2008 Combined Statements of Activities

(1)

In October 2006, the Bill & Melinda Gates Foundation created a two-entity structure. One entity, the Bill & Melinda Gates Foundation (“foundation”), distributes money to grantees. The other, the Bill & Melinda Gates Foundation Trust (“trust”), manages the endowment assets. The trust makes contributions to the foundation to fund the foundation’s grantmaking activities and its operating costs. The foundation and the trust are separate legal entities with independently audited financial statements. However, because of certain transactions between the two entities, their financial positions are presented on a combined basis, with appropriate elimination entries, to help readers more clearly understand the activity of these entities on a combined basis.

(2)

Contributions received by the trust in 2008 were provided primarily by Warren Buffett and Bill Gates. Approximately $1.8 billion was received from Warren Buffett in the form of 451,250 shares of Berkshire Hathaway "B" stock. Bill Gates contributed approximately $183 million in contributed investment management services. Also, several donors from the general public made contributions to the trust and foundation.

(3)

The foundation received $3.3 billion in contributions from the trust in 2008, which were used to fund the foundation's operations comprised of grants to third parties and other direct charitable expenses, operating costs, and capital and program related investments. When presenting the financial statements of the two entities on a combined basis, the grant from the trust to the foundation must be eliminated, as shown in the Elimination Adjustments, in order to avoid double counting of the funds.

(4)

Includes interest and dividends received, plus realized and unrealized gains and losses on the endowment portfolio, less investment management expenses. The trust maintains a conservative approach to endowment management, aiming for a 5 percent return each year, since Bill and Melinda intend to donate more of their financial resources over time.

(5)

Grant expense includes cash payments made during 2008, as well as an adjustment to record expenses related to grants approved for payment in future years. The future grants payable portion is then discounted to the present value as of December 31, 2008, as required by generally accepted accounting principles (GAAP). Presented in the accompanying grants paid summary is grant expense on a cash basis, consistent with the reporting basis required in the annual 990-PF tax return. In 2008, the trust granted $3.3 billion to the foundation, which must be eliminated in the Elimination Adjustments to avoid double counting of grants when the financials are presented on a combined basis.

(6)

Direct charitable expense includes payments made to third parties for charitable purposes. Examples of direct charitable expenses include payment for consulting services provided for grantees' benefit and travel costs to bring grantees and other participants together. Direct charitable expenses, working in tandem with grants, are an effective means of achieving charitable goals and are disclosed separately in the audited financial statements to distinguish these from operational costs of running the trust.

(7)

The trust is subject to federal excise taxes imposed on private foundations at 2 percent, or at 1 percent if certain conditions are met. The excise tax is imposed on net taxable investment income, as defined under federal law, which does not include all components of net investment income as presented in these financial statements on a GAAP basis. The trust qualified for a 1 percent tax rate in 2008.

(8)

The legal documents that govern the trust obligate it to fund the foundation in whatever dollar amounts are necessary to accomplish the foundation's charitable purposes. Because the foundation has the legal right to call upon the assets of the trust, the foundation's financial statements reflect an interest in the net assets of the trust in accordance with GAAP. However, when presenting the two entities on a combined basis, this amount must be eliminated in the Elimination Adjustments to avoid double counting of the same net assets.