OFFICIAL STATEMENT RELATING TO $28,185,000 MOREHEAD STATE UNIVERSITY GENERAL RECEIPTS BONDS 2015 SERIES A

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1 NEW ISSUE RATING: Moody s: Aa3 Book-Entry-Only (Underlying A2) (Not Bank Qualified) (See Rating herein) In the opinion of Bond Counsel for the 2015 Series A Bonds, based upon an analysis of laws, regulations, rulings and court decisions, and assuming continuing compliance with certain covenants made by the University, and subject to the conditions and limitations set forth herein under the caption TAX EXEMPTION, interest on the 2015 Series A Bonds (defined below) is excludable from gross income for Federal income tax purposes and is not a specific item of tax preference for purposes of the Federal individual or corporate alternative minimum taxes. Interest on the 2015 Series A Bonds (defined below) is exempt from Kentucky income tax and the 2015 Series A Bonds are exempt from ad valorem taxation by the Commonwealth of Kentucky and any of its political subdivisions. See TAX EXEMPTION herein. Dated: Date of delivery OFFICIAL STATEMENT RELATING TO $28,185,000 MOREHEAD STATE UNIVERSITY GENERAL RECEIPTS BONDS 2015 SERIES A Due: April 1, as shown below The captioned 2015 Series A Bonds will be issued only as fully registered bonds, and when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ), which will act as securities depository for the 2015 Series A Bonds. Purchasers will not receive certificates representing their ownership interest in the 2015 Series A Bonds purchased. So long as DTC or its nominee is the registered owner of the 2015 Series A Bonds, payments of the principal of and interest due on the Bonds will be made directly to DTC. The 2015 Series A Bonds bear interest from their dated date, payable semiannually, on April 1 and October 1, commencing October 1, Principal of, premium, if any, and interest on the 2015 Series A Bonds will be paid directly to DTC by U.S. Bank National Association, having offices in Louisville, Kentucky, as Trustee and Paying Agent. The 2015 Series A Bonds shall be issued only as fully registered bonds in denominations of $5,000 or integral multiples thereof, and shall mature on April 1, in accordance with the following schedule: Year (April 1) Amount Rate Yield Year (April 1) Amount Rate Yield 2016 $225, % 0.500% 2026 $1,645, % 2.600%* , ,730, , ,780, * , ,870, * , ,960, * , ,040, * ,475, ,120, * ,570, ,205, ,495, ,280, ,565, ,355, * priced to first call date The 2015 Series A Bonds are subject to redemption prior to their stated maturities as described herein. The 2015 Series A Bonds constitute special obligations of Morehead State University and do not constitute a debt, liability or obligation of the Commonwealth of Kentucky nor a pledge of the full faith and credit of the Commonwealth. The 2015 Series A Bonds constitute Obligations under the Trust Agreement dated as of July 1, 2007 between the University and the Trustee, and the payment of the principal of, premium, if any, and interest on 2015 Series A Bonds is secured by a pledge of the University s General Receipts, as defined in the Trust Agreement. See SECURITY FOR THE 2015 SERIES A BONDS. The 2015 Series A Bonds are issued subject to the approval of legality by Peck, Shaffer & Williams, a division of Dinsmore & Shohl, LLP, Covington, Kentucky, Bond Counsel. Delivery of the 2015 Series A Bonds is expected on March 25, 2015 in New York, New York, through the facilities of DTC. Dated: March 4, 2015

2 MOREHEAD STATE UNIVERSITY BOARD OF REGENTS Paul C. Goodpastor, Chair John C. Merchant Patrick E. Price, Vice Chair Dr. Kevin W. Pugh Dr. Royal Berglee Craig Preece Julie A. Butcher Todd Q. Thacker Bradley Fyffe Kathy Walker Deborah H. Long TRUSTEE AND PAYING AGENT U.S. Bank National Association Louisville, Kentucky MOREHEAD STATE UNIVERSITY ADMINISTRATION Dr. Wayne D. Andrews President and Chief Administrative Officer Beth G. Patrick Chief Financial Officer and Vice President for Administration Dr. Steven Ralston Provost and Vice President for Academic Affairs Madonna B. Weathers Vice President for Student Life James Shaw Vice President for University Advancement and Chief Executive Officer of MSU Foundation, Inc. BOND COUNSEL Peck, Shaffer & Williams, a division of Dinsmore & Shohl, LLP Covington, Kentucky Year FINANCIAL ADVISOR J.J.B. Hilliard, W.L. Lyons, LLC Louisville, Kentucky CUSIP NUMBERS 1 Cusip # Year Cusip # GL GW GM GX GN GY GP GZ GQ HA GR HB GS HC GT HD GU HE GV HF8 1 Copyright, American Bankers Association. CUSIP data herein are provided by Standard & Poor s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers listed above are being provided solely for the convenience of holders only at the time of issuance of the 2015 Series A Bonds and the University and the Underwriters do not make any representation with respect to such numbers or undertake any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2015 Series A Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the 2015 Series A Bonds. i

3 REGARDING USE OF THIS OFFICIAL STATEMENT This Official Statement does not constitute an offering of any security other than the original offering of the 2015 Series A Bonds of Morehead State University identified on the cover page hereof. No person has been authorized by Morehead State University to give any information or to make any representation other than that contained in this Official Statement, and if given or made such other information or representation must not be relied upon as having been given or authorized by Morehead State University or the Financial Advisor. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of the 2015 Series A Bonds by any person in any jurisdiction in which it is unlawful to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of Morehead State University since the date hereof. Neither the Securities and Exchange Commission nor any other federal, state or other governmental entity or agency, except Morehead State University, will pass upon the accuracy or adequacy of this Official Statement or approve the 2015 Series A Bonds for sale (see APPROVAL OF ISSUANCE OF BONDS ). ii

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5 TABLE OF CONTENTS INTRODUCTORY STATEMENT...1 THE 2015 SERIES A BONDS...1 General...1 Book-Entry-Only System...1 Redemption Provisions...1 SECURITY FOR THE 2015 SERIES A BONDS...2 Pledge of General Receipts...2 State Intercept...3 Budgetary Process in the Commonwealth...3 Additional Obligations...3 SOURCES AND USES OF FUNDS...4 THE 2015 SERIES A PROJECT...4 THE TRUST AGREEMENT...4 THE UNIVERSITY...4 General...4 Administrative Officers...6 Future Debt...8 TAX EXEMPTION...8 General...8 Original Issue Premium...9 Original Issue Discount...10 CONTINUING DISCLOSURE...10 PENDING LITIGATION...11 APPROVAL OF LEGALITY...12 FINANCIAL ADVISOR...12 APPROVAL OF ISSUANCE OF BONDS...12 FINANCIAL STATEMENTS...12 CERTIFICATE CONCERNING OFFICIAL STATEMENT...12 COMPLETENESS OF OFFICIAL STATEMENT...12 RATING...13 UNDERWRITING...13 MISCELLANEOUS...13 APPENDIX A: Information Pertaining to Morehead State University APPENDIX B: Consolidated Financial Statements of Morehead State University as of and for the years ended June 30, 2013 and 2014 APPENDIX C: Summary of the Trust Agreement APPENDIX D: Form of Bond Counsel Opinion APPENDIX E: Book-Entry-Only System APPENDIX F: Form of Continuing Disclosure Agreement iii

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7 OFFICIAL STATEMENT RELATING TO $28,185,000 MOREHEAD STATE UNIVERSITY GENERAL RECEIPTS BONDS 2015 SERIES A INTRODUCTORY STATEMENT This Official Statement, which includes the cover page and the Appendices appended hereto, is being distributed by Morehead State University (the University ) to furnish pertinent information to all who may become owners of its General Receipts Bonds 2015 Series A (the 2015 Series A Bonds ) being offered hereby pursuant to the provisions of Sections to of the Kentucky Revised Statutes and Sections to of the Kentucky Revised Statutes, and pursuant to the terms of a Trust Agreement dated as of July 1, 2007 as supplemented by a Ninth Supplemental Trust Agreement dated as of March 1, 2015 between the University and U.S. Bank National Association (together, the Trust Agreement ). The summaries and references to Sections of the Kentucky Revised Statutes and the Trust Agreement, as included in this Official Statement, do not purport to be comprehensive or definitive and are qualified in their entirety by reference to each such document. Unless otherwise defined herein, capitalized terms will have the meanings set forth in APPENDIX C. General THE 2015 SERIES A BONDS The 2015 Series A Bonds will be dated the date set forth on the cover page of this Official Statement; will be issued in fully registered form and in denominations of $5,000 or any integral multiples thereof, will mature as to principal and will bear interest as set forth on the cover page. Interest accruing on the 2015 Series A Bonds will be payable semiannually on April 1 and October 1 of each year commencing October 1, 2015 to Holders of record on the preceding March 15 and September 15, respectively. Book-Entry-Only System The 2015 Series A Bonds initially will be issued solely in book-entry form to be held in the bookentry-only system maintained by The Depository Trust Company ( DTC ), New York, New York. So long as such book-entry system is used, only DTC will receive or have the right to receive physical delivery of 2015 Series A Bonds and, except as otherwise provided herein with respect to tenders by Beneficial Owners of Beneficial Ownership Interests, each as hereinafter defined, Beneficial Owners will not be or be considered to be, and will not have any rights as, owners or Holders of the 2015 Series A Bonds under the Resolution and Series Resolution. For additional information about DTC and the bookentry-only system see APPENDIX E Book-Entry-Only System. Redemption Provisions Optional Redemption. The 2015 Series A Bonds stated to mature on or after April 1, 2026 are subject to redemption prior to maturity at the option of the University on or after April 1, 2025 in whole or in part on any date (less than all of a single maturity to be selected by lot in such manner as determined by the Trustee), at the price of par plus accrued interest to the redemption date. Selection of Bonds for Redemption. The University has directed the Trustee to notify DTC that in the event less than all of any maturity of 2015 Series A Bonds are to be redeemed, any such redemption shall be on a pro rata basis in a principal amount equal to authorized denominations of $5,000 or any integral multiple thereof. The University and the Trustee are not making any representation relating to,

8 and do not have any responsibility or obligation with respect to, whether DTC will follow the direction to redeem 2015 Series A Bonds on a pro rata basis in the event of a partial redemption as described above. If a 2015 Series A Bond subject to redemption is in a denomination larger than $5,000, a portion of such 2015 Series A Bond may be redeemed, but only in a principal amount equal to $5,000 or any integral multiple thereof, if the 2015 Series A Bond is one of the maturities or amounts or part of the maturities or amounts called for redemption. Upon surrender of any 2015 Series A Bond for redemption in part, the Trustee and Paying Agent shall (authenticate and) deliver an exchange 2015 Series A Bond or 2015 Series A Bonds in an aggregate principal amount equal to the unredeemed portion of the 2015 Series A Bond so surrendered. Notice of Redemption. The Trustee and Paying Agent shall give notice of any redemption by sending at least one such notice by United States mail, first class, postage prepaid, not less than 30 and not more than 60 days prior to the date fixed for redemption to the registered owner of each 2015 Series A Bond to be redeemed in whole or in part, at the address shown on the bond register as of the date of mailing of such notice. Such notice shall identify (i) by designation, letters, numbers or other distinguishing marks, the 2015 Series A Bonds or portions thereof to be redeemed, (ii) the redemption price to be paid, (iii) the date fixed for redemption and (iv) the place or places where the amounts due upon redemption are payable. Pledge of General Receipts SECURITY FOR THE 2015 SERIES A BONDS Each 2015 Series A Bond is an Obligation under the Trust Agreement and the University has pledged its General Receipts as security for its payment obligations thereunder. General Receipts means, as reported in the Financial Statements (having the designations, to the extent not otherwise defined in the Trust Agreement, set forth in the Financial Statements or such successor designations that may hereafter be used in Financial Statements): (a) certain operating and non-operating revenues of the University, being (i) Student Registration Fees, (ii) nongovernmental grants and contracts, (iii) sales and services of educational activities, (iv) auxiliary enterprises residence halls, bookstore, other auxiliaries, (iv) other operating revenue, (v) state appropriations, and (vi) investment income. (b) but excluding (i) any receipts described in clause (a) which are contracts, grants, gifts, donations or pledges and receipts therefrom which, under restrictions imposed in such contracts, grants, gifts, donations or pledges, or, which as a condition of the receipt thereof or of amounts payable thereunder are not available for payment of Debt Service Charges, (ii) federal grants and contracts, and (iii) state and local grants and contracts; provided, however, that General Receipts may (c) include any other receipts that may be designated as General Receipts from time to time by a resolution of the Board delivered to the Trustee; (d) exclude any receipts not heretofore pledged, which may be designated from time to time by a resolution of the Board delivered to the Trustee; and (e) exclude any receipts heretofore pledged, which may be designated from time to time by a resolution of the Board delivered to the Trustee and each Rating Service then rating any Obligations, but only if each such Rating Service confirms in writing to the University that the exclusion of any such receipt would not cause a reduction or withdrawal of the then current rating on any Outstanding Obligations. 2

9 The University had previously issued its Consolidated Educational Buildings Revenue Bonds (the Building Bonds ) to which General Receipts described in (a)(i) above were pledged on a priority basis to the pledge of those General Receipts under the Trust Agreement. No Building Bonds remain outstanding and the prior pledge of those General Receipts securing Building Bonds has terminated. State Intercept If the University fails to make timely payment of any 2015 Series A Bond, the Secretary of the Finance and Administration Cabinet of the Commonwealth of Kentucky (the Cabinet ) is obligated, pursuant to KRS 164A.608, to apply to such payment, any funds that have been appropriated to the University that have not yet been disbursed. Payments due on the 2015 Series A Bonds are required to be deposited with the Trustee on the earlier of the date that is ten days prior to (i) the payment due date and (ii) the last day of any Fiscal Year that the remaining payments due on all outstanding Bonds for that Fiscal Year would exceed appropriated funds yet to be disbursed to the University for that Fiscal Year. If the amount required to pay debt service is not on deposit by that date, the Trustee is obligated under the Trust Agreement to immediately notify the Secretary of the Cabinet of the default in payment. Under KRS 164A.608, the Secretary of the Cabinet is required, within five days of the default, to remit the amount required to pay the amount due on any 2015 Series A Bond to the Trustee from those undisbursed funds. Budgetary Process in the Commonwealth The General Assembly is required by the Kentucky Constitution to adopt measures providing for the Commonwealth s revenues and appropriations for each fiscal year. The Governor is required by law to submit a biennial State Budget (the State Budget ) to the General Assembly during the legislative session held in each even numbered year. State Budgets have generally been adopted by the General Assembly during those legislative sessions, which end in mid-april, to be effective upon the Governor s signature for appropriations commencing for a two-year period beginning the following July 1. The University is required to submit its budget to the General Assembly for approval as a part of the State Budget. If a State Budget has not been enacted by the date principal of or interest on the 2015 Series A Bonds is due, the University would not have the budgetary authority to make that principal or interest payment. The pledge of General Receipts by the University described herein is independent of the State Budget process. Additional Obligations The University has reserved the right to issue additional Obligations secured by a pledge of General Receipts. See THE UNIVERSITY Future Debt and APPENDIX C SUMMARY OF THE TRUST AGREEMENT. [The remainder of this page is intentionally left blank.] 3

10 SOURCES AND USES OF FUNDS The sources and uses of funds in connection with the issuance of the 2015 Series A Bonds are as follows: Sources of Funds Principal Amount of 2015 Series A Bonds $28,185, Plus Net Original Issue Premium 2,835, Total Sources of Funds $31,020, Uses of Funds Deposit to Project Fund (2015 Series A) $30,735, Deposit to 2015 Series A Cost of Issuance Account 82, Underwriter s Discount 203, Total Uses of Funds $31,020, THE 2015 SERIES A PROJECT The 2015 Series A Project is described in the Budget Act as Construct Student Residential Facilities. The Construct Student Residential Facilities project consists of a new 550-bed (suite style) residence hall, located in the heart of the University s residential campus. The Construct Student Residential Facilities project also includes a new 50-bed residence hall at the Derrickson Agricultural Complex. The 2015 Series A Project is part of a ten-year Housing Master Plan developed in 2006 with the assistance of Brailsford and Dunlavey. The Campus Master Plan included annual projects and financial plan to complete a comprehensive renewal of the University s housing stock. The Housing Master Plan called for demolition of 1,238 beds, renovation of 2,376 beds and construction of 600 new beds to address current and future housing needs for the campus. Since the plan was developed in 2006, over $36 million has been invested in renovation and demolition work identified from the plan. Remaining phases of the ten-year plan include this 2015 Series A Project to be followed by renovation of one remaining residence facility (Cartmell Hall) in fiscal year and demolition of remaining halls that have surpassed their useful life. THE TRUST AGREEMENT The terms and provisions of the Trust Agreement control both outstanding Obligations and all Obligations that may be issued pursuant to the Trust Agreement, including the 2015 Series A Bonds. Please see APPENDIX C SUMMARY OF THE TRUST AGREEMENT. General THE UNIVERSITY The University, located in Morehead, Rowan County, Kentucky, was established in 1922 by an act of the General Assembly of the Commonwealth of Kentucky. The University s current name was adopted in 1966 pursuant to an act of the General Assembly. The governing body of the University, the Board of Regents, is a body corporate and an educational institution and agency of the Commonwealth, consisting of eight citizen members appointed by the Governor of Kentucky. A student, faculty and staff representative also serve on the Board and are elected by their respective peers. The government of the University is vested in the Board and the Board has general supervision of lands, buildings, and other properties of the University, subject to the statutes of the Commonwealth of Kentucky. The University was established primarily for the purpose of training teachers, administrators and supervisors for the elementary and secondary school of the state, but has over the years expanded its facilities and curriculum to serve as a general regional institution of higher learning. Morehead State 4

11 University aspires to be the best public university in the south. The primary objective of the University is to meet the educational needs of Eastern Kentucky while striving to constantly improve the quality of its public service, economic development, and applied research programs. Located in the foothills of the Daniel Boone National Forest, the nearly 700 acre main campus lies within the city limits of Morehead, Kentucky. Beyond the city, the University s real estate holdings include the Derrickson Agricultural complex, Browning Orchard, Support Services complex, Sunny Brook property and the Eagle Trace public golf course. In addition to the main campus, classes are conducted at 4 regional campuses, located in Ashland, Mt. Sterling, Prestonsburg and West Liberty, as well as a variety of other off campus locations. In addition to traditional face-to-face instruction, the University offers a number of distance learning courses via the internet and throughout the region via interactive compressed video. The University is governed by the 11 member Board of Regents including eight citizens appointed by the governor and three seats held by elected faculty, staff and student representatives. Management of the institution is vested primarily in four divisions: Academic Affairs (which includes 4 academic colleges: Arts, Humanities, and Social Sciences; Business and Public Affairs; Education; Science and Technology); Administration and Fiscal Services; Student Life; and University Advancement. Morehead State University is committed to achieving academic excellence through the development, delivery, and maintenance of superior academic programs. The University is accredited as a comprehensive university offering a wide variety of undergraduate, graduate, and pre-professional programs in a collegial and open environment. The University actively offers 141 undergraduate degree programs (major area of study plus with actual degree, i.e. Space Science Area, Bachelor of Science), including eight associate level degrees and 133 baccalaureate level degrees, as well as 12 pre-professional programs. There were 71 graduate degree programs and an education specialist program in 5 specialty areas as well as 37 graduate non-degree programs designed especially for professional educators. Included in the 71 graduate degree programs, is a master s degree for physician assistants, one in social work and one cooperative doctoral program, all with the University of Kentucky, available on the Morehead State University campus. A doctoral degree in education began in fall The University offers students a 17:1 student/faculty ratio, allowing for a more personalized educational experience, and has been recognized as one of the top public universities in the South in numerous editions of America s Best Colleges by U.S. News & World Report. Morehead State University and the surrounding area offer students an engaging educational experience both in and out of the classroom, constantly seeking improvement and new opportunities for student learning. The University built the Equine Health Education Center and the Space Science Center, through a partnership with NASA and the Center for Health Education and Research (CHER), through a partnership with St. Claire Regional Medical Center and the University of Kentucky. The CHER building was completed and opened in fall In addition, a new $24 million Student Recreation Center was built and opened in August, One of the University s most recent acquisitions includes the former Rowan County Public Library that was renovated for use by the Kentucky Center for Traditional Music. Housing facilities include space for over 2,900 students in traditional residence halls, suites, and apartments. In addition to academics, students have the opportunity to join more than 100 clubs and organizations or participate in a variety of student activities. Athletically, the University sponsors 17 intercollegiate sports for men and women in accordance with the regulations of the Ohio Valley Conference, the Pioneer Football League, and Division I of the NCAA. The University also supports an intramural program involving both team and individual sports. The University plant consists of 125 educational and general buildings and 17 residence halls located in Rowan County, Kentucky. 5

12 Administrative Officers The President and Chief Administrative Officer of the University is Dr. Wayne D. Andrews. Ms. Beth G. Patrick is the Chief Financial Officer and Vice President for Administration. Dr. Steven Ralston is the Provost and Vice President for Academic Affairs. Ms. Madonna B. Weathers is the Vice President for Student Life. Mr. James Shaw is the Vice President for University Advancement and Chief Executive Officer of MSU Foundation, Inc. Their biographies follow: Dr. Wayne D. Andrews, President of the University Dr. Andrews was unanimously selected as Morehead State University s 13th President by the Board of Regents, effective Jan. 1, He had 27 years of higher education experience, serving 17 years at East Tennessee State University in Johnson City, Tenn. and 10 years as a faculty member at Illinois State University. He is a proven leader with a track record of success. He has extensive operational and strategic-visionary experience in all aspects of the university, including a plan for growth and development and a genuine desire to engage all stakeholders in moving the university forward. From 1987 to present, Dr. Andrews has held positions as a tenured professor in engineering technology, department chairperson, executive assistant to the president, vice president for student affairs, vice president for administration, vice president for administration and chief operating officer and an American Council on Education (ACE) Fellow. Among his major accomplishments at ETSU are: re-accreditation of four programs and first time accreditation of two Engineering Technology (ET) Programs; significant increase in scholarly activity by the ET faculty; major equipment acquisitions for engineering technology; successful external program review of the graduate program; re-affirmation of the University by SACS (co-chair of the re-affirmation process); planned, organized and led the University s Continuous Improvement initiative; major reorganization of the Division of Student Affairs; significant partnerships with Academic Affairs in leadership development and community engagement; partnered with academic affairs to establish the Advisement, Resources and Career Center (ARC); and partnered with student affairs to construct the Center for Physical Activity (CPA). Dr. Andrews provided leadership to revise the University s Campus Master Plan including several new components where implementation is underway: a comprehensive master plan for athletic facilities, a master plan for the Middle Anchor of the Med Tech Corridor, and a comprehensive master plan for housing and residence life. He provided leadership to conduct a comprehensive faculty-staff salary study - implemented in three phases, returned outsourced information technology management function to the University: established new management organization, hired 22 employees, returned $600,000 to the general University budget, significantly improved customer services, developed a number of strategic University partnerships, and developed and taught major university-wide initiatives related to diversity. Dr. Andrews is a graduate of Fitchburg (Mass.) State College where he earned a B. S. degree in 1974, and West Virginia University where he received an M.A. in 1976 and an Ed.D. degree in His family includes his wife Susan, two children, Josh and Jill (both ETSU graduates) and one grandchild. Ms. Beth G. Patrick, Chief Financial Officer and Vice President for Administration Ms. Patrick is currently the Chief Financial Officer and Vice President for Administration where she is responsible for the areas of Accounting and Fiscal Services, Budget and Strategic Planning, Information Technology, Human Resources, Facilities, Auxiliary Services, Internal Audit, Legal Service, University Purchasing/Support Services and Legislative Relations. She returned to Morehead State University after 18 months at the University of Kentucky where she served as the Assistant Vice 6

13 President for Financial Services. While at the University of Kentucky, she worked on multiple strategic projects including providing financial modeling and analysis for Phase I of a $450-$500 million housing renewal project and served as a member of the President s Facility Transformation workgroup providing financial modeling and support for a one billion capital renewal plan focused through Other projects include participating in the President s Debt Capacity workgroup charged with completing a comprehensive assessment of the University s debt capacity and participating in a task force to complete a strategic assessment of the University s institutional scholarship program. Her work has also focused on support for the development of a biennial operating budget with special analysis completed on student affordability and net tuition. Prior to the University of Kentucky, Ms. Patrick completed 29 years of service at Morehead State University in various leadership roles that included service serving as Vice President and a member of the President s Cabinet from She is a two-time graduate of Morehead State University earning a BS degree in Business Administration Data Processing and an MA in Higher Education Administration. She was the President s Chief of Staff from serving as the President s liaison with community, business and government, dealing with a range of institutional, Board of Regents, and public affairs issues, and coordinating the President s Cabinet on the development and implementation of strategic initiatives. In addition to serving as Chief of Staff, her responsibilities included serving as the institution s chief budget officer, chief planning officer and the institutional legislative liaison to state government. Dr. Steven Ralston, Provost and Vice President for Academic Affairs Dr. Ralston joined the University team on August 1, 2014 as the Chief Academic Officer/Provost and Vice President for Academic Affairs. He has most recently served as Marist College s dean of the School of Communication and the Arts. Raised in Richmond, Virginia, he served in the military during the Vietnam era and earned his Ph.D. degree in communication theory and research from Indiana University in He received a master of arts degree in speech communication from the University of Tennessee, and a bachelor of arts in speech and theatre from Old Dominion University. Prior to Marist, Dr. Ralston was professor and chair of the Department of Communication and Northern Illinois University, where he oversaw that university s largest undergraduate major and a sizable master of arts program. Previously, he was professor and chair of the Department of Communication and Visual Art at the University of Michigan-Flint, and director of the Oral Communication Proficiency Program and assistant director of the Teaching and learning Center at East Tennessee State University. He also has served on the faculty at Iowa State University and Creighton University. He has written more than 60 articles, papers, and presentations. His research has appeared in numerous scholarly publications including the Journal of Applied Communication Research, Communication Education, the Journal of Business Communication, the Journal of Business and Technical Communication, and the Employee Responsibilities and Rights Journal. He is the former editor of the Journal of Business Communication and past president of the East Tennessee Chapter of the American Society for Training and Development. He serves on the editorial review boards of several scholarly journals. As Provost and Vice President for Academic Affairs, Dr. Ralston is the Chief Academic Officer and is responsible for four colleges, Camden-Carroll Library, Research and Sponsored Programs, Graduate and Undergraduate Programs, Academic Outreach and other administrative units supporting the academic mission of the University. Mr. James A. Shaw, Vice President for University Advancement and Chief Executive Officer of MSU Foundation, Inc. Mr. James Shaw is the University s new Vice President for University Advancement and Chief Executive Officer of MSU Foundation, Inc., effective March 1, A 1967 engineering graduate of the Air Force Academy, Shaw also holds master s degrees from Auburn University in business 7

14 administration and from the University of Arizona in international relations. fellowship at Queens University in Kingston, Ontario, Canada. He has a postgraduate Upon leaving active duty after 26 years at the rank of colonel, the former command pilot accepted a position with the Academy s Association of Graduates as vice president for development. After seven years in that post, he was promoted to president and chief executive officer of the organization where he serviced nine years. His accomplishments included raising nearly $40 million in a campaign to finance capital projects at the Academy. Future Debt For the Biennium, the State Budget did not contain any authorization bond funded projects for the University other than the 2015 Series A Bonds. Consequently, the University will not be issuing any other Obligations for new projects during the next two fiscal years ( and ). Future State Budgets may authorize other projects at the University to be directly funded from proceeds of Obligations, including Agency Fund Revenue Bonds issued by the State Property and Buildings Commission or the Kentucky Asset/Liability Commission. In addition, Obligations to refund outstanding bonds, notes and Obligations may be issued to achieve debt service savings. General TAX EXEMPTION In the opinion of Bond Counsel for the 2015 Series A Bonds, based upon an analysis of existing laws, regulations, rulings and court decisions, interest on the 2015 Series A Bonds will be excludible from gross income for federal income tax purposes. Bond Counsel for the 2015 Series A Bonds is also of the opinion that interest on the 2015 Series A Bonds will not be a specific item of tax preference under Section 57 of the Internal Revenue Code of 1986 (the Code ) for purposes of computing the alternative minimum tax for individuals and corporations. Furthermore, Bond Counsel for the 2015 Series A Bonds is of the opinion that interest on the 2015 Series A Bonds is exempt from income taxation by the Commonwealth and the 2015 Series A Bonds are exempt from ad valorem taxation by the Commonwealth and any of its political subdivisions. A copy of the form of opinion of Bond Counsel for the 2015 Series A Bonds is set forth in APPENDIX D, attached hereto. The Code imposes various restrictions, conditions, and requirements relating to the qualification of the 2015 Series A Bonds as so-called tax-exempt bonds. The University has covenanted to comply with certain restrictions designed to ensure that interest on the 2015 Series A Bonds will not be includable in gross income for federal income tax purposes. Failure to comply with these covenants could result in the 2015 Series A Bonds not qualifying as tax-exempt bonds, and thus interest on the 2015 Series A Bonds being includable in the gross income of the holders thereof for federal income tax purposes. Such failure to qualify and the resulting inclusion of interest could be required retroactively to the date of issuance of the 2015 Series A Bonds. The opinion of Bond Counsel assumes compliance with these covenants. However, Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the 2015 Series A Bonds may adversely affect either the federal or Kentucky tax status of the 2015 Series A Bonds. Certain requirements and procedures contained or referred to in the Trust Agreement and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the 2015 Series A Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any 2015 Series A 8

15 Bonds or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than Peck, Shaffer & Williams, a division of Dinsmore & Shohl, LLP. Although Bond Counsel for the 2015 Series A Bonds is of the opinion that interest on the 2015 Series A Bonds will be excludible from gross income for federal income tax purposes and the 2015 Series A Bonds will be exempt from Kentucky income tax, as described above, the ownership or disposition of, or the accrual or receipt of interest on, the 2015 Series A Bonds may otherwise affect a Holder s Federal, state or local tax liabilities. The nature and extent of these other tax consequences may depend upon the particular tax status of the Holder or the Holder s other items of income or deduction. Bond Counsel expresses no opinions regarding any tax consequences other than what is set forth in its opinion and each Holder or potential Holder is urged to consult with tax counsel with respect to the effects of purchasing, holding or disposing the 2015 Series A Bonds on the tax liabilities of the individual or entity. Receipt of tax-exempt interest, ownership or disposition the 2015 Series A Bonds may result in other collateral federal, state or local tax consequence for certain taxpayers. Such effects may include, without limitation, increasing the federal tax liability of certain foreign corporations subject to the branch profits tax imposed by Section 884 of the Code, increasing the federal tax liability of certain insurance companies, under Section 832 of the Code, increasing the federal tax liability and affecting the status of certain S Corporations subject to Sections 1362 and 1375 of the Code, increasing the federal tax liability of certain individual recipients of Social Security or the Railroad Retirement benefits under Section 86 of the Code and limiting the amount of the Earned Income Credit under Section 32 of the Code that might otherwise be available. Ownership of any of the 2015 Series A Bonds may also result in the limitation of interest and certain other deductions for financial institutions and other taxpayers, pursuant to Section 265 of the Code. Finally, residence of the Holder of the 2015 Series A Bonds in a state other than Kentucky or being subject to tax in a state other than Kentucky, may result in income or other tax liabilities being imposed by such states or their political subdivisions based on the interest or other income from the 2015 Series A Bonds. The University has not designated the 2015 Series A Bonds as qualified tax-exempt obligations pursuant to Section 265 of the Code. Original Issue Premium Acquisition Premium is the excess of the cost of a bond over the stated redemption price of such bond at maturity or, for bonds that have one or more earlier call dates, the amount payable at the next earliest call date. The 2015 Series A Bonds that bear an interest rate that is higher than the yield (as shown on the cover page hereof), are being initially offered and sold to the public at an Acquisition Premium (the Premium Bonds ). For federal income tax purposes, the amount of Acquisition Premium on each bond the interest on which is excludable from gross income for federal income tax purposes ( tax-exempt bonds ) must be amortized and will reduce the Holder s adjusted basis in that bond. However, no amount of amortized Acquisition Premium on tax-exempt bonds may be deducted in determining the Holder s taxable income for federal income tax purposes. The amount of any Acquisition Premium paid on the Premium Bonds, or on any of the 2015 Series A Bonds, that must be amortized during any period will be based on the constant yield method, using the original Holder s basis in such bonds and compounding semiannually. This amount is amortized ratably over that semiannual period on a daily basis. Holders of any 2015 Series A Bonds, including any Premium Bonds, purchased at an Acquisition Premium should consult their own tax advisors as to the actual effect of such Acquisition Premium with respect to their own tax situation and as to the treatment of Acquisition Premium for state tax purposes. 9

16 Original Issue Discount The 2015 Series A Bonds that bear an interest rate that is lower than the yield (as shown on the cover page hereof) are being offered and sold to the public at an original issue discount ( OID ) from the amounts payable at maturity thereon (the Discount Bonds ). OID is the excess of the stated redemption price of a bond at maturity (the face amount) over the issue price of such bond. The issue price is the initial offering price to the public (other than to bond houses, brokers or similar persons acting in the capacity of underwriters or wholesalers) at which a substantial amount of bonds of the same maturity are sold pursuant to that initial offering. For federal income tax purposes, OID on each bond will accrue over the term of the bond, and for the Discount Bonds, the amount of accretion will be based on a single rate of interest, compounded semiannually (the yield to maturity ). The amount of OID that accrues during each semi-annual period will do so ratably over that period on a daily basis. With respect to an initial purchaser of a Discount Bond at its issue price, the portion of OID that accrues during the period that such purchaser owns the Discount Bond is added to such purchaser s tax basis for purposes of determining gain or loss at the maturity, redemption, sale or other disposition of that Discount Bond and thus, in practical effect, is treated as stated interest, which is excludable from gross income for federal income tax purposes. Holders of Discount Bonds should consult their own tax advisors as to the treatment of OID and the tax consequences of the purchase of such Discount Bonds other than at the issue price during the initial public offering and as to the treatment of OID for state tax purposes. CONTINUING DISCLOSURE In accordance with Securities and Exchange Commission Rule 15c2-12 (the Rule ), the University (the Obligated Person ) will agree, pursuant to a Continuing Disclosure Agreement to be dated the first day of the month in which the 2015 Series A Bonds are sold (the Disclosure Agreement ), to be delivered on the date of delivery of the 2015 Series A Bonds, to cause the following information to be provided: (a) to the Municipal Securities Rulemaking Board (the MSRB ), certain annual financial information and operating data, including audited financial statements prepared in accordance with generally accepted accounting principles, generally consistent with the information contained in Appendices A and B; such information shall be provided on or before 270 days following the fiscal year ending on the preceding June 30, commencing with the fiscal year ending June 30, 2015; (b) to the MSRB, in a timely manner, not in excess of ten business days after the occurrence of the event, notice of the occurrence of the following events with respect to the 2015 Series A Bonds: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) Principal and interest payment delinquencies; Non-payment related defaults, if material; Unscheduled draws on debt service reserves reflecting financial difficulties; Unscheduled draws on credit enhancements reflecting financial difficulties; Substitution of credit or liquidity providers, or their failure to perform; 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-exempt status of the security; Modifications to rights of security holders, if material; Bond calls, if material, and tender offers (except for mandatory scheduled redemptions not otherwise contingent upon the occurrence of an event); Defeasances; Release, substitution or sale of property securing repayment of the securities, if material; Rating changes; 10

17 (xii) (xiii) (xiv) Bankruptcy, insolvency, receivership or similar event of the obligated person (Note: For the purposes of this event, the event is considered to occur when any of the following occur: The appointment of a receiver, fiscal agent or similar officer for an 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 obligated person); The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, 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 Appointment of a successor or additional trustee or the change of name of a trustee, if material; and (c) to the MSRB, notice of a failure (of which the Obligated Persons have knowledge) of an Obligated Person to provide the required Annual Financial Information on or before the date specified in the Disclosure Agreement. The Disclosure Agreement provides a Holder of the 2015 Series A Bonds, including Beneficial Owners of the 2015 Series A Bonds, with certain enforcement rights in the event of a failure by the University to comply with the terms thereof; however, default under the Disclosure Agreement does not constitute an event of default under the Resolutions. The Disclosure Agreement may also be amended or terminated under certain circumstances in accordance with the Rule as more fully described therein. Holders of the 2015 Series A Bonds are advised that the Disclosure Agreement, the form of which is obtainable from the Financial Advisor, should be read in its entirety for more complete information regarding its contents. In the past five years, the University has complied with its continuing disclosure requirements to file Annual Financial Information, as defined in its Disclosure Agreements (which are similar to the form of Continuing Disclosure Agreement set forth in APPENDIX F). Operating Data, as defined in its Disclosure Agreements (other than Operating Data included in the Annual Financial Information), for certain years was incomplete or filed after the required filing date. Additional information regarding continuing disclosure filings of the University is available at reference Morehead State. The University has established procedures to assure future compliance with its continuing disclosure obligations. Additional financial information regarding the University may be obtained from the Chief Financial Officer and Vice President for Administration, Morehead State University, 305D Howell- McDowell Administration Building, Morehead, Kentucky PENDING LITIGATION There is no controversy or litigation of any nature now pending or threatened restraining or enjoining the issuance, sale, execution or delivery of the 2015 Series A Bonds, or in any way contesting or affecting the validity of the 2015 Series A Bonds or any proceedings of the University taken with respect to the issuance of sale thereof, or the pledge or application of any moneys or security provided for the payment of the 2015 Series A Bonds or the due existence or powers of the University. 11

18 APPROVAL OF LEGALITY Legal matters incident to the authorization, issuance, sale and delivery of the 2015 Series A Bonds are subject to the approval of Peck, Shaffer & Williams, a division of Dinsmore & Shohl, LLP, Covington, Kentucky, Bond Counsel to the University. The approving legal opinion of Bond Counsel will be printed on the 2015 Series A Bonds and will contain a statement of tax exemption as represented herein. Bond Counsel has reviewed the information herein pertaining to the 2015 Series A Bonds under the headings THE 2015 SERIES A BONDS, SECURITY FOR THE 2015 SERIES A BONDS, THE TRUST AGREEMENT, TAX EXEMPTION, APPENDIX C, APPENDIX D and APPENDIX F, and is of the opinion that such information is a fair summary of the principal provisions of the instruments and information therein described. Said firm has not otherwise participated in the preparation of the Official Statement or the Appendices attached hereto and has not verified the accuracy or completeness of the information contained under any heading other than those stated above, nor of any financial information, enrollment numbers, projections, or computations relating thereto, and therefore, can make no representation with respect to such information. A certification as to the matters set forth under PENDING LITIGATION will be delivered by the University with the 2015 Series A Bonds. FINANCIAL ADVISOR J.J.B. Hilliard, W.L. Lyons, LLC, Louisville, Kentucky, has acted as Financial Advisor to the University in connection with the issuance of the 2015 Series A Bonds and will receive a fee, payable from Bond proceeds, for its services as Financial Advisor. APPROVAL OF ISSUANCE OF BONDS Pursuant to Chapter 42 of the Kentucky Revised Statutes, issuance of the 2015 Series A Bonds must be approved by the Office of Financial Management of the Finance and Administration Cabinet of the Commonwealth of Kentucky. FINANCIAL STATEMENTS The consolidated financial statements of the University as of and for the years ended June 30, 2014 and 2013, included in this Official Statement in APPENDIX B, have been audited by Dean, Dorton, & Ford, PSC, independent auditors. CERTIFICATE CONCERNING OFFICIAL STATEMENT Concurrently with the delivery of the 2015 Series A Bonds, the Chief Financial Officer and Vice President for Administration will certify that, to the best of his knowledge, the Official Statement did not as of the date of delivery of the 2015 Series A Bonds, contain any untrue statements of a material fact or omit to state a material fact which should be included therein for the purpose for which the Official Statement is to be used, or which is necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading in any material respect. COMPLETENESS OF OFFICIAL STATEMENT The Board has approved and caused this Official Statement to be executed and delivered by its Chair. This Official Statement is deemed final by the Board for purposes of Securities and Exchange Commission Rule 15c2-12(b)(1) as of the date hereof. The financial information supplied by the Board and reported in APPENDIX A and APPENDIX B herein is represented by the Board to be correct. With respect to APPENDIX A, accounts required by Federal and State laws, rules and regulations to be audited annually by independent certified public accountants have been so audited and the financial information extracted from the annual audits and 12

19 presented herein is incomplete to the degree that accounts not required to be so audited have not been included in the annual audits contained in APPENDIX B. RATING Moody s Investors Service, Inc. ( Moody s ) has assigned the 2015 Series A Bonds the rating of Aa3 (underlying rating of A2). Such rating reflects only the view of Moody s. An explanation of the significance of the rating may be obtained from Moody s Investors Service, Inc., 7 World Trade Center, 250 Greenwich Street, New York, New York 10007, (212) A rating is not a recommendation to buy, sell or hold the 2015 Series A Bonds. There is no assurance that such rating will continue for any given period of time or that they may not be lowered or withdrawn entirely. Any such downward change in or withdrawal of such rating could have an adverse effect on the market price of the 2015 Series A Bonds. UNDERWRITING The 2015 Series A Bonds are to be purchased by Hutchinson, Shockey, Erley & Co. (the Underwriter ). The Underwriter has agreed, subject to certain conditions, to purchase the 2015 Series A Bonds at an aggregate purchase price of $30,817, (which is equal to the principal amount of the 2015 Series A Bonds plus net original issue premium of $2,835, and less underwriting discount of $203,329.97). The Underwriter will be obligated to purchase all of the 2015 Series A Bonds if any are purchased. The Underwriter has advised the University that it intends to make a public offering of the 2015 Series A Bonds at the initial public offering yields set forth on the cover page hereof, provided, however, that the Underwriter has reserved the right to make concessions to dealers and to change such initial public offering prices as the Underwriter shall deem necessary in connection with the marketing of the 2015 Series A Bonds. MISCELLANEOUS All quotations from, and summaries and explanations of, the Kentucky Revised Statutes, the Resolution and the Series Resolution, contained herein do not purport to be complete, and reference is made to such laws and documents for full and complete statements of their provisions. The Appendices attached hereto are a part of this Official Statement. Copies, in reasonable quantity, of the Resolution or the Series Resolution may be obtained from J.J.B. Hilliard, W.L. Lyons, LLC, 500 West Jefferson Street, Suite 700, Louisville, Kentucky 40202, Attention Ms. Tammey Bibb (502) Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. Except when otherwise indicated, the information set forth herein has been obtained from the University and has not been verified as to accuracy or completeness by, and is not to be construed as a representation of, the Financial Advisor or Bond Counsel. This Official Statement is not to be construed as a contract or agreement between the University and the purchasers or owners of any of the 2015 Series A Bonds. Attest: MOREHEAD STATE UNIVERSITY By: /s/ Sharon S. Reynolds Secretary MOREHEAD STATE UNIVERSITY By: /s/ Paul C. Goodpastor Chair, Board of Regents 13

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21 APPENDIX A INFORMATION PERTAINING TO MOREHEAD STATE UNIVERSITY GENERAL This APPENDIX A contains certain financial and operating information regarding the University. Reference is made to APPENDIX B for additional financial and operating information. Unless otherwise indicated, the source of the information set forth in this APPENDIX A is the University. FISCAL YEAR BUDGET The fiscal year budget for the University is $153,200,000, an increase of $9,300,000 from the final fiscal year budget. OPERATIONS Summary of Revenues, Expenses and Changes in Net Assets The following is a summary of the University s revenues, expenses and changes in net assets for the most recent three year period available: Year Ended June 30 (Audited) Operating revenue $76,639,034 $79,722,914 $78,237,989 Operating expenses 143,468, ,120, ,546,161 Operating loss (66,829,291) (61,397,317) (72,308,172) Non-operating revenues, including state appropriations 69,412,145 66,428,194 66,925,594 Increase in net assets $2,582,854 $5,030,877 ($5,382,578) Enrollment The following schedule indicates the fall semester head count and full-time equivalent enrollment at the University for each of the fiscal academic years through The full-time enrollment calculation is made in accordance with the method used by the Kentucky Council on Postsecondary Education. Academic Year Undergraduate Graduate Total Head Count Full-Time 1 Equivalent ,619 1,447 9,066 6, ,487 1,494 8,981 6, ,550 1,496 9,046 6, ,399 1,443 8,842 6, ,420 1,551 10,971 7, ,725 1,447 11,172 7, ,076 1,282 11,358 7, ,952 1,101 11,053 7,678 1 Full-time and part-time enrollment equated to full-time enrollment. 2 For the academic year (and beyond), Kentucky Council on Postsecondary Education adjusted the method for calculating full-time equivalent enrollment. A-1

22 Approximately 15% of the students enrolled in the University are non-residents of Kentucky and it is anticipated that the percentage of non-resident enrollments will remain at this level in future years. Using regional and national surveys of future college age population and historic enrollment data, and taking into consideration the policies of the Kentucky Council on Postsecondary Education relating to the enrollment requirements, the University has projected through fall semesters total headcount and full-time equivalent student enrollment at the University as follows: Academic Year Estimated Fall Semester Student Enrollment (Head Count)* Estimated Fall Semester Student Enrollment (FTE) ,632 7, ,949 8, ,331 8, ,653 8,487 * Undergraduate and Graduate combined Admissions Information - Fall Semester Undergraduate Admissions (First Time Full Time Freshmen) Number of Applicants 2,460 3,518 5,301 5,345 5,266 Number Approved for Enrollment 2,184 2,984 4,441 4,417 4,431 Number Enrolled 1,180 1,372 1,649 1,685 1,516 Average ACT Scores State Appropriations General The General Assembly of the Commonwealth of Kentucky, based on an initial request from the Governor, approves a biennial budget which includes appropriations for all the Commonwealth s public universities. The following are the state appropriations for Morehead State University for the years indicated: Fiscal Year General Fund Appropriation $42,678, ,901, ,462, ,251, ,771, ,593, ,609, ,514, ,564, ,560, ,039,500 A-2

23 The amounts set forth above, except for , are amounts actually received, which, in certain years, have been less than amounts included in the original state budget for that year. The Board presently intends, but is not obligated, to continue to seek to have funds appropriated by the General Assembly to partially support the operations of the University. THE GENERAL ASSEMBLY IS NOT NOW OBLIGATED, NOR WILL THERE BE AN OBLIGATION IN THE FUTURE TO MAKE APPROPRIATIONS TO THE UNIVERSITY. IN ADDITION, THERE CAN BE NO ASSURANCE THAT IN THE PERFORMANCE OF HIS OR HER OBLIGATION TO BALANCE THE STATE BUDGET ANNUALLY, THE GOVERNOR WILL NOT REDUCE OR ELIMINATE ANY APPROPRIATIONS WHICH ARE MADE. Pension System Obligations Eligible University employees participate in one of two multi-employer defined benefit plans, the Kentucky Retirement Systems and the Teachers Retirement System of the Commonwealth ( KTRS ). The following is information about the Commonwealth s retirement system, including pension plans and other post-employment benefits. Capitalized terms used under this heading and not otherwise defined shall have the respective meanings given by the CAFRs, as herein defined. Pension Plans. The Kentucky Retirement Systems is comprised of five retirement plans, Kentucky Employees Retirement System ( KERS ) Non-Hazardous, KERS Hazardous, County Employees Retirement System ( CERS ) Non-Hazardous, CERS Hazardous, and State Police. Each retirement plan is state supported, except for the CERS plans, which have been excluded from the Kentucky Retirement Systems information provided herein. The Kentucky Retirement Systems and KTRS (collectively, the Pension Plans ) provide both pension and Other Post Employment Benefits to state employees and teachers based upon their years of service and retirement dates. Most retirement benefits are subject to a statutory inviolable contract under which the benefits shall not, with limited exceptions, be reduced or impaired by alteration, amendment or repeal. The Pension Plans are component units of the Commonwealth for financial reporting purposes and are included in The Kentucky Comprehensive Annual Financial Report. For a brief description of the Pension Plans and of the Pension Plans assets and liabilities, see The Kentucky Comprehensive Annual Financial Report for Fiscal Year 2014 Note 8 beginning on page 86. Additional information regarding the Kentucky Retirement Systems and KTRS can be found in their respective web sites at and including their respective Comprehensive Annual Financial Reports (collectively, the CAFRs ) and the accompanying actuarial studies, described under Other Post Employment Benefits ( OPEB ). Only information contained on the Internet web page identified above is incorporated herein and no additional information that may be reached from such page by linking to any other page should be considered to be incorporated herein. Pension Funding. Based upon the assumptions employed in the Pension Plans June 30, 2014 actuarial valuation reports used in preparing the associated Pension Plans 2014 CAFRs, the Kentucky Retirement Systems had a state supported pension Unfunded Actuarial Accrued Liability (the UAAL ) of $9,853 million, while KTRS had a UAAL of $14,010 million. The state supported portion of the Pension Plans for Fiscal Year ended June 30, 2014 had funding percentages of 24.5 percent for the Kentucky Retirement Systems and 53.6 percent for KTRS. The Kentucky Retirement Systems state supported Annual Required Contribution for Fiscal Year ended June 30, 2014 pension benefits was $560.2 million; $318.8 million was contributed. The KTRS state supported Annual Required Contribution for Fiscal Year ended June 30, 2014 was $823.4 million; $563.3 million was contributed. Other Post Employment Benefits ( OPEB ). The Governmental Accounting Standards Board has promulgated Statement 45 ( Accounting and Financial Reporting by Employers for Post-employment Benefits other than Pensions ), which the Commonwealth has adopted. The Commonwealth is obligated to provide healthcare benefits to certain retired state employees and teachers. The Pension Plans administer two multi-employer defined benefit healthcare plans A-3

24 (collectively, the Health Plans ) for which the Commonwealth pays a portion of the cost of the benefits of the retired employees. As of January 1, 2006, the Commonwealth commenced self-funding of healthcare benefits for state employees. The Kentucky Retirement Systems also adopted, on January 1, 2006, a self-funding health care plan for Medicare Eligible Retirees. KTRS became self-insured for postretirement healthcare costs for Medicare Eligible Retirees on July 1, Beginning January 1, 1997, KTRS offered non-medicare Eligible Retirees insurance through the state health insurance program, which has since become self-insured. Beginning January 1, 2007, KTRS offered its Medicare Eligible Retirees an insured Medicare Advantage Plan and, beginning July 1, 2010, offer this group an insured Employer Group Waiver Drug Plan. The Pension Plans commissioned actuarial studies which provided results for consideration, under certain actuarial funding methods and sets of assumptions. A five year experience study was completed for the period ending June 30, 2013 for the Kentucky Retirement Systems which was dated April of KTRS last five-year experience study was for the period ending June 30, 2010 and was presented to the KTRS board in September In addition to the experience studies, annual actuarial reports are performed on both retirement systems. Pursuant to their respective actuarial studies, the OPEB UAAL as of June 30, 2014 has been estimated to not exceed $1,662 million for the Kentucky Retirement Systems and $2,687 million for KTRS. These estimates represent the present value of the amount of healthcare benefits under the respective Health Plans, payable over future periods and allocated by the actuarial cost method, as of June 30, The actuarial estimates for the Kentucky Retirement Systems OPEB liabilities decreased from the $1,731.9 million previously reported in the Kentucky Retirement Systems 2013 CAFR. The actuarial estimates for KTRS decreased from the $3,108 million previously reported in their 2013 CAFR. The Kentucky Retirement Systems state supported OPEB Annual Required Contribution for Fiscal Year ended June 30, 2014 was $245.4 million; $ million was contributed. The KTRS state supported OPEB Annual Required Contribution for Fiscal Year ended June 30, 2014 was $160.6 million; $163.6 million was contributed. The state supported portion of the OPEB for Fiscal Year ended June 30, 2014 had funding percentages of 41.9 percent for the Kentucky Retirement Systems and 18.4 percent for KTRS. The Commonwealth s biennial budget increased employer contribution rates by 39 percent in Fiscal Year 2013 and 35 percent in Fiscal Year 2014 for the Kentucky Retirement Systems non-hazardous duty retirement system. The increase for the State Police Retirement System is 40 percent in Fiscal Year 2013 and 36 percent in Fiscal Year The Commonwealth s biennial budget increased employer contribution rates by 64 percent in Fiscal Year 2015 and 45 percent in Fiscal Year 2016 for the Kentucky Retirement Systems non-hazardous duty retirement system. The increase for the State Police Retirement System is 19 percent in Fiscal Year 2015 and 6 percent in Fiscal Year Pension Payments of the University The following are the employer contribution paid by the University to KTRS for the years indicated: Fiscal Year KTRS Payment KERS Payment Total $7,008,240 $2,224,370 $9,232, ,217,493 2,772,845 9,990, ,439,869 3,157,281 10,597, ,363,904 3,354,180 10,718, ,624,226 3,872,453 11,496,679 A-4

25 Student Registration Fees The Board of Regents, with the approval of the Kentucky Council on Postsecondary Education, has established a schedule of Student Registration Fees to be imposed, charged and collected for services from all students attending the University. The schedules of fees, effective for the period, through are as follows: Schedule of Fees Schedule of Fees Schedule of Fees Registration Fee Per Semester Full Time Undergraduate Resident $3,642 $3,749 $3,933 Non-Resident 9,108 9,373 9,833 Graduate Resident $3,726 N/A N/A Non-Resident 9,315 N/A N/A Registration Fee Per Credit Hour Undergraduate Resident $276 $320 $328 Non-Resident Graduate Resident $414 $535 $562 Non-Resident 1, In June 2013, the Board of Regents approved a new tuition model for the academic year and beyond. The new model involves a full-time flat rate pricing structure for undergraduate students. Graduate students will continue to be charged tuition on a per credit hour basis under this new tuition model. Grants and Contracts The following is a summary of the University s grant and contract amounts for the most recent ten year period available: Year Amount $32,086, ,498, ,982, ,713, ,888, ,275, ,120, ,081, ,954, ,735,186 A-5

26 Private Donations or Contributions Fiscal Year Number of Donors Participating Total Voluntary Support ,318 $2,672, ,548 1,977, ,718 2,188, ,757 2,894, ,727 5,311, ,025 2,378, ,136 2,345, ,784 3,763,186 [The remainder of this page is intentionally left blank.] A-6

27 Comparative Report of Student Financial Aid A summary of the University s student financial aid is presented for the most recent three fiscal year periods: GRANTS Federal Pell Grant $15,209,342 $15,745,570 $16,137,227 College Access Program Grant (CAP) 1,738,636 2,118,948 3,365,347 Federal Supplemental Ed. Opty Grant (SEOG) 388, , ,428 Acad. Competitiveness Grant National Smart Grant TEACH Grant 89,500 78,322 40,411 Go Higher Grant 3,872 1,300 0 $17,429,767 $18,322,669 $19,843,413 LOANS Federal Perkins Loan $510,851 $440,739 $800,996 William D. Ford Federal Direct Loan William D. Ford Federal Direct Plus Loan 44,048,737 2,363,112 48,916,277 1,577,099 46,606,378 2,116,798 Alternative Loan 1,485,140 1,556,003 1,843,544 William D. Ford Federal Direct Grad PLUS Loan 80,321 87,496 92,857 $48,488,161 $52,577,614 $51,460,573 STUDENT EMPLOYMENT Federal Work Study $1,426,003 $1,430,465 $1,361,927 Institutional Work Study 2,224,445 2,291,682 2,342,632 $3,650,448 $3,722,147 $3,704,559 UNIVERSITY Scholarships $9,104,131 $11,269,565 $12,905,032 Private 1,990,956 2,272,745 2,511,273 $11,095,087 $13,542,310 $15,416,305 MISC. AWARDS Athletic Scholarships $2,426,650 $2,586,819 $2,756,337 Non-Resident Tuition Scholarships 3,909,472 4,506,862 4,319,162 Teachers Scholarships 5,000 19,316 16,598 Third Party Sponsorships 229, , ,139 Misc. Tuition Waiver 900, , ,762 Vocational Rehabilitation 544, , ,988 Graduate Assistants 327, ,103 0 KRS , , ,526 PHEAA Grant Faculty Staff Waiver High School Waiver 780, , ,296 88, , ,520 National Guard Tuition Waiver 196, , ,929 Post Sec Ed Waiver 1,473,877 1,443,709 1,381,740 Ky. Ed. Excellence Scholarship (KEES) 4,645,522 5,227,100 5,765,471 Veterans Benefits Early Childhood Development Scholarship 242, , ,240 Disadvantaged Student Nursing Scholarship 16, Student Support Services (SSS) Grant 35,000 35,000 27,000 Drive the Dream Scholarship 60,500 87,640 94,500 DC Tuition Assistance Grant 0 9,968 0 KY Coal County Completion Scholarship 0 126,120 63,516 $16,650,448 $18,111,847 $18,294,753 TOTAL PROGRAM EXPENDITURES $97,313,911 $106,276,587 $108,719,603 A-7

28 OUTSTANDING BONDS OF MOREHEAD STATE UNIVERSITY In addition to the 2015 Series A Bonds, the University has the following General Receipts Bonds outstanding: Year of Issue Amount of Issue Amount Outstanding Final Maturity 2007 Series A 2007 $6,445,000 $4,105,000 Nov. 01, Series A ,000,000 5,245,000 Nov. 01, Series A ,090,000 4,445,000 Nov. 01, Series A ,060,000 4,635,000 Nov. 01, Series A ,475,000 9,130,000 Apr. 01, Series A ,620,000 21,205,000 Oct. 01, Series B ,840,000 4,565,000 Oct. 01, 2029 TOTAL $63,530,000 $53,330,000 [The remainder of this page is intentionally left blank.] A-8

29 TOTAL ANNUAL DEBT SERVICE REQUIREMENTS A-9

30 PLEDGED REVENUES GENERAL FUND RECEIPTS MOREHEAD STATE UNIVERSITY FISCAL YEAR ENDING JUNE 30, 2014 No Consolidated Educational Buildings Revenue Bonds remain outstanding and General Receipts will no longer be pledged as security for obligations of the University other than the pledge to secure Obligations Outstanding under the Trust Agreement. [The remainder of this page is intentionally left blank.] A-10

31 APPENDIX B CONSOLIDATED FINANCIAL STATEMENTS OF MOREHEAD STATE UNIVERSITY AS OF AND FOR THE YEARS ENDED JUNE 30, 2013 AND 2014

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33 MOREHEAD STATE UNIVERSITY Single Audit Reports Under OMB Circular A-133 As of and for the Years Ended June 30, 2014 and 2013 with Report of Independent Auditors

34 CONTENTS Management's Discussion and Analysis... 1 Report of Independent Auditors Financial Statements Morehead State University Statements of Net Position Morehead State University Foundation, Inc. Statements of Financial Position Morehead State University Statements of Revenues, Expenses and Changes in Net Position Morehead State University Foundation, Inc. Statements of Activities Morehead State University Statements of Cash Flows Morehead State University Notes to the Financial Statements Morehead State University Foundation, Inc. Notes to the Financial Statements Supplemental Information Morehead State University Schedule of Bonds, Notes and Capital Lease Obligations Schedule of Expenditures of Federal Awards Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Report on Compliance For Each Major Program and Report on Internal Control Over Compliance Required by OMB Circular A Schedule of Findings and Responses... 69

35 MOREHEAD STATE UNIVERSITY Management's Discussion and Analysis MANAGEMENT'S DISCUSSION AND ANALYSIS Morehead State Urtiversity's (the Urtiversity) Management's Discussion and Analysis (MD&A) of its financial condition provides an overview of the financial performance of the University for the year ended June 30, Management has prepared this discussion, along with the financial statements and related footnotes, to provide summary financial information. MD&A should be read in conjunction with the accompanying financial statements and footnotes. Financial Highlights The financial statements indicate that the University's financial position remained strong at June 30, 2014, as reflected in the Statement of Net Position. Financial operations were conducted in accordance with the approved budget plan, which continues to demonstrate the University's commitment to advance the Urtiversity's rrtission by focusing on the goals and objectives as defined in the ASPIRE Strategic Plmz. Total assets were $266 million versus $264 rrtillion at June 30, The increase is primarily related to an increase in net capital assets of $2.4 million, as a result of the ongoing renovation of housing facilities as identified in the Comprehensive Housing Master Plan and as a result of expenditures related to the Guaranteed Energy Savings performance contract. 1

36 MOREHEAD STATE UNIVERSITY Management's Discussion and Analysis Total liabilities increased $7 million to $88 million versus $81 million at June 30, The increase is primarily related to the issuance of $9.5 million in General Receipts bonds to fund renovations of housing facilities as part of the Comprehensive Housin g Master Plan. This increase was offset by $4.9 million in debt service payments. Total net position was $178 million at June 30, 2014 and $184 million at June 30, The decrease is primarily the result of increases in operating expenses, w hich included increases in fixed costs such as utilities, scholarship commitments, employee retirement benefits, and investments in employees with the implementation of the new employee compensation model. Using the Annual Report This annual report consists of a series of financial statements, prepared in accordance with Governmental Accounting Standards Board (GASB) Statement No. 35, Basic Financial Statements - and Management's Discussion and Analysis - for Public Colleges and Universities. These financial statements focus on the financial condition of the University, the results of operations, and cash flows of the University as a whole. One of the most important questions asked about University finances is whether the University is better off as a result of the year's activities. The information needed to answer this question can be found in: Statement of Net Position, the Statement of Revenues, Expenses and Changes in Net Position and the Statement of Cash Flows. These statements present financial information of the University in a format similar to that used by corporations and present a long-term view of the University's finances. To get a fuu understanding of the University's financial conctition these statements should be reviewed as a whole and not inctividually. Further important information can be found in the Notes to the Financial Statements, beginning on page 23 of the Financial 2

37 MOREHEAD STATE UNIVERSITY Management's Discussion and Analysis Statements. The Notes to the Financial Statements contain policies, explanations and schedules that should be reviewed before, during and after reviewing the Financial Statements in order to get a complete understanding. The Statement of Net Position 1his statement includes all assets and liabilities. It is prepared under the accrual basis of accounting, whereby revenues and assets are recognized when the service is provided and expenses and Habilities are recognized when others provide the service, regardless of when cash is exchanged. The University's net position (the difference between assets and liabilities) are one indicator of the University's financial health. Over time, increases or decreases in net position can indicate improvement or erosion of the University's financial health. Changes in net position should be considered in conjunction with non-financial factors such as enrollment levels and conditions of facilities. The Statement of Revenues, Expenses and Changes in Net Position This statement presents the revenues earned and expenses incurred during the year. Activities are reported as either operating or non-operating. GASB 35 requires state appropriations and gifts to be classified as nonoperating revenues. Accordingly, the University will generate a net operating loss prior to the addition of non-operating revenues. The utilization of long-lived assets, referred to as capital assets, is reflected in the financial statements as depreciation, which amortizes the cost of an asset over its expected useful life. The Statement of Cash Flows This statement presents information related to cash inflows and outflows, summarized by operating, non-capital financing, capital financing and investing activities. An important factor to consider when evaluating financial viability is the University's ability to meet financial obligations as they mature. Reporting Entity Morehead State University is a component unit of the Commonwealth of Kentucky. 3