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U n i v e r s i t y o f v e r m o n t & s t a t e a g r i c U l t U r a l c o l l e g e 2 0 0 7 f i n a n c i a l r e p o r t

(a c omponen t un i t o f t h e S ta t e o f V e rmont )

2 0 0 7 A N N U A L F I N A N C I A L R E P O R T

U n i v e r s i t y o f v e r m o n t & s t a t e a g r i c U l t U r a l c o l l e g e ( a c o m p o n e n t u n i t o f t h e S t a t e o f V e r m o n t )



2 0 0 7 A N N U A L F I N A N C I A L R E P O R T

U n i v e r s i t y o f v e r m o n t & s t a t e a g r i c U l t U r a l c o l l e g e ( a c o m p o n e n t u n i t o f t h e S t a t e o f V e r m o n t )



AdministrationDaniel Mark Fogel PresidentJohn M. Hughes Senior Vice President and Provost Francine T. Bazluke Vice President for Legal Affairs and General CounselFrances E. Carr Vice President for Research and Dean of the Graduate CollegeJ. Michael Gower Vice President for Finance and Administration and University TreasurerThomas J. Gustafson Vice President for Student and Campus LifeMarcus M. Diamond Vice President for Development and Alumni RelationsKaren N. Meyer Vice President for Federal, State and Community RelationsChristopher H. Lucier Vice President for Enrollment ManagementDonald H. DeHayes Dean, The Rubenstein School of Environment and Natural ResourcesRocki-Lee DeWitt Dean, School of Business AdministrationFrederick C. Morin, III Dean, College of MedicineDomenico Grasso Dean, College of Engineering and MathematicsRachel K. Johnson Dean, College of Agriculture and Life SciencesEleanor M. Miller Dean, College of Arts and SciencesDavid A. Nestor Dean of StudentsBetty A. Rambur Dean, College of Nursing and Health SciencesMara R. Saule Dean, University Libraries and Learning ResourcesFayneese S. Miller Dean, College of Education and Social ServicesAbu Rizvi Interim Dean, Honors CollegeCarol M. Vallett and Cynthia L. Belliveau Directors, Continuing Education

The University of Vermont

The Board of TrusteesCarl H. Lisman, chair, Burlington, Vermont (March 2008)Frank J. Cioffi, vice chair, St. Albans, Vermont (March 2011)Bill Botzow, secretary, Bennington, Vermont (March 2011)

Edwin H. Amidon, Jr., Charlotte, Vermont (March 2009)Claire D. Ayer, Weybridge, Vermont (March 2011)James M. Betts, Oakland, California (March 2010)Ian D. Boyce, Fort Wayne, Indiana, (March 2012)Harry L. Chen, Mendon, Vermont (March 2013)Robert F. Cioffi, Rowayton, Connecticut (March 2008)Jeffrey L. Davis, Burlington, Vermont (March 2013)Johannah Donovan, Burlington, Vermont (March 2011)Martha P. Heath, Westford, Vermont (March 2009)John A. Hilton, Jr., New York, New York (March 2012)

Susan Hudson-Wilson, Chebeaque Island, Maine (March 2012)James P. Leddy, South Burlington, Vermont (March 2009)Deborah H. McAneny, Southborough, Massachusetts (March 2010)Raymond C. Pecor, Jr., Shelburne, Vermont (March 2008)Beth H. Rice, Burlington, Vermont (March 2009)John R. Snow, Charlotte, Vermont (March 2010)Donna G. Sweeney, Windsor, Vermont (March 2013)Jeanette White, Putney, Vermont (March 2013)Stirling A. Winder, Burlington, Vermont (March 2008) Robert H. Young, Rutland, Vermont (March 2009)

Daniel Mark Fogel, President, ex officioJames H. Douglas, Governor, ex officio



Table of Contents

1 Letter from the President

2 Management’s Responsibilit y for the Financial Report

3 Independent Auditors’ Report

5 Management’s Discussion and Analysis

14 Statement of Net Assets

15 Statement of Revenues, Expenses and Changes

in Net Assets

16 Statement of Cash Flows

17 Notes to Financial Statements

2 0 0 7 A N N U A L

F I N A N C I A L R E P O R T



1

U N I V E R S I T Y O F V E R M O N TLetter from the President

Members of the Board of Trustees:

It is with great pleasure that I present the Annual Financial Report for the Fiscal Year Ended June 30, 2007 to you and to all of our stakeholders, including our students, faculty and staff, our generous alumni and donors, and the citizens of the State of Vermont.

In these financial statements there is clear evidence that we are on track with the invest-and-grow strategy that we have been pursuing for the past five years. Over that time we have laid down, brick by brick, the foundations of enhanced quality and competitiveness at UVM. As we move forward toward our lofty but achievable goal – to be among the nation’s premier small research universities, a goal which will be the

work of decades – we do so with a solid financial foundation. The key building blocks are our Strategic Financial Plan and Strategic Capital Plan, along with the engagement of our stakeholder community in supporting those plans and in holding us accountable for their execution. Through this disciplined approach, our invest-and-grow strategy will allow us to continue to grow nationally-recognized academic quality and long-term fiscal strength, and to do so prudently within our means. Indeed, we are doing just that, not merely by building programmatic quality through innovations ranging from the Honors College to the National University Transportation Center to the Vermont Integrated Curriculum in Medicine, not just through growing levels of philanthropic support, but also through cost-effective management of the University.

In October 2007, we had the formal dedication of the Dudley H. Davis Center; a Homecoming Weekend with record attendance, highlighted by a gala celebration of our success in The Campaign for the University of Vermont; and recognition of UVM by the Sustainable Endowments Institute as one of only six schools to have earned the highest grade for sustainable institutional practices out of the 200 American colleges and universities with the largest endowments. Then, in November we hosted a press conference here on campus for Governor Douglas, who announced a formal, long-term partnership between the State and the University to address global climate change and the development of a Green Economy for Vermont, precisely the “big idea” that my administration and members of this Board have been advocating for some years.

Emboldened by our success together to date, we are nevertheless intent on pursuing a destiny that requires, for its fulfillment, discipline, focus, and unremitting effort over the long haul.

Sincerely,

Daniel Mark FogelPresident



U N I V E R S I T Y O F V E R M O N TManagement’s Responsibility for the Financial Report

The accompanying financial statements of The University of Vermont and State Agricultural College for the year ended

June 30, 2007 are official documents prepared in accordance with U.S. generally accepted accounting principles set

forth for public colleges and universities by the Governmental Accounting Standards Board. The management of the

University is responsible for the integrity and objectivity of these financial statements, which are accessible to all.

The University’s system of internal accounting controls is designed to assure that the financial reports and the books

of account properly reflect the transactions of the institution, in accordance with established policies and procedures

as implemented by qualified personnel.

The University Trustees selected the certified public accounting firm of KPMG, LLP to conduct the annual financial

audit for fiscal year 2007.

Periodically throughout the year the Trustee Audit Committee meets with the Institutional Risk and Audit Services

Office and the external independent audit firm to review the audit plan and later the report. The Vermont State

Auditor is invited to attend those meetings to offer comments and opinions. Both KPMG and the Institutional Risk

and Audit Services Office have full access to the University Trustees and the State Auditor throughout the year.

J. Michael Gower,

Vice President for Finance and Administration

and University Treasurer

Bonnie Cauthon

Associate Vice President for Finance

and University Controller

2



U N I V E R S I T Y O F V E R M O N T

3

KPMG LLP P.O. Box 564 Suite 400

Burlington, VT 05402 356 Mountain View Drive

Colchester, VT 05446

Independent Auditors' Report

To the Honorable Thomas Salmon, Auditor of the Accounts of theState of Vermont and

The Board of Trustees The University of Vermont and State Agricultural College:

We have audited the accompanying financial statements of the business-type activities and the discretely presented component unit of The University of Vermont and State Agricultural College ("the University”) (a component unit of the State of Vermont) as of and for the years ended June 30, 2007 and 2006, which collectively comprise the University’s basic financial statements as listed in the table of contents. These financial statements are the responsibility of the University's management. Our responsibility is to express opinions on these financial statements based on our audits. We did not audit the financial statements of the discretely presented component unit. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinions, insofar as they relate to the amounts included for the discretely presented component unit, are based on the report of the other auditors.

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 the 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 opinions.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the discretely presented component unit of the University as of June 30, 2007 and 2006, and the respective changes in financial position, and where applicable, cash flows thereof for the years then ended in conformity with U.S. generally accepted accounting principles.

KPMG LLP, a U.S. limited liability partnership, is the U.S. member firm of KPMG International, a Swiss cooperative.























U N I V E R S I T Y O F V E R M O N T

4

The Management’s Discussion and Analysis (MD&A) is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

December 5, 2007

2Vt. Reg. No. 92-0000241

2

The Management’s Discussion and Analysis (MD&A) is not a required part of the basic financial statements but is supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

December 5, 2007

2Vt. Reg. No. 92-0000241

2



Introduction

The unaudited Management’s Discussion and Analysis (MD&A) is intended to supplement the audited Financial Statements of the University of Vermont and State Agricultural College (“the University”). Discussion and analysis is generally limited to information regarding the basic financial statements and includes management’s view of financial highlights and outlook for the future where appropriate and relevant.

The University is a public, non-profit, comprehensive research institution of higher education with a fall 2007 enrollment of 11,189 undergraduate, graduate, and medical students. It is located in Burlington, Vermont with satellite instructional and research sites throughout Vermont. It is a component unit of the State of Vermont as it receives an annual appropriation from the State. The financial statements also present information for University Medical Education Associates, Inc. (UMEA). UMEA is a legally separate tax-exempt component unit of the University whose purpose is to support the operations, activities and objectives of the College of Medicine of the University of Vermont. The MD&A discusses the University’s financial statements only and not that of its component unit.

5

U N I V E R S I T Y O F V E R M O N TManagement’s Discussion and Analysis (MD&A)

(Unaudited) June 30, 2007 and 2006 Financial Highlights and Economic Outlook

The University increased its net assets in fiscal 2007, with a total increase of $48.1 million, or 8.63%. The University is engaged in realization of a long-term strategic plan that was incorporated into a financial feasibility study and then into a strategic financial model in 2004. The financial model is dynamic and has been updated and rolled forward each year to incorporate actual results. A cornerstone of the strategic plan has been growth in each area of the University’s diverse revenue base. Total operating revenues increased in fiscal 2007 by 5.3%, with a 9.6% increase in net student tuition and fees. There was a slight decrease of .3% in federal, state, and private contracts and grants and a 9.7% increase in auxiliary enterprises. Certain important non-operating revenues also increased, including an increase of 11% in state appropriations, a 94.7% increase in investment income and an increase of 10.9% in private gifts. As presented in the chart below, net student fees and grants and contracts comprise the largest sources of revenue.

40%

20%

6% 3%

8%

3%

14%

6%Net Student fees

Federal, state and local grantsand contracts

Non-governmental grants andcontracts

Sales and services ofeducational activities and otherincomeOther auxiliary enterprises

State Appropriations, general

Private gifts

Interest and Dividends, net



6

In addition to increasing revenues the University strives to control costs. Compensation and benefits represents the most significant operating cost, comprising 61.0% of operating costs in 2007. Health care benefits are an increasing portion of compensation and benefits, with increases to the net cost of health plan benefits of 7.4%, 6.0%, and 11.0% for 2007, 2006, and 2005, respectively.

The chart below presents operating expenses for fiscal 2007:

The strategic plan includes investment in the physical and technological infrastructure of the University. Financing for this investment has come from a combination of donor generosity and the issuance of debt by the University. In 2005 the University established a commercial paper program with authorization for $100 million. The program is primarily intended to provide temporary financing for capital projects. The commercial paper is secured through the University’s internal liquidity and a $50 million revolving credit agreement.

On July 11, 2007 the University issued $158.2 million of general obligation bonds for the purpose of refunding outstanding general obligation bonds in the 1998 and 2002 series in the amount of $77.2 million and commercial paper notes of the University in the amount of $44.1 million and to finance the cost of construction, acquisition, renovation and equipping of various facilities of the University in the amount of $36.8 million.

Projects completed during the current fiscal year included the South component of the University Heights Residential Learning Complex, with a total of 393 beds plus four apartments. Including the North Complex which was placed in service in fiscal 2006, the entire complex represents a total of 801 new beds and eight apartments. Construction on the Davis Student Center was substantially completed in fiscal 2007 and the center was opened for Fall semester 2007. In addition, the University completed its first full year of operations with its new enterprise resource planning system in fiscal 2007.

Page 2 of 15

40%

20%

6% 3%

8%

3%

14%

6%Net Student fees

Federal, state and local grants

and contracts

Non-governmental grants and

contracts

Sales and services of

educational activities and other

incomeOther auxiliary enterprises

State Appropriations, general

Private gifts

Interest and Dividends, net

In addition to increasing revenues the University strives to control costs. Compensationand benefits represents the most significant operating cost, comprising 61.0% ofoperating costs in 2007. Health care benefits are an increasing portion of compensationand benefits, with increases to the net cost of health plan benefits of 7.4%, 6.0%, and11.0% for 2007, 2006, and 2005, respectively.


61%

4% 2% 2%

31%

Compensation and benefits

Supplies and services

Depreciation

Scholarships and fellowships

Interest and other

The strategic plan includes investment in the physical and technological infrastructure ofthe University. Financing for this investment has come from a combination of donorgenerosity and the issuance of debt by the University. In 2005 the University establisheda commercial paper program with authorization for $100 million. The program isprimarily intended to provide temporary financing for capital projects. The commercialpaper is secured through the University’s internal liquidity and a $50 million revolvingcredit agreement.

Tuition and fees represent, net of scholarships, 40.0% of total revenues for fiscal 2007. The University’s strategic plan includes a planned increase in undergraduate and graduate enrollment. That plan was on track in the fall of 2007, with 635 in-state and 1,815 out-of-state first-time, first-year enrollments. In the fall of 2007 the University enrolled 9,454 students in more than 80 undergraduate majors, 1,320 students in graduate and post baccalaureate programs, and 415 students at the College of Medicine. While the University attracts students from 48 states and many foreign countries, the University is primarily a regional institution, drawing 89.5% of the undergraduates enrolled in the fall of 2007 from New England and the Middle Atlantic States, including 34.7% of its undergraduate students from Vermont. In the fall of 2007 40.5% of total students at the University were from Vermont.

The University admissions for the fall of 2007 exceeded targets, putting the University ahead of its schedule for enrollment growth. The tables below present applications, admissions and enrollment for in-state and out-of-state students, with recent trends being positive. Based on preliminary numbers for the fall of 2007, total applications have increased 128% since 2001, with in-state applications increasing 40% and out-of-state applications increasing 147%. Total admissions have increased for that period by 99%, with in-state admissions increasing 17% and out-of-state admissions increasing 119%. Total enrollments have increased since 2001 by 33%, with in-state enrollments increasing by 14% and out-of-state enrollments increasing by 42%.



7

Trends in Vermont Applications, Admits, and Enrollments,

Fall 2001 to Fall 2007

1,486

1,652 1,682 1,709

2,1732,086

1,2951,231

1,328 1,323

1,506 1,495 1,521

558 533 547 500

655 603 635

1,842

0

500

1,000

1,500

2,000

2,500

F 2001 F 2002 F 2003 F 2004 F 2005 F 2006 F 2007

VT Applicants VT Admits VT Enrolls

Trends in Out-of-State Applications, Admits, and Enrollments, Fall 2001 to Fall 2007

6,782

8,124

9,675

15,558

5,283

6,4647,373

10,035

11,558

1,291 1,308 1,376 1,460 1,739 1,587 1,815

8,774

16,728

11,173

5,760

8,933

0

2,500

5,000

7,500

10,000

12,500

15,000

17,500

F 2001 F 2002 F 2003 F 2004 F 2005 F 2006 F 2007

OS Applicants OS Admits OS Enrolls

Trends in Vermont Applications, Admits, and EnrollmentsFall 2001 to Fall 2007

Trends in Out-of-State Applications, Admits, and EnrollmentsFall 2001 to Fall 2007



8

The University and its Board of Trustees have made a concerted effort to contain increases in tuition and fees with the average annual increases for in-state and out-of-state fees held to 5.50% and 5.05%, respectively, since 2001. The table below presents tuition and fees as well as room and board for that period.

The University and its Board of Trustees have made a concerted effort to contain increases in tuition and fees with the average annual increases for in-state and out-of-state fees held to 5.50% and 5.05%, respectively, since 2001. The table below presents tuition and fees, as well as room and board for that period.

AverageAnnual

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 % Increase

Student FeesIn-State Tuition and Fees $8,665 $8,994 $9,636 $10,226 $10,748 $11,324 $12,054 5.50%Out-of-State Tuition and Fees $20,725 $21,484 $22,688 $23,866 $24,934 $26,308 $27,988 5.05%

Room (Double) $4,040 $4,232 $4,465 $4,710 $4,936 $5,150 $5,426 5.03%Board (Average Meal Plan) $2,056 $2,146 $2,216 $2,306 $2,396 $2,492 $2,598 4.12%

Total, In-State Cost $14,761 $15,372 $16,317 $17,242 $18,080 $18,966 $20,078Increase Over Previous Year 4.73% 4.14% 6.15% 5.67% 4.86% 4.90% 5.86% 5.19%

Total, Out-of-State Cost $26,821 $27,862 $29,369 $30,882 $32,266 $33,950 $35,962Increase Over Previous Year 4.61% 3.88% 5.41% 5.15% 4.48% 5.22% 5.93% 4.95%

In-State & Out-of-State Fees

State of Vermont (“the State”) general appropriations represented 8.0% of the University’s total revenues for fiscal year 2007. The State provides consistent support in the form of increased appropriations for higher education. Appropriations have increased each of the last three years, with general appropriations of $41.0 million and Maine Access Fees of $.2 million, as well as $2.7 million of one-time appropriations for special scholarships and technology innovation, for a total of $43.9 million in fiscal 2007, compared to $ 39.5 million for 2006 and $38.3 million in 2005. State funding represents 8.0% ($42.3 million) of the total fiscal year 2008 operating budget, an increase of 3.5% from the 2007 budget.

Grant and contract revenues of $139.8 million represented 20.0% of total revenues for fiscal 2007, and included facility and administrative cost recoveries of $25.5 million. During fiscal 2007, the University was awarded over $107.2 million in sponsored funds, $80.1 million of which was for research activities. Approximately 74.5% of sponsored funds awarded during fiscal 2007 were from federal sources. The University’s leading areas of externally sponsored programs are the biomedical sciences, agriculture, the environment, and education.

The following chart presents the growth of sponsored programs over the past decade:

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Awar

ded

Fund

s (in

Milli

ons)

ResearchInstructionOther **

Sponsored Program Awards By Purpose

Fiscal Year



In addition to increasing revenues the University strives to control costs. Compensation and benefits represents the most significant operating cost, comprising 61.0% of operating costs in 2007. Health care benefits are an increasing portion of compensation and benefits, with increases to the net cost of health plan benefits of 7.4%, 6.0%, and 11.0% for 2007, 2006, and 2005, respectively.


The strategic plan includes investment in the physical and technological infrastructure of the University. Financing for this investment has come from a combination of donor generosity and the issuance of debt by the University. In 2005 the University established a commercial paper program with authorization for $100 million. The program is primarily intended to provide temporary financing for capital projects. The commercial paper is secured through the University’s internal liquidity and a $50 million revolving credit agreement.

On July 11, 2007 the University issued $158.2 million of general obligation bonds for the purpose of refunding outstanding general obligation bonds in the 1998 and 2002 series in the amount of $77.2 million and commercial paper notes of the University in the amount of $44.1 million and to finance the cost of construction, acquisition, renovation and equipping of various facilities of the University in the amount of $36.8 million.

Projects completed during the current fiscal year included the South component of the University Heights Residential Learning Complex, with a total of 393 beds plus four apartments. Including the North Complex which was placed in service in fiscal 2006, the entire complex represents a total of 801 new beds and eight apartments. Construction on the Davis Student Center was substantially completed in fiscal 2007 and the center was opened for Fall semester 2007. In addition, the University completed its first full year of operations with its new enterprise resource planning system in fiscal 2007. Tuition and fees represent, net of scholarships, 40.0% of total revenues for fiscal 2007. The University’s strategic plan includes a planned increase in undergraduate and graduate enrollment. That plan was on track in the fall of 2007, with 635 in-state and 1,815 out-of-state first-time, first-year enrollments. In the fall of 2007 the University enrolled 9,454 students in more than 80 undergraduate majors, 1,320 students in graduate and post baccalaureate programs, and 415 students at the College of Medicine. While the University attracts students from 48 states and many foreign countries, the University is primarily a regional institution, drawing 89.5% of the undergraduates enrolled in the fall of 2007 from New England and the Middle Atlantic States, including 34.7% of its undergraduate students from Vermont. In the fall of 40.5% of total students at the University were from Vermont.

The University admissions for the fall of 2007 exceeded targets, putting the University ahead of its schedule for enrollment growth. The tables below present applications, admissions and enrollment for in-state and out-of-state students, with recent trends being positive. Based on preliminary numbers for the fall of 2007, total applications have increased 128% since 2001, with in-state applications increasing 40% and out-of-state applications increasing 147%. Total admissions have increased for that period by 99%, with in-state admissions increasing 17% and out-of-state admissions increasing 119%. Total enrollments have increased since 2001 by 33%, with in-state enrollments increasing by 14% and out-of-state enrollments increasing by 42%.

9

The University completed its comprehensive fundraising campaign during fiscal 2007, coming in at $278.5 million, well above the target of $250 million. Major initiatives of the campaign include: promoting academic excellence -- particularly in the areas of the environmental sciences, health sciences, and liberal arts -- through faculty chairs and professorships, increased merit and need-based scholarship opportunities, and creation of an honors college; building academic community among first-year students; promoting athletic excellence; and advancing diversity.

Overview of the Financial Statements The financial statements of the University of Vermont and State Agricultural College (the “University”) comprise two primary components: 1) the financial statements and 2) the notes to the financial statements. The financial statements focus on the University as a whole, rather than upon individual funds or activities.

University Medical Associates, Inc. (UMEA) is a legally separate tax-exempt component unit of the University of Vermont which issues separate audited financial statements. UMEA is presented as a separate column on the University’s Statement of Net Assets and Statement of Revenues, Expenses and Change in Net Assets.

The University’s financial report includes three financial statements: the Statement of Net Assets, the Statement of Revenues, Expenses and Changes in Net Assets, and the Statement of Cash Flows. These financial statements are prepared in accordance with U.S. generally accepted accounting principles, as defined for public colleges and universities by the Governmental Accounting Standards Board (GASB).

Statement of Net AssetsNet assets, or the difference between total assets and total liabilities, is considered an indicator of the current financial condition of the University. The statement of net assets presents all assets and liabilities of the University as of a specific date, June 30, the final day of the fiscal year. Assets and liabilities are classified as current or non-current. Current assets are classified as such if they are available to satisfy current liabilities, which are generally defined as being due within one year of the date of the statement of net assets. Condensed information for Net Assets at June 30, 2007, with comparative information for June 30, 2006 and 2005 follows:

(in thousands)

2007 2006 2005 Assets

Current assets $181,417 $155,958 $147,229 Non-current assets: Endowment, annuities and life income cash and cash equivalents and investments 320,994 267,776 244,267 Deposits with Trustees 39,461 99,552 38,814 Capital assets, net 480,114 422,395 323,605 Other 39,514 39,928 40,356

Total non-current assets 880,083 829,651 647,042 Total assets 1,061,500 985,609 794,271 Liabilities

Current liabilities 75,452 65,161 66,230Non-current liabilities 380,249 362,755 200,992 Total liabilities 455,701 427,916 267,222

Net assetsInvested in capital assets, net of related debt 122,888 125,562 131,575 Restricted:

Nonexpendable 72,138 66,190 61,880 Expendable 299,054 239,966 228,333

Unrestricted 111,719 125,975 105,261 Total Net assets $605,799 $557,693 $527,049

Net assets totaled $605.8 million, $557.7 million, and $527.0 million at June 30, 2007, 2006, and 2005, respectively, increasing by $48.1 million, or 8.6%, in 2007 and $30.6 million, or 5.8%, in 2006. The positive increases in both years were significantly assisted by strong performance of the University’s endowment.



10

Current assets of $181.4, $156.0, and $147.2 million at June 30, 2007, 2006, and 2005, respectively, consist primarily of cash and cash equivalents, and operating investments, which totaled $114.5 million at June 30, 2007, $106.9 million at June 30, 2006, and $100.5 million at June 30, 2005. Cash and cash equivalents represents approximately 2.9, 3.0, and 3.0 months of total operating expenses, excluding depreciation, for 2007, 2006, and 2005, respectively. The net increase to current assets in 2007 of $25.5 million was primarily due to a $16.8 million increase in accounts receivable, an increase in cash and cash equivalents of $2.1 million, an increase in operating investments of $5.5 million, an increase in investments for capital activities of $.7 million, and an increase of $.3 million in inventories, prepaid expenses and deferred charges. The net increase to current assets in 2006 of $8.7 million was comprised primarily of an increase to cash and cash equivalents and operating investments of $6.4 million and an increase in accounts, loans, notes and pledges receivable of $1.6 million.

Endowment cash, cash equivalents and investments totaled $321.0 million, $267.8 million, and $244.3 million, at June 30, 2007, 2006, and 2005, respectively, representing an increase of $53.2 million, or 19.9%, in 2007 and $23.5 million, or 9.6%, in 2006. The University’s long-term investment pool consists of permanent endowments, term endowments, and funds functioning as endowment, commonly referred to as quasi-endowments.

Permanent endowments are those funds received from donors with the stipulation that the principal remain inviolate and be invested in perpetuity to produce income to be expended for the purposes specified by the donor. Term endowments are those funds received from donors that function as endowment until a specific event occurs, such as reaching a certain balance. Funds functioning as endowment consist of restricted gifts and unrestricted funds that have been designated by the University’s Board of Trustees for long-term investment purposes. These funds are not subject to donor restrictions requiring the University to preserve the principal in perpetuity. Programs supported by the endowment include scholarships, fellowships, professorships, research efforts and other programs and activities related to the University’s mission.

The University’s investment objective for endowment growth is to obtain an average real annual rate of return (net of investment fees) over the long-term, using a five-year moving average, of at least 5% over inflation, as measured by the Consumer Price Index. The current annual spending allocation is at a budgeted rate of 4.5% of the previous 13 quarters’ average market value of the long-term investment pool. The spending distributions from the total endowment were $10.9 million, $9.5 million, and $8.8 million, in fiscal years ended June 30, 2007, 2006, and 2005, respectively. These distributions were 3.4%, 3.8%, and 3.9%, of the beginning market value of the endowment for fiscal years 2007, 2006, and 2005, respectively.

The decrease in Deposits with trustees of $60.1 million in 2007 was primarily due to draw downs of $61.6 for construction and other capital projects offset by interest earned on deposits of $1.5 million. The increase in Deposits with trustees of $60.7 million in 2006 was primarily the result of bond proceeds of $156.8 million from the 2005 Series general obligation bonds issued in September 2005, net of draw downs and interest earned for the 2005 and 2002 Series general obligation bonds in the net amount of $95.7 million. The construction fund of the 2005 bond totaled $13.6 million at June 30, 2007 and $74.3 million at June 30, 2006. The construction fund of the 2002 bond totaled $1.0 million, $2.7 million, and $6.0 million, at June 30, 2007, 2006, and 2005, respectively. Major capital projects funded through the 2005 bond issue include residential life facilities and the continuing construction costs for the Davis Student Center. Major capital projects funded through the 2002 bond issue included new research facilities, residential life facilities, a parking facility, life safety system modifications to existing residential life buildings, and heat line replacement.

Capital assets, net of accumulated depreciation, totaled $480.1 million, $422.4 million, and $323.6 million, at June 30, 2007, 2006, and 2005, respectively, representing an increase of $57.7 million, or 13.7%, in 2007 and $98.8 million, or 30.5%, in 2006. Gross capital additions totaled $122.8 million in 2007 and $129.8 million in 2006. Capital additions in 2007 included land of $1.9 million, a new student center, residence halls and other buildings of $72.9 million, building components and equipment of $3.4 million, software systems of $11.8 million, and construction in progress of $32.8 million. Capital additions in 2006 included land of $1.2 million, new residence halls and academic buildings of $76.1 million, building components and equipment of $12.3 million, software systems of $11.6 million and construction in progress of $28.6 million.

Current liabilities had an increase of $10.3 million in 2007 compared to a decrease of $1.1 million in 2006. The significant increase in 2007 was primarily due to an increase of $8.9 million in accounts payable and accrued liabilities, resulting from year-end efforts at June 30, 2006 to minimize accounts payable as part of the transition to the new enterprise resource planning system implemented in July 2007, and an increase of $1.2 million in deferred revenue, deposits and funds held for others.

Non-current liabilities increased $17.5 million in 2007 compared to $161.8 million in 2006. The significant increase in 2006 was primarily the result of the 2005 general obligation bonds issued in September 2005. The increase in 2007 was primarily due to the issuance of commercial paper notes in the amount of $20.1 million, offset by payments of bond principal of $4.4 million, and increases in other accrued liabilities of $.9 million in 2007.

Net assets invested in capital assets, net of related debt, of $122.9, $125.6, and $131.6, at June 30, 2007, 2006, and 2005, respectively, represent the University’s capital assets of land, buildings and equipment net of accumulated



11

depreciation and net of outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. The decrease of $2.7 million in 2007 is primarily due to the net effect of additions to capital assets of $79.4 million, the increase in bonds payable related to those assets of $60.4 million, depreciation expense of $20.4 million and loss on disposal of $1.2 million. The decrease of $6.0 million in 2006 was primarily due to the net effect of additions to capital assets of $116.5 million, the increase in bonds payable related to those assets of $104.7 million, and depreciation expense of $16.8 million.

Restricted nonexpendable net assets totaling $72.1 million, $66.2 million, and $61.9 million, at June 30, 2007, 2006, and 2005, respectively, consist entirely of the University’s permanent endowment funds. The corpus of nonexpendable restricted resources is only available for investment purposes. The increase of $5.9 million, or 9.0%, in 2007 was due to gifts of $5.9 million. The increase of $4.3 million, or 7.1%, in 2006, included gifts of $4.2 million.

Restricted expendable net assets are subject to externally imposed restrictions governing their use. Restricted expendable net assets totaled $299.1 million, $240.0 million, and $228.3 million, as of June 30, 2007, 2006, and 2005, respectively.

Unrestricted net assets are not subject to externally imposed stipulations. However, substantially all of the University’s unrestricted net assets have been designated for various academic and research programs and initiatives, as well as capital projects. Unrestricted net assets totaled $111.7 million, $126.0 million, and $105.3 million, for June 30, 2007, 2006, and 2005, respectively.

Statement of Revenues, Expenses and Changes in Net Assets The components of the change in net assets are presented in the statement of revenues, expenses and changes in net assets. This statement displays the revenues earned by the University, the expenses incurred by the University and the resulting increase or decrease in net assets. Revenues and expenses are categorized as either operating or nonoperating and net operating income or loss is displayed. Operating revenues generally are those earned through providing services or goods to the University’s customers. Operating expenses are incurred in providing those services and goods. Significant recurring sources of the University’s revenues, including state appropriations and gifts and investment income or loss are considered non-operating.

Condensed information for the year ended June 30, 2007, with comparative totals for the years ended June 30, 2006 and 2005, follows:

(in thousands) 2007 2006 2005

Operating revenues $402,180 $382,034 $353,912Operating expenses 493,162 444,264 415,406

Operating income (loss) (90,982) (62,230) (61,594)

Net non-operating revenues (expenses) 123,530 84,640 78,463Income before capital and endowment additions 32,548 22,410 16,869

State capital appropriations 1,800 1,700 2,600Capital and endowment gifts and grants 13,758 6,534 10,034

Total other revenues 15,558 8,234 12,634

Increase in net assets 48,106 30,644 29,503

Net assets, beginning of year 557,693 527,049 497,546

Net assets, end of year $605,799 $557,693 $527,049

Net assets increased by $48.1 million in 2007 compared to increases of $30.6 million in 2006 and $29.5 million in 2005. Significant contributors to the 2007 increase were an increase of $35.6 million in investment income, an increase in state appropriations of $4.4 million, an increase in capital gifts and grants of $5.5 million and an increase of gifts for endowment of $1.7 million. Operating revenues include the following:

Student Tuition and Residential Life Fees, net of •scholarship allowances, are the largest component of operating revenues and the primary source of funding

for the University’s academic programs. Net Student Fees increased by $19.0 million in 2007, comprised of an increase to tuition and fees of $18.9 million, or 9.2%, and residential life of $3.6 million, or 10.7%, offset by an increase in scholarship allowances of $3.6 million, or 8.8%. Net Student Fees increased by $24.5 million in 2006, comprised of an increase in tuition and fees of $23.4 million, or 12.8%, and residential life fees of $4.8 million, or 16.7%, offset by an increase in scholarship allowances of $3.8 million, or 10.2%. Scholarship and fellowship awards applied to student accounts are presented as a reduction of student tuition and fee and residential life



12

revenues, while payments directly made to students are presented as scholarship and fellowship expenses. Total scholarships and fellowships of $57.5 million, $53.2 million, and $50.2 million were awarded to students in 2007, 2006, and 2005, respectively. This represents a total increase of $4.5 million, or 8.5%, for 2007 as compared to $3.0 million, or 6.0%, for 2006.

Revenues for sponsored • programs, of $139.8 million in 2007, $140.2 million in 2006, and $138.0 million in 2005, include federal appropriations, grants and contracts, as well as state and non-governmental grants and contracts that normally provide for the recovery of direct and indirect costs, or expenses. The decrease of $.4 million in 2007and increase of $2.2 million in 2006 are primarily the result of an increase of $.2 million in federal appropriations, grants and contracts and a decrease of $.6 million in private grants for 2007 and an increase in private grants of $2.7 million in 2006. Revenues for sponsored programs are recognized as expenses are incurred on grants and contracts that have been previously awarded. The revenues for sponsored programs include recovery of indirect costs, referred to as facilities and administrative costs, of $25.5, $26.3 million, and $25.0 million, in 2007, 2006, and 2005, respectively.

Auxiliary enterprise and educational activities revenues• totaled $35.1 million, $33.9 million, and $32.2 million, in 2007, 2006, and 2005, respectively. Auxiliary enterprises include business type enterprises such as the bookstore, printing and mail services and continuing education that provide support to the University’s primary missions of education, research and public service.

Student loan interest and other operating revenues• were $9.7 million, $9.4 million, and $9.6 million, in 2007, 2006, and 2005, respectively.

Significant components of operating expenses include the following:

C• ompensation and benefits of $303.9 million, $275.0 million, and $248.8 million in 2007, 2006, and 2005, respectively, comprise the most significant portion of total expenses. Compensation and benefits increased by $28.9 million, or 10.5%, in 2007 and $26.2 million, or 10.5%, in 2006. These increases reflected budgeted increases of 4.5% in 2007 and 4.5 % in 2006 in the non-represented staff salary pool, as well as budgeted increases of 6% in 2007 and 4.5% in 2006 to faculty salaries subsequent to the bargained agreement reached in 2006. In addition, health plan benefit costs increased by $2.4 million, or 7.4%, in 2007 and $1.8 million, or 6.0% in 2006.

Supplies and services• expenses increased by $15.7 million, or 11.2%, in 2007 and decreased $.5 million, or .3%, in 2006. This classification encompasses

the many and varied non-compensation expenses that are required for the operation of the university, including utilities, professional services, non-capitalized equipment, and minor renovations.

Depreciation• expense increased by $3.6 million, or 21.1%, in 2007 and $3.9 million, or 29.9%, in 2006 resulting from the increase in capital assets as significant projects were completed.

• Scholarships and fellowships of $12.6 million in 2007 and $11.8 million in 2006 are comprised of direct payments to students. As noted above, in addition to the amounts reflected in scholarships and fellowships expense, financial aid is applied to tuition and residential life fees and amounts applied to each are reflected in the financial statements as a reduction of those revenues.

Net non-operating revenue is comprised of several revenue and expense categories that are not considered to be operating or exchange transactions. Net non-operating revenues totaled $123.5 million, $84.6 million, and $78.5 million, in 2007, 2006, and 2005, respectively, resulting in an increase of $38.9 million in 2007 and $6.1 million in 2006. The increase in 2007 is primarily due to an increase in investment income of $35.6 million, an increase in private gifts of $1.4 million and an increase in state appropriations of $4.4 million, offset by an increase in interest on indebtedness of $3.4 million. The increase in 2006 is primarily due to a $2.8 million increase in gifts and a $2.9 million increase in net investment income. Net non-operating revenue includes various non-operating revenues and expenses that are grouped together on the statement of revenues, expenses and changes in net assets and include the following:

State appropriations• , which represent funding provided by the State of Vermont, increased by $4.4 million, or 11.0%, in 2007 and $1.2 million, or 3.2%, in 2006.

Private gifts and UMEA Grants to the UVM College of •Medicine totaled $18.8 million, $16.5 million, and $13.4 million in 2007, 2006, and 2005.

Net investment income • was $73.1 million, $37.5 million, and $34.6 million in 2007, 2006, and 2005 respectively. Net investment income includes both realized investment income and the change in the unrealized appreciation or depreciation of investments. The change in unrealized appreciation included in net investment income was $46.4 in 2007, $1.2 million in 2006, and $15.1 million in 2005. Realized gains and other income included in net investment income totaled $26.7, $36.4 million, and $19.6 million, in 2007, 2006, and 2005 respectively.

Interest on indebtedness• totaled $10.1 million in 2007, $6.7 million in 2006, and $5.9 million in 2005. Interest on indebtedness represents interest on notes and bonds net of capitalized interest.



The chart below presents total expenses by function for 2007, 2006, and 2005:

The following chart presents total expenses by natural classification (object) for 2007, 2006 and 2005:

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Loss on disposal of capital assets • was $1.2 million in 2007, $.8 million in 2006, and $.3 million in 2005.

Net other non-operating expenses• totaled $1.0 million, $1.3 million, and $1.6 million in 2007, 2006, and 2005, respectively.

Other financial resources presented after • Income (Loss) before capital and endowment additions include the following:

State capital appropriations• increased by $.1 million in 2007 and decreased by $.9 million in 2006.

Capital and endowment gifts and grant• s increased by $7.2 million, or 110.0%, in 2007 and decreased by $3.5 million, or 34.8%, in 2006.

Operating Expenses by Natural Classifications ($ in thousands)

0 50 100 150 200 250 300 350

Interest and other

Scholarships and fellow ships

Depreciation

Supplies and services

Compensation and benefits

2007

2006

2005

Operating Expenses by Functional Classifications ($ in thousands)

0 20 40 60 80 100 120 140 160

Depreciation

Auxiliary enterprises

Scholarships and fellow ships

Operations and maintenance ofPlant

Institutional support

Student services

Academic support

Public service

Research

Instruction

2007

2006

2005

Expenses are presented in the financial statements by natural classification, according to the type of expense, such as compensation. In addition, expenses may be aggregated by the functions that they support. Total expenses increased by $52.3 million, or 11.5%, in 2007 compared to $29.8 million, or 7.0%, in 2006. With the exception of scholarships and fellowships, depreciation, and interest expense, the increases in each of the functional categories reflect the increases in compensation and benefits and supplies and services discussed above. Operations and maintenance of plant includes un-capitalized costs for projects including selection and training cost for the University’s new resource planning system.



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The accompanying notes are an integral part of the financial statement.

2007 2006 UMEA 2007 UMEA 2006 ASSETS Current Assets: Cash and cash equivalents $ 25,067 $ 22,962 $ 819 $ 2,424 Operating investments 89,447 83,945 8,504 7,574 Investments for capital activities 5,707 4,934 - - Accounts, loans, notes and pledges receivable, net 52,650 35,862 1,855 1,354 Inventories, prepaid expenses and deferred charges 8,546 8,255 3 11 Total current assets 181,417 155,958 11,181 11,363 Non-current assets: Endowment cash, cash equivalents and investments 320,994 267,776 - - Student loans, notes, and pledges receivable, net 35,729 36,488 - - Deposits with Trustees 39,461 99,552 - - Prepaid expenses, deferred charges and other assets 3,785 3,440 154 194 Capital assets, net 480,114 422,395 - - Total non-current assets 880,083 829,651 154 194 Total Assets 1,061,500 985,609 11,335 11,557 LIABILITIES Current Liabilities: Accounts payable and accrued liabilities 51,652 42,717 963 1,089 Deferred revenue, deposits, and funds held for others 19,235 18,011 - - Bonds and notes payable 4,565 4,433 - - Total current liabilities 75,452 65,161 963 1,089 Non-current liabilities: Obligations under deferred giving arrangements 2,791 2,397 - - Bonds and notes payable 364,981 349,214 - - Accrued liabilities 12,477 11,144 - - Total non-current liabilities 380,249 362,755 - - Total Liabilities 455,701 427,916 963 1,089 NET ASSETS Invested in capital assets net of related debt 122,888 125,562 - - Restricted: Non-Expendable 72,138 66,190 - - Expendable 299,054 239,966 334 567 Unrestricted 111,719 125,975 10,038 9,901 Total Net Assets $ 605,799 $ 557,693 $ 10,372 $ 10,468

Statement of Net Assetsas of June 30, 2007 and 2006

(dollars in thousands)



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2007 2006 UMEA 2007 UMEA 2006 Operating RevenuesTuition and fees $224,756 $205,774 $ - $ - Residential Life 37,730 34,082 - - Less scholarship allowances (44,966 ) (41,329 ) - - Net student fees 217,520 198,527 - - Federal, state, and private grants and contracts 139,838 140,197 - - Sales and services of educational activities 4,414 5,908 - - Other Auxiliary Enterprises 30,678 27,977 - - Student loan interest and other operating revenues 9,730 9,425 191 214 Total operating revenues 402,180 382,034 191 214 Operating expenses Compensation and benefits (303,877 ) (274,990 ) (216 ) (241 )Supplies and services (156,276 ) (140,576 ) - - Depreciation (20,439 ) (16,873 ) - - Scholarships and fellowships (12,570 ) (11,825 ) - - Total operating expenses (493,162 ) (444,264 ) (216 ) (241 ) Operating loss (90,982 ) (62,230 ) (25 ) (27 ) Non-operating revenues (expenses) State appropriations 43,855 39,498 - - Private gifts 14,626 13,192 5,366 4,252 Net investment income 73,089 37,533 1,086 588 Interest on indebtedness (10,059 ) (6,697 ) - - Loss on disposal of capital assets (1,196 ) (838 ) - - Net other non-operating expense (986 ) (1,328 ) - - UMEA Grants to UVM College of Medicine & others 4,201 3,280 (6,523 ) (4,351 ) Net non-operating revenues 123,530 84,640 (71 ) 489 Income before capital and endowment additions 32,548 22,410 (96 ) 462 State capital appropriations 1,800 1,700 - - Capital gifts and grants 7,842 2,303 - - Gifts for endowment purposes 5,916 4,231 - - Total other revenues 15,558 8,234 - - Increase in net assets 48,106 30,644 (96 ) 462 Net Assets, Beginning of Year 557,693 527,049 10,468 10,006 Net Assets, End of Year $605,799 $557,693 $10,372 $10,468

Statement of Revenues, Expenses and Changes in Net Assetsfor the years ended June 30, 2007 and 2006




2007 2006 UMEA 2007 UMEA 2006 Operating RevenuesTuition and fees $224,756 $205,774 $ - $ - Residential Life 37,730 34,082 - - Less scholarship allowances (44,966 ) (41,329 ) - - Net student fees 217,520 198,527 - - Federal, state, and private grants and contracts 139,838 140,197 - - Sales and services of educational activities 4,414 5,908 - - Other Auxiliary Enterprises 30,678 27,977 - - Student loan interest and other operating revenues 9,730 9,425 191 214 Total operating revenues 402,180 382,034 191 214 Operating expenses Compensation and benefits (303,877 ) (274,990 ) (216 ) (241 )Supplies and services (156,276 ) (140,576 ) - - Depreciation (20,439 ) (16,873 ) - - Scholarships and fellowships (12,570 ) (11,825 ) - - Total operating expenses (493,162 ) (444,264 ) (216 ) (241 ) Operating loss (90,982 ) (62,230 ) (25 ) (27 ) Non-operating revenues (expenses) State appropriations 43,855 39,498 - - Private gifts 14,626 13,192 5,366 4,252 Net investment income 73,089 37,533 1,086 588 Interest on indebtedness (10,059 ) (6,697 ) - - Loss on disposal of capital assets (1,196 ) (838 ) - - Net other non-operating expense (986 ) (1,328 ) - - UMEA Grants to UVM College of Medicine & others 4,201 3,280 (6,523 ) (4,351 ) Net non-operating revenues 123,530 84,640 (71 ) 489 Income before capital and endowment additions 32,548 22,410 (96 ) 462 State capital appropriations 1,800 1,700 - - Capital gifts and grants 7,842 2,303 - - Gifts for endowment purposes 5,916 4,231 - - Total other revenues 15,558 8,234 - - Increase in net assets 48,106 30,644 (96 ) 462 Net Assets, Beginning of Year 557,693 527,049 10,468 10,006 Net Assets, End of Year $605,799 $557,693 $10,372 $10,468

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Statement of Cash Flowsfor the years ended June 30, 2007 and 2006

(dollars in thousands) 2007 2006Cash Flows From Operating Activities Tuition and fees $188,853 $169,611 Grants and contracts 121,587 140,566 Sales & services of educational activities 4,414 5,908 Sales and services of auxiliary enterprises: Residential Life fees 31,216 28,212 Other 30,678 27,977 Payments to employees and benefit providers (295,914 ) (265,101 ) Payments to vendors (154,054 ) (150,839 ) Payments for scholarships and fellowships (12,570 ) (11,825 ) Student loans issued (4,494 ) (3,696 ) Student loans collected, interest and other revenue 6,083 6,015 Other receipts, net 8,762 8,391 Net cash used in operating activities (75,439 ) (44,781 ) Cash Flows From Noncapital Financing Activities State general appropriation 43,855 39,498 Private gifts for other than capital purposes 21,279 17,818 Deposits of affiliates, student organizations and others (706 ) 191 Amounts paid to life income participants and related expenses (628 ) (1,478 )Net cash provided by non-capital financing activities 63,800 56,029 Cash Flows From Capital Financing Activities Proceeds from capital debt 181,055 260,164 State capital appropriation 1,800 1,700 Capital grants, gifts and other income 5,875 1,294 Purchases and construction of capital assets (79,700 ) (120,663) Disposal of capital assets – – Principal and interest paid on capital debt (175,095 ) (103,416 ) Changes in deposits with trustees, net 61,973 (60,953 )Net cash used in capital financing activities (4,092 ) (21,874) Cash Flows From Investing Activities Proceeds from sales and maturities of investments 250,774 283,901 Purchase of investments (275,841 ) (299,675) Interest and dividends on investments, net 26,986 36,207 Net cash provided by investing activities 1,919 20,434 Net Increase/(Decrease) in Cash and Cash Equivalents (13,812 ) 9,808 Cash and cash equivalents - beginning of year 47,160 37,352 Cash and Cash Equivalents - End of Year * $33,348 $47,160 Reconciliation of Operating Loss To Cash Used by Operating Activities Operating loss $(90,982 ) $(62,230 )Adjustments to reconcile net income to net cash used in Operating Activities: Depreciation expense 20,439 16,873 Changes in assets and liabilities: Accounts receivable and loan receivables, net (16,169 ) 34 Inventories and prepaid expense (291 ) 276 Accounts payable 3,284 (2,857 ) Deferred revenue, deposits and accrued liabilities 8,280 3,123 Net cash used in operating activities $(75,439 ) $(44,781 ) * of total cash and cash equivalents for 2007, $25,067 is current and $8,281 is non-current endowment and for 2006, $22,962 is current and $24,198 is non-current endowment



17

Notes To Financial Statementsfor the years ended June 30, 2007 nd 2006(dollars in thousands)

A. Summary of Significant Accounting Policies

1. Organization and Presentation

The University of Vermont and State Agricultural College is a public, non-profit, comprehensive research institution of higher education with an enrollment of approximately 11,000 undergraduate, graduate, and medical students. It is located in Burlington, Vermont with satellite instructional and research sites throughout the State.

The University of Vermont and State Agricultural College is a component unit of the State of Vermont as it receives an annual appropriation from the State.

University Medical Education Associates, Inc. (UMEA) is a legally separate tax-exempt component unit of the University of Vermont. UMEA is governed by a minimum nine-member board; six members are named as a result of their positions at the University of Vermont and the remaining are elected by the other members. UMEA’s purpose is to support the operations, activities and objectives of the College of Medicine of the University of Vermont. UMEA is a public non-profit organization that reports under GASB Standards. UMEA issues separate audited financial statements, which may be obtained by contacting the Dean’s Office, College of Medicine. In accordance with GASB Statement No. 39, Determining Whether Certain Organizations are Component Units (an amendment of GASB 14), UMEA is discretely presented on the University’s Statement of Net Assets and Statement of Revenues, Expenses, and Changes in Net Assets.

The University has received a letter from the Internal Revenue Service recognizing the University as an organization that is tax-exempt on related income under Section 501(a) of the Internal Revenue Code.

The accompanying financial statements have been prepared using the economic resources measurement focus and the accrual basis of accounting in accordance with U.S. generally accepted accounting principles as defined for public colleges and universities by the Governmental Accounting Standards Board (GASB). The University has elected not to adopt statements issued by the Financial Accounting Standards Board (FASB) after November 30, 1989.


Net assets are categorized as follows:

Invested in capital assets, net of related debt• : Capital assets, net of accumulated depreciation and outstanding principal balances of debt attributable to the acquisition, construction or improvement of those assets. Such assets include the University’s physical plant.

Restricted:•Non-Expendable - Net assets subject to externally imposed stipulations that they be maintained permanently by the University. Such assets include the corpus of the University’s true endowment funds.

Expendable - Net assets whose use by the University is subject to externally imposed stipulations that can be fulfilled by actions of the University to meet those stipulations or that expire through the passage of time. Such assets include restricted gifts, grants and contracts.

Unrestricted:• Net assets that are not subject to externally imposed stipulations. Unrestricted net assets may be designated for specific purposes by action of management or the Board of Trustees or may otherwise be limited by contractual agreements with outside parties.

The University’s policy for defining operating activities as reported on the Statement of Revenues, Expenses, and Changes in Net Assets are those that generally result from exchange transactions such as payments received for providing services and payments made for services or goods received. Non-exchange transactions such as gifts, investment income, state appropriations and interest on indebtedness are reported as non-operating revenues and expenses.

When both restricted and unrestricted net assets are available and appropriate to fund an expense, the University’s practice is to allow the budget manager to determine which to use in each instance.

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. The most significant areas that require management estimates relate to valuation of certain investments, allowance on accounts and loans receivable, depreciation, and certain accruals.

Certain prior year balances have been reclassified to conform to the current year presentation.



18


2. Investments

Investments are stated at market value in the case of marketable securities and at estimated fair value for certain nonmarketable securities.

Nonmarketable securities include alternative investments such as private equity, venture capital, hedge funds, and real estate, which are valued using current estimates of fair value obtained from the investment manager in the absence of readily determinable public market values. Such valuations generally reflect discounts for liquidity and consider variables such as financial performance of investments, including comparison of comparable companies’ earning multiples, cash flow analysis, recent sales prices of investments, and other pertinent information. Because of the inherent uncertainty of valuation for these investments, the estimated values may differ from the values that would have been used had a ready market existed. University management is responsible for the fair measurements of investments reported in the financial statements. The University has implemented policies and procedures to assess the reasonableness of the fair values provided and believes that reported fair values at the balance sheet date are reasonable.

Investments are reported in three categories in the Statement of Net Assets. Investments reported as non-current assets include endowment, annuity, and life income funds. Investments for capital activities reported as current assets are replacement reserves designated for capital renovations. All other investments are reported as operating investments.

Investment income is recorded as revenue when earned. Net investment income is reported as non-operating revenue and includes income net of investment fees and the change in the fair value of investments.

Deposits with trustees include $21,763 in 2007 and $19,912 in 2006 of assets held under deferred giving arrangements.

The calculation of realized gains (losses) is independent of the calculation of the net increase in the fair value of investment. Realized gains and losses on investments that had been held in more than one fiscal year and sold in the current year may have been recognized as an increase or decrease in the fair value of investments reported in the prior year. The net increase in the fair value of investments during 2007 and 2006 was $60,356 and $22,481, respectively. This amount takes into account all changes in fair value including realized gains of $13,924 and $21,308 and unrealized gains of $46,432 and $1,173 respectively. The unrealized gain on investments held at year-end was $97,341 for 2007 and $50,909 for 2006.

The University records its purchases and sales of investments on a trade date basis.

3. Government Appropriations and Grants

The University has recorded reimbursement of indirect costs relating to government contracts and grants at a predetermined rate. The reimbursement of indirect costs included in grant revenue is $25,463 in 2007 and $26,340 in 2006.

Revenues associated with grants and contracts are generally recognized as related costs are incurred or when milestones are achieved. Federal, state and private grants and contract revenue for 2007 and 2006 consists of:

Grants and Contracts FY07 FY06Federal appropriations, grants and contracts $ 98,870 $ 98,600State grants and contracts 10,591 10,448Other governmental grants and contracts 13 185Private grants and contracts 30,364 30,964TOTAL $139,838 $140,197

State appropriations (general fund and capital) are reported as non-operating revenue.

4. Gifts

Gifts are recorded at their fair value and reported as non-operating revenue.

Promises to donate to the University are recorded as receivables and revenues when the University has met all applicable eligibility and time requirements. Since the University cannot fulfill the requirement to invest in perpetuity for gifts to endowments until the gift is received, pledges to endowments are not recognized.

5. Deposits and Unearned Revenue

Deposits and advance payments for the following academic year are deferred and recorded as revenues when earned. Summer session revenues are deferred to the extent that they relate to courses scheduled in July and August.

The University records deferred revenue for cash received in excess of expenditures on grants and contracts. Grant and contract deferred revenue at June 30, is $9,971 in 2007 and $10,179 in 2006.

6. Employee and Post-Retirement Benefits

The University provides health and dental insurance to retired employees and their families during their lives and life insurance until age 70. Of the 5,084 employees receiving benefits during the year ended June 30, 2007, 3,281 were active and 1,803 were retired.

Health, dental and life insurance are paid by the University on a premium basis at the same rate as for active employees.



19


The total cost for active and retired employees for health, dental and life insurance, net of employee contributions, was $37,381 in 2007 and $35,298 in 2006, of which approximately $8,710 in 2007 and $7,837 in 2006 was for retiree health and dental benefits.

7. Compensated Absences

The University accrues amounts for compensated absences (principally vacation allowances) as earned. They are included in the current portion of accrued liabilities.

As of June 30, 2007, $15,503 ($10,999 in 2006) was accrued for vacation pay of which $11,421 ($6,211 in 2006) was charged to unrestricted net assets and $4,082 ($4,788 in 2006) was included in deferred charges to be recovered from restricted expendable assets when paid.

8. Collections and Works of Art

The University maintains collections of inexhaustible assets, including: works of art; historical artifacts; biological, geological, archaeological and ethnographic materials; and literature. While the collections are undoubtedly quite valuable and irreplaceable, the University has not placed a dollar value on these assets. It is the University’s policy to hold these assets for public exhibit, education and research rather than for financial gain and to protect, care for and maintain such assets in perpetuity. Accordingly, the collections are not capitalized for financial statement purposes.

B. Accounts, Loans, Notes, and Pledges Receivable

Accounts, loans, notes and pledges receivable at June 30, 2007 and 2006 are summarized as follows:

Net June 30, 2007 June 30, 2006CurrentFederal, state, and private grant receivables $38,763 $ 20,113Student and company accounts receivable 5,136 5,985Other accounts receivable 2,116 2,512Student loans and other notes receivable, net 3,336 3,317Pledges receivable, net 3,299 3,935Total Current $52,650 $ 35,862Non-CurrentStudent loans and other notes receivable, net $ 23,983 $ 25,015Pledges receivable, net 11,746 11,473Total Non-Current $ 35,729 $ 36,488

Student accounts receivable are carried net of an allowance for doubtful accounts of $93 in 2007 and $101 in 2006.

Student loans and other notes receivable current portion of $3,336 and non-current portion of $23,983 at June 30, 2007, are carried net of an allowance for uncollectible UVM loans of $66 and $487, respectively. Student loans receivable current portion of $3,317 and non-current portion of $25,015 at June 30, 2006, were carried net of an allowance for uncollectible UVM loans of $65 and $507, respectively. The University does not record an allowance for uncollectible federal student loans since they can be assigned to the government.

The University’s liability for the federal capital contribution to the Perkins, Health Professions, Primary Care, and Nursing Student loan programs is $9,417 for 2007 ($9,492 for 2006). These amounts are included in non-current accrued liabilities. Collections and disbursements of pass through student loans such as Stafford Guaranteed Loans, Plus Loans, and Vermont Student Assistance Corporation’s Green Mountain Loans are reported net in the Statement of Cash Flows.

Current and non-current pledges receivable are recorded at the present value of expected future cash flows, net of an allowance for unfulfilled pledges of $759 ($590 in 2006) and $2,704 ($1,720 in 2006) respectively. Discount rates ranging from 2.73 percent to 5.03 percent were applied to pledges.

C. Accounts Payable and Current Accrued Liabilities

Accounts payable and current accrued liabilities of $51,652 ($42,717 in 2006) are composed of accounts payable of $19,095 ($15,522 in 2006) and accrued liabilities of $32,557 ($26,945 in 2006). Accounts payable is mostly composed of supplies and services payables, including construction, renovation and equipment of $7,532 ($9,999 in 2006).

D. Capital Assets

Capital assets are stated at cost or, in the case of gifts, at the fair value at the date of donation.

Interest expense, net of interest earnings on unspent bond proceeds is capitalized for debt funded construction projects. In 2007, interest expense of $6,359 ($6,827 in 2006) was capitalized for projects that were funded by the 2002 and 2005 General Obligation Bonds. In addition, $447 ($1,141 in 2006) of commercial paper interest expense was capitalized in 2007.

Depreciation is calculated using the straight-line method over the estimated economic useful lives of the related assets, as follows:

The useful lives of Given, Stafford, and the Medical Research Building, are classified into the following components:



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($ in thousands)

Moveable Equipment 20,636 253 (5,330) 15,559 (15,161) 398

Software Systems 1,624 11,604 13,228 (2,222) 11,006

Construction In Progress 58,672 28,608 (13,302) 73,978 - 73,978

Total $

524,455 $ 129,803 $

(20,351) $

633,907 $ (211,512) $ 422,395

Fiscal Year 2005

AssetBeginning

Balance Additions Deductions BalanceAccum.Deprec.

NetBalance

Land $

13,660 $ 2,985 $

16,645 $

- $ 16,645

Buildings 263,749 39,285$

(468) 302,566 (117,625) 184,941

Building Service Systems 25,755 140 25,895 (8,210) 17,685

Building Interiors 21,035 133 21,168 (10,697) 10,471

Fixed Equipment 72,297 4,952 77,249 (43,784) 33,465

Moveable Equipment 20,474 162 20,636 (20,202) 434

Software Systems 1,948 920 (1,244) 1,624 (333) 1,291

Construction In Progress 12,325 48,956 (2,608) 58,672 - 58,673

Total $

431,243 $ 97,533 $

(4,320) $

524,455 $

(200,851) $ 323,605

Land and construction in progress are the only non-depreciable capital assets.

E. Bonds and Notes Payable and Other Long Term Liabilities

Bonds payable at June 30, 2006 totaled $329,613 of which $4,433 is current and $325,180 is long term. Debt obligations aregenerally callable by the University, bear interest at fixed rates ranging from 1.7 percent to 7.25 percent and mature at various datesthrough 2040.

In 2005 the University established a commercial paper program with authorization for $100,000. The program is primarily intendedto provide temporary financing for capital projects and the notes are reported as a long term liability with an average maturity of 3months or less. The commercial paper is secured through the University’s internal liquidity and through a $50,000 revolving creditagreement with Landesbank Hessen-Thuringen Girozentrale. The revolving credit agreement is a dedicated line of credit that may onlybe used to pay maturing commercial paper.

Long term debt activity for the years ended June 30, 2006 and 2005 is summarized as follows:

Fiscal Year 2006

Ending Balance

Long Term LiabilityBeginning

Balance New Debt Decreases Current Non-Current

Heat System Bond (1),(2)

1980 Issue $

2,153 $

- $

121 $

125 $

1,907

General Obligation Bonds

Series 1990 4,700 652 945 3,103

Series 1998 (3) 53,544 645 675 52,224

Series 2002 (4) 116,588 2,625 2,560 111,403

Series 2005 (5) - 156,799 128 128 156,543

Fiscal Year 2007 Beginning Accum. Net Asset Balance Additions Deductions Balance Deprec. Balance

Land $ 17,884 $ 1,962 $ $ 19,846 $ $ 19,846 Buildings 377,242 72,849 (2,255) 447,836 (135,227) 312,609 Building Service Systems 28,527 1,375 29,902 (10,409) 19,493 Building Interiors 21,865 1,041 22,906 (12,689) 10,217 Fixed Equipment 85,624 379 (191) 85,812 (51,215) 34,597 Moveable Equipment 15,559 655 (224) 15,990 (15,143) 847 Software Systems 13,228 11,787 25,015 (5,796) 19,219 Construction In Progress 73,978 32,793 (43,485) 63,286 - 63,286

Total $ 633,907 $ 122,841 $ (46,155) $ 710,593 $ (230,479) $ 480,114

Fiscal Year 2006 Beginning Accum. Net Asset Balance Additions Deductions Balance Deprec. Balance

Land $ 16,645 $ 1,239 $ $ 17,884 $ $ 17,884 Buildings 302,566 76,108 (1,432) 377,242 (125,754) 251,488 Building Service Systems 25,895 2,632 28,527 (9,282) 19,245 Building Interiors 21,168 697 21,865 (11,679) 10,186 Fixed Equipment 77,249 8,662 (287) 85,624 (47,414) 38,210 Moveable Equipment 20,636 253 (5,330) 15,559 (15,161) 398 Software Systems 1,948 920 (1,244) 1,624 (2,222) 11,006 Construction In Progress 58,672 28,608 (13,302) 73,978 - 73,978

Total $ 524,455 $ 129,803 $ (20,351) $ 633,907 $ (211,512) $ 422,395


1) building (basic construction components/shell) with an estimated useful life of 40 years; 2) building service systems (plumbing, electrical, etc.) with an estimated useful life of 25 years and 3) interiors/renovations with an estimated useful life of 20 years and 4) fixed equipment with an estimated useful life of 15 years. Other buildings are depreciated over a useful life of 40 years except for their fixed equipment (15 years), and movable equipment is estimated to have a useful

life of 5 years. Software is depreciated over a useful life of 7 years. Major construction projects are capitalized, but are not depreciated until they are put into use.

Depreciation expense for buildings and components including fixed equipment for fiscal year 2007 is $16,660 ($14,693 in 2006). Moveable equipment and software systems depreciation expense is $3,779 for 2007 ($2,180 in 2006).

E. Bonds and Notes Payable and Other Long Term Liabilities

Bonds payable at June 30, 2007 totaled $325,426 of which $4,565 is current and $320,861 is long term. Debt obligations are generally callable by the University, bear interest at fixed rates ranging from 1.7 percent to 7.25 percent and mature at various dates through 2040.

In 2005 the University established a commercial paper

program with authorization for $100,000. The program is primarily intended to provide temporary financing for capital projects. The notes are reported as a long term liability and have an average maturity of 3 months or less. The commercial paper is secured through the University’s internal liquidity and through a $50,000 revolving credit agreement with Landesbank Hessen-Thuringen Girozentrale. The revolving credit agreement is a dedicated line of credit that may only be used to pay maturing commercial paper.

Capital assets activity for the years ended June 30, 2007 and 2006 is summarized as follows:



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Long term debt activity for the years ended June 30, 2007 and 2006 is summarized as follows:

In compliance with the University’s various bond indentures, at June 30, 2007 the University has deposits with trustees of $16,556 ($78,529 in 2006) for debt service reserves, sinking funds, other requirements and unspent 2002 and 2005 General Obligation Bond proceeds. Deposits with trustees are invested in obligations of the U.S. Government as required by the University’s bond indentures.

Fiscal Year 2007 Ending Balance Beginning Long Term Liability Balance New Debt Decreases Current Non-CurrentHeat System Bond (1), (2) 1980 Issue $ 2,032 $ 0 $ 125 $ 127 $ 1,780

General Obligation Bonds Series 1990 4,048 699 945 2,404

Series 1998 (3) 52,899 675 705 51,519 Series 2002 (4) 113,963 2,560 2,660 108,743

Series 2005 (5) 156,671 128 128 156,415

Commercial Paper 24,034 181,055 160,969 - 44,120

TOTAL $353,647 $181,055 $165,156 $4,565 $364,981

(1) Revenue from this facility is pledged as collateral under debt agreements.(2) The assets are pledged as collateral under debt agreements.(3) This balance shown net of bond discount of $2,200.(4) This balance shown includes bond premium of $307.(5) This balance shown includes bond premium of $4,223.

Fiscal Year 2006 Ending Balance Beginning Long Term Liability Balance New Debt Decreases Current Non-CurrentHeat System Bond (1), (2) 1980 Issue $ 2,153 $ 0 $ 121 $ 125 $ 1,907

General Obligation Bonds Series 1990 4,700 652 945 3,103

Series 1998 (3) 53,544 645 675 52,224 Series 2002 (4) 116,588 2,625 2,560 111,403 Series 2005 (5) - 156,799 128 128 156,543

Commercial Paper 15,045 103,364 94,375 - 24,034

TOTAL $192,030 $260,163 $98,546 $4,433 $349,214

(1) Revenue from this facility is pledged as collateral under debt agreements.(2) The assets are pledged as collateral under debt agreements.(3) This balance shown net of bond discount of $2,270.(4) This balance shown includes bond premium of $317.(5) This balance shown includes bond premium of $4,351.




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The principal and interest due on bonds over the next five years and in subsequent five-year periods are presented in the table below:

For the Fiscal Year Ending June 30 Principal Due Interest Due Total Due

2008 $ 4,497 $ 15,353 $ 19,8502009 4,612 15,220 19,832 2010 4,746 15,076 19,822 2011 4,825 14,923 19,748 2012 4,720 14,750 19,470

2013-2017 26,949 70,391 97,3402018-2022 34,023 62,859 96,882 2023-2027 43,190 53,242 96,432 2028-2032 55,385 41,040 96,425 2033-2037 70,510 25,919 96,429 2038-2042 70,070 7,069 77,139

Total $ 323,527 $ 335,842 $ 659,369

Other long term liabilities at June 30, 2007 and 2006 are summarized below:

Fiscal Year 2007 Ending Balance Beginning Long Term Liability Balance Increases Decreases Current Non-CurrentFederal Student Loan Capital Contribution $ 9,492 $ 0 $ (75) $ 0 $ 9,417 Green Mountain Loan Guarantee 841 162 0 0 1,003 Obligations under deferred giving arrangements 2,784 1,098 (686) 405 2,791 Other Accrued Liabilities 1,248 4,018 (2,673) 536 2,057 Total Long Term Liabilities $ 14,365 $ 5,278 $ (3,434) $ 941 $ 15,268

Fiscal Year 2006 Ending Balance Beginning Long Term Liability Balance Increases Decreases Current Non-CurrentFederal Student Loan Capital Contribution $ 9,499 $ 7 $ (14) $ 0 $ 9,492 Green Mountain Loan Guarantee 643 198 0 0 841 Obligations under deferred giving arrangements 2,861 418 (495) 387 2,397 Other Accrued Liabilities 965 283 437 811 Total Long Term Liabilities $ 13,968 $ 906 $ (509) $ 824 $ 13,541



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Total operating investments were $89,447 at June 30, 2007 and $83,945 at June 30, 2006. Operating investments invested in the long term pool were $10,917 at June 30, 2007 and $9,468 at June 30, 2006 (see note G). Short and intermediate term operating investments at June 30, 2007 and 2006 were primarily made through commingled funds with the following characteristics:

/

F. Cash and Cash Equivalents and Operating Investments

The University’s investment Statement of Objectives and Policies Related to Cash Balances (“Cash Policy”) provides parameters for investment of the University’s operating funds. The University classifies resources invested in money market funds and short-term investments with maturities at date of purchase of 90 days or less as cash equivalents. Operating funds invested in vehicles with maturities beyond 90 days are classified as operating investments. The Cash Policy establishes three pools for investment: short, intermediate and long term. Allowable investments for the short term pool, which includes cash and cash equivalents and other investments with average weighted maturities of up to one year, and the intermediate pool, which includes investments with an average weighted maturity of between one and three years, are restricted by investment type, dollar level, maturity and rating to mitigate credit risk on investments individually and in the aggregate. Investments are restricted to U.S. Treasury and government securities and high quality corporate securities and commercial and bank paper. Debt securities must be rated Aaa, Aa, A or BBB by Moodys or AAA, AA, A or BBB by Standard and Poors. Bank obligations, banker’s acceptances or negotiable certificates of deposit must be rated C or better for Vermont banks and B/C for out of state banks and no more than 20% of the funds in the cash pool can be in obligations of institutions within any single holding company. Commercial paper must be rated A-1 by Standard and Poors or P-1 by Moodys. Investments may include repurchase agreements secured by the U.S government and federal agency obligations, which shall have market values at least 100 percent of the amount of the repurchase agreement. Investments may also include

repurchase agreements with Vermont banks having Fitch ratings no lower than C/D with the condition that these repurchase agreements are 102 percent collateralized with U. S government securities. Investments may also include commingled funds if they are in compliance with the other guidelines and the Commonfund, a non-profit provider of investment products for colleges and universities. Investments of the long term pool are restricted to those allowable under the University’s Statement of Objectives and Policies for the Endowment Fund and shall not exceed 10 percent of the lowest average operating balance within the last three years.

Current and non-current cash and cash equivalents are comprised of the following:

June 30, 2007 June 30, 2006Cash (Overdraft) $(2,660 ) $ 13,576Repurchase Agreements 5,783 5,599Certificate of Deposit 25 50Treasury Bill 0 0Money Markets 30,200 27,935Total Cash and Cash Equivalents $33,348 $47,160

Of total cash and cash equivalents above, $8,281 in 2007 and $24,198 in 2006 are included in non-current endowment cash and cash equivalents.

The balance of cash at the bank was $4,020 at June 30, 2007 and $2,353 at June 30, 2006. Of these bank balances, $368 in 2007 and $301 in 2006 was covered by the Federal Depository Insurance Corporation. The remainder of cash and equivalents is uninsured and uncollateralized.

June 30, 2007 Credit Quality % Average Maturity A+P1 UVM Effecive Govt/ and Amount Duration Agency AAA AA A A1/P1 BBB OtherIntermediate Fund 1 $10,541 2.2 yrs / 30 49 9 10 2 1.5 yrs Multi-Strategy Bond $ 9,363 6.6 yrs / 37 28 2 5 7 21Fund 4.0 yrsAbsolute Return Fund $37,098Multi Strategy Equity $6,168Enhanced Short $4,958Duration FundHigh Quality Bond $9,979FundOther $423Total Short andIntermediate Operating $78,530



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G. Endowment and other long term investments

The Board of Trustees Investment Committee has established a formal policy for investment of the endowment and other long term funds that include parameters established for the purpose of controlling risk as well as targeting performance. Guidelines for fixed income include: limiting the average duration to within one year of the Lehman Aggregate Index; a requirement that, with the exception of US Treasury, agency and agency mortgage issues, no more than 5% of the portfolio may be invested in the obligations of any one issuer, a requirement that the weighted average portfolio quality be rated at least A1 by Moody’s and/or A+ by Standard & Poor’s, individual investments be rated at least BBB/B at the time of purchase and no more than 20% of the assets be rated below Baa/BBB at time of purchase; a limitation that the aggregate notional value of derivative instruments such as options, futures, index based securities (swaps), or derivative mortgage backed securities be used only up to a limit of 25% of the manager’s portfolio, with no derivative transaction constituting more than 5% of the portfolio’s assets, a requirement that credit counterparties have at least an “AA” rating: and a restriction that under no circumstances should the use of derivatives lengthen the duration of the portfolio beyond 150% of the duration of the Lehman Brother’s Aggregate Index. Guidelines for the equity allocation include: the restriction that index options, individual security options, and currency futures utilized by the equity managers only be used to reduce total portfolio risk or to efficiently manage market exposure; the restriction that the notional value of any derivative securities in the manager’s portfolio not, in aggregate, exceed 25% of the value of the portfolio’s assets and that no single transaction constitute more than 5% of the portfolio’s assets except in more concentrated portfolios where such a restriction may impair performance; the requirement that credit counterparties have at least a “AA” rating; a restriction that derivative securities not be used to increase market exposure beyond 200% of the underlying equity capital or to decrease it below 0%; the requirement that the portfolio not be leveraged or net short, with the exception that the above does not apply to mutual fund investments which follow their own investment guidelines detailed in the prospectus.

The Endowment in aggregate (which comprises the Consolidated Endowment, the Wilbur Trust, and other separately invested assets) and long term capital and operating reserves are invested in a balanced portfolio consisting of: traditional stocks (domestic and international) and bonds; marketable alternatives (hedge funds); non-marketable alternatives (venture capital and private equity); and a diversified portfolio of inflation-hedges (real estate and commodities). The primary objective for the investments in the long term pool is to provide a satisfactory return on investment for the support of University operations based upon the Prudent Person Principle. The University’s specific investment objective is to maintain an average annual real total return (net of investment management fees) of at least 5% over the long-term (rolling 5 year periods). Real total return is the sum of capital appreciation (or loss) and current income adjusted for inflation by the Consumer Price Index. The University’s investment policies are governed and authorized by the University Board of Trustees. The approved asset allocation policy for the long term investment Portfolio sets a general target of 80% equities and 20% fixed income securities with a broader range of 75% to 85% for the equities and 15% to 25% fixed income securities. The asset allocation target and actual percentages at June 30, 2007 and 2006 were:

June 30, 2006 Credit Quality % Average Maturity A+P1 UVM Effecive Govt/ and Amount Duration Agency AAA AA A A1/P1 BBB OtherIntermediate Fund 1 $14,388 2.8 yrs / 32 41 10 14 2 1.6 yrs Multi-Strategy Bond $ 9,363 7.9 yrs / 41 20 5 7 5 22Fund 4.4 yrsAbsolute Return Fund $31,434Multi Strategy Equity $5,079Fund Other $814Total Short andIntermediate Operating $74,477

June 30, 2007 June 30, 2006 Target % Actual % Target % Actual %

US Equity 35.0 34.3 35.0 37.6

Global Excluding US 17.5 21.6 17.5 16.4Equity

Marketable Alternatives 17.5 20.8 17.5 14.6

Real Estate/Inflation 5.0 7.2 5.0 5.2Hedges

Non-marketable 4.0 3.2 4.0 2.8Alternatives Fixed Income 20.0 11.6 20.0 15.4

Cash & Cash 1.0 1.3 1.0 8.0Equivalents



25


Endowment and similar investments including $10,917 and $9,468 of operating investments and $5,702 and $4,773 of capital investments at June 30, 2007, and 2006, respectively, are composed of the following:

The fixed income portfolio is composed primarily of the two funds, one active and one passive, with the following risk profile at June 30, 2007 and 2006:

June 30, June 30, 2007 2006Cash (Overdraft) $ (2,397 ) $ (4,225Money Market 420 156Repurchase Agreements 3,319 3,465Short Term 6,938 2,942Common Stock 70,520 68,854Preferred Stock 0 0U.S. Treasury Bonds annd Notes 7,978 8,133Agency Bonds and Notes 490 343Other Gov’t Bonds and Notes 214 216Industry Bonds 13,066 17,754Private Equity and Venture Partnerships 10,472 7,995 Mortgages 231 480Life Insurance contracts 0 47Life Estates 481 307Hedge Funds 90,491 54,105Mutual Funds 135,390 99,585Total $ 337,613 $282,017

)

Credit Quality % Average Duration Govt/2007 Amount Yrs. Agency AAA AA A Baa-BBB

Passive Bond Fund $18,404 4.72 80 5 8 7

Active Bond Fund 17,086 4.62 71 11 2 5 11

Credit Quality % Average Duration2006 Amount Yrs. AAA AA A Baa-BBB

Passive Bond Fund $17,353 4.80 79 5 8 7

Active Bond Fund 21,863 4.64 80 3 4 11

The majority of endowment fund assets are pooled for investment purposes. Each individual fund subscribes to or disposes of units on the basis of the value per unit at fair value at the beginning of the month within which the transaction takes place. Income is distributed on a per unit basis. Of the total units (each having a fair value of $62.67), 3,345.6233 units were owned by endowment funds and 1,546.6062 units by quasi endowment funds at June 30, 2007 ($54.06, 3,388.2732 and 1,333.3448 respectively, at June 30, 2006).

The table opposite summarizes changes in relationships between cost and fair values of the pooled endowment:

Fair Value Fair Value CostNet Return Per Unit

June 30, 2007 $ 306,604 $230,865 $ 75,739 62.67 June 30, 2006 255,248 217,008 38,240 54.96Unrealized Net Gain 37,240 New Gifts 9,944Realized Net Gain 10,399 Net Income 4,680Withdrawn for Spending (10,907 ) Total Net Change $51,356 8.61

June 30, 2006 $ 255,248 $217,008 $ 38,240 54.06 June 30, 2005 218,776 182,197 36,580 50.51Unrealized Net Gain 1,713 New Gifts 21,810Realized Net Gain 18,903 Net Income 3,562Withdrawn for Spending (9,516 ) Total Net Change $36,472 3.55



26


The average net earnings per unit, exclusive of net gains, amounted to $.98 in fiscal 2007 and $.82 in fiscal 2006.

The University’s endowment spending policy is a budgeted allocation of 4.5 percent of the previous 13 quarters’ average market value.

H. Commitments Major plant projects include commitments as follows:

Estimated Project-to-Date Project-to-Date Project Expenditures Expenditures Project Cost 2007 2006

Living/Learning $22,600 $20,917 $17,982 New Residence Hall 59,600 63,900 57,017 Marsh Life Science 6,850 194 - Plant Sciencs Bldg. 55,700 7,556 - Chilled Water Phas II 18,050 11,683 2,306 WDW Renovation 17,700 16,401 13,466 Davis Student Ctr. 62,000 58,718 29,098 Harris Millis Dining 4,990 4,381 1,600

The University leases technology space located at Technology Park in South Burlington under an operating lease expiring in February 2016. The lease contains two ten-year renewal options. Lease payments are currently $60 per month. Total rent and property tax payments for this facility were $86 for the year ended June 30, 2007.

Then University leases storage space located at Flynn Avenue in Burlington under an operating lease expiring January 2017. The lease contains two five-year renewal options. Lease payments are currently $5 per month. Total rent and property tax payments for this facility were $25 for the year ended June 30, 2007.

The University leases office space located at Lakeside Avenue in Burlington under an operating lease expiring July 2009. The University may terminate the lease effective July 2008, provided certain requirements are met. Lease payments are currently $9 per month. Total payments for this facility were $147 for the year ended June 30, 2007.

The University leases office space located at Roosevelt Highway in Colchester under an operating lease expiring June 2009. The lease contains one one-year renewal option. The University may terminate the lease at anytime, provided certain requirements are met. Lease payments are currently $8 per month. Total rent and property tax payments for this facility were $236 for the year ended June 30, 2007.

The University is obligated under certain of its investments to make future capital contributions in the amount of $18,997.

The University is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The University manages these risks through a combination of self-insurance and commercial insurance purchased in the name of the University. The University’s annual self-insured obligation for general liability is $500 per occurrence and $25 per occurrence for automobile liability. Its assumption of risk for property losses is $250 per occurrence. Educator’s legal liability risks are subject to a $250 per loss retention. Workers compensation is subject to a $500 per occurrence retention. None of these lines of coverage have an annual self-insured aggregate, or stop-gap. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years.

The University elected, effective July 1, 2003, to become a shareholder and member of Genesis Limited, an insurance and reinsurance captive organization domiciled in Bermuda. A Vermont captive, Pinnacle Consortium of Higher Education, was formed in FY ’05 as a fronting insurer to Genesis. The captives consist of two insurance lines, general liability and automobile liability. All members are required to participate in the captive general liability program which provides $2,000 excess limit, written by Pinnacle effective 7/1/05, and the group purchase liability program that provides a $23,000 excess limit. Pinnacle retains 5% of the risk and cedes 95% to Genesis. The University has purchased an additional $75,000 to bring the total excess limit to $100,000.

The University follows the policy of self-insuring risks up to certain limits. At year end, the University had open claims valued at $4,257 in 2007 and $2,801 in 2006; $2,542 and $1,842 of this is covered by excess insurance in 2007 and 2006, respectively. The University paid claims of $1,150 in 2007 and $1,293 in 2006. Reserves for property and casualty liabilities are included in accrued liabilities (including incurred but not reported) in the amount of $4,096 at June 30, 2007 and $3,626 at June 30, 2006.

In conducting its activities, the University from time to time is the subject of various claims and also has claims against others. The ultimate resolution of such claims is not expected to have a material adverse or favorable effect on the financial position of the University.

Three groups of University employees are represented by collective bargaining units. The University participates in contract negotiations with these groups periodically.

The University entered into an agreement in 2001 with Sodexho America, LLC which includes a provision for Sodexho to make 3 annual payments totaling $2,750 to the University for the Living/Learning Dining renovation



27


project. The project is complete and the payments have been received. If the agreement expires or is terminated by either party prior to ten years from inception, the University is obligated to pay a proportionate share of this amount to Sodexho. The University has recorded deferred revenue of $1,193 in 2007 and $1,489 in 2006 for this contingency.

On July 11, 2007 the University issued $158,250 of general obligation bonds for the purpose of refunding outstanding general obligation bonds in the 1998 and 2002 series in the amount of $77,210 and commercial paper notes of the University in the amount of $44,119 and to finance the cost of construction, acquisition, renovation and equipping of various facilities of the University in the amount of $36,769.

In connection with this issuance the University defeased the outstanding debt on the 1998 and 2002 series bonds by placing $80,298 into irrevocable trust for the final payment of debt service on these bonds. The advance refunding will result in an accounting loss of $3,924 on early extinguishment of debt. The loss will be amortized over the remaining life of the defeased bonds. It is estimated that the refunding will result in a reduction of total debt service payments over the next six years of $3,362 and an economic gain, the difference between the present value of the old and new debt service, of $2,442.

The University receives significant financial assistance from federal and state agencies in the form of grants and contracts. Expenditures of funds under these programs require compliance with the grant agreements and are subject to audit. Any disallowed expenditures resulting from such audits become a liability of the University. In the opinion of management such adjustments, if any, are not expected to materially affect the financial condition of the University.

I. Retirement Plans

Faculty and staff at the University of Vermont may participate in the University’s 403(b) defined contribution plan and a 457(b) deferred compensation plan provided the following criteria are met:

faculty and staff must have a full-time equivalency of - .75 or greater;

staff must be employed three years before they qualify - for University contributions to their retirement plan, or they must have a vested interest in the retirement plan of their previous nonprofit employer, or have a TIAA-CREF Retirement Account;

non tenure-track faculty and faculty under the rank of - Assistant Professor must wait two years to qualify for University contributions to their retirement plan, or they must have a vested interest in the retirement plan of their previous nonprofit employer, or have a TIAA-CREF Retirement Account;

tenure track faculty at the level of Assistant - Professor or above receive University contributions to their retirement plan immediately upon beginning employment.

To obtain University contributions, faculty members and officers of administration must contribute 3% of their salary, and staff must contribute 2%. The University’s contribution to the retirement fund of qualified faculty and staff is 10% of salary and this amount is immediately vested.

The University also offers a 457(b) deferred compensation plan. Faculty and staff can participate provided they are participating in the 403(b) plan. The University makes no contributions to this plan.

The University’s 457(b) contributory retirement plan is administered by the Teachers Insurance Annuity Association of America (TIAA), the College Retirement Equities Fund (CREF), and Fidelity Investments. These companies as well as the Prudential Company of America also administer the University’s 403(b) plan. The University’s policy is to accrue the costs of these defined contribution plans currently.

Since both faculty and staff are immediately vested in all retirement contributions made on their behalf, the University has no control of, responsibility for, or ownership of retirement funds, except that employees may not withdraw funds contributed to either their 403(b) or 457(b) plan while employed at the University. Retirement funds may be transferred among the investment alternatives at the discretion of the employee.

Upon leaving the University, employees may either withdraw funds from their accounts, or transfer the funds to other investment alternatives subject to the limitations of 403(b) and/or 457(b) regulations and the contractual provisions of their investment alternative.

For the year ended June 30, 2007 and 2006, the University had total payroll expense of $222,720 and $204,121, respectively, of which $152,484 in 2007 and $143,648 in 2006 was covered by the University’s 403(b) retirement plan. Total employee and employer contributions for 403(b) pension benefits for the year were $14,012 and $15,248, respectively, for 2007 and $13,518 and $14,365, respectively, for 2006. The University’s contribution for 403(b) pension benefits is 10% of the covered payroll. Total employee contributions to the 457(b) retirement plan were $2,036 in fiscal year 2007 and $1,926 in fiscal year 2006.

2007 a n n u a l f i n a n c i a l r e p o r t › controller › 07finrept ›...

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