED NET ASSETS Investment income Interest $ 1,348,526 $ 1,790,893 Dividends 2,546,414 158,217 Net realized and unrealized gains on investments 62,954,891 78,476,985 Net unrealized gains (losses) on derivative liabilities (6,819,259) 8,440,883 Investment expense (2,731,993) (2,827,848) Net investment income 57,298,579 86,039,130 Net assets released from restrictions 6,755,748 5,415,182 Total investment income and net assets released from 64,054,327 91,454,312 restrictions EXPENSES Program activities Direct charitable expenses 34,301,680 34,766,429 Interest expense incurred from financing activities 2,297,655 2,276,765 Grants authorized net 697,693 749,905 Total program activities 37,297,028 37,793,099 Administrative expenses 5,723,972 6,209,590 Federal, state, and local tax expense (benefit) 2,405,079 (213,950) Total expenses 45,426,079 43,788,739 CHANGE IN POSTRETIREMENT LIABILITY (11,037,129) 8,026,327 Change in unrestricted net assets 7,591,119 55,691,900 Unrestricted net assets, beginning of year 499,372,588 443,680,688 Unrestricted net assets, end of year 506,963,707 499,372,588 CHANGES IN TEMPORARILY RESTRICTED NET ASSETS Contributions 4,236,227 11,867,338 Net assets released from restrictions (6,755,748) (5,415,182) Change in temporarily restricted net assets (2,519,521) 6,452,156 Temporarily restricted net assets, beginning of year 13,750,182 7,298,026 Temporarily net assets, end of year 11,230,661 13,750,182 Total change in net assets 5,071,598 62,144,056 Total net assets, beginning of year 513,122,770 450,978,714 Total net assets, end of year $ 518,194,368 $ 513,122,770 See accompanying notes. Page 4

STATEMENTS OF CASH FLOWS Years ended December 31, 2014 and 2013 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets $ 5,071,598 $ 62,144,056 Adjustments to reconcile change in net assets to net cash used in operating activities Net realized and unrealized gains on investments (62,954,891) (78,476,985) Net unrealized (gains) losses on derivative liabilities 6,819,259 (8,440,883) Depreciation 1,135,785 1,124,513 Amortization of financing costs 20,459 27,262 Loss on disposal of fixed assets 10,462 1,064 Changes in operating assets and liabilities Contributions receivable 2,020,067 (4,341,827) Accounts receivable, prepaid employee benefits, and other assets 1,200,904 (1,043,390) Accounts payable, accrued benefits, and other liabilities 469,079 (382,029) Derivative liabilities 6,819,259 (8,440,883) Postretirement liability 13,128,726 (5,702,595) Grants payable (114,420) Deferred federal excise taxes 2,140,991 1,142,790 Net cash used in operating activities (24,118,302) (42,503,327) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments (89,772,505) (92,002,105) Proceeds from sales and maturities of investments 91,418,773 121,323,865 Reduction in investment receivable 15,427,735 6,757,989 Change in investment income receivable 156,637 (22,615) Purchases of property and equipment (727,146) (369,020) Net cash provided by investing activities 16,503,494 35,688,114 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from line of credit 35,000,000 30,000,000 Payments on line of credit (35,000,000) (30,000,000) Net cash from financing activities Decrease in cash and equivalents (7,614,808) (6,815,213) Cash and cash equivalents beginning of year 14,700,996 21,516,209 Cash and cash equivalents end of year $ 7,086,188 $ 14,700,996 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest $ 2,751,505 $ 2,759,928 Cash paid for federal excise taxes $ 459,528 $ 450,000 Page 5 See accompanying notes.

NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The Henry J. Kaiser Family Foundation (the Foundation ) is a highly specialized health policy research and health communications organization that provides timely information on health issues to policymakers, the media, and the public in the United States and globally. Basis of presentation The financial statements are presented on the basis of unrestricted, temporarily restricted, and permanently restricted net assets in accordance with accounting principles generally accepted in the United States of America ( U.S. GAAP ). As of December 31, 2014 and 2013, there were no permanently restricted net assets. Cash and cash equivalents Cash and cash equivalents consist primarily of cash and money market funds. The Foundation considers investments with maturities of three months or less at the time of purchase to be cash equivalents. Estimated fair value of financial instruments The carrying amounts of cash and cash equivalents, accounts receivable and other assets, contributions receivable, accounts payable, and other liabilities approximate fair value because of the short maturity of these items. Investments and derivative financial instruments are reflected at estimated fair value as described below. The carrying amounts of the bonds payable and note payable approximate fair value due to the variable interest rates and terms, which are consistent with those currently available to the Foundation. Financial Accounting Standards Board ( FASB ) Accounting Standards Codification ( ASC ) Topic 820, Fair Value Measurement, defines fair value, establishes a framework for measuring fair value, and requires enhanced disclosures about fair value measurements. Fair value is the amount 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 (i.e., the exit price). Market price observability is impacted by a number of factors, including the type of instrument, the characteristics specific to the instrument, and the state of the marketplace (including the existence and transparency of transactions between market participants). Instruments with readily available actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. Instruments measured and reported at fair value are classified and disclosed in one of the following categories based on inputs: Level 1 Quoted prices are available in active markets for identical instruments as of the reporting date. The type of instruments that would generally be included in Level I include listed equity securities. As required by ASC Topic 820, the Foundation, to the extent that it holds such instruments, does not adjust the quoted price for these instruments, even in situations where the Foundation holds a large position and a sale could reasonably impact the quoted price. Level 2 Pricing inputs are observable for the instruments, either directly or indirectly, as of the reporting date. Some are quoted prices in markets with limited activity and some are not the same as those used in Level 1. In the case of the latter, fair value is determined through the use of models or other valuation methodologies. The types of instruments that would generally be included in this category include unlisted derivative financial instruments and certain investment funds valued based upon net asset value or publicly traded securities with limited trading activity. Level 3 Pricing inputs are unobservable for the instrument and include situations where there is little, if any, market activity for the instrument. The inputs into the determination of fair value require significant judgment or estimation by the Foundation. The types of instruments that would generally be included in this category include equity securities issued by private entities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given instrument is based on the lowest level of input that is significant to the fair value measurement. The Foundation s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the instrument. A Valuation Committee (the Committee ), led by the Chief Investment Officer and including the Chief Financial Officer and Vice President for Finance and Investment Staff, is responsible for establishing valuation policy, reviewing ongoing compliance, and overseeing valuation procedures. The Committee meets at least annually to review the valuation policy and make decisions on any valuations requiring the Committee s attention. Page 6

Investments Investments are reflected on the statements of financial position at fair value with changes in unrealized gains and losses resulting from changes in fair value reflected in the statements of activities and changes in net assets as net realized and unrealized gains on investments. Equity and fixed income securities that are classified as Level 1 are publicly traded investments in active markets and are reported at the market closing price as determined in good faith by the Foundation. Investments in equity and fixed income, hedge funds, private equity, limited partnerships, and real assets (the Investee Funds ) are reported at fair value. Fair value is based on the information provided by the Investee Funds, which reflects the Foundation s share of the fair value of the net assets of the investment fund. If the Foundation determines, based on its own due diligence and investment valuation procedures, that the valuation for any Investee Fund based on information provided by the management of such Investee Fund does not represent fair value, the Foundation will estimate the fair value of the Investee Fund in good faith and in a manner that it reasonably chooses. The values assigned to investments are based upon available information and do not necessarily represent amounts that might ultimately be realized, since such amounts depend on future circumstances and cannot be reasonably determined until the individual positions are liquidated. Investment transactions are recorded on a trade date basis for publicly traded investments or upon closing of the transaction for private investments. Real assets include limited partnerships invested in real assets and a real estate investment (see Note 2). The Foundation occupies a portion of the property related to the real estate investment. Derivative financial instruments Derivative financial instruments are recorded at their estimated fair market value in either investments (equity options) or derivative liabilities (interest rate swap agreements) in the accompanying statements of financial position (see Note 3). Changes in the underlying value of derivative financial instruments are recorded in net realized and unrealized gains on investments (equity options) or net realized and unrealized losses on derivative liabilities (interest rate swap agreements) in the accompanying statements of activities and changes in net assets. Contributions receivable Contributions receivable consist of unconditional promises to give. 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. Management believes the contributions receivable as of December 31, 2014 and 2013, approximate their net present value. Contributions receivable of approximately $8,139,000 as of December 31, 2014, are expected to be received as follows: $4,593,000 in 2015, $1,917,000 in 2016, and $1,629,000 in 2017. Property and equipment Property and equipment is recorded at cost, less any accumulated depreciation and amortization. The Foundation s policy is to capitalize all property and equipment additions over $5,000. Depreciation and amortization are provided on the straight line method over the estimated useful lives of the assets, which range from 3 to 40 years. Long lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. No such impairment was recorded during 2014 or 2013. Bond issuance costs Bond issuance costs resulting from the issuance of the District of Columbia Revenue Bonds (see Note 5) have been capitalized and are being amortized on a straight line method over the life of the bonds, which approximates the effective interest method. The carrying value and accumulated amortization of these costs are approximately $491,000 and $250,000, and $509,000 and $231,000 as of December 31, 2014 and 2013, respectively, and are included in accounts receivable, prepaid employee benefits, and other assets in the statements of financial position. Loan funding costs Loan funding costs resulting from securing a loan agreement (see Note 6) have been capitalized and are being amortized on a straight line method over the life of the loan, which approximates the effective interest method. The carrying value and accumulated amortization of these costs are approximately $5,000 and $7,000, and $7,000 and $5,000 as of December 31, 2014 and 2013, respectively, and are included in accounts receivable, prepaid employee benefits, and other assets in the statements of financial position. Grants Grants are recognized when unconditionally approved by the Board of Trustees. Grants are authorized subject to certain restrictions, and failure of the recipients to meet these restrictions may result in cancellations or refunds. Such cancellations or refunds are recognized in the year they occur. Page 7

Unrestricted net assets The Foundation reports gifts of cash and other assets as unrestricted support, as they are not subject to donor stipulations that limit the use of the donated assets. Temporarily restricted net assets Temporarily restricted net assets represent contributions whose use by the Foundation is limited by donor imposed stipulations that can be fulfilled and removed by actions of the Foundation pursuant to those stipulations (see Note 8). Revenue recognition Contributions are recognized as revenue when received or unconditionally promised. The Foundation reports contributions as restricted support if such contributions are received with donor stipulations that limit the use of the donated assets. When a donor restriction ends or is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported as net assets released from restrictions. Temporarily restricted contributions are reported as temporarily restricted support and net assets released from restrictions when the restriction is met in the same period as the contribution is received. Tax exempt status The Foundation is a private operating foundation and is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and from California franchise and income taxes under Section 23701d of the Revenue and Taxation Code. Income taxes The Foundation adopted ASC Topic 740, Income Taxes, in 2007. As of December 31, 2014, the Foundation had analyzed the inventory of tax positions taken with respect to all applicable income tax issues for all open tax years (in each respective jurisdiction), including December 31, 2014 and 2013, and had concluded that no reserve for uncertain tax positions was required. The open tax years that remain subject to federal and state examination include tax years 2011 to 2014. Concentrations of credit risk Financial instruments that potentially subject the Foundation to credit risk consist primarily of cash and cash equivalents, accounts receivable, contributions receivable, and investments. The Foundation maintains cash and cash equivalents with major financial institutions. At times, such amounts may exceed Federal Deposit Insurance Corporation limits. The Foundation s investments have been placed with high quality counterparties. The Foundation closely monitors these investments and has not experienced significant credit losses. The Foundation s management monitors credit levels and the financial condition of its accounts receivable and contributions receivable and believes that an adequate provision for credit losses has been made in the accompanying financial statements. Functional expense allocations Expenses, such as salaries and payroll taxes, travel and meeting expense, rent, and interest are allocated among direct charitable expenses, administrative expenses, and investment expenses based on employee ratios and estimates made by the Foundation s management. 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, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to the 2013 financial statements to conform to the 2014 financial statement presentation. These reclassifications had no impact on change in net assets or net asset balances. Page 8

NOTE 2 INVESTMENTS As of December 31, 2014 and 2013, the Foundation s investments consisted of the following: Equity securities $ 139,002,367 $ 146,561,540 Fixed income securities 11,909,740 17,209,996 Hedge funds 106,033,785 99,600,913 Private equity 189,858,602 137,178,652 Limited partnerships 33,847,178 31,636,280 Real assets 112,964,638 106,960,024 $ 593,616,310 $ 539,147,405 The Foundation had commitments under partnership agreements to make additional capital contributions to alternative investments of approximately $129,306,000 and $93,544,000 as of December 31, 2014 and 2013, respectively. Total realized and unrealized gains recorded for Level 3 investments are reported in net realized and unrealized gains from investments in the statements of activities and changes in net assets. Certain of the Foundation s investments are denominated in foreign currencies that may be negatively affected by movements in the rate of exchange between the U.S. dollar and such foreign currencies. There may also be risk associated with the concentration of investments in one geographic region or in certain industries. NOTE 3 FAIR VALUE MEASUREMENTS The levels in the ASC Topic 820 fair value hierarchy into which the Foundation s investments fall as of December 31, 2014 and 2013, are as follows: Level 1 Equities and fixed income securities $ 34,062 $ 28,020,039 Level 2 Equities and fixed income securities 132,789,320 118,446,372 Hedge funds 65,338,193 59,887,479 Limited partnerships 33,847,178 31,636,280 Total Level 2 231,974,691 209,970,131 Level 3 Equities and fixed income securities 18,088,725 17,305,125 Hedge funds 40,695,592 39,713,434 Private equity 189,858,602 137,178,652 Real assets 112,964,638 106,960,024 Total Level 3 361,607,557 301,157,235 Total investments $ 593,616,310 $ 539,147,405 Page 9

The changes in investments classified as Level 3 for the years ended December 31, 2014 and 2013 are as follows: Equities and Fixed Limited Income Securities Hedge Funds Private Equity Partnerships Real Assets Total Level 3 Balance, January 1, 2013 $ $ 34,880,512 $ 114,978,167 $ 10,140,595 $ 100,047,965 $ 260,047,239 Reclass within Level 3 (2,237,967) 2,237,967 Purchases and other acquisitions 15,000,000 25,741,976 10,944,129 51,686,105 Sales and other dispositions (3,000,000) (19,510,169) (11,338,546) (14,205,973) (48,054,688) Realized (depreciation) appreciation 3,982,528 1,771,854 5,754,382 Unrealized (depreciation) appreciation 2,305,125 7,832,922 14,224,117 (573,903) 7,935,936 31,724,197 Balance, December 31, 2013 17,305,125 39,713,434 137,178,652 106,960,024 301,157,235 Reclass within Level 3 Purchases and other acquisitions 60,061,238 9,211,266 69,272,504 Sales and other dispositions (39,402,806) (19,927,361) (59,330,167) Realized (depreciation) appreciation 8,807,200 8,066,667 16,873,867 Unrealized (depreciation) appreciation 783,600 982,158 23,214,318 8,654,042 33,634,118 Balance, December 31, 2014 $ 18,088,725 $ 40,695,592 $ 189,858,602 $ $ 112,964,638 $ 361,607,557 Transfers of investments between different levels of the fair value hierarchy are recorded as of the end of the reporting period. Changes in the unrealized gains in the investments included on the statements of activities and changes in net assets relating to Level 3 investments still held at December 31, 2014 and 2013, were approximately $37,435,000 and $32,340,000, respectively. Investment strategy and redemption information The following table summarizes the investment strategy types and various features of the investment portfolio classified as Level 2 or 3 as of December 31, 2014. The Foundation has commitments under the associated investment agreements to make additional capital contributions as noted. Unfunded Commitments Redemption Frequency (if Currently Eligible) Redemption Notice Period Fair Value Level 2 Quarterly, semiannually, Equities and fixed income securities $ 132,789,320 $ 7,000,000 annually 30 180 days notice Hedge funds 65,338,193 Quarterly 60 180 days notice Limited partnerships 33,847,178 8,184,000 Quarterly 60 days notice Level 3 Equities and fixed income securities 18,088,725 Biennially/Triennally 90 days notice Quarterly, annually, Hedge funds 40,695,592 triennially 60 days notice Private equity 189,858,602 112,969,827 Illiquid Real assets 112,964,638 1,151,724 Illiquid The equities and fixed income securities category represents investments with managers investing in publicly traded, medium to large capitalization global equities and fixed income securities. Managers may occasionally employ a currency hedge to manage foreign currency exposure, but such instruments generally do not affect portfolio liquidity. The hedge funds category represents investments with managers investing both long and short in global debt and equity securities. Managers have latitude to shift investment strategies and security types to exploit market inefficiencies, as well as employ leverage. The fair values of investments in this category have been determined using the net asset value per share of the investment funds. The limited partnerships category represents investments with managers that pursue multiple strategies to diversify risk and reduce volatility, expecting to exploit short term market inefficiencies and generate positive returns regardless of market direction. The private equity category represents investments with managers investing in a broad range of privately owned, domestic and foreign companies. Underlying strategies within this category include venture capital, leveraged buyouts and distressed debt. Managers work closely with portfolio companies to create fundamentally more valuable businesses, distributions generally resulting from the sale or liquidation of assets. Investment periods range from three to six years, managers generally attempting to fully liquidate a portfolio of investments within 10 years, although managers may extend their time to liquidate if necessary. The real assets category is comprised of the Foundation s investments in real estate, forestland and energy related private partnerships. The fair values of investments in this category have been determined using the net asset value per share of the investment funds ( NAV ), or in cases where a NAV is not available, recent appraisal information. Page 10

The levels in the ASC Topic 820 fair value hierarchy into which the Foundation s receivable for unsettled investment transactions fell as of December 31, 2014 and 2013, are as follows: Receivable for Unsettled Investment Transactions Level 1 Equities and fixed income securities $ 7,472 $ 5,516 Level 2 Hedge funds 2,500,000 Limited partnerships 1,000,000 Total Level 3 3,500,000 Level 3 Hedge funds 1,207,761 21,972,872 Private equity 30,420 Real Assets 1,805,000 Total Level 3 3,043,181 21,972,872 Total investments $ 6,550,653 $ 21,978,388 There were no payable for unsettled investment transactions as of December 31, 2014 and 2013. Derivatives The Foundation accounts for derivative financial instruments as either assets or liabilities measured at fair value. The Foundation uses derivative instruments to manage its exposure to market risks, including inflation, for income enhancement and to provide equity exposure without actual ownership of the underlying asset. The Foundation s management believes the use of such instruments in its investment management program is appropriate in providing for the long term and short term financial needs of the Foundation. Though the use of these instruments reduces certain investment risks and generally adds value to the portfolio, the instruments themselves do involve some investment and counterparty risk. In 2013, the Foundation entered into a series of equity option contracts. To date, the Foundation has used interest rate swap agreements to mitigate the risk of changes in interest rates associated with variable interest rate indebtedness (see Notes 5 and 6). As of December 31, 2014 and 2013, the fair values of derivatives consisted of the following: Statements of Financial Position Fair Value Location Asset Equity options Investments $ 1,207,761 $ 542,219 Liability Interest rate swap agreements Derivative liabilities $ 15,705,261 $ 8,886,002 The estimated fair value of the equity options and the interest rate swap agreements are based on quotes from the market makers for similar instruments and, therefore, are classified as Level 2 under the ASC Topic 820 fair value hierarchy. Page 11

Amounts reflected in net payments made to counterparts and net realized and unrealized (gains) losses pertaining to equity options and interest rate swap agreements for the years ended December 31, 2014 and 2013, are as follows: Net Payments Made Net Realized and to Counterparts Unrealized (Gains) Losses Equity options $ 1,005,684 $ $ 340,142 $ (8,854,828) Interest rate swap agreements 2,297,655 2,201,596 6,819,259 Total $ 3,303,339 $ 2,201,596 $ 7,159,401 $ (8,854,828) NOTE 4 PROPERTY AND EQUIPMENT As of December 31, 2014 and 2013, property and equipment consisted of the following: Land $ 7,463,063 $ 7,463,063 Buildings and improvements 33,409,193 33,325,236 Office furniture and equipment 7,464,704 7,715,637 48,336,960 48,503,936 Accumulated depreciation (16,699,862) (16,037,250) 31,637,098 32,466,686 Construction in progress 410,487 Property and equipment net $ 32,047,585 $ 32,466,686 NOTE 5 BONDS PAYABLE In June 2001, the District of Columbia issued $42,000,000 in tax exempt revenue bonds (District of Columbia Revenue Bonds The Henry J. Kaiser Family Foundation Issue Series 2001) (the Bonds ) on behalf of the Foundation. The Bonds bear interest, payable monthly, in arrears, at various weekly rates, as defined, which ranged from 0.06% to 0.32% during 2014 and from 0.05% to 0.28% during 2013, and will mature, subject to prior redemption, on July 1, 2041. The Bonds represent an unsecured general obligation of the Foundation. As of December 31, 2014 and 2013, the effective interest rate of the Bonds was 0.07% and 0.16%, respectively. Interest paid in 2014 and 2013 amounted to approximately $56,000 and $59,000, respectively, including accrued interest of $3,000 and $6,000 as of December 31, 2014 and 2013. In conjunction with the agreement, the Foundation is required to be in compliance with certain covenants. The Bonds are carried at face value, and, as they are variable rate bonds supported by a credit facility, this also represents their fair market value. They are classified as Level 2 in the ASC Topic 820 fair value hierarchy. Interest rate swap agreements Interest rate swap agreements are used by the Foundation to mitigate the risk of changes in interest rates associated with variable interest rate indebtedness. Under such arrangements, variable rate indebtedness is converted to fixed rates based on a notional principal amount. The interest rate swap agreements related to the Bonds effectively fix the interest rate on a notional amount of $42,000,000 at 3.46% for the remaining term of the Bonds (see Note 3). NOTE 6 NOTE PAYABLE In February 2011, the Foundation secured a $35,000,000, six year, variable rate, interest only loan with its custodial bank, The Northern Trust Company (the Northern Trust Loan ), of which $31,500,000 has been drawn as of December 31, 2014 and 2013. The Northern Trust Loan is secured by the Foundation s Level 1 equity and fixed income securities and cash and cash equivalents. Page 12

The Northern Trust Loan bears interest, payable monthly, in arrears, at a variable rate of 0.70% per annum in excess of the onemonth BBA LIBOR. The Northern Trust Loan interest rate paid ranged from 0.85% to 0.87% during 2014 and from 0.87% to 0.91% during 2013. Interest paid in 2014 and 2013 amounted to $297,000 and $304,000, respectively, including accrued interest of $37,000 and $24,000, as of December 31, 2014 and 2013. As of December 31, 2014 and 2013, the effective interest rate of the Northern Trust Loan was 0.86% and 0.87%, respectively. The loan is carried at face value, which, as a variable rate, interest only obligation, also approximates fair market value. It is classified as Level 2 in the ASC Topic 820 fair value hierarchy. In conjunction with the borrowing, the Foundation also entered into an interest rate swap agreement with Northern Trust effectively fixing the interest rate of the $31,500,000 loan at 2.94% (see Note 3). Line of credit In 2013, the Foundation secured a $40,000,000 revolving line of credit agreement with Bank of America for operational purposes. The outstanding balance accrues interest at the annual rate of BBA LIBOR Daily Floating rate plus fifty (50) basis points and is paid on a monthly basis in arrears on amounts drawn. Additionally, all undrawn amounts are subject to a commitment fee of ten (10) basis points annually, also paid on a monthly basis in arrears. The Foundation repaid all outstanding principal and interest in December 2013, prior to the expiration date of the agreement, January 2, 2014. In January 2014, the Foundation renewed a $35,000,000 revolving line of credit agreement with Bank of America for operational purposes. The outstanding balance accrues interest at the annual rate of LIBOR Daily Floating rate plus fifty (50) basis points and is paid on a monthly basis in arrears on amounts drawn. Additionally, all undrawn amounts are subject to a commitment fee of ten (10) basis points annually, also paid on a monthly basis in arrears. The Foundation repaid all outstanding principal and interest in December 2014, prior to the expiration date of the agreement, January 2, 2015. NOTE 7 FEDERAL, STATE, AND LOCAL TAXES The provision for current and deferred taxes for the years ended December 31, 2014 and 2013, was as follows: Provision for federal excise taxes Current $ 461,057 $ (154,192) Deferred 2,005,492 (181,764) 2,466,549 (335,956) Other federal, state and local taxes (61,470) 122,006 $ 2,405,079 $ (213,950) The Foundation is a private operating foundation exempt from income tax under Internal Revenue Code 501(c)(3) and as such subject to a federal excise tax on net investment income at a rate of 2%, or 1% if certain distribution criteria are met. The Foundation received advance ruling from the IRS of public charity status for a 60 month period beginning January 1, 2014. If the Foundation satisfies the requirements of section 507(b)(1)(B) of the Code, the Foundation will no longer be subject to the federal excise tax on net investment income. For the year ended December 31, 2013, the Foundation s excise tax rate was 2%. In addition, the Foundation records deferred excise taxes, which arise primarily from unrealized tax basis gains on investments. For the year ended December 31, 2014, deferred taxes have been calculated at an effective rate of 2%, which is the maximum rate possible to be paid by the Foundation on such amounts. Page 13

NOTE 8 TEMPORARILY RESTRICTED NET ASSETS AND NET ASSETS RELEASED FROM RESTRICTIONS As of December 31, 2014 and 2013, temporarily restricted net assets consisted of the following: U.S. role in global health $ 3,538,408 $ 5,946,358 U.S. health policy analysis and reporting 6,416,838 7,242,879 Public education partnerships 1,275,415 560,945 Net assets released from restrictions for the years ended December 31, 2014 and 2013, were as follows: $ 11,230,661 $ 13,750,182 U.S. role in global health $ 2,408,124 $ 2,241,152 U.S. health policy analysis and reporting 2,906,876 1,255,735 Public education partnerships 1,440,748 1,918,295 $ 6,755,748 $ 5,415,182 NOTE 9 EMPLOYEE RETIREMENT AND OTHER ACCRUED BENEFITS The Foundation sponsors a qualified defined benefit pension plan for substantially all of its employees, based on years of service and average compensation (compensation of a participant averaged over the three consecutive plan years that produce the highest yearly average). Employees vest in their benefits under the following schedule: 20% after three years of service, 40% after four years of service, and 100% after five years of service. The defined benefit pension plan was amended on January 7, 2013, to cease all future benefit accruals effective February 28, 2013, and to fully vest all active employees with service through December 31, 2012. As a result, the pension benefit formula will not reflect future salary increases or benefit service after February 28, 2013. In addition, the Foundation provides certain postretirement health care benefits to eligible employees. Estimated cost is accrued over periods of employee service on an actuarially determined basis. The Foundation has determined that prescription drug benefits included in its postretirement health care plan is actuarially equivalent to Part D of the Medicare Prescription Drug Improvement and Modernization Act of 2003. However, as the amount of subsidy the Foundation is eligible for is not material, no reduction has been made to the postretirement obligations included in the accompanying financial statements. The Foundation used a December 31 measurement date for its defined benefit pension plan and its other postretirement benefit plan. The Foundation also sponsors a qualified defined contribution plan covering substantially all of its employees. The plan is funded by employee and employer contributions. The Foundation contributes an amount based upon eligible compensation as defined in the plan. Pension expense related to this plan was approximately $2,454,000 and $2,376,000 for the years ended December 31, 2014 and 2013, respectively. In addition, accounts payable, accrued benefits, and other liabilities on the statements of financial position included approximately $608,000 and $506,000 of accrued employee benefits associated with certain unfunded executive compensation plans, which provided for life insurance and certain other benefits and approximately $3,408,000 and $3,211,000 of accrued flexible time off and sabbatical leave as of December 31, 2014 and 2013, respectively. Page 14

Obligations and funded status For the years ended December 31, 2014 and 2013, the benefit obligations, the fair value of assets, and the funded status for the defined benefit, including a nonqualified defined pension plan for a former executive, and the postretirement benefit plans are as follows: Pension Benefits Other Postretirement Benefits Projected benefit obligation as of January 1 $ 17,581,800 $ 20,940,166 $ 20,821,476 $ 20,380,248 Service cost 183,781 1,234,689 1,422,917 Interest cost 801,666 775,827 1,023,250 841,667 Benefits paid (1,617,993) (967,804) (307,237) (271,854) Actuarial (gain) loss 3,410,275 (3,350,170) 7,517,123 (1,551,502) Projected benefit obligation as of December 31 20,175,748 17,581,800 30,289,301 20,821,476 Fair value of plan assets as of December 31 13,151,301 14,434,846 4,655,263 4,438,671 Funded status $ (7,024,447) $ (3,146,954) $ (25,634,038) $ (16,382,805) The costs, contributions, and benefits paid for the years ended December 31, 2014 and 2013, for the defined benefit and the postretirement benefit plans are as follows: Pension Benefits Other Postretirement Benefits Benefit cost $ 285,502 $ 73,282 $ 2,056,095 $ 2,385,450 Employer contribution 135,000 250,000 Expenses paid (154,933) Benefits paid (1,617,993) (967,804) (307,237) (271,854) Amounts not yet reflected in net periodic benefit cost, included in the change in net assets as of December 31, 2014 and 2013, consisted of the following: Pension Benefits Other Postretirement Benefits Prior service cost $ $ $ (554,816) $ (618,464) Accumulated loss (4,911,802) (1,319,811) (11,183,844) (3,675,058) Accumulated other comprehensive income (4,911,802) (1,319,811) (11,738,660) (4,293,522) Cumulative employer contributions in excess of net periodic benefit cost (2,112,645) (1,827,143) (13,895,378) (12,089,283) Net amount recognized in statements of financial position $ (7,024,447) $ (3,146,954) $ (25,634,038) $ (16,382,805) The components of the pension benefit and other postretirement benefit related changes other than net periodic cost reflected in the statements of activities and changes in net assets for the years ended December 31, 2014 and 2013, are as follows: Pension Benefits Other Postretirement Benefits Amortization of prior service cost $ $ $ (63,648) $ (63,648) Amortization of net (gain) / loss (393,666) (98,336) (89,602) (325,234) Net (gain) / loss 3,985,657 (5,046,268) 7,598,388 (2,492,841) $ 3,591,991 $ (5,144,604) $ 7,445,138 $ (2,881,723) Amounts to be reflected in 2015 are as follows: Pension Benefits Other Postretirement Benefits Prior service cost $ $ 63,648 Accumulated loss 60,071 584,163 Accumulated other comprehensive income $ 60,071 $ 647,811 Page 15

The accumulated benefit obligation for the defined benefit pension plans was approximately $20,176,000 and $17,582,000 as of December 31, 2014 and 2013, respectively. Assumptions The weighted average assumptions used in computing the projected benefit obligations as of December 31, 2014 and 2013, are as follows: Pension Benefits Other Postretirement Benefits Discount rate 3.90% 4.75% 4.05% 5.05% The weighted average assumptions used in computing the net periodic pension cost for the years ended December 31, 2014 and 2013, are as follows: Pension Benefits Other Postretirement Benefits Discount rate 4.75% 3.80% 5.05% 4.10% Expected return on plan assets 8.00% 8.00% 8.00% 8.00% To develop the expected long term rate of return on assets assumption, the Foundation considered the historical returns and the future expectations for returns for each asset class in the qualified defined benefit pension plan s investment fund, as well as its target asset allocation. The trend rate for health care benefits for 2014 and 2013, was 7.75% and 8.50%, respectively. In subsequent years, the rate of increase is assumed to decline until an ultimate rate of 5.00% is attained in 2021 and 2019 for 2014 and 2013, respectively. The funding policy for the Foundation s plans is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws plus such additional amounts as may be determined to be appropriate. The Foundation contributed $0 and $135,000 to its defined benefit pension plan in 2014 and 2013, respectively. Plan assets The reconciliation of the changes in the plan assets of the Foundation s defined benefit pension fund and retirement medical fund as of December 31, 2014 and 2013, was as follows: Defined Benefit Pension Fund Retirement Medical Fund Fair value as of January 1 $ 14,434,846 $ 12,586,890 $ 4,438,671 $ 3,501,170 Actual gain on plan assets 489,381 2,680,760 273,829 1,209,355 Employer contributions 135,000 250,000 Expenses paid (154,933) Benefits paid (1,617,993) (967,804) (307,237) (271,854) Fair value as of December 31 $ 13,151,301 $ 14,434,846 $ 4,655,263 $ 4,438,671 The asset allocation of the Foundation s defined benefit pension fund and retirement medical fund as of December 31, 2014 and 2013, was as follows: Defined Benefit Pension Fund Retirement Medical Fund Asset Classes Level 1 Cash and cash equivalents $ 2,104,208 $ 639,771 $ 651,737 $ 262,722 Marketable equity securities 7,496,242 11,035,173 3,212,132 3,417,840 Fixed income securities 3,419,338 2,725,601 698,289 751,840 Other 131,513 34,301 93,105 6,269 Total Level 1 $ 13,151,301 $ 14,434,846 $ 4,655,263 $ 4,438,671 The plans invest in mutual funds that seek a high total return by investing in a portfolio of cash, common stocks, treasuries, corporate bonds, mortgage backed international fixed income securities, and money market instruments. Page 16

Allocation of plan assets may change over time based upon investment manager determination of the relative attractiveness of each security type. The Foundation periodically assesses allocation of plan assets by investment type and evaluates external sources of information regarding the long term historical returns and expected future returns for each investment type. The Foundation s target and actual asset allocation at December 31, 2014 and 2013, are as follows: Defined Benefit Pension Fund Target Allocation Actual Allocation Target Allocation Actual Allocation Cash and cash equivalents 9.00% 16.00% 9.00% 4.43% Marketable equity securities 79.00% 57.00% 79.00% 76.45% Fixed income securities 12.00% 26.00% 12.00% 18.88% Other 0.00% 1.00% 0.00% 0.24% 100.00% 100.00% 100.00% 100.00% Retirement Medical Fund Target Allocation Actual Allocation Target Allocation Actual Allocation Cash and cash equivalents 3.00% 14.00% 3.00% 5.92% Marketable equity securities 80.00% 69.00% 80.00% 77.00% Fixed income securities 15.00% 15.00% 15.00% 16.94% Other 2.00% 2.00% 2.00% 0.14% 100.00% 100.00% 100.00% 100.00% Cash Flows Contributions The Foundation s funding policy is to fund both its defined benefit pension plan and retirement medical fund with at least the minimum required contribution. The Foundation contributed $250,000 to its retirement medical plan in 2014 and $135,000 to its defined benefit pension plan in 2013. The Foundation expects to contribute additional amounts in future years as necessary. Estimated Future Benefit Payments Anticipated future benefit payments, which reflect future services, to be paid either from future contributions to the plan or directly from plan assets, are as follows: Other Postretirement Year Ending December 31, Pension Benefits Benefits 2015 $ 2,331,000 $ 383,000 2016 2,561,000 435,000 2017 520,000 473,000 2018 740,000 545,000 2019 404,000 624,000 2020 2023 3,562,000 4,430,000 NOTE 10 SUBSEQUENT EVENTS In January 2015, the Foundation renewed a $35,000,000 revolving line of credit agreement with Bank of America for operational purposes, of which $35,000,000 was drawn in January 2015. The outstanding balance accrues interest at the annual rate of LIBOR Daily Floating rate plus fifty (50) basis points and is paid on a monthly basis in arrears on amounts drawn. Additionally, all undrawn amounts are subject to a commitment fee of ten (10) basis points annually, also paid on a monthly basis in arrears. The Foundation must repay all outstanding principal and interest at the expiration date of the agreement, currently January 2, 2016. As of June 10, 2015, the Foundation is in the process of offering $100,000,000 of taxable bonds, the proceeds of which will be used to repay the $42,000,000 of 2001 District of Columbia Revenue Bonds and the $35,000,000 loan with Northern Trust. ASC Topic 855, Subsequent Events, requires accounting for and disclosures of events that occur after the date of the statements of financial position, but before the financial statements are issued or are available to be issued. The Foundation evaluated subsequent events through June 10, 2015, the date the financial statements were available to be issued, and determined that no additional disclosures were necessary. Page 17