OREGON HEALTH & SCIENCE UNIVERSITY FOUNDATION (A Component Unit of Oregon Health & Science University)

Financial Statements and Required Supplementary Information (With Independent Auditors Report Thereon)

KPMG LLP Suite 3800 1300 South West Fifth Avenue Portland, OR 97201 Independent Auditors Report The Board of Trustees Oregon Health & Science University Foundation: We have audited the accompanying statements of net position of Oregon Health & Science University Foundation (the Foundation), a component unit of Oregon Health & Science University, as of June 30, 2017 and 2016, and the related statements of revenues, expenses, and changes in net position 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 U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the 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. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Oregon Health & Science University Foundation as of, and the changes in its financial position and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles. KPMG LLP is a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity.

Other Matter U.S. generally accepted accounting principles require that the management s discussion and analysis, on pages 3 through 9, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Government Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Portland, Oregon October 20, 2017 2

Management s Discussion and Analysis (Unaudited) This section of the Oregon Health & Science University Foundation (OHSUF or the foundation) financial report presents a discussion and analysis of the foundation s financial performance during the fiscal years ended. This discussion has been prepared and approved by management along with the financial statements and related note disclosures, and should be read in conjunction with and is qualified in its entirety by the financial statements and notes. The discussion and analysis focuses on current activities, resulting changes, and current known facts. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the basic financial statements provided in this report. The foundation s basic financial statements include the statements of net position; the statements of revenues, expenses, and changes in net position; the statements of cash flows; and the notes to the financial statements. The statements of net position and the statements of revenues, expenses, and changes in net position provide information about the activities of the foundation as a whole and present a longer-term view of the foundation s finances. The statements of net position present the foundation s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of the success of fund-raising and investment strategies and the level of program support provided to Oregon Health & Science University (OHSU). The statements of revenues, expenses, and changes in net position present financial results for the foundation by separating operating revenues and operating expenses from nonoperating activities and other changes in net position. Evaluating the amount of operating income or loss can help determine if current contributions are keeping pace with program service spending; coupled with the costs of operating the foundation. The section of the report that shows nonoperating activities and other changes in net position quantifies the financial impact of nonexpendable contributions and other activities and transactions that took place during the reporting period. The level of investment income during the reporting period provides an indication of how investment activity is impacting the value of foundation funds held in its investment pools. The statements of cash flows present information related to cash inflows and outflows summarized by operating activities, noncapital financing activities, capital and related financing activities, and investing activities. This statement will help to analyze which foundation activities (operating, noncapital financing, capital, or investing) are producing or utilizing cash in the time periods represented in the financial reports. The financial statements described above can be found on pages 10 13 of this report. The notes to the financial statements can be found on pages 14 38. Financial Highlights Total contributions (including nonexpendable donations and life income agreements) to OHSUF in fiscal year 2017 totaled $84.1 million. When compared to the prior year, 2017 contribution levels decreased by $461.0 million or 84.6%, due primarily to a $500.0 million gift from Phil and Penny Knight for the Knight Cancer Challenge in the prior year. Total contributions to OHSUF in fiscal year 2016 totaled $545.1 million. When compared to the prior year, 2016 contribution levels increased by $360.5 million or 195.3%. 3 (Continued)

Management s Discussion and Analysis (Unaudited) Program services provided to OHSU totaled $112.1 million. This level of program support was 0.1% lower than the $112.2 million provided in fiscal year 2016, a decrease of $0.1 million. Program services for 2016 increased by $21.0 million as compared to 2015. Program support for 2017 was in line with 2016. During 2016, program support for capital projects was decreased by $2.5 million, from $3.4 million to $0.9 million, primarily related to support provided in 2015 for the new School of Dentistry. Program support for research increased by $13.6 million during 2016 from $50.1 million to $63.7 million primarily as a result of increased demand for support due to reductions in National Institute of Health funding. Investment performance for OHSUF is primarily composed of the investment results of the endowment fund investment pool (endowment fund) and current fund investment pool (current fund). The current fund is comprised of separate investment vehicles with varying objectives based on the liquidity needs of the foundation, as discussed in note 4. Fiscal year 2017 investment returns resulted in a net gain of $76.3 million. Fiscal year 2016 investment returns resulted in a net loss of $2.5 million. The 2017 investment performance of the endowment fund, which is a fully diversified investment portfolio, resulted in a 15.7% net investment gain, which exceeded the benchmark return for the portfolio of 12.6%. The 2016 investment performance of the endowment fund resulted in a 3.4% net investment loss, which trailed the benchmark return for the portfolio of (1.9%). The fiscal year 2017 investment return of the current fund s reserve fund (C/F reserve) was 1.1%, which exceeded the benchmark return of 0.5% for the portfolio. The fiscal year 2017 investment return of the short duration 1-5 year separately managed account (C/F 1-5 year) within the current fund pool was 0.3%, which exceeded the benchmark return of 0.1% for the portfolio. During fiscal year 2016, the investment return of the C/F reserve and C/F 1-5 year accounts was 0.6% (exceeding the benchmark return of 0.2% for the portfolio) and 2.9% (exceeding the benchmark return of 2.6% for the portfolio). In fiscal year 2017, the fair value of OHSUF s endowment fund increased by $91.2 million or 20.1% and the fair value of the current fund increased by $35.8 million or 11.8%. In fiscal year 2016, the fair value of OHSUF s endowment fund decreased by $0.1 million and the fair value of the current fund increased by $13.6 million or 4.7%. Donations and investment gains, less operating expenses, contributed to an increase of $41.4 million in total net position in fiscal year 2017. As of June 30, 2017, OHSUF had total assets of $1.5 billion, total liabilities of $0.2 billion and net position of $1.3 billion. In September 2013, Phil and Penny Knight challenged OHSUF (the Knight Cancer Challenge) to raise $500 million which they would match for a total of $1 billion. The Knight Cancer Challenge was successfully met in June 2015. Many of the contributions from this challenge, primarily those related to pledges for endowment and certain designated estates, will be recognized in future financial periods in accordance with the accounting rules as promulgated by the Governmental Accounting Standards Board. These funds will be used to help in the fight to eradicate cancer, particularly through advanced early detection. Assets OHSUF s assets primarily consist of cash and cash equivalents, net pledges and estates receivable, and long-term investments. On the statements of net position, assets are classified based on the type of underlying investment as of the date of the statements of net position and considering restrictions on associated assets. Highlights related to specific asset types include the following: Current assets consist of cash and cash equivalents, short-term investments, accrued interest on investments, prepaid expenses, and the current portion of net restricted pledges and estates receivable. 4 (Continued)

Management s Discussion and Analysis (Unaudited) Cash and cash equivalents and short-term investments balances on June 30, 2017 totaled $24.9 million. Cash and cash equivalents and short-term investments totaled $41.5 million and $21.0 million on June 30, 2016 and 2015, respectively. Pledges and estates receivable, current portion includes the value of outstanding pledges (less an allowance for uncollectible accounts) and the estimated value of estates of which the foundation is a named beneficiary (less an allowance for uncollectible estates receivable). On June 30, 2017, the foundation had net pledges receivable of $564.4 million and estates receivable of $0.3 million. The current portion of net pledges and estates receivable is $59.3 million at June 30, 2017. On June 30, 2016, the foundation had net pledges receivable of $610.7 million and estates receivable of $2.8 million. The current portion of net pledges and estates receivable is $65.5 million at June 30, 2016. On June 30, 2015, the foundation had net pledges receivable of $199.9 million and estates receivable of $1.6 million. The current portion of net pledges and estates receivable is $43.4 million at June 30, 2015. The value of the outstanding pledges in 2017, 2016, and 2015 includes $460.0 million, $504.9 million, and $41.0 million, respectively, which is the combined remaining balance of the $500 million pledge received in 2016 for the Knight Cancer Challenge, the $100 million pledge received in 2013 for support of the OHSU Knight Cardiovascular Institute and the $100 million pledge received in 2009 for support of the OHSU Knight Cancer Institute. Noncurrent assets consist of restricted cash and long-term investments, accounts receivable from OHSU, the long-term portion of net restricted pledges receivable (less a discount for present value and an allowance for uncollectible amounts), other receivables and capital assets, net of accumulated depreciation. Long-term investments consist of assets invested in the current fund, the endowment fund, and assets related to life income agreements. Long-term and restricted investments totaled $908.5 million as of June 30, 2017, an increase of $143.8 million over the prior fiscal year. During 2017, the OHSUF portion of the endowment pool increased by $91.2 million and the OHSUF portion of the current fund increased by $35.8 million. Changes in the value of long-term investments during 2017 resulted primarily from new contributions and pledge payments, a transfer received for the Oregon Rural Health Initiative (ORHI) as discussed in note 8(d), and investment gains, offset by program service expenses. As of June 30, 2016, long-term and restricted investments totaled $764.7 million, a decrease of $15.8 million from 2015. Changes in the value of long-term investments during 2016 resulted primarily from liquidations in the endowment portfolio made to fund spending distributions and investment losses, offset new contributions and pledge payments. Pledges, noncurrent net of discounts total $505.4 million at June 30, 2017, $547.9 million at June 30, 2016, and $158.2 million at June 30, 2015. For further information on pledges receivable, refer to the information provided above and in note 5. Capital assets, net of accumulated depreciation totaled $0.4 million at the end of 2017, $0.1 million at the end of 2016, and $0.2 million at the end of 2015. 5 (Continued)

Management s Discussion and Analysis (Unaudited) Total assets were $1.5 billion, $1.4 billion, and $1.0 billion as of June 30, 2017, 2016, and 2015, respectively. Assets increased in 2017 when compared to 2016 by $0.1 billion or 5.5%. Assets increased in 2016 when compared to 2015 by $0.4 billion or 40.9%. The increases in total assets are related to new contributions received, investment gains, and a transfer for ORHI, in excess of operating expenses. Liabilities Current liabilities consist of accounts payable and accrued liabilities, a significant portion of which is due to OHSU and ORHI, and the current portion of leasehold incentives related to the Salmon Street office location. Current liabilities totaled $81.9 million on June 30, 2017, $54.4 million on June 30, 2016, and $53.8 million on June 30, 2015. The 2017 balance is an increase of $27.5 million from 2016, primarily as a result of the transfer received from ORHI, see further discussion at note 8(d). The 2016 balance is an increase of $0.6 million from 2015, primarily related to fluctuations in the amount due to OHSU. Fluctuations in the amounts due to OHSU are expected to occur each year based on the timing of reimbursements to OHSU for expenditures of amounts in accordance with donor intent. Noncurrent liabilities of $98.9 million, $89.6 million, and $97.2 million at June 30, 2017, 2016, and 2015, respectively, consist of funds held by the foundation that were due to other institutions, the liability for life income agreements, and other noncurrent liabilities. Other noncurrent liabilities increased in 2017 primarily as a result of investment gains in a pending fund. The values of the liability for life income agreements decreased $5.3 million or 18.9% in 2016, as compared to 2015, primarily due to investment losses experienced in the trust accounts and liabilities that have been written-off related to life income agreements that terminated during 2016. Total liabilities are equal to approximately 12.0%, 10.1%, and 14.9% of foundation assets as of June 30, 2017, 2016, and 2015, respectively. Net Position Net position is classified as net investment in capital assets, restricted, or unrestricted. Restricted net position is classified as nonexpendable or expendable. Nonexpendable net position is required to be retained in perpetuity. Expendable net position may be spent in the future in accordance with specified donor or other externally imposed restrictions. Highlights of significant changes in net position are provided below: Nonexpendable restricted net position totaled $207.2 million, $191.4 million, and $185.4 million as of June 30, 2017, 2016, and 2015, respectively. The increases of $15.8 million from 2016 to 2017 resulted primarily from new contributions and investment gains. The increase of $6.0 million from 2015 to 2016 resulted primarily from new contributions offset by investment losses. Expendable restricted net position totaled $1.1 billion, $1.0 billion, and $0.6 billion on June 30, 2017, 2016, and 2015, respectively. This represents increases of $0.1 billion in 2017 and $0.4 billion in 2016 primarily resulting from new contributions received for program support and investment gains offset by program support expenses. Unrestricted net position totaled $53.7 million at June 30, 2017, $42.2 million at June 30, 2016, and $43.4 million at June 30, 2015. The increase in 2017 is primarily related to investment gains offset by 6 (Continued)

Management s Discussion and Analysis (Unaudited) supporting services. The decrease in 2016 is primarily related to use of reserves to fund foundation operations offset by investment growth in the current fund. Overall, as of June 30, 2017, net position totaled $1.3 billion. As of June 30, 2016, net position totaled $1.3 billion, an increase of $0.4 billion compared to the 2015 balance of $0.9 billion. This increase is primarily related to new contributions. Foundation Summary Schedule of Net Position June 30 2017 2016 2015 Noncapital assets $ 1,505,075 1,427,240 1,012,586 Capital assets 383 122 244 Total assets $ 1,505,458 1,427,362 1,012,830 Current liabilities $ 81,858 54,436 53,847 Noncurrent liabilities 98,935 89,620 97,185 Total liabilities $ 180,793 144,056 151,032 Net position: Net investment in capital assets $ 383 122 244 Restricted net position 1,270,562 1,240,950 818,122 Unrestricted net position 53,720 42,234 43,432 Total net position $ 1,324,665 1,283,306 861,798 Operating Revenues Operating revenues for fiscal year 2017 totaled $75.8 million, compared to $539.6 million in fiscal year 2016 and $176.2 million in fiscal year 2015. The primary component of operating revenues was contributions, which for 2017 totaled $72.2 million. For fiscal year 2017, this represents a decrease of $464.0 million or 86.5% from 2016 and for fiscal year 2016, an increase of $363.0 million or 209.7% from 2015. The higher level of operating revenues during 2016 primarily results from recording the $500.0 million pledge from Phil and Penny Knight for the Knight Cancer Challenge. Total contributions including nonexpendable contributions for 2017 primarily included new cash gifts of $43.4 million, new pledges of $29.7 million, bequests of $8.3 million and deferred irrevocable gifts of $2.1 million. Total contributions including nonexpendable contributions for 2016 primarily included new cash gifts of $29.4 million, new pledges of $498.2 million, bequests of $6.0 million and deferred irrevocable gifts of $10.3 million. Operating Expenses Program services expense provided to OHSU totaled $112.1 million in fiscal year 2017, $112.2 million in fiscal year 2016, and $91.2 million in fiscal year 2015. The level of support provided in 2017 is less than the level 7 (Continued)

Management s Discussion and Analysis (Unaudited) provided in 2016 by $0.1 million and the level of support provided in 2016 is more than the level provided in 2015 by $21.0 million. Program services expense for 2017 was in line with 2016. In 2016, transfers for research and academic support increased by $13.6 million and $10.8 million compared to 2015. The higher level of program services provided to OHSU during 2016 primarily results from demand for increased transfers for research as a result of a reduction in NIH funding from the federal government. Supporting services expense totaled $15.6 million for fiscal year 2017, $17.1 million for fiscal year 2016, and $16.8 million for fiscal year 2015. The level of expense in fiscal year 2017 reflects a decrease of $1.5 million or 8.6% from fiscal year 2016. The decrease during fiscal year 2017 is primarily due to a decline in advertising and professional services expenditures. The increase in 2016 over 2015 is primarily due increases in personnel expenses. Total operating expenses were $127.8 million in 2017, $129.3 million in 2016, and $108.0 million in 2015. Lower expenses in 2017 were primarily related to the decrease in supporting services expense. Higher expenses in 2016 were primarily related to the increased level of research and academic support program service expense provided to OHSU. Operating revenues less operating expenses resulted in an operating loss of $51.9 million in 2017, an operating income of $410.2 million and $68.2 million in 2016 and 2015, respectively. During 2017, program services and supporting services expenses exceeded contributions, resulting in an operating loss. During 2016 and 2015, contributions exceeded the level of program services and supporting services expenses, resulting in operating income. An operating loss occurs during times when contributions raised in prior years are used to fund current year programs and projects. The use of gift funds in a period other than when the gift is received occurs frequently and can be caused by a variety of factors. Examples of the types of situations that can cause this include when the receipt of a pledge or estate gift is included as contribution revenue in one year, but funded by the donor and used for program support in a subsequent year; when the use of funds are delayed because the donor s restrictions were not met in the year in which the gift was received; and when program expenses are supported by the endowment spending distribution, which is funded by investment income classified as nonoperating revenue. Nonoperating Activities Investment performance for OHSUF, net of investment management fees, resulted in an investment gain of $76.3 million in fiscal year 2017 an investment loss of $2.5 million in fiscal year 2016 and an investment gain of $0.6 million in fiscal year 2015. The fiscal year 2017 activities reflected a 15.7% gain on the endowment fund, compared to a 3.4% investment loss in 2016, and a 1.6% investment loss in 2015. Endowment investment performance exceeded the benchmark return for the portfolio by 3.1% in 2017, and trailed its total asset benchmark by 1.5% in 2016 and by 1.0% in 2015. The fiscal year 2017 activities reflect a 1.1% gain on the C/F reserve, compared to a 0.6% investment gain in 2016, and a 0.1% gain in 2015. The fiscal year 2017 activities reflect a 0.3% gain on the C/F 1-5 year account, compared to a 2.9% investment gain in 2016, and a 1.3% investment gain in 2015. Nonoperating activities also include the change in value of life income agreements. The foundation estimates its obligation to beneficiaries under life income agreements and the annual change in this estimate is recorded as a change in value of life income agreements in the accompanying statements of revenues, expenses, and changes in net position. The change in value of life income agreements was $3.6 million for 2017, $0.4 million for 2016 and $4.5 million for 2015. The change in value reflects investment gains and losses of the underlying investments of the life income trust agreements. 8 (Continued)

Management s Discussion and Analysis (Unaudited) Other nonoperating activities totaled $1.4 million in 2017, $4.5 million in 2016, and $2.9 million in 2015. Other Changes in Net Position Other changes in net position consist of nonexpendable donations and life income agreement donations of $12.0 million in 2017, $8.9 million in 2016, and $11.4 million in 2015. Changes in Net Position In fiscal year 2017, there was an increase in net position of $41.4 million compared to increase in net position of $421.5 million in 2016 and an increase in net position of $87.7 million in 2015. When comparing the current year performance to the prior years, each year has been impacted differently, with the primary drivers being contributions, program service expense and net investment income. The increase in net position in each of the years resulted from new contributions and investment return, offset by program services expense. Years ended June 30 2017 2016 2015 Operating revenues: Contributions $ 72,165 536,209 173,161 Other income 3,678 3,353 3,044 Total operating revenues 75,843 539,562 176,205 Operating expenses: Program services 112,118 112,213 91,223 Supporting services 15,642 17,123 16,763 Total operating expenses 127,760 129,336 107,986 Operating (loss) income (51,917) 410,226 68,219 Investment income (loss), net 76,320 (2,526) 617 Other nonoperating revenue 4,994 4,880 7,421 Income before other changes in net position 29,397 412,580 76,257 Nonexpendable donations 11,962 8,928 11,438 Change in net position 41,359 421,508 87,695 Beginning net position 1,283,306 861,798 774,103 Ending net position $ 1,324,665 1,283,306 861,798 The level of expendable and nonexpendable contributions raised totaled $84.1 million, $545.1 million, and $184.6 million in fiscal years 2017, 2016, and 2015, respectively. The foundation provided program services support to OHSU of $112.1 million in 2017, $112.2 million in 2016, and $91.2 million in 2015. 9

Statements of Net Position Assets 2017 2016 Current assets: Cash and cash equivalents $ 24,379 40,412 Short-term investments 480 1,076 Accrued interest on investments 914 1,205 Prepaid expenses 207 57 Pledges and estates receivable, current portion, net 59,301 65,513 Total current assets 85,281 108,263 Noncurrent assets: Restricted assets: Cash and long-term investments 804,832 717,129 Due from OHSU 4,552 5,042 Pledges, noncurrent, net 505,364 547,929 Total restricted assets 1,314,748 1,270,100 Long-term investments 103,640 47,539 Other receivables, net 1,406 1,338 Capital assets, net of accumulated depreciation of $1,639 and $1,515 respectively 383 122 Total noncurrent assets 1,420,177 1,319,099 Total assets $ 1,505,458 1,427,362 Liabilities and Net Position Current liabilities: Accounts payable and accrued liabilities $ 25,774 1,752 Due to OHSU 56,037 52,676 Leasehold incentives, current portion 47 8 Total current liabilities 81,858 54,436 Noncurrent liabilities: Due to other institutions 2,446 2,453 Liability for life income agreements 22,283 22,965 Other noncurrent liabilities 74,206 64,202 Total noncurrent liabilities 98,935 89,620 Total liabilities 180,793 144,056 Net position: Net investment in capital assets 383 122 Restricted for: Nonexpendable: Research 25,675 23,168 Academic support 70,953 66,220 Instruction 48,778 45,261 Student aid 42,974 40,186 Other 18,845 16,561 Total nonexpendable restricted net position 207,225 191,396 Expendable: Research 767,276 771,549 Academic support 154,548 149,230 Instruction 36,905 28,021 Capital projects and planning 42,788 40,229 Student aid 23,773 18,740 Clinical support 8,724 11,868 Institutional support 13,415 12,896 Other 15,908 17,021 Total expendable restricted net position 1,063,337 1,049,554 Total restricted net position 1,270,562 1,240,950 Unrestricted net position 53,720 42,234 Total net position 1,324,665 1,283,306 Total liabilities and net position $ 1,505,458 1,427,362 See accompanying notes to financial statements. 10

Statements of Revenues, Expenses, and Changes in Net Position Years ended 2017 2016 Operating revenues: Contributions: Donations $ 71,978 535,978 Annuity and life income agreements 187 231 Total contributions 72,165 536,209 Other income: Management fees 1,035 1,103 Other income 2,643 2,250 Total other income 3,678 3,353 Total operating revenues 75,843 539,562 Operating expenses: Program services: Research 70,236 63,655 Academic support 16,701 27,343 Instruction 6,633 8,102 Institutional support 846 675 Public service 2,952 2,975 Capital projects and planning 3,351 853 Student aid 3,029 2,921 Clinical support 8,180 5,661 Transfers to other institutions 190 28 Total program services 112,118 112,213 Supporting services: Salaries and other payroll expenses 13,312 13,005 Services and supplies 2,207 3,983 Depreciation 123 135 Total supporting services 15,642 17,123 Total operating expenses 127,760 129,336 Operating (loss) income (51,917) 410,226 Nonoperating activities: Investment income (loss), net of investment fees of $5,028 and $7,068 in 2017 and 2016, respectively 76,320 (2,526) Change in value of life income agreements 3,598 380 Other nonoperating activities 1,396 4,500 Total nonoperating activities 81,314 2,354 Income before other changes in net position 29,397 412,580 Other changes in net position: Nonexpendable donations 11,895 8,928 Nonexpendable life income agreement donations 67 Total other changes in net position 11,962 8,928 Change in net position 41,359 421,508 Net position, beginning of year 1,283,306 861,798 Net position, end of year $ 1,324,665 1,283,306 See accompanying notes to financial statements. 11

Statements of Cash Flows Years ended 2017 2016 Cash flows from operating activities: Donations $ 85,736 93,350 Life income agreement contributions 405 787 Management fee income 1,035 1,103 Other receipts 2,643 2,250 Salaries and other payroll expenses (13,127) (13,418) Services and supplies expenses (2,202) (4,805) Program services expenses (108,245) (107,889) Net cash used by operating activities (33,755) (28,622) Cash flows from noncapital financing activities: Annuity payments to beneficiaries (1,787) (2,043) Nonexpendable donations and life income agreements 12,509 572 Other noncapital financing activities 25,927 5,492 Net cash provided by noncapital financing activities 36,649 4,021 Cash flows from capital and related financing activities: Purchase of capital assets (384) (12) Net cash used by capital and related financing activities (384) (12) Cash flows from investing activities: Purchases of investments (498,449) (308,000) Proceeds from sales and maturities of investments 463,533 347,832 Interest and dividend income 6,061 12,799 Investment income (loss) on trusts and pending funds 15,502 (461) Investment fees (5,190) (7,179) Net cash (used) provided by investing activities (18,543) 44,991 Net (decrease) increase in cash and cash equivalents (16,033) 20,378 Cash and cash equivalents, beginning of year 40,412 20,034 Cash and cash equivalents, end of year $ 24,379 40,412 12 (Continued)

Statements of Cash Flows Years ended 2017 2016 Reconciliation of operating (loss) income to net cash used by operating activities: Operating (loss) income $ (51,917) 410,226 Adjustments to reconcile operating (loss) income to net cash used by operating activities: Depreciation 123 135 Noncash contributions (34,324) (29,004) Decrease (increase) in pledges and estates receivable 48,776 (411,915) Decrease in other receivables 20 882 (Increase) decrease in prepaid expenses (149) 106 Increase in obligations for life income agreements 208 256 Increase (decrease) in obligations for leasehold incentives 193 (93) Increase in accounts payable and other liabilities 3,315 785 Net cash used by operating activities $ (33,755) (28,622) Schedule of noncash noncapital financial and investing activities: Noncash nonexpendable donations and life income agreements $ 3,948 5,174 See accompanying notes to financial statements. 13

(1) Organization Oregon Health & Science University Foundation (OHSUF or the foundation) is an Oregon nonprofit corporation established in 1970 to support the missions of Oregon Health & Science University (OHSU) and to support statewide biomedical research. OHSUF is tax-exempt under Section 501(c)(3) of the Internal Revenue Code. The foundation is a blended component unit of OHSU for financial reporting purposes. (2) Summary of Significant Accounting Policies The foundation prepares its financial statements in accordance with U.S. generally accepted accounting principles as required for a governmental entity and, therefore, follows the accounting rules as promulgated by the Governmental Accounting Standards Board (GASB). The foundation reports as a special-purpose government engaged in business-type activities whereby revenues and expenses are recognized on the accrual basis. Substantially all revenues and expenses are subject to accrual. Net position is classified into four net position categories, in accordance with donor-imposed restrictions. Net investment in capital assets carries the depreciated value of capital purchases, net of related debt (if applicable). Nonexpendable restricted net position carries externally imposed restrictions that never expire. Expendable restricted net position carries externally imposed restrictions that expire in the future. Unrestricted net position carries no externally imposed restrictions. Investment income earned on donor-restricted endowment funds, discussed in notes 2(f) and 4, in excess of the annual spending distribution is accounted for in the expendable restricted net position category. The foundation first applies restricted resources to an expense where an expense is incurred for a purpose for which both restricted and unrestricted net positions are available. (a) Operating Revenues The foundation includes unrestricted and expendable restricted contributions, management fee income, and other income from sales, services, and fund-raising activities in operating revenues. These revenues are key components of the operations of the foundation. (b) Operating Expenses The foundation includes program services provided to OHSU, supporting services of operating the foundation, and depreciation on property and equipment in operating expenses. 14 (Continued)

(c) Operating Income or (Loss) and Changes in Net Position The statements of revenues, expenses, and changes in net position include operating income (loss). Changes in net position, which are excluded from operating income (loss), include net investment income (loss), nonexpendable donations and life income agreements, changes in value of life income agreements, and other nonoperating activities. (d) Revenue Recognition Contributions are voluntary, expendable, nonreciprocal transfers of assets, and may be made in the form of cash, securities, real property, personal property, materials and supplies, equipment, services, and unconditional promises to give those items in the future. Contributions, including estates receivable (substantiated undistributed estates) and promises to give, are recorded as revenue at fair value once all eligibility requirements are met and the pledge is verifiable, and are accounted for in the appropriate net position category based upon donor-imposed restrictions. Pledges and estates receivable with nonexpendable donor-imposed restrictions are not recognized in the statements of revenues, expenses, and changes in net position until the contribution is received. Pledges are generally received within ten years of the date of the original commitment. The majority of estates are received within one year. Pledges and estates receivable, less an allowance for uncollectible amounts, are discounted to their present value using rates that range from 0.30% to 4.54%. (e) Investments Investments are stated at fair value based on the underlying investments of the pool. The fair value of all debt and equity securities with a readily determinable fair value is based on quotations obtained from national securities exchanges. Alternative investments, which are not readily marketable and lack publicly available market values, are carried at estimated fair value as provided by the investment managers. The foundation or its discretionary investment partner reviews and evaluates the values provided by its investment managers and considers the valuation methods and assumptions used in determining the fair value of the alternative investments to be reasonable. Those estimated fair values may differ significantly from the values that would have been used had a ready market for those securities existed. Net appreciation (depreciation) in the fair value of investments, which consists of the realized gains and losses and the unrealized gains and losses on those investments, is shown in the statements of revenues, expenses, and changes in net position as investment income, net of investment fees. (f) Endowments The endowment corpus is accounted for in the restricted, nonexpendable net position category, and reported on the statements of net position as restricted long-term investments. The foundation s spending policy for endowment funds is determined by the Board of Trustees and is based on a three-year moving average of the fair value of the endowment fund. The Board of Trustees authorized a 4.5% distribution in the years ended. 15 (Continued)

The foundation s management and investment of donor-restricted endowment funds are subject to the provisions of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) enacted by the state of Oregon in January 2008. (g) Life Income Agreements The foundation has been named as a remainder beneficiary for various life income agreements including charitable unitrusts, charitable remainder trust annuities, charitable gift annuities, and life estate agreements. Life income agreements provide for contractual payments to designated income beneficiaries for a specific period, after which the remaining principal and interest revert to the designated remainder beneficiaries. When the foundation is the trustee for life income agreements, the foundation records the fair value of the assets, the actuarially determined liability, and the difference between the asset and liability as a contribution during the period in which the eligibility requirements are met. Over the term of these life income agreements, any changes in actuarial assumptions and amortization of any discount are recorded in nonoperating activities as a change in the value of life income agreements in the accompanying statements of revenues, expenses, and changes in net position. For those life income agreements where the foundation is not the trustee, the foundation records a contribution in the period in which the donation is received if the foundation is not designated as the remainder beneficiary of the trust. For those life income agreements where the foundation is not the trustee, but is designated as an irrevocable remainder beneficiary, the foundation records a contribution and a receivable for the fair value of the remainder interest assets discounted to present value during the period in which the trust is established. (h) Capital Assets, Net Capital assets are recorded at cost less accumulated depreciation, which is computed on a three-year, four-year, or five-year, straight-line basis for computer equipment, and a five-year, seven-year, or ten-year, straight-line basis for other capital assets. Leasehold improvements are depreciated over a ten-year, straight-line basis, or the lease term, whichever is shorter. Depreciation is calculated using the half-year convention. (i) Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. These estimates affect reported amounts of assets and liabilities at the date of the financial statements and the reported income and expense during the reporting period. Actual results could differ from those estimates. Significant estimates include allowance rates for uncollectible pledges and estates, discount rates for pledges, estimates used in determining fair value of investments, and actuarial assumptions in the liability for life income agreements. 16 (Continued)

(3) Cash and Investments (a) Cash and Investments Cash and cash equivalents include bank demand deposits, petty cash, and money market accounts with original maturities of three months or less at the date of purchase, that are not considered restricted long-term investments. For valuation purposes, cash and cash equivalents have observable inputs. The Federal Depository Insurance Commission (FDIC) provides a limited amount of protection for cash deposits, typically the first $250,000 per account. The foundation does not include in its investment policy any requirement to collateralize deposits that exceed FDIC insured amounts. Cash and equivalents including those held in restricted assets were $26.3 million and $138.0 million at, respectively. (b) Investments Through its Investment Committee, the Board of Trustees of OHSUF is responsible for the management of the foundation s investments. The Board of Trustees establishes investment policies for all funds and selects investment managers for the endowment fund and the current fund. The Director of Finance in consultation with the CFO Vice President Finance and Administration of OHSUF directs the implementation of Board-designated actions. (4) Investment Pools and Distribution Policies The foundation maintains two primary internal investment pools. The current funds investment pool is the repository for funds available for current operations. The current fund pool is comprised of four separate investment vehicles with varying objectives based on the liquidity needs of the foundation. These investment vehicles include operating cash used for daily liquidity needs; a reserve fund and a short duration 1-5 year separately managed account that are used for liquidity needs of less than one year; and a quasi endowment fund (C/F endowment) that invests liquidity needs of greater than one year in the endowment portfolio, discussed below. For all current funds not related to OHSU Practice Plan Reserve (OPPR) funds, it is the practice of the foundation s Board of Trustees to utilize investment income on these funds for operations. At, the fair value of the foundation s investments in the current fund was $339.1 million and $303.4 million, respectively. The endowment fund investment pool is the repository for funds from restricted, nonexpendable contributions where the principal amount cannot be used but a spending distribution, described below, can be used for the designated purpose. The endowment fund also holds quasi-endowment funds, which have been designated as endowment by the foundation s Board of Trustees. Endowment accounts receive spending distributions subject to the Board of Trustees approved spending policy, which provides a predetermined amount of total return that can be spent for purposes designated by the donor. All interest, dividends, and changes in fair value on donor-restricted endowment funds are allocated to the appropriate restricted net position classification as specified by the donor at the time of receipt. All expendable income restricted by the donor is carried as restricted, expendable net position until such time as the restriction has been met. At, the fair value of the foundation s investments in the endowment fund was $543.9 million and $452.7 million, respectively. Of these amounts, $45.1 million and $23.6 million as of, respectively, represent unspent earnings in excess of donor-restricted original contributions that are available for future designation to expenditure by the Board of Trustees. 17 (Continued)

At, accumulated loss of $30,900 and $3.7 million, respectively, related to endowment accounts with market value below corpus was reflected in nonexpendable restricted net position. The foundation also has investments with a fair value of $50.3 million and $50.1 million at June 30, 2017 and 2016, respectively, related to its individually managed life income agreements. These investments are included in various separately managed individual charitable trusts and life estate agreements, in reinsured annuity contracts, or in the charitable gift annuity pool. The foundation hired a new discretionary investment manager effective July 1, 2016 to manage the foundation s endowment investment portfolio. In anticipation of this transition, the foundation redeemed a portion of its endowment investment pool in June 2016 and transferred $118.1 million to the new investment manager for redeployment into new investments beginning July 1, 2016 as part of the portfolio restructuring process being implemented by this manager. These proceeds are reported as being held in cash as of June 30, 2016 for reporting purposes. At June 30, 2016, the foundation, DCHF, and OHSU held 79.2%, 7.0%, and 13.8% of this cash, respectively. Foundation investment policies are established based on the investment objectives of the portfolio. Each portfolio has its own Board-authorized asset allocation guideline. The objective for the current fund is to provide a reliable source of liquidity to meet short-term working capital needs. The current fund may invest in cash, cash equivalents, fixed income securities, equity mutual funds and ETFs, and quasi endowment within the endowment fund. The duration of the C/F 1-5 year portfolio shall be within a range of 75% to 125% of the Barclay s 1 5 Year Government/Credit Bond Index. The objective for the endowment fund is to produce a predictable and stable payout stream that increases over time, while achieving growth of corpus. The endowment fund may invest in cash and cash equivalents, fixed-income securities, U.S. and non U.S. equity securities and other alternative investments. The charitable gift annuity pool seeks to produce a relatively predictable and stable payout stream that will satisfy the funds distribution obligations while achieving long-term capital appreciation of the overall fund balance. The charitable gift annuity pool may invest in cash and cash equivalents, U.S. and non-u.s. equities, fixed-income, and real estate. Charitable trusts are managed to provide for the distribution of a stated income payment while attempting to achieve reasonable expected total returns. Charitable trust investment objectives and asset allocation guidelines are determined based on the individual circumstances of each trust account. Allowable investments for charitable trusts include cash and cash equivalents, U.S. and non-u.s. equities, fixed-income, real estate and commodities. 18 (Continued)

(a) Fair Value of Investments Investments at are as follows: Asset classes 2017 2016 Domestic equities $ 104,457 64,921 Non-U.S. equities 117,444 63,975 Global equities 51,831 13,280 Venture capital/private equity 124,940 41,500 Marketable alternative investments 175,837 63,781 Real estate investments and contracts 8,832 28,257 Mutual funds global tactical asset allocation 4,818 Mutual funds nonfixed income 51,213 100,170 Annuity contracts 1,911 2,061 Insurance policies 984 953 Fixed income 271,503 382,028 $ 908,952 765,744 The methods used to determine the fair value of financial instruments reflect market participant objectives and are based on the application of a valuation hierarchy that prioritizes observable market inputs over unobservable inputs. The hierarchy is based on the reliability of inputs as follows: Level 1 Valuation is based on quoted prices for identical financial instruments in active markets. OHSUF does not adjust the quoted price for Level 1 financial instruments. Level 2 Valuation is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and independent pricing models or other model-based valuation techniques using observable inputs. Level 3 Certain types of financial instruments are classified as Level 3 within the valuation hierarchy because these financial instruments trade infrequently and, therefore, have little or no price transparency. 19 (Continued)

The following table presents a categorization, based on the foregoing valuation hierarchy, of OHSUF s financial instruments measured at fair value as of June 30, 2017. Level 1 Level 2 Level 3 Fair value Domestic equities $ 73,812 73,812 Non-U.S. equities 41,067 7,875 48,942 Global equities 18,081 18,081 Real estate investments and contracts 1,032 4,022 5,054 Mutual funds nonfixed income 51,213 51,213 Annuity contracts 44 1,868 1,912 Insurance policies 984 984 Fixed income: U.S. government securities 69,738 69,738 U.S. agency securities 11,499 11,499 Corporate bonds 88,013 88,013 Asset-backed securities and collateralized mortgage obligations 10,298 10,298 Municipal bonds 3,287 3,287 Mutual funds fixed income only 82,764 4,206 86,970 Bank debt 1,080 1,080 Certificates of deposit 600 600 Other fixed income 18 18 Subtotal $ 268,013 198,482 5,006 471,501 Investments measured using NAV per share or its equivalent: Domestic equities 30,645 Non-U.S. equities 68,502 Global equities 33,750 Venture capital/private equity 124,939 Marketable alternative investments 175,837 Real estate investments and contracts 3,778 Total investments $ 908,952 20 (Continued)