The National Federation of the BlindT/A Blind Federation of America

Financial StatementsDecember 31, 2012

Independent Auditors' Report

To the Board of Directors and Officers ofThe National Federation of the Blind T/A Blind Federation of America

We have audited the accompanying financial statements of The NationalFederation of the Blind T/A Blind Federation of America (a nonprofit organization), which comprise the statement of financial position as of December 31, 2012, and the related statements of activities, functional expenses and cash flows for the year 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 the 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 audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fairpresentation 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 materialrespects, the financial position of The National Federation of the Blind T/A BlindFederation of America as of December 31, 2012, and the results of its activates and itscash flows for the year then ended in accordance with accounting principles generallyaccepted in the United States of America.

Rosen, Sapperstein & Friedlander, CharteredCertified Public Accountants

March 28, 2013

The National Federation of the BlindT/A Blind Federation of AmericaStatement of Financial Position

December 31, 2012

Assets

Cash and cash equivalents (Note 1) $2,092,724 Prepaid expenses $418,146Notes receivable (Notes 1, 2, and 5) $2,290,330 Other receivables (Notes 1 and 3) $266,478Investments (Note 1, 5 and 6) $19,918,043Other investments - life insurance (Notes 1 and 6) $1,474,522Property and equipment - net (Notes 1 and 4) $324,418Total Assets $26,784,661

Liabilities and Net Assets

Liabilities: Accounts payable and accrued expenses $384,694Accrued annuity benefit (Notes 1 and 6) $33,610

Total Liabilities $418,304

Net Assets (Note 1):Unrestricted $24,624,378Temporarily restricted $1,504,511Permanently restricted $237,468 Total Net Assets $26,366,357

Total Liabilities and Net Assets $26,784,661

(See Independent Auditors' Report and Accompanying Notes.)

The National Federation of the BlindT/A Blind Federation of America

Statements of ActivitiesFor the Year Ended December 31, 2012

(Funds are shown in four categories: Unrestricted; Temporarily Restricted; Permanently Restricted; Total.)

Revenues, Gains and Other Support (Note 1)

Public support: Contributions $14,472,998; $78,925; --; $14,551,923Donated services $4,990,489; --; --; $4,990,489Government grants --; $126,243; --; $126,243Fulfillment of restrictions $239,016; ($239,016); --; --Total public support $19,702,503; ($33,848); --; $19,668,655

Revenue:Sales - independence products and publications $394,753; --; --; $394,753Investment income $1,276,193; $137,645; --; $1,413,838Royalties $3,613; --; --; $3,613Total revenue $1,674,559; $137,645; --; $1,812,204

Total Revenues, Gains and Other Support $21,377,062; $103,797; --; $21,480,859

ExpensesProgram services: Blindness integration $9,399,988; --; --; $9,399,988Civil Rights, advocacy, and self-organization $6,318,931; --; --; $6,318,931Nonvisual access systems $4,261,470; --; --; $4,261,470Total program services $19,980,389; --; --; $19,980,389

Supporting services:Management and general $582,389; --; --; $582,389Fundraising $1,620,419; --; --; $1,620,419Total supporting services $2,202,808; --; --; $2,202,808

Total expenses $22,183,197; --; --; $22,183,197

Changes in Net Assets ($806,135); $103,797; --; ($702,338)

Net Assets--Beginning of Year (Note 1) $25,430,513; $1,400,714; $237,468; $27,068,695

Net Assets--End of Year $24,624,378; $1,504,511; $237,468; $26,366,357(See Independent Auditors' Report and Accompanying Notes.)

The National Federation of the BlindT/A Blind Federation of America

Statements of Functional ExpensesFor the Year Ended December 31, 2012

(This information is shown as three separate listings. First grand total. Next these totals are broken down into a listing of "Program Services" and "Supporting Services." Totals from "Program Services" plus "Supporting Services" equals grand totals.)

Volunteer services (Note 1) $3,207,538Salaries $5,251,566Payroll taxes and related expenses $859,098

Total salaries and related expenses $9,318,202

Supplies $318,564Postage and shipping $1,810,295Printing and publications $3,883,247Travel $782,759Conferences and conventions $108,585Professional fees $2,140,568Telephone $24,147Occupancy (Note 1) $558,909Donated media (Note 1) $1,782,951Awards and grants $265,649Information technology $867,649Equipment rental, maintenance and repair $37,394Equipment, Braille and Technology Center (Note 8) $68,577Data processing $70,336Other $33,259

Total expenses before depreciation $22,071,091

Depreciation (Note 1) $112,106

Total Expenses $22,183,197

(The following Functional Expenses are called "Program Services." Funds are shown in four categories: Blindness Integration; Civil Rights, Advocacy and Self-Organization; Nonvisual Access Systems; Total.)

Volunteer services (Note 1) $1,283,015; $1,283,015; $641,508; $3,207,538

Salaries $1,470,438; $1,627,985; $1,733,017; $4,831,440Payroll taxes and related expenses $241,341; $265,924; $282,312; $789,577

Total salaries and related expenses $2,994,794; $3,176,924; $2,656,837; $8,828,555

Supplies $62,989; $52,215; $193,750; $308,954Postage and shipping $900,607; $11,795; $11,096; $923,498Printing and publications $2,972,524; $60,960; $184,184; $3,217,668Travel $138,214; $593,001; $39,851; $771,066Conferences and conventions $50,527; $46,099; $9,968; $106,594Professional fees $68,601; $1,821,915; $179,757; $2,070,273Telephone $7,249; $8,864; $6,447; $22,560Occupancy (Note 1) $205,166; $148,906; $186,404; $540,476Donated media (Note 1) $1,782,951; --; --; $1,782,951Awards and grants $6,000; $259,649; --; $265,649Information technology $109,815; $87,726; $665,717; $863,258Equipment rental, maintenance and repair $17,435; $7,454; $12,069; $36,958Equipment, Braille and Technology Center (Note 8) --; --; $68,577; $68,577Data processing $35,168; --; --; $35,168Other $10,953; $7,549; $9,818; $28,320

Total expenses before depreciation $9,362,993; $6,283,057; $4,224,475; $19,870,525

Depreciation (Note 1) $36,995; $35,874; $36,995; $109,864

Total Expenses $9,399,988; $6,318,931; $4,261,470; $19,980,389

(The following Functional Expenses are called "Supporting Services." Funds are shown in three categories: Management and General; Fundraising; Total.)

Volunteer services (Note 1) --; --; --Salaries $367,610; $52,516; $420,126Payroll taxes and related expenses $61,327; $8,194; $69,521

Total salaries and related expenses $428,937; $60,710; $489,647

Supplies $8,026; $1,584; $9,610Postage and shipping $396; $886,401; $886,797Printing and publications $32; $665,547; $665,579Travel $11,693; --; $11,693Conferences and conventions $1,991; --; $1,991Professional fees $70,295; --; $70,295Telephone $1,378; $209; $1,587Occupancy (Note 1) $13,718; $4,715; $18,433

Donated media (Note 1) --; --; -- Awards and grants --; --; --Information technology $4,340; $51; $4,391Equipment rental, maintenance and repair $355; $81; $436Equipment, Braille and Technology Center (Note 8) --; --; --Data processing $35,168; --; $35,168Other $4,939; --; $4,939

Total expenses before depreciation $581,268; $1,619,298; $2,200,566

Depreciation (Note 1) $1,121; $1,121; $2,242

Total expenses $582,389; $1,620,419; $2,202,808

(See Independent Auditors' Report and Accompanying Notes.)

National Federation of the BlindT/A Blind Federation of America

Statement of Cash Flowsfor the Year Ended December 31, 2012

Cash Flows From Operating Activities

Cash received from contributions, programs and grants $15,152,518Investment income received in cash $188,129Program and supporting services expenses paid in cash ($17,561,925)

Net Cash Used by Operating Activities ($2,221,278)

Cash Flows from Investing Activities

Proceeds received from the sale of investments $8,917,663Cash paid for purchase of investments ($5,397,724)Cash received from notes receivable $59,501Cash advanced for notes receivable ($1,010,529)

Net Cash Provided by Investing Activities $2,568,911

Net Change in Cash and Cash Equivalents $347,633

Cash and Cash Equivalents--Beginning of Year $1,745,091

Cash and Cash Equivalents--End of Year $2,092,724

Reconciliation of Changes in Net Assets to Net Cash Used by Operating Activities

Changes in net assets ($702,338)

Adjustments to reconcile changes in net assets to net cash used by operating activities

Depreciation $112,106Bad debt expense $16,464Unrealized gain on investments ($1,016,524)Change in investments - life insurance ($334,194)Accrued interest on notes receivable ($209,185)Decrease (increase) in assets:Other receivables $11,479

Prepaid expenses ($191,076)Increase (decrease) in liabilities:Accounts payable and accrued expenses $97,444Accrued annuity benefit ($5,454)

Net Cash Used by Operating Activities ($2,221,278)

(See Independent Auditors' Report and Accompanying Notes)

The National Federation of the BlindT/A Blind Federation of AmericaNotes to Financial Statements

December 31, 2012

Note 1. Nature of the Organization and Summary of Significant Accounting Policies.

Nature of the Organization: The National Federation of the Blind T/A Blind Federation of America ("Federation"), headquartered in Baltimore, Maryland, is a nonprofit corporation established for the purpose of integrating the blind into society.

Basis of Presentation: The Federation follows the Presentation of Financial Statements for Not-for-Profit Entities topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification. This pronouncement sets standards for the financial statement presentation for not-for-profit organizations. The Federation is required to report information regarding its financial position and activities according to three (3) classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets.

Temporarily restricted net assets include a bequest, of which all of the funds are restricted to the specific use of the bequest. In addition, temporarily restricted net assets include government grants, and contracts of which all of the funds are restricted to the specific use of the agreements. Also included are scholarship funds where the donor has restricted only that the income and the corpus be used for scholarships. The Federation has elected to treat temporarily restricted revenue spent in the same year as unrestricted revenue.

Permanently restricted net assets include scholarship funds, where the donor has restricted that only the income may be used for scholarships and that the corpus may not be invaded. The income for the current year in the restricted funds that was fully utilized for its specific purpose was transferred to unrestricted net assets as a fulfillment of restrictions.

In prior years, the Federation had designated property and equipment be considered as Board designated funds of the unrestricted net assets and was reported separately from unrestricted net assets. Effective at the beginning of 2012, these unrestricted fund balances were consolidated. In addition, in prior years the Federation included temporarily restricted scholarship funds with unrestricted funds. These funds, in the amount of $369,870, were reclassified to temporarily restricted net assets effective January 1, 2012.

Revenue Recognition: The Federation has adopted the Revenue Recognition for Not-for-Profit Entities topic of the FASB Accounting Standards Codification. In accordance with this standard, contributions received are recorded as unrestricted, temporarily restricted or permanently restricted support. All contributions are considered to be

available for unrestricted use unless specifically restricted, either temporarily or permanently, by the donor.

Government grants include monies received from government agencies in support of specific program activities. The grants serve as reimbursements of program costs incurred by the Federation. Revenue is recognized when there is reasonable assurance that the Federation has complied with the requirements of the grants and receipt of funds is reasonably assured.

The Federation sells independence products and publications as a part of its mission to help blind individuals increase their independence and carry out daily activities. Revenue is recognized at the point of sale and is reported net of sales returns and allowances.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: For purposes of reporting cash flows, the Federation considers all highly liquid investments purchased with a maturity of three(3) months or less to be a cash equivalent.

Financial Credit Risk: The Federation maintains its cash balances at several financial institutions. The balances are insured by the Federal Deposit Insurance Corporation (FDIC) up to insured limits. As of December 31, 2012, the Federation's cash balances were in excess of these insured limits. Management believes that the Federation is not exposed to any significant credit risk with respect to its cash balances. In addition, the Federation generally maintains investment balances in excess of the Securities Investor Protection Corporation (SIPC) limits.

The Federation invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and those changes could materially affect the value reported in the financial statements.

Notes Receivable: Balances in notes receivable represent loans to organizations and individuals who support the Federation's mission of encouraging independence and supporting entrepreneurship among the blind. Management evaluates the creditworthiness of each borrower prior to the issuance of these loans. Past due accounts are determined by management based on historical experience and other relevant factors. On a periodic basis, the Federation writes off uncollectible balances, after exhausting reasonable collection efforts. Based on management's historical

experience, management considers all notes receivable to be fully collectible; therefore, no allowance for doubtful accounts has been reflected in the financial statements.

Other Receivables: Other receivables represent monies due from grantors and other third parties. The Federation considers various factors as of the date of the financial statements in evaluating the credit quality of these balances, including historical collection experience and assessment of the counterparties' ability to repay their obligations. Based on these factors, management considers other receivables to be fully collectible; therefore, no allowance for doubtful accounts has been reflected in the financial statements.

Property and Equipment: Property and equipment is recorded at cost, net of accumulated depreciation. Major additions and betterments are charged to the asset accounts while maintenance and repairs which do not improve or extend the lives of the assets are expensed when incurred. Depreciation expense is calculated using the straight-line method over the estimated useful lives of the respective assets. Depreciation expense for the year ended December 31, 2012 amounted to $112,106. Valuation of Long-Lived Assets: The Federation accounts for the valuation of long-lived assets under Impairment or Disposal of Long-Lived Assets topic of the FASB Accounting Standards Codification. Long-lived assets, such as property and equipment and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and evaluated at least annually. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Assets to be disposed of would be separately presented in the statement of financial position and reported at the lower of the carrying amount of fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the statement of financial position. Management believes the value of long-lived assets exceed their carrying value as of December 31, 2012. Investments: The Federation's investment portfolio includes investments in marketable securities and nonpublic companies. See Note 6 for a discussion of fair value measurements. When the Federation has a controlling interest in a nonpublic company, but does not exert significant influence over the entity, the Federation applies the cost method of accounting (see Note 5).

Under the cost method, any dividends received are recognized as investment income and a gain or loss is only reported when the investment is sold. The Federation's investments accounted for on the cost method amounted to approximately $8,456,000

as of December 31, 2012. The fair value of these investments has not been estimated because it is not practicable to estimate fair value.

When the Federation has a controlling interest and can exert significant influence the Federation applies the equity method of accounting (see Note 5). Under the equity method of accounting, the Federation increases its investments for cash contributions and its share of the joint venture's net income and decreases its investments for cash distributions and its share of the investment's net loss.

Included in the investment balance at December 31, 2012 is $237,468 of permanently restricted funds. These funds are to be used for scholarships, as designated by the donor. The Federation's return on investments for the year ended December 31, 2012 consisted of the following components:

(Funds are shown in three categories: Unrestricted; Temporarily Restricted; Total.)

Return on investments: Interest and dividends $439,365; $13,027; $452,392Gains (losses) on investments:Net realized gains (losses) ($32,385); ($22,693); ($55,078)Net change in unrealized gains $869,213; $147,311; $1,016,524Net gains (losses) on investments $836,828; $124,618; $961,446Total return on investments $1,276,193; $137,645; $1,413,838

Expenses relating to investment revenue, including custodial fees and investment advisory fees, amounted to $2,283 and have been netted against investment income in the accompanying statement of activities.

Other Investments - Life Insurance: The Federation invests in life insurance policies on members of management. A policy is issued on the insured party, the Federation is the owner and beneficiary of the policy and as such pays all premiums.

Fair Value of Financial Instruments: The FASB issued Accounting Standards update, Improving Disclosures about Fair Value Measurements. This update amends FASB Accounting Standards Codification topic, Fair Value Measurements and Disclosures, to require a number of additional disclosures regarding fair value measurements. The update requires disclosure of the amounts of significant transfers between Level 1 and Level 2 investments and the reasons for such transfers, the reasons for any transfers in or out of Level 3 investments, and disclosure of the policy for determining when transfers among levels are recognized. The update also clarified that disclosures should be provided for each class of assets and liabilities and clarified the requirement to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 measurements. The update also requires that information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements be provided on a gross basis.

The adoption of topic Improving Disclosures about Fair Value Measurements only required additional disclosures and did not have an impact on the financial statements. See Note 6 for disclosures related to fair value measurements.

The carrying amounts of financial instruments reported in the statement of financial position, including cash equivalents, receivables, prepaid expenses, accounts payable and accrued expenses, approximate their fair value due to their short-term maturity.

Accrued Annuity Benefit: The Federation had established a charitable gift annuity program where donors may contribute assets to the Federation and in return receive a guaranteed fixed income for life. The Federation maintains a segregated investment account to hold reserves required for gift annuity instruments. As of December 31, 2012, the balance in this account amounted of $401,700. The Federation recognizes contribution revenue for the difference between the fair value of the assets receivedand the annuity liability. The gift annuity liability represents monies temporarily restricted until the annuity is satisfied.

Annuity benefit liabilities are recorded for the required life annuity payments at the present value of expected future cash payments discounted using interest rates at the date of gift and actuarial assumptions. The calculation of the liability includes a donor's estimated life expectancy. The annuity obligations are adjusted each year for changes in the life expectancy of the beneficiaries and are reduced as payments are made to the donor.

This program has since been discontinued. The annuity benefit liability at December 31, 2012 includes future payments for beneficiaries who entered the program prior to its termination. Income Taxes: The Federation is exempt from federal income taxes under Internal Revenue Code Section 501(c)(3). There were no income taxes paid on unrelated business activities for the year ended December 31, 2012. Accounting for Uncertainty in Income Taxes: The Federation adopted the Accounting for Uncertainty in Income Taxes topic of the FASB Accounting Standards Codification. The standard requires the recognition and measurement of uncertain tax positions taken or expected to be taken by the Federation in the preparation of its tax returns. The Federation determines whether it is more-likely-than-not that a certain tax position will be sustained upon examination by a taxing authority. If an uncertain tax position is less-likely-than-not to be sustained, an estimate of the potential effect is recognized in the financial statements and the uncertain tax position is required to be disclosed. Per the Federation's evaluation as of December 31, 2012, including all prior tax years subject to examination, it was determined no material adjustments were required in the financial statements for tax positions less-like-than-not to be sustained upon examination by a taxing authority. The Federation believes it is no longer subject to income tax examinations for the years prior to 2009.

Donated Services and Media: The Federation has adopted the Revenue Recognition for Not-for-Profit Entities topic of the FASB Accounting Standards Codification in the recognition of donated services. Donated services are recognized at fair value if the services received (a) create or enhance long-lived assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation.

Donated services consist of volunteer services. Volunteer services are recorded on the basis of time spent at rates paid by other organizations for comparable services.

The Federation has adopted the Revenue Recognition for Not-for-Profit Entities topic of the FASB Accounting Standards Codification in the recognition of donated media. Management employs an independent third party to assist in the valuation of the Federation's exposure to the public through various means including internet, radio, television time and printed materials in publications using the advertising value equivalency metric.

The donated services and media are recorded as both public support and program services; therefore, there is no effect on the change in net assets.

The Federation operates from the National Center for the Blind which allows free usage of facilities for organizations that serve the blind. Subsequent Events: Events that occurred subsequent to December 31, 2012 have been evaluated by the Federation's management for potential recognition or disclosure in the financial statements through the date of the independent auditors' report, which is the date the financial statements were available to be issued. The Federation did not have any material recognizable subsequent events during the period.

Note 2. Notes Receivable.

Notes receivable at December 31, 2012 consist of the following:

Business Loans--Low interest loan program for business or job related purposes. The notes bear interest ranging from three percent (3%) to five percent (5%) per year and are secured by various business equipment and real property. The loans mature at various dates through July 2020. $54,176

Assistive Technology Loans--Low interest loan program established to provide for the purchase of technological adaptive equipment for personal and job related purposes. The notes bear interest at three percent (3%) per year and are unsecured. The loans mature at various dates through April 2015. $26,969

K-NFB Note Receivable--unsecured convertible note receivable due from K-NFB Reading Technology, Inc. (See Note 5). $2,209,185

Total Notes Receivable $2,290,330

Note 3. Other Receivables

Other receivables as of December 31, 2012 consist of the following:

Federal funds for project funds expended under the current project and not yet reimbursed. $245,538Unsecured, noninterest bearing balances due from third parties. $20,940Total Other Receivables $266,478

Note 4. Property and Equipment.

Property and equipment as of December 31, 2012 consists of the following: Office furniture and equipment $1,588,456Computer equipment $583,431Total $2,171,887Less: Accumulated depreciation ($1,847,469)Property and equipment-net $324,418 Note 5. Investments not publicly traded

The Federation makes program-related investments to further its purpose of integrating the blind into society on the basis of equality. Such investments are made primarily to accomplish the Federation's program purpose rather than to produce income.

K-NFB Reading Technology, Inc.: In November 2002, the Federation invested in K-NFB Reading Technology, Inc. (KNFB), to develop and market hand held readers. The Federation considers its investment in KNFB to be a program-related investment made for the purpose of insuring that the blind have non-visual access to books and other print materials at the same time and at the same price as do members of the sighted public.

The Federation has a thirty percent (30%) interest in KNFB but cannot exert significant influence and is accounted for under the cost method of accounting. At December 31, 2012, the Federation's investment amounted to $8,446,000.

In addition to an investment in KNFB, the Federation executed a senior unsecured convertible promissory note in the amount of $2,000,000 with KNFB (see Note 2). The note bears interest at a rate of ten percent (10%) and matures in November 2013. The promissory note is convertible to shares of preferred stock under specific terms based on triggering events as defined in the agreement. It is management's expectation that these monies will be repaid or will be converted to preferred stock before the notes maturity date, therefore, no allowance for uncollectible amounts has been recorded.

E.A.S.Y., LLC: In January 2012, the Federation invested $100,000 in E.A.S.Y., LLC (EASY), to develop and market products to enhance the technologies for freehand tactile graphics. The Federation considers its investment in EASY to be a program-related investment made for the purpose of insuring that the blind have tools to produce, edit and communicate using freehand tactile drawings. The Federation has a twenty percent (20%) interest and has the ability to exert significant influence and is accounted for under the equity method.

At December 31, 2012, EASY's total assets and total equity amounted to $4,311 and reported a net loss of $95,889. For the year ended December 31, 2012, the Federation's share of the net loss amounted to $19,178.

Note 6. Fair Value Measurements

The Federation accounts for the fair value of its investments under the Fair Value Measurements and Disclosure topic of the FASB Accounting Standards Codification, which provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three (3) levels of the fair value hierarchy are described as follows:

Level 1

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Federation has the ability to access.

Certificates of deposits: Valued at its cash balance.

Common and preferred stocks, government securities and mutual funds: Valued at quoted prices from active markets.

Level 2

Inputs to the valuation methodology include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Fixed-rate capital securities: Valued at quoted prices from active markets.

Level 3

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Other securities not publicly traded: Valued using the cost methods of accounting.

Investments in life insurance: Valued at accumulated value, net of surrender charges.

Accrued annuity benefits: Valued at the present value of expected future cash payments discounted using the interest rates at the time of the gift and actuarial assumptions.

The asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

There have been no changes in the methodologies used at December 31, 2012. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Federation's management believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table sets forth by level, within the fair value hierarchy, the Federation's fair value measurements at December 31, 2012:

(The following "Assets at Fair Value as of December 31, 2012" table lists the Payor Classes in four categories Level 1; Level 2; Level 3; Fair Value.)

Assets:Certificates of deposit $252,976; --; --; $252,976Common and preferred stocks:Corporate $647,285; --; --; $647,285Equity $294,132; --; --; $294,132Income $14,770; --; --; $14,770Fixed-rate capital securities:Corporate --; $881,461; --; $881,461Equity --; $196,703; --; $196,703Income --; $69,625; --; $69,625Government securities $524,288; --; --; $524,288Mutual funds:Corporate $5,046,117; --; --; $5,046,117Equity $65,749; --; --; $65,749

Income $3,388,135; --; --; $3,388,135Other securities not publicly traded --; --; $8,536,802; $8,536,802Investments subtotal $10,233,452; $1,147,789; $8,536,802; $19,918,043Other investments - life insurance --; --; $1,474,522; $1,474,522Total investments $10,233,452; $1,147,789; $10,011,324; $21,392,565

Liabilities:Accrued annuity benefits --; --; $33,610; $33,610

The following table sets forth a summary of changes in the fair value of the Federation's level 3 assets and liabilities for the year ended December 31, 2012:

Balance - beginning of year $8,620,757; $39,064Increase in cash surrender value $334,194; --Annuity payments --; (5,454)Losses on investments ($43,627); --Purchases $1,100,000; --Balance - end of year $10,011,324; $33,610

Note 7. Allocation of Joint Costs.

The Federation incurred joint costs of $3,037,039 for informational materials and activities that included fundraising appeals. Of those costs, $1,548,890 was allocated to fundraising expense and $1,488,149 was allocated to blindness integration. Management based these allocations on an analysis of the content of the materials, reasons for distributing the materials and the audience to whom the materials were distributed.

Note 8. International Braille and Technology Center for the Blind.

During 1990, the Federation helped establish a learning center for Braille and related technology which offers training, evaluation and demonstration of Braille and speech technology for the blind. Certain specialized equipment has been purchased and certain equipment has been transferred from use by the Federation into the learning center at remaining book value.

(See Independent Auditors' Report)