$20,630,000. University of Illinois Auxiliary Facilities System Revenue Bonds, Series 2016B

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1 NEW ISSUE BOOK-ENTRY-ONLY (See Ratings, herein) Subject to compliance by The Board of Trustees of the University of Illinois (the Board ) with certain covenants, in the opinion of Bond Counsel, under present law, interest on the Series 2016B Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but such interest is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. Interest on the Series 2016B Bonds is not exempt from present State of Illinois income taxes. See Tax Exemption herein for a more complete discussion. $20,630,000 The Board of Trustees of the University of Illinois University of Illinois Auxiliary Facilities System Revenue Bonds, Series 2016B Dated: Date of Delivery Due: April 1, as shown on inside cover The University of Illinois Auxiliary Facilities System Revenue Bonds, Series 2016B (the Series 2016B Bonds ) shall be issued as fully registered bonds in denominations of $5,000 or any integral multiple thereof and, when issued, will be registered in the name of Cede & Co., as registered owner and nominee for The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the Series 2016B Bonds. Purchases of beneficial interests in the Series 2016B Bonds will be made in book-entry form only. Purchasers of a beneficial interest in the Series 2016B Bonds ( Beneficial Owners ) will not receive certificates representing their interests in the Series 2016B Bonds. Interest on the Series 2016B Bonds is payable on each April 1 and October 1 beginning October 1, The principal of the Series 2016B Bonds is payable at the designated corporate trust office of The Bank of New York Mellon Trust Company, N.A. (the Bond Registrar ), or its successor. Interest on the Series 2016B Bonds, together with the principal of the Series 2016B Bonds, will be paid by the Bond Registrar directly to DTC so long as DTC or its nominee is the registered owner of the Series 2016B Bonds. The final disbursements of such payments to the Beneficial Owners will be the responsibility of the DTC participants or indirect participants. See Book-Entry Only System for more information. The Series 2016B Bonds are subject to redemption prior to maturity as described herein. The Series 2016B Bonds and any Parity Bonds (as described herein) are secured by a pledge of and lien on (i) the Net Revenues of the Auxiliary Facilities System (the System ), (ii) Student Tuition and Fees (subject to prior payment of operating and maintenance expenses of the System, but only to the extent necessary), and (iii) the Bond and Interest Sinking Fund Account. Proceeds of the Series 2016B Bonds will be used, together with other lawfully available moneys, to (i) construct a new student union at the University of Illinois Springfield, (ii) pay certain interest on the Series 2016B Bonds and (iii) pay costs of issuing the Series 2016B Bonds. See Plan of Finance and Estimated Sources and Uses of Funds, herein. The scheduled payment of principal of and interest on the Series 2016B Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Series 2016B Bonds by BUILD AMERICA MUTUAL ASSURANCE COMPANY. THE SERIES 2016B BONDS WILL BE SPECIAL, LIMITED OBLIGATIONS OF THE BOARD AND WILL BE PAYABLE ONLY FROM SOURCES DESCRIBED HEREIN. THE SERIES 2016B BONDS ARE NOT OBLIGATIONS, GENERAL, SPECIAL OR OTHERWISE, OF THE STATE OF ILLINOIS. THE SERIES 2016B BONDS SHALL NOT CONSTITUTE A DEBT, LEGAL OR MORAL, OF THE STATE OF ILLINOIS, AND SHALL NOT BE ENFORCEABLE OUT OF ANY FUNDS OF THE BOARD, OR OF THE UNIVERSITY, OTHER THAN THE REVENUES AND INCOME PLEDGED FOR PAYMENT THEREOF. THE BOARD HAS NO TAXING POWER. The Series 2016B Bonds are offered when, as and if issued and received by the Purchaser, subject to prior sale, withdrawal or modification of the offer without notice, to the approval of legality of the Series 2016B Bonds by Chapman and Cutler LLP, Chicago, Illinois, Bond Counsel, and to certain other conditions. Certain legal matters will be passed upon for the Board by University Counsel, Thomas R. Bearrows, Esq., and its special issuer s counsel, Katten Muchin Rosenman LLP, Chicago, Illinois. Katten Muchin Rosenman LLP, Chicago, Illinois is serving as disclosure counsel. Public Financial Management, Inc., Boston, Massachusetts, is serving as Municipal Advisor to the Board. It is expected that the Series 2016B Bonds will be available for delivery through DTC on or about April 20, Citigroup The date of this Official Statement is April 6, 2016.

2 Auxiliary Facilities System Revenue Bonds, Series 2016B Maturities, Principal Amounts, Interest Rates, Yields Year (April 1) Principal Amount Interest Rate Yield CUSIP Number 2018 $380, % 1.170% P , P , P , P , Q , Q , Q , Q , Q , C Q , C Q , R , R , R , R , R , R74 $1,290, % Term Bonds due April 1, 2030, Priced: 99.75% to yield 3.022%; CUSIP: Q91 $4,375, % Term Bonds due April 1, 2041, Priced: 98.0% to yield 3.622%; CUSIP: R82 $5,195, % Term Bonds due April 1, 2046, Priced: 98.50% to yield 3.708%; CUSIP: R90 CUSIP is a registered trademark of American Bankers Association. CUSIP data herein is provided by CUSIP Global Services which is managed on behalf of the American Bankers Association by S&P Capital IQ, a part of McGraw Hill Financial, Inc. The CUSIP numbers are provided for convenience of reference only. The Board makes no representation with respect to such numbers and undertakes no responsibility for their accuracy now or at any time in the future. C Priced to first optional redemption date of April 1, 2026.

3 REGARDING USE OF THIS OFFICIAL STATEMENT This Official Statement, which includes the cover page and the appendices hereto, does not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of any of the Series 2016B Bonds, by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale. No broker, dealer, salesperson, or other person has been authorized to give any information or to make any representations other than those contained in this Official Statement in connection with the offering of the Series 2016B Bonds, and, if given or made, such information or representation must not be relied upon as having been authorized by the Board, the Bond Registrar, the Municipal Advisor or the Purchaser. The information set forth herein has been obtained from the Board and other sources believed to be reliable, but such information is not guaranteed as to accuracy or completeness by, and is not to be construed as the promise or guarantee of the Bond Registrar, the Municipal Advisor or the Purchaser. This Official Statement contains, in part, estimates and matters of opinion which are not intended as statements of fact, and no representation is made as to the correctness of such estimates and opinions, or that they will be realized. The information and expressions of opinion contained herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Board or in the information or opinions set forth herein, since the date of this Official Statement. Build America Mutual Assurance Company ( BAM ) makes no representation regarding the Series 2016B Bonds or the advisability of investing in the Series 2016B Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading BOND INSURANCE and APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY. This Official Statement contains forward-looking statements within the meaning of the Federal securities laws. These forward-looking statements include, among others, statements concerning expectations, beliefs, opinions, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements in this Official Statement are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE. THE PRICES AT WHICH THE SERIES 2016B BONDS ARE OFFERED TO THE PUBLIC MAY VARY FROM THE INITIAL PUBLIC OFFERING PRICES (OR PRICES CORRESPONDING TO THE YIELDS) APPEARING ON THE INSIDE COVER PAGE HEREOF. IN ADDITION, THE PURCHASER MAY ALLOW CONCESSIONS OR DISCOUNTS FROM SUCH INITIAL PUBLIC OFFERING PRICES TO DEALERS AND OTHERS, AND THE PURCHASER MAY ENGAGE IN TRANSACTIONS INTENDED TO STABILIZE THE PRICES OF THE SERIES 2016B BONDS AT LEVELS ABOVE THE LEVELS THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET IN ORDER TO FACILITATE THEIR DISTRIBUTION. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE SERIES 2016B BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR HAS THE BOND RESOLUTION BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2016B BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF LAW OF THE STATES IN WHICH THE SERIES 2016B BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. The Purchaser is under no obligation to make a secondary market for the Series 2016B Bonds, and no assurance can be given that a secondary market for the Series 2016B Bonds will develop.

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5 TABLE OF CONTENTS INTRODUCTION... 1 DESCRIPTION OF THE SERIES 2016B BONDS... 2 General... 2 Redemption... 3 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS... 4 General... 4 Student Tuition and Fees... 5 Repair and Replacement Reserve Account... 5 Rate Covenant... 5 Parity Bonds... 5 Outstanding Parity Bonds... 6 BOND INSURANCE... 6 Bond Insurance Policy... 6 Build America Mutual Assurance Company... 7 BOOK-ENTRY ONLY SYSTEM... 8 General Provisions... 8 Successor Securities Depository; Discontinuation of Book-Entry System PLAN OF FINANCE Purpose of the Series 2016B Bonds The Project ESTIMATED SOURCES AND USES OF FUNDS PRO FORMA MAXIMUM ANNUAL NET DEBT SERVICE COVERAGE ANNUAL DEBT SERVICE REQUIREMENTS ON THE BONDS AUXILIARY FACILITIES SYSTEM Background Description of Facilities Housing Occupancy Rates Illinois Pension System Reform Legislation State Income Tax Legislation Financial Condition of the Auxiliary Facilities System i

6 Statement of Revenues, Expenses and Changes in Net Position of the Auxiliary Facilities System TAX EXEMPTION General State and Local Considerations LITIGATION LEGAL MATTERS PURCHASE MUNICIPAL ADVISOR INDEPENDENT AUDITORS RATINGS CONTINUING DISCLOSURE ADDITIONAL INFORMATION CERTIFICATION APPENDIX A The Board of Trustees of the University of Illinois APPENDIX B Annual Financial Report for the University of Illinois Auxiliary Facilities System for the Year Ended June 30, 2015 APPENDIX C Annual Financial Report for the University of Illinois for the Year Ended June 30, 2015 APPENDIX D Definitions of Certain Terms and Summary of Certain Provisions of the Bond Resolution APPENDIX E Proposed Form of Opinion of Bond Counsel APPENDIX F Form of Continuing Disclosure Agreement APPENDIX G Specimen Municipal Bond Insurance Policy ii

7 $20,630,000 THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS University of Illinois Auxiliary Facilities System Revenue Bonds, Series 2016B INTRODUCTION This Official Statement, including the cover page, the inside cover page and the appendices hereto, is provided in connection with the offering by The Board of Trustees of the University of Illinois (the Board ) of $20,630,000 principal amount of its University of Illinois Auxiliary Facilities System Revenue Bonds, Series 2016B (the Series 2016B Bonds ). The Board is authorized by the University of Illinois Revenue Bond Financing Act for Auxiliary Facilities, 110 ILCS 405/1, et seq. (the Act ) to borrow money and issue and sell bonds to acquire by purchase or otherwise, construct, enlarge, improve, equip, complete, operate, control and manage student residence halls, apartments, staff housing facilities, health facilities, physical education buildings, union buildings, auditoriums, gymnasiums, or any other revenue producing buildings or facilities for student services, and educational facilities leased to the Federal government and the Nuclear Physics Laboratory, or any combination thereof, of the type and character as the Board deems necessary and required for the good and benefit of the University of Illinois (the University ). The Board also is authorized to refund or refinance, from time to time as often as it shall be advantageous and in the public interest to do so, separately or in combination, any and all bonds issued and sold by the Board pursuant to the Act. Under the Act, the Board is authorized to hold in the treasury of the University all revenues derived from the operation of any such buildings or facilities and to supplement such revenues from University income authorized by law to be retained in the University treasury for such purpose, constituting Student Tuition and Fees, and to pledge such revenues and income for the payment of operation and maintenance costs and for the retirement of such bonds. The Series 2016B Bonds are being issued pursuant to the Act and the resolution adopted by The Board of Trustees of the University of Illinois on September 20, 1984 (the Original Resolution ) as amended and supplemented by bond resolutions adopted on June 20, 1985, May 8, 1986, May 9, 1991, June 11, 1993, January 18, 1996, October 15, 1999, June 1, 2000, March 8, 2001, May 23, 2001, May 15, 2003, March 10, 2005, July 14, 2005, September 7, 2006, May 22, 2008, January 15, 2009, May 20, 2010, June 9, 2011, December 2, 2011, March 7, 2013, January 23, 2014, November 13, 2014 and January 21, 2016 (together with the Original Resolution, the Bond Resolution ). Initially capitalized terms used but not otherwise defined in this Official Statement have the same meanings given them under the caption DEFINITIONS OF CERTAIN TERMS in APPENDIX D hereto. The proceeds of the Series 2016B Bonds will be used, together with other lawfully available funds, to (i) construct a new student union at the University of Illinois Springfield (the Project ), (ii) pay certain interest on the Series 2016B Bonds and (iii) pay costs of issuing the Series 2016B Bonds. See PLAN OF FINANCE and ESTIMATED SOURCES AND USES OF FUNDS herein. As further described under the caption SECURITY AND SOURCES OF PAYMENT FOR THE BONDS herein, the Series 1991 Bonds, the Series 1999A Bonds, the Series 2001A Bonds, the Series 2001B Bonds, the Series 2003A Bonds, the Series 2005A Bonds, the Series 2006 Bonds, the Series 2008 Bonds, the Series 2009A Bonds, the Series 2010A Bonds, the Series 2011A Bonds, the Series 2011B Bonds, the Series 2011C Bonds, the Series 2013A Bonds, the Series 2014A Bonds, the Taxable Series 2014B Bonds, the Taxable 1

8 Series 2014C Bonds, the Series 2015A Bonds and the Series 2016A Bonds (collectively, the Prior Parity Bonds ), and any Parity Bonds (hereinafter defined) issued in the future, are secured by a pledge of and lien on (i) the Net Revenues of the System, (ii) Student Tuition and Fees (subject to prior payment of operating and maintenance expenses of the System, but only to the extent necessary), and (iii) the Bond and Interest Sinking Fund Account. The Series 1991 Bonds are further secured by income received from, and funds on deposit in, the Debt Service Reserve Account established under the Original Resolution. The Series 2016B Bonds will not be secured by the Debt Service Reserve Account. Additional bonds secured on a parity with the Series 2016B Bonds and the Prior Parity Bonds (together, the Parity Bonds ) may be issued by the Board for the purposes set forth in the Bond Resolution and subject to the condition, among others, that for each of the two completed Fiscal Years immediately preceding the issuance of any Parity Bonds, the average of the sum of annual Net Revenues plus Student Tuition and Fees must be at least equal to two times Maximum Annual Net Debt Service for the then Outstanding Bonds and the proposed Parity Bonds. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Parity Bonds herein and THE UNIVERSITY OF ILLINOIS Outstanding Indebtedness and Leasehold Obligations in APPENDIX A hereto. The Series 2016B Bonds, the Prior Parity Bonds and any Parity Bonds issued in the future are collectively referred to herein as the Bonds or the Outstanding Bonds. The Board covenants in the Bond Resolution to establish rents, fees, charges and admissions for the use of the System and Student Tuition and Fees at such a level that the amount of Net Revenues plus Student Tuition and Fees in each Fiscal Year is at least equal to 2.0 times Maximum Annual Net Debt Service. See SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Rate Covenant herein. THE SERIES 2016B BONDS WILL BE SPECIAL, LIMITED OBLIGATIONS OF THE BOARD AND WILL BE PAYABLE ONLY FROM THE SOURCES DESCRIBED HEREIN. THE SERIES 2016B BONDS ARE NOT OBLIGATIONS, GENERAL, SPECIAL OR OTHERWISE, OF THE STATE OF ILLINOIS. THE SERIES 2016B BONDS SHALL NOT CONSTITUTE A DEBT, LEGAL OR MORAL, OF THE STATE OF ILLINOIS, AND SHALL NOT BE ENFORCEABLE OUT OF ANY FUNDS OF THE BOARD, OR OF THE UNIVERSITY, OTHER THAN THE REVENUES AND INCOME PLEDGED FOR PAYMENT THEREOF. THE BOARD HAS NO TAXING POWER. The descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. References to website addresses presented herein are for informational purposes only and may be in the form of a hyperlink solely for the reader s convenience. Unless specified otherwise, such websites and the information or links contained therein are not incorporated into, and are not part of, this Official Statement. General DESCRIPTION OF THE SERIES 2016B BONDS The Series 2016B Bonds will be issued as fully registered bonds, as shown on the inside cover page hereof. Initially, the Series 2016B Bonds will be registered under the book-entry system operated by The Depository Trust Company, New York, New York ( DTC ), as described under the caption BOOK- ENTRY ONLY SYSTEM (the Book-Entry System ) and the method of payment of the Series 2016B Bonds 2

9 and matters pertaining to transfers and exchanges while the Series 2016B Bonds are held in the Book- Entry System are described under that caption. The Series 2016B Bonds will be dated the date of delivery, and will mature on April 1 of the years and in the amounts shown on the inside cover page hereof and will bear interest from the dated date (computed on the basis of a 360-day year of twelve 30-day months) at the rates set forth on the cover page hereof, payable on April 1 and October 1 of each year, beginning October 1, The Series 2016B Bonds will be issued in denominations of $5,000 or any integral multiple thereof (the Authorized Denominations ). The Series 2016B Bonds will bear interest from their date or from the most recent interest payment date to which interest has been paid, or duly provided for, until the principal amount of the Series 2016B Bonds is paid. Redemption Optional Redemption. The Series 2016B Bonds maturing on or after April 1, 2027 are subject to redemption prior to maturity, at the option of the Board, on or after April 1, 2026, in whole or in part at any time, and if in part, from such maturities as determined by the Board and within any maturity by lot, at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the date fixed for redemption. Mandatory Redemption of Series 2016B Term Bonds. The Series 2016B Bonds maturing April 1, 2030, 2041 and 2046 (the Series 2016B Term Bonds ), are subject to mandatory redemption prior to maturity through the application of sinking fund payments, in integral multiples of $5,000 selected by the Bond Registrar, at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the date fixed for redemption, on April 1 in each of the years and in the respective principal amounts set forth below: Maturity. Maturity. Series 2016B Term Bonds Due April 1, 2030 Year Amount 2029 $635, ,000 Series 2016B Term Bonds Due April 1, 2041 Year Amount 2037 $815, , , , ,000 3

10 Maturity. Series 2016B Term Bonds Due April 1, 2046 Year Amount 2042 $ 965, ,000, ,040, ,075, ,115,000 The principal amounts of each maturity of Series 2016B Bonds to be redeemed or paid on each date through mandatory sinking fund redemptions may be reduced through the earlier optional redemption thereof, with any partial optional redemption of Series 2016B Bonds being credited against such future mandatory sinking fund requirements as determined by the Comptroller of the Board (the Comptroller ), with written notice of such determination to be given to the Bond Registrar. In addition, on or prior to the 60 th day preceding any mandatory sinking fund redemption date, the Bond Registrar may, and if directed by the Comptroller shall, purchase Series 2016B Bonds required to be retired on such mandatory redemption date at a purchase price not exceeding the principal amount thereof plus accrued interest to the purchase date. Any such Series 2016B Bonds so purchased shall be cancelled and the principal amount thereof shall be credited against the respective payment required on such next mandatory redemption sinking fund date as designated in writing by the Comptroller. Notice of Redemption. The Bond Registrar will mail, by registered or certified mail, postage prepaid, a notice of redemption not less than 30 days prior to the date fixed for redemption to the Owners of any Series 2016B Bonds, or portions thereof, which are to be redeemed. Failure to mail such notice or any defect therein as to any such Series 2016B Bond will not affect the validity of the proceedings for the redemption of any other Series 2016B Bonds. In the event a Series 2016B Bond is in a denomination larger than $5,000, a portion of such Series 2016B Bond may be redeemed but only in a principal amount equal to an Authorized Denomination. With respect to any optional redemption of Series 2016B Bonds, unless moneys sufficient to pay the principal of and interest on the Series 2016B Bonds to be redeemed shall have been received by the Bond Registrar prior to the giving of such notice of redemption, such notice shall state that said redemption shall be conditional upon the receipt of such moneys by the Bond Registrar on or prior to the date fixed for redemption. General SECURITY AND SOURCES OF PAYMENT FOR THE BONDS The Bonds are payable from and secured by a pledge of and lien on (i) the Net Revenues of the System, (ii) Student Tuition and Fees (subject to prior payment of operating and maintenance expenses of the System, but only to the extent necessary), and (iii) the Bond and Interest Sinking Fund Account. All such income and revenues are irrevocably pledged for the prompt and punctual payment of the principal of, premium, if any, and interest on the Bonds according to their terms, and all the Bonds are equally and ratably secured by the pledge and lien without priority or preference one over the other by reason of series designation, denomination, number, maturity date, terms of redemption prior to maturity, date of sale or delivery or otherwise. All the Bonds are co-equal as to the pledge of and lien on all of the Net Revenues 4

11 of the System, Student Tuition and Fees and Bond and Interest Sinking Fund Account, as described above, securing the payment of the Bonds and share ratably, without preference, priority or distinction as to the source or method of payment and security for the Bonds. The Series 1991 Bonds are further secured by income received from, and funds deposited in, the Debt Service Reserve Account. No other Prior Parity Bonds are, nor will the Series 2016B Bonds be, secured by or have any claim upon the Debt Service Reserve Account. Student Tuition and Fees The Board is authorized by law to retain all Student Tuition and Fees in its treasury and to credit such amounts to an account known as the University Income Fund. The Bond Resolution requires the Comptroller of the Board to deposit annually the Student Tuition and Fees into the Revenue Fund established by the Bond Resolution, as shall be necessary, together with Operating Revenues, to meet (i) operating and maintenance expenses of the System and (ii) together with transfers, if any, of investment income from the Debt Service Reserve Account to the Bond and Interest Sinking Fund Account (which investment income shall be applied to debt service only on those Bonds secured by the Debt Service Reserve Account), annual debt service and required deposits to the Debt Service Reserve Account and Repair and Replacement Reserve Account. Repair and Replacement Reserve Account Pursuant to the Bond Resolution, the Board is required to establish and maintain a Repair and Replacement Reserve Account. On or before the close of each Fiscal Year, the Comptroller shall deposit in the Repair and Replacement Reserve Account from the funds remaining in the Revenue Fund, an amount not less than ten percent (10%) of the Maximum Annual Net Debt Service. The maximum amount which may be accumulated in such Account shall not exceed five percent (5%) of the replacement cost of the facilities constituting the System, as determined by the then current Engineering News Record Building Cost Index (or comparable index). All money and investments so held in such Account shall be used and held for use to pay the cost of unusual or extraordinary maintenance or repairs, renewals and replacements, and renovating or replacement of fixed equipment not paid as part of the ordinary maintenance and operation of the System. Moneys on deposit in the Repair and Replacement Reserve Account are not pledged as security for the payment of the Bonds. See SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION Flow of Funds Repair and Replacement Reserve Account in APPENDIX D hereto. Rate Covenant The Board covenants and agrees that it will adopt such rules and regulations as are necessary to assure reasonable occupancy and use of the System; and that the rents, fees, charges and admissions (including charges for utility and janitor services) chargeable to the occupants of, and students, faculty members and others using or being served by, or having the right to use or having the right to be served by, the System and Student Tuition and Fees shall be so fixed and revised from time to time and shall be so collected that the amount of Net Revenues plus Student Tuition and Fees in each Fiscal Year is at least equal to 2.0 times Maximum Annual Net Debt Service. Parity Bonds Parity Bonds may be issued under the terms of the Bond Resolution only upon compliance with all of the following conditions: 5

12 1. The Comptroller must sign a written certificate to the effect that the Board is not in default as to any covenant, condition or obligation in connection with all Outstanding Bonds, and the resolutions authorizing the same. 2. All transfers and deposits to the Bond and Interest Sinking Fund Account, the Debt Service Reserve Account (if any) and the Repair and Replacement Reserve Account, as provided in the Bond Resolution, must be current. 3. Parity Bonds must be issued for the purpose of repairing, improving or adding to the System, or for the purpose of refunding Bonds, or for any combination of such purposes. 4. For each of the two completed Fiscal Years immediately preceding the issuance of any Parity Bonds, the average of the sum of annual Net Revenues plus Student Tuition and Fees must be at least equal to 200 percent (2.0 times) of Maximum Annual Net Debt Service for the then Outstanding Bonds and the proposed Parity Bonds. 5. At the time of delivery of the proposed Parity Bonds, a determination must be made in the resolution authorizing such Parity Bonds whether such Parity Bonds shall be secured by or payable from any funds on deposit in the Debt Service Reserve Account. The Board has provided in the authorizing resolution for the Series 2016B Bonds that the Series 2016B Bonds will not be secured by or payable from the Debt Service Reserve Account. 6. Such Parity Bonds shall be authorized by a resolution adopted by the Board which shall conform in all respects to the terms and provisions of the Bond Resolution. Outstanding Parity Bonds As of June 30, 2015, the Board had outstanding 18 series of Bonds, including the Series 1991 Bonds, the Series 1999A Bonds, the Series 2001A Bonds, the Series 2001B Bonds, the Series 2003A Bonds, the Series 2005A Bonds, the Series 2006 Bonds, the Series 2008 Bonds, the Series 2009A Bonds, the Series 2010A Bonds, the Series 2011A Bonds, the Series 2011B Bonds, the Series 2011C Bonds, the Series 2013A Bonds, the Series 2014A Bonds, the Taxable Series 2014B Bonds, the Taxable Series 2014C Bonds and the Series 2015A Bonds aggregating $1,145,482,461 (including the accreted value of outstanding capital appreciation Bonds), which are secured by a pledge of and lien on (i) the Net Revenues of the System, (ii) Student Tuition and Fees (subject to prior payment of operating and maintenance expenses of the System, but only to the extent necessary), and (iii) the Bond and Interest Sinking Fund Account. The Series 1991 Bonds are further secured by income received from, and funds on deposit in, the Debt Service Reserve Account. On February 24, 2016 the Board issued its Series 2016A Bonds in the principal amount of $129,025,000, the net proceeds of which were applied to the redemption of the Board s Series 2006 Bonds. As of April 1, 2016, the Board had $1,038,065, (including the accreted value of outstanding capital appreciation bonds) of Bonds outstanding. Bond Insurance Policy BOND INSURANCE Concurrently with the issuance of the Series 2016B Bonds, Build America Mutual Assurance Company ( BAM ) will issue its Municipal Bond Insurance Policy for the Series 2016B Bonds (the Policy ). 6

13 The Policy guarantees the scheduled payment of principal of and interest on the Series 2016B Bonds when due as set forth in the form of the Policy included as Exhibit G to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Build America Mutual Assurance Company The following information concerning BAM is based solely on information provided by BAM. Accordingly, no representation is made by the Board, the University, the Bond Registrar or the Purchaser as to the accuracy or completeness of such information, or as to the absence of changes in such information subsequent to the date hereof. BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 200 Liberty Street, 27th Floor, New York, New York 10281, its telephone number is: , and its website is located at: BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM s financial strength is rated AA/Stable by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ). An explanation of the significance of the rating and current reports may be obtained from S&P at The rating of BAM should be evaluated independently. The rating reflects the S&P s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Series 2016B Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Series 2016B Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Series 2016B Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Series 2016B Bonds, nor does it guarantee that the rating on the Series 2016B Bonds will not be revised or withdrawn. Capitalization of BAM BAM s total admitted assets, total liabilities, and total capital and surplus, as of December 31, 2015 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $479.6 million, $42.3 million and $437.3 million, respectively. BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM s website at is incorporated herein by 7

14 reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the Series 2016B Bonds or the advisability of investing in the Series 2016B Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented in APPENDIX G BOND INSURANCE. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Series 2016B Bonds. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Series 2016B Bonds, whether at the initial offering or otherwise. General Provisions BOOK-ENTRY ONLY SYSTEM The following information concerning DTC and its book-entry system is based solely on information provided by DTC. Accordingly, no representation is made by the Board, the University, the Bond Registrar or the Purchaser as to the accuracy or completeness of such information, or as to the absence of changes in such information subsequent to the date hereof. DTC will act as securities depository for the Series 2016B Bonds. The Series 2016B Bonds will be issued as fully-registered securities 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 2016B Bond will be issued for each maturity of the Series 2016B Bonds, in the aggregate principal amount of each such maturity, and will be deposited with DTC. DTC, the world s largest 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, 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 subsidiary. 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 ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at 8

15 Purchases of the Series 2016B Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2016B Bonds on DTC s records. The ownership interest of each actual purchaser of each Series 2016B 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 2016B Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2016B Bonds, except in the event that use of the book-entry system for the Series 2016B Bonds is discontinued. To facilitate subsequent transfers, all Series 2016B 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 Series 2016B Bonds with DTC and their registration in the name of Cede & Co., or such other DTC nominee, does not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2016B Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Series 2016B 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 2016B Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2016B Bonds, such as redemptions, tenders, defaults and proposed amendments to the documents. For example, Beneficial Owners of Series 2016B Bonds may wish to ascertain that the nominee holding the Series 2016B 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 Bond 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 2016B Bonds of 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 such other DTC nominee) will consent or vote with respect to the Series 2016B Bonds unless authorized by a Direct Participant in accordance with DTC s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Board 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 the Series 2016B Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, principal, and interest payments on the Series 2016B 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 detailed information from the Board or the Bond Registrar, on each 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 Bond Registrar, or the Board, subject to any statutory or regulatory 9

16 requirements as may be in effect from time to time. Payment of redemption proceeds, principal, and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Board or the Bond Registrar, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 2016B Bonds at any time by giving reasonable notice to the Board or the Bond Registrar. Under such circumstances, in the event that a successor securities depository is not obtained, certificates for the Series 2016B Bonds are required to be printed and delivered. The Board may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, certificates for the Series 2016B Bonds will be printed and delivered to DTC. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the Board believes to be reliable, but the Board takes no responsibility for the accuracy thereof. NEITHER THE BOARD NOR THE BOND REGISTRAR HAS ANY RESPONSIBILITY OR OBLIGATION TO THE PARTICIPANTS OR THE BENEFICIAL OWNERS WITH RESPECT TO THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, CEDE & CO. OR ANY PARTICIPANT; THE PAYMENT BY DTC OR ANY PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OF, PREMIUM, IF ANY, OR INTEREST ON THE SERIES 2016B BONDS; ANY NOTICE WHICH IS PERMITTED OR REQUIRED TO BE GIVEN TO BENEFICIAL OWNERS UNDER THE BOND RESOLUTION; THE SELECTION BY DTC OR ANY PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE SERIES 2016B BONDS; OR ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC. Successor Securities Depository; Discontinuation of Book-Entry System In the event that (i) the Board determines that DTC is incapable of discharging its responsibilities described in the Bond Resolution and in the blanket letter of representations from the Board and accepted by DTC (the Representation Letter ), (ii) the Representation Letter shall be terminated for any reason, or (iii) the Board determines that it is in the best interest of the Beneficial Owners of the Series 2016B Bonds that they be able to obtain certificated Series 2016B Bonds, the Board will notify DTC and the Direct Participants of the availability through DTC of certificated Series 2016B Bonds and the Series 2016B Bonds will no longer be restricted to being registered in the registry maintained by the Bond Registrar in the name of Cede & Co., as nominee of DTC. At that time, the Board may determine that the Series 2016B Bonds shall be registered in the name of and deposited with a successor depository operating a universal book-entry system, as may be acceptable to the Board, or such depository s agent or designee, or if the Board does not select such an alternate universal book-entry system, then the Series 2016B Bonds may be registered in whatever name or names registered owners of Series 2016B Bonds transferring or exchanging Series 2016B Bonds shall designate, in accordance with the provisions of the Bond Resolution. 10

17 PLAN OF FINANCE Purpose of the Series 2016B Bonds The proceeds of the Series 2016B Bonds will be used to (i) construct the Project described under The Project below, (ii) pay certain interest on the Series 2016B Bonds, and (iii) pay costs of issuing the Series 2016B Bonds. See ESTIMATED SOURCES AND USES OF FUNDS. The Project A portion of the proceeds of the Series 2016B Bonds, together with other lawfully available funds, will be applied to the construction of a 50,000 gross square foot Student Union at the Springfield Campus designed to achieve LEED Gold certification. The new facility will house a Student Leadership Center, campus food service, entertainment and event venues, open lounge space, a convenience store/spirit shop, coffee shop, and a variety of teaming, collaboration and meeting spaces. ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds for the Series 2016B Bonds are as follows: Sources of Funds Principal Amount of Series 2016B Bonds... $20,630,000 Net Reoffering Premium ,754 Total Sources of Funds $21,247,754 Uses of Funds Deposit to Series 2016 Project Fund... $19,674,069 Payment of Capitalized Interest... 1,117,523 Purchaser s Discount ,644 Costs of Issuance (1)... 40,518 Total Uses of Funds $21,247,754 (1) Costs of issuance include legal fees, fees of the Municipal Advisor, rating agency fees, initial Registrar and Paying Agent fees and other expenses incurred in connection with the issuance of the Series 2016B Bonds. PRO FORMA MAXIMUM ANNUAL NET DEBT SERVICE COVERAGE The following table compares the Net Revenues of the System and Student Tuition and Fees with the estimated Maximum Annual Net Debt Service for the Series 2016B Bonds and the Outstanding Bonds, in order to determine a pro forma debt service coverage as if such debt service had been applied during the periods shown. The Series 2008 Bonds and the Taxable Series 2014C Bonds bear interest at variable rates. For purposes of estimating debt service on the Series 2008 Bonds interest was estimated at 3.76% which represents, as of April 8, 2016, the highest of (i) the actual rate at date of calculation, (ii) the average rate over the 12 months immediately preceding the date of calculation and (iii) the Revenue Bond Index. For purposes of estimating debt service on the Taxable Series 2014C Bonds interest was estimated at 2.58%, which represents, as of April 8, 2016, the higher of (i) the actual rate at date of calculation and (ii) the interest rate on Government Obligations with comparable maturities. 11

18 Fiscal Year Ended June 30 (in thousands) Net Revenues $ 94,326 $ 96,335 $ 91,762 $ 90,713 $ 95,986 Student Tuition and Fees (1) 905, , ,502 1,040,399 1,095,905 Total Available for Debt Service $1,000,019 $1,084,131 $1,081,264 $1,131,112 $1,191,891 Coverage of Maximum Annual Net Debt Service for the Series 2016B Bonds and Outstanding Bonds Net MADS (2) 10.27x 11.13x 11.10x 11.61x 12.24x (1) (2) Student Tuition and Fees is shown net of scholarships and fellowships. As of April 6, 2016, the Board estimates, based on the assumed interest rates identified in the paragraph preceding the table, that following the issuance of the Series 2016B Bonds and the application of the proceeds thereof described under PLAN OF FINANCE, the Maximum Annual Net Debt Service for the Series 2016B Bonds and all Outstanding Bonds will be $97,407,436 in Fiscal Year Source: Compiled by the Office of the Comptroller of the University of Illinois from audited Annual Financial Reports of the University for Fiscal Years

19 ANNUAL DEBT SERVICE REQUIREMENTS ON THE BONDS The table below shows assumed annual debt service on the Series 2016B Bonds and all Outstanding Bonds as of each Fiscal Year, commencing with the Fiscal Year ending June 30, The Series 2008 Bonds and the Taxable Series 2014C Bonds bear interest at variable interest rates. All other Outstanding Bonds bear interest at fixed rates. Fiscal Year Series 2016B Bonds Outstanding Total System (Ending 6/30) Principal Interest (1) Debt Service (2) Debt Service (2) 2016 $87,285,322 $87,285, ,045,877 91,045, $380,000 $388,331 90,139,339 90,907, , ,663 89,242,740 90,400, , ,663 89,668,319 90,825, , ,663 95,264,634 96,421, , ,663 95,963,908 97,118, , ,663 84,481,256 85,637, , ,413 80,251,799 81,409, , ,913 80,751,657 81,908, , ,163 74,762,675 75,917, , ,163 75,415,880 76,573, , ,563 75,951,662 77,105, , ,163 76,744,287 77,898, , ,113 76,955,775 78,110, , ,463 62,690,126 63,845, , ,213 61,903,699 63,058, , ,363 56,521,230 57,675, , ,019 56,688,301 57,845, , ,969 52,378,903 53,536, , ,106 39,959,116 41,117, , ,444 22,896,763 24,053, , ,919 27,138,263 28,296, , ,344 27,388,344 28,546, , ,719 27,469,457 28,627, , ,044 30,761,545 31,917, , ,319 30,831,963 31,985, ,000, ,338 29,090,220 30,243, ,040, ,088 29,148,331 30,305, ,075,000 79,388 1,154, ,115,000 40,419 1,155,419 TOTAL $ 20,630,000 $ 13,633,285 $ 1,818,791,390 $ 1,853,054,675 Totals may not foot due to rounding. (1) Net of capitalized interest. (2) Includes the variable rate Series 2008 Bonds with an assumed interest rate of 1.82%, the 20 year average of the Securities Industry and Financial Markets Association Municipal Swap Index. A different estimated interest rate is utilized for the Series 2008 Bonds under the caption PRO FORMA MAXIMUM ANNUAL NET DEBT SERVICE COVERAGE above because the Bond Resolution requires the factors identified therein to be used to estimate the interest rate on variable rate Bonds for the purpose of calculating Maximum Annual Net Debt Service in connection with the issuance of Parity Bonds. Also includes the variable rate Taxable Series 2014C Bonds with an assumed interest rate of 2.58%, which represents the interest rate on Government Obligations with comparable maturities. All other Outstanding Bonds bear interest at a fixed rate. 13

20 AUXILIARY FACILITIES SYSTEM Background The University of Illinois Auxiliary Facilities System was created in June of 1978 pursuant to the provisions of the Act which authorized the Board to combine and consolidate into a single System certain housing, parking, union, recreation/athletic, student-oriented health and miscellaneous facilities, the net revenues of which were then pledged to secure outstanding indebtedness of the Board. As described below, certain facilities of the Springfield campus of the University were transferred to and became part of the System during Fiscal Year At the time of formation of the System, the Board refinanced, through advance refunding or exchange, all then outstanding indebtedness secured by the various buildings and facilities initially intended to form the System. Since the creation of the System, the Board, in addition to providing for routine maintenance, has assessed one-half of one percent of the Replacement Value of its facilities annually for renewals and replacements, unusual or extraordinary maintenance or repairs, and renovation or replacement of fixed equipment to sustain the physical and operational integrity of the System. Approved mandatory transfers for such purposes approximate $12.5 million each year. Description of Facilities The facilities comprising the System service various aspects of student campus life and include student residence halls, parking structures, student unions and recreational and athletic facilities. The University currently has residence hall and apartment facilities for about 13,855 single students and family housing for about 1,147 students and ten parking structures with a total capacity for approximately 10,391 cars. The University has three student union buildings, one at the Urbana-Champaign campus and two at the Chicago campus, which include lounges, food service, bowling and billiards facilities, meeting rooms, bookstores and other recreational facilities. The Project, as more fully described in PLAN OF FINANCE The Project, involves the construction of a new student union on the Springfield campus which will become part of the System. The development of recreational and athletic facilities dates back to 1925 on the Urbana- Champaign campus with the construction of Memorial Stadium, which seats approximately 62,000 persons, and the Ice Arena, which was originally constructed in The multi-purpose 15,200 seat State Farm Center, which provides a venue for entertainment and sporting events, was constructed in 1963 at Urbana-Champaign. The multi-purpose 9,500 seat Pavilion, which serves a similar function in Chicago, was constructed in The University s McKinley Health Center, originally constructed in , provides clinical treatment for students and staff at the Urbana-Champaign campus. Student Services buildings in Chicago and in Urbana-Champaign provide centralized locations for comprehensive programs of student services, including career development and placement, student financial aid, student activities and student counseling and assistance. Springfield campus facilities added to the System include a 56 unit on-campus housing complex known as University Court, food service operations, parking operations, bookstore operations, the 2,000 seat Sangamon Auditorium, a 10,000 square foot multi-purpose gymnasium and a child care center. Recent additions to the Auxiliary Facilities System include: (1) the Renovation and Addition to State Farm Center at the Urbana-Champaign campus and (2) construction of Bousfield Hall at Urbana- 14

21 Champaign. Construction is nearing completion on Wassaja Hall at Urbana-Champaign, part of a long-term redevelopment plan of the housing stock known as Ikenberry Commons. Housing Occupancy Rates For the past five Fiscal Years, ended June 30, 2015, the average occupancy of existing housing facilities of the Board included within the System, has exceeded 90%. Illinois Pension System Reform Legislation Over the past five years, the State s funding of the State Universities Retirement System of Illinois ( SURS ), under which the University s employees and their beneficiaries receive retirement, death or disability benefits, as well as the State s funding for the Teacher s Retirement System, the State Employees Retirement System, the Judges Retirement System and the General Assembly Retirement System (such other plans, along with SURS, being collectively referred to as the State Pensions ), has substantially deteriorated and is currently the lowest in the nation. While the liability of SURS to make payments relating to University employees is not a liability of the Board under State law, and the required annual statutory contributions by the State to the State Pensions have been in conformity with State law, the State s contributions to the State Pensions have been less than the contributions that would otherwise be required in accordance with the actuarial standards developed by the Governmental Accounting Standards Board ( GASB Standards ). According to the Commission on Government Forecasting and Accountability, including the University s share, the SURS total preliminary, estimated unfunded accrued liability, at market values, was $22.1 billion as of June 30, Governmental accounting standards require that the University s share of the SURS unfunded liability be disclosed in the University s financial statements beginning with Fiscal Year In an effort to solve the retirement systems funding crisis, the State Legislature worked out a legislative solution intended to bring the State Pensions, including SURS, to full funding by the end of the 2044 fiscal year. Public Act , which the Governor of the State signed into law on December 6, 2013 (the 2013 Pension Reform Act ) with an effective date of June 1, The 2013 Pension Reform Act was found unconstitutional and void in its entirety by the Seventh Judicial Circuit Court in Sangamon County on November 21, 2014, a ruling which was affirmed by the Illinois Supreme Court on May 8, In September of 2015, the Illinois Attorney General s office announced that it did not intend to appeal such ruling to the United States Supreme Court. As a result, the 2013 Pension Reform Act never became effective. No assurance can be given that any future pension reform will be undertaken or that, if undertaken, any such reform will succeed at correcting the severe underfunding of the State Pensions, including SURS. Nor can assurance be given that any future legislation would not require the University to assume part or all of the liability for funding its employees pensions. Additionally, governmental accounting standards require that the University s share of the SURS unfunded liability be disclosed in the University s financial statements beginning with Fiscal Year See THE UNIVERSITY OF ILLINOIS Retirement Benefits In APPENDIX A hereto for additional information on SURS. State Income Tax Legislation Although the Series 2016B Bonds are secured by a pledge of and lien on (i) the Net Revenues of the System, (ii) Student Tuition and Fees (subject to prior payment of operating and maintenance expenses of the System, but only to the extent necessary), and (iii) the Bond and Interest Sinking Fund Account, the University receives a substantial portion of its general revenues from State appropriations made by the General Assembly of the State. 15

22 In January 2011, in an effort to increase State revenues, the Illinois General Assembly increased the State s income tax rates, raising the individual tax rate from 3% to 5% and the corporate tax rate from 4.8% to 7%. This legislation, however, also provided for a partial, gradual decrease of the rate increases. The first such decrease took effect on January 1, 2015, when the individual tax rate decreased from 5% to 3.75% and the corporate tax rate decreased from 7% to 5.25%. These reductions resulted in an estimated decrease in State revenue of approximately $1.9 billion for Fiscal Year Some State legislators had called for extending the 5% and 7% rates permanently, and budget proposals passed by the General Assembly in 2014 included revenue estimates which assumed that such rates would be extended. However, extending the higher rates will require that legislation be passed by both houses of the General Assembly and signed by the Governor (or, if vetoed by the Governor, that the veto be overridden by a three-fifths majority of both houses). Such legislation, if enacted, could be retroactive in effect. At this time, it is unknown whether or when any such legislative action will occur. Should the 5% and 7% tax rates not be restored or a replacement source of revenue not be enacted, the University, as a recipient of discretionary appropriations, may have its appropriation reduced. The impact of such a reduction, if any, may require the University to look for additional sources of revenue and/or reduce expenditures. No prediction can be made as to what magnitude of reduction in State appropriations would occur or what impact such a reduction would have on the University s operations. In Fiscal Year 2015, the original State appropriation to the University was approximately $662 million which was subsequently subject to a mid-year reduction of approximately $18.4 million, decreasing the total appropriation to approximately $644 million. The University receives a major portion of the revenues needed to sustain its educational and research activities from State appropriations, tuition revenues, and the federal government. As of April 6, 2016, the state budget for fiscal year 2016 has not been enacted and, as a result, neither had the direct appropriation to the University. Fiscal year 2016 budget reduction proposals relating to the University from the General Assembly and the Governor, respectively, range from 8.5% to 31.5%. On March 17, 2016 the Illinois Senate passed SB 2059 which would appropriate $601.6 million to the University for Fiscal Year 2016, a reduction of 7% from the revised Fiscal Year 2015 appropriation which has moved on to the Illinois House of Representatives for consideration. The University cannot predict what outcome such legislation would have if it were to be passed by the Illinois House of Representatives, approved by the Governor and become law. The presidents of all public universities in Illinois have been communicating with the Governor and General Assembly emphasizing the importance of resolving the State s budget impasse, with a sustained and predictable level of support that ensures student achievement. Until there is a legislative resolution to the state budget impasse, the University continues to monitor cash flows and has deferred and reduced spending to meet current operational needs. On February 17, 2016 the Governor proposed a Fiscal Year 2017 appropriation which would be 20% lower than the revised Fiscal Year 2015 appropriation. For more information see THE UNIVERSITY OF ILLINOIS 2016 Budget and State Appropriations in APPENDIX A hereto. Financial Condition of the Auxiliary Facilities System The financial statements of the System are presented in accordance with U.S. generally accepted accounting principles. Included in APPENDIX B is the most recent Annual Financial Report of the Auxiliary Facilities System for Fiscal Year The Annual Financial Report of the Auxiliary Facilities System set forth as APPENDIX B consists of the Statement of Net Position as of June 30, 2015, the Statement of Revenues, Expenses and Changes in Net Position for the Year Ended June 30, 2015, the Statement of Cash Flows for the Year Ended June 30, 2015, and the notes to financial statements. 16

23 Statement of Revenues, Expenses and Changes in Net Position of the Auxiliary Facilities System The following table summarizes the Statement of Revenues, Expenses and Changes in Net Position of the System for the Fiscal Years Ended June 30, 2015, 2014, 2013 and Fiscal Year Ended June 30, Operating revenues: Room and board, net of waivers $141,495,946 $139,170,736 $132,752,112 $130,414,642 Merchandise and retail food sales 35,726,340 34,230,416 35,174,489 36,415,535 Student service fees 95,824,279 92,721,641 92,896,878 91,195,310 Public events and recreation fees 5,567,387 6,943,194 8,131,988 8,208,109 Parking income 26,665,333 25,971,705 25,639,299 25,192,338 Rental and lease income 25,184,158 22,302,271 20,022,277 19,531,287 Vending income 1,969,727 2,234,529 1,802,693 1,764,494 Other operating revenue 12,656,613 10,960,814 9,634,172 8,979,726 Total operating revenues 345,089, ,535, ,053, ,701,441 Operating expenses: Salaries and wages 91,911,015 90,708,702 87,887,020 83,799,604 Merchandise and food for resale 36,592,720 36,096,483 37,463,516 36,680,580 Repair and maintenance 5,795,556 5,539,503 5,256,655 3,756,261 Professional and other contractual services 34,672,162 39,137,663 35,566,607 38,005,205 Utilities 30,368,219 30,207,763 27,949,356 27,404,026 Supplies 10,960,625 12,867,363 11,586,743 10,710,374 Noncapitalized renovation and equipment 20,007,082 11,900,464 11,001,628 1,828,653 Administrative services 15,670,039 16,191,579 15,167,503 14,673,730 Other operating expense 4,956,647 4,864,518 4,180,348 10,657,382 Depreciation 33,516,002 32,580,892 31,227,774 30,673,059 On behalf payments for fringe benefits 48,304,812 45,590,951 45,845,260 33,649,533 Total operating expenses 332,754, ,685, ,132, ,838,407 Operating income 12,334,904 8,849,425 12,921,498 29,863,034 Non-operating revenues (expenses): On behalf payments for fringe benefits 48,304,812 45,590,951 45,845,260 33,649,533 Investment income (net of related expenses) 1,830,781 3,691,656 1,767,939 2,149,696 Interest on capital asset-related debt (46,936,267) (47,989,397) (46,896,806) (45,704,296) Amortization of issuance costs* (338,393) Loss on disposal of capital assets (183,189) (89,135) (732,416) (322,198) Other non-operating revenues (expenses), net* (625,768) (1,371,312) (3,380,541) 46,532 Net non-operating revenues (expenses) 2,390,369 (167,237) (3,396,564) (10,519,126) Increase in net position 14,725,273 8,682,188 9,524,934 19,343,908 Net position, beginning of year, as adjusted* 168,471, ,789, ,934, ,590,529 Cumulative effect of change in accounting principle (5,670,258) Net position, end of year $183,196,574 $168,471,301 $159,789,113 $155,934,437 *Change in accounting principle. For more detailed information, see ANNUAL FINANCIAL REPORT FOR THE UNIVERSITY OF ILLINOIS AUXILIARY FACILITIES SYSTEM FOR THE YEAR ENDED JUNE 30, 2015 in APPENDIX B hereto. 17

24 TAX EXEMPTION General Federal tax law contains a number of requirements and restrictions which apply to the Series 2016B Bonds, including investment restrictions, periodic payments of arbitrage profits to the United States, requirements regarding the proper use of bond proceeds and the facilities financed therewith, and certain other matters. The Board has covenanted to comply with all requirements that must be satisfied in order for the interest on the Series 2016B Bonds to be excludable from gross income for federal income tax purposes. Failure to comply with certain of such covenants could cause interest on the Series 2016B Bonds to become includible in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2016B Bonds. Subject to the Board s compliance with the above-referenced covenants, under present law, in the opinion of Bond Counsel (as hereinafter defined), interest on the Series 2016B Bonds is excludable from the gross income of the owners thereof for federal income tax purposes, and is not included as an item of tax preference in computing the federal alternative minimum tax for individuals and corporations, but interest on the Series 2016B Bonds is taken into account, however, in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. In rendering its opinion, Bond Counsel will rely upon certifications of the Board with respect to certain material facts within the Board s knowledge. Bond Counsel s opinion represents its legal judgment based upon its review of the law and the facts that it deems relevant to render such opinion and is not a guarantee of a result. The Internal Revenue Code of 1986, as amended (the Code ), includes provisions for an alternative minimum tax ( AMT ) for corporations in addition to the regular corporate tax in certain cases. The AMT, if any, depends upon the corporation s alternative minimum taxable income ( AMTI ), which is the corporation s taxable income with certain adjustments. One of the adjustment items used in computing the AMTI of a corporation (with certain exceptions) is an amount equal to 75% of the excess of such corporation s adjusted current earnings over an amount equal to its AMTI (before such adjustment item and the alternative tax net operating loss deduction). Adjusted current earnings would include certain tax-exempt interest, including interest on the Series 2016B Bonds. Ownership of the Series 2016B Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, corporations subject to the branch profits tax, financial institutions, certain insurance companies, certain S corporations, individual recipients of Social Security or Railroad Retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry tax-exempt obligations. Prospective purchasers of the Series 2016B Bonds should consult their tax advisors as to applicability of any such collateral consequences. The issue price (the Issue Price ) for each maturity of the Series 2016B Bonds is the price at which a substantial amount of such maturity of the Series 2016B Bonds is first sold to the public. The Issue Price of a maturity of the Series 2016B Bonds may be different from the price set forth, or the price corresponding to the yield set forth, on the inside cover page hereof. If the Issue Price of a maturity of the Series 2016B Bonds is less than the principal amount payable at maturity, the difference between the Issue Price of each such maturity, if any, of the Series 2016B Bonds (the OID Bonds ) and the principal amount payable at maturity is original issue discount. 18

25 For an investor who purchases an OID Bond in the initial public offering at the Issue Price for such maturity and who holds such OID Bond to its stated maturity, subject to the condition that the Board complies with the covenants discussed above, (a) the full amount of original issue discount with respect to such OID Bond constitutes interest which is excludable from the gross income of the owner thereof for federal income tax purposes; (b) such owner will not realize taxable capital gain or market discount upon payment of such OID Bond at its stated maturity; (c) such original issue discount is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Code, but is taken into account in computing an adjustment used in determining the alternative minimum tax for certain corporations under the Code, as described above; and (d) the accretion of original issue discount in each year may result in an alternative minimum tax liability for corporations or certain other collateral federal income tax consequences in each year even though a corresponding cash payment may not be received until a later year. Based upon the stated position of the Illinois Department of Revenue under Illinois income tax law, accreted original issue discount on such OID Bonds is subject to taxation as it accretes, even though there may not be a corresponding cash payment until a later year. Owners of OID Bonds should consult their own tax advisors with respect to the state and local tax consequences of original issue discount on such OID Bonds. Owners of Series 2016B Bonds who dispose of Series 2016B Bonds prior to the stated maturity (whether by sale, redemption or otherwise), purchase Series 2016B Bonds in the initial public offering, but at a price different from the Issue Price or purchase Series 2016B Bonds subsequent to the initial public offering should consult their own tax advisors. If a Series 2016B Bond is purchased at any time for a price that is less than the Series 2016B Bond s stated redemption price at maturity or, in the case of an OID Bond, its Issue Price plus accreted original issue discount (the Revised Issue Price ), the purchaser will be treated as having purchased a Series 2016B Bond with market discount subject to the market discount rules of the Code (unless a statutory de minimis rule applies). Accrued market discount is treated as taxable ordinary income and is recognized when a Series 2016B Bond is disposed of (to the extent such accrued discount does not exceed gain realized) or, at the purchaser s election, as it accrues. Such treatment would apply to any purchaser who purchases an OID Bond for a price that is less than its Revised Issue Price. The applicability of the market discount rules may adversely affect the liquidity or secondary market price of such Series 2016B Bond. Purchasers should consult their own tax advisors regarding the potential implications of market discount with respect to the Series 2016B Bonds. An investor may purchase a Series 2016B Bond at a price in excess of its stated principal amount. Such excess is characterized for federal income tax purposes as bond premium and must be amortized by an investor on a constant yield basis over the remaining term of the Series 2016B Bond in a manner that takes into account potential call dates and call prices. An investor cannot deduct amortized bond premium relating to a tax-exempt bond. The amortized bond premium is treated as a reduction in the tax-exempt interest received. As bond premium is amortized, it reduces the investor s basis in the Series 2016B Bond. Investors who purchase a Series 2016B Bond at a premium should consult their own tax advisors regarding the amortization of bond premium and its effect on the Series 2016B Bond s basis for purposes of computing gain or loss in connection with the sale, exchange, redemption or early retirement of the Series 2016B Bond. There are or may be pending in the Congress of the United States legislative proposals, including some that carry retroactive effective dates, that, if enacted, could alter or amend the federal tax matters referred to above or affect the market value of the Series 2016B Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. Prospective purchasers of the Series 2016B Bonds should consult their own tax 19

26 advisors regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation. The Internal Revenue Service (the Service ) has an ongoing program of auditing tax-exempt obligations to determine whether, in the view of the Service, interest on such tax-exempt obligations is includible in the gross income of the owners thereof for federal income tax purposes. It cannot be predicted whether or not the Service will commence an audit of the Series 2016B Bonds. If an audit is commenced, under current procedures the Service may treat the Board as a taxpayer and the Series 2016B Bondholders may have no right to participate in such procedure. The commencement of an audit could adversely affect the market value and liquidity of the Series 2016B Bonds until the audit is concluded, regardless of the ultimate outcome. Payments of interest on, and proceeds of the sale, redemption or maturity of, tax-exempt obligations, including the Series 2016B Bonds, are in certain cases required to be reported to the Service. Additionally, backup withholding may apply to any such payments to any Series 2016B Bond owner who fails to provide an accurate Form W-9 Request for Taxpayer Identification Number and Certification, or a substantially identical form, or to any Series 2016B Bond owner who is notified by the Service of a failure to report any interest or dividends required to be shown on federal income tax returns. The reporting and backup withholding requirements do not affect the excludability of such interest from gross income for federal tax purposes. State and Local Considerations Interest on the Series 2016B Bonds is not exempt from present Illinois income taxes. Ownership of the Series 2016B Bonds may result in other state and local tax consequences to certain taxpayers. Bond Counsel expresses no opinion regarding any such collateral consequences arising with respect to the Series 2016B Bonds. Prospective purchasers of the Series 2016B Bonds should consult their tax advisors regarding the applicability of any such state and local taxes. LITIGATION There is no litigation pending against the Board or the University, or to the knowledge of the Board threatened, which in any way questions or affects the validity of the Series 2016B Bonds or any proceedings or transactions relating to their issuance, sale and delivery. The Board is not aware of any litigation, the resolution of which would have a material adverse impact on the Board s ability to meet debt service on the Series 2016B Bonds. LEGAL MATTERS Certain legal matters incidental to the authorization, issuance and sale of the Series 2016B Bonds by the Board are subject to the approving legal opinion of Chapman and Cutler LLP, Chicago, Illinois, as Bond Counsel ( Bond Counsel ), which has been retained by, and acts as, Bond Counsel to the Board. Bond Counsel has not been retained or consulted on disclosure matters and has not undertaken to review or verify the accuracy, completeness or sufficiency of this Official Statement or other offering material relating to the Series 2016B Bonds and assumes no responsibility for the statements or information contained in or incorporated by reference in this Official Statement, except that in its capacity as Bond Counsel, Chapman and Cutler LLP has, at the request of the Board, reviewed the statements describing its approving opinion and the statements under the captions DESCRIPTION OF THE SERIES 2016B BONDS, SECURITY AND SOURCES OF PAYMENT FOR THE BONDS General, Student Tuition and Fees, 20

27 Repair and Replacement Reserve Account, Rate Covenant, and Parity Bonds, TAX EXEMPTION, and APPENDIX D DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION solely to determine whether such descriptions are accurate summaries in all material respects. This review was undertaken solely at the request and for the benefit of the Board and did not include any obligation to establish or confirm factual matters set forth in this Official Statement. The proposed form of the opinion of Bond Counsel is included as APPENDIX E. Certain legal matters in connection with the Series 2016B Bonds will be passed upon for the Board by University Counsel, Thomas R. Bearrows, Esq. and its special issuer s counsel, Katten Muchin Rosenman LLP, Chicago, Illinois. Katten Muchin Rosenman LLP, Chicago, Illinois is serving as disclosure counsel. PURCHASE The Series 2016B Bonds were purchased at a competitive sale held on April 6, 2016 by a syndicate led by Citigroup Global Markets Inc. (the Purchaser ). The Purchaser has agreed, subject to certain customary conditions precedent to closing, to purchase the Series 2016B Bonds from the Board at a purchase price of $20,886, (which is equal to the original principal amount of the Series 2016B Bonds, less a Purchaser s discount of $361,643.90, plus a net original issue premium of $617,754.40). The Purchaser will be obligated to purchase all of the Series 2016B Bonds if any Series 2016B Bonds are purchased. The Policy was purchased by, and at the option of, the Purchaser. MUNICIPAL ADVISOR Public Financial Management, Inc. has acted as Municipal Advisor to the Board in connection with the issuance of the Series 2016B Bonds. Public Financial Management, Inc. is not obliged to undertake, and has not undertaken, an independent verification of, nor has assumed responsibility for the accuracy, completeness or fairness of the information obtained in this Official Statement. Public Financial Management, Inc. is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. INDEPENDENT AUDITORS The financial statements of the System and the financial statements of the University as of and for the year ended June 30, 2015, are included in APPENDIX B and APPENDIX C, respectively and have been audited by CliftonLarsonAllen LLP, independent auditors, as stated in their reports included in APPENDIX B and APPENDIX C, respectively. RATINGS Standard & Poor s Ratings Services, a Division of The McGraw-Hill Companies ( S&P ), and Moody s Investors Service ( Moody s ) have assigned their municipal bond ratings of AA (stable outlook) (based on the understanding that upon delivery of the Series 2016B Bonds the Policy will be issued by BAM) and Aa3 (negative outlook), respectively, to the Series 2016B Bonds. S&P s underlying municipal bond rating for the Series 2016B Bonds is AA- (negative outlook). The ratings and an explanation of their significance may be obtained from the rating agency furnishing such ratings. 21

28 Such ratings reflect only the views of the respective rating agency. The ratings are not recommendations to buy, sell or hold the Series 2016B Bonds. No rating was requested from any other rating service. The Board and the University furnished to the above rating agencies certain information and materials, some of which have not been included in this Official Statement. Generally, rating agencies base their ratings on such information and materials and investigations, studies and assumptions furnished to and obtained and made by the rating agencies. There is no assurance that any rating will remain for any given period of time or that any rating will not be revised downward or withdrawn entirely. Any such downward revision or withdrawal of any such rating may have an adverse effect on the market price or marketability of the Series 2016B Bonds. CONTINUING DISCLOSURE In order to assist the Purchaser in complying with certain provisions of Rule 15c2-12 (the Rule ) of the Securities and Exchange Commission, the Board will agree in a Continuing Disclosure Agreement to provide to certain parties certain annual financial information and operating data and notices of certain events. The proposed form of the Continuing Disclosure Agreement is included as APPENDIX F to this Official Statement. The Continuing Disclosure Agreement may be enforced by any beneficial or registered owner of the Series 2016B Bonds, but the Board s failure to comply will not be a default under the Bond Resolution. Annual disclosure and notices of certain events will be submitted to the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system currently available at ADDITIONAL INFORMATION All of the summaries of the opinions, contracts, agreements, financial and statistical data, and other related documents described in this Official Statement are made subject to the provisions of such documents. These summaries do not purport to be complete statements of such provisions and reference is made to such documents, copies of which are publicly available for inspection at the offices of the Board s Municipal Advisor, Public Financial Management, Inc., 99 Summer Street, Boston, Massachusetts 02113, or at the University s Office of the Vice President for Administration, 349 Henry Administration Building, 506 South Wright Street, Urbana, Illinois

29 CERTIFICATION As of the date hereof, this Official Statement is, to the best of my knowledge, complete and correct in all material respects and does not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein, in light of the circumstances under which they were made, not misleading. The preparation of this Official Statement and its distribution have been authorized by the Board. THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS By: /s/ Walter K. Knorr Vice President, Chief Financial Officer and Comptroller 23

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31 APPENDIX A THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS

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33 APPENDIX A Information Concerning THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS The information contained herein as Appendix A to the Official Statement has been obtained from The Board of Trustees of the University of Illinois and other sources deemed to be reliable. INFORMATION IS PROVIDED HEREIN REGARDING THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS. HOWEVER, THE SERIES 2016B BONDS DO NOT CONSTITUTE A GENERAL OBLIGATION OF THE BOARD OF TRUSTEES OR OF THE UNIVERSITY. THEREFORE INFORMATION HEREIN REGARDING THE UNIVERSITY SHOULD BE CONSIDERED GENERAL BACKGROUND INFORMATION ONLY FOR THE PURPOSES OF EVALUATING AN INVESTMENT IN THE SERIES 2016B BONDS. THE SERIES 2016B BONDS, TOGETHER WITH THE OUTSTANDING AUXILIARY FACILITIES SYSTEM REVENUE BONDS AND SUCH BONDS AS MAY BE ISSUED IN THE FUTURE (COLLECTIVELY WITH THE SERIES 2016B BONDS, THE BONDS ), ARE SECURED BY A PLEDGE OF AND LIEN ON: (i) THE NET REVENUES OF THE AUXILIARY FACILITIES SYSTEM (THE SYSTEM ), (ii) STUDENT TUITION AND FEES (SUBJECT TO PRIOR PAYMENT OF OPERATING AND MAINTENANCE EXPENSES OF THE SYSTEM, BUT ONLY TO THE EXTENT NECESSARY), AND (iii) THE BOND AND INTEREST SINKING FUND ACCOUNT. SINCE THE SYSTEM IS NOT A SEPARATE LEGAL ENTITY, BUT IS PART OF THE UNIVERSITY, INFORMATION CONCERNING THE UNIVERSITY IS SET FORTH IN THIS APPENDIX A.

34 TABLE OF CONTENTS Background... A-1 Urbana-Champaign Campus (UIUC)... A-4 Chicago Campus (UIC)... A-5 Springfield Campus (UIS)... A-7 Accreditations and Memberships... A-8 Board of Trustees and University Officers... A-8 Financial Condition of the University... A-11 Sources of Funds, Fiscal Year 2000 to Fiscal Year A Budget and State Appropriations... A-16 Outstanding Indebtedness and Leasehold Obligations... A-18 Future Capital Plans... A-20 Faculty... A-20 Student Enrollment... A-21 Student Admissions... A-22 Tuition and Fees... A-23 State and Tuition, Fiscal Year 2000 to Fiscal Year A-24 Financial Aid to Students... A-24 Research Funding... A-26 Voluntary Support... A-26 University and Foundation Investments... A-26 Physical Plant... A-27 Employee Relations... A-27 Retirement Benefits... A-28 Pension Reform Status... A-28 Governor s Executive Orders... A-28

35 THE UNIVERSITY OF ILLINOIS Background The Board of Trustees of the University of Illinois (the Board ) is a body corporate and politic of the State of Illinois (the State ) created in 1867 by the Illinois General Assembly in response to the Federal Land Grant Act of The Board is responsible for the oversight and governance of the University of Illinois (the University ), one of the nation s largest universities. Complementing the University s primary missions of education, research, and public service is the University s role as an agent of economic development. Education. The University has three campuses, located in Urbana-Champaign, Chicago, and Springfield, as well as health professions regional campuses in Rockford and Peoria, with a combined total enrollment of 80,292 students (fall 2015). In addition, the University has continuing education centers in suburban and downstate Illinois, extension offices in many of the State s 102 counties, a major teaching hospital and multiple health clinics in Chicago, and research farms. Fall 2015 enrollment on the campus of the University of Illinois at Urbana-Champaign (the Urbana campus or UIUC ) totaled 45,842; on the campus of the University of Illinois at Chicago (the Chicago campus or UIC ) totaled 29,048, (626 are located at regional medical schools in Peoria, Rockford and Urbana); and on the campus of the University of Illinois at Springfield (the Springfield campus or UIS ) totaled 5,402. Illinois residents comprise 61.6 percent of the student body on the Urbana campus; 82.0 percent at UIC; and 67.3 percent at UIS. The University awarded more than 20,900 undergraduate, graduate, and professional degrees in Graduation rates are increasing and other achievement indicators are also improving at all three campuses. The University receives almost five applications for each freshman slot. There are 6,068 (full-time equivalent) faculty on the campuses, including members of the National Academy of Sciences, the American Academy of Arts and Sciences, and the National Academy of Engineering. The University s faculty and alumni have won 27 Nobel Prizes, including John Bardeen who won in 1956 and 1972, the only person to have won the physics prize twice. The Urbana campus had two faculty members win Nobel Prizes in the same year: Paul C. Lauterbur shared the 2003 Nobel Prize in medicine for seminal discoveries concerning the use of magnetic resonance to visualize different structures and Anthony J. Leggett shared the 2003 Nobel Prize in physics for pioneering contributions to the theory of superconductors and super fluids. The University has had 18 National Medal of Science recipients on its faculty, including entomologist May Berenbaum in 2014, Charles Slichter in 2007, who was recognized for establishing nuclear magnetic resonance as a powerful tool, and microbiologist Carl Woese in 2000, whose discovery of a third form of life was also recognized with a Crafoord Prize in The Urbana and Chicago campuses have had numerous MacArthur Fellows, individuals recognized for extraordinary originality and dedication in their creative pursuits and a marked capacity for self-direction. The three campuses of the University offer a diversity of programs that lead to baccalaureate, graduate, and professional degrees as well as certificates. The University offers professional programs through the colleges of dentistry, law, medicine, pharmacy, and veterinary medicine. The University is one of only four universities in the nation with a school of public health and five health sciences colleges: applied health sciences, dentistry, medicine, nursing, and pharmacy. Research. The University is recognized as a research intensive institution by the Carnegie Foundation. Total Federal support for Fiscal Year 2015 exceeds $725 million on the three campuses. The Urbana campus attracts more than $436 million in Federal support, with over 32 percent from the National Science Foundation. The Chicago campus has more than $278 million in federal grant and A-1

36 contract expenditures. Because of its strong medical and healthcare research programs, over 62 percent of federal support to the Chicago campus comes from the Department of Health and Human Services. The knowledge being generated and transmitted through University research has far-reaching implications for health, engineering, agriculture, and business, as well as for basic and applied research. Recent developments include the following: Urbana researchers in the College of Agricultural, Consumer and Environmental Sciences and the Illinois Water Resources Center collaborated with the Illinois EPA on the Illinois Nutrient Loss Reduction Strategy that outlines voluntary and mandatory practices to reduce the primary drivers of algal blooms that produce the dead zone in the Gulf of Mexico. UIC s Richard J. Daley Library is partnering with the Puerto Rican Arts Alliance to develop El Archivo, a digital archive that will gather, preserve, and exhibit photographs and oral histories documenting the Puerto Rican experience in the Midwest. UIS researchers in the Survey Research Office and the Department of Political Science released in 2015 the results of a national survey exploring attitudes towards transgender rights and supportive policies. Urbana researchers have developed a new zippered tube configuration that makes paper structures that are stiff enough to hold weight yet can fold flat for easy shipping and storage, a method that could be applied to other thin materials, such as plastic or metal, to transform structures from furniture to buildings to microscopic robots. UIC received a four-year, $11.4 million grant from the Ryan White HIV/AIDS Program to support the Midwest AIDS Training + Education Center, one of eight regional centers administered by the U.S. Department of Health and Human Services that is a clearinghouse of information for providers and trains physicians, nurses, dentists, social workers, and public health officers in HIV/AIDS care and prevention. A team of designers and developers debuted a 3D cow app that will help students in the College of Veterinary Medicine on the Urbana campus learn cow anatomy by using a phone or tablet. The app is part of a suite of models, mannequins, and simulations that augment learning and prepare students to work with live animals. UIC researchers have solved the long-standing conundrum of how the boundary between grains of graphene affects heat conductivity in thin films of the miracle substance, bringing developers a step closer to being able to engineer films at a scale useful for cooling microelectronic devices and hundreds of other nano-tech applications. The Metropolitan Chicago Accessibility Explorer, a free map-based tool developed by researchers in UIC s Urban Transportation Center, can be used to identify areas in an eight-county region of Cook and collar counties that need greater access to jobs, schools, grocery stores, hospitals, parks, libraries and fire stations. The Illinois Program for Research in the Humanities on the Urbana campus was awarded a $2 million grant from the Andrew W. Mellon Foundation to create research groups in three emerging areas in the humanities: bio-humanities, environmental humanities, and legal humanities. A UIS History and Digital Media class introduced students to ways in which historical research and public history can be carried out through digital media, including online databases, Twitter feeds, A-2

37 blogs, podcasts, and crowdsourcing projects. The class live tweeted the events of the day that President Lincoln was assassinated in The University has expanded its investment in research and development capabilities and emphasizes the transfer of ideas to the marketplace. The University has research parks located on the Urbana and Chicago campuses. Among the companies and centers housed in the Urbana research park are the Abbott Labs, ADM Sustainable Bioenergy Modeling Center, Anheuser-Busch InBev Bud Analytics Lab, Caterpillar Data Innovation Lab, Dow Chemical, John Deere, Jump Trading, Littelfuse, State Farm and Yahoo!. Located in the Illinois Medical District and constituting a collaborative effort among the University, Rush University Medical Center and Cook County Health Services, the Chicago Technology Park (CTP) on the UIC campus has a life-science focus. CTP has successfully graduated over 25 firms into the local economy. The average growth rate of the companies has been 200 percent in the past four years, and employment has increased from 80 to almost 300 over the past five years. New and refurbished facilities continue to enhance the resources of the University s three campuses. Recent enhancements: The Capital One Illinois Digital Campus Lab, which opened in October 2015 in the Urbana campus Research Park, focuses on research and experimentation in data science and data technologies as well as on infrastructure automation and use of the most modern programming frameworks and technologies. The Chez Family Foundation Center for Wounded Veterans in Higher Education, which opened in 2015 on the Urbana campus, provides residential and non-residential support services to empower student veterans with disabilities to realize their potential through a world-class education experience. UIC s Richard J. Daley Library celebrated the reopening of the Circle Reading Room in February 2015 on the 50 th anniversary of the campus opening. The renovated space is designed as quiet space for individual study. The Illinois Digital Ecologies and Learning Laboratory (IDEALL), located on the first floor of the Urbana campus Education building, lets researchers create technology-enhanced learning environments and study their impact on student learning. The lab is used by researchers in education as well as other disciplines across campus. Economic Development. As both an employer and a consumer, the University has an annual economic impact of almost $14 billion on the State of Illinois and supports nearly 177,000 jobs. According to a 2015 analysis using 2014 data, total payroll at the University is $3.3 billion and the institution spent $2.1 billion for expenses for facilities, professional services, and supplies. The total net impact that the University created from its day-to-day operations was $4.3 billion. The University makes an additional impact through its role as a creative force that generates new ideas. This role encompasses the four central missions of the University teaching, research, service, and economic development and engages it with the economic life of the State and nation. The University works with Illinois leaders in government and business on three primary research efforts within the University that will have a significant impact on the Illinois economy. They are: National Center for Supercomputing Applications and the engineering and computer science fields that support information technology Biotechnology in the agricultural and life sciences A-3

38 Biotechnology in the health sciences Existing strengths and major new capital investments in these areas by the State and private donors have positioned the University to leverage these strengths in the future. Another new initiative, supports innovation and technology commercialization on the UIC campus. By integrating the Office of Technology Management, IllinoisVENTURES, and EnterpriseWorks Chicago, the University expects to better serve the needs of UIC innovators by leveraging resources and increasing the impact of innovation. Public Service. The University has a longstanding commitment to the communities it serves. Through its outreach units and programs, University faculty and staff provide expertise and resources in business and management, education, natural resources, health, engineering, and the arts. The University organizes and runs hundreds of public services activities around the State, which are cataloged in the University s public service database ( Each campus has an Office of Continuing Education. Across the University, credit and noncredit courses, degree programs, online courses, conferences, professional development, summer session classes, and programs are offered ( In 2013, the Urbana-Champaign campus began offering courses in conjunction with Coursera, a social entrepreneurship company that works with universities around the globe to offer free, not-for-credit courses online. The University of Illinois Extension, a coordinating program offered through the Urbana campus which is celebrating its 100 year anniversary, provides practical, research-based information and programs to help individuals, families, farms, businesses, and communities throughout Illinois. Urbana-Champaign Campus (UIUC) The UIUC campus is the oldest and largest campus of the University, enrolling almost 46,000 students each year in a wide variety of undergraduate, graduate, and professional programs offered by the colleges of agricultural, consumer, and environmental sciences; applied health sciences; business; education; engineering; fine and applied arts; law; liberal arts and sciences; media; and veterinary medicine. UIUC also has schools of library and information sciences, social work, and labor and employment relations. The campus is internationally known for its leading-edge research programs, outstanding faculty, top-tier alumni, and its many contributions to the State, the United States, and the world. The UIUC campus conferred more than 12,400 degrees in Fiscal Year Doctoral degrees (professional practice) are offered in three fields, doctoral degrees (research/scholarship) in 91 fields, post-master s certificates in 8 fields, master s degrees in 135 fields, and bachelor s degrees in 134 fields. The UIUC campus is the home of more than 150 research laboratories, institutes, and experiment stations, including the Institute for Genomic Biology, Beckman Institute for Advanced Science and Technology, the Center for Nanoscale Science and Technology, the National Soybean Research Laboratory, and the National Center for Supercomputing Applications. UIUC has the largest public university academic library in the country with more than 26 departmental libraries located across the campus. The library acquired its 13-millionth volume the first illustrated Japanese printed book in The extensive literary manuscripts and archives of Gwendolyn E. Brooks ( ), Illinois Poet Laureate and the first African American writer to win the Pulitzer Prize were acquired in 2013 and are in the Rare Book & Manuscript Library. In 2014, UIUC was recognized by Insight Into Diversity magazine as a recipient of its 2014 Higher Education Excellence in Diversity (HEED) Award for the second year in a row. The HEED A-4

39 Award is the only national recognition honoring colleges and universities that exhibit outstanding efforts and success in the area of diversity and inclusion throughout their campuses. The Division of Disability Resources and Educational Services (DRES), the service unit of the UIUC College of Applied Health Sciences, was designated an official U.S. Paralympic Training Site in In its 2016 rankings, U.S. News & World Report s America s Best Colleges rated Illinois as the number 11 public university and the number 41 national university. According to the U.S. News & World Report s graduate and undergraduate rankings: the Graduate School of Library and Information Science s program is 1 st in the nation; the Department of Accountancy ranks 2 nd in undergraduate programs and 3 rd in graduate programs; the Department of Civil Engineering is 2 nd in undergraduate engineering science and engineering physics; the Department of Material Sciences and Engineering rank 2 nd in undergraduate programs; the College of Engineering is 5 th in undergraduate and 6 th in graduate programs; and the campus ranks 1st in the study of condensed matter physics and 2 nd in undergraduate biological/agricultural engineering. The UIUC campus hosts a total of six federally funded U.S. Department of Education Title VI Centers in international and area studies, each focusing on a different world region or issue. A seventh center received a grant from the U.S. Department of Education s Undergraduate International Studies and Foreign Language (UISFL) program, a grant with similar aims, that will enable the Center for South Asian and Middle Eastern Studies (CSAMES) to provide more South Asian language instruction, including in Sanskrit, Bengali, and Urdu. Over 600 faculty members from all colleges on campus are affiliated with one or more of these centers. The campus maintains over 200 active institutional linkages with international partners representing more than 40 different countries around the world. Faculty members at the UIUC campus have been named to the National Academy of Sciences, the National Academy of Engineering, and the American Academy of Arts and Sciences and are fellows of the American Association for the Advancement of Science. Two faculty members have been awarded Pulitzer Prizes and 17 alumni (and one graduate of the university high school) have received this honor. The UIUC campus was chartered in 1867 as one of the 37 original land grant universities. Today, the UIUC campus consists of 705 total buildings (316 main campus buildings), spread across 5,086 acres. The campus has more than 11,300 FTE faculty, academic and civil service staff. Near the campus are the University s 1,700-acre Willard Airport, the 1,800-acre Allerton Park and Conference Center, an antenna research site, a radio telescope, an optical telescope, a radio direction finding and meteor radar site and about 100 acres of timber reserves. University of Illinois Extension offers educational programs to residents of all of Illinois 102 counties coordinated by 27 unit offices and far beyond through its many online education sites. Students can use the 70,000 computer connections across the campus and access the network in the more than 360 on- and off-campus buildings that offer wireless connectivity. All classroom seats have wireless access. Cultural offerings include the Krannert Art Museum with more than 9,000 works of art, the Krannert Center for the Performing Arts that hosts more than 350 performances annually, the Spurlock Museum with 46,000 artifacts, and the Sousa Archives and Center for American Music with 75 percent of Sousa s original music manuscripts. Chicago Campus (UIC) The UIC campus of the University traces its origins to medical colleges that opened The Chicago-based colleges of pharmacy, dentistry, and physicians and surgeons officially affiliated with the University in and were incorporated into the University in A temporary, two-year branch campus of the University was established after World War II on Navy Pier and students completed their A-5

40 studies in Urbana. Demand in Chicago remained high and, in 1965, the Chicago Circle campus opened west of the Loop area, replacing the Navy Pier site. UIC was formed in 1982 by the consolidation of the Medical Center and the Chicago Circle campuses of the University. The campus received Carnegie Research 1 status in The UIC campus occupies approximately 250 acres in a mid-city location southwest of Chicago s downtown business district. Including the Rockford and Peoria campuses of UIC brings the total acreage to more than 300 acres. Today, the UIC campus has more than 15 million gross square feet in more than 130 buildings (including the regional campuses). Almost 100,000 square feet are devoted to research. Students have benefited from the construction and refurbishment of two student recreation and sports centers with a total of more than 240,000 gross square feet. Throughout the campus, 20 casual gathering spots furnished with couches and comfortable chairs have been established through Project Oasis. The IDEA Commons in the UIC Daley Library, which boasts a café, performance space, high-tech classrooms, and a student media lab, is popular with students and in 2012 received two Design Excellence citations of merit from the American Institute of Architects Chicago chapter. The Rockford regional campus opened a 58,000-square-foot addition in 2010 that provides space for new health science initiatives. The Peoria regional campus offers medical students training at the Jump Trading Simulation & Education Center, a virtual care delivery setting that replicates all areas of patient and family care. UIC employs more than 11,600 faculty, professional and support staff (FTE). The UIC campus has an enrollment of more than 29,000 (fall 2015), 626 of whom are located at regional medical schools in Peoria, Rockford and Urbana. Degrees are conferred upon more than 6,900 students annually at the Chicago campus. Degree programs are offered in 14 colleges and schools: applied health sciences; architecture and the arts; business administration; dentistry; education; engineering; the graduate college; liberal arts and sciences; medicine; nursing; pharmacy; social work; urban planning and public affairs; and public health. Doctor s degrees (professional practice) are offered in 5 fields, doctor s degrees (research/scholarship) in 59 fields, post-master s certificates in 12 fields, master s degrees in 90 fields, post-baccalaureate certificates in 3 fields, and bachelor s degrees in 88 fields. The University of Illinois at Chicago is the city s largest university and a research institution of growing national and international prominence. With the nation s largest college of medicine and colleges of dentistry, pharmacy, public health, nursing, social work, and applied health sciences, UIC is the state s principal educator of health professionals. UIC faculty, students, and staff work with neighborhood, foundation, and government partners on a wide range of projects to improve the quality of life in metropolitan areas around the world. The University of Illinois Hospital & Health Sciences System (UI Health) is comprised of a 495- bed hospital, an outpatient facility, specialty clinics, and eight UIC health science colleges including the College of Medicine. As a leader in patient care, research, and education, UI Health is committed to making positive and lasting differences in health science and in people s lives. The University of Illinois Hospital had over 116,000 inpatient days and over 471,500 clinic visits in Fiscal Year 2015 and another 90,800 clinic visits at the Mile Square Facility. The average daily census of patients decreased slightly to 316 in Fiscal Year The University of Illinois College of Medicine is the largest medical school in the United States, with a longstanding reputation for diversity. The Hispanic Center of Excellence, which strengthens the pipeline of medical school applicants and enriches the education of Latino medical students, celebrated its 20th anniversary in Other health science colleges include dentistry, applied health sciences, nursing and pharmacy, the school of public health, and the Jane Addams School of Social Work. The UIC campus received more than $278 million in Federal support in 2015, primarily from the National Institutes of Health, because of its strong medical and healthcare programs. UIC was ranked 13th on the 2014 list of the world s best young universities published by Times Higher Education of the A-6

41 U.K. In 2016, UIC is ranked 62 rd in the U.S. News & World Report s Best Colleges ranking of public universities. UIC s engagement with the Chicago metropolitan area is embodied in the Great Cities Commitment, an umbrella name for the hundreds of teaching, research, and service programs that connect the campus with the community. Industry partnerships, internships, business and entrepreneurial development, infrastructure improvement, and neighborhood revitalization are examples of how the campus partnership with Chicago benefits urban neighbors as well as faculty and students. Faculty members serve as heads of national associations and societies, are the recipients of national research, teaching, and achievement awards, and are members of international and national honor societies. John M. Davis, a UIC faculty member in psychiatry, and Frank Chaloupka, a professor of economics. are listed among the most highly cited researchers in their fields. Springfield Campus (UIS) The UIS campus is a small public university with innovative, high-quality liberal arts programs. UIS enrolls more than 5,400 students (fall 2015) in 26 bachelor s degree, 9 post-baccalaureate certificate, 20 master s degree and 2 post-master s certificate programs, as well as one doctoral program in public administration. The campus awarded 1,509 degrees in , many to online students whose first time on campus is for their graduation ceremony. UIS is a national leader in online education. The campus received the 2007 Excellence in Institution-Wide online teaching and learning programming award and the 2008 Gomory Award for quality online education from the Sloan Consortium, a group of institutions and organizations committed to quality online education. Two UIS staff members have been recipients of the Sloan Consortium s individual outstanding achievement award; both are also recognized as Sloan-C Fellows. Academic programs range from traditional disciplines such as English, history, psychology, and biology to more career-oriented concentrations such as business administration, management information systems, criminal justice, accountancy, and social work. UIS offers a four-year baccalaureate program for high-achieving students called the Capital Scholars Honors Program. The Springfield campus has been a four-year university since UIS has been ranked as the Best Online College in the country for by AffordableCollegesOnline.org (AC Online), a leading resource for online learning and college affordability information. Norris L. Brookens Library supports UIS with a collection of almost 700,000 volumes (including 128,000 e-books and e-journals and government documents). The library participates in a 70-library consortium with a shared catalog. The library offers more than 100 computers for oncampus students. Other campus resources include the Public Affairs Center with the 2,000-seat Sangamon Auditorium performing arts center, conference facilities, and the campus bookstore. The Health and Sciences Building houses the Visual Arts Gallery, science laboratories and a number of computer labs. Founders Hall, an environmentally friendly, 200-bed residence hall. The 62,000 gross-square-foot structure also houses the campus bookstore and a café. The Project being financed with the proceeds of the Series 2016B Bonds includes a new student union that will be a focal point of campus and student life. See PLAN OF FINANCE in the forepart of this Official Statement. Among the spaces in the union will be a student leadership center, lounges, diverse dining options, a multipurpose room suitable for large events, and office space. A large plaza for outdoor events will surround two sides of the building. A-7

42 The Center for State Policy and Leadership is instrumental in carrying out UIS s unique public affairs focus by identifying and addressing issues of state and national public policy and promoting governmental effectiveness and civic engagement. The center offers a graduate public service internship program and hosts the annual Lincoln Legacy lecture series. Among the eight units of the center are Illinois Issues magazine, WUIS/WIPA public radio, the Survey Research Office, and the Institute for Legal, Legislative, and Policy Studies. Accreditations and Memberships The University is fully accredited in all of its departments and divisions by the North Central Association of Colleges and Schools. In addition, University programs are individually accredited by more than 30 professional associations, including American Library Association, American Psychological Association, American Bar Association, American Veterinary Medical Association, and Association to Advance Collegiate Schools of Business. The University is a member of the American Council of Education and the Association of American Universities. Board of Trustees and University Officers The University is governed by the Board, which consists of 11 voting members, including one voting student member. The Governor of the State of Illinois serves as an ex-officio member, and there are two non-voting student members. The Board is responsible for the general supervision and management of the educational program and the lands, buildings, and other properties of the University and the control of the revenues and expenditures in support thereof. The following persons are members or officers of the Board of Trustees: Name Trustees of the Board Current Term Started Current Term Ending Bruce Rauner Governor of the State of Illinois Ex-Officio Ex-Officio Ramón Cepeda Appointed Board Member Ricardo Estrada Appointed Board Member Patrick J. Fitzgerald Appointed Board Member Karen Hasara Appointed Board Member Patricia Brown Holmes Appointed Board Member Timothy Koritz Appointed Board Member Edward L. McMillan Appointed Board Member James D. Montgomery, Sr. Appointed Board Member Jill Smart Appointed Board Member Jaylin D. McClinton Student Member, Urbana Jauwan Hall Student Member, Chicago Dominique Wilson Student Member, Springfield (1) (1) Voting member. Only one of the three student members is designated by the Governor as a voting member. A-8

43 Name Edward L. McMillan Susan Kies Walter K. Knorr Lester H. McKeever, Jr. Thomas R. Bearrows Officers of the Board Chairman of the Board Secretary of the Board Comptroller of the Board Treasurer of the Board University Counsel The principal individuals (executive officers) responsible for the operations of the University are: Timothy L. Killeen, Ph. D., President. Dr. Timothy L. Killeen became the University s 20 th president on January 15, Dr. Killeen came to the University from the State University of New York (SUNY), where he was serving as Vice Chancellor for Research and President of the Research Foundation. As such, Dr. Killeen has served as chief executive officer of the largest, most comprehensive university-connected research foundation in the nation. Dr. Killeen spent more than 20 years on the faculty and in various administrative roles at the University of Michigan, and served as assistant director for geosciences at the National Science Foundation before joining SUNY in Dr. Killeen earned his Ph.D. in atomic and molecular physics from University College London. A leading researcher in geophysics and space sciences, he was elected in 2007 to the National Academy of Engineering, which honors the world s most accomplished engineers. Dr. Killeen has authored more than 150 publications in peer-reviewed journals, along with 300 publications and papers. He has served on various White House committees and task forces, and has testified on multiple occasions to Congress and the executive branch. Michael D. Amiridis Ph.D., Chancellor at the Chicago Campus/Vice President. Dr. Michael D. Amiridis joined the University as chancellor of the Chicago campus and vice president of the University in March Dr. Amiridis comes to the University from the University of South Carolina, where he is Executive Vice President for Academic Affairs and Provost. Dr. Amiridis earned his undergraduate degree in chemical engineering from Aristotelian University of Thessaloniki in Greece, and his Ph. D. in chemical engineering from the University of Wisconsin at Madison. Susan J. Koch, Ph.D., Chancellor at the Springfield Campus/Vice President. Susan J. Koch has been vice president/chancellor of the Springfield campus since Dr. Koch was the provost and vice president for academic affairs at Northern Michigan University, where she had served since Before joining NMU, she was the associate provost and dean of the graduate college at the University of Northern Iowa. A South Dakota native, Dr. Koch earned her bachelor s degree at Dakota State University and her master s and doctorate degrees at the University of Northern Iowa, where she joined the faculty in Her academic field is health education. Barbara Wilson, Ph.D., Interim Chancellor at the Urbana-Champaign Campus/Vice President. Dr. Wilson has been a member of the Urbana faculty for 15 years, most recently as the Harry E. Preble Dean of the College of Liberal Arts and Sciences, a role she continues to hold. Her academic home is in the Department of Communication, where she is the Kathryn Lee Baynes Dallenbach Professor and served as department head. Prior to her 2014 appointment as dean, Dr. Wilson spent five years in the Office of the Provost where she served as vice provost for academic affairs and later, as the executive vice provost for faculty and academic affairs. Before joining the Illinois faculty, Dr. Wilson worked as a professor of communication at the University of California, Santa Barbara. During that time she was director of graduate studies for the Department of Communication. She earned her bachelor s degree in journalism and her master s degree and Ph.D. in communication arts from the University of Wisconsin- Madison. Thomas R. Bearrows, J.D., University Counsel. Thomas R. Bearrows joined the University in 1997 and is responsible for the management of the University s legal affairs at all three campuses. Prior A-9

44 to joining the University, he spent 13 years in private practice with a Chicago law firm. He received his undergraduate and law degrees from the University of Illinois and a master s degree in public policy from Harvard University. In addition to his work for the University, Mr. Bearrows serves as counsel for the Alumni Association and the University of Illinois Foundation. Jerry L. Bauman, PharmD, FCCP, FACC, Interim Vice President for Health Affairs. Dr. Bauman earned his bachelor s degree from the University and a PharmD degree from the University of Missouri at Kansas City prior to joining the University in Since joining the University, Dr. Bauman has worked as a teacher, researcher and senior administrator, serving as the dean of the College of Pharmacy since 2007 and the interim vice chancellor for academic affairs and provost in The vice president position is being eliminated at the system level of the University as of December 31, It is returning to the UIC campus as the vice chancellor for health affairs as of January 1, Dr. Robert Barish joins UIC on that date to oversee UIC s seven health science colleges and their respective regional campuses; the university s hospital and clinics; and multiple federally qualified health center sites to coordinate health science education and research, and health care delivery at Chicago s largest university. Thomas P. Hardy, M.S., Executive Director, University Relations. Thomas Hardy joined the University in 2002 as executive director of the Office for University Relations. Under Mr. Hardy s leadership, University Relations develops and executes strategic communications programs, provides public affairs and marketing assistance to university-wide offices, and coordinates activities and responses with the Public Affairs offices on the three campuses. A former journalist and public affairs consultant, Mr. Hardy served as press secretary to former Illinois governor Jim Edgar and worked for the Chicago Tribune for two decades. Immediately prior to joining university administration, Mr. Hardy worked in the Chicago office of Burson-Marsteller, a global public relations firm. He earned a B.A. from Ripon College and an M.S. from Northwestern University. Susan Kies, Ed.D., Secretary, Board of Trustees. Susan Kies has been secretary of the Board since early Dr. Kies received her undergraduate degree from the University of Illinois at Urbana- Champaign and later earned her master s and doctor of education degrees from Oklahoma State University. She joined the University in 1993 as coordinator of instructional development for the Department of Internal Medicine in Urbana-Champaign, and later was promoted to assistant dean of educational affairs. From 1999 to 2003, she served as associate dean for academic student and educational affairs at the College of Medicine in Urbana-Champaign. Since 2004 and prior to assuming the secretary s post, Dr. Kies served as associate dean of academic affairs/curriculum management at the college. Dr. Kies retires in June Dedra DeeDee Williams, Secretary Designate, Board of Trustees. Dedra DeeDee Williams has been appointed Secretary of the Board of Trustees effective July 1, Effective January 16, 2016, Williams is serving as Secretary Designate, providing a transition period with Dr. Kies. Since 2012, Williams has served the University as assistant vice president for academic affairs. Williams earned her master s degree in higher education administration from the Urbana-Champaign campus in She received her bachelor s degree in medical technology from Eastern Illinois University. She joined the University in 1989 and served for nearly 23 years within various roles at the College of Medicine at Urbana-Champaign, culminating as Associate Dean for Administration. Walter K. Knorr, B.S., Vice President/Chief Financial Officer and Comptroller. Walter K. Knorr was appointed vice president/chief financial officer (CFO) and comptroller in January The CFO serves as the senior University executive officer responsible for the operation of all financial functions for the University, including budget execution, financing, and execution of all capital projects. Together with the vice president for academic affairs and senior staff in planning and administration, the A-10

45 CFO is responsible for budget development. The CFO serves as treasurer of the University of Illinois Foundation and in an ex-officio capacity with the University of Illinois Alumni Association. The comptroller is an officer of the Board and approves all expenditures for which a general or specific appropriation has been made by the Board and signs contracts to which the University is a party. Prior to being appointed CFO, he served as comptroller of Cook County and as CFO and comptroller for the City of Chicago. He has also held senior positions at major financial firms and was a principal at a major audit firm. Mr. Knorr has a bachelor s degree from Wittenberg University and is a Certified Public Accountant. Christophe Pierre, Ph.D., Vice President for Academic Affairs. Dr. Pierre began serving as vice president for Academic Affairs in Dr. Pierre came to Illinois from McGill University in Montreal, where he served as dean of the Faculty of Engineering since Prior to joining McGill he held engineering faculty and administrative appointments at the University of Michigan for two decades. He holds a bachelor s degree in aerospace engineering from Ecole Centrale des Arts et Manufactures de Paris in France, a master s degree in mechanical and aerospace engineering from Princeton University, and a doctorate in mechanical engineering and materials science from Duke University. Lawrence B. Schook, Ph.D., Vice President for Research. Lawrence B. Schook has been vice president for Research since He is the Edward William and Jane Marr Gutgsell Professor in the Department of Animal Sciences on the Urbana campus. Dr. Schook also serves as the director of the Division of Biomedical Sciences responsible for directing strategic alliances related to health research and leading the Illinois Health Sciences Initiative that coordinates Urbana campus research and educational programs. He holds joint appointments in bioengineering, nutritional sciences, and in pathology, part of the University of Illinois College of Medicine, based at UIC, and has faculty appointments with the Institute for Genomic Biology and the Beckman Institute for Advanced Science and Technology. Dr. Schook graduated from Albion College in 1972 and received his PhD in 1978 from Wayne State School of Medicine. Financial Condition of the University The financial statements of the University are presented in accordance with U.S. generally accepted accounting principles. Statement of Net Position of the University The following table summarizes the University s assets, deferred outflows of resources, liabilities, and net position at June 30, 2015, 2014, and 2013, but excludes the University Related Organizations, which are discretely presented component units within the University s overall financial reporting entity: A-11

46 Assets and Deferred Outflows of Resources Statement of Net Position (in thousands) Fiscal Year Ended June 30, 2015 Fiscal Year Ended June 30, 2014 Fiscal Year Ended June 30, 2013 Current Assets: Cash and cash equivalents... $ 535,956 $ 536,691 $ 580,765 Cash and cash equivalents, restricted , , ,883 Investments , , ,935 Investments, restricted... 59,735 41,201 63,718 Securities lending collateral ,544 25,545 Accrued investment income... 5,870 5,787 4,991 Accounts receivable, net of allowance for uncollectible , , ,819 Receivable from State of Illinois, related to appropriations , , ,398 Notes receivable, net of allowance for uncollectible... 9,667 9,142 9,261 Accrued interest on notes receivable... 4,468 4,025 3,589 Inventories... 29,203 29,965 29,394 Prepaid expenses... 27,866 25,830 23,140 Due from related organizations... 4,753 2,948 1,838 Total Current Assets... $ 1,669,215 $ 1,588,466 $ 1,762,276 Noncurrent Assets: Cash and cash equivalents, restricted... $ 6,480 $ 21,871 $ 10,465 Investments... 1,418,554 1,397,395 1,029,365 Investments, restricted , , ,024 Notes receivable, net of allowance for uncollectible... 54,303 54,016 52,456 Prepaid expenses and deferred charges... Capital assets, net of accumulated depreciation... 3,643,175 3,555,450 3,498,132 Other assets... 4,095 4,726 4,960 Total Noncurrent Assets... $ 5,747,603 $ 5,794,614 $ 5,023,402 Deferred outflows of resources ,518 60,444 67,034 TOTAL ASSETS AND DEFERRED OUTFLOWS OF RESOURCES... $ 7,524,336 $ 7,443,524 $ 6,852,712 A-12

47 Liabilities and Net Position Fiscal Year Ended June 30, 2015 Fiscal Year Ended June 30, 2014 Fiscal Year Ended June 30, 2013 Current Liabilities: Accounts payable and accrued liabilities... $ 364,164 $ 323,016 $ 301,063 Accrued payroll , , ,379 Accrued compensated absences, current portion... 19,141 21,404 24,277 Accrued self-insurance, current portion... 53,766 58,567 60,751 Unearned revenue and student deposits , , ,997 Accrued interest payable... 17,284 18,930 15,665 Securities lending collateral ,544 25,545 Bonds payable, current portion... 60,097 49,256 48,340 Leaseholds payable and other obligations, current portion... 36,091 42,114 40,481 Assets held for others... 29,785 27,141 32,811 Total Current Liabilities... $ 927,581 $ 892,985 $ 857,309 Noncurrent Liabilities: Bonds payable... 1,317,116 1,357,048 $ 1,092,928 Leaseholds payable and other obligations , , ,035 Accrued compensated absences , , ,982 Accrued self-insurance , , ,571 Derivative instrument swap liability... 20,604 23,719 27,265 Total Noncurrent Liabilities... $ 2,034,794 $ 2,137,808 $ 1,889,781 Total Liabilities... $ 2,962,375 $ 3,030,793 $ 2,747,090 Net Position: Net investment in capital assets... $ 2,185,442 $ 2,091,311 $ 2,063,410 Restricted: Nonexpendable , ,960 89,597 Expendable , , ,187 Unrestricted... 1,617,441 1,531,759 1,316,428 Total Net Position... $ 4,561,961 $ 4,412,731 $ 4,105,622 TOTAL LIABILITIES AND NET POSITION... $ 7,524,336 $ 7,443,524 $ 6,852,712 A-13

48 Statement of Revenues, Expenses, and Changes in Net Position of the University The following table presents the University s statement of revenues, expenses, and changes in net position of the University for fiscal years ended June 30, 2015, 2014, and 2013, but excludes the University Related Organizations, which are discretely presented component units within the University s overall financial reporting entity: Statement of Revenues, Expenses, and Changes in Net Position (in thousands) Fiscal Year Ended June 30, 2015 Fiscal Year Ended June 30, 2014 Fiscal Year Ended June 30, 2013 OPERATING REVENUES Student tuition and fees, net... $ 1,095,905 $ 1,040,399 $ 989,502 Federal appropriations... 14,297 14,645 16,830 Federal grants and contracts , , ,225 State of Illinois grants and contracts... 83,798 86,306 92,836 Private and other governmental agency grants and contracts , , ,577 Educational activities , , ,394 Auxiliary enterprises, net , , ,953 Hospital and other medical activities, net , , ,858 Medical service plan , , ,668 Independent operations... 12,899 13,704 13,620 Interest and service charges on student loans... 2,145 2,137 2,168 TOTAL OPERATING REVENUES... $ 3,564,110 $ 3,479,572 $ 3,462,631 OPERATING EXPENSES Instruction... 1,300,281 1,259,862 1,249,732 Research , , ,625 Public service , , ,093 Academic support , , ,200 Student services , , ,960 Institutional support , , ,156 Operation and maintenance of plant , , ,287 Scholarships and fellowships , , ,658 Auxiliary enterprises , , ,648 Hospital and medical activities , , ,237 Independent operations... 12,182 12,570 12,422 Depreciation , , ,556 TOTAL OPERATING EXPENSES... $ 5,560,527 $ 5,287,635 $ 5,169,574 Operating Loss... $(1,996,417) $(1,808,063) $(1,706,943) A-14

49 Fiscal Year Ended June 30, 2015 Fiscal Year Ended June 30, 2014 Fiscal Year Ended June 30, 2013 NONOPERATING REVENUES (EXPENSES) State appropriations... $ 653,128 $ 668,372 $ 666,731 Transfer of state appropriations to the Illinois DHFS Hospital Services Fund... (43,988) (45,000) (45,000) Private gifts , , ,039 Grants, nonoperating , , ,544 On behalf payments for fringe benefits... 1,172,354 1,074,913 1,083,666 Net investment income... 69,462 37,458 68,005 Net (decrease) increase in the fair value of investments... (39,044) 61,467 5,312 Interest expense... (63,790) (70,575) (70,877) Loss on disposals/impairment of capital assets... (10,802) (7,093) (4,783) Other nonoperating revenues, net... 50,297 59,347 41,443 Net nonoperating revenues... $2,099,722 $2,090,009 $2,012,080 Income before other revenues , , ,137 Capital state appropriations... 8,942 10,865 26,123 Capital gifts and grants... 2,782 13, ,461 Private gifts for endowment purposes ,082 INCREASE IN NET POSITION... $ 115,030 $ 307,109 $ 463,803 NET POSITION, BEGINNING OF YEAR... 4,412,731 4,105,622 3,651,209 Cumulative effect of change in Accounting principle... 34,200 - (9,390) NET POSITION, BEGINNING OF YEAR, AS ADJUSTED... 4,446,931 4,105,622 3,641,819 NET POSITION, END OF YEAR... $ 4,561,961 $ 4,412,731 $ 4,105,622 A-15

50 Sources of Funds, Fiscal Year 2000 to Fiscal Year 2015 Hospital/MSP: (Medical Services Provider) AFMFA: Academic Facilities Maintenance Fund Assessment GRF: General Revenue Funds EAF: Education Assistance Funds Sources: Budget Summary for Operations, state payments on behalf, and RAMP. Waivers excluded. FY04 Payments on Behalf excludes one time proceeds from bond sale. GRF for FY02 FY15 exclude $24.9 million for Health Insurance, Payments on Behalf adjusted to include the $24.9 million 2016 Budget and State Appropriations As described more fully in "Auxiliary Facilities System State Income Tax Legislation" herein, as of April 6, 2016, the state budget for fiscal year 2016, an integral part to the University s own budgeting process, had not been enacted. As such, the University has not yet adopted a budget for fiscal year At its May 7, 2015 meeting the Board approved a preliminary operating budget for Fiscal Year 2016 which authorized interim expenditures at the levels reflected in the University's Fiscal Year 2015 operating budget, as adjusted for the fiscal year 2015 appropriation rescission and continued cost reduction. The preliminary operating budget also granted authority to the President of the University to make such changes and adjustments thereto as may be necessary from time to time. Illinois fiscal year 2016 budget reduction proposals for the University from the General Assembly and the Governor have ranged from 8.5% to 31.5%, respectively. The presidents of all public universities in Illinois have been communicating with the Governor and General Assembly emphasizing the importance of resolving the State s budget impasse, with a sustained and predictable level of support that ensures student achievement. Until there is a legislative resolution to the state budget impasse, the University continues to monitor cash flows and has deferred and reduced spending to meet current operational needs. The following table shows the components of the original Fiscal Year 2015 Budget: A-16

51 Fiscal Year 2015 Budget (in millions) Budget 2015 State Tax Appropriations (1)... $ Payments on Behalf (2)... 1,123.6 Tuition & Fees (3)... 1,098.0 Local Fund (4)... 2,751.4 Total Budget... $5,625.6 (1) Includes General fund, Fire Prevention fund, Hazardous Waste Research fund, Emergency Public Health fund, Used Tire Management fund, and General Professions Dedicated fund. Fiscal Year 2015 adjusted to reflect revised appropriation level. (2) Payments by the State for employee benefits that are not appropriated to the University but are paid on its behalf (such as pension funding) are included. (3) Excludes waivers for graduate assistants. (4) Includes: Institutional Cost Recovery, Royalties, Administrative Allowance, Sponsored Projects, Federal Appropriations, Private Gifts & Endowment Income, MSP, Auxiliary Enterprise Operations, Hospital, AFMFA, and Department Activities. Source: Compiled by the Office of Planning and Budgeting of the University. The University annually receives appropriations from the General Assembly of the State, which are to be applied to the educational and general expenditures of the University. In addition, payments are made by the State on behalf of the University for employee benefits and retirement contributions. The State funding appropriated to the University for the past five fiscal years is set forth below (excluding capital State appropriations): State Funding to the University Fiscal Year Ended June 30 (in millions) Current Operating Funds $ $ $ $ $ Payments on Behalf (1) , , ,172.4 Total $1,400.0 $1,527.8 $1,750.4 $1,743.3 $ (1) The Governmental Accounting Standards Board (GASB) Statement 24 (Accounting and Financial Reporting for Certain Grants and Other Financial Assistance) requires State universities to recognize in their financial statements and notes the amount the State of Illinois contributes to the State Universities Retirement System of Illinois (SURS) on behalf of the university employees. Source: Compiled by the Office of the Comptroller of the University. The last consecutive years of a capital appropriations occurred in FY 2003 and FY Within the last decade, there was a capital appropriation in FY2010. A total of ten projects were appropriated from that program at a total of $255 million. Several of those projects have been through the complete capital cycle and are now complete and occupied. $60 million dedicated for the Petascale Computer facility was released and the facility has been constructed and is currently in use. Construction funds in the amount of $14.8 million for the College of Medicine at Rockford were appropriated and that facility is complete and in service at this time. $57 million for Lincoln Hall project were also approved and that project saw completion with classes resuming in the building in the fall of The Electrical and Computer Engineering Building on the Urbana Champaign campus was completed and occupied in the A-17

52 fall of The building was funded with $44.5 million from the State and matched with private donations. While the above mentioned projects have been completed there are several other appropriations from that fiscal year that have not yet reach completion and are in various stages of delay due to the budget impasse. A handful of projects funded yet to be completed include the $32 million in repair and renovation funds that have been halted. The Integrated Bioprocessing Research Lab a $20 million project is delayed after structural steel had been completed and block work had started. The Public Safety Building at Springfield has received bids for construction but those have yet to be accepted. The College of Dentistry at Chicago was also delayed but under an intergovernmental agreement has been able to continue up to a capped amount of $2 million. Additionally, $64 million dollars in funding appropriated in FY for Advanced Chemical Sciences Building had been released with the project set to receive bids for construction when halted this past summer. There has not been a program with new appropriations since FY Outstanding Indebtedness and Leasehold Obligations The Board and the University had debt outstanding as of June 30, 2015, including: University of Illinois Auxiliary Facilities System Revenue Bonds, Series 1991, Series 1999A, Series 2001A, Series 2001B, Series 2003A, Series 2005A, Series 2006, Series 2008, Series 2009A, Series 2010A, Series 2011A, Series 2011B, Series 2011C, Series 2013A, Series 2014A, Series 2014B, Series 2014C and Series 2015A (together, the AFS Bonds ). The AFS Bonds were issued to fund improvements to the University s Auxiliary Facilities System. The AFS Bonds are secured by Net Revenues of the Auxiliary Facilities System and a lien on Student Tuition and Fees prior to the Health Facilities Bonds and the South Campus Bonds. As of June 30, 2015, there were $1,145,482,461 AFS Bonds outstanding (including capital appreciation bonds at their compound accreted value at June 30, 2015); University of Illinois Health Services Facilities System Revenue Bonds, Series 1997B, Series 2008 and Series 2013 (together the HSFS Bonds ). The HSFS Bonds were issued to fund improvements to the University s Health Services Facilities System. The HSFS Bonds are secured by the Net Revenues of the Health Services Facilities System, MSP Revenues, College of Medicine Student Tuition, subordinate to the AFS Bonds, and moneys in the Bond and Interest Sinking Fund Account. As of June 30, 2015 there were $118,850,000 HSFS Bonds outstanding; and University of Illinois UIC South Campus Development Project Revenue Bonds, Series 2003 were issued to finance the cost of acquiring, equipping, and improving certain facilities and improvements at the University s South Campus Development Area (the Area ) in Chicago, and the Variable Rate Demand UIC South Campus Development Project Revenue Refunding Bonds, Series 2008 (such Series 2003 and Series 2008 Bonds collectively, the South Campus Bonds ), were issued to advance refund outstanding UIC South Campus Development Project Revenue Bonds, Series 2006A, which were issued for such purposes. The South Campus Bonds are secured by (a) certain incremental taxes to be received from the City of Chicago with respect to the Area, (b) Student Tuition and Fees, subordinate to the Health Facilities Bonds and the AFS Bonds, and (c) funds on deposit in the UIC South Campus Development Bond and Interest Sinking Fund Account (into which the Board may, but is not required, to deposit funds). As of June 30, 2015, there were $47,470,000 South Campus Bonds outstanding. A-18

53 As of June 30, 2015, the University had a total principal amount of $1,311,802,461 of Bonds outstanding (including capital appreciation Bonds at their compound accreted value as of June 30, 2015, referred to as CABs ), which are summarized as follows: Outstanding Bond Principal Series Rates on Outstanding Debt Fiscal Year Maturity Dates Outstanding at June 30, 2015 (in thousands) Auxiliary Facilities System 1991 (CABs) 7.350% $ 77, A (CABs) 6.100%-6.330% , A 5.500% , B 5.500% , A 5.250%-5.500% , , A 5.500% , %-5.000% , Variable , A 4.000% , A 4.000%-5.250% , A 5.000%-5.500% , B (taxable) 2.896%-4.517% , C 2.000%-5.000% , A 3.000%-5.000% , A 5.000% , B (taxable) 0.862%-3.926% , C Variable , A 2.000%-5.000% ,340 Health Services Facilities System 1997B Variable , Variable (1) , %-6.250% ,785 UIC South Campus Development Project %-5.250% , Variable (2) ,170 Total Principal Payable $ 1,311,802 (1) (2) Synthetically fixed through the use of swaps with a fixed rate of 3.534%. Synthetically fixed through the use of swaps with an average fixed rate of 4.089%. Source: Compiled by the Office of Capital Financing of the University. Additionally, on February 24, 2016, the Board issued its Series 2016A Bonds in the principal amount of $129,025,000, the net proceeds of which are to be applied to the redemption of the Board s Series 2006 Bonds on April 1, The University leases facilities, equipment, and services under various lease-purchase agreements or has purchased facilities or services through installment purchase contracts. Such leases and installment purchase contracts which were outstanding as of June 30, 2015 are subject to cancellation in any year during which the Illinois General Assembly does not make an appropriation to the University for such purpose and/or there are no other budgeted legally available funds for payment thereof. The following table shows certificates of participation and other capital leases that were outstanding as of June 30, 2015: A-19

54 Outstanding Certificates of Participation, Other Capital Leases, and Other Obligations Certificates of Participation Interest Rates Fiscal Year Maturity Dates Outstanding at June 30, 2015 (in thousands) Series 2003 Utility Infrastructure % ,730 Series 2004 Utility Infrastructure... Variable (1) ,040 Series 2007A %-5.25% ,700 Series 2007B % ,645 Series 2009A %-5.25% ,190 Series 2014A %-5.00% ,055 Series 2014B % ,040 Series 2014C % ,160 Total Certificates of Participation... $ 271,560 Other Capital Leases... 33,414 Total Principal - Certificates of Participation and Other Capital Leases... $ 304,974 Other Obligations (2)... Total Certificates of Participation, Other Capital Leases, and Other Obligations... 43,565 $ 348,539 (1) (2) Synthetically fixed through the use of swaps with a fixed rate of 3.765%. Energy Services Agreement, installment payment contract. Source: Compiled by the Office of Capital Financing of the University. Future Capital Plans The Board has an ongoing capital improvement program consisting of new construction and renovation of existing facilities. Capital improvements are expected to be funded from a variety of sources including gifts, State capital funds, revenue and lease financing and University funds. The Board may also from time to time refund or refinance its outstanding bonds, lease purchase obligations, or installment purchase obligations to restructure its indebtedness or to take advantage of more favorable interest rate levels. In connection with the State budget impasse, the State has suspended funding for certain capital projects. The University has continued construction on some of the capital projects using internal resources. The University cannot predict the ultimate timing or resolution of State funding for University capital projects. Faculty The University has over 6,000 full-time equivalent faculty. Approximately half of all faculty are in the tenure system, including those that are either tenure or tenure-track. Of those in the tenure track, about three-fourths are fully tenured. Scores of faculty members have been elected to distinguished academic societies such as the American Academy of Arts and Sciences, the American Philosophical Society, the National Academy of Sciences, and the National Academy of Engineering. A-20

55 Student Enrollment On-campus enrollments for the past five academic years, based on fall semester registrations, are shown on the following table: Fall Term Undergraduate On-Campus Headcount Graduate/Professional (1)(2) UIUC UIC UIS Total UIUC UIC UIS Total UIUC UIC UIS Total Total ,878 17,511 1,972 52,361 11,209 11,121 1,475 23,805 44,087 28,632 3,447 76, ,578 16,707 1,990 51,275 11,024 10,856 1,372 23,252 43,602 27,563 3,362 74, ,293 31,901 16,660 16,671 2,089 2,110 51,042 50,682 11,101 10,980 10,929 10,841 1, ,108 22,813 43,394 42,881 27,589 27,512 3,167 3,102 74,150 73, ,932 16,911 2,217 51,060 10,669 10,669 1,093 22,431 42,601 27,580 3,310 73,491 Fall Term Undergraduate Full Time Equivalent (3) Graduate/Professional Total UIUC UIC UIS Total UIUC UIC UIS Total UIUC UIC UIS Total ,919 16,956 1,720 52,595 12,971 11,300 1,155 25,426 46,890 28,256 2,875 78, ,533 16,139 1,726 51,398 12,756 10,908 1,032 24,696 46,289 27,047 2,758 76, ,273 33,003 15,988 15,983 1,801 1,831 51,062 50,817 12,777 12,648 10,811 10, ,302 24,018 46,050 45,651 26,799 26,708 2,515 2,476 75,364 74, ,036 16,054 1,932 51,022 12,027 10, ,326 45,063 26,647 2,638 74,348 (1) (2) (3) The UIC Graduate/Professional enrollment excludes medical residents. Students enrolled in post-professional dentistry programs are classified as professional students. Based on the Illinois Board of Higher Education definition of full-time equivalency. Undergraduate student full-time equivalent is computed as the total number of fall semester credit hours divided by 15. Graduate and professional student full-time equivalent is computed as the total number of fall term semester hours divided by 12. Credit hours are included for students enrolled in coursework with zero credit at UIC and UIUC. Note: Does not include students who were enrolled off-campus, on-line, and in home study programs. Source: Compiled by the Office of Planning and Budgeting of the University. UIUC had its fifth consecutive year of record enrollment and a six-year graduation rate of 85%. Because of space limitations, the Urbana-Champaign campus annually denies admission to a number of fully qualified applicants. Demand for programs at the Urbana-Champaign campus, especially those in engineering, the sciences, and business, continues to be extremely high, so that even if the number of high school graduates in its applicant pool declines, the campus is likely to be able to retain its current level of enrollment without any significant loss of the extremely high quality of the student body. In addition, new efforts are planned to identify highly qualified applicants from outside the State to enhance the overall diversity of the undergraduate student body. The Chicago campus consistently has attracted students from a more diverse age group than the traditional 18 to 21-year old undergraduates. These older students are typically employed full or parttime, and represent a continuing source of new enrollment prospects. Enrollments in the programs for health professionals are limited by the capacity of the facilities available to serve such students. The demand for admission to the programs remains strong. UIC s six-year graduation rate improved almost 23% over the last 10 years and nearly doubled in the last 17 years. A-21

56 The on-campus student body of UIS is currently composed of 57% undergraduate students and the rest graduate students, a large proportion of whom are employed adults who attend part-time and appreciate the abundant class offerings in the evening. Most UIS students come from central Illinois, but a number of degree programs attract students from other regions of Illinois, other states, and other nations. UIS emphasizes excellence in teaching and active learning. Faculty are teacher-scholars who maintain strong connections to state government, business, and not-for-profit organizations, providing students with extraordinary internship opportunities. UIS is also a national leader in online education, offering select high-quality online degrees, particularly in the liberal arts. Student Admissions The tables below set forth the total number of freshman applications received and admitted, and the number of freshmen enrolled for the academic years indicated for UIUC, UIC, and UIS: Fall Term Applications Received (1) Applicants Admitted UIUC Percent Admitted Admitted Enrollment Percent of Admitted Enrolled ,277 22, , ,822 21, , ,203 31,454 20,716 19, ,329 6, ,751 19, , Fall Term Applications Received (1) Applicants Admitted UIC Percent Admitted Admitted Enrollment Percent of Admitted Enrolled ,664 12, , ,560 11, , ,603 14,380 10,427 9, ,104 3, ,564 9, , Fall Term Applications Received (1) Applicants Admitted UIS Percent Admitted Admitted Enrollment Percent of Admitted Enrolled , , ,469 1, , (1) Number of applicants, not applications. Source: Compiled by the Office of Planning and Budgeting of the University. A-22

57 Tuition and Fees The University operates its programs on a two-semester and summer session basis. Fees, tuition, and other educational costs of attending the University vary by campus, program and resident status. General undergraduate tuition rates for the academic year range from $17,820 to $28,026 for non-residents and $8,670 to $12,036 for State residents depending primarily on the campus attended and the year of admittance. General graduate tuition rates range from $7,896 to $12,060 for State residents and $16,200 to $26,058 for non-residents depending on the campus attended. Pursuant to the University of Illinois Act, subject to certain conditions, for an undergraduate student who is an Illinois resident and who first enrolls at the University after the academic year, the tuition charged for four continuous academic years following initial enrollment shall not exceed the amount that the student was charged at the time the student enrolled in the University. In January 2016, the Board approved a 0% increase for fall 2016 in the guaranteed tuition level for entering resident full-time general undergraduate students at all three campuses. The Board also approved a 1.7% increase in the tuition level for non- resident full-time general undergraduate students at Urbana. The Board also approved selective increases between.4% and 6.1% in graduate program differentials and for certain professional programs. In Chicago, international students will be assessed a new undergraduate tuition rate and a reduced Grant Rate will be offered for select non-resident domestic students. Room and board rates increased $280 (2.7%), $232 (2.2%) and $50 (.5%) at Urbana, Chicago and Springfield, respectively. As of April 6, 2016, the State has not appropriated funding for the Monetary Assistance Program ( MAP ) for fiscal year On March 2, 2016, the Governor vetoed SB2043 which would have appropriated, in part, funding for MAP. MAP is administered through the Illinois Student Assistance Commission ( ISAC ) and MAP awards have been granted by ISAC for fiscal year In fiscal year 2015, the University received approximately $60 million from the MAP appropriation for awards granted to University students. The University cannot predict whether or when there will be a MAP appropriation for fiscal year 2016 or what amount may be appropriated. Without a MAP appropriation, financial responsibility for the MAP awards is to be determined. Professional schools of law, medicine, veterinary medicine, dentistry, pharmacy, and physical therapy have separate tuition rate schedules, depending on the program of study. A-23

58 State and Tuition, Fiscal Year 2000 to Fiscal Year 2016 Sources: Budget Summary for Operations. State includes GRF and all other state fund appropriations. State for FY2 FY16 excludes $24.9 million for health Insurance. State Surveys are included in State beginning in FY09. Financial Aid to Students Students at the University receive financial assistance in a variety of ways: State and Federal Scholarships, Grants, Fellowships, and Traineeships. These come primarily through the Illinois Student Assistance Commission and Federal Pell Grant program. However, all are supplemented by a significant amount of private funds administered by the University. Loans. Most loans are subsidized with respect to the timing and/or amount of the effective interest rate by the federal government, although many are administered through the Illinois Guaranteed Loan Program. Tuition and Fee Waivers. Some are need-based, but the dollar value of most are related to the employment of graduate teaching and research assistants, who not only receive a stipend for their employment but also receive a waiver of tuition and fees. University-provided Employment. The University employs both graduate assistants for whom the stipend provides a major source of income, and undergraduates, who depend on the job as a significant component of their total college budget. A-24

59 The below sources of financial aid totaled more than $1.4 billion in Fiscal Year 2015, an average of more than $16,300 per student. The average does not reflect the fact that much of the aid was directed at needy undergraduates and at graduate assistants. The financial aid to University of Illinois students in Fiscal Year 2015 is shown below: Number of Awards Amount (in thousands) Scholarships, Grants, Fellowships, and Traineeships Federal... 23,157 $ 96,475.9 State... 15,651 65,325.8 Private and Outside Agencies... 4,501 21,524.3 University... 40, ,492.7 Loans Federal, State, or Other Administered... 36, ,149.3 University Administered... 1,055 2,365.7 Tuition and Fee Waivers (1)... 21, ,300.4 Employment Undergraduates... 14,421 32,054.1 Graduates... 13, ,783.6 Total ,778 $ 1,409,471.7 (1) Includes staff waivers. Source: Compiled by the Office of Planning and Budgeting of the University. A-25

60 Research Funding In the Fiscal Year ended June 30, 2015, the University earned approximately $875.9 million in research funding from federal, state, and private sources. The University is consistently among the top universities in the nation in attracting federal contract dollars. Federal Sources The table that follows itemizes research funding by source for the past five fiscal years: Grants and Contracts by Source Fiscal Year Ended June 30 (in thousands) Department of Health and Human Services... $ 218,512 $ 240,774 $ 258,348 $ 276,754 $ 286,263 National Science Foundation , , , , ,775 Department of Energy... 51,170 52,857 59,835 58,201 56,023 Department of Defense... 49,552 51,611 59,528 65,460 62,865 Department of Agriculture... 13,958 12,948 14,308 17,213 16,185 Department of Education... 99, , , , ,571 Other Federal Agencies... 55,728 52,121 54,127 48,690 44,036 Total Federal Sources (1) , , , , ,718 State of Illinois... 83,798 86,306 92,836 81,042 83,625 Private and Non-Profit Sources (2) , , , , ,139 Total Non-Federal Sources , , , , ,764 Total All Sources (3)... $ 875,927 $ 896,256 $ 1,064,943 $ 949,917 $ 938,482 (1) Federal Sources are primarily research funds. Does not include federal agriculture appropriations. Does not include federal funds passed through other non-federal agencies. (2) Including private gifts. (3) Total All Sources does not include pass - through social service grants. Source: Compiled by the Office of Planning and Budgeting of the University. Voluntary Support The University of Illinois Foundation (the Foundation ) is an independent nonprofit corporation that raises and receives private gifts, administers funds, and manages assets to enhance the quality of the University and its programs. The Foundation is a University Related Organization, which is a discretely presented component unit within the University s overall financial reporting entity. Gifts to the University s three campuses and the Foundation totaled $251.5 million for Fiscal Year During the five years ending June 30, 2015, the University of Illinois Foundation received more than $1.17 billion in gift income. University and Foundation Investments The University s investments provide funds to support University academic programs and student related activities. Endowment and Similar Funds consist of both restricted and unrestricted funds, which are accounted for and invested as endowment. Income from endowments is distributed to unrestricted and restricted fund groups according to the designation of the donor. Income from other invested funds is distributed at the University s discretion. The Foundation held approximately $1,777 million in cash and investments as of June 30, 2015, which is included in Endowment and Similar Funds in the table below. A-26

61 The fair value of the University s and the Foundation s investments at the end of each of the past five fiscal years are summarized as follows: University and Foundation Cash and Investments Fiscal Year Ended June 30 (in thousands) Current Funds... $1,571,517 $1,470,276 $1,303,869 $ 1,200,797 $ 931,678 Fiduciary Funds Endowment & Similar Funds... 2,084,259 2,057,564 1,802,645 1,624,148 1,602,281 Annuity, Life Income, and Other Funds , ,385 98,703 56,862 49,857 Plant Funds... 1,077,592 1,199, , , ,122 Total Cash and Investments... $4,833,659 $4,827,740 $4,038,746 $3,554,425 $3,060,938 Source: Compiled by the Office of the Comptroller of the University. Physical Plant The following table sets forth, for each of the five previous fiscal years, the total investment in Plant of the University as reported or compiled for such years. For total investment in capital assets net of accumulated depreciation, see APPENDIX B, Annual Financial Report for the University of Illinois, footnote (4): Capital Assets. Employee Relations Fiscal Year Ended June 30 Investment in Plant (Original Cost in thousands) 2015 $7,221, ,958, ,711, ,425, ,186,124 Employees of the University are generally covered, pursuant to statute, by the State Universities Civil Service System, a separate entity of the State under the control of the University Civil Service Merit Board. The statute exempts faculty, principal administrative employees, and student workers from its coverage. Effective January 1, 1984, all employees of the University (including faculty) gained the right to bargain collectively with the University by virtue of the passage of the Illinois Educational Labor Relations Act. This act provides for the right to bargain on conditions of employment, the right to strike and the right to negotiate for a service fee for the elected employee representative group. Of the University s approximately 24,974 full-time faculty, administrative, and support staff employees for Fiscal Year 2015, approximately 37% (excludes graduate assistants and UIC faculty) are represented by 45 separate collective bargaining units. The University believes its employee relations are satisfactory. A-27

62 Retirement Benefits Retirement benefits are provided for substantially all full-time employees under a separately created retirement plan administered by the State Universities Retirement System of Illinois ( SURS ). The State of Illinois makes substantially all of the statutorily prescribed contributions on behalf of the participating employers, including the University. The liability of SURS relating to University participants is not a liability of the Board under current State law. Including the University s share, the SURS total preliminary, estimated unfunded accrued liability, at market values, was $22.1 billion at June 30, 2015, according to the Commission on Government Forecasting and Accountability. Governmental accounting standards require that the University s share of the SURS unfunded liability be disclosed in the University s financial statements beginning with Fiscal Year For more detailed information, see Note 7 to the ANNUAL FINANCIAL REPORT FOR THE UNIVERSITY OF ILLINOIS AUXILIARY FACILITIES SYSTEM FOR THE YEAR ENDED JUNE 30, 2015 in APPENDIX B hereto. Pension Reform Status On December 3, 2013 the Illinois General Assembly adopted amended Senate Bill 1 which was subsequently signed by the Governor on December 5, 2013 as Public Act (the 2013 Pension Reform Act ). The 2013 Pension Reform Act, which was declared unconstitutional by the Illinois Supreme Court in May 2015, sought to achieve full funding of the State s retirement systems, including SURS, partially through increased payments from the State into the retirement systems and partially through a less generous benefits package for current and future retirees. While the 2013 Pension Reform Act never became effective, no assurances can be given that additional pension reform activities will not be undertaken by the State or whether, if undertaken, such activities will (i) succeed at correcting the severe underfunding of the State Pensions, including SURS; (ii) require the University to assume part or all of the liability for funding its employees pensions; or (iii) impact the University s ability to recruit and retain faculty and staff. In the event that any future reform creates employee recruitment or retention concerns, the University may, in its discretion, adopt or implement supplemental programs or pursue other options. Governor s Executive Orders On January 12, 2015, Illinois Governor Bruce Rauner issued Executive Order 15-08, applicable to State agencies including the University, freezing discretionary spending and requiring the approval of the Governor s Office of Management and Budget for certain State funded contracts and expenditures. Executive Order also requires State agencies to take steps designed to eliminate non-essential spending. Subsequently, Executive Order was issued to ensure ethical and responsive government designed to tighten ethical requirements for State employees. The University has complied with these Executive Orders. A-28

63 APPENDIX B ANNUAL FINANCIAL REPORT FOR THE UNIVERSITY OF ILLINOIS AUXILIARY FACILITIES SYSTEM FOR THE YEAR ENDED JUNE 30, 2015

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65 UNIVERSITY OF ILLINOIS AUXILIARY FACILITIES SYSTEM Annual Financial Report June 30, 2015 (With Independent Auditors Report Thereon)

66 THE BOARD OF TRUSTEES EX OFFICIO MEMBER The Governor of Illinois Honorable Bruce Rauner... Springfield MEMBERS Ramón Cepeda... Darien Ricardo Estrada... Chicago Patrick J. Fitzgerald... Chicago Karen Hasara... Springfield Patricia Brown Holmes... Chicago Timothy N. Koritz... Roscoe Edward L. McMillan... Greenville James D. Montgomery, Sr.... Chicago Jill B. Smart... Downers Grove STUDENT TRUSTEES Lucas Frye... Urbana Champaign Campus Danielle M. Leibowitz... Chicago Campus Hannah Cave... Springfield Campus BOARD OFFICERS Edward L. McMillan... Chair Lester H. McKeever, Jr.... Treasurer Walter K. Knorr... Vice President/Chief Financial Officer and Comptroller Thomas R. Bearrows... University Counsel Susan M. Kies... Secretary ADMINISTRATIVE OFFICERS University Administration Robert A. Easter... President (through May 17, 2015) Thomas L. Killeen... President (effective May 18, 2015) Walter K. Knorr... Vice President/Chief Financial Officer and Comptroller Urbana Champaign Campus Phyllis M. Wise... Chancellor and Vice President C. Renée Romano... Vice Chancellor for Student Affairs Edward Slazinik... Associate Vice Chancellor for Student Affairs and Director of Auxiliary Services Ginger L. Velazquez... Interim Assistant Vice President for Business and Finance Chicago Campus Paula Allen-Meares... Chancellor and Vice President (through January 15, 2015) Eric A. Gislason... Interim Chancellor and Vice President (January 16, 2015 March 15, 2015) Michael Amiridis... Chancellor and Vice President (effective March 16, 2015) Mark Donovan... Vice Chancellor for Administrative Services Barbara Henley... Vice Chancellor for Student Affairs Michael M. Landek... Executive Associate Vice Chancellor Heather J. Haberaecker... Executive Assistant Vice President for Business and Finance (through February 28, 2015) Vanessa Peoples... Interim Assistant Vice President for Business and Finance (effective March 1, 2015) Springfield Campus Susan J. Koch... Chancellor and Vice President Timothy L. Barnett... Vice Chancellor for Student Affairs (through August 5, 2014) Clarice Ford... Interim Vice Chancellor for Student Affairs (effective November 14, 2014) Michael E. Bloechle... Director of Business Services

67 UNIVERSITY OF ILLINOIS AUXILIARY FACILITIES SYSTEM Annual Financial Report June 30, 2015 Table of Contents Page Letter of Transmittal 1 Independent Auditors Report 2 Financial Statements: Statement of Net Position 4 Statement of Revenues, Expenses and Changes in Net Position 5 Statement of Cash Flows 6 Notes to Financial Statements 8 Required Supplementary Information 25

68 From the Vice President/Chief Financial Officer, Comptroller UNIVERSITY OF ILLINOIS Urbana-Champaign Chicago Springfield Office of Vice President/Chief Financial Officer, Comptroller 349 Henry Administration Building 506 South Wright Street Urbana, IL December 23, 2015 Holders of University of Illinois Auxiliary Facilities System Revenue Bonds and The Board of Trustees of the University of Illinois: I am pleased to transmit the Annual Financial Report of the University of Illinois Auxiliary Facilities System for the fiscal year ended June 30, This report supplements the financial statements of the University of Illinois presented in the Annual Financial Report. The 2015 financial statements and accompanying notes appearing on pages 4 through 25 have been audited by CliftonLarsonAllen LLP, Independent Certified Public Accountants, as special assistants to the Auditor General of the State of Illinois, whose report on the financial statements appears on pages 2 and 3. CliftonLarsonAllen LLP will also prepare a report for the year ended June 30, 2015, containing special data requested by the Auditor General and another report covering their audit of the compliance of the University with applicable state and federal laws and regulations for the year ended June 30, These reports, which include some data related to the Auxiliary Facilities System, are not contained herein and are primarily for the use of the Auditor General and state and federal agencies. Very truly yours, Walter K. Knorr, Vice President/Chief Financial Officer, Comptroller 1

69 CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS REPORT Honorable William G. Holland Auditor General, State of Illinois and Board of Trustees University of Illinois Report on the Financial Statements As Special Assistant Auditors for the Auditor General, we have audited the accompanying financial statements of the business-type activities of the University of Illinois Auxiliary Facilities System ( the System ) as of and for the year ended June 30, 2015, and the related notes to the financial statements, which collectively comprise the System 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. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and 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 entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 2

70 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities for the System as of June 30, 2015, and the changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information The June 30, 2014 financial statements of the System were audited by other auditors whose report dated December 19, 2014 expressed an unmodified opinion. Based on the report from other auditors, the summarized comparative information presented herein as of and for the year ended June 30, 2014, is consistent, in all material respects, with the audited financial statements from which it has been derived. Emphasis of Matter During fiscal year ended June 30, 2015, the System adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions, and the related GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date an amendment of GASB Statement No. 68. As a result of the implementation of these standards, the University reported a restatement for the change in accounting principle. See Note 1. Our auditors opinion was not modified with respect to the restatement As discussed in Note 1A, the financial statements of the System are intended to present the financial position, the changes in financial position, and cash flows of only that portion of the business-type activities of University of Illinois that is attributable to the transactions of the System. They do not purport to, and do not, present fairly the financial position of University of Illinois as of June 30, 2015 and 2014, and its changes in financial position and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Management has omitted the Management s Discussion and Analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of the financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report under separate cover dated December 23, 2015, on our consideration of the System 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 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 System s internal control over financial reporting and compliance. CliftonLarsonAllen LLP Peoria, Illinois December 23,

71 UNIVERSITY OF ILLINOIS AUXILIARY FACILITIES SYSTEM Statement of Net Position June 30, 2015 (with comparative totals for June 30, 2014) Assets and Deferred Outflow of Resources Current assets: Claim on cash and on pooled investments $ 174,388, ,281,598 Cash and cash equivalents 11,083,464 10,527,002 Investments 1,501, ,763 Investments, restricted 1,324,151 Accrued investment income 979, ,697 Accounts receivable, net of allowance for uncollectible of $4,234,089 in ,299,374 7,080,346 Inventories 6,854,470 7,480,327 Prepaid expenses 548, ,122 Noncurrent assets: Total current assets 202,656, ,657,006 Cash and cash equivalents 16,098,521 24,814,763 Investments 4,067,139 Investments, restricted 142,717, ,633,241 Capital assets: Land 19,238,069 19,238,069 Buildings, net of accumulated depreciation 893,101, ,031,036 Improvements, net of accumulated depreciation 16,417,407 17,750,690 Equipment, net of accumulated depreciation 5,847,835 5,248,072 Construction in progress 141,379,873 47,948,745 Subtotal for capital assets 1,075,984,902 1,009,216,612 Total noncurrent assets 1,238,867,812 1,257,664,616 Deferred outflow of resources 37,257,159 27,652,855 Total assets and deferred outflow of resources $ 1,478,781,221 1,471,974,477 Liabilities and Net Position Current liabilities: Accounts payable $ 36,356,890 30,099,195 Accrued liabilities 4,563,762 4,543,525 Accrued compensated absences 545, ,271 Accrued interest 11,881,792 12,105,260 Unearned revenues 15,719,286 8,294,136 Notes payable to the University 2,418,548 2,654,013 Bonds and leaseholds payable 51,493,455 40,979,983 Total current liabilities 122,979,552 99,327,383 Noncurrent liabilities: Accrued compensated absences 5,765,390 5,433,898 Notes payable to the University 7,907,431 8,554,015 Bonds and leaseholds payable 1,158,932,274 1,190,187,880 Total noncurrent liabilities 1,172,605,095 1,204,175,793 Total liabilities 1,295,584,647 1,303,503,176 Net investment in capital assets 21,203,093 10,952,416 Restricted: Expendable for debt service 24,664,207 25,492,766 Unrestricted 137,329, ,026,119 Total net position 183,196, ,471,301 Total liabilities and net position $ 1,478,781,221 1,471,974,477 See accompanying notes to financial statements. 4

72 UNIVERSITY OF ILLINOIS AUXILIARY FACILITIES SYSTEM Statement of Revenues, Expenses and Changes in Net Position Year ended June 30, 2015 (with comparative totals for the year ended June 30, 2014) Operating revenues: Room and board, net $ 141,495, ,170,736 Merchandise and retail food sales 35,726,340 34,230,416 Student service fees 95,824,279 92,721,641 Public events and recreation fees 5,567,387 6,943,194 Parking income 26,665,333 25,971,705 Rental and lease income 25,184,158 22,302,271 Vending income 1,969,727 2,234,529 Other operating revenue 12,656,613 10,960,814 Total operating revenues 345,089, ,535,306 Operating expenses: Salaries and wages 91,911,015 90,708,702 Merchandise and food for resale 36,592,720 36,096,483 Repair and maintenance 5,795,556 5,539,503 Professional and other contractual services 34,672,162 39,137,663 Utilities 30,368,219 30,207,763 Supplies 10,960,625 12,867,363 Noncapitalized renovations and equipment 20,007,082 11,900,464 Administrative services 15,670,039 16,191,579 Other operating expense 4,956,647 4,864,518 Depreciation 33,516,002 32,580,892 On-behalf payments for fringe benefits 48,304,812 45,590,951 Total operating expenses 332,754, ,685,881 Operating income 12,334,904 8,849,425 Nonoperating revenues (expenses): On-behalf payments for fringe benefits 48,304,812 45,590,951 Investment income, net of related expenses 1,830,781 3,691,656 Interest on capital asset-related debt (46,936,267) (47,989,397) Loss on disposal of capital assets (183,189) (89,135) Other nonoperating expenses, net (625,768) (1,371,312) Net nonoperating revenues (expenses) 2,390,369 (167,237) Increase in net position 14,725,273 8,682,188 Net position, beginning of year 168,471, ,789,113 Net position, end of year $ 183,196, ,471,301 See accompanying notes to financial statements. 5

73 6 (Continued)

74 7

75 (1) Summary of Significant Accounting Policies UNIVERSITY OF ILLINOIS AUXILIARY FACILITIES SYSTEM Notes to Financial Statements June 30, 2015 Organizational Background and Basis of Presentation The University of Illinois (University) Auxiliary Facilities System (System) was created in June 1978 pursuant to the University of Illinois Revenue Bond Financing Act for Auxiliary Facilities, 110 ILCS 405/1, which authorized the University s Board of Trustees (Board) to combine and consolidate facilities into a single system. These financial statements have been prepared to satisfy the requirements of the System s Revenue Bonds master indenture. The financial balances and activities of the System, included in these financial statements, are included in the University s financial statements. The financial statements of the System are prepared in accordance with U.S. generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB). The System is not a separate legal entity and has not presented management s discussion and analysis. System financial activity mainly comprises housing, parking and student activities, which span across the three campuses of the University. The operating revenues of the System largely consist of student service fees, various user fees, room and board charges, sales from merchandise/vending and rental of certain facilities. Facilities primarily consist of buildings and other structures that have been constructed or remodeled with funding provided from issuance of related revenue bonds. System facilities include Memorial Stadium, the State Farm Center, student unions, housing residence halls, parking and other structures. Certain System revenues are derived from the rental of Memorial Stadium and the State Farm Center, directly from the University s Division of Intercollegiate Athletics, and are reflected as rental income within the System s financial statements. Such rental payments are determined based on the amount of debt service requirements and/or certain operation and maintenance considerations that apply to the facilities. Ticket revenues received by the University for events occurring at these facilities are not included within the System s reporting structure, in accordance with the related bond indentures. Housing revenues consist of charges for room, board and meal plans. Student activities buildings consist of student unions, recreation and athletic facilities and student service buildings that generate lease and rental income, student fees and various other types of revenue. Operating expenses of the System include all necessary current maintenance charges, expenses of reasonable upkeep and repairs, allocations of a share of certain charges for insurance and other expenses incidental to the operations of all of the various activities and facilities of the System in accordance with the bond indentures. The financial statements include certain prior year comparative information, which has been derived from the System s 2014 financial statements. Such information does not include all of the information required to constitute a presentation in conformity with U.S. generally accepted accounting principles. Accordingly, such information should be read in conjunction with the System s financial statements for the year ended June 30, (Continued)

76 Significant Accounting Policies (a) Financial Statement Presentation and Basis of Accounting The System prepared its financial statements as a Business Type Activity, as defined by GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities, using the economic resources measurement focus and the accrual basis of accounting. Business Type Activities are those financed in whole or in part by fees charged to external parties for goods and services. Under the accrual basis, revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Advances are classified as unearned revenue. (b) (c) (d) Cash and Cash Equivalents The Statement of Cash Flows details the change in the cash and cash equivalents balance for the fiscal year. Cash and all liquid investments with original maturities of 90 days or less are defined as cash and cash equivalents. Investments Investments are recorded at fair value. Fair value is determined by quoted market prices for most of the System s investments. Fair value for investments in certain mutual funds is determined using net asset values as provided by external investment managers. Inventories Inventories are stated at the lower of cost or market with cost determined as follows: Books and other merchandise for resale principally the retail inventory method Food average cost method Other inventories principally the first-in, first-out method (e) Capital Assets Capital assets are recorded at cost or, if donated, at fair value at the date of a gift. Depreciation of the capital assets is calculated on a straight-line basis over the estimated useful lives (see below) of the respective assets. The System s policy requires the capitalization of land and collection purchases regardless of cost, equipment over $5,000, software, easements, buildings and improvements over $100,000 and infrastructure over $1,000,000. The System does not capitalize collections of works of art or historical treasures held for public exhibition, education or research in furtherance of public service rather than capital gain, unless they were previously capitalized as of June 30, Proceeds from the sale, exchange, or other disposal of any item belonging to a collection of works of art or historical treasures must be applied to the acquisition of additional items for the same collection. Estimated useful lives for capital assets are as follows: Useful life (in years) Useful life (in years) Buildings: Improvements other than buildings: Shell 50 Site improvements 20 Service systems 25 Infrastructure 25 Fixed equipment 15 Moveable equipment: Remodeling 25 Equipment (Continued)

77 (f) Deferred Outflow of Resources Losses on refundings for the System s bonds are reported as deferred outflow of resources on the accompanying Statement of Net Position. The losses on refundings are amortized over the life of the debt using the straight-line method. Deferred Outflow of Resources Beginning Ending balance Additions Deductions balance Unamortized deferred loss on refunding $ 27,652,855 13,593,122 (3,988,818) $ 37,257,159 (g) Compensated Absences Accrued compensated absences for System personnel are charged to operations using the vested method based on earned but unused vacation and sick leave days including the System s share of Social Security and Medicare taxes. Changes in Compensated Absences Balance Balance, beginning of year $ 6,085,169 Additions 607,629 Deductions (381,589) Balance, end of year 6,311,209 Less current portion 545,819 Balance, end of year noncurrent portion $ 5,765,390 (h) (i) (j) Premiums Premiums for the System s bonds are reported within bonds and leaseholds payable and amortized over the life of the debt issue using the straight-line method. Net Position The System s resources are classified into net position categories and reported in the Statement of Net Position. These categories are defined as (a) Net investment in capital assets capital assets net of accumulated depreciation and related outstanding debt balances attributable to the acquisition, construction, or improvement of those assets, (b) Restricted net position subject to externally imposed restrictions that can be fulfilled by actions of the System pursuant to those stipulations or that expire by the passage of time, and (c) Unrestricted net position not subject to externally imposed stipulations but may be designated for specific purposes by action of management or the Board. The System first applies resources included in restricted net position when an expense or outlay is incurred for purposes for which resources in both restricted and unrestricted net positions are available. Classification of Revenues The Statement of Revenues, Expenses and Changes in Net Position classifies the System s fiscal year activity as operating and nonoperating. Operating revenues generally result from exchange transactions such as payments received for providing goods and services. 10 (Continued)

78 Certain revenue sources that the System relies on for operations, including on-behalf payments for fringe benefits and investment income, are defined by GASB Statement No. 35 as nonoperating. In addition, certain transactions related to capital and financing activities are components of net nonoperating revenue. Housing charges billed or received in advance are unearned and recognized as revenue during the period of occupancy. Student service fees for the summer academic term are unearned and recognized as revenue over the summer semester. (k) (l) (m) Classification of Expenses The majority of the System s expenses are exchange transactions which GASB defines as operating expenses for financial statement presentation. Nonoperating expenses include capital financing costs. On-Behalf Payments for Fringe Benefits In accordance with GASB Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, the System reported payments made by the State of Illinois (State) on behalf of the System for contributions to State group insurance and retirement programs, including postemployment benefits, for System employees and its retirees of $48,304,812 for the year ended June 30, On-behalf payments are classified as nonoperating revenues and the corresponding expenses are reported as operating expenses. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the plan net position of the State Universities Retirement System (SURS) and additions to/deductions from SURS plan net position has been determined on the same basis as they are reported by SURS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. For the purposes of financial reporting, the State of Illinois and participating employers are considered to be under a special funding situation. A special funding situation is defined as a circumstance in which a non-employer entity is legally responsible for making contributions directly to a pension plan that is used to provide pensions to the employees of another entity or entities and either (1) the amount of the contributions for which the non-employer entity is legally responsible is not dependent upon one or more events unrelated to pensions or (2) the non-employer is the only entity with a legal obligation to make contributions directly to a pension plan. The State of Illinois is considered a non-employer contributing entity. Participating employers are considered employer contributing entities. (n) Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates 11 (Continued)

79 (o) New Accounting Pronouncements The System adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, which was effective for periods beginning after June 15, This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. For defined benefit pensions, this Statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about pensions also are addressed. Implementation of this pronouncement required a change in the notes to the System s financial statements. The System adopted the provisions of GASB Statement No. 69, Government Combinations and Disposals of Government Operations, which was effective for periods beginning after December 15, This Statement establishes accounting and financial reporting standards related to government combinations and disposals of government operations. This Statement requires disclosures to be made about government combinations and disposals of government operations to enable financial statement users to evaluate the nature and financial effects of those transactions. Implementation of this pronouncement did not impact the System s financial statements. The System adopted the provisions of GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, which was effective for periods beginning after June 15, This Statement amends paragraph 137 of Statement 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. Statement 68, as amended, continues to require that beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions be reported at transition only if it is practical to determine all such amounts. Implementation of this pronouncement required a change in the notes to the System s financial statements. (2) Cash, Cash Equivalents and Investments The System has cash and certain investments which are pooled with other University funds for the purpose of securing a greater return on investment and providing an equitable distribution of investment return. Income is distributed based upon average quarterly balances invested in the investment pool. Nearly all of the University s investments are managed by external professional investment managers, who have full discretion to manage their portfolios subject to investment policy and manager guidelines established by the University, and in the case of mutual funds and other commingled vehicles, in accordance with the applicable prospectus or limited partnership agreement. The Board develops University policy on investments and delegates the execution of those policies to its administrative agents. The University follows the State of Illinois Uniform Prudent Management of Institutional Funds Act and the State of Illinois Public Funds Investment Act when investing its funds. 12 (Continued)

80 The following details the carrying value of the System s cash, cash equivalents and investments as of June 30, 2015: U.S. government securities $ 80,004,034 U.S. government treasuries 55,579,251 Corporate bonds 911,508 Mutual funds money market 22,483,919 Commercial paper 16,489,417 Subtotal 175,468,129 Claim on cash and on pooled investments 174,388,755 Total $ 349,856,884 (a) Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. In accordance with its investment policy, the University employs multiple investment managers, of which each has specific maturity assignments related to the operating funds. The funds are structured with different layers of liquidity. Funds expected to be used within one year are invested using the Barclay s Capital 90-Day and Bank of America Merrill Lynch 12 month Treasury Bill Index as performance benchmarks. Core operating funds are invested in longer maturity investments. Core operating funds investment manager s performance benchmarks are the Barclays Capital one-year to three-year Government Bond Index, the Barclays Capital one-year to three-year Government Credit Bond Index and the Barclays Capital Intermediate Aggregate Bond Index. The System s nonpooled investments and maturities of June 30, 2015 are illustrated as follows: Maturities (in years) Total Less than U.S. government securities $ 80,004,034 66,764,940 13,239,094 U.S. government treasuries 55,579,251 37,816,942 17,762,309 Corporate bonds 911, ,508 Mutual funds money markets 22,483,919 22,483,919 Commercial paper 16,489,417 16,489,417 Total cash equivalents and investments $ 175,468, ,555,218 31,001, ,508 Claim on cash and on pooled investments represents the System s share of participation in the University s operating internal investment pool. At June 30, 2015, the University s operating funds internal investment portfolio had an effective duration of 1.4 years. The operating internal investment pool consists of money market funds and other short-term investments (38%), stocks (10%) and long-term investments such as corporate bonds and government securities (52%). (b) Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University s investment policy requires that the University s primary liquidity, liquid core and core layers of operating funds be invested in fixed income securities and short-term (e.g. money market, certificates of deposit) instruments. Fixed income securities shall be rated investment-grade or better by one or more nationally recognized statistical rating organizations. Securities not covered by the investment grade standard are allowed if, in the manager s judgment, those instruments are of 13 (Continued)

81 comparable credit quality. Securities that fall below the stated minimum credit requirements subsequent to initial purchase may be held at the manager s discretion. At June 30, 2015, all of the System s nonpooled investments carried an A or better quality rating. At June 30, 2015, the University s operating internal investment pool mostly consisted of securities with quality ratings of A or better. (c) (d) Custodial Credit Risk Custodial credit risk is the risk that in the event of the failure of the counterparty, the University will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. Exposure to custodial credit risk relates to investment securities that are held by someone other than the University and are not registered in the University s name. The University s investment policy does not limit the value of investments that may be held by an outside party. At June 30, 2015, the System s investments and deposits had no custodial credit risk exposure. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of the University s investment in a single issuer. The University s investment policy provides that the total operating funds portfolio will be broadly diversified across securities in a manner that is consistent with fiduciary standards of diversification. Issuer concentrations are limited to 5% per issuer of the total market value of the portfolio at the time of purchase, or in the case of securitized securities, an individual issuance trust. These concentration limits do not apply to investments in mutual funds, exchange traded funds, or other pooled investment products or obligations of, and issues guaranteed by, the U.S. Treasury, U.S. agencies or U.S. government sponsored enterprises. As of June 30, 2015, not more than 5% of the University s total investments were invested in securities of any one issuer, excluding securities issued or guaranteed by the U.S. government, mutual funds and external investment pools or other pooled investments. (e) Foreign Currency Risk Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or deposit. The University does not have an overarching policy related to foreign currency risk; however, under each investment manager s respective fund agreement, the portfolio s foreign currency exposure may be unhedged or hedged back into U.S. dollars. The University s operating fund investments generally are not exposed to foreign currency risk. (3) Capital Assets Net interest cost incurred on borrowed funds during the period of construction of capital assets is capitalized as a component of the cost of acquiring those assets. Net interest of $6,457,180 was capitalized during the year ended June 30, The capital assets of the System are not pledged to secure outstanding indebtedness of the Board. 14 (Continued)

82 Capital asset activity for the year ended June 30, 2015 is summarized as follows: Capital assets Beginning Ending balance Additions Retirements Transfers balance Nondepreciable capital assets: Land $ 19,238,069 19,238,069 Construction in progress 47,948,745 98,382,886 (4,951,758) 141,379,873 Total nondepreciable capital assets 67,186,814 98,382,886 (4,951,758) 160,617,942 Depreciable capital assets: Buildings 1,301,273,230 4,951,758 1,306,224,988 Improvements 53,187,425 53,187,425 Equipment 16,085,053 2,084, ,926 17,258,722 Total depreciable capital assets 1,370,545,708 2,084, ,926 4,951,758 1,376,671,135 Less accumulated depreciation: Buildings 382,242,194 30,881, ,123,270 Improvements 35,436,735 1,333,283 36,770,018 Equipment 10,836,981 1,301, ,737 11,410,887 Total accumulated depreciation 428,515,910 33,516, , ,304,175 Total net depreciable capital assets 942,029,798 (31,431,407) 183,189 4,951, ,366,960 Total $ 1,009,216,612 66,951, ,189 1,075,984,902 (4) Bonds Payable On February 11, 2015, the University issued $109,340,000 of AFS Revenue Bonds, Series 2015A. Proceeds of these bonds were used to provide for the partial refunding of the outstanding principal of two different Series of AFS Revenue Bonds, Series 2005A and Series 2009A. Proceeds were also used to fund all costs incidental to the issuance of the Series 2015A Bonds. The refunding resulted in a projected savings of $12,590,088 over the life of the issue at a present value of $9,792,242. The difference between the reacquisition price and the net carrying amount of the old debt, (gain) loss on refunding for each Series, was $(658,190) and $14,251,312, respectively. This (gain) loss is deferred and amortized as a component of interest expense over the remaining life of the old debt or the life of the new debt, whichever is shorter. 15 (Continued)

83 Bonds payable activity for the year ended June 30, 2015 was as follows: Bonds payable Rate on June 30 Fiscal year outstanding maturity Beginning Ending Current Series debt dates balance Additions Deductions balance portion % $ 113,890,000 16,270,000 97,620,000 16,270, A 6.10% to 6.33% ,820,000 1,460,000 38,360,000 1,545, B N/A 330, , A 5.50% ,845,000 3,860,000 38,985,000 4,580, B 5.50% ,590,000 1,655,000 7,935,000 1,740, A 5.25% to 5.50% ,285,000 38,285, A 5.50% ,495,000 30,090,000 42,405, % to 5.00% ,190,000 3,305, ,885,000 3,525, variable ,495, ,000 18,045, , A 4.00% ,450,000 77,090,000 3,360, , A 4.00% to 5.25% ,415,000 1,140,000 53,275,000 1,185, A 5.00% to 5.50% ,890,000 1,220,000 78,670,000 1,270, B 2.896% to 4.517% ,595, ,000 6,615,000 1,070, C 2.00% to 5.00% ,020,000 1,735,000 68,285,000 1,770, A 3.00% to 5.00% ,580,000 5, ,575,000 5, A 5.00% ,985, ,985, B 0.862% to 3.926% ,845,000 17,845,000 1,590, C variable ,000,000 50,000,000 7,000, A 2.00% to 5.00% ,340, ,340,000 5,880,000 1,209,720, ,340, ,590,000 1,179,470,000 48,700,000 Unaccreted appreciation (41,770,277) 7,782,738 (33,987,539) (922,793) 1,167,949, ,122, ,590,000 1,145,482,461 47,777,207 Unamortized debt premium 63,154,507 8,343,225 6,667,337 64,830,395 3,676,550 Total bonds payable $ 1,231,104, ,465, ,257,337 1,210,312,856 51,453,757 Capital appreciation bonds (Series 1991 and 1999A) of $135,980,000 outstanding at June 30, 2015 do not require current interest payments and have a net unappreciated value of $101,992,461. The University records the annual increase in the principal amount of these bonds as interest expense and accretion on bonds payable. Certain bonds of the System (Series 1991) have debt service reserve requirements. The Maximum Annual Net Debt Service for those bonds, as defined, is $14,926,605. None of the System s bonds constitute obligations of the State of Illinois, but are payable solely by the Board from net revenues of the System, student tuition and fees and debt service funds. 16 (Continued)

84 The resolutions authorizing the University of Illinois Auxiliary Facilities System Revenue Bonds provide for the establishment of separate funds as follows: Current Unrestricted Fund, Unexpended Fund, Repair and Replacement Reserve, Equipment Reserve, Bond and Interest Sinking Fund, Debt Service Reserve and Development Reserve. All System revenues, including student tuition and fees as provided for by the Bond Resolutions are to be deposited in the Current Unrestricted Fund and used to pay necessary operation and maintenance expenses of the System. The Bond Resolutions also require transfers to funds as follows: Unexpended Fund amounts, as determined by the Board, not needed to complete construction and renovation projects specified in the Bond Resolutions are required to be transferred from the Unexpended Fund to the Bond and Interest Sinking Fund. Repair and Replacement Reserve an amount calculated as specified in the Bond Resolutions to provide for the cost of unusual maintenance and repairs. Equipment Reserve an amount approved by the Board for the acquisition of movable equipment to be installed in the facilities constituting the System. The reserve may not exceed 20% of the book value of the movable equipment of the System. Additions of $910,856 were made to the Equipment Reserve and expenses of $349,363 were incurred to replace movable equipment during the year ended June 30, The fund balance of the Equipment Reserve was $6,633,989 at June 30, Bond and Interest Sinking Fund and Debt Service Reserve amounts are transferred into the Bond and Interest Sinking Fund sufficient to pay principal and interest as it becomes due on the outstanding bonds and amounts fund a Debt Service Reserve at least equal to the Maximum Annual Net Debt Service, as defined. At June 30, 2015, the Debt Service Reserve was funded in excess of the Maximum Annual Net Debt Service. If at any time the Debt Service Reserve is less than the Maximum Annual Net Debt Service, the System is required to restore the Debt Service Reserve to the Maximum Annual Net Debt Service by the end of the next fiscal year. Development Reserve an amount approved by the Board for System development. No transfers were authorized by the Board during the year ended June 30, 2015, and there was no balance in the reserve at June 30, The System made all required transfers for the year ended June 30, The table below shows the amount of revenues pledged for future principal and interest payments on the bonds: Pledged revenues Debt service Source of Future to pledged revenue revenues Term of revenues Bond issue(s) Purpose pledged pledged 1 commitment (current year) Auxiliary facilities system Refundings, Net AFS revenue, (AFS) various student tuition improvements and fees and additions to the System $ 1,823, % 1 Total future principal and interest payments on debt (in thousands). 17 (Continued)

85 After fulfillment of the provisions described above, the surplus, if any, remaining in the Current Unrestricted Fund may be used (a) to redeem bonds of the System which are subject to early redemption, (b) to purchase any outstanding bonds for cancellation, or (c) to advance refund any bonds outstanding. (a) Debt Service Requirements Future debt service requirements for all bonds outstanding at June 30, 2015 are as follows: Debt service requirements Principal Interest Years: 2016 $ 48,700,000 46,974, ,545,000 45,468, ,730,000 44,382, ,040,000 43,184, ,835,000 41,825, ,520, ,322, ,550, ,706, ,905,000 72,083, ,695,000 32,543, ,950,000 10,345,843 Total debt service 1,179,470,000 $ 643,836,442 Unaccreted appreciation (33,987,539) Unamortized debt premium 64,830,395 Total bonds payable $ 1,210,312,856 (b) Auxiliary Facilities System Variable-Rate Debt The System s variable-rate bonds mature serially through April 2044 and have variable interest rates that are adjusted periodically (i.e., daily, weekly, or monthly), generally with interest paid at the beginning of each month. The bonds are subject to purchase on the demand of the holder at a price equal to principal plus accrued interest on seven days notice and delivery to the System s remarketing agents. The System pays the remarketing agent fees on the outstanding bond balance. If the remarketing agent is unable to resell any bonds that are put to the agent, the System has a standby bond purchase agreement with a liquidity facility entity. The System, in the event a liquidity facility is utilized, has a reimbursement agreement with different financial entities. Generally, the payback period is five to seven years, at an interest rate initially set at slightly above prime or the federal funds rate. The required future interest payments for these variable-rate bonds have been calculated using the current interest rate, based upon short-term rates, or the synthetic fixed rate, as illustrated in the table below: Variable-rate bonds at June 30, 2015 Interest rate at June 30, Remarketing Remarketing Liquidity facility Bond issue 2015 agent fee Bank Expiration Insured by Fee AFS, Series % Loop Capital 0.075% JPMorgan Chase 5/19/2016 None 0.525% AFS, Series 2014C 0.15% Wells Fargo 0.080% Northern Trust 2/19/2019 Letter of Credit 0.350% 18 (Continued)

86 (c) Advanced Refunded Bonds Payable The System defeased bonds through advance refunding during fiscal year 2015 and in prior years, and accordingly, they are not reflected in the accompanying financial statements. The amount of bonds that have been advance refunded as of June 30, 2015 is as follows: Advanced Refunded Bonds Outstanding at Series June 30, $ 160,460, A 76,305,000 Total $ 236,765,000 (5) Leaseholds Payable Leaseholds payable activity for the year ended June 30, 2015 consisted of the following: Leaseholds payable Beginning Ending Current balance Additions Deductions balance portion $ 63,633 84,513 35, ,873 39,698 The capital lease obligations have maturity dates from 2017 through 2020 and have interest rates ranging from 4.1% to 4.9%. As of June 30, 2015, future minimum lease payments are as follows: Principal Interest 2016 $ 39,698 5, ,351 3, ,746 1, , , Total minimum payments $ 112,873 11,480 (6) Related-Party Transactions The University charged the System administrative service charges totaling $15,670,039 in 2015, based upon the gross expenditures and debt service transfers of various operations of the System. These charges represent a portion of estimated administrative and other service costs incurred by the University in support of the System and are reported as administrative services expense in the accompanying financial statements. The System includes certain athletic facilities and office space utilized by the Division of Intercollegiate Athletics. Student fees provide the primary funding for the operation of these athletic facilities and office space. The Division of Intercollegiate Athletics transferred funds to the System of $13,230,708 in 2015 to fund the operations not covered by student fees. This transfer has been reported as rental and lease income in the accompanying financial statements. 19 (Continued)

87 At June 30, 2015, the System had borrowings of $10,325,979 under multiple internal financing notes with the University for the construction of System facilities. The notes all have repayment terms and interest rates of 3.0%. Notes payable to the University Principal Maturity Beginning paid/debt Ending Current date balance New debt refunded balance portion Payable to the University $ 11,208,028 2,038,763 2,920,812 10,325,979 2,418,548 Future debt service requirements for the outstanding notes payable as of June 30, 2015 are as follows: Notes payable to the University Debt service requirements Principal Interest Years: 2016 $ 2,418, , ,194, , ,042, , ,074, , ,106, , ,489, ,344 Total $ 10,325,979 1,268,607 (7) Retirement and Postemployment Benefits (a) Retirement Benefits General Information about the Pension Plan Plan Description: The University contributes to the State Universities Retirement System of Illinois, a cost-sharing multiple-employer defined benefit plan with a special funding situation whereby the State of Illinois (the State) makes substantially all actuarially determined required contributions on behalf of the participating employers. SURS was established July 21, 1941 to provide retirement annuities and other benefits for staff members and employees of the State universities, certain affiliated organizations, and certain other State educational and scientific agencies and for survivors, dependents and other beneficiaries of such employees. SURS is considered a component unit of the State of Illinois financial reporting entity and is included in the State s financial reports as a pension trust fund. SURS is governed by Section 5/15, Chapter 40, of the Illinois Compiled Statutes. SURS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by accessing the website at Benefits Provided: A traditional benefit plan was established in Public Act enacted effective January 1, 1998, established an alternative defined benefit program known as the portable benefit package. The traditional and portable plan Tier 1 refers to members that began participation prior to January 1, Public Act revised the traditional and portable benefit plans for members who begin participation on or after January 1, 2011, and who do not have eligible Illinois reciprocal system services. The revised plan is referred to as Tier 2. New employees are allowed 6 months after their date of hire to make an irrevocable election. A summary of the benefit provisions as of June 30, 2014 can be found in the SURS comprehensive annual financial report (CAFR) Notes to the Financial Statements. 20 (Continued)

88 Eligible employees must participate upon initial employment. Employees are ineligible to participate if (a) employed after having attained age 68; (b) employed less than 50% of full time; or (c) employed less than full time and attending classes with an employer. Of those University employees ineligible to participate, the majority are students at the University. Contributions: The State of Illinois is primarily responsible for funding the System on behalf of the individual employers at an actuarially determined amount. Public Act provides a Statutory Funding Plan consisting of two parts: (i) a ramp-up period from 1996 to 2010 and (ii) a period of contributions equal to a level percentage of the payroll of active members of the System to reach 90% of the total Actuarial Accrued Liability by the end of Fiscal Year Employer contributions from trust, federal, and other funds are provided under Section (b) of the Illinois Pension Code and require employers to pay contributions which are sufficient to cover the accruing normal costs on behalf of applicable employees. The employer normal cost for fiscal year 2014 and 2015 respectively, was 11.91% and 11.71% of employees payroll. The normal cost is equal to the value of current year s pension benefit and does not include any allocation for past unfunded liability or interest on the unfunded liability. Plan members are required to contribute 8.0% of their annual covered salary. The contribution requirements of plan members and employers are established and may be amended by the Illinois General Assembly. Participating employers make contributions toward separately financed specific liabilities under Section (e) of the Illinois Pension Code (relating to contributions payable due to the employment of affected annuitants or specific return to work annuitants) and Section (g) (relating to contributions payable due to earning increases exceeding 6% during the final rate of earnings period). Pension Liabilities, Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions Net Pension Liability: At June 30, 2014, SURS reported a net pension liability (NPL) of $21,790,983,000. The net pension liability was measured as of June 30, Employer Proportionate Share of Net Pension Liability: The amount of the proportionate share of the net pension liability to be recognized for the System is $0. The proportionate share of the State s net pension liability associated with the System is $376,037,733. This amount should not be recognized in the financial statement. The net pension liability was measured as of June 30, 2014, and the total pension used to calculate the net pension liability was determined based on the June 30, 2013 actuarial valuation rolled forward. The basis of allocation used in the proportionate share of net pension liability is the actual reported pensionable earnings made to SURS during fiscal year Pension Expense: At June 30, 2014 SURS reported a collective net pension expense of $1,650,338,000. Employer Proportionate Share of Pension Expense: The employer proportionate share of collective pension expense should be recognized similarly to on-behalf payments as both revenue and matching expenditure in the financial statements. The basis of allocation used in the proportionate share of collective pension expense is the actual reported pensionable contributions made to SURS during fiscal year As a result, the University recognized onbehalf revenue and pension expense of $681,300,000 for fiscal year ended June 30, 2015, of which $28,479,000 was related to the System. 21 (Continued)

89 Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions: Deferred Outflows of resources are the consumption of net position by SURS that is applicable to future reporting periods. SURS Collective Deferred Outflows and Deferred Inflows of Resources by Sources (nearest thousand) Deferred Outflows Deferred Inflows of Resources of Resources Changes in assumption $ 88,941 Net difference between projected and actual earnings on pension plan investments 1,271,106 Total $ 88,941 1,271,106 Assumptions and Other Inputs Actuarial assumptions: The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period June 30, and an economic study completed June The total pension liability in the June 30, 2014 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation Salary increases Investment rate of return 2.75 percent 3.75 to percent, including inflation 7.25 percent beginning with the actuarial valuation as of June 30, 2014 Mortality rates were based on the RP2000 Combined Mortality Table, projected with Scale AA to 2017, sex-distinct, with rates multiplied by 0.80 for males and 0.85 for females. 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 real rates of return (expected returns, net of pension plan investment expense and inflation) 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 real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return were adopted by the plan s trustees after considering input from the plan s investment consultant(s) and actuary(s). For each major asset class that is included in the pension plan s target asset allocation as of June 30, 2014, these best estimates are summarized in the following table: 22 (Continued)

90 Asset Class Target Allocation Long-Term Expected Real Rate of Return U.S. Equity 31% 7.65% Private Equity 6% 8.65% Non-U.S. Equity 21% 7.85% Global Equity 8% 7.90% Fixed Income 19% 2.50% Treasury-Inflation Protected Securities 4% 2.30% Real Estate 6% 6.20% REITS 4% 6.20% Opportunity Fund 1% 2.50% Total 100% 5.00% Inflation 2.75% Expected Geometrical Normal Return 7.75% Discount Rate: A single discount rate of 7.090% was used to measure the total pension liability. This single discount rate was based on an expected rate of return on pension plan investments of 7.250% and a municipal bond rate of 4.290% (based on the weekly rate closest to but not later than the measurement date of the 20-Year Bond Buyer Index as published by the Federal Reserve). The projection of cash flows used to determine this single discount rate were the amounts of contributions attributable to current plan members and assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the statutory contribution rates under the SURS funding policy. Based on these assumptions, the pension plan s fiduciary net position and future contributions were sufficient to finance the benefit payments through the year As a result, the long-term expected rate of return on pension plan investments was applied to projected benefit payments through the year 2065, and the municipal bond rate was applied to all benefit payments after that date. Sensitivity of the SURS Net Pension Liability to Changes in the Discount Rate: Regarding the sensitivity of the net pension liability to changes in the single discount rate, the following presents the plan s net pension liability, calculated using a single discount rate of 7.09%, as well as what the plan s net pension liability would be if it were calculated using a single discount rate that is 1-percentage-point lower or 1-percentage-point higher: Current Single Discount 1% Decrease 6.09% Rate Assumption 7.09% 1% Increase 8.09% $26,583,701,134 $21,790,983,139 $17,796,570,836 Additional information regarding the SURS basic financial statements including the Plan Net Position can be found in the SURS comprehensive annual financial report by accessing the website at (b) Postemployment Benefits The State Employees Group Insurance Act of 1971 (Act), as amended, authorizes the State to provide health, dental, vision and life insurance benefits for certain retirees and their dependents. Substantially all State and university component unit employees become eligible for these other postemployment benefits (OPEB) if they eventually become annuitants of one of the State 23 (Continued)

91 (8) Commitments sponsored pension plans. The Department of Central Management Services administer these benefits for annuitants with the assistance of the State s sponsored pension plans. The portions of the Act related to OPEB establish a cost-sharing multiple-employer defined-benefit OPEB plan (plan) with a special funding situation in which the State funds substantially all nonparticipant contributions. The plan does not issue a stand-alone financial report but is included as a part of the State s financial statements. A copy of the financial statements of the State can be obtained at The health, dental and vision benefits provided to and contribution amounts required from annuitants are the result of collective bargaining between the State and various unions that represent the State and the university employees in accordance with limitations established in the Act. Therefore, the benefits provided and contribution amounts are subject to periodic change. The Act requires the State to provide life insurance benefits for annuitants equal to their annual salary as of the last day of employment until age 60, at which time the benefit amount becomes $5,000. The State makes substantially all of the contributions for OPEB on behalf of the State universities. Since the State contributes substantially all of the employer contributions, the single-employer provisions of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, have been followed for reporting the plan. The State is not required to and does not fund the plan other than the pay-as-you-go amount necessary to provide the current benefits. At June 30, 2015, the System had commitments on various construction projects and contracts for repairs and renovation of auxiliary facilities of $112,717,530 These projects will be funded from the unexpended bond proceeds of Series 2014A, 2014B and 2014C along with certain unexpended unrestricted funds and renewal and replacement funds set aside for construction costs. 24

92 UNIVERSITY OF ILLINOIS AUXILIARY FACILITIES SYSTEM Required Supplementary Information Schedule of University of Illinois Auxiliary Facilities System Proportionate Share of the Net Pension Liability Fiscal Year 2014 (a) Proportion Percentage of the Collective Net Pension Liability 0% (b) Proportion Amount of the Collective Net Pension Liability $0 (c) Portion of Nonemployer Contributing Entities' Total Proportion of Collective Net Pension Liability associated with Employer $376,037,733 Total (b) + (c) $376,037,733 Employer Covered-employee payroll $68,282,430 Proportion of Collective Net Pension Liability associated With Employer as a percentage of covered-employee payroll % Schedule of Contributions SURS Plan Net Position as a Percentage of Total Pension Liability 44.39% Changes of benefit terms. There were no benefit changes recognized in the Total Pension Liability as of June 30, Changes of assumptions. In accordance with Illinois Compiled Statutes, an actuarial review is to be performed at least once every five years to determine the reasonableness of actuarial assumptions regarding the retirement, disability, mortality, turnover, interest and salary of the members and benefit recipients of SURS. An experience review for the years June 30, 2010 to June 30, 2014 was performed in February 2015, resulting in the adoption of new assumptions as of June 30, There are no changes of assumptions that affect measurement of the total collective pension liability since the prior measurement date. *Note: The System implemented GASB No. 68 in fiscal year The information above is presented for as many years as available. The Schedule is intended to show information for 10 years. 25

93 APPENDIX C ANNUAL FINANCIAL REPORT FOR THE UNIVERSITY OF ILLINOIS FOR THE YEAR ENDED JUNE 30, 2015

94 [THIS PAGE INTENTIONALLY LEFT BLANK]

95 UNIVERSITY OF ILLINOIS Annual Financial Report June 30, 2015 (With Independent Auditors Report Thereon)

96 THE BOARD OF TRUSTEES EX OFFICIO MEMBER The Governor of Illinois Honorable Bruce Rauner... Springfield MEMBERS Ramón Cepeda... Darien Ricardo Estrada... Chicago Patrick J. Fitzgerald... Chicago Karen Hasara... Springfield Patricia Brown Holmes... Chicago Timothy N. Koritz... Roscoe Edward L. McMillan... Greenville James D. Montgomery, Sr.... Chicago Jill B. Smart... Downers Grove STUDENT TRUSTEES Lucas Frye... Urbana Champaign Campus Danielle M. Leibowitz... Chicago Campus Hannah Cave... Springfield Campus BOARD OFFICERS Edward L. McMillan... Chair Lester H. McKeever, Jr.... Treasurer Walter K. Knorr... Vice President/Chief Financial Officer and Comptroller Thomas R. Bearrows... University Counsel Susan M. Kies... Secretary ADMINISTRATIVE OFFICERS Robert A. Easter... President (through May 17, 2015) Timothy L. Killeen... President (effective May 18, 2015) Michael B. Bass... Senior Associate Vice President for Business and Finance and Deputy Comptroller Patrick M. Patterson... Controller and Senior Assistant Vice President for Business and Finance Julie A. Zemaitis... Executive Director of University Audits Phyllis M. Wise... Chancellor and Vice President, University of Illinois at Urbana Champaign Ginger L. Velazquez... Interim Assistant Vice President for Business and Finance, Urbana Champaign Campus Paula Allen-Meares... Chancellor and Vice President, University of Illinois at Chicago (through January 15, 2015) Eric A. Gislason... Interim Chancellor and Vice President, University of Illinois at Chicago (January 16, March 15, 2015) Michael Amiridis... Chancellor and Vice President, University of Illinois at Chicago (effective March 16, 2015) Heather J. Haberaecker... Executive Assistant Vice President for Business and Finance, Chicago Campus (through February 28, 2015) Vanessa Peoples...Interim Assistant Vice President for Business and Finance Chicago Campus (effective March 1, 2015) Susan J. Koch... Chancellor and Vice President, University of Illinois at Springfield Michael E. Bloechle...Director of Business Services, Springfield Campus

97 UNIVERSITY OF ILLINOIS Annual Financial Report June 30, 2015 Table of Contents Page Letter of Transmittal 1 Independent Auditors Report 2 Management s Discussion and Analysis (Unaudited) 4 Financial Statements: Statement of Net Position 12 Statement of Revenues, Expenses and Changes in Net Position 13 Statement of Cash Flows 14 Notes to Financial Statements 16 Required Supplementary Information 58

98 From the Vice President/Chief Financial Officer, Comptroller UNIVERSITY OF ILLINOIS Urbana-Champaign Chicago Springfield Office of Vice President/Chief Financial Officer, Comptroller 349 Henry Administration Building 506 South Wright Street Urbana, IL December 23, 2015 The information in this Annual Financial Report of the University of Illinois for the fiscal year ended June 30, 2015, documents that the financial position of the University remains sound. The ongoing economic challenges impacting our state continued to demand the best from administrators and business staff across the University. They made wise management and budgetary decisions with the goal of ensuring the financial integrity of University programs and initiatives through efficient and effective utilization of resources. The University of Illinois tradition of excellence in teaching, research, public service, health care and economic development has made it a distinguished leader in higher education. Our efforts focus on continuing that tradition, while increasing the stature of the University of Illinois and the return on investment it provides to the state and the nation. Respectfully submitted, Walter K. Knorr, Vice President/Chief Financial Officer, Comptroller 1

99 CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS REPORT Honorable William G. Holland Auditor General, State of Illinois and Board of Trustees University of Illinois Report on the Financial Statements As Special Assistant Auditors for the Auditor General, we have audited the accompanying financial statements of the business-type activities and aggregate discretely presented component units of University of Illinois ( the University ), collectively a component unit of the State of Illinois, as of and for the year ended June 30, 2015, 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. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the University s aggregate discretely presented component units (the University Related Organizations ), as described in Note 1 of the financial statements. Those statements were audited by other auditors whose reports thereon have been provided to us, and our opinion on the financial statements, insofar as it relates to the amounts included for the University Related Organizations, is based solely on the reports of the other auditors. We conducted our audits 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. The financial statements of The University of Illinois Alumni Association; Wolcott, Wood, and Taylor, Inc.; Prairieland Energy, Inc.; Illinois Ventures, LLC; The University of Illinois Research Park, LLC; and UI Singapore Research, LLC (all discretely presented component units) were not audited in accordance with Government Auditing Standards. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and 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 entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 2

100 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of University of Illinois and its aggregate discretely presented component units as of June 30, 2015, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information The June 30, 2014 financial statements of the University were audited by other auditors whose report dated December 19, 2014 expressed an unmodified opinion. Based on the report from other auditors, the summarized comparative information presented herein as of and for the year ended June 30, 2014, is consistent, in all material respects, with the audited financial statements from which it has been derived. Emphasis of Matter During fiscal year ended June 30, 2015, the University adopted GASB Statement No. 68, Accounting and Financial Reporting for Pensions, and the related GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date an amendment of GASB Statement No. 68. As a result of the implementation of these standards, the University reported a restatement for the change in accounting principle. See Note 1. Our auditors opinion was not modified with respect to the restatement. 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 4-11 and the schedule of proportionate share of the net pension liability and schedule of contributions on page 58 be presented to supplement the basic financial statements. Such information, although not a 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. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which 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 audits 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 under separate cover our report dated December 23, 2015, on our consideration of University of Illinois'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 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 University of Illinois s internal control over financial reporting and compliance. CliftonLarsonAllen LLP Peoria, Illinois December 23,

101 UNIVERSITY OF ILLINOIS Management s Discussion and Analysis (Unaudited) June 30, 2015 Introduction and Background The following Management s Discussion and Analysis (MD&A) provides an overview of the financial position and activities of the University of Illinois (University) for the year ended June 30, The MD&A should be read in conjunction with the audited financial statements and notes appearing in this report. The University was founded in 1867 in response to the federal Land Grant Act of The University s evolution as a land-grant institution has produced a set of core values that underlie all aspects of its present and future programs. The University is a comprehensive public university, a family of three distinct campuses Urbana-Champaign, Chicago and Springfield - serving the people of Illinois through a shared commitment to the University s missions of excellence in teaching, research, public service and economic development. The University s campuses currently enroll approximately 78,500 students. The University has internationally renowned faculty that are known for being world leaders in research and currently employs approximately 6,000 faculty members on its three campuses. The University offers a diverse range of degree programs from baccalaureate to doctoral levels. Approximately 20,500 degrees are awarded annually. The operating budget for fiscal year 2015, from all fund sources, was $5.64 billion. University faculty, staff and students share their knowledge and expertise and the resources of the University with citizens in every corner of Illinois through more than 700 public service and outreach programs. Using the Financial Statements The University s financial report includes three financial statements: the Statement of Net Position; the Statement of Revenues, Expenses and Changes in Net Position; and the Statement of Cash Flows. The financial statements are prepared in accordance with Governmental Accounting Standards Board (GASB) principles, which establish standards for external financial reporting for public colleges and universities and require that financial statements focus on the University as a whole. The financial statements encompass the University and its discretely presented component units: University of Illinois Foundation; University of Illinois Alumni Association; Wolcott, Wood and Taylor, Inc.; Illinois Ventures, LLC; University of Illinois Research Park, LLC; Prairieland Energy, Inc.; and UI Singapore Research, LLC. This MD&A focuses on the University, excluding the discretely presented component units. Condensed financial information is disclosed separately for each of the discretely presented component units in note 16 to the financial statements. Financial Highlights and Key Trends The fiscal year 2015 state appropriations (excluding capital) were $653 million, down from $668 million in fiscal year The overall budget utilized by the University increased by 0.2%, even though direct funding from the State of Illinois (State) decreased by 2.3%. This trend demonstrates the University s ability to rely on other diverse sources of funding to provide services to University students and support the University mission. Net position, which represents the residual interest in the University s assets and deferred outflows of resources after liabilities and deferred inflows of resources, increased during the current year by $149 million. 4 (Continued)

102 Statement of Net Position The Statement of Net Position presents the financial position of the University at the end of the fiscal year and includes all assets, deferred outflows of resources, and liabilities of the University using the accrual basis of accounting. As of June 30, 2015 and 2014, the University had no deferred inflows of resources. Net position is one indicator of the current financial condition of the University. The changes in net position that occur over time indicate improvement or deterioration in the University s financial condition. Generally, assets and liabilities are reported at cost with the exception of investments and permanently endowed real estate and farms, which are reported at fair value. Capital assets are reported at historical cost less accumulated depreciation. Deferred outflows of resources represent the losses on debt refundings, the change in fair value of the swap agreements associated with the related bonds and certificates of participation (COPs) and the fiscal year 2015 employer pension contributions. A summarized comparison of the University s assets, deferred outflows of resources, liabilities and net position at June 30, 2015 and 2014 is as follows: (In thousands) Current assets: Cash and investments $ 1,011, ,859 Accounts and notes receivable 467, ,621 Appropriations receivable from State of Illinois 118, ,887 Other current assets 72,160 94,099 Noncurrent assets: Cash and investments 2,046,030 2,180,422 Notes receivable 54,303 54,016 Capital assets, net of accumulated depreciation 3,643,175 3,555,450 Other assets 4,095 4,726 Deferred outflows of resources 107,518 60,444 Total assets and deferred outflows of resources $ 7,524,336 7,443,524 Current liabilities: Accounts payable, accrued liabilities and unearned revenue $ 711, ,029 Bonds payable 60,097 49,256 Leaseholds payable and other obligations 36,091 42,114 Accrued self-insurance 53,766 58,567 Other current liabilities 66,210 93,019 Noncurrent liabilities: Bonds payable 1,317,116 1,357,048 Leaseholds payable and other obligations 323, ,094 Accrued self-insurance 190, ,177 Accrued compensated absences 183, ,770 Derivative instruments swap liability 20,604 23,719 Total liabilities 2,962,375 3,030,793 Net position 4,561,961 4,412,731 Total liabilities and net position $ 7,524,336 7,443,524 Total assets and deferred outflows of resources have increased by $81 million or 1.1% to $7.5 billion during fiscal year This change included increases in deferred outflows of resources associated with employer 5 (Continued)

103 pension contributions and an increase in capital assets, partially offset by reductions in current assets due to the discontinued participation in the securities lending program and a decrease in the appropriations receivable from the State of Illinois. Total liabilities decreased $68 million, or 2.3% for fiscal year This change primarily resulted from a decrease in long term debt, partially offset by an increase in accounts payable and accrued liabilities. Capital Assets and Long-Term Debt The University s policy requires the capitalization of equipment at $5,000, software and other intangibles at $100,000, buildings and improvements at $100,000, infrastructure at $1,000,000 and all land and collection purchases regardless of cost. The University depreciates its capital assets on a straight-line basis, using estimated useful lives ranging from 3 to 50 years. The following table illustrates the composition of the University s capital assets, net of accumulated depreciation, by category: Capital Assets, Net of Accumulated Depreciation (In thousands) Buildings $ 2,434, % $ 2,353, % Improvements and infrastructure 282, , Construction in progress 303, , Land 135, , Equipment and software 338, , Collections 148, , $ 3,643, % $ 3,555, % Capital assets, net of accumulated depreciation, increased by $88 million in fiscal year This increase was largely due to current year additions of buildings and construction in progress, partially offset by current year depreciation. Facilities under construction are funded by revenue bonds, federal grants, private gifts, internal funds and State capital appropriations. Construction in process and buildings placed in service included the Electrical Computing and Engineering building and Ikenberry Commons, along with improvements to the University of Illinois Hospital (Hospital), State Farm Center and Natural History Building. The University has historically utilized revenue bonds to finance capital projects related to the Auxiliary Facilities System (AFS), the Health Services Facilities System (HSFS) and the University of Illinois Chicago (UIC) South Campus project. In fiscal year 2015, the University issued AFS Revenue Bonds of $109 million to partially refund the AFS Revenue Bonds, Series 2005A and 2009A. The following table details the various bonded debt outstanding at June 30, 2015 and 2014: Bonds Payable (In thousands) AFS $ 1,210,313 1,231,105 HSFS 119, ,544 UIC South Campus 47,496 52,655 $ 1,377,213 1,406,304 6 (Continued)

104 The University has issued COPs, which are reported as leaseholds payable on the financial statements. The outstanding COPs have funded projects such as utility infrastructure, College of Medicine facilities and deferred maintenance on medical, academic and research facilities. The reduction in the outstanding balance of the COPs was due to scheduled redemptions and advanced refundings. The outstanding balances of the COPs as of June 30, 2015 and 2014 were $282,526,000 and $372,934,000 respectively. Net Position The University s resources are classified into net position categories on the Statement of Net Position. These categories are defined as (a) Net investment in capital assets, (b) Restricted nonexpendable net position restricted by externally imposed stipulations, (c) Restricted expendable net position subject to externally imposed restrictions that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time and (d) Unrestricted net position not subject to externally imposed stipulations but may be designated for specific purposes by action of management or the Board of Trustees. The University s net position increased by $149 million during fiscal year Net position balances are detailed below: Net Position (In thousands) Net position: Net investment in capital assets $ 2,185,442 2,091,311 Restricted 759, ,661 Unrestricted 1,617,441 1,531,759 $ 4,561,961 4,412,731 The growth in net position largely resulted from increases in net investment in capital assets, which included changes in capital assets and reductions in long-term debt as discussed previously. Growth also resulted from various expenditure constraints and increases in endowments and self-supporting activities. 7 (Continued)

105 Statement of Revenues, Expenses and Changes in Net Position The Statement of Revenues, Expenses and Changes in Net Position presents the University s results of operations. In accordance with GASB reporting standards, revenues and expenses are classified as either operating or nonoperating. A summarized comparison of the University s Statement of Revenues, Expenses and Changes in Net Position for the years ended June 30, 2015 and 2014 is as follows: (In thousands) Operating revenues: Student tuition and fees $ 1,095,905 1,040,399 Grants and contracts 855, ,467 Hospital and other medical activities 643, ,094 Auxiliary enterprises and independent operations 420, ,696 Educational activities 334, ,353 Medical service plan 198, ,781 Other 16,442 16,782 Total operating revenues 3,564,110 3,479,572 Operating expenses 5,560,527 5,287,635 Operating loss (1,996,417) (1,808,063) Nonoperating revenues (expenses): State appropriations and on behalf payments 1,825,482 1,743,285 Transfer of state appropriation to the Hospital Services Fund (43,988) (45,000) Private gifts 177, ,875 Grants, nonoperating 134, ,245 Investment income 69,462 37,458 Net (decrease) increase in the fair value of investments (39,044) 61,467 Other nonoperating expenses, net (24,295) (18,321) Net nonoperating revenues 2,099,722 2,090,009 Capital state appropriations and capital gifts and grants 11,724 24,815 Endowment gifts Increase in net position 115, ,109 Net position, beginning of year 4,412,731 4,105,622 Change in accounting principles 34,200 Net position, end of year $ 4,561,961 4,412,731 Revenues The University s revenues are generated from multiple sources, which supplement what is received from state appropriations and student tuition and fees. GASB reporting standards require revenues to be categorized as operating or nonoperating. Operating revenues are derived from activities associated with providing goods and services by the University and generally result from exchange transactions where each of the parties to the transaction either give up or receive something of equal or similar value. The University also relies on revenue, such as state appropriations, gifts, certain grants and investment income to support operations, which GASB reporting standards define as nonoperating. 8 (Continued)

106 The following graph illustrates the revenues by source (both operating and certain nonoperating), which were used to fund the University s operating activities for the year ended June 30, 2015: Revenues 10% 7% 7% 31% 11% 15% 19% 31% Nonoperating state appropriations revenue, $1,781.5 million 19% Student tuition and fees, $1,095.9 million 15% Grants and contracts, $855.1 million 11% Hospital and other medical services, $643.7 million 10% Other operating revenues, $549.0 million 7 % Auxiliary enterprises and independent operations, $420.4 million 7% Nonoperating revenues, $381.6 million Operating and nonoperating revenues experienced a net increase of $201 million in fiscal year This increase included several significant components. Tuition and fee revenue increased by $56 million as a result of increases approved by the Board of Trustees in certain graduate and professional programs, increases for new students in connection with the four-year undergraduate tuition rate guarantee and growth in enrollment. Nonoperating state appropriations and on behalf payments revenue increased by a net $83 million and other nonoperating revenues increased by $33 million. The increase in other nonoperating revenues was primarily due to an increase in investment income. 9 (Continued)

107 Expenses The majority of the University s expenses are exchange transactions, which GASB standards define as operating expenses. Nonoperating expenses include capital financing and other costs related to capital assets (In thousands) Operating expenses: Instruction $ 1,300, % $ 1,259, % Research 744, , Public service 512, , Support services 974, , Hospital and medical activities 793, , Auxiliary enterprises and independent operations 383, , Scholarships and fellowships 278, , Operation and maintenance of plant 324, , Depreciation 248, , Total operating expenses $ 5,560, % $ 5,287, % The increase in operating expenses was $273 million, or 5.2%. Significant components of the rise in operating expenses from the prior fiscal year included increases in instruction and support functions to facilitate student and faculty achievement, along with increases in self-supporting activities such as auxiliary enterprises and hospital and medical activities. The University chooses to report its expenses by functional classifications in the Statement of Revenues, Expenses and Changes in Net Position. For the reader s information, the expenses are displayed in their natural classifications in note 14. The following graph illustrates the $5,560.5 million of operating expenses by natural classification: Operating Expenses 5% 1% 28% 66% 66% Compensation and benefits, $3,688.7 million 5% Depreciation, $248.9 million 28% Supplies and services, $1,544.8 million 1% Student aid, $78.1 million 10 (Continued)

108 The University s Economic Outlook The University continues to maintain its level of excellence in service to students, patients, the research community, the State and the nation. A critical element to the University's future continues to be a strong partnership with the State, since state appropriations from the Governor and General Assembly provide essential operating support for University programs. As of December 23, 2015, the state budget for fiscal 2016 has not been enacted, and as a result, the direct appropriation for higher education, including the University, has not been enacted. Fiscal 2016 budget recommendations from the Governor and General Assembly for the University range from flat funding to a reduced level of funding. The presidents of all public universities in Illinois have been communicating with the Governor and General Assembly emphasizing the importance of resolving the State s budget impasse, with a sustained and predictable level of support that ensures student achievement. Until there is a legislative resolution to the state budget impasse, the University continues to monitor cash flows and has deferred and reduced spending to meet current operational needs. The State supports the University in many ways including funding employee pensions and health insurance benefits. These are two of the major fiscal issues for the State, and effect the ability of the State to fund other priorities, including direct funding to public universities. The State appropriates funds for on-behalf payments for these benefits as related to University employees. Tuition is being held level between fiscal years 2015 and However, based on multiple factors (such as enrollment levels and student mix) the University projects an increase in the tuition revenue budget of approximately $61.3 million. Undergraduate students have a four-year tuition guarantee. The incremental tuition revenue for fiscal 2016 results from changes in enrollment patterns, new students paying higher tuition rates than the recent graduating class and varying increases in graduate and professional programs. Research is one of four components of the University's mission. The University system consistently ranks among the top universities in research and development expenditures in the country. Research leading to the development of new products and services is also an engine driving economic development, another component of the University's mission. The University continues to advance the economic development mission by supporting research and innovation activities that elevate ideas into sustainable businesses and global solutions. The University experienced growth from a variety of funding sources during fiscal year To maintain its financial position, the University continues to develop multiple sources of revenue to support its mission of instruction, research, public service and economic development. The University's Board of Trustees, the administration, faculty and staff are committed to upholding the University's outstanding academic reputation and strong financial condition. 11

109 UNIVERSITY OF ILLINOIS Statement of Net Position June 30, 2015 (with comparative totals for June 30, 2014) (In thousands) University Related University Organizations Assets and Deferred Outflows of Resources Current assets: Cash and cash equivalents $ 535, ,691 11,946 6,838 Cash and cash equivalents, restricted 125, , Investments 290, , Investments, restricted 59,735 41,201 Securities lending collateral 25,544 Accrued investment income 5,870 5, ,804 Accounts receivable, net of allowance for uncollectible 457, ,479 20,773 18,014 Appropriations receivable from State of Illinois 118, ,887 Pledges receivable, net of allowance 33,405 29,849 Notes receivable, net of allowance for uncollectible 9,667 9, Accrued interest on notes receivable 4,468 4,025 Inventories 29,203 29, Prepaid expenses 27,866 25,830 1,549 1,021 Due from related organizations 4,753 2,948 Total current assets 1,669,215 1,588,466 69,543 58,897 Noncurrent assets: Cash and cash equivalents, restricted 6,480 21, Investments 1,418,554 1,397,395 20,827 23,414 Investments, restricted 620, ,156 1,775,352 1,750,374 Pledges receivable, net of allowance 160, ,162 Notes receivable, net of allowance for uncollectible 54,303 54,016 Capital assets, net of accumulated depreciation 3,643,175 3,555,450 13,364 12,551 Other assets 4,095 4, Total noncurrent assets 5,747,603 5,794,614 1,970,328 1,943,202 Deferred outflows of resources 107,518 60,444 Total assets and deferred outflows of resources $ 7,524,336 7,443,524 2,039,871 2,002,099 Liabilities and Net Position Current liabilities: Accounts payable and accrued liabilities $ 364, ,016 9,488 17,464 Accrued payroll 169, , Accrued compensated absences, current portion 19,141 21,404 1,171 1,213 Accrued self-insurance, current portion 53,766 58,567 Unearned revenue and student deposits 177, , Accrued interest payable 17,284 18,930 Securities lending collateral 25,544 Notes payable 3,257 2,057 Bonds payable, current portion 60,097 49,256 Due to related organizations, current portion 4,753 2,948 Leaseholds payable and other obligations, current portion 36,091 42,114 7,103 6,931 Assets held for others 29,785 27,141 2,014 2,014 Total current liabilities 927, ,985 28,236 32,995 Noncurrent liabilities: Bonds payable 1,317,116 1,357,048 Leaseholds payable and other obligations 323, ,094 50,676 50,707 Accrued compensated absences 183, ,770 Accrued self-insurance 190, ,177 Unearned distributions Derivative instrument swap liability 20,604 23,719 Total noncurrent liabilities 2,034,794 2,137,808 50,800 50,831 Total liabilities 2,962,375 3,030,793 79,036 83,826 Net investment in capital assets 2,185,442 2,091,311 10,107 10,494 Restricted: Nonexpendable 108, , , ,043 Expendable 650, , , ,273 Unrestricted 1,617,441 1,531,759 35,543 38,463 Total net position 4,561,961 4,412,731 1,960,835 1,918,273 Total liabilities and net position $ 7,524,336 7,443,524 2,039,871 2,002,099 See accompanying notes to financial statements. 12

110 13

111 14 (Continued)

112 15

113 UNIVERSITY OF ILLINOIS Notes to Financial Statements June 30, 2015 (1) Organization and Summary of Significant Accounting Policies Organization The University of Illinois (University), a federal land grant institution, founded in 1867 and a component unit of the State of Illinois (State), conducts education, research, public service and related activities principally at its three campuses in Urbana-Champaign, Chicago, which includes the University of Illinois Hospital (Hospital) and other healthcare facilities, and Springfield. The governing body of the University is The Board of Trustees of the University of Illinois (Board). As required by U.S. generally accepted accounting principles, as prescribed by the Governmental Accounting Standards Board (GASB), these financial statements present the financial position and financial activities of the University (the primary government) and its component units as well as certain activities and expenses funded by other State agencies on behalf of the University or its employees. The component units discussed below are included in the University s financial reporting entity (Entity) because of the significance of their financial relationship with the University. The University Related Organizations (UROs) column in the financial statements includes the financial data of the University s discretely presented component units. The University of Illinois Foundation (Foundation), the University of Illinois Alumni Association (Alumni Association), Wolcott, Wood and Taylor, Inc. (WWT), Prairieland Energy, Inc. (Prairieland), Illinois Ventures, LLC (Illinois Ventures), the University of Illinois Research Park, LLC (Research Park) and UI Singapore Research, LLC (Singapore Research) are included in the University s reporting entity because of the significance of their operational or financial relationship with the University. These component units are discretely presented in a separate column and are legally separate from the University. The Foundation was formed for the purpose of providing fundraising and other assistance to the University in order to attract private gifts to support the University s instructional, research and public service activities. In this capacity, the Foundation solicits, receives, holds and administers gifts for the benefit of the University. Complete financial statements for the Foundation may be obtained by writing the Senior Vice President for Financial and Administrative Operations, 400 Harker Hall, 1305 W. Green Street, Urbana, Illinois The Alumni Association was formed to promote the general welfare of the University and to encourage and stimulate interest among students, former students and others in the University s programs. In this capacity, the Alumni Association offers memberships in the Alumni Association to former students, conducts various activities for students and alumni, and publishes periodicals for the benefit of alumni. Complete financial statements for the Alumni Association may be obtained by writing the Executive Vice President, Alice Campbell Alumni Center, 601 S. Lincoln Avenue, Urbana, Illinois WWT was formed to provide practice management support services and operate as a billing/collection entity for healthcare activities under the laws of the State. Complete financial information may be obtained by writing the President and CEO, 200 W. Adams, Suite 225, Chicago, Illinois (Continued)

114 Prairieland, a for profit, wholly-owned corporation, was formed for the purpose of providing support for the University through delivery of comprehensive economical utility services to the University and other organizations. Complete financial information may be obtained by writing the Controller, 100 Trade Centre Drive, Suite 304, Champaign, Illinois Illinois Ventures, a for-profit, wholly-owned corporation, exists to facilitate the development of new companies commercializing technology originated or developed by faculty, staff and/or students of the University and other organizations. The University desires Illinois Ventures to foster technology commercialization and economic development in accordance with the teaching, research and public service missions of the University. Complete financial information may be obtained by writing the CEO and Managing Director, 2001 South First Street, Suite 201, Champaign, Illinois Research Park, a for-profit, wholly-owned corporation, was formed to aid and assist the University and other organizations by establishing and operating a research park on the University s Urbana-Champaign campus. The Research Park was designed to promote the development of new companies, which commercialize University technologies. Complete financial information may be obtained by writing the Finance Manager, University of Illinois Research Park, LLC, 60 Hazelwood Drive, Champaign, Illinois Singapore Research, a for-profit, wholly-owned corporation, was formed to organize, develop, hold and operate, through a Singapore entity, a research center in Singapore to encourage and facilitate research, development and commercialization of the intellectual assets of the University. Complete financial information may be obtained by writing the Treasurer, UI Singapore Research, LLC, 349 Henry Administration Building, 506 South Wright Street, Urbana, Illinois The Foundation, Alumni Association, WWT, Prairieland, Illinois Ventures, Research Park and Singapore Research are related organizations as defined under University Guidelines adopted by the State of Illinois Legislative Audit Commission. The University is a component unit of the State for financial reporting purposes. The financial balances and activities included in these financial statements are, therefore, also included in the State s comprehensive annual financial report. Significant Accounting Policies (a) Financial Statement Presentation and Basis of Accounting University The University prepared its financial statements as a Business-Type Activity, as defined by GASB Statement No. 35, Basic Financial Statements and Management s Discussion and Analysis for Public Colleges and Universities, using the economic resources measurement focus and the accrual basis of accounting. Business-Type Activities are those financed in whole or in part by fees charged to external parties for goods and services. Under the accrual basis, revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Grant and contract revenues, which are received or receivable from external sources, are recognized as revenues to the extent of related expenses or satisfaction of eligibility requirements. Advances are classified as unearned revenue. Appropriations made from the State for the benefit of the University are recognized as nonoperating revenues when eligibility requirements are satisfied. 17 (Continued)

115 The financial statements include certain prior year comparative information, which has been derived from the University s 2014 financial statements. Such information does not include all of the information required to constitute a presentation in conformity with U.S. generally accepted accounting principles. Accordingly, such information should be read in conjunction with the University s financial statements for the year ended June 30, UROs The financial statements of WWT, Prairieland, Illinois Ventures, Research Park and Singapore Research are prepared using the same presentation and basis of accounting as the University, as described above. The Foundation and Alumni Association follow Financial Accounting Standards Board (FASB) standards for financial statement presentation. Consequently, reclassifications have been made to reformat their financial statements to the GASB format for inclusion in the UROs column of the financial statements and disclosure in note 16. (b) (c) (d) Cash and Cash Equivalents The Statement of Cash Flows details the change in the cash and cash equivalents balance for the fiscal year. Cash and cash equivalents include bank accounts and investments with original maturities of ninety days or less at the time of purchase. Such investments consist primarily of money market funds. Inventories Inventories are stated at the lower of cost or market. Cost is determined principally by the average cost method or the first-in, first-out method, depending on the type of inventory. Investments Investments are recorded at fair value. Fair value is generally determined by quoted market prices for the University s investments. The fair values of the farm properties held as investments by permanent and term endowments are determined by a periodic appraisal of the property by a certified real estate appraiser. Fair value for investments in limited partnerships and certain mutual funds is determined using net asset values as provided by external investment managers. The University also has farm properties held as investments by quasi-endowments, which are carried at cost, or when donated, at the fair value at the date of donation. Changes in fair value during the reporting period are reported as a net increase (decrease) in the fair value of investments. Net investment income includes interest, dividends, and realized gains and losses. (e) Endowments For donor-restricted endowments, the Uniform Prudent Management of Institutional Funds Act (UPMIFA), as adopted in Illinois, permits the respective Boards of both the University and the Foundation to appropriate an amount of realized and unrealized endowment appreciation as they determine to be prudent. The University s policy is to retain the realized and unrealized appreciation (net appreciation) within the endowment pool after spending rule distributions. 18 (Continued)

116 University The University s endowment pool investment policy follows the total return concept. The focus is to preserve the real value or purchasing power of endowment pool assets and the annual support the assets provide. Distributions are made from the University Endowment Fund to the University entities that benefit from the endowment funds. The endowment spending rule provides for an annual distribution of 4.0% of the two-quarter lagged, six-year moving average market value of fund units. At June 30, 2015, net appreciation of $103,242,000 was available to be spent, of which $78,516,000 was restricted to specific purposes. URO Foundation Interpretation of Relevant Law: The board of directors of the Foundation interprets UPMIFA to require consideration of the following factors, if relevant, in making a determination to appropriate or accumulate donor-restricted endowment funds: The duration and preservation of the endowment fund The purposes of the institution and the endowment fund General economic conditions The possible effect of inflation or deflation The expected total return from income and the appreciation of investments Other resources of the institution The investment policy of the institution In accordance with the Foundation s interpretation of UPMIFA, absent explicit donor stipulations to the contrary, the Foundation shall classify as permanently restricted net assets (restricted nonexpendable) the original value of the gifts donated to the permanent endowment, but such classification does not limit the expenditures from the endowment fund only to income, interest, dividends, or rents, issues or profits. The portion of the fund s value spendable annually for the donor-designated purpose is to be determined, from time to time, by the Foundation s board of directors, acting in good faith, with the care that an ordinarily prudent person in a like position would exercise under similar circumstances, considering the above relevant factors. The Foundation s Board approved spending was $73,494,000 for fiscal year ended June 30, (Continued)

117 (f) Capital Assets Capital assets are recorded at cost or, if donated, at fair value at the date of a gift. Depreciation of the capital assets is calculated on a straight-line basis over the estimated useful lives (noted below) of the assets. The University s policy requires the capitalization of land and collection purchases regardless of cost, equipment over $5,000, software, easements, buildings and improvements over $100,000 and infrastructure over $1,000,000. The University does not capitalize collections of works of art or historical treasures held for public exhibition, education or research in furtherance of public service rather than capital gain, unless they were previously capitalized as of June 30, Proceeds from the sale, exchange or other disposal of any item belonging to a collection of works of art or historical treasures must be applied to the acquisition of additional items for the same collection. Estimated useful lives for capital assets are as follows: Useful life (in years) Useful life (in years) Buildings: Improvements other than buildings: Shell 50 Site improvements 20 Service systems 25 Infrastructure 25 Fixed equipment 15 Remodeling 25 Moveable equipment 3 20 Intangibles: Software 5 10 (g) Deferred Outflows of Resources Under hedge accounting, the University has determined that the interest rate swap agreements on bonds payable and certificates of participation, as hedging derivative instruments, are an effective hedge. Accordingly, changes in the fair values of the interest rate swaps, since being associated with the related outstanding bonds or certificates, are reported as deferred outflows of resources on the accompanying Statement of Net Position. Additionally, interest rate swaps reassigned to new debt, after a refunding of debt that the swap was previously hedging, normally have an other than zero fair value upon the reassociation. For swaps with a fair value of other than zero upon reassociation with a hedgeable item, the fair value is amortized as an adjustment to interest expense in a systematic manner. Losses on refundings for the University s bonds are reported as deferred outflow of resources on the accompanying Statement of Net Position. The losses on refundings are amortized over the life of the debt using the straight-line method. Per Note (q) and (s), employer pension contributions made in fiscal year 2015 are deferred outflow of resources. 20 (Continued)

118 Deferred Outflow of Resources (In thousands) Beginning Change in Ending balance Additions Deductions fair value balance Interest rate swap Unamortized deferred loss $ 20, (3,116) 17,649 on refunding 40,074 21,419 5,097 56,396 Pension contributions 33,473 33,473 Total deferred outflow of resources $ 60,444 55,287 5,097 (3,116) 107,518 (h) (i) (j) (k) Compensated Absences Accrued compensated absences for University personnel are charged as an operating expense, using the vesting method, based on earned but unused vacation and sick leave days including the University s share of Social Security and Medicare taxes. At June 30, 2015, the University estimates that $99,709,000 of the accrued compensated absences liability will be paid out of State appropriations to the University in subsequent years, rather than from unrestricted net position available at June 30, The amount associated with future State appropriations was calculated based upon the unused vacation and sick leave days and pay rates for the applicable employees. Premiums Premiums for bonds and certificates of participation are reported within bonds payable and leaseholds payable, respectively, and are amortized over the life of the debt issue using the straight-line method. Net Position The Entity s resources are classified into net position categories and reported in the Statement of Net Position. These categories are defined as (a) Net investment in capital assets capital assets net of accumulated depreciation and related outstanding debt balances attributable to the acquisition, construction, or improvement of those assets; (b) Restricted nonexpendable net position restricted by externally imposed stipulations; (c) Restricted expendable net position subject to externally imposed restrictions that can be fulfilled by actions of the Entity pursuant to those stipulations or that expire by the passage of time; and (d) Unrestricted net position not subject to externally imposed stipulations but may be designated for specific purposes by action of management or the Board. The Entity first applies resources in restricted net position when an expense or outlay is incurred for purposes for which resources in both restricted and unrestricted net positions are available. Classification of Revenues The Statement of Revenues, Expenses and Changes in Net Position classifies the Entity s fiscal year activity as operating and nonoperating. Operating revenues generally result from exchange transactions such as payments received for providing goods and services, including tuition and fees, net of scholarships and fellowships, certain grants and contracts, sales and services of educational activities, hospital, medical service plans, and auxiliary enterprises revenues. Certain revenue sources that the Entity relies on to provide funding for operations including State appropriations, gifts, on-behalf payments for fringe benefits and investment income are defined by GASB Statement No. 35 as nonoperating revenues. In addition, transactions related to capital and financing activities are components of nonoperating revenues. 21 (Continued)

119 In fiscal year 2015, $43,988,000 of State appropriations were transferred to the University of Illinois Hospital Services Fund, which is a special fund established in the State Treasury pursuant to the State Finance Act, 30 ILCS 105/6z-30. This fund is owned and operated by the Illinois Department of Healthcare and Family Services (IDHFS) and this fund is not part of or a related organization of the University. (l) (m) Tuition, Scholarships and Fellowships Scholarships and fellowships of $338,283,000 and $7,974,000 are netted against student tuition and fees and auxiliary enterprises revenues, respectively. Stipends and other payments made directly to students are reported as scholarship and fellowship expense. Net tuition and fees, except for summer session, are recognized as revenues as they are assessed. The portion of summer session tuition and fees applicable to the following fiscal year are unearned and recognized in the next fiscal year. Patient Services Revenue Hospital With respect to the Hospital, net patient service revenue is reported at the estimated net realizable amounts due from patients, third-party payors and others for services rendered, including estimated retroactive adjustments under reimbursement agreements with third-party payors. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. The Hospital has agreements with third-party payors that provide for payments to the Hospital at amounts different from its established rates. Payment arrangements include prospectively determined rates per discharge reimbursed costs, discounted charges and per diem payments. Approximately 96% of the Hospital s net patient service revenues were derived from Medicare, Medicaid, Blue Cross and managed care programs for the year ended June 30, Payments under these programs are based on established program rates or cost of rendering services to program beneficiaries. The Hospital provides contractual allowances on a current basis for the differences between charges for services rendered and the expected payments under these programs. For the year ended June 30, 2015, the contractual allowances totaled $1,461,486,000. The University provides care without charge or at amounts at less than its established rates to patients who meet the criteria of its charity care policy. Because the University does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenue. Consideration for eligibility of charity care is based on the application of the University s charity care policy and includes patient qualification criteria, financial resource criteria and service criteria. The University does not include the unreimbursed cost of providing care to Medicaid and Medicare patients as charity care. The net cost of charity care provided in fiscal year 2015 was $8,468,000, a reduction of 58% from the prior year, largely as a result of patients obtaining insurance under the Affordable Care Act. The net cost of charity care is determined by the total charity care cost less any patient related revenue due to the sliding scale payments or other patient specific resources. Most of the patient specific resources came from the Center for Medicare & Medicaid Services 1011 program reimbursement. (n) Classification of Expenses The majority of the Entity s expenses are exchange transactions, which GASB defines as operating expenses for financial statement presentation. Nonoperating expenses include transfers of state appropriations and capital financing costs. 22 (Continued)

120 (o) (p) (q) Employment Contracts Employment contracts for certain academic personnel provide for twelve monthly salary payments, although the contracted services are rendered during a nine-month period. The liability for those employees who have completed their contracted services, but have not yet received final payment, was $62,967,000 at June 30, 2015 and is recorded in the accompanying financial statements as accrued payroll. This amount will be paid from amounts specifically included in State appropriations to the University for fiscal year 2016 rather than from the unrestricted net position available at June 30, On-Behalf Payments for Fringe Benefits In accordance with GASB Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, the University reported payments made to the State Universities Retirement System on behalf of the Entity for contributions to retirement programs for Entity employees of $681,300,000 for the year ended June 30, Substantially all employees participate in group health insurance plans administered by the State. The employer contributions to these plans for University employees paid by State appropriations and auxiliary enterprises are paid to Central Management Services on behalf of the University and include postemployment benefits. The employer contributions to these plans on behalf of employees paid from other University held funds are paid by the University. The on-behalf payments were $491,054,000 for year ended June 30, On-behalf payments are reflected as nonoperating revenues. The corresponding on-behalf expense is reflected as an operating expense and is allocated by function. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the plan net position of the State Universities Retirement System (SURS) and additions to/deductions from SURS plan net position has been determined on the same basis as they are reported by SURS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. For the purposes of financial reporting, the State of Illinois and participating employers are considered to be under a special funding situation. A special funding situation is defined as a circumstance in which a non-employer entity is legally responsible for making contributions directly to a pension plan that is used to provide pensions to the employees of another entity or entities and either (1) the amount of the contributions for which the non-employer entity is legally responsible is not dependent upon one or more events unrelated to pensions or (2) the non-employer is the only entity with a legal obligation to make contributions directly to a pension plan. The State of Illinois is considered a non-employer contributing entity. Participating employers are considered employer contributing entities. (r) Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. 23 (Continued)

121 (s) New Accounting Pronouncements The University adopted the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, which was effective for periods beginning after June 15, This Statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, and deferred inflows of resources, and expense/expenditures. For defined benefit pensions, this Statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. Note disclosure and required supplementary information requirements about pensions also are addressed. Implementation of this pronouncement required a change in the notes to the University s financial statements and an addition of required supplementary information. The University adopted the provisions of GASB Statement No. 69, Government Combinations and Disposals of Government Operations, which was effective for periods beginning after December 15, This Statement establishes accounting and financial reporting standards related to government combinations and disposals of government operations. This Statement requires disclosures to be made about government combinations and disposals of government operations to enable financial statement users to evaluate the nature and financial effects of those transactions. Implementation of this pronouncement did not impact the University s financial statements. The University adopted the provisions of GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, which was effective for periods beginning after June 15, This Statement amends paragraph 137 of Statement 68 to require that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability. Statement 68, as amended, continues to require that beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions be reported at transition only if it is practical to determine all such amounts. Implementation of this pronouncement required a change in the notes to the University s financial statements and an adjustment to net position as of July 1, Change in Beginning Balance of Net Position (In thousands) Net position, July 1, 2014, as previously reported $ 4,412,731 Cumulative effect of change in accounting principle 34,200 Net position, July 1, 2014, as adjusted $ 4,446,931 (2) Cash, Cash Equivalents and Investments The carrying amount of the University s cash totaled $192,902,000 at June 30, The June 30, 2015 total bank account balances for the University aggregated $209,992,000 all of which was covered by federal depository insurance or by collateral held by an agent in the Entity s name. Certificates of deposit held by the University totaled $200,000 at June 30, 2015 and was covered by federal depository insurance. 24 (Continued)

122 The Board follows the State of Illinois Uniform Prudent Management of Institutional Funds Act, 760 ILCS 51/1-11, when managing the University s investments. The Board fulfills its fiduciary responsibility for the management of investments, including endowment farm real estate, by adopting policies to maximize investment return with a prudent level of risk. The University has farm properties held as investments by permanent and term endowments reported at fair value of $67,456,000. The fair value of the farm properties is determined by a periodic appraisal of the property by a certified real estate appraiser. Changes in fair value during the reporting period are reported as investment income. The University also has farm properties held as investments by quasi-endowments reported at $8,542,000, which are carried at cost, or when donated, at the fair value at the date of donation. All other investments are carried at their fair value, as determined by quoted market prices when available, and otherwise by generally accepted valuation principles. Nearly all of the University s investments are managed by external professional investment managers, who have full discretion to manage their portfolios subject to investment policy and manager guidelines established by the University, and in the case of mutual funds and other commingled vehicles, in accordance with the applicable prospectus or limited partnership agreement. The following details the carrying value of the University s cash, cash equivalents and investments as of June 30, 2015: University Cash, Cash Equivalents and Investments (In thousands) U.S. Treasury bonds and bills $ 277,064 U.S. government agencies 278,374 Commercial paper 67,081 Asset backed securities 262,414 Corporate bonds 677,155 Bond funds 124,622 Nongovernment mortgage-backed securities 101,775 International government bonds and governmental agencies 19,855 Municipal bonds 28,647 Money market funds 432,642 Illinois public treasurer s investment pool 33,126 Subtotal before cash deposits, equities and other investments 2,302,755 Equities 64,788 Equity funds 297,425 Hedge funds 61,536 Private equity 26,347 Repurchase agreements 108 Certificates of deposit 200 Farm properties 75,998 Real estate 35,786 Cash deposits 192,902 Total $ 3,057, (Continued)

123 (a) Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. In accordance with its investment policy, the University employs multiple investment managers, of which each has specific maturity assignments related to the operating funds. The funds are structured with different layers of liquidity. Funds expected to be used within one year are invested using the Barclay s Capital 90-Day and Bank of America Merrill Lynch 12 month Treasury Bill Index as performance benchmarks. Core operating funds are invested in longer maturity investments. Core operating funds investment manager s performance benchmarks are the Barclays Capital one-year to three-year Government Bond Index, the Barclays Capital one-year to three-year Government Credit Bond Index and the Barclays Capital Intermediate Aggregate Bond Index. The University s debt securities and maturities at June 30, 2015 are illustrated below: University Investment Maturities (In thousands) Less than Greater than Total 1 year 1 5 years 6 10 years 10 years U.S. Treasury bonds and bills $ 277,064 55, ,710 27,360 4,326 U.S. government agencies 278,374 83,135 43,778 21, ,344 Commercial paper 67,081 67,081 Asset backed securities 262, ,496 13,465 4,598 Corporate bonds 677, , ,347 34, Bond funds 124, ,791 Nongovernment mortgagebacked securities 101, ,278 International government bonds and govermental agencies 19,855 6,893 12, Municipal bonds 28,647 9,344 18,193 1,110 Money market funds 432, ,642 Illinois public treasurer s investment pool 33,126 33,126 Total $ 2,302, , , , ,773 (b) At June 30, 2015, the University s operating funds pool portfolio had an effective duration of 1.4 years. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University s investment policy requires that the University s short-term operating funds be invested in fixed income securities and short-term instruments (e.g. money markets, certificates of deposits). Fixed income securities shall be rated investment grade or better by one or more nationally recognized statistical rating organizations. Securities not covered by the investment grade standard are allowed if, in the manager s judgment, those instruments are of comparable credit quality. Securities that fall below the stated minimum credit requirements subsequent to initial purchase may be held at the manager s discretion. The University reports the credit ratings of interest-bearing investments using Standard and Poor s and Moody s ratings. Securities with split ratings or with a different rating assignment are disclosed using the rating indicative of the greatest degree of risk. 26 (Continued)

124 At June 30, 2015, the University had debt securities and quality ratings as illustrated below: University Investments Quality Ratings (In thousands) Less AA/Aa/ than BB Total AAA/Aaa TSY/AGY* A/A BBB/Baa BB/Ba or not rated U.S. Treasury bonds and bills $ 277, ,064 U.S. government agencies 278,374 10, ,709 Commercial paper 67,081 10,092 56,989 Asset backed securities 262, , Corporate bonds 677,155 10,095 89, , , ,871 Bond funds 124,622 84,312 8,215 12,364 10, ,159 Nongovernment mortgagebacked securities 101,775 74,283 19,071 6,200 1, International government bonds and govermental agencies 19,855 12,785 1,001 4,622 1,447 Municipal bonds 28,647 8,632 14,410 5,605 Money market funds 432, ,007 34,635 Illinois public treasurer s investment pool 33,126 33,126 Total $ 2,302, , , , ,318 1,249 12,752 * TSY (U.S. Treasury Securities) &AGY (U.S. Agency Securities) is a reporting convention used by the University s custodian to identify investments that have not received individual security ratings. These securities have an explicit or implicit guarantee by the U.S. government which has been rated AA+ by Standard and Poor s and Aaa by Moody s. (c) (d) Custodial Credit Risk Custodial credit risk is the risk that in the event of the failure of the counterparty, the University will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. Exposure to custodial credit risk relates to investment securities that are held by someone other than the University and are not registered in the University s name. The University investment policy does not limit the value of investments that may be held by an outside party. At June 30, 2015, the University s investments had no custodial credit risk exposure. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of the University s investment in a single issuer. The University s investment policy provides that the total operating funds portfolio will be broadly diversified across securities in a manner that is consistent with fiduciary standards of diversification. Issuer concentrations are limited to 5% per issuer of the total market value of the portfolio at the time of purchase, or in the case of securitized investments (e.g. mortgage-backed securities), concentration is limited to an individual issuance trust (e.g. pooled receivables). These concentration limits do not apply to investments in mutual funds, exchange traded funds, or other pooled investment products or obligations of, and issues guaranteed by, the U.S. Treasury, U.S. agencies or U.S. government sponsored enterprises. As of June 30, 2015, not more than 5% of the University s total investments were invested in securities of any one issuer, excluding securities issued or guaranteed by the U.S. government, mutual funds, exchange traded funds and external investment pools or other pooled investments. 27 (Continued)

125 (e) Foreign Currency Risk Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or deposit. The University s operating fund investments generally are not exposed to foreign currency risk. The University does not have an overarching policy related to foreign currency risk; however, under each investment manager s respective fund agreement, the portfolio s foreign currency exposure may be unhedged or hedged back into U.S. dollars. The University invests in non-u.s. developed and emerging markets through commingled funds invested in non-u.s. equities, global equities, private equity and absolute return strategies. As these funds are reported in U.S. dollars, both price changes of the underlying securities in local markets and changes to the value of local currencies relative to the U.S. dollar are embedded in investment returns. (f) (g) Securities Lending The University discontinued participation in the securities lending program during fiscal year URO Foundation Investments As the investments of the University s URO-Foundation are considered material to the University s financial statements taken as a whole, the following disclosures are made: The Foundation financial statements follow FASB standards; therefore, the required disclosures, within the University s statements, for the Foundation investments differ from GASB requirements. FASB standards have established a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The fair value hierarchy is as follows: Level 1 Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Foundation has the ability to access as of the measurement date. Level 1 inputs would also include investments valued at prices in active markets that the Foundation has access to where transactions occur with sufficient frequency and volume to provide reliable pricing information. Level 2 Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 Significant unobservable inputs that reflect a reporting entity s own assumptions about the assumptions that market participants would use in pricing an asset or liability. A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. Investments: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, exchange-traded equities and mutual funds. 28 (Continued)

126 If quoted market prices are not available, then the fair values are estimated by using pricing models, quoted prices of securities with similar characteristics and other valuation methodologies. Level 2 securities would include mortgage-backed agency securities, certain corporate securities and other certain securities. These securities are valued primarily through a multi-dimensional relational model including standard inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, offers and reference data. In certain cases where there is limited activity or less transparency around inputs to the valuation, including alternative investments, securities are classified within Level 3 of the valuation hierarchy and may include equity and/or debt securities issued by private entities. Beneficial interest in trusts and trusts held by others: The values of the beneficial interest in trusts are derived from the underlying investments of the trusts. The value of those investments is determined in the same manner as investments described above. The value of trusts held by others is based on the Foundation owning an interest in trust and not the underlying investments. The estimated future value of that interest in the trust is based on management s estimate of the trusts expected performance which is then present valued back to the date of the financial statements based on life expectancy factors published by the Internal Revenue Service. There have been no changes in valuation techniques used for any assets measured at fair value during the year ended June 30, (Continued)

127 The following table summarizes assets measured at fair value on a recurring basis as of June 30, 2015, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value: URO Foundation Fair Value Measurements as of June 30, 2015 (In thousands) Fair value Level 1 Level 2 Level 3 Assets: U.S. Treasury bonds and bills $ 13,178 13,178 U.S. government agencies 7,190 7,190 Municipal bonds 2,229 2,229 Corporate bonds and notes 57,649 57,649 Commercial mortgage-backed securities 13,912 13,912 Asset-backed securities 24,484 24,484 Nongovernment backed collateralized mortgage obligation (CMOS) Common stock, domestic: Consumer goods 2,962 2,962 Energy Financial services 1, ,006 Healthcare 1,500 1,500 Industrials Information technology Materials 3,972 3,972 Telecommunications Utilities 6 6 Common stock, foreign: Consumer goods 19,737 19,737 Energy 1,572 1,572 Financial services 11,257 11,257 Health care 5,076 5,076 Industrials 8,590 8,590 Information technology 1,587 1,587 Materials 2,515 2,515 Subtotal forward $ 179,857 59, , (Continued)

128 URO Foundation Fair Value Measurements as of June 30, 2015 (Continued) (In thousands) Fair value Level 1 Level 2 Level 3 Subtotal forward $ 179,857 59, ,347 Bond mutual funds: U.S. government 11, ,818 Mortgages 19,069 1,221 17,848 Corporate bonds and notes 7, ,910 High yield 2, ,928 Municipals 3, ,200 Internationals 59, ,359 Equity mutual funds: Small cap Mid cap Large cap 177, ,018 International 77,056 77,056 Money market mutual funds 48,979 48,979 Other investments 3,530 3,530 Farms 62,689 62,689 Beneficial interest in trusts 40,237 40,237 Trusts held by others 22,670 22,670 Cash surrender value of life insurance 6,605 6,605 Partnership interests 5,293 5,293 Total investments $ 727, , ,642 73,042 The investments above exclude $6,298,000 of real estate and $8,140,000 of private equities which are carried at cost and $1,033,167,000 of investments where values are based on NAV. There were no transfers between Level 1 or 2 of the fair value hierarchy during the year ended June 30, (Continued)

129 The following table presents additional information about investments measured at fair value on a recurring basis for which the URO Foundation has utilized Level 3 inputs to determine fair value: URO Foundation Significant Unobservable Inputs (Level 3) as of June 30, 2015 (In thousands) Total Beginning Sales gains or Ending balance Purchases (distributions) losses* balance International government bonds $ (994) 582 Other investments 3,635 (118) 13 3,530 Beneficial interest in trusts 37,978 2,259 40,237 Trusts held by others 23,739 (1,069) 22,670 Cash surrender value of life insurance 6, ,605 Total $ 71, (1,112) 2,109 73,042 *(realized/unrealized) included in change in net position Gains and losses on Level 3 investments included in change in net position for the period above are reported as net increase (decrease) in fair value of investments. The following table sets forth additional disclosure of the URO-Foundation s investments whose fair value is estimated using NAV per share (or its equivalent) as of June 30, 2015: URO Foundation Investments, Fair Value Estimated Using NAV (or its equivalent) (In thousands) Unfunded Redemption Fair value commitment frequency Redemption notice period Hedged/alternative investments (A) $ 687,567 (A) (A) Private equity (B) 100,858 59,936 (B) (B) Real estate trusts and partnerships (B) 30,104 82,433 (B) (B) Large cap equity fund (C) 1,425 Daily Trade Date Plus 1 3 Days International equity fund (D) 213,213 Daily/30 days Trade Date Plus 1 day 30 Days $ 1,033, ,369 (A) The partnerships in this category consist of funds that invest in multiple limited partnerships with various investment strategies and long and short positions in equity securities of companies within the United States of America (USA) and outside of the USA. These funds can be redeemed daily, monthly, quarterly or annually depending on the partnership agreement within redemption notice periods of 1 to 36 months. 32 (Continued)

130 (B) The partnerships in this category consist of funds that invest in the following types of investments in the USA and outside of the USA: venture capital partnerships, buyout partnerships, mezzanine/subordinated debt partnerships, restructuring/distressed debt partnerships and special situation partnerships, and real estate. These investments cannot be redeemed during the life of the partnership, which can be up to 12 years; however, they can be transferred to another eligible investor. Distributions will be received as the underlying investments of the funds are liquidated over time. The fair value of this investment has been estimated using the NAV provided by the fund manager and an adjustment determined by management for the time period between the date of the last available NAV from the investment manager and June 30, (C) These funds invest in marketable equities that are all exchange traded in the USA and that are categorized as large cap. These funds can be redeemed at the month-end NAV per share based on the fair value of the underlying assets. (D) These funds invest in international equities that are all exchange traded in countries outside of the USA. These funds can be redeemed at the month-end NAV per share based on the fair value of the underlying assets. All URO Foundation investments are considered noncurrent assets. (3) Accounts, Notes and Pledges Receivable The University provides allowances for uncollectible accounts and notes receivable based upon management s best estimate considering type, age, collection history of receivables and any other factors as considered appropriate. Accounts and notes receivable are reported net of allowances at June 30, The composition of accounts receivable and notes and pledges receivable at June 30, 2015 is summarized as follows: University Accounts Receivable, Net of Allowance (In thousands) Gross Allowance for Net receivables uncollectible receivables Receivables from sponsoring agencies $ 164,308 (1,425) 162,883 Hospital and other medical activities 520,066 (382,030) 138,036 Student tuition and fees 36,855 (10,796) 26,059 Auxiliaries 17,026 (5,798) 11,228 Medical service plan 72,107 (22,874) 49,233 Educational activities 44,475 (5,746) 38,729 Other 38,872 (7,593) 31,279 Total $ 893,709 (436,262) 457, (Continued)

131 Notes and Pledges Receivable (In thousands) Student notes receivable University: Student notes outstanding $ 67,775 Allowance for uncollectible loans (3,805) Total student notes receivable, net $ 63,970 Gift pledges receivable, URO Foundation: $ 208,341 Less: Allowance for doubtful pledges (11,241) Present value discount (3,100) Total gift pledges outstanding, net $ 194,000 (4) Capital Assets Net interest cost incurred on borrowed funds during the period of construction of capital assets is capitalized as a component of the cost of acquiring those assets. Net interest of $11,544,000 was capitalized during the year ended June 30, (Continued)

132 Capital assets activity during the year ended June 30, 2015 is summarized as follows: University Capital Assets (In thousands) Beginning Ending balance Additions Retirements Transfers balance Nondepreciable capital assets: Land $ 135, ,822 Construction in progress 244, ,742 (188,236) 303,682 Inexhaustible collections 22, (7) 22,983 Total nondepreciable capital assets 402, ,252 (7) (188,236) 462,487 Depreciable capital assets: Buildings 3,856, ,763 4,035,443 Improvements and infrastructure 699,757 2, ,297 Equipment 1,222,407 69,542 (75,786) 4,202 1,220,365 Software 175,076 (923) 2, ,884 Exhaustible collections 602,442 29,622 (8,141) 623,923 Total depreciable capital assets 6,556,362 99,164 (84,850) 188,236 6,758,912 Less accumulated depreciation: Buildings 1,503,539 97,506 1,601,045 Improvements and infrastructure 395,985 23, ,346 Equipment 863,042 99,756 (73,132) 889,666 Software 166,860 3,429 (923) 169,366 Exhaustible collections 473,964 24, ,801 Total accumulated depreciation 3,403, ,889 (74,055) 3,578,224 Total net depreciable capital assets 3,152,972 (149,725) (10,795) 188,236 3,180,688 Total $ 3,555,450 98,527 (10,802) 3,643,175 (5) Accrued Self-Insurance and Loss Contingency The University s accrued self-insurance liability of $243,959,000 June 30, 2015 covers hospital patient liability; hospital and medical professional liability; estimated general and contract liability; and workers compensation liability related to employees paid from local funds. The accrued self-insurance liability was discounted at rates of 2% to 5% at June 30, Amounts increasing the accrued self-insurance liability are charged as expenses based upon estimates made by actuaries and the University s risk management division. An additional workers compensation self-insurance liability of $19,471,000 at June 30, 2015 related to employees who are paid from State appropriations is included in the University s accounts payable. These claims will be paid from State appropriations in the year in which the claims are finalized, rather than from unrestricted net position as of June 30, The accrued self-insurance liability includes $175,839,000 at June 30, 2015 for the currently estimated ultimate cost of uninsured medical malpractice liabilities. Ultimate cost consists of amounts estimated by the University s risk management division and independent actuaries for asserted claims, unasserted claims arising from reported incidents, expected litigation expenses and amounts determined by actuaries using 35 (Continued)

133 relevant industry data and hospital specific data to cover projected losses for claims incurred but not reported. Because the amounts accrued are estimates, the aggregate claims actually incurred could differ significantly from the accrued self-insurance liability at June 30, Changes in these estimates will be reflected in the Statement of Revenues, Expenses and Changes in Net Position in the period when additional information is available. Changes in Accrued Self-Insurance (In thousands) Balance, beginning of year $ 223, ,322 Claims incurred and changes in estimates 49,707 22,894 Claim payments and other deductions (29,492) (31,472) Balance, end of year 243, ,744 Less current portion (53,766) (58,567) Balance, end of year noncurrent portion $ 190, ,177 The University has contracted with several commercial carriers to provide varying levels and upper limits of excess indemnity coverage. These coverages have been considered in determining the required accrued self-insurance liability. There were no material settlements that exceeded insurance coverage during the last three years. The University purchases excess indemnity coverage for certain areas such as commercial general liability, Board legal liability, and hospital and medical liability. (6) Accrued Compensated Absences Accrued compensated absences includes personnel earned but unused vacation and sick leave days, including the University s share of Social Security and Medicare taxes, valued at the current rate of pay. Section 14a of the State Finance Act (30 ILCS 105/14a) provides that employees eligible to participate in the State Universities Retirement System or the Federal Retirement System are eligible for compensation at time of resignation, retirement, death or other termination of University employment for one-half (1/2) of the unused sick leave earned between January 1, 1984 and December 31, Any sick leave days that were earned before or after this period of time are noncompensable. Changes in Compensated Absences Balance (In thousands) Balance, beginning of year $ 199,174 Additions 19,425 Deductions (16,215) Balance, end of year 202,384 Less current portion (19,141) Balance, end of year noncurrent portion $ 183, (Continued)

134 (7) Bonds Payable On February 11, 2015, the University issued $109,340,000 of AFS Revenue Bonds, Series 2015A. Proceeds of these bonds were used to provide for the partial refunding of the outstanding principal of two different Series of AFS Revenue Bonds, Series 2005A and Series 2009A. Proceeds were also used to fund all costs incidental to the issuance of the Series 2015A Bonds. The refunding resulted in a projected savings over the life of the issue at a net present value of $9,792,000. The difference between the reacquisition price and the net carrying amount of the old debt, (gain) loss on refunding for each Series, was $(658,000) and $14,251,000, respectively. This (gain) loss is deferred and amortized as a component of interest expense over the remaining life of the old debt or the life of the new debt, whichever is shorter. Bonds Payable (In thousands) Maturity Beginning Ending Current dates balance Additions Deductions balance portion Auxiliary Facilities System: Current interest bonds $ 1,056, ,340 (121,860) 1,043,490 30,885 Capital appreciation bonds ,710 (17,730) 135,980 17,815 Health Services Facilities System ,970 (3,120) 118,850 3,240 UIC South Campus ,625 (5,155) 47,470 5,380 1,384, ,340 (147,865) 1,345,790 57,320 Unaccreted appreciation (41,770) 7,782 (33,988) (923) 1,342, ,122 (147,865) 1,311,802 56,397 Unamortized debt premium 63,759 8,343 (6,691) 65,411 3,700 Total $ 1,406, ,465 (154,556) 1,377,213 60,097 None of the University s bonds described above constitute obligations of the State. Capital appreciation bonds of $135,980,000 outstanding at June 30, 2015 do not require current interest payments and have a net unappreciated value of $101,992,000. The University records the annual increase in the principal amount of these bonds as interest expense and accretion on bonds payable. Included in bonds payable is $158,280,000 of variable rate demand bonds. These bonds mature serially through April These bonds have variable interest rates that are adjusted periodically (e.g., daily, weekly, or monthly), generally with interest paid at the beginning of each month. The bonds are subject to purchase on the demand of the holder at a price equal to principal plus accrued interest on seven days notice and delivery to the University s several remarketing agents. The University pays the remarketing agent fees on the outstanding bond balance. If the remarketing agent is unable to resell any bonds that are put to the agent, the University has a standby bond purchase agreement with a liquidity facility entity. The University has several such agreements, with the fees on the Bond Purchase Commitment (formula based on outstanding bonds plus pro forma interest). The University, in the event a liquidity facility is utilized, has reimbursement agreements with different financial entities. Generally, the payback period is three to five years, at an interest rate initially set at slightly above prime or the federal funds rate. The due date of the initial payment per the reimbursement agreements varies depending upon the variable rate bond issue. Certain reimbursement agreements require an initial payment due date 366 days after the event which caused the liquidity facility to be utilized. 37 (Continued)

135 The required future interest payments for these variable rate bonds have been calculated using the current interest rate, based upon short-term rates, or the synthetic fixed rate, as illustrated in the table below. Other outstanding bond issues bear interest at fixed rates ranging from 0.862% to 6.250%. Variable Rate Bonds Interest rate at June 30, Remarketing Remarketing Liquidity facility Liquidity Bond issues 2015 agent fee Bank Expiration Insured by fee UIC South Campus, Series % JPMorgan Securities 0.075% JPMorgan Chase 6/24/2019 Letter of Credit 0.550% AFS, Series Loop Capital JPMorgan Chase 5/19/2016 None AFS, Series 2014C 0.15 Wells Fargo Northern Trust 2/19/2019 Letter of Credit HSFS, Series 1997B 0.07 JPMorgan Securities Wells Fargo 5/30/2019 Letter of Credit HSFS, Series Goldman Sachs Wells Fargo 5/30/2019 Letter of Credit (a) Interest Rate Swap Agreements on Bonds Payable The University has entered into three separate pay-fixed/receive-variable interest rate swap agreements. The objective of these swaps was to effectively change the University s variable interest rate on the bonds to a synthetic fixed rate. The notional amount of the interest rate swaps is equal to the par amount of the related bonds, except for HSFS Series 2008, of which $275,000 is not covered by the swap agreement. In addition, the swaps were entered at the same time as the original bonds were issued and terminate with maturity of the existing bonds. No cash was paid or received when the original swap agreements were entered into. Credit Risk As of June 30, 2015, the University was not exposed to credit risk because the swaps had a negative fair value. If interest rates change and the fair value of the swap became positive, the University would be exposed to credit risk in the amount of the derivative s fair value. The terms, fair values and credit ratings of the outstanding swaps as of June 30, 2015 are listed below: Interest Rate Swaps Outstanding Fixed Swap Counterparty notional Effective rate Variable rate Fair termination credit rating Bond issues amount date paid received value date Counterparty (S&P/Moody s) HSFS 2008 $ 33,390,000 Nov 2008* 3.534% 68% of LIBOR** $ (4,252,000) Oct-2026 Loop BBB+/A3 UIC SC ,283,000 Feb 2006* % of LIBOR** (2,477,000) Jan-2022 Morgan Stanley A-/A3 UIC SC ,888,000 Feb 2006* % of LIBOR** (2,424,000) Jan-2022 JPMorgan Chase A+/Aa3 * Swap agreement was transferred from original issue to refunded bond issues. ** LIBOR London Interbank Offered Rate The University engaged a third-party consultant to calculate the mark to market or market value of the swap transactions. Since these are negative numbers, they represent an approximation of the amount of money that the University may have to pay a swap provider to terminate the swap. The counterparty may have to post collateral in the University s favor in certain conditions, and the University would never be required to post collateral in the counterparty s favor. Interest Rate Risk Since inception of the swaps, declining interest rates exposed the University to interest rate risk, which adversely affected the fair values of the swap agreements. Termination Risk The University has the option to terminate any of the swaps early. The University or the counterparties may terminate a swap if the other party fails to perform under the terms of the contract. The University may terminate a swap if both credit ratings of the counterparties fall below 38 (Continued)

136 BBB+ as issued by Standard & Poor s and Baa1 as issued by Moody s Investors Service. If a swap is terminated, the variable-rate bonds would no longer carry a synthetic fixed interest rate. In addition, if at the time of termination, a swap has a negative fair value, the University would be liable to the counterparties for a payment equal to the swap s fair value. Basis Risk The swaps expose the University to basis risk should the relationship between LIBOR and the variable weekly rate determined by remarketing agents change, changing the synthetic rate on the bonds. If a change occurs that results in the difference in rates widening, the expected cost savings may not be realized. Other Risks Since the swap agreements extend to the maturity of the related bond, the University is not exposed to rollover risk. In addition, the University is not exposed to foreign currency risk or to market access risk as of June 30, However, if the University decides to issue refunding bonds and credit is more costly at that time, it could be exposed to market access risk. (b) Pledged Revenues and Debt Service Requirements The University has pledged specific revenues, net of specified operating expenses, to repay the principal and pay the interest of revenue bonds. The following is a schedule of the pledged revenues and related debt: Pledged Revenues Debt service to pledged Source of Future revenues revenue revenues Term of (current Bond issues Purpose pledged pledged 2 commitment year) (In thousands) AFS Refunding, various improvements and Net AFS revenue, student additions to the System tuition and fees $ 1,823, % HSFS Additions to System and Net HSFS revenue, Medical refunding Service Plan revenue net of bad debt expense, College of Medicine net tuition revenue 217, UIC South Campus South Campus Development Project 1 and refunding Defined Tax Increment Financing District revenue, student tuition and fees, and sales of certain land in the UIC South Campus project 55, Total future revenues pledged $ 2,095,927 1 An integrated academic, residential, recreational and commercial development south of UIC s main campus 2 Total future principal and interest payments on debt 39 (Continued)

137 Future debt service requirements for all bonds outstanding at June 30, 2015 are as follows: Debt Service Requirements Principal Interest (In thousands) 2016 $ 57,320 54, ,870 52, ,440 51, ,160 49, ,780 47, , , , , ,205 88, ,550 42, ,930 12,100 Total $ 1,345, ,137 Using the actual rates of 0.06% (UIC South Campus, Series 2008) and 0.06% (Health Services Facilities System, Series 2008), in effect as of June 30, 2015, 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. As rates vary, variable-rate bond interest payments and net swap payments will also vary. UIC South Campus Revenue Refunding Bonds, Series 2008 Variable-Rate Debt Service Requirements (In thousands) Variable-rate bonds Interest rate Principal Interest swaps, net Total 2016 $ 4, ,625 6, , ,422 6, , ,202 6, , , , , , ,654 Total $ 42, ,584 48, (Continued)

138 Health Services Facilities System Revenue Bonds, Series 2008 Variable-Rate Debt Service Requirements (In thousands) Variable-rate bonds Interest rate Principal Interest swaps, net Total 2016 $ 2, ,108 3, , ,028 3, , , , , , , , ,371 17, , ,866 Total $ 33, ,264 41,069 Certain bonds of the University (AFS Series 1991) have debt service reserve requirements. The Maximum Annual Net Debt Service for those bonds, as defined, is $14,927,000. (c) Advanced Refunded Bonds Payable The University has defeased bonds through advanced refunding in the prior years, and accordingly, they are not reflected in the accompanying financial statements. The amount of bonds that have been defeased as of June 30, 2015 consists of the following: Auxiliary Facilities System, Series 2006 Auxiliary Facilities System, Series 2009A Advanced Refunded Bonds (In thousands) Outstanding at Series June 30, 2015 $ 160,460 76,305 Total $ 236,765 (8) Leaseholds Payable and Other Obligations On December 23, 2014, the University issued $65,255,000 of Certificates of Participation (COPs), Series 2014A, Taxable Series 2014B, and Series 2014C. Proceeds of these certificates were used to provide for the partial refunding of the outstanding principal of COPs, Series 2007A and the refunding of the outstanding principal of COPs Taxable Series 2005 and COPs Series 2006A, respectively. Proceeds were also used to fund all costs incidental to the issuance of the Series 2014A, Taxable Series 2014B and Series 2014C COPs. The refunding resulted in a projected savings over the life of the issue at a net present value of $11,155,000. The difference between the reacquisition price and the net carrying value amount of the old debt, loss on the refunding for each Series, was $3,563,000, $349,000 and $2,819,000, respectively. This loss is deferred and amortized as a component of interest expense over the remaining life of the old debt or the life of the new debt, whichever is shorter. On December 23, 2014, the University also had a partial cash defeasance of the COPs Series 2009A. $17,740,000 was advance refunded with a projected savings over the life of the issue at a net present value 41 (Continued)

139 of $4,539,000. The difference between the reacquisition price and the net carrying value amount of the old debt, loss on the refunding, was $1,947,000. This loss is deferred and amortized as a component of interest expense over the remaining life of the debt. Leaseholds payable and other obligations activity for the year ended June 30, 2015 consists of the following: Leaseholds Payable and Other Obligations (In thousands) Beginning Ending Current balance Additions Deductions balance portion University: Certificates of participation $ 365,725 65,255 (159,420) 271,560 27,460 Unamortized debt premium 7,209 8,130 (4,373) 10,966 1, ,934 73,385 (163,793) 282,526 29,371 Other capital leases 36, (3,774) 33,414 3,698 Energy services agreement installment payment contracts 46,445 (2,880) 43,565 2,966 Environmental remediation liability 280 (56) Total University $ 456,208 74,024 (170,503) 359,729 36,091 URO Foundation: Annuities payable $ 52,074 7,695 (6,931) 52,838 7,103 Other liabilities 5,564 (623) 4,941 Total URO Foundation $ 57,638 7,695 (7,554) 57,779 7,103 The University leases various plant facilities and equipment under capital leases. This includes assets obtained with certificates of participation proceeds and recorded as capital leases, as well as, other capital lease agreements funded through operations. Included in leaseholds payable is $103,040,000 of variable-rate demand COPs. The COPs mature serially through August The COPs have variable interest rates that are adjusted periodically (e.g., daily, weekly, or monthly), generally with interest paid at the beginning of each month. The COPs are subject to purchase on the demand of the holder at a price equal to principal plus accrued interest on seven days notice and delivery to the University s remarketing agent. The University pays the remarketing agent fees on the outstanding COPs balance. If the remarketing agent is unable to resell any COPs that are put to the agent, the University has a standby certificate purchase agreement with a liquidity facility entity. The University has an agreement, with the fees based on the Adjusted Principal (formula based on COPs outstanding plus pro forma interest). The University, in the event a liquidity facility is utilized, has a reimbursement agreement with a financial entity. Generally, the payback period is five to seven years, at an interest rate initially set at slightly above prime or the federal funds rate. The required future interest payments for these variable-rate certificates have been calculated using the synthetic fixed rate for Series 42 (Continued)

140 2004, as illustrated in the table below. Other outstanding COPs bear interest at fixed rates ranging from 1.30% to 5.25%. Variable Rate Certificates of Participation Interest rate at June 30, Remarketing Remarketing Liquidity facility Liquidity COP issue 2015 agent fee Bank Expiration Insured by fee COP % Morgan Stanley 0.10% Bank of New York Mellon 8/31/2015 None 0.55% (a) Interest Rate Swap Agreement on Certificates of Participation To facilitate the advance refunding of the COPs (Utility Infrastructure Projects) Series 2001 A & B; and, as a means to lower its borrowing costs, when compared against fixed-rate bonds at the time of issuance, the University entered into an interest rate swap in connection with its COPs (Utility Infrastructure Projects) Series The objective of the swap was to effectively change the University s variable interest rate on the COPs to a synthetic fixed rate. The notional amount of the interest rate swap is equal to the par amount of the related COPs. The swap agreement was entered at the same time as the COPs were issued and terminate with maturity. No cash was paid or received when the original swap agreements were entered into. Credit Risk As of June 30, 2015, the University was not exposed to credit risk because the swaps had a negative fair value. If interest rates change and the fair value of the swap became positive, the University would be exposed to credit risk in the amount of the derivative s fair value. The terms, fair value and credit rating of the outstanding swap as of June 30, 2015 are listed below: Interest Rate Swap Outstanding Fixed Swap Counterparty notional Effective rate Variable rate Fair termination credit rating COP issue amount date paid received value date Counterparty (S&P/Moody s) COP 2004 $ 103,040,000 March % 100% of SIFMA $ (11,451,000) August 2021 Morgan Stanley A-/A3 The University engaged a third-party consultant to calculate the mark to market or market value of the swap transactions. Since these are negative numbers, they represent an approximation of the amount of money that the University may have to pay a swap provider to terminate the swap. The counterparty may have to post collateral in the University s favor in certain conditions, and the University would never be required to post collateral in the counterparty s favor. Interest Rate Risk Since inception of the swap, declining interest rates exposed the University to interest rate risk, which adversely affected the fair values of the swap agreements. Termination Risk The University has the option to terminate the swap early. The University or the counterparty may terminate the swap if the other party fails to perform under the terms of the contract. The University may terminate the swap if both credit ratings of the counterparty fall below BBB+ as issued by Standard & Poor s and Baa1 as issued by Moody s Investors Service. If the swap is terminated, the variable-rate certificates would no longer carry a synthetic fixed interest rate. In addition, if at the time of termination, the swap has a negative fair value, the University would be liable to the counterparty for a payment equal to the swap s fair value. 43 (Continued)

141 Basis Risk Starting in fiscal year 2006, the notional value of the swap and the principal amount of the associated COP began to decline. Conversely, the COP s variable interest rates are expected to approximate SIFMA. As noted above, the swap exposes the University to basis risk should the relationship between SIFMA and the variable weekly rate determined by remarketing agents converge, changing the synthetic rate on the bonds. If a change occurs that results in the rates widening, the expected cost savings may not be realized. Other Risks Since the swap agreements extend to the maturity of the related COP, the University is not exposed to rollover risk. In addition, the University is not exposed to foreign currency risk or to market access risk as of June 30, However, if the University decides to issue refunding COPs and credit is more costly at that time, it could be exposed to market access risk. Using the actual rate of 0.10% in effect as of June 30, 2015, 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. As rates vary, variable-rate certificate interest payments and net swap payments will also vary. Utility Infrastructure Certificates of Participation, Series 2004 Variable-Rate Debt Service Requirements (In thousands) Variable-rate certificates Interest rate Principal Interest swaps, net Total 2016 $ 8, ,626 11, , ,326 11, , ,876 18, , ,278 18, , ,655 19, , ,341 38,146 Total $ 103, , ,607 (b) Capital Leases (includes Certificates of Participation) Assets held under capital leases are included in capital assets at June 30, 2015 as follows: Assets Held Under Capital Lease (In thousands) Land $ 6,471 Buildings 140,145 Improvements 261,715 Equipment 10,434 Subtotal 418,765 Less accumulated depreciation 159,720 Total $ 259, (Continued)

142 The net present value of outstanding capital leases at June 30, 2015 is as follows: Outstanding Capital Leases (In thousands) Certificates of participation: Series 2003 Utility Infrastructure $ 13,730 Series 2004 Utility Infrastructure 103,040 Series 2007A 30,700 Series 2007B 45,645 Series 2009A 13,190 Series 2014A 25,055 Series 2014B 11,040 Series 2014C 29,160 Other capital leases 33,414 Net present value $ 304,974 As of June 30, 2015, future minimum lease payments under capital leases are as follows: Future Minimum Lease Payments Under Capital Leases (In thousands) 2016 $ 43, , , , , , , ,742 Total minimum lease payments 376,217 Amount representing interest (71,243) Net present value $ 304,974 (c) Advanced Refunded Certificates Of Participation The University has defeased COPs through advanced refunding in the prior years, and accordingly, they are not reflected in the accompanying financial statements. The amounts of COPs that have been defeased as of June 30, 2015 consists of the following: 45 (Continued)

143 Advanced Refunded COPs (In thousands) Outstanding at Series June 30, 2015 Series 2006A $ 53,790 Series 2007A 40,985 Series 2009A 17,740 Total $ 112,515 (d) Other Obligations As part of energy services agreements, the University has entered into installment payment contracts to finance energy conservation measures. As of June 30, 2015, future minimum lease payments under installment payment contracts are as follows: Future Minimum Lease Payments Under Installment Payment Contracts (In thousands) 2016 $ 4, , , , , , ,122 Total minimum lease payments 52,276 Amount representing interest (8,711) Net present value $ 43,565 The University monitors environmental matters and records an estimated liability for identified environmental remediation costs. The estimated liability at June 30, 2015 is $224,000. At June 30, 2015, the URO Foundation had annuities payable outstanding of $52,838,000. The Foundation recalculates the present value of these payments through the use of Internal Revenue Service (IRS) discount rates and IRS life expectancy tables. 46 (Continued)

144 (e) Operating Leases The University also leases various buildings and equipment under operating lease agreements. Total rental expense under these agreements was $12,437,000 for the year ended June 30, The future minimum lease payments (excluding those leases renewed on an annual basis) are as follows: Future Minimum Operating Lease Payments (In thousands) 2016 $ 9, , , , Total $ 22,797 (9) Net Position As discussed in note 1(j), the University s net position is classified for accounting and reporting purposes into one of four net position categories according to externally imposed restrictions. The following tables include detail of the net position balances for the University and the URO-Foundation including major categories of restrictions and internal designation of unrestricted funds. University Net Position (In thousands) Net investment in capital assets $ 2,185,442 Restricted nonexpendable: Invested in perpetuity to produce income expendable for scholarships, fellowships and research 108,287 Restricted expendable for: Scholarships, fellowships and research 392,508 Loans 79,741 Service plans 136,853 Retirement of indebtedness 38,307 Capital projects 3,382 Unrestricted: Designated 1,617,441 Undesignated Total $ 4,561, (Continued)

145 URO Foundation Net Position (In thousands) Net investment in capital assets $ 7,565 Restricted nonexpendable: Invested in perpetuity to produce income expendable for academic programs, scholarships, fellowships and research 957,989 Restricted expendable for: Academic programs, scholarships, fellowships and research 957,178 Unrestricted 8,937 Total $ 1,931,669 (10) Funds Held in Trust by Others The University and URO-Foundation are income beneficiaries of several irrevocable trusts which are held and administered by outside trustees. The University and URO-Foundation have no control over these funds as to either investment decisions or income distributions. In accordance with GASB standards, the principal is not recorded in the accompanying financial statements for the University. The URO- Foundation has recorded the principal as investments in the accompanying financial statements in accordance with FASB standards. The fair value of these funds at June 30, 2015 and the amount of income received from these trusts during the year then ended were as follows: Funds Held in Trust by Others (In thousands) University URO Foundation Fair value of funds held in trust by others $ 55,759 62,907 Income received from funds held in trust by others 1,230 1,379 (11) State Universities Retirement System General Information about the Pension Plan Plan Description: The University contributes to the State Universities Retirement System of Illinois, a cost-sharing multiple-employer defined benefit plan with a special funding situation whereby the State makes substantially all actuarially determined required contributions on behalf of the participating employers. SURS was established July 21, 1941 to provide retirement annuities and other benefits for staff members and employees of State universities, certain affiliated organizations, and certain other State educational and scientific agencies and for survivors, dependents and other beneficiaries of such employees. SURS is considered a component unit of the State s financial reporting entity and is included in the State s financial reports as a pension trust fund. SURS is governed by Section 5/15, Chapter 40, of the Illinois Compiled Statutes. SURS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by accessing the website at Benefits Provided: A traditional benefit plan was established in Public Act enacted effective January 1, 1998, established an alternative defined benefit program known as the portable benefit package. 48 (Continued)

146 The traditional and portable plan Tier 1 refers to members that began participation prior to January 1, Public Act revised the traditional and portable benefit plans for members who begin participation on or after January 1, 2011, and who do not have other eligible Illinois reciprocal system services. The revised plan is referred to as Tier 2. New employees are allowed 6 months after their date of hire to make an irrevocable election. A summary of the benefit provisions as of June 30, 2014 can be found in the SURS comprehensive annual financial report (CAFR) Notes to the Financial Statements. Eligible employees must participate upon initial employment. Employees are ineligible to participate if (a) employed after having attained age 68; (b) employed less than 50% of full time; or (c) employed less than full time and attending classes with an employer. Of those Entity employees ineligible to participate, the majority are students at the University. Contributions: The State is primarily responsible for funding the SURS on behalf of the individual employers at an actuarially determined amount. Public Act provides a Statutory Funding Plan consisting of two parts: (i) a ramp-up period from 1996 to 2010 and (ii) a period of contributions equal to a level percentage of the payroll of active members of the SURS to reach 90% of the total Actuarial Accrued Liability by the end of Fiscal Year Employer contributions from trust, federal, and other funds are provided under Section (b) of the Illinois Pension Code and require employers to pay contributions which are sufficient to cover the accruing normal costs on behalf of applicable employees. The employer normal cost for fiscal year 2014 and 2015 respectively, was 11.91% and 11.71% of employees payroll. The normal cost is equal to the value of current year s pension benefit and does not include any allocation for past unfunded liability or interest on the unfunded liability. Plan members are required to contribute 8.0% of their annual covered salary. The contribution requirements of plan members and employers are established and may be amended by the Illinois General Assembly. Participating employers make contributions toward separately financed specific liabilities under Section (e) of the Illinois Pension Code (relating to contributions payable due to the employment of affected annuitants or specific return to work annuitants) and Section (g) (relating to contributions payable due to earning increases exceeding 6% during the final rate of earnings period). Pension Liabilities, Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions Net Pension Liability: At June 30, 2014, SURS reported a net pension liability (NPL) of $21,790,983,000. The net pension liability was measured as of June 30, Employer Proportionate Share of Net Pension Liability: The amount of the proportionate share of the net pension liability to be recognized for the University is $0. The proportionate share of the State s net pension liability associated with the University is $8,995,845,000. This amount should not be recognized in the financial statement. The net pension liability was measured as of June 30, 2014, and the total pension used to calculate the net pension liability was determined based on the June 30, 2013 actuarial valuation rolled forward. The basis of allocation used in the proportionate share of net pension liability is the actual reported pensionable earnings made to SURS during fiscal year Pension Expense: At June 30, 2014 SURS reported a collective net pension expense of $1,650,338,000. Employer Proportionate Share of Pension Expense: The employer proportionate share of collective pension expense should be recognized similarly to on-behalf payments as both revenue and matching expenditure in the financial statements. The basis of allocation used in the proportionate share of collective pension expense is the actual reported pensionable contributions made to SURS during fiscal year (Continued)

147 As a result, the University recognized on-behalf revenue and pension expense of $681,300,000 for fiscal year ended June 30, Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions: Deferred Outflows of resources are the consumption of net position by the system that is applicable to future reporting periods. SURS Collective Deferred Outflows and Deferred Inflows of Resources by Sources (nearest thousand) Deferred Outflows Deferred Inflows of Resources of Resources Changes in assumption $ 88,941 Net difference between projected and actual earnings on pension plan investments 1,271,106 Total $ 88,941 1,271,106 Employer Deferral of Fiscal Year 2015 Pension Expense Employer paid $33,473,000 in federal, trust or grant contributions for fiscal year ended June 30, These contributions were made subsequent to the pension liability measurement date of June 30, 2014 and are recognized as Deferred Outflows of Resources as of June 30, Assumptions and Other Inputs Actuarial assumptions: The actuarial assumptions used in the June 30, 2014 valuation were based on the results of an actuarial experience study for the period June 30, and an economic study completed June The total pension liability in the June 30, 2014 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation Salary increases Investment rate of return 2.75 percent 3.75 to percent, including inflation 7.25 percent beginning with the actuarial valuation as of June 30, 2014 Mortality rates were based on the RP2000 Combined Mortality Table, projected with Scale AA to 2017, sex-distinct, with rates multiplied by 0.80 for males and 0.85 for females. 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 real rates of return (expected returns, net of pension plan investment expense and inflation) 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 real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return were adopted by the plan s trustees after considering input from the plan s investment consultant(s) and actuary(s). For each major asset class that is included in the pension plan s target asset allocation as of June 30, 2014, these best estimates are summarized in the following table: 50 (Continued)

148 Asset Class Target Allocation Long-Term Expected Real Rate of Return U.S. Equity 31% 7.65% Private Equity 6% 8.65% Non-U.S. Equity 21% 7.85% Global Equity 8% 7.90% Fixed Income 19% 2.50% Treasury-Inflation Protected Securities 4% 2.30% Real Estate 6% 6.20% REITS 4% 6.20% Opportunity Fund 1% 2.50% Total 100% 5.00% Inflation 2.75% Expected Geometrical Normal Return 7.75% Discount Rate: A single discount rate of 7.090% was used to measure the total pension liability. This single discount rate was based on an expected rate of return on pension plan investments of 7.250% and a municipal bond rate of 4.290% (based on the weekly rate closest to but not later than the measurement date of the 20-Year Bond Buyer Index as published by the Federal Reserve). The projection of cash flows used to determine this single discount rate were the amounts of contributions attributable to current plan members and assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the statutory contribution rates under the SURS funding policy. Based on these assumptions, the pension plan s fiduciary net position and future contributions were sufficient to finance the benefit payments through the year As a result, the longterm expected rate of return on pension plan investments was applied to projected benefit payments through the year 2065, and the municipal bond rate was applied to all benefit payments after that date. Sensitivity of the SURS Net Pension Liability to Changes in the Discount Rate: Regarding the sensitivity of the net pension liability to changes in the single discount rate, the following presents the plan s net pension liability, calculated using a single discount rate of 7.09%, as well as what the plan s net pension liability would be if it were calculated using a single discount rate that is 1-percentage-point lower or 1- percentage-point higher: Current Single Discount 1% Decrease 6.09% Rate Assumption 7.09% 1% Increase 8.09% $26,583,701,000 $21,790,983,000 $17,796,571,000 Additional information regarding the SURS basic financial statements including the Plan Net Position can be found in the SURS comprehensive annual financial report by accessing the website at (12) Postemployment Benefits The State Employees Group Insurance Act of 1971 (Act), as amended, authorizes the State to provide health, dental, vision, and life insurance benefits for certain retirees and their dependents. Substantially, all State and university employees become eligible for these other postemployment benefits (OPEB) if they eventually become annuitants of one of the State sponsored pension plans. The Department of Central Management Services administer these benefits for annuitants with the assistance of the State s sponsored pension plans. The portions of the Act related to OPEB establish a cost-sharing multiple-employer 51 (Continued)

149 defined-benefit OPEB plan (plan) with a special funding situation in which the State funds substantially all nonparticipant contributions. The plan does not issue a stand-alone financial report but is included as a part of the State s financial statements. A copy of the financial statements of the State can be obtained at The health, dental, and vision benefits provided to and contribution amounts required from annuitants are the result of collective bargaining between the State and various unions that represent the State s and the University employees in accordance with limitations established in the Act. Therefore, the benefits provided and contribution amounts are subject to periodic change. The Act requires the State to provide life insurance benefits for annuitants equal to their annual salary as of the last day of employment until age 60, at which time the benefit amount becomes $5,000. The State makes substantially all of the contributions for OPEB on behalf of the State universities. Since the State contributes substantially all of the employer contributions, the single-employer provisions of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, have been followed for reporting the plan. The State is not required to and does not fund the plan other than the pay-as-you-go amount necessary to provide the current benefits. (13) Commitments and Contingencies At June 30, 2015, the University had commitments on various construction projects and contracts for repairs and renovation of facilities of $239,473,000. The University purchases the majority of natural gas and electricity from Prairieland and guarantees payment by Prairieland to its energy suppliers. Unconditional guaranty agreements are in place with Prairieland s energy suppliers for an aggregate amount not to exceed $94,000,000, with the exception of one energy supplier for which the guarantee is not limited. The exposure related to Prairieland at June 30, 2015 is $6,650,000 for all energy suppliers. This exposure includes the mark-to-market positions on forward contracts and the accounts payable accrued for each vendor. The University receives moneys from federal and state government agencies under grants and contracts for research and other activities. The costs, both direct and indirect, charged to these grants and contracts are subject to audit and disallowance by the granting agency. The University believes that any disallowances or adjustments would not have a material effect on the University s financial position. The University also receives moneys under third-party payor arrangements for payment of medical services rendered at its hospital and clinics. Some of these arrangements allow for settlement adjustments based on costs and other factors. The University believes that any adjustments would not have a material effect on the University s financial position. The University is a defendant in a number of legal actions primarily related to medical malpractice. These legal actions have been considered in estimating the University s accrued self-insurance liability. The total of amounts claimed under these legal actions, including potential settlements and amounts relating to losses incurred but not reported, could exceed the amount of the self-insurance liability. In the opinion of the University s administrative officers, the University s self-insurance liability and limited excess indemnity insurance coverage from commercial carriers are adequate to cover the ultimate liability of these legal actions, in all material respects. The University s hospital and clinics are involved in regulatory audits arising in the normal course of business. On June 8, 2007, a notice was received from the Office of Inspector General (OIG) on behalf of the IDHFS indicating that the University received an overpayment of $14,800,000 on behalf of Medicaid 52 (Continued)

150 patients covering the period May 2004 through April University management is in the process of contesting this overpayment. During fiscal year 2010, the University submitted additional documentation and evidence of its positions. On September 29, 2011, the OIG, on behalf of the IDHFS, contacted the University to request its settlement offer to resolve the audit. The University intends to pursue settlement discussion with OIG and IDHFS with a view toward resolution of the matter. The estimated liability including a provision for subsequent audits has been reflected in the University s statement of net position and results from operations as accounts payable for $9,700,000. (14) Operating Expenses by Natural Classification Operating expenses by natural classification for the year ended June 30, 2015 for the University and the URO Foundation are summarized as follows: University Operating Expenses by Natural Classification (In thousands) Compensation Supplies and and benefits services Student aid Depreciation Total Instruction $ 1,204,155 89,554 6,572 1,300,281 Research 483, ,803 2, ,043 Public service 295, ,178 1, ,953 Academic support 362, ,845 6, ,303 Student services 135,956 45,750 2, ,572 Institutional support 260,325 22, ,877 Operation and maintenance of plant 63, ,719 6, ,010 Scholarships and fellowships 240,713 1,650 35, ,001 Auxiliary enterprises 166, ,899 15, ,639 Hospital and medical activities 473, , ,777 Independent operations 1,831 10,351 12,182 Depreciation 248, ,889 Total $ 3,688,719 1,544,768 78, ,889 5,560,527 URO Foundation Operating Expenses by Natural Classification (In thousands) Distributions on behalf of Institutional the University support Depreciation Total Fund-raising $ 17,288 17,288 Distributions on behalf of the University 193, ,936 General and administrative 14,524 14,524 Actuarial adjustments 5,346 5,346 Depreciation Total $ 193,936 37, , (Continued)

151 (15) Segment Information The following financial information represents identifiable activities within the University financial statements for which one or more revenue bonds are outstanding. The Auxiliary Facilities System is comprised of University owned housing units, student unions, recreation and athletic facilities, and similar auxiliary service units, including parking. The Health Services Facilities System is comprised of the University of Illinois Hospital and associated clinical facilities providing patient care. Condensed Statements of Net Position June 30, 2015 (In thousands) Health Auxiliary Services Facilities Facilities System System Total Assets and deferred outflow of resources: Current assets $ 202, , ,760 Noncurrent assets: Capital assets, net of accumulated depreciation 1,075, ,919 1,261,904 Other noncurrent assets 162,883 50, ,759 Deferred outflow of resources 37,257 6,191 43,448 Total assets and deferred outflow of resources $ 1,478, ,090 2,057,871 Liabilities: Current liabilities $ 122, , ,288 Noncurrent liabilities: Long-term debt 1,158, ,461 1,278,393 Other liabilities 13,673 24,796 38,469 Total liabilities 1,295, ,565 1,564,150 Net position: Net investment in capital assets 21, , ,096 Restricted: Expendable 24,664 12,641 37,305 Unrestricted 137, , ,320 Total net position 183, , ,721 Total liabilities and net position $ 1,478, ,090 2,057, (Continued)

152 Condensed Statement of Revenues, Expenses and Changes in Net Position Year ended June 30, 2015 (In thousands) Health Auxiliary Services Facilities Facilities System System Total Operating revenues $ 345, , ,653 Operating expenses 299, ,021 1,109,260 Depreciation expense 33,516 18,613 52,129 Operating income (loss) 12,335 (190,071) (177,736) Nonoperating revenues, net 2, , ,657 Increase in net position 14,725 8,196 22,921 Net position, beginning of year 168, , ,800 Net position, end of year $ 183, , ,721 Condensed Statement of Cash Flows Year ended June 30, 2015 (In thousands) Net cash flows provided by operating activities $ 101,691 47, ,626 Net cash flows provided by noncapital financing activities Net cash flows used in capital and related financing activities (173,060) (23,843) (196,903) Net cash flows provided by investing activities 79,170 6,918 86,088 Net increase in cash and cash equivalents 7,948 31,148 39,096 Cash and cash equivalents, beginning of year 193, , ,005 Cash and cash equivalents, end of year $ 201, , , (Continued)

153 56 (Continued)

154 57

155 UNIVERSITY OF ILLINOIS Required Supplementary Information (In thousands) y Proportionate Share of the Net Pension Liability Fiscal Year 2014 (a) Proportion Percentage of the Collective Net Pension Liability 0% (b) Proportion Amount of the Collective Net Pension Liability $0 (c) Portion of Nonemployer Contributing Entities' Total Proportion of Collective Net Pension Liability associated with Employer $8,995,845 Total (b) + (c) $8,995,845 Employer Covered-employee payroll $1,953,692 Proportion of Collective Net Pension Liability associated With Employer as a percentage of covered-employee payroll % Schedule of Contributions SURS Plan Net Position as a Percentage of Total Pension Liability 44.39% Federal, Trust, Grant and Other Contributions $33,473 Contributions in relation to required contribution $33,473 Contribution deficiency (excess) $0 Employer Covered-employee payroll $1,953,692 Contributions as a percentage of covered-employee payroll 1.71% Changes of benefit terms. There were no benefit changes recognized in the Total Pension Liability as of June 30, Changes of assumptions. In accordance with Illinois Compiled Statutes, an actuarial review is to be performed at least once every five years to determine the reasonableness of actuarial assumptions regarding the retirement, disability, mortality, turnover, interest and salary of the members and benefit recipients of SURS. An experience review for the years June 30, 2010 to June 30, 2014 was performed in February 2015, resulting in the adoption of new assumptions as of June 30, There are no changes of assumptions that affect measurement of the total collective pension liability since the prior measurement date. *Note: The System implemented GASB No. 68 in fiscal year The information above is presented for as many years as available. The Schedule is intended to show information for 10 years. 58

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157 APPENDIX D DEFINITIONS OF CERTAIN TERMS AND SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION

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159 DEFINITIONS OF CERTAIN TERMS The following are definitions of certain terms used in this Official Statement: Act means the University of Illinois Revenue Bond Financing Act for Auxiliary Facilities, as amended, 110 ILCS 405/1, et seq. Annual Net Debt Service means an amount equal to the principal of and interest on all Bonds coming due in such Fiscal Year; provided, however that: (i) in the case of any Bonds for which a sinking fund has been established, the principal due thereon will be deemed to mature in each year in which a payment is required to be made into such sinking fund in the amount of such payment; (ii) payments on Bonds which have been refunded or which are to be made from funds escrowed or deposited with a third party will be excluded; (iii) in the event Commercial Paper has been issued, at the option of the Comptroller as specified on the date of each issue of Commercial Paper, any computation of Annual Net Debt Service will exclude such Commercial Paper and will instead be calculated as if the Commercial Paper were Projected Long-Term Debt; (iv) in the event any Bonds (other than Commercial Paper) are being issued which bear, or are to bear, interest at a variable rate, Annual Net Debt Service on such variable rate Bonds for any such Fiscal Year will be computed by assuming that the rate of interest applicable to such Fiscal Year or Fiscal Years is the highest of (A) the actual rate at the date of calculation, or if the Bonds are not yet Outstanding, the initial rate, (B) if the Bonds have been Outstanding for at least 12 months, the average rate over the 12 months immediately preceding the date of calculation, and (C)(1) if interest on the Bonds is issued as excludable from gross income under the applicable provisions of the Code, the rate of interest shown in the most recently published Revenue Bond Index or (2) if interest on the Bonds is not intended to be so excludable, the interest rate on Government Obligations with comparable maturities, but in each case not in excess of the rate authorized by law; and (v) in the event the Board enters into a Hedging Transaction in connection with the issuance of any Bonds, the computation of the Annual Net Debt Service for such Bonds may, at the option of the Comptroller, include payments made and received by the Board or to be made and received by the Board under the related Hedging Transaction, provided that at the time such option is initially exercised the Comptroller delivers a certificate to the effect that (1) the institution other than the Board that is party to such Hedging Transaction (the Counterparty ) is obligated under such Hedging Transaction to make payments thereunder for the period for which the computation of the Annual Net Debt Service on such Bonds is being determined, and (2) as of the date the Board and the Counterparty entered into such Hedging Transaction, the long-term debt obligations of the Counterparty or of any guarantor of the Counterparty s obligations under such Hedging Transaction were rated A or better by Moody s or S&P. Authorized Denomination means $5,000 or any integral multiple thereof. Auxiliary Facilities System or System means the Existing Facilities and such additional facility or facilities as the same, or any part or portion of such facilities, are hereafter from time to time acquired and included in the System by the Board pursuant to the Bond Resolution, and excepting those D-1

160 parts of the System which from time to time may be disposed of or abandoned as provided in the Bond Resolution. Board means The Board of Trustees of the University of Illinois and its successors and assigns. Bond or Bonds means the University of Illinois Auxiliary Facilities System Revenue Bonds, including the Series 2016B Bonds, issued under the provisions of the Bond Resolution. Bond Fund means the Bond and Interest Sinking Fund Account created by the Bond Resolution. Bondholder or Owner or Holder means, as of any time, the registered owner of any Series 2016B Bond as shown in the register kept by the Bond Registrar. Bond Registrar means The Bank of New York Mellon Trust Company, N.A., Chicago, Illinois, and its successors and assigns. Bond Resolution means the resolution adopted by the Board on September 20, 1984, providing for the issuance of revenue bonds by the Board under the Act, as such resolution has been supplemented and amended (including but not limited to the Twenty-Second Supplemental Resolution), and as it may be supplemented and amended in the future in accordance with its terms. Code means the Internal Revenue Code of 1986, as amended. Commercial Paper means Bonds issued for any purpose in connection with a program of commercial paper, as such term is generally understood, maturing not later than 270 days from the date of issuance thereof. Debt Service Reserve Account means the Debt Service Reserve Account established pursuant to the requirements of the Bond Resolution. The Series 2016B Bonds will not be secured by the Debt Service Reserve Account. Existing Facilities means the existing housing, parking, union, athletic, recreational, studentoriented health and other revenue producing buildings and facilities (including equipment) of the University described in the Bond Resolution, together with all improvements, repairs, extensions or replacements as may be constructed or acquired, that have not been abandoned for economic nonfeasibility. Fiscal Year means the period commencing July 1 and ending June 30 of each succeeding calendar year. Government Obligations means securities which are direct obligations of the United States of America (including trust receipts evidencing an interest therein) and securities for which the United States of America has fully guaranteed the payment of principal and interest. Hedging Transaction means an agreement, expressly identified in a certificate of the Comptroller as being entered into in order to hedge the interest payable on all or a portion of any Bonds, which agreement may include, without limitation, an interest rate swap, a forward or futures contract or an option (e.g., a call, put, cap, floor or collar) and which agreement does not constitute an obligation to repay money borrowed, credit extended or the equivalent thereof. D-2

161 Maximum Annual Net Debt Service means the maximum Annual Net Debt Service payable in any future Fiscal Year. For purposes of determining Maximum Annual Net Debt Service for Bonds secured by the Debt Service Reserve Account, the income to be earned on the Debt Service Reserve Account will be estimated at no more than 9.0% per annum. Net Revenues means that portion of the Operating Revenues remaining after providing sufficient funds for the reasonable and necessary cost of currently maintaining, repairing, insuring and operating the System. Operating Revenues means all rentals, student service fees, charges, income and other revenues received from the continued use and operation of the System, but does not include Student Tuition and Fees or transfers from the Debt Service Reserve Account, Repair and Replacement Reserve Account, Equipment Reserve Account, or Non-Instructional Facilities (Development) Reserve Account. Parity Bonds means any additional Bonds authorized to be issued under the Bond Resolution and ranking pari passu with the outstanding Bonds. Prior Parity Bonds means the Series 1991 Bonds, the Series 1999A Bonds, the Series 1999B Bonds, the Series 2001A Bonds, the Series 2001B Bonds, the Series 2003A Bonds, the Series 2005A Bonds, the Series 2006 Bonds, the Series 2008 Bonds, the Series 2009A Bonds, the Series 2010A Bonds, the Series 2011A Bonds, the Series 2011B Bonds, the Series 2011C Bonds, the Series 2013A Bonds, the Series 2014A Bonds, the Taxable Series 2014B Bonds, the Taxable Series 2014C Bonds, the Series 2015A Bonds and the Series 2016A Bonds. Projected Long-Term Debt means, as of the date of any determination thereof, Bonds maturing in substantially equal annual payments of principal and interest over a period of 30 years from the date of original issuance thereof and an average annual rate of interest equal to the then current rate of interest shown in the most recently published Revenue Bond Index, if interest on the Projected Long-Term Debt is issued as excludable from gross income under the applicable provisions of the Code, or, if the interest on any Projected Long-Term Debt is not intended to be so excludable, the interest rate on direct U.S. Treasury Obligations with a 30-year maturity. Purchaser means the purchaser of the Series 2016B Bonds identified in the body of this Official Statement under the heading PURCHASE. Reserve Account Credit Instrument means, for Bonds secured by the Debt Service Reserve Account, an insurance policy, surety bond or irrevocable letter of credit which may be delivered to the Bond Registrar in lieu of or in partial substitution for cash or securities required to be on deposit in the Debt Service Reserve Account. In the case of an insurance policy or surety bond, the company providing the same will be an insurer which, at the time of issuance of the policy, has been assigned the highest rating accorded insurers by Moody s and S&P, and the policy or bond will be subject to the irrevocable right of the Bond Registrar to draw thereon in a timely fashion upon satisfaction of any conditions set forth in the Bond Resolution. In the case of a letter of credit, the letter of credit will be irrevocable and will be payable to the Bond Registrar and will be issued by a banking institution having a credit rating on its long-term unsecured debt within one of the two highest rating categories from Moody s and S&P. Revenue Bond Index means the weekly index of interest rates on revenue bonds known as the 25-Bond Revenue Index published by The Bond Buyer or, if such index is no longer being published, any other index of interest rates borne by revenue bonds, the interest of which is exempt from Federal income taxation, having a maturity of 30 years. D-3

162 Securities Act means the Securities Act of 1933, as amended, and any successor thereto. Series 1991 Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 1999A Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 1999B Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2001A Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2001B Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2003A Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2005A Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2006 Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2008 Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2009A Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2010A Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2011A Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2011B Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2011C Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2013A Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2014A Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2015A Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. D-4

163 Series 2016A Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Series 2016B Bond and Interest Subaccount means the subaccount of the Bond and Interest Sinking Fund Account established under the Twenty-Second Supplemental Resolution to secure the Series 2016B Bonds. Series 2016B Bonds means the Board s University of Illinois Auxiliary Facilities System Revenue Bonds, Series 2016B issued under the Bond Resolution in the aggregate principal amount of $20,630,000. Series 2016B Costs of Issuance Fund means the accounting fund established under the Twenty- Second Supplemental Resolution to pay costs of issuance of the Series 2016B Bonds. Student Tuition and Fees means the moneys collected from students matriculated, registered or otherwise enrolled at or attending the University for tuition, application, extension, registration, matriculation, admission, student activities and student services, excluding those fees assessed for the use and operation of the System. Taxable Series 2014B Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Taxable Series 2014C Bonds means that series of presently outstanding Bonds authorized by the Board in the Bond Resolution. Twenty-Second Supplemental Resolution means the Twenty-Second Supplemental System Revenue Bond Resolution approved by the Board on January 21, 2016, authorizing the issuance of the Series 2016B Bonds. University means the University of Illinois. SUMMARY OF CERTAIN PROVISIONS OF THE BOND RESOLUTION The Series 2016B Bonds will be issued under the Bond Resolution adopted by the Board on September 20, 1984, as supplemented and amended, and particularly as supplemented by the Twenty- Second Supplemental Resolution. Reference is made to the Bond Resolution for complete details of the terms of the Series 2016B Bonds and the security for the Series 2016B Bonds. Certain provisions of the Bond Resolution are summarized under the heading SECURITY AND SOURCES OF PAYMENT FOR THE BONDS in the forepart of this Official Statement. The following is a summary of certain additional provisions of the Bond Resolution and should not be considered as a full statement of the Bond Resolution. BOND PROCEEDS The proceeds of the Series 2016B Bonds will be used to (i) construct the Project as more fully described in the body of this Official Statement under the caption PLAN OF FINANCE The Project, (ii) pay certain interest on the Series 2016B Bonds, and (iii) pay costs of issuing the Series 2016B Bonds. An amount of the principal proceeds of the Series 2016B Bonds designated by the Comptroller will be deposited into a separate accounting fund to be known as the Series 2016B Costs of Issuance Fund and applied to the payment of the costs of issuance of the Series 2016B Bonds. If there are funds D-5

164 remaining in the Series 2016B Costs of Issuance Fund after all such costs have been paid, said funds, and any interest earned on the investment of moneys in such account, will be withdrawn by the Comptroller and deposited in the Series 2016B Bond and Interest Subaccount, to be used only to pay debt service on the Series 2016B Bonds, subject to the further provisions of the Tax Agreement. FLOW OF FUNDS The Operating Revenues of the System will be deposited as collected by the Comptroller of the Board in a general banking account of the University to the credit of a special fund created and designated as the Auxiliary Facilities System Revenue Fund (the Revenue Fund ) which fund will be maintained by the Bond Registrar. The Comptroller will also deposit in the Revenue Fund such Student Tuition and Fees as will be necessary together with Operating Revenues to meet (i) operating and maintenance expenses of the System and (ii) together with transfers, if any, of investment income from the Debt Service Reserve Account to the Bond and Interest Sinking Fund Account (which investment income will be applied to debt service only on those Bonds secured by the Debt Service Reserve Account), annual debt service on the Bonds and required deposits to the Debt Service Reserve Account and Repair and Replacement Reserve Account, all as required by the Bond Resolution. All moneys in the funds and accounts established pursuant to the Bond Resolution will be used and held for use only in the manner and in the order designated below. Operation and Maintenance. Current expenses of the System will be payable from the Revenue Fund as the same become due and payable and will include all necessary operating expenses, current maintenance charges, expenses of reasonable upkeep and repairs, fees due the Bond Registrar on the Bonds, a properly allocated share of charges for insurance and all other expenses incident to the operation of the System. At the end of each Fiscal Year, the Board may retain in the Revenue Fund moneys sufficient for operation and maintenance expenses for the next 30 days as an operating reserve. Bond and Interest Sinking Fund Account. The Comptroller, after providing for the payment of current operating and maintenance expenses, will transfer from the Revenue Fund, and deposit to the credit of the Bond and Interest Sinking Fund Account such amounts, together with any investment income transferred from the Debt Service Reserve Account and deposited to the Bond and Interest Sinking Fund Account for the purpose of paying maturing principal and interest (which investment income will be applied to debt service only on those Bonds secured by the Debt Service Reserve Account and not to any other Bonds), as will be sufficient to pay the principal and interest on the Bonds as they become due. The Bond and Interest Sinking Fund Account will be held in trust by the Bond Registrar for the benefit of the Owners of the Bonds. All moneys credited to such Account will be irrevocably pledged to and used solely for payment of interest on the Bonds and for payment, redemption, and retirement of principal of the Bonds; provided that moneys credited to the Debt Service Reserve Account are not pledged to, and will not be used to pay debt service on, the Series 2016B Bonds or any of the Prior Parity Bonds except the Series 1991 Bonds. Pursuant to authorization contained in the Twenty-Second Supplemental Resolution, the Comptroller will create and establish the Series 2016B Bond and Interest Subaccount as a separate subaccount of the Bond and Interest Sinking Fund Account. Principal proceeds of the Series 2016B Bonds to be used to pay interest thereon will be deposited into the Series 2016B Bond and Interest Subaccount. For Parity Bonds, the supplemental resolution creating the issue will amend the provisions of the Bond Resolution summarized in the preceding paragraph, as necessary, to provide for the deposit of D-6

165 moneys in the Bond and Interest Sinking Fund in sufficient amounts to pay or redeem such Parity Bonds in accordance with the terms thereof. Debt Service Reserve Account. The Series 1991 Bonds are secured by income received from, and funds deposited in, the Debt Service Reserve Account. None of the Series 2016B Bonds or the other Prior Parity Bonds have any claim upon the Debt Service Reserve Account. With respect to the issuance of future Parity Bonds, the Board may create subaccounts in the Debt Service Reserve Account securing a particular series of Parity Bonds, or the Board may provide that a particular series of Parity Bonds to be issued (i) will not be secured by the Debt Service Reserve Account, (ii) will be secured by a separate subaccount in the Debt Service Reserve Account in an amount equal to or less than the Maximum Annual Net Debt Service on such Parity Bonds, or (iii) will be secured by a Reserve Account Credit Instrument. Any subaccount securing any future issue of Parity Bonds will be maintained in an amount equal to the requirement provided in the supplemental Resolution authorizing the issuance of such Parity Bonds (the Reserve Requirement ) for the Parity Bonds secured by such subaccount. Funds on deposit in such subaccount will be transferred by the Bond Registrar to the Bond and Interest Sinking Fund Account and used to pay debt service on the Parity Bonds secured by such subaccount in the event funds on deposit in the Bond and Interest Sinking Fund Account are insufficient therefor. If at any time the amount on deposit in the subaccount exceeds the Reserve Requirement for the Parity Bonds secured thereby, the excess may be withdrawn and used to pay debt service on such Parity Bonds or to purchase or redeem such Parity Bonds. The Debt Service Reserve Account will be held in trust by the Bond Registrar. All moneys credited to the Debt Service Reserve Account will be irrevocably pledged to and solely used as described in the Bond Resolution. If at the end of any Fiscal Year the amount on deposit in a subaccount of the Debt Service Reserve Account (valued on the basis of market) is less than the Reserve Requirement for the Bonds secured thereby, the Comptroller will transfer funds from the Revenue Fund and deposit into the subaccount not later than the end of the next succeeding Fiscal Year an amount not less than that necessary to restore the subaccount to the Reserve Requirement for the Bonds secured thereby. The Board may provide for the deposit of a Reserve Account Credit Instrument in lieu of cash to satisfy the Reserve Requirement in the Debt Service Reserve Account for any future Parity Bonds; provided that in such event the Board will create a separate subaccount in the Debt Service Reserve Account to secure such Parity Bonds, and such Parity Bonds will have no claim on any other cash or assets in the Debt Service Reserve Account. Repair and Replacement Reserve Account. The Comptroller will transfer from the funds remaining in the Revenue Fund and deposit in the Repair and Replacement Reserve Account on or before the close of each Fiscal Year, an amount not less than ten percent (10%) of Maximum Annual Net Debt Service for a repair and replacement reserve. The maximum amount which may be accumulated in such Account will not exceed five percent (5%) of the replacement cost of the facilities constituting the System, as determined by the then current Engineering News Record Building Cost Index (or comparable index). All money and investments so held in said Account will be used and held for use to pay the cost of unusual or extraordinary maintenance or repairs, renewals and replacements, and renovating or replacement of fixed equipment not paid as part of the ordinary maintenance and operation of the System. Moneys on deposit in the Repair and Replacement Reserve Account are not pledged as security for the payment of the Bonds. D-7

166 Non-Instructional Facilities (Development) Reserve Account. The Comptroller will transfer from funds remaining in the Revenue Fund and deposit into the Non-Instructional Facilities (Development) Reserve Account such funds as have been approved by the Board for expenditure or planned for expenditure for new space or construction in, or an addition to, a facility constituting a part of the System consistent with the purpose and mission of that facility. Moneys on deposit in the Non-Instructional Facilities (Development) Reserve Account are not pledged as security for the payment of the Bonds. Equipment Reserve Account. Prior to the close of each Fiscal Year, the Comptroller will transfer from the funds remaining in the Revenue Fund and deposit to the Equipment Reserve Account such funds as have been approved by the Board for expenditure in connection with the acquisition of movable equipment to be installed in the facilities constituting the System. The maximum amount which may be accumulated in such Account will not exceed 20% of the book value of the movable equipment of the System. Moneys on deposit in the Equipment Reserve Account are not pledged as security for the payment of the Bonds. Surplus Revenues. At the close of each Fiscal Year and after all transfers and maximum deposits have been made, and after any deficiencies in any such transfers and deposits which may exist from any previous Fiscal Year have been remedied, the balance of any excess funds in the Revenue Fund then remaining may be used by the Board: (i) to redeem, on the next interest payment date, the Bonds of any series then outstanding which are subject to redemption prior to maturity; (ii) to purchase Bonds of any series then outstanding for cancellation by the Bond Registrar; (iii) to advance refund any series of Bonds then outstanding or (iv) for any other System purpose permitted by law and applicable regulations. Investment of Revenue Fund Accounts. Any moneys in the Debt Service Reserve Account may be invested or reinvested in Government Obligations having a maturity not exceeding ten years from the date of each such investment. Moneys held in the Bond and Interest Sinking Fund Account may be invested in Government Obligations. All such securities so purchased will mature or be redeemable on a date or dates prior to the time when such moneys so invested will be required for expenditure. All other moneys held in the other accounts in the Revenue Fund may be invested or reinvested in any investments permitted by the Bond Resolution and the laws of the State of Illinois for the investment of public funds. All such securities so purchased will mature or be redeemable on a date or dates prior to the time when such moneys so invested will be required for expenditure. Interest on each subaccount of the Debt Service Reserve Account will be deposited in the Bond and Interest Sinking Fund Account and used to pay the principal of and interest on the Bonds secured by the respective subaccount. GENERAL COVENANTS Under the provisions of the Bond Resolution, the Board covenants and agrees with the holders of the Bonds, as long as any of said Bonds remain outstanding, as follows: Student Tuition and Fees. The Board will deposit annually to the Revenue Fund an amount of Student Tuition and Fees sufficient, together with Operating Revenues, to meet (i) operating and maintenance expenses of the System and (ii) together with transfers, if any, of investment income from the Debt Service Reserve Account to the Bond and Interest Sinking Fund Account (which investment income will be applied to debt service only on those Bonds secured by the Debt Service Reserve Account), annual debt service and required deposits to the Debt Service Reserve Account and Repair and Replacement Reserve Account, as provided in the Bond Resolution. D-8

167 Insurance. The Board will keep the System continuously insured against loss or damage by fire and lightning, the perils covered by fire and extended coverage insurance, vandalism or malicious mischief, and boiler explosion on boilers in a facility within the System in an amount not less than $100,000, but with a deductible amount per occurrence not exceeding $25,000, by a responsible insurance company or companies authorized and qualified under the laws of the State to assume such risks. Coverage by such insurance, other than the boiler insurance hereinabove referred to, will be in amounts sufficient to provide for, at a minimum, the lesser of (i) full recovery whenever the loss from causes covered by such insurance does not exceed 80% of the full insurable value of the part of the System so damaged or (ii) the redemption price, plus accrued interest to the next available call date, of all outstanding Bonds after deducting therefrom any cash or investments held in the Debt Service Reserve Account (if the Debt Service Reserve Account secures such Bonds) but any such policy may have a deductible amount per occurrence not exceeding one-tenth of one percent of the full insurable value of the System. The Board may, upon (i) resolution adopted in good faith, (ii) the recommendation of an independent insurance consultant and (iii) the approval of an appropriate agency, if any, of the State, adopt reasonable equivalent alternative risk management programs. The Board will (i) use the proceeds from any insurance to reconstruct, repair or rehabilitate the part of the System damaged or destroyed or (ii) pay such proceeds into the Bond and Interest Sinking Fund Account, which funds may be used to redeem outstanding Bonds but will not offset or be counted as funds which are otherwise required to be deposited in such account. Business Interruption Insurance. The Board will maintain in effect business interruption insurance on the System in an amount sufficient for the Board to deposit in the Bond and Interest Sinking Fund Account, out of the proceeds of such insurance, an amount equal to the sum that would normally be available for deposit in such account from the revenues of the damaged part of the System during the time the damaged part of the System is non-revenue producing as a result of loss of use caused by fire and lightning, the perils covered by fire and extended coverage insurance, vandalism or malicious mischief, and boiler explosion on boilers in a facility within the System. Title-Disposition-Encumbrance. The Board has indefeasible title in fee simple to the sites of the System, except for certain leased parking spaces, subject to Permitted Encumbrances (as defined below), and the Board will not sell, mortgage, pledge or otherwise dispose of or encumber the System, or its sites, or any part of the System, except for equipment, including any facility necessary to the operation and use of the System (unless the service provided by such facility will be provided by the same or an alternative source at reasonably equivalent costs), provided that any property, when determined by the Board not to be income producing because of being destroyed, worn out, obsolete, or otherwise physically or structurally unfit for the use and occupancy of such property for which the same was initially acquired, may be abandoned for economic nonfeasibility; or, when otherwise determined by the Board not to be suitable for the use and occupancy for which the same was initially acquired, may be converted for academic or administrative purposes. Permitted Encumbrances means with respect to the sites of the System (i) liens for taxes and special assessments which are not then delinquent, or if then delinquent, are being contested in good faith; (ii) utility, access and other easements and rights-of-way, restrictions and exceptions that will not interfere in any substantial way with or impair the operation of the System; (iii) any mechanic s, laborer s, materialman s, supplier s or vendor s lien or right in respect thereof if payment is not due under the contract in question or if such lien or payment is being contested in good faith; (iv) such minor defects, irregularities, encumbrances, easements, rights-of-way and clouds on title as normally exist with respect to properties similar in character to the property included in the System and do not materially impair the property affected thereby for the purpose for which it was acquired or is held; (v) zoning laws and similar restrictions and liens arising in connection with workmen s compensation, unemployment insurance, taxes, assessments, statutory obligations or liens, social security legislation, undetermined liens and charges incidental to construction, or other similar charges arising in the ordinary course of operations D-9

168 and not overdue, or if overdue, being contested in good faith; (vi) such other liens and charges at the time required by law as a condition precedent to the transaction of the activities of the Board or the exercise of any privileges or licenses necessary to the Board or the University; and (vii) existing leasehold and similar interests in connection with athletic and recreation facilities constituting a part of the System. Operation of Facilities. The Board will at all times continuously operate and manage the System in an efficient and economical manner and on a revenue-producing basis; and it will at all times, from income made available for such purpose, maintain, preserve and keep the System in good repair, working order and condition so that it will at all times be available for reasonable use and occupancy. Records and Audit. The Board will keep proper books of records and accounts (separate from all other records and accounts of the Board) in which complete and correct entries will be made of all transactions relating to all income and revenues from and all expenditures for maintaining, operating and repairing the System. There will be furnished to any owner of the Bonds, upon written request to the Board not more than 120 days after the close of each Fiscal Year, copies of the audit reports prepared by an independent public accountant or by the Auditor General of the State of Illinois, reflecting in reasonable detail the financial condition of the Board with the operation of the System in accordance with the covenants of the Bond Resolution. Such audit reports will particularly include a schedule of all insurance then in force, the enrollment at the University, the occupancy of and the rates charged for the use of the System and the status of each account described in the Bond Resolution. Pledge of Performance. The Board pledges punctually to perform all its duties and obligations with reference to the System as required by the Bond Resolution and the statutes under which the Bonds are issued; including the operation and maintenance of the System, the making and collecting of sufficient rates, fees, rentals and charges for the use and occupancy of the System and the making and collecting of reasonable and sufficient Student Tuition and Fees, the maintenance of the accounts as provided in the Bond Resolution, the segregation of all revenues and income and transfer to said accounts and the proper application of all moneys in said accounts and investments of such revenues and income. Defeasance. The Bond Resolution provides that the Board may pay or provide for the payment of the entire indebtedness of all outstanding Bonds, or Bonds of a particular series or of any portion of a series of outstanding Bonds, by depositing with the Bond Registrar, in trust, moneys and/or Government Obligations in an amount as the Bond Registrar will determine will, together with the income or increment to accrue on such Government Obligations, without consideration of any reinvestment thereof, be fully sufficient to pay or redeem (when redeemable) and discharge the indebtedness on such Bonds. In such case, if the Board will also pay or cause to be paid all other sums payable by the Board under the Bond Resolution with respect to such Bonds and, if such Bonds are to be redeemed prior to the maturity thereof or if provision for the payment of only a portion of the Bonds of a particular series is being made, notice of such redemption or of such provision, as the case may be, has been given or provided for, the liability of the Board in respect of such Bonds will continue, but the owners of such Bonds will thereafter be entitled to payment only out of the moneys or Government Obligations so deposited with the Bond Registrar. Modification of the Bond Resolution. The Board may, from time to time and at any time, without the consent of or notice to the owners of the Bonds, amend the Bond Resolution as follows: (a) Resolution; to cure any formal defect, omission, inconsistency or ambiguity in the Bond (b) to add to the covenants and agreements of, and limitations and restrictions upon, the Board under the Bond Resolution other covenants, agreements, limitations and restrictions to D-10

169 be observed by the Board which are not contrary to or inconsistent with the Bond Resolution as previously in effect; (c) to confirm, as further assurance, any pledge under, and the subjection to any claim, lien or pledge created or to be created by, the Bond Resolution, of any moneys, securities or funds held under the Bond Resolution; or (d) to provide for the issuance of any Parity Bonds. The owners of a majority in aggregate original principal amount of the Bonds at any time outstanding (not including any Bonds which may then be held or owned by or for the account of the Board or the University), will have the right from time to time to consent to and approve the adoption by the Board of a resolution or resolutions modifying or amending any of the terms or provisions contained in the Bond Resolution, provided however, that the Bond Resolution may not be so modified or amended in such manner as to: (a) (b) (c) of the Bonds. Make any change in the maturity of any of the Bonds. Make any change in the rate of interest borne by any of the Bonds. Reduce the amount of the principal of, or redemption premium payable on, any (d) Modify the terms of payment of the principal of, or the interest or redemption premiums on, the Bonds or any of them, or impose any conditions with respect to such payment. (e) Create any lien on or pledge of the income and revenues securing the Bonds ranking prior to the lien thereon and pledge thereof created by the Bond Resolution. (f) Create any preference or priority of any Bond or Bonds of the same or different series, over any other Bond or Bonds of the same or different series, authorized under the Bond Resolution. (g) Reduce the percentage of Bonds, the owners of which are required by the terms of the Bond Resolution for the approval of any amendatory resolution. (h) Affect the rights of the owners of less than all of the Bonds then outstanding. Any provision of the Bond Resolution expressly recognizing or granting rights in or to any bond insurer may not be amended in any manner that affects the rights of such bond insurer without its prior written consent. The consent of each bond insurer providing insurance on a series of outstanding Bonds is generally required, in addition to the consent of the Bondholders, when required, for the following purposes: (i) execution and delivery of the amendment, supplement or change to or modification of the Bond Resolution, (ii) removal of the Bond Registrar or selection and appointment of any successor bond registrar, and (iii) initiation or approval of any action not described in (i) or (ii) above which requires Bondholder consent. Remedies. Any Owner of any Bond may by civil action compel the Board to perform all duties imposed upon it under the provisions of the Bond Resolution and under the provisions of the Act, D-11

170 including the making and collecting of sufficient rates, fees, rentals and charges for the use and occupancy of the System and Student Tuition and Fees and the performance of any and all covenants made by the Board in the Bond Resolution. Upon the occurrence and continuance of an event of default under the Bond Resolution, the bond insurer for a series of outstanding Bonds may be entitled to control and direct the enforcement of all rights and remedies granted to the owners of the Bonds insured by such bond insurer under the Bond Resolution. D-12

171 APPENDIX E PROPOSED FORM OF OPINION OF BOND COUNSEL

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173 Upon the issuance of the Series 2016B Bonds, Chapman and Cutler LLP, Bond Counsel, proposes to issue its approving opinion in substantially the following form: [To be dated the date of issuance of the Series 2016B Bonds] The Board of Trustees of the University of Illinois Urbana, Illinois We hereby certify that we have examined a certified copy of the record of proceedings of The Board of Trustees of the University of Illinois (the Board ) passed preliminary to the issue by the Board of its $20,630,000 aggregate principal amount University of Illinois Auxiliary Facilities System Refunding Revenue Bonds, Series 2016B (the Series 2016B Bonds ). The Series 2016B Bonds are authorized and issued pursuant to the provisions of (i) the University of Illinois Revenue Bond Financing Act for Auxiliary Facilities, as amended and (ii) an authorizing resolution of the Board adopted September 20, 1984 (the Original Resolution ), as supplemented on June 20, 1985, May 8, 1986, May 9, 1991, June 11, 1993, January 18, 1996, October 15, 1999, June 1, 2000, March 8, 2001, May 23, 2001, May 15, 2003, March 10, 2005, July 14, 2005, September 7, 2006, May 22, 2008, January 15, 2009, May 20, 2010, June 9, 2011, December 2, 2011, March 7, 2013, January 23, 2014 and November 13, 2014 and as further supplemented by a Twenty-Second Supplemental System Revenue Bond Resolution adopted by the Board on January 21, 2016 (the Twenty-Second Supplemental Resolution ; the Original Resolution, as heretofore supplemented and amended, including by the Twenty-Second Supplemental Resolution, being referred to herein collectively as the Bond Resolution ). Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Bond Resolution. The Series 2016B Bonds mature on April 1 of the years and in the amounts and bear interest payable on April 1 and October 1 of each year, commencing October 1, 2016, at the rates per annum as follows: YEAR (APRIL 1) PRINCIPAL AMOUNT INTEREST RATE YEAR (APRIL 1) PRINCIPAL AMOUNT INTEREST RATE 2018 $ 380, % 2028 $ 610, % , ,290, , , , , , , , , , , , , , ,375, , ,195, E-1

174 The Series 2016B Bonds maturing on or after April 1, 2027 are subject to redemption prior to maturity, at the option of the Board, on or after April 1, 2026, in whole or in part at any time, and if in part, from such maturities as determined by the Board and within any maturity by lot, at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the date fixed for redemption. The Series 2016B Bonds maturing on April 1, 2030 are subject to mandatory redemption prior to maturity through the application of sinking fund payments, in integral multiples of $5,000 selected by the Bond Registrar, at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the date fixed for redemption, on April 1 in each of the years and in the respective principal amounts set forth below: YEAR PRINCIPAL AMOUNT 2029 $635, (maturity) 655,000 The Series 2016B Bonds maturing on April 1, 2041 are subject to mandatory redemption prior to maturity through the application of sinking fund payments, in integral multiples of $5,000 selected by the Bond Registrar, at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the date fixed for redemption, on April 1 in each of the years and in the respective principal amounts set forth below: YEAR PRINCIPAL AMOUNT 2037 $815, , , , (maturity) 935,000 The Series 2016B Bonds maturing on April 1, 2046 are subject to mandatory redemption prior to maturity through the application of sinking fund payments, in integral multiples of $5,000 selected by the Bond Registrar, at a redemption price equal to 100% of the principal amount thereof, plus accrued interest to the date fixed for redemption, on April 1 in each of the years and in the respective principal amounts set forth below: E-2

175 YEAR PRINCIPAL AMOUNT 2042 $ 965, ,000, ,040, ,075, (maturity) 1,115,000 The Series 2016B Bonds are being issued to provide funds to pay costs of the Project (as defined and described in the Twenty-Second Supplemental Resolution), to pay certain interest on the Series 2016B Bonds and to pay costs of issuance of the Series 2016B Bonds. We are of the opinion that such proceedings show lawful authority for the issuance of the Series 2016B Bonds under the laws of the State of Illinois now in force. We further certify that we have examined the form of Series 2016B Bond prescribed for said issue and find the same in due form of law, and in our opinion the Series 2016B Bonds, to the amount named, are valid and legally binding limited obligations of the Board, payable from and, together with the Series 1991 Bonds, the Series 1999A Bonds, the Series 1999B Bonds, the Series 2001A Bonds, the Series 2001B Bonds, the Series 2003A Bonds, the Series 2005A Bonds, the Series 2006 Bonds, the Series 2008 Bonds, the Series 2009A Bonds, the Series 2010A Bonds, the Series 2011A Bonds, the Series 2011B Bonds, the Series 2011C Bonds, the Series 2013A Bonds, the Series 2014A Bonds, the Taxable Series 2014B Bonds, the Taxable Series 2014C Bonds, the Series 2015A Bonds, the Series 2016A Bonds and such bonds as may be issued on a parity therewith in the future pursuant to the Bond Resolution, secured by a pledge of and lien on (i) the Net Revenues of the System, (ii) Student Tuition and Fees (subject to prior payment of operating and maintenance expenses of the System, but only to the extent necessary) and (iii) the Bond and Interest Sinking Fund Account established pursuant to the Bond Resolution. The rights of the registered owners of the Series 2016B Bonds and the enforceability of provisions of the Bond Resolution and the Series 2016B Bonds may be limited by laws relating to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally and by the availability of equitable remedies, including the exercise of judicial discretion whether to grant any particular form of relief. It is our opinion that, subject to the Board s compliance with certain covenants, under present law, interest on the Series 2016B Bonds is excludable from gross income of the owners thereof for federal income tax purposes and is not included as an item of tax preference in computing the alternative minimum tax for individuals and corporations under the Internal Revenue Code of 1986, as amended, but is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations. Failure to comply with certain of such Board covenants could cause interest on the Series 2016B Bonds to be includible in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2016B Bonds. Ownership of the Series 2016B Bonds may result in other federal tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Series 2016B Bonds. E-3

176 We express no opinion herein as to the accuracy, adequacy or completeness of the Official Statement relating to the Series 2016B Bonds. In rendering this opinion, we have relied upon certifications of the Board with respect to certain material facts within the Board s knowledge. Our opinion represents our legal judgment based upon our review of the law and the facts that we deem relevant to render such opinion and is not a guarantee of a result. 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. E-4

177 APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT

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179 FORM OF CONTINUING DISCLOSURE AGREEMENT THIS CONTINUING DISCLOSURE AGREEMENT (the Agreement ) is executed and delivered by The Board of Trustees of the University of Illinois (the Board ) in connection with the issuance by the Board of its $20,630,000 University of Illinois Auxiliary Facilities System Revenue Bonds, Series 2016B (the Series 2016B Bonds ). The Series 2016B Bonds are being issued pursuant to a Resolution of the Board approved September 20, 1984, as supplemented and amended (the Bond Resolution ). The Board covenants, undertakes and agrees as follows: 1. Purpose of the Agreement. This Agreement is being executed and delivered by the Board for the benefit of registered and beneficial owners of the Series 2016B Bonds and in order to assist the Participating Underwriters (as defined below) in complying with the Rule (as defined below). The Board represents that it will be the only obligated person with respect to the Series 2016B Bonds within the meaning of the Rule. As required by the Rule, this Agreement is enforceable by registered and beneficial owners of the Series 2016B Bonds, as further provided in Section 10 of this Agreement. 2. Definitions. Initially capitalized terms used but not otherwise defined in this Agreement have the same meanings given them in the Bond Resolution. In addition, the following terms have the following meanings: Board Annual Report means the annual report of the Board described in Section 3 below. EMMA means the Electronic Municipal Market Access system established by the MSRB. MSRB means the Municipal Securities Rulemaking Board. Participating Underwriters means any of the original purchasers of the Series 2016B Bonds required to comply with the Rule in connection with the offering of the Series 2016B Bonds. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission ( SEC ) under the Securities Exchange Act of 1934, as the same may be amended from time to time ( 1934 Act ). Significant Event(s) means anyone or more of the events described in Section 5 hereof. State means the State of Illinois. 3. Board Annual Report. Within 180 days after each fiscal year of the Board, commencing with the fiscal year ended June 30, 2016, the Board shall provide to the MSRB through EMMA certain financial information and operating data (the Board Annual Report ), which shall contain: (a) Financial information and operating data relating to the Board updating the financial information and operating data presented in the Official Statement under the following captions (provided, however, that the updating information may be provided in such format as the Board deems appropriate): AUXILIARY FACILITIES SYSTEM Housing Occupancy Rates, and F-1

180 Statement of Revenues, Expenses and Changes in Net Position of the Auxiliary Facilities System, and THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS Financial Aid to Students, Financial Condition of the University, Physical Plant, Student Admissions, Student Enrollment, Tuition and Fees, University and Foundation Investments, Voluntary Support, and 2016 Budget and State Appropriations. (b) Audited financial statements of the Board and the System for the most recently ended fiscal year, prepared in conformity with U.S. generally accepted accounting principles and audited in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. The Board may from time to time, in order to comply with Federal or State legal requirements, modify the basis upon which its financial statements are prepared. Notice of any such modification shall be provided to the MSRB through EMMA and shall include a reference to the specific Federal or State law or regulation describing such accounting basis. If audited financial statements are not available by the 180th day after the end of the applicable fiscal year, then they shall be provided when available, and unaudited financial statements shall be filed in place of audited financial statements by such date. If the Board changes its fiscal year, the Board shall send, or cause to be sent, notice of such change to the MSRB through EMMA. If the Board does not provide the Board Annual Report by the date required in Section 3 to the parties described therein, the Board shall send a notice to such effect, in a timely manner, to the MSRB through EMMA. If a change is made to the basis on which financial statements are prepared, the annual financial information for the year in which the change is made shall 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. Such comparison shall include a qualitative and, to the extent reasonably feasible, quantitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information. F-2

181 The Board will also provide, in a timely manner, to the MSRB through EMMA, if any, notice of a failure to satisfy the requirements of this Section. The Board Annual Report shall be submitted in such manner and format and accompanied by identifying information as is prescribed by the MSRB at the time of delivery of such information. MSRB Rule G-32 requires all EMMA filings to be in word-searchable PDF format. If any part of the Board Annual Report can no longer be generated because the operations to which it is related have been materially changed or discontinued, the Board will disseminate a statement to such effect as part of the Board Annual Report for the year in which such event first occurs. If any amendment is made to this Agreement, the Board Annual Report for the year in which such amendment or waiver is made (or in any notice or supplement provided to the MSRB) shall contain a narrative description of the reasons for such amendment and its impact on the type of information being provided. 4. Incorporation by Reference. Any or all of the items listed in Section 3 above may be incorporated by reference from other documents, including other official statements of the Board or related public entities, which have been submitted to EMMA or filed with the SEC. If the document incorporated by reference is a final official statement, it must be available via EMMA. The Board shall clearly identify each such other document so incorporated by reference in the Board Annual Report. 5. Reporting of Significant Events. The Board will also provide, in a timely manner (not in excess of ten business days after the occurrence thereof) to the MSRB through EMMA, in such manner and format and accompanied by such identifying information as is prescribed by the MSRB at the time of delivery of such information, notice of the occurrence of any of the following events (a Significant Event ) with respect to the Series 2016B Bonds: 5.1 principal and interest payment delinquencies; 5.2 non-payment related defaults, if material; 5.3 unscheduled draws on debt service reserves reflecting financial difficulties; 5.4 unscheduled draws on credit enhancements reflecting financial difficulties; 5.5 substitution of credit or liquidity providers, or their failure to perform; 5.6 adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; 5.7 modifications to rights of holders of the Series 2016B Bonds, if material; 5.8 bond calls, if material, and tender offers (other than scheduled mandatory redemptions); 5.9 defeasances; F-3

182 5.10 release, substitution or sale of property securing repayment of the Series 2016B Bonds, if material; 5.11 rating changes; 5.12 bankruptcy, insolvency, receivership or similar event of the Board 1 ; 5.13 the consummation of a merger, consolidation, or acquisition involving the Board or the sale of all or substantially all of the assets of the Board, 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 5.14 appointment of a successor or additional trustee or the change of name of a trustee, if material. For purposes of this section, materiality is interpreted in accordance with the 1934 Act. 6. Management Discussion of Items Disclosed in Board Annual Reports or as Significant Events. If any item required to be disclosed in the Board Annual Report under Section 3, or as a Significant Event under Section 5, would be misleading without further discussion, the Board shall additionally provide a statement clarifying the disclosure in order that the statement made will not be misleading in light of the circumstances in which it is made. 7. Termination of Reporting Obligation. The Board s obligations under this Agreement will terminate if the Board no longer has any legal liability for any obligation on or relating to repayment of the Series 2016B Bonds under the Bond Resolution. The Board shall give notice to EMMA in a timely manner if this Section is applicable. 8. Amendment; Waiver. Notwithstanding any other provision of this Agreement, the Board may amend this Agreement, and any provision of this Agreement may be waived, if such amendment or waiver (i) 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 Board; (ii) is supported by an opinion of counsel expert in federal securities laws, acceptable to the Board, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule or adjudication of the Rule by a final decision of a court of competent jurisdiction; and (iii) the amendment or waiver does not materially impair the interests of holders, as determined either by parties unaffiliated with the issuer or obligated person (such as external counsel), or by approving vote of Bondholders pursuant to the terms of the Bond Resolution. 9. Centralized Post Office. Any filing required to be made with the MSRB through EMMA under this Agreement may be made solely through a central post office, government agency or similar entity other than EMMA or in lieu of EMMA (a CPO ) by transmitting such filing to the CPO, provided that (i) such CPO has received interpretive advice or some other approval from the SEC 1 This event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or Federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, 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 Board. F-4

183 with respect to its status as a CPO satisfying the requirement of the Rule or (ii) an opinion from counsel has been issued stating that such filing meets the requirements of the Rule. 10. Additional Information. Nothing in this Agreement shall be deemed to prevent the Board from disseminating any information, using the means of dissemination set forth in this Agreement or any other means of communication, or including any other information in any Board Annual Report or notice of occurrence of a Significant Event, in addition to that which is required by this Agreement. If the Board chooses to include any information from any document or notice of occurrence of a Significant Event in addition to that which is specifically required by this Agreement, the Board shall have no obligation under this Agreement to update such information or include it in any future disclosure or notice of occurrence of a Significant Event. 11. Default. The intent of the Board s undertaking is to provide on a continuing basis the information described and required in the Rule. In the event of a failure of the Board to comply with any provision of this Agreement, any registered or beneficial owner of Series 2016B Bonds may take action to compel performance by the Board under this Agreement. A default under this Agreement shall not be deemed a default or event of default under the Bond Resolution, and the sole remedy under this Agreement in the event of any failure of the Board to comply with this Agreement shall be an action to compel performance. 12. Beneficiaries. This Agreement shall inure solely to the benefit of the Board, the Participating Underwriters and registered and beneficial owners from time to time of the Series 2016B Bonds, and shall create no rights in any other person or entity. 13. Governing Law. This Agreement shall be governed by the laws of the State. F-5

184 IN WITNESS WHEREOF, the Board has executed and delivered this Agreement as of the date set forth below. THE BOARD OF TRUSTEES OF THE UNIVERSITY OF ILLINOIS By: Vice President, Chief Financial Officer and Comptroller The University of Illinois 414 Administrative Office Building MC West Polk Street Chicago, Illinois Dated: April 20, 2016 F-6

185 EXHIBIT I CUSIP NUMBERS Maturity CUSIP Number P P P P Q Q Q Q Q Q Q Q R R R R R R R R90 F-7

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187 APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY

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189 MUNICIPAL BOND INSURANCE POLICY ISSUER: [NAME OF ISSUER] Policy No: MEMBER: [NAME OF MEMBER] BONDS: $ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] Effective Date: Risk Premium: $ Member Surplus Contribution: $ Total Insurance Payment: $ BUILD AMERICA MUTUAL ASSURANCE COMPANY ( BAM ), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the Trustee ) or paying agent (the Paying Agent ) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Business Day means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. Due for Payment means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. Nonpayment means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. Nonpayment shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. Notice means delivery to BAM of a notice of claim and certificate, by certified mail, or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. 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