$13,450,000 KANSAS DEVELOPMENT FINANCE AUTHORITY Revenue Bonds Series 2011C (University of Kansas Housing System Project)

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1 NEW ISSUE RATINGS: See BOND RATINGS herein In the opinion of Gilmore & Bell, P.C., Bond Counsel, under existing law and assuming continued compliance with certain requirements of the Internal Revenue Code of 1986, as amended (the Code ),(1) the interest on the Bonds (including any original issue discount properly allocable to an owner thereof) 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, (2) the interest on the Bonds is exempt from all Kansas state, county and municipal taxes, including income, inheritance and property taxes (provided, however, that no opinion is expressed with respect to the applicability of the privilege tax imposed on banking institutions pursuant to K.S.A and ), and (3) the Bonds have not been designated as qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. See the caption TAX MATTERS. Dated: Date of Delivery $13,450,000 KANSAS DEVELOPMENT FINANCE AUTHORITY Revenue Bonds Series 2011C (University of Kansas Housing System Project) Due: May 1, as shown on the inside cover page The Series 2011C Revenue Bonds referenced above (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 the Bonds will be made in book-entry form. See THE BONDS Book-Entry Only System 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, 2011, 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. 291 adopted by the Authority on April 19, 2011 (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, 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, 2011 (the Pledge Agreement ), among the Authority, the University and the Board of Regents of the State of Kansas (the Board ). Amounts paid to the Authority 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 special counsel and disclosure counsel, Kutak Rock LLP, 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 18, The date of this Official Statement is May 5, 2011.

2 $13,450,000 KANSAS DEVELOPMENT FINANCE AUTHORITY Revenue Bonds Series 2011C (University of Kansas Housing System Project) SERIAL BONDS Maturity May 1 Principal Amount Interest Rate Yield CUSIP (1) 2012 $ 385, % 0.550% FU , FV , FW , FX , FY , FZ , GA , GB , GC , GD , GE , GF , GG , GH , GJ , GK , GL , GM , GN8 TERM BONDS $4,475, % Term Bonds Due May 1, 2036 Yield: 4.600% CUSIP (1) : GU2

3 KANSAS DEVELOPMENT FINANCE AUTHORITY Brett A. Reber, Chair Audrey H. Langworthy, Vice Chair Suchitra Padmanabhan, Member Patti Petersen-Klein, Member Tim Shallenburger, Ex-officio Member and 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 Gary Sherrer, Chair Ed McKechnie, Vice Chair Jarold Boettcher Janie Perkins Christine Downey-Schmidt Mildred Edwards Richard Hedges Tim Emert Dan Lykins BOARD OF REGENTS STAFF Andy Tompkins, 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. Jeffrey S. Vitter, Executive Vice Chancellor/Provost, Lawrence Campus Theresa Gordzica, Chief Business & Financial Planning Officer PROFESSIONAL SERVICES Bond Counsel Gilmore & Bell, P.C. Disclosure Counsel Kutak Rock LLP Bond Registrar and Paying Agent Treasurer of the State of Kansas Financial Advisor Columbia Capital Management, LLC

4 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).

5 TABLE OF CONTENTS INTRODUCTION... 1 ESTIMATED SOURCES AND USES OF FUNDS... 2 THE BONDS... 2 General... 2 Book-Entry Only System... 3 Security for the Bonds... 3 Redemption... 4 Selection of Bonds to be Redeemed... 5 Paying Agent s and Bond Registrar s Duties to Redeem Bonds... 5 Notice of Redemption... 5 Effect of Call for Redemption... 5 Debt Service Requirements... 6 INVESTMENT CONSIDERATIONS... 6 No Pledge of Real or Personal Property... 6 Revenues May be Further Pledged or Restricted... 6 Limitation of Liability... 7 Special Obligations... 7 Taxation of Interest on the Bonds... 7 Market for the Bonds... 8 Legal Matters... 8 Limitations on Remedies Available to Owners of the Bonds... 8 Premium on the Bonds... 8 Suitability of Investment... 8 THE AUTHORITY... 9 THE KANSAS BOARD OF REGENTS UNIVERSITY OF KANSAS FINANCIAL INFORMATION OF THE UNIVERSITY THE PROJECT The Housing System The Project LITIGATION The Authority The University BOND RATINGS CONTINUING DISCLOSURE LEGAL MATTERS TAX MATTERS Opinion of Bond Counsel Other Tax Consequences FINANCIAL ADVISOR UNDERWRITING MISCELLANEOUS APPENDIX A THE UNIVERSITY APPENDIX B UNIVERSITY OF KANSAS ANNUAL FINANCIAL REPORT (JUNE 30, 2010) (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 Page

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7 $13,450,000 KANSAS DEVELOPMENT FINANCE AUTHORITY Revenue Bonds Series 2011C (University of Kansas Housing System Project) 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 2011C (University of Kansas Housing System Project) (the Bonds ). The Bonds are being issued pursuant to Bond Resolution No. 291 adopted by the Authority on April 19, 2011 (the Bond Resolution ). The Bonds are being issued for the purpose of (i) financing a portion of the costs of redeveloping, renovating and equipping a portion of Gertrude Sellards Pearson residence hall (the Project ) located on the Lawrence, Kansas campus of the University of Kansas (the University ), which is a part of the University s student housing system and (ii) paying certain costs of issuance. The Authority is a public body politic and corporate and 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 issue its revenue bonds to finance the Project, which is to be owned by the Kansas Board of Regents (the Board ) and operated by the University. See THE AUTHORITY herein. Pursuant to the Pledge of Revenues Agreement, dated as of May 1, 2011 (the Pledge Agreement ), by and among the Authority, the University and the Board, the University has pledged the Revenues (defined herein) 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. 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.

8 ESTIMATED SOURCES AND USES OF FUNDS The proceeds to be received from the sale of the Bonds are estimated to be applied as follows: Sources of Funds Principal Amount of the Bonds $13,450, Net Original Issue Premium/(Discount) (23,852.50) TOTAL $13,426, General Uses of Funds Deposit to Project Account $13,075, Costs of Issuance 208, Underwriters Discount 142, TOTAL $13,426, 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. 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 the 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, 2011 (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. The 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 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. 2

9 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; and (b) 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. 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. 3

10 Redemption Optional Redemption. The Bonds maturing in the years 2012 to 2021, 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 2022 and thereafter may be called for redemption and payment prior to maturity on May 1, 2021 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 Redemption. The Bonds maturing on May 1, 2036 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: Year Principal Amount 2031 $665, , , , , ,000 Maturity date. 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 4

11 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 in such equitable manner as the Authority 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. 5

12 Debt Service Requirements Schedules of the principal and interest payable annually on the Bonds and on other debt obligations of the University payable from the Revenues of the University are set forth in Appendix C hereto. For a description of other debt obligations of the University payable from the Revenues, see the caption FINANCIAL INFORMATION OF THE UNIVERSITY University Debt Obligations Obligations Payable from Revenues Pledged in Appendix A hereto. 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. No Pledge of Real or Personal Property The pledge of the Trust Estate does not constitute a pledge of the Project or 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, 2010 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 other future indebtedness of the Board or the University, which additional indebtedness may be on a parity with the Bonds. 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 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 Revenues 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. The amount of Restricted Revenues can also be increased 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 6

13 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. Taxation of Interest on the Bonds An opinion of Bond Counsel will be obtained to the effect that interest earned on the 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 Bonds includable in gross income for Federal income tax purposes. The Authority, the 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 Bonds, to comply with the provisions of the Code, including those which require the Authority or Board to take or omit to take certain actions after the issuance of the Bonds. Because the existence and continuation of the excludability of the interest on the Bonds depends upon events occurring after the date of issuance of the 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 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 Bonds to become includable in gross income for Federal income tax purposes as of the date of issuance. 7

14 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 University 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 University 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. 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 the 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 Bonds is more valuable to high income 8

15 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. THE AUTHORITY The Authority is a public body, politic and corporate, and 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: 9

16 NAME OFFICE TERM PRINCIPAL OCCUPATION AND PLACE OF BUSINESS Brett A. Reber Audrey H. Langworthy Chair Member Vice Chair Member 12/15/06 to 1/15/11 5/02/03 to 1/15/11 6/11/10 to 1/15/13 1/29/04 to 1/15/13 Attorney McPherson, Kansas Community Volunteer Prairie Village, Kansas Suchitra Padmanabhan Member 2/2/10 to 1/15/13 Partner, BC Capital Topeka, Kansas Patti Petersen-Klein Member 3/17/11 to 1/15/15 Advisory Counsel, KCC Topeka, Kansas Tim Shallenburger Ex-officio Member 1/10/11 to present President Kansas Development Finance Authority Topeka, Kansas There is currently one vacancy on the Board. 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 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 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. 10

17 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 and Salina; Wichita State University; Emporia State University; Fort Hays State University; and Pittsburg State University. Revenue bonds for State universities under the control of the Board have been issued for various purposes. All outstanding revenue bonds are secured by rentals, student fees and other revenues for various projects at the respective institutions. Shown below are the principal balances of revenue bonds outstanding at December 31, 2010, for institutions under the jurisdiction of the Board. These balances are exclusive of revenue bonds previously issued which have been refunded or defeased prior to their maturities. Kansas Board of Regents Revenue Bonds Outstanding December 31, 2010 Outstanding Principal Amount Emporia State University $ 24,830,000 Fort Hays State University 7,300,000 Kansas State University 193,955,000 Pittsburg State University 34,705,000 University of Kansas 269,875,000 Wichita State University 22,225,000 Total $552,890,000 In addition, as of December 31, 2010 the Authority also has outstanding three series of its Kansas Development Finance Authority Revenue Bonds (Kansas Board of Regents Comprehensive Rehabilitation and Repair Project), including Series 1997G-1, Series 2001F and Series 2004F, in the aggregate principal amount of $14,624,313. Such bonds were issued for the purpose of paying a portion of the costs of construction, rehabilitation, repair and equipping of various facilities located on one or more institutions under the control and supervision of the Board. These revenue bonds are secured by annual appropriations of the State made to the Comprehensive Rehabilitation and Repair Fund of the Board from the Kansas Educational Building Fund, a special revenue fund of the State funded by a one mill property tax levy on tangible property in the State. 11

18 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, 2010 is set forth in Appendix B. FINANCIAL INFORMATION OF THE UNIVERSITY The Annual Financial Report of the University for the fiscal year ended June 30, 2010, which was prepared by the University and has not been audited, is set forth as Appendix B hereto. Information from the Annual Financial Report of the University is included in certain audited financial statements of the State of Kansas which are a part of the State of Kansas s Comprehensive Annual Financial Report (the State CAFR ). However, the State CAFR does not separately state financial information for the University. No separate audited financial statements have been prepared by the University in the past and none are anticipated to be available in the future. Certain summary financial information of the University for the six months ended December, 2010 is included in Appendix A hereto such information should be read in connection with the Annual Financial Report of the University for the year ended June 30, 2010 set forth in Appendix B hereto. The Housing System THE PROJECT The University currently provides on-campus housing for 3,400 students in eight large residence halls; twelve small cooperative scholarship halls housing about fifty students each; the Jayhawker Towers apartment complex consisting of 300, two-bedroom units in four high-rise buildings; and a student family neighborhood featuring twenty-five two-story multi-apartment buildings serving a capacity of approximately 5,200 students and their families. Sunflower Apartments, also located near campus, provides twenty-five duplex apartments used as short-term housing for faculty and staff and guests of the University. The Project Gertrude Sellards Pearson Hall ( GSP ) was built in 1955 and currently serves as a women s residence hall. It encompasses 96,970 GSF total on four floors and a basement. There are currently 232 rooms with 428 total bed spaces in GSP. The Project will consist of the renovation of GSP, including all student rooms and public spaces, excluding the recently renovated main lobby. The dining center and kitchen will also be renovated in the lower level. The building will be made accessible and brought into compliance with current codes. The design process and resulting project will also address energy conservation and sustainability issues. Following renovation, the building will be co-ed rather than the current single sex (female) residence hall, with the housing capacity reduced to 374 bed spaces. The Authority The renovation of GSP is currently in progress and is expected to be completed by July LITIGATION There is not now pending against the Authority any litigation restraining or enjoining the issuance or delivery of the Bonds or questioning or affecting the validity of the Bonds or any proceedings or 12

19 authority under which the Bonds are to be issued or the transactions contemplated by the Pledge Agreement or the Bond Resolution. The University No litigation, proceedings or investigations are pending or, to the knowledge of the University, threatened against the University, except litigation involving claims which, if adversely determined, will not, in the opinion of the counsel to the University, materially and adversely affect the financial condition of, the operations of, or revenues generated by, the University, the Project or the transactions contemplated by the Pledge Agreement or the validity of the Bonds or the Pledge Agreement. 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 Aa1. A report outlining the basis for the rating by each rating agency will be issued by such rating agency in connection with the issuance of such ratings and a copy may be obtained by contacting the applicable rating agency. Such ratings reflect only the view of such rating agencies, and an explanation of the significance of such ratings may be obtained from the applicable rating agency. The ratings are not a recommendation to buy, sell or hold the Bonds. 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, if in the judgment of the agency originally establishing such rating, circumstances so warrant. Any downward revision or withdrawal of any rating may have an adverse affect on the secondary market price and liquidity 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 beginning with the fiscal year ended June 30, 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, 2010) 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 designated its Electronic Municipal Market Access system, found at as the 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. Neither the University nor the Authority has failed in any material way to comply with any previous undertakings pursuant to the SEC Rule. For the form of the Disclosure Undertaking, see Appendix E to this Official Statement. 13

20 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, TAX 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 special counsel and disclosure counsel, Kutak Rock LLP, 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. 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 In the opinion of Gilmore & Bell, P.C., Bond Counsel, under the law existing as of the issue date of the Bonds: Federal Tax Exemption. The interest on the Bonds (including any original issue discount properly allocable to an owner thereof) is excludable from gross income for federal income tax purposes. Alternative Minimum Tax. Interest on the Bonds is not an item of tax preference for purposes of computing 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. Kansas Tax Exemption. The stated interest on the Bonds is exempt from all Kansas state, county and municipal taxes, including income, inheritance and property taxes; provided, however, that no opinion is expressed with respect to the applicability of the privilege tax imposed on banking institutions pursuant to K.S.A and Bank Qualification. The Bonds have not been designated as qualified tax-exempt obligations for purposes of Section 265(b) of the Code. 14

21 Bond Counsel s opinions are provided as of the date of the original issue of the Bonds, 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 Bonds in gross income for federal and Kansas income tax purposes retroactive to the date of issuance of the Bonds. Bond Counsel is expressing no opinion regarding other federal, state or local tax consequences arising with respect to the Bonds, but has reviewed the discussion under the heading TAX MATTERS Other Tax Consequences. The proposed form of Bond Counsel s opinion is attached as Appendix F. Other Tax Consequences Original Issue Discount. For federal income tax purposes, original issue discount ( OID ) is the excess of the stated redemption price at maturity of a bond over its issue price. The issue price of a Bond is the first price at which a substantial amount of the 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 Bond during any accrual period generally equals (1) the issue price of that Bond, plus the amount of OID accrued in all prior accrual periods, multiplied by (2) the yield to maturity on that 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 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 Bond. Prospective investors should consult their own tax advisors concerning the calculation and accrual of OID. Original Issue Premium. If a Bond is purchased at a price that exceeds the stated redemption price at maturity of the bond, the excess of the purchase price over the stated redemption price at maturity constitutes premium on that Bond. Under Section 171 of the Code, the purchaser of that Bond must amortize the 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 Bond and the amount of tax exempt interest received will be reduced by the amount of 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 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. Sale, Exchange or Retirement of Bonds. Upon the sale, exchange or retirement (including redemption) of a 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 Bond (other than in respect of accrued and unpaid interest) and the owner s adjusted tax basis in the Bond. To the extent the Bonds are held as a capital asset, such 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. Reporting Requirements. In general, information reporting requirements will apply to certain payments of principal, interest and premium paid on the Bonds, and to the proceeds paid on the sale of the 15

22 Bonds, other than certain exempt recipients (such as corporations and foreign entities). A backup withholding tax will apply to such 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. Collateral Federal Income Tax Consequences. Prospective purchasers of the Bonds should be aware that ownership of the 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 Bonds. Bond Counsel expresses no opinion regarding these tax consequences. Purchasers of 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 Bonds, including the possible application of state, local, foreign and other tax laws. 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 May 5, 2011 the Authority received eight bids for the Bonds. The Bonds have been sold at public sale by the Authority to Wells Fargo Bank, National Association (the Original Purchaser ) on the basis of lowest true interest cost. The Original Purchaser has agreed, subject to certain conditions, to purchase the Bonds at a purchase price equal to the initial offering prices shown on the inside cover page hereof, less an underwriter s discount of $142, 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 16

23 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 Series 2011C 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. (Remainder of page intentionally left blank) 17

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 18

25 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. Dr. Bernadette Gray-Little began her appointment as Chancellor of the University on August 15, She is assisted by Dr. Jeffrey S. Vitter, Executive Vice Chancellor/Provost for the Lawrence campus. 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 20 American public universities in the number of freshman National Merit Scholars enrolled. In , the University conferred 31.5% of the bachelor s degrees, 32.1% of the master s degrees, 63.4% of the doctorate-research/scholarship degrees and 78.8% 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 2010 exceeded $334 million. Enrollment at the University s Lawrence campus today exceeds 26,200, and the school employs 5,342 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 2011, the operating budget of the University is estimated at $1 billion, 24.64% of which is funded from State appropriations and 26.33% 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

26 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 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 KU, 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 KU s already high scholarly profile, and securing the resources needed for students and the university to succeed as three of her initial goals for KU. Dr. Jeffrey S. Vitter, Executive Vice Chancellor/Provost. Dr. Jeffrey S. Vitter became the Executive Vice Chancellor and Provost of the University of Kansas on July 1, Dr. Vitter served as provost and executive vice president for academic affairs and as a professor in the Department of Computer Science and Engineering at Texas A&M University. Dr. Vitter was responsible, as the chief academic officer of Texas A&M University, for 2,700 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, Dr. Vitter served as the Frederick L. Hovde Dean of the College of 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 of the Department of Computer Science as well as co-director and a founding member of Duke s Center for Geometric and Biological Computing. His educational degrees include a B.S. with highest honors in mathematics from the University of Notre Dame in Indiana, a Ph.D. in computer science from Stanford University in A-2

27 California and an MBA from Duke University in North Carolina. Dr. Vitter has been named a Guggenheim Fellow, an ACM Fellow, an IEEE Fellow, an AAAS Fellow, an NSF Presidential Young Investigator and a Fulbright Scholar. 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 KU 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 for the Fall semesters 2006 through University of Kansas Lawrence Campus Faculty Information Academic Years Ending Number Full-Time Faculty 1,160 1,169 1,191 1,185 1,179 Number Part-Time Faculty Number Tenured Faculty Average Age of Faculty NA NA NA NA NA Percent of Tenured Faculty 56% 55% 55% 55% 56% Full-Time Percent with Terminal Degree (1) 96% 96% 96% 96% 95% Student-Faculty Ratio (1) (1) The University is using the US News definition for terminal degree and student/faculty ratio. University of Kansas Medical Center Faculty Information Academic Years Ending (2) Number Full-Time Faculty (4) 833 (4) Number Part-Time Faculty Number Tenured Faculty Average Age of Faculty Percent of Tenured Faculty (1) 73% 75% 71% 73% 74% Percent Holding Terminal Degrees 89% 90% 89% 92% 92% Student-Faculty Ratio (3) NA NA NA NA NA (1) Percent of tenured faculty reflects percent of tenure eligible faculty who have attained tenure - does not include clinical and other non tenure eligible faculty. (2) These are preliminary numbers. (3) FTE for students is not calculated for the University of Kansas Medical Center. (4) In these years, full-time faculty counts include Internal Medicine Cardiologists and Emergency Medical Service faculty. A-3

28 Student Body and Enrollment The University has a coeducational student body with approximately 68% of students having resident status and 32% having nonresident status, based on Fall 2010 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, (1) Federal IPEDS 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. (3) Includes visiting trainees. University of Kansas Lawrence Campus Student Headcount Fall Semesters, Fall Semester Total Students Residents Non- Residents Undergraduate Graduate First Professional Other ,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 6,414 (1) 1,759 (1), (3) ,462 20,164 9,298 20,330 7,300 (1) 1,063 (1), (3) 769 Fall Semester Total Students Residents Non- Residents Undergraduate Graduate/First Professional ,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, ,266 18,147 8,119 19,852 6,414 (Remainder of page intentionally left blank) A-4

29 University of Kansas Medical Center Student Headcount Fall Semesters, Fall Semester Total Students Residents Non- Residents Undergraduate Graduate First Professional Other (2)) ,840 1, (3) ,918 2, (3) ,103 2, , (3) ,178 2,059 1, (1) 1,028 (1), (3) ,196 2,017 1, (1) 1,063 (1), (3) 769 (1) Federal IPEDS 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 For the next few years the Kansas high school graduating classes are expected to decline based on Western Interstate Commission on Higher Education s (WICHE) projections. Therefore, the University projects a small decrease in enrollment for the near future. University of Kansas Projected Student Headcount Fall Semesters, Actual* / Estimated Fall Semester Headcount ,462* , , , ,960 (Remainder of page intentionally left blank) A-5

30 Full Time Equivalent Student Enrollment University of Kansas Lawrence Campus Projected Student Headcount Fall Semesters, Actual* / Estimated Fall Semester Headcount ,266* , , , ,760 University of Kansas Medical Center Projected Student Headcount Fall Semesters, Actual* / Estimated Fall Semester Headcount ,196* , , , ,200 The following table is a history of full time equivalent (FTE) students for the Fall semesters 2006 through 2010 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 ,942 18,722 5, ,831 18,471 5, ,503 18,990 5, ,340 18,731 5, ,988 18,136 5,852 For the 2010 Fall semester, 92% of first time freshmen applications were accepted and 39% of those applicants enrolled. The one-year retention rate for the Fall 2009 full-time, first-time degreeseeking freshmen is 78%. A-6

31 First Time Freshmen Applications, Acceptances and Enrollments Fall Semesters, Fall Fall Fall Fall Fall Fall Applications Received 10,445 10,240 10,367 10,902 10,653 10,157 Applications Accepted 9,553 9,472 9,554 10,003 9,740 9,397 % Accepted 91% 93% 92% 92% 91% 92% Students Enrolled 4,201 4,153 4,084 4,483 3,942 3,702 % of Acceptances Enrolled 44% 44% 43% 45% 40% 39% 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 71% 77% 78% 84% 81% 78% Admitted, but cancelled 20% 16% 14% 8% 11% 14% Total admitted 91% 93% 92% 92% 91% 92% 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 (Remainder of page intentionally left blank) A-7

32 Room and Board The following table summarizes the annual room and board fees for an academic year for the University of Kansas Lawrence campus. Approximately 3,161 students will reside in residence halls for the academic year. There are no student housing facilities at the University of Kansas Medical Center campus. University of Kansas Lawrence Campus Annual Room and Meals Academic years, Room (standard) $2,752 $2,997 $3,224 $3,386 $3,554 $3,642 Meals 2,750 2,750 2,920 3,088 3,248 3,340 Total $5,502 $5,747 $6,144 $6,474 $6,802 $6,982 Geographic Representation of Students For the 2010 Fall semester, the majority of the University s students were Kansas residents. All of 105 Kansas counties, all 50 states, D.C., and 1 U.S. Territory, and 112 different countries were represented in the student population. University of Kansas Geographic Representation Fall Semester 2010 Total Students: 29,462 Kansas 19,668 Other States 7,449 International 2,345 Undergraduates: Kansas 14,842 Other States & International 5,488 Graduates & Professionals: Kansas 4,826 Other States & International 4,306 (Remainder of page intentionally left blank) A-8

33 Degrees Awarded In the past five years, the University has awarded the following undergraduate, graduate and professional degrees. University of Kansas Degrees Awarded Academic years, Bachelor s 3,774 3,927 3,997 4,097 4,156 Master s 1,460 1,351 1,429 1,481 1,484 Specialist PhD s Law (JD) Pharmacy (PharmD) Medicine (MD) Audiology (AuD) Nursing (DNP) Physical Therapy (DPT) Total 6,033 6,078 6,213 6,354 6,465 Tuition and Fees The University of Kansas, Lawrence campus, has replaced the cost study peers (the University of Colorado; the University of Iowa; the University of North Carolina; the University of Oklahoma; and the University of Oregon) for the AAU-16 Comparison group. This peer group includes: the University of Colorado; the University of Illinois; Indiana University; the University of Iowa; Iowa State University; University of Michigan; Michigan State University; the University of Minnesota; the University of Missouri; the University of Nebraska; The Ohio State University; Purdue University; the University of Texas; Texas A&M University; and the University of Wisconsin. The University of Kansas, Medical Center campus continues to use the cost study peers as their comparison group. 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 groups for those years. Between the Fiscal Years 2007 and 2011, tuition and fees at the University of Kansas have increased 29% for resident undergraduates and 28% for resident graduates, and 26% for non-resident undergraduates and 27% 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-9

34 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 AAU-16 Institutions Academic Years Resident Undergraduates AAU-16 Average w/out KU KU as % of AAU-16 Average Non-Resident Undergraduates AAU-16 Average w/out KU KU as % of AAU-16 Average University of Kansas University of Kansas 2007 $6,153 $7, % $15,123 $20, % 2008 $6,600 $8, % $16,107 $21, % 2009 $7,042 $8, % $17,119 $22, % 2010 $7,414 $9, % $18,097 $24, % 2011 $8,025 $9, % $19,008 $25, % Resident Graduates Non-Resident Graduates Academic Year University of Kansas AAU-16 Average w/out KU KU as % of AAU-16 Average University of Kansas AAU-16 Average w/out KU KU as % of AAU-16 Average 2007 $6,089 $8, % $13,660 $19, % 2008 $6,531 $8, % $14,557 $20, % 2009 $6,969 $9, % $15,476 $21, % 2010 $7,339 $10, % $16,357 $22, % 2011 $7,950 $10, % $17,448 $23, % Resident Law Students AAU-16 Average w/out KU KU as % of AAU-16 Average Non-Resident Law Students AAU-16 Average w/out KU KU as % of AAU-16 Average Academic Year* University of Kansas University of Kansas 2007 $11,097 $17, % $20,560 $30, % 2008 $12,595 $19, % $22,627 $32, % 2009 $14,148 $22, % $24,781 $34, % 2010 $14,948 $24, % $26,221 $37, % 2011 $16,068 $26, % $27,940 $39, % *Based on 30 hours. (Remainder of page intentionally left blank) A-10

35 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 Peer Average w/out KUMC Medical Center KUMC as % of Peer Average Medical Center Peer Average w/out KUMC 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, % 2011 $7,413 $8, % $18,845 $22, % KUMC as % of Peer Average Resident Graduates Non-Resident Graduates Academic Year Peer Average w/out KUMC Medical Center KUMC as % of Peer Average Medical Center Peer Average w/out KUMC 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, % 2011 $7,334 $10, % $16,983 $21, % Academic Year Resident First-Year Medical Students Medical Center Peer Average w/out KUMC KUMC as % of Peer Average KUMC as % of Peer Average Non-Resident First-Year Medical Students Medical Center Peer Average w/out KUMC KUMC as % of Peer Average 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, % 2011 $26,917 $25, % $47,337 $51, % 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 A-11

36 In the normal course of the University s budget process, it proposes tuition increases to the Board on an annual basis and plans to do so this year. Historical tuition information can be found on pages A-10 and A-11 under the caption Tuition and Fees Schedule of Tuition and Comparison to Cost Study Peer Institutions. 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, 2008, 2009 and 2010 as well as estimates of the numbers of recipients and dollar amount of financial aid assistance for the academic year ending June 30, Most students who receive Federal financial assistance receive multiple types of Federal financial assistance. The total number of students receiving unduplicated financial aid assistance is shown below. University of Kansas Schedule of Financial Aid Assistance to Students Academic Years Ending June 30, Actual 2009 Actual 2010 Actual 2011 Estimated Total Students Enrolled (Headcount) 29,260 30,102 30,004 29,462 Number of students receiving financial aid assistance, by category: Federal assistance recipients 13,319 13,712 14,603 14,975 State assistance recipients 2,110 2,128 2,576 2,643 Institutional scholarship recipients 11,109 11,482 12,089 12,398 Other scholarship recipients 4,929 4,851 4,189 4,293 Total students receiving financial aid assistance (excluding Federal assistance) 12,298 12,736 12,959 13,315 Total (unduplicated) number of students receiving financial aid assistance 18,095 18,721 18,944 19,459 Amount of assistance by category: Federal assistance $153,293,135 $167,104,107 $194,418,949 $200,727,583 State assistance 7,504,123 7,622,021 7,827,133 8,197,564 Institutional scholarships 57,716,664 62,152,931 63,651,335 65,319,199 Other scholarships and assistance 23,838,331 25,847,093 23,148,240 23,855,281 Total amount of assistance to students $242,352,253 $262,726,152 $289,045,657 $298,099,627 (Remainder of page intentionally left blank) A-12

37 University of Kansas Lawrence Campus Schedule of Financial Aid Assistance to Students Academic Years Ending June 30, Actual 2009 Actual 2010 Actual 2011 Estimated Total Students Enrolled (Headcount) 26,342 26,999 26,826 26,266 Number of students receiving financial aid assistance, by category: Federal assistance recipients 11,998 12,388 13,240 13,604 State assistance recipients 1,941 1,934 2,389 2,455 Institutional scholarship recipients 9,892 10,233 10,976 11,278 Other scholarship recipients 4,172 4,428 3,682 3,783 Total students receiving financial aid assistance (excluding Federal assistance) 12,061 12,484 12,722 13,072 Total (unduplicated) number of students receiving financial aid assistance 16,432 17,004 17,200 17,673 Amount of assistance by category: Federal assistance $123,604,960 $136,343,024 $161,012,247 $165,440,084 State assistance 2,420,119 2,341,736 2,438,792 2,505,859 Institutional scholarships 52,970,259 57,625,625 58,899,463 60,519,199 Other scholarships and assistance 19,976,074 21,382,922 19,095,352 19,620,474 Total amount of assistance to students $198,971,412 $217,693,307 $241,445,854 $248,085,616 (Remainder of page intentionally left blank) A-13

38 University of Kansas Medical Center Schedule of Financial Aid Assistance to Students Academic Years Ending June 30, Actual 2009 Actual 2010 Actual 2011 Estimated Total Students Enrolled (Headcount) 2,918 3,103 3,178 3,196 Number of students receiving financial aid assistance, by category: Federal assistance recipients 1,321 1,324 1,363 1,371 State assistance recipients Institutional scholarship recipients 1,217 1,249 1,113 1,120 Other scholarship recipients Total students receiving financial aid assistance (excluding Federal assistance) Total (unduplicated) number of students receiving financial aid assistance 1,663 1,717 1,744 1,786 Amount of assistance by category: Federal assistance $29,688,175 $30,761,083 $33,406,702 $35,287,499 State assistance 5,084,004 5,280,285 5,388,341 5,691,705 Institutional scholarships 4,746,405 4,527,306 4,751,872 4,800,000 Other scholarships and assistance 3,862,257 4,464,171 4,052,888 4,234,807 Total amount of assistance to students $43,380,841 $45,032,845 $47,599,803 $50,014,011 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 May. 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. A-14

39 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 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 analyze and review 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 individual agency budgets, 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-thirds 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. An executive branch allotment system is applicable to reduce expenditures under certain circumstances for any fiscal year in which the resources of the state general fund or any special revenue fund appear likely to be insufficient to cover appropriations. Pursuant to this allotment system, State appropriations to the University were reduced for the fiscal year ending June 30, 2010 to the amount reported in the table below. 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 the University. (Remainder of page intentionally left blank) A-15

40 Comparison of State Appropriations to Tuition and Fees and Other Revenue Sources FY 2006 FY 2011 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 2006 $256,068,553 $184,436,491 $561,514,666 $1,002,019, % 18.41% 56.04% ,007, ,503, ,288,466 1,049,799, % 18.72% 55.85% 2008 (1) 280,091, ,417, ,546, ,056, % 21.64% 50.10% ,890, ,175, ,619,561 1,007,685, % 22.74% 49.38% ,624, ,231, ,580,101 1,077,436, % 21.83% 53.98% 2011 (2) 261,130, ,040, ,410,000 1,059,580, % 26.33% 49.02% Source: University Comptroller s Office (1) Due to changes in organizational structure in FY2008, Kansas University Physicians, Inc. is no longer considered a related component unit to the University and was therefore excluded from the University s financial statements. (2) 2011 amounts are budgeted amounts. FINANCIAL INFORMATION OF THE UNIVERSITY The fiscal operations of the University constitute an extensive business operation. State appropriations for University operations from the State General Fund for Fiscal Year 2011 total $261 million and the University estimates that tuition revenues will be $279 million. These are the two main sources of funds for general University operations. The total operating budget for the University, for the fiscal year ending June 30, 2011 is $1.059 billion. The total revenues for the University, including Federal grants and contracts, auxiliary enterprises, and capital improvements for the fiscal year ending June 30, 2010 was over $1.077 billion. Appropriations for Fiscal Year 2011 are almost 12% below the original Fiscal Year 2009 appropriations due largely to the economic climate of the state and the nation. For Fiscal Year 2011, total appropriations for higher education are at the Fiscal Year 2006 funding level which is the lowest funding level allowed under the American Recovery and Reinvestment Act (ARRA) State Fiscal Stimulus Fund (SFSF). As a result, no further funding cuts are anticipated in Fiscal Year For Fiscal Years 2009 through 2011, the University was allocated $28.6 million of ARRA SFSF funds that were used for deferred maintenance ($17.3 million) and tuition mitigation or one-time operating expenses ($11.3 million). The University expects, but can make no assurance, that the Fiscal Year 2012 State appropriation will be reduced by about 1.2% from the budgeted Fiscal Year 2011 State appropriation based on proposed budget legislation. Actual expenditure information for the consolidated financial statements is not available at this time, but expenses are anticipated to be at or below actual revenues generated, as expenses are managed to match revenues at the department and fund levels. 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 institutions. The most currently available University of Kansas Annual Financial Report (for the A-16

41 fiscal year ended June 30, 2010) 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 for the years ended June 30, 2010 and June 20, 2009 which follows is excerpted from the University of Kansas Annual Financial Report for the fiscal year ended June 30, 2010 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 column are a part of Restricted Revenues, as defined in the Bond Resolution, and are not pledged to the payment of the Bonds. University of Kansas (including affiliated corporations) Revenues Pledged and Restricted Revenues Six Months Ended December 31, 2010 Restricted Total Revenues (2) Revenues (3) Tuition and Fees $ 141,600,000 $ 5,900,000 $135,700,000 State Appropriations (4) 137,600,000 7,200, ,400,000 Auxiliaries: Housing (5) 10,700,000 10,700,000 - Parking (5) 5,200,000 5,200,000 - All Other Sources 329,200, ,000, ,200,000 Total $ 624,300,000 $249,000,000 $375,300,000 Year Ended June 30, 2011 Budget Restricted Total Revenues (2) Revenues (3) Tuition and Fees $ 279,040,000 $ 10,420,000 $268,620,000 State Appropriations (4) 261,130,000 18,220, ,910,000 Auxiliaries: Housing (5) 20,940,000 19,870,000 1,070,000 Parking (5) 3,870,000 2,750,000 1,120,000 All Other Sources 494,600, ,800, ,800,000 Total $1,059,580,000 $386,060,000 $673,520,000 A-17

42 Year Ended June 30, 2010 Restricted Total (1) Revenues (2) Revenues (3) Tuition and Fees $ 235,231,646 $ 10,478,023 $224,753,623 State Appropriations (4) 260,624,941 24,148, ,476,130 Sales and Services 61,771,412 15,352,434 46,418,978 Other Operating Revenues 26,061,496 25,373, ,543 Gifts 39,183,506 9,170,801 30,012,705 Grants and Contracts (Federal, State & Nongovernmental) 250,654, ,654,410 - Auxiliaries: Housing (5) 20,873,757 17,973,757 2,900,000 Parking (5) 11,225,387 10,667, ,425 All Other Auxiliaries 113,008, ,008,865 - Other Non-Operating Revenues 58,801,268 58,801,268 - Total $1,077,436,688 $535,630,284 $541,806,404 Year Ended June 30, 2009 Restricted Total (1) Revenues (2) Revenues (3) Tuition and Fees $ 229,175,773 $ 8,519,519 $220,656,254 State Appropriations (4) 280,890,240 36,714, ,176,145 Sales and Services 56,145,169 9,933,326 46,211,843 Other Operating Revenues 19,408,133 9,395,004 10,013,129 Gifts 32,813,819 15,623,919 17,189,900 Grants and Contracts (Federal, State & Nongovernmental) 213,919, ,919,640 - Auxiliaries (1) (2) (3) (4) (5) Housing (5) 19,749,379 16,299,379 3,450,000 Parking (5) 9,689,301 9,089, ,000 All Other Auxiliaries 129,551, ,551,928 - Other Non-Operating Revenues 16,342,192 16,342,192 - Total $1,007,685,574 $465,388,303 $542,297,271 Total revenues of the University from the Statement of Revenues, Expenses and Changes in Net Assets on page 15 of the University of Kansas Annual Financial Report for the fiscal year ended June 30, 2010 in Appendix B to the Official Statement. The University has determined that these amounts are Restricted Revenues (as defined in the Bond Resolution). These amounts are the Revenues (as defined in the Bond Resolution) pledged by the University pursuant to the Pledge Agreement. Includes capital appropriations. To the extent University revenues pledged to specific bonds (such as housing and parking revenues) are transferred to a surplus fund that permits use of moneys for any lawful purpose, such excess portion of the revenues transferred to the surplus fund are presented as Revenues that are not restricted. A-18

43 University Debt Obligations General Description of 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, 2010 in Appendix B to the Official Statement. Subsequent to June 30, 2010, the University has incurred additional long-term obligations, including the $30,160,000 Kansas Development Finance Authority Revenue Bonds (University of Kansas Medical Center Research Institute, Inc. Project) Series 2010N and the $15,930,000 Kansas Development Finance Authority Sales Tax Revenue Bonds Series 2010P (Kansas Board of Regents University of Kansas Clinical Research Center Project). Obligations Payable from Revenues Pledged. In addition to the Bonds, obligations payable from the Revenues pledged to the payment of the Bonds include the following: Series 2009O Bonds. The $55,250,000 original principal amount of Kansas Development Finance Authority Lease Revenue Bonds Series 2009O (University of Kansas Hospital Authority Medical Office Building Project University of Kansas, Tenant) (the Series 2009O Bonds ) were issued on December 16, Debt service on the Series 2009O Bonds is payable from revenues of the University of Kansas Hospital Authority from lease payments made by the University from unrestricted revenues. Series 2010A Bonds. The $23,700,000 original principal amount of Kansas Development Finance Authority Revenue Bonds Series 2010A (Kansas Board of Regents - University of Kansas Housing System Project) (the Series 2010A Bonds ) were issued on January 28, Debt service on the Series 2010A Bonds is payable from the Revenues pledged by the University and is included in the table of debt service requirements in Appendix C to this Official Statement. The Series 2010A Bonds are also secured by a pledge of gross revenues of the housing system. Series 2010B Bonds. The $21,650,000 original principal amount of Kansas Development Finance Authority Revenue Bonds Series 2010B (University of Kansas Energy Conservation Program) (the Series 2010B Bonds ) were issued on January 28, Debt service on the Series 2010B Bonds is payable from the Revenues pledged by the University and is included in the table of debt service requirements in Appendix C to this Official Statement. Series 2010K Bonds. The $7,860,000 original principal amount of Kansas Development Finance Authority Revenue Bonds Series 2010K-1 (University of Kansas Projects) (the Series 2010K-1 Bonds ) and $7,190,000 original principal amount of Kansas Development Finance Authority Revenue Bonds Series 2010K-2 (University of Kansas Projects) (Build America Bonds Direct Payment to Issuer) (the Series 2010K-2 Bonds and, together with the Series 2010K-1 Bonds, the Series 2010K Bonds ) were issued on May 12, Debt service on the Series 2010K Bonds is payable from the Revenues pledged by the University and is included in the table of debt service requirements in Appendix C to this Official Statement. Series 2010N Bonds. The $30,160,000 original principal amount of Kansas Development Finance Authority Revenue Bonds (University of Kansas Medical Center Research Institute, Inc. Project) Series 2010N (the Series 2010N Bonds ) were issued on October 14, Debt service on the Series 2010N Bonds is payable from revenues of the University of Kansas Medical Center Research Institute, Inc. ( KUMCRI ). The University also covenanted to make available the unrestricted revenues of the University to pay debt service on the Series A-19

44 2010N Bonds if revenues of the Corporation are not sufficient to pay such debt service. However, the expected source of payment of the Series 2010N Bonds is revenues of KUMCRI. Planned Additional Debt Obligations At this time, the Kansas Legislature has not authorized additional debt obligations to be issued by the University. A renovation of the McCollum Residence Hall is planned to begin during the fiscal year ending June 30, 2013 and continue in three phases over three years. It is anticipated that the approximately $30 million total cost of the renovation project would be financed with the issuance of long-term debt obligations of the University, although the issuance of such obligations would require authorization by the Kansas Legislature. Pension Obligations Certain University employees participate in the Kansas Public Employees Retirement System ( KPERS ), a defined benefit plan which is funded through contributions by the University and the individual employees. The employer rate of contributions is determined under State law and the University pays the statutorily mandated contribution amount. The KPERS Comprehensive Annual Financial Report for its fiscal year ended June 30, 2010 indicates that as of December 31, 2009, the date of the most recent actuarial valuation described in the report, KPERS s funded ratio was 63.7% compared with a funded ratio of 58.8% for the prior year, and that the unfunded actuarial liability had decreased from $8.279 billion at December 31, 2008 to $7.677 billion at December 31, The Comprehensive Annual Financial Reports of KPERS are available by contacting KPERS at 611 S. Kansas Avenue, Suite 100, Topeka, Kansas (Remainder of page intentionally left blank) A-20

45 APPENDIX B UNIVERSITY OF KANSAS ANNUAL FINANCIAL REPORT (JUNE 30, 2010) (UNAUDITED)

46 (THIS PAGE LEFT BLANK INTENTIONALLY)

47 2010 Annual Financial Report

48 TABLE OF CONTENTS KANSAS BOARD OF REGENTS Kansas Board of Regents and Officers 1 Management s Discussion and Analysis 2 Statement of Net Assets 14 Statement of Revenues, Expenses, and Changes in Net Assets 15 Statement of Cash Flows 16 Notes to Financial Statements 18 Mildred Edwards Tim Emert Jarold Boettcher Ed McKechnie Gary Sherrer Richard Hedges Dan Lykins Janie Perkins Christine Downey-Schmidt EXECUTIVE OFFICERS Bernadette Gray-Little Chancellor Theresa Gordzica Chief Business and Financial Planning Officer Lawrence Campus Danny Anderson Interim Executive Vice Chancellor / Provost Diane H. Goddard Vice Provost for Administration & Finance Medical Center Campus Dr. Barbara Atkinson, M.D. Executive Vice Chancellor Harold E. Phillips Vice Chancellor for Administration R. Michael Keeble Associate Vice Chancellor of Finance Financial Officers Katrina Yoakum Comptroller, Lawrence Campus Robert W. Weseloh Controller, Medical Center 1

49 THE UNIVERSITY OF KANSAS 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 financial statements and related footnote disclosures has been prepared by management and should be 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 of when 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-expendable and expendable. The corpus of non-expendable 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 of the assets. 3. Unrestricted net assets are available to the University for any lawful purpose of the institution. Total assets at June 30, 2010 were $1,507.8 million, an increase of $135.0 million (10%). Capital net assets comprised 62%, or $939.6 million of the assets. Total liabilities were $574.0 million at June 30, 2010, an increase of $83.2 million (17%) compared to $490.8 million at June 30, Long-term liabilities comprised 69%, or $398.7 million of the liabilities. Total net assets at June 30, 2010 were $933.8 million, a $51.8 million increase over the prior year, or a 6% increase in net assets. The breakout of net assets is shown below: Capital Assets, net of related debt. $ 599,134,863 Restricted net assets 148,690,243 Unrestricted net assets 185,952,053 Total net assets $ 933,777,159 2

50 MANAGEMENT S DISCUSSION AND ANALYSIS The composition of current and non-current assets and liabilities and net assets is displayed below for both the 2010 and 2009 fiscal year-ends (in thousands): $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 Total Current Assets Total Non- Current Assets Total Current Liabilities Total Non- Current Liabilities Total Net Assets 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 $64.0 million, from $1,001.2 million to $1,077.4 million, an overall increase of 8%. Operating revenues at the University as of June 30, 2010 increased by 6% over the previous fiscal year from $677.6 million to $718.8 million. Overall operating revenues are very consistent with prior year as student enrollment remains relatively static in comparison to prior year and there were moderate tuition and fees increases. The following is a brief summary of the significant changes: Federal grants and contracts increased by $12.0 million from $150.5 million to $162.5 million in The majority of the increase is due to the federal funds received under the American Recovery and Reinvestment Act (ARRA funds) by the University received The Lawrence campus received $8.9 million and the Medical Center received $6.1 million, a total of $15 million for Non-governmental grants and contracts increased by $20.3 million (60%) from $34.1 million to $54.4 million in $19.3 million of the increase is additional funding received in 2010 by the KU Medical Center Research Institute as follows: $8 million for various remodeling projects from the F&A reserve account (deposits held in custody by others), $2 million from The University of Kansas Endowment Association for start-up funds for construction projects, and $0.8 million to establish the Institute for Advancing Medical Innovation. The remaining $10.8 million increase in non-governmental grants and contracts consists of increased private grants from several sources. Sales and services of educational department revenues increased $7.2 million from $54.6to $61.8 million, or A portion of the increase is the result of the Medical Center s sales and services of educational departments increasing 9.6%, $2.2 million over prior year. This increase is due to additional faculty support of $2.1 million received in 2010 from the Wichita Medical Practice Association and from the Stowers Institute. Lastly, the tuition revenue generated by the Applied English Center on the Lawrence campus increased $2.1 million due to an influx of international students in Athletic revenues were down 21% from the prior year from $82.8 million to $65.2 million. This decrease is due to a $19.6 million (55%) decline in contribution and grant revenues in the current year. The decrease in revenue is a timing issue. In previous years, Athletics sent out pledge forms for the annual giving to donors in late May or early June. This year the mailing did not go out until early July. Parking and transit increased $1.5 million (16%) in The Medical Center s parking revenue increased $1.1 million for a variety of reasons: a 5% increase in all parking rates at the beginning of 2010, the addition of a 3

51 MANAGEMENT S DISCUSSION AND ANALYSIS parking garage in 2009, with 2010 being the first full year of revenues, visitor parking rates increased 100%, and some lower rate lots were converted to higher rate lots. Other operating revenue increased $6.7 million (34%) from $19.4 million to $26.1 million in The increase is the result of the University receiving $9.2 million dollars in sales tax revenue from the Johnson County Education Research Triangle Authority (JCERTA) in FY JCERTA was created by an affirmative vote of the voters of Johnson County, Kansas on November 4, 2008 at the election held on such date pursuant to the provisions of the JCERTA Act. The 1/8 cent sales tax supports undergraduate and graduate programs at the Edwards campus of the University of Kansas, the research and education programs in animal health and food safety and security at the Johnson County location of Kansas State University and the medical education and life sciences and cancer research programs at the Medical Center s Johnson County location. Retailers began collecting the sales tax April 2009 and the first revenues were transferred to the universities in late June After the funds necessary to operate the JCERTA Board are deducted, the balance of the sales tax revenues is shared equally between the Edwards Campus of the University, the Medical Center, and Kansas State University. Total non-operating revenues increased 14%, from $290.3 million to $331.6 million in Following is a brief summary of the significant changes: Gifts increased $6.4 million from $32.8 million to $39.2 million, or 19%. Gifts received consisted primarily of support provided by Kansas University Endowment Association (KUEA). The increase in support in 2010 is primarily due to the increase in funds given to the University for capital projects from $2.5 million in 2009 to $7.3 million in Investment income increased by $28.9 million (326%), from ($8.9) million to $20.0 million in The University, as well as its component units, recognized significant unrealized & realized losses in the prior year. During the current year the University experienced significant net realized and unrealized gains. Non-operating Federal grants and contracts increased from $10.1 million to $16.4 million (62%) in The increase is the result of increased Federal Pell grant funding for all campuses. The level of activity of nonoperating Federal grants varies from year to year based upon federal budgets. Other non-operating revenue increased $12.0 million from ($6.5) million in 2009 to $5.6 million in During Fiscal Year 2009 the State of Kansas issued a mid-year budget rescission whereby the Lawrence and the Medical Center campuses were obliged to return state general funds to the State. In Fiscal Year 2009 the rescission amounted to $5.9 million versus $0.8 million returned in Fiscal Year 2010, a decrease in expenditures of $5.1 million. Additionally, a $6.1 million increase in other non-operating revenues occurred in Fiscal Year 2010 as a result of the Medical Center recording $6.1 million of land that had previously not been recorded. Other revenues included the following: Capital appropriations and capital gifts decreased from $32.8 million to $26.3 million (20%). The level of capital appropriations and capital gifts varies from year to year based upon the source of funding used for capital projects. The majority of this decrease was in capital appropriations. The majority of the University s larger construction projects in 2010 were funded via revenue bonds or other internal funding rather than private donations or capital appropriations from the State. 4

52 MANAGEMENT S DISCUSSION AND ANALYSIS The composition of these revenues is displayed in the following graph: Expenses Operating expenses were $1,007.0 million for the 2010 Fiscal Year, an increase over the prior year of $40.5 million (4%). Overall operating expenses were very consistent with prior year. Following is a brief summary of the significant changes: Research increased $24.2 million (12%) from $201.1 million to $225.3 million in The increase is attributable to the fact that the University recognized a significant increase in non-governmental grants and contracts revenue (16%) in 2010 and that the University also expended $15.2 million in federal ARRA funds. Scholarships and fellowships increased $7.0 million (30%) from $23.6 million to $30.6 million in The increase is due primarily to increases in Federal Pell grant expenses of $6.6 million (58%). The University s Federal Pell grant funding for all campuses increased 62% in 2010 and expenditures increased accordingly. The level of activity of Federal Pell grants varies from year to year based upon federal budgets. Parking and transit expenses increased 21% in 2010 from $5.6 million to $6.8 million. The increase is partially attributed to increased operating expenses related to the new Medical Center parking garage. Other items that contributed to the increase were increased lot maintenance and increased expenses related to operating a transit system on the Lawrence campus. Other operating expenses increased $2.1 million (136%) from $1.5 million to $3.6 million in Other operating expenses include a variety of sources and the level of activity of these expenses varies from year to year. Non-operating expenses consists of interest expense which increased 26% from $14.8 million to $18.7 million in 2010 due to increased bond debt the University incurred over the past year. 5

53 MANAGEMENT S DISCUSSION AND ANALYSIS The composition of total expenses, including operating and non-operating, is displayed below: Extraordinary Items The University did not have any special and/or extraordinary items in 2010 or Endowment Expenses Paid On Behalf of University 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 travel. Total University support provided by KUEA equaled approximately $112.9 million and $100.5 million in 2010 and 2009, respectively. The following support items totaling $30.9 million are reflected in the University s statements for Capital Projects. KUEA sponsored many capital projects throughout the year with a combined approximate value of $7.3 million. The major capital projects that benefited from KUEA s fundraising efforts included renovations to the chancellor s residence of $0.5 million, the Learned Hall at $0.3 million, the Medical Center s surgery administration offices at $0.9 million, renovations to Hemenway Research Building of $1.9 million and the Medical Center s research support facility at $0.4 million. KUEA also donated land for the Medical Center s new clinical research building valued at $1.4 million. Salaries and other operating expenses. KUEA reimbursed the University approximately $23.6 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. 6

54 MANAGEMENT S DISCUSSION AND ANALYSIS Net Assets Net assets increased by $51.8 million (6%) over the previous fiscal year. This significant increase can primarily be attributed to the continued support of the University via capital and non-capital gifts during 2010 as well as increased research revenue. STATEMENT OF CASH FLOWS The Statement of Cash Flows presents cash receipts and payments of the University during a period of time. 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 of cash flows for the years ended June 30, 2010 and 2009: CASH FLOWS FOR THE PERIOD (In thousands of dollars) June 30, 2010 June 30, 2009 Net cash provided (used) by: Operating activities $ (234,372) $ (224,840) Non-capital financing activities 322, ,420 Capital and related financing activities (42,388) (59,826) Investing activities 26,902 2,118 Net increase in cash 72,842 21,872 Beginning cash and cash equivalent balances 202, ,148 Ending cash and cash equivalent balances $ 274,862 $ 202,020 Cash flows from operating activities will always be negative since GASB requires state appropriations to be reported as cash flows from non-capital financing activities. Cash flows from capital financing activities include all plant funds and purchase investments and all increases in cash and cash equivalents from the sale of investments, and the earnings on cash and investments. Cash used by operating activities increased $9.5 million (4%). This increase in the use of cash is the result of the University s operating expenses increasing slightly more than operating revenues (tuition and fees, grants and contracts, auxiliary income). Cash flows provided by non-capital financing activities increased by $18.3 million (6%) due primarily to an increase in gifts of $17.1 million in Cash used by capital and related financing activities decreased by $17.4 million (29%). This decrease is the result of a $57.7 million increase in cash from bond issuance proceeds, a $28.7 million increase in cash used to pay principal on bond debt and capital leases, as well as a $7.7 million decrease in proceeds received from capital appropriations Cash flows from investing activities increased $24.8 million. The increase in cash provided by investment activity is a result not reinvesting funds when instruments matured as the funds were needed for construction projects and debt reduction. CAPITAL ASSETS The University made significant investments in capital during the 2010 fiscal year. Detailed information regarding capital asset additions, retirements, and depreciation is available in Note 8 to the financial statements. 7

55 MANAGEMENT S DISCUSSION AND ANALYSIS The following is a brief summary of the construction projects that were completed during the current fiscal year: Beginning in January 2005, the Kansas Law Enforcement Training Center (KLETC) increased its total enrollment capacity to 120 officers in two simultaneous basic training programs. As a result of enrollment increases and other operational needs, KLETC expanded and renovated its training center facilities. The $15.8 million expansion project included a new dormitory, an emergency vehicle operations driver training course and garage, a tactical shooting building and multi-purpose space that can accommodate 120 individuals for shared classes or be subdivided as needed. The expansion of the existing Welch Hall Student/Staff dining hall as well as other campus site and infrastructure improvements was also included. The project was funded by revenue bonds issued in December 2007, and was completed in October The Jayhawker Towers complex was built in 1967 as privately owned housing and acquired by the University in The complex consists of four towers, each with approximately 75 apartments and 185 residents. After forty years of use, the buildings had major mechanical issues that needed to be addressed. Additionally, the amenities and aesthetics were outdated. The University plans to renovate all four buildings, starting with Towers A and D. For both financial and occupancy reasons, the renovations are best accomplished one tower at a time. The same mix of two-and-four-person apartments will be maintained. In addition to mechanical upgrades, the project included enhancements in lighting, data service, and life-safety systems. Final project costs were $8.1 million for Tower A and $4.2 million for Tower D. Tower A was completed August 2009, and Tower D was completed June During 2008, Athletics started a major renovation of Allen Fieldhouse which included a separate basketball practice facility, complete renovation of Parrott Athletic Center, and new basketball locker room areas for both the men's and women's teams. Also included in the project was a two level bridge between the parking garage and Allen Fieldhouse, as well as improvements to the Anderson Family Strength Center for the Student-Athlete Support Services program. This $37.3 million project was primarily financed by $32.8 million in bonds and was completed in October Additionally, the University was involved in several construction projects that were under construction or in planning and design phases at year-end: In response to Board of Regent s University deferred maintenance studies, the Lawrence Campus began a major overhaul of its utility tunnel system during fiscal year While various maintenance projects related to the tunnels occur routinely each year, the University staged the critical overhaul of the utility tunnel system into multiple phases. Phase II, in the amount of $8.8 million, was completed in FY 2010 and Phase III, budgeted at $900,000, was initiated. Phases II & III are a part of the $180 million in critical deferred maintenance identified by the Board of Regent s studies. These tunnel improvements are necessary to maintain the various universityowned utility systems routed through more than 16,000 feet of utility tunnels. The tunnel system is used to route steam and condensate piping from the central plant, portions of the campus electrical distribution system, communication 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 funds. In 2008, KU proposed an expansion of its School of Pharmacy in response to a growing shortage of pharmacists in the Kansas health care system. The expansion includes construction of a new building on the Lawrence campus and an additional floor on the Women s Research Institute Center for Primary Care building at the School of Medicine Wichita campus. The Phase One Teaching and Administration project will provide 110,000 gross square feet of new space, including a model pharmacy, integrated instructional labs, library and computer commons, student study spaces, lecture halls, 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 Pharmaceutical Chemistry, Medicinal Chemistry, and Pharmacology and Toxicology in a new location adjacent to the current Simons Bioscience buildings on KU's West Campus. The project was approved by the 2008 & 2009 legislatures. The projected cost of the project is $50.7 million and is financed via $45.6 million in state bonds and an additional $5.1 million from private sources. The State General Fund is responsible for the annual debt service on the revenue bonds. Construction will be completed in time for Fall 2010 classes. 8

56 MANAGEMENT S DISCUSSION AND ANALYSIS The Haworth Hall project replaces ten air handling units, controls 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. This 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 University Interest funds and is expected to be complete June The Malott Hall project will replace at least four 30-year old air-handling units and related controls. It will also replace approximately 50 exhaust hoods of similar vintage in order to better control chemical fume concentrations 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 Interest funds. Construction is expected to be completed in June The Murphy Hall project replaces HVAC components including the air handling units, building chiller, cooling tower and chilled water piping. It also replaces the electrical distribution system to branch panel boards. It includes an emergency generator for life safety systems; and also repairs or replaces deficient elevator equipment. The project is estimated to cost $4.5 million and is funded from the State s Infrastructure Maintenance Fund as well as University Interest funds and is expected to be completed June The Edwards Campus Business, Engineering, Science and Technology (BEST) building project includes the construction, improvement and equipping of the fourth building to be located on the 36-acre Edwards Campus in Overland Park, Kansas. The building will add 75,000 gross square feet to the approximately 160,000 square feet in three buildings which already exist on the Edwards Campus. The space will include media equipped classrooms, space for IT staff, computer equipment and faculty and administrative support spaces. Spaces used primarily for evenings and weekends for additional academic programs will be available during the day for business and community programs. The classrooms and computer labs are intended to serve the teaching and research needs for expansion of the curriculum in several different disciplines including business, engineering, science and technology. Bonds were sold for this project in May The debt service, as well as the operating costs of the facility, is funded with the JCERTA sales tax revenues. During 2010, the University entered into a contract to increase energy efficiency improvement to maximize the amount of facility upgrades that can be obtained from available budgeted funds. The end result is to leverage the substantial annual energy savings achieved through implementing campus-wide lighting retrofits, water conservation, energy management controls, steam system improvements and campus energy awareness and behavioral changes. The holistic solutions developed in these buildings includes replacement of air-handling units that were past their useful life, retro-commissioning of air-distribution systems, upgrade of exhaust hood systems that will reduce energy waste and greatly enhance occupant safety, and conversion from constant volume air-flow to variable-volume airflow which both saves energy and improves comfort. This project is estimated to cost $25.6 million and is funded by bond proceeds secured by unrestricted university revenues. The University of Kansas Transit Facility will be completed in December of 2010 as a facility to house the coordinated transit systems of KU on Wheels and the City of Lawrence Transit System. The 13 acre site is located in a nearby industrial area. The 18,000 square foot one-story building will provide offices for administration, dispatch, training functions, and maintenance facilities to include 6 maintenance bays, parts and fluids storage, an automated bus wash and a fueling station. Parking on site will support 96 staff vehicles and 100 buses. The project is estimated to cost $4.6 million and is funded by parking and transit auxiliary revenues and future space rental income of the new facility to the Lawrence transit system. During 2009 the Medical Center began working on a renovation of the Applegate Energy Center. The $4.0 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 Interest funds, and is expected to be completed during During 2010 the Medical Center began construction of a new parking garage. The total cost will be in excess of $7.9 million. The garage is expected to open in the later part of summer The project is funded by revenue bonds secured with a pledge of university unrestricted revenues. 9

57 MANAGEMENT S DISCUSSION AND ANALYSIS The Medical Center has acquired an existing office building in Fairway Kansas to house its clinical & translational research programs. In addition to housing the Heartland Institute for Clinical & Translational Research (HICTR), this facility is planned to accommodate clinical trials for cancer, as part of a University effort to achieve designation as a National Cancer Institute comprehensive cancer center. This project is estimated to cost $19.4 million and funded by bonds sold in May The debt service, as well as the operating costs of the facility, is funded with the JCERTA sales tax revenues. During 2009 the University of Kansas Medical Center Research Institute, Inc. began a $34.0 million project to renovate the Wahl Hixon Research Complex for Basic and Translational Cancer Research. The project is funded with a portion of the $26.4 million grant from the Kansas Bioscience Authority and by the issuance of bonds to be sold in October The funds from years 4 through 10 of the KBA grant will be used to pay debt service on the bonds, after which the debt service will be funded from unrestricted revenues of the KUMC Research Institute. DEBT ADMINISTRATION At June 30, 2010, the University had $365.8 million in revenue bond debt outstanding. In Fiscal Year 2010, the University issued new debt in the amount of $106.4 million for the following projects: $31.6 million for the School of Pharmacy Expansion Project which includes the construction of a new 111,700 gross-square-foot building on the Lawrence campus. $21.7 million to finance an energy performance contract at the Lawrence campus. $23.7 million to finance renovations to Jayhawker Towers as well as the refinancing KDFA series 2002A-1 and 1998D bonds and KDFA bond anticipation note. $21.0 million to finance construction of the BEST building on the Edwards Campus. $8.4 million for the construction of a new parking garage for the Medical Center. At June 30, 2009, the University had $288.8 million in revenue bond debt outstanding. In 2009, the University issued new debt in the amount of $58.9 million for the following projects: $21.1 million to finance the cost a portion of the School of Pharmacy Expansion Project at the Lawrence campus ($16.4 million) and to add an additional floor at the School of Medicine Wichita campus ($4.7 million). $5.0 million to finance the Jayhawker Tower project (bond anticipation note). $32.8 million issued by Athletics to finance a major renovation of Allen Fieldhouse and to construct a two level bridge between the parking garage and Allen Fieldhouse. In Fiscal Year 2010, the University paid $33.1 million in principal and interest payments related to all outstanding revenue bonds. 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 national economy, the State of Kansas economy is recovering slowly. As actual revenues fell short of revenue estimates prepared by the Consensus Revenue Estimating Group throughout Fiscal Year 2010 and the beginning of Fiscal Year 2011, the governor and state legislature face significant budget shortfalls. While support for higher education has been strong in recent years, the University s appropriations were held flat 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 Recovery and Reinvestment Act of 2009 (ARRA) without applying for a waiver from the US Department of Education. The University is preparing for potential reductions in fiscal year 2012 once the ARRA reduction limits are no longer applicable. Beyond the University s state appropriation reductions, the financial position of the University continues to be relatively strong. During the Fall 2010 semester, 29,462 students enrolled at KU. While enrollment was down by 542 students in comparison to Fall 2009, this decrease was anticipated and budgets were revised in anticipation of the decrease. The University has also seen a shift in the mix of students (resident versus non-resident) which resulted in an increase of higher revenue producing international and non-resident students. Based on Western Interstate Commission on Higher 10

58 MANAGEMENT S DISCUSSION AND ANALYSIS Education s (WICHE) projections Kansas high school graduation rates are expected to continue to decline for the next several years so the ability to attract non-resident students is increasingly important. The University has hired a university enrollment manager to oversee recruitment and enrollment. Enrollment for the academic year is expected to be comparable to with a continued decline in resident students being offset by an increase in non-resident students. As a result, tuition revenues are expected to remain strong. In 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 years for all incoming freshman. The goals of the program are to give students and their families the ability to plan and budget for four years, and to provide an incentive for students to complete their bachelor degree within four years. Students entering in the Fall 2010 represents the fourth class in this program. Since its creation the program has received positive feedback from students and their families. The University has also focused on the growing number of research opportunities that have been created by the American Recovery and Reinvestment Act. As of December 2010, the KU Center for Research, Inc. has been awarded 52 projects with a total award budget of $52.4 million. The KU Medical Center Research Institute has been awarded 57 projects with a total award budget of $16.3 million. The University was very successful in obtaining several large construction awards including a $12.3 million award from the National Institute of Standards and Technology Construction Grant Program (NIST) for the construction of an innovative green technologies research facility for the School of Engineering. There also has been continued strong state and regional support for life sciences and cancer initiatives that will position the University for future growth. One of the top priorities of the University continues to be achieving National Cancer Institutes recognition as a comprehensive cancer center. Finally the University will experience another significant change in leadership in fiscal year Dr. Jeffrey Vitter was named Provost and Executive Vice Chancellor effective July 1, Dr. Vitter was previously with Texas A&M University in College Station, Texas. Dr. Danny Anderson, who had been Interim Provost during fiscal year 2010, was named Dean of the College of Liberal Arts and Sciences. The University is not aware of any additional currently known facts, decisions, or conditions that are expected to have significant effect on the financial position or results of operations during this fiscal year beyond those unknown variations having a global effect on virtually all types of business operations. 11

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60 Financial Statements 13

61 THE UNIVERSITY OF KANSAS STATEMENT OF NET ASSETS AS OF JUNE 30, 2010 AND AS SETS Current assets: Cash and cash equivalents $ 268,018,802 $ 198,907,737 Investments 87,132,344 93,798,125 Accounts receivable, net 63,633,941 65,217,244 Pledges receivable, net 6,392,119 12,465,435 Loans to students, net 3,572,349 2,762,216 Inventories 7,872,064 7,791,288 Prepaid expenses and other assets 5,089,338 4,800,353 Total current assets 441,710, ,742,398 Non-current assets: Restricted cash and cash equivalents 6,843,523 3,112,238 Accounts receivable, net 966,910 - Pledges receivable, net 12,871,183 15,960,315 Endowment investments 67,223,600 59,367,268 Other investments 11,871,270 19,951,357 Loans to students, net 20,835,532 20,682,176 Prepaid expenses and other assets 5,839,685 3,889,939 Capital assets, net 939,633, ,100,069 Total non-current assets 1,066,085, ,063,362 Total assets 1,507,796,588 1,372,805,760 LIABILITIES Current liabilities: Accounts payable and accrued expenses 56,247,366 55,771,382 Deferred revenue 49,571,817 47,382,361 Deposits held in custody for others 18,704,325 19,626,832 Accrued compensated absences current portion 32,591,657 25,528,922 Capital leases payable - current portion 3,256,224 3,134,163 Notes payable current portion 311,040 77,288 Revenue bonds payable - current portion 14,745,000 18,000,000 Other liabilities 286, ,596 Total current liabilities 175,714, ,676,544 Non-current liabilities: Accrued compensated absences 6,018,497 8,604,862 Accrued other post-employment benefits 13,475,098 8,848,792 Capital leases payable 15,785,028 19,288,744 Notes payable 8,537,973 12,500,000 Revenue bonds payable 351,095, ,800,000 Other long-term liabilities 3,393,783 1,129,159 Total non-current liabilities 398,305, ,171,557 Total liabilities 574,019, ,848,101 NET ASSETS Invested in capital assets, net of related debt 599,134, ,898,900 Restricted for: Nonexpendable 57,091,387 57,848,938 Expendable: Scholarships, research, instruction and other 23,768,291 23,305,160 Loans 24,438,402 24,213,773 Capital projects 25,434,656 32,189,924 Debt service 17,957,507 21,221,898 Unrestricted 185,952, ,279,066 Total net assets $ 933,777,159 $ 881,957,659 See accompanying notes to financial statements. 14

62 THE UNIVERSITY OF KANSAS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS FOR THE YEARS ENDED JUNE 30, 2010 AND OPERATING REVENUES Tuition and fees (net of scholarship allowances of $30,861,913 in 2010 and $25,682,196 in 2009) $ 235,231,646 $ 229,175,773 Federal grants and contracts 162,483, ,452,052 State and local grants and contracts 33,757,271 32,003,449 Nongovernmental grants and contracts 54,413,208 31,464,139 Sales and services of educational departments 61,771,412 54,602,966 Auxiliary enterprises: Housing 20,873,757 19,749,379 Athletics 65,170,775 82,805,587 Parking and transit 11,225,387 9,689,301 Student unions 33,504,028 34,160,809 University health services 8,765,262 8,530,482 Other auxiliary enterprises 5,568,800 5,597,253 Other operating revenues 26,061,496 19,408,133 Total operating revenues 718,826, ,639,323 OPERATING EXPENSES Instruction 295,260, ,734,823 Research 225,298, ,084,728 Public service 31,407,842 34,616,408 Academic support 78,855,010 77,640,856 Student services 28,274,537 27,577,398 Institutional support 56,939,853 54,922,942 Operations and maintenance of plant 69,832,073 68,531,408 Depreciation 57,762,335 53,922,560 Scholarships and fellowships 30,638,935 23,647,076 Auxiliary enterprises: Housing 15,183,606 14,980,086 Athletics 65,339,463 61,048,759 Parking and transit 6,786,787 5,606,038 Student unions 30,300,361 31,847,769 University health services 7,262,647 7,717,471 Other auxiliary enterprises 4,214,744 5,084,232 Other operating expenses 3,608,797 1,530,716 Total operating expenses 1,006,966, ,493,270 Operating income (loss) (288,139,219) (288,853,947) NON-O PERATING REVENUES (EXPENSES) State appropriations 250,156, ,687,403 Gifts 39,183,506 32,813,819 Investment income 20,028,588 (8,873,863) Interest expense (18,650,996) (14,801,006) Federal grants and contracts 16,443,869 10,129,610 Other non-operating revenues (expenses) 5,771,715 (6,457,703) Net non-operating revenues (expenses) 312,933, ,498,260 Income before other revenues, expenses, gains, or losses 24,793,905 (13,355,687) Capital appropriations 10,468,499 18,202,837 Capital grants and gifts (expense) 15,788,449 14,572,149 Additions to permanent endowments 768, ,296 Increase (decrease) in net assets 51,819,500 19,933,595 NET ASSETS Net assets - beginning of year 881,957, ,024,064 Net assets - end of year $ 933,777,159 $ 881,957,659 See accompanying notes to financial statements 15

63 THE UNIVERSITY OF KANSAS STATEMENT OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2010 AND CASH FLO WS FRO M OPERATING ACTIVITIES Tuition and fees $ 233,057,256 $ 228,409,863 Sales and services of educational activities 59,844,466 54,802,492 Auxiliary enterprises: Housing 5,513,155 4,755,963 Athletics 6,573,558 10,952,645 Parking and transit 4,336,153 4,261,510 Student unions 1,670,304 1,031,255 University health services 1,602, ,101 Other auxiliary enterprises 1,463,714 (1,409,925) Grants and contracts 248,904, ,919,459 Payments to suppliers (177,744,107) (163,366,504) Payments to utilities (22,743,940) (25,490,346) Compensation and benefits (581,560,320) (550,366,191) Payments for scholarships and fellowships (30,117,556) (23,605,112) Loans issued to students and employees (5,190,004) (4,109,524) Collection of loans to students and employees 4,067,207 3,603,958 Other receipts (payments) 15,950,784 16,928,074 Net cash provided (used) by operating activities (234,371,946) (224,840,282) CASH FLO WS FRO M NONCAPITAL FINANCING ACTIVITIES State appropriations 250,156, ,687,403 Gift s 50,602,121 33,533,068 Agency transactions (81,560) (248,840) Federal education loan receipts 145,622, ,708,749 Federal education loan disbursements (144,593,811) (129,942,810) Non-operating grants and contracts 15,908,617 9,887,351 Other 5,086,476 (204,340) Net cash provided by noncapital financing activities 322,700, ,420,581 CASH FLO WS FRO M CAPITAL FINANCING ACTIVITIES Proceeds from capital debt 116,224,281 58,848,559 Capital appropriations 10,468,499 18,202,837 Purchases of capital assets (103,318,464) (99,779,553) Proceeds from sale of capital assets 109,138 68,474 Principal paid on capital debt and leases (43,922,661) (15,266,767) Interest paid on capital debt and leases (18,047,349) (14,883,729) Other (3,901,873) (7,015,730) Net cash used by capital financing activities (42,388,429) (59,825,909) CASH FLO WS FRO M INVESTING ACTIVITIES Proceeds from sales and maturities of investments 95,948, ,881,188 Interest on investments 9,280,184 14,099,851 Purchase of investments (78,326,796) (116,862,912) Net cash provided by investing activities 26,902,190 2,118,127 Net increase (decrease) in cash 72,842,350 21,872,517 Cash - beginning of the year 202,019, ,147,458 Cash - end of year $ 274,862,325 $ 202,019,975 16

64 STATEMENT OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2010 AND 2009 (CONTINUED) RECONCILIATION OF NET OPERATING REVENUES (EXPENS ES ) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: Operating income $ (288,139,219) $ (288,853,947) Adjustments to reconcile operating income (loss) to net cash provided (used) by operating activities: Non-cash revenue - - Depreciation expense 57,762,335 53,922,560 Other non-cash expenses 146, ,730 Changes in assets and liabilities: Accounts receivables, net 1,677,046 (5,268,426) Pledges receivable, net 9,162,448 (10,189,881) Loans to students, net (963,759) (385,397) Inventories (86,191) (865,658) Prepaid expenses and other assets (441,550) 373,783 Accounts payable and accrued liabilities (21,956,256) 21,214,034 Deferred revenue 2,189,456 1,095,494 Accrued compensated absences 1,651, ,859 Accrued other post-employment benefits 4,626,306 3,669,567 Net cash provided (used) by operating activities: $ (234,371,946) $ (224,840,282) Non-cash Investing, Capital and Financing Activities Gifts-In-Kind 15,411,301 14,897,437 Net Change in Unrealized Gains and Losses (9,742,048) 15,807,051 See accompanying notes to financial statements 17

65 THE UNIVERSITY OF KANSAS NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 NOTE 1 - SUMMARY OF SIGNIFICANT 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 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 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 of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 Doctoral/Research 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 of the State of Kansas. 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 2009, the Lawrence and Edwards s campuses had an undergraduate enrollment of 20,550 and a graduate/first professional enrollment of 6,276. The Medical Center had an undergraduate enrollment of 516 and a graduate/first professional (including medical residents, fellows and trainees) enrollment of 2,662. Enrollment at all campuses was 30,004 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 of Kansas Memorial Corporation (KU Unions), the University of Kansas Medical Center Research Institute (RI), the Student Union Corporation of the University of Kansas 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 University as they are legally separate entities and the University does not appoint a voting majority of their governing bodies. In preparing the financial statements, all significant transactions 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 of Net Assets. Basis of Accounting. For financial reporting purposes, the University is considered a special-purpose government engaged only in business-type activities. Accordingly, the University s financial statements have been presented using the economic resources measurement focus and the accrual 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 Accounting Standards Board (FASB) pronouncements issued after November 30, 1989, unless FASB conflicts with GASB. The University has elected to not apply FASB pronouncements issued after the applicable date. 18

66 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 Cash Equivalents. 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 financial 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 for Certain Investments and for External Investment Pools. Changes in unrealized gain (loss) on the carrying 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 receivable also include amounts due from the Federal government, state and local governments, or private sources, in connection with reimbursement of allowable 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. Capital Assets. Capital assets are recorded at cost at the date of acquisition, or fair market value at the date of donation 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 useful 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 depreciated until placed in service. The University capitalized $514,908 in interest during The University did not capitalize any interest in Deferred 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 Absences. 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 and funds held by The University of Kansas Medical Center Research Institute (RI) used to support further research by The Medical Center. The funds held by the RI represent the residual remaining after grants and clinical trials are closed and includes facilities and administration (F&A revenues) distributed to departments that are not required to be returned to the original funding source. 19

67 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 Non-current Liabilities. Non-current 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. Net Assets. The University s net assets are classified as follows: Invested in capital assets, net of related debt: This represents the University s total investment in capital assets, net of outstanding debt obligations related to those capital assets. To the extent debt has been incurred but 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 non-expendable: Restricted non-expendable net assets consist of endowment and similar type funds in which donors or other outside sources have stipulated, as a condition of the gift instrument, 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 expended or added to principal. Restricted net assets expendable: Restricted expendable net assets include resources for which the University is legally or contractually obligated 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 appropriations, and sales and services of educational departments. These resources are used for transactions relating to the educational and general operations of the University, and may be used at the discretion of the governing board to meet current expenses for any purpose. These resources 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 subject to income taxes under Internal Revenue Code Section 511(a)(2)(B). Classification of Revenues. The University has classified its revenues as either operating or non-operating revenues according to the following criteria: Operating revenues: Operating revenues include activities that have the characteristics of exchange transactions, such as 1) 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. Non-operating revenues: Non-operating revenues include activities that have the characteristics of non-exchange transactions, such as gifts and contributions, and other revenue sources that are defined as non-operating revenues by GASB Statement No. 9, Reporting Cash Flows of Proprietary and Non-expendable 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 revenues, and certain other revenues from students, are reported net of scholarship 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 students behalf. Certain governmental grants, such as Pell grants, and other federal, state, or non-governmental programs, are recorded as either operating or non-operating revenues in the University 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 discount 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 reclassifications have been made to the 2009 financial statements to conform to the 2010 financial statement presentation. These reclassifications had no effect on the change in net assets. 20

68 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 NOTE 2 DEPOSITS SUMMARY OF CARRYING VALUES The carrying values of deposits and investments shown below are included in the Statement of Net Assets as follows: Carrying value: Deposits $ 261,006,923 $ 192,818,139 Investments 180,082, ,318,586 $ 441,089,539 $ 375,136,725 Included in the following Statement of Net Assets line items: Cash and cash equivalents $ 268,018,802 $ 198,907,737 Investments 87,132,344 93,798,125 Restricted cash and cash equivalents (non-current) 6,843,523 3,112,238 Endowment investments (non-current) 67,223,600 59,367,268 Other investments (non-current) 11,871,270 19,951,357 $ 441,089,539 $ 375,136,725 At June 30, 2010, the University carried deposits as shown below: Investment Type Fair Value Cash deposits with State Treasury $ 236,343,992 Cash deposits with financial institutions 9,764,549 Certificates of deposit 13,006,335 Money market funds $ 1,892, ,006,923 The deposits reflected above were held by the following entities as of June 30: KU Lawrence and Edwards Campuses $ 185,032,842 $ 120,891,969 Kansas Athletics, Inc. 2,813,380 5,143,142 KU Center for Research, Inc. * (265,847) (470,250) KU Memorial Corporation 2,731,853 1,997,765 KU Medical Center 53,502,188 41,307,656 KU M edical Center Research Institute 15,764,408 22,501,234 Student Union Corporation of KUMC 1,223,100 1,148,556 Kansas University Health Partners, Inc. 204, ,067 $ 261,006,923 $ 192,818,139 * The University of Kansas Center for Research, Inc. utilizes an overnight repurchase agreement for its bank deposits to maximize investment return. At June 30, 2010 and 2009, the overnight repurchase agreement amounted to $10,894,268 and $8,018,494, respectively, and its carrying 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. 21

69 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 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 funds held by external entities on behalf of the 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 reported at fair value, based on quoted market prices. The majority of University deposit balances not maintained by the state treasurer are covered by FDIC or collateralized. The University does not have a formal deposit policy regarding custodial credit risk. However, management has evaluated the financial stability of the financial institutions involved and feels the custodial credit risk is minimal. NOTE 3 - INVESTMENTS At June 30, 2010, the University carried investments as shown below: Investment Type Fair Value US Treasury obligations $ 6,281,566 US Agency obligations 35,469,421 Corporate bonds 2,334,124 Fixed mutual funds 756,457 Domestic stock 4,009,386 Foreign stock 217,321 Preferred stock 325,211 Equity mutual funds 4,848,229 Limited liability companies 532,892 Other 3,462,427 Repurchase agreements 11,287,518 Guaranteed investment contracts 11,076,573 Pooled Money Investment Board (PMIB) 2,109,949 External investment pools KUEA Short-term Investment Program 16,819,136 KUEA Long-term Investment Program $ 80,552, ,082,616 The investments reflected above were held by the following entities as of June 30: University of Kansas Lawrence and Edwards Campuses $ 68,804,647 $ 62,661,873 Kansas Athletics, Inc. 43,343,583 61,035,257 KU Center for Research, Inc. 42,083,861 38,502,835 KU Memorial Corporation 54,612 49,197 KU Medical Center 12,714,866 10,630,626 KU Medical Center Research Institute 13,081,047 9,438,798 $ 180,082,616 $ 182,318,586 22

70 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 INVESTMENT POLICY State statutes govern the University s investment policies. For investments related to the University s revenue bonds, 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 Obligations of government-sponsored agencies Federal funds, unsecured certificates of deposit, time deposits, and banker s acceptances Deposits fully insured by FDIC Certain State or municipal debt obligations Certain pre-refunded municipal obligations Commercial paper Investments in money market funds Repurchase agreements Stripped securities Investments in the Municipal Investment Pool Fund Investment agreements Guaranteed investment contracts State statutes also govern the investment policies of the PMIB. The primary objectives are to attain safety, liquidity, and yield. Allowable investments for State pooled moneys not held in Kansas financial institutions are as follows: Direct obligations of, or obligations that are insured as to principal and interest by, the U.S. Government or any direct agency thereof, with maturities up to four years Obligations and securities of United States sponsored enterprises that under federal law may be accepted as security for public funds. Moneys available for investments shall not be invested in mortgage-backed securities of such enterprises, which include the Government National Mortgage Association Repurchase agreements with Kansas banks or with primary government securities dealers Interfund loans to various State agencies as mandated by the Kansas 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 paper The Finance Committee of the Kansas University Endowment Association (KUEA) Board of Trustees oversees investments in KUEA s investment programs. The Finance Committee develops guidelines 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 produce a net investment yield. The total investment yield, less distributions of earnings to certain accounts, is retained by KUEA and is allocated to the unrestricted net asset classification to defray administrative costs. The KUEA Long-term Investment Program is designed for investing endowed funds and other types of funds with similar long-term objectives. These funds are collectively 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 investment portfolio receive regular distributions that are available for immediate spending in accordance with KUEA s established spending policy. 23

71 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 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 major 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 investment policy. Per RI investment policy investments in fixed income investments are through direct ownership of the financial investments held by the RI in a laddered portfolio, and for equities within a mutual fund. Investments will be made by the Treasurer within the guidelines of the investment policy. The Finance Committee reviews the portfolio quarterly. RI investment policy limits fixed income investments to Certificates of Deposit, U.S. Treasury or Agency obligations and no more than 10% of portfolio in equities. Certificates of Deposit may not exceed the FDIC limit for any one bank. 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 exposure 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. 24

72 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 The University had the following investments and maturities at June 30, 2010: Investment Maturities (in years) Investment Type Fair Value Less than More than 10 Investments with Maturity Date: US Treasury obligations $ 6,281,566 $ 395,956 $ 5,885,610 $ - $ - US Agency obligations 35,469, ,418 28,538,682 5,027,558 1,420,763 Corporate bonds 2,334, ,334,124 Repurchase agreements 11,287,518 10,894,268 1,692, ,863 (1,940,874) Guaranteed investment contracts 11,076, ,076,573 Pooled Money Investment Board (PMIB) 2,109, ,109,949 External investment pools KUEA Short-term Investment Program 16,819,136 16,819, $ 85,378,287 $ 28,591,778 $ 36,116,553 $ 5,669,421 $ 15,000,535 Investments not subject ot maturity dates: Fixed mutual funds 756,457 Domestic stock 4,009,386 Foreign stock 217,321 Preferred stock 325,211 Equity mutual funds 4,848,229 Limited liability companies - Other 3,995,319 External investment pools KUEA Long-term Investment Program** 80,552,406 94,704,329 Total $ 180,082,616 ** KUEA's Long-term investment program is invested in approximately 80% equities (no maturity date). CREDIT RISK Credit risk is the risk that an issuer or other counter party to an investment will not fulfill its obligations. The University holds investments that may have credit risk since the underlying securities may include securities other than those that take the form of U.S. Treasuries or obligations explicitly guaranteed by the U.S. government. Certain investments have an underlying collateral agreement. As of June 30, 2010, the University held the following investments as rated by Standard and Poor s and/or Moody s: Credit Quality Rating Fair Value % of Total AAA/Govt $ 50,260, % AA 728, % A 3,668, % BBB 250, % BB 6, % B 1,682, % C 4, % D 1 0.0% Not Rated 123,480, % $ 180,082, % 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. 25

73 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 CUSTODIAL CREDIT RISK The custodial credit risk for investments is the risk that, in the event of the failure of the 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 is not exposed to custodial credit risk because their existence is not evidenced 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 securities 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 RI has made minimal investments directly in limited partnerships, which would have some custodial risk. The balance of these investments as of June 30, 2010 and 2009 was $532,892 and $534,416, respectively. CONCENTRATION OF CREDIT RISK Concentration of credit risk is the risk of loss attributed to the magnitude of a government 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. However, 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 $180,082,616 and $182,318,586 as of June 30, 2010 and 2009, respectively; the University of Kansas Endowment Association administers $97,371,542 and $103,114,155 respectively. The Kansas Development Finance Authority invests $5,069,903 and $6,483,055 million of the total as of June 30, 2010 and 2009, respectively. These monies represent bond proceeds and reserve requirements. The University investments also include $16,074,133 and $11,795,449 of investments administered by outside trustees as of June 30, 2010 and 2009, 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 $11,383,357 at June 30, 2010 and $7,448,477 at June 30, The trustee is Bank of America. The Elizabeth M. Watkins Trust for Watkins and Miller Scholarship Halls had a reported market value of $3,041,802 at June 30, 2010 and $2,825,028 at June 30, The trustee is Bank of America. The Elizabeth M. Watkins Trust for Watkins Hospital had a reported market value of $1,648,973 at June 30, 2010 and $1,521,944 at June 30, The trustee is Bank of America. The remaining investments consist of $63,567,038 and $60,925,927 invested in a combination of short-term and long-term investments, primarily US Agency obligations. 26

74 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 NOTE 4 ACCOUNTS RECEIVABLE Accounts receivable net of estimated uncollectible amounts, consisted of the following at June 30: Restated Tuition and Fees $ 8,384,905 $ 8,103,386 Auxiliary 32,491,499 10,737,332 Grants and Contracts 10,917,215 32,591,799 Other 12,807,232 13,784,727 $ 64,600,851 $ 65,217,244 NOTE 5 PLEDGES RECEIVABLE Pledges receivable consist of the following unconditional promises to give: Due in less than one year $ 10,758,485 $ 16,810,701 Due in one to five years 11,328,614 14,385,633 Due in more than five years 2,472,249 3,295,000 24,559,348 34,491,334 Less Unamortized discount 946,046 1,790,584 Allowance for uncollectible amounts 4,350,000 4,275,000 $ 19,263,302 $ 28,425,750 Pledges receivable are recorded on the accompanying statements of financial position as follows: NOTE 6 INVENTORIES Pledges receivable - current $ 6,392,119 $ 12,465,435 Pledges receivable - non-current 12,871,183 15,960,315 $ 19,263,302 $ 28,425,750 Inventories consisted of the following at June 30: Bookstore $ 3,562,514 $ 3,367,552 Food Service 236, ,954 Physical Plant 2,250,200 2,321,922 Professional and Scientific Supplies 858, ,789 Office Supplies 368, ,712 Other 594, ,359 $ 7,872,064 $ 7,791,288 NOTE 7 LOANS TO STUDENTS Student loans made through the Federal Perkins Loan Program comprise substantially all of the loans to students at June 30, 2010 and The Program provides for cancellation of a loan at rates of 10% to 30% per year up to a maximum of 100% if the participant complies with certain provisions. The federal government reimburses the University for amounts cancelled under these provisions. 27

75 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 As the University determines that loans are uncollectible and not eligible for reimbursement by the federal government, the loans are written off and assigned to the U.S. Department of Education. The University has provided an allowance for uncollectible loans, which, in management s opinion, is sufficient to absorb loans that will ultimately be written off. At June 30, 2010 and 2009, the allowance for uncollectible loans was estimated to be $489,172 and $498,461, respectively. NOTE 8 CAPITAL ASSETS Capital asset activity for the year ended June 30, 2010 was as follows: The following roll forward of capital assets is for the Lawrence, Edwards, and Medical Center Campuses only. Beginning Ending Balance Additions Retirements Balance Land $ 14,278,852 $ 7,762,497 $ (112,515) $ 21,928,834 Land improvements 4,102,956 24,205-4,127,161 Works of Art 16,987, ,066 (15,000) 17,266,971 Infrastructure 63,124,932 9,510,293-72,635,225 Buildings 1,060,680,175 67,599,163 (500,337) 1,127,779,001 Equipment 148,310,112 9,963,338 (5,469,211) 152,804,239 Vehicles 16,232,676 2,210,268 (226,577) 18,216,367 Total 1,323,717,608 97,363,830 (6,323,640) 1,414,757,798 Less accumulated depreciation: Infrastructure 20,961,801 2,575,346-23,537,147 Buildings 421,254,767 33,623,178 (384,071) 454,493,874 Equipment 97,876,160 12,826,597 (5,113,403) 105,589,354 Vehicles 11,850,426 1,695,421 (210,802) 13,335,045 Total accumulated depreciation 551,943,154 50,720,542 (5,708,276) 596,955,420 Capital assets, net $ 771,774,454 $ 46,643,288 $ (615,364) Kansas Athletics Inc. 13,300,064 KU Center for Research, Inc. 20,179,436 KU Memorial Corporation 6,316,201 KU Medical Center Research Institute 1,132,002 Construction in Progress 80,903,847 $ 939,633,928 The University elected not to capitalize its library book collections. These collections adhere to the University s policy to (a) maintain them for public exhibition, education, or research; (b) protect, keep encumbered, care for, and preserve them; and (c) require proceeds from their sale to be used to acquire other collection items. Generally accepted accounting principles permit collections maintained in this manner to be charged to operations at the time of purchase rather than be capitalized. 28

76 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 NOTE 9 - CHANGES IN NON-CURRENT LIABILITIES Non-current liability activity for the year ended June 30, 2010 was as follows: Beginning Ending Current Balance Additions Reductions Balance Portion Accrued compensated absences $ 34,133,784 $ 31,062,500 $ (26,586,130) $ 38,610,154 $ 32,591,657 Accrued other post-employment benefits 8,848,792 5,759,334 (1,133,028) 13,475,098 - Capital leases payable 22,422,907 2,153,455 (5,535,110) 19,041,252 3,256,224 Notes payable 12,577,288 3,021,025 (6,750,000) 8,848, ,040 Revenue bonds payable 288,800, ,040,000 (36,000,000) 365,840,000 14,745,000 Other long-term liabilities 1,284,755 2,684,281 (287,932) 3,681, ,621 Total non-current liabilities $ 368,067,526 $ 157,720,595 $ (76,292,200) $ 449,495,921 $ 51,190,542 NOTE 10 - REVENUE BONDS OUTSTANDING Revenue bonds payable consist of the following: Principal Outstanding at 6/30/10 Kansas Development Finance Authority Refunding Revenue Bonds Series C, 1997 (The Board of Regents University of Kansas Regents Center Refunding Project) $3,255,000. Due in annual installments of $170,000 to $245,000. Issued 3/15/97 with a final maturity on 12/1/10. Interest ranging from 4.70% to 5.30% payable semi-annually. At the time of issuance a rating was not applied for with respect to these bonds, and no insurance was purchased. The underlying revenue stream was assigned an A1 post sale rating by Moody s Investor Service. Kansas Development Finance Authority Revenue Bonds Series C, 1999 (The Board of Regents University of Kansas Child Care Facility Construction Project) $3,085,000. Due in annual installments of $100,000 to $470,000. Issued 6/1/99 with a final maturity on 5/1/19. Interest ranging from 4.00% to 5.10% payable semi-annually. A rating of A1 was assigned by Moody s Investor Service. The bonds were upgraded to Aaa with the addition of an insurance policy issued by Ambac Assurance Corporation. Kansas Development Finance Authority Revenue Bonds Series 2001 T-2 (The Board of Regents University of Kansas Student Union Renovation and Expansion Project) $4,435,000. Due in annual installments of $300,000 to $540,000. Issued 8/1/01 with final maturity on 4/1/13. Interest ranging from 3.10% to 4.75% payable semi-annually. A rating of AAA was assigned by Standard & Poor s based upon an insurance policy issued by Ambac Assurance Corporation. The underlying revenue stream was assigned an Aa3 post sale rating by Moody s Investor Service. Kansas Development Finance Authority Revenue Bonds - Series 2002 A-1 (The Board of Regents University of Kansas Housing System Renovation Project - Ellsworth Hall) $11,230,000. Due in annual installments of $45,000 to $1,280,000. Issued 4/1/02 with final maturity on 5/1/27. Interest ranging from 3.50% to 5.00% payable semi-annually. A rating of AAA was assigned by Standard & Poor s based upon an insurance policy issued by Ambac Assurance Corporation. The underlying revenue stream was assigned an Aa3 post sale rating by Moody s Investor Service. $ $ $ $ 245,000 1,900,000 1,380,000 1,235,000 29

77 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 Principal Outstanding at 6/30/10 Kansas Development Finance Authority Revenue Bonds - Series 2002 A-2 (The Board of Regents University of Kansas Student Recreation and Fitness Center) $15,330,000. Due in annual installments of $735,000 to $1,350,000. Issued 4/1/02 with final maturity on 5/1/17. Interest ranging from 3.50% to 5.00% payable semi-annually. A rating of AAA was assigned by Standard & Poor s based upon an insurance policy issued by Ambac Assurance Corporation. The underlying revenue stream was assigned an Aa3 post sale rating by Moody s Investor Service. $ 8,280,000 Kansas Development Finance Authority Revenue Bonds Series 2002 K (The Board of Regents University of Kansas Edwards Campus Project) $5,120,000. Due in annual installments of $65,000 to $540,000. Issued 11/1/02 with a final maturity on 12/1/22. The first principal payment is due 12/1/10. Interest ranging from 4.3%to 5.0% payable semi-annually. A rating of A was assigned by Moody s Investor Service, and no insurance was purchased. Moody s Investor Service upgraded the bonds rating to A1 as of 7/23/04. $ 1,840,000 Kansas Development Finance Authority Revenue Bonds Series 2003 C (The Board of Regents Research and Development Facilities Projects) $4,965,000. Due in annual installments of $450,000 to $1,890,000. Issued 2/1/03 with a final maturity on 10/1/10. Interest ranging from 3.3% to 5.0% payable semi-annually. A rating of AAA was assigned by Standard & Poor s based upon an insurance policy issued by Ambac Assurance Corporation. $ 575,000 Kansas Development Finance Authority Revenue Bonds - Series 2005E-1 (The Board of Regents University of Kansas Housing System 1996E Templin Hall Refunding Project) $3,065,000. Due in annual installments of $155,000 to $270,000. Issued 5/1/05 with a final maturity on 5/1/21. Interest ranging from 3.0% to 5.0% payable semi-annually. A rating of Aa3 was assigned by Moody s Investor Service. The bonds were upgraded to Aaa with the addition of an insurance policy issued by Ambac Assurance Corporation. $ 2,415,000 Kansas Development Finance Authority Revenue Bonds - Series 2005E-1 (The Board of Regents University of Kansas Housing System Hashinger Hall Renovation) $12,965,000. Due in annual installments of $125,000 to $2,015,000. Issued 5/1/05 with a final maturity on 5/1/30. Interest ranging from 3.0% to 4.5% payable semi-annually. A rating of Aa3 was assigned by Moody s Investor Service. The bonds were upgraded to Aaa with the addition of an insurance policy issued by Ambac Assurance Corporation. $ 12,135,000 Kansas Development Finance Authority Revenue Bonds - Series 2006B (Kansas Board of Regents University of Kansas Parking Facilities Project - Park & Ride) $9,790,000. Due in annual installments of $140,000 to $1,450,000. Issued 4/1/06 with a final maturity on 4/1/21. Interest ranging from 3.5% to 4.13% payable semi-annually. A rating of Aa3 was assigned by by Moody s Investor Service. The bonds were upgraded to Aaa with the addition of an insurance policy issued by XL Capital Assurance Inc. $ 9,510,000 Kansas Development Finance Authority Revenue Bonds - Series 2007E (Kansas Board of Regents University of Kansas Recreation and Fitness Center Expansion Project) $6,275,000. Due in annual installments of $200,000 to $450,000. Issued 5/1/07 with final maturity on 5/1/27. Interest ranging from 3.75% to 4.30% payable semi-annually. A rating of AAA was assigned by Standard & Poor s based upon an insurance policy issued by XL Capital Assurance. $ 5,625,000 30

78 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 Principal Outstanding at 6/30/10 Kansas Development Finance Authority Revenue Bonds - Series 2007M (Kansas Board of Regents - University of Kansas Law Enforcement Training Center) $18,220,000. Due in annual installments of $670,000 to $1,350,000. Issued 12/6/07 with final maturity on 6/1/27. Interest ranging from 3.5 % to 4.6% payable semi-annually. A rating of A1 was assigned by Moody s Investor Service. The bonds were upgraded to Aaa with the addition of an insurance policy issued by Assured Guaranty Corporation. $ 16,855,000 Kansas Development Finance Authority Revenue Bonds - Series 2008L (Kansas Board of Regents - University of Kansas School of Pharmacy Project) $21,070,000. Due in annual installments of $560,000 to $1,245,000. Issued 11/1/08 with final maturity on 11/1/28. The first principal payment is due 11/1/09. Interest ranging from 2.0 % to 5.25% payable semi-annually. A rating of Aaa was assigned by Moody s Investor Service based upon an insurance policy issued by Financial Security Assurance, Inc. $ 20,350,000 Kansas Development Finance Authority Revenue Bonds - Series 2009M (State of Kansas Project - Pharmacy) $31,650,000. Due in annual installments of $1,115,000 to $2,350,000. Issued 8/13/09 with final maturity on 11/1/2029. Interest ranging from 3.0 % to 6.31% payable semi-annually. A rating of Aa2 was assigned by Moody s Investor Service and AA by Standard & Poor's. $ 31,650,000 Kansas Development Finance Authority Revenue Bonds - Series 2010A (Kansas Board of Regents - University of Kansas Housing System Program) $23,700,000. Due in annual installments of $610,0000 to $2,030,000. Issued 1/28/10 with final maturity on 11/1/29. Interest ranging from 2.00% to 4.05% payable semi-annually. A rating of Aa2 was assigned by Moody's Investor Service and AA by Standard & Poor s. $ 23,700,000 Kansas Development Finance Authority Revenue Bonds - Series 2010B (University of Kansas Energy Conservation Program) $21,650,000. Due in annual installments of $275,0000 to $1,815,000. Issued 1/7/10 with final maturity on 11/1/26. Interest ranging from 2.50% to 3.75% payable semi-annually. A rating of Aa2 was assigned by Moody's Investor Service and AA by Standard & Poor s. $ 21,650,000 Kansas Development Finance Authority Revenue Bonds - Series 2010K-1 (University of Kansas Refund of Edwards Campus 2002K) $3,615,000. Due in annual installments of $40,000 to $530,000. Issued 5/12/10 with final maturity on 5/1/23. Interest ranging from 2.00% to 3.50% payable semi-annually. A rating of Aa2 was assigned by Moody's Investor Service and AA by Standard & Poor s. $ 3,615,000 Kansas Development Finance Authority Revenue Bonds - Series 2010K-1 (University of Kansas Medical Center Parking Facilities) $1,240,000. Due in annual installments of $240,000 to $255,000. Issued 5/12/10 with final maturity on 5/1/15. Interest ranging from 2.00% to 3.00% payable semi-annually. A rating of Aa2 was assigned by Moody's Investor Service and AA by Standard & Poor s. $ 1,240,000 Kansas Development Finance Authority Revenue Bonds - Series 2010K-1 (University of Kansas Refund of 1999 D Parking Garage #2) $3,005,000. Due in annual installments of $455,000 to $860,000. Issued 5/12/10 with final maturity on 5/1/14. Interest ranging from 2.00% to 3.00% payable semi-annually. A rating of Aa2 was assigned by Moody's Investor Service and AA by Standard & Poor s. $ 3,005,000 31

79 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 Kansas Development Finance Authority Revenue Bonds - Series 2010K-2 (University of Kansas Medical Center Parking Build America Bonds) $7,190,000. Due in annual installments of $265,000 to $495,000. Issued 5/12/10 with final maturity on 5/1/35. Interest ranging from 3.60% to 6.20% payable semi-annually. A rating of Aa2 was assigned by Moody's Investor Service and AA by Standard & Poor s. Principal Outstanding at 6/30/10 $ 7,190,000 Kansas Development Finance Authority Revenue Bonds - Series 2010M1 & M2 (University of Kansas Edwards Campus Building No. 4) $20,990,000. Due in annual installments of $1,175,000 to $1,700,000. Issued 5/5/10 with final maturity on 9/1/25. Interest ranging from 2.00% to 5.10% payable semi-annually. A rating of Aa2 was assigned by Moody's Investor Service and AA by Standard & Poor s. $ 20,990,000 Kansas Development Finance Authority Revenue Bonds Series 1999 B (The Board of Regents University of Kansas Medical Center for Health in Aging) $2,920,000. Due in annual installments of $90,000 to $440,000. Issued 4/1/99 with final maturity on 4/1/19. Interest ranging from 3.60% to 5.00% payable semi-annually. The bonds were rated at A- by Standard & Poor s at the time of issuance. The rating was upgraded to AAA with the purchase of insurance. $ 1,785,000 Kansas Development Finance Authority Revenue Bonds Series 2001 T-1 (The Board of Regents University of Kansas Medical Center Research Support Facility) $5,860,000. Due in annual installments of $180,000 to $880,000. Issued 4/1/01 with final maturity on 4/1/21. Interest ranging from 3.10% to 5.00% payable semi-annually. The bonds were rated at A- by Standard & Poor s at the time of issuance. The rating was upgraded to AAA with the purchase of insurance. $ 4,120,000 Kansas Development Finance Authority Revenue Bonds Series 2003 C (The Board of Regents University of Kansas Medical Center Scientific Research and Development Facilities Projects) $36,100,000. Due in annual installments ranging from $3,220,000 to $5,430,000. Issued 2/1/03 with a final maturity on 4/1/21. The first principal payment is due 10/1/16. Interest ranging from 2.13% to 5.01% payable semi-annually. The bonds were rated at AA by Standard & Poor s at the time of issuance. A rating of AAA was assigned by Standard & Poor s based upon an insurance policy issued by Ambac Assurance Corporation. $ 36,100,000 Kansas Development Finance Authority Revenue Bonds Series 2003 J-1 (The Board of Regents University of Kansas Medical Center Energy Conservation Project) $13,080,000. Due in annual installments ranging from $350,000 to $1,060,000. Issued 8/3/03 with a final maturity of 8/1/24. Interest ranging from 2.00% to 4.75% payable semi-annually. The bonds were rated at AA by Standard & Poor s and Aa2 by Moody s at the time of issuance. The rating was upgraded to AAA with the purchase of insurance. $ 10,670,000 Kansas Development Finance Authority Revenue Bonds Series 2005D (The Board of Regents University of Kansas Medical Center Scientific Research and Development Facilities Projects) $27,130,000. Due in annual installments ranging from $1,170,000 to $3,935,000. Issued 4/1/05 with a final maturity on 10/1/15. Interest ranging from 3.90% to 4.80% payable semiannually. The bonds were rated at AA by Standard & Poor s at the time of issuance. The rating was upgraded to AAA with the purchase of insurance. $ 14,935,000 32

80 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 Principal Outstanding at 6/30/10 Kansas Development Finance Authority Revenue Bonds Series 2005E-2 (The Board of Regents University of Kansas Medical Center Parking Garage #3) $3,330,000. Due in annual installments ranging from $120,000 to $225,000. Issued 5/1/05 with a final maturity on 5/1/25. Interest ranging from 3.00% to 5.00% payable semi-annually. The underlying revenue stream was assigned an A1 rating by Moody s Investor Service. The bonds were upgraded to Aaa with the addition of an insurance policy issued by Ambac Assurance Corporation. $ 2,825,000 Kansas Development Finance Authority Revenue Bonds Series 2004K (The Board of Regents University of Kansas Athletic Corporation Restructuring Project) $17,830,000. Due in annual installments of $660,000 to $1,355,000. Issued 11/16/04 with final maturity on 6/1/23. Interest ranging from 3.3% to 4.5% payable semi-annually. A rating of A was assigned by Standard & Poor s. $ 13,540,000 Kansas Development Finance Authority Revenue Bonds Series 2008C (The Board of Regents University of Kansas Athletic Corporation Project) $32,820,000. Due in annual installments of $360,000 to $9,035,000. Issued 7/1/08 with final maturity on 6/1/33. Interest ranging from 3.0 % to 5.0 % payable semi-annually. A rating of A1 was assigned by Moody s Investor Service. $ 31,890,000 Kansas Development Finance Authority Revenue Bonds Series 2005B (The Board of Regents University of Kansas Center for Research, Inc. Project (MRB) $45,625,000. Due in annual installments of $1,565,000 to $3,610,000. Issued 2/1/05 with a final maturity on 2/1/25. Interest ranging from 3.6% to 5.3% payable semi-annually. A rating of A1 was assigned by Moody s. The bonds were upgraded to Aaa with the purchase of a surety bond issued by MBIA Insurance Corporation. $ 38,995,000 Kansas Development Finance Authority Revenue Bonds Series 2006G (The Board of Regents University of Kansas Center for Research, Inc. Project (SBCIII) $17,085,000. Due in annual installments of $470,000 to $4,615,000. Issued 10/1/06 with final maturity on 2/1/26. Interest ranging from 4.00% to 5.04% payable semi-annually. A rating of A was assigned by Standard & Poor s and a rating of A1 was assigned by Moody s Investor Services. $ 15,595,000 Total $ 365,840,000 33

81 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 NOTE 11 - REVENUE BONDS MATURITY SCHEDULE Maturities of principal and interest requirements on revenue bonds payable are as follows: Year Ending June 30: Principal Interest Total 2011 $ 14,745,000 $ 9,560,753 $ 24,305, ,520,000 12,422,098 28,942, ,405,000 11,882,664 29,287, ,545,000 11,340,974 45,885, ,235,000 20,401,337 65,636, ,580,000 38,419, ,999, ,850,000 20,151, ,001, ,670,000 6,973,591 72,643, ,290,000 90,675 2,380,675 $ 365,840,000 $ 131,242,535 $ 497,082,535 The University defeased a portion of 1999 D bond series through advance refunding during fiscal year 2006 and defeased the remainder of the 1999 D bond series in The University also defeased a portion of 2002A-1 through advance refunding and refunded 2 other bond series during fiscal year Accordingly, the series are not reflected in the accompanying statements. The amount of bonds that have been defeased as of June 30, 2010 consists of the following: NOTE 12 - LEASE OBLIGATIONS Outstanding at Series June 30, D $ 3,100, D 4,585, A-1 8,230, K 3,280,000 Total $ 19,195,000 The University of Kansas is obligated for the purchase of certain equipment funded through the issuance of blanket financing agreements in the amount of $19,041,252 and $22,422,907 as of June 30, 2010 and 2009, respectively. Payments to liquidate these obligations are scheduled as follows: Year Ending June 30: Total 2011 $ 2,421, ,518, ,637, ,561, ,241, and thereafter $ 9,661,162 19,041,252 Included in this balance is the $18,699,700 Master Lease Purchase agreement between the University and the State for the University s Energy Performance Contract. The University s Energy Performance Contract consists of approximately 100 energy savings measures that were completed in fiscal year 2004 and were expected to result in annual utility and maintenance savings of $1,700,000. The projects were funded through a Master Lease Purchase Agreement between the State of Kansas and Citibank, N.A. The University is responsible for repaying the State for the 20-year term of the lease. The remaining principal balance of the master lease agreement as of June 30, 2010 is $14,296,

82 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 NOTE 13 - RETIREMENT PLANS University employees participate in two separate retirement programs. Lawrence Campus University Support Staff and Medical Center Classified Staff employees participate in the "Kansas Public Employees Retirement System" (KPERS). This defined benefit program is funded through contributions by the University and the individual employees. The University contributed $4,699,101 and $4,298,416 during fiscal years 2010 and 2009, respectively, and individual employees contributed $2,637,844 and $2,465,631. Unclassified employees participate in the "Board of Regents Retirement Program". This defined contribution program is funded through contributions by the University and the individual employees. The University contributed $29,297,721 and $28,287,652 during fiscal years 2010 and 2009, respectively, and individual employees contributed $18,552,506 and $18,410,220. Employees of Kansas Athletics, Inc., the University of Kansas Memorial Corporation, and the University of Kansas Medical Center Research Institute, participate in defined contribution programs similar to the Board of Regents Retirement Program. The Corporations contributed $1,769,071 and $1,636,945 to their individual plans during fiscal years 2010 and 2009, respectively. NOTE 14 OTHER POSTEMPLOYMENT HEALTHCARE BENEFITS (OPEB) DESCRIPTION As a component unit of the State of Kansas, the University participates in the State s health insurance benefit plan. Kansas statute provides that postemployment healthcare benefits be extended to retired employees who have met age and/or service eligibility requirements. The health insurance benefit generally provides the same coverage for retirees and their dependents as for active employees and their dependents. The health insurance benefit plan is a single employer defined benefit plan administered by Kansas Health Policy Authority. The benefit is available for selection at retirement and is extended to retirees and their dependents for life. Non-Medicare participants are subsidized by the University, thus resulting in a liability to the University. At a State level, the accounting for the health insurance for retirees is included in the State s Self-Insurance Health fund, with the subsidy provided from the Self-Insurance Health fund. FUNDING POLICY The University provides health insurance benefits to retirees and their dependents in accordance with Kansas law (K.S.A ). Kansas statute, which may be amended by the state legislature, established that participating retirees contribute to the employee group health fund benefits plan, including administrative costs. The University appropriates funds annually for the costs associated with this retirement benefit and provides funding for the expenditure on a pay-as-you-go basis. ANNUAL OPEB COST AND NET OPEB OBLIGATION The University s annual OPEB cost is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial 35

83 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 liabilities over a period of not to exceed thirty years. The following table presents the components of the University s annual OPEB cost for the year, the contribution to the plan, and changes in the University s net OPEB obligation. Total Annual required contribution - amortized liability $ 1,821,486 Interest on amortized liability 70,127 Normal cost (with interest) 2,896,461 Annual OPEB cost (expense) 4,788,074 Interest on Net OPEB Obligation 340,678 Adjustment to the ARC (502,446) Contributions made - Increase in net OPEB obligation 4,626,306 Net OPEB obligation July 1, ,848,792 Net OPEB obligation June 30, 2010 $ 13,475,098 Schedule of Employer Contributions (for fiscal year ended) Annual Net End of Year Fiscal OPEB Employer Percentage Net OPEB Year Cost Contributions Contributed Obligation 2009 $ 3,669,027 $ - 0% $ 8,848, $ 4,626,306 $ - 0% $ 13,475,098 FUNDED STATUS AND FUNDING PROGRESS As of June 30, 2010, the most recent actuarial valuation date, the actuarial accrued liability for benefits was $37,223,586. The University s policy is to fund the benefits on a pay-as-you-go basis, resulting in an unfunded actuarial accrued liability (UAAL) of $37,223,586. The covered payroll (annual payroll of active employees covered by the plan) was $504,044,418, and the ratio of the UAAL to the covered payroll was 7%. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. The valuation includes, for example, assumptions about future employment, mortality and the healthcare cost trends. Amounts determined regarding the funded status of the plan and the annual required contributions of employer are subject to continual revision as actual results are compared with the past expectations and new estimates are made about the future. The schedule of funding progress will present in time, multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing relative to the actuarial accrued liabilities for benefits. 36

84 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 Schedule of Funding Progress Actuarial UAAL as a Actuarial Accrued Percent of Actuarial Value of Liability Unfunded Funded Covered Covered Valuation Assets (AAL) AAL Ratio Payroll Payroll Date (a) (b) (b-a) (a/b) (c) ((b-a)/c) 06/30/09 $ - $ 28,843,695 $ 28,843,695 0% $ 497,694,969 6% 06/30/10 $ - $ 37,223,586 $ 37,223,586 0% $ 504,044,418 7% ACTUARIAL METHODS AND ASSUMPTIONS Projections of benefits for reporting purposes are based on the substantive plan and include the types of benefits provided at the time of valuation and the historical pattern of sharing of benefit cost between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and actuarial value of assets, consistent with the long-term perspective of the calculations. In the June 30, 2010 actuarial valuation, the projected unit credit method was applied. The actuarial assumptions included a 3.85% investment rate of return, which is a blended rate of the expected long-term investment returns on the State s pooled funds and investments. The valuation assumed annual healthcare cost trend rates of 5.5% to 10% in the first ten years and an ultimate rate of 5.0% after ten years. The valuation followed generally accepted actuarial methods and included tests as considered necessary to assure the accuracy of the results. The UAAL is being amortized over a 30-year open period in level dollar amounts. NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES At June 30, 2010 and 2009, the University had outstanding commitments under construction contracts totaling $100,841,345 and $85,333,864, respectively. The University is a defendant in several lawsuits. However, University officials are of the opinion, based on advice of inhouse legal counsel, that the ultimate outcome of all litigation will not have a material effect on the future operations or financial position of the University. All university buildings are insured with a $500,000 deductible and a maximum annual liability of $500,000,000 per occurrence. Named equipment is covered up to the declared value with a $5,000 deductible. Most building contents and State-owned automobiles are not insured against property damages or bodily injury. The University is not aware of any significant outstanding claims as of June 30, In the normal course of operations, the University receives grants and other forms of reimbursement from various Federal and State agencies. These activities are subject to audit by agents of the funding authority, the purpose of which is to ensure compliance with conditions precedent to providing of such funds. University officials believe that the liability, if any, for any reimbursement that may arise as the result of audits, would not be material. In connection with a settlement agreement with the Kansas Athletics, Inc s former football coach, Kansas Athletics, Inc. paid $3,000,000, in addition to health insurance premiums through March 30, This amount is included in Athletics expense on the consolidated statement of revenues, expenses and changes in net assets for the year ended June 30,

85 NOTES TO THE FINANCIAL STATEMENTS For the Years Ended June 30, 2010 and 2009 NOTE 16 NATURAL CLASSIFICATIONS WITH FUNCTIONAL CLASSIFICATIONS The University s operating expenses by functional and natural classification for 2010 are as follows: Natural Classification Scholarships Compensation & Supplies & Functional Classification & Benefits Fellowships Utilities Other Services Depreciation Total Instruction $ 282,804,904 $ - $ 242,105 $ 12,213,462 $ - $ 295,260,471 Research 151,732,246-10,129 73,556, ,298,731 Public service 20,357,320-7,563 11,042,959-31,407,842 Academic support 61,065,873-1,880 17,787,257-78,855,010 Student services 20,849, ,156 6,812,203-28,274,537 Institutional support 45,497, ,441,893-56,939,853 Operations and maintenance of plant 37,256,808-21,466,992 11,108,273-69,832,073 Depreciation ,762,335 57,762,335 Scholarships and fellowships - 30,638, ,638,935 Auxiliary enterprises: Housing 8,710,924-2,501,503 3,971,179-15,183,606 Athletics 26,069,151 8,763, ,971 29,535,237-65,339,463 Parking 2,355, ,073 4,160,547-6,786,787 Student unions 12,123, ,946 17,412,198-30,300,361 University health services 5,068, ,193,914-7,262,647 Other auxiliary enterprises 4,002, ,727-4,214,744 Other 2,297, ,311,374-3,608,797 Total $ 680,190,921 $ 39,402,039 $ 26,851,318 $ 202,759,579 $ 57,762,335 $ 1,006,966,192 NOTE 17 SUBSEQUENT EVENTS Subsequent to June 30, 2010, the University entered into a settlement agreement with the former athletic director to pay $2,000,000 on or before September, 30,

86