Annual Investment Policy Report. Board of Trustees Finance & Audit Workgroup August 16, 2012

Transcription

1 Annual Investment Plicy Reprt Bard f Trustees Finance & Audit Wrkgrup August 16, 2012

2 Annual Investment Plicy Reprt EXECUTIVE SUMMARY Investment Perfrmance (As f 3/31/12) 1-Year Return = 3.35%, 0.35% ver benchmark 3-Year Return = 8.87%, 0.18% ver benchmark 5-Year Return = 3.44%, 0.89% under adjusted real return benchmark USF s 10 Investment Prtflis = $1.1 Billin (as f 3/31/12), dwn $82 Millin University Operating Prtfli = $539 Millin, dwn $32 millin, due t funding capital prjects Fundatin Endwment Prtfli = $370 Millin, up $2 millin, due t psitive investment returns 8 Other Operating Prtflis = $191 Millin, dwn $52 millin, due t funding capital prjects All Prtflis Gverned by Investment Cmmittees and Cmmn Investment Plicy All Prtflis are in Cmpliance with Plicy; N Outstanding Exceptins t Plicy Investment Prtflis Prvide Imprtant Liquidity t the Organizatin, Capital Preservatin and Stable Returns Over Time [ 2 ]

3 USF INVESTMENT REPORT As f March 31, 2012 Annual Investment Plicy Reprt (In Thusands) TOTAL PORTFOLIO INVESTMENT PORTFOLIO BALANCES Cmbined 1 Endwment Operating Funds ASSET CLASS USF TOTAL INVESTMENTS FOUNDATION UNIVERSITY FINANCING FOUNDATION UMSA MSSC HPCC RESEARCH ALUMNI SUNDOME SHORT TERM Cash Equivalent (< 180 days) $180,758 $88,196 $31,606 $24,192 $29,509 $2,750 $2,306 $1,942 $248 $252 Fixed Incme - Dmestic (+ 180 days) $481,251 $388,724 $63,875 $15,406 $2,070 $11,176 $641 SHORT TERM SUBTOTAL $662,009 $0 $476,920 $31,606 $88,067 $44,915 $2,750 $4,376 $13,118 $889 $252 LONG TERM Fixed Incme - Dmestic $73,605 $73,605 $2,783 $2,626 $681 Fixed Incme - Freign Equity - Dmestic $151,517 $139,791 $10,555 $5,286 $1,171 $4,986 $1,294 Equity - Freign $113,689 $91,183 $20,445 $3,448 $2,061 $3,253 $844 Real Assets $39,779 $29,055 $9,094 $1,099 $1,630 $1,036 $269 Alternative Investments $60,056 $36,610 $22,371 $1,384 $1,075 $1,306 $339 LONG TERM SUBTOTAL $438,646 $370,244 $62,465 $0 $14,000 $5,937 $0 $0 $13,207 $3,426 $0 TOTAL PORTFOLIO as f 3/31/2012 $1,100,655 $370,244 $539,385 $31,606 $102,067 $50,852 $2,750 $4,376 $26,325 $4,315 $252 TOTAL PORTFOLIO as f 3/31/2011 $1,183,133 $367,964 $571,671 $72,728 $99,452 $57,084 $1,337 $8,987 $26,991 $4,146 $283 VARIANCE FROM THE PRIOR YEAR ($82,478) $2,280 ($32,286) ($41,122) $2,615 ($6,232) $1,413 ($4,611) ($666) $169 ($31) 1 FOUNDATION Operating Funds ttaling $14,000,000 invested in the ENDOWMENT Fund are eliminated in the Cnslidated Investment balances. RESEARCH FOUNDATION Operating Funds ttaling $13,207,000 invested in the ENDOWMENT Fund are eliminated in the Cnslidated Investment balances. ALUMNI ASSOCIATION Operating Funds ttaling $4,310,000 invested in the Fundatin OPERATING and ENDOWMENT Funds are eliminated in the Cnslidated Investment balances. [ 3 ]

4 USF INVESTMENT REPORT As f March 31, 2012 Annual Investment Plicy Reprt TOTAL PORTFOLIO PORTFOLIO ASSET ALLOCATION Plicy Endwment Operating Funds ASSET CLASS LIMITS Minimum Maximum FOUNDATION UNIVERSITY 1 FINANCING FOUNDATION UMSA 2 MSSC HPCC RESEARCH ALUMNI SUNDOME SHORT TERM Cash Equivalent (< 180 days) 0% 100% 18% 100% 27% 66% 100% 53% 15% 28% 100% Fixed Incme - Dmestic (180 days +) 0% 90% 82% 73% 34% 47% 85% 72% SHORT TERM TOTAL 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% LONG TERM Fixed Incme - Dmestic 20% 75% 20% 35% 20% 32% 20% 20% Fixed Incme - Freign 0% 20% 5% Equity - Dmestic 25% 75% 38% 25% 38% 25% 38% 38% Equity - Freign 0% 25% 25% 20% 25% 18% 25% 25% Real Assets 0% 20% 8% 5% 8% 15% 8% 8% Alternative Investments 0% 20% 10% 10% 10% 10% 10% 10% LONG TERM TOTAL 100% 100% 0% 100% 100% 0% 0% 100% 100% 0% 1 Pursuant t Sectin 18 f the USF Investment Plicy, the USF Investment Cmmittee has apprved a Transitin Plan including target asset allcatins which are in cmpliance with the Plicy Limits fr each asset class. As the UNIVERSITY is implementing the Lng-Term prtin f its investment prtfli ver a perid f time accrding t its Transitin Plan, the allcatins shwn abve represent the target allcatins rather than actual allcatins. 2 Pursuant t Sectin 18 f the USF Investment Plicy, the UMSA Investment Cmmittee has apprved a Transitin Plan including target asset allcatins which are in cmpliance with the Plicy Limits fr each asset class. As UMSA is implementing the Lng-Term prtin f its investment prtfli ver a perid f time accrding t its Transitin Plan, the allcatins shwn abve represent the target allcatins rather than actual allcatins. [ 4 ]

5 USF INVESTMENT REPORT As f March 31, 2012 Annual Investment Plicy Reprt TOTAL PORTFOLIO PERFORMANCE OBJECTIVE - 1 YEAR ANNUAL AVERAGE Endwment Operating Funds ASSET CLASS FOUNDATION UNIVERSITY FINANCING FOUNDATION UMSA MSSC HPCC RESEARCH ALUMNI SUNDOME SHORT TERM Cash Equivalent (< 180 days) 0.21% 0.04% 0.27% 0.13% 0.15% 0.25% 0.11% 0.27% 0.25% Fixed Incme - Dmestic (180 days +) 3.80% 6.43% 3.95% 3.42% 3.42% 6.43% LONG TERM Fixed Incme - Dmestic 7.15% 7.15% 7.15% 7.15% Fixed Incme - Freign Equity - Dmestic 7.39% 27.60% % 27.60% % 7.39% Equity - Freign (5.12)% (2.78)% (5.12)% (1.46)% (5.12)% (5.12)% Real Assets 3.46% (9.70)% 3.46% (9.70)% 3.46% 3.46% Alternative Investments 8.31% (1.30)% 8.31% (1.30)% 8.31% 8.31% WEIGHTED PORTFOLIO RETURN % 2.90% 0.04% 4.38% 1.18% 0.15% 1.75% 3.62% 4.38% 0.25% POLICY INDEX / WEIGHTED INDEX RETURN 3.93% 2.40% 0.01% 4.81% 0.71% 0.02% 1.65% 3.43% 4.81% 0.06% RELATIVE PORTFOLIO RETURN 0.38% 0.50% 0.03% (0.43)% 0.47% 0.13% 0.10% 0.19% (0.43)% 0.19% COMBINED 1-YEAR RETURNS 3.35% COMBINED 1-YEAR INDEX RETURNS 3.00% WEIGHTED 1-YEAR RELATIVE RETURNS 0.35% 1 FOUNDATION Endwment and Operating Fund Perfrmance and Weighted Index Returns are based n 1-year average daily balances, nt perid-end balances. 2 Returns are fr a perid f less than ne year; the returns are based n the perid since inceptin f August [ 5 ]

6 USF INVESTMENT REPORT As f March 31, 2012 Annual Investment Plicy Reprt TOTAL PORTFOLIO PRIMARY PERFORMANCE OBJECTIVE - 3 YEAR ANNUAL AVERAGE Endwment Operating Funds ASSET CLASS FOUNDATION UNIVERSITY FINANCING FOUNDATION UMSA MSSC HPCC RESEARCH ALUMNI SUNDOME SHORT TERM Cash Equivalent (< 180 days) 0.24% 0.03% 0.25% 0.23% 0.23% 0.25% 0.22% 0.25% 0.25% Fixed Incme - Dmestic (180 days +) 4.30% 10.29% 3.80% NA % 10.29% LONG TERM Fixed Incme - Dmestic 13.33% 13.33% 13.33% 13.33% Fixed Incme - Freign Equity - Dmestic 27.27% NA % NA % 27.27% Equity - Freign 17.36% NA % NA % 17.36% Real Assets (13.73)% NA 2 (13.73)% NA 2 (13.73)% (13.73)% Alternative Investments 11.80% NA % NA % 11.80% WEIGHTED PORTFOLIO RETURN % 3.80% 0.03% 6.69% 1.46% 0.23% 0.25% 11.00% 6.69% 0.25% POLICY INDEX / WEIGHTED INDEX RETURN 18.16% 3.90% 0.01% 6.09% 1.41% 0.08% 0.13% 10.79% 6.09% 0.13% RELATIVE PORTFOLIO RETURN 0.51% (0.10)% 0.02% 0.60% 0.05% 0.15% 0.12% 0.20% 0.60% 0.12% COMBINED 3-YEAR RETURNS 8.87% COMBINED 3-YEAR INDEX RETURNS 8.68% WEIGHTED 3-YEAR RELATIVE RETURNS 0.18% 1 FOUNDATION Endwment and Operating Fund Perfrmance and Weighted Index Returns are based n 3-year average daily balances, nt perid-end balances. 2 Infrmatin nt available, certain investments have nt been in existance fr 3 years. [ 6 ]

7 USF INVESTMENT REPORT As f March 31, 2012 Annual Investment Plicy Reprt LONG TERM PORTFOLIO SECONDARY PERFORMANCE OBJECTIVE - 5 YEAR ANNUAL AVERAGE Endwment Operating Funds ASSET CLASS FOUNDATION UNIVERSITY FINANCING FOUNDATION UMSA MSSC HPCC RESEARCH ALUMNI SUNDOME SHORT TERM Cash Equivalent (< 180 days) 0.92% 0.78% NA % 1.58% 0.65% 1.57% NA % Fixed Incme - Dmestic (180 days +) 4.62% 6.81% NA 5 NA 5 NA % LONG TERM Fixed Incme - Dmestic 7.57% 7.57% 7.57% 7.57% Fixed Incme - Freign Equity - Dmestic 3.11% NA % NA % 3.11% Equity - Freign (1.33)% NA 5 (1.33)% NA 5 (1.33)% (1.33)% Real Assets (16.77)% NA 5 (16.77)% NA 5 (16.77)% (16.77)% Alternative Investments 6.64% NA % NA % 6.64% WEIGHTED PORTFOLIO RETURN % 3.94% 0.78% 4.09% 1.58% 1.58% 0.65% 2.35% 4.09% 0.65% INFLATION BENCHMARK - CPI INDEX 2.18% 2.18% 2.18% 2.18% 2.18% 2.18% 2.18% 2.18% 2.18% 2.18% RETURN OBJECTIVE - LONG-TERM % 0.00% 0.00% 4.58% 0.00% 0.00% 0.00% 2.30% 4.58% 0.00% RETURN OBJECTIVE - ACTIVELY MANAGED % 0.00% 0.00% 0.37% 0.00% 0.00% 0.00% 0.18% 0.37% 0.00% RELATIVE PORTFOLIO RETURN 4 (4.00)% 1.76% (1.40)% (3.04)% (0.60)% (0.60)% (1.53)% (2.31)% (3.04)% (1.53)% COMBINED 5-YEAR RETURNS 3.44% INFLATION BENCHMARK - CPI INDEX 2.18% COMBINED RETURN OBJECT - LONG-TERM 1.98% COMBINED RETURN OBJECT - ACTIVE MGR 0.16% WEIGHTED 12-MONTH RELATIVE RETURNS (0.89)% 1 FOUNDATION Endwment and Operating Fund Perfrmance is based n 5-year average daily balances, nt perid-end balances. 2 Only Lng-Term Funds are subject t the Plicy Return Objective f 3.0% fr fixed incme and 5.0% fr all ther asset classes. The Return Objective is calculated based n perid-end balances, nt 5-year daily average balances. Thus, the Relative Prtfli Return may be affected by changes in asset classes ver this perid. The Return Objective is weighted between the Shrt Term Prtfli and the Lng Term Prtfli based n perid-end balances. 3 Only Lng-Term Funds are subject t the Plicy Return Objectives fr Actively Managed Prtflis f 0.5%. The Return Objective is calculated based n perid-end balances, nt 5-year daily average balances. Thus, the Relative Prtfli Return may be affected by changes in asset classes ver this perid. The Return Objective is weighted between the Shrt Term Prtfli and the Lng Term Prtfli based n perid-end balances. 4 All entities emply 5-year index benchmarks t assess investment perfrmance in additin t the Plicy's real return Secndary Perfrmance benchmark. 5 Infrmatin nt available, certain investments have nt been in existance fr 5 years. [ 7 ]

8 Annual Debt Management Plicy Reprt Bard f Trustees Finance & Audit Wrkgrup August 16, 2012

9 Annual Debt Management Plicy Reprt EXECUTIVE SUMMARY The University Enjys Strng, Stable Ratings AA2 - Stable Outlk n USF System A - Stable Outlk n Parking A - Stable Outlk n Husing USF Has Carefully Managed Debt Capacity and Balance Sheet Issued nly $61 millin (2010) ver the past 4 years N debt issued during financial crisis Current debt f $442 millin is belw 2008 debt f $459 millin All 20 Outstanding Series f Bnds, Debt Issuing DSOs and Auxiliaries, and New Debt Issuance Prcess Cmply with USF Plicy and State and Federal Regulatins Established New Prcess t Rank / Assess New Capital Prjects Fcusing n Operating Cncerns That May Affect Bnd Ratings and Debt Capacity Reductin in Apprpriatins fr the University Sustained cash flw fr leveraged entities CAMLS, Arena, UMSA/MSSC, Bkstre [ 2 ]

10 Annual Debt Management Plicy Reprt Debt Management USF Enjys a Lw, Lng-Term Cst f Capital (In Millins) Outstanding Debt Husing Health Athletics Research Parking Bkstre Ttal Outstanding Bnds Weighted Average Interest Rate USF Outstanding Debt As f June 30, 2012 TOTAL / WEIGHTED $252.8 $85.3 $32.0 $37.9 $31.5 $2.5 $ % 3.63% 4.12% 4.26% 4.24% 5.95% 3.79% [ 3 ]

11 Annual Debt Management Plicy Reprt Debt Management (Cntinued) Outstanding Debt is Cmprised f 40% Fixed Rate Debt ($178 millin) and 60% Variable Rate Debt ($264 millin) All but $12.2 millin f variable rate debt is hedged with swaps Current Develpments Restructuring $160 millin f Husing variable rate bnds, due t expiring letters f credit Restructuring $38 millin f Research variable rate bnds, due t bank dwngrade N New Debt Issued Last Year; Outstanding Debt Decreased by $15 Millin (principal payments) [ 4 ]

12 Annual Debt Management Plicy Reprt Future Debt Transactins Anticipate Transactins fr Parking and Arena within Mnths Expect Other Transactins t Fllw frm New Capital Prject Ranking Prcess Bank s Liquidity Supprt fr Variable Rate Debt is Changing frm Letters f Credit t Direct Placements USF has an Opprtunity t Cnvert Variable Rate Bnds t Fixed Rate Bnds when $152 Millin f Swaps Expire within the Next 3-4 years Cntinued Opprtunity t Directly Place New Prject Debt with Banks ($43 millin CAMLS and Athletics Prjects directly placed with banks in 2010) [ 5 ]

13 Annual Debt Management Plicy Reprt Current Credit Ratings Mdy s Affirmed USF and Husing Ratings in February 2011 S&P Affirmed USF, Husing and Parking Ratings in February 2012 USF Credit Ratings (Mdy's / S&P) As f June 30, 2012 University Husing Health Athletics Research Parking Bkstre AA2 / AA- A1 / A A1 / AA- NR NR NR NR Stable Stable Stable NR = Nt Rated [ 6 ]

14 Annual Debt Management Plicy Reprt Debt Capacity Assessment Key Drivers Gvernance and Management Oversight and disclsure practices Shrt- and lng-term planning Self-assessment and benchmarking Market Psitin Student demand and tuitin flexibility Reputatin and perceived value by students Operating Perfrmance Strng, diverse revenue streams Effective management f budgetary pressures Sustained, psitive perating cash flw Balance Sheet and Capital Investment Ample liquidity t supprt perating, debt and investment strategies Investment in facilities t attract students, faculty, research and dnr supprt Legal Security and Debt Structure Bndhlder security prvisins External financing terms and cnditins [ 7 ]

15 Annual Debt Management Plicy Reprt Debt Capacity Assessment Plicy Measures Ratis (& Desired Trend) PROFITABILITY 2012 EST Mdy s Medians Aa2 USF Relative t Peers Operating Margin () 2.5% 3.8% 0.6% 0.3% -4.3% 3.8% Wrse LEVERAGE Debt Service Cverage () 8.1x 8.6x 9.7x 9.5x 0.5x 3.3% Wrse Debt / Operating Expense ( ) 1.0% 1.0% 0.6% 0.5% 0.4% 3.6% Better LIQUIDITY Expendable Financial Resurces / Debt () Ttal Financial Resurces / Debt () Expendable Financial Resurces / Operating Exp () As f June 30, x 0.9x 1.2x 1.2x 1.1x 1.1x Same 1.9x 1.8x 2.2x 2.2x 2.1x 1.8x Better 0.4x 0.4x 0.5x 0.5x 0.4x 0.5x Wrse [ 8 ]

16 University f Suth Flrida UNIVERSITY OF SOUTH FLORIDA & AFFILIATES FINANCIAL PERFORMANCE ($, in thusands) Histrical Annual Debt Management Plicy Reprt Estimated Key Financial Statistics FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 * Peer Medians (Aa2) Mdy's Investrs Service Ttal Cash & Investments 499, , , , , ,847 Capital Assets 716, , , , ,118 Unrestricted net assets 319, , , , , ,496 Restricted expendable net assets 322, , , , ,089 Less: Restricted fr Capital assets (included abve) (238,355) (216,781) (158,876) (64,106) (24,106) Expendable Financial Resurces 404, , , , , ,471 Restricted fr Nnexpendable (Endwment) 449, , , , ,753 Ttal Financial Resurces 853, , ,444 1,009, , ,320 Debt: University Debt 68,174 72,639 39,697 36,955 33,950 Cmpnent Unit Debt 391, , , , ,119 Ttal Debt 459, , , , , ,642 Depreciatin 46,003 39,657 48,974 48,722 46,600 Interest 4,028 3,972 2,324 1,899 1,615 Principal payments n debt 5,291 5,649 3,594 3,788 2,973 Actual annual debt service 9,318 9,621 5,918 5,687 4,588 Incme Statement Revenues: Tuitin Revenue 194, , , , ,731 Less: Schlarship Discunts & Allwances (52,309) (56,685) (70,894) (88,328) (100,731) Net Auxiliary, Educatin Depts 80,727 91, , , ,000 Net Invest Earnings & Gains and Lsses 25,005 22,956 26,588 21,355 12,500 Grants and cntracts 299, , , , ,000 Other perating revenue 15,923 7,492 7,731 9,272 7,000 State Apprpriatins & Lttery 368, , , , ,000 Federal and State Student Financial Aid 70,279 85, , , ,000 Other Nnperating Revenue ,664 2,326 2,000 Ttal Revenues 1,002,790 1,020,096 1,064,503 1,114,019 1,079, ,724 Expenses: Cmpensatin & Emplyee Benefits 607, , , , ,900 Depreciatin 46,003 39,657 48,974 48,722 46,600 Interest 4,028 3,972 2,324 1,899 1,615 Schlarships & Fellwships Expense 71,133 80,109 89,620 98,497 89,000 Other expenditures 249, , , , ,385 Ttal Operating Expenses 977, ,985 1,058,473 1,110,532 1,125, ,218 Operating Prfit 25,006 39,111 6,029 3,487 (46,000) 10,506 * Depreciatin: 2012 excludes a ne-time, nn-cash adjustment f $23 millin; the cumulative effect f the change in capitalizatin threshld fr fixed assets frm $1,000 t $5,000. Operating and Balance Sheet Ratis Prfit Margin (%) 2.49% 3.83% 0.57% 0.31% (4.26)% 3.80% Change in Net Tuitin Revenue (%) 6.15% 14.72% 4.91% 8.94% 11.03% 12.30% Debt Service Cverage (x) Expendable Fin Resurces / Operating Exp (x) Ttal Financial Resurces per Student ($) $ 21,794 $ 21,289 $ 22,773 $ 24,150 $ 23,871 $ 27,771 Capital Ratis Expendable Financial Resurces / Debt (x) Ttal Financial Resurces / Debt (x) Debt Service / Operating Expense (%) 0.95% 0.98% 0.56% 0.51% 0.41% 3.60% Variable Rate Expsure (%) 63% 63% 67% 60% 60% 1% Market Data and Ratis Ttal Enrllment FTE (#) 39,153 39,649 40,858 41,805 40,000 32,489 Change in Ttal Enrllment 6.13% 1.27% 3.05% 2.32% (4.32)% 2.90% Fall Freshman Selectivity (Acceptance Rate) (%) 50.32% 45.90% 42.19% 42.69% 37.20% 65.60% Fall Freshman Matriculatin (Yield Rate) (%) 34.60% 35.80% 31.78% 32.94% 32.94% 39.10% Net Tuitin per student ($) $ 3,632 $ 4,115 $ 4,189 $ 4,460 $ 5,175 $ 7,184 Educatinal Expenses per student ($) $ 24,973 $ 24,742 $ 25,906 $ 26,565 $ 28,138 $ 23,026 Ttal Tuitin Discunt (%) 63.46% 62.23% 66.32% 68.00% 61.65% 29.80% State Apprpriatin per student ($) $ 9,413 $ 8,730 $ 8,036 $ 8,409 $ 7,650 $ 9,709 [ 9 ]

17 Annual Debt Management Plicy Reprt USF DEBT PROFILE As f June 30, 2012 USF Party Financing (Husing) Financing (Health) Financing (Athletics) Research USF TOTAL / WEIGHTED Bnd Issue Series 2005A Fixed Series 2005B Hedged & Variable Series 2005C Fixed Series 2007 Hedged Series 2010A Fixed Series 2010B Fixed Series 2006A Hedged Series 2007 Hedged Series 2010 CAMLS Fixed Series 2003A Fixed (assigned frm Fundatin) Series 2010A Fixed Series 2010B Fixed Series 1999 Hedged Series 2004A Hedged Series 2004B Hedged (Taxable) Series 2004C Hedged (Taxable) Parking & Bkstre Revenue Bnds Fixed Outstanding Amunt f Bnd $35,465,000 $77,550,000 $12,250,000 $39,050,000 $70,600,000 $2,860,000 $15,140,000 $43,935,000 $21,880,000 $19,516,446 $9,265,000 $9,553,958 $13,173,601 $6,900,000 $18,455,000 $2,085,000 $10,440,000 $33,950,000 Ttal Outstanding Amt per Entity $252,915,000 $85,331,446 $31,992,559 $37,880,000 $33,950,000 $442,069,005 Interest Rate 4.24% 3.22% 0.15% 4.48% 3.55% 4.42% 5.53% 3.58% 3.40% 4.01% 3.14% 5.21% 4.01% 4.46% 3.52% 5.17% 5.26% 4.37% Weighted Fixed Rate per Entity 3.65% 3.63% 4.12% 4.26% 4.37% 3.79% NOTE: This presentatin excludes shrter term debt such as equipment financing and installment purchases. [ 10 ]

18 Annual Derivatives Plicy Reprt Bard f Trustees Finance & Audit Wrkgrup August 16, 2012

19 Annual Derivatives Plicy Reprt EXECUTIVE SUMMARY 8 Interest Rate Swaps Outstanding - $252 Millin Negative fair value (at 6/30/12) f $41.4 millin accumulated nn-cash expense; as swaps apprach expiratin, the negative value will mve t $0 Change in fair value ( ) was negative $11.2 millin nn-cash expense Negative fair values due t recrd lw interest rates Psting $17.3 millin in cash cllateral with cunterparty trustee, due t dwngrade f Ambac Swaps Prvide an Effective Hedge Against Interest Rate Risk Assciated with Variable Rate Debt Swaps Lck In Attractive Fixed Interest Rates fr Variable Rate Bnds = 3.55% All Swaps are Gverned by USF Plicy All Swap Cunterparties Carry Investment Grade Ratings N New Swaps Since 2007 Over Half f the Swaps Will Expire in 3-4 Years, Creating an Opprtunity fr USF t Cnvert $152 Millin f Bnds t Fixed Rates [ 2 ]

20 USF DERIVATIVES PROFILE Annual Derivatives Plicy Reprt As f June 30, 2012 Interest Rate Swaps USF Financing Crpratin USF Research Fundatin TOTAL / WEIGHTED Underlying Bnd Issue Initial Amunt f Underlying Bnd Issue Series 2005B Husing Series 2007 Husing Series 2006A Health Series 2007 Health Series 1999 Series 2004A Series 2004B Series 2004C $92,250,000 $73,700,000 $47,315,000 $22,830,000 $11,500,000 $18,455,000 $4,635,000 $11,455,000 $282,140,000 Bnd Maturity Date 7/1/2035 7/1/2037 7/1/2036 7/1/ /1/2019 8/1/2034 8/1/2015 8/1/2034 Swap Cunterparty Cunterparty Credit Rating (Mdy's) Ryal Bank f Canada Ryal Bank f Canada Mrgan Stanley Ryal Bank f Canada Bank f America Bank f America Bank f America Aa3 Aa3 Baa1 Aa3 A3 A3 A3 A3 Bank f America Initial Amunt f Swap $80,000,000 $73,700,000 $47,315,000 $22,830,000 $11,500,000 $18,455,000 $4,635,000 $11,455,000 $269,890,000 Remaining Amunt f Swap $77,550,000 $70,600,000 $43,935,000 $21,880,000 $6,900,000 $18,455,000 $2,085,000 $10,440,000 $251,845,000 Effective Date 5/25/2005 9/25/2007 3/16/ /19/2007 6/1/2001 4/1/2006 4/1/2006 4/1/2006 Initial Term 10 yrs 30 yrs 10 yrs 10 yrs 18 yrs 10 yrs 9 yrs 10 yrs Expiratin Date 7/1/2015 7/1/2037 7/1/2016 7/1/ /1/2019 8/1/2016 8/1/2015 8/1/2016 Fixed Rate % 3.552% 3.578% 3.397% 4.46% 3.523% 5.17% 5.256% 3.55% Flating Index Rate 67% LIBOR 67% LIBOR 67% LIBOR 67% LIBOR 67% LIBOR 67% LIBOR 100% LIBOR 100% LIBOR Fair Value f Swap at 6/30/12 (w/ CVA Adj) Fair Value f Swap at 6/30/11 (w/ CVA Adj) Change in Fair Value - Incme Statement Ttal Annual Change per USF Party (7,765,105) (19,128,923) (5,728,167) (3,444,777) (1,078,310) (2,290,138) (155,400) (1,843,453) (41,434,273) (7,759,964) (9,735,029) (5,306,079) (2,567,506) (1,018,514) (1,998,787) (221,369) (1,642,862) (30,250,110) (5,142) (9,393,895) (422,088) (877,271) (59,795) (291,351) 65,969 (200,591) (11,184,163) (9,399,036) (1,299,359) (485,768) (11,184,163) USF Optinal Terminatin Right Cllateral Psting A1 - A3 Cllateral Psting Requirement Yes Yes Yes Yes Yes Yes Yes Yes $10,000,000 $10,000,000 Nne Nne Nne Nne Nne Nne Amunt ver threshld Amunt ver threshld Nne Nne Cunterparty is LOC Bank Cunterparty is LOC Bank Cunterparty is LOC Bank Cunterparty is LOC Bank [ 3 ]