SAINT LOUIS UNIVERSITY

SAINT LOUIS UNIVERSITY FINANCIAL REPORT FISCAL YEARS ENDED JUNE 30, 2012 and 2011

KPMG LLP Suite 900 10 South Broadway St. Louis, MO 63102-1761 Independent Auditors Report The Board of Trustees : We have audited the accompanying consolidated statements of financial position of as of June 30, 2012 and 2011, and the related consolidated statements of activities and cash flows for the years then ended. These consolidated financial statements are the responsibility of s management. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Saint Louis University s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of as of June 30, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, adopted the provisions of Accounting Standards Update No. 2010-24, Presentation of Insurance Claims and Related Insurance Recoveries as of June 30, 2012. St. Louis, Missouri November 2, 2012 KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

SAINT LOUIS UNIVERSITY CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF JUNE 30, (000's Omitted) 2012 2011 Assets: Cash and cash equivalents $ 73,856 $ 61,219 Accounts receivable, net 122,898 104,600 Prepaid expenses 9,021 10,068 Investments 1,048,610 1,069,974 Notes receivable 37,981 38,363 Funds held by trustees 39,940 31,745 Land, buildings, and equipment, net 563,801 558,843 Other assets 18,592 23,155 Total assets $ 1,914,699 $ 1,897,967 Liabilities and Net Assets: Accounts payable $ 25,189 $ 27,161 Accrued payroll and benefits 30,517 28,862 Deposits and deferred revenues 36,694 36,981 Other accrued liabilities 137,561 101,679 Notes and bonds payable 262,771 271,955 U.S. Government refundable grants 19,139 19,592 Total liabilities 511,871 486,230 Net Assets: Unrestricted 1,040,224 1,051,845 Temporarily restricted 99,397 111,667 Permanently restricted 263,207 248,225 Total net assets 1,402,828 1,411,737 Total liabilities and net assets $ 1,914,699 $ 1,897,967 See Accompanying Notes to the Consolidated Financial Statements. 1

SAINT LOUIS UNIVERSITY CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2012 (000's Omitted) Temporarily Permanently June 30, 2012 Unrestricted Restricted Restricted Total Operating Revenues and Other Support: Education & related activities: Tuition and fees, gross $ 385,615 $ 385,615 Less: Scholarship allowances (118,347) (118,347) Tuition and fees, net 267,268 267,268 Government grants and contracts 47,360 47,360 Contributions and private grants 46,809 $ 2,232 49,041 Endowment and other investment income 40,546 40,546 Auxiliary enterprises 49,308 49,308 Other 16,437 16,437 Total education & related activities 467,728 2,232-469,960 Patient care 255,209 255,209 Net assets released from restrictions 5,623 (5,623) - Total operating revenues and other support 728,560 (3,391) - 725,169 Operating Expenses: Salaries & benefits 481,467 481,467 Supplies, repairs, utilities, & other expenses 161,096 161,096 Depreciation & amortization 33,820 33,820 Interest expense 10,419 10,419 Total operating expenses 686,802 686,802 Net Operating Results 41,758 (3,391) - 38,367 Nonoperating: Investment return net of amounts designated for operations (50,835) (9,521) 791 (59,565) Permanently restricted contributions and private grants - - 5,903 5,903 Other, net (2,544) 642 8,288 6,386 Total nonoperating, net (53,379) (8,879) 14,982 (47,276) Change in net assets (11,621) (12,270) 14,982 (8,909) Net assets at beginning of year 1,051,845 111,667 248,225 1,411,737 Net assets at end of year $ 1,040,224 $ 99,397 $ 263,207 $ 1,402,828 See Accompanying Notes to the Consolidated Financial Statements. 2

SAINT LOUIS UNIVERSITY CONSOLIDATED STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2011 (000's Omitted) Temporarily Permanently June 30, 2011 Unrestricted Restricted Restricted Total Operating Revenues and Other Support: Education & related activities: Tuition and fees, gross $ 363,664 $ 363,664 Less: Scholarship allowances (106,563) (106,563) Tuition and fees, net 257,101 257,101 Government grants and contracts 49,005 49,005 Contributions and private grants 30,724 $ 2,955 33,679 Endowment and other investment income 36,562 36,562 Auxiliary enterprises 47,733 47,733 Other 19,450 19,450 Total education & related activities 440,575 2,955-443,530 Patient care 242,412 242,412 Net assets released from restrictions 11,812 (11,812) - Total operating revenues and other support 694,799 (8,857) - 685,942 Operating Expenses: Salaries & benefits 459,788 459,788 Supplies, repairs, utilities, & other expenses 155,007 155,007 Depreciation & amortization 33,223 33,223 Interest expense 10,797 10,797 Total operating expenses 658,815 658,815 Net Operating Results 35,984 (8,857) - 27,127 Nonoperating: Investment return net of amounts designated for operations 121,870 26,012 (2,664) 145,218 Permanently restricted contributions and private grants - - 4,193 4,193 Other, net 19,149 (244) (6,721) 12,184 Total nonoperating, net 141,019 25,768 (5,192) 161,595 Change in net assets 177,003 16,911 (5,192) 188,722 Net assets at beginning of year 874,842 94,756 253,417 1,223,015 Net assets at end of year $ 1,051,845 $ 111,667 $ 248,225 $ 1,411,737 See Accompanying Notes to the Consolidated Financial Statements. 3

SAINT LOUIS UNIVERSITY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, (000's Omitted) 2012 2011 Net cash flows from operating activities: (Decrease) Increase in net assets $ (8,909) $ 188,722 Adjustments to reconcile change in net assets: Net losses on disposition of other assets 306 - Depreciation and amortization 33,820 33,223 Changes in accounts receivable, net (20,032) (4,275) Changes in accounts payable 4,063 14,510 Changes in deposits and deferred revenues (287) (5,019) Changes in other accrued liabilities 35,882 22,580 Changes in other assets 3,321 (416) Other changes in assets and liabilities 2,052 (4,526) Contributions restricted for permanent endowment (5,903) (4,193) Contributions restricted for acquisitions of property and equipment (356) (372) Investment income restricted for long-term investment (683) (911) Net losses (gains) on long-term investments 40,170 (169,369) Net gains on assets held by trustees (8,202) (3,349) Net cash provided by operating activities 75,242 66,605 Net cash flows from investing activities: Proceeds from sales and maturities of investments 487,120 869,293 Purchase of investments (505,926) (931,178) Proceeds from sale of other assets 936 - Changes in assets held by trustees, excluding net gains and losses 7 (1,113) Purchase of property and equipment (38,778) (55,128) Net cash used in investing activities (56,641) (118,126) Net cash flows from financing activities: Issuance of notes receivable (3,040) (13,966) Payments on notes receivable 3,619 3,265 Issuance of notes and bonds payable - 12,000 Payments on notes and bonds payable (9,184) (8,815) Change in cash overdrafts (6,035) (6,570) Contributions restricted for permanent endowment 6,732 2,539 Contributions restricted for acquisitions of property and equipment 1,261 1,236 Investment income restricted for long-term investment 683 911 Net cash used in financing activities (5,964) (9,400) Net increase (decrease) in cash and cash equivalents 12,637 (60,921) Cash and cash equivalents, beginning of year 61,219 122,140 Cash and cash equivalents, end of year $ 73,856 $ 61,219 Supplemental data: Interest paid $ 10,531 $ 11,101 Assets acquired by gift or assumption of liability 3,494 (57) Conditional asset retirement obligation (193) (229) See Accompanying Notes to the Consolidated Financial Statements. 4

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization (University), founded in 1818, is a coeducational institution offering undergraduate and graduate programs in a variety of curricula and professional degree programs in medicine, law, business, social work, allied health, nursing, and advanced dentistry. In addition to its higher education mission, the University devotes substantial resources, facilities and personnel to providing health care services in conjunction with the academic programs offered by the University at the Medical Center. The University operates physician practices staffed by the faculty of the University s School of Medicine. The members of the faculty of the School of Medicine who provide medical services are referred to collectively as the University Medical Group and are marketed under the name SLUCare. Consolidated Financial Statement Presentation The University's consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U. S. generally accepted accounting principles (GAAP). The consolidated financial statements include, after elimination of all significant intercompany transactions, the accounts of, SLUCare, in Spain and SLU Blocker. SLU Blocker During 2011, the University formed SLU Blocker 1, Inc., (SLU Blocker) which is a wholly owned for profit entity. SLU Blocker was created to hold the University s investments in the West Locust Lofts and Hotel Ignacio. SLU Blocker partnered with third party developers to construct the lofts and the hotel. The transaction was structured to utilize new market tax credits. Due to this structure, at June 30, 2012 and 2011, the University has recorded $12.0 million of notes payable and $9.5 million of notes receivable to the various third party developers. Tax Exempt Status The University is generally exempt from Federal income tax pursuant to Section 501(c)(3) of the Internal Revenue Code (the Code) and is a tax-exempt organization described in Sections 501(c)(3), 509(a)(1), and 170(b)(1)(A)(ii) of the Code. The Financial Accounting Standards Board issued guidance prescribing how an organization should recognize, measure, present, and disclose in its consolidated financial statements uncertain tax positions. The University adopted this guidance, which is included in Accounting Standards Codification Topic 740 (ASC 740) Income Taxes. This guidance addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. The University must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of June 30, 2012 and 2011, the University did not have a liability for unrecognized tax benefits. Measure of Operations Operating results (change in unrestricted net assets from operating activity) in the Consolidated Statements of Activities reflect all transactions that change unrestricted net assets, except for activity associated with consolidated endowment investments and certain other nonrecurring items. In accordance with the University s endowment spending policy, as described in Note 3, only the portion of total investment return distributed under this policy to meet operating needs is included in operating revenue. Operating investment income consists of dividends, interest, and realized/unrealized gains and losses on unrestricted, nonendowed investments. 5

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Scholarship Allowances Education revenues are reported net of scholarship allowances. A scholarship allowance represents the difference between the stated charge for tuition and fees and the amount that is billed to the student and/or third parties making payments on behalf of the student. Scholarship allowances were $118.3 million and $106.6 million for the years ended June 30, 2012 and 2011, respectively. Contributions Contributions received, including unconditional promises to give, are recognized as revenues in the period received at their estimated fair values. For financial reporting purposes, the University distinguishes between contributions of unrestricted assets, temporarily restricted assets, and permanently restricted assets. Contributions for which donors have imposed restrictions which limit the use of the donated assets are reported as restricted support if the restrictions are not met in the same reporting period. When such donor imposed restrictions are met in subsequent reporting periods, temporarily restricted net assets are reclassified to unrestricted net assets and reported as net assets released from restrictions. Contributions of assets which donors have stipulated must be maintained permanently, with only the income earned thereon available for current use, are classified as permanently restricted assets. Contributions for which donors have not stipulated restrictions, as well as contributions for which donors have stipulated restrictions but which restrictions are met within the same reporting period, are reported as unrestricted support. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. Unconditional promises to give with payments due in future periods are reported as restricted support. Gifts of land, buildings, and equipment are reported as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire or construct long-lived assets are reported as restricted support. Absent explicit donor stipulation, the University reports expirations of donor restrictions when the donated, acquired, or constructed long-lived assets are placed in service. As of June 30, 2012, pledges receivable in less than one year were $6.9 million, pledges receivable in one to five years were $10.4 million and pledges receivable in more than 5 years were $6.0 million. As of June 30, 2011, pledges receivable in less than one year were $7.2 million, pledges receivable in one to five years were $11.6 million and pledges receivable in more than 5 years were $6.9 million. Pledges receivable are included with accounts receivable in the Consolidated Statement of Financial Position, net of an allowance for uncollectible pledges of $1.6 million at June 30, 2012 and 2011 and net of discount of $3.8 million and $4.4 million at June 30, 2012 and 2011, respectively. Discount rates on outstanding pledges ranged from 4.34 to 8.0% for June 30, 2012 and 2011. Collections Collections of art are capitalized at cost if purchased or at the fair market value at date of gift. At June 30, 2012 and 2011, collections of art in the amount of $12.8 million and $12.5 million, respectively, are included in other assets within the accompanying Consolidated Statement of Financial Position. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and temporary investments purchased with an initial maturity of three months or less. Cash and cash equivalents representing assets of endowment and similar funds are included in investments in the Consolidated Statement of Financial Position. The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of these financial instruments. 6

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounts Receivable, Net Accounts Receivable are stated at estimated net realizable amounts. The allowance for doubtful accounts and contractual allowances at June 30, 2012 and 2011 was $31.8 million and $30.9 million, respectively. Accounts Receivable comprise the following: June 30, 2012 Allowance for Accounts Doubtful Accounts/ Accounts Receivable, gross Contractual Allowances Receivable, net (000 s Omitted) Patient care $ 58,526 $ 26,975 $ 31,551 Medical residents FICA claims refund 31,324-31,324 Pledges, discounted 19,479 1,576 17,903 Government/private grants and contracts 16,338-16,338 Student accounts 10,700 780 9,920 Anticipated insurance recoveries 6,942-6,942 Other 11,348 2,428 8,920 $ 154,657 $ 31,759 $ 122,898 June 30, 2011 Allowance for Accounts Doubtful Accounts/ Accounts Receivable, gross Contractual Allowances Receivable, net (000 s Omitted) Patient care $ 52,543 $ 26,467 $ 26,076 Medical residents FICA claims refund 31,324-31,324 Pledges, discounted 21,272 1,607 19,665 Government/private grants and contracts 11,973-11,973 Student accounts 9,671 710 8,961 Other 8,750 2,149 6,601 $ 135,533 $ 30,933 $ 104,600 Investments Investments in equity securities, investments in debt securities, as well as funds held by trustees, are reported at fair value. Alternative investments are valued using net asset values provided by external investment managers as a practical expedient in determining fair value, pursuant to the University s adoption of the measurement provisions of Accounting Standards Update No. 2009-12, Investments In Certain Entities that Calculate Net Asset Value per Share. Because alternative investments are not readily marketable, the estimated value is subject to uncertainty and 7

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investments (continued) therefore may differ materially from the value that would have been used had a ready market for the investments existed. Alternative investments include certain amounts recorded as part of fixed maturity securities, equity securities, real estate investments, private equity/venture capital, and hedge funds. Derivative Financial Instruments The derivative instruments held by the University, as discussed in Note 6, are recorded at fair value. Accordingly, gains and losses from changes in derivative fair value are recognized in the non-operating investment return component of the Consolidated Statement of Activities. Notes Receivable Notes receivable primarily consist of amounts due from students under the University s federally sponsored student loan programs. Such notes receivable include federally-mandated repayment terms and interest rates ranging from 3% to 9%. Additionally, at June 30, 2012 and 2011, $9.5 million of notes receivable were recorded relating to SLU Blocker. Student Loans The University makes uncollateralized loans to students based on financial need. Student loans are funded through Federal government loan programs or institutional resources. At June 30, 2012 and 2011 student loans represented 1.5% of total assets. At June 30, student loans consisted of the following: 2012 2011 Federal government programs $ 20,519 $ 21,171 Institutional programs 7,841 7,597 Student loans receivable, net $ 28,360 $ 28,768 The University participates in the Perkins federal revolving loan program, Federal Primary Care Loan program, and Federal Nursing Student Loan program. The availability of funds for loans under the programs is dependent on reimbursements to the pool from repayments on outstanding loans. Funds advanced by the Federal government of $19.1 and $19.6 million at June 30, 2012 and 2011, respectively, are ultimately refundable to the government and are classified as liabilities in the Statement of Financial Position. Outstanding loans cancelled under the program result in a reduction of the funds available for loan and a decrease in the liability to the government. At June 30, 2012 and 2011, the following amounts were past due under student loan programs: 8

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Student Loans (continued) At June 30, 2012 and 2011, no reserves were recorded for the institutional program student loans. Amounts due under the Perkins loan program are guaranteed by the government and, therefore, no reserves are placed on any past due balances under the program. Funds Held by Trustees Funds held by trustees consist of irrevocable trusts totaling $39.9 million and $31.7 million at June 30, 2012 and 2011, respectively. Revenue Recognition The University recognized revenues from student tuition and fees within the fiscal year in which the academic term is predominantly conducted. Deposits and deferred revenues include advance tuition deposits and amounts billed to students for summer and certain fall sessions. Other Accrued Liabilities Other accrued liabilities include asset retirement obligations as discussed in Note 5, split-interest obligations as discussed in Note 8, the fair value of derivative financial instruments as discussed in Note 6, medical residents FICA claims refund payable as discussed in Note 16, and an estimated medical malpractice self-insurance liability of $32.7 million and $25.0 million at June 30, 2012 and 2011, respectively. During fiscal year 2012, the University implemented Accounting Standards Update (ASU) No. 2010-24, Presentation of Insurance Claims and Related Insurance Recoveries, which requires medical malpractice self-insurance liabilities to be reported gross of anticipated insurance recoveries and recognize a receivable at the same time it recognizes the liability. At June 30, 2012, $6.9 million was recorded as a liability and a receivable due to the implementation. U.S. Government Refundable Grants U.S. Government refundable grants consist of funds advanced by the federal government on the condition that the University administer various campus based student loan programs subject to federal regulations. Under certain conditions, the funds must be returned to the federal government. Accordingly, they are classified as liabilities in the Consolidated Statement of Financial Position. Foreign Currency Translation 1-60 Days 60-90 Days 90+ Days Total June 30, Past Due Past Due Past Due Past Due 2012 $ 41 6 327 $ 374 2011 $ 30 4 334 $ 368 The process of translating the University's Spanish campus financial statements from euros to U.S. dollars results in currency translation adjustments due to fluctuations in the exchange rate. The cumulative change in unrestricted net assets related to foreign currency translation adjustments as of June 30, 2012 and 2011 is ($2.5) million and ($0.2) million, respectively. 9

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Auxiliary Enterprises Revenues Auxiliary enterprises includes revenues of the University s residence halls, meal services, parking services and miscellaneous. Patient Care Revenues SLUCare patient fee related charges are recorded at the time of service. Estimated adjustments are calculated based on current trends for payor mix, historical collection rates, consideration for modifications in federal or contractual reimbursement, and any fee schedules changes for each area of service. Adjustments are posted each month end based on charges generated. The initial adjustments are reconciled every six months comparing expectation vs. performance at which time entries are made to each individual service area to true up prior adjustments recorded. This method anticipates a 100% resolution of charges within 24 months. The health care industry is subject to numerous laws and regulations of federal, state, and local governments. Laws and regulations governing Medicare and Medicaid programs are complex and subject to interpretation. Compliance with these laws and regulations, specifically those relating to the Medicare and Medicaid programs, can be subject to review and interpretation, as well as regulatory actions unknown and unasserted at this time. Federal government activity continues with respect to investigations and allegations concerning possible violations by health care providers of regulations, which could result in the imposition of significant fines and penalties, as well as significant repayments of previously billed and collected revenues from patient services. Management believes that SLUCare is in substantial compliance with current laws and regulations. In accordance with the mission of SLUCare, medical care is provided to individuals without insurance or other means of paying for such care. Charity write-off is determined based on guidelines established by the Department of Health and Human Services. Charges are recognized at the time of service and written off as charity, if appropriate. During fiscal years 2012 and 2011, $1.9 million and $1.5 million, respectively, were determined to be the cost of charity care. Costs are estimated using the ratio of patient care expenses to charges. Nonoperating Activities Nonoperating activities include the investment return net of amounts used for operations in accordance with the University s spending policy, unrealized losses and gains on interest rate swap agreements, foreign currency translation adjustments pertaining to in Spain, amounts relating to Hospital (see Note 2) prior to February 28, 1998, actuarial adjustments on split-interest agreements, and permanently restricted contributions. Nonoperating activities comprise the following: Year Ended June 30, June 30, 2012 2011 Unrestricted net assets: Investment return net of amounts designated for operations in accordance with the University s spending policy: Net return on endowment funds $ (33,492) $ 102,047 Net return on designated funds 12,065 11,629 Investment return on loan funds 4 7 Investment return on annuity/life income funds 159 1,465 Unrealized gains (losses) on interest rate swap agreements (29,571) 6,722 10

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Nonoperating Activities (continued) Year Ended June 30, June 30, 2012 2011 Foreign currency translation adjustment (2,324) 768 Amounts relating to Hospital prior to February 28, 1998 (17) 8 Medical residents FICA claims refund - 5,606 Other, net (203) 12,767 Temporarily restricted net assets: Investment return (9,521) 26,012 Other, net 642 (244) Permanently restricted net assets: Investment return 791 (2,664) Permanently restricted contributions and private grants 5,903 4,193 Net gains on assets held by trustees 8,202 3,349 Other, net 86 (10,070) $ (47,276) $ 161,595 Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2011 Reclassifications Certain reclassifications have been made to the 2011 financial statements to conform to the 2012 presentation. 2. THIRD-PARTY REIMBURSED HEALTH PROGRAMS Hospital Effective February 27, 1998, the University sold the net assets of Hospital (Hospital) to Tenet Health System Hospitals, Inc. (Tenet), while retaining all contingencies related to third-party reimbursement as it relates to Hospital services provided prior to February 28, 1998 and cost reports filed for periods through the date of the Hospital sale. Revenues received by the Hospital under certain third-party payor agreements are subject to retroactive adjustment based on Medicare and Medicaid cost reports filed by the Hospital. No adjustments occurred during the years ended June 30, 2012 and 2011. Management believes that the final settlement of prior year cost reports will not have a material effect on the University s financial position or changes in net assets. 11

2. THIRD-PARTY REIMBURSED HEALTH PROGRAMS (continued) University Medical Group Medicare reimburses physician services according to the Physicians Medicare Fee Schedule, a national fee schedule utilizing a Resource Based Relative Value System. Reimbursement under both the Missouri Medicaid program and the Illinois Public Aid program is based on state-published fee schedules. Reimbursement under the Medicaid Managed Care plans is based on both capitation payments (per member per month payment amounts) for primary care services and plan-specific fee schedules for specialized services. Payment for patient services covered by certain commercial insurance carriers, health maintenance organizations and preferred provider organizations is based upon reimbursement agreements which include negotiated rates and/or discounted fees for specific services. Contractual agreements exist with third-party payors which provide for patient care reimbursement at rates which differ from the established billing rates for such care. Revenues received by the University Medical Group (UMG) are subject to certain compliance requirements and audits by third-party payor groups which could result in retroactive adjustments. Management is of the opinion that the ultimate disposition of any retroactive adjustments as a result of such third-party audits would not have a material adverse effect on the University s financial position or changes in net assets. 3. INVESTMENTS Investment securities comprise the following: June 30, June 30, 2012 2011 Cash and Cash Equivalents $ 4,404 $ 54,695 Fixed Maturity Securities 342,123 310,807 Equity Securities 416,847 422,731 Real Estate Securities 79,173 72,998 Real Assets Commodities 21,704 22,998 Private Equity/Venture Capital 76,220 71,181 Hedge Funds 108,139 114,564 $ 1,048,610 $ 1,069,974 The University designates only a portion of its cumulative investment return for support of current operations; the remainder is reinvested to support operations of future years. The amount computed under the spending policy for pooled long-term investments and certain investment income earned by investing cash in excess of daily requirements are used to support current operations and are reflected in Education and Related Activities operating revenue. Earnings on investments for which related purpose restrictions are met in the year earned are recorded as unrestricted, including earnings on endowment net assets appropriated for current year expenditure. Under the terms of certain limited partnership agreements, the University is obligated to periodically advance additional funding for private equity/venture capital and real estate investments. At June 30, 2012 and 2011, the University had commitments of approximately $87.4 million and $49.6 million, respectively, for which capital calls had not been exercised. Of this total, $22.2 million and $9.8 million related to real estate investments and $65.2 million and $39.8 million related to private equity/venture capital, respectively, at June 30, 2012 and June 30, 2011. Such commitments generally have fixed expiration dates or other termination clauses. The University maintains sufficient liquidity in its investment portfolio to cover such calls. 12

3. INVESTMENTS (continued) The following schedule summarizes the investment return net of amounts designated for operations, and its classification in the Consolidated Statement of Activities excluding investments in irrevocable trusts that are included in funds held by trustee: Year Ended June 30, 2012 Temporarily Permanently Unrestricted Restricted Restricted Total (000 s omitted) Dividends and interest $ 18,956 $ 32 $ 651 $ 19,639 Net realized and unrealized losses (30,757) ( 9,553) 140 (40,170) Total return on investments (11,801) (9,521) 791 (20,531) Cumulative investment return designated for current operations (39,034) - - (39,034) Investment return net of amounts designated for current operations $ (50,835) $ (9,521) $ 791 $ (59,565) Year Ended June 30, 2011 Temporarily Permanently Unrestricted Restricted Restricted Total (000 s omitted) Dividends and interest $ 10,130 $ 29 $ 881 $ 11,040 Net realized and unrealized gains 146,931 25,983 (3,545) 169,369 Total return on investments 157,061 26,012 (2,664) 180,409 Cumulative investment return designated for current operations (35,191) - - (35,191) Investment return net of amounts designated for current operations $ 121,870 $ 26,012 $ (2,664) $ 145,218 The total return on investments is reported net of custodial and management fees of $11.9 million and $11.4 million for the years ended June 30, 2012 and 2011, respectively. The University invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the value of investment securities will occur in the near term and that such changes could materially affect amounts reported in the Consolidated Statement of Financial Position. 13

4. FAIR VALUE MEASUREMENTS Financial Accounting Standards Board (ASC Topic 820) outlines accounting principles related to Fair Value Measurements and Disclosures. This defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The University establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). Three levels of inputs that may be used to measure fair value are as follows: Level 1: Observable inputs such as quoted prices in active markets that the University has the ability to access at the measurement date or alternative investments that can be redeemed at net asset value per share (or its equivalent) at the measurement date and that have sufficient daily redemptions to support categorization as level 1. Level 2: Inputs, other than quoted prices in active markets such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. For alternative investments, also represents investments that can be redeemed at net asset value per share (or its equivalent) at or near the measurement date. Level 3: Unobservable inputs where there is little or no market data and requires the reporting entity to develop its own assumptions, and alternative investments that cannot be redeemed at net asset value per share (or its equivalent) at or near the measurement date. The following discussion describes the valuation methodologies used for financial instruments measured at fair value. The techniques utilized in estimating the fair values are affected by the assumptions used. Care should be exercised in deriving conclusions about the University s value or financial position based on the fair value information of financial instruments presented below. Fair market values of cash and cash equivalents are based on a share value price provided by the financial institution. Fair values of fixed maturity securities, excluding alternative investments, are based on prices provided by its investment managers and custodian bank. Both the investment managers and the custodian bank use a variety of pricing sources to determine market valuations. These sources may include yields currently available on comparable securities of issuers with similar credit ratings, dealer-supplied prices or by discounting future principal and interest payments at prevailing interest rates. The fair value of holdings of mutual funds, common collective trusts and commingled funds are determined by reference to the funds underlying assets, which are principally marketable fixed income securities with quotes on national exchanges. Fair values of equity securities, excluding alternative investments, and funds held by trustees are based on quoted market prices on national exchanges. To the extent that quoted market prices are not readily available, fair value may be determined based on broker or dealer quotations or alternate pricing sources with reasonable levels of price transparency. Alternative investments include certain amounts recorded as part of fixed maturity securities, equity securities, private equity/venture capital, hedge funds, and real estate investments. The strategy of such alternative investments is as follows: Alternative investments in fixed maturity securities have a net asset value of $51.4 million and $50.0 million at June 30, 2012 and 2011, respectively. These securities maintain a strategy to invest in a diversified portfolio of marketable bonds, and other bond-like securities designed to add value and diversify risk. Alternative investments in equity securities have a net asset value of $184.8 million and $214.0 million at June 30, 2012 and 2011, respectively. These securities maintain a strategy to invest in both domestic and international marketable securities that offer the potential for investment return and diversify risk. 14

4. FAIR VALUE MEASUREMENTS (continued) Alternative investments in private equity/venture capital funds have a net asset value of $76.2 million and $71.2 million at June 30, 2012 and 2011, respectively. These investments are longer-lived, and include an overall investment strategy designed to enhance return and diversify risk through investing in limited partnership interests and non-marketable operating companies. Investment in such entities can never be redeemed, yet the University receives distributions through the liquidation of the underlying assets of the fund. Alternative investments in hedge funds have a net asset value of $108.1 million and $114.6 million at June 30, 2012 and 2011, respectively. Hedge fund investments include allocations to diversify investment strategies, which include both marketable and non-marketable securities, and include an overall investment strategy designed to enhance return, diversify risk and dampen volatility by management of the hedge funds having the ability to shift investments from value to growth strategies, from small to large capitalization stocks, and from a net long position to a net short position. Alternative investments in real estate have a net asset value of $79.2 million and $73.0 million at June 30, 2012 and 2011, respectively. Real estate investments include an overall investment strategy designed to enhance return and to diversify risk within the investment portfolio by investing in the form of limited partnerships in operating companies that invest in U.S. real estate. This category also includes investments in commodities, which provide a hedge against inflation. Alternative investments in real assets commodities have a net asset value of $21.7 million and $23.0 million at June 30, 2012 and 2011 respectively. Real assets commodities include an overall investment strategy designed to enhance return and diversify risk within the investment portfolio by investing in liquid instruments of a wide array of commodity investments, which provide a hedge against inflation. Fair value of such alternative investments are valued using net asset values provided by external investment managers as a practical expedient in determining fair value. As of June 30, 2012 and 2011 the University had $521.4 million and $545.8 million, respectively, of investments in alternative investment funds which are reported at net asset value. Net asset values provided by external investment managers include estimates, appraisals, assumptions and methods that are reviewed by management. It is possible that the redemption rights may be restricted by the funds in the future in accordance with the underlying fund agreements. Changes in market conditions and the economic environment may impact the net asset value of the funds and, consequently, the fair value of the University s interests in the funds. The University s swap agreements are valued using observable market data, swap rates and basis rates. These inputs are placed into proprietary models to calculate the Mark-to-Market value of the interest rate swaps. The Mark-to- Market pricing is validated by management of the University. The following tables summarize the University s investments and other assets and liabilities by major category in the fair value hierarchy as of June 30, 2012 and 2011, as well as redemption/ liquidity information: 15

4. FAIR VALUE MEASUREMENTS (continued) June 30, 2012 Redemption / Days' Level 1 Level 2 Level 3 Total Liquidation Notice Financial Assets: Cash and cash equivalents $ 73,856 $ - $ - $ 73,856 Daily-Monthly 1 to 30 Investments: Cash and cash equivalents 4,404 - - 4,404 Daily 1 Fixed maturity securities: Governments 43,099 11,850-54,949 Daily-Monthly 1 to 30 Corporates 43,916 70,408-114,324 Daily-Monthly 1 to 30 M ortgages 77,236 51,652-128,888 Daily-Monthly 1 to 30 Municipals 5,319 7,739-13,058 Daily-Monthly 1 to 30 Asset Backed 29 5,997-6,026 Daily-Monthly 1 to 30 Other 1,080 9,187-10,267 Daily-Monthly 1 to 30 Cash and cash equivalents 1,555 13,056-14,611 Daily-Monthly 1 to 30 Equity securities: Large-Cap 128,062 612-128,674 Daily-Monthly 1 to 30 Mid-Cap 32,697 - - 32,697 Daily 1 to 30 Small Cap 49,746 1,847-51,593 Daily 1 to 30 Micro-Cap 10,563 - - 10,563 Daily 1 to 30 Emerging Market 22,313 41,312-63,625 Daily-Monthly 1 to 30 International Large-Cap 25,772 60,393-86,165 Daily-Monthly 1 to 30 International Small-Cap 36,906 - - 36,906 Daily-Monthly 1 to 30 Other 6,244-380 6,624 * Daily 1 to 30 Private Equity/Venture Capital - - 76,220 76,220 * Illiquid Private Equity/Venture Capital - Hedge Funds: Multi Strategy - 44,888 762 45,650 * Monthly-Qtrly 30 to 90 Event Driven - 10,835 4,165 15,000 Monthly-Qtrly 30 to 90 Macro - 5,011 5,452 10,463 Monthly-Qtrly 30 to 90 Credit - - 15,125 15,125 Monthly-Qtrly 30 to 90 Equity Market Neutral - 4,141 8,309 12,450 Monthly-Qtrly 30 to 90 Equity Long/Short - - 9,451 9,451 Monthly-Qtrly 30 to 90 Real Asset - Commodities 21,704 - - 21,704 Daily-Monthly 1 to 30 Real Estate investments - - 79,173 79,173 Illiquid Total investments 510,645 338,928 199,037 1,048,610 Funds Held by Trustees - - 39,940 39,940 Illiquid Total Assets $ 584,501 $ 338,928 $ 238,977 $ 1,162,406 16

4. FAIR VALUE MEASUREMENTS (continued) June 30, 2012 Redemption / Days' Level 1 Level 2 Level 3 Total Liquidation Notice Financial Liabilities: Swap agreements $ - $ 55,167 $ - $ 55,167 Total Liabilities $ - $ 55,167 $ - $ 55,167 * Amounts in Level 3 are illiquid. Note: Level 1 includes assets that may be redeemed at Net Asset Value per share (or its equivalent) at the measurement date and have sufficient daily redemptions to support categorization as Level 1. Note: There were no transfers between Level 1 classification and Level 2 classification. Certain alternative investments include gates or other redemption restrictions. Such restrictions were immaterial as of June 30, 2012 and 2011. Certain private equity/venture capital and real estate investments can never be redeemed with the investee, but the University receives distributions through the liquidation of underlying assets. The following table represents the redemption/liquidation maturities as of June 30, 2012: Real Estate Investments Private Equity/Venture Capital Maturity Range (Years) Fair Value Maturity Range (Years) Fair Value 0-3 $ 35,430 0-3 $ 28,678 4-7 39,282 4-7 42,498 8-11 4,461 8-11 5,044 $ 79,173 $ 76,220 17

4. FAIR VALUE MEASUREMENTS (continued) June 30, 2011 Redemption / Days' Level 1 Level 2 Level 3 Total Liquidation Notice Financial Assets: Cash and cash equivalents $ 61,219 $ - $ - $ 61,219 Daily-Monthly 1 to 30 Investments: Cash and cash equivalents 54,695 - - 54,695 Daily 1 Fixed maturity securities: Governments 47,763 52,390-100,153 Daily-Monthly 1 to 30 Corporates 33,719 51,341-85,060 Daily-Monthly 1 to 30 M ortgages 29,674 7,565-37,239 Daily-Monthly 1 to 30 Municipals 4,162 1,404-5,566 Daily-Monthly 1 to 30 Asset Backed 22 5,073-5,095 Daily-Monthly 1 to 30 Other 27,858 18,692-46,550 Daily-Monthly 1 to 30 Cash and cash equivalents 15,978 15,166-31,144 Daily-Monthly 1 to 30 Equity securities: Large-Cap 115,880 302-116,182 Daily-Monthly 1 to 30 Mid-Cap 39,581 - - 39,581 Daily 1 to 30 Small Cap 54,645 - - 54,645 Daily 1 to 30 Micro-Cap 10,596 - - 10,596 Daily 1 to 30 Emerging Market 22,102 43,151-65,253 Daily-Monthly 1 to 30 International Large-Cap 28,640 64,367-93,007 Daily-Monthly 1 to 30 International Small-Cap 22,251 19,744-41,995 Daily-Monthly 1 to 30 Other 1,034-438 1,472 * Daily 1 to 30 Private Equity/Venture Capital - - 71,181 71,181 * Illiquid Private Equity/Venture Capital - Hedge Funds: Multi Strategy - 57,654 1,160 58,814 * Monthly-Qtrly 30 to 90 Event Driven - 5,919-5,919 Monthly-Qtrly 30 to 90 Macro - 3,137 5,205 8,342 Monthly-Qtrly 30 to 90 Credit - 14,772 14,772 Monthly-Qtrly 30 to 90 Equity Market Neutral - 4,138 8,158 12,296 Monthly-Qtrly 30 to 90 Equity Long/Short - 4,670 9,751 14,421 Monthly-Qtrly 30 to 90 Real Asset - Commodities 22,998 - - 22,998 Daily-Monthly 1 to 30 Real Estate investments - - 72,998 72,998 Illiquid Total investments 531,598 354,713 183,663 1,069,974 Funds Held by Trustees - - 31,745 31,745 Illiquid Total Assets $ 592,817 $ 354,713 $ 215,408 $ 1,162,938 18

4. FAIR VALUE MEASUREMENTS (continued) June 30, 2011 Redemption / Days' Level 1 Level 2 Level 3 Total Liquidation Notice Financial Liabilities: Swap agreements $ - $ 25,596 $ - $ 25,596 Total Liabilities $ - $ 25,596 $ - $ 25,596 * Amounts in Level 3 are illiquid. Note: Level 1 includes assets that may be redeemed at Net Asset Value per share (or its equivalent) at the measurement date and have sufficient daily redemptions to support categorization as Level 1. Note: $33.4 million of equity securities and fixed maturity securities transferred from a Level 2 classification at June 30, 2010 to a Level 1 classification at June 30, 2011. In addition, $63.9 million of equity securities transferred from a Level 1 classification at June 30, 2010 to a Level 2 classification at June 30, 2011. These transfers were the result of a change in the redemption policies of the funds. The following table represents the redemption/liquidation maturities as of June 30, 2011: Real Estate Investments Private Equity/Venture Capital Maturity Range (Years) Fair Value Maturity Range (Years) Fair Value 0-3 $ 30,156 0-3 $ 21,201 4-7 36,134 4-7 45,450 8-11 6,708 8-11 4,530 $ 72,998 $ 71,181 19

4. FAIR VALUE MEASUREMENTS (continued) The following table presents additional information for all Level 3 assets measured at fair value on a recurring basis for the fiscal year ended June 30, 2012. Financial Assets Level 3 Assets Private Equity/ Venture Capital & Real Hedge Funds Estate Other Total (000 s Omitted) Beginning balance, July 1, 2011 $ 110,227 $ 72,998 $ 32,183 $ 215,408 Investment income including realized gains 4,893 1,589-6,482 Unrealized gains (losses) (4,297) 3,202 8,137 7,042 Purchases 22,131 7,052-29,183 Sales (13,470) (5,668) - (19,138) Ending balance, June 30, 2012 $ 119,484 $ 79,173 $ 40,320 $ 238,977 Total gains (losses) included in changes in net assets attributable to the change in unrealized gains and losses related to assets still held at the reporting date $ (4,297) $ 3,202 $ 8,137 $ 7,042 Other investments include Funds Held by Trustees and Equity securities, classified as Level 3 investments. The following table presents additional information for all Level 3 assets measured at fair value on a recurring basis for the fiscal year ended June 30, 2011. Financial Assets Level 3 Assets Private Equity/ Venture Capital & Real Hedge Funds Estate Other Total (000 s Omitted) Beginning balance, July 1, 2010 $ 79,892 $ 48,800 $ 28,008 $ 156,700 Investment income including realized gains 7,584 1,132 2,456 11,172 Unrealized gains 4,041 13,152-17,193 Purchases, sales, issuances and settlements, net 7,913 9,914 (1,116) 16,711 Net transfers in and out of Level 3 10,797-2,835 13,632 Ending balance, June 30, 2011 $ 110,227 $ 72,998 $ 32,183 $ 215,408 Other investments include Funds Held by Trustees, Fixed maturity securities, and Equity securities classified as Level 3 investments. 20

5. LAND, BUILDINGS, AND EQUIPMENT Physical properties comprise the following: June 30, June 30, 2012 2011 Land $ 66,108 $ 53,509 Buildings and building improvements 737,029 720,998 Equipment 120,884 114,492 Construction in progress 16,370 20,416 940,391 909,415 Less: Accumulated depreciation (376,590) (350,572) $ 563,801 $ 558,843 Buildings and equipment are stated at cost, less accumulated depreciation. Land is stated at cost at the date of acquisition or estimated fair value at date of contribution. Maintenance, repairs, and minor renewals are expensed as incurred. Depreciation is calculated on the straight-line basis. Depreciable lives are estimated as 40-50 years for buildings, 10-35 years for building improvements, and 3-15 years for equipment. Depreciation expense for the University was $33.8 million and $33.2 million for the years ended June 30, 2012 and 2011, respectively. Construction in progress consists of construction expenditures for physical properties that have not yet been placed in service. Asset Retirement Obligation U.S. generally accepted accounting principles defines a conditional asset retirement obligation as a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Uncertainty with respect to the timing and/or method of settlement of the asset retirement obligation, does not defer recognition of a liability. The obligation to perform the asset retirement activity is unconditional, and accordingly, a liability should be recognized. These rules also provide guidance with respect to the criteria to be used to determine whether sufficient information exists to reasonably estimate the fair value of an asset retirement obligation. Based on these rules, management of the University determined that sufficient information was available to reasonably estimate the fair value of known retirement obligations, therefore the University recognized an expense of $0.3 million for June 30, 2012 and 2011, in the Consolidated Statement of Activities. As of June 30, 2012 and 2011, $1.0 million of asset retirement costs for each year, net of accumulated depreciation, has been included in land, buildings and equipment and $6.3 million and $6.1 million for June 30, 2012 and 2011, respectively, of conditional retirement assets obligation are included within other accrued liabilities in the Consolidated Statement of Financial Position. Interest and depreciation expenses related to the asset retirement obligation for the year June 30, 2012 and June 30, 2011, were $0.3 million and are included in depreciation expense recognized by the University. 21