ML14015A390

Attachment a: Penn State University Audited Financial Statements

ML14015A390
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Site:	Pennsylvania State University, 07000113
Issue date:	06/30/2013
From:	Pennsylvania State Univ, University Park, PA
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0 C I /V,,l C(oATTACHMENT A -Penn State University Audited Financial Statements PENNSTATE AuditedFinancial Statements The Pennsylvania State University Fiscal Year Ended June 30, 2013 THE PENNSYLVANIA STATE UNIVERSITY UNIVERSITY OFFICERSas of November 1, 2013RODNEY A. ERICKSONPresident DAVID J. GRAYSenior Vice President forFinance and Business/Treasurer NICHOLAS P. JONESExecutive Vice President and ProvostRODNEY P. KIRSCHSenior Vice President for Development and Alumni Relations HAROLD L. PAZChief Executive

Officer, Penn State Milton S.Hershey Medical Center; SeniorVice President for Health Affairs, Penn State University; andDean, Penn State College of Medicine

CONTENTSOperating Revenues by Source 2Operating Expenses by Function 3Letter of Transmittal 5Independent Auditors' Report 6Consolidated Financial Statements:

Statements of Financial Position 8Statements of Activities 10Statements of Cash Flows 12Notes to Consolidated Financial Statements 13 OPERATING REVENUES BY SOURCE ($4.9 billion)For the Year Ended June 30, 2013($ in Millions)

Government grantsand contracts

$619.1(12.7%)Medical Center$1372.5(28.2%) /Private gifts, grantsand contracts

$273.9(5.6%)Commonwealth of Pennsylvania appropriation

$272.4(5.6%)Endowment spending and otherinvestment income$172.1(3.5%)Recovery ofindirect costs$153.7(3.1%)Othersources$82.1(1.7%)Tuition and fees,net of discount$1,549.0(31.8%)2 OPERATING EXPENSES BY FUNCTION

($4.5 billion)For the Year Ended June 30, 2013($ in Millions)

Research$806.4(18.1%)Medical Center$1,232.7(27.6%)Auxiliary enterprises

$347.6(7.8%)Academicsupport$327.3(7.3%)Student services$167.1(3.7%)Instruction

$1,129.4(25.3%)3 This Page is Intentionally Blank.4 PENNSTATE Vg(814) 865-1355(814) 863-0701Joseph J. DoncseczAssociate Vice President for Finance and Corporate Controller The Pennsylvania State University 408 Old MainUniversity Park, PA 16802-1505 November 1, 2013Dr. Rodney A. Erickson, President The Pennsylvania State University

Dear Dr. Erickson:

The audited consolidated financial statements of The Pennsylvania State University andsubsidiaries (the "University")

for the fiscal years ended June 30, 2013 and 2012 are presented on the accompanying pages. These financial statements represent a complete and permanent record of the finances of the University as of and for the years then ended.These financial statements have been audited by Deloitte

& Touche LLP, independent

auditors, and their report has been made a part of this record.Respectfully submitted, Joseph J. DoncseczAssociate Vice President for Finance and Corporate Controller David J. GraySenior Vice President for Finance and Business, and Treasurer An Equal Opportunity University 5

eloitte Deloitte

& Touche LLP1700 Market StreetPhiladelphia, PA 19103-3984 USATel: 215 246 2300Fax: 215 569 2441www~deloitte~com INDEPENDENT AUDITORS' REPORTTo the Board of Trustees of the Pennsylvania State University University Park, Pennsylvania We have audited the accompanying consolidated financial statements of The Pennsylvania StateUniversity and its subsidiaries (the "University"),

which comprise the consolidated statements offinancial position as of June 30, 2013 and 2012, and the related consolidated statements ofactivities and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the UnitedStates of America; this includes the design, implementation, and maintenance of internal controlrelevant to the preparation and fair presentation of consolidated financial statements that are freefrom material misstatement, whether due to fraud or error.Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based onour audits. We conducted our audits in accordance with auditing standards generally accepted inthe United States of America.

Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statements are free frommaterial misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the consolidated financial statements.

The procedures selected depend on theauditor's

judgment, including the assessment of the risks of material misstatement of theconsolidated financial statements, whether due to fraud or error. In making those riskassessments, the auditor considers internal control relevant to the Company's preparation and fairpresentation of the consolidated financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company's internal control.

Accordingly, we express no such opinion.

Anaudit also includes evaluating the appropriateness of accounting policies used and thereasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.Member of6 Deloitte Touche Tohmatsu OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in allmaterial

respects, the financial position of the University as of June 30, 2013 and 2012, and thechanges in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.November 1, 20137 THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONASSETSJUNE 30, 2013 AND 2012(in thousands)

Current assets:Cash and cash equivalents Short-term investments Deposits held for othersAccounts receivable, net of allowances of $66,974 and $62,217Contributions receivable, netLoans to students, net of allowances of $584 and $486Inventories Prepaid expenses and other assetsTotal current assetsNoncurrent assets:Deposits held by bond trusteesContributions receivable, netLoans to students, net of allowances of $2,497 and $2,247Deferred bond costs, netTotal investment in plant, netBeneficial interest in perpetual trustsInvestments Other assetsTotal noncurrent assetsJune 30, 2013$ 983,256200,27344,166492,40450,41110,68331,406115,4631,928,062 2,551127,72648,1615,1813,730,764 13,2524,816,961 17,9588,762,554 June 30, 2012$ 1,599,863 256,88226,016383,17367,03810,31730,76994,5622,468,620 2,551117,37547,6936,2413,547,803 12,8913,794,668 23,1477,552,369 Total assetsSee notes to consolidated financial statements.

8 THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONLIABILITIES AND NET ASSETSJUNE 30, 2013 AND 2012(in thousands)

Current liabilities:

Accounts payable and other accrued expensesDeferred revenueLong-term debtPresent value of annuities payableAccrued postretirement benefitsTotal current liabilities Noncurrent liabilities:

Deposits held in custody for othersDeferred revenueLong-term debtPresent value of annuities payableAccrued postretirement benefitsRefundable United States Government student loansOther liabilities Total noncurrent liabilities Total liabilities Net assets:Unrestricted

-Undesignated Designated for specific purposesNet investment in plantTotal unrestricted

-The Pennsylvania State University Noncontrolling interestTotal unrestricted Temporarily restricted Permanently restricted Total net assetsTotal liabilities and net assetsJune 30, 2013$ 660,096264,72743,6505,27651,3901,025,139 50,8046,969961,75836,9791,643,651 45,300210,9192,956,380 3,981,519 June 30, 2012$ 524,705244,10444,6715,53642,470861,48647,5569,4871,108,035 37,6311,822,429 44,478222,8893,292,505 4,153,991 1,6352,757,846 2,246,228 5,005,709 8315,006,540 484,3751,218,182 6,709,097

$10.690.616 1,6172,193,627 2,044,408 4,239,652 7744,240,426 482,2081,144,364 5,866,998

$ 10.020.989 See notes to consolidated financial statements.

9 THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2013(in thousands)

Temporarily Permanently Unrestricted Restricted Restricted Operating revenues and other support:Tuition and fees, net of discounts of $127,987Commonwealth of Pennsylvania

-Appropriations Special contracts Department of General Services projectsUnited States Government grants and contracts Private grants and contracts Gifts and pledgesEndowment spendingOther investment incomeSales and services of educational activities Recovery of indirect costsAuxiliary enterprises Medical Center revenueOther sourcesNet assets released from restrictions Total operating revenues and other supportOperating expenses:

Educational and general -Instruction ResearchPublic serviceAcademic supportStudent servicesInstitutional supportTotal educational and generalAuxiliary enterprises Medical Center expenseTotal operating expensesIncrease/(decrease) in net assets from operating activities Nonoperating activities:

Gifts and pledgesCurrent year investment returnsEndowment appreciation utilizedChanges in funds held by others in perpetuity Write-offs and disposals of assetsNonperiodic change in postretirement benefit planActuarial adjustment on annuities payableIncrease in net assets from nonoperating activities Increase in net assets- The Pennsylvania State University Noncontrolling interest:

Excess of revenues over expensesIncrease in net assets noncontrolling interest$ 1,548,974 272,43165,71249,890503,517182,66174,45471,459100,09466,054153,662378,2901,372,500 15,99876,7834,932,479 1,129,431 806,33382,221327,327167,061376,6022,888,975 347,6061,232,710 4,469,291

$$Total$ 1,548,974 272,43165,71249,890503,51719) rel16,827 91,281--71,459592 100,686--66,054153,662378,2901,372,500

--15,998(76,783)

-(59,3641 4,873,115

--1,129,431 806,33382,221327,327167,061376,6022,888,975 347,6061,232,710 4,469,291 463,188(59,364)403,82456,633(35,180)(2,000)283,416302,869-68,521 68,52162,315 8,103 127.051S- (35.180)424 353 777--(2,000)283,416(1,208) (3,159) (4,36761,531 73,818 438,218766,0572,16773,818842.04257575757Increase in total net assets766,1142,16773,818842,099Net assets at the beginning of the yearNet assets at the end of the year4,240,426 482,208 1.144,364 5,866,998

$ 5,006,540

$ 484,375 $ 1,218,182

$ 6,709,097 See notes to consolidated financial statements.

10 THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012(in thousands)

Temporarily Permanently Unrestricted Restricted Restricted Operating revenues and other support:Tuition and fees, net of discounts of $121,979Commonwealth of Pennsylvania

-Appropriations Special contracts Department of General Services projectsUnited States Government grants and contracts Private grants and contracts Gifts and pledgesEndowment spendingOther investment incomeSales and services of educational activities Recovery of indirect costsAuxiliary enterprises Medical Center revenueOther sourcesNet assets released from restrictions Total operating revenues and other supportOperating expenses:

Educational and general -Instruction ResearchPublic serviceAcademic supportStudent servicesInstitutional supportTotal educational and generalAuxiliary enterprises Medical Center expenseTotal operating expensesIncreasel(decrease) in net assets from operating activities Nonoperating activities:

Gifts and pledgesCurrent year investment returnsEndowment appreciation utilizedChanges in funds held by others in perpetuity Write-offs and disposals of assetsNonperiodic change in postretirement benefit planActuarial adjustment on annuities payable(Decrease)/increase in net assets from nonoperating activities Increase/(decrease) in net assets -The Pennsylvania State University

$ 1,508,843

$261,04667,94928,142476,987173,40180,76570,84359,30360,297151,452377,3751,261,690 28,43855,6694,662.200 1,080,767 756,60887,212304,846158,649277,1472.665,229 387,1201,195,695 4,248,044 9.927553Total$ 1,508,843 261,04667,94928,142476,987173,40190,69270,84359,85660,297151.452377.3751,261,690 28,4384,617,011 (55,669)(45,189)1,080,767 756,60887,212304,846158,649277,1472,665,229 387,1201,195.695 4,248,044 414,15649,555(33,131)(6,407)(295,287)

(285,2701 (45,189)(27,795)37533,6535,1255133.65326,885(33,131)426(6.407)(295,287)

(4,294(278,155) 90,812368.967(558) (3,736)(27,978) 35,093128.886(73.167)35,093Noncontrolling interest:

Excess of revenues over expensesIncrease in net assets noncontrolling interestIncrease/(decrease) in total net assetsNet assets at the beginning of the year8080--80--80128,966(73,167)555,37535,0931,109,271 90,8925,776,106 4,111,460 Net assets at the end of the year$ 4,240,426 See notes to consolidated financial statements.

$ 482,208 $ 1,144,364

$ 5,866,998 11 THE PENNSYLVANIA STATE UNIVERSITY CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED JUNE 30, 2013 AND 2012(in thousands)

June 30, 2013Cash flows from operating activities:

June 30, 2012Increase in net assetsAdjustments to reconcile change in net assets to net cash provided by operating activities:

Actuarial adjustment on annuities payableContributions restricted for long-term investment Interest and dividends restricted for long-term investment Net realized and unrealized gains on long-term investments Depreciation expenseAmortization expense(Gain)/loss on early extinguishment of debtWrite-offs and disposals of assetsContributions of land, buildings and equipment Buildings and equipment provided by Pennsylvania Department of General ServicesContribution to government student loan fundsProvision for bad debtsIncrease in deposits held for othersIncrease in receivables (Increase)/decrease in inventories Decrease/(increase) in prepaid expenses and other assetsIncrease in accounts payable and other accrued expensesIncrease in deferred revenue(Decrease)/increase in accrued postretirement benefitsNet cash provided by operating activities Cash flows from investing activities:

Purchase of land, buildings and equipment Decrease in deposits held by bond trusteesAdvances on student loansCollections on student loansDecrease in investments held under securities lending programDecrease in liability under securities lending programPurchase of investments Proceeds from sale of investments Net cash used in investing activities Cash flows from financing activities:

Contributions restricted for long-term investment Interest and dividends restricted for long-term investment Payments of annuity obligations Proceeds from issuance of bondsBond issuance costsPrincipal payments on notes, bonds and capital leasesProceeds related to government student loan funds, net of collection costsNet cash (used in)/provided by financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the yearCash and cash equivalents at the end of the yearSupplemental disclosures of cash flow information (Note 2)$ 842,099 $ 90,8924,366(100,126)

(61,553)(132,907) 251,407480(213)16,000(14,821)(1,293)15449,433(40,601)(90,238)(503)14,59880,82018,564(169,858) 665,808(434,933)

(9,836)8,3204,294(97,224)(23,206)(37,231)242,5315055676,407(2,755)15457,555(1,563)(44,410)4,821(4,164)125,3538,424385,855716,805(402,654) 57,100(10,482)7,025219,524(219,524)

(34,460,283) 34,056,053 (753,241) 95,93423,206(5,558)26,256(301)(72,864)61167,28430,8481,569,015

$ 1,599,863 (40,907,840) 40,068,438 (1,275,851) 100,12661,553(5,297)(163,604) 658(6,564)(616,607) 1,599,863

$ 983,256See notes to consolidated financial statements.

12 THE PENNSYLVANIA STATE UNIVERSITY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2013 AND 20121. THE UNIVERSITY AND RELATED ENTITIESThe Pennsylvania State University

("the University"),

which was created as an instrumentality of theCommonwealth of Pennsylvania

("the Commonwealth" or "Pennsylvania"),

is organized as a non-profit corporation under the laws of the Commonwealth.

As Pennsylvania's land grant university, the University iscommitted to improving the lives of the people of Pennsylvania, the nation and the world through itsintegrated, tri-part mission of high-quality

teaching, research and outreach.

Basis of Presentation The financial statements of the University

include, on a consolidated basis, the combined financial statements of The Milton S. Hershey Medical Center ("TMSHMC" or "Medical Center"),

a not-for-profit corporation andPenn State Hershey Health System, Inc. ("Health System")

and The Corporation for Penn State and itssubsidiaries

("the Corporation").

See Note 11 for additional information about TMSHMC and the HealthSystem. The Corporation is a non-profit member corporation organized in 1985 for the exclusive purpose ofbenefiting and promoting the interests of the University, the Corporation's sole member. The Corporation's financial statements consist primarily of the assets and revenues of The Pennsylvania College of Technology

("Penn College"),

a wholly-owned subsidiary of the Corporation.

All significant transactions between theUniversity, TMSHMC and the Corporation have been eliminated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Accounting The University's consolidated financial statements are prepared on the accrual basis of accounting inconformity with accounting principles generally accepted in the United States of America (GAAP). TheFinancial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) is the source ofauthoritative GAAP.The University's consolidated financial statements include statements of financial

position, activities and cashflows. In accordance with FASB ASC requirements, net assets and the changes in net assets are classified as permanently restricted, temporarily restricted or unrestricted.

Permanently restricted net assets consist primarily of the historical amounts of endowed gifts. Additionally, contributions receivable and remainder interests, which are required by donors to be permanently

retained, are included at their estimated net present values.Temporarily restricted net assets consist of contributions receivable and remainder interests whose ultimateuse is not permanently restricted.

In addition, the excess of current market value over the historical cost ofpermanently restricted endowments is classified as temporarily restricted net assets.Unrestricted net assets are all the remaining net assets of the University.

Net unrealized losses onpermanently restricted endowment funds for which historical cost exceeds market value are recorded as areduction to unrestricted net assets.Revenue from temporarily restricted sources is reclassified as unrestricted revenue when the circumstances of the restriction have been fulfilled.

Donor-restricted revenues whose restrictions are met within the samefiscal year are reported as unrestricted income.13 Notes to Consolidated Financial Statements Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates andassumptions that affect the reported amounts on the financial statements and the disclosure of contingencies and commitments.

Actual results could differ from those estimates.

Revenue Recognition Tuition revenue is recognized in the fiscal year in which the substantial portion of the educational term occurs.Institutional financial aid provided by the University for tuition and fees is reflected as a reduction of tuition andfee revenue.

Revenues for auxiliary enterprises are recognized as the related goods and services aredelivered and rendered.

Grant revenues are recognized as the eligible grant activities are conducted.

Payments received in advance for tuition, goods and services are deferred.

Unconditional promises to give are recognized as revenues and receivables in the year made and consist ofwritten or oral promises to contribute to the University in the future. Contributions receivable are recorded withthe revenue assigned to the appropriate category of restriction.

The amounts are present valued based ontiming of expected collections.

TMSHMC and Health System have agreements with third-party payors that provide for payments toTMSHMC and Health System at amounts different from their established rates. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges and per diempayments.

Net patient service revenue is reported at the estimated net realizable amounts from patients, third-party payors and others for services

rendered, including estimated retroactive adjustments underreimbursement agreements with third-party payors. In addition, net patient service revenue is net ofprovision for bad debts of $43.6 million and $51.6 million for the years ended June 30, 2013 and 2012,respectively.

Retroactive adjustments are accrued on an estimated basis in the period the related servicesare rendered and adjusted in future periods as final settlements are determined or such estimates change.TMSHMC provides care to patients who meet certain criteria under its charity care policy without charge orat amounts less than established rates. The Medical Center does not pursue collection of amountsdetermined to qualify as charity care; they are not reported as net patient service revenue.

The amounts ofdirect and indirect costs for services and supplies furnished under the Medical Center's charity care policytotaled approximately

$20.0 million and $17.6 million for the years ended June 30, 2013 and 2012,respectively and is based on a ratio of the Medical Center's operational costs to its gross charges.

Theamount of charges foregone for services and supplies furnished under the Medical Center's charity policyduring 2013 and 2012 totaled approximately

$54.9 million and $51.7 million, respectively.

Fair Value of Financial Instruments The University has provided fair value estimates for certain financial instruments in the notes to the financial statements.

Fair value information presented in the financial statements is based on information available atJune 30, 2013 and 2012. The carrying amounts of cash and cash equivalents, accounts receivable andaccounts payable and other accrued expenses approximate fair value because of the terms and relatively short maturity of these financial instruments.

The carrying values of the University's loans to students are alsoreasonable estimates of their fair value, as the total outstanding loans to students as of June 30, 2013 and2012 have been made at the rates available to students for similar loans at such times. Investments arereported at fair value as disclosed in Note 3. The fair value of the University's bonds payable is disclosed inNote 7. See Note 5 for further discussion of fair value measurements.

14 Notes to Consolidated Financial Statements Cash FlowsThe following items are included as supplemental disclosure to the statements of cash flows for the yearsended June 30:(in thousands of dollars) 2013 2012Interest paid $ 46,798 $ 48,569Taxes paid 7 1,500Non-cash acquisitions of land, buildings and equipment 32,723 11,638Capitalized construction costs accrued are $44.8 million and $61.3 million as of June 30, 2013 and 2012,respectively.

Cash and cash equivalents include certain investments in highly liquid instruments with initialmaturities of 90 days or less, except for such assets held by the University's investment managers as part oftheir long-term investment strategies.

Short-term investments include other current investments held forgeneral operating purposes with maturities greater than three months but less than 12 months.Accounts Receivable Accounts receivable, net at June 30 consists of the following:

(in thousands of dollars) 2013 2012Grants and contracts, net of allowance of $1,241 and $1,241 $ 166,963 $ 149,397Patient accounts receivable, net ofallowance of $54,759 and $51,544 173,582 146,034Student receivables, net of allowance of $6,434 and $5,418 33,178 42,805Investment and interest receivable 78,419 16,967Other, net of allowance of $4,540and $4,014 40,262 27,970Total accounts receivable, net 492$404 $ 383173The University maintains allowances for doubtful accounts to reflect management's best estimate of probablelosses inherent in receivable balances.

Management determines the allowances for doubtful accounts basedon known factors, historical experience, and other currently available evidence.

Receivables are written offwhen management determines they will not be collected.

Related to patient accounts receivable associated with services provided to patients who have third-party

coverage, management analyzes contractually due amounts and provides an allowance for doubtful accounts(for example, for expected uncollectible deductibles and copayments or for payors who are known to behaving financial difficulties that make the realization of amounts due unlikely).

For receivables from self-paypatients the Medical Center and Health System records a provision for bad debts in the period of service onthe basis of its past experience, which indicates that many patients are unable or unwilling to pay the portionof their bill for which they are financially responsible.

In estimating the allowance for doubtful

accounts, account age is taken into consideration.

The difference between the standard rates (or the discounted rates ifnegotiated) and the amounts actually collected after all reasonable collection efforts have been exhausted ischarged off against the allowance for doubtful accounts.

Loans to StudentsLoans to students are disbursed to qualified students based on need and include loans granted by theUniversity from institutional resources and under federal government loan programs.

Students have agrace period until repayment is required based upon the earlier of graduation or no longer achieving at leasthalf-time enrollment status. The grace period varies depending on the type of loan. Loans accrue interestafter the grace period and are repaid directly to the University.

Loans to students are uncollateralized andcarry default risk. At June 30, 2013 and 2012, respectively, student loans represent 0.6% of total assets.15 Notes to Consolidated Financial Statements The availability of funds for loans under federal government revolving loan programs is dependent onreimbursements to the pool from repayments of outstanding loans. Funds advanced by the federalgovernment of $45.3 million and $44.5 million at June 30, 2013 and 2012, respectively, are ultimately refundable to the government and are classified as liabilities in the consolidated statements of financial position.

Outstanding loans cancelled under the program result in a reduction of the funds available to loanand a decrease in the liability to the federal government.

At June 30, 2013 and 2012, loans to students consisted of the following:

(in thousands of dollars)20132012Loans to students:

Federal government loan programs:

Perkins loan programHealth Professions Student Loans andLoans for Disadvantaged StudentsFederal government loan programsInstitutional loan programsLess allowance for doubtful accounts:

Balance, beginning of yearProvision for doubtful accountsBalance, end of year42,78919742,98618,93961,925(2,733)(348)(3,081)$ 42,29428542,57918,16460,743(2,753)20(2,733)$ 58.010Loans to students, netAllowances for doubtful accounts are established based on prior collection experience and currenteconomic factors which, in management's

judgment, could influence the ability of loan recipients to repaythe amounts according to the terms of the loan. Further, the University does not evaluate credit quality ofstudent loans receivable after the initial approval of the loan. Loans to students are considered past duewhen payment is not received by the due date, and interest continues to accrue until the loan is paid in fullor written off. When loans to students are deemed uncollectible, an allowance for doubtful accounts isestablished.

The University considers the age of the amounts outstanding in determining the collectability of loans tostudents.

The aging of the loans to students based on days delinquent and the related allowance fordoubtful accounts at June 30, 2013 and 2012 are as follows:30 daysor less(in thousands of dollars)31-60 days 61-90 daysOver91 daysTotal2013Loans to students:

Federal government loanprogramsInstitutional loan programsTotal loans to studentsAllowance for doubtfulaccounts:

Federal government loanprogramsInstitutional loan programsTotal allowance for doubtfulaccountsTotal loans to students, net$ 41,367 $ 656 $ 86 $ 877 $ 42,98618,310 280 23 326 18,93959,677 936 109 1,203 61,925(1,432)(1,649)(3,081)&-5&8-844 16 Notes to Consolidated Financial Statements (in thousands of dollars)30 days Overor less 31-60 days 61-90 days 91 days Total2012Loans to students:

Federal government loanprograms

$ 41,069 $ 506 $ 111 $ 893 $ 42,579Institutional loan programs

-17,781 173 28 182 18,164Total loans to students 58,850 679 139 1,075 60,743Allowance for doubtfulaccounts:

Federal government loanprograms (1,562)Institutional loan programs (1171)Total allowance for doubtfulaccounts (2.733)Total loans to students, netInventories Inventories are stated at the lower of cost or market, generally on the first-in, first-out basis.Investments The University's noncurrent investments represent the University's endowment and other investments held forgeneral operating purposes.

The University's investments are reported at fair value in the accompanying financial statements.

Investments in equity securities with readily determinable fair values and all investments in debt securities are reported at fair values with gains and losses included in the consolidated statements ofactivities.

In the management of investments, the University authorizes certain investment managers topurchase derivative securities to attain a desired market position; and the University may directly invest inderivative securities to attain a desired market position.

The University does not trade or issue derivative financial instruments other than through the investment management practices noted above. The University records derivative securities at fair value with gains and losses reflected in the consolidated statements ofactivities.

The estimated fair value amounts for marketable debt, equity and fixed income securities held by theUniversity have been reviewed by the University and determined using available market information assupplied by the various financial institutions that act as trustees or custodians for the University.

For non-liquid

holdings, generally limited partnership investments in private real estate, venture capital, private equity, naturalresources, and private debt, estimated fair value is determined based upon financial information provided bythe general partner.

This financial information includes assumptions and methods that were reviewed byUniversity management.

The University believes that the estimated fair value is a reasonable estimate ofmarket value as of June 30, 2013 and 2012. Because the limited partnerships are not readily marketable, theestimated value is subject to uncertainty and, therefore, may differ from the value that would have been usedhad a ready market existed, and such differences could be material.

Income on operating investments and income used for the annual distribution under the annual spendingpolicy for endowments are reported in operating revenues within the consolidated statement of activities.

Beneficial Interest in Perpetual TrustsThe University is the beneficiary of certain perpetual trusts held and administered by outside trustees.

The fairvalue of these trust assets has been recorded as permanently restricted net assets and related beneficial interest in perpetual trusts in the consolidated financial statements.

17 Notes to Consolidated Financial Statements Investment in PlantTotal investment in plant as of June 30 is comprised of the following:

(in thousands of dollars)20132012LandBuildings Improvements other than buildings Equipment Total plantLess accumulated depreciation Total investment in plant, net$ 116,0505,043,463 559,8771,100,431 6,819,821 (3,089,057)

$ 3,730,764

$ 115,1274,740,770 534,0291,032,923 6,422,849 (2,875,046)

$ 3,547Z80The value of land, buildings, and equipment is recorded at cost or, if received as gifts, at fair value at date ofgift. The University does not capitalize the cost of library books. Depreciation is computed over the estimated useful lives of the assets using the straight-line method. Useful lives range from 4 to 50 years for buildings, 10to 20 years for improvements other than buildings, and 1 to 20 years for equipment.

Depreciation expensewas $251.4 million and $242.5 million for the fiscal years ended June 30, 2013 and 2012, respectively.

TheUniversity has certain building and equipment lease agreements in effect which are considered capitalleases that are included as long-term debt in the statements of financial position.

These leases have beencapitalized at the lower of fair market value or net present value of the minimum lease payments.

Buildings and equipment held under capital leases are amortized on a straight-line basis over the shorter of the leaseterm or the estimated useful life of the asset. The capitalized cost and accumulated depreciation of theleases at June 30, 2013 and 2012 was $135.5 million and $41.8 million, and $108.3 million and $33.4million, respectively.

Accounts Payable and Other Accrued ExnensesAccounts payable and other accrued expenses at June 30 consist of the following:

(in thousands of dollars)20132012Accounts payable (non-Medical Center)Medical Center accounts payableand other accrued expensesAccrued payroll and other related liabilities Accrued bond interestStudent depositsTotal accounts payable and otheraccrued expenses366,637187,66787,30013,6744,818$ 246,127177,06382,21114,3984,906$ 524.705Asset Retirement Obligations Under ASC 410-20, Asset Retirement and Environmental Obligations

-Asset Retirement Obligations, organizations must accrue for costs related to legal obligations to perform certain activities in connection withretirement,

disposal, or abandonment of assets. The obligation to perform the asset retirement activity is notconditional even though the timing or method may be conditional.

18 Notes to Consolidated Financial Statements The University has identified asbestos abatement and the decommissioning of the Breazeale Nuclear Reactoras conditional asset retirement obligations.

These obligations are reported as part of other noncurrent liabilities within the consolidated statement of financial position.

The following table details the change inliabilities for the years ended June 30:Balance as of June 30, 2011Accretion expenseLiabilities settledBalance as of June 30, 2012Accretion expenseLiabilities settledBalance as of June 30, 2013(in thousands of dollars)$ 60,2705,430(3,766)61,9347,651(4,293)$ -65ý292Annuities PayableAnnuities payable consist of annuity payments currently due and the actuarial amount of annuities payable.The actuarial amount of annuities payable is the present value of the aggregate liability for annuity paymentsover the expected lives of the beneficiaries.

Income TaxesThe University files U.S. federal and state tax returns.

The statute of limitations on the University's federalreturns generally remains open for three years following the year they are filed. In accordance with ASC 740Income Taxes Topic, the University continues to evaluate tax positions and has determined there is nomaterial impact on the University financial statements.

Reclassification Certain 2012 amounts have been reclassified to conform with the 2013 presentation of the nonperiodic change in postretirement benefit plan as a nonoperating activity within the consolidated statement ofactivities.

Operating expenses:

Educational and general -Instruction ResearchPublic serviceAcademic supportStudent servicesInstitutional supportTotal educational and generalNonoperating expenses:

Nonperiodic change inpostretirement benefit planAs previously presented

$ 1,234,581 777,752101,683355,795176,398314,307$ 2,960,516 Updatedpresentation

$ 1,080,767 756,60887,212304,846158,649277,147$ 2,665,229 Chancge$ (153,814)

(21,144)(14,471)(50,949)(17,749)(37,160)$ (295,287)

$(295,287)

$ (295,287) 19 Notes to Consolidated Financial Statements Recent Accounting Pronouncements In September 2011, the FASB issued ASU 2011-08, Intangibles

-Goodwill and Other (Topic 350): TestingGoodwill for Impairment, which permits an entity to first assess qualitative factors to determine whether it ismore likely than not that the fair value of a reporting unit is less than its carrying amount as a basis fordetermining whether it is necessary to perform the two step goodwill impairment test described in Topic350. The guidance provided in this ASU is effective for annual tests performed for fiscal years beginning after December 15, 2011. The adoption of this standard on July 1, 2012 had no impact on financial condition, results of operations or cash flows.In December 2011, the FASB issued ASU 2011-11, "Disclosures About Offsetting Assets and Liabilities."

This guidance contains new disclosure requirements regarding the nature of an entity's rights of setoff andrelated arrangements associated with its financial instruments and derivative instruments.

This guidance iseffective for the University beginning July 1, 2013 and retrospective application is required.

The University does not expect this guidance to have an impact on its consolidated financial statements.

In January 2013,the FASB issued ASU 2013-01, "Clarifying the Scope of Disclosures About Offsetting Assets andLiabilities."

This guidance provides clarification on the scope of the offsetting disclosure requirements inASU 2011-11.

This guidance is effective for the University beginning July 1, 2013 with early adoptionpermitted.

The University does not expect this guidance to have a material impact on its consolidated financial statements.

In October 2012, the FASB issued ASU 2012-05, "Statement of Cash Flows (Topic 230): Not-for-Profit Entities:

Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows."This guidance provides clarification on how entities classify cash receipts arising from the sale of certaindonated financial assets in the statement of cash flows. This guidance is effective for the University beginning July 1, 2013 with early adoption permitted.

The University does not expect this guidance to havea material impact on its consolidated statement of cash flows.In February 2013, the FASB issued ASU 2013-04, "Obligations Resulting From Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date." This guidancerequires entities to measure obligations resulting from the joint and several liability arrangements for whichthe total amount of the obligation within the scope of this guidance is fixed at the reporting date. Thisguidance is effective for the University beginning July 1, 2014 with early adoption permitted.

The University has not yet evaluated the impact this guidance may have on its consolidated financial statements.

In April 2013, the FASB issued ASU 2013-06, "Services Received from Personnel of an Affiliate".

Thisupdate specifies guidance for not-for-profit entities to apply in recognizing and measuring services receivedfrom personnel of an affiliate.

This guidance is effective for the University beginning after June 15, 2014with early adoption permitted.

The University has not yet evaluated the impact this guidance may have onits consolidated financial statements.

3. INVESTMENTS Investments by major category as of June 30 are summarized as follows:(in thousands of dollars) 2013 2012Money markets $ 371,987 $ 251,782Fixed income:U.S. government/agency 1,174,609 1,230,097 U.S. corporate 706,291 639,456Foreign 372,515 219,852Other 146,617 108,140Equities 1,342,487 887,826Private capital 902,728 714,397Total $ 5.017.234

$ 4.051.550 20 Notes to Consolidated Financial Statements Other fixed income investments consist of collateralized mortgage obligations, mortgage-backed securities and asset-backed securities.

Equity investments are comprised of domestic and foreign commonstocks. Private capital consists primarily of interests in private real estate, venture capital, private equity,natural resources, private debt, commodities and hedge fund limited partnerships.

Futures contracts, which are fully cash collateralized, comprise the University's directly held derivative instruments at June 30, 2013 and 2012, respectively, are marked to market daily and are included in the fairvalue of the University's investments.

The fair value of derivative instruments is included in the fair value ofthe University's investments within the money market category.

Futures contracts have minimal credit riskbecause the counterparties are the exchanges themselves.

Fully cash collateralized derivative securities comprised

$270.5 Million, 5.4% of total investments, and $175.0 Million, 4.3% of total investments at June30, 2013 and 2012, respectively.

The University's derivatives consist of S&P 500 and Treasury futures andare employed as a low cost, passive investment vehicle with daily liquidity which allows the University tomaintain desired market exposure in light of irregular cash flows.The following schedules summarize the investment return and its classification in the consolidated statement of activities for the years ended June 30:(in thousands of dollars)

Temporarily Permanently 2013 Unrestricted Restricted Restricted TotalDividends and interest

$ 136,373 $ 592 $ 8,103 $ 145,068Net realized gains 38,563 21,898 -60,461Net unrealized gains 18,070 40,417 58,487Total returns $ 193.006 $ 62.907 $ 8,10 $ 264"016(in thousands of dollars)

Temporarily Permanently 2012 Unrestricted Restricted Restricted TotalDividends and interest

$ 97,015 $ 553 $ 5,125 $ 102,693Net realized gains/(losses) 44,212 (12,172)

-32,040Net unrealized gains/(losses) 5,343 (15,623)

(10,280)Total returns 146,570 $

$ 512 $ 124,4534. ENDOWMENT NET ASSETSThe University's endowment includes both donor-restricted endowment funds and funds designated tofunction as endowments.

As required by GAAP, net assets associated with endowment funds, including funds designated to function as endowments, are classified and reported based on the existence orabsence of donor-imposed restrictions.

The ASC Not-for-Profit Entities Presentation of Financial Statements Subtopic (ASC Subtopic 958-205)provides guidance on the net asset classification of donor-restricted endowment funds for not-for-profit organizations subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act("UPMIFA")

and improves disclosure about an organization's endowment funds regardless of whether theorganization is subject to UPMIFA. The Commonwealth of Pennsylvania has not adopted UPMIFA butrather has enacted Pennsylvania Act 141 ("PA Act 141"). PA Act 141 permits an organization's trustees todefine income as a stipulated percentage of endowment assets (between 2% and 7% of the fair value of theassets averaged over a period of at least three preceding years) without regard to actual interest,

dividend, or realized and unrealized gains.The University has interpreted PA Act 141 to permit the University to spend the earnings of its endowment based on a total return approach, without regard to the fair value of the original gift. As a result of thisinterpretation, the University classifies as permanently restricted net assets the original value of giftsdonated to the permanent endowment, the original value of subsequent gifts to the permanent endowment, and accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. Funds functioning as endowments are established at the direction of University management and are classified as unrestricted net assets due21 Notes to Consolidated Financial Statements to the lack of external donor restrictions.

Gains and losses attributable to permanent endowments arerecorded as temporarily restricted net assets and gains and losses attributable' to funds functioning asendowments are recorded as unrestricted net assets.From time to time, due to unfavorable market fluctuations, the fair value of some assets associated withindividual donor-restricted endowment funds may fall below the level that donors require to be retained as aperpetual fund, while other assets are unaffected to the same extent and maintain or exceed the levelrequired.

The aggregate amount of deficiencies at June 30, 2013 and 2012 was $2.5 million and $4.9million, respectively, reported in unrestricted net assets on the consolidated statement ofactivities.

Subsequent investment gains will be used to restore the balance up to the fair market value ofthe original gift. Subsequent gains above that amount will be recorded as temporarily restricted net assets.Endowment net asset composition by type of fund as of June 30:(in thousands of dollars)2013Donor-restricted endowment fundsFunds functioning asendowments Total net assetsTemporarily Restricted Permanently Restricted Unrestricted Total$ (2,530) $ 338,970 $ 1,067,081

$ 1,403,521 520,622S1,924.143a 520,622$ 518,092(in thousands of dollars)2012Donor-restricted endowment fundsFunds functioning asendowments Total net assetsTemporarily Restricted Permanently Restricted Unrestricted Total$ (4,935) $ 284,539 $ 1,001,580

$ 1,281,184 491,737$ 1.772.921 491,737$ 486,802$ 284.539Changes in endowment net assets for the years ended June 30:(in thousands of dollars)2013Temporarily Restricted Permanently Restricted Unrestricted TotalEndowment net assets,beginning of the yearEndowment return:Endowment earningsNet realized gainsNet unrealized gainsReclassification of fundswith deficiencies Total endowment returnContributions Endowment spendingTransfers to create fundsfunctioning as endowments Endowment net assets,end of the year$ 486,802 $ 284,539 $ 1,001,580 36,27935,18020,8302,40594,694(71,459)8,0558021,35134,900(2,405)53,9265053,6053,60561,896$ 1,772,921 39,96456,53155,730152,22562,401(71,459)8,055$ 1.924.143

$ 1,06,0822 Notes to Consolidated Financial Statements (in thousands of dollars)2012Temporarily Restricted Permanently Restricted Unrestricted TotalEndowment net assets,beginning of the yearEndowment return:Endowment earningsNet realized gains/(losses)

Net unrealized lossesReclassification of fundswith deficiencies Total endowment returnContributions Endowment spendingTransfers to create fundsfunctioning as endowments Endowment net assets,end of the year$ 472,068 $ 314,769 $ 951,006 $ 1,737,843 37,71233,131(4,444)(1,674)64,725(70,843)20,852$ 486.80274(12,229)(20,754)1,674(31,235)1,0053,1093,10947,46540,89520,902(25,198)36,59948,470(70,843)20,852$ 1,772,921

$ 284.539 $ 1,001,580 The University has adopted investment and spending policies for endowment assets that attempt to providea relatively predictable stream of funding to programs supported by its endowment while seeking tomaintain, over time, the purchasing power of the endowment assets. The overall management objective forthe University's pooled endowment funds is to preserve or grow the real (inflation-adjusted) purchasing power of the assets through a prudent long-term investment strategy.

This objective would be achieved ona total return basis. Under these policies, as approved by the Board of Trustees and the Penn StateInvestment

Council, the primary investment objective of the University's pooled endowment is to attain areal total return (net of investment management fees) that at least equals a total annual effective spendingrate of 5.25% (program spending of 4.5% plus administrative costs of 0.75%) over the long term.To satisfy its long-term rate-of-return objectives, the University relies on a total return strategy in whichinvestment returns are achieved through both capital appreciation (realized and unrealized) and currentyield (interest and dividends).

The University targets diversified asset allocation that places a greateremphasis on equity-based investments to achieve its long-term return objectives within prudent riskconstraints.

The endowment assets of the University are invested in a broad range of equities and fixedincome securities, thereby limiting the market risk exposure in any one institution or individual investment.

The University has a policy of appropriating for distribution each year a certain percentage (4.5% for 2013and 2012) of its pooled endowment fund's average fair market value over the prior five years preceding thefiscal year in which the distribution is planned.

Accordingly, over the long term, the University expects thecurrent spending policy to allow its endowment to provide generous current spending while preserving "intergenerational equity".

This is consistent with the University's objective to maintain the purchasing power of the endowment assets held in perpetuity as well as to provide additional real growth through newgifts and investment returns.23 Notes to Consolidated Financial Statements

5. FAIR VALUE MEASUREMENTS The University utilizes the following fair value hierarchy, which prioritizes into three broad levels, the inputsto valuation techniques used to measure fair value:Level 1 -Quoted prices (unadjusted) for identical assets or liabilities in active markets as of themeasurement date. Such instruments valued at Level 1, primarily consist of securities thatare directly held and actively traded in public markets.Level 2 -Inputs other than unadjusted quoted prices that are observable for the asset or liability, directly or indirectly, including quoted prices for similar assets or liabilities in active markets,inputs other than quoted prices that are observable for the asset or liability, and inputs thatare derived from observable market data by correlation or other means. Level 2 measuresinclude University interests in certain debt instruments and commingled investment fundswhich NAV is used as a practical expedient.

These funds are redeemable at NAV as of themeasurement date, generally within 90 days.Level 3 -Unobservable inputs that cannot be corroborated by observable market data. Level 3instruments primarily consist of investment funds for which NAV is used as a practical expedient.

The University does not have the ability to redeem the funds at NAV as of themeasurement date.In instances in which the inputs used to measure fair value fall into different levels of the fair valuehierarchy, the fair value measurement has been determined based on the lowest level input that issignificant to the fair value measurement in its entirety.

The University's assessment of significance of aparticular item to the fair value measurement in its entirety requires

judgment, including consideration ofinputs specific to the asset.24 Notes to Consolidated Financial Statements The following table presents information as of June 30, 2013 about the University's financial assets andliabilities that are measured at fair value on a recurring basis:Quoted Prices inActive MarketsFor Identical AssetsLevel 1Significant OtherObservable InputsLevel 2Significant Unobservable InputsLevel 3(in thousands of dollars)TotalFair ValueAssets:Long-term Investment Pool:Money marketsFixed incomeU.S. government/agency U.S. corporate ForeignOtherEquitiesPrivate capitalTotalOperating investments:

Money marketsFixed incomeU.S. government/agency U.S. corporate ForeignOtherEquitiesPrivate capitalTotalDeposits held by bond trustees:

Fixed incomeU.S. government/agency TotalBeneficial interest in perpetual trustsLiabilities:

Present value of annuities payable$ 86,754 $ 261,667 $84,1684,22960,260822,353$ 1.057.764 29,96783,480174,9858,913373,406307,741$ 1,240,159 63,157588,922$ 652,079$ 23,360 $206 $$ 348,421114,13587,709235,2458,9131,258,916 896,663$ 2,950,002

$ 23,5661,060,474 618,582137,270137,70483,5716,065$ 2.067.232

$ 2,551$ 2,55-1574,41581,470$ 679,245485,921618,582137,270134,890798$ 1.377.667

$ 2,551$ 2.5511382,8141,3036,065$ 10,320$$$ 13,252 $ 13,252$$$ 42,255$ 42,25525 Notes to Consolidated Financial Statements The following table presents information as of June 30, 2012 about theliabilities that are measured at fair value on a recurring basis:University's financial assets andQuoted Prices inActive MarketsFor Identical AssetsLevel 1Significant OtherObservable InputsLevel 2Significant Unobservable InputsLevel 3TotalFair Value(in thousands of dollars)Assets:Long-term Investment Pool:Money marketsFixed incomeU.S. government/agency U.S. corporate ForeignOtherEquitiesPrivate capitalTotalOperating investments:

Money marketsFixed incomeU.S. government/agency U.S. corporate ForeignOtherEquitiesPrivate capitalTotalDeposits held by bond trustees:

Fixed incomeU.S. government/agency TotalBeneficial interest in perpetual trustsLiabilities:

Present value of annuities payable$228,931 $-$ 228,931108,8484,26317,930600,109$ 731,15011,70084,24043,4717,465208,043100,177$ 684,027120,54888,50361,4017,465808,152707,584$ 2,022.584 607,40722,635 $216 $-$ 22,851607,8959,6613,67977,435$ 721,305501,529541,292154,77298,207867$ 1.296,883

$ 2,551$ 2,5511252,4681,3726,813$ 10,7781,109,549 550,953158,451100,67579,6746,813$ 2,028966$ 2,551$ 2,551$$$12,891 $ 12,891$ 43,167$ 43,167The Long-term Investment Pool (LTIP) is a mutual fund-like vehicle used for investing the University's endowment funds, funds functioning as endowments, and other operating funds that are expected to beheld long-term.

A share method of accounting for the LTIP is utilized by the University.

Each participating fund enters into and withdraws from the LTIP based on monthly share values. At June 30, 2013 and 2012,fair value of endowment funds and funds functioning as endowments within the LTIP totaled $1,941.1million and $1,780.6

million, respectively.

At June 30, 2013 and 2012, fair value of operating funds includedin the LTIP totaled $1,008.9 million and $242.0 million, respectively.

26 Notes to Consolidated Financial Statements The following tables present information related to changes in Levelliabilities for year ended June 30, 2013:3 for each category of assets and(in thousands of dollars)Assets:Beginning balanceTotal realized and unrealized gainsPurchases SalesTransfers into (out of) Level 3Ending balanceLiabilities:

Beginning balanceActuarial adjustment of liability GiftsSalesWithdrawal from programEnding balanceLong-term Investment PoolOperating Investments Beneficial Interest inPerpetual Trusts$ 607,407 $ 10,778 $ 12,89160,065165,678(135,294)

(45,777)$ 652,079Present Valueof Annuities Payable$ 43,1674,679642(6,233)$ 42,255(388)75(145)$ 10.320361The following tables present information related toliabilities for year ended June 30, 2012:changes in Level 3 for each category of assets andInvestments Held UnderSecurities Lending(in thousands of dollars)Assets:Beginning balanceTotal realized and unrealized gainsPurchases SalesTransfers into Level 3Ending balanceLiabilities:

Beginning balanceActuarial adjustment of liability GiftsSalesWithdrawal from programEnding balanceLong-term Investment PoolOperating Investments Beneficial Interest inPerpetual Trusts$ 520,605 $ 9,245 $22,361133,811(69,370)$ 607,407Present Valueof Annuities Payable$ 44,425(1,860)722(120)1,150417(36)2$ 10,778Liability UnderSecurities Lending$ 219,524(219,524) 219,524 $ 12,84348(219,524)

$ 12,891For the year ended June 30, 2013, $45.8 million of Level 3 assets were transferred to Level 2 as a result ofthe expiration of lock-up periods for two marketable alternative funds; now these investments may beredeemed within 90 days of June 30.There were no transfers of investments between Level 1 and Level 2 in 2013 and 2012.27 Notes to Consolidated Financial Statements The following table presents the fair value and redemption frequency for those investments whose fair value isnot readily determinable and is estimated using the net asset value per share or its equivalent as of June 30,2013:UnfundedFair Value Commitment (in thousands of dollars)Commingled Funds:Non-U.S.

EquitySubtotalMarketable Investment Partnerships:

Absolute ReturnPrivate Debt/Distressed Commodities Opportunistic Directional Long/Short SubtotalNon-Marketable Investment Partnerships:

Private Real EstateVenture CapitalPrivate EquityNatural Resources Private DebtSubtotal$ 362,061$ 362,061$ 20,17352,15284,271140,18127,580$ 324,357$ 88,567144,712234,20391,30619,583$ 578,371Redemption Frequency Quarterly/

Daily/Monthly Quarterly Quarterly/

Semi AnnualMonthlyQuarterly Quarterly Redemption Notice Period5-90 days65 days60-90 days30-60 days30 days30-90 days$ 19,78883,095141,60669,80920,031$ 334,329Total $ 1,264,789

$ 33432The following table presents the fair value and redemption frequency for those investments whose fair value isnot readily determinable and is estimated using the net asset value per share or its equivalent as of June 30,2012:UnfundedFair Value Commitment (in thousands of dollars)Commingled Funds:Non-U.S.

EquitySubtotalMarketable Investment Partnerships:

Absolute ReturnPrivate Debt/Distressed Opportunistic Directional Long/Short SubtotalNon-Marketable Investment Partnerships:

Private Real EstateVenture CapitalPrivate EquityNatural Resources Private DebtSubtotal$ 148,068$ 148,068$ 20,73860,10125,03469,324$ 175,197$ 86,567129,354229,76674,78212,656$ 533,125$ 856,390Redemption Frequency Daily/Monthly Quarterly Quarterly/

Semi AnnualQuarterly Quarterly Redemption Notice Period5-15 days65 days60-90 days30 days30-90 days$ 22,40792,91180,80833,36415,700$ 245,190$ 245,19Total28 Notes to Consolidated Financial Statements Commingled funds include investments that aggregate assets from multiple investors and are managedcollectively following a prescribed strategy.

Redemptions vary from daily to quarterly with requirednotification of 90 days or less. The non-U.S.

equity strategy is invested in developed and developing countries outside of the United States, and spans the entire equity capitalization spectrum.

These collective portfolios preclude the need to obtain securities registration in foreign countries.

During the last fiscal year,one commingled fund was added with a 3 year gate, approximately 17.4% of commingled.

Marketable Investment Funds include several hedge funds whose underlying positions are traded via publicsecurities markets.

Liquidity terms range from quarterly to annually with advance notification for redemption ranging from 30 to 90 days. The fair values of the investments for each fund in this category have beenestimated using the net asset value of the Long Term Investment Pool's share holdings in the fund. Fivemajor investment strategies are included within this category.

Absolute Return refers to relative valuestrategies.

Directional refers to equity long/short strategies in both U.S. and non-U.S.

markets.

Opportunistic refers to global multi-strategy.

Private Debt/Distressed refers to securities rated below investment grade,along with non-rated debt. Commodities refer to publicly traded commodity instruments primarily including futures and options.Nonmarketable Investment Partnerships include limited partnership interests in a variety of illiquidinvestments.

The fair values of the investments for each fund in this category have been estimated using thenet asset value of the Endowment's ownership interest in partner's capital and cannot be redeemed.

Realizations from each fund are received as the underlying investments are liquidated or distributed, typically within 10 years after initial commitment.

Unfunded commitments represent remaining commitments of theEndowments drawdown funds as of June 30, 2013 and 2012, respectively.

Five major investment strategies are included within this category.

Private Real Estate includes properties primarily located in the U.S. VentureCapital includes non-public startups and enterprises in early stages of growth located globally.

Private Equityincludes buyouts of previously public companies as well as enterprises that are planning to go public in thenear future, including funds focusing on opportunities outside the U.S. Natural Resources largely includecompanies primarily involved in oil and natural gas in addition to a variety of other natural resources.

PrivateDebt includes global private credit securities rated below investment grade as well as non-rated debt.6. CONTRIBUTIONS RECEIVABLE Contributions receivable are summarized as follows as of June 30:(in thousands of dollars) 2013 2012In one year or less $ 57,002 $ 75,753Between one year and five years 63,742 53,998More than five years 119,990 118,130240,734 247,881Less allowance (5,704) (7,739)Less discount (56,893)

(55,729)Contributions receivable, net $ 178,137 $s 84,41aContributions receivable are discounted at rates ranging from 0.15% to 2.87% and 0.21% to 2.06% at June30, 2013 and 2012, respectively.

The discount rates for prior periods ranged from 0.19% to 6.28%.At June 30, 2013 and 2012, the University has received bequest intentions and certain other conditional promises to give of $85.8 million and $69.0 million, respectively.

These intentions and conditional promises togive are not included in the consolidated financial statements.

29 Notes to Consolidated Financial Statements The following table summarizes the change in contributions receivable, net during the year ended June 30,2013:Balance beginning of yearNew pledgesCollections on pledgesDecrease in allowance Increase in unamortized discounts Balance at the end of year(in thousands of dollars)$ 184,41381,477(88,624)2,035(1,164)$ 178,1377. LONG-TERM DEBTThe various bond issues and capital lease obligations that are included in long-term debt in the statements offinancial position consist of the following at June 30:(in thousands of dollars)20132012The Pennsylvania State University BondsSeries 2010Series 2009ASeries 2009BSeries 2008ASeries 2008BSeries 2007ASeries 2007BSeries 2005Series 2004ARefunding Series 2003Series of 2002Refunding Series 2002Pennsylvania Higher Educational Facilities Authority University Revenue Bonds(issued for The Pennsylvania StateUniversity)

Series 2006Series 2004Series 2002Lycoming County Authority CollegeRevenue Bonds (issued for Penn College)Series 2012Series 2011Series 2008Series 2005Series 1993$ 135,035114,07574,23577,6703,98088,12563,51585,70052,83541,655$135,035120,07574,23577,6704,89088,64566,25587,66554,13515,890100,00056,5403,5453,9054,0203,7454,1454,37524,68539,05055,00011,0855,25024,68539,05055,00012,0207,000Total bonds payableUnamortized bond premiumsCapital lease obligations 883,36538,0081,031,055 41,31784,035$ 1,005,408 80,334$ 1.152.706 Total long-term debt30 Notes to Consolidated Financial Statements Interest ratemodeDebt issuanceInterest ratesPayment ranges and maturity(in thousands of dollars)The Pennsylvania State University BondsSeries 2010Series 2009ASeries 2009BSeries 2008ASeries 2008BFixedFixedVariableFixedFixed3.375% -5.00%4.00% -5.00%0.22%5.00%3.50% -3.75%$3,655 to $6,595 through March 2030with $21,805 and $44,245 due March2035 and 2040$6,235 to $9,320 through March 2029June 2031$1,840 to $7,695 through August 2029$945 to $1,050 through August 2016$530 to $700 through August 2022, with$11,115 and $70,905 due August 2028Series 2007A Fixed 3.65% -4.50% and 2036Series 2007B Fixed 5.00% -5.25% $2,885 to $5,955 through August 2027$2,050 to $2,745 through September 2019 with $15,990,

$20,550, and $32,485Series 2005 Fixed 3.50% -5.00% due September 2024, 2029, and 2035$1,360 to $1,825 through September 2019, with $10,625,

$13,635, and $17,515Series 2004A Fixed 4.50% -5.00% due September 2024, 2029, and 2034Refunding Series 2003 Fixed Paid in full during May 2013Series of 2002 Variable Paid in full during December 2012Refunding Series 2002 Fixed 5.25% $4,585 to $16,540 through August 2016Pennsylvania Higher Education Facilities Authority

("PHEFA")

University Revenue Bonds$210 to $280 through 2020, with $1,610Series 2006 Fixed 4.00% -5.125%* due September 2025$250 to $325 through 2019, with $1,905Series 2004 Fixed 4.15% -5.00%* due September 2024$370 to $425 due through 2017,Series 2002 Fixed 4.30% -5.00%* with $2,435 due March 2022* Annual interest costs to the University for interest rates greater than 3.00% are subsidized by PHEFA.Lycoming County Authority College Revenue BondsSeries 2012 Fixed 2.00% -5.00% $410 to $2,635 through May 2032Series 2011 Fixed 3.00% -5.50% $70 to $5,230 through July 2030Series 2008 Fixed 3.50% -5.50% $1,455 to $4,140 through October 2037Series 2005 Fixed 4.00% -5.00% $505 to $1,855 through January 2025Series 1993 Fixed 6.10% -6.15% $450 to $513 through November 2015The Series 2009B Bonds are currently paying interest on a variable rate basis at a long term rate for the periodJune 1, 2013 through May 31, 2014. The University has the option to convert to another variable rate (daily,weekly, monthly or flexible) or to a fixed rate basis (such rates are generally determined on a market basis) atrespective conversion dates. The bonds currently pay interest at 0.22% with adjustment on the respective dateto the rate the remarketing agent believes will cause the bonds to have a market value equal to the principal.

The 2009B bondholders have the right to tender bonds on the purchase dates while such bonds bear interest atthe daily, weekly or monthly rate. The 2009B Bonds were issued subject to the self-liquidity programestablished by the University on the date of issuance pursuant to which the University will provide liquidity for the2009B Bonds from its general funds in the event of insufficient remarketing proceeds.

31 Notes to Consolidated Financial Statements Maturities and sinking fund requirements on bonds payable for each of the next five fiscal years and thereafter are summarized as follows:Year20142015201620172018Thereafter AnnualInstallments (in thousands of dollars)$ 33,30535,33024,32028,78024,455737,175The fair value of the University's bonds payable is estimated based on current rates offered for similar issueswith similar security, terms and maturities using available market information as supplied by the various financial institutions who act as trustees or custodians for the University.

At June 30, 2013, the carrying value andestimated fair value of the University's bonds payable, including issuance

premiums, are $921.4 million and$939.4 million, respectively.

At June 30, 2012, the carrying value and estimated fair value of the University's bonds payable, including issuance

premiums, were $1,072.4 million and $1,118.5

million, respectively.

Certainbond issues have associated issuance

premiums, these issuance premiums total $38.0 million and $41.3 millionat June 30, 2013 and 2012, respectively and are presented within the statement of financial position as long-term debt. These issuance premiums will be amortized over the term of the respective outstanding bonds.Capital leasesThe University has certain building and equipment lease agreements in effect which are considered capitalleases. Future minimum lease payments under capital leases together with the present value of the netminimum lease payments as of June 30, 2013 are as follows:Year20142015201620172018Thereafter Total minimum lease paymentsLess imputed interestCapital lease obligation Current portionLong-term portion(in thousands of dollars)$ 13,18812,01811,03310,1948,819140,557195,809(111,774) 84,0357,763$ 76,27232 Notes to Consolidated Financial Statements

8. OPERATING LEASESThe University has certain lease agreements in effect which are considered operating leases. During the yearended June 30, 2013, the University recorded expenses of $22.0 million for leased equipment and $22.6million for leased building space. During the year ended June 30, 2012, the University recorded expenses of$19.0 million for leased equipment and $23.6 million for leased building space.Future minimum lease payments under operating leases as of June 30, 2013 are as follows:Year (in thousands of dollars)2014 $ 20,1112015 17,3332016 14,0862017 11,1182018 8,486Thereafter 41,328Total minimum lease payments

$ 124629. RETIREMENT BENEFITSThe University provides retirement benefits for substantially all regular employees, primarily through eithercontributory defined benefit plans administered by the Commonwealth of Pennsylvania State Employees' Retirement System and The Public School Employees' Retirement System or defined contribution plansadministered by the Teachers Insurance and Annuity Association

-College Retirement Equity Fund andFidelity Investments.

The University is billed for its share of the estimated actuarial cost of the defined benefitplans ($35.9 million and $25.1 million for the years ended June 30, 2013 and 2012, respectively).

TheUniversity's total cost for retirement

benefits, included in expenses, is $146.6 million and $130.9 million for theyears ended June 30, 2013 and 2012, respectively.

10. POSTRETIREMENT BENEFITSThe University sponsors a retiree medical plan covering eligible retirees and eligible dependents.

Thisprogram includes a Preferred Provider Organization

("PPO") plan for retirees and their dependents who arenot eligible for Medicare, a Medicare Advantage PPO plan and a Medicare Supplement plan. In addition, the University provides retiree life insurance benefits at no cost to the retiree.Employees who were hired prior to January 1, 2010 are eligible for medical coverage and life insurance after they retire if either of the following requirements are satisfied:

• they are at least age 60 and have at least 15 years of regular full-time employment and participation in a University-sponsored medical plan immediately preceding the retirement date* regardless of age, if they have at least 25 years of regular full-time service.

The last 10 of those 25years of University service must be continuous and they must participate in a University

-sponsored medical plan during the last 10 years immediately preceding the retirement date.The retiree PPO medical plan and the life insurance coverage are self-funded

programs, and all medicalclaims, death benefits and other expenses are paid from the unrestricted net assets of the University.

TheMedicare Advantage PPO plan and the Medicare Supplement plan are fully insured.

The retirees payvarying amounts for coverage under the medical plan.For those employees who were hired after December 31, 2009, the University will contribute funds eachmonth on their behalf to a retirement healthcare savings plan. This plan is designed to help pay forqualified medical and health-related expenses in retirement, including the purchase of a health insurance policy.33 Notes to Consolidated Financial Statements Retirees will be eligible to access their Penn State Retirement Savings Account when they are no longeractively employed at Penn State and have satisfied either of the following requirements:

" completed 25 years of continuous full-time service and are age 60 or older* completed a minimum of 15 years of continuous full-time service and are age 65 or older.Included in unrestricted net assets at June 30, 2013 and 2012 are the following amounts that have not yetbeen recognized in net periodic postretirement cost: unrecognized prior service cost (benefit) of ($86.3) millionand ($108.0) million and unrecognized actuarial loss of $547.6 million and $852.7 million, respectively.

The following sets forth the plan's benefit obligation, plan assets and funded status reconciled with theamounts recognized in the University's consolidated statements of financial position at June 30:Change in benefit obligation:

(in thousands of dollars)20132012Benefit obligation at beginning of yearService costInterest costActuarial gainBenefits paidPlan assumptions Benefit obligation at end of year$ 1,864,899 56,19477,943(95,754)(43,840)(164,401)

$ 1,479,043 45,12480,779(15,784)(42,813)318,550$ 1,864,899 Change in plan assets:(in thousands of dollars)20132012Fair value of plan assets at beginning of yearEmployer contributions Benefits paidFair value of plan assets at end of yearFunded statusUnrecognized prior service cost (benefit)

Unrecognized net actuarial lossAccrued postretirement benefit expenseNet periodic postretirement cost includes the following (in thousands of dollars)$43,840-(41,841)$ (1,695,041)

$42,813(42,813)$ (1,864,899)

$ (1,695,041)

$ (1,864.899) components for the years ended June 30:20132012Service costInterest costAmortization of prior service costAmortization of unrecognized net lossNet periodic postretirement cost$ 56,19477,943(21,699)44,960$ 157,398$ 45,12480,779(21,699)29,178$ 113338The assumed healthcare cost trend rate used in measuring the accumulated postretirement benefit obligation was 8.00% and 8.50% for the years ended June 30, 2013 and 2012, respectively, reduced by 0.50% per yearto a fixed level of 5.00%. The weighted average postretirement benefit obligation discount rate was 5.00%and 4.50% for the years ended June 30, 2013 and 2012, respectively.

If the healthcare cost trend rate assumptions were increased by 1% in each year, the accumulated postretirement benefit obligation would be increased by $318.1 million and $595.2 million as of June 30, 2013and 2012, respectively.

The effect of this change on the sum of the service cost and interest cost components of the net periodic postretirement benefit cost would be an increase of $32.3 million and $42.2 million as ofJune 30, 2013 and 2012, respectively.

If the healthcare cost trend rate assumptions were decreased by 1% in34 Notes to Consolidated Financial Statements each year, the accumulated postretirement benefit obligation would be decreased by $256.6 million and$327.0 million as of June 30, 2013 and 2012, respectively.

The effect of this change on the sum of the servicecost and interest cost components of the net periodic postretirement benefit cost would be a decrease of$24.5 million and $23.1 million as of June 30, 2013 and 2012, respectively.

Gains and losses in excess of 10% of the accumulated postretirement benefit obligation are amortized overthe average future service to assumed retirement of active participants.

Postretirement benefits expected to be paid for the years ended June 30 are as follows:(in thousands of dollars)2014 $ 51,3902015 55,3122016 59,5172017 63,9452018 68,1982019-23 408,96611. THE MILTON S. HERSHEY MEDICAL CENTER AND PENN STATE HERSHEY HEALTH SYSTEMThe University's wholly-owned subsidiary, TMSHMC, owns the assets of the clinical enterprise of theHershey Medical Center complex.

The University owns the Hershey Medical Center complex, including allbuildings and land occupied by the Medical Center and operates the College of Medicine.

The clinicalfacilities of the Hershey Medical Center complex are leased to TMSHMC and TMSHMC makes certainpayments to support the College of Medicine.

The Health System is a corporate investor in healthcare joint ventures, which are supportive of the missionsof the Medical Center. The Health System was organized in 1995 as a wholly-owned subsidiary of theCorporation for the purpose of organizing components of an integrated health care delivery system. TheHealth System recorded non-controlling interest related to the acquisition of additional ownership interest ina joint venture.

This noncontrolling interest is recorded in the net assets within the consolidated statements of financial position with a value at June 30, 2013 and 2012 of $831,000 and $774,000, respectively.

12. CONTINGENCIES AND COMMITMENTS Contractual Obligations The University has contractual obligations for the construction of new buildings and for additions to existingbuildings in the amount of $775.1 million of which $651.4 million has been paid or accrued as of June 30,2013. The contract costs are being financed from available resources and from borrowings.

Letters of CreditThe University has available letters of credit in the amount of $20.5 million and $18.2 million as of June 30,2013 and 2012, respectively.

These letters of credit are used primarily to comply with minimum state andfederal regulatory laws that govern various University activities.

The fair value of these letters of creditapproximates contract values based on the nature of the fee arrangements with the issuing banks.Guarantees The University has a contract with a third party whereby the third party acts as an agent of the University inconnection with procurement of electricity.

The University guarantees the payment of the obligations of thethird party incurred on behalf of the University to counterparties.

No liabilities related to guarantees have beenrecorded as of June 30, 2013.35 Notes to Consolidated Financial Statements Self-Insurance The University has a coordinated program of commercial and self-insurance for medical malpractice claims atTMSHMC through the use of a qualified trust and a domestic captive insurance company in combination witha self-insured retention layer and is supplementing this program through participation in the Pennsylvania Medical Care Availability and Reduction of Error Fund ("Mcare Fund"), in accordance with Pennsylvania law.An estimate of the present value, discounted at 2% for the years ended June 30, 2013 and 2012, respectively, of the medical malpractice claims liability in the amount of $96.7 million and $101.1 million is recorded as ofJune 30, 2013 and 2012, respectively.

On July 1, 2003, TMSHMC became self-insured for all medical malpractice claims asserted on or after July 1,2003, for all amounts that are below the coverage of the TMSHMC's excess insurance policies and notincluded in the insurance coverage of the Mcare Fund. Under the self-insurance

program, TMSHMC isrequired to maintain a malpractice trust fund in an amount at least equal to the expected loss of known claims.The balance of this trust fund was $20.7 million and $21.3 million at June 30, 2013 and 2012, respectively.

TMSHMC intends to fund any claims due during the next year from cash flows from operations.

With approval from the Pennsylvania Department of Labor and Industry

("PA-DLI"),

the University elected toself-insure potential obligations applicable to workers' compensation.

Certain claims under the program arecontractually administered by a private agency. The University purchased insurance coverage for excessobligations over $600,000 per incident.

An estimate of the self-insured workers' compensation claims liability in the amount of $10.9 million and $12.4 million, discounted at 1.25%, is recorded as of June 30, 2013 and2012, respectively.

The University has established a trust fund, in the amount of $12.7 million at June 30,2013 and 2012, respectively, as required by PA-DLI, to provide for the payment of claims under this self-insurance program.

TMSHMC is self-insured for workers' compensation claims and has purchased an excesspolicy through a commercial insurer which covers individual claims in excess of $500,000 per incident forworkers' compensation claims.The University and TMSHMC are self-insured for certain health care benefits provided to employees.

TheUniversity and TMSHMC have purchased excess policies which cover employee health benefit claims inexcess of $500,000 and $350,000 per employee per year, respectively.

The University and TMSHMC providefor reported claims and claims incurred but not reported.

Litigation and Contingencies In November 2011, the University was made aware of certain allegations in a Commonwealth ofPennsylvania Grand Jury presentment.

Various legal proceedings and investigations have arisen as aresult of such allegations, including criminal proceedings against former officers and employees of theUniversity.

Certain claims and civil litigation have been filed against the University with anticipation thatother complaints could be filed. At June 30, 2013, the University has accrued $59.7 million for 26 of 32known claims, 24 of which have been settled subsequent to June 30, 2013. Such costs are included ininstitutional support within the consolidated statement of activities.

Of the remaining six claims, two havebeen deemed to have no merit through the due diligence process.

Without having knowledge of thenumber and nature of unknown claims and in view of the inherent difficulty of predicting the outcome of ourremaining four known claims, each with their own unique circumstances that give rise to their allegedclaims, and given the various stages of the proceedings, we are unable to predict the outcome of thesematters or the ultimate legal and financial liability, and at this time cannot reasonably estimate the possibleloss or range of loss. Accordingly, no amounts have been accrued in the 2013 financial statements forthese claims although a loss is reasonably possible in future periods which could have a material adverseeffect on our current and future financial

position, results of operations and cash flows.For the years ended June 30, 2013 and 2012, the University has incurred costs, net of insurance reimbursements totaling

$17.3 and $16.1 million, respectively, for internal investigation, legal,communications and other related costs. These costs are included in institutional support within theconsolidated statement of activities.

Insurance reimbursements for the years ended June 30, 2013 and2012 totaled $249,000 and $153,000, respectively.

Amounts paid directly by insurance carriers for theyears ended June 30, 2013 and 2012 totaled $2,994,000 and $626,000, respectively.

36 Notes to Consolidated Financial Statements The University has submitted claims to insurance carriers at June 30, 2013 related to the claims settled andcertain legal costs incurred to date. Amounts of future insurance reimbursement are unknown as of June30, 2013 and as a result no insurance recovery accruals have been recorded in the 2013 financial statements.

Based on its operation of the Medical Center (see Note 11), the University, like the rest of the healthcare

industry, is subject to numerous laws and regulations of federal, state and local governments.

Compliance with these laws and regulations can be subject to government review and interpretation, as well as regulatory actions.

Recently, government reviews of healthcare providers for compliance with regulations haveincreased.

Although the University believes it has done its best to comply with these numerous regulations, such government reviews could result in significant repayments of previously billed and collected revenuesfrom patient services.

Various other legal proceedings have arisen in the normal course of conducting University business.

Theoutcome of such litigation is not expected to have a material effect on the financial position of the University.

13. SUBSEQUENT EVENTSThe University has evaluated subsequent events through November 1, 2013, the date on which theconsolidated financial statements were issued. It did not identify any subsequent events to be disclosed otherthan those below or previously noted.On July 12, 2013, the University received a preliminary report from the U.S. Department of Education basedon the program review of the University's compliance with the Clery Act, a federal law related to campussafety. The Department of Education will make a final program review determination after the process iscomplete.

The outcome and financial impacts of the program review are unknown as of the date theconsolidated financial statements were issued..37

THE PENNSYLVANIA STATE UNIVERSITY BOARD OF TRUSTEESas of June 30, 2013APPOINTED BY THE GOVERNORALVIN H. CLEMENSSenior PartnerAgility-Partners LLCMARK H. DAMBLYPresident Pennrose Properties, LLCPETER A. KHOURYGraduate StudentThe Pennsylvania State University IRA M. LUBERTChairman and Co-founder Independence Capital Partners andLubert Adler Partners L.P.PAUL H. SILVISHead CoachSilcoTekMEMBERSEX OFFICIOTHOMAS W. CORBETT JR.GovernorCommonwealth of Pennsylvania*

RODNEY A. ERICKSONPresident The Pennsylvania State University GEORGE D. GREIGSecretary Pennsylvania Department of Agriculture RICHARD J. ALLANSecretary Pennsylvania Department ofConservation and Natural Resources RONALD J. TOMALISSecretary Pennsylvania Department of Education

• JENNIFER BRANSTETTER Governor's Non-Voting Representative Director of Policy and PlanningOffice of the GovernorELECTED BY BOARD REPRESENTING BUSINESS AND INDUSTRYJAMES S. BROADHURST ChairmanEat'n Park Hospitality Group, Incorporated KENNETH C. FRAZIERChairman, President

& Chief Executive OfficerMerck & Company, Incorporated EDWARD R. HINTZ, JR.President Hintz Capital Management, Incorporated KAREN B. PEETZVice Chairman, CEO of Financial Markets andTreasury

Services, Bank of New York MellonLINDA B. STRUMPFRetired Chief Investment OfficerThe Helmsley Charitable TrustJOHN P. SURMAChairman and Chief Executive OfficerUnited States Steel Corporation ELECTED BY DELEGATES FROMAGRICULTURAL SOCIETIES DONALD G. COTNERPresident Cotner Farms, Inc.KEITH W. ECKELSole Proprietor and President Fred W. Eckel and Sons Farms, Incorporated SAMUEL E. HAYES, JR.BETSY E. HUBERImmediate Past Master, Pennsylvania State GrangeKEITH E. MASSERChairman

& Chief Executive OfficerSterman Masser, Incorporated ELECTEDBY ALUMNIMARIANNE E. ALEXANDER President Emerita of thePublic Leadership Education NetworkH. JESSE ARNELLEAttomeySTEPHANIE N. DEVINEYAttorney at LawFox Rothschild LLPANTHONY P. LUBRANOPresident, A.P. Lubrano & Company, Inc.RYAN J. MCCOMBIERetired, United States NavyJOEL N. MYERSPresident AccuWeather, Incorporated PAUL V. SUHEYOrthopedic SurgeonMartin & Suhey Orthopedics ADAM J. TALIAFERRO Healthcere Alliance LiaisonBristol Myers SquibbCARL T. SHAFFERPresident Pennsylvania Farm BureauEMERITI TRUSTEESCYNTHIA A. BALDWINRetired JusticeSupreme Court of Pennsylvania CHARLES C. BROSIUSRetired President Mariboro Mushrooms WALTER J. CONTIRetired OwnerCross Keys Inn/Pipersville InnDONALD M. COOK, JR.Retired President SEMCOR, Incorporated MARIAN U. BARASH COPPERSMITH Retired Chairman of the BoardThe Barash GroupROBERT M. FREYAttomey-at-Law Frey & Tiley, P.C.STEVE A. GARBANSenior Vice President for Financeand Operations/Treasurer EmeritusThe Pennsylvania State University EDWARD P. JUNKER IlIRetired Vice ChairmanPNC Bank Corporation ROGER A. MADIGANRetired State Senator23rd Senatorial DistrictROBERT D. METZGARFormer President North Penn Pipe & Supply. Incorporated ANNE RILEYTeacherBARRY K. ROBINSONChief Counsel for Economic AffairsU.S. Department of CommerceL J. ROWELL, JR.Retired Chairman andChief Executive OfficerProvident Mutual Life Insurance CECILE M. SPRINGERPresident, Springer Associates HELEN D. WISEFormer Deputy Chief of Staff forPrograms and Secretary of the CabinetGovemor's OfficeBOYD E. WOLFFRetired, Owner and OperatorWolfden FarmsQUENTIN E. WOODRetired Chairman of the Board andChief Executive OfficerQuaker State Corporation EDWARD P. ZEMPRELLI Attorney This publication is available In alternative media on request.The Pennsylvania State University is committed to the policy that all persons shall have equal access to programs, facilities, admission and employment without regard to personal characteristics not related to ability, performance, or qualifications as determined by University policy or by state or federalauthorities.

It is the policy of the University to maintain an academic and work environment free of discrimination, including harassment.

ThePennsylvania State University prohibits discrimination, harassment against any person because of age, ancestry, color, disability or handicap, geneticinformation, national origin, race, religious creed, sex, sexual orientation, gender identity or veteran status and retaliation against faculty, staff or studentswill not be tolerated at The Pennsylvania State University.

Direct all inquiries regarding the nondiscrimination policy to the Affirmative Action Office, ThePennsylvania State University, 328 Boucke Building, University Park, PA 16802-5901, Tel (814) 865-4700N, (814) 863-0471/TTY.