Relating to $75,000,000 St. Joseph County, Indiana

Transcription

1 Remarketing - Not a New Issue Book-Entry Only Remarketing Memorandum No. 1 Relating to $75,000,000 St. Joseph County, Indiana Variable Rate Educational Facilities Revenue Bonds, Series 2007 (University of Notre Dame du Lac Project) CUSIP Number: 79061A BE6* Due: March 1, 2042 This Remarketing Memorandum No. 1 (this Remarketing Memorandum ) supplements the Official Statement dated December 7, 2007 (the Official Statement ), relating to the bonds described above (the Series 2007 Bonds ). Unless otherwise indicated in this Remarketing Memorandum, the information set forth in the Official Statement has not been amended, modified, supplemented or updated since December 7, This Remarketing Memorandum may not be delivered to any person unless accompanied by the Official Statement, which is attached hereto as Appendix D, and should be read in conjunction therewith. Capitalized terms used herein and not otherwise defined herein have the meanings set forth in the Official Statement. The Series 2007 Bonds are currently outstanding in the original aggregate principal amount of $75,000,000 and currently operate in the Weekly Rate Period. The Series 2007 Bonds were issued on December 14, 2007 pursuant to the Trust Indenture dated as of December 1, 2007 (the Indenture ) between St. Joseph County, Indiana (the Issuer ) and Wells Fargo Bank, N.A., as trustee. The proceeds from the sale of the Series 2007 Bonds were loaned by the Issuer to the University of Notre Dame du Lac (the University ) pursuant to the Loan Agreement dated as of December 1, 2007, between the Issuer and the University. This Remarketing Memorandum is being delivered in connection with the replacement of the liquidity facility (the Existing Liquidity Facility ) currently supporting the Series 2007 Bonds, which is provided by Banco Bilbao Vizcaya Argentaria, S.A., acting through its New York Branch, with a new liquidity facility (the BNY Liquidity Facility ) to be provided by The Bank of New York Mellon (the New Liquidity Provider ) pursuant to the terms of the Standby Bond Purchase Agreement dated May 17, 2012 (the Standby Agreement, and, together with the BNY Liquidity Facility, the New Liquidity Facility between the University and the New Liquidity Provider. See The New Liquidity Provider in Appendix C hereto. The New Liquidity Facility will support the payment of the purchase price of Series 2007 Bonds tendered or required to be tendered for purchase, but for which remarketing proceeds are not available, subject to certain terms and conditions set forth therein and summarized herein. Under the New Liquidity Facility, the New Liquidity Provider will be under no obligation to provide funds to pay the purchase price of Series 2007 Bonds tendered or required to be tendered for purchase if a potential default related to the bankruptcy or insolvency of the University occurs or certain events of default occur under the New Liquidity Facility. The New Liquidity Facility has a stated termination date of May 17, 2015, and may be extended or terminated prior to its stated termination date in accordance with its term and as summarized herein. See The New Liquidity Facility herein. In connection with the replacement of the Existing Liquidity Facility with the New Liquidity Facility on May 17, 2012, the Series 2007 Bonds will be mandatorily tendered for purchase and remarketed on May 16, 2012 (the Mandatory Tender Date ). The New Liquidity Facility will be effective on May 17, 2012, which is the day after the Mandatory Tender Date. On and after May 17, 2012, payment of purchase price for the Series 2007 Bonds will be supported by the New Liquidity Facility. The Existing Liquidity Facility will terminate by its terms on May 18, 2012, the day following the effectiveness of the New Liquidity Facility. The Series 2007 Bonds and the interest thereon do not constitute a debt, liability or a general obligation of the Issuer or the State of Indiana or any political subdivision thereof within the meaning of the Constitution or statutes of the State of Indiana, or a pledge of the faith and credit of the Issuer or the State of Indiana or any political subdivision thereof. The Series 2007 Bonds do not grant the owners thereof any right to have the Issuer levy any taxes or appropriate any funds for the payment of the principal of or interest on the Series 2007 Bonds. Goldman, Sachs & Co. Dated: May 9, 2012 * CUSIP is a registered trademark of the American Bankers Association ( ABA ). The CUSIP number herein is provided by CUSIP Global Services, which is managed by Standard & Poor s, a business unit of The McGraw-Hill Companies, Inc, on behalf of the ABA. The CUSIP number is provided for convenience of reference only. Neither the University, the Trustee nor the Remarketing Agent takes any responsibility for the accuracy of such number.

2 REGARDING USE OF THIS REMARKETING MEMORANDUM No dealer, broker, salesman or other person has been authorized by the Issuer, the University, the New Liquidity Provider or the Remarketing Agent to give any information or to make any representations with respect to the Series 2007 Bonds, other than those contained in this Remarketing Memorandum, and if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Remarketing Memorandum does not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of, the Series 2007 Bonds by any persons in any jurisdiction in which it is unlawful to make such offer, solicitation or sale prior to registration or qualification under the securities laws of any such jurisdiction. This Remarketing Memorandum is not to be construed as a contract with the purchasers of the Series 2007 Bonds. The information set forth in this Remarketing Memorandum has been obtained from the University, the New Liquidity Provider and other sources which are believed to be reliable. Statements contained in this Remarketing Memorandum which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Remarketing Memorandum nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Issuer, the University or the New Liquidity Provider or that the information contained herein is correct at any time subsequent to the date hereof. The Remarketing Agent has provided the information in this Remarketing Memorandum under the caption THE REMARKETING AGENT herein and has reviewed the information in this Remarketing Memorandum in accordance with, and as part of, its responsibilities to investors under federal securities laws as applied to the facts and circumstances of this transaction. However, the Remarketing Agent does not guarantee the accuracy or completeness of such other information. IN CONNECTION WITH THE REOFFERING OF THE SERIES 2007 BONDS, THE REMARKETING AGENT MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE SERIES 2007 BONDS AT A LEVEL ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE SERIES 2007 BONDS HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939 IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2007 BONDS IN ACCORDANCE WITH THE APPLICABLE PROVISIONS OF SECURITIES LAWS OF THE STATES IN WHICH THE SERIES 2007 BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE SERIES 2007 BONDS AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SERIES 2007 BONDS HAVE NOT BEEN

3 APPROVED OR DISAPPROVED BY ANY STATE OR FEDERAL SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OR THE ACCURACY OR ADEQUACY OF THIS REMARKETING MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. Certain statements included or incorporated by reference in this Remarketing Memorandum constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget, intend, projection or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information in APPENDIX A UNIVERSITY OF NOTRE DAME DU LAC and APPENDIX B AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE UNIVERSITY AS OF JUNE 30, 2011 AND 2010 AND FOR THE YEARS THEN ENDED. A number of important factors, including factors affecting the University s financial condition and factors which are otherwise unrelated thereto, could cause actual results to differ materially from those stated in such forward-looking statements. THE UNIVERSITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED, OCCUR. The CUSIP number included in this Remarketing Memorandum is for the convenience of the owners and the potential owners of the Series 2007 Bonds. No assurance can be given that the CUSIP number for the Series 2007 Bonds will remain the same after the date of this Remarketing Memorandum. -ii-

4 TABLE OF CONTENTS PAGE INTRODUCTION...1 Purpose of this Remarketing Memorandum...1 The Series 2007 Bonds...2 University of Notre Dame du Lac...2 Summaries...2 THE NEW LIQUIDITY FACILITY...3 General...3 Events of Default...4 Remedies...6 Certain Definitions...7 THE REMARKETING AGENT...9 General...9 Special Considerations Relating to Remarketing the Series 2007 Bonds...10 Certain Activities of the Remarketing Agent and its Affiliates...11 RATINGS...12 INDEPENDENT ACCOUNTANTS...12 LEGAL MATTERS...12 CERTAIN RELATIONSHIPS...12 MISCELLANEOUS...13 APPENDIX A University of Notre Dame du Lac APPENDIX B Audited Consolidated Financial Statements of the University as of June 30, 2011 and 2010 and for the Years Then Ended APPENDIX C The New Liquidity Provider APPENDIX D The Official Statement -i-

5 REMARKETING MEMORANDUM NO. 1 RELATING TO $75,000,000 ST. JOSEPH COUNTY, INDIANA VARIABLE RATE EDUCATIONAL FACILITIES REVENUE BONDS, SERIES 2007 (UNIVERSITY OF NOTRE DAME DU LAC PROJECT) INTRODUCTION Purpose of this Remarketing Memorandum This Remarketing Memorandum No. 1 (this Remarketing Memorandum ) supplements the Official Statement dated December 7, 2007 (the Official Statement ), relating to the bonds described above (the Series 2007 Bonds ). Unless otherwise indicated in this Remarketing Memorandum, the information set forth in the Official Statement has not been amended, modified, supplemented or updated since December 7, Capitalized terms used herein and not otherwise defined herein have the meanings set forth in the Official Statement. The information contained in this Remarketing Memorandum and in APPENDICES A, B and C attached hereto supersedes any inconsistent information contained in the Official Statement, a copy of which is attached hereto as APPENDIX D. This Remarketing Memorandum may not be delivered to any person unless accompanied by the Official Statement and should be read in conjunction therewith. This Remarketing Memorandum is being delivered in connection with the replacement of the liquidity facility (the Existing Liquidity Facility ) currently supporting the Series 2007 Bonds, which is provided by Banco Bilbao Vizcaya Argentaria, S.A., acting through its New York Branch, with a new liquidity facility (the BNY Liquidity Facility ) to be provided by The Bank of New York Mellon (the New Liquidity Provider ) pursuant to the terms of the Standby Bond Purchase Agreement dated May 17, 2012 (the Standby Agreement, and, together with the BNY Liquidity Facility, the New Liquidity Facility between the University and the New Liquidity Provider. See THE NEW LIQUIDITY PROVIDER in APPENDIX C hereto. The New Liquidity Facility will support the payment of the purchase price of Series 2007 Bonds tendered or required to be tendered for purchase, but for which remarketing proceeds are not available, subject to certain terms and conditions set forth therein and summarized herein. The Liquidity Facility constitutes an Alternate Liquidity Facility within the meaning of the Indenture (as hereinafter defined). The New Liquidity Facility has a stated termination date of May 17, See THE NEW LIQUIDITY FACILITY herein. In connection with the replacement of the Existing Liquidity Facility with the New Liquidity Facility on May 17, 2012, the Series 2007 Bonds will be mandatorily tendered for purchase and remarketed on May 16, 2012 (the Mandatory Tender Date ). The New Liquidity

6 Facility will be effective on May 17, 2012, which is the day after the Mandatory Tender Date. On and after May 17, 2012, payment of purchase price for the Series 2007 Bonds will be supported by the New Liquidity Facility. The Existing Liquidity Facility will terminate by its terms on May 18, 2012, the day following the effectiveness of the New Liquidity Facility. The Series 2007 Bonds On December 14, 2007, St. Joseph County, Indiana (the Issuer ) issued the Series 2007 Bonds under and pursuant to the terms of the Trust Indenture dated as of December 1, 2007 (the Indenture ) between the Issuer and Wells Fargo Bank, N.A., as trustee, (the Trustee ). The proceeds from the sale of the Series 2007 Bonds were loaned to the University of Notre Dame du Lac, a not-for-profit corporation chartered under Indiana law (the University ), pursuant to the terms of the Loan Agreement dated as of December 1, 2007 (the Loan Agreement ), between the Issuer and the University, for the purposes described in the Official Statement. The Series 2007 Bonds and the interest thereon do not constitute a debt, liability or a general obligation of the Issuer or the State of Indiana or any political subdivision thereof within the meaning of the Constitution or statutes of the State of Indiana, or a pledge of the faith and credit of the Issuer or the State of Indiana or any political subdivision thereof. The Series 2007 Bonds do not grant the owners thereof any right to have the Issuer levy any taxes or appropriate any funds for the payment of the principal of or interest on the Series 2007 Bonds. University of Notre Dame du Lac The University of Notre Dame du Lac, founded in 1842 by a priest of the Congregation of Holy Cross, is an independent, national Catholic research university located just north of the City of South Bend, Indiana. The University offers undergraduate, graduate, and professional degree-granting programs, and enrolls approximately 11,860 students. The University is governed by a predominantly lay Board of Trustees which exercises power delegated to them by twelve Fellows, six of whom must be members of the Congregation of Holy Cross, United States Priests and Brothers. The University is accredited by the North Central Association of Colleges and Schools. The last accreditation was granted in December, 2004 for a ten year period. Certain academic divisions are accredited by related discipline-specific organizations. For further information relating to the University, see APPENDIX A to this Remarketing Memorandum. Audited consolidated financial statements of the University as of June 30, 2011 and 2010 and for the years then ended are included in APPENDIX B hereto. Summaries Descriptions of the University, the Issuer, the New Liquidity Provider and the Remarketing Agent and summaries of certain provisions of the Series 2007 Bonds, the Indenture, the Loan Agreement, the Remarketing Agreement and the New Liquidity Facility are included in -2-

7 this Remarketing Memorandum, including the Appendices attached hereto. Such information, summaries and descriptions do not purport to be comprehensive or definitive. All references in this Remarketing Memorandum to the specified documents are qualified in their entirety by reference to each such document, copies of which are available from the Trustee, and all references to the Series 2007 Bonds are qualified in their entirety by reference to the definitive forms thereof and the information with respect thereto included in the aforesaid documents. General THE NEW LIQUIDITY FACILITY The New Liquidity Facility contains various provisions, covenants and conditions, certain of which are summarized below. Certain terms used in the following summary are defined therein or at the conclusion thereof. In addition, various other terms used in the following summary are defined in this Remarketing Memorandum, the Official Statement, the New Liquidity Facility and the Indenture, and reference thereto is made for full understanding of their import. The New Liquidity Facility will become effective on May 17, 2012 (the Effective Date ). Pursuant to the terms of the New Liquidity Facility, the New Liquidity Provider will make Loans (as defined below) to the University from time to time in an amount sufficient to pay the principal component of the purchase price of Series 2007 Bonds (other than Series 2007 Bonds bearing interest at the Fixed Rate, Series 2007 Bonds bearing interest at a Commercial Paper Rate during the Commercial Paper Rate Period and Series 2007 Bonds bearing interest at the Term Rate during a Term Rate Period that extends for more than twelve months) which are tendered or required to be tendered for purchase, but for which remarketing proceeds are not available, together with up to 34 days of accrued interest on such Series 2007 Bonds, calculated assuming such Series 2007 Bonds bear interest at a rate of 10% per annum and assuming a 360- day year; provided, however, that no Loans shall be used to pay the purchase price of University Bonds or Pledged Bonds (as such terms are defined below). The total amount of Loans that the New Liquidity Provider is obligated to make to the University under the New Liquidity Facility is limited to $75,708,334 (the Commitment ), of which $75,000,000 is available to pay the principal component of the purchase price and $708,334 (representing 34 days accrued interest, assuming an interest rate of 10% per annum and a 360-day year) is available to pay the interest component of the purchase price. The obligation of the New Liquidity Provider to make Loans shall be effective from the Effective Date to and including the earliest of (a) the Termination Date (as defined below), (b) immediately upon the occurrence of a Special Default, (c) the close of business on the twentieth (20th) day following the date on which a Notice of Termination of Commitment (as defined below) is received by the Trustee or, if such day is not a Business Day, the next following Business Day, and (d) the date on which pursuant to the terms of the New Liquidity Facility the Commitment (as defined below) has been reduced to zero or terminated in its entirety. -3-

8 On each Purchase Date (as defined below), if the proceeds available from the remarketing of the Series 2007 Bonds are not sufficient for the purchase of the Series 2007 Bonds, the Trustee will give notice by facsimile transmission to the New Liquidity Provider (a Notice of Bank Purchase ), no later than 12:45 p.m., New York City time, on the Business Day on which Series 2007 Bonds are subject to an optional tender or mandatory tender. If the New Liquidity Provider receives a Notice of Bank Purchase as provided above, and subject, in each case, to the satisfaction of the conditions precedent set forth in the New Liquidity Facility, the New Liquidity Provider will transfer to the Tender Agent, not later than 2:00 p.m., New York City time, on such date (a Purchase Date ), in immediately available funds, an amount equal to the aggregate Purchase Price of all or such portion of such Series 2007 Bonds as set forth in said Notice of Bank Purchase. The obligation of the New Liquidity Provider to purchase Series 2007 Bonds pursuant to the terms of the New Liquidity Facility is subject to the conditions precedent that no Special Default shall have occurred and be continuing and that the New Liquidity Provider shall have received timely a Notice of Bank Purchase as described in the preceding paragraph. A Special Default (as defined below) will result in the immediate termination, without notice, of the New Liquidity Provider s obligation to purchase Series 2007 Bonds, as more fully set forth in the section Remedies below. The New Liquidity Facility is not available to pay the principal, interest or premium, if any, payable on the Series 2007 Bonds. Events of Default Each of the following events constitutes an Event of Default under the New Liquidity Facility: (A) (i) The University shall default in the payment when due of any principal of or interest on any Loan (as defined below) or any Series 2007 Bond (including any Pledged Bonds (as defined below)) whether on any regularly scheduled interest payment date, at maturity, upon redemption or acceleration (excluding, specifically, any acceleration of any such Loan for any reason other than non-payment by the University as provided above), or otherwise; or (ii) the University shall default in the payment when due on any other amount payable under the New Liquidity Facility or the fee agreement between the University and the New Liquidity Provider and such default continues for five (5) Business Days after written notice thereof from the New Liquidity Provider is received by the University; or (B) Default in the due observance or performance by the University of certain covenants specified in the New Liquidity Facility; or (C) Default in the due observance or performance by the University of any other term, covenant or agreement set forth (or incorporated by reference) in the New Liquidity Facility (other than as specified in clause (A) or (B) above) and the continuance of such default for thirty (30) days after the occurrence thereof; or -4-

9 (D) Any representation or warranty made or deemed made by the University in the New Liquidity Facility or any other Credit Document (as defined below), or any statement or representation made by or on behalf of the University in any document delivered thereunder, shall prove to have been incorrect or misleading in any material respect when made; or (E) Any material provision related to payment of principal or interest with respect to any Loans or the Series 2007 Bonds shall for any reason cease to be valid and binding on the University, or an authorized officer of the University shall deny in writing that the University has any or further liability related to payment of principal or interest with respect to any Loans or the Series 2007 Bonds under the New Liquidity Agreement or the other Related Documents (other than the Purchase Contract and the Remarketing Agreement) (as such terms are defined below) or any court having jurisdiction shall find or rule that any material provision related to payment with respect to the Loans or the Series 2007 Bonds is not valid or binding on the University; or (F) An involuntary proceeding is instituted in a court having jurisdiction in the premises seeking an order for relief, rehabilitation, reorganization, conservation, liquidation or dissolution in respect to the University or for any substantial part of its property under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) and such proceeding is not terminated within sixty (60) days of commencement; or (G) The court having jurisdiction in the premises enters an order granting the relief sought in a proceeding described in clause (F) above, or the University shall institute or take any corporate action for the purpose of instituting any proceeding described in clause (F) above, or the University shall become insolvent or unable to pay its debts as they mature, shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian or sequestrator (or other similar official) of the University or for any substantial part of its property, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action in furtherance of any of the foregoing; or (H) (i) The University shall fail to pay any principal of or premium or interest on any Parity Debt (as hereinafter defined) aggregating in excess of $10,000,000 when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the greater of (1) the applicable grace period, if any, specified in the agreement or instrument relating to such Parity Debt and (2) 30 days (provided that such Parity Debt shall not constitute Parity Debt for purposes of this clause (H) if such Parity Debt is held by the provider or issuer of a liquidity, credit or other similar support facility in respect of such Parity Debt and such Parity Debt has been accelerated); or (ii) any other event shall occur -5-

10 Remedies or condition shall exist under any agreement or instrument relating to any Debt (as defined below) and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate the maturity of, or permit the holder to accelerate the maturity of, such Debt; or (I) Final judgment or judgments for the payment of money in excess of an aggregate of $25,000,000 shall be rendered against the University and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed; or (J) Certain events specified in the New Liquidity Facility concerning the University s employee benefit plans shall occur; or (K) (i) The rating on the Series 2007 Bonds is lowered below Baa3 (or its equivalent) by the Rating Service (as defined in the Indenture), or (ii) the Rating Service shall suspend or withdraw such rating on the Series 2007 Bonds for credit-related reasons and the rating so suspended or withdrawn is not reinstated within thirty (30) days of the date of such suspension or withdrawal; or (L) Any event of default described in subsections (a), (b), (c), (d), (e) or (f) of Section 7.01 of the Indenture (other than any failure to pay the purchase price of tendered Series 2007 Bonds as a result of a failure by the Bank to comply with its obligations under the New Liquidity Agreement) shall occur and be continuing; or (M) Any event of default (except any such event of default described elsewhere in this Events of Default section) shall occur and be continuing under any of the Related Documents (as defined below); or (N) (i) Any governmental authority having jurisdiction shall find or rule that any provision of the New Liquidity Facility, the Indenture, the Agreement (as defined in the Indenture) or the Series 2007 Bonds requiring the University to pay principal and interest is unenforceable, non-binding or invalid or (ii) the validity or enforceability of any provision of the New Liquidity Facility, the Indenture, the Agreement or the Series 2007 Bonds requiring the University to pay principal and interest shall be contested by the University in a legal or administrative proceeding or an authorized representative of the University shall deny in a legal or administrative proceeding that the University has any or further liability or obligation under any such document; or (O) Interest on the Series 2007 Bonds shall be included in the gross income of the holders thereof for federal income tax purposes. Following the occurrence of any of the above-referenced Events of Default under the New Liquidity Facility, the following remedies shall be available to the New Liquidity Provider: -6-

11 (1) Upon the occurrence of any Special Default, the Commitment (as defined below) of the New Liquidity Provider to make Loans shall automatically terminate and all Obligations (as defined below) then outstanding under the New Liquidity Facility shall immediately become due and payable without any election or action on the part of the New Liquidity Provider. The New Liquidity Provider shall give prompt notice on the date of such termination to the University, the Remarketing Agent, the Trustee and the Rating Service of termination of the Commitment to make Loans under the New Liquidity Facility upon the occurrence of a Special Default, provided that the New Liquidity Provider shall incur no liability or responsibility whatsoever by reason of its failure to receive or give such notice and such failure shall in no way affect the termination of the Commitment and the New Liquidity Provider s obligation to purchase Series 2007 Bonds pursuant to the New Liquidity Facility. (2) Upon the occurrence and continuance of any Event of Default (other than a Special Default), the New Liquidity Provider may, upon giving written notice to the University and the Trustee (such notice, a Notice of Termination of Commitment ), specify the date, which date shall be no sooner than 20 days after receipt of such notice by the Trustee (the Notice Termination Date ) on which the Commitment shall terminate and/or may declare all Obligations then outstanding under the New Liquidity Facility immediately due and payable, and the same shall thereupon become due and payable without demand, presentment, protest or further notice of any kind, all of which are expressly waived by the University, and at the close of business on the Notice Termination Date the Commitment of the New Liquidity Provider to make Loans shall automatically terminate. (3) Furthermore, upon the occurrence of any Event of Default, the New Liquidity Provider may pursue, exercise and enforce such further rights and remedies available under the Credit Documents and the Bond Documents (as defined below), or otherwise available pursuant to law or equity, and may, at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits at any time held and other indebtedness at any time owing by the New Liquidity Provider to or for the credit or the account of the University against any and all of the obligations of the University now or hereafter existing under the New Liquidity Facility and the other Credit Documents; provided that the New Liquidity Provider shall not have the right to terminate its obligation to purchase Series 2007 Bonds except as expressly provided in this Remedies section. Certain Definitions Set forth below are certain definitions of terms used in the New Liquidity Facility and not otherwise defined in this summary or the Official Statement. Bond Documents means the Series 2007 Bonds (including the Pledged Bonds), the Indenture, the Loan Agreement, the Remarketing Agreement, the Purchase Contract and all other agreements or instruments relating to the issuance and sale of and security for the Series

12 Bonds, other than the Credit Documents, as the same may be amended or modified from time to time in accordance with their respective terms and the terms of the New Liquidity Facility. Commitment means the obligation of the New Liquidity Provider to make Loans in an amount at any time outstanding not to exceed $75,708,334.00, as such amount may be reduced from time to time pursuant to the New Liquidity Facility. Credit Documents means the New Liquidity Facility, the Pledge Agreement, the fee agreement between the University and the New Liquidity Provider and the Note as the same may be amended or modified from time to time in accordance with their respective terms and the terms hereof. Debt of any person or entity means (i) indebtedness of such person or entity for borrowed money, (ii) obligations of such person or entity evidenced by bond debentures, notes or other similar instruments, (iii) obligations of such person or entity to pay the deferred purchase price of property or services, (iv) obligations of such person or entity as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, (v) obligations of such person or entity under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above, (vi) indebtedness or obligations of others of the kinds referred to in clauses (i) through (v) above secured by any mortgage, deed of trust, lien, security interest or other charge or encumbrance of any nature, or any other type of preferential arrangement, upon or with respect to any properties of such person or entity and (vii) liabilities of such person or entity in respect of unfunded vested benefits under certain employee benefit plans. Loan means a borrowing made by the New Liquidity Provider to the University pursuant to the New Liquidity Facility. Loan Agreement means the Loan Agreement dated as of December 1, 2007 between the University and the Issuer, as it may from time to time be amended or supplemented. Note means a promissory note duly executed and delivered to the New Liquidity Provider by the University and payable to the order of the New Liquidity Provider in the amount of the Commitment, including any amendment, modification, renewal or replacement of such promissory note. Obligations means all obligations and liabilities of the University to the New Liquidity Provider arising under or in relation to the New Liquidity Facility or any of the other Credit Documents. Parity Debt means unenhanced Debt evidenced by bond debentures, notes or other similar instruments that is payable on a parity basis with, or is senior to, the Series 2007 Bonds. -8-

13 Pledge Agreement means the Bond Pledge and Security Agreement among the University, the Trustee, as custodian, and the New Liquidity Provider as from time to time amended, supplemented or restated. Pledged Bond means any Series 2007 Bond with respect to which a Loan has been made under the New Liquidity Facility to the extent such Series 2007 Bond has not been released from the pledge of the Pledge Agreement. Purchase Contract means the Bond Purchase Agreement dated as of December 13, 2007 among the Issuer, the University and Goldman, Sachs & Co., as underwriter. Related Documents means, collectively, the Credit Documents, the Bond Documents and any other agreement or document relating thereto or contemplated thereby. Remarketing Agreement means the Remarketing Agreement dated as of December 1, 2007 between the University and Goldman, Sachs & Co., as remarketing agent. Special Default means any of the Events of Default described in clause (A)(i), (E), (F), (G), (H)(i), (K) or (N) above. Tender Agent means Wells Fargo Bank, N.A., and any successor Tender Agent as determined or designated under or pursuant to the Indenture. University Bonds means (a) Series 2007 Bonds purchased with moneys provided to the Tender Agent for the account of the University or the Issuer, or (b) Series 2007 Bonds registered in the name of the University or Series 2007 Bonds designated as being held for the account of the University, in either case other than Pledged Bonds. Termination Date means May 17, 2015, or such later date to which the Termination Date may be extended from time to time pursuant to the New Liquidity Facility. General THE REMARKETING AGENT Goldman, Sachs & Co. ( Goldman Sachs ) and the University have entered into a Remarketing Agreement dated December 1, 2007 (the Remarketing Agreement ) pursuant to which the University has appointed Goldman Sachs to serve as the Remarketing Agent for the Series 2007 Bonds for the purposes described in the Indenture and the Remarketing Agreement. The Remarketing Agent s principal office is located at 200 West Street, New York, New York The Remarketing Agent, under certain circumstances, determines the interest rates on the Series 2007 Bonds and uses its best efforts to remarket Series 2007 Bonds, all in accordance with the Indenture and the Remarketing Agreement. The University pays Goldman Sachs a fee for its services as Remarketing Agent. -9-

14 The Remarketing Agent may resign on 15 days prior notice to the Issuer, the University and the Trustee. The Remarketing Agent may be removed at any time upon 15 days prior written notice by the University by an instrument filed with the Issuer, the Remarketing Agent and the Trustee. The Trustee shall, within 30 days of the resignation or removal of the Remarketing Agent or the appointment of a successor remarketing agent, give notice thereof by registered or certified mail to the applicable Rating Service and to the registered owners of the Series 2007 Bonds. Special Considerations Relating to Remarketing the Series 2007 Bonds The Remarketing Agent is Paid by the University. The Remarketing Agent s responsibilities include determining the interest rate on the Series 2007 Bonds from time to time and remarketing Series 2007 Bonds that are optionally or mandatorily tendered for purchase (subject, in each case, to the terms of the Indenture and the Remarketing Agreement), all as further described in the Official Statement. The Remarketing Agent is appointed by the University and is paid by the University for its services. As a result, the interests of the Remarketing Agent may differ from those of existing owners and potential purchasers of the Series 2007 Bonds. The Remarketing Agent Routinely Purchases Bonds for Its Own Account. The Remarketing Agent acts as remarketing agent for a variety of variable rate demand obligations and, in its sole discretion, routinely purchases such obligations for its own account. The Remarketing Agent is permitted, but not obligated, to purchase tendered Series 2007 Bonds for its own account and, in its sole discretion, may routinely acquire such tendered Series 2007 Bonds in order to achieve a successful remarketing of the Series 2007 Bonds (i.e., because there otherwise are not enough buyers to purchase such Series 2007 Bonds) or for other reasons. However, the Remarketing Agent is not obligated to purchase Series 2007 Bonds and may cease doing so at any time without notice. The Remarketing Agent may also make a market in the Series 2007 Bonds by routinely purchasing and selling Series 2007 Bonds other than in connection with an optional or mandatory tender and remarketing. Such purchases and sales may be at or below par. However, the Remarketing Agent is not required to make a market in the Series 2007 Bonds. The Remarketing Agent may also sell any Series 2007 Bonds it has purchased to one or more affiliated investment vehicles for collective ownership or enter into derivative arrangements with affiliates or others in order to reduce its exposure to the Series 2007 Bonds. The purchase of Series 2007 Bonds by the Remarketing Agent may create the appearance that there is greater third party demand for the Series 2007 Bonds in the market than is actually the case. The practices described above also may result in fewer Series 2007 Bonds being tendered in a remarketing. The Series 2007 Bonds May be Offered at Different Prices. Pursuant to the Indenture and the Remarketing Agreement, the Remarketing Agent is required to determine the applicable rate of interest that, in its judgment, is the lowest rate that would permit the sale of the Series 2007 Bonds bearing interest at par on and as of the first day of an interest rate period. The interest rate will reflect, among other factors, the level of market demand for such Series 2007 Bonds (including whether the Remarketing Agent is willing to purchase Series 2007 Bonds for its own account). There may or may not be Series 2007 Bonds tendered and remarketed on the -10-

15 first day of an interest rate period, the Remarketing Agent may or may not be able to remarket any Series 2007 Bonds tendered for purchase on such date at par. The Remarketing Agent is not obligated to advise purchasers in a remarketing if it does not have third party buyers for all of the Series 2007 Bonds at the remarketing price. In the event that the Remarketing Agent owns any Series 2007 Bonds for its own account, it may, in its sole discretion in a secondary market transaction outside the tender process, offer such Series 2007 Bonds on any date, including the first day of an interest rate period, at a discount to par to some investors. The Ability to Sell Series 2007 Bonds Other than Through the Tender Process May be Limited. The Remarketing Agent may buy and sell Series 2007 Bonds other than through the tender process. However, the Remarketing Agent is not obligated to do so and may cease doing so at any time without notice. Thus, investors who purchase the Series 2007 Bonds, whether in a remarketing or otherwise, should not assume that they will be able to sell their Series 2007 Bonds other than by tendering the Series 2007 Bonds in accordance with the tender process. Under Certain Circumstances the Remarketing Agent May be Removed, Resign or Cease Remarketing Series 2007 Bonds Without a Successor Being Named. Under certain circumstances, the Remarketing Agent may be removed or have the ability to resign or cease its remarketing efforts without a successor having been named, subject to the terms of the Remarketing Agreement. In the event there is no remarketing agent for the Series 2007 Bonds, the Indenture provides that the Trustee shall, until a successor is appointed, accept Series 2007 Bonds that have been tendered for purchase in accordance with the Indenture; provided, however, that the Trustee shall not be required to remarket the Series 2007 Bonds, determine the interest rate on the Series 2007 Bonds or assume any obligations of the former remarketing agent. Certain Activities of the Remarketing Agent and its Affiliates The Remarketing Agent and its affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. The Remarketing Agent and certain of its affiliates have provided, and may in the future provide, a variety of these services to the University and to persons and entities with relationships with the University, for which they received or will receive customary fees and expenses. In the ordinary course of their various business activities, the Remarketing Agent and its affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the University (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the University. The Remarketing Agent and its affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such -11-

16 assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. RATINGS Moody s Investors Service, Inc. ( Moody s ) has assigned its municipal bond ratings of Aaa/VMIG-1 to the Series 2007 Bonds. The short-term rating is based upon the credit of the New Liquidity Provider. The ratings assigned by Moody s reflect only the view of Moody s. Any explanation of the significance of such ratings may only be obtained from Moody s. There is no assurance that the ratings mentioned above will remain in effect for any given period of time or that they might not be lowered or withdrawn entirely by Moody s if, in its judgment, circumstances so warrant. Any such downward change in or withdrawal of such ratings may have an adverse effect on the market price of the Series 2007 Bonds. INDEPENDENT ACCOUNTANTS The consolidated financial statements as of June 30, 2011 and 2010 and for the years then ended, included in APPENDIX B to this Remarketing Memorandum, have been audited by PricewaterhouseCoopers LLP, independent accountants, as stated in their report appearing in APPENDIX B to this Remarketing Memorandum. LEGAL MATTERS In connection with delivery of the New Liquidity Facility, Barnes & Thornburg LLP, South Bend, Indiana, Bond Counsel, has delivered its opinion to the effect that the delivery of the New Liquidity Facility to the Trustee is authorized under and complies with the provisions of the Indenture, the Loan Agreement and the Act (as defined in the Indenture) and will not, in and of itself, adversely affect the exclusion from gross income of interest on the Series 2007 Bonds for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended and in effect on the date thereof. Certain legal matters will be passed upon for the New Liquidity Provider by its special counsel, Emmit, Marvin & Martin, LLP, New York, New York; for the University by its Vice President and General Counsel; for the Issuer by its counsel, Anthony M. Zappia, Esq., St. Joseph County (Indiana) Attorney; and for the Remarketing Agent by its special counsel, Chapman and Cutler LLP, Chicago, Illinois. CERTAIN RELATIONSHIPS Robert M. Conway, a member of the University s Board of Trustees, is Senior Director of The Goldman Sachs Group Inc., the parent corporation of Goldman, Sachs & Co., the Remarketing Agent for the Series 2007 Bonds. Wells Fargo Bank, N.A. is the Trustee for the Series 2007 Bonds. Enrique Hernandez, Jr., a member of the University s Board of Trustees, serves on the Board of Directors for Wells Fargo & Company. Wells Fargo Bank, N.A. is a subsidiary of Wells Fargo & Company. -12-

17 MISCELLANEOUS The descriptions herein, and in the Appendices attached hereto, of the Series 2007 Bonds, the Indenture, the Loan Agreement, the Remarketing Agreement and the New Liquidity Facility are brief summaries of certain provisions thereof and do not purport to be complete. Reference is made to the Series 2007 Bonds, the Indenture, the Loan Agreement, the Remarketing Agreement and the New Liquidity Facility for a full and complete statement of the provisions thereof. Copies of such documents are available from the Trustee. The attached APPENDICES A, B, C and D are integral parts of this Remarketing Memorandum and should be read in their entirety together with all of the foregoing statements. THIS REMARKETING MEMORANDUM MAY NOT BE DISTRIBUTED SEPARATELY FROM THE OFFICIAL STATEMENT. The University has supplied and reviewed the information contained herein relating to the University and has approved all such information for use within this Remarketing Memorandum. The execution and delivery of this Remarketing Memorandum has been duly authorized by the University. UNIVERSITY OF NOTRE DAME DU LAC By /s/ John A. Sejdinaj Vice President for Finance -13-

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19 APPENDIX A UNIVERSITY OF NOTRE DAME DU LAC

20 UNIVERSITY OF NOTRE DAME DU LAC TABLE OF CONTENTS General Information...1 Governance...1 Administration...7 Academic Accreditation and Memberships...10 Undergraduate Education...11 Graduate Education...11 Relationships with Other Institutions...12 Faculty and Employees...12 Retirement Plans...12 Student Enrollment...13 Student Recruitment...15 Tuition and Fees...18 Financial Aid...18 Financial Information...20 Debt Outstanding...23 Endowment and Split Interest Funds...24 Contributions...26 Grants and Contracts...27 Physical Facilities...27 Insurance...28 i

21 UNIVERSITY OF NOTRE DAME DU LAC General Information The University of Notre Dame du Lac (the University ), founded in 1842 by Father Edward F. Sorin, a priest of the Congregation of Holy Cross, is a private, coeducational, national Catholic research university. Located in Notre Dame, Indiana, the University campus is adjacent to the City of South Bend and is approximately ninety miles southeast of Chicago. The University maintains high academic standards and ranks annually among the most selective universities in the nation. Admission to the University is highly competitive, with approximately eight applicants for each freshman class position. In 2011, of the students for whom high school rank was known, approximately 89% were ranked in the top ten percent of their high school graduating class and 74% of those entering students ranked among the top five percent in their class. The University is organized into the undergraduate colleges of Arts and Letters, Science, Engineering, Business, and the School of Architecture. Three advanced degree schools - the Law School, the Mendoza College of Business, and the Graduate School - complete the academic structure. The University also manages a number of major research institutes, several centers for advanced academic study, and various special programs. Governance The University was founded in 1842 and was officially chartered by a special act of the legislature of the State of Indiana in Until 1967, the University was governed by a selfperpetuating Board of Trustees (the Board ) of six members of the Priests Society of the Congregation of Holy Cross. In 1967, the University became one of the first Catholic universities in the nation to transfer governance to a predominantly lay Board of Trustees. Under the new structure, the former Board of Trustees was supplemented by the Fellows of the University (the Fellows ), with a membership governing body of six clerical members of the Congregation of Holy Cross, United States Province of Priests and Brothers, and six lay persons. In addition, the Provincial of the Congregation of Holy Cross, United States Province of Priests and Brothers, the Religious Superior of the Holy Cross Religious at Notre Dame, the President of the University of Notre Dame, and the Chairman of the Board are all ex officio Fellows. The Fellows exercise all power and authority granted by the University s charter, but have delegated the general powers of governance of the University to the Board, except for certain specifically reserved powers, including the power to elect the Trustees. Trustees are elected by the Fellows for three-year terms of office. Prominent lay persons from the fields of education, business, and public service occupy the majority of seats on the Board. The Bylaws of the University provide that the Board shall have at least thirty, but no more than sixty, Trustees. The Board is required to hold three regular meetings during each academic year, with meetings typically occurring in the fall, winter, and spring.

22 The Board has established several standing committees and, with certain exceptions, has vested the Executive Committee with all of the powers and functions of the Board for periods between meetings of the Board. Other standing committees of the Board are as follows: the Academic and Faculty Affairs Committee, the Investment Committee, the Finance Committee, the Student Affairs Committee, the University Relations/Public Affairs & Communications Committee, the Committee on Social Values and Responsibilities, the Audit Committee, the Committee on Athletic Affairs, the Governance and Nominating Committee, the Facilities and Campus Planning Committee, the Compensation Committee, and the International Facilities Committee. Current Fellows of the University and members and officers of the Board of Trustees are as follows: Name and Affiliation Dr. John F. Affleck-Graves* Executive Vice President University of Notre Dame Rev. E. William Beauchamp, C.S.C. President University of Portland Mr. John J. Brennan Chairman Emeritus Vanguard Dr. Thomas G. Burish* Provost University of Notre Dame Mr. Robert M. Conway Senior Director The Goldman Sachs Group Inc. Mr. Drew W. DeWalt Atherton, California Mr. José Enrique Fernández Chief Executive Officer and Chairman of the Board Omega Overseas Investments Corp. Name and Affiliation Rev. José E. Ahumada F., C.S.C. Rector St. George s College, District of Chile Ms. Cathleen P. Black New York, New York Mr. Stephen J. Brogan Managing Partner Jones Day Mr. John P. Calcutt Partner Ernst & Young Foundation Mr. John P. Delaney, Jr. Deputy District Attorney Philadelphia, Pennsylvania Mr. James J. Dunne III Senior Managing Principal Sandler O Neill Partners, LLP Mr. James F. Flaherty III Chairman and Chief Executive Officer Health Care Property Investors A-2

23 Name and Affiliation Mr. W. Douglas Ford * Downers Grove, Illinois Mr. William M. Goodyear * Chairman and Chief Executive Officer Navigant Consulting, Inc. Mr. Enrique Hernandez, Jr. * Chairman and Chief Executive Officer Inter-Con Security Systems, Inc. Mr. Douglas Tong Hsu Chairman and Chief Executive Officer Far Eastern New Century Corporation Most Rev. Daniel R. Jenky, C.S.C. D. D. Bishop of Peoria The Catholic Diocese of Peoria, Illinois Rev. James B. King, C.S.C. Religious Superior Holy Cross Community at Notre Dame Ms. Kati S. Macaluso East Lansing, Michigan Mr. Richard C. Notebaert * Chicago, Illinois Rev. Thomas J. O Hara, C.S.C. Professor, King s College Mr. Philip J. Purcell III Founder and President Continental Investors, LLC Mr. James E. Rohr Chairman & CEO PNC Financial Services Group Name and Affiliation Ms. Stephanie A. Gallo Vice President of Marketing E & J Gallo Winery Dr. Nancy M. Haegel Professor, Department of Physics Naval Postgraduate School Mrs. Carol Hank Hoffmann* Minnetonka, Minnesota Rev. John I. Jenkins, C.S.C. * President University of Notre Dame Mr. John W. Jordan II Chairman and Chief Executive Officer Jordan Industries, Inc. The Honorable Diana Lewis Palm Beach County Courthouse Mr. Patrick F. McCartan Senior Partner Jones Day Mr. Richard A. Nussbaum II Partner Sopko, Nussbaum, Inabnit & Kaczmarek Attorneys at Law Mr. Joseph I. O Neill III Managing Partner O Neill Properties, Ltd. Mr. J. Christopher Reyes Chairman Reyes Holdings, LLC Mr. Phillip B. Rooney Chairman Claddagh Investments, LLC A-3

24 Name and Affiliation Mrs. Shayla Keough Rumely Atlanta, Georgia Rev. Timothy R. Scully, C.S.C. Professor of Political Science and Director of the Institute for Educational Initiatives University of Notre Dame Mr. Kenneth E. Stinson Chairman Peter Kiewit Sons, Inc. Ms. Anne Thompson Chief Environmental Correspondent NBC Rev. David T. Tyson, C.S.C. * Provincial Superior Congregation of Holy Cross, United States Province of Priests and Brothers Name and Affiliation Mr. John F. Sandner* Special Policy Advisor and Retired Chairman Board of Directors CME Group Mr. William J. Shaw* Potomac, Maryland Mrs. Phyllis W. Stone Somerset, New Jersey Ms. Sara Martinez Tucker San Francisco, California Mr. Roderick K. West Executive Vice President and Chief Administrative Officer Entergy New Orleans The Honorable Ann Claire Williams United States Court of Appeals for the Seventh Circuit * Member of Executive Committee Fellow of the University A-4

25 The following individuals serve as Trustees Emeriti, non-voting members of the Board of Trustees: Name and Affiliation Mrs. Kathleen W. Andrews Director Andrews McMeel Universal Foundation Mr. Robert F. Biolchini Partner Stuart, Biolchini & Turner Chief Executive Officer PennWell Corporation Rev. Thomas E. Blantz, C.S.C. Professor, Department of History University of Notre Dame Mr. John H. Burgee Burgee Architects Mr. Arthur J. Decio Elkhart, Indiana Mr. Fritz L. Duda Chief Executive Officer Genus Holdings Ltd. Rev. Carl F. Ebey, C.S.C. Procurator General and General Steward of the Congregation of Holy Cross, Rome, Italy Mr. Charles K. Fischer, Sr. Chairman and Chief Executive Officer Harbison-Fischer Manufacturing Co. Mr. John W. Glynn, Jr. Founder and President Glynn Capital Management Mr. Philip M. Hawley Los Angeles, California Mr. John A. Kaneb Chairman and Chief Executive Officer HP Hood, LLC Name and Affiliation Rev. Ernest Bartell, C.S.C. Faculty Fellow Helen Kellogg Institute for Intl. Studies University of Notre Dame Mr. Roger E. Birk Tequesta, Florida Dr. John Brademas President Emeritus New York University Mr. John B. Caron Greenwich, Connecticut Mr. Alfred C. DeCrane, Jr. Greenwich, Connecticut Mr. Anthony F. Earley Garden City, New York Dr. Philip J. Faccenda South Bend, Indiana Mr. F. Michael Geddes Chairman and President Geddes and Company Mr. Bernard J. Hank, Jr. Moline, Illinois Rev. Theodore M. Hesburgh, C.S.C. President Emeritus University of Notre Dame Mr. Donald R. Keough Chairman Allen & Company, Inc. A-5

26 Name and Affiliation Mr. Thomas E. Larkin, Jr. Vice Chairman The TCW Group, Inc. Mr. Ignacio E. Lozano, Jr. Newport Beach, California Mr. Donald J. Matthews Far Hills, New Jersey Mr. Terrence J. McGlinn General Partner Walnut Street Associates Mr. Newton N. Minow Senior Counsel Sidley Austin LLP Prof. Timothy O Meara Provost Emeritus University of Notre Dame Mrs. Jane C. Pfeiffer Vero Beach, Florida Mrs. Ernestine M. Raclin Chairman Emeritus 1st Source Corporation Mr. John A. Schneider Greenwich, Connecticut Rev. Richard V. Warner, C.S.C. Superior General Congregation of Holy Cross Mr. Robert J. Welsh Chesterton, Indiana Name and Affiliation The Honorable George N. Leighton Earl A. Neal and Associates Rev. Edward A. Malloy, C.S.C. President Emeritus University of Notre Dame Mr. Ted H. McCourtney General Partner Saw Mill Partners Mr. Andrew J. McKenna Chairman of Schwarz Supply Source Chairman of McDonald s Corporation Mr. Martin Naughton President Glen Dimplex Dr. Anita M. Pampusch Lilydale, Minnesota Dr. Percy A. Pierre Professor of Electrical and Computer Engineering Michigan State University Mrs. Shirley W. Ryan Chairman Pathways Awareness Foundation Mr. Arthur R. Velasquez Chairman Azteca Foods, Inc. Mr. William K. Warren, Jr. Chairman, President and Chief Executive Officer Warren American Oil Company Mr. Robert K. Wilmouth Barrington, Illinois A-6

27 Administration President s Leadership Council The members of the President s Leadership Council are collectively responsible for the management of the University. The President s Leadership Council is composed of five University officers and 16 University administrators. The president of the University is the chief executive and is responsible for the general direction of its affairs. The Board elects the president, in accordance with the by-laws, from among the members of the Congregation of Holy Cross, United States Province of Priests and Brothers, and also elects the other officers of the University. Set forth below are the members of the President s Leadership Council: Rev. John I. Jenkins, C.S.C. - President* Thomas G. Burish - Provost* John F. Affleck-Graves - Executive Vice President* Robert J. Bernhard - Vice President for Research Marianne Corr - Vice President and General Counsel* Rev. Thomas P. Doyle, C.S.C. - Vice President for Student Affairs J. Nicholas Entrikin - Vice President and Associate Provost for Internationalization Ann Firth - Chief of Staff Erin Hoffmann Harding - Associate Vice President for Strategic Planning Rev. James B. King, C.S.C. - Religious Superior of Holy Cross Priests and Brothers at Notre Dame and Director of the Office of Campus Ministry Ronald D. Kraemer - Vice President and Chief Information Officer Rev. William M. Lies, C.S.C. - Vice President for Mission Engagement and Church Affairs Scott C. Malpass - Vice President and Chief Investment Officer* Christine Maziar - Vice President and Senior Associate Provost Robert K. McQuade - Vice President for Human Resources A-7

28 Daniel J. Myers - Vice President and Associate Provost for Faculty Affairs Louis M. Nanni - Vice President for University Relations Donald B. Pope-Davis - Vice President and Associate Provost for Undergraduate Studies John A. Sejdinaj - Vice President for Finance Frances L. Shavers - Chief Diversity Officer and Advisor to the President John B. Swarbrick Jr. - Vice President and Director of Athletics * Denotes Officer of the University. Selected Biographies Set forth below are selected biographies for certain members of the President s Leadership Council: Rev. John I. Jenkins, C.S.C., President Rev. John I. Jenkins, C.S.C., is in his second five-year term (which began in July, 2010) as the 17th president of the University of Notre Dame. His vision is for Notre Dame to be the Catholic research university for our time an institution that unifies, enlightens and heals by engaging in scholarship of the first rank while maintaining its distinctive Catholic character and long-time excellence in undergraduate education. During his tenure, Notre Dame has made significant progress toward its research goal, including selection as the lead partner in the Midwest Institute for Nanoelectronics Discovery, the creation of the Innovation Park research facility, and the construction of Stinson Remick Hall of Engineering. His commitment to undergraduate education has been marked by the Notre Dame Forums, yearlong initiatives that have examined important issues such as religion and world conflict, global health, immigration and energy. The University s Catholic identity has been strengthened during Father Jenkins tenure in multiple ways, including the appointment of a coordinator for University life initiatives and the construction of multimillion-dollar facilities for the Institute for Church Life, including the Center for Social Concerns, and the Institute for Educational Initiatives, which includes the Alliance for Catholic Education. Father Jenkins earned bachelor s and master s degrees in philosophy from Notre Dame in 1976 and 1978, respectively, and was ordained a priest of the Congregation of Holy Cross in He holds advanced degrees from Oxford and the Jesuit School of Theology. He is a professor of philosophy and the author of Knowledge and Faith in Thomas Aquinas. Thomas G. Burish, Provost Dr. Burish was elected to a five-year term as the University s second-ranking officer by the Board of Trustees in July 2005 and re-elected to a second five-year term in February A 1972 Notre Dame graduate and distinguished scholar in the field of clinical psychology, he served as president of Washington and Lee University for three years before returning to his alma mater and was Vanderbilt University s longest-serving provost from 1993 to He earned his master s and doctoral degrees in psychology and clinical psychology from the University of Kansas in 1975 and 1976, respectively. In 1976, he joined Vanderbilt s faculty as an assistant professor of psychology and remained there for A-8

29 26 years, establishing a prominent reputation in cancer research, receiving honors for excellence as an undergraduate teacher, and serving in numerous administrative positions including chair of the Department of Psychology from 1984 to Dr. Burish has been a member of the American Cancer Society s national board of directors since He serves on numerous scientific advisory committees and is co-author or co-editor of four books. John F. Affleck-Graves, Executive Vice President Dr. Affleck-Graves was elected executive vice president on April 30, 2004, by the Board of Trustees. He was re-elected to another five-year term, effective July 1, Dr. Affleck-Graves holds the Notre Dame Chair in Finance and previously served for three years as vice president and associate provost. His responsibilities include administration of an annual budget of more than $1.2 billion and total investments of approximately $7.5 billion, as of June 30, He also oversees human resource activities for a work force of more than 4,000 employees and directs the University s construction program. Dr. Affleck-Graves served on the University s faculty from 1986 to 2000 the final three years as chairman of the Department of Finance and Business Economics and returned in 2001 after a year at Florida State University as the Patty Hill Smith Eminent Scholar in Finance. He previously taught from 1975 to 1986 at his alma mater, the University of Cape Town, where he earned bachelor s, master s and doctoral degrees. The author of more than 50 refereed publications, Dr. Affleck-Graves specializes in the study of initial public offerings, valuation and asset pricing models, and shareholder value-added methodology. Marianne Corr, Vice President and General Counsel Ms. Corr became vice president and general counsel on October 1, She oversees all University legal matters, including those related to human resources and employment policies, faculty, student policies and discipline, business negotiations and contracts, intellectual property, immigration, litigation and risk management. A 1978 Notre Dame graduate who holds law degrees from Duke University School of Law and Temple University Law School, Ms. Corr was an associate and then partner in the Jones Day international law firm and a partner in the Corr Law Offices, a general trial practice firm in Warminster, Pennsylvania. She joined Textron Inc., a Fortune 500 company, in 1996 and was appointed its vice president and deputy general counsel in In that position, she was responsible for all litigation involving Textron and its current and discontinued operations, including product liability, complex commercial matters, employment, environmental issues and intellectual property. Scott C. Malpass, Vice President and Chief Investment Officer Mr. Malpass has served as the University s chief investment officer since He focuses on investment of the University s endowment, working capital and pension assets, approximately $7.5 billion at June 30, 2011, with an endowment value of approximately $6.4 billion. The endowment was among the 14 largest in American higher education according to 2011 endowment data assimilated by the National Association of College and University Business Officers. He also serves as a concurrent assistant professor of finance and business economics. Mr. Malpass received his bachelor s degree in 1984 and his master of business administration degree in 1986, both from the University. He returned to the University in 1988, coming from The Irving Trust Company. A-9

30 John A. Sejdinaj, Vice President for Finance Mr. Sejdinaj became vice president for finance on January 2, 2003, after previously serving for four years as assistant vice president for finance and director of budget and planning, and from 1996 to 1999 as director of finance and budgeting. He came to the University in 1994 as director of fixed income and cash management in the investment office. Under Mr. Sejdinaj s leadership as the initial director of the budget office, the office modernized budget models and processes and evolved into a service team that assists virtually all academic and administrative units on budgeting and other financial planning issues. As vice president for finance, Mr. Sejdinaj oversees and plays an integral part in directing the financial structure and debt offerings of the University. Mr. Sejdinaj earned a bachelor s degree from Notre Dame in 1981 and a master of business administration degree from DePaul University in Prior to returning to the University, Mr. Sejdinaj enjoyed a successful career in the banking and investment banking fields. Academic Deans An academic dean oversees each of the four colleges, the Law School, the Graduate School, the First Year of Studies program and the School of Architecture. The eight deans are: John McGreevy - I.A. O Shaughnessy Dean of the College of Arts and Letters Roger D. Huang - Martin J. Gillen Interim Dean of the Mendoza College of Business Gregory P. Crawford - W.K. Warren Foundation Dean of the College of Science Peter Kilpatrick - Matthew H. McCloskey Dean of the College of Engineering Nell Jessup Newton - Joseph A. Matson Dean of the Law School Gregory E. Sterling - Dean of the Graduate School Reverend Dr. Hugh R. Page Jr. - Dean of the First Year of Studies Michael Lykoudis - Francis and Kathleen Rooney Dean of the School of Architecture Academic Accreditation and Memberships The University is accredited by the North Central Association of Colleges and Schools. The last accreditation was granted in December 2004, for a ten-year period. The next on-site review for accreditation will occur during the academic year. Certain academic divisions are accredited by the following organizations: the American Bar Association (Law School), the National Architectural Accrediting Board (School of Architecture), the Association to Advance Collegiate Schools of Business (Mendoza College of Business), the American Psychological Association (Program in Clinical Psychology), the American Chemical Society (Department of Chemistry), the Engineering Accreditation Commission of the Accreditation Board for Engineering and Technology (Programs in Aerospace, Chemical, Civil, Electrical, A-10

31 Mechanical, and Computer Engineering as well as Computer Science), and the Association of Theological Schools (Program in Theology). Other departments, colleges, and programs of the University are accredited by relevant accrediting organizations. The University is a member of the Association of Catholic Colleges and Universities, the International Federation of Catholic Universities, the American Council on Education, the National Association of Independent Colleges and Universities, Independent Colleges and Universities of Indiana, and the Association of American Colleges. Undergraduate Education The University s academic programs at the undergraduate level are carried out through the University s colleges of Arts and Letters, Science, Business, Engineering and the School of Architecture. The University utilizes the concept of a single faculty for both graduate and undergraduate education, thus enhancing the quality of undergraduate studies. Every undergraduate who enters the University is enrolled in the First Year of Studies program. The First Year of Studies is based on a one-year curriculum designed to give entering students a foundation of liberal education and an opportunity to sample various academic disciplines before declaring a major. The First Year of Studies consists of five academic courses and a physical education requirement or ROTC in each semester. Upon the successful completion of the First Year of Studies, the University student then enters one of the four undergraduate colleges or the School of Architecture. The following bachelor s degrees are offered through 63 programs of study: Bachelor of Arts, Bachelor of Fine Arts, Bachelor of Science, Bachelor of Architecture, and Bachelor of Business Administration. Graduate Education Post-baccalaureate programs are offered in the Graduate School, in the Law School, and in the Mendoza College of Business. The Graduate School provides programs of graduate studies leading to master s degrees in 40 disciplines and doctoral degrees in approximately 25 disciplines through 26 University departments, schools and institutes comprising the divisions of humanities, social science, engineering and science, and the School of Architecture. Degrees are offered in the Law School (Masters of Laws, Juris Doctor, and Doctor of Juridical Science) and in the Mendoza College of Business (Master of Business Administration, Master of Nonprofit Administration, and Master of Science in Accountancy). Over the last decade, the University has increased resources devoted to graduate education, research, and building a distinguished faculty. Through the generous benefactions of its donors, the University has 262 endowed chairs, 207 of which were funded and filled as of June 30, The University has also employed equally effective strategies to attract gifted junior faculty. The University is currently classified as a Doctoral/Research Universities- Extensive by the Carnegie Foundation. A-11

32 Relationships with Other Institutions The University operates a co-exchange program with Saint Mary s College (located adjacent to the University campus) whereby students at the University may enroll in courses offered at Saint Mary s College, and students at Saint Mary s College may enroll in courses offered at the University. The University also provides a number of international educational and enrichment opportunities. Sophomores and juniors can spend a semester or year studying abroad, with programs in Australia, Brazil, Chile, China, Egypt, France, Germany, Greece, Ireland, Italy, Japan, Mexico, Russia, Senegal, Spain, Uganda and the United Kingdom. In addition, the University operates a program in Washington, D.C. Faculty and Employees The academic excellence of the University is based on 1,331 regular faculty members (as of the fall of 2011, which is the most current available information) who are supplemented by another approximately 233 non-regular faculty members (as of the fall of 2011). In addition, the University had 4,150 full-time staff employees, excluding students and non-regular employees as of the fall of Approximately 98% of the full-time instructional faculty is composed of lay persons, and approximately 90% of the full-time instructional faculty have doctoral or other terminal degrees. Of the full-time instructional faculty, 62% are tenured. The student to faculty ratio was approximately 11.2 to 1 in the academic year. The following table sets forth the most currently available information regarding the University s faculty, which is as of fall 2011: REGULAR & NON-REGULAR FACULTY Teaching and Research Library Special Professional Special Research Other... 2 Total Regular Faculty... 1,331 Non-Regular Faculty Total Faculty... 1,564 None of the employees of the University are represented by a union. The University believes its employee relations are good. Retirement Plans The University s defined contribution retirement savings plan is operated under section 403(b) of the Internal Revenue Code. Faculty and certain administrative employees who have completed one year of service at the University make mandatory contributions to the plan and the University makes matching contributions. Upon meeting the one year eligibility period of employment, participants are immediately vested in the plan and may direct their contributions A-12

33 and the University s contributions on their behalf to Teachers Insurance and Annuity Association, Fidelity Investments, or the Vanguard Group. All faculty, administrators and staff may also participate in the defined contribution retirement savings plan immediately upon hire by making voluntary contributions up to the annual limit established by the Internal Revenue Service. The University s share of the cost of these benefits was $25,039,000 and $23,915,000 for the years ended June 30, 2011, and 2010, respectively. Retirement benefits are provided for University staff under a defined benefit pension plan, for which the University serves as trustee and administrator. This plan provides benefits for certain administrators and staff after one year of qualifying service. Retirement benefits are based on the employee s total years of service and final average pay as defined by the plan. Plan participants are fully vested after five years of service. The University funds the plan with annual contributions that meet minimum requirements under the Employee Retirement Income Security Act of Other postretirement benefit plans offered by the University provide medical insurance benefits for retirees and their spouses. Employees are eligible for such benefits if they retire after attaining specified age and service requirements while employed by the University. The plans hold no assets and are funded by the University as claims are paid. During the year ended June 30, 2011, the University amended certain features of its postretirement benefits plans, replacing supplemental group medical insurance for Medicare-eligible retirees with Health Reimbursement Accounts upon which retirees may draw to purchase individual supplemental medical coverage. For additional information regarding benefit plans, see the University s audited financial statements and the notes, specifically Note 13 thereto, as presented in APPENDIX B of this Remarketing Memorandum. Student Enrollment The University s total enrollment has grown modestly over the past five years. Future growth is also expected to be moderate as current plans for the undergraduate, graduate and professional divisions do not call for large increases in enrollment. [Remainder of Page Intentionally Left Blank] A-13

34 The following table, based on actual fall semester enrollment, shows the number of students in the various divisions of the University for the past five academic years: ACTUAL FALL STUDENT ENROLLMENT * Academic Year Undergraduate*** Graduate Division** Professional Schools** Total Headcount*** Total FTEs*** ,452 2,146 1,275 12,004 11, ,437 2,055 1,201 11,985 11, ,372 2,075 1,277 11,816 11, ,363 2,025 1,260 11,731 11, ,371 1,991 1,287 11,733 11,650 * Some overlap exists in the headcount among these three divisions; however, there is no duplication in the totals. Included in these totals are students enrolled in the University, but studying abroad. ** Includes dual degree seekers and excludes unclassified students and employees. The Graduate Division includes Master of Education students. The Professional Schools include Graduate Business and Law School students. *** Excludes dual degree seekers and includes unclassified students and employees. A system upgrade in late fall 2011 resulted in a recategorization of data that were previously reported. Including cross-enrollment, enrollment by academic division for the fall 2011 semester is as follows: ENROLLMENT BY ACADEMIC DIVISION * Academic Division Enrollment First Year of Studies 2,041 College of Arts and Letters 2,191 College of Science 1,239 College of Engineering 985 College of Business 1,894 Architecture** 164 Law School 587 Graduate Business 614 Graduate School 2,146 Total 11,861 * Includes dual-degree seekers and unclassified students but excludes employees. ** Includes only undergraduates. A system upgrade in late fall 2011 resulted in a recategorization of data that were previously reported. A-14

35 While each College is an independent school which provides its own instruction, students are free to take courses in any of the Colleges. Undergraduates obtain bachelor degrees from their individual Colleges, or in combination programs with other Colleges within the University in integrated five-year programs. Student Recruitment The University conducts an intensive recruitment program, which places emphasis on maintaining the high academic quality of students entering the University. The recruitment process includes extensive admissions staff travel throughout the country, campus visits, and informational mailings to prospective students. In addition, the 270 Notre Dame clubs located throughout the country and overseas provide information through their alumni committee programs. The University s strong academic programs and reputation for excellence allow it to attract many talented students as demonstrated in the following table: FRESHMAN ADMISSION INFORMATION (Fall of Year) Completed Applications 16,548 14,521 14,357 13,945 14,508 Number of Students Accepted 4,019 4,177 4,113 3,727 3,548 Selectivity: Number of Students Accepted as Percent of Applicants 24% 29% 29% 27% 24% Number of Students Enrolled (headcount) 2,020 2,067 2,064 2,000 1,999 Matriculation: Number of Students Enrolled as Percent of Acceptances 50% 49% 50% 54% 56% Percent of Enrolled Students in Top 10% of High School Class 89% 87% 89% 88% 86% Mean Combined SAT Scores of Enrolled Class Qualified minority students comprised approximately 22% of the freshman class for Women, first admitted to undergraduate studies at the University in the fall of 1972, now account for approximately 46% of undergraduate enrollment. Based on annual surveys, Boston College and Northwestern University are the two institutions most often listed as the University s competitors for admitted students. However, it should also be noted that these students overwhelmingly choose to attend the University. The other universities with which the University most closely competes for admitted students can be divided into three groups: Catholic universities with strong regional and some national appeal (e.g., Georgetown University and Villanova University), public universities with strong regional appeal (e.g., University of Illinois, Purdue University, and University of Michigan), and private A-15

36 universities with strong national appeal (e.g., Duke University, Cornell University, Washington University, and Vanderbilt University). The University is truly a national university, attracting students from around the nation and the world. The 2011 entering class was drawn from 47 states, as well as the District of Columbia, Puerto Rico, and 27 foreign countries. The table below displays the geographic distribution of entering freshmen for 2011 and 2006: GEOGRAPHICAL DISTRIBUTION OF NEW STUDENTS (Fall of Year) Region Midwest 41% 40% Northeast 23% 24% West 18% 20% South 13% 13% US Territories and Foreign 5% 3% [Remainder of Page Intentionally Left Blank] A-16

37 The University s post-baccalaureate studies are comprised of the Graduate School, Law School, and Graduate Business programs. Graduate School degrees are offered within the Colleges of Arts & Letters, Architecture, Engineering, and Science. The following table displays total student applications, acceptances and confirmations in the graduate programs over the past five years: POST-BACCALAUREATE STUDIES SUMMARY OF APPLICATION STATISTICS* (Fall of Year) School and Year Total Applicants Acceptances Confirms Graduate School** , % 56.8% , % 62.7% , % 58.3% , % 50.0% , % 57.8% Law School** , % 29.8% , % 27.6% , % 23.4% , % 25.3% , % 27.0% Graduate, Business** , % 61.9% , % 64.8% , % 62.4% , % 65.1% , % 65.8% * Historical information reflects variances from past years statistical data due to changes in the sources and timing by which the data was collected. ** The University believes that the nationwide economic environment and changes in immigration laws contributed significantly to the decline in applications in recent years. A-17

38 Tuition and Fees The annual tuition and fees for an undergraduate in the academic year is $41,417; and with room and board, the total cost is $52,805. Since academic year tuition and fees have risen approximately 18% and tuition and fees, room and board combined have increased approximately 19%. The total cost of attending the University has risen at an average annual rate of approximately 4.4% over the last five years. UNDERGRADUATE TUITION AND FEES, ROOM AND BOARD CHARGES Academic Year Tuition & Fees Percent Increase Room & Board Percent Increase Total Percent Increase $41, % $11, % $52, % $39, % $10, % $50, % $38, % $10, % $48, % $36, % $9, % $46, % $35, % $9, % $44, % The amounts charged by the University for tuition and fees, and room and board are comparable to those of peer institutions according to an annual survey performed by U.S. News & World Report. Financial Aid The University subscribes to the principles of student financial aid administration as endorsed by the College Scholarship Service of the College Board and the National Association of Student Financial Aid Administrators. It also actively supports the President s 568 Group effort with 30 other highly-selective private institutions seeking to bring consensus in addressing difficult issues related to need-based principles in needs analysis. The University makes every effort to assist its students with their demonstrated financial needs by employing one or more forms of financial assistance. These resources include scholarships, grants, loans, and student employment. For the academic year, approximately 73% of the undergraduate students at the University received more than $200 million in undergraduate financial aid administered by the University. The University uses endowment income and annual gifts as its primary source for funding undergraduate financial aid. While the University s enrollment and selectivity standards are very positive, fully funding the unmet financial need of its student body has been and continues to be a top priority of the University. The Officers of the University approved an endowment-based solution in 1998 to meet the full unmet need of all undergraduate students. This goal was achieved for all freshmen in the school year and was achieved for all undergraduates in Moreover, a four-year plan to provide yet additional enhancements to financial aid policies, with University scholarship assistance, was expanded for a significant A-18

39 percentage of its entering freshmen classes beginning in thereby reducing the amount of expected student borrowing. From to , total undergraduate scholarships provided by the University have increased approximately 43%. Total University scholarships have grown by an average annual increase of about 9.4% over that time. The following table illustrates total financial assistance to undergraduate students at the University for the five most recent academic years for which such information is available: Scholarships, Grants and Awards UNDERGRADUATE FINANCIAL AID AWARDS (in 000's) Academic Year University $127,877 $115,637 $101,506 $ 94,047 $ 89,478 Federally funded 6,899 6,524 4,604 4,570 4,162 State funded ROTC 8,241 7,651 6,793 5,954 5,808 Other sources 9,221 9,153 8,898 9,139 8,622 Subtotal $152,638 $139,432 $122,703 $114,612 $108,857 Loans Federal $ 34,254 $ 33,412 $ 33,757 $ 33,964 $ 33,317 Other 7,794 11,005 12,665 13,300 13,244 Subtotal $ 42,048 $ 44,417 $ 46,422 $ 47,264 $ 46,561 Student Employment College work study $ 998 $ 1,089 $ 879 $ 941 $ 1,006 University 4,676 4,551 4,425 4,665 4,594 Subtotal $ 5,674 $ 5,640 $ 5,304 $ 5,606 $ 5,600 Total Aid $200,360 $189,489 $174,429 $167,482 $161,018 A-19

40 Financial Information Summary of Fiscal Years 2011, 2010, 2009, 2008, and The University provides certain summary financial information on the following pages, including Consolidated Statements of Financial Position as of June 30, 2011, 2010, 2009, 2008, and 2007, and Consolidated Statements of Changes in Unrestricted Net Assets for the fiscal years ended June 30, 2011, 2010, 2009, 2008, and The University s Audited Consolidated Financial Statements and the Notes thereto for the fiscal years ended June 30, 2011 and 2010, which include the assets and operations of certain other entities under the financial control of the University, are presented in APPENDIX B of the Remarketing Memorandum and should be reviewed in conjunction with the following data. [Remainder of Page Intentionally Left Blank] A-20

41 Assets CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (in 000's) As of June Cash and cash equivalents $ 90,006 $ 107,363 $ 127,648 $ 41,957 $ 55,616 Accounts receivable, net 26,851 24,730 23,540 34,811 33,499 Deferred charges and other assets 59,804 50,784 56,762 30,675 31,307 Contributions receivable, net 214, , , , ,037 Notes receivable, net 86,275 46,000 32,891 31,346 29,586 Investments 7,456,204 6,189,177 5,640,727 7,233,718 6,723,863 Land, buildings and equipment, net of accumulated depreciation 1,204,412 1,154,018 1,053, , ,571 Total assets $9,138,312 $7,753,677 $7,130,074 $8,467,761 $7,871,479 Liabilities Accounts payable $ 26,455 $ 31,177 $ 46,779 $ 12,965 $ 12,808 Short-term borrowing 100, ,094 75,036 94,810 40,000 Deferred revenue and refundable advances 78,790 87,094 81,624 81,495 93,960 Deposits and other liabilities 99,777 87,628 88,710 73,713 64,405 Liabilities associated with investments 316, , , , ,792 Obligations under split-interest agreements 71,778 58,028 49,611 59,286 37,081 Bonds and notes payable 728, , , , ,425 Conditional asset retirement obligations 22,118 22,243 21,131 21,031 20,280 Pension and other postretirement benefits 81, , ,578 79,030 76,057 Government advances for student loans 29,582 30,118 29,771 29,391 28,905 Total liabilities 1,555,409 1,435,407 1,280,035 1,059, ,713 Net Assets Unrestricted: Funds functioning as endowment 2,426,132 1,996,082 1,854,566 2,451,064 3,032,314 Invested in land, buildings and equipment 754, , , , ,746 Other unrestricted net assets 180,944 62,779 22, , ,865 Total unrestricted 3,361,868 2,757,559 2,472,162 3,166,124 3,771,925 Temporarily restricted 2,834,319 2,266,694 2,156,661 3,074,151 2,150,191 Permanently restricted 1,386,716 1,294,017 1,221,216 1,168,349 1,035,650 Total net assets 7,582,903 6,318,270 5,850,039 7,408,624 6,957,766 Total liabilities and net assets $9,138,312 $7,753,677 $7,130,074 $8,467,761 $7,871,479 1 Please refer to the University s Fiscal 2011 Consolidated Financial Statements located in Appendix B when reviewing this financial information. A-21

42 CONSOLIDATED STATEMENTS OF CHANGES IN UNRESTRICTED NET ASSETS (in 000 s) Fiscal Year Ended June Operating Revenues and Other Additions Tuition and fees $ 439,074 $ 419,271 $ 399,280 $ 382,132 $ 358,117 Less: Tuition scholarships and fellowships (174,078) (158,274) (141,483) (131,656) (122,803) Net tuition and fees 264, , , , ,314 Grants and contracts 103,731 85,671 77,230 76,681 75,413 Contributions 29,725 29,629 36,569 43,654 40,966 Accumulated investment return distributed 87,895 85,091 82,647 70,180 80,600 Sales and services of auxiliary enterprises 195, , , , ,164 Other sources 36,408 34,288 33,114 44,410 43,163 Total operating revenues 717, , , , ,620 Net assets released from restrictions 166, , , ,477 85,592 Total operating revenues and other additions 884, , , , ,212 Operating Expenses Instruction 325, , , , ,143 Research 105,885 83,194 74,820 69,673 65,494 Public service 20,650 20,513 23,307 16,175 14,329 Academic support 46,949 44,152 44,197 44,816 45,416 Student activities and services 33,918 32,881 32,160 28,934 27,508 General administration and support 189, , , , ,515 Auxiliary enterprises 163, , , , ,635 Total operating expenses 885, , , , ,040 Increase/(decrease) in unrestricted net assets from operations (1,554) 3,801 35,273 51,370 57,172 Non-Operating Changes in Unrestricted Net Assets Contributions 4,906 1, ,997 2,974 Investment income 36,911 14,156 11,163 18,258 55,530 Net gain/(loss) on investments 543, ,463 (700,712) 140, ,923 Accumulated investment return distributed (87,895) (85,091) (82,647) (70,180) (80,600) Net gain/(loss) on debt-related derivative instruments 2,046 (20,083) 9,376 (12,350) (848) Net assets released from restrictions 42, ,198 65,279 6, ,657 Net pension and postretirement benefits-related changes other than net periodic benefits costs 62,128 (33,946) (29,989) 1,227 - Other non-operating changes 1,704 4,667 (2,661) 96 6,537 Increase/(decrease) in unrestricted net assets from non-operating activities 605, ,596 (729,235) 92, ,173 Increase/(decrease) in unrestricted net assets before effect of change in accounting principle 604, ,397 (693,962) 144, ,345 Effect of adopting ASC Effect of adopting ASC (749,805) - - (21,776) Increase/(decrease) in unrestricted net assets $ 604,309 $ 285,397 $ (693,962) $ (605,801) $ 813,569 1 Please refer to the University s Fiscal 2011 Consolidated Financial Statements located in Appendix B when reviewing this financial information. A-22

43 Debt Outstanding As of June 30, 2011, the University had tax-exempt bonds payable in the amount of $364,293,000 in St. Joseph County, Indiana, Educational Facilities Revenue Bonds, including Series 1996 bearing interest at a fixed rate of 6.50 percent, Series 2005 bearing interest at a fixed term rate of percent, Series 2009 bearing interest at a fixed rate of 5.00 percent, and Series 2003 and Series 2007 bearing interest at variable rates. These bond issues represent general obligations of the University and are not collateralized by any facilities. On January 29, 2009, the University issued $150,000,000 University of Notre Dame du Lac Taxable Fixed Rate Notes, Series 2009, which bear interest at a fixed rate of percent and mature on September 1, The proceeds of the Series 2009 Taxable Fixed Rate Notes have been used to fund day-to-day working capital needs of the University, including but not limited to operating and capital costs. On October 20, 2010, the University issued $160,000,000 University of Notre Dame du Lac Taxable Fixed Rate Bonds, Series 2010, which bear interest at a fixed rate of 4.90 percent. The proceeds of the Series 2010 Taxable Fixed Rate Bonds have been used for various University purposes. The University expects to issue approximately $100,000,000 in taxable fixed rate bonds in June, The University is the majority owner of an externally managed limited liability corporation, the activities of which are reflected within the University s consolidated financial statements. The corporation s assets consist primarily of real estate, the acquisition of which was financed in part with a $40,000,000 mortgage note payable bearing interest at 5.68 percent, due in The note is not a general obligation of the University but is fully collateralized by the property acquired. The mortgage note payable had an outstanding amount of $38,736,000 as of June 30, In addition, mortgage notes in the amount of $15,435,000 at June 30, 2011, relate to the refinancing of facilities constructed for a not-for-profit organization consolidated by the University. These notes bear interest at a fixed rate of percent and are due in These notes are collateralized by the facilities to which they relate. As of June 30, 2011, the aggregate scheduled maturities of the notes and bonds described above are payable as follows, rounded to the nearest thousand: $3,135,000; $3,090,000; $153,216,000; $3,345,000; $38,865,000; and $519,635,000 thereafter. The University utilizes interest rate swaps as a strategy for managing interest rate risk associated with certain bond issues. The use of swap agreements is intended to decrease exposure to fluctuations in interest rates by effectively fixing the variable rates on the associated bonds. Under the terms of swap arrangements in effect as of June 30, 2011, the University pays A-23

44 fixed rates ranging from 2.01 percent to 4.97 percent and receives variable rates equal to either 67 percent or 70 percent of the one-month London Interbank Offered Rate ( LIBOR ) on total notional amounts of $124,715,000. An additional swap agreement under which the University would pay a fixed rate of 2.05 percent and receive 70 percent of the three-month LIBOR on a notional amount of $75,000,000 becomes effective in March 2012, concurrent with the end of the Series 2005 fixed term rate period. The estimated fair value of interest rate swaps, rounded to the nearest thousand, was a net unrealized gain position of $3,056,000 and a net unrealized loss position of $3,233,000 at June 30, 2011 and June 30, 2010, respectively. The University paid periodic net settlements, rounded to the nearest thousand, of $4,243,000 and $5,182,000 to counterparties pursuant to interest rate swaps during the years ended June 30, 2011 and 2010, respectively. The University maintains a $200,000,000 commercial paper program under which it may issue either standard or extendible municipal commercial paper through St. Joseph County, Indiana on behalf of the University. Standard municipal commercial paper issues are supported by a $200,000,000 standby credit facility with a major commercial bank. Interest on commercial paper may be either taxable or tax-exempt to investors, depending on the University s intended use of the proceeds. Standard taxable commercial paper in the amount of $100,060,000 and $115,094,000 was outstanding at June 30, 2011 and June 30, 2010, respectively. As of June 30, 2011, the University maintains unsecured lines of credit with four commercial banks in the aggregate amount of $300,000,000 to be utilized primarily for working capital purposes. The University had no outstanding balances on lines of credit at June 30, Total such outstanding balances were $25,000,000 at June 30, Endowment and Split Interest Funds The fair value of endowment and funds functioning as endowment was $6.4 billion as of June 30, The endowment was among the 14 largest in American higher education according to 2011 endowment data assimilated by the National Association of College and University Business Officers. Nearly $232 million in earnings was distributed for the benefit of endowment programs and expenses in fiscal year 2011 to provide financial support to endowed chairs, undergraduate scholarships, graduate fellowships, libraries, various academic programs, and a variety of other endowed programs, as well as general University operations. The market value of assets held in the Split Interest Fund as of June 30, 2011 was $ million. Income on the Split Interest Fund is typically paid to the donor with the principal eventually available to the University upon the death of the donor. The Split Interest Fund and corresponding liabilities associated with these arrangements are discussed in Notes 1, 6, and 17 to the University s audited consolidated financial statements. This arrangement is designed to encourage donations to the University by allowing for tax benefits that flow to the donor during their lifetime. A-24

45 The following table shows the market value of the Endowment and Split Interest Fund over the last five fiscal years for which audited financial statements are available: ENDOWMENT AND SPLIT INTEREST FUND (Market Value in $000 s) Endowment Fund $6,383,344 $5,340,685 $4,920,742 $6,351,855 $6,066,310 Split Interest Fund $108,114 $86,320 $73,338 $89,262 $63,128 The purpose of the endowment is to provide a perpetual source of operating support to endowed programs. The University s endowment spending policy allocates total earnings from the portfolio between current spending and reinvestment for future earnings, and has been designed with three objectives in mind: to provide programs with a predictable, stable stream of revenues; to ensure that purchasing power or real value of this revenue stream does not decline over time; and to ensure that the purchasing power or real value of endowment assets do not decline over time. The University s endowment is invested primarily in the Notre Dame Endowment Pool (the Pool ). Investment policies and guidelines are established by a committee of the Board supported by the internal investment staff, which is headed by the chief investment officer. The Pool is a multi-asset portfolio with a long-term strategic allocation of 92.5% equity and 7.5% fixed income investments. The equity investments include domestic and international large and small capitalization stocks, real estate, venture capital, private equity, marketable alternatives, energy and commodities. The fixed income investments include domestic and international bonds with a wide range of maturities. The Pool s performance has exceeded its long-term objective of inflation plus 5.5% over the ten years ended June 30, 2011, with an annualized rate of return of 8.5%. Annualized returns for the Pool for the most recent five fiscal years for which audited financial statements are available are summarized as follows: A-25

46 POOL INVESTMENT PERFORMANCE Fiscal Year Notre Dame Actual 1 Strategic Policy Portfolio 2 TUCS % 15.3% 20.8% % 7.5% 13.5% % % -18.2% % 0.8% -4.4% % 21.5% 17.7% Three Year Annualized Rate of Return as of June 30, 2011 Five Year Annualized Rate of Return as of June 30, Actual annualized returns are net of advisory fees. 2.3% 0.7% 3.9% 7.3% 3.8% 4.8% 2 The policy portfolio is a weighted average of market indices representing the major asset classes that comprise the Endowment portfolio. 3 Trust Universe Comparison Service Large Fund Median of institutional investors larger than $1 billion 4 The negative endowment return experienced in fiscal 2009 was largely due to the considerable decline in value experienced by markets worldwide. Contributions Contributions include outright gifts, as well as unconditional promises to give that are recognized as revenues - either temporarily restricted or permanently restricted - in the period such promises are made by donors. Contributions recognized under such commitments during the year ended June 30, 2009 and subsequent periods are discounted at a risk-adjusted rate commensurate with the duration of the donor s payment plan. Contributions recognized in prior periods under such commitments were recorded at a discount based on a U.S. Treasury rate. Amortization of the discounts is recorded as additional contribution revenue. Allowance is made for uncollectible contributions based upon management s expectations regarding collection of outstanding promises to give and past collection experience. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Contributions for the most recent five fiscal years are as follows: CONTRIBUTIONS (in $000's) Fiscal Year Ended June Unrestricted $ 34,631 $ 30,861 $ 37,525 $ 52,651 $ 43,940 Temporarily Restricted 86,765 74,770 60,266 80,983 77,506 Permanently Restricted 93,455 72,433 55, , ,143 Totals $214,851 $ 178,064 $153,073 $ 272,027 $ 236,589 A-26

47 The Sorin Society The membership requirement in the Sorin Society is an unrestricted annual contribution of $1,500. In 1991, the Founder s Circle was established to recognize donors who make a minimum gift of $5,000. In 2003, Legacy membership was established to recognize donors who make a minimum gift of $10,000. The Sorin Society has 11,947 members. Contributions totaled approximately $19.8 million in fiscal year The President s Circle The President s Circle recognizes nearly 260 donors who make annual unrestricted contributions of $25,000 or more to the University. Members contributed nearly $7.1 million during fiscal year The Badin Guild Membership is offered to individuals who have made the University a primary beneficiary in their estate plans. The Badin Guild now has 1,150 members. Members contributed nearly $73.8 million in fiscal year 2011, which includes certain gifts that have been discounted for present value. Alumni Contributions The University receives substantial financial support from its alumni, parents and friends, who provide a reliable base of annual donations. Over the last decade, the University has experienced a marked increase in total contributions, including an increase in alumni donations from approximately $55 million in fiscal year 2001 to over $105 million in fiscal year The University also recently completed its Spirit of Notre Dame campaign, which raised nearly $2.015 billion in a seven-year span that ended June 30, This final outcome far exceeded the original goal of $1.5 billion, and was the largest fundraising effort in the history of Catholic higher education with nearly 70 percent alumni participation. In addition, Notre Dame became the first university without a medical school to surpass the $2 billion milestone within a traditional seven-year capital campaign. Grants and Contracts In fiscal year 2011, a total of nearly $104 million in grants and contracts revenues were recognized in conjunction with sponsored programs. This represents an increase of more than 107 percent from a decade ago. In this ten year time frame, the number of grant awards climbed from 450 to 555, while the portion of these revenues representing indirect costs recovered by the University rose from $8.4 million to $18.1 million. Physical Facilities The University is renowned both for the quality of its physical facilities and the beauty of its campus. The University s approximately 1,200 acre campus encompasses two lakes, extensive wooded areas, tree-lined quadrangles, and 210 buildings with an aggregate area of 9,856,303 gross square feet. The Basilica of the Sacred Heart of Jesus, the 14-story Hesburgh Library with its 132 foot high mural depicting Christ the Teacher, and the University s Main Building with its famed Golden Dome are among the most widely known university landmarks in the world. The University also owns a 7,000 acre undeveloped site at Land O Lakes, Wisconsin which is used extensively for research and fieldwork, primarily in biological studies, and for University retreats. The University purchased the O Connell House in Dublin, Ireland in A-27

48 the summer of This facility houses classrooms, offices, and residential space serving University programs in Irish Studies, ACE (Alliance for Catholic Education), and Campus Ministry. The University also acquired a facility in Rome, Italy in the spring of 2010 which will provide classroom and office space for the University s Architecture and Arts and Letters programs. In addition, the acquisition in fall 2011 of Conway Hall, located near Waterloo Station in London, will provide housing to students in various University academic programs. The University continues to demonstrate its commitment to offering the best possible education to its students through its ongoing investment in the acquisition or construction of new facilities, and the renovation and upgrading of its existing facilities. The book value, adjusted for depreciation, of the University s land, buildings and equipment for the most recent five fiscal years is as follows (in 000 s): Year Net Book Value 2011 $1,204, $1,154, $1,053, $907, $851,571 The University has plans for or is currently constructing various new physical facilities on or near its campus. New projects include the construction of (i) Stayer Center for Executive Education, the future home of the Mendoza College of Business Executive Education Program, and (ii) a Campus Wellness Center, a facility that will serve the wellness needs of the University s faculty, staff, and graduate student families. Insurance The University maintains comprehensive insurance coverage on its assets. Real and personal property are insured on a replacement value basis with a $500,000 deductible. For the policy year, campus properties were insured for an aggregate amount of approximately $1,500,000,000. Business interruption insurance is included in the property insurance and is carried to protect the University against loss of income resulting from damage to real property and equipment. The approximately $1,500,000,000 aggregate limit also applies to any University business interruption loss. Blanket crime insurance is carried to protect the University from theft, premise losses, transit losses and depositors forgery losses with a $5,000,000 limit and a $100,000 deductible. General liability (bodily injury and property damage) and Directors and Officers (D&O) liability coverage is provided under a comprehensive self-insurance liability fund with loss limits of $1,000,000 per occurrence with a $2,000,000 aggregate for the General liability and a $3,000,000 aggregate for Directors and Officers coverage. A-28

49 The University also carries excess or umbrella coverage with a loss limit of $101,000,000. The University provides coverage for worker s compensation as required under the laws of the State of Indiana through a self-insurance fund with excess coverage provided by a commercial carrier. The University also provides, through a commercial carrier, statutory worker s compensation insurance for employees working in certain other states outside of Indiana. The University also maintains insurance coverage for automobile liability, professional liability, employment practices liability, travel accident and certain other risks of the type and in the amounts as are customary for institutions of similar size and scope of activities. A-29

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51 APPENDIX B AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE UNIVERSITY AS OF JUNE 30, 2011 AND 2010 AND FOR THE YEARS THEN ENDED

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53 University of NotreDameduLac Consolidated Financial Statements for the years ended June 30, 2011 and 2010

54 Contents Pages Report of Independent Auditors 1 Consolidated Statements of Financial Position 2 Consolidated Statements of Changes in Unrestricted Net Assets 3 Consolidated Statements of Changes in Net Assets 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6-36

55

56 University of Notre Dame du Lac Consolidated Statements of Financial Position (in thousands) As of June Assets Cash and cash equivalents $ 90,006 $ 107,363 Accounts receivable, net (Note 2) 26,851 24,730 Deferred charges and other assets (Note 3) 59,804 50,784 Contributions receivable, net (Note 4) 214, ,605 Notes receivable, net (Note 5) 86,275 46,000 Investments (Note 6) 7,456,204 6,189,177 Land, buildings and equipment, net of accumulated depreciation (Note 7) 1,204,412 1,154,018 Total assets $ 9,138,312 $ 7,753,677 Liabilities Accounts payable (Note 7) $ 26,455 $ 31,177 Short-term borrowing (Note 8) 100, ,094 Deferred revenue and refundable advances (Note 9) 78,790 87,094 Deposits and other liabilities (Note 10) 99,777 87,628 Liabilities associated with investments (Note 6) 316, ,688 Obligations under split-interest agreements (Note 17) 71,778 58,028 Bonds and notes payable (Note 11) 728, ,306 Conditional asset retirement obligations (Note 7) 22,118 22,243 Pension and other postretirement benefit obligations (Note 13) 81, ,031 Government advances for student loans (Note 5) 29,582 30,118 Total liabilities 1,555,409 1,435,407 Net Assets Unrestricted: Funds functioning as endowment (Note 16) 2,426,132 1,996,082 Invested in land, buildings and equipment 754, ,698 Other unrestricted net assets 180,944 62,779 Total unrestricted 3,361,868 2,757,559 Temporarily restricted (Note 14) 2,834,319 2,266,694 Permanently restricted (Note 15) 1,386,716 1,294,017 Total net assets 7,582,903 6,318,270 Total liabilities and net assets $ 9,138,312 $ 7,753,677 See accompanying notes to consolidated financial statements. 2

57 University of Notre Dame du Lac Consolidated Statements of Changes in Unrestricted Net Assets (in thousands) Years ended June Operating Revenues and Other Additions Tuition and fees $ 439,074 $ 419,271 Less: Tuition scholarships and fellowships (174,078) (158,274) Net tuition and fees 264, ,997 Grants and contracts (Note 18) 103,731 85,671 Contributions 29,725 29,629 Accumulated investment return distributed (Note 6) 87,895 85,091 Sales and services of auxiliary enterprises 195, ,762 Other sources 36,408 34,288 Total operating revenues 717, ,438 Net assets released from restrictions (Note 14) 166, ,587 Total operating revenues and other additions 884, ,025 Operating Expenses Instruction 325, ,876 Research 105,885 83,194 Public service 20,650 20,513 Academic support 46,949 44,152 Student activities and services 33,918 32,881 General administration and support 189, ,614 Auxiliary enterprises 163, ,994 Total operating expenses 885, ,224 Increase/(decrease) in unrestricted net assets from operations (1,554) 3,801 Non-Operating Changes in Unrestricted Net Assets Contributions 4,906 1,232 Investment income (Note 6) 36,911 14,156 Net gain on investments (Note 6) 543, ,463 Accumulated investment return distributed (Note 6) (87,895) (85,091) Net gain/(loss) on debt-related derivative instruments (Note 12) 2,046 (20,083) Net assets released from restrictions (Note 14) 42, ,198 Net pension and postretirement benefits-related changes other than net periodic benefits costs (Note 13) 62,128 (33,946) Other non-operating changes 1,704 4,667 Increase in unrestricted net assets from non-operating activities 605, ,596 Increase in unrestricted net assets $ 604,309 $ 285,397 See accompanying notes to consolidated financial statements. 3

58 University of Notre Dame du Lac Consolidated Statements of Changes in Net Assets (in thousands) Years ended June Unrestricted Net Assets Operating revenues and other additions $ 884,087 $ 833,025 Operating expenses (885,641) (829,224) Increase/(decrease) in unrestricted net assets from operations (1,554) 3,801 Increase in unrestricted net assets from non-operating activities 605, ,596 Increase in unrestricted net assets 604, ,397 Temporarily Restricted Net Assets Contributions 86,765 74,770 Investment income (Note 6) 42,621 17,479 Net gain on investments (Note 6) 633, ,764 Change in value of split-interest agreements (Note 17) 3, Net assets released from restrictions (Note 14) (208,423) (275,785) Other changes in temporarily restricted net assets 9,309 4,107 Increase in temporarily restricted net assets 567, ,033 Permanently Restricted Net Assets Contributions 93,455 72,433 Investment income (Note 6) 2, Net gain on investments (Note 6) Change in value of split-interest agreements (Note 17) 2, Other changes in permanently restricted net assets (5,940) (1,782) Increase in permanently restricted net assets 92,699 72,801 Increase in net assets 1,264, ,231 Net assets at beginning of year 6,318,270 5,850,039 Net assets at end of year $ 7,582,903 $ 6,318,270 See accompanying notes to consolidated financial statements. 4

59 University of Notre Dame du Lac Consolidated Statements of Cash Flows (in thousands) Years ended June Cash Flows from Operating Activities Increase in net assets $ 1,264,633 $ 468,231 Adjustments to reconcile change in net assets to net cash used by operating activities: Net gain on investments (1,177,402) (564,737) Investment income restricted for reinvestment (2,045) (860) Contributions for investments and physical facilities (82,644) (74,997) Contributed securities (40,904) (62,891) Depreciation 49,934 45,101 Loss on disposal of land, buildings and equipment 1,080 2,391 Change in obligations under split-interest agreements 13,750 8,417 Change in conditional asset retirement obligations (125) 1,112 Change in pension and other postretirement benefit obligations (67,153) 37,453 Changes in operating assets and liabilities: Accounts receivable, deferred charges and other assets (11,141) 4,788 Contributions receivable (33,155) 12,982 Accounts payable, deferred revenue and refundable advances, and deposits and other liabilities (877) (9,255) Other, net (12,578) 5,350 Net cash used by operating activities (98,627) (126,915) Cash Flows from Investing Activities Proceeds from sales and maturities of investments 1,805,582 1,778,612 Purchases of investments (1,785,328) (1,665,981) Purchases of land, buildings and equipment (102,715) (161,120) Student and other loans granted (44,958) (16,036) Student loans repaid 3,662 3,034 Net cash used by investing activities (123,757) (61,491) Cash Flows from Financing Activities Investment income restricted for reinvestment 2, Contributions for investments and physical facilities 82,644 74,997 Proceeds from short-term borrowing 818, ,353 Repayment of short-term borrowing (858,668) (598,295) Proceeds from bonds and notes issued 159, ,293 Repayment of bonds and notes (3,787) (155,902) Government advances for student loans Net cash accepted for investment on behalf of religious affiliates 3,922 14,468 Net cash provided by financing activities 205, ,121 Netchangeincashandcashequivalents (17,357) (20,285) Cash and cash equivalents at beginning of year 107, ,648 Cash and cash equivalents at end of year $ 90,006 $ 107,363 Supplemental Data Interest paid $ 22,761 $ 15,575 See accompanying notes to consolidated financial statements. 5

60 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The University of Notre Dame du Lac is a private, coeducational, national Catholic research university. The accompanying consolidated financial statements include the assets and operations of certain other entities under the financial control of the University of Notre Dame du Lac. The University of Notre Dame du Lac and entities included herein are referred to individually and collectively as the University. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements reflect the activities of the University as a whole and present balances and transactions according to the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified as follows: Unrestricted Net Assets Net assets not subject to donor-imposed restrictions and available for any purpose consistent with the University s mission. Revenues are generally reported as increases in unrestricted net assets unless the use of the related assets is limited by donor-imposed restrictions. Investment returns generated by unrestricted funds functioning as endowment and other sources are classified as changes in unrestricted net assets. Operating expenses are reported as decreases in unrestricted net assets. Temporarily Restricted Net Assets Net assets subject to specific, donor-imposed restrictions that must be met by actions of the University and/or passage of time. Contributed assets normally fund specific expenditures of an operating or capital nature. Investment returns on donor-restricted endowment funds are classified as changes in temporarily restricted net assets. Subject to the University s endowment spending policy and any restrictions on use imposed by donors, accumulated investment returns on donor-restricted endowments are generally available for appropriation to support operational needs. Temporarily restricted contributions or investment returns received and expended within the same fiscal period are reported as increases in temporarily restricted net assets and net assets released from restrictions, respectively. Permanently Restricted Net Assets Net assets subject to donor-imposed restrictions requiring they be maintained permanently. Permanently restricted net assets are generally restricted to long-term investment and are comprised primarily of donor-restricted endowment funds. The University classifies the following portions of donor-restricted endowment funds as permanently restricted net assets: (a) the original value of assets contributed to permanent endowment funds, (b) subsequent contributions to such funds valued at the date of contribution, and (c) reinvested earnings on permanent endowment when specified by the donor. The University s measure of operations presented in the consolidated statements of changes in unrestricted net assets includes revenues from tuition and fees, grants and contracts, unrestricted contributions designated for operations, accumulated investment return distributed under the University s spending policy and revenues from auxiliary enterprises and other sources, such as licensing and conferences. Other additions include net assets released from restrictions based upon their expenditure in support of operations or net assets made available for operations by virtue of the expiration of a term restriction. Operating expenses are reported by functional categories, after allocating costs for operations and maintenance of plant, interest on indebtedness and depreciation. 6

61 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) Non-operating activities presented in the consolidated statements of changes in unrestricted net assets include unrestricted contributions designated by the University for endowment or investment in buildings and equipment, investment return in excess of or less than the amount distributed for operations under the spending policy, any gains or losses on debt-related derivative instruments, and certain net pension and postretirement benefits-related changes in net assets. Other non-operating changes in unrestricted net assets includes the net activities of the consolidated limited liability company described in Note 6 and Note 11, the effect of changes in donor intent with respect to endowment and other funds, and other activities considered unusual or non-recurring in nature. Non-operating net assets released from restrictions generally reflect the expenditure of net assets restricted to investment in land, buildings and equipment. GRANTS AND CONTRACTS The University recognizes revenues on grants and contracts for research and other sponsored programs as the awards for such programs are expended. Indirect cost recovery by the University on U.S. government grants and contracts is based upon a predetermined negotiated rate and is recorded as unrestricted revenue. Advances from granting agencies are generally considered refundable in the unlikely event specified services are not performed. AUXILIARY ENTERPRISES The University s auxiliary enterprises exist primarily to furnish goods and services to students, faculty and staff. Managed as essentially self-supporting activities, the University s auxiliaries consist principally of residence and dining halls, intercollegiate athletics, college stores and other campus retail operations. Auxiliary enterprise revenues and related expenses are reported as changes in unrestricted net assets. CASH AND CASH EQUIVALENTS Resources invested in money market funds and in short-term investments with maturities at date of purchase of three months or less are classified as cash equivalents, except that any such investments purchased by external investment managers are classified as investments. Substantially all cash and cash equivalents are concentrated in accounts in which balances exceed Federal Deposit Insurance Corporation limits. ACCOUNTS RECEIVABLE Accounts receivable are recorded at face value and typically have contractual maturities of less than one year. CONTRIBUTIONS RECEIVABLE Unconditional promises to give are recognized at fair value as contributions either temporarily restricted or permanently restricted in the period such promises are made by donors. Contributions recognized as such during the year ended June 30, 2009 and subsequent periods are discounted at a risk-adjusted rate commensurate with the duration of the donor s payment plan. Contributions recognized in prior periods under such commitments were recorded at a discount based on a U.S. Treasury rate. Amortization of the discounts is recorded as additional contribution revenue. Allowance is made for uncollectible contributions based upon management s expectations regarding collection of outstanding promises to give and past collection experience. 7

62 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) NOTES RECEIVABLE Notes receivable, which are recorded at face value, principally represent amounts due from students under Perkins and other U.S. government sponsored loan programs. A general allowance is made for uncollectible student loans after considering both long-term collection experience and current trends, such as recent default rates of cohorts entering repayment status. Other notes receivable are evaluated individually for impairment, with allowances recorded based on management s expectations given facts and circumstances related to each note. INVESTMENTS Investments are stated at estimated fair value. The University measures the fair values of investments in securities at the last sales price on the primary exchange where the security is traded. Non-exchange-traded instruments and over-the-counter positions are primarily valued using independent pricing services, broker quotes or models with externally verifiable inputs. The fair values of alternative investments (interests in private equity, hedge, real estate and other similar funds) for which quoted market prices are not available are generally measured based on reported partner s capital or net asset value ( NAV ) provided by the associated external investment managers. The reported partner s capital or NAV is subject to management s assessment that the valuation provided is representative of fair value. The University exercises diligence in assessing the policies, procedures and controls implemented by its external investment managers, and thus believes the carrying amount of these assets represents a reasonable estimate of fair value. However, because alternative investments are generally not readily marketable, their estimated value is subject to inherent uncertainty and therefore may differ from the value that would have been used had a ready market for such investments existed. As described in Note 12, the University utilizes certain derivative instruments to manage risks associated with its investment portfolio. These instruments are stated at fair value. Open futures and options contracts are primarily valued at the closing exchange quotations on the last business day of the fiscal year. The fair value of certain overthe-counter contracts for which market quotations are not readily available is based upon independent pricing services, broker quotes or models with externally verifiable inputs. When appropriate, independent appraisers may also be engaged to assist in the valuation of such instruments. The fair value of forward currency exchange contracts is estimated using quotes obtained from banks and foreign exchange dealers. Where management believes a legal right of offset exists under an enforceable netting agreement, the fair value of these contracts is reported on a net-by-counterparty basis. Gains or losses resulting from changes in the fair value of derivative instruments associated with the investment portfolio or periodic net cash settlements with counterparties are recorded as gains or losses on investments. Investments Held on Behalf of Other Entities The University serves as the trustee for its employees defined benefit pension plan and certain revocable charitable trusts, managing the investment assets held within the plan and the trusts. The University also manages investment assets on behalf of two religious affiliates that share the University s Catholic ministry and educational missions. Accordingly, the University reports an equal asset and liability in the consolidated statements of financial position representing the fair value of investments managed on behalf of these entities. 8

63 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) DEBT-RELATED DERIVATIVE INSTRUMENTS The University utilizes derivative instruments in a limited manner outside of its investment portfolio. As described in Notes 11 and 12, interest rate swap agreements are used to manage interest rate risk associated with variable rate bond obligations. These instruments are reported in the consolidated statements of financial position at fair value. Fair value is estimated based on pricing models that utilize significant observable inputs, such as relevant interest rates, that reflect assumptions market participants would use in pricing the instruments. Any gains or losses resulting from changes in the fair value of these instruments or periodic net cash settlements with counterparties, including settlements related to the termination of such instruments, are recognized as non-operating changes in unrestricted net assets. LAND, BUILDINGS AND EQUIPMENT Institutional properties are stated at cost or at estimated fair value if acquired by gift, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, averaging 15 years for land improvements, years for buildings and 5-25 years for equipment. The University does not capitalize the cost of library books, nor the cost or fair value of its art collection. The latter is held for exhibition and educational purposes only and not for financial gain. Conditional Asset Retirement Obligations The University recognizes asset retirement obligations when incurred. A discounting technique is used to calculate the present value of the capitalized asset retirement costs and the related obligation. Asset retirement costs are depreciated over the estimated remaining useful life of the related asset and the asset retirement obligation is accreted annually to the current present value. Upon settlement of an obligation, any difference between the retirement obligation and the cost to settle is recognized as a gain or loss in the consolidated statement of changes in unrestricted net assets. The University s conditional asset retirement obligations relate primarily to asbestos remediation and will be settled upon undertaking associated renovation projects. SPLIT-INTEREST AGREEMENTS The University s split-interest agreements consist principally of charitable gift annuities and irrevocable charitable remainder trusts for which the University serves as trustee. Contribution revenue is recognized at the date a gift annuity or trust is established after recording a liability at fair value of the estimated future payments to be made to beneficiaries. Estimated future payments to beneficiaries are discounted at a risk-adjusted rate. Liabilities are adjusted during the terms of the agreements to reflect payments to beneficiaries, returns on trust assets, accretion of discounts and other considerations that affect the estimates of future payments. Net adjustments to the liabilities are recorded as changes in the value of split-interest agreements. 9

64 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) FAIR VALUE MEASUREMENTS Fair value measurements reflected in the consolidated financial statements conceptually represent the price 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. Generally accepted accounting principles provide a hierarchy that prioritizes the inputs to fair value measurements based on the extent to which inputs to valuation techniques are observable in the marketplace. The hierarchy assigns a higher priority to observable inputs that reflect verifiable information obtained from independent sources, and a lower priority to unobservable inputs that would reflect the University s assumptions about how market participants would value an asset or liability based on the best information available. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of the hierarchy of inputs used to measure fair value are described briefly as follows: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities that are available at the measurement date. Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 Unobservable inputs for the asset or liability, used in situations in which little or no market activity exists for the asset or liability at the measurement date. The categorization of fair value measurements by level of the hierarchy is based upon the lowest level input that is significant to the overall fair value measurement for a given asset or liability. Fair value measurements of investment assets for which the measurement was based on NAV (or its equivalent) as provided by an external manager are categorized within Level 2 to the extent such investments were redeemable with the manager at the NAV (or its equivalent) at the reporting date or within the near term (defined by the University as within approximately 90 days of the reporting date). Measurements of any such investments that were not redeemable at the reporting date or within the near term, whether by nature of the investment or as a result of unexpired terms or conditions restricting redemption at the reporting date, are categorized within Level 3. In the event that changes in the inputs used in the fair value measurement of an asset or liability results in a transfer of the fair value measurement in its entirety to a different categorization (e.g. from Level 3 to Level 2), such transfers between fair value categories are recognized at the end of the reporting period. USE OF ESTIMATES The preparation of consolidated financial statements in accordance 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 at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. SUBSEQUENT EVENTS The University has evaluated subsequent events through November 16, 2011, the date the financial statements were issued. 10

65 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) TAX STATUS The University is exempt from federal income taxes under section 501(c)(3) of the Internal Revenue Code ( IRC ), except to the extent the University generates unrelated business income. RECLASSIFICATIONS Certain amounts in the 2010 financial statements and notes were reclassified to conform to 2011 presentation. NOTE 2. ACCOUNTS RECEIVABLE Accounts receivable are summarized as follows at June 30: Research and other sponsored programs support $ 16,079 $ 14,344 Student receivables 2,832 2,956 Other receivables 8,580 8,094 27,491 25,394 Less allowances for uncollectible amounts $ 26,851 $ 24,730 NOTE 3. DEFERRED CHARGES AND OTHER ASSETS Deferred charges and other assets are summarized as follows at June 30: Debt-related derivative instruments (Note 12) $ 16,726 $ 12,625 Retail and other inventories 10,036 9,608 Beneficial interests in perpetual trusts (Note 15) 4,826 4,143 Prepaid rental expenses 16,482 14,295 Other deferred charges and prepaid expenses 11,734 10,113 $ 59,804 $ 50,784 NOTE 4. CONTRIBUTIONS RECEIVABLE Contributions receivable are summarized as follows at June 30: Unconditional promises expected to be collected in: Less than one year $ 82,931 $ 53,235 One year to five years 128, ,762 More than five years 108, , , ,230 Less: Unamortized discounts 75,700 72,865 Allowances for uncollectible amounts 29,554 34, , ,625 $ 214,760 $ 181,605 Contributions receivable are discounted at rates ranging from 0.62 percent to 6.91 percent and 0.77 percent to 6.91 percent at June 30, 2011 and 2010, respectively. 11

66 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) Contributions receivable, net, are summarized by net asset classification as follows at June 30: Temporarily restricted for: Operating purposes $ 38,228 $ 35,130 Investment in land, buildings and equipment 52,787 40,631 Funds functioning as endowment (Note 16) 5,301 6,657 Total temporarily restricted (Note 14) 96,316 82,418 Permanently restricted for endowment (Notes 15 and 16) 118,444 99,187 $ 214,760 $ 181,605 As of June 30, 2011, the University had received documented conditional pledges of $43,100, which are not reflected in the accompanying consolidated financial statements. Conditional promises to give are recognized when the conditions on which they depend are substantially met. NOTE 5. NOTES RECEIVABLE Notes receivable are summarized as follows at June 30: Student notes receivable, related to: Government sponsored loan programs $ 34,203 $ 33,570 Institutional student loans 951 1,110 35,154 34,680 Less allowances for uncollectible student notes 2,083 1,103 33,071 33,577 Other notes receivable 53,204 12,423 $ 86,275 $ 46,000 Government advances to the University for student loan funding, primarily under the Perkins Loan program, totaled $29,582 and $30,118 at June 30, 2011 and 2010, respectively. Due to significant restrictions that apply to government sponsored student loans, determining the fair value of student notes receivable is not practicable. Total balances on student notes receivable in past due status were $3,497 and $4,090 at June 30, 2011 and 2010, respectively. The delinquent portions of these balances were $1,084 and $1,005, respectively. During the year ended June 30, 2011, the University made a loan of $39,753 to a property development firm in conjunction with the renovation of a building in London that the University has contracted to purchase to support its England-based international studies programs (also see Note 7). The estimated fair value of this and other nonstudent notes receivable approximated the carrying amount at June 30, 2011 and

67 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) NOTE 6. INVESTMENTS Investments reflected in the consolidated statements of financial position are summarized as follows at June 30: Notre Dame Endowment Pool assets $ 7,250,586 $ 6,054,497 Other investments, associated with: Endowment and funds functioning as endowment 38,633 28,026 Working capital and other University designations 47,863 6,852 Split-interest agreements (Note 17) 9,967 9,438 Revocable charitable trusts 2,824 2,340 Defined benefit pension plan (Note 13) 106,331 88, , ,680 $ 7,456,204 $ 6,189,177 Liabilities associated with investments include the following at June 30: Notre Dame Endowment Pool liabilities $ 999 $ 2,013 Liabilities representing the fair value of investments held on behalf of: Religious affiliates 206, ,311 Revocable charitable trusts 2,824 2,340 Defined benefit pension plan (Note 13) 106,331 88,024 $ 316,507 $ 258,688 The Notre Dame Endowment Pool ( NDEP ) represents the University s primary investment portfolio. Certain investments, however, are held in specific instruments outside the NDEP to comply with donor requirements or other considerations. The pooled assets and liabilities of the NDEP are summarized as follows at June 30: Investment assets $ 7,250,586 $ 6,054,497 Liabilities associated with investments 1 (Note 12) (999) (2,013) NDEP net assets reflected within the financial statements 7,249,587 6,052,484 Equity interest in consolidated company 2 15,500 17,154 NDEP net assets unitized $ 7,265,087 $ 6,069,638 1 Represents the fair value of derivative instrument liabilities. 2 The University is the majority owner of an externally managed limited liability company, the assets and liabilities of which are reflected in the consolidated financial statements at cost. However, the estimated fair value of the University s equity interest in the company, $15,500 and $17,154 at June 30, 2011 and 2010, respectively, is included in NDEP net assets for unitization purposes. Transactions within participating funds that constitute additions to or withdrawals from the NDEP are unitized on a quarterly basis. The unitized net assets of the NDEP were attributable to the following at June 30: Endowment and funds functioning as endowment $ 6,187,946 $ 5,177,776 Working capital and other University designations 774, ,431 Student loan funds 697 4,578 Split-interest agreements (Note 17) 95,323 74,542 Funds invested on behalf of religious affiliates 206, ,311 $ 7,265,087 $ 6,069,638 13

68 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) The NDEP is comprised primarily of endowment-related holdings. As such, its investment objectives seek to preserve the real purchasing power of the endowment, while providing a stable source of financial support to its beneficiary programs. To satisfy its long-term rate of return objectives, the NDEP relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The NDEP maintains a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. Investment assets are summarized in the following tables by asset class at June 30, 2011 and 2010, respectively: 2011 Other NDEP Investments Total Short-term investments $ 201,247 $ 35,158 $ 236,405 Public equities 2,328,855 50,340 2,379,195 Fixed income securities 335,332 13, ,532 Marketable alternatives 931, ,011 Private equity 2,133,017-2,133,017 Real estate 547, ,853 Other real assets 772, ,860 7,250,586 99,287 7,349,873 Defined benefit pension plan investments (Note 13) - 106, ,331 $ 7,250,586 $ 205,618 $ 7,456, Other NDEP Investments Total Short-term investments $ 86,481 $ 1,662 $ 88,143 Public equities 1,993,149 31,432 2,024,581 Fixed income securities 266,976 13, ,167 Marketable alternatives 970, ,764 Private equity 1,728,428-1,728,428 Real estate 392, ,587 Other real assets 616, ,483 6,054,497 46,656 6,101,153 Defined benefit pension plan investments (Note 13) - 88,024 88,024 $ 6,054,497 $ 134,680 $ 6,189,177 Short-term investments include cash and cash equivalents, money market funds, securities with short-term maturities (such as commercial paper and government securities held either directly or via commingled pools with daily liquidity) and the fair value of certain derivative instrument assets (see Note 12 for further information about derivative instruments). Public equities investments cover the U.S. as well as both developed and emerging markets overseas, and long/short hedge funds. Marketable alternatives encompass other hedge fund strategies less correlated with broad equities markets. This includes credit-oriented strategies, multi-strategy funds where the manager has a broad mandate to invest opportunistically, and event driven funds where managers seek opportunity in various forms of arbitrage strategies as well as in corporate activities such as mergers and acquisitions. Private equity primarily includes domestic and foreign buyout and venture capital funds. Other real assets represents investments in energy and commodities. 14

69 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) NDEP investments are primarily invested with external managers. The University is committed under contracts with certain external managers to periodically advance additional funding as capital calls are exercised. Capital calls are generally exercised over a period of years and are subject to fixed expiration dates or other means of termination. Uncalled commitments related to NDEP investments are summarized by investment class as follows at June 30: Private equity $ 1,055,687 $ 1,042,506 Real estate 261, ,716 All other 284, ,168 $ 1,601,391 $ 1,591,390 The following tables reflect fair value measurements of investment assets (excluding defined benefit pension plan assets) at June 30, 2011 and 2010, respectively, as categorized by level of the fair value hierarchy according to the lowest level of inputs significant to each measurement: 2011 Level 1 Level 2 Level 3 Total Short-term investments $ 36,435 $ 199,970 $ - $ 236,405 Public equities: U.S. 261, , , ,398 Non-U.S. 85, , , ,375 Long/short strategies - 446, , ,422 Fixed income securities 96, , ,532 Marketable alternatives - 524, , ,011 Private equity - - 2,133,017 2,133,017 Real estate 15, , ,853 Other real assets 130,016 85, , ,860 $ 625,678 $ 2,354,352 $ 4,369,843 $ 7,349, Level 1 Level 2 Level 3 Total Short-term investments $ 6,232 $ 81,911 $ - $ 88,143 Public equities: U.S. 196,083 66, , ,642 Non-U.S. 105, , , ,953 Long/short strategies - 404, , ,986 Fixed income securities 71, , ,167 Marketable alternatives - 248, , ,764 Private equity - 54,256 1,674,172 1,728,428 Real estate , ,587 Other real assets 81,164 52, , ,483 $ 460,031 $ 1,390,057 $ 4,251,065 $ 6,101,153 Certain short-term investments and fixed income securities categorized within Level 2 are not traded in active markets but are measured using pricing sources such as broker quotes, or using models with externally verifiable inputs, such as relevant interest or exchange rates. Investments with certain private equity funds were held for sale at June 30, The fair value for these funds of $54,256, also reflected in Level 2, was measured based on the proceeds actually received upon closing the sale subsequent to June 30,

70 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) Other investments categorized within Levels 2 and 3 primarily reflect assets invested with external managers, the fair value measurements for which are generally based on NAV (or the equivalent) as provided to the University by the external managers. Investments in funds within public equities and marketable alternatives redeemable at NAV (or its equivalent) at the measurement date or within the near term are reflected in Level 2, while funds that are subject to restrictions that limit the University s ability to withdraw capital within the near term are reflected in Level 3. Redemption terms for these funds generally restrict withdrawals of capital for a defined lock-up period after investment, and thereafter typically allow withdrawals on a quarterly or annual basis with notice periods ranging from 30 to 180 days. Lock-up periods for funds reflected in Level 3 generally expire during the period from six months to three years after the measurement date. In addition, investor capital in these funds attributable to illiquid investments, often referred to as side pockets, generally is not available for redemption until the investments are realized by the fund. Most funds within private equity, real estate and other real assets, as well as certain marketable alternatives funds, are not redeemable at the direction of the investor and are reflected in Level 3. These funds make distributions to investing partners as the underlying assets of the funds are liquidated. The University expects the underlying assets of these funds to be substantially liquidated over the next five to ten years, the timing of which would vary by fund and depend on market conditions as well as other factors. Changes in investments (excluding defined benefit pension plan assets) for which fair value is measured based on Level 3 inputs are summarized below for the year ended June 30, 2011: Net Net realized/ Beginning acquisitions/ unrealized Net transfers End of of the year (dispositions) gains out of Level 3 the year Public equities: U.S. $ 203,967 $ (6,829) $ 53,845 $ (113,746) $ 137,237 Non-U.S. 308,060 83,327 80,164 (299,194) 172,357 Long/short strategies 466, ,489 44,604 (189,705) 429,964 Marketable alternatives 722,626 (67,271) 87,649 (335,183) 407,821 Private equity 1,674,172 5, ,731-2,133,017 Real estate 392,507 91,015 48, ,183 Other real assets 483,157 (23,181) 97, ,264 $ 4,251,065 $ 190,664 $ 865,942 $ (937,828) $ 4,369,843 During the year ended June 30, 2011, the University recognized net unrealized appreciation of $645,508 on investments still held at June 30, 2011 for which fair value is measured using Level 3 inputs. Net transfers out of Level 3 primarily reflect the migration to Level 2 of assets measured at fair value based on NAV (or its equivalent) that were eligible for redemption at the reporting date or within the near term. Transfers between Levels 1 and 2 were insignificant during the year ended June 30,

71 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) Changes in investments (excluding defined benefit pension plan assets) for which fair value is measured based on Level 3 inputs are summarized below for the year ended June 30, 2010: Net Net realized/ Beginning acquisitions/ unrealized Net transfers End of of the year (dispositions) gains/(losses) out of Level 3 the year Public equities: U.S. $ 258,945 $ (35,275) $ 44,904 $ (64,607) $ 203,967 Non-U.S. 488,950 (76,604) 107,378 (211,664) 308,060 Long/short strategies 901,043 (69,355) 39,298 (404,410) 466,576 Fixed income securities 58,208 5,330 7,796 (71,334) - Marketable alternatives 848,606 (73,331) 195,489 (248,138) 722,626 Private equity 1,420, , ,265 (54,256) 1,674,172 Real estate 402,944 83,147 (93,584) - 392,507 Other real assets 510,151 (37,319) 62,486 (52,161) 483,157 $ 4,888,921 $ (71,318) $ 540,032 $ (1,106,570) $ 4,251,065 During the year ended June 30, 2010, the University recognized net unrealized appreciation of $266,818 on investments still held at June 30, 2010 for which fair value is measured using Level 3 inputs. Net transfers out of Level 3 primarily reflect the migration to Level 2 of assets measured at fair value based on NAV (or its equivalent) that were eligible for redemption at the reporting date or within the near term. Transfers between Levels 1 and 2 were insignificant during the year ended June 30, Due to the pooled nature of assets held in the NDEP, a portion of any unrealized gains or losses is attributed to NDEP holdings of split-interest agreements and the University s religious affiliates. INVESTMENT RETURN Investment return as reflected in the consolidated statements of changes in net assets is summarized as follows for the years ended June 30: Investment income, net $ 81,577 $ 32,495 Net gain on investments: Realized gains, net 297, ,539 Unrealized gains, net 879, ,198 1,177, ,737 $ 1,258,979 $ 597,232 Temporarily Permanently Unrestricted restricted restricted Total Total Investment income, net $ 36,911 $ 42,621 $ 2,045 $ 81,577 $ 32,495 Net gain on investments 543, , ,177, ,737 $ 580,660 $ 676,036 $ 2,283 $ 1,258,979 $ 597,232 Investment income is reported net of related expenses of $24,294 and $17,243 for the years ended June 30, 2011 and 2010, respectively. Investment-related expenses consist of fees paid to external investment managers, as well as expenses related to internal investment office operations. 17

72 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) A portion of accumulated investment returns is distributed annually to beneficiary programs under the University s endowment spending policy. In addition, a portion of unrestricted returns accumulated on working capital and other assets is distributed to supplement the University s general operating needs and other initiatives. Accumulated investment return distributed is summarized by source as follows for the years ended June 30: Temporarily Unrestricted restricted Total Total Endowment and funds functioning as endowment (Note 16) $ 79,410 $ 153,068 $ 232,478 $ 223,289 Working capital and other sources 8,485-8,485 3,079 $ 87,895 $ 153,068 $ 240,963 $ 226,368 NOTE 7. LAND, BUILDINGS AND EQUIPMENT The following is a summary of land, buildings and equipment at June 30: Land and land improvements $ 112,377 $ 109,833 Buildings 1,270,790 1,222,321 Equipment 214, ,572 Construction in progress 88,815 59,993 1,686,419 1,605,719 Less accumulated depreciation 482, ,701 $ 1,204,412 $ 1,154,018 Depreciation expense was $49,934 and $45,101 for the years ended June 30, 2011 and 2010, respectively. The University recorded accounts payable associated with construction in progress costs of $9,038 and $11,766 at June 30, 2011 and 2010, respectively. The University also has commitments to expend approximately $38,209 to complete various construction projects as of June 30, In addition, the University has entered into a contract to purchase a building in London for approximately $58,800 to use in support of its international studies programs in England. Changes in conditional asset retirement obligations are summarized as follows for the years ended June 30: Beginning of year $ 22,243 $ 21,131 New obligations recognized - 66 Obligations settled (165) (507) Accretion expense 832 1,553 Revisions in estimated cash flows (792) - End of year $ 22,118 $ 22,243 18

73 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) NOTE 8. SHORT-TERM BORROWING The University maintains a $200,000 commercial paper program under which it may issue either standard or extendible municipal commercial paper through St. Joseph County, Indiana on behalf of the University. Standard municipal commercial paper issues are supported by a $200,000 standby credit facility with a major commercial bank. Interest on commercial paper may be either taxable or tax-exempt to investors, depending on the University s intended use of the proceeds. Generally, tax-exempt commercial paper is issued to finance the purchase of equipment and improvements to educational facilities, while taxable commercial paper is issued to provide funding for general uses. Standard taxable commercial paper in the amount of $100,060 and $115,094 was outstanding at June 30, 2011 and 2010, respectively. The University also maintains unsecured lines of credit with commercial banks in the aggregate amount of $300,000 to be utilized primarily for working capital purposes. Termination dates on lines of credit available at June 30, 2011 ranged from January 31, 2012 to March 17, Total outstanding balances on lines of credit were $25,000 at June 30, The University had no such balances outstanding at June 30, Total interest costs incurred on short-term borrowing were approximately $301 and $253 for the years ended June 30, 2011 and 2010, respectively. NOTE 9. DEFERRED REVENUE AND REFUNDABLE ADVANCES Deferred revenue and refundable advances are summarized as follows at June 30: Deferred ticket sales and other revenues from intercollegiate athletics $ 47,268 $ 55,545 Deferred tuition and other student revenues 13,069 12,624 Refundable advances for research and other sponsored programs 16,599 16,964 Other deferred revenues 1,854 1,961 $ 78,790 $ 87,094 NOTE 10. DEPOSITS AND OTHER LIABILITIES Deposits and other liabilities are summarized as follows at June 30: Debt-related derivative instruments (Note 12) $ 13,670 $ 15,858 Accrued compensation and employee benefits 37,726 36,551 Payroll and other taxes payable 10,165 10,253 Accrued pension plan contribution (Note 13) 11,000 - Student organization funds and other deposits 7,325 7,205 Self-insurance reserves 6,212 6,481 Accrued interest expense, pledges payable and other liabilities 13,679 11,280 $ 99,777 $ 87,628 19

74 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) NOTE 11. BONDS AND NOTES PAYABLE Bonds and notes payable consist of the following at June 30: Obligations of the University: St. Joseph County (Indiana) Educational Facilities Revenue Bonds 1 $ 364,293 $ 366,828 Series 2010 Taxable Fixed Rate Bonds 160,000 - Notre Dame du Lac Dormitory Refunding and Construction Bonds Series 2009 Taxable Fixed Rate Notes 150, ,000 Mortgage notes payable 15,435 14, , ,008 Obligations of consolidated company: Mortgage note payable 38,736 39,298 $ 728,464 $ 571,306 1 Includes the unamortized Series 2009 bond premium of $7,178 and $7,328 at June 30, 2011 and 2010, respectively. The fair value of bond and note obligations approximates the aggregate carrying value at June 30, 2011 and Fair value measurements of bonds and notes are based on observable interest rates and maturity schedules that fall within Level 2 of the hierarchy of fair value inputs. The aggregate scheduled maturities of bonds and notes payable are summarized as follows: 2012 $ 3, , , , ,865 Thereafter 519,635 $ 721,286 The Series 2010 Taxable Fixed Rate Bonds bear interest at a fixed rate of 4.90 percent and are due March 1, The bonds constitute unsecured general obligations of the University and the associated interest is taxable to investors. Proceeds received were net of issuance costs of $1,323, which are reflected within operating expenses for the year ended June 30, Interest costs of $5,466 were incurred during the year ended June 30, Notre Dame du Lac Dormitory Refunding and Construction Bonds bearing interest at a fixed rate of 3.00 percent were retired during the year ended June 30, The University incurred interest costs of $19 and $27 on these bonds during the years ended June 30, 2011 and 2010, respectively. The Series 2009 Taxable Fixed Rate Notes bear interest at a fixed rate of percent and are due September 1, The notes constitute unsecured general obligations of the University and the associated interest is taxable to investors. The University incurred $6,211 and $6,211 in interest costs on the notes during the years ended June 30, 2011 and 2010, respectively. Mortgage notes in the amount of $15,435 relate to the refinancing of facilities constructed for a not-for-profit organization consolidated by the University. The notes bear interest at a fixed rate of percent and are due on July 1, These notes are collateralized by the facilities to which they relate. The University incurred interest costs of $173 and $66 on the notes during the years ended June 30, 2011 and 2010, respectively. 20

75 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) The University is the majority owner of an externally managed limited liability company, the activities of which are reflected in the University s consolidated financial statements. The company s assets consist primarily of real estate, the acquisition of which was financed in part with a note payable bearing interest at 5.68 percent, due on February 1, The note is not a general obligation of the University and is fully collateralized by the property acquired. Interest costs of $2,203 and $2,242 related to the note are reflected within non-operating changes in unrestricted net assets for the years ended June 30, 2011 and 2010, respectively. ST. JOSEPH COUNTY (INDIANA) EDUCATIONAL FACILITIES REVENUE BONDS St. Joseph County (Indiana) Educational Facilities Revenue Bonds ( SJC bonds ) represent general obligations of the University and are not collateralized by any facilities. The following issues were outstanding at June 30: Outstanding Current rate through of interest Issues bearing variable rates: Series % $ 52,660 $ 55,045 Series % 75,000 75, , ,045 Issues bearing fixed rates: Series % 7,890 7,890 Series % 75,000 75,000 Series % 153, , , ,783 $ 364,293 $ 366,828 1 Variable rates reset weekly. Represents annual percentage rate in effect at June 30, Rate is fixed through February 2012, variable thereafter. 3 Carrying amount includes the unamortized premium of $7,178 and $7,328 at June 30, 2011 and 2010, respectively. The University maintains standby credit facilities with commercial banks to provide alternative liquidity to support the repurchase of tendered variable rate SJC bonds in the event they are unable to be remarketed. Financing obtained through standby credit facilities to fund the repurchase of such bonds would bear interest rates different from those associated with the original bond issues, and mature over the five year period following repurchase. The standby credit facilities in effect at June 30, 2011 expire in December The University utilizes interest rate swap agreements as a strategy for managing interest rate risk associated with variable rate SJC bond issues. Under the terms of swap agreements in effect at June 30, 2011, the University pays fixed rates ranging from 2.01 percent to 4.97 percent and receives variable rates equal to 67 percent or 70 percent of the one-month London Interbank Offered Rate ( LIBOR ) on total notional amounts of $124,715. An additional swap agreement under which the University would pay a fixed rate of 2.05 percent and receive 70 percent of the three-month LIBOR on a notional amount of $75,000 becomes effective in March 2012, concurrent with the end of the Series 2005 fixed term rate period. The estimated fair value of interest rate swaps was a net unrealized gain position of $3,056 and a net unrealized loss position of $3,233 at June 30, 2011 and 2010, respectively. See Note 12 for further information on the University s interest rate swaps. 21

76 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) Interest costs incurred on SJC bonds and periodic net settlements paid to counterparties pursuant to associated interest rate swaps are summarized below for the years ended June 30: Interest Net periodic Interest Net periodic expense 1 settlements expense 1 settlements Issues bearing variable rates $ 406 $ 4,243 $ 343 $ 5,182 Issues bearing fixed rates 10,598-8,873 - $ 11,004 $ 4,243 $ 9,216 $ 5,182 1 Includes amortization of Series 2009 premium of $150 and $60 for the years ended June 30, 2011 and 2010, respectively. The premium is amortized using the effective interest method over the period the bonds are outstanding. NOTE 12. DERIVATIVE INSTRUMENTS The University utilizes a variety of derivative instruments within the NDEP, including certain options contracts, forward currency contracts and futures contracts. As described in Note 11, the University also utilizes interest rate swap agreements to manage interest rate risk associated with its variable rate bond obligations. Derivative instruments by their nature bear, to varying degrees, elements of market risk and credit risk that are not reflected in the amounts recorded in financial statements. Market risk in this context represents the potential for changes in the value of derivative instruments due to levels of volatility and liquidity or other events affecting the underlying asset, reference rate, or index, including those embodied in interest and foreign exchange rate movements and fluctuations in commodity or security prices. Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The University s risk of loss in the event of counterparty default is typically limited to the amounts recognized in the consolidated statements of financial position, not the notional amounts of the instruments, and is further limited by the collateral arrangements as specified for specific instruments. Collateral associated with NDEP derivatives is moved as required by market fluctuations, and is generally in the form of cash or cash equivalents. Interest rate swaps associated with the University s variable rate bonds have credit-risk-related contingent features that could require the University to post collateral on instruments in net liability positions in the event of a downgrade to the rating on the University s debt. The aggregate fair value of interest rate swaps with credit-risk-related contingent features that were in liability positions was $13,670 and $15,858 at June 30, 2011 and 2010, respectively. If the credit-risk-related contingent features associated with these instruments had been triggered, the University would have been required to post collateral to its counterparties in an amount up to the full liability position of the instruments, depending on the level of the University s credit rating. Based on the quality of its credit rating, the University had posted no collateral associated with these instruments at June 30,

77 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) The estimated fair value of derivative instrument assets and liabilities, certain of which are reflected on a netby-counterparty basis within the consolidated statements of financial position, are summarized in the table below at June 30, 2011, along with the net gains and losses for the year then ended: Notional amounts Derivative assets Derivative liabilities Net gain/(loss) NDEP derivatives: Options contracts 1,2 $ 1,793,649 $ 27,671 $ - $ (8,391) Forward currency contracts 2 $ 184,831 1, ,899 Futures contracts 3 $ 600,003 1, ,071 Gross value 30,339 1,418 18,579 Counterparty netting (419) (419) - Net by counterparty $ 29,920 $ 999 $ 18,579 Debt-related derivatives: Interest rate contracts 2 $ 199,715 $ 16,726 $ 13,670 $ 2,046 1 Includes interest rate and commodities options with notional amounts of $1,173,448 and $620,201 at June 30, Fair value measurements of over-the-counter derivative instruments are based on observable inputs, such as relevant interest rates and commodity prices, that fall within Level 2 of the hierarchy of fair value inputs. 3 Futures contracts are exchange-traded. Fair value is based on quoted prices that fall within Level 1 of the hierarchy of fair value inputs. Notional amount on futures at June 30, 2011 reflect $667,963 and $67,960 in long and short exposures, respectively. The estimated fair value of derivative instrument assets and liabilities, certain of which are reflected on a netby-counterparty basis within the consolidated statements of financial position, are summarized in the table below at June 30, 2010, along with the net gains and losses for the year then ended: Notional amounts Derivative assets Derivative liabilities Net gain/(loss) NDEP derivatives: Options contracts 4,5 $ 1,597,548 $ 19,302 $ - $ (15,531) Forward currency contracts 5 $ 156,926 1,086 1, Futures contracts 6 $ 594,907 6,188 1,513 10,920 Gross value 26,576 2,947 (3,687) Counterparty netting (934) (934) - Net by counterparty $ 25,642 $ 2,013 $ (3,687) Debt-related derivatives: Interest rate contracts 5 $ 203,130 $ 12,625 $ 15,858 $ (20,083) 4 Represents interest rate options at June 30, Fair value measurements of over-the-counter derivative instruments are based on observable inputs, such as relevant interest rates, that fall within Level 2 of the hierarchy of fair value inputs. 6 Futures contracts are exchange-traded. Fair value is based on quoted prices that fall within Level 1 of the hierarchy of fair value inputs. Notional amount on futures at June 30, 2010 reflect $672,047 and $77,140 in long and short exposures, respectively. 23

78 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) Derivative instrument assets and liabilities are reflected within the following lines of the consolidated statements of financial position at June 30: NDEP derivatives: Investments 1 $ 29,920 $ 25,642 Liabilities associated with investments (Note 6) $ 999 $ 2,013 Debt-related derivatives: Deferred charges and other assets (Note 3) $ 16,726 $ 12,625 Deposits and other liabilities (Note 10) $ 13,670 $ 15,858 1 Reflected within the Short-term investments investment class in Note 6. Certain options contracts are employed within the NDEP as a strategy for protecting the investment portfolio against significant fluctuations in interest rates and commodity prices. Options contracts held in the NDEP are fully collateralized at June 30, Forward currency contracts are utilized to settle planned purchases or sales, for investment purposes, and to mitigate the impact of exchange rate fluctuations on the U.S. dollar value of NDEP international holdings. A variety of currency, interest rate, equity, bond and commodities futures contracts are also employed in the NDEP to manage exposure to various financial markets. Gains and losses on derivative instruments held in the NDEP are primarily included in the net gain or loss on investments as reflected in the financial statements. However, due to the pooled nature of the NDEP, a minor portion of these gains and losses is attributed to NDEP holdings of split-interest agreements and the University s religious affiliates. The net gain or loss on debt-related derivatives (interest rate swaps associated with the University s variable rate bonds) is reported as such within non-operating changes in unrestricted net assets. 24

79 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) NOTE 13. PENSION AND OTHER POSTRETIREMENT BENEFITS DEFINED CONTRIBUTION RETIREMENT SAVINGS PLANS Faculty and certain administrative employees are eligible to participate in the defined contribution retirement savings plan. The plan, operated under section 403(b) of the IRC, is funded by mandatory employee contributions and University matching contributions. All faculty, administrators and staff may also participate in a supplemental defined contribution retirement savings plan, under which participants may make additional contributions up to the annual limit established by the Internal Revenue Service. Participants are immediately vested in the plans, and may direct their contributions and the University s contributions on their behalf to Teachers Insurance and Annuity Association, Fidelity Investments or the Vanguard Group. The University s share of the cost of these benefits was $25,039 and $23,915 for the years ended June 30, 2011, and 2010, respectively. DEFINED BENEFIT PENSION PLAN AND POSTRETIREMENT MEDICAL INSURANCE BENEFITS Retirement benefits are provided for University staff under a defined benefit pension plan, for which the University serves as trustee and administrator. This plan provides benefits for certain administrators and staff after one year of qualifying service. Retirement benefits are based on the employee s total years of service and final average pay as defined by the plan. Plan participants are fully vested after five years of service. The University funds the plan with annual contributions that meet minimum requirements under the Employee Retirement Income Security Act of Other postretirement benefit plans offered by the University provide medical insurance benefits for retirees and their spouses. Employees are eligible for such benefits if they retire after attaining specified age and service requirements while employed by the University. The plans hold no assets and are funded by the University as claims are paid. During the year ended June 30, 2011, the University amended certain features of its postretirement benefit plans, replacing supplemental group medical insurance for Medicare-eligible retirees with Health Reimbursement Accounts upon which retirees may draw to purchase individual supplemental medical coverage. The University recognizes the full funded status of its defined benefit pension and other postretirement benefit plans in the consolidated statements of financial position. Accordingly, the liability for pension benefits as recognized in the statement of financial position represents the excess of the actuarially determined projected benefit obligation ( PBO ) over the fair value of plan assets at year end. The liability for other postretirement benefits as recognized in the consolidated statements of financial position represents the actuarially determined accumulated postretirement benefit obligation ( APBO ) at year end. The following table summarizes the liabilities for pension and other postretirement benefits reflected in the consolidated statements of financial position at June 30: Liability for pension benefits: PBO at end of year $ 167,512 $ 155,804 Less: Fair value of plan assets at end of year (117,331) (88,024) 50,181 67,780 Liability for other postretirement benefits (APBO at year end) 31,697 81,251 $ 81,878 $ 149,031 25

80 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) Changes in the actuarially determined benefit obligations are summarized below for the years ended June 30: Other postretirement Pension benefits (PBO) benefits (APBO) Beginning of year $ 155,804 $ 127,378 $ 81,251 $ 62,027 Service cost 6,063 4,811 3,992 3,689 Interest cost 8,437 8,114 3,569 3,865 Plan amendments - - (42,016) - Actuarial loss/(gain) 2,788 20,496 (14,032) 12,682 Benefit payments (5,580) (4,995) (1,067) (1,012) End of year $ 167,512 $ 155,804 $ 31,697 $ 81,251 The accumulated benefit obligation associated with pension benefits was $141,371 and $130,227 at June 30, 2011 and 2010, respectively. The change in the fair value of pension plan assets is summarized below for the years ended June 30: Fair value of plan assets at beginning of year $ 88,024 $ 77,827 Actual return on plan assets 14,278 7,407 Employer contributions 20,609 7,785 Benefit payments (5,580) (4,995) Fair value of plan assets at end of year $ 117,331 $ 88,024 The components of net periodic benefit cost recognized within operating expenses in the consolidated statements of changes in unrestricted net assets are summarized as follows for the years ended June 30: Other Pension benefits postretirement benefits Service cost $ 6,063 $ 4,811 $ 3,992 $ 3,689 Interest cost 8,437 8,114 3,569 3,865 Expected return on plan assets (7,417) (7,674) - - Amounts recognized previously as non-operating changes in net assets: Amortization of net loss 2, ,129 1,404 Amortization of prior service cost/(credit) (2,525) (2,525) 3, (1,396) (1,121) $ 10,486 $ 5,871 $ 6,165 $ 6,433 The amortization of any prior service cost or credit is determined using straight-line amortization over the average remaining service period of employees expected to receive benefits under the respective plans. 26

81 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) Gains or losses and other changes in the actuarially determined benefit obligations arising in the current period, but not included in net periodic benefit cost, are recognized as non-operating changes in the consolidated statements of changes in unrestricted net assets. These changes are reflected net of a contra-expense adjustment for amounts recognized previously, but included as components of net periodic benefit cost in the current period. Accordingly, the net non-operating increase (decrease) in unrestricted net assets related to pension and other postretirement benefits is summarized as follows for the years ended June 30: Other Pension benefits postretirement benefits Net actuarial gain/(loss) $ 4,073 $ (20,763) $ 14,032 $ (12,682) Plan amendments ,016 - Adjustment for components of net periodic benefit cost recognized previously 3, (1,396) (1,121) $ 7,476 $ (20,143) $ 54,652 $ (13,803) Cumulative amounts recognized as non-operating changes in unrestricted net assets that had not yet been reflected within net periodic benefit cost are summarized as follows at June 30: Other Pension benefits postretirement benefits Net loss $ 41,240 $ 48,281 $ 19,001 $ 34,162 Prior service cost/(credit) 3,993 4,428 (41,878) (2,387) $ 45,233 $ 52,709 $ (22,877) $ 31,775 The University expects to amortize the following as components of net periodic benefit cost during the year ending June 30, 2012: Pension benefits Other postretirement benefits Net loss $ 2,522 $ 1,522 Prior service cost/(credit) $ 435 $ (7,648) The following weighted-average assumptions were used in measuring the actuarially determined benefit obligations (PBO for pension benefits and APBO for other postretirement benefits) at June 30: Other Pension postretirement benefits benefits Discount rate 5.50% 5.50% 5.50% 5.50% Rate of compensation increase 4.00% 4.00% Health care cost trend rate (grading to 5.00% in 2016) 7.50% 8.00% 27

82 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) The following weighted-average assumptions were used in measuring the actuarially determined net periodic benefit costs for the years ended June 30: Other Pension postretirement benefits benefits Discount rate 5.50% 6.50% 5.50% 6.50% Expected long-term rate of return on plan assets 8.50% 8.50% Rate of compensation increase 4.00% 4.00% Health care cost trend rate (grading to 5.00% in 2016) 8.00% 8.50% The expected long-term rate of return on pension plan assets is based on the consideration of both historical and forecasted investment performance, given the targeted allocation of the plan s assets to various investment classes. A one-percentage-point increase in the assumed health care cost trend rate would have increased aggregate service and interest costs and the APBO associated with postretirement medical benefits by approximately $1,743 and $4,034, respectively. A one-percentage-point decrease in the assumed health care cost trend rate would have decreased aggregate service and interest costs and the APBO by approximately $1,363 and $3,411, respectively. The projected payments to beneficiaries under the respective plans for each of the five fiscal years subsequent to June 30, 2011 are as follows: Other Pension postretirement benefits benefits 2012 $ 5,982 $ 1, $ 6,461 $ 1, $ 6,969 $ 1, $ 7,515 $ 1, $ 8,157 $ 1,974 Projected aggregate payments for pension benefits and other postretirement benefits for the five year period ending June 30, 2021 are $51,675 and $13,234, respectively. The University s estimated contributions to the defined benefit pension plan for the year subsequent to June 30, 2011 are $23,500, including the $11,000 accrued contribution as reflected in Note 10. DEFINED BENEFIT PENSION PLAN ASSETS The defined benefit pension plan s assets are summarized as follows at June 30: Employer contributions receivable (Note 10) $ 11,000 $ - Investments (Note 6) 106,331 88,024 $ 117,331 $ 88,024 Contributions receivable from the University in the amount of $11,000 at June 30, 2011 were received on September 29,

83 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) The plan s assets are invested in a manner that is intended to preserve the purchasing power of the plan s assets and provide payments to beneficiaries. Thus, a rate of return objective of inflation plus 5.0 percent is targeted. The investment portfolio of the plan, which is invested with external investment managers, is diversified in a manner that is intended to achieve the return objective and reduce the volatility of returns. The plan relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends) over a long-term time horizon. Actual and targeted allocations of the plan s investments by asset class were as follows at June 30: Target Short-term investments 10.0% 6.6% 0.0% Public equities 46.3% 43.9% 50.0% Fixed income securities 16.4% 19.6% 17.5% Marketable alternatives 12.1% 14.5% 15.0% Private equity 7.9% 7.7% 7.5% Real assets 7.3% 7.7% 10.0% 100.0% 100.0% 100.0% Asset allocation targets reflect the need for a modestly higher weighting in equity-based investments to achieve the return objective. Decisions regarding allocations among asset classes are made when such actions are expected to produce incremental return, reduce risk, or both. The investment characteristics of an asset class including expected return, risk, correlation, and its overall role in the portfolio are analyzed when making such decisions. The role of each asset class within the overall asset allocation of the plan is described as follows: Public equities Provides access to liquid markets and serves as a long-term hedge against inflation. Fixed income securities Provides a stable income stream and greater certainty of nominal cash flow relative to the other asset classes. Given the low correlation to other asset classes, fixed income assets also enhance diversification and serve as a hedge against financial turmoil or periods of deflation. Marketable alternatives Enhances diversification and provides opportunities to benefit from short-term inefficiencies in global capital markets. Private equity Provides attractive long-term, risk-adjusted returns by investing in inefficient markets. Real assets Provides attractive return prospects, further diversification and a hedge against inflation. Fair value measurements of plan investments at June 30, 2011 are categorized below by level of the fair value hierarchy according to the lowest level of inputs significant to each measurement: Level 1 Level 2 Level 3 Total Short-term investments $ 5,006 $ 5,661 $ - $ 10,667 Public equities: U.S. 7,308 8,580-15,888 Non-U.S. 8,090 10,554-18,644 Long/short strategies - 11,316 3,404 14,720 Fixed income securities 17, ,405 Marketable alternatives - 7,989 4,888 12,877 Private equity - - 8,420 8,420 Real assets 1, ,336 7,710 $ 39,497 $ 44,786 $ 22,048 $ 106,331 29

84 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) Fair value measurements of plan investments at June 30, 2010 are categorized below by level of the fair value hierarchy according to the lowest level of inputs significant to each measurement: Level 1 Level 2 Level 3 Total Short-term investments $ - $ 5,803 $ - $ 5,803 Public equities: U.S. - 10,099-10,099 Non-U.S. 4,032 8,335-12,367 Long/short strategies - 13,101 3,049 16,150 Fixed income securities 17, ,242 Marketable alternatives - 9,147 3,636 12,783 Private equity - - 6,796 6,796 Real assets 1,254 1,098 4,432 6,784 $ 22,528 $ 47,583 $ 17,913 $ 88,024 Changes in plan investments for which fair value is measured based on Level 3 inputs are summarized below for the year ended June 30, 2011: Net realized/ Beginning Net unrealized Net transfers End of of the year acquisitions gains 1 out of Level 3 the year Public equities: Long/short strategies $ 3,049 $ - $ 355 $ - $ 3,404 Marketable alternatives 3, ,888 Private equity 6, ,487-8,420 Real assets 4, (687) 5,336 $ 17,913 $ 1,591 $ 3,231 $ (687) $ 22,048 1 Included in the actual return on plan assets for the year ended June 30, Changes in plan investments for which fair value is measured based on Level 3 inputs are summarized below for the year ended June 30, 2010: Net Net realized/ Beginning acquisitions/ unrealized Net transfers End of of the year (dispositions) gains/(losses) 1 out of Level 3 the year Public equities: Non-U.S. $ 1,165 $ (1,107) $ (4) $ (54) $ - Long/short strategies 15, (13,101) 3,049 Marketable alternatives 13,111 (2,238) 1,910 (9,147) 3,636 Private equity 5, ,796 Real assets 4, (331) - 4,432 $ 39,388 $ (2,429) $ 3,256 $ (22,302) $ 17,913 1 Included in the actual return on plan assets for the year ended June 30, Net transfers out of Level 3 primarily reflect the migration to Level 2 of assets measured at fair value based on NAV per share (or its equivalent) that were eligible for redemption at the reporting date or in the near term. Transfers between Levels 1 and 2 were insignificant during the years ended June 30, 2011 and 2010, respectively. 30

85 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) The plan is committed under contracts with certain investment managers to periodically advance additional funding as capital calls are exercised. Capital calls are generally exercised over a period of years and are subject to fixed expiration dates or other means of termination. Total commitments of $9,232 and $9,177 were uncalled at June 30, 2011 and 2010, respectively. NOTE 14. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are summarized as follows at June 30: Expendable funds restricted for: Operating purposes $ 151,138 $ 129,537 Investment in land, buildings and equipment 70,593 48,189 Split-interest agreements (Note 17) 20,656 15,947 Endowment funds (Note 16): Accumulated appreciation and earnings on donor-restricted endowment 2,234,673 1,760,644 Funds functioning as endowment 357, ,377 2,591,932 2,073,021 $ 2,834,319 $ 2,266,694 As described in Note 4, temporarily restricted net assets include contributions receivable of $96,316 and $82,418 at June 30, 2011 and 2010, respectively. Net assets released from restrictions for operations are summarized below for the years ended June 30: Purpose restrictions satisfied: Scholarships and fellowships awarded $ 64,296 $ 59,024 Expenditures for operating purposes 101,529 91,505 Term restrictions satisfied: Matured split-interest agreements available for operations (Note 17) $ 166,109 $ 150,587 Non-operating net assets released from restrictions reflect expenditures for land, buildings and equipment of $42,314 and $125,198 for the years ended June 30, 2011 and 2010, respectively. 31

86 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) NOTE 15. PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets consist of the following at June 30: Endowment funds (Note 16) $ 1,365,280 $ 1,271,582 Student loan funds 2,177 6,755 Split-interest agreements (Note 17) 14,433 11,537 Beneficial interests in perpetual trusts (Note 3) 4,826 4,143 $ 1,386,716 $ 1,294,017 As reflected in Notes 4 and 16, permanently restricted endowment funds include $118,444 and $99,187 in contributions receivable at June 30, 2011 and 2010, respectively. NOTE 16. ENDOWMENT The University s endowment consists of individual funds established for a variety of purposes. Net assets associated with endowment funds, including funds functioning as endowment, are classified and reported in accordance with any donor-imposed restrictions. Endowment and funds functioning as endowment at June 30, 2011 are summarized below: Temporarily Permanently restricted restricted Unrestricted (Note 14) (Note 15) Total Funds established to support: Scholarships and fellowships $ 384,250 $ 939,779 $ 514,033 $ 1,838,062 Faculty chairs 102, , ,899 1,058,460 Academic programs 173, , , ,535 General operations 1,024,759 54,959 8,673 1,088,391 Other 741, , ,309 1,542,151 2,426,132 2,586,631 1,246,836 6,259,599 Contributions receivable (Note 4) - 5, , ,745 $ 2,426,132 $ 2,591,932 $ 1,365,280 $ 6,383,344 Temporarily Permanently Unrestricted restricted restricted Total Donor-restricted funds $ (964) $ 2,586,631 $ 1,246,836 $ 3,832,503 University-designated funds 2,427, ,427,096 2,426,132 2,586,631 1,246,836 6,259,599 Contributions receivable (Note 4) - 5, , ,745 $ 2,426,132 $ 2,591,932 $ 1,365,280 $ 6,383,344 32

87 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) Endowment and funds functioning as endowment at June 30, 2010 are summarized below: Temporarily Permanently restricted restricted Unrestricted (Note 14) (Note 15) Total Funds established to support: Scholarships and fellowships $ 323,971 $ 744,405 $ 478,905 $ 1,547,281 Faculty chairs 86, , , ,049 Academic programs 137, , , ,055 General operations 837,620 46,454 8, ,739 Other 609, , ,735 1,285,717 1,996,082 2,066,364 1,172,395 5,234,841 Contributions receivable (Note 4) - 6,657 99, ,844 $ 1,996,082 $ 2,073,021 $ 1,271,582 $ 5,340,685 Temporarily Permanently Unrestricted restricted restricted Total Donor-restricted funds $ (9,815) $ 2,066,364 $ 1,172,395 $ 3,228,944 University-designated funds 2,005, ,005,897 1,996,082 2,066,364 1,172,395 5,234,841 Contributions receivable (Note 4) - 6,657 99, ,844 $ 1,996,082 $ 2,073,021 $ 1,271,582 $ 5,340,685 The fair value of assets associated with individual donor-restricted endowment funds may fall below the level required by donor stipulations when the timing of contributions coincides with unfavorable market fluctuations. Unrealized depreciation of this nature amounted to $964 and $9,815 at June 30, 2011 and 2010, respectively, as reflected in the preceding tables. Endowment and funds functioning as endowment are invested primarily in the NDEP, described in Note 6. However, certain funds are invested outside of the NDEP in accordance with donor requirements and other considerations. Changes in endowment and funds functioning as endowment are summarized below for the year ended June 30, 2011: Temporarily Permanently Unrestricted restricted restricted Total Beginning of the year $ 1,996,082 $ 2,073,021 $ 1,271,582 $ 5,340,685 Contributions 4,699 6,042 92, ,337 Investment return: Investment income 27,488 41,757 2,010 71,255 Net gain on investments 411, , ,044,709 Accumulated investment return distributed (Note 6) (79,410) (153,068) - (232,478) Other changes, net 65,870 (8,925) (1,109) 55,836 $ 2,426,132 $ 2,591,932 $ 1,365,280 $ 6,383,344 During the year ended June 30, 2011, the University designated more than $60,000 in unrestricted net assets as funds functioning as endowment for a variety of purposes. 33

88 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) Changes in endowment and funds functioning as endowment are summarized below for the year ended June 30, 2010: Temporarily Permanently Unrestricted restricted restricted Total Beginning of the year $ 1,854,566 $ 1,865,672 $ 1,200,504 $ 4,920,742 Contributions ,824 71, ,901 Investment return: Investment income 11,157 16, ,727 Net gain on investments 210, , ,158 Accumulated investment return distributed (Note 6) (82,012) (141,277) - (223,289) Other changes, net 1,613 14,296 (1,463) 14,446 $ 1,996,082 $ 2,073,021 $ 1,271,582 $ 5,340,685 The University has adopted an endowment spending policy that attempts to meet three objectives: (1) provide a predictable, stable stream of earnings to fund participants; (2) ensure the purchasing power of this revenue stream does not decline over time; and (3) ensure the purchasing power of the endowment assets does not decline over time. Under this policy, as approved by the Board of Trustees, investment income, as well as a prudent portion of appreciation, may be appropriated to support the operational needs of fund participants. Accumulated investment return distributed (i.e. appropriated) under the University s endowment spending policy to meet operational needs is summarized below by the purposes associated with applicable funds for the years ended June 30: Temporarily Unrestricted restricted Total Total Scholarships and fellowships $ 17,030 $ 63,164 $ 80,194 $ 75,825 Faculty chairs 4,627 41,770 46,397 44,298 Academic programs ,014 24,747 23,444 Libraries 337 7,005 7,342 7,014 Other endowed programs 9,485 14,207 23,692 23,923 General operations 47,198 2,908 50,106 48,785 $ 79,410 $ 153,068 $ 232,478 $ 223,289 34

89 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) NOTE 17. SPLIT-INTEREST AGREEMENTS The University s split-interest agreements consist principally of irrevocable charitable remainder trusts and charitable gift annuities for which the University serves as trustee. Split-interest agreement net assets consisted of the following at June 30: Temporarily Permanently restricted restricted Unrestricted (Note 14) (Note 15) Total Total Charitable trust assets, held in: NDEP (Note 6) $ - $ 52,960 $ 42,363 $ 95,323 $ 74,542 Other investments (Note 6) - 6,453 3,514 9,967 9,438-59,413 45, ,290 83,980 Less obligations 1 associated with: Charitable trusts - 37,947 29,736 67,683 54,272 Charitable gift annuities 1, ,708 4,095 3,756 1,577 38,757 31,444 71,778 58,028 $ (1,577) $ 20,656 $ 14,433 $ 33,512 $ 25,952 1 Represents the present value of estimated future payments to beneficiaries. Assets contributed pursuant to the University s charitable gift annuity program are not held in trust, and based on the nature of the agreements, are designated as funds functioning as endowment. The aggregate fair value of these assets was $13,730 and $10,610 at June 30, 2011 and 2010, respectively. Changes in split-interest agreement net assets are summarized below for the years ended June 30: Temporarily Permanently Unrestricted restricted restricted Total Total Contributions: Assets received $ 165 $ 12,174 $ 2,884 $ 15,223 $ 9,978 Discounts recognized 1 (125) (6,152) (2,025) (8,302) (6,959) 40 6, ,921 3,019 Change in value of agreements: Investment return, net - 10,013 8,257 18,270 8,416 Payments to beneficiaries (228) (3,162) (2,741) (6,131) (5,347) Actuarial adjustments and other changes in obligations 80 (2,913) (2,615) (5,448) (1,458) (148) 3,938 2,901 6,691 1,611 Net assets released from restrictions (Note 14) - (284) - (284) (58) Transfers and other changes, net 63 (4,967) (864) (5,768) (244) $ (45) $ 4,709 $ 2,896 $ 7,560 $ 4,328 1 Represents the present value of estimated future payments to beneficiaries. 35

90 University of Notre Dame du Lac Notes to Consolidated Financial Statements (All amounts in thousands) NOTE 18. GRANTS AND CONTRACTS The University recognized operating revenues based on direct expenditures and related indirect costs funded by grants and contracts as follows for the years ended June 30: Direct Indirect Total Total Provided for: Research $ 77,425 $ 17,905 $ 95,330 $ 76,026 Other sponsored programs 8, ,401 9,645 $ 85,714 $ 18,017 $ 103,731 $ 85, Direct Indirect Total Total Provided by: Federal agencies $ 68,176 $ 16,734 $ 84,910 $ 68,790 State and local agencies Private organizations 16,713 1,197 17,910 16,385 $ 85,714 $ 18,017 $ 103,731 $ 85,671 Funding for federally sponsored research and other programs is received from the U.S. government, as well as from other universities and private organizations that subcontract sponsored research to the University. The University s primary sources of federal research support are the Department of Health and Human Services and the National Science Foundation. The University also administers certain federally sponsored programs, primarily related to student financial aid, for which it recognizes neither revenues nor expenses. Receipts and disbursements for such programs totaled $13,742 and $11,976 for the years ended June 30, 2011 and 2010, respectively. NOTE 19. CONTINGENCIES The University is a defendant in various legal actions arising out of the normal course of its operations. Although the final outcome of such actions cannot currently be determined, the University believes that eventual liability, if any, will not have a material effect on the University s financial position. All funds expended in conjunction with government grants and contracts are subject to audit by government agencies. In the opinion of management, any liability resulting from these audits will not have a material effect on the University s financial position. 36

91 APPENDIX C THE NEW LIQUIDITY PROVIDER

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93 THE NEW LIQUIDITY PROVIDER The Bank of New York Mellon, a New York state chartered bank (the Bank ), is one of the two principal banking subsidiaries of The Bank of New York Mellon Corporation (NYSE: BK), a bank holding company and a financial holding company ( BNY Mellon ). BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering investment management and investment services through a worldwide team. As of March 31, 2012, it had $26.6 trillion in assets under custody and administration, $1.3 trillion in assets under management, serviced $11.9 trillion in outstanding debt and processed global payments averaging $1.4 trillion per day. Additional information is available at The Bank has long-term senior debt ratings of Aa1, AA-, AA and AA and shortterm deposit ratings of P1, A-1+, F1+ and R-1 (high) from Moody s Investors Service, Inc., Standard & Poor s Rating Services, Fitch Ratings and DBRS, respectively. A debt rating is not a recommendation to buy, sell or hold securities, and may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.. BNY Mellon s principal office is located at One Wall Street, New York, New York A copy of the most recent Annual Report on Form 10-K of BNY Mellon may be obtained from BNY Mellon s Public Relations Department, One Wall Street, 31st Floor, (212) C-1

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95 APPENDIX D THE OFFICIAL STATEMENT

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97 EW W ISSUE BOOK-ENTRY-ONLY RATINGS : (See Ratings Herein) Moody s: Aaa/VMIG-1 In the opinion of Barnes & Thornburg LLP, South Bend, Indiana, Bond Counsel, under existing laws, interest on the Series 2007 Bonds (as defined herein) is excludable from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended and in effect on the date of issuance of the Series 2007 Bonds (the Code ). Such exclusion is conditioned on continuing compliance with all requirements of the Code that must be satisfied subsequent to the issuance of the Series 2007 Bonds. In the opinion of Barnes & Thornburg LLP, South Bend, Indiana, Bond Counsel, under existing laws, interest on the Series 2007 Bonds is exempt from income taxation in the State of Indiana for all purposes except the State financial institutions tax. See TAXX EXEMPTION T herein. $75,000,000 St. Joseph County, Indiana Variable Rate Educational Facilities Revenue Bonds, Series 2007 (University of Notre Dame du Lac Project) Dated: Date of Issuance Price: 100% Due: March 1, 2042 CUSIP Number: 79061A BE6 The Series 2007 B een St. Joseph County, Indiana (the Issuer ) and Wells Fargo Bank, N.A., Indianapolis, Indiana, as trustee, paying agent and registrar (the Trustee ). Proceeds from the sale of the Ser The Series 2007 Bonds will be issued in book-entry-only form and will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York ( DTC ). Purchasers of beneficial interests ( Beneficial Owners ) will not receive certificates representin ed in the name of Cede & Co., as nominee of DTC, references herein to the owners shall mean Cede & Co., and shall not mean the Beneficial Owners of the Series 2007 Bonds. Payments of the p to DTC or its nominee, Cede & Co., by the Trustee, so long as DTC or Cede & Co. is the sole registered owner. Disbursement of such payments to DTC s Direct Participants is the responsibility of DTC, and disbursements of such payments to the Beneficial Owners is the responsibility of DTC s Direct Participants and the In Each Series 2007 Bond may bear interest at a Daily, a Weekly, a Commercial Paper, a Term, a Fixed or an Auction Period Rate. While a Series 2007 Bond bears y Rate Period, a Weekly Rate Period, a Commercial Paper Rate Period, a Term Rate Period, a Fixed Rate Period or an ARS Rate Period, respectively. While any n different Rate Periods single Series 2007 Bond described herein. THIS at the same time. The OFFICIAL STATEMENT DOE AUCTION PERIOD RATE OR THE ARS RATE PERIOD. Initially, all of the another Rate Period as business day of each m Series 2007 Bonds may eriod until converted to will be paid on the first Weekly Rates for such Initially, the Serie ples of $5,000 in excess thereof. The Series 20 onds in a Daily, Weekly, Commercial Paper or Term Rate Period also are subject to optional and mandatory tender for purchase under certain circumstances described herein. Initially, payment dered or required to be tendered for purchase for which remarketing proceeds are not available will be supported by a standby bond purchase agreement (the Initial Liquidity Facility ) provided by Banco Bilbao Vizcaya Argentaria, S.A., acting through its New York Branch ( Initial Liquidity Provider ), subject to certain terms and conditions described therein and herein. Under the Initial Liquidity Facility, however, the Initial Liquidity Provider will be under no obligation to provide funds to pay the purchase price of Series 2007 Bonds tendered or required to be tendered for purchase upon the occurrence of certain events of default under the Initial Liquidity Facility. The Initial Liquidity Facility has r to its respective stated a stated termination da termination date in acc The Series 2007 Bonds are limited obligations of the Issuer payable solely from and secured by payments to be made by the University pursuant to the Loan Agreement, as more fully described in this Official Statement. The Series 2007 Bonds and the interest and premium, if any, thereon shall not constitute a debt, liability or a general obligation of the Issuer or the State of Indiana or any political subdivision within the meaning of the Constitution or statutes of the State of Indiana, or a pledge of the faith and credit of the Issuer or the State of Indiana or any political subdivision thereof. The Series 2007 Bonds do not grant the owners or holders thereof any right to have the Issuer levy any taxes or appropriate any funds for the payment of the p The Series 2007 Bonds are offered when, as and if issued by the Issuer and received by the Underwriter, subject to withdrawal or modification of the offering without notice, and subject to the approving opinion of Barnes & Thornburg LLP, South Bend, Indiana, Bond Counsel. Certain legal matters will be passed upon for the Issuer by its counsel, Zappia Zappia & Stipp, South Bend, Indiana; for the Initial Liquidity Provider by its United States counsel, Nixon Peabody LLP, New York, New York, and by its Spanish counsel, J & A Garrigues S.L., Madrid, Spain; for the University by its Vice President and General Counsel; and for the Underwriter by its counsel, Chapman and Cutler LLP, Chicago, Illinois. rk, through the facilities of DTC on or about December, Goldman, Sachs & Co. Dated: December 7, 2007