$20,000,000 MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY

Transcription

1 Not a New Issue - Book-Entry Only Ratings: See RATINGS herein. $20,000,000 MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY R Price: 100% Long-Term Rate: 1.15% Variable Rate Demand Revenue Bonds, University of Massachusetts Issue, Series A Mandatory Tender Date: April 1, 2019 CUSIP No EGS4 Due: November 1, 2030 The Series A Bonds are being remarketed only as fully registered bonds without coupons, and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ), New York, New York. Purchases of beneficial interests in the Series A Bonds will be made in book-entry-only form and will be made in the denomination of $5,000 or any integral multiples thereof while in the Long-Term Rate Period. DTC will act as the securities depository for the Series A Bonds. So long as Cede & Co. is the Bondowner, as nominee of DTC, references herein to the Bondowners as registered owners shall mean Cede & Co., as aforesaid, and shall not mean the beneficial owners of the Series A Bonds. See THE SERIES A BONDS Securities Depository herein. Principal, Redemption Price and purchase price of and interest on the Series A Bonds will be paid directly to DTC by The Bank of New York Mellon Trust Company, N.A. (successor to Citizens Bank of Massachusetts), as trustee (the Trustee ) and Paying Agent, so long as DTC or its nominee, Cede & Co., is the Bondowner. Disbursements of such payments to the Beneficial Owners are the responsibility of the DTC Participants and the Indirect Participants, as more fully described herein. The Series A Bonds are currently in a Long-Term Rate Period that ends on March 31, 2016 and the Series A Bonds will be subject to mandatory tender for purchase on April 1, The Series A Bonds will be remarketed on such date in a new Long-Term Rate Period. During the new Long-Term Rate Period, the Series A Bonds will bear interest at the Long-Term Rate determined by Merrill Lynch, Pierce Fenner & Smith Incorporated, the Remarketing Agent (the Remarketing Agent ). The new Long-Term Rate Period for the Series A Bonds will end on March 31, 2019, and the Series A Bonds will be subject to mandatory tender for purchase on April 1, The Series A Bonds are not supported by any insurance policy, liquidity facility or other credit enhancement. The only sources for the purchase of Series A Bonds tendered at the end of the Long-Term Rate Period will be proceeds of remarketing of the Series A Bonds and monies furnished by the University of Massachusetts (the Institution ) for such purchase. Interest on the Series A Bonds in the new Long-Term Rate Period will be payable on October 1, 2016 and each April 1 and October 1 thereafter. The rate of interest on the Series A Bonds may be changed and the Series A Bonds may be converted to another Rate Period after March 31, 2019 and pursuant to the terms of the Loan and Trust Agreement (hereinafter defined). This Remarketing Circular only describes the Series A Bonds while in the Long-Term Rate Period ending on March 31, If the Series A Bonds are converted to any other Rate Period (including a new Long-Term Rate Period), the Institution will deliver a new official statement or remarketing circular describing the new Rate Period. This Remarketing Circular should not be relied on with respect to Series A Bonds in any other Rate Period. The Series A Bonds in the Long-Term Rate Period will be subject to mandatory purchase on April 1, The Series A Bonds in the LongTerm Rate Period are not otherwise subject to tender for purchase. The Series A Bonds while in the Long-Term Rate Period will not be subject to optional redemption. The Series A Bonds are special obligations of the Massachusetts Development Finance Agency (successor by statutory merger to the Massachusetts Health and Educational Facilities Authority) (the Agency ) payable solely from the Revenues (as hereinafter defined) of the Agency, including payments to the Trustee for the account of the Agency by the Institution in accordance with the provisions of the Amended and Restated Loan and Trust Agreement dated as of October 12, 1999, as amended and restated on March 27, 2009 (the Loan and Trust Agreement ), among the Massachusetts Health and Educational Facilities Authority, predecessor to the Agency, the Institution and the Trustee. Such payments required to be paid by the Institution will be in amounts sufficient to pay, when due, interest and principal of the Series A Bonds, all in accordance with the Loan and Trust Agreement. The payments pursuant to the Loan and Trust Agreement are a general obligation of the Institution to pay from any source legally available for expenditure by the Board of Trustees of the Institution for such purpose. THE SERIES A BONDS DO NOT CONSTITUTE A GENERAL OBLIGATION OF THE AGENCY OR A DEBT OR PLEDGE OF THE FAITH AND CREDIT OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY POLITICAL SUBDIVISION THEREOF. THE PRINCIPAL, PURCHASE PRICE, REDEMPTION PRICE OF AND INTEREST ON THE SERIES A BONDS ARE PAYABLE SOLELY FROM THE REVENUES AND FUNDS PLEDGED FOR THEIR PAYMENT UNDER THE LOAN AND TRUST AGREEMENT. THE ISSUER HAS NO TAXING POWER UNDER THE ACT. On March 27, 2009, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., delivered its approving opinion which concluded that under existing law as of the date of its opinion (i) expressly conditioned upon continuing compliance with certain covenants and assuming the accuracy of certain representations, interest on the Series A Bonds will not be included in the gross income of holders of the Series A Bonds for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum tax imposed on individuals and corporations, and (ii) interest on the Series A Bonds and any profit made on the sale thereof are exempt from Massachusetts personal income taxes, and the Series A Bonds are exempt from Massachusetts personal property taxes. The approving opinion further concluded that interest on the Series A Bonds will be included in the adjusted current earnings of corporate holders of the Series A Bonds and therefore will be taken into account in computing the alternative minimum tax imposed on certain corporations. See Appendix E. This opinion will not be reissued in connection with this remarketing and it only speaks as of its date. On the date of remarketing of the Series A Bonds, Hinckley, Allen & Snyder LLP will deliver an opinion to the effect that the conversion of the Series A Bonds to a new Long-Term Rate Period on April 1, 2016 is permitted under the Loan and Trust Agreement and will not in and of itself impair or affect the exclusion of interest on said Series A Bonds from gross income for purposes of federal income taxation. Hinckley, Allen & Snyder LLP will not express an opinion regarding the current status of such interest for federal income tax purposes. For a more complete discussion of the tax aspects of the Series A Bonds, see TAX MATTERS herein The Series A Bonds are offered for delivery when, as and if remarketed by the Remarketing Agent, subject to the delivery of an opinion of Hinckley, Allen & Snyder LLP, Boston, Massachusetts, Bond Counsel to the Institution as described above and as to certain other conditions. Certain legal matters will be passed upon for the Remarketing Agent by its counsel, McCarter & English, LLP, Boston, Massachusetts. It is expected that the Series A Bonds will be available for delivery through the facilities of DTC upon remarketing on April 1, BofA Merrill Lynch Remarketing Agent Dated: March 22, 2016

2 No broker, dealer, salesman or other person has been authorized by the Agency, the Institution or the Remarketing Agent to give any information or to make any representation other than as contained in this Remarketing Circular, and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. The information contained herein under the heading THE AGENCY and LITIGATION insofar as it relates to the Agency has been furnished by the Agency. All other information contained herein has been obtained from the Institution, The Depository Trust Company and other sources which are deemed to be reliable but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation by, the Agency. The Remarketing Agent has provided the following sentence for inclusion in this Remarketing Circular. The Remarketing Agent has reviewed the information in this Remarketing Circular in accordance with, and as part of, its responsibility to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Remarketing Agent does not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Remarketing Circular nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the parties referred to above since the date hereof. This Remarketing Circular does not constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of the Series A Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Remarketing Circular nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the matters described herein since the date hereof. TABLE OF CONTENTS Page INTRODUCTORY STATEMENT... 1 SOURCES OF PAYMENT AND SECURITY FOR THE SERIES A BONDS... 1 THE AGENCY... 2 THE SERIES A BONDS... 4 ADDITIONAL INDEBTEDNESS... 8 REVOLVING LOAN PROGRAM... 8 SPECIAL CONSIDERATIONS RELATING TO THE SERIES A BONDS... 9 CONTINUING DISCLOSURE LITIGATION LEGAL MATTERS TAX MATTERS RATINGS LEGALITY OF THE SERIES A BONDS FOR INVESTMENT AND DEPOSIT COMMONWEALTH NOT LIABLE FOR THE SERIES A BONDS FINANCIAL ADVISOR REMARKETING AGENT MISCELLANEOUS APPENDIX A LETTER FROM THE INSTITUTION... A-1 APPENDIX B FINANCIAL REPORT OF THE INSTITUTION, INCLUDING FINANCIAL STATEMENTS... B-1 APPENDIX C DEFINITIONS OF CERTAIN TERMS... C-1 APPENDIX D SUMMARY OF THE LOAN AND TRUST AGREEMENT... D-1 APPENDIX E COPY OF ORIGINAL APPROVING OPINION OF MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C. DELIVERED ON MARCH 27, E-1 APPENDIX F FORM OF OPINION OF HINCKLEY, ALLEN & SNYDER LLP, BOND COUNSEL... F-1 APPENDIX G - AMENDED AND RESTATED CONTINUING DISCLOSURE AGREEMENT... G-1

3 REMARKETING CIRCULAR Relating to $20,000,000 MASSACHUSETTS HEALTH AND EDUCATIONAL FACILITIES AUTHORITY Variable Rate Demand Revenue Bonds, University of Massachusetts Issue, Series A Purpose of this Remarketing Circular INTRODUCTORY STATEMENT The purpose of this Remarketing Circular is to set forth certain information concerning the Massachusetts Development Finance Agency (successor by statutory merger to the Massachusetts Health and Educational Facilities Authority) (the Agency ), the University of Massachusetts (the Institution ), and the $20,000,000 Massachusetts Health and Educational Facilities Authority Variable Rate Demand Revenue Bonds, University of Massachusetts Issue, Series A (the Series A Bonds ). The current Long-Term Rate Period ends on March 31, 2016 and the Series A Bonds are subject to mandatory tender for purchase on April 1, The Series A Bonds are being remarketing on April 1, 2016 in a new Long- Term Rate Period. The Series A Bonds were issued by the Massachusetts Health and Educational Facilities Authority (the Authority ) pursuant to the Loan and Trust Agreement, dated as of October 12, 1999, as amended and restated on March 27, 2009 (the Loan and Trust Agreement ), among the Authority, the Institution and The Bank of New York Mellon Trust Company, N.A. (successor to Citizens Bank of Massachusetts), as trustee (the Trustee ) and in accordance with the provisions of Chapter 614 of the Massachusetts Acts of 1968, as amended from time to time (the Act ). On August 5, 2010, the Massachusetts Legislature enacted Chapter 240 of the Acts of 2010 (the Legislation ) that, among other matters, merged the Authority into the Agency, effective October 1, The Legislation provides that no rights of the holders of any of the Authority s bonds shall be impaired, and the Agency, as successor issuer, shall maintain the covenants of the Authority pertaining to such bonds. Accordingly, as of October 1, 2010, the Authority ceased to exist and all obligations of the Authority, including the Series A Bonds, became obligations of the Agency, without further action. The Agency is authorized under Chapter 23G and, to the extent incorporated therein, Chapter 40D of the Massachusetts General Laws (said Chapters, collectively as amended, the Act ). The Series A Bonds are being remarketed in accordance with the provisions of the Act and the Loan and Trust Agreement. The information contained in this Remarketing Circular is provided for use in connection with the remarketing of the Series A Bonds. Certain terms used in this Remarketing Circular have the meanings set forth in Appendix C DEFINITIONS OF CERTAIN TERMS. Use of Proceeds The proceeds from the sale of the Series A Bonds were originally used to: (i) finance and refinance the acquisition of telecommunications, electronic, computer, office, research, equipment and administrative systems and renovation costs related thereto; and (ii) pay certain costs of issuing the Series A Bonds. A more detailed description of the use of proceeds of the Series A Bonds is included herein under the section entitled REVOLVING LOAN PROGRAM. SOURCES OF PAYMENT AND SECURITY FOR THE SERIES A BONDS The Series A Bonds and any additional Bonds will be subject to and equally secured by the Loan and Trust Agreement. The Loan and Trust Agreement provides, among other things, that the Institution shall make payments to the Trustee equal to principal of and interest on the Series A Bonds and certain other payments required by the Loan and Trust Agreement. The Loan and Trust Agreement shall remain in full force and effect until such time as the Series A Bonds and the interest thereon have been fully paid or until adequate provision for such payments has been made. Additional Bonds may be issued under the Loan and Trust Agreement. See ADDITIONAL INDEBTEDNESS.

4 The Series A Bonds are not secured by any insurance policy, liquidity facility or other credit enhancement. The only sources for the purchase of Series A Bonds tendered at the end of the Long-Term Rate Period will be proceeds of remarketing of the Series A Bonds and monies furnished by the Institution for such purchase. Neither The Commonwealth of Massachusetts (the Commonwealth ) nor any political subdivision thereof shall be obligated to pay the Purchase Price or principal of, premium (if any) or interest on, the Series A Bonds except from any source legally available for expenditure by the Board of Trustees of the Institution for such purpose, and neither the faith and credit nor the taxing power of the Commonwealth is pledged to the payment of the Purchase Price or principal of, premium (if any) or interest on, the Series A Bonds. Without limiting the generality of the foregoing, the Board of Trustees of the Institution, acting by and on behalf of the Commonwealth pursuant to Section 19A of Chapter 773 of the Acts of 1960, as amended, have promised under the Loan and Trust Agreement to transfer to the Agency to the extent necessary any amounts available for expenditure by the Board of Trustees of the Institution; provided, that in the case of any funds expected to be available for expenditure by the Board of Trustees of the Institution pursuant to subsequent appropriation or other spending authorization by the legislature, the Board of Trustees of the Institution may only pledge that they will so transfer such funds subject to such subsequent appropriation or other spending authorization. The Series A Bonds are not secured by a lien on any of the Institution s revenues or any other property of the Institution. Pursuant to the Loan and Trust Agreement, on or before April 1 of each year, the Institution shall provide to the University of Massachusetts Building Authority ( UMBA ) and the Agency a detailed list of the Debt Service and Related Costs with respect to the twelve-month period commencing the next succeeding November 1 and shall certify to UMBA and the Agency whether or not there are as of such April 1 sufficient funds in the Expendable Fund Balance to pay such Debt Service and Related Costs, and, if so, that funds sufficient to pay Debt Service and Related Costs with respect to the Series A Bonds will be held in trust for the benefit of the Trustee, to be applied to the payment of such amounts and will not be expended for any other purpose. On April 1 of each year, any shortfall in amounts available to pay Debt Service and Related Costs on the General Obligation Indebtedness issued by the Institution, UMBA or the Agency shall be prorated for such period by dividing the Debt Service and Related Costs of the Series A Bonds by the Debt Service and Related Costs with respect to all indebtedness and multiplying the result by all funds legally available for expenditure. The Institution shall continue to be obligated to make up any shortfall on or prior to the applicable debt service payment. The Series A Bonds shall be special obligations of the Agency, equally and ratably secured by and payable from a pledge of and lien on, to the extent provided by the Loan and Trust Agreement, the Revenues received by the Trustee for the account of the Agency pursuant to the Loan and Trust Agreement, all rights to receive such Revenues, and the proceeds of such rights, and, with the exception of the Rebate Fund, the funds and investments on deposit in the funds and accounts established under the Loan and Trust Agreement. The assignment and pledge by the Agency does not include (i) the rights of the Agency pursuant to provisions for consent, concurrence, approval or other action by the Agency, notice to the Agency, the filing of reports, certificates or other documents with the Agency, or for fees, reimbursement or indemnification or the rights thereto; or (ii) the powers of the Agency as stated in the Loan and Trust Agreement to enforce the provisions thereof. THE SERIES A BONDS DO NOT CONSTITUTE A GENERAL OBLIGATION OF THE AGENCY OR A DEBT OR PLEDGE OF THE FAITH AND CREDIT OF THE COMMONWEALTH OR ANY POLITICAL SUBDIVISION THEREOF. THE PRINCIPAL, PURCHASE PRICE, REDEMPTION PRICE OF AND INTEREST ON THE SERIES A BONDS ARE PAYABLE SOLELY FROM THE REVENUES AND FUNDS PLEDGED FOR THEIR PAYMENT UNDER THE LOAN AND TRUST AGREEMENT. THE AGENCY HAS NO TAXIING POWER UNDER THE ACT. THE AGENCY The Agency is authorized and empowered under the laws of Massachusetts, including the Act, to issue the Bonds for the purposes described herein and to enter into the Agreement and other agreements and instruments necessary to remarket and secure the Series A Bonds. The members of the Board of Directors and the officers of the Agency are as follows: Members of the Board of Directors Appointed Members James E. Chisholm, Member; Vice President for Business Development, Advantage Waypoint 2

5 Gerald D. Cohen, Vice Chair and Member; Founder and Principal, SF Properties, Inc. Karen G. Courtney, President, K. Courtney and Associates, Inc., and Executive Director, The Foundation for Fair Contracting of Massachusetts Keon T. Holmes, Member; Managing Director, Cambridge Associates LLC Dennis R. Kanin, Member; Co-Founder and Principal, New Boston Ventures LLC Brian Kavoogian, Member; Founder and President, Charles River Realty Investors Patricia McGovern, Member; Consultant, formerly General Counsel and Senior Vice President at Beth Israel Deaconess Medical Center (retired) Jeffrey R. Porter, Member; Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. Christopher Vincze, Chairman and CEO, TRC Solutions, Inc. Ex-Officio Members Chairperson, Secretary of the Executive Office of Housing and Economic Development, The Commonwealth of Massachusetts. Secretary, the Executive Office for Administration and Finance, The Commonwealth of Massachusetts, or the Secretary s designee. Officers of the Agency Marty Jones, President and Chief Executive Officer Simon R. Gerlin, Treasurer, Chief Financial Officer and Executive Vice President for Finance & Administration Anne Marie Dowd, Executive Vice President, Legislative and Defense Sector Initiatives Laura L. Canter, Executive Vice President for Finance Programs Richard C.J. Henderson, Executive Vice President for Real Estate Patricia A. DeAngelis, General Counsel Teresa M. Patten, Secretary Steven J. Chilton, Senior Vice President for Investment Banking (Mr. Chilton has signing authority for bond transactions only.) Except for the information contained herein under the caption THE AGENCY and LITIGATION insofar as it relates to the Agency, the Agency has not provided any of the information contained in this Remarketing Circular. The Agency is not responsible for and does not certify as to the accuracy or sufficiency of the disclosures made herein or any other information provided by the Institution or the Remarketing Agent or any other person. 3

6 Description of the Series A Bonds THE SERIES A BONDS The Series A Bonds will be remarketed on April 1, 2016 and shall bear interest from and including April 1, 2016 at the Long-Term Rate (see Interest Rate and Rate Periods Long-Term Rate Period; Long-Term Rate below). The Long- Term Rate Period for the Series A Bonds will end on March 31, 2019 and the Series A Bonds shall be subject to mandatory tender for purchase on the next Business Day. The Series A Bonds while in the Long-Term Rate Period ending on March 31, 2019 are not otherwise subject to mandatory tender for purchase. The Series A Bonds will mature on November 1, The Series A Bonds while in the new Long-Term Rate Period are not subject to redemption. Interest on the Series A Bonds while in the new Long-Term Rate Period will accrue from the date of remarketing and will be payable to the registered owners thereof on each April 1 and October 1, commencing October 1, 2016, and on each Mandatory Purchase Date applicable to the Series A Bonds while in the new Long-Term Rate Period. See Interest Rate and Rate Periods below. Subject to the provisions discussed under THE SERIES A BONDS Securities Depository, the Series A Bonds shall be issuable as fully registered bonds without coupons, and while the Series A Bonds are in the Long-Term Rate Period, are issuable in denominations of $5,000 or any integral multiple thereof. Interest on the Series A Bonds will be paid by check (or upon request by wire transfer to owners of $1,000,000 or more of the Series A Bonds) mailed to the Bondowners of record as of the close of business on the Record Date. Record Date as used herein shall mean while the Series A Bonds are in the Long-Term Rate Period, the close of business on the fifteenth (15th) day (whether or not a Business Day) of the month prior to the next succeeding Interest Payment Date. The principal, purchase price or redemption price is payable at the principal corporate trust office of the Paying Agent. Securities Depository The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Series A Bonds. The Series A Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series A Bond certificate will be issued for each maturity of the Series A Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of the Series A Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series A Bonds on DTC s records. The ownership interest of each actual purchaser of each Series A Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series A Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial 4

7 Owners will not receive certificates representing their ownership interests in the Series A Bonds, except in the event that use of the book-entry system for the Series A Bonds is discontinued. To facilitate subsequent transfers, all Series A Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the Series A Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series A Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series A Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series A Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series A Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of Series A Bonds may wish to ascertain that the nominee holding the Series A Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series A Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series A Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Agency as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Series A Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Series A Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Agency or the Trustee, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Agency or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Agency or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A Beneficial Owner of the Series A Bonds shall give notice to elect to have its Series A Bonds purchased or tendered through its Participant, to the Broker-Dealer, and shall effect delivery of such Series A Bonds by causing the Direct Participant to transfer the Participant s interest in the Series A Bonds, on DTC s records, to the Broker-Dealer. The requirement for physical delivery of Series A Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Series A Bonds are transferred by Direct Participants on DTC s records and followed by a book-entry credit of tendered Series A Bonds to the Broker-Dealer s DTC account. SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE SERIES A BONDS, AS NOMINEE OF DTC, REFERENCES HEREIN TO THE BONDHOLDERS OR REGISTERED OWNERS OF THE SERIES A BONDS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE SERIES A BONDS. DTC may discontinue providing its services as depository with respect to the Series A Bonds at any time by giving reasonable notice to the Agency or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Series A Bond certificates are required to be printed and delivered. 5

8 The Institution may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered. See Certificated Bonds below. THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE ISSUER BELIEVES TO BE RELIABLE, BUT NONE OF THE ISSUER, THE INSTITUTION OR THE REMARKETING AGENT TAKES RESPONSIBILITY FOR THE ACCURACY THEREOF. No Responsibility of Agency, Institution and Trustee. NONE OF THE AGENCY, THE INSTITUTION OR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO DIRECT PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENTS TO OR THE PROVIDING OF NOTICE FOR DIRECT PARTICIPANTS, INDIRECT PARTICIPANTS, OR BENEFICIAL OWNERS. SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE SERIES A BONDS, AS NOMINEE OF DTC, REFERENCES HEREIN TO THE BONDOWNERS OR REGISTERED OWNERS OF THE SERIES A BONDS SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE SERIES A BONDS. Certificated Bonds. DTC may discontinue providing its services as securities depository with respect to the Series A Bonds at any time by giving reasonable notice to the Agency and the Trustee. In addition, the Agency may determine that continuation of the system of book-entry transfers through DTC (or a successor securities depository) is not in the best interest of the Beneficial Owners. If, for either reason the Book-Entry-Only system is discontinued, Series A Bond certificates will be delivered as described in the Loan and Trust Agreement and the Beneficial Owner, upon registration of certificates held in the Beneficial Owner s name, will become the Bondowner. Thereafter, Series A Bonds may be exchanged for an equal aggregate principal amount of Series A Bonds in other authorized denominations and of the same maturity, upon surrender thereof at the principal corporate trust office of the Paying Agent. The transfer of any Series A Bond may be registered on the books maintained by the Paying Agent for such purpose only upon assignment in form satisfactory to the Paying Agent. For every exchange or registration of transfer of Series A Bonds, the Agency and the Paying Agent may make a charge sufficient to reimburse them for any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer, but no other charge may be made to the Bondowner for any exchange or registration of transfer of the Series A Bonds. The Paying Agent will not be required to transfer or exchange any Series A Bond during the notice period preceding any redemption if such Series A Bond (or any part thereof) is eligible to be selected or has been selected for redemption. Interest Rates and Rate Periods General. Upon remarketing, all of the Series A Bonds will accrue interest at a Long-Term Rate. There is currently no Credit Facility in effect with respect to the Series A Bonds. This Remarketing Circular only describes the Series A Bonds while in the Long-Term Rate Period ending on March 31, If the Series A Bonds are converted to any other Rate Period (including conversion to a new Long- Term Rate Period), the Institution will deliver a new official statement or remarketing circular describing the new interest rate period. This Remarketing Circular should not be relied on with respect to Series A Bonds in any other interest rate period. Interest on the Series A Bonds will be calculated on the basis of a 360-day year of twelve 30-day months while the Series A Bonds bear interest at a Long-Term Rate. When the Series A Bonds are in a Long-Term Rate Period, the interest rate on the Series A Bonds will be determined by the Remarketing Agent as the lowest rate of interest which in its judgment will cause the Series A Bonds to have a price, as of the date of determination as described below (the Rate Determination Date ), equal to the principal amount of the Series A Bonds, taking into account prevailing market conditions. Long-Term Rate Period, Long-Term Rate. Long-Term Rate Period shall commence on a Long-Term Rate Conversion Date and end on the last day of each Long-Term Rate Period as established by the Institution pursuant to the Loan and Trust Agreement, or the Conversion Date on which a different rate period shall become effective. The current Long-Term Rate Period commenced on April 1, 2013 and will end on March 31, The new Long-Term Rate Period will commence on April 1, 2016 and will end on March 31, In the case of the Series A Bonds in the Long-Term Rate 6

9 Period ending on March 31, 2019, a conversion to a different rate period can become effective only on and after April 1, Pursuant to the Loan and Trust Agreement, the Remarketing Agent will determine a Long-Term Rate on the Business Day immediately preceding the commencement of any period during which interest on any of the Series A Bonds will be payable at a Long-Term Rate and will provide the Long-Term Rate to the Trustee by Electronic Notice by the close of business on such Business Day. The new Long-Term Rate for the Series A Bonds will be determined by the Remarketing Agent on March 31, 2016 and will be effective on April 1, Availability of Interest Rate. Each interest rate in effect for each Series A Bond will be available to the owners of such Series A Bond, upon written request, on the date such interest rate is determined, by the close of business in the case of the Long-Term Rate, New York time, from the Remarketing Agent or the Trustee at their respective principal offices. Conversion Between Interest Rate Periods While the Series A Bonds are in the Long-Term Rate Period ending on March 31, 2019, the rate period may only be changed the day after the end of such Long-Term Rate Period, which is also a Mandatory Purchase Date. Redemption Puts The Series A Bonds while in the new Long-Term Rate Period are not subject to redemption. Put means to require, or the act of requiring, the purchase of a Series A Bond (other than a Pledged Bond or an Institution Bond) at its owner s option at 100% of the principal amount thereof plus interest accrued to the date of purchase. While in the Long-Term Rate Period, the Series A Bonds are not subject to a Put. Mandatory Purchase The Series A Bonds in the new Long-Term Rate Period are subject to mandatory purchase on April 1, 2019, which is the first Business Day following the last day of such Long-Term Rate Period. The Paying Agent shall give notice of mandatory purchase to the affected owners of Series A Bonds while in the Long-Term Rate Period by first class mail. Notice shall be mailed to the respective owners of the Series A Bonds at their addresses maintained by the Paying Agent. Each notice of mandatory purchase shall state the Mandatory Purchase Date and the place or places of mandatory purchase. Each such notice shall also state that on said date there will become due and payable on said Series A Bonds the Purchase Price and that from and after the Mandatory Purchase Date interest thereon shall cease to accrue to the prior owner of the Series A Bond to be purchased, and shall require that such Series A Bonds be then surrendered and if not so surrendered that the Series A Bonds will be deemed purchased in accordance with the Loan and Trust Agreement. Any Series A Bond subject to purchase shall be purchased, or deemed purchased, on its Mandatory Purchase Date at the Purchase Price. Delivery of such Series A Bond (with an appropriate transfer of registration executed in blank in form satisfactory to the Paying Agent) at the principal corporate trust office of the Paying Agent at or prior to 2:00 p.m., New York time, on the Mandatory Purchase Date shall be required for same day payment of the Purchase Price. All Series A Bonds subject to purchase shall be deemed to have been tendered for purchase on the Mandatory Purchase Date. No owner shall be entitled to payment of the Purchase Price for any Series A Bond except upon surrender of such Series A Bond as set forth in the Loan and Trust Agreement. The Remarketing Agent shall notify the Paying Agent and the Trustee by 12:00 p.m., if no Credit Facility is then in effect, New York time, on each date on which payments on Series A Bonds subject to mandatory tender for purchase are due (except in the case of a conversion to the Fixed Rate and mandatory tenders in the event of a failed conversion), of the funds held by the Remarketing Agent as proceeds from the remarketing of such Series A Bonds and any deficiency that it expects in amounts available to pay the Purchase Price due on the Series A Bonds. The Remarketing Agent shall deliver to the Paying Agent all amounts received by the Remarketing Agent as proceeds of the remarketing of the Series A Bonds in accordance with DTC settlement procedures on the Purchase Date for Tendered Bonds. Any remarketing proceeds so received by the Paying Agent shall be held in a fund separate and apart from all other amounts held in by the Paying Agent 7

10 and shall remain uninvested or shall be invested in Government or Equivalent Obligations, maturing within thirty (30) days or on the date that such amounts are required to be applied in accordance with this section, whichever is earlier. If the funds held by the Paying Agent as proceeds from the remarketing of Series A Bonds are not sufficient to pay in full the Purchase Price due on the Series A Bonds, and no Credit Facility is then in effect, the Institution shall pay to the Paying Agent the amount necessary to purchase the Tendered Bonds for which the Remarketing Agent has not received the Purchase Price. Failure to pay the Purchase Price when due, in accordance with the Loan and Trust Agreement, shall constitute an Event of Default under the Loan and Trust Agreement (see Appendix D SUMMARY OF THE LOAN AND TRUST AGREEMENT Default by the Institution ). At or before 3:00 p.m. New York time, on the Delivery Date and upon receipt by the Paying Agent of the Purchase Price of Series A Bonds tendered for mandatory purchase that are delivered to it, the Paying Agent shall pay the Purchase Price of such Series A Bonds to the registered owners thereof as provided in the form of Bonds. The Paying Agent shall apply in order, first, moneys, if any, paid to it from the conversion of the Series A Bonds to the Fixed Rate Period as described in the Loan and Trust Agreement, or by the Remarketing Agent or by new purchasers (except that the Institution shall not, for purposes of this sentence, be deemed a new purchaser) of the Tendered Bonds as proceeds of the remarketing of such Series A Bonds by the Remarketing Agent, second, moneys drawn on the Credit Facility, if any, for the purpose of purchasing Series A Bonds tendered for mandatory purchase and, third, but only if other moneys are unavailable, moneys paid to it by the Institution. If sufficient funds are not available for the purchase of all Series A Bonds tendered for mandatory purchase on any Delivery Date, no purchase shall be consummated. ADDITIONAL INDEBTEDNESS The Loan and Trust Agreement permits the Agency to issue additional Bonds to complete the Program (as defined herein), to refund Bonds previously issued under the Loan and Trust Agreement or to finance or refinance any other project or projects of the Institution permitted under the Act. The Loan and Trust Agreement permits the Institution to issue additional Indebtedness or to request University of Massachusetts Building Authority ( UMBA ) or the Agency to issue additional Indebtedness so long as such additional Indebtedness is payable from all legally available funds of the Institution. Furthermore, the Institution may request UMBA to issue additional Indebtedness on behalf of the Institution that is not payable from all available funds of the Institution as set forth in the Loan and Trust Agreement provided the Indebtedness is secured by (1) pledged revenues derived from the project or projects being financed, (2) new or increased student fees whether imposed by the Institution or UMBA, (3) existing pledged revenues, or (4) any combination of the foregoing, provided that, the maximum annual debt service on all Revenue Indebtedness then outstanding, including the proposed additional Indebtedness, does not exceed ten percent (10%) of the amount shown in the then most recent audited financial statements of the Institution as total Available Revenues. Indebtedness of the Institution shall not be subject to acceleration, and no obligation of the Institution to make payments on account of Indebtedness issued by UMBA or the Agency shall be subject to acceleration. See Appendix A for a description of existing Indebtedness of the Institution and UMBA. See Appendix D SUMMARY OF THE LOAN AND TRUST AGREEMENT Limitations on Additional Indebtedness. REVOLVING LOAN PROGRAM The Series A Bonds were originally issued to create a pool of funds from which the Institution could finance and refinance the acquisition of telecommunications, electronic, computer, office, research, equipment and administrative systems and renovation costs related thereto (the Program ) by the various campuses comprising the Institution (see Appendix A) on a revolving basis throughout the term of the Series A Bonds. As and when each campus desires to finance the Program, advances of the proceeds of the Series A Bonds have been and will be made for that purpose, initially by the Agency until the Program Acquisition Fund is depleted. Subsequently, Program costs will be financed by the Institution. The Institution expects that for internal accounting and budgeting purposes each campus will repay those advances with interest over approximately the expected useful life of assets being financed. The principal portion of those repayments ( Repaid Principal ) will be deposited with the Institution and is expected to be used to provide funds for future Program Costs or to be applied toward redemption of the Series A Bonds. Notwithstanding a failure on the part of any campus to repay an advance of the proceeds of the Series A Bonds or an advance from the Repaid Principal, the Institution shall remain in all events obligated to make payment of any debt service payment coming due on the Series A Bonds in a timely manner from any source legally available 8

11 to the Institution. See SOURCES OF PAYMENT AND SECURITY FOR THE SERIES A BONDS herein. The Series A Bonds are not secured by a lien on the Repaid Principal. The Institution may from time to time issue such other series of additional Bonds as permitted under the Loan and Trust Agreement. SPECIAL CONSIDERATIONS RELATING TO THE SERIES A BONDS The Remarketing Agent is Paid by the Institution The Remarketing Agent s responsibilities include determining the interest rate from time to time and remarketing Series A Bonds that are optionally or mandatorily tendered by the owners thereof (subject, in each case, to the terms of the Remarketing Agreement), all as further described in this Remarketing Circular. The Remarketing Agent is appointed by the Institution and is paid by the Institution for its services. As a result, the interests of the Remarketing Agent may differ from those of existing holders and potential purchasers of Series A 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 in order to achieve a successful remarketing of the obligations (i.e., because there are otherwise not enough buyers to purchase the obligations) or for other reasons. The Remarketing Agent is permitted, but not obligated, to purchase tendered Series A Bonds for its own account and, if it does so, it may cease doing so at any time without notice. The Remarketing Agent may also make a market in the Series A Bonds by routinely purchasing and selling Series A 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 A Bonds. The Remarketing Agent may also sell any Series A 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 A Bonds. The purchase of Series A Bonds by the Remarketing Agent may create the appearance that there is greater third party demand for the Series A Bonds in the market than is actually the case. The practices described above also may result in fewer Series A Bonds being tendered in a remarketing. Series A Bonds May be Offered at Different Prices on Any Date Including an Interest Rate Determination Date Pursuant to 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 A Bonds bearing interest at the applicable interest rate at par plus accrued interest, if any, on and as of the applicable Rate Determination Date. The interest rate will reflect, among other factors, the level of market demand for the Series A Bonds (including whether the Remarketing Agent is willing to purchase Series A Bonds for its own account). There may or may not be Series A Bonds tendered and remarketed on a Rate Determination Date, the Remarketing Agent may or may not be able to remarket any Series A Bonds tendered for purchase on such date at par and the Remarketing Agent may sell Series A Bonds at varying prices to different investors on such date or any other date. 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 A Bonds at the remarketing price. In the event a Remarketing Agent owns any Series A Bonds for its own account, it may, in its sole discretion in a secondary market transaction outside the tender process, offer such Series A Bonds on any date, including the Rate Determination Date, at a discount to par to some investors. The Ability to Sell the Series A Bonds other than through Tender Process May Be Limited The Remarketing Agent may buy and sell Series A Bonds other than through the tender process. However, it is not obligated to do so and may cease doing so at any time without notice and may require holders that wish to tender their Series A Bonds to do so through the Paying Agent with appropriate notice. Thus, investors who purchase the Series A Bonds, whether in a remarketing or otherwise, should not assume that they will be able to sell their Series A Bonds other than by tendering the Series A Bonds in accordance with the tender process. 9

12 Under Certain Circumstances, the Remarketing Agent May Be Removed, Resign or Cease Remarketing the Series A 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. CONTINUING DISCLOSURE The Agency has determined that no financial or operating data concerning the Agency is material to any decision to purchase, hold or sell the Series A Bonds and the Agency will not provide any such information. The Institution and the Dissemination Agent (as defined in the Disclosure Agreement described below) have undertaken all responsibilities for any continuing disclosure to Bondowners as described below, and the Agency shall have no liability to the Bondowners or any other person with respect to such disclosures. Pursuant to the terms of the Amended and Restated Continuing Disclosure Agreement dated April 1, 2013 (the Disclosure Agreement ), the Institution has covenanted for the benefit of Bondowners to provide certain financial information and operating data relating to the Institution by not later than 270 days after the end of each fiscal year beginning with the fiscal year ending June 30, 2013 (the Annual Report ), and to provide notice of the occurrence of certain enumerated events. The Annual Report is filed on behalf of the Institution with the Municipal Securities Rulemaking Board (the MSRB ), as described in the Disclosure Agreement. Any notice of event is filed on behalf of the Institution with the MSRB. Failure of the Institution or the Trustee to comply with the Disclosure Agreement shall not be considered an Event of Default; however, the Trustee may (and, at the request of the registered owners of at least 25% of the Outstanding aggregate principal amount of Series A Bonds, shall), or any owner (including a beneficial owner) of the Series A Bonds may, seek specific performance of the Institution s or the Trustee s obligations to comply with the Disclosure Agreement and not for money damages in any amount. The specific nature of the information to be contained in the Annual Report and the notices of material events is set forth in Appendix F - AMENDED AND RESTATED CONTINUING DISCLOSURE AGREEMENT. These covenants have been made in order to assist the Remarketing Agent in complying with Rule 15c2-12 promulgated by the Securities and Exchange Commission. With respect to previous undertakings of the Institution, due to administrative oversight, certain of the Institution s financial statements, annual financial information and operating data during the prior five year period were filed on a timely basis, but such information did not appear under certain CUSIP numbers on the databases of nationally recognized municipal securities information repositories or MSRB s Electronic Municipal Marketplace Access database ( EMMA ). At this time, all such information has been refiled or relinked on EMMA. LITIGATION On the date of remarketing of the Series A Bonds, an opinion will be delivered by General Counsel of the Institution to the effect that to the General Counsel s knowledge, no litigation or other legal action in which the Institution is named as a party is pending or threatened wherein an unfavorable ruling or finding could adversely affect the enforceability of the principal documents entered into in connection with the issuance and remarketing of the Series A Bonds or which contests such party s or parties powers or authority with respect to the foregoing. See Appendix A with respect to the absence of any material litigation affecting the Institution. There is not now pending any litigation restraining or enjoining the remarketing or delivery of the Series A Bonds or questioning or affecting the validity of the Series A Bonds or the proceedings and authority under which they were issued. Neither the creation, organization or existence of the Agency, nor the title of the present members or other officers of the Agency to their respective offices is being contested. There is no litigation pending which in any manner questions the right of the Agency to have made a loan to the Institution to finance the Revolving Loan Program in accordance with the provisions of the Act and the Loan and Trust Agreement. LEGAL MATTERS All legal matters incidental to the remarketing of the Series A Bonds by the Institution are subject to the opinion of Bond Counsel to be delivered by Hinckley, Allen & Snyder LLP, Boston, Massachusetts, the proposed form of which is attached as Appendix F to this Remarketing Circular. Certain legal matters will be passed on for the Institution by Hinckley, Allen & Snyder LLP, Boston, Massachusetts. Certain legal matters will be passed on for the Remarketing Agent by its counsel, McCarter & English, LLP, Boston, Massachusetts. 10

13 TAX MATTERS On March 27, 2009 and in connection with the conversion of the Series A Bonds to the initial Long-Term Rate Period, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., delivered its approving opinion which concluded that under existing law (i) expressly conditioned upon continuing compliance with certain covenants made by the Institution and the Agency and assuming the accuracy of certain representations, interest on the Series A Bonds will not be included in the gross income of holders of the Series A Bonds for federal income tax purposes and is not an item of tax preference for purposes of the alternative minimum tax imposed on individuals and corporations, and (ii) interest on the Series A Bonds and any profit made on the sale thereof are exempt from Massachusetts personal income taxes, and the Series A Bonds are exempt from Massachusetts personal property taxes. The approving opinion further concluded that interest on the Series A Bonds will be included in the adjusted current earnings of corporate holders of the Series A Bonds and therefore will be taken into account in computing the alternative minimum tax imposed on certain corporations. See Appendix E - COPY OF APPROVING OPINION OF MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C. DELIVERED ON MARCH 27, This opinion is not being reissued in connection with the remarketing and it only speaks as of its date. On the date of remarketing of the Series A Bonds, Hinckley, Allen & Snyder LLP, Bond Counsel, will deliver an opinion to the effect that the conversion of the Series A Bonds to a new Long-Term Rate Period on April 1, 2016 is permitted under the Loan and Trust Agreement and will not in and of itself impair or affect the exclusion of interest on said Series A Bonds from gross income for purposes of federal income taxation. Hinckley, Allen & Snyder LLP will not express an opinion regarding the current status of such interest for federal income tax purposes. See Appendix F - FORM OF OPINION OF HINCKLEY, ALLEN & SNYDER LLP, BOND COUNSEL. RATINGS Moody s Investor Service, Standard & Poor s Ratings Services and Fitch Ratings have each previously assigned ratings of Aa2, AA- and AA, respectively to the Series A Bonds, which ratings remain in effect although such ratings are not being affirmed or reissued in connection with the remarketing. Any explanation of the significance of the ratings may only be obtained from the rating agency furnishing the same. A credit rating is not a recommendation to buy, sell or hold securities. There is no assurance that the ratings will continue for any given period of time or that they might not be revised downward or withdrawn entirely by the rating agencies, if in their judgment circumstances so warrant. Any such downward revision or withdrawal of the ratings might have an adverse effect on the market price of the Series A Bonds. LEGALITY OF THE SERIES A BONDS FOR INVESTMENT AND DEPOSIT The Act provides that the Series A Bonds are securities in which all public officers and public bodies of the Commonwealth and its political subdivisions, all Massachusetts insurance companies, trust companies, savings banks, cooperative banks, banking associations, investment companies, executors, administrators, trustees and other fiduciaries may properly and legally invest funds, including capital in their control or belonging to them. The Series A Bonds, under the Act, are securities that may properly and legally be deposited with and received by any Commonwealth or municipal officer or any agency or political subdivision of the Commonwealth for any purpose for which the deposit of bonds or obligations of the Commonwealth is now or may hereafter be authorized by law. COMMONWEALTH NOT LIABLE FOR THE SERIES A BONDS Neither the Commonwealth or any political subdivision thereof nor the Agency is obligated to pay the purchase price, principal or premium (if any) of or interest on the Series A Bonds except from the moneys to be provided under the Loan and Trust Agreement and any other source legally available for expenditure by the Board of Trustee of the Institution for such purpose. The Series A Bonds do not constitute a general obligation of the Agency or a debt or pledge of the faith and credit of the Commonwealth or any political subdivision thereof. The principal, purchase price, redemption price of and interest on the Series A bonds are payable solely from the revenues and funds pledged for their payment under the Loan and Trust Agreement. The Agency has no taxing power under the act. FINANCIAL ADVISOR Public Financial Management, Inc. ( PFM ) is serving as financial advisor to the Institution for the remarketing of the Series A Bonds. PFM is not obligated to undertake, and has not undertaken, either to make an independent verification of or to assume responsibility for, the accuracy, completeness, or fairness of the information contained in this Remarketing Circular. PFM is an independent financial advisory firm and is not engaged in the business of underwriting, trading, or distributing securities. 11

14 REMARKETING AGENT The Series A Bonds are being remarketed by Merrill Lynch, Pierce Fenner & Smith Incorporated, as Remarketing Agent for the Series A Bonds. The Remarketing Agent will be paid a fee of $50,000 in connection with the remarketing of the Series A Bonds. The Institution has agreed to indemnify the Remarketing Agent against certain liabilities, including certain liabilities arising under federal and state securities laws. The Remarketing Agent shall determine the interest rates on the Series A Bonds in accordance with the provisions contained in the Loan and Trust Agreement, shall remarket the Series A Bonds in accordance with the provisions contained in the Loan and Trust Agreement and shall effect purchases of the Series A Bonds. The Remarketing Agent may be removed or replaced by the Institution, as provided in the Remarketing Agreement and the Loan and Trust Agreement, and may resign, subject to certain conditions. MISCELLANEOUS The description of the provisions of the Act, the Loan and Trust Agreement, the Series A Bonds, the Amended and Restated Continuing Disclosure Agreement, and other documents contained in this Remarketing Circular (including all Appendices hereto), and all references to other materials not purporting to be quoted in full, are only brief summaries of certain provisions thereof and do not constitute complete statements of such documents or provisions. Reference is hereby made to the complete documents for further information, copies of which are available at the principal corporate trust office of the Trustee. Any statements made in this Remarketing Circular or the Appendices hereto involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of such opinions or estimates will be realized. Information relating to DTC and the book-entry system described under the heading THE SERIES A BONDS Securities Depository is based on information furnished by DTC and is believed to be reliable, but none of the Agency, the Institution or the Remarketing Agent makes any representations or warranties whatsoever with respect to any such information. Appendix A contains certain information relating to the Institution. While the information contained therein is believed to be reliable, the Agency and the Remarketing Agent do not make any representations or warranties whatsoever with respect to such information. The financial statements of the Institution as of June 30, 2015 and 2014 and for the years then ended, included in Appendix B to this Remarketing Circular, have been audited by Grant Thornton LLP, independent auditors, as stated in their report appearing therein. Appendix C DEFINITIONS OF CERTAIN TERMS and Appendix D - SUMMARY OF THE LOAN AND TRUST AGREEMENT have been prepared by Hinckley, Allen & Snyder LLP, Bond Counsel. A copy of the original approving opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. delivered on March 27, 2009 is set forth in Appendix E. The proposed form of opinion of Hinckley, Allen & Snyder LLP, Bond Counsel to be delivered in connection with the remarketing of the Series A Bonds on April 1, 2016 is set forth in Appendix F. Appendix G contains the Amended and Restated Continuing Disclosure Agreement. All Appendices are incorporated as an integral part of this Remarketing Circular. The Institution has reviewed the portions of this Remarketing Circular entitled INTRODUCTORY STATEMENT Use of Proceeds, REVOLVING LOAN PROGRAM, CONTINUING DISCLOSURE (as it relates to the Institution), and LITIGATION (as it relates to the Institution), and has furnished Appendices A and B to this Remarketing Circular and has approved all such information for use with this Remarketing Circular. At the closing, the Institution will certify that such portions of this Remarketing Circular (except for any forecasts and opinions contained herein) do not contain an untrue statement of a material fact or omit a statement of material fact necessary to make the statements made therein, in the light of the circumstances under which they are made, not misleading and that the aforesaid forecasts and opinions are believed to be reasonable in light of the experience of the officers of the Institution and the facts known to them at that time. 12

15 APPENDIX A UNIVERSITY OF MASSACHUSETTS

16 TABLE OF CONTENTS HISTORY AND MISSION... A-1 UNIVERSITY CAMPUSES... A-2 UNIVERSITY RELATED ORGANIZATIONS... A-8 GOVERNANCE... A-8 STRATEGIC INITIATIVES... A-13 ACADEMIC PROGRAMS AND ACCREDITATION... A-13 ENROLLMENT... A-14 TUITION AND FEES... A-17 UNIVERSITY REVENUES AND BUDGETING... A-23 SUMMARY OF FINANCIAL RESULTS, FISCAL YEARS 2013 THROUGH A-32 CURRENT AND FUTURE CAPITAL PLANS... A-36 INDEBTEDNESS OF THE UNIVERSITY... A-40 INSURANCE... A-43 TECHNOLOGICAL INITIATIVES... A-43 LITIGATION... A-44 EMPLOYEE RELATIONS... A-44

17 APPENDIX A March 24, 2016 Massachusetts Development Finance Agency 99 High Street Boston, MA Members of the Massachusetts Development Finance Agency: In connection with the remarketing by the Massachusetts Development Finance Agency (the Issuer ) of the Massachusetts Health and Educational Facilities Authority Variable Rate Demand Revenue Bonds, University of Massachusetts Issue, Series A (the Series A Bonds ), we are pleased to submit the following information with respect to the University of Massachusetts (the University or UMass ) and other pertinent matters for inclusion in this Remarketing Circular. Unless otherwise indicated by context, all utilization and financial data for any year refers to the fiscal year ended June 30. Unless otherwise indicated, the University is the source of all information included in this Appendix A. University of Massachusetts HISTORY AND MISSION The University is a state coeducational institution for higher education with separate campuses at Amherst, Boston, Dartmouth, Lowell and Worcester in The Commonwealth of Massachusetts (the Commonwealth ). The University was established in 1863 in Amherst, under the provisions of the 1862 Morrill Land Grant Acts, as the Massachusetts Agricultural College. It became known as the Massachusetts State College in 1932 and in 1947 became the University of Massachusetts. The Boston and Worcester campuses were opened in 1965 and 1970, respectively. The Lowell and Dartmouth campuses (previously the University of Lowell and Southeastern Massachusetts University, respectively) were made a part of the University by a legislative act of the Commonwealth, effective September 1, The University s core mission is to provide an affordable and accessible education of high quality and to conduct programs of research and public service that advance knowledge and improve the lives of the people of the Commonwealth, the nation and the world. For the Fall of 2015, the University enrolled 73,761 students. The University s five campuses are geographically dispersed throughout the Commonwealth and possess unique and complementary missions. In addition, the University has a system-wide online education consortium called UMassOnline, which in academic year offered approximately 1,500 online and blended courses and had 66,767 course enrollments. The University was rated as one of the world s best universities in the Times Higher Education of London s World University Rankings for UMass was ranked 141 st out of the top 400 universities in the world and was the only public university in New England to be listed in the global top 200. The University was ranked fifth highest in Massachusetts, eighth highest in New England, 24 th highest in American public universities and 51 st highest of all American institutions (public or private). The University was also ranked in the top 100 best A-1

18 universities in the world and in the top 43 best American universities in the Times Higher Education of London s World Reputation Rankings of Adding to its world-class reputation, total research and development expenditures at the University reached approximately $629 million in fiscal year 2015, marking the sixth straight year that the University has exceeded the $500 million mark. UNIVERSITY CAMPUSES The University is composed of five campuses, spread across the Commonwealth in Amherst, Boston, Dartmouth, Lowell and Worcester. Each campus has a unique history and plays a unique role in helping the University meet its mission. Amherst Campus The Amherst campus ( UMass Amherst or the Amherst Campus ), the University s flagship campus approximately 90 miles west of Boston, is the largest in the University system. With a student body of 22,942 fulltime equivalent ( FTE ) undergraduate and 4,755 FTE graduate students enrolled in Fall 2015, the Amherst Campus offers the most comprehensive and varied programs of the campuses in the University system, including liberal arts and professional programs, in addition to doctoral and research programs. It offers six associate-level programs and 117 bachelor s, 75 master s and 47 doctoral degree programs. During the academic year, 54 associate s, 5,683 bachelor s, 280 undergraduate certificates, 1,715 advanced degrees and 39 graduate certificates were conferred. Students may enroll in the College of Education, College of Engineering, College of Humanities and Fine Arts, College of Information and Computer Sciences, Isenberg School of Management, College of Nursing, College of Natural Sciences, School of Public Health and Health Sciences, College of Social and Behavioral Sciences, and the Stockbridge School of Agriculture. The 1,400-acre Amherst Campus includes the 28-story W.E.B. Du Bois Library, containing over six million volumes, including ebooks as well as governmental documents and law collections, the 9,000-seat state-ofthe-art multi-purpose arena, the William D. Mullins Center and 51 campus residence halls in seven unique residential areas. In 2008, the campus opened the Studio Arts Building and the Central Heating Plant and completed renovations to a landmark academic building. In 2009, the campus completed a new student recreation center and an integrated sciences building. In 2011, the UMass Amherst police department began operations at the new Campus Police Station and Emergency Operations Center, which was the first new construction on campus to meet LEED certification standards. In 2012 and 2013, UMass Amherst completed construction of phase one of a new laboratory sciences building, and a $186 million residential and classroom Commonwealth Honors College complex opened. A state-of-the-art classroom and academic facility opened in the fall of The Amherst Campus is initiating a variety of efficiency and effectiveness initiatives which are expected to save the campus $2 million annually in operating costs, including procurement, utility commodities, energy savings, and administrative systems. UMass Amherst is a national leader in campus sustainability, recently receiving prestigious awards for its sustainable academics, research, and campus operations. It is one of only four schools in the country to receive the Climate Leadership Award from Second Nature, reach STARS (Sustainability Tracking, Assessment and Rating System) Gold from the Association for the Advancement of Sustainability in Higher Education (AASHE) and be placed on the Princeton Review Green Honor Roll. The 2013 report of The Center for Measuring University Performance, The Top American Research Universities 2013 Annual Report, ranks UMass Amherst 67th for both total research and federal research expenditures among public research institutions. On a number of other measures of competitive success national academy memberships, faculty awards, doctorates awarded and postdoctoral appointees the Amherst Campus ranks in the top 54 among public research universities. During fiscal year 2015, the campus once again secured a record amount of sponsored research, including approximately 414 federal awards totaling approximately $100.4 million. Boston Campus The 175-acre Boston campus ( UMass Boston or the Boston Campus ), which is located three miles from downtown Boston on a harbor peninsula with the John F. Kennedy Presidential Library, the Edward M. Kennedy Institute for the United States Senate (the Kennedy Institute ), and the Massachusetts State Archives and Commonwealth Museum, is currently a non-residential campus. The Boston Campus focuses on the academic needs of the local urban and non-traditional populations and the research and policy needs of business, government A-2

19 and communities in the greater Boston metropolitan region. In April 2004, the Boston Campus opened its new 331,000 square foot Campus Center to better serve its students. The Boston Campus has a diverse student body, consisting of 10,371 FTE undergraduate students and 2,825 FTE graduate students enrolled in Fall The Boston Campus offers 67 undergraduate degree programs, 14 undergraduate certificate programs, 90 master s programs and graduate certificate programs and over 22 doctoral programs through the College of Liberal Arts, College of Science and Mathematics, College of Management, College of Nursing and Health Sciences, College of Public and Community Service, McCormack Graduate School of Policy and Global Studies, College of Education and Human Development, College of Advancing and Professional Studies, School for Global Inclusion and Social Development and School for the Environment. During the academic year, 334 certificates, 2,442 bachelor s and 1,098 advanced degrees were conferred. The Boston Campus is the only educational institution in the Northeast to share its campus with a presidential library. The students and faculty have access to the John F. Kennedy Library, as well as to the State Archives building, which houses valuable Massachusetts historic and state government records. The Boston Campus also has over 550,000 books and journals at its Healey Library. UMass Boston completed the construction of the Integrated Sciences Complex in Fall 2015 and a general academic building known as University Hall was opened for the 2016 spring semester. Additionally, the Kennedy Institute opened in the Spring The Integrated Science Complex and University Hall are both operated by the Boston Campus. The Kennedy Institute is operated by a charitable organization registered in the District of Columbia going by the same name and will be owned by the University of Massachusetts Building Authority ( UMBA ). The Kennedy Institute operates as a civic, academic and research institution focused on the study of the United States Senate. Although the Kennedy Institute has broad public access and is available for target groups outside of the University, one of the primary purposes of the Kennedy Institute is to enhance the academic and research environment available to the students and faculty of the University. Due to the multi-purpose nature of the Kennedy Institute, the University s annual financial commitment for the capital and operating expenses of the Kennedy Institute is limited to approximately $1.25 million. On May 19, 2010, UMBA purchased the Bayside Exposition Center (the Bayside Site ) for $18.7 million. The 20-acre Bayside Site is approximately one-half mile from the Boston Campus and will help meet the space needs of the Boston Campus as it begins to develop new campus facilities and renovate outdated existing facilities. The acquisition of the Bayside Site has initiated a University-led planning process to create a vision for redeveloping the site to further University and local objectives. UMass Boston plans to work with the City of Boston, the Commonwealth, neighbors and the surrounding communities to develop a plan that realizes the potential of the Bayside Site, stimulates economic activity, creates jobs and brings greater activity and opportunity to Columbia Point and the region. In the interim, the Bayside Site will allow the University to replace parking eliminated during the above-referenced construction process. UMass Boston s 25-year capital plan calls for the redevelopment of the campus with new and renovated facilities, new infrastructure and green space for greater access to and engagement with the public. The first ten years of the capital plan, launched in 2007, calls for more than $500 million in new facilities and infrastructure construction on the campus. UMass Boston expects to open its first-ever student dormitories in September 2018, achieving a long-held goal of providing students with an on-campus residential option. In 2015, the Boston Campus completed an institutional self-study in preparation for the reaccreditation review by the New England Association of Schools and Colleges ( NEASC ). In January 2016, NEASC notified the Boston Campus of its continued accreditation. The next NEASC review will be in Dartmouth Campus The Dartmouth campus ( UMass Dartmouth or the Dartmouth Campus ) distinguishes itself as a vibrant public research university dedicated to engaged learning and innovative research resulting in personal and lifelong student success. The Dartmouth Campus serves as an intellectual catalyst for economic, social and cultural transformation on a global, national and regional scale. The Dartmouth Campus offers more than 50 undergraduate A-3

20 and 40 graduate programs of study (including 12 at the Doctorate level) through the College of Arts and Sciences (with a School of Education), the Charlton College of Business, the College of Engineering, the College of Nursing, the College of Visual and Performing Arts, the School for Marine Science and Technology and the UMass School of Law (the Law School ). The main campus, designed by the eminent architect Paul Rudolf, is located on 710 acres in Dartmouth and is approximately 55 miles south of Boston and 30 miles east of Providence, Rhode Island. Other Dartmouth Campus sites include the University of Massachusetts School of Law in Dartmouth, the School for Marine Science and Technology on the waterfront in New Bedford, the Star Store Center for the Arts in New Bedford, the Advanced Technology and Manufacturing Center in Fall River and offices in New Bedford, Fall River and Fairhaven. On February 2, 2010, the Massachusetts Board of Higher Education issued approval for UMass Dartmouth to offer the Juris Doctor (J.D.) degree and establish the first public law school in the Commonwealth. Through the donation of assets to the University of Massachusetts Foundation, Inc. (the Foundation ), including the facility, equipment, systems and furnishings from an existing private law school (Southern New England School of Law or SNESL ), the Dartmouth Campus admitted the first class of new students to the Law School in August The opening August 2010 head count enrollment for the first year was 316, which was composed of 165 new law students and 151 students continuing from SNESL. During the first year, 51 of the 151 mid-stream students graduated with the J.D. degree and the bar pass rate of those who took the Massachusetts Bar was within 15% of the average bar pass rate for Massachusetts law schools accredited by the American Bar Association ( ABA ). The Law School prepared a comprehensive self-study for consideration of provisional ABA accreditation and received an ABA site visit; the final decision for provisional accreditation was granted on June 12, Current downturns in admissions to law schools across the country have resulted in a somewhat smaller than expected number of new students; the Fall 2015 overall enrollment was 205. Despite lower than expected Law School enrollment, the Dartmouth Campus s detailed overall enrollment and revenue planning for a variety of admissions demand scenarios continues to ensure institutional strength and provides for hiring and program development needed to ensure educational quality and success. The Law School has a public-service focus, with a curriculum concentrating on civil and human rights, legal support for businesses, economic justice and community law. The operating plan for the Law School calls for increasing enrollment, the bar pass rate, employment rate, and reputation, as well as assuring compliance with ABA standards, anticipating ABA accreditation in 2016 or The Dartmouth Campus had 6,540 FTE undergraduate and 1,226 FTE graduate students enrolled in Fall During the academic year, 31 undergraduate certificates, 1,362 bachelor s and 550 advanced degrees/certificates were conferred. The most recent edition of U.S. News and World Report s ( U.S. News ) America s Best Colleges ranks UMass Dartmouth as the number two public regional university in New England. The College of Engineering is listed among the best undergraduate engineering programs in the country, as are the online programs. The Dartmouth Campus, which is implementing its strategic plan, UMASSDTRANSFORM2020, weaves the research, academic, creative and community service activities of faculty and graduate students into the undergraduate experience and into the economic and cultural life of southeastern Massachusetts and beyond. Areas of focus for the strategic plan include marine science, law and public policy, K-12 schools, healthcare, economic development and the creative economy. In the summer of 2015, the University began construction of the Charlton College Learning Pavilion providing approximately 22,000 square feet of needed classrooms, meeting spaces, an auditorium and technologyenhanced space. In October 2015, the University broke ground on the $55 million expansion of its School for Marine Science and Technology in New Bedford and launched its Center for Innovation and Entrepreneurship in Fall River to strengthen the connections between UMass Dartmouth research and regional economic development. In 2016, UMass Dartmouth was officially designated as a Doctoral University Higher Research Activity (R2) from the National Carnegie Classification of Institutions of Higher Education at the Center for Postsecondary Research at Indiana University, achieving a major milestone for the University and the region. UMass Dartmouth is the only Massachusetts research university located south of Boston. This designation elevates UMass Dartmouth from its previous designation as a Master s University. A-4

21 Lowell Campus The Lowell campus ( UMass Lowell or the Lowell Campus ) is a doctoral-level research university committed to educating students for lifelong success in a diverse world and conducting research and outreach activities that sustain the economic, environmental and social health of the region. Located in the historic industrial City of Lowell, approximately 25 miles northwest of Boston, the campus spans more than 125 acres along the Merrimack River on three campus clusters North, South and East. The Lowell Campus had a student body of 10,971 FTE undergraduate and 2,656 FTE graduate students in Fall The Lowell Campus offers four associate s, 121 bachelor s, 48 master s and 34 doctoral degree programs through the College of Fine Arts, Humanities and Social Sciences, the Kennedy College of Sciences, the Francis College of Engineering, the College of Health Sciences, the Manning School of Business and the Graduate School of Education. The most recent additions to UMass Lowell s degree inventory are a Master s degree in Finance and Doctoral degrees in Education and in Applied Psychology and Prevention Science. During the academic year, 162 associate s degrees and undergraduate certificates, 2,388 bachelor s degrees and 1,467 advanced degrees/certificates were conferred. UMass Lowell is the third-fastest-rising school on U.S. News & World Report s national universities list over the last five years, gaining 27 spots due to a dramatic transformation driven by the campus s UMass Lowell 2020 strategic plan. Rapid gains have been made in enrollment, retention, student achievement, research expenditures and fundraising. Undergraduate enrollment has increased 50 percent since Fall 2007, with 42 percent of full-time undergraduates now living on what had historically been a commuter campus. Average SAT scores for incoming freshmen for Fall 2015 are the highest in UMass Lowell history, a combined 1173, up more than 20 points over Fall 2014 and more than 100 points since Fall Since Fall 2010, freshmen retention has increased from 78 to 86 percent, the four-year graduation rate has increased from 26 to 39 percent and the six-year graduation rate has increased from 51 to 56 percent. UMass Lowell s 1,000-student Honors College, established in 2014, had a one-year retention rate of 93 percent. In recognition of the benefits of small classes in certain gateway courses and labs, the percentage of classes with fewer than 20 students has been increased from 37 to 59 percent since Fall UMass Lowell is recognized by the Carnegie Foundation as a Research University - High Research Activity with annual research expenditures exceeding $66 million. Since 2007, the university has secured more than $135 million in gifts and pledges and increased the endowment from $37 million to $82.4 million. In 2015, UMass Lowell received a Higher Education Excellence in Diversity (HEED) Award from Insight Into Diversity Magazine, The Education Trust ranked it third in the nation for closing achievement gaps for underrepresented students and The Washington Center for Internships and Academic Seminars named it Public Institution of the Year. Over the last seven years, 12 buildings have been constructed, acquired and redeveloped, fully renovated or built via public-private partnership on the Lowell Campus. In 2009, UMBA purchased the former Doubletree Hotel in downtown Lowell and converted the property into the UMass Lowell Inn & Conference Center (the ICC ), a multi-purpose property that provides hotel accommodations, high-quality conference space and housing for 500 students. In 2010, UMBA acquired the 6,500-seat Tsongas Arena from the City of Lowell, renaming it the Tsongas Center at UMass Lowell and hosting hockey and basketball games, concerts, functions, University events and other community activities. In 2011, UMBA purchased the former St. Joseph s Hospital in Lowell, redeveloping it as University Crossing, an important connection point between UMass Lowell s North, South and East campuses that has become a vibrant hub for students and the community since opening in The $80 million, 84,000-squarefoot Mark and Elisia Saab Emerging Technologies and Innovation Center (the Saab Center ) opened in October 2012 as the first new academic building on campus in more than three decades. The opening of the Saab Center was followed by the opening of the $40 million Health and Social Sciences Building in Also in 2013, UMass Lowell opened the $54 million University Suites residence hall, providing suite-style housing for 472 students. A second suite-style residence hall, Riverview Suites, with housing for 800 students, was built by a private developer for lease by UMass Lowell starting in 2013 with a second phase opening in In 2014, the Charles J. Hoff Alumni Scholarship Center opened following a private developer s historic renovation and lease to the campus. In 2015, the McGauvran Center reopened as a hub for dining, learning and gathering following a $34 million renovation and expansion. During that span, two parking garages were also constructed at a total cost of $40 million. The campus s 13 th building since 2009, the $40 million Pulichino Tong Business Center will open in A renovation of Perry Hall, which houses UMass Lowell s signature engineering programs and will encourage additional industry partnerships, is in the design phase. In 2015, UMass Lowell launched a $27 million project with A-5

22 the Commonwealth s Accelerated Energy Program (AEP) that will generate $1.5 million in annual energy savings and reduce campus-wide energy usage by 20 percent or more. In July 2013, UMass Lowell athletics officially elevated to Division I in all sports, with 17 sports joining the America East Conference. The reclassification to full Division I status is a four-year process. The ice hockey program has competed in Division I since 1983 and is a member of Hockey East. Worcester Campus The Worcester campus ( UMass Worcester or the Worcester Campus ) provides general and specialized medical education, engages in a comprehensive program of basic scientific and clinical research and provides graduate level training in the biomedical sciences and nursing. Located approximately 40 miles west of Boston and 50 miles east of Amherst, the campus is home to three graduate schools: the School of Medicine (the Medical School ), the Graduate School of Biomedical Sciences and the Graduate School of Nursing. The Worcester Campus also consists of a $250 million research enterprise, public service entities such as Commonwealth Medicine and MassBiologics and the University Campus hospital of UMass Memorial Health Care (formerly the Clinical Services Division of the University) which is the clinical partner of the Medical School. Effective March 31, 1998, as enacted by Chapter 163 of the Acts of 1997 of the Commonwealth, the Clinical Services Division of the University and the subsidiaries of a University-related organization, UMASS Health System, were contributed to and merged with and into an independent Massachusetts not-for-profit corporation named UMass Memorial Health Care, Inc. ( UMass Memorial ). Pursuant to an agreement between the parties, the University s obligations to UMass Memorial are limited to allowing it to remain on the UMass Worcester Campus and to sharing certain capital, operating and shared-services expenses relating to such premises, as more fully described in the notes to the University s financial statements. Created in 1962, UMass Worcester provides medical education at an affordable cost to Massachusetts residents and graduate education to science and nursing students, offering incentives to graduates who practice primary care and other medical disciplines in underserved areas in Massachusetts. With a nationally renowned and recognized program in primary care training, which is perennially ranked in the top 10% of all U.S. medical schools by U.S. News, as well as its success in graduating physicians who remain in Massachusetts to establish their careers, the Medical School plays a unique role in fulfilling the health care provider workforce needs of Massachusetts. The Medical School has aligned itself with the Association of American Medical Colleges recommendation that medical schools increase the number of physicians they educate to help address the looming shortage of doctors, especially those in primary care fields. To help address physician workforce shortages in the Commonwealth, the Worcester Campus had already increased the incoming class size for the Medical School from 103 to 125. Once again and on account of the Medical School s ongoing commitment to increase the supply of physicians practicing in the Commonwealth, the Worcester Campus is in the midst of another Medical School class size expansion. Over the course of the next two years, the Medical School will increase class size from 125 to 150 students. This will allow the Medical School to evolve the composition of its student body, which has been limited by a residency requirement. Moving forward, the Medical School will open up a modest number of slots (25 per year) for out-ofstate students, who will pay a competitive market rate. Such a move will give the Medical School a national profile in the medical education field and greatly enhance and diversify the applicant pool. This further expansion has necessitated identifying and partnering with additional clinical affiliates to ensure an outstanding educational experience for medical students. In 2015, the Worcester Campus announced a new affiliation with Cape Cod Hospital in Hyannis, as well as the establishment of its first-ever regional campus in partnership with Baystate Health in Springfield. The Graduate School of Biomedical Sciences, composed of Basic & Biomedical Sciences and Clinical & Population Health Research divisions, trains students in their selected specialty area, while emphasizing a broad background in the basic medical sciences in preparation for research with direct relevance to human disease. The Graduate School of Nursing provides high quality master s and doctoral-level preparation for advanced-practice nurses and nurse educators. Consistent with its strategic plan and mission, the Worcester Campus supports a highly productive and collaborative research enterprise with outstanding scientific resources and facilities. The Worcester Campus research community includes a Nobel Laureate, a Breakthrough Prize and Lasker award recipient, three members of A-6

23 the National Academy of Sciences, three members of the Institute of Medicine, one member of the Royal Society and seven Howard Hughes Medical Institute Investigators. The research enterprise at the Worcester campus is founded upon a world-class basic science research program with well-documented programmatic strengths in RNA biology, gene therapy, receptors and cell signaling, neurodegenerative diseases, cardiovascular diseases, diabetes, immunology and autoimmunity and infectious diseases. With the signing of the $1 billion Life Sciences Bill by Governor Deval Patrick on June 16, 2008, UMass Worcester assumed a key role in helping realize the Commonwealth s potential as a global leader in life sciences. The law provided funding for the Albert Sherman Center, a 512,000 square-foot education and research complex that was completed in December 2012 and formally opened on January 30, The largest facility built on the Worcester Campus since construction of the original medical school and hospital complex in the 1970s, the Sherman Center serves as the new hub of the Worcester Campus integrating research, education and social activities. For Fall 2015, the Worcester Campus had 1,056 FTE graduate and medical students enrolled in six master s and six doctoral degree programs, as well as 545 post-graduate residents and fellows enrolled in 19 medical residency programs and 33 medical fellowship programs. During the academic year, 2 post-master s certificates and 244 advanced degrees were conferred. The Worcester Campus provides general and specialized medical care and engages in a comprehensive program of basic scientific and clinical research that benefits the recipients of clinical services and contributes to the national effort to understand, prevent and treat disease. In 2012, the educational program leading to the M.D. degree at the Worcester Campus was successfully re-accredited by the Liaison Committee on Medical Education ( LCME ), with a full eight year cycle. In addition, the NEASC conducted a site visit evaluation for the reaccreditation of UMass Worcester, and the final NEASC reaccreditation report was confirmed in May UMassOnline In February 2001, the University launched UMassOnline, the University s system-wide online education consortium. Headquartered at the President s Office Collaborative Services Facility in Shrewsbury, Massachusetts, UMassOnline enables the University to provide greater access to its educational programs and to increase revenues that can be used to support the campuses. In fiscal year 2015, UMassOnline and the Continuing Education units at the five campuses collaboratively generated tuition revenue of $89.6 million and supported over 66,767 course enrollments. UMassOnline s mission is to provide access to a University of Massachusetts education to students who are unable to attend one of the campuses, serving community needs for education in the critical areas of economic development, health and welfare and education, and raising revenues for support of students, faculty, teaching, outreach and research. To this end, UMassOnline supports the campuses in developing, growing and marketing online programs by funding the development of new online programs, providing faculty support, development and training, providing technology support and by creating and maintaining a robust platform for online learning, assessing new teaching and learning technologies, and deploying marketing programs that will position the University as a high-quality national leader in online higher education, as well as increase online course and program enrollments in the Massachusetts, New England, national and international markets. In academic year , the University offered over 147 online degrees, certificates and continuing medical education programs, as well as 1,500 online and blended courses. The University of Massachusetts Collaborative Service Facility The University established the University of Massachusetts Collaborative Services Facility ( CSF ) in November The CSF is located in Shrewsbury, Massachusetts. The CSF was created for the purpose of consolidating a number of departments within the University President s Office and other UMass organizations in an effort to both reduce costs and better serve the University system. A-7

24 The University of Massachusetts Club The University, acting through UMBA, has established an Alumni dining club, known as The University of Massachusetts Club. The Club opened on October 31, 2005 and is located on the 32nd floor of 1 Beacon Street in downtown Boston. As of August 1, 2015 the Club was managed by the not-for-profit organization University Services, Inc. UNIVERSITY RELATED ORGANIZATIONS The financial statements of the University include the University and certain other organizations that have a significant relationship with the University. The statements include the University s blended component units, which are UMBA, a public instrumentality of the Commonwealth created by Chapter 773 of the Acts of 1960 of the Commonwealth, as amended, the Worcester City Campus Corporation ( WCCC ), a tax-exempt organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, and the University of Massachusetts Amherst Foundation, Inc. (the UMass Amherst Foundation ), a tax-exempt organization that was established in The purposes of UMBA are to provide dormitories, dining commons and other buildings and structures for use by the University and other entities associated with the University and to issue bonds to finance such projects. The University created WCCC in 1992 to purchase various assets of Worcester City Hospital, to operate as a real estate holding company, and to foster and promote the growth, progress, and general welfare of the University s Worcester Campus and all of its locations. The subsidiaries of WCCC include Worcester Campus Services, Inc. ( WCS ) and U Health Solutions, Inc. ( UHS ) (formerly Public Sector Partners, Inc. ( PSP )). WCS has 11 real estate holding company subsidiaries. Through its Board of Directors, the UMass Amherst Foundation leads and supports private fundraising on behalf of UMass Amherst faculty, students and facilities. The University s discrete component units are the University of Massachusetts Foundation, Inc. (the Foundation ) and the University of Massachusetts Dartmouth Foundation, Inc. (the Dartmouth Foundation ). These foundations are tax-exempt organizations related to the University and were established to foster and promote the growth, progress and general welfare of the University and to solicit, receive and administer gifts and donations for such purposes. The Foundation manages the majority of the University s endowments, including the endowment of the UMass Amherst Foundation. The Foundation and the Dartmouth Foundation are reported in the financial statements of the University as part of the University Related Organizations. GOVERNANCE Under the General Laws of the Commonwealth (the General Laws ), the University is governed by a Board of Trustees (the body herein called the University Trustees or the Board of Trustees of the University ) under the coordinating authority of the Commonwealth s Department of Higher Education ( DHE ) (successor to the Commonwealth Board of Higher Education). The day-to-day operations of the University are directed by a team of administrative officers of the University, the chief executive officer being the President of the University (the President ). The General Laws give the University Trustees the authority to govern the University and to appoint the President, the Chancellors (the senior administrative officers of each campus) and other officers and members of the professional staff. The General Laws also grant to the University Trustees the legal right to establish and manage non-appropriated funds, which funds include, for example, certain student fees, grants and contracts, and funds used to support certain self-sufficient operations within the University. See UNIVERSITY REVENUES AND BUDGETING below. The University Trustees consist of 19 voting members and three non-voting members. Seventeen voting members of the University Trustees are appointed by the Governor of the Commonwealth (the Governor ). One of these appointees is the Secretary of Education, as mandated by Chapter 27 of the Acts of 2008 and at least five of those appointed must be alumni of the University and one must be a representative of organized labor. Two of the voting members are full-time students of the University and three additional full-time students act as non-voting members. The student members are elected annually from each of the five campuses and the two voting student positions are rotated annually among the members representing the five campuses. The University Trustees, except for the student members, serve five-year staggered terms, and are eligible for reappointment for an additional five-year term. A-8

25 The President is responsible for implementing the policies of the University Trustees and for providing leadership for the activities and operations of the University. The President s Office is responsible for the development of academic and financial policies, overall coordination of University activities, and certain Universitywide operational activities, including Internal Audit, the General Counsel s office, the Treasurer s and Controller s functions, Information Systems and Human Resources. Education System Reorganization In February 2008, legislation was passed that reorganized the leadership structure of education in the Commonwealth. A cabinet-level executive office of education was established with comprehensive education oversight, including the following departments: Early Education, Elementary and Secondary Education and DHE. The legislation also established a position of Secretary of Education whose authority includes authorizing the hiring of the respective Commissioners of the education departments, approving long-term planning, and approving budget and capital requests. In addition, the reorganization increased the size of each of the education boards by two members and designated the Secretary of Education as a voting member on the three education boards as well as a voting member of the Board of Trustees of the University. The reorganization also provided the Governor with the authority to appoint the chair of the University Trustees. Department of Higher Education The University is subject to the coordinating authority of the DHE, which has the statutory responsibility to develop, foster and advocate for the public higher education system in Massachusetts (which consists of the University, nine state universities, and 15 community colleges), to review and establish tuition at the state universities and the community colleges, to approve changes in academic programs at these institutions, and to collaborate with the public institutions of higher education in order to identify and define institutional missions. The Board of the DHE consists of 13 voting members; one of whom is the Secretary of Education, nine members appointed by the Governor reflecting regional geographic representation and three members chosen to represent public institutions of higher education. Of the members appointed by the Governor, at least one must be a representative of organized labor, one must be a representative of the business community and one must be a fulltime undergraduate student at a public institution of higher education. Of the members chosen to represent public institutions of higher education, one must be a member of the Board of Trustees of the University as voted by the University Trustees, one must be a member of a board of trustees of a state university chosen by vote of the chairs of the boards of trustees of each of the state universities, and one must be a member of a board of trustees of a community college chosen by vote of the chairs of the boards of trustees of each of the community colleges. Three of the DHE members appointed by the Governor are appointed for terms coterminous with that of the Governor. The remaining members of the Board of the DHE are appointed to serve five-year terms, except that the undergraduate student members will be appointed annually. The chairperson of the Board of the DHE is selected by the Governor. Board of Trustees The present members and officers of the University Trustees, their original appointment dates and the expiration dates of their respective current terms are set forth below. The term expiration date is September 1 of the applicable year; however University Trustees generally continue to serve until a successor University Trustee is appointed. Current Term Name and Position; Month and Year Initially Appointed Expiration Date Victor Woolridge, Board of Trustees Chair, Springfield Appointed November 2009 Vice President, Cornerstone Real Estate Advisers, LLC Maria D. Furman, Board of Trustees Vice Chair, Wellesley Appointed November 2009 Former Managing Director and Bond Portfolio Manager of Standish Mellon Asset Management (retired) A-9

26 James R. Buonomo, Shrewsbury Appointed April 2013 Consultant, JRB Advising Richard P. Campbell, J.D., Cohasset Appointed September 2011 Founder and Shareholder, Campbell Campbell Edwards & Conroy, P.C. Lawrence M. Carpman, Marshfield Appointed September 2011 President, Carpman Communications, LLC Edward W. Collins, Jr., Springfield Appointed September 2007 International Representative, International Brotherhood of Electrical Workers Robert Epstein, Brockton Appointed September 2015 President & CEO, Horizon Beverage Group David G. Fubini, Boston Appointed April 2013 Senior Director, McKinsey & Company Philip W. Johnston, Marshfield Appointed September 2007 President, Philip W. Johnston Associates Alyce J. Lee, Milton Appointed September 2011 Founding Trustee and Vice Chair, Board of Trustees, Boston Medical Center (BMC) and Former Chief of Staff to Mayor Thomas M. Menino Robert Manning, Boston Appointed August 2015 Chairman & Co-CEO, MFS Investment Management Jacob Miller, Fairhaven Non-voting Student Member, Appointed April 2014 University of Massachusetts, Dartmouth Jeffrey B. Mullan, J.D., Milton Appointed September 2011 Partner, Foley Hoag LLP Nolan O Brien, Quincy Voting Student Member, Appointed April 2013 University of Massachusetts, Boston Emily C. O Neil, Amherst Voting Student Member, Appointed April 2015 University of Massachusetts, Amherst Kerri Osterhaus-Houle, M.D., Hudson Appointed September 2007 Partner, Women s Health of Central Massachusetts, PC R. Norman Peters, J.D., Paxton Appointed September 2009 Partner, Peters & Sowyrda James A. Peyser, MALD, Milton Appointed January 2015 Secretary of Education, Executive Office of Education Commonwealth of Massachusetts Serves ex-officio A-10

27 Amanda Robinson, Hingham Non-Voting Student Member, Appointed April 2015 University of Massachusetts, Lowell Yevin Roh, Worcester Non-Voting Student Member, Appointed April 2015 University of Massachusetts Medical School Henry M. Thomas, III, J.D., Springfield Appointed September 2007 President and CEO, Urban League of Springfield, Inc Margaret D. Xifaras, J.D., Marion Appointed September 2011 Attorney, Law Offices of Lang, Xifaras & Bullard 2016 Administrative Officers The following is a list of the current administrative officers of the University. Martin T. Meehan, J.D., age 59 Martin T. Meehan, J.D., began his term as President of the University on July 1, Mr. Meehan was previously the Chancellor of the Lowell Campus since July Prior to that, Mr. Meehan represented the Fifth Congressional District of Massachusetts in the U.S. House of Representatives since He has also served as the First Assistant District Attorney for Middlesex County from 1991 to Mr. Meehan was also the Director of Public Affairs for the Massachusetts Secretary of the Commonwealth and the Deputy Secretary of State for Securities and Corporations from 1986 to Mr. Meehan earned his B.S. in Education and Political Science from the University of Massachusetts, Lowell, a Master s degree in Public Administration from Suffolk University and a J.D. degree from Suffolk University Law School. He holds honorary degrees from Suffolk University, Green Mountain College in Vermont and Shenkar College of Engineering & Design in Israel. James R. Julian, Jr., J.D., Executive Vice President and Chief Operating Officer, age 53 James R. Julian, Jr., J.D., has been the Executive Vice President at the University since January Prior to joining the University, he served as Chief of Staff and Counsel for the former Massachusetts Senate President, William M. Bulger, from 1991 to He holds a B.S. degree in Political Science from Suffolk University and a J.D. degree from the New England School of Law. Marcellette G. Williams, Ph.D., Senior Vice President for Academic Affairs, Student Affairs and International Relations, age 73 Marcellette G. Williams, Ph.D., has been the Senior Vice President for Academic and Student Affairs and International Relations since July Dr. Williams served as interim Chancellor of the Amherst Campus from July 2001 through July Prior to becoming interim Chancellor, Dr. Williams was Deputy Chancellor and Professor of English and Comparative Literature at the Amherst Campus. Prior to joining the University, Dr. Williams served in a variety of academic and administrative positions at Michigan State University, where she earned her bachelor s, master s and doctoral degrees. Christine M. Wilda, Senior Vice President for Administration & Finance and Treasurer, age 45 Christine M. Wilda was appointed to the position of Senior Vice President for Administration & Finance and Treasurer in July Previously, she served as interim Vice President for Administration & Finance, Treasurer and Controller from February 2012 to June 2012 and as the University Controller from 2002 to January Prior to that, Ms. Wilda was an associate in the University Controller s office since Ms. Wilda received a B.A. degree in Accounting and an M.B.A. degree from the Isenberg School of Management at the University of Massachusetts, Amherst. A-11

28 Kumble R. Subbaswamy, Ph.D., Chancellor, Amherst Campus, age 63 Kumble R. Subbaswamy, Ph.D., became the Chancellor of the Amherst Campus in July Dr. Subbaswamy previously served as provost at the University of Kentucky since He joined the University of Kentucky s physics faculty in 1978 after serving as a post-doctoral fellow at the University of California, Irvine. During his first eighteen years at the University of Kentucky, he served as Associate Dean of Arts and Sciences and as chair of the Department of Physics and Astronomy. Dr. Subbaswamy was also Dean of the College of Arts and Sciences at the University of Miami from 1997 to 2000, when he left to become Dean of Arts and Sciences at Indiana University in Bloomington, where he served until Dr. Subbaswamy holds a B.S. degree in Physics from Bangalore University, an M.S. degree in Physics from Delhi University and a Ph.D. degree in Physics from Indiana University. J. Keith Motley, Ph.D., Chancellor, Boston Campus, age 60 J. Keith Motley, Ph.D., became the Chancellor of the Boston Campus in July Previously, Dr. Motley had held the position of Vice President for Business and Public Affairs since Dr. Motley served as Interim Chancellor of the Boston Campus from August 2004 until June Prior to becoming Interim Chancellor, Dr. Motley served as the Vice Chancellor for Student Affairs at the Boston Campus. Previously, Dr. Motley held a variety of student-service positions at Northeastern University including Dean of Student Services, Associate Dean/Director of the John D. O Bryant African-American Institute and Assistant Dean/Director of the Office of Minority Student Affairs. Dr. Motley is a founder of the Roxbury Preparatory Charter School and chair emeritus of the school s board of trustees. He also serves on the board of trustees of Newbury College in Brookline. Dr. Motley holds B.S. and M.Ed. degrees from Northeastern University and a Ph.D. degree from Boston College. Peyton Randolph Helm, Ph.D., Interim Chancellor, Dartmouth Campus, age 67 Peyton Randolph (Randy) Helm, Ph.D., was appointed interim Chancellor of the Dartmouth Campus, effective March 15, Previously, Dr. Helm was the President at Muhlenberg College for 12 years and was named President Emeritus by the Muhlenberg trustees at commencement in May At Muhlenberg, Dr. Helm served as a professor of history and taught courses in Homeric Epic and Greek history. Prior to his Muhlenberg presidency, Dr. Helm served as Vice President for College Relations and professor of classical studies at Colby College in Waterville, Maine, and held leadership positions in student affairs and development at the University of Pennsylvania. Dr. Helm earned a B.A. degree in Archaeology from Yale University and a Ph.D. in Ancient History from the University of Pennsylvania. Jacqueline Moloney, Ed. D., Chancellor, Lowell Campus, age 62 Jacqueline Moloney, Ed.D, was appointed Chancellor of the Lowell Campus in August Previously, Dr. Moloney served as Executive Vice Chancellor of the Lowell campus since Prior to becoming Executive Vice Chancellor, Dr. Moloney served as Dean of the Division of Online and Continuing Education at UMass Lowell since 1994 and Executive in Residence for UMassOnline since Dr. Moloney also served as Dean of University College and Director of the Centers for Learning at UMass Lowell from 1990 to Dr. Moloney received a B.S. degree in Sociology from UMass Lowell, an M.A. degree in Social Psychology from Goddard College, and an Ed.D. degree from UMass Lowell. Michael F. Collins, M.D., Chancellor, Worcester Campus and Senior Vice President for Health Sciences, age 59 Michael F. Collins, M.D., was appointed Chancellor of the University of Massachusetts Medical School, where he also serves as professor of quantitative health sciences and medicine, on September 26, Dr. Collins served as interim Chancellor of the University of Massachusetts Medical School from June 2007 to September In June 2007, Dr. Collins was appointed Senior Vice President for Health Sciences at the University of Massachusetts. Dr. Collins served as Chancellor of the UMass Boston Campus from 2005 through Prior to joining the University of Massachusetts, Dr. Collins served as President and Chief Executive Officer of Caritas Christi Health Care from 1994 to 2004 and from 1994 to 2001 he served as President of St. Elizabeth s Medical Center in Brighton, a university academic medical center affiliated with Tufts University School of Medicine. A A-12

29 board certified physician in internal medicine and a Fellow of the American College of Physicians, Dr. Collins has held a number of faculty and academic leadership positions over the course of his career. At Texas Tech University Health Sciences Center, his posts included Assistant Professor of Internal Medicine and Assistant Dean for Patient Care Resources. At Tufts University, he served as Clinical Professor of Internal Medicine and Associate Dean of Government and Medical Affairs in the School of Medicine and as a senior fellow at the Jonathan M. Tisch College of Citizenship and Public Service. Dr. Collins received a B.A. degree from the College of the Holy Cross and earned an M.D. degree from Tufts University School of Medicine. Faculty and Staff The University had 5,772 faculty members for Fall 2015, including 3,977 full-time faculty. Of the fulltime faculty (excluding Worcester faculty), 53.5% were tenured, 22.6% were on track for tenure and the remaining 23.9% were not on tenure track. In addition, the University had 11,621 staff members for Fall 2015, of which 93.4% were full-time. The University faculty has received some of the world s most prestigious awards and honors, including the MacArthur Fellowship, the Pulitzer Prize, the National Book Award and the Nobel Prize. The University faculty also includes National Science Foundation grant winners and Fulbright Scholars. The University student FTE to faculty FTE ratios, excluding continuing education, are 17.5:1, 16:1, 18:1 and 18:1 for the Amherst, Boston, Dartmouth and Lowell campuses, respectively. The Worcester Campus ratio is not presented because the delivery of graduate medical education is not comparable to that of campuses offering a traditional range of undergraduate and graduate programs. STRATEGIC INITIATIVES Under the leadership of President Meehan and the University Trustees, the University is engaged in a series of strategic initiatives identified as a result of an interactive, collaborative process between the President s Office and campus leadership. The strategic initiatives acknowledge the unique strengths of each of the campuses and recognize the important role of the University in supporting the Commonwealth s economic success. The initiatives are as follows: Accountability benchmarks and peer comparisons have been set for each of the five UMass campuses and specific goals have been set for each Chancellor of the University. Growing the University To further economic and academic growth, the University has established satellite centers in Springfield and Haverhill, and anticipates opening a satellite center in the President s new office site in downtown Boston in Expanding Research and Development The University participates as a member of the Mass Green High Performance Computing Center providing increased capacity for research and created the UMass Innovation Institute to expand the University s capacity for applied research. Fundraising The University is developing and focusing its fundraising efforts across all five campuses. Stewards of Resources The University continues to increase cost efficiency in providing educational services to students. Efficient and Effective The University has been charged by the University Trustees to find ways to achieve the same or better results through more efficient and effective means. ACADEMIC PROGRAMS AND ACCREDITATION The University offers a broad spectrum of academic programs, granting Bachelor of Arts degrees in over 60 fields, Bachelor of Science degrees in over 50 fields and bachelor s degrees in a number of other areas, including Fine Arts and Business Administration. Master of Arts degrees are granted in more than 25 fields, Master of Science degrees in over 45 academic fields and a variety of other master s degrees are granted in specialized areas including Education, Teaching, Business Administration and Public Health. In addition to the foregoing, the A-13

30 University grants Doctor of Philosophy degrees in over 50 fields, as well as Doctor of Education, Doctor of Science, Doctor of Engineering, Juris Doctor, and Doctor of Medicine degrees. The academic resources of the University are also accessible to part-time students, to local, national and international businesses and to the general community through the continuing education programs. Each campus of the University is accredited by NEASC, the major accrediting body for institutions of higher education in New England. The Amherst, Boston, Dartmouth, Lowell and Worcester Campuses are accredited through 2018, 2025, 2020, 2023 and 2020, respectively. The Medical School at the Worcester Campus is a member of the Association of American Medical Colleges and was given full accreditation through the academic year by the LCME, the major accrediting body for programs leading to the M.D. degree. The Law School at the Dartmouth Campus is anticipating accreditation by the ABA in 2016 or In addition to the foregoing, individual schools and academic programs are accredited by the appropriate agencies in their particular fields. The University is also an institutional member of numerous organizations of higher learning and professional societies, including, among others, the Association of American Colleges, the Association of Public and Land-Grant Universities, the American Council on Education, the American Association of Colleges for Teacher Education, the American Association of Colleges of Nursing, the Council of Colleges of Arts and Sciences and the New England Board of Higher Education. ENROLLMENT Admission to the University is open to residents and non-residents of the Commonwealth on a competitive basis. Massachusetts residents accounted for 81.8% and 53.0% of the University s total undergraduate and graduate fall enrollment, respectively, during Fall For Fall 2015, total full-time equivalent enrollment at the University (including continuing education) was 63,350, representing an increase of 6.5% over the five-year period. Total Full-Time Equivalent Enrollment, Fall Undergraduate 47,432 48,135 48,893 49,732 50,833 Graduate 12,048 12,202 12,443 12,576 12,517 Total 59,480 60,337 61,336 62,308 63,350 The following tables show opening head count enrollment as of the University s Fall semester for each of the five campuses since Amherst Campus In-state undergraduate 17,047 16,952 16,900 16,949 17,277 Out-of-state undergraduate 4,765 4,976 5,234 5,303 5,471 In-state graduate 2,331 2,270 2,232 2,260 2,282 Out-of-state graduate 3,941 4,038 4,152 4,123 4,239 Total 28,084 28,236 28,518 28,635 29,269 Boston Campus In-state undergraduate 10,556 10,610 10,639 10,734 10,866 Out-of-state undergraduate 1,310 1,514 1,727 1,966 2,083 In-state graduate 2,331 2,623 2,667 2,698 2,638 Out-of-state graduate 1,157 1,127 1,244 1,358 1,443 Total 15,741 15,874 16,277 16,756 17,030 A-14

31 Dartmouth Campus In-state undergraduate 7,214 7,123 6,969 6,939 6,762 Out-of-state undergraduate In-state graduate 1,152 1,128 1, Out-of-state graduate Total 9,225 9,210 9,053 9,111 8,916 Lowell Campus In-state undergraduate 9,939 10,229 10,556 10,693 10,921 Out-of-state undergraduate 1,790 2,058 2,178 2,300 2,362 In-state graduate 2,410 2,508 2,551 2,451 2,508 Out-of-state graduate 1,292 1,499 1,647 1,747 1,676 Total 15,431 16,294 16,932 17,191 17,467 Worcester Campus Medical School Other Total ++ 1,189 1,160 1,161 1,103 1, Does not include the head count of registrants in the various continuing medical education programs offered at the Worcester Campus. Total Headcount Enrollment In-state undergraduate 44,756 44,914 45,064 45,315 45,826 Out-of-state undergraduate 8,231 8,987 9,607 10,084 10,449 In-state graduate 9,489 9,393 9,322 9,220 9,172 Out-of-state graduate 7,194 7,480 7,948 8,177 8,314 Total 69,670 70,774 71,941 72,796 73,761 From Fall 2014 to Fall 2015, total new freshmen enrollees increased by approximately 0.5% for the system as a whole, while total new transfer enrollees decreased by 0.4% for the system as a whole, based on headcount. The number of total new freshmen enrollees reflected a 0.4% increase in the size of the entering class at the Amherst Campus, an 8.9% increase in new freshmen at the Boston Campus, a 5.2% decrease at the Dartmouth Campus, and a 2.1% decrease at the Lowell Campus. The number of total new transfer enrollees reflected a 4.9% decrease at the Amherst Campus, a 1.6% increase at the Boston Campus, a 2.5% increase at the Dartmouth Campus, and a 1.0% increase at the Lowell Campus. The University saw an increase in freshmen applications in Fall 2015 compared to Fall The increase in total freshmen applications included a 7.6% increase at the Amherst Campus, a 10.8% increase at the Boston Campus, a 1.6% increase at the Dartmouth Campus and a 13.3% increase at the Lowell Campus. Transfer applications included a 0.8% decrease at the Amherst Campus, a 1.0% increase at the Boston Campus, a 5.4% decrease at the Dartmouth Campus and a 1.3% decrease at the Lowell Campus. The following tables provide aggregate data for the campuses (except the Worcester Campus) on University applications, acceptances and matriculations for first year undergraduates and for transfer students. A-15

32 First Year Applicants, Acceptances and Matriculants, Fall Applications Received 55,528 58,313 61,253 62,497 67,602 Number of Acceptances 36,517 37,417 40,294 40,347 41,582 Percent of Applicants Accepted 66% 64% 66% 65% 62% Number of Matriculants 8,845 8,797 9,105 9,332 9,377 Percent Matriculated of Those Accepted 24% 24% 23% 23% 23% Transfer Student Applicants, Acceptances and Matriculants, Fall Applications Received 10,181 10,981 10,033 10,048 9,961 Number of Acceptances 7,285 7,985 7,909 7,988 7,727 Percent of Applicants Accepted 72% 73% 79% 79% 78% Number of Matriculants 4,667 4,824 4,835 4,893 4,873 Percent Matriculated of Those Accepted 64% 60% 61% 61% 63% The following tables show the most currently available retention and graduation rates for undergraduate freshmen entering the University. The level and changes in retention and graduation rates reflect the diversity of the entering students. One-Year Retention Rates - Fall Term (%) Range of Campus Averages Six-Year Graduation Rates (%) Year of Entry Graduation After 6 Years - Range of Campus Averages The low-end averages of the University data result from the Boston Campus, which focuses on the needs of non-traditional students. The following table shows the average Scholastic Aptitude Test ( SAT ) scores for entering University undergraduate freshmen. SAT Scores for Incoming Freshmen Academic Year * * * * * Range of Campus Averages * Combined Mathematics and Critical Reasoning scores. A-16

33 Degrees Awarded The University awards four levels of degrees: associate s, bachelor s, master s and doctoral/professional degrees. Trends in University degrees and certificates awarded for the past five years are shown in the following table. Trends in Degrees Awarded Academic Year Associate s/certificate Bachelor s 9,958 10,399 10,910 11,544 11,875 Master s/cags + 3,889 4,166 4,225 4,385 4,679 Doctorate/Professional CAGS means Certificate of Advanced Graduate Studies. TUITION AND FEES The following tables show tuition and mandatory fees for full-time graduate and undergraduate students in effect at the Amherst, Boston, Dartmouth, Lowell and Worcester Campuses for fiscal years 2012 through A-17

34 AMHERST CAMPUS Tuition & Mandatory Fees: FY Actual Actual Actual Actual Actual TUITION Undergraduate (MA resident) $1,714 $1,714 $1,714 $1,714 $1,714 Undergraduate (non-resident) 9,937 9,937 9,937 9,937 9,937 Graduate (MA resident) 2,640 2,640 2,640 2,640 2,640 Graduate (non-resident) 9,937 9,937 9,937 9,937 9,937 CURRICULUM & OTHER MANDATORY FEES Undergraduate (MA resident) $10,898 $11,516 $11,544 $11,544 $12,457 Undergraduate (non-resident) 15,463 16,708 18,037 18,876 20,567 Graduate (MA resident) 9,957 10,338 11,002 11,411 12,144 Graduate (non-resident) 14,449 16,200 17,778 18,609 20,037 TOTAL MANDATORY FEES & TUITION Undergraduate (MA resident) $12,612 $13,230 $13,258 $13,258 $14,171 Undergraduate (non-resident) 25,400 26,645 27,974 28,813 30,504 Graduate (MA resident) 12,597 12,978 13,642 14,051 14,754 Graduate (non-resident) 24,386 26,137 27,715 28,546 29,974 DORMITORY RESIDENTS ONLY Average Room & Board $9,512 $9,937 $10,439 $10,957 $11,503 MANDATORY FEES, TUITION, ROOM & BOARD Undergraduate (MA resident) $22,124 $23,167 $23,697 $24,215 $25,674 Undergraduate (non-resident) 34,912 36,582 38,413 39,770 42,007 Graduate (MA resident) 22,109 22,915 24,081 25,008 26,257 Graduate (non-resident) 33,898 36,074 38,154 39,503 41,477 1 Includes an increase in fees approved by the University Trustees on June 8, Includes an increase in fees approved by the University Trustees on June 5, Reflects the tuition and mandatory curriculum fee freeze for resident undergraduates as supported by the first year of the 50/50 Initiative. 4 Reflects the tuition and mandatory curriculum fee freeze for resident undergraduates as supported by the second year of the 50/50 Initiative. 5 Includes an increase in fees approved by the University Trustees on June 17, A-18

35 BOSTON CAMPUS Tuition & Mandatory Fees: FY Actual Actual Actual Actual Actual TUITION Undergraduate (MA resident) $1,714 $1,714 $1,714 $1,714 $1,714 Undergraduate (non-resident) 9,758 9,758 9,758 9,758 9,758 Graduate (MA resident) 2,590 2,590 2,590 2,590 2,590 Graduate (non-resident) 9,758 9,758 9,758 9,758 9,758 CURRICULUM & OTHER MANDATORY FEES Undergraduate (MA resident) $9,693 $10,252 $10,252 $10,252 $10,968 Undergraduate (non-resident) 15,169 16,390 17,672 18,632 20,162 Graduate (MA resident) 10,285 10,916 11,578 12,428 13,525 Graduate (non-resident) 15,183 16,405 17,687 19,334 21,357 TOTAL MANDATORY FEES & TUITION Undergraduate (MA resident) $11,407 $11,966 $11,966 $11,966 $12,682 Undergraduate (non-resident) 24,927 26,148 27,430 28,390 29,920 Graduate (MA resident) 12,875 13,506 14,168 15,018 16,115 Graduate (non-resident) 24,921 26,163 27,445 29,092 31,115 1 Includes an increase in fees approved by the University Trustees on June 8, Includes an increase in fees approved by the University Trustees on June 5, Reflects the tuition and mandatory curriculum fee freeze for resident undergraduates as supported by the first year of the 50/50 Initiative. 4 Reflects the tuition and mandatory curriculum fee freeze for resident undergraduates as supported by the second year of the 50/50 Initiative. 5 Includes an increase in fees approved by the University Trustees on June 17, A-19

36 DARTMOUTH CAMPUS Tuition & Mandatory Fees: FY Actual Actual Actual Actual Actual TUITION Undergraduate (MA resident) $1,417 $1,417 $1,417 $1,417 $1,417 Undergraduate (non-resident) 8,099 8,099 8,099 8,099 8,099 Graduate (MA resident) 2,071 2,071 2,071 2,071 2,071 Graduate (non-resident) 8,099 8,099 8,099 8,099 8,099 Graduate Law School (MA resident) Graduate Law School (non-resident) - - 2,071 8,099 2,071 8,099 2,071 8,099 2,071 8,099 CURRICULUM & OTHER MANDATORY FEES Undergraduate (MA resident) $9,718 $10,264 $10,264 $10,264 $11,171 Undergraduate (non-resident) 13,955 14,929 16,057 16,520 18,074 Graduate (MA resident) 10,367 10,917 11,553 11,881 12,092 Graduate (non-resident) Graduate Law School (MA resident) Graduate Law School (non-resident) 13, ,929 21,631 23,295 16,057 21,631 23,295 16,520 21,631 23,295 26,173 24,541 32,293 TOTAL MANDATORY FEES & TUITION Undergraduate (MA resident) $11,135 $11,681 $11,681 $11,681 $12,588 Undergraduate (non-resident) 21,952 23,028 24,156 24,619 26,173 Graduate (MA resident) 12,381 12,988 13,624 13,952 14,973 Graduate (non-resident) Graduate Law School (MA resident) Graduate Law School (non-resident) 21, ,028 23,702 31,394 24,156 23,702 31,394 24,619 23,702 31,394 26,173 24,541 32,293 DORMITORY RESIDENTS ONLY Average Room & Board $10,179 $10,574 $10,908 $11,435 $11,622 MANDATORY FEES, TUITION, ROOM & BOARD Undergraduate (MA resident) $21,314 $22,255 $22,589 $23,116 $24,210 Undergraduate (non-resident) 32,131 33,602 35,064 36,054 37,795 Graduate (MA resident) 22,560 23,562 24,532 25,387 26,595 Graduate (non-resident) Graduate Law School (MA resident) Graduate Law School (non-resident) 32, ,602 34,276 41,968 35,064 34,610 42,302 36,054 35,137 42,829 37,795 36,163 43,915 1 Includes an increase in fees approved by the University Trustees on June 8, Includes an increase in fees approved by the University Trustees on June 5, Reflects the tuition and mandatory curriculum fee freeze for resident undergraduates as supported by the first year of the 50/50 Initiative. 4 Reflects the tuition and mandatory curriculum fee freeze for resident undergraduates as supported by the second year of the 50/50 Initiative. 5 Includes an increase in fees approved by the University Trustees on June 17, A-20

37 LOWELL CAMPUS Tuition & Mandatory Fees: FY Actual Actual Actual Actual Actual TUITION Undergraduate (MA resident) $1,454 $1,454 $1,454 $1,454 $1,454 Undergraduate (non-resident) 8,567 8,567 8,567 8,567 8,567 Graduate (MA resident) + 1,637 1,637 1,637 1,637 1,637 Graduate (non-resident) + 6,425 6,425 6,425 6,425 6,425 CURRICULUM & OTHER MANDATORY FEES Undergraduate (MA resident) $9,843 $10,393 $10,643 $10,993 $11,973 Undergraduate (non-resident) 15,169 16,329 17,579 18,833 20,558 Graduate (MA resident) ++ 9,067 9,592 10,402 11,162 12,162 Graduate (non-resident) ++ 13,379 14,349 15,449 16,553 18,053 TOTAL MANDATORY FEES & TUITION Undergraduate (MA resident) $11,297 $11,847 $12,097 $12,447 $13,427 Undergraduate (non-resident) 23,736 24,896 26,146 27,400 29,125 Graduate (MA resident) 10,704 11,229 12,039 12,799 13,799 Graduate (non-resident) 19,804 20,774 21,874 22,978 24,478 DORMITORY RESIDENTS ONLY Average Room & Board $9,520 $10,282 $10,793 $11,278 $11,670 MANDATORY FEES, TUITION, ROOM & BOARD Undergraduate (MA resident) $20,817 $22,129 $22,890 $23,725 $25,097 Undergraduate (non-resident) 33,256 35,178 36,939 38,678 40,795 Graduate (MA resident) 20,224 21,511 22,832 24,077 25,469 Graduate (non-resident) 29,324 31,056 32,667 34,256 36,148 1 Includes an increase in fees approved by the University Trustees on June 8, Includes an increase in fees approved by the University Trustees on June 5, Reflects the tuition and mandatory curriculum fee freeze for resident undergraduates as supported by the first year of the 50/50 Initiative. 4 Reflects the tuition and mandatory curriculum fee freeze for resident undergraduates as supported by the second year of the 50/50 Initiative. 5 Includes an increase in fees approved by the University Trustees on June 17, Graduate tuition charges at UMass Lowell are on a 9-credit load basis. ++ Graduate fee charges at UMass Lowell are on a 9-credit load basis. A-21

38 WORCESTER CAMPUS Tuition & Mandatory Fees: FY Actual Actual Actual Actual Actual TUITION Medical School $8,352 $8,352 $8,352 $8,352 $8,352 Graduate (MA resident) 2,640 2,640 2,640 2,640 2,640 Graduate (non-resident) 9,856 9,856 9,856 9,856 9,856 CURRICULUM & OTHER MANDATORY FEES Medical School (resident) $10,241 $12,310 $14,535 $14,998 $17,158 Medical School (Class of 19 and beyond) ,665 Medical School (non-resident) ,517 Graduate School of Nursing 7,368 8,107 8,307 8,330 8,354 Graduate School of Biomedical Sciences 4,010 4,079 4,279 4,302 4,326 Ph.D./M.D. (MA resident) 22,041 22,110 22,310 22,333 27,180 Ph.D./M.D. Years 1-2 (non-resident) ,110 37,310 37,333 47,213 Ph.D./M.D. Years 3 plus (non-resident) 27,185 27,254 27,454 27,477 37,357 TOTAL MANDATORY FEES & TUITION Medical School (resident) $18,593 $20,662 $22,887 $23,350 $25,510 Medical School (Class of 19 and beyond) $34,017 Medical School (non-resident) $58,517 Graduate School of Nursing (MA resident) 10,008 10,747 10,947 10,970 $10,994 Graduate School of Biomedical Sciences (MA 6,650 6,719 6,919 6,942 $6,966 resident) Graduate School of Nursing (non-resident) 17,224 17,963 18,163 18,186 $18,210 Graduate School of Biomedical Sciences (nonresident) 13,886 13,935 14,135 14,158 $14,182 Ph.D./M.D. (MA resident) 24,681 24,750 24,950 24,973 $27,180 Ph.D./M.D. Years 1-2 (non-resident) 46,897 46,966 47,166 47,189 $47,213 Ph.D./M.D. Years 3 plus (non-resident) 37,041 37,110 37,310 37,333 $37,357 1 Includes an increase in fees approved by the University Trustees on June 8, Includes an increase in fees approved by the University Trustees on June 5, Includes an increase in fees approved by the University Trustees on June 19, Includes an increase in fees approved by the University Trustees on June 18, Includes an increase in fees approved by the University Trustees on June 17, Student Financial Aid Eligible University students receive financial aid packages primarily awarded from the federal government, with varying combinations of grants and scholarships, loans and part-time employment. Grants and scholarships represent financial aid that does not require repayment by the student. The primary federal grants and scholarships awarded to eligible University students were Federal Pell Grants of approximately $73.5 million and Federal Supplemental Education Opportunity Grants of approximately $3.1 million for the fiscal year New loans processed by the University for eligible students under federal student loan programs and federally guaranteed loan programs totaled approximately $343.3 million for the fiscal year Eligible University students also received approximately $4.8 million through the Federal Work-Study Program for fiscal year A-22

39 UNIVERSITY REVENUES AND BUDGETING In general, the University receives revenues from multiple sources: Commonwealth appropriations, student fees and self-supporting activities for which fees are charged to cover the cost of providing the service and federal and state contracts. In fiscal year 2015, Commonwealth appropriations (net of tuition required to be remitted to the Commonwealth) provided approximately 22% of all operating and non-operating revenues of the University (not including University Related Organizations), retained tuition and fees accounted for approximately 28% of all operating and non-operating revenues and other non-appropriated funds (including grants and contracts, auxiliary enterprises and other operating revenues) provided the remaining 50%. The University s internal accounting is maintained on a budgetary basis. Additionally, the University prepares annual financial statements in accordance with generally accepted accounting principles on an accrual basis. The financial statements of the University as of June 30, 2014 and June 30, 2015 have been audited by Grant Thornton LLP, independent certified public accountants as stated in their report. The consolidated audited financial statements of the University should be read in their entirety, including the footnotes and the Management Discussion and Analysis attached thereto. Budget Process The University s fiscal year, like that of the Commonwealth, is from July 1 through June 30. A key source of University revenues is the annual state appropriation determined in the Commonwealth s annual budget process. This process begins approximately one year in advance of the commencement of each fiscal year. The University prepares its consolidated state budget request and forwards it to the Governor and the House and Senate Committees on Ways and Means. A copy of the University s request is also forwarded to the DHE, which incorporates the University s request in whole or in part into its state budget request for the entire public higher education system. The Governor makes funding recommendations to the state legislature (the Legislature ). The Legislature in turn appropriates funds through its annual budget and other appropriating acts to the University Trustees, who distribute the funds to the five campuses. The Commonwealth budget process, however, is only one of several ongoing budgetary and review processes that culminate in the presentation to the University Trustees of the overall annual University operating budget. For purposes of the operating budget, the University s revenues are divided into three separate components: General Operations, Sales and Services and Restricted Funds. Annual budgeted revenues and expenditures not related to Commonwealth appropriations are reviewed and approved by the University Trustees prior to the beginning of each fiscal year. General Operations Revenues from general operations are derived from a variety of sources and may be expended on activities furthering the general education, research and public service mission of the University, including teaching and related student support services, research, public service, institutional support and general maintenance activities. Funding sources for this category include state appropriations, general student fees, interest income, unrestricted giving and administrative overhead. Sales and Services (Designated Funds) Revenues generated from certain sales and/or services are presented in the budget separately from general operations and by law may be used to support only the operations of those services. An example of a designated fund is a trust fund established to receive revenues from a parking garage. By law, these revenues may be used only for expenses relating to parking and transportation. Other examples in this category are: auxiliary enterprises such as dining halls, dormitories and bookstores; student fee-based activities (other than the general student fee), such as continuing education and international programs; and educational activities such as counseling services. A-23

40 Restricted Funds In addition to the two foregoing categories of revenue, the University receives revenue from non-campus sources, which, like the designated funds, are limited in their uses. These funds include: state and federal student financial aid funds; state, federal and private grants and contracts; restricted endowment and scholarship funds; and land grant funds for the Amherst Campus. Appropriated Funds Tuition Retention Massachusetts has historically been an anomaly in Higher Education because of the way it charges students to attend the University. In Massachusetts, mandatory curriculum fees make up the bulk of the cost of attending the University, rather than tuition. Tuition, which has not increased in over two decades, is set by the Massachusetts Board of Higher Education and is generally remitted to the State s General Fund as a user fee. In fiscal year 2015, the University remitted approximately $31 million in tuition collected from in-state students. Fees, which account for the majority of student charges, are set by the University Trustees and are retained by the University to fund its operations. The fees have fluctuated over the years as the level of State support provided in the State budget has changed. Over time, this has led to a high fee, low tuition billing model that is antiquated and confusing. In July of 2015, the Legislature passed and the Governor signed into law provisions in the fiscal year 2016 State budget that would give the University the tools to adopt a new system of billing that conforms to best practices in Higher Education and is consistent with the rest of the nation. The ability for the University to retain tuition, also referred to as Tuition Retention, is the main provision of the law that will allow the University to rationalize and restructure its tuition and fees in a way that is transparent and consistent with its peer institutions. The Tuition Retention legislation comprised the following key provisions: the University Trustees have been given authority to set tuition rates; the University is required to maintain the value of tuition waivers as tuition discounts; the University would continue to receive fringe support from the State for any employee funded with retained tuition; and the University is required to create a simpler student bill with the majority of charges coming in the form of tuition. With tuition retention becoming effective on July 1, 2016, the University assembled a steering committee composed of members from each campus and the President s Office in order to begin work on an implementation plan for system changes and communication to students and families. In addition and in accordance with section 195 of the fiscal year 2016 General Appropriation Act, the University established an Advisory Task Force chaired by the President of the University and including members from the University Trustees, the Amherst Chancellor, members of the Baker Administration, and the Office of the Senate President and the Office of the Speaker of the House. The Advisory Task Force is conducting its review and will report its findings regarding the calculation relative to the value of all tuition discounts, specific budgetary information to be reported to the state, the effect on fringe benefits, the reduction to the University s fiscal year base appropriation, and the process for rationalizing future tuition and fee increases. Tuition Retention is a major efficiency and an important step toward making the University more accountable and transparent to students, their families, Legislators and other stakeholders by showing student charges in a way that alleviates the confusion that had previously existed between tuition and mandatory fees. Beginning in fiscal year 2004, the Amherst Campus was authorized to retain tuition for non-resident students. Beginning in fiscal year 2012, all of the University campuses were authorized to retain tuition from nonresident students. In fiscal years 2011, 2012, 2013, 2014, and 2015 the University retained approximately $34.6 million, $50.8 million, $74.5 million, $75.8, and $82.0 million of tuition revenue, respectively. A-24

41 Annual Appropriations The following tables detail the University s appropriations received from the Commonwealth and the calculation of total Commonwealth support reported in the financial statements for fiscal years Table A details the University s base maintenance appropriation as provided for in the annual budget of the Commonwealth for fiscal years 2012 through An explanation of the legislative appropriation process by fiscal year is described in detail below. Table B details the total Commonwealth support received by the University from all sources for fiscal years 2011 through 2015, and is the basis for the University s financial statements. TABLE A * Commonwealth Appropriations by Fiscal Year Years Ended June 30 ($ millions) Commonwealth Appropriations 2012 Budget 2013 Budget 2014 Budget 2015 Budget 2016 Budget UMass Base Appropriation $418.0 $418.1 $463.5 $519.0 $531.8 Collective Bargaining Costs C Budget Reductions - (4.2) - (7.8) - Total UMass Base State Appropriation $418.0 $439.6 $478.9 $513.4 $531.8 *Totals may not add due to rounding. The Commonwealth pays the fringe benefit cost for those University employees who are paid from Commonwealth appropriations, which includes 38.2% of all University employees. Therefore, such fringe benefit support is added to the State Appropriations financial statement line item as presented in the table below. The University pays the Commonwealth for the fringe benefit cost of the employees paid from funding sources other than Commonwealth appropriations which includes 61.8% of University employees. The University includes tuition collected in the line item in its financial statements captioned Tuition and Fees under Combined Statements of Revenue, Expenses and Changes in Net Assets and removes the equal amount from the State Appropriations line item through the netting process presented in the following table. TABLE B Years Ended June 30 ($ thousands) Gross Commonwealth Appropriations $408,019 $399,469 $447,837 $486,656 $516,794 Plus: Fringe Benefits 147, , , , ,403 Less: Tuition Remitted (49,731) (37,029) (35,103) (34,325) (31,055) Net Commonwealth Appropriations $505,799 $517,392 $519,311 $570,618 $621,200 The fiscal year 2012 budget approved by the Legislature and signed by the Governor reduced the University s base state appropriation to $418.0 million. This reduction was partially offset by legislative approval of the Governor s bill to allow the University s Boston, Dartmouth, Lowell and Worcester Campuses to retain tuition collected from non-resident students beginning in fiscal year The amount of non-resident tuition collected by these four campuses totaled $11.6 million in the initial year. Prior to the legislation, the approximately $11.6 million of non-resident tuition would have been returned to the Commonwealth. The fiscal year 2012 budget also included $5.5 million of collective bargaining support and $6.4 million of line item funding specific to the University. However, the University did not receive any additional ARRA stimulus funds in fiscal year A-25

42 The Commonwealth s fiscal year 2013 budget included a base state appropriation amount for the University equal to the base state appropriation received in fiscal year In addition to the base state appropriation, the budget also provided $25.7 million to cover the fiscal year 2013 cost of the collective bargaining increases for the University s union employees and $6.6 million of line item funding specific to the University. With state support consistent with the fiscal year 2012 level despite the fact that enrollments had increased at the University by 15% over the prior five years, the University s Board of Trustees approved a 4.9% tuition and fee increase for undergraduate students for the academic year. In January of 2013, the Governor imposed mid-year budget reductions pursuant to his 9C Authority to bring the Commonwealth budget into balance. As part of the reductions, the University received a 1% reduction equaling $4.2 million. By working with the Legislature, the University was able to utilize revenues to meet the reduction with no impact on the fringe support provided by the Commonwealth. Each campus and the central office absorbed the reduction into operations for fiscal year The fiscal year 2014 budget approved in July 2013 included a new funding model pursuant to which the Commonwealth s appropriations are set at an amount expected to cover approximately 50% of the cost to educate Massachusetts undergraduate students at the University (the 50/50 Initiative ). The 50/50 Initiative required an increase in the Commonwealth s base state appropriation of $39.1 million in each of fiscal year 2014 and This investment, along with additional fringe support of $10.8 million provided the University with $100 million in additional appropriations over fiscal years 2014 and The Governor and the Legislature embraced the 50/50 Initiative for the fiscal year 2014 budget, and provided the increased funding which allowed the University to freeze undergraduate tuition and mandatory fees for Massachusetts residents for the academic year. The 50/50 Initiative had an immediate and meaningful impact on thousands of Massachusetts residents as their undergraduate tuition and mandatory curriculum fees did not increase in the academic year. It is expected to provide such undergraduate students with long-term relief by allowing them to graduate and enter the workforce with less student debt. The total base state appropriation for fiscal year 2014 was $478.9 million. The fiscal year 2015 budget approved in July 2014 supported the second year of the 50/50 Initiative by increasing the University s base appropriation to $519.0 million. With the approval of the Commonwealth s fiscal year 2015 budget and the corresponding increase in appropriations for the University, the University continued the implementation of the 50/50 Initiative. At its June 18, 2014 Board Meeting, the University's Trustees approved the freezing of tuition and mandatory curriculum fees for in-state undergraduate students for the academic year. On February 3, 2015, Governor Baker exercised his 9C Authority to address a projected $765 million shortfall in the Commonwealth s fiscal year 2015 budget, by proposing legislation to make certain budgetary reductions. The final bill, which was signed by the Governor on February 13, 2015, reduced the University s fiscal year 2015 base appropriation of $519.0 million by approximately $7.8 million to $511.2 million. The University absorbed these reductions into its operations for fiscal year The University requested funding to account for the first year of collective bargaining increases with parameters set by the Administration with a total first year cost of $13.1 million. Supplemental funding was supported in Chapter 10 of the Acts of 2015 for $2.2 million of the total need. The fiscal year 2016 budget approved in July 2015 included a base state appropriation of $531.8 million, representing an increase of 2.5% over the original fiscal year 2015 amount. The 2016 base appropriation did not include funding for the fiscal year 2015 or fiscal year 2016 collective bargaining increases and fell short of the University s request of $578 million. Given the level of state funding, the University did not continue to freeze tuition and fees for fiscal year On June 17, 2015, the University Board of Trustees approved a 5% tuition and mandatory fee increase for in-state undergraduate students. The fiscal year 2017 State budget process is currently underway. On January 27, 2016, the Governor released his budget recommendations which include $508.3 million for the University. This is the result of a 1% increase over fiscal year 2016 funding accounting for a reduction related to the Tuition Retention Legislation passed as part of the fiscal year 2016 budget. With the University now being able to retain approximately $31 million in tuition, the State appropriation is reduced by a corresponding amount in order to ensure that Tuition Retention is cost neutral to both the University and the State. The House and Senate continue to develop their recommendations which are expected in April and May, respectively. A-26

43 Management of Non-Appropriated Funds All non-appropriated funds are managed and grouped for budgetary purposes into several trust funds. Nonappropriated funds are funds derived by the University from revenue sources other than Commonwealth appropriations and include, for example, student fees, gifts, grants, contracts and sponsored programs. The University Trustees establish and collect certain student fees and charges, including charges for room and board. Non-appropriated funds are retained by the University. Approximately 78% of the University s operating and nonoperating revenues for fiscal year 2015 were non-appropriated. University trust funds are financial accounts that are established by the University Trustees under authority granted by the Legislature in connection with self-supporting operations, such as student services, parking and certain research and public service activities. Revenues received from these self-supporting activities are expended by law for the respective purposes for which each trust fund was established. The University Trustees exercise oversight and control over these funds through official policy guidelines, annual budget review and approval and periodic internal audits of certain accounts. Beginning with fiscal year 1992, the University Trustees have required that external audits of the accounts and fund groups be performed by certified public accountants on a combined basis. The University s financial operations consist of two major expense categories: Educational and General and Auxiliary Enterprises. The Educational and General expense budget includes research, academic programs, public service programs, student services programs, academic and institutional support programs, physical plant operations and financial aid. These activities are funded from student tuition and fees (except for in-state resident tuition), Commonwealth and Federal appropriations, and grants and contracts. Auxiliary Enterprises are a set of self-sufficient services ancillary to the general educational mission of the University. These include such items as dining and residence halls, student health services and parking facilities. The Auxiliary Enterprises budget is a revenue-based trust fund. No assurance can be given that future trust fund revenues will continue to be sufficient to support self-amortizing projects or other Auxiliary Enterprises. The University reviews fees annually with the goal of having the Auxiliary Enterprises budget be self-sufficient. Responding to Challenging Fiscal Environment The University continues to benefit from the increased demand for its educational services. The University s growing reputation, combined with difficult economic conditions in the Commonwealth, have resulted in continued growth in student enrollment and the associated revenue growth from student charges, at all of the University s campuses. In addition, the University benefits from having diverse revenue streams. Grant and contract revenues have grown consistently over the years and the University anticipates continued growth in this area. Modest increases in room and board rates also are expected to generate revenues for auxiliary operations. Additionally, the University s online presence continues to expand. For fiscal year 2015, UMassOnline achieved an approximate 5% increase in revenue and an approximate 5% increase in enrollment. Compared with the previous year, revenues increased from approximately $85.1 million to approximately $89.6 million. All of these revenue sources contribute to the University s fiscal position. Understanding that the current fiscal environment poses significant challenges for the University and its students, the responsibility to be a good steward of limited resources is taken seriously. The University, through its Board of Trustees, created a permanent Task Force on Efficiencies and Effectiveness charged with helping to ensure that improving quality through more efficient and effective operations continues to be a priority for the University. The Task Force, along with the President s Office and the campuses, is working to promote a more standardized approach for cross campus collaboration and oversight of the entire effort, track and report progress, and quantify the benefits to the University and its campuses. Over the last few years the University has achieved measureable savings and efficiencies and expects current efforts to yield additional savings going forward. The University continues to focus on improving its competitive position. To meet increased student demand, boost academic credentials and improve campus infrastructure, the University acquired several strategic properties in fiscal year 2010 and On February 2, 2010, the Commonwealth s first and only public law school was established at UMass Dartmouth. This was made possible by a donation of approximately $23 million in assets from the SNESL. In February 2010, the Legislature approved making the Tsongas Arena part of UMass Lowell. A-27

44 The acquisition of the facility provides the Lowell Campus with a venue for entertainment, sports and other events. On May 19, 2010, UMass Boston finalized the purchase of the Bayside Site, the former site of the Bayside Exposition Center, which is located less than one mile from the main campus. This acquisition adds 20 acres of waterfront property to the campus and includes 1,500 parking spaces. Additionally, UMass Lowell purchased the former Saint Joseph s Hospital in Lowell on January 25, The property consists of six buildings totaling 300,000 square feet located within walking distance of University s North, South and East campuses in Lowell. The Lowell Campus has converted the property through a combination of new construction and renovation into an important campus connection point focused on student and administrative services known as University Crossing. The University expects to open the first-ever student dormitories at UMass Boston in September 2018, achieving a long-held goal of providing UMass Boston students with an on-campus residential option. The student housing complex will accommodate UMass Boston freshmen and transfer students and will be built via an innovative publicprivate partnership. See CURRENT AND FUTURE CAPITAL PLANS below. Basis of Presentation The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board ( GASB ) using the economic resources measurement focus and the accrual basis of accounting. These statements are reported on a combined basis and all intra-university transactions are eliminated. In accordance with GASB Statement No. 20, the University follows all applicable GASB pronouncements. In addition, the University applies all applicable Financial Accounting Standards Board ( FASB ) pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The University has elected not to apply FASB pronouncements issued after November 30, Operating revenues consist of tuition and fees, grants and contracts, sales and services of educational activities (including royalties from licensing agreements) and Auxiliary Enterprise revenues. Operating expenses include salaries, wages, fringe benefits, utilities, subcontracts on grants and contracts, supplies and services and depreciation and amortization. All other revenues and expenses of the University are reported as non-operating revenues and expenses including state general appropriations, non-capital gifts, short term investment income, endowment income used in operations, interest expenses and capital additions and deductions. Capital items represent all other changes in long term plant and endowment net assets. Revenues are recognized when earned and expenses are recognized when incurred with the exception of revenue earned on certain public service activities. Restricted grant revenue is recognized only when all eligibility requirements have been met, that is to the extent grant revenues are expended or in the case of fixed price contracts, when the contract terms are met or completed. Contributions, including unconditional promises to give (pledges) for non-endowment or non-capital purposes, are recognized as revenues in the period received. Promises of additions to non-expendable endowments are not recognized until cash or other assets are received. Conditional promises to give are not recognized until they become unconditional, that is when the conditions on which they depend are substantially met. When an expense or outlay is incurred for which both restricted and unrestricted net assets are available, the University applies restricted net assets first. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, as well as disclosures of contingencies at the date of the financial statements and the revenues and expenditures recognized during the reporting period. Significant estimates include the accrual for employee compensated absences, the accrual for workers compensation liability, the allowance for doubtful accounts, valuation of certain investments and depreciation expense. Actual results could differ from those estimates. The University reports its financial statements as a business-type activity ( BTA ) under GASB Statement No. 35, Basic Financial Statements - and Management s Discussion and Analysis - for Public Colleges and Universities ( GASB 35 ). BTAs are defined as those that are financed in whole or in part by fees charged to external parties for goods or services. In order to ensure observance of limitations and restrictions placed on the use of available resources, the accounts of the University are maintained internally in accordance with the principles of fund accounting. This is the procedure by which resources for various purposes are maintained in separate funds in accordance with the A-28

45 activities or objectives specified. GASB 35 requires that external financial statements to be reported on a consolidated basis and establishes standards for external financial reporting by public colleges and universities that resources be classified into the following net asset categories: Invested in capital assets, net of related debt: Capital assets, at historical cost, or fair market value on date of gift, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. Restricted Nonexpendable: Net assets subject to externally imposed stipulations that they be maintained permanently by the University. Restricted Expendable: Net assets whose use by the University is subject to externally imposed stipulations. Such assets include restricted grants and contracts, the accumulated net gains/losses on true endowment funds, as well as restricted funds loaned to students, restricted gifts and endowment income and other similar restricted funds. Unrestricted: Net assets that are not subject to externally imposed stipulations. Substantially all unrestricted net assets are designated to support academic, research, Auxiliary Enterprises or unrestricted funds functioning as endowments or are committed to capital construction projects. Revenues are reported net of discounts and allowances. As a result, student financial aid expenditures are reported as an allowance against tuition and fees revenue while stipends and other payments made directly to students are recorded as scholarship and fellowship expenditures on the statement of revenues, expenses and other changes to net assets and are included in supplies and services on the statement of cash flows. Discounts and allowances for tuition and fees and Auxiliary Enterprises are calculated using the Alternate Method. For the year ended June 30, 2015, the University adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Retirement Benefits an amendment of GASB Statement No. 27. GASB 68 addresses accounting and financial reporting for pensions that are provided to the employees of state and local governments through pension plans that are administered through trusts that have certain characteristics and establishes standards for measuring and recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and expenditures. The implementation of GASB 68 resulted in a cumulative effect adjustment of ($ 238,906) to the beginning net position of the 2015 Statement of Revenues, Expenses and Changes in Net Position as of July 1, 2014 for the recording of pensions. The application of GASB 68 was recorded effective in the beginning of fiscal year 2015 because this was the earliest date for which was practical based on available information. A-29

46 Summary of Operations * Combined and Condensed Statement of Net Position As of June 30 (in thousands of dollars) ASSETS University University University University University Current Assets $ 581,207 $ 617,093 $ 579,824 $ 592,750 $692,679 Noncurrent Assets Investment in Plant Net of Accumulated 2,582,651 3,098,186 3,705,517 4,064,786 4,333,761 Depreciation All Other Noncurrent Assets 1,862,508 1,594,140 1,403,449 1,543,391 1,501,421 Total Assets $5,026,366 $5,309,419 $5,688,790 $6,200,927 $6,527,861 LIABILITIES Current Liabilities $ 609,291 $ 880,104 $ 772,922 $ 674,330 $856,460 Noncurrent Liabilities 2,275,685 2,039,939 2,415,798 2,831,869 3,133,710 Total Liabilities $2,884,976 $2,920,043 $3,188,720 $3,506,199 $3,990,170 NET POSITION Invested in Capital Assets Net of Related Debt $1,283,888 $1,502,171 $1,682,173 $1,800,767 $1,887,941 Restricted Nonexpendable 17,112 17,773 18,058 17,387 18,378 Expendable 184, , , , ,591 Unrestricted 655, , , , ,438 Total Net Position $2,141,390 $2,389,376 $2,614,356 $2,818,295 $2,667,348 * Derived from the Annual Audited Financial Report for Fiscal Years The University s financial statements include prior year comparative information. Certain prior year amounts have been reclassified to conform with the current year presentation. These reclassifications have no effect on total net assets. A-30

47 Combined Statement of Revenues, Expenses and Changes in Net Assets For The Years Ended June 30 (in thousands of dollars) REVENUES Operating Revenues University University University University University Tuition and Fees * $ 597,200 $ 659,180 $ 707,495 $ 740,116 $765,218 Federal Grants and Contracts 371, , , , ,754 State Grants and Contracts 62,597 67,927 68,794 74,996 70,871 Local Grants and Contracts 1,937 3,077 2,253 2,223 1,717 Private Grants and Contracts 107, , , , ,399 Sales & Service, Educational 18,011 19,311 19,237 21,792 25,601 Auxiliary Enterprises 272, , , , ,193 Other Operating Revenues Sales & Service, Independent Operations 52,619 61,087 46,062 44,296 48,368 Sales & Service, Public Service Activities 670, , , , ,429 Other 74,979 98, ,839 93, ,234 Total Operating Revenues $2,229,113 $2,055,527 $2,152,754 $2,209,279 $2,112,784 EXPENSES Operating Expenses University University University University University Educational and General Instruction $ 596,341 $ 633,481 $ 657,841 $ 690,635 $712,430 Research 414, , , , ,586 Public Service 66,548 75,665 74,510 77,985 72,910 Academic Support 133, , , , ,533 Student Services 98, , , , ,988 Institutional Support 190, , , , ,305 Operation and Maintenance of Plant 202, , , , ,869 Depreciation and Amortization 159, , , , ,043 Scholarships and Fellowships 41,238 47,626 49,731 49,242 49,300 Auxiliary Enterprises 216, , , , ,680 Other Expenditures Independent Operations 41,911 53,734 47,826 44,861 40,961 Public Service Activities 626, , , , ,692 Total Operating Expenses $2,788,784 $2,589,626 $2,663,837 $2,809,900 $2,782,297 Operating Loss ($559,671) ($534,099) ($511,083) ($600,621) ($669,513) * Net of scholarship allowances of $212,469 at June 30, 2015, $201,186 at June 30, 2014, $189,753 at June 30, 2013, $177,420 at June 30, 2012, and $178,676 at June 30, A-31

48 (continued) Combined Statement of Revenues, Expenses and Changes in Net Assets For The Years Ended June 30 (in thousands of dollars) NONOPERATING REVENUES/(EXPENSES) Federal Appropriations $ 5,826 $ 6,845 $ 6,774 $7,020 $6,619 State Appropriations 505, , , , ,200 State Appropriations Federal Stimulus Funds 37, Gifts 26,504 22,143 30,044 29,013 30,351 Investment Income 77,773 27,192 56,037 86,685 11,670 Endowment Income 10,207 15,623 13,614 16,642 16,858 Interest on Indebtedness (65,358) (64,434) (91,364) (89,496) (100,332) Non-operating Federal Grants 70,643 73,908 70,586 74,279 76,539 Other Non-operating Income 5, ,002 1,046 2,927 Net Non-operating Revenues $674,516 $599,459 $606,004 $695,807 $665,832 Income/(Loss) Before Other Revenues, Expenses, Gains and Losses $114,845 $65,360 $94,921 $95,186 ($3,681) Capital Appropriations $28,109 $150,367 $112,581 $112,132 $62,582 Capital Grants and Contracts 30,354 43,891 39,347 21,987 55,823 Additions to Permanent Endowments 920 University Related Organization Transactions Capital Contribution 4,361 (345) 1, Disposal of Plant Facilities (10,682) (13,606) (8,802) (6,198) (12,120) Gain from Sale of Discontinued Operations 9,655 Other Additions/Deductions (4,405) 2,317 2,939 (19,418) (15,565) Total Other Revenues, Expenses, Gains and $57,392 $182,624 $150,579 $108,753 $91,640 Losses Total Increase in Net Assets $172,237 $247,984 $245,500 $203,939 $87,959 NET POSITION Net Position at Beginning of Year $1,969,153 $2,141,392 $2,368,856 $2,614,356 $2,818,295 Cumulative effect of adoption of GASB 68 (238,906) Net Position at Beginning of Year, Adjusted $1,969,153 $2,141,392 $2,368,856 $2,614,356 $2,579,389 Net Position at End of Year $2,141,390 $2,389,376 $2,614,356 $2,818,295 $2,667,348 Fiscal Year 2015 SUMMARY OF FINANCIAL RESULTS, FISCAL YEARS 2013 THROUGH 2015 The following is a summary of the University s financial results for fiscal years 2013 through Financial Highlights The University s net position (not including University related organizations) decreased approximately $150.9 million from $2.82 billion in fiscal year 2014 to $2.67 billion in fiscal year The most significant changes were the increase in pension liability due to the implementation of GASB 68, Accounting and Reporting for pensions of $237.1 million and the increase in Bonds Payable of $258.8 million. The University expended approximately $218.9 million on plant operations and maintenance activities during fiscal year A-32

49 Summary of Assets and Liabilities At June 30, 2015, the University s total assets (not including University Related Organizations) were approximately $6.53 billion, an increase of approximately $326.9 million over the approximately $6.20 billion in assets recorded in fiscal year The University s largest asset continues to be its net investment in its physical plant of $4.33 billion at June 30, 2015 ($4.06 billion in fiscal year 2014). Other significant assets include current and noncurrent investments and cash and securities held by the University Trustees. University liabilities (not including University Related Organizations) totaled approximately $3.99 billion at June 30, 2015, an increase of approximately $484.0 million compared to the approximately $3.51 billion in liabilities in fiscal year The University s current assets of approximately $ million in fiscal year 2015 were below the current liabilities of approximately $ million, as the current ratio was.81 dollars in assets to every one-dollar in liabilities. In fiscal year 2014, the current ratio was 0.88 (approximately $592.8 million in current assets and $674.3 million in current liabilities). The University s unrestricted and restricted expendable net assets totaled approximately $761.0 million, which represents approximately 27.4% of total operating expenditures of approximately $2.78 billion during fiscal year In fiscal year 2015, the University s unrestricted net assets (referred to as Expendable Fund Balance under the Former Financial Reporting Model) totaled approximately $591.4 million. Substantially all unrestricted net assets are designated to support academic, research, Auxiliary Enterprises or unrestricted funds functioning as endowments, or are committed to capital construction projects. Summary of Operating Revenues and Operating Expenditures The University s total operating revenues for fiscal year 2015 were approximately $2.11 billion. This represents an decrease of approximately $96.5 million over the approximately $2.21 billion in operating revenues in fiscal year The most significant sources of revenue for the University are tuition and fees, grants and contracts, auxiliary services and public service activities at the Worcester Medical School campus. Tuition and fees, grants and contracts, auxiliary services and all other operating revenue (which includes the above referenced public service activities) represent 36%, 24%, 17% and 22%, respectively, of total operating revenues. In fiscal year 2015, University operating expenditures, including depreciation and amortization of approximately $221.0 million, totaled approximately $2.78 billion. Of this total, approximately $1.38 billion or 50% was used to support the academic core activities of the University, including approximately $431.6 million in research. State Appropriations In fiscal year 2015, state appropriations represented approximately 22% of all operating and non-operating revenues. The level of state support is a key factor influencing the University s overall financial condition. Although the state appropriation is unrestricted revenue, nearly all of the state appropriation supports payroll and benefits for University employees. In fiscal year 2015, the net state appropriation increased approximately $50.6 million over fiscal year 2014 amounts, with the increase attributable to a higher level of State Appropriation and related fringe benefit support through the State s investment in the University s 50/50 initiative. A-33

50 Fiscal Year 2014 Financial Highlights The University s net position (not including University related organizations) increased approximately $203.9 million from $2.61 billion in fiscal year 2013 to $2.82 billion in fiscal year The major components of the increase are due to physical plan improvements and positive operating results due primarily to greater student fee revenues associated with increased enrollment, cost reductions and strong market performance for the University s investments. The University expended approximately $215 million on plant operations and maintenance activities during fiscal year Summary of Assets and Liabilities At June 30, 2014, the University s total assets (not including University Related Organizations) were approximately $6.20 billion, an increase of approximately $512.1 million over the approximately $5.69 billion in assets recorded in fiscal year The University s largest asset continues to be its net investment in its physical plant of $4.06 billion at June 30, 2014 ($3.71 billion in fiscal year 2013). Other significant assets include current and noncurrent investments and cash and securities held by the University Trustees. University liabilities (not including University Related Organizations) totaled approximately $3.50 billion at June 30, 2014, an increase of approximately $306.8 million compared to the approximately $3.19 billion in liabilities in fiscal year The University s current assets of approximately $592.8 million in fiscal year 2014 were below the current liabilities of approximately $674.3 million, as the current ratio was 0.88 dollars in assets to every one-dollar in liabilities. In fiscal year 2013, the current ratio was 0.75 (approximately $579.8 million in current assets and $772.9 million in current liabilities). The University s unrestricted and restricted expendable net assets totaled approximately $1.0 billion, which represents approximately 36% of total operating expenditures of approximately $2.81 billion during fiscal year In fiscal year 2014, the University s unrestricted net assets (referred to as Expendable Fund Balance under the Former Financial Reporting Model) totaled approximately $825.6 million. Substantially all unrestricted net assets are designated to support academic, research, Auxiliary Enterprises or unrestricted funds functioning as endowments, or are committed to capital construction projects. Summary of Operating Revenues and Operating Expenditures The University s total operating revenues for fiscal year 2014 were approximately $2.21 billion. This represents an increase of approximately $56.5 million over the approximately $2.15 billion in operating revenues in fiscal year The most significant sources of revenue for the University are tuition and fees, grants and contracts, auxiliary services and public service activities at the Worcester Medical School campus. Tuition and fees, grants and contracts, auxiliary services and all other operating revenue (which includes the above referenced public service activities) represent 33%, 23%, 16% and 28%, respectively, of total operating revenues. In fiscal year 2014, University operating expenditures, including depreciation and amortization of approximately $204.2 million, totaled approximately $2.81 billion. Of this total, approximately $1.37 billion or 49% was used to support the academic core activities of the University, including approximately $407.4 million in research. A-34

51 State Appropriations In fiscal year 2014, state appropriations represented approximately 20% of all operating and non-operating revenues. The level of state support is a key factor influencing the University s overall financial condition. Although the state appropriation is unrestricted revenue, nearly all of the state appropriation supports payroll and benefits for University employees. In fiscal year 2014, the net state appropriation increased approximately $51.31 million over fiscal year 2013 amounts, with the increase attributable to the adoption of the first year of the 50/50 initiative. Fiscal Year 2013 Financial Highlights The University s net position (not including University related organizations) increased approximately $242.5 million from $2.39 billion in fiscal year 2012 to $2.61 billion in fiscal year The major components of the increase in fiscal year 2013 relate to investments in infrastructure and positive operating margins due primarily to greater student fee revenues and cost reductions. The University expended approximately $203 million on plant operations and maintenance activities during fiscal year Summary of Assets and Liabilities At June 30, 2013, the University s total assets (not including University Related Organizations) were approximately $5.69 billion, an increase of approximately $455.0 million over the approximately $5.31 billion in assets recorded in fiscal year The University s largest asset continues to be its net investment in its physical plant of $3.71 billion at June 30, 2013 ($3.10 billion in fiscal year 2012). Other significant assets include current and noncurrent investments and cash and securities held by the University Trustees. University liabilities (not including University Related Organizations) totaled approximately $3.19 billion at June 30, 2013, an increase of approximately $268.7 million compared to the approximately $2.92 billion in liabilities in fiscal year The University s current assets of approximately $579.8 million were below the current liabilities of approximately $772.9 million, as the current ratio was 0.75 dollars in assets to every one-dollar in liabilities. In fiscal year 2012, the current ratio was 0.70 (approximately $617.1 million in current assets and $880.1 million in current liabilities). The University s unrestricted and restricted expendable net assets totaled approximately $914.1 million, which represents approximately 34% of total operating expenditures of approximately $2.66 billion during fiscal year In fiscal year 2013, the University s unrestricted net assets (referred to as Expendable Fund Balance under the Former Financial Reporting Model) totaled approximately $757.7 million. Substantially all unrestricted net assets are designated to support academic, research, Auxiliary Enterprises or unrestricted funds functioning as endowments, or are committed to capital construction projects. Summary of Operating Revenues and Operating Expenditures The University s total operating revenues for fiscal year 2013 were approximately $2.15 billion. This represents an increase of approximately $97.2 million over the approximately $2.06 billion in operating revenues in fiscal year The most significant sources of revenue for the University are tuition and fees, grants and contracts, auxiliary services and public service activities at the Worcester Medical School campus. Tuition and fees, A-35

52 grants and contracts, auxiliary services and all other operating revenue (which includes the above referenced public service activities) represent 33%, 24%, 15% and 28%, respectively, of total operating revenues. In fiscal year 2013, University operating expenditures, including depreciation and amortization of approximately $185.3 million, totaled approximately $2.66 billion. Of this total, approximately $1.32 billion or 50% was used to support the academic core activities of the University, including approximately $405.3 million in research. State Appropriations In fiscal year 2013, state appropriations represented approximately 19% of all operating and non-operating revenues. The level of state support is a key factor influencing the University s overall financial condition. Although the state appropriation is unrestricted revenue, nearly all of the state appropriation supports payroll and benefits for University employees. In fiscal year 2013, the net state appropriation increased approximately $1.92 million over fiscal year 2012 amounts, with the increase attributable to an increase in fringe benefit support allocated to University employees paid through the state appropriation. Endowment and Fundraising The combined University and Foundation endowment assets have decreased to approximately $739.6 million at June 30, 2015, from approximately $743.7 million at June 30, The University raised approximately $129.5 million in cash, pledges, gifts-in-kind and private research grants in fiscal year The number of endowed chairs has grown from four in 1995 to approximately 86 in 2015, enhancing the University s academic reputation. The total investment return for fiscal year 2015, including realized and unrealized activity was a net loss of approximately $5.5 million. The endowment funds for all five of the University s campuses are commingled into a pooled investment fund and are tracked by the Foundation using unit value accounting. The Foundation employs a market value unit method of accounting, whereby participating endowment funds enter and withdraw from the pooled investment fund based on monthly unit values. Changes in market value and monthly income are allocated proportionately to each endowment fund participant. The actual spending rate for Foundation endowment funds was 4% for fiscal year 2015, which represents approximately 1% of the University s total operating and non-operating revenues. The following details the University and Foundation endowment assets at June 30 (in thousands): University and Foundation Endowment Assets* $518,334 $554,538 $652,033 $743,710 $739,606 *The above presentation of total University and Foundation Endowment Assets has been changed to no longer include current funds. +The Kennedy Institute quasi-endowment has been removed from the University and Foundation Endowment Assets presented here. The Kennedy Institute invested approximately $10 million in the Foundation s pooled Endowment in December 2009 and $15 million in July The Kennedy Institute quasi-endowment is recorded by the Foundation on an agency basis. CURRENT AND FUTURE CAPITAL PLANS The University Trustees have reviewed and approved a five-year approximately $3.32 billion capital plan for fiscal years , including projects already in process with prior approval of the University Trustees as well as new projects recommended by the University Trustees Committee on Administration & Finance. The University generally has funded its capital plans through a combination of funds received from University operations, bonds issued by UMBA, bonds issued by the Massachusetts Health and Educational Facilities Authority A-36

53 ( MHEFA ) (which was merged into The Issuer in October, 2010), Commonwealth appropriations and private fund raising. The following table summarizes the source of funding for the fiscal year capital plan: Estimated Funds To be Spent FY2015-FY2019 Source of Funds University of Massachusetts Five Year Capital Plan FY2015- FY2019 * Amherst Boston Dartmouth Lowell Worcester Total University Local $44,750,000 3% $23,640,000 2% $16,110,681 7% $83,000,000 12% $36,840,000 21% $204,340,681 6% Funds University External Funds $31,900,000 2% $10,000,000 1% $6,514,005 3% $25,800,000 4% $0 0% $74,214,005 2% University Borrowing $742,200,000 58% $489,885,000 51% $94,279,826 42% $371,500,000 56% $82,150,000 47% $1,780,014,826 54% State Approved Capital Support $349,900,000 27% $214,425,000 22% $33,460,000 15% $81,800,000 12% $10,000,000 6% $689,585,000 21% Public-Private Partnership $0 0% $103,500,000 11% $0 0% $0 0% $0 0% $103,500,000 3% Contingent on $117,550,000 9% $126,425,000 13% $74,790,000 33% $106,000,000 16% $44,350,000 26% $469,115,000 14% Funding FY15-19 Programmed Spending $1,286,300,000 $967,875,000 $225,154,512 $668,100,000 $173,340,000 $3,320,769,512 * Source: University of Massachusetts Fiscal Year 2015 to 2019 Five-Year Capital Plan Update dated December The University must follow certain procedures for state capital spending as defined by the Commonwealth s Executive Office for Administration and Finance ( EOAF ). Such spending may be financed through the issuance of Commonwealth general or special obligation bonds or other designated revenue, including transfers from budgeted funds. The Commonwealth s Division of Capital Asset Management and Maintenance ( DCAMM ) manages a five-year capital-spending plan, which is approved by the Commonwealth s Secretary of Administration and Finance. The University works closely with DCAMM to ensure that the priorities of the University are included in the five-year capital plan for state funding. The University Trustees, the administration and campus leadership, have identified capital issues as instrumental to the University s goal of continuing to improve educational quality at all five campuses by enhancing academic achievement and student experience. Following a period of limited investment in the University s capital assets in the 1980s and 1990s, the University has invested more than $3.6 billion in capital projects between fiscal years 2005 and Given the average age of the University s campus buildings, a significant need to maintain and upgrade capital assets is expected over the next decade. The University s administration works closely with each of the campuses in developing the capital plan to reflect the needs and goals of each of the campuses. To further improve project planning and implementation across the University, the University administration and UMBA have collaborated with campus leadership to design an integrated project assessment and tracking process. Furthermore, within budgetary limitations and programmatic requirements, the University is making a concerted effort to incorporate the principles of energy efficiency and sustainability in all its capital projects. In August 2008, the Legislature passed the Higher Education Improvement Act, which authorized $2.2 billion for capital improvement spending over ten years for higher education facilities in the Commonwealth, including more than $1 billion of funding for University projects exclusively. This authorization was amended by Chapter 237 of the Acts of 2014 which added an additional $100 million to the bottom line to fund deferred maintenance needs at the University. Of the total $1.1 billion, $523 million has been spent through January 2016 and all of the funding has been programmed for specific projects. In 2008, the Legislature also enacted the Life Sciences Industry Investment Act, which authorized $500 million of capital funding over ten years to fund capital investments and infrastructure improvements throughout the State to support the Life Sciences Industry. Of the total, $276.7 million has been earmarked for the University, $148 million has been spent to date, and all of the funding has been programmed for specific projects. A-37

54 The Higher Education Improvement Act and the Life Sciences Industry Investment Act are statutory authorizations necessary to allow the Commonwealth to spend state general obligation bond proceeds on University projects. EOAF and DCAMM are the state agencies that develop the state s capital plan, file bond bills, approve projects that will receive state funding and allocate funds to approved projects. DCAMM is responsible for designing and constructing public facilities and improvements. Accordingly, DCAMM has recognized the importance and scale of the authorized higher education investment program and has reorganized itself in anticipation of increased activity at the Commonwealth s public colleges and the University. On June 19th, 2015, Governor Baker released the FY16-20 Capital Plan. The plan included a number of priority projects for the University that are currently underway and the plan confirmed that future year support will be available for the projects. These projects include the SMAST/DMF expansion at UMass Dartmouth, the Physical Sciences Building and the Integrative Learning Center at UMass Amherst, the Pulichino/Tong Business Building at UMass Lowell, and the Utility Corridor and Roadway Relocation project at UMass Boston. However, there were several other University priority projects that were not included in the Administration s plan for which much preparation has gone into. These projects include repair and renovation of the Lederle Graduate research Center, Machmer Hall, and the Morrill Science Center at UMass Amherst, repair and renovation at Perry, Olsen, and Coburn Halls at UMass Lowell, and New Academic Buildings at UMass Boston and UMass Dartmouth. The University is now trying to determine if the State will once again support these projects or if the University will need to find an alternative funding source in order to bring these projects to completion. In addition to the release of the FY16-20 Capital Plan, the Baker Administration has also launched a multiphased strategic planning effort with multiple work groups including Economic Development, Workforce Development, and Higher Education. The Higher Education work group, of which President Meehan is a member, will focus first on Capital Planning and develop a work plan with the help of an outside consultant. This group will help inform the Administration s capital budget process by creating a plan that will help in allocating resources wisely and align goals and initiatives across all of higher education to maximize the use of resources and establish coherence. Existing data regarding the current condition of campuses and buildings will provide the basis of information from which the group and outside consultant will work, and President Meehan has indicated that deferred maintenance should be a priority of this planning effort. Beginning in the late 1990s, the University enhanced its program to address deferred maintenance needs at its campuses. As a result, the University has made investments to repair and renovate facilities at its campuses from a combination of University sources, including bonds issued by UMBA, MDFA and direct Commonwealth support. Addressing deferred maintenance remains a priority within the University s capital plan. In 2015, the University hired Sightlines to conduct a Building Portfolio Solutions analysis in order to ensure that deferred maintenance was being consistently reported across all campuses and to develop a strategy for addressing deferred maintenance at the University. This analysis, now complete, will be the basis for recommending projects as part of the University capital planning process outlined in the University Trustee policy. The projects within the capital plan are also organized by program type in order to demonstrate the manner in which requested projects in the capital plan support the University s mission: Basic Infrastructure Projects projects that will benefit the entire campus and are critical to all operations, including steam-lines, power plants, roadways, general public safety improvements such as fire alarm systems and hazardous waste removal systems and administrative computing. Research projects such as new research building construction, renovations and improvements to existing research facilities and large acquisitions of lab equipment. Student Life projects such as improvements and renovations to, or the construction of, student centers, dining halls, recreation facilities, dormitories or other facilities that improve the student experience. Teaching & Learning projects such as improvements to, or the construction of, classroom facilities, auditoria, studios, library facilities and instructional equipment. A-38

55 The following chart summarizes the five-year capital plan by these program types: FY2015 to 2019 Capital Plan Spending by Program Type * Total Planned Spending Percentage of Total Planned Spending Basic Infrastructure $641,349,012 19% Research 940,155, Student Life & Residential 793,800, Teaching & Learning 945,465, Total $3,320,769, % * Source: University of Massachusetts Fiscal Year 2015 to 2019 Five-Year Capital Plan Update dated December Set forth below is a more detailed description of the projects comprising the capital plan, organized by campus location: Amherst Campus. The Amherst Campus is the University s flagship institution and its capital plan is structured with priorities that support the strategic challenges and campus goals of improving teaching, increasing research, enhancing student life and recruiting and retaining quality students and faculty. The Amherst Campus has completed or is nearing completion of several major new projects that provide new facilities to support its teaching and research mission. Near term priorities include reduction of deferred maintenance projects, new construction projects, renovation and modernization projects, and an on-going strategy of infrastructure improvements with the goal of increasing energy performance and sustainability. Construction of the new Life Science Laboratories, the new Commonwealth Honors Residential College and the new Academic Classroom Building, which will provide new academic space for the Communications/Journalism and Linguistics programs are complete. Construction of improvements to the McGuirk Alumni Stadium and construction of a new Champions Center for men s and women s basketball are also complete. The aggregate amount of planned investments in capital projects for the Amherst Campus in the University s capital plan is $1.3 billion. Boston Campus. In order to meet the increased enrollment at the Boston Campus, its capital plan includes construction of new academic buildings, a new residential building, and changes to the campus s utilities and other infrastructure. The construction of the first new academic buildings since the campus opened in 1974 is complete with construction of the Integrated Sciences Complex and the new General Academic Building known as University Hall. Other ongoing projects include the design for a new utility infrastructure, roadway and surface improvements plan. Stabilization of the campus substructure and related deferred maintenance projects are also underway and are critical to addressing long-standing issues with the quality of construction of the original campus. Eventually, the relocation of the utilities will allow for the demolition of the substructure and the creation of a central quadrangle for students and faculty. The aggregate amount of planned investments in capital projects for the Boston Campus in the University s capital plan is $967.9 million. Dartmouth Campus. The Dartmouth Campus capital plan includes an investment in infrastructure and addressing deferred maintenance, pursuing an ongoing commitment to become a clean energy campus by investing in alternative energy projects (wind and solar) and in upgrading the performance and efficiency of mechanical, electrical and plumbing systems on campus. New academic buildings are focused on research in an innovation triangle including renovations to existing research and teaching laboratories on the Dartmouth Campus, purchase of the Advanced Technology and Manufacturing Center in Fall River and renovation and construction of a new marine science and technology center in New Bedford. Improvements to student and residential life include a renovation and expansion of the athletic center and investment in existing residence halls. The aggregate amount of planned investments in capital projects for the Dartmouth Campus in the University s capital plan is $225.2 million. Lowell Campus. The Lowell Campus capital plan has as its goals addressing deferred maintenance, energy performance and sustainability, the creation of additional modern academic and research space, increasing residential capacity and recreational opportunities, and increasing the ability of the campus to host academic, entertainment and civic events. On the North campus, academic building improvements include renovations of existing buildings and construction of the new Pulichino Tong School of Business building. The A-39

56 recently completed University Crossing includes a student bookstore, dining facility, student activities and services, admissions, registrar and financial aid offices and similar services and facilities. The South campus master plan academically reorganizes the existing buildings and provides for new buildings to address programmatic space needs, as well as addressing deferred maintenance. Parking garages are being built on both the North and South campuses. The aggregate amount of planned investments in capital projects for the Lowell Campus in the University s capital plan is $668.1 million. Worcester Campus. The Worcester Campus capital plan emphasizes the Medical School s evolving needs and the commitment to maintaining its operational efficiency now and into the foreseeable future. The projects with the highest priority include infrastructure additions or improvements, research related and support items, projects which support teaching and learning functions, and projects to support student life functions. These important projects directly support current campus needs and specifically address repurposing space in the Medical School and Lazare Research Buildings vacated by moves to the Sherman Center (backfill projects), deferred maintenance, infrastructure investments, and improvement priorities in the Medical School Building and campus energy grid. The aggregate amount of planned investments in capital projects for the Worcester Campus in the University s capital plan is $173.3 million. INDEBTEDNESS OF THE UNIVERSITY The University is obligated, under various contractual arrangements, to make payments on indebtedness issued on its behalf, including indebtedness issued by UMBA and MDFA, as described below. Bonds Issued by UMBA UMBA was created as a body politic and corporate and a public instrumentality of the Commonwealth for the general purpose of aiding and contributing to the performance of the educational and other purposes of the University by providing dormitories, dining commons and other buildings and structures for the use of the University, its students, staff and their dependents and for lease to certain other entities related to the University, all in accordance with UMBA s enabling legislation. As of June 30, 2015, UMBA had outstanding bonds of approximately $2.790 billion for which the University is contractually obligated to provide for the payment of debt service or act as UMBA s agent to collect rates, rents, fees and other charges. As of June 30, 2015, approximately $2.767 billion principal amount of UMBA s bonds are secured by and payable from, in addition to other moneys, all available funds of the University, including trust funds and other funds administered by the University as gifts, grants or trusts, or as provided in the University enabling act. Further, the University is obligated to UMBA to cause to be available in its Unrestricted Net Assets at all times amounts sufficient to pay such costs. Interest Rate Swap Agreements UMBA has entered into three separate interest rate swap agreements (the Swaps ) under which UMBA pays a fixed rate and receives a floating rate. The Swaps hedge four series of outstanding variable rate bonds of UMBA, the Project Revenue Bonds, Senior Series (the Series Bonds ), Facilities Revenue Bonds, Senior Series 2008-A (the Series 2008-A Bonds ), Project Revenue Bonds, Senior Series (the Series Bonds ) and Project Revenue Bonds, Senior Series (the Series Bonds and collectively with the Series Bonds, the Series 2011 Bonds ). The Swap for the Series Bonds is with UBS AG, and UMBA pays an amount equal to 3.388% per annum of the notional amount and receives the floating rate based on 70% of one-month LIBOR. The Swap for the Series 2008-A Bonds is with Deutsche Bank AG and UMBA pays an amount equal to 3.378% per annum of the notional amount and receives a floating rate based on 70% of one-month LIBOR. The Swap for the Series 2011 Bonds is with Citibank, N.A. and UMBA pays an amount equal to 3.482% per annum of the notional amount and receives the floating rate based on 60% of one-month LIBOR plus 0.18%. The Swaps are subject to periodic mark-to-market valuations and may have a negative impact on the financial statements of UMBA and the University. In addition, the counterparty to each Swap may be able to terminate its respective Swap upon certain events of default under such Swap, in which case UMBA could be A-40

57 required to make a material termination payment to the counterparty, which payment is a contractual obligation of the University to UMBA. In addition, UMBA and the University may be exposed to basis risk (imperfect correlation between the floating rates paid on the applicable bonds and received under the related swap). With respect to the Swap for the Series 2011 Bonds, UMBA and the University would be required to post collateral in certain market situations if the ratings on the Series 2011 Bonds fell to A2 or below by Moody s or A or below by S&P. Letters of Credit and Liquidity Facilities The Series 2008-A Bonds, the Series Bonds and the Series Bonds are variable rate demand obligations subject to put by the holders thereof and are supported by standby bond purchase agreements. The facilities supporting the 2008-A and bonds are set to expire on April 15, 2016 and April 22, UMBA is currently in the process of extending or substituting them. The facility supporting the Series Bonds expires on June 9, Commercial Paper In August 2013, UMBA established its commercial paper program, consisting of its $125 million Commercial Paper Notes, Series 2013 A (the Series 2013A Notes ), supported by an irrevocable letter of credit provided by State Street Bank and Trust Company, which expires on August 12, 2016, and its $75 million Commercial Paper Notes, Series 2013 B (the Series 2013B Notes ) secured by a standby liquidity facility provided by U.S. Bank National Association, which expires on August 12, UMBA may issue notes under either series on a taxable or tax-exempt basis to further UMBA s and the University s efforts to establish a just in time borrowing program to fund the University s capital plan as needed during construction periods. Such notes are secured under the Trust Agreement dated as of November 1, 2000, between UMBA and U.S. Bank National Association, Boston, Massachusetts, as successor trustee, and a contract with the University and are repayable from the proceeds of rollover commercial paper notes, funds advanced under the liquidity facilities, bonds to be issued by UMBA in the future or available funds of the University. UMBA currently does not have any commercial paper outstanding. Bonds Issued by the Massachusetts Development Finance Agency As of June 30, 2015, the MDFA has outstanding bonds of approximately $ million, for which the University is contractually obligated to pay debt service. Annual Debt Service on UMBA and MDFA Bonds The table on the following page sets forth the principal and interest due on bonds issued by UMBA and the MDFA on behalf of the University as of June 30, 2015, on a fiscal year basis. [Remainder of page intentionally left blank] A-41

58 Annual Debt Service on UMBA and MDFA Bonds Fiscal Year Ending June 30 Outstanding UMBA Bonds (1) Outstanding MDFA Bonds Total (1)(2) ,711,948 13,946, ,658, ,780,187 14,144, ,924, ,726,494 10,703, ,430, ,552,926 10,716, ,269, ,355,438 11,106, ,462, ,951,675 11,132, ,084, ,174,294 11,074, ,248, ,352,148 11,056, ,409, ,887,838 11,049, ,937, ,180,648 11,318, ,499, ,270,987 11,523, ,794, ,907,863 11,180, ,088, ,575,971 11,161, ,737, ,871,454 11,159, ,030, ,396,304 11,149, ,546, ,663,252 30,793, ,456, ,076,349 10,418, ,495, ,331,261 1,988, ,319, ,333,794 1,985, ,318, ,047,408 1,983, ,031, ,431, ,431, ,494, ,494, ,616, ,616, ,991, ,991, ,760, ,760, ,285, ,285, ,413,908 84,413, ,415,423 84,415, ,390,276 81,390, ,247,741 56,247, ,884,100 21,884,100 (1) Assumes the fixed rate payable under the Swaps with respect to UMBA s outstanding variable rate bonds and excludes the subsidy amount expected to be received in connection with UMBA s outstanding Build America Bonds issued under ARRA. See Bonds Issued by UMBA Interest Rate Swap Agreements herein for a description of the Swaps. (2) Totals may not add due to rounding. A-42

59 Unrestricted Net Assets * (Referred to as Expendable Fund Balance Under the Former Financial Reporting Model) As of June 30, 2015, the outstanding principal amount of UMBA and MDFA debt secured by the University s unrestricted net assets was approximately $2.9 billion. The chart below details the University s unrestricted net assets (not including University Related Organizations) in fiscal years Fiscal Year Unrestricted Net Assets $655,481,000 $707,091,000 $757,655,000 $825,611,000 $591,438,000 * Derived from the Annual Audited Financial Report for Fiscal Years The University s financial statements include prior year comparative information. Certain prior year amounts have been reclassified to conform with the current year presentation. These reclassifications have no effect on total net assets. + Adoption of GASB 68 for year ended 6/30/15 Additional Indebtedness Under the terms of the trust agreements and financing agreements securing the above-referenced indebtedness issued by UMBA, the University may, without limit, issue additional indebtedness or request UMBA or MDFA to issue additional indebtedness on behalf of the University so long as such indebtedness is payable from all funds of the University permitted by law to be applied thereto. With certain exceptions described below, the University may not pledge, or permit to exist any lien on, any of its funds or revenues. The University may request UMBA to issue additional indebtedness on behalf of the University that is not payable from all funds of the University permitted by law to be applied thereto, provided: (i) the additional indebtedness is secured by (a) pledged revenues derived from the project or projects being financed, (b) new or increased student fees whether imposed by the University or UMBA, (c) existing pledged revenues, or (d) any combination of the foregoing; and (ii) the maximum annual debt service on all revenue indebtedness then outstanding, including the proposed additional indebtedness, does not exceed 10% of the amount shown in the then most recent audited financial statements of the University as total available revenues. Indebtedness of the University may not be subject to acceleration. Capitalized Leases At June 30, 2015, the University had no capital lease obligations. INSURANCE The University, as an agency of the Commonwealth, is self-insured for property loss exposure, subject to appropriation from the Legislature. However, properties owned by UMBA located on a campus of the University, such as the Mullins Center, dining commons and most dormitories, are insured by UMBA. In addition, certain properties owned by other University Related Organizations and leased to the University are insured by the related organization. The University s liability for damages to third parties as a result of negligence by University employees is limited under Chapter 258 of the General Laws. The University maintains certain liability insurance policies, including Commercial General Liability, leased Automotive Liability, Directors and Officers and Comprehensive Crime policies. Employees of the University are covered for Worker s Compensation protection under Chapter 152 of the General Laws. TECHNOLOGICAL INITIATIVES The University campuses and the President s Office have undertaken a variety of planning and organizing activities designed to establish project structures, roles and responsibilities and collaborative plans and processes for technology improvements at the University. The University has implemented system-wide human resources/payroll, financial, e-procurement and grants management systems, which it will continue to update. These systems are expected to continue to enhance business functions by further consolidating processing, streamlining operations and increasing utilization through new features and self-service offerings. A major focus in fiscal years will be application upgrades to leverage contemporary functionality. A-43

60 In 2015, the University completed the implementation of UMassnet, the next generation wide area network spanning and connecting all UMass campuses across the state. This network is a carrier class optical network spanning over 500 fiber span miles with 10gb/100gb bandwidth. This transformational project is enabling technologies at the University such as Virtual Desktop Infrastructure (VDI), video, lecture capture, unified communications, high performance computing, and campus data center optimization. The University is a participant in a consortium of academic institutions and government and business leaders in the construction and operation of an approximately $95 million Massachusetts Green High Performance Computing Center in Holyoke, Massachusetts. The cutting-edge, research-oriented facility relies on hydroelectric power and is intended to encourage economic development in the region and serve as a vehicle for collaboration between key participants while establishing Massachusetts as a global leader in the application and development of next generation computing technologies. In addition to the University, academic partners include the Massachusetts Institute of Technology, Boston University, Harvard University, and Northeastern University, and key business participants include Cisco Systems and EMC Corporation. This facility was fully commissioned in February Over the past year, UMassOnline has engaged in several technology initiatives that resulted in immediate and long-term positive implications to the University s internal and external constituents. Beginning in the summer of 2015, UMassOnline began working towards a partnership with Blackboard's Managed Hosting services to support the Blackboard Learning Management System. For all of 2015, all UMass courses were hosted locally via UITS (University Information Technology Services) in a shared environment. This meant that all changes, no matter how large or how small, had to be in agreement amongst the campuses. This often resulted in scheduling issues, and falling behind in updates and critical patches. With the move to Blackboard Managed Hosting, all campuses are now separated out into individual systems that allows for each campus to determine their own pace of development, the method for which courses are delivered, the privileges granted, and many other value additions that were not possible on our former self hosted system at UITS. This move will allow for additional growth and capacity at a fraction of the cost that had hindered the campuses from moving ahead previously. Some of the new features and functions that were included in the move to Blackboard Managed Hosting are the new Blackboard Collaborate Ultra Experience, Blackboard Instant Messenger and Blackboard Mobile. These items were previously purchased as add-ons to the self hosted LMS, but were now included in the pricing of the Managed Hosting LMS at a significant discount. UMassOnline has continued its relationship with the Donahue Institute to provide Learning Management System services to several programs, including the RETELL program, National Collegiate Inventors and Innovators Association (NCIIA), Massachusetts Department of Developmental Services, UMDI Civic Initiative and the Springfield Urban League. LITIGATION The University is a defendant in various lawsuits; however, University management is of the opinion that the ultimate outcome of any such litigation will not have any material effect on the financial position or financial results of the University. EMPLOYEE RELATIONS The University employs 17,393 full and part-time faculty, professional and clerical and maintenance support staff, of which 10,348 (as of 10/1/2015) are covered by collective bargaining units (not including postdoctoral employees, graduate employees and undergraduate resident assistants). Of those covered, 3,741 are faculty, 2,804 are professional staff, 3,620 are clerical and maintenance support staff and 183 are police officers. In total, the University currently has approximately 41 collective bargaining units (including two post-doctoral employee units, three graduate employee units and one undergraduate resident assistants unit). The majority of the University s collective bargaining agreements will expire on June 30, Employees covered by University collective bargaining units cannot strike under Massachusetts law. In general, University employees are covered by a contributory Massachusetts retirement system set up by Chapter 32 of the General Laws, the State Employees Retirement System ( SERS or State Retirement Plan ). The State Retirement Plan is a defined benefit plan that provides retirement benefits based upon age at retirement, years and months of service and the average of the highest three consecutive years of base salary. As an alternative A-44

61 to SERS, eligible employees have the option of participating in the Commonwealth s Optional Retirement Program (the ORP ). The ORP is a defined contribution plan, administered by the DHE. Eligibility for participation in the ORP was expanded by Chapter 68, Section 44 of the Acts of Employees can also participate in various optional supplemental retirement programs, such as the University of Massachusetts 403(b) Elective Deferral Savings Plan and the Commonwealth s 457(b) Deferred Compensation Plan. Employees generally are eligible to participate in various fringe benefit plans such as the dependent care assistance program and the health, dental, life and disability insurance plans. The majority of these benefits are sponsored by the Commonwealth. However, the University does sponsor a smaller subset of benefits for employees of the Worcester Campus, including dental and vision plans as well as life and long-term disability plans. UNIVERSITY OF MASSACHUSETTS By: /s/ Christine M. Wilda Christine M. Wilda Senior Vice President for Administration & Finance and Treasurer A-45

62 [THIS PAGE INTENTIONALLY LEFT BLANK]

63 APPENDIX B 2015 Annual Financial Report The University of Massachusetts Amherst Boston Dartmouth Lowell Worcester UMassOnline

64 University Administration As of December 2015 Board of Trustees: Victor Woolridge (Chair), Springfield, MA Maria D. Furman (Vice Chair), Wellesley, MA James Buonomo, Shrewsbury, MA Richard P. Campbell, J.D., Cohasset, MA Lawrence M. Carpman, Marshfield, MA Edward W. Collins, Jr., Springfield, MA Robert Epstein, Norton, MA David G. Fubini, Brookline, MA Philip W. Johnston, Marshfield, MA Alyce J. Lee, Milton, MA Robert J. Manning, Boston, MA Jeffrey B. Mullan, J.D., Milton, MA Kerri Osterhaus-Houle, M.D., Hudson, MA R. Norman Peters, J.D., Paxton, MA James A Peyser, Secretary of Education, Commonwealth of MA, Boston MA Henry M. Thomas III, J.D., Springfield, MA Margaret D. Xifaras, J.D., Marion, MA Nolan O'Brien (UMass Boston Student Trustee), Munson, MA (Voting Student) Jacob D. Miller (UMass Dartmouth Student Trustee), Fairhaven, MA (Non-Voting Student) Emily O'Neil (UMass Amherst Student Trustee), Amherst, MA (Voting Student) Amanda Robinson, UMass Lowell Student Trustee), Hingham, MA (Non-Voting Student) Yevin ROH (UMass Worcester Student Trustee), Worcester, MA (Non-Voting Student) Officers of the University: Martin T. Meehan J.D., President Kumble R. Subbaswamy, Ph.D., Chancellor, UMass Amherst J. Keith Motley, Ph.D., Chancellor, UMass Boston Divina Grossman, Ph.D., Chancellor, UMass Dartmouth Jacqueline Maloney, Chancellor, UMass Lowell Michael F. Collins, M.D., Chancellor, UMass Worcester and Senior Vice President for Health Sciences James R. Julian, J.D., Executive Vice President Christine M. Wilda, Senior Vice President for Administration and Finance & Treasurer Marcellette G. Williams, Ph.D., Senior Vice President for Academic Affairs and International Relations Zunilka Barrett, Secretary to the Board of Trustees

65 University of Massachusetts AMHERST BOSTON DARTMOUTH LOWELL WORCESTER UMASSONLINE Office of the President December 9, 2015 To the Board of Trustees and President Martin T. Meehan J.D. We are pleased to submit the annual Financial Report of the University of Massachusetts for the year ended June 30, The enclosed financial statements incorporate all financial activity of the University and its five campuses. This statement has been audited by an independent auditing firm and is fully represented in the financial report of the Commonwealth of Massachusetts. Detailed information about each campus is provided as supplemental information. The financial information presented in the Financial Report is designed to aid a wide variety of readers to assess the effectiveness of the University s management of its resources in meeting its primary mission of instruction, research, and public service. This report is intended to form a comprehensive and permanent record of the finances of the University of Massachusetts, and it is submitted as the public accounting of the University s financial affairs for the fiscal year ended June 30, 2015 including comparative information as of June 30, The University s net assets decreased $150.9 million from $2.82 billion in fiscal year 2014 to $2.67 billion in fiscal year This decrease is primarily attributed to the recording of pension liability related to the implementation of GASB 68, Accounting and Reporting for Pensions. Each year, the Board of Trustees reviews a five-year projection for key financial indicators that are likely to determine the success of the University over the long term. The development of this projection is currently underway at each of the campuses. For the key indicators of operating margin, primary reserve, and debt service to operations, for FY2015, the University was on target with meeting initial projections with the exception of the impact of GASB 68 on the primary reserve ratio. Overall, the University continues to make strategic investments that support the achievement of its long-term financial objectives of growth and stability. Respectfully submitted, Christine M. Wilda Senior Vice President for Administration and Finance & Treasurer Sarah B. Mongeau University Controller 225 Franklin Street 12 th Floor Boston, MA P: (617) F: (617)

66 University of Massachusetts 2015 Annual Financial Report Table of Contents Page Report of Independent Certified Public Accountants 1 Management's Discussion and Analysis Consolidated Statements of Net Position as of June 30, 2015 and Consolidated Statements of Revenues, Expenses, and Changes in Net Position for the Years Ended June 30, 2015 and Consolidated Statements of Cash Flows for the Years Ended June 30, 2015 and 2014 Notes to Consolidated Financial Statements 1 1 Required Supplementary Information 41 Supplemental Financial Information 4

67 Grant Thornton LLP 75 State Street, 13th Floor Boston, MA T F linkd.in/grantthorntonus twitter.com/grantthorntonus REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Trustees of the University of Massachusetts Report on the financial statements We have audited the accompanying financial statements of the business-type activities and the aggregate discretely presented component units of the University of Massachusetts (the University ), an enterprise fund of the Commonwealth of Massachusetts, as of and for the years ended June 30, 2015 and 2014, and the related notes to the financial statements, which collectively comprise the University s basic financial statements as listed in the table of contents. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the University s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd 1

68 Opinion In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities and the aggregate discretely presented component units of the University of Massachusetts as of June 30, 2015 and 2014, and the respective changes in financial position and cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of matter As discussed in Note 1 to the financial statements, the University adopted new accounting guidance effective July 1, 2014 related to accounting and financial reporting for pensions. Our opinion is not modified with respect to this matter. Other matters Required supplementary information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis on pages 4 through 13 and the Schedule of the University s Proportionate Share of the Net Pension Liability and the Schedule of the University s Contributions for the Massachusetts State Employees Retirement System on page 41 be presented to supplement the basic financial statements. Such information, although not a required part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. This required supplementary information is the responsibility of management. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America. These limited procedures consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other reporting required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report, dated December 18, 2015, on our consideration of the University s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the University s internal control over financial reporting and compliance. Boston, Massachusetts December 18,

69 University of Massachusetts Management s Discussion and Analysis (unaudited) June 30, 2015 Introduction This unaudited section of the University of Massachusetts (the "University") Annual Financial Report presents our discussion and analysis of the financial position and performance of the University and its component units during the fiscal year ended June 30, 2015 with comparative information as of June 30, 2014 and June 30, This discussion and analysis has been prepared by management along with the accompanying financial statements and related footnote disclosures and should be read in conjunction with, and is qualified in its entirety by, the financial statements and footnotes. The accompanying financial statements, footnotes and this discussion are the responsibility of management. The University of Massachusetts is a state coeducational institution for higher education with separate campuses at Amherst, Boston, Dartmouth, Lowell and Worcester all located in the Commonwealth of Massachusetts (the Commonwealth ). The University was established in 1863 in Amherst, under the provisions of the 1862 Morrill Land Grant Acts, as the Massachusetts Agricultural College. It became known as the Massachusetts State College in 1932 and in 1947 became the University of Massachusetts. The Boston campus was opened in 1965 and the Worcester campus, Medical School, was opened in The Lowell and Dartmouth campuses (previously the University of Lowell and Southeastern Massachusetts University, respectively) were made a part of the University by a legislative act of the Commonwealth, effective September 1, The University s mission is to provide an affordable and accessible education of high quality and to conduct programs of research and public service that advance knowledge and improve the lives of the people of the Commonwealth, the nation and the world. In the fall of 2014, the University enrolled 62,301 full-time equivalent ( FTE ) students. The University is committed to providing, without discrimination, diverse program offerings to meet the needs of the whole of the state's population. The University's five campuses are geographically dispersed throughout Massachusetts and possess unique and complementary missions. Financial Highlights The University s combined net position decreased $150.9 million from $2.82 billion in fiscal year 2014 to $2.67 billion in fiscal year Net position at June 30, 2013 was $2.61 billion. From fiscal year 2014 to fiscal year 2015, total liabilities for the year increased by $484.0 million or 13.8% over fiscal year The most significant changes were the increase in pension liability due to the implementation of GASB 68, Accounting and Reporting for Pensions of $237.1 million and the increase in Bonds Payable of $258.8 million. From fiscal year 2014 to fiscal year 2015, Deferred Outflows of Resources and Deferred Inflows of Resources increased $54.8 million and $48.8 million, respectively. These increases were primarily due to the implementation of GASB 68. From fiscal year 2014 to fiscal year 2015, the University s operating revenue decreased by $96.5 million and operating expenditures decreased $27.6 million. These decreases are attributed to decreased Public Service Activities. From fiscal year 2013 to fiscal year 2014, the University s operating revenue increased by $56.5 million. From fiscal year 2014 to fiscal year 2015, the University s net non-operating revenues/(expenses) decreased $30.0 million. This decrease was primarily attributed to poor market performance of University investments offset by increased State Appropriations related to the Commonwealth s support of the University s 50/50 plan (see State Appropriations). Using the Annual Financial Report One of the most important questions asked about University finances is whether the University as a whole is better off or worse off as a result of the year s activities. The key to understanding this question lies within the Statement of Net Position, Statement of Revenues, Expenses and Changes in Position and the Statement of Cash Flows. These statements present financial information in a form similar to that used by private sector companies. The University s net position (the difference between assets and liabilities) is one indicator of the University s financial health. Over time, increases or decreases in net position is one indicator of the improvement or erosion of an institution s financial health when considered with non-financial facts such as enrollment levels, operating expenses, and the condition of the facilities. The Statement of Net Position includes all assets, liabilities, as well as deferred inflows and outflows of resources of the University. It is prepared under the accrual basis of accounting, whereby revenues and assets are recognized when the services are provided and expenses and liabilities are recognized when services are incurred, regardless of when cash is exchanged. Net Position is further broken down into three categories: invested in capital assets-net of related debt, restricted and unrestricted. Amounts reported in invested in capital assets-net of related debt represent the historical cost of property and equipment, reduced by the balance of related debt outstanding and depreciation expense charged over the years. Net Position is reported as restricted when constraints are imposed by third parties, such as donors or enabling legislation. Restricted net position is either nonexpendable, as in the case of endowment gifts to be held in perpetuity, or expendable, as in the case of funds to be spent on scholarships and research. All other assets are unrestricted; however, they may be committed for use under contract or designation by the Board of Trustees. The Statement of Revenues, Expenses and Changes in Net Position presents the revenues earned or received and expenses incurred during the year. Activities are reported as either operating or non-operating. Operating revenues and expenses include tuition and fees, grant and contract activity, auxiliary enterprises and activity for the general operations of the institution not including appropriations from state and federal sources. Non-operating revenues and expenses include appropriations, capital grants and contracts, endowment, gifts, investment income, and non-operating federal grants (Pell Grants). With a public University s dependency on support from the state, Pell grants, and gifts, it is common for institutions to have operating expenses 3

70 exceed operating revenues. That is because the prescribed financial reporting model classifies state appropriations, Pell grants, and gifts as non-operating revenues. The utilization of long-lived assets, referred to as capital assets, is reflected in the financial statements as depreciation expense, which amortizes the cost of a capital asset over its expected useful life. Another important factor to consider when evaluating financial viability is the University s ability to meet financial obligations as they mature. The statement of cash flows presents information related to cash inflows and outflows summarized by operating, capital and non-capital, financing and investing activities. The footnotes provide additional information that is essential to understanding the information provided in the external financial statements. Reporting Entity The financial statements report information about the University as a whole using accounting methods similar to those used by private-sector companies. The financial statements of the University are separated between University (including its blended component units) and its discretely presented Component Unit activities. The University's discretely presented Component Units (or Related Organizations) are the University of Massachusetts Foundation, Inc., and the University of Massachusetts Dartmouth Foundation, Inc. Condensed Financial Information University of Massachusetts Condensed Statement of Net Position As of June 30, 2015, 2014, and 2013 (in thousands of dollars) University University FY14-15 University June 30, 2015 June 30, 2014 Change June 30, 2013 ASSETS Current Assets $ 692,679 $ 592,750 $ 99,929 $ 579,824 Noncurrent Assets Investment in Plant Net of Accumulated Depreciation 4,333,761 4,064, ,975 3,705,517 All Other Noncurrent Assets 1,501,421 1,543,391 (41,970) 1,403,449 Total Assets 6,527,861 6,200, ,934 5,688,790 DEFERRED OUTFLOWS OF RESOURCES 178, ,567 54, ,286 LIABILITIES Current Liabilities 856, , , ,922 Noncurrent Liabilities 3,133,710 2,831, ,841 2,415,798 Total Liabilities 3,990,170 3,506, ,971 3,188,720 DEFERRED INFLOWS OF RESOURCES 48,753 48,753 NET POSITION Invested in Capital Assets Net of Related Debt 1,887,941 1,800,767 87,174 1,682,173 Restricted Nonexpendable 18,378 17, ,058 Expendable 169, ,530 (4,939) 156,469 Unrestricted 591, ,611 (234,173) 757,656 Total Net Position $ 2,667,348 $ 2,818,295 $ (150,947) $ 2,614,356 4

71 University of Massachusetts Condensed Statement of Net Position for Related Organizations As of June 30, 2015, 2014, and 2013 (in thousands of dollars) University University University Related Related Related Organizations Organizations FY14-15 Organizations June 30, 2015 June 30, 2014 Change June 30, 2013 ASSETS Current Assets $ 1,373 $ 1,678 $ (305) $ 3,830 Noncurrent Assets Investment in Plant Net of Accumulated Depreciation 8,293 8,478 (185) 8,619 All Other Noncurrent Assets 478, ,646 23, ,699 Total Assets 488, ,802 23, ,148 LIABILITIES Current Liabilities 31,421 15,525 15,896 14,604 Noncurrent Liabilities 3,505 3, ,332 Total Liabilities 34,926 19,008 15,918 17,936 NET POSITION Invested in Capital Assets Net of Related Debt 8,293 8,477 (184) 8,619 Restricted Nonexpendable 330, ,718 20, ,858 Expendable 90, ,195 (10,782) 74,706 Unrestricted 24,378 26,404 (2,026) 12,029 Total Net Position $ 453,385 $ 445,794 $ 7,591 $ 386,212 At June 30, 2015, total University net position was $2.67 billion, a decrease of $150.9 million over the $2.82 billion in net position for fiscal year The University's largest asset continues to be its net investment in its physical plant of $4.33 billion at June 30, 2015, $4.06 billion at June 30, 2014 and $3.71 billion in fiscal year University liabilities totaled $3.99 billion at June 30, 2015, an increase of $484.0 million over fiscal year Long-term liabilities represent 78.5% of the total liabilities which primarily consist of bonds payable amounting to $3.08 billion at June 30, The University s current assets as of June 30, 2015 of $ million were below the current liabilities of $ million, and as a result the current ratio was.81 dollars in assets to every one dollar in liabilities. Current assets of $592.8 million at June 30, 2014 were below the current liabilities of $674.3 million, resulting in a current ratio of The unrestricted and restricted expendable net position totaled $761.0 million in fiscal year 2015, which represents 27.4% of total operating expenditures of $2.78 billion for fiscal year The unrestricted and restricted expendable net position totaled $1.00 billion in fiscal year 2014, which represents 36% of total operating expenditures of $2.81 billion. The unrestricted and restricted expendable net position totaled $914.1 million in fiscal year 2013, which represents 34% of total operating expenditures of $2.66 billion. 5

72 University of Massachusetts Condensed Statement of Revenues, Expenses, and Changes in Net Position For the Year Ended June 30, 2015, 2014 and 2013 (in thousands of dollars) University University FY14-15 University June 30, 2015 June 30, 2014 Change June 30, 2013 Operating Revenues Tuition and Fees (net of scholarship allowances) $ 765,218 $ 740,116 $ 25,102 $ 707,495 Grants and Contracts 510, ,694 (953) 512,458 Auxiliary Enterprises 362, ,485 12, ,544 Other Operating Revenues 474, ,984 (133,352) 613,257 Total Operating Revenues 2,112,784 2,209,279 (96,495) 2,152,754 Operating Expenses 2,782,297 2,809,900 (27,603) 2,663,837 Operating Loss (669,513) (600,621) (68,892) (511,083) Nonoperating Revenues / (Expenses) Federal Appropriations 6,619 7,020 (401) 6,774 State Appropriations 621, ,618 50, ,311 Interest on Indebtedness (100,332) (89,496) (10,836) (91,364) Other Nonoperating Income 61, ,386 (71,580) 100,697 Nonoperating Federal Grants 76,539 74,279 2,260 70,586 Net Nonoperating Revenues 665, ,807 (29,975) 606,004 Income Before Other Revenues, Expenses, Gains and Losses (3,681) 95,186 (98,867) 94,921 Capital Appropriations, Grants and Other Sources 118, ,369 (15,964) 156,442 Disposal of Plant Facilities (12,120) (6,198) (5,922) (8,802) Other Additions / (Deductions) (14,645) (19,418) 4,773 2,939 Total Other Revenues, Expenses, Gains, and Losses 91, ,753 (17,113) 150,579 Total Increase in Net Position 87, ,939 (115,980) 245,500 Net Position Net Position at the Beginning of the Year 2,818,295 2,614, ,939 2,389,377 Cummulative effect of change in accounting principle * (238,906) (238,906) (20,521) Net Position at the Beginning of the Year, adjusted 2,579,389 2,579,389 2,368,856 Net Position at the End of the Year $ 2,667,348 $ 2,818,295 $ (150,947) $ 2,614,356 *Adoption of GASB 65 for the year ended 6/30/2013 and GASB 68 for the year ended 6/30/2015. See Footnote 13 Pensions for detailed discussion of the impact of GASB 68 Implementation. University of Massachusetts Condensed Statement of Revenues, Expenses, and Changes in Net Position for University Related Organizations For the Year Ended June 30, 2015, 2014 and 2013 (in thousands of dollars) University University University Related Related Related Organizations Organizations FY14-15 Organizations June 30, 2015 June 30, 2014 Change June 30, 2013 Operating Expenses $ 16,709 $ 11,443 $ 5,266 $ 12,852 Operating Loss (16,709) (11,443) 5,266 (12,852) Nonoperating Revenues / (Expenses) Other Nonoperating Income (18,811) 54,982 (73,793) 35,152 Net Nonoperating Revenues (18,811) 54,982 (73,793) 35,152 Income Before Other Revenues, Expenses, Gains and Losses (35,520) 43,539 (79,059) 22,300 Additions to Permanent Endowments 42,842 17,566 25,276 16,056 Other Additions 269 (1,523) 1,792 (9,979) Total Other Revenues, Expenses, Gains, and Losses 43,111 16,043 27,068 6,077 Total Increase in Net Position 7,591 59,582 (51,991) 28,377 Net Position Net Position at the Beginning of the Year 445, ,212 59, ,835 Net Position at the End of the Year $ 453,385 $ 445,794 $ 7,591 $ 386,212 6

73 Total operating revenues for fiscal year 2015 were $2.11 billion. This represents a $96.5 million decrease from the $2.21 billion in operating revenues in fiscal year The most significant sources of operating revenue for the University are tuition and fees, grants and contracts, auxiliary services and public service activities at the Worcester Medical School campus categorized in the chart above as Other Operating Revenues. While not classified on the financial statements as operating revenue, state appropriations serve as a primary source for funding the core mission of the University. State appropriation revenue, described in detail in a section below, is used almost exclusively to fund payroll for University employees. The chart above displays operating revenues by source for the University in fiscal years 2015, 2014 and In fiscal year 2015, operating expenditures, including depreciation and amortization of $221.0 million, totaled $2.78 billion. of this total, $1.38 billion or 50% was used to support the academic core activities of the University, including $431.6 million in research. In fiscal year 2014, operating expenditures, including depreciation and amortization of $204.2 million, totaled $2.81 billion. The chart below displays fiscal years 2015, 2014 and 2013 operating spend. Public Service Activities Other operating revenues includes Public Service Activities and consists largely of sales and services provided to third parties by the UMass Medical School campus through its Commonwealth Medicine ( CWM ) programs, which provide public consulting and services in health care financing, administration and policy to federal, state and local agencies and not-for-profit health and policy organizations. Included in this category of activities are CWM revenues of $310.2 million and $349.0 million for the years ended June 30, 2015 and 2014, respectively. Included in expenditures are CWM expenditures of $296.3 million and $318.2 million for the years ended June 30, 2015 and 2014, respectively. 7

74 In addition to CWM activities, Public Service Activities also includes payments received by the Medical School for educational services it provides to its clinical affiliate UMass Memorial Health Care, Inc. ( UMass Memorial ) as required by the enabling legislation enacted by the Commonwealth in Educational services revenues included in public service revenues were $43.8 million and $163.8 million for the years ended June 30, 2015 and 2014, respectively. Finally, Public Service Activity expenditures also include payments made to the Commonwealth of Massachusetts of $120 million for the year ended June 30, 2014, pursuant to requirements of legislation enacted by the State Legislature of Massachusetts. State Appropriations In fiscal year 2015, state appropriations represent approximately 22% of all operating and non-operating revenues. The level of state support is a key factor influencing the University s overall financial condition. Although the state appropriation is unrestricted revenue, nearly 100% of the state appropriation supports payroll and benefits for University employees. The net state appropriation for the University increased by $50.6 million from fiscal year 2014, with the increase attributable to a higher level of State Appropriation and related fringe benefit support through the State s investment in the University s 50/50 plan. This plan, phased in over FY14 and FY15, had the State providing additional state appropriations in order to bring State funding levels closer to historical amounts that will allow for the State to support 50% of the educational costs of an in state undergraduate while the student funds the remaining 50%. In return for this State investment, the University and the Board committed to freezing the in state undergraduate curriculum fee during this same time period. During the year ended June 30, 2015, the University reported approximately $31.1 million of tuition revenues remitted to the State Treasurer s Office for the general fund of the Commonwealth of Massachusetts. Through fiscal year 2016, the University is required to remit tuition revenue received to the Commonwealth. Therefore, the University collects student tuition on behalf of the Commonwealth and remits it to the Commonwealth s General Fund. The amount of tuition remitted to the Commonwealth was $34.3 million in fiscal year 2014 and $35.1 million in fiscal year There is no direct connection between the amount of tuition revenues collected by the University and the amount of state funds appropriated in any given year. In fiscal year 2004, a pilot program authorized by the Commonwealth enabled the Amherst campus to retain tuition for outof-state students. This pilot program was extended indefinitely for the Amherst Campus in fiscal year 2005 and starting in fiscal year 2012 all of the University s campuses were authorized to retain tuition from out-of-state students. The amount of tuition retained by the University during 2015, 2014 and 2013 was $82.0 million, $75.8 million and $74.5 million, respectively. Beginning in fiscal year 2017, the University has been granted the Legislative authority to retain all tuition. The following table details the Commonwealth operating appropriations received by the University for fiscal years ending June 30, 2015, 2014 and 2013: FY2015 FY2014 FY2013 Gross Commonwealth Appropriations $ 516,794 $ 486,656 $ 447,837 Plus: Fringe Benefits* 159, , , , , ,842 Less: Tuition Remitted (31,055) (34,325) (35,103) Less: Mandatory Waivers (23,942) (23,594) (23,428) Net Commonwealth Support $ 621,200 $ 570,618 $ 519,311 *The Commonwealth pays the fringe benefits for University employees paid from Commonwealth operating appropriations. Therefore, such fringe benefit support is added to the State Appropriations financial statement line item as presented in the above table. The University pays the Commonwealth for the fringe benefit cost of the employees paid from funding sources other than Commonwealth operating appropriations. Capital Appropriations from the Commonwealth The University faces a financial challenge to maintain and upgrade its capital assets including its infrastructure, buildings and grounds. In order to have a successful capital program, the University must rely on a combination of revenue sources to fund its investment. In fiscal year 2015, there was $62.58 million of capital support provided to the University through appropriations and grants from the Commonwealth. This funding is attributed to the Commonwealth s Division of Capital Asset Management ( DCAM ) which funded several large capital projects in fiscal year 2014 and 2015 through the State s Higher Education Bond Bill and Life Sciences Bond Bill, both passed in 2008 and have projects funded on each of the campuses. The completion of major construction projects managed by DCAM are underway at all five of the University s campuses and current bond support continues for key projects in the plan. 8

75 Grant and Contract Revenue Collectively, the University s Amherst Campus and Medical School in Worcester account for approximately 77% of University grant and contract activity. The Boston, Dartmouth, and Lowell campuses continue to have significant sponsored research activity. The following table details the University's grant and contract revenues (in thousands) for the fiscal years ended June 30, 2015, 2014 and 2013: FY2015 FY2014 FY2013 Federal Grants and Contracts $ 313,754 $ 322,047 $ 334,697 State Grants and Contracts 70,871 74,996 68,794 Local Grants and Contracts 1,717 2,223 2,253 Private Grants and Contracts 124, , ,714 Total Grants and Contracts $ 510,741 $ 511,694 $ 512,458 Discretely Presented Component Units University of Massachusetts Foundation, Inc. The combined University and Foundation endowment has increased to approximately $768.4 million at June 30, 2015 from $757.5 million at June 30, 2014 and from $664.7 million at June 30, The Foundation utilizes the pooled investment concept whereby all invested funds are in one investment pool, except for investments of certain funds that are otherwise restricted. Pooled investment funds will receive an annual distribution of 4% of the endowment fund s average market value for the preceding twelve quarters on a one year lag. Only quarters with funds on deposit shall be included in the average. In addition, a prudence rule will be utilized to limit spending from a particular endowment fund to no lower than 93% of its book value. The Foundation distributed $24.6 million (4%) and $17.7 million (4%) in fiscal year 2015 and 2014, respectively. The total investment loss of the Foundation for fiscal year 2015 was $5.7 million as compared to 2014, which, including realized and unrealized investment activity, was a net gain of approximately $112.2 million. This is consistent with investment return performance at other institutions. University of Massachusetts Dartmouth Foundation, Inc. Total marketable securities for the Dartmouth Foundation were $54.8 million at June 30, 2015 up from $53.5 million at June 30, 2014, which are held by the University of Massachusetts Foundation, Inc. The increase was primarily due to new gifts. The Dartmouth Foundation total investment return for fiscal year 2015, including realized and unrealized investment activity, was a net loss of $.5million as compared to a net gain of $4.9 million in Tuition and Fees Due to declining State Appropriations, the University s Board of Trustees voted to increase mandatory student charges by 7.5% for resident undergraduate students for the academic year and an additional 4.9% for the academic year. For academic years and , the Board of Trustees voted to freeze the mandatory curriculum fee for in state undergraduate students based on the increase to the State appropriation known as the 50/50 described above. Affordability will continue to be a priority of the University and increases in fees will be considered in conjunction with State support on an annual basis. Enrollment Admission to the University is open to residents of the Commonwealth and non-residents on a competitive basis. In the fall 2014 semester, Massachusetts residents accounted for approximately 82% and 53% of the University's total undergraduate and graduate enrollment, respectively. Total enrollment in the fall of 2014 was 62,301 FTE (72,789 headcount students). Enrollments at the University have shown significant increases over the last five years (55,740 FTE in fall 2009). The 12% enrollment growth is consistent with the University's efforts to increase its reach across the Commonwealth and to recruit non-resident students and is reflective of the quality education provided by the University of Massachusetts. Degrees Awarded The University awards four levels of degrees, as follows: associate, bachelors, masters and doctoral/professional degrees. A total of 17,174 degrees were awarded in the academic year reflecting a 4.4% increase from the previous year. Of these awards, 67% were at the undergraduate level and 26% were at the graduate level. The remaining were associates degrees and undergraduate certificates. Bonds Payable As of June 30, 2015, the University had outstanding bonds of approximately $3.1 billion representing $2.9 billion of University of Massachusetts Building Authority bonds (the "Building Authority Bonds"), $58.0 million of University of Massachusetts bonds financed through the Massachusetts Health and Educational Facilities Authority which has been merged into MassDevelopment (the "UMass HEFA Bonds"), and $100.3 million of bonds financed through the Worcester City Campus 9

76 Corporation (the WCCC Bonds ). Bonds payable is the University's largest liability at June 30, The Building Authority s active projects include residence hall construction and renovation, renovation of general education buildings, replacement of core infrastructure, and construction of academic, laboratory, and research facilities. The proceeds from the UMass HEFA Bonds were used to create a revolving loan program and to fund the construction of two new campus centers at the Boston and Lowell campuses (funded jointly with the Commonwealth). On July 3, 2014, the Building Authority issued $67,365,000 of Refunding Revenue Bonds, Senior Series (the Bonds ). The Bonds included a premium of $12.0 million. The Bonds are tax-exempt and mature at various dates through The interest on the bonds is payable semi-annually each November 1 st and May 1 st and the interest rates on the bonds range from 2.0% to 5.0%. The Bonds were issued to refinance a portion of the Massachusetts Health and Educational Facilities Authority s Revenue Bonds, Worcester City Campus Corporation Issue (University of Massachusetts Project), Series D (2005). On March 25, 2015, the Building Authority issued $298,795,000 of Project Revenue Bonds, Senior Series (the Bonds ) and $191,825,000 of Refunding Revenue Bonds, Senior Series (the Bonds ). The Bonds included a premium of $35.7 million. The Bonds are tax-exempt and mature at various dates through The interest on the Bonds is payable semi-annually each November 1 st and May 1 st and the interest rates on the Bonds range from 4.0% to 5.0%. The Bonds included a premium of $34.0 million. The Bonds are tax-exempt and mature at various dates through The interest on the Bonds is payable semi-annually each November 1 st and May 1 st and the interest rates on the Bonds range from 3.0% to 5.0%. The Bonds were issued to refinance a portion of the Massachusetts Health and Educational Facilities Authority s Revenue Bonds, Worcester City Campus Corporation Issue (University of Massachusetts Project), Series E & F (2007). Capitalized Lease Obligations At June 30, 2015, the University had no capital lease obligations. University Rating The University is relying on a carefully planned and executed debt strategy to support master and strategic planning at the campuses and for the University as a whole. The University has been rewarded for its strategic planning by recent ratings upgrades. Bonds issued by the University of Massachusetts and the University of Massachusetts Building Authority are now AA, Aa2 and AA- as rated by Fitch, Moody's and Standard & Poor's rating agencies, respectively. Limitations on Additional Indebtedness The University may, without limit, issue additional indebtedness or request the Building Authority to issue additional indebtedness on behalf of the University so long as such indebtedness is payable from all available funds of the University. However, the University may request that the Building Authority issue additional indebtedness not payable from all available funds of the University provided that the additional indebtedness is secured by certain pledged revenues and the maximum annual debt service on all revenue indebtedness does not exceed 8% of the University's available revenues. The Building Authority is authorized by its enabling act to issue bonds with the unconditional guarantee of the Commonwealth of Massachusetts for the punctual payment of the interest and principal payments on the guaranteed bonds. The full faith and credit of the Commonwealth are pledged for the performance of its guarantee. The enabling act, as amended, presently limits to $200 million the total principal amount of notes and bonds of the Building Authority that may be Commonwealth guaranteed and outstanding at any one time. The amount of bond obligations guaranteed by the Commonwealth at June 30, 2015 and 2014 was $121.6 million and $125.6 million, respectively. Capital Plan In December 2014, the University s Trustees approved a $7.0 billion five-year (fiscal years ) update to its capital plan with $3.4 billion of projects approved to continue or commence over the next 24 months. The University generally has funded its capital plans through a combination of funding received from University operations, bonds issued by the University of Massachusetts Building Authority, MassDevelopment financing, Commonwealth appropriations, and private fundraising. The execution of many projects from the University's capital plan is from funding from the Commonwealth through the Higher Education and Life Sciences Bond Bills. Campus Total 5-Year Plan (in millions) FY15 - FY19 Total Approved Projects (in millions and as of June 2015) Amherst $2,582,836 $1,280,300 Boston $1,323,325 $967,875 Dartmouth $702,809 $275,838 Lowell $1,727,900 $666,600 Worcester $639,746 $173,340 TOTAL $6,976,616 $3,363,953 # of Projects The University's five-year capital plan for fiscal years includes both new projects and major projects that were previously approved by the University Trustees in prior-year capital plans. Over the last year the University has been working with 10

77 the Board to enhance its policy regarding its approval of capital projects to ensure a clear process for the review and approval of projects and to provide for multiple reviews during the process so that the President s Office, Building Authority and the Board of Trustees (the Board) are actively involved. Since the capital program requires significant investment, the President s office and the Board wanted to ensure that the proper steps were in place for reviewing and approving projects so that the University continues to live within its current capital and debt policies. Factors Impacting Future Periods There are a number of issues of University-wide importance that directly impact the financial operations of the University. Many of these issues, such as improving academic quality, realizing strong financial results, investing in capital assets, expanding fundraising capacity, operating more efficiently, being the most effective University for students and the Commonwealth given the available resources, and measuring performance are ongoing activities of continuous importance to the Board of Trustees and University leadership that impact the financial and budget planning each year. The level of state support, the impact of collectively bargained wage increases, and the ability of student-fee supported activities to meet inflationary pressures determine the limits of program expansion, new initiatives and strategic investments, as well as the ability of the University to meet its core mission and ongoing operational needs. Despite challenging economic times in the Commonwealth since fiscal year 2009, the University of Massachusetts continues to focus on improving its competitive position. To meet increased student demand, boost academic credentials, and improve campus infrastructure, the University has expanded and acquired several strategic properties in the past few fiscal years: In the fall of 2014, the University opened the Springfield Satellite Center to offer bachelor and master level courses associated with a variety of existing academic degrees and certificates that are already available to citizens of Greater Springfield at nearby locations and/or online. The Center will also house selected outreach, research, and economic development programs and activities. A satellite campus associated with UMass Lowell, in Haverhill, is currently being planned to better serve its student population. A permanent site is being explored and a temporary site is being utilized in the current year in partnership with Northern Essex Community College. Additionally, a new site on Beacon Hill in Boston will serve as another collaboration between the five campuses to offer the University experience. Despite these successful acquisitions, the ability to address priority capital needs and requirements for deferred maintenance, technology, repairs and adaptation, and selected new construction projects is one of the largest challenges facing the University. In spite of investing more than $2.7 billion on capital improvements over the last decade, the University s FY15-19 capital plan projects spending another $3.4 billion over the next five years. The commitment of operating funds for servicing debt and/or funding capital expenditures has an ongoing impact on the overall financial position of the University. In order to support the University s capital plan, the University of Massachusetts Building Authority will be issuing new bonds for renovations, new construction, and deferred maintenance projects at the Amherst, Boston, Dartmouth, Lowell, and Worcester campuses in support of the capital plan. The University, as well as Legislative and Executive Leadership in the Commonwealth, understand that despite the significant level of capital activity being financed through University debt, a much higher level of state support needs to be dedicated to higher education facilities. As such, the Massachusetts Legislature passed a higher education bond bill in August The Higher Education Improvement Act authorized $2.2 billion for capital improvement spending over the next ten years at community colleges, state universities, and the University. More than $1 billion of these funds are directed to University projects exclusively. Although the financial challenges faced by the Commonwealth have slowed down the pace of this funding, the University continues to work to ensure that critical needs are met. In addition, a major state effort to assist the Commonwealth in increasing its competitive position in the Life Sciences Industry was signed into law by the Governor on June 16, The $1 billion Life Sciences Industry Investment Act authorized $500 million of capital funding over ten years. It is anticipated that some portion of this funding, possibly as much as $242 million, will be used to support facility improvements at the University. $90 million has already been dedicated to partially fund the Sherman Center at the University s Medical School in Worcester. Additionally $95 million has been provided for a research facility at the Amherst Campus and significant capital investments in collaborative facilities and programs involving the Boston, Dartmouth, and Lowell campuses. In addition to capital funding, the life sciences initiative provides a number of opportunities for the University to participate in the planning and program implementation of this important economic development effort. The University s Boston Campus is situated on a peninsula in Boston Harbor which is also home to the John F. Kennedy Presidential Library and the Massachusetts State Archives and Commonwealth Museum. In fiscal year 2015 construction was completed on the Edward M. Kennedy Institute for the United States Senate which focuses on political study, training sessions for students and politicians, and historical records. Research funding for the University of Massachusetts was strong despite Federal sequestration of funds. For the University, research expenditures were $603 million in fiscal year 2014 and $591.1 million in fiscal year Most research at the University is externally funded, with the federal government providing a majority of the funding through the National Institutes of Health, the National Science Foundation, and other sources. Among Massachusetts colleges and universities, UMass ranks third in research and development expenditures, behind only MIT and Harvard. The University, as well as most major public research universities across the United States, is closely monitoring the potential reduction in federal funding for research and development programs. 11

78 In recent years the online learning consortium of the University, UMassOnline, has shown significant growth in enrollments, course offerings and revenue generation benefiting the campuses and raising the profile of the University throughout this important sector of the higher education market. UMassOnline provides marketing and technology support for UMass online offerings that enable students, professionals, and lifelong learners to take courses anywhere, anytime. With over 140 undergraduate and graduate degree, certificate and professional development programs and more than 1,500 courses available from University faculty, UMassOnline is one of the largest accredited online programs available. For fiscal year 2015, UMassOnline and the Continuing Education units at the five campuses collaboratively generated tuition revenue in excess of $89.6 million and supported 66,767 course enrollments, an increase of 5.3% for revenue and an increase of 5.2% for course enrollments as compared to fiscal year The University continues to increase its global reach through a coordinated effort in international activities to develop partnerships and programs to bring faculty, visiting scholars and students from other countries to the University; to integrate study abroad opportunities into the undergraduate and graduate curriculum; and to encourage faculty to engage in research, teaching and service activities around the world. The Commonwealth s fiscal year 2013 budget approved in June 2012 included a base state appropriation amount for the University equal to the base state appropriation received in fiscal year In addition to the base state appropriation, the budget also provided $25.6 million to cover the fiscal year 2013 cost of the collective bargaining increases for the University s union employees and $6.6 million of line item funding specific to the University. With state support consistent with the FY11 level despite the fact that enrollment has increased at the University by 15% over the last five years, the University s Board of Trustees approved a 4.9% tuition and fee increase for undergraduate students for the academic year. In January of 2013, the Governor imposed mid-year budget reductions to bring the State budget into balance. As part of the reductions, the University received a 1% reduction equating to $4.2 million. Through working with the Legislature, the University was able to utilize revenues to meet the reduction so that there would be no impact on the fringe support provided by the State. Each campus and the central office absorbed the reduction into operations for fiscal year The fiscal year 2014 budget approved in July 2013 included a new funding model that would have the State assume 50% of the cost to educate a Massachusetts student at the University. The 50:50 funding proposal required an investment by the Commonwealth of $39.1 million in each of the next two fiscal years, 2014 and This investment, along with the additional fringe support of $10.8 million gained from the increase in the State appropriation did provide the University with $100 million in additional appropriation in fiscal years 2014 and The 2014 State budget included language (outside section 162) providing for the second year commitment to reach the goal of 50:50. This initiative has had an immediate and meaningful impact on thousands of Massachusetts residents who have not had an increase in their tuition and mandatory curriculum fees for the upcoming academic year. It also provides them with more long-term relief by allowing them to graduate and enter the workforce with less student debt. These State funds are used entirely to support salary costs and the associated fringe benefit from having employees funded using the State appropriation. The fiscal year 2015 budget approved in July 2014 provided for a base state appropriation of $519.0 million which represents the second installment of the 50:50 plan which began in fiscal year This investment, along with the additional fringe support, allowed the University to freeze the mandatory curriculum fee for the second consecutive year for in state undergraduate students. However, the State did not fund the first year of collective bargaining contracts to date that cost approximately $13.1 million in State support. Although $2.2 million of the collective bargaining costs were received in fiscal year 2015, the University did not receive the remaining $10.9 million. Additionally, the University was issued a 9C budget reduction in February 2015 totaling $7.8 million which was absorbed into operations. Contacting the University This financial report is designed to provide the University, the Commonwealth, the public and other interested parties with an overview of the financial results of the University and an explanation of the University's financial condition. If you have any questions about this report or require additional information, you can contact the University by calling the University Controller, Sarah Mongeau, at (774) or by at smongeau@umassp.edu. 12

79 This page is intentionally left blank 13

80 University of Massachusetts Consolidated Statements of Net Position As of June 30, 2015 and 2014 (in thousands of dollars) University University Related Related University Organizations University Organizations ASSETS June 30, 2015 June 30, 2015 June 30, 2014 June 30, 2014 Current Assets Cash and Cash Equivalents $89,965 $63,752 Cash Held By State Treasurer 27,597 27,867 Accounts, Grants and Loans Receivable, net 249, ,156 Pledges Receivable, net 10, , Short Term Investments 265, ,957 Inventories, net 17,472 16,298 Accounts Receivable from UMass Memorial 17,463 40,807 Due From Related Organizations Other Assets 14, , Total Current Assets 692,679 1, ,750 1,678 Noncurrent Assets Cash and Cash Equivalents 2,018 1,378 Cash Held By State Treasurer 5,403 8,429 Cash and Securities Held By Trustees 707, ,186 Accounts, Grants and Loans Receivable, net 38,382 40,498 Pledges Receivable, net 6, , Investments 737, , , ,529 Other Assets 6, , Investment in Plant, net 4,333,761 8,293 4,064,786 8,478 Total Noncurrent Assets 5,835, ,938 5,608, ,124 Total Assets $6,527,861 $488,311 $6,200,927 $464,802 DEFERRED OUTFLOWS OF RESOURCES Deferred Change in Fair Value of Interest Rate Swaps $44,648 $41,082 Loss on Debt Refunding 86,723 82,485 Pensions 47,039 Total Deferred Outflows of Resources $178,410 $123,567 LIABILITIES Current Liabilities Accounts Payable $120,090 $691 $113,650 $174 Accrued Salaries and Wages 127, ,464 Accrued Compensated Absences 76,634 74,092 Accrued Workers' Compensation 3,495 4,352 Accrued Interest Payable 22,650 21,872 Bonds Payable 398, ,608 Capital Lease Obligations 170 2,232 Accelerated variable rate debt, current 6,000 50,000 Assets Held on behalf of Others 29,284 13,797 Accounts Payable to UMass Memorial 2,787 3,864 Due To Related Organizations Unearned Revenues and Credits 45,530 1,387 40,923 1,373 Advances and Deposits 6,191 6,912 Other Liabilities 47,354 49,007 Total Current Liabilities 856,460 31, ,330 15,525 Noncurrent Liabilities Accrued Compensated Absences 31,813 31,779 Accrued Workers' Compensation 10,886 10,811 Bonds Payable 2,685,235 2,627,836 Capital Lease Obligations Derivative Instruments, Interest Rate Swaps 71,054 68,843 Net Pension Liability 237,135 Unearned Revenues and Credits 26,821 21,243 Advances and Deposits 28,621 28,094 Other Liabilities 41,583 3,505 43,263 3,483 Total Noncurrent Liabilities 3,133,710 3,505 2,831,869 3,483 Total Liabilities $3,990,170 $34,926 $3,506,199 $19,008 DEFERRED INFLOWS OF RESOURCES Pensions $48,753 Net Position: Invested in Capital Assets Net of Related Debt $1,887,941 $8,293 $1,800,767 $8,477 Restricted Nonexpendable 18, ,301 17, ,718 Expendable 169,591 90, , ,195 Unrestricted 591,438 24, ,611 26,404 Total Net Position $2,667,348 $453,385 $2,818,295 $445,794 The accompanying notes are an integral part of these financial statements. 14

81 University of Massachusetts Consolidated Statements of Revenues, Expenses, and Changes in Net Position For The Years Ended June 30, 2015 and 2014 (in thousands of dollars) University University Related Related University Organizations University Organizations REVENUES June 30, 2015 June 30, 2015 June 30, 2014 June 30, 2014 Operating Revenues Tuition and Fees (net of scholarship allowances of $212,469 $765,218 $740,116 at June 30, 2015 and $201,186 at June 30, 2014) Federal Grants and Contracts 313, ,047 State Grants and Contracts 70,871 74,996 Local Grants and Contracts 1,717 2,223 Private Grants and Contracts 124, ,428 Sales and Service, Educational 25,601 21,792 Auxiliary Enterprises 362, ,485 Other Operating Revenues: Sales and Service, Independent Operations 48,368 44,296 Sales and Service, Public Service Activities 295, ,478 Other 105,234 93,418 Total Operating Revenues 2,112,784 2,209,279 EXPENSES Operating Expenses Educational and General Instruction 712, ,635 Research 431, ,425 Public Service 72,910 $16,359 77,985 $11,066 Academic Support 165, ,000 Student Services 127, ,295 Institutional Support 240, ,920 Operation and Maintenance of Plant 218, ,972 Depreciation and Amortization 221, , Scholarships and Fellowships 49, , Auxiliary Enterprises 273, ,080 Other Expenditures Independent Operations 40,961 44,861 Public Service Activities 227, ,252 Total Operating Expenses 2,782,297 16,709 2,809,900 11,443 Operating Loss (669,513) (16,709) (600,621) (11,443) NONOPERATING REVENUES(EXPENSES) Federal Appropriations 6,619 7,020 State Appropriations 621, ,618 Gifts 30,351 10,438 29,013 11,063 Investment Income 11,670 (30,383) 86,685 42,849 Endowment Income 16,858 1,134 16,642 1,070 Interest on Indebtedness (100,332) (89,496) Nonoperating Federal Grants 76,539 74,279 Other Nonoperating Income 2,927 1,046 Net Nonoperating Revenues 665,832 (18,811) 695,807 54,982 Income Before Other Revenues, Expenses, Gains, and Losses (3,681) (35,520) 95,186 43,539 OTHER REVENUES, EXPENSES, GAINS, AND LOSSES Capital Appropriations 62, ,132 Capital Grants and Contracts 55,823 21,987 Additions to Permanent Endowments ,842 17,566 Net Amounts Earned/Received on Behalf of Others 12 (1,555) Capital Contribution 250 Disposal of Plant Facilities (12,120) (6,198) Other Additions/(Deductions) (15,565) 257 (19,418) 32 Total Other Revenues, Expenses, Gains, and Losses 91,640 43, ,753 16,043 Total Increase in Net Position 87,959 7, ,939 59,582 NET POSITION Net Position at Beginning of Year, as previously reported 2,818, ,794 2,614, ,212 Cummulative effect of adoption GASB 68 (238,906) Net Position at Beginning of Year, Adjusted 2,579,389 2,614,356 Net Position at End of Year $2,667,348 $453,385 $2,818,295 $445,794 The accompanying notes are an integral part of these financial statements. 15

82 University of Massachusetts Consolidated Statements of Cash Flows For The Years Ended June 30, 2015 and 2014 (in thousands of dollars) University University June 30, 2015 June 30, 2014 CASH FLOWS FROM OPERATING ACTIVITIES Tuition and Fees $802,554 $793,246 Grants and Contracts 778, ,973 Payments to Suppliers (1,046,986) (1,273,331) Payments to Employees (1,352,448) (1,298,736) Payments for Benefits (295,584) (288,286) Payments for Scholarships and Fellowships (49,294) (49,236) Loans Issued to Students and Employees (5,899) (7,212) Collections of Loans to Students and Employees 8,668 5,302 Auxiliary Enterprises Receipts 354, ,456 Sales and Service, Educational 22,720 21,613 Sales and Service, Independent Operations 54,621 49,781 Sales and Service, Public Service Activities 317, ,119 Net Cash Provided Used in Operating Activities (412,417) (440,311) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State Appropriations 676, ,537 Tuition Remitted to the State (31,055) (34,325) Federal Appropriations 6,619 7,020 Gifts and Grants for Other Than Capital Purposes 27,106 25,990 Nonoperating Federal Grants 76,539 74,279 Student Organization Agency Transactions (431) 31 Net Cash Provided by Noncapital Financing Activities 754, ,533 CASH FLOWS FROM CAPITAL AND OTHER FINANCING ACTIVITIES Proceeds from Capital Debt 365, ,555 Bond Issuance Costs Paid (789) (3,647) Capital Appropriations 62, ,132 Capital Grants and Contracts 50,199 37,584 Purchases of Capital Assets and Construction (152,369) (208,444) Principal Paid on Capital Debt and Leases (161,296) (257,837) Interest Paid on Capital Debt and Leases (106,625) (104,441) Use of Debt Proceeds on Deposit with Trustees (330,330) (357,204) Net Cash Used in Capital Financing Activities (273,212) (194,302) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sales and Maturities of Investments 876,156 1,141,204 Interest on Investments 8,651 8,959 Purchase of Investments (928,361) (1,162,801) Net Cash Used in Investing Activities (43,554) (12,638) NET INCREASE IN CASH AND CASH EQUIVALENTS 25,792 54,282 Cash and Cash Equivalents - Beginning of the Year 804, ,952 Cash and Cash Equivalents - End of Year $830,026 $804,234 RECONCILIATION OF OPERATING LOSS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Loss ($669,513) ($600,621) Adjustments to reconcile loss to net cash used in Operating Activities: Depreciation and Amortization Expense $221, ,233 Changes in Assets and Liabilities: Receivables, net (15,355) 2,306 Inventories (1,174) 3,471 Due to/from Related Organizations (273) (75) Accounts Receivable/Payable UMass Memorial 22,267 (28,573) Other Assets (5,067) (16,748) Accounts Payable (non-capital) 3,419 (10,550) Accrued Liabilities 18,671 7,327 Deferred Revenue 10,185 1,579 Advances and Deposits (194) (883) Other Liabilties 3,574 (1,777) Net Cash Provided in Operating Actvities ($412,417) ($440,311) SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: The Authority issued Project and Refunding revenue bonds to refund certain debt $302,388 Pension Liability 237,135 Assets acquired and included in accounts payable and other liabilities 59,726 $56,705 Loss on disposal of capital assets (12,120) (6,198) Unrealized gain (loss) on investments (6,971) 50,353 The accompanying notes are an integral part of these financial statements. 16

83 University of Massachusetts Notes to Consolidated Financial Statements June 30, 2015 and SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The consolidated financial statements herein present the financial position, results of operations, changes in net position, and cash flows of the University of Massachusetts ( University ), a federal land grant institution. The financial statements of the University include the Amherst, Boston, Dartmouth, Lowell and Worcester Medical School campuses, and the Central Administration office of the University, Worcester City Campus Corporation ( WCCC ), the University of Massachusetts Amherst Foundation ( UMass Amherst Foundation ), as well as the University of Massachusetts Building Authority ( the Building Authority ). The Building Authority is a public instrumentality of the Commonwealth created by Chapter 773 of the Acts of 1960 (referred to as the Enabling Act ), whose purpose is to provide dormitories, dining commons, and other buildings and structures for use by the University. WCCC is a tax exempt organization founded to support research and real property activities for the University. The UMass Amherst Foundation was established in 2003 as a tax exempt organization founded to foster and promote the growth, progress, and general welfare of the University. These component units are included in the financial statements of the University because of the significance and exclusivity of their financial relationships with the University. The University Related Organizations column in the accompanying financial statements includes the financial information of the University s discretely presented component units. The University of Massachusetts Foundation, Inc. ( Foundation ) and the University of Massachusetts Dartmouth Foundation, Inc. ( Dartmouth Foundation ) are related tax exempt organizations founded to foster and promote the growth, progress and general welfare of the University, and are reported in a separate column to emphasize that they are Massachusetts not-for-profit organizations legally separate from the University. These component units are included as part of the University s financial statements because of the nature and the significance of their financial relationship with the University. The financial statement presentation of the discretely presented component units has been reclassified to conform to the University presentation. The financial reports of all above mentioned component units are available upon request from the University. The University is an enterprise fund of the Commonwealth of Massachusetts ( Commonwealth ). The financial balances and activities included in these financial statements are, therefore, also included in the Commonwealth s comprehensive annual financial report. BASIS OF PRESENTATION The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America as prescribed by the Governmental Accounting Standards Board ( GASB ) using the economic resources measurement focus and the accrual basis of accounting. These financial statements are reported on a consolidated basis, and all intra-university transactions are eliminated. Operating revenues consist of tuition and fees, grants and contracts, sales and services of educational activities (including royalties from licensing agreements) and auxiliary enterprise revenues. Operating expenses include salaries, wages, fringe benefits, utilities, subcontracts on grants and contracts, supplies and services, and depreciation and amortization. All other revenues and expenses of the University are reported as non-operating revenues and expenses including state general appropriations, federal appropriations, non-capital gifts, short term investment income, endowment income used in operations, interest expense, and capital additions and deductions. Other revenues, expenses, gains and losses represent all capital items, other changes in long term plant, and changes in endowment net position. Revenues are recognized when earned and expenses are recognized when incurred with the exception of revenue earned on certain public service activities (see Note 5). Restricted grant revenue is recognized only when all eligibility requirements have been met, that is to the extent grant revenues are expended or in the case of fixed price contracts, when the contract terms are met or completed. Contributions, including unconditional promises to give (pledges) for non-endowment or non-capital purposes, are recognized as revenues in the period received. Pledges to restricted non-expendable endowments are recognized as revenues in the period received. Conditional promises to give are not recognized until they become unconditional, that is when the conditions on which they depend are substantially met. The University applies restricted net assets first when an expense or outlay is incurred for purposes for which both restricted and unrestricted net assets are available. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, and disclosures of contingencies at the date of the financial statements and revenues and expenditures recognized during the reporting period. Significant estimates include the accrual for employee compensated absences, the accrual for workers compensation liability, the allowance for doubtful accounts, valuation of certain investments, and best estimates of selling price associated with certain multiple element arrangements. Actual results could differ from those estimates. The University reports its financial statements as a business-type activity ( BTA ) under GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities (GASB 35). BTAs are defined as those that are financed in whole or in part by fees charged to external parties for goods or services. 17

84 In order to ensure observance of limitations and restrictions placed on the use of available resources, the accounts of the University are maintained internally in accordance with the principles of fund accounting. This is the procedure by which resources for various purposes are maintained in separate funds in accordance with the activities or objectives specified. GASB 35 establishes standards for external financial reporting by public colleges and universities that resources be classified into the following net position categories: Invested in capital assets, net of related debt: Capital assets, at historical cost or fair market value on date of gift, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. Restricted Nonexpendable: Resources subject to externally imposed stipulations that they be maintained permanently by the University. Restricted Expendable: Resources whose use by the University is subject to externally imposed stipulations. Such assets include restricted grants and contracts, the accumulated net gains/losses on true endowment funds, as well as restricted funds loaned to students, restricted gifts and endowment income, and other similar restricted funds. Unrestricted: Resources that are not subject to externally imposed stipulations. Substantially all unrestricted net assets are designated to support academic, research, auxiliary enterprises or unrestricted funds functioning as endowments, or are committed to capital construction projects. Revenues are reported net of discounts and allowances. As a result, student financial aid expenditures are reported as an allowance against tuition and fees revenue while stipends and other payments made directly to students are recorded as scholarship and fellowship expenditures on the statements of revenues, expenses, and changes in net position, and included in supplies and services in the statements of cash flows. Discounts and allowances for tuition and fees and auxiliary enterprises are calculated using the Alternate Method which reports tuition and fee revenue net of scholarship allowances. ADOPTION OF ACCOUNTING PRONOUNCEMENT - PENSION For the year ended June 30, 2015, the University adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Retirement Benefits an amendment of GASB Statement No. 27. GASB 68 addresses accounting and financial reporting for pensions that are provided to the employees of state and local governments through pension plans that are administered through trusts that have certain characteristics and establishes standards for measuring and recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and expenditures. The implementation of GASB 68 resulted in a cumulative effect adjustment of ($ 238,906) to the beginning net position of the 2015 Statement of Revenues, Expenses and Changes in Net Position as of July 1, 2014 for the recording of pensions. The application of GASB 68 was recorded effective in the beginning of fiscal year 2015 because this was the earliest date for which was practical based on available information. NEW GASB PRONOUNCEMENTS On March 2, 2015, the Governmental Accounting Standards Board (GASB) released Statement No. 72, Fair Value Measurement and Application, which would generally require state and local governments to measure investments at fair value. GASB s goal is to enhance comparability of governmental financial statements by requiring fair value measurement for certain assets and liabilities using a consistent definition and accepted valuation techniques. This standard expands fair value disclosures to provide comprehensive information for financial statement users about the impact of fair value measurements on a government s financial position. The requirements are effective for financial statements for periods beginning after June 15, 2015, with early application encouraged. The University plans to implement GASB 72 in fiscal year In June 2015 the Governmental Accounting Standards Board (GASB) released Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. This Statement results from a comprehensive review of the effectiveness of existing standards of accounting and financial reporting for all postemployment benefits (pensions and OPEB) with regard to providing decision-useful information, supporting assessments of accountability and inter-period equity, and creating additional transparency. This Statement replaces the requirements of Statements No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, as amended, and No. 57, OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans, for OPEB. Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes new accounting and financial reporting requirements for OPEB plans. Management is evaluating the impact this pronouncement will have on the University. CLASSIFICATION OF ASSETS AND LIABILITIES The University presents current and non-current assets and liabilities in the statements of net position. Assets and liabilities are considered current if they mature in one year or less, or are expected to be received, used, or paid within one year or less. Investments with a maturity of greater than one year and balances that have externally imposed restrictions as to use are considered non-current. Cash Held by State Treasurer includes balances with restrictions as to use and balances that may be rolled forward for use toward the restricted purposes in future years, and such balances are classified as non-current. Cash held by trustees is presented based upon its expected period of use and the restrictions imposed on the balances by external parties. 18

85 CASH AND CASH EQUIVALENTS AND INVESTMENTS Cash and cash equivalents consist primarily of petty cash, demand deposit accounts, money market accounts, and savings accounts, with a maturity of three months or less when purchased. Investments are reported at their respective fair values. Short-term investments consist of deposits with original maturities of less than one year and are available for current use. Securities received as a gift are recorded at estimated fair value at the date of the gift. Private equities and certain other non-marketable securities held by the Foundation are valued using current estimates of fair value by management based on information provided by the general partner or investment manager for the respective securities. The Foundation believes that the carrying amounts of these investments are a reasonable estimate of fair value, however, their estimated value is subject to uncertainty and therefore may differ from the value that would have been used had a ready market for such investment existed. Venture capital investments represent initial investments made to certain funds and are reported at cost until distributions are made from the funds or until market values are reported on the funds. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the accompanying financial statements. Investment income includes dividends and interest income and is recognized on the accrual basis. In computing realized gains and losses, cost is determined on a specific identification basis. RESTRICTED GRANTS AND CONTRACTS The University receives monies from federal and state government agencies under grants and contracts for research and other activities including medical service reimbursements. The University records the recovery of indirect costs applicable to research programs, and other activities which provide for the full or partial reimbursement of such costs, as revenue. Recovery of indirect costs for the years ended June 30, 2015 and 2014 was $112.2 million and $114.0 million, respectively, and is a component of grants and contracts revenue. The costs, both direct and indirect, charged to these grants and contracts are subject to audit by the granting agency. The University believes that any audit adjustments would not have a material effect on the University s financial statements. PLEDGES AND ENDOWMENT SPENDING Pledges for non-endowment purposes are presented net of amounts deemed uncollectible, and after discounting to the present value of the expected future cash flows. Because of uncertainties with regard to whether they are realizable, bequests and intentions and other conditional promises are not recognized as assets until the specified conditions are met. The Foundation utilizes the pooled investment concept whereby all invested funds are in one investment pool, except for investments of certain funds that are otherwise restricted. Pooled investment funds will receive an annual distribution of 4% of the endowment fund s average market value for the preceding twelve quarters on a one year lag. Only quarters with funds on deposit shall be included in the average. In addition, a prudence rule will be utilized limiting spending from a particular endowment fund to no lower than 93% of its book value. The actual spending rate approved was 4% for 2015 and Future utilization of gains is dependent on market performance. Deficiencies for donor-restricted endowment funds resulting from declines in market value would be offset by an allocation from unrestricted net position to restricted expendable net position, and would be recorded in realized and unrealized gains (losses) on sale of investments. In fiscal years 2015 and 2014, the deficiencies were $0.1 million and $0.0 million, respectively. The Foundation believes that these adjustments are temporary and will not require permanent funding. INVENTORIES The University s inventories consist of books, general merchandise, central stores, vaccines, and operating supplies which are carried at the lower of cost (first-in, first-out and average cost methods) or market value. INVESTMENT IN PLANT Capital assets are stated at cost or fair value upon receipt as a gift. Net interest costs incurred during the construction period for major capital projects are capitalized. Repairs and maintenance costs are expensed as incurred, whereas major improvements that extend the estimated useful lives of the assets are capitalized as additions to property and equipment. Depreciation of capital assets is provided on a straight-line basis over the estimated useful lives of the respective assets. The University records a full year of depreciation in the year of acquisition. Land is not depreciated. The University does not capitalize works of art, historical treasures or library books. Following is the range of useful lives for the University s depreciable assets: Buildings Building Improvements Equipment, Furniture and IT Infrastructure Software Land Improvements years 3-20 years 3-15 years 5 years 20 years 19

86 COMPENSATED ABSENCES Employees earn the right to be compensated during absences for annual vacation leave and sick leave. The accompanying statements of net position reflect an accrual for the amounts earned and ultimately payable for such benefits as of the end of the fiscal year. The accrual equates to the entire amount of vacation time earned and an actuarially determined liability for the sick leave component of compensated absences. Employees are only entitled to 20% of their sick leave balance upon retirement. The actuarial calculation utilized the probability of retirement for this estimate. UNEARNED REVENUE Unearned revenue consists of amounts billed or received in advance of the University providing goods or services. Unearned revenue is recognized as revenue as expenses are incurred and therefore earned. ADVANCES AND DEPOSITS Advances from the U.S. Government for Federal Perkins Loans to students are reported as part of advances and deposits. Future loans to students are made available only from repayments of outstanding principal amounts plus accumulated interest received thereon. Funding ended on Sept. 30, 2015 for the low-interest Federal Perkins Loan program. Universities and colleges are not allowed to make Federal Perkins Loans to new borrowers after this date. TUITION AND STATE APPROPRIATIONS The accompanying financial statements for the years ended June 30, 2015 and 2014 present as tuition revenue approximately $31.1 million and $34.3 million, respectively, of in-state tuition received by the University and remitted to the State Treasurer s Office for the general fund of the Commonwealth of Massachusetts. The amount of tuition retained by the University related to out-of-state students during 2015 and 2014 was $82.0 million and $75.8 million, respectively. The recorded amount of State Appropriations received by the University has been reduced by a corresponding amount of tuition remitted as shown below (in thousands): Gross Commonw ealth Appropriations $516,794 $486,656 Plus: Fringe Benefits 159, , , ,537 Less: Tuition Remitted (31,055) (34,325) Less: Mandatory Waivers (23,942) (23,594) Net Commonwealth support $621,200 $570,618 AUXILIARY ENTERPRISES Auxiliary Enterprise revenue of $362.2 million and $349.5 million for the years ended June 30, 2015 and 2014, respectively, are stated net of room and board charge allowances of $0.7 million and $1.0 million, respectively. OTHER OPERATING REVENUES AND EXPENDITURES, SALES AND SERVICES, PUBLIC SERVICE ACTIVITIES Public Service Activities consist largely of sales and services provided to third parties by the UMass Medical School campus under its Commonwealth Medicine ( CWM ) programs, which provide public consulting and services in health care financing, administration and policy to federal, state and local agencies and not-for-profit health and policy organizations. Included in this category of activities are Commonwealth Medicine revenues of $310.2 million and $349.0 million for the years ended June 30, 2015 and 2014, respectively. Included in expenditures are Commonwealth Medicine expenditures of $296.3 million and $318.2 million for the years ended June 30, 2015 and 2014, respectively. Public Service Activities also include payments received by the Medical School for educational services it provides to its clinical affiliate, UMass Memorial, as required by the enabling legislation enacted by the Commonwealth in Educational services revenues included in public service revenues were $43.8 million and $163.8 million for the years ended June 30, 2015, and 2014, respectively. Finally, Public Service Activity expenditures include payments made to the Commonwealth of Massachusetts of $120 million for the year ended June 30, 2014, pursuant to requirements of legislation enacted by the State Legislature of Massachusetts. FRINGE BENEFITS FOR CURRENT EMPLOYEES AND POST EMPLOYMENT OBLIGATIONS PENSION AND NON-PENSION The University participates in the Commonwealth s Fringe Benefit programs, including active employee and post employment health insurance, unemployment compensation, pension, and workers compensation benefits. Health insurance and pension costs for active employees and retirees are paid through a fringe benefit rate charged to the University by the Commonwealth. Workers compensation costs are assessed separately based on actual University experience. In addition to providing pension benefits, under Chapter 32A of the Massachusetts General Laws, the Commonwealth is required to provide certain health care and life insurance benefits for retired employees of the Commonwealth, housing authorities, redevelopment authorities, and certain other governmental agencies. Substantially all of the Commonwealth s employees may become eligible for these benefits if they reach retirement age while working for the Commonwealth. Eligible retirees are required to contribute a specified percentage of the health care benefit costs which is comparable to contributions required from employees. The Commonwealth is reimbursed for the cost of benefits to retirees of the eligible authorities and non-state agencies. The Commonwealth s Group Insurance Commission ( GIC ) was established by the Legislature in 1955 to provide and administer health insurance and other benefits to the Commonwealth's employees and retirees, and their dependents and 20

87 survivors. The GIC also covers housing and redevelopment authorities' personnel, certain authorities and other offline agencies, retired municipal teachers from certain cities and towns and municipalities as an agent multiple employer program, accounted for as an agency fund activity of the Commonwealth, not the University. The GIC administers a plan included within the State Retiree Benefits Trust Fund, an irrevocable trust. Any assets accumulated in excess of liabilities to pay premiums or benefits or administrative expenses are retained in that fund. The GIC s administrative costs are financed through Commonwealth appropriations and employee investment returns. The Legislature determines employees and retirees contribution ratios. The GIC is a quasi-independent state agency governed by an eleven-member body ( the Commission ) appointed by the Governor. The GIC is located administratively within the Executive Office of Administration and Finance, and is responsible for providing health insurance and other benefits to the Commonwealth s employees and retirees and their survivors and dependents. During the fiscal years that ended on June 30, 2015 and June 30, 2014, respectively, the GIC provided health insurance for its members through indemnity, PPO, and HMO plans. The GIC also administered carve-outs for the pharmacy benefit and mental health and substance abuse benefits for certain of its health plans. In addition to health insurance, the GIC sponsors life insurance, long-term disability insurance (for active employees only), dental and vision coverage for employees not covered by collective bargaining, a retiree discount vision plan and retiree dental plan, and finally, a pre-tax health care spending account and dependent care assistance program (for active employees only). Pursuant to the provisions of Paragraph (e), Section 5 of Chapter 163 of the Acts of 1997 and consistent with the September 22, 1992 Memorandum of Understanding between the Commonwealth of Massachusetts Executive Office of Administration and Finance and the University of Massachusetts, the University s Medical School campus has assumed the obligation for the cost of fringe benefits provided by the Commonwealth to University Medical School employees (other than those employees paid from state appropriated funds) for all periods on or after July 1, The Medical School determines the actual costs for the health insurance benefits and actuarially calculates the incurred service costs for pensions and retiree health insurance. INCOME TAX STATUS The University and the Building Authority are component units of the Commonwealth of Massachusetts and are exempt from Federal and state income tax under the doctrine of intergovernmental tax immunity found in the U.S. Constitution. The University qualifies as a public charity eligible to receive charitable contributions under Section 170(b)(1)(A)(ii) of the Internal Revenue Code, as amended (the Code). The Building Authority qualifies as a public charity under Section 170(b)(1)(A)(iv)of the Code. The Worcester City Campus Corporation (WCCC), and the University Related Organizations are organizations described in Section 501(c)(3) of the Code, and are generally exempt from income taxes pursuant to Section 501(a) of the Code. WCCC and the University Related Organizations are required to assess uncertain tax positions and have determined that there were no such positions that are material to the financial statements. COMPARATIVE INFORMATION AND RECLASSIFICATIONS The University s financial statements include prior year comparative information. Certain reclassifications were made in prior year to conform to current year presentation. These amounts were determined to be immaterial to the financial statements by management. 2. CASH AND CASH EQUIVALENTS AND INVESTMENTS The University s investments are made in accordance with the Investment Policy and Guidelines Statement Operating Cash Portfolio adopted in May 2005 and later amended in June 2009 by the Board of Trustees (the Investment Policy ) and the Statement of Investment and Spending Policies of the University of Massachusetts Foundation, Inc. The goals of these documents are to preserve capital, provide liquidity, and generate investment income. The University of Massachusetts has statutory authority under Massachusetts General Laws Chapter 75 to collect, manage, and disburse trust funds of the University. Investments are reported at their respective fair values. The values of publicly traded fixed income and equity securities are based upon quoted market prices at the close of business on the last day of the fiscal year. Private equities and certain other non-marketable securities are valued using current estimates in fair value by management based on information provided by the general partner or investment manager for the respective securities. Investments in units of non-publicly traded pooled funds are valued at the unit value determined by the fund s administrator based on quoted market prices of the underlying investments. Private equities and other non-marketable securities represent approximately 24.4% and 27.4% of the University s investments at June 30, 2015 and 2014, respectively. Custodial Credit Risk - Custodial Credit Risk is the risk that, in the event of a failure of the counterparty, the University would not be able to recover the value of its deposits, investments or collateral securities that were in the possession of an outside party. The University does not have a formal policy related to mitigation of custodial credit risk. Deposits are exposed to custodial risk if they are uninsured and uncollateralized. Investment securities are exposed to custodial credit risk if they are uninsured or not registered in the name of the University and are held by either the counterparty or the counterparty s trust department or agent but not in the University s name. As of June 30, 2015 and 2014, all cash and investment accounts were held on behalf of the University by the Trustees, in the Trustees name. 21

88 The University maintains depository, payroll, disbursement, receipt, and imprest accounts. In addition to bank account deposits, the University held money market instruments which are classified as investments. Interest bearing and money market accounts carry Federal Deposit Insurance Corporation (FDIC) insurance up to $250,000 per account. None of the accounts are collateralized above the FDIC insured amounts. The University also invested in individual CDs and BNY Mellon s CDARS program as of June 30, These funds are invested in individual CDs in $250,000 increments and are therefore fully insured by the FDIC. The University did not invest in BNY Mellon s CDARS program in fiscal year At June 30, 2015 and 2014, the carrying amounts, bank balances and FDIC insured amounts were as follows (in thousands): Book Bank FDIC Book Bank FDIC Balance Balance Insured Balance Balance Insured Depository Accounts $ 90,691 $ 70,176 $ 1,052 $ 57,360 $ 65,410 $ 1,007 Certificates of Deposit Money Market 233, ,305 2, , ,601 2,251 Total $ 324,646 $ 304,131 $ 3,953 $ 238,611 $ 246,661 $ 3,658 At June 30, 2015, the University held a carrying and fair market value of $713.7 million in non-money market investments compared to a carrying and fair market value of $743.2 million at June 30, In the event of negligence due to the University s custodian and/or investment manager(s), it is expected that investment balances of $713.7 million and $743.2 million at June 30, 2015 and 2014, respectively, would be fully recovered. However, these amounts are subject to both interest rate risk and credit risk. Concentration of Credit Risk - Concentration of credit risk is assumed to arise when the amount of investments that the University has with one issuer exceeds 5% or more of the total value of the University s investments. The University does not have a formal policy for concentration of credit risk. As of June 30, 2015 and June 30, 2014, respectively, there is no concentration of investments with one issuer of the University portfolio, excluding U. S. Government guaranteed obligations, which exceed 5% of the portfolio. Credit Risk - Credit risk is the risk that the University will lose money because of the default of the security issuer or investment counterparty. The University s Investment Policy and Guidelines Statement allows each portfolio manager full discretion within the parameters of the investment guidelines specific to that manager. The table below presents the fair value (in thousands) and average credit quality of the fixed income component of the University s investment portfolio as of June 30, 2015 and 2014, respectively: June 30, 2015 June 30, 2014 Average Credit Average Credit Asset Class Fair Value Quality Fair Value Quality Short Duration $ 314,081 AAA $ 240,550 AAA Intermediate Duration $ 231,382 A $ 282,030 A 22

89 The table below presents the fair value (in thousands) by credit quality of the rated debt investments component of the University s investment portfolio as of June 30, 2015 and 2014, respectively: Rated Debt Investments (in thousands) S&P Quality Ratings Fair Value AAA AA A BBB BB B <B Unrated U.S. Agencies $ 1,313 $ 582 $ 731 U.S. Government $ 34, ,808 Certificates of Deposit $ Corporate Debt $ 100,192 22,117 6,662 25,797 26,957 18,659 Municipal/Public Bonds $ 4, , ,117 Bond Mutual Funds $ 113,655 44,137 3,159 12,754 18,835 14,590 8,667 2,986 8,527 Money Market Funds $ 290, , $ 545,463 $ 357,260 $ 13,350 $ 38,863 $ 46,909 $ 14,590 $ 8,667 $ 2,986 $ 62,838 Rated Debt Investments (in thousands) S&P Quality Ratings Fair Value AAA AA A BBB BB B <B Unrated U.S. Agencies $ 12,195 $ 12,195 U.S. Government $ 34,522 34,522 Certificates of Deposit $ Corporate Debt $ 90,284 17,627 12,830 24,742 22, ,426 11,329 Municipal/Public Bonds $ 4,253 1,614 1,500 1,139 Bond Mutual Funds $ 152,806 56,581 6,657 19,463 31,222 15,940 11,282 3,375 8,286 Money Market Funds $ 228, ,764 2,257 $ 522,581 $ 300,472 $ 67,818 $ 45,705 $ 54,560 $ 15,940 $ 11,413 $ 4,801 $ 21,872 Interest Rate Risk - Interest rate risk is the risk that changes in interest rates will adversely affect the fair market value of an investment. The University s Investment Policy and Guidelines Statement establishes targets for the preferred duration of the fixed income component of the investment portfolio by asset class by limiting investments through targeted allocations to different asset classes. The table below shows the allocation for each asset class and the fair value (in thousands) for each as of June 30, 2015 and 2014, respectively: 6/30/15 6/30/15 6/30/14 6/30/14 Asset Class Allocation Fair Value Allocation Fair Value Short Duration 31% $314,081 25% $240,551 Intermediate Duration 23% 231,382 29% 282,030 Alternative Assets 24% 244,456 27% 265,499 Equities 18% 182,880 15% 147,500 Commodities 2% 18,704 3% 24,592 Real Estate 1% 11,533 1% 8,738 23

90 INVESTMENTS (in thousands) Investment Type: Investment Maturity (in Years) Debt Securities Fair Value Less than 1 1 to 5 6 to 10 More than 10 U.S. Agencies $ 1,313 $ 1,313 U.S. Government $ 34,856 33, Certificates of Deposit $ Corporate Debt $ 100,192 1,284 93,411 5, Municipal/Public Bonds $ 4,767 3,407 1,360 Bond Mutual Funds $ 113,655 18,710 46,479 33,791 14,675 Money Market Funds $ 290, ,180 Sub Total Debt $ 545,463 $ 314,081 $ 176,425 $ 39,882 $ 15,075 Other Investments Alternative Assets $ 244,456 Equity Securities - International 110,903 Equity Securities - Domestic 71,977 Commodities 18,704 Real Estate 11,533 Grand Total $ 1,003,036 INVESTMENTS (in thousands) Investment Type: Investment Maturity (in Years) Debt Securities Fair Value Less than 1 1 to 5 6 to 10 More than 10 U.S. Agencies $ 12,195 $ 4,307 $ 3,999 $ 825 $ 3,064 U.S. Governament $ 34,522 29,557 4,965 Certificates of Deposit $ Corporate Debt $ 90,284 7,722 40,361 14,119 28,082 Municipal/Public Bonds $ 4,253 4, Bond Mutual Funds $ 152,806 17,395 81,561 36,503 17,347 Money Market Funds $ 228, ,021 Sub Total Debt $ 522,581 $ 257,945 $ 159,495 $ 56,648 $ 48,493 Other Investments Alternative Assets $ 265,499 Equity Securities - International 81,358 Equity Securities - Domestic 66,142 Commodities 24,592 Real Estate 8,738 Grand Total $ 968, CASH HELD BY STATE TREASURER Accounts payable, accrued salaries and outlays for future capital projects to be funded from state-appropriated funds totaled approximately $33.0 million at June 30, 2015 and $36.5 million at June 30, The University has recorded a comparable amount of cash held by the State Treasurer for the benefit of the University, which will be subsequently utilized to pay for such liabilities. The cash is held in the State Treasurer s pooled cash account. The Commonwealth requires all bank deposits in excess of insurance coverage by the FDIC to be collateralized with a perfected pledge of eligible collateral. Eligible collateral must be pledged in an amount equal to 102% of the amount of the deposits that exceed FDIC insurance. Sufficient collateral to cover total Commonwealth deposits in excess of the FDIC insured amount must be pledged and held in safekeeping by a custodian that is approved by and under the control of the Treasurer and Receiver General. 4. CASH AND SECURITIES HELD BY TRUSTEES Cash and securities held by trustees primarily consist of unspent bond proceeds, amounts held for the future payment of debt service on such borrowings and designated funds. At June 30, 2015 and June 30, 2014, there was $6.2 million and $3.0 million, respectively, available from the Revolving Loan Fund established with 2000 Series A bond proceeds issued to acquire and implement enterprise resource planning technology along with other projects (see Note 8) and $700.9 million and $701.2 million, respectively, held by trustees related to the Building Authority. Pursuant to Trust Agreements between the Building Authority and its bond trustees, all funds deposited with those trustees (approximately $700 million at June 30, 2015 and June 30, 2014, respectively) shall be continuously maintained for the benefit of the Building Authority and Registered owners of the Bonds. All investments shall be (a) held with a bank or trust company approved by the Trustees and the Building Authority, as custodians, or (b) in such other manner as may be required or permitted by applicable state and Federal laws and regulations. Investments shall consist of (a) direct obligations of, or obligations which are unconditionally guaranteed by the United States of America, or any other agency or corporation which has been created pursuant to an act of Congress of the United States as an agency or instrumentality thereof; or (b) other marketable securities eligible as 24

91 collateral for the deposit of trust funds under regulations of the Comptroller of the Currency having a market value not less than the amount of such deposit. Direct obligations of, or obligations which are unconditionally guaranteed by the United States of America or any other agency or corporation which has been created pursuant to an act of Congress of the United States as an agency or instrumentality thereof, may be subject to repurchase upon demand by the owner pursuant to a repurchase agreement with a bank or trust company. Cash Deposits Custodial Credit Risk The Building Authority holds a majority of its cash and cash equivalents in high quality money market mutual funds that invest in securities that are permitted investments under the Building Authority s Enabling Act or in money market mutual funds that have been specifically permitted by state legislation. The Building Authority s cash and cash equivalents consisted of the following as of June 30 (in thousands): Cash $ 3,580 $ 4,406 Permitted money market accounts ("MMA") 692, ,381 Total cash and cash equivalents $ 695,774 $ 695,787 Custodial credit risk is the risk that, in the event of a bank failure, the Building Authority will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The Building Authority does not have a deposit policy for custodial credit risk. As of June 30, 2015 and June 30, 2014, the bank balances of uninsured deposits totaled $3,261 million and $4,139 million, respectively. For purposes of disclosure under GASB Statement No. 40, Deposit and Investment Risk Disclosures, money market accounts investing in debt securities are considered investments and therefore, are included in the investment disclosures that follow. Investments As of June 30, 2015, the Building Authority s investments consisted of the following: Investment Maturities (in Years) Fair Less value than 1 1 to 5 6 to 10 Investment type Debt Securities Repurchase Agreements $ 5,318 $ - - $ 5,318 Money Market funds 692, , Total $ 697,512 $ 692,194 - $ 5,318 As of June 30, 2014, the Building Authority s investments consisted of the following: Investment Maturities (in Years) Fair Less value than 1 1 to 5 6 to 10 Investment type Debt Securities Repurchase Agreements $ 5,318 $ - - $ 5,318 Money Market funds 691, , Total $ 696,699 $ 691,381 $ - $ 5,318 Because money market funds are highly liquid, they are presented as investments with maturities of less than one year. Interest Rate Risk The Building Authority does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Generally, the Building Authority holds its investments until maturity. Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. The risk is measured by the assignment of a rating by a nationally recognized statistical rating organization. The Enabling Act specifies the permitted investments of the Building Authority. These permitted investments include direct obligations of or obligations which are unconditionally guaranteed by the United States of America ( Treasuries ), obligations of an agency or organization created pursuant to an act of Congress of the United States as an agency or instrumentality thereof ( Agencies ), time deposits or certificate of deposits fully secured by Treasuries or Agencies, and Treasuries and Agencies subject to repurchase agreements. Other legislation allows the Building Authority to invest in the Massachusetts Municipal Depository Trust (the MMDT ), a money market account sponsored by the Treasurer of the Commonwealth and managed by Federated Investors, Inc. Additionally, the Building Authority s Bond Trustee invests some of the Building Authority s funds in money market accounts that are permitted and collateralized by Treasuries. 25

92 No credit risk disclosures are required under GASB 40 relating to the Building Authority s investment in Treasuries. The Building Authority s investments in Agencies are highly rated by Standard & Poor s Rating Services and Moody s Investors Service, Inc. The Building Authority s investments in repurchase agreements are not rated but are fully collateralized by Treasuries and Agencies. MMDT is unrated. Custodial Credit Risk Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. The Building Authority s Enabling Act does not contain legal or policy requirements that would limit the exposure to custodial credit risk except that interest-bearing time deposits or certificates of deposit of banking institutions or trust companies must be continuously and fully secured by Treasuries or Agencies. Custodial credit risk generally applies only to direct investments in marketable securities. Custodial credit risk does not apply to indirect investment in securities through the use of mutual funds or government investment pools, such as MMDT. Direct investments in marketable securities are held by the Building Authority s Bond Trustee as the Building Authority s agent. In accordance with the Building Authority s repurchase agreements, collateral for the agreements is held in segregated accounts with market values between 100% and 105% of the repurchase price, depending on the type of asset used as security and the specific repurchase agreement. Concentrations of Credit Risk The Building Authority places no limit on the amount it may invest in any one issuer. As of June 30, 2015, the Building Authority had 98.7% of its investments in MMDT. As of June 30, 2014, the Building Authority had 98.6% of its investments in MMDT. 5. ACCOUNTS, GRANTS AND LOANS RECEIVABLE Accounts, grants and loans receivable as of June 30, 2015 and 2014 are as follows (in thousands): Student Accounts Receivable $ 54,295 $ 53,383 Less allowance for uncollectible accounts (23,955) (21,814) 30,340 31,569 Grants and Contracts Receivable 94,929 82,157 Less allowance for uncollectible accounts (2,124) (1,151) 92,805 81,006 Student Loans Receivable 45,362 46,869 Less allowance for uncollectible accounts (296) (296) 45,066 46,573 Commonwealth Medicine 66,894 65,586 Less allowance for uncollectible accounts (822) (824) 66,072 64,762 Other 54,763 48,154 Less allowance for uncollectible accounts (1,147) (410) 53,616 47,744 Total, net 287, ,654 Less current portion, net (249,517) (231,156) Long term, net $ 38,382 $ 40,498 UMASS MEMORIAL The University and UMass Memorial have the following ongoing agreements: UMass Memorial has been granted the right to occupy portions of the University s Worcester Medical School campus for a period of 99 years and UMass Memorial has agreed to share responsibility for various capital and operating expenses relating to the occupied premises. UMass Memorial has also agreed to contribute to capital improvements to shared facilities. UMass Memorial has agreed to make certain payments to the University and its related organizations, including: 1) an annual fee of $12.0 million (plus an inflation adjustment), for 99 years as long as the University continues to operate a medical school; and 2) a participation payment based on a percentage of net operating income of UMass Memorial for which revenue is recognized by the University when the amounts are received. The University is reimbursed by, and reimburses UMass Memorial for shared services, cross-funded employees, and other agreed upon activities provided and purchased. For the years ended June 30, 2015 and 2014, the reimbursements for services provided to UMass Memorial were $156.3 million and $107.1 million, respectively. Included in these amounts are payroll paid by the University on behalf of UMass Memorial in an agency capacity in the amount of $96.2 million and $62.8 million for fiscal years 2015 and 2014, respectively. At June 30, 2015 and 2014, the University has recorded a receivable in the amount of $17.5 million 26

93 and $38.8 million, respectively from UMass Memorial which includes $9.5 million and $23.8 million, respectively, in payroll and related fringe charges. The University has recorded a payable at June 30, 2015 of $2.8 million primarily for cross-funded payroll. 6. RELATED ORGANIZATIONS Related party activity with the Foundation includes loan agreements and investments of the University s endowment assets and Intermediate Term Investment Fund (ITIF) with the Foundation. As of June 30, 2015, the net position of the Foundation included as related organizations in the accompanying financial statements of the University are $468.4 million, of which $438.4 million are restricted funds and $30.0 million are unrestricted funds. During the fiscal year ended June 30, 2015, the University received $28.5 million from the Foundation, and $14.1 million to the Foundation of which $3.8 million related to the establishment of quasi-endowment. At June 30, 2015, the University s investments include $333.3 million of endowment funds held in a custodial relationship at the Foundation, and $291.4 million in ITIF. As of June 30, 2014, the net position of the Foundation included as related organizations in the accompanying financial statements of the University are $455.1 million, of which $423.0 million are restricted funds and $32.1 million are unrestricted funds. During the fiscal year ended June 30, 2014, the University received $21.6 million from the Foundation, and $13.1 million to the Foundation of which $3.4 million related to the establishment of quasi-endowment. At June 30, 2014, the University s investments include $346.1 million of endowment funds held in a custodial relationship at the Foundation, and $295.7 million in ITIF. The University leases office space from the Foundation for an annual rent of approximately $0.5 million. The Building Authority and the Commonwealth have entered into various lease agreements under which the Commonwealth leases to the Building Authority certain property for nominal amounts. In August 2005, the Building Authority executed a contract with UMass Management, LLC, a wholly owned subsidiary of ClubCorp USA, Inc., to provide management services for The University of Massachusetts Club ( Club ), a private social club for alumni and friends of the University. Under the contract, the Authority is responsible for approving the budgets and operating plans of the Club as presented by the Manager. The Building Authority is responsible for any shortfall in the operating budget and will benefit from any operating profits. The contract calls for a minimum management fee payable to the Manager of $0.2 million or four percent of the operating revenues, as defined by the contract, whichever is greater. Additionally, the Manager receives a percentage of the Club initiation fees and 25 percent of operating profits, as defined by the contract. The contract term is 10 years and can be terminated by the Building Authority if the Building Authority decides to close the Club for a minimum of 18 months. The Building Authority is the tenant on the sublease for the Club space and the lease does not terminate should the Building Authority close the Club. The Authority had provided operating support for the Club of $0.2 million for both years ended June 30, 2015 and INVESTMENT IN PLANT Investment in plant activity for the year ended June 30, 2015 is comprised of the following (in thousands): University: Additions/ Retirements/ Beginning Balance Adjustments Adjustments Ending Balance Buildings and Improvements $4,694,649 $762,310 ($9,616) $5,447,343 Equipment and Furniture 609,786 53,085 (28,601) 634,270 Software 136, (1,071) 136,570 Library Books 84,315 - (9,739) 74,576 5,525, ,132 (49,027) 6,292,759 Accumulated Depreciation (2,309,127) (220,952) 35,361 (2,494,718) Sub-Total 3,216, ,180 (13,666) 3,798,041 Land 68,852 2,727-71,579 Construction in Progress 779, ,396 (730,661) 464,142 Sub-Total 848, ,123 (730,661) 535,721 Total $4,064,786 $1,013,303 ($744,327) $4,333,762 University Related Organizations: Additions/ Retirements/ Beginning Balance Adjustments Adjustments Ending Balance Buildings and Improvements $7, $7,942 Equipment and Furniture , ,110 Accumulated Depreciation (1,053) ($185) - (1,238) Sub-Total 7,057 (185). 6,872 Land 1, ,421 Total $8,478 ($185) - $8,293 27

94 Investment in plant activity for the year ended June 30, 2014 is comprised of the following (in thousands): University: Additions/ Retirements/ Beginning Balance Adjustments Adjustments Ending Balance Buildings and Improvements $4,058,559 $643,091 ($7,001) $4,694,649 Equipment and Furniture 587,478 35,542 (13,234) 609,786 Software 134,558 2,374 (28) 136,904 Library Books 93,091 - (8,776) 84,315 4,873, ,007 (29,039) 5,525,654 Accumulated Depreciation (2,122,993) (200,256) 14,122 (2,309,127) Sub-Total 2,750, ,751 (14,917) 3,216,527 Land 65,886 3,484 (518) 68,852 Construction in Progress 888, ,512 (699,042) 779,407 Sub-Total 954, ,996 (699,560) 848,259 Total $3,705,516 $1,073,747 ($714,477) $4,064,786 University Related Organizations: Additions/ Retirements/ Beginning Balance Adjustments Adjustments Ending Balance Buildings and Improvements $7, $7,942 Equipment and Furniture , ,110 Accumulated Depreciation (851) ($202) - (1,053) Sub-Total 7,259 (202) - 7,057 Land 1, ,421 Total $8,619 ($141) - $8,478 The University has capitalized interest on borrowings, net of interest earned on related debt reserve funds, during the construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets being constructed, and is amortized over the useful lives of the assets. For the years ended June 30, 2015 and 2014, the University capitalized net interest costs of $23.6 million and $29.7 million respectively. 28

95 8. BONDS PAYABLE Amounts Outstanding at June 30, 2015 are as follows (in thousands) Original Maturity Interest Amount Issue Borrowing Borrowing Date Rate Outstanding University of Massachusetts Building Authority: Series 2004 A $ 96, % $ 2,340 Series , % 8,300 Series , % 2,805 Series , % 16,005 Series 2008 A 26, variable 21,035 Series , variable 187,125 Series , % 65,835 Series , % 120,575 Series , % 271,855 Series , % 26,755 Series , % 84,775 Series , % 430,320 Series , % 2,835 Series , variable 129,690 Series , variable 98,220 Series , % 5.00% 208,060 Series , % 69,570 Series , % 5.00% 24,640 Series , % 5.00% 293,890 Series , % 2.10% 14,085 Series , % 3.38% 153,800 Series , % 5.00% 67,365 Series , % 5.00% 298,795 Series , % 5.00% 191,825 2,790,500 Unamortized Bond Premium 133,429 SUBTOTAL 2,923,929 University of Massachusetts HEFA/MDFA: 2000 Series A $ 20, variable 20, Series D 10, % 9,025 Series , % 27,925 56,950 Unamortized Bond Premium ,845 WCCC HEFA/MDFA: Series 2005 D $ 99, % 1,785 Series 2007 E 118, % 33,945 Series 2007 F 101, % 54,830 Series , % 8,270 98,830 Unamortized Bond Premium 1,499 SUBTOTAL 100,329 MDFA: Clean Renewable Energy Bonds $ 1, % 1,147 TOTAL $ 3,083,250 29

96 Bond Payable activity for the year ended June 30, 2015 is summarized as follows (in thousands): Additions/ Retirements/ Beginning Balance Amortization Repayments Ending Balance University of Massachusetts Building Authority: Series $ 6,155 $ (6,155) $ Series 2004 A $ 4,575 $ (2,235) $ 2,340 Series ,600 (8,300) 8,300 Series ,480 (2,675) 2,805 Series ,200 (9,195) 16,005 Series 2008 A 21,930 (895) 21,035 Series ,530 (7,405) 187,125 Series ,725 (39,890) 65,835 Series ,670 (78,095) 120,575 Series , ,855 Series ,250 (495) 26,755 Series ,645 (11,870) 84,775 Series , ,320 Series ,880 (45) 2,835 Series ,090 (1,400) 129,690 Series ,135 (915) 98,220 Series ,585 (4,525) 208,060 Series ,790 (2,220) 69,570 Series ,640 24,640 Series , ,890 Series ,085 14,085 Series ,855 (4,055) 153,800 Series $ 67,365 67,365 Series , ,795 Series , ,825 Plus: unamortized bond premium 64,807 81,639 (13,017) 133,429 Subtotal 2,477, ,624 (193,387) 2,923,929 UMass HEFA/MDFA: 2000 Series A 20,000 20, Series D 9,395 (370) 9,025 Series ,880 (955) 27,925 Plus: unamortized bond premium 1,056 (161) 895 Subtotal 59,331 (1,486) 57,845 WCCC HEFA/MDFA: WCCC 2005 Series D 78,676 (76,891) 1,785 WCCC 2007 Series E 105,659 (71,715) 33,944 WCCC 2007 Series F 84,416 (29,585) 54,831 Series ,030 (760) 8,270 Plus: unamortized bond premium 8,398 (6,899) 1,499 Subtotal 286,179 (185,850) 100,329 MDFA: Clean Renewable Energy Bonds 1,242 (95) 1,147 Total $ 2,824,444 $ 639,624 $ (380,818) $ 3,083,250 Principal and interest, which is estimated using rates in effect at June 30, 2015, on bonds payable for the next five fiscal years and in subsequent five-year periods are as follows (in thousands): Fiscal Year Principal Interest 2016 $ 92,116 $ 117, , , , , , , , , , , , , , , , , ,435 43, ,882 65,515 Total $ 3,083,250 $ 1,919,877 The and 2008-A variable rate bonds have a total outstanding principle balance of $208,160 and are classified as a current debt obligation as a result of the liquidity facilities expiring in April The University expects to redeem these variable rate bonds on their original principal amortization schedule. The window bonds with a principle outstanding balance of $98,220 30

97 have no supporting liquidity facility and therefore are classified as a current debt obligation. Consistent with prior years, the University expects to redeem this bond based on its original amortization schedule and based on annual maturities on that schedule. Bond payable activity for the year ended June 30, 2014 is summarized as follows (in thousands): Additions/ Retirements/ Beginning Balance Amortization Repayments Ending Balance University of Massachusetts Building Authority: Series $ 12,035 $ (5,880) $ 6,155 Series 2004 A $ 6,715 $ $ (2,140) $ 4,575 Series ,500 (7,900) 16,600 Series ,020 (2,540) 5,480 Series ,195 (154,995) 25,200 Series ,760 (2,760) Series 2008 A 22,795 (865) 21,930 Series ,655 (7,125) 194,530 Series ,300 (2,575) 105,725 Series ,870 (18,200) 198,670 Series , ,855 Series ,715 (465) 27,250 Series ,950 (11,305) 96,645 Series , ,320 Series ,925 (45) 2,880 Series ,450 (1,360) 131,090 Series ,020 (885) 99,135 Series , ,585 Series ,790 71,790 Series ,640 24,640 Series , ,890 Series ,085 14,085 Series , ,855 Plus: unamortized bond premium 54,033 10,774 64,807 Subtotal 2,195, ,244 (219,040) 2,477,692 UMass HEFA/MDFA: 2000 Series A 20,000 20, Series D 9,750 (355) 9,395 Series ,810 (930) 28,880 Plus: unamortized bond premium 1,161 (105) 1,056 Subtotal 60,721 (1,390) 59,331 WCCC HEFA/MDFA: WCCC 2005 Series D 81,860 5,642 (8,826) 78,676 WCCC 2007 Series E 108,135 1,311 (3,787) 105,659 WCCC 2007 Series F 87,110 3,523 (6,217) 84,416 Series , (946) 9,030 Plus: unamortized bond premium 8,889 (491) 8,398 Subtotal 295,759 10,687 (20,267) 286,179 MDFA: Clean Renewable Energy Bonds 1,338 (96) 1,242 Total $ 2,553,306 $ 511,931 $ (240,793) $ 2,824,444 University of Massachusetts Building Authority The bond agreements related to the Building Authority bonds generally provide that the net revenues of the Building Authority are pledged as collateral on the bonds and also provide for the establishment of bond reserve funds, bond funds, and maintenance reserve funds. The University is obligated under its contracts for financial assistance, management and services with the Building Authority to collect rates, rents, fees and other charges with respect to such facilities sufficient to pay principal and interest on the Building Authority s bonds and certain other costs such as insurance on such facilities. Pursuant to the authority given by the Building Authority s enabling act, the Commonwealth, acting by and through the Trustees of the University, has guaranteed the payment of principal and interest on the Building Authority s bonds. (The guarantee is a general obligation of the Commonwealth to which the full faith and credit of the Commonwealth are pledged. As is generally the case with other general obligations of the Commonwealth, funds with which to honor the guarantee, should it be called upon, will be provided by Commonwealth appropriation). The Building Authority s enabling act provides that the outstanding principal amount of notes and bonds of the Building Authority guaranteed by the Commonwealth cannot exceed $200 million. The amount of bond obligations guaranteed by the Commonwealth was $121.6 million and $125.6 million at June 30, 2015 and June 30, 2014, respectively. When the Building Authority no longer has any bonds outstanding, its properties revert to the Commonwealth, and all its funds (other than funds pledged to bondholders) are required to be paid into the Treasury of the Commonwealth. 31

98 Variable Rate Bonds The bonds are supported by a standby bond purchase agreement with JP Morgan Chase Bank, N.A. ( J.P. Morgan ) which requires J.P. Morgan to purchase bonds that are tendered and not remarketed. Under the terms of the J.P. Morgan standby bond purchase agreement, the Authority is required to pay J.P. Morgan in quarterly installments a facility fee in the amount of 25 basis points (or higher, under certain circumstances) of the commitment amount. Fees incurred by the Authority in connection with the J.P. Morgan agreement totaled $0.5 million for the years ended June 30, 2015 and June 30, 2014, respectively. The agreement expires in April 2016 and may be extended if a mutual interest exists between both the Authority and J.P. Morgan. Previously, the bonds were supported with an irrevocable direct pay letter of credit (the Lloyds LOC ) issued by Lloyds TSB Bank PLC. The 2008-A bonds are supported by a standby bond purchase agreement with Barclays Bank PLC ( Barclays ) which requires Barclays to purchase bonds that are tendered and not remarketed. Under the terms of the Barclays standby bond purchase agreement, the Authority is required to pay Barclays in quarterly installments a facility fee in the amount of 32.5 basis points (or higher, under certain circumstances) of the commitment amount. The agreement expires in April 2016 and may be extended if a mutual interest exists between both the Authority and Barclays. Fees incurred by the Authority in connection with the Barclays agreement totaled $0.1 million for the years ended June 30, 2015 and June 30, 2014, respectively. Previously, the 2008-A bonds were supported by a standby bond purchase agreement with Bank of America, N.A. ( BofA ). The bonds are supported by a standby bond purchase agreement with Wells Fargo Bank, N.A. ( Wells ) which requires Wells to purchase bonds tendered and not remarketed in an amount not to exceed the principal on the bonds plus accrued interest up to 185 days at an annual interest rate not to exceed 12 percent. Under the agreement, the Authority was required to pay Wells in quarterly installments a facility fee in the amount of 40 basis points (or higher, under certain circumstances) of the initial commitment. The initial commitment under the agreement was set at $143.3 million and was subject to adjustment from time to time in accordance with the provisions of the agreement. The standby bond purchase agreement expired on June 9, The Authority and Wells executed a first amendment to the standby bond purchase agreement to extend the agreement until June 9, Under the first amendment to the standby purchase agreement, the Authority is required to pay Wells in quarterly installments a facility fee in the amount of 25 basis points (or higher, under certain circumstances) of the initial commitment. The initial commitment under the first amendment to the standby bond purchase agreement was set at $139.1 million and is subject to adjustment from time to time in accordance with the provisions of the agreement. Fees incurred by the Authority in connection with the Wells agreement totaled $0.4 million and $0.6 million for the years ended June 30, 2015 and 2014, respectively. Window Bonds In fiscal year 2011, the Authority issued its bonds in a variable rate Window Bond mode. As with the Authority s other variable rate bonds, the Window Bondholders can tender the bonds at any time. However, unlike the Authority s other variable rate bonds, where the bondholders will receive payment on any tendered bonds 7 days from the tender, Window Bondholders are not required to receive funds for the tender until after a 30 day remarketing period and an additional 180 day funding window period. Due to this 210 day funding period, the Authority is not required to obtain any type of liquidity support for the bonds and the bonds are considered supported with self-liquidity. Window Bondholders receive an interest rate on the Window Bonds at a fixed spread over the Securities Industry and Financial Markets Association Municipal Swap Index TM ( SIFMA ). The initial spread to the SIFMA index is 9 basis points. Bond Refundings In July 2014, the Authority issued $67.4 million of Senior Series bonds. These bond proceeds were used to refund the 2005 Series-D Worcester City Campus Corporation Bonds. The Authority also issued $191.8 million of Refunding Revenue Senior Series Bonds which refunded $104.5 million of WCCC 2007 Series E and 2007 Series F bonds, $37.2 million of the Authority s bonds and $66.8 million of the Authority s bonds. In fiscal year 2014, the Authority refunded $5.4 million of its series bonds with series bonds. Accordingly, the Authority deposited into trust accounts funds sufficient to provide for all future debt service payments on the refunded bonds until the bonds are called. These advanced refunded bonds are considered defeased and, accordingly, the liability for the bonds payable and the assets held to repay the debt are not recorded in the Authority s financial statements. In connection with the Authority s advanced refundings, the Authority recorded a difference between the reacquisition price and the net carrying amount of the refunded debt of approximately $95.4 million in fiscal This balance is being reported as a component of deferred outflows, loss on debt refunding, and will be amortized as an increase in interest expense over the remaining term of the original life of the refunded bonds. These refundings reduced the Authority s debt service payments in future years by approximately $73.8 million and resulted in an economic gain (the present value of the savings) of approximately $56.2 million. Bond Premium and Issuance Expenses In connection with the Authority s bond issues, the Authority received premiums at issuance totaling approximately $190.6 million. The Authority amortizes the premiums received as a reduction in interest expense over the life of the respective bond issue. In connection with the Authority s bond issues, the Authority incurred certain issuance costs associated with the bond offerings. In fiscal years 2015 and 2014 these costs amounted to $3.5 million and $3.6 million, respectively, and were expensed in accordance with the provisions of GASB Statement No 65. Interest Rate Swaps The Authority uses derivative instruments to attempt to manage the impact of interest rate changes on its cash flows and net position by mitigating its exposure to certain market risks associated with operations, and does not use derivative instruments for trading or speculative purposes. 32

99 The Authority s contracts are evaluated pursuant to GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments ( GASB No. 53 ) to determine whether they meet the definition of derivative instruments, and if so, whether they effectively hedge the expected cash flows associated with interest rate risk exposures. The Authority applies hedge accounting for derivative instruments that are deemed effective hedges and under GASB No. 53 are referred to as hedging derivative instruments. Under hedge accounting, changes in the fair value of a hedging derivative instrument are reported as a deferred inflow or deferred outflow in the statement of net position until the contract is settled or terminated. All settlement payments or receipts for hedging derivative instruments are recorded as interest expense in the period settled. The Authority s hedging derivative instruments at June 30, 2015 and 2014 were as follows: Fair Value Fair Value Financial Statement June 30, Net Change June 30, Type of Classification for 2014 in Fair Value 2015 Hedge Changes in Fair Value Series Swap $ (27,933) $ (1,416) $ (29,349) Cash Flow Deferred outflow Series 2008-A Swap (3,201) (166) (3,367) Cash Flow Deferred outflow Series Swap (37,710) (628) (38,338) Cash Flow Deferred outflow Total $ (68,844) $ (2,210) $ (71,054) The terms of the Authority s financial derivative instruments that were outstanding at June 30, 2015 are summarized in the table below: Effective Termination Authority Value Type Date Date Pays Authority Receives (000's) Series Sw ap Synthetic Fixed May 1, 2008 May 1, % 70% of 1-Month LIBOR $ 232,545 Series 2008-A Sw ap Synthetic Fixed Nov 13, 2008 May 1, % 70% of 1-Month LIBOR $ 26,580 Series Sw ap Synthetic Fixed Apr. 20, 2006 Nov. 1, % 60% of 3-Month LIBOR +.18% $ 243,830 Fair Values - The fair values of the swaps are estimated using the zero-coupon method. This method calculates the future net settlement payments required by the agreements, assuming the current forward rates implied by the yield curve correctly anticipate future spot interest rates. These payments are then discounted using the spot rate implied by the current yield curve for hypothetical zero-coupon bonds due on the date of each future net settlement on the agreements. As of June 30, 2015 and 2014, the Authority s swaps had a negative fair value of $71.1 million and $68.8 million, respectively, and as such are presented as a deferred outflow. Credit risk - As of June 30, 2015, the Authority was not exposed to credit risk on the swaps as the fair value was negative. Since changes in interest rates affect the fair values of swap agreements, it is possible that the swap agreements with negative fair values become positive which would expose the Authority to credit risk. To mitigate the potential for credit risk, when a counterparty has a positive fair value and if the counterparty s credit quality falls below A3/A/A, the fair value of the swap will be fully collateralized by the counterparty with U.S. Government Securities or U. S. Government Agency Securities. Collateral posted by the counterparty will be held by a third-party custodian. The credit ratings for the Authority s counterparties at June 30, 2015 are as follows: Credit Ratings Moody s S&P Fitch UBS AG A2 A A Deutsche Bank AG A3 BBB+ A Citibank NA A1 A A+ Basis risk - The Authority is exposed to basis risk on its pay-fixed interest rate swaps because the variable-rate payment received by the Authority (a percent of LIBOR) on these hedging derivative instruments is based on indexes other than the actual interest rates the Authority pays on its hedged variable rate debt. Should the relationship between LIBOR and the actual variable rate interest payments on the bonds converge, the expected cost savings may not materialize. The terms of the related hedging fixed rate swap transactions are summarized in the chart at the top of this page. Termination risk - The Authority s swaps are governed under the International Swap Dealers Association Master Agreement (the Master Agreement ), which includes standard termination events, such as failure to pay and bankruptcy. Additionally, the Master Agreement was amended so that the swap may be terminated by the Authority if the counterparty s credit quality rating falls below 33

100 certain levels or the counterparty fails to have a rating. Further, the swap may be terminated by the counterparties if the long-term, unsecured, unenhanced senior debt rating of any bonds issued by the Authority is withdrawn, suspended or falls below certain levels or the Authority fails to have a rating. The Authority or the counterparties may terminate the swaps if the other party fails to perform under the terms of the contract. The Authority may also terminate the swaps at its option. If the swap is terminated, the variable-rate bonds would no longer carry a synthetic fixed interest rate and the Authority s interest payment will be based solely upon the rate required by the related bonds as issued. When a termination event occurs, a mark-to-market (or fair market value ) calculation is performed to determine whether the Authority is owed or must pay cash to close out the swap position. A negative fair value means the Authority would incur a loss and need to make a termination payment to settle the swap position. A positive fair value means the Authority would realize a gain and receive a termination payment in settlement of the swap position. Contingencies - All of the Authority s swaps include provisions that require the Authority to post collateral in the event its credit rating falls below certain levels. In the event the Authority is rated A2 by Moody s Investors Service or A by Standard & Poor s, the Authority would need to post collateral equal to amounts above the fair value of its swaps in liability positions above $10 million. In the event the Authority is not rated or rated below A3 by Moody s Investors Service or below A- by Standard & Poor s, the Authority must post collateral in the amount of the fair value of the swaps in liability positions. The collateral posted is to be in the form of cash obligations guaranteed by the U.S. Treasury, or negotiable debt obligations issued by the Federal Home Loan Mortgage Association or the Federal National Mortgage Association. If the Authority does not post collateral, the derivative instrument may be terminated by the counterparty. The Authority s credit rating is Aa2 from Moody s Investors Service, AA from Fitch Ratings, and AAfrom Standard and Poor s at June 30, 2015; therefore, no collateral has been posted. Termination of hedge accounting - In June of 2011, the Authority undertook an advance refunding of the and variable rate bonds hedged by the Series Swap. As part of the refunding, the Series swap was re-assigned to a new underlying notional (the and Bonds) with identical terms. This refunding and reassignment effectively terminated the original hedge. At June 30, 2011, the Series Swap was considered a hedging derivative instrument. In accordance with GASB No. 53, at the time of a termination event related to an advance refunding of the hedged debt, the balance of the amounts in deferred outflows is to be included in the net carrying amount of the refunded debt for the purposes of calculating the deferred loss on refunding. The balance of the deferred outflows that was included in the net carrying amount of the refunded debt at the time of the refunding was $22.2 million. The change in fair value of the Series Swap from the refunding date to June 30, 2015 is reported as a deferred outflow as the swap was determined to be effective at June 30, Swap payments and associated debt. Using rates as of June 30, 2015, the debt service requirements of the variable-rate debt and net swap payments, assuming current interest rates remain the same for their term, were as follows: Fiscal Year Interest Rate Ending June 30, Principal Interest Swaps, Net Total 2016 $ 10,845 $ 374 $ 13,932 $ 25, , ,536 25, , ,182 25, , ,800 25, , ,420 25, ,465 1,333 49, , , , , , ,678 75, , ,258 Total $ 436,620 $ $ 3,909 $ 145,348 $ 585,877 As actual rates vary, variable-rate bond interest payments and net swap payments will vary. MassDevelopment University of Massachusetts Series A, D and 2011 The University, through the Massachusetts Development Finance Agency ( MassDevelopment ), has issued bonds in order to construct new student centers on the Boston and Lowell campuses; to create a pool of funds to acquire telecommunications, electronics, computer, office, research, equipment and administrative systems; and to fund the related renovation costs and to refund previously issued bonds. Variable Rate Debt In March 2000, the University issued $40.0 million of MHEFA Variable Rate Demand Revenue Bonds, University of Massachusetts Issue, Series A (the "Series A Bonds") to create a pool of funds from which the University could finance and refinance the acquisition of certain equipment and related renovation costs at the various University campuses on a revolving basis throughout the term of the Series A Bonds. The Series A Bonds were remarketed on April 1, 2014 and now bear interest at the long term rate of 0.70%. The newest long term rate period will end on March 31, 2016 and the Remarketed Series A Bonds will be subject to mandatory tender for purchase on April 1, The purchase price of the bonds will be paid from the remarketing of such bonds. However, if the remarketing proceeds are insufficient, the University will be obligated to purchase the bonds tendered, up to an aggregate principal amount of $20.0 million. The Remarketed Series A Bonds will mature on November 1, 2030 and are subject to mandatory purchase prior to maturity as described above. Interest on the Remarketed Series A Bonds in the newest longterm rate period is payable on October 1 and April 1. The Remarketed Series A Bonds are considered a reissuance for federal tax 34

101 purposes. The Remarketed Series A Bonds are not supported by any insurance policy, liquidity facility or other credit enhancement. The Remarketed Series A Bonds are a general obligation of the University payable from all funds of the University permitted to be applied thereto. The University s unrestricted net assets, previously referred to as the expendable fund balance, secure the obligations of the University with respect to the Remarketed Series A Bonds. The University is required to certify annually that there are sufficient funds in the unrestricted net assets to cover the debt service on the Remarketed Series A Bonds. At June 30, 2015 and 2014, the outstanding principal balance on the Bonds is $20.0 million. Debt covenants The University of Massachusetts Series A, D, and 2011 bonds include a covenant for the maintenance of a debt service fund as outlined in the related debt agreement. The University is required to make deposits in this debt service fund on or before the twenty-fifth day of each March and September. Refundings In November 2011, the University issued $30.0 million of Massachusetts Development Finance Agency Revenue Refunding Bonds (the Series 2011 Bonds ). The University deposited the proceeds into an irrevocable trust fund to provide for payment of the MHEFA Revenue Bonds, University of Massachusetts Issue, 2002 Series C (the Series C Bonds ). This payment was made as a lump sum in October The Series 2011 bonds were issued at a premium of $1.2 million. These bonds bear interest at various fixed rates ranging from 2.5% to 4.0% and mature on October 1, At June 30, 2015, the aggregate principal payments outstanding on these bonds were $27.9 million. As a result of the change in future payments, the University will reduce its aggregate debt service payments by approximately $4.8 million and achieve an economic gain of $3.4 million. In January 2007, the University issued $10.4 million of MHEFA Revenue Bonds, University of Massachusetts Issue Series D. The proceeds from this issuance were used to advance refund a portion of the MHEFA Revenue Bonds, University of Massachusetts Issue, 2001 Series B (the Series B Bonds ). These advance refunded bonds were defeased, and accordingly, the liability for the bonds payable and the assets held to repay the debt have not been included in the University s financial statements. Worcester City Campus Corporation Series D, E, F and 2011 The Worcester City Campus Corporation (WCCC) through MassDevelopment has issued bonds to finance the construction or acquisition of the Lazare Research Building, South Road parking garage, Ambulatory Care Center ( ACC ), two buildings housing the operations of MassBiologics, One Innovation Drive, 373, 377 and 381 Plantation Street, Worcester and to refund previously issued bonds. In November 2011, the Corporation issued $10.5 million of Massachusetts Development Finance Agency Revenue Refunding Bonds (the Series 2011 Bonds ). The Series 2011 Bonds were issued at a premium of $1.1 million. These bonds bear interest at various fixed rates ranging from 2.00% to 5.00% and mature on October 1, The proceeds of the Series 2011 Bonds were used to refund the Massachusetts Health and Education Facilities Authority (MHEFA) Series B Bonds, which were used to finance the construction of a parking garage, the acquisition and installation of equipment at the Lazare Research Building, and the financing of 373 Plantation Street. In January 2007, the Corporation issued $101.7 million of MHEFA Revenue Bonds (the Series F Bonds). The Series F Bonds were issued at a premium of $2.8 million. These bonds have been partially refunded by Series 2015 bonds. The remaining portion of the bonds bear interest at various fixed rates ranging from 4.00% to 4.50% and mature on October 1, In January 2007, the Corporation issued $118.8 million of MHEFA Revenue Bonds (the Series E Bonds). The Series E Bonds were issued at a premium of $3.9 million. The Corporation deposited $32.4 million of the proceeds to an irrevocable trust fund to provide for partial advanced refunding of outstanding MHEFA Series B Revenue Bonds. In accordance with the applicable guidance, a portion of the Series B Bonds totaling $30.8 million and the related irrevocable trust has been derecognized by the Corporation. Approximately $85.7 million of the Series E Bonds proceeds were used to finance the construction of the Ambulatory Care Center. These bonds have been partially refunded by Series 2015 bonds. The remaining portion of the Series E Bonds bear interest at various fixed rates ranging from 3.50% to 4.50%, and mature on October 1, In April 2005, the Corporation issued $99.3 million of MHEFA Revenue Bonds (the Series D Bonds). The Corporation deposited the proceeds to an irrevocable trust fund to provide for payment of the MHEFA Series A Revenue Bonds. In accordance with the applicable guidance, the Series A Bonds and the related irrevocable trust were derecognized by the Corporation. The Series D Bonds have been partially refunded by Series 2014 Bonds. The Series D Bonds bear interest at various fixed rates ranging from 3.00% to 5.25% per year and mature on October 1, The Series D Bonds were issued at a premium of $4.1 million. Pledged Revenues WCCC is obligated under the terms of indebtedness to make debt service payments from revenues received from certain facility leases. Total applicable pledged revenues were $6.6 million for fiscal years 2015 and 2014, respectively. 35

102 Clean Renewable Energy Bonds During 2011, the University entered into an Energy Services agreement for Solar Panel construction with the Commonwealth s Division of Capital Asset Management and Century Bank and Trust Company. The financing arrangement includes $1.6 million in Clean Renewable Energy Bonds as of June 30, 2015 and LEASES The University leases certain equipment and facilities under operating leases with terms exceeding one year, which are cancelable at the University s option with 30 days notice. The rent expense related to these operating leases amounted to approximately $25.6 million and $22.1 million for the years ended June 30, 2015 and 2014, respectively. The master leases primarily consist of telecommunications, software, and co-generation systems. The University also leases space to third party tenants. During 2015 and 2014, the amount reported as rental income was $18.8 million and $21.0 million, respectively. The following presents a schedule of future minimum payments under non-cancelable operating leases for the next five years and in subsequent five-year periods for the University as of June 30, 2015 (in thousands): Operating Year Leases , , , , , and thereafter 146,397 Total Payments $245, OTHER LONG-TERM LIABILITIES During the year ended June 30, 2015, the following changes occurred in long-term liabilities as recorded in the statements of net position (in thousands): Beginning Additions/ Reductions/ Ending Balance Adjustments Adjustments Balance University: Capital lease obligations $ Compensated absences 31, ,813 Workers' compensation 10, ,886 Unearned revenues and credits 21,243 23,585 (18,006) 26,822 Advances and deposits 28, (231) 28,621 Other Liabilities 43,263 (1,680) 41,583 University Related Organization: Other Liabilities $3,483 $ 22-3,505 During the year ended June 30, 2014 the following changes occurred in long-term liabilities as recorded in the statement of net position (in thousands): Beginning Additions/ Reductions/ Ending Balance Adjustments Adjustments Balance University: Capital lease obligations $2,238 $ - ($2,238) $ - Compensated absences 30,410 1,369-31,779 Workers' compensation 10, ,811 Unearned revenues and credits 20,199 10,542 (9,498) 21,243 Advances and deposits 27, (543) 28,094 Other Liabilities 41,532 5,312 (3,581) 43,263 University Related Organization: Other Liabilities $3,332 $ 151 $ - $3, FRINGE BENEFITS Expenditures for the years ended June 30, 2015 and 2014 include $257.8 million and $244.6 million, respectively, for the employer portion of fringe benefit costs (pension expense, health insurance for active employees and retirees, and terminal leave) that was paid directly by the Commonwealth of Massachusetts. Of this amount, $98.4 million for 2015 and $102.8 million for

103 was reimbursed to the Commonwealth and $159.4 million and $141.9 million, respectively, is included in revenue as state appropriations. 12. MEDICAL SCHOOL LEARNING CONTRACTS The University s Medical School enters into learning contracts with certain medical students. These contracts give students the option of deferring a portion of their tuition until after residency training, and canceling all or a portion of their tuition if they practice primary care medicine for two or four full years (depending on conditions) in the Commonwealth. The University does not record as revenue the portion of tuition deferred under these learning contracts until actual cash repayments are received. The cumulative amount granted under such learning contracts plus accrued interest totaled $70.9 million and $68.6 million at June 30, 2015 and 2014, respectively. Cumulative repayments totaled approximately $53.8 million and $51.2 million as of June 30, 2015 and 2014, respectively. 13. PENSIONS The Masssachusetts State Employees Retirement System (MSERS) is a public employee retirement system (PERS) that administers a cost-sharing multi-employer defined benefit plan as defined by Governmental Accounting Standards Board (GASB) Statement No. 67, Financial Reporting for Pension Plans, covering substantially all employees of the Commonwealth. Management of MSERS is vested in the Massachusetts State Retirement Board (the MSRB) which consists of five members- two elected by current and active MSERS members, one by the remaining members of the MSRB, one who is appointed by the State Treasurer, who serves as ex-officio and is the Chair of the MSRB. MSERS does not issue stand-alone financial statements; however, MSERS financial information is contained in the Commonwealth Comprehensive Annual Financial Report and can be obtained by contacting the State Comptroller, One Ashburton Place, 9 th Floor, Boston, MA MSERS provides retirement, disability, survivor and death benefits to members and their beneficiaries. Massachusetts General Laws (MGL) establishes uniform benefit and contribution requirements for all contributory PERS. These requirements provide for superannuation retirement allowance benefits up to a maximum of 80% of a member s highest three-year average annual rate of regular compensation. For employees hired after April 1, 2012, retirement allowances are calculated on the basis of the last five years or any five consecutive years, whichever is greater in terms of compensation. Benefit payments are based upon a member s age, length of creditable service, and group creditable service, and group classification. The authority for amending these provisions rests with the Legislature. Members become vested after ten years of creditable service. A superannuation retirement allowance may be received upon the completion of twenty years of creditable service or upon reaching the age of 55 with ten years of service. Normal retirement for most employees occurs at age 65; for certain hazardous duty and public safety positions, normal retirement is at age 55. Most employees who joined the system after April 1, 2012 cannot retire prior to age 60. The MSERS funding policies have been established by Chapter 32 of MGL. The Legislature has the authority to amend these policies. The annuity portion of the MSERS retirement allowance is funded by employees, who contribute a percentage of their regular compensation. Costs of administering the plan are funded out of plan assets. Member contributions for MSERS vary depending on the most recent date of membership: Hire Date % of Compensation Prior to % of regular compensation % or regular compensation 1984 to 6/30/1996 8% of regular compensation 7/1/1996-present 9% of regular compensation 1979 to present An additional 2% of regular compensation in excess of $30,000 The University makes contributions on behalf of the employees through a fringe benefit charge assessed by the Commonwealth. The fringe benefit charged amounted to approximately $ 85.7 million and $63.6 million for the years ended June 30, 2015 and 2014, respectively. Annual covered payroll approximated 76.2% and 76.4% for the years ended June 30, 2015 and 2014, respectively of annual total payroll for the University. The amount of pension expense included in the fringe charge was $22.4 million and $18.7 million for the years ended June 30, 2015 and 2014, respectively. Actuarial Assumptions The total pension liability for the June 30, 2014 measurement date was determined by an actuarial valuation as of January 1, 2014 rolled forward to June 30, The measurement date of June 30, 2014 was used for the June 30, 2015 fiscal year as the pronouncement allows a lag for practical application. Therefore all references to the liability as of June 30, 2015 are based on the measurement date of June 30, This valuation used the following assumptions: 1. (a) 8.0% investment rate of return, (b) 3.5% interest rate credited to an annuity savings fund and (c) 3.0% cost of living increase per year. 2. Salary increases are based on analyses of past experience but range from 3.5% to 9.0% depending on group and length of service. 37

104 3. Mortality rates were as follows: a. Pre-retirement reflects RP-2000 Employees table projected 20 years with Scale AA (gender distinct) b. Post-retirement reflects Healthy Annuitant table projected 15 years with Scale AA (gender distinct) c. Disability the mortality rate is assumed to be in accordance with the RP-2000 Table projected 5 years with Scale AA (gender distinct) set forward 3 years for males. Investment assets of MSERS are with the Pension Reserves Investment Trust (PRIT) Fund. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future rates pf return by the target asset allocation percentage. Best estimates of geometric rates of return for each major asset class included in the PRIT Fund s target asset allocation as of June 30, 2014 and 2013 are summarized in the following table: Long-term Expected Real Rate of Return Asset Class Target Allocation 2014 Global Equity 43.00% 7.20% Core Fixed Income 13.00% 2.50% Hedge Funds 10.00% 5.50% Private Equity 10.00% 8.80% Real Estate 10.00% 6.30% Value Added Fixed Income 10.00% 6.30% Timber / Natural Resources 4.00% 5.00% Total % Discount Rate The Discount rate used to measure the total pension liability was 8.0%. The projection of cash flows used to determine the discount rate assumed that plan members contributions will be made at the current contribution rates and the Commonwealth s contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rates. Based on those assumptions, the net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity Analysis The following illustrates the sensitivity of the collective net pension liability to changes in the discount rate. In particular, the table presents the MSERS collective pension liability assuming it was calculated using a single discount rate that is one-percentage-point lower or one-percentage-point highers than the current discount rate (amounts in thousands): Fiscal Year Ended 1% Decrease to 7% Current Discount Rate 8% 1% Increase to 9% June 30, 2014 $ 342,861 $ 237,135 $ 145,815 For the year ending June 30, 2015, the University recognized ($57,000) of pension expense, which is recorded in Other Nonoperating Income. The following table shows the components of pension expense as of June 30, 2015 (amounts in thousands): Proportionate Share of Plan Pension Expense $ 17,555 Net Amortization of Deferred Amounts from Change in Proportion 4, Payments (22,463) Pension Expense $ (57) Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At June 30, 2015, in connection with the adoption of GASB 68, the University reported a liability of $237,135 million for its proportionate share of MSERS s net pension liability. The net pension liability was measured as of June 30, 2014 and the total pension liability was used to calculate the net pension liability which was determined by an actuarial valuation as of that date. The University s proportion of the net pension liability was based on a projection of the University s long-term share of contributions to 38

105 the pension plan relative to the total projected contributions of all participating entities, actuarially determined. There were no changes of assumptions or other inputs that affected measurement of the total pension liability during the measurement period. There were no changes of benefit terms that affected measurement of the total pension liability during the measurement period. At June 30, 2015, the University reported its proportionate share of MSERS s deferred outflows of resources and deferred inflows of resources related to pension from the following sources: Deferred Inflows of Resources Deferred Outflows of Resources Changes of Assumptions $ 2,666 Changes in Proportion Due to Internal Allocation $ 21,910 Employer Contributions after measurement date $ 22,463 Net Difference Between Projected and Actual Investment Earnings on Pension Plan Investments $ 48,672 Changes in Proportion From Commonwealth $ 82 $ 48,754 $ 47,039 The net amounts of the employer s balances of deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year Ended June 30: 2016 $ (5,281) 2017 $ (5,281) 2018 $ (5,281) 2019 $ (5,281) 2020 $ 2,227 Thereafter $ - Non-vested faculty and certain other employees of the University can opt out of MSERS and participate in a defined contribution plan, the Massachusetts Optional Retirement Program ( ORP ), administered by the Commonwealth s Department of Higher Education. At June 30, 2015 and 2014, there were approximately 4,449 and 4,031 University employees, respectively participating in ORP. Employees contribute at the same rate as members in SERS do and the Commonwealth matches 5% of employee contributions. The Commonwealth contributed $6.2 million and $8.9 million in 2015 and 2014, respectively. University employees contributed $28.6 million and $28.0 million in 2015 and 2014, respectively. The MSERS and ORP retirement contributions of employees who become members of MSERS or ORP after January 1, 2011 are subject to a state compensation limit. Effective January 1, 2011, the University established a defined contribution plan, the University of Massachusetts 401(a) Retirement Gap Plan, administered by the University s Treasury Office. Employees with MSERS or ORP membership dates after January 1, 2011 are eligible employees for the Gap Plan. Eligible employees begin participation in the Gap Plan when their regular compensation exceeds the state compensation limit in effect for the plan year, at which point their contributions to MSERS or ORP are required to stop for the remainder of the plan year. Employee contributions to the Gap Plan are mandatory and at the same rate as MSERS and ORP; the University contributes 5%. At June 30, 2015 and 2014 plan assets totaled approximately $780.1 million and $506.0 million, respectively. 14. CONCENTRATION OF CREDIT RISK (Other than Cash and Investments) The financial instrument that potentially subjects the University to concentrations of credit risk is the receivable from UMass Memorial Medical Center (UMMMC) which is uncollateralized. The receivable from UMass Memorial represents 5.7% and 12.2% of total accounts receivable for the University at June 30, 2015 and 2014, respectively. The University also had uncollateralized receivables from three other organizations comprising approximately 11.8%, 8.0% and 3.7% of the total outstanding receivables at June 30, 2015 and 6.5%, 6.0% and 4.8% of the total outstanding receivables at June 30, COMMITMENTS AND CONTINGENCIES The Building Authority, University, and WCCC have outstanding purchase commitments under construction contracts and real estate agreements in amounts aggregating approximately $205.7 million and $148.2 million at June 30, 2015 and 2014, respectively. In connection with the investments in certain limited partnership agreements, the Foundation has $60.1 million and $22.4 million in committed calls as of June 30, 2015 and 2014, respectively, which are scheduled to be funded over a number of years. The University has entered an Energy Performance Contract that is being managed by the Commonwealth s Division of Capital Asset Management (DCAM) under its Clean Energy Investment Program. This project includes 32 energy conservation measures. The installation costs will be incurred over 2 phases with Phase 1 being approximately $18.0 million and Phase 2 being approximately $13.5 million. The term of these transactions is 20 years. The University has a commitment to the Commonwealth for Clean Energy Investment Program Funds used through June 30, 2015 and 2014 in the amount of $29.1 million and $29.7 million, respectively. 39

106 The University, as an agency of the Commonwealth, is self-insured for property loss exposure, subject to appropriation from the state legislature. However, properties owned by the University of Massachusetts Building Authority located on a campus of the University, such as the Mullins Center, dining commons, and most dormitories, are insured by the Building Authority. In addition, certain properties owned by other University Related Organizations and leased to the University are insured by the related organization. The University and its employees are protected against tort claims through sovereign immunity under Chapter 258 of the Massachusetts General Laws. The University maintains certain liability insurance policies, including Commercial General Liability, leased Automotive Liability, Directors and Officers and Comprehensive Crime policies. Employees of the University are covered for Worker s Compensation protection under Chapter 152 of the Massachusetts General Laws. The University has recorded a liability for future expected costs of its workers compensation claims of approximately $14.4 million as of June 30, 2015 and $15.1 million as of June 30, Estimated future payments related to such costs have been discounted at a rate of 4.0%. The University is a defendant in various lawsuits and is subject to various contractual matters; however, University management is of the opinion that the ultimate outcome of all litigation or potential contractual obligations will not have a material effect on the financial position, financial results or cash flows of the University. From time to time the University and/or its affiliated organizations are subject to audits of programs that are funded through either federal and/or state agencies. The University is aware that the Office of the Inspector General for the U.S. Department of Health and Human Services performed an audit of Medicaid Supplemental Revenues ( MSR ) received by UMMMC, the final report for which was issued December Portions of this report continue to be contested and the final outcome of this audit is currently unknown. Dependent on the final outcome, UMMMC may be required to repay any MSR received deemed to be disallowed as a result of the audit. Dependent on that outcome, the University, consistent with the Agreement for Medical Educational Services, made part of the Definitive Agreement between the University and UMMMC, and its subsequent amendments and the indemnification provisions in these Agreements, may be required to indemnify UMMMC for a portion of any amounts due. Although the final outcome of this audit is currently unknown, and management believes that as of the date of the financial statements it is not probable that a liability exists, management concludes it is reasonably possible that amounts could be repaid and that those amounts may be material to the University s financial position and results of operations. Five Universities in the Commonwealth of Massachusetts jointly formed the Massachusetts Green High Performance Computing Center, Inc. (MGHPCC) and MGHPCC Holyoke, Inc. in May 2010 and April 2012, respectively, to construct and operate a research computing center located in Holyoke, Massachusetts. MGHPCC and MGHPCC Holyoke, Inc. are tax-exempt organizations under Internal Revenue Code section 501(c) (3). Each respective university agreed to contribute $10.0 million and as of June 30, 2015, each university had contributed the required amounts. The University s unamortized $6.0 million investment is included in its Statement of Financial Position within Other Assets. 16. SUBSEQUENT EVENTS For purposes of determining the effects of subsequent events on these financial statements, management has evaluated events subsequent to June 30, 2015 and through December 18, 2015, the date on which the financial statements were available to be issued and, determined that there were no matters requiring recognition or disclosure to the accompanying financial statements. 40

107 The University of Massachusetts Required Supplementary Information - Unaudited June 30, 2015 SCHEDULE OF THE UNIVERSITY'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY MASSACHUSETTS STATE EMPLOYEES' RETIREMENT SYSTEM 6/30/2015 University's proportion of the net pension liability 3.489% University's proportionate share of the net pension liability $ 237,134 University's covered-employee payroll $ 1,061,132 University's proportionate share of the net pension liability as a percentage of its covered-employee payroll 22.35% Plan fiduciary net position as a percentage of total pension liability 76.32% SCHEDULE OF THE UNIVERSITY'S CONTRIBUTIONS MASSACHUSETTS STATE EMPLOYEES' RETIREMENT SYSTEM Contractually required contribution $ 22,870 Contributrions in relation to the contractually required contribution (22,870) Contribution deficiency (excess) $ - University's covered-employee payroll $ 1,061,132 Contributions as a percentage of covered-employee payroll 2.16% 41

108 University of Massachusetts 2015 Annual Financial Report Supplemental Financial Information Table of Contents Page Report of Independent Certified Public Accountants on Supplemental Information S Campuses: Central Administration: Statements of Net Position as of June 30, 2015 and 2014 S-1 Statements of Revenues, Expenses and Changes in Net Position S-2 for the Years Ended June 30, 2015 and 2014 Amherst: Boston: Statements of Net Position as of June 30, 2015 and 2014 S-3 Statements of Revenues, Expenses and Changes in Net Position S-4 for the Years Ended June 30, 2015 and 2014 Statements of Net Position as of June 30, 2015 and 2014 S-5 Statements of Revenues, Expenses and Changes in Net Position S-6 for the Years Ended June 30, 2015 and 2014 Dartmouth: Lowell: Statements of Net Position as of June 30, 2015 and 2014 S-7 Statements of Revenues, Expenses and Changes in Net Position S-8 for the Years Ended June 30, 2015 and 2014 Statements of Net Position as of June 30, 2015 and 2014 S-9 Statements of Revenues, Expenses and Changes in Net Position S-10 for the Years Ended June 30, 2015 and 2014 Worcester (including Worcester City Campus Corporation and Subsidiary): Statements of Net Position as of June 30, 2015 and 2014 S-11 Statements of Revenues, Expenses and Changes in Net Position S-12 for the Years Ended June 30, 2015 and 2014 University Related Organizations: Combining Statements of Net Position as of June 30, 2015 and 2014 Combining Statements of Revenues, Expenses and Changes in Net Position for the Years Ended June 30, 2015 and 2014 Notes to Supplementary Information I II III 42

109 Grant Thornton LLP 75 State Street, 13th Floor Boston, MA T F linkd.in/grantthorntonus twitter.com/grantthorntonus REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Trustees University of Massachusetts We have audited, in accordance with auditing standards generally accepted in the United States of America, the financial statements of the business-type activities and the aggregate discretely presented component units of the University of Massachusetts (the University ), an enterprise fund of the Commonwealth of Massachusetts, as of and for the years ended June 30, 2015 and 2014, and our report thereon dated December 18, 2015 expressed an unmodified opinion on those financial statements. Our audits were performed for the purpose of forming an opinion on these financial statements as a whole. The accompanying Supplemental Schedules of Financial Information for University Campuses and University related organizations as of and for the years ended June 30, 2015 and 2014 is presented for purposes of additional analysis and is not a required part of the financial statements. Such supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. However, the University has not reflected the impact of accounting for pensions in these Supplemental Schedules. Accounting principles generally accepted in the United States of America require the net pension liability as well as deferred inflows and deferred outflows of resources associated with pensions, to be recorded in the financial statements. The amounts not reflected in the Supplemental Schedules are as follows (in $000 s): net pension liability ($237,135), deferred inflows of resources ($48,753) and deferred outflows of resources ($47,039) as of June 30, The other supplementary information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures. These additional procedures included comparing and reconciling the information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, except for the effects of the matter described above related to pensions, the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. Boston, Massachusetts December 18, 2015 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd

110 University of Massachusetts CENTRAL ADMINISTRATION Statements of Net Position As of June 30, 2015 and 2014 (in thousands of dollars) June 30, 2015 June 30, 2014 ASSETS Current Assets Cash and Cash Equivalents $8,737 $10,717 Cash Held By State Treasurer 77 3,297 Accounts, Grants and Loans Receivable, net 2,280 2,487 Short Term Investments 56,861 46,347 Due from Other Campuses 1, Due from Related Organizations - - Other Assets 5,713 3,964 Total Current Assets 74,800 67,019 Noncurrent Assets Cash and Securities Held By Trustees 21,015 29,940 Cash Held By State Treasurer 188 1,904 Investments 107, ,329 Other Assets 6,000 7,120 Investment in Plant, net 95,171 91,930 Total Noncurrent Assets 230, ,223 Total Assets $305,137 $319,242 DEFERRED OUTFLOWS OF RESOURCES Loss on Debt Refinancing $802 $482 LIABILITIES Current Liabilities Accounts Payable $4,396 $10,011 Accrued Salaries and Wages 2,808 1,748 Accrued Compensated Absences 4,431 4,332 Accrued Interest Payable Bonds Payable - Due To Campuses 46,316 46,748 Due To Related Organizations Unearned Revenues and Credits 1,159 1,634 Advances and Deposits Other Liabilities 6,680 5,671 Total Current Liabilities 67,200 71,851 Noncurrent Liabilities Accrued Compensated Absences Bonds Payable 83,485 80,712 Derivative Instrument, Interest Rate Swap - Unearned Revenues and Credits Other Liabilities 10,061 10,446 Total Noncurrent Liabilities 94,345 91,773 Total Liabilities $161,545 $163,624 Net Position: Invested in Capital Assets Net of Related Debt $18,026 $15,953 Restricted Nonexpendable 2,206 1,606 Expendable 27,530 31,302 Unrestricted 96, ,239 Total Net Position $144,394 $156, The accompanying notes are an integral part of these financial statements. S-1

111 University of Massachusetts CENTRAL ADMINISTRATION Statements of Revenues, Expenses and Changes in Net Position For The Years Ended June 30, 2015 and 2014 (in thousands of dollars) June 30, 2015 June 30, 2014 REVENUES Operating Revenues Tuition and Fees $4,701 $6,330 Federal Grants and Contracts 2,934 4,172 State Grants and Contracts 4,985 4,615 Local Grants and Contracts Private Grants and Contracts 3,305 3,174 Sales and Service, Educational 2,129 2,067 Allocation from Campuses 65,476 68,831 Other Operating Revenues: Other 11,013 3,874 Total Operating Revenues 94,677 93,182 EXPENSES Operating Expenses Educational and General Instruction 10,721 10,414 Research 4,269 5,159 Public Service 2,818 2,823 Institutional Support 68,982 61,850 Operation and Maintenance of Plant 2, Scolarships and Fellowships 6 6 Depreciation and Amortization 6,534 5,987 Total Operating Expenses 95,592 86,688 Operating Income/(Loss) (915) 6,494 NONOPERATING REVENUES/(EXPENSES) State Appropriations - Investment Return 4,865 8,310 Endowment Return Interest on Indebtedness (1,747) (103) Other Nonoperating Income - 32 Net Nonoperating Revenues 3,419 8,472 Income Before Other Revenues, Expenses, Gains, and Losses 2,504 14,966 OTHER REVENUES, EXPENSES, GAINS, AND LOSSES Capital Appropriations - 5,200 Disposal of Plant Facilities - - Other Additions/(Deductions) (14,210) (12,764) Total Other Revenues, Expenses, Gains, and Losses (14,210) (7,564) Total Increase in Net Position (11,706) 7,402 NET POSITION Net Position at Beginning of Year, as reported 156, ,698 Cummulative effect of change in accounting principle - Net Position at Beginning of Year, as adjusted 156, ,698 Net Position at End of Year $144,394 $156, The accompanying notes are an integral part of these financial statements. S-2

112 University of Massachusetts AMHERST CAMPUS Statements of Net Position As of June 30, 2015 and 2014 (in thousands of dollars) June 30, 2015 June 30, 2014 ASSETS Current Assets Cash and Cash Equivalents $32,763 $28,998 Cash Held By State Treasurer 11,468 10,920 Accounts, Grants and Loans Receivable, net 51,367 45,219 Pledges Receivable, net 2,719 2,090 Short Term Investments 107,018 68,440 Inventories, net 4,808 4,651 Due from Other Campuses 20,677 21,511 Other Assets Total Current Assets 231, ,330 Noncurrent Assets Cash Held By State Treasurer 2,315 1,508 Cash and Securities Held By Trustees 198, ,484 Accounts, Grants and Loans Receivable, net 17,996 18,904 Pledges Receivable,net 3,824 3,481 Investments 277, ,025 Other Assets 0 Investment in Plant, net 1,712,927 1,605,787 Total Noncurrent Assets 2,213,229 2,061,189 Total Assets $2,444,764 $2,243,519 DEFERRED OUTFLOWS OF RESOURCES Deferred Change in Fair Value of Interest Rate Swaps $30,586 $28,199 Loss on Debt Refunding 37,000 38,242 Total Deferred Outflows of Resources $67,586 $66,441 LIABILITIES Current Liabilities Accounts Payable $38,456 $44,759 Accrued Salaries and Wages 51,822 44,575 Accrued Compensated Absences 24,686 24,713 Accrued Workers' Compensation 1,459 1,927 Accrued Interest Payable 6,679 5,709 Bonds Payable 236,319 84,950 Accelerated variable rate debt, current 0 16,300 Capital Lease Obligations 0 2,148 Unearned Revenues and Credits 14,133 14,035 Advances and Deposits 926 1,149 Other Liabilities 6,984 6,666 Total Current Liabilities 381, ,931 Noncurrent Liabilities Accrued Compensated Absences 12,301 12,345 Accrued Workers' Compensation 4,546 4,787 Bonds Payable 782, ,293 Derivative Instrument, Interest Rate Swap 43,275 41,552 Capital Lease Obligations 0 Unearned Revenues and Credits 13,090 11,827 Advances and Deposits 13,748 13,386 Total Noncurrent Liabilities 869, ,190 Total Liabilities $1,251,017 $1,120,121 Net Position: Invested in Capital Assets Net of Related Debt $889,321 $851,475 Restricted Nonexpendable 3,977 3,973 Expendable 57,647 52,821 Unrestricted 310, ,570 Total Net Position $1,261,333 $1,189,839 $0 $0 The accompanying notes are an integral part of these financial statements. S-3

113 University of Massachusetts AMHERST CAMPUS Statements of Revenues, Expenses and Changes in Net Position As of June 30, 2015 and 2014 (in thousands of dollars) June 30, 2015 June 30, 2014 REVENUES Operating Revenues Tuition and Fees (net of scholarship allowances of $99,261 $341,462 $337,767 at June 30, 2015 and $95,477 at June 30, 2014) Federal Grants and Contracts 87,227 98,157 State Grants and Contracts 16,990 15,753 Local Grants and Contracts Private Grants and Contracts 32,712 30,950 Sales and Service, Educational 8,908 8,089 Auxiliary Enterprises 223, ,759 Other Operating Revenues: Other 19,010 16,137 Total Operating Revenues 730, ,958 EXPENSES Operating Expenses Educational and General Instruction 326, ,844 Research 105, ,825 Public Service 24,663 26,140 Academic Support 62,818 58,108 Student Services 54,551 52,163 Institutional Support 69,644 64,305 Operation and Maintenance of Plant 86,813 84,162 Depreciation and Amortization 89,442 82,687 Scholarships and Fellowships 20,215 20,991 Auxiliary Enterprises 185, ,666 Total Operating Expenses 1,026, ,891 Operating Loss (295,952) (262,933) NONOPERATING REVENUES/(EXPENSES) Federal Appropriations 6,619 7,020 State Appropriations 298, ,676 Gifts 15,714 16,139 Investment Return ,868 Endowment Return 5,956 8,424 Interest on Indebtedness (29,820) (25,609) Nonoperating Federal Grants 24,323 25,338 Other Nonoperating Income 643 (2) Net Nonoperating Revenues 322, ,854 Income Before Other Revenues, Expenses, Gains, and Losses 26,542 70,921 OTHER REVENUES, EXPENSES, GAINS, AND LOSSES Capital Appropriations 13,679 46,191 Capital Grants and Contracts 29,248 8,473 Disposal of Plant Facilities (4,959) (4,053) Other Additions/(Deductions) 6,984 (8,701) Total Other Revenues, Expenses, Gains, and Losses 44,952 41,910 Total Increase in Net Position 71, ,831 NET POSITION Net Position at Beginning of Year, as reported 1,189,839 1,077,008 Cummulative effect of change in accounting principle 0 Net Position at the Beginning of the Year, as adjusted 1,189,839 1,077,008 Net Position at End of Year $1,261,333 $1,189,839 $0.00 $0.00 The accompanying notes are an integral part of these financial statements. S-4

114 University of Massachusetts BOSTON CAMPUS Statements of Net Position As of June 30, 2015 and 2014 (in thousands of dollars) June 30, 2015 June 30, 2014 ASSETS Current Assets Cash and Cash Equivalents $4,138 $5,308 Cash Held By State Treasurer 4,609 3,817 Accounts, Grants and Loans Receivable, net 26,123 24,323 Pledges Receivable, net Short Term Investments 27,054 24,648 Inventories, net Due from Other Campuses 5,040 4,900 Other Assets Total Current Assets 68,449 64,685 Noncurrent Assets Cash Held By State Treasurer 1,377 1,377 Cash and Securities Held By Trustees 314, ,620 Accounts, Grants and Loans Receivable, net 7,978 8,321 Pledges Receivable, net 730 1,514 Investments 84,341 97,566 Other Assets - Investment in Plant, net 538, ,843 Total Noncurrent Assets 947, ,241 Total Assets $1,015,839 $924,926 DEFERRED OUTFLOWS OF RESOURCES Deferred Change in Fair Value of Interest Rate Swaps $1,462 $1,218 Loss on Debt Refunding 7,726 7,336 Total Deferred Outflows of Resources $9,188 $8,554 LIABILITIES Current Liabilities Accounts Payable $27,010 $12,682 Accrued Salaries and Wages 23,225 19,515 Accrued Compensated Absences 11,743 11,484 Accrued Workers' Compensation Accrued Interest Payable 4,165 3,889 Bonds Payable 23,647 23,968 Accelerated variable rate debt, current Capital Lease Obligations Unearned Revenues and Credits 4,612 4,875 Advances and Deposits 2,269 2,250 Other Liabilities 8,476 5,243 Total Current Liabilities 105,702 84,720 Noncurrent Liabilities Accrued Compensated Absences 4,263 4,230 Accrued Workers' Compensation 1,426 1,054 Bonds Payable 516, ,603 Capital Lease Obligations Derivative Instrument, Interest Rate Swap 4,510 4,412 Unearned Revenues and Credits 1,990 1,478 Advances and Deposits 4,337 4,420 Other Liabilities 1,591 1,775 Total Noncurrent Liabilities 535, ,972 Total Liabilities $640,799 $578,692 Net Position: Invested in Capital Assets Net of Related Debt $284,313 $237,546 Restricted Nonexpendable 6,713 6,699 Expendable 21,178 22,222 Unrestricted 72,024 88,321 Total Net Position $384,228 $354,788 $0 $0 The accompanying notes are an integral part of these financial statements. S-5

115 University of Massachusetts BOSTON CAMPUS Statements of Revenues, Expenses and Changes in Net Position For The Years Ended June 30, 2015 and 2014 (in thousands of dollars) June 30, 2015 June 30, 2014 REVENUES Operating Revenues Tuition and Fees (net of scholarship allowances of $35,021 at $169,657 $160,317 June 30, 2015 and $33,020 at June 30, 2014) Federal Grants and Contracts 28,895 26,730 State Grants and Contracts 8,300 10,151 Local Grants and Contracts Private Grants and Contracts 10,829 9,830 Sales and Service, Educational 4,197 3,433 Auxiliary Enterprises 9,211 9,981 Other Operating Revenues: Other Total Operating Revenues 232, ,164 EXPENSES Operating Expenses Educational and General Instruction 146, ,539 Research 37,357 29,176 Public Service 9,219 11,478 Academic Support 31,862 29,014 Student Services 23,172 22,867 Institutional Support 55,199 46,159 Operation and Maintenance of Plant 28,319 25,238 Depreciation and Amortization 16,572 13,284 Scholarships and Fellowships 12,254 11,654 Auxiliary Enterprises 9,001 11,353 Total Operating Expenses 369, ,762 Operating Loss (136,822) (118,598) NONOPERATING REVENUES/(EXPENSES) State Appropriations 110, ,553 Gifts 3,149 4,535 Investment Return 3,505 11,306 Endowment Return 975 1,997 Interest on Indebtedness (8,133) (6,665) Nonoperating Federal Grants 23,439 21,173 Other Nonoperating Income/(Expense) Net Nonoperating Revenues 133, ,174 Income Before Other Revenues, Expenses, Gains, and Losses (3,105) 14,576 OTHER REVENUES, EXPENSES, GAINS, AND LOSSES Capital Appropriations 35,290 42,978 Capital Grants and Contracts 1,118 1,856 Disposal of Plant Facilities (3,516) (1,157) Other Additions/(Deductions) (347) (3,302) Total Other Revenues, Expenses, Gains, and Losses 32,545 40,375 Total Increase in Net Position 29,440 54,951 NET POSITION Net Position at Beginning of Year, as reported 354, ,837 Cummulative Effect of Accounting Principle - Net Position at the Beginning of Year, as adjusted 354, ,837 Net Position at End of Year $384,228 $354,788 $0.00 $0.00 The accompanying notes are an integral part of these financial statements. S-6

116 University of Massachusetts DARTMOUTH CAMPUS Statements of Net Position As of June 30, 2015 and 2014 (in thousands of dollars) June 30, 2015 June 30, 2014 ASSETS Current Assets Cash and Cash Equivalents $1,233 $1,023 Cash Held By State Treasurer 3,815 2,895 Accounts, Grants and Loans Receivable, net 11,213 12,306 Short Term Investments 5,732 3,172 Inventories, net - Due from Other Campuses 715 1,141 Due from Related Organizations Other Assets Total Current Assets 23,249 20,998 Noncurrent Assets Cash Held By State Treasurer 352 2,118 Cash and Securities Held By Trustees 50,576 49,581 Accounts, Grants and Loans Receivable, net 2,807 2,638 Investments 15,498 13,200 Other Assets - Investment in Plant, net 321, ,741 Total Noncurrent Assets 390, ,278 Total Assets $414,173 $424,276 DEFERRED OUTFLOWS OF RESOURCES Deferred Change in Fair Value of Interest Rate Swaps $6,839 $5,845 Loss on Debt Refunding 21,427 23,148 Total Deferred Outflows of Resources $28,266 $28,993 LIABILITIES Current Liabilities Accounts Payable $4,431 $5,861 Accrued Salaries and Wages 11,746 11,069 Accrued Compensated Absences 6,308 5,918 Accrued Workers' Compensation Accrued Interest Payable 1,255 1,308 Bonds Payable 64,358 46,765 Accelerated variable rate debt, current 6, Due To Other Campuses 1, Unearned Revenues and Credits 1,779 1,739 Advances and Deposits 1,167 1,171 Other Liabilities 1,228 1,562 Total Current Liabilities 99,777 76,231 Noncurrent Liabilities Accrued Compensated Absences 3,818 3,829 Accrued Workers' Compensation 1,162 1,331 Bonds Payable 147, ,684 Derivative Instrument, Interest Rate Swap 15,939 15,408 Unearned Revenues and Credits Advances and Deposits 3,317 3,032 Other Liabilities 29,159 29,720 Total Noncurrent Liabilities 201, ,058 Total Liabilities $301,167 $307,289 Net Position: Invested in Capital Assets Net of Related Debt $124,530 $136,286 Restricted Expendable 7,594 8,999 Unrestricted 9, Total Net Position $141,272 $145,980 $0 $0 The accompanying notes are an integral part of these financial statements. S-7

117 University of Massachusetts DARTMOUTH CAMPUS Statements of Revenues, Expenses and Changes in Net Position For The Years Ended June 30, 2015 and 2014 (in thousands of dollars) June 30, 2015 June 30, 2014 REVENUES Operating Revenues Tuition and Fees (net of scholarship allowances of $35,359 $72,269 $72,885 at June 30, 2015 and $33,161 June 30, 2014) Federal Grants and Contracts 7,798 8,632 State Grants and Contracts 6,060 5,683 Local Grants and Contracts Private Grants and Contracts 3,560 4,000 Sales and Service, Educational Auxiliary Enterprises 47,374 48,220 Other Operating Revenues: Other 6,447 5,932 Total Operating Revenues 143, ,054 EXPENSES Operating Expenses Educational and General Instruction 66,415 68,583 Research 15,347 17,013 Public Service 3,228 4,503 Academic Support 27,762 26,073 Student Services 12,190 11,574 Institutional Support 18,374 17,600 Operation and Maintenance of Plant 21,298 25,015 Depreciation and Amortization 16,663 15,064 Scholarships and Fellowships 7,442 6,659 Auxiliary Enterprises 28,337 30,424 Total Operating Expenses 217, ,508 Operating Loss (73,165) (76,454) NONOPERATING REVENUES/(EXPENSES) State Appropriations 70,006 64,633 Investment Return 1,834 2,602 Endowment Income 1,756 1,733 Interest on Indebtedness (8,252) (8,617) Nonoperating Federal Grants 12,792 11,987 Other Nonoperating Income 1, Net Nonoperating Revenues 79,549 72,925 Income/(Loss) Before Other Revenues, Expenses, Gains, and Losses 6,384 (3,529) OTHER REVENUES, EXPENSES, GAINS, AND LOSSES Capital Appropriations 5,576 14,556 Capital Grants and Contracts 11,400 5,815 Disposal of Plant Facilities (1,183) (1,293) Additions to Permanent Endowments 920 Other Additions/(Deductions) (27,804) (2,622) Total Other Revenues, Expenses, Gains, and Losses (11,091) 16,456 Total Increase in Net Position (4,707) 12,927 NET POSITION Net Position at Beginning of Year, as reported 145, ,053 Cummulative effect of change in accounting principle - Net Position at Beginning of Year, as adjusted 133,053 Net Position at End of Year $141, ,980 $0.00 $0.00 The accompanying notes are an integral part of these financial statements. S-8

118 University of Massachusetts LOWELL CAMPUS Statements of Net Position As of June 30, 2015 and 2014 (in thousands of dollars) June 30, 2015 June 30, 2014 ASSETS Current Assets Cash and Cash Equivalents $6,165 $5,718 Cash Held By State Treasurer 5,775 5,345 Accounts, Grants and Loans Receivable, net 33,237 29,338 Pledges Receivable, net 1,172 1,001 Short Term Investments 33,668 23,842 Due from Other Campuses 4,850 5,235 Other Assets 1, Total Current Assets 85,970 71,095 Noncurrent Assets Cash Held By State Treasurer 694 1,099 Cash and Securities Held By Trustees 119, ,045 Accounts, Grants and Loans Receivable, net 3,488 5,009 Pledges Receivable, net 1,721 1,470 Investments 74,665 78,339 Other Assets Investment in Plant, net 623, ,746 Total Noncurrent Assets 824, ,448 Total Assets $910,401 $846,543 DEFERRED OUTFLOWS OF RESOURCES Deferred Change in Fair Value of Interest Rate Swaps $5,761 $5,820 Loss on Debt Refunding 3,381 2,590 Total Deferred Outflows of Resources $9,142 $8,410 LIABILITIES Current Liabilities Accounts Payable $11,836 $16,111 Accrued Salaries and Wages 19,551 17,652 Accrued Compensated Absences 10,212 9,253 Accrued Workers' Compensation Accrued Interest Payable 3,931 3,260 Bonds Payable 53,238 20,947 Accelerated variable rate debt, current 33,292 Capital Lease Obligations 73 Unearned Revenues and Credits 4,678 6,377 Advances and Deposits 1,301 1,365 Other Liabilities 2,436 12,065 Total Current Liabilities 107, ,784 Noncurrent Liabilities Accrued Compensated Absences 5,175 5,239 Accrued Workers' Compensation 1,344 1,147 Bonds Payable 468, ,125 Derivative Instruments, Interest Rate Swap 7,330 7,471 Capital Lease Obligations 236 Unearned Revenues and Credits 4,979 1,297 Advances and Deposits 3,771 3,808 Other Liabilities Total Noncurrent Liabilities 491, ,337 Total Liabilities $599,252 $551,121 Net Position: Invested in Capital Assets Net of Related Debt $211,600 $199,226 Restricted Nonexpendable 4,456 3,957 Expendable 18,795 20,485 Unrestricted 85,440 80,164 Total Net Position $320,291 $303,832 $0 $0 The accompanying notes are an integral part of these financial statements S-9

119 University of Massachusetts LOWELL CAMPUS Statements of Revenues, Expenses and Changes in Net Position For The Years Ended June 30, 2015 and 2014 (in thousands of dollars) June 30, 2015 June 30, 2014 REVENUES Operating Revenues Tuition and Fees (net of scholarship allowances of $ 40,768 at $164,963 $152,563 June 30, 2015 and $37,245 at June 30, 2014) Federal Grants and Contracts 26,718 24,362 State Grants and Contracts 6,069 5,121 Local Grants and Contracts Private Grants and Contracts 10,903 10,073 Sales and Service, Educational Auxiliary Enterprises 52,725 45,101 Other Operating Revenues: Other 8,205 6,726 Total Operating Revenues 270, ,436 EXPENSES Operating Expenses Educational and General Instruction 113, ,203 Research 43,313 36,624 Public Service Academic Support 29,978 26,112 Student Services 32,268 27,033 Institutional Support 43,234 43,222 Operation and Maintenance of Plant 36,961 34,453 Depreciation and Amortization 28,666 23,926 Scholarships and Fellowships 9,383 9,932 Auxiliary Enterprises 31,063 26,276 Total Operating Expenses 368, ,611 Operating Loss (98,797) (95,175) NONOPERATING REVENUES/(EXPENSES) State Appropriations 96,633 88,136 Gifts 3,159 3,484 Investment Return 1,681 8,284 Endowment Return 1,316 1,720 Interest on Indebtedness (18,371) (12,311) Nonoperating Federal Grants 15,985 15,781 Other Nonoperating Income/(Expense) Net Nonoperating Revenues 100, ,102 Income/(Loss) Before Other Revenues, Expenses, Gains, and Losses 1,741 9,927 OTHER REVENUES, EXPENSES, GAINS, AND LOSSES Capital Appropriations 7,099 2,788 Capital Grants and Contracts 10,666 5,843 Capital Contribution - Disposal of Plant Facilities (1,299) 1,550 Other Additions/(Deductions) (1,748) 178 Total Other Revenues, Expenses, Gains, and Losses 14,718 10,359 Total Increase in Net Position 16,459 20,286 NET POSITION Net Position at Beginning of Year, as reported 303, ,546 Cummulative effect of change in accounting principle - Net Position at Beinning of Year, as adjusted 283,546 Net Position at End of Year $320, , The accompanying notes are an integral part of these financial statements. S-10

120 University of Massachusetts WORCESTER CAMPUS Statements of Net Position As of June 30, 2015 and 2014 (in thousands of dollars) Worcester City Worcester City Combined Combined Worcester Worcester Campus Campus Totals Totals Campus Campus Corporation Corporation Eliminations Eliminations Memorandum Only Memorandum Only June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014 ASSETS Current Assets Cash and Cash Equivalents $5,707 $5,742 $31,222 $6,246 $36,929 $11,988 Cash Held By State Treasurer 1,853 1,593 1,853 1,593 Cash and Securities Held By Trustees $0 - - Accounts, Grants and Loans Receivable, net 124, , ,139 $ , ,483 Pledges Receivable, net 6,218 7,545 6,218 7,545 Short Term Investments 34,915 26,508 34,915 26,508 Inventories, net 11,850 10,836 11,850 10,836 Accounts Receivable UMass Memorial 17,463 38,762-2,045 17,463 40,807 Due from Other Campuses 15,034 13,960 15,034 13,960 Due from Related Organizations 1,137 3,881 46,310 81,623 (47,063) $ (85,504) Other Assets 6,263 2, ,565 2,857 Total Current Assets 225, ,700 78,415 92,381 (46,994) (85,504) 256, ,577 Noncurrent Assets Cash Held By State Treasurer Cash and Securities Held By Trustees 2,445 5, ,480 5,516 Accounts, Grants and Loans Receivable, net 6,113 5,626 6,113 5,626 Investments 178, , , ,494 Other Assets Investment In Plant, net 663, , , ,905 1,041,773 1,054,739 Total Noncurrent Assets 850, , , ,937 1,228,871 1,255,798 Total Assets $1,075,679 $1,087,561 $456,763 $487,318 ($46,994) ($85,504) $1,485,448 $1,489,375 DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows of Resources $6,411 $9,976 $10,687 $ 16,387 $ 10,687 LIABILITIES Current Liabilities Accounts Payable $27,968 $19,932 $5,993 $4,294 $33,961 $24,226 Accrued Salaries and Wages 18,189 15,905 18,189 15,905 Accrued Compensated Absences 19,254 18,392 19,254 18,392 Accrued Workers' Compensation 773 1, ,003 Accrued Interest Payable 3,562 3,651 2,469 3,458 6,031 7,109 Bonds Payable 9,478 8,781 10,975 11,197 20,453 19,978 Accounts Payable UMass Memorial 2,787 3,864 2,787 3,864 Due to Related Organizations 46,191 81,974 1,075 3,484 $ (46,994) $ (85,504) 272 (46) Due to Other Campuses Unearned Revenues and Credits 19,169 12,263 19,169 12,263 Advances and Deposits Other Liabilities 18,207 14,114 3,343 3,686 21,550 17,800 Total Current Liabilities 165, ,152 23,855 26,119 (46,994) (85,504) 142, ,767 Noncurrent Liabilities Accrued Compensated Absences 5,667 5,583 5,667 5,583 Accrued Workers' Compensation 2,408 2,492 2,408 2,492 Bonds Payable 384, , , , , ,419 Unearned Revenues and Credits 6,508 6,525 6,508 6,525 Advances and Deposits 3,448 3,448 3,448 3,448 Other Liabilities ,072 Total Noncurrent Liabilities 402, , , , , ,539 Total Liabilities $568,631 $586,021 $325,519 $331,789 ($46,994) ($85,504) $847,156 $832,306 Net Position: Invested in Capital Assets Net of Related Debt $285,053 $272,937 $75,098 $87,344 $360,151 $360,281 Restricted Nonexpendable 1,026 1,152 1,026 1,152 Expendable 36,847 38, ,847 38,701 Unrestricted 190, ,777 66,122 78, , ,622 Total Net Position $513,459 $501,540 $141,220 $166,216 $0 $654,679 $667, The accompanying notes are an integral part of these financial statements. S-11

121 University of Massachusetts WORCESTER CAMPUS Statements of Revenues, Expenses and Changes in Net Position For The Years Ended June 30, 2015 and June 30, 2014 (in thousands of dollars) Worcester City Worcester City Combined Totals Combined Totals Worcester Worcester City Campus City Campus Memorandum Memorandum Campus Campus Corporation Corporation Eliminations Eliminations Only Only REVENUES June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014 Operating Revenues Tuition and Fees (net of scholarship allowances of $2,060 $16,867 $16,245 $16,867 $16,245 at June 30, 2015 and $2,283 at June 30, 2014) Federal Grants and Contracts 160, , , ,994 State Grants and Contracts 30,547 35,930 30,547 35,930 Private Grants and Contracts 63,567 55,070 63,567 55,070 Sales and Service, Educational 10,261 8,045 10,261 8,045 Auxiliary Enterprises 29,099 31,424 29,099 31,424 Other Operating Revenues: Sales and Service, Independent Operations 48,368 44,296 48,368 44,296 Sales and Service, Public Service Activities 293, ,557 $ 24,537 $ 44,908 $ (22,769) $ (42,987) 295, ,478 Other 41,037 37,384 56,488 59,110 (37,820) (36,743) 59,705 59,751 Total Operating Revenues 693, ,945 81, ,018 (60,589) (79,730) 714, ,233 EXPENSES Operating Expenses Educational and General Instruction 53,824 53,538 (68) (72) 53,756 53,466 Research 227, ,221 (74) (90) 227, ,131 Public Service 32,035 32,211 32,035 32,211 Academic Support 13,113 11,693 (102) (102) 13,011 11,591 Student Services 5,908 5,760-5,908 5,760 Institutional Support 50,623 55,909 (275) (294) 50,348 55,615 Operation and Maintenance of Plant 44,302 45,695 24,549 24,382 (25,635) (24,422) 43,216 45,655 Depreciation and Amortization 43,747 43,157 19,419 20,128 63,166 63,285 Auxiliary Enterprises 21,898 24,161 (1,800) (1,800) 20,098 22,361 Other Expenditures Independent Operations 47,559 51,461 (6,598) (6,600) 40,961 44,861 Public Service Activities 232, ,226 20,737 44,376 (26,037) (46,350) 227, ,252 Total Operating Expenses 773, ,032 64,705 88,886 (60,589) (79,730) 777, ,188 Operating Income/(Loss) (80,182) (69,087) 16,320 15,132 (63,862) (53,955) NONOPERATING REVENUES/(EXPENSES) State Appropriations 45,843 44,620 45,843 44,620 Gifts 8,329 4,855 8,329 4,855 Investment Return (1,294) 25, (851) 26,315 Endowment Return 6,554 2,535 6,554 2,535 Interest on Indebtedness (21,302) (21,871) (12,707) (14,320) (34,009) (36,191) Other Nonoperating Income Net Nonoperating Revenues 38,322 56,143 (12,264) (13,863) 26,058 42,280 Income/(Loss) Before Other Revenues, Expenses, Gains, and Losses (41,860) (12,944) 4,056 1,269 (37,804) (11,675) OTHER REVENUES, EXPENSES, GAINS, AND LOSSES Capital Appropriations Capital Grants and Contracts 3,391-3,391 - Disposal of Plant Facilities (2,110) (1,179) 947 (66) (1,163) (1,245) Contributions for Capital Expenditures - (4,976) - 5, Other Additions/Deductions 51,560 10,778 (30,000) (2,985) 21,560 7,793 Total Other Revenues, Expenses, Gains, and Losses 53,779 5,042 (29,053) 2,175 24,726 7,217 Total Increase in Net Position 11,919 (7,902) (24,997) 3,444 (13,078) (4,458) NET POSITION Net Position at Beginning of Year, as reported 501, , , , , ,214 Cummulative effect of change in accounting principle Net Position at Beginning of Year, as adjusted 509, , , ,214 Net Position at End of Year $513, ,540 $141, ,216 $654, , The accompanying notes are an integral part of these financial statements. S-12

122 Combining Statements of Net Position for University Related Organizations as of June 30, 2015 and 2014 (in thousands of dollars) Supplemental Schedule I University of University of Eliminations The University of Massachusetts Eliminations The University of Massachusetts and Massachusetts Dartmouth and Massachusetts Dartmouth Total Adjustments Foundation, Inc. Foundation, Inc. Total Adjustments Foundation, Inc. Foundation, Inc. ASSETS June 30, 2015 June 30, 2015 June 30, 2015 June 30, 2015 June 30, 2014 June 30, 2014 June 30, 2014 June 30, 2014 Current Assets Accounts, Grants and Loans Receivable, net Pledges Receivable, net $500 ($6,581) $6,045 $1,036 $785 ($6,368) $6,045 $1,108 Due From Related Organizations $ Other Assets Total Current Assets 1,373 (6,378) 6,704 1,047 1,678 (6,014) 6,580 1,112 Noncurrent Assets Cash and Cash Equivalents 2, ,883 1, ,220 Pledges Receivable, net 293 (18,099) 16,319 2, (12,676) 10,634 2,719 Investments 476,272 (675,928) 1,097,353 54, ,529 (692,318) 1,091,312 53,535 Other Assets Investment In Plant, net 8,293 8,293 8,478 8,478 Total Noncurrent Assets 486,938 (694,027) 1,122,100 58, ,124 (704,994) 1,110,582 57,536 Total Assets $488,311 ($700,405) $1,128,804 $59,912 $464,802 ($711,008) $1,117,162 $58,648 LIABILITIES Current Liabilities Accounts Payable $691 $682 $9 $ 174 $154 $20 Due To Related Organizations 59 $ (7,131) 7, ($5,954) 6,135 Assets Held on Behalf of the University (625,555) 625,555 (643,224) 643,224 Assets Held on Behalf of Others 29,284 29,284 13,797 13,797 Unearned Revenues and Credits 1,387 1,387 1,373 1,373 Total Current Liabilities 31,421 (632,686) 656,908 7,199 15,525 (649,178) 658,548 6,155 Noncurrent Liabilities Other Liabilities 3,505 3,505 3,483 3,483 Total Noncurrent Liabilities 3,505 3,505 3,483 3,483 Total Liabilities $34,926 ($632,686) $660,413 $7,199 $19,008 ($649,178) $662,031 $6,155 Net Position: Invested in Capital Assets Net of Related Debt $8,293 $8,293 $ 8,477 $8,477 Restricted Nonexpendable 330,301 (55,662) $351,668 $34, ,718 (47,808) $324,579 $32,947 Expendable 90,413 (12,057) 86,684 15, ,195 (14,022) 98,409 16,808 Unrestricted 24,378 (8,293) 30,039 2,632 26,404 (8,477) 32,143 2,738 Total Net Position $453,385 ($67,719) $468,391 $52,713 $445,794 ($61,830) $455,131 $52, The accompanying notes are an integral part of these financial statements. I

123 Combining Statements of Revenues, Expenses, and Changes in Net Position for University Related Organizations For The Years Ended June 30, 2015 and 2014 (in thousands of dollars) Supplemental Schedule II University of University of Eliminations The University of Massachusetts Eliminations The University of Massachusetts and Massachusetts Dartmouth and Massachusetts Dartmouth Total Adjustments Foundation, Inc. Foundation, Inc. Total Adjustments Foundation, Inc. Foundation, Inc. June 30, 2015 June 30, 2015 June 30, 2015 June 30, 2015 June 30, 2014 June 30, 2014 June 30, 2014 June 30, 2014 EXPENSES Operating Expenses Educational and General Public Service $16,359 ($1,758) $16,500 $1,617 $11,066 ($658) $8,872 $2,852 Depreciation Scholarships and Fellowships 149 (1,410) (1,326) Total Operating Expenses 16,709 (3,168) 17,411 2,466 11,443 (1,984) 9,714 3,713 Operating Income/(Loss) (16,709) 3,168 (17,411) (2,466) (11,443) 1,984 (9,714) (3,713) NONOPERATING REVENUES/(EXPENSES) Gifts 10,438 (5,993) 12,765 3,666 11,063 (2,019) 6,257 6,825 Investment Income (30,383) 374 (30,444) (313) 42,849 (65,246) 103,882 4,213 Endowment Income 1,134 (23,516) 24,650 1,070 (16,625) 17,695 Net Nonoperating Revenues (18,811) (29,135) 6,971 3,353 54,982 (83,890) 127,834 11,038 Income/(Loss) Before Other Revenues, Expenses, Gains, and Losses (35,520) (25,967) (10,440) ,539 (81,906) 118,120 7,325 OTHER REVENUES, EXPENSES, GAINS, AND LOSSES Additions to Permanent Endowments 42,842 14,475 28,367 17,566 (1,746) 19,312 Less: Amounts Earned/Received on Behalf of the University 0 (21,025) 21,025 54,746 (54,746) Less: Amounts Earned/Received on Behalf of Others (1,555) (1,555) Distribution to University 0 27,211 (27,211) 20,268 (20,268) Other Additions/Deductions 257 (583) 1,507 (667) (17) (45) Total Other Revenues, Expenses, Gains, and Losses 43,111 20,078 23,700 (667) 16,043 73,362 (57,274) (45) Total Increase/(Decrease) in Net Assets 7,591 (5,889) 13, ,582 (8,544) 60,846 7,280 NET POSITION Net Position at Beginning of Year 445,794 (61,830) 455,131 52, ,212 (53,286) 394,285 45,213 Net Position at End of Year $453,385 ($67,719) $468,391 $52,713 $445,794 ($61,830) $455,131 $52, The accompanying notes are an integral part of these financial statements. II

124 University of Massachusetts Supplemental Schedules June 30, 2015 and 2014 Basis of Presentation of Supplemental Information The supplemental information is presented to provide information from the stand-alone books and records of the campus units, central office and related organizations. The supplemental information excludes certain eliminating entries necessary to prepare the consolidated financial statement of the University. The supplemental information also does not include the impact of adoption of GASB 68, Pensions, reported in the financial statements of the University because the liability has not been allocated to the campuses or the central office but rather is reflected only at the University System level in the basic financial statements. III

125 APPENDIX C DEFINITIONS OF CERTAIN TERMS In addition to terms defined elsewhere herein, the following terms have the following meanings in the Agreement, unless the context otherwise requires: Act means Chapter 614 of the Massachusetts Acts of 1968 as amended from time to time. Agency means the Massachusetts Development Finance Agency, the successor in interest to the Authority. Agreement or Loan and Trust Agreement means the Amended and Restated Loan and Trust Agreement dated as of October 12, 1999, as amended and restated on March 27, 2009 among the Authority, the Institution and the Trustee. Annual Administrative Fee means the annual fee for the general administrative services of the Authority in the amount of $24,285 or such lesser amount as the Authority may from time to time determine. Authority means Massachusetts Health and Educational Facilities Authority and its successors, including the Agency. Authorized Denomination means, with respect to any Bonds that bear interest at a Fixed Rate or a Long- Term Rate, $5,000 and any integral multiple thereof, and with respect to any Bonds that bear interest at a Daily Rate, Weekly Rate or Flexible Rate, $100,000 and any multiple of $5,000 in excess thereof. Authorized Officer means: (i) in the case of the Authority, the Chairman, Vice Chairman, Secretary, Executive Director, Director of Financing Programs, Deputy Director of Financing Programs or Associate Director of Financing Programs, and when used with reference to an act or document of the Authority also means any other person authorized to perform the act or execute the document; and (ii) in the case of the Institution, the Chairman or other presiding officer of the Board of Trustees, the President, Director or other chief executive or administrative officer, any Vice President or Vice Chairman, the Treasurer or other chief financial officer or any Associate Treasurer, and when used with reference to an act or document of the Institution, also means any other person authorized to perform the act or execute the document. Available Revenues means, prior to the Institution s adoption of Statement No. 35 of the Governmental Accounting Standards Board (GASB), the Institution s unrestricted current funds revenues as reported in its Combined Statement of Current Funds Revenues Expenditures and Other Changes and, thereafter, shall mean the sum of the Institution s unrestricted operating, non-operating and other revenues excluding revenues derived from federal, state, local and nongovernmental grants and contracts but including, in any event, state appropriations, all as included in the operating, activities or other equivalent statement of operations included in the Institution s financial statements in accordance with generally accepted accounting principles as promulgated by GASB. Bank means the issuer of a Letter of Credit, if any, with its successors and assigns in its capacity as issuer of the Letter of Credit, and any other issuer of a Credit Facility. During any period in which no Letter of Credit or other Credit Facility is in effect with respect to a series of Bonds, all references to the Bank shall be disregarded. Bank Rate means, on any date, the per annum rate of interest on such date applicable to the Institution s reimbursement obligations for drawings under a Letter of Credit, as described in the applicable Reimbursement Agreement. In no event shall the Bank Rate exceed the maximum rate permitted by Massachusetts law. Beneficial Owner means so long as the Bonds are negotiated in the Book-Entry-Only System, any person who acquires a beneficial ownership interest in a Bond held by the Securities Depository. If at any time the Bonds are not held in the Book-Entry-Only System, Beneficial Owner means the Owner for purposes of the Loan and Trust Agreement. C-1

126 APPENDIX C Bond Year means each one year period (or shorter period from the date on which the Bonds are issued) ending on June 30, which date has been chosen by the Authority at the direction of the Institution. Bondowners or Owners means the registered owners of the Bonds from time to time as shown in the books kept by the Paying Agent as bond registrar and transfer agent. Bonds means the Massachusetts Health and Educational Facilities Authority Variable Rate Demand Revenue Bonds, University of Massachusetts Issue, Series A, dated the date of delivery (the Series A Bonds ), any additional Bonds issued under the Loan and Trust Agreement, any Bond or Bonds duly issued in exchange or replacement therefor, and where appropriate with respect to redemption and required purchase, portions thereof in authorized denominations. Book-Entry-Only System means the system maintained by the Securities Depository described in the Loan and Trust Agreement. Business Day means a day on which banks in each of the cities in which the principal offices of the Trustee, the Paying Agent and the Remarketing Agent, and the office of the Bank at which draws on the Credit Facility are made, are located are not required or authorized to remain closed and on which the New York Stock Exchange is not closed. Code means the Internal Revenue Code of 1986, as amended. Continuing Disclosure Agreement means the Continuing Disclosure Agreement between the Institution and the Trustee dated the date of issuance and delivery of the Series A Bonds, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Conversion Date means the day on which a particular type of interest rate (i.e., a Daily Rate, Weekly Rate, Flexible Rate, Long-Term Rate or Fixed Rate), becomes effective for the Bonds which is not immediately preceded by a day on which such Bonds have accrued interest at the same type of interest rate and, when used with respect to any Long-Term Rate Period, the day after the end of such Long-Term Rate Period. Each Conversion Date shall be an Interest Payment Date for the rate period from which the Bonds are converted, which shall be the last Interest Payment Date for the then current Flexible Rate Period or Long-Term Rate Period if the conversion is from a Flexible Rate Period or Long-Term Rate Period, except that any Business Day may be a Conversion Date from a Daily or Weekly Rate Period. Credit Facility means a Letter of Credit and any substitute irrevocable transferable letter of credit delivered to the Trustee pursuant to the Loan and Trust Agreement and then in effect. During any period in which no Credit Facility is in effect with respect to the Bonds, references to the Credit Facility shall be disregarded for such series. Daily Rate means the per annum interest rate on the Bonds during a Daily Rate Period determined as provided in the Loan and Trust Agreement. Daily Rate Conversion Date means the day on which the Bonds begin to accrue interest at a Daily Rate pursuant to the Loan and Trust Agreement which is immediately preceded by a day on which the Series A Bonds did not accrue interest at a Daily Rate. Daily Rate Period means each period described in the Loan and Trust Agreement during which Bonds accrue interest at a Daily Rate. Debt Service and Related Costs means, with respect to a particular period, the principal, redemption premium, if any, purchase price, if any, and interest due on such General Obligation Indebtedness during such period, all fees and expenses payable in or with respect to such period to the issuer of, or to any trustee for, such General Obligation Indebtedness and any other costs that are due during such period pursuant to the indenture, resolution or other documents entered into in connection with the issuance of such Indebtedness, including, without C-2

127 APPENDIX C limitation, any reimbursement agreement; provided that such term shall not include any amount that is otherwise provided for. Where the actual amount is unknown, the Institution shall use its best efforts to estimate the amount that will be due for such period. Debt Service Fund means the fund so named established pursuant to the Loan and Trust Agreement. Delivery Date means, with respect to a Bond tendered for purchase at the election of the Bondowner, the Purchase Date or any subsequent Business Day on which such Bond is delivered to the Paying Agent as provided in the form of Bonds. Effective Date means the date on which a new interest rate takes effect. Electronic Notice means notice transmitted through a time-sharing terminal or facsimile machine, if operative between any two parties, or if not operative, in writing or by telephone (promptly confirmed in writing). Eligible Funds means moneys which are (a) continuously on deposit with the Trustee in trust for the benefit of the Bondowners in a separate and segregated account in which only Eligible Funds described in clause (b) are held and (b) (i) proceeds of the Bonds received contemporaneously with the issuance of the Bonds, (ii) proceeds of a drawing under the Credit Facility, (iii) payments made by, or on behalf of, the Institution if at the time of deposit of such payments with the Trustee and for a period of at least 123 days thereafter no petition in bankruptcy under the Bankruptcy Code or similar law is pending with respect to the Authority or the Institution unless such petition shall have been dismissed and such dismissal shall be final and not subject to appeal, (iv) proceeds of refunding bonds or other moneys as to which the Trustee has received a written opinion of nationally-recognized counsel experienced in bankruptcy matters and acceptable to the Trustee and the Authority to the effect that payment of such moneys to the Bondowners would not constitute an avoidable preference under Section 547 of the Bankruptcy Code in the event the Institution or the Authority were to become a debtor under the Bankruptcy Code, or (v) income derived from the investment of the foregoing; provided that such funds shall not be deemed to be Eligible Funds if an injunction, restraining order, stay or similar court action is in effect preventing the payment of such proceeds to the Bondowners. The Trustee shall maintain records of Eligible Funds held by it. Event of Bankruptcy means the filing of a petition in bankruptcy or the commencement of a proceeding under the United States Bankruptcy Code or any other applicable law concerning insolvency, organization or bankruptcy by or against the Institution as debtor. Event of Default shall have the meaning ascribed thereto in the Loan and Trust Agreement. Expendable Fund Balance means the accumulation of excess unrestricted revenues over expenditures with respect to the Institution for all prior years and for each current year from the unrestricted current fund, the quasi endowment fund, the unexpended unrestricted plant fund and the unrestricted renewal and replacement plant fund. Expense Fund means the fund so named established pursuant to the Loan and Trust Agreement. Fixed Rate means the per annum interest rate on the Bonds during a Fixed Rate Period as provided in the Loan and Trust Agreement. Fixed Rate Conversion Date means the date on which the Bonds begin to accrue interest at a Fixed Rate pursuant to the Loan and Trust Agreement which is immediately preceded by a day on which the Bonds did not accrue interest at a Fixed Rate. Fixed Rate Period means the period from the Fixed Rate Conversion Date for the Bonds to the maturity date of the Bonds, unless earlier redeemed. Flexible Rate means the per annum interest rate on the Bonds during a Flexible Rate Period determined as provided in the Loan and Trust Agreement. C-3

128 APPENDIX C Flexible Rate Conversion Date means the day on which the Bonds begin to accrue interest at a Flexible Rate pursuant to the Loan and Trust Agreement which is immediately preceded by a day on which the Bonds did not accrue interest at a Flexible Rate or accrued interest at a Flexible Rate during a different Flexible Rate Period. Flexible Rate Period means with respect to the Bonds each period determined as provided in the Loan and Trust Agreement during which the Bonds accrue interest at a Flexible Rate. General Obligation Indebtedness means the Series A Bonds, the Reimbursement Obligations, the $100,000,000 Massachusetts Health and Educational Facilities Authority Revenue Bonds, Worcester City Campus Corporation Issue (University of Massachusetts Project), Series A, the UMBA Project Revenue Bonds, Series A, and any additional Indebtedness issued by the Institution, UMBA or the Authority which is payable from all available funds of the Institution. Government or Equivalent Obligations means (i) direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America), (ii) obligations the timely payment of the principal and interest of which are fully guaranteed by the United States of America, (iii) certificates which evidence ownership of the right to the payment of the principal of and interest on obligations described in clause (i) and (ii), provided that such obligations are held in the custody of a bank or trust company satisfactory to the Trustee in a special account separate from the general assets of such custodian, and (iv) tax exempt obligations of any state or instrumentality, agency or political subdivision thereof which are fully secured by, or payments as to principal and interest on which shall be made exclusively from, obligations described in (i), (ii) or (iii) above. Indebtedness means all obligations for borrowed money, or installment sale and capitalized lease obligations, incurred or assumed, including guaranties or any other obligation for payments of principal and interest with respect to money borrowed. Initial Administrative Fee means the fee, in the amount of $28,710, payable from the Expense Fund to the Authority, for its initial services in regard to the issuance of the Series A Bonds. Institution means the University of Massachusetts. Institution Bonds means when a Credit Facility is in effect for the Bonds, any Bond registered in the name of the Institution or its nominee as a result of the purchase of such Bonds by the Institution pursuant to the Loan and Trust Agreement and any Pledged Bond which has been transferred to the Institution pursuant to the applicable Reimbursement Agreement. Institution Certificate as to Arbitrage means the Institution Certificate as to Arbitrage delivered by the Institution at the closing of the Series A Bonds. Institution Tax Certificate means the Institution Tax Certificate delivered by the Institution at the closing of the Series A Bonds. Institution s Representative means a person at the time designated to act on behalf of the Institution by a written instrument furnished to the Trustee and the Paying Agent containing the specimen signature of such person and signed on behalf of the Institution by any of its officers. The instrument may designate an alternate or alternatives. Interest Payment Date means: (a) with respect to the Bonds accruing interest at Daily Rates, the first Business Day of each calendar month following the Daily Rate Period for which interest is payable, and any date which is a Conversion Date from a Daily Rate Period; C-4

129 APPENDIX C (b) (c) (d) with respect to the Bonds accruing interest at Weekly Rates, the first Business Day of each calendar month following the Weekly Rate Period for which interest is payable, commencing May 1, 2000, and any day which is a Conversion Date from a Weekly Rate Period; with respect to the Bonds accruing at a Flexible Rate, the first Business Day after the last day of each Flexible Rate Period applicable thereto; with respect to the Series A Bonds accruing at the initial Long-Term Rate commencing March 27, 2009, October 1, 2009 and April 1, 2010 and with respect to the Series A Bonds accruing at any other Long-Term Rate, the first day of the sixth calendar month following the month in which such Long-Term Rate takes effect, and the first day of each sixth calendar month thereafter and any day which is a Long-Term Rate Conversion Date; and (e) with respect to the Bonds accruing interest at a Fixed Rate, each May 1 and November 1 commencing with the first of such dates which is at least six months after the Fixed Rate Conversion Date through and including the maturity date of the Bonds accruing interest at a Fixed Rate; and (f) with respect to Pledged Bonds, any date on which interest thereon is payable as set forth in the Reimbursement Agreement. Letter of Credit means an irrevocable, transferable, letter of credit issued by a Bank for the benefit of the Trustee to support payment of the principal and Purchase Price of and interest on the Bonds and any extension thereof. During any period in which no Letter of Credit is in effect with respect to the Bonds, references to a Letter of Credit shall be disregarded. Long-Term Rate means the per annum interest rate to be determined on the Bonds pursuant to the Loan and Trust Agreement. Long-Term Rate Conversion Date means each date on which the Bonds begin to accrue interest at a Long-Term Rate pursuant to the Loan and Trust Agreement which is immediately preceded by a day on which the Bonds did not accrue interest at a Long-Term Rate or accrued interest at a Long-Term Rate during a different Long- Term Rate Period. Long-Term Rate Period means each period described in the Loan and Trust Agreement during which Bonds accrue interest at a Long-Term Rate. Except as otherwise provided in the Loan and Trust Agreement, a Long-Term Rate Period must be at least 180 days in length. Mandatory Purchase means the purchase or deemed purchase of a Bond from the Owner thereof pursuant to the Loan and Trust Agreement. Mandatory Purchase Date means any of the dates specified in the Loan and Trust Agreement on which dates the Bonds are subject to mandatory purchase from the Owner. Maximum Rate means the least of twelve percent (12%) per annum (or such higher interest rate per annum as may be established by the Institution by an amendment to the Loan and Trust Agreement pursuant to the Loan and Trust Agreement), the actual interest rate on the Bonds if the Bonds bear interest at the Long-Term Rate and a Credit Facility is in effect through the next Effective Date and the maximum rate permitted by applicable law; provided that the Maximum Rate with respect to Pledged Bonds shall be the maximum rate permitted by applicable law. Notice Parties means the Authority, the Institution, the Remarketing Agent, the Paying Agent, the Trustee and the Bank, if any. C-5

130 APPENDIX C Opinion of Bond Counsel means a written opinion in form and substance not unacceptable to the Trustee or the Authority, as the case may be, signed by an attorney or firm of attorneys experienced in the field of municipal bonds, whose opinions are generally accepted by purchasers of municipal bonds. Opinion of Counsel means a written opinion in form and substance not unacceptable to the Trustee or the Authority, as the case may be, signed by an attorney or firm of attorneys, who may be counsel for the Institution, or other counsel. Original Issue Date means the date on which the Bonds are delivered to the original purchasers thereof. Outstanding, when used to modify Bonds, refers to Bonds issued under the Loan and Trust Agreement, excluding: (i) Bonds which have been exchanged or replaced, or delivered to the Paying Agent for credit against a principal payment; (ii) Bonds which have been paid; (iii) Bonds which have become due and for the payment of which moneys have been duly provided; and (iv) Bonds for which there have been irrevocably set aside sufficient funds, or Government or Equivalent Obligations bearing interest at such rates, and with such maturities as will provide sufficient funds, to pay the principal of, premium, if any, and interest on such Bonds or, except after the Fixed Rate Conversion Date, the Purchase Price of such Bonds; provided, however, that (a) if any such Bonds are to be redeemed prior to maturity, the Authority shall have taken all action necessary to redeem such Bonds and notice of such redemption shall have been duly mailed in accordance with the Loan and Trust Agreement or irrevocable instructions so to mail shall have been given to the Trustee; (b) in determining whether there are sufficient funds, unpaid interest on Bonds for any period prior to maturity or the specified redemption date for which the interest rate is not known shall be computed at the Maximum Rate; and (c) no Bond which shall cease to be Outstanding pursuant to clause (iv) hereof shall be subject to later conversion to another rate period and provided further, however, that no Bond which shall cease to be Outstanding pursuant to clause (iv) hereof shall be subject to later conversion to a different type of interest rate, and that prior to the expiration of a Credit Facility without renewal or replacement, no Bond shall cease to be Outstanding pursuant to clause (iv) unless such fund or funds are invested in obligations that constitute Eligible Funds. Paying Agent means The Bank of New York Mellon Trust Company, N.A., acting as Paying Agent as provided in the Loan and Trust Agreement and any successor Paying Agent designated from time to time pursuant to the Loan and Trust Agreement. Pledged Bond means any Bond purchased with proceeds of a draw under a Credit Facility which is registered to the Bank or its designee pursuant to the Loan and Trust Agreement. Program means the financing and refinancing of the acquisition of telecommunications, electronic, computer, office, research, equipment and administrative systems and renovation costs related thereto. The word Program also refers to the facilities which result or have resulted from the foregoing activities. The scope of the Program may be increased or decreased with the written consent of the Authority upon certification by the Program Officer on behalf of the Institution describing the change, estimating the resulting increase or decrease in the cost of the Program and stating that the amendment will not cause the Program to violate any applicable building, zoning, land use, environmental protection, historical, sanitary, safety or educational laws, rules and regulations or applicable grant, or reimbursement or insurance requirements or the provisions of the Loan and Trust Agreement. The signers of the certificate may rely, as to conclusions of law, on an opinion of counsel furnished to the Authority and referred to in the certificate. The Authority may waive any provision required to be contained in the certificate upon advice of counsel that the waiver does not adversely affect the security for the Bonds. The scope of the Program may be increased only after consultation with nationally recognized bond counsel to determine that the increase will not adversely affect the federal tax status of interest on the Bonds. Program Acquisition Fund means the fund so named established pursuant to the Loan and Trust Agreement. C-6

131 APPENDIX C Program Costs means the costs of carrying out the Program so long as such costs are capital expenditures (as defined in Section (b) of the Treasury Regulations), including repayment of internal advances for the same and including interest on the Bonds for up to three years after the issuance of the Bonds. Program Officer means Philip J. Marquis or an alternate or successor appointed by the Institution. Purchase Date means, while the Bonds bear interest at a Daily Rate, Weekly Rate, Flexible Rate or Long-Term Rate, the date on which Bonds shall be required to be purchased pursuant to a mandatory purchase or optional tender in accordance with the provisions of Article IV and the form of Bonds in the Loan and Trust Agreement. Purchase Price means an amount equal to the principal amount of any Tendered Bond or Bond subject to Mandatory Purchase pursuant to the Loan and Trust Agreement, plus accrued and unpaid interest thereon, if any, to the Purchase Date. Put means the right of a Bondowner to require, or the act of requiring, the Paying Agent to purchase a Bond (other than a Pledged Bond or an Institution Bond) at its Owner s option pursuant to the Loan and Trust Agreement, as the case may be. Rebate Fund means the fund so named established pursuant to the Loan and Trust Agreement. Record Date means the close of business on either (a) in the case of Bonds accruing interest at Daily, Weekly or Flexible Rates, the day (whether or not a Business Day) immediately preceding an Interest Payment Date, or (b) in the case of Bonds accruing interest at Long-Term Rates or Fixed Rates, the fifteenth (15 th ) day (whether or not a Business Day) of the month prior to the next succeeding Interest Payment Date. Reimbursement Agreement means any letter of credit agreement or reimbursement agreement by and between the Institution and the issuer of any Credit Facility, and any amendments and supplements thereto. During any period in which no Letter of Credit or other Credit Facility is in effect, references to the Reimbursement Agreement shall be disregarded. Reimbursement Obligations means all obligations of the Institution owing a Bank pursuant to a Reimbursement Agreement. During any period in which no Letter of Credit or other Credit Facility is in effect, references to Reimbursement Obligations shall be disregarded. Remarketing Agent means Merrill Lynch, Piece, Fenner & Smith Incorporated or its successor appointed as remarketing agent pursuant to the Loan and Trust Agreement. Remarketing Agreement means the Remarketing Agreement, dated as of March 12, 2010, between the Authority, the Institution and the Remarketing Agent as such agreement may from time to time be amended and supplemented, and any other similar agreement to remarket the Bonds. Revenue Indebtedness means the Lowell Technological Institute Building Authority Facilities Bonds, First Series, the University of Lowell Building Authority Facilities Bonds, Second Series A, the University of Lowell Building Authority Facilities Bonds, Second Series B, the University of Lowell Building Authority Facilities Bonds, Fourth Series B, the University of Lowell Building Authority Commonwealth Guaranteed Facilities Bonds, Fifth Series A, the Southeastern Massachusetts University Building Authority Project Revenue Bonds, 1986 Series B, the Southeastern Massachusetts University Building Authority Refunding Revenue Bonds, 1995 Series A, the UMBA Refunding Revenue Bonds, Series 1991-A, the UMBA Refunding Revenue Bonds, Series 1995-B, and any additional Indebtedness issued by UMBA pursuant to the Loan and Trust Agreement. Revenues means all rates, payments, rents, fees, charges, and other income and receipts, including proceeds of insurance, eminent domain and sale, and including proceeds derived from any security provided under the Loan and Trust Agreement, payable to the Authority or the Trustee under the Loan and Trust Agreement, excluding C-7

132 APPENDIX C administrative fees of the Authority, fees of the Trustee, reimbursements to the Authority or the Trustee for expenses incurred by the Authority or the Trustee, and indemnification of the Authority and the Trustee. Securities Depository or DTC means The Depository Trust Company and its successors and assigns or any other securities depository selected by the Institution that agrees to follow procedures required to be followed by such securities depository in connection with the Bonds. Series A Bonds means the Massachusetts Health and Educational Facilities Authority Variable Rate Demand Revenue Bonds, University of Massachusetts Issue, Series A, and any Bond or Bonds duly issued in exchange or replacement therefor. Tender Date means the date on which a Bondowner must present the Tender Notice in order to effect a purchase of Bonds on the Purchase Date. Tendered Bond means any Bond with respect to which the Bondowner has elected to require purchase pursuant to the Loan and Trust Agreement. Tender Notice means the notice of tender from a Bondowner to the Paying Agent pursuant to the Loan and Trust Agreement, as the case may be in order to effect a purchase of Bonds on the Purchase Date. UCC means the Massachusetts Uniform Commercial Code. UMBA means the University of Massachusetts Building Authority. Variable Rate Period means any of the Daily Rate Period, Weekly Rate Period, Flexible Rate Period or Long-Term Rate Period. Weekly Rate means the per annum interest rate on the Bonds during a Weekly Rate Period determined on a weekly basis as provided in the Loan and Trust Agreement. Weekly Rate Conversion Date means each day on which the Bonds begin to accrue interest at a Weekly Rate pursuant to the Loan and Trust Agreement which is immediately preceded by a day on which the Bonds did not accrue interest at a Weekly Rate. Weekly Rate Period means each period described in the Loan and Trust Agreement during which Series A Bonds accrue interest at a Weekly Rate. [Remainder of page intentionally left blank.] C-8

133 APPENDIX D SUMMARY OF THE LOAN AND TRUST AGREEMENT The following is a summary, prepared by Hinckley, Allen & Snyder LLP, Bond Counsel, of certain provisions of the Loan and Trust Agreement, among the Massachusetts Health and Educational Facilities Authority, predecessor in interest to the Massachusetts Development Finance Agency (the Authority ), the University of Massachusetts (the Institution ) and The Bank of New York Mellon Trust Company, N.A., as successor Trustee (the Trustee ). This summary does not purport to be complete and reference is made to the Agreement for full and complete statements of such and all provisions. The Authority s Assignment and Pledge of Revenues and Funds In order to secure the Bonds and the Reimbursement Obligations, if any, the Authority assigns and pledges to the Trustee in trust upon the terms of the Agreement for the benefit and security of the Bondowners and the Bank (a) all Revenues to be received from the Institution or derived from any security provided under the Agreement, (b) all rights to receive such Revenues and the proceeds of such rights and (c) all funds and investments held from time to time in the funds established under the Agreement except for the Rebate Fund. This assignment and pledge does not include: (i) the rights of the Authority pursuant to provisions for consent, concurrence, approval or other action by the Authority, notice to the Authority, the filing of reports, certificates or other documents with the Authority, or for fees, reimbursement or indemnification or the rights thereto, or (ii) the powers of the Authority as stated in the Agreement to enforce the provisions of the Agreement. Defeasance When the Bonds have been paid or redeemed in full from Eligible Funds as provided in the Agreement, or after there are in the Debt Service Fund, Eligible Funds, or Eligible Funds invested in Government or Equivalent Obligations, in such principal amounts, bearing interest at such rates and with such maturities as will provide, without reinvestment, sufficient funds (unpaid interest on Bonds for any period prior to maturity or the specified redemption date for which the interest rate is not known being computed at the Maximum Rate), to pay the principal of, premium, if any, and interest on the Bonds or, except after the Fixed Rate Conversion Date, the Purchase Price, and when all the rights of the Authority, the Paying Agent, the Trustee and the Bank, if any, under the Agreement and under a Reimbursement Agreement have been provided for, including all Reimbursement Obligations, upon written notice from the Institution to the Authority, the Paying Agent, the Trustee and the Bank, if any, the Bondowners shall cease to be entitled to any benefit or security under the Agreement except the right to receive payment of the funds deposited and held for payment and other rights which by their nature cannot be satisfied prior to or simultaneously with termination of the lien of the Agreement, the security interests created by the Agreement (except in such funds and investments) shall terminate, and the Authority and the Trustee shall execute and deliver such instruments as may be necessary to discharge the lien and security interests created under the Agreement; provided, however, that if any such Bonds are to be redeemed prior to the maturity thereof, the Authority shall have taken all action necessary to redeem such Bonds and notice of such redemption shall have been duly mailed in accordance with the Agreement or irrevocable instructions so to mail shall have been given to the Trustee and provided further that the obligation to pay all amounts that may become due in respect of the Bonds under section 148(f) of the Code shall survive any defeasance pursuant to this paragraph. Upon such defeasance, the funds and investments required to pay or redeem the Bonds in full or, if prior to the Fixed Rate Conversion Date, to provide for the Purchase Price of the Bonds in full, shall be irrevocably set aside for such purposes, subject, however, to the provision for Unclaimed Moneys under the Agreement, and moneys held for defeasance shall be invested only as provided above in this paragraph. Any funds or property held by the Trustee and not required for payment or redemption of the Bonds in full shall, after satisfaction of all the rights of the Authority, the Trustee, the Paying Agent and the Bank, if any, including all Reimbursement Obligations, and after allowance for payment into the Rebate Fund, if any, be distributed to the Institution upon such indemnification, if any, as the Authority or the Trustee may reasonably require. The requirement that funds applied to defease the Bonds pursuant to this paragraph be Eligible Funds shall apply only while a Credit Facility is in effect. Upon defeasance, any Credit Facility shall be canceled and returned to the Bank. D-1

134 APPENDIX D Additional Bonds The Authority may issue additional Bonds to complete the Program, to refund Bonds previously issued under the Agreement or to finance or refinance any other project or projects of the Institution permitted under the Act. If a Credit Facility is then in effect, no additional Bonds shall be issued pursuant to the Agreement without the consent of the Bank. Prior to the delivery of the additional Bonds, the Institution, the Authority and the Trustee shall enter into a supplemental agreement providing for the details of the additional Bonds, including the application of the proceeds thereof substantially in accordance with the provisions relating to the Series A Bonds. The supplemental agreement shall require payments by the Institution at such times and in such manner as shall be necessary to provide for full payment of the debt service on the additional Bonds as it becomes due. The supplemental agreement may also amend any other provision of the Agreement, provided that it will not have a material adverse effect upon the security for the Bonds other than implicit in the authorization of parity Bonds. Establishment of Funds The following funds shall be established and maintained with the Trustee for the account of the Institution, to be held in trust by the Trustee and applied subject to the provisions of the Agreement: Debt Service Fund; and Rebate Fund. The Program Acquisition Fund and the Expense Fund shall be established and maintained with the Authority to be held by the Authority in trust for the account of the Institution and applied subject to the provisions of the Agreement. Debt Service Fund A Debt Service Fund is established with the Trustee and moneys shall be deposited therein as provided in the Agreement. The moneys in the Debt Service Fund and any investments held as part of such Fund shall be held in trust and, except as otherwise provided under the Agreement, shall be applied solely to (a) the payment of the principal, redemption premium, if any, and interest on the Bonds and (b) if applicable, the reimbursement of the Bank for amounts drawn under a Credit Facility then in effect and payment to the Bank of any other amounts due under a Reimbursement Agreement (except to the extent such amounts have been paid to the Bank directly by the Institution). Promptly after November 1 of each year, if the amount deposited by the Institution in the Debt Service Fund during the preceding year pursuant to the provision of the Agreement was in excess of the amount required to be so deposited, the Trustee shall transfer such excess to the Institution upon its request unless there is then an Event of Default known to the Trustee with respect to payments to the Debt Service Fund, Rebate Fund or to the Trustee, the Paying Agent or the Authority, in which case the excess shall be applied to such payments. The Trustee shall transfer in immediately available funds, moneys from the Debt Service Fund to the Paying Agent for the payment of Bonds on the date on which such payment is to be made. Application of Moneys If, in addition to moneys drawn under any Credit Facility then in effect, available moneys in the Debt Service Fund are not sufficient on any day to pay the Purchase Price or principal of, premium, if any, and interest on the Outstanding Bonds then due or overdue, such moneys (other than any sum irrevocably set aside for the redemption of particular Bonds) shall, after payment of all charges and disbursements of the Authority, the Paying Agent and the Trustee in accordance with the Agreement, be applied first to the payment of interest, including interest on overdue principal, and second to the payment of Purchase Price or principal of and premium, if any, in each case pro rata among Bondowners; provided, however, that moneys drawn under a Credit Facility shall be applied only to pay principal and interest on the Bonds and the Purchase Price thereof, and shall not be available to pay amounts owing to the Authority, the Trustee or the Paying Agent. In the event there exist Pledged Bonds or Institution Bonds on the date of any application of moneys under this section, monies otherwise to be paid to the Institution or the Bank pursuant to this section shall be applied, first, pro rata to all other Bondowners, second, if any balance remains, to the Bank in fulfillment of any obligations owed to it under a Reimbursement Agreement or D-2

135 APPENDIX D any Pledged Bonds, and third, if any further balance remains, to the Institution in respect of any Institution Bonds. Whenever moneys are to be applied pursuant to this section, such moneys shall be applied at such times, and from time to time, as the Trustee in its discretion shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee shall exercise such discretion it shall fix the date (which shall be the first of a month unless the Trustee shall deem another date more suitable) upon which such application is to be made, and upon such date interest on the amounts of principal paid on such date shall cease to accrue. The Trustee shall give or cause to be given such notice as it may deem appropriate of the fixing of any such date. When interest or a portion of the principal is to be paid on an overdue Bond, the Paying Agent may require presentation of the Bond for endorsement of the payment. Rebate Fund A Rebate Fund is established with the Trustee for the purpose of compliance with section 148(f) of the Code but not as security for the Bonds. Amounts in the Rebate Fund shall not be available to pay principal, interest or redemption premium on the Bonds. No later than fifty (50) days after the close of the fifth Bond Year following the date of issue of the Bonds and the close of each fifth Bond Year thereafter, the Institution shall determine the amount to be deposited in the Rebate Fund as set forth in the Agreement, and shall pay such amount to the Trustee for deposit into the Rebate Fund. No later than sixty (60) days after the close of the fifth Bond Year following the date of issue of the Bonds and the close of each fifth Bond Year thereafter, the Trustee, at the written direction of the Institution, shall pay from the Rebate Fund to the United States an amount which is at least 90% of the amount then required to be paid under the section 148(f) of the Code. Within sixty (60) days after the Bonds have been paid in full, the Trustee, at the written direction of the Institution, shall pay to the United States from the applicable account within the Rebate Fund the full amount then required to be paid under the rebate provision. If the amount in the Rebate Fund is insufficient to pay the amount required to be paid under the rebate provision, the Institution shall be liable to make up that deficiency. Payments by the Institution; Credit Facility (a) Payments of Debt Service by the Institution (i) If no Credit Facility is in effect, the Institution shall make payments to the Trustee for deposit in the Debt Service Fund no later than 11:00 a.m. on the Business Day on which such payment of principal (including principal called for redemption) of, premium, if any, or interest on Bonds shall become due in an amount equal to the payment then coming due on such Bonds. While the Series A Bonds bear interest at the Fixed Rate, the Institution shall pay to the Trustee for deposit into the Debt Service Fund on or before the close of business on the Business Day preceding each Interest Payment Date the interest coming due on the Series A Bonds on such Interest Payment Date, and, if such Interest Payment Date is a date on which principal is due, all of the principal (including principal called for redemption) of and premium, if any, on the Bonds coming due on such Interest Payment Date. When a Credit Facility is in effect with respect to the Bonds, The Institution shall make payments in immediately available funds to the Bank as and when required by a Reimbursement Agreement to reimburse the Bank for draws honored under a Credit Facility for the payment of principal (including principal called for redemption) of, premium, if any, or interest on Bonds. Upon written request of the Bank any moneys in the Debt Service Fund will be distributed to the Bank to reimburse the Bank for amounts drawn under a Credit Facility. (ii) The payments to be made under the foregoing subsection shall be appropriately adjusted to reflect the issuance of additional Bonds, any earnings on amounts in the Debt Service Fund, and any purchase or redemption of Bonds, so that there will be available on each payment date in the Debt Service Fund the amount necessary to pay the interest and principal due or coming due on the Bonds and so that accrued interest will be applied to the installments of interest to which they are applicable (or, if applicable, to reimburse the Bank for draws on the Credit Facility for such amounts). (iii) The Institution shall pay to the Trustee for deposit in the Rebate Fund the amounts and at the times required by the Agreement. D-3

136 APPENDIX D (iv) At any time when any principal of the Bonds is overdue, the Institution shall also have a continuing obligation to pay to the Trustee for deposit in the Debt Service Fund an amount equal to interest on the overdue principal. Redemption premiums shall not bear interest. (v) Payments by the Institution to the Trustee for deposit in the Debt Service Fund or Rebate Fund under the Agreement shall discharge the obligation of the Institution to the extent of such payments; provided, that if any moneys are invested in accordance with the Agreement and a loss results therefrom so that there are insufficient funds to pay principal and interest on the Bonds when due, the Institution shall supply the deficiency. (b) Additional Payments (i) On each December 15 and June 15, the Institution shall pay to the Authority one-half (1/2) of the Annual Administrative Fee; provided, however, that the aggregate fees and charges to be received by the Authority from the Institution shall not equal or exceed that amount, if any, which if reasonably expected on the date of issue of the Bonds, would cause the interest on the Bonds to be taxable as interest on arbitrage bonds under the IRC. The obligation to pay the Annual Administrative Fee shall continue until the Bonds have been paid in full or have become due and the moneys for their payment have been irrevocably set aside with the Trustee for the purpose, notwithstanding any prior defeasance pursuant to the Agreement; provided that, in the event of defeasance through the issuance of refunding obligations by the Authority, appropriate adjustment shall be made to avoid duplication of the Annual Administrative Fee. (ii) Within thirty (30) days after notice from the Authority, the Institution shall pay to the Authority all fees and expenses (except general administrative expenses or overhead) reasonably incurred by the Authority by reason of the Agreement. (iii) Within thirty (30) days after notice from the Trustee, the Institution shall pay to the Trustee the reasonable fees and expenses of the Trustee as set forth in the Agreement. (iv) Within thirty (30) days after notice from the Paying Agent, the Institution shall pay to the Paying Agent its reasonable fees and expenses. (v) If a Credit Facility is in effect, the Institution shall pay to the Bank any amounts due and owing under the Reimbursement Agreement. (c) Drawing on the Credit Facility (i) Debt Service While a Credit Facility is available for the Bonds, the Paying Agent shall not later than 10:00 a.m., New York City time, on the payment date, draw on the Credit Facility in accordance with its terms an amount equal to the payment due (including amounts due for redemptions), provided that the amount so drawn shall not exceed amounts needed to pay the principal of, premium, if any, and interest on Bonds other than Institution Bonds and Pledged Bonds. (ii) Mandatory Tenders for Purchase Drawings on the Credit Facility for the purchase of Bonds tendered for mandatory purchase pursuant to the Agreement shall be made pursuant to the provisions of the Agreement. (iii) Purchase at Bondowners Election Drawings on the Credit Facility for the purchase of Tendered Bonds pursuant to the Agreement shall be made pursuant to the provisions of the Agreement. (iv) Use of Credit Facility In making draws under any Credit Facility, the Paying Agent shall do so in accordance with the terms and conditions of such Credit Facility. All amounts received by the Paying Agent under a Credit Facility shall be held in a fund (the Credit Facility Account ) by the Paying Agent, separate and apart from all other amounts held by the Paying Agent and amounts in the Credit Facility Account shall remain uninvested or shall be invested in Government or Equivalent Obligations, maturing within thirty (30) days or the date that such amounts are required to be applied in accordance with the Agreement, whichever is earlier. All amounts received by the Paying Agent under any Credit Facility shall be deposited in the Credit Facility Account and used solely to pay the Purchase Price or principal and purchase price of and interest on the Bonds. Principal and purchase price of and interest on Institution D-4

137 APPENDIX D Bonds or Pledged Bonds shall not be paid from amounts drawn on a Credit Facility. The Credit Facility Account shall consist solely of sums drawn by the Paying Agent under the Credit Facility. (d) Transfer of Funds and Payment The Trustee shall transfer or cause to be transferred funds to the Paying Agent for the payment of principal, premium, if any, and interest payable on the Bonds as provided in the Agreement. The Paying Agent shall apply to such payments, in order (i) moneys drawn on the Credit Facility, (ii) Eligible Funds on deposit in the Debt Service Fund other than moneys drawn on the Credit Facility, and (iii) any other moneys in the Debt Service Fund; provided, however, that except as specified in the next sentence, in no event shall the Trustee use any moneys other than Eligible Funds to pay principal of or interest on the Bonds supported by a Credit Facility. If and to the extent that sufficient Eligible Funds, including moneys drawn on the Credit Facility pursuant to this section, are not available to pay in full the principal of, premium, if any, and interest on the Bonds supported by a Credit Facility (other than Pledged Bonds and Institution Bonds), then other available moneys, including other amounts received under the Agreement, shall be so used. The Paying Agent shall make payments from money drawn on the Credit Facility in accordance with the Agreement and pay the purchase price of Tendered Bonds. (e) Institution s Purchase of Bonds (i) If a Credit Facility is then in effect and if the amount drawn on the Credit Facility, together with all other amounts received by the Paying Agent for the purchase of the Bonds tendered pursuant to the provisions of the Agreement, is not sufficient to pay the Purchase Price of such Bonds on the Purchase Date, the Paying Agent shall before 2:15 p.m., New York time, on such Purchase Date, notify the Institution and the Trustee of such deficiency by telephone or telegraph promptly confirmed in writing. The Institution shall pay to the Paying Agent in immediately available funds by 2:45 p.m. New York time, on the Purchase Date for the Bonds tendered pursuant to the provisions of the Agreement, an amount equal to the Purchase Price of such Bonds less the amount, if any, available to pay the Purchase Price in accordance with the provisions of the Agreement, as the case may be, from the proceeds of the remarketing of such Bonds or from drawings on the Credit Facility, if any, as reported by the Paying Agent. (ii) If no Credit Facility is then in effect, the Remarketing Agent shall notify the Institution of the funds held by the Remarketing Agent as proceeds from the remarketing of such Bonds and any deficiency in amounts available to pay the Purchase Price of the Bonds tendered pursuant to the provisions of the Agreement, by 12:00 p.m., New York time, on such Purchase Date by telephone or telegraph promptly confirmed in writing. The Institution shall pay to the Paying Agent in immediately available funds by 2:30 p.m. New York time, on the Purchase Date for Bonds tendered, an amount equal to the Purchase Price of such Bonds less the amount, if any, available to pay the Purchase Price in accordance with provisions of the Agreement, from the proceeds of the remarketing of such Bonds. (iii) Bonds so purchased with moneys furnished by the Institution ( Institution Bonds ) pursuant to the Agreement shall be registered to the Institution, but shall be delivered to and held by the Paying Agent for the account of the Institution until transferred pursuant to the following sentence or cancelled. Institution Bonds held by the Paying Agent shall, upon written instructions of the Institution, be cancelled or transferred to the Remarketing Agent for delivery to or at the direction of any purchaser of such Bonds from the Institution which the Institution certifies is a person other than the Institution or a related person as such term is used in Section 144(a)(3) of the Code, whereupon such Bonds shall not be Institution Bonds. Any Institution Bonds shall not be subject to purchase under the provisions of the Agreement, and, if so registered for a period of ninety (90) days (or such longer period as may be approved (under Massachusetts and federal law) in an Opinion of Bond Counsel reasonably acceptable to the Trustee) without being resold, shall be automatically cancelled, and the Institution shall deliver the Bonds to the Paying Agent. General Obligation The obligation of the Institution to make payments to the Authority, the Paying Agent, the Trustee and the Bank, if any, under the Agreement is a general obligation of the Institution to pay from any source legally available for expenditure by the Board of Trustees of the Institution for such purpose and shall be binding and enforceable in all circumstances whatsoever, and shall not be subject to setoff, recoupment or counterclaim. Neither The D-5

138 APPENDIX D Commonwealth of Massachusetts nor any political subdivision thereof shall be obligated to pay the Purchase Price or principal of, premium (if any) or interest on, the Bonds or to pay any amounts due under any Reimbursement Agreement except from any source legally available for expenditure by the Board of Trustees of the Institution for such purpose, and neither the faith and credit nor the taxing power of The Commonwealth of Massachusetts is pledged to the payment of the Purchase Price or principal of, premium (if any) or interest on, the Bonds or to the payment of any amounts due under any Reimbursement Agreement. Without limiting the generality of the foregoing, the Board of Trustees of the Institution, acting by and on behalf of The Commonwealth of Massachusetts pursuant to Section 19A of Chapter 773 of the Acts of 1960, as amended, promises under the Agreement to transfer to the Authority to the extent necessary any amounts legally available for expenditure by the Board of Trustees of the Institution; provided, that in the case of any funds expected to be available for expenditure by the Board of Trustees of the Institution pursuant to subsequent appropriation or other spending authorization by the legislature, the Board of Trustees of the Institution may only pledge that they will so transfer such funds subject to such subsequent appropriation or other spending authorization. Investments (a) Pending their use under the Agreement, moneys in the Debt Service Fund, Expense Fund and Rebate Fund may be invested by the Trustee or the Authority, as applicable, in Permitted Investments (as defined below) maturing or redeemable at the option of the owner at or before the time when such moneys are expected to be needed and shall be so invested pursuant to written direction of the Institution if there is not then an Event of Default known to the Trustee. Moneys in the Program Acquisition Fund may be invested by the Authority in Permitted Investments maturing or redeemable at the option of the owner within three (3) years and not later than the times when such moneys are expected to be needed. Notwithstanding the foregoing, any amount of Bond proceeds deposited in the Program Acquisition Fund pursuant to the Agreement which has not been expended by March 29, 2003 or which represent proceeds of damage, destruction, condemnation, sale or other disposition of the Program shall be invested only in Permitted Investments with a yield not more than 1/8% higher than the yield on the Bonds, or in tax-exempt bonds without regard to yield unless the Institution shall have obtained an Opinion of Bond Counsel to the effect that failure so to restrict the investment of such proceeds will not adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes. Any investments pursuant to this subsection shall be held by the Trustee, the Paying Agent or the Authority, as the case may be, as a part of the applicable Fund and shall be sold or redeemed to the extent necessary to make payments or transfers or anticipated payments or transfers from such Fund, subject to the notice provisions of Section 9-504(3) of the UCC to the extent applicable. In the absence of written direction of the Institution, the Trustee, the Paying Agent or the Authority, as the case may be, shall invest in Permitted Investments described below. The Trustee, the Paying Agent and the Authority, as the case may be, shall not be liable or responsible for the making of any investment authorized by the Agreement in the manner provided in the Agreement, or for any loss resulting from any such investment so made. The Trustee, the Authority and the Paying Agent shall have no obligation to determine whether a directed investment is a Permitted Investment. (b) Except as set forth below, any interest realized on investments in any Fund and any profit realized upon the sale or other disposition thereof shall be credited to the Fund with respect to which they were earned and any loss shall be charged thereto. Earnings on the Expense Fund shall be deposited in the Program Acquisition Fund. Earnings (which for this purpose include net profit and are after deduction of net loss) on the Debt Service Fund during the construction period shall be transferred to the Program Acquisition Fund not less often than quarterly. Earnings on the Debt Service Fund after the construction period shall be retained in the Debt Service Fund, unless there is an Event of Default known to the Trustee with respect to payments to the Debt Service Fund or the Rebate Fund, or to the Trustee, the Paying Agent, the Bank, if any, or the Authority, in which case they shall be applied to such payments. (c) (i) The term Permitted Investments means: (A) Direct obligations (other than an obligation subject to variation in principal repayment) of the United States of America, which means (1) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (2) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United D-6

139 APPENDIX D States of America, and (3) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated (collectively United States Obligations ). (B) Tax Exempt Bonds as defined in section 150(a)(6) of the Code, other than specified private activity bonds as defined in section 57(a)(5)(C) of the Code rated at least AA or Aa by S&P and Moody's, respectively, or the equivalent by any other nationally recognized rating agency at the time of acquisition thereof. (C) Federal Housing Administration debentures. (D) Obligations of government-sponsored agencies which are not backed by the full faith and credit of the U.S. government. These are specifically limited to: (1) Federal Home Loan Mortgage Corporation (FHLMC) - Participation certificates and Debt obligations; (2) Farm Credit Banks (formerly: Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives) - Consolidated systemwide bonds and notes; (3) Federal Home Loan Banks (FHL Banks) - Consolidated debt obligations and Letter of credit (LOC) - backed issues (4) -Federal National Mortgage Association (FNMA) - Senior debt obligations and Mortgage-backed securities (excluding stripped mortgages securities which are valued greater than par on the portion of unpaid principal); (5) Student Loan Marketing Association (SLMA) - Senior debt obligations (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date); (6) Financing Corporation (FICO) - Debt obligations; (7) Resolution Funding Corporation (REFCORP) - Debt obligations; and (8) Government National Mortgage Association (GNMA). (E) Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of Prime-1 or A3 or better by Moody's and A-1 or A or better by S&P. (F) Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation (FDIC), in banks which have capital and surplus of at least $5 million. (G) better by S&P. Commercial paper rated, at the time of purchase, Prime-1 by Moody's and A-1 or (H) Money market funds rated AAm or AAm-G by S&P, or better, and investments in the Massachusetts Health and Educational Facilities Authority Short Term Asset Reserve (STAR) Fund and the Common Fund. (I) State Obligations, which means: (1) Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated A3 by Moody's and A by S&P, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. D-7

140 APPENDIX D (2) Direct general short-term obligations of any state agency or subdivision or agency thereof described in (A) above and rated A-1+ by S&P and Prime-1 by Moody's. (3) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state, state agency or subdivision described in (a) above and rated AA or better by S&P and Aa or better by Moody's. (J) Pre-refunded municipal obligations rated AAA by Standard & Poor's Corporation and Aaa by Moody's Investors Service meeting the following requirements: (1) The municipal obligations are (1) not subject to redemption prior to maturity or (2) the Trustee has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions; (2) The municipal obligations are secured by cash or United States Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations; (3) The principal of and interest on the United States Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest and premium, if any, due and to become due on the municipal obligations ( Verification ); (4) The cash or United States Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations; (5) No substitution of a United States Obligation shall be permitted except with another United States Obligation and upon delivery of a new Verification; and (6) The cash or United States Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent. (K) Repurchase Agreements under which a bank or trust company which has a capital and surplus of not less than $50,000,000 or a government bond dealer reporting to, trading with and recognized as a primary dealer by the Federal Reserve Bank of New York sells to, and agrees to repurchase from the Authority or the Trustee obligations issued or guaranteed by the United States; provided that the market value of such obligations is at the time of entering into the agreement at least one hundred three percent (103%) of the repurchase price specified in the agreement and that such obligations are segregated from the unencumbered assets of such bank or trust company or government bond dealer; and provided further that unless the agreement is with a bank or trust company, such agreement shall require the repurchase to occur on demand or on a date certain which is not later than one (1) year after such agreement is entered into and shall expressly authorize the Trustee or the Authority, as the case may be, to liquidate the purchased obligations in the event of the insolvency of the party required to repurchase such obligations or the commencement against such party of a case under the Federal Bankruptcy Code or the appointment of or taking possession by a trustee or custodian in a case against such party under the Bankruptcy Code; and further provided that any such investments may be purchased from or through the Trustee. (L) Investment Agreements with providers (or guarantor of the provider s obligations thereunder) initially rated at least AA- and Aa3 by S&P and Moody s, with the provision that (i) if the provider (or guarantor, if applicable) is downgraded below AA- or Aa3 by S&P or Moody s, the Authority or the Trustee, as applicable, shall have the right to require the provider to deliver collateral of the type described in paragraph (A) above at a margin percentage of 103%, or that described in paragraph (C) or (D) above at a margin percentage of 104%, and (ii) if the provider (or guarantor, if applicable) is further downgraded below A- or A3 by S&P or Moody s, the Authority or the Trustee, as applicable, will have the right to terminate the agreement and receive all invested amounts plus accrued but unpaid interest without penalty. (M) Any other investments which are approved in writing by the Bank, if any. D-8

141 APPENDIX D (ii) Notwithstanding the provisions set forth above: (1) Investments must be purchased and sold at fair market value. Fair market value is the price at which a willing buyer would purchase the investment from a willing seller in a bona fide arm s length transaction. (2) Investments must be purchased on an established market, and United States Treasury obligations must be purchased directly from the United States unless approved by Bond Counsel or are certified to be in accordance with the procedures set forth below: (A) Guaranteed Investment Contracts Obligations purchased or sold pursuant to a guaranteed investment contract (e.g., a forward supply contract or any other investment that has specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate) are satisfactory if (a) a bona fide solicitation for a specified guaranteed investment contract is made; (b) at least 3 bona fide bids from providers which have no material financial interest (e.g., as an underwriter or broker) in the Bonds ( Qualifying Bids ) are received; (c) the highest-yielding contract for which a Qualifying Bid is made is selected (determined net of broker s or other third party fees); (d) the yield on the contract (determined net of broker s or other third party s fees) is at least equal to the yield currently available from the provider on reasonably comparable contracts offered to other persons, if any, with respect to sources of funds other than gross proceeds of tax-exempt bonds or certificates; (e) the determination of the price of the contract takes into account as a significant factor the reasonably expected drawdown schedule for the funds to be invested (exclusive of float funds and reasonably required reserve or replacement funds); (f) the terms of the contract, including collateral security requirements, are reasonable; (g) the provider certifies those administrative costs that it is paying (or expects to pay) to third parties in connection with the contract;(h) such administrative costs are qualified administrative costs; (i) bidders have had an equal opportunity to bid so that, for example, no bidder may review other bids prior to bidding; and (j) all bidders are reasonably competitive providers of investments of the type provided. (B) Certificates of Deposit A certificate of deposit must have a fixed interest rate, fixed principal payment schedule, fixed maturity and substantial penalty for withdrawal. The yield must be not less than the yield on reasonably comparable direct obligations of the United States and not less than the highest yield that is published or posted by the provider to be currently available from the provider on reasonably comparable certificates of deposit offered to the public. (3) Where an investment in a tax-exempt bond is authorized or required, a tax-exempt bond is an obligation the interest on which is excludable from gross income under section 103 of the Code. The term tax-exempt bond does not include a specified private activity bond (as defined in section 57(a)(5)(C) of the Code). The term tax-exempt bond includes (1) an interest in a regulated investment company (as defined in section 851(a) of the Code) to the extent that at least 95% of the income of the interest to the holder is excludable from gross income under section 103(a) of the Code, and (2) a certificate of indebtedness issued by the United States Treasury pursuant to the Demand Deposit State and Local Government Series program described in 31 CFR part 344. (4) In determining payments and receipts on investments, only qualified administrative costs within the meaning of section 148 of the Code and the Regulations thereunder may be taken into account. Any of the requirements of this paragraph (ii) shall not apply to moneys as to which the Trustee and the Authority shall have received an Opinion of Bond Counsel to the effect that such requirements are not necessary to preserve the exclusion of interest on the Bonds from the gross income of the owner thereof for federal income tax purposes. Permitted Investments shall not include any investment that would cause any of the Bonds to be federally guaranteed within the meaning of section 149(b) of the Code, or constitute arbitrage bonds within the meaning of section 148(f) of the Code. D-9

142 APPENDIX D (d) The Trustee may hold undivided interests in Permitted Investments for more than one Fund (for which they are eligible) and may make interfund transfers in kind provided the Trustee shall maintain separate accounts for each Fund. (e) This section shall not govern proceeds held by the Paying Agent from the remarketing of Bonds or from draws on a Credit Facility. Such amounts shall remain uninvested or shall be invested in Government or Equivalent Obligations, maturing within thirty (30) days or on the date that such amounts are required to be applied in accordance with the Agreement, whichever is earlier. Unclaimed Moneys Except as may otherwise be required by applicable law, in case any moneys deposited with the Paying Agent for the payment of the principal of, or interest or premium, if any, on any Bond remain unclaimed for the applicable escheat period after such principal, interest or premium has become due and payable, the Paying Agent may and upon receipt of a written request of the Institution shall pay over to the Institution the amount so deposited in immediately available funds, without additional interest, and thereupon the Paying Agent and the Authority shall be released from any further liability with respect to the payment of principal, interest or premium and the owner of such Bond shall be entitled (subject to any applicable statute of limitations) to look only to the Institution as an unsecured creditor for the payment thereof. Such amounts shall remain uninvested or shall be invested in Government or Equivalent Obligations maturing on the date that such amounts are required in accordance with the Agreement. Program Acquisition Fund A Program Acquisition Fund is established to be held by the Authority. The moneys in the Program Acquisition Fund and any investments held as part of such Fund shall be held in trust and, except as otherwise provided in the Agreement, shall be applied by the Authority solely to the payment or reimbursement of Program Costs (which shall not include costs of issuance of the Bonds) with respect to the Program. If there is an Event of Default known to the Authority with respect to payments to the Rebate Fund or Debt Service Fund or with respect to payments to the Authority, the Paying Agent or the Trustee, the Authority may use the Program Acquisition Fund without requisition to make up the deficiency (but for transfers to the Rebate Fund, only out of earnings) and the Institution shall restore the funds so used. Disbursements from the Program Acquisition Fund shall be made by the Authority to pay directly or to reimburse the Institution for Program Costs, as directed by requisitions signed on behalf of the Institution by the Program Officer. In the event at any time or from time to time the Institution determines that the moneys on deposit in the Program Acquisition Fund are in excess of that needed by the Institution, the Institution shall deliver to the Trustee and the Authority a certificate signed by the Program Officer stating the amount of such excess (the Excess Proceeds ), and the Authority shall transfer such Excess Proceeds to the Debt Service Fund to be applied to a redemption of Bonds pursuant to the Agreement. Carrying Out the Program and Deposit of Institution Funds (a) The Institution shall diligently and continuously carry out the Program. The materials and workmanship shall be of high quality, and no materials, fixtures or equipment intended to become part of the Program shall be purchased by the Institution subject to any lien, encumbrance or claim. Contracts for carrying out the Program and acquisitions in connection therewith have been and shall be made by the Institution in its own name. No funds of the Authority, other than the proceeds of the Bonds, shall be available to pay Program Costs. (b) In future contracts and to the extent permitted by existing contracts, the Institution shall require each contractor engaged in the construction of the Program to employ construction techniques which will tend to minimize detrimental environmental impact. Use of Program In the acquisition, construction, maintenance, improvement and operation of the assets financed under the Program, the Institution covenants that it has complied and will comply with all applicable building, zoning, land use, environmental protection, sanitary, safety and educational laws, rules and regulations, and all applicable grant, D-10

143 APPENDIX D reimbursement and insurance requirements, and will not permit a nuisance thereon; but it shall not be a breach of this paragraph if the Institution fails to comply with such laws, rules, regulations and requirements (other than Chapter 21E of the Massachusetts General Laws, as amended) during any period in which the Institution is diligently and in good faith contesting the validity thereof, provided that the security created or intended to be created by the Agreement is not, in the opinion of the Authority, unreasonably jeopardized thereby. The Institution agrees that the Program shall be used only for the purposes described in Section 3(b) of the Act and no part of the Program shall be used for any purpose which would cause the Authority s financing of the Program to constitute a violation of the First Amendment of the United States Constitution. In particular, the Institution agrees that no part of the Program, so long as it is owned or controlled by the Institution, shall be used for any sectarian instruction or as a place of religious worship or in connection with any part of a program of a school or department of divinity for any religious denomination; and any proceeds of any sale, lease, taking by eminent domain of the Program or other disposition thereof shall not be used for, or to provide a place for, such instruction, worship or program. The provisions of the foregoing sentence shall, to the extent permitted and required by law, survive termination of the Agreement. Indemnification as to the Program To the extent permitted by law, the Institution shall indemnify the Authority and the Trustee against (a) the claims of any person arising out of any condition of the assets financed pursuant to the Program, the construction, use, occupancy or management thereof, or any accident, injury or damage to any person occurring in or about such assets and (b) any and all costs, counsel fees, expenses or liabilities reasonably incurred in connection with any such claim or any action or proceeding brought thereon. Default by the Institution Event of Default in the Agreement means any one of the events set forth below after any applicable grace period and default means any Event of Default without regard to any lapse of time or notice. (i) Any principal of, premium, if any, or interest on any Bond shall not be paid when due, whether at maturity, upon redemption or otherwise from (a) Eligible Funds when a Credit Facility is in effect (except with respect to Pledged Bonds and Institution Bonds) or (b) funds of the Institution when no Credit Facility is in effect; or any Purchase Price for Bonds shall not be paid as provided in the Agreement. (ii) The Institution shall fail to make or cause to be made any debt service payment required of it under the provisions of the Agreement when the same becomes due and payable unless payment is otherwise provided therefor under a Credit Facility. When a Credit Facility is in effect with respect to the Series A Bonds, it shall not be an Event of Default under this provision if the Institution shall fail to make payments to the Bank required under the Reimbursement Agreement. (iii) The Institution shall fail to make or cause to be made any payment of Purchase Price or redemption price required of it under the Agreement when the same becomes due and payable, unless payment is otherwise provided therefor under a Credit Facility. When a Credit Facility is in effect, it shall not be an Event of Default under this provision if the Institution shall fail to make payments to the Bank required under the applicable Reimbursement Agreement. (iv) When a Credit Facility is in effect, the Paying Agent and the Trustee shall have received notice from the Bank of the occurrence of an Event of Default, as defined in the applicable Reimbursement Agreement. (v) When a Credit Facility is in effect, a failure by the Institution to observe or perform any of its agreements, covenants or obligations contained in the Agreement which causes the interest on the Bonds to become included in the gross income of the recipients thereof for federal income tax purposes. If no Credit Facility is in effect, the Institution shall fail to make any other required payment to the Trustee, and such failure is not remedied within fourteen (14) days after written notice thereof is given by the Authority or the Trustee to the Institution; or the Institution shall fail to observe or perform any of its other agreements, covenants or obligations under the Agreement or any of its agreements, covenants or obligations under the terms of any mortgage or other agreement securing the Credit Facility and such failure is not remedied within sixty (60) days after written notice thereof is given by the Authority or the Trustee to the Institution. D-11

144 APPENDIX D (vi) An Event of Bankruptcy shall occur, provided, that in the event of a filing of an involuntary case in bankruptcy under the United States Bankruptcy Code or the commencement of a proceeding under any other applicable law concerning bankruptcy, insolvency or reorganization against the Institution, such petition or proceeding shall remain undismissed for a period of sixty (60) days. (vii) When a Credit Facility is in effect, the occurrence of a material breach of warranty made in the Agreement by the Institution as of the date it was intended to be effective which causes the interest on the Bonds to become included in the gross income of the recipients thereof for federal income tax purposes. If no Credit Facility is in effect, there shall be a material breach of warranty made in the Agreement by the Institution as of the date it was intended to be effective and the breach is not cured within sixty (60) days after written notice thereof is given by the Authority or the Trustee to the Institution. (viii) If a Letter of Credit is in effect with respect to the Series A Bonds, the Paying Agent shall receive written notice from the Bank within five (5) calendar days after a drawing under the Letter of Credit that the Bank has not reinstated the amount so drawn and such non-reinstatement causes the total amount of the obligation of the Bank under the Letter of Credit to be less than the principal amount of the Outstanding Bonds (other than Pledged Bonds and Institution Bonds), plus accrued interest (A) for a period of 45 days at the Maximum Rate with respect to the principal amount of Bonds then Outstanding if the Bonds are in the Weekly Rate Period or (B) for the maximum period of days required by the rating agencies then rating the Bonds to maintain the rating on the Bonds at the Maximum Rate with respect to the principal amount of Bonds then Outstanding if the Bonds bear interest at the Flexible Rate or (C) for a period of 195 days at the Maximum Rate with respect to the principal amount of Bonds then Outstanding if the Bonds bear interest at the Long-Term Rate, or, with respect to any of the foregoing, the minimum number of days interest required by the Agreement. The Paying Agent shall immediately notify the Trustee of the Bank s failure to reinstate the full amount drawn under the Letter of Credit. (ix) If no Credit Facility is in effect, a breach shall occur (and continue beyond any applicable grace period) with respect to the payment of indebtedness of the Institution for borrowed money with respect to loans exceeding $10,000,000, or with respect to the performance of any agreement securing such indebtedness or pursuant to which the same was issued or incurred, or an event shall occur with respect to provisions of any such agreement relating to matters of the character referred to in this section, so that a owner or owners of such indebtedness or a trustee or trustees under any such agreement accelerates or is empowered to accelerate any such indebtedness; but an Event of Default shall not be deemed to be in existence or to be continuing under this clause if (A) the Institution is in good faith contesting the existence of such breach or event and if such acceleration is being stayed by judicial proceedings, (B) the power of acceleration is not exercised and it ceases to be in effect, or (C) such breach or event is remedied and the acceleration, if any, is wholly annulled. The Institution shall notify the Authority, the Trustee and the Bank, if any, of any such breach or event immediately upon the Institution s becoming aware of its occurrence and shall from time to time furnish such information as the Authority, the Trustee or the Bank, if any, may reasonably request for the purpose of determining whether a breach or event described in this clause has occurred and whether such power of acceleration has been exercised or continues to be in effect. If the Trustee determines that a default other than a default in the payment of principal of, premium, if any, or interest on the Bonds has been cured before the entry of any final judgment or decree with respect to it, the Trustee may waive the default and its consequences, with the written consent of the Authority, by written notice to the Institution and shall do so, with the written consent of the Authority, upon written instruction of the owners of at least twenty-five per cent (25%) in principal amount of the Outstanding Bonds; provided, however, that no such waiver shall be effective while a Credit Facility is in effect without the written consent of the Bank and notice of the reinstatement of any such Credit Facility to an amount equal to the principal amount of the Outstanding Bonds (other than Pledged Bonds and Institution Bonds), plus interest thereon as required by the Agreement. D-12

145 APPENDIX D Court Proceedings The Authority may enforce the obligations of the Institution under the Agreement by legal proceedings for the specific performance of any covenant, obligation or agreement contained in the Agreement, whether or not any breach has become an Event of Default, or for the enforcement of any other appropriate legal or equitable remedy, and may recover damages caused by any breach by the Institution of the provisions of the Agreement, including (to the extent the Agreement may lawfully provide) court costs, reasonable attorney s fees and other reasonable costs and expenses incurred in enforcing the obligations of the Institution under the Agreement. Subject to the last sentence of the section entitled Rights and Duties of the Authority herein, the Trustee shall as soon as practicable enforce the obligations of the Authority under the Agreement and the obligations of the Institution to the Trustee and the Paying Agent under the Agreement by legal proceedings for the specific performance of any covenant, obligation or agreement contained in the Agreement, whether or not an Event of Default exists, or for the enforcement of any other appropriate legal or equitable remedy, and may recover damages caused by any breach by the Authority or the Institution of the provisions of the Agreement, including (to the extent the Agreement may lawfully provide) court costs, reasonable attorneys fees and other costs and expenses incurred in enforcing the obligations of the Authority or the Institution under the Agreement. Revenues After Default Any funds pledged as security under the Agreement and any other moneys received by the Trustee for the benefit of the Bondowners, after payment or reimbursement of the reasonable expenses of the Trustee and the Authority in connection therewith (including without limitation the expenses of taxes or other charges which the Authority may deem advisable to pay, and reserves for the foregoing to the extent deemed necessary by the Authority), shall be applied, first to the remaining obligations of the Institution under the Agreement, including Reimbursement Obligations (other than obligations to make payments to the Authority for its own use) in such order as may be determined by the Trustee, and second, to any unpaid sums due the Authority for its own use. Any surplus thereof shall be paid to the Institution. Remedies Cumulative The rights and remedies under the Agreement shall be cumulative and shall not exclude any other rights and remedies allowed by law, provided there is no duplication of recovery. The failure to insist upon a strict performance of any of the obligations of the Institution or of the Authority or to exercise any remedy for any violation thereof shall not be taken as a waiver for the future of the right to insist upon strict performance or of the right to exercise any remedy for the violation. Control of Remedies by Bank Notwithstanding anything in the Agreement to the contrary, if a Credit Facility is in effect, so long as the Bank has not failed to make any payments under such Credit Facility following presentation of drafts and certificates in strict compliance with the Credit Facility, the Bank shall have the right, at any time, by written instrument delivered to the Trustee and the Authority, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Agreement. Appointment of Paying Agent The Paying Agent shall designate in writing to the Trustee its principal office and signify its acceptance of the duties and obligations imposed upon it under the Agreement by a written instrument of acceptance delivered to the Authority, the Trustee and the Bank, if any. The Paying Agent shall also be the tender agent, the registrar and authentication agent under the Agreement with respect to the Bonds. By such acceptance, the Paying Agent will agree to, particularly: (i) hold and be the beneficiary of a Credit Facility, if any, and take all steps required to be taken thereunder and under the Agreement with respect thereto; (ii) hold all sums delivered to it by the Trustee or paid to it under a Credit Facility, if any, for the payment of principal of and interest on the Bonds in trust for the benefit of the Bondowners until D-13

146 APPENDIX D (iii) (iv) (v) (vi) (vii) such sums shall be paid to the Bondowners or otherwise disposed of as provided in the Agreement; to hold all Bonds delivered to it for purchase under the Agreement in trust for the benefit of the respective Owners, until moneys representing the Purchase Price of such Bonds shall have been delivered to or for the account of or to the order of such Owners; hold all Pledged Bonds until such Pledged Bonds shall have been remarketed by the Remarketing Agent or redeemed in the manner set forth in the Agreement and in the form of Bonds; hold all moneys delivered to it under the Agreement for the purchase of Bonds in trust for the benefit of, the person or entity which shall have so delivered such moneys, until the Bonds purchased with such moneys have been delivered to or for the account of such person or entity; to perform all duties of the Paying Agent with respect to Tender Notices, other notices, the tender and purchase of Bonds and the deposit, holding and payment of funds as specified in the Agreement; and to keep such books and records as shall be consistent with prudent industry practice, and make such books and records available for inspection by the Notice Parties at all reasonable times. Liability of Paying Agent The Paying Agent may not be relieved from liability for its own gross negligence or willful misconduct except that: (i) the Paying Agent need perform only those duties that are specifically set forth in the Agreement to be performed by it as the Paying Agent and no others; (ii) in the absence of bad faith on its part, the Paying Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed upon certificates or opinions furnished to the Paying Agent and conforming to the requirements of the Agreement; provided, however, that the Paying Agent shall examine the certificates and opinions to determine whether they conform to the requirements of the Agreement; (iii) (iv) (v) the Paying Agent shall not be liable for any error of judgment made in good faith by an officer of the Paying Agent, unless it is proved that the Paying Agent was grossly negligent in ascertaining the pertinent facts; no provision of the Agreement shall require the Paying Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties under the Agreement or in the exercise of any of its rights or powers; and the Paying Agent shall not be liable for interest on any cash held by it except as the Paying Agent may agree in writing with the Authority and the Institution or as may be provided in the Agreement. Every provision of the Agreement that in any way relates to the Paying Agent is subject to all the paragraphs of this paragraph. Resignation; Removal; Qualification of Successor Paying Agent The Paying Agent may resign and be discharged of the duties and obligations created by the Agreement by giving at least sixty (60) days notice by mail to the Notice Parties. The Paying Agent may be removed at any time by an instrument signed by the Institution, filed with the Notice Parties. A successor Paying Agent shall be appointed by the Institution and shall be a corporation duly organized under the laws of the United States of America or any state or territory thereof having a combined capital stock, surplus and undivided profits of at least Fifty Million Dollars ($50,000,000), authorized by law to perform all of the duties imposed upon it by the Agreement and having a rating (or being a bank comprising at least 51% of the assets of a bank holding company D-14

147 APPENDIX D having a rating) from Fitch of BBB/F3 or higher. No removal or resignation will be effective until a successor has delivered an acceptance of its appointment to the Trustee. Appointment of Remarketing Agent; Resignation and Removal The Remarketing Agent shall designate in writing to the Trustee its principal office and signify its acceptance of the duties and obligations imposed upon it under the Agreement and in the Remarketing Agreement by a written instrument of acceptance delivered to the Authority, the Institution and the Trustee. The Remarketing Agent may at any time resign and be discharged of the duties and obligations created by the Agreement by giving at least 30 days written notice to the Notice Parties. The Remarketing Agent may be removed at any time by the Institution by a written notice filed at least 15 days prior to the effective date of such removal with the Notice Parties. Upon the resignation or removal of the Remarketing Agent, the Remarketing Agent shall pay over, deliver and assign any moneys and Bonds held by it in such capacity to its successor. Qualifications of Successor Remarketing Agent If the position of Remarketing Agent shall become vacant for any reason, or if the Remarketing Agent gives notice of its resignation as provided in the Agreement, the Authority shall immediately use its best efforts to appoint a successor Remarketing Agent to fill the vacancy. A written acceptance of office shall be filed by the successor Remarketing Agent in the manner set forth in the Agreement. Any successor Remarketing Agent shall be a member of the National Association of Securities Dealers, Inc., having a capitalization of at least $50,000,000 (or, alternatively, maintaining a line of credit in such amount from a commercial bank having a capitalization of at least $25,000,000) and be authorized by law to perform all of the duties imposed on it under the Agreement. General Responsibilities of the Remarketing Agent The Remarketing Agent shall perform the duties and obligations set forth in the Agreement, and in particular shall: (1) use its best efforts to solicit purchases of Bonds tendered and deemed tendered and Pledged Bonds and Institution Bonds from investors able to purchase municipal bonds, effectuate and process such purchases, bill and receive payment for Bonds purchased, and perform related functions in connection with the remarketing of Bonds under the Agreement; (2) keep such books and records as shall be consistent with prudent industry practice and which will document its action taken under the Agreement, and make such books and records available for inspection by the Notice Parties at al reasonable time; and (3) comply at all times with all applicable state and federal securities laws and other statutes, rules and regulations applicable to the offering and sale of the Bonds. In performing its duties and obligations under the Agreement, the Remarketing Agent shall use the same degree of care and skill as a prudent person would exercise under the same circumstances in the conduct of his or her own affairs. The Remarketing Agent may deal in Bonds and with the Authority and the Institution to the same extent and with the same effect as provided with respect to the Trustee and Paying Agent in the Agreement. The Notice Parties shall each cooperate to cause the necessary arrangements to be made and thereafter continued whereby Bonds prepared, executed, authenticated and issued under the Agreement shall be made available to the Remarketing Agent to the extent necessary for delivery pursuant to the Agreement, and to otherwise enable the Remarketing Agent to carry out its duties under the Agreement. D-15

148 APPENDIX D Remarketing and Sale of Bonds With respect to all Institution Bonds (subject to the section entitled Institution s Purchase of Bonds), Pledged Bonds and all Bonds subject to purchase on a Purchase Date, the Remarketing Agent shall offer for sale and use its best efforts to sell all such Bonds at a price equal to the principal amount thereof plus accrued interest, if any, and with an interest rate determined by the Remarketing Agent as provided in the Agreement; provided that Institution Bonds may, with the prior consent of the Institution, be remarketed at a price higher or lower than par plus accrued interest. Any Bond purchased pursuant to the optional tender provisions of the Agreement during the period following notice of conversion pursuant to the Agreement or a notice of redemption pursuant to the provisions of the Agreement shall not be remarketed except to a purchaser who is provided with a notice to the same effect as the notice to be given Bondowners pursuant to the Agreement. The proceeds of sale of any Bonds other than Institution Bonds or Pledged Bonds sold by the Remarketing Agent pursuant to the Agreement shall be transferred by or at the direction of the Remarketing Agent by wire transfer in immediately available funds to the Paying Agent at the times and otherwise as provided in the Agreement, for application in accordance with the Agreement. The proceeds of the remarketing of Institution Bonds or Pledge Bonds shall be transferred by or at the direction of the Remarketing Agent to the Institution or the Bank, as applicable in immediately available funds on the date of remarketing in the manner as shall be specified by the Institution or the Bank, as applicable to the Remarketing Agent. Rights and Duties of the Trustee. All moneys received by the Trustee under the Agreement (other than moneys received for its own use) shall be held by the Trustee in trust and applied subject to the provisions of the Agreement. The Trustee shall keep proper accounts of its transactions under the Agreement (separate from its other accounts), which shall be open to inspection by the Authority and the Institution and their representatives duly authorized in writing. If the Authority shall fail to observe or perform any covenant or obligation contained in the Agreement, the Trustee may to whatever extent it deems appropriate for the protection of the Bondowners or itself, perform any such obligation in the name of the Authority and on its behalf. The Trustee shall not be required to monitor the financial condition of the Institution or the physical condition of the Program and, unless otherwise expressly provided, shall not have any responsibility with respect to reports, notices, certificates or other documents filed with it under the Agreement, except to make them available for inspection by Bondowners. Upon a failure of the Institution to make a debt service or rebate payment or to purchase any tendered Bonds, required of it under the Agreement after the same becomes due and payable the Trustee shall give written notice thereof to the Authority and the Institution, and the Trustee shall notify the Remarketing Agent of any Event of Default. The Trustee shall not be required to take notice of any other breach of default by the Institution or the Authority except when given written notice thereof by the owners of at least ten percent (10%) in principal amount of the Outstanding Bonds. The Trustee shall give default notices under the Agreement when instructed to do so by the written direction of the owners of at least twenty-five percent (25%) in principal amount of the Outstanding Bonds. The Trustee shall proceed with respect to the remedy of court proceedings provided under the Agreement for the benefit of the Bondowners in accordance with the written directions of the owners of a majority in principal amount of the Outstanding Bonds. The Trustee shall not be required, however, to take any remedial action (other than the giving of notice) unless reasonable indemnity is furnished for any expense or liability to be incurred therein. Upon receipt of written notice, direction or instruction and indemnity, as provided above, and after making such investigation, if any, as it deems appropriate to verify the occurrence of any event of which it is notified as aforesaid, the Trustee shall promptly pursue the remedy provided by the Agreement or any of such remedies (not contrary to any such direction) as it deems appropriate for the protection of the Bondowners, and in its actions under this paragraph, the Trustee shall act for the protection of the Bondowners with the same promptness and prudence as would be expected of a prudent person in the conduct of such person's own affairs. D-16

149 APPENDIX D The Trustee shall be entitled to the advice of counsel (who may be counsel for any party) and shall not be liable for any action taken in good faith in reliance on such advice. The Trustee may rely conclusively on any notice, certificate or other document furnished to it under the Agreement and reasonably believed by it to be genuine. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and reasonably believed by it to be within the discretion or power conferred upon it, or taken by it pursuant to any direction or instruction by which it is governed under the Agreement or omitted to be taken by it by reason of the lack of direction or instruction required for such action, or be responsible for the consequences of any error of judgment reasonably made by it. When any payment or consent or other action by the Trustee is called for by the Agreement, the Trustee may defer such action pending receipt of such evidence, if any, as it may reasonably require in support thereof. A permissive right or power to act shall not be construed as a requirement to act. The Trustee shall in no event be liable for the application or misapplication of funds, or for other acts or defaults, by any person, firm or corporation except by its own directors, officers, agents and employees. No recourse shall be had by the Institution and the Authority or for any claim based on the Agreement, the Bonds or any agreement securing the same against any director, officer, agent or employee of the Trustee unless such claim is based upon the bad faith, fraud or deceit of such person. For the purposes of the Agreement matters shall not be considered to be known to the Trustee unless they are known to an officer in its corporate trust department. The Trustee may be or become the owner of or trade in Bonds with the same rights as if it were not the Trustee. The Trustee shall not be required to furnish any bond or surety. It shall be the duty of the Trustee to execute and file, or cause to be executed and filed, such continuation statements as may be required by the UCC with respect to any security interest granted to the Authority under the Agreement for the benefit of the Bondowners. All such continuation statements shall be signed by the secured party and any assignee. Nothing contained in the Agreement shall in any way obligate the Trustee to pay any debt or meet any financial obligations to any person in relation to the Program except from moneys received under the provisions of the Agreement or from the exercise of the Trustee's rights under the Agreement other than the moneys received for its own purposes. Except to the extent the Trustee has been paid or reimbursed from the Expense Fund or the Program Acquisition Fund, the Institution shall pay to the Trustee reasonable compensation for its services and pay or reimburse the Trustee for its reasonable expenses and disbursements, including attorneys' fees, under the Agreement. To the extent permitted by law, the Institution shall indemnify and save the Trustee harmless against any expenses and liabilities which it may incur in the exercise of its duties under the Agreement and which are not due to its negligence or bad faith. Any fees, expenses, reimbursements or other charges which the Trustee may be entitled to receive from the Institution under the Agreement, if not paid when due, shall bear interest at the "base rate" of the Trustee (or, if none, the nearest equivalent), and if not otherwise paid, shall be a first lien upon any funds or other property then or thereafter held under the Agreement by the Trustee. The Trustee may apply any such funds to any of the foregoing items, and in that event the lien of this section shall continue to apply to any other such funds, and the Institution shall remain liable for the same. Any subsequent payment of any such item by the Institution shall be used to restore the funds so applied. The foregoing payment and indemnification obligation shall survive the termination and defeasance of the Agreement. Resignation or Removal of the Trustee The Trustee may resign on not less than thirty (30) days notice given in writing to the Authority, the Bondowners and the Institution, but such resignation shall not take effect until a successor has been appointed. The Trustee will promptly certify to the Authority that it has mailed such notice to all Bondowners and such certificate will be conclusive evidence that such notice was given in the manner required the Agreement. The Trustee may be removed by written notice from the owners of a majority in principal amount of the Outstanding Bonds to the Trustee, the Authority and the Institution, but such removal shall not take effect until a successor has been appointed. D-17

150 APPENDIX D Successor Trustee Any corporation or association which succeeds to the corporate trust business of the Trustee as a whole or substantially as a whole, whether by sale, merger, consolidation or otherwise, shall thereby become vested with all the property, rights and powers of the Trustee under the Agreement, without any further act or conveyance. In case the Trustee resigns or is removed or becomes incapable of acting, or becomes bankrupt or insolvent, or if a receiver, liquidator or conservator of the Trustee or of its property is appointed, or if a public officer takes charge or control of the Trustee, or of its property or affairs, a successor shall be appointed by written notice from the Authority to the Institution. The Authority shall notify the Bondowners of the appointment in writing within twenty (20) days from the appointment. The Authority will promptly certify to the successor Trustee that it has mailed such notice to all Bondowners and such certificate will be conclusive evidence that such notice was given in the manner required the Agreement. If no appointment of a successor is made within forty-five (45) days after the giving of written notice in accordance with the Agreement or after the occurrence of any other event requiring or authorizing such appointment, the outgoing Trustee or any Bondowner may apply to any court of competent jurisdiction for the appointment of such a successor, and such court may thereupon, after such notice, if any, as such court may deem proper, appoint such successor. Any successor Trustee appointed under this section shall be a trust company or a bank having the powers of a trust company, legally permitted to serve as trustee under the Act, having a capital and surplus of not less than $50,000,000. Any such successor Trustee shall notify the Authority and the Institution of its acceptance of the appointment and, upon giving such notice, shall become Trustee, vested with all the property, rights and powers of the Trustee under the Agreement, without any further act or conveyance. Such successor Trustee shall execute, deliver, record and file such instruments as are required to confirm or perfect its succession under the Agreement and any predecessor Trustee shall from time to time execute, deliver, record and file such instruments as the incumbent Trustee may reasonably require to confirm or perfect any succession under the Agreement. Rights and Duties of the Authority The Authority shall keep proper accounts (separate from its other accounts) of the transactions in the Program Acquisition Fund and Expense Fund, which shall be subject to inspection by the Trustee and the Institution, or their representatives duly authorized in writing. The Authority shall cause these accounts and the accounts of the Trustee under the Agreement to be audited annually within one hundred twenty (120) days after the end of the fiscal year by a nationally recognized independent public accountant selected by the Authority. Annually within thirty (30) days after the receipt by the Authority of the report of such audit, signed copies of such report shall be furnished to the Institution and the Trustee and, upon written request, to any Bondowner. The Authority shall not be required to monitor the financial condition of the Institution or the physical condition of the Program and, unless otherwise expressly provided, shall not have any responsibility with respect to reports, notices, certificates or other documents filed with it under the Agreement. The Authority shall not be required to take notice of any breach or default by the Institution except when given written notice thereof by the owners of at least ten percent (10%) in principal amount of the Outstanding Bonds or by the Trustee. The Authority shall give default notice under the Agreement when instructed to do so by the written direction of the owners of at least twenty-five percent (25%) in principal amount of the Outstanding Bonds. The Authority shall proceed with respect to the remedy of court proceedings provided under the Agreement for the benefit of the Bondowners in accordance with the written directions of the owners of a majority in principal amount of the Outstanding Bonds. The Authority shall not be required, however, to take any remedial action, other than the giving of notice, unless reasonable indemnity is furnished for any expense or liability to be incurred therein. Upon receipt of written notice, direction or instruction and indemnity, as provided above, and after making such investigation, if any, as it deems appropriate to verify the occurrence of any event of which it is notified as aforesaid, the Authority shall promptly pursue the remedies provided by the Agreement or any of such remedies (not contrary to any such direction) as it deems appropriate for the protection of the Bondowners, and in its actions under this sentence, the Authority shall act for the protection of the Bondowners with the same promptness and prudence as would be expected of a prudent person in the conduct of such person's own affairs. The Authority shall be entitled to the advice of counsel (who may be counsel for any party) and shall not be liable for any action taken in good faith in reliance on such advice. The Authority may rely conclusively on any D-18

151 APPENDIX D notice, certificate or other document furnished to it under the Agreement and reasonably believed by it to be genuine. The Authority shall not be liable for any action taken or omitted to be taken by it in good faith and reasonably believed by it to be within the discretion or power conferred upon it, or taken by it pursuant to any direction or instruction by which it is governed under the Agreement or omitted to be taken by it by reason of the lack of direction or instruction required for such action, or be responsible for the consequences of any error of judgment reasonably made by it. When any payment or consent or other action by the Authority is called for by the Agreement, the Authority may defer such action pending receipt of such evidence, if any, as it may reasonably require in support thereof. A permissive right or power to act shall not be construed as a requirement to act. The Authority shall in no event be liable for the application or misapplication of funds, or for other acts or defaults by any person, firm or corporation except by its own members, officers, agents and employees. No recourse shall be had by the Institution and the Trustee, or any Bondowner for any claim based on the Agreement, the Bonds, or any agreement securing the same against any member, officer, agent or employee of the Authority unless such claim is based upon the bad faith, fraud or deceit of such person. Nothing contained in the Agreement shall in any way obligate the Authority to pay any debt or meet any financial obligations to any person at any time in relation to the Program except from moneys received under the provisions of the Agreement or from the exercise of the Authority's rights under the Agreement other than moneys received for its own purposes. Action by Bondowners Any request, authorization, direction, notice, consent, waiver or other action provided by the Agreement to be given or taken by Bondowners may be contained in and evidenced by one or more writings of substantially the same tenor signed by the requisite number of Bondowners or their attorneys duly appointed in writing. Proof of the execution of any such instrument, or of an instrument appointing any such attorney, shall be sufficient for any purpose of the Agreement (except as otherwise in the Agreement expressly provided) if made in the following manner, but the Authority or the Trustee may nevertheless in its discretion require further or other proof in cases where it deems the same desirable: The fact and date of the execution by any Bondowner or his or her attorney of such instrument may be proved by the certificate, which need not be acknowledged or verified, of an officer of a bank or trust company satisfactory to the Authority or to the Trustee or of any notary public or other officer authorized to take acknowledgments of deeds to be recorded in the state in which he or she purports to act, that the person signing such request or other instrument acknowledged to him or her the execution thereof, or by an affidavit of a witness of such execution, duly sworn to before such notary public or other officer. The authority of the person or persons executing any such instrument on behalf of a corporate Bondowner may be established without further proof if such instrument is signed by a person purporting to be the president or a vice president of such corporation with a corporate seal affixed and attested by a person purporting to be its clerk or secretary or an assistant clerk or secretary. The ownership of Bonds and the amount, numbers and other identification, and date of holding the same shall be proved by the registry books for the Bonds maintained by the Paying Agent. Any request, consent or vote of the owner of any Bond shall bind all future owners of such Bond. Bonds owned or held by or for the account of the Authority or the Institution shall not be deemed Outstanding Bonds for the purpose of any consent or other action by Bondowners. No Bondowner shall have any right to institute any legal proceedings for the enforcement of the Agreement or any applicable remedy under the Agreement, unless the Bondowners have directed the Authority to act and furnished the Authority indemnity as provided in the Agreement and have afforded the Authority reasonable opportunity to proceed, and the Authority shall thereafter fail or refuse to take such action. No Bondowner shall have any right to institute any legal proceedings for the enforcement of the obligations of the Authority under the Agreement or any applicable remedy under the Agreement, unless the Bondowners have directed the Trustee to act and furnished the Trustee indemnity as provided in the Agreement and have afforded the Trustee reasonable opportunity to proceed, and the Trustee shall thereafter fail or refuse to take such action. D-19

152 APPENDIX D Subject to the foregoing, any Bondowner may by any available legal proceedings enforce and protect its rights under the Agreement and under the laws of The Commonwealth of Massachusetts. Organization, Authorization and Powers The Institution represents and warrants that it is a state coeducational institution within the Commonwealth authorized by law to provide a program of education beyond the high school level, with the power to enter into and perform the Agreement, and that by proper corporate action it has duly authorized the execution and delivery of the Agreement. The Institution further represents and warrants that the execution and delivery of the Agreement and the consummation of the transactions contemplated in the Agreement will not conflict with or constitute a breach of or default under any bond, indenture, note or other evidence of indebtedness of the Institution, the charter or by-laws of the Institution, any gifts, bequests or devises pledged to or received by the Institution, or any contract, lease or other instrument to which the Institution is a party or by which it is bound or cause the Institution to be in violation of any applicable statute or rule or regulation of any governmental authority. Tax Status The Institution covenants that it will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of the interest on the Bonds under section 103 of the Code. In particular, the Institution will not directly or indirectly use or permit the use of any proceeds of the Bonds or any other funds of the Authority or the Institution, or take or omit to take any action, if such use, action or omission would cause the Bonds to be arbitrage bonds within the meaning of section 148(a) of the Code. To that end, the Institution will comply with all requirements of section 148 of the Code to the extent applicable to the Bonds. In the event that at any time for purposes of this section it is necessary to restrict or limit the yield on the investment of any moneys held by the Trustee or the Authority under the Agreement or otherwise, the Institution shall so instruct the appropriate person in writing. The Institution agrees to perform all duties imposed upon it by the Agreement, by the Institution Tax Certificate, the Institution Certificate as to Arbitrage and by the Code to preserve the exclusion of the interest payable on the Bonds from federal income taxation. Insofar as the Institution Tax Certificate makes representations or covenants by, or to be performed by, the Institution, as to the expenditure or use of Bond proceeds, investment restrictions, ownership of the Program and property financed with Bond proceeds or otherwise, or impose duties and responsibilities upon the Institution, such provisions are specifically incorporated in the Agreement by reference. The Institution represents and warrants that internal advances to be repaid from the proceeds of the Bonds under the Agreement are in every instance internal advances shown on the Institution s books of account as advances or loans, with respect to each of which it was the intention and expectation of the Institution that the expenditure would be permanently financed through the Authority or other external lenders unless gifts or grants were obtained for the purpose; that no arrangements have been made for permanent financing of any of these expenditures by means other than financing through the Authority; that any internal repayment schedules which have been arranged with respect to any of the advances are subject to modification to reflect the maturity schedule of permanent Authority financing. Securities Law Status The Institution represents and warrants that it is a state institution. Annual Reports and Other Current Information The Institution shall from time to time render such reports concerning the condition of the Program or compliance with the Agreement as the Authority or the Trustee may reasonably request. Within two hundred and forty (240) days after the close of each fiscal year, the Institution shall furnish to the Trustee and the Authority, and to Bondowners requesting the same, copies of its audited financial statements. Copies of the reports and statements required to be filed with the Trustee pursuant to this section shall be filed with the Trustee in sufficient quantity to permit the Trustee to retain at least one copy for inspection by Bondowners and to permit the Trustee to mail a copy to each Bondowner who requests it. The Trustee shall maintain a list of Bondowners who have made such a request. D-20

153 APPENDIX D The Institution shall furnish to the agencies rating the Bonds such information as they may reasonably require for current reports to their subscribers. Continuing Disclosure The Institution and the Trustee covenant and agree that each will comply with and carry out all of the provisions of the Continuing Disclosure Agreement applicable to it. The Authority shall have no liability to the owners of the Bonds or any other person with respect to such disclosure matters. Notwithstanding any other provision of the Agreement, failure of the Institution or the Trustee to comply with the Continuing Disclosure Agreement shall not be considered an Event of Default; however, the Trustee may (and, at the request of the owners of at least 25% aggregate principal amount of Outstanding Bonds, shall) or any owner (including a beneficial owner) of Bonds may, seek specific performance of the Institution s obligations to comply with its obligations under the Continuing Disclosure Agreement or this paragraph and not for money damages in any amount. Limitations on Additional Indebtedness The Institution shall not issue additional Indebtedness or request or permit UMBA or the Authority to issue additional Indebtedness on behalf of the Institution except as set forth in the Agreement. (a) The Institution may, without limit, issue additional Indebtedness or request UMBA or the Authority to issue additional Indebtedness on behalf of the Institution so long as such Indebtedness is payable from all available funds of the Institution. Furthermore, except as set forth below and except for pledges or liens already in existence on the date of the Agreement, the Institution shall not pledge, or permit to exist any lien on, any of its funds or revenues. Additional parity Indebtedness issued by UMBA under its Trust Agreement dated as of April 1, 1984, as amended and supplemented, shall be deemed to be General Obligation Indebtedness if upon the issuance thereof the Institution shall be obligated to make payments in support thereof payable from all available funds of the Institution, notwithstanding that such additional parity Indebtedness shall also be secured by revenues pledged under said UMBA Trust Agreement. Nothing in this paragraph shall be construed to limit the ability of UMBA to impose student fees as necessary to make up any deficiency in the Expendable Fund Balance in connection with General Obligation Indebtedness issued by UMBA. (b) The Institution may request UMBA to issue additional Indebtedness on behalf of the Institution that is not payable from all available funds of the Institution as set forth in the previous paragraph, provided (i) the additional Indebtedness is secured by (w) pledged revenues derived from the project or projects being financed, (x) new or increased student fees whether imposed by the Institution or UMBA, (y) existing pledged revenues or (z) any combination of the foregoing and (ii) the maximum annual debt service on all Revenue Indebtedness then outstanding, including the proposed additional Indebtedness, does not exceed 10% of the amount shown in the then most recent audited financial statements of the Institution as total Available Revenues. (c) Indebtedness of the Institution shall not be subject to acceleration, and no obligation of the Institution to make payments on account of Indebtedness issued by UMBA or the Authority shall be subject to acceleration. (d) Upon the issuance of any additional Indebtedness pursuant to this section, the Institution shall file or caused to be filed with the Trustee and the Bank, if any, a certificate evidencing compliance with the provisions of this section. If a Credit Facility is in effect, the Institution shall also provide the Bank with a copy of the official statement or other disclosure document, if any, prepared in connection with the issuance of any such additional Indebtedness. Sufficiency of Expendable Funds The following provisions shall apply to all General Obligation Indebtedness issued by the Institution, UMBA or the Authority: On or before April 1 of each year, the President of the Institution or the Vice President for Management and Fiscal Affairs and Treasurer of the Institution shall provide in writing to UMBA, the Authority and the Bank a detailed list of the Debt Service and Related Costs with respect to the twelve-month period commencing the next succeeding November 1 and shall certify in writing to UMBA, the Authority and the Bank whether or not there are as of such April 1 sufficient funds D-21

154 APPENDIX D in the Expendable Fund Balance to pay all such Debt Service and Related Costs and, if so, that funds sufficient to pay Debt Service and Related Costs with respect to the Bonds will be held in trust for the benefit of the Trustee and the Bank, if any, to be applied to the payment of such amounts and will not be expended for any other purpose. On and after such date of certification, such funds will be so held and not expended for any other purpose. In the event of the absence or inability of the President of the Institution or the Vice President for Management and Fiscal Affairs and Treasurer of the Institution, or in the event that either such office should no longer exist, such certification may be made by such other officer of the Institution knowledgeable about the financial affairs of the Institution. The Trustees hereby authorize and delegate power to the President of the Institution, the Vice President for Management and Fiscal Affairs and Treasurer of the Institution and any such other officer to deliver the certificate described in the preceding paragraph and to do all other acts and things necessary or desirable to cause the Institution to comply with its obligations under this section. Amendment If such certification states that sufficient funds are not available in the Expendable Fund Balance to pay all Debt Service and Related Costs, such certification shall state the amount of funds in the Expendable Fund Balance that are available to pay such Debt Service and Related Costs and a ratable portion of such funds in the Expendable Fund Balance shall be held in trust for the benefit of the Trustee and the Bank, if any, to be applied to the payment of Debt Service and Related Costs with respect to the Bonds and will not be expended for any other purpose. Ratable portion for purposes of this paragraph shall be calculated by dividing the Debt Service and Related Costs with respect to the Bonds for such period by the Debt Service and Related Costs with respect to all Indebtedness payable from the Expendable Fund Balance for such period and multiplying the result by the available amounts in the Expendable Fund Balance. The Institution will continue to be obligated to pay all Debt Service and Related Costs with respect to the Bonds notwithstanding any shortfall in amounts available in the Expendable Fund Balance on or before April 1. All moneys collected or received by the Institution, from whatever source, to pay Debt Service and Related Costs with respect to the Bonds, including without limitation moneys held in trust for the ratable benefit of the Bank, if any, and the Trustee, shall be collected or received for the account of the Bank, if any, and the Trustee in trust to be held and applied solely to Debt Service and Related Costs with respect to the Bonds. The Agreement may be amended by the parties without Bondowner consent for any of the following purposes: (a) to add to the covenants and agreements of the Institution or to surrender or limit any right or power of the Institution, (b) to cure any ambiguity or defect, or to add provisions which are not materially inconsistent with the Agreement and which do not impair the security for the Bonds, including without limitation, any amendments necessary to accommodate a Credit Facility or a substitute Credit Facility, (c) to modify the mechanics with respect to the determination of interest rates, mandatory tenders and Puts which do not materially adversely affect the interests of the Bondowners or (d) to provide for the establishment of a book entry system of registration for any series of Bonds through a securities depository (which may or may not be DTC). If any amendment pursuant to this section requires an amendment to the form of Bonds, the Paying Agent shall direct the Bondowners to surrender their Bonds at the office of the Paying Agent for definitive Bonds incorporating such amendments upon not less than 15 days prior written notice. The Institution shall pay all costs associated with amending the Agreement and with preparing and printing any amended Bonds. Provisions of the Agreement affecting only the Series A Bonds may also be amended by the parties without Bondowner consent upon any Mandatory Purchase of the Series A Bonds, provided that notice of any such amendment is included in the notice of mandatory tender for purchase described in the Agreement. The Institution acting alone may amend the Maximum Rate to a higher interest rate without Bondowner consent, but only if the Credit Facility then in effect entitles the Paying Agent to draw upon or demand and receive in immediately available funds an amount equal to the principal amount of the Bonds then Outstanding plus (A) 45 days accrued interest at such amended Maximum Rate on the principal amount of Bonds D-22

155 APPENDIX D then Outstanding if the Bonds are in the Daily or Weekly Rate Period (B) for the maximum period of days interest required by the rating agencies then rating the Bonds to maintain the rating on the Bonds at such amended Maximum Rate on the principal amount of Bonds then Outstanding if the Bonds bear interest at a Flexible Rate, or (C) 195 days accrued interest at such amended Maximum Rate on the principal amount of Bonds then Outstanding if the Bonds bear interest at the Long-Term Rate or with respect to the foregoing, the maximum number of days interest required by any rating agency then rating the Bonds to maintain the rating on the Bonds. Except as provided in the foregoing paragraph, the Agreement may be amended only with the written consent of the owners of at least fifty-one percent (51%) in principal amount of the Outstanding Bonds; provided, however, that no amendment of the Agreement may be made without the unanimous written consent of the affected Bondowners for any of the following purposes: (i) to extend the maturity of any Bond, (ii) to reduce the principal amount or interest rate of any Bond, (iii) to make any Bond redeemable other than in accordance with its terms, (iv) to create a preference or priority of any Bond or Bonds over any other Bond or Bonds, (v) to reduce the percentage of the Bonds required to be represented by the Bondowners giving their consent to any amendment or (vi) to decrease (by an amount in excess of that permitted in accordance with the provisions of the Agreement) the amount payable under, or to shorten the term of, any Credit Facility then in effect. Any amendment of this Agreement shall be accompanied by an Opinion of Bond Counsel to the effect that the amendment (i) is permitted by this Agreement and (ii) shall not adversely affect the validity of the Bonds or the exclusion of interest on any Bonds from the gross income of the owners of such Bonds for federal income tax purposes. If a Credit Facility is in effect, any amendment to the Agreement (other than an amendment necessary to accommodate a substitute Credit Facility which does not adversely affect the interests of the Bank under the Agreement) shall require the consent of the Bank. When the Trustee determines that the requisite number of consents have been obtained for an amendment which requires Bondowner consents, it shall, within ninety (90) days, file a certificate to that effect in its records and mail notice to the Bondowners. No action or proceeding to invalidate the amendment shall be instituted or maintained unless it is commenced within sixty (60) days after such mailing. The Trustee will promptly certify to the Authority that it has mailed such notice to all Bondowners and such certificate will be conclusive evidence that such notice was given in the manner required the Agreement. A consent to an amendment may be revoked by a notice given by the Bondowner and received by the Trustee prior to the Trustee s certification that the requisite consents have been obtained. Governing Law The Agreement shall be governed by the laws of The Commonwealth of Massachusetts. [Remainder of page intentionally left blank.] D-23

156 [THIS PAGE INTENTIONALLY LEFT BLANK]

157 APPENDIX E MINTZ LEVIN One Financial Center Boston, MA fax March 27, 2009 Massachusetts Health and Educational Facilities Authority 99 Summer Street Boston, Massachusetts Re: Massachusetts Health and Educational Facilities Authority (the "Authority") Variable Rate Demand Revenue Bonds, University of Massachusetts Issue, Series A (the "Bonds"). We acted as bond counsel and counsel to the University of Massachusetts (the "University") with respect to the Bonds originally issued by the Authority on March 29, In accordance with the Amended and Restated Loan and Trust Agreement dated as of October 12, 1999, as amended on March 27, 2009 (the "Trust Agreement") among the Authority, the University and The Bank of New York Mellon Trust Company, N.A., as successor trustee (the "Trustee"), the Bonds are subject to mandatory tender on the date hereof as a result of the scheduled expiration of the Credit Facility and the University has elected to convert $20,000,000 of the Bonds from the Weekly Rate Period to the Long-Term Rate Period. The balance of the Bonds will no longer be Outstanding after the mandatory tender date. In our capacity as bond counsel and counsel to the University, we have examined the law and such certified proceedings and papers as we have deemed necessary to render this opinion, including the Trust Agreement. Capitalized terms used herein shall, unless otherwise specified, have the meanings set forth in the Trust Agreement. Pursuant to the Trust Agreement, the proceeds from the original sale of the Bonds were used by the Authority to make a loan to the University. In order to secure the payment of the principal of and interest on the Bonds, the Authority pledged and assigned to the Trustee all revenues to be received from the University under the Trust Agreement and the rights of the Authority to receive the same, excluding certain administrative fees, indeii:mities and reimbursements, and all funds held under the Trust Agreement, except the Rebate Fund. As to questions of fact material to our opinion, we have relied upon the representations of the Authority and the University contained in the Trust Agreement, the certified proceedings and other certifications of public officials and others furnished to us, including certifications furnished to us by or on behalf of the University, without undertaking to verify the same by independent investigation: Based upon our examination and subject to the foregoing, we are of the opinion that: 1. The Authority is validly existing as a body politic and corporate and public instrumentality of the Commonwealth with the power to enter into the Trust Agreement, perform the agreements on its part contained therein and issue the Bonds. 2. The Trust Agreement has been duly authorized, executed and delivered by the Authority and constitutes a valid and binding obligation of the Authority enforceable upon the Authority. 3. Pursuant to the Act, the Trust Agreement creates a valid lien on the funds pledged by the Trust Agreement for the security of the Bonds on a parity with other bonds, if any, to be issued under the Trust Agreement. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. BosToN 1 WASHINGTON 1 NEw YORK 1 STAMFORD 1 Los ANGELES 1 PALO ALTO 1 SAN DIEGo 1 LONDON E-1

158 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. Massachusetts Health and Educational Facilities Authority March 27, 2009 Page 2 4. The Bonds have been duly authorized, executed and delivered by the Authority and are valid and binding special obligations of the Authority, payable solely from the sources provided therefor pursuant to the Trust Agreement. Neither the Commonwealth nor any political subdivision thereof nor the Authority is obligated to pay the principal of or interest on the Bonds except from the sources provided therefor as aforesaid pursuant to the Trust Agreement, and neither the faith and credit nor the taxing power of the Commonwealth nor of any political subdivision thereof nor of the Authority is pledged to the payment of the principal of or interest on the Bonds. 5. (a) Interest on the Bonds will not be included in the gross income of holders of the Bonds for federal income tax purposes. This opinion is expressly conditioned upon compliance with certain requirements of the Internal Revenue Code of 1986, as amended (the "Code"), which requirements must be satisfied after the date of issuance of the Bonds in order to assure that the interest on the Bonds is and continues to be excludable from the gross income of the holders the Bonds. Failure so to comply could cause the interest on the Bonds to be included in the gross income of the holders thereof retroactive to the date of issuance of the Bonds. (b) While interest on the Bonds is not an item of tax preference for purposes of the alternative minimum tax imposed under federal tax law on individuals and corporations, interest on the Bonds will be induded in the "adjusted current earnings" of corporate holders of the. Bonds and therefore will be taken into account in computing the alternative minimum tax imposed on certain corporations. Bonds. (c) We express no opinion regarding other federal tax consequences of holding the 6. Interest on the Bonds and any profit made on the sale thereof are exempt from Massachusetts personal income taxes, and the Bonds are exempt from Massachusetts personal property taxes. We express no opinion as to other Massachusetts tax consequences arising with respect to the Bonds or as to the taxability of the Bonds or the income therefrom under the laws of any state other than Massachusetts. It is to be understood that the rights of the holder of the Bonds and the enforceability of the Bonds and the Trust Agreement may be limited by bankruptcy, insolvency,reorganization, moratorium and other similar Jaws affecting creditors' rights generally and by equitable principles, whether considered at law or in equity. This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Very truly yours, lt~ft, pi{~ U, ~I &1~"-7,J if. / t1: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. E-2

159 APPENDIX F [PROPOSED FORM OF OPINION OF BOND COUNSEL] [ ] Massachusetts Development Finance Agency 99 High Street, 11 th Floor Boston, MA $20,000,000 Massachusetts Health and Educational Facilities Authority Variable Rate Demand Revenue Bonds, University of Massachusetts Issue, Series A We have acted as bond counsel and counsel to the University of Massachusetts (the University ) in connection with the conversion of the above-captioned bonds (the Bonds ) from the current Long-Term Rate Period to a new Long-Term Rate Period, as described below, and we have examined a copy of the Amended and Restated Loan and Trust Agreement, dated as of October 12, 1999, as amended and restated on March 27, 2009 (the Agreement ), by and among the Massachusetts Health and Educational Facilities Authority (predecessor to the Massachusetts Development Finance Agency) (the Issuer ), the University and The Bank of New York Mellon Trust Company, N.A., as successor trustee (the Trustee ), and originals or copies satisfactory to us of all records, agreements, certificates and other documents as we have deemed relevant and necessary as a basis for the opinions hereinafter expressed. In such examination we have assumed the genuineness of all signatures and the authenticity of all documents submitted to us as originals and the conformity to originals of all items submitted to us as certified or photo static copies. Capitalized terms used and not otherwise defined herein shall have the same meanings assigned to them in the Agreement. The University has elected to convert the Bonds on April 1, 2016 (the Conversion Date ) from the current Long-Term Rate Period to a new Long-Term Rate Period pursuant to the Agreement (the Conversion ). Based upon the foregoing, under existing law, we are of the opinion that: Subject to the satisfaction of the various conditions to the implementation of the Conversion on or prior to the Conversion Date, including the delivery of certain notices and the receipt by the Trustee of sufficient funds to purchase the Bonds tendered for mandatory purchase on the Conversion Date, the proposed conversion of the Bonds from the current Long-Term Rate F-1

160 Massachusetts Development Finance Agency [Closing Date] Page 2 Period to a new Long-Term Rate Period on the Conversion Date (a) will not in and of itself adversely affect the exclusion of interest on the Bonds from gross income for federal income tax purposes and (b) is authorized or permitted under the Agreement. Please be advised that we have made no investigation and express no opinion as to whether any events have occurred (other than the Conversion) or circumstances have existed since the issuance of the Bonds which could adversely affect the tax-exempt status of the interest thereon. The opinions expressed herein are for the benefit of the addressees only and may not be quoted, circulated, assigned or delivered to any other person or for any other purpose without our prior written consent. The opinions expressed herein are based on an analysis of existing laws, including regulations, rulings, official interpretations of law issued by the United States Internal Revenue Service, and court decisions on or prior to the date hereof. Such opinions may be adversely affected by actions taken or events occurring, including a change in law, regulation or ruling (or in the application or official interpretation of any law, regulation or ruling) after the date hereof. We have not undertaken to determine, or to inform any person, whether such actions are taken or such events occur, and we have no obligation to update this opinion in light of such actions or events. HINCKLEY, ALLEN & SNYDER LLP F-2

161 APPENDIX G AMENDED AND RESTATED CONTINUING DISCLOSURE AGREEMENT This Amended and Restated Continuing Disclosure Agreement (the "Disclosure Agreement") amends and restates the Continuing Disclosure Agreement dated March 29,2000 and is executed and delivered by University of Massachusetts (the "Institution") and The Bank of New York Mellon Trust Company, N.A., as successor trustee to Citizens Bank of Massachusetts (the "Trustee"), in connection with the remarketing of $20,000,000 Variable Rate Demand Revenue Bonds, University of Massachusetts Issue, Series A (the "Bonds"). The Bonds are being remarketed by the Massachusetts Development Finance Agency (the "Agency") pursuant to an Amended and Restated Loan and Trust Agreement dated as of October 12, 1999, as amended and restated on March 27, 2009 (the "Agreement") among the Massachusetts Health and Educational Facilities Authority, predecessor to the Agency, the Institution and the Trustee. The proceeds of the Bonds were loaned by the Agency to the Institution pursuant to the Agreement. The Institution and the Trustee covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Institution and the Trustee for the benefit of the Bondowners and in order to assist the Participating Underwriters (defined below) in complying with the Rule (defined below). The Institution and the Trustee acknowledge that the Agency has undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Disclosure Agreement, and has no liability to any person, including any Bondowner, with respect to any such reports, notices or disclosures. The Trustee, except as provided in Section 3(c), has undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Disclosure Agreement, and has no liability to any person, including any Bondowner, with respect to any such reports, notices or disclosures except for its negligent failure to comply with its obligations under Section 3(c). SECTION 2. Definitions. In addition to the definitions set forth in the Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the Institution pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. HBondowner" shall mean the registered owner of a Bond and any beneficial owner thereof, as established to the reasonable satisfaction of the Trustee or the Institution. "Dissemination Agent" shall mean any Dissemination Agent or successor Dissemination Agent designated in writing by the Institution and which has filed with the Institution, the Trustee and the Agency a written acceptance of such designation. The same entity may serve as both Trustee and Dissemination Agent. The Dissemination Agent shall be the Trustee. In the absence of a third-party Dissemination Agent, the Institution shall serve as the Dissemination Agent. MEl I v 2 1

162 "Listed Events" shall mean any of the events listed in Section Sea) of this Disclosure Agreement. "MSRB" shall mean the Municipal Securities Rulemaking Board established pursuant to Section lsb(b)(1) of the Securities Exchange Act of 1934, or any su,ccessor thereto or to the functions of the MSRB as contemplated by this Disclosure Agreement. Filing information relating to the MSRB is set forth in Exhibit B hereto.. "Participating Underwriters" shall mean any of the original underwriters of the Bonds and any person who offers or sells the Bonds required to comply with the Rule in connection with the offering and remarketing of the Bonds. "Rule" shall mean Rule lsc2-12(b)(s) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. SECTION 3. Provision of Annual Reports. (a) The Dissemination Agent, not later than 270 days after the end of each fiscal year beginning with the fiscal year ending June 30, 2013 (the "Filing Deadline"), shall provide to the MSRB an Annual Report provided by the Institution, the Institution agrees shall be consistent with the requirements of Section 4 of this Disclosure Agreement. Not later than thirty (30) business days prior to the Filing Deadline, the Institution (if it is not the Dissemination Agent) shall provide the Annual Report to the Dissemination Agent. In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the Institution may be submitted separately from, and at a later date than, the balance of the Annual Report if such audited financial statements are not available as of the date set forth above (but in no event later than 3S0 days after the end of such fiscal year). The Institution shall submit the audited financial statements to the Dissemination Agent and the Trustee (if not also the Dissemination Agent) as soon as practicable after they become available and the Dissemination Agent shall submit the audited financial statements to the MSRB as soon as practicable thereafter. The Institution shall provide a copy of the Annual Report to the Agency and the Trustee. (b) The Dissemination Agent shall: (i) file a report with the Institution, the Agency and the Trustee (if not also the Dissemination Agent) certifying that the Annual Report has been provided pursuant to this Disclosure Agreement and stating the date it was provided (the "Compliance Certificate"); such report shall include a certification from the Institution that the Annual Report complies with the requirements of this Disclosure Agreement; and (ii) upon request of any Bondowner or Beneficial Owner to the Dissemination Agent, the Dissemination Agent shall provide the most recent Annual Report directly to such requesting Bondowner or Beneficial Owner, and the costs of complying with such requests will be borne by the Institution. 2 MEl l v.2

163 ( c) If the Trustee has not received a Compliance Certificate by the Filing Deadline (or while the Trustee is the Dissemination Agent, provided such Compliance Certificate by the Filing Deadline), the Trustee shall send, and the Institution hereby authorizes and directs the Trustee to submit on its behalf, a notice to the MSRB in substantially the form attached as Exhibit A. (d) If the Dissemination Agent has not provided the Annual Report to the MSRB by the applicable Filing Deadline, the Institution shall send, or cause the Dissemination Agent to send, a notice substantially in the form of Exhibit A irrespective of whether the Trustee submits such notice. SECTION 4. Content of Annual Reports. (a) Subject to the provisions of Section 3, the Annual Report submitted by the Institution shall contain or incorporate by reference the following data, in each case updated through the last day of the prior fiscal year unless otherwise noted, relating to the following information in Appendix A - "Letter from the Institution" to the Remarketing Circular dated March 20, 2013 delivered in connection with the remarketing of the Bonds, and in each case substantially in the same level of detail as is found under the subheading under such caption referenced in parentheses after each item: 1. number of full-time equivalent undergraduates and graduates at each campus of the Institution as of the fall of the prior fiscal year ("University Campuses -Amherst Campus," "-Boston Campus, " "-Dartmouth Campus," "-Lowell Campus," "-Worcester Campus, " and "-UMassOnline"); 2. degrees and programs offered at each campus of the Institution ("University Campuses - Amherst Campus," "-Boston Campus," "-Dartmouth Campus," "-Lowell Campus," " Worcester Campus, " and "-UMassOnline ");. 3. organizations related to the Institution ("University Related Organizations"); 4. number and members of the Board of Trustees or other chief governing body of the Institution and general governmental structure ("Governance - Board o/trustees"); 5. number of faculty members and the number of full-time faculty members, the percentage of tenured faculty members and the full-time equivalent student to the full-time equivalent faculty ratios for each campus of the Institution (except the Worcester campus) ("Governance - Faculty and Staff'); 6. academic programs (to the extent not covered by (2) above) and accreditation ("Academic Programs and Accreditation"); 7. applicants, acceptances and matriculations each fall on a five-year comparative basis through the fall of the prior fiscal year for first-year applicants and transfer students and opening fall head count enrollment for each campus shown on a five-year comparative MEl l v.2 3

164 basis through the fall of the prior fiscal year and total head count enrollment and total full-time equivalent enrollment shown on a five-year comparative basis ("Enrollment"); 8. tuition and fees shown on a five-year comparative basis through the prior fiscal year for each campus of the Institution ("Tuitio~ and Fees"); 9. student financial aid amounts ("Tuition and Fees - Student Financial Aid"); 1 O. sources of revenue of the Institution ("University Revenues and Budgeting - Budget Process"); 11. modifications to the Institution's five-year capital plan and status of completion of the Institution's five-year capital plan ("Current and Future Capital Plans"); 12. modifications to the budget process ("University Revenues and Budgeting - Budget Process"); 13. management of appropriated funds, including appropriations received by the Institution shown on a five-year comparative basis and management of non-appropriated funds ("University Revenues and Budgeting - Appropriated Funds and Management of Non Appropriated Funds"); 14 combined statement of revenues and expenses, including current fund revenues and expenditures and other changes (accrual basis) on a five-year comparative basis through the prior fiscal year ("Summary of Operations" and "Summary of Financial Results, Fiscal Years 2010 through 2012"); 15. Institution and Foundation endowment assets shown on a five-year comparative basis ("Endowment and Fundraising"); 16. Indebtedness of the Institution ("Indebtedness of the University"); 17. unrestricted net assets (formerly expendable fund balances) ("Indebtedness of the University - Unrestricted Net Assets"); 18. additional indebtedness ("Indebtedness of the University - Additional Indebtedness"); 19. capitalized leases ("Indebtedness of the University - Capitalized Leases"); 20. insurance ("Insurance"); 21. technological initiatives ("Technological Initiatives"); 22. litigation ("Litigation"); and 23. employee relations ("Employee Relations"). 4 MEl v.2

165 (b) The Institution's Annual Report shall contain or incorporate by reference the Institution's annual audited financial statements prepared on an accrual basis in accordance with generally accepted accounting principles as in effect from time to time (or as otherwise may be required or permitted by law) and will consist of a combined balance sheet, a combined statement of changes in net assets and a combined statement of current net assets, revenues, expenses and other changes (or such other items as may be required or permitted by law or by generally accepted accounting principles as in effect from time to time or by other accounting principles as in effect from time to time in accordance with which the financial statements of the Institution may be prepared). Such financial statements will be audited by a group of certified public accountants appointed by the Institution. Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues with respect to which the Institution is an "obligated person" (as defined by the Rule), which (i) are available to the public on the MSRB Internet website or (ii) have been filed with the MSRB or the Securities and Exchange Commission. If the document incorporated by reference is a final official statement, it must be available from the MSRB. The Institution shall clearly identify each such other document so incorporated by reference. Neither the Trustee nor the Dissemination Agent shall be under any obligation to verify the content or correctness of, and shall not be responsible for the sufficiency of any Annual Report or for the compliance of any Annual Report with the Rule or this Disclosure Agreement. SECTION 5. Reporting of Significant Events. (a) This Section 5 shall govern the giving of notices of the occurrence of any of the following events with respect to the Bonds, anyone of which event is a "Listed Event" and collectively are "Listed Events": 1. principal and interest payment delinquencies; 2. non-payment related defaults, if material; 3. unscheduled draws on debt service reserves reflecting financial difficulties; 4. unscheduled draws on credit enhancements reflecting financial difficulties; 5. substitution of credit or liquidity providers, or their failure to perform; 6. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form TEB) or other material notices of determinations with respect to the tax status of the Bonds, or other material events affecting the tax status of the Bonds; 7. modifications to rights of holders of the Bonds, if material; 5 MEl l v.2

166 8. Bond calls, if material, and tender offers (the glvmg of notice of regularly scheduled mandatory sinking fund redemption shall not be deemed material for this purpose under clause (b) of this Section 5); 9. defeasances; 10. release, substitution, or sale of property securing repayment of the Bonds, if material; 11. rating changes; 12. bankruptcy, insolvency, receivership or similar event of the Institution; Note to clause (12): For the purposes of the event identified in clause (12) above, the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the Institution in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or government authority has assumed jurisdiction over substantially all of the assets or business of the Institution, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Institution; 13. the consummation of a merger, consolidation, or acquisition involving the Institution or the sale of all or substantially all of the assets of the Institution, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and 14. appointment of a successor or additional Trustee or the change of the name of the Trustee, if material. (b) Upon the occurrence of a Listed Event the Institution shall, in a timely manner not to exceed ten (10) business days, file, or direct the Dissemination Agent to file, a notice of such occurrence with the MSRB. The Institution shall provide a copy of each such notice to the Agency and the Trustee. The Dissemination Agent, if other than the Institution, shall have no duty to file a notice of an event described hereunder unless it is directed in writing to do so by the Institution, and shall have no responsibility for verifying any of the information in any such notice or determining the materiality of the event described in such notice. SECTION 6. Transmission of Information and Notices. Unless otherwise required by law, all notices, documents and information provided to the MSRB shall be provided in electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. MEl v.2 6

167 SECTION 7. Termination of Reporting Obligation. The Institution's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds or upon delivery to the Trustee of an opinion of counsel expert in federal securities laws selected by the Institution and acceptable to the Trustee to the effect that compliance with this Disclosure Agreement no longer is required by the Rule. If the Institution's obligations under the Agreement are assumed in full by some other entity, such person shall be responsible for compliance with this Disclosure Agreement in the same manner as if it were the Institution and the original Institution shall have no further responsibility hereunder. SECTION 8. Dissemination Agent. The Institution may, from time to time with notice to the Trustee and the Agency, appoint or engage a third-party Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may, with notice to the Trustee and the Agency, discharge any such third-party Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent (if other than the Institution) may resign upon thirty (30) days' written notice to the Institution, the Trustee and the Agency. The initial Dissemination Agent shall be the Trustee. SECTION 9. Amendment; Waiver. Notwithstanding any other provlslon of this Disclosure Agreement, the Institution and the Trustee may amend this Disclosure Agreement (and, except as provided in the last sentence of this Section 9, the Trustee shall agree to any amendment so requested by the Institution and which does not affect the rights and remedies of the Trustee or Dissemination Agent) and any provision of this Disclosure Agreement may be waived, if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws acceptable to both the Institution and the Trustee to the effect that such amendment or waiver would not, in and of itself, violate the Rule. Without limiting the foregoing, the Institution and the Trustee may amend this Disclosure Agreement if (a) such amendment is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the Institution or of the type of business conducted by the Institution, (b) this Disclosure Agreement, as so amended, would have complied with the requirements of the Rule at the time the Bonds were issued, taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) (i) the Trustee determines, or the Trustee receives an opinion of counsel expert in federal securities laws and acceptable to the Trustee to the effect that, the amendment does not materially impair the interests of the Bondowners or (ii) the amendment is consented to by the Bondowners as though it were an amendment to the Agreement. The annual financial information containing the amended operating data or financial information will explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to an undertaking specifying a change in the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made should present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Neither the Trustee nor the Dissemination Agent shall be required to accept or acknowledge any amendment of this Disclosure Agreement if the amendment adversely affects its respective rights or immunities or increases its respective duties hereunder. MEl S2v.2 7

168 SECTION 10. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Institution from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Institution chooses to include any information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is specifically required by this Disclosure Agreement, the Institution shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 11. Default. In the event of a failure of the Institution or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the request of Bondowners representing at least 25% in aggregate principal amount of Outstanding Bonds and upon receipt of indemnity satisfactory to the Trustee, shall), take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Institution or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. Without regard to the foregoing, any Bondowner or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Institution or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Institution, the Trustee, or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. In no event shall the Institution or the Dissemination Agent be liable for monetary damages in the event of a default under this Disclosure Agreement. SECTION 12. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. As to the Trustee, Article IX of the Agreement is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Agreement. The Dissemination Agent (if other than the Institution) shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Institution agrees to indemnify and save the Dissemination Agent (if other than the Institution), its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including reasonable attorneys' fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. If the Trustee is the Dissemination Agent, then it shall be entitled to all of the rights, protections, privileges and immunities hereunder as the Trustee enjoys under Article IX of the Agreement. The obligations of the Institution under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. The Institution covenants that whenever it is serving as Dissemination Agent, it shall take any action required of the Dissemination Agent under this Disclosure Agreement. The Trustee, provided that the Trustee is not also the Dissemination Agent, shall have no obligation under this Disclosure Agreement to report any information to the MSRB or any Bondowner. If an officer of the Trustee obtains actual knowledge of the occurrence of an event MEl I v.2 8

169 described in Section 5 hereunder, whether or not such event is material, the Trustee shall timely notify the Institution of such occurrence, provided, however, that any failure by the Trustee to give such notice to the Institution shall not affect the Institution's obligations under this Disclosure Agreement or give rise to any liability by the Trustee for such failure. SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Institution, the Agency, the Trustee, the Dissemination Agent, the Participating Underwriters and the Bondowners, and shall create no rights in any other person or entity. SECTION 14. Disclaimer. No Annual Report or notice of a Listed Event filed by or on behalf of the Institution under this Disclosure Agreement shall obligate the Institution to file any information regarding matters other than those specifically described in Section 4 and Section 5 hereof, nor shall any such filing constitute a representation by the Institution or raise any inference that no other material events have occurred with respect to the Institution or the Bonds or that all material information regarding the Institution or the Bonds has been disclosed. The Institution shall have no obligation under this Disclosure Agreement to update information provided pursuant to this Disclosure Agreement except as specifically stated herein. SECTION 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 16. Governing Law. This Agreement shall be construed in accordance with the laws of The Commonwealth of Massachusetts. SECTION 17. Entire Agreement. This Agreement, including the Exhibits hereto, constitutes the sole and entire agreement and understanding of the parties with respect to the subject matter hereof. All Exhibits hereto are incorporated herein by reference. [The remainder of this page is intentionally blank; signature page follows] 9 MEl l v.2

170 INTENDING TO BE LEGALLY BOUND, the parties hel'eto have duly executed this Agl'eement to be effective as of the date wdtten below. Date: April 1, 2013 The Bank of New York Mellon Trust Company, NA, By: Title: 10

171 Date: April 1, 2013 University of Massachusetts 10 By:e:...l.'.L4~~+;LJ.p~ -=====' Title: Vice President T ank of New York Mellon Trust Company, N.A. By: Title: INTENDING TO BE LEGALLY BOUND, the parties hereto have duly executed this Agreement to be effective as of the date written below.

172 EXHIBIT A NOTICE TO THE MSRB OF FAILURE TO FILE ANNUAL REPORT Name ofissuer: Massachusetts Development Finance Agency (successor by merger) Name of Bond Issue: Massachusetts Health and Educational Facilities Authority Variable Rate Demand Revenue Bonds University of Massachusetts Issue, Series A Name of Obligated Person: University of Massachusetts Date of Original Issuance: March 29, 2000 Date of Remarketing: April 1, 2013 NOTICE IS HEREBY GIVEN that the University of Massachusetts (the "Institution") has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement dated April 1,2013 between the Institution and the Trustee. Dated: _ cc: University of Massachusetts 11 MEl v.2

173 EXHIBITB FILING INFORMATION FOR THE MSRB Filing information relating to the Municipal Securities Rulemaking Board is as follows: Municipal Securities Rulemaking Board ME I v.2 12