Text

University of Missouri-Columbia Research Reactor Amended Facility License R-103
	ML092590298
Person / Time
Site:	University of Missouri-Columbia
Issue date:	09/14/2009
From:	Rhonda Butler; Univ of Missouri - Columbia
To:	; Document Control Desk, Office of Nuclear Reactor Regulation
References
	Download: ML092590298 (86)
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WI Research Reactor Center University of Missouri-Columbia September 14, 2009 U.S. Nuclear Regulatory Commission Attention:

Document Control Desk Mail Station P 1-37 Washington, DC 20555-0001 Research Park Columbia, MO 65211 PHONE (573) 882-4211 FAX (573) 882-6360

Reference:

Docket 50-186 University of Missouri-Columbia Research Reactor Amended Facility License R-103 Enclosed will find the University of Missouri-Columbia Research Reactor's responses to the U.S. Nuclear Regulatory Commission's (NRC) request for additional information, dated July 10, 2009, regarding our renewal request for Amended Facility Operating License R-103, which was submitted to the NRC on August 31, 2006, as supplemented.

If you have any questions, please contact Leslie P. Foyto, the facility Reactor Manager, at (573) 882-5276.Sincerely, Ralph A. Butler, P.E.Director RAB/djr Enclosures N ox" PIZ MARGEE P. STOUT_P: My March 24,2012 omSEAm .siMon 14 Commission

08,51143 AN EQUAL OPPORTUNITY/ADA INSTITUTION Research Reactor Center University of Missouri-Columbia September 14, 2009 u.S. Nuclear Regulatory Commission Attention:

Document Control Desk Mail Station P1-37 Washington, DC 20555-0001

_

Reference:

Docket 50-186 Research Park Columbia, MO 65211 PHONE (573) 882-4211 FAX (573) 882-6360 University of Missouri-Columbia Research Reactor Amended Facility License R-103 Enclosed will find the University of Missouri-Columbia Research Reactor's responses to the U.S. Nuclear Regulatory Commission's (NRC) request for additional information, dated July 10, 2009, regarding our renewal request for Amended Facility Operating License R-103, which was submitted to the NRC on August 31, 2006, as supplemented.

If you have any questions, please contact Leslie P. Foyto, the facility Reactor Manager, at (573) 882-5276.

Sincerely, Ralph A. Butler, P .E. Director RAB/djr Enclosures AN EQUAL OPPORTUNTIY/ADA INSTITUfION

-" MARGEE P. STOUT My Expinls Man:h 24, 2012 Montgomery County Commission

08511436 Aoao Research Reactor Center University of Missouri-Columbia September 14, 2009 U.S. Nuclear Regulatory Commission Attention:

Document Control DeskMail Station P1-37 Washington, DC 20555-0001 Research Park Columbia, MO 65211 PHONE (573) 882-4211 FAX (573) 882-6360

REFERENCE:

SUBJECT:

Docket 50-186 University of Missouri -Columbia Research Reactor Amended Facility License R-103Written communication as specified by 10 CFR 50.4(b)(1) regarding the response to the"University of Missouri at Columbia -Request for Additional Information Re: License Renewal (TAC No. ME1580)," dated July 10, 2009 On August 31, 2006, the University of Missouri-Columbia Research Reactor (MURR) submitted a request to the U.S. Nuclear Regulatory Commission (NRC) to renew Amended Facility Operating License R-103.On July 10, 2009, the NRC requested additional information and clarification regarding the renewal request in the form of four (4) questions.

Those questions, and the MURR's responses to those questions, are attached.If there are questions regarding this response, please contact me at (573) 882-5276.

I declare under penalty of perjury that the foregoing is true and correct.ENDORSEMENT:

Sincerely, Reviewed and Approved, eslie PFoyto Ralph A. Butler, P.E.Reactor Manager Director Enclosed:

University of Missouri 2008 Financial Report Statement of Intent, dated August 17, 2009 Letter from the Office of General Counsel, University of Missouri, dated September 1, 2009 Section 70.010, "General Execution of Corporate or Board Instruments," University of Missouri Collected Rules and Regulations xc: Reactor Advisory Committee Reactor Safety Subcommittee Dr. Robert Duncan, Vice Chancellor for Research Mr. Craig Basset, U.S. NRCMr. Alexander Adams, U.S. NRC P04" MARGEE P. STOUT NW March 24,2D12..SEALon~n MmrCourdyýO,,FCommisson

08511438 AN EQUAL OPPORTUN1TY/ADA INSTITUTION Research Reactor Center University of Missouri-Columbia September 14, 2009 u.s. Nuclear Regulatory Commission Attention:

Document Control Desk Mail Station PI-37 Washington, DC 20555-0001

REFERENCE:

Docket 50-186 University of Missouri -Columbia Research Reactor Amended Facility License R-I03 Research Park Columbia, MO 65211 PHONE (573) 882-4211 FAX (573) 882-6360

SUBJECT:

Written communication as specified by 10 CFR 50.4(b)(1) regarding the response to the "University of Missouri at Columbia -Request for Additional Information Re: License Renewal (TAC No. ME1580)," dated July 10, 2009 On August 31, 2006, the University of Missouri-Columbia Research Reactor (MURR) submitted a request to the U.S. Nuclear Regulatory Commission (NRC) to renew Amended Facility Operating License R-I03. On July 10,2009, the NRC requested additional information and clarification regarding the renewal request in the form of four (4) questions.

Those questions, and the MURR's responses to those questions, are attached.

If there are questions regarding this response, please contact me at (573) 882-5276.

I declare under penalty of perjury that the foregoing is true and correct. Sincerely, Reactor Manager ( ENDORSEMENT:

Reviewed and Approved, Ralph A. Butler, P.E. Director Enclosed:

of Missouri 2008 Financial Report Statement of Intent, dated August 17,2009 Letter from the Office of General Counsel, University of Missouri, dated September 1, 2009 Section 70.010, "General Execution of Corporate or Board Instruments," University of Missouri Collected Rules and Regulations xc: Reactor Advisory Committee Reactor Safety Subcommittee Dr. Robert Duncan, Vice Chancellor for Research Mr. Craig Basset, U.S. NRC Mr. Alexander Adams, U.S. NRC AN EQUAL OPPORTUNITY/ADA INSTITUflON

1. The U.S. Nuclear Regulatory Commission (NRC) staff will analyze the financial statements for the current year, which are required by 10 CFR 50.71(b), to determine if the applicant is financially qualified to operate the MURR. Since MU's financial statements included with the application are out of date, please provide a copy of the latest financial statements for the NRC staff's review.Enclosed you will find the most recent financial report for the University of Missouri, which provides an overview of the financial position and activities of the University for the fiscal years that ended June 30, 2008 and 2007.This report includes five financial statements:

The three financial statements for the University of Missouri System and its Aggregate Discretely Presented Component Unit(s) include the Statement of Net Assets, the Statement of Revenues, Expenses, and Changes in Net Assets, and the Statement of Cash Flows.* The two financial statements for the University's fiduciary funds, which include the Retirement and the Other Post-Employment Benefits Trust Funds, are the Statement of PlanNet Assets and the Statement of Changes in Plan Net Assets.The University's financial statements are prepared in accordance with U.S. generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB), which establishes financial reporting standards for public colleges and universities.

2. Pursuant to 10 CFR 50.33(9(2), "[tihe applicant shall submit estimates for total annual operating costs for each of thefirstfive years of operations of the facility. " Since the information included in the application is now out of date, please provide the following additional information.-(a) Projected operating costs of the MURR for each of the years FY11 thru FY15 (the first five year period after the projected license renewal).TABLE 1 FISCAL YEAR 2011-2015 PROJECTED EXPENDITURES(in thousands of dollars)FY2011 FY 2012 FY2013 FY 2014 FY 2015 Projected Projected Projected Projected Projected Salaries/Wages

& Benefits 8,901 9,168 9,443 9,727 10,018 Supplies/Services/Equipment

< $5K 2,651 2,731 2,813 2,897 2,984 Debt Service 934 934 934 934 934 Reserves 690 711 732 754 777 Grants 2,800 2,884 2,971 3,060 3,151 Other 948 976 1,005 1,035 1 067 TOTAL EXPENDITURES

$ 16,924 $17,404 $17,898 $18,407 $18,931 Note: The University of Missouri fiscal year (FY XXXX) begins July 1 and ends June 30.Page 2 of 9 1. The Us. Nuclear Regulatory Commission (NRC) staff will analyze the financial statements for the current year, which are required by 10 CFR 50.71 (b), to determine if the applicant is financially qualified to operate the MURR. Since MU'sfinancial statements included with the application are out of date, please provide a copy of the latest financial statements for the NRC staff's review. Enclosed you will find the most recent financial report for the University of Missouri, which provides an overview of the financial position and activities of the University for the fiscal years that ended June 30, 2008 and 2007. This report includes five financial statements:

The three financial statements for the University of Missouri System and its Aggregate Discretely Presented Component Unit(s) include the Statement of Net Assets, the Statement of Revenues, Expenses, and Changes in Net Assets, and the Statement of Cash Flows.

The two financial statements for the University's fiduciary funds, which include the Retirement and the Other Post-Employment Benefits Trust Funds, are the Statement of Plan Net Assets and the Statement of Changes in Plan Net Assets. The University's financial statements are prepared in accordance with U.S. generally accepted accounting principles as prescribed by the Governmental AQcounting Standards Board (GASB), which establishes financial reporting standards for public colleges and universities.

2. Pursuant to 10 CFR 50.33(/)(2), "[tJhe applicant shall submit estimates for total annual operating costs for each of the first five years of operations of the facility." Since the information included in the application is now out of date, please provide the following additional information: (a) Projected operating costs of the MURRfor each of the years FYll thru FY15 (the first five year period after the projected license renewal). . TABLE 1 FISCAL YEAR 2011-2015 PROJECTED EXPENDITURES (in thousands of dollars) FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Projected Projected Projected Projected Projected Salaries/Wages

& Benefits 8,901 9,168 9,443 9,727 10,018 Supplies/Services/Equipment

< $5K 2,651 2,731 2,813 2,897 2,984 Debt Service 934 934 934 934 934 Reserves 690 711 732 754 777 Grants 2,800 2,884 2,971 3,060 3,151 Other 948 976 1,005 1,035 1,067 TOTAL EXPENDITURES $16,924 $17,404

$ 17,898 $18,407 $ 18,931 Note: The University of Missouri fiscal year (FY XXXX) begins July 1 and ends June 30. Page 2 of9 (b) MU's source(s) offunding to cover the operating costs for the above fiscal years.TABLE 2 FISCAL YEAR 201i-2015 PROJECTED REVENUES (in thousands of dollars)FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Projected Projected Projected Projected Projected Campus Allocation 3,507 3,612 3,721 3,832 3,947 Service Operations 8,526 8,782 9,046 9,317 9,596 Partnerships 52 53 55 56 58 Grants 2,800 2,884 2,971 3,060 3,151 Other 1303 1,342 1,382 1,424 1,466 TOTAL REVENUES $ 16,188 $16,674

$17,174 $17,689 $18,220"Campus Allocation" represents an annual allocation of the State of Missouri funds for the University. "Service Operations" is primarily based on the sale of irradiation, processing and analytical services.

Revenue is subject to market fluctuations, however many of the MURR's major customers have been clients for several years and the MURR continues to develop significant new customers each year. "Grants" are a revenue source received from non-University sources.All projected revenues and expenditures reflect a 3% increase per year except for Debt Service.MURR reserves will be used to cover fiscal year end deficits as needed.3. The application references a decommissioning cost estimate for the MURR that was developed using NUREG/CR-1 756, Technoloy, Safety and Costs of Decommissioning Reference Research and Test Reactors.

The application states that the decommissioning cost estimate was $40 million in 2005 dollars, including safe storage (SAFSTOR) costs, and a 25 percent contingency factor. The NRC staff needs the following additional information to complete its review of the MURR decommissioning cost estimate: (a) A current decommissioning cost estimate in 2010 dollars for the MURR to meet the NRC's radiological release criteria for decommissioning the facility for unrestricted use, pursuant to 10 CFR 50. 75(d) (2). Accordingly, describe the basis for how the cost estimate was developed (ifNUREG/CR-1 756 is still the basis for the decommissioning cost estimate, please so state).The current decommissioning cost estimate is $47.3 million in 2009 dollars. The original decommissioning cost estimate was developed using the methodology proposed in NUREG/CR-1756, Technology, Safety and Costs of Decommissioning Reference Research and Test Reactors, for a reference test reactor using the passive safe storage (SAFSTOR) option for a period of 30 years. The reference test reactor approach was used because this was thought to more closely represent the decommissioning efforts that would be needed for the MURR. The original decommissioning estimate was transmitted to the NRC in a letter dated June 29, 1990. In thisletter, the MURR committed to adjusting our estimate at five year intervals using the decommissioning inflation formula provided in 10 CFR 50.75(c)(2).

Page 3 of 9 (b) MU's source(s) of funding to cover the operating costs for the above fiscal years. TABLE 2 FISCAL YEAR 2011-2015 PROJECTED REVENUES (in thousands of dollars) FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Projected Projected Projected Projected Projected Campus Allocation 3,507 3,612 3,721 3,832 3,947 Service Operations 8,526 8,782 9,046 9,317 9,596 Partnerships 52 53 55 56 58 Grants 2,800 2,884 2,971 3,060 3,151 Other 1,303 1,342 1,382 1,424 1,466 TOTAL REVENUES $ 16,188 $ 16,674 $17,174 $ 17,689 $ 18,220 "Campus Allocation" represents an annual allocation of the State of Missouri funds for the University. "Service Operations" is primarily based on the sale of irradiation, processing and analytical services.

Revenue is subject to market fluctuations, however many of the MURR's major customers have been clients for several years and the MURR continues to develop significant new customers each year. "Grants" are a revenue source received from non-University sources. All projected revenues and expenditures reflect a 3% increase per year except for Debt Service. MURR reserves will be used to cover fiscal year end deficits as needed. 3. The application references a decommissioning cost estimate for the MURR that was developed using NUREGICR-1756, Technology, Safety and Costs o(Decommissioning Reference Research and Test Reactors.

The application states that the decommissioning cost estimate was $40 million in 2005 dollars, including safe storage (SAFSTOR) costs, and a 25 percent contingency factor. The NRC staff needs the following additional information to complete its review of the MURR decommissioning cost estimate: (a) A current decommissioning cost estimate in 2010 dollars for the MURR to meet the NRC's radiological release criteria for decommissioning the facility for unrestricted use, pursuant to 10 CFR 50. 75(d)(2).

Accordingly, describe the basis for how the cost estimate was developed (i/NUREGICR-1756 is still the basis for the decommissioning cost estimate, please so state). The current decommissioning cost estimate is $47.3 million in 2009 dollars. The original decommissioning cost estimate was developed using the methodology proposed in NUREG/CR-1756, Technology, Safety and Costs of Decommissioning Reference Research and Test Reactors, for a reference test reactor using the passive safe storage (SAFSTOR) option for a period of 30 years. The reference test reactor approach was used because this was thought to more closely represent the decommissioning efforts that would be needed for the MURR. The original decommissioning estimate was transmitted to the NRC in a letter dated June 29, 1990. In this letter, the MURR committed to adjusting our estimate at five year intervals using the decommissioning inflation formula provided in 10 CFR 50.75(c)(2).

Page 3 of9 Our initial decommissioning cost estimate was $9.0 million, which included a 25% contingency.

In 1995 this estimate was revised to delete the 30-year annuity method of determining the present values of the annual costs associated with SAFSTOR.

This revision to the original estimate, which changed the cost estimate to $11.8 million (1989 $), was made to assure that this aspect of the decommissioning cost would not introduce significant under-estimation of the annual costs.The current decommissioning cost estimate was developed using the inflation formula provided in 10 CFR 50.75(c)(2).

The use of this formula requires information from the most recently published NUREG-1307, Report on Waste Burial Charges; in this case Revision 13 dated November 2008.The calculation also requires information form Bureau of Labor Statistics (BLS) data for Employment Cost Index (ECI) to develop L, and for Producer Price Index (PPI) to develop Ex for the' formula. These BLS datasets currently only contain data for January 2009, hence the inflation-calculation can only be provided in 2009 dollars.(b) A summary of total decommissioning costs by labor, waste disposal, other items (such as energy, equipment, and supplies) in current dollars, and a 25 percent contingency factor.The following Table 3, an update of Table 17-2 found in Chapter 17 of the Safety Analysis Report (SAR) that was submitted as part of the MURR's renewal application, provides a summary of the breakdown of categories in current dollars. This table contains the categories the MURR used to develop our initial decommissioning estimate using the guidance of NIUREG/CR-1756 that was submitted to the NRC by letter dated June 29, 1990.TABLE 3

SUMMARY

OF COST (in millions of dollars)Category Cost (1989 $) Cost (2009 $)Labor 4.9 19.6 Equipment 0.27 1.08Radioactive Shipments 0.6 2.40 Termination Survey 0.06 0.24 Annual Storage Cost 3.6 14.40 Subtotal $ 9.43 $ 37.72 Contingency (25%) $ 2.36 $ 9.44 Total $11.8 $ 47.3 (c) Provide a more detailed breakout of the total and annual MURR SAFSTOR costs shown in Table 17-1 "Annual Cost During SAFSTOR" to current dollars as well as the supporting bases for the costs associated with the SAFSTOR option. Also, please provide a numerical example showing how the SAFSTOR costs will be escalated each year.The following Table 4, an update of Table 17-1 found in Chapter 17 of the SAR, indicates the annual cost estimates from the original cost estimate as revised in 1995 as well as these same annual costs in current dollars as escalated using the cost inflation formula of 10 CFR 50.75(c)(2).

Page 4 of 9 r-Our initial decommissioning cost estimate was $9.0 million, which included a 25% contingency.

In 1995 this estimate was revised to delete the 30-year annuity method of determining the present values of the annual costs associated with SAFSTOR. This revision to the original estimate, which changed the cost estimate to $11.8 million (1989 $), was made to assure that this aspect of the decommissioning cost would not introduce significant under-estimation of the annual costs. The current decommissioning cost estimate was developed using the inflation formula provided in 10 CFR 50.75(c)(2).

The use of this formula requires information from the most recently published NUREG-1307, Report on Waste Burial Charges; in this case Revision 13 dated November 2008. The calculation also requires information form Bureau of Labor Statistics (BLS) data for Employment Cost Index (ECl) to develop Lx and for Producer Price Index (PPI) to develop Ex for the' formula. These BLS datasets currently only contain data for January 2009, hence the calculation can only be provided in 2009 dollars. (b) A summary of total decommissioning costs by labor, waste disposal, other items (such as energy, equipment, and supplies) in current dollars, and a 25 percent contingencyfactor.

The following Table 3, an update of Table 17-2 found in Chapter 17 of the Safety Analysis Report (SAR) that was submitted as part of the MURR's renewal application, provides a summary of the breakdown of categories in current dollars. This table contains the categories the MURR used to develop our initial decommissioning estimate using the guidance of NUREG/CR-1756 that was ,submitted to the NRC by letter dated June 29, 1990. Category Labor Equipment Radioactive Shipments Termination Survey Annual Storage Cost TABLE 3

SUMMARY

OF COST (in millions of dollars) Subtotal Contingency (25%) Total Cost (1989 $) Cost (2009 $) 4.9 19.6 0.27 1.08 0.6 2.40 0.06 0.24 3.6 14.40 $ 9.43 $ 37.72 $ 2.36 $ 9.44 $11.8 $47.3 (c) Provide a more detailed breakout of the total and annual MURR SAFSTOR costs shown in Table 17-1 "Annual Cost During SAFST(i)R" to current dollars as well as the supporting bases for the costs associated with the SAFSTOR option. Also, please provide a numerical example showing how the SAFSTOR,costs will be escalated each year. The following Table 4, an update of Table 17-1 found in Chapter 17 of the SAR, indicates the annual cost estimates from the original cost estimate as revised in 1995 as well as these same annual costs in current dollars as escalated using the cost inflation formula of 10 CFR 50.75(c)(2).

Page 4 of9 Below Table 4 is an example of the items in each category of the table. These examples are taken from NUREG/CR-1756, Volume 2 of 2, page J-79.In a letter dated June 29, 1990, the MURR committed to escalating the decommissioning cost estimates at five year intervals using the methodology proposed in 10 CFR 50.75(c)(2). There is no regulatory requirement to escalate these costs on a yearly basis. With the 25% contingency included in the estimate, because of the uncertainty of an estimate, an annual escalation exercisewould provide little benefit.The supporting bases for the annual costs associated with the SAFSTOR option were the categories specified in NUREG/CR-1 756, adjusted to our judgment in 1990 where the reference test reactor estimates could be revised. One example was the. cost for security systems. MURR decided the current system we have in use would provide mote than adequate security for the safe storage period so that category estimate was reduced.

TABLE 4 ANNUAL COST DURING SAFSTOR (in thousands of dollars)SAFSTOR Categories Cost (1989 $) Cost (2009 $)Security 15.0 60.0 Minor Maintenance and Repair 10.0 40.0 Major Repair 10.0 40.0Offsite Laboratory Work and Equipment Repair 6.0 24.0 Reactor Facility Services 50.0 200.0 Laboratory Samples, EPA Reports, and Surveillance 30.0 120.0 Total $121.0 $ 484.Oa aThe summation of the estimated annual cost during SAFSTOR is $14.5 ($484,000/year x 30 years).million dollars Examples of Items in Each SAFSTOR Category of Table 4 Security* Maintenance of existing security system* Monitoring, supervision and security patrols Offsite Laboratory Work and Equipment Repairs Minor Maintenance and Repair* Custodial* Grounds and yardLaboratory Samples.

EPA Reports, and Surveillance" Sample analysis" Contamination counter repairsReactor Facility Services" Electrical" Water" HVAC" Sewer* Surveys" Regulatory reports Maj or Repair" Roof repairs* Ventilation system repairs" Water systems repair Page 5 of 9 Below Table 4 is an example of the items in each category of the table. These examples are taken from NUREG/CR-1756, Volume 2 of2, page J-79. In a letter dated June 29, 1990, the MURR committed to escalating the decommissioning cost estimates at five year intervals using the methodology proposed in 10 CFR 50.75(c)(2).

There is no regulatory requirement to escalate these costs on a yearly basis. With the 25% contingency included in the estimate, because of the uncertainty of an estimate, an annual escalation exercise would provide little benefit. The supporting bases for the annual costs associated with the SAFSTOR option were the categories specified in NUREG/CR-1756, adjusted to our judgment in 1990 where the reference test reactor estimates could be revised. One example was the, cost for security systems. MURR decid,ed the current system we have in use would provide mote than adequate security for the safe storage period so that category estimate was reduced. ' TABLE 4 ANNUAL COST DURING SAFSTOR (in thousands of dollars) SAFSTOR Categories Cost (1989 $) Security 15.0 Minor Maintenance and Repair 10.0 Major Repair 10.0 Offsite Laboratory Work and Equipment Repair 6.0 Reactor Facility Services 50.0 Laboratory Samples, 'EPA Reports, and Surveillance 30.0 Total $121;0 Cost (2009 $) 60.0 40.0 40.0 24.0 200.0 120.0 $ 484.0a "The summation of the estimated annual cost during SAFSTOR IS $14.5 million dollars ($484,000/year x 30 years). Examples-of Items in Each SAFSTOR Category of Table 4 Security

Maintenance of existing security system Minor Maintenance and Repair .' Custodial

Grounds and yard J

Monitoring, supervision and security patrols Offsite Laboratory Work and Equipment Repairs Laboratory Samples, EPA Reports, and Surveillance

Sample analysis

Surveys

Contamination counter repairs

Regulatory reports Reactor Facility Services Major Repair

Electrical

Roof repairs

Water

Ventilation system repairs

HVAC

W ater repair

Sewer Page 5 of9 (d) Provide a numerical example showing how the 2010 cost estimate will be updated periodically in the future.Future cost estimates will be performed using the same methodology that was used for the most recent 2009 estimate, as described below.Adjustment factorThe adjustment factor was designed for updating reference Pressurized Water Reactor (PWR) and Boiling Water Reactor (BWR) decommissioning estimates, but serves as a convenient method to adjust MURR decommissioning cost estimates over time. Whenever a calculation is specified for a PWR or BWR, an average of the PWR and BWR factors is used.The decommissioning cost inflation equation of 10 CFR 50.75(c)(2) is divided into three general categories that tend to escalate similarly:

(1) labor, materials and services, (2) energy and waste transportation, and (3) radioactive waste burial/treatment; A relatively simple equation is used to update the estimate of cost by multiplying the revised original cost estimate (in our case, $11.8 million in 1989 $) by a factor developed using the three categories described above. The equation is: Estimated Cost (2009):= [Cost in1989$]x[ALx+BEx+CB B];= estimated decommissioning costs in 2009 dollars;where:[Cost in 1989 $]= revised original decommissioning cost estimate ($11.8M in 1989 $);A = fraction of the [Cost in 1989 $] attributable to labor, materials and services; B = fraction of the [Cost in 1989 $] attributable to energy and transportation;

ýC = fraction of the [Cost in 1989 $] attributable towaste burial/treatment; L, = labor, materials, and service cost adjustment, January 1989 to January 2009;E,. = energy & waste transportation cost adjustment, January 1989 to January 2009; and Bx = LLW burial/treatment cost adjustment, January 1989 to January 2009.The coefficients in the adjustment factor of 10 CFR 50.75(c)(2) are established as A = 0.65, B =0.13, and C = 0.22. The escalation formula then becomes: Estimated Cost (2009)= [Cost in 1989 $] X [0.65 Lx+0.13 Ex+ 0.22 Bx]Determination of Lx. and B.These ratios are determined using the information supplied in the most recently published NUREG-1307, Report on Waste Burial Charges, Revision 13, November 2008 and by using the most recent U.S. Department of Labor-Bureau of Labor Statistics (BLS) data.

Page 6 of 9 (d) Provide a numerical example showing how the 2010 cost estimate will be updated periodically in the future. Future cost estimates will be performed using the same methodology that was used for the most recent 2009 estimate, as described below. Adjustment factor The adjustment factor was designed for updating reference Pressurized Water Reactor (PWR) and Boiling Water Reactor (BWR) decommissioning estimates, but serves as a convenient to adjust MURR decommissioning cost estimates over time. Whenever a calculation is specified for a PWR or BWR, an average of the PWR and BWR factors is used. The decommissioning cost inflation equation of 10 CFR 50.75(c)(2) is divided into three general categories that tend to escalate similarly:

(1) labor, materials and services, (2) energy and waste transportation, and (3) radioactive waste burial/treatment:

A relatively simple equation is used to update the estimate of cost by multiplying the revised original cost estimate (in our case, $11.8 million in 1989 $) by a factor developed using the three categories described above. The equation is: Estimated .cost (2009): [Cost in 1Q89 $] x [ALx+ B Ex+ C B x]; estimated decommissioning costs in 2009 dollars; where: [Cost in 1989 $] revised original decommissioning cost estimate ($11.8M in 1989 $); A fraction of the [Cost in 1989 $] attributable to labor, materials and services; B fraction of the [Cost in 1989 $] attributable to energy and transportation;

'C fraction of the [Cost in 1989 $] attributable to waste burial/treatment; Lx labor, materials, and service cost adjustment, January 1989 to January 2009; Ex energy & waste transportation cost adjustment, January 1989 to January 2009; and Bx LLW burial/treatment cost adjustment, January 1989 to January 2009. The coefficients in the adjustment factor of 10 CFR 50.75(c)(2) are established as A = 0.65, B = 0.13, and C = 0.22. The escalation formula then becomes: Estimated Cost (2009) [Cost in 1989 $] x [0.65 Lx + 0.13 Ex + 0.22 Bx] Determination of Lx&. and Bx These ratios are determined using the information supplied in the most ,recently published q07, Report on Waste Burial Charges, Revision 13, November 2008 and by using the most recent U.S. Department of Labor-Bureau of Labor Statistics (BLS) data. Page 6 of9 Labor Adjustment FactorThe Employment Cost Index (ECI) is taken from Table 6 of current BLS data entitled"Employment Cost Index for total compensation for private industry workers, by bargaining status, census region and metropolitan area status." The Base L, is taken from Table 3.2, Regional Factorsfor Labor Cost Adjustment in NUREG-1307 referenced above.Lx = [(ECI, January 2009) x (Base Lx)] / 100= [(107.9) x (2.08)] / 100= 2.24 Energy Adjustment Factor This adjustment factor for energy, Ex, is a weighted average of two components, namely, industrial electrical power, Px, and light fuel oil, F,.For the reference PWR: Ex(PWR) = 0.58 P, + 0.42 F, For the reference BWR: Ex(BWR) = 0.54 P, + 0.46 F, P, and F, are the ratios of the current Producer Price Indexes (PPI) divided by the corresponding indexes for January 1986.P, = 190.3 (January 2009 value for code 0543) / 114.2 (January 1986 value for code 0543)= 1.67 F, = 159.8 (January 2009 value for code 0573) / 82.0 (January 1986 value for code 0573)= 1.95 Therefore:

Ex(PWR) E,(BWR)( (0.58 x 1.67) + (0.42 x 1.95) = (0.54 x 1.67) + (0.46 x 1.95)= 1.788 = 1.799 E, for MURR is calculated as an average of Ex(PWR) and EX(BWR), therefore:

Ex(average)

= (1.788 + 1.799)/2= 1.794Waste Burial Adjustment FactorThe adjustment factor for waste burial/treatment, B,, is taken directly from Table 2.1 of NUREG-1307, B_, Values for Generic LLW Disposal Sites, Direct Disposal with Vendor. For facilities that have no disposal site available for LLW, the NUREG assumes the cost of disposal is the same asthat provided for the Atlantic Compact, for lack of a better alternative at this time.Bx(PWR) = 9.872 Bx(BWR) = 11.198 B, for MURR is calculated as an average of B,(PWR) and B,(BWR), therefore:

Page 7 of 9 Labor Adjustment Factor The Employment Cost Index (ECI) is taken from Table 6 of current BLS data entitled "Employment Cost Index for total compensation for private 'industry workers, by bargaining status, census region and metropolitan area status." The Base Lx is taken from Table 3.2, Regional Factors for Labor Cost Adjustment in NUREG-1307 referenced above. Lx [(ECI, January 2009) x (Base Lx)] / 100 [(107.9) x (2.08)] /100 2.24 Energy Adjustment Factor This adjustment factor for energy, Ex, is a weighted average of two components, namely, industrial electrical power, P x , and light fuel oil, Fx. For the reference PWR: For the reference BWR: ExCPWR) ExCBWR) 0.58 P x + 0.42 Fx 0.54 P x + 0.46 Fx P x and Fx are the ratios of the current Producer Price Indexes (PPI) divided by the corresponding indexes for January 1986. P x 190.3 (January 2009 value for code 0543) /114.2 (January 1986 value for code 0543) 1.67 Fx 159.8 (January 2009 value for code 0573) /82.0 (January 1986 value for code 0573) 1.95 Therefore:

Ex(PWR) (0.58 x 1.67) + (0.42 x 1.95) 1.788 Ex(BWR) (0.54 x 1.67) + (0.46 x 1.95) 1.799 Ex for MURR is calculated as an average of ExCPWR) and Ex(BWR), therefore:

ExCaverage)

(1.788 + 1.799) / 2 1.794 Waste Burial Adjustment Factor The adjustment factor for waste burial/treatment, B x , is taken directly from Table 2.1 of NUREG-1307, !!x Values for Generic LLW Disposal Sites, Direct Disposal with Vendor. For facilities that have no disposal site available for LLW, the NUREG assumes the cost of disposal is the same as that provided for the Atlantic Compact, for lack of a better alternative at this time. Bx(PWR) = 9.872 BxCBWR) = 11.198 Bx for MURR is calculated as an average of BxCPWR) and BxCBWR), therefore:

Page 7 0[9 B,(average)= (9.872+

11.198)/2= 10.535Adjusted Decommissioning Cost Estimate Estimated Cost (in 2009 $)= [Cost in 1989 $] x [AL.+B E,+ CBj]= [$11.8Million]

[(0.65 x 2.24) + (0.13 x 1.794) + (0.22 x 10.535)]= [$11.8 Million] [4.007]= $47.3 Million (this includes the 25% contingency)

4. The application indicates that MU plans to use a statement of intent (SOI) as the method to provide decommissioning funding assurance, as provided for by 10 CFR 50.75(e)(1)(iv).

Where the applicant intends to use a S01, the NRC staff must find that the applicant "is a Federal, State, or local government licensee." To make this finding, the applicant must state that it is a State government organization and that the decommissioning funding obligations of the applicant are backed by the State government, and also provide corroborating documentation.

Further, the applicant must provide documentation verifying that the signator of the SOI is authorized to execute said document that binds the University.

This document may be a governing body resolution, management directives, or otherform that provides an equivalent level of assurance.

As the application does not include all of the above information, please submit the following: (a) An updated SOI which includes the current (2010 dollars) cost estimate for decommissioning, a statement that funds for decommissioning will be obtained when necessary, and the signator's oath or affirmation attesting to the information.Enclosed you will find the most recent Statement of Intent, signed by Jacquelyn K. Jones, Vice Chancellor of Administrative Services of the University of Missouri, which provides assurance that funding will be requested from the Board of Curators of the University of Missouri if decommissioning activities are commenced at the MURR.(b) Documentation that corroborates the statement in the application that MU is a State agency and a State of Missouri government licensee under 10 CFR 50. 75(e)(2)(iv).

Enclosed you will find a letter from Kelly Mescher, Office of the General Counsel, University of Missouri, which states that The Curators of the University of Missouri is a state university which was created by the Missouri Constitution in Article IX Section 9(a).(c) A statement as to whether the decommissioning funding obligations for the MURR are backed by the State of Missouri government.

The application must also present documentation that corroborates this statement.

For example, the documentation may be a copy of or complete citation to a state statute that expressly provides that the obligations, or at least the decommissioning funding obligations, of the applicant are backed or supported by the full faith and credit of the State of Missouri, or an opinion of the applicant's General Counsel with citations to statutes, regulations, and/or case law that the obligations, or at least those with respect to the decommissioning funding of the applicant are obligations back or supported by the fullfaith and credit of the State of Missouri.Page 8 of 9 Bx( average) (9.872 + 11.198) / 2 10.535 Adjusted Decommissioning Cost Estimate Estimated Cost (in 2009 $) [Cost in 1989 $] x [A Lx + B Ex + C Bx] [$11.8Million]

[(0.65 x 2.24) + (0.13 x 1.794) + (0.22 x 10.535)] [$11.8 Million] [4.007] $47.3 Million (this includes the 25% contingency)

4. The application indicates that MU plans to use a statement of intent (SOl) as the method to provide decommissioning funding assurance, as provided for by 10 CFR 50. 75(e)(1)(iv).

Where the applicant intends to use a SOL the NRC staff must find that the applicant "is a Federal, State, or local government licensee." To make th'is finding, the applicant must state that it is a State government organization and that the decommissioning funding obligations of the applicant are backed by the State government, and also provide corroborating documentation.

Further, the applicant must provide documentation verifYing that the signator of the SOl is authorized to execute said document that binds the University.

This document may be a governing body resolution, management directives, or otherform that provides an equivalent level of assurance.

As the application does not include all of the above information, please submit the following: (a) An updated SOl which includes the current (2010 dollars) cost estimate for decommissioning, a statement that funds for decommissioning will be obtained when necessary, and the signator's oath or affirmation attesting to the information.

Enclosed you will find the most recent Statement of Intent, signed by Jacquelyn K. Jones, Vice Chancellor of Administrative Services of the University of Missouri, which provides assurance that funding will be requested from the Board of Curators of the University of Missouri if decommissioning activities are commenced at the MURR. (b) Documentation that corroborates the statement in the application that MU is a State agency and a State of Missouri government licensee under 10 CFR 50. 75(e)(2)(iv).

Enclosed you will find a letter from Kelly Mescher, Office of the General Counsel, University of Missouri, which states that The Curators of the University of Missouri is a state university which was created by the Missouri Constitution in Article IX Section 9(a). (c) A statement as to whether the decommissioningfunding obligations for the MURR are backed by the State of Missouri government.

The application must also present documentation that corroborates this statement.

For example, the documentation may be a copy of or complete citation to a state statute that expressly provides that the obligations, or at least the decommissioning funding obligations, of the applicant are backed or supported by the full faith and credit of the State of Missouri, or an opinion of the applicant's General Counsel with citations to statutes, regulations, and/or case law that the obligations, or at least those with respect to the decommissioning funding of the applicant are obligations back or supported by the full faith and credit of the State of Missouri.

Page 8 of9 Enclosed you will find a letter from Kelly Mescher, Office of the General Counsel, University of Missouri, which states that the state is constitutionally required to provide funding to the University.(d) Documentation verifying that the signator of the SOI is authorized to execute such a document that binds the applicant financially.

For example, provide a copy of MU's governing board or equivalent resolution that shows that the signator of the SOI has been authorized by MU to bind MU financially, at least with respect to funding the decommissioning of the MURR, or provide a copy of an official MU delegation of authority showing that the signator of the SOI is authorized to bind MU financially, at least with respect to funding the decommissioning of the MURR.Enclosed is a copy of Section 70.010, "General Execution of Corporate or Board Instruments," from the University of Missouri Collected Rules and Regulations, which authorizes Jacquelyn K.Jones, Vice Chancellor of Administrative Services of the University of Missouri, to execute the Statement of Intent regarding decommissioning costs for the MURR.Page 9 of 9 Enclosed you will find a letter from Kelly Mescher, Office of the General Counsel, University of Missouri, which states that the state is constitutionally required to provide funding to the University. (d) Documentation verifying that the signator of the Sal is authorized to execute such a document that binds the applicant financially.

For example, provide a copy of MU's governing board or equivalent resolution that shows that the signator of the Sal has been authorized by MU to bind MU financially, at least with respect to funding the decommissioning of the MURR, or provide a copy of an official MU delegation of authority showing that the signa tor of the Sal is authorized to bind MU financially, at least with respect to funding the decommissioning of the MURR. Enclosed is a copy of Section 70.010, "General Execution of Corporate or Board Instruments," from the University of Missouri Collected Rules and Regulations, which authorizes Jacquelyn K. Jones, Vice Chancellor of Administrative Services of the University of Missouri, to execute the Statement of Intent regarding decommissioning costs for the MURR. Page 9 of9 Office of the Vice Chancellor for Administrative Services University of Missouri-Columbia 319 Jesse Hall Columbia, MO 65211-1250 PHoNE 573-882-4097 FAX 573-884-4847 To: Director of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 STATEMENT OF INTENT As Vice Chancellor of Administrative Services of the University of Missouri Columbia, Iexercise express authority and responsibility to request from the Board of Curators of the University of Missouri funds for SAFESTOR decommissioning activities associated with operations authorized by the U.S. Nuclear Regulatory Commission Amended Facility Operating License No. R- 103. This authority is established by the Collected Rules and Regulations of the University of Missouri.

Within this authority, I intend to request that funds be made available as necessary for the SAFESTOR decommissioning of the properties owned by the University of Missouri.

The current estimate of total decommissioning costs over the 30 year SAFESTOR period is $47.3 million. I intend to request and obtain these funds over this period sufficiently in advance of required activities to assure timely funding of required activities.

A copy of the University of Missouri Collected Rules and Regulations Section 70.010 is attached as evidence that I am authorized to represent the University of Missouri in this-Jacque1yn K. Jones Vice Chancellor for Administrative Services August 17, 20091

Attachment:

As Stated APPR~OVED THEREu's ONLY ONE~ Mizzou Office of the Vice Chancellor for Administrative Services University of Missouri-Columbia To: Director of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 STATEMENT OF INTENT 319 Jesse Hall Columbia, MO 65211-1250 PHONE 573-882-4097 FAX 573-884-4847 As Vice Chancellor of Administrative Services of the University of Missouri Columbia, I exercise express authority and responsibility to request from the Board of Curators of the University of Missouri funds for SAFESTOR decommissioning activities associated with operations authorized by the U.S. Nuclear Regulatory Commission Amended Facility Operating License No. R-103. This authority is established by the Collected Rules and Regulations ofthe University of Missouri.

Within this authority, I intend to request that funds be made available as necessary for the SAFESTOR decommissioning of the properties owned by the University of Missouri.

The current estimate of total decommissioning costs over the 30 year SAFESTOR period is $47.3 million. I intend to request and obtain these funds over this period sufficiently in advance of required activities to assure timely funding of required activities.

A copy of the University of Missouri Collected Rules and Regulations Section 70.010 is attached as evidence that I am authorized to represent the University of Missouri in this transaction.

-, ...

.. '-' ....

... Cr ?/facqu yn K. Jones Vice Chancellor for Administrative Services August 17,2(J09.:

Attachment:

As Stated THERE'S ONLY ONE MIzzou UNIVERSITY OF MISSOURI COLUMBIA

KANSAS CITY

ROLLA

ST. LOUIS OFFICE OF THE GENERAL COUNSEL 227 UNIVERSITY HALL COLUMBIA, MO 65211 TELEPHONE:

(573) 882-3211 FAX NUMBER: (573) 882-0050 Stephen J. Owens, General counsel Phillip J. Hoskins, Counsel William F. Arnet, Counsel Paul R. Maguffee, CounselKatharine S.

Bunn, Counsel Kathleen Murphy Markie, Counsel Nancie D. Hawke, Counsel Kelly Mescher, Counsel September 1, 2009 Director of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 As a member of the Office of the General Counsel for the University of Missouri and the attorney who represents the Missouri University Research Reactor (MURR) I am able to state that The Curators of the University of Missouri is a state university which was created by the Missouri Constitution in Article IX Section 9(a): Section 9 (a). The government of the state university shall be vested in a board of curators consisting of nine members appointed by the governor, by and with the advice and consent of the senate.And enabled in Section 172.010 RSMo 2008: 172.010. A university is hereby instituted in this.. state, the government whereof shall be vested in a board of curators.The state is constitutionally required to provide funding to the University in Article IX Section 9(b): Section 9(b). The general assembly shall adequately maintain the state university and such other educational institutions as it may deem necessary.

Section 172.020 RSMo 2008 establishes that the University has all the necessary powers to operate as a state entity: 172.020. Pursuant to sections 9(a) and 9(b) of article IX of the Missouri Constitution, the state university is hereby incorporated and created as a body politic and shall be known by the name of "The Curators of the University of Missouri", and by that name shall have perpetual succession, power to sue and be sued, complain and defend in all courts; to make and use a common seal, and to alter the same at pleasure; to Stephen J. Owens, General counsel William F. Amet, Counsel Katharine S. Bunn, Counsel . Nancie D. Hawke, Counsel. UNIVERSITY OF MISSOURI COLUMBIA.

KANSAS CITY. ROLLA. ST. LOUIS OFFICE OF THE GENERAL COUNSEL 227 UNIVERSITY HALL COLUMBIA, MO 65211 TELEPHONE:

(573) 882-3211 FAX NUMBER: (573) 882-0050 September 1 ,2009 Director of Nuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 Phillip J. Hoskins, Counsel Paul R. Maguffee, Counsel Kathleen Murphy Markie, Counsel Kelly Mescher, Counsel As a member of the Office of the General Counsel for the University of Missouri and the attorney who represents the Missouri University Research Reactor (MURR) I am able to state that The Curators of the University of Missouri is a state university which was created by the Missouri Constitution in Article IX Section 9(a): Section 9 (a). The government of the state university shall be vested in a board of curators consisting of nine members appointed by the governor, by' and with the advice and consent of the senate. And enabled in Section 172.010 R'SMo 2008: 172.010. A university is hereby instituted in this state, the government whereof shall be vested in a board of curators.

The state is constitutionally required to provide funding to the University in Article IX Section 9(b): Section 9(b). The general assembly shall adequately maintain the state university and such other educational institutions as it may deem necessary.

Section 172.020 RSMo 2008 establishes that the University has all the necessary powers to operate as a state entity: 172.020. Pursuant to sections 9(a) and 9(b) of article IX of the Missouri Constitution, the state university is hereby incorporated and created as a body politic and shall be known by the name of "The Curators of the University of Missouri", and by that name shall have perpetual succession, power to sue and be sued, complain and defend in all courts; to make and use a common seal, and to alter the same at pleasure; to September 1, 2009 Page 2 take, purchase and to sell, convey and otherwise dispose of lands and chattels, except that the curators shall not have the power to subdivide, sell or convey title to any land contained within a university campus or to subdivide, sell or convey title to any portion of any parcel of land containing in excess of twenty-five hundred contiguous acres unless such transaction is approved by the general assembly by passage of a concurrent resolution signed by the governor.

The curators shall not sell, trade or otherwise convey or permit the severance of timber, minerals or other natural resources, unless the curators comply with bidding procedures established by rule that mandate notice of the transaction be provided in a manner reasonably calculated to apprise prospective purchasers.

Such rule or rules must at a minimum require at least one notice of the transaction be published in a newspaper of general circulation where the resources are located. The curators may act as trustee in all cases in which there be a gift of property or property left by will to the university or for its benefit or for the benefit of students of the university; to condemn an appropriate real estate or other property, or any interest therein, for any public purpose within the scope of its organization, in the same manner and with like effect as is provided in chapter 523, RSMo, relating to the appropriation and valuation oflands taken for telegraph, telephone, gravel and plank or railroad purposes;provided, that if the curators so elect, no assessment of damages or compensation under this law shall be payable and no execution shall issue before the expiration of sixty days after the adjournment of the next regular session of the legislature held after such assessment is made, but the same shall bear interest at the rate of six percent per annum from its date until paid; and provided further, that the curators may, at any time, elect to abandon the proposed appropriation of property by an instrument of writing to that effect, to be filed with the clerk of the court and entered on the minutes of the court, and as to so much as is thus abandoned, the assessment of damages or compensation shall be void.The federal courts have recognized that the University is an arm of state government.

The Court in Sherman v. The Curators of the University of Missouri, 871 F.Supp. 344 (W.D.Mo. 1994), held the University is an alter ego or instrumentality of the State, because the University does not enjoy a significant level of autonomy from the State, and any judgment against the University would ultimately be derived from the state treasury id., It is my opinion that the language of the Missouri Constitution, statutes and relevant case law make clear that there is an obligation for the State of Missouri to provide financial support to the University in its obligations, should decommissioning of the properties owned by the University of Missouri take place.to -September 1 , 2009 Page 2 take, purchase and to sell, convey and otherwise dispose of lands and chattels, except that the curators shall not have the power to subdivide, sell or convey title to any land contained within a university campus or to subdivide, sell or convey title to any portion of any parcel of land containing in excess of twenty-five hundred contiguous acres unless such transaction is approved by the general assembly by passage of a concurrent resolution signed by the governor.

The curators shall not sell, trade or otherwise conveyor permit the severance of timber, minerals or other natural resources, unless the curators comply with bidding procedures established by rule that mandate notice of the transaction be provided in a manner reasonably calculated to apprise prospective purchasers.

Such rule or rules must at a minimum require at least one notice of the transaction be published in a newspaper of general circulation where the resources are located. The curators may act as trustee in all cases in which there be a gift of property or property left by will to the university or for its benefit or for the benefit of students of the university; to condemn an appropriate rea! estate or other property, or any interest therein, for any public purpose within the scope of its organization, in the same manner and with like effect as is provided in chapter 523, RSMo, relating to the appropriation and valuation of lands taken for telegraph, telephone, gravel and plank or railroad purposes; provided, that if the curators so elect, no assessment of damages or compensation under this law shall be payable and no execution shall issue before the expiration of Sixty days after the adjournment of the next regular session of the legislature held after such assessment is made, but the same shall bear interest at the rate of six percent per annum from its date until paid; and provided further, that the curators may, at any time, elect to abandon the proposed appropriation of property by an instrument of writing to that effect, to be filed with the clerk of the court and entered on the minutes of the court, and as to so much as is thus abandoned, the assessment of damages or compensation shall be void. The federal courts have recognized that the University is an arm of state government.

The Court in Sherman v. The Curators of the University of Missouri, 871 F.Supp. 344 (W.O.Mo. 1994), held the University is an alter ego or instrumentality of the State, because the University does not enjoy a significant level of autonomy from the State, and any judgment against the University would ultimately be derived from the state treasury.

Id. It is my opinion that the language of the Missouri Constitution, statutes and relevant case law make clear that there is an obligation for the State of Missouri to provide financial support.to the University in its obligations, should decommissioning of the properties owned by the University of Missouri take place.

70.010 General Execution of Corporate or Board Instruments I Chapter 70: Execution of Instruments

... Page 1 of 1 Columbia I Kansas City I Rolla I St. Louis Collected Rules and Regulations Business Management Chapter 70: Execution of Instruments 70.olo General Execution of Corporate or Board Instruments 172.39o, R.S.Mo. 1959; Bd. Min. 4-11-58, p. 12,512; Amended 5-20-77, p. 37,690 and 3-28-80, p. 38,ioo; Revised Bd.,Min. 6-14-85; 1-21-98, Revised Bd. Min. 5-5-o6.A. All Instruments

-- All instruments affecting The Curators of the University of Missouri, the Board of Curators of the University of Missouri, or the University generally shall be executed on behalf thereof as provided in this section unless execution thereof shall have otherwise been specifically provided for and directed by the Board.B. Real Estate i. Any of the lands donated by the Atlantic & Pacific Railroad Company to the State of Missouri by deed dated the sixteenth day of February, 1871, and all other lands conveyed by corporations or individuals to the State of Missouri for sale in aid of the state university, may be sold and conveyed by the board of curators, and deeds of conveyance to same shall be executed by the president of the board, signed by him, with the seal of the corporation attached thereto, and attested by the secretary of theboard; and provided further, that any conveyances of such lands heretofore made by said board in accordance with the provisions of this section shall divest the State of Missouri of all title to the same and vest said title in the grantees, their heirs and assigns forever.2. Instruments conveying title to real eitate owned by The Curators of the University of Missouri shall, upon approval of same by the Board of Curators or University President as delegated by the Board, be executed in the name of The Curators of the University of Missouri and signed by the President of the University or his/her designee, with the corporate seal affixed, attested by the Secretary.

C. All Contracts, Other Instruments and Agreements

-- All contracts and other instruments and agreements of The Curators of the University of Missouri shall be executed in the name of The Curators of the University of Missouri and signed by the President thereof, the President of the University, the Vice President for Finance and Administration, or such other officer as may be specifically designated by the Board, and the corporate seal may be affixed, attested by the Secretary.

The named officers may, by written authorization, delegate special authority to sign specific instruments on their behalf to the Chancellor of each campus. The named officers and the Chancellors receiving delegation from such officers may, by specific written authorization, delegate to one or more designees all or partial authority to sign instruments on their behalf, such written authorization to be filed with the President, Vice President for Finance and Administration, and Secretary of The Board of Curators.D. Agreements Binding on Board 1. Any instrument heretofore or hereafter executed in conformity with this Section 70.010 shall have the same force and validity as if executed by the President of the Board;2. No contract or other instrument or agreement which has not been duly authorized by The Board of Curators and executed in the manner herein provided or in a manner specifically provided and directed by the Board shall be binding upon The Curators of the University of Missouri.CopyrIght 0 2003-2009 The Curators of the University of Missouri.

shtml 9/10/2009?0.010 General Execution of Corporate or Board Instruments I Chapter 70: Execution oflnstruments

... Page 1 of 1 Columbia I Kansas City I Rolla I St. Louis COllected Rules and Regmations Business Management Chapter 70: Execution of Instruments 70.010 General Execution of Corporate or Board Instruments 172*390, R.S.Mo. 1959; Bd. Min. 4-11-58, p. 12,512; Amended 5-20-77, p. 37,690 and 3-28-80, p. 38,100; Revised Bd .. Min. 6-14-85; 1-21-98, Revised Bd. Min. 5-5-06. A. All Instruments

--All instruments affecting The Curators of the University of Missouri, the Board of Curators of the University of Missouri, or the University generally shall be executed on behalf thereof as provided in this section unless execution thereof shall have otherwise been specifically provided for and directed by the Board. B. Real Estate 1. Any of the lands donated by the Atlantic & Pacific Railroad Company to the State of Missouri by deed dated the sixteenth day of February, 1871, and all other lands conveyed by corporations or individuals to the State of Missouri for sale in aid of the state university, may be sold and conveyed by the board of curators, and deeds of conveyance to same shall be executed by the president of the board, signed by him, with the seal of the corporation attached thereto, and attested by the secretary of the board; and provided further, that any conveyances of such lands heretofore made by said board in accordance with the provisions of this section shall divest the State of Missouri of all title to the same and vest said title in the grantees, their heirs and assigns forever. 2. Instruments conveying title to real eState owned by The Curators of the University of Missouri shall, upon approval of same by the Board of Curators or University President as delegated by the Board, be executed in the name of The Curators of the University of Missouri and signed by the President of the University or his/her designee, with the corporate seal affixed, attested by the Secretary.

C. All Contracts, Other Instruments and Agreements

--All contracts and other instruments and agreements of The Curators of the University of Missouri shall be executed in the name of The Curators of the University of Missouri and signed by the President thereof, the President of the University, the Vice President for Finance and Administration, or such other officer as may be specifically designated by the Board, and the corporate seal may be affixed, attested by the Secretary.

The named officers may, by written authorization, delegate special authority to sign specific instruments on their behalf to the Chancellor of each campus. The named officers and the Chancellors receiving delegation from such officers may, by specific written authorization, delegate to one or more designees all or partial authority to sign instruments on their behalf, such written authorization to be filed with the President, Vice President for Finance and Administration, and Secretary of The Board of Curators. , D. Agreements Binding on Board 1. Any instrument heretofore or hereafter executed in conformity with this Section 70.010 shall have the same force and validity as if executed by the President of the Board; 2. No contract or other instrument or agreement which has not been duly authorized by The Board of Curators and executed in the manner herein provided or in a manner specifically provided and directed by the Board shall be binding upon The Curators of the University of Missouri.

Copyright

DMCA and other copyright information I Accessibility I An equal opportunity/affirmative action institution http://www . umsystem.edulumsl departmentsl gc/rules/businessl7 01010. shtml 9110/2009 200 UNIVERSITY OF MISSOURI GOVERNING BOARD AND ADMINISTRATIVE STAFF ...........................................

1 MANAGEMENT'S DISCUSSION AND ANALYSIS .................................................

2 INDEPENDENT AUDITORS' REPORT ................................................................... 16 BASIC FINANCIAL STATEMENTS:

Statem ent of N et A ssets ........................................................................................

18 Statement of Revenues, Expenses and Changes in Net Assets .............................

20 Statem ent of C ash Flow s ......................................................................................

22 Statem ent of Plan N et A ssets ..............................................................................

24 Statement of Changes in Plan Net Assets .............................................................

24 N otes to Financial Statem ents ...............................................................................

25 REQUIRED SUPPLEMENTARY INFORMATION

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66 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI GOVERNING BOARD AND ADMINISTRATIVE STAFF ...........................................

1 MANAGEMENT'S DISCUSSION AND ANALYSIS ....................................................

.2 INDEPENDENT AUDITORS' REPORT .........................................................................

16 BASIC FINANCIAL STATEMENTS:

Statement of Net Assets .............................................................................................

18 Statement of Revenues, Expenses and Changes in Net Assets .................................

.20 Statement of Cash Flows ...........................................................................................

22 Statement of Plan Net Assets .............

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.24 Statement of Changes in Plan Net Assets .................................................................

.24 Notes to Financial Statements

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25 REQUIRED SUPPLEMENTARY INFORMATION

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66 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI This page is intentionally left blank.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI This page is intentionally left blank. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI UNIVERSITY OF MISSOURI BOARD OF CURATORS Cheryl D. S. Walker, President Buford M. (Bo) Fraser, Vice President Marion H. Cairns John M. Carnahan III Warren K. Erdman Judith G. Haggard Doug Russell Don Walsworth David G. Wasinger Anton H. Luetkemeyer, Student Representative GENERAL OFFICERS Gary D. Forsee, President Gordon H. Lamb, Executive Vice President Stephen J. Owens, General Counsel Steven W. Graham, Interim Vice President for Academic Affairs Gary K. Allen, Vice President for Information TechnologyElizabeth Rodriquez, Vice President for Human Resources Stephen C. Knorr, Vice President for Government RelationsNatalie Krawitz, Vice President for Finance and Administration Michael F. Nichols, Vice President for Research and Economic Development James H. Ross, Chief Executive Officer of University of Missouri Health Care Brady J. Deaton, Chancellor, University of Missouri -Columbia Leo E. Morton, Interim Chancellor, University of Missouri -Kansas City John F. Carney III, Chancellor, Missouri University of Science and Technology Thomas F. George, Chancellor, University of Missouri -St Louis FINANCE STAFF Natalie Krawitz, Vice President for Finance and Administration Jane E. Closterman, Controller Shirley S. DeJarnette, Treasurer Cuba Plain, Assistant Vice President Budget Planning and Development 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI I UNIVERSITY OF MISSOURI BOARD OF CURATORS Cheryl D. S. Walker, President Buford M. (Bo) Fraser, Vice President Marion H. Cairns John M. Carnahan III Warren K. Erdman Judith G. Haggard Doug Russell Don Walsworth David G. Wasinger Anton H. Luetkemeyer, Student Representative GENERAL OFFICERS Gary D. Forsee, President Gordon H. Lamb, Executive Vice President Stephen J. Owens, General Counsel Steven W. Graham, Interim Vice President for Academic Affairs Gary K. Allen, Vice President for Information Technology Elizabeth Rodriquez, Vice President for Human Resources Stephen C. Knorr, Vice President for Government Relations Natalie Krawitz, Vice President for Finance and Administration Michael F. Nichols, Vice President for Research and Economic Development James H. Ross, Chief Executive Officer of University of Missouri Health Care Brady 1. Deaton, Chancellor, University of Missouri -Columbia Leo E. Morton, Interim Chancellor, University of Missouri -Kansas City John F. Carney III, Chancellor, Missouri University of Science and Technology Thomas F. George, Chancellor, University of Missouri -St Louis FINANCE STAFF Natalie Krawitz, Vice President for Finance and Administration Jane E. Closterman, Controller Shirley S. Dejarnette, Treasurer Cuba Plain, Assistant Vice President Budget Planning and Development 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 1 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Management's Discussion and Analysis provides an overview of the financial position and activities of the University of Missouri (the "University")

for the fiscal years ended June 30, 2008, and 2007, and should be read in conjunction with the financial statements and notes. The University is a component unit of the State of Missouri and an integral part of the state's Comprehensive Annual Financial Report.UNIVERSITY ACCOUNTING AND FINANCIAL REPORTING This report includes five financial statements: " The three financial statements for the University of Missouri System and its Aggregate Discretely Presented Component Unit(s) include the Statement of Net Assets, the Statement of Revenues, Expenses, and Changes in Net Assets, and the Statement of Cash Flows.* The two financial statements for the University's fiduciary funds, which include the Retirement and the Other Post-Employment Benefits Trust Funds, are the Statement of Plan Net Assets and the Statement of Changes in Plan Net Assets.The University's financial statements are prepared in accordance with U.S.

generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB), which establishes financial reporting standards for public colleges and universities.

The University's significant accounting policies are summarized in Note 1 to the financial statements of this report, including further information on the financial reporting entity. In addition, a more detailed unaudited financial report that includes campus-level financial statements is available at the University of Missouri, 118 University Hall, Columbia, MO 65211, and at www.umsystem.edu through the Finance and Administration page.FINANCIAL HIGHLIGHTSAt June 30, 2008, the University's financial position continued to strengthen, with Total Assets of almost $5.0 billion. Net Assets, which represent the residual value of the University's assets after deducting liabilities, totaled$3.4 billion. When operating, non-operating, and other changes are included, Net Assets increased by approximately

$127.2 million in fiscal year 2008, including a $19.9 million cumulative effect of a change in accounting principle.

The following charts compare Total Assets, Liabilities, and Net Assets at June 30, 2008, and2007, and the major components of changes in Net Assets for the years ended June 30, 2008, and 2007.Sttmn of Ne Asset

$6,000$5,000 $4,967$4,000$3,303 E Total Assets$3,000=

Net Assets

$2,000 Total Liabilities S$1,537 $ 11,260$1,000$0 2008 2007 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 2 A COMIONENT1 TNI 'I OF1 FT STATE I ) F 01: MISISOURIFOR TH E Y E ARS ENDED JUN E 30, 2008 AND 2007 Management's Discussion and Analysis provides an overview of the financial position and activities of the University of Missouri (the "University")

for the fiscal years ended June 30 , 2008, and 2007 , and should be read in conjunction with the financial statements and notes. The University is a component unit of the State of Missouri and an integral part of the state's Comprehensive Annual Financial Report. UNIVERSITY ACCOUNTING AND FINANCIAL REPORTING This report includes five financial statements:

The three financial statements for the University of Missouri System and i ts Aggregate Discretely Presented Component Unites) include the Statement of Net Assets, the Statement of Revenues , Expenses , and Changes in Net Assets , and the Statement of Cash Flows.

The two financial statements for the University

'S fiduciary funds , which include the Retirement and the Other Post-Employment Benefits Trust Funds, are the Statement of Plan Net Assets and the Statement of Changes in Plan Net Assets. The University'S financial statements are prepared in accordance with U.S. generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GAS B), which establishes financial reporting standards for public colleges and universities. The University

'S significant accounting policies are summarized in Note I to the financial statements of this report , including further information on the financial reporting entity. In addition , a more detailed unaudited financial report that includes campus-level financial statements is available at the University of Missouri , 118 University Hall , Columbia , MO 65211 , and at www.umsystem

.edu through the Finance and Administration page. FINANCIAL IDGHLIGHTS At June 30 , 2008, the University

'S financial position continued to strengthen , with Total Assets of almost $5.0 billion. Net Assets , which represent the residual value of the University'S assets after deducting liabilities , totaled $3.4 billion. When operating , non-operating, and other changes are included , Net Assets increased by approximately

$127.2 million in fiscal year 2008, including a $19.9 million cumulative effect of a change in accounting principle.

The following charts compare Total Assets , Liabilities, and Net Assets at June 30 , 2008 , and 2007 , and the major components of changes in Net Assets for the years ended June 30, 2008 , and 2007. Statement of Net Assets $6 , 000 $5 , 000 $4 , 000

Total Assets "C = eo:! $3 , 000

Net A s set s = Q .c E--$2 , 000 Total Liabilities

$1 , 000 $0 2008 2007 2008 FINAN C IAL R E PORT: UNIV E RSI T Y OF MJSSO U RI 2 A COMPONENT UN IT O F TH E STATE OF M I SSOUR I e ý v5,,ýý / e. Q',M/FOR TI IE YEARS ENDED JUNE 30, 2008 AND 2007 StatementJ ofsI Reeus Ex:p en.~4ses, a nd4I i I~ ~ S Chne inNtAst 6 Operating Revenues m Nonoperating Revenues, Net *M Capital Contributions, Endowments

& Extraordinary Items* Operating Expenses* Increase in Net Assets U.$2,500$2,000$1,500,111 II I$1,000 --$500 2008 2007* includes State Appropriations

& Cumulative Effect of Change in Accounting Principle During fiscal year 2008, the most significant growth in Total Assets was from capital asset expansion and gains in non-endowment investments.

Issuance of new System Facilities Revenue Bonds increased Total Liabilities; theUniversity typically issues new bonds every 2 to 3 years to finance development or improvement of capital assets.The fiscal year 2008 increase in total Net Assets primarily reflects growth in Invested in Capital Assets net of Debt and Unrestricted Net Assets.CONDENSED STATEMENT OF NET ASSETS The Statement of Net Assets presents the University's financial position at the end of the fiscal year, including all assets and liabilities of the University and segregating them into current and noncurrent components. Assets and liabilities are generally measured using current values with certain exceptions, such as capital assets which are stated at cost less accumulated depreciation, and long-term debt which is stated at cost.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT (0ri THE STATE OF MISSIOUIRI 3

FOR T H E Y E AR S ENDED J UNE 30 , 2008 AND 2007

Op e ratin g R ev enue s

No n o p e r a tin g R e venues, N et *

Ca pit a l C o ntribution s, E ndowment s & Extr a ordin ary It e m s $2 , 500 $2,000 c ell '" = o .c $1 , 500 $1 , 000 $500 $--O p e r at ing E xp e n s e s -In c r ease in Net A sse t s

includ es St a te App r opri a ti o ns & Cumul a tiv e Eff ec t of C h a n ge in A cco untin g Principl e During fiscal year 2008 , the most significant growth in Total Assets was from capital asset expansion and gains in non-endowment investments.

Issuance of new System Facilities Revenue Bonds increased Total Liabilities

the University typically issues new bonds every 2 to 3 years to finance development or improvement of capital assets. The fiscal year 2008 increase in total Net Assets primarily reflects growth in Invested in Capital Assets net of Debt and Unrestricted Net Assets. CONDENSED STATEMENT OF NET ASSETS The Statement of Net Assets presents the University's financial position at the end of the fiscal year, including all assets and liabilities of the University and segregating them into current and noncurrent components. Assets and liabilities are generally measured using current values with certain exceptions, such as capital assets which are stated at cost less accumulated depreciation , and long-term debt which is stated at cost. 2008 FINAN IA L R E PORT: UNIV E R S ITY OF MISSOURI A COM P ONENT UN IT OF T HE S T ATE OF MI SSOU RI 3 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The following table summarizes the University's assets, liabilities and net assets at June 30, 2008, 2007, and 2006: Assets, Liabilities, and Net Assets (in thousands of dollars)SFiscal Year Fiscal Year FisCal YVeal_________________

2008 207200 (1 LAssets: --.... YY __ .. .......200 ....Current Assets $ 930,882

-971,247 $Long-Term Investments

-Endowed and Quasi-Endowed Investments 944,492 880,884 4 Other Investments 785,527 593,781Capital Assets, Net 2,227,427 2,039,069 Other Noncurrent.Assets 78,442 77,765 Total Assets $ 4,966,770 1$ 4,562,746

$ 4,13 Liabilities:

_________________

Current Liabilities

$ 629,224 S 553,956 Noncurrent Liabilities i 907,104 705,584 Total Liabilities 1,536,328 I 1,259,540 I 2 , Net Assets: ____________.........______......__

Invested in Capital Assets, Net of Related Debt i 1,439,753 1,379,098 [

2Restricted -

Nonexpendable 718,314 738,153 _'4X8I Expendable 367,519 370,616 Unrestricted 904,856 815,339 Total Net Assets 3,430,442 3,303,206 Total Liabilities and Net Assets 1 $ 4,966,770

$ 4,562,746 1-, 1 4 11 ASSETS Total Assets increased by $404.0 million, or 8.9%, to almost $5.0 billion as of June 30, 2008, compared to the prior year. From fiscal year 2006 to 2007, Total Assets increased by 8.3%. This continued growth reflects the University's efforts to strengthen its capital position, primarily through increasing Long-Term Investments and expanding Capital Assets across all of its campuses to meet housing, educational, and student recreational needs.At June 30, 2008, the University's working capital, which is current assets less current liabilities, was $301.7 million, a decrease of $115.6 million from the previous year. With Current Assets at almost 1.5 times Current Liabilities, the University has adequate working capital reserves.

At June 30, 2007, working capital totaled $417.3 million, an increase of $155.7 million over June 30, 2006.At June 30, 2008, the University held $273.4 million in Cash and Cash Equivalents, a decrease of $134.3 million from June 30, 2007. The June 30, 2007 cash balances of $407.7 million were $140.7 million higher than fiscal year 2006's $267.0 million. The lower balance at the current fiscal year end relates to several factors, including moving cash into longer term investments to achieve better returns in the current market and using cash to establish the University's new Other Postemployment Benefits (OPEB) Trust Fund as discussed in Note 16.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 4 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The following table summarizes the University's assets, liabilities and net assets at June 30, 2008, 2007, and 2006: ASSETS Assets, Liabilities, and Net Assets (in thousands of dollars) r----

i Fiscal Year : I 2008

,$ Long-Term Investments

-I Endowed and Quasi-Endowed Investments 880,884 Other Investments 593,781 Capital Assets, Net 2,039,069 Other NoncurrentAssets*

77 765 Total Assets $ 4,562,746 I Current Liabilities 1$ Noncurrent Liabilities I Total Liabilities Invested in Capital Assets, Net of Related Debt 1,439,753 I Restricted

-i N onexpendable 718,314 ! Expendable 367,519 i Unrestricted 904,856 ! i I Total Net Assets 3,430,442

! Total Liabilities and Net Assets 1$ 4,966,770

$ Total Assets increased by $404.0 million, or 8.9%, to almost $5.0 billion as of June 30, 2008, compared to the prior year. From fiscal year 2006 to 2007, Total Assets increased by 8.3%. This continued growth reflects the University's efforts to strengthen its capital position, primarily through increasing Long-Term Investments and expanding Capital Assets across all of its campuses to meet housing, educational, and student recreational needs. At June 30, 2008, the University's working capital, which is current assets less current liabilities, was $301.7 million, a decrease of $115.6 million from the previous year. With Current Assets at almost 1.5 times Current Liabilities, the University has adequate working capital reserves.

At June 30, 2007, working capital totaled $417.3 million, an increase of$155.7 million over June 30, 2006. At June 30, 2008, the University held $273.4 million in Cash and Cash Equivalents, a decrease of $134.3 million from June 30, 2007. The June 30, 2007 cash balances of $407.7 million were $140.7 million higher than fiscal year 2006's $267.0 million. The lower balance at the current fiscal year end relates to several factors, including moving cash into longer term investments to achieve better returns in the current market and using cash to establish the University's new Other Postemployment Benefits (OPEB) Trust Fund as discussed in Note 16. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 4 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Long-Term and Short-Term Investments totaled $2.0 billion as of June 30, 2008, representing an increase of 15.7% over the prior year. This compares to a 4.4% increase from fiscal year end 2006 to 2007. The higher June 30, 2008 investment balance reflected a shift from cash equivalents, which decreased by $126.4 million from the previous year end, into U.S. government obligations with 6-year or longer maturities, which increased by $204.9 million. Due to market conditions during fiscal year 2008 and resulting unrealized losses, investment and endowment income of $39.7 million declined by 80.4% compared to fiscal year 2007's $202.6 million. The University's endowment funds, comprised primarily of the Balanced and Fixed Income Pools, declined by 7.8% in fiscal year 2008 due to the performance of the U.S. and international equity markets. However, endowment gifts increased by $5.1 million, or 18.2%, over fiscal year 2007. Returns of the University's various investment pools for the year ended June 30, 2008, compared to benchmark indices were as follows:... ... .. .. .. .. .. ...

B enehm arkl-Asset Total Index Distribution Return Return General Pool $ 906,997 6.5% 6.3%Balanced Pool 921,507 -4.8% -3.6%Fixed Income Pool 65,594 -6.1% 7.3%Other Investments 100,015 N/A N/A Benchmark index returns are calculated by independent investment consultants based on returns of similar security portfolios.

In fiscal year 2008, Accounts Receivable increased by $13.7 million, or 5.8% over June 30, 2007. While the related contracts and grants, student tuition, State appropriations, and patient services revenue increased by 6.1%overall, timelier collection of amounts earned kept the increase in receivables lower.In fiscal year 2008, Pledges Receivable declined by 14.0%, from $36.0 million to $30.9 million. The most notable decrease occurred with Current Pledges (those receivable in the coming year) decreasing from $13.0 million to $9.8 million, or 24.5%, while Long-Term Pledges decreased from $23.0 million to $21.1 million, or 8.1%. Only the Missouri University of Science and Technology (Missouri S&T) recognized an increase of Pledges Receivable for the year.During fiscal year 2008, the University's investment in Capital Assets totaled $2.2 billion compared to fiscal year 2007's $2.0 billion. The University added $314.4 million in capital assets during fiscal year 2008, net of retirements, offset by depreciation of $126.0 million for the year. Fiscal year 2007 capital asset additions of $231.2 million, net of retirements, were offset by $119.1 million in depreciation.

Note 7 presents additional information on changes by asset classification, but major additions to Capital Assets during fiscal year 2008 are shown in the following table.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 5* . FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Long-Term and Short-Term Investments totaled $2.0 billion as of June 30, 2008, representing an increase of 15.7% over the prior year. This compares to a 4.4% increase from fiscal year end 2006 to 2007. The higher June 30, 2008 investment balance reflected a shift from cash equivalents, which decreased by $126.4 million from the previous year end, into U.S. government obligations with 6-year or longer maturities, which increased by $204.9 million. Due to market conditions during fiscal year 2008 and resulting unrealized losses, investment and endowment income of $39.7 million declined by 80.4% compared to fiscal year 2007's $202.6 million. The University's endowment funds, comprised primarily of the Balanced and Fixed Income Pools, declined by 7.8% in fiscal year 2008 due to the performance of the U.S. and international equity markets. However, endowment gifts increased by $5.1 million, or 18.2%, over fiscal year 2007. Returns of the University's various investment pools for the year ended June 30, 2008, compared to benchmark indices were as follows: Long-Term and Short-Term Investments I (in thousands of dollars) I ----

-Bencillnark I Asset Total Index Distribution Return Return General Pool 1$ 906,997 6.5% 6.3% Balanced Pool I 921,507 -4.8% -3.6%

i Fixed Income Pool 65,594 *6.1% 7.3% Other Investments 100,015 N/A N/A Benchmark index returns are calculated by independent investment consultants based on returns of similar security por!folios.

In fiscal year 2008, Accounts Receivable increased by $13.7 million, or 5.8% over June 30, 2007. While the related contracts and grants, student tuition, State appropriations, and patient services revenue increased by 6.1 % overall, timelier collection of amounts earned kept the increase in receivables lower. In fiscal year 2008, Pledges Receivable declined by 14.0%, from $36.0 million to $30.9 million. The most notable decrease occurred with Current Pledges (those receivable in the coming year) decreasing from $13.0 million to $9.8 million, or 24.5%, while Long-Term Pledges decreased from $23.0 million to $21.1 million, or 8.1%. Only the Missouri University of Science and Technology (Missouri S&T) recognized an increase of Pledges Receivable for the year. During fiscal year 2008, the University's investment in Capital Assets totaled $2.2 billion compared to fiscal year 2007's $2.0 billion. The University added $314.4 million in capital assets during fiscal year 2008, net of retirements, offset by depreciation of $126.0 million for the year. Fiscal year 2007 capital asset additions of $231.2 million, net of retirements, were offset by $119.1 million in depreciation.

Note 7 presents additional information on changes by asset classification, but major additions to Capital Assets during fiscal year 2008 are shown in the following table. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 5 Jbj ~4/C-'6-'FOR THE YEARS ENDED JUNE 30,2008 AND 2007 Mao Exediue Reae to: CaiaIse diin Campus Expenditures Source of Funding Columbia: Mid-Campus Housing Schurz/Bingham Halls Journalism Renovation

$ 23,713,000 18,824,000 11,667,000Bond Proceeds Bond Proceeds GiftKansas City:

Central Utilities Performance Contract$ 21,394,000 Bond Proceeds

& Plant Missouri S&T: Mechanical Engineering Building Thomas Jefferson North Renovation

$ 19,553,000 8,060,000 State Appropriations, Gifts, & Other Bond Proceeds St Louis: South Campus Garage $ 3,916,000 Plant LIABILITIES Total Liabilities increased

$276.8 million as of June 30, 2008over June 30, 2007 and $41.3 million in fiscal year 2007 over June 30, 2006. Issuance of new bonds, discussed below, represented the largest factor in increasedliabilities. Significant changes in fiscal year 2008 year-end Current Liabilities include a $31.7 million decrease in Collateral for Securities on Loan as a result of lower demand from borrowers; a $95.6 million increase in Investment Settlements Payable for purchases of investments occurring on or before June 30, but settling after June 30; and a $3.5 million increase in Deferred Revenue related to the timing of grants and tuition activity.The University issued $365.2 million of System Facilities Revenue Bonds at the beginning of fiscal year 2008, with$102.3 million used primarily to defease existing debt and $262.9 million to fund new projects.

Bonds were last issued in fiscal year 2006 with $108.9 million for new projects and $191.8 million to defease existing debt. Bonds Payable, net of premium/discount and deferred losses on defeasance, increased by $215.4 million in fiscal year 2008, while decreasing by $14.7 million in fiscal year 2007.The following is a summary of long-term debt by type of debt instrument, including the current and noncurrent portions: LongTer Deb Sumar System Facilities Revenue Bonds Unamortized Premium/Discount and Loss on Defeasance Notes Payable Capital Lease Obligations Fiscal Year Fiscale Year Fiscal ear 2008 2007 2006$ 857,105 $ 645,825- 660,585 11,102 6,960 6,869 868,207 652,785 667,454 2,460 8,892 9,354 9,779$ 879,559 $ 662,139 $ 677,233 I 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 6 Major Expenditures Related to Capital Asset Additions During Fiscal Year Ended June 30, 2008 Campus Expenditures of Funding -._---------

-Columbia:

Mid-Campus Housing $ 23,713,000 Bond Proceeds Schurz/Bingham Halls 18,824,000 Bond Proceeds Journalism Renovation 11,667,000 Gift --Kansas City: Central Utilities Performance Contract $ 21,394,000 Bond Proceeds & Plant Missouri S&T: Mechanical Engineering Building $ 19,553,000 State Appropriations, Gifts, & Other Thomas Jefferson North Renovation 8,060,000 Bond Proceeds St Louis: South Campus Garage $ 3,916,000 Plant LIABILITIES Total Liabilities increased

$276.8 million as of June 30, 2008 over June 30, 2007 and $41.3 million in fiscal year 2007 over June 30, 2006. Issuance of new bonds, discussed below, represented the largest factor in increased liabilities.

Significant changes in fiscal year 2008 year-end Current Liabilities include a $31. 7 million decrease in Collateral for Securities on Loan as a result of lower demand from borrowers; a $95.6 million increase in Investment Settlements Payable for purchases of investments occurring on or before June 30, but settling after June 30; and a $3.5 million increase in Deferred Revenue related to the timing of grants and tuition activity.

The University issued $365.2 million of System Facilities Revenue Bonds at the beginning of fiscal year 2008, with $102.3 million used primarily to defease existing debt and $262.9 million to fund new projects.

Bonds were last issued in fiscal year 2006 with $108.9 million for new projects and $191.8 million to defease existing debt. Bonds Payable, net of premium/discount and deferred losses on defeasance, increased by $215.4 million in fiscal year 2008, while decreasing by $14.7 million in fiscal year 2007. . The following is a summary of long-term debt by type of debt instrument, including the current and noncurrent portions:

Long-Term Debt Summary (in thousands of dollars) Fiscal Year r;fYear I Fiscal Year 2008 2007 2006 System Facilities Revenue Bonds $

$

$ 660,585 r Unamortized Premium/Discount and Loss on Defeasance 11,102 6,960 6,869 868,207 652,785 667,454 Notes Payable 2,460 Capital Lease Obligations i 8,892 9,354 9,779 I $ 879,559 1$ 662,13911

$ 677,233 1 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 6 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007NET ASSETS Net Assets represent the value of the University's assets after liabilities are deducted.

The University's total Net Assets increased by $127.2 million in fiscal year 2008, including

$19.9 million for a change in accounting principle, and $308.2 million in fiscal year 2007. These increases in total Net Assets are reflected in the four component categories as follows:* Invested in Capital Assets, Net of Related Debt, represents the University's investment in capital assets, net of accumulated depreciation and outstanding debt related to acquisition, construction or improvement of those assets. This category increased by $60.7 million to $1.4 billion in fiscal year 2008 and $115.9 million to $1.4 billion in fiscal year 2007 due to issuance of additional revenue bonds in fiscal years 2008 and 2006 and related investment in buildings, equipment, and infrastructure.

To the extent that debt has been issued but not yet expended for capital assets, the amounts are not reflected in these totals.* Restricted Nonexpendable Net Assets include endowment and similar assets that are subject toexternally imposed stipulations for the principal to be maintained in perpetuity by the University.

This category represents the historical value (corpus) of gifts to the University's permanent endowment.

Unrealized market losses contributed to a 2.7% decrease, or $19.8 million, in Restricted Nonexpendable Net Assets during fiscal year 2008, while additional gifts and market gains increased the value by 18.1%, or $113.3 million, during fiscal year 2007." Restricted Expendable Net Assets are resources that are subject to externally imposed stipulationsregarding their use, but are not required to be maintained in perpetuity.

During fiscal year 2008, this category also recognized a decrease of $3.1 million, or 0.8%, and in fiscal year 2007 realized an increase of $4.6 million, or 1.3%. As of June 30, 2008, this category includes:-$262.3 million of net assets restricted for operations and endowment purposes compared to $270.2 million at June 30, 2007;-$77.6 million for student loan programs compared to $75.8 million; and-$27.6 million for facilities compared to $24.6 million.* Unrestricted Net Assets are not subject to externally imposed stipulations although these resources may be designated for specific purposes by the University's management or Board of Curators.

This category increased by $89.5 million, or 11.0%, in fiscal year 2008 and by $74.4 million, or-10%, in fiscal year 2007 over the prior years. As of June 30, 2008, and 2007, capital project-designated funds totaled $145.9 million and $72.0 million, respectively; student loan program-designated funds totaled $5.6 million and $4.9 million, respectively; and unrestricted funds functioning as endow-ments totaled $111.5 million and $157.6 million respectively.

The remaining Unrestricted Net Assets which are not designated and are available for the University's instructional and public service missions and its general operations totaled $641.8 million and $580.9 million at June 30, 2008, and 2007, respectively.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 7 OJ //l /-;)(I a'" . . FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 NET ASSETS Net Assets represent the value of the University's assets after liabilities are deducted.

The University's total Net Assets'increased by $127.2 million in fiscal year 2008, including

$19.9 million for a change in accounting principle, and $308.2 million in fiscal year 2007. These increases in total Net Assets are reflected in the four component categories as follows:

Invested in Capital Assets, Net of Related Debt, represents the University's investment in capital assets, net of accumulated depreciation and outstanding debt related to acquisition, construction or improvement of those assets. This category increased by $60.7 million to $1.4 billion in fiscal year 2008 and $115.9 million to $104 billion in fiscal year 2007 due to issuance of additional revenue bonds in fiscal years 2008 and 2006 and related investment in buildings, equipment, and infrastructure.

To the extent that debt has been issued bilt not yet expended for capital assets, the amounts are not reflected in these totals.

Restricted Nonexpendable Net Assets include endowment and similar assets that are subject to externally imposed stipulations for the principal to be maintained in perpetuity by the University.

This category represents the historical value (corpus) of gifts to the University's permanent endowment.

Unrealized market losses contributed to a 2.7% decrease, or $19.8 million, in Restricted Nonexpendable Net Assets during fiscal year 2008, while additional gifts and market gains increased the value by 18.1 %, or $113.3 million, during fiscal year 2007.

Restricted Expendable Net Assets are resources that are subject to externally imposed stipulations regarding their use, but are not required to be maintained in perpetuity.

During fiscal year 2008, this category also recognized a decrease of $3.1 million, or 0.8%, and in fiscal year 2007 realized an increase of $4.6 million, or 1.3%. As of June 30, 2008, this category includes:

$262.3 million of net assets restricted for operations and endowment purposes compared to $270.2 million at June 30, 2007; $77.6 million for student loan programs compared to $75.8 million; and $27.6 million for facilities compared to $24.6 million.

Unrestricted Net Assets are not subject to externally imposed stipulations although these resources may be designated for specific purposes by the University's management or Board of Curators.

This category increased by $89.5 million, or 11.0%, in fiscal year 2008 and by $74.4 million, or* 1 0%, in fiscal year 2007 over the prior years. As of June 30, 2008, and 2007, capital project-designated funds totaled $145.9 inillion and $72.0 million, respectively; student loan program-designated funds totaled $5.6 million and $4.9 million, respectively; and unrestricted funds functioning as ments totaled $111.5 million and $157.6 million respectively.*

The remaining Unrestricted Net Assets which are not designated and are available for the University's instructional and public service missions and its general operations totaled $641.8 million and $580.9 million at June 30, 2008, and 2007, respectively.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 7 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The distribution of the Net Asset balances, including additional details on unrestricted net assets by fund type, as of June 30, 2008, are as follows: I .Toa Ne Aset $3. bilo0 Restricted Nonexpendable 20.9%Unrestricted

_26.4%Current Operating 71.0%University Loans Invested in Capital 0.6%Assets, Net of Plant Funds Related Debt 16.1%42.0% vPQuasi Endowment 12.3%Restricted I Expendable 10.7%8 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The distribution of the Net Asset balances, including additional details on unrestricted net assets by fund type, as of June 30 , 2008, are as follows: 8 Invested in Capital Assets, Net of Related Debt 42.0% Total Net Assets $3.4 billion Restricted Nonexpendable 20.9% Restricted Expendable 10.7% Current Operating 71.0% University Loans 0.6% Plant Funds 16.1% Quasi Endowment 1 2.3% 2008 FINANCIAL REPORT: UNIV E RSITY OF MISSOURI A C OMPO NEN T U NIT O F THE S TAT E OF FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS The Statement of Revenues, Expenses, and Changes in Net Assets presents the University's results of operations.

The Statement distinguishes revenues and expenses between operating and nonoperating categories, and provides a view of the University's operating margin.ICondensed Statement of Revenues, Expenses, and Changes in Net Assets (in thousands of dollars) I Fiscal Year FNet Tuition and Fees Grants and Contracts Patient Medical Services, Net Other Auxiliary EnterprisesOther Operating RevenuesTotal Operating Revenues$ 417,205* 326,380 681,312 301,156 81,200 1,807,253 288,443 648,802 258,790 94,951 S_Salaries, Wages and Benefits 1,464,051 1,374,7903Supplies, Services and Other Operating Expenses 662,331 608.134 17 Other Operating Expenses 165,481 157,671 4 M,7O Total Operating Expenses 2,291,863 1 2,140,59,5I 1 , 'IL1E Operating Loss (484,610) (448,305)

Q 168)State Appropriations 462,281 -440,855 4,893 Loss after State Appropriations, beforel Nonoperating Revenues (Expenses)

(22,329), 1 .4150) 1 Investment and Endowment Income, Net 39,673 202,3 11 Private Gifts 51,680 5 53,:2 6:8-Other Nonoperating Revenues (Expenses)

(27,572) 1.8,',539)

(19,331)Net Nonoperating Revenues 63,781 237,36 2 15 6,8,27Income before Capital Contributions, Additions to Permanent Endowments and Extraordinary Item 41,452 ,229,912 169,55)2 State Capital Appropriations 15,532 18,138 8,50,3 Capital Gifts and Grants 17,341 12,941 1 6,,Z8,5 Private Gifts for Endowment Purposes 32,995 1 27,917 296,6 Extraordinary Item ___19,317 Increase in Net Assets 107,320 308,225 9,9 Net Assets, Beginning of Year 3,303,206 2,994,981Cumulative Effect of Change in Accounting Principle 19,916 .......................

Net Assets, Beginning of Year, as Adjusted 3,323,122 I 2,994,9891 E84i, =@484,]03 Net Assets, End of Year $ 3,430,442 3,303,206, 1$ F2,9I48119 REVENUES Operating Revenues represent resources generated by the University in fulfilling its instruction, research, and public service missions.

Total Operating Revenues increased by almost $115.0 million, or 6.8% in fiscal year 2008, and by $92.7 million, or 5.8% in fiscal year 2007. Grants and Contracts and Other Auxiliary Enterprises 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 9. FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS The Statement of Revenues, Expenses, and Changes in Net Assets presents the University's results of operations.

The Statement distinguishes revenues and expenses between operating and nonoperating categories, and provides a view ofthe University's operating margin. Condensed Statement of Revenues, Expenses, and Changes in N I' et Assets (in thousands of dollars) Net Tuition and Fees Grants and Contracts Patient Medical Services, Net Other Auxiliary Enterprises Other Operating Revenues Salaries, Wages and Benefits Supplies, Services and Other Operating Expenses Other Operating Expenses Total Operating Expenses Operating Loss State Appropriations Loss after State Appropriations, before Nonoperating Revenues (Expenses)

Investment and Endowment Income, Net Private Gifts Other Nonoperating Revenues (Expenses)

Net Nonoperating Revenues Income before Capital Contributions, Additions to Permanent Endowments and Extraordinary Item State Capital Appropriations Capital Gifts and Grants Private Gifts for Endowment Purposes Extraordinary Item Increase in Net Assets Net Assets, Beginning of Year Cumulative Effect of Change in Accounting Principle Net Assets, Beginning of Year, as Adjusted Net Assets, End of Year REVENUES 417,205 326,380 : 681,312 301,156 81,200 2,291,863 (484,610) 462,281 63,781 41,452 . 15,532 17,341 32,995 107,320 : 3,303,206 19,916 . 3,323,122 : $ 3,430,442 Operating Revenues represent resources generated by the University in fulfilling its instruction, research, and public service missions.

Total Operating Revenues increased by almost $115.0 million, or 6.8% in fiscal year 2008, and by $92.7 million, or 5.8% in fiscal year 2007. Grants and Contracts and Other Auxiliary Enterprises 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 9 Ia~6?99~6flY

~ a~<V 67 67/FOR THE YEARS ENDED JUNE 30, 2008 AND 2007contributed most significantly to the operating revenue gain in fiscal year 2008 while tuition, Patient Medical Services, and other miscellaneous operating revenues had the largest gains in the previous year. Nonoperating Revenues are those not generated by the University's core missions and include such funding sources as State and Federal Appropriations and Gift and Investment Income. Investment and endowment income and gift income arethe largest variable factors in this category.

The following are graphic illustrations of revenues by source, including both operating and nonoperating revenue streams for fiscal year 2008.T o a O p r t n -1 Net Tuition and Fees 23.1%Other Auxiliary//Enterprises 16.7%"Patient Medical Services 37.7%Grants and Contracts

-,, 18.1%Other Operating-

-4.5%Toa Nonpertin Reene $579milo P'rivate Gifts 9.1%Investment Income 7.0%5 Federal and State Appropriations 83.9%2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 10 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 contributed most significantly to the operating revenue gain in fiscal year 2008 while tuition, Patient Medical Services, and other miscellaneous operating revenues had the largest gains in the previous year. Nonoperating Revenues are those not generated by the University's core missions and include such funding sources as State and Federa l Appropriations and Gift and Investment Income. Investment and endowment income and gift income are the largest variab l e factors in this category.

The following are graphic illustrations of revenues by source, including both operating and nonoperating revenue streams for fiscal year 2008. 10 Net Tu i t i on and Fees 23.1% Grants and 18.1% Other 4.5% Total Operating Revenues $1.8 billion Total Nonoperating Revenues $567.9 million Investment Income 7.0% Private Gifts 9.1% Other Auxiliary atient Med i cal Services 37.7% Federal and State Appropriations 83.9% 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A C OMPO NENT UN IT OF THE STATE OF MISSOURI Operating Revenues Tuition and Fees, net of Scholarship Allowances, increased by $15.9 million, or 4.0% in -fiscal year 2008 and by$26.4 million, or 7.0% in fiscal year 2007. The increases in both fiscal year 2008 and 2007 reflect Board-approved increases in tuition and related enrollment fees of 3.8% and 5.0%, respectively, and increases in student enrollments.

As a research institution, the University receives a substantial amount of funding through Federal, State and Private Grants and Contracts.

Overall, sponsored funding increased by $37.9 million, or 13.2% in fiscal year 2008 compared to a 0.5% increase in fiscal year 2007. The University's research programs, with increased funding from all sources, represented most of the fiscal year 2008 increase in sponsored funding. In addition, total federal grants and contracts increased by $24.5 million over the prior year. In fiscal year 2007, decreases in Federal grant funding were largely offset by increases in State grant funding and private grants and contracts.

The University's auxiliary enterprises include the University Health System, Housing and Dining Services, campus Bookstores, and other such supplemental activities.

In fiscal year 2008, Other Auxiliary Enterprises contributed to a $42.4 million, or 16.4%, increase in Operating Revenues over the prior year. Patient Medical Services, which includes fees for services provided by the University Hospitals and Clinics and the University Physicians Practice Plan, increased by $32.5 million, or 5.0%, in fiscal year 2008.Nonoperating Revenues State Appropriations increased by $21.4 million, or 4.9%, in fiscal year 2008, and by $12.0 million, or 2.8%, in fiscal year 2007. As one of the more variable nonoperating revenues, Investment and Endowment Income includes interest and dividend income as well as realized and unrealized gains and losses.

Unrealized market value losses and other activity affecting Investment and Endowment Income contributed to a $163.0 million, or 80.4%, decrease in fiscal year 2008, while in fiscal year 2007, unrealized market gains contributed to a $91.0 million, or 81.4%, increase in value.Gift income is reflected in three categories:

Private Gifts, Capital Gifts and Grants (which are restricted for adding or improving capital assets) and Private Gifts for Endowments (which are restricted for establishing endowments).

Private Gifts and Grants can fluctuate significantly from year to year due to the voluntary nature of donors' gifts. In fiscal year 2008, the University received gifts totaling $102.0 million, compared to fiscal year 2007's $94.1 million and fiscal year 2006's $107.2 million.In fiscal year 2008, State Capital Appropriations of $15.5 million represented a decrease of $2.6 million fromfiscal year 2007's $18.1 million. Fiscal year 2008 state capital appropriations include $15 million for a Mechanical Engineering Building on the University's Missouri S&T campus, of which $10.5 million was spent during the fiscal year, and $28.5 million for Benton and Stadler Halls on the St. Louis campus,'of which about $200,000 was spent.

In addition, state capital appropriations funded several smaller projects, such as $5 million for a plant science research facility in Mexico, Missouri.

Almost all of fiscal year 2007's state capital appropriations, $18.1 million, funded the Health Sciences Center on the Kansas City campus.In fiscal year 2007, the University received net proceeds of $19.3 million resulting from the sale of Missouri Care, L.C., a discretely presented component unit of the University.

The transaction was recorded as an Extraordinary Item in the Statement of Revenues, Expenses and Changes in Net Assets for the year ended June 30, 2007. Refer to Note 19 for additional infonmation.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMP'ONENT UNIT OF THE STATE OF MISSOURI 1 Operating Revenues Tuition and Fees, net of Scholarship Allowances, increased by $15.9 million, or 4.0% in fiscal year 2008 and by $26.4 million, or 7.0% in fiscal year 2007. The increases in both fiscal year 2008 and 2007 reflect Board-approved increases in tuition and related enrollment fees of 3.8% and 5.0%, respectively, and increases in student enrollments.

As a research institution, the University receives a substantial amount of funding through Federal, State and Private Grants and Contracts.

Overall, sponsored funding increased by $37.9 million, or 13.2% in fiscal year 2008 compared to a 0.5% increase in fiscal year 2007. The University's research programs, with increased funding from all sources, represented most of the fiscal year 2008 increase in sponsored funding. In addition, total federal grants and contracts increased by $24.5 million over the prior year. In fiscal year 2007, decreases in Federal grant funding were largely offset by increases in State grant funding and private grants and contracts.

The University's auxiliary enterprises include the University Health System, Housing and Dining Services, campus Bookstores, and other such supplemental activities.

In fiscal year 2008, Other Auxiliary Enterprises contributed to a $42.4 million, or 16.4%, increase in Operating Revenues over the prior year. Patient Medical Services, which includes fees for services provided by the University Hospitals and Clinics and the University Physicians Practice Plan, increased by $32.5 million, or 5.0%, in fiscal year 2008. Nonoperating Revenues State Appropriations increased by $21.4 million, or 4.9%, in fiscal year 2008, and by $12.0 million, or 2.8%, in fiscal year 2007. As one of the more variable nonoperating revenues, Investment and Endowment Income includes interest and dividend income as well as realized and unrealized gains and losses. Unrealized market value losses and other activity affecting Investment and Endowment Income contributed to a $163.0 million, or 80.4%, decrease in fiscal year 2008, while in fiscal year 2007, unrealized market gains contributed to a $91.0 million, or 81.4%, increase in value. Gift income is reflected in three categories:

Private Gifts, Capital Gifts and Grants (which are restricted for adding or improving capital assets) and Private Gifts for Endowments (which are restricted for establishing endowments).

Private Gifts and Grants can fluctuate significantly from year to year due to the voluntary nature of donors' gifts. In fiscal year 2008, the University received gifts totaling $102.0 million, compared to fiscal year 2007's $94.1 million and fiscal year 2006's $107.2 million. . In fiscal year 2008, State Capital Appropriations of $15.5 million represented a decrease of $2.6 million from fiscal year 2007's $18.1 million. Fiscal year 2008 state capital appropriations include $15 million for a Mechanical Engineering Building on the University's Missouri S&T campus, of which $10.5 million was spent during the fiscal year, and $28.5 million for Benton and Stadler Halls on the St. Louis campus; of which about $200,000 was spent. In addition, state capital appropriations funded several smaller projects, such as $5 million for a plant science research facility in Mexico, Missouri.

Almost all of fiscal year 2007's state capital appropriations, $18.1 million, funded the Health Sciences Center on the Kansas City campus. In fiscal year 2007, the University received net proceeds of $19.3 million resulting from the sale of Missouri Care, L.c., a discretely presented component unit of the University.

The transaction was recorded as an Extraordinary Item in the Statement of Revenues, Expenses and Changes in Net Assets for the year ended June 30, 2007. Refer to Note 19 for additional information.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 11 FOR THE YEARS ENDED JUNE 30, 2008 ANt) 2007 OPERATING EXPENSES Total Operating Expenses increased by $151.3 million, or 7.1%, in fiscal year 2008 compared to an increase of$94.8 million or 4.6% in fiscal year 2007. The following graph illustrates the University's operating expenses by natural classification for fiscal year 2008: Operating~~~~~~

Exessb0aualCasfcto Supplies, Services and Scholarships and Other Fellowships 28.9% 1.7%Depreciation 5.5%Benefits -13.6%Salaries and Wages 50.3%During fiscal years 2008 and 2007, Salaries and Wages increased approximately 4.7% and 5.5%, respectively, over the prior fiscal year primarily due to Board-approved employee merit increases and additional full-time equivalent employees. At the same time, Benefits increased by 13.7%, in fiscal year 2008, and 9.7%, in fiscal year 2007. In fiscal year 2008, the University contributed an initial $37 million to establish a trust fund for its other post-employment benefits as a new GASB standard requiring governments to recognize liabilities associated with future benefits became effective.

The University contributed an additional

$16.5 million in pay-as-you-go costs for these other post-employment benefits.

Fiscal year 2007's increased benefits costs related to University contributions formedical, dental and life premiums, as well as contributions to the Retirement Trust Fund.In fiscal year 2008, the University's Supplies, Services, and Other Operating expenses of $662.3 million increased by 8.9% over fiscal year 2007's $608.1 million. In contrast, Supplies, Services, and Other Operating expenses increased by $1.5 million, or 0.3%, in fiscal year 2007 compared to fiscal year 2006. In fiscal year 2008, the cost of goods sold, which directly relates to additional auxiliary enterprise revenues, increased by $7.9 million, or 7.7%.The core missions of instruction, research, and public service account for the largest proportion of Operating Expenses at 38.9% for fiscal year 2008. The University of Missouri Health System constitutes the next highest proportion at 28.2% of expenses for fiscal year 2008. Further, these functions represent approximately the same percentages of operating expenses as in fiscal year 2007. Institutional support, which represents the core administrative operations of the University, was only 4 to 5 cents of each dollar during this 5-year period.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 12 A (OMPONENT UNIT OF THE STATE OF MISSOURI AND 2007 OPERATING EXPENSES Total Operating Expenses increased by $1 51.3 million, or 7.1 %, in fisca l year 2008 compared to an increase of $94.8 million or 4.6% in fiscal year 2007. The following graph illustrates the University's operating expenses by natural classification for fiscal year 2008: Operating Expenses by Natural Classification

-$2.3 billion Supplies , S e rvices a nd Other 2 8.9% Benefits __ ----' 13.6% Scho l a rships a nd F e llow s hip s 1.7% .,..-__ D e pr e ci a ti o n 5.5% ___ Salarie s and W age s 5 0.3% During fiscal years 2008 and 2007, Salaries and Wages increased approximately 4.7% and 5.5%, respectively , over the prior fiscal year primarily due to Board-approved employee merit increases and additional full-time equivalent employees.

At the same time , Benefits increased by 13.7%, in fiscal year 2008 , and 9.7%, in fiscal year 2007. In fiscal year 2008 , the University contributed an initial $37 million to establish a trust fund for its other employment benefits as a new GASB standard requiring governments to recognize liabilities associated with future benefits became effective.

The Universi t y contributed an additional

$16.5 million in pay-as-you-go costs for these other post-employment benefits. Fiscal year 2007's increased benefits costs related to University contributions for medical, dental and life premiums, as well as contributions to the Retirement Trust Fund. In fisca l year 2008 , the University

's Supplies, Services, and Other Operating expenses of $662.3 million increased by 8.9% over fiscal year 2007's $608.1 million. In contrast , Supplies , Services , and Other Operating expenses increased by $1.5 million, or 0.3%, in fiscal year 2007 compared to fiscal year 2006. In fiscal year 2008 , the cost of goods sold , which directly relates to additional auxi l iary enterprise revenues , increased by $7.9 million , or 7.7%. The core missions of instruction , research , and public service account for the largest proportion of Operating Expenses at 38.9% for fiscal year 2008. The University of Missouri Health System constitutes the next highest proportion at 28.2% of expenses for fiscal year 2008. Further, these functions represent approximately the same percentages of operating expenses as in fiscal year 2007. Institutional support , which represents the core administrative operations of the University , was only 4 to 5 cents of each dollar during this 5-year period. 2 008 F I N A NC IA L R E POR T: UN IV E RSITY O F MISSO U RI 1 2 A COM P ONENT UNIT OF T H E STAT E OF M I SSOUR I ai~/FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The following graph illustrates the University's operating expenses by function for the five years ended June 30, 2008: O p r a i n E x e n e b y F u c t o I 100% T-90% t-60% +-----" Instruction

Research" Public Service* Academic Support* Student Services-Institutional Support-U Operation

& Maintenance of Plant Health System* Other Auxiliary Enterprises Scholarships

& Fellowships 50%40% -t--30% -20% -10% 4--i Depreciation 0%/m m I I D 2008 2007 2006 2005 2004 STATEMENT OF CASH FLOWS The Statement of Cash Flows provides information about the University's sources and uses of cash and cash equivalents during the fiscal year. The following summarizes sources and uses of cash and cash equivalents for the three years ended June 30, 2008: Sttmn of Cas Flw(i thuad of dolas)Fiscal Year Fiscal Year 2008 2007 INet Cash Used in Operating ActivitiesNet Cash Provided by Noncapital Financing Activities Net Cash Used in Capital and Related Financing Activities Net Cash Provided by (Used in) Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year$ (344,399)556,155 (110,046)(236,064)(134,354)$ (386,301)567,782 (244,755)203,998 140,724 407,723 266,999$ 273,369 $ 407,7232008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONNENT UNIT OF THE STATE- OF MISSOUtRI 13 FOR THE Y EARS ENDED JUN E 30 , 2008 AND 2007 The fol l owing grap h i ll ustrates the University's operating expenses by fu n ction for t h e five years ended June 30, 2008: Operating Expenses by Function 100%

J nstruction 90%

Re se arch 80%

Public Service 70%

Academic Support 60%

Student Services 50%

I n st i tut io nal Support 40%

Operation

& Maintenance of Plant 30% Health System 20%

Other Auxiliary E nterpri se s 10% Scholarship s & Fellowships 0%

Depreciation 2008 2 00 7 2006 2005 200 4 STATEMENT O F CASH FL O WS The Statement of Cash Flows provides information about the University's sources and uses of cash and cash equiva l ents dur i ng the fiscal year. The following summarizes sources and uses of cash and cash equivalents for the three years ended June 30 , 2008: Statement of Cash Flows (in thousands of dollars) F i sca l Year Fis cal Yea r l F i s cal Year 200 8 2007 2006 Net Cash Used i n Operatin g Activities

$ (344,399)

$ (386,301)

$ (287,403)

Net Cas h Provided by Noncapital Financing Act i vities 556 , 155 567,782 537 , 497 Net Cash Used in Capital and Re l ated F i nancing Activities (110,046)

(244 , 755) (149,628)

Net Cash Provided by (Used i n) Investing Activ i ties (236,064) 203,998 {174, 466 l Net Increase (Decrease) in Cash and C ash Equivalents (134, 354) 140,724 (74,000) Cash and Cash Equivalents , Beginnin g of Year 407,723 266,999 340,999 Cash and Cas h E q uiva l ents , E n d of Year $ 273,369 $ 407,723 $ 266,999 20 08 FINANC[AL R EPORT: UN IV ERS I TY OF MISSOURI A C OMPON E NT UN IT OF THE STAT E OF MI SS O U RI 13 (7 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Net Cash Used in Operating Activities reflects the continued need for funding from the State of Missouri, as funding received from tuition and fees and related sales and services of auxiliary and educational activities are not sufficient to cover operational needs. In fiscal year 2008, $41.9 million less cash was used in operating activities compared to fiscal year 2007 due to increased cash inflows from tuition and fees; federal, state, and private grant revenues; and patient revenues, as well as decreased cash outflows due to higher year-end payables for salaries, staff benefits, and vendor payments.

In fiscal year 2007, cash used in operating activities increased by $98.9 millionover fiscal year 2006 due to lower inflows of cash from operating activities and higher outflows for salaries, benefits, and vendor payments.

The University's most significant source of cash, Net Cash Provided by Noncapital Financing Activities, includes funding from State and Federal appropriations and noncapital private gifts. Cash from these sources totaling $556.2 million in fiscal year 2008, $567.8 million in fiscal year 2007, and

$537.5 million in fiscal year 2006 directly offset the additional cash needs resulting from operations.

In fiscal year 2008, the University issued revenue bonds to finance capital expansions, therefore, Net Cash Used in Capital and Related Financing Activities decreased by $134.7 million compared to fiscal year 2007. Similar results were seen in fiscal year 2006 when the previous revenue bonds were issued, thus decreasing the net cash outflows from capital activities.

In contrast, during the fiscal year 2007 the University used the previous year's bond-generated cash for capital expansion across all campuses.Net Cash Provided by Investing Activities reflected outflows of $236.1 million in fiscal year 2008, compared tothe cash inflows of $204.0 million in fiscal year 2007. Due to difficult market conditions in the current year, the University's investment pool experienced losses on sales and maturities of investments that were not fully offset by interest and dividend income, compared to significant gains during fiscal year 2007. In fiscal year 2006, cash outflows of $174.5 million included losses on sales and maturities of investments during the year exceeding gains from interest and dividend income.ECONOMIC OUTLOOK The University of Missouri continues to provide quality service to students, patients and citizens across the state of Missouri and to strengthen its financial position through positive operating results.

The University received a 4.3%increase in state appropriations for operations for fiscal year 2008 and a 4.8% increase for FY 2009. Given turmoil in the financial markets, the University is closely monitoring the State's ability to continue to provide increased funding in the future.

For the .fifth year in a row, gross tuition and fees continued to surpass State appropriations as the largest source of non-healthcare operating revenues.

This is projected to continue in fiscal year 2009. Tuition rates increased 3.8%in fiscal year 2008 and 4.1% in FY 2009. Coupled with continued enrollment growth on all four campuses, tuition and fee increases ensure the University's ability to maintain positive operating results.

Both headcount~and full-time equivalent enrollment continue to reach historic highs. From fall 2000 to fall 2007, the University of Missouri full-time equivalent enrollments grew 19.7% and accounted for 72% of the increase in enrollments at the State's four-year higher education institutions.

Enrollments are projected to be up significantly in the Fall 2008 as well based on preliminary enrollment numbers.

In 2007, the University granted nearly 14,000 degrees contributing significantly to supporting an educated workforce in Missouri.

This is a 32% increase over a 10-year period. The University of Missouri, as the State's research and land-grant institution of higher education, enrolls the state's top students.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 14 A COMPONENT UNIT OF THE STATE OF MISSOURI. FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Net Cash Used in Operating Activities reflects the continued need for funding from the State of Missouri, as funding received from tuition and fees and related sales and services of auxiliary and educational activities are not sufficient to cover operational needs. In fiscal year 2008, $41.9 million less cash was used in operating activities compared to fiscal year 2007 due to increased cash inflows from tuition and fees; federal, state, and private grant . revenues; and patient revenues, as well as decreased cash outflows due to higher year-end payables for salaries, staff benefits, and vendor payments.

In fiscal year 2007, cash used in operating activities increased by $98.9 million over fiscal year 2006 due to lower inflows of cash from operating activities and higher outflows for salaries, benefits, and vendor payments.

The University's most significant source of cash, Net Cash Provided by Noncapital Financing Activities, includes funding from State and Federal appropriations and noncapital private gifts. Cash from these sources totaling $556.2 million in fiscal year 2008, $567.8 million in fiscal year2007, and $537.5 million in fiscal year 2006 directly offset the additional cash needs resulting from operations.

In fiscal year 2008, the University issued revenue bonds to finance capital expansions, therefore, Net Cash Used in Capital and Related Financing Activities decreased by $134.7 million compared to fiscal year 2007. Similar results were seen in fiscal year 2006 when the previous revenue bonds were issued, thus decreasing the net cash outflows fro'm capital activities.

In contrast, during the fiscal year 2007 the University used the previous year's bond-generated cash for capital expansion across all campuses.

Net Cash Provided by Investing Activities reflected outflows of $236.1 million in fiscal year 2008, compared to the cash inflows of $204.0 million in fiscal year 2007. Due to difficult market conditions in the current year, the University's investment pool experienced losses on sales and maturities of investments that were not fully offset by interest and dividend income, compared to significant gains during fiscal year 2007. In fiscal year 2006, cash outflows of $174.5 million included losses on sales and maturities of investments during the year exceeding gains from interest and dividend income. ECONOMIC OUTLOOK The University of Missouri continues to provide quality service to students, patients and citizens across the state of Missouri and to strengthen its financial position through positive operating results. The University received a 4.3% increase in state appropriations for operations for fiscal year 2008 and a 4.8% increase for FY 2009. Given turmoil in the financial markets, the University is closely monitoring the State's ability to continue to provide increased funding in the future. For the .fifth year in a row, gross tuition and fees continued to surpass State appropriations as the largest source of non-healthcare operating revenues.

This is projected to continue in fiscal year 2009. Tuition rates increased 3.8% in fiscal year 2008 and 4.1 % in FY 2009. Coupled with continued enrollment growth on all four campuses; tuition and fee increases ensure the University's ability to maintain positive operating results. Both headcount.,and time equivalent enrollment continue to reach historic highs. From fall 2000 to fall 2007, the University of Missouri full-time equivalent enrollments grew 19.7% and accounted for 72% of the increase in enrollments at the State's four-year higher education institutions.

Enrollments are projected to be up significantly in the Fall 2008 as well based on preliminary enrollment numbers. In 2007, the University granted nearly 14,000 degrees contributing significantly to supporting an educated workforce in Missouri.

This is a 32% increase over a lO-year period. The University of Missouri, as the State's research and land-grant institution of higher education, enrolls the state's top students.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 14 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University faces increases in unavoidable costs, such as utilities, insurance, the cost of opening new buildings, and increases in the cost of ongoing operations, such as travel due to increased energy' costs, information technology including security, licenses and maintenance, increased costs of compliance and training, libraries, and additional required maintenance and repair expenditures. Increasing costs, in conjunction with rising enrollments and the need to maintain affordability, pose a budgetary challenge for the University.

Cognizant of the many demands on the State's limited resources, the University of Missouri has worked to reduce expenditures through administrative efficiencies and increased revenues from other sources. For example, in fiscal year 2007, the University performed a comprehensive review of university administration with a goal of reducing expenses by 10 percent or $12.4 million. By the end of the review process the University had identified

$20 million in administrative reductions for reinvestment in academic and strategic priorities.

In fiscal year 2008, the Board of Curators requested a review of academic programs and processes which generated efficiencies equal to 1 percent of the operations budget, approximately

$9 million, to fund the University's highest strategic priorities.

For fiscal year 2009, the University will use a combination of internal reallocations and efficiencies to fund $8.1 million in cost increases and strategic investments.

Senate Bill 389 passed by the General Assembly in June 2007 has had and will continue to have an impact on higher education in Missouri in the coming years. The Legislation includes additional authority for the Department of Higher Education, limits on increases in tuition unless a waiver is granted, additional reporting requirements, and additional funding for student aid for Missouri students.The University of Missouri Health System continues to improve its operating revenues and financial position in fiscal year 2008. As in prior years, the Health System is committed to improving patient care and has increased its focus on improvements in customer service and quality and growth in clinical areas. State funding for operations and facilities has helped in providing for uncompensated care and graduate medical education.

An overall fee increase of 5% was implemented in fiscal year 2008 and pricing revisions continue as needed. For the future, theHealth System continues to focus on its physician recruitment plans, patient satisfaction, and efforts to reduce the cost of operations.

In addition, the Health System is beginning strategic capital improvements, which include constructing a $48.0 million Orthopedic Institute and replacing the Ellis Fischel Cancer Center using

$31.2 million in State capital funding appropriated in 2008.The University continues to strengthen and diversify its funding sources through effective endowment management, increased private giving, and additional Federal research funding.

During fiscal year 2008, private giving across the University increased, but fiscal year 2009 will be challenging due to the current economic and financial uncertainties.

The University's Columbia campus is concluding a $1.0 billion capital campaign in December 2008, while Missouri S&T is in the midst of a $200 million capital campaign slated to finish in 2010.Coupled with its growth in Federal grant funding, the University also has been recovering more of the facilities and administrative costs associated with sponsored research through negotiating an increased cost recovery rate for fiscal years 2007 through 2009. The University is currently in the process of negotiating its cost recovery rate forfiscal years 2010 through 2012 and is seeking further increases to more fully cover those costs for future research.With the addition of economic development as its fourth mission, the University accelerated its partnerships with the state of Missouri and the private sector in support of economic initiatives that build on the University's research strength.

Included are the new research park, Discovery Ridge, and newly-opened Life Sciences Business Incubator at the University of Missouri-Columbia campus, and the new business technology park at the University of Missouri-St Louis campus. Anchor tenants from the private sector are operating at both parks.

The University's technology transfer operation has been reorganized and strengthened to ensure that the breakthroughs that are achieved in the laboratory benefit the citizenry as rapidly as possible.The national and state economic downturn will likely pose budgetary challenges for the University in the immediate future. However, strong demand demonstrated by growing enrollments, highly successful capital campaigns, and robust research funding are all factors in the positive outlook for the University of Missouri.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 15 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University faces increases in unavoidable costs, such as utilities, insurance, the cost of opening new buildings, and increases in the cost of ongoing operations, such as travel due to increased*

energy' costs, information technology including security, licenses and maintenance, increased costs of compliance and training, libraries, and additional required maintenance and repair expenditures.

Increasing costs, in conjunction with rising enrollments and the need to maintain affordability, pose a budgetary challenge for the University.

Cognizant of the many demands on the State's limited resources, the University of Missouri has worked to reduce expenditures through administrative efficiencies and increased revenues from other sources. For example, in fiscal year 2007, the University performed a comprehensive review of university administration with a goal of reducing expenses by 10 percent or $12.4 million. By the end of the review process the University had identified

$20 million in administrative reductions for reinvestment in academic and strategic priorities.

In fiscal year 2008, the Board of Curators requested a review of academic programs and processes which generated efficiencies equal to 1 percent of the operations budget, approximately

$9 million, to fund the University'S highest strategic priorities.

For fiscal year 2009, the University will use a combination of internal reallocations and efficiencies to fund $8.1 million in cost increases and strategic investments.

Senate Bill 389 passed by the General Assembly in June 2007 has had and will continue to have an impact on higher education in Missouri in the coming years. The Legislation includes additional authority for the Department of Higher Education, limits on increases in tuition unless a waiver is granted, additional reporting requirements, and additional funding for student aid for Missouri students.

The University of Missouri Health System continues to improve its operating revenues and financial position in fiscal year 2008. As in prior years, the Health System is committed to improving patient care and has increased its focus on improvements in customer service and quality and growth in clinical areas. State funding for operations and facilities has helped in providing for uncompensated care and graduate medical education.

An overall fee increase of 5% was implemented in fiscal year 2008 and pricing revisions continue as needed. For the future, the Health System continues to focus on its physician recruitment plans, patient satisfaction, and efforts to reduce the cost of operations.

In addition, the Health System is beginning strategic capital improvements, which include constructing a $48.0 million Orthopedic Institute and replacing the Ellis Fischel Cancer Center using $31.2 million in State capital funding appropriated in 2008. The University continues to strengthen and diversifY its funding sources through effective endowment management, increased private giving, and additional Federal research funding. During fiscal year 2008, private giving across the University increased, but fiscal year 2009 will be challenging due to the current economic and financial uncertainties.

The University's Columbia campus is concluding a $1.0 billion capital campaign in December 2008, while Missouri S&T is in the midst of a $200 million capital campaign slated to finish in 20 I O. Coupled with its growth in Federal grant funding, the University also has been recovering more of the facilities and administrative costs associated with sponsored research through negotiating an increased cost recovery rate for fiscal years 2007 through 2009. The University is currently in the process of negotiating its cost recovery rate for fiscal years 2010 through 2012 and is seeking further increases to more fully cover those costs for future research.

With the addition of economic development as its fourth mission, the University accelerated its partnerships with . the state of Missouri and the private sector in support of economic initiatives that build on the University'S research strength.

Included are the new research park, Discovery Ridge, and newly-opened Life Sciences Business Incubator at the University of Missouri-Columbia campus, and the new business technology park at the University of Missouri-St Louis campus. Anchor tenants from the private sector are operating at both parks. The University'S technology transfer operation has been reorganized and strengthened to ensure that the breakthroughs that are achieved in the laboratory benefit the citizenry as rapidly as possible.

The national and state economic downturn will likely pose budgetary challenges for the University in the immediate future. However, strong demand demonstrated by growing enrollments, highly successful capital campaigns, and robust research funding are all factors in the positive outlook for the University of Missouri.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 15 KPMG LLP Suite 900 10 South Broadway St. Louis, MO 63102-1761 Independent Auditors' Report The Board of Curators University of Missouri: We have audited the accompanying financial statements of the business-type activities, the aggregatediscretely presented component units, and the aggregate remaining fund information of the University of Missouri, a component unit of the State of Missouri, as of and for the years ended June 30, 2008 and 2007, which collectively comprise the University of Missouri's basic financial statements as listed in the table of contents.

These financial statements are the responsibility of the University of Missouri's management.

Our responsibility is to express opinions on these financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University of Missouri's internal control over financial reporting.

Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinions.

In our opinion, the financial statements referred to above present fairly, in all material respects, therespective financial position of the business-type activities, the aggregate discretely presented component units, and the aggregate remaining fund information of the University of Missouri as of June 30, 2008 and 2007, and the respective changes in financial position, and where applicable, cash flows thereof for the years then ended in conformity with U.S. generally accepted accounting principles.

Effective July 1, 2007, the University of Missouri implemented Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, and effective June 19, 2008, the University of Missouri implemented Governmental Accounting Standards Board Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans.In accordance with Government Auditing Standards, we have also issued our report dated October 31, 2008 on our consideration of the University of Missouri's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.KPMG LLP, a U.S. limited liability partnership, is the U.S.member firm of KPMG International, a Swiss cooperative.

16 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 16 The Board of Curators University of Missouri:

KPMG LLP Suite 900 10 South Broadway SI. Louis, MO 63102-1761 Independent Auditors' Report We have audited the accompanying financial statements of the business-type actIVItIes, the aggregate discretely presented component units, and the aggregate remaining fund information of the University of Missouri, a component unit of the State of Missouri, as of and for the years ended June 30, 2008 arid 2007, which collectively comprise the University of Missouri's basic financial statements as listed in the table of contents, These financial statements are the responsibility of the University of Missouri's management.

Our responsibility is to express opinions on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University of Missouri's internal control over financial reporting.

Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinions.

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities, the aggregate discretely presented component units, and the aggregate remaining fund information of the University of Missouri as of June 30, 2008 and 2007, and the respective changes in financial position, and where applicable, cash flows thereof for the years then ended in conformity with U.S. generally accepted accounting principles.

Effective July I, 2007, the University of Missouri implemented Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions.

and effective June 19, 2008, the University of Missouri implemented Governmental Accounting Standards Board Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. In accordance with Government Auditing Standards, we have also issued our report dated October 31, 2008 on our consideration of the University of Missouri's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance.

That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. KPMG LLP, a u.s. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI '.

The management's discussion and analysis on pages 2 through 15, the schedules of employer contributions and the schedules of funding progress on pages 66 and 67 are not a required part of the basic financial statements but are supplementary information required by U.S. generally accepted accounting principles.

We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.

However, we did not audit the information and express no opinion on it.SMG L CP St. Louis, Missouri October 31, 2008 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 17 The management's discussion and analysis on pages 2 through 15, the schedules of employer contributions and the schedules of funding progress on pages 66 and 67 are not a required part of the basic financial statements but are supplementary information required by u.s. generally accepted accounting principles.

We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.

However, we did not audit the information and express no opinion on it. St. Louis, Missouri October 31, 2008 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 17 STTMNTO E ASST As of Jun 30:, 208ad20 Discretely Presented Component Unit(s)University i 2008 20072008 2007>27,`IAssets, Current Assets: Cash and Cash Equivalents Restricted Cash and Cash Equivalents Short-Termn Investments Restricted Short-Term InvestmentsAccounts Receivable, Net Pledges Receivable, Net Investment Settlements Receivable Notes Receivable, Net Due From (To) Component Units and Retirement Inventories Prepaid Expenses and Other Current Assets Total Current Assets Noncurrent Assets: Restricted Cash and Cash Equivalents Pledges Receivable, Net Notes Receivable, Net Deferred Charges and Other Assets Restricted Other Assets Long-Term Investments Restricted Long-Term Investments Capital Assets, Net Total Noncurrent Assets Total Assets S 57,987 215,382 172,294 91,800 249,654 9,796 72,878 13,747 (4,355).33,063 18,636 930,882 21,147 46,898 10,397 810,655 919,364 2,227,427 4,035,888$ 4,966,770 S 137,640 270,083 131,311 117,735 235,975 12,980 3,617 14,599 (4,062)33,121 18,248 971,247 23,000 45,425 9,340 707,333 767,332 2,039,069 3,_59_1,499

$ 4,562,746$ 5,054 18,719 4,355 2,690 1,2 19 32,037 4,301 1,384 2,963 25,367 75,159 109,174$ 141,211$ 2,358 19,262 4,109 2,331 2,137 30,197 4,213 1,377 4,904 21,957 75,614 108,065$ 138,262 HLIM iiisC,>*1 Current Liabilities:

Accounts Payable Accrued Liabilities Deferred Revenue Funds Held for Others Investment Settlements Payable Collateral for Securities on Loan Capital Lease Obligations Bonds and Notes Payable Total Current Liabilities Noncurrent Liabilities:

Capital Lease Obligations Bonds and Notes Payable Deferred Revenue Other Noncurrent Liabilities Total Noncurrent Liabilities Total Liabilities S 105,024 120,967 67,821 70,744 136,606 106,360 501 21,201 629,224 8,391 849,466 1,876 47,371 907,104*1,536,328

$ 101,330 114,976 64,030 77,148 41,021 138,014 462 16,975 553,956 8,892 635,810 2,162 58,720 705,584 1,259,540$ 4,120 9,895 27 970 15,012 44 36,090 703 36,837 51,849$ 4,134 8,874 30 935 13,973 71 37,060 635 37,766 51,739 (continued) 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 18 STATEMENT OF NET ASSETS As of June 30, 2008 and 2007 (in thousands of dollars) University 2008 Current Assets: Cash and Cash Equivalents

$ 57,987 $ 137,640 Restricted Cash and Cash Equivalents 215,382 270,083 Short-Tenn Investments 172,294 131,311 Restricted Short-Tenn Investments 91,800 117,735 Accounts Receivable, Net 249,654. 235,975 Pledges Receivable, Net 9,796 12,980 Investment Settlements Receivable 72,878 : 3,617 Notes Receivable, Net 13,747 . 14,599 Due From (To) Component Units and Retirement' (4,355) (4,062) Inventories 33,063 . 33,121 Prepaid Expenses and Other Current Assets 18,636 . 1 Total Current Assets 930,882 Noncurrent Assets: Restricted Cash and Cash Equivalents Pledges Receivable, Net 21,147 : 23,000 Notes Receivable, Net 46,898 ; 45,425 Deferred Charges and Other Assets 10,397 . 9,340 Restricted Other Assets Long-Term Investments 810,655 : 707,333 Restricted Long-Tenn Investments 919,364 767,332 Capital Assets, Net 2,227,427

' Total Noncurrent Assets 4,035,888 Total Assets i$ 4,966,770 I Current Liabilities:

Accounts Payable $ 105,024 ' $ 101,330 Accrued Liabilities 120,967 114,976 Deferred Revenue 67,821 64,030 Funds Held for Others 70,744 77,148 Investment Settlements Payable 136,606 41,021 Collateral for Securities on Loan 106,360. 138,014 Capital Lease Obligations 501 462 Bonds and Notes Payable 21,201 Total Current Liabilities 629,224 Noncurrent Liabilities:

Capital Lease Obligations 8,391 i 8,892 Bonds and Notes Payable 849,466 I 635,810 Deferred Revenue 1,876 i 2,162 Other Noncurrent Liabilities 47,371 : 5 720 Total Noncurrent Liabilities 907,104 i Total Liabilities 1,536,328

Discretely Presented Component Unites) 2008 $ 5,054 $ 2,358 18,719 19,262 4,355 2,690 1,219 32,037 4,301 ; 4,213 1,384 1,377 2,963 4,904 25,367 21,957 75,159 109,174 $ 141,211 $ 4,120 $ 4,134 9,895 8,874 27 30 970 15,012 44 71 36,090 37,060 703 635 I 36,837 , I 51,849 (continued) 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 18 A COMPONENT UNIT OF THE STATE OF MISSOURI STAEMET O NE ASET Aso ue3,20 a n 2007 Discretely Presented University Component Unit(s)2166k08 k~20 >t F 0-0 8 -- 0 Invested in Capital Assets, Net of Related Debt 1,439,753 Restricted:

Nonexpendable

-Endowment 718,314 Expendable

-Scholarships, Research, Instruction and Other 262,266 Loans 77,656 Capital Projects 27,597 Unrestricted 904,856 Total Net Assets 3,430,442Total Liabilities and'Net Assets 1 $ 4,966,770 38,463 2,963 47,936 89,362$ 141,211 See notes to the financial statements.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 19 STATEMENT OF NET ASSETS I' As of June 30, 2008 and 2007 (in thousands of dollars) Invested in Capital Assets, Net of Related Debt Restricted:

Nonexpendable

-Endowment Expendable

-Scholarships, Research, Instruction and Other Loans Capital Projects Unrestricted Total Net Assets Total Liabilities and Net Assets See notes to the financial statements.

University 262,266 i 77,656 ! 27,597 I 904,856 I 3,430,442

I $ 4,966,770 I 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI Discretely Presented Component Unit(s) . 38,463 I I I 2,963 I i I I 47,936 i 89,362 i : i : $ 141,211 I 19 SATMN OFRVNE, XESS AN CHNE INNE ASST Discretely Presented University Component Unit(s)2008 2007 _ 2008 2007 I Operating Revenues: Tuition and Fees (Net of Provision for Doubtful Accounts of $5,674 in 2008 and $4,810 in 2007)Less: Scholarship Allowances Net Tuition and Fees Federal Grants and Contracts State and Local Grants and Contracts Private Grants and Contracts Sales and Services of Educational Activities Auxiliary Enterprises

-Patient Medical Services, Net Housing and Dining Services (Net of Scholarship Allowance of $502 in 2008 and $490 in 2007)BookstoresOther Auxiliary Enterprises (Net of Scholarship Allowance of $6,351 in 2008 and $6,343 in 2007)Notes Receivable Interest Income, Net of FeesOther Operating Revenues Total Operating Revenues$ 557,085 139,880 417,205 211,648 54,414 60,318 19,569 681,312 72,503 61,423 167,230 566 61,065 1,807,253 1,153,676 310,375 662,331 39,485 125,996 2,291,863$ 537,832 136,527 401,305 187,130 47,045 54,268 22,346 648,802 66,828 56,930 135,032 378 72,226 1,692,290 1,101,867 272,923 608,134 38,602 119,069 2,140,595 1$$147,932 217,796 147,932 217,796-57,-984 5 51,911I 6pperatifigExpenrs'es:'

Salaries and Wages BenefitsSupplies, Services and Other Operating Expenses Scholarships and Fellowships Depreciation Total Operating Expenses 12,589 64,878 10,061 145,512 11,450 144,449 10,132.2!7,942 Operating Income (Loss)State Appropriations Income (Loss) after State Appropriations, before Nonoperating Revenues (Expenses) oioperqain-Revenues (ExPenses):

Federal Appropriations Investment and Endowment Income, Net of FeesPrivate Gifts Interest Expense Other Nonoperating Revenues (Expenses)

Net Nonoperating Revenues 484,610)1 (448,305) 2,420 (146)462,281 440,855 , _ _(22,329)1 1 (7,450 2,420 ( 46)14,277 14,105 [39,673 202,633 1,844 1,500 51,6801 53,268 15 I (37,099)1 (29,497) (1,760y)i (1,813)(4,750)i (3,147) 320 1,378 63,781 1 237,362 1 419 i 1 1,0651 (continued) 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 20 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS For the Years Ended June 30, 2008 and 2007 (in thousands of dollars) Discretely Presented University Component Unites) [2perating Revenues:

2008' ,: I "7'7 r-s" Tuition and Fees (Net of Provision for Doubtful Accounts of $5,674 in 2008 and $4,810 in 2007) Less: Scholarship Allowances Net Tuition and Fees Federal Grants and Contracts State and Local Grants and Contracts Private Grants and Contracts Sales and Services of Educational Activities Auxiliary Enterprises

-Patient Medical Services, Net Housing and Dining Services (Net of Scholarship Allowance of $502 in 2008 and $490 in 2007) Bookstores Other Auxiliary Enterprises (Net of Scholarship Allowance of$6,351 in 2008 and $6,343 in 2007) Notes Receivable Interest Income, Net of Fees Other Operating Revenues Total Operating Revenues $ 557,085 139,880 417,205 ' 211,648 ! 54;414 i 60,318 19,569 , 681,312 ' 72,503 I 61,423 i 167,230 566 ' I 61,065 : 1,807,253

$ 537,832 136,527 401,305 1 187,130 47,045 54,268 22,346 648,802 66,828 56,930 135,032 378 72,226 1,692,290 1 i$ $ I 147,932 , 217,796 147,932

217,7961

____________

--,-_ __ '-----J Salaries and Wages Benefits Supplies, Services and Other Operating Expenses Scholarships and Fellowships Depreciation Total Operating Expenses 1,153,676:

1,101,867 310,375 i 272,923 662,331 ! 608,134 39,485 i 38,602 125,996: 119,069 2,291,863 i 2,140,595 I ! Operating Income (Loss) (484,610):

(448,305)

State Appropriations 462,281 I 440,855 57,984 / 51,911 12,589 i 11,450 64,878 i 144,449 i 10,061 I 10,132 145,512 ! 217,9421 I i 2,420 : (146) I Income (Loss) after State Appropriations, before I I I I Nonoperating Revenues (Expenses)

(22,329)1 (7,450) I 2,420(146)

______

n. m'l'i . ..\.' '., -",,1 .,

... t.fmuft Federal Appropriations 14,277 I 14,105 I i Investment and Endowment Income, Net of Fees 39,673 I 202,633 1,844 i 1,500 Private Gifts 51,680 : 53,268 15 : I Interest Expense (37,099):

(29,497) (1,760)1 Other Nonoperating Revenues (Expenses)

(4,750)1 (3,147) 320 i Net Nonoperating Revenues 63,781 , 237,3621 419 I (1,813) 1,378 1,0651 (continued) 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 20 A COMPONENT UNIT OF THE STATE OF MISSOURI STTMN OF RVNEEPNEADCNGS IN NESST Fo the Years Ende Jun 30, 2008 an20 Discretely Presented Component Unit(s)University 2008 2007 2008 2007 77-2 Income before Capital Contributions, Additions to Permanent Endowments and Extraordinary Items State Capital Appropriations Capital Gifts and Grants Private Gifts for Endowment Purposes Extraordinary Items: Net Proceeds from Sale of Missouri Care Gain from Sale of Missouri Care Increase (Decrease) in Net Assets Net Assets, Beginning of Year Cumulative Effect of Change in Accounting Principle Net Assets, Beginning of Year, as Adjusted Net Assets, End of Year 41,452 15,532 17,341 32,995 107,320 3,303,206 19,916 3,323,122$ 3,430,442 2~29,912 18,1~38.12,941 27,9 17 1 93 17~~30J8,225 2,994,981 2i,9947'81 S 3133,206 2,839 2,839 86,523 86,523$ 89,362 9L)2 86S,523 See notes to the financial statements.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 21 I STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS , For the Years Ended June 30, 2008 and 2007 I : (in thousands of dollars) I Income before Capital Contributions, Additions to Permanent Endowments and Extraordinary Items , State Capital Appropriations Capital Gifts and Grants Private Gifts for Endowment Purposes Extraordinary Items: Net Proceeds from Sale of Missouri Care Gain from Sale of Missouri Care Increase (Decrease) in Net Assets Net Assets, Beginning of Year Cumulative Effect of Change in Accounting Principle Net Assets, Beginning of Year, as Adjusted Net Assets, End of Year See notes to the financial statements.

University r--------, 41,452 ' 15,532 ' I 17,341 I 32,995 ! I 107,320 I I 3,303,206

19,916 3,323,122

$ 3,430,442 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI $ Discretely Presented Component Unit(s) 2,839 : i 2,8391 86,523 i , 86,523 ! 89,362 : 21 STTEENO CAS FOS 2008 2007 Tuition and Fees 417,719 $ *385,288 Federal, State and Private Grants and Contracts 336,045 274,;560 Sales and Services of Educational Activities andOther Auxiliaries 181,217 160,880 Patient Care Revenues 671,091 641,648 Student Housing Fees 74,452 1 65,917 Bookstore Collections 61,769 56,764'Payments to Suppliers (650,475)

(635,227)Payments to Employees (1,147,430)

(1,096,086)

Payments for Benefits (310,375)

(272,923)Payments for Scholarships and Fellowships (39,485)1 (38,602)Student Loans Issued (12,071) (12,291)Student Loans Collected 10,987 11,102 Student Loan Interest and Fees 1,092 443 Other Receipts, Net 61,065 72,226 Net Cash Used in Operating Activities (3 4 4,3 9 9)) L (38,301)j State Appropriations 462,281 440,855 Federal Appropriations 12,810 13,554 Private Gifts 56,717 58,287 Endowment and Similar Funds Gifts 32,995 27,917 Other Receipts (Payments)

(2,244) 17,!86 1 Deposits of Affiliates (6,404) 9,308 Net Cash Provided by Noncapital Financing Activities 556,155 I 567,782 1~~ ~~ :118ig;798 iie Capital State Appropriations 10,452 18798Capital Gifts and Grants 17,341 12,941 Proceeds From Sales of Capital Assets 1,083 1,649 Purchase of Capital Assets (317,944)

(234,'535)

Proceeds from Issuance of Capital Debt, Net 376,452 Principal Payments on Capital Debt (56,975) (14,760)Proceeds from Capital Project Notes 158,800 115,900 Payments on Capital Project Notes (160,000)l (11500)Payments on Capital Lease (462)1 (425)Escrow Deposit on Defeasance (96,965)Loss on Defeasance (3,844)1 Payments on Cost of Debt Issuance (2,282)!Interest Payments on Capital Debt (35,702)1 (29,323)Net Cash Used in Capital and Related Financing Activities (110,046)1 ( -244,755)1 Interest and Dividends on Investments 99,815 72,469 Purchase of Investments, Net of Sales and Maturities (336,172)!

131,443 Other Investing Activities 293 86 Net Cash Provided by (Used in) Investing Activities (236,064) 1 2103,998 I Net Increase (Decrease) in Cash and Cash Equivalents (134,354)!

140,724 Cash and Cash Equivalents, Beginning of Year 407,723 266,999Cash and Cash Equivalents, End of Year $ 273,369 I $ 407,723 (continued) 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 22 Tuition and Fees STATEMENT OF CASH FLOWS For the Years Ended June 30, 2008 and 2007 (in thousands of dollars) Federal, State and Private Grants and Contracts Sales and Services of Educational Activities and Other Auxiliaries Patient Care Revenues Student Housing Fees Bookstore Collections Payments to Suppliers Payments to Employees Payments for Benefits Payments for Scholarships and Fellowships Student Loans Issued Student Loans Collected Student Loan Interest and Fees Other Receipts, Net Net Cash Used in Operating Activities State Appropriations Federal Appropriations Private Gifts Endowment and Similar Funds Gifts Other Receipts (Payments)

Deposits of Affiliates Net Cash Provided by Noncapital Financing Activities Capital State Appropriations Capital Gifts and Grants Proceeds From Sales of Capital Assets Purchase of Capital Assets Proceeds from Issuance of Capital Debt, Net Principal Payments on Capital Debt Proceeds from Capital Project Notes Payments on Capital Project Notes Payments on Capital Lease Escrow Deposit on Defeasance Loss on Defeasance Payments on Cost of Debt Issuance Interest Payments on Capital Debt Net Cash Used in Capital and Related Financing Activities Interest and Dividends on Investments Purchase of Investments, Net of Sales and Maturities Other Investing Activities Net Cash Provided by (Used in) Investing Activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year $ Cash and Cash Equivalents, End of Year I 1$ 2008 417,719 I, 336,045 : i I 181,217 : 671,091 ' 74,452 I 61,769 : (650,475):

(1,147,430)1' (310,375)

(39,485), (12,071)1 10, 987 1' 1,092 61,0651 32,995 i (2,244): (6,404)' 556,155 17,341 i 1,083 I (317,944)1 , 376,452 : (56,975)i 158,800 I (160,000)1 (462)1 (96,965)' , (3,844)1 (2,282)i 99,815 I (336,172)!

293 i (236,064)'

I (134,354)!

407,723 273,369 '<274;560

.160,880 641;648 6:S,917 .:;'(j;7: 64 (continued) . 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 22 A COMPONENT UNIT OF THE STATE OF MISSOURI STATEMENT OF CASH FLOWS For the Years Ended June 30, 2008 and ý007 (in thousands of dollars)2008 , 2007 Recocilatin o opratng ossUse iniý eperaing Vctivities:`,Operating Loss Adjustments to Net Cash Used in Operating Activities

-Depreciation Expense Changes in Assets and Liabilities:

Accounts Receivable, Net Inventory, Prepaid Expenses and Other Assets Notes Receivable Accounts Payable Accrued Liabilities Deferred Revenue Net Cash Used in Operating Activities

$ (484,610)1 125,996 S (:48,305)119,069 (7,132)i (37,998)(330)1 : (6,170)4,894 (13,872)13,601 1,270)3,803 33,69$ (3344,399)7

( 386,301)I",I I emntIal ; II Di'Ch.scli("osur ofoncas h ActIiv itIies: Net Increase (Decrease) in Fair Value of Investments Noncash Gifts See notes to the financial statements.

$ (121,677)!

$ 13,427 I 78,363l03$ 18,929 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 23 STATEMENT OF CASH FLOWS I For the Years Ended June 30, 2008 and 2007 (in thousands of dollars) I Adjustments to Net Cash Used in Operating Activities

-Depreciation Expense Changes in Assets and Liabilities:

Accounts Receivable, Net Inventory, Prepaid Expenses and Other Assets Notes Receivable Accounts Payable Accrued Liabilities Deferred Revenue Noncash Gifts See notes to the financial statements.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI I 125,996 ! I (7,132)! (330)1 (621)! i 4,894 i 13,601 : *3,803 ! (37;998) (6,170) "0,124) (13,87 2) 23 STAEMNTOFPLN ETASET As of June. 30 00 nd20 2008Cash and Cash Equivalents Collateral for Securities Lending Due to the University of Missouri System Investment Settlements Receivable Investments:

Government ObligationsCorporate Bonds and Notes Corporate Stocks Other Total Assets$ 129,860 294,781 181,062 640,544 281,693 1,699,133 220,180 3,447,253 20077 I s79,714 382,023 (46)23,659 400,416 182,837 2,269,794-104,832 3,443,229-L~ia hb iliti-es ----- ------- ------Accounts Payable and Accrued Liabilities Collateral for Securities Lending Investment Settlements PayableTotal Liabilities Net Assets Held in Trust for Pension and OPEB *2,429 294,781 400,142 697,352$ 2,749,901 2,850 382,023 127,322 512',195 S2,1931,03434 STTMN O HNE IN PLAN NE ASET F 2008 I 2007-------------

!Net Rev enues and Other Additionsk Investment Income (Loss):

Interest and Dividend Income, Net of Fees* Net Appreciation (Depreciation) in Fair Value of Investments Net Investment Income (Loss)

Contributions:

-University Members Other* Total Contributions Total Net Revenues and Other Additions$ 77,376 (243,951)1 (166,575)i 125,745 12,231$ 62,749 415,263 4748,012 74,736--Expenses and Other Deductions

~Administrative Expenses Payments to Retirees and Beneficiaries Total Expenses and Other Deductions Increase (Decrease) in Net Assets Held in Trust for Pension and OPEBNet Assets Held in Trust for Pension and OPEB, Beginning of Year Net Assets Held in Trust for Pension and OPEB, End of Year 2,503 140,479 (26,096)!2,173 152,864 155,037 (181,133)1 2,931,034 1$ 2,749,901 1 74,736 I S552,748 2,043 116,4 155,1 436,293, 2,494,741 15 2,931,034See notes to the financial statements.

OPEB represents Other Postemployment Benefits 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 24 STATEMENT OF PLAN NET ASSETS As of June 30, 2008 and 2007 Cash and Cash Equivalents Collateral for Securities Lending Due to the University of Missouri System Investment Settlements Receivable Investments:

Government Obligations Corporate Bonds and Notes Corporate Stocks Other Total Assets Accounts Payable and Accrued Liabilities Collateral for Securities Lending Investment Settlements Payable Total Liabilities (in thousands of dollars) Net Assets Held in Trust for Pension and OPEB

STATEMENT OF CHANGES IN PLAN NET ASSETS For the Years Ended June 30, 2008 and 2007 (in thousands of dollars) Investment Income (Loss): Interest and Dividend Income, Net of Fees . Net Appreciation (Depreciation) in Fair Value ofInvestments Net Investment Income (Loss) Contributions:

University Members Other Total Contributions Total Net Revenues and Other Additions Administrative Expenses Payments to Retirees and Beneficiaries Total Expenses and Other Deductions Increase (Decrease) in Net Assets Held in Trust for Pension and OPEB Net Assets Held in Trust for Pension and OPEB, Beginning of Year Net Assets Held in Trust for Pension and OPEB, End of Year See notes to the financial statements.

OPEB represents Other Postemployment Benefits 2008 $ i 155,037 I I (181,133)!

2,931,034 I I $ 2,749,901!

$ 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 24 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30,2008 AND 2007 1. ORGANIZATION AND

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES UNIVERSITY OF MISSOURI Organization

-The University of Missouri (the "University"), a Federal land grant institution, conducts education, research, public service, and related activities, which include the University of Missouri Hospitals and Clinics and related health care facilities, principally at its four campuses in Columbia, Kansas City, Rolla and St. Louis. The University also administers a statewide cooperative extension service with centers located in each county in the State. The University is a component unit of the State of Missouri (the "State") and is governed by a nine-member Board of Curators appointed by the state's Governor.Reporting Entity -As defined by generally accepted accounting principles established by the Governmental Accounting Standards Board

("GASB"), the financial reporting entity consists of the primary government and its component units. Component units are legally separate organizations for which the primary government is financially accountable or the nature and significance of their relationships with the primary government are such that exclusion would cause the primary government's financial statements to be misleading or incomplete.

The following entities are considered component units of the University according to the criteria in GASBStatement No.

14, The Financial Reporting Entity, and are discretely presented in the University's financial statements." The University of Missouri-Columbia Medical Alliance (the "Medical Alliance"), a not-for-profitcorporation, provides an integrated health care delivery system for mid-Missouri by establishing affiliations with various medical facilities.

The purpose of the Medical Alliance is to develop a network of health care providers to support the missions of the University of Missouri Healthcare.The Capital Region Medical Center ("CRMC") in Jefferson City, Missouri, operates as an affiliate of the Medical Alliance and provides inpatient, outpatient, and emergency care services to thesurrounding community.

CRMC, a not-for-profit organization that follows generally accepted accounting principles under the Financial Accounting Standards Board

("FASB"), is a discretely presented component unit of the Medical Alliance.

The University appoints the Board of Directors ofthe Medical Alliance and can impose its will on the organization. Financial statements for theMedical Alliance are not available.

Missouri Care L.C., a not-for-profit health maintenance organization, provided services to patients in Central Missouri under certification from the Missouri Department of Social Services.

Missouri Care L.C., organized exclusively for charitable purposes to benefit its sole member, the Curators of the University of Missouri, contracted with the University of Missouri Healthcare System to provide health care services to its members. The University appointed Missouri Care L.C.'s Board of Directors and could impose its will on the organization.

Refer to Note 19 for information regarding the January 2007 sale of Missouri Care L.C.The University operates the University of Missouri Retirement, Disability, and Death Benefit Plan and the University of Missouri Other Postemployment Benefits Plan, which are single employer, defined benefit plans. The assets of each Plan are held in trust and are restricted for use to only pay the benefits and expenses of the respective Plans.

The Plans are reported as fiduciary funds of the University.

Combining financial statements are presented in Note 20.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 25 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 1. ORGANIZATION AND

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES UNIVERSITY OF MiSSOURI Organization

-The University of Missouri (the "University"), a Federal land grant institution, conducts education, research, public service, and related activities, which include the University of Missouri Hospitals and Clinics and related health care facilities, principally at its four campuses in Columbia, Kansas City, Rolla and St. Louis. The University also administers a statewide cooperative extension service with centers located in each county in the State. The University is a component unit of the State of Missouri (the "State") and is governed by a nine-member Board of Curators appointed by the state's Governor.

Reporting Entity -As defined by generally accepted accounting principles established by the Governmental Accounting Standards Board ("GASB"), the financial reporting entity consists of the primary government and its component units. Component units are legally separate organizations for which the primary government is financially accountable or the nature and significance of their relationships with the primary government are such that exclusion would cause the primary government's financial statements to be misleading or incomplete.

The following entities are considered component units ofthe University according to the criteria in GASB Statement No. 14, The Financial Reporting Entity, and are discretely presented in the University'S financial statements.

The University of Missouri-Columbia Medical Alliance (the "Medical Alliance"), a not-for-profit corporation, provides an integrated health care delivery system for mid-Missouri by establishing affiliations with various medical facilities.

The purpose of the Medical Alliance is to develop a network of health care providers to support the missions of the University of Missouri Healthcare.

The Capital Region Medical Center ("CRMC") in Jefferson City, Missouri, operates as an affiliate of the Medical Alliance and provides inpatient, outpatient, and emergency care services to the surrounding community.

CRMC, a not-for-profit organization that follows generally accepted accounting principles under the Financial Accounting Standards Board ("F ASB"), is a discretely presented component unit of the Medical Alliance.

The University appoints the Board of Directors of the Medical Alliance and can impose its will on the organization. Financial statements for the Medical Alliance are not available.

Missouri Care L.C., a not-for-profit health maintenance organization, provided services to patients in Central Missouri under certification from the Missouri Department of Social Services.

Missouri Care L.C., organized exclusively for charitable purposes to benefit its sole member, the Curators of the University of Missouri, contracted with the University of Missouri Healthcare System to provide health care services to its members. The University appointed Missouri Care L.C.'s Board of Directors and could impose its will on the organization.

Refer to Note 19 for information regarding the January 2007 sale of Missouri Care L.c. The University operates the University of Missouri Retirement, Disability, and Death Benefit Plan and the University of Missouri Other Postemployment Benefits Plan, which are single employer, defined benefit plans. The assets of each Plan are held in trust and are restricted for use to only pay the benefits and expenses of the respective Plans. The Plans are reported as fiduciary funds of the University.

Combining financial statements are presented in Note 20. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 25 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Financial Statement Presentation

-In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the University follows all applicable GASB pronouncements.

In addition, the University applies all applicable FASB Statements and Interpretations, Accounting Principles Board Opinions and Accounting Research Bulletins issued on or before November 30, 1989, except those that conflict with a GASB pronouncement.

The University has elected not to apply FASB pronouncements issued'after November 30, 1989.Pursuant to GASB Statement No. 35, Basic Financial Statement-and Management's Discussion and Analysis-for Public Colleges and Universities, the University's activities are considered to be a single business-type activity and accordingly, are reported in a single column in the financial statement.

Business-type activities are those that are financed in whole or part by funds received by external partiesfor goods or services.Basis of Accounting

-The University's financial statements have been prepared using the economic resource 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, regardless of the timing of cash flows.

On the Statement of Revenues, Expenses and Changes in Net Assets, the University defines operating activities as those generally resulting from an exchange transaction.

Nearly all of the University's expenses are from exchange transactions, which involve the exchange of equivalent values such as payments for goods or services.

Nonoperating revenues or expenses are those in which the University receives or gives value without directly giying or receiving equal value, such as State and Federal appropriations and investment income.The University of Missouri Retirement Trust is a pension trust fund which accounts for the activity of the University of Missouri Retirement, Disability, and Death Benefit Plan. The University of Missouri OPEB Trust is a trust fund which accounts for the activity of the University of Missouri Other Postemployment Benefits Plan. The financial statements for these fiduciary funds have been prepared using the accrual basis of accounting. Benefits and refunds are recognized when due and payable. Investments are reported at fair value. Combining financial statements for these funds are presented in Note 20.Cash, Cash Equivalents and Investments

-Cash and cash equivalents consist of the University's bank deposits and investments with original maturities of three months or less. Investment assets are carried at fair value based primarily on market quotations.

Purchases and sales of investments are accounted for onthe trade date basis. Investment settlements receivable and investment settlements payable represent investment transactions occurring on or before June 30, which settle after that date. Investment income is recorded on the accrual basis. Net unrealized gains (losses) are included in investment and endowment income in the Statement of Revenues, Expenses and Changes in Net Assets. Derivative instruments such as forward foreign currency contracts are recorded at fair value. The University enters into forward foreign currency contracts to reduce the foreign exchange rate of its international investments.

These contracts are marked to market, with the changes in market value being reported in investment and endowment income on the Statement of Revenues, Expenses, and Changes in Net Assets.Pledges Receivable

-The University receives unconditional promises to give through private donations (pledges) from corporations, alumni and various other supporters of the University.

Revenue is recognized when a pledge is received and all eligibility requirements, including time requirements, aremet. These pledges have been recorded as pledges receivable on the Statement of Net Assets and as private or capital gift revenues on the Statement of Revenues, Expenses, and Changes in Net Assets, at the present value of the estimated future cash flows. An allowance of $4,805,000 and $4,038,000 as of June 30, 2008, and 2007, respectively, has been made for uncollectible pledges based upon management'sexpectations regarding the collection of the pledges and the University's historical collection experience.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 26 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Financial Statement Presentation

-In accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, the University follows all applicable GASB pronouncements.

In addition, the University applies all applicable F ASB Statements and Interpretations, Accounting Principles Board Opinions*

and Accounting Research Bulletins issued on or before November 30, 1989, except those that conflict with a GASB pronouncement.

The University has elected not to apply F ASB pronouncements issued* after November 30, 1989. Pursuant to GASB Statement No. 35, Basic Financial Statement-and Management's Discussion and Analysis-for Public Colleges and Universities, the University's activities are considered to be a single business-type activity and accordingly, are reported in a single column in the financial statement.

Business-type activities are those that are financed in whole or part by funds received by external parties for goods or services.

Basis of Accounting

-The University's financial statements have been prepared using the economic resource 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, regardless of the timing of cash flows. On the Statement of Revenues, Expenses and Changes in Net Assets, the University defines operating activities as those generally resulting from an exchange transaction.

Nearly all of the University's expenses are from exchange transactions, which involve the exchange of equivalent values such as payments for goods or services.

Nonoperating revenues or expenses are those in which the University receives or gives value without directly giving or receiving equal value, such as State and Federal appropriations and investment income. The University of Missouri Retirement Trust is a pension trust fund which accounts for the activity of the University of Missouri Retirement, Disability, and Death Benefit Plan. The University of Missouri OPEB Trust is a trust fund which accounts for the activity of the University of Missouri Other Postemployment Benefits Plan. The financial statements for these fiduciary funds have been prepared using the accrual basis of accounting.

Benefits and refunds are recognized when due and payable. Investments are reported at fair value. Combining financial statements for these funds are presented in Note 20. Cash, Cash Equivalents and Investments

-Cash and cash equivalents consist of the University's bank deposits and investments with original maturities of three months or less. Investment assets are carried at fair value based primarily on market quotations.

Purchases and sales of investments are accounted for on the trade date basis. Investment settlements receivable and investment settlements payable represent investment transactions occurring on or before June 30, which settle after that date. Investment income is recorded on the accrual basis. Net unrealized gains (losses) are included in investment and endowment income in the Statement of Revenues, Expenses and Changes in Net Assets. Derivative instruments such as forward foreign currency contracts are recorded at fair value. The University enters into fo'rward foreign currency contracts to reduce the foreign exchange rate of its international investments.

These contracts are marked to market, with the changes in market value being reported in investment and endowment income on the Statement of Revenues, Expenses, and Changes in Net Assets. Pledges Receivable

-The University receives unconditional promises to give through private donations (pledges) from corporations, alumni and various other supporters of the University.

Revenue is recognized when a pledge is received and all eligibility requirements, including time requirements, are met. These pledges have been recorded as pledges receivable on the Statement of Net Assets and as private or capital gift revenues on the Statement of Revenues, Expenses, and Changes in Net Assets, at the present value of the estimated future cash flows. An allowance of $4,805,000 and $4,038,000 as of June 30, 2008, and 2007, respectively, has been made for uncollectible pledges based upon management's expectations regarding the collection of the pledges and the University's historical collection experience.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 26 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Inventories

-These assets are stated at the lower of cost or market. Cost is determined on an averagecost basis except for University Hospitals and Clinics' inventories, for which cost is determined using the first-in, first-out method.

Capital Assets -If purchased, these assets are carried at cost or, if donated, at fair value at the date of gift. Depreciation expense is computed using the straight-line method over the assets' estimated useful lives -generally ten to forty years for buildings and improvements, eight to twenty-five years for infrastructure, three to fifteen years for equipment and twenty years for library materials.

Net interest expense incurred during the construction of debt-financed facilities is included when capitalizing resulting assets. The University capitalizes works of art as these collections generally consist of historical artifacts and artworks, they are considered inexhaustible and not subject to depreciation.

The University does notcapitalize collections of historical treasures held for public exhibition, education, research, and publicservice. These collections are not disposed of for financial gain and, accordingly, are not capitalized for financial statement purposes.

Proceeds from the sale, exchange, or other disposal of such items must be used to acquire additional items for the same collection.

Land is considered inexhaustible and is not subject to depreciation.

Deferred Revenue -Deferred revenues are recognized for amounts received prior to the end of the fiscalyear but related to the subsequent period, including certain tuition, fees, and auxiliary revenues.

Deferred revenues also include grant and contract amounts that have been received but not yet earned.Net Assets -The University's net assets are classified as follows: " Invested in capital assets, net of related debt: This component represents capital assets, net ofaccumulated depreciation and outstanding principal debt balances related to the acquisition, construction or improvement of those assets." Restricted:

Nonexpendable

-These net assets subject to externally imposed stipulations that the principal be maintained in perpetuity, such as the University's permanent endowment funds. The University's policy permits any realized and unrealized appreciation to remain with theseendowments after the spending distribution discussed in Note 3.Expendable

-These net assets are subject to externally imposed stipulations on the University's use of the resources.Unrestricted: These net assets are not subject to externally imposed stipulations, but may be designated for specific purposes by the University's management or the Board of Curators.Unrestricted net assets are derived from tuition and fees, sales and services, unrestricted gifts, investment income, and other such sources, and are used for academics and the general operation ofthe University.

When both restricted and unrestricted resources are available for expenditure, the University's policy is to first apply restricted resources, and then the unrestricted resources.Tuition and Fees, Net of Scholarship Allowances

-Student tuition and fees, housing, dining, and other similar auxiliary revenues are reported net of any related scholarships and fellowships applied to student accounts.

However, scholarships and fellowships paid directly to students are separately reported as scholarship and fellowship expenses.Patient Medical Services, Net

-Patient medical services revenues are reported net of contractual allowances and bad debt allowances.

Patient medical services are primarily provided through University of Missouri Hospitals and Clinics, Ellis Fischel Cancer Research Center, Columbia Regional Hospital, Missouri Rehabilitation Center and University Physicians (collectively, the "University of Missouri Healthcare").

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 27 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Inventories

-These assets are stated at the lower of cost or market. Cost is determined on an average cost basis except for University Hospitals and Clinics' inventories, for which cost is determined using the first-in, first-out method. Capital Assets -If purchased, these assets are carried at cost or, if donated, at fair value at the date of gift. Depreciation expense is computed using the straight-line method over the assets' estimated useful lives -generally ten to forty years for buildings and improvements, eight to twenty-five years for infrastructure, three to fifteen years for equipment and twenty years for library materials.

Net interest expense incurred during the construction of debt-financed facilities is included when capitalizing resulting assets. The University capitalizes works of art as these collections generally consist of historical artifacts and artworks, they are considered inexhaustible and not subject to depreciation.

The University does not capitalize collections of historical treasures held for public exhibition, education, research, and public service. These collections are not disposed of for financial gain and, accordingly, are not capitalized for financial statement purposes.

Proceeds from the sale, exchange, or other disposal of such items must be used to acquire additional items for the same collection.

Land is considered inexhaustible and is not subject to depreciation.

Deferred Revenue -Deferred revenues are recognized for amounts received prior to the end of the fiscal year but related to the subsequent period, including certain tuition, fees, and auxiliary revenues.

Deferred revenues also include grant and contract amounts that have been received but not yet earned. Net Assets -The University's net assets are classified as follows:

Invested in capital assets, net of related debt: This component represents capital assets, net of accumulated depreciation and outstanding principal debt balances related to the acquisition, construction or improvement of those assets.

Restricted:

Nonexpendable

-These net assets subject to externally imposed stipulations that the principal be maintained in perpetuity, such as the University'S permanent endowment funds. The University'S policy permits any realized and unrealized appreciation to remain with t!1ese endowments after the spending distribution discussed in Note 3. Expendable

-These net assets are subject to externally imposed stipulations on the University's use of the resources.

Unrestricted:

These net assets are not subject to externally imposed stipulations, but may be designated for specific purposes by the University'S management or the Board of Curators.

Unrestricted net assets are derived from tuition and fees, sales *and services, unrestricted gifts, investment income, and other such sources, and are used for academics and the general operation of the University.

When both restricted and unrestricted resources are available for expenditure, the University'S policy is to first apply restricted resources, and then the unrestricted resources.

Tuition and Fees, Net of Scholarship Allowances

-Student tuition and fees, housing, dining, and other similar auxiliary revenues are reported net of any related scholarships and fellowships applied to student accounts.

However, scholarships and fellowships paid directly to students are separately reported as scholarship and fellowship expenses.

Patient Medical Services, Net -Patient medical services revenues are reported net of contractual allowances and bad debt allowances.

Patient medical services are primarily provided through University of Missouri Hospitals and Clinics, Ellis Fischel Cancer Research.

Center, Columbia Regional Hospital, Missouri Rehabilitation Center and University Physicians (collectively, the "University of Missouri Healthcare").

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 27 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University of Missouri Healthcare has agreements with third-party payors that provide for payments that differ from the entity's established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discount charges, and per diem payments.

Patient medical services revenue is reported at net amounts estimated to be realizable from patients, third-party payors, and others.

These estimated amounts include retroactive adjustments for reimbursement agreements with third-party payors. Retroactive adjustments are estimated and accrued in the period that related services are provided, and then adjusted in future periods as estimates are refined and final settlements are determined.

Amounts receivable under Medicare and Medicaid reimbursements agreements are subject to examination and certain retroactive adjustments by the related programs.

These adjustments decreased net patient services revenue by $3,019,000 for the year ended June 30, 2008, and increased net patient servicesrevenue by $4,907,000 for the year ended June 30, 2007.For the years ended June 30, 2008, and 2007, the University of Missouri Healthcare's percentage of gross patient accounts receivable classified by major payor is as follows: Perenag of Grs ain consRcial

-2008 t 2007 Medicare 30% 29%Commercial Insurance 8% 9%Medicaid 19% 18%Self Pay and Other 17% 20%Managed Care Agreements 26% 24%100% i 100%The Statement of Revenues, Expenses and Changes in Net Assets reflects the gross to net patient medical services revenue as follows: Gro1~Uss to [et Pat ien[tfUL~

~s Medica Sricesd [ ReU venue(i tosad of dollars)2008 20_07 Patient Medical Services Revenue, Gross $ 1,443,517

$ 1,320,091 Less Deductions for Contractuals (711,031)

(618,699)Less Bad Debt Deductions (51,174) (52,590)

Patient Medical Services Revenue, Net $ 681,312. $ 648,802 Interest Rate Swap Agreements

-The University enters into interest rate swap agreements to modify interest rates on outstanding debt. Other than the net payments resulting from those agreements, no amounts related to the interest rate swaps are recorded in the financial statements.

New Accounting Pronouncements

-Effective for fiscal year 2008, the University adopted GASBStatements No.

43 and No. 45, which establish requirements for financial reporting for postemployment benefits other than pension plans. GASB Statement No.

45 requires the University to recognizeactuarially estimated costs of its postemployment benefit plan and provide certain related disclosures.

As the University established an irrevocable trust fund to manage its postemployment benefit costs in June 2008, Statement No. 43 is also applicable.

GASB Statement No.

43 requires financial reporting and 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 28 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University of Missouri Healthcare has agreements with third-party payors that provide for payments that differ from the entity's established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discount charges, and per diem payments.

Patient medical services revenue is reported at net amounts estimated to be realizable from patients, third-party payors, and others. These estimated amounts include retroactive adjustments for reimbursement agreements with third-party payors. Retroactive adjustments are estimated and accrued in the period that related services are provided, and then adjusted in future periods as estimates are refined and final settlements are determined.

Amounts receivable under Medicare and Medicaid reimbursements agreements are subject to examination and certain retroactive adjustments by the related programs.

These adjustments decreased net patient services revenue by $3,019,000 for the year ended June 30, 2008, and increased net patient services revenue by $4,907,000 for the year ended June 30, 2007. For the years ended June 30, 2008, and 2007, the University of Missouri Healthcare's percentage of gross patient accounts receivable classified by major payor is as follows: Percentage of Gross Patient Accounts Receivable (by Major Payor) r---------' .J ______

_____ L -T -Medicare 30% 29% Commercial Insurance 8% 9% Medicaid 19% I 18% Self Pay and Other 17% I 20% Managed Care Agreements 26% 24% 100% II 100% The Statement of Revenues, Expenses and Changes in Net Assets reflects the gross to net patient medical services revenue as follows: Gross to Net Patient Medical Services Revenue (in thousands of dollars) 1-2008 U_ 2007 1 -------. ---Patient Medical Services Revenue, Gross 1$ 1,443,5l7

$ 1,320,091 Less Deductions for Contractuals (711,031)

(618,699)

Less Bad Debt Deductions I (51,174) (52,590)

I 681,31211

$ 648,8021 Patient Medical Services Revenue, Net 1$ Interest Rate Swap Agreements

-The University enters into interest rate swap agreements to modify interest rates on outstanding debt. Other than the net payments resulting from those agreements, no amounts related to the interest rate swaps are recorded in the financial statements.

New Accounting Pronouncements

-Effective for fiscal year 2008, the University adopted GASB Statements No. 43 and No. 45, which establish requirements for financial reporting for postemployment benefits other than pension plans. GASB Statement No. 45 requires the University to recognize actuarially estimated costs of its postemployment benefit plan and provide certain related disclosures.

As the University established an irrevocable trust fund to manage its postemployment benefit costs in June 2008, Statement No. 43 is also applicable.

GASB Statement No. 43 requires financial reporting and 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 28 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 disclosures for postemployment benefit plans. In adopting these standards, the University recognized the effect of a change in accounting principle, which increased net assets by $19,916,000 as a result of writing off previously established benefit reserves that were not in accordance with the new requirements.

In addition to these standards, the University also adopted GASB Statements No. 48, Sales and Pledges of Receivables and Future Revenues and Intra Entity Transfers of Assets and Future Revenues, and No. 50,Pension Disclosures

-an amendment of GASB Statements No. 25 and No. 27. Certain additional disclosures were required, but no financial statement balances were restated for these new standards.

-The GASB issued Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, effective for fiscal years beginning after December 15, 2007. The statement addresses accounting and financial reporting standards for pollution remediation obligations, which are obligations to address current and potential effects of existing pollution through pollution remediation activities such as site assessments and cleanups.

The statement requires disclosures about the nature of the remediation, size of the obligation, and the methods and assumptions used in evaluating the potential obligation.

The University does not anticipate any material effect on its financial statements with the adoption of GASB Statement No.

49.The GASB issued Statement No. 51, Accounting and Financial Reporting for Intangible Assets, effective for fiscal years beginning after June 15, 2009. The statement requires all intangible assets not specifically excluded by its scope provisions be classified as capital assets. The statement also requires that an intangible asset be recognized in the statement of net assets only if it is considered identifiable.

The University has not yet determined the effect that adoption of GASB Statement No. 51 may have on its financial statements.

The GASB issued Statement No. 52, Land and Other Real Estate Held as Investments by Endowments, effective for fiscal years beginning after June 15, 2008. The statement establishes accounting and financial reporting standards for land and other real estate held as investments by endowments.

These assets are to be reported at fair value at the reporting date, with changes in fair value being reported as investment income. The University has not yet determined the effect that adoption of GASB Statement No. 52 may have on its financial statements.

The GASB issued Statement No. 53, Accounting and Financial Reporting for Derivative Instruments,effective for fiscal years beginning after June 15, 2009. The statement requires derivative instruments to be measured at fair value at the reporting date, with changes in fair value generally being reported as investment gains or losses. However, changes in fair value of hedging derivative instruments would be deferred until the related instrument ends or ceases to significantly reduce risk. The University has not yet determined the effect that adoption of GASB Statement No. 53 may have on its financial statements.

Reclassifications

-Certain prior year amounts have been reclassified to conform to current year presentation.

As of June 30, 2007, the University presented certain investments as cash and cash equivalents within the basic financial statements based on the investments' current maturities rather than their original maturities.

The University has reclassified these amounts as short-term investments in the accompanying Statement of Net Assets and Statement of Plan Net Assets and as investing activities in the Statement of Cash Flows.Use of Estimates

-The preparation of financial statements, in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 29 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 disclosures for postemployment benefit plans. In adopting these standards, the University recognized the effect of a change in accounting principle, which increased net assets by $19,916,000 as a result of writing off previously established benefit reserves that were not in accordance with the new requirements.

In addition to these standards, the University also adopted GASB Statements No. 48, Sales and Pledges of Receivables and Future Revenues and Intra Entity Transfers of Assets and Future Revenues, and No. 50, Pension Disclosures

-an amendment of GASB Statements No. 25 and No. 27. Certain additional disclosures were required, but no financial statement balances were restated for these new standards. . The GASB issued Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, effective for fiscal years beginning after December 15, 2007. The statement addresses accounting and financial reporting standards for pollution remediation obligations, which are obligations to address current and potential effects of existing pollution through pollution remediation activities such as site assessments and cleanups.

The statement requires disclosures about the nature of the remediation, size of the obligation, and the methods and assumptions used in evaluating the potential obligation.

The University does not anticipate any material effect on its financial statements with the adoption ofGASB Statement No. 49. The GASB issued Statement No. 51, Accounting and Financial Reportingfor Intangible Assets, effective for fiscal years beginning after June 15, 2009. The statement requires all intangible assets not specifically excluded by its scope provisions be classified as capital assets. The statement also requires that an intangible asset be recognized in the statement of net assets only if it is considered identifiable.

The University has not yet determined the effect that adoption of GASB Statement No. 51 may have on its financial statements.

The GASB issued Statement No. 52, Land and Other Real Estate Held as Investments by Endowments, effective for fiscal years beginning after June 15, 2008. The statement establishes accounting and financial reporting standards for land and other real estate held as investments by endowments.

These assets are to be reported at fair value at the reporting date, with changes in fair value being reported as investment income. The University has not yet determined the effect that adoption of GASB Statement No. 52 may have on its financial statements.

The GASB issued Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, effective for fiscal years beginning after June 15, 2009. The statement requires derivative instruments to be measured at fair value at the reporting date, with changes in fair value generally being reported as investment gains or losses. However, changes in fair value of hedging derivative instruments would be deferred until the related instrument ends or ceases to significantly reduce risk. The University has not yet determined the effect that adoption ofGASB Statement No. 53 may have on its financial statements.

Reclassifications

-Certain prior year amounts have been reclassified to conform to current year presentation.

As of June 30, 2007, the University presented certain investments as cash and cash equivalents within the basic financial statements based on the investments' current maturities rather than their original maturities.

The University has reclassified these amounts as short-term investments in the accompanying Statement of Net Assets and Statement of Plan Net Assets and as investing activities in the Statement of Cash Flows. Use of Estimates

-The preparation of financial statements, in conformity with U.S. generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 29 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 DISCRETELY PRESENTED COMPONENT UNIT- MEDICAL ALLIANCE Nature of Operations

-The Curators of the University of Missouri, for and on behalf of the University of Missouri Healthcare, and the Capital Region Medical Center (CRMC) entered into an Affiliation Agreement dated August 5, 1997. Pursuant to the Affiliation Agreement, the University created the Medical Alliance.

The Medical Alliance then became the sole member of CRMC. The Medical Alliance's purpose is to develop a network of healthcare providers to support the missions of the University of Missouri Healthcare.

CRMC operates as a two-hospital system, which consists of the Southwest Campus and Madison Campus complemented by community medical clinics. CRMC primarily earns revenues by providing inpatient, outpatient, and emergency care services to patients in Jefferson City, Missouri. It also operates medical clinics in the surrounding communities.

The operating results of the facilities and clinics are included inthese financial statements.

CRMC is served by a group of admitting physicians that account for a significant portion of CRMC's net revenues.

Additionally, CRMC is also associated with the CapitalRegion Medical Foundation, which is intended to support the interest of CRMC through its fundraising activities.Net Assets

-The Medical Alliance's net assets are classified for financial reporting in the following netasset categories: " Invested in capital assets, net of related debt: This component represents capital assets net of accumulated depreciation and outstanding principal debt balances related to the acquisition, construction, or improvement of those assets.* Restricted expendable: These are assets subject to externally imposed stipulations on the Medical Alliance's use of the resources." Unrestricted:

Net assets that are not subject to externally imposed stipulations.

Unrestricted net assets may be designated for specific purposes by management or the Board of Directors.

When an expense is incurred that can be paid using either restricted or unrestricted resources, the Medical Alliance's policy is to first apply restricted resources, and then unrestricted resources.

Capital Assets -Capital Assets are recorded at cost and depreciated on a straight-line basis over the estimated useful life of each asset following guidelines of the American Hospital Association.

Equipment under capital lease obligations is amortized on the straight-line basis over the shorter period of the lease term or the estimated useful life of the equipment.

Interest cost incurred on borrowed funds during the period of construction of capital assets is capitalized as a cost of acquiring those assets.Net Patient Medical Service Revenue -Net patient medical service revenue is reported at the net amounts to be realized from patients, third-party payers, and others for services rendered, includingestimated retroactive adjustments for reimbursement agreements with third-party payers. Retroactive adjustments are estimated and accrued in the period the related services are provided, and these amounts are adjusted in future periods as final settlements are determined.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 30 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 DISCRETELY PRESENTED COMPONENT UNIT -MEDICAL ALLIANCE Nature of Operations

-The Curators of the University of Missouri, for and on behalf of the University of Missouri Healthcare, and the Capital Region Medical Center (CRMC) entered into an Affiliation Agreement dated August 5, 1997. Pursuant to the Affiliation Agreement, the University created the Medical Alliance.

The Medical Alliance then became the sole member of CRMC. The Medical Alliance's purpose is to develop a network of healthcare providers to support the missions of the University of Missouri Healthcare.

CRMC operates as a two-hospital system, which consists of the Southwest Campus and Madison Campus complemented by community medical clinics. CRMC primarily earns revenues by providing inpatient, outpatient, and emergency care services to patients in Jefferson City, Missouri.

It also operates medical clinics in the surrounding communities.

The operating results of the facilities and clinics are included in these financial statements.

CRMC is served by a group of admitting physicians that account for a significant portion of CRMC's net revenues.

Additionally, CRMC is also associated with the Capital Region Medical Foundation, which is intended to support the interest of CRMC through its fundraising activities.

Net Assets -The Medical Alliance's net assets are classified for financial reporting in the following net asset categories:

Invested in capital assets, net of related debt: This component represents capital assets net of accumulated depreciation and outstanding principal debt balances related to the acquisition, construction, or improvement of those assets.

Restricted expendable:

These are assets subject to externally imposed stipulations on the Medical Alliance's use of the resources.

Unrestricted:

Net assets that are not subject to externally imposed stipulations.

Unrestricted net assets may be designated for specific purposes by management or the Board of Directors.

When an expense is incurred that can be paid using either restricted or unrestricted resources, the Medical Alliance's policy is to first apply restricted resources, and then unrestricted resources.

Capital Assets -Capital Assets are recorded at cost and depreciated on a straight-line basis over the estimated useful life of each asset following guidelines of the American Hospital Association.

Equipment under capital lease obligations is amortized on the straight-line basis over the shorter period of the lease term or the estimated useful life of the equipment.

Interest cost incurred on borrowed funds during the period of construction of capital assets is capitalized as a cost of acquiring those assets. Net Patient Medical Service Revenue -Net patient medical service revenue is reported at the net amounts to be realized from patients, third-party payers, and others for services rendered, including estimated retroactive adjustments for reimbursement agreements with third-party payers. Retroactive adjustments are estimated and accrued in the period the related services are provided, and these amounts are adjusted in future periods as final settlements are determined.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 30 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 2. CASH AND CASH EQUIVALENTS Cash & Cash Equivalents

-University

-The University's cash and cash equivalents include bankdeposits, repurchase agreements, and investments with original maturities of three months or less.Custodial Credit Risk -Deposits -University

-The custodial credit risk for deposits is the risk that in the event of bank failure, the University's deposits may not be recovered. State law requires collateralization of all deposits with federal depository insurance, bonds and other obligations of the U.S.Treasury, U.S. Agencies and instrumentalities of the state of Missouri; bonds of any city, county, school district or special road district of the state of Missouri; bonds of any state; or a surety bond having an aggregate value at least equal to the amount of the deposits.The University's cash deposits of $167,280,000 and $175,272,000 as of June 30, 2008, and 2007, respectively, were fully insured and collateralized and not exposed to custodial credit risk.Custodial Credit Risk -Deposits -University of Missouri Fiduciary Funds -The University ofMissouri Retirement and OPEB Trust Funds held deposits totaling $399,211,000 and $440,332,000 as of June 30, 2008, and 2007, respectively. These balances were fully insured and collateralized and not exposed to custodial credit risk.3. INVESTMENTS UNIVERSITY OF MISSOURI The University's investment policies are established by its governing board, the Board of Curators.

The policies are established to ensure that University funds are managed in accordance with Section 105.688 of the Revised Statutes of Missouri and prudent investment.

The University is authorized to use outside managers for its investments and may pool funds for investment purposes. Further, the policy provides that the University's short-term funds may be invested in the following instruments:

repurchaseagreements collateralized by U.S. Government and U.S. Government Agency issues; U.S. Government securities (including principal or interest payments that have been "stripped" from U.S. Treasury instruments), U.S. Government Agency securities, and U.S. Government guaranteed securities, including but not limited to direct obligations of the U.S. Government, Federal Farm Credit Banks, Federal HomeLoan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Resolution Funding Corporation and Student Loan Marketing Association; investment grade (A or better)corporate bonds; variable rate securities of authorized investment instruments; collateralized certificates of deposit at banks with which the University has a depository agreement; commercial paper with credit ratings of A-l+ or A-1 by Standard & Poor's Ratings Group and P-1 by Moody's Investors Service;bankers' acceptances; and other similar short-term investment instruments of like or better quality.The University's investments are managed in two major categories:

Pooled General Investments

-The general investment pools managed by the University averaged total returns of 6.48% and 6.04%, including unrealized gains and losses, for the years ended June 30, 2008, and 2007, respectively.

Pooled Endowment Investments

-When appropriate and permissible, endowment and similar funds are pooled for investment purposes, with the objective of achieving long-term returns sufficient to preserve principal by protecting against inflation and to meet endowment spending targets. There are two separate endowment pools that are managed by outside investment managers. These include a balanced pool and afixed income pool, which earned total returns of (4.8)% and 6.1%, respectively, including unrealized gains and losses, for the year ended June 30, 2008, and 18.0% and 5.9%, respectively, for the year ended June 30, 2007.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 31 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 2. CASH AND CASH EQUIVALENTS Cash & Cash Equivalents

-University

-The University's cash and cash equivalents include bank deposits, repurchase agreements, and investments with original maturities ofthree months or less. Custodial Credit Risk -Deposits -University

-The custodial credit risk for deposits is the risk that in the event of bank failure, the University's deposits may not be recovered.

State law requires collateralization of all deposits with federal depository insurance, bonds and other obligations of the U.S. Treasury, U.S. Agencies and instrumentalities of the state of Missouri; bonds of any city, county, school district or special road district of the state of Missouri; bonds of any state; or a surety bond having an aggregate value at least equal to the amount of the deposits.

The University's cash deposits of $167,280,000 and $175,272,000 as of June 30, 2008, and 2007, respectively, were fully insured and collateralized and not exposed to custodial credit risk. Custodial Credit Risk -Deposits -University of Missouri Fiduciary Funds -The University of Missouri Retirement and OPEB Trust Funds held deposits totaling $399,211,000 and $440,332,000 as of June 30, 2008, and 2007, respectively.

These balances were fully insured and collateralized and not exposed to custodial credit risk. 3. INVESTMENTS UNIVERSITY OF MISSOURI The University's investment policies are established by its governing board, the Board of Curators.

The policies are established to ensure that University funds are managed in accordance with Section 105.688 of the Revised Statutes of Missouri and prudent investment.

The University is authorized to use outside managers for its investments and may pool funds for investment purposes.

Further, the policy provides that the University's short-term funds may be invested in the following instruments:

repurchase agreements collateralized by U.S. Government and U.S. Government Agency issues; U.S. Government securities (including principal or interest payments that have been "stripped" from U.S. Treasury instruments), U.S. Government Agency securities, and U.S. Government guaranteed securities, including but not limited to direct obligations of the U.S. Government, Federal Farm Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, Resolution Funding Corporation and Student Loan Marketing Association; investment grade (A or better) corporate bonds; variable rate securities of authorized investment instruments; collateralized certificates of deposit at banks with which the University has a depository agreement; commercial paper with credit ratings of A-l+ or A-I by Standard & Poor's Ratings Group and P-1by Moody's Investors Service; bankers' acceptances; and other similar short-term investment instruments of like or better quality. The University's investments are managed in two major categories:

Pooled General Investments

-The general investment pools managed by the University averaged total returns of 6.48% and 6.04%, including unrealized gains and losses, for the years ended June 30, 2008, and 2007, respectively.

Pooled Endowment Investments

-When appropriate and permissible, endowment and similar funds are pooled for investment purposes, with the objective of achieving long-term returns sufficient to preserve principal by protecting against inflation and to meet endowment spending targets. There are two separate endowment pools that are managed by outside investment managers.

These include a balanced pool and a fixed income pool, which earned total returns of (4.8)% and 6.1 %, respectively, including unrealized gains and losses, for the year ended June 30, 2008, and 18.0% and 5.9%, respectively, for the year ended June 30, 2007. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 31 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 If a donor has not provided specific restrictions, state law permits the Board of Curators to appropriate an amount of the endowment investment's net appreciation, realized and unrealized, as the Board considers to be prudent. In establishing this amount, the Board is required to consider the University's long- and short-term needs, present and anticipated financial requirements, expected total return on investments, price level trends, and general economic conditions.

Further, any expenditure of net appreciation is required to be for the purposes for whichthe endowment was established.

In fiscal year 2008, donor-restricted endowments depreciated by approximately $49,169,000, which primarily consisted of unrealized losses on investment.

The Board of Curators has adopted the total return concept (yield plus appreciation) in determining thespendable return for endowments and similar funds. Annually, the spending formula distributes 5% of a trailing 12-quarter average of the endowment's total market value, with the understanding that this spending rate over the long term will not exceed the total real return (net of inflation).

However, to achieve uniformity from year to year, the actual amount made available in any given year will be not less than 96% or more than 106% of the prior year's expenditure.

At June 30, 2008, and 2007, the University held the following types of investments:

Inetet by Typ(i thuad of dolas I0 Government Obligations Corporate Bonds and Notes Corporate Stocks Commercial Paper Other Total Short-Term and Long-Term Investments Government Obligations Commercial Paper Repurchase AgreementsTotal Cash Equivalents Total Investments Carrying Value as of June 30, 2008 -___ 2007 S 916,106 $ 710,818 336,726 211,230 646,801 734,390 3,140 94,480 64,134 1,994,113 1,723,712 200 104,433 232,090 1,656 160 106,089 232,450$ 2,100,202

$ 1,956,162 Interest Rate Risk -Interest rate risk is the risk that changes in interest rates over time will adversely affect the fair value of an investment.

The University's Pooled General Investments consist primarily of fixed income securities, with a specific limitation that no more than 15% of the pool consists of variable rate securities.

As a means of preserving the Pooled Endowment Investments' principal, the University's investment policy requires this pool to have a diversified investment portfolio.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 32 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 If a donor has not provided specific restrictions, state law permits the Board of Curators to appropriate an amount of the endowment investment's net appreciation, realized and unrealized, as the Board considers to be prudent. In establishing this amount, the Board is required to consider the University's long-and short-term needs, present and anticipated financial requirements, expected total return on investments, price level trends, and general economic conditions.

Further, any expenditure of net appreciation is required to be for the purposes for which -the endowment was established.

In fiscal year 2008, restricted endowments depreciated by approximately

$49,169,000, which primarily consisted of unrealized losses on investment.

The Board of Curators has adopted the total return concept (yield plus appreciation) in determining the spendable return for endowments and similar funds. Annually, the spending formula distributes 5% of a trailing 12-quarter average of the endowment's total market value, with the understanding that this spending rate over the long term will not exceed the total real return (net of inflation).

However, to achieve uniformity from year to year, the actual amount made available in any given year will be not less than 96% or more than 106% of the prior year's expenditure.

At June 30, 2008, and 2007, the University held the following types of investments:

Government Obligations Corporate Bonds and Notes Corporate Stocks Commercial Paper Other Investments by Type (in thousands of dollars) Carrying Value as of June 30, ___

.. ---Jj 2007 L 916,106; $

336,726 : 211,230 646,801 : 734,390 3,140 -94,480 ; 64,134 $ Total Short-Term and Long-Term Investments I 1,723,712 I Government Obligations Commercial Paper Repurchase Agreements Total Cash Equivalents Total Investments 200 104,433 I 232,090 ______

106,089 j 1;...--_..::.c23'-"'2..:....,4..:....50'-----i1 2,100,202

I $ 1,956,1621

==

Interest Rate Risk -Interest rate risk is the risk that changes in interest rates over time will adversely affect the fair value of an investment.

The University'S Pooled General Investments consist primarily of fixed income securities, with a specific limitation that no more than 15% of the pool consists of variable rate securities.

As a means of preserving the Pooled Endowment Investments' principal, the University's investment policy requires this pool to have a diversified investment portfolio.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 32 A COMPONENT UNIT OF THE STATE OF MISSOURI Jb FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 At June 30, 2008, and 2007, the University's investments mature as follows: Invetmens byTyp an so~ rt U.S. Agency Obligations U.S. Treasury Obligations Foreign Government Obligations U.S. Corporate Bonds & Notes Foreign Corporate Bonds & Notes As of June 30, 2008*Less than More than Carrying 1 Year 1-5 Years 6-10 Years 10 Years Value$ 115,614 $ 371,629 $ 95,336 $ 49,813 $ 632,392 9,103 39,064 54,017 91,705 193,889 3,497 25,298 38,824 22,206 89,825 59,991 140,713 87,833 24,842 313,379 612 8,326 5,207 9,202 23,347 Total$ 188,817 $ 585,030 $ 281,217 $ 197,768 $ 1,252,832 As of June 30, 2007 Less than 1 Year 1-5 Years 6-1 More than Carrying 0 Years 10 Years Value U.S. Agency Obligations

$ 149,651 S 342,038 $ 26,723 $ 33,713 $ 552,125 U.S. Treasury Obligations 16,050 18,589 16,163 9,392 60,194 Foreign Government Obligations 2,649 35,165 29,329 31,356 98,499 U.S. Corporate Bonds & Notes 30,684 133,900 11,088 22,178 197,850 Foreign Corporate Bonds & Notes 703 2,1 11 2,194 8,372 13,380 Total $ 199,737 $ 531,803

$ 85,497 $ 105,011 $ 922,048 Credit Risk -An investment's credit risk is the risk that the issuer or other counterparty will not meet its obligations.

For investments in debt securities, this credit risk is typically measured by the credit quality ratings provided by a nationally-recognized statistical rating organization such as Standard & Poor's Ratings Group and Moody's Investors Service. For Endowment Fund investments, the University's policy specifies that corporate bonds and other fixed income securities must have a Standard & Poor's rating of A or better.In the following table, the University has elected to use Moody's investment ratings. Securities within thePooled Endowment Investment category have Moody's ratings of Baa and Standard & Poor's ratings in the A range (A-to A+), which places those bonds within the parameters specified in the University's policy.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 33 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 At June 30, 2008, and 2007, the University's investments mature as follows: Investments by Type and Maturity I (in thousands of dollars) I As of June 30, 2008 -

_._

.. _--

Less than More than Carrying , 1 Year 1-5 Years 6-10 Years 10 Years Value -----._---......-

'-'--" ,

,""",,::?

,;1!ji> , ."' -'Y'? :.-@ "'4;;:;

",.I .,-' U.S. Agency Obligations

$ 115,614 $ 371,629 $ 95,336 $ 49,813 $ 632,392 , , I U.S. Treasury Obligations 9,103 39,064 54,017 91,705 193,889 : Foreign Government Obligations 3,497 25,298 38,824 22,206 89,825 U.S. Corporate Bonds & Notes 59,991 140,713 87,833 24,842 313,379. Foreign Corporate Bonds & Notes i 612 8,326 5,207 9,202 23,347 : Total $ 188,817 $ 585,030 $ 281,217 $ 197,768 $ 1,252,832 As of June 30, 2007 Less than Mondhan Carrying 1 Year 1-5 Years 6"10 Years 10 Years Value

..: .-; ,;,t; ..

,-U.S. Agency Obligations

$ 149,651 $ 342,038 $ 26,723 $ 33,713 $ 552,125 U.S. Treasury Obligations 16,050 18,589 16,163 9,392 60,194 Foreign Government Obligations 2,649 35,165 29,329 31,356 98,499 U.S. Corporate Bonds & Notes 30,684 133,900 11,088 22,178 197,850 Foreign Corporate Bonds & Notes 703 2,111 2,194 8,372 13,380 Total 1$ 199,737 $ 531,803 $ 85,497 $ 105,011 $ 922,0481 --Credit Risk -An investment's credit risk is the risk that the issuer or other counterparty will not meet its obligations.

For investments in debt securities, this credit risk is typically measured by the credit quality ratings provided by a nationally-recognized statistical rating organization such as Standard & Poor's Ratings Group and Moody's Investors Service. For Endowment Fund investments, the University's policy specifies that corporate bonds and other fixed income securities must have a Standard & Poor's rating of A or better. In the following table, the University has elected to use Moody's investment ratings. Securities within the Pooled Endowment Investment category have Moody's ratings of Baa and Standard & Poor's ratings in the A range (A-to A+), which places those bonds within the parameters specified in the University's policy. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 33 9-,ýc FOR T=E YEARS ENDED JUNE 30, 2008 AND 2007 Based on Moody's investment ratings, the University's credit risk exposure as of June 30, 2008, and 2007, is as follows: Invest~iAments1 by' TypeI~ and Credit~ Rat~ ing(in~~ thuad ofdolas As of June 30, 2008 Aaa Aa A Baa UnratedTotal U.S. Agency Obligations U.S. Treasury Obligations Foreign Government Obligations U.S. Corporate Bonds & Notes Foreign Corporate Bonds & Notes 5 470,034 $ 3,111 193,889 55,497 668 53,500 109,514 11,035 4,896$392 $31,309 944137,050 7,574 5,217 737$ 158,855 $ 632,392 193,889 1,407 89,825 5,741 313,379 1,462 23,347 Total$ 783,955 $ 118,189 $ 173,968 $ 9,255 $ 167,465 $ 1,252,832 As of June 30, 2007 Aaa Aa A Baa Unrated Total I U.S. Agency Obligations

$ 515,129 $ 125 $ $ $ 36,871 $ 552,125 U.S. Treasury Obligations 60,194 60,194 Foreign Government Obligations 64,071 136 23,813 1,748 8,731 98,499 U.S. Corporate Bonds & Notes 30,313 87,262 65,998 3,877 10,400 197,850 Foreign Corporate Bonds & Notes 2,725 832 3,223 368 6,232 13,380 Total $ 672,432 $ 88,355 $ 93,034 $ 5,993 $ 62,234 $ 922,048 Custodial Credit Risk -For investments, custodial credit risk is the risk that in the event of failure of the counterparty to a transaction, the University will not be able to recover the value of the investments' held by an outside party. In accordance with its policy, the University minimizes custodial credit risk by establishing limitations on the types of instruments held with qualifying institutions.

Repurchaseagreements must be collateralized by U.S. Government issues and/or U.S. Government Agency issues.Certificates of deposit must be collateralized and held at a bank with which the University has adepository agreement. At June 30, 2008, and 2007, the University's uninsured and uncollateralizedinvestments consisted of commercial paper totaling $104,433,000 and $235,230,000, respectively.

The University's investment in repurchase agreements held by the investment's counterparty and not in the name of the University totaled

$1,656,000 and $160,000 at June 30, 2008, and 2007, respectively.

All remaining University investments are insured or registered and are held by the University or an agent in its name.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURIA COMPONENT UNIT OF THE STATE OF MISSOURI 34 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Based on Moody's investment ratings, the University's credit risk exposure as of June 30, 2008, and 2007, is as follows: Investments by Type and Credit Rating (in thousands of dollars) As of June 30, 2008 Aaa Aa A Baa Unrated Total -.-* $" -.. -'-... -. ---,;.;:-_. U.S. Agency Obligations

$ 470,034 $ 3,111 $ 392 $ -$ 158,855 $ 632,392' U.S. Treasury Obligations 193,889 193,889 Foreign Government Obligations 55,497 668 31,309 944 1,407 89,825 U.S, Corporate Bonds & Notes 53,500 109,514 137,050 7,574 5,741 313,379 Foreign Corporate Bonds & Notes 11,035 4,896 5,217 737 1,462 23,347 ' Total $ 783,955 $ 118,189 $ 173,968 $ 9,255 $ 167,465 $ 1,252,832 As of June 30, 2007 I Aaa Aa A Baa Unrated Total L r *. U.S. Agency Obligations

$ 515,129 $ 125 $ -$ -$ 36,871 $ 552,125 U.S. Treasury Obligations 60,194 60,194 Foreign Government Obligations 64,071 136 23,813 1,748 8,731 98,499 U.S. Corporate Bonds & Notes 30,313 87,262 65,998 3,877 10,400 197,850 Foreign Corporate Bonds & Notes 2,725 832 3,223 368 6,232 13,380 -Total 1$ 672,432 $ 88,355 $ 93,034 $ 5,993 $ 62,234 $ 922,0481 -----Custodial Credit Risk -For investments, custodial credit risk is the risk that in the event of failure ofthe counterparty to a transaction, the University will not be able to recover the value of the investments' held by an outside party. In accordance with its policy, the University minimizes custodial credit risk by establishing limitations on the types of instruments held with qualifying institutions.

Repurchase agreements must be collateralized by U.S. Government issues and/or U.S. Government Agency issues. Certificates of deposit must be collateralized and held at a bank with which the University has a depository agreement.

At June 30, 2008, and 2007, the University's uninsured and uncollateralized investments consisted of commercial paper totaling $104,433,000 and $235,230,000, respectively.

The University's investment in repurchase agreements held by the investment's counterparty and not in the name of the University totaled $1,656,000 and $160,000 at June 30, 2008, and 2007, respectively.

All remaining University investments are insured or registered and are held by the University or an agent in its name. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 34 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Concentration of Credit Risk -The risk of loss attributed to the magnitude of investments in a single issuer. is known as the concentration of credit risk.

Investments issued or guaranteed by the U.S.government, investments in mutual funds, or external investment pools are excluded from this category.For University funds invested in the Pooled General Investments category, the following restrictions apply>: 1) Corporate Bonds should not exceed 20% of the portfolio;

2) Variable Rate securities should not exceed 15% of the portfolio; and 3) Investments in obligations of the U.S. Government, U.S. Government Agency issues or U.S. Government guaranteed securities are unlimited.

On December 15, 2006, the Board of Curators amended the investment policy for short-term funds to permit the following new investment categories:

the University's Balanced Pool and absolute return funds.For University funds invested in the Pooled Endowment Investments category, target asset mixes are evaluated to ensure appropriate diversification.

The investment policy allows a portfolio consisting of no more than 37% U.S. equity, 24% international equity, 12.5% emerging markets equity, 10% private equity, 10% absolute return funds, 12.5% real estate, 22% global fixed income, and 12% Treasury Inflation-Protected Securities (TIPS). However, within the Pooled Endowment Investments category, due to donor restrictions certain monies can only be invested in fixed income securities.

The Fixed Income Pool portfolio for these monies consists of U.S. Government, U.S. Government Agency issues, corporatefixed income, commercial paper and repurchase agreements.

As of June 30, 2008, of the University's total cash and investments, 14.1% are issues of the Federal Home Loan Bank (FHLB), 6.1% are issues of the Federal Home Loan Mortgage Corporation (FHLMC), and 5.6% are issues of Federal National Mortgage Association (FNMA).As of June 30, 2007, of the University's total cash and investments, 16.1% are issues of the FHLB and 7.5% are issues of the FNMA.Foreign Currency Risk -The risk that changes in exchange rates will adversely affect the fair value of a foreign investment is referred to as foreign currency risk. University policy allows 15 to 25% of theinvestment portfolio to be invested in international investments; 13.8% and 14.8% were denominated inforeign currency in fiscal years 2008, and 2007, respectively.

To reduce its foreign currency risk, the University has entered into forward foreign currency contracts throughout the year. As of June 30, 2008, and 2007, 6.0% and 5.1%, respectively, of the University's total investment portfolio was invested in forward foreign currency contracts, totaling

$115,688,000 and $84,367,000, respectively.

These contracts are marked to market and the changes in their market value are recorded in investment and endowment income on the Statement of Revenues, Expenses, and Changes in Net Assets.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 35 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Concentration of Credit Risk -The risk of loss attributed to the magnitude of investments in a single issuer is known as the concentration' of credit risk. Investments issued or guaranteed by the U.S. government, investments in mutual funds, or external investment pools are excluded from this category.

For University funds invested in the Pooled General Investments category, the following restrictions apply:* 1) Corporate Bonds should not exceed 20% of the portfolio; 2)Variable Rate securities should not exceed 15% ofthe portfolio; and 3) Investments in obligations of the U.S. Government, U.S. Government Agency issues or U.S. Government guaranteed securities are unlimited.

On December 15, 2006, the Board of Curators amended the investment policy for short-term funds to permit the following new investment categories:

the University's Balanced Pool and absolute return funds. For University funds invested in the Pooled Endowment Investments category, target asset mixes are evaluated to ensure appropriate diversification.

The investment policy allows a portfolio consisting of no more than 37% U.S. equity, 24% international equity, 12.5% emerging markets equity, 10% private equity, 10% absolute return funds, 12.5% real estate, 22% global fixed income, and 12% Treasury Inflation-Protected Securities (TIPS). However, within the Pooled Endowment Investments category, due to donor restrictions certain monies can only be invested in fixed income securities.

The Fixed Income Pool portfolio for these monies consists of U.S. Government, U.S. Government Agency issues, corporate fixed income, commercial paper and repurchase agreements.

As ofJune 30, 2008, of the University's total cash and investments, 14.1 % are issues of the Federal Home Loan Bank (FHLB), 6.1 % are issues of the Federal Home Loan Mortgage Corporation (FHLMC), and 5.6% are issues of Federal National Mortgage Association (FNMA). As of June 30, 2007, of the University's total cash and investments, 16.1% are issues of the FHLB and 7.5% are issues ofthe FNMA. Foreign Currency Risk -The risk that changes in exchange rates will adversely affect the fair value of a foreign investment is referred to as foreign currency risk. University policy allows 15 to 25% of the inveshnent portfolio to be invested in international investments; 13.8% and 14.8% were denominated in foreign currency in fiscal years 2008, and 2007, respectively.

To reduce its foreign currency risk, the University has entered into forward foreign currency contracts throughout the year. As of June 30, 2008, and 2007, 6.0% and 5.1%, respectively, of the University's total investment portfolio was invested in forward foreign currency contracts, totaling $115,688,000 and $84,367,000, respectively.

These contracts are marked to market and the changes in their market value are recorded in investment and endowment income on the Statement of Revenues, Expenses, and Changes in Net Assets. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 35 (t__~k FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University's exposure to foreign currency risk as of June 30, 2008, and 2007, was as follows: Foeg CrecyRs Internaion~U[sal~

~kI Inv st~1ment 41 Seuit*ies at I Fair Valu(in tosns Sof dolas Currency ForeignCash and Foreign Corporate Cash Government Bonds and Equivalents

_Obligations

_Notes 95 $ 2,162 $ 921 78 (6,781) 7,637 116 8,214 2,541 494 Australian Dollar Brazilian RealBritish Pound Sterling Canadian Dollar Chilean Peso Chinese Yan Renminbi Danish Krone Euro Hong Kong Dollar Hungarian Forint Israeli Shekel Japanese Yen Malaysian Ringgit Mexican New Peso New Taiwan DollarNew Zealand Dollar Norwegian Krone Polish Zloty Russian RubelSouth African Comm Rand Singapore Dollar South Korean Won Swedish Krona Swiss Franc UAE Dirham Total 10 10,638 80 35,807 560 17,113 3,373 1,172 1 27,371 2,421 46 945 Corporate Stocks$ 3,723 79 21,821 1,419 34 2,160 254 50,595 3,362 (396)12,723 1,729 227 199 (495)3,660 (253)99 247 1,375 (135)2,808 14,512 329 2008 Total_$ 6,901 157 22,793 12,668 34 2,160 824 114,153 3,442 776 43,468 4,150 1,218 199 (467): 4,205 2,406 99 247 5,228 596 5,696 14,606 329$6,635 40,447 10,470 35 3,327 811 105,431 5,971 1,180 1,798 55,621 1,920 1,822 183 (3,318)1,040 2,211 405 4,162 1,666 6,274 17,821 2007 TotalI 28 97 28 17 73 94 448 2,631 3,836 731 2,123 692$ 12,640 $ 89,825 $ 23,347 $ 120,076 $ 245,888 I$ 265,912Securities Lending Transactions

-The University participates in an external investment pool securitieslending program to augment income. The program is administered by the University's custodial agentbank, which lends equity, government, and corporate securities for a predetermined period of time to anindependent broker/dealer (borrower) in exchange for collateral. Collateral may be cash, U.S.Government securities, defined letters of credit or other collateral approved by the University. Loaned domestic securities are initially collateralized at 102% of their fair value, while loaned international securities are collateralized at 105% of fair value. The University has minimized its exposure to credit risk from borrower default by having the custodial agent bank determine daily that required collateral meets a minimum of 100% of the fair value of loaned domestic securities and 105% for loaned international securities.

The fair value of collateral held for securities on loan totaled $106,360,000 and$138,014,000 at June 30, 2008, and 2007, respectively.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 36 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University's exposure to foreign currency risk as of June 30, 2008, and 2007, was as follows: Foreign Currency Risk International Investment Securities at Fair Value (in thousands of dollars) i ... .-.. --. -.. -.. -----.-.. -... --.. ----.... -.. -.. -... --,r------, Foreign Cash and Foreign Corporate I I Cash Government Bonds and Corporate 2008 . 2007 Currency Obligations Notes Stocks Total: Total -. _____ .. _-.:::. ___ ._' -.-.-:.....-....:::_

.. _-=-:....:-

"::_:-.. :' _= :_-='_ .--=-_." _' -= II :. ___ .. -::.' **

Australian Dollar : $ 95 $ 2,162 $ 921 $ 3,723 $ 6,901 $ 6,635 Brazilian Real! 78 79 157 : British Pound Sterling Canadian Dollar Chilean Peso Chinese Yan Renminbi Danish Krone Euro Hong Kong Dollar Hungarian Forint Israeli Shekel Japanese Yen Malaysian Ringgit Mexican New Peso New Taiwan Dollar New Zealand Dollar Norwegian Krone Polish Zloty Russian Rubel South African Comm Rand I Singapore Dollar I South Korean Won Swedish Krona Swiss Franc UAE Dirham Total (6,781) 8,214 10 10,638 80 46 28 97 28 17 73 94 12,640 $ 7,637 2,541 35,807 1,172 27,371 2,421 945 448 2,631 3,836 731 2,123 89,825 $ 116 494 560 17,113 3,373 692 23,347 $ 21,821 1,419 34 2,160 254 50,595 3,362 (396) 12,723 1,729 227 199 (495) 3,660 (253) 99 247 1,375 (135) 2,808 14,512 329 120,076 $ 22,793 12,668 I 34 I 2,160 : 824 i 114,153 i 3,442 I 776 ! 43,468 I 4,150 I 1,218 199 ' (467), 4,205 2,406 ! 99 ! 247 ' 5,228 I 596 ' 5,696 : 14,606 : 329 40,447 10,470 35 3,327 811 105,431 5,971 1,180 1,798 55,621 1,920 1,822 183 (3,318) 1,040 2,211 405 4,162 1,666 6,274 17,821 ;..--------i 245,888 i Securities Lending Transactions

-The University participates in an external investment pool securities lending program to augment income. The program is administered by the University's custodial agent bank, which lends equity, government, and corporate securities for a predetermined period of time to an independent broker/dealer (borrower) in exchange for collateral.

Collateral may be cash, u.s. Government securities, defined letters of credit or other collateral approved by the University.

Loaned domestic securities are initially collateralized at 102% of their fair value, while loaned international securities are collateralized at 105% of fair value. The University has minimized its exposure to credit risk from borrower default by having the custodial agent bank determine daily that required collateral meets a minimum of 100% of the fair value of loaned domestic securities and 105% for loaned international securities.

The fair value of collateral held for securities on loan totaled $106,360,000 and $138,014,000 at June 30, 2008, and 2007, respectively.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 36 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University continues to receive interest and dividends during the loan period, as well as a fee from the borrower.

In addition, the maturities of the investments made with the cash collateral generally match the maturities of the securities lent. At June 30, 2008, and 2007, the University has no credit risk exposure since the collateral held exceeds the value of the securities lent.

The University is fully indemnified by its custodial bank against any losses incurred as a result of borrower default.In addition, at June 30, 2008 and 2007, letters of credit and security collateral not meeting the criteria for inclusion in the Statement of Net Assets totaled $15,238,000 and $11,607,000, respectively.

At June 30, 2008 and 2007, the aggregate fair value of the securities lent and related collateral received was$113,629,000 and $144,351,000, respectively.

DISCRETELY PRESENTED COMPONENT UNIT- MEDICAL ALLIANCE Investments

-The investment policies of Medical Alliance are established by its board of directors.

The policies are established to ensure that Medical Alliance funds are managed in accordance with the"Prudent Man Rule." At June 30, 2008, and 2007, Medical Alliance held the following investments:

_2008 .. 2007 Internally Designated for Capital Improvements:

Mortgage-backed securities 5,695 $ 5,690 Money Market Accounts 5,721 8,804 Interest Receivable 65 77 U.S. Treasury Obligations 741 74 Certificates of Deposit 15,105 8,577 Subtotal 26,660 23,222 Held by Trustee Under Indenture Agreement:

Money Market Accounts 4,299 4,209Interest Receivable 2; 4 Less Portion Required for Current Obligations (1,293) (1,264)S 29,6681I$

26,171 UNIVERSITY OF MISSOURI FIDUCIARY FUNDSAt June 30, 2008, the University's newly-established OPEB Trust Fund held no investments as its balancewas held in cash deposits.

Disclosures for the University's Retirement Trust Fund are as follows: Investments -The Board of Curators of the University of Missouri establishes the policy for Retirement Trust investments which emphasizes diversification across asset classes, dominated by equity securities to maximize investment returns. While pursuing this investment objective, the Retirement Trust also observes its fiduciary duties set forth in Section 105.688 of the Revised Statutes of Missouri to act in the interest of the Retirement Plan's participants and beneficiaries.

The Retirement Trust investments earned a total return of (5.7) %, including unrealized gains and losses, for the year ended June 30, 2008, and 19.7% for the year ended June 30, 2007.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 37 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University continues to receive interest and dividends during the loan period, as well as a fee from the borrower.

In addition, the maturities of the investments made with the cash collateral generally match the maturities of the securities lent. At June 30,2008, and 2007, the University has no credit risk exposure since the collateral held exceeds the value of the securities lent. The University is fully indemnified by its custodial bank against any losses incurred as a result of borrower default. In addition, at June 30, 2008 and 2007, letters of credit and security collateral not meeting the criteria for inclusion in the Statement of Net Assets totaled $15,238,000 and $11,607,000, respectively.

At June 30, 2008 and 2007, the aggregate fair value of the securities lent and related collateral received was $113,629,000 and $144,351,000, respectively.

DISCRETELY PRESENTED COMPONENT UNIT -MEDICAL ALLIANCE Investments

-The investment policies of Medical Alliance are established by its board of directors.

The policies are established to ensure that Medical Alliance funds are managed in accordance with the "Prudent Man Rule." At June 30, 2008, and 2007, Medical Alliance held the following investments:

Medical Alliance Investments I (in thousands of dollars) i r---_

2007 L Internally Designated for Capital Improvements:

1$ 5,695 i Mortgage-backed securities

$ 5,690 Money Market Accounts I 5,721 : 8,804 I Interest Receivable 65 . 77 U.S. Treasury Obligations i 74 i 74 I Certificates of Deposit I 15,105 : 8,577 Subtotal I 26,660 I 23,222 I , Held by Trustee Under Indenture Agreement:

I I Money Market Accounts 4,299 ! 4,209 I I Interest Receivable 2; 4 Less Portion Required for Current Obligations I {I ,2932 i {1, 264 2 I 1$ 29,668 II $ 26,171 I UNIVERSITY OF MISSOURI FIDUCIARY FUNDS At June 30, 2008, the University'S newly-established OPEB Trust Fund held no investments as its balance was held in cash deposits.

Disclosures for the University'S Retirement Trust Fund are as follows: Investments -The Board of Curators of the University of Missouri establishes the policy for Retirement Trust investments which emphasizes diversification across asset classes, dominated by equity securities to maXImIze investment returns. While pursuing this investment objective, the Retirement Trust also observes its fiduciary duties set forth in Section 105.688 of the Revised Statutes of Missouri to act in the interest of the Retirement Plan's participants and beneficiaries.

The Retirement Trust investments earned a total return of (5.7) %, including unrealized gains and losses, for the year ended June 30, 2008, and 19.7% for the year ended June 30, 2007. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 37 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 At June 30, 2008, and 2007, the Retirement Trust held the following types of investments:

Reiemn Trst Inetet By Type Government Obligations Corporate Bonds and Notes Corporate StocksCommercial Paper Other Total Short-Term and Long-Term Investments Carrying Value as of June 30, 2008 20078 $ 640,544 $ 400,416 281,693 182,837 1,699,133 2,269,794 1,285 1,169 218,894 103,6632,841,549 2,957,879Commercial Paper Total Cash Equivalents 25,431 25,431 21,404 21,404 Total Investments

.$ 2,866,980

$ 2,979,283 1 Interest Rate Risk -Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment.

As a means of preserving invested principal, the Board of Curators' investmentpolicy requires diversification of the Retirement Trust investment portfolio.

At June 30, 2008, and 2007, the maturities of the Retirement Trust's investments are as follows: As of June 30, 2008 U.S. Agency Obligations U.S. Treasury ObligationsForeign Government Obligations U.S. Corporate Bonds & NotesForeign Corporate Bonds

& Notes Total Less than 1 Year 1-5 Years$ 1,433 $ 790 10,586 50,9837,497 63,028 21,833 78,740 1,422 23,377 6-10 Years$ 6,570 106,449 131,864 57,268 14,603 More than Carrying 10 Years Value -S 109,718 74,710 76,916 66,568 17,882$ 118,511 242,728 279,305 224,409 57,284$ 922,237$ 42,771 $ 216,918 $ 316,754 $ 345,794 As of June 30, 2007 U.S. Agency Obligations U.S. Treasury Obligations Foreign Government Obligations U.S. Corporate Bonds & NotesForeign Corporate Bonds & Notes Total Less than More than Carrying 1 Year 1-5 Years 6-10 Years 10 Years Value$ 779 $ 6,984 $ 7,362 $

92,336 $ 107,461 13,190 5,399 15,853 12,258 46,700 16,841 86,530 58,219 84,664 246,254 10,307 43,477 17,672 75,001 146,457 3,056 6,486 6,222 20,617 36,381$ 44,173 $ 148,876 $ 105,328

$ 284,876 $ 583,253 38 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI FOR TIIE YEARS ENDED JUNE 30, 2008 AND 2007 At June 30, 2008, and 2007, the Retirement Trust held the following types of investments:

Retirement Trust Investments By Type (in thousands of dollars) Carrying Value as of June 30,

___ J 2007 L ' , -.';"-'-Government Obligations

,$ 640,544 , $ 400,416 Corporate Bonds and Notes 281,693 182,837 Corporate Stocks 1,699,133 2,269,794 Commercial Paper 1,285 1,169 Other 218,894 103,663 Total Short-Term and Long-Term Investments 2,841,549 I 2,957,879 I J 1 21,4041 Commercial Paper , 25,431 Total Cash Equivalents 25,431 I 21,404 I Total Investments

.$ 2,866,980 1$ 2,979,2831 Interest Rate Risk -Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment.

As a means of preserving invested principal, the Board of Curators' investment policy requires diversification of the Retirement Trust investment portfolio.

At June 30, 2008, and 2007, the maturities of the Retirement Trust's investments are as follows: 38 Retirement Trust Investments by Type and Maturity (in thousands of dollars) As of June 30, 2008 Less than More than 1 Year 1-5 Years 6-10 Years 10 Years U.S. Agency Obligations

$ 1,433 $ 790 $ 6,570 $ 109,718 U.S. Treasury Obligations 10,586 50,983 106,449 74,710 Foreign Government Obligations 7,497 63,028 131,864 76,916 U.S. Corporate Bonds & Notes 21,833 78,740 57,268 66,568 Foreign Corporate Bonds & Notes 1,422 23,377 14,603 17,882 Total $ 42,771 $ 216,918 $ 316,754 $ 345,794 As of June 30,2007 Less than 1 Year U.S. Agency Obligations

$ 779 $ U.S. Treasury Obligations 13,190 Foreign Government Obligations 16,841 U.S. Corporate Bonds & Notes 10,307 Foreign Corporate Bonds & Notes 3,056 Total 1$ 44,173 $ 148,876 $ 105,328 $ 284,876 Carrying J Value $ 118,511 242,728 279,305 224,409 57,284 I $ 922,237 , 107,461 46,700 246,254 146,457 36,381 $ 583,2531 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Credit Risk -An investment's credit risk is the risk that the issuer or other counterparty will not meet its obligations.

For investments in debt securities, this risk is measured by the credit quality ratings provided by a nationally-recognized statistical rating organization, such as Standard & Poor's and Moody's. The Retirement Trust investment policy requires that corporate bond and other fixed income securities must have a Standard & Poor's rating of A or better.The University has elected to use the Moody's investment ratings in the following table. Securities within the Retirement Trust have Moody's ratings of Baa and Standard & Poor's ratings in the A range (A- to A+), which places those bonds within the parameters specified by the Retirement Trust investment policy.The Retirement Trust's credit risk exposure based on Moody's investment ratings as of June 30, 2008, and 2007, is as follows: Reiemn Trs Inetet by Typ and CrdtR I Aaa Aa U.S. Agency Obligations

$ 116,687 S U.S. Treasury Obligations 242,728 Foreign Government Obligations 153,058 45,684 U.S. Corporate Bonds & Notes 81,383 69,296 Foreign Corporate Bonds & Notes 28,210 9,393 Total $ 622,066 S 124,373 As of June 30, 2008 A Baa Unrated Total$ 1,824 $ -$ -118,511 242,728 76,032 2,891 1,640 279,305 52,488 12,629 8,613 224,409 14,104 3,130 2,447 57,284$ 144,448 $ 18,650 $ 12,700 $ 922,237 As of June 30, 2007 U.S: Agency Obligations U.S: Treasury Obligations Foreign Government Obligations U.S. Corporate Bonds & Notes Foreign Corporate Bonds & Notes Total Aaa Aa A Baa Unrated Total$ 107,087 $ 374 $ $ -S $ 107,461 46,700 46,700 151,912 4,218 61,354 4,439 24,331 246,254 71,259 28,911 22,685 1,949 21,653 146,457 7,462 3,071 10,164 721 14,963 36,381$ 384,420 5 36,574 5 94,203 5 7,109 $ 60,947 $ 583,253 Custodial Credit Risk -For investments, custodial credit risk is the risk that in the event of failure of the counterparty to a transaction, the Retirement Trust will not be able to recover the value of its investments held by an outside party. At June 30, 2008, and 2007, the Retirement Trust's uninsured and uncollateralized investments consisted of commercial paper totaling $26,717,000 and $22,573,000, respectively.

Remaining investments are insured or registered and are held by the Retirement Trust or an agent in its name.Concentration of Credit Risk -The risk of loss attributed to the magnitude of investments in a single issue is known as the concentration of credit risk. Investments issued or guaranteed by the U.S.government, investments in mutual funds, or external investment pools are excluded from this category.The Retirement Trust investment policy allows for a portfolio consisting of no more than 37% U.S.equity, 24% international equity, 12.5% emerging markets equity, 10% private equity, 10% absolute return funds, 12.5% real estate, 22% global fixed income, and 12% TIPS. At June 30, 2008, and 2007, the Retirement Trust portfolio did not contain investments from any single issuer that exceeded 5% of thetotal portfolio.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 39 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Credit Risk -An investment's credit risk is the risk that the issuer or other counterparty will not meet its obligations.

For investments in debt securities, this risk is measured by the credit quality ratings provided by a nationally-recognized statistical ratin-g organization, such as Standard & Poor's and Moody's. The Retirement Trust investment policy requires that corporate bonq and other fixed income securities must have a Standard & Poor's rating of A or better. The University has elected to use the Moody's investment ratings in the following table. Securities within the Retirement Trust have Moody's ratings of Baa and Standard & Poor's ratings in the A range (A-to A+), which places those bonds within the parameters specified by the Retirement Trust investment policy. The Retirement Trust's credit risk exposure based on Moody's investment ratings as of June 30, 2008, and 2007, is as follows: Retirement Trust Investments by Type and Credit Ratihg (in thousands of dollars) , I U.S. Agency Obligations U.S. Treasury Obligations Foreign Government Obligations U.S. Corporate Bonds & Notes Foreign Corporate Bonds & Notes Total U.S: Agency Obligations U.S: Treasury Obligations Foreign Government Obligations U.S. Corporate Bonds & Notes Foreign Corporate Bonds & Notes Total As of June 30, 2008 :--" ----'----< -' 'I Aaa Aa A Baa Unrated Total

£

___

'.--' -T :$ 116,687 $ $ 1,824 $ -$ -$ 118,511 242,728 . 242,728 : 153,058 45,684 76,032 2,891 1,640 279,305 81,383 69,296 52,488 12,629 8,613 224,409 I 28,210 9,393 14,104 3,130 2,447 57,284 I . ;$ 622,066 $ 124,373 $ 144,448 $ 18,650 $ 12,700 $ 922,237 i As of June 30, 2007

.. ,

..

Ir :--,.-_...;7-,-,4.;,,;6.=2_

3,071 10,164 721 14,963 36,381 1$ 384,420 $ 36,574 $ 94,203 $ 7,109 $ 60,947 $ 583,253 J Custodial Credit Risk -For investments, custodial credit risk is the risk that in the event of failure of the counterparty to a transaction, the Retirement Trust will not be able to recover the value of its investments held by an outside party. At June 30, 2008, and 2007, the Retirement Trust's uninsured and uncollateralized investments consisted of commercial paper totaling $26,717,000 and $22,573,000, respectively.

Remaining investments are insured or registered and are held by the Retirement Trust or an agent in its name. Concentration of Credit Risk -The risk of loss attributed to the magnitude of investments in a single issue is known as the concentration of credit risk. Investments issued or guaranteed by the U.S. government, investments in mutual funds, or external investment pools are excluded from this category.

The Retirement Trust investment policy allows for a portfolio consisting of no more than 37% U.S. equity, 24% international equity, 12.5% emerging markets equity, 10% private equity, 10% absolute return funds, 12.5% real estate, 22% global fixed income, and 12% TIPS. At June 30, 2008, and 2007, the Retirement Trust portfolio did not contain investments from any single issuer that exceeded 5% of the total portfolio.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 39 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Foreign Currency Risk -The risk that changes in exchange rates will adversely affect the fair value of a foreign investment is referred to as foreign currency risk. The Retirement Trust invests a significant portion of its portfolio in international investments; 26.3% and 31.1% were denominated in foreign currency in fiscal years 2008 and 2007, respectively.

To reduce foreign currency risk, the Retirement Trust entered into forward foreign currency contracts throughout the year.As of June 30, 2008, and 2007, 10.7% and 9.4% respectively, of the Retirement Trust's investment portfolio is invested in forward foreign currency contracts, totaling $303,808,000 and $276,217,000.

These contracts are marked to market and the changes in their market value are reported as net appreciation (depreciation) in fair value of investments in the Statement of Changes in Plan Net Assets.As of June 30, 2008, and 2007, the Retirement Trust's exposure to foreign currency risk was as follows: Inturnatio~na[

l tInvelst'~~4Ia]ment I4 Seuite at [ Fair Value(i tosad of dollas )Currency Australian Dollar Brazilian Real British Pound Sterling Canadian Dollar Chilean Peso Chinese Yan Renminbi Danish Krone EuroHong Kong Dollar Hungarian Forint Israeli Shekel Japanese YenMalaysian RinggitMexican New Peso New Taiwan Dollar New Zealand Dollar Norwegian KronePolish Zloty Russian Rubel South African Comm Rand Singapore DollarSouth Korean Won Swedish Krona Swiss Franc UAE Dirham Total Foreign Cash and Foreign Corporate Cash Government Bonds and Corporate 2008 2007 Equivalents Obligations Notes Stocks Total Total

$ 254 $ 4,399 $ 2,939 $ 11,735 $ 19,327 $ 23,949 294 245 539 (17,201) 17,240 662 61,520 62,221 122,460 25,433 2,498 7,282 (713) 34,500 37,371 104 104 105 5,770 5,770 9,790 63 2,213 65 2,341 2,015 76,403 143,763 36,992 39,740 296,898 315,207 150 9,196 9,346 15,581 5,534 144 42 50 120 45 2,813 73,064 5,806 2,893 591 1,014 7,238 9,618 2,125 6,243 4,826 (845)32,203 4,433 747 543 (1,879)8,037 (907)223 448 2,905 11 6,678 1,968 115,627 10,239 3,784 543 (1,246)9,101 6,451 223 448 12,568 2,136 15,217 2,812 5,025 153,632 6,148 4,627 501 (9,842)2,496 5,507 943 11,310 5,018 16,214 220 2,076 537 37,877 38,414 45,889 878 878$ 91,794 $ 279,305 $ 57,284 $ 219,014 $ 647,397 $ 776,758 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 40 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Foreign Currency Risk -The risk that changes in exchange rates will adversely affect the fair value of a foreign investment is referred to as foreign currency risk. The Retirement Trust invests a significant portion of its portfolio in international investments; 26.3% and 31.1 % were denominated in foreign currency in fiscal years 2008 and 2007, respectively.

To reduce foreign currency risk, the Retirement Trust entered into forward foreign currency contracts throughout the year. As of June 30, 2008, and 2007, 10)% and 9.4% respectively, of the Retirement Trust's investment portfolio is invested in forward foreign currency contracts, totaling $303,808,000 and $276,217,000.

These contracts are marked to market and the changes in their market value are reported as net appreciation (depreciation) in fair value of investments in the Statement of Changes in Plan Net Assets. As of June 30, 2008, and 2007, the Retirement Trust's exposure to foreign currency risk wasas follows: Retirement Trust Foreign Currency Risk International Investment Securities at Fair Value (in thousands of dollars) I

I I Cash Government Bonds and Corporate 2008 I Currency I Equivalents Obligations Notes Stocks Total I I=A=u=st=ra=l=ia=n=D=o=-ll=a=r 254---$----4:399---$-----2,939---$ ----11,735 $ 19,327 Brazilian Real 294 245 539 British Pound Sterling (17,201) 17,240 662 61,520 62,221 Canadian Dollar 25,433 2,498 7,282 (713) 34,500 Chilean Peso Chinese Yan Renminbi Danish Krone Euro Hong Kong Dollar Hungarian Forint Israeli Shekel Japanese Yen Malaysian Ringgit Mexican New Peso New Taiwan Dollar New Zealand Dollar Norwegian Krone Polish Zloty Russian Rubel 63 76,403 150 5,534 144 143,763 2,813 73,064 5,806 2,893 2,213 36,992 4,826 104 104 5,770 65 39,740 9,196 5,770 2,341 296,898 9,346 (845) 1,968 32,203 115,627 4,433 10,239 747 3,784 543 543 42 591 (1,879) (1,246) 50 1,014 8,037 9,101 I 120 7,238 (907) 6,451 1 m ml South African Comm Rand 448 448 2007 Total $ 23,949 122,460 37,371 105 9,790 2,015 315,207 15,581 2,812 5,025 153,632 6,148 4,627 501 (9,842) 2,496 5,507 943 11,310 5,018 16,214 45,889 II 2,076 :::!: Swiss Franc 537 37,877 38,4141 UAE Dirham 1------______________

......:;.;87,;..;;8

____ ..:..87,;..;;8,-;

l----'-; I $ 91,794 $ 279,305 $ 57,284 $ 219,014 $ 647,39711

$ 776,7581 Total 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 40 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30,2008 AND 2007 Securities Lending Transactions

-The Retirement Trust participates in an external investment pool securities lending program to augment income. The program is administered by the Retirement Trust's custodial agent bank, which lends equity, government and corporate securities for a predetermined period of time to an independent broker/dealer (borrower) in exchange for collateral.

Collateral may be cash, U.S. Government securities, defined letters of credit or other collateral approved by the Retirement Trust.

Loaned domestic securities are initially collateralized at 102% of their fair value, while loanedinternational securities are collateralized at 105% of fair value. The Retirement Trust has minimized its exposure to credit risk from borrower default by having the custodial agent bank determine daily thatrequired collateral meets a minimum of 100% of the fair value of loaned domestic securities and 105%for loaned international securities.

The fair value of collateral held for securities on loan totaled

$294,781,000 and $382,023,000 at June 30, 2008, and 2007, respectively.

The Retirement Trust continues to receive interest and dividends during the loan period, as well as a fee from the borrower.

In addition, the maturities of the investments made with the cash collateral generally match the maturities of the securities lent. At June 30, 2008, the Retirement Trust has no credit risk exposure since the collateral held exceeds the value of the securities lent. The Retirement Trust is fully indemnified by its custodial bank against any losses incurred as a result of borrower default.

In addition, at June 30, 2008, and 2007, letters of credit and security collateral, not meeting the criteria for inclusion in the Statement of Plan Net Assets, totaled $20,336,000 and $38,795,000, respectively, for the Retirement Trust. At June 30, 2008, and 2007, the aggregate fair value of the securities lent and related collateral received was $303,713,000 and $404,849,000, respectively.

4. FUNDS HELD IN TRUST BY OTHERS At June 30, 2008, and 2007, Funds Held in Trust by Others (principally endowment funds) aggregated

$80,910,000 and $74,200,000, respectively, at fair value. Due to time restrictions or a legal event that has not occurred, these funds are not available to the University and are not included in the accompanying Statement of Net Assets. Income earned and distributed to the University for the years ended June 30,2008 and 2007, aggregated

$1,115,000 and $2,807,000, respectively.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 41 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Securities Lending Transactions

-The Retirement Trust participates in an external investment pool securities lending program to augment income. The program is administered by the Retirement Trust's custodial agent bank, which lends equity, government and corporate securities for a predetermined period of time to an independent broker/dealer (borrower) in exchange for collateral.

Collateral may be cash, U.S. Government securities, defined letters of credit or other collateral approved by the Retirement Trust. Loaned domestic securities are initially collateralized at 102% of their fair value, while loaned international securities are collateralized at 105% of fair value. The Retirement Trust has minimized its exposure to credit risk from borrower default by having the custodial agent bank determine daily that required collateral meets a minimum of 100% of the fair value of loaned domestic securities and 105% for loaned international securities.

The fair value of collateral held for securities on loan totaled $294,781,000 and $382,023,000 at June 30, 2008, and 2007, respectively.

The Retirement Trust continues to receive interest and dividends during the loan period, as well as a fee from the borrower.

In addition, the maturities of the investments made with the cash collateral generally match the maturities of the securities lent. At June 30, 2008, the Retirement Trust has no credit risk exposure since the collateral held exceeds the value of the securities lent. The Retirement Trust is fully indemnified by its custodial bank against any losses incurred as a result of borrower default. In addition, at June 30, 2008, and 2007, letters of credit and security collateral, not meeting the criteria for inclusion in the Statement of Plan Net Assets, totaled $20,336,000 and $38,795,000, respectively, for the Retirement Trust. At June 30, 2008, and 2007, the aggregate fair value of the securities lent and related collateral received was $303,713,000 and $404,849,000, respectively.

4. FUNDS HELD IN TRUST BY OTHERS At June 30, 2008, and 2007, Funds Held in Trust by Others (principally endowment funds) aggregated

$80,910,000 and $74,200,000, respectively, at fair value. Due to time restrictions or a legal event that has not occurred, these funds are not available to the University and are not included in the accompanying Statement of Net Assets. Income earned and distributed to the University for the years ended June 30, 2008 and 2007, aggregated

$1,115,000 and $2,807,000, respectively.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 41 FOR THE YEARS ENDED JUNE 30,2008 AND,2007 5. ACCOUNTS RECEIVABLEAccounts receivable at June 30, 2008, and 2007, are summarized as follows: Acout Receivable I~ ~ (i thuad ofdolas 2008 F -2007 Grants and Contracts Federal Appropriations State Appropriations and State Bond Funds Student Fees and Other Academic ChargesUniversity Hospitals and Clinics Patient Services, Net ofContractual Allowances University Physicians Patient Services, Net of Contractual Allowances Subtotal Less Provisions for Loss on Accounts Receivable:

Grants and Contracts AllowanceUniversity Hospitals and Clinics Patient Services Allowances University Physicians Patient Services Allowances Student Fees and Other Academic Charges Subtotal Total$ 68,613 $ 81,801 2,018 551 5,08084,007 73,422 110,960 102,187 18,758 18,038289,436 275,999 622 1,000 26,779 28,286 6,707 5,928 5,674 4,810 39,782 40,024$ 249,654 S 235,975 6. NOTES RECEIVABLE Notes receivable consist of resources available for financial loans to students. These resources areprovided through Federal loan programs and University loan programs generally funded by external sources. Notes receivable at June 30, 2008, and 2007, are summarized as follows: ". -' -.0.'Nts ReceivablFederal Health Profession Loans Carl D. Perkins National Loans University Loan Programs Subtotal Less Provision for Loss on Notes Receivable Total 2008 [ 2007$ 13,955"] $ 14,321 31,622 28,419 18,296 20,604 63,873 63,3443,228 3,320

$ 60,645 $ 60,024 2008 FINANCIAL REPORT:

UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 42 FOR THE YEARS ENDED JUNE 30, 2008 AND.2007 5. ACCOUNTS RECEIVABLE Accounts receivable at June 30, 2008, and 2007, are summarized as follows: Accounts Receivable (in thousands of dollars) 2008 I 2007 I --

Grants and Contracts

'$ 68,613 $ 81,801 i Federal Appropriations 2,018 551 State Appropriations and State Bond Funds 5,080 Student Fees and Other Academic Charges , 84,007 73,422 University Hospitals and Clinics Patient Services, Net of Contractual Allowances 11 0,960 102,187 University Physicians Patient Services, Net of Contractual Allowances 18,758 18,038 Subtotal 289,436 I 275,999 I Less Provisions for Loss on Accounts Receivable:

Grants and Contracts Allowance 622 1,000 University Hospitals and Clinics Patient Services Allowances 26,779 28,286 University Physicians Patient Services Allowances 6,707 5,928 Student Fees and Other Academic Charges 5,674 4,810 Subtotal 39,782 I 40,024 I Total $ 249,654 1$ 235,975 I 6. NOTES RECEIVABLE Notes receivable consist of resources available for financial loans to students.

These resources are provided through Federal loan programs and University loan programs generally funded by external sources. Notes receivable at June 30, 2008, and 2007, are summarized as follows: 42 Notes Receivable (in thousands of dollars) 1---200S--; I 2007 _J 1=================================-=:

l -r Federal Health Profession Loans '$ 13,955 $ 14,321 Carl D. Perkins National Loans '31,622 ' 28,419 ! University Loan Programs 18,296 ' :-_...;;2..,;;0..;,.,6;;,..0;,..4;....:

Subtotal 63,873 :.1 63, 344 1 Less Provision for Loss on Notes Receivable

_____ 3-'-,2_2_8-" :-_--=3..;,.,3..,;;2:.,,:0;....:

Total ,$ 60,645' I $ 60,024 I 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI

~~~/FOR THE YEARS ENDED JUNE 30,2008 AND 2007 7. CAPITAL ASSETS UNIVERSITY OF MISSOURICapital assets activity for the years ended June 30, 2008, and 2007, is summarized as follows: Caia Assets 2008 2008 Beginning Additions/

Ending Balance Transfers Retirements Balance Capital Assets, Nondepreciable:

Land Artwork and Historical Artifacts Construction in Progress Total Capital Assets, NondepreciableCapital Assets, Depreciable:Buildings and Improvements Infrastructure EquipmentLibrary Materials Total Capital Assets, Depreciable Less Accumulated Depreciation:

Buildings and Improvements Infrastructure Equipment Library Materials Total Accumulated Depreciation Total Capital Assets, Depreciable, Net Total Capital Assets, Net$ 66,040 S 759; $ 769 $ 66,030 11,575 88i 11,663 102,600 77,7861 180,386'180,215 78,633K 769 258,079 2,188,407 148,016! 14,397 2,322,026 217,483 10,471< 202i 227,752: 511,539 71,417, 25,681 557,275 218,306 9,406H 227,712 3,135,735 239,310' 40,2801 3,334,765 747,082 61,309! 12,862 795,529 83,808 9,546 183, 93,171 316,286 47,5301 24,415: 339,401: 129,705 7,6111 137,316 1,276,881 125,996! 37,460W 1,365,417 1,858,854:

113,3141 2,820r 1,969,348 2,039,069

$ 191,947< $ 3,589> $ 2,227,427' 2007 Beginning Balance Additions/

T rans fe rs 2007 Ending Balance Retirements LCapital Assets, Nondepreciable:

Land Artwork and Historical Artifacts Construction in Progress Total Capital Assets, Nondepreciable Capital Assets, Depreciable:

Buildings and Improvements Infrastructure Equipment Library Materials Total Capital Assets, Depreciable Less Accumulated Depreciation:

Buildings and Improvements Infrastructure Equipment Library Materials Total Accumulated Depreciation Total Capital Assets, Depreciable, Net Total Capital Assets, Net 60,114 11,279 96,757 168,150 2,037,574 206,681 490,231 210,838 2,945,324 698,100 74,925 290,184 6,018 296 5,843 12,157 159,726 10,820 44,364 7,468 222,378 56,712 8,890 47,085$ 92 92 8,893 ,18 23,056 31,967 7,730 7 20,983$ 66,040 11,575 102,600 180,215 2,188,407 217,483 511,539 218,306 3,135,735 747,082 83,808 316,286123,32311 6,38211 I 129,7051 1,186,532 119,069 28,720 1,276,881 1,758,792 103,309 3,247 1,858,854 1 $ 1,926,94211

$ 115,46611

$ 3,33911 $ 2,039,0691 2008 FINANCIAL REPORT: UNIVERSITY A COMPONENT UNIT OF THE STATE OF MISSOURI OF MISSOURI 43 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 7. CAPITAL ASSETS UNIVERSITY OF MISSOURI Capital assets activity for the years ended June 30, 2008, and 2007, is summarized as follows: Capital Assets I (in thousands of dollars) I -" ! 2008 , : 2008 Beginning I Additions/

' : Ending I i ' , i I , , Balance I Transfers i I Retirements i ! Balance I " >""':'" """,It" ", l:

,,";;-7'"..i

i ''''-;-:z:::fI'olL\L;i/d,*c.

tt.,':,: "::Lmt1t'w'::

-: v-;-Capital Assets, Nondepreciable:

j! ! Land ! $ 66,040, ; $ 759; : $ 769 $ 66,030 Artwork and Historical Artifacts , 11575, ; 881 ! , 11,663 Construction in Progress ' I 77, 7861 I ; , 180,386' 102,600 I, Total Capital Assets, Nondepreciable I 180,215'

78,633: : 769 258,079 Capital Assets, Depreciable: : I , , , , I Buildings and Improvements I 2, 188,407 : 148,016 i i 14,397; : 2,322,026 Infrastructure 217,483' i II 2021 : 227,752: 10,471; i 511,539' ; 7141711 ' ' Equipment

, , 25,681 ' 557,275 Library Materials 218,306 9,406 i i ' , 227,712, i: , , Total Capital Assets, Depreciable I 3,135,735

239, 310 i i 40,280: 3,334,765

: ' ' ' I: , Less Accumulated Depreciation: , ! ,I ' ' , 747082,1 1 ' I Buildings and Improvements 61,309, I 12,862 795,529 i ' " , , Infrastructure I 83,808 ! 9,5461 ! 183 ' 93,171 1 ' ' , , 24,415:, Equipment I 316,286: , 47, 530 i i 339,401 : Library Materials I 129,705 : 7,611! ! II 137,316: , Total Accumulated Depreciation

! 1,276,881

' I 125,996! ! 37,460: ' 1,365,417

' , , , Total Capital Assets, Depreciable, Net I 1,858,854:

i 113,314'.

2,820 1 ' 1,969,348 I ' 1 'I ' , Total Capital Assets, Net I $ 2,039,069 i I $ 191,9 471 : $ 3,589; i $ 2,227,427 2007 2007 Beginning Additions/

Endirig Balance* .1 Reti is Balance "0','0','

,., i";' . ,we-" 'd " ' " ','

I'ff' P ,'-

Capital Assets, Nondepreciable:

'. Land $ 60,114 $ 6,018 $ 92 $ 66,040 Artwork and Historical Artifacts 11,279 296 11,575 Construction in Progress 96,757 5,843 102,600 Total Capital Assets, Nondepreciable 168,150 12,157 92 180,215 Capital Assets, Depreciable:

Buildings and Improvements 2,037,574 159,726 8,893 2,1.88,407 Infrastructure 206,681 10,820 .. _18 217,483 Equipment 490,231 44,364 23,056 511,539 Library Materials 210,838 7,468 218,306 Total Capital Assets, Depreciable 2,945,324 222,378 31,967 3,135,735 Less Accumulated Depreciation:

Buildings and Improvements 698,100 56,712 7,730 747,082 Infrastructure 74,925 8,890 7 83,808 Equipment 290,184 47,085 20,983 316,286 Library Materials 123,323 6,382 129,705 Total Accumulated Depreciation I 1,186, 532 11 119, 069 1/ 28, 720 11 1,276;881 1 Total Capital Assets, Depreciable, Net 1,758,792 103,309 3,247 1,858,854 Total Capital Assets, Net 1 $ 1,926,94211

$ 115,4661/

$ 3,33911 $ 2,039,0691 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 43 JL__~FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The estimated cost to complete construction in progress at June 30, 2008, is $656,224,000 of which$154,133,000 is available from unrestricted net assets. The remaining costs are expected to be fundedfrom $101,320,000 of State appropriations, $57,065,000 of gifts, $4,529,000 of grants, and $339,177,000 of bond proceeds.Capital assets include a building facility under a capital lease of $8,332,000 and related accumulated depreciation of $3,645,000 and $3,229,000 at June 30, 2008, and 2007, respectively.

DISCRETEL Y PRESENTED COMPONENT UNIT- MEDICAL ALLIANCECapital assets at June 30, 2008, and 2007 are summarized as follows: Medical Alliance -Capital Assets (in thousands of dollars)2008 Land and Improvements Buildings Movable Equipment Construction in Progress Less Accumulated DepreciationTotal Capital Assets, Net

$ 6,109 102,071 65,570 4,922 178,672 103,513$ 75,159'2007$ 6,605 98,934 60,359 4,296 170,194 94,580$ 75,614 8. ACCRUED LIABILITIES Accrued liabilities at June 30, 2008, and 2007, are summarized as follows: Accrued Liabilities (in thousands of dollars)2008-[ 2007 Accrued Salaries, Wages and Related Benefits $ 44,4541 $ 40,534 Accrued Vacation 38,691 40,013 Accrued Self Insurance Claims 32,503 30,067Accrued Interest Payable 5,3191 4,362 J$ 120,9671 $ 114,976 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 44 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The estimated cost to complete construction in progress at June 30, 2008, is $656,224,000 of which $154,133,000 is available from unrestricted net assets. The remaining costs are expected to be funded from $101,320,000 of State appropriations, $57,065,000 of gifts, $4,529,000 of grants, and $339,177,000 of bond proceeds.

Capital assets include a building facility under a capital lease of $8,332,000 and related accumulated depreciation of $3,645,000 and $3,229,000 at June 30, 2008, and 2007, respectively.

DISCRETELY PRESENTED COMPONENT UNIT -MEDICAL ALLIANCE Capital assets at June 30, 2008, and 2007 are summarized as follows: Medical Alliance -Capital Assets (in thousands of dollars) Land and Improvements Buildings Movable Equipment Construction in Progress Less Accumulated Depreciation Total Capital Assets, Net :

178,672 .1 170, 194 1 103,513 I 94,580 i $ 75,159*1 $ 75,6141 8. ACCRUED LIABILITIES Accrued liabilities at June 30, 2008, and 2007, are summarized as follows: Accrued Liabilities (in thousands of dollars) --.-f -I 2008 2007 I .-. Accrued Salaries, Wages and Related Benefits i$ 44,454 $ 40,534 Accrued Vacation f 38,691 40,013 , Accrued Self Insurance Claims I 32,503 ! 30,067 Accrued Interest Payable i 5,319 ! 4,362 ! I 120,96711

$ 114,9761 1$ 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 44 A COMPONENT UNIT OF THE STATE OF MISSOURI 0 f ý 2 4, 5r,ýý ý- ý 04 " e -ý ýFOR THE YEARS ENDED JUNE 30, 2008 AND 2007 9. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities at June 30, 2008, and 2007, are summarized as follows: (i thusnd.o.dllrs Less Noncurrent, SBeginning Total End Current End of Fiscal Year 2008 .of Year Additions Payments of Year Portion Year Accrued Vacation $ 49,001 $ 36,639 $ (34,313) $ 51,327 $ (38,691) $ 12,636 Accrued Self-Insurance Claims 79,799 136,343 (148,904) 67,238 (32,503) 34,735$ 128,800 $ 172,982 $(183,217)

$. 118,565 S (71,194) $ 47,371 Less Noncurrent Beginning Total End Current End of Fiscal Year 2007 of Year Additions Payments of Year Portion Year Accrued Vacation $ 46,292 $ 40,510 $ (37,801) $ 49,001 $ (40,013) $ 8,988 Accrued Self-Insurance Claims 86,850', 139,294 (146,345) 79,799 (3'0,067) 49,732 I $ 133,142 $ 179,804 $ (184,146)

$ 128,800 :'$ (70,080) 58,720 10. BONDS AND NOTES PAYABLE UNIVERSITY OF MISSOURI As of June 30, 2008, and 2007, bonds and notes payable totaled $870,667,000 and $652,785,000, respectively.

Of these amounts, $868,207,000 and $652,785,000, respectively, were bonds outstanding, net of unamortized premium/discount and loss on defeasance totaling $11,102,000 and $6,960,000, respectively.

The principal and interest of the bonds are payable from net income or designated revenuesfrom the related financed activities.

Designated revenues for the bonds include sales and services from the financed facilities, such as bookstore collections, housing and dining charges, patient services, and parking collections, as well as certain assessed fees. For fiscal years 2008 and 2007, available related revenues totaled $848,025,000 and $792,555,000, respectively, while the annual debt service payments totaled $16,975,000 and $14,760,000.

This proportion is expected to continue to be less than 3% of pledged revenues in the future. These bonds bear interest at fixed and variable rates ranging from 2.0%

to 5.8% per annum and mature at various dates through November 2037. Interest on the variable rate System Facilities Revenue Bonds is paid at the Bond Market AssociationTM daily bond rate.The outstanding notes totaling $2,460,000 as of June 30, 2008, consisted of two loans from the state Department of Natural Resources Energy Efficiency Leveraged Loan Program. Interest is payable semiannually and ranges from 3.0% to 3.2%. One of these loans matures in February 2012, while the second loan matures in February 2016.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A'COMPONENT UNIT OF THE STATE OF MISSOURI 45 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 9. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities at June 30, 2008, and 2007, are summarized as follows: Other Noncurrent Liabilities

'I (in thousands of dollars) I Beginning Total End Less Current I Noncurrent, End of I Fiscal Year 2008 of Year Additions Payments of Year Portion Year '" ,,( . I Accrued Vacation !$ 49,001 $ 36,639 $ (34,3l3) $ 51,327 $ (38,691) $ 12,636 Accrued Se1f-Insurance Claims 79,799 136,343 (148,904) 67,238 (32,503) 34,735 ,$ 128,800 $ 172,982 $(183,217)

$. 118,565 $ (71,194) $ 47,371 Less. Noncurrent Beginning Total End Current End of Fiscal Year 2007 of Year Additions Payments of Year Portion Year r 1$ 133,142 _$ 179,804 _

$128,800

_$' (7();080)

$ 58,720 I to. BONDS AND NOTES PAYABLE UNIVERSITY OF MISSOURI As of June 30, 2008, and 2007, bonds and notes payable totaled $870,667,000 and $652,785,000, respectively.

Of these amounts, $868,207,000 and $652,785,000, respectively, were bonds outstanding, net of unamortized premium/discount and loss on defeasance totaling $11,102,000 and $6,960,000, respectively.

The principal and interest of the bonds are payable from net income or designated revenues from the related financed activities.

Designated revenues for the bonds include sales and services from the financed facilities, such as bookstore collections, housing and dining charges, patient services, and parking collections, as well as certain assessed fees. For fiscal years 2008 and 2007, available related revenues totaled $848,025,000 and $792,555,000, respectively, while the annual debt service payments totaled $16,975,000 and $14,760,000.

This proportion is expected to continue to be less than 3% of pledged revenues in the future. These bonds bear interest at fixed and variable rates ranging from 2.0% to 5.8% per annum and mature at various dates through November 2037. Interest on the variable rate System Facilities Revenue Bonds is paid at the Bond Market AssociationŽ daily bond rate. The outstanding notes totaling $2,460,000 as of June 30, 2008, consisted of two loans from the state Department of Natural Resources Energy Efficiency Leveraged Loan Program. Interest is payable semiannually and ranges from 3.0% to 3.2%. One of these loans matures in February 2012, while the second loan matures in February 2016. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A*COMPONENT UNIT OF THE STATE OF MISSOURI 45 CL FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Bonds and Notes Payable activity by issuance series for the years ended June 30, 2008, and 2007, was as follows:Bonds an Note PayblAtiit(i thuad of dolas 2008 Beginning Balance 2008 Ending Amortization BalanceIssuance Payments DefeasanceSystem Facilities Revenue Bonds: Series 1997 Series 1998 Series 2000 Series 2001 Series 2002 Series 2003 Series 2006 Series 2007 Less Unamortized Premium/Discount Less Loss on Defeasance

$ 1,135 16,840 63,425 80,760 40,000 147,280 296,385 17,004 (10,044)$$ (1,135) $(1,815)(3,105)(795)(40,000)(3,260)(6,865)$-$365,220 8,772 (96,965)(2,696)(1,610)15,025 60,320 79,965 47,055 289,520 365,220 22,043 (10,941)(1,037)714 Notes Payable Less Current Portion" 2,460 2,460 652,785 $ 376,452 .$ (56,975) $ (101,271)

$ (323) 870,667 (16,975) (21,201)'$ 635,810 S 849,466 2007 Beginning Balance Issuance 2007 Ending BalancePayments Defeasance Amortization 0 System Facilities Revenue Bonds: Series 1997 Series 1998 Series 2000 Series 2001Series 2002Series 2003Series 2006 Less Unamortized Premium/Discount Less Loss on Defeasance Less Current Portion$ 2,210 $ $ (1,075) $ $19,335 (2,495)66,410 (2,985)81,515 (755)40,000 150,435 (3,155)300,680 (4,295)17,814 (810)(10,945) 901 667,454 $ .$ (14,760);

1 $ 911 (14,760)$ 652,694$ 1,135 16,840 63,425 80"760 40,000 147,280 296,385 17,004 ,(10,044)652,785-. (16,975)$ 635,810 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 46 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Bonds and Notes Payable activity by issuance series for the years ended June 30, 2008, and 2007, was as follows: Bonds and Notes Payable Activity (in thousands of dollars) .

. ---+--" -". , 2008 2008 Beginning Ending Balance Issuance Dct: 1111;;11" Defeasance Amortization Balance System Facilities Revenue Bonds: Series 1997 $ 1,135 $ -$ (1,135) $ -$ -$ -Series 1998 16,840 (1,815) 15,025 ; Series 2000 63,425 (3, I 05) 60,320 Series 2001 I 80,760 (795) 79,965 , Series 2002 ! 40,000 (40,000) -I Series 2003 147,280 (3,260) (96,965) 47,055 Series 2006 296,385 (6,865) 289,520 Series 2007 365,220 365,220 Less Unamortized Premium/Discount I 17,004 i 8,772 (2,696) (1,037) 22,043 : Less Loss on Defeasance (10,044) (1,610) 714 (10,941) : Notes Payable I 2,460 2,460 ! 652,785 $ 376,452 $ (56,975) $ (101,271)

$ (323) 870,667 Less Current Portion ! (16,975) (21,201) , I ,$ 635,810 $ 849,466 -------------2007 2007 Beginning Ending Balance Issuance Payments Defeasance Amortization Balance .. , "

":_' , System Facilities Revenue Bonds: Series 1997 $ 2,210 $ -$ (1,075) $ -$ -$ 1,135 Series 1998 19,335 (2,495) 16;840 Series 2000 66,410 (2,985) 63,425 Series 2001 81,515 (755) 80;760 -Series 2002 40,000 40,000 Series 2003 150,435 (3,155) 147,280 Series 2006 300,680 (4,295) 296,385 Less Unamortized Premium/Discount 17,814 (810) 17,004 Less Loss on Defeasance (10,945) 901 _,_ (10,044) 1 667,454 $ --$ (14,760) ,$

.. : , i ,,$Jd:.::,b

']

652, 785 1 Less Current Portion (14,760) ',,:'

-(16,975) 1$ 652,694 $ 635,810 1 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 46 A COMPONENT UNIT OF THE STATE OF MISSOUR.I FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 As of June 30, 2008, principal and interest due on bonds and notes during the next five years and insubsequent five-year periods is as follows: Future Debt Service (in thousands of dollars)Net Payments (Funds Received)on Swap Fiscal Year Principal Interest Agreement 2009 $ 21,201 $ 33,725 $ 3,127 2010 24,093 32,789 3,144 2011 24,295 31,735 3,084 2012 23,053 30,688 3,069 2013 24,093 29,667 3,068 2014-2018 138,220 131,578 14,623 2019-2023 164,835 99,956 11,538 2024-2028 200,375 63,000 6,683 2029-2033 150,740 29,469 1,509 2034-2038 88,660 9,278$ 859,565 $ 491,885 $ 49,845 Future interest payment requirements for variable rate bond debt are determined using the rate in effect at June 30, 2008, ranging from 1.47 to 2.05%. The above interest payments also include estimated payments on two interest rate swap agreements, as discussed below, at fixed rates of 3.95% and 3.798%, net of the funds received from the counterparty to the transaction at a rate effective at June 30, 2008, of 1.55% and 1.67%, respectively.

On July 26, 2007, the University issued $365,220,000 of System Facilities Revenue Bonds, consisting of$262,970,000 in Series 2007A bonds at the interest cost of 4 to 5% and $102,250,000 of Series 2007B bonds with variable rates. Proceeds from the issuance of the Series 2007 A and B bonds were used to finance construction of new housing facilities on the Columbia and Missouri S&T campuses, various.other projects and the cost of issuance. Proceeds from issuance of the Series 2007B bond were used to advance refund and defease $96,965,000 of the Series 2003A bonds.The partial defeasance of the 2003A Series bonds resulted in a $1,610,000 loss that is included as a reduction of debt outstanding and will be amortized over the remaining life of the bonds. The defeasance decreased aggregate debt service payments by $14,672,000 resulting in an economic gain (difference between the present values of the old and new debt service payments) to the University of $9,505,000.

The University maintains a thirty-year interest rate swap agreement on its variable rate System FacilitiesRevenue Bonds.

The purpose of the interest rate swap agreement is to convert variable rate debt to fixed rate debt. Based on the swap agreement, the University has two interest rate swaps. Through its first interest rate swap with a $40,000,000 notional amount, the University pays interest calculated at a fixed rate of 3.95% to the swap's counterparty.

In return, the counterparty owes the University interest based on a variable rate set weekly. Through a second interest rate swap with a $102,250,000 notional amount, the University pays interest calculated at a fixed rate of 3.798% to the counterparty, while thecounterparty pays the University interest based on a variable rate that is set monthly. The $142,250,000 in bond principal is not exchanged; it is only the basis on which the interest payments are calculated.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 47 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 As of June 30, 2008, principal and interest due on bonds and notes during the next five years and in subsequent five-year periods is as follows: Future Debt Service (in thousands of dollars) Net Payments (Funds Received) on Swap Fiscal Year Principal Interest Agreement 2009 $ 21,201 $ 33,725 $ 3,127 2010 24,093 32,789 3,144 2011 24,295 31,735 3,084 2012 23,053 30,688 3,069 2013 24,093 29,667 3,068 2014-2018 138,220 131,578 14,623 2019-2023 164,835 99,956 11,538 2024-2028 200,375 63,000 6,683 2029-2033 150,740 29,469 1,509 2034-2038 88,660 9,278 1 $ 859,565 $ 491,885 $ 49,8451 --Future interest payment requirements for variable rate bond debt are determined using the rate in effect at June 30, 2008, ranging from 1.47 to 2.05%. The above interest payments also include estimated payments on two interest rate swap agreements, as discussed below, at fixed rates of 3.95% and 3.798%, net of the funds received from the counterparty to the transaction at a rate effective at June 30, 2008, of 1.55% and 1.67%, respectively.

On July 26, 2007, the University issued $365,220,000 of System Facilities Revenue Bonds, consisting of $262,970,000 in Series 2007 A bonds at the interest cost of 4 to 5% and $102,250,000 of Series 2007B bonds with variable rates. Proceeds from the issuance of the Series 2007 A and B bonds were used to finance construction of new housing facilities on the Columbia and Missouri S&T campuses, various other projects and the cost of issuance.

Proceeds from issuance of the Series 2007B bond were used to advance refund and defease $96,965,000 of the Series 2003A bonds. The partial defeasance of the 2003A Series bonds resulted in a $1,610,000 loss that is included as a reduction of debt outstanding and will be amortized over the remaining life of the bonds. The defeasance decreased aggregate debt service payments by $14,672,000 resulting in an economic gain (difference between the present values of the old and new debt service payments) to the University of $9,505,000.

The University maintains a thirty-year interest rate swap agreement on its variable rate System Facilities Revenue Bonds. The purpose of the interest rate swap agreement is to convert variable rate debt to fixed rate debt. Based on the swap agreement, the University has two interest rate swaps. Through its first interest rate swap with a $40,000,000 notional amount, the University pays interest calculated at a fixed rate of 3.95% to the swap's counterparty.

In return, the counterparty owes the University interest based on a variable rate set weekly. Through a second interest rate swap with a $102,250,000 notional amount, the University pays interest calculated at a fixed rate of 3.798% to the counterparty, while the counterparty pays the University interest based on a variable rate that is set monthly. The $142,250,000 in bond principal is not exchanged; it is only the basis on which the interest payments are calculated.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 47 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University continues to pay interest to the bondholders at the variable rate provided by the bonds.However, during the term of the interest rate swap agreement, the University effectively pays a fixed rate on the debt. The University will revert to variable rates if the counterparty to the swap defaults or if the swap is terminated.

A termination of the swap agreement may also result in the University making or receiving a termination payment.As of June 30, 2008, the two interest rate swaps had a fair value of ($12,596,000), which represents the cost to the University to terminate the swap. This fair value, developed using the zero coupon method and proprietary models, was prepared by the counterparty, J.P. Morgan Chase Bank, a major U.S.financial institution. The zero coupon method calculates the future net settlement payments required by the swap, assuming that the current forward rates implied by the yield curve correctly anticipate future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon bonds due on the date of each net settlement of the swap.As of June 30, 2008, the University was not exposed to credit risk on the termination payment because the interest rate swap had a negative fair value and the University would have owed the payment.However, should interest rates change and the fair value of the swap become positive, the University would be exposed to credit risk. The swap counterparty was rated AA by Standard & Poor's and Aaa by Moody's Investors Service as of June 30, 2008. In the event a ratings downgrade occurs, the counterparty.

may be required to provide collateral if the University's overall exposure exceeds predetermined levels.Permitted collateral investments include U.S. Treasuries, U.S. government agencies, cash and commercial paper rated Al/PI by Standard

& Poor's and Moody's, respectively. Collateral may be held by the University or by a third party custodian.The swap exposes the University to basis risk should the weekly BMA rate paid by the counterparty fall below the daily interest rate due on the bonds. This basis risk can be the result of a downgrade of the University's rating, daily rates becoming higher than weekly rates, or the pricing of the University's bonds by the remarketing agent at rates higher than the BMA index.At June 30, 2008, and 2007, in-substance defeased bonds aggregating $147,935,000 and

$96,320,000, respectively, are outstanding.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 48 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University continues to pay interest to the bondholders at the variable rate provided by the bonds. However, during the term of the interest rate swap agreement, the University effectively pays a fixed rate on the debt. The University will revert to variable rates if the counterparty to the swap defaults or if the swap is terminated.

A termination of the swap agreement may also result in the University making or receiving a termination payment. As of June 30, 2008, the two interest rate swaps had a fair value of ($12,596,000), which represents the cost to the University to terminate the swap. This fair value, developed using the zero coupon method and proprietary models, was prepared by the counterparty, J.P. Morgan Chase Bank, a major U.S. financial institution.

The zero coupon method calculates the future net settlement payments required by the swap, assuming that the current forward rates implied by the yield curve correctly anticipate future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon bonds due on the date of each net settlement of the swap. As of June 30, 2008, the University was not exposed to credit risk on the termination payment because the interest rate swap had a negative fair value and the University would have owed the payment. However, should interest rates change and the fair value of the swap become positive, the University would be exposed to credit risk. The swap counterparty was rated AA by Standard & Poor's and Aaa by Moody's Investors Service as of June 30, 2008. In the event a ratings downgrade occurs, the counterparty*

may be required to provide collateral if the University's overall exposure exceeds predetermined levels. Permitted collateral investments include U.S. Treasuries, U.S. government agencies, cash and commercial paper rated AliPl by Standard & Poor's and Moody's, respectively.

Collateral may be held by the University or by a third party custodian . . The swap exposes the University to basis risk should the weekly BMA rate paid by the counterparty fall below the daily interest rate due on the bonds. This basis risk can be the result of a downgrade of the University'S rating, daily rates becoming higher than weekly rates, or the pricing of the University's' bonds by the remarketing agent at rates higher than the BMA index. At June 30, 2008, and 2007, in-substance defeased bonds aggregating

$147,935,000 and $96,320,000, respectively, are outstanding.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 48 A COMPONENT UNIT OF THE STATE OF MISSOURI Jb__~_~~~~

FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 DISCRETELY PRESENTED COMPONENT UNIT -MEDICAL ALLIANCE Bonds payable activity by series of issuance for the years ended June 30, 2008, and 2007, was as follows:Meical Allianc

-Bod Paybl(i thuad of dolars 2008 Beginning Balance 2008 Ending Balance Issuance Payments Health Facilities Revenue Bonds Series 1998, dated December 1, 1998 and maturing November 1, 2028, payable in graduated installments from November 1, 1999 to November 1, 2028, bearing interest ranging from 3.35% to 5.30%Health Facilities Revenue Bonds Series 2004, dated June 1, 2004 and maturing November 1, 2029, payable in graduated installments from November 1, 2005 to November 1, 2029, bearing interest ranging from 2.25% to 5:75% ý$ 21,235 16,760 37,995 (935)$ 37,060$$ (550) $ 20,685 Less current maturities(385) 16,375

$ $ (935) 37,060 (970)$ 36,090 2007 Beginning Balance 1 2007 EndingIssuance Payments Balance Health Facilities Revenue Bonds Series 1998, dated December 1, 1998 and maturing November 1, 2028, payable in graduated installments from November 1, 1999 to November 1, 2028, bearing interest ranging from 3.35% to 5.30%Health Facilities Revenue Bonds Series 2004, datedJune 1, 2004 and maturing November 1, 2029, payable in graduated installments from November 1, 2005 to November 1, 2029, bearing interest ranging from 2.25% to 5.75%Less current maturities

$ 21,760 17,135 38,895 (900)$ 37,995$-$ (525) $ 21,235 (375) 16,760 1$ $ (900) $ 37,995 (935)$ 37,060 1 In June 2004, Medical Alliance issued $17,500,000 of tax-exempt Health Facilities Revenue Bonds Series 2004 through the Health and Educational Facilities Authority of the State of Missouri.

The bonds proceeds are being used primarily to pay or reimburse the costs of acquiring, constructing and equipping certain health facilities of Medical Alliance and to fund the future debt service requirement fund for these Series 2004 bonds.Similar to the Series 1998 bonds, the Series 2004 bonds were issued pursuant to the Master Trust Indenture dated December 1, 1998, as supplemented on June 1, 2004. Under the terms of the Master Trust Indenture (the "Master Indenture"), Medical Alliance is required to make payments of principal, premium, if any, and interest on the bonds. The Series 1998 and 2004 bonds are secured by theunrestricted receivables of Medical Alliance.

In addition, the Master Indenture contains certain restrictions on the operations and activities of Medical Alliance, including, among other things, covenants 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 49 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 DISCRETELY PRESENTED COMPONENT UNIT -MEDICAL ALLIANCE Bonds payable activity by series of issuance for the years ended June 30, 2008, and 2007, was as follows: I Medical Alliance -Bonds Payable I (in thousands of dollars) I .. --2008 Beginning 2008 Ending Balance Issuance Payments Balance ,-I -/""" "" ,. . , .', -

t@$\@fWikf$-j5'#ftt;:Pf FJ.ltF'¥t!&M?Wfl#a'1'"a Health Facilities Revenue Bonds Series 1998, dated December 1, 1998 and maturing November 1, 2028, payable in graduated installments from November 1, 1999 to November 1,2028, bearing interest ranging from 3.35% to 5.30% ; $ Health Facilities Revenue Bonds Series 2004, dated I June 1,2004 and maturing November 1,2029, payable, in graduated installments from November 1, 2005 to November 1,2029, bearing interest ranging from 2.25% to 5:75% . Less current maturities Health Facilities Revenue Bonds Series 1998, dated December 1, 1998 and maturing November 1, 2028, payable in graduated installments from November 1, 1999 to November 1, 2028, bearing interest ranging from 3.35% to 5.30% Health Facilities Revenue Bonds Series 2004, dated June 1,2004 and maturing November 1,2029, payable in graduated installments from November 1,2005 to November 1,2029, bearing interest ranging from 2.25% to 5.75% Less current maturities

$ 21,235 $ 16,760 37,995 $ (935) 37,060 2007 Beghming Bahince 21,760 17,135 38,895 (900) 37,995 ==== issuance $ $ $ (550) $ (385) $ (935) $ Payfuents'

$ (525) $ (375) $ (900) $ $ 20,685 16,375 37,060 (970) 36,090 : 2007 Ending Balance 21,235 16,760 37, ,9951 " (935) 37,060 I In June 2004, Medical Alliance issued $17,500,000 of tax-exempt Health Facilities Revenue Bonds Series 2004 through the Health and Educational Facilities Authority of the State of Missouri.

The bonds proceeds are being used primarily to payor reimburse the costs of acquiring, constructing and equipping certain health facilities of Medical Alliance and to fund the future debt service requirement fund for these Series 2004 bonds. Similar to the Series 1998 bonds, the Series 2004 bonds were issued pursuant to the Master Trust Indenture dated December 1, 1998, as supplemented on June 1,2004. Under the terms of the Master Trust Indenture (the "Master Indenture"), Medical Alliance is required to make payments of principal, premium, if any, and interest on the bonds. The Series 1998 and 2004 bonds are secured by the unrestricted receivables of Medical Alliance.

In addition, the Master Indenture contains certain restrictions on the operations and activities of Medical Alliance, including, among other things, covenants 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 49 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 restricting the incurrence of additional indebtedness and the creation of liens on property, except as permitted by the Master Indenture.

The Master Indenture has mandatory sinking fund redemption requirements in which funds are required to be set aside beginning in 2014 and 2025 for the Series 1998 bonds and Series 2004 bonds, respectively.

Interest expense incurred on the bonds during the years ended June 30, 2008, and 2007 was $1,960,000 and $1,999,000, respectively, of which $206,000 and $196,000 were capitalized during the years ended June 30, 2008 and 2007, respectively.

As of June 30, 2008, the total of principal and interest due on bonds during the next five years and in subsequent five-year periods is as follows: Future Debt Service (in thousands of dollars)Year ending June 30: Principal Interest 2009 $ 970 $ 1,917 2010 1,010 1,874 2011 1,055- 1,828 2012 1,105, 1,779 2013 1,155 1,725 2014-2018 6,680 7,689 2019-2023 8,590 5,726 2024-2028 11,140 30093 2029-2030 5,355 3 09$ 37,060 $ S 25,040 11. SHORT-TERM BORROWINGS During the years ended June 30, 2008, and 2007, the University sold $160,000,000 and $115,000,000 of capital project notes at an effective interest rate of 3.7%. The maximum amount of notes outstanding was$160,000,000 and $115,000,000 and all were repaid in full by June 30, 2008, and 2007, respectively.

Proceeds from the issuance of the capital project notes were used to fund various construction projects.Capital project note activity for the years ended June 30, 2008, and 2007 is as follows: Capta Prjc Notes(in~~ tosns ofdlas)Beginning End of Fiscal Year of Year Issuance Payments Year Series FY 2007-2008 2008 $ .$ 160,000 .$ (160,000)

$ -Series FY 2006-2007 2007 115,000 (115,000)Capital Projects Notes are secured by the University's unrestricted revenues (generally state appropriations for general operations, student fee revenue, and other operating revenues), plus unencumbered balances from prior fiscal years. These balances totaled approximately

$1,600,000,000 in fiscal year 2008. Excluded are revenues from auxiliary enterprises (such as bookstore and housing 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 50 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 restricting the incurrence of additional indebtedness and the creation of liens on property, except as permitted by the Master Indenture.

The Master Indenture has mandatory sinking fund redemption requirements in which funds are required to be set aside beginning in 2014 and 2025 for the Series 1998 bonds and Series 2004 bonds, respectively.

Interest expense incurred on the bonds during the years ended June 30, 2008, and 2007 was $1,960,000 and $1,999,000, respectively, of which $206,000 and $196,000 were capitalized during the years ended June 30, 2008 and 2007, respectively.

As of June 30, 2008, the total of principal and interest due on bonds during the next five years and in subsequent five-year periods is as follows: Future Debt Service (in thousands of dollars) Year ending June 30: Principal 2009 $ 970 2010 1,010 2011 1,055 2012 1,105 2013 1,155 2014-2018 6,680 2019-2023 8,590 2024-2028 11,140 2029-2030 5,355 Interest $ 1,917 1,874 1,828 1,779 *1,725 7;689 5,7.26 3;093 1$ 37,060 >$ <: <:25,240 I 11. SHORT-TERM BORROWINGS During the years ended June 30, 2008, and 2007, the University sold $160,000,000 and $115,000,000 of capital project notes at an effective interest rate of3.7%. The maximum amount of notes outstanding was $160,000,000 and $115,000,000 and all were repaid in full by June 30, 2008, and 2007, respectively.

Proceeds from the issuance of the capital project notes were used to fund various construction projects.

Capital project note activity for the years ended June 30, 2008, and 2007 is as follows: Series FY 2007-2008 Series FY 2006-2007 Capital Project Notes (in thousands of dollars) Beginning Fiscal Year of Year Issuance Payments 2008 $ 2007 115,000 (115,000)

End of Year Capital Projects Notes are secured by the University's unrestricted revenues (generally state appropriations for general operations, student fee revenue, and other operating revenues), plus unencumbered balances from prior fiscal years. These balances totaled approximately

$1,600,000,000 in fiscal year 2008. Excluded are revenues from auxiliary enterprises (such as bookstore and housing 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 50 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 operations), the Health System, and other such facilities pledged to repay System Facilities Revenue Bonds. Capital Project Notes are expected to continue to be 10% or less of available pledged balances.12. LEASE OBLIGATIONS AND COMMITMENTS The University leases various facilities and equipment through operating and capital leases. Facilities under capitalized leases are recorded at the present value of future minimum lease payments.Capital lease obligations activity for the years ended June 30, 2008, and 2007, is as follows: Capital Lease Obligations (in thousands of dollars)Fiscal Beginning Year of Year End of Current Year Portion Additions Payments 2008 $ 9,354 $ .$ (462) $ 8,892 $ 501 2007 F 9,779 (425) 9,354 462 The future minimum payments on all significant leasesmore at June 30, 2008, are as follows: with initial or remaining terms of one year or Future Lease Payments (in thousands of dollars)Fiscal Year 2009 2010 2011 2012 2013 2014-2018 2019-2022Total Future Minimum Payments Less: Amount Representing Interest Present Value of Future Minimum Lease Payments Capital OperatingTotal rental expenditures for operating leases for the years$15,047,000 and $16,724,000, respectively.

ended June 30, 2008, and 2007, were In addition to the above lease obligations, the University has outstanding commitments for the acquisition, usage and ongoing support of certain software for its patient clinical systems. As of June 30,2008, these commitments totaled $8,296,000 and will be paid in the following amounts: $3,644,000 in 2009, $3,708,000 in 2010, and $944,000 in 2011.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 51 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 operations), the Health System, and other such facilities pledged to repay System Facilities Revenue Bonds. Capital Project Notes are expected to continue to be 10% or less of available pledged balances.

12. LEASE OBLIGATIONS AND COMMITMENTS The University leases various facilities and equipment through operating and capital leases. Facilities under capitalized leases are recorded at the present value of future minimum lease payments.

Capital lease obligations activity for the years ended June 30, 2008, and 2007, is as follows: Capital Lease Obligations I (in thousands of dollars) I Fiscal Beginning End of Current Year of Year Additions Payments Year Portion 2008 :$ 9,354 $ $ (46 32 -$ 8,892 $ 501 "_.-.--. -2007 9,779 (425) 9,354 462 I The future minimum payments on all significant leases with initial or remaining terms of one year or more at June 30, 2008, are as follows: Fiscal Year 2009 2010 2011 2012 2013 2014-2018 2019-2022 Future Lease Payments ! (in thousands of dollars) i Total Future Minimum Payments Less: Amount Representing Interest Present Value of Future Minimum Lease Payments Total rental expenditures for operating leases for the years ended June 30, 2008, and 2007, were $15,047,000 and $16,724,000, respectively.

In addition to the above lease obligations, the University has outstanding commitments for the acquisition, usage and ongoing support of certain software for its patient clinical systems. As of June 30, 2008, these commitments totaled $8,296,000 and will be paid in the following amounts: $3,644,000 in 2009, $3,708,000 in 2010, and $944,000 in 2011. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 51 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Description of Sublease Arrangement with Institute for Outpatient Surgery ("lOS') -Concurrent with the sale of assets to IOS on July 1, 2002, the University entered into an agreement with IOS whereby IOSsubleased certain building space from the University for a period of approximately 17 years at currentmarket rates.

The University recorded the transaction as a direct financing lease and recorded a minimum lease payment to be received of $6,375,000, unearned rental income of $3,233,000 and a write-off of$3,142,000 of building and improvements related to the sublease.As of June 30, 2008, the future minimum lease payments to be received under this sublease are as follows: Amount Total Minimum Lease Payments to be Received: Current $ 418 Noncurrent 4,285 Total 4,703 Less: Unearned Rental Income (2,162)i Present Value of Future Minimum Lease Payments Receivable

$ 2,541 During fiscal years 2008, and 2007, the University received $418,000 of rental income from IOS each year.DISCRETELY PRESENTED COMPONENT UNIT -MEDICAL ALLIANCE The Medical Alliance leases certain computer and medical equipment through operating and capital leases. Equipment under capitalized leases is recorded at the present value of future minimum lease payments.Capital lease obligations activity for the years ended June 30, 2008 and 2007, is as follows:Meia Aliac

-Caia Les e S O biaon Beginning of Year Additions End of Year Current Portion Fiscal Year Payments 2008 1$ 101 $ .__$ (30) $ 71 $ -27_7 2007 129 61 (89) 101 30 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 52 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Description of Sublease Arrangement with Institutefor Outpatient Surgery ("lOS") -Concurrent with the sale of assets to lOS on July 1, 2002, the University entered into an agreement with lOS whereby lOS subleased certain building space from the University for a period of approximately 17 years at current market rates. The University recorded the transaction as a direct financing lease and recorded a minimum lease payment to be received of $6,375,000, unearned rental Income of $3,233,000 and a write-off of $3,142,000 of building and improvements related to the sublease.

As of June 30, 2008, the future minimum lease payments to be received under this sublease are as follows: lOS -Future Minimum Lease Payments (in thousands of dollars) Total Minimum Lease Payments to be Received:

Current Noncurrent Total Less: Unearned Rental Income Present Value of Future Minimum Lease Payments Receivable Amount 418 i ;$ I , 4,285 : 4,703 (2,162); ! $ 2,541 During fiscal years 2008, and 2007, the University received $418,000 of rental income from lOS each year. DISCRETELY PRESENTED'COMPONENT UNIT -MEDICAL ALLIANCE The Medical Alliance leases certain computer and medical equipment through operating and capital leases. Equipment under capitalized leases is recorded at the present value of future minimum lease payments.

Capital lease obligations activity for the years ended June 30, 2008 and 2007, is as follows: 52 Medical Alliance -Capital Lease Obligations (in thousands of dollars) Beginning End of Current Fiscal Year of Year Additions Payments Year Portion -----------2008 $ 101 $ $ (30) $ 71 $ 27 . ---.-------------------

_ . . ---------._---______ 1 2007 I 129 61 (89) 101 30 I 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 3CJb J7eýFOR THE YEARS ENDED JUNE 30, 2008 AND 2007The future minimum payments on all significant leases with initial or remaining terms of one year or more at June 30, 2008, are as follows: Me[d.ic[al~. Al~iance( -

Fuur Leas P ~~ ~I iayments(i thuad of dolas )Fiscal Year Capital Operating 2009 2010 2011 2012 2013 2014-2017 Total Future Minimum Payments Less: Amount Representing Interest Present Value of Future Minimum Lease PaymentsTotal rental expenditures for operating leases for the years ended June 30, 2008, and 2007, were $719,000and $550,000, respectively.

13. RISK MANAGEMENT The University is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; injuries to employees; natural disasters; and various medically related benefit programs for employees.

The University funds these losses through a combination of self-insured retentions andcommercially purchased insurance.

The amount of self-insurance funds and commercial insurance maintained are based upon analysis of historical information and actuarial estimates.

Settled claims have not exceeded commercial coverage in any of the past three fiscal years.

The liability for self-insurance claims at June 30, 2008, and 2007 of $67,238,000 and $79,799,000,respectively, represents the present value of amounts estimated to have been incurred by those dates,using discount rates ranging from 3.7% to 4.8% for fiscal year 2008 and 3.7% to 4.3% for fiscal year 2007, based on expected-future investment yield assumptions.

Additionally, at June 30, 2008, there are self-insurance claims outstanding, that range from

$750,000 to $1,000,000, for which the University has determined there is a reasonable possibility that a loss contingency may be incurred, but no accrual has been made in the financial statements because the loss is not both probable and estimable.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 53 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The future minimum payments on all significant leases with initial or remaining terms of one year or more at June 30, 200S, are as follows: Fiscal Year 2009 2010 2011 2012 2013 2014-2017 Medical Alliance -Future Lease Payments I (in thousands of dollars) Total Future Minimum Payments Less: Amount Representing Interest Present Value of Future Minimum Lease Payments Total rental expenditures for operating leases for the years ended June 30, 200S, and 2007, were $719,000 and $550,000, respectively.

13. RISK MANAGEMENT The University is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; injuries to employees; natural disasters; and various medically related benefit prograinsfor employees.

The University funds these losses through a combination of self-insured retentions and purchased insurance.

The amount of self-insurance funds and commercial insurance maintained are based upon analysis of historical information and actuarial estimates.

Settled claims have not exceeded commercial coverage in any of the past three fiscal years. The liability for self-insurance claims at June 30, 200S, and 2007 of $67,23S,000 and $79,799,000, respectively, represents the present value of amounts estimated to have been incurred by those dates, using 'discount rates ranging from 3.7% to 4.S% for fiscal year 200S and 3.7% to 4.3% for fiscal year 2007, based on expected future investment yield assumptions.

Additionally, at June 30, ?OOS, there are self-insurance claims outstanding, that range from $750,000 to $1,000,000, for which the University has determined there is a reasonable possibility that a loss contingency may be incurred, but no accrual has been made in the financial statements because the loss is not both probable and estimable. , 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 53 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Changes in the self-insurance liability during fiscal years 2008, 2007, and 2006 were as follows:" ...i .. .New ClaimsFiscal Beginning and Changes Claim End of Year of Year in Estimates Payments Year 2008 $ 79,799 $ 136,343 $ (148,904)

$ 67,2382007 86,850 139,294 (146,345) 79,799 2006 14. CONTINGENCIES The University does not have any contingencies that are probable and estimable as of June 30, 2008.15. RETIREMENT, DISABILITY AND DEATH BENEFIT PLAN Basis of Accounting

-The University of Missouri Retirement, Disability, and Death Benefit Plan (the"Retirement Plan") financial statements are prepared using the accrual basis of accounting. Employer contributions to the Retirement Plan are recognized when due and the employer has made a formal commitment to provide the contributions.

Benefits and refunds are recognized when due and payable in accordance with terms of the Retirement Plan.Investment Valuation

-Investments are reported at fair value. Short-term investments are reported at cost, which approximates fair value.

Plan Description

-The Retirement Plan is a single employer, defined benefit plan for all qualified employees.

As authorized by Section 172.300, Revised Statutes of Missouri, the University's Board of Curators administers the Retirement Plan and establishes its terms. Separate financial statements and supplemental schedules are not prepared for the Retirement Plan.,2008 ý"'ý2007Active members:

Vested 10,094 10,015 Nonvested 7,760 7,439 Pensioners 6,773 6,695 Former Employees with Deferred Pensions 3,002 2,757 Total 27,629 , 26,906 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 54 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Changes in the self-insurance liability during fiscal years 2008, 2007, and 2006 were as follows: Fiscal Year d<j?, r7-t;q 2008 2007 I 2006 14. CONTINGENCIES Self-Insurance Claims Liability (in thousands of dollars) New Claims Beginning and Changes Claim of Year in Estimates Payments "CIt,",>;""",, ,qra::; 'FA:;, ,1 *iL* X & \/.

y"> $ 79,799 $ 136,343 $

86,850 139,294 (146,345)

End of Year " 0" k: 4 k $ 67,238 79,799 I The University does not have any contingencies that are probable and estimable as of June 30, 2008. 15. RETIREMENT, DISABILITY AND DEATH BENEFIT PLAN Basis of Accounting

-The University of Missouri Retirement, Disability, and Death Benefit Plan (the "Retirement Plan") financial statements are prepared using the accrual basis of accounting.

Employer contributions to the Retirement Plan are recognized when due and the employer has made a formal commitment to provide the contributions.

Benefits and refunds are recognized when due and payable in accordance with terms of the Retirement Plan. Investment Valuation

-Investments are reported at fair value. Short-term investments are reported at cost, which approximates fair value. Plan Description

-The Retirement Plan is a single employer, defined benefit plan for all qualified employees.

As authorized by Section 172.300, Revised Statutes of Missouri, the University'S Board of Curators administers the Retirement Plan and establishes its terms. Separate financial statements and supplemental schedules are not prepared for the Retirement Plan. Retirement Plan Membership (active members) ." 2008, .' , I, .. . . . " lG

.. ," , __ r'. Active members: I Vested I 10,094 : 10,015 i Nonvested I 7,760 : 7,439 I Pensioners i 6,773 : 6,695 J Former Employees with Deferred Pensions I I 3,002 ; 2,757 Total i 27,629 I I 26,906 I 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 54 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Full-time employees vest in the Retirement Plan after five years of credited service and become eligible for benefits based on age and years of service. A vested employee who retires at age 65 or older is eligible for a lifetime annuity calculated at 2.2% times the credited service years times the compensation base.The employee's average compensation for the five highest consecutive salary years determines the compensation base. Academic members who provide summer teaching and research service receiveadditional summer service credit. At times, the Board of Curators may approve pension adjustments that increase the benefits paid to existing pensioners. However, vested members who leave the University system prior to eligibility for retirement are not eligible for these pension increases.Vested employees who are at least age 55 and have ten years or more of credited service or age 60 with atleast five years of service may choose early retirement with a reduced benefit. However, if the employee retires at age 62 and has at least 25 years of credited service, the benefit is not reduced. The Retirement Plan provides a minimum value feature for vested employees who terminate or retire. The member receives the greater of a benefit equal to the actuarial equivalent of 5% of the employee's eligible compensation invested at 7.5% per credited service year or the regularly calculated benefit.

Up to 30% of the retirement annuity value can be taken in a lump sum payment. In addition, the standard annuity can be exchanged for an actuarially-equivalent annuity selected from an array of options with joint and survivor, period certain, and guaranteed annual increase features.Vested employees who terminate prior to retirement eligibility may elect to transfer the actuarial equivalent of their benefit to an Individual Retirement Account or into another employer's qualified plan that accepts such rollovers.

If the actuarial equivalent is less than $20,000, it may instead be taken in the forni of a lump sum payment. The Retirement Plan allows vested employees who become disabled-tocontinue accruing.

service credit until they retire, and also provides a pre-retirement death benefit for vested employees.

Contributions

-The University's contributions to the Retirement Plan are equal to the actuarially determined Annual Required Contributions, which averaged 8.0 and 8.7% of payroll for the years ended June 30, 2008, and 2007, respectively.

The Retirement Plan does not require employee contributions and is, instead, funded entirely by University contributions.

The contribution rate is updated annually on July 1, at the beginning of the University's fiscal year, to the actuarially determined amount from the most recent valuation on the preceding October

1. This actuarial valuation reflects the adoption of any Retirement Plan amendments during the previous fiscal year.The University's annual pension cost and net pension obligation to the Retirement Plan for the current year, along with three-year trend information, were as follows: Annual Percentage of Fiscal Year Annual Required Pension Contributions APC Net Pension Contribution (ARC) Cost (APC) Made Contributed Obligation 2006 4ý494 2007 74,736 74,736 74,736 100%2008 72,284 72,284 72,284 100%2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI I A COMPONENT UNIT OF THE STATE OF MISSOURI 55 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Full-time employees vest in the Retirement Plan after five years of credited service and become eligible for benefits based on age and years of service. A vested employee who retires at age 65 or older is eligible for a lifetime annuity calculated at 2.2% times the credited service years times the compensation base. The employee's average compensation for the five highest consecutive salary years determines the compensation base. Academic members who provide summer teaching and research service receive additional summer service credit. At times, the Board of Curators may approve pension adjustments that increase the benefits paid to existing pensioners.

However, vested members who leave the University system prior to eligibility for retirement are not eligible for these pension increases.

Vested employees who are at least age 55 and have ten years or more of credited service or age 60 with at least five years of service may choose early retirement with a reduced benefit. However, if the employee retires at age 62 and has at least 25 years of credited service, the benefit is not reduced. The Retirement Plan provides a minimum value feature for vested employees who terminate or retire. The member receives the greater of a benefit equal to the actuarial equivalent of 5% of the employee's eligible compensation invested at 7.5% per credited service year or the regularly calculated benefit. Up to 30% of the retirement annuity value can be taken in a lump sum payment. In addition, the standard annuity can be exchanged for an actuarially-equivalent annuity selected from an array of options with joint and survivor, period certain, and guaranteed annual increase features.

Vested employees who terminate prior to retirement eligibility may elect to transfer the actuarial equivalent of their benefit to an Individual Retirement Account or into another employer's qualified plan that accepts such rollovers.

If the actuarial equivalent is less than $20,000, it may instead be taken in the fom1 of a lump sum payment. The Retirement Plan allows vested employees who become disabled-to continue accruing service credit until they retire, and also provides a pre-retirement death benefit for vested employees. . J Contributions

-The University's contributions to the Retirement Plan are equal to the actuarially determined Annual Required Contributions, which averaged 8.0 and 8.7% of payroll for the years ended June 30, 2008, and 2007, respectively.

The Retirement Plan does not require employee contributions and is, instead, funded entirely by University contributions.

The contribution rate is updated annually on July 1, at the beginning of the University's fiscal year, to the actuarially determined amount from the most recent valuation on the* preceding October 1. This actuarial valuation reflects the adoption of any Retirement Plan amendments during the previous fiscal year. The University's annual pension cost and net pension obligation to the Retirement Plan for the current year, along with three-year trend information, were as follows: I Three-Year Trend Information i (in thousands of dollars) 1 Annual Percentage of Fiscal Year Annual Required Pension Contributions APC Net Pension Contribution (ARC) Cost (APC) Made Contributed Obligation 2006 2007 74,736 74,736 74,736 100% 2008 72,284 72,284 72,284 100% -I 200$ FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 55 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Funded Status -As of the most recent actuarial valuation date, October. 1, 2007, the Retirement Plan was 103.8% funded. The actuarial accrued liability for benefits was $2,555,592,000 and the actuarial value of the assets was $2,651,535,000, resulting in excess funding of $95,942,000.

The covered payroll (annual payroll of active employees covered by the plan) was $891,648,000, and the ratio of excess.funding to covered payroll was 10.8%.The Schedule of Funding Progress, presented as required supplementary information (RSI) following the notes to the financial statements, presents multiyear trend information about whether the actuarial values of plan assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits.

Actuarial Methods and Assumptions

-In the October 1, 2007 actuarial valuation, the entry age actuarial cost method was used. Actuarial assumptions included (1)an 8.0% rate of investment return net of administrative expenses, and (2) projected salary increases ranging from 4.5 to 5.2% per year. The assumptions did not include postretirement benefit increases.

An approved ad hoc cost of living adjustment effective on September 1, 2007, resulted in a $17,420,000 increase in the actuarial accrued liability and a $1,712,000 or .20% increase in annual employer contributions.

The actuarial value of assets was determined using techniques that spread effects of short-term volatility in the market value of investments over a 5-year period. The overfunded actuarial accrued liability is being amortized as a level dollar amount on an open basis over 20 years from the October 1, 2007 valuation date.16. OTHER POSTEMPLOYMENT BENEFITS Plan Description

-In addition to the pension benefits described in Note 15, the University operates a single-employer, defined benefit postemployment plan. The University's Other Postemployment Benefits (OPEB) Plan provides postretirement medical, dental, and life insurance benefits to employeeswho retire from the University after attaining age 55 and before reaching age 60 with ten or more years of service, or after attaining age 60 with five or more years of services.

As of June 30, 2008, and 2007, 5,642and 5,579 retirees, respectively, were receiving benefits, and an estimated 17,854 active University employees may become eligible to receive future benefits under the plan. Postemployment medical, dental and life insurance benefits are also provided, to long-term disability claimants who were vested in the University's Retirement Plan at the date the disability began, provided the onset date of the disabilitywas on or after September 1, 1990. As of June 30, 2008, and 2007, 244 and 231 long-term disability claimants, respectively, met those eligibility requirements.

The terms and conditions governing the postemployment benefits to which employees are entitled are at the sole authority and discretion of the University's Board of Curators.Basis of Accounting

-In June 2008, the University established its OPEB Trust Fund, the assets of which are irrevocable and legally protected from creditors and dedicated to providing postemployment benefits in accordance with terms of the plan. Previously, postemployment benefit costs other than long-term disability were funded on a current basis, and expenses were recorded on a pay-as-you-go basis. Long-term disability costs were recognized during the period in which the employee became eligible to receivedisability benefits.

The University's OPEB Trust Fund does not issue a separate financial report.Contributions and Reserves -Contribution requirements of employees and the University are established and may be amended by the University's Board of Curators. For employees retiring prior to September 1, 1990, the University contributes toward premiums at the same rate as for active employees, which is 2/3 of the medical benefits premium and 1/2 of the dental plan premium. For employees who retired on or after September 1, 1990, the University contributes toward premiums based on the employee's length of service and age at retirement.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 56 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Funded Status -As of the most recent actuarial valuation date, October. I, 2007, the Retirement Plan was 103.8% funded. The actuarial accrued liability for benefits was $2,555,592,000 and the actuarial value of the assets was $2,651,535,000, resulting in excess funding of $95,942,000.

The covered payroll (annual payroll of active employees covered by the plan) was $891,648,000, and the ratio of excess, funding to covered payroll was 10.8%. The Schedule of Funding Progress, presented as required supplementary information (RSI) following the notes to the financial statements, presents multiyear trend information about whether the actuarial values of plan assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits.

Actuarial Methods and Assumptions

-In the October 1, 2007 actuarial valuation, the entry age actuarial cost method was used. Actuarial assumptions included (1 )an 8.0% rate of investment return net of administrative expenses, and (2) projected salary increases ranging from 4.5 to 5.2% per year. The assumptions did not include postretirement benefit increases.

An approved ad hoc cost of living adjustment effective on September 1, 2007, resulted in a $17,420,000 increase in the actuarial accrued liability and a $1,712,000 or .20% increase in annual employer contributions.

The actuarial value of assets was determined using techniques that spread effects of short-term volatility in the market value of investments over a 5-year period. The overfunded actuarial accrued liability is being amortized as a level dollar amount on an open basis over 20 years from the October 1,2007 valuation date. 16. OTHER POSTEMPLOYMENT BENEFITS Plan Description

-In addition to the pension benefits described in Note 15, the University operates a single-employer, defined benefit postemployment plan. The University's Other Postemployment Benefits (OPEB) Plan provides postretirement medical, dental, and life insurance benefits to employees who retire from the University after attaining age 55 and before reaching age 60 with ten or more years of service, or after attaining age 60 with five or more years of services.

As of June 30, 2008, and 2007, 5,642 and 5,579 retirees, respectively, were receiving and an estimated 17,854 active University employees may become eligible to receive future benefits under the plan. Postemployment medical, dental and life insurance benefits are also provided to long-term disability claimants who were vested in the University's Retirement Plan at the date the disability began, provided the onset date of the disability was on or after September 1, 1990. As of June 30, 2008, and 2007, 244 and 231 long-term disability claimants, respectively, met those eligibility requirements.

The terms and conditions governing the postemployment benefits to which employees are entitled are at the sole authority and discretion of the University'S Board of Curators.

Basis of Accounting

-In June 2008, the University established its OPEB Trust Fund, the assets of which are irrevocable and legally protected from creditors and dedicated to providing postemployment benefits in accordance with terms of the plan. Previously, postemployment benefit costs other than long-term disability were funded on a current basis, and expenses were recorded on a pay-as-you-go basis. term disability costs were recognized during the period in which the employee became eligible to receive disability benefits.

The University'S OPEB Trust Fund does not issue a separate financial report. Contributions and Reserves -Contribution requirements of employees and the University are established and may be amended by the University'S Board of Curators.

For employees retiring prior to September 1, 1990, the University contributes toward premiums at the same rate as for active employees, which is 2/3 of the medical benefits premium and 112 of the dental plan premium. For employees who retired on or after September 1, 1990, the University contributes toward premiums based on the employee's length of service and age at retirement.

2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 56 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University makes available two group term life insurance options. Option A coverage is equal to the retiree's salary at the date of retirement, while Option B is equal to two times that amount. For each Option, graded decreases in coverage are made when the retiree attains specific age levels. The University pays the full cost of Option A and approximately 91% of the Option B premium, with the retiree paying the remainder.

Coverage for group term life insurance ends on January 1 following the retiree's 70 thbirthday. For the year ended June 30, 2008, participants contributed $11,860,000 or approximately 46.5%of total premiums through their required contributions, which vary depending on the plan and coverageselection. Other contributions to the Plan were Medicare Part D retiree drug subsidies received from the federal government.

The University makes available two long-term disability options to its employees.

Option A coverage is equal to 60% of the employee's salary on the date the disability began, when integrated with benefits from all other sources. Option B coverage is equal to 66-2/3% of the employee's salary, integrated so thatbenefits from all sources will not exceed 85% of the employee's salary. Both options have a 149-day waiting period and provide benefits until age 65. The University pays the full cost of the Option A premium, while employees enrolled in Option B pay the additional cost over the Optional A premium.Further, the University currently plans to contribute to the trust fund an amount that, in addition to the current year premium contributions, is sufficient to fund 50% of the annual required contribution (ARC).The ARC, which is actuarially determined in accordance with the parameters of GASB Statement 45, represents the ongoing level of funding projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed thirty years. In fiscal year 2008, the University contributed

$53,460,000, or 100.2% of the ARC. The $53,310,000 ARC represents 5.9% of annual covered payroll.The following table presents the OPEB cost for the year, the amount contributed, and changes in the OPEB obligation for fiscal year 2008: Changes in Ne S OblgtoSAst Annual required contribution/OPEB cost

$ 53,310 Contributions made (53,460)Increase in net OPEB obligation (asset) (150)Net OPEB obligation

-beginning of year Net OPEB obligation (asset) -June 30, 2008 $ (150)i Funding Status and Funding Progress -As of July 1, 2006, the actuarial accrued liability (AAL) for posternployment benefits was $546,058,000, with no actuarial value of assets, resulting in an unfunded actuarial accrued liability (UAAL) of $546,058,000.

The covered payroll (annual payroll of activeemployees covered by the plan) was $883,614,000, and the ratio of UAAL to covered payroll was 61.8%.The University implemented its OPEB Trust Fund in June 2008, after the July 1, 2006 actuarial valuation date. At the actuarial valuation date, there were no trust fund assets, but as of June 30, 2008, the fund had$34 million in net assets.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 57 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 The University makes available two group term life insurance options. Option A coverage is equal to the retiree's salary at the date of retirement, while Option B is equal to two times that amount. For each Option, graded decreases in coverage are made when the retiree attains specific age levels. The University pays the full cost of Option A and approximately 91 % of the Option B premium, with the retiree paying the remainder.

Coverage for group term life insurance ends on January 1 following the retiree's 70 th birthday.

For the year ended June 30, 2008, participants contributed

$11,860,000 or approximately 46.5% of total premiums through their required contributions, which vary depending on the plan and coverage selection.

Other contributions to the Plan were Medicare Part D retiree drug subsidies received from the federal government.

The University makes available two long-term disability options to its employees.

Option A coverage is equal to 60% of the employee's salary on the date the disability began, when integrated with benefits from all other sources. Option B coverage is equal to 66-2/3% of the employee's salary, integrated sci that benefits from all sources will not exceed 85% of the employee's salary. Both options have a 149-day waiting period and provide benefits until age 65. The University pays the full cost of the Option A premium, while employees enrolled in Option B pay the additional cost over the Optional A premium. Further, the University currently plans to contribute to the trust fund an amount that, in addition to the current year premium contributions, is sufficient to fund 50% of the annual required contribution (ARC). The ARC, which is actuarially determined in accordance with the parameters of GASB Statement 45, represents the ongoing level of funding projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a period not to exceed thirty years. In fiscal year 2008, the University contributed

$53,460,000, or 100.2% of the ARC. The $53,310,000 ARC represents 5.9% of annual . covered payroll. The following table presents the OPEB cost for the year, the amount. contributed, and changes in the OPEB obligation for fiscal year 2008: Changes in Net OPEB Obligation (Asset) (in thousands of dollars) , Annual required contribution/OPEB cost Contributions made Increase in net OPEB obligation (asset) Net OPEB obligation

-beginning of year Net OPEB obligation (asset) -June 30, 2008 $ 53,310 (53,460) (150) I $ (150)i Funding Status and Funding Progress -As of July 1, 2006, the actuarial accrued liability (AAL) for postemployment benefits was $546,058,000, with no actuarial value of assets, resulting in an unfunded actuarial accrued liability (UAAL) of $546,058,000.

The covered payroll (annual payroll of active employees covered by the plan) was $883,614,000, and the ratio of UAAL to covered payroll was 61.8%. The University implemented its OPEB Trust Fund in June 2008, after the July 1,2006 actuarial valuation date. At the actuarial valuation date, there were no trust fund assets, but as of June 30, 2008, the fund had $34 million in net assets. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 57 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Actuarially determined amounts are subject to continual revision of actual results are compared to past expectations and new estimates are made about the future. The Schedule of Funding Progress, presented as required supplementary information following the notes to the financial statements, will present multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Benefit projections for financial reporting purposes are based on the benefits provided under the terms of the substantive plan in effect at the time of each valuation and the historical pattern of cost sharing between the employer and plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the University and plan members in the future.Actuarial Methods and Assumptions

-Consistent with the long-term perspective of actuarial calculations, the actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. The projected unit credit actuarial cost method was used in the July 1, 2006, actuarial valuation.

Actuarial assumptions included a 6.75% investment rate of return, net of administrative expenses.

The projected annual healthcare trend rate is 7.0 to 11.5% initially, reduced by 0.5% decrements to an ultimate rate of 4.5%.The UAAL is being amortized as a level dollar amount on an open basis, level percent of pay, over a 30-year amortization period.17. SEGMENT INFORMATION A segment is an identifiable activity reported within a stand-alone entity for which one or more revenue bonds are outstanding.

A segment has a specific identifiable revenue stream pledged in support of revenue bonds and has related expenses, gains and losses, assets and liabilities that are required by an external party to be accounted for separately.

The University has one segment that meets the reporting requirements of GASB Statement No.

37.As of June 30, 2008, the University's outstanding bond debt consists of System Facilities Revenue Bonds.The System Facilities Revenue Bonds are issued in accordance with a Resolution adopted by the Board of Curators in October 1993. The Resolution provides that the bonds are payable from the gross income and revenues derived from the related facilities including student fees, housing, dining, bookstore, parking, and various other revenues.During fiscal year 2006, the University defeased the debt previously reported within the Health Facilities Revenue Bonds secured by revenues of the Health System. The Health System consists of the University of Missouri Hospitals and Clinics, which includes the University of Missouri Hospital, Ellis Fischel Cancer Center, Rusk Rehabilitation Center and the Children's Hospital; the University Physicians Medical Practice Plan, which includes faculty of the University of Missouri-Columbia School of Medicine; and the Missouri Rehabilitation Center.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Actuarially determined amounts are subject to continual revision of actual results are compared to past expectations and new estimates are made about the future. The Schedule of Funding Progress, presented as required supplementary information following the notes to the financial statements, will present multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Benefit projections for financial reporting purposes are based on the benefits provided under the terms of the substantive plan in effect at the time of each valuation and the historical pattern of cost sharing between the employer and plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the University and plan members in the future. Actuarial Methods and Assumptions

-Consistent with the long-term perspective of actuarial calculations, the actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. The projected unit credit actuarial cost method was used in the July 1, 2006, actuarial valuation.

Actuarial assumptions included a 6.75% investment rate of return, net of administrative expenses.

The projected annual healthcare trend rate is 7.0 to 11.5% initially, reduced by 0.5% decrements to an ultimate rate of 4.5%. The UAAL is being amortized as a level dollar amount on an open basis, level percent of pay, over a 30-year amortization period. 17. SEGMENT INFORMATION A segment is an identifiable activity reported within a stand-alone entity for which one or more revenue bonds are outstanding.

A segment has a specific identifiable revenue stream pledged in support of revenue bonds and has related expenses, gains and losses, assets and liabilities that are required by an external party to be accounted for separately.

The University has one segment that meets the reporting requirements of GASB Statement No.3 7. As of June 30, 2008, the University's outstanding bond debt consists of System Facilities Revenue Bonds. The System Facilities Revenue Bonds are issued in accordance with a Resolution adopted by the Board of Curators in October 1993. The Resolution provides that the bonds are payable from the gross income and revenues "derived from the related facilities including student fees, housing, dining, bookstore, parking, and various other revenues.

During fiscal year 2006, the University defeased the debt previously reported within the Health Facilities Revenue Bonds secured by revenues of the Health System. The Health System consists of the University of Missouri Hospitals and Clinics, which includes the University of Missouri Hospital, Ellis Fischel Cancer Center, Rusk Rehabilitation Center and the Children's Hospital; the University Physicians Medical Practice Plan, which includes faculty of the University of Missouri-Columbia School of Medicine; and the Missouri Rehabilitation Center. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 58 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Summary financial information for the System Facilities Revenue Bonds as of June 30, 2008, and 2007, is as follows: 2008 2007 et W,'.K1 ft andýýýýý05'57 Assets: Current AssetsCapital Assets, Net Noncurrent Assets Total Assets$ 239,366 966,244 351,557$ 1,557,167$ 159,049 857,675 1,016,724$ 254,967 817,585 180,695$ 1,253,247 Liabilities:

Current Liabilities Noncurrent Liabilities Total Liabilities Net Assets: Invested in Capital Assets, Net of Related Debt Restricted

-Nonexpendable Expendable Unrestricted Total Net Assets Total Liabilities and Net Assets 181,352$ 146,927 646,864 793,791 160,375 622 10,460 287,999 459,456 1 ?1,5,24ý7 595 10,874 347,622 540,443$ 1,557,167~ondensed Statement of Revenues, E~xpenses and @hanges in N.et AssetsOperating Revenues:

Net Patient Revenue Net Tuition and Fees Bookstore Housing and Related Food Service Parking Other Operating Revenue Total Operating Revenues Operating Expenses: Depreciation All Other Operating Expenses Total Operating Expenses Operating Income Nonoperating Revenues Income Before Transfers Transfer From Other University Units Increase in Net Assets Net Assets, Beginning of YearNet Assets, End of Year* $ 663,227 15,853 61,423 72,382 15,218 19,922 848,025 52,784 772,105.824,889 23,136 13,515 36,65 I 44,336 80,987 459,456$ 540,443$ 620,241 13,846 56,929 66,730 14,035 20,774 792,555 51,175 728,410 779,5851 12,970 9,368 22,3381 33,9461 56,284 403,172 459,4561 Net Cash Flows Provided by Operating Activities

$ 74,416 $ 53,283Net Cash Flows Provided by (Used In) Investing Activities (176,233) 4,611 Net Cash Flows Provided by (Used In) Capital and Related Financing Activities 21,554 (125,948)Net Cash Flows Provided by Noncapital Financing Activities 21,689 58,341 Net Decrease in Cash and Cash Equivalents (58,574) (9,713)Cash and Cash Equivalents, Beginning of Year 106,213 115,926 Cash and Cash Equivalents, End of Year 47,639ý 1 106,2131 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 59 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Summary financial information for the System Facilities Revenue Bonds as of June 30, 2008, and 2007, is as follows: System Facilities Revenue Bonds Condensed Financial (in thousands of dollars) I Assets: Current Assets Capital Assets, Net Noncurrent Assets Total Assets Liabilities:

Current Liabilities Noncurrent Liabilities Total Liabilities Net Assets: Invested in Capital Assets, Net of Related Debt Restricted

-Nonexpendable Expendable Unrestricted Total Net Assets Total Liabilities and Net Assets Operating Revenues:

Net Patient Revenue Net Tuition and Fees Bookstore Housing and Related Food Service Parking Other Operating Revenue Total Operating Revenues Operating Expenses:

Depreciation All Other Operating Expenses Total Operating Expenses Operating Income Nonoperating Revenues Income Before Transfers Transfer From Other University Units Increase in Net Assets Net Assets, Beginning of Year Net Assets, End of Year Net Cash Flows Provided by Operating Activities Net Cash Flows Provided by (Used In) Investing Activities Net Cash Flows Provided by (Used In) Capital and Related Financing Activities Net Cash Flows Provided by Noncapital Financing Activities Net Decrease in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI $ $ $ $ $ $ 239,366 966,244 351,557 1,557,167 159,049 857,675 1,016,724 181,352 595 10,874 347,622 540,443 1,557,167 663,227 15,853 61,423 72,382 15,218 19,922 848,025 52,784 772,105. 824,889 23,136 13,515 36,651 44,336 80,987 459,456 21,554 21,689 (58,574) $ 254,967 817,585 180,695 I $ 1,253,2 47 1 $ 146,927 646,864 793,7911 160,375 622 10,460 287,999 459,4561 $ ..

$ 620,241 59 Jb FoR, THE YEARS ENDED JUNE 30, 2008 AND 2007 18. OPERATING EXPENSES BY FUNCTION The operating expenses of the University are presented based on natural expenditure classifications.

The University's operating expenses by functional classification are as follows: Operating Expenses by Functional and Natural Classifications (in thousands of dollars)For the Year Ended June 30, 2008 Supplies, Services Salaries and Other and Staff Operating Wages Benefits Expenses Scholarships and Fellowships Depreciation Total Functional Classification Instruction Research Public ServiceAcademic Support Student Services Institutional Support Operation and Maintenance of Plant Auxiliary Enterprises Scholarships and Fellowships Depreciation Total Operating Expenses

$ 362,929 $ 88,380 $ 66,971 $ -$ $ 518,280, 104,556 22,787 80,702 208,0451 79,571 21,323 63,254 164, 148!69,735 9,520 32,488 111,743 35,535 8,978 25,578 70,091 84,507 53,525 (20,357) 117,6751 33,378 9,767 5,057 48,202, 383,465 96,095 408,638 888,198 39,485 39,485,_________ ________

________125,996 125,996 1$ 1,153,676

$ 310,375 $ 662,331 $ 39,485 $ 125,996 $ 2,291,863' For the Year Ended June 30, 2007 Salaries and Wages Supplies, Services and Other Scholarships Staff Operating andBenefits Expenses Fellowships Functional Classification Depreciation Total__ _ _ _ _ _

__ _ _ _ _ _

__ _ _V-- ~ S~~Instruction

$ 338,850 $ 82,249 $ 54,267 $ -$ -$ 475,3166 Research 107,630 23,532 73,259 204,,421 Public Service 75,135 20,041 56,559 151,735 Academic Support 66,993 15,896 33,386 116,275 Student Services 40,597 9,639 24,561 74,797 Institutional Support 83,168 23,325 (41,111) 65,382 Operation and Maintenance of Plant 31,655 9,188 22,589 63,432 Auxiliary Enterprises 357,839 89,053 384,624 831,516 Scholarships and Fellowships 38,602 38,602 Depreciation I______ 1_____

_____ 19,069 119,0691 Total Operating Expenses [ 1,101,867

$ 272,923 $ 608,134 $ 38,602 $ 119,069 $ 2,140,5951 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 60 FOR THE YEARS ENDED JUNE 30, 2008 AND'2007 18. OPERATING EXPENSES BY FUNCTION The operating expenses of the University are presented based on natural expenditure classifications.

The University's operating expenses by functional classification are as follows: Operating Expenses by Functional and Natural Classifications (in thousands of dollars) For the Year Ended June 30, 2008 Supplies, Services Salaries and Other Scholarships and Staff Operating and Functional Classification Wages Benefits Expenses Fellowships Depreciation ,; .... ",'-'," . f ,r:'-:?".;,?"',*.",.,,**, , ,""" Instruction Research Public Service Academic Support Student Services Institutional Support Operation and Maintenance of Plant Auxiliary Enterprises Scholarships and Fellowships Depreciation Total Operating Expenses Functional Classification

.. , instruction Research Public Service Academic Support Student Services Institutional Support Operation and Maintenance of Plant Auxiliary Enterprises Scholarships and Fellowships Depreciation Total Operating Expenses -, $ 362,929 $ 88,380 $ 66,971 $ -$ -$ 104,556 22,787 80,702 79,571 21,323 63,254 69,735 9,520 32,488 35,535 8,978 25,578 84,507 53,525 (20,357) 33,378 9,767 5,057 383,465 96,095 408,638 39,485 125,996 $ 1,153,676

$ 310,375 $ 662,331 $ 39,485 $ 125,996 $ For the Year Ended June 30, 2007 Supplies, Services Salaries and Other Scholarships and Staff Operating and Wages Benefits Expenses Fellowships Depreciation "

-.-7 -: ';( $ 338,850 $ 82,249 $ 54,267 $ -$ -$ 107,630 23,532 73,259 75,135 20,041 56,559 66,993 15,896 33,386 40,597 9,639 24,561 83,168 23,325 (41,111) 31,655 9,188 22,589 357,839 89,053 384,624 38,602 19,069 [ $ 1,101,867

$ 272,923 $ 608,134 $ 38,602 $ 19,069 $ -----Total " " 518,280 208,045: 164,1481 , 111,743 70,091' 117,675: 48,202: 888,198 39,485, 125,9961 2,291,863 1 Total 475,366 204,421 151,735 116,275 74,797 65,382 63,432 831,516 38,602 119,069 2,140,595

[ 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 60 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 19. DISCRETELY PRESENTED COMPONENT UNIT(S)The Discretely Presented Component Unit(s) columns in the financial statements include the financial data of the Medical Alliance and Missouri Care L.C.The Medical Alliance, a not-for-profit corporation, provides an integrated health care delivery system formid-Missouri by establishing affiliations with various medical facilities. Capital Region Medical Center in Jefferson City, Missouri, operates as an affiliate of the Medical Alliance and provides inpatient, outpatient, and emergency care services to the surrounding community.

Missouri Care L.C.

was organized as a not-for-profit health maintenance organization exclusively for charitable purposes, in particular to benefit its sole member, the Curators of the University of Missouri.During fiscal year 2007, Missouri Care L.C.

contracted as a major provider of health care services for the University of Missouri Healthcare System.

On January 31, 2007, Schaller Anderson Acquisition, Inc., purchased certain assets of Missouri Care L.C. and assumed its liabilities as part of the sales agreement.

Therefore, in fiscal year 2008, Missouri Care L.C. is no longer a discretely presented component unit of the University.

In the accompanying financial statements, Medical Alliance is presented as of and for the years ended June 30, 2008, and 2007, while Missouri Care L.C. is presented as of and for the thirteen months ended January 31, 2007, to coincide with its final fiscal period, for fiscal year 2007. The Condensed Statement of Net Assets and Condensed Statement of Revenues, Expenses and Changes in Net Assets for these periods are shown below: Condnse Finacia Staeet 2008 Medical Condensed Statement of Net Assets A 11...I-xSSCLS:Current Assets Capital Assets, Net Noncurrent Assets Total Assets$ 32,037 75,159 34,015$ 141,211 Liabilities:Current Liabilities Noncurrent Liabilities Total Liabilities

$ 15,012 36,837 51,849Net Assets:

Invested in Capital Assets, Net of Related Debt 38,463 3 Restricted

-Expendable 2,963 4 4;904 4-,904 Unrestricted 47,936 ,_Total Net Assets 89,362 2 8Total Liabilities and Net Assets $ 141,211 $l3,2 -$1326 (continued on next page)2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 61 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 19. DISCRETELY PRESENTED COMPONENT UNIT(S) The Discretely Presented Component Unites) columns.in the financial statements include the financial data of the Medical Alliance and Missouri Care L.C. The Medical Alliance, a not-for-profit corporation, provides an integrated health care delivery system for* mid-Missouri by establishing affiliations with various medical facilities.

Capital Region Medical Center in Jefferson City, Missouri, operates as an affiliate of the Medical Alliance and provides inpatient, outpatient, and emergency care services to the surrounding community.

Missouri Care L.C. was organized as a not-for-profit health maintenance organization exclusively for charitable purposes, in particular to benefit its sole member, the Curators of the University of Missouri.

During fiscal year 2007, Missouri Care L.C. contracted as a major provider of health care services for the University of Missouri Healthcare System. On January 31, 2007, Schaller Anderson Acquisition, Inc., purchased certain assets of Missouri Care L.c. and assumed its liabilities as part of the sales agreement.

Therefore, in fiscal year 2008, Missouri Care L.C. is no longer a discretely presented component unit of the University.

In the accompanying financial statements, Medical Alliance is presented as of and for the years ended June 30, 2008, and 2007, while Missouri Care L.C. is presented as of and for the thirteen months ended January 31, 2007, to coincide with its final fiscal period, for fiscal year 2007. The Condensed Statement of Net Assets and Condensed Statement of Revenues, Expenses and Changes in Net Assets for these periods are shown below: Discretely Presented Component Unit(s) II Condensed Financial Statements , (in thousands of dollars) 2008 Condensed Statement of Net Assets Medical Alliance Assets: Current Assets $ 32,037 Capital Assets, Net 75,159 Noncurrent Assets 34,015 Total Assets $ 141,211 , Liabilities:

Current Liabilities

$ 15,012 Noncurrent Liabilities 36,837 Total Liabilities 51,849 ' Net Assets: Invested in Capital Assets, Net of Related Debt 38,463 Restricted

-Expendable 2,963 Unrestricted 47,936 Total Net Assets 89,362 Total Liabilities and Net Assets $ 141,211 on next 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 61 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Cne se Fiaca Staemnt Condensed Statement of Revenues, Expenses, and Changes in Net Assets 2008 Medical Alliance 2007 Medical Missouri Alliance Care L.C.Total 1111111;31M 4ý 004, Operating Revenues:Net Patient Revenue Other Operating Revenue Total Operating Revenues Operating Expenses: Salaries and Wages Staff BenefitsSupplies, Services and OtherOperating Expenses Depreciation Total Operating Expenses Operating Income (Loss)Nonoperating Revenues (Expenses):

Investment Income Private Gifts Interest Expense Other Nonoperating Revenues (Expenses)

Extraordinary Items: Net Proceeds from Sale of Missouri Care Gain from Sale of Missouri Care Net Nonoperating Revenues (Expenses)

Increase (Decrease) in Net Assets Net Assets, Beginning of Year Net Assets, End of Year$ 147,932 147,932 57,984 12,589 64,878 10,061 145,512$ 138,258 $ -$ 138,258 79,538 79,538 138,258 79,538 217,796 51,911 11,450 51,911 11,450 63,916 80,533 144,449 10,132 10,132137,409 80,533 217,942 2,420 849 (995)

(146)1,844 15 (1,760)320 1,500 1,500 (1,813)1,378 (19,317)12,293 (1,813)1,378 (19,317)12,293 419 1 1,065 (7,024) (5,959) 2,839 1,914 (8,019)(6,105)86,523 1 84,609 8,019 92,628 1$ 89,362 $ 86,523 $ $ 86,523 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 62 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Discretely Presented Component Unit(s) Condensed Financial Statements (in thousands of dollars) 2008 I 2007 I Condensed Statement of Revenues, Medical Medical Missouri Expenses, and Changes in Net Assets Alliance Alliance Care L.c. Total ., Operating Revenues:

Net Patient Revenue $ 147,932 $ 138,258 $ -$ 138,258 Other Operating Revenue 79,538 79,538 Total Operating Revenues 147,932 I 138,258 79,538 217,796 I Operating Expenses:

Salaries and Wages 57,984 51,911 51,911 Staff Benefits 12,589 11,450 11,450 Supplies, Services and Other Operating Expenses 64,878 63,916 80,533 144,449 Depreciation 10,061 10,132 10,132 Total Operating Expenses 145,512 I 137,409 80,533 217,942 I Operating Income (Loss) 2,420 I 849 (995) (146) I Nonoperating Revenues (Expenses):

Investment Income 1,844 1,500 1,500 Private Gifts 15 Interest Expense (1,760) (1,813) (1,813) Other Nonoperating Revenues (Expenses) 320 1,378 1,378 Extraordinary Items: I Net Proceeds from Sale of Missouri Care (19,317) (19,317)

Gain from Sale of Missouri Care 12,293 12,293 Net Nonoperating Revenues (Expenses) 419 1,065 (7,024) (5,959)

Increase (Decrease) in Net Assets 2,839 1,914 (8,019) (6,105)

Net Assets, Beginning of Year 86,523 84,609 8,019 92,628 Net Assets, End of Year $ 89,362 1$ 86,523 $ -$ 86,5231 --2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 62 A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 20. FIDUCIARY FUNDS -PENSION TRUST FUNDS COMBINING STATEMENTS Combining financial statements for the Fiduciary Funds

-Pension Trust Funds, which encompass the University Retirement and OPEB Trust Funds, are as follows: Statmen of Pla Ne sst(i thuad of dolas)2008 OPEB 2007 Pension Total Afsstet Cash and Cash Equivalents Collateral for Securities LendingDue to the University of Missouri System Investment Settlements Receivable Investments:

Government Obligations Corporate Bonds and Notes Corporate Stocks Other$ 95,363 294.781$34,497 $129,860 294,781 181,062$79,714 382,023 (46)23,659 181,062 640,544 640,544 281,693 281,693 1,699,133 1,699,133 220,180 220,180 182,837 2,269,794 104,832, Total Assets 3,412,756 34,497 3,447,253 1 3,443,229 Ifi-ab.ilities Accounts Payable and Accrued Liabilities 2,429 2,429 2,850Collateral for Securities Lending 294,781 294,781 382,023 Investment Settlements Payable 400,142 400,142 127,322 Total Liabilities 697,352 697,352 512,195 Net Assets Held in Trust for Pension and OPEB $ 2,715,404

$ 34,497 $ 2,749,901

$ 2,931,034'(continued on next page)2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 63 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 20. FIDUCIARY FUNDS -PENSION TRUST FUNDS COMBINING STATEMENTS Combining financial statements for the Fiduciary Funds -Pension Trust Funds, which encompass the University Retirement and OPEB Trust Funds, are as follows: . . I I I Statement of Plan Net Assets I' (in thousands of dollars) Pension Cash and Cash Equivalents

$ 95,363 Collateral for Securities Lending 294,781 Due to the University of Missouri System Investment Settlements Receivable 181,062 Investments:

Government Obligations 640,544 Corporate Bonds and Notes 281,693 Corporate Stocks 1,699,133 Other 220,180 Total Assets Accounts Payable and Accrued Liabilities 2,429 Collateral for Securities Lending 294,781 Investment Settlements Payable 400,142 Total Liabilities 697,352 Net Assets Held in Trust for Pension and OPEB $ 2,715,404 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI $ $ 2008 OPEB 34,497 34,497 $ $ 2007 Total 129,860 $ 294,781 181,062 640,544 281,693 1,699,133 220,180 2,429 294,781 400,142 697,352 1 2,749,901 1$ 63 otz k ltý 644W'6ýýFOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Statement of Cags in PlnNesst 2008 Pension OPEB Total 2007 Net Revenues and Other Additions-Investment Income (Loss): Interest and Dividend Income, Net of Fees Net Appreciation (Depreciation) in Fair Value of Investments Net Investment Income (Loss)Contributions:

University Members Other Total Contributions Total Net Revenues and Other Additions$ 77,372 4 $ 77,376 (243,951)

(243,951), (166,579) 4 (166,575), 72,284 53,461 125,745 12,231 12,231 2,503 2,503 72,284 68,195 140,479(94,295) 68,199 (26,096)Epenses and Other Deductions Administrative Expenses Payments to Retirees and Beneficiaries Total Expenses and Other Deductions Increase (Decrease) in Net Assets Held in Trust for Pension and OPEB Net Assets Held in Trust for Pension and OPEB, Beginning of YearNet Assets Held in Trust for Pension and OPEB, End of Year 1,932 241 2,173 2,043 119,403 33,461 152,864 114,412 121,335 33,702 155,037 116,455 (215,630) 34,497 (181,133) 436,293 2,931,034 2,931,034 2,494,741

$ 2,715,404

$ 34,497 $ 2,749,901

$ 2,931,034 21. EXTRAORDINARY ITEMS On January 31, 2007, Schaller Anderson Acquisition, Incorporated, purchased certain assets of Missouri Care L.C., a discretely presented component unit of the University, and assumed its liabilities as part ofthe sales agreement.

Missouri Care L.C. is described further in Note 19. The University received net proceeds of $19.3 million resulting from the sale which was recorded as an extraordinary item in the Statement of Revenues, Expenses and Changes in Net Assets for the year ended June 30, 2007. An extraordinary gain of approximately

$12.3 million was recorded by Missouri Care L.C. as a result of the sale.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 64 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 Statement of Changes in Plan Net Assets (in thousands of dollars) 2008 2007 Pension OPEB Total .. ' Net' Revenues 'and 'C)ther Additions" . x 4 ;!f

6 1 -,-------Investment Income (Loss)

Interest and Dividend Income, Net of Fees

$ 77,372 $ 4 $ 77,376 $ 62,749 Net Appreciation (Depreciation) in Fair Value of Investments (243,951)

(243,951), 415,263 Net Investment Income (Loss) I (166,579) 4 (I 66,575} I 478,012 Contributions:

University 72,284 53,461 125,745 ! 74,736 Members 12,231 12,231 I Other 2,503 2,503 Total Contributions 72,284 68,195 140,479 I 74,736 Total Net Revenues and Other Additions (94,295) 68,199 (26,096) I 552,748 i I (Exi{e"nsesandOther Deductions

..,.-.-. -. , 'V4 ;t i .. -/"

1 ---._------"-----,-Administrative Expenses 1,932 241 2,173 2,043 i Payments to Retirees and Beneficiaries 119,403 33,461 152,864 114,412 Total Expenses and Other Deductions 121,335 33,702 155,037 I 116,455 Increase (Decrease) in Net Assets Held in Trust for Pension i (215,630) 34,497 (181,133) 436,293 and OPEB Net Assets Held in Trust for Pension and OPEB, Beginning of Year 2,931,034 2,931,034 2,494,741 Net Assets Held in Trust for Pension and OPEB, 1$ End of Year :$ 2,715,404

$ 34,497 $ 2,749,901 2,931,034

21. EXTRAORDINARY ITEMS On January 31, 2007, Schaller Anderson Acquisition, Incorporated, purchased certain assets of Missouri Care L.c., a discretely presented component unit of the University, and assumed its liabilities as part of the sales agreement.

Missouri Care L.C. is described further in Note 19. The University received net proceeds of $19.3 million resulting from the sale which was recorded as an extraordinary item in the Statement of Revenues, Expenses and Changes in Net Assets for the year ended June 30, 2007. An extraordinary gain of approximately

$12.3 million was recorded by Missouri Care L.C. as a result of the sale. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI 64 A COMPONENT UNIT OF THE STATE OF MISSOURI cg~4 FOR TI-iE YEARS ENDED JUNE 30, 2008 AND 2007 22. SUBSEQUENT EVENTS On July 2, 2008, the University sold $100,000,000 of capital project notes at an effective interest rate of3.0%. The notes will be repaid in full by June 30, 2009. Proceeds from the issuance of the capital project notes will be used to fund various construction projects of the University.

Since June 30, 2008, the global financial markets have been experiencing a severe downturn, which in turn resulted in unrealized decreases in the fair market value of the University's long-term investment portfolio.

As of the date of this report, it is unclear how long this downward pressure on investmentvalues might continue and what other implications there will be for the overall U.S. and global economy.The University's management and its investment advisors are monitoring the situation to determine appropriate strategies and actions. The University's investment strategy is to take a long-term approach tomaximizing investment return. Because of its ample liquidity and minimal exposure to troubled institutions, the University is well positioned to weather the problems and uncertainty in the markets.2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 65 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 22. SUBSEQUENT EVENTS On July 2, 2008, the University sold $100,000,000 of capital project notes at an effective interest rate of 3.0%. The notes will be repaid in full by June 30, 2009. Proceeds from the issuan.ce of the capital project notes will be used to fund various construction projects of the University.

Since June 30, 2008, the global financial markets have been experiencing a severe downturn, which in tum resulted in unrealized decreases in the fair market value of the University's long-term investment portfolio.

As of the date of this report, it is unclear how long this downward pressure on investment values might continue and what other implications there will be for the overall U.S. and global economy. The University's management and its investment advisors are monitoring the situation to determine appropriate strategies and actions. The University's investment strategy is to take a long-term approach to maximizing investment return. Because of its ample liquidity and minimal exposure to troubled institutions, the University is well positioned to weather the problems and uncertainty in the markets. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 65 I -6/ 1 FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 RETIREMENT PLAN Scedl of Fudn PrSogrss(i thuad of dollrs Actuarial Valuation Date 10/1/2002 10/1/2003 Actuarial Valuation of Assets Actuarial Accrued Liability (AAL)thýUnfunded AAL/(Excess Funding)th-al Funded Ratio in I h)Annual Covered Payroll ( el UAAL/(Excess) as a Percentage of Covered Payroll (lh-al / el 10/1/2004 10/1/2005 10/1/2006 10/1/20072,125,656 2,271,230 145,574 93.6% 795,758 18.3%/2,325,264 2,400,807 2,651,535 2,555,592 75,543 96.9% 846,884 (95,943) 103.8% 891,648 8.9%,-10.8%(in thouand of d ie S'1~o]14lolars)

K Actuarial Year Valuation Ended Date Annual Required Contribution Percentage Contributed Net Pension Obligation/(Asset)6/3 0/2003 ..... ...... ...

6/30/2004 6/30/2005 1 10 /2001'6/30/2006

/204 6/30/20071 10/1/2005 74,736 100% -6/30/2008' 10/1/2006 72,284 100% -2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 66FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 RETIREMENT PLAN 66 Actuarial Valuation Date 10/1/2002 10/1/2003 10/1/2004 1011/2005 10/1/2006 10/1/2007 Actuarial Valuation of Assets Schedule of Funding Progress (in thousands of dollars) Actuarial Accrued Liability (AAL) Unfunded AALI (Excess Funded Funding) Ratio Annual Covered Payroll UAAL/(Excess) as a Percentage of Covered Payroll 2,125,656 2,271,230 145,574 93.6% 795,758 '" 2,325,264 2,651,535 2,400,807 2,555,592 75,543 96.9% (95,943) 103.8% Year Ended 6/30/2003 6/30/2004 6/30/2005 6/30/2006 6/30/2007\

6/30/2008*

Schedule of Employer Contributions (in thousands of dollars) Actuarial Annual Required Contribution 10/1/2005 74,736 100% 10/112006 72,284 100% -846,884 891,648 Net Pension Obligationl -I 8.9%' -10.8% 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 OTHER POSTEMPLOYMENT BENEFITS (OPEB) PLAN Schdul of Fning Prgrs (in ~ ~ ~ ~ S thuad-fdlas Actuarial Valuation of Assets Actuarial Valuation Date Actuarial Accrued Liability (AAL)(b)Annual Unfunded Funded Covered AAL Ratio Payroll UAAL as a Percentage of Covered Payroll ([b-a] / c)(a)(b-a)(a / b)(c)7/1/2006' $ -$546,058 -$ 546,058 0.0% $883,614 61.8%Schedue of S. C Actuarial Year Valuation Ended Date Annual Required Contribution Percentage Contributed Net OPEB Obligation I (Asset)6/30/2008, 7/1/2006 $ 53,310 100.2% $ (150)2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOUII 6 67

?42aUdh/J . FOR THE YEARS ENDED JUNE 30, 2008 AND 2007 OTHER POSTEMPL 0 YMENT BENEFITS (OPEB) PLAN Schedule of Funding Progress I (in thousands of dollars) I Actuarial VAAL as a Accrued " Annual Percentage of Actuarial Actuarial Valuation Liability Unfunded Funded Covered Covered Valuation of Assets (AAL) AAL Ratio Payroll Payroll Date (a) (b) (b-a) (a / b) ( c) ([b-a] / c) ., ,

,;*;;;9 ' 7/1/2006: $ $ 546,058 $ 546,058 0.0% $ 883,614 61.8% --. Schedule of Employer Contributions I (in thousands of dollars) Actuarial Annual NetOPEB Year Valuation Required Percentage Obligation

/ Ended Date Contribution Contributed (Asset) --.-.::.:..-:

6/30/2008 7/1/2006 $ 53,310 100.2% $ ... (150 2 --.. _----.---.. -...... .. --. 2008 FINANCIAL REPORT: UNIVERSITY OF MISSOURI A COMPONENT UNIT OF THE STATE OF MISSOURI 67 "The mission of the four-campus University of Missouri System -a land-grant university and Missouri's only public research and doctoral-level institution

-is to discover, disseminate, preserve and apply knowledge.

The university facilitates lifelong-learning by its students and Missouri's citizens; fosters innovation to support economic development; and advances the health, cultural and social interests of the people of Missouri, the nation and the world." www.umsystem.edu"The mission of the four-campus University of Missouri System -a land-grant university and Missouri's only public research and doctoral-level institution

-is to discover, disseminate, preserve and apply knowledge.

The university facilitates lifelong-learning by its students and Missouri's citizens; fosters innovation to support economic development; and advances the health, cultural and social interests of the people of Missouri, the nation and the world." www.umsystem.edu PUBLISHED BY UNIVERSITY OF MISSOURI OFFICE OF FINANCE AND ADMINISTRATION 215 UNIVERSITY HALL COLUMBIA, MISSOURI 65211

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ML092590298

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