CONSOLIDATED FINANCIAL STATEMENTS. JUNE 30, 2013 and 2012 INDEPENDENT AUDITOR'S REPORTS

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1 CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 and 2012 WITH INDEPENDENT AUDITOR'S REPORTS

2 CONTENTS Independent Auditor's Report... 1 Consolidated Statements of Financial Position as of June 30, 2013 and Consolidated Statement of Activities for the year ended June 30, Consolidated Statement of Activities for the year ended June 30, Consolidated Statements of Cash Flows for the years ended June 30, 2013 and Notes to Consolidated Financial Statements... 7

3 INDEPENDENT AUDITOR'S REPORT To the Board of Trustees The University of Tulsa Report on the Financial Statements We have audited the accompanying consolidated financial statements of The University of Tulsa (the University), which comprise the consolidated statements of financial position as of June 30, 2013 and 2012, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the 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 United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness 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 a basis for our audit opinion S. Utica Place, Suite 200, Tulsa, OK P F

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the University as of June 30, 2013 and 2012, and the changes in its consolidated net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. October 8,

5 THE UNIVERSITY OF TULSA CONSOLIDATED STATEMENTS OF FINANCIAL POSITION June 30, 2013 and 2012 (dollars in thousands) Assets Current assets: 1 Cash and cash equivalents $ 19,222 $ 30,098 2 Accounts receivable, net 12,401 10,942 3 Deposits with bond trustee, current portion 2,389 2,272 4 Inventories Prepaid expenses and deferred charges 2,806 2,774 6 Contributions receivable, current portion, net 12,668 19,042 Total current assets 49,869 65,621 7 Contributions receivable, net 11,606 23,069 8 Student loans receivable, net 7,139 6,675 9 Investments 406, , Deferred bond issue costs 902 1, Deposits with bond trustee 13,569 13, Educational plant, net 349, , Beneficial interest in funds held in trust by others 498, , Total assets $ 1,337,530 $ 1,256,041 Liabilities and Net Assets Current liabilities: 15 Accounts payable $ 7,380 $ 6, Accrued expenses 9,069 8, Notes and mortgages payable, current portion 6,523 6, Deposits payable 834 1, Deferred revenue 9,473 7, Advances under grants and contracts 10,656 9, Bonds payable, current portion 4,710 4, Postretirement benefit obligation, current portion Total current liabilities 48,947 44, Notes and mortgages payable 8,890 9, Advances under federal loan programs 6,598 6, Bonds payable 124, , Postretirement benefit obligation 7,617 7, Other long-term liabilities 3,202 3, Total liabilities 199, ,641 Net assets: 29 Unrestricted 211, , Temporarily restricted 192, , Permanently restricted 733, , Total net assets 1,138,034 1,055, Total liabilities and net assets $ 1,337,530 $ 1,256,041 See notes to consolidated financial statements. 3

6 THE UNIVERSITY OF TULSA CONSOLIDATED STATEMENT OF ACTIVITIES Year ended June 30, 2013 (with comparative totals for the year ended June 30, 2012) (dollars in thousands) Temporarily Permanently Unrestricted Restricted Restricted Total Total Revenues, gains and other support: 1 Student tuition and fees $ 130,730 $ - $ - $ 130,730 $ 116,859 Less: 2 University funded scholarships (39,679) - - (39,679) (32,537) 3 University funded athletic scholarships (13,070) - - (13,070) (12,396) 4 Scholarships funded by other sources (9,818) - - (9,818) (9,357) 5 Net student tuition and fees 68, ,163 62,569 6 Sales and services of educational departments and public services 11, ,592 10,890 7 Sales and services - auxiliary enterprises 26, ,323 25,194 8 Research services and sponsored projects 17, ,987 17,125 9 Gifts, grants and pledges 7,477 7,822-15,299 15, Endowment income 8,916 10,495-19,411 18, Nonendowment investment income (loss) 2, ,762 (569) 12 Distributions from beneficial interest in funds held in trust by others 19,403 3,828-23,231 23, Other 2, ,672 1, ,070 22, , , Net assets released from restrictions 20,628 (20,626) (2) Total revenues, gains and other support 185,698 1,744 (2) 187, ,804 Expenses: 16 Instruction 66, ,196 62, Research 19, ,322 18, Public service 7, ,524 6, Academic support 29, ,920 28, Student services 12, ,376 12, Institutional support and other 36, ,519 27, Auxiliary enterprises 32, ,051 30, Total expenses 203, , , Increase (decrease) from operating activities (18,210) 1,744 (2) (16,468) (13,807) Nonoperating activities: 25 Net endowment income (loss) in excess of income designated for operations 4,689 26, ,099 (13,350) 26 Gifts for capital acquisitions and endowments 20 8,041 23,607 31,668 28, Other permanently restricted income (loss), net (427) 28 Change in donor restrictions (557) (245) Adjustment of unrecognized postretirement costs 1, ,065 (291) 30 Increase (decrease) in fair value of beneficial interest in funds held in trust by others ,992 34,992 (23,723) 31 Increase (decrease) from nonoperating activities 5,217 34,188 59,697 99,102 (9,520) 32 Net increase (decrease) for the year (12,993) 35,932 59,695 82,634 (23,327) 33 Net assets, beginning of year 224, , ,965 1,055,400 1,078, Net assets, end of year $ 211,901 $ 192,473 $ 733,660 $ 1,138,034 $ 1,055,400 See notes to consolidated financial statements. 4

7 THE UNIVERSITY OF TULSA CONSOLIDATED STATEMENT OF ACTIVITIES Year ended June 30, 2012 (dollars in thousands) Temporarily Restricted Permanently Restricted Unrestricted Total Revenues, gains and other support: 1 Student tuition and fees $ 116,859 $ - $ - $ 116,859 Less: 2 University funded scholarships (32,537) - - (32,537) 3 University funded athletic scholarships (12,396) - - (12,396) 4 Scholarships funded by other sources (9,357) - - (9,357) 5 Net student tuition and fees 62, ,569 6 Sales and services of educational departments and public services 10, ,890 7 Sales and services - auxiliary enterprises 25, ,194 8 Research services and sponsored projects 17, ,125 9 Gifts, grants and pledges 7,512 7,868-15, Endowment income 8,650 9,651-18, Nonendowment investment income (loss) (1,067) (569) 12 Distributions from beneficial interest in funds held in trust by others 19,469 3,656-23, Other 1, , ,045 21, , Net assets released from restrictions 51,295 (50,933) (362) - 15 Total revenues, gains and other support 203,340 (29,174) (362) 173,804 Expenses: 16 Instruction 62, , Research 18, , Public service 6, , Academic support 28, , Student services 12, , Institutional support and other 27, , Auxiliary enterprises 30, , Total expenses 187, , Increase (decrease) from operating activities 15,729 (29,174) (362) (13,807) Nonoperating activities: 25 Net endowment loss in excess of income designated for operations (2,489) (10,852) (9) (13,350) 26 Gifts for capital acquisitions and endowments - 11,008 17,263 28, Other permanently restricted loss, net - - (427) (427) 28 Change in donor restrictions (180) (7,838) 8, Adjustment of unrecognized postretirement costs (291) - - (291) 30 Decrease in fair value of beneficial interest in funds held in trust by others - - (23,723) (23,723) 31 Increase (decrease) from nonoperating activities (2,960) (7,682) 1,122 (9,520) 32 Net increase (decrease) for the year 12,769 (36,856) 760 (23,327) 33 Net assets, beginning of year 212, , ,205 1,078, Net assets, end of year $ 224,894 $ 156,541 $ 673,965 $ 1,055, See notes to consolidated financial statements. 5

8 THE UNIVERSITY OF TULSA CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended June 30, 2013 and 2012 (dollars in thousands) Cash Flows from Operating Activities Increase (decrease) in net assets $ 82,634 $ (23,327) Adjustments to reconcile increase (decrease) in net assets to net cash used in operating activities: Depreciation and amortization 14,296 13,168 Provision for uncollectible accounts (3,930) (45) Loss on disposals of educational plant 1, Net investment unrealized and realized gains (52,752) (4,280) Contributions received for endowment (34,978) (14,930) Contributions received for purchases of educational plant (7,563) (10,987) Decrease (increase) in fair value of beneficial interest in funds held in trust by others (34,992) 23,723 Changes in operating assets and liabilities: Accounts receivable (1,830) 3,016 Contributions receivable 22,138 9,312 Student loans receivable 40 1,400 Inventories Prepaid expenses and deferred charges (32) 1,255 Deferred bond issues costs Accounts payable 910 (1,789) Accrued expenses 545 1,179 Deposits payable (280) 165 Deferred revenue 1, Advances under grants and contracts 1,379 (36) Postretirement benefit obligation (341) 973 Other long-term liabilities (149) 498 Net cash used in operating activities (11,898) (46) Cash Flows from Investing Activities Deposits with bond trustee (117) 8,304 Proceeds from sale of investments 123, ,104 Purchases of investments (144,045) (179,943) Student loans advanced (1,649) (811) Student loans collected 1,145 1,306 Proceeds from sale of educational plant 1,127 - Purchases of educational plant (16,744) (41,214) Net cash used in investing activities (36,612) (30,254) Cash Flows from Financing Activities Payments of notes and mortgages payable (20,836) (13,922) Proceeds from notes and mortgages payable 20,818 15,000 Payments on bonds payable (4,676) (4,105) Proceeds from bonds 67 - Decrease in federal loan programs (280) (70) Contributions received for endowment 34,978 14,930 Contributions received for purchases of educational plant 7,563 10,987 Net cash provided by financing activities 37,634 22,820 Net decrease in cash and cash equivalents (10,876) (7,480) Cash and cash equivalents, beginning of year 30,098 37,578 Cash and cash equivalents, end of year $ 19,222 $ 30,098 Supplemental Cash Flow Information Interest paid $ 6,543 $ 6,710 See notes to consolidated financial statements. 6

9 THE UNIVERSITY OF TULSA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 and 2012 (dollars in thousands) Note 1 Organization and Summary of Significant Accounting Policies Organization The University of Tulsa is an independent comprehensive institution providing undergraduate, graduate, and professional education in a variety of multicultural programs. The University of Tulsa has an undergraduate enrollment of approximately 3,160 and a graduate and law enrollment of approximately 1,170. Principles of consolidation The accompanying consolidated financial statements include the accounts of The University of Tulsa and The Gilcrease Museum Management Trust (the Trust) (collectively, the University). Effective July 1, 2008, the University formed the Trust and entered into a Management Agreement with The City of Tulsa and The Board of Trustees of the Thomas Gilcrease Institute of American History and Art to manage and operate Gilcrease Museum. The University has agreed that it will incorporate fundraising for the endowment and operations of Gilcrease Museum into its fundraising efforts and will separately account for such funds and manage the investment of such funds within the University's policies. The Trust is consolidated due to the University's control and economic interest in it. All material intercompany transactions and balances have been eliminated in the consolidated statements. Basis of financial statements The financial statements of the University have been prepared on the accrual basis in accordance with accounting principles generally accepted in the United States of America. Net assets are classified based on the existence or absence of donor-imposed restrictions as follows: Unrestricted Net assets that are not subject to donor-imposed restrictions. Unrestricted net assets may be designated for specific purposes by action of the Board of Trustees or may otherwise be limited by contractual agreements with outside parties. Temporarily restricted Net assets whose use by the University is subject to donor-imposed restrictions that can be fulfilled by actions of the University or by the passage of time. Permanently restricted Net assets subject to donor-imposed restrictions that they be maintained permanently by the University. Generally, the donors of these assets permit the University to use all or part of the income earned on related investments for general or specific purposes. Such net assets also include the University's beneficial interests in irrevocable trusts held by others. Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the 7

10 reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Measure of operations The increase (decrease) from operating activities reflected in the accompanying consolidated statements of activities excludes endowment income (losses) in excess of the University's spending policy, changes in the fair value of beneficial interest in funds held in trust by others, gifts for capital acquisitions and endowments, permanently restricted gifts and other income, changes in donor restrictions and other reclassifications and unusual or nonrecurring items. Cash and cash equivalents Cash and cash equivalents include cash on hand and on deposit in demand and interest-bearing accounts administered by the University with original maturities of three months or less. Student loans receivable Student loans receivable consist primarily of loans made to students under U.S. Government loan programs. The loans are stated at estimated net realizable value. Deposits with bond trustee Deposits with bond trustee consist of the unexpended bond proceeds and debt service funds for bonds payable. These funds are invested in cash equivalents and will be used for designated projects, required bond reserves or payment of debt service. Inventories Inventories are stated at the lower of cost or market on the first-in, first-out basis. Contributions receivable Contributions are initially recorded at fair value. Unconditional promises to give are recorded net of an allowance for doubtful receivables estimated based on such factors as prior collections history, types of contributions and the nature of the fundraising activity. Amounts due in more than one year are recorded at net realizable discounted cash flow using an appropriate discount rate commensurate with the risks involved. Amortization of the discount is recorded as additional contribution revenue. Gifts of land, buildings and equipment and other long-lived assets are recorded at their estimated fair value on the date of gift and are reported as unrestricted support unless explicit donor stipulations specify how or how long the donated assets must be used, in which case the gift is reported as restricted support. Conditional promises to give are not recorded until conditions are substantially met. Investments The University's investments in common stocks and mutual funds with readily determinable fair values and investments in debt securities including corporate obligations, commercial paper, and Treasury obligations are reported at fair value in the consolidated statements of financial position. Nonmarketable investments in hedge funds and private equities reflect the estimated fair value of the underlying assets or 8

11 cost adjusted for transactions if no meaningful estimate of fair value is available. Other investments are reported at amounts that are not materially different from their fair value. The University's investments are exposed to various risks, such as interest rate, credit and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term, and such changes could materially affect the amounts reported in the consolidated statements of activities. Significant fluctuations in fair values could occur from year to year and the amounts the University will ultimately realize could differ materially. Income and gains or losses on investments are generally reported as follows: Increases in permanently restricted net assets if the terms of the gift that gave rise to the investment or applicable law require income and gains or losses be added to the principal of a permanent endowment. Increases in temporarily restricted net assets if the terms of the gift or applicable law impose restrictions on the use of the income. For this purpose, restrictions on funds for scholarships are not considered met until the specific scholarship funds have been expended. Increases in unrestricted net assets in all other cases. Generally, losses on the investments of restricted endowments reduce temporarily restricted net assets to the extent donor-imposed temporary restrictions on net appreciation of investments have not been met before the loss occurs. Any remaining losses reduce unrestricted net assets, but can be restored through subsequent investment gains. Cost of borrowing Bond issue costs are amortized over the term of the related obligations using the interest method. Educational plant Plant facilities, including library books, are stated at cost less accumulated depreciation or, if received as a gift, at fair value or appraised value at the date received, less accumulated depreciation. Generally, improvements, renovations, and equipment purchases in excess of $5 are capitalized. Depreciation is recognized on a straight-line basis over the estimated useful lives of buildings (50 years), improvements (20 years), and equipment and library books (5-20 years). The University records impairments to its educational plant when, and if, it becomes probable that the carrying value of these assets will not be fully recovered over the estimated lives of the assets. Impairments, if any, are recorded to reduce the carrying value of the asset to the net realizable value determined by management based on facts and circumstances in existence at the time of the determination, estimates of probable future economic conditions, and other information. No impairments were required in 2013 or Beneficial interest in funds held in trust by others Beneficial interest in funds held in trust by others represent amounts held for the beneficial interest of the University under irrevocable perpetual trust agreements between donors and third-party trustees. The University's interest in the trusts are recorded at the fair value of the net assets of the trusts, with net increases or decreases in net assets being reported as changes to permanently restricted net assets. The amounts the University will ultimately realize could differ materially and significant fluctuations in fair values could occur from year to year. 9

12 Advances under grants and contracts Grants and contracts consist primarily of contractual agreements with governmental and private entities for the performance of research services and other sponsored programs. Revenues are generally recognized as expenses are incurred. Advances are generally considered refundable in the unlikely event specified services are not performed. Advances under federal loan programs Funds provided by the U.S. Government primarily under the Federal Perkins Loan Program are loaned to qualified students and may be re-loaned upon collection. These funds are ultimately refundable to the government. Tuition discount, financial aid and deferred revenue Tuition discounts and financial aid awarded to nonemployees in the form of scholarships, grants and fellowships, including amounts awarded to students from grants and contributions to the University for this purpose have been reported as a reduction of tuition revenues. Tuition discounts granted to employees and their dependents are recorded as compensation expense in the appropriate functional expense classification. Deferred revenue, primarily tuition, includes those payments received before services or products are provided by the University. Expenses and other activity Expenses are reported as decreases in unrestricted net assets. Temporarily restricted net assets for which donor-imposed conditions are met are reclassified to unrestricted net assets and reported as net assets released from restrictions. Net assets released from restrictions represent satisfaction of purpose restrictions or passage of the stipulated time period on expenditures made pursuant to donor specifications. Investment income, contributions and trust distributions restricted for scholarships and financial aid are released from restrictions as awards are made by the University in accordance with its policies governing the administration of financial aid and the requirements of donors. The costs of providing the various programs and supporting activities of the University have been summarized on a functional basis in the consolidated statements of activities. Accordingly, certain costs have been allocated based on total personnel costs or other systematic bases. Fundraising expense incurred was $6,849 and $6,995 in 2013 and 2012, respectively. Fair value of financial instruments The following methods and assumptions were used to estimate the fair value of each financial classification: Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses the carrying amounts approximate fair value due to their short maturity. Contributions receivables the fair value is estimated by discounting the future cash flows of each instrument at a rate of 5% for contributions due in excess of one year. Investments, deposits with bond trustee and beneficial interest in funds held in trust by others with readily determinable fair values the fair value is based on quoted market prices. See Note 4 for determination of fair value of nonmarketable investments. 10

13 Student loans it is not practicable to estimate the fair value of these receivables since they contain federally mandated interest rates and repayment terms subject to significant restrictions as to their transfer and disposition. Bonds, notes and mortgages payable the fair value is determined by discounting the future cash flows of each instrument at rates currently offered to the University for similar debt instruments of comparable maturities by the University's bankers. Income taxes The University is an organization exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code (the Code) and has been determined not to be a private foundation under Section 509(a) of the Code. As a result, as long as the University maintains its tax exemption, it will not be subject to income tax. Generally, the University is no longer subject to income tax examinations by the federal, state or local tax authorities for years before Reclassifications Certain reclassifications have been made to the 2012 financial statements to conform to the classifications used in These classifications had no effect on net assets. Subsequent events The University's management has evaluated subsequent events through October 8, 2013, the date the financial statements were available to be issued. Note 2 Receivables Accounts receivable at June 30 consist of the following: Current: Student tuition and fees, net of $3,026 and $2,655 allowance for doubtful accounts, respectively $ 4,530 $ 3,404 Student loans, net of $134 and $135 allowance for doubtful accounts, respectively 1,037 1,504 Government receivables Accrued interest Federal and nonfederal research receivables 5,567 4,800 Other receivables $ 12,401 $ 10,942 Noncurrent: Student loans, net of $530 and $556 allowance for doubtful accounts, respectively $ 7,139 $ 6,675 11

14 Contributions receivable at June 30 consist of the following: Less than 1 to 5 Over 5 Less than 1 to 5 Over 5 1 year years years 1 year years years Unconditional promises $ 13,669 $ 13,009 $ 882 $ 20,555 $ 21,537 $ 7,586 Less unamortized discount and allowance for doubtful accounts (1,001) (2,010) (275) (1,513) (3,354) (2,700) $ 12,668 $ 10,999 $ 607 $ 19,042 $ 18,183 $ 4,886 The majority of contributions receivable represents pledges to fund planned construction and acquisition of various University buildings and improvements. Contributions that are expected to be received in more than one year have been discounted to present value using a rate of 5%. Note 3 Endowment Investments, Investments and Funds Held in Trust by Others The fair value of investments at June 30 consists of the following: Beneficial interest in funds held in trust by others $ 498,229 $ 463,180 Endowment investments 381, ,892 Nonendowment investments 25,262 24,031 $ 905,221 $ 797,103 Investments are classified in the accompanying consolidated statements of financial position as follows: Investments $ 406,992 $ 333,923 Beneficial interest in funds held in trust by others 498, ,180 $ 905,221 $ 797,103 At June 30, the fair value of endowment assets, including beneficial interest in funds held in trust by others for the University's benefit, consists of the following: Beneficial interest in funds held in trust by others: J.A. and Leta M. Chapman 1949 Trust $ 37,132 $ 34,577 James A. and Leta M. Chapman Charitable Trust 275, ,326 Leta McFarlin Chapman Memorial Trust 141, ,686 Pauline McFarlin Walter Memorial Trust 36,046 33,755 Jay P. Walker Charitable Trust 2,908 3,066 Virginia Mayo Ownby Memorial Trust 2,318 2,170 Doris K. Catlett Trust 1,555 1,411 Other , ,180 12

15 Other endowment assets: Cash and cash equivalents 5,499 11,472 Contributions receivable 7,597 17,909 Investments 381, ,892 Total endowment assets $ 893,055 $ 802,453 Endowment investments include perpetual endowments included in permanently restricted net assets, gifts, gains and term endowments included in temporarily restricted net assets and designated endowments and related gains which are included in unrestricted net assets. The University's endowments consist of approximately 700 individual funds established for a variety of purposes, as well as the beneficial interest in 15 trusts managed by outside trustees to function as endowments. The endowments include both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. As required by generally accepted accounting principles (GAAP), net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Laws The University interprets the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds, absent explicit donor stipulations to the contrary. As a result of this interpretation, the University classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) 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. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the University in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the University considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the University and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the University (7) The investment policies of the University Funds with Deficiencies From time to time, the fair value of assets associated with individual donorrestricted endowment funds may fall below the level that the donor or UPMIFA requires the University to retain as a fund of perpetual duration. In accordance with GAAP, deficiencies of this nature that are reported in unrestricted net assets were $471 and $2,528 as of June 30, 2013 and 2012, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of new permanently restricted contributions and continued appropriation for certain programs that was deemed prudent by the Board of Trustees. In accordance with the terms of donor gift instruments, the University is permitted to reduce the balance of several restricted endowments below the original amount of the gift. Subsequent investment gains are 13

16 then used to restore the balance up to the fair value of the original amount of the gift. Subsequent gains above that amount are recorded to temporarily restricted net assets. Strategies Employed for Achieving Objectives Certain of the University's external investment managers are authorized to use specified derivative financial instruments in managing the assets under their control, subject to restrictions and limitations adopted by the Board of Trustees. From time to time, the managers may enter into forward currency contracts to hedge currency exchange risk on investments in foreign securities and other future contracts to adjust asset allocation for a more efficient portfolio. The managers settle these contracts on a net basis and, accordingly, the cash requirements are substantially less than the contract amounts. Changes in the fair value of the derivative contracts are included in investment income and are not significant in 2013 or Spending Policy and How the Investment Objectives Relate to Spending Policy The University's spending policy has two components. The first component uses the previous year's spending rate and adjusts it for inflation, which is defined as the previous calendar year's Consumer Price Index increase plus 1%. This component is 70% of the calculation. The second component uses the average endowment market value as of September 30 and December 31 of the preceding year and multiplies the result by a fixed percentage. This percentage was 5% for 2013 and The second component is the remaining 30% of the calculation. In establishing this policy, the University considered the long-term expected return on its endowments. Accordingly, over the long term, the University expects the current spending policy to allow its endowments to grow at or near the inflation rate, as represented by the Consumer Price Index, before the effect of new gifts. This is consistent with the University's objective to maintain the purchasing power of the endowment assets held in perpetuity or for a specified term as well as to provide additional real growth through new gifts. The annual withdrawal includes amounts for operations and amounts utilized in accordance with the terms of donor-restricted and board-designated endowments. Endowment net assets composition by type of fund as of June 30: Temporarily Permanently 2013 Unrestricted Restricted Restricted Total Pure endowment funds $ (471) $ 99,221 $ 232,447 $ 331,197 Quasi endowment funds 26,465 35,404-61,869 Term endowment funds - 1,760-1,760 Beneficial interest in funds held in trust by others , ,229 $ 25,994 $ 136,385 $ 730,676 $ 893,055 Temporarily Permanently 2012 Unrestricted Restricted Restricted Total Pure endowment funds $ (2,528) $ 75,981 $ 206,917 $ 280,370 Quasi endowment funds 25,751 31,536-57,287 Term endowment funds - 1,616-1,616 Beneficial interest in funds held in trust by others , ,180 $ 23,223 $ 109,133 $ 670,097 $ 802,453 Temporarily restricted quasi endowment funds include donor-restricted contributions which have been designated by the Board as endowment net assets. 14

17 Changes in endowment net assets for the years ended June 30: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, June 30, 2011 $ 27,274 $ 119,299 $ 670,749 $ 817,322 Investment return: Investment loss, net of fees (120) (1,014) (1) (1,135) Net realized and unrealized appreciation (depreciation) 7,693 (1,601) (23,980) (17,888) Reclassification for funds with deficiencies (1,413) 1, Change in donor restrictions (1,561) 557 8,020 7,016 Total investment return 4,599 (645) (15,961) (12,007) Contributions ,309 15,439 Distributions from beneficial interest in funds held in trust by others 19,469 3,656-23,125 Use of endowment assets for expenditures: Annual transfer for operations (28,119) (13,307) - (41,426) Endowment net assets, June 30, , , , ,453 Investment return: Investment loss, net of fees (49) (500) - (549) Net realized and unrealized appreciation 11,597 39,444 35,010 86,051 Reclassification for funds with deficiencies 2,057 (2,057) - - Change in donor restrictions (1,937) (504) Total investment return 11,668 37,518 35,812 84,998 Contributions ,724 23,973 Distributions from beneficial interest in funds held in trust by others 19,403 3,828-23,231 Other - - 1,043 1,043 Use of endowment assets for expenditures: Annual transfer for operations (28,320) (14,323) - (42,643) Endowment net assets, June 30, 2013 $ 25,994 $ 136,385 $ 730,676 $ 893,055 Beneficial interest in funds held in trust by others are resources which are neither in the possession of, nor under the control of, the University. They are held and administered by external fiscal trust agents, with the income distributed to the University according to the terms of the gift instruments. Only the distributions from these funds are expendable. Investment return on beneficial interest in funds held in trust by others is as follows: Beneficial interest in funds held in trust by others: Distributions of income $ 23, % $ 23, % Increase (decrease) in fair value 34, % (23,723) (4.9) % Total investments return on beneficial interest in funds held in trust by others $ 58, % $ (598) (0.2) % 15

18 Note 4 Fair Value Measurement The Financial Accounting Standards Board (FASB) Accounting Standards Codification establishes a consistent framework for measuring fair value and a fair value hierarchy based on the observability of inputs used to measure fair value. These inputs are summarized in three broad levels: Level 1 Level 2 Quoted prices in active markets for identical securities. Other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, and others). Level 3 Unobservable inputs (including the University's assumptions in determining the value of investments). The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability. Fair value measurements are categorized as Level 3 when a significant amount of price or other inputs that are considered to be unobservable are used in their valuations. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. There were no significant transfers into or out of Level 1, 2 or 3 measurements for the year ended June 30, 2013 and The following table presents the University's assets that are measured at fair value on a recurring basis for each hierarchy level, including both current and noncurrent portions as of June 30: Fair Value Measurements Redemption Days' 2013 Total Level 1 Level 2 Level 3 or Liquidation Notice Cash and cash equivalents $ 35,748 $ 35,748 $ - $ - Daily Daily Fixed income 97,733 97, Daily Daily Equities 147, , Daily Daily Mutual funds 129, , Daily Daily Real estate 21, ,535 Illiquid Illiquid Private equities 143, ,059 Illiquid Illiquid Hedge funds: Equity long/short 164, ,144 - Daily/Monthly 10 to 120 Fixed income strategies 10, ,551 Subject to lockup 60 to 90 Multistrategy 97,698-97,698 - Monthly 90 Other 66, ,400 Daily/Monthly 10 to 120 Life income 6,274-6,274 - Life insurance 1,189-1,189 - $ 921,179 $ 410,329 $ 269,305 $ 241,545 16

19 Fair Value Measurements Redemption Days' 2012 Total Level 1 Level 2 Level 3 or Liquidation Notice Cash and cash equivalents $ 38,053 $ 38,053 $ - $ - Daily Daily Fixed income 93,578 93, Daily Daily Equities 164, , Daily Daily Mutual funds 76,909 76, Daily Daily Real estate 16, ,551 Illiquid Illiquid Private equities 134, ,974 Illiquid Illiquid Hedge funds: Equity long/short 122, ,400 - Daily/Monthly 10 to 120 Fixed income strategies 11, ,663 Subject to lockup 60 to 90 Multistrategy 78,571-78,571 - Monthly 90 Other 68, ,360 Daily/Monthly 10 to 120 Life income 5,834-5,834 - Life insurance 1,045-1,045 - $ 812,944 $ 373,526 $ 207,870 $ 231,548 The University's assets measured at fair value are reported in the consolidated statements of financial position as follows: Deposits with bond trustee, current portion $ 2,389 $ 2,272 Investments 406, ,923 Deposits with bond trustee 13,569 13,569 Beneficial interests in funds held in trust by others 498, ,180 $ 921,179 $ 812,944 The following table presents the net change in the assets measured at fair value on a recurring basis and included in the Level 3 fair value category for the year ended June 30: Balance at July 1, 2011 $ 223,829 Acquisitions 15,667 Dispositions (11,313) Net appreciation 3,365 Balance at June 30, ,548 Acquisitions 17,631 Dispositions (18,539) Net appreciation 10,905 Balance at June 30, 2013 $ 241,545 The amount of total net gains for the year included in changes in net assets that are attributable to the change in unrealized gains or losses relating to assets still held at the reporting date $ 8,101 17

20 Note 5 Educational Plant Net investment in educational plant at June 30 consists of the following: Land and improvements $ 72,314 $ 72,196 Buildings 336, ,258 Furniture fixtures, and equipment 55,791 61,175 Library books 39,836 39, , ,180 Less accumulated depreciation (164,916) (159,844) 339, ,336 Construction in progress 9,522 16,645 $ 349,224 $ 348,981 Depreciation expense was $14,296 and $13,312 for the years ended June 30, 2013 and 2012, respectively. Note 6 Bonds, Notes and Mortgages Payable Bonds payable Bonds payable consists of the following at June 30: Tulsa Industrial Authority (TIA) Revenue and Refunding Bonds (The University of Tulsa) Series 1996A (the 1996A Series) TIA Student Housing Revenue Bonds (The University of Tulsa) Series 2006 (the 2006 Series Student Housing Revenue) TIA Revenue Refunding Bonds (The University of Tulsa) Series 2006 (the 2006 Series Revenue Refunding) TIA Revenue Refunding Bonds (The University of Tulsa) Series 2009 (the 2009 Series) TIA Revenue and Refunding Bonds (The University of Tulsa) Series 2011 (the 2011 Series) 1996A Series dated March 1, 1996 The 1996A Series $55,000 fixed rate serial and term bonds are subject to scheduled annual sinking fund redemptions commencing In 2011, proceeds from the 2011 Series Revenue and Refunding Bonds were used to advance refund $19,130 in aggregate principal amount of the Series 1996A Bonds maturing October 1, Maturities, interest rates and outstanding principal amounts at June 30, 2013, are as follows: 1996A Series, due October 1, 2016, 6.00% $ 10,965 Unamortized net bond discount/premiums 177 Total 1996A Series 11,142 Less current portion (2,525) Total long-term portion $ 8,617 18

21 Payment of principal and interest on the 1996A Series is guaranteed by a financial guaranty insurance policy issued by MBIA Insurance Corporation (MBIA). Bank of Oklahoma, N.A. is trustee for the 1996 A Series. Under terms of a mortgage and security agreement between the University, TIA, MBIA and the trustee, the University has secured its payment obligations for this Series with a mortgage on various campus buildings and security interests in student accounts receivable, as defined, and bond reserve funds deposited with the trustee. The bond agreement contains certain restrictive covenants of the University, including: 1) maintenance of an available funds ratio of a minimum.5:1; 2) maintenance of a maximum annual debt service ratio of.1:1; and 3) limitations on additional indebtedness Series Student Housing Revenue Bonds dated July 31, 2006 The proceeds from these bonds were used to build apartment complexes housing approximately 700 students. The bonds are secured by future revenues from these apartments. The University's obligations to make the loan payments on these bonds are subordinated to its obligations on its 1996A Series, Series 2006 Revenue Refunding and 2009 Series. The Series 2006 Student Housing Revenue Bonds maturing October 1 in each of the years 2021, 2026 and 2037 (the Term Bonds) are subject to mandatory sinking fund redemption in part by TIA prior to their scheduled maturity at a redemption price equal to 100% of the principal amount, without premium, plus accrued but unpaid interest to the redemption date. Maturities, interest rates and outstanding principal amounts at June 30, 2013, are as follows: Serial Bond, due October 1, % $ 600 Serial Bond, due October 1, % 630 Serial Bond, due October 1, % 660 Serial Bond, due October 1, % 695 Term Bond, due October 1, % 4,055 Term Bond, due October 1, % 5,230 Term Bond, due October 1, % 17,295 Unamortized net bond discount/premiums Series Student Housing Revenue Bonds $ 29, Series Revenue Refunding Bonds dated October 12, 2006 The proceeds from these bonds were used to advance refund $26,215 in aggregate principal amount of the 2000A Series bonds maturing October 1, , inclusive of the payments due in each of the years 2020, 2025 and 2031 (the Refunded Series 2000A Bonds), for redemption on October 1, 2010, at a redemption price of par plus interest accrued thereon to the redemption date. The 2006 Series bonds maturing October 1 in each of the years 2026 and 2031 (the Term Bonds), are subject to mandatory sinking fund redemption in part by TIA prior to their scheduled maturity at a redemption price equal to 100% of the principal amount, without premium, plus accrued but unpaid 19

22 interest to the redemption date. Maturities, interest rates and outstanding principal amounts at June 30, 2013, are as follows: Serial Bond, due October 1, % $ 845 Serial Bond, due October 1, % 890 Serial Bond, due October 1, % 945 Serial Bond, due October 1, % 1,000 Serial Bond, due October 1, % 1,055 Serial Bond, due October 1, % 1,090 Serial Bond, due October 1, % 1,130 Serial Bond, due October 1, % 1,170 Term Bond, due October 1, % 8,750 Term Bond, due October 1, % 5,325 Term Bond, due October 1, % 3,250 Unamortized net bond discount/premiums Series Revenue Refunding Bonds $ 25, Series Revenue Refunding Bonds dated February 12, 2009 The proceeds from these bonds were used to advance refund $33,445 in aggregate principal amount of the Series 1996B bonds maturing October 1, and Series 2000B bonds maturing October 1, The 2009 Series bonds maturing October 1 in each of the years 2023 and 2027 (the Term Bonds), are subject to mandatory sinking fund redemption in part by TIA prior to their scheduled maturity at a redemption price equal to 100% of the principal amount, without premium, plus accrued but unpaid interest to the redemption date. Maturities, interest rates and outstanding principal amounts at June 30, 2013, are as follows: Serial Bond, due October 1, % $ 370 Serial Bond, due October 1, % 380 Serial Bond, due October 1, % 395 Serial Bond, due October 1, % 410 Serial Bond, due October 1, % 455 Serial Bond, due October 1, % 445 Serial Bond, due October 1, % 460 Serial Bond, due October 1, % 485 Serial Bond, due October 1, % 515 Serial Bond, due October 1, % 1,000 Term Bond, due October 1, % 6,430 Term Bond, due October 1, % 21,950 Unamortized net bond discount/premiums (108) 2009 Series Revenue Refunding Bonds $ 33, Series Revenue and Refunding Bonds dated March 3, 2011 The proceeds from these bonds were used to advance refund $19,130 in aggregate principal amount of the 1996A Series bonds maturing October 1, 2022, and to fund capital projects. 20

23 The 2011 Series bonds maturing October 1 in each of the years 2021, 2026 and 2030 (the Term Bonds) are subject to mandatory sinking fund redemption in part by TIA prior to their scheduled maturity at a redemption price equal to 100% of the principal amount, without premium, plus accrued but unpaid interest to the redemption date. Maturities, interest rates and outstanding principal amounts at June 30, 2013, are as follows: Serial Bond, due October 1, % $ 370 Serial Bond, due October 1, % 380 Serial Bond, due October 1, % 395 Serial Bond, due October 1, % 1,255 Serial Bond, due October 1, % 2,395 Serial Bond, due October 1, % 3,155 Serial Bond, due October 1, % 3,270 Term Bond, due October 1, % 10,670 Serial Bond, due October 1, % 2,895 Term Bond, due October 1, % 2,305 Term Bond, due October 1, % 2,815 Unamortized net bond discount/premiums (146) 2011 Series Revenue and Refunding Bonds $ 29,759 Total bonds outstanding at June 30 are as follows: 1996A Series $ 11,142 $ 13, Series Student Housing Revenue 29,296 29, Series Revenue Refunding 25,568 26, Series 33,187 33, Series 29,759 30,122 Total bonds 128, ,561 Less current portion (4,710) (4,480) Total long-term portion $ 124,242 $ 129,081 The annual sinking fund redemption requirements for the bonds are as follows: 2006 Series 2006 Series 1996A Student Revenue Series Housing Refunding Series Series Total 2014 $ 2,525 $ - $ - $ - $ - $ 2, , , , , , , , ,960 9, ,970 7,210 16,770 5,395 34, ,400 4,935 11,610 3,435 26,380 Thereafter - 12,050 5, ,230 $ 10,965 $ 26,580 $ 17,325 $ 28,380 $ 15,790 $ 99,040 21