Sistema Universitario Ana G. Mendez, lncorporado

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2 Sistema Universitario Ana G. Mendez, lncorporado Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA) Higher Education Revenue and Revenue Refunding Bonds (Ana G. Mendez University System Project), Series 2012, $78,380,000. Dated: June 27, 2012 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA) Higher Education Revenue Bonds (Ana G. Mendez University System Project), Series 2006, $29,890,000, Dated: April 11, 2006 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (AFICA) Higher Education Refunding Revenue Bonds (Ana G. Mendez University System Project), Series 2002, $20,365,000, Dated: January 15, 2002 Outstanding Indebtedness As of July 31, Bonds Series 2002 Bonds $ 16,516,547 $ 16,050,674 $ 15,559,804 Series 2006 Bonds 27,318,612 26,694,934 26,041,256 Series 2012 Bonds 80,410,143 76,024,060 71,472,975 Long-term notes 7,171,998 4,262,190 1,804,036 Obligations under capital leases 1,799,254 1,487,430 2,972,922 Total $ 133,216,554 $ 124,519,288 $ 11 7,850,993 Property, Plant and Equipment As of July 31, Construction in progress $ 18, $ ,090 $ 25,156,823 Land 34,528,860 34,907,799 34,907,799 Building and improvements 254, ,366, ,134,792 Leasehold improvements 4,671,933 Equipment 107,324, ,036, ,781,813 Library books 15,256,509 15,680,558 17,161,935 Vehicles 2,744,402 3,121,605 3,475,128 Works of art 1,409,897 1,508,897 1,584,597 Software 5,688,279 5,887,897 7,141, ,588, ,582, ,016,104 Less Accumulated Depreciation and Amortization (187, ) (204,085,785) (225,831,939) Property, plant and equipment net $ 253,419,396 $ 261,496,946 $ 288,184,165

3 Investments As of July 31, Cash and Cash Equivalents $ 4,709,591 $ 4,603,557 $ 1,682,727 U.S. Gov. and Agency Securities 2,207, ,376 4,184,388 Corporate Bonds 1,804 1,658 1,039,141 Equity Securities 19,487,531 26,371,849 34,108,332 Asset-Backed Securities Municipal Bonds Balanced Mutual Funds 9,475,430 9,428,578 7,972,468 Hedge funds and private investments 12,565,859 13,409,248 12,430,191 Mortgage-Backed Securities 3,101,005 1,872, Investment in Subsidiary 769, ,557 Total $ 52,318,148 $ 59,002,414 $ Balances in the Endowment Fund As of July 31, Endowment Fund 2012 (ill Endowment Fund Corpus $ 8,254,552 $ 2,377,359 $ 41,764,345 Quasi Endowment Fund 26,676,662 36,956, ,908 Scholarship Endowment Fund 13,857,026 15,837,782 18,812,606 Total $ 48,788,240 $ 55,171,147 $ 61,532,859 Historical Covera2e of Debt Service As of July 31, (ill 2014 Change in unrestricted net assets $ 31,286,890 ($1,501,432) $19,056,616 $3,658,798 Extraordinary loss on extinguishment of debt Depreciation and amortization 15,652,223 17,083,382 18,059,232 23,521,977 Interest expense 4,602,196 4,694,711 6,491,727 5,909,602 Cash available for debt service $ 51,541,309 $ 20,276,661 $ 43,607,575 $ 33,090,377 Debt service requirement $ 12,307,180 $ 14,390,276 $ 15,604,217 $ 15,242,862 Debt service coverage Management's Discussion and Analysis of Results of Operations See Exhibit 1

4 Selected Financial Information Statement of activities Fiscal Year Ended July Unrestricted Revenues, gains and other support: Tuition and fees $ $ $ Less scholarships ~20,309,2 56~ ~ ~!23.150,294) Net tuition and fees 196,272, , Grants and contracts ,977 43, Private gifts and grants 1,127, ,067 1, Investment income 824, ,028,179 Net appreciation of investments 5.091, Auxiliary enterprises 4,689,359 4,807, ,592 Other sources 14,397, , Net assets released from restrictions , Total revenues. gains and other support 260,020, ,385, ,736 Expenses and other deductions: Education and general expenses: Instruction 110, , Research ,505 8,804,846 Public Service , , ,878 Academic Support 17,41 5,803 16, ,339,163 Student Services 28,035, ,750,319 Institutional Support ,519 60,860, ,632 Net depreciation depreciation of investments 564,622 Total educational and general expenses 251,824, ,330, ,148,575 Auxiliary enterprises expenses ,717,187 3,796,339 Total expenses and other deductions 256,082, ,047, ,944,914 Change in net assets from operating activities 3,938, ,325,822 Non-operating: Pension-related changes other than net periodic cost (5, ) 7,718, ,976 Change in Unrestricted Net Assets $ (1,501,432) $ 19,056,616 $ 3,658,798 Temporary Restricted Revenues Net assets released from restrictions $!2.072,819) $!2.236,886) $ (469,574) Grants & Contracts 719, , ,201 Private gifts & grants 356, ,276 Investment income 22,642 29,167 7,331 Net appreciation of investments 285,154 49,798 Other sources 112,422 Net depreciation depreciation of investments (48,948) Change in Temporarily Restricted Net Assets $ (910,367) $ (1,802,070) $ 688,032 Permanently Restricted Net Assets Net assets released from restrictions $ $ $ Private gifts and grants , Change in Permanently Restricted Net Assets $ 194,143 $ 429,093 $ 205,000 Change in Net Assets $ (2,217,656} $ 17,683,639 $ 4,551,830

5 Admission Requirements and Standards Fiscal Year Ended July 31, Student Enrollment W Head Count 40,439 41, ,476 Full -Time ,853 30,900 30,962 Part -Time 10, ,514 Full Time Equivalent- 36,358 37,748 37,557 39,679 Undergraduate 32, ,364 35,524 Graduate 4,248 4,159 4,193 4,155 Institution Universidad del Este Universidad del Turabo 14,949 15,508 15, Universidad Metropolitana 12, ,195 Total 40, ,650 41,476 Admission, Acceptances, and Students Enrolled Fiscal Year Ended July 31, W ~ ~ Applications 37,454 40,284 41, Accepted ,388 21,409 Acceptance Rate 56.4% 54.9% 53.8% 53.6% Enrolled 14,460 14, ,677 Enrollment Rate 68.5% 67.6% 64.4% 63.9% Tuition and Fees Fiscal Year Ended July 31, Academic Year W Tuition Cost and Fees $5,144 $5,274 $5.274 $5.514 Cost per Credit $176 $181 $181 $191 Financial Assistance Programs Fiscal Year Ended July 31, Student Financial Aid W Federal Pell Grants $ 180,579,377 $ 172,665,934 $ 152, $ 153,016,255 Federal Education Opportunity Grant 2,085,361 1,563,705 1, College Work Study Program 2,791,310 2,185,572 2, , Scholarship for Disadvantaged Students 956,732 1,767,841 3, , Federal Loans 72, , , Puerto Rico Grants 5.128,311 5,206, ,110,741 AC Grant 1, (1.659) (269) Smart Grant 940,500 Teach Grant 381, , ,897 Total $ 267, $ 263,041,528 $ 262,869,448 $

6 Sistema Universitario Ana G. Mendez, lncorporado EXHIBIT 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS The following discussion is based on the audited financial statements of Sistema Universitario Ana G. Mendez, lncorporado (SUAGM or the Institution) as of and for the years ended July 31, 2014 and Note: References to a year mean the fiscal year ended on July 31 of that calendar year Compared with 2013 Total unrestricted revenues, gains and other support increased by 9%, or $22.9 million, from $261.4 million in 2013 to $284.3 million in This increase was driven by an increase in Net tuition and fees of $34.6 million or 18% when comparing 2014 to Mainly, this increase was related to the following transactions: (a) tuition and fees of the students enrolled in SUAGM's offcampus centers located in Florida and Maryland (total tuition & fees revenues from these offcampus centers totaled $26.9 million during 2014) and (b) an increase in tuition and fees costs for Puerto Rico's students. The average undergraduate tuition costs increased by 4.6%, from $5,274 in 2013 to $5,514 in Unrestricted revenues related to grants and contracts decreased by 21% or $9.1 million when compared with the prior year (from $43.6 million in 2013 to $34.5 million in 2014) mainly due to a decrease or absence of grants and contracts received from the federal and local governments. The most significant grants consisted of non-recurrent funds for construction and/or physical improvements projects that were completed during Also, other grants from federal agencies to cover students' tuition, fees and other educational costs were terminated during 2013 (i.e. grants for the Health Resources and Services Administration of the U.S. Department of Health and Human Services for nursing students). Also, unrestricted revenues from other sources decreased by 11%, or $1.5 million, from $13.5 million in 2013 to $12 million in 2014, largely due to continuing education and distance education programs. SUAGM's total operating expenses and other deductions increased 13% or $31.8 million when compared with the prior year, from $250.1 million in 2013 to $281.9 million in This increase, when compared with the prior year, was driven by increases in the following expense categories: (a) Instruction increased by 4% (from $110 million in 2013 to $114.7 million in 2014) mainly due to an increase in faculty and administrative positions that produced an increase in salaries and related fringe benefits expenses; and (b) Institutional support increased by 54% (from $60.9 million in 2013 to $93.7 million in 2014) mainly due to the following transactions: (1) $26.9 million related to the administrative service fee paid to our subsidiary, AGMUS Ventures, Inc. for the management and administrative services provided to SUAGM's four off-campus centers located in the United States - Orlando, South Florida, Tampa, and Maryland, (2) a non-recurring salary

7 bonus given to faculty and administrative personnel totaling $2 million, (3) an increase in operations and maintenance of plant expenses (including depreciation) for $1.8 million, and (4) an increase in bad debt expense of $1.1 million. Decreases of 13% in the Research and Public service expense categories (from $10.1 million in 2013 to $8.8 million in 2014 and from $20.6 million in 2013 to $17.9 million in 2014, respectively) are directly related to the decrease or absence of SUAGM's grants and contracts from the federal and local governments. Academic support also decreased 12% when compared with prior year (from $16.3 million to $14.3 million) as a result of a reduction in the following categories: (a) salaries and related fringe benefits ($1 million) and (b) utilities ($900 thousand). Total non-operating pension related changes other than net periodic cost shows a negative change of $6.4 million or 83% (from $7.7 million in 2013 to $1.3 million in 2014). As a result of the transactions described above, the change in unrestricted net assets for 2014 was positive $3.7 million, while the change in unrestricted net assets for 2013 was a positive change in net assets of $19.1 million (a decrease of 81% or $15.4 million) Compared with 2012 For the fiscal year ended July 31, 2013 SUAGM's unrestricted net assets increased 13.7% or $20.6 million when compared with 2012 (from negative $1.5 million to positive $19.1 million) SUAGM's 2013 total unrestricted revenues, gains and other support presented an increase of $1.4 million when compared with 2012 (from $260 million to $261.4 million). This increase resulted principally from the following: an increase of 7.3% or $2.9 million (from $40.6 million in 2012 to $43.5 million in 2013) in unrestricted revenues related to an increase in grants and contracts mainly due to grants received from the Health Resources and Services Administration of the U.S. Department of Health and Human Services to cover nursing students' tuition, fees, and other educational costs. Also, the Institution experienced an unrestricted net appreciation in the value of its investments of $5.1 million in 2013, which represents an increase of $5.7 million when compared with the prior year (from a net depreciation of $565 thousand in 2012 to a net appreciation of $5. 1 million in 2013). On the other hand, SUAGM's net tuition and fees decreased 3%, from $196.3 million in 2012 to $190.4 million in This change was driven by a decrease in student headcount. For 2013 student headcount presented a slight decrease of 0.09%, from 41,688 in 2012 to 41,650, as did the number of full-time equivalent students which also decreased by 0.51%, from 37,748 in 2012 to 37,557 in The decrease was mainly at the graduate level and can be a result of the prevalent economic conditions and its impact in the adult student that is not eligible to grants and must incur debt to study. Employers have also reduced their incentives and subsidies for their employees to study. SUAGM's 2013 audited financial statements present a new non-operating expense category: Pension-related changes other than net periodic pension cost. This category was introduced to

8 properly present the non-operating impact of the Liability for pension benefits related expenses. As a result of this, the pension related expenses included in the Institutional Support category were reclassified to this new category. Taking this change into consideration, SUAGM's 2013 total operating unrestricted expenses and other deductions decreased 2% or $6.0 million when compared with the prior year, from $256.1 million in 2012 to $250.1 million in This change was mainly driven by a decrease in Institutional support of 9% or $5.7 million (from $66.6 million in 2012 to $60.9 million in 2013). This change was related to the following decreases, when compared with the prior year: salaries and fringe benefits ($2.2 million), the absence of the loss recorded during 2012 related to a guaranteed investment contract with Lehman Brothers ($1.8 million), bad debt expense ($792 thousand), and activities ($667 thousand). Total non-operating pension related changes other than net periodic cost shows a positive change of $13.2 million or 242% (from negative $5.4 million to a positive $7.7 million).