Supplement to OFFICIAL STATEMENT. dated April 27, relating to $15,050,000 KANSAS DEVELOPMENT FINANCE AUTHORITY REVENUE BONDS

Transcription

1 Supplement to OFFICIAL STATEMENT dated April 27, 2010 relating to $15,050,000 KANSAS DEVELOPMENT FINANCE AUTHORITY REVENUE BONDS $7,860,000 Revenue Bonds Series 2010K-1 (University of Kansas Projects) $7,190,000 Taxable Revenue Bonds Series 2010K-2 (University of Kansas Projects) (Build America Bonds Direct Payment To Issuer) This Supplement to the Official Statement dated April 27, 2010, relating to the above-referenced bonds (collectively, the "Bonds") amends certain terms of the offering of the Bonds set forth in the Official Statement. The first sentence under the caption "TAX MATTERS Opinion of Bond Counsel Series 2010K-1 Bonds Federal Tax Exemption Series 2010K-1 Bonds" on page 13 of the Official Statement is hereby amended in its entirety to read as follows: In the opinion of Bond Counsel, under existing law, the interest on the Series 2010K-1 Bonds (including any original issue discount properly allocable to an owner thereof) is excludable from gross income for Federal income tax purposes, is not an item of tax preference for purposes of the Federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The first sentence of Section 3 in "APPENDIX F PROPOSED FORM OF APPROVING OPINION OF BOND COUNSEL" is hereby amended in its entirety to read as follows: The interest on the Series 2010K-1 Bonds (including any original issue discount properly allocable to an owner thereof) is excludable from gross income for Federal income tax purposes, is not an item of tax preference for purposes of the Federal alternative minimum tax imposed on individuals and corporations, but is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. Capitalized terms used herein and not otherwise defined have the meanings given those terms in the Official Statement. Except as expressly supplemented or amended hereby, the terms of the offering of the Bonds set forth in the Official Statement remain in full force and effect. The date of this Supplement is May 5, 2010

2 NEW ISSUE RATING: See "BOND RATINGS" herein In the opinion of Bond Counsel, under existing law and assuming continued compliance with certain requirements of the Internal Revenue Code of 1986, as amended, the interest (including any original issue discount properly allocable to an owner thereof) on the Series 2010K-1 Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. The interest (including any original issue discount properly allocable to an owner thereof) on the Series 2010K-2 Bonds is included in gross income as interest for federal income tax purposes in accordance with the owner's normal method of accounting. The Issuer will elect to treat the Series 2010K-2 Bonds as Build America Bonds Direct Payment under Section 54AA of the Code and will elect to receive a direct payment from the federalgovernmetn equal to a portion of the interest coming due on the Series 2010K-2 Bonds. In the opinion of Bond Counsel, under existing law, the interest on the Bonds is exempt from all Kansas state, county and municipal taxes, including income, inheritance and property taxes. See "TAX MATTERS" herein. $15,050,000 KANSAS DEVELOPMENT FINANCE AUTHORITY REVENUE BONDS $7,860,000 Revenue Bonds Series 2010K-1 (University of Kansas Projects) $7,190,000 Taxable Revenue Bonds Series 2010K-2 (University of Kansas Projects) (Build America Bonds Direct Payment To Issuer) Dated: Date of Delivery Due: May 1, as shown on the inside cover page The Series 2010K-1 Revenue Bonds referenced above (the "Series 2010K-1 Bonds") and the Series 2010K-2 Taxable Revenue Bonds referenced above (the "Series 2010K-2 Bonds," together with the Series 2010K-1 Bonds, the "Bonds") will be issued by the Kansas Development Finance Authority (the "Authority") as fully registered bonds without coupons in denominations of $5,000 or any integral multiple thereof. The Depository Trust Company, New York, New York, will act as securities depository for the Bonds. Purchases of Bonds will be made in book-entry form. See "THE BONDS Book-Entry Only System for Bonds" herein. Principal will be payable upon presentation and surrender of the Bonds by the Owners thereof at the office of the Treasurer of the State of Kansas, Topeka, Kansas, as bond registrar and paying agent (the "Bond Registrar" and "Paying Agent"). Interest on the Bonds will be payable on May 1 and November 1, beginning November 1, 2010, by check or draft of the Paying Agent mailed to the persons who are the Owners of the Bonds as of the close of business on the fifteenth day (whether or not a Business Day) of the calendar month preceding each interest payment date. The Owner of Bonds of the same series in the principal amount of $500,000 or more may request the payments of principal, redemption premium, if any, and interest on Bonds to be made by wire transfer upon written request of the Owner received by the Paying Agent at least fifteen business days before any Payment Date. Principal and semiannual interest on the Bonds will be paid directly to DTC by the Paying Agent, so long as DTC or its nominee, Cede & Co., is the Owner of the Bonds. The Bonds will be issued pursuant to Bond Resolution No. 274 adopted by the Authority on April 1, 2010 (the "Bond Resolution"). MATURITY SCHEDULE LISTED ON INSIDE COVER PAGE The principal of, redemption premium, if any, and interest on the Bonds are payable solely and only from the Trust Estate (as defined in the Bond Resolution), which includes, but is not limited to, (i) all amounts and receipts derived by the Authority from the University of Kansas (the "University") under the provisions of a Pledge of Revenues Agreement, dated as of May 1, 2010 (the "Pledge Agreement"), among the Authority, the University and the Kansas Board of Regents (the "Board"), (ii) BAB Interest Subsidy Payments (as defined herein) and (iii) certain investment earnings. Amounts payable to the Authority under the Pledge Agreement will be derived from the Revenues (as defined herein) of the University pledged pursuant to the Pledge Agreement. THE BONDS SHALL NOT BE A DEBT OR GENERAL OBLIGATION OF THE AUTHORITY, THE BOARD, THE STATE OR ANY MUNICIPAL CORPORATION OR POLITICAL SUBDIVISION THEREOF, AND NEITHER THE BONDS, THE INTEREST THEREON, NOR ANY JUDGMENT THEREON OR WITH RESPECT THERETO, ARE PAYABLE IN ANY MANNER FROM UNLIMITED TAX REVENUES OF ANY KIND OR CHARACTER. THE BONDS SHALL NOT CONSTITUTE AN INDEBTEDNESS OR A PLEDGE OF THE FAITH AND CREDIT OF THE AUTHORITY, THE BOARD, THE STATE OR ANY MUNICIPAL CORPORATION OR POLITICAL SUBDIVISION THEREOF, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR RESTRICTION. THE AUTHORITY HAS NO TAXING POWER. The Bonds are subject to redemption as described under the caption "THE BONDS Redemption" herein. The Bonds are offered when, as and if issued by the Authority, subject to the approval of legality by Gilmore & Bell, P.C., Bond Counsel. Certain legal matters will be passed upon for the Authority by its general counsel, Rebecca Floyd, Esq., for the Board by its general counsel, Julene L. Miller, Esq., and for the University by its general counsel, James Pottorff, Esq. It is expected that the Bonds will be available for delivery in New York, New York through the facilities of DTC on or about May 12, The date of this Official Statement is April 27, 2010.

3 $7,860,000 KANSAS DEVELOPMENT FINANCE AUTHORITY Revenue Bonds Series 2010K-1 (University of Kansas Projects) SERIAL BONDS Maturity May 1 Principal Amount Interest Rate Yield CUSIP (1) 2011 $1,140, % 0.70% 48542K 3R ,140, K 3S ,125, K 3T , K 3U , K 3V , K 3W , K 3X , K 3Y , K 3Z , K 4A , K 4B , K 4C , K 4D8 (1) The Authority shall not be responsible for the use of the CUSIP numbers, nor is any representation made as to their correctness. They are included solely for the convenience of readers of this Official Statement.

4 $7,190,000 KANSAS DEVELOPMENT FINANCE AUTHORITY Taxable Revenue Bonds Series 2010K-2 (University of Kansas Projects) (Build America Bonds Direct Payment to Issuer) SERIAL BONDS Maturity May 1 Principal Amount Interest Rate Yield CUSIP (1) 2016 $265, % 3.50% 48542K 4E , K 4F , K 4G , K 4H , K 4J , K 4K , K 4L , K 4M , K 4N , K 4P , K 4Q9 TERM BONDS $1,140, % Term Bonds Due May 1, 2029 (Yield: 5.60%) (CUSIP: 48542K 4T3) $1,275, % Term Bonds Due May 1, 2032 (Yield: 5.83%) (CUSIP: 48542K 4W6) $1,425, % Term Bonds Due May 1, 2035 (Yield: 5.88%) (CUSIP: 48542K 4Z9) (1) The Authority shall not be responsible for the use of the CUSIP numbers, nor is any representation made as to their correctness. They are included solely for the convenience of readers of this Official Statement.

5 KANSAS DEVELOPMENT FINANCE AUTHORITY Brett A. Reber, Chair Daniel L. Watkins, Vice Chair Suchitra Padmanabhan, Member Audrey H. Langworthy, Member Timothy C. Schaller, Member Stephen R. Weatherford, President Rebecca E. Floyd, Executive Vice President and General Counsel Jim MacMurray, Vice President of Finance Nick Lehman, Vice President of Finance Linda Clark, Chief Fiscal Officer BOARD OF REGENTS OF THE STATE OF KANSAS Jill Docking, Chair Gary Sherrer, Vice Chair Jarold Boettcher Dan Lykins Christine Downey-Schmidt Janie Perkins Richard Hedges Donna Shank Ed McKechnie BOARD OF REGENTS STAFF Reginald L. Robinson, President and CEO Diane Duffy, Vice President for Finance and Administration Julene L. Miller, General Counsel UNIVERSITY OF KANSAS ADMINISTRATION Dr. Bernadette Gray-Little, Chancellor Dr. Danny J. Anderson, Interim Executive Vice Chancellor/Provost, Lawrence Campus Dr. Barbara Atkinson, Executive Vice Chancellor KU Medical Center Theresa Gordzica, Chief Business & Financial Planning Officer PROFESSIONAL SERVICES Bond Counsel Gilmore & Bell, P.C. Bond Registrar and Paying Agent Treasurer of the State of Kansas Financial Advisor Columbia Capital Management, LLC

6 No dealer, broker, salesman or other person has been authorized by the Authority, the Board or the University to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representation must not be relied upon as having been authorized by any or the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale hereunder shall, under any circumstances, create any implication that there has been no change in the information referenced herein since the date hereof. FORWARD-LOOKING STATEMENTS This Official Statement, including under the heading "INVESTMENT CONSIDERATIONS" herein and contained in Appendices A and B hereto, contains forward-looking statements. These statements relate to future events or future financial performance and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. You can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "projects," "potential," "continues," or the negative of these terms or other comparable terminology. Although the Authority and the University believe the expectations reflected in the forward-looking statements to be reasonable, neither the Authority nor the University can guarantee future results, levels of activity, performance or achievements. The Authority and the University do not plan to issue any updates or revisions to those forward-looking statements if or when the expectations on which such statements are based occur or fail to occur. Certain risks and other factors with respect to such events include those listed under the heading "INVESTMENT CONSIDERATIONS" herein and in Appendices A and B hereto and elsewhere in this Official Statement. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS AND DEALER BANKS AND OTHERS AT A PRICE LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Official Statement does not constitute an offer to sell or solicitation of an offer to buy, nor will there be any sale of the Bonds by any person, in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made thereafter shall, under any circumstances, create any implication that there has been no change in the affairs of the State of Kansas, the Board, the University or the Authority since the date hereof. THIS OFFICIAL STATEMENT IS IN A FORM DEEMED FINAL BY THE AUTHORITY FOR PURPOSES OF RULE 15c2-12 ISSUED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT FOR CERTAIN INFORMATION PERMITTED TO BE OMITTED PURSUANT TO RULE 15c2-12(B)(1).

7 TABLE OF CONTENTS Page INTRODUCTION...1 ESTIMATED SOURCES AND USES OF FUNDS...2 THE BONDS...2 General...2 Book-Entry Only System...3 Security for the Bonds...3 Authorization of Additional Indebtedness...4 Redemption...4 Selection of Bonds to be Redeemed...5 Paying Agent's and Bond Registrar's Duties to Redeem Bonds...6 Notice of Redemption...6 Effect of Call for Redemption...6 Debt Service Requirements...6 INVESTMENT CONSIDERATIONS...6 No Pledge of Real or Personal Property...7 Revenues May be Further Pledged or Restricted...7 Limitation of Liability...7 Special Obligations...7 Taxation of Interest on the Series 2010K-1 Bonds...8 Federally Subsidy Payment With Respect to the Series 2010K-2 Bonds...8 Market for the Bonds...8 Legal Matters...9 Limitations on Remedies Available to Owners of the Bonds...9 Premium on Bonds...9 Suitability of Investment...9 THE AUTHORITY...10 THE KANSAS BOARD OF REGENTS...11 UNIVERSITY OF KANSAS...11 THE PROJECT...11 NON-LITIGATION CERTIFICATION...11 BOND RATINGS...12 CONTINUING DISCLOSURE...12 LEGAL MATTERS...12 TAX MATTERS...13 Opinion of Bond Counsel Series 2010K-1 Bonds...13 Other Federal Tax Matters Series 2010K-1 Bonds...13 Federal Tax Matters Series 2010K-2 Bonds...14 Opinion of Bond Counsel Series 2010K-2 Bonds...14 Other Federal Income Tax Consequences Series 2010K-2 Bonds...15 Other Federal Income Tax Consequences Applicable to Owners of the Series 2010K Bonds...15 FINANCIAL ADVISOR...16 UNDERWRITING...16 MISCELLANEOUS...16 APPENDIX A THE UNIVERSITY APPENDIX B UNIVERSITY OF KANSAS ANNUAL FINANCIAL REPORT (JUNE 30, 2009) (UNAUDITED) APPENDIX C DEBT SERVICE REQUIREMENTS APPENDIX D SUMMARY OF PRINCIPAL FINANCING DOCUMENTS APPENDIX E FORM OF CONTINUING DISCLOSURE UNDERTAKING APPENDIX F PROPOSED FORM OF APPROVING OPINION OF BOND COUNSEL APPENDIX G BOOK-ENTRY ONLY SYSTEM

8 $15,050,000 KANSAS DEVELOPMENT FINANCE AUTHORITY REVENUE BONDS $7,860,000 Revenue Bonds Series 2010K-1 (University of Kansas Projects) $7,190,000 Taxable Revenue Bonds Series 2010K-2 (University of Kansas Projects) (Build America Bonds Direct Payment To Issuer) INTRODUCTION This Official Statement, including the cover page and appendices hereto (the "Official Statement"), is provided to furnish information with respect to the Kansas Development Finance Authority (the "Authority") and the issuance and delivery of its Revenue Bonds, Series 2010K-1 (University of Kansas Projects) (the "Series 2010K-1 Bonds") and its Taxable Revenue Bonds, Series 2010K-2 (University of Kansas Projects) (Build America Bonds Direct Payment to Issuer) (the "Series 2010K-2 Bonds, together with the Series 2010K-1 Bonds, the "Bonds"). The Bonds are being issued pursuant to Bond Resolution No. 274 adopted by the Authority on April 1, 2010 (the "Bond Resolution"). No additional bonds may be issued under the Bond Resolution. The Bonds are being issued for the purpose of (i) paying a portion of the costs to construct and equip an additional parking facility (the "Project") to be located on the campus of the University of Kansas Medical Center (the "Medical Center"), (ii) refunding the Authority's Revenue Bonds, Series 1999D (Kansas Board of Regents University of Kansas Parking Garage #2 Construction Project) (the "Series 1999D Bonds") and the Authority's Revenue Bonds, Series 2002K (Kansas Board of Regents University of Kansas Edwards Campus Project) (the "Series 2002K Bonds," together with the Series 1999D Bonds, the Refunded Bonds ), and (ii) paying certain costs of issuance. The Refunded Bonds were issued to finance the costs of certain parking and academic facilities at the University of Kansas (the "University"). The Authority is an independent instrumentality of the State of Kansas pursuant to K.S.A et seq., as amended and supplemented. The Authority is authorized pursuant to Kansas Law and the Bond Resolution to (i) finance the construction and equipping of the Project to be owned by the Kansas Board of Regents (the "Board") and operated by the University and to issue its revenue bonds to pay a portion of the costs thereof and (ii) issue its revenue bonds to refund the Refunded Bonds. See "THE AUTHORITY" herein. Pursuant to the Pledge of Revenues Agreement, dated as of May 1, 2010 (the "Pledge Agreement"), by and among the Authority, the University and the Board, the University has pledged the Revenues to the Authority and, pursuant to the Bond Resolution, the Authority has pledged to pay the principal of, redemption premium, if any, and interest on the Bonds from the Trust Estate, which includes, but is not limited to, all right, title and interest of the Authority in, to and under the Pledge Agreement, including the payments by the University to the Authority from the Revenues pledged under the Pledge Agreement. The Bonds are payable solely and only from the Trust Estate and not from any other fund or source of the Authority, the University or the Board. The University has covenanted that it will transfer the portion of all Revenues required to pay principal and interest on the Bonds for deposit to the credit of the Principal and Interest Account not later than three Business Days prior to each Interest Payment Date. The American Recovery and Reinvestment Act of 2009 (the "Recovery Act") authorizes the Authority to issue taxable bonds known as "Build America Bonds" to finance capital expenditures for which it could otherwise issue tax-exempt bonds and to elect to receive a subsidy payment from the United States Treasury

9 equal to 35% of the amount of each interest payment on such Build America Bonds. The Authority intends to elect to designate the Series 2010K-2 Bonds as Build America Bonds and to receive cash subsidy payments from the United States Treasury with respect to the Series 2010K-2 Bonds (the "BAB Interest Subsidy Payments"). All BAB Interest Subsidy Payments constitute Revenues and are pledged by the Authority as part of the Trust Estate to the payment of the principal of, redemption premium, if any, and interest on the Bonds. Certain capitalized terms used in this Official Statement and not otherwise defined herein shall have the meanings given to such terms under the caption "DEFINITIONS" in Appendix D attached hereto. ESTIMATED SOURCES AND USES OF FUNDS The proceeds to be received from the sale of the Bonds and other available funds provided by the University are estimated to be applied as follows: Sources of Funds: Series 2010K-1 Bonds Series 2010K-2 Bonds Total Bond Proceeds $7,860, $7,190, $15,050, Plus Net Original Issue Premium 114, , , Transfer from Series 1999D Bond Reserve Account 536, , Total Sources of Funds $8,511, $7,230, $15,742, Uses of Funds: Project Costs $1,160, $7,090, $8,250, Deposit to Escrow Account 7,105, ,105, Underwriters' Discount 41, , , Other Costs of Issuance 205, , , Total Uses of Funds $8,511, $7,230, $15,742, General THE BONDS The Bonds will be issued as fully registered Bonds in the denomination of $5,000 each or integral multiples thereof. The Bonds will be dated the date of issuance and will mature, subject to prior redemption, in the years and amounts as shown on the inside cover page hereof and will bear interest from their dated date at the rates shown on the inside cover page hereof. The principal of, redemption premium, if any, and interest on the Bonds will be payable in lawful money of the United States of America at the principal office of the Treasurer of the State of Kansas, Topeka, Kansas (the "Paying Agent" and "Bond Registrar") and shall be paid by (1) check or draft of the Paying Agent mailed to such Owner, or (2) at the written request addressed to the Paying Agent by any Owner of Bonds in the aggregate principal amount of at least $500,000 of Bonds, by wire transfer to the bank for credit to the account number filed with the Paying Agent no later than the Business Day preceding the Record Date. The principal of each Bond will be payable at maturity or earlier redemption upon presentation and surrender at the principal office of the Paying Agent. Interest on the Bonds will be payable on May 1 and November 1, beginning November 1, 2010 (each, an "Interest Payment Date"), by check or draft of the Paying Agent mailed to the persons who are the Owners of the Bonds as of the close of business on the fifteenth day (whether or not a Business Day) of the calendar month preceding each interest payment date. Interest on each Bond will be payable to the Owners of the Bonds at the address of each Owner shown on the registration records maintained by the Bond Registrar as of the fifteenth day of the calendar month next preceding each Interest Payment Date. Bonds will be transferable at the office of the Bond Registrar. The Authority has agreed to pay the fees, charges and expenses of the Bond Registrar, which fees, charges and expenses shall include all costs -2-

10 incurred in connection with the issuance, transfer, exchange, registration, redemption or payment of the Bonds, except (a) the reasonable fees and expenses in connection with the replacement of any Bond or Bonds mutilated, stolen, lost or destroyed, or (b) any tax or other governmental charge imposed in relation to the transfer, exchange, registration, redemption or payment of the Bonds. Such additional costs shall be paid by the Owners. Neither the Authority nor the Bond Registrar shall be required to make any such exchange or transfer of Bonds during the 15 days immediately preceding a Payment Date or, in the case of any proposed redemption of Bonds, during the 15 days immediately preceding the selection of Bonds for such redemption or after such Bonds or any portion thereof has been selected for redemption. Book-Entry Only System The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Bonds. Information with respect to the book-entry system is contained in Appendix G attached hereto. Security for the Bonds The Trust Estate. The Bonds and the interest thereon shall be special, limited obligations of the Authority payable solely and only from, and are secured as to the payment of principal of, redemption premium, if any, and interest by a pledge of, the Trust Estate, which consists of: (a) All right, title and interest of the Authority in, to and under the Pledge Agreement; provided that the pledge and assignment thereby made shall not impair or diminish the obligations of the Authority under the provisions of the Pledge Agreement; (b) Payments; and All right, title and interest of the Authority in and to any BAB Interest Subsidy (c) All moneys and securities from time to time held under the terms of the Bond Resolution (excluding funds held in or accruing to the Rebate Account), including, without limitation, bond proceeds and income from the temporary investment thereof and proceeds from insurance and condemnation awards, and any and all other real or personal property of every kind and nature from time to time hereafter, by delivery or by writing of any kind, pledged, assigned or transferred as and for additional security for the Bonds by the Authority. The Pledge Agreement. Pursuant to the Pledge Agreement, the University has pledged to the Authority the Revenues and the Board has approved the pledge of the Revenues by the University. The "Revenues" consist of all revenues of the University, excluding Restricted Revenues. "Restricted Revenues" means (i) fees, funds and revenues restricted to a use other than payment of debt service on the Bonds by enactment of the Kansas Legislature, (ii) fees, funds and revenues specifically pledged to secure the payment of revenue obligations of the Board or the University that are not available for payment of debt service on the Bonds and (iii) gifts, fees and other revenues restricted to a use other than payment of debt service on the Bonds by the donor, the Board or the University. Pursuant to the Pledge Agreement, the University has covenanted that it will transfer the portion of all Revenues required to pay principal and interest on the Bonds for deposit to the credit of the Principal and Interest Account not later than three Business Days prior to each Interest Payment Date. BAB Interest Subsidy Payments. The Authority intends to elect to designate the Series 2010K-2 Bonds as Build America Bonds for purposes of the Recovery Act and to receive BAB Interest Subsidy Payments with respect thereto. All BAB Interest Subsidy Payments constitute Revenues that will be deposited by the Authority into the Revenue Fund as received. -3-

11 THE BONDS SHALL NOT BE A DEBT OR GENERAL OBLIGATION OF THE AUTHORITY, THE BOARD, THE STATE OR ANY MUNICIPAL CORPORATION OR POLITICAL SUBDIVISION THEREOF, AND NEITHER THE PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, AND INTEREST ON THE BONDS, NOR ANY JUDGMENT THEREON OR WITH RESPECT THERETO, ARE PAYABLE IN ANY MANNER FROM UNLIMITED TAX REVENUES OF ANY KIND OR CHARACTER. THE BONDS SHALL NOT CONSTITUTE AN INDEBTEDNESS OR A PLEDGE OF THE FAITH AND CREDIT OF THE AUTHORITY, THE BOARD, THE STATE OR ANY MUNICIPAL CORPORATION OR POLITICAL SUBDIVISION THEREOF, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY LIMITATION OR RESTRICTION. THE AUTHORITY HAS NO TAXING POWER. Authorization of Additional Indebtedness No additional bonds may be issued under the Bond Resolution. However, the University may pledge the Revenues as security for the payment of future indebtedness of the Board or the University, including, without limitation, bonds issued by the Authority on behalf of the Board or the University under one or more separate bond resolutions, which additional indebtedness may be on a parity with the Bonds. Redemption Optional Redemption. The Bonds maturing in the years 2011 to 2020, inclusive, shall become due without option of prior payment. At the option of the Authority upon instructions from the University, the Bonds maturing in the year 2021 and thereafter may be called for redemption and payment prior to maturity on May 1, 2020 or thereafter in whole or in part (selection of Bonds to be designated by the Authority in such equitable manner as it may determine) on any date at the redemption price of 100% (expressed as a percentage of the principal amount), plus accrued interest thereon to the date of redemption. Extraordinary Optional Redemption. The Bonds shall be subject to redemption and payment prior to the stated maturity thereof, (a) in the event of a Change of Circumstances, at the option of the Authority upon instructions from the University or (b) upon the occurrence of an Event of Default under the Pledge Agreement, at the option of the Authority with notice to the University and the Board, on any date, at a redemption price of 100% (expressed as a percentage of the principal amount), plus accrued interest thereon to the date of redemption, provided all of the Bonds are so redeemed and paid according to their terms. Mandatory Sinking Fund Redemption. The Series 2010K-2 Bonds maturing on May 1, 2029 shall be subject to mandatory redemption and payment prior to maturity at the redemption price of 100% of the principal amount thereof, plus accrued interest thereon to the date of redemption, on May 1 in each of the following years in the following principal amounts: Maturity Date. Principal Year Amount 2027 $365, , ,000 (Remainder of page intentionally left blank) -4-

12 The Series 2010K-2 Bonds maturing May 1, 2032 shall be subject to mandatory redemption and payment prior to maturity at the redemption price of 100% of the principal amount thereof, plus accrued interest thereon to the date of redemption, on May 1 in each of the following years in the following principal amounts: Maturity Date. Principal Year Amount 2030 $410, , ,000 The Series 2010K-2 Bonds maturing May 1, 2035 shall be subject to mandatory redemption and payment prior to maturity at the redemption price of 100% of the principal amount thereof, plus accrued interest thereon to the date of redemption, on May 1 in each of the following years in the following principal amounts: Maturity Date. Principal Year Amount 2033 $455, , ,000 The Authority shall cause the Paying Agent, in each year in which the above-referenced Bonds (the "Term Bonds") are to be redeemed pursuant to the above-described mandatory redemption provisions of the Bond Resolution, to make timely selection of such Term Bonds or portions thereof to be so redeemed by lot in $5,000 units of principal amount in such equitable manner as the Paying Agent may determine and to give notice thereof as provided in the Bond Resolution without further instructions from the Authority. At the option of the Authority, pursuant to written instructions from the Board, such option to be exercised on or before the 45th day next preceding each mandatory redemption date, the Authority may: (1) deliver to the Paying Agent for cancellation, Term Bonds in the aggregate principal amount desired; or (2) furnish to the Paying Agent funds, together with appropriate instructions, for the purpose of purchasing any of said Term Bonds from any Owner thereof in the open market at a price not in excess of 100% of the principal amount thereof; whereupon the Authority shall cause the Paying Agent to expend such funds for such purposes to such extent as may be practical; or (3) elect to receive a credit in respect to the mandatory redemption obligation described above for any Term Bonds of the same maturity which prior to such date have been redeemed (other than through the operation of the mandatory redemption requirements described above) and cancelled by the Paying Agent and not theretofore applied as a credit against any mandatory redemption obligation described above. Each Term Bond so delivered or previously purchased or redeemed shall be credited at 100% of the principal amount thereof on the obligation of the Authority to redeem Term Bonds of the same maturity on the next mandatory redemption date applicable to Term Bonds of such maturity that is at least 45 days after receipt by the Paying Agent of such instructions from the Authority, and any excess of such amount shall be credited on future mandatory redemption obligations for Term Bonds of the same maturity in chronological order or such other order as the Authority may designate, and the principal amount of Term Bonds of the same maturity to be redeemed by operation of the requirements of the mandatory redemption requirements shall be reduced accordingly. Selection of Bonds to be Redeemed Bonds shall be redeemed only in the principal amount of $5,000 or integral multiples thereof. If less than all of the Outstanding Bonds are to be redeemed and paid prior to maturity, such Bonds shall be redeemed -5-

13 in such equitable manner as the Authority shall determine. The Paying Agent shall thereafter select the Bonds to be redeemed in such manner as it shall determine. Paying Agent's and Bond Registrar's Duties to Redeem Bonds The Paying Agent shall call Bonds for redemption and payment and shall give notice of redemption as provided in the Bond Resolution upon receipt by the Bond Registrar at least 30 days prior to the redemption date of a written request of the Authority together with the consent or request of the Board, provided funds are on deposit with the Paying Agent and are available for such redemption on or prior to such redemption date. Such request shall specify the principal amount of and the respective maturities of the Bonds to be called for redemption, the applicable redemption price or prices and the provision or provisions of the Bond Resolution pursuant to which such Bonds are to be called for redemption. Notice of Redemption Notice of the call for any redemption identifying the Bonds or portions thereof to be redeemed shall be given by the Bond Registrar, in the name of the Authority, by mailing a copy of the redemption notice at least 20 days prior to the date fixed for redemption to the Original Purchaser and to the Owner of each Bond to be redeemed at the address shown on the registration books maintained by the Bond Registrar; provided, however, that failure to give such notice by mailing as aforesaid, or any defect therein, shall not affect the validity of any proceedings for the redemption of the Bonds. Any notice of redemption shall state the date of redemption, the place or places at which such Bonds shall be presented for payment, the series, maturities and numbers of the Bonds or portions of Bonds to be redeemed and the principal amount thereof being redeemed, the redemption price, whether or not funds for the redemption are on deposit with the Paying Agent or the redemption is contingent upon the deposit of such funds, and shall state that interest on the Bonds described in such notice will cease to accrue from and after the redemption date if the conditions described herein under the caption "THE BONDS Effect of Call for Redemption" are met. Effect of Call for Redemption Prior to the date fixed for redemption, funds or Defeasance Obligations shall be deposited with the Paying Agent in an amount sufficient to provide for the payment of the Bonds called for redemption, accrued interest thereon to the redemption date and the redemption premium, if any. Upon the deposit of such funds or Defeasance Obligations, and notice having been given as provided in the Bond Resolution, the Bonds or portions of Bonds thus called for redemption shall cease to bear interest on the specified redemption date and shall no longer be entitled to the protection, benefit or security of the Bond Resolution and shall not be deemed to be Outstanding under the provisions of the Bond Resolution. Debt Service Requirements hereto. Schedules of the principal and interest payable annually on the Bonds are set forth in Appendix C INVESTMENT CONSIDERATIONS THE PURCHASE OF THE BONDS IS SUBJECT TO CERTAIN RISKS. EACH PROSPECTIVE INVESTOR IN THE BONDS IS ENCOURAGED TO READ THIS OFFICIAL STATEMENT IN ITS ENTIRETY, AND TO GIVE PARTICULAR ATTENTION TO THE FACTORS DESCRIBED BELOW WHICH, AMONG OTHERS, COULD AFFECT THE PAYMENT OF DEBT SERVICE ON THE BONDS, AND WHICH COULD ALSO AFFECT THE MARKET PRICE OF THE BONDS TO AN EXTENT THAT CANNOT BE DETERMINED. THIS DISCUSSION OF RISK FACTORS IS NOT, AND IS NOT INTENDED TO BE, EXHAUSTIVE. -6-

14 No Pledge of Real or Personal Property The pledge of the Trust Estate does not constitute a pledge of any real or personal property. Revenues May be Further Pledged or Restricted The Revenues pledged by the University to payment of debt service requirements on the Bonds consist of all revenues of the University, excluding Restricted Revenues. The amount of Revenues for the University's year ended June 30, 2009 are described at the caption "FINANCIAL INFORMATION OF THE UNIVERSITY Revenues Pledged" in Appendix A hereto. Revenues may be pledged by the University to the payment of any future indebtedness of the Board or the University. For a description of certain additional indebtedness expected to be incurred by the University, and to which the Revenues may be pledged, see the caption "FINANCIAL INFORMATION OF THE UNIVERSITY Planned Additional Debt Obligations" in Appendix A hereto. There is no covenant or other restriction on the amount of additional debt to which Revenues may in the future be pledged by the Board or the University. The amount of Revenues may be reduced in the future by any increase in the amount of Restricted Revenues. Restricted Revenues of the University include (i) fees, funds and revenues restricted to a use other than payment of debt service on the Bonds by enactment of the Kansas Legislature, (ii) fees, funds and revenues specifically pledged to secure the payment of revenue obligations of the Board or the University that are not available for payment of debt service on the Bonds and (iii) gifts, fees and other revenues restricted to a use other than payment of debt service on the Bonds by the donor, the Board or the University. The amount of Restricted Revenue can be increased by an act of the Kansas Legislature restricting the use of State appropriations for the benefit of the University or any other moneys to a purpose other than the payment of debt service on the Bonds or by a pledge by the Board or the University of any specific portion of current or future funds or revenues to revenue obligations of the Board or the University or by any other action of the Board or the University restricting any amount of existing or future fees or other revenues to a use other than the payment of debt service on the Bonds. In addition, donors may restrict the use of gifts to the University to purposes other than payment of debt service on the Bonds. There is no statute, law or contractual obligation of the State with respect to any amount of future State appropriations that would prevent the Kansas Legislature from restricting future appropriations. Neither the Board or the University is obligated to maintain any amount of Revenues free of restrictions that would cause revenues or receipts of the University to be included in Restricted Revenues and thereby excluded from the amount of Revenues pledged to the payment of the Bonds. Limitation of Liability The Kansas Tort Claims Act (K.S.A et seq.), limits the liability of the State of Kansas, its boards, commissions, departments, agencies, bureaus and institutions for damages caused by the negligent or wrongful act or omission of any of their employees while acting within the scope of their employment. Subject to certain exceptions contained within the Kansas Tort Claims Act, liability for claims within the scope of said Act cannot exceed $500,000 for any number of claims arising out of a single occurrence or event. The directors, employees and officers of the Authority are also protected from personal liability, under K.S.A , for any reason arising from the issuance of bonds unless such person acted with willful, wanton or fraudulent misconduct or intentionally tortious conduct. Special Obligations The Bonds are special, limited obligations of the Authority. Neither the principal of, redemption premium, if any, nor interest on the Bonds constitutes a general obligation or indebtedness of, nor is the payment thereof guaranteed by the Authority, the Board, the State or any municipal corporation or political subdivision thereof. The Bonds are not payable in any manner from unlimited tax revenues of any kind or character. The Authority has no taxing power. -7-

15 Taxation of Interest on the Series 2010K-1 Bonds An opinion of Bond Counsel will be obtained to the effect that interest earned on the Series 2010K-1 Bonds is excludable from gross income for Federal income tax purposes under current provisions of the Code, and applicable rulings and regulations under the Code; however, an application for a ruling has not been made and an opinion of counsel is not binding upon the Internal Revenue Service. There can be no assurance that the present provisions of the Code, or the rules and regulations thereunder, will not be adversely amended or modified, thereby rendering the interest earned on the Series 2010K-1 Bonds includable in gross income for Federal income tax purposes. The Authority, Board and the University have covenanted in the Bond Resolution and the Pledge Agreement, respectively, and in other documents and certificates to be delivered in connection with the issuance of the Series 2010K-1 Bonds, to comply with the provisions of the Code, including those which require the Authority, Board or the University to take or omit to take certain actions after the issuance of the Series 2010K-1 Bonds. Because the existence and continuation of the excludability of the interest on the Series 2010K-1 Bonds depends upon events occurring after the date of issuance of the Series 2010K-1 Bonds, the opinion of Bond Counsel described under "LEGAL MATTERS" assumes the compliance by the Authority, the Board and the University with the provisions of the Code described above and the regulations relating thereto. No opinion is expressed by Bond Counsel with respect to the excludability of the interest on the Series 2010K-1 Bonds in the event of noncompliance with such provisions. The failure of the Authority, the Board or the University to comply with the provisions described above may cause the interest on the Series 2010K-1 Bonds to become includable in gross income for Federal income tax purposes as of the date of issuance. Federal Subsidy Payment With Respect to the Series 2010K-2 Bonds The Authority intends to elect to designate the Series 2010K-2 Bonds as Build America Bonds for the purposes of the Recovery Act and to receive BAB Interest Subsidy Payments from the United States Treasury with respect thereto. The BAB Interest Subsidy Payments are required to be deposited into the Revenue Fund to be applied to pay a portion of the interest on the Series 2010K-2 Bonds. The priority of the United States Treasury making the cash subsidy payment is the same as the United States Treasury refunding overpayments of tax. Since BAB Interest Subsidy Payments are technically considered tax refunds, they can be reduced to offset any outstanding amounts owed to the federal government. In the event the Authority does not receive the BAB Interest Subsidy Payments from the U.S. Treasury in a timely fashion, all of the interest on the Bonds will be paid from other sources, to the extent available. Neither the timely receipt of the BAB Interest Subsidy Payments from the U.S. Treasury or any delay in receiving such payments affects the obligations of the University under the Pledge Agreement. Market for the Bonds There is no established secondary market for the Bonds, and there is no assurance that a secondary market will develop for the purchase and sale of the Bonds. Prices of Bonds traded in the secondary market are subject to adjustment upward and downward in response to changes in the credit markets and changes in the operations and financial results of the University. From time to time it may be necessary to suspend indefinitely secondary market trading in the Bonds as a result of the financial condition or market position of broker-dealers, prevailing market conditions, lack of adequate current financial information regarding the Bonds, whether or not the Bonds are in default as to principal and interest payments, and other factors which may give rise to uncertainty concerning prudent secondary market practices. The Authority and the Board have covenanted to comply with the provisions of Rule 15c2-12 of the Securities and Exchange Commission. In the event that the Authority and the Board fail to provide the necessary information to comply with said rule, it could adversely impact an Owner's ability to sell the Bonds in the secondary market. -8-

16 Legal Matters Various State and Federal laws, regulations and constitutional provisions apply to the operations of the Authority, the Board and the University. There is no assurance that there will not be any change in, interpretation of, or addition to such applicable laws, provisions and regulations which would have a material effect, either directly or indirectly, on the Authority, the Board and the University. Limitations on Remedies Available to Owners of the Bonds The enforceability of the rights and remedies of the Owners of Bonds, and the obligations incurred by the Authority in issuing the Bonds, are subject to the following: the Federal Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the United States Constitution; and the reasonable and necessary exercise, in certain unusual situations, of the police power inherent in the State of Kansas and its governmental subdivisions in the interest of serving a legitimate and significant public purpose. Bankruptcy proceedings, or the exercise of powers by the Federal or State government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy and otherwise, and consequently may involve risks of delay, limitation or modification of their rights. Premium on Bonds Any person who purchases a Bond in excess of its principal amount, whether during the initial offering or in a secondary market transaction, should consider that the Bonds are subject to redemption at par under the various circumstances described under the caption "THE BONDS Redemption" herein. Suitability of Investment An investment in the Bonds involves a certain degree of risk. The interest rate borne by the Bonds (as compared to prevailing interest rates on more secure bonds, such as those which constitute general obligations of fiscally sound municipalities) is intended to compensate the investor for assuming this element of risk. Furthermore, the tax exempt feature of the Series 2010K-1 Bonds is more valuable to high income tax bracket investors than to investors who are in low income tax brackets, and so the value of the interest compensation to any particular investor will vary with income tax rates. Each prospective investor should carefully examine this Official Statement, including the Appendices hereto, and its own financial condition to make a judgment as to its ability to bear the economic risk of such an investment, and whether or not the Bonds are an appropriate investment. NO REPRESENTATION OR ASSURANCE CAN BE MADE OR GIVEN THAT REVENUES WILL BE REALIZED BY THE AUTHORITY IN AMOUNTS SUFFICIENT TO PAY THE PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, AND INTEREST ON THE BONDS. THE FOREGOING STATEMENTS REGARDING CERTAIN RISKS ASSOCIATED WITH THE OFFERING SHOULD NOT BE CONSIDERED AS A COMPLETE DESCRIPTION OF ALL RISKS TO BE CONSIDERED IN THE DECISION TO PURCHASE THE BONDS. Prospective purchasers of the Bonds should analyze carefully the information contained in this Official Statement and additional information in the form of the complete documents summarized herein, copies of which are available from the Authority. -9-

17 THE AUTHORITY The Authority is an independent instrumentality of the State exercising essential public functions, created in 1987 by K.S.A et seq., as amended (the "KDFA Act"). The Authority was created for the primary purposes of enhancing the ability of the State to finance capital improvements and improving access to long-term financing for State agencies, political subdivisions, public and private organizations and businesses. The powers of the Authority are vested in the Board of Directors, consisting of five public members appointed by the Governor subject to confirmation by the State Senate. The Governor also appoints a President who serves at the pleasure of the Governor. The President is an ex-officio, non-voting member of the Board of Directors. Not less than three members of the Board of Directors must be representative of the general public and not more than three members may be members of the same political party. The names, offices, principal occupations and places of business of the members of the Authority's Board of Directors and their terms are as follows: NAME OFFICE TERM PRINCIPAL OCCUPATION AND PLACE OF BUSINESS Brett A. Reber Daniel L. Watkins Suchitra Padmanabhan Chair Vice-Chair & Member Chair Vice Chair Member 12/15/06 to 1/15/11 5/02/03 to 1/15/11 5/02/03 to 12/15/06 12/15/06 to 1/15/09 5/02/03 to 1/15/09 Attorney McPherson, Kansas Attorney Lawrence, Kansas Member 2/2/10 to 1/15/13 Partner, BC Capital Topeka, Kansas Audrey H. Langworthy Member 1/29/04 to 1/15/13 Community Volunteer Prairie Village, Kansas Timothy C. Schaller Member 3/23/04 to 1/15/11 Architect Larned, Kansas Stephen R. Weatherford Ex-officio Member 1/27/03 to present President Kansas Development Finance Authority Topeka, Kansas Members of the Board of Directors serve until their successors are appointed by the Governor and confirmed by the State Senate. The Authority's General Counsel serves as Secretary to the Authority. The Authority has the rights, powers and privileges and is subject to the duties provided by the KDFA Act creating it, including the acquisition and disposal of real and personal property for its corporate purposes; the borrowing of money and issuance of notes, bonds and other obligations; the making of secured or unsecured loans for any of the purposes for which it may issue bonds (except making loans directly to individuals to finance housing developments); the provision of technical assistance and advice to the State or political subdivisions of the State; and entering into contracts with the State or political subdivisions thereof to provide such services. The Bonds offered hereby, together with any Additional Bonds issued under the Bond Resolution, are separately secured from all other bonds and notes issued by the Authority. No recourse shall be had for the payment of the principal of, redemption premium, if any, or interest on any of the Bonds or for any claim based thereon or upon any obligation, covenant or agreement in the Bond Resolution or any other Authority document contained, against any past, present or future officer, director, member, trustee, employee or agent of -10-

18 the Authority, or any officer, director, member, trustee, employee or agent of any successor corporation or body politic, as such, either directly or through the Authority or any successor corporation or body politic, under any rule of law or equity, statute or constitution or by the enforcement of any assessment or penalty or otherwise, and all such liability of any such officers, directors, trustees, members, employees or agents, as such, is hereby expressly waived and released as a condition of and consideration for the execution of the Bond Resolution and the issuance of any of the Bonds. THE KANSAS BOARD OF REGENTS As used in this Official Statement the term "Board" means the Board of Regents of the State of Kansas, as provided for in Article 6 of the Constitution and in the statutes of the State, including, prior to May 20, 1999, the state board of regents established pursuant to K.S.A et seq. and, on and after May 20, 1999, the State Board of Regents established pursuant to Senate Bill No. 345, 1999 Kansas Legislature, as successor to the state board of regents established pursuant to K.S.A a et seq., and its successors. The Board consists of nine regents appointed by the Governor and confirmed by the State Senate. The term of office for each regent is four years, with appointments staggered. Not more than five regents may be of the same political party. The Board is a constitutionally established board, responsible for formulating policy under which the State universities operate and for recommending to the State Legislature the amount of State funds to be made available to each institution. With respect to State universities, the Board has the power to make and execute contracts; acquire property; pledge or assign revenues; issue revenue bonds; construct, acquire or improve properties; fix, charge and collect rents, tuition and other fees; contract for services; and execute all acts necessary to the performance of its duties. The Board controls and supervises the University of Kansas, with its main campus at Lawrence, the Edwards Campus in Overland Park and the Medical Center with campuses at Kansas City and Wichita; Kansas State University, with its campuses in Manhattan, Salina and Olathe; Wichita State University; Emporia State University; Fort Hays State University; and Pittsburg State University. UNIVERSITY OF KANSAS Information regarding the University is set forth in Appendix A. The Annual Financial Report of the University for the year ended June 30, 2009 is set forth in Appendix B. THE PROJECT The Medical Center's Parking Facilities, a self-supported operation, currently operates approximately 4,370 available parking spaces at the campus in Kansas City, Kansas. In 2002, the Medical Center, which is responsible for campus parking, engaged a professional parking consultant to perform a supply and demand study. This study projected a demand for more than 5,200 spaces by Based on the supply and demand study, the Medical Center developed a Parking Improvement Plan calling for an investment of $25 million to be funded through private contributions and revenue bonds supported by the revenue of the Parking Facilities. A majority of the additions contemplated by the Parking Improvement Plan have been completed. The final component of the Plan is the construction of the Project, which will consist of a parking facility that will provide outpatient parking for a new medical office building to be constructed by the University of Kansas Hospital Authority (the "Hospital Authority"). The Project to be constructed from the proceeds of the Series 2010K Bonds is a new four-story parking facility with a capacity of approximately 600 vehicles, to be located on the current surface lot located at Cambridge and Olathe Boulevard in Kansas City, Kansas. This new facility is referred to as Parking Facility No. 4 and will be a shared facility for patients, visitors and staff. The new Parking Facility No. 4 will provide parking for patients seeking outpatient services at a new medical office building to be constructed by the Hospital Authority. The building will be used for medical offices, patient clinics, clinical trials, education and administrative purposes. The Project is budgeted at $9,100,

19 NON-LITIGATION CERTIFICATION Upon delivery of the Bonds, the Authority, the Board and the University will each furnish a certificate dated the date of delivery of the Bonds, to the effect that (a) to the knowledge of the signer or signers thereof there is no litigation pending or threatened against it affecting the validity of the Pledge Agreement, the Bond Resolution or the Bonds; and (b) the execution, delivery and performance by it of the Pledge Agreement or the Bond Resolution, as applicable, will not violate any provision of the Constitution, statutes or other laws of the State, or any other applicable judgment, order or regulation of any court or of any public or governmental agency or authority of the State and will not conflict with or result in any breach of any of the provisions of, or constitute a default under, any agreement or instrument to which the Authority, the Board or the University, respectively, is a party or by which either it or any of its respective property is or may be bound, nor will such action result in any violation of the provisions of any statute, order, rule or regulation applicable to it of any court or any federal, state or other regulatory authority or other governmental body. BOND RATINGS Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., has assigned a rating to the Bonds of "AA." Moody's Investors Service has assigned a rating to the Bonds of "Aa2." Such ratings reflect only the view of such rating agencies, and an explanation of the significance of such ratings may be obtained therefrom. There is no assurance that a particular rating will remain in effect for any given period of time or that it will not be revised, either downward or upward, or withdrawn entirely, by said rating agency if, in its judgment, circumstances so warrant. Any such downward revisions or withdrawal of any rating may have an adverse effect on the market price of the Bonds. CONTINUING DISCLOSURE Pursuant to the Continuing Disclosure Undertaking, the form of which is attached hereto as Appendix E (the "Disclosure Undertaking"), the University has agreed to provide certain financial information and operating data of the University, to the Authority within 190 days after the end of each Fiscal Year. Generally, such financial information will consist of the financial information and operating data included in this Official Statement in Appendices A and B attached hereto, updated annually. Such financial information, including the University of Kansas Annual Financial Report (June 30, 2009) attached as Appendix B hereto, has not been audited and the Annual Financial Reports for future years are not expected to be audited. In addition, as set forth in the Disclosure Undertaking, the Authority has agreed to give notice of the occurrence of material events relating to the Bonds as required by Rule 15c2-12 of the Securities and Exchange Commission (the "SEC Rule"). The Authority has agreed to transmit the financial information and operating data provided by the University, together with notice of the occurrence of material events relating to the Bonds as provided in the Disclosure Undertaking, in an electronic format as prescribed by the Municipal Securities Rulemaking Board (the "MSRB"). The MSRB has initially designated its Electronic Municipal Market Access system, found at as the sole national municipal securities information repository for such information. The University and the Authority have made such agreement in order to assist the original purchasers or underwriters of the Bonds in complying with the SEC Rule. The form of the Disclosure Undertaking is attached as Appendix E hereto. Neither the University nor the Authority has failed in any material way to comply with any previous undertakings pursuant to the SEC Rule. LEGAL MATTERS All matters incident to the authorization and issuance of the Bonds are subject to the approval of Gilmore & Bell, P.C., Bond Counsel. The factual and financial information appearing herein and in the Appendices hereto has been supplied or reviewed by certain officials of the Authority, the Board and the University, as referred to herein, and Bond Counsel expresses no opinion as to the accuracy or sufficiency thereof, except for the matters appearing in the sections of this Official Statement captioned "THE BONDS," -12-

20 "LEGAL MATTERS" and Appendix D and Appendix F hereto. The proposed form of Bond Counsel's opinion is attached as Appendix F. Certain legal matters will be passed upon for the Authority by its general counsel, Rebecca Floyd, Esq., for the Board by its general counsel, Julene L. Miller, Esq., and for the University by its general counsel, James Pottorff, Esq. TAX MATTERS The following is a summary of the material Federal and State of Kansas income tax consequences of holding and disposing of the Bonds. This summary is based upon laws, regulations, rulings and judicial decisions now in effect, all of which are subject to change (possibly on a retroactive basis). This summary does not discuss all aspects of Federal income taxation that may be relevant to investors in light of their personal investment circumstances or describe the tax consequences to certain types of owners subject to special treatment under the Federal income tax laws (for example, dealers in securities or other persons who do not hold the Bonds as a capital asset, tax-exempt organizations, individual retirement accounts and other tax deferred accounts, and foreign taxpayers), and, except for certain tax laws of the State of Kansas, does not discuss the consequences to an owner under any state, local or foreign tax laws. The summary does not deal with the tax treatment of persons who purchase the Bonds in the secondary market at a premium or a discount. Prospective investors are advised to consult their own tax advisors regarding Federal, state, local and other tax considerations of holding and disposing of the Bonds. Opinion of Bond Counsel - Series 2010K-1 Bonds Federal Tax Exemption Series 2010K-1 Bonds. In the opinion of Bond Counsel, under existing law, the interest on the Series 2010K-1 Bonds (including any original issue discount properly allocable to an owner thereof) is excludable from gross income for Federal income tax purposes, is not an item of tax preference for purposes of the Federal alternative minimum tax imposed on individuals and corporations and is not taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinions set forth in this paragraph are subject to the condition that the Authority, the Board and the University comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Code"), that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for Federal income tax purposes. The Authority, the Board and the University have covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause the inclusion of interest on the Series 2010K-1 Bonds in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. Kansas Tax Exemption. The Series 2010K-1 Bonds and the interest paid thereon are exempt from all Kansas state, county and municipal taxes, including income, inheritance and property taxes. Bank Qualification. The Series 2010K-1 Bonds have not been designated as "qualified tax-exempt obligations" for purposes of Section 265(b) of the Code. No Other Opinions. Bond Counsel expresses no opinion regarding other federal, state or local tax consequences arising with respect to the Bonds. Other Federal Tax Matters Series 2010K-1 Bonds Series 2010K-1 Bonds Purchased at a Premium. If a Series 2010K-1 Bond is purchased at a price that exceeds the stated redemption price at maturity of the bonds, the excess of the purchase price over the stated redemption price at maturity constitutes "premium" on the Series 2010K-1 Bond, and the bond is referred to hereafter as a "Tax-Exempt Premium Bond." Under Section 171 of the Code, the purchaser of a Tax-Exempt Premium Bond must amortize he premium over the term of the bond using constant yield principles, based on the purchaser's yield to maturity. As premium is amortized, the owner's basis in the Tax- Exempt Premium Bond and the amount of tax-exempt interest received will be reduced by the amount of -13-

21 amortizable premium properly allocable to the owner. This will result in an increase in the gain (or decrease in the loss) to be recognized for Federal income tax purposes on sale or disposition of the Tax-Exempt Premium Bond prior to its maturity. Even though the owner's basis is reduced, no Federal income tax deduction is allowed. Prospective investors should consult their own tax advisors concerning the calculation and accrual of bond premium. Series 2010K-1 Bonds Purchased with Original Issue Discount. For Federal income tax purposes, original issue discount ("OID") is the excess of the stated redemption price at maturity of a Series 2010K-1 Bond over its issue price. The issue price of a Series 2010K-1 Bond is the first price at which a substantial amount of the Series 2010K-1 Bonds of that maturity have been sold (ignoring sales to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers). Under Section 1288 of the Code, OID on tax-exempt bonds accrues on a compound basis. The amount of OID that accrues to an owner of a Series 2010K-1 Bond during any accrual period generally equals (1) the issue price of that Series 2010K-1 Bond, plus the amount of OID accrued in all prior accrual periods, multiplied by (2) the yield to maturity on that Series 2010K-1 Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), minus (3) any interest payable on that Series 2010K-1 Bond during that accrual period. The amount of OID accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be excludable from gross income for Federal income tax purposes, and will increase the owner s tax basis in that Series 2010K-1 Bond. Prospective investors should consult their own tax advisors concerning the calculation and accrual of OID. Other Federal Tax Consequences. Prospective purchasers of the Series 2010K-1 Bonds should be aware that ownership of the Series 2010K-1 Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, financial institutions, property and casualty insurance companies, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with "excess net passive income," foreign corporations subject to the branch profits tax, life insurance companies, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry or have paid or incurred certain expenses allocable to the Series 2010K-1 Bonds. Federal Tax Matters Series 2010K-2 Bonds TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, OWNERS OF THE SERIES 2010K-2 BONDS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS OFFICIAL STATEMENT RELATING TO THE SERIES 2010K-2 BONDS IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY OWNERS OF THE SERIES 2010K-2 BONDS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THOSE OWNERS UNDER THE CODE; (B) THE DISCUSSION OF FEDERAL TAX ISSUES IN THIS OFFICIAL STATEMENT RELATING TO THE SERIES 2010K-2 BONDS WAS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING OF THOSE SERIES 2010K-2 BONDS; AND (C) OWNERS OF THE SERIES 2010K-2 BONDS SHOULD SEEK ADVICE FROM AN INDEPENDENT TAX ADVISOR BASED ON THEIR PARTICULAR CIRCUMSTANCES. Opinion of Bond Counsel - Series 2010K-2 Bonds Kansas Tax Exemption. In the opinion of Gilmore & Bell, P.C., Bond Counsel, the interest on the Series 2010K-2 Bonds is exempt from all Kansas state, county and municipal taxes, including income, inheritance and property taxes. Interest on Series 2010K-2 Bonds Taxable; Federal Tax Status of Series 2010K-2 Bonds as Build America Bonds Interest Taxable. The interest on the Series 2010K-2 Bonds (including any original issue discount properly allocable to an owner thereof) will be included in gross income for Federal income tax purposes in accordance with the owner's normal method of accounting. -14-

22 Election. The Issuer will elect to treat the Series 2010K-2 Bonds as qualified "build America bonds" under Section 54AA of the Code and will elect to receive a direct payment from the U.S. Treasury equal to a portion of the interest payable on the Series 2010K-2 Bonds ("Build America Bonds - Direct Payment"). No Opinion. Bond Counsel is not rendering any opinion to owners of the Series 2010K-2 Bonds regarding the qualification of the Series 2010K-2 Bonds as Build America Bonds Direct Payment or the treatment of interest on the Series 2010K-2 Bonds for Federal income taxation. Purchasers of Series 2010K-2 Bonds should consult their tax advisors as to the applicability of these tax consequences and other Federal income tax consequences of the purchase, ownership and disposition of the Series 2010K-2 Bonds, including the possible application of state, local, foreign and other tax laws. Other Federal Income Tax Consequences -- Series 2010K-2 Bonds Series 2010K-2 Bonds Purchased at a Premium. If a Series 2010K-2 Bond is purchased at a price that exceeds the stated redemption price of the bond at maturity, the excess of the purchase price over the stated redemption price at maturity constitutes premium on the bond, and the bond is referred to in this discussion as a "Taxable Premium Bond." Under Section 171 of the Code, the purchaser of a Taxable Premium Bond may elect to amortize the premium over the term of the Taxable Premium Bond using constant yield principles, based on the purchaser's yield to maturity. An owner of a Taxable Premium Bond amortizes bond premium by offsetting the qualified stated interest allocable to an accrual period with the bond premium allocable to that accrual period. This offset occurs when the owner takes the qualified stated interest into income under the owner's regular method of accounting. If the premium allocable to an accrual period exceeds the qualified stated interest for that period, the excess is treated by the owner as a deduction under Section 171(a)(1) of the Code. As premium is amortized, the owner's basis in the Taxable Premium Bond will be reduced by the amount of amortizable premium properly allocable to the owner. Prospective investors should consult their own tax advisors concerning the calculation and accrual of bond premium. Series 2010K-2 Bonds Purchased with Original Issue Discount. For Federal income tax purposes, original issue discount ("OID") is the excess of the stated redemption price at maturity of a Series 2010K-2 Bond over its " issue price," defined as the first price at which a substantial amount of the Series 2010K-2 Bonds of that maturity have been sold (ignoring sales to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers). If the OID on a Series 2010K-2 Bond is more than less than a de minimis amount (generally 1/4% of 1% of the stated redemption price at maturity of the Bond multiplied by the number of complete years to its maturity date), then the Bond will be treated as issued with OID (a "Taxable OID Bond"). The amount of OID that accrues to an owner of a Taxable OID Bond during any accrual period generally equals (1) the issue price of that Taxable OID Bond, plus the amount of OID accrued in all prior accrual periods, multiplied by (2) the yield to maturity on that Taxable OID Bond (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period), minus (3) any interest payable on that Taxable OID Bond during that accrual period. The amount of OID accrued in a particular accrual period will be considered to be received ratably on each day of the accrual period, will be included in gross income for Federal income tax purposes, and will increase the owner s tax basis in that Taxable OID Bond. Prospective investors should consult their own tax advisors concerning the calculation and accrual of OID. Other Federal Income Tax Consequences Applicable to Owners of the Series 2010K Bonds Sale or Exchange. Upon the sale, exchange or retirement (including redemption) of a Series 2010K Bond, an owner of the bond generally will recognize gain or loss in an amount equal to the difference between the amount of cash and the fair market value of any property received on the sale, exchange or retirement of the Series 2010K Bond (other than in respect of accrued and unpaid interest) and the owner's adjusted tax basis in the bond. To the extent the Series 2010K Bonds are held as a capital asset, the gain or loss will be capital gain or loss and will be long-term capital gain or loss if the bond has been held for more than 12 months at the time of sale, exchange or retirement. -15-

23 Information Reporting and Backup Withholding. In general, information reporting requirements will apply to certain payments of principal, interest and premium paid on the Series 2010K Bonds, and to the proceeds paid on the sale of Series 2010K Bonds, other than certain exempt recipients (such as corporations and foreign entities). A backup withholding tax will apply to these payments if the owner fails to provide a taxpayer identification number or certification of foreign or other exempt status or fails to report in full dividend and interest income. The amount of any backup withholding from a payment to an owner will be allowed as a credit against the owner's Federal income tax liability. FINANCIAL ADVISOR Columbia Capital Management, LLC, Overland Park, Kansas has served as financial advisor ("Financial Advisor") to the Authority. The Financial Advisor has assisted in various matters relating to the planning, structuring and issuance of the Bonds, including advice in the preparation of this Official Statement. The Financial Advisor has not passed on the accuracy or completeness of the factual information contained in this Official Statement. The Financial Advisor has not participated in any underwriting syndicate that will purchase or sell any of the Bonds. UNDERWRITING On April 27, 2010, the Authority received seven bids for the Series 2010K-1 Bonds. The Series 2010K-1 Bonds have been sold at public sale by the Authority to George K. Baum & Company (the "Series 2010K-1 Original Purchaser") on the basis of lowest true interest cost. The Series 2010K-1 Original Purchaser has agreed, subject to certain conditions, to purchase the Series 2010K-1 Bonds at a purchase price equal to the initial offering prices shown on the inside page hereof, less an underwriter's discount of $41, On April 27, 2010, the Authority received five bids for the Series 2010K-2 Bonds. The Series 2010K- 2 Bonds have been sold at public sale by the Authority to Hutchinson, Shockey, Erley & Co. (the "Series 2010K-2 Original Purchaser") on the basis of lowest true interest cost. The Series 2010K-2 Original Purchaser has agreed, subject to certain conditions, to purchase the Series 2010K-2 Bonds at a purchase price equal to the initial offering prices shown on the inside page hereof, less an underwriter's discount of $112, MISCELLANEOUS The references, excerpts and summaries of all documents referred to herein do not purport to be complete statements of the provisions of such documents, and reference is made to all such documents for full and complete statements of all matters of fact relating to the Bonds, the security for the payment of the Bonds and the rights of the Owners thereof. During the period of the offering, copies of drafts of such documents may be examined at the offices of the Authority. Following delivery of the Bonds, copies of such documents may be examined at the office of the Authority. The information contained in this Official Statement has been compiled from official and other sources deemed to be reliable, and while not guaranteed as to completeness or accuracy, is believed to be correct as of the date thereof. Any statement made in this Official Statement including all appendices hereto, involving matters of opinion or of estimates, whether or not expressly so stated, are set forth as such and not as representation of fact, and no representation is made that any of the estimates will be realized. 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 information presented herein since the date hereof. This Official Statement is not to be construed as a contract or agreement between the Authority, the University, the Board, the Underwriters and the purchasers or Owners of any Bonds. Additional information with respect to the Authority and the Bonds may be obtained upon request from the Kansas Development Finance Authority, 555 South Kansas Avenue, Suite 202, Topeka, KS 66603, Attention: Rebecca E. Floyd, Executive Vice President. -16-

24 The preparation of this Official Statement and its distribution has been authorized by the Authority as of the date on the cover page hereof. KANSAS DEVELOPMENT FINANCE AUTHORITY By: /s/ Rebecca E. Floyd Executive Vice President -17-

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26 APPENDIX A THE UNIVERSITY General Information Original Section 7 of Article 6 of the Constitution of the State of Kansas states that "provision shall be made by law for the establishment, at some eligible and central point, of a state university, for the promotion of literature and the arts and sciences, including normal and agricultural department." Acting under this constitutional authority, in 1864 the State Legislature organized the University of Kansas at Lawrence. A major comprehensive research and teaching university, the University is the only one of the Kansas Board of Regents Universities to hold membership in the prestigious Association of American Universities, a select group of 62 public and private research universities that represent excellence in graduate and professional educational and the highest achievements in research internationally. The University's main campus occupies approximately 1,000 acres with over 100 major buildings on and around Mount Oread, in Lawrence. The Edwards Campus, formerly called the Regents Center, sits on 36 acres of land in Overland Park, Kansas. The Medical Center is the health care campus of the University. The Medical Center consists of the School of Medicine, with campuses in both Kansas City and Wichita, the Schools of Nursing and Allied Health, Graduate Schools and various support units for the entire academic health care enterprise. The University confers bachelor, master, doctorate and professional degrees. Students can select from nearly 100 major courses of study offered in 14 academic divisions: the College of Liberal Arts and Sciences; the Schools of Allied Health, Architecture and Urban Design, Business, Education, Engineering, Fine Arts, Journalism, Law, Medicine, Nursing, Pharmacy, and Social Welfare; and the Graduate School. The University ranks among the top 25 American public universities in the number of freshman National Merit Scholars enrolled. In , the University conferred 31.6% of the bachelor's degrees, 33.6% of the master's degrees, 59.0% of the doctorate-research/scholarship degrees and 78.6% of the doctorate-professional practice degrees (i.e., pharmacy, audiology, physical therapy, law, and medicine) granted by the universities under the jurisdiction of the Kansas Board of Regents. The distinguished faculty has received national awards from such prestigious professional and research organizations as the American Academy in Rome, the National Aeronautics and Space Administration, the National Institutes of Health, the National Endowment for the Arts, the National Endowment for the Humanities and the National Science Foundation. Research expenditures in FY 2008 exceeded $297.4 million. Enrollment at the University's Lawrence campus today exceeds 26,800, and the school employs 5,515 full-time equivalent faculty and staff. The operating budget of the University is funded primarily through a combination of State appropriations (State tax dollars), tuition and fees and other restricted fees and grants. In fiscal year 2010, the operating budget of the University, excluding capital improvements, is estimated at $1 billion, 23% of which is funded from State appropriations and 22% from tuition and fees. In 1905, three proprietary medical schools in Kansas City combined under the control of the University. Today the University's Medical Center, with campuses at Kansas City and Wichita serving almost 3,200 students, is the region's foremost institution for the training of health care professionals and employs approximately 3,400 persons. On October 1, 1998, the University's Medical Center divided into a separate Medical Center, whose mission is the education of health care professionals, research, service, and patient care, and an independent Hospital Authority, which is an instrumentality of the State of Kansas and whose

27 mission is to support the education, research, and public service activities of the University Medical Center, to provide patient care and specialized services, and to provide care for medically indigent citizens of the state of Kansas. The combined Medical Center and Hospital Authority is the seventh largest employer in Kansas City, with approximately 7,300 employees. The Hospital Authority at the Medical Center operates 555 staffed beds and serves as the State's premier tertiary care center. Governing Board The Board of Regents (the "Board") consists of nine regents appointed by the Governor and confirmed by the State Senate. The term of office for each regent is four years, with appointments staggered. Not more than five regents may be of the same political party. The Board is a constitutionally established board, responsible for formulating policy under which the State universities operate and for recommending to the State Legislature the amount of State funds to be made available to each institution. With respect to State universities, the Board has the power to make and execute contracts; acquire property; pledge or assign revenues; issue revenue bonds; construct, acquire or improve properties; fix, charge and collect rents, tuition and other fees; contract for services; and execute all acts necessary to the performance of its duties. Current members of the Board are set forth on the inside cover page of the Official Statement. University Administration Dr. Bernadette Gray-Little, Chancellor. Dr. Bernadette Gray-Little is the 17th chancellor of the University of Kansas, a post she assumed August 15, Prior to coming to the University, she was at the University of North Carolina-Chapel Hill, where she served as a professor of psychology before being named to several top administrative posts, including executive vice chancellor and provost. Gray-Little earned a Ph.D. and M.S. in Psychology from St. Louis University (Missouri) and an A.B. from Marywood College (Pennsylvania). Gray-Little has received numerous honors and awards including the Distinguished Service Award from the UNC General Alumni Association, the National Research Council- Ford Foundation Senior Fellow, and a Fulbright Fellowship to the University of Copenhagen. Gray-Little has identified enhancing undergraduate education, raising the University s scholarly profile, and securing the resources needed for students and the university to succeed as three of her initial goals for the University. Dr. Danny J. Anderson, Interim Executive Vice Chancellor/Provost (through June 30, 2010). Dr. Danny J. Anderson is the Interim Executive Vice Chancellor/Provost at the University of Kansas and Professor of Spanish and Portuguese. He will serve as Interim Executive Vice Chancellor/Provost though June 30, Anderson earned his bachelor's degree from Austin College in Sherman, Texas, and his M.A. and Ph.D. in Spanish from the University. After three years on the faculty at the University of Texas, he returned to the University in Anderson has been involved in administrative service for much of his University career. He served in several administrative posts in Spanish and Portuguese, Center of Latin American Studies and the College of Liberal Arts and Sciences. He came to the Office of the Provost in June 2008 as Vice Provost for Academic Affairs and assumed the role of Interim Executive Vice Chancellor/Provost in July In this role, he is the chief academic officer for the Lawrence and Edwards campuses. Additionally, Anderson is a specialist in Latin American literature, with a focus on Mexico. His teaching emphasizes student-centered experiences in research and community service. Most of his classes are taught in Spanish. He has won several awards for his teaching, including the prestigious W. T. Kemper Fellowship for Teaching Excellence. Dr. Jeffrey S. Vitter, Executive Vice Chancellor/Provost (effective July 1, 2010). Dr. Jeffrey S. Vitter will become the Executive Vice Chancellor/Provost of the University of Kansas on July 1, Vitter served as provost and executive vice president for academic affairs at Texas A&M University from and is currently a professor in the Department of Computer Science and Engineering. While serving as provost, Vitter was responsible as chief academic officer for a university of 2,800 faculty, 5,500 staff, 48,000 students, and an annual budget of $1.2 billion. He also oversaw the academic mission of Texas A&M University in Doha, Qatar. Prior to joining Texas A&M, Vitter served as the Frederick L. Hovde Dean of A-2

28 Science at Purdue University and, at Duke University, he held a distinguished professorship as the Gilbert, Louis, and Edward Lehrman Professor of Computer Science, and was department chair, co-director, and a founding member of the Center for Geometric and Biological Computing. His educational degrees include a BS with highest honors in mathematics from the University of Notre Dame, a PhD in computer science from Stanford University, and an MBA from Duke University. Vitter is a Guggenheim Fellow, an ACM Fellow, an IEEE Fellow, an AAAS Fellow, an NSF Presidential Young Investigator, and a Fulbright Scholar. Dr. Barbara Atkinson, Executive Vice Chancellor of the University of Kansas Medical Center and Executive Dean, School of Medicine. As Executive Vice Chancellor of the Medical Center and Executive Dean of the School of Medicine, Dr. Atkinson leads the Medical Center's efforts to enhance human health by championing leading-edge biomedical research, providing students with excellent educational opportunities and providing patients with access to the latest advances in medicine. She is focused on improving the region's health by bringing a National Cancer Institute-designated comprehensive cancer center to the Medical Center and advancing the Medical Center's prestigious research programs in cancer, neurology, liver, kidney and reproductive biology. Among Dr. Atkinson's teaching honors, she received the Leonard Berwick Award for Distinguished Teaching at the University of Pennsylvania, the Lindback Award for Distinguished Teaching in Clinical Sciences at Medical College of Pennsylvania (MCP), the Golden Apple Teaching Award for Excellent Science Teaching for Integrated Learning Programs from the MCP and the Helmuth Sprintz Award for teaching at the University of Kansas. Dr. Atkinson is also a pathologist. She is a Life Trustee and a past president of the American Board of Pathology (ABP), and she holds the distinction of being the first woman and the first cytopathologist to be elected as a trustee. She was elected to membership in the Institute of Medicine of the National Academy of Sciences in Theresa Gordzica, Chief Business and Financial Planning Officer. Reporting to the Chancellor of the University, Ms. Gordzica is responsible for University wide management of Business and Fiscal Affairs at all University of Kansas campuses. Ms. Gordzica has been in administration at the University since Her career began as a student assistant and has progressed to increasingly responsible positions within the office. Ms. Gordzica is a Certified Public Accountant and has a Masters of Business Administration and Bachelor of Science in Business and Accounting from the University of Kansas. Ms. Gordzica has also been active in the Central Association of College and University Business Officers as well as a number of community service organizations. Faculty The following tables present some historical information concerning the faculty at the University of Kansas for the Fall semesters 2005 through University of Kansas Lawrence Campus Faculty Information Academic Years Ending Number Full-Time Faculty 1,125 1,160 1,169 1,191 1,185 Number Part-Time Faculty Number Tenured Faculty Average Age of Faculty NA NA NA NA NA Percent of Tenured Faculty 57% 56% 55% 55% 55% Percent Holding Terminal Degrees 96% 96% 96% 96% 96% Student-Faculty Ratio* *The University is using the US News definition for student/faculty ratio. A-3

29 University of Kansas Medical Center Faculty Information Academic Years Ending ** Number Full-Time Faculty Number Part-Time Faculty Number Tenured Faculty Average Age of Faculty Percent of Tenured Faculty* 73% 73% 75% 71% 73% Percent Holding Terminal Degrees 89% 89% 90% 89% 91% Student-Faculty Ratio*** NA NA NA NA NA *Percent of tenured faculty reflects percent of tenure eligible faculty who have attained tenure - does not include clinical and other non tenure eligible faculty. **These are preliminary numbers. ***FTE for students is not calculated for the University of Kansas Medical Center. Student Body and Enrollment The University has a coeducational student body with approximately 69% of students having resident status and 31% having nonresident status, based on Fall 2009 semester headcount. The following tables reflect headcount information, full-time equivalent ("FTE") student information and applications and admissions information for the fall semesters of the years indicated. The following table is a history of student headcount for the fall semesters, showing both resident vs. nonresident status and undergraduate vs. graduate status. University of Kansas Student Headcount Fall Semesters, Fall Total Non- First Semester Students Residents Residents Undergraduate Graduate Professional Other ,624 20,587 9,037 21,391 6,054 1, ,613 20,508 9,105 21,353 6,083 1, ,260 20,296 8,964 20,828 6,237 1, ,102 20,999 9,103 21,332 6,508 1, ,004 20,765 9,239 21,066 6, ,759 1,3 765 (Remainder of page intentionally left blank) A-4

30 University of Kansas Lawrence Campus Student Headcount Fall Semesters, University of Kansas Medical Center Student Headcount Fall Semesters, Fall Semester Total Students Residents Non- Residents Undergraduate Graduate/First Professional ,934 18,791 8,143 20,908 6, ,773 18,628 8,145 20,822 5, ,342 18,291 8,051 20,298 6, ,999 18,890 8,109 20,811 6, ,826 18,706 8,120 20,550 6,276 Fall Semester Total Students Residents Non- Residents Undergraduate Graduate First Professional Other ,690 1, ,840 1, ,918 2, ,103 2, , ,178 2,059 1, ,028 1, Federal Integrated Postsecondary Education Data System definitions redefined first professional to doctorate-professional practice. This includes degrees - AuD, DPT, JD, MD, PharmD. This shifted some graduate students to the first professional column. 2 Other includes medical residents and fellows. 3 Includes visiting trainees. Projected Student Headcount The Kansas high school graduating class of compared to the class is expected to decline based on Western Interstate Commission for Higher Education projections. Therefore, the University projects a small decrease in enrollment for the near future. University of Kansas Projected Student Headcount Fall Semesters, Fall Semester Actual* / Estimated Headcount ,004* , , , ,600 A-5

31 Full Time Equivalent Student Enrollment University of Kansas Lawrence Campus Projected Student Headcount Fall Semesters, Fall Semester Actual* / Estimated Headcount ,826* , , , ,500 University of Kansas Medical Center Projected Student Headcount Fall Semesters, Fall Semester Actual* / Estimated Headcount ,178* , , , ,100 The following table is a history of full time equivalent (FTE) students for the Fall semesters 2005 through 2009 for the University of Kansas Lawrence and Edwards Campuses. FTE information is not calculated for the University of Kansas Medical Center. Student Admissions University of Kansas Lawrence Campus & Edwards Campus Full Time Equivalent Student Enrollment Fall Semesters, Fall Semester Total FTE Students FTE Undergraduate FTE Graduates/First Professional ,047 18,737 5, ,942 18,722 5, ,831 18,471 5, ,503 18,990 5, ,340 18,731 5,609 For the 2009 Fall semester, 91 percent of first time freshmen applications were accepted and 40 percent of those applicants enrolled. The one-year retention rate for the Fall 2008 full-time, first-time degreeseeking freshmen is 81 percent. A-6

32 First Time Freshmen Applications, Acceptances and Enrollments Fall Semesters, Fall Fall Fall Fall Fall Fall Applications Received 10,530 10,445 10,240 10,367 10,902 10,653 Applications Accepted 9,653 9,553 9,472 9,554 10,003 9,740 % Accepted 92% 91% 93% 92% 92% 91% Students Enrolled 4,269 4,201 4,153 4,084 4,483 3,942 % of Acceptances Enrolled 44% 44% 44% 43% 45% 40% Note: The University has revised the acceptance rate formula to follow the more traditional practice of including cancellations. Formerly reported "Admitted not cancelled" and now reporting "Total admitted." Admitted, not cancelled 69% 71% 77% 78% 84% 81% Admitted, but cancelled 23% 20% 16% 14% 8% 11% Total admitted 92% 91% 93% 92% 92% 91% Indicated below are the average ACT scores and grade point averages of freshmen entering in the fall semesters. Enrolled First Time Freshmen Fall Semesters, Fall Fall Fall Fall Fall Fall Average ACT Score* Average High School GPA NA *SAT converted to ACT equivalent Tuition and Fees The University of Kansas has certain cost study peers that were selected by the Board of Regents. The peer group includes the following universities: the University of Colorado; the University of Iowa; the University of North Carolina-Chapel Hill; the University of Oklahoma; and the University of Oregon. The following tables show a history of the changes in tuition and fees of full-time students enrolled at the University of Kansas, and a comparison to the peer group for those years. Between the Fiscal Years 2006 and 2010, tuition and fees at the University of Kansas have increased 37% for resident undergraduates and 33% for resident graduates, and 30% for non-resident undergraduates and 29% for non-resident graduates. A comparison of the past fiscal year's standard rate tuition and fees of the University of Kansas to the average tuition and fees for the peer group for both residents and non-residents is shown in the following tables. A-7

33 Academic Year Schedule of Tuition and Fees and Comparison to Cost Study Peer Institutions University of Kansas Lawrence Campus Schedule of Tuition and Fees and Comparison to Cost Study Peer Institutions Academic Years Resident Undergraduates Non-Resident Undergraduates University of Kansas Peer Average w/out KU KU as % of Peer Average University of Kansas Peer Average w/out KU 2006 $5,413 $5, % $13,866 $17, % 2007 $6,153 $5, % $15,123 $18, % 2008 $6,600 $5, % $16,107 $19, % 2009 $7,042 $6, % $17,119 $21, % 2010 $7,414 $6, % $18,097 $22, % KU as % of Peer Average Resident Graduates Non-Resident Graduates Academic Year University of Kansas Peer Average w/out KU KU as % of Peer Average University of Kansas Peer Average w/out KU 2006 $5,448 $6, % $12,589 $17, % 2007 $6,089 $7, % $13,660 $17, % 2008 $6,531 $7, % $14,557 $18, % 2009 $6,969 $8, % $15,476 $19, % 2010 $7,339 $8, % $16,357 $20, % Resident Law Students Non-Resident Law Students KU as % of Peer Average Academic Year* University of Kansas Peer Average w/out KU KU as % of Peer Average University of Kansas Peer Average w/out KU KU as % of Peer Average 2006 $10,167 $13, % $19,093 $24, % 2007 $11,097 $15, % $20,560 $26, % 2008 $12,595 $16, % $22,627 $27, % 2009 $14,148 $18, % $24,781 $29, % 2010 $14,948 $20, % $26,221 $30, % *Based on 30 hours. (Remainder of page intentionally left blank) A-8

34 University of Kansas Medical Center Schedule of Tuition and Fees and Comparison to Cost Study Peer Institutions Academic Years Resident Undergraduates Non-Resident Undergraduates Academic Year Medical Center Peer Average w/out KUMC KUMC as % of Peer Average Medical Center Peer Average w/out KUMC 2006 $5,111 $6, % $13,564 $17, % 2007 $5,812 $6, % $14,782 $18, % 2008 $6,600 $7, % $16,107 $18, % 2009 $6,554 $7, % $16,631 $20, % 2010 $6,936 $8, % $17,619 $21, % KUMC as % of Peer Average Resident Graduates Non-Resident Graduates Academic Year Medical Center Peer Average w/out KUMC KUMC as % of Peer Average Medical Center Peer Average w/out KUMC 2006 $5,206 $9, % $12,347 $18, % 2007 $5,808 $10, % $13,379 $19, % 2008 $6,531 $9, % $14,551 $18, % 2009 $6,481 $10, % $14,988 $20, % 2010 $6,861 $10, % $15,879 $20, % KUMC as % of Peer Average Resident First-Year Medical Students Non-Resident First-Year Medical Students Academic Year Medical Center Peer Average w/out KUMC KUMC as % of Peer Average Medical Center Peer Average w/out KUMC KUMC as % of Peer Average 2006 $19,337 $19, % $35,092 $44, % 2007 $21,647 $20, % $38,053 $46, % 2008 $22,950 $22, % $40,341 $47, % 2009 $24,200 $22, % $42,547 $48, % 2010 $25,636 $25, % $45,084 $46, % Note: KUMC's tuition based on 30 hours for undergraduate and 24 for graduate. Peer average without KUMC for undergraduate and graduate does not include University of Colorado Integrated Postsecondary Education Data System tuition (n/a until after 10/14/09) University of Colorado non-resident medical school tuition decreased by over a third from AY09 to AY10 Financial Aid Assistance The following table provides information about the recipients and amounts, by category, of financial aid assistance to students for the academic years ended June 30, 2007, 2008 and 2009 as well as estimates of the numbers of recipients and dollar amount of financial aid assistance for the academic years ending June 30, Most students who receive Federal financial assistance receive multiple types of Federal financial assistance; so the University does not record the number of students receiving Federal financial assistance. A-9

35 The total number of students receiving financial aid assistance from sources other than the Federal government is shown below. Also shown is the unduplicated number of students receiving financial aid assistance. University of Kansas Schedule of Financial Aid Assistance to Students Academic Years Ending June 30, Actual 2008 Actual 2009 Actual 2010 Estimated Total Students Enrolled (Headcount) 29,613 29,260 30,102 30,004 Number of students receiving financial aid assistance, by category: Federal assistance recipients 13,537 13,319 13,712 14,084 State assistance recipients 1,898 2,110 2,128 2,186 Institutional scholarship recipients 11,037 11,109 11,482 11,793 Other scholarship recipients 4,542 4,929 4,851 4,983 Total students receiving financial aid assistance (excluding Federal assistance) 12,788 12,298 12,736 13,085 Total (unduplicated) number of students receiving financial aid assistance 18,136 18,095 18,721 19,230 Amount of assistance by category: Federal assistance $138,905,816 $153,293,135 $167,104,107 $173,462,656 State assistance 5,784,487 7,504,123 7,622,021 8,147,492 Institutional scholarships - Note 1 54,240,848 57,716,664 62,152,931 63,410,330 Other scholarships and assistance 21,488,275 23,838,331 25,847,093 26,815,483 Total amount of assistance to students $220,419,426 $242,352,253 $262,726,152 $271,835,961 Note 1 Includes Tuition Grant funds awarded for first time in 2003 academic year using tuition enhancement funds. (Remainder of page intentionally left blank) A-10

36 University of Kansas Lawrence Campus Schedule of Financial Aid Assistance to Students Academic Years Ending June 30, Actual 2008 Actual 2009 Actual 2010 Estimated Total Students Enrolled (Headcount) 26,773 26,342 26,999 26,826 Number of students receiving financial aid assistance, by category: Federal assistance recipients 12,244 11,998 12,388 12,729 State assistance recipients 1,723 1,941 1,934 1,987 Institutional scholarship recipients 9,836 9,892 10,233 10,514 Other scholarship recipients 4,153 4,172 4,428 4,550 Total students receiving financial aid assistance (excluding Federal assistance) 12,586 12,061 12,484 12,827 Total (unduplicated) number of students receiving financial aid assistance 16,551 16,432 17,004 17,472 Amount of assistance by category: Federal assistance $111,009,432 $123,604,960 $136,343,024 $140,092,457 State assistance 2,233,136 2,420,119 2,341,736 2,406,134 Institutional scholarships - Note 1 50,093,483 52,970,259 57,625,625 59,210,330 Other scholarships and assistance 19,463,753 19,976,074 21,382,922 21,970,952 Total amount of assistance to students $182,799,804 $198,971,412 $217,693,307 $223,679,873 Note 1 Includes Tuition Grant funds awarded for first time in 2003 academic year using tuition enhancement funds. (Remainder of page intentionally left blank) A-11

37 University of Kansas Medical Center Schedule of Financial Aid Assistance to Students Academic Years Ending June 30, Actual 2008 Actual 2009 Actual 2010 Estimated Total Students Enrolled (Headcount) 2,840 2,918 3,103 3,178 Number of students receiving financial aid assistance, by category: Federal assistance recipients 1,293 1,321 1,324 1,355 State assistance recipients Institutional scholarship recipients 1,201 1,217 1,249 1,279 Other scholarship recipients Total students receiving financial aid assistance (excluding Federal assistance) Total (unduplicated) number of students receiving financial aid assistance 1,585 1,663 1,717 1,758 Amount of assistance by category: Federal assistance $27,896,384 $29,688,175 $30,761,083 $33,370,199 State assistance 3,551,351 5,084,004 5,280,285 5,741,358 Institutional scholarships - Note 1 4,147,365 4,746,405 4,527,306 4,200,000 Other scholarships and assistance 2,024,522 3,862,257 4,464,171 4,844,531 Total amount of assistance to students $37,619,622 $43,380,841 $45,032,845 $48,156,088 Note 1 Includes Tuition Grant funds awarded for first time in 2003 academic year using tuition enhancement Funds. State Appropriations and the Budget Process The State of Kansas operates on a fiscal year basis, beginning on July 1 and ending the following June 30, and numbered for the calendar year in which it ends. The Legislature meets annually in early January and typically adjourns in June. The budget process is designed to provide the Legislature with accurate and detailed revenue projections, along with professionally prepared expenditure budgets for each State agency for the current and succeeding Fiscal Years. The Higher Education Coordination Act provides that the Kansas Board of Regents shall "serve as the representative of the public postsecondary educational system before the Governor and the Kansas Legislature." K.S.A c(b)(2). This provision provides the foundation for an approach to state funding that reflects the recurring theme of maintaining a unified state budget request for new resources and a system wide focus on requesting and advocating for increases in State General Fund appropriations for public postsecondary education. In September of each year, the Kansas Board of Regents submits the unified budget request to the Department of Administration, Division of Budget, that reflects increases (or decreases) to the budget for operating grants and enhancements for each of the six universities governed by the Board of Regents. In A-12

38 September, the state universities also submit a budget request document for their base budget to the Department of Administration, Division of the Budget, for the succeeding Fiscal Year. Professional staff at the Division of the Budget analyzes and reviews the budget requests of the universities and other State agencies and presents the budgets to the Governor for preliminary gubernatorial approval. The Governor then presents a complete State budget, with funding recommendations, to the Legislature in January, during the first week of the legislative session. During the legislative session, both the Senate Ways and Means Committee and the House Appropriations Committee review the Board's request, including the state universities, making final recommendations for legislative approval. Staff support for the Legislature also includes professional budget analysts who again scrutinize the proposed budgets. Once the complete, proposed State budget is approved by the Legislature, it is again presented to the Governor for passage into law. The Governor has line-item veto power. The Governor's veto can only be overridden by a two-fifths majority vote of both the House and Senate. This portion of the budget process is completed prior to the beginning of the succeeding Fiscal Year. The Kansas Constitution mandates that budgeted expenditures are limited to available funds from current revenue, or a combination of current revenue and available reserves. Once the budget is approved by the Legislature and Governor, State agencies, including the universities, have flexibility within their particular budgets to change line item amounts appropriately to compensate for necessary modifications due to internal or external reasons. This flexibility allows State agencies to react appropriately to either revenue variances or changing operational needs. During the Fiscal Year for which the budget has been prepared, the Governor and Legislature review the budget in progress and have the ability to make necessary adjustments. Continuous expenditure review is performed by each university and other State agencies, as well as by the Department of Administration. Also, current state general fund revenues are monitored by the Department of Administration, Division of the Budget; Department of Revenue; the Legislative Research Department; the Governor; and three economists from the State's three largest Board of Regents' universities, to insure fiscal responsibility. The following table sets forth a comparison of State appropriations to tuition and fees and other revenues for the five most recent Fiscal Years for University of Kansas. Comparison of State Appropriations to Tuition and Fees and Other Revenue Sources FY 2005 FY 2009 Fiscal Year Ended June 30 State Appropriations Revenue in Dollars Tuition & Fees All Other Sources Total Revenues As a % of Total Revenue State Appropriations Tuition & Fees All Other Sources 2005 $244,687,526 $160,216,624 $530,381,635 $935,285, % 17.13% 56.71% ,068, ,436, ,514,666 1,002,019, % 18.41% 56.04% ,007, ,503, ,288,466 1,049,799, % 18.72% 55.85% 2008* 280,091, ,417, ,546, ,056, % 21.64% 50.10% ,890, ,175, ,619,561 1,007,685, % 22.74% 49.38% Source: University Comptroller's Office *Due to changes in organizational structure in FY2008, KU Physicians, Inc. is no longer considered a related component unit to the University and was therefore excluded from the University's financial statements. A-13

39 FINANCIAL INFORMATION OF THE UNIVERSITY The fiscal operations of the University constitute an extensive business operation. The State Legislature approved appropriations from State General Funds for operation of the University over $280.6 million at the beginning of Fiscal Year Due to reductions in state revenues, final Fiscal Year 2009 State General Fund appropriations were reduced to just over $264 million. State General Fund appropriations for Fiscal Year 2010 total $247.1 million. The total revenues for the University, including Federal grants and contracts, auxiliary enterprises, and capital improvements for the fiscal year ending June 30, 2009 was over $1,007 million. The University of Kansas is one of six universities operated under the direction of the Kansas Board of Regents. An independent single audit of the State of Kansas includes the operations of the Regents universities. The most currently available University of Kansas Annual Financial Report (for the fiscal year ended June 30, 2009) is attached as Appendix B to the Official Statement. This Annual Financial Report is prepared by the Comptroller of the University for delivery to the Chief Business and Financial Planning Officer and the University Chancellor, who transmits it to the Chairperson of the Kansas Board of Regents. The University of Kansas Annual Financial Report attached as Appendix B to the Official Statement has not been audited and is not expected to be audited. This financial information is provided for background information only. Not all revenues of the University are pledged to the repayment of the Bonds. Only the Revenues, as defined in the Bond Resolution, are pledged to the payment of the Bonds. Revenues Pledged The financial information which follows is excerpted from the University of Kansas Annual Financial Report for the fiscal year ended June 30, 2009 in Appendix B to the Official Statement. The Revenues, as defined in the Bond Resolution, include the amounts identified in the "Revenues" column of the table below. Amounts in the "Restricted Revenues" column are a part of Restricted Revenues, as defined in the Bond Resolution, and are not pledged to the payment of the Bonds. (Remainder of page intentionally left blank) A-14

40 Revenues Pledged and Restricted Revenues Year Ended June 30, 2009 Restricted Total (1) Revenues (2) Revenues (3) Tuition and Fees $ 229,175,773 $ 8,519,519 $220,656,254 Sales and Services 56,145,169 9,933,326 46,211,843 Other Operating Revenues 19,408,133 9,395,004 10,013,129 State Appropriations 262,687,403 18,511, ,176,145 Gifts 32,813,819 15,623,919 17,189,900 Grants and Contracts (Federal, State & Nongovernmental) 213,919, ,919,640 - Auxiliaries 158,990, ,990,608 - Other Non-Operating Revenues 34,545,029 34,545,029 - Total $1,007,685,574 $469,438,303 $538,247,271 Year Ended June 30, 2008 Restricted Total (1) Revenues (2) Revenues (3) Tuition and Fees $ 209,881,766 $ 7,950,750 $201,931,016 Sales and Services 47,939,646 7,910,370 40,029,276 Other Operating Revenues 17,474,787 9,707,359 7,767,428 State Appropriations 273,054,044 14,232, ,821,532 Gifts 25,419,336 13,110,974 12,308,362 Grants and Contracts (Federal, State & Nongovernmental) 206,038, ,038,990 - Auxiliaries 154,368, ,368,399 - Other Non-Operating Revenues 44,633,321 44,633,321 - Total $978,810,289 $457,952,675 $520,857,614 (1) (2) Total revenues of the University from the Statement of Revenues, Expenses and Changes in Net Assets on page 13 of the University of Kansas Annual Financial Report for the fiscal year ended June 30, 2009 in Appendix B to the Official Statement. The University has determined that these amounts are Restricted Revenues (as defined in the Bond Resolution). (3) These amounts are the Revenues (as defined in the Bond Resolution) pledged by the University pursuant to the Pledge Agreement. University Debt Obligations Information regarding outstanding long-term debt obligations of the University is set forth in the University of Kansas Annual Financial Report for the fiscal year ended June 30, 2009 in Appendix B to the Official Statement. Subsequent to June 30, 2009, the University has incurred additional long-term obligations, including the University's lease obligations with respect to the $55,250,000 Kansas Development Finance Authority Lease Revenue Bonds (University of Kansas Hospital Authority Medical Office Building Project University of Kansas, Tenant), Series 2009O, the University's obligation with respect to the $23,700,000 Kansas A-15

41 Development Finance Authority Revenue Bonds, Series 2010A (Kansas Board of Regents University of Kansas Housing System Project) and $21,650,000 Kansas Development Finance Authority Revenue Bonds, Series 2010B (University of Kansas Energy Conservation Program). Planned Additional Debt Obligations The Kansas Legislature has authorized, and the University administration plans to pursue the issuance for the benefit of the University of, additional debt obligations or bonds during 2010 in an aggregate principal amount of approximately $58 million, approximately $45 million of which will be payable primarily from Restricted Revenues or other sources not included in Revenues pledged to the payment of the Bonds, and approximately $13 million of which may be payable by the University from the Revenues. A-16

42 APPENDIX B UNIVERSITY OF KANSAS ANNUAL FINANCIAL REPORT (JUNE 30, 2009) (UNAUDITED)

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45 T ABLE OF C ONTENTS KANSAS B OARD OF REGENTS Kansas Board of Regents and Officers Management's Discussion and Analysis Statement of Net Assets Statement of Revenues, Expenses, and Changes in Net Assets Statement of Cash Flows Notes to Financial Statements Donna L. Shank Jarold Boettcher Gary Sherrer Dan Lykins Jill Docking William Tho rnton Richard Hedges Janie Perkins Christine Downey-Schmidt E XECUTIVE O FFICERS Rob ert E. Hemenway Chancello r Theresa Gcrdzica ChiefBusiness and Financial Planning Officer Lawrence Campus Richard Lariviere Executive Vice Chancellor I Provost Diane H. Goddard Vice Provost/ or Finance Medical Center Campus Dr. Barbara Atkinson, M.D. Executive Vice Chanc ellor Harold E. Phillips Vice Chancellorf or Administration R Michael Keeble Associate Vice Chancellor of Finance Finan cial Officers Katrina Yoakum Comp troller, Lawrence Campus Robert W. Weseloh Controller, Medical Center

46 THE U NIVERSITY OFKANSAS MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion and analysis provides an overview of the financial performance of the University of Kansas based on currently known facts, decisions, and conditions and is designed to assist readers in.understanding the accompanying financial statements. These financial statements are prepared in accordance with Government Accounting Standards Board (GASB) principles, with the exception of GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units. The University has made the decision not to include the Kansas University. Endowment Association (KUEA) within the University's unaudited financial statements. This discussion - along with the financia l statements and related footnote disclosures - has been prepared by management and should he read in conjunction with the statements and footnotes. The financial statements, footnotes, and this discussion are the responsibility of management. STATEMENT OF NET ASSETS The Statement of Net Assets presents the assets, liabilities, and net assets of the University at a point in time (at the end of the fiscal year). Its purpose is to present a financial snapshot of the University. The Statement of Net Assets includes all assets and liabilities using the accrual basis of accounting, which is similar to the accounting used by most private-sector institutions. Under the accrual basis of accounting all of the current year' s revenues and expenses are taken into account regardless ofwhen cash is received or paid. Within the Statement of Net Assets, assets and liabilities are further classified as current or non-current. Current classification distinguishes those assets that are highly liquid and available for immediate and unrestricted use by the University, and those liabilities likely to be settled in the next 12 months. Net assets are divided into three categories: 1. Invested in capital assets, net of debt, indicates the university's equity in property, plant, and equipment owned by the University. 2. Restricted net assets are further divided into two subcategories, non-ex pendable and expendable. The corpus of non-e xpendable restricted resources is available only for investment purposes. Expendable restricted net assets are available for expenditure by the University but must be spent for purposes as determined by donors and/or external entities that have placed time or purpose restrictions on the use ofthe assets. 3. Unres tricted net assets are available to the University for any lawful purpose of the institution. Total assets at June 30, 2009 were $ 1,372.8 million, an increase of $84.9 million (7%). Capital net assets comprised 63%, or $864.1 million of the assets. Total liabilities were $490.8 million at June 30, 2009, an increase of $65.0 million (15%) compared to $425.9 million at June 30, Long-term liabilities comprised 65%, or $321.2 million ofthe liabilities. Total net assets at June 30, 2009 were $882.0 million, a $20.0 million increase over the prior year, or a 2% increase in net assets. The breakout ofnet assets is shown below: Capital Assets, net of related debt.. Restricted net assets _. Unrestricted net assets _ Total net assets ,898,900 t58,779, ,279,066 $881,957,659 2

47 M ANAGEMENT'S DISCUSSION AND ANALYSIS The composition of current and non-current assets and liabilities and net assets is displayed below for both the 2009 and 2008 fiscal year-ends (in thousands): $1,000,000 $800,000 $600,000 $400,000 $200, $0 Tol81Clffert TotalNon. TotalCwert Tota Non- TotBiNet Assels ClI7ert A SSEt s UatJiNties CuTert AsselS Liabilities STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS The Statement of Revenues, Expenses, and Changes in Net Assets presents the total revenues earned and expenses incurred by the University for operating, non-operating and other related activities during a period of time. Its purpose is to assess the University's operating results. Revenues Total revenues increased by $28.8 million, from $978.8 million to $ 1,007.6 million, an overall increase of3%. Operating revenues at the Universityas of June 30, 2009 increased by 7%over the previous fiscal year from $635.7 million to $677.6 million in Overall operating revenues are very consistent with prior year as student enrollment remains relatively static in comparison to prior year. In addition there were moderate tuition and fee increases as well as minimal growthin research revenue. The following is a briefsummary of the significant changes: Sales and services ofeducational departments increased by 17% from $47.9 million to $56.1 million in A significant portion of the increase is the result of the Medical Center's sales and services of educational departments increasing 30%, $5.1 million over prior year. The result-is due to an increased number of residents within the graduate medical education program as well as new hospitals joining the Medical Center's graduate medical education program in Withinthe graduate medical program, area hospitals provide cash support to the Medical Center forthe medical residents working within the hospitals. Auxiliary Enterprises - Parking revenues increased by 14% from $8.5 million to $9.7 million in The increase is due to the campus transportation student fee increasing 80% from $36/sememster to $65/semester. This increase in fees allowed KU on Wheels to become a fare free system in which students only need their student ill to board any bus. Other operating revenues increased $1.9 million from $17.5 to $19.4 million, or 11%. The majority of the increase is due to the KU Hospital increasing its unrestricted financial support to the Medical Center. During 2009, KU Hospital made payments for the Medical Center ' s support totaling $3.6 million. Total non- operating revenues were down 7% from the prior year from $ million to $296.8 million. Following is a briefsummary of the significantchanges:. Gifts increased $7.4 million (29%) in Gifts received consisted primarily of monetary support provided by the Kansas University Endowment Association (KUEA). The level of support from KUEA varies from year to year. 3

48 MANAGEMENT'S DISCUSSION AND A NALYSIS Investment income decreased $ 19.3 million (185%) from $10.4 million to ($8.9) million in The University, as well as its component units, recogni zed a significant increase in unrealized losses in comparison to prior years. Other revenu es included the following: Capital appropriations and capital gifts increased from $24.8 million to $32.8 million, or 32%. The level of capital appropriations and capital gifts varies from year to year based upon the source of funding used for capital projects. The majo rity of this increase was in capital appropriations. In a deferred maintenance cost study was completed. This cost study identified $284.7 million ($209.1 million for KULC and $75.6 million for KUMC) in deferre d maintenance. As such, the Unive rsity received an increase in funding from the State' s Infrastructure Maintenance Program towards deferred maintenance. Although this program was started in 2008 an increase in appropriated revenues and expenses occurred as more deferred maintenance projects were completed in 2009 versus The composition ofthese revenues is displayed in the following graph: Tuition and lees, netof sdlolarship allowances 23% Auxiliary enterprises / 16% Grantsand contracts,,% Slate appropriatials,,% Other rllyet'lj8,% Expenses Operating expenses were $966.5 million for the 2009 fiscal year, an increase over the prior year of $33.4 million, or 4%. Overall operating expenses were very consistent with prior year. The average salary increase for FY 2009 was 3%. University's departm ents were also challenged to keep their other operating expenses low in anticipation of future budget cuts. Following is a brief summary of the significa nt changes: Operations and maintenance of plant increased $6.0 million (10%) from $62.5 million to $68.5 million in $4.8 million of the increase is the Medic al Center ' s operation and maintenance expense increasing from $22.0 million to $26.9 million, a $4.9 million increase. During 2009, the Medical Center completed several interiorremodeling projects, all under the University's capitalization policy amount. As such, the projects were expensed to operation & maintenance of plant expen se. Other operating expenses decreased $3.8 million (72%) from $5.4 million to $1.5 million in Other operating expenses include a variety ofsources and the level of activity ofthese expenses varies from year to year. 4

49 MANAGEMENT'S DISCUSSION AND A NALYSIS Non-operating expenses increased 93% from $11.0 million in 200S to $21.3 million in Following is a summary of the significant changes. Interest expense increased 16% frorn $12.S million to $ 14.S mill ion in 2009 as the result of increased debt the University has incurred over the past year. Other non-operating expenses increased $S.3 million from ($I.S) million in 200S to $6.5 million in During 2009 the State of Kansas issued a mid-year budget rescission whereby the University and the Medical Center had to return funds to the State in the amounts of $4.1 million and $1.8 million, respectively. A significant portion of this rescission was in the form of a Group Health and Death and Disability insurance premium moratorium in which the University was required to pay the State the amount of employer premiums saved. Additionally, a decrease of $2 million in other non-operating revenues occurred in 2009 as a result of decreased funds for FEMA Reimbursement: In 2008 the University recognized approximately $2.0 million in non-operating revenue for FEMA Reimburs ement for storm damage that occurred During 2009 the University only receive d $250k as the project was completed. The composition of total expenses, including operating and non-operating, is displayedbelow: Research 20%."'"'" 2% Extraordinary Items The University did not have any special and/or extraordinary items in 2008 or Endowment Expenses Paid On Behalf of Univers ity The Kansas University Endowment Association (KUEA), an independent, not-for-profit organization whose primary mission is to raise funds for the University, provides direct and indirect support to the University that is not entirely reflected in the University's Statement of Revenues, Expenses, and Changes in Net Assets. Expense items paid on behalf of the University by KUEA include expenses such as scholarships and fellowships, salaries, construction, equipment, books, works of art, and trav el. Total University support provided by KUEA equaled approximately $100.5 million and $10 S.7 million in.2009 and 200S, respectiv ely. 5

50 MANAGEMENT'S DISCUSSION AND ANALYSIS The following support items totaling $24.4 million arereflected in the University's statements for Capital Projects. KUEA sponsored many capital projects throughout the year with a combined approximate value of $2.5 million. The major capital project that benefited from KUEA's fundraising efforts was the comp letion of the construction of Krehbiel Scholarship Hall ($1.1million in 2009 and $2.9 million in 2008), Salaries and other operating expenses. KUEA reimbursed the University approximately $21.9 million for various faculty and staff member salaries, including the University's distinguished professors, and other minor operating expenses. The salary expense is reflected in the University's statements as it represents a more accurate reflection of the University's operating expenses. KUEA's reimbursement is reflected as a gift to the University within non-operating revenues. Net Assets Net assets increased by $19.9 million over the previous fiscal year. This significant increase in net assets can primarily be attributed to the continued supportof the University via capital and non-capitalgifts during STATEMENT OF CASH FLOWS The Statement of Cash Flows presents cash receipts andpayments of the University during a period oftime. Its purpose is to assess the University's ability to generate future net cash flows and meet its obligations as they come due. The following is a condensed statement ofcash flows for the years ended June 30, 2009 and 2008: CASH FLOWS FOR TIlE PERIOD (in thousands of dollars) Net cash provided (used) by: Operating activities Non-capital financing activities Capital andrelated financing activities Investing activities Net increase in cash Beginning cash and cash equivalent balances Ending cash and cash eq uiva lent balances June 30, 2009 s (224,840) 304,420 (59, 826) 2,118 21, ,148 $ 202,020 June 30, 2008 s (238,547) 309,035 (76,717) 18,788 12, ,589 $ 180,148 Cash flows from operating activities will always be negative since GASB requires state appropriations to be reported as cash flows from noncapital financing activities. Cash flows from capital financing activities include all plant funds and related long-term debt activities. Cash flows from investing activities show all uses of cash and cash equivalents to purchase investments, and all increases in cash and cash equivalents as a result ofselling investments or earning income on cash and investments. Cash used by operating activities decreased S13.7 million (6%). This decrease in the use of cash is the result of operating expenses increasing slightly less than the University's operating revenues (tuition and fees. grants and contracts. auxiliary income) offset by decreased cash from the Athletics operations. Cash flows from non-capital financing activities decreased by $4.6 million (1%). The decrease is the result of the University's $10.4 million decrease in state appropriations offset by an increase of $7.0 million in non-capital gifts received throughout the year from severalsources. Cash used by capital and related financing activities decreased by $ 16.9 million (22%). During 2008, the University spent a significant amount of cash on several large construction projects. including construction of its Structural Biology Center (SBC Phase 111), expansion of the Kansas Law Enforcement Training Center (KLETC), and construction ofa new state-ofart football training and practice facility. While the University continued to investsignificant funds into its facilities during 6

51 M ANAGEMENT'S DISCUSSION AND ANALYSIS 2009, the majority of projects under construction in 2009 were smaller in scope. The increase in construction cash flows was partially offset by the issuance of million in revenue bonds for the School of Pharmacy expansion and the Allen Field House complex remo deling project as well as a $5 million bond anticipation note payable for financin g Jayhawker Tower project. Cash flows from investing activities decreased $16.7 million. The decrease in investment activity is a result of increased investment purchases related to the two revenue bonds, noted above, in addition to the lower realized investment income in CAPITAL ASSETS The University made sign ificant investments in capital during the fiscal year. Detailed informatio n regarding capital asset addit ions, retirements, and depreciation is available in Note 8 to the financial statements. The following is a brief summary ofthe construct ion projects that were comp leted during the current fiscal year: During the spring of 2004, student leader ship agreed to changes in the number and location ofseats committed to students for men's bask etball games in Allen Fieldhouse, as part of the new seating program initiated by Kansas Athletics, Inc. As part of this agreement, Athletics agreed to pay the costs of the addition to the Student Recreation Center and Fitness Center. The $6.3 million expansion project consisted of the construc tion, furnishi ng and equipping of an addition to the Center. The design of the project addressed the need to expand heavily used spaces within the curren t Center, including but not limited to the free weights area, racquetball courts and gymnasiums. The proj ect included the followin g elements: a gymna sium expansion, including two multipurpose basketball courts with wood floors and two multi -purpose courts with synthetic sports flooring; additional gymnasium equipment, including swing-down volleyball nets on two courts, curtain dividers, scoreboards and sound syste m; a runn ing track extension; a new multi-p urpose area, including two racquetball courts and a new martial arts room to allow the existing one to be vacated to expand the existing free weights area; additional storage areas, both in the gymnasium and multi-purpose areas ; and additional public restrooms, mechani cavelectrical equipment rooms and telecommunications closets. Revenue bonds were issued for this project in May This project was completed in December During 2007, Athletics broke groun d for their new state-of-art football training and practice facility. It is the desire of Athletics to provide football and training facilities that are competitive with other programs in the Big Twelve Conference and beyond. The $32.9 million projec t provides Athletics with additional office space for football operations, as well as a first class player clubhouse with complete training amenities. The project included a building and two artificial turf practice fields and was funded by private donations. This project was completed in October Constru ction was completed on Krehb iel Scholarship Hall in July The $4.0 million, three- story, 18,000 square-foo t scholarship hall houses 50 students in two-person rooms and four-person suites. Krehbiel Scholarship Hall features quiet geothermal heating and cooling systems and exteriors designed to blend with the neighb orhood ' s tum-of-the-century homes. In Fall 2006, KU Center for Research (KUCR) began construction on Phase III of the Structural Biology Center. Financed by revenue bonds, the $16.0 million project consisted of a 35,000 square foot addition to the existing Structural Biology Center research building on Lawrence' s West Camp us. The project included new lab space, new core research serv ice space, a high throughput-screening lab as well as other research facilities. KUCR also began const ruction on Phase N in The Kans as Bioscience Authority financed the $5.0 million project that consisted primaril y of office and lab space for Blake Peterson, Kansas Bioscience Authori ty's first Eminent Scholar, and his graduate students. Both phases were completed in June During 2008, the Medical Center made additional modifications to its Kansas Life Sciences Innovation Center (KLSIC). The $2.3 million project was designed to improve specific sterile environments required for the Medical Center's research grants and contract. The project was completed in Spring

52 MANAGEMENT'S DISCUSSION AND A NALYSIS Additionally, the University was involved in several construction projects that were under constru ction or in planning and design phases at yea r-end: Based on a study completed in 2002, the Kansas Law Enforcemen t Training Cen ter (KLETC) has been transformi ng the training programs for law enfo rcement officers to a contemporary standard for scenario- based training meth odology. Beginning in January 2005, KLETC increased the total enrollment capacity to 120 offic ers in two simultaneous basic training pr.ograms. As a result of the enrollment increases as well as other operational needs, KLETC is expanding and renovating its training cen ter facilities. Specifi c components of the exp ansion project include a new dormito ry, an emergency vehicle operations driver training course and garage, a tactical shooting building and multi-pwpose space that can accommodate 120 individuals for shared classes or be subdivided as nee ded. The expansion of the existi ng Wel ch Hall Student/Staff dining hall is also included as well as other cam pus site and infrastructure improv ements. The tota l projected cost of th e facility improvements is $16.4 million and is funded by revenu e bonds issued in December In respon se to recent Regent' s Uni versity deferr ed maintenance studies, the Lawrence Campus began a major overhaul of its utility tunnel system dur ing fiscal year While various maintenance projects related to the tunnels occur routinely each year. this $8.8 million project is part of the $180 million in critical deferred maintenance identified by the Regent's studies. These tunnel improvements are necessary to maintain the various state-owned uti lity systems routed throu gh more than 16,000 feet of tunnel systems. The tunnel system is used to route steam and condensate piping from the centra l plant, portions of the campus electrical distri bution sys tem, com munication cabling and other vital utility systems to approximately 50 buildings on the main campus. Funding for this project will come from the State 's Infrastructure Maintenance Fund as well as University interest income. In 2008, KU proposed an expansion of its School of Pharmacy in response to a growing shortage of pharmacists in the Kansas healt h care system. The expan sion will inclu de construction of a new building on the Lawrence campus and an additi onal floor at theschoo l of Medicine-Wichita. The Phase One Teaching and Administratio n project will provide 110,000 gross square feet of new space, including a model pharmacy, integrated instructional labs, library and computer commons, student study space, lecture hall, and teaching labs. The project will accommodate the entire instructional mission, including the relocation of the Pharmacy Practice program and faculty, and will provide all the required instructional space for the departments of Pharmaceut ical Chemistry, Medi cinal Chemistry, and Pharma cology and Toxicology in a new location adjacent to the current Simon's Bioscie nce buildings on KU's West Campus. The project was approved by the 2008 & 2009 legislatures and will be financed with approximately $50 milli on in state bon ds and an addit ional $10 million from private sources. The State General fund win pay the annu al debt service on the revenue bond s. Construction at both locations is expected to be completed in The Jayhawker Towers complex was built in 1967 as privately owned housing and acquired by the University in The complex consi sts of four towers, each with approx imately 75 apartments and 185 residents. After forty years of use, the buildings have majo r mechanical needs that must be addressed. Addi tionally, the amenities and aesthetics are outdated. The University plans to renovate all four buildings, starting with Tower A. For both financial and occupancy reasons, the renovation will be best acco mplished 'one tower at a time. The same mix of two-and-four-person apartments will be mainta ined. In addition to mechanical upgr ades, the project will include enhancements in lighting, data service, and life-safety systems. Estimated project costs are $7.8 million dollars per tower. Tower A will be completed August 2009, and construction will begin on Tower D in FY The Haworth Hall project replaces ten air handli ng units, con trols and chilled water piping in the original building, the 1971 and 1985 additions and Stewart Wing, and replaces the cooling tower in the original building. Thi s project also replaces exhaust hoods and controls in the original building and additions, and updates the fire alarm system. Total projected cost for this project is $2.6 million and is funded from the State ' s Infrastructure Maintenance Fund as well as Univers ity interest income. The Malott Hall project will replace at least four 30-yea r old air-handling units and their controls. It will also replace approximately 50 exhaust hoods of similar vintage in order to better control chemical fume conce ntrations in classrooms, laboratories, and office spaces. Where feasible, the projects will incorporate heat recovery equipment to reduce energy use. Total projected cost for this project is $2.6 million and is funded from the State 's Infrastructure Maintenance Fund as well as University intere st income. 8

53 MANAGEMENT'S DISCUSSION AND A NALYSIS During 2008, Athletics started a major renovation of Allen Fieldhouse that includes a separate basketball practice facility, compl ete renovation of Parrott Athletic Center. and new basketball locker room areas for both the men's and women's team. Also included in the project are a bridge between the parking garage and Allen Fieldh ouse, and improvements in Anderson Family Strength Center for the Student-Athlete Support Services progra m. The project is expected to be completed in early FY This project is primarily financed by $32.8 million in bonds and total project cost is estimated to be $33 million. During 2009, the Medical Center began a complete renovation of the 4 th floor of the Murphy Administration building. The $ 1 million project is designed to update the administrative offices of the Surgery Foundation. The majority ofthe costs will is to be funded by the foundation and is expected to be completed in Spring During 2009, the Medical Center began working on a renovation ofthe Applegate Energy Center. The $4 million project will replace the current chillers, control panels and other vital parts to make the Energy Center operate more efficiently. The project is being funded from the State's Infrastructure Maintenance Fund as well as University intere st income, and is expected to be completed durin g DEBT ADMINISTRATION At June 30, 2009, the University had $288.8 million in revenue bond debt outstanding. In 2009, the Univers ity issued new debt in the amount of $21.1 million to finance the cost to construct a School ofphannacy at the Lawrence campus and to add an additional floor at the School of Medi cine-wichita (School of Pharmacy Proj ect). Also, the Univers ity issued $5 million debt to finance the Jayhawker Tower project. In addition, Athletics issued new debt in the amount of $32.8 to finance a major renovation of Allen Fieldhouse and to construc t a bridge between the parking garage and Allen Fieldhouse. At June 30, 2008, the University had $241.9 million in revenue bond debt outstan ding. In 2008, the University issued new debt in the amount of$18.2 million to finance the cost to construct, furnish, and equip the expansion of the Kansas Law ' Enforc ement Training Center (KLETC). The Univer sity also paid off the remaining revenue bond related to the purchase of its cont inuing education building. The University paid $22.8 million in principal and interest payments related to all outstanding revenue bonds in 2009, Moody's Investor Service currently rates the University '"Aa2", More detailed information about the University's revenue bonds is available in Notes 10 and 11 to the financial statements, ECONOMIC OUTLOOK Similar to the nationa l economy, the State of Kansas economy has slowed down. As actual revenues fell short of revenue estimates prepared by the Consensus Revenue Estimating Group throughout 2009 and the beginning of 2010, the governor and state legislature faced significant budge t shortfalls. Whil e support for higher education has been strong in recent years, the University 's appropriations were reduced by 12% for fiscal year In November 2009, the governor proposed further reductions that would reduce Higher Education funding to 2006 levels, the maximum reduction allowed for the State to qualify for State Fiscal Stabilization Funds from the American Recov ery and Reinvestment Act of 2009 (ARRA) without applying for a waiver from the US Department of Education. Beyond the University's state appropri ation reductions. the financial position of the University continues to be relatively strong. In the Fall 2009, 30,004 students enrolled at KU. While enrollment was down by 98 students in comparison to Fall 2008, this very minor decrease was anticipated as Fall 2008 represented a reco rd semester in regards to enroll ment. Enrollment for the academic year is expected to be compara ble to As a result, tuition revenues are expected to remain strong. Over the next few years. enrollment is expected to remain stable or drop slightly due to a decline in Kansas high school graduates. ill Fall 2007, the University put into effect its "4-Year Tuition Compact" for all incoming freshmen. The "4-Year Tuition Compact" is a program that sets a fixed tuition rate for four ye ars for all incoming freshman. The goals of the program are to give students and their families the ability to budget for the next four years, and to provide an incentive for students to 9

54 MANAGEMENT'S D ISCUSSION AND A NALYSIS complete their bachelor degree within four years. Fiscal year 2010 represents the third year of this program. Since creation the program has received positive feedb ack from students and thei r families. Th e University has also focused on the growi ng number of research opportunities that have been created by the American Recovery and Reinvestment Act. As of November 2009, the KU Center for Research. Inc. has been awarded 49 projec ts with a total award budget of $10.8 million. The KU Medical Center Research Institute has been awarded 35 projects with a total award budget of $9.1 million. Both entities also have over 176 proposals submitted that are still awaiting final decis ions by the federal government. There also has been continued strong state and regional support for life scienc es and cancer initiatives that will position the University for continued growth. One of the top priorities of the Unive rsity continues to he achieving National Institu tes of Health recognition as a comprehensive cancer center. A recent exa mple of external support for this initiative was the formation of "Cancer Fund ing Partners" a volunteer counc il uniting business and civic leaders from the Kansas City and Wichita areas to generate support among their peers for the University of Kansas Cancer Center. The formation of this council was announced in December Finally the University will be experiencing a significant change in leadership in fiscal year Afte r 14 years ofservice, Chanc ellor Robert Hemenway announced his retirement effective June 30, In May 2009, Bernadette Gray-Little was named the 17th Chancellor ofthe University ofkansas. Chancellor Gray-Little's first official day on campus was August 15, Execu tive Vice ChancellorlProvost Richard Lariviere left the University as of June 30, in order to acce pt the President' s position at another public university. Danny Anderson, Vice Provost of Academic Affairs, was named Interim Provost effective July Danny is the Interim Execu tive Vice ChancellorlProvost. The University is not aware of any additional currently known facts, decisions, or conditions that are expected to have significant effect on the fmanc ial position or results of operations durin g this fiscal year beyond those unknown variations having a global effect on virtually all types ofbusiness operations. 10

55 Financial Statements II

56 T HE U NIVERSITY OFKANSAS S TATEMENT OFN ET A SSETS A s O FJ UNE 30,2009 AND 2008 Restated ASSETS Current assets: Cash andcash equivalents $ 198,907,737 $ 174,727,667 Investments 93,798, ,733,544 Accounts receivable, net 65,217,244 57,52 1,369 Pledges receivable,net 12,465,435 11,075,071 Loans to students, net 2,762,216 2,709,276 Inventories 7,791,288 6,925,630 Prepaid expenses andother assets 4,800,353 4,874,258 Total current assets 385,742, ,566,8 15 Non-currentassets: Restricted cash andcash equivalents 3,112,238 5,419,791 Pledges receivable, net 15,960,315 7,160,798 Endowment investments 59,367,268 74,328, 453 Other investments 19,951,357 7,954,202 Loans to students, net 20,682,176 20,349,7 19 Prepaid expenses andother assets 3,889,939 3,412,361 Capitalassets, net 864,100, ,720,866 Total non-current assets 987,063, ,346, 190 Total assets 1,372,805,7 60 1,287,913,005 LIABILITIES Current liabilities: Accountspayable andaccrued expenses 55,771,382 46,204,810 Deferred revenue 47,382,361 46,286,867 Deposits held in custody for others 19,626,832 14,358,153 Accrued compensated absences- current portion 25,528,922 29,686,557 Capital leases payable, current portion 3,134,163 2,684,447 Notes payable - current portion 77,288 1,300,100 Revenuebonds payable- current portion 18,000,000 11,445,000 Other liabilities 155, ,907 Total current liabilities 169,676, ,115,84 1 Non-current liabilities: Accruedcompensated absences 8,604,862 4,105,368 Accruedotherpostemployment benefits 8,848,792 5,179,225 Capital leases payable 19,288,744 22,732,022 Notes payable 12,500,000 10,065,477 Revenue bonds payable 270,800, ,480,000 Other long-term liabilities 1,129,159 1,21 1,008 Total non-current liabilities 321,171, ,773,100 Total liabilities 490,848, ,888,941 NETASSETS Invested in capital assets, net ofrelateddebt 577,898, ,402,159 Restricted for: Nonexpendable 57,848,938 64,601,040 Expendable: Scholarships, research, instruction andother 23,305,160 25,893,104 Loans 24,213,773 23,690,505 Capital projects 32,189,924 26,416,9 74 Debt service 21,221,898 8,995,309 Unrestricted 145,279, ,024,973 Total net assets $ 881,957,659 $ 862,024,064 See accompanying notes to financial statements. 12

57 13

58 T HE U NIVERSITYOFKANSAS S TATEMENT OFC ASH F LOWS F OR T HE Y EARS E NDEDJ UNE30, 2009 AND 2008 Restated CASH FLOWS FROM OPERATING ACfIVlTIES Tuition andfees s 228,409,863 s 212,095,054 Sales andservices of educational activities 54,802,492 49,8 19,401 Auxiliaryenterprises: Housing 4,755,963 2,762,376 Athletics 10,952,645 29,116,303 Parking 4,26 1,5 10 3,294,820 Student unions 1,031, ,328 University health services 842, ,286 Other auxiliary enterprises (1,409,925) (220,178) Grants and contracts 217,919, ,530,097 Payments to suppliers (163,366,504) (169,016,670) Payments to utilities (25,49 0,346) (24,4 59,385) Compensation andbenefits (550,366,191) (538,090,978) Payments forscholarships and fellowships (23,605, 112) (22,660,6 11) Loans issued to students and employees (4, 109,524) (6,244,131) Collection of loans to students andemployees 3,603,958 2,929,703 Other receipts (payments) 16,928,074 17,228,976 Net cash provided (used) by operating activities (224,840,282) (238,546,609) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVI TIES State appropriations 262,687, ,054,044 Gifts 33,533,068 26,560,816 Agency transactions (248,840) 438,544 Federal education loan receipts 128,708, ,369,973 Federal education loandisbursements (129,942, 810) (1 16,330,912) Non-operating grants and contracts 9,887,351 8,840,8 52 Other (204,340) 101,604 Net cash provided by noncapital financing activities 304,420, ,034,92 1 CASH FLO WS FRO ~ I CAPITAL FINANCING ACfIVITIES Proceeds from capital debt 58,848,559 28,254,780 Capital appropriations 18,202,837 7,037,835 Purchases of capital assets (99,779,553) (84,757,922) Proceeds from sale of capital assets 68, ,479 Principal paidon capital debtandleases (15,266,767) (16,160,807) Interest paid on capital debt and leases (14,883,729) (12,82 1,404) Other (7,015,730) 1,472,604 Net cashused by capital financing activities (59,82 5,909) (76,717,435) CASH FLOWS FROM INVESTING ACfIVlTIES Proceeds from sales and maturities of investments 104,881, ,320,386 Interest on investments 14,099,851 16,267,984 Purchase of investments (116, 862,9 12) (102,800,654) Net cashprovided by investing activities 2,118,127 18,787,716 Net increase (decrease) in cash 21,872,517 12,558,593 Cash - beginning of the year 180,147, ,588,865 Cash - end of year s 202,0 19,975 s 180,147,458 14

59 STATEMENT OFC ASH F LOWS F OR T HE Y EARS E NDEDJ UNE30,2009 AND 2008 (ComINlJED) Restated RECONCILIA TION OF NET OP ERATI NG RE VENUES (EXPENSES) TO NET CASH PROVIDED (USED) BY OPE RATI NG ACTIVITIES: Operating income $ (288,853,947) $ (297,381,033) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Non-cash revenue Depreciation expense 53,922,560 51,294,904 Other non-cash expenses 105, ,231 Changes in assets and liabilities: Accounts receivables, net (5,268,426) (6,568,071) Pledges receivable,net (10,189,881) 17,255 Loans to students. net (385,39 7) ( 1,499,828) Inventories (865,658) (350,247) Prepaidexpenses and otherassets 373, ,946 Accounts payable and accrued liabilities 21,214,034 6,293,442 Deferred revenue 1,095,494 1,062,499 Accrued compensated absences 341,859 3,080,068 Accrued otherpostemployment benefits 3,669,567 5,179,225 Net cash provided (used) by operating activities: $ (224,840,282) $ (238,546,609) Non-cashInvesting, Capital and Financing Activities Gifts-In-Kind $ 14,897,437 $ 17,637,757 Net Change in Unrealized Gains and Losses 15,807,051 2,611,496 See accompanying notes tofinancial statements. 15

60 T HE U NIVERSITY OF KANSAS N OTES T o THE FINANCIAL STATEMENTS For the Years Ended June 30, 2009 and 2008 NOTE I - SUMMARY OF SIGNIFI CANT ACCOUNTING POLICIES The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, with the exception of GASB Statement No. 39, Determining Wheth er Certain Organizations Are Component Units. The University has made the decision not to include the Kansas University Endowment Association (KUEA) with in the Univers ity's financial statements. The financial statements have not been audited. In preparing financial statements in conformity with generally accepted accounting principles. management is required to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure ofcontingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Organization. The University of Kansas (the " University") is a comprehensive institution providing undergraduate, graduate, and professional education in a variety of academic programs. The University is a Public DoctorallResearch University - Extensive and is accredited by the North Central Association of Colleges and Schools. The University is governed by the Kansas Board of Regents and is an agency of the State of Kansas. As an agency of the State of Kansas, the University is included in the audited financial report ofthe State ofkansas. The University conducts education, research, public service, and related activities at four campuses: the campus in Lawrence, Kansas, the Edwards Campus in Overland Park, Kansas, and the medical center campuses in Kansas City, Kansas and Wichita, Kansas. For fall 2008, the Lawren ce and Edwards's campuses had an undergraduate enrollment of 20,811 and a graduate/first professional enrollment of 6,188. The Medical Center had an undergraduate enrollment of 52 1 and a graduate/first professional (including medical residents, fellows and trainees) enrollment of 2,582. Enrollment at all campuses was 30,102 students. Financial Reporting Entity. As required by accounting principles generally accepted in the United States of America, these financial statements present the combined financial position and financial activities of the University's four campuses and the following blended component units for which the University is financially accountable: the University of Kansas Center for Research, Inc. (KUCR), Kansas Athletics, Inc. (Athletics), the University ofkansas Memorial Corporation (KU Unions), the University ofkansas Medical Center Research Institute (RI), the Student Union Corporation of the University ofkansas Medical Center, and Kansas University Health Partners, Inc. The financial activity and balances of the Kansas University Endowment Association (KUEA), the Kansas University Alumni Association, Kansas University Physicians, Inc. (KUPI) and the University of Kansas Hospital Authority are not included in the financial statements of the Unive rsity as they are legally separate entities and the University does not appoint a voting majority of their governing bodies. In preparing the financ ial statements, all significant transacti ons and balances between campuses and blended component units have been eliminated to avoid overstatement of 1) revenues and expenses on the Statement of Revenues, Expenses, and Changes in Net Assets, and 2) balances on the Statement ofnet Assets. Basis of Accoun ting. For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accord ingly, the University's financial statements have been presented using the economic resources measurement focus and the accrua l basis of accounting. Under the accrual basis, revenues are recognized when earned, and expenses are recorded when an obligation has been incurred. All significant intra-agency transactions have been eliminated. The University has the option to apply all Financial Accou nting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The Universi ty has elected to not apply FASB pronouncements issued after the applicable date. 16

61 N OTES T o THE FINANCIAL STATEMENTS For the Years Ended June 30, 2009 and 2008 Cash Eq uivalents. For purposes of the Statement of Cash Flows, the University considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At certain times, some of the University's component units maintain cash balances in excess of FDIC limits. Management has evaluated the fmancial stability of these financial institutions and feels the risk to the component units is minimal. Investments. The University accounts for its investments at fair value in accordance with GASB Statement No. 31, Accounting and Financial Reporting fo r Certain Investments and fo r External Investment Pools. Changes in unrealized gain (loss) on the canying value of investments are reported as a component of investment income in the Statement of Revenues, Expenses, and Changes in Net Assets. Accounts Receivable. Accounts receivable consists of tuition and fees charged to students and auxiliary enterprise services provided to students, faculty, and staff. Accounts receivab le also include amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement ofallowable expenditures made pursuant to the University's grants and contracts. Accounts receivable are recorded net of estimated uncollectible amounts. Inventories. Inventories are carried at cost. Prepaid Expenses. Prepaid expenses consist primarily of deferred charges related to revenue bond issuances as well as deferred summer school expenses. Ca pital Assets. Capital assets are recorded at cost at the date of acquisition, or fair market value at the date ofdonation in the case of gifts. For equipment, the University's capitalization policy includes all items with a unit cost $5,000 or more, and an estimated useful life greater than one year. Renovations to buildings, infrastructure, and land improvements that significantly increase the value or extend the usefu l life of the structure are capitalized if the related project cost exceeds $100,000. Routine repairs and maintenance are charged to operating expense in the year in which the expense was incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, 25 years for land improvements, 8 years for equipment, and 5 years for vehicles. Depreciation for buildings and infrastructure is computed using a componentized building and infrastructure depreciation study. Note - The estimated. useful lives used by the blended component units for equipment and building improvements, ranging from 5 to 15 years, vary slightly from the University's policy. The financial impact of the variation is considered to be immaterial to the financials statements as a whole. Costs incurred during construction of long-lived assets are recorded as construction in progress and are not deprec iated until placed in service. The University capitalized $514,908 and $399,948 in interest during 2009 and 2008, respectively. Defer re d Revenues. Deferred revenues include amounts received for tuition and fees and certain auxiliary activities prior to the end of the fiscal year but related to the subsequent accounting period. Deferred revenues also include summer school tuition not earned during the current year and amounts received from grant and contract sponsors that have not yet been earned. Compensated Abse nces. Employee vacation pay is accrued at year-end for financial statement purposes. The liability and expense incurred are recorded at year-end as accrued compensated absences in the Statement of Net Assets, and as an expense in the Statement of Revenues, Expenses, and Changes in Net Assets. Deposits Held In Custody For Others. Deposits held in custody for others consist primarily of student organizations ' moneys administered by the University. Noncur rent Liabilities. Noncurrent liabilities include principal amounts of notes and revenue bonds payable, capital lease obligations with contractual maturities greater than one year, and estimated amounts for accrued compensated absences and accrued other postemployment benefits that will not be paid within the next fiscal year. 17

62 N OTES T o T HE FINANCIAL STATEMENTS For the Years Ended June 30, 2009 and 2008 Net Asset s. The University's net assets are classified as follows: Invested in capital assets, net a/related debt: This represents the University's total investmen t in capital assets. net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred hut not yet expended for capital assets, such amounts are not included as a component of" invested in capital assets, net of related debt." Restricted net assets - nonexpendable: Restricted nonexpendable net assets consist of endowment and similar type funds in which dono rs or other outside sources have stipulated, as a condition of the gift instrumen t, that the principal is to be maintained inviolate and in perpetuity, and invested for the purpose of producing present and future income. which may either be expend ed or added to principal. Restricted net assets - expendable: Restricted expendable net assets include resources for which the University is legally or contractually oblig ated to spend in accordance with restrictions imposed by external third parties. Unrestricted net assets: Unrestricted net assets represent resources derived from student tuition and fees, state appropri ations, and sales and services of educational departments. These resources are used for transactions relating to the educational and general operations ofthe University, and may be used at the discretion of the governing board to meet current expenses for any purpose. These resour ces also include auxiliary enterprises. which are substantially self-supporting activities that provide services for students. faculty. and staff. Tax Status. As a state institution of higher education. the income of the University is generally exempt from federal and state income taxes under Section 115(a) of the Internal Revenue Code; however, income generated from activities unrelated to the University 's exempt purpose is subj ect to income taxes under Internal Revenue Code Section 511(a)(2)(B). Classification of Revenu es. The University has classified its revenues as either operating or nonoperating rev enues according to the following criteria: Op erating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as I) student tuition and fees. net of scholarship discounts and allowances, 2) sales and services of auxiliary enterprises. 3) most federal. state. and local grants and contracts. and 4) interest on institutional student loans. Nonoperating revenues: Nonoperating revenues include activi ties that have the characterist ics of nonexchange transactions. such as gifts and contri butions. and other revenue sources that are defined as nonoperating revenues by GASB Statement No.9, Reporting Cash Flows ofproprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting. and GASB Statement No. 34. such as state appropriations and investment income. Scholarship Discounts and Allowances. Student tuition and fee revenu es. and certain other revenues from students, are reported net ofscholarship discounts and allowances in the Statement of Revenues, Expenses. and Changes in Net Assets. Scholarship discounts and allowances are the difference between the stated charge for goods and services provided by the University. and the amount that is paid by students and/or third parties making payments on the studen ts' behalf. Certain governmental grants, such as PeB grants. and other federal, state, or nongovernmental programs, are recorded as either operati ng or nonoperating revenues in the Univers ity's financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges. the University has recorded a scholarship discoun t and allowance. Contributions. Unconditional promises to give cash and other assets are accrued at estimated fair value at the date each promise is received. Reclassifications. Certain reclass ifications hav'e been made to the 2008 financial statements to conform to the 2009 financial statement presentation. These reclassifications had no effect on the change in net assets. 18

63 N OTES T o T HE FINANCIAL STATEMENTS Forthe Years Ended June 30, 2009 and 2008 NOTE 2 - DEPOSITS SUMMARY OF CARRYING VAL UES The carrying values of depositsand investments shown below are included in the Statement ofnet Assets as follows: Carrying value: Deposits Investments Included in the following Statement ofnet Assets line items: Cashand cash equivalents Investments Restricted cash and cash equivalents (non-current) Endowment investments (non-current) Other investments (non-current) s ,818, ,318, ,136,725 $,-...;;.:.;===- s 198,907,737 93,798,125 3,112,238 59,36 7,268 19,951, ,136,725 $-==~ s s 177,859, ,304, , 163, ,727, ,733,544 5,419,791 74,328,453 7,954, , t63,657 At June 30, 20 09, the University carried dep osits as sho wn below: Investment TYpe Cash deposits with State Treasury Cash deposits withfinancial institutions Certificates of deposit Money market funds Fair Value s 159,950,170 19,045,236 11,314,360 2,508,373 s 192,818,139 The deposits reflected abo ve were held by the fo llowing entities as of June 30: KU Lawrence and Edwards Campuses s 120,891,969 s 107,487,380 Kansas Athletics, Inc. 5,143,142 8,244,759 KU.Center for Research, Inc.* (470,250) (1,575,786) KU Memorial Corporation 1,997,765 2,144,023 KU Medical Center 41,307,656 41,299,338 KU Medical Center Research Institute 22,501,234 18,734,640 Student Union Corporation ofkumc 1,148,556 1,121,512 Kansas University HealthPartners, Inc. 298, ,565 s 192,818,139 s 177,859,431.. The University' of Kansas Center for Research, Inc. utilizes an overnight repurchase agreement for its bank deposits to maximize investment return. At June 30, 2009 and 2008, the overnight repurchase agreement amounted to $8,018,494 and $7,815,778, respectively, and itscarrying value is included in the investments above. The repurchase agreement balance is included in "cash and cash equivalents" on the Statement of Net Assets at year-end. The negative deposit book balance noted above is primarily the result of outstanding checks. 19

64 N OTES To THE F INANCIAL S TATEMENTS For the Years Ended June 30, 2009 and 2008 State law requires the University (Lawrence Campus, Edwards Campus, and the Medical Center campuses - in Kansas City and Wichita) to deposit the majority of its cash balances with the state treasurer, who holds and invests the funds. The exceptions to this law are any funds maintained in the University' s imprest fund, organizational safekeeping, revenue bond project and reserve funds. and any fund s held by external entities on behalf ofthe University. Cash balances maintained by the state treasurer are pooled and are held in a general checking account and other special purpose bank accounts. The available cash balances beyond immediate need are pooled for short-term investment purposes by the Pooled Money Investment Board (PMIB) and are reporte d at fair value, based on quoted market prices. The majori ty of University deposit balances not maintained by the state treasurer are covered by FDI C or collateralized. The University does not have a forma l deposit policy regarding custodia l credit risk. However, management has evaluated the financi al stability of the financial institutions involved and feels the custodial credi t risk is minima l. NOTE 3 - INVESTM ENTS At June 30, 2009, the University carried investments as shown below: Investment Type US Treasury obligations US Agency obligations Corporate bonds Fixed mutual funds Domestic stock Foreign stock Preferred stock Equity mutual funds Limited liability companies Other Repurchase agreements Guaranteed investment contracts Pooled Money Investment Board (PMIB) External investment pools KUEA Short-term Investment Program KUEA Long-term Investme nt Program Fair Value $ 5,190,924 28,774,693 2,433, ,893 3,492, , ,987 3,84 1, , ,246 9,957,744 21,451,628 1,977,102 14,955,272 88,158,883 $ 182,318,586 The investm ents reflected above were held by the following entities as of June 30: 20

65 NOTES T o THE FINANCIALSTATEMENTS For the Years Ended June 30, 2009 and 2008 INVEST M ENT POLICY State statutes gove rn the University's investment policies. For investments related to the University 's re venue bon ds, state statutes permit cash balances to be invested as permitted by bond documents and bond covenants. The Kansas Development Finance Authority (KDFA) manages the University ' s revenue bond investments. Allowable investments include: U.S. Government obligations Obligation s of gov ern ment-sponso red agencies Federal funds, unsecured certi ficates of deposit, time depo sits, and banker' s acceptances Dep osits - fully insured by FDIC Certain State or municipal debt obligations Certain pre-refunded municipal obligations Commercial paper Investments in money market funds Repurchase agree ments Stripped securities Investments in the Mun icipal Investment Pool Fund Investment agreements Guaran teed investment contracts State statutes also govern the investment policies of the P:rvIIB. The primary objectives are to attain safety.jiquidity, and yield. Allowable investments for State pooled moneys not held in Kan sas financial institutions are as follows: Direct obligations of, or obligations that are insured as to principal and interest by, the U.S. Go vernm ent or any direct agency thereof, with maturities up to four years Obligations and securities of United States sponsored enterprises that under federa l law may be accepted as securi ty for publi c funds. Moneys available for investments shall not be invested in mortgage-backed sec urities of such enterprises, whi ch include the Governmen t National Mortgage Association Repurchase agreements with Kansas banks or with primary government securities dealers Interfund loans to various State agenc ies as mandated by the Kan sas Legislature limited to not more than the lesser of 10 percent or $80,000,000 of total investments Certain Kansas agency and IMPACT Act projects and bonds Linked deposit loans for agricultural production not to exceed $55,000,000 High grade commercial pape r The Finance Committee of the Kansas University End owment Association (KUEA) Board of Trustees oversees investments in KUEA's inves tment programs: The Finance Committee develops guideli nes and procedures for investment programs, in accordance with the policies established by the Executive Committee. The KUEA Short-term Investment Program is designed for short-term, highly liquid investing needs. KUEA invests the idle cash balances in individual fund accounts by pooling them into a short-term investment program to produ ce a net investment yield. The total investment yield, less distribution s of earnings to certain accounts, is retained by KUEA and is allocated to the unrestricted net asset classification to defra y administrative costs. The KUEA Long-term Investment Program is designed for invest ing endowed funds and other types offunds with similar long-term objectives. These funds are collec tively invested in a diversified long-term portfolio that is professionally managed by firms chosen by KUEA for their expertise in specialized portfolio management. Funds participating in the long-term investmen t portfolio receive regular distributions tha t are avai lable for immediate spending in accordance with KUEA' s established spendi ng policy. 2 1

66 N OTES T o T HE FINANCIAL S TATEMENTS For the Years Ended June 30, 2009 and 2008 The Executive Committee as well as the Finance and Audit Committee of KUCR oversee KUCR investments. Per KUCR investment policy, investments are limited to money market funds, U.S. Treasury obligations (Bills, Notes, Bonds), U.S. Government Agency obligations, corporate obligations rated ' A-' or better, and stocks sold on maj or international exchanges such as NYSE, ASE, and NASDAQ. Asset allocation targets are reviewed quarterly by the Finance and Audit Committee. Athletics investment policy limits investments to money market accounts, certificates of deposit, U.S. Treasury obligations (Bills, Notes, Bonds), and investments with KUEA. KU Unions does not have a formal investment policy. Operational reserves are invested in short-term certificates of deposit or government securities as directed by the Executive Board. The Board of Directors and Finance Committee of KUMC Research Institute (RI) oversee the RI' s investm ent policy. Per RI investment policy, investments are actively managed by either individual investment management firms with direct ownership of the financial investments held by the RI, or within a mutual fund. Financial advisors are selected by the Finance Committee and approved by the Board of Directors. Approved financi al advisors make quarterly presentations to the Finance Committee and overall performanc e is reviewed annually. RI investment policy also sets investment quality standards for specific investments (e.g. U.S. Treasury or Agency obligations, corporate obligations rated ' A-fA3' or better, and no m ore than 10% of portfolio in international equities or emerging markets). INTEREST RATE RISK Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The University does not have a formal investment policy that leverages investment maturities as a means of managing its expo sure to fair value losses arising from changing interest rates. The University has historically held its fixed income securities until maturity, thus limiting the University's interest rate risk exposure. For revenue bond investments managed by KDFA, due to the tax-exempt status of the bonds, it is generally the practice of KDFA and University management to match reserve fund interest rates to the arbitrage yield on the bonds, and the term of the investments to the maturity of the bonds. For invested loan funds, KDFA generally invests to maximize the interest rate and sets a term of investment based on estimated expenditures, which is generally 3-5 years. 22

67 N OTES T o T HE F INANCIAL STATEMENTS For the Years Ended June 30, 2009 and 2008 The University had the following investments and maturities at June 30, 2009: Investment Type Investments with Maturity Date: US Treasury obligations US Agency obligations Corporate bonds Repurchase agreements Guaranteed investment contracts Pooled Money Investment Board External investment pools KUEA Short-leon investment program Investments not subject to maturity dates: Fixed mutual funds Domestic stock Foreign stock Preferred stock Equity mutual funds Limited liability companies Other External investment pools KUEA Long-term investmentprogram** Total Fair Value s 5, 190,924 28,774,693 2,433,623 9,957, ,451,628 1,977,102 14,955,272 s 84,740, 986 $ 656,893 3,492, , ,987 3,84 1, , ,246 88, 158,883 97,577;600 $182,318,586 KUEA'5 Long-term investmentprogram is invested in approximately 80%equities (no maturity date). CREDIT RISK Credit risk is the risk that an issue r or other counter party to an investment will not fulfill its obligations. The Univers ity holds investments that may have credit risk since the underlying securities may include securities other than those that take the fonn of U.S. Treasuries or oblig ations explic itly guaranteed by the U.S. government. Certain investments have an underlying collateral agreement. As ofjune 30, 2009, the University held the following investments as rated by Standard and Poor' s and/or Moody ' s: CreditQuality Rating Fair Value % of Total AANGovt s 52,850, % AAA 252, % AA 343, % A 3,387, % BBB 240, % BB 12, % B 1,750, % Not Rated 123,480, % s 182,318, % The investments included in the "Not Rated" category include investments in KUEA 's Short-term and Long-term Investment Programs (external investment pools are not required to be rated), the State' s Pooled Money Investment Board (PMIB), as well as the University' s bond related guaranteed investment contracts and repurchase agreements managed by KDFA. 23

68 N OTES T o T HE FINANCIAL STATEMENTS For the Years Ended June 30, 2009 and 2008 CUSTODIAL CREDIT RISK The custodial credit risk for investments is the risk that. in the event of the failure ofthe counter party, the University will not be able to recover the value of the investments that are in the possession of an outside party. Custodial credit risk should not be confused with market risk, which is the risk that the market value of a security may decline. The University's investment securities are exposed to custodial credit risk if the securities are uninsured and unregistered and held by the counterparty, or by its trust department or agent but not in the University's name. The investment policies of the University and its component units do not formally address custodial credit risk. Nonetheless, the University's custodial credit risk is estimated to be minimal due to several factors. First, investments in external investment pools and in open-end mutual funds are not exposed to custodial credit risk because their existence is not eviden ced by securities that exist in physical or book entry form. As noted above, the majority of the University's investments are invested within KUEA's Short-term and Long-term Investment Programs. Second, management has evaluated the stability of the financial institutions through which other investments are made. Generally the financial institutions are members of the Depository Trust Company (DTC), the world's largest depository and a member of the Federal Reserve System. DTC holds and provides asset servicing for securities deposited with the DTC by DTC participants. DTC facilitates settlement of transactions through electronic book-entry transfers and pledges between the DTC participants' accounts. This eliminates the need for physical movement of sec urities certificates. Additionally the financial institutions hold the assets in custody or trust so that they would not be available to the institution' s creditors because they are excluded from the assets of the custodian. The Rl has made minimal investments directly in limited partnerships, which would have some custodial risk. The balance of these investments as of June 30, 2009 and 2008 was $534,416 and $535,703, respectively. CONCENTRATION OF CREDIT RISK Concentration of credit risk is the risk of loss attributed to the magnitude of a gov ernment's investment in a single issuer that exceeds 5 percent or more of its total investments. Investments issued or explicitly guaranteed by the U.S. Government and investments in mutual funds, external investment pools, and other pooled investments are excluded from this requirement. The University does not have a formal policy regarding the concentration of credit risk. Howe ver, management has evaluated the financial stability of the financial institutions involved and feels the credit risk is minimal. Of the University of Kansas' total investments of $182,318,586 and $189,304,226 as of June 30, 2009 and 2008, respectively; the University of Kansas Endowment Association administers $103,114, 155 and $126,300,501 respectively. The Kansas Development Finance Authority invests $6,483,055 and $6,498,618 million of the total as of June 30, 2009 and 2008, respectively. These monies represent bond proceeds and reserve requirements. The University investments also include $11,795,449 and $14,252,960 of investments administered by outside trustees as of June 30, 2009 and 2008, respectively. These investments consist of three accounts: 1) the Gertrude S. Pearson Trust, 2) the Elizabeth M. Watkins Trust for Watkins and Miller Scholarship Halls, and 3) the Elizabeth M. Watkins Trust for Watkins Hospital. The Gertrude S. Pearson Trust had a reported market value of $7,448,477 at June 30, 2009 and $8,907,181 at June 30, The trustee is Bank ofamerica. The Elizabeth M. Watkins Trust for Watkins and Miller Scholarship Halls had a reported market value of $2,825,028 at June 30, 2009 and $3,427,830 at June 30, The trustee is Bank ofamerica. The Elizabeth M. Watkins Trust for Watkins Hospital had a reported market value of $1,521,944 at June 30, 2009 and $1,917,949 at June 30,2008. The trustee is Bank of America. The remaining investments consist of $69,925,927 and $42,252, 147 invested in a combination of short-term and long-term investments, primarily US Agency obligations 24