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U n i v e r s i t y o f L o U i s v i L L e f o U n d a t i o n

A n n u A l R e p o R t 2 0 1 2

F u l F i l l i n g

o u R

p R o m i s e

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The University of Louisville is asked to fill many roles in our city, our region and our state. It is more than a center of learning. It’s an economic engine; a springboard to our students’ success; an incubator of innovation; a wellspring of healing.

Despite the many challenges that could threaten those roles, UofL is fulfilling each and every one of them. The University of Louisville Foundation serves as a driving force in helping our institution achieve its goals. Your commitment and your contributions to the Foundation are central to keeping our university moving forward. We appreciate your past support, and we thank you for helping us fulfill the promise of becoming one of the premier metropolitan research institutions in the United States.

Fulfilling our Promise

In 2012, for the first time ever, the Foundation’s support will exceed state appropriations.

On February 18, 2012, Auguste Rodin’s The Thinker was fully restored and returned to a new pedestal in front of Grawemeyer Hall. An international symbol of academic strength, The Thinker and its restoration are emblematic of the remarkable transformation of the university itself.

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It was an incredible 2012 for the University of Louisville. In academics, research, campus improvements and athletics UofL reached new heights and none of it would have been possible without the University of Louisville Foundation and you – the donors who made it happen.

We’re also proud of what our faculty, staff and students are doing with the money that has been so generously given to our institution. With more scholarships to attract them, the most academically prepared freshmen class in UofL’s history arrived on campus in August. With 56 valedictorians and an average ACT score of 25.0, we’re expecting big things from the class of 2016. Among the 2012 graduates, eight were selected as Fulbright Scholars, allowing us to claim, once again, that we have more Fulbrights than any other Kentucky school.

Our faculty’s work on spinal cord injuries, heart stem cells, autism, cancer vaccines, Parkinson’s, high tech surgery techniques and other disciplines is helping, and will help, thousands of people live more healthy and productive lives.

We’re expanding those research opportunities in difficult economic times with the help of the Foundation by investing in properties on all three campuses.

In athletics, UofL teams won nine Big East championships, posted the largest upset in Bowl Championship Series history by defeating Florida in the Allstate Sugar Bowl and earned a trip to the Final Four.

We’ve passed the original goal of $750 million for the Charting Our Course campaign and we’re headed down the home stretch to $1 billion. That made 2012 a terrific year for UofL. With your continued support, 2013 will be even better.

Over the past several years, the University of Louisville Foundation has shown a remarkable resilience in the face of a changing fiscal landscape. Our portfolio remains strong, and we are making the types of investments that will provide for the University for generations to come. This year, over $11 million was added to

the endowments pool, including $4.2 million in new research support endowment and $3.5 million in new scholarship endowments. Additionally, the Foundation contributed nearly $15 million to faculty salaries.

But there is more to do. The cost of a world-class education is outpacing the state’s ability to support it. UofL is dedicated to raising the bar for our students, faculty, staff and alumni, and in the face of a challenging fiscal environment, we have an even greater void to fill. Now, we need you to help fulfill the promise of our university.

Please consider making a gift to the University of Louisville Foundation in 2013. Funds invested and managed by the Foundation support the University’s education, research and service mission through scholarships, endowments, distinguished faculty chairs, grants and other enrichment initiatives. Please visit louisvillefoundation.org for more details on how to give, including a link to our new online giving form.

In spite of the current challenges, we at the Foundation are looking forward to a bright future for the University of Louisville. Thank you for your continued support.

Message from the President

The University of Louisville Foundation is directed by a 15-member board made up of 14 business executives and community leaders with the Foundation President serving as ex officio. Four of the directors also serve as Trustees to assure a seamless integration between the University’s two policy boards.

Dr. James Ramsey President

Mr. J. Chester Porter, Chairman

Mr. Burt Deutsch, Vice Chairman

Ms. Joyce Hagen, Treasurer

Mr. Eddy Roberts, Secretary

Mr. Lalit Sarin

Ms. Margaret Handmaker

Mr. Sam Rechter

Mr. Frank Weisberg

Mr. Charles Denny

Dr. Salem George

Ms. Debbie Scoppechio

Dr. William Selvidge

Mr. William G. Wilcox

Message from the Chairman

Our People

James R. RamseyPrESIDENT, UNIvErSITY OF LOUISvILLE

J. Chester PorterChAIrmAN, UNIvErSITY OF LOUISvILLE

FOUNDATION BOArD OF DIrECTOrS

Board of Directors, 2011-2012

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Fulfilling Our Mission With Your Help

One cannot ‘chart the course’ without reflecting on the progress of the journey. “Charting Our Course: A Campaign for Kentucky’s Premier metropolitan research University” has attracted more than 69,000 donors, with gifts and pledges totaling more than $750 million to date. In 2011, our Board of Trustees encouraged us to increase our campaign goal to an unprecedented $1 billion. As we reduce the degree to which we rely on scarce public funding, we are increasing our engagement with every stakeholder and organization that values UofL and its positive impact on our collective future and the region’s economy. UofL is appreciative of all of its donors who are driven with the same passion to moving the university forward. here are some of the influential gifts of the “Charting Our Course” campaign. The Frazier FamilyThe benevolence of generations of the Frazier Family has recreated UofL, both literally and figuratively, with an imprint that spans UofL Athletics, the health Sciences Center and the College of Business.

James Graham Brown FoundationThe entire region has access to compassionate cancer care and cutting-edge research modalities thanks to the vision of the James Graham Brown Foundation for its initial and ongoing commitment to eradicating one of Kentucky’s leading cause of death through

Great Universities Are Built By Great People

cancer and heart disease, and understanding autism.

The Helmsley Charitable TrustA national collaboration of the best minds in neurosurgery research has created a technology platform that allows a person to go from being wheelchair-bound to standing, bearing weight and taking steps. The innovative work, spearheaded at UofL’s health Sciences Center, is now being expanded through a grant from the helmsley Charitable Trust. An additional bequest from the helmsley Charitable Trust is funding plant-based pharmaceuticals research through the James Graham Brown Cancer Center’s Owensboro Cancer research Program to develop vaccines to prevent hPv.

The Swope FamilyLed by patriarch Sam Swope, the Swope Family never walks away from a worthy challenge and it has answered the call of “Charting Our Course” most generously with a gift that the university will dedicate to the campaign’s top priorities.

The Humana FoundationIn its continued support of the university, the humana Foundation made a commitment to students and the community by supporting the mcConnell Center. With their support, the university will continue to host

*Through December 31, 2012

TOTAL $755,337,793

$

$

Academic Support, Student Scholarship and Programs

$78,208,392 Fund for UofL, Annual Program and Operating Support

$252,709,635

$

Facilities and Learning Environment (includes Campaign Priorities)

$233,518,111

Research and Faculty Excellence (includes B4B)

$ $190,901,656

Campaign Progress By the Numbers

total raised per campaign priority areas*:

Total donors

66,895

$

118

Donors who have given over $1 million

Chairs and scholarships

Donors

$ endowed chairs

scholarships

17 NEW

145 NEW

Gifts totaling:

$18,164,654.79

Gifts totaling:

$24,684,092.65

E n d o w E d c h a i r s

s c h o L a r s h i P s

Owsley Brown Frazier his name is nearly synonymous with UofL. A true renaissance man, Owsley Brown Frazier,dedicated Louisville philanthropist, former executive of Brown-Forman Corporation, devoted

i give to the university of louisville because i love it. And i urge others to give. Doing so will support generations to come. - OWSLEY BrOWN FrAzIEr

policy makers and world leaders for guest lectures, provide students with international study opportunities and extend teacher education programs to encourage classroom emphasis on American history and civic education.

Siemens PLM SoftwareIn support of its mission to produce the next generation of engineers, Siemens contributed to UofL by providing a suite of product lifecycle management software. With a commercial value of $427 million, this software will allow students to see how design, simulation, tooling, manufacturing and disposal are connected and interdependent.

Louisville Cardinal fan, Bittners owner, museum developer, and loving father and grandfather, died August 16, 2012, at age 77 after a long illness. his is a vast legacy that’s difficult to measure. Frazier was passionate in his efforts to

Kosair CharitiesFor more than 25 years, Kosair Charities has partnered with UofL to improve the vitality and health of our community’s children, funding research and clinical programs in the prevention of sexual abuse and birth defects, to fighting

the establishment and funding of the James Graham Brown Cancer Center.

raise funds for the University of Louisville. Together with his family, the Fraziers have donated more than $50 million to the university, including a $25 million unrestricted gift announced in December 2011.

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This past year was one of continued success during the most difficult of fiscal times. With the support of the University of Louisville Foundation, we moved forward and achieved our statutory mandate. We are proud of the faculty, staff, administration and students who have worked hard to meet the overwhelming majority of the goals set for us by UofL’s Board of Trustees as well as the Council on Postsecondary Education. We continue to grow the number of baccalaureate degrees, retention and graduation rates, and quality of our incoming students and move more research to real-world

applications. While continuing to meet our academic and research goals, the physical appearance of our campuses continues to change for the better as well. All of this fits into a long-range plan, the 2020 Plan, which is driving this university forward every single day.

upward Academic trajectorySoaring graduation rates and increases in degrees awarded are just a couple of examples of the university’s extraordinary academic advancement. UofL is dedicated to providing access to a high-quality education in an effort to develop a populace of great leaders and citizens who will advance its collective goals. results of those efforts include:

• 36 Fulbright Awards in the last three years, outpacing schools like mIT, Dartmouth, and Wake Forest.

• UofL’s fall 2012 freshman class looks to be the most academically gifted incoming class in the school’s history. Collectively

Fulfilling the Mission through Extraordinary Resultsthey enter with an average ACT score of 25.0, well above the national average of 21.1.

• 124 valedictorians in the 2011 and 2012 freshman classes combined.

Continued physical transformation

UofL’s physical campus profile continues to evolve. here are just a few examples:

• Over 2,000 new residence hall rooms have been built since 2001, offering traditional and suite-style living options.

• The $38 million Student recreation Center, set to

average acT score of all entering freshmen (fall semester)

21.4 23.2 25.01

6-year graduation rate 30.1% 33.0% 52.1%2

Baccalaureate degrees awarded 1,734 1,849 2,702

number of students living on campus (fall semester)

1,725 2,363 4,9003

doctoral degrees awarded 76 90 188startup companies (cumulative) 1 6 49

Patents (cumulative) applications filed 151 259 1,346

Formal patents issued 55 72 228License option agreements (cumulative) 17 30 142

research expenditures $39.1m $80.9m $196.4mEndowed chairs and professorships 35 87 150

annual Philanthropy received $42.5m $52.4m $145.2m

1998 reporting

year

2002 reporting

year

2012 reporting

year

Extraordinary Results

* 2012 data are considered preliminary pending final audit and reconciliation. 1 ACT score of 25.0 is based upon current student enrollment as of 8/27/12.2 Calculated with summer degrees as of 8/28/12; pending additional summer degrees and final reconciliation with CPE.3 No longer includes University Park Apartments which was sold by UofL Foundation; Bellamy property has 30% occupancy by non-UofL students.

70%

36

56

4th

of freshmen live on campus

Fulbright awards in the last 3 years

valedictorians in the 2012 freshman class

Fastest growing research university in the nation

$1.5 billioninvested in campus and facility improvements since 2001

open in the fall of 2013, will be located on the Fourth Street corridor, along the western border of campus.

• Cardinal Towne, a new housing and retail complex located on the former site of masterson’s

restaurant, offers multiple dining and shopping options. The Foundation was instrumental in its development and proud of the successes the property has brought to the institution.

World-Class FacultyWith over 250 fields of study, UofL boasts some of the most respected faculty with outstanding national and international reputations in their fields of study. Plus, the vast array of majors and programs offers a path for any interest and career ambition.

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200,000-square-foot building is the first in a planned four-building complex, offering state-of-the-art adaptable spaces consisting of dry labs and office space. Available in may 2013, this exciting new development will be a catalyst for economic development and innovation throughout the region.

Corporate Partnerships The University is searching beyond its immediate campuses to team up with other area corporations. In 2012 we announced a newly expanded partnership between GE and the UofL engineering and physics faculty to allow

Fulfilling the Promise through Partnership & DevelopmentDriving Development and Changing the LandscapeIn the last year, economic development spurred in part by the University of Louisville Foundation has transformed the cityscape, bringing outstanding development to the Louisville area. This includes new business, new jobs and the potential for billions in revenue. Three exciting new projects are creating new funding sources for the University of Louisville as well as new revenue streams and jobs for the Commonwealth of Kentucky. They include the Belknap Engineering and Applied Sciences Park, Shelbyhurst and Nucleus Innovation Park. The Foundation is making a difference for Louisville and the region. And there’s more to come.

Belknap Engineering & Applied Sciences ParkPlans are underway for the 39-acre Belknap Engineering & Applied Sciences Park, the centerpiece of a Signature Tax Increment Financing (TIF) district, designed to stimulate economic growth in an area around UofL’s Belknap campus. The TIF district covers more than 900 acres stretching from Belknap

these properties will provide a new, long term revenue stream for the Foundation. it is essential to our mandate of becoming a premier metropolitan research university. - UOFL PrESIDENT JAmES rAmSEY

A critical component to becoming a premier metropolitan research university is having a thriving and vibrant academic health center. today we have made a tremendous stride in achieving our goal. this is a partnership that works. - UOFL PrESIDENT JAmES rAmSEY

result in an influx of high-wage jobs, growing revenue for the region and state. The park will be designed to attract researchers and private businesses that have the opportunity to work directly and collaboratively with UofL, and ultimately create an economic hub that will transform the South and South Central areas of Louisville.

ShelbyHurstWhen completed, the impressive Shelbyhurst Office Campus will have over 1.5 million square feet of modern office space managed, developed and leased by NTS Development Co. in partnership with the UofL Foundation. Burhans hall and Founders Union remain academic buildings at the 20-acre core of Shelby Campus. Each building recently received an exterior renovation. The Center for Predictive medicine for Biodefense and Emerging Infectious Diseases also is at Shelby Campus.

600 North Hurstbourne — In June, UofL celebrated the official opening of the first office building on Shelby Campus with a ribbon-

cutting ceremony. Tenants started moving into 600 North hurstbourne – a joint venture of the UofL Foundation and NTS —earlier in the year. Churchill Downs Inc., Semonin realtors, Stifel Nicolaus and NTS all moved their headquarters to the new building and are its largest tenants. The 125,000-square-foot, four story building faces hurstbourne Parkway and sits just north of Shelbyville road.

500 and 700 North Hurstbourne — Planning and design is currently underway for 500 and 700 North hurstbourne, Shelbyhurst’s newest properties. These properties will have between 100,000 and 130,000 square feet of Louisville’s most prestigious office space.

Nucleus Innovation ParkConstruction began in 2011 on Nucleus Innovation Park – market Street, the first building on a nine acre research park at the former haymarket property in downtown Louisville. Adjacent to the city’s burgeoning medical community, the new

Campus south to the Watterson Expressway. The Kentucky Economic Development Finance Authority recently approved the TIF, paving the way for what could be an estimated $1 billion over 30 years. The historic TIF project will ultimately leverage the academic and research functions of the University of Louisville into an exceptional economic engine that will

more advanced research collaborations. Additionally, engineers from GE Appliances will now be able to pursue their UofL master’s degree with on-site graduate-level engineering classes taught by Speed School faculty at Appliance Park.

plan to create statewide cancer, trauma, cardiovascular and physical rehabilitation service lines. solidifies Louisville as a national destination for transplants and ventricular assist devices (vads). $70 million for critically needed it infrastructure upgrades.

5 yeARC L i n i C a L

dedicated to academic programs at University Medical Center. Continues 60-plus year tradition of educating healthcare professionals. enhances downtown Louisville as academic destination.

$95 milliona C a d e M i C

Kentuckyone to provide $3 million annually dedicated to research projects. translates research into tomorrow’streatments and cures. expands research efforts throughout the state.

$3 millionr e s e a r C h

Partners for the Future At the end of 2012, University medical Center and the University of Louisville announced a partnership among University hospital, the James Graham Brown Cancer Center and KentuckyOne health-- creating an innovative academic health center and a vital regional safety net hospital. The partnership includes $543.5 million of investment during the first five years, expanding to $1.394 billion over 20 years, including $75 million annually for academic and program investments.

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Fulfilling Financial Commitments

The University of Louisville is dedicated to becoming a national stand-out in higher education, but the cost of a world-class education is out-pacing the state’s ability to support it. For the first time the Foundation is outpacing the Commonwealth in funding the university’s operating budget.

The University of Louisville Foundation is tirelessly seeking and shaping the innovative solutions that will reinforce our university’s fiscal resilience and maintain our educational standards. In addition to student scholarships, the Foundation is currently contributing more than $100 million to the University’s operating budget this year, providing funds in such key areas as:

To continue providing support at the levels required, the ULF has worked to fulfill our goal of developing independent funding sources that can provide long-term, reliable income streams.

Your Support Makes It Possible

“The financial support that I have received via scholarship/endowment has truly meant the world to me. I commute round trip to campus a total of 3 hours for each day of class, I “work” at an agency for 2 days a week for an unpaid internship, I keep up with my busy 3 year old son, a husband, family, and church. I don’t have the time to work another job so the support I received has enabled me to stay truly focused on my studies and maintain straight A’s throughout my two and a half years in graduate school thus far. my education is immensely important to me, and by the giving of those who have been fortunate and generous it has enabled me to be the best student, wife and mother that I can be. I am truly thankful for the generosity of others and it has made a tremendous impact in my life.”

susan “niki” lewis, ms social Work ‘13

• Fellowships

• Faculty salaries

• Faculty awards

• Libraries

• research

net state Appropriations vs. Foundation Funding

200000000 net state appropriation

$141,194,758

Foundation Funding

$141,835,700

150000000

100000000

50000000

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

0

The economics of higher education are changing, and the endowment is one of the ways the University is staying ahead of the curve.

Niki is the first and only member in her immediate family to have graduated from college.

“This and other independent scholarships have helped relieve my burden of working a full-time job while in school. I’ve been able to focus on my studies and grow to my full potential as a student,” Jenny said. “It means I won’t graduate with enormous debt.”

Jenny toczyski, Bs nursing ’12Jenny chose nursing because of her love for science and desire to take care of people in their most vulnerable state.

operating Budget for 2012-13

41.9%

11.6%

21%

11.5%

5.8%

5.2%

0.8%

0.3%

1.8%UofL research foundation, inc.

UofL foundation, inc.

UofL tuition and fees

UofL net state appropriation

UofL athletic association, inc.

UofL other general funds

QCCt

UofL Medical school fund, inc.

state supported QCCt, debt serv.

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The Foundation continued to produce good returns and outperform most of UofL’s peer institutions.

ULF remains one of the strongest places to invest for long-term community impact. The Foundation board has a history of unprecedented returns on its portfolio, keeps administrative costs low, and makes smart investments that ensure strong returns well into the future. here are a few highlights from 2012:

• Total contributions and expenses on behalf of the University increased $6.4 million to $73.7 million

• The total number of scholarship endowments rose to 542, with a total market value of $136.7 million. during the year, $8.7 million in scholarships and fellowships were awarded.

• Faculty salaries paid by the Foundation totaled $14.6 million.

• over $11 million was added to the endowment pool during the year, including $3.9 million in new

research support endowments and $3.3 million in new scholarship endowments.

• The Foundation’s $129.4 million annual budget represents approximately 11% of the total expenditures of the University.

• Total gift revenue of $55.7 million was 42% higher than the prior year, due mainly to one time gifts associated with the capital campaign.

according to cambridge associates, LLc, an investment consulting firm, the Foundation’s annualized net return since January 1, 1990 is 10.3%. That ranks the endowment in the 11th percentile of the 105 non-profit endowments (including colleges and universities) that are tracked by cambridge associates, LLc.

University of Louisville Foundation Inc. The UofL Foundation inc. was

founded in 1970 to oversee private gifts donated to the University. This nonprofit corporation receives and administers all gifts to UofL,including outright gifts, bequests, charitable remainder trusts and gift annuities. contributions are tax deductible and are allocated according to criteria established by donors. although closely associated with the university, the UofL Foundation is a separate and distinct charitable corporation, and its affairs are directed and supervised by its own board of directors.

GovernanceThe University of Louisville Foundation is supervised by a board of directors and follows the Uniform Prudent Management of institutional Funds act (UPMiFa), a law providing parameters for charitable institutions regarding investment and expenditure practices. The law ensures nonprofit administrators remain focused on the long-term viability of the funds entrusted to the organization.

UPMiFa provides guidance to ensure “prudent judgment” is used when making investment decisions and that management costs are proportional and appropriate. it also allows flexibility in defining “underwater” endowments (funds with a market value lower than the book value) as well as determining spending amounts from endowments in this situation. This flexibility ensures the primary intent of the gift can still be accomplished even during challenging economic times. UPMiFa reinforces the concept of “donor intent” by providing a comprehensive process for modifying, rather than simply eliminating, restrictions on charitable funds in certain circumstances. when a restriction becomes impracticable, UPMiFa provides guidance to modify it based on the donor’s probable intention. in this way, even if the original focus of the gift no longer exists, the donor’s broader charitable intent is still protected.

1 Please note this analysis is for ULF Total assets, which is different from ULF Total Pool. ULF Total assets includes ULF Total Pool as well as the Unitrust Equity, the Mohr Endowment, and the Uhi Line of credit.

2 due to limited preliminary figures, the colleges & Universities Between $700-$900m median return is based on a universe of 6 institutions.

* information supplied by cambridge associates.

July 1, 1995 - september 30, 2012totAl RetuRn AnAlysis¹*

Financials University Endowments Endowment gifts support UofL now and into the future because the principal remains intact to earn investment income indefinitely. as the endowment grows, only a portion of the total investment return is used each year. iYour gift has the potential to make an exponentially larger impact on the University for generations to come.

How Endowments Help the University

restricted endowments gifts are directed to whatever programs, departments or projects you designate. Unrestricted endowment gifts are directed by the University of Louisville Foundation Board to all corners of the University, in such forms as:

For the 2012 fiscal year, all benefitted from a robust endowment. Over $11 million was added to the endowment pool during the year, including $3.9 million in new research support endowments and $3.3 million in new scholarship endowments. The total number of scholarship endowments rose to 573, with a total market value of $136.7 million. Most importantly, total gift revenue of $55.7 million was 42% higher than the 2011 fiscal year, maintaining its upward momentum.

• Student scholarships• Fellowships• Faculty salaries

• Faculty awards• Libraries• Research

Endowment Breakdownsthis chart illustrates how the pooled endowment supports the University.

$3,346,244scholarships/fellowships

$3,895,986research

$1,121,224academic support

$2,638,165instruction

$25,441other

30%scholarships24%

instruction

35%research

10%academic support

1%other

2012 $55,733

$39,280

$33,549

$48,989

$36,198

2009

2011

2008

2010

Total Gift Revenue (in millions) since 2008

Allocation of New 2012 Endowment Funds

Target Asset Allocation for Fiscal Year 2012this chart illustrates the target percentage of each investment class of the pooled endowment.

Endowed gifts are invested in the University of Louisville Foundation’s pooled endowment portfolio, consisting of nearly 1,400 individual endowment accounts. This pooled fund functions similarly to a mutual fund, and the size of the pool strengthens the purchasing power of each individual gift. associates LLc, one of the nation’s premier consulting firms.

all endowment contributions are professionally invested by the UofL Foundation with assistance from cambridge associates LLc. The Foundation’s board of directors follows a disciplined investment policy with each strategy decision being rigorously analyzed to ensure long-range goals are achieved. additionally, the Foundation employs a demanding due-diligence process for all investment managers chosen

to work with endowment funds. individuals are selected based not only on past return performance but also on quality, transparency and integrity.

Volatile geopolitical and financial issues, as well as unforeseen natural disasters, had a profound effect on global investments during the 2012 fiscal year. Even in the face of these challenges, the Foundation’s wise investment decisions resulted in

only a modest -0.8% return for the endowment pool during the twelve months ending June 30, 2012. The organization continuingly examines and repositions the portfolio, and has enjoyed an annualized net return since January 1, 1990 of 10.3% which has translated into millions of dollars in additional support for UofL’s mission.

15%real assets

12%private investmentsex real assets

11%fixed income

14%U.s. equity

14%developed global ex U.s. equity

14%emerging Markets equity

20%Marketable alternatives

For the Return

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University of Louisville Foundation, Inc. and Affiliates Consolidated Statements of Financial Position June 30, 2012 and 2011 (In Thousands)

University of Louisville Foundation, Inc. and Affiliates Consolidated Statements of Activities Years Ended June 30, 2012 and 2011 (In Thousands)

Unrestricted Temporarily restricted Permanently restricted Totals2012 2011 2012 2011 2012 2011 2012 2011

REVENUES, GAINS AND OTHER SUPPORTGifts $ 39,473 $ 25,042 $ 7,068 $ 1,892 $ 9,192 $ 12,346 $ 55,733 $ 39,280research challenge Trust Fund - - - - - 500 - 500 investment income 1,334 1,012 16 - - - 1,350 1,012 Endowment income 1,608 38 6,825 7,487 - - 8,433 7,525 net realized and unrealized gain/(loss) on investments 875 35,316 (5,346) 89,245 (1,451) 6,708 (5,922) 131,269 residence hall income 6,773 6,702 - - - - 6,773 6,702 real estate income 2,151 1,851 - - - - 2,151 1,851 actuarial gain/(loss) on annuity and trust obligations - - 33 (1,489) - - 33 (1,489) other revenues 3,014 3,517 - - - - 3,014 3,517 net assets released from restrictions:

satisfaction of program restrictions 33,812 24,483 (33,812) (24,483) - - - - reclassifications 1,171 (1,045) (306) (1,402) (865) 2,447 - -

Total revenues, gains and other support 90,211 96,916 (25,522) 71,250 6,876 22,001 71,565 190,167 EXPENSEScontributions to various University of Louisville departments 6,623 749 - - - - 6,623 749 Payments on behalf of the University of Louisville for:

instruction 4,891 4,560 - - - - 4,891 4,560research 15,840 16,725 - - - - 15,840 16,725Public service 4,541 3,665 - - - - 4,541 3,665academic support 14,302 12,575 - - - - 14,302 12,575 student services 350 214 - - - - 350 214 institutional support 14,323 17,128 - - - - 14,323 17,128 operation and maintenance of plant 4,150 3,190 - - - - 4,150 3,190 scholarships/fellowships 8,674 8,439 - - - - 8,674 8,439

interest expense 3,770 3,834 - - - - 3,770 3,834 residence hall operations, including depreciation 5,171 5,252 - - - - 5,171 5,252 real estate operations, including depreciation 6,291 6,014 - - - - 6,291 6,014 General and administrative, including fundraising 9,655 9,347 - - - - 9,655 9,347

Total expenses 98,581 91,692 - - - - 98,581 91,692 net change in assets from operations (8,370) 5,224 (25,522) 71,250 6,876 22,001 (27,016) 98,475

change in accounting principle - (135,677) - 134,526 - 1,151 - - net change in assets (8,370) (130,453) (25,522) 205,776 6,876 23,152 (27,016) 98,475

net assets at beginning of year 172,522 302,975 250,940 45,164 386,684 363,532 810,146 711,671 net assets at end of year $ 164,152 $ 172,522 $ 225,418 $ 250,940 $ 393,560 $ 386,684 $ 783,130 $ 810,146

2012 2011ASSETS cash and cash equivalents $ 9,643 $ 3,543 accounts, notes, and accrued interest receivable 2,868 2,051 Loan receivable from the University of Louisville athletic association, inc. 1,716 2,021Prepaid expenses and other 1,247 1,289 contributions receivable 29,173 36,061 investments 736,432 771,088 Funds held in trust by others 43,690 45,141 restricted investments 4,925 5,275 other assets 996 435 capital assets, net 132,866 119,585

Total assets $ 963,556 $ 986,489

LIABILITIES AND NET ASSETSLiabilities:accounts payable $ 4,324 $ 4,464 Funds held in trust for others 46,399 47,359 due to University of Louisville 17,477 21,512other 20,972 19,033Bonds and notes payable 91,254 83,975

Total liabilities $ 180,426 $ 176,343Net assets:Unrestricted:

Unrestricted - designated 141,214 159,163Unrestricted - undesignated 22,938 13,359

Total unrestricted 164,152 172,522Temporarily restricted 225,418 250,940Permanently restricted 393,560 386,684

Total net assets 783,130 810,146Total liabilities and net assets $ 963,556 $ 986,489

Independent Accountants’ Report

Board of directorsUniversity of Louisville Foundation, inc. and affiliatesLouisville, Kentucky

we have audited the accompanying consolidated statements of financial position of University ofLouisville Foundation, inc. and affiliates (Foundation) as of June 30, 2012 and 2011, and the relatedconsolidated statements of activities and cash flows for the years then ended. These consolidatedfinancial statements are the responsibility of the Foundation’s management. our responsibility is toexpress an opinion on these consolidated financial statements based on our audits.

we conducted our audits in accordance with auditing standards generally accepted in the Unitedstates of america. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement. anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in theconsolidated financial statements. an audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overall financial statementpresentation. we believe that our audits provide a reasonable basis for our opinion.

in our opinion, the consolidated financial statements referred to above present fairly, in all material

respects, the financial position of the Foundation as of June 30, 2012 and 2011, and the changes in its

net assets and its cash flows for the years then ended in conformity with accounting principles

generally accepted in the United states of america.

october 3, 2012

220 w. Main street, suite 1700P.o. Box 1178

Louisville, KY 40201-1178502.581.0435 Fax 502.581.0723 www.bkd.com

experienceBKD

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c. investments and investment return

investments in marketable debt and equity securities are stated at current market value. investments in real estate through limited partnerships are stated at appraised market values, while other real estate investments are stated at cost on the date of acquisition or fair market value at date of receipt in the case of gifts. investments in joint ventures in which the Foundation has 20% - 50% ownership are recorded using the equity method. securities not publicly traded, certificates of deposit, and investments in which the Foundation has less than 20% ownership are stated at cost, which approximates market. The net realized and unrealized appreciation (depreciation) in market value of investments is reflected in the consolidated statements of activities.

investment return that is initially restricted by donor stipulation and for which the restriction will be satisfied in the same year is included in unrestricted net assets. other investment return is reflected in the consolidated statements of activities as unrestricted, temporarily restricted or permanently restricted based upon the existence and nature of any donor or legally imposed restrictions.

d. nonconsolidated Variable interest Entities

The Foundation holds a variable interest in a joint venture accounted for under the equity method of accounting, acquired through the creation of campus one, LLc in october 2010. The joint venture builds and manages rental properties on the University’s shelby campus. The variable interest relates to a cost-plus arrangement between the joint venture and each joint venture partner. The Foundation is not the primary beneficiary, as a majority of the joint venture’s daily operations are conducted by the other partner, and therefore the entity is not consolidated. at June 30, 2012 and 2011, the Foundation’s investment in the joint venture was $4.8 million and $1.0 million, respectively, and is included in investments in the accompanying consolidated statements of position.

e. capital assets

capital assets are stated at cost or estimated market value at date of receipt from donors. The provision for depreciation on capital assets is calculated using the straight-line method based on their estimated useful lives.

The Foundation has elected to capitalize collections which include art, rare books, photographs, letters, journals, manuscripts, and musical instruments. These items are capitalized at cost, or if a gift, at the fair market value on the date of the gift.

The Foundation capitalizes interest costs as a component of construction in progress, based on interest costs of borrowing specifically for the project, net of interest earned on investments acquired with the proceeds of the borrowing. Total interest capitalized was (in thousands):

FY 2012 FY 2011interest capitalized $ 25interest charged to expense 3,770 $ 3,834

$ 3,795 $ 3,834 f. deferred revenue

deferred revenue, which is included in other liabilities in the consolidated statements of financial position, consists of revenue related to a lease of land by the Foundation, and is recognized evenly over the life of the lease.

g. Unrestricted net assets

net appreciation on endowment funds is reported as unrestricted net assets, unless such net appreciation has been restricted by the donor or by law. Market appreciation on unrestricted endowment funds is included in unrestricted net assets in the accompanying consolidated financial statements. in those cases where a donor has placed restrictions on the use of endowment income, any related net appreciation is also subject to the same restriction and is reported as such.

h. Temporarily and Permanently restricted net assets

Temporarily restricted net assets are those which have donor-imposed restrictions that will expire in the future, when either the time restriction or purpose restriction has been met, and permanently restricted net assets are those which have donor-imposed restrictions which do not expire.

The expiration of a donor-imposed restriction on a contribution or on endowment income is recognized in the period in which the restriction expires and at that time the related resources are reclassified to unrestricted net assets. a restriction expires when the stipulated time has elapsed, when the stipulated purpose for which the resource was restricted has been fulfilled, or both.

donor-imposed restricted contributions and endowment income are reported as unrestricted support if the restrictions are met in the same period as the funds are received.

i. Unrestricted Bequests

The Foundation follows the policy of designating all unrestricted bequests of $100,000 or greater as funds functioning as endowments.

j. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. actual results could differ from those estimates.

k. Market risk and Uncertainties

The Foundation invests in various corporate debt, equity and mutual fund securities, among other investments. investment securities, in general, are exposed to various risks, such as interest rates, credit and overall market volatility. due to the level of risk associated with

certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that those changes could materially affect the amounts reported in the consolidated financial statements.

l. in-Kind contributions

in addition to receiving cash contributions, the Foundation receives in-kind contributions of library materials and other educational equipment and supplies from various donors. it is the policy of the Foundation to record the estimated fair value of certain in-kind donations as an expense in its consolidated financial statements, and similarly increase gift revenue by a like amount. The Foundation received approximately $2.0 million and $2.1 million of in-kind gifts for the years ended June 30, 2012 and 2011, respectively. during the fiscal year ended June 30, 2012, the Foundation received the use of certain software applications. Per Foundation policy, no amounts were recognized as revenue.

m. Functional allocation of Expenses

The costs of supporting the various programs and other activities have been summarized on a functional basis in the consolidated statements of activities. certain costs have been allocated among the instruction, research, public service, academic support, student services, institutional support, operation and maintenance of plant, and scholarships/fellowships categories based on donor intent and other methods.

n. subsequent Events

subsequent events have been evaluated through the date of the independent accountants’ report, which is the date the consolidated financial statements were available to be issued.

o. Tax status

ULF, ULh, and Uhi have received favorable determination letters from the internal revenue service exempting them from federal income taxes under 501(c)(3) of the internal revenue code and a similar provision of state law. ULdc, nucleus, Metacyte Equity, aaF, KYT, PPL, and Minerva are single-member limited liability companies of the Foundation, who are considered disregarded entities for tax purposes. The Foundation is subject to federal income tax on any unrelated business taxable income. Metacyte, a single-member limited liability company of the Foundation, has elected corporate status for tax purposes, and pursuant to this election, is subject to corporate income tax.

The Foundation files tax returns in the U.s. federal jurisdiction. with a few exceptions, the Foundation is no longer subject to U.s. federal examination by tax authorities prior to fiscal year 2009.

p. reclassifications

certain 2011 amounts have been reclassified to conform to the 2012 presentation. These reclassifications had no effect on the change in net assets.

2. due to the University

in accordance with the Foundation’s agency agreement with the University, the University receives and disburses monies on behalf of the Foundation. The net amount of these receipts and reimbursements is recorded as an amount due to or from the University in the consolidated statements of financial position. Generally, the receivable or payable is cleared within the subsequent month; however, no formal agreement governs the time period in which payments are to be made.

3. Loan receivable from the University of Louisville athletic association, inc. (association)

in January, 1999, the Foundation made an $8.5 million unsecured, noninterest bearing loan to the association, an affiliate of the University, for the construction of cardinal Park, due upon collection of contributions. The association’s intent is to repay the $8.5 million loan with future contributions and gifts. For the years ended June 30, 2012 and 2011, the association repaid $0.3 million and $0.5 million, respectively, leaving an outstanding loan balance of approximately $1.4 million and $1.7 million as of June 30, 2012 and 2011, respectively.

additionally, in July 2001, the association obtained a $347,000 unsecured, noninterest bearing loan from the Foundation for the refurbishing of the cardinal Basketball offices. The outstanding loan balance is approximately $316,000 for each of the years ended June 30, 2012 and 2011.

4. contributions receivable

contributions receivable are discounted, using rates on risk-free obligations ranging from 1.2% to 5.9% for 2012 and 2011. contributions receivable, which are all temporarily restricted, as of June 30, 2012 and 2011 are as follows (in thousands):

2012 2011Less than one year $ 20,190 $ 21,964one to four years 12,372 20,831Greater than four years 4,763 7,996allowance for doubtful accounts (5,934) (11,391)Unamortized discount (2,218) (3,339)

net contributions receivable $ 29,173 $ 36,061

conditional promises of gifts depend on the occurrence of a specific and uncertain event. The Foundation has not recorded these types of gifts in the consolidated financial statements. as of June 30, 2012 and 2011 the approximate fair market value of these conditional gifts is as follows (in thousands):

2012 2011Bequests $ 125,317 $ 117,291other 6,454 3,112

Total $ 131,771 $ 120,403

see notes to consolidated financial statements

University of Louisville Foundation, Inc. and Affiliates Consolidated Statements of Cash Flows Years Ended June 30, 2012 and 2011 (In Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES 2012 2011change in net assets $ (27,016) $ 98,475adjustments to reconcile increase in net assets to net cash used in operating activities:

net realized and unrealized gains/(losses) on investments 5,922 (131,269)depreciation and amortization expense 4,804 4,659Loss on disposals of capital assets 44 192Transfer of capital assets to affiliates 82 66contributions restricted for long-term investment (9,192) (12,846)net additions to annuitant & unitrust funds 1,094 225change in present value of annuitant & unitrust payments (1,127) 1,264

change in assets and liabilities:accounts, notes, and accrued interest receivable (817) 40Prepaid expenses and other (15) 123contributions receivable 6,888 1,334other assets (561) 64accounts payable (140) (2,654)Funds held in trust for others 2,293 (3,281)other liabilities 2,664 2,534due to University of Louisville (4,035) 8,644

net cash used in operating activities (19,112) (32,430)CASH FLOWS FROM INVESTING ACTIVITIESPurchases of investments (120,128) (106,719)sale of investments 147,408 118,900Purchases of capital assets (18,178) (4,000)Payments received on loan receivable from University of Louisville

athletic association, inc. 305 500net cash provided by investing activities 9,407 8,681

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from contributions restricted for investment in endowment 9,192 12,846Payments to annuitants (689) (725)Proceeds from issuance of bonds and notes payable 17,046 -Principal payments of bonds and notes payable (9,744) (1,451)

net cash provided by financing activities 15,805 10,670net increase/(decrease) in cash and cash equivalents 6,100 (13,079)cash and cash equivalents at beginning of year 3,543 16,622cash and cash equivalents at end of year $ 9,643 $ 3,543 supplemental cash flow data:

cash paid for interest $ 3,760 $ 3,861

University of Louisville Foundation, Inc. and Affiliates Notes to Consolidated Financial Statements June 30, 2012 and 2011

1. organization and summary of significant accounting Policies

a. organization The accompanying consolidated financial statements include the balances and

transactions of the University of Louisville Foundation, inc. (ULF), ULh, inc. (ULh), University holdings, inc. (Uhi), University of Louisville development corporation, LLc (ULdc), nucleus: Kentucky’s Life sciences and innovation center, LLc (nucleus), aaF-Louisville, LLc (aaF), Metacyte Business Lab, LLc (Metacyte), Metacyte Equity holdings, LLc (Metacyte Equity), KYT-Louisville, LLc (KYT), Phoenix Place – Louisville, LLc (PPL), and Minerva-Louisville, LLc (Minerva), (collectively “Foundation”). all material intercompany balances and transactions have been eliminated in consolidation. ULF has been designated by the University of Louisville (the University) to receive funds derived from gifts and other sources, including funds held in trust by others. The Foundation is presented in the financial statements of the University as a discretely presented component unit.

as directed by its Board of directors, the Foundation transfers funds to the University in satisfaction of donor restrictions. in addition, a portion of the unrestricted resources of the Foundation provides support for a variety of University activities.

ULh began operations on april 23, 2001 and is affiliated with ULF through certain common management and trustees. ULh leases land and issues revenue bonds for student housing purposes and receives, retains and disposes of real estate, and manages and operates the student housing properties it owns.

Uhi (originally named cardinal real Estate, inc.) is a non-stock, non-profit corporation created in september 2007 for the benefit of and to carry out the purposes of ULF. Uhi provides oversight and management support to various affiliated entities. Uhi is affiliated with ULF through certain common management and directors.

ULdc is a limited liability company formed in september 2007, whose sole member is ULF. its purpose is to develop and manage the real estate operations of ULF at the shelby campus of the University. Uhi is the Manager of ULdc. in october 2010, ULdc became a 51% owner of campus one, LLc (campus one). This investment is recorded on the equity method, as ULdc is not considered the primary beneficiary.

nucleus healthcare, LLc was formed in February 2008 and subsequently renamed nucleus: Kentucky’s Life sciences and innovation center, LLc (nucleus). its purpose is to

integrate University resources, including life sciences, with those of the region, specifically as it relates to building and maintaining a research park in downtown Louisville. ULF is the sole member of nucleus and Uhi is the Manager.

Metacyte is a limited liability company formed in June 2002. its purpose is to identify and support commercially promising health science discoveries in the region. ULF is the sole member of Metacyte and Uhi is the Manager.

Metacyte Equity is a limited liability company formed in February 2006. its purpose is to hold the equity shares obtained by Metacyte through development with start-up corporations. as of June 30, 2012 no equities have been transferred and Metacyte Equity has had no activity since inception.

aaF is a limited liability company formed in February 2008, whose sole member is ULF. its purpose is to develop and manage the real estate operations of cardinal station. Uhi is the Manager of aaF.

KYT is a limited liability company formed in november 2008, whose sole member is ULF. its purpose is to develop and manage the real estate purchase and development of property adjacent to the University. Uhi is the Manager of KYT.

PPL is a limited liability company formed in april 2009, whose sole member is ULF. its purpose is to develop and manage the real estate purchase and development of property near the health sciences campus of the University. Uhi is the Manager of PPL.

Minerva is a limited liability company formed in september 2011, whose sole member is ULF. its purpose is to serve as a vehicle for the efficient administration of various deferred compensation plans, agreements, and understandings. Uhi is the Manager of Minerva.

b. cash and cash Equivalents

The Foundation considers all liquid investments (not held for long-term purposes) with original maturities of three months or less to be cash equivalents. at June 30, 2012 and 2011, cash equivalents consisted primarily of money market funds.

Pursuant to legislation enacted in 2010, the Fdic will fully insure all noninterest-bearing transaction accounts beginning december 31, 2010 through december 31, 2012, at all Fdic insured institutions. at June 30, 2012 the Foundation’s interest-bearing cash accounts exceeded federally insured limits by approximately $6.8 million.

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The Foundation invests in various securities, which are exposed to various risks such as interest rate, market and credit risks. due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the investment amounts reported in the consolidated statements of financial position.

The Foundation’s investments do not have a significant concentration of credit risk within any industry or specific institution.

The market risk inherent in certain of the Foundation’s investments is primarily the potential loss arising from adverse changes in quoted market prices on equity securities and in interest rates on fixed income securities. in an effort to mitigate this market risk, the Foundation has adopted a policy of maintaining a diverse investment pool through the use of target asset allocation guidelines. These guidelines require that the Foundation’s investment pool be made up of a mix of publicly traded fixed income and equity securities, private equities and other nonmarketable securities, and real estate investments.

The major portion of long-term investments is pooled in the combined Endowment Fund, which is the general endowment pool for the Foundation. The combined Endowment Fund is pooled using a market value basis, with each individual fund subscribing to, or disposing of, units on the basis of the market value per unit at the end of the prior calendar month during which the transaction takes place. The investment objectives of the Foundation are to preserve the principal of the endowment funds in both absolute and real terms while maximizing, over the long-term, the total rate of return (yield and appreciation) within reasonable risk parameters.

a. alternative investments

The fair value of alternative investments has been estimated using the net asset value per share of the investments. alternative investments held at June 30 consist of the following (in thousands):

2012

Unfunded Fair Value Commitments Redemption Frequency Redemption Notice Period Fixed income funds (a) $ 35,591 Various from any valuation day to monthly Various from 10 to 30 days U.s. equity funds (B) 71,810 Various from semi-monthly to quarterly Various from 5 to 60 days international equities funds (c) 141,288 Various from any valuation day to quarterly Various from 10 to 60 days Equity long/short hedge funds (d) 66,212 Various from quarterly to annually Various from 30 to 60 days Multi-strategy hedge funds (E) 66,511 Various from quarterly to once every 36 months Various from 45 to 90 days natural resources funds (F) 49,758 $ 3,240 Various from any valuation day to illiquid Various from 10 to 90 days, if allowable opportunistic hedge funds (G) 38,213 2,4753 Various from quarterly to illiquid Various from 45 to 90 days, if allowable Private equity funds (h) 55,842 31,158 illiquid n/a

2011 Unfunded Fair Value Commitments Redemption Frequency Redemption Notice Period Fixed income funds (a) $ 24,926 Various from any valuation day to monthly Various from 10 to 30 days U.s. equity funds (B) 67,146 Various from semi-monthly to quarterly Various from 5 to 60 days international equities funds (c) 168,463 Various from any valuation day to quarterly Various from 10 to 60 days Equity long/short hedge funds (d) 80,431 Various from quarterly to annually Various from 30 to 60 days Multi-strategy hedge funds (E) 62,652 Various from quarterly to once every 36 months Various from 45 to 90 days natural resources funds (F) 69,321 $ 4,937 Various from any valuation day to illiquid Various from 10 to 90 days, if allowable opportunistic hedge funds (G) 52,896 2,475 Various from quarterly to illiquid Various from 45 to 90 days, if allowable Private equity funds (h) 44,318 30,480 illiquid n/a

a. This category includes investments in attractive credit opportunities in investment grade corporate bonds, high yield bonds, bank loans, securitized bonds, strategic global fixed income opportunities in countries, currencies, sectors and securities as well as global credit arbitrage opportunities. approximately $34.6 million of the amounts can be redeemed on a monthly basis with advanced notifications ranging from 10 to 30 days. The remaining $1.0 million is illiquid.

B. This category includes two investments in U.s. equities, with one focused on large cap and the other on small- and mid-cap. all securities are traded on U.s. exchanges. The large cap investment, valued at $62.4 million on June 30, 2012, is redeemable at calendar quarter end with 60 days prior notice. The other investment is redeemable twice per month with 5 days prior notice.

c. This category includes investments in international equities in emerging and developed markets across all capitalization classes. approximately 62% of the funds invested can be redeemed on a daily basis with 10 to 30 days prior notice. another 35% of the funds invested can be redeemed monthly with 15 to 30 days prior notice. The remaining investments are redeemable at calendar year quarter ends with 60 days prior notice.

6. investments and investment income investments as of June 30, 2012 and 2011 are as follows (in thousands):

2012 2011 investment in partnerships and funds of funds $ 414,418 $ 419,276 Mutual funds 68,273 77,198 Marketable alternatives 138,108 149,842Preferred and common stock 78,064 89,165 corporate bonds 23,636 23,486 U.s. government securities 181 165 Equity method investments 4,795 1,035 certificate of deposit 7,000 8,900 Land and buildings 1,352 1,416 annuities 605 605

Total investments $ 736,432 $ 771,088

restricted investments are restricted by bond indenture for payment of debt service, and repairs and replacement. restricted investments as of June 30, 2011 and 2010 are as follows (in thousands):

2012 2011Money market mutual funds $ 2,289 $ 2,631 U.s. agency obligations 1,681 1,689 Guaranteed investment contract 955 955

$ 4,925 $ 5,275

Total investment return is reflected in the consolidated statements of activities as follows:2012 2011

interest and dividend income $ 9,783 $ 8,537 net realized and unrealized gains/(losses) oninvestments reported at fair value (5,683) 131,332 net unrealized losses on other investments (239) (63)

$ 3,861 $ 139,806

changes in endowment net assets for the years ended June 30, 2012 and 2011 were (in thousands):2012

UnrestrictedTemporarily Restricted

Permanently Restricted Total

Endowment net assets, beginning of year $ 144,158 $ 217,604 386,684 $ 748,446investment return:

investment and endowment income 2,727 6,818 - 9,545net depreciation (3,898) (7,660) (1,451) (13,009)

Total investment return (1,171) (842) (1,451) (3,464)contributions 211 1,624 9,192 11,027appropriation of endowment assets for expenditures (25,763) (26,332) - (52,095)other changes (165) (1,017) (865) (13)Endowment net assets, end of year $ 117,270 $ 193,071 $ 393,560 $ 703,901

2011

UnrestrictedTemporarily Restricted

Permanently Restricted Total

Endowment net assets, beginning of year $ 269,861 $ 11,238 $ 363,532 $ 644,631investment return:

investment and endowment income 38 8,132 - 8,170net appreciation 35,259 86,241 6,708 128,208

Total investment return 35,297 94,373 6,708 136,378contributions 621 1,533 12,846 15,000appropriation of endowment assets for expenditures (24,412) (23,249) - (47,661)other changes (1,532) (817) 2,447 98Effect of adoption of asc Topic 958-205-05 (135,677) 134,526 1,151 -Endowment net assets, end of year $ 144,158 $ 217,604 $ 386,684 $ 748,446

amounts of donor-restricted endowment funds classified as permanently and temporarily restricted net assets at June 30, 2012 and 2011 consisted of (in thousands):2012 2011

Permanently restricted net assets - portion of perpetual endowment funds required to be retained permanently by explicit donor stipulations or UPMiFa $ 393,560 $ 386,684

Temporarily restricted net assets - term endowment funds $ 10,899 $ 11,031

The composition of net assets by type of endowment fund at June 30, 2012 and 2011 was (in thousands):

2012

UnrestrictedTemporarily Restricted

Permanently Restricted Total

donor-restricted endowment funds $ 32 $ 193,071 $ 393,560 $ 586,663Board-designated endowment funds 117,238 - - 117,238

$ 117,270 $ 193,071 $ 393,560 $ 703,901

2011

UnrestrictedTemporarily Restricted

Permanently Restricted Total

donor-restricted endowment funds $ 36 $ 217,604 $ 386,684 $ 604,324Board-designated endowment funds 144,122 - - 144,122

$ 144,158 $ 217,604 $ 386,684 $ 748,446

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the fair value level that the Foundation is required to retain as a fund of perpetual duration pursuant to donor stipulation or UPMiFa. in accordance with GaaP, deficiencies of this nature are reported in unrestricted net assets and aggregated to $6.1 million and $1.2 million at June 30, 2012 and 2011, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred after investment of permanently restricted contributions.

The Foundation has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs and other items supported by its endowment while seeking to maintain the purchasing power of the endowment. Endowment assets include those assets of donor-restricted endowment funds that the Foundation must hold in perpetuity or for donor-specified periods, as well as those of board-designated endowment funds.

Under the Foundation’s policies, endowment assets are invested in a manner that is intended to produce results that achieves a minimum net total return which is equal to the Foundation’s spending rate plus inflation without the assumption of excessive investment risk. To satisfy its long-term rate of return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both current yield (investment income such as dividends and interest) and capital appreciation (both realized and unrealized). The Foundation targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within acceptable risk constraints.

The Foundation has a standing policy (the spending policy) of appropriating for expenditure each year 5.5% of its endowment fund’s average fair value over the prior three years through the calendar year end preceding the year in which expenditure is planned. in establishing this policy, the Foundation balances the long-term expected return on its endowment against the level of expenditures required to support the University’s goals and objectives. recognizing that markets are volatile, the Foundation will adjust the spending policy for a given year to mitigate adverse market performance on the level of support provided to the University. For the fiscal year ended June 30, 2012, the Foundation Board of directors approved a one-year modification to the spending policy, by eliminating the worst of the three years from the average fair value calculation. This modification was designed to dampen the reduction in allocated spending funds for the fiscal year, without damaging the long-term performance of the endowment.

The Foundation has adopted an investment objective whereby the average annual return over the long term should equal the rate of inflation (measured by the three-year moving average of the Gross domestic Product (GdP) deflator) plus the average level of spending from the combined Endowment Fund. The annual return for the combined Endowment Fund was -0.8% and 20.8% in 2012 and 2011, respectively.

The amount available for spending under the policy was approximately $35.4 million and $33.1 million for the years ended June 30, 2012 and 2011, respectively, of which approximately $32.1 million and $30.1 million was actually expended for the years then ended.

This is consistent with the Foundation’s objective to maintain the purchasing power of endowment assets held in perpetuity or for a specified term, as well as to provide additional real growth through new gifts and investment return.

5. Endowments

The Foundation’s endowment consists of approximately 1,350 individual funds established for a variety of purposes. The endowment includes both donor-restricted endowment funds and funds designated by the board of directors to function as endowments (board-designated endowment funds). as required by accounting principles generally accepted in the United states of america (GaaP), net assets associated with endowment funds, including board-designated endowment funds, are classified and reported based on the existence or absence of donor-imposed restrictions.

The Foundation’s board of directors has interpreted the Uniform Prudent Management of institutional Funds act (UPMiFa), adopted in Kentucky in July 2010 and located at Krs 273.1 to 273.10 as requiring preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. as a result of this interpretation, the Foundation classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of donor-restricted endowment funds is classified as temporarily restricted net assets, until donor stipulations are fulfilled.

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9. capital assets

capital assets as of June 30, 2012 and 2011 are as follows (in thousands):

Pursuant to the lease agreement, ULh agreed to pay the University annual ground rental equal to available excess cash flow, as defined in the agreement. For the years ended June 30, 2012 and 2011, ULh recognized ground rental expense of approximately $0.1 million and $1.2 million, respectively.

10. Funds held in Trust for others

The Foundation is the custodian of funds owned by the association. The association is a separate corporation organized for the purpose of promoting the intercollegiate athletic activities of the University. The Foundation serves in an agency capacity and invests funds on behalf of the association based on a formal trust agreement. as of June 30, 2012 and 2011, the Foundation held approximately $36.8 million for the association’s investment purposes.

during the year ended June 30, 2005, the Foundation entered into an agreement with Jewish hospital & st. Mary’s healthcare, inc. (Jewish hospital) whereby the Foundation serves in an agency capacity to invest funds on behalf of Jewish hospital. Jewish hospital is a separate corporation organized for the purpose of providing healthcare services. as of June 30, 2012 and 2011, the Foundation held approximately $9.4 million and $10.2 million, respectively, for Jewish hospital’s investment purposes.

during the year ended June 30, 2011, the Foundation was the recipient of endowed funds, the income of which shall be used in support of the Louisville orchestra. as of June 30, 2012 and 2011, the Foundation held approximately $0.2 million and $0.3 million, respectively, for the benefit of the Louisville orchestra.

Foundation, acting in an agent capacity, does not reflect earnings on investments held in trust for others in the consolidated statements of activities as these earnings are distributed to the owners of the funds.

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying consolidated statements of financial position using significant unobservable (Level 3) inputs (in thousands):

Investment in partnerships and funds of funds

Marketable alternatives

Preferred and common stock

Balance, July 1, 2010 $ 125,909 $ 109,284 $ 1,525Total realized and unrealized gains and losses 27,715 13,021 502Purchases 8,351 22,749 1,550sales (10,621) - -settlements - (3,799) -Balance, June 30, 2011 $ 151,354 $ 141,255 $ 3,577Total gains for the period included in change in net assets attributable to the change in unrealized gains or losses related to assets still held at the reporting date $ 21,154 $ 13,021 $ 453

Investment in partnerships and funds of funds

Marketable alternatives

Preferred and common stock

Balance, July 1, 2011 $ 151,354 $ 141,255 $ 3,577Total realized and unrealized gains and losses 14,774 (3,771) (1,473)Purchases 38,813 7,000 -sales (20,946) (14,706) -settlements - (309) -Balance, June 30, 2012 $ 183,995 $ 129,469 $ 21,104Total gains/(losses) for the period included in change in net assets attributable to the change in unrealized gains or losses related to assets still held at the reporting date $ 7,887 (3,719) (1,473)

2012 2011Total gains $ 9,530 $ 41,238change in unrealized gains or losses relating to assets still held at the consolidated statement of financial position date $ 2,695 $ 34,628

realized and unrealized gains and losses included in change in net assets for the years ended June 30, 2012 and 2011, are reported in the consolidated statements of activities as follows (in thousands):

2011 2011residence halls:

Buildings $51,194 $51,024Furniture and fixtures 3,800 3,681construction in process 76 106accumulated depreciation (15,547) (13,897)

net $ 39,523 $ 40,914

2011 2011other:

Land $29,592 $24,573Land held for construction 6,590 7,555Buildings 31,953 31,362other plant assets 34,021 29,505construction in process 10,948 2,446accumulated depreciation (19,761) (16,770)

net 93,343 78,671Total - net $ 132,866 $ 119,585

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated statements of financial position at amounts other than fair value.

cash and cash Equivalents: The carrying amount approximates fair value.

Loan receivable: The carrying amount approximates fair value.

notes receivable: carrying amount is a reasonable estimate of fair value.

contributions receivable: Fair value is estimated using a discounted cash flow model.

Bonds and notes Payable: Fair value is estimated based on the borrowing rates currently available to the Foundation for bank loans with similar terms and maturities. The carrying value of $91.3 million and $84.0 million as of June 30, 2012 and 2011, respectively, approximates fair value.

Funds held in Trust for others: The carrying amount approximates fair value.

annuities and Trusts Payable: Fair values of the annuity and trust obligations are based on a calculation of discounted cash flows of the annuity payments under such obligations.

8. Funds held in Trust by others

The Foundation has been designated by the University as the income beneficiary of various trusts and financial entities which are held and controlled by others. one of these is a perpetual and irrevocable trust known as the University of Louisville Trust (Trust). it was created in 1983 to receive, administer, and invest assets which result from gifts to the Trust. The market value of the Trust was approximately $17.9 million and $18.4 million as of June 30, 2012 and 2011, respectively. The Foundation’s portion of the market value of the remaining trusts was approximately $25.8 million and $26.7 million as of June 30, 2012 and 2011, respectively. These funds are invested in various equities and income producing assets. For the years ended June 30, 2012 and 2011, the Foundation received income of approximately $1.9 million and $3.1 million, respectively, from these trusts. These receipts are included in endowment income.

d. This category includes investments in hedge funds that take both long and short positions in global equities and other securities. Most funds in this category use margin and other forms of leverage as well as various derivatives, including swaps, options, futures and forward contracts when deemed appropriated by the respective manager. an investment representing 13% of the value of the investments in this category has a lockup period of 6 months as of June 30, 2012. Two other investments, totaling $3.5 million are illiquid investments. The remaining investments in this category can be redeemed at calendar year quarter ends with prior notification from 30 to 60 days.

E. This category includes investments in hedge funds that pursue multiple strategies to diversify risks and reduce volatility. The funds’ composite portfolio includes investments in U.s. common stocks, global real estate projects and arbitrage investments. an investment representing 17% of the value of this category can only be redeemed annually on the anniversary date, with prior notification of 45 days, due to agreements with the management of the funds. Two investments representing 35% of this category can be redeemed annually at June 30, with prior notification of 45 to 60 days. another investment, with a market value of $0.8 million, is illiquid. The remaining funds can be redeemed monthly or at the calendar year quarter ends with notification of 15 to 65 days.

F. This category includes a multi-strategy natural resources fund of funds, private oil & gas funds and a natural resources equity fund. investments include both publicly traded securities as well as private equity and debt positions. in aggregate, these funds invest in all natural resources categories, including but not limited to, all forms of energy, precious and base metals, and agricultural commodities. The funds typically invest in both the infrastructure and production facilities as well as in the actual metal, commodity or resource. approximately 10% of the investments are private lock up funds with projected partnership maturities ranging from 2018 to 2020. The remaining investments can be redeemed daily with 10 to 90-day prior notification.

G. This category includes investments in distressed-securities, -real estate and -credit. as a class, these investments strive to find U.s. and non-U.s. financial assets, real estate, debt obligations and securities that are inefficiently priced as a result of business, financial, market or legal uncertainties. investments will include publicly traded securities and private investments. Three of these funds, with a combined value of $7.7 million, can never be redeemed prior to partnership termination as specified in the limited partnership agreements. These funds have expected partnership maturities in 2012 and 2017. distributions from each fund are made as the underlying investments of the funds are liquidated. one other fund, with a value of $4.4 million is available quarterly with advance notice of 45 days. all remaining investments in this class can be redeemed on their respective annual anniversaries of investment with 90 days prior notice.

h. This category includes several funds that invest in private equity of U.s. companies, international companies and U.s. real estate. also included are several funds focusing on U.s. venture capital opportunities. one fund specializes in mezzanine debt for midcap U.s. companies. approximately $24.1 million is equally invested among 12 funds of funds. The remaining investments in this category are direct investments in private equity, venture capital and mezzanine debt funds. all investments are in lockup funds with partnership maturities ranging from 2012 to 2027. distributions from each fund will be made as the underlying investments of the funds are liquidated. all funds are commitment based investments with managers calling down commitments as investment opportunities arise. The June 30, 2012 fair value represents the market value of contributions made through that date. Unfunded commitments as of June 30, 2012 are $31.2 million, which is expected to be drawn over the next 5 years.

7. disclosures about Fair Value of assets and Liabilities

asc Topic 820, Fair Value Measurements (Topic 820) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2

observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Following is a description of the inputs and valuation methodologies used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated statements of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

a. Money Market Mutual Funds

where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include money market mutual funds.

b. investments

Level 1 securities include preferred and common stock and mutual funds. if quoted market prices are not available, then fair values are estimated by a third party pricing service using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

For investments other than marketable alternatives and investments in partnerships, the inputs used by the pricing service to determine fair value may include one, or a combination of, observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data market research publications and are classified within Level 2 of the valuation hierarchy. For marketable alternatives and investments in partnerships that have sufficient activity or liquidity within the fund, fair value is determined using the net asset value (or its equivalent) provided by the fund and are classified within Level 2 of the valuation hierarchy. Level 2 securities include corporate bonds, U.s. government securities, certain investments in partnerships and certain marketable alternative investments.

For marketable alternatives, investments in partnerships, and investments in the common and preferred stock of certain business ventures, that do not have sufficient activity or liquidity within the fund, the net asset value (or its equivalent) provided by the fund is utilized, as a practical expedient, to determine fair value and are classified within Level 3 of the valuation hierarchy.

c. Funds held in Trust By others

Fair value is determined at the market value of the securities held in the beneficial trusts at June 30, 2012 and 2011. The value is determined based on the proportional beneficial interest held in the trust, with the Foundation as the sole beneficiary of the majority of the trusts. due to the nature of the valuation inputs, the interest is classified within Level 2 of the hierarchy.

d. restricted investments

Level 1 securities include money market accounts, which are based on quoted market prices in an active market and Level 2 securities include U.s. agency obligations. The Level 2 securities are based on quoted market prices and are based on a pricing service and use inputs as described above.

The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated statements of financial position measured at fair value on a recurring basis and the level within the Topic 820 fair value hierarchy in which the fair value measurements fall at June 30, 2012 and 2011 (in thousands):

2012

Fair Value

Quoted Prices in Active

Markets for Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant Other

Unobservable Inputs

(Level 3)Money market mutual funds $ 678 $ 678investments

Preferred and common stock 78,064 75,960 $ 2,104corporate bonds 23,636 - $ 23,636 -Mutual funds 68,123 68,123 - -investment in partnerships and funds of funds 414,079 - 230,084 183,995U.s. government securities 181 - 181 -Marketable alternatives 138,108 - 8,639 129,469

Funds held in trust by others 43,690 - 43,690 -restricted investments

Money market mutual funds 2,289 2,289 - -U.s. agency obligations 1,681 - 1,681 -

2011

Fair Value

Quoted Prices in Active

Markets for Identical Assets

(Level 1)

Significant Other

Observable Inputs

(Level 2)

Significant Other

Unobservable Inputs

(Level 3)Money market mutual funds $ 213 $ 213investments

Preferred and common stock 89,165 85,588 $ 3,577corporate bonds 23,486 - $ 23,486 -Mutual funds 77,098 77,098 - -investment in partnerships and funds of funds 418,938 - 267,584 151,354U.s. government securities 165 - 165 -Marketable alternatives 149,842 - 8,587 141,255

Funds held in trust by others 45,141 - 45,141 -restricted investments

Money market mutual funds 2,631 2,631 - -U.s. agency obligations 1,689 - 1,689 -

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13. other Liabilities

other liabilities, as of June 30, 2012 and 2011 are as follows (in thousands):

14. annuities and Trusts Payable

The Foundation has been the recipient of several gift annuities which require future payments to the donor or their named beneficiaries. The assets received from the donor are recorded at fair value. The Foundation has recorded a liability at June 30, 2012 and 2011 of approximately $1.7 million and $1.9 million, respectively, which represents the present value of the future annuity obligations. The liability has been determined using discounts rates ranging from 1.20% to 7.78%.

The Foundation administers various charitable remainder trusts. a charitable remainder trust provides for the payment of distributions to the grantor or other designated beneficiaries over the trust’s term (usually the designated beneficiary’s lifetime). at the end of the trust’s term, the remaining assets are available for the Foundation’s use. The portion of the trusts attributable to the future interest of the Foundation is recorded in the consolidated statements of activities as temporarily restricted contributions in the period the trust is established. assets held in the charitable remainder trusts are recorded at fair value in the Foundation’s consolidated statements of financial position. on an annual basis, the Foundation revalues the liability to make distributions to the designated beneficiaries based on actuarial assumptions. The Foundation has recorded a liability at June 30, 2012 and 2011 of approximately $2.6 million and $3.1 million, respectively, which represents the present value of the future obligations. The liability has been determined using discount rates ranging from 4.10% to 8.75%, a rate of return of 6.63%, and applicable mortality tables.

15. research challenge Trust Fund

The research challenge Trust Fund (rcTF) was created with the passage of the Postsecondary Education improvement act of 1997 (hB 1). The objectives of rcTF stated in the bill are to, among other things, support efforts by the University to become a premier, nationally recognized metropolitan university. during the 1998 session of the Kentucky General assembly, a $100 million ($16.7 million to the University) endowment was appropriated from the General Fund surplus Expenditure Plan of house Bill 321 in support of the research universities’ (i.e. the University and other state supported colleges and universities) missions.

The University irrevocably contributed these rcTF funds to the Foundation, although earnings from these funds are designated for the University in perpetuity.

state government will provide endowment funds with the provision that the universities match them dollar-for-dollar with donations received to establish endowments for research activities.

16. Expenses

Expenses by natural classification for the years ended June 30, 2012 and 2011 were approximately (in thousands):

17. Fundraising Expenses

Fundraising expenses were approximately $9.3 million and $8.4 million for the years ended June 30, 2012 and 2013, respectively.

18. net assets

net assets of the Foundation are segregated into classes of unrestricted, temporarily restricted, and permanently restricted assets. The following tables describe the functional classifications of temporarily and permanently restricted net assets as to purpose based upon the intent of donors (in thousands) as of June 30, 2012 and 2011:

donor-imposed restrictions expired on temporarily restricted net assets during the years ended June 30, 2012 and 2011 as follows (in thousands):

19. change in accounting Principle

in the year ended June 30, 2011, the Foundation adopted the recognition provisions of Financial accounting standards Board asc Topic 958-205-05, not-for-Profit organizations: net asset classification of Funds subject to an Enacted Version of the Uniform Management of institutional Funds act, and Enhanced disclosures for all Endowment Funds (asc 958). The Foundation previously adopted the disclosure requirements of this standard in 2009. This new standard changes the method of classification of net assets comprising donor-restricted endowment funds when the Foundation is subject to an enacted and effective version of the Uniform Prudent Management of institutional Funds act (UPMiFa). initial application of the disclosure provisions of asc 958 at July 1, 2009 had no impact on previously reported beginning net assets.

The following table presents the incremental effect on the 2011 consolidated statement of activities upon adoption of UPMiFa (in thousands):

20. commitments

at June 30, 2012, the Foundation had approximately $571,000 in encumbrances outstanding for future expenditures.

21. risks and Uncertainties

a. current Economic conditions

The current economic situation continues to present not-for-profit organizations with difficult circumstances and challenges, which in some cases have resulted in large declines in the fair value of investments and other assets, constraints on liquidity and difficulty obtaining financing. The consolidated financial statements have been prepared using values and information currently available to the Foundation.

in addition, given the volatility of current economic conditions, the values of assets and liabilities recorded in the consolidated financial statements could change rapidly, resulting in material future adjustments in investment values that could negatively impact the Foundation’s ability to meet debt covenants or maintain sufficient liquidity.

2012 2011Personnel costs $45,076 $41,417services 24,983 28,111scholarships 8,825 7,985Equipment repairs 1,307 1,245supplies 3,166 3,663 depreciation and amortization 4,831 4,688 interest 3,770 3,834contributions to various University departments 6,623 749

$ 98,581 $ 91,692

Temporarily restricted contributions for: 2012 2011instruction $ 2,365 $ 2,091research 10,909 10,191Public service 127 116academic support 4,225 4,099student services 92 4institutional support 626 914operation and maintenance of plant 1,206 206scholarship/fellowships 6,159 5,691net decrease in contributions receivable 8,103 1,171

Total net assets released from restrictions $ 33,812 $ 24,483

June 30, 2012:Temporarily Restricted

Permanently Restricted

instruction $ 17,812 $ 42,769research 87,687 193,570Public service 1,279 2,815academic support 29,058 57,463student services 132 216institutional support 41,667 6,110scholarships/fellowships 40,204 90,376auxiliary operations & other 7,579 241

Total $ 225,418 $ 393,560

June 30, 2011:Temporarily Restricted

Permanently Restricted

instruction $ 18,283 $ 41,290research 100,892 191,173Public service 1,472 2,823academic support 33,786 57,088student services 214 214institutional support 49,858 5,714scholarships/fellowships 46,302 88,059auxiliary operations & other 133 323

Total $ 250,940 $ 386,684

Before Adoption of UPMIFA Adjustments

After Adoption of UPMIFA

net realized and unrealized gains - unrestricted $ 117,484 $ (82,168) $ 35,316

net realized and unrealized gains - temporarily restricted $ 7,077 $ 82,168 $ 89,245

Total revenues, gains, and other support - unrestricted $ 179,084 $ (82,168) $ 96,916

Total revenues, gains, and other support - temporarily restricted $ (10,918) $ 82,168 $ 71,250

net change in assets from operations - unrestricted $ 87,392 $ (82,168) $ 5,224

net change in assets from operations - temporarily restricted $ (10,918) $ 82,168 $ 71,250

net assets, end of year - unrestricted $ 390,367 $ (217,845) $ 172,522

net assets, end of year - temporarily restricted $ 34,246 $ 216,694 $ 250,940

net assets, end of year - permanently restricted $ 385,533 $ 1,151 $ 386,684

2011 2011Unitrust and annuity obligations $4,267 $4,989deferred revenue 7,206 5,390Grawemeyer awards 1,204 1,894deferred compensation 7,979 6,449Miscellaneous 31 26 asset retirement obligation 285 285

Total $ 20,972 $ 19,033

Description Fiscal Year of Maturity 2012 2011series 2005a (non taxable) Principal payments of $175 to $1,010 are due annually beginning 6/1/16 through maturity, and interest is

due monthly at fixed rates from 4% to 5%.ranging from 2016 to 2035 $ 13,815 $ 13,815

series 2005B (taxable) Principal payments of $170 to $390 are due annually beginning 6/1/07 through maturity, and interest is due monthly at a fixed rate of 4.91%

2016 1,190 1,440

series 2009a (non taxable) Principal payments of $370 to $900 are due annually beginning 10/01/10 through maturity, and interest is due semi-annually at fixed rates from 2% to 4.5%.

2033 13,015 13,355

series 2010a (non taxable) Principal payments of $785 to $2,815 are due annually beginning 10/1/10 through maturity, and interest is due semiannually at fixed rates from 2.0% to 4.4%

2030 20,475 21,255

note Payable - aaF Fixed rate of 5.99% with principal payment at end of note 2012 - 2,200note Payable - aaF Fixed rate of 1.80% with principal payment at end of note 2012 - 5,992note Payable - aaF Variable rate, 1.90% as of June 30, 2012, with principal payment at end of note 2014 8,192 -note Payable - KYT Fixed rate of 4.96% with principal payment at end of note 2014 7,000 7,000note Payable - KYT Fixed rate of 6.46% with principal payment at end of note 2014 12,500 12,500note Payable - ULF annually adjustable fixed rate, 6.24% as of June 30, 2012, with principal and interest payments due monthly 2020 1,726 1,908Line of credit - nucleus Variable rate, 2.23% as of June 30, 2012 - unsecured 2013 4,120 4,120Line of credit - ULF Variable rate, 0.87% as of June 30, 2012, with interest payments due monthly 2014 8,854 -

Total bonds and notes payable 90,887 83,585Plus unamortized premium 367 390Bonds and notes payable, net $ 91,254 $ 83,975

11. Bonds and notes Payable

Bonds and notes payable consist of the following at June 30, 2012 and 2011 (in thousands):

a. Bonds Payable

The outstanding bonds are secured by deposits with the bond trustee, which are reported in restricted investments in the consolidated statements of financial position as of June 30, 2012 and 2011 and mortgages on the respective properties.

b. notes Payable – aaF

in February 2012, aaF entered into a note payable with a financial institution to borrow 8.2 million to refinance two previous notes payable. The note bears a variable interest rate equal to the one-month London interBank offered rate (LiBor) as published in the wall street Journal plus 1.60%, with a minimum interest rate of 1.90% per annum.

This note is collateralized by a mortgage on cardinal station and pledges of lease and rent revenue.

c. notes Payable – KYT

in november 2008, KYT entered into a note payable with a financial institution to borrow $12.5 million in relation to the purchase of property adjacent to the University. The note bears an interest rate of 6.46% per annum, payable monthly. The principal is due in full november 2013.

in november 2008, KYT entered into a note payable with a financial institution to borrow $7.0 million in relation to the purchase of property adjacent to the University. The note bears an interest rate of 4.96% per annum, payable monthly. The principal is due in full november 2013.

These notes are collateralized by mortgages on KYT property and pledges of lease and rent revenue.

d. note Payable – ULF

in september 2009, ULF entered into a note payable with a financial institution to borrow $2.2 million in relation to the purchase of property near the University. The note bears an initial interest rate of 6.24% until september 2014, at which time it will be adjusted annually. Principal and interest payments are due monthly, with final payment due in september 2019. The note is secured by a mortgage on the property.

e. Line of credit – nucleus

in February 2008, nucleus assumed a $5.0 million line of credit agreement with a financial institution, which matures on october 16, 2012. it is subsequently renewed and extended in six month intervals. The line is unsecured and guaranteed by the Foundation. There was approximately $880,000 unused and available on the line of credit at June 30, 2012 and 2011.

f. Line of credit – ULF

in January 2012, ULF entered into a construction line of credit agreement with a financial institution to borrow up to $31.0 million in relation to the construction of nucleus innovation Park. The line of credit bears an interest rate per annum equal to the daily LiBor rate plus 0.62%. interest payments are due monthly, with final payment due in July 2013. The note is secured by a mortgage on the property.

as of June 30, 2012, approximately $22.1 million was unused and available on the line of credit.

Principal payments on the above obligations due in the next five years and thereafter are as follows (in thousands):

12. Guarantees

a. Bonds Payable

ULF is the guarantor of the ULh bonds payable. amounts payable under the guaranty are limited as follows (in thousands):

b. notes Payable and Line of credit

ULF is the guarantor of the aaF and KYT notes payable and the nucleus line of credit. as of June 30, 2012 and 2011, the outstanding principal related to the notes payable was $27.7 million and the outstanding principal related to the line of credit was $4.1 million.

in June 2012, ULF guaranteed a $12.0 million line of credit for the University of Louisville Physicians, inc. (ULP) maturing on June 25, 2013. as of June 30, 2012 the principal amount outstanding was approximately $5.0 million.

c. Loans

as of June 30, 2012, ULF guaranteed three loans related to student organizations. if the student organization does not meet its scheduled payments, ULF could be called upon to make the payments, as well as collection expenses and costs. The total amount approved for loans was approximately $1.2 million, with $1.0 million outstanding, as of June 30, 2012 and 2011.

in december 2010, ULF guaranteed 51% of the outstanding loans of campus one, LLc. as of June 31, 2012 and 2011, the amount under guarantee was $4.4 million and $0.8 million, respectively.

d. association Mortgage revenue Bonds

in July 2008, the Louisville Metro Government issued $39.8 million of Mortgage revenue Bonds 2008 series a and $43.5 million of Mortgage revenue Bonds 2008 series B (Mortgage revenue Bonds) at a combined net interest cost of 4.2%, the proceeds of which were loaned to the association. The bond proceeds were used on september 1, 2008 to retire the association’s outstanding county of Jefferson Kentucky Government Lease revenue Bonds, series 1997, the proceeds of which financed the acquisition, construction, installation and equipping of the sports stadium known as University of Louisville Papa John’s cardinal stadium (stadium). Excess funds were used to finance a portion of the costs of acquisition, construction, installation and equipping of an expansion to the stadium.

The Foundation is the guarantor of the Mortgage revenue Bonds, and as such has agreed to maintain a balance of available cash sufficient enough to cover the next debt service payment. in exchange for the Foundation’s willingness to serve as guarantor, the association has agreed to pay the Foundation a credit enhancement fee and to exonerate and indemnify the Foundation from all liability in connection with the Mortgage revenue Bonds, the obligations of the association under the Loan agreement and Mortgage, and any and all payments made by the Foundation as guarantor.

as of June 30, 2012 and 2011, the total amount outstanding on the Mortgage revenue Bonds was $65.8 million and $71.6 million, respectively.

e. Lease Guarantee

in december 2006, the Foundation became the guarantor of payments due to University Faculty office Building, LLc (UFoB) under the Master Lease agreement between the Medical school Practice association, inc. (MsPa) and UFoB. The Foundation has guaranteed the full and prompt payment of all amounts due to UFoB including any damages for default and payments to reimburse UFoB for any costs and expenses incurred by UFoB to cure any default by MsPa. The initial lease term is 15 years, beginning in July 2008. The annual lease payments due from MsPa to UFoB are approximately $3.5 million, with an annual inflation of 3%.

Principal DueFor the Year Ended June 30,2013 $ 5,7612014 38,3142015 1,8862016 1,9912017 2,061Thereafter 40,874

$ 90,887

Residence Hall Aggregate limit Annual limitBettie Johnson hall $ 32,455 $ 2,938Kurz hall 21,367 955community Park 31,308 1,121

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BudgetThe UofL Foundation’s fiscal year is July 1 through June 30 and mirrors that of the University of Louisville. in January the University begins projecting its budget for the following fiscal year. in February the Foundation calculates the projected spending amounts for all endowments using the formula in the approved spending policy. Final decisions on UofL’s budget are made in June when the board of trustees formally approves the new fiscal year budget.

Investment Strategy and ObjectiveThe board’s investment strategy for the pooled endowment fund involves mitigating market risk by maintaining diverse investments through the use of target asset allocation guidelines. These guidelines ensure the Foundation’s investment pool consists of a variety of publicly traded fixed income and equity securities, private equities and other nonmarketable securities, and real estate investments. The UofL Foundation’s investment objective is to preserve the principal of the endowment funds both in absolute and real terms while reasonably maximizing the total rate of return.

Vesting Requirementall newly created endowments must be invested for one full calendar year before being able to participate in the UofL

Foundation’s spending policy calculation. This investment time begins on January 1 following the date of the gift.

Spending PolicyEndowment gifts remain permanently invested and only a portion of the total return is expended. The amount distributed to each endowment is determined by the Foundation’s board of directors. The current spending policy provides for an annual distribution of 5.5 percent of each endowment’s three-year average market value as calculated on december 31. This formula reduces the volatility of an endowment’s spending from year to year and minimizes the negative effects of moderate market downturns. For underwater endowments, the Foundation has established a pro-rated amount based on this policy.

Reinvestmentreinvestment is the process by which any of an endowment’s annual earnings, in excess of current needs, are returned to the principal of the fund. This process is usually initiated by the chair of the department or dean of the school that benefits from the endowment. But it can only occur if the gift instrument specifically provides UofL the authority to do so. once the funds are added to the gift corpus, the money is no longer eligible for spending and must remain permanently invested.

Common Endowment Terms

For Reference

gift instrumenta will, deed, grant, conveyance, agreement, memorandum, writing or other governing document (including the terms of any institutional solicitations) under which property is transferred to or held by the UofL foundation.

Book Valuethe aggregate fair value in dollars of an endowment at the time it became an endowment plus subsequent gifts and, in some cases, reinvested funds. it can be used synonymously with “principal,” “gift corpus” or “historic dollar value.”

market Valuethe value of an endowment’s portion of the total assets of the UofL foundation’s pooled endowment fund. it includes realized and unrealized capital appreciation and is net of spending that has taken place to support the endowment’s purpose. this figure represents what these assets were worth or could have been sold for on the specified date.

Contributionsall outright gifts and/or pledge payments received from donors during the most recent fiscal year with specific instructions to establish or add to the endowment principal.

pooled endowment Funda commingled pool of assets in which nearly all endowed funds established through private gifts are invested. the pool closely resembles a mutual fund. each endowment owns a number of units in the pool. the value of each unit at the time the funds are invested in the pool determines how many units an individual fund owns. in other words, the endowed fund buys units in the pool much as one buys shares in a mutual fund.

expendituresthe dollars spent during the most recent fiscal year in support of the purpose of the endowment.

spending policythe amount of investment earnings projected to be available in the coming fiscal year to be spent in support of the purpose of the endowment.

The Foundation thanks you for your support and for believing in the University’s mission to become a premier metropolitan research university.

Your contributions are what enable the Foundation to transform the generosity of individuals into enrichment for all.

Please visit louisvillefoundation.org for details on how to give.

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