This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. will beavailablefordelivery atthefacilitiesofDTCinNewYork,Yorkon oraboutJuly__,2018. underwriters byKutakRockLLP,LittleRock,Arkansas, counseltotheunderwriters.ItisexpectedthatBonds & Woodyard, P.L.L.C., Little Rock, Arkansas, bond counsel. Certain legal matters will be passed upon for the Bonds aresubjecttoredemptionpriormaturityas is morefullydescribedinREDEMPTIONherein. Owners istheresponsibilityofDTCparticipantsorindirect participants,asmorefullydescribedherein. Beneficial to payments such of disbursement and DTC, of responsibility the is participants DTC to payments such bond the on registered are Bonds registration books maintained by Simmons Bank, Pine Bluff, Arkansas, as Trustee (the “Trustee”). Disbursement of such name whose in person the to payable be shall payments interest such All BOOK-ENTRY ONLYSYSTEMherein. Individual purchasersoftheBonds(“BeneficialOwners”)willnotreceivephysicaldeliverybondcertificates. See thereof. multiple integral any or $5,000 of denominations the in form, book-entry in only made be will Bonds the of payments on the Bonds will be interest made and principal so which long to as York, Cede New & York, Co. New (“DTC”), is Company the Trust registered Depository owner The of of nominee the as Bonds. Co., Individual purchases of costs paying and Arkansas issuance oftheBonds. of University the of campus Fayetteville the on improvements various financing of of buildings or lands the StateofArkansasorBoard.TheBoardhasnotaxingpower.Bondsarebeingissuedfor purpose any on lien or mortgage a by secured not are Bonds the and Bonds, the on interest the or of Neither the faith and credit nor the taxing power of the State of Arkansas are pledged to the payment of the principal The Bonds will be secured by a specific pledge of, and payable first from, Pledged Revenues (as hereinafter defined). Dated: DateofDelivery NEW ISSUE (See TAXMATTERSherein.). interest thereon,areexemptfromallpresentState,countyandmunicipaltaxationintheStateofArkansas bond counsel’s further opinion, under existing law, the Series 2018A Bonds and the Series 2018B Bonds, and 2018B BONDS IS NOT EXCLUDABLE FROM GROSS INCOME FOR FEDERAL INCOME TAX PURPOSES. In earnings forthepurposeofcomputingfederalalternativeminimumtax.INTERESTONTHESERIES corporations, interestontheSeries2018ABondswillbetakenintoaccountindeterminingadjustedcurrent federal alternativeminimumtaximposedonindividualsandcorporations,providedthat,withrespectto tax purposes,andinterestontheSeries2018ABondsisnotanitemofpreferenceforpurposes described herein, interest on the Series 2018A Bonds is excludable from gross income for federal income (Book-Entry Only) ** *

Preliminary; subjectto change. See In theopinionofbondcounsel,underexistinglawandassumingcompliancewithcertaincovenants The Bondsareofferedwhen,asandifissued,subject totheapprovalofMitchell,Williams,Selig,Gates The Statement. Official this of cover inside the on forth set as priced are and interest bear mature, Bonds The 2018. 1, November commencing 1, November and 1 May on semiannually payable is Bonds the on Interest & Cede of name the in registered be will issued, when and, bonds registered fully as issuable are Bonds The The BondsaregeneralobligationsonlyoftheBoardTrusteesUniversityArkansas(the“Board”). DESCRIPTION OFRATINGherein.

PRELIMINARY OFFICIAL STATEMENT DATED JULY 5, 2018

$20,550,000** TAX-EXEMPTSERIES2018A VARIOUS FACILITYREVENUEBONDS $6,565,000** TAXABLESERIES2018B BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS (FAYETTEVILLE CAMPUS) Official Statement datedJuly__,2018 AND Due: November1,asshownontheinsidecover RATING: Moody’s:“Aa2”(stableoutlook)*

$20,550,000* BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS VARIOUS FACILITY REVENUE BONDS (FAYETTEVILLE CAMPUS) TAX-EXEMPT SERIES 2018A

Serial Bonds Year Principal Interest Year Principal Interest (Nov. 1) Amount Rate Yield CUSIP** (Nov. 1) Amount Rate Yield CUSIP**

2019 $ 325,000 % % 2034 $ 640,000 % % 2020 340,000 2035 675,000 2021 340,000 2036 700,000 2022 355,000 2037 740,000 2023 365,000 2038 775,000 2024 395,000 2039 820,000 2025 410,000 2040 865,000 2026 430,000 2041 900,000 2027 450,000 2042 940,000 2028 470,000 2043 1,005,000 2029 500,000 2044 1,055,000 2030 520,000 2055 1,110,000 2031 550,000 2046 1,170,000 2032 585,000 2047 1,220,000 2033 610,000 2048 1,290,000

Term Bonds $______% Term Bond due November 1, 20__ to Yield ____%; CUSIP: ______$______% Term Bond due November 1, 20__ to Yield ____%; CUSIP: ______

$6,565,000* BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS VARIOUS FACILITY REVENUE BONDS (FAYETTEVILLE CAMPUS) TAXABLE SERIES 2018B

Serial Bonds Year Principal Interest Year Principal Interest (Nov. 1) Amount Rate Yield CUSIP** (Nov. 1) Amount Rate Yield CUSIP**

2019 $230,000 % % 2029 $325,000 2020 235,000 2030 335,000 2021 240,000 2031 350,000 2022 255,000 2032 365,000 2023 260,000 2033 380,000 2024 270,000 2034 395,000 2025 280,000 2035 410,000 2026 290,000 2036 425,000 2027 300,000 2037 445,000 2028 315,000 2038 460,000 # Priced to the first optional redemption date of November 1, 20__*. * Preliminary; subject to change. ** CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by the CUSIP Service Bureau, operated by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services Bureau. CUSIP numbers have been assigned by an independent company not affiliated with the Board and are included solely for the convenience of the registered owners of the Bonds. The Board and the Underwriters are not responsible for the selection or uses of these CUSIP numbers, and no representation is made as to their correctness by the Board on the Bonds and by the Underwriters on the Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Bonds. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

NO DEALER, BROKER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED BY THE BOARD TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION WITH RESPECT TO THE BONDS OTHER THAN THOSE CONTAINED IN THIS OFFICIAL STATEMENT AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS OFFICIAL STATEMENT, NOR ANY SALES HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE BOARD SINCE THE DATE HEREOF. CERTAIN INFORMATION CONTAINED HEREIN HAS BEEN OBTAINED FROM SOURCES WHICH ARE BELIEVED TO BE RELIABLE, BUT IT IS NOT GUARANTEED AS TO ACCURACY OR COMPLETENESS. THE INFORMATION AND EXPRESSIONS OF OPINION HEREIN ARE SUBJECT TO CHANGE WITHOUT NOTICE. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE BONDS BY ANY PERSON IN ANY STATE IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER, SOLICITATION OR SALE.

THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR HAS THE TRUST INDENTURE BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS.

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY, OR DETERMINED THE ADEQUACY, OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

[REMAINDER OF THIS PAGE INTENTIONALLY BLANK] TABLE OF CONTENTS Page SUMMARY STATEMENT ...... i INTRODUCTION ...... 1 PURPOSES FOR THE BONDS...... 2 ESTIMATED SOURCES AND USES...... 5 DESCRIPTION OF THE BONDS ...... 5 REDEMPTION...... 5 SECURITY FOR THE BONDS ...... 7 BOOK-ENTRY ONLY SYSTEM...... 8 CONCERNING THE TRUSTEE ...... 10 SUMMARY OF THE MASTER INDENTURE AS SUPPLEMENTED...... 11 THE UNIVERSITY OF ARKANSAS ...... 16 THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY ...... 20 FINANCIAL STATEMENTS ...... 27 TAX MATTERS...... 28 CONTINUING DISCLOSURE...... 32 ENFORCEABILITY OF REMEDIES ...... 33 FINANCIAL ADVISOR ...... 33 LEGAL AND LEGISLATIVE MATTERS...... 33 UNDERWRITING...... 36 RELATED PARTIES ...... 37 DESCRIPTION OF RATING...... 37 MISCELLANEOUS ...... 37

Appendix A - Opinion of Bond Counsel Appendix B - Audited Financial Statements for the University of Arkansas, Fayetteville for the Fiscal Year Ended June 30, 2017 Appendix C - Audited Consolidated Financial Report of the University of Arkansas System for the Fiscal Year Ended June 30, 2017 Appendix D - Form of Continuing Disclosure Agreement SUMMARY STATEMENT

The following summary statement is subject in all respects to the more complete information contained in this Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement, including the cover page hereof and the appendices hereto. The Bonds The Board of Trustees of the University of Arkansas Various Facility Revenue Bonds (Fayetteville Campus), Tax-Exempt Series 2018A, in the aggregate principal amount of $20,550,000* (the “Series 2018A Bonds”), and Taxable Series 2018B, in the aggregate principal amount of $6,565,000* (the “Series 2018B Bonds,” and together with the Series 2018A Bonds, the “Series 2018 Bonds” or the “Bonds”), each series to be dated as of the date of their delivery, will be issued under the authority of the Constitution and laws of the State of Arkansas, including particularly Arkansas Code Annotated Title 6, Chapter 62, Subchapter 3, as amended (the “Act”), and pursuant to resolutions duly adopted by the Board on October 29, 1996, February 28, 1997, November 16, 2001, November 16, 2002, September 17, 2004, January 27, 2005, May 26, 2006, May 24, 2007, June 6, 2008, November 13, 2009, April 1, 2011, February 2, 2012, May 24, 2012, February 1, 2013, May 21, 2014, November 14, 2014, May 21, 2015, February 15, 2016, May 25, 2017 and May 24, 2018. The Board’s resolutions authorize, among other things, the execution of a Master Trust Indenture between the Board and the Trustee dated as of November 1, 1996, as supplemented by a First Supplement to Master Trust Indenture between the Board and the Trustee dated as of May 1, 2011 (collectively, the “Master Indenture”), a Series 1996 Trust Indenture dated as of November 1, 1996 (the “Series 1996 Indenture”), a Series 1997 Trust Indenture dated as of October 15, 1997 (the “Series 1997 Indenture”), a Series 2001 Trust Indenture dated as of November 1, 2001 (the “Series 2001 Indenture”), a Series 2002 Trust Indenture dated as of December 1, 2002 (the “Series 2002 Indenture”), a Series 2004 Trust Indenture dated as of October 1, 2004 (the “Series 2004 Indenture”), a Series 2005 Trust Indenture dated as of March 1, 2005 (the “Series 2005 Indenture”), a Series 2006 Trust Indenture dated as of June 1, 2006 (the “Series 2006 Indenture”), a Series 2007 Trust Indenture dated as of October 1, 2007 (the “Series 2007 Indenture”), a Series 2008 Trust Indenture dated as of August 1, 2008 (the “Series 2008 Indenture”), a Series 2009 Trust Indenture dated as of December 15, 2009 (the “Series 2009 Indenture”), a Series 2011 Trust Indenture dated as of June 29, 2011 (the “Series 2011 Indenture”), a Series 2012A Trust Indenture dated as of April 17, 2012 (the “Series 2012A Indenture”), a Series 2012B Trust Indenture dated as of September 13, 2012 (the “Series 2012B Indenture”), a Series 2013A Trust Indenture dated as of May 16, 2013 (the “Series 2013A Indenture”), a Series 2014 Trust Indenture dated as of June 30, 2014 (the “Series 2014 Indenture”), a Series 2015A Trust Indenture dated as of February 12, 2015 (the “Series 2015A Indenture”), a Series 2015B and C Trust Indenture dated as of August 27, 2015 (the “Series 2015B and C Indenture”), a Series 2016 Trust Indenture dated as of April 5, 2016 (the “Series 2016 Indenture”), a Series 2017 Trust Indenture dated as of August 1, 2017 (the “Series 2017 Indenture”), and a Series 2018 Trust Indenture dated as of the date of delivery of the Bonds (the “Series 2018 Indenture”). The Bonds will be issued under and secured by the Master Indenture, as supplemented by the Series 2018 Indenture. See SUMMARY OF THE MASTER INDENTURE AS SUPPLEMENTED herein. Use of Proceeds The proceeds from the sale of the Bonds will be used for the purpose of (i) financing certain capital improvements at UA, Fayetteville, and (ii) paying the costs of issuance of the Bonds. See PURPOSES FOR THE BONDS herein. ______* Preliminary; subject to change.

i Security The Board has established the Master Indenture as a means of issuing revenue bonds to finance and refinance facilities at UA, Fayetteville under uniform terms and conditions and with uniform security. Various series of bonds are issued under the Master Indenture and pursuant to series indentures specific to the series. The bonds previously issued pursuant to the Master Indenture are listed below under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Existing Parity Bonds. The Bonds will be general obligations only of the Board and will not constitute an indebtedness for which the full faith and credit of the State of Arkansas or any of its revenues are pledged and are not secured by a mortgage or lien on any land or building belonging to the State of Arkansas or to the Board. The Bonds will be secured by a specific pledge of, and payable first from, Pledged Revenues. The Bonds are equally ratably secured, and the pledge of Pledged Revenues to the Bonds is on a parity with the pledge in favor of the bonds previously issued under the Master Indenture. The term “Pledged Revenues” is defined as (i) all tuition and fee revenues collected by UA, Fayetteville, (ii) all sales and services revenues and all auxiliary enterprises revenues (as such terms are used in the context of generally accepted accounting principles) derived from facilities funded or refunded with bonds issued under the Master Indenture, and (iii) all surplus sales and services and auxiliary enterprises revenues (as such terms are used in the context of generally accepted accounting principles) derived from residence halls, married student apartments, fraternity and sorority houses, residence dining services, the Arkansas Union, and transit and parking services to the extent such revenues are derived from facilities funded with obligations issued pursuant to the Act. Pledged Revenues are pledged to the payment of the Bonds on a parity of security with previous pledges to Existing Parity Bonds (as listed below under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Existing Parity Bonds) and with subsequent pledges to Additional Parity Bonds (as hereinafter defined), and Pledged Revenues are subject to the previous pledge to Existing Obligations (defined as existing obligations of the Board payable from Pledged Revenues, described herein under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Existing Obligations). Pledged Revenues shall not include (A) athletic gate receipts and other revenues derived from intercollegiate athletics at UA, Fayetteville or (B) any fees authorized or imposed by UA, Fayetteville and dedicated to a specific purpose unrelated to obligations issued pursuant to the Act or to facilities funded with such obligations. The Board has also reserved the right to pledge Pledged Revenues to additional bonds issued under the Master Indenture. The pledge may either be on a parity with or subordinate to the pledge in favor of the Bonds. (See SUMMARY OF THE MASTER INDENTURE AS SUPPLEMENTED, Additional Bonds, herein.) Pledged Revenues may also be pledged to “Other Obligations.” Other Obligations will not be issued under or secured by the lien of the Master Indenture and may be incurred without complying with the requirements for issuing additional bonds under the Master Indenture. See SECURITY FOR THE BONDS, where the types of permitted “Other Obligations” are described. The Board has covenanted that it will take all action necessary to maintain Pledged Revenues at the level necessary to make required debt service payments on all indebtedness issued under the Master Indenture, Existing Obligations and Other Obligations. The Board has further covenanted not to pledge the Pledged Revenues as security for any indebtedness and not to create or permit the creation of any charges upon, liens against, or encumbrances of any kind, on the Pledged Revenues except for Existing Obligations, Other Obligations and bonds issued under and in accordance with the provisions of the Master Indenture.

ii OFFICIAL STATEMENT

BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS VARIOUS FACILITY REVENUE BONDS (FAYETTEVILLE CAMPUS) $20,550,000! TAX-EXEMPT SERIES 2018A AND $6,565,000* TAXABLE SERIES 2018B

INTRODUCTION

This Official Statement of the Board of Trustees of the University of Arkansas (the “Board”), including the cover page, Summary Statement, and Appendices, is furnished with respect to the sale by the Board of (i) its Various Facility Revenue Bonds (Fayetteville Campus), Tax-Exempt Series 2018A, in the aggregate principal amount of $20,550,000* (the “Series 2018A Bonds”), and (ii) its Various Facility Revenue Bonds (Fayetteville Campus), Taxable Series 2018B, in the aggregate principal amount of $6,565,000* (the “Series 2018B Bonds,” and together with the Series 2018A Bonds, the “Series 2018 Bonds” or the “Bonds”), each series to be dated as of their date of delivery. There follows in this Official Statement a description of the Bonds, the revenues providing the security for the Bonds, and certain other information concerning this financing and other matters of interest related to the Board and the Fayetteville campus of the University of Arkansas (“UA, Fayetteville”). The financial data with regard to the Board has been provided from the records of the Board and UA, Fayetteville. The Bonds are being issued pursuant to and in full compliance with the Constitution and laws of the State of Arkansas, particularly Arkansas Code Annotated Title 6, Chapter 62, Subchapter 3, as amended (the “Act”), and a Resolution adopted by the Board on May 24, 2018. The Bonds are equally and ratably secured by a Master Trust Indenture dated as of November 1, 1996 between the Board and Simmons Bank, Pine Bluff, Arkansas, as trustee (the “Trustee”), as supplemented by a First Supplement to Master Trust Indenture between the Board and the Trustee dated as of May 1, 2011 (collectively, the “Master Indenture”), as supplemented by a Series 1996 Trust Indenture dated as of November 1, 1996 (the “Series 1996 Indenture”), by a Series 1997 Trust Indenture dated as of October 15, 1997 (the “Series 1997 Indenture”), by a Series 2001 Trust Indenture dated as of November 1, 2001 (the “Series 2001 Indenture”), by a Series 2002 Trust Indenture dated as of December 1, 2002 (the “Series 2002 Indenture”), by a Series 2004 Trust Indenture dated as of October 1, 2004 (the “Series 2004 Indenture”), by a Series 2005 Trust Indenture dated as of March 1, 2005 (the “Series 2005 Indenture”), by a Series 2006 Trust Indenture dated as of June 1, 2006 (the “Series 2006 Indenture”), by a Series 2007 Trust Indenture dated as of October 1, 2007 (the “Series 2007 Indenture”), by a Series 2008 Trust Indenture dated as of August 1, 2008 (the “Series 2008 Indenture”), by a Series 2009 Trust Indenture dated as of December 15, 2009 (the “Series 2009 Indenture”), by a Series 2011 Trust Indenture dated as of June 29, 2011 (the “Series 2011 Indenture”), by a Series 2012A Trust Indenture dated as of April 17, 2012 (the “Series 2012A Indenture”), by a Series 2012B Trust Indenture dated as of September 13, 2012 (the “Series 2012B Indenture”), by a Series 2013A Trust Indenture dated as of May 16, 2013 (the “Series 2013A Indenture”), by a Series 2014 Trust Indenture dated as of June 30, 2014 (the “Series 2014 Indenture”), by a Series 2015A Trust Indenture dated as of February 12, 2015 (the “Series 2015A Indenture”), by a Series 2015B and C Trust Indenture dated as of August 27, 2015 (the “Series 2015B and C Indenture”), by a Series 2016 Trust Indenture dated as of April 5, 2016 (the “Series 2016 Indenture”), by a Series 2017 Trust Indenture dated as of August 1, 2017 (the “Series 2017 Indenture”), and by a Series 2018 Trust Indenture to be dated as of the date of delivery of the Bonds (the “Series 2018 Indenture”), each by and between the Board and the Trustee. The Bonds will be payable from Pledged Revenues (defined below). The Bonds are issued on a parity of security with each series thereof and with the Board’s outstanding (i) Various Facility Revenue Bonds (Fayetteville Campus), Series 2009A (the “Series 2009A Bonds”), (ii) Various Facility Revenue Bonds (Fayetteville Campus), Series 2011A (the “Series 2011A Bonds”), (iii) Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2011B (the “Series 2011B Bonds”), (iv) Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2012A (the “Series 2012A Bonds”), (v) Various Facility Revenue Bonds (Fayetteville Campus), Series 2012B (the “Series 2012B Bonds”), (vi) Various Facility Revenue Bonds

! Preliminary; subject to change. (Fayetteville Campus), Series 2013A (the “Series 2013A Bonds”), (vii) Various Facility Revenue Bonds (Fayetteville Campus), Series 2014A (the “Series 2014A Bonds”), (viii) Various Facility Revenue Bonds (Fayetteville Campus), Series 2014B (the “Series 2014B Bonds”), (ix) Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2015A (the “Series 2015A Bonds”), (x) Various Facility Revenue Bonds (Fayetteville Campus), Series 2015B (the “Series 2015B Bonds”), (xi) Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2015C (the “Series 2015C Bonds”), (xii) Various Facility Revenue Bonds (Fayetteville Campus), Refunding and Improvement Series 2016A (the “Series 2016A Bonds”), (xiii) Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2016B (the “Series 2016B Bonds”), and (xiv) Various Facility Revenue Bonds (Fayetteville Campus), Series 2017 (the “Series 2017 Bonds”). The Master Indenture permits the issuance of additional bonds and the incurring of Other Obligations (defined below under SECURITY FOR THE BONDS) payable from Pledged Revenues. The Series 2018 Indenture establishes the terms and conditions upon which the Bonds are issued. The issuance of additional bonds payable from Pledged Revenues will require additional supplemental indentures (each a “Series Indenture”) to establish the terms and conditions for issuance of the bonds of the particular series. The Board may incur Other Obligations without complying with the test for issuing additional bonds under the Master Indenture. Specific covenants concerning revenues are described under SECURITY FOR THE BONDS herein. The term “Pledged Revenues” is defined as (i) all tuition and fee revenues collected by UA, Fayetteville, (ii) all sales and services revenues and all auxiliary enterprises revenues (as such terms are used in the context of generally accepted accounting principles) derived from facilities funded or refunded with bonds issued under the Master Indenture, and (iii) all surplus sales and services and auxiliary enterprises revenues (as such terms are used in the context of generally accepted accounting principles) derived from residence halls, married student apartments, fraternity and sorority houses, residence dining services, the Arkansas Union, and transit and parking services to the extent such revenues are derived from facilities funded with obligations issued pursuant to the Act. Pledged Revenues are pledged to the payment of the Bonds on a parity of security with previous pledges to Existing Parity Bonds (as listed below under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Existing Parity Bonds) and with subsequent pledges to Additional Parity Bonds (as hereinafter defined), and Pledged Revenues are subject to the previous pledge to Existing Obligations (defined as existing obligations of the Board payable from Pledged Revenues, described herein under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Existing Obligations). Pledged Revenues shall not include (A) athletic gate receipts and other revenues derived from intercollegiate athletics at UA, Fayetteville or (B) any fees authorized or imposed by UA, Fayetteville and dedicated to a specific purpose unrelated to obligations issued pursuant to the Act or to facilities funded with such obligations. Descriptions of the Board, the Bonds, the University of Arkansas, UA, Fayetteville, the Master Indenture as supplemented by the Series 2018 Indenture, and other documents are included in this Official Statement. Such descriptions do not purport to be comprehensive or definitive; all references herein to the Master Indenture or other documents are qualified in their entirety by reference to such documents, copies of which are available from the Board and any of the underwriters listed on the cover; and all references to the Bonds are qualified in their entirety by reference to the definitive form thereof and the information with respect thereto included in the Master Indenture and Series 2018 Indenture. Terms not defined herein shall be given the meaning set forth in the specific instruments or documents.

PURPOSES FOR THE BONDS

Series 2018A Project A portion of the proceeds from the sale of the Series 2018A Bonds will be used for financing all or a portion of the cost of certain capital improvements for UA, Fayetteville, and the costs of issuance of the Series 2018A Bonds. Proceeds of the Series 2018A Bonds are expected to be used particularly, without limitation, to finance all or a portion of the costs of (i) the renovation and reorganization of the interior of Mullins Library (the “Mullins Library Project”); (ii) the acquisition, construction, equipping and furnishing of the Student Success Center (the “Student Success Center Project”); (iii) the acquisition, construction and equipping of an offsite Library Storage Building (the “Library Storage Building Project”); (iv) the renovation, expansion and equipping of Kimpel Hall (the “Kimpel Hall Project”); (v) the acquisition, construction and equipping of the Civil Engineering Research and Education Center (the “Civil Engineering Center Project”); (vi) the acquisition, construction and equipping of intramural sports facilities (the “Intramural Sports Facilities Project”); (vii) the acquisition, construction and equipping of improvements to the south campus steam and utility systems (the “South Campus Steam Project”); (viii) the acquisition, construction and improving of a remote parking facility to be utilized by staff and faculty (the “Beechwood Remote Parking Project”); and (ix) the acquisition, construction, improvement, renovation, equipping and/or furnishing of other capital improvements and infrastructure and the acquisition of various equipment and/or 2 real property for UA, Fayetteville (collectively, with the Mullins Library Project, the Student Success Center Project, the Library Storage Building Project, the Kimpel Hall Project, the Civil Engineering Center Project, the Intramural Sports Facilities Project, the South Campus Steam Project, the Beechwood Remote Parking Project, the “Series 2018A Project”). The various components of the Series 2018A Project will consist of: Mullins Library Project. A portion of the proceeds of the Series 2018A Bonds will be used for the renovation of Mullins Library. This project consists of a fully reorganized interior of the Library to create a collaborative and interdisciplinary learning space. This project will be focused on approximately 120,000 square feet located on levels 3 and 4 of the existing building. Student Success Center Project. A portion of the proceeds of the Series 2018A Bonds will be used to continue with the initial planning phase of the Student Success Center. This project will create a home for a new program which has a mission to maximize the success of the students. The project will create a dedicated space for student and faculty interaction outside of the classroom for personal mentoring and tutoring. The new facility will contain approximately 75,000 square feet. Library Storage Building Project. A portion of the proceeds of the Series 2018A Bonds will be used for the third phase of construction, furnishing and equipping of a new Library Storage facility. The facility will contain approximately 27,000 gross square feet and will hold about 2.2 million items in a high-density storage system. This will allow for an estimated ten years of growth for the University libraries. Kimpel Hall Project. A portion of the proceeds of the Series 2018A Bonds will be utilized to continue the renovation and expansion, furnishing and equipping of Kimpel Hall. The project includes continuation of ongoing renovations to classrooms, public spaces, corridors, washrooms and some offices, including asbestos abatement. The exterior envelope will also be renovated, including brick repointing and window replacements. New space will be created for various student media needs. The existing facility contains approximately 61,000 gross square feet. The addition to the building will consist of approximately 3,965 gross square feet. Civil Engineering Center Project. A portion of the proceeds of the Series 2018A Bonds will be utilized to continue the acquisition, construction, furnishing and equipping of a new Civil Engineering Research and Education Center planned for the Arkansas Research and Technology Park. The facility will contain approximately 35,500 gross square feet. The project will allow civil engineering research and training disciplines to be located within a single complex and will accommodate growth of the College of Engineering’s undergraduate and research programs. Intramural Sports Facilities Project. A portion of the proceeds of the Series 2018A Bonds will be utilized to pay for the second phase of construction, furnishing and equipping of new intramural sports playing fields. The overall project is expected to be a multi-year undertaking that will include the construction of the actual playing fields as well as some support and storage facilities. Due to a decade of sustained growth, existing intramural facilities do not meet current demand. The new facilities will enable UA, Fayetteville to be on par with its peer institutions. South Campus Steam Project. A portion of the proceeds of the Series 2018A Bonds will be utilized to continue the acquisition, construction and equipping of improvements to the south campus steam and utility systems. Beechwood Remote Parking Project. A portion of the proceeds of the Series 2018A Bonds will be utilized to develop a remote parking lot consisting of approximately 1,100 spaces for students, faculty and staff south of the main campus. The work will also include necessary street connections and frontage and drainage improvements. Other Capital Improvements and Infrastructure. A portion of the proceeds of the Bonds may be utilized to design, acquire, construct, improve, renovate, equip and/or furnish various other capital improvements and infrastructure and the acquisition of various equipment and/or real property for UA, Fayetteville. Series 2018B Project A portion of the proceeds from the sale of the Series 2018B Bonds will be used for financing all or a portion of the cost of certain capital improvements for UA, Fayetteville, and the costs of issuance of the Series 2018B Bonds. Proceeds of the Series 2018B Bonds are expected to be used particularly, without limitation, to finance all or a portion of the costs of (i) the renovation, equipping and furnishing of the Arkansas Union Food Court (the “Arkansas Union Food Court Project”); and (ii) the renovation, expansion and equipping of Pomfret Dining Hall (the “Pomfret Dining Hall Project,” and collectively, with the Arkansas Union Food Court Project, the “Series 2018B Project”). 3 The various components of the Series 2018B Project will consist of: Arkansas Union Food Court Project. A portion of the proceeds of the Series 2018B Bonds will be used to complete the renovation of all areas within the Arkansas Union Food Court. This will include the central core, food preparation areas, serving stations and open seating areas and private rooms. The project will result in the complete renovation of approximately 20,100 square feet. Pomfret Dining Hall Project. A portion of the proceeds of the Series 2018B Bonds will be utilized to renovate and expand the Pomfret Dining Hall. The project will include new food preparation areas, serving stations and general kitchen work flow improvements to the existing 12,000 square foot buffet-style controlled access food venue. The addition will house a small 75 seat a la carte dining venue consisting of approximately 6,430 square feet.

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4 ESTIMATED SOURCES AND USES Series 2018A Bonds Sources(1) Par Amount of Series 2018A Bonds $20,550,000 Original Issue (Discount) Premium

Total Sources: $

Uses(1) 2018A Project Costs $23,550,000 Costs of Issuance(2) Contingency Total Uses: $

Series 2018B Bonds Sources(1) Par Amount of Series 2018B Bonds $6,565,000 Original Issue (Discount) Premium

Total Sources: $

Uses(1) 2018B Project Costs $6,500,000 Costs of Issuance(2) Contingency Total Uses: $ ______(1) Preliminary; subject to change. (2) Including underwriting fee and expenses.

DESCRIPTION OF THE BONDS

The Bonds will be dated their date of delivery, and will bear interest from that date, payable semiannually on May 1 and November 1 of each year commencing November 1, 2018, at the rates as set forth on the inside cover page of this Official Statement, and will mature on November 1 in the years and amounts as set forth on the inside cover page of this Official Statement. The Bonds are issuable as fully registered bonds in the denomination of $5,000 or any integral multiple thereof. Principal of the Bonds is payable at the principal office of the Trustee. Interest will be payable to the person in whose name such Bonds are registered on the registration books maintained by the Trustee (the “Registered Owner”) at the close of business on the fifteenth day of the month immediately preceding the month in which any interest payment date on the Bonds occurs (the “Record Date”). Interest will be payable by check drawn upon the Trustee or by wire transfer if requested by a Registered Owner of Bonds in the principal amount of $1,000,000 or more.

REDEMPTION

The Bonds shall be subject to redemption prior to maturity, in the principal amount of $5,000 or any integral multiple thereof, as follows: Optional Redemption The Series 2018A Bonds maturing on or after November 1, 20__ may be redeemed, in whole or in part, at the option of the Board from funds from any source, on any date on or after November 1, 20__, at a price of 100% of the principal amount being redeemed plus accrued interest to the date of redemption, and if in part, from such maturities as may be selected by the Board.

5 The Series 2018B Bonds maturing on or after November 1, 20__ may be redeemed, in whole or in part, at the option of the Board from funds from any source, on any date on or after November 1, 20__, at a price of 100% of the principal amount being redeemed plus accrued interest to the date of redemption, and if in part, from such maturities as may be selected by the Board. Mandatory Sinking Fund Redemption The Series 2018A Bonds maturing November 1, 20__ and November 1, 20__ (the “2018A Term Bonds”), are subject to mandatory sinking fund redemption and payment prior to maturity pursuant to the mandatory sinking fund redemption requirements of the Series 2018 Indenture at a price equal to the principal amount being redeemed plus accrued interest to the date of redemption, on November 1, in each of the following years and in the following amounts: 2018A Term Bonds Maturing November 1, 20__ Year Principal Amount 20__ $ 20__ 20__ 20__ 20__ (maturity)

2018A Term Bonds Maturing November 1, 20__ Year Principal Amount 20__ $ 20__ 20__ 20__ 20__ (maturity)

The Trustee shall, in each year in which 2018A Term Bonds are to be redeemed pursuant to the provisions for mandatory sinking fund redemption, make timely selection of such 2018A Term Bonds or portions thereof to be so redeemed and shall give notice thereof in the manner summarized under “Notice of Redemption” below without further instructions from the Board. At its option, to be exercised on or before the 45th day next preceding November 1 in the years in which a 2018A Term Bond or a portion thereof is to be redeemed, inclusive, the Board may (1) deliver to the Trustee for cancellation 2018A Term Bonds in the aggregate principal amount desired; or (2) furnish to the Trustee funds, together with appropriate instructions, for the purpose of purchasing any of said 2018A Term Bonds from any registered owner thereof on the open market whereupon the Trustee shall expend such funds for such purposes to such extent as may be practical; or (3) receive a credit in respect to the mandatory sinking fund redemption obligation of the Board for any 2018A Term Bonds which prior to such date have been redeemed (other than through the operation of the mandatory sinking fund redemption requirements) and cancelled by the Trustee and not theretofore applied as a credit against any redemption obligation under the mandatory sinking fund provisions. Each 2018A Term Bond so delivered or previously purchased or redeemed shall be credited at 100% of the principal amount thereof on the obligation of the Board to redeem the 2018A Term Bonds on such redemption date, and any excess of such amount shall be credited on future mandatory sinking fund redemption obligations for 2018A Term Bonds in chronological order or such other order as the Board may designate, and the principal amount of the 2018A Term Bonds to be redeemed by operation of the requirements of the mandatory sinking fund provisions shall be reduced accordingly. Redemption Within a Maturity So long as the Bonds are issued in book-entry only form (see BOOK-ENTRY ONLY SYSTEM herein), if fewer than all of a particular maturity and series of the Bonds are to be called for redemption, the particular Bonds to be redeemed will be selected pursuant to the procedures established by The Depository Trust Company (“DTC”). If the Bonds are no longer held pursuant to the Book-Entry Only System, and if fewer than all of a particular maturity and series of the Bonds then outstanding shall be called for redemption, the Bonds or portions of Bonds to be redeemed within such maturity and series shall be selected by the Trustee by lot in such manner as the Trustee shall determine appropriate.

6 Notice of Redemption Notice of redemption shall be given as follows: (i) The Trustee shall mail a copy of such notice by first-class mail, postage prepaid, not less than thirty (30) days and not more than forty-five (45) days (or not more than thirty-five (35) days in the case of mandatory sinking fund redemption) before such redemption date, to the owner of any Bond, all or a portion of which is to be redeemed, at the last address appearing upon the registration books maintained by the Trustee. Failure to give such notice by mail to any owner, or any defect therein, shall not affect the validity of any proceedings for the redemption of other Bonds. (ii) The Trustee also shall mail a copy of such notice by registered or certified mail or overnight delivery service or transmit via telecopier, for receipt not less than two business days prior to sending such notice to the owners, to the following: The Depository Trust Company, 711 Stewart Avenue, Garden City, New York 11530, Attention: Call Notification Department (telecopier number: 516-227-4190 or 516-227-4039), or such other notice address as is subsequently provided by DTC; provided, however, that such mailing shall not be a condition precedent to such redemption and failure to so mail any such notice shall not affect the validity of any proceedings for the redemption of the Bonds. After the date specified in such call, the Bonds so called will cease to bear interest, provided that funds for their payment have been deposited with the Trustee, and, except for the purpose of payment, shall no longer be protected by the Indenture and shall not be deemed to be outstanding under the provisions of the Indenture. While the Bonds are being held by DTC under the book-entry system, notice of redemption will be sent only to DTC. See BOOK-ENTRY ONLY SYSTEM herein.

SECURITY FOR THE BONDS

The Board has established a Master Indenture as a means of issuing revenue bonds to finance and refinance facilities at UA, Fayetteville under uniform terms and conditions and with uniform security. Each series of bonds will be issued under the Master Indenture and pursuant to a series indenture specific to the series. The Bonds are issued on a parity of security with the Board’s outstanding (i) Series 2009A Bonds, (ii) Series 2011A Bonds, (iii) Series 2011B Bonds, (iv) Series 2012A Bonds, (v) Series 2012B Bonds, (vi) Series 2013A Bonds, (vii) Series 2014A Bonds, (viii) Series 2014B Bonds, (ix) Series 2015A Bonds, (x) Series 2015B Bonds, (xi) Series 2015C Bonds, (xii) Series 2016A Bonds, (xiii) Series 2016B Bonds, and (xiv) Series 2017 Bonds, in each case to the extent outstanding (the foregoing bonds described in clauses (i) through (xiv) being sometimes hereinafter referred to collectively as the “Existing Parity Bonds”). The pledge in favor of the Bonds is also subject to the pledge in favor of the Existing Obligations, which currently consist of the Board’s outstanding Promissory Note payable to the U.S. Department of Education. See THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Existing Obligations herein. The Bonds will be general obligations only of the Board and will not constitute an indebtedness for which the full faith and credit of the State of Arkansas or any of its revenues are pledged, and the Bonds are not secured by a mortgage or a lien on any land or building belonging to the State of Arkansas or to the Board. To the extent Pledged Revenues are insufficient to pay obligations under the Indenture, the Board shall pay such obligations from such other moneys as are available to the Board under the Constitution and laws of the State. See LEGAL AND LEGISLATIVE MATTERS, Factors Affecting the Board’s Funding and Factors Related to UAMS, the Health Reform Law and the Arkansas Private Option Program herein. The Bonds will be secured by Pledged Revenues on a parity of security with the Existing Parity Bonds. The term “Pledged Revenues” is defined as (i) all tuition and fee revenues collected by UA, Fayetteville, (ii) all sales and services revenues and all auxiliary enterprises revenues (as such terms are used in the context of generally accepted accounting principles) derived from facilities funded or refunded with bonds issued under the Master Indenture, and (iii) all surplus sales and services and auxiliary enterprises revenues (as such terms are used in the context of generally accepted accounting principles) derived from residence halls, married student apartments, fraternity and sorority houses, residence dining services, the Arkansas Union, and transit and parking services to the extent such revenues are derived from facilities funded with obligations issued pursuant to the Act; provided, however, that such Pledged Revenues are pledged to the payment of the Bonds on a parity of security with previous pledges to the Existing Parity Bonds, and subject to a previous pledge to the Existing Obligations, and with subsequent pledges to Additional Parity Bonds (as hereinafter defined), and shall not include (A) athletic gate receipts and other revenues derived from intercollegiate athletics at UA, Fayetteville or (B) any fees authorized or

7 imposed by UA, Fayetteville and dedicated to a specific purpose unrelated to obligations issued pursuant to the Act or to facilities funded with such obligations. Pledged Revenues for each of the last five fiscal years are set out below under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Pledged Revenues. The amounts of the Existing Parity Bonds payable from Pledged Revenues are shown under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Existing Parity Bonds. The amounts of the Existing Obligations payable from Pledged Revenues are shown under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Existing Obligations. The Bonds will rank on a parity of security with the Existing Parity Bonds and are subject to a previous pledge to the and Existing Obligations, and will be equally and ratably secured by and entitled to the protection of the Master Indenture, as supplemented by the Series 1996 Indenture, the Series 1997 Indenture, the Series 2001 Indenture, the Series 2004 Indenture, the Series 2005 Indenture, the Series 2006 Indenture, the Series 2007 Indenture, the Series 2008 Indenture, the Series 2009 Indenture, the Series 2011 Indenture, the Series 2012A Indenture, the Series 2012B Indenture, the Series 2013A Indenture, the Series 2014 Indenture, the Series 2015A Indenture, the Series 2015B and C Indenture, the Series 2016 Indenture, the Series 2017 Indenture, and the Series 2018 Indenture. (See SUMMARY OF THE MASTER INDENTURE AS SUPPLEMENTED.) Under the Master Indenture, the Board has reserved the right to pledge Pledged Revenues to additional bonds to be issued under the Master Indenture (see SUMMARY OF THE MASTER INDENTURE AS SUPPLEMENTED, Additional Bonds) and to “Other Obligations,” which may be subsequently issued by the Board other than pursuant to the Master Indenture. The issuance of additional bonds is subject to compliance with the requirements of the Master Indenture, and the pledge in favor of the additional bonds may either be on a parity with or subordinate to the pledge in favor of these Bonds. The Board may incur Other Obligations without complying with the test for issuing additional bonds. The Master Indenture defines “Other Obligations” as “any capital lease, bond or note payable incurred by or on behalf of UA, Fayetteville, provided that such Other Obligations shall not, in any single instance, exceed $1,000,000, nor shall the total of Other Obligations incurred in any fiscal year exceed $5,000,000.” The Board covenants to promptly pay the principal of and interest on the Bonds and to take all action necessary to maintain Pledged Revenues at the level necessary to make all required debt service payments on the Bonds, any other indebtedness issued under the Master Indenture, the Existing Obligations and any Other Obligations. The Board has never defaulted on debt service payments on any bonded indebtedness.

BOOK-ENTRY ONLY SYSTEM

The information in this caption concerning DTC and DTC’s book-entry system has been obtained from DTC, and neither the Board, the Trustee nor the Underwriters take any responsibility for the accuracy thereof. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate will be issued for each maturity of a series of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book- entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both

8 U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: AAA. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity and series are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Board as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Board or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with Bonds held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Board, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Board or the Trustee; disbursement of such payments to Direct Participants will be the responsibility of DTC; and, disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Board or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, security certificates are required to be printed and delivered.

9 The Board may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered to DTC.

CONCERNING THE TRUSTEE

Simmons Bank (the “Trustee”) will be the Trustee under both the Master Indenture and the Series 2018 Indenture. The Trustee has over sixty (60) years’ experience serving as trustee, paying agent and registrar for municipalities, school districts, universities, state and county agencies, hospitals, retirement centers and various non- profit entities, as well as to issuers of corporate debt. The Trustee currently serves as trustee and/or paying agent for approximately 138 issues representing approximately $2.1 billion of bond debt outstanding. Of these issues, the Trustee serves as trustee for approximately 125 bond issues representing approximately $1.9 billion in debt outstanding. The Trustee may resign at any time. The Trustee may be removed at any time (i) by the Board; provided, however, that the Board may not remove the Trustee so long as an Event of Default (as defined under SUMMARY OF THE MASTER INDENTURE AS SUPPLEMENTED, herein) shall have occurred which has not been cured, or any event shall have occurred which with the passage of time would lead to an Event of Default, or (ii) by an instrument or concurrent instruments in writing, signed by the registered owners of not less than a majority in principal amount of each series of bonds issued under the Master Indenture and then outstanding. No such resignation or removal will be effective until a successor Trustee is appointed and has accepted the appointment. The Trustee may also be removed at any time for any breach of trust or for acting or proceeding in violation of, or for failing to act or proceed in accordance with, any provision of the Master Indenture with respect to the duties and obligations of the Trustee, by any court of competent jurisdiction upon the application of the Board or the registered owners of not less than twenty-five percent (25%) in principal amount of all bonds issued under the Master Indenture and then outstanding. Each successor Trustee must be a corporation organized and doing business under the laws of the United States or of a state that is authorized to exercise trust powers and which has a combined capital stock, capital surplus, and undivided profits of at least $50,000,000. The preceding criteria may be met by a parent corporation if the parent corporation has guaranteed the obligations of the successor Trustee. The entity serving as Trustee under the Master Indenture shall also be Trustee under the Series 2018 Indenture and each other Series Indenture securing bonds issued under the Master Indenture. The Trustee is also the bond registrar and paying agent for the Bonds. Except during the continuance of an Event of Default of which the Trustee is deemed to have notice, the Trustee shall perform only the duties specifically set forth in the Master Indenture and the Series 2018 Indenture. The Trustee is deemed to have notice only of Events of Default described under paragraphs (a) or (b) under SUMMARY OF THE MASTER INDENTURE AS SUPPLEMENTED, Events of Default, and of other Events of Default of which it has received written notice from the owners of not less than 25% in outstanding principal amount of the series of bonds issued under the Master Indenture which are affected by the Event of Default. During the continuance of an Event of Default of which the Trustee is deemed to have notice, the Trustee is required to use the degree of care and skill in the exercise of its duties as would be exercised by a prudent man in the conduct of his own affairs. The Trustee shall not be required to take any action in discharging its trust until it shall be indemnified to its satisfaction against any and all costs and expenses, outlays and counsel fees, and other reasonable disbursements, and against all liability. The Trustee is entitled to reasonable compensation from the Board. The Trustee’s compensation will be paid from Pledged Revenues. If an Event of Default has occurred and is continuing, the Trustee’s right to compensation from Pledged Revenues shall be entitled to a preference therefor over the claim of owners for payment of principal of and interest on Bonds from such Pledged Revenues.

10 SUMMARY OF THE MASTER INDENTURE AS SUPPLEMENTED

The following is a summary of certain provisions of the Master Indenture, as supplemented by the Series 1996 Indenture, the Series 1997 Indenture, the Series 2001 Indenture, the Series 2002 Indenture, the Series 2004 Indenture, the Series 2005 Indenture, the Series 2006 Indenture, the Series 2007 Indenture, the Series 2008 Indenture, the Series 2009 Indenture, the Series 2011 Indenture, the Series 2012A Indenture, the Series 2012B Indenture, the Series 2013A Indenture, the Series 2014 Indenture, the Series 2015A Indenture, the Series 2015B and C Indenture, the Series 2016 Indenture, the Series 2017 Indenture, and the Series 2018 Indenture (collectively, the “Indenture”). Application of Bond Proceeds Proceeds of the Series 2018A Bonds (exclusive of accrued interest, if any) will be applied as follows: Construction. The amount of proceeds of the Series 2018A Bonds necessary to finance a portion of the Series 2018A Project shall be deposited to the Series 2018A Construction Account within the Construction Fund (described below). Cost of Issuance. The amount of the proceeds of the Series 2018A Bonds necessary to pay the costs of issuing the Series 2018A Bonds shall be deposited to the credit of the Series 2018 Cost of Issuance Account in the Construction Fund. Proceeds of the Series 2018B Bonds (exclusive of accrued interest, if any) will be applied as follows: Construction. The amount of proceeds of the Series 2018B Bonds necessary to finance a portion of the Series 2018B Project shall be deposited to the Series 2018B Construction Account within the Construction Fund (described below). Cost of Issuance. The amount of the proceeds of the Series 2018B Bonds necessary to pay the costs of issuing the Series 2018B Bonds shall be deposited to the credit of the Series 2018 Cost of Issuance Account in the Construction Fund. Use of Pledged Revenues and Flow of Funds Revenue Account. All of the Pledged Revenues (defined under SECURITY FOR THE BONDS), as and when received, shall be credited to an account maintained by UA, Fayetteville separately from the funds and accounts established pursuant to the Indenture, which account shall be designated “Various Facility Bond Revenue Account” (the “Revenue Account”). Moneys credited to the Revenue Account shall be used: first, to make required payments into the various funds and accounts established pursuant to the Master Indenture, on a parity of priority and security; and second, for any other lawful purpose. Bond Fund. The Board has established with the Trustee a special fund in the name of the Board designated “Bond Fund.” Amounts credited to the Bond Fund shall be expended solely (i) to pay the principal of, premium, if any, and interest on the Bonds and other bonds issued pursuant to the Master Indenture; (ii) to pay the fees and expenses of the Trustee; and (iii) to make required payments to the Rebate Account (defined below). On each interest payment date, each redemption date, and each principal maturity date for any bonds issued under the Master Indenture, amounts on deposit in the Bond Fund shall be applied as follows: first, to the payment of interest due and payable with respect to the Bonds and any then outstanding Parity Bonds (as defined in the Master Indenture, and including the Existing Parity Bonds), and any Additional Parity Bonds (as hereinafter defined) on a pro rata basis without regard to series; second, to the principal due and payable on the Bonds and any Parity Bonds on a pro rata basis without regard to series; third, to the payment of interest due and payable with respect to Subordinate Bonds (defined as bonds issued under the Master Indenture with a priority of payment that is subordinate to the Bonds and Parity Bonds) without regard to series; fourth, to the payment of principal due and payable on Subordinate Bonds without regard to series; fifth, to the payment of any amounts due and payable on such date to the Trustee as payment for its fees; and sixth, to the payment of any amounts payable on such date to the Rebate Account (described below). On the seventh Business Day immediately preceding each interest payment date on the Bonds, each redemption date, and each maturity date of the Bonds, there shall be deposited in the Bond Fund, from amounts credited to the Revenue Account or from any other source then available for such purpose, any sums required, in addition to amounts already on deposit in the Bond Fund, to equal (i) all amounts due on such interest payment date, redemption date or maturity date with respect to the principal, redemption price, and interest on the Bonds and any additional bonds issued under the Master Indenture, and (ii) any amounts then due the Trustee as payment for its fees. 11 Construction Fund. The Board has established with the Trustee a special fund in the name of the Board designated “Construction Fund” (the “Construction Fund”), within which there shall be a Series 2018A Construction Account (the “Series 2018A Construction Account”), a Series 2018B Construction Account (the “Series 2018B Construction Account”), and a Series 2018 Cost of Issuance Account (the “Series 2018 Cost of Issuance Account”). Moneys in the Series 2018A Construction Account shall be used for the purpose of financing the Series 2018A Project, except as provided in the Indenture. Upon the direction of the Vice Chancellor for Finance and Administration of UA, Fayetteville (the “Vice Chancellor”), or his or her designee, interest earnings on moneys in the Series 2018A Construction Account shall be transferred to the Bond Fund and used to pay interest on the Series 2018A Bonds when due. Moneys in the Series 2018B Construction Account shall be used for the purpose of financing the Series 2018B Project, except as provided in the Indenture. Upon the direction of the Vice Chancellor, or his or her designee, interest earnings on moneys in the Series 2018B Construction Account shall be transferred to the Bond Fund and used to pay interest on the Series 2018B Bonds when due. Moneys in the Series 2018 Cost of Issuance Account shall be used for the purpose of paying the costs incurred in connection with issuing the Series 2018A Bonds and the Series 2018B Bonds. Moneys in the Series 2018A Construction Account and the Series 2018B Construction Account will be disbursed by the Trustee on the basis of requisitions prepared by the Board and meeting the requirements of the Indenture. Moneys allocable to the Series 2018A Bonds remaining in the Series 2018 Cost of Issuance Account on November 1, 2018, will be transferred to the Series 2018A Construction Account and used to pay costs of the Series 2018A Project. Moneys remaining in the Series 2018A Construction Account upon completion of the Series 2018A Project will be transferred to the Bond Fund and applied pursuant to the Indenture, first, to make the payment on the Series 2018A Bonds on the next succeeding Interest Payment Date, and second, to redeem the Series 2018A Bonds on first optional redemption date. Notwithstanding the foregoing, if any Event of Default shall have occurred, amounts in the Series 2018A Construction Account shall be applied to the payment of principal of and interest on the Series 2018A Bonds. Moneys allocable to the Series 2018B Bonds remaining in the Series 2018 Cost of Issuance Account on November 1, 2018, will be transferred to the Series 2018B Construction Account and used to pay costs of the Series 2018B Project. Moneys remaining in the Series 2018B Construction Account upon completion of the Series 2018B Project will be transferred to the Bond Fund and applied pursuant to the Indenture, first, to make the payment on the Series 2018B Bonds on the next succeeding Interest Payment Date, and second, to redeem the Series 2018B Bonds on first optional redemption date. Notwithstanding the foregoing, if any Event of Default shall have occurred, amounts in the Series 2018B Construction Account shall be applied to the payment of principal of and interest on the Series 2018B Bonds. Rebate Account. The Board has established with the Trustee a special fund with respect to the Series 2018A Bonds, in the name of the Board designated the “Series 2018A Rebate Account” (the “Rebate Account”). The Board shall, pursuant to the Indenture, at the end of each five-Bond Year period and upon payment of all principal of the Series 2018A Bonds, calculate the amount of money to be rebated to the United States Treasury (the “Rebate Amount”) pursuant to §148(f) of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations established thereunder. The Board shall direct the Trustee to deposit an amount equal to the Rebate Amount with respect to the Series 2018A Bonds into the Rebate Account within 60 days after the end of each five- Bond Year period and upon payment of all principal of the Series 2018A Bonds. Such deposit may be made from any Pledged Revenues. The Rebate Account shall be held in trust for the benefit of the United States of America, and not for the benefit of the owners of the Bonds or of the Trustee. The Board shall pay from the amounts held in the Rebate Account to the United States Treasury the Rebate Amount at times and in amounts necessary to comply with the Code. Investments. The Construction Fund shall, pursuant to the direction of the Vice Chancellor, be invested and reinvested by the Trustee in Permitted Investments (defined below), which mature or provide for withdrawal, in whole or in part, by the owner thereof at the option of the owner, on or prior to the date on which the funds invested will be needed for authorized expenditures. Moneys held for the credit of the Rebate Account shall, pursuant to the direction of the Vice Chancellor, be invested and reinvested by the Trustee in Permitted Investments which shall mature, or shall be subject to redemption, in whole or in part, by the owner thereof at the option of the owner, not later than the date or dates on which payments of a Rebate Amount must be made. Moneys held for the credit of the Bond Fund shall, pursuant to the direction of the Vice Chancellor, be invested and reinvested in Permitted Investments which shall mature, or shall be subject to redemption by the owner thereof, at the option of the owner, not later than the next succeeding interest payment date on the Bonds. 12 “Permitted Investments” shall mean any of the following: (a) direct obligations of, or obligations guaranteed as to payment of principal and interest by, the United States of America (“Government Obligations”); or (b) Money market funds comprised exclusively of Government Obligations, or mutual funds provided such funds are registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and have a rating by Standard & Poor’s Ratings Group, a Division of The McGraw-Hill Companies, Inc. (“S&P”) of AAAm-G, AAAm, AAAF, or AAm, or by Moody’s Investors Service, Inc. (“Moody’s”) of P-1; or (c)(i) Federal funds, or banker’s acceptances, maturing in not more than 360 days, issued or accepted by commercial banks which have a rating on their short-term certificates of deposit on the date of purchase of at least A-1 by S&P or P-1 by Moody’s, (ii) U.S. dollar denominated certificates of deposit issued by commercial banks or savings and loans and fully insured by the Federal Deposit Insurance Corporation, or (iii) U.S. dollar denominated certificates of deposit issued by commercial banks or savings and loans, provided (a) the payment of principal of and interest on the certificate is fully secured by a pledge of Government Obligations or obligations described in (d) below, and (b) the Trustee receives an opinion of counsel satisfactory to the Trustee to the effect that the certificate holder holds a valid and legally effective security interest in the pledged obligations; or (d) Senior debt obligations and mortgage-backed securities of the Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank System, and Federal National Mortgage Association, or guaranteed mortgage-backed bonds and guaranteed pass-through obligations of the Government National Mortgage Association; or (e) Investment agreements with or guaranteed by banks, other financial institutions, insurance companies, or other entities which are (i) rated (in the case of an insurance company, with respect to its claims-paying ability) not lower than the following categories by S&P and Moody’s: if the investment agreement has a term of one year or less, A-1 or P-1; if the investment agreement has a term of more than one year, AA- or A-1, or Aa3 or P-1; provided, however, that should the rating required above be reduced, such institution shall be permitted to deposit collateral with the Trustee, or an independent party satisfactory to the Trustee, in such amount and under such circumstances as are acceptable to each rating agency then maintaining a rating on the Bonds; or (ii) fully collateralized with Government Obligations; or (f) “Tax-Exempt Obligations,” defined as obligations the interest on which is excluded from gross income of the owner thereof for federal income tax purposes under Section 103(a) of the Code, that are rated in the two highest long term or the highest short-term rating categories by S&P or Moody’s, and are not private activity bonds under the Code; or (g) United States Treasury Obligations-State and Local Government Series, demand deposit securities; or (h) Stock in a Qualified Regulated Investment Company (as defined in the Indenture) that is rated in the highest long-term or short-term rating category by S&P or Moody’s. Obligations so purchased as an investment of moneys in any fund or account shall be deemed at all times to be a part of such fund or account, and the interest accruing thereon and any profit realized from such investment shall be credited to such fund or account, and any loss resulting from such investment shall be charged to such fund or account. Additional Bonds No additional bonds may be issued with a prior lien on or a prior pledge of the Pledged Revenues over the lien and pledge securing the Bonds. Additional bonds may be issued ranking on a parity of pledge of the Pledged Revenues (“Additional Parity Bonds”), provided: the Board shall provide to the Trustee a certificate of the Chancellor of UA, Fayetteville or the Vice Chancellor projecting that Pledged Revenues in each of the next two succeeding fiscal years will equal or exceed 110% of the average annual debt service on (i) any Permitted Encumbrances (defined as Existing Obligations and Other Obligations as identified above under SECURITY FOR THE BONDS) then outstanding, (ii) the Bonds and all Additional Parity Bonds issued under the Master Indenture then outstanding, and (iii) the bonds proposed to be issued. In making the projection described in the preceding

13 sentence, the Chancellor or Vice Chancellor may include in Pledged Revenues amounts reasonably expected to be received as a result of any further additions or expansions of the facilities financed by the bonds to be issued. Additional bonds may also be issued on a subordinate pledge of the Pledged Revenues if, at the time of issuance, the Board is in compliance with all covenants contained in the Master Indenture, the Series 2018 Indenture, and any other Series Indenture providing for the issuance of additional bonds then outstanding. Events of Default The Indenture defines “Events of Default” as: (a) Payment of the principal and premium, if any, on any of the bonds issued under the Master Indenture shall not be made when the same shall become due and payable, either at maturity or by proceedings for redemption or otherwise; or (b) Payment of any installment of interest on any of the bonds issued under the Master Indenture shall not be made when the same shall become due and payable; or (c) The Board shall violate any covenant contained in the Arbitrage Certificate (defined as the certificate of the Board in connection with each series of bonds setting forth the reasonable expectations of the Board concerning certain covenants pertaining to compliance with Section 148 of the Code and procedures to be followed to ensure that interest on the bonds is, and continues to be, excluded from gross income for federal income tax purposes); and such violation is not cured within thirty (30) days of its discovery; or (d) Any proceeding shall be instituted, with the consent or acquiescence of the Board, for the purpose of adjusting the claims of creditors pursuant to any federal or state statute now or hereafter enacted, if the claims of such creditors are under any circumstances payable out of Pledged Revenues; or (e) The Board shall default in the due and punctual performance of any other of the covenants, conditions, agreements and provisions contained in any bonds issued under the Master Indenture, in any Series Indenture, or in the Master Indenture, and such default shall continue for thirty (30) days after written notice specifying such default and requiring the same to be remedied shall have been given to the Board by the Trustee, which may give such notice in its discretion and shall give such notice upon the written request of the registered owners of not less than twenty-five percent (25%) in principal amount of the bonds of each affected series then outstanding; provided, however, that if the default is such that it cannot be corrected within the applicable period, it shall not constitute an Event of Default if corrective action is instituted by or on behalf of the Board within the applicable period and diligently pursued until the default is corrected. Upon the occurrence of an Event of Default under (a) or (b) above with respect to the Bonds or with respect to any other series of bonds issued under the Master Indenture, the Trustee shall declare the entire principal of and interest on the bonds of the affected series immediately due and payable. Upon the occurrence of any other Event of Default with respect to the Bonds or with respect to any other series of bonds issued under the Master Indenture, the Trustee may, and at the request of the registered owners of twenty-five percent (25%) in principal amount of the outstanding bonds of the affected series shall, declare the entire principal of and interest on the bonds of the affected series immediately due and payable. The bonds of the affected series shall immediately be due and payable on such date and no interest shall accrue thereon from and after such date. The Trustee shall pay the principal of and interest on all bonds of the affected series from the revenues and receipts specifically pledged for such purpose and from any other funds made available by the Board. Upon the occurrence of an Event of Default with respect to a series of bonds under (a) or (b) above, the Trustee may, upon a determination by the Trustee that such an Event of Default impairs the security for other series, accelerate all or some of the series then outstanding and declare the entire unpaid principal of and interest on such series due and payable immediately without further notice and demand and such series shall immediately be due and payable on such date. Upon the occurrence of an Event of Default with respect to a series of bonds under (c), (d) or (e) above, only the affected series of bonds shall be accelerated unless the acceleration of another series has been requested by the registered owners of twenty-five percent (25%) in aggregate principal amount of bonds of such series then outstanding. Upon the happening and continuance of any Event of Default the Trustee may proceed, and upon the written request of the owners of not less than twenty-five percent (25%) in principal amount of each series of bonds which are affected by such Event of Default shall proceed, subject to the provisions of the Indenture giving the

14 Trustee the right to indemnity (see CONCERNING THE TRUSTEE, herein), to protect and enforce its rights and the rights of the registered owners of the bonds of such affected series under the applicable laws of the State of Arkansas or under the Indenture by such suits, actions or special proceedings in equity or at law, either for the specific performance of any covenant or agreement contained herein or in aid or execution of a power herein granted or for the enforcement of any proper legal or equitable remedy, including mandamus, as the Trustee, being advised by counsel, shall deem most effectual to protect and enforce such rights. If at any time the moneys in the Bond Fund shall not be sufficient to pay the principal of or the interest on the Bonds or on any additional bonds issued under the Master Indenture as the same become due and payable (either by their terms or by acceleration of maturities as provided above), such moneys then available or thereafter becoming available for such purposes after payment of the fees and expenses of the Trustee, whether through the exercise of the remedies provided above or otherwise, shall be applied as follows: (a) Unless the principal of all the bonds issued under the Master Indenture shall have become or shall have been declared due and payable, all such moneys shall be applied: FIRST: To the payment of the persons entitled thereto of all installments of interest then due, in the order of maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installments, to the persons entitled thereto, without any discrimination or privilege (other than such discrimination as may be required by a Series Indenture with respect to Subordinate Bonds); SECOND: To the payment to the persons entitled thereto of the unpaid principal of any bonds issued under the Master Indenture which shall have become due (other than bonds called for redemption for the payment of which moneys are held pursuant to the provisions of the Master Indenture), in the order of their due dates, with interest on such bonds from the respective dates upon which they became due, and, if the amount available shall not be sufficient to pay in full the bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal due on such date, to the persons entitled thereto, without any discrimination or privilege (other than such discrimination as may be required by any Series Indenture with respect to Subordinate Bonds); and THIRD: To the payment of the interest on and the principal of all bonds issued under the Master Indenture, and to the redemption of bonds, all in accordance with the provisions of the Master Indenture, the Series 1996 Indenture, the Series 1997 Indenture, the Series 2001 Indenture, the Series 2004 Indenture, the Series 2005 Indenture, the Series 2006 Indenture, the Series 2007 Indenture, the Series 2008 Indenture, the Series 2009 Indenture, the Series 2011 Indenture, the Series 2012A Indenture, the Series 2012B Indenture, the Series 2013A Indenture, the Series 2014 Indenture, the Series 2015A Indenture, the Series 2015B and C Indenture, the Series 2016 Indenture, the Series 2017 Indenture, the Series 2018 Indenture and other applicable Series Indentures. (b) If more than one series of bonds issued under the Master Indenture shall have been accelerated, the payments set forth in clause SECOND above shall be made pro rata with respect to all bonds so accelerated, without regard to series; provided, however, that no payments shall be made with respect to any Subordinate Bonds until all payments due with respect to such other accelerated bonds have been made. (c) If the principal of all the Bonds shall have been declared due and payable and if such declaration shall thereafter have been rescinded and annulled, then, subject to the provisions of paragraph (b) in the event that the principal shall later become due or be declared due and payable, the moneys then remaining in and thereafter accruing to the Bond Fund shall be applied in accordance with the provision of paragraph (a). (d) Whenever moneys are to be applied by the Trustee, such moneys shall be applied by it at such times, and from time to time, as it shall determine, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future.

15 Defeasance If, when the Bonds secured by the Indenture become due and payable in accordance with their terms or been duly called for redemption or irrevocable instructions to call the Bonds for redemption have been duly given by the Board to the Trustee, the whole amount of the principal and the interest and the premium, if any, so due and payable upon all of the Bonds then Outstanding shall be paid or sufficient moneys shall be paid to the Trustee for such purpose under the provisions of the Indenture (if such moneys are invested in noncallable Government Obligations having maturity dates on or prior to the date the moneys will be needed, there may be included in determining the sufficiency of the moneys, the interest to be earned on such investments), and provisions shall also be made for paying all other sums payable under the Indenture by the Board, then and in that case the right, title and interest of the Trustee shall thereupon cease, terminate, and become void, and the Trustee in such case, on demand of the Board, shall release the Indenture and shall execute such documents to evidence such release as may be reasonably required by the Board, and shall turn over to the Board or to such officer, board or body as may then be entitled by law to receive the same any moneys remaining in its hands other than moneys held for the redemption or payment of the Bonds or held in the Rebate Account (as to which the provisions of the Indenture shall continue to apply); otherwise the Indenture shall be, continue and remain in full force and effect. Any Bond shall be deemed to be paid and no longer Outstanding within the meaning of the Indenture when the whole amount of the principal and the interest and the premium, if any, so due and payable upon such Bond shall be paid or sufficient moneys shall irrevocably set aside exclusively for that purpose under the provisions of the Indenture (if such moneys are invested in noncallable Government Obligations having maturity dates on or prior to the date the moneys will be needed, there may be included in determining the sufficiency of the moneys, the interest to be earned on such investments).

THE UNIVERSITY OF ARKANSAS Generally The University of Arkansas was established in Fayetteville as a land grant institution, originally named “Arkansas Industrial University,” by legislative act of the General Assembly in 1871. Classes at the University of Arkansas commenced January 22, 1872 and, in 1899, the institution’s name was changed to the University of Arkansas (the “University”). The University’s campuses (other than UA, Fayetteville which is described under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY herein) are briefly described below: University of Arkansas for Medical Sciences (“UAMS”) Founded in 1879 as the University of Arkansas Department of Medicine, the University of Arkansas Medical Center was established by the Board as a campus of the University in 1975. In 1981, the name was changed to the University of Arkansas for Medical Sciences. UAMS is comprised of the College of Medicine, the College of Pharmacy, the College of Nursing, the College of Health Professions, the College of Public Health, the Graduate School, the Area Health Education Centers, the UAMS Library, the Ambulatory Care Center, the Winthrop P. Rockefeller Cancer Institute, the Diagnostic Support Center, the Harvey and Bernice Jones Eye Institute, the Jackson T. Stephens Spine and Neuroscience Institute and the Donald W. Reynolds Center on Aging. University of Arkansas at Little Rock (“UA Little Rock”) UA Little Rock was founded in 1927 as Little Rock Junior College and, in 1957, became a four-year institution called Little Rock University. In 1969, Little Rock University merged with the University of Arkansas and the school adopted the name University of Arkansas at Little Rock. The William H. Bowen UA Little Rock School of Law offers the professional degree of Juris Doctor, and UA Little Rock now offers over 50 other graduate and professional programs and ten doctoral programs. Little Rock, in Pulaski County, is the capital of Arkansas. University of Arkansas at Monticello (“UAM”) UAM was established in 1909 by Legislative Act of the General Assembly. Originally called the Fourth District Agricultural School, UAM by merger joined the University of Arkansas on July 1, 1971. Monticello, the county seat of Drew County, is located approximately 100 miles southeast of Little Rock. UAM offers Bachelor and Associate Degrees in various fields including Agriculture, Business Administration, Communication Arts, Education, Fine Arts, Forest Resources and Nursing. UAM has satellite campuses in Crossett and McGehee. University of Arkansas at Pine Bluff (“UAPB”) UAPB was founded in 1873 as Branch Normal College and became a land-grant institution in 1891. It joined the University of Arkansas and changed its name in 1972 to the University of Arkansas at Pine Bluff. Pine 16 Bluff is located approximately 42 miles southeast of Little Rock. UAPB offers 30 Bachelor Degree programs, two Associate Degree programs, eight Master’s Degree programs and one doctoral program among the following academic schools: Agriculture and Home Economics, Business Management, Education, Liberal and Fine Arts, and Science and Technology. Phillips Community College of the University of Arkansas (“PCCUA”) This campus was established in 1965 as Phillips County Community College under applicable state law and county ordinance. The principal campus is located in Helena-West Helena, Arkansas, and satellite campuses are located in Stuttgart and DeWitt. The College provides comprehensive community college higher education offerings in its area and offers associate degrees and certificate programs. Pursuant to a merger agreement effective July 1, 1996, Phillips County Community College became a part of the University of Arkansas System and was designated “The Phillips County Community College of the University of Arkansas.” University of Arkansas Community College at Hope (“UACCH”) On July 1, 1965, Hope, Arkansas, was named as a site for Red River Vocational Technical School pursuant to applicable law. Classes began in August, 1966 at a sixty-acre campus donated by the City of Hope. In 1991, under applicable law, the school was changed to technical college status and was named “Red River Technical College.” UACCH provides higher educational opportunities, both occupational and academic, in its service area and currently offers associate degrees and certificate programs. Effective July 1, 1996, Red River Technical College was merged with the University of Arkansas and was designated “University of Arkansas Community College at Hope.” A satellite campus is located in Texarkana. University of Arkansas Community College at Batesville (“UACCB”) UACCB, formerly Gateway Technical College, became an affiliated campus of the University of Arkansas System by resolution of the Board on October 13, 1997. Originally established as “Gateway Vocational-Technical College” in 1975, the institution became Gateway Technical College under Act 1244 of 1991. After passage of a local sales tax referendum by the citizens of Independence County, Gateway Technical College was renamed the “University of Arkansas Community College at Batesville” by the Board on March 31, 1998. The University of Arkansas Community College at Morrilton (“UACCM”) The 1961 Arkansas General Assembly established Petit Jean as the State’s second adult vocational- technical school, and classes began in September 1963. In 1991, the General Assembly converted Petit Jean to a degree-granting two-year college. The conversion permitted expansion of the curriculum to include technical, academic and workforce education, community education, and adult education. Initially named “Petit Jean Technical College,” the name was changed to “Petit Jean College” on July 1, 1997. Pursuant to a merger agreement effective July 1, 2001, the institution became a part of the University of Arkansas System and was designated “The University of Arkansas Community College at Morrilton.” Cossatot Community College of the University of Arkansas (“CCCUA”) Cossatot Vocational Technical School was created by the Arkansas General Assembly in 1975 and was constructed on 40 acres of land donated by the DeQueen Chamber of Commerce. In 1991, the General Assembly converted the school into a two-year degree granting institution. With the main campus in DeQueen, the college has teaching centers in Nashville and Ashdown. Pursuant to a merger agreement effective July 1, 2001, the institution became a part of the University of Arkansas System and was designated “Cossatot Community College of the University of Arkansas.” University of Arkansas at Fort Smith (“UAFS”) UAFS was first established as Fort Smith Junior College in 1928 as an extension of the local public school system. Until 1950, it operated within the public school system and offered primarily college-parallel courses. In 1950, it was separated from the public school system and incorporated as a private, nonprofit educational institution. At a special election in November, 1966, the electorate approved the creation of the Sebastian County Community Junior College District and a tax levy on the real and personal property within the District. UAFS has experienced several name changes since the creation of the District. In 1966, the College was renamed Westark Junior College, in 1972 it became Westark Community College, and in 1998 it became Westark College. On January 1, 2002, Westark College became the University of Arkansas at Fort Smith.

17 University of Arkansas Community College at Rich Mountain (“UACCRM”) UACCRM was first established in 1983 as Rich Mountain Community College, as a public two-year college with a mission to provide post-secondary educational opportunities to the citizens of Polk County, Arkansas and surrounding areas. Effective February 1, 2017, the institution became part of the University of Arkansas System and was designated “University of Arkansas Community College at Rich Mountain.” UACCRM’s main campus is located in Mena, Arkansas. In addition, UACCRM maintains a satellite campus in Waldron, Arkansas. University of Arkansas – Pulaski Technical College (“UA – Pulaski Tech”) The Little Rock Vocational Technical School was established in October 1945 under the supervision of the Little Rock public school system. In October 1969, administration of the institution was transferred to the Arkansas State Board of Vocational Education, and the school was renamed Pulaski Vocational Technical School. The institution moved to its current location in North Little Rock, Arkansas in January, 1976. In 1991, Pulaski Vocational Technical School was renamed Pulaski Technical College. Effective February 1, 2017, the institution became part of the University of Arkansas System and was designated “University of Arkansas – Pulaski Technical College.” UA – Pulaski Tech is a two-year college that serves the education needs of central Arkansas through more than 90 occupational/technical degree and certificate programs, a university-transfer curriculum, and specialized programs for business and industry. Cammack Campus In 1957, the late Kate Cammack donated to the Board a 40-acre tract of land on North University Avenue in Little Rock to be used for educational and cultural programs of the University. Presently located on the Cammack Campus are the President’s residence and the University System Administration offices with a conference room for the Board and other University functions. The Cammack Campus also includes Mrs. Cammack’s home, “Pine Border,” which is being restored. University of Arkansas Clinton School of Public Service (“CSPS”) CSPS was established by the Board in 2004 and is located in downtown Little Rock on the grounds of the William J. Clinton Presidential Center and Park. CSPS is the first graduate school in the nation to offer a Master of Public Service degree, helping students further their careers in the areas of government, non-profit, volunteer and private sector service. University of Arkansas System eVersity (“eVersity”) In 2014, the Board established eVersity, the University’s only 100% online institution. eVersity offers affordable and accessible programs of study designed to focus on enrolling traditionally unserved and underserved Arkansans. The first eVersity degree programs were made available in the fall of 2015. University of Arkansas System Division of Agriculture The University of Arkansas System Division of Agriculture is the statewide research and extension agency serving Arkansas agriculture, communities, families and youth. The mission of the division is to discover new knowledge, incorporate it into practical applications and assist Arkansans in its application. With a presence in all 75 Arkansas counties, the division is comprised of two principal units: the Agriculture Experiment Station and the Cooperative Extension Service. Division faculty and facilities are located on several university campuses, at regional research and extension centers, branch stations and other locations. An extension office is located in each county in cooperation with county governments. Arkansas Archeological Survey The mission of the Arkansas Archeological Survey is to study and protect the 13,000-year archeological heritage of Arkansas, to preserve and manage information and collections from archeological sites and to communicate what is learned to the people of the state. The survey has 10 research stations across the state, each with a full-time Ph.D. archeologist associated with regional higher education institutions and state parks. The archeologists conduct research, assist other state and federal agencies and are available to local officials, amateur archeologists, landowners, educators and students in need of information about archeology or archeological sites. Criminal Justice Institute (“CJI”) CJI is a unit of the University of Arkansas System that serves a unique population of non-traditional students - certified law enforcement professionals who are actively employed within the state’s police departments and sheriff’s offices. The institute is committed to making communities safer by supporting law enforcement 18 professionals through training, education, resources and collaborative partnerships. Utilizing both classroom-based instruction and practical, hands-on application, CJI provides an educational experience designed to enhance the performance and professionalism of law enforcement in progressive areas of criminal justice, including law enforcement leadership and management, forensic sciences, computer applications, traffic safety, illicit drug investigations and school safety. Arkansas School for Mathematics, Sciences and the Arts (“ASMSA”) ASMSA is the state’s premier high school focusing on excellence in math, science and the arts. Located in Hot Springs, ASMSA is one of 16 residential high schools in the country specializing in the education of gifted and talented students who have an interest and aptitude for mathematics and science. All classes are taught at the college level, and the school offers over 50 concurrent courses. Through ASMSA’s Concurrent Core program, its students graduate high school with at least 30 hours of college credit. Board of Trustees The University is governed by a Board of Trustees which was created as a corporate body by statute. There are ten members of the Board of Trustees, appointed for ten-year staggered terms. By statute, eight members of the Board must represent the areas of Congressional Districts of the State, and the balance of the members are selected at large. Members of the Board are appointed by the Governor and confirmed by the state Senate, except that interim appointments are made by the Governor and confirmed by the remaining members of the Board.

The current members of the Board of Trustees of the University are: Name and Office Business or Profession Term Expires Mark Waldrip*, Chairman Business Executive 2020 John Goodson, Vice Chairman Attorney 2021 Morril Harriman**, Secretary Attorney 2024 Kelly Eichler***, Assistant Secretary Attorney 2026 David H. Pryor Former U.S. Senator 2019 Stephen Broughton Physician 2022 Cliff Gibson Attorney 2023 Sheffield Nelson Attorney 2025 Tommy Boyer Retired Business Executive 2027 Steve Cox Business Executive 2028

* Mr. Waldrip is the father of an associate at Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., Bond Counsel. ** Mr. Harriman is Counsel at Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., Bond Counsel. *** Mrs. Eichler is the spouse of an officer of Stephens Inc., one of the Underwriters.

University Administration The current officers of the University are: Name Office Donald R. Bobbitt President Gina Terry Chief Financial Officer Michael Moore Vice President for Academic Affairs Mark Cochran Vice President for Agriculture Melissa K. Rust Vice President for University Relations JoAnn Maxey General Counsel The central administrative offices of the University system are located on the Cammack Campus at 2404 North University Avenue, Little Rock, Arkansas 72207; telephone: (501) 686-2500.

19 Student Enrollment-All Campuses Enrollment for the fall semester of the 2017/18 school year for each campus of the University (expressed as full-time equivalents) was as follows: University of Arkansas, Fayetteville 23,923 University of Arkansas at Little Rock* 7,838 University of Arkansas at Fort Smith 5,168 University of Arkansas for Medical Sciences 2,958 University of Arkansas at Monticello 2,800 University of Arkansas at Pine Bluff 2,479 Phillips Community College of the University of Arkansas 912 University of Arkansas Community College at Hope 972 University of Arkansas Community College at Batesville 851 University of Arkansas Community College at Morrilton 1,409 Cossatot Community College of the University of Arkansas 853 University of Arkansas Community College at Rich Mountain 527 University of Arkansas – Pulaski Technical College 3,783 Total, All Campuses 54,473 ______* Includes full-time equivalent enrollment numbers for the University of Arkansas Clinton School of Public Service.

THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY Administrative Officers The current administrative officers of UA, Fayetteville are: Name Office Joseph Steinmetz Chancellor Tim O’Donnell* Vice Chancellor for Finance and Administration Jim Coleman Provost and Executive Vice Chancellor for Academic Affairs Randy Massanelli Vice Chancellor for Governmental Relations Charles Robinson Vice Chancellor for Student Affairs Mark Power Vice Chancellor for Advancement Hunter Yurachek Vice Chancellor and Director of Athletics ______* Tim O’Donnell has announced his retirement effective as of August 1, 2018. General Information The Fayetteville campus was the original site of the University. Fayetteville is the county seat of Washington County and had a 2006 population of 67,158, and a 2010 population of 73,580. The 2000 population of Washington County was 157,715 and the 2010 population was 203,065. UA, Fayetteville, a land-grant institution, provides technical and professional services to individuals and groups throughout the State of Arkansas. The campus is the State’s major source of theoretical and applied research. UA, Fayetteville seeks to have all of its programs regionally competitive. The Campus and Facilities The campus encompasses approximately 742 acres with some 227 buildings. On the campus are the Dale Bumpers College of Agricultural, Food and Life Sciences, the Fay Jones School of Architecture, the J. William Fulbright College of Arts and Sciences, the Sam M. Walton College of Business, the College of Education and Health Professions, and the College of Engineering. Also located there are the Honors College, the School of Law, the Graduate School and International Education, the Departments of Army and Air Force ROTC, the Agricultural Experiment Station and the Global Campus. In addition to academic departments, campus facilities house nationally recognized units such as the National Center for Reliable Electric Power Transmission; Terrorism Research Center; Institute for Advanced Data Analysis; Mack-Blackwell Rural Transportation Center; Center of Excellence for Poultry Science; Center for Advanced Spatial Technology; Arkansas Center for Space and Planetary Sciences; Center for Semiconductor Physics in Nanostructures; Diane Blair Center for the Study of Southern Politics and Society; Garvan Woodland

20 Gardens; King Fahd Center for Middle East and Islamic Studies; Lake Wedington Research Center; Microelectronics and Photonics Program; High Density Electronic Component Center; Plant Breeding Program; Reducing Family Violence Through Workplace Intervention Program; Rural Water Quality Program; Social Work Research Center; David and Barbara Pryor Center for Arkansas Oral and Visual History; Arkansas Water Resources Center; Arkansas Membrane Research Center, Center for Excellence in Logistics and Distribution; Center for Grid- Connected Power Electronics; Center for Power Optimization of Electro-Thermal Systems; High Performance Computing Center; Brewer Family Entrepreneurship Hub; and University of Arkansas Community Design Center. Library The UA, Fayetteville library currently houses 2,535,594 volumes. There are 328 on-line bibliographic services, 5,594,835 units of microfilm, and 142,199 periodical titles. Accreditations UA, Fayetteville, is accredited by the Higher Learning Commission. It was most recently reaffirmed for accreditation in June 2017. Degree Programs UA, Fayetteville offers 86 bachelor’s degrees, 83 master’s and specialist degrees, 17 graduate certificates, 7 post-master certificates, 3 undergraduate certificates, and 35 doctoral degrees. UA, Fayetteville offers pre- professional programs in several health related professions such as pharmacy and dentistry. The School of Law offers a Juris Doctor degree and an LL.M. program in Agricultural and Food Law, and the College of Education and Health Professions offers the professional degrees of Doctor of Nursing Practice and Doctor of Occupational Therapy. Faculty Summary The number of full time faculty at UA, Fayetteville and the percentage of tenured faculty for the past five years was as follows: 2013 2014 2015 2016 2017 Number of Faculty 1,083 1,108 1,137 1,177 1,185 Percent Tenured 50.9% 50.0% 48.1% 45.7% 46.0% Admissions-Fayetteville Campus The current admission standards for undergraduates were phased into effect beginning with the fall 1997 semester and were fully in effect by the fall 2000 semester. Entering freshmen must have a minimum high school grade point average (“HSGPA”) of 3.0, an ACT score of 20 or SAT score of 930 and have completed 16 units of high school courses in English, mathematics, social studies, and natural sciences, plus three units of electives chosen from the above subjects, communication or foreign languages. The following is a five-year history of undergraduate admissions: New Freshmen New Transfers Year Admitted Applied Enrolled ACT HSGPA Applied Admitted Enrolled 2013 11,076 18,908 4,339 25.8 3.62 3,711 2,065 1,282 2014 11,773 19,015 4,571 25.9 3.63 3,728 1,732 1,312 2015 12,337 20,542 4,915 25.9 3.64 3,755 2,368 1,385 2016 13,613 21,539 4,967 26.0 3.68 3,634 2,218 1,361 2017 14,324 21,715 5,065 26.2 3.69 3,266 2,121 1,412 Student Enrollment Total student enrollment (expressed as full-time equivalent) at UA, Fayetteville for the fall semester listed below has been as follows: Year Undergraduate Graduate and Law Total 2010 15,553 2,595 18,148 2011 17,526 2,317 19,843 2012 18,611 2,632 21,243 2013 19,465 2,760 22,225 2014 20,110 2,758 22,868 2015 20,422 2,860 23,282 2016 20,700 2,885 23,585 2017 21,222 2,782 24,004 21 The number of full-time and part-time students from within the State of Arkansas, from out of State, and of international full-time and part-time students for the last five years has been as follows: 2013 2014 2015 2016 2017 In State 15,307 15,329 15,237 15,282 15,181 Out of State 8,647 9,383 9,972 10,446 10,916 International 1,387 1,525 1,545 1,466 1,461

Undergraduate Student Fees Tuition and fees at UA, Fayetteville for the school years indicated below, on a per student basis, have been as follows (based on a student taking 15 credit hours per semester): 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 In Out of In Out of In Out of In Out of In Out of State State State State State State State State State State Tuition $ 6,353 $17,610 $ 6,824 $18,914 $ 7,028 $20,332 $7,204 $21,552 $7,384 $22,630 Tuition/Hour 211.77 587.01 227.44 630.45 234.27 677.73 240.12 718.39 246.12 754.31 Fees 1,105 1,105 1,026 1,026 1,111 1,111 1,224 1,224 1,276 1,276 College Fees 360 360 360 360 383 383 392 392 402 402 Total $ 7,818 $19,075 $ 8,210 $20,300 $ 8,522 $21,826 $ 8,820 $23,168 $9,062 $24,308

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22 Summary of Revenues, Expenses and Changes in Net Assets The following table contains a summary of the revenues, expenses and changes in net assets for UA, Fayetteville for the past four fiscal years: Fiscal Year 2014 2015 2016(1) 2017(1) OPERATING REVENUES Student tuition and fees, net $166,512,378 $189,315,846 $209,808,704 $227,456,739 Federal appropriations 13,464,969 12,116,593 11,138,807 11,924,289 County appropriations 3,028,154 3,054,500 3,449,528 4,144,630 Federal grants and contracts 28,988,196 31,709,977 33,598,011 43,241,546 State and local grants and contracts 17,857,206 23,668,832 25,347,076 32,460,684 Nongovernmental grants and contracts 32,358,570 32,831,792 32,821,266 39,224,018 Sales and services of educational departments 23,501,926 22,070,764 23,093,648 22,454,703 Auxiliary enterprises Residence Life, net 29,115,616 32,673,491 50,297,859 51,932,574 Athletics 66,772,739 86,417,607 98,143,466 103,488,566 Bookstore 13,063,465 13,516,538 12,635,880 12,278,306 Student Health Services 970,252 2,881,754 2,310,530 2,406,462 Transit and Parking 7,374,258 7,892,613 8,874,690 9,438,067 Student Organizations/Activities 122,812 104,576 92,917 52,295 Other Auxiliary Enterprises 3,628,849 487,258 289,940 234,664 Other operating revenues 11,196,123 9,134,758 10,810,896 13,271,938 Total operating revenues $417,955,513 $467,876,899 $522,713,218 $574,009,481

OPERATING EXPENSES Salaries, wages, and benefits $431,440,254 $449,757,461 $468,599,991 $487,572,321 Scholarships and fellowships 24,340,455 21,247,744 20,923,680 20,764,570 Supplies and other services 190,833,287 202,439,536 244,098,964 248,768,835 Depreciation 67,219,710 68,688,526 73,379,367 75,527,340 Total operating expenses $713,833,706 $742,133,267 $807,002,002 $832,633,066 Operating loss ($295,878,193) ($274,256,368) ($284,288,784) (258,623,585)

NONOPERATING REVENUES (EXPENSES) State appropriations $206,144,734 $205,745,146 $210,455,158 $206,764,617 Gifts 65,739,713 66,653,990 70,317,049 72,257,662 Investment income, net 14,621,623 4,338,885 3,078,937 11,951,939 Interest on capital asset - related debt (24,063,674) (24,003,224) (24,013,039) (24,585,099) Federal grants (nonexchange) 23,806,815 23,140,414 22,309,930 21,631,421 State & local grants (nonexchange) 30,609,388 28,644,847 28,055,324 27,016,602 Nongovernmental grants (nonexchange) 814,885 -0- -0- -0- Loss on disposal of assets (219,121) (1,047,765) (188,529) (3,171,268) Other nonoperating revenues 2,641,870 3,077,806 3,134,598 2,733,202 Other nonoperating expenses (264,133) (722,671) (955,818) (564,980) Net nonoperating revenues $319,832,100 $305,827,428 $312,193,610 $314,034,096 Gain or loss before other revenues and $ 23,953,907 $ 31,571,060 $ 27,904,826 $ 55,410,511 changes in net assets OTHER REVENUES AND CHANGES IN NET POSITION Capital appropriations $ 6,125,000 $ 2,143,171 $ 1,000,000 $ 350,000 Capital grants and gifts 19,516,817 31,954,904 6,036,286 20,437,460 Other changes 214,570 911,058 (1,016,001) 161,097 Extraordinary item – pollution remediation -0- -0- -0- (9,648,242) Total other revenues and changes in net assets $ 25,856,387 $ 35,009,133 $ 6,020,285 $ 11,300,315 Increase in net assets $ 49,810,294 $ 66,580,193 $ 33,925,111 $ 66,710,826 NET ASSETS - beginning of year $770,500,504(2) $812,390,583(3) $878,970,776 $ 912,895,887 NET ASSETS - end of year $820,310,798 $878,970,776 $912,895,887 $ 979,606,713 ______(1) See Note 1W to the audited financial statements of UA, Fayetteville for the fiscal year ended June 30, 2017, for a description of certain reporting changes with respect to revenues and expenses associated with residence life, scholarship programs and student meal plans. (2) The beginning net assets balance was restated by $3,378,494 for fiscal year 2014. (3) The beginning net assets balance was restated by $7,920,215 for fiscal year 2015 due to GASB 68, as amended. 23 Pledged Revenues The term “Pledged Revenues” is defined as (i) all tuition and fee revenues collected by UA, Fayetteville, (ii) all sales and services revenues and all auxiliary enterprises revenues (as such terms are used in the context of generally accepted accounting principles) derived from facilities funded or refunded with bonds issued under the Master Indenture, and (iii) all surplus sales and services and auxiliary enterprises revenues (as such terms are used in the context of generally accepted accounting principles) derived from residence halls, married student apartments, fraternity and sorority houses, residence dining services, the Arkansas Union, and transit and parking services to the extent such revenues are derived from facilities funded with obligations issued pursuant to the Act. Pledged Revenues are pledged to the payment of the Bonds on a parity of security with previous pledges to Existing Parity Bonds and with subsequent pledges to Additional Parity Bonds, and subject to a previous pledge to the Existing Obligations (defined as existing obligations of the Board payable from Pledged Revenues, listed herein under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Existing Obligations), and shall not include (A) athletic gate receipts and other revenues derived from intercollegiate athletics at UA, Fayetteville or (B) any fees authorized or imposed by UA, Fayetteville and dedicated to a specific purpose unrelated to obligations issued pursuant to the Act or to facilities funded with such obligations. Existing Obligations and Other Obligations (described under THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY, Other Obligations) are permitted encumbrances on Pledged Revenues (the “Permitted Encumbrances”) under the Master Indenture. Gross Pledged Revenues for the past five fiscal years have been as follows: Source 2013 2014 2015 2016 2017 Tuition and Fees $211,930,572 $230,413,972 $258,604,292 $277,010,264 $296,366,889 Sales and Services 7,638,343 8,861,545 8,674,631 8,610,798 8,685,226 Residence Halls 35,104,362 37,356,707 41,421,392 43,605,668 65,722,511 Transit and Parking Services 6,684,527 7,374,258 7,892,613 8,874,690 9,438,067 Bookstore 18,775,473 18,076,631 17,685,978 16,612,951 15,425,386 Student Health Services 753,775 970,252 2,881,754 2,310,530 2,406,462 Other Auxiliaries 3,949,876 3,751,661 591,834 382,857 286,959 Total: $284,836,928 $306,805,026 $337,752,494 $357,407,758 $398,331,500 ______(1) Residence Halls revenues increased in 2017 due to a change in the recognition of room and board revenue from students who serve as Resident Assistants, and for revenues collected from students for meal plans that is passed through to the University’s third party provider of campus dining services.

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24 Existing Parity Bonds The Existing Parity Bonds were issued, and the Bonds will be issued, under the Indenture. The Existing Parity Bonds, the Bonds, and Additional Parity Bonds that may be issued under the Indenture will rank on a parity of security to the extent outstanding. Debt service requirements for the Existing Parity Bonds during the fiscal years ending on June 30 as set forth below, are as follows:

Series 2011A Series 2012A Series 2014A Series 2015B Series 2016A Year Series 2009A & 2011B & 2012B Series 2013A & 2014B Series 2015A & 2015C & 2016B Series 2017 Total 2019 $ 3,233,795 $ 7,258,331 $ 7,265,775 $ 3,426,463 $ 1,856,207 $ 5,169,050 $ 7,482,910 $ 7,902,697 $ 6,161,100 $ 49,756,327 2020 3,232,376 7,257,156 7,263,975 3,424,462 1,863,369 5,241,725 7,497,320 7,898,440 6,161,300 49,840,123 2021 3,231,245 9,417,181 7,267,200 3,424,338 1,859,611 5,323,225 4,545,327 7,903,910 6,162,250 49,134,287 2022 3,235,382 9,417,931 7,265,800 3,425,837 1,860,070 5,398,850 4,457,244 7,890,357 6,157,375 49,108,846 2023 3,236,595 7,016,431 13,472,350 3,428,713 1,856,845 4,713,725 438,759 7,892,388 6,158,500 48,214,306 2024 3,229,995 6,303,431 9,625,850 3,427,837 1,849,970 4,793,900 433,193 7,889,458 6,160,250 43,713,884 2025 3,231,395 6,296,056 9,638,850 3,428,088 1,850,465 4,877,100 437,470 7,896,437 6,162,375 43,818,236 2026 3,230,145 6,296,556 7,901,350 3,424,337 1,852,560 5,761,125 431,586 7,888,275 6,159,750 42,945,684 2027 3,234,145 6,299,306 7,895,350 3,426,338 1,847,698 4,340,125 435,057 7,889,050 6,162,125 41,529,194 2028 3,233,595 6,298,931 7,897,850 3,428,712 1,844,660 4,445,125 432,789 7,887,831 6,159,250 41,628,743 2029 3,232,310 6,298,281 7,888,350 3,426,338 1,843,135 4,553,250 430,337 7,884,700 6,160,875 41,717,576 2030 3,234,806 6,298,581 7,896,100 3,424,087 1,849,435 4,663,750 437,517 6,497,938 6,161,625 40,463,839 2031 3,234,196 6,300,478 7,900,100 3,426,588 1,848,187 4,785,625 439,237 6,488,563 6,161,250 40,584,224 2032 3,230,568 6,296,068 7,894,975 3,424,169 1,839,610 4,907,875 440,085 6,484,063 6,159,500 40,476,828 2033 3,237,200 6,308,837 7,897,800 3,428,281 1,843,710 4,771,375 435,143 6,475,713 6,161,000 40,368,915 2034 3,233,859 6,290,425 3,874,000 3,427,812 1,835,363 4,895,625 434,892 6,478,363 6,160,375 36,450,822 2035 3,235,431 6,288,109 3,870,500 3,425,938 1,844,317 5,028,250 434,233 6,479,488 6,162,250 36,599,283 2036 3,231,684 6,286,081 3,875,625 3,427,562 1,845,013 5,163,125 433,162 6,469,988 6,161,250 36,735,328 2037 3,232,387 6,303,415 3,874,000 3,427,313 1,832,800 5,299,250 436,363 6,465,113 6,162,000 36,886,277 2038 3,232,193 6,294,625 3,875,375 3,424,937 1,832,750 - 433,825 6,467,363 6,159,125 31,586,367 2039 3,230,871 6,298,500 3,869,500 1,928,875 1,829,500 - 430,862 3,943,119 6,157,250 27,567,615 2040 3,233,075 6,298,375 3,871,000 1,926,625 1,827,925 - 437,262 1,564,375 6,160,750 25,212,125 2041 - 6,298,625 3,874,250 1,927,031 1,832,662 - 433,025 1,564,250 6,159,125 21,995,944 2042 - - 3,873,875 1,925,000 1,818,838 - 432,990 1,566,250 6,161,875 15,700,838 2043 - - 3,874,500 1,925,438 1,833,437 - 436,930 1,565,250 6,158,500 15,732,126 2044 - - - - 1,831,625 - 435,100 1,566,125 6,158,500 9,946,250 2045 ------432,610 1,563,750 6,151,375 8,120,125 2046 ------434,350 1,567,875 6,151,500 8,144,375 2047 ------1,568,250 6,153,000 7,721,250 2048 ------6,155,125 6,155,125 Total $71,127,248 $153,721,710 $163,704,300 $78,161,119 $47,929,766 $94,132,075 $32,698,746 $161,599,373 $184,780,525 $987,854,862

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25 Debt Service Requirements for the Bonds* Debt service requirements for the Bonds for the fiscal years ending June 30 of the years set forth below, are as follows: Year Principal Interest Total Year Principal Interest Total 2019 $ -- $ 931,618 $ 931,618 2035 $1,035,000 $758,525 $1,793,525 2020 555,000 1,235,895 1,790,895 2036 1,085,000 709,368 1,794,368 2021 575,000 1,221,277 1,796,277 2037 1,125,000 657,979 1,782,979 2022 580,000 1,204,222 1,784,222 2038 1,185,000 604,143 1,789,143 2023 610,000 1,184,393 1,794,393 2039 1,235,000 547,624 1,782,624 2024 625,000 1,161,661 1,786,661 2040 820,000 498,250 1,318,250 2025 665,000 1,135,552 1,800,552 2041 865,000 456,125 1,321,125 2026 690,000 1,105,855 1,795,855 2042 900,000 412,000 1,312,000 2027 720,000 1,074,650 1,794,650 2043 940,000 366,000 1,306,000 2028 750,000 1,041,806 1,791,806 2044 1,005,000 317,375 1,322,375 2029 785,000 1,007,288 1,792,288 2045 1,055,000 265,875 1,320,875 2030 825,000 970,893 1,795,893 2046 1,110,000 211,750 1,321,750 2031 855,000 932,703 1,787,703 2047 1,170,000 154,750 1,324,750 2032 900,000 892,611 1,792,611 2048 1,220,000 95,000 1,315,000 2033 950,000 850,131 1,800,131 2049 1,290,000 32,250 1,322,250 2034 990,000 805,372 1,795,372 ______* Preliminary; subject to change. Coverage Pledged Revenues for the Fiscal Year ending June 30, 2017, were $398,331,500. Combined maximum annual debt service for the Existing Parity Bonds and the Bonds is $51,631,018* (in the Fiscal Year ending June 30, 2020). Accordingly, the Pledged Revenues in the last preceding Fiscal Year for which audited financial statements are available equaled or exceeded 7.71 times the combined maximum annual debt service on the outstanding Existing Parity Bonds and the Bonds. ______* Preliminary; subject to change. Existing Obligations The only outstanding indebtedness secured by all or some part of the Pledged Revenues, other than the Existing Parity Bonds, consists of a Promissory Note payable by UA, Fayetteville to the United States Department of Education dated August 20, 1992. This indebtedness constitutes the only “Existing Obligations” referred to in the Master Indenture. The revenues generated by the operation of two dormitories are pledged to the repayment of this Note. The annual combined principal and interest payments on the note are in the amount of $205,320. The note finally matures in the Fiscal Year ending June 30, 2022. Other Obligations The Indenture defines “other obligations” as “any capital lease, bond, or note payable incurred by or on behalf of UA, Fayetteville, provided that such Other Obligations shall not, in any single instance, exceed $1,000,000, nor shall the total of Other Obligations incurred, in any fiscal year, exceed $5,000,000.” Currently, there are no outstanding Other Obligations. Other Debt of UA, Fayetteville A note payable by the UA, Fayetteville to UAMS in the outstanding principal amount of $675,931 (as of June 30, 2018), while not secured by the Pledged Revenues, is paid from portions of the Pledged Revenues. This note evidences the obligation of UA, Fayetteville to reimburse UAMS for the principal of and interest on debt incurred by the Board for the benefit of UA, Fayetteville, but payable from revenues belonging to UAMS. Principal of and interest on this Note are paid by UA, Fayetteville from revenues generated from the operation of the Sigma Chi fraternity house. The Note finally matures in Fiscal Year 2035. In addition, UA, Fayetteville has other outstanding debt obligations which are not secured by or paid from the Pledged Revenues. These obligations are either unsecured, secured by revenues other than Pledged Revenues or secured by the financed equipment. These obligations consist of the following:

26 Installment Contracts. UA, Fayetteville has entered into three installment purchase agreements for the acquisition and installation of energy equipment pursuant to energy savings contracts with Energy Systems Group, LLC. These agreements have been refinanced with JPMorgan Chase Bank, N.A., and, as of June 30, 2018, there was $19,396,101 in principal amount outstanding under these agreements. The leases are secured only by the purchased equipment, and are paid from savings pursuant to the energy savings contracts. Interest rates on the contracts range from 1.95% to 1.99%. The latest of the contracts expire in Fiscal Year 2024. Athletic Facilities Bonds*. UA, Fayetteville has issued bonds for various athletic facilities, secured by and payable from gate receipts and other revenues of the athletic department, other than the Pledged Revenues. Annual debt service on these athletic bonds is as follows: Fiscal Year Debt Service Fiscal Year Debt Service 2018 $12,137,916.00 2028 $12,069,762.00 2019 14,482,472.00 2029 9,184,494.00 2020 14,477,621.00 2030 9,184,091.00 2021 14,472,861.00 2031 9,180,645.00 2022 11,740,812.00 2032 9,180,172.00 2023 12,738,005.00 2033 9,180,978.00 2024 12,068,704.00 2034 9,182,253.00 2025 12,066,149.00 2035 9,180,536.00 2026 12,067,424.00 2036 9,180,750.00 2027 12,067,279.00 2037 9,178,875.00 ______* Includes debt service on the Board’s outstanding (i) Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2010, (ii) Athletic Facilities Revenue Bonds (Fayetteville Campus), Series 2013A, (iii) Athletic Facilities Revenue Refunding Bonds (Fayetteville Campus), Series 2015A, (iv) Athletic Facilities Revenue Bonds (Fayetteville Campus), Tax- Exempt Series 2016A, and (v) Athletic Facilities Revenue Bonds (Fayetteville Campus), Taxable Series 2016B. For additional information concerning the outstanding debt of UA, Fayetteville, see Note 8 to the Audited Financial Statements for UA, Fayetteville for the Fiscal Year ended June 30, 2017, attached hereto as Appendix B.

FINANCIAL STATEMENTS UA, Fayetteville Set forth in Appendix B to this Official Statement are the financial statements of UA, Fayetteville for the fiscal year ended June 30, 2017, which financial statements have been audited by Arkansas Legislative Audit, as indicated in its report dated November 14, 2017, which report is also included in Appendix B. The notes set forth in Appendix B are an integral part of the financial statements, and the statements and notes should be read in their entirety. The financial report of UA, Fayetteville includes three primary financial statements: the Statement of Net Position, the Statement of Revenues, Expenses, and Changes in Net Position and the Statement of Cash Flows. The financial statements of two component units are presented discretely from the University. The notes to the financial statements provide additional information that is essential to understanding the primary financial statements. The required supplementary information provides additional information related to other post-employment benefits. The financial statements of UA, Fayetteville are presented in accordance with Governmental Accounting Standards Board (GASB) Statement No. 35, Basic Financial Statements-and Management’s Discussion and Analysis-for Public Colleges and Universities. The statement establishes standardsfor financial reporting of public colleges and universities and requires that financial statements be presented on an entity-wide basis to focus on the University as a whole. Statements are prepared using the accrual basis of accounting, which is consistent with the accounting method used by private-sector entities. All of the current year’s revenues and expenses are recognized when earned or incurred, regardless of when cash is received or paid. The University has identified two foundations as component units subject to inclusion in the financial report: the University of Arkansas Fayetteville Campus Foundation, Inc. and the Razorback Foundation, Inc. As component units, their financial information is included in the UA, Fayetteville financial report in accordance with GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units. This statement provides criteria for determining which related organizations should be reported as component units based on the

27 nature and significance of their relationship to the primary government, which is the University. Additional information regarding this reporting requirement is provided at Notes to the Financial Statements (Note) No. 1 “Summary of Significant Accounting Policies”, under the “Component Units” heading. Reference is made to Management’s Discussion and Analysis which is included in full in Appendix B. University of Arkansas System Set forth in Appendix C to this Official Statement is the consolidated financial report of the University of Arkansas System for the fiscal year ended June 30, 2017, which consolidated financial report has been audited by Arkansas Legislative Audit, as indicated in its report dated November 14, 2017, which report is also included in Appendix C. The notes set forth in Appendix C are an integral part of the consolidated financial report, and the report’s financial statements and notes should be read in their entirety. Audited financial statements of the University of Arkansas System for prior fiscal years may be obtained at the University of Arkansas System’s website (currently http://www.uasys.edu/system-administration/finance-and-administration/financial-statements/) or at Arkansas Legislative Audit’s website (currently http://www.arklegaudit.gov/ using the search term “University of Arkansas”).

TAX MATTERS

Series 2018A Bonds In the opinion of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., bond counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Series 2018A Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. Bond counsel notes, however, that for the purpose of computing the alternative minimum tax imposed on corporations, regulated investment companies, real estate investment trusts (REITs), real estate mortgage investment conduits (REMICs), or financial asset securitization investment trusts (FASITs), such interest is taken into account in determining adjusted current earnings. The opinion of bond counsel with respect to the Series 2018A Bonds is subject to the condition that the Board comply with all requirements of the Internal Revenue Code of 1986, as amended (the “Code”), that must be satisfied subsequent to the issuance of the Series 2018A Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal tax purposes. These requirements generally relate to arbitrage, the use of the proceeds of the Series 2018A Bonds, and restrictions on the ownership and use of the facilities financed with the proceeds of the Series 2018A Bonds. The Board has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Series 2018A Bonds in gross income for federal tax purposes to be retroactive to the date of issuance of the Series 2018A Bonds. The proposed opinion of bond counsel is attached as Appendix A hereto. Bond counsel expresses no opinion regarding other federal tax consequences arising with respect to the Series 2018A Bonds. Prospective purchasers of the Series 2018A Bonds should be aware that ownership of the Series 2018A Bonds may result in collateral federal income tax consequences to certain taxpayers, including, without limitation, property and casualty insurance companies, financial institutions, individual recipients of Social Security or Railroad Retirement benefits, certain S corporations with “excess net passive income”, foreign corporations subject to the branch profits tax, life insurance companies, and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry or have paid or incurred certain expenses allocable to the Series 2018A Bonds. Bond counsel does not express any opinion regarding such collateral tax consequences. Prospective purchasers of the Series 2018A Bonds should consult their tax advisors concerning their tax consequences of purchasing and holding the Series 2018A Bonds. Current or future legislative proposals, if enacted into law, may cause interest on the Series 2018A Bonds to be subject, directly or indirectly, to federal income taxation or otherwise prevent holders of the Series 2018A Bonds from realizing the full current benefit of the tax status of such interest. It cannot be predicted whether or in what form any such proposals might be enacted or whether, if enacted, it would apply to bonds issued prior to enactment. The introduction or enactment of any such legislative proposals may also affect the market price for, or marketability of, the Series 2018A Bonds. Prospective purchasers of the Series 2018A Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which bond counsel expresses no opinion. It is not an event of default on the Series 2018A Bonds if legislation is

28 enacted reducing or eliminating the exclusion of interest on state and local government bonds from gross income for federal or state income tax purposes. Tax Treatment of Original Issue Discount. When the initial public offering price for any of the Series 2018A Bonds, as reflected on the confirmation of sale received from an Underwriter, is less than the original amount payable at maturity such difference constitutes original issue discount (such bond is referred to herein as an “OID Bond).” Original issue discount is treated as interest and is excluded from gross income for federal income tax purposes subject to the caveats and provisions described above. In the case of an owner of an OID Bond, the amount of original issue discount which is treated as having accrued with respect to such OID Bond is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of such OID Bond (including its sale, redemption or payment at maturity). Amounts received upon disposition of such OID Bond which are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes. Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual OID Bond bearing original issue discount, on days which are determined by reference to the maturity of such OID Bond. The amount treated as original issue discount on such OID Bond for a particular semiannual accrual period is equal to (i) the product of (a) the yield to maturity for such OID Bond (determined by compounding at the close of each accrual period) and (b) the amount which would have been the tax basis of such OID Bond at the beginning of the particular accrual period if held by the original purchaser, (ii) less the amount of any payments on such OID Bond during the accrual period. The tax basis is determined by adding to the initial public offering price on such OID Bond the sum of the amounts which would have been treated as original issue discount for such purposes during all prior periods. If such OID Bond is sold between semiannual compounding dates, original issue discount which would have accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period. Owners of OID Bonds should consult their own tax advisors with respect to the determination for federal income tax purposes of original issue discount accrued with respect to OID Bonds as of any date, with respect to the accrual of original issue discount for such OID Bonds purchased in the secondary markets, and with respect to the state and local tax consequences of owning OID Bonds. Tax Treatment of Original Issue Premium. When the initial public offering price for any of the Series 2018A Bonds, as reflected on the confirmation of sale received from an Underwriter, is greater than the stated redemption price at maturity thereof, such difference constitutes original issue premium (such bond is referred to herein as a “Premium Bond”). Under the Code, the difference between the principal amount of a Premium Bond and the cost basis of such Premium Bond to an owner thereof is “bond premium.” An initial purchaser of a Premium Bond must amortize any bond premium over such Premium Bond’s term using constant yield principles, based on the purchaser’s yield to maturity (or, in the case of Premium Bonds callable prior to their maturity, by amortizing the bond premium to the call date, based on the purchaser’s yield to the call date and giving effect to the call premium). As bond premium is amortized, the amount of the amortization offsets a corresponding amount of interest for the period and the purchaser’s basis in such Premium Bond is reduced by a corresponding amount resulting in an increase in the gain (or decrease in the loss) to be recognized for federal income tax purposes upon a sale or disposition of such Premium Bond prior to its maturity. Even though the purchaser’s basis may be reduced, no federal income tax deduction is allowed. Purchasers of Premium Bonds should consult with their tax advisors with respect to the determination and treatment of amortizable premium for federal income tax purposes and with respect to the state and local tax consequences of owning Premium Bonds. Backup Withholding. Interest on tax-exempt obligations such as the Series 2018A Bonds are subject to information reporting in a manner similar to interest paid on taxable obligations. Backup withholding may be imposed on payments to any bondholder who fails to provide certain required information including an accurate taxpayer identification number to any person required to collect such information pursuant to § 6049 of the Code. The reporting requirement does not in and of itself affect or alter the excludability of interest on the Series 2018A Bonds from gross income for federal income tax purposes or any other federal tax consequence of purchasing, holding or selling tax-exempt obligations. Series 2018B (federally taxable) Bonds Internal Revenue Service Circular 230 Notice. Any federal tax advice contained in this Preliminary Official Statement pertaining to the Series 2018B Bonds was written to support the marketing of and is not intended

29 or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any penalties that may be imposed on the taxpayer under the Code. All taxpayers should seek advice based on such taxpayer’s particular circumstances from an independent tax advisor. This notice is given solely for purposes of ensuring compliance with IRS Circular 230.

Summary of Federal Income Tax Consequences. The following is a summary of certain anticipated federal income tax consequences of the purchase, ownership and disposition of the Series 2018B Bonds under the Code, the Regulations and the judicial and administrative rulings and court decisions now in effect, all of which are subject to change or possible differing interpretations. This summary does not purport to address all aspects of federal income taxation that may affect particular investors in light of their individual circumstances, nor certain types of investors subject to special treatment under the federal income tax laws. This summary does not address owners that may be subject to special tax rules, such as financial institutions, insurance companies, tax exempt organizations, dealers in securities or currencies, purchasers that hold the Series 2018B Bonds (or foreign currency) as a hedge against currency risks or as part of a straddle with other investments or as part of a “synthetic security” or other integrated investment (including a “conversion transaction”) comprised of a Series 2018B Bond and one or more other investments, or purchasers that have a “functional currency” other than the U.S. dollar. Except to the extent discussed below under “Foreign Investors,” this summary is not applicable to non-United States persons not subject to federal income tax on their worldwide income. This summary does not discuss the tax laws of any state other than Arkansas or any local or foreign governments. Potential purchasers of the Series 2018B Bonds should consult their own tax advisors in determining the federal, state or local tax consequences to them of the purchase, holding and disposition of the Series 2018B Bonds. General. Although there are not any regulations, published rulings, or judicial decisions involving the characterization for federal income tax purposes of securities with terms substantially the same as the Series 2018B Bonds, the Series 2018B Bonds will be treated for federal income tax purposes as evidences of indebtedness of the Board and not as an ownership interest in the trust estate securing the Series 2018B Bonds or as an equity interest in the Board or any other party, or in a separate association taxable as a corporation. Although the Series 2018B Bonds are issued by the Board, interest on the Series 2018B Bonds is not excludable from gross income for federal income tax purposes under Code Section 103. Interest on the Series 2018B Bonds will be fully subject to federal income taxation. Thus, owners of the Series 2018B Bonds generally must include interest on the Series 2018B Bonds in gross income for federal income tax purposes, as defined in § 61 of the Code, and in net investment income, as applicable, for purposes of § 1411 of the Code. In general, interest paid on the Series 2018B Bonds and original issue discount, if any, will be treated as ordinary income to the owners of the Series 2018B Bonds, and principal payments will be treated as a return of capital. Sales or Other Dispositions. If a Series 2018B Bond is sold, redeemed prior to maturity or otherwise disposed of in a taxable transaction, gain or loss will be recognized in an amount equal to the difference between the amount realized on the sale or other disposition, and the adjusted basis of the transferor in the Series 2018B Bond. The adjusted basis of a Series 2018B Bond generally will be equal to its costs, increased by any original issue discount included in the gross income of the transferor with respect to the Series 2018B Bond and reduced by any amortized bond premium under § 171 of the Code and by the payments on the Series 2018B Bond (other than payments of qualified stated interest), if any, that have previously been received by the transferor. Except as provided in § 582(c) of the Code, relating to certain financial institutions, or as discussed in the following paragraph, any such gain or loss will be a capital gain or loss taxable at the applicable rate determined by the Code if the Series 2018B Bond to which it is attributable is held as a “capital asset.” Gain on the sale or other disposition of a Series 2018B Bond that was acquired at an original issue discount will be taxable as ordinary income in an amount not exceeding the portion of such discount that accrued during the period that the Series 2018B Bond was held by the transferor (after reduction by any original issue discount includable in income by such transferor in accordance with the rules described above under “Tax Treatment of Original Issue Discount”). Backup Withholding. Payments of principal and interest on the Series 2018B Bonds, as well as payments of proceeds from the sale of the Series 2018B Bonds, may be subject to “backup withholding” under § 3406 of the Code with respect to current or accrued interest on the Series 2018B Bonds if recipients of such payments (other than foreign investors who have properly provided certifications described below) fail to furnish to the payor certain

30 information, including their taxpayer identification numbers, or otherwise fail to establish an exemption from such tax withholding. Any amounts deducted and withheld from a payment to a recipient would be allowed as a credit against the federal income tax of such recipient. Backup withholding will not apply, however, with respect to payments made to certain beneficial owners of the Series 2018B Bonds. Beneficial owners of the Series 2018B Bonds should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedures for obtaining such exemption. Foreign Investors. An owner of a Series 2018B Bond that is not a “United States person” (as defined below) and is not subject to federal income tax as a result of any direct or indirect connection to the United States of America in addition to its ownership of a Series 2018B Bond will generally not be subject to United States income or withholding tax in respect of a payment on a Series 2018B Bond, provided that the owner complies to the extent necessary with certain identification requirements (including delivery of a statement, signed by the owner under penalties of perjury, certifying that such owner is not a United States person and providing the name and address of such owner). For this purpose, the term “United States person” means a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States of America or any political subdivision thereof, or an estate or trust whose income from sources within the United States is includable in gross income for United States of America income tax purposes regardless of its connection with the conduct of a trade or business within the United States of America. Except as explained in the preceding paragraph and subject to the provisions of any applicable tax treaty, a 30% (subject to change) United States withholding tax will apply to interest paid on the Series 2018B Bonds owned by foreign investors. In those instances in which payments of interest on the Series 2018B Bonds continue to be subject to withholding, special rules apply with respect to the withholding of tax on payments of interest on, or the sale or exchange of the Series 2018B Bonds having original issue discount and held by foreign investors. Potential investors that are foreign persons should consult their own tax advisors regarding the specific tax consequences to them of owning a Series 2018B Bond. ERISA Considerations. The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the Code generally prohibit certain transactions between a qualified employee benefit plan under ERISA (an “ERISA Plan”) and persons who, with respect to that plan, are fiduciaries or other “parties in interest” within the meaning of ERISA, or “disqualified persons” within the meaning of the Code. In the absence of an applicable statutory, class or administrative exemption, transactions between an ERISA Plan and a party in interest with respect to an ERISA Plan, including the acquisition by one from the other of a Series 2018B Bond, could be viewed as violating those prohibitions. In addition, § 4975 of the Code prohibits transactions between certain tax-favored vehicles such as Individual Retirement Accounts and disqualified persons, and § 503 of the Code includes similar restrictions with respect to governmental and church plans. In this regard, the Board or any underwriter of the Series 2018B Bonds might be considered, or might become, a “party in interest” within the meaning of ERISA or a “disqualified person” within the meaning of the Code, with respect to an ERISA Plan or a plan or arrangement subject to §§ 4975 or 503 of the Code. Prohibited transactions within the meaning of ERISA and the Code may arise if the Series 2018B Bonds are acquired by such plans or arrangements with respect to which the Board or any underwriter is a party in interest or disqualified person. In all events, fiduciaries of ERISA Plans and plans or arrangements subject to the above Code sections, in consultation with their advisors, should carefully consider the impact of ERISA and the Code on an investment in the Series 2018B Bonds. The foregoing summary as to the Series 2018B Bonds is not intended as an exhaustive recital of the potential tax consequences of holding the Series 2018B Bonds. Prospective purchasers of the Series 2018B Bonds should consult their own tax advisors with respect to the federal, state and local tax consequences of the ownership of the Series 2018B Bonds. Bond counsel will not render any opinion with respect to any federal tax consequences of ownership of the Series 2018B Bonds. State Law In the opinion of bond counsel, under existing laws, the Series 2018A Bonds, the Series 2018B Bonds, and the interest thereon are exempt from all Arkansas state, county and municipal taxation.

31 CONTINUING DISCLOSURE General The Board has entered into a Continuing Disclosure Agreement with the Trustee (the “Disclosure Agreement”) pursuant to which the Board has agreed that the Board will provide, annually and as otherwise required, information specified in Rule 15c2-12(b) of the Securities Exchange Act of 1934, as amended. Such information may be posted on the Municipal Securities Rulemaking Board’s internet website, www.emma.msrb.org, and may be obtained on the EMMA website on the Board’s customized issuer page entitled “Board of Trustees of the University of Arkansas Financial Information.” Though the method to access the Board’s EMMA issuer page may change in the future due to changes in the website, the Board’s EMMA issuer page can currently be accessed through the “Browse Issuers” tab by selecting Arkansas as the state and scrolling down or using the “Find in Results” function to locate the “Board of Trustees of the University of Arkansas Financial Information” page. If an interested party is unable to access the Board’s EMMA issuer page, assistance can be obtained by contacting the Chief Financial Officer of the System. To review the form of the Disclosure Agreement, see Appendix D attached hereto. Past Compliance The Board is a party to multiple continuing disclosure agreements for its various bond issues that benefit its campuses, including UA, Fayetteville. While the Board has not made any determinations as to materiality, the following paragraphs, while not exhaustive, summarize the results of the Board’s review of compliance with prior continuing disclosure obligations over the past five years. Certain items of the annual financial information required to be filed by the Board pursuant to applicable continuing disclosure agreements for the fiscal year ended June 30, 2013 either did not contain all of the information required by the applicable continuing disclosure agreements or were not filed. However, supplemental filings have been made containing the remainder of the required information. In certain of the fiscal years ended June 30, 2013, 2014 and 2015, in the case of certain campuses, the Board made a timely filing of financial information and financial statements with the trustees, but the financial information and financial statements were not uploaded by the trustees to the EMMA system. This has been cured. In addition, in the case of three campuses, for the fiscal years ended June 30, 2013 and 2014, annual report filings were made later than the dates that such annual reports were due (22 to 392 days late). Also, in the case of one campus, with respect to one series of its outstanding bonds, the annual report filing for the year ended June 30, 2013, was filed 483 days late. Annual report filings were made on a timely basis with respect to all of its other outstanding bonds. Further, in the past the Board did not file certain notices of late filings or notices of certain listed events as required. These instances include (1) the failure to make a timely filing of notice that a trustee had changed its name (though such trustee did not notify the Board in a timely matter as required), and (2) the failure to file notice of non- compliance with its continuing disclosure undertakings. The Board has undertaken steps to ensure continued future compliance with its continuing disclosure undertakings. Compliance Related to Merged Institutions Effective February 1, 2017, Rich Mountain Community College (“RMCC”) was merged into the University of Arkansas System. RMCC is an obligated person with respect to continuing disclosure agreements entered into by RMCC in relation to the Rich Mountain Community College District General Obligation Refunding and Improvement Bonds (Rich Mountain Community College), Series 2012 and the Board of Trustees of Rich Mountain Community College Student Tuition and Fee Revenue Bonds, Series 2012 (collectively, the “RMCC Bonds”). The Board is not the obligated person with respect to the continuing disclosure agreements entered into in relation to the RMCC Bonds, and, as such, the Board has had no obligation to make filings with respect to the RMCC Bonds. By virtue of the merger, the Board will become the obligated person for post-merger disclosure with respect to the RMCC Bonds (i.e., beginning with the fiscal year ending June 30, 2017). Over the past five years, RMCC has had multiple instances of failure to comply with its obligations under the RMCC Bonds continuing disclosure agreements, including, but not limited to, failure to make timely filings of annual reports and audited financial

32 statements and failure to file certain notices of listed events and notices of non-compliance. This paragraph is for informational purposes only, and no determination has been made as to the materiality of the events described herein. Effective February 1, 2017, Pulaski Technical College (“PTC”) was merged into the University of Arkansas System. PTC is an obligated person with respect to continuing disclosure agreements entered into by PTC in relation to the Board of Trustees of Pulaski Technical College Student Tuition and Fee Refunding Revenue Bonds, Series 2015 and the Board of Trustees of Pulaski Technical College Student Tuition and Fee Revenue Capital Improvement and Refunding Bonds, Series 2011 (collectively, the “PTC Bonds”). In addition, in the past five years, PTC has been an obligated person with respect to continuing disclosure agreements entered into by PTC in relation to certain bonds refunded by the PTC Bonds. The Board is not the obligated person with respect to the continuing disclosure agreements entered into in relation to the PTC Bonds (or the bonds refunded thereby), and, as such, the Board has had no obligation to make filings with respect to the PTC Bonds (or the bonds refunded thereby). By virtue of the merger, the Board will become the obligated person for post-merger disclosure with respect to the PTC Bonds (i.e., beginning with the fiscal year ending June 30, 2017). Over the past five years, PTC has had multiple instances of failure to comply with its obligations under the PTC Bonds continuing disclosure agreements (and the continuing disclosure agreements with respect to bonds refunded by the PTC Bonds), including, but not limited to, failure to make timely filings of annual reports and audited financial statements and failure to file certain notices of listed events and notices of non-compliance. This paragraph is for informational purposes only, and no determination has been made as to the materiality of the events described herein.

ENFORCEABILITY OF REMEDIES

The Indenture does not constitute a mortgage on or security interest in any properties of the State or the Board, and no foreclosure or sale proceedings with respect to any property of the State or the Board may occur. The Board is exempt from all suits under the doctrine of sovereign immunity, but agents and employees of the Board may, by mandamus, be compelled to apply the Pledged Revenues to the payment of the Bonds in accordance with the terms of the Indenture. The remedies available to the registered holders of the Bonds upon the occurrence of a default under the Indenture are in many respects dependent upon regulatory and judicial actions, which are often subject to discretion and delay. Under existing law, the remedies provided under the Indenture may not be readily available or may be limited, and no assurance can be given that a mandamus or other legal action to enforce payment under the Indenture would be successful. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified as to enforceability of the various legal instruments, limitations imposed by bankruptcy, reorganization, insolvency or similar laws affecting the rights of creditors generally and by judicial discretion applicable to equitable remedies and proceedings generally.

FINANCIAL ADVISOR

PFM Financial Advisors LLC (“PFMFA”) is employed by the Board to perform professional services in the capacity of financial advisor. In its role as financial advisor to the Board, PFMFA has provided advice on the plan of financing and structure of the Bonds, and reviewed certain legal and disclosure documents, including this Official Statement, for financial matters. PFMFA has not independently verified the factual information contained in this Official Statement, but relied on the information supplied by the Board and other sources and the Board’s certification as to the Official Statement. PFM Asset Management, an affiliate of the financial advisor, has been retained by UA, Fayetteville to provide investment management services.

LEGAL AND LEGISLATIVE MATTERS

Legal Opinions. Legal matters incident to the authorization and issuance of the Bonds are subject to the approving opinion of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., Little Rock, Arkansas, bond counsel. The proposed opinion of bond counsel is attached as Appendix A hereto. Copies of such opinion will be available at the time of the delivery of the Bonds. Certain legal matters will be passed upon for the underwriters by Kutak Rock LLP, Little Rock, Arkansas, counsel to the underwriters. Litigation. There is no controversy or litigation of any nature now pending or threatened restraining or enjoining the issuance, sale, execution or delivery of the Bonds, or in any way contesting or affecting the validity of the Bonds, any proceedings of the Board taken with respect to the issuance or sale thereof, the pledge or application

33 of the Pledged Revenues or other moneys that may be provided for the payment of the Bonds, the existence or powers of the Board or the title of any officers of the Board to their respective positions, or the ability of the Board to make payment on the Bonds. Factors Affecting the Board’s Funding The State portion of the Board’s budget is subject to appropriation by the General Assembly of the State every year, and the Board has no control over the amounts so appropriated. There can be no assurance that the levels of future appropriations to the Board will not impair its ability to make payments on the Bonds. The Arkansas Supreme Court has ruled that the State’s public school (primary and secondary) funding system is a priority for appropriation of State funds. In February 2017, the Arkansas General Assembly passed, and Governor Hutchinson signed, Act 148 of the Regular Session of 2017 (“Act 148”), which adopts a productivity-based funding model for State-supported institutions of higher education, including campuses of the University. Act 148 provides that the Arkansas Department of Higher Education Coordinating Board shall adopt policies developed by the Arkansas Department of Higher Education necessary to implement a productivity-based funding model for State-supported higher education institutions. The policies are required to contain measures for effectiveness, affordability, and efficiency that acknowledge the following priorities: (i) differences in institutional missions; (ii) completion of students’ educational goals; (iii) progression toward students’ completion of programs of study; (iv) affordability through (A) on-time completion of programs of study, (B) limiting the number of excess credits earned by students, and (C) efficient allocation of resources; (v) institutional collaboration that encourages the successful transfer of students; (vi) success in serving underrepresented students; and (vii) production of students graduating with credentials in science, technology, engineering, mathematics, and high-demand fields. Act 148 repealed the prior Arkansas higher education funding formula, which was based largely on student enrollment. The Arkansas Department of Higher Education Coordinating Board is moving forward with the implementation of Act 148 for the 2018-2019 fiscal year. A productivity-based funding formula has been developed and shared with higher education institutions. At this time, the Board is unable to determine the effect of Act 148 and the policies to be developed and adopted thereunder. Factors Related to UAMS, the Health Reform Law and the Arkansas Private Option Program The Board has previously issued bonds secured by revenues attributable to in-patient services and other ancillary, therapeutic and diagnostic services (the “UAMS Hospital Revenue Bonds”) provided at hospital facilities of the University of Arkansas for Medical Sciences (“UAMS”). As of June 30, 2017, approximately $230,345,000 principal amount of UAMS Hospital Revenue Bonds was outstanding (this amount does not include the approximately $36,775,000 outstanding principal amount of Arkansas Development Finance Authority Tobacco Settlement Revenue Bonds, Series 2006 (Arkansas Cancer Research Project), which are secured in part by UAMS revenues (see Note 18 in Appendix C hereto)). The UAMS Hospital Revenue Bonds, like the Bonds, are general obligations of the Board, and to the extent the revenues pledged to such obligations are insufficient to pay debt service thereon, the Board is obligated to pay debt service from any other monies available to it in accordance with the Constitution and laws of the State. It should be noted that approximately 42% of the Board’s fiscal year 2016 revenues and approximately 40% of the Board’s fiscal year 2017 revenues were derived from patient care services provided through UAMS and the University Hospital of Arkansas (“UHA”). While this exposes the Board to the healthcare sector’s challenges, the Board believes that UHA’s substantial scale, specialty services not provided elsewhere in the State, strong inpatient and outpatient utilization levels and generally favorable patient care reimbursement mitigate the overall healthcare risk to the Board’s revenues. The Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010 (collectively referred to as the “Health Reform Law” and commonly referred to as “Obamacare”) was designed to overhaul the United States health care system and regulate many aspects of the health care industry, impacting individuals, employers and health insurers. The Health Reform Law addresses almost all aspects of hospital and provider operations and health care delivery and changes how health care services are covered, delivered and reimbursed. These changes have resulted in lower reimbursement from Medicare, utilization changes, increased government enforcement, and the necessity for health care providers to assess and potentially alter their business strategy and practices. The reimbursement reductions associated with the Health Reform Law are intended to be offset in part by the expansion of access to Medicaid to millions of previously uninsured Americans.

34 On June 28, 2012, the U.S. Supreme Court upheld most provisions of the Health Reform Law, including the requirement that individuals purchase and maintain health insurance coverage. The content and implementation of the Health Reform Law has been, and remains, highly controversial. Accordingly, the Health Reform Law has continually faced legal and legislative challenges, including repeated repeal efforts, since its enactment. The financial impact of any major modification or repeal of the Health Reform Law, or of any replacement health care reform legislation, cannot be predicted, although the effect could be material. In particular, any legal, legislative or executive action that reduces federal health care program spending, increases the number of individuals without health insurance, reduces the number of people seeking health care, or otherwise significantly alters the health care delivery system or insurance markets could have a material adverse effect on UAMS revenues. Several attempts to repeal and/or replace the Health Reform Law have been made since its passage. While past attempts have not been successful in gaining the approval of both chambers of Congress to repeal the Health Reform Law in its entirety, the President and Republican leaders of Congress have repeatedly cited health care reform, and particularly, repeal and replacement of the Health Reform Law, as a key goal, certain portions of the Health Reform Law have been repealed or their implementation delayed. Beginning in 2019, the Health Reform Law requirement that individuals obtain health insurance or pay a penalty is eliminated by the Tax Cuts and Jobs Act of 2017. In addition to the potential legislative changes discussed above, the implementation of the Health Reform Law and its insurance exchange markets can be significantly impacted by executive branch actions. On January 20, 2017, President Trump issued an Executive Order requiring all federal agencies with authorities and responsibilities under the Health Reform Law to “exercise all authority and discretion available to them to waive, defer, grant exemptions from or delay” parts of the Health Reform Law that place “unwarranted economic and regulatory burdens” on states, individuals or health care providers. It is impossible to predict the effect of this broad executive order. In addition, as a result of a ruling in an ongoing lawsuit (House v. Price) challenging the legality of cost- sharing subsidies paid by the federal government to insurance companies that offer coverage under the Health Reform Law insurance exchanges, President Trump announced in October 2017 that the payment of such subsidies would terminate immediately. Such action has the potential to significantly impact the insurance exchange market by reducing the number of plans available on the Health Reform Law health insurance exchanges and/or significantly increasing insurance premiums. In response to such termination, health insurers offering qualified plans instituted rate increases for 2018. In Arkansas, the four insurers offering qualified plans announced 2018 rate increases ranging from 14.2% to 27.78%. The effect of such executive actions on the business and financial condition of UAMS cannot be predicted. It is not known which additional actions may be proposed or adopted or, if adopted, what effect such actions would have on UAMS operations or revenue. However, the recent increase in focus and interest on federal and state health care reform may increase the likelihood of further significant changes affecting the health care industry. There can be no assurance that recently enacted, currently proposed or future health care legislation, regulation or other changes in the administration or interpretation of governmental health care programs will not have an adverse effect on UAMS. Reductions in funding levels of the Medicare or Medicaid programs, changes in payment methods under the Medicare and Medicaid programs, reductions in State funding, or other legislative or regulatory changes could materially reduce UAMS patient service revenues. In the U.S. Supreme Court decision referred to above, the Court also ruled that the federal government could not compel states to comply with the Health Reform Law’s requirement to expand Medicaid by eliminating all federal funds a state receives for its existing Medicaid program. Under the relevant provisions of the Health Reform Law, Medicaid was expected to cover all individuals with incomes of less than 133% of the federal poverty level, expanding eligibility to approximately 16 million people. Beginning in 2014, states were also permitted to expand Medicaid eligibility to non-elderly, non-pregnant individuals who were not otherwise eligible for Medicare, if such individuals have incomes of less than 133% of the federal poverty level. To assist states with the cost of covering such newly eligible individuals, the federal government will pay 100% of the additional cost to the states for a limited number of years. Thereafter, the cost share is expected to decrease to 90%. However, as stated above, the Supreme Court’s decision made the decision to expand Medicaid optional to the states.

35 Instead of fully expanding the Arkansas Medicaid program as envisioned by the Health Reform Law, the State of Arkansas sought and obtained a waiver from the federal government to instead institute a hybrid approach commonly referred to as the “private option.” Under the private option, individuals in Arkansas earning less than 138% of the federal poverty level income amount are eligible to receive a government subsidy to purchase private insurance through the an insurance exchange. The adoption of the State’s private option program by the Arkansas General Assembly, effective January 1, 2014, has resulted in insurance coverage to an estimated 285,000 previously uninsured persons and a corresponding decrease in the costs of uncompensated care to Arkansas hospitals. Under Arkansas law, the private option program requires annual reauthorization and appropriation by a vote of at least 75% of the senators and representatives in each chamber of the Arkansas General Assembly. Approval in 2018 was accomplished with 27 votes (27 required) in the Senate and 79 votes (75 required) in the House. Reauthorization was obtained in 2016, 2017 and 2018 only after a number of amendments to the program such as (i) requiring the payment of small premiums by persons earning between 100% and 138% of the federal poverty level income amount, (ii) the requirement for able-bodied recipients to work, be engaged in work training, or volunteer with a charitable organization, and (iii) a rebranding of the program as “Arkansas Works.” The amendments have been approved through a waiver process with the Centers for Medicare and Medicaid Services (“CMS”). Given the annual appropriation requirement for Arkansas Works (which is also subject to a lengthy review and approval process by CMS with respect to any changes to the program), as well as the political environment, the long-term status of Arkansas Works cannot be assured. The expansion of coverage afforded to uninsured individuals through the health insurance exchange created by the Health Reform Law and the expansion of Medicaid eligibility in Arkansas resulted in an increase in UAMS gross patient services revenue of approximately 2.5% for the fiscal year ended June 30, 2015. If the Health Reform Law is repealed or replaced, if repeal or revision of the Health Reform Law invalidates the Arkansas Works program, if the Arkansas Works program is invalidated by CMS, if the Arkansas Works program is revised resulting in an increase of uninsured individuals, or if the Arkansas General Assembly fails to reauthorize, continue or approve funding for the Arkansas Works program, UAMS estimates that approximately $60-$70 million in revenue could be lost from patients no longer covered by insurance who would return to self-pay status. UAMS management anticipates that the net effect on UAMS’s finances would be approximately half that amount since there would be some corresponding reduction in expenditures associated with this change. Additionally, UAMS could take action to reduce its care of indigent patients for elective medical treatments, as permitted by Board policy, to help offset the potential loss of funds. Although revenues tied to the Arkansas private option program accounted for only a 2.5% increase in gross patient services revenue for the fiscal year ended June 30, 2015, an increase carried forward into the fiscal year ended June 30, 2017, and there are mitigation measures available to UAMS, the repeal and replacement of the Health Reform Law, the invalidation of or change to the Arkansas Works program or the failure by the Arkansas General Assembly to reauthorize, continue or approve funding for the Arkansas Works program could have an adverse impact on the results of UAMS’s operations.

UNDERWRITING

Under a Bond Purchase Agreement (the “Agreement”) entered into by and between the Board and the underwriters listed on the cover page (collectively, the “Underwriters”), (i) the Series 2018A Bonds are being purchased at a purchase price of $______(being the principal amount thereof less underwriters’ discount of $______), and (ii) the Series 2018B Bonds are being purchased at a purchase price of $______(being the principal amount thereof less underwriters’ discount of $______). The Agreement provides that the Underwriters will purchase all of the Bonds if any are purchased. The obligation of the Underwriters to accept delivery of the Bonds is subject to various conditions contained in the Agreement, including the absence of pending or threatened litigation questioning the validity of the Bonds or any proceedings in connection with the issuance thereof and the absence of material adverse changes in the financial or operating condition of the Board. The Underwriters intend to offer the Bonds to the public initially at the offering prices set forth on the inside cover page of this Official Statement, which prices may subsequently change without any requirement of prior notice. The Underwriters reserve the right to join with dealers and other underwriters in offering the Bonds to the public. The Underwriters may offer and sell Bonds to certain dealers (including dealers depositing Bonds into investment trusts) at prices lower than the public offering price. In connection with this offering, the Underwriters may over-allot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.

36 RELATED PARTIES

Morril Harriman, Secretary of the University of Arkansas Board of Trustees, is an attorney with Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., Little Rock, Arkansas, Bond Counsel. Mark Waldrip, Chairman of the University of Arkansas Board of Trustees, is the father of Katie Waldrip Branscum, an attorney with Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., Little Rock, Arkansas. Mark C. Doramus, Chief Financial Officer of Stephens Inc., one of the Underwriters, serves on the Board of Directors of the Trustee. Brad Eichler, Executive Vice President of Stephens Inc., one of the Underwriters, is the spouse of Kelly Eichler, a member of the University of Arkansas Board of Trustees.

DESCRIPTION OF RATING

Moody’s Investors Service Inc. has assigned the municipal bond rating of “Aa2” (stable outlook) to the Bonds. The rating reflects only the view of the rating agency. Any explanation as to the significance of the above rating may be obtained only from the rating agency furnishing the same. The Board has furnished to the above rating agency certain information and materials, some of which have not been included in this Official Statement. Generally, rating agencies base their ratings on such information and materials and investigations, studies and assumptions furnished to and obtained and made by the rating agencies. There is no assurance that a rating will remain for any given period of time or that it may not be lowered or withdrawn entirely by the rating agency if, in its judgment, circumstances so warrant. Neither the Board nor the Underwriters have undertaken any responsibility to bring to the attention of the holders of the Bonds any proposed revision or withdrawal of a rating or to oppose any such revision or withdrawal. Any downward change in or withdrawal of a rating may have an adverse effect on the market price of the Bonds.

MISCELLANEOUS Appendices B and C contain the audited financial statements for UA, Fayetteville and for the University of Arkansas as a whole for the most recent fiscal years available. Audited financial statements of the University of Arkansas as a whole for prior fiscal years may be obtained at the University of Arkansas System’s website (currently http://www.uasys.edu/system-administration/finance-and-administration/financial-statements/) or at Arkansas Legislative Audit’s website (currently http://www.arklegaudit.gov/ using the search term “University of Arkansas System”). These financial statements should be read in their entirety. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. This Official Statement is not to be construed as a contract or agreement between the Board and the purchasers or owners of any of the Bonds. The information contained in this Official Statement has been taken from sources considered to be reliable, but it is not guaranteed. To the best of the knowledge of the undersigned, the Official Statement does not include any untrue statement of a material fact, nor does it omit the statement of any material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

37 The execution of this Official Statement has been authorized by the Board. DATED: As shown on the Cover Page hereof. BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS

By: President of the University of Arkansas

38 APPENDIX A

Opinion of Bond Counsel

Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., Bond Counsel, expects to render an opinion with respect to the Bonds, dated the date of delivery of the Bonds, in substantially the following form: Board of Trustees of the University of Arkansas Little Rock, Arkansas

Simmons Bank, as Trustee Pine Bluff, Arkansas

Re: Board of Trustees of the University of Arkansas Various Facility Revenue Bonds (Fayetteville Campus), $20,550,000! Tax-Exempt Series 2018A and $6,565,000* Taxable Series 2018B

Ladies and Gentlemen:

We have acted as bond counsel in connection with the issuance by the Board of Trustees of the University of Arkansas (the “Issuer”) of its Various Facility Revenue Bonds (Fayetteville Campus), $20,550,000* Tax-Exempt Series 2018A (the “Series 2018A Bonds”) and $6,565,000* Taxable Series 2018B (the “Series 2018B Bonds”, and collectively with the Series 2018A Bonds, the “Bonds”) each dated ______, 2018, pursuant to Ark. Code Ann. §§ 6-62-301, et seq. (the “Act”) and a Master Trust Indenture dated as of November 1, 1996 between the Issuer and Simmons Bank (as successor to Simmons First National Bank), as trustee thereunder (the “Trustee”), as supplemented by a First Supplement to Master Trust Indenture dated as of May 1, 2011 (collectively, the “Master Indenture”), between the Issuer and the Trustee, and that certain Series 2018 Trust Indenture dated as of ______, 2018, between the Issuer and the Trustee (the “Series 2018 Indenture”) (the Master Indenture and the Series 2018 Indenture are referred to herein, collectively, as the “Indenture”). The Bonds are secured by a pledge of, and payable first from, Pledged Revenues as described in the Indenture, and are issued on a parity of security the Issuer’s Various Facility Revenue Bonds (Fayetteville Campus), Series 2009A (the “Series 2009 Bonds”), Various Facility Revenue Bonds (Fayetteville Campus), Series 2011A and Refunding Series 2011B (collectively, the “Series 2011 Bonds”), Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2012A (the “Series 2012A Bonds”), Various Facility Revenue Bonds (Fayetteville Campus), Series 2012B (the “Series 2012B Bonds”), Various Facility Revenue Bonds (Fayetteville Campus), Series 2013A (the “Series 2013A Bonds”), Various Facility Revenue Bonds (Fayetteville Campus), Series 2014A and Series 2014B (collectively, the “Series 2014 Bonds”), Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2015A (the “Series 2015A Bonds”), Various Facility Revenue Bonds (Fayetteville Campus), Series 2015B (the “Series 2015B Bonds”), Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2015C (the “Series 2015C Bonds”), Various Facility Revenue Bonds (Fayetteville Campus), Refunding and Improvement Series 2016A (the “Series 2016A Bonds”), Various Facility Revenue Bonds (Fayetteville Campus), Refunding Series 2016B (the “Series 2016B Bonds”), and Various Facility Revenue Bonds (Fayetteville Campus), Series 2017 (the “Series 2017 Bonds”), in each case to the extent outstanding. The Bonds are general obligations only of the Issuer and do not constitute an indebtedness for which the full faith and credit of the State of Arkansas (the “State”) or any of its revenues are pledged, and the Bonds are not secured by a mortgage or lien on any land or building belonging to the State or the Issuer. We have examined the law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the representations of the Issuer contained in the Indenture and other closing documents and in the certified proceedings and other certifications of public officials furnished to us without undertaking to verify the same by independent investigation.

! Preliminary; Subject to change.

A-1 Based on the foregoing, we are of the opinion, as of the date hereof and under existing law, as follows: (1) The Issuer is duly created and validly existing as a body politic and corporate and is a state- supported educational institution under and by virtue of the laws of the State with the corporate power to enter into the Indenture and perform the agreements on its part contained therein and to issue the Bonds. (2) The Indenture has been duly authorized, executed and delivered by the Issuer and, assuming the authorization, execution and delivery thereof by the Trustee, constitutes a valid and binding obligation of the Issuer enforceable upon the Issuer. (3) Pursuant to the Act, the Indenture creates a valid lien on the funds pledged by the Indenture for the security of the Bonds (a) on a parity of security with the Series 2009 Bonds, the Series 2011 Bonds, the Series 2012A Bonds, the Series 2012B Bonds, the Series 2013A Bonds, the Series 2014 Bonds, the Series 2015A Bonds, the Series 2015B Bonds, the Series 2015C Bonds, the Series 2016A Bonds, the Series 2016B Bonds, the Series 2017 Bonds, and other bonds (other than any Subordinate Bonds, as such term is defined in the Indenture) issued or to be issued under the Indenture, as described in the Indenture, in each case to the extent outstanding, and (b) subject to the previous pledge to the Issuer’s Promissory Note payable to the U.S. Department of Education dated August 20, 1992, to the extent outstanding. (4) The Bonds have been duly authorized, executed and delivered by the Issuer, and are valid and binding obligations of the Issuer, payable from the sources provided therefore in the Indenture. (5) The interest on the Series 2018A Bonds (including any original issue discount properly allocable to a holder thereof) is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; however, it should be noted that with respect to corporations (as defined for federal income tax purposes), such interest is taken into account in determining adjusted current earnings for the purpose of computing the alternative minimum tax imposed on such corporations. The opinions set forth in the preceding sentence are subject to the condition that the Issuer comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Series 2018A Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes. The Issuer has covenanted in the Indenture to comply with each requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Series 2018A Bonds in gross income for federal income tax purposes retroactive to the date of issuance of the Series 2018A Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Series 2018A Bonds. (6) The Series 2018B Bonds will be treated for federal income tax purposes as evidence of indebtedness of the Issuer. Interest on the Series 2018B Bonds is not excludable from gross income for federal income tax purposes and will be fully subject to federal income taxation. All taxpayers should seek advice based on such taxpayer’s particular circumstances from an independent tax advisor. (7) The Bonds and interest thereon are exempt from all present Arkansas state, county and municipal taxes. (8) The Bonds are exempt from registration under the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended. It is to be understood that the rights of the registered owners of the Bonds and the enforceability of the Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases.

A-2 APPENDIX B

Audited Financial Statements for the University of Arkansas, Fayetteville for the Fiscal Year Ended June 30, 2017 [PAGE INTENTIONALLY BLANK] 2016-2017 University of Arkansas Annual Financial Report UNIVERSITY OF ARKANSAS

3 2016-2017 ANNUAL FINANCIAL REPORT

TABLE OF CONTENTS The University of Arkansas

Message from the Chancellor...... 3 Progress and Major Initiatives...... 5 Private Gift Support Campaign Arkansas Advance Arkansas All In For Arkansas Awards Enable Cutting-Edge Research Sponsored-Research Highlights Letter of Transmittal...... 11 Independent Auditor’s Report...... 12 Management’s Discussion and Analysis (unaudited)...... 15 Statement of Net Position...... 30 Statement of Revenues, Expenses, and Changes in Net Position...... 32 Statement of Cash Flows – Direct Method...... 34 Discretely Presented Component Units...... 37 Statements of Financial Position Statements of Activities Notes to the Financial Statements...... 44 Required Supplementary Information...... 94 Board of Trustees, University Officials...... 98

1 UNIVERSITY OF ARKANSAS

2 2016-2017 ANNUAL FINANCIAL REPORT

MESSAGE FROM THE CHANCELLOR

Thank you for your interest in the annual financial report for the University of Arkansas. As the state’s flagship university, we know how important it is to be good stewards of state resources. State resources, however, are just one component of university finances. Tuition dollars, research grants, private gift support, and various auxiliaries like housing and athletics are also critical parts of the budgetary mix. Whatever its source, it’s important that we can account for how every dollar is acquired and spent.

This financial report reflects our desire to be completely open in our financial accounting. Nevertheless, it must represent the diversity and complexity of financing a major public research university. While we tried to make this report as clear and straightforward as possible, it will never be mistaken as light reading.

As detailed in these pages, it should be clear that university finances are in great shape. Private giving has been exceptionally strong. After recording our third best fundraising year In FY 2016, exceeding $131 million, we did it again in FY 2017, exceeding $134 million. With a $120 million gift from the Walton Family Charitable Support Foundation to start FY 2018, it seems certain this year will one of the best ever. Rising enrollment has also helped generate critical revenue, which has helped provide much-needed raises for faculty and staff this year.

And not only is our athletics department self-sustaining, it is helping support the university’s academic mission. The athletics department now returns more than $3.5 million a year in direct funding of academic programs and initiatives to the academic side of campus. This year, athletics was instrumental in helping us establish a new Chancellor’s Collaboration and Innovation Fund, committed $750,000 to the $1 million fund.

This is all to say your university is in good hands. We take pride in the sound fiscal management of university resources and welcome the opportunity to share that information with our stakeholders across the state.

Thank you so much for your support.

Joe Steinmetz Chancellor

3 UNIVERSITY OF ARKANSAS

4 2016-2017 ANNUAL FINANCIAL REPORT

PROGRESS AND MAJOR INITIATIVES

Private Gift Support Impacts the Institution Private gift support from alumni, friends, corporations and Fundraising totals reached $108.1 million in 2012, $108.4 foundations continues to be increasingly important to the million in 2013, $113.3 million in 2014, $116.5 million in 2015 University of Arkansas. It has also been incredibly successful. and $131.6 million in 2016. For the seventh year in a row, the university raised more than $100 million in private gift support and recorded $134.2 million The following gifts of $500,000 or more were announced in fiscal year 2017, making it the third best fundraising year publicly during fiscal year 2017. in the university’s history. The amount raised surpassed the • Raymond W. Gosack – An estate gift of more than university’s goal of $125 million and included gifts of cash, gifts- $500,000 was made to the Department of Political in-kind, planned gifts and new pledges to the U of A received Science in the J. William Fulbright College of Arts and from July 1, 2016, through June 30, 2017. Sciences to create the Raymond W. Gosack Master of Every aspect of the University of Arkansas campus benefits from Public Administration Endowment. This gift will provide philanthropy. Students are supported through academic and ongoing support for the program, which aims to provide a need-based scholarships and fellowships, as well as innovative broad, flexible foundation to prepare students for careers in programs funded through private gift support. Faculty are public service for the government, with non-governmental recruited and retained with endowed positions and research organizations and in the nonprofit business sector. funding and thereby increase the quality of education offered • Jerry and Kay Brewer and Clete and Tammy Brewer to the students. And facilities are built and improved upon to – Jerry and Kay Brewer contributed $500,000 to create keep up with the demands of a growing campus population and the Brewer Family Entrepreneurship Hub, and their son collaborative educational needs. Clete Brewer, and his wife, Tammy, contributed another Approximately $14 million of the total amount raised was $100,000. The hub is located on the historic Fayetteville allocated for endowed funds and added to the university’s overall Square and will support collaborative entrepreneurship endowment total. Cash receipts, which include pledge payments, and innovation efforts across campus while serving as a outright gifts and estate and planned gift distributions, reached starting point for students and their companies to launch $109.6 million in fiscal year 2017. The campus had a record- their ideas. setting year with 103,156 outright gifts and new pledges from • J.B. Hunt Transport Services Inc. – A $2.75 million 53,196 benefactors during the fiscal year. investment from the Lowell-based J.B. Hunt Transport Gifts from individuals such as alumni, friends, parents, faculty Services Inc. will create the J.B. Hunt Innovation Center of and staff made up 32 percent of the $134.2 million raised Excellence. This collaborative effort between the company, during the 2017 fiscal year. Another 39 percent came from the College of Engineering and the Sam M. Walton College corporations, while 19 percent came from foundations and 10 of Business will advance supply chain management percent came from other organizations, including trusts and efficiency through technology. Business researchers and estates. All private gifts to the university are designated and students will work with J.B. Hunt employees in finding allocated for specific purposes set forth by each donor and used solutions to real-world problems through innovative solely for those purposes. The university makes every effort to design and technology-driven supply chain solutions. align donors’ giving interests with campus priorities. Support for students and programs accounted for 40 percent of the money raised, 38 percent provided for capital improvements, 19 percent supported faculty and staff and 3 percent supported other initiatives.

5 UNIVERSITY OF ARKANSAS

Campaign Arkansas Campaign Arkansas launched to the public in fiscal year Gifts by Purpose 2017 with a working goal of $1 billion. The campaign, which began July 1, 2012, and will run through June 30, 2020, is a Student Support 10% comprehensive fundraising campaign focused on advancing Faculty Support 14% academic opportunity at the University of Arkansas. Gifts to the Capital 41% campaign will help students from across Arkansas access higher Programs 30% education at the U of A and foster their success. The campaign Other 5% will also build meaningful resources for teaching and research, Gifts by Source grow innovative and collaborative programs and enhance the university’s facilities and technology. Campaign Arkansas is Individuals 33% poised to make a difference for the university and the state today Corporations 33% and for generations to come. Foundations 27% Other Organizations 7% By the end of the 2017 fiscal year, $657.1 million had been raised toward the campaign, and $111.6 million had been allocated to A transformational $120 million gift from the Walton Family the university’s endowment. Charitable Support Foundation for a School of Art was announced at the beginning of fiscal year 2018.

Advance Arkansas The Advance Arkansas scholarship initiative was launched in of A students who have persisted in maintaining a compelling the spring of 2017 to catalyze the potential of the state’s rising academic record, and (4) Talented Transfer, which is awarded to leaders by giving them resources to succeed academically incoming transfer students with a strong academic record and at a nationally competitive institution. Advance Arkansas commitment to degree completion at the U of A. scholarships emphasize the following student support areas: (1) First Generation, which is awarded to new freshmen who aspire The University of Arkansas has raised $520,209 toward the to be first in their families to earn a four-year college degree, Advance Arkansas scholarship initiative through fiscal year (2) Community Leader, which is awarded to new freshmen 2017. Ten scholarships were expected to be awarded during the who demonstrate significant acts of service within their fall 2017 academic semester. communities, (3) Resilient Razorback, which is awarded to U

All In for Arkansas The university hosted its second annual giving day, All In for Arkansas, on March 29-30 to commemorate the 146th birthday of the U of A. The effort raised $411,175 during a 1,871-minute period and more than doubled its goal of $187,100. Four gifts of $25,000 and above were received during the event, and the largest, a gift for $125,000, was for a new Advance Arkansas scholarship. The event recorded 1,021 gifts during the virtual birthday celebration.

6 2016-2017 ANNUAL FINANCIAL REPORT

Awards Enable Cutting-Edge Research Federal agencies, research foundations and top industries alike The growth in research funding led to a rise in campus research turn to the University of Arkansas to solve problems, advance expenditures as well, which also set a record at $157.8 million in technology and better our world. fiscal year 2017. Research expenditures for the university have grown 62 percent over the last decade. The University of Arkansas continued its growth in research funding, receiving more funding in fiscal year 2017 than “It is exciting to see us continue this trend of growth, and I previous years supporting research in key areas such as applaud our researchers, who have worked hard to secure these cybersecurity, nanotechnology, health and agriculture, and increasingly scarce resources and put them to good use,” said advancing the university’s mission. Jim Rankin, vice provost for research and innovation. “Research is a central part of our land-grant mission; it is how we leverage The Office of Research and Sponsored Programs was awarded the broad range of expertise on campus to help the state of $103.2 million in research funding in fiscal year 2017, including Arkansas, the nation and the world. awards made to the Division of Agriculture. That marks a 1.5 percent increase over the $101.7 million in research funding received in fiscal year 2016.

ARKANSAS RESEARCH ON THE RISE

In Thousands 170,000

160,000 FROM ARRA* 157,791 150,000

140,000 145,020

130,000 133,660

120,000

Expenditures 110,000

100,000

90,000 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY2017

As reported in National Science Foundation Higher Education Research and Development survey. *American Recovery and Reinvestment Act

7 UNIVERSITY OF ARKANSAS

Among the Sponsored-Research Highlights of FY17: Partnerships with industry led to several important research The U.S. Department of Education awarded a total of $11.6 efforts in the past year. J.B. Hunt Transport Services, Inc. million to the University of Arkansas, including over $6 million made a $2.75 million investment in the University of Arkansas through Arkansas Department of Education to Arkansas to create the J.B. Hunt Innovation Center of Excellence. The PROMISE, a program designed to improve the education and center will be a collaborative effort between the company, employment outcomes of teens with disabilities who receive the College of Engineering and the Sam M. Walton College Supplemental Security Insurance. The award was FY17’s allotment of Business to advance supply chain management efficiency of the five-year, $35.7 million grant for the PROMISE program. through technology. The National Institutes of Health awarded $3.4 million for Researchers from the College of Engineering, the Sam M. research on breast cancer, obesity, computer-aided drug design, Walton College of Business and the Dale Bumpers College of hydration and wound healing. Agricultural, Food and Life Sciences received a $2.3 million grant from the Walmart Foundation to fund collaborative The Department of Defense awarded $1.6 million to projects involving the poultry industry in China. researchers at the U of A, including a grant to Shilpa Iyer, assistant professor of biological sciences, for research into the The U.S. Department of Energy awarded $14 million use of stem cells to treat mitochondrial disease. to researchers supporting research on alternative energy, cybersecurity, imaging and sensor technology, power electronics The U.S. Department of Transportation awarded the and nanotechnology. Maritime Transportation Research and Education Center $1.4 million for research to optimize resources and minimize Awards from the National Science Foundation totaled $13.5 congestion on navigable waterways. million, including awards for research into water quality, music perception, stem cells and big data, as well as support for student NASA awarded $1 million to researchers who are studying research through the Research Experience for Undergraduates Mars and Venus, as well as research into cube satellites and program. growing crops for space exploration.

8 2016-2017 ANNUAL FINANCIAL REPORT

9 UNIVERSITY OF ARKANSAS

10 2016-2017 ANNUAL FINANCIAL REPORT

LETTER OF TRANSMITTAL

November 14, 2017

Chancellor Steinmetz, President Bobbitt, and Members of the Board of Trustees

I am pleased to present the annual Financial Report of the University of Arkansas for the year ended June 30, 2017. The report includes the annual financial statements, Management’s Discussion and Analysis and supplemental information to assist the reader in clearly understanding the University’s financial activities and outcomes.

University management is responsible for the accuracy and completeness of the information presented, including all disclosures. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and, as such, include amounts based on judgments and estimates by management.

State law, federal guidelines and certain bond covenants require the University’s accounting and financial records be audited each year. The University’s annual audit is performed by Arkansas Legislative Audit. The reports resulting from the audit are shared with University management and the Board of Trustees. For the year ended June 30, 2017, Arkansas Legislative Audit issued an unmodified opinion, the most favorable outcome of the audit process. The independent auditor’s report follows this letter of transmittal.

The University maintains a system of internal controls over financial reporting. Such controls are designed to identify internal control weaknesses in order to permit management to take appropriate corrective action on a timely basis. Because the cost of internal controls should not exceed the anticipated benefits, the objective is to provide management with reasonable, although not absolute, assurance that the financial statements are free of material misstatements.

Based on the above, I certify that the information contained in the accompanying financial statements fairly presents, in all material respects, the financial condition, changes in net position and cash flows of the University.

Sincerely,

Timothy J. O’Donnell Vice Chancellor for Finance and Administration

11 UNIVERSITY OF ARKANSAS

INDEPENDENT AUDITOR’S REPORT

Sen. Jimmy Hickey, Jr. Rep. Richard Womack Senate Chair House Chair

Sen. Lance Eads Rep. Mary Bentley

Senate Vice Chair House Vice Chair

Roger A. Norman, JD, CPA, CFE, CFF Legislative Auditor

LEGISLATIVE JOINT AUDITING COMMITTEE

ARKANSAS LEGISLATIVE AUDIT

INDEPENDENT AUDITOR’S REPORT

University of Arkansas, Fayetteville Legislative Joint Auditing Committee

Report on the Financial Statements

We have audited the accompanying financial statements of the business-type activities and the aggregate discretely presented component units of the University of Arkansas, Fayetteville (University), an institution of higher education of the State of Arkansas, as of and for the year ended June 30, 2017, and the related notes to the financial statements, which collectively comprise the University’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the University of Arkansas Fayetteville Campus Foundation, Inc., the Razorback Foundation, Inc., and the Arkansas 4-H Foundation, Inc., which represent 100% of the assets and revenues of the aggregate discretely presented component units. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the University of Arkansas Fayetteville Campus Foundation, Inc., the Razorback Foundation, Inc., and the Arkansas 4-H Foundation, Inc., is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The financial statements of the University of Arkansas Fayetteville Campus Foundation, Inc., the Razorback Foundation, Inc., and the Arkansas 4-H Foundation, Inc. were not audited in accordance with Government Auditing Standards.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Opinions

In our opinion, based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities and the aggregate discretely presented component units of the University as of June 30, 2017, and the respective changes in financial position, and where applicable, cash flows thereof for the year ended in accordance with accounting principles generally accepted in the United States of America.

500 WOODLANE STREET, SUITE 172 • LITTLE ROCK, ARKANSAS 72201-1099 • PHONE: (501) 683-8600 • FAX: (501) 683-8605 www.arklegaudit.gov

12 2016-2017 ANNUAL FINANCIAL REPORT

Other Matters

Prior Year Comparative Information

We have previously audited the University’s 2016 financial statements, and we expressed unmodified opinions on the respective financial statements of the business-type activities and the aggregate discretely presented component units in our report dated November 9, 2016. In our opinion, the comparative information presented herein as of and for the year ended June 30, 2016, is consistent, in all material respects, with the audited financial statements from which it has been derived.

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, certain information pertaining to postemployment benefits other than pensions, and certain information pertaining to pensions be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

ARKANSAS LEGISLATIVE AUDIT

Roger A. Norman, JD, CPA, CFE, CFF Legislative Auditor

Little Rock, Arkansas November 14, 2017 EDHE13517

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UNIVERSITY OF ARKANSAS

14 2016-2017 ANNUAL FINANCIAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS

Introduction The University of Arkansas (the University) is pleased to have been prepared by management. The discussion and present its financial statements for fiscal year 2017, with analysis should be read in conjunction with financial comparative figures for fiscal year 2016. The University’s statements and notes. All references to “2017”, “2016” or financial statements, notes to the financial statements another year refer to the fiscal year ended June 30, unless and discussion and analysis are the responsibility of, and otherwise noted.

Overview of the Financial Report and Financial Analysis The University’s financial report includes three basic Campus Foundation, Inc. and the Razorback Foundation, financial statements: the Statement of Net Position, Inc. that meet the criteria set forth for component units which presents the assets, deferred outflows of resources, under GASB Statement No. 39, Determining Whether liabilities, deferred inflows of resources and net position Certain Organizations are Component Units. These of the University as of the fiscal year end; the Statement of Foundations provide financial support for the objectives, Revenues, Expenses, and Changes in Net Position, which purposes and programs of the university. Although reflects revenues and expenses recognized during the fiscal the university does not control the timing, purpose or year; and the Statement of Cash Flows, which provides amount received by these Foundations; the resources information on the major sources and uses of cash during (and income thereon) they hold and invest are dedicated the fiscal year. These financial statements and related note to benefit the University. Because these resources held by disclosures are prepared in accordance with standards the Foundations can only be used by, or for the benefit of, issued by the Governmental Accounting Standards the University, they are considered component units and Board (GASB) and present a comprehensive, entity-wide are discretely presented in the financial report. Additional perspective. Financial statements are prepared under the information about component units is provided at Notes accrual basis of accounting, whereby revenues and assets to the Financial Statements (Note) No. 1 “Summary of are recognized when services are provided and expenses Significant Accounting Policies”, under the “Discretely and liabilities are recognized when others provide the Presented Component Units” heading. services, regardless of when cash is exchanged. The report also includes other required supplementary information Note 17, “Other Entities” refers to the University of for other post-employment benefits and pension liabilities. Arkansas Foundation, Inc., (the Foundation). The University is the beneficiary of only 50.8% of the net The University has identified two legally separate assets of the Foundation; therefore the Foundation does foundations: the University of Arkansas Fayetteville not meet the requirements of a component unit.

Statement of Net Position The Statement of Net Position provides a fiscal snapshot and liabilities are presented in the order of their relative of the University as of the end of the fiscal year. All liquidity, and are identified as current or noncurrent. assets (property that we own and what we are owed by Current assets are those assets that can be realized in the others), deferred outflows of resources (consumption of coming year, and current liabilities are expected to be net position by the University that is applicable to a future paid within the next year. Noncurrent assets and liabilities reporting period), liabilities (what we owe to others and are not expected to be realized as cash or paid in the have collected from others before we have provided the subsequent year. Assets, deferred outflows of resources, service), deferred inflows of resources (acquisition of net liabilities and deferred inflows of resources are generally position by the University that is applicable to a future measured using current values. One exception is capital reporting period) and net position (assets and deferred assets, which are stated at historical cost less accumulated outflows of resources minus liabilities and deferred depreciation. inflows of resources) are reported in this statement. Assets

15 UNIVERSITY OF ARKANSAS

Net Position is presented in four categories: Net invested in capital assets – capital assets, net of Unrestricted - net position that is not subject to externally- accumulated depreciation and outstanding principal imposed stipulations, but can be used at the discretion balances of debt attributable to the acquisition, of the governing board to meet current expenses for any construction or improvement of those assets. purpose if not limited by contractual agreements with outside parties. Restricted nonexpendable - net position subject to externally-imposed stipulations that it be maintained The following summarizes the University’s assets, permanently by the University. deferred outflows of resources, liabilities, deferred inflows of resources and net position as of June 30, 2017, Restricted expendable - net position whose use by the and 2016: University is subject to externally-imposed stipulations that can be fulfilled by actions of the University pursuant to those stipulations or that expire by the passage of time.

Condensed Summary of Net Position

2017 2016 ASSETS Current Assets $ 472,170,731 $ 427,531,182 Capital Assets, Net of Depreciation 1,228,555,428 1,192,317,818 Other Noncurrent Assets 198,946,650 113,304,921 Total Assets $ 1,899,672,809 $ 1,733,153,921

Total Deferred Outflows of Resources $ 23,093,566 $ 21,332,570

LIABILITIES Current Liabilities $ 128,407,232 $ 119,658,614 Noncurrent Liabilities 813,822,658 720,175,946 Total Liabilities $ 942,229,890 $ 839,834,560

Total Deferred Inflows of Resources $ 929,772 $ 1,756,044

NET POSITION Net Invested in Capital Assets $ 550,573,383 $ 537,504,192 Restricted – Nonexpendable 26,542,019 25,586,770 Restricted – Expendable 111,448,473 80,603,901 Unrestricted 291,042,838 269,201,024 Total Net Position $ 979,606,713 $ 912,895,887

Overall, the University’s total assets increased $166.5 million. Cash and cash equivalents actually increased $45 million. A review of the statement of net position reveals million as result of continued growth, which was offset by that most significant changes were a decrease in cash and shifting $190 million of cash to short term investments. cash equivalents of $147.4 million, offset by increases in investments of $196.1 million, deposits with trustees of For the past several years, the University’s year-over-year $78.6 million and capital assets, net of depreciation of cash balances have shown a steady increase. The rate $36.2 million. and risk environment in the financial markets had not provided a significant premium over cash returns, and The net change in cash and cash equivalents when the University was intentional in maintaining a strong compared to 2016 balances was a decrease of $147.4 cash position to provide needed flexibility in deploying

16 2016-2017 ANNUAL FINANCIAL REPORT

resources during a multi-year period of unprecedented primarily due to actuarially determined additions. growth in enrollment coupled with an aggressive Additional information about these computations can be reinvestment in campus facilities. In 2017, the financial found at Note 12 “Employee Benefits”. markets environment showed signs of improvement, university enrollment growth was becoming more Overall, liabilities increased $102.4 million. The majority predictable and the facilities renewal program was of the increase was attributable to an $87.2 million net slowing. All of these factors contributed to a change in increase in bonds, notes, capital leases and installment philosophy in how excess operating funds were managed. contracts (long-term debt). Accounts payable increased nearly $8 million. Two major construction projects, Investments in total increased $196.1 million. Nearly all of Donald W. Reynolds Razorback Stadium expansion this increase is due to an increased investment of operating and Health Center addition, along with a pollution funds. During 2017, the University implemented an remediation project were well underway at year end and investment strategy for operating funds. The objectives were the primary drivers of the increase in payables. of the operating investments in order of priority is safety Pensions experienced an actuarially determined increase of principal, maintenance of liquidity and return on in obligations of nearly $5 million. investment. Upon implementation, approximately $190 million of cash and cash equivalents were used to purchase The University continued its investment in facilities short term investments. This new investment, coupled renewal and replacement along with the addition of with improved returns across the entire investment new facilities and improvements in 2017. Additional portfolio, resulted in the overall increase. information about University debt, and the projects financed with debt proceeds, is provided in the “Significant Deposits with bond trustees represent unspent bond Changes in Capital Assets and Long Term Debt Activity” proceeds and bond reserve funds. The increase in 2017 is discussion below and at Note 8 “Long-Term Debt”. the net of bond proceeds totaling $114.8 million associated with two new bond issues and continued spending of Deferred inflows of resources related to pensions decreased bond proceeds for ongoing construction projects. slightly more than $800 thousand as a result of actuarially determined reductions. Additional information about The increase in Capital Assets, net of depreciation, is these computations can be found at Note 12 “Employee primarily a reflection of the University acquiring capital Benefits”. assets at a rate greater than these assets are disposed of or depreciated. The section “Significant Changes in Capital The increases in assets and deferred outflows of resources Assets and Long Term Debt Activity” below and Note 4 of $166.5 million and $1.8 million, respectively, combined “Capital Assets” provide additional information about with the decrease in deferred inflows of resources of $800 capital assets. thousand provides positive support to net position. This positive support is offset by the increase in liabilities of Deferred outflows of resources consist of deferred amounts $102.4 million, resulting in a net increase of $66.7 million on refinancing of debt and deferred outflows related to in net position. pensions. Overall deferred outflows increased $1.8 million. Deferred amounts on refinancing of debt decreased $1.5 The following summarizes the composition of unrestricted million as a result of scheduled amortization. Deferred net position owned by the units of the University of outflows related to pensions increased $3.3 million Arkansas Fund as of June 30, 2017 and 2016:

Unrestricted Net Position

Unit 2017 2016 Fayetteville Campus $ 225,231,536 $ 192,730,119 Agricultural Experiment Station 33,639,638 46,952,993 Cooperative Extension Service 21,835,442 19,834,809 Arkansas Archeological Survey 980,228 859,140 Criminal Justice Institute 3,688,617 3,861,094 Clinton School of Public Service 1,029,520 1,136,688 AREON 4,637,857 3,826,181 Total Unrestricted Net Position $ 291,042,838 $ 269,201,024

17 UNIVERSITY OF ARKANSAS

Unrestricted net position for the Fayetteville Campus as of June 30, 2017 and 2016 is allocated as follows:

Unrestricted Net Position – Fayetteville Campus

Allocation 2017 2016 Working Capital $ 750,000 $ 750,000 E & G Department Uses 112,373,391 95,137,038 Service Operations 2,552,744 2,410,380 Auxiliaries 27,228,833 29,783,969 Plant Funds 68,434,510 52,043,118 Quasi-Endowment Funds 13,892,058 12,605,614 Total Fayetteville Campus Unrestricted Net Position $ 225,231,536 $ 192,730,119

Although unrestricted net position is not subject to of OPEB and pension obligations; and unrestricted externally-imposed restrictions, the majority of the quasi endowments. For 2017, the increase in reserves University’s unrestricted net position is subject to internal was primarily due to additional amounts reserved for designations to meet various specific commitments. These scholarships, and other academic or research priorities or commitments include reserves established for capital for building and maintenance reserves as denoted by the projects, scholarships, and other academic or research increase in E&G Department Uses and Plant Funds in the priorities; working capital for self-supporting auxiliary table above. enterprises; reserves for the continued recognition

Statement of Revenues, Expenses, and Changes in Net Position The Statement of Revenues, Expenses, and Changes in operating loss of $258.6 million is of little significance, Net Position present the revenues earned and expenses but does highlight the University’s dependency on non- incurred during the year. Activities are reported as either operating revenues to meet the costs of operations and operating or non-operating. Generally speaking, operating provide funds for the acquisition of capital assets. The revenues are received for providing goods and services to utilization of capital assets is reflected in the statement as the various customers and constituencies of the University. depreciation, which amortizes the cost of an asset over its Operating expenses are those expenses paid to acquire or expected useful life. produce the goods and services provided in return for operating revenues, and to carry out the mission of the Changes in total net position, as presented on the Statement University. Non-operating revenues are revenues received of Net Position, is based on the activity presented in the for which goods and services are not provided. Statement of Revenues, Expenses and Changes in Net Position. The statement presents the revenues earned by In accordance with GASB standards, significant recurring the University, both operating and non-operating, and the sources of University revenue such as state appropriations, expenses incurred by the University, both operating and gifts, investment income and certain grants and contracts non-operating, and any other revenues, expenses, gains are reported as non-operating revenues. As a result, the and losses received or spent by the University.

18 2016-2017 ANNUAL FINANCIAL REPORT

The following summarizes the University’s revenues, expenses and changes in net position for the years ended June 30, 2017 and 2016:

Condensed Summary of Net Revenues, Expenses, and Changes in Net Position

2017 2016 Operating Revenues $ 574,009,481 $ 522,713,218 Operating Expenses 832,633,066 807,002,002 Operating loss (258,623,585) (284,288,784) Net nonoperating revenues 314,034,096 312,193,610 Gain before other revenues and changes in net position 55,410,511 27,904,826 Other revenues and changes in net position 11,300,315 6,020,285 Increase in Net Position $ 66,710,826 $ 33,925,111

Operating revenue increased 9.8% or $51.3 million in Overall, net non-operating revenues increased a modest 2017. Net student tuition and fees increased $17.6 million, $1.8 million. There were several offsetting variances, a reflection of continued record enrollment growth and with most less than 4%. Investment income was the tuition rate increases for the Fayetteville campus. Grants most significant change with an increase of $8.9 million, and contracts collectively increased $23.2 million, with indicating stronger performance in the financial markets. increases across all sources. The U.S. Department of State appropriations decreased $3.7 million, reflecting Energy awarded $9.6 million to fund voluntary pollution an additional appropriation received by the Division of remediation work at an abandoned university research Agriculture in 2016. Loss on disposal of assets (expense) site. State sources increased as well with nearly $6.1 increased nearly $3 million because of demolition of a million from the Arkansas Department of Education structure as part of the stadium expansion project. Gift for various projects and $1.5 million from Arkansas revenue increased $1.9 million, evidencing continued Department of Human Services to provide additional growth in private support, and Grants (nonexchange) funding for the Partners for Inclusive Communities decreased $1.7 million. project. Nongovernmental awards increased $6.4 million as a result of increased sponsor activity funded by private Gifts reported on the Statement of Revenues, Expenses foundations and more sub awards from other universities. and Changes in Net Position only reflect a portion of the Auxiliary enterprises revenue attributable to Athletics gifts available to the University. Most gifts for the benefit increased $5.3 million, primarily due to increases in of the University are made to the University of Arkansas football ticket sales, SEC conference distributions, and a Foundation, Inc. whose financial information is presented one-time distribution from the NCAA to support student- in summary form at Note 17 “Other Entities”. athlete programs. The remaining auxiliary enterprises Other Revenues and Changes in Net Position reflect realized a net increase totaling $1.8 million collectively, changes in capital appropriations and capital gifts. The demonstrating the impact of enrollment growth. overall increase of $5.3 million is primarily due to a Operating expenses increased $25.6 million or 3.2% over $14.4 million increase in Capital grants and gifts offset 2016. Compensation and benefits costs increased nearly by additional extraordinary expenses totaling $9.6 $19 million, or 4.1% over 2016, due in part to necessary million for voluntary pollution remediation. The increase increases in faculty to support enrollment growth, along in capital gifts is primarily funds received to support with modest increases in salaries for faculty and staff. capital building projects for athletic facilities and various Supplies and other services grew $4.7 million or 1.9%. other capital building projects. Additional information The University continues to focus on cost containment regarding the voluntary pollution remediation project is initiatives to control expenses. found at Note 14 “Pollution Remediation”.

19 UNIVERSITY OF ARKANSAS

Fiscal Year Operating and Nonoperating Revenues

Sales and services of Other operating Federal County educational departments revenues appropriations appropriations 2% 1% 1% <1%

State and local grants and contracts 4%

Non-governmental grants and contracts 4% FINANCIAL 37% Federal grants HIGHLIGHTS and contracts 5% NONOPERATING REVENUES

Auxiliary enterprises 20%

Student tuition and State appropriations fees 23% 3825% +252054210A

Gifts 8%

State & local grants (non-exchange) 3%

Federal grants (non-exchange) 2% Investment income 1% Other nonoperating revenues <1%

Financial Highlights

Operating Revenues FY2017 Nonoperating Revenues FY2017 Student tuition and fees $ 227,456,739 State appropriations $ 206,764,617 Auxiliary enterprises 179,830,934 Gifts 72,257,662 Federal grants and contracts 43,241,546 State & local grants (nonexchange) 27,016,602 Nongovernmental grants and contracts 39,224,018 Federal grants (nonexchange) 21,631,421 State and local grants and contracts 32,460,684 Investment income 11,951,939 Sales and services of educational departments 22,454,703 Other nonoperating revenues 2,733,202 Other operating revenues 13,271,938 Total $ 342,355,443 Federal appropriations 11,924,289 County appropriations 4,144,630 Total $ 574,009,481

20 2016-2017 ANNUAL FINANCIAL REPORT

Fiscal Year 2017 Fiscal Year 2017 Operating Expenses by Natural Classification Operating Expenses by Function

Scholarships and Student Academic Scholarships fellowships Services Support and Fellowships 2% 3% 5% 3% Depreciation Salaries, wages, 9% and benefits Operation and 59% Maintenance of Instruction Plant 24% 6%

Institutional Support 7%

Auxiliary Depreciation Enterprises 9% 18% Supplies and other services 30% Public Service Research 10% 15%

Operating Expenses by Natural Classification FY2017 Operating Expenses by Function FY2017 59Salaries, wages, and benefits $ 487,572,321 +3092A 24Instruction $ 196,811,022 +18151097653A Supplies and other services 248,768,835 Auxiliary Enterprises 147,471,518 Depreciation 75,527,340 Research 124,565,481 Scholarships and fellowships 20,764,570 Public Service 80,386,173 Total operating expenses $ 832,633,066 Depreciation 75,527,340 Institutional Support 59,846,365 Operation and Maintenance of Plant 52,650,919 Academic Support 45,509,008 Student Services 28,852,758 Scholarships and Fellowships 21,012,482 Total operating expenses $ 832,633,066

21 UNIVERSITY OF ARKANSAS

Statement of Cash Flows The Statement of Cash Flows provides information about and shows the purchases, proceeds, and interest received the cash activity of the University during the year. The from investing activities. The fifth section reconciles the statement is divided into five parts. The first part deals net cash used to the operating income or loss reflected on with operating cash flows and shows the net cash used the Statement of Revenues, Expenses and Changes in Net by the operating activities of the institution. The second Position. section reflects cash flows from noncapital financing activities. This section reflects the cash received and The statement aids in the assessment of the University’s spent for non-operating, non-investing, and non-capital ability to meet obligations as they become due, the need financing purposes. The third section deals with cash for external financing, and the ability to generate future flows from capital and related financing activities. This cash flow. section deals with the cash used for the acquisition and The following summarizes the University’s cash flows for construction of capital and related items. The fourth the years ended June 30, 2017 and 2016: section reflects the cash flows from investing activities

Condensed Summary of Cash Flows

2017 2016 Net cash used by operating activities $ (186,860,611) $ (204,242,356) Net cash provided by noncapital financing activities 324,378,866 329,682,190 Net cash provided by operating and noncapital financing activities 137,518,255 125,439,834 Net cash used by capital and related financing activities (100,428,300) (116,995,238) Net cash provided(used) by investing activities (184,491,706) 2,433,128 Net increase (decrease) in cash $ (147,401,751) $ 10,877,724

The University used $186.9 million of cash for operating amount of $137.5 million for 2017 indicates that these activities in 2017 offset by cash provided by noncapital activities contributed to cash and liquidity for the year. financing activities of $324.4 million. Similar to the operating loss on the Statement of Revenues, Expenses Cash used by capital financing activities reflects the and Changes in Net Position, net cash provided by University’s continued use of bonded debt to finance the operating activities is of little significance to the University. acquisition of capital assets. Net cash used by investing The net cash provided by the combination of operating activities illustrates the implementation of the operating activities and noncapital financing activities is a much investments policy. more meaningful number for the University. The positive

Significant Changes in Capital Assets and Long-Term Debt Activity The University continued work on the multi-year Facilities an attractive environment in which to learn and live Renewal and Stewardship Plan. This large-scale, long- is vital to attracting new students, as well as recruiting range plan is intended to upgrade and add facilities in excellent faculty and staff. The University maintains a order to expand capacity and modernize the campus. A Facility Condition Index (FCI) to assist in assessment of dedicated facilities fee, phased in over the time beginning the overall management of capital assets. The index trend in 2009, provides a revenue stream that is used to leverage is positive, demonstrating the positive effect of additions, bonded debt in order to fund a portion of this aggressive renovations and the elimination of deferred maintenance plan. The condition of the University’s capital assets is an to campus infrastructure and educational and general important measure of the University’s overall financial buildings as the Facilities Renewal and Stewardship Plan health. Providing and maintaining facilities that create is implemented.

22 2016-2017 ANNUAL FINANCIAL REPORT

A summary of the change in Net invested in capital assets is as follows:

Changes in Net Invested in Capital Assets

Amount Net Invested in Capital Assets as of July 1, 2016 $ 537,504,192 Land Additions and Disposals (net) 2,695,947 Buildings Additions and Disposals, net of depreciation (14,800,531) Improvements/Infrastructure Additions, net of depreciation 7,168,902 Equipment Additions and Disposals, net of depreciation 977,927 Construction In Progress Additions net of transfers to buildings, improvements/infrastructure, and intangible assets 36,929,837 Livestock Additions/deductions 16,848 Library Holdings Additions and Disposals, net of depreciation 3,309,479 Intangible Assets, net of amortization (60,799) Bond debt moved to Net invested in capital assets (49,307,105) Bond Principal Paid in 2017 25,400,000 Deferred loss on refinanced bond issues, amortized (1,511,195) Net unamortized bond issue premium (1,195,788) Capital Leases Assumed in 2017 (248,207) Note, Capital Lease and Installment Contract Principal Paid in 2017 3,693,876 Net Invested in Capital Assets as of June 30, 2017 $ 550,573,383

Note 4, “Capital Assets” provides additional information locations on campus. The first lot, located on Razorback related to the University’s depreciable and non-depreciable Road, provided 723 paved spaces, along with curbing, capital assets. lighting and extension to street for exit. Total cost for this lot was $5.2 million, funded by athletic department Capital projects continued at an impressive pace in 2017, and university reserves. The second lot, located on with several construction projects begun in previous years Martin Luther King Blvd., provided 82 spaces that are completed or substantially completed, continued progress a mix of gravel and pavement. Total project cost for on multi-year projects and new projects initiated. this lot was $1.1 million funded by transit and parking The list of projects begun in previous years completed in and university reserves. 2017 include: • Fowler House Garden Conservatory – construction • Art and Design District – renovate and equip a of an outdoor garden pavilion, catering kitchen, previously purchased warehouse and small office and formal lawn and garden gathering space at the building to relocate the Department of Art sculpture Chancellor’s residence. Total project cost was $3.1 labs, foundations studio course programs and research million, funded by private support. studios. Total project cost was $6.5 million funded by • The Division of Agriculture Eastern Arkansas Soil bond proceeds. Testing and Research Laboratory located at the • Student Housing – renovation and expansion of Lon Mann Cotton Research Station in Marianna, student Greek housing operated by the University. Arkansas – renovation of the existing facility and Total project cost was $6.7 million, funded by bond construction of a new Soil Testing Laboratory. Total proceeds and private support. project cost was $2.6 million, funded by Agriculture sales and reserves and Community Board grants. • Natural Gas Pipeline – utility infrastructure improvement to construct a high pressure gas pipeline • The Division of Agriculture Seed Plant Facility at the to support the Utility Combined Heat and Power Rice Research and Extension Center Station located at facility. Total project cost was $3.7 million, funded Stuttgart, Arkansas - construction of a new facility to with a mix of bond proceeds and university reserves. replace the current aging facility. Total project cost was $8 million, funded with state general improvement • Parking Lots – parking lot construction at two separate funds and Agricultural sales and reserves.

23 UNIVERSITY OF ARKANSAS

Construction continuing and new projects begun in 2017 $15.4 million, funded by $12.7 million in bonds and include: the remainder from student health reserves. Estimated project completion in July, 2018. • Donald W. Reynolds Razorback Stadium North End Zone – Project continues to expand the north end zone • Student Housing – Project continues for renovation of the stadium, construct updates to existing areas, and and expansion of student Greek housing operated by rebuild the Broyles Athletic Center around the new the University. Total estimated project cost is $8 million north end zone seating. Total project cost is estimated funded by $5.3 million in bonds and the remainder from at $160 million, funded by $120 million in bonds, $30 gifts. Estimated project completion in December, 2017. million of gifts and $10 million from athletic reserves. Project completion is estimated for occupancy for the • University Recreation Intramural Fields – Project 2018 football season. continues to construct new University playing fields that will supplement the Mitchell Fields multi-purpose fields • Entrance Monument Signs – Project continues to located on campus. Land located near the campus has construct monument signs to mark the three major been designed for two projects, the Cato Springs Softball/ vehicular entrances to the University of Arkansas Soccer Fields Complex and the Indian Trails Tennis Campus. The design of each location includes a native Complex/Mountain Biking Trails. The Cato Springs stone wall with capstone featuring the University of project will provide space for an additional six flag Arkansas name, new sidewalks and curbs, trees, and football/soccer fields, four softball fields, three basketball other landscaping. Total estimated project cost is $2.5 courts, and four volleyball courts; along with parking million, funded by bonds. Phase 1, totaling $1.6 million lots, lighting, a maintenance barn and restrooms. The was completed in 2017. Completion of Phase 2 will be Indian Trails project will provide tennis courts, biking coordinated with other construction projects in the trails and parking. During 2017, renovation began at work area. Mitchell Fields to improve drainage, install LED lighting and install sports turf. Total estimated project cost for • Kimpel Hall Renovation – Project continues for a total the Mitchell Fields project is $4.9 million. Only the renovation of the classroom block and exterior building design phase has been completed for the other projects, envelope, along with a 3,500 to 7,000 square foot addition with construction beginning when funding is in place. for the Student Media department to include an open The overall project will be funded in phases with initial newsroom, on-air studio, control room, master control, funding in 2016 of $4 million in bonds. An additional $3 student radio and offices. Total estimated project cost million, in bonds was added in 2017. Estimated project is $15.1 million and will be managed in phases. Initial completion for Mitchell Fields in October, 2017. funding in 2016, considered Phase 1, was comprised of $3 million in bonds and $1 million in gifts. An additional • Civil Engineering Research & Education Center – $6.4 million, funded by $6 million in bonds and the Project continues to construct a research and education remainder from university reserves was added in 2017. facility for the civil engineering department. Project Estimated project completion is November, 2018. design, which included planning and programming, site options/selections at the Arkansas Research • Off-Site Library Storage – Project continues to construct and Technology Park, early schematic design and a 20,000 square foot structure to house a high density fundraising support images, was completed in 2017. storage system and processing area, along with a modest Total estimated project cost is $10.7 million and will public space for accessing the collection. Total estimated be managed in phases. Initial funding of $2.7 million project cost is $14.6 million and will be managed in in 2016 was comprised of $2 million in bonds and the phases. Initial funding in 2016, considered Phase 1, balance with gifts. An additional $2 million in bonds was was $3 million in bonds. An additional $9 million in added to project funding in 2017. Remaining funding bonds was added in 2017, with the remainder of the will be raised through gifts. Construction phases will project funded by university reserves. Estimated project continue when all funding is in place. Estimated project completion in July, 2018. completion in April, 2019. • Pat Walker Health Center Addition – Project continues • The Division of Agriculture Don Tyson Center for to construct a 20,000 square foot addition to the Pat Agricultural Sciences located at Fayetteville, Arkansas – Walker Health Center. The addition will provide project continues to construct a multipurpose space for expanded counseling and psychological laboratory, with two greenhouses and office complex. services, wellness and health promotion classrooms Estimated cost is $16 million, funded by a mix of and consultation rooms, technology support and private support, Agricultural sales and reserves with an administrative space. Total estimated project cost is expected completion of September, 2017.

24 2016-2017 ANNUAL FINANCIAL REPORT

• Stadium Drive Residence Halls – New project to upgraded system will provide additional capacity for construct a 700 bed residence hall to include multi-use future development of the Athletic Valley district on meeting rooms, advising and administrative offices, campus. Estimated project cost is $3 million, funded laundry, vending, kitchen and front desk communal by $2.7 million in bonds and the remainder from utility areas. This project is envisioned as part of a larger reserves. Estimated project completion in August, 2018. residential district to be developed in the Athletic Valley area of campus. Estimated project cost is $78.1 million, • Mullins Library Renovation – New project to fully funded by $74 million in bonds and the remainder reorganize and renovate the interior to create a from housing reserves. Estimated project completion in collaborative and interdisciplinary learning space August, 2019. focused on student and faculty engagement. The project is currently in the design phase, with no estimate for • Global Campus Renovation – New project to renovate project cost or timeline for completion. The design approximately 19,000 square feet on two floors of the phase is funded by $1 million in bonds. Global Campus building to create workspaces for faculty to develop online course content and staff who • Student Success Center – New project to construct manage and facilitate online courses; to provide studio a student success center that will create a dedicated and support space for the global campus media services space for student and faculty interaction outside of team; to renovate the auditorium into a black box theatre the classroom, for personal mentoring, tutoring, with required equipment; and other interior renovations. and guidance. The success center will also serve as Estimated project cost is $7.4 million, funded by $2 a welcoming home base for students to study and million in bonds, $4.7 million from global campus collaborate beyond their regular course schedules. reserves and the remainder from university reserves. The project will soon begin the design phase, with no Estimated project completion in February, 2018. estimate for project cost or timeline for completion. The design phase is funded by $1 million in bonds. • National Center for Reliable Electric Power Transmission (NCREPT) Addition – New project to construct a 4,000 • Greek Housing Projects – Four separate Greek square foot addition to increase the capacity of the test organizations have been granted the ability to either facility. The addition will include high bay research construct new residence facilities, or renovate existing space, graduate student offices, and approximately 50 residence facilities on university-owned property under additional parking spaces. Estimated project cost is a long-term lease. These projects are the responsibility $3.1 million, funded by university reserves. Estimated of the Greek organizations, and will be funded by project completion in January, 2018. arrangements made by the organizations. See Note 19, “Commitments and Contingencies” for additional • South Campus Steam Improvements – New project information about these projects. to replace and upgrade a portion of the steam and condensation infrastructure that provides building A summary of long-term debt (including the current heat and domestic hot water to the campus. The portion) activity is as follows:

Summary of Changes in Long-Term Debt

Installment Contracts Bonds Notes and Leases Balance as of July 1, 2016 $ 667,319,805 $ 1,754,858 $ 26,477,396 Additions 119,999,015 248,207 Retirement of principal (25,400,000) (170,813) (3,523,063) Amortization of net bond premium (3,958,227) Balance as of June 30, 2017 $ 757,960,593 $ 1,584,045 $ 23,202,540

Note 8, “Long-Term Debt” provides additional Donald W. Reynolds Razorback Stadium and renovation information related to the University’s long-term debt. and replacement of the Frank Broyles Athletic Center and related projects. Bonds totaling $114.8 million, were The University issued bonds during 2017 to provide divided between a tax-exempt and taxable series. funds to finance improvements and expansion of the

25 UNIVERSITY OF ARKANSAS

Conditions and other factors having a significant effect Financial and political support from state government remains Campaign Arkansas is an eight-year comprehensive fundraising a critical element to the continued financial health of the effort focused on advancing academic opportunity at the University. In 2017, the total general revenue distribution from university. The goal of the campaign is to raise $1 billion by the State, which is a portion of the state appropriation revenue 2020. All colleges and schools on campus, as well as many other on the Statement of Revenues, Expenses and Changes in Net units, will benefit from the fundraising effort. The campaign Position, remained virtually flat at $202.6 million. Estimates is critical to the university’s future and efforts to keep tuition for 2018 indicate general revenue distributions from the State affordable while enhancing academic opportunities for faculty will remain flat, with no significant increase or decrease. and students. Funds raised will support scholarships and Management will continue to institute both internal and fellowships, endowed chairs, capital projects, interdisciplinary external efforts to maximize the state resources available, while academic programs and other priority areas that will advance seeking ways to minimize the effect of state funding levels not the university’s goals and objectives. Campaign Arkansas had keeping pace with growth. raised $657.1 million at the close of 2017. In September, 2017, the campaign received a major boost with a $120 million dollar gift The Arkansas Legislature enacted Act 148 of 2017 which adopts to fund the School of Art. a productivity-based funding model for state-supported higher education institutions. The Act provides that the Arkansas Positive news continues with the University fundraising Department of Higher Education will develop and implement production totals for private gift support for 2017 being the third- a productivity-based funding model that will contain best year in university history. Production amounts include gifts measures for effectiveness, affordability and efficiency. This of cash, gifts-in-kind, planned gifts and new pledges. In 2017, funding model, when implemented, will replace the current the University recognized $134.2 million of private gift support, methodology for allocation of state funds to state-supported surpassing its goal of $125 million. This support is critical to higher education institutions. It is expected that the model will ensure success for students and faculty, and is a fundamental be in place to determine funding recommendations for the component in meeting budgetary needs. Support received 2018-19 academic year. The university does not anticipate any from alumni, friends, organizations and faculty and staff of short-term reduction of support due to this new funding policy. the University enhances all aspects of the student experience, including academic and need-based scholarships; technology We continue to seek ways to manage the cost of attendance so enhancements; new and renovated facilities; undergraduate, that it remains affordable while achieving revenue support graduate and faculty research; study abroad opportunities and necessary to offer a high quality university experience. Diverse innovative programs. revenue resources, including state appropriations, tuition and fees (net of scholarship allowance), private support and Preliminary figures indicate that the university enrolled 27,558 sponsored grants and contracts all contribute to support students for the fall 2017 semester, another record enrollment. the mission of teaching, research and service. Tuition and As the following charts indicate, university enrollment has mandatory fee increases totaling 3.50% for resident and 6.15% increased 43.6%, or more than 8,300 students over the past for nonresident students, respectively, were necessary in 2017 ten years. This marks the nineteenth consecutive year for in order to maintain the facilities, faculty and other support enrollment growth. Although the growth trend continues, the needed to fulfill our mission. As record growth in enrollment rate of growth is becoming more controlled, with a 1.6% rate in continues, together with state funding levels not able to keep fall 2016 and 1.3% rate in fall 2017. This more sustainable rate of pace with formula calculations, it is expected that the University growth is welcomed as the university assesses future goals and must continue to look to increases in tuition rates for revenue the optimum number of students. support as well as grow other revenue streams.

26 2016-2017 ANNUAL FINANCIAL REPORT

Enrollment Trend Over the Last 10 Years

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 0 5,000 10,000 15,000 20,000 25,000 30,000

Fall Semester Enrollment 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total 19,194 19,849 21,405 23,199 24,537 25,341 26,237 26,754 27,194 27,558 Undergraduate 15,426 15,835 17,247 19,027 20,350 21,009 21,836 22,158 22,548 23,044 Law 412 408 407 413 410 390 379 375 371 353 Graduate 3,356 3,606 3,751 3,759 3,777 3,942 4,022 4,221 4,275 4,161 New Freshmen 3,233 3,046 3,873 4,462 4,591 4,357 4,590 4,927 4,998 5,092

Per the Office of Institutional Research and Assessment

27 UNIVERSITY OF ARKANSAS

In-State Enrollment by County of Origin

Benton Carroll Boone Baxter Fulton Randolph Clay 2,971 145 139 153 13 30 16 Marion 52 Izard Sharp Greene 15 Lawrence 50 Washington Madison Newton 17 13 3,933 118 19 Searcy Mississippi 11 Stone Craighead 32 Independence 270 71 79 Crawford Johnson Van Buren Jackson Poinsett 247 Franklin 42 Cleburne 68 Pope 16 35 23 28 159 Cross Conway White Sebastian Logan Woodruff 45 Crittenden 617 50 43 Faulkner 153 5 152 419 St. Francis Yell Perry 42 Scott 22 5 Prairie Pulaski Lonoke Lee 17 19 Monroe Saline 2,008 259 24 15 370 Polk Montgomery Garland Phillips 46 22 297 77 Jefferson Hot Spring Arkansas Grant 119 Pike 21 24 154 Howard 17 Sevier Clark 33 40 41 Dallas Cleveland > 1,000 9 Lincoln 5 Desha Hempstead 11 500 -999 Little River Nevada 26 29 Ouachita 30 8 Calhoun Drew 300 - 499 49 31 5 Bradley 100 - 299 Miller 11 Chicot 62 Columbia 50 - 99 Lafayette 50 Union Ashley 22 5 122 35 < 50

28 2016-2017 ANNUAL FINANCIAL REPORT

Enrollment by State

NH VT 8 WA 4 ME 27 4 MA MT ND 25 3 7 RI OR MN NY 4 9 ID SD 30 WI 37 6 29 MI CT WY 2 39 PA 11 IA 5 NE 45 NJ 29 IN OH NV IL 32 UT 18 55 12 CO 185 28 WV VA DE CA 21 63 KS MO KY 7 65 2 228 798 1,627 31 NC MD TN AZ 48 32 OK 439 SC 32 NM AR D.C. 1,060 14,431 GA 30 20 MS AL 5 82 38 93 TX LA 5,511 164 FL > 1,000 AK 173 500 -999 8 100 - 499

50 - 99

10 - 49 HI 14 1 - 9

Foreign Countries 1,518

29 UNIVERSITY OF ARKANSAS STATEMENT OF NET POSITION June 30, 2017 With Comparative Figures at June 30, 2016

June 30 2017 2016

ASSETS Current Assets Cash and cash equivalents $ 139,680,728 $ 284,637,152 Short-term investments 270,139,692 82,150,434 Accounts receivable, net 42,120,822 39,205,979 Accrued interest receivable 1,143,622 897,292 Pledges receivable 775,013 4,508,078 Inventories, net 5,383,272 5,647,819 Deposits with bond trustees 3,830,137 2,222,482 Notes receivable, net 4,084,523 3,837,146 Other assets 5,012,922 4,424,800 Total current assets 472,170,731 427,531,182

Noncurrent Assets Cash and cash equivalents 237,644 2,682,971 Endowment investments 78,661,949 70,576,791 Other long-term investments 3,001 3,001 Notes receivable, net 13,373,010 12,255,251 Pledges receivable 1,663,240 Deposits with bond trustees 104,247,447 27,227,513 Other assets 760,359 559,394 Capital assets, net 1,228,555,428 1,192,317,818 Total noncurrent assets 1,427,502,078 1,305,622,739

Total assets $1,899,672,809 $ 1,733,153,921

DEFERRED OUTFLOWS OF RESOURCES Deferred amount on refunding $ 15,737,411 $ 17,248,606 Deferred outflows related to pensions 7,356,155 4,083,964 Total deferred outflows of resources $ 23,093,566 $ 21,332,570

LIABILITIES Current Liabilities Accounts payable and accrued liabilities $ 33,598,226 $ 25,627,849 Accrued payroll liabilities 20,060,084 20,275,413 Accrued interest expense 5,873,360 5,359,371 Student overpayments 122,042 109,795 Funds held in trust for others 410,353 1,313,857 Advance receipts 33,283,777 32,469,939 Compensated absences payable - current portion 1,535,013 1,685,575 Bonds, notes, capital leases and installment contracts payable - current portion 33,524,377 32,816,815 Total current liabilities 128,407,232 119,658,614

30 2016-2017 ANNUAL FINANCIAL REPORT

June 30 2017 2016

Noncurrent Liabilities Refundable federal advance - Perkins loans 14,277,391 14,210,926 Compensated absences payable 19,701,601 18,519,150 Liability for other post employment benefits 16,327,494 15,386,270 Pension liability 14,261,174 9,296,127 Bonds, notes capital leases and installment contracts payable 749,222,801 662,735,244 Other noncurrent liabilities 32,197 28,229 Total noncurrent liabilities 813,822,658 720,175,946

Total liabilities $ 942,229,890 $ 839,834,560

DEFERRED INFLOWS OF RESOURCES Deferred inflows related to pensions $ 929,772 $ 1,756,044 Total deferred inflows of resources $ 929,772 $ 1,756,044

NET POSITION Net invested in capital assets $ 550,573,383 $ 537,504,192 Restricted for Nonexpendable Scholarships and fellowships 8,453,547 8,366,072 Research 6,274,656 5,739,659 Instructional department uses 10,544,889 10,535,480 Loans 996,211 672,843 Other 272,716 272,716 Expendable Scholarships and fellowships 15,386,670 13,043,792 Research 35,722,118 28,077, 855 Public service 9,260,752 8,997,390 Instructional department uses 13,078,691 10,580,121 Loans 3,278,662 3,294,116 Capital projects 26,332,397 10,191,897 Debt service 206,535 363,562 Other 8,182,648 6,055,168 Unrestricted 291,042,838 269,201,024 Total net position $ 979,606,713 $ 912,895,887

See Accompanying Notes To Financial Statements

31 UNIVERSITY OF ARKANSAS STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION For the Year Ended June 30, 2017 With Comparative Figures for 2016

Fiscal 2017 Fiscal 2016 Total Total

REVENUES Operating Revenues Student tuition and fees (net of scholarship allowances of $69,472,370 in fiscal year 2017, and $67,806,160 in fiscal year 2016) $ 227,456,739 $ 209,808,704 Federal appropriations 11,924,289 11,138,807 County appropriations 4,144,630 3,449,528 Federal grants and contracts 43,241,546 33,598,011 State and local grants and contracts 32,460,684 25,347,076 Nongovernmental grants and contracts 39,224,018 32,821,266 Sales and services of educational departments 22,454,703 23,093,648 Auxiliary enterprises Residence Life (net of scholarship allowances of $13,789,937 in fiscal year 2017, and $14,134,806 in fiscal year 2016) 51,932,574 50,297,859 Athletics 103,488,566 98,143,466 Bookstore (net of scholarship allowances of $133,721 in fiscal year 2017, and $122,981 in fiscal year 2016) 12,278,306 12,635,880 Student Health Services 2,406,462 2,310,530 Transit and Parking 9,438,067 8,874,690 Student Organizations/Activities 52,295 92,917 Other Auxiliary Enterprises 234,664 289,940 Other operating revenues 13,271,938 10,810,896 Total operating revenues 574,009,481 522,713,218

EXPENSES Operating Expenses Salaries, wages, and benefits 487,572,321 468,599,991 Scholarships and fellowships 20,764,570 20,923,680 Supplies and other services 248,768,835 244,098,964 Depreciation 75,527,340 73,379,367 Total operating expenses 832,633,066 807,002,002

Operating loss (258,623,585) (284,288,784)

NONOPERATING REVENUES (EXPENSES) State appropriations 206,764,617 210,455,158 Gifts 72,257,662 70,317,049 Investment income (net of investment expense of $391,544 in fiscal year 2017, and $329,408 in fiscal year 2016) 11,951,939 3,078,937 Interest on capital asset - related debt (24,585,099) (24,013,039) Federal grants (nonexchange) 21,631,421 22,309,930 State and local grants (nonexchange) 27,016,602 28,055,324 Loss on disposal of assets (3,171,268) (188,529) Other nonoperating revenues 2,733,202 3,134,598 Other nonoperating expenses (564,980) (955,818) Net nonoperating revenues 314,034,096 312,193,610

Gain before other revenues and changes in net position 55,410,511 27,904,826

32 2016-2017 ANNUAL FINANCIAL REPORT

Fiscal 2017 Fiscal 2016 Total Total

OTHER REVENUES AND CHANGES IN NET POSITION Capital appropriations 350,000 1,000,000 Capital grants and gifts 20,437,460 6,036,286 Other changes 161,097 (1,016,001) Extraordinary item - pollution remediation (9,648,242) Total other revenues and changes in net position 11,300,315 6,020,285

Increase in net position 66,710,826 33,925,111

NET POSITION Net position, beginning of year 912,895,887 878,970,776

Net position, end of year $ 979,606,713 $ 912,895,887

See Accompanying Notes To Financial Statements.

33 UNIVERSITY OF ARKANSAS STATEMENT OF CASH FLOWS – DIRECT METHOD For the Year Ended June 30, 2017 With Comparative Figures for 2016

Fiscal 2017 Fiscal 2016 Total Total

CASH FLOWS FROM OPERATING ACTIVITIES Student tuition and fees $ 227,146,153 $ 210,213,171 Federal appropriations 11,900,582 10,769,584 County appropriations 4,144,629 3,449,528 Grants and contracts 114,374,801 86,996,530 Payments to suppliers (248,258,374) (239,220,014) Payments to employees (379,558,964) (364,205,785) Payments for benefits (105,426,231) (101,341,579) Payments for scholarships and fellowships (20,730,599) (20,926,486) Loans issued to students and employees (2,626,711) (2,833,076) Collections of loans to students 2,298,842 3,032,272 Collections of interest on loans to students 397,760 415,478 Auxiliary enterprise charges Residence Life 52,015,522 50,319,468 Athletics 103,323,543 97,241,435 Bookstore 12,270,412 12,822,226 Student Health Services 2,406,462 2,330,738 Transit and Parking 9,428,963 8,809,215 Student Organizations/Activities 57,722 95,476 Other Auxiliary Enterprises 426,534 381,157 Sales and services of educational departments 21,082,480 23,878,712 Other receipts 15,742,242 13,529,594 Extraordinary item - pollution remediation (7,276,379) Net cash used by operating activities (186,860,611) (204,242,356)

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES State appropriations 206,764,617 210,455,158 Gifts and grants for other than capital purposes 70,475,993 70,319,734 Federal grants (nonexchange) 21,631,421 22,309,931 State and local grants (nonexchange) 27,503,445 27,569,480 Nongovernmental grants (nonexchange) 37,573 25,326 Direct Lending, and private loan receipts 120,749,237 114,825,895 Direct Lending, and private loan payments (121,795,309) (114,807,219) Net agency fund transactions 179,020 151,016 Interfund loan (1,167,131) (1,167,131) Net cash provided by noncapital financing activities 324,378,866 329,682,190

Net cash provided by operating activities and noncapital financing activities 137,518,255 125,439,834

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Realized proceeds related to capital debt transactions 40,920,765 20,427,123 Capital appropriations 350,000 1,000,000 Capital grants and gifts received 17,653,202 1,230,625 Purchases of capital assets (100,613,126) (77,320,029) Principal paid on capital debt and leases (29,257,903) (28,114,345) Interest paid on capital debt and leases (29,481,238) (27,196,348) Payments for bond refunding and related costs (7,022,264) Net cash used by capital and related financing activities (100,428,300) (116,995,238)

34 2016-2017 ANNUAL FINANCIAL REPORT

Fiscal 2017 Fiscal 2016 Total Total

CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments 4,607,529 1,615,837 Investment income 900,790 832,866 Purchase of investments (190,000,025) (15,575) Net cash provided (used) by investing activities (184,491,706) 2,433,128

NET INCREASE (DECREASE) IN CASH (147,401,751) 10,877,724 Cash - beginning of year 287,320,123 276,442,399 Cash - end of year $ 139,918,372 $ 287,320,123

RECONCILIATION OF NET OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating loss $ (258,623,585) $ (284,288,784) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation expense 75,527,340 73,379,367 Other miscellaneous operating receipts 2,891,500 3,226,814 Extraordinary item - pollution remediation (7,276,379) Changes in assets and liabilities Receivables (net) (3,050,259) (4,143,433) Inventories 264,547 (142,436) Prepaid expenses (472,002) (610,762) Accounts payable and accrued liabilities 685,410 2,260,609 Accrued payroll liabilities (Employees) (720,568) 441,890 Accrued payroll liabilities (Benefits) 468,009 1,085,036 Student overpayments 12,247 38,572 Advance receipts 829,495 2,846,113 Refundable federal advance 66,467 25,313 Deposits 3,968 Compensated absences 1,031,887 198,795 Retiree benefits 1,807,808 1,240,329 Loans to students and employees (306,496) 200,221 Net cash used by operating activities $ (186,860,611) $ (204,242,356)

NONCASH TRANSACTIONS Donations of land, buildings, improvements, infrastructure and library holdings $ 5,509,776 $ 1,257,486 Fair market value of network infrastructure obtained through noncash swap 785,000 Book value of network infrastructure traded though noncash swap 268,418 Equipment donations 670,870 2,920,254 Payment of bond escrow directly from bond proceeds 134,624,725 Payment of bond proceeds directly into deposits with trustees 119,759,469 36,567,554 Payment of underwriter’s discounts paid directly from bond proceeds 239,546 656,831 Bond issuance costs paid directly from bond proceeds 325,708 459,533 Interest on long-term debt paid directly from deposits with trustees 159,415 188,610 Investment income paid on and deposited directly into deposits with trustees 417,694 Capital outlay paid directly from proceeds of University of Arkansas long-term debt instruments 315,658 Net loss on disposal of assets 3,576,949 412,595 Value of goods received from sponsorship agreements with vendors 3,389,056 3,430,000

See Accompanying Notes To Financial Statements 35 UNIVERSITY OF ARKANSAS

36 2016-2017 ANNUAL FINANCIAL REPORT

DISCRETELY PRESENTED COMPONENT UNITS UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC.

THE UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC.

STATEMENTS OF FINANCIAL POSITION

June 30, 2017 and 2016

2017 2016 Assets Investments $ 534,656,411 $ 486,777,148

Liabilities and Net Assets Accounts payable $ 931,047 $ 287,102

Net assets: Temporarily restricted 36,403,141 33,875,459 Permanently restricted 497,322,223 452,614,587

Total net assets 533,725,364 486,490,046

Total liabilities and net assets $ 534,656,411 $ 486,777,148

37

See notes to financial statements. 2 UNIVERSITY OF ARKANSAS

THE UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC.

STATEMENT OF ACTIVITIES

Year ended June 30, 2017

Temporarily Permanently Unrestricted Restricted Restricted Total

Revenue, gains and other support: Interest and dividends (see Note 6) $ - $ 3,597,973 $ 2,245 $ 3,600,218 Net realized and unrealized gains on investments (see Note 6) - 15,846,520 44,705,391 60,551,911 Net asset reclassifications, including released from restrictions 16,916,811 (16,916,811) - -

Total revenue, gains and other support 16,916,811 2,527,682 44,707,636 64,152,129

Program services: Research 912,263 - - 912,263 Faculty/staff support 3,100,700 - - 3,100,700 Scholarships and awards 11,397,251 - - 11,397,251 Equipment and technology 1,107,626 - - 1,107,626 Other 398,971 - - 398,971

Total program services 16,916,811 - - 16,916,811

Changes in net assets - 2,527,682 44,707,636 47,235,318

Net assets, beginning of year - 33,875,459 452,614,587 486,490,046

Net assets, end of year $ - $ 36,403,141 $ 497,322,223 $ 533,725,364

38 See notes to financial statements. 3 2016-2017 ANNUAL FINANCIAL REPORT

THE UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC.

STATEMENT OF ACTIVITIES

Year ended June 30, 2016

Temporarily Permanently Unrestricted Restricted Restricted Total

Revenue, gains and other support: Interest and dividends (see Note 6) $ - $ 3,722,126 $ 4,788 $ 3,726,914 Net realized and unrealized gains (losses) on investments (see Note 6) - 16,016,332 (31,578,041) (15,561,709) Net asset reclassifications, including released from restrictions 16,434,565 (16,434,565) - -

Total revenue, gains and other support 16,434,565 3,303,893 (31,573,253) (11,834,795)

Program services: Research 1,131,919 - - 1,131,919 Faculty/staff support 2,443,951 - - 2,443,951 Scholarships and awards 10,847,583 - - 10,847,583 Equipment and technology 1,665,250 - - 1,665,250 Other 345,862 - - 345,862

Total program services 16,434,565 - - 16,434,565

Changes in net assets - 3,303,893 (31,573,253) (28,269,360)

Net assets, beginning of year - 30,571,566 484,187,840 514,759,406

Net assets, end of year $ - $ 33,875,459 $ 452,614,587 $ 486,490,046

See notes to financial statements. 4 39 UNIVERSITY OF ARKANSAS

DISCRETELY PRESENTED COMPONENT UNITS THE RAZORBACK FOUNDATION, INC.

THE RAZORBACK FOUNDATION, INC.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

June 30, 2017

Assets Cash and cash equivalents $ 11,104,482 Contributions receivable, net 32,475,120 Investments, at fair value 18,117,224 Prepaid rent 1,350,234 Other 1,641,035 Property and equipment, net 14,973,848

Total assets $ 79,661,943

Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 655,251 Deferred compensation 17,000

Total liabilities 672,251

Net assets: Stockholder's equity in for-profit subsidiary 100 Unrestricted net assets of nonprofit parent 42,445,465

Total unrestricted net assets 42,445,565

Temporarily restricted net assets 33,168,917

Permanently restricted net assets 3,375,210

Total net assets 78,989,692

Total liabilities and net assets $ 79,661,943

40

See accompanying notes to consolidated financial statements. 2 2016-2017 ANNUAL FINANCIAL REPORT

THE RAZORBACK FOUNDATION, INC.

CONSOLIDATED STATEMENT OF ACTIVITIES

Year ended June 30, 2017

Temporarily Permanently Unrestricted Restricted Restricted Total

Revenues, gains and other support: Contributions $ 17,342,964 $ 19,998,979 112,664$ $ 37,454,607 Interest and dividends 224,934 58,551 - 283,485 Net realized and unrealized gains on investments 1,493,631 501,746 - 1,995,377 Other 102,074 - - 102,074 Net assets released from restrictions 34,454,737 (34,454,737) - -

Total revenues, gains and other support 53,618,340 (13,895,461) 112,664 39,835,543

Expenses and losses: Program services: Athletic department expenses 14,329,310 - - 14,329,310 Construction and capital projects 14,963,679 - - 14,963,679

Total program services 29,292,989 - - 29,292,989

Supporting services: Management and general 2,381,028 - - 2,381,028 Fundraising 3,153,856 - - 3,153,856 Change in cash surrender value of life insurance policies (52,792) - - (52,792) Provision for loss on uncollectible contributions 429,946 - - 429,946

Total supporting services 5,912,038 - - 5,912,038

Total expenses and losses 35,205,027 - - 35,205,027

Change in net assets 18,413,313 (13,895,461) 112,664 4,630,516

Net assets, beginning of year 24,032,252 47,064,378 3,262,546 74,359,176

Net assets, end of year $ 42,445,565 $ 33,168,917 3,375,210$ $ 78,989,692

See accompanying notes to consolidated financial statements. 3 41 UNIVERSITY OF ARKANSAS

THE RAZORBACK FOUNDATION, INC.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

June 30, 2016

Assets Cash and cash equivalents $ 14,446,156 Contributions receivable, net 28,687,543 Investments, at fair value 14,052,653 Prepaid rent 1,370,710 Other 1,340,929 Property and equipment, net 15,490,674

Total assets $ 75,388,665

Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities $ 640,298 Deferred compensation 389,191

Total liabilities 1,029,489

Net assets: Stockholder's equity in for-profit subsidiary 100 Unrestricted net assets of nonprofit parent 24,032,152

Total unrestricted net assets 24,032,252

Temporarily restricted net assets 47,064,378

Permanently restricted net assets 3,262,546

Total net assets 74,359,176

Total liabilities and net assets $ 75,388,665

42

See accompanying notes to consolidated financial statements. 2 2016-2017 ANNUAL FINANCIAL REPORT

THE RAZORBACK FOUNDATION, INC.

CONSOLIDATED STATEMENT OF ACTIVITIES

Year ended June 30, 2016

Temporarily Permanently Unrestricted Restricted Restricted Total

Revenues, gains and other support: Contributions $ 19,513,762 $ 30,027,049 354,200$ $ 49,895,011 Interest and dividends 90,048 21,200 - 111,248 Net realized and unrealized loss on investments (154,201) (11,316) - (165,517) Other 77,344 - - 77,344 Net assets released from restrictions 8,305,743 (8,305,743) - -

Total revenues, gains and other support 27,832,696 21,731,190 354,200 49,918,086

Expenses and losses: Program services: Athletic department expenses 17,336,746 - - 17,336,746 Construction and capital projects 4,729,151 - - 4,729,151

Total program services 22,065,897 - - 22,065,897

Supporting services: Management and general 2,401,340 - - 2,401,340 Fundraising 2,875,280 - - 2,875,280 Change in cash surrender value of life insurance policies 61,436 - - 61,436 Provision for loss on uncollectible contributions 206,700 - - 206,700

Total supporting services 5,544,756 - - 5,544,756

Total expenses and losses 27,610,653 - - 27,610,653

Change in net assets 222,043 21,731,190 354,200 22,307,433

Net assets, beginning of year 23,810,209 25,333,188 2,908,346 52,051,743

Net assets, end of year $ 24,032,252 $ 47,064,378 3,262,546$ $ 74,359,176

See accompanying notes to consolidated financial statements. 3 43 UNIVERSITY OF ARKANSAS

TABLE OF CONTENTS: NOTES TO THE FINANCIAL STATEMENTS

Page Page 45 NOTE 1 SUMMARY OF SIGNIFICANT 63 NOTE 8 LONG-TERM DEBT ACCOUNTING POLICIES A Schedule of Long-Term Debt A Nature of the Organization B Schedule of Changes in Long-Term Debt B Financial Reporting Entity C Future Principal and Interest Payments C Discretely Presented Component Units D Capital Leases D Basis of Presentation E Nonmonetary Capital Lease E Basis of Accounting F Pledged Revenues F Use of Estimates G Fiscal Year 2017 Long-Term Debt G Cash and Cash Equivalents Transactions H Investments H Fiscal Year 2016 Long-Term Debt I Accounts Receivable Transactions J Inventories K Capital Assets 69 NOTE 9 FAIR VALUE MEASUREMENTS L Capitalization of Interest 72 NOTE 10 NATURAL AND FUNCTIONAL M Deferred Outflows of Resources CLASSIFICATIONS OF OPERATING N Advance Receipts EXPENSES O Noncurrent Liabilities P Deferred Inflows of Resources 73 NOTE 11 OPERATING LEASES Q Pensions R Net Position 73 NOTE 12 EMPLOYEE BENEFITS S Classification of Revenues A Retirement Plans T Scholarship Discounts and Allowances B Self-Insurance Plans U Encumbrances C Life Insurance Plan V New Accounting Pronouncements W Restatement of Prior Year 82 NOTE 13 OTHER POSTEMPLOYMENT BENEFITS A Other Postemployment Benefits (OPEB) 50 NOTE 2 CASH, CASH EQUIVALENTS, B Summary of Key Actuarial Methods and AND INVESTMENTS Assumptions A Cash and Cash Equivalents C General Overview of the Valuation B Investments Methodology C External Investment Pool D Changes in Actuarial Assumptions and D Donor-Restricted Endowments Methods E Medical Coverage – Retirees not Eligible 56 NOTE 3 RECEIVABLES for Medicare A Accounts Receivable F Dental Coverage B Notes Receivable C Pledges Receivable 86 NOTE 14 POLLUTION REMEDIATION 59 NOTE 4 CAPITAL ASSETS 86 NOTE 15 RISK MANAGEMENT 61 NOTE 5 ACCOUNTS PAYABLE AND 87 NOTE 16 WALTON ART CENTER ACCRUED LIABILITIES 88 NOTE 17 OTHER ENTITIES 61 NOTE 6 SHORT-TERM BORROWING 92 NOTE 18 RELATED PARTIES 61 NOTE 7 COMPENSATED ABSENCES 92 NOTE 19 COMMITMENTS AND CONTINGENCIES 93 NOTE 20 SUBSEQUENT EVENTS

44 2016-2017 ANNUAL FINANCIAL REPORT

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1A Nature of the Organization nature and significance of their relationship with the primary The University of Arkansas, Fayetteville (“the University”) is a government are such that exclusion could cause the financial State-supported institution of higher education and the flagship of statements to be misleading or incomplete. Under the provisions the University of Arkansas System. The University was established of these statements, the University is a component unit of the at Fayetteville in 1871 under the provisions of the Morrill Act as State of Arkansas (primary government). Although the guidance both a state university and the land-grant college of Arkansas, and is written from the perspective of the primary government, its is one of thirteen campuses of the University of Arkansas System. requirements apply to the separately issued financial statements of a component unit, and therefore, the component unit should The University is granted an annual appropriation for operating apply the provisions as if it was a primary government. purposes as authorized by the Arkansas General Assembly. The Appropriation Act authorizes expenditures from funds For purposes of financial reporting, the primary government of appropriated from the General Fund of the State and authorizes the University includes the academic units in Fayetteville, the expenditures of total operating funds. An appropriation is Agricultural Experiment Station, the Cooperative Extension construed to be available for the one year period following the Service, the Arkansas Archeological Survey, the Criminal Justice legislative session in which it was approved. All appropriations Institute, the Clinton School of Public Service, and the Arkansas lapse at the end of the year unless otherwise provided. The laws Research Education Optical Network. The academic units in of the State and the policies and procedures specified by the State Fayetteville include ten colleges, schools and divisions: the Dale for state agencies and institutions are applicable to the activities of Bumpers College of Agricultural, Food, and Life Sciences, the Fay the University. Jones School of Architecture, the J. William Fulbright College of Arts and Sciences, the Sam M. Walton College of Business, the The University is tax exempt under Internal Revenue Service code College of Education and Health Professions, the College of except for tax on unrelated business income. The University had Engineering, the School of Law, the Honors College, the Graduate no significant unrelated business income for the year ended June School and International Education, and the Global Campus. 30, 2017. It is also exempt from state income taxes under Arkansas law. Accordingly, no provision for income taxes is made in the 1C Discretely Presented Component Units financial statements. Under the provisions of the GASB statements discussed above, the University has identified two organizations that should be The University is governed by a ten-member Board of Trustees reported as component units based on the nature and significance which has been accorded constitutional status for the exercise of of their relationship with the primary government. The qualifying its powers and authority by Amendment 33 to the Arkansas organizations are the University of Arkansas Fayetteville Campus Constitution. The Board of Trustees has delegated to the President Foundation, Inc., and the Razorback Foundation, Inc. Although the administrative authority for all aspects of the University’s the University does not control the timing or amount of receipts operations. Administrative authority is further delegated to the from any of these foundations, the majority of resources or income Chancellors, the Vice President for Agriculture, the Dean of the thereon, which the foundations hold and invest, is restricted to Clinton School, the Director of the Criminal Justice Institute, the the activities of the University by donors. Because these restricted Director of the Archeological Survey and the Executive Director resources held by the foundations can be used only by, or for of the Arkansas Research and Education Optical Network who the benefit of, the University, and their individual net assets are have responsibility for the programs and activities of the respective considered as having met the financial accountability criteria campus or state-wide operating division. of Statement No. 39 by management, these foundations are considered component units of the University and are discretely 1B Financial Reporting Entity presented in the University’s financial statements. GASB Statement No. 14, The Financial Reporting Entity, as amended by GASB Statements No. 39, Determining Whether The University of Arkansas Fayetteville Campus Foundation, Certain Organizations are Component Units - an amendment Inc. (“the Foundation”) is a charitable organization described of GASB Statement No. 14 and No. 61, The Financial Reporting in Section 501 (c) (3) of the Internal Revenue Code of 1986, as Entity: Omnibus - an amendment of GASB Statements No. amended, and was established by the Walton Family Charitable 14 and 34, defines the financial reporting entity as the primary Support Foundation, Inc., for the exclusive benefit of the government, organizations for which the primary government University of Arkansas, Fayetteville campus. The Foundation was is financially accountable and other organizations for which the established on March 11, 2003, and exists primarily to support

45 UNIVERSITY OF ARKANSAS

the Honors College, the Graduate School and International 1G Cash and Cash Equivalents Education and the University’s library. The Board of Trustees of Cash and cash equivalents on the Statement of Net Position the Foundation is made up of seven (7) members, including three includes all readily available sources of cash such as petty cash, (3) members who are also employees of the University. demand deposits, and cash on deposit with the State Treasurer. The Foundation distributed $16,961,198 and $16,536,124 to 1H the University during the fiscal years ended June 30, 2017 and Investments June 30, 2016, respectively, for both restricted and unrestricted Investments are stated at fair value. Changes in unrealized gain purposes. Complete financial statements for the Foundation can (loss) on the carrying value are reported as a component of be obtained from the administrative office at 700 Research Center investment income on the Statement of Revenues, Expenses and Boulevard, Fayetteville, AR 72701. Changes in Net Position.

The Razorback Foundation, Inc. (“the Razorback Foundation”) 1I Accounts Receivable was incorporated on October 17, 1980. It is a not-for-profit organization whose sole purpose is to support intercollegiate Accounts receivable are stated at estimated net realizable values; athletics at the University. that is, the gross amount of the receivable is reduced by allowances for estimated uncollectible accounts. The Razorback Foundation distributed $25,017,684 to the University, and provided equipment, facilities, improvements and 1J Inventories supplies in the amount of $547,864 during the fiscal year ended June 30, 2017. During the fiscal year ended June 30, 2016, the Inventories are valued at cost with costs generally using retail, and Razorback Foundation distributed $13,644,674 to the University, first in first out valuation methods, depending on the best practices and provided equipment, facilities, improvements and supplies in of the University department to which the inventory belongs. the amount of $2,860,668. Complete financial statements for the Razorback Foundation can be obtained from the administrative An allowance of $179,419 was computed based on estimated office at 1295 S. Razorback Road, Fayetteville, AR 72701. obsolete inventory values as of June 30, 2017 1K 1D Basis of Presentation Capital Assets The financial statements for the University have been prepared in Capital assets consisting of land, buildings, furniture, fixtures, accordance with generally accepted accounting principles equipment, improvements, infrastructure, construction in accepted in the United States of America, as prescribed by the progress, and intangible assets are stated at cost or fair market Governmental Accounting Standards Board (GASB). value at date of gift.

1E Buildings, improvements, and infrastructure additions are Basis of Accounting capitalized when the cost is $50,000 or more. Renovations For financial reporting purposes, the University is considered a to buildings, infrastructure and land improvements are also special-purpose government engaged in business-type activities. capitalized when they significantly increase the value or extend Accordingly, the financial statements of the University have been the useful life of the structure and the cost exceeds $50,000. prepared using the economic resources measurement focus and the accrual basis of accounting. Revenues are recognized in the In accordance with the University’s capitalization policy, accounting period in which they are earned and become equipment includes all furniture, fixtures and equipment with a measurable. Expenses are recognized in the period in which they unit cost of $5,000 or more and an estimated useful life of one year are incurred, if measurable, including depreciation. or more.

1F Use of Estimates Intangible assets are capitalized when the cost is $500,000 or more for purchased software, $1,000,000 or more for internally The preparation of financial statements in conformity with developed software, or $250,000 or more for easements, land use generally accepted accounting principles requires management to rights, trademarks and copyrights, and patents. make estimates and assumptions that affect the reported amounts of assets, liabilities, deferred inflows, deferred outflows, revenues Library holdings are generally defined as collections of books and and expenses at the date of the financial statements. Significant reference materials, and are valued using average prices for library estimates include separation of accrued compensated absences acquisitions. A library book is a literary composition bound into between current and non-current and depreciation expense. a separate volume and identifiable as a separate copyrighted unit. Actual results could differ from those estimates. Library reference materials are information sources other than

46 2016-2017 ANNUAL FINANCIAL REPORT

books which include journals, periodicals, microforms, audio/ bonds payable, notes payable, capital lease obligations and visual media, computer-based information, manuscripts, maps, installment contracts payable with contractual maturities greater documents, and similar items. than one year, as well as estimated amounts for accrued compensated absences, net pension obligations, refundable Livestock is under the control of the Department of Animal advances on student loans, net other postemployment benefits Sciences and is maintained primarily for research purposes obligation, and other liabilities that will not be paid within the with any other benefits derived from the operations considered next fiscal year. as incidental to the primary mission of the Department. The inventory value placed on the animals is determined by 1P Deferred Inflows of Resources department heads utilizing current market prices and breeding and research intangibles. Deferred inflows of resources represent an increase of net position that applies to future periods. These items will not be recognized Depreciation is computed using the straight-line method over the as an inflow of resources (revenue) until a future period. estimated useful lives of the assets, generally 15 to 30 years for buildings, 15 to 20 years for infrastructure and land improvements, 1Q Pensions 3 to 10 years for equipment and 10 years for library holdings. For purposes of measuring the net pension liability, deferred Amortization of intangible assets, except for those determined to outflows of resources and deferred inflows of resources related to have indefinite useful lives, is computed using the straight-line pensions, and pension expense, information about the fiduciary method over the estimated useful lives of the assets, generally 5 net position of the Arkansas Public Employees Retirement System years for purchased software; 10 years for internally developed and the Arkansas Teacher Retirement System (the respective software; 15 years for easements, land use rights, trademarks, and Systems) and additions to/deductions from the respective System’s copyrights; and 20 years for patents. fiduciary net position have been determined on the same basis as they are reported by the respective Systems. For this purpose, 1L Capitalization of Interest benefit payments (including refunds of employee contributions) The University capitalizes interest involving qualifying assets. are recognized when due and payable in accordance with the The amount of interest cost to be capitalized is interest cost on benefit terms. Investments are reported at fair value. borrowings netted against any interest earned on temporary investments of the proceeds of those borrowings from the date of 1R Net Position borrowing until the specified qualifying assets acquired with The University’s net position is classified as follows: those borrowings are ready for their intended use. The total amount of interest cost incurred and the net amount thereof that • Net invested in capital assets: Capital assets, net of accumulated has been capitalized was $30,080,021 and $3,063,756, respectively, depreciation and outstanding principal balances of debt for the fiscal year ended June 30, 2017. The total amount of interest attributable to the acquisition, construction or improvement of cost incurred and the net amount thereof that has been capitalized those assets. was $27,187,820 and $1,216,243, respectively, for the fiscal year ended June 30, 2016. • Restricted:

1M Deferred Outflows of Resources Nonexpendable: Portion subject to externally-imposed Deferred outflows of resources represent a decrease of net position stipulations that they be maintained permanently by the that applies to future periods. Thus, these items will not be University. Such assets include the University’s permanent recognized as an outflow of resources (an expense or expenditure) endowment funds. until a future period. Expendable: Portion whose use by the University is subject to 1N externally-imposed stipulations that can be fulfilled by actions Advance Receipts of the University pursuant to those stipulations or that expire by Advance receipts consist primarily of athletic ticket sales and the passage of time. There is no formal policy requiring restricted related fees and unearned student revenues for summer session net position to be used either before or after unrestricted net and fall semester. These monies were collected in advance and position that may be used for the same purpose. Responsible were not earned as of the end of each fiscal year. officials determine at the time funds are expended whether to use any unrestricted net position that may be available. 1O Noncurrent Liabilities • Unrestricted: Portion that is not subject to externally imposed Noncurrent liabilities include principal amounts of revenue stipulations. Unrestricted net position may be designated for

47 UNIVERSITY OF ARKANSAS

specific purposes by action of management or the Board of Amendments to Certain Provisions of GASB Statements 67 and 68, 1W Trustees or may otherwise be limited by contractual agreements addresses accounting and financial reporting for defined benefit with outside parties. Substantially all unrestricted net position is and defined contribution pension plans that are not administered designated for academic and research programs and initiatives through trusts or equivalent arrangements, and thus fall outside as well as capital programs. the scope of Statement No. 68. No pension plans were identified that were impacted by this statement. Statement No. 74, Financial 1S Classification of Revenues Reporting for Postemployment Benefit Plans Other Than Pension Plans, addresses financial reporting requirements for The University has classified its revenues as either operating or defined benefit or defined contribution OPEB plans administered nonoperating revenues according to the following criteria: through trusts. No trusts have been established for university OPEB plans, so this statement has no effect on current reporting Operating revenues: Operating revenues include activities or disclosures. Statement No. 77, Tax Abatement Disclosures, that have the characteristics of exchange transactions, such as establishes reporting standards for tax abatement agreements. The (1) student tuition and fees, net of scholarship discounts and university does not levy taxes nor is the recipient of taxes levied by allowances, (2) sales and services of auxiliary enterprises, net of another government, thus this statement has no effect on current scholarship discounts and allowances, and (3) most federal, state reporting and disclosures. Statement No. 78, Pensions Provided and local grants and contracts. through Certain Multiple-Employer Defined Benefit Pension Plans, establishes accounting and financial reporting standards Nonoperating revenues: Nonoperating revenues include activities for cost-sharing multiple-employer defined benefit pension plans that have the characteristics of nonexchange transactions, such as that meet the criteria provided in Statement 68, but are not a state gifts and contributions, and other revenue sources that are defined or local government plan, are used to provide defined benefit as nonoperating revenues by GASB Statement No. 34, Basic pensions to both employees of a state or local government and to Financial Statements—and Management’s Discussion and employees of employers that are not a state or local government Analysis—for State and Local Governments, such as state and have no predominant state or local government employer. appropriations and investment income. No pension plans were identified that were impacted by this statement. Statement No. 80, Blending Requirements for Certain 1T Scholarship Discounts and Allowances Component Units – an amendment of GASB Statement No. 14, Student tuition and fee revenues, and certain other revenues from establishes additional blending requirements for component students, are reported net of scholarship discounts and allowances units organized as not-for-profit corporations in which the in the Statement of Revenues, Expenses and Changes in Net primary government is the sole corporate member. Management Position. Scholarship discounts and allowances are the difference did not identify any component units organized in the manner, between the stated charge for goods and services provided by the so this statement has no effect on current reporting and University and the amount that is paid by students and/or third disclosures. Statement No. 82, Pension Issues – an amendment parties making payments on the students’ behalf. Certain of GASB Statements No. 67, No.68, and No. 73 addresses practice governmental grants and nongovernmental programs are issues raised with respect to the other pension statements. Only recorded as either operating or nonoperating revenues in the requirements related to selection of assumptions are applicable to University’s financial statements. To the extent that revenues from the year ended June 30, 2017. Management has determined that such programs are used to satisfy tuition and fees and other the requirements do not affect current reporting or disclosures. student charges, the University has recorded a scholarship The GASB issued the following statements with requirements that discount and allowance. become effective for the fiscal year ending June 30, 2018: Statement No. 75, Accounting and Financial Reporting for Postemployment 1U Encumbrances Benefits Other Than Pensions, Statement No. 81, Irrevocable Split- Encumbrances representing commitments and outstanding Interest Agreements, Statement No. 82, Pension Issues – an purchase orders for goods and services not received as of the last amendment of GASB Statements No. 67, No.68, and No. 73, day of the fiscal year are not reported as expenses or included in Statement No. 85, Omnibus, 2017 and Statement No. 86, Certain liabilities in the accompanying financial statements. Debt Extinguishment Issues . The GASB also issued Statement No. 83, Certain Asset Retirement Obligations which will become effective for the fiscal year ending June 30, 2019. Statement No. 84, 1V New Accounting Pronouncements Fiduciary Activities, will become effective for the fiscal year The GASB issued six statements with requirements that became ending June 30, 2020 and Statement No. 87, Leases will become effective for the fiscal year ended June 30, 2017. Statement No. 73, effective for the fiscal year ending June 20, 2021. Management has Accounting and Financial Reporting for Pensions and Related not yet determined the effects of these statements on the Assets That Are Not within the Scope of GASB Statement 68, and University’s financial statements.

48 2016-2017 ANNUAL FINANCIAL REPORT

Amendments to Certain Provisions of GASB Statements 67 and 68, 1W Restatement of Prior Year statements. Management has determined that revenue received addresses accounting and financial reporting for defined benefit The Statement of Revenues, Expenses and Changes in Net from students for meal plans and the related expense to the third and defined contribution pension plans that are not administered Position has been restated for the year ended June 30, 2016 to party provider should be reported. As a result, the Residence through trusts or equivalent arrangements, and thus fall outside reflect a change in how certain revenues and expenses relating Life revenue has been increased for the year ended June 30, 2016 the scope of Statement No. 68. No pension plans were identified to Residence Life are reported. Residence Life revenues were by $18,868,980. Supplies and other services expense has been that were impacted by this statement. Statement No. 74, Financial increased $1,958,017 to capture room and board revenue from increased by the same amount. Reporting for Postemployment Benefit Plans Other Than students who serve as Resident Assistants. Overall scholarship Pension Plans, addresses financial reporting requirements for program expenses, comprised of scholarship allowance netted These restatements also affect the allocation of the Scholarship defined benefit or defined contribution OPEB plans administered against revenue and scholarship expense were also restated, with allowance, and adjust the amount netted against Student tuition through trusts. No trusts have been established for university the overall scholarship allowance increased by $1,638,191 and and fees revenue, Residence Life revenue, and Bookstore revenue. OPEB plans, so this statement has no effect on current reporting scholarship and fellowship expense increased by $319,826. or disclosures. Statement No. 77, Tax Abatement Disclosures, Neither of the restatements discussed above had any effect on the establishes reporting standards for tax abatement agreements. The The University also reevaluated how general student meal plan Statement of Net Position. The Statement of Cash Flows was also university does not levy taxes nor is the recipient of taxes levied by revenue and expenses are recognized. In past years, the funds restated to reflect the changes. another government, thus this statement has no effect on current collected from students for meal plans were passed through to the reporting and disclosures. Statement No. 78, Pensions Provided University’s third party provider of campus dining services, with A summary of the restated revenues, expenses and scholarship through Certain Multiple-Employer Defined Benefit Pension no revenue or expense recognized in the University’s financial allowances is as follows: Plans, establishes accounting and financial reporting standards for cost-sharing multiple-employer defined benefit pension plans Effect of Restatement that meet the criteria provided in Statement 68, but are not a state or local government plan, are used to provide defined benefit Restatement pensions to both employees of a state or local government and to Revenue FY2016 Prior to Resident Scholarship Meal Plan Payment to FY2016 After employees of employers that are not a state or local government Restatement Assistants Program Expense Revenue Service Provider1 Restatement and have no predominant state or local government employer. No pension plans were identified that were impacted by this Student tuition and fees, gross $ 277,614,864 $ 277,614,864 statement. Statement No. 80, Blending Requirements for Certain Scholarship allowances (71,476,290) $ 3,670,130 (67,806,160) Component Units – an amendment of GASB Statement No. 14, Student tuition and fees, net $ 206,138,574 * $ 3,670,130 $ 209,808,704 ** establishes additional blending requirements for component units organized as not-for-profit corporations in which the Residence Life, gross $ 43,605,668 $ 1,958,017 $ 18,868,980 $ 64,432,665 primary government is the sole corporate member. Management Scholarship allowances (8,819,828) $ (5,314,978) (14,134,806) did not identify any component units organized in the manner, Residence Life, net $ 34,785,840 * $ 1,958,017 $ (5,314,978) $ 18,868,980 $ 50,297,859 ** so this statement has no effect on current reporting and disclosures. Statement No. 82, Pension Issues – an amendment Bookstore, gross $ 12,758,861 $ 12,758,861 of GASB Statements No. 67, No.68, and No. 73 addresses practice Scholarship allowances (129,638) $ 6,657 (122,981) issues raised with respect to the other pension statements. Only Bookstore, net $ 12,629,223 * $ 6,657 $ 12,635,880 ** requirements related to selection of assumptions are applicable to the year ended June 30, 2017. Management has determined that Overall scholarship allowance increase $ (1,638,191) the requirements do not affect current reporting or disclosures. Expense The GASB issued the following statements with requirements that Scholarships and fellowships $ (20,603,854) * $ (319,826) $ (20,923,680) ** become effective for the fiscal year ending June 30, 2018: Statement Supplies and other services (225,229,984) * $ (18,868,980) (244,098,964) ** No. 75, Accounting and Financial Reporting for Postemployment Subtotal $ 1,958,017 $ (1,958,017) $ 18,868,980 $ (18,868,980) Benefits Other Than Pensions, Statement No. 81, Irrevocable Split- Interest Agreements, Statement No. 82, Pension Issues – an * As originally reported on the 2015-2016 Annual Financial Report, "Statement of Revenues, Expenses, and Changes in Net Position" column "Fiscal 2016 Total" amendment of GASB Statements No. 67, No.68, and No. 73, ** As reported on the 2016-2017 Annual Financial Report, "Statement of Revenues, Expenses, and Changes in Net Position" column "Fiscal 2016 Total" Statement No. 85, Omnibus, 2017 and Statement No. 86, Certain 1 Included in Supplies and other services in "Statement of Revenues, Expenses, and Changes in Net Position" column "Fiscal 2016 Total" Debt Extinguishment Issues . The GASB also issued Statement No. 83, Certain Asset Retirement Obligations which will become effective for the fiscal year ending June 30, 2019. Statement No. 84, Fiduciary Activities, will become effective for the fiscal year ending June 30, 2020 and Statement No. 87, Leases will become effective for the fiscal year ending June 20, 2021. Management has not yet determined the effects of these statements on the University’s financial statements.

49 UNIVERSITY OF ARKANSAS

2. CASH, CASH EQUIVALENTS, AND INVESTMENTS

A.C.A. §19-4-805 authorizes institutions of higher learning to Administration (System Administration) does not maintain determine the depositories and nature of investments of any of the separate bank accounts. System Administration deposits are cash funds which are not currently needed for operating purposes. commingled in University of Arkansas, Fayetteville bank accounts. The carrying value of the System Administration funds 2A Cash and Cash Equivalents was $4,544,920 at June 30, 2017 and $4,212,534 at June 30, 2016. The University uses commercial banks for its cash deposits. Cash The following schedule reconciles the amount of deposits to the deposits are carried at cost. The University of Arkansas System Statement of Net Position at June 30, 2017 and June 30, 2016: Cash and Cash Equivalents Cash and Cash Equivalents June 30, 2017 June 30, 2016 Cash on deposit, carrying value $ 142,672,933 $ 287,313,407 Cash held at State Treasury 1,723,334 4,158,325 Imprest Funds, non-Bank 67,025 60,925 Less: System Administration Cash (4,544,920) (4,212,534) Totals $ 139,918,372 $ 287,320,123

Custodial Credit Risk – Deposits. Custodial credit risk is the risk pledging institution’s agent but not in the University’s name. that in the event of a bank failure, the University’s deposits may Board of Trustees policy requires that all cash deposits be either not be returned to it. Deposits are exposed to custodial risk if they insured by the FDIC or collateralized by securities held at a third are not insured by Federal Deposit Insurance Corporation (FDIC) party financial institution (preferably the Federal Reserve Bank) and are uncollateralized, collateralized with securities held by the in the University’s name. At June 30, 2017, none of the University’s pledging institution or collateralized with securities held by the bank balances were exposed to custodial credit risk.

2B Investments The following is a summary of the University’s investments held at June 30, 2017 and June 30, 2016:

Investments Fair Value at Fair Value at Investment Type June 30, 2017 June 30, 2016 Mutual Treasury MM Funds $ 14,553,326 $ 29,455,653 U.S. Treasuries 112,515,132 Federal Agencies 44,596,853 Commercial Paper 81,534,052 Mutual Bond Funds 148,839 82,941 Corporate Notes/Bonds 25,760,954 75,058 Negotiable CDs 19,454,908 External Investment Pool 157,704,772 150,005,854 Other Investments 554,403 2,501,522 Totals $ 456,823,239 $ 182,121,028

At June 30, 2017, total investments of $456,823,239 includes does not include nonnegotiable certificates of deposit of $58,987 $108,077,584 reported as deposits with bond trustees on the at June 30, 2017 and $59,193 at June 30, 2016 which are considered Statement of Net Position; at June 30, 2016, total investments of deposits for GASB Statement No. 40, Deposit and Investment $182,121,028 includes $29,449,995 reported as deposits with bond Risk Disclosures—an amendment of GASB Statement No. 3. trustees on the Statement of Net Position. The above schedule

50 2016-2017 ANNUAL FINANCIAL REPORT

Investment Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The University The University is required under GASB Statement No. 40 to does not have a formal investment policy addressing interest provide investment risk disclosures for all invested funds. rate risk for non-operating investments. In accordance with its Disclosures related to the External Investment Pool are shown Operating Funds Investment Policy, the University limits its separately. No disclosures are made for Other Investments. exposure to fair value losses arising from rising interest rates by limiting investment maturities as follows:

Investment Maturities Investment Type (Sector) Maximum Maturity U.S. Treasury 10 Years Federal Agency/Government Sponsored Enterprise 10 Years Corporate Notes 10 Years Commercial Paper 270 Days Negotiable Certificates of Deposit 5 Years

The University of Arkansas’ investments subject to GASB Statement No. 40 interest rate risk disclosure are summarized below:

Interest Rate Risk

June 30, 2017 Investment Maturities (in years) Investment Type Value Less than 1 1 to 5 6 to 10 More than 10 U.S Treasury $ 112,515,132 $ 61,394,378 $ 45,492,665 $ 5,628,089 $ 0 Federal Agencies 44,596,853 21,296,724 23,300,129 Commercial Paper 81,534,052 81,534,052 Corporate Notes/Bonds 25,760,954 6,127,067 18,552,204 1,081,683 Negotiable CDs 19,454,908 11,993,040 7,461,868 Totals $ 283,861,899 $ 182,345,261 $ 94,806,866 $ 6,709,772 $ 0

Credit risk is the risk that an issuer or other counterparty to an circumstances then prevailing, which an institutional investor of investment will not fulfill its obligations. The University does ordinary prudence, discretion, and intelligence exercises in the not have a formal investment policy addressing credit risk for management of large investments entrusted to it, not in regard non-operating investments. In accordance with its Operating to speculation, considering probable safety of capital as well as Funds Investment Policy, the University applies the “prudent probable income.” The University manages its exposure to fair investor” standard which states that, “In making investments, value losses arising from credit risks as follows: the fiduciaries shall exercise the judgement and care, under the Investment Ratings

Investment Type (Sector) Minimum Ratings Requirement U.S. Treasury N/A Federal Agency/Government Sponsored Enterprise Highest short-term or one of the two highest long-term rating categories (A-1/P-1,AA-/Aa3 or equivalent) Corporate Notes Highest short-term or one of the three highest long-term rating categories (A-1/P-1, A-/A3 or equivalent) Commercial Paper Highest short-term rating category (A-1/P-1, or equivalent) Negotiable Certificates of Deposit Highest short-term or one of the three highest long-term rating categories (A-1/P-1, A-/A3 or equivalent) Money Market Funds AAAm Fixed-Income Mutual Funds & ETFs N/A

51 UNIVERSITY OF ARKANSAS

The University of Arkansas’ investments subject to GASB Statement No. 40 credit risk disclosure are summarized below:

Credit Risk June 30, 2017

Investment Type Value Aaa-Aa3 A1-A3 Not Rated Mutual Treasury MM Funds $ 14,553,326 $ 14,547,644 $ 5,682 U.S. Treasury 112,515,132 112,515,132 Federal Agencies 44,596,853 44,596,853 Commercial Paper 81,534,052 81,534,052 Mutual Bond Funds 148,839 148,839 Corporate Notes/Bonds 25,760,954 7,745,270 $ 18,015,684 Negotiable CDs 19,454,908 16,555,940 2,898,968 Totals $ 298,564,064 $ 277,494,891 $ 20,914,652 $ 154,521

The ratings are assigned by the Moody’s investment ratings service.

2C External Investment Pool-University of In January 2010, the University of Arkansas Investment Arkansas System Committee approved an agreement which delegated authority In 1997, the University of Arkansas and the University of to the UA Foundation to manage University funds held in the Arkansas Foundation established an external investment Pool. The agreement included delegation of all responsibility pool. This arrangement commingles (pools) the moneys of for all investment guidelines and performance objectives for more than one legally separate entity and invests, on the accounts within the Pool. The agreement also delegated to the participants’ behalf, in an investment portfolio. Subsequent to UA Foundation authority for further delegation of portfolio its establishment, other entities have joined including the Walton implementation decisions to one or more investment managers. Arts Foundation in 1998, the Fayetteville Campus Foundation In January 2010, the UA Foundation entered into such an in 2003, the University of Arkansas Community College at agreement with Cambridge Associates, LLC. Hope Foundation in 2007, the Razorback Foundation in 2012, and the University of Arkansas Technology Development The implementation of GASB Statement No. 72, Fair Value Foundation in 2016. Measurement and Application, during the fiscal year ended June 30, 2016, caused management to reassess the University of The external investment pool is exempt from registration with Arkansas Board of Trustees’ sponsorship role. Based on the UA the Securities and Exchange Commission. The University of Foundation’s fiduciary responsibilities outlined in the January Arkansas Board of Trustees and the University of Arkansas 2010 agreement, management concluded that the UA Foundation Foundation Board of Trustees were the sponsors of this acts as sole sponsor of this investment pool. investment pool and were responsible for operation and oversight for the pool. All participation in this investment pool is The Pool consists of the Total Return Pool and the Intermediate voluntary. Pool. UAF’s ownership of each of these individual pools and of the total external pool was as follows:

External Investment Pool

UAF UAF CES Fiscal Year Total Return Pool Intermediate Pool Intermediate Pool Total Pool June 30, 2017 5.05% 19.71% 3.50% 8.39% June 30, 2016 5.07% 21.36% 3.79% 8.87%

52 2016-2017 ANNUAL FINANCIAL REPORT

University of Arkansas External Investment Pool Statement of Invested Assets Fair Value* Fair Value* Investment Type June 30, 2017 June 30, 2016 Equities $ 529,355,249 $ 475,819,049 Common Stock 243,790,593 200,276,780 Funds - Common Stock 259,232,645 237,495,225 Stapled Securities 1,168,734 Rights/Warrants 78,107 4,478 Funds - Equities ETF 26,253,904 36,873,832

Fixed Income $ 435,256,959 $ 378,383,254 Government Bonds 109,856,684 88,091,606 Funds - Government Bonds 29,457,668 Corporate Bonds 34,926,706 41,665,211 Funds - Corporate Bond 15,291,094 Government Mortgage Backed Securities 25,289,255 6,219,773 Commercial Mortgage-Backed 2,778,176 522,965 Asset Backed Securities 13,067,624 6,274,704 Non-Government Backed C.M.O.s 1 1 Funds - Other Fixed Income 47,034,191 Funds - Fixed Income ETF 249,338,513 143,826,041

Venture Capital and Partnerships $ 635,535,299 $ 577,606,549 Partnerships 635,535,299 577,606,549

Commodities $ 0 $ 0 Funds – Commodity Linked

Hedge Fund $ 243,195,051 $ 203,461,577 Hedge Equity 207,324,244 174,593,501 Hedge Event Driven 35,870,807 28,868,076

All Other $ 529,239 $ 426,686 Recoverable Taxes 529,239 426,686

Cash/Cash Equivalents $ 35,439,947 $ 55,684,307 Funds - Short Term Investment 35,244,484 37,744,671 Cash (3,783,549) 14,128,439 Invested Cash 3,979,012 3,811,197

Totals $ 1,879,311,744 $ 1,691,381,422 *Includes accrued income

53 UNIVERSITY OF ARKANSAS

Credit Risk – S&P Quality Ratings

June 30, 2017 Credit Risk US GOVN. Investment Type & Fair Value* AAA AA A BBB BB NR GUAR Asset Backed Securities $ 9,343,000 $ 3,710,161 Commercial Mortgage-Backed 1,019,254 1,752,024 Corporate Bonds 387,669 $ 3,887,845 $ 17,095,920 $ 13,185,837 90,854 Funds - Fixed Income ETF 249,338,513 Funds - Short Term Investment 35,224,573 Government Bonds $ 5,465 $ 109,496,036 Govn Mortgage Backed Securities 25,213,043 Hedge Event Driven 35,870,807 Non-Govn Backed C.M.O.s 1 Totals $ 10,749,923 $ 3,887,845 $ 17,095,920 $ 13,185,837 $ 5,465 $ 325,986,933 $ 134,709,079 *Does not include accrued income

Years to Maturity June 30, 2017 Investment Maturities (in years) Maturity Not Investment Type Fair Value* Less than 1 1+ to 6 6+ to 10 10+ Determined Asset Backed Securities $ 13,053,161 $ 13,053,161 Commercial Mortgage-Backed 2,771,278 $ 2,771,278 Corporate Bonds 34,648,125 $ 163,585 17,239,473 $ 11,462,252 5,782,815 Funds - Fixed Income ETF 249,338,513 $ 249,338,513 Funds - Short Term Investment 35,224,573 35,224,573 Government Bonds 109,501,501 15,188,477 91,499,111 2,813,913 Govn Mortgage Backed Securities 25,213,043 25,213,043 Hedge Event Driven 35,870,807 35,870,807 Non-Government Backed C.M.O.’s 1 1 Totals $ 505,621,002 $ 163,585 $ 45,481,111 $ 102,961,363 $ 36,581,049 $ 320,433,894 *Does not include accrued income

54 2016-2017 ANNUAL FINANCIAL REPORT

Interest Rate Sensitivity - Effective Duration

June 30, 2017

Effective Investment Type Fair Value* Duration Asset Backed Securities $ 13,053,161 1.80 Commercial Mortgage-Backed 2,771,278 1.49 Corporate Bonds 34,557,271 6.51 Corporate Bonds 90,854 N/A Funds - Fixed Income ETF 249,338,513 N/A Funds - Short Term Investment 35,224,573 N/A Government Bonds 109,501,501 8.18 Govn Mortgage Backed Securities 25,213,043 4.37 Hedge Event Driven 35,870,807 N/A Non-Govn Backed C.M.O.s 1 N/A Total $ 505,621,002 *Does not include accrued income

Foreign Currency Risk By Investment Type

June 30, 2017 Currency By Investment and Fair Value* Cash Equity Other Assets AUSTRALIAN DOLLAR $ 4,278,385 $ 5,335,408 CANADIAN DOLLAR (1,021,434) 1,339,906 $ 25,822 SWISS FRANC 23,041 7,692,780 147,246 HK OFFSHORE CHINESE YUAN RENMINBI (888,450) CHINESE YUAN RENMINBI (3,434,686) DANISH KRONE (43) 2,596,919 8,289 EURO (3,744,527) 41,768,950 281,094 BRITISH POUND STERLING 5,390,749 14,119,604 HONG KONG DOLLAR 63,817 8,953,151 NEW ISRAELI SHEKEL 612 594,564 JAPANESE YEN 3,486,581 24,348,743 52,065 SOUTH KOREAN WON 2,628,988 NORWEGIAN KRONE 401,941 1,078,645 NEW ZEALAND DOLLAR 5 515,523 POLISH ZLOTY 1,787 SWEDISH KRONA 1,656,360 4,675,519 SINGAPORE DOLLAR 554,732 1,148,698 Totals $ 6,768,870 $ 116,797,398 $ 514,516 *Includes accrued income

55 UNIVERSITY OF ARKANSAS

2D Donor-restricted Endowments Arkansas Code Annotated §28-69-804 states “Subject to the the assets in an endowment fund are donor-restricted assets until intent of a donor expressed in the gift instrument, an institution appropriated for expenditure by the institution.” may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the The computation of net appreciation on investments of donor- uses, benefits, purposes, and duration for which the endowment restricted endowments that are available for authorization for fund is established. Unless stated otherwise in the gift instrument, expenditure is as follows:

Endowment Available for Expenditure

June 30, 2017 June 30, 2016 Endowment Investments $ 78,661,949 $ 70,576,791 Operating Investment Sweep 125,464 597,161 Amounts Receivable 823 2 3B Funds treated as Endowment (13,892,057) (12,605,613) Non-expendable portion of Endowment (25,393,403) (25,296,519) Totals $ 39,502,776 $ 33,271,822

Note: The amounts shown as available for expenditure and the funds. The University’s spending policy is to expend 4.4% of the funds treated as endowments are reported as expendable net balance of the endowment averaged over the previous twelve position on the Statement of Net Position. quarters. For FY2017, the total takedown percentage of 5.293% includes .6% for administrative costs plus other external fees. For The University uses a total return policy for investing endowed FY2016, the total takedown percentage was 5.306%

3. RECEIVABLES

3A Accounts Receivable Accounts receivable represent charges due the University with federal, state, and private agencies. from various student fees, room and board, student fines, and other charges. Accounts receivable also consist A summary of accounts receivable balances at June 30, 2017, of unreimbursed expenses relating to research contracts are as follows:

Accounts Receivable

June 30, 2017

Type Gross Allowance Net Student Accounts Receivable $ 15,483,736 $ (5,114,812) $ 10,368,924 Non-student Accounts Receivable 17,195,795 (217,505) 16,978,290 Unreimbursed Research Contract Expenses 14,773,608 14,773,608 Totals $ 47,453,139 $ (5,332,317) $ 42,120,822

56 2016-2017 ANNUAL FINANCIAL REPORT

A summary of accounts receivable balances at June 30, 2016, are as follows:

Accounts Receivable

June 30, 2016

Type Gross Allowance Net Student Accounts Receivable $ 14,600,428 $ (4,624,127) $ 9,976,301 Non-student Accounts Receivable 18,189,730 (172,261) 18,017,469 Unreimbursed Research Contract Expenses 11,212,209 11,212,209 Totals $ 44,002,367 $ (4,796,388) $ 39,205,979

3B Notes Receivable Notes receivable consist of resources made available for financial and June 30, 2016, respectively. Of total campus-based loans loans to students of the University, and financing agreements processed, the majority were from Perkins funds provided by the between the University and certain organizations for the purpose federal government. The federal student loan default rate based of facilities construction, and an interfund loan between the on the U.S. Department of Education Cohort default rate was University and the University of Arkansas System eVersity to help 15.81% and 14.04%, for the years ended June 30, 2017 and June 30, fund its initial startup. 2016, respectively. Notes receivable totaling $33,213 and $17,464 were written off during the fiscal years ended June 30, 2017 and The resources for loans to students include federal funds, funds June 30, 2016, respectively. from other external sources, and University funds. New student loans totaling $2,343,920 and $1,956,028 were issued under A summary of notes receivable balances at June 30, 2017, are as the Student Loan Programs for the years ended June 30, 2017 follows: Notes Receivable

June 30, 2017

Type Gross Balance Allowance Net Balance Current Portion Student loans $ 15,731,168 $ (840,156) $ 14,891,012 $ 3,932,792 Loans to Greek organizations 232,259 232,259 151,731 Lease termination 36,552 (36,552) Interfund loan 2,334,262 2,334,262 Totals $ 18,334,241 $ (876,708) $ 17,457,533 $ 4,084,523 with federal, state, and private agencies. A summary of notes receivable balances at June 30, 2016, are as follows:

A summary of accounts receivable balances at June 30, 2017, Notes Receivable are as follows: June 30, 2016

Type Gross Balance Allowance Net Balance Current Portion Student loans $ 15,320,451 $ (819,273) $ 14,501,178 $ 3,676,908 Loans to Greek organizations 377,104 377,104 144,845 Lease termination 46,984 46,984 15,393 Interfund loan 1,167,131 1,167,131 Totals $ 16,911,670 $ (819,273) $ 16,092,397 $ 3,837,146

57 UNIVERSITY OF ARKANSAS

3C Pledges Receivable Pledges receivable consists of gifts pledged for capital projects, A summary of pledges receivable balances at June 30, 2017, are as endowments and other purposes. follows: Pledges Receivable

June 30, 2017

Category Total Gift Received as of Pledge Outstanding Current Pledge June 30, 2017 as of June 30, 2017 Portion Capital projects $ 3,427,552 $ 1,070,219 $ 2,357,333 $ 754,093 Endowments 960 140 820 820 Other 100,120 20,020 80,100 20,100 Totals $ 3,528,632 $ 1,090,379 $ 2,438,253 $ 775,013

A summary of pledges receivable balances at June 30, 2016, are as follows:

Pledges Receivable

June 30, 2016

Category Total Gift Received as of Pledge Outstanding Current Pledge June 30, 2016 as of June 30, 2016 Portion Capital projects $ 7,000,000 $ 2,491,922 $ 4,508,078 $ 4,508,078 Totals $ 7,000,000 $ 2,491,922 $ 4,508,078 $ 4,508,078

58 2016-2017 ANNUAL FINANCIAL REPORT

4. CAPITAL ASSETS

The following presents a summary of changes in capital assets for the year ended June 30, 2017:

Capital Assets

June 30, 2017

Beginning Ending Balance Additions Retirements Adjustments Balance Nondepreciable Capital Assets Land $ 57,256,870 $ 2,695,947 $ 59,952,817 Construction in progress 46,588,144 85,953,098 $ (49,023,261) 83,517,981 Other assets 2,191,472 16,848 2,208,320 Total Nondepreciable Capital Assets 106,036,486 88,665,893 (49,023,261) 145,679,118

Depreciable Capital Assets Buildings 1,564,243,119 1,879,905 $ (10,507,948) 37,145,183 1,592,760,259 Equipment 241,551,426 17,001,307 (9,390,387) 119,362 249,281,708 Improvements 36,001,529 1,163,918 8,211,634 45,377,081 Infrastructure 111,438,863 860,000 (383,455) 3,666,721 115,582,129 Intangible assets 79,476,189 (2,052,575) 77,423,614 Library holdings 84,428,830 6,159,479 (67,049) 90,521,260 Total Depreciable Capital Assets 2,117,139,956 27,064,609 (22,401,414) 49,142,900 2,170,946,051

Less Accumulated Depreciation Buildings (612,949,058) (49,954,527) 6,636,856 (656,266,729) Equipment (197,524,167) (16,199,135) 9,417,208 29,572 (204,276,522) Improvements (19,079,586) (1,889,285) (20,968,871) Infrastructure (48,733,716) (4,575,667) 115,036 (53,194,347) Intangible assets (78,858,080) (60,799) 2,052,575 (76,866,304) Library holdings (73,714,017) (2,847,927) 64,976 (76,496,968) Total Accumulated Depreciation (1,030,858,624) (75,527,340) 18,286,651 29,572 (1,088,069,741)

Total Depreciable Capital Assets 1,086,281,332 (48,462,731) (4,114,763) 49,172,472 1,082,876,310 Total Capital Assets, Net of Accumulated Depreciation $ 1,192,317,818 $ 40,203,162 $ (4,114,763) $ 149,211 $ 1,228,555,428

Note: Land of $415,652 and building of $4,824,755 related to the joint endeavor between the University of Arkansas and the City of Fayetteville are included in the above amounts. See Note 16.

59 UNIVERSITY OF ARKANSAS

The following presents a summary of changes in capital assets for the year ended June 30, 2016:

Capital Assets

June 30, 2016

Beginning Ending Balance Additions Retirements Adjustments Balance Nondepreciable Capital Assets Land $ 54,960,319 $ 2,296,551 $ 57,256,870 Construction in progress 140,102,845 56,474,057 $ (149,988,758) 46,588,144 Other assets 2,725,667 (534,195) 2,191,472 Total Nondepreciable Capital Assets 197,788,831 58,770,608 (150,522,953) 106,036,486

Depreciable Capital Assets Buildings 1,416,465,095 1,255,338 $ (718,592) 147,241,278 1,564,243,119 Equipment 231,162,696 17,376,858 (7,135,975) 147,847 241,551,426 Improvements 32,919,185 824,207 2,258,137 36,001,529 Infrastructure 110,858,378 580,485 111,438,863 Intangible assets 79,476,189 79,476,189 Library holdings 82,887,436 1,581,590 (40,196) 84,428,830 Total Depreciable Capital Assets 1,953,768,979 21,037,993 (7,894,763) 150,227,747 2,117,139,956

Less Accumulated Depreciation Buildings (563,965,209) (49,302,162) 318,313 (612,949,058) Equipment (189,004,219) (15,737,991) 7,256,750 (38,707) (197,524,167) Improvements (17,643,165) (1,436,421) (19,079,586) Infrastructure (44,353,818) (4,379,898) (48,733,716) Intangible assets (78,583,741) (188,209) (86,130) (78,858,080) Library holdings (71,418,285) (2,334,686) 38,954 (73,714,017) Total Accumulated Depreciation (964,968,437) (73,379,367) 7,614,017 (124,837) (1,030,858,624)

Total Depreciable Capital Assets 988,800,542 (52,341,374) (280,746) 150,102,910 1,086,281,332 Total Capital Assets, Net of Accumulated Depreciation $ 1,186,589,373 $ 6,429,234 $ (280,746) $ (420,043) $ 1,192,317,818

Note: Land of $415,652 and building of $4,824,755 related to the joint endeavor between the University of Arkansas and the City of Fayetteville are included in the above amounts. See Note 16.

Museum Collection The financial statements do not include the University’s museum physical anthropology, ethnography, geology, zoology, and collection which consists of numerous historical relics, artifacts, history. The value of these collections have not been established displays, and memorabilia. Major collections are in archeology, by professionals in their respective fields.

60 2016-2017 ANNUAL FINANCIAL REPORT

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable balances are summarized as follows:

Accounts Payable Type June 30, 2017 June 30, 2016 Payable to Outside Vendors $ 30,161,870 $ 22,337,594 Retainage on Construction Contracts 3,431,114 3,267,146 Property Taxes Payable 5,242 23,109 Totals $ 33,598,226 $ 25,627,849

Accrued payroll liabilities are summarized as follows:

Accrued Payroll Liabilities Type June 30, 2017 June 30, 2016 Net Salaries and Wages Payable $ 2,186,177 $ 3,544,350 Employee Withholdings Payable 9,612,322 9,286,148 Employer Payroll Taxes and Benefits Matching Payable 8,261,585 7,444,915 Totals $ 20,060,084 $ 20,275,413

6. SHORT-TERM BORROWING

GASB Statement No. 38, Certain Financial Statement Note debt is outstanding at year-end. The University had no short-term Disclosures, states that governments should provide details about debt activity during the fiscal year, nor is there any outstanding short-term debt activity during the year, even if no short-term balance of short-term debt as of June 30, 2017.

7. COMPENSATED ABSENCES

Employees accrue and accumulate annual and sick leave in at a variable rate (from 8 to 15 hours per month) dependent upon accordance with policies established by the Board of Trustees. number of years of employment in state government. Under the Full time, non-classified, University employees accrue annual University’s policy, an employee may carry accrued leave forward leave at the rate of fifteen hours per month, classified employees from one calendar year to another, up to a maximum of 240 hours

61 UNIVERSITY OF ARKANSAS

(30 working days). Employees who terminate their employment sixty (60) days, but less than seventy (70) days of sick leave upon are entitled to payment for all accumulated annual leave, up to the retirement shall receive an amount equal to sixty percent (60%) of maximum allowed. the number of accrued sick leave days (rounded to the nearest day) times 60 percent (60%) of the employee’s daily salary. A classified Classified employees who meet the conditions to be considered employee who has accumulated at least seventy (70) days, but less retirees at the time of termination of employment are entitled to a than eighty (80) days of sick leave upon retirement shall receive an partial payment of accumulated, unused sick leave in accordance amount equal to seventy percent (70%) of the number of accrued with the provisions of Arkansas Code Annotated (ACA) §21-4- sick leave days (rounded to the nearest day) times seventy percent 501. (70%) of the employee’s daily salary. A classified employee that has accumulated at least eighty (80) or more days of sick leave upon The University recognizes a liability for compensated absences. retirement shall receive an amount equal to eighty percent (80%) The liability is based on the value of unused employee vacation of the number of accrued sick leave days (rounded to the nearest and compensatory time as of year-end, including the associated day) times eighty percent (80%) of the employee’s daily salary. In benefits: contributions to Retirement, Social Security, Medicare, no event shall an employee receive a sick leave incentive amount Workers’ Compensation, and Unemployment Insurance. that exceeds $7,500. The liability also includes amounts paid to eligible classified employees for unused sick leave. A classified employee who has The University recognizes the estimated amount of the liability accumulated at least fifty (50) days, but less than sixty (60) days of that will be incurred within the next year as a current liability and sick leave upon retirement shall receive an amount equal to fifty the balance as noncurrent. percent (50%) of the number of accrued sick leave days (rounded to the nearest day) times fifty percent (50%) of the employee’s Changes in compensated absences for the year ended June 30, daily salary. A classified employee who has accumulated at least 2017 are as follows: Compensated Absences

June 30, 2017

Beginning Ending Current Balance Additions Reductions Balance Portion Compensated Absences $ 20,204,725 $ 1,268,717 $ 236,828 $ 21,236,614 $ 1,535,013

Changes in compensated absences for the year ended June 30, 2016 are as follows:

Compensated Absences

June 30, 2016

Beginning Ending Current Balance Additions Reductions Balance Portion Compensated Absences $ 20,005,930 $ 492,641 $ 293,846 $ 20,204,725 $ 1,685,575

62 2016-2017 ANNUAL FINANCIAL REPORT

8. LONG-TERM DEBT

The retirement of some bond issues is secured by a specific pledge provisions of the debt instruments; accordingly, segment of certain gross revenues, surplus revenues and specific fees. reporting is not required for financial reporting purposes. Separate accounting is not required for these facilities under the

8A Schedule of Long-Term Debt A summary of long-term debt at June 30, 2017, is as follows:

Long-Term Debt

June 30, 2017

Amount Debt Maturities & Date of Date of Rate of Authorized Outstanding at Refinanced Amounts Issue Maturity Interest & Issued June 30, 2017 June 30, 2017 12/15/2009 11/01/2039 3.00% to 5.00% $ 52,430,000 $ 45,980,000 $ 6,450,000 06/30/2010 09/15/2020 1.00% to 4.82% 23,965,000 9,980,000 13,985,000 06/29/2011 11/01/2040 2.00% to 5.00% 101,225,000 90,530,000 10,695,000 06/29/2011 11/01/2022 3.00% to 5.00% 8,895,000 7,790,000 1,105,000 06/29/2011 09/15/2021 2.00% to 4.895% 23,575,000 23,575,000 04/17/2012 11/01/2032 1.00% to 5.00% 56,965,000 48,385,000 8,580,000 09/13/2012 11/01/2042 2.00% to 5.00% 60,540,000 56,915,000 3,625,000 05/16/2013 11/01/2042 1.00% to 5.00% 54,450,000 49,930,000 4,520,000 05/16/2013 09/15/2027 1.00% to 5.00% 30,355,000 24,435,000 5,920,000 06/30/2014 11/01/2043 2.00% to 5.00% 24,730,000 23,645,000 1,085,000 06/30/2014 11/01/2043 0.85% to 4.50% 5,020,000 4,765,000 255,000 02/12/2015 11/01/2036 2.00% to 5.00% 70,360,000 64,715,000 5,645,000 02/12/2015 09/15/2022 2.00% to 5.00% 14,180,000 13,200,000 980,000 08/27/2015 11/01/2045 1.02% to 4.40% 7,510,000 7,365,000 145,000 08/27/2015 11/01/2021 2.00% to 5.00% 36,675,000 25,995,000 10,680,000 04/05/2016 11/01/2046 3.00% to 5.00% 93,590,000 92,030,000 1,560,000 04/05/2016 11/01/2028 0.87% to 3.25% 15,280,000 14,255,000 1,025,000 10/19/2016 09/15/2036 5.00% 24,845,000 24,845,000 10/19/2016 09/15/2034 1.192% to 3.388% 90,000,000 90,000,000 11/30/1991 05/01/2022 5.50% 3,000,000 886,992 2,113,008 11/29/1995 11/01/2034 2.00% to 5.00% 2,071,140 697,053 1,374,087 07/31/2015 07/01/2023 1.97% 4,935,766 4,352,431 583,335 07/31/2015 11/19/2023 1.99% 16,969,012 13,178,283 3,790,729 07/31/2015 01/08/2023 1.95% 6,844,590 5,329,324 1,515,266 Various Various Various 863,794 342,502 521,292 Net unamortized premium 76,730,036 63,200,593 13,529,443 Totals $ 906,004,338 $ 782,747,178 $ 123,257,160

63 UNIVERSITY OF ARKANSAS

A summary of long-term debt at June 30, 2016, is as follows: Long-Term Debt

June 30, 2016

Amount Debt Maturities and Date of Date of Rate of Authorized Outstanding at Refinanced Amounts Issue Maturity Interest & Issued June 30, 2016 June 30, 2016 12/15/2009 11/01/2039 3.00% to 5.00% 52,430,000 47,140,000 5,290,000 06/30/2010 09/15/2020 1.00% to 4.82% 23,965,000 12,210,000 11,755,000 06/29/2011 11/01/2040 2.00% to 5.00% 101,225,000 92,625,000 8,600,000 06/29/2011 11/01/2022 3.00% to 5.00% 8,895,000 7,790,000 1,105,000 06/29/2011 09/15/2021 2.00% to 4.895% 23,575,000 2,805,000 20,770,000 04/17/2012 11/01/2032 1.00% to 5.00% 56,965,000 49,435,000 7,530,000 09/13/2012 11/01/2042 2.00% to 5.00% 60,540,000 58,045,000 2,495,000 05/16/2013 11/01/2042 1.00% to 5.00% 54,450,000 51,065,000 3,385,000 05/16/2013 09/15/2027 1.00% to 5.00% 30,355,000 26,125,000 4,230,000 06/30/2014 11/01/2043 2.00% to 5.00% 24,730,000 24,125,000 605,000 06/30/2014 11/01/2043 0.85% to 4.50% 5,020,000 4,875,000 145,000 02/12/2015 11/01/2036 2.00% to 5.00% 70,360,000 67,590,000 2,770,000 02/12/2015 09/15/2022 2.00% to 5.00% 14,180,000 13,705,000 475,000 08/27/2015 11/01/2045 1.02% to 4.40% 7,510,000 7,510,000 08/27/2015 11/01/2021 2.00% to 5.00% 36,675,000 31,400,000 5,275,000 04/05/2016 11/01/2046 3.00% to 5.00% 93,590,000 93,590,000 04/05/2016 11/01/2028 0.87% to 3.25% 15,280,000 15,280,000 11/30/1991 05/01/2022 5.50% 3,000,000 1,037,299 1,962,701 11/29/1995 11/01/2034 2.00% to 5.00% 2,071,140 717,559 1,353,581 07/31/2015 07/01/2023 1.97% 4,935,766 4,935,766 07/31/2015 11/19/2023 1.99% 16,969,012 15,058,996 1,910,016 07/31/2015 01/08/2023 1.95% 6,844,590 6,196,829 647,761 Various Various Various 564,083 285,805 278,278 Net unamortized premium 71,576,021 62,004,805 9,571,216 Totals $ 785,705,612 $ 695,552,059 $ 90,153,553

64 2016-2017 ANNUAL FINANCIAL REPORT

8B Schedule of Changes in Long-Term Debt Changes in long-term debt for the year ended June 30, 2017, are as follows: Changes in Long-Term Debt

June 30, 2017 Beginning Ending Current Balance Additions Reductions Balance Portion Bonds $ 605,315,000 $ 114,845,000 $ 25,400,000 $ 694,760,000 $ 25,705,000 Net unamortized premium 62,004,805 5,154,015 3,958,227 63,200,593 3,954,973 Notes 1,754,858 170,813 1,584,045 179,811 Leases 285,805 248,207 191,510 342,502 220,657 Installment contracts 26,191,591 3,331,553 22,860,038 3,463,936 Totals $ 695,552,059 $ 120,247,222 $ 33,052,103 $ 782,747,178 $ 33,524,377 Note: Amounts shown in “Ending Balance” include both current and long-term portions.

Changes in long-term debt for the year ended June 30, 2016, are as follows: Changes In Long-Term Debt

June 30, 2016 Beginning Ending Current Balance Additions Reductions Balance Portion Bonds $ 610,180,000 $ 153,055,000 $ 157,920,000 $ 605,315,000 $ 25,400,000 Net unamortized premium 46,411,620 18,794,110 3,200,925 62,004,805 3,777,006 Notes 1,917,253 162,395 1,754,858 170,813 Leases 421,616 135,811 285,805 137,443 Installment contracts 28,681,770 28,749,368 31,239,547 26,191,591 3,331,553 Totals $ 687,612,259 $ 200,598,478 $ 192,658,678 $ 695,552,059 $ 32,816,815 Note: Amounts shown in “Ending Balance” include both current and long-term portions.

8C Future Principal and Interest Payments Total long-term principal and interest payments are as follows:

Future Long-Term Payments

Year(s) Principal Interest Total 2018 $ 29,569,404 $ 30,403,854 $ 59,973,258 2019 32,995,078 29,325,355 62,320,433 2020 34,281,402 28,061,548 62,342,950 2021 34,940,456 26,656,710 61,597,166 2022 33,610,465 25,234,053 58,844,518 2023-2027 148,647,917 106,974,559 255,622,476 2028-2032 147,410,973 75,940,589 223,351,562 2033-2037 160,705,890 42,445,764 203,151,654 2038-2042 79,670,000 12,127,731 91,797,731 2043-2047 17,715,000 1,320,240 19,035,240 Total Future Payments $ 719,546,585 $ 378,490,403 $ 1,098,036,988 Plus Net Unamortized Premiums 63,200,593 Total Outstanding Debt $ 782,747,178

65 UNIVERSITY OF ARKANSAS

8D Capital Leases The University has acquired certain equipment under various resulting from depreciation of assets recorded under capital leases lease-purchase contracts. The cost of equipment held under is included with depreciation expense as reflected in the summary capital leases totaled $838,112 at June 30, 2017. The expense of changes in capital assets. See Note 4.

Equipment Leases

Accumulated Asset Balance Asset Balance Type of Equipment Cost Depreciation June 30, 2017 June 30, 2016 Farm Equipment $ 33,683 $ 10,105 $ 23,578 $ 26,946 Mainframe Computer 488,771 293,263 195,508 293,263 Research Equipment 254,095 72,599 181,496 Research Equipment 61,563 8,795 52,768 Totals $ 838,112 $ 384,762 $ 453,350 $ 320,209

Total Minimum Lease Payments $ 352,668 $ 298,749 Less: Amount Representing Interest 10,166 12,944 Total Present Value of Net Minimum Lease Payments $ 342,502 $ 285,805

8E Nonmonetary Capital Lease On June 7 2017, the Arkansas Research and Education Optical equitable trade of similarly valued surplus dark fiber and both Network (AREON) entered into an agreement with E. Ritter parties agreed that neither party shall pay a fee and that the initial Communications Holdings, Inc. (Ritter), for a cooperative term of this agreement shall be 20 years. As a result, this is a exchange of facilities consisting of unused surplus dark fiber nonmonetary transaction. The fair market value of the dark fiber rather than the separate and distinct construction, ownership, received from Ritter was determined to be $785,000. The book and operating of two fiber optic systems. This agreement value of the dark fiber given by AREON was $268,418 thereby supersedes a previous capitalized long-term lease agreement resulting in a noncash gain on disposal of assets of $516,582. between AREON and Ritter. This exchange is considered an

8F Pledged Revenues For purposes of extinguishing the University’s long-term debt The following is a summary of the gross revenues collected during issues, certain revenues have been pledged as security. the fiscal years ended June 30, 2017 and June 30, 2016 that are pledged:

66 2016-2017 ANNUAL FINANCIAL REPORT

Pledged Revenues

Bond Series Revenue Source 2017 2016 Series 1997 Various Facilities Student Tuition and Fees $ 296,366,889 $ 277,010,264 Series 2005B Various Facilities Sales and Services 8,685,226 8,610,798 Series 2007 Various Facilities Residential Life1 65,722,511 64,432,665 Series 2008A&B Various Facilities Bookstore2 15,425,386 16,612,951 Series 2009A Various Facilities Student Health Services 2,406,462 2,310,530 Series 2011A&B Various Facilities Transit and Parking 9,438,067 8,874,690 Series 2012A Various Facilities Other Auxiliaries 286,959 382,857 Series 2012B Various Facilities Series 2013 Various Facilities Series 2014A&B Various Facilities Series 2015A Various Facilities Series 2015B Various Facilities Series 2015C Various Facilities Series 2016A Various Facilities Series 2016B Various Facilities Total Various Facilities Pledge $ 398,331,500 $ 378,234,755

Series 2010 Athletic Refunding Men’s Athletic Revenue 98,456,238 $ 93,652,857 Series 2011 Athletic Facilities (less game guarantees) (3,410,450) (3,474,792) Series 2013 Athletic Facilities Series 2015 Athletic Facilities Series 2016A Athletic Facilities Series 2016B Athletic Facilities Total Athletics Pledge $ 95,045,788 $ 90,178,065

1Residential Life revenue for the year ending June 30, 2016 has been restated by a total of $20,826,997. See Restatement of Prior Year in Note 1. 2For the purposes of calculating pledged revenues, Bookstore revenues shown include internally generated revenues from sales to the University campus of $3,013,359 for the year ending June 30, 2017 and $3,854,090 for the year ending June 30, 2016.

The Various Facility revenue pledge is used to repay fifteen various and interest remaining to be paid on the bonds is $223,021,797. facilities revenue bond issues as detailed in the schedule above. Principal and interest paid for the current year and net revenues Proceeds from the bonds provided financing for the construction were $11,094,054 and $95,045,788, respectively. and renovation of various campus buildings; utility and other infrastructure; land purchases; and refunding of existing debt 8G Fiscal Year 2017 Long-Term Debt Transactions issues. The maturity date on the issues range from November, On October 19, 2016, the University issued $24,845,000 in 2021 through November, 2046. Annual principal and interest Athletic Facilities Revenue Bonds (Fayetteville Campus), payments on the bonds are expected to require approximately Tax-Exempt Series 2016A, with an interest rate of 5.0%; and 10.84% of gross revenues. The total principal and interest $90,000,000 in Athletic Facilities Revenue Bonds, (Fayetteville remaining to be paid on the bonds is $848,275,869. Principal Campus), Taxable Series 2016B, with interest rates of 1.192% to and interest paid for the current year and gross revenues were 3.388%. The bonds were issued to provide funds to finance the $43,194,954 and $398,331,500, respectively. construction, reconstruction, enlarging and repairing additional facilities including particularly improvements to and expansion The Athletics revenue pledge is used to repay six athletic facilities of the Donald W. Reynolds Razorback Stadium and renovation revenue bond issues as detailed in the schedule above. Proceeds and replacement of the Frank Broyles Athletic Center and related from the bonds provided financing for the construction and projects. renovation of various athletic facilities as well as the refunding of existing debt issues. The maturity date on the issues range from On June 22, 2017, the University entered into a capital lease September, 2020 to September, 2036. Annual principal and purchase financing agreement to acquire capital equipment interest payments on the bonds are expected to require totaling $61,563. The agreement is for a total of 36 months and approximately 11.67% of net revenues pledged. The total principal has an interest rate of 3.52%.

67 UNIVERSITY OF ARKANSAS

During the fiscal year ended June 30, 2017, management became outstanding bonds dated August 1, 2008 (Series 2008A) with aware of a lease agreement relating to an X-Ray machine that was interest rates of 4.0% to 5.0%. Net bonds proceeds and premiums executed on July 7, 2015. The lease was originally determined to be of $28,504,688 was available to finance construction of a civil an operating lease, however, upon further investigation, engineering research and education center, a library storage management has now determined the lease to qualify as a capital building, campus entrance signs, intramural sports playing lease purchase since the present value of the minimum lease fields, and an addition to the Pat Walker Student Health Center; payments required under the lease is at least 90% of the fair value to finance renovations of student housing; and to continue of the asset at the time of the inception of the lease. The value of the renovations of Kimpel Hall, and Discovery Hall. The Series equipment subject to the lease was $238,148. The term of the lease 2016B bonds with interest rates of 0.87% to 3.35% were issued on is 48 months at an interest rate of 1.24%. a taxable basis to refund $13,500,000 of outstanding bonds dated August 1, 2008 (Series 2008B) with interest rates of 5.1% to 6.375%. 8H Fiscal Year 2016 Long-Term Debt Transactions On August 27, 2015, the University issued $7,510,000 in Various Net bond proceeds and premiums from Series 2016A and Series Facility Revenue Bonds, Series 2015B. The bonds with interest rates 2016B of $94,689,148 along with $1,873,821 of cash from the of 1.02% to 4.4% were issued to provide funds to finance various University was deposited into an escrow account to retire the construction and renovation projects on the University campus, bonds. The refunding of the bonds dated October 2, 2007 and and were issued on a taxable basis. Projects include construction all of the bonds dated August 1, 2008 was an advance refunding. of a high pressure natural gas service line and the renovations and The combined refunding resulted in a difference between the improvements to various student housing facilities. reacquisition price and the net carrying amount of the old debt of $5,764,322 for the Series 2016A bonds and $1,679,827 Also on August 27, 2015, the University issued $36,675,000 for the Series 2016B bonds. These differences, reported in the in Various Facility Revenue Refunding Bonds, Series 2015C. accompanying financial statements as Deferred outflows of The bonds with interest rates of 2.00% to 5.00% were issued to resources, will be amortized through the fiscal year 2039 for refund $45,945,000 of outstanding bonds dated March 2, 2005 Series 2016A and fiscal year 2029 for Series 2016B. The University with interest rates of 3.875% to 4.50%. Of the net bond proceeds completed the refunding to reduce its total debt service payments and premiums of $40,255,610 and cash of $7,022,265 from the over the next twenty-three years by $13,450,092 and to obtain an University, $46,957,841 was deposited into an escrow account economic gain of $10,092,618. The escrow balance as of June 30, to retire the bonds. Furthermore, $309,547 was used to pay the 2017 was $88,521,712. The bonds will have regularly scheduled underwriter’s discount and the costs of issuance, with a residual principal and interest payments made from the escrow account amount of $10,487 remaining in the Series 2015C Bond Fund until the bond call dates of November 1, 2017 for Series 2007 and account. The refunding of the bonds was a current refunding, November 1, 2018 for Series 2008A and Series 2008B, at which with all bonds being redeemed as of November 1, 2015. The times the remaining balances of each defeased bond issue will be refunding resulted in a difference between the reacquisition price refunded. The remaining balance of the defeased bonds as of June and the net carrying amount of the old debt of $2,266,866. This 30, 2017 was $37,165,000 for Series 2007, $34,665,000 for Series difference, reported in the accompanying financial statements as 2008A, and $13,010,000 for Series 2008B. Deferred outflows of resources, will be amortized through the fiscal year 2022 using the straight-line method. The University On July 31, 2015, the University refinanced three outstanding completed the refunding to reduce its total debt service payments agreements with Banc of America Public Capital Corp. that were over the next seven years by $4,154,417 and to obtain an economic used to finance the acquisition and installation of equipment, gain (difference between the present values of the old and new debt together with all additions, accessions, repairs and replacements service payments) of $3,221,281. The escrow account was closed necessary to fulfill the energy savings performance contracts out when the refunded bonds were redeemed as of November 1, between the University and Energy Systems Group, LLC. The 2015 and therefore has no outstanding balance as of June 30, 2016. outstanding balances of the three agreements as of the date of the refinancing were $4,815,908, $16,647,886, and $6,689,614 with On April 5, 2016, the University issued $93,590,000 in Various interest rates of 4.69%, 4.581%, and 4.80%, respectively. The new Facility Revenue Bonds, (Fayetteville Campus), Refunding and financing agreements with JPMorgan Chase Bank, N.A. result in Improvement Series 2016A and $15,280,000 in Various Facility overall savings of $3,003,289 over the life of the agreements. The Revenue Bonds, (Fayetteville Campus), Refunding Series 2016B. date of final pay-off is November, 19, 2023. The new financing The Series 2016A bonds, with interest rates of 3.0% to 5.0% were agreements have outstanding balances as of June 30, 2017 of issued to provide funds to finance various construction and $4,352,431, $13,178,283, and $5,329,324 and have interest rates of renovation projects on the University campus, and to refund 1.97%, 1.99%, and 1.95% respectively. $38,200,000 of outstanding bonds dated October 2, 2007 (Series 2007) with interest rates of 4.0% to 5.0%; and $35,545,000 of

68 2016-2017 ANNUAL FINANCIAL REPORT

9. FAIR VALUE MEASUREMENTS

In February 2015, GASB issued Statement No. 72, Fair Value inputs are those that reflect the assumptions market participants Measurement and Application. The statement established a fair would use in pricing the asset developed based on market data value hierarchy that prioritizes the inputs to valuation techniques obtained from independent sources. These types of sources used to measure fair value. The hierarchy gives the highest priority would include quoted prices for similar assets in active markets, to unadjusted quoted prices in active markets for identical assets quoted prices for identical or similar assets in inactive markets, or liabilities (Level 1 measurements) and the lowest priority to models or other valuation methodologies. Level 2 investments unobservable inputs (Level 3 measurements). include U.S. and international government debt securities valued at market corroborated prices and certain equity and An individual investment’s level within the fair value hierarchy fixed income investments in commingled investment vehicles is based on the lowest level of any input that is significant to the reported at net asset value derived from the market prices of fair value measurement. However, the determination of what security holdings. constitutes “observable” requires significant judgment by the University. The University considers observable data to be market • Level 3: Inputs that are unobservable. Unobserved inputs are data which is readily available, regularly distributed or updated, those that reflect the University’s own assumptions about the reliable and verifiable, not proprietary, and provided by multiple, assumptions that market participants would use in pricing the independent sources that are actively involved in the relevant asset developed based on the best information available. These market. The categorization of an investment within the hierarchy types of sources would include investment manager pricing for is based upon the pricing transparency of that investment and private equities, hedge funds and certain limited partnerships. does not necessarily correspond to the University’s perceived risk Limited partner interests in private equity and other partnerships of that investment. and hedge fund investments are included in Level 3 and are valued using the individual investment manager’s reported The three levels of the fair value hierarchy are as follows: estimates of fair value developed in accordance with reasonable valuation policies. • Level 1: Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the University has The preceding methods may produce a fair value calculation the ability to access at the measurement date. Publicly traded that may not be indicative of net realizable value or reflective of equity securities and mutual funds are the primary investments future fair values. Furthermore, although the University believes included in Level 1 and are valued at the individual security’s its valuation methods are appropriate and consistent with closing market price other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial • Level 2: Inputs other than quoted prices that are observable for instruments could result in a different fair value measurement at the asset or liability, either directly or indirectly. Observable the reporting date.

69 UNIVERSITY OF ARKANSAS

The following table sets forth, by level within the valuation as deposits with bond trustees on the Statement of Net Position, at hierarchy, University invested funds, including amounts reported June 30, 2017:

Investment Instruments Measured at Fair Value

June 30, 2017

Fair Value Measurements Using Quoted Prices in Significant Other Significant Active Markets for Observable Unobservable Identical Assets Inputs Inputs Investments by fair value level June 30, 2017 (Level 1) (Level 2) (Level 3) Equity Securities: US $ 224,272 $ 224,272 Fixed Income Securities: US Government Debt 157,111,986 $ 157,111,986 Other Debt Securities 126,808,900 83,960 96,970,008 $ 29,754,932 Commingled Funds: US Equity 132,504 104,046 28,458 International Equity 113,065 83,750 29,315 US Government Bonds 14,601,603 12,793,536 1,808,067 Corporate Bonds 172,305 136,525 35,780 Non-marketable alternatives 3,016 3,016 Marketable alternatives 4,121 4,121 Money markets and short-term investments 5,682 5,682 Total investments by fair value level $ 299,177,454 $ 13,435,892 $ 255,983,614 $ 29,757,948

Investments measured at the net asset value (NAV) External Investment Pools: Total Return Pool $ 77,501,799 Intermediate Pool 80,202,973 Total investments measured at the NAV 157,704,772 Total investments measured at fair value $ 456,882,226

70 2016-2017 ANNUAL FINANCIAL REPORT

Debt and equity securities classified in Level 1 of the fair value technique or are provided by the security custodian. Securities hierarchy are valued using prices quoted in active markets for classified in Level 3 are valued using par value on the face of the those securities. Debt and equity securities classified in Level 2 investments or provided by the security custodian. of the fair value hierarchy are valued using a funds accounting

Investments Measured at the NAV

Fair Unfunded Redemption Redemption Value Commitments Frequency Notice Period External Investment Pools: Total Return Pool1 $ 77,501,799 - Daily 0 – 30 days Intermediate Pool2 80,202,973 - Daily 0 – 30 days Total investments measured at the NAV $ 157,704,772

1 This type includes investments in a broadly diversified external investment pool. Pooled investments include allocations to global equities, hedge funds, bonds, natural resourc- es and real estate. The assets in the pool are accounted for at fair value determined according to the principles of the Financial Accounting Standards Board. A one-week notice is required for redemptions over $1 million. There is also a requirement for 30-days written notice if total withdrawals will exceed $25 million in any 30-day period.

2 This type includes investments in an external investment pool comprised of fixed income investments. The pooled investments are allocated primarily to intermediate term government bonds and investment-grade intermediate term corporate bonds. The pool also includes allocations to mortgage-backed securities, emerging markets debt and money market funds. The assets in the pool are accounted for at fair value determined according to the principles of the Financial Accounting Standards Board. A one-week notice is required for redemptions over $1 million. There is also a requirement for 30-days written notice if total withdrawals will exceed $25 million in any 30-day period.

71 UNIVERSITY OF ARKANSAS

10. NATURAL AND FUNCTIONAL CLASSIFICATIONS OF OPERATING EXPENSES

The following is a reconciliation of the natural classifications as in Net Position to the functional classifications for the year ended presented in the Statement of Revenues, Expenses, and Changes June 30, 2017: Operating Expenses

June 30, 2017 Natural Classifications Salaries, Wages Scholarships Supplies and Functional Classifications and Benefits and Fellowships Other Services Depreciation Total Instruction $ 169,243,301 $ 27,567,721 $ 196,811,022 Research 87,913,281 36,652,200 124,565,481 Public Service 57,579,545 22,806,628 80,386,173 Academic Support 31,287,078 14,221,930 45,509,008 Student Services 20,055,531 8,797,227 28,852,758 Institutional Support 45,782,451 14,063,914 59,846,365 Scholarships and Fellowships 141,187 $ 20,764,570 106,725 21,012,482 Operation and Maintenance of Plant 16,260,569 36,390,350 52,650,919 Auxiliary Enterprises 59,309,378 88,162,140 147,471,518 Depreciation $ 75,527,340 75,527,340 Totals $ 487,572,321 $ 20,764,570 $ 248,768,835 $ 75,527,340 $ 832,633,066

The following is a reconciliation of the natural classifications as in Net Position to the functional classifications for the year ended presented in the Statement of Revenues, Expenses, and Changes June 30, 2016:

Operating Expenses

June 30, 2016 Natural Classifications Salaries, Wages Scholarships Supplies and Functional Classifications and Benefits and Fellowships Other Services Depreciation Total Instruction $ 163,942,957 $ 27,130,380 $ 191,073,337 Research 83,397,039 36,767,010 120,164,049 Public Service 56,694,819 22,877,135 79,571,954 Academic Support 28,988,825 16,187,103 45,175,928 Student Services 18,865,874 8,820,697 27,686,571 Institutional Support 43,664,393 12,394,109 56,058,502 Scholarships and Fellowships 162,327 $ 20,923,680 223,675 21,309,682 Operation and Maintenance of Plant 17,297,553 38,387,243 55,684,796 Auxiliary Enterprises 55,586,204 81,311,612 136,897,816 Depreciation $ 73,379,367 73,379,367 Totals $ 468,599,991 $ 20,923,680 $ 244,098,964 $ 73,379,367 $ 807,002,002

As restated, see Note 1W

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11. OPERATING LEASES

The University has entered into various operating leases for payments for the fiscal year ended June 30, 2017, were $6,405,987. buildings and equipment. It is expected that in the normal course Below are the scheduled payments for the five succeeding fiscal of business such leases will continue to be required. The total years and thereafter. expenditures for all rental lease payments and non-lease rental

Future Operating Lease Payments

Year ended June 30 Amount 2018 $ 1,602,010 2019 1,337,780 2020 1,137,844 2021 634,856 2022 654,079 2023-2027 2,794,710 Total $ 8,161,279

12. EMPLOYEE BENEFITS

12 A Retirement Plans The University assists employees in planning for life beyond their Arkansas Teachers Retirement System (ATRS) is available only working years with generous and flexible retirement benefits. to employees employed by the University that have a previous University employees hired July 1, 2016, and after are required record with APERS or ATRS. New employees of the University to participate in the University of Arkansas (UA) Retirement and employees who transfer to or from another campus within Plan, which includes Teachers Insurance Annuity Association the University of Arkansas System will be required to participate (TIAA) and/or Fidelity Investments. Participation in the in the UA Retirement Plan. Arkansas Public Employees Retirement System (APERS) and the

University of Arkansas Retirement Plan

Plan Description The University of Arkansas Retirement Plan is a defined Investments shall be applied either to individual annuities contribution plan, offering both a 403(b) program and a 457(b) issued under a Metropolitan Life Guaranteed Account and/ program, as defined by the Internal Revenue Service Code or one or more mutual fund custodian accounts managed by of 1986, as amended. The authority under which the Plan’s Fidelity Investments. Contributions to TIAA can be allocated benefit provisions are established or amended is the President among their various annuity accounts. Arkansas law authorizes of the University or his designee. Contributions to Fidelity participation in the plan.

73 UNIVERSITY OF ARKANSAS

Contributions Effective July 1, 2016, all benefits-eligible employees of the regulations but the University does not match these additional University of Arkansas are required to contribute 1% of their contributions. All benefits attributable to plan contributions regular salary to the TIAA and/or Fidelity Investments. The made by the participant are vested immediately. All benefits required contribution will increase by 1% each July 1 until July attributable to contributions made by the University for faculty 1, 2020, when the required contribution reaches the maximum and staff hired July 1, 2016, and after, will be vested at the end of required employee contribution of 5%. The University 24 consecutive months of employment, upon death or attainment automatically contributes 5% of an employee’s regular salary to of age 65 while actively employed, or should they become TIAA and/or Fidelity Investments retirement account, allocated disabled while actively employed as determined by the Social between the two companies according to the employee’s choice. Security Administration or the university’s long-term disability For any contributions an employee makes in excess of 5% regular insurance provider. The University’s and participant’s TIAA salary, the University makes an equal contribution, up to the contributions for the year ending June 30, 2017, were $16,873,039 Internal Revenue Service (IRS) employer contribution limit, and $18,198,787, respectively. The University’s and participants’ which at June 30, 2017 was $27,000. Employee contributions in Fidelity Investment contributions for the year ending June 30, excess of 10% are allowed by the plans in accordance with IRS 2017, were $8,447,094 and $8,934,850 respectively.

Arkansas Public Employees Retirement System (APERS)

Plan Description APERS is a cost-sharing, multiple-employer, defined benefit plan Public Employees Retirement System (the Board). Membership administered by the State of Arkansas. The plan was established includes three state and three non-state employees, all appointed by the authority of the Arkansas General Assembly with the by the Governor, and three ex officio trustees, including passage of Act 177 of 1957. The costs of administering the plan the Auditor of the State, the Treasurer of the State and the Director are paid out of investment earnings. The general administration of the Department of Finance and Administration. APERS and responsibility for the proper operation of the System is vested issues a publicly available financial report that can be obtained in the nine members of the Board of Trustees of the Arkansas at http://www.apers.org/annualreports.

Benefits Provided Benefit provisions are set forth in Arkansas Code Annotated, Members may retire with a reduced benefit at age 55 with at least Title 24, Chapter 4 and may only be amended by the Arkansas 5 years of actual service at age 55, or at any age with 25 years of General Assembly. APERS provides retirement, disability and service. death benefits. Retirement benefits are determined as a percentage of the member’s highest 3-year average compensation times the Members are eligible for disability benefits with 5 years of service. member’s years of service. The percentage used is based upon Disability benefits are computed as an age and service benefit, whether a member is contributory or noncontributory as follows: based on service and pay at disability. Death benefits are paid to a surviving spouse as if the member had 5 years of service and Contributory, prior to 7/1/2005 2.07% the monthly benefit is computed as if the member had retired Contributory, 7/1/2005 – 6/30/2007 2.03% and elected the Joint & 75% Survivor option. A cost-of-living adjustment of 3% of the current benefit is added each year. Contributory, on or after 7/1/2007 2.00% Non-Contributory, prior to 7/1/2007 1.75% Effective July 1, 2016, new employees of the University are no longer eligible to participate in the Arkansas Public Employees Non-Contributory 1.72% Retirement System (APERS). Existing APERS participants are allowed to continue APERS participation. Members are eligible to retire with a full benefit under the following conditions:

• at age 65 with 5 years of service, • at any age with 28 years actual service.

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Contributions Contribution requirements are set forth in Arkansas Code service on or after July 1, 2005, are required to participate in the Annotated, Title 24, Chapter 4. The contributions are expected contributory plan and contribute 5% of their salaries. Employers to be sufficient to finance the costs of benefits earned by members are required to contribute at a rate established by the Board of during the year and make a level payment that, if paid annually Trustees of APERS based on an actuary’s determination of a rate over a reasonable period of future years, will fully cover the required to fund the plan. The University contributed 14.50% of unfunded costs of benefit commitments for services previously applicable compensation for the fiscal year ended June 30, 2017. rendered. Members who began service prior to July 1, 2005, The University’s and members’ contributions for the year ending who elected to remain in the non-contributory plan, are not June 30, 2017, were $1,435,567 and $425,419, respectively. required to make contributions to APERS. Members who began

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources to Pensions At June 30, 2017, the University reported a liability of $12,570,257 and 0.1296% for Cooperative Extension Service, for a total for its proportionate share of the net pension liability. The net proportion of 0.5357%; which was an increase of 0.1094 from its pension liability was measured as of June 30, 2016, and the total proportion measured as of June 30, 2016. total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The For the year ended June 30, 2017, the University recognized university’s proportion of the net pension liability was based on pension expense of $2,619,377. At June 30, 2017, the University the university’s share of contributions to the pension plan relative reported deferred outflows of resources and deferred inflows of to the total contributions of all participating employers. At June resources related to pensions from the following sources: 30, 2017, the university’s proportion was 0.4061% for Fayetteville

Net Pension Deferred Inflows and Outflows

Deferred Outflow Deferred Inflows of of Resources Resources Differences between expected and actual experience $ 11,869 $ 450,921 Changes of assumptions or other inputs 963,279 0 Net difference between projected and actual earnings on pension plan investments 2,194,668 0 Changes in the proportion and differences between the employer contributions and share of contributions 2,309,782 6,118 University contributions subsequent to the measurement date 1,435,567 0 Total $ 6,915,165 $ 457,039

Deferred outflows of resources of $1,435,567 is related to pensions reported as deferred outflows of resources and deferred inflows resulting from University contributions subsequent to the of resources related to pensions will be recognized in the pension measurement date will be recognized as a reduction of the net expense in the financial statements as follows: pension liability in the year ended June 30, 2018. Other amounts Amortization of Other Deferred Inflows and Outflows

Year ended June 30: Amount 2017 $ 1,061,471 2018 898,320 2019 1,964,671 2020 1,098,097 2021 0 Thereafter 0

75 UNIVERSITY OF ARKANSAS

Actuarial Assumptions The total pension liability in the June 30, 2016 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement:

Actuarial Assumptions

Actuarial Cost Method Entry Age Normal Amortization Method Level of Percent of Payroll, Closed Remaining Amortization Period 21 years Asset Valuation Method 4-year smoothed market; 25% corridor Investment Rate of Return 7.50% Salary Increases 3.25% – 9.85% including inflation Wage Inflation 3.25% Post-Retirement Cost-of-Living Increases 3.00% Annual Compounded Increase Retirement Age Experience-based table of rates that are specific to the type of eligibility condition. Last updated for the 2013 valuation pursuant to an experience study for the period 2007-2012. Mortality Table Based on RP-2000 Combined Health mortality table, projected to 2020 using Projection Scale BB, set-forward 2 years for males and 1 year for females Average Service Life of All Members 4.4487

The long-term expected rate of return on pension plan investments of arithmetic real rates of return for the 10-year period from 2015 was determined using a building-block method in which to 2024 were based upon capital market assumptions provided best-estimate ranges of expected future real rates of return are by plan’s investment consultant(s). For each major asset class developed for each major asset class. These ranges are combined that is included in the pension plan’s current asset allocation to produce the long-term expected rate of return by weighting the as of June 30, 2016, these best estimates are summarized in the expected future real rates of return by the current asset allocation following table: percentage and by adding expected price inflation. Best estimates

Expected Rate of Return

Long-Term Expected Asset Class Current Allocation Real Rate of Return Broad Domestic Equity 38% 6.82% International Equity 24 6.88 Real Assets 16 3.07 Absolute Return 5 3.35 Domestic Fixed 17 0.83 Total 100%

Discount Rate A single discount rate of 7.50% was used to measure the total determined contribution rates and the member rate. Based on pension liability. This single discount rate was based on the these assumptions, the pension plan’s fiduciary net position was expected rate of return on pension plan investments of 7.50%. The projected to be available to make all projected future benefit projection of cash flows used to determine this single discount payments of current plan members. Therefore, the long-term rate assumed that plan member contributions will be made at expected rate of return on pension plan investments was applied the current contribution rate and that employer contributions to all periods of projected benefit payments to determine the total will be made at rates equal to the difference between actuarially pension liability

76 2016-2017 ANNUAL FINANCIAL REPORT

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the University’s proportionate share of using a discount rate that is 1-percentage-point lower (6.50%) or the net pension liability using the discount rate of 7.50%, as well 1-percentage-point higher (8.50%) than the current rate: as what the net pension liability would be if it were calculated

Sensitivity of Discount Rat

1% Discount 1% Decrease Rate Increase (6.50%) (7.50%) (8.50%) $ 19,028,222 $ 12,570,257 $ 7,195,678

Pension Plan Fiduciary Net Position Detailed information about the pension plan’s net position is available in the separately issued APERS financial report.

Payables to the Pension Plan The University reported payables to APERS of $139,211 at June 30, 2017.

Arkansas Teacher Retirement System (ATRS)

Plan Description ATRS is a cost-sharing, multiple-employer, defined benefit consist of seven active members of ATRS with at least five years of pension plan administered by the State of Arkansas. The plan was actual service, three retired members receiving an annuity from established by the authority of the Arkansas General Assembly ATRS, and one active or retired member from a minority racial with the passage of Act 266 of 1937. The costs of administering ethnic group. There are also four ex officio members, including the plan are paid out of investment earnings. The general the State Bank Commissioner, the Treasurer of the State, the administration and responsibility for the proper operation Auditor of the State and the Commissioner of Education. ATRS of the System is vested in the fifteen members of the Board of issues a publicly available financial report that can be obtained Trustees of the Arkansas Teacher Retirement System (the Board). at https://www.artrs.gov/publications. Membership includes eleven members who are elected and

Benefits Provided Benefit provisions are set forth in Arkansas Code Annotated, Members with 25 years of credited service who have not attained Title 24, Chapter 7 and may only be amended by the Arkansas age 60 may retire with a reduced benefit. General Assembly. ATRS provides retirement, disability and death benefits. Retirement benefits are determined as a percentage Members are eligible for disability benefits with 5 years of of the member’s highest 3-year average compensation times the service. Disability benefits are computed as an age and service member’s years of service. The percentage used is based upon benefit, based on service and pay at disability. Survivor benefits whether a member is contributory or noncontributory as follows: are payable to qualified survivors upon the death of an active member with 5 years of service. The monthly benefit paid to Contributory 2.15% eligible spouse survivors is computed as if the member had Non-Contributory 1.39% retired and elected the Joint & 100% Survivor option. Minor child survivors receive a percentage of the member’s highest salary Members are eligible to retire with a full benefit under the earned. ATRS also provides a lump sum death benefit for active following conditions: and retired members with 10 years of actual service. The amount • at age 60 with 5 years of credited service, for contributory members will be up to $10,000 and up to $6,667 • at any age with 28 years credited service. for noncontributory members. A cost-of-living adjustment of 3% of the current benefit is added each year.

77 UNIVERSITY OF ARKANSAS

Effective July 1, 2011, new employees of the University are no System (ATRS). Existing ATRS participants are allowed to longer eligible to participate in the Arkansas Teacher Retirement continue ATRS participation.

Contributions Contribution requirements are set forth in Arkansas Code until July 1, 2000, to make an irrevocable choice to be contributory Annotated, Title 24, Chapter 7. The contributions are expected to or noncontributory. Act 93 of 2007 allows any noncontributory be sufficient to finance the costs of benefits earned by members member to make an irrevocable election to become contributory during the year and make a level payment that, if paid annually on July 1 of each fiscal year. Employers are required to contribute over a reasonable period of future years, will fully cover the at a rate established by the Board of Trustees of ATRS based on an unfunded costs of benefit commitments for services previously actuary’s determination of a rate required to fund the plan. The rendered. ATRS has contributory and noncontributory plans. University contributed 14.00% of applicable compensation for The contributory plan has been in effect since the beginning of the fiscal year ended June 30, 2017. The University’s and member’s ATRS. The noncontributory plan became available July 1, 1986. contributions for the year ending June 30, 2017, were $151,184 and Act 81 of 1999, effective July 1, 1999, requires all new members $37,039, respectively. to be contributory and allowed active members as of July 1, 1999,

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources to Pensions At June 30, 2017, the University reported a liability of $1,690,917 and 0.0082% for Cooperative Extension Service, for a total for its proportionate share of the net pension liability. The net proportion of 0.0426%, which was a decrease of 0.0055 from its pension liability was measured as of June 30, 2016, and the total proportion measured as of June 30, 2016. total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The For the year ended June 30, 2017, the University recognized university’s proportion of the net pension liability was based on pension expense of $78,320. At June 30, 2017, the University the university’s share of contributions to the pension plan relative reported deferred outflows of resources and deferred inflows of to the total contributions of all participating employers. At June resources related to pensions from the following sources: 30, 2017, the university’s proportion was 0.0344% for Fayetteville Net Pension Deferred Inflows and Outflows

Deferred Outflows Deferred Inflows of Resources of Resources Differences between expected and actual experience $ 30,669 $ 23,453 Changes of assumptions or other inputs 0 0 Net difference between projected and actual earnings on pension plan investments 259,137 0 Changes in the proportion and differences between the employer contributions and share of contributions 0 449,280 University contributions subsequent to the measurement date 151,184 0 Totals $ 440,990 $ 472,733

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Deferred outflows of resources of $151,184 is related to pensions reported as deferred outflows of resources and deferred inflows resulting from University contributions subsequent to the of resources related to pensions will be recognized in the pension measurement date will be recognized as a reduction of the net expense in the financial statements as follows: pension liability in the year ended June 30, 2018. Other amounts

Amortization of Other Deferred Inflows and Outflows

Year ended June 30: 2017 $ (14,668) 2018 (14,668) 2019 (90,478) 2020 (63,537) 2021 424 Thereafter 0

Actuarial Assumptions The total pension liability in the June 30, 2016 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Actuarial Assumptions

Actuarial Cost Method Entry Age Normal Amortization Method Level of Percent of Payroll, closed Amortization Period 30 years Asset Valuation Method 4-year smoothed market; 20% corridor Wage Inflation 3.25% Salary Increases 3.25 – 9.10% including inflation Investment Rate of Return 8.00% Post-Retirement Cost-of-Living Increases 3.00% Simple Mortality Table Based on RP-2000 Mortality table for males and females, projected 25 years with scale AA, (95% for men & 87% for women) Retirement Age Experience-based table of rates that are specific to the type of eligibility condition. Last updated for the 2011 valuation pursuant to an experience study for the period July 1, 2005 – June 30, 2010

The long-term expected rate of return on pension plan investments expected future real rates of return by the target asset allocation was determined using a building-block method in which best- percentage and by adding expected inflation. Best estimates of estimate ranges of expected future real rates of return (expected geometric real rates of return for each major asset class included returns, net of pension plan investment expense and inflation) are in the System’s target asset allocation as of June 30, 2017 are developed for each major asset class. These ranges are combined summarized below: to produce the long-term expected rate of return by weighting the

79 UNIVERSITY OF ARKANSAS

Expected Rate of Return

Long-Term Expected Asset Class Target Allocation Real Rate of Return Total Equity 50% 5.0% Fixed Income 20 0.8 Alternatives 5 4.4 Real Assets 15 3.4 Private Equity 10 6.3 Cash Equivalents 0 -0.2 Total 100%

Discount Rate A single discount rate of 8.0% was used to measure the total will be 14% of payroll. Based on these assumptions, the pension pension liability. This single discount rate was based on the plan’s fiduciary net position was projected to be available to make expected rate of return on pension plan investments of 8.0%. The all projected future benefit payments of current plan members. projection of cash flows used to determine this single discount Therefore, the long-term expected rate of return on pension rate assumed that plan member contributions will be made at plan investments was applied to all periods of projected benefit the current contribution rate and that employer contributions payments to determine the total pension liability.

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the University’s proportionate share of using a discount rate that is 1-percentage-point lower (7.00%) or the net pension liability using the discount rate of 8.00%, as well 1-percentage-point higher (9.00%) than the current rate: as what the net pension liability would be if it were calculated Sensitivity of Discount Rate

1% Discount 1% Decrease Rate Increase (7.00%) (8.00%) (9.00%) $ 2,538,829 $ 1,690,917 $ 977,843

Pension Plan Fiduciary Net Position Detailed information about the pension plan’s net position is available in the separately issued ATRS financial report.

Payables to the Pension Plan The University reported payables to ATRS of $11,174 at June 30, 2017.

Other Plans Cooperative Extension Service employees who previously held who have retirement coverage are covered under the FERS plan. appointments with the U.S. Department of Agriculture are FERS provides benefits from three different sources: a Basic covered by either the Civil Service Retirement System (CSRS) or Benefit Plan, Social Security and the Thrift Savings Plan. As of the Federal Employees Retirement System (FERS), depending June 30, 2017, ten active employees were covered under the CSRS on date of appointment. Both plans are single-employer defined plan and thirteen active employees were covered under the FERS benefit plans. The CSRS plan became effective in 1920, and plan. Participants in the CSRS plan contribute 7% of salaries and established retirement benefits for certain federal employees. employers are required to contribute 7%. Participants in the FERS Congress created the FERS plan in 1986, becoming effective on plan are required to contribute 0.80% of salaries and employers January 1, 1987. Since that time new federal civilian employees are required to contribute 13.7% for the Basic Benefit and Social

80 2016-2017 ANNUAL FINANCIAL REPORT

Security portions of the plan benefits. The University’s and up to 4%. There is no employer matching for CSRS participants. participants’ CSRS and FERS contributions were $223,094 and All contributions are exempt from taxation. The University’s $72,563 respectively for the fiscal year ended June 30, 2017. and participants’ TSP contributions were $56,273 and $99,315 respectively for the fiscal year ended June 30, 2017. The Thrift Savings Plan (TSP) is the third component of the FERS plan and is a supplement to the CSRS plan. It is a defined Additionally, employees covered by these plans may also contribution plan designed to provide retirement income participate in the University of Arkansas Retirement Plan which for Federal employees similar to a 401(k) plan. The TSP is includes Teachers Insurance Annuity Association (TIAA) administered by the Federal Retirement Thrift Investment Board. and Fidelity Investments, but are not eligible for any additional For FERS participants, employers are required to contribute an University contribution. amount equal to 1% of salaries to a TSP account established for the participant. Employees may also contribute to their TSP account, The University’s participation in the Federal retirement system with employer matching on the first 5% of employee contributions plans is not considered material by University management.

12 B Self-Insurance Plans The Board of Trustees of the University of Arkansas System As of January 1, 2014, post age 65, Medicare eligible retirees no sponsors self-funded health (including prescription coverage) longer participate in the University of Arkansas’ self-funded and dental plans for University of Arkansas System employees health and dental benefit plan. Those individuals are now covered and their eligible dependents. All campuses in the University by the UnitedHealthcare Medicare Advantage PPO plan. of Arkansas System participate in the health plan which is administered by the System Administration. The plans are also For the year ending June 30, 2017, a total of 4,832 active employees, offered to employees of the University of Arkansas Winthrop former employees, and retirees were participants in the health Rockefeller Institute, the University of Arkansas Foundation, Inc., plan. The University’s contributions to health coverage are based the Razorback Foundation, Inc., the Walton Arts Center, and the on the employee’s salary and percent of appointment. Six salary University of Arkansas Technology Development Foundation. bands are used to determine the employer contribution with the Operations of the plans are recorded in the separate University of average contribution for 75%-100% appointed employees being: Arkansas consolidated financial report. Salary Bands

Employer contribution Salary Range Point of Service Plan Classic Plan Under $28,000 77.75% 84.18% Between $28,000 to $38,999 76.67 83.42 Between $39,000 to $54,999 75.11 82.31 Between $55,000 to $99,999 73.52 81.18 Between $100,000 to $149,999 71.92 80.04 $150,000 and above 70.65 79.14

The University pays 70% for the health plan for federal employees.

12 C Life Insurance Plan The University of Arkansas System’s life insurance carrier is the The University has, from time to time, negotiated early retirement Standard Life Insurance Company. The University’s life insurance agreements with faculty and staff which may include the provision is a fully-insured arrangement with the premiums being sent of healthcare or other benefits for future periods. directly to the life insurance carrier. There was no liability for these type of agreements at June 30, 2017 Expenditures for all employee benefits are included as or at June 30, 2016. expenditures within the appropriate functional area.

81 UNIVERSITY OF ARKANSAS

13. OTHER POSTEMPLOYMENT BENEFITS

13 A Other Postemployment Benefits (OPEB) The University offers postemployment health (including reflects expected future medical costs. It includes an accrual for prescription drugs) and dental benefits along with life insurance all active employees valuing the benefits they are anticipated to ($10,000 available coverage) to eligible retirees. Health and receive in retirement based on the likelihood that they will stay dental benefits are provided in the University’s self-funded employed until eligible for postretirement benefits. As a result plan sponsored by the Board of Trustees of the University of of the implementation of this statement, the University accrued Arkansas System for current and pre-65 retired employees. The $16,327,494 in retiree healthcare liability as of June 30, 2017. plan is considered a single-employer, defined benefit plan. The System Administration manages and administers the plan. Retirees qualify for postretirement benefits as follows: Although benefits are also provided under the University’s plan for the University of Arkansas Foundation, Inc., the Razorback • Participation: Employees who retire with a combination of Foundation, Inc., the University of Arkansas Technology age and years of service of at least 70 and if, immediately prior Development Foundation, the Walton Arts Center, and the to retirement they have completed ten (10) or more consecutive University of Arkansas Winthrop Rockefeller Institute, no years of continuous coverage under the plan. Retirees may cover postemployment benefit is accrued by the University for these spouses and eligible dependent children. Surviving spouses can private entities. Financial activities of the plan are reported in the continue coverage after retiree’s death. University of Arkansas consolidated financial report. • Benefit Provided: Retirees participate in the plan at the same premium rate as an active employee. In June 2004, GASB issued Statement No. 45, Accounting and • Required Contribution Ratio: Retirees pay 100% of premium. Financial Reporting by Employers for Postemployment Benefits Employer costs are funded on a pay-as-you-go basis. Other Than Pensions, which became effective for the fiscal year ending June 30, 2008. This statement requires governmental Effective January 1, 2014, the plan for Medicare eligible retirees was entities to recognize and match other postretirement benefit costs changed to a fully insured Medicare Advantage program. Retirees with related services received and also to provide information pay 100% of the premium directly to the insurance carrier. As a regarding the actuarially calculated liability and funding level result, no liabilities for Medicare eligible retiree medical benefits of the benefits associated with past services. The calculation are included in this valuation.

13 B Summary of Key Actuarial Methods and Assumptions

Actuarial Assumptions

University Self-Funded Plan Valuation date July 1, 2016 Valuation year Census data was collected as of November 2016. New hires after July were set to a hire date of 7/1/16 Actuarial cost method Projected unit credit Amortization method 30 years rolling, level % of payroll Asset valuation method N/A Discount rate 4.00% Consumer price index increase 2.20% Projected payroll growth rate 4.00% Administrative expense increase 3.00% Medical inflation rate 0.00%, 6.75% grading to 4.25% over 15 years Pharmacy inflation rate 9.50% grading to 4.25% over 16 years Rate of retiree contribution inflation 1.70%, 4.90% then 7.80% grading to 4.25% over 14 years

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13 C General Overview of the Valuation Methodology The process of determining the liability for retiree medical subject to continual revision as actual results are compared to benefits is based on many assumptions about future events. past expectations and new estimates are made about the future. Future increases in health care costs are affected by many factors, Actuarial calculations reflect a long-term perspective. Actuarial including: medical inflation; change in utilization patterns; methods and assumptions used include techniques that are technological advances; cost shifting; cost leveraging; and changes designed to reduce short-term volatility in actuarial accrued to government medical programs, such as Medicare. liabilities and the actuarial value of assets. Calculations are based on the types of benefits provided under the terms of each plan at Actuarial valuations involve estimates of the value of reported the time of each valuation and on the pattern of sharing of costs amounts and assumptions about the probability of events between the employer and plan members to that point. far into the future, and actuarially determined amounts are

13 D Changes in Actuarial Assumptions and Methods The claim costs and trends were updated to reflect changes in The initial retiree contribution was adjusted to reflect current benefits and experience and the actuary’s expectation of future contribution rates. costs.

13 E Medical Coverage – Retirees not Eligible for Medicare The claims costs were developed from the active premium rates and 6.8% for expenses. The claim and expense costs were trended for the period July 1, 2017 to June 30, 2018 loaded for 1% to reflect back to the period July 1, 2016 to June 30, 2017 using an annual that premiums are set about 1% below expected costs. 70.3% of the trend assumption of 0.0% for medical, 9.5% for pharmacy and 3% premium was assumed to be for medical, 23.0% for pharmacy, for expenses.

13 F Dental Coverage The dental rates are set to match projected costs. Retirees pay coverage was excluded from this valuation. 100% of the budget rate for coverage. Therefore, the cost for dental

83 UNIVERSITY OF ARKANSAS

Actuarial Assumptions for the University Self-Funded Plan

University Self-Funded Plan Mortality Healthy RP-2014 Fully Generational Mortality Table for employees and healthy annuitants using projection scale MP-2014 Disabled RP-2014 Fully Generational Mortality Table for disabled retirees using projection scale MP-2014

Disability Rates Various rates based on age. Selected rates are:

Rate per 1,000 Age Male Female 25 0.0003 0.0003 30 0.0003 0.0004 40 0.0008 0.0013 50 0.0033 0.0040 55 0.0069 0.0064 60 0.0115 0.0090

Withdrawal Rates Select and ultimate rates by location are based on length of service for the first five years and age thereafter:

Service Select Rates 0 25% 1 25% 2 20% 3 16% 4 16%

Ultimate rates are from Sarason turnover table T-6

Retirement Rates Age Rate <49 0% 50-59 5% 60-61 10% 62 15% 63-66 10% 67-69 50% 70+ 100%

Future Retiree Coverage • For medical and dental coverage • 55% of employees are assumed to elect medical and dental coverage at retirement. • Retirees were assumed to remain in their current plan indefinitely (until age 65 at which point they would join the UHC Medicare Advantage plan). • For life insurance coverage • 75% of retiring employees are assumed to continue life insurance at retirement.

Future Dependent Coverage • 50% of employees electing medical and Rx coverage at retirement are assumed to be married and elect spouse coverage.

Spouse Age Differential • Males are assumed to be 4 years older than females.

84 2016-2017 ANNUAL FINANCIAL REPORT

Assumptions displayed are applicable to Fayetteville campus. at http://www.uasys.edu/system-administration/finance-and- Certain assumptions may differ for other System campuses administration/financial-statements/ for a complete summary of participating in the University Self-Funded Plan. Refer to the all actuarial assumptions. University of Arkansas System Consolidated financial report

Determination of End of Year Accrual

Unfunded actuarial accrued liability at 7/1/16 $ 18,184,820

Annual Required Contribution (ARC) Normal cost $ 862,621 Amortization of the unfunded actuarial accrued liability over 30 years 606,161 Interest 58,751 Annual Required Contribution for FY17 1,527,533 Interest on Net OPEB Obligation 613,601 ARC Amortization Adjustment (531,787) Annual OPEB Cost for FY17 $ 1,609,347

Net OPEB Obligation, 7/1/16 $ 15,386,270 Annual OPEB Cost for FY17 1,609,347 Less: Expected Employer Contributions (668,123) Net OPEB Obligation, 6/30/17 $ 16,327,494

Schedule of Employer Contributions

Fiscal Year Annual OPEB Expected Percentage Net Obligation Ending Cost Contribution Contributed at Year End 6/30/2015 $ 2,287,717 $ 798,168 34.89% $ 13,803,981 6/30/2016 2,414,931 832,642 34.48 15,386,270 6/30/2017 1,609,347 668,123 41.52 16,327,494

Since there is no funding, the expected contributions are any difference between the true cost of medical benefits and the cost retiree premiums actually paid by the University plus expected sharing premiums paid by the retiree. implicit subsidy payments. The implicit rate subsidy is the

Schedule of Funding Progress

Fiscal Year Actuarial Value Actuarial Accrued Unfunded Funded Covered UAAL as Percentage Ending of Assets Liability (AAL AAL (UAAL Ratio Payroll of Covered Payroll 6/30/2017 $ 0 $ 18,184,820 $ 18,184,820 0% $ 300,458,921 6.05%

85 UNIVERSITY OF ARKANSAS

14. POLLUTION REMEDIATION

GASB Statement 49, Accounting and Financial Reporting for EnergySolutions, LLC on November 7, 2016 to provide technical Pollution Remediation Obligations, establishes standards for services for deconstruction and green fielding of the site. Total the accounting and financial reporting of pollution (including estimated cost of the Phase 2 voluntary remediation project was contamination) remediation obligations. The university $9,648,242. Expenses incurred during fiscal year 2017 totaled completed a study in 2012, funded by a $1,889,647 award from $7,276,379. The remaining project costs to complete Phase 2, the United States Department of Energy (DOE), to develop a totaling $2,371,863, were accrued and are included in the accounts plan for remediation of the Southwest Experimental Fast Oxide payable reported on the Statement of Net Position. All project Reactor (SEFOR) site. This study developed an estimate for future costs were funded by the DOE award on a cost reimbursement remediation costs and assessed the university’s obligation for basis. Drawdowns during fiscal year 2017 totaled $6,276,599. A remediation at the site. The cost estimate was $26.1 million to receivable of $3,371,643, reflecting amounts that have not yet been complete remediation of the site. Although the study concluded invoiced to the DOE award, was also established, and is included that the University was under no obligation to begin remediation in the accounts receivable reported on the Statement of Net work at that time, the study was considered Phase 1 of the voluntary Position. remediation of the SEFOR site. During 2014, DOE appropriated an additional $1 million to review estimated remediation costs. The university expects to continue remediation of the SEFOR Of that award, $968,500 was made available to the university in site on a voluntary basis in Phases as funding becomes available. the 2017 funding obligation. The university received notice in July 2017 that an additional $5.5 million was authorized by the DOE to continue remediation of During fiscal year 2017, the university received an additional DOE the SEFOR site. The entire award has been obligated with funding award totaling $9,500,000. This award, combined with the residual available for spending. The university entered into a Phase 3 left from the 2014 appropriation, brought total funds available for voluntary remediation project with a Firm-Fixed Price not to remediation costs to $10,468,500. The university began Phase exceed $4,800,000 on September 20,2017. 2 of the voluntary remediation by entering into a contract with

15. RISK MANAGEMENT

The University of Arkansas Risk Management Program provides Administration has also secured domestic and foreign terrorism insurance coverage for all campuses within the University of coverage. Arkansas System. The role of the System Administration is to analyze and recommend insurance coverage but it is ultimately up Likewise with the auto coverage, each campus is responsible for to each campus to inform the System Administration regarding providing a list of vehicles to be covered under the auto coverage their specific coverage requirements. through Cypress Insurance. The auto coverage has a physical damage deductible of $1,000 and provides coverage against All campuses are currently covered under the property and auto liability losses up to $1,000,000 per occurrence. coverage provided through the System Administration. The property coverage is insured through FM Global with a $100,000 The University of Arkansas does have an insurance policy deductible at the Fayetteville, Medical Sciences, and Little Rock covering the Razorback Foundation, Inc. and Board of Trustees of Campuses. All other campuses have a $50,000 deductible. It the University of Arkansas for the owned aircraft, which provides is the responsibility of each campus to confirm all building coverage liability losses up to $50,000,000 per occurrence and and content values to be covered. The FM Global policy also medical coverage of $25,000 per person. contains earthquake and flood insurance coverage. The System

86 2016-2017 ANNUAL FINANCIAL REPORT

The University of Arkansas does not purchase general liability, upcoming fiscal year. The types of benefits and expenditures errors or omissions, or tort immunity for claims arising from that are paid include the following: medical expenses, hospital third-party losses on University property as the University of expenses, death benefits, disability, and claimant’s attorney fees. Arkansas has sovereign immunity against such claims. Claims against the University of Arkansas for such losses are heard before Additionally, the University of Arkansas participates in the the State Claims Commission. In such cases where the University State of Arkansas Fidelity Bond Program for claims of employee of Arkansas enters into a lease agreement to hold a function at a dishonesty. This program has a limit of $300,000 recovery per location not owned by the University of Arkansas, general liability occurrence with a $2,500 deductible. Premiums are paid annually coverage may be purchased for such functions. via a fund transfer from state appropriations to the Department of Finance and Administration. The University of Arkansas maintains workers’ compensation coverage through the State of Arkansas program. Premiums are There have been no reductions in insurance coverage from the paid through payroll and are based on a formula calculated by the prior fiscal year. Settled claims resulting from these risks have not Department of Finance and Administration which is provided exceeded commercial insurance coverage in any of the past three to the campuses around April 1 of each year to be used for the fiscal years.

16. WALTON ARTS CENTER

In 1987, the University of Arkansas and the City of Fayetteville Center to meet the arts and entertainment needs of all residents of engaged in a joint endeavor to operate the Walton Arts Center. Northwest Arkansas with a multi-venue system, while at the same Funds were pooled from each entity to provide for the construction time confirming support of the original partnership. Revisions and operation of the center. The University of Arkansas/City of were made to the respective Articles of Incorporation of the Fayetteville Arts Foundation, Inc., now called the Walton Arts Walton Arts Center Foundation, Inc. and the Walton Arts Center Center Foundation, Inc., was established to administer this Council, Inc. to clarify the purpose of each entity to encompass project and its funds. Activities of the foundation were managed multiple venues in the Northwest Arkansas region; to allow the by nine directors - three appointed by the University, three by the Walton Family Foundation to appoint nine additional directors to City of Fayetteville, and three recommended by the Foundation the Board of Directors of the Arts Center Council while ensuring that were approved by the mayor and chancellor. that the City and University maintain their proportionate number of directors on the Board; to return the City of Fayetteville’s initial The Walton Arts Center Council, Inc. was formed to construct, payment of $1.5 million to the Foundation back to the City for operate, manage, and maintain the Arts Center in Fayetteville, the City’s use in the construction of a parking facility adjacent Arkansas, in accordance with the Interlocal Cooperation to the Walton Arts Center or as otherwise determined by the Agreement between the City of Fayetteville and the University of Fayetteville City Council; and with consent by the University Arkansas. The ownership of the Arts Center facilities, including to expend the institution’s initial payment of $1.5 million to the land, is held equally by the City and the University. The Arts Center Foundation to help defray the construction costs of the proposed Council was required to submit an annual budget to both the City enlargement and enhancement of the Walton Arts Center located and the University for approval. The Board of Trustees of The Arts in Fayetteville, Arkansas. To date, the University’s funds placed in Center Council was comprised of five members appointed by the the endowment have not been spent. Accordingly, the relationship University, five members appointed by the City, and ten members of the University and Walton Arts Center Foundation, Inc, appointed at large, all of whom served as volunteers. remains unchanged. In the event the funds are expended, as provided in the revised agreement, the Walton Arts Center On August 14, 2014, the governing documents establishing and Foundation, Inc. would no longer be an agent for the University defining the joint endeavor between the City of Fayetteville and nor would the University have the right of appointment of Walton the University of Arkansas to operate the Walton Arts Center were Arts Center Foundation, Inc. directors. revised to ensure clarity and flexibility to allow the Walton Arts

87 UNIVERSITY OF ARKANSAS

An Amended and Restated Interlocal Cooperation Agreement executed by the University, City of Fayetteville and the Walton was also executed that permits the Walton Arts Center to conduct Arts Center Council. business as a separate, free-standing non-profit corporation; that budget and operational oversight rests exclusively with the Walton The lease agreement extends the term to twenty-five years and Arts Center Council and confirms the Walton Arts Center is no recognizes the changed scope of the Walton Arts Center. The lease longer an agent of the University or the City, nor restricted to the also provides assurances regarding the on-going quality and type terms of the original agreement; and affirms the Walton Arts of performances at the Walton Arts Center in Fayetteville. Center must comply with the terms of a new lease agreement

17. OTHER ENTITIES

University of Arkansas Foundation, Inc. - The Foundation University of Arkansas, Fayetteville is the beneficiary of 50.8% operates as a nonprofit benevolent corporation for charitable and 50.6% of the net assets of the Foundation for the years ended educational purposes. The Board of Trustees of the Foundation June 30, 2017 and June 30, 2016, respectively. The remaining includes one (1) member who is also a member of the University’s 49.2% and 49.4% benefits other University of Arkansas campuses Board of Trustees. The audited financial statements of the for the years ended June 30, 2017 and June 30, 2016, respectively. Foundation, as of and for the years ended June 30, 2017 and June Complete financial statements for the Foundation can be obtained 30, 2016, which have been audited by an independent certified from the administrative office at 700 Research Center Boulevard, public accountant, are presented below in summary form. The Fayetteville, AR 72701.

Condensed Statement of Financial Position University of Arkansas Foundation, Inc

2017 2016 Assets Investments, at fair value $ 964,470,191 $ 873,266,684 Contributions Receivable, net 25,633,932 33,424,389 Other Receivables 2,480,640 2,021,882 Fixed Assets, Net of Depreciation 552,025 668,025 Other Assets 1,379,370 1,248,856 Total Assets $ 994,516,158 $ 910,629,836

Liabilities and Net Assets Liabilities $ 21,215,117 $ 20,384,061 Net Assets Unrestricted 105,674,264 106,811,150 Restricted 867,626,777 783,434,625 Net Assets 973,301,041 890,245,775 Total Liabilities and Net Assets $ 994,516,158 $ 910,629,836

88 2016-2017 ANNUAL FINANCIAL REPORT

Condensed Statement of Activities University of Arkansas Foundation, Inc

2017 2016 Contributions $ 49,752,363 $ 61,084,273 Other Revenues, Additions and Gains/(Losses) 101,215,482 (2,634,862) Total Income and Other Additions/(Losses) $ 150,967,845 $ 58,449,411 Total Expenditures and Other Deductions $ 67,912,579 $ 70,129,786 Increase/(Decrease) in Net Assets $ 83,055,266 $ (11,680,375)

Arkansas Alumni Association, Inc. – The Arkansas Alumni June 30, 2017 and June 30, 2016 are presented below in summary Association, Inc., was incorporated in 1960 for the purposes of form. Complete financial statements for the Arkansas Alumni promoting the welfare of the University and its graduates and Association, Inc. can be obtained from the administrative office former students. Audited financial statements for the years ended at 491 N. Razorback Road, Fayetteville AR 72701.

Condensed Statement of Financial Position Arkansas Alumni Association, Inc.

2017 2016 Assets Cash and investments $ 2,679,465 $ 2,537,795 Other Assets 8,766,417 7,699,288 Total Assets $ 11,445,882 $ 10,237,083

Liabilities and Net Assets Liabilities $ 1,286,991 $ 1,318,321 Net Assets 10,158,891 8,918,762 Total Liabilities and Net Assets $ 11,445,882 $ 10,237,083

Condensed Statement of Activities Arkansas Alumni Association, Inc.

2017 2016 Income and Other Additions $ 5,530,352 $ 4,158,356 Expenditures and Other Deductions 4,290,223 3,876,394 Increase in Net Assets $ 1,240,129 $ 281,962

89 UNIVERSITY OF ARKANSAS

University of Arkansas Technology Development Foundation – and that spawn the development of new technologies that enrich The Foundation was incorporated in May, 2003, and is considered the economic base of Arkansas. Audited financial statements for a supporting organization of the Fayetteville campus. The the years ended June 30, 2017 and June 30, 2016 are presented Foundation’s mission is to stimulate a knowledge-based economy below in summary form. Complete financial statements for the through partnerships that lead to new opportunities for learning Foundation can be obtained from the administrative office at 535 and discovery, that build and retain a knowledge-based workforce W. Research Center Boulevard, Fayetteville, AR 72701.

Condensed Statement of Financial Position University of Arkansas Technology Development Foundation

2017 2016 Assets Cash and investments $ 1,620,806 $ 1,480,136 Other Assets 14,237 13,680 Total Assets $ 1,635,043 $ 1,493,816

Liabilities and Net Assets Liabilities $ 109,245 $ 110,054 Net Assets 1,525,798 1,383,762 Total Liabilities and Net Assets $ 1,635,043 $ 1,493,816

Condensed Statement of Activities University of Arkansas Technology Development Foundation

2017 2016 Income and Other Additions $ 1,744,460 $ 1,668,483 Expenditures and Other Deductions 1,602,424 1,522,556 Increase in Net Assets $ 142,036 $ 145,927

90 2016-2017 ANNUAL FINANCIAL REPORT

Arkansas 4-H Foundation, Inc. – The 4-H Foundation was ended June 30, 2017 and June 30, 2016 are presented below in incorporated in 1951 and was formed to encourage and support summary form. Complete financial statements for the 4-H such education purposes that will best meet the needs and Foundation can be obtained from the administrative office at advance the interest of 4-H youth programs throughout the 2301 S. University Avenue, Little Rock, AR 72204. State of Arkansas. Audited financial statements for the years

Condensed Statement of Financial Position Arkansas 4-H Foundation, Inc.

2017 2016 Assets Cash and cash equivalents $ 388,586 $ 693,119 Certificates of deposits 257,689 50,205 Investments, at fair value 4,138,463 3,641,669 Property and equipment, net 5,151,064 5,311,991 Other assets 51,810 130,600 Total Assets $ 9,987,612 $ 9,827,584

Liabilities and Net Assets Liabilities $ 229,629 $ 177,620 Net Assets Unrestricted 6,089,298 6,014,018 Restricted 3,668,685 3,635,946 Net Assets 9,757,983 9,649,964 Total Liabilities and Net Assets $ 9,987,612 $ 9,827,584

Condensed Statement of Activities Arkansas 4-H Foundation, Inc.

2017 2016 Income and Other Additions $ 2,437,536 $ 2,044,511 Expenditures and Other Deductions 2,329,517 2,096,687 Increase/(Decrease) in Net Assets $ 108,019 $ (52,176)

91 UNIVERSITY OF ARKANSAS

18. RELATED PARTIES

There were two significant related party transactions other than bond underwriters for several years. During the fiscal year those with component units discussed in Note 1. ended June 30, 2017, Crews was co-underwriter for two bond issues for the Fayetteville campus totaling $114,845,000. • A member of the Board of Trustees (whose term expired during the 2017 fiscal year) is the Bank Chairman of the privately-held • The Vice Chancellor and Director of Athletics and the Dean First Security Bancorp based in Searcy, Arkansas. At June of the School of Law are members of the Board of Directors of 30, 2017, bank balances held at First Security Bank totaled Arvest Bank Fayetteville, one of 16 autonomous community- $25,504,164 (book balances included on the Statement of Net oriented banks which comprise Arvest Bank Group, Inc., based Position were $25,589,874). The University has conducted in Bentonville, Arkansas. At June 30, 2017, bank balances held at business with the bank for several years. In addition, Crews and Arvest Bank Group, Inc. banks total $58,133,337 (book balances Associates, Inc. (Crews) is a wholly owned, non-bank affiliate of included on the Statement of Net Position were $57,688,323). First Security Bancorp and has served as one of the University’s

19. COMMITMENTS AND CONTINGENCIES

Construction The University has contracted for the construction and renovation proceeds, private gifts and other university funds. At June 30, of several facilities. At June 30, 2017, the estimated remaining cost 2016, the estimated remaining cost to complete the construction to complete the construction and renovation of these facilities and renovation of these facilities is $47,533,578. is $155,032,428, which is expected to be financed from bond

Other Commitments The University has agreed to supplement the base rent received time in which the financing arrangements are being repaid is from existing tenants of the Enterprise Center at the Arkansas known as the Chapter House Amortization Period. As of Research and Technology Park to the degree necessary to ensure June 30, 2017, three of the four organizations have entered into the related debt obligations are met. For the fiscal year ended financing agreements for the construction or renovation of their June 30, 2017, the amount of this obligation was $386,937. For residence facilities. The fourth will be financing their facility at a the fiscal year ended June 30, 2016, the amount of this obligation later date. was $452,328. In the lease agreements, it is stipulated that if the University The University has entered into lease agreements with four exercises its right to terminate the agreement for cause and different Greek organizations (Lessees) that may create future extinguish the Lessee’s leasehold estate for cause at any time commitments to the University. The lease agreements allow during the Chapter House Amortization Period, the University the Greek organizations to either construct new residence shall pay the Lessee an amount equal to the sum of the value facilities, or renovate existing residence facilities on University of the remaining unamortized value of the bank financing owned property. The construction and/or renovation of these plus the value of the financing coming from the national facilities is the responsibility of the organizations and shall organizations if any. be financed through a combination of gifts as well as financing from banks and/or national house corporations to be repaid As of June 30, 2017, the University’s total potential commitment through each chapter’s generated revenue. The period of resulting from these lease agreements totaled $34,980,409.

92 2016-2017 ANNUAL FINANCIAL REPORT

Contingencies The University has been named as defendant in several lawsuits. ultimate outcome of litigation will not have a material effect on the It is the opinion of management and its legal counsel that the future operations or financial position of the University.

20. SUBSEQUENT EVENTS

Long-term Debt On August 1, 2017, the University closed the Board of Trustees the south side of campus, intramural sports fields and Kimpel of the University of Arkansas Various Facility Revenue Bonds Hall; and construction of an offsite library storage facility, (Fayetteville Campus), Series 2017 with a par amount of student housing facilities, the Civil Engineering Research and $95,805,000. The bonds provide resources for the purpose Education Center and a black box theater. The bonds will also of constructing, reconstructing, enlarging and repairing provide funds to conduct design studies for the renovation of additional facilities including particularly improvements to and Mullins Library and for construction of a student success center. expansion of the Pat Walker Health Center, utility systems on

School of Art On September 6, 2017, the University received a $120 million first and only accredited, collegiate school of art in Arkansas, gift from the Walton Family Charitable Support Foundation and will focus on art education, art history, graphic design and to establish the School of Art. The school, to be housed within studio art curriculum. the J. William Fulbright College of Arts and Sciences, will be the

Athletic Concession Agreement The University provided notice to Sodexo Operations, LLC will pay Sodexo $454,048, which includes services provided (Sodexo) of its intent to terminate the Athletic Concessions by Sodexo during the November 15, 2016 through June 30, and Catering Agreement as of June 30, 2017. The agreement, 2017 period. Additional terms required Sodexo to maintain an effective July 1, 2012, had a five year term for catering and a equipment replacement, repair and maintenance fund and a seven year term for concessions. In accordance with the terms pest control fund, with any unused accrued funds returned to of the agreement, Sodexo was to invest $900,000 and $250,000 the university upon termination of the agreement. Accordingly, for concessions and catering equipment, respectively. The Sodexo will pay the University $189,638, which includes the investment was to be amortized over a seven year period for final commission for the period ended June 30, 2017. No accrual concessions and a ten year period for catering. The University adjustments were prepared for this termination activity because was required to reimburse Sodexo for any unamortized balance the contract remained in effect through June 30, 2017. if the agreement was terminated. Accordingly, the University

93 UNIVERSITY OF ARKANSAS

REQUIRED SUPPLEMENTARY INFORMATION

Employee Benefits

Schedule of University’s Proportional Share of the Net Pension Liability Arkansas Public Employees Retirement System

Last Three Fiscal Years* 2017 2016 2015 University’s proportion of net pension liability 0.5357% 0.4263% 0.3455% University’s proportionate share of net pension liability $ 12,570,257 $ 7,728,708 $ 4,833,430 University’s covered payroll $ 9,013,808 $ 7,329,295 $ 5,914,094 University’s proportionate share of the net pension liability as a percentage of its covered-employee payroll 139.46% 105.45% 81.73% Plan fiduciary net position as a percentage of the total pension liability 75.50% 80.39% 84.15%

* Information is presented for those years for which it is available until a full 10-year trend is compiled. The amounts presented for each fiscal year were determined as of June 30 of the previous year

Schedule of University Contributions Arkansas Public Employees Retirement System

Last Three Fiscal Years 2017 2016 2015 Contractually required contribution $ 1,435,567 $ 1,364,539 $ 1,081,804 Contributions in relation to the contractually required contribution (1,435,567) (1,364,539) (1,081,804) Contribution deficiency (excess) $ 0 $ 0 $ 0

University’s covered-employee payroll $ 9,695,224 $ 9,013,808 $ 7,329,295 Contributions as a percentage of covered-employee payroll 14.81% 15.14% 14.76%

* Information is presented for those years for which it is available until a full 10-year trend is compiled.

Notes to Required Supplementary Information for the Year Ended June 30, 2017

Changes of assumptions or other inputs: Amounts reported in 2016 reflect changes in economic (7.50%), price inflation (2.50%) and wage inflation (3.25%) assumptions used in the valuation. The investment return assumptions were changed for the June 30, 2015 valuations. Schedule of University’s Proportional Share of the Net Pension Liability Arkansas Teacher Retirement System

Last Three Fiscal Years* 2017 2016 2015 University’s proportion of net pension liability 0.0426% 0.0481% 0.0616% University’s proportionate share of net pension liability $ 1,690,916 $ 1,567,419 $ 1,617,272 University’s covered payroll $ 1,302,421 $ 1,401,043 $ 1,703,007 University’s proportionate share of the net pension liability as a percentage of its covered-employee payroll 129.83% 111.88% 94.97% Plan fiduciary net position as a percentage of the total pension liability 76.75% 82.20% 84.98%

* Information is presented for those years for which it is available until a full 10-year trend is compiled. The amounts presented for each fiscal year were determined as of June 30 of the previous year.

94 2016-2017 ANNUAL FINANCIAL REPORT

Schedule of University Contributions Arkansas Teacher Retirement System

Last Three Fiscal Years* 2017 2016 2015 Contractually required contribution $ 151,184 $ 175,617 $ 196,146 Contributions in relation to the contractually required contribution (151,184) (175,617) (196,146) Contribution deficiency (excess) $ 0 $ 0 $ 0

University’s covered-employee payroll $ 1,054,878 $ 1,302,421 $ 1,401,043 Contributions as a percentage of covered-employee payroll 14.33% 13.48% 14.00%

* Information is presented for those years for which it is available until a full 10-year trend is compiled.

Other Postemployment Benefits

Determination of End of Year Accrual

Unfundeded actuarial accrued liability at 7/1/16 $ 18,184,820 Annual Required Contribution (ARC) Normal cost $ 862,621 Amortization of the unfunded actuarial accrued liabilty over 30 years 606,161 Interest 58,751 Annual Required Contribution for FY17 1,527,533 Interest on Net OPEB Obligation 613,601 ARC Amortization Adjustment (531,787) Annual OPEB Cost for FY17 $ 1,609,347

Net OPEB Obligation, 7/1/16 $ 15,386,270 Annual OPEB Cost for FY17 1,609,347 Less: Expected Employer Contributions (668,123) Net OPEB Obligation, 6/30/17 $ 16,327,494

Schedule of Employer Contributions

Fiscal Year Annual OPEB Expected Percentage Net Obligation Ending Cost Contribution Contributed at Year End 6/30/2015 $ 2,287,717 $ 798,168 34.89% $ 13,803,981 6/30/2016 2,414,931 832,642 34.48 15,386,270 6/30/2017 1,609,347 668,123 41.52 16,327,494

Since there is no funding, the expected contributions are any difference between the true cost of medical benefits and the cost retiree premiums actually paid by the University plus expected sharing premiums paid by the retiree. implicit subsidy payments. The implicit rate subsidy is the

95 UNIVERSITY OF ARKANSAS

An explanation of the differences in the annual required contribution is provided in the section,General Overview of the Valuation Methodology.

Schedule of Funding Progress

Fiscal Year Actuarial Value Actuarial Accrued Unfunded Funded Covered UAAL as Percentage Ending of Assets Liability (AAL AAL (UAAL Ratio Payroll of Covered Payroll 6/30/2015 $ 0 $ 23,394,775 $ 23,394,775 0% $ 278,146,096 8.41% 6/30/2016 0 24,968,044 24,968,044 0 288,264,333 8.66 6/30/2017 0 18,184,820 18,184,820 0 300,458,921 6.05

General Overview of the Valuation Methodology

The process of determining the liability for retiree medical subject to continual revision as actual results are compared to benefits is based on many assumptions about future events. past expectations and new estimates are made about the future. Future increases in health care costs are affected by many factors, Actuarial calculations reflect a long-term perspective. Actuarial including: medical inflation; change in utilization patterns; methods and assumptions used include techniques that are technological advances; cost shifting; cost leveraging; and designed to reduce short-term volatility in actuarial accrued changes to government medical programs, such as Medicare. liabilities and the actuarial value of assets. Calculations are based on the types of benefits provided under the terms of each Actuarial valuations involve estimates of the value of reported plan at the time of each valuation and on the pattern of sharing amounts and assumptions about the probability of events of costs between the employer and plan members to that point. far into the future, and actuarially determined amounts are

Changes in Actuarial Assumptions and Methods since the Prior Valuation

The claim costs and trends were updated to reflect changes in The initial retiree contribution was adjusted to reflect current benefits and experience and the actuary’s expectation of future contribution rates. costs.

Medical Coverage – Retirees not Eligible for Medicare

The claims costs were developed from the active premium pharmacy, and 6.8% for expenses. The claim and expense costs rates for the period July 1, 2017 to June 30, 2018 loaded for 1% were trended back to the period July 1, 2016 to June 30, 2017 to reflect that premiums are set about 1% below expected costs. using an annual trend assumption of 0.0% for medical, 9.5% for 70.3% of the premium was assumed to be for medical, 23.0% for pharmacy and 3% for expenses.

96 2016-2017 ANNUAL FINANCIAL REPORT

97 UNIVERSITY OF ARKANSAS

BOARD OF TRUSTEES, UNIVERSITY OFFICIALS

Ben Hyneman, Chairman John Goodson Ben Hyneman of Jonesboro is president of Southern Property & Casualty John Goodson of Texarkana is a law partner at Keil & Goodson, P.A. He Insurance Company. He is former commissioner and chairman of the earned his bachelor’s degree in 1987 and law degree in 1989 from the Arkansas Soil and Water Conservation Commission. Hyneman is a 1971 University of Arkansas, Fayetteville. His term expires in 2021. graduate of the University of Arkansas. His term expires in 2018. Stephen Broughton, M.D. Mark Waldrip, Vice Chairman Stephen Broughton, M.D. of Pine Bluff is a staff psychiatrist for the Southeast Mark Waldrip of Moro is owner of East Arkansas Seeds, Inc. and Armor Arkansas Behavioral Health System. Broughton earned his bachelor’s degree Seed, LLC, companies that develop and sell soybeans, wheat, rice and corn. from the University of Arkansas at Pine Bluff and completed his medical He also owns and manages Waldrip Farms, Inc., a several thousand acre education at the University of Arkansas for Medical Sciences. His term family farm. Waldrip is a 1977 graduate of the University of Arkansas. His expires in 2022. term expires in 2020. C.C. “Cliff” Gibson III Morril Harriman, Secretary C.C. “Cliff” Gibson III of Monticello is founder of Gibson and Keith Law Morril Harriman of Little Rock is an attorney with the Mitchell Williams Firm and serves as county attorney for Drew County, Arkansas. The former law firm. He served as Governor Mike Beebe’s chief of staff from 2007 to president of the Monticello Economic Development Commission, Gibson 2015. Prior to that, Harriman served 16 years in the Arkansas Senate. He attended the University of Arkansas at Monticello and earned his Juris earned both his bachelor and law degrees from the University of Arkansas, Doctorate degree at the UALR Bowen School of Law. His term expires in 2023. Fayetteville. His term expires in 2024. Sheffield Nelson Kelly Eichler, Assistant Secretary Sheffield Nelson of Little Rock is a senior partner at Jack Nelson and Jones. Kelly Eichler of Little Rock is a graduate of the University of Arkansas, He earned his Juris Doctorate from the University of Arkansas School of Law Fayetteville. A former policy director for Gov. Asa Hutchinson, she earned and is a graduate of the Arkansas State Teachers College. Nelson is the former a Juris Doctorate from the UALR Bowen School of Law and formerly served chairman, president and CEO of Arkla, and won the Republican nomination as a Pulaski County Deputy Prosecutor, private practice partner and Special for Arkansas Governor in 1990 and 1994. His term expires in 2025. Judge in Circuit and Juvenile Courts. Her term expires in 2026. Tommy Boyer David H. Pryor Tommy Boyer, of Fayetteville, graduated from the University of Arkansas, David H. Pryor of Fayetteville is a former U.S. Senator (1979-1997), Arkansas Fayetteville in 1964, where he was also an All-American basketball player. Governor (1975-1979) and U.S. Congressman (1967-1973). He is founding He retired from the Eastman Kodak Company in 1989, and founded Micro dean of the University of Arkansas Clinton School of Public Service and Images in Amarillo, Texas. Within two years, Micro Images had become the serves on the board of the Corporation for Public Broadcasting. His term largest Kodak document imaging systems broker and reseller in the United expires in 2019. States. Boyer was inducted into the Arkansas Business Hall of Fame in 2013 and the Arkansas Sports Hall of Fame in 2000. His term expires in 2027.

Senior Management University of Arkansas Financial Officers

President, University of Arkansas – Donald Bobbitt Vice Chancellor for Finance and Administrations – Chancellor, University of Arkansas – Joseph E. Steinmetz Timothy J. O’Donnell Vice President for Agriculture – Mark J. Cochran Associate Vice Chancellor for Finance and Dean of the Clinton School – James L. Rutherford Administration – Jean E. Schook Director of the Criminal Justice Institute – Cheryl P. May Controller – Larrie Stolfi Director of the Archeological Survey – George Sabo III Associate Controller – Michael White Executive Director of the Arkansas Research and Director of Research Accounting – Stephen Turner Education Optical Network – Steven Fulkerson Director of Student Accounts – JoAnn Pepper Director of Budget – Christopher E. Frala Director of Information Technology – Kyle Smith Director of Cash Management – Susan V. Slinkard Director of Financial Affairs Compliance – Charles D. Ramseyer Director of Property Accounting – Janice Harrison

98 2016-2017 ANNUAL FINANCIAL REPORT

4 Published by Office of Financial Affairs 316 Administration Building Fayetteville, AR 72701

17-219 APPENDIX C

Audited Consolidated Financial Report of the University of Arkansas System for the Fiscal Year Ended June 30, 2017 [PAGE INTENTIONALLY BLANK] University of Arkansas System

20 Consolidated Financial Statements 17 BOARD OF TRUSTEES Ben Hyneman, Chairman

Mark Waldrip, Vice-Chairman

Morril Harriman, Secretary

Kelly Eichler, Assistant Secretary

airman David H. Pryor

John Goodson

Dr. Stephen A. Broughton

Mrs. Jane Rogers, Board Chairman Charles “Cliff” Gibson, III

Ben Hyneman, Board Chairman Sheffield Nelson

Tommy Boyer

ADMINISTRATIVE OFFICERS

Donald R. Bobbitt President

Michael K. Moore Vice President for Academic Affairs

Gina T. Terry Chief Financial Officer

Melissa K. Rust Vice President for University Relations

JoAnn Maxey \ General Counsel Dr. Donald R. Bobbitt, President

Table of Contents

Board of Trustees & Administrative Officers Inside Front Cover Letter of Transmittal 2 Independent Auditor’s Report 3 Management’s Discussion & Analysis 5

Consolidated Financial Statements Statement of Net Position 19 Statement of Revenues, Expenses, and Changes in Net Position 20 Statement of Cash Flows 21

Discretely Presented Component Units University of Arkansas Foundation, Inc. 23 University of Arkansas Fayetteville Campus Foundation, Inc. 23

Campus Financial Statements Statement of Net Position 26 Statement of Revenues, Expenses, and Changes in Net Position 28 Statement of Cash Flows 30

Notes to Financial Statements 34

Required Supplementary Information 109

Supplemental Information - Campuses & Affiliates 115

Campus Administrators Inside Back Cover

December 7, 2017

Board of Trustees and President Donald R. Bobbitt:

It is my pleasure to transmit to you the Audited Financial Statements of the University of Arkansas System for the fiscal year ended June 30, 2017. The data presented, including the Management’s Discussion and Analysis, Statements of Net Position, Statements of Revenues, Expenses, and Changes in Net Position, and Statements of Cash Flows, are presented on a consolidated basis and include all components of the System: UAF (University of Arkansas, Fayetteville, including the Division of Agriculture, Arkansas Archeological Survey, Criminal Justice Institute, and Clinton School of Public Service), UAFS (University of Arkansas at Fort Smith), UALR (University of Arkansas at Little Rock), UAMS (University of Arkansas for Medical Sciences), UAM (University of Arkansas at Monticello), UAPB (University of Arkansas at Pine Bluff), CCCUA (Cossatot Community College of the University of Arkansas), PCCUA (Phillips Community College of the University of Arkansas), UACCB (University of Arkansas Community College at Batesville), UACCH (University of Arkansas Community College at Hope), UACCM (University of Arkansas Community College at Morrilton), UAPTC (University of Arkansas Pulaski Technical College), UACCRM (University of Arkansas Community College at Rich Mountain), ASMSA (Arkansas School for Mathematics, Sciences and the Arts), and SYSTEM (University of Arkansas System Administration, including University of Arkansas System eVersity). These statements were prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB). The financial statements used to prepare the consolidated report, except for the Medical Sciences campus and the discretely presented component units, were audited by Arkansas Legislative Audit. The financial statements from the Medical Sciences campus were audited by KPMG LLP. The consolidated financial statements received an unmodified audit opinion

Gina T. Terry, CPA, CGMA Chief Financial Officer

2 3 4 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

Introduction financial statements include eVersity, and the following units that are included The University of Arkansas System in the financial statements of the (“the University”) is pleased to present Fayetteville campus: Clinton School of its financial statements for the fiscal Public Service, Division of Agriculture years ended June 30, 2017 and 2016, (Agricultural Experiment Station and the with comparative statements for the Cooperative Extension Service), fiscal year ended June 30, 2015 Arkansas Archeological Survey, and Criminal Justice Institute. The University of Arkansas System (“the University”), which prior to 1969 All programs and activities of the consisted of the Fayetteville and the University of Arkansas are governed by Medical Sciences campuses, was its ten member Board of Trustees who expanded in 1969 to include the Little are appointed by the Governor for ten- Rock campus (formerly Little Rock year terms, which has delegated to the University), in 1971 to include the President the administrative authority for Monticello campus (formerly Arkansas all aspects of the University’s A&M College), in 1972 to include the operations. Administrative authority is Pine Bluff campus (formerly Arkansas further delegated to the Chancellors, the AM&N College), in 1996 to include the Vice President for Agriculture, the Dean Phillips campus (formerly Phillips of the Clinton School, the Director of the County Community College) and the Criminal Justice Institute, the Director of Hope campus (formerly Red River Arkansas Archeological Survey, and the Technical College), and in 1998 to Director of the Arkansas School for include the Batesville campus (formerly Mathematics, Sciences and the Arts, Gateway Technical College). On July 1, who have responsibility for the programs 2001, the University was expanded to and activities of their respective include campuses in Morrilton (formerly campuses or state-wide operating Petit Jean College) and DeQueen division (formerly Cossatot Community College). The Fort Smith campus (formerly Overview of the Financial Statements Westark College) joined the University and Financial Analysis on January 1, 2002. Forest Echoes Technical Institute and Great Rivers The University’s financial statements are Technical Institute merged with the prepared in accordance with standards Monticello campus on July 1, 2003. The issued by the Governmental Accounting Arkansas School for Mathematics, Standards Board (GASB). The financial Sciences and the Arts, a residential high statement presentation provides a school, joined the University on January comprehensive, entity-wide perspective 1, 2004. On February 1, 2017, Pulaski of the University’s assets, deferred Technical College and Rich Mountain outflows, liabilities, deferred inflows, Community College joined the net position, revenues, expenses, University becoming the University of changes in net position, and cash flows. Arkansas-Pulaski Technical College and The financial statements included are the the University of Arkansas Community Statement of Net Position, the Statement College at Rich Mountain In addition to of Revenues, Expenses and Changes in these campuses, the University includes Net Position, and the Statement of Cash the System Administration, whose Flows. This discussion has been 1 5 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis prepared by management and should be reporting period), and net position read in conjunction with the financial (assets and deferred outflows of statements and notes following this resources minus liabilities and deferred section. inflows of resources) are reported in this statement. Assets and liabilities are The University has identified two legally presented in the order of their relative separate foundations, the University of liquidity, and are identified as current or Arkansas Foundation, Inc. and the noncurrent. Current assets are those University of Arkansas Fayetteville assets that can be realized in the coming Campus Foundation, Inc., that meet the year, and current liabilities are expected criteria set forth for component units to be paid within the next year. These foundations provide financial Noncurrent assets and liabilities are not support for the objectives, purposes, and expected to be realized as cash or paid in programs of the University. Although the subsequent year. Assets, deferred the University does not control the outflows of resources, liabilities and timing, purpose or amount received by deferred inflows of resources are these Foundations, the resources (and generally measured using current values. income thereon) they hold and invest are One exception is capital assets, which dedicated to benefit of the University. are stated at historical cost less Because these resources held by the accumulated depreciation. foundations can only be used by, or for the benefit of, the University, and are Net position is divided into three major deemed material, they are considered categories. The first category, invested component units and are discretely in capital assets, net of related debt, presented in the financial statement reflects the equity in property, plant and report. Additional information about equipment owned by the University. The component units is provided in Note 1. next category is restricted net position which is divided into two subcategories, Statements of Net Position expendable and nonexpendable. The expendable category is available for The Statement of Net Position provides a expenditure by the University, but must fiscal snapshot of the University as of be spent for purposes as determined by the end of the fiscal year. All assets donors and/or external entities that have (property that we own and what we are placed time or purpose restrictions on owed by others), deferred outflows of the use of the assets. The corpus of resources (consumption of net position nonexpendable restricted resources is by the University that is applicable to a only available for investment purposes. future reporting period), liabilities (what The final category is unrestricted net we owe to others and have collected position which is available for any from others before we have provided the lawful purpose of the University. service), deferred inflows of resources (acquisition of net position by the University that is applicable to a future

2 6 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

Condensed Statements of Net Position

June 30, 2017 June 30, 2016 June 30, 2015 ASSETS Current assets $ 1,069,894,334 $ 939,734,038 $ 838,908,655 Capital assets, net 2,724,223,833 2,597,819,427 2,635,668,882 Other assets 486,050,598 364,904,664 365,522,423 Total Assets 4,280,168,765 3,902,458,129 3,840,099,960

DEFERRED OUTFLOWS OF RESOURCES 64,063,832 47,107,697 29,707,312

LIABILITIES Current liabilities 352,818,138 314,934,530 285,882,339 Noncurrent liabilities 1,651,150,138 1,426,606,316 1,435,852,495 Total Liabilities 2,003,968,276 1,741,540,846 1,721,734,834

DEFERRED INFLOWS OF RESOURCES 5,953,926 8,700,386 13,720,266

NET POSITION Net Investment in Capital Assets 1,408,755,133 1,370,245,568 1,364,040,122 Restricted Non-Expendable 74,648,862 68,562,622 68,427,641 Expendable 310,847,885 248,978,971 258,870,691 Unrestricted 540,058,515 511,537,433 443,013,718 Total Net Position $ 2,334,310,395 $ 2,199,324,594 $ 2,134,352,172

The University’s total assets increased is partially due to the addition of the two $377 7 million, or 9.7%. This increase is new campuses that had $108.4 million in partially due to the addition of two new capital assets at the end of the year. Also campuses whose total assets at the end included in capital assets is construction of 2017 totaled $155.5 million. Cash and in progress which increased by $21 0 cash equivalents decreased $121.5 million during 2017, including the million offset by an increase in stadium construction in Fayetteville. investments of $257.9 million. UAF moved $190 0 million to investments, Deferred outflows of resources consist UAMS moved $21.4 million and UALR of deferred amounts on refinancing of moved $30 million. UAPTC and debt and deferred amounts related to UACCRM have $6.7 million at the end pensions. Overall, deferred outflows of fiscal 2017. Deposits Held in Trust increased $17.0 million, or 36 0% increased by $101.5 million of which Deferred outflows related to pensions UAF comprised $78.6 million and UAM increased $16 4 million as a result of $13.3 million which represent unspent actuarially determined amounts. The bond proceeds from recent bond issues. newly merged campuses represented Other campuses had additional increases $5.2 million of the total for pensions that and the addition of UAPTC who had would not have been included in the $5.7 million at year-end Capital assets prior year. increased $126.4 million net of accumulated depreciation. The increase

3 7 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

Total liabilities increased $262 4 million, million and the remaining amount of or 15.1% UAPTC and UACCRM had $88.7 million is the result of 2017 total liabilities of $114.9 million at year- revenues, expenses and changes in net end Estimated third party payor position Net investments in capital settlements related to the Medicare and assets increased $38.5 million with the Medicaid programs at UAMS increased mergers accounting for $16.3 million, $17 8 million from the prior year UAF for $13.1 million and the Accounts payable and other accrued remainder scattered among other liabilities increased $27 6 million. The campuses Restricted net position, liability for bonds, notes, capital leases expendable and non-expendable, and installment contracts increased increased $68 0 million with UAF $173 6 million, of which UAPTC and representing $31.8 million, UAMS UACCRM represent $92.9 million of the $12.3 million and UALR $11.3 million. increase from last year The remainder UAPTC had $8.3 million in restricted of the increase is due to new debt issued net position at year-end and the at UAF of $120 0 million and UAM of remainder represents the rest of the $14.7 million. UAFS had a refunding of campuses. Unrestricted net position previously issued bonds that totaled increased $28.5 million with the addition $22.2 million. Notes and capital lease of the merged campuses adding $20.9 borrowings increased by $26.8 million million, UAF adding $21.8 million, primarily at UAPB, UAMS and System adding $17.7 million, UAFS UACCB. The additional debt is offset by adding $6.3 million, and UALR adding a total of $105.2 in repayments during $4.3 million. These increases were offset fiscal 2017. The pension liability by UAMS decreasing $35.6 million and increased $35 3 million as a result of UAPB decreasing $9 8 million The net actuarially determined amounts remaining increase of $2.9 million UAPTC and UACCRM represented represents the net change for the rest of $16.7 million of the increase from the the campuses. Although unrestricted net prior year. The liability for future position is not subject to externally- insurance claims decreased by $3 2 imposed restrictions, the majority of the million and is due to the UA Health Plan University’s unrestricted net position is experiencing an overall plan loss ratio of subject to internal designations to meet 90% compared to a loss ratio of 93% in various specific commitments. These the previous fiscal year (Note 13). commitments include reserves established for future capital projects, Deferred inflows of resources related to other academic or research priorities; pension plans decreased $2 8 million, or working capital for self-supporting 31.6%, as a result of actuarially auxiliary enterprises; and reserves for determined amounts That amount is the continued recognition of OPEB and offset by the increase of adding UAPTC pension obligations. and UACCRM with balances of deferred inflows of resources related to pension plans of $1.1 million at year-end

The increase in net position was $135 million, or 6.1%. The beginning net position for the two merged campuses, UAPTC and UACCRM was $46.3 4 8 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

Statements of Revenues, Expenses and received for providing goods and Changes in Net Position services to the various customers and constituencies of the University. Changes in total net position, as Operating expenses are those expenses presented on the Statement of Net paid to acquire or produce the goods and Position, is based on the activity services provided in return for operating presented in the Statement of Revenues, revenues and to carry out the mission of Expenses and Changes in Net Position. the University. Non-operating revenues The statement presents the revenues are revenues received for which goods earned by the University, both operating and services are not provided. In and non-operating, and the expenses accordance with GASB standards, incurred by the University, both significant recurring sources of operating and non-operating, and any University revenue such as state other revenues, expenses, gains and appropriations, gifts, investment income losses received or spent by the and certain grants and contracts are University. Operating revenues are reported as non-operating revenues

Condensed Statements of Revenues, Expenses, and Changes in Net Position Year Ended June 30, 2017 June 30, 2016 June 30, 2015 Operating revenues Student tuition and fees $ 379,908,656 $ 339,492,237 $ 309,858,306 Net patient services 1,186,364,000 1,176,856,000 1,021,183,000 Grants and contracts 305,234,008 268,429,502 307,119,574 Auxiliary enterprises 221,654,753 214,263,905 186,947,910 Other 204,772,534 192,410,829 145,411,981 Total operating revenues 2,297,933,951 2,191,452,473 1,970,520,771 Operating expenses Compensation and benefits 1,668,589,914 1,555,156,358 1,499,840,271 Supplies and services 851,807,551 793,383,878 702,207,626 Other 416,088,162 403,526,825 414,384,282 Total operating expenses 2,936,485,627 2,752,067,061 2,616,432,179 Operating Loss (638,551,676) (560,614,588) (645,911,408) Non-operating revenues and expenses State appropriations 443,698,581 402,577,620 411,402,231 Gran t s 148,624,103 133,921,012 138,720,480 Gift s 98,609,383 103,423,775 91,207,792 Other revenue 53,366,271 14,546,338 29,160,490 Non-operating expenses (50,842,024) (43,334,902) (48,285,292) Non-operating income 693,456,314 611,133,843 622,205,701 Income (Loss) before other revenues and expenses 54,904,638 50,519,255 (23,705,707) Other revenues and expenses Capital grants and gifts 40,864,347 13,369,683 53,841,730 Other, net (7,104,726) 1,083,484 519,411 Other revenues and expenses 33,759,621 14,453,167 54,361,141 Increase in Net Position 88,664,259 64,972,422 30,655,434 Net Position, beginning of year 2,199,324,594 2,134,352,172 2,143,972,486 Mergers with UAPTC and UACCRM/(Pension effect) 46,321,542 - (40,275,748) Net Position, beginning of year, as restated 2,245,646,136 2,134,352,172 2,103,696,738 Net Position, end of year $ 2,334,310,395 $ 2,199,324,594 $ 2,134,352,172

5 9 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

The 2017 operating loss of $638 6 benefits amount were not reflected in the million highlights the University’s 2016 number. The cost of supplies and dependence on non-operating revenues, services increased $58 4 million, of including state appropriations, to meet which $41 5 million is attributable to the costs of operations and provide funds UAMS, UAF increased $4.7 million and for the acquisition of capital assets. the newly merged campuses had supplies and services of $12.1 million Operating revenue increased $106 5 with no corresponding amount in 2016 million, or 4.9%. Net student tuition and The increase at UAMS was due to fees increased $40 4 million, reflecting increases in medical supplies, primarily increases for UAF of $17 6 million and for a higher surgery volume, and drugs the newly merged campuses not and medicines for patient care included in 2016, of $12.6 million, and Scholarships and fellowships increased the remainder spread through the rest of $3 6 million, and depreciation increased the campuses Grants and contracts $9 1 million with most of those increases increased $36.8 million, of which UAF due to the newly merged campuses increased $23.2 million, UAMS increased $1 6 million, and the newly Net non-operating revenues increased by merged campuses had $7.0 million not $82 3 million, or 13.5%. State in the prior year total Auxiliary appropriations increased $41 1 million enterprises increased $7.4 million with due to an increase at UAMS of $23 4 UAF Athletics increasing $5 3 million million, due to lower Medicaid match and the remaining UAF auxiliaries payments which net against gross state increasing $1 8 illionm due to appropriations, and the newly merged enrollment growth Net patient services campuses which had $20.8 million not increased $9.5 million or .8% at UAMS included in the comparative numbers for due to increases in inpatient and 2016. Investment income increased outpatient volumes Other operating $38 1 million due to improved market revenue increased $12 4 million, performance. Non-operating grants including $5 6 million in Insurance plan increased $14 7 million, net, with the revenues due to increased premiums and newly merged campuses adding $18 two campuses joining the plan UAMS million offset from decreases at other had an increase of $7.7 million from campuses. Interest and fees on capital increased contractual pharmacy activity. asset-related debt increased $4.6 million due to the newly merged campuses Total operating expenses increased existing debt. Loss on disposal of assets $184 4 million, or 6.7% Compensation increased by $2.9 million due to UAF’s and benefits increased $113 4 million, or demolition of a structure as part of the 7 3% increase, over the previous year. athletic stadium expansion project. The largest portion of this was at UAMS with $59.3 million, or 6.4%, due to Other changes in net position increased increased staffing for patient volume $19.3 million, or 133.6%. Capital grants increases. UAF increased $19 million and gifts increased $27.5 million due to due in part to support enrollment growth the $17.4 million to UALR for the along with increases in salaries for Windgate building, and $14 4 million for faculty and staff; and $33 2 million for UAF athletic facilities donations. The the mergers with UAPTC and pollution remediation costs totaled $9.6 UACCRM whose compensation and million at UAF during 2017. 6 10 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

Gifts reported reflect only a portion of income or loss reflected on the the gifts available to the University. Statement of Revenues, Expenses and Most gifts for the benefit of the Changes in Net Position. This statement University are made to the University of aids in the assessment of the Arkansas Foundation, whose financial University’s ability to meet obligations information is presented in Note 1. as they become due, the need for external financing, and the ability to Statements of Cash Flows generate future cash flow.

The Statement of Cash Flows provides Similar to the operating loss on the information about the cash activity of the Statement of Revenues, Expenses, and University during the year. The Changes in Net Position, net cash used statement is divided into five parts. The in operating activities does not reflect all first part shows the net cash used by the resources available to the University operating activities of the institution. because generally accepted accounting The second section reflects cash flows principles require state appropriations, from non-capital financing activities. gifts and grants to be reported as The third section deals with cash flows nonoperating financing activities. The from capital and related activities, such net cash provided by the combination of as the acquisition and construction of operating and noncapital financing capital assets and proceeds from, and activities is a better depiction of the payment of, debt. The fourth section results achieved for the year The net reflects the cash flows from investing cash for 2017 is $279.5 million, an activities and shows the purchases, increase of $15 million over the prior proceeds, and interest received from year. The changes are explained in the these activities. The fifth section, not discussion in relation to the Statements shown in the condensed statement of Revenues, Expenses and Changes in below, reconciles the net cash used by Net Position. operating activities to the net operating

Condensed Statements of Cash Flows Year Ended June 30, 2017 June 30, 2016 June 30, 2015 Cash provided (used) by: Operating activities $ (422,406,834) $ (420,035,775) $ (442,946,388) Noncapital financing activities 701,949,112 684,549,963 658,896,460 Net cash 279,542,278 264,514,188 215,950,072

Capital and related financing activities (213,630,820) (217,420,081) (171,988,433) Investing activities (214,558,873) 48,395,650 (25,032,258)

Net change in cash (148,647,415) 95,489,757 18,929,381

Cash, beginning of year 556,103,255 460,613,498 441,684,117 Mergers with UAPTC and UACCRM 27,165,404 - - Cash, beginning of the year, restated 583,268,659 460,613,498 441,684,117

Cash, end of year $ 434,621,244 $ 556,103,255 $ 460,613,498

7 11 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

Purchases of capital assets and revenue which funds its operations, repayments of long-term debt exceeded including tuition, patient services debt proceeds and capital grants and revenue, state appropriations, investment gifts during 2017 which was consistent income, grants and contracts, and with the previous year. Purchases of support from individuals, foundations, investments exceeds the proceeds from and corporations. Because the sales and maturities of investments in the Fayetteville campus and the Medical current year which was different than Sciences campus account for 73 2% of last year. The University shifted cash to total net position and 87.9% of operating investments during the year resulting in revenues, discussion below is centered a decrease in cash of $148.6 million. on these two campuses.

Capital Assets and Long-Term Debt UAMS Activity UAMS’ financial performance in 2017 exceeded budget expectations. The At June 30, 2017, the University had decrease in net position of $19 9 million $2 7 billion of capitalized assets, net of represents a $3 8 million improvement accumulated depreciation of $2 5 billion. over initial budget projections for the Capital additions in 2017 totaled $204 5 year. While the better than expected million which was offset by depreciation result can be attributed to investment of $187 2 million, net of transfers and gains as compared to 2016, UAMS deletions, resulted in a net increase in continued to experience revenue growth capital assets of $126.4 million. The in its clinical operations Unfortunately, newly merged campuses added $108 4 the increased volumes resulted in higher million from the 2016 balances. than anticipated costs in patient care staffing and supplies New debt issued for bonds, notes, and capital leases offset by payments of UAMS anticipates a further decline in principal was a net increase of $173 6 net position of $39.2 million based on million in debt for 2017 That increase their budget. Growth in clinical includes $92.9 million related to the operations is budgeted at 6.7%, as well newly merged campuses not included in as growth in federal and state contracts, the prior year. The University issued a but increased operating and capital costs total of $156 9 million in bonds, with are expected and will offset these 77% of that amount representing new revenue gains Two major factors issues for the Fayetteville campus More contributing include the phased detailed information about debt activity implementation of a new compensation was discussed previously and is plan to bring UAMS staff salary levels presented in Note 8. to more competitive levels to increase employee retention and the decision to Economic Outlook make infrastructure improvements in facilities and information technology. The University’s net position increased On-going state funding is expected to $88 7 million for 2017. Moody’s last remain flat or decline in the next few reaffirmed the University’s rating of Aa2 years. with a stable outlook on August 14, 2017. One of the University’s greatest The State of Arkansas has made changes strengths is the diverse stream of to its Arkansas Works program that will 8 12 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis become effective January 2018 and will Children’s Hospital, and Arkansas Blue likely have a financial impact on UAMS. Cross and Blue Shield in a PASSE The first is to shift currently eligible organization that, if chosen by the state participants, who are within 100–138% to serve this population, will be eligible of the federal poverty level, from the to share in savings generated by the Arkansas Works program to the state’s program, but also to share in any health insurance exchange program, associated risks. The potential gains or which is available to all Arkansans. The losses for the first few years of the second change is to include a work program are modest. Much depends on requirement for those remaining on the how many other PASSEs are approved Medicaid expansion program, though by the state and how many eligible there will be expected exemptions for patients are attributed to the PASSE the young, disabled, and elderly. The organization UAMS is joining. It is state estimates that the change in expected that the program will be eligibility based on percentage above expanded to other disease or illness poverty level alone will reduce groups in future years. participation in the Arkansas Works program by some 60,000 individuals, or In addition, UAMS, in collaboration roughly 20%, of the currently enrolled with Baptist Health, is forming an population. It is difficult to know how accountable care organization (ACO) many of these affected individuals have under rules established by the Centers been, or would be, receiving clinical for Medicare and Medicaid Services services from UAMS. However, because (CMS) for Medicare Shared Savings UAMS currently treats a Programs (MSSP). UAMS and Baptist disproportionately large number of Health will share in any savings Medicaid patients, management does generated for the treatment of Medicare anticipate some impact on UAMS patients attributed to the ACO, but will finances. also share in any losses if costs exceed current baseline amounts. Like the UAMS will be launching two major PASSE program, it is designed to initiatives this year in partnership with improve quality of care, increase patient other healthcare providers in the state. satisfaction, and reduce costs, but, for Both initiatives are designed to give providers under the risk model, there is UAMS experience with population financial loss risk as well. Also, as with health management and expose UAMS the PASSE program, UAMS will gain to risk-based models of payment experience moving to a population reimbursement likely to become the health management model under a predominant form of payment valued based purchasing reimbursement reimbursement in the future. The mechanism. Provider-owned Arkansas Shared Savings Entity approach, or PASSE, was With both initiatives, there is established by state law in 2017 as a opportunity for some additional gain, but means to manage Medicaid costs for also a degree of uncertainty as to the eligible individuals with behavioral financial impact. As UAMS enters these health issues and developmental new collaborations, there will be greater disabilities. UAMS will be an equity need for UAMS to continue its partner with Baptist Health commitment to reducing costs while (headquartered in Little Rock), Arkansas enhancing quality, patient satisfaction, 9 13 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis

and overall efficiency of operations. academic year. The campus does not Savings and performance improvement anticipate any short-term reduction of initiatives started during the last few support due to this new funding policy. years, such as the decision to adopt a service line strategy and integrate UAF has diverse revenue sources, service line strategy and integrate including state appropriations, tuition clinical operations, to join a new major including state appropriations, tuition group purchasing consortium, to and fees (net of scholarship allowances), group purchasing consortium, to private support and sponsored grants and streamline contract management, private support and sponsored grants and research administration, and many other contracts that all contribute to support research administration, and many other the mission of teaching, research and services should begin to produce real the mission of teaching, research and and lasting savings for UAMS. service. Tuition and mandatory fee and lasting savings for UAMS. increases totaling 2.5% for resident and increases totaling 2.5% for resident and In summary, the economic outlook for 6.0% for nonresident students, In summary, the economic outlook for respectively, were necessary in 2017 in UAMS is stable, but will require a respectively, were necessary in 2017 in continuing commitment to cost savings order to maintain the facilities, faculty continuing commitment to cost savings and other support needed to fulfill that initiatives and improving performance, and other support needed to fulfill that especially with respect to its clinical mission. As record growth in enrollment especially with respect to its clinical continues, the campus must continue to operations continues, the campus must continue to look to increases in tuition rates for revenue support as well as grow other UAF revenue support as well as grow other revenue streams Financial and political support from state government remains a critical element to government remains a critical element to Campaign Arkansas is an eight-year the continued financial health of the the continued financial health of the comprehensive fundraising effort UAF. In 2017, the total general revenue UAF. In 2017, the total general revenue focused on advancing academic distribution from the State, which is a distribution from the State, which is a opportunity at the campus. The goal of portion of the state appropriation portion of the state appropriation the campaign is to raise $1 billion by revenue, remained virtually flat at revenue, remained virtually flat at 2020. All colleges and schools on $202.6 million. Estimates for 2018 $202.6 million. Estimates for 2018 campus, as well as many other units, will indicate general revenue distributions indicate general revenue distributions benefit from the fundraising effort. The from the State will remain flat, with no from the State will remain flat, with no campaign is critical to the university’s significant increase or decrease. significant increase or decrease. future and efforts to keep tuition Management will continue to institute Management will continue to institute affordable while enhancing academic both internal and external efforts to both internal and external efforts to opportunities for faculty and students. maximize the state resources available, maximize the state resources available, Funds raised will support scholarships while seeking ways to minimize the while seeking ways to minimize the and fellowships, endowed chairs, capital effect of state funding levels not keeping effect of state funding levels not keeping projects, interdisciplinary academic pace with growth. pace with growth. programs and other priority areas that will advance the campus’s goals and The new productivity-based funding objectives. Campaign Arkansas had model for state-supported higher objectives. Campaign Arkansas had model for state-supported higher raised $657.1 million at the close of education institutions provides that the 2017. In September 2017, the campaign Arkansas Department of Higher 2017. In September 2017, the campaign Arkansas Department of Higher received a major boost with a $120 Education will develop and implement a million dollar gift to fund the School of model that will contain measures for million dollar gift to fund the School of model that will contain measures for Art effectiveness, affordability and efficiency. It is expected that the model efficiency. It is expected that the model Positive news continues with the UAF will be in place to determine funding will be in place to determine funding fundraising production totals for private recommendations for the 2018-19 10 10

14 UNIVERSITY OF ARKANSAS SYSTEM: Management’s Discussion and Analysis gift support for 2017 being the third-best All Campuses year in their history. Production amounts year in their history. Production amounts Financial support from state government include gifts of cash, gifts-in-kind, for all campuses remains a critical planned gifts and new pledges. In 2017, for all campuses remains a critical planned gifts and new pledges. In 2017, element to the continued financial health the campus recognized $134.2 million of of the University. Arkansas appears to private gift support, surpassing its goal of the University. Arkansas appears to private gift support, surpassing its goal have successfully weathered the effects of $125 million. Support received from of the national economic crisis, as alumni, friends, organizations and of the national economic crisis, as alumni, friends, organizations and general revenue forecasts are positive faculty and staff of UAF enhances all and the state budget remains balanced. aspects of the student experience, and the state budget remains balanced. aspects of the student experience, Management will continue to budget including academic and need-based conservatively and to emphasize cost scholarships; technology enhancements; conservatively and to emphasize cost scholarships; technology enhancements; containment. new and renovated facilities; undergraduate, graduate and faculty undergraduate, graduate and faculty Preliminary data shows that while the research; study abroad opportunities and headcount number of students has innovative programs headcount number of students has innovative programs remained essentially flat from the fall semester of 2013 to the fall semester of 2017, the number of full-time equivalent students has increased almost 2% from 49,841 to 50,698. 49,841 to 50,698.

11 15 2017 Revenues $3.086 Billion

Other 13% State appropriations 14%

Restricted grants & contracts Tuition & fees, net 15% 12% Auxiliary enterprises 7% Patient services, net 39%

2017 Expenses $2.997 Billion

Insurance plan Other 5% 4% Depreciation 6%

Compensation and Supplies and services benefits 29% 56%

16 17 UNIVERSITY OF ARKANSAS SYSTEM: Five Year Summary of Key Data

FIVE YEAR SUMMARY OF KEY STUDENT DATA

Enrollment Fall Semester 2017* 2016 2015 2014 2013 Undergraduate Students (Headcount) 60,283 53,797 53,295 52,990 53,792 Graduate Students (Headcount) 9,385 9,503 9,469 9,119 9,071 Total 69,668 63,300 62,764 62,109 62,863

Undergraduate Students (FTE) 47,700 43,358 43,085 42,949 43,760 Graduate Students (FTE) 6,332 7,340 6,554 6,361 6,348 Total 54,032 50,698 49,639 49,310 50,108

Degrees Awarded Fiscal Year Ended June 30, 2017 2016 2015 2014 2013 Certificates 4,007 2,331 2,369 2,034 1,928 Associate 2,965 2,016 2,226 2,144 1,863 Baccalaureate 7,654 7,774 7,399 7,046 6,281 Post-Baccalaureate 168 85 144 128 118 Master's 2,097 2,074 2,023 1,912 2,032 Doctoral 249 273 263 246 264 First Professional 548 535 525 544 549 Total 17,688 15,088 14,949 14,054 13,035 *Preliminary Data Reported by Institutions

18 UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS Statement of Net Position June 30, 2017 with comparative figures at June 30, 2016

June 30, 2017 June 30, 2016 ASSETS Current Cash and cash equivalents $ 408,821,233 $ 527,905,731 Investments 337,519,972 111,002,905 Accounts receivable, net of allowances of $22,575,583 and $19,396,229 111,600,743 97,751,072 Patient accounts receivable, net of allowances of $331,482,000 and $404,672,000 140,785,000 144,828,000 Inventories 32,910,089 31,721,097 Deposits and funds held in trust by others 13,097,448 2,546,988 Notes receivable, net of allowances of $673,023 and $725,295 6,130,423 5,858,294 Other assets 19,029,426 18,119,951 Total current assets 1,069,894,334 939,734,038

Non-Current Cash and cash equivalents 25,800,011 28,197,524 Investments 286,145,732 254,715,826 Notes receivable, net of allowance of $3,508,162 and $3,612,455 33,574,689 34,228,279 Deposits and funds held in trust by others 138,106,567 47,203,641 Other non-current assets 2,423,599 559,394 Capital assets, net of depreciation of $2,456,113,256 and $2,255,534,685 2,724,223,833 2,597,819,427 Total non-current assets 3,210,274,431 2,962,724,091

TOTAL ASSETS $ 4,280,168,765 $ 3,902,458,129

DEFERRED OUTFLOWS OF RESOURCES Debt refunding $ 31,421,073 $ 30,866,887 Pensions 32,642,759 16,240,810 TOTAL DEFERRED OUTFLOWS OF RESOURCES 64,063,832 47,107,697

LIABILITIES Current Accounts payable and other accrued liabilities $ 172,268,600 $ 144,682,862 Unearned revenue 48,152,951 48,892,014 Funds held in trust for others 4,668,863 5,725,842 Liability for future insurance claims (Note 13) 15,180,200 18,412,300 Estimated third party payor settlements 29,539,000 11,704,000 Compensated absences payable - current portion (Note 4) 6,253,570 6,492,345 Bonds, notes, capital leases and installment contracts payable - current portion (Note 8) 76,754,954 79,025,167 Total current liabilities 352,818,138 314,934,530

Non-Current Unearned revenues, deposits and other 797,738 630,453 Refundable federal advance - Perkins loans 16,610,676 16,568,836 Compensated absences payable (Note 4) 85,987,702 78,733,949 Liability for other postemployment benefits (Note 15) 68,680,550 62,779,374 Liability for pensions (Note 14) 78,661,053 43,401,224 Bonds, notes, capital leases and installment contracts payable (Note 8) 1,400,412,419 1,224,492,480 Total non-current liabilities 1,651,150,138 1,426,606,316

TOTAL LIABILITIES $ 2,003,968,276 $ 1,741,540,846

DEFERRED INFLOWS OF RESOURCES Pensions $ 5,953,926 $ 8,700,386

NET POSITION Net Investment in Capital Assets $ 1,408,755,133 $ 1,370,245,568 Restricted Non-Expendable Scholarships and fellowships 12,815,850 12,240,580 Research 6,737,915 6,190,070 Other 55,095,097 50,131,972 Expendable Scholarships and fellowships 21,039,759 18,914,989 Research 66,371,352 58,145,321 Public service 18,764,469 17,124,824 Capital projects 159,003,246 121,306,579 Other 45,669,059 33,487,258 Unrestricted 540,058,515 511,537,433 TOTAL NET POSITION $ 2,334,310,395 $ 2,199,324,594

See accompanying notes. 19 UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY2017

UNIVERSITYUNIVERSITY OF OFARKANSAS ARKANSAS StatementStatement of Revenues, of Revenues, Expenses, Expenses, and and Changes Changes in Net in NetPosition Position For ForThe The Year Year Ended Ended June June 30, 201730, 2017 withwith comparative comparative figures figures for 2016for 2016

YearYear Ended Ended YearYear Ended Ended OperatingOperating Revenues Revenues JuneJune 30, 201730, 2017 JuneJune 30, 201630, 2016 StudentStudent tuition tuition & fees, & fees, net ofnet scholarship of scholarship allowances allowances of $164,914,825 of $164,914,825 and and$146,466,438 $146,466,438 $ $ 379,908,656 379,908,656 $ $ 339,492,237 339,492,237 PatientPatient services, services, net ofnet contractual of contractual allowances allowances of $1,792,176,000 of $1,792,176,000 and and$1,651,452,000 $1,651,452,000 1,186,364,000 1,186,364,000 1,176,856,000 1,176,856,000 FederalFederal and andcounty county appropriations appropriations 16,068,919 16,068,919 14,588,335 14,588,335 FederalFederal grants grants and andcontracts contracts 155,355,250 155,355,250 135,347,533 135,347,533 StateState and andlocal local grants grants and andcontracts contracts 91,686,958 91,686,958 74,144,743 74,144,743 Non-governmentalNon-governmental grants grants and andcontracts contracts 58,191,800 58,191,800 58,937,226 58,937,226 SalesSales and andservices services of educational of educational departments departments 59,408,974 59,408,974 58,114,942 58,114,942 InsuranceInsurance plan plan 51,649,212 51,649,212 49,636,512 49,636,512 AuxiliaryAuxiliary enterprises enterprises Athletics, Athletics,Athletics, net ofnetnet scholarship ofof scholarshipscholarship allowances allowancesallowances of $2,533,061 ofof $2,533,061$2,533,061 and andand$2,242,886 $2,242,886$2,242,886 111,514,319 111,514,319 105,097,147 105,097,147 Housing/food Housing/foodHousing/food service, service,service, net ofnetnet scholarship ofof scholarshipscholarship allowances allowancesallowances of $27,634,860 ofof $27,634,860$27,634,860 and andand$27,693,725 $27,693,725$27,693,725 77,477,554 77,477,554 75,640,113 75,640,113 Bookstore, Bookstore,Bookstore, net ofnetnet scholarship ofof scholarshipscholarship allowances allowancesallowances of $787,586 ofof $787,586$787,586 and andand$1,419,153 $1,419,153$1,419,153 14,687,648 14,687,648 15,757,739 15,757,739 Other OtherOther auxiliary auxiliaryauxiliary enterprises, enterprises,enterprises, net ofnetnet scholarship ofof scholarshipscholarship allowances allowancesallowances of $613,340 ofof $613,340$613,340 and andand$341,881 $341,881$341,881 17,975,232 17,975,232 17,768,906 17,768,906 OtherOther operating operating revenues revenues 77,645,429 77,645,429 70,071,040 70,071,040 Total TotalTotal operating operatingoperating revenues revenuesrevenues 2,297,933,951 2,297,933,951 2,191,452,473 2,191,452,473

OperatingOperating Expenses Expenses CompensationCompensation and andbenefits benefits 1,668,589,914 1,668,589,914 1,555,156,358 1,555,156,358 SuppliesSupplies and andservices services 851,807,551 851,807,551 793,383,878 793,383,878 ScholarshipsScholarships and andfellowships fellowships 67,847,355 67,847,355 64,246,520 64,246,520 InsuranceInsurance plan plan 161,001,798 161,001,798 161,167,230 161,167,230 DepreciationDepreciation 187,239,009 187,239,009 178,113,075 178,113,075 Total TotalTotal operating operatingoperating expenses expensesexpenses 2,936,485,627 2,936,485,627 2,752,067,061 2,752,067,061

Operating OperatingOperating loss lossloss (638,551,676) (638,551,676) (560,614,588) (560,614,588)

Non-OperatingNon-Operating Revenues Revenues (Expenses) (Expenses) StateState appropriations, appropriations, net ofnet Medicaid of Medicaid match match payments payments of $80,742,000 of $80,742,000 and and$99,151,000 $99,151,000 443,698,581 443,698,581 402,577,620 402,577,620 PropertyProperty and andsales sales tax tax 13,343,751 13,343,751 12,715,581 12,715,581 FederalFederal grants grants 101,150,219 101,150,219 85,527,558 85,527,558 StateState and andlocal local grants grants 46,378,854 46,378,854 47,308,994 47,308,994 Non-governmentalNon-governmental grants grants 1,095,030 1,095,030 1,084,460 1,084,460 GiftsGifts 98,609,383 98,609,383 103,423,775 103,423,775 InvestmentInvestment income, income, net net 38,223,625 38,223,625 160,945 160,945 InterestInterest and andfees fees on capital on capital asset-related asset-related debt debt (47,706,714) (47,706,714) (43,132,251) (43,132,251) LossLoss on disposal on disposal of assets of assets (3,135,310) (3,135,310) (202,651) (202,651) OtherOther 1,798,895 1,798,895 1,669,812 1,669,812 Net NetNetnon-operating non-operatingnon-operating revenues revenuesrevenues 693,456,314 693,456,314 611,133,843 611,133,843 Income IncomeIncome before beforebefore other otherother revenues revenuesrevenues and andandexpenses expensesexpenses 54,904,638 54,904,638 50,519,255 50,519,255

OtherOther Changes Changes in Net in NetPosition Position CapitalCapital appropriations appropriations 903,920 903,920 2,169,838 2,169,838 CapitalCapital grants grants and andgifts gifts 40,864,347 40,864,347 13,369,683 13,369,683 AdjustmentsAdjustments to prior to prior year year revenues revenues and andexpenses expenses 44,178 44,178 (87,207) (87,207) ExtraordinaryExtraordinary item-pollution item-pollution remediation remediation (9,648,242) (9,648,242) - - OtherOther 1,595,418 1,595,418 (999,147) (999,147) Total TotalTotal other otherother revenues revenuesrevenues and andandexpenses expensesexpenses 33,759,621 33,759,621 14,453,167 14,453,167

Increase IncreaseIncrease in net inin positionnetnet positionposition 88,664,259 88,664,259 64,972,422 64,972,422

Net NetPosition, Position, beginning beginning of year of year 2,199,324,594 2,199,324,594 2,134,352,172 2,134,352,172 MergersMergers with with UAPTC UAPTC and andUACCRM UACCRM (Note (Note 24) 24) 46,321,542 46,321,542 - - Net NetPosition, Position, beginning beginning of year, of year, restated restated 2,245,646,136 2,245,646,136 2,134,352,172 2,134,352,172

Net NetPosition, Position, end endof year of year $ 2,334,310,395$ 2,334,310,395 $ 2,199,324,594$ 2,199,324,594

See accompanyingSee accompanying notes. notes.

20 UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method For The Year Ended June 30, 2017 with comparative figures for 2016

Year Ended Year Ended Cash Flows from Operating Activities June 30, 2017 June 30, 2016 Student tuition and fees (net of scholarships) $ 383,744,698 $ 340,307,354 Patient and insurance payments 1,206,624,000 1,126,796,000 Federal and county appropriations 16,045,211 14,219,112 Grants and contracts 302,765,172 269,351,432 Collection of loans and interest 4,793,767 5,663,800 Insurance plan receipts 51,276,432 49,594,966 Auxiliary enterprise revenues: Athletics 111,088,466 104,156,350 Housing and food service 76,774,383 76,186,684 Bookstore 14,602,687 15,927,221 Other auxiliary enterprises 19,628,706 16,735,735 Payments to employees (1,430,210,230) (1,338,421,457) Payments of employee benefits (222,010,626) (209,719,686) Payments to suppliers (833,943,119) (772,843,953) Loans issued to students (5,961,151) (5,201,636) Scholarships and fellowships (67,812,293) (64,491,148) Payments of insurance plan expenses (164,020,140) (163,568,837) Other 114,207,203 115,272,288 Net cash used by operating activities (422,406,834) (420,035,775)

Cash Flows from Noncapital Financing Activities State appropriations 444,508,581 434,873,620 Property and sales tax 13,241,011 12,814,916 Gifts and grants for other than capital purposes 245,883,145 236,925,764 Direct Lending, Plus and FFEL loan receipts 301,575,474 268,632,192 Direct Lending, Plus and FFEL loan payments (303,276,426) (269,874,257) Other agency funds - net 95,609 1,246,335 Payment of principal on debt (49,616) (49,507) Payment of interest on debt (991) (1,100) Refunds to grantors (27,675) (18,000) Net cash provided by noncapital financing activities 701,949,112 684,549,963

Cash Flows from Capital and Related Financing Activities Distributions from debt proceeds 54,108,765 33,694,561 Capital appropriations 955,737 2,088,340 Capital grants and gifts ` 37,611,845 8,191,238 Proceeds from sale of capital assets 67,596 124,353 Purchases of capital assets (174,018,494) (133,784,741) Payment of capital related principal on debt (78,136,199) (72,432,295) Payment of capital related interest and fees (53,547,866) (48,305,455) Insurance proceeds 102,796 26,182 Payments for bond refunding and related costs - (7,022,264) Payments to/from trustee for reserve (775,000) - Net cash used by capital and related financing activities (213,630,820) (217,420,081)

Cash Flows from Investing Activities Proceeds from sales and maturities of investments 68,577,667 156,319,253 Investment income (net of fees) 2,315,518 2,271,767 Purchases of investments (285,452,058) (110,195,370) Net cash used by/provided by investing activities (214,558,873) 48,395,650

Net increase (decrease) in cash (148,647,415) 95,489,757 Cash, beginning of the year 556,103,255 460,613,498 Mergers with UAPTC and UACCRM (Note 24) 27,165,404 - Cash, beginning of the year, restated 583,268,659 460,613,498 Cash, end of year $ 434,621,244 $ 556,103,255

10 21 UNIVERSITY OF ARKANSAS SYSTEM: Consolidated Financial Statements FY2017

UNIVERSITYUNIVERSITY OF ARKANSAS OF ARKANSAS StatementStatement of Cash ofFlows Cash - DirectFlows -Method Direct Method- Continued - Continued For TheFor Year The Ended Year June Ended 30, June 2017 30, 2017 with comparativewith comparative figures forfigures 2016 for 2016

Year EndedYear Ended Year Ended Year Ended June 30, June2017 30, 2017 June 30, June2016 30, 2016 ReconciliationReconciliation of net operating of net operating loss to net loss cash to net cash used by operatingused by operating activities: activities:

OperatingOperating loss loss $ (638,551,676)$ (638,551,676)$ (560,614,588)$ (560,614,588)

AdjustmentsAdjustments to reconcile to reconcile net operating net operating loss to net loss cash to netused cash used by operatingby operating activities: activities:

DepreciationDepreciation expense expense 187,239,009 187,239,009 178,113,075 178,113,075 Other miscellaneousOther miscellaneous operating operating receipts receipts (4,251,006) (4,251,006) 3,373,632 3,373,632 AdjustmentAdjustment to cash for to cashamounts for amountsin transit in within transit the within system the system (9,211) (9,211) (610,885) (610,885) Change inChange assets inand assets liabilities: and liabilities: Receivables,Receivables, net net (8,940,997) (8,940,997) (66,650,691) (66,650,691) InventoriesInventories (1,030,930) (1,030,930) (3,362,751) (3,362,751) Prepaid expensesPrepaid expenses and other and assets other assets (2,791,087) (2,791,087) (860,452) (860,452) AccountsAccounts payable andpayable other and accrued other liabilitiesaccrued liabilities 17,770,767 17,770,767 10,107,152 10,107,152 UnearnedUnearned revenue revenue (1,152,293) (1,152,293) 7,253,358 7,253,358 Liability Liabilityfor future for insurance future insurance claims claims (3,232,100) (3,232,100) (2,387,700) (2,387,700) Loans toLoans students to studentsand employees and employees (303,936) (303,936) 197,661 197,661 RefundableRefundable federal advance federal advance 41,842 41,842 7,870 7,870 CompensatedCompensated absences absences 6,070,476 6,070,476 2,057,879 2,057,879 OPEB liabilityOPEB liability 4,018,748 4,018,748 6,755,028 6,755,028 Pension relatedPension related (488,275) (488,275) (3,671,682) (3,671,682) Other Other 23,203,835 23,203,835 10,257,319 10,257,319

NET CASHNET USED CASH BY USED OPERATING BY OPERATING ACTIVITIES ACTIVITIES $ (422,406,834)$ (422,406,834)$ (420,035,775)$ (420,035,775)

Non-CashNon-Cash Transactions Transactions Capital GiftsCapital Gifts $ 8,647,058$ 8,647,058$ 10,859,770$ 10,859,770 Fixed assetsFixed acquired assets acquired by incurring by incurring capital lease capital obligations lease obligations 11,777,008 11,777,008 2,649,193 2,649,193 Capital outlayCapital & outlay maintenance & maintenance paid directly paid fromdirectly proceeds from proceeds of debt of debt 315,658 315,658 - - PaymentPayment of bond proceeds/premium/accruedof bond proceeds/premium/accrued interest/debt interest/debt service reserve service reserve directly intodirectly deposits into depositswith trustees/escrow with trustees/escrow 157,334,321 157,334,321 237,929,886 237,929,886 PaymentPayment of bond issuanceof bond issuancecosts and costs underwriter's and underwriter's discounts discounts directly fromdirectly bond from proceeds bond proceeds and/or debt and/or service debt reserve service reserve 909,662 909,662 1,729,038 1,729,038 PaymentPayment of principal of principal & interest & on interest long-term on long-term debt from debt deposits from depositswith trustees with trustees 947,558 947,558 271,529 271,529 Interest earnedInterest on earned deposits on depositswith trustees with trustees 458,750 458,750 13,189 13,189 Loss on disposalLoss on disposalof assets of assets 3,658,751 3,658,751 614,205 614,205 ValuationValuation adjustment adjustment to capital to assets capital assets (1,233,570) (1,233,570) 1,103,802 1,103,802 Value ofValue goods of received goods receivedfrom sponsorship from sponsorship agreements agreements with vendors with vendors 3,389,056 3,389,056 3,430,000 3,430,000 Fixed assetsFixed transferred assets transferred to another to stateanother agency state agency 37,872 37,872 - -

See accompanyingSee accompanying notes. notes.

22 UNIVERSITY OF ARKANSAS SYSTEM: Discretely Presented Component Units FY2017

UNIVERSITY OF ARKANSAS FOUNDATION, INC. Consolidated Statements of Financial Position June 30, 2017 and 2016

2017 2016 ASSETS Contributions receivable, net $ 25,633,932 $ 33,424,389 Interest receivable 2,480,640 2,021,882 Investments, at fair value 964,470,171 873,266,684 Cash value of life insurance 1,379,370 1,248,856 Land 552,025 668,025 TOTAL ASSETS $ 994,516,138 $ 910,629,836

LIABILITIES AND NET ASSETS LIABILITIES Accounts payable $ 7,146,050 $ 6,319,020 Annuity obligations 14,069,067 14,065,041 TOTAL LIABILITIES 21,215,117 20,384,061

NET ASSETS Unrestricted 105,674,264 106,811,150 Temporarily restricted 151,109,487 143,967,168 Permanently restricted 716,517,290 639,467,457 TOTAL NET ASSETS 973,301,041 890,245,775 TOTAL LIABILITIES AND NET ASSETS $ 994,516,158 $ 910,629,836

UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC. Statements of Financial Position June 30, 2017 and 2016

2017 2016 ASSETS Investments $ 534,656,411 $ 486,777,148

LIABILITIES AND NET ASSETS Accounts Payable $ 931,047 $ 287,102

Net Assets: Temporarily restricted 36,403,141 33,875,459 Permanently restricted 497,322,223 452,614,587

Total Net Assets 533,725,364 486,490,046

TOTAL LIABILITIES & NET ASSETS $ 534,656,411 $ 486,777,148

9 23

11 - 558,581 908,546 460,056 3,742,148 9,160,421 1,059,532 8,144,010 2,451,992 4,971,395 1,663,979 58,449,411 70,129,786 61,084,273 14,582,570 13,622,705 10,112,850 11,593,570 66,387,638 (11,795,283) (11,680,375) TOTAL 901,926,150 890,245,775

$

$ ------557,336 872,669 289,738 315,333 872,669 22,624,270 (40,527,944) (17,613,936) (18,486,605) 657,954,062 639,467,457

Restricted Permanently

$

$ ------176 213,337 213,161 213,337 5,122,248 2,818,668 2,605,331 19,582,279 22,292,964 (44,178,823) Year Ended June 30, 2016 June Ended Year 141,361,837 143,967,168

Restricted Temporarily

$

$ 1,069 531,038 908,546 460,056 2,656,142 3,748,435 9,150,382 4,200,899 8,144,010 2,451,992 4,971,395 1,663,979 69,043,780 16,167,039 73,244,679 14,582,570 13,622,705 10,112,850 11,593,570 66,387,638 44,178,823 102,610,251 106,811,150

Unrestricted

$

$ - 195,313 181,281 804,223 675,571 3,394,356 2,974,253 2,253,515 3,938,722 2,342,191 10,476,581 90,738,901 67,912,579 49,752,363 83,055,266 14,272,974 16,855,731 11,816,083 11,602,722 64,518,223 TOTAL 890,245,775 150,967,845 973,301,041

$

$ ------10 41,744 186,830 228,574 269,199 228,574 62,277,470 14,731,738 77,278,407 77,049,833 639,467,457 716,517,290

Restricted Permanently

$

$ ------376 Years Ended June 30, 2017 and 2016 June Ended Years Consolidated Statements of Activities 24,412 24,036 24,412 5,884,293 7,166,731 7,142,319 23,867,966 20,253,999 (42,839,527) Year Ended June 30, 2017 June Ended Year 143,967,168 151,109,487

Restricted UNIVERSITY OF ARKANSAS FOUNDATION, INC. Temporarily

$

$ 8,107 804,223 675,571 115,501 4,323,089 4,593,465 2,974,253 2,253,515 3,938,722 2,342,191 3,141,370 (1,136,886) 14,766,626 42,839,527 66,522,707 14,272,974 16,855,731 11,816,083 11,602,722 64,518,223 67,659,593 105,674,264 106,811,150

Unrestricted

$

$ UNIVERSITY OF ARKANSAS SYSTEM: Discretely Presented Component Units FY2017 Presented ARKANSAS SYSTEM: Discretely OF UNIVERSITY Contributions Interest and dividends gains and unrealized Net realized on investments Net assets including reclassifications, released from or satisfaction of restrictions services: Program Construction Research support Faculty/staff and awards Scholarships Public/staff relations Equipment programs Sponsored Other services Total program services: Supporting and general Management Fundraising of split-interest value in Change agreements on for (recovery) loss Provision contributions uncollectible services Total supporting Revenues, Gains and Other Support: Gains Revenues, and otherTotal support gains revenues, Expenses and Losses: Total expenses and losses Net Assets in Change of year beginning Net Assets, end ofNet Assets, year

24 - - 345,862 1,131,919 2,443,951 1,665,250 3,726,914 10,847,583 16,434,565 (11,834,795) (15,561,709) TOTAL (28,269,360) 486,490,046 514,759,406

$

$ ------4,788 (31,573,253) (31,578,041) (31,573,253) 452,614,587 484,187,840

Restricted Permanently

$

$ ------3,303,893 3,722,126 3,303,893 Year Ended June 30, 2016 June Ended Year 33,875,459 16,016,332 30,571,566

(16,434,565) Restricted Temporarily

$

$

- - - - -

345,862 1,131,919 2,443,951 1,665,250 16,434,565 10,847,583 16,434,565 16,434,565 Unrestricted

$

$ - - 912,263 398,971 3,100,700 1,107,626 3,600,217 11,397,251 16,916,811 64,152,128 60,551,911 47,235,317 TOTAL 533,725,363 486,490,046

$

$ ------2,245 44,707,636 44,705,391 44,707,636 497,322,223 452,614,587

Restricted Permanently

$

$ Statements of Activities ------Years Ended June 30, 2017 and 2016 June Ended Years 2,527,681 3,597,972 2,527,681 Year Ended June 30, 2017 June Ended Year 36,403,140 15,846,520 33,875,459

(16,916,811) Restricted Temporarily

$

$

- - - - -

912,263 398,971 3,100,700 1,107,626 16,916,811 16,916,811 11,397,251 16,916,811 Unrestricted $ $

UNIVERSITY OF ARKANSAS FAYETTEVILLE CAMPUS FOUNDATION, INC. UNIVERSITY OF ARKANSAS SYSTEM: Discretely Presented Component Units FY2017 Presented ARKANSAS SYSTEM: Discretely OF UNIVERSITY Interest and dividends gains and unrealized Net realized on investments donor intent in for change Reclassification Net assets including reclassifications, released from or satisfaction of restrictions services: Program Research support Faculty/staff and awards Scholarships and technology Equipment Other services Total program Revenues, Gains and Other Support: Gains Revenues, and otherTotal support gains revenues, Expenses and Losses: Net Assets in Change of year beginning Net Assets, end ofNet Assets, year

25 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2017

UNIVERSITY OF ARKANSAS UNIVERSITY OF ARKANSAS Statement of Net Position by Campus Statement of Net Position by Campus June 30, 2017 June 30, 2017

Elimination Elimination UAF UAFS UALR UAMS UAM UAFUAPB UAFSSYSTEM UALRCCCUA UAMSPCCUA UACCBUAM UACCHUAPB UACCMSYSTEM UAPTCCCCUA UACCRMPCCUA ASMSAUACCB (SeeUACCH Note 19) UACCMTOTAL UAPTC UACCRM ASMSA (See Note 19) TOTAL ASSETS ASSETS Current Current Cash and cash equivalents $ 139,680,728 $ 13,045,343Cash and$ cash 19,266,187 equivalents$ 100,267,000 $ 6,496,661$ 139,680,728$ 22,552,068$ $13,045,343 46,457,180$ 19,266,187$ 1,722,660$ 100,267,000$ 8,698,207 $ $ 6,496,661 5,406,250 $$ 22,552,068 3,736,698 $ 3,324,869 46,457,180 $ $27,915,771 1,722,660 $$ 3,818,958 8,698,207 $$ 6,238,939 5,406,250 $$ 3,736,698 193,714 $ 3,324,869$ 408,821,233$ 27,915,771 $ 3,818,958 $ 6,238,939 $ 193,714 $ 408,821,233 Investments 270,139,692 1,500,000Investments 48,377,642 2,360,000 270,139,692 - 1,500,000 - 48,377,642 884,992 2,360,000 3,261,525 1,120,468 - 3,168,083 - 5,648,385 884,992 1,059,185 3,261,525 1,120,468 3,168,083 337,519,972 5,648,385 1,059,185 337,519,972 Accounts receivable 42,120,822 3,767,802Accounts receivable 7,850,482 40,299,000 3,712,014 42,120,822 7,449,495 3,767,802 15,456,287 7,850,482 959,266 40,299,000 1,765,233 3,712,014 770,447 7,449,495 562,736 15,456,287 956,763 870,792 959,266 1,765,233 459,487 770,447 92,294 (15,492,177) 562,736 956,763 111,600,743 870,792 459,487 92,294 (15,492,177) 111,600,743 Patient accounts receivable 140,785,000 140,785,000 Patient accounts receivable 140,785,000 140,785,000 Inventories 5,383,272 19,538 172,123 25,598,000 399,290 40,028 146,479 65,407 260,077 646,880 51,475 127,520 32,910,089 Inventories 5,383,272 19,538 172,123 25,598,000 399,290 40,028 146,479 65,407 260,077 646,880 51,475 127,520 32,910,089 Deposits and funds held in trust by others 3,830,137 386,351 79,804 8,681,351 6 674 792 118,333 13,097,448 Deposits and funds held in trust by others 3,830,137 Notes receivable 386,351 79,804 4,084,523 8,681,351 2,044,000 6 23,022 674 792 118,333 13,097,448 - (21,122) 6,130,423 Notes receivable 4,084,523 Other assets 2,044,000 23,022 6,931,557 423,191 684,061 8,971,000 258,679 8,743 174,116 136,176 8,761 - 98,057 (21,122) 74,919 6,130,423 1,248,778 82,026 79,362 (150,000) 19,029,426 Other assets 6,931,557 423,191 Total current 684,061 assets 8,971,000 258,679 472,170,731 8,743 18,755,874 174,116 76,736,846 136,176 320,324,000 8,761 10,969,470 98,057 38,731,685 62,087,583 74,919 1,248,778 3,849,573 13,799,139 82,026 6,535,505 79,362 6,066,782 (150,000) 7,576,109 19,029,426 35,684,518 5,665,509 6,410,595 (15,469,585) 1,069,894,334 Total current assets 472,170,731 18,755,874 76,736,846 320,324,000 10,969,470 38,731,685 62,087,583 3,849,573 13,799,139 6,535,505 6,066,782 7,576,109 35,684,518 5,665,509 6,410,595 (15,469,585) 1,069,894,334 Non-Current Non-Current Cash and cash equivalents 237,644 11,109,881 8,719 1,009,684 12,392,684 314,230 34,574 146,458 33,637 12,500 500,000 25,800,011 Cash and cash equivalents 237,644 11,109,881Investments 8,719 1,009,684 78,664,950 12,392,684 9,446,782 12,165,912 314,230 176,267,000 5,125,211 2,800,877 34,574 146,458 33,637 75,000 12,500 1,600,000 500,000 25,800,011 - 286,145,732 Investments 78,664,950 9,446,782Notes receivable 12,165,912 176,267,000 5,125,211 13,373,010 2,800,877 149,458 386,750 75,000 13,105,000 1,600,000 491,925 467,576 36,878 89,936 - 48,846 33,018 42,060 286,145,732 - 11,001,661 (5,651,429) 33,574,689 Notes receivable 13,373,010 149,458Deposits and funds386,750 held in trust by 13,105,000 others 491,925 104,247,447 467,576 668,468 163,953 36,878 7,129,000 89,936 13,278,339 48,846 33,018 - 42,060 - 11,001,661 147,936 146,728 (5,651,429) 6,612,053 33,574,689 5,658,692 53,951 138,106,567 Deposits and funds held in trust by others 104,247,447 668,468Other non-current 163,953 assets 7,129,000 13,278,339 2,423,599 - - - 147,936 146,728 - 6,612,053 450,000 5,658,692 53,951 - 138,106,567 (450,000) 2,423,599 Other non-current assets 2,423,599 Capital assets - - 1,228,555,428 - 147,595,638 450,000 238,904,519 771,955,000 43,999,721 97,634,444 - 2,966,217 13,902,334 18,136,349 12,580,880 17,097,154 (450,000) 18,137,083 2,423,599 98,122,144 10,247,906 4,389,016 2,724,223,833 Capital assets 1,228,555,428 147,595,638 Total 238,904,519 non-current assets 771,955,000 43,999,721 1,427,502,078 97,634,444 168,970,227 2,966,217 251,629,853 13,902,334 968,456,000 18,136,349 63,904,88012,580,880 113,295,581 17,097,154 18,137,083 3,416,217 98,122,144 14,328,442 10,247,906 18,226,285 14,377,662 4,389,016 17,311,474 24,937,654 2,724,223,833 103,814,473 10,314,357 15,890,677 (6,101,429) 3,210,274,431 Total non-current assets 1,427,502,078 168,970,227 251,629,853 968,456,000 63,904,880 113,295,581 3,416,217 14,328,442 18,226,285 14,377,662 17,311,474 24,937,654 103,814,473 10,314,357 15,890,677 (6,101,429) 3,210,274,431 TOTAL ASSETS $ 1,899,672,809 $ 187,726,101 $ 328,366,699 $ 1,288,780,000 $ 74,874,350 $ 152,027,266 $ 65,503,800 $ 18,178,015 $ 32,025,424 $ 20,913,167 $ 23,378,256 $ 32,513,763 $ 139,498,991 $ 15,979,866 $ 22,301,272 $ (21,571,014) $ 4,280,168,765 TOTAL ASSETS ############ $ 187,726,101 $ 328,366,699 $ 1,288,780,000 $ 74,874,350 $ 152,027,266 $ 65,503,800 $ 18,178,015 $ 32,025,424 $ 20,913,167 $ 23,378,256 $ 32,513,763 ########### $ 15,979,866 $ 22,301,272 $ (21,571,014) $ 4,280,168,765 DEFERRED OUTFLOWS OF RESOURCES Debt refunding $ 15,737,411 $ 3,618,804 $ 4,030,751 $ 5,143,000 $ 558,869 $ 257,144 $ - $ 90,775 $ 926,057 $ 1,072 $ 185,541 $ 13,322 $ 843,344 $ 14,983 $ - $ - $ 31,421,073 DEFERRED OUTFLOWS OF RESOURCES Pensions 7,356,155 1,190,078 5,242,147 6,574,000 1,120,767 232,383 201,993 913,624 637,895 1,141,005 1,381,667 1,143,279 4,367,041 861,622 279,103 - 32,642,759 Debt refunding $ 15,737,411 $ 3,618,804 $ 4,030,751 $ 5,143,000 $ 558,869 $ 257,144 $ - $ 90,775 $ 926,057 $ 1,072 $ 185,541 $ 13,322 $ 843,344 $ 14,983 $ - $ - $ 31,421,073 TOTAL DEFERRED OUTFLOWS OF RESOURCES $ 23,093,566 $ 4,808,882 $ 9,272,898 $ 11,717,000 $ 1,679,636 $ 489,527 $ 201,993 $ 1,004,399 $ 1,563,952 $ 1,142,077 $ 1,567,208 $ 1,156,601 $ 5,210,385 $ 876,605 $ 279,103 $ - $ 64,063,832 Pensions 7,356,155 1,190,078 5,242,147 6,574,000 1,120,767 232,383 201,993 913,624 637,895 1,141,005 1,381,667 1,143,279 4,367,041 861,622 279,103 - 32,642,759 TOTAL DEFERRED OUTFLOWS OF RESOURCES $ 23,093,566 $ 4,808,882 $ 9,272,898 $ 11,717,000 $ 1,679,636 $ 489,527 $ 201,993 $ 1,004,399 $ 1,563,952 $ 1,142,077 $ 1,567,208 $ 1,156,601 $ 5,210,385 $ 876,605 $ 279,103 $ - $ 64,063,832 LIABILITIES Current LIABILITIES Accounts payable and other accrued liabilities $ 59,653,712 $ 3,693,744 $ 4,794,284 $ 110,217,000 $ 1,796,540 $ 1,759,983 $ 1,124,340 $ 186,545 $ 718,816 $ 278,318 $ 375,254 $ 1,082,043 $ 1,496,934 $ 138,403 $ 401,147 $ (15,448,463) $ 172,268,600 Current Unearned revenue 33,283,777 412,705 123,637 12,975,000 126,191 203,451 2,385 258,263 194,779 50,269 70,076 232,504 157,064 62,850 48,152,951 Accounts payable and other accrued liabilities $ 59,653,712 $ 3,693,744Funds $held in4,794,284 trust for others$ 110,217,000 $ 1,796,540 $ 410,353 1,759,983 $ 166,095 1,124,340 $521,673 186,545 $ 444,000 718,816 $ 147,119 278,318 $ 2,364,880 375,254 $ 1,082,043 $ 1,496,934 47,387 $ 138,403 19,256 $ 401,147 18,366 $ (15,448,463) 65,889 $ 233,371 172,268,600 122,106 31,490 76,878 4,668,863 Unearned revenue 33,283,777 412,705Liability for future 123,637 insurance claims 12,975,000 126,191 203,451 2,385 258,263 194,779 50,269 15,180,200 70,076 232,504 157,064 62,850 48,152,951 15,180,200 Funds held in trust for others 410,353 166,095Estimated third 521,673 party payor settlements 444,000 147,119 2,364,880 47,387 29,539,000 19,256 18,366 65,889 233,371 122,106 31,490 76,878 4,668,863 29,539,000 Liability for future insurance claims Compensated absences payable - current portion 1,535,013 231,748 15,180,200 424,236 3,447,000 112,369 152,079 24,929 18,472 29,367 25,392 30,143 34,386 15,180,200 146,678 25,799 15,959 6,253,570 Estimated third party payor settlements Bonds, notes, capital leases, installment 29,539,000 contracts payable 33,524,377 5,631,231 6,474,105 24,512,000 1,119,535 854,206 49,725 282,665 385,249 570,555 685,985 483,110 29,539,000 2,038,720 164,613 (21,122) 76,754,954 Compensated absences payable - current portion 1,535,013 231,748 Total current 424,236 liabilities 3,447,000 112,369 128,407,232 152,079 10,135,523 24,929 12,337,935 18,472 181,134,000 29,367 3,301,754 25,392 5,334,599 30,143 16,381,579 34,386 146,678 793,332 1,347,467 25,799 942,900 15,959 1,157,271 1,902,986 6,253,570 4,036,942 517,369 556,834 (15,469,585) 352,818,138 Bonds, notes, capital leases, installment contracts payable 33,524,377 5,631,231 6,474,105 24,512,000 1,119,535 854,206 49,725 282,665 385,249 570,555 685,985 483,110 2,038,720 164,613 (21,122) 76,754,954 Total current liabilities 128,407,232 10,135,523Non-Current 12,337,935 181,134,000 3,301,754 5,334,599 16,381,579 793,332 1,347,467 942,900 1,157,271 1,902,986 4,036,942 517,369 556,834 (15,469,585) 352,818,138 Unearned revenues, deposits and other 32,197 220,841 329,000 104,228 111,472 450,000 (450,000) 797,738 Non-Current Refundable federal advance - Perkins loans 14,277,391 - 1,911,000 422,285 - 16,610,676 Unearned revenues, deposits and other 32,197 Compensated 220,841absences payable 329,000 19,701,601 104,228 1,457,561 3,885,045 54,252,000 111,472 977,372 2,249,444 542,593 350,962 484,490 450,000 457,287 350,552 (450,000) 337,361 797,738 620,511 193,898 127,025 85,987,702 Refundable federal advance - Perkins loans 14,277,391 Liability for other post - employment 1,911,000 benefits 422,285 16,327,494 - 1,472,383 5,767,784 36,014,000 1,497,234 2,610,149 260,757 205,383 995,039 510,894 219,379 418,144 16,610,676 1,375,150 630,125 376,635 68,680,550 Liability for pensions 14,261,174 3,223,183 10,430,430 14,011,000 3,385,065 688,667 430,355 2,957,259 1,392,393 3,117,953 3,330,527 3,611,820 14,084,910 2,650,341 1,085,976 78,661,053 Compensated absences payable 19,701,601 1,457,561 3,885,045 54,252,000 977,372 2,249,444 542,593 350,962 484,490 457,287 350,552 337,361 620,511 193,898 127,025 85,987,702 Bonds, notes, capital leases, installment contracts payable 749,222,801 70,400,849 112,685,223 282,488,000 29,725,912 33,009,795 5,326,650 4,076,280 10,525,670 2,294,853 3,717,581 11,849,451 84,890,071 5,850,712 (5,651,429) 1,400,412,419 Liability for other post employment benefits 16,327,494 1,472,383 5,767,784 36,014,000 1,497,234 2,610,149 260,757 205,383 995,039 510,894 219,379 418,144 1,375,150 630,125 376,635 68,680,550 Total non-current liabilities 813,822,658 76,553,976 132,989,323 389,005,000 36,007,868 38,662,283 6,560,355 7,589,884 13,509,064 6,380,987 7,618,039 16,216,776 100,970,642 9,325,076 2,039,636 (6,101,429) 1,651,150,138 Liability for pensions 14,261,174 3,223,183 10,430,430 14,011,000 3,385,065 688,667 430,355 2,957,259 1,392,393 3,117,953 3,330,527 3,611,820 14,084,910 2,650,341 1,085,976 78,661,053 Bonds, notes, capital leases, installment contracts payable 749,222,801 70,400,849 TOTAL 112,685,223 LIABILITIES 282,488,000 29,725,912$ 942,229,890 33,009,795$ 86,689,499 5,326,650$ 145,327,258 4,076,280$ 570,139,000 10,525,670 $ 39,309,622 2,294,853 $ 43,996,882 3,717,581 $ 11,849,451 22,941,934 $84,890,071 8,383,216 $ 14,856,5315,850,712 $ 7,323,887 $ 8,775,310 (5,651,429)$ 18,119,762 1,400,412,419$ 105,007,584 $ 9,842,445 $ 2,596,470 $ (21,571,014) $ 2,003,968,276 Total non-current liabilities 813,822,658 76,553,976 132,989,323 389,005,000 36,007,868 38,662,283 6,560,355 7,589,884 13,509,064 6,380,987 7,618,039 16,216,776 100,970,642 9,325,076 2,039,636 (6,101,429) 1,651,150,138 DEFERRED INFLOWS OF RESOURCES TOTAL LIABILITIES $ 942,229,890 $ 86,689,499Pensions$ 145,327,258 $ 570,139,000 $ 39,309,622$ $ 43,996,882 929,772 $ $ 530,737 22,941,934$ $399,186 8,383,216$ $ 14,856,531 499,000 $ $ 7,323,887 372,002 $$ 8,775,310 148,724 $ 18,119,762 61,735 ###########$ 252,003 $$ 9,842,445 446,622 $$ 2,596,470 172,225 $$ (21,571,014) 349,766 $ $ 312,786 2,003,968,276$ 990,616 $ 129,950 $ 358,802 $ - $ 5,953,926

DEFERRED INFLOWS OF RESOURCES NET POSITION Pensions $ 929,772 $ 530,737Net Investment$ 399,186 in Capital $Assets 499,000 $ 372,002$ 550,573,383$ 148,724$ $75,182,362 61,735$ 123,446,313$ 252,003$ 471,270,000$ 446,622 $ $ 26,991,483 172,225 $$ 72,337,232 349,766 $ 312,786 2,966,217 $ $ 990,6169,634,163 $$ 8,151,487 129,950 $$ 9,863,408 358,802 $$ 12,839,438 $ - 14,242,401$ 5,953,926$ 12,036,698 $ 4,301,515 $ 14,919,033 $ - $ 1,408,755,133 Restricted NET POSITION Non-Expendable Net Investment in Capital Assets $ 550,573,383 $ 75,182,362 $ 123,446,313 Scholarships$ and fellowships 471,270,000 $ 26,991,483 $ 8,453,547 72,337,232 $ 292,456 2,966,217 3,541,473$ 9,634,163 $ 8,151,487 394,000 $ 9,863,408 56,017 $ 12,839,438 $ 14,242,401 $ 12,036,698 78,357 $ 4,301,515 $ 14,919,033 $ - $ 1,408,755,133 12,815,850 Restricted Research 6,274,656 - 141,700 321,559 6,737,915 Non-Expendable Other 11,813,816 8,206 5,347,471 34,063,000 47,704 3,814,900 55,095,097 Scholarships and fellowships 8,453,547 292,456 Expendable 3,541,473 394,000 56,017 78,357 12,815,850 Research 6,274,656 - Scholarships 141,700 and fellowships 321,559 15,386,670 185,344 573,494 3,141,000 289,857 916,631 238,180 308,583 6,737,915 21,039,759 Other 11,813,816 8,206 5,347,471 Research 34,063,000 47,704 35,722,118 3,814,900 - 1,505,121 26,780,000 1,701,982 662,131 55,095,097 66,371,352 Public service 9,260,752 149,580 9,082,399 271,738 18,764,469 Expendable Capital projects 26,332,397 772,874 9,627,399 115,590,000 949,888 1,928,387 314,231 1,459,795 1,981,201 34,574 12,500 159,003,246 Scholarships and fellowships 15,386,670 185,344 573,494 3,141,000 289,857 916,631 238,180 308,583 21,039,759 Other 24,746,536 4,010,644 3,282,158 1,230,000 968,500 2,981,326 13,108 8,311,397 65,011 60,379 45,669,059 Research 35,722,118 - 1,505,121 26,780,000 1,701,982 662,131 66,371,352 Unrestricted 291,042,838 24,713,281 35,365,625 77,391,000 5,545,372 25,458,842 39,735,907 507,336 8,436,761 2,714,523 2,946,376 686,832 18,363,081 2,505,050 4,645,691 540,058,515 Public service 9,260,752 149,580 TOTAL 9,082,399 NET POSITION $ 979,606,713 271,738$ 105,314,747 $ 191,913,153 $ 729,859,000 $ 36,872,362 $ 108,371,187 $ 42,702,124 $ 10,547,195 $ 18,286,223 $ 14,559,132 $ 15,820,388 $ 15,237,816 18,764,469$ 38,711,176 $ 6,884,076 $ 19,625,103 $ - $ 2,334,310,395 Capital projects 26,332,397 772,874 9,627,399 115,590,000 949,888 1,928,387 314,231 1,459,795 1,981,201 34,574 12,500 159,003,246 Other 24,746,536 4,010,644 3,282,158 1,230,000 968,500 2,981,326 13,108 8,311,397 65,011 60,379 45,669,059 Unrestricted 291,042,838 24,713,281 35,365,625 77,391,000 5,545,372 25,458,842 39,735,907 507,336 8,436,761 2,714,523 2,946,376 686,832 18,363,081 2,505,050 4,645,691 540,058,515 See accompanying notes. TOTAL NET POSITION $ 979,606,713 $ 105,314,747 $ 191,913,153 $ 729,859,000 $ 36,872,362 $ 108,371,187 $ 42,702,124 $ 10,547,195 $ 18,286,223 $ 14,559,132 $ 15,820,388 $ 15,237,816 $ 38,711,176 $ 6,884,076 $ 19,625,103 $ - $ 2,334,310,395

See accompanying notes.

26 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2017

UNIVERSITY OF ARKANSAS Statement of Net Position by Campus June 30, 2017

Elimination UAF UAFS UALR UAMS UAM UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM UAPTC UACCRM ASMSA (See Note 19) TOTAL ASSETS Current Cash and cash equivalents $ 139,680,728 $ 13,045,343 $ 19,266,187 $ 100,267,000 $ 6,496,661 $ 22,552,068 $ 46,457,180 $ 1,722,660 $ 8,698,207 $ 5,406,250 $ 3,736,698 $ 3,324,869 $ 27,915,771 $ 3,818,958 $ 6,238,939 $ 193,714 $ 408,821,233 Investments 270,139,692 1,500,000 48,377,642 2,360,000 - - 884,992 3,261,525 1,120,468 3,168,083 5,648,385 1,059,185 337,519,972 Accounts receivable 42,120,822 3,767,802 7,850,482 40,299,000 3,712,014 7,449,495 15,456,287 959,266 1,765,233 770,447 562,736 956,763 870,792 459,487 92,294 (15,492,177) 111,600,743 Patient accounts receivable 140,785,000 140,785,000 Inventories 5,383,272 19,538 172,123 25,598,000 399,290 40,028 146,479 65,407 260,077 646,880 51,475 127,520 32,910,089 Deposits and funds held in trust by others 3,830,137 386,351 79,804 8,681,351 6 674 792 118,333 13,097,448 Notes receivable 4,084,523 2,044,000 23,022 - (21,122) 6,130,423 Other assets 6,931,557 423,191 684,061 8,971,000 258,679 8,743 174,116 136,176 8,761 98,057 74,919 1,248,778 82,026 79,362 (150,000) 19,029,426 Total current assets 472,170,731 18,755,874 76,736,846 320,324,000 10,969,470 38,731,685 62,087,583 3,849,573 13,799,139 6,535,505 6,066,782 7,576,109 35,684,518 5,665,509 6,410,595 (15,469,585) 1,069,894,334

Non-Current Cash and cash equivalents 237,644 11,109,881 8,719 1,009,684 12,392,684 314,230 34,574 146,458 33,637 12,500 500,000 25,800,011 Investments 78,664,950 9,446,782 12,165,912 176,267,000 5,125,211 2,800,877 75,000 1,600,000 - 286,145,732 Notes receivable 13,373,010 149,458 386,750 13,105,000 491,925 467,576 36,878 89,936 48,846 33,018 42,060 - 11,001,661 (5,651,429) 33,574,689 Deposits and funds held in trust by others 104,247,447 668,468 163,953 7,129,000 13,278,339 - 147,936 146,728 6,612,053 5,658,692 53,951 138,106,567 Other non-current assets 2,423,599 - - - 450,000 - (450,000) 2,423,599 Capital assets 1,228,555,428 147,595,638 238,904,519 771,955,000 43,999,721 97,634,444 2,966,217 13,902,334 18,136,349 12,580,880 17,097,154 18,137,083 98,122,144 10,247,906 4,389,016 2,724,223,833 Total non-current assets 1,427,502,078 168,970,227 251,629,853 968,456,000 63,904,880 113,295,581 3,416,217 14,328,442 18,226,285 14,377,662 17,311,474 24,937,654 103,814,473 10,314,357 15,890,677 (6,101,429) 3,210,274,431

TOTAL ASSETS $ 1,899,672,809 $ 187,726,101 $ 328,366,699 $ 1,288,780,000 $ 74,874,350 $ 152,027,266 $ 65,503,800 $ 18,178,015 $ 32,025,424 $ 20,913,167 $ 23,378,256 $ 32,513,763 $ 139,498,991 $ 15,979,866 $ 22,301,272 $ (21,571,014) $ 4,280,168,765

DEFERRED OUTFLOWS OF RESOURCES Debt refunding $ 15,737,411 $ 3,618,804 $ 4,030,751 $ 5,143,000 $ 558,869 $ 257,144 $ - $ 90,775 $ 926,057 $ 1,072 $ 185,541 $ 13,322 $ 843,344 $ 14,983 $ - $ - $ 31,421,073 Pensions 7,356,155 1,190,078 5,242,147 6,574,000 1,120,767 232,383 201,993 913,624 637,895 1,141,005 1,381,667 1,143,279 4,367,041 861,622 279,103 - 32,642,759 TOTAL DEFERRED OUTFLOWS OF RESOURCES $ 23,093,566 $ 4,808,882 $ 9,272,898 $ 11,717,000 $ 1,679,636 $ 489,527 $ 201,993 $ 1,004,399 $ 1,563,952 $ 1,142,077 $ 1,567,208 $ 1,156,601 $ 5,210,385 $ 876,605 $ 279,103 $ - $ 64,063,832

LIABILITIES Current Accounts payable and other accrued liabilities $ 59,653,712 $ 3,693,744 $ 4,794,284 $ 110,217,000 $ 1,796,540 $ 1,759,983 $ 1,124,340 $ 186,545 $ 718,816 $ 278,318 $ 375,254 $ 1,082,043 $ 1,496,934 $ 138,403 $ 401,147 $ (15,448,463) $ 172,268,600 Unearned revenue 33,283,777 412,705 123,637 12,975,000 126,191 203,451 2,385 258,263 194,779 50,269 70,076 232,504 157,064 62,850 48,152,951 Funds held in trust for others 410,353 166,095 521,673 444,000 147,119 2,364,880 47,387 19,256 18,366 65,889 233,371 122,106 31,490 76,878 4,668,863 Liability for future insurance claims 15,180,200 15,180,200 Estimated third party payor settlements 29,539,000 29,539,000 Compensated absences payable - current portion 1,535,013 231,748 424,236 3,447,000 112,369 152,079 24,929 18,472 29,367 25,392 30,143 34,386 146,678 25,799 15,959 6,253,570 Bonds, notes, capital leases, installment contracts payable 33,524,377 5,631,231 6,474,105 24,512,000 1,119,535 854,206 49,725 282,665 385,249 570,555 685,985 483,110 2,038,720 164,613 (21,122) 76,754,954 Total current liabilities 128,407,232 10,135,523 12,337,935 181,134,000 3,301,754 5,334,599 16,381,579 793,332 1,347,467 942,900 1,157,271 1,902,986 4,036,942 517,369 556,834 (15,469,585) 352,818,138

Non-Current Unearned revenues, deposits and other 32,197 220,841 329,000 104,228 111,472 450,000 (450,000) 797,738 Refundable federal advance - Perkins loans 14,277,391 - 1,911,000 422,285 - 16,610,676 Compensated absences payable 19,701,601 1,457,561 3,885,045 54,252,000 977,372 2,249,444 542,593 350,962 484,490 457,287 350,552 337,361 620,511 193,898 127,025 85,987,702 Liability for other post employment benefits 16,327,494 1,472,383 5,767,784 36,014,000 1,497,234 2,610,149 260,757 205,383 995,039 510,894 219,379 418,144 1,375,150 630,125 376,635 68,680,550 Liability for pensions 14,261,174 3,223,183 10,430,430 14,011,000 3,385,065 688,667 430,355 2,957,259 1,392,393 3,117,953 3,330,527 3,611,820 14,084,910 2,650,341 1,085,976 78,661,053 Bonds, notes, capital leases, installment contracts payable 749,222,801 70,400,849 112,685,223 282,488,000 29,725,912 33,009,795 5,326,650 4,076,280 10,525,670 2,294,853 3,717,581 11,849,451 84,890,071 5,850,712 (5,651,429) 1,400,412,419 Total non-current liabilities 813,822,658 76,553,976 132,989,323 389,005,000 36,007,868 38,662,283 6,560,355 7,589,884 13,509,064 6,380,987 7,618,039 16,216,776 100,970,642 9,325,076 2,039,636 (6,101,429) 1,651,150,138

TOTAL LIABILITIES $ 942,229,890 $ 86,689,499 $ 145,327,258 $ 570,139,000 $ 39,309,622 $ 43,996,882 $ 22,941,934 $ 8,383,216 $ 14,856,531 $ 7,323,887 $ 8,775,310 $ 18,119,762 $ 105,007,584 $ 9,842,445 $ 2,596,470 $ (21,571,014) $ 2,003,968,276

DEFERRED INFLOWS OF RESOURCES Pensions $ 929,772 $ 530,737 $ 399,186 $ 499,000 $ 372,002 $ 148,724 $ 61,735 $ 252,003 $ 446,622 $ 172,225 $ 349,766 $ 312,786 $ 990,616 $ 129,950 $ 358,802 $ - $ 5,953,926

NET POSITION Net Investment in Capital Assets $ 550,573,383 $ 75,182,362 $ 123,446,313 $ 471,270,000 $ 26,991,483 $ 72,337,232 $ 2,966,217 $ 9,634,163 $ 8,151,487 $ 9,863,408 $ 12,839,438 $ 14,242,401 $ 12,036,698 $ 4,301,515 $ 14,919,033 $ - $ 1,408,755,133 Restricted Non-Expendable Scholarships and fellowships 8,453,547 292,456 3,541,473 394,000 56,017 78,357 12,815,850 Research 6,274,656 - 141,700 321,559 6,737,915 Other 11,813,816 8,206 5,347,471 34,063,000 47,704 3,814,900 55,095,097 Expendable Scholarships and fellowships 15,386,670 185,344 573,494 3,141,000 289,857 916,631 238,180 308,583 21,039,759 Research 35,722,118 - 1,505,121 26,780,000 1,701,982 662,131 66,371,352 Public service 9,260,752 149,580 9,082,399 271,738 18,764,469 Capital projects 26,332,397 772,874 9,627,399 115,590,000 949,888 1,928,387 314,231 1,459,795 1,981,201 34,574 12,500 159,003,246 Other 24,746,536 4,010,644 3,282,158 1,230,000 968,500 2,981,326 13,108 8,311,397 65,011 60,379 45,669,059 Unrestricted 291,042,838 24,713,281 35,365,625 77,391,000 5,545,372 25,458,842 39,735,907 507,336 8,436,761 2,714,523 2,946,376 686,832 18,363,081 2,505,050 4,645,691 540,058,515 TOTAL NET POSITION $ 979,606,713 $ 105,314,747 $ 191,913,153 $ 729,859,000 $ 36,872,362 $ 108,371,187 $ 42,702,124 $ 10,547,195 $ 18,286,223 $ 14,559,132 $ 15,820,388 $ 15,237,816 $ 38,711,176 $ 6,884,076 $ 19,625,103 $ - $ 2,334,310,395

See accompanying notes.

27 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2017

UNIVERSITY OF ARKANSAS UNIVERSITY OF ARKANSAS Statement of Revenues, Expenses, and Changes in Net Position by Campus Statement of Revenues, Expenses, and Changes in Net Position by Campus For the Year Ended June 30, 2017 For the Year Ended June 30, 2017

Elimination Elimination UAF UAFS UALR UAMS UAM UAPB UAF SYSTEM UAFSCCCUA UALR PCCUA UAMSUACCB UAM UACCH UAPB UACCMSYSTEM UAPTCCCCUAUACCRM PCCUA ASMSAUACCB(Note UACCH 19) TOTAL UACCM UAPTC UACCRM ASMSA (Note 19) TOTAL Operating Revenues Operating Revenues Student tuition & fees, net of scholarship allowances $ 227,456,739 $ 17,015,967 $ Student 50,123,157 tuition &$ fees, 43,975,000 net of scholarship$ 11,552,001 allowances $ 7,838,515$ 227,456,739 $ 252,243$ 17,015,967 $ 2,229,138$ 50,123,157 $ 881,798 $ 43,975,000 $ 1,088,031$ 11,552,001$ 1,315,527$ 7,838,515$ 3,535,793$ 252,243$ $ 11,887,8472,229,138 $ $ 756,900 881,798 $ 1,088,031 $ 1,315,527$ 379,908,656$ 3,535,793 $ 11,887,847 $ 756,900 $ 379,908,656 Net patient services Net patient services 1,186,364,000 1,186,364,000 1,186,364,000 1,186,364,000 Federal and county appropriations 16,068,919 Federal and county appropriations 16,068,919 - 16,068,919 - 16,068,919 Federal grants and contracts 43,241,546 1,156,194 Federal 14,094,035 grants and contracts 70,170,000 1,872,295 13,776,840 43,241,546 1,156,194 431,548 14,094,035 2,420,086 70,170,000 771,665 1,872,295 972,966 13,776,840 1,340,436 2,959,531 431,548 2,140,808 2,420,086 7,300.00 771,665 972,966 155,355,250 1,340,436 2,959,531 2,140,808 7,300.00 155,355,250 State and local grants and contracts 32,460,684 2,913,756 State 12,755,636 and local grants and 31,411,000 contracts 2,539,125 2,684,941 32,460,684 2,913,756 962,130 12,755,636 1,062,162 31,411,000 314,028 2,539,125 1,443,411 2,684,941 883,102 1,111,266 962,130 1,062,162 607,637 538,080 314,028 1,443,411 91,686,958 883,102 1,111,266 607,637 538,080 91,686,958 Non-governmental grants and contracts 39,224,018 3,034,429 Non-governmental 1,334,297 grants 11,905,000 and contracts 934,003 615,920 39,224,018 250,000 3,034,429 40,461 1,334,297 437,347 11,905,000 27,082 934,003 615,920 148,043 250,000 40,461 144,157 437,347 97,043 27,082 58,191,800 148,043 144,157 97,043 58,191,800 Sales and services of educational departments 22,454,703 334,668 Sales 1,866,605 and services of educational 33,018,000 departments 247,998 316,581 22,454,703 4,230,585 334,668 161,362 1,866,605 44,783 33,018,000 56,291 247,998 88,194 316,581 142,728 4,230,585 161,362 268,311 32,323 44,783 47,192 56,291$ (3,901,350) 88,194 59,408,974 142,728 268,311 32,323 47,192 $ (3,901,350) 59,408,974 Insurance plan Insurance plan 181,229,758 181,229,758 (129,580,546) 51,649,212 (129,580,546) 51,649,212 Auxiliary enterprises Auxiliary enterprises - - Athletics 103,488,566 318,761 Athletics 5,414,073 549,859 1,725,229 103,488,566 318,761 17,831 5,414,073 549,859 1,725,229 17,831 - 111,514,319 - 111,514,319 Housing and food service 51,932,574 3,138,973 Housing 6,673,497 and food service 8,600,000 2,440,710 4,612,429 51,932,574 3,138,973 79,371 6,673,497 8,600,000 2,440,710 4,612,429 79,371 77,477,554 77,477,554 Bookstore 12,278,306 388,287 Bookstore 242,506 - 459,242 150,934 12,278,306 388,287 177,111 242,506 48,811 - 196,613 459,242 468,384 150,934 82,863 177,111 194,591 48,811 196,613 468,384 14,687,648 82,863 194,591 14,687,648 Other auxiliary enterprises 12,131,488 329,158 Other 1,306,197 auxiliary enterprises 2,998,000 632,518 312,294 12,131,488 329,158 1,306,197 81,587 2,998,000 121,273 632,518 312,294 12,476 50,241 81,587 121,273 17,975,232 12,476 50,241 17,975,232 Other operating revenues 13,271,938 451,977 Other 1,957,983 operating revenues 57,717,000 697,494 3,221,864 13,271,938 451,977 61,787 1,957,983 130,914 57,717,000 67,535 697,494 51,791 3,221,864 46,588 667,90961,787 130,914 55,106 216,401 67,535 (970,858) 51,791 77,645,429 46,588 667,909 55,106 216,401 (970,858) 77,645,429 Total operating revenues 574,009,481 29,082,170 95,767,986 Total operating 1,446,158,000 revenues 21,925,245 35,255,547 574,009,481 185,962,586 29,082,170 4,160,739 95,767,986 5,107,488 1,446,158,000 2,642,518 21,925,245 4,340,273 35,255,547 6,192,029 185,962,586 16,894,8644,160,739 3,981,763 5,107,488 906,016 2,642,518 (134,452,754) 4,340,273 2,297,933,951 6,192,029 16,894,864 3,981,763 906,016 (134,452,754) 2,297,933,951

Operating Expenses Operating Expenses Compensation and benefits 487,572,321 42,838,163 Compensation 116,944,732 and benefits 987,945,000 27,557,131 43,833,047 487,572,321 8,264,980 42,838,163 8,220,547 116,944,732 11,868,932 987,945,000 7,661,237 27,557,131 8,347,620 43,833,047 9,552,373 8,264,980 27,432,0348,220,547 11,868,9325,747,779 4,384,564 7,661,237 (129,580,546) 8,347,620 1,668,589,914 9,552,373 27,432,034 5,747,779 4,384,564 (129,580,546) 1,668,589,914 Supplies and services 248,768,835 17,877,441 Supplies 43,290,510 and services 477,733,000 11,370,022 22,988,968 248,768,835 2,816,650 17,877,441 3,007,943 43,290,510 4,212,590 477,733,000 2,537,942 11,370,022 2,809,521 22,988,968 3,299,010 2,816,650 3,007,943 9,796,229 2,319,363 4,212,590 3,851,735 2,537,942 (4,872,208) 2,809,521 851,807,551 3,299,010 9,796,229 2,319,363 3,851,735 (4,872,208) 851,807,551 Scholarships and fellowships 20,764,570 3,644,491 Scholarships 14,759,623 and fellowships 880,000 6,408,319 5,277,531 20,764,570 3,644,491 1,164,570 14,759,623 1,612,641 880,000 1,212,285 6,408,319 3,335,364 5,277,531 2,883,954 1,164,570 4,944,569 1,612,641 959,438 1,212,285 3,335,364 67,847,355 2,883,954 4,944,569 959,438 67,847,355 Insurance plan Insurance plan 161,001,798 161,001,798 161,001,798 161,001,798 Depreciation 75,527,340 7,720,862 Depreciation 16,056,746 66,021,000 3,573,539 6,422,880 75,527,340 434,010 7,720,862 941,082 16,056,746 1,381,051 66,021,000 815,945 3,573,539 958,707 6,422,880 959,511 434,010 4,805,635 941,082 1,215,362 1,381,051 405,339 815,945 958,707 187,239,009 959,511 4,805,635 1,215,362 405,339 187,239,009 Total operating expenses 832,633,066 72,080,957 191,051,611 Total operating 1,532,579,000 expenses 48,909,011 78,522,426 832,633,066 172,517,438 72,080,957 13,334,142 191,051,611 19,075,214 1,532,579,000 12,227,409 48,909,011 15,451,212 78,522,426 16,694,848 172,517,438 13,334,142 46,978,467 10,241,942 19,075,214 8,641,638 12,227,409 (134,452,754) 15,451,212 2,936,485,627 16,694,848 46,978,467 10,241,942 8,641,638 (134,452,754) 2,936,485,627

Operating gain (loss) (258,623,585) (42,998,787) (95,283,625) Operating gain (86,421,000)(loss) (26,983,766) (43,266,879) (258,623,585) 13,445,148 (42,998,787) (9,173,403) (95,283,625) (13,967,726) (86,421,000) (9,584,891) (26,983,766) (11,110,939) (43,266,879) (10,502,819) 13,445,148 (30,083,603)(9,173,403) (13,967,726)(6,260,179) (7,735,622) (9,584,891) (11,110,939) - (638,551,676) (10,502,819) (30,083,603) (6,260,179) (7,735,622) - (638,551,676)

Non-Operating Revenues (Expenses) Non-Operating Revenues (Expenses) State appropriations 206,764,617 24,056,683 State 68,575,478 appropriations 31,259,000 18,570,160 28,254,901 206,764,617 3,701,195 24,056,683 4,747,973 68,575,478 10,381,540 31,259,000 4,997,821 18,570,160 6,450,944 28,254,901 6,313,341 3,701,195 17,411,2094,747,973 10,381,5403,420,616 8,793,103 4,997,821 6,450,944 443,698,581 6,313,341 17,411,209 3,420,616 8,793,103 443,698,581 Property and sales tax 6,147,209 Property and - sales tax - 6,147,209 1,296,117 1,927,071 - 1,403,319 1,447,590 - 695,829 1,296,117 1,927,071 426,616 1,403,319 1,447,590 13,343,751 695,829 426,616 13,343,751 Federal grants 21,631,421 13,153,632 Federal 16,270,438 grants 7,375,830 9,839,553 21,631,421 13,153,632 2,194,708 16,270,438 2,646,694 2,892,358 7,375,830 3,937,185 9,839,553 4,484,216 15,187,3782,194,708 1,536,806 2,646,694 2,892,358 3,937,185 101,150,219 4,484,216 15,187,378 1,536,806 101,150,219 State and local grants 27,016,602 6,273,655 State 7,358,014 and local grants 2,253,685 1,515,828 27,016,602 6,273,655 349,109 7,358,014 306,376 2,253,685 1,515,828 1,305,585 349,109 - 306,376 46,378,854 1,305,585 - 46,378,854 Non-governmental grants 41,250 Non-governmental 1,053,780 grants - 41,250 1,053,780 - - 1,095,030 - 1,095,030 Gifts 72,257,662 496,307 Gifts 4,975,993 19,673,000 89,850 489,064 72,257,662 496,307 106,834 4,975,993 19,673,000 89,850 489,064 17,249 106,834 396,015 6,865 100,544 98,609,383 17,249 396,015 6,865 100,544 98,609,383 Investment income, net 11,951,939 32,969 Investment 1,685,334 income, net 23,783,000 327,929 154,061 11,951,939 34,463 32,969 12,361 1,685,334 13,107 23,783,000 47,763 327,929 8,859 154,061 6,359 34,463 140,97312,361 11,704 13,107 49,084 47,763 (36,280) 8,859 38,223,625 6,359 140,973 11,704 49,084 (36,280) 38,223,625 Interest & fees on capital asset-related debt (24,585,099) (2,441,146) Interest (3,170,698) & fees on capital (10,769,000) asset-related debt (591,020) (617,497) (24,585,099) (2,441,146) (162,656) (3,170,698) (396,360) (10,769,000) (33,382) (591,020) (137,800) (617,497) (518,446) (4,064,036) (162,656) (219,574) (396,360) (33,382) (137,800) (47,706,714) (518,446) (4,064,036) (219,574) (47,706,714) Gain (Loss) on disposal of assets (3,171,268) (39,773) Gain (Loss) (47,186) on disposal of 133,000 assets (400) (9,503) (3,171,268) (39,773) (47,186) 133,000 (400) (9,503) 9,428 (9,608) - (3,135,310) 9,428 (9,608) - (3,135,310) Other 2,168,222 (185,961) Other - (181,606) 367 2,168,222 63,826 (185,961) - (181,606) 367 63,826 (101,402) (831) 36,280 1,798,895 (101,402) (831) 36,280 1,798,895 Net non-operating revenues 314,034,096 47,534,825 96,701,153 Net non-operating 64,079,000 revenues 27,844,428 39,626,774 314,034,096 3,799,484 47,534,825 8,544,446 96,701,153 14,572,052 64,079,000 9,614,255 27,844,428 11,706,778 39,626,774 11,007,976 3,799,484 30,266,1148,544,446 14,572,0525,182,202 8,942,731 9,614,255 11,706,778 693,456,314 11,007,976 30,266,114 5,182,202 8,942,731 693,456,314 Income (loss) before other revenues and expenses 55,410,511 4,536,038 1,417,528 Income (loss) before (22,342,000) other revenues and860,662 expenses (3,640,105) 55,410,511 17,244,632 4,536,038 (628,957) 1,417,528 604,326 (22,342,000) 29,364 860,662 595,839 (3,640,105) 505,157 17,244,632 (628,957) 182,511 (1,077,977) 604,326 1,207,109 29,364 595,839 - 54,904,638 505,157 182,511 (1,077,977) 1,207,109 - 54,904,638

Other Changes in Net Position Other Changes in Net Position Capital appropriations 350,000 378,920 Capital appropriations - 350,000 378,920 175,000 - 175,000 - 903,920 - 903,920 Capital grants and gifts 20,437,460 32,500 Capital 17,470,310 grants and gifts 1,285,000 22,263 9,500 20,437,460 32,500 17,470,310 614,533 1,285,000 22,263 9,500 823,605 35,000 134,176 614,533 40,864,347 823,605 35,000 134,176 40,864,347 Adjustments to prior year revenues and expenses - 7,090 Adjustments - to prior year revenues and expenses 37,088 - 7,090 - 37,088 - 44,178 - 44,178 Extraordinary item-pollution remediation (9,648,242) Extraordinary item-pollution remediation (9,648,242) (9,648,242) (9,648,242) Other 161,097 231,266 Other - 1,171,000 24,625 161,097 231,266 - 1,171,000 7,430 24,625 - 7,430 1,595,418 - 1,595,418 Total other revenues and expenses 11,300,315 649,776 17,470,310 Total other revenues 2,456,000 and expenses 83,976 9,500 11,300,315 - 649,776 175,000 17,470,310 614,533 2,456,000 7,430 83,976 - 9,500 823,605 - 175,000 35,000 134,176 614,533 - 7,430 - - 33,759,621 823,605 35,000 134,176 - - 33,759,621

Increase (decrease) in net position 66,710,826 5,185,814 18,887,838 Increase (decrease) (19,886,000) in net position 944,638 (3,630,605) 66,710,826 17,244,632 5,185,814 (453,957) 18,887,838 1,218,859 (19,886,000) 36,794 944,638 595,839 (3,630,605) 1,328,762 17,244,632 (453,957) 217,511 (943,801)1,218,859 1,207,109 36,794 595,839 88,664,259 1,328,762 217,511 (943,801) 1,207,109 88,664,259

Net Position, beginning of year 912,895,887 100,128,933Net Position, 173,025,315 beginning of year 749,745,000 35,927,724 112,001,792 912,895,887 25,457,492 100,128,933 11,001,152 173,025,315 17,067,364 749,745,000 14,522,338 35,927,724 15,224,549 112,001,792 13,909,054 25,457,492 11,001,152 - 17,067,364 - 18,417,994 14,522,338 15,224,549 2,199,324,594 13,909,054 - - 18,417,994 2,199,324,594 Mergers with UAPTC and UACCRM (See Note 24) Mergers with UAPTC and UACCRM (See Note 24) 38,493,665 7,827,877 46,321,542 38,493,665 7,827,877 46,321,542 Net Position, beginning of year, restated 912,895,887 100,128,933Net Position, 173,025,315 beginning of year, 749,745,000 restated 35,927,724 112,001,792 912,895,887 25,457,492 100,128,933 11,001,152 173,025,315 17,067,364 749,745,000 14,522,338 35,927,724 15,224,549 112,001,792 13,909,054 25,457,492 11,001,152 38,493,665 17,067,3647,827,877 18,417,994 14,522,338 15,224,549 2,245,646,136 13,909,054 38,493,665 7,827,877 18,417,994 2,245,646,136

Net Position, end of year $ 979,606,713 $ 105,314,747 Net Position,$ 191,913,153 end of year$ 729,859,000 $ 36,872,362 $ 108,371,187 $ 979,606,713 $ 42,702,124$ 105,314,747 $ 10,547,195$ 191,913,153 $ 18,286,223$ 729,859,000 $ 14,559,132$ 36,872,362$ 15,820,388$ 108,371,187 $ 15,237,816$ 42,702,124$ $ 10,547,195 38,711,176 $ $ 18,286,2236,884,076 $$ 19,625,103 14,559,132$ $ 15,820,388 - $ 2,334,310,395$ 15,237,816 $ 38,711,176 $ 6,884,076 $ 19,625,103 $ - $ 2,334,310,395

See accompanying notes. See accompanying notes.

28 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2017

UNIVERSITY OF ARKANSAS Statement of Revenues, Expenses, and Changes in Net Position by Campus For the Year Ended June 30, 2017

Elimination UAF UAFS UALR UAMS UAM UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM UAPTC UACCRM ASMSA (Note 19) TOTAL Operating Revenues Student tuition & fees, net of scholarship allowances $ 227,456,739 $ 17,015,967 $ 50,123,157 $ 43,975,000 $ 11,552,001 $ 7,838,515 $ 252,243 $ 2,229,138 $ 881,798 $ 1,088,031 $ 1,315,527 $ 3,535,793 $ 11,887,847 $ 756,900 $ 379,908,656 Net patient services 1,186,364,000 1,186,364,000 Federal and county appropriations 16,068,919 - 16,068,919 Federal grants and contracts 43,241,546 1,156,194 14,094,035 70,170,000 1,872,295 13,776,840 431,548 2,420,086 771,665 972,966 1,340,436 2,959,531 2,140,808 7,300.00 155,355,250 State and local grants and contracts 32,460,684 2,913,756 12,755,636 31,411,000 2,539,125 2,684,941 962,130 1,062,162 314,028 1,443,411 883,102 1,111,266 607,637 538,080 91,686,958 Non-governmental grants and contracts 39,224,018 3,034,429 1,334,297 11,905,000 934,003 615,920 250,000 40,461 437,347 27,082 148,043 144,157 97,043 58,191,800 Sales and services of educational departments 22,454,703 334,668 1,866,605 33,018,000 247,998 316,581 4,230,585 161,362 44,783 56,291 88,194 142,728 268,311 32,323 47,192 $ (3,901,350) 59,408,974 Insurance plan 181,229,758 (129,580,546) 51,649,212 Auxiliary enterprises - Athletics 103,488,566 318,761 5,414,073 549,859 1,725,229 17,831 - 111,514,319 Housing and food service 51,932,574 3,138,973 6,673,497 8,600,000 2,440,710 4,612,429 79,371 77,477,554 Bookstore 12,278,306 388,287 242,506 - 459,242 150,934 177,111 48,811 196,613 468,384 82,863 194,591 14,687,648 Other auxiliary enterprises 12,131,488 329,158 1,306,197 2,998,000 632,518 312,294 81,587 121,273 12,476 50,241 17,975,232 Other operating revenues 13,271,938 451,977 1,957,983 57,717,000 697,494 3,221,864 61,787 130,914 67,535 51,791 46,588 667,909 55,106 216,401 (970,858) 77,645,429 Total operating revenues 574,009,481 29,082,170 95,767,986 1,446,158,000 21,925,245 35,255,547 185,962,586 4,160,739 5,107,488 2,642,518 4,340,273 6,192,029 16,894,864 3,981,763 906,016 (134,452,754) 2,297,933,951

Operating Expenses Compensation and benefits 487,572,321 42,838,163 116,944,732 987,945,000 27,557,131 43,833,047 8,264,980 8,220,547 11,868,932 7,661,237 8,347,620 9,552,373 27,432,034 5,747,779 4,384,564 (129,580,546) 1,668,589,914 Supplies and services 248,768,835 17,877,441 43,290,510 477,733,000 11,370,022 22,988,968 2,816,650 3,007,943 4,212,590 2,537,942 2,809,521 3,299,010 9,796,229 2,319,363 3,851,735 (4,872,208) 851,807,551 Scholarships and fellowships 20,764,570 3,644,491 14,759,623 880,000 6,408,319 5,277,531 1,164,570 1,612,641 1,212,285 3,335,364 2,883,954 4,944,569 959,438 67,847,355 Insurance plan 161,001,798 161,001,798 Depreciation 75,527,340 7,720,862 16,056,746 66,021,000 3,573,539 6,422,880 434,010 941,082 1,381,051 815,945 958,707 959,511 4,805,635 1,215,362 405,339 187,239,009 Total operating expenses 832,633,066 72,080,957 191,051,611 1,532,579,000 48,909,011 78,522,426 172,517,438 13,334,142 19,075,214 12,227,409 15,451,212 16,694,848 46,978,467 10,241,942 8,641,638 (134,452,754) 2,936,485,627

Operating gain (loss) (258,623,585) (42,998,787) (95,283,625) (86,421,000) (26,983,766) (43,266,879) 13,445,148 (9,173,403) (13,967,726) (9,584,891) (11,110,939) (10,502,819) (30,083,603) (6,260,179) (7,735,622) - (638,551,676)

Non-Operating Revenues (Expenses) State appropriations 206,764,617 24,056,683 68,575,478 31,259,000 18,570,160 28,254,901 3,701,195 4,747,973 10,381,540 4,997,821 6,450,944 6,313,341 17,411,209 3,420,616 8,793,103 443,698,581 Property and sales tax 6,147,209 - - 1,296,117 1,927,071 1,403,319 1,447,590 695,829 426,616 13,343,751 Federal grants 21,631,421 13,153,632 16,270,438 7,375,830 9,839,553 2,194,708 2,646,694 2,892,358 3,937,185 4,484,216 15,187,378 1,536,806 101,150,219 State and local grants 27,016,602 6,273,655 7,358,014 2,253,685 1,515,828 349,109 306,376 1,305,585 - 46,378,854 Non-governmental grants 41,250 1,053,780 - - 1,095,030 Gifts 72,257,662 496,307 4,975,993 19,673,000 89,850 489,064 106,834 17,249 396,015 6,865 100,544 98,609,383 Investment income, net 11,951,939 32,969 1,685,334 23,783,000 327,929 154,061 34,463 12,361 13,107 47,763 8,859 6,359 140,973 11,704 49,084 (36,280) 38,223,625 Interest & fees on capital asset-related debt (24,585,099) (2,441,146) (3,170,698) (10,769,000) (591,020) (617,497) (162,656) (396,360) (33,382) (137,800) (518,446) (4,064,036) (219,574) (47,706,714) Gain (Loss) on disposal of assets (3,171,268) (39,773) (47,186) 133,000 (400) (9,503) 9,428 (9,608) - (3,135,310) Other 2,168,222 (185,961) - (181,606) 367 63,826 (101,402) (831) 36,280 1,798,895 Net non-operating revenues 314,034,096 47,534,825 96,701,153 64,079,000 27,844,428 39,626,774 3,799,484 8,544,446 14,572,052 9,614,255 11,706,778 11,007,976 30,266,114 5,182,202 8,942,731 693,456,314 Income (loss) before other revenues and expenses 55,410,511 4,536,038 1,417,528 (22,342,000) 860,662 (3,640,105) 17,244,632 (628,957) 604,326 29,364 595,839 505,157 182,511 (1,077,977) 1,207,109 - 54,904,638

Other Changes in Net Position Capital appropriations 350,000 378,920 - 175,000 - 903,920 Capital grants and gifts 20,437,460 32,500 17,470,310 1,285,000 22,263 9,500 614,533 823,605 35,000 134,176 40,864,347 Adjustments to prior year revenues and expenses - 7,090 - 37,088 - 44,178 Extraordinary item-pollution remediation (9,648,242) (9,648,242) Other 161,097 231,266 - 1,171,000 24,625 7,430 - 1,595,418 Total other revenues and expenses 11,300,315 649,776 17,470,310 2,456,000 83,976 9,500 - 175,000 614,533 7,430 - 823,605 35,000 134,176 - - 33,759,621

Increase (decrease) in net position 66,710,826 5,185,814 18,887,838 (19,886,000) 944,638 (3,630,605) 17,244,632 (453,957) 1,218,859 36,794 595,839 1,328,762 217,511 (943,801) 1,207,109 88,664,259

Net Position, beginning of year 912,895,887 100,128,933 173,025,315 749,745,000 35,927,724 112,001,792 25,457,492 11,001,152 17,067,364 14,522,338 15,224,549 13,909,054 - - 18,417,994 2,199,324,594 Mergers with UAPTC and UACCRM (See Note 24) 38,493,665 7,827,877 46,321,542 Net Position, beginning of year, restated 912,895,887 100,128,933 173,025,315 749,745,000 35,927,724 112,001,792 25,457,492 11,001,152 17,067,364 14,522,338 15,224,549 13,909,054 38,493,665 7,827,877 18,417,994 2,245,646,136

Net Position, end of year $ 979,606,713 $ 105,314,747 $ 191,913,153 $ 729,859,000 $ 36,872,362 $ 108,371,187 $ 42,702,124 $ 10,547,195 $ 18,286,223 $ 14,559,132 $ 15,820,388 $ 15,237,816 $ 38,711,176 $ 6,884,076 $ 19,625,103 $ - $ 2,334,310,395

See accompanying notes.

29 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2017

UNIVERSITY OF ARKANSAS UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method - By Campus Statement of Cash Flows - Direct Method - By Campus For the Year Ended June 30, 2017 For the Year Ended June 30, 2017

Elimination Elimination UAF UAFS UALR UAMS UAM UAPBUAF SYSTEMUAFS CCCUAUALRPCCUA UAMS UACCBUAMUACCH UAPB UACCMSYSTEM UAPTCCCCUA UACCRMPCCUA ASMSAUACCB (NoteUACCH 19) UACCMTOTAL UAPTC UACCRM ASMSA (Note 19) TOTAL Cash Flows from Operating Activities Cash Flows from Operating Activities Student tuition and fees (net of scholarships) $ 227,146,153 $ 16,375,900 Student $tuition 52,242,942 and fees (net$ of 47,207,000scholarships) $ 11,630,850 $ $ 7,500,567 227,146,153 $ $ 201,328 16,375,900 $ $ 2,149,716 52,242,942$ $ 810,878 47,207,000$ 1,052,287$ 11,630,850 $ 1,311,123$ 7,500,567$ $ 3,512,381 201,328$ $ 11,842,416 2,149,716 $ $ 810,878 761,157 $ 1,052,287 $ 1,311,123 $$ 3,512,381 383,744,698$ 11,842,416 $ 761,157 $ 383,744,698 Patient and insurance payments Patient and insurance payments 1,206,624,000 1,206,624,000 1,206,624,000 1,206,624,000 Federal and county appropriations 16,045,211 Federal and county - appropriations 16,045,211 - - - - 16,045,211 - 16,045,211 Grants and contracts 114,374,801 7,133,371 Grants and 26,582,018 contracts 113,307,000 5,388,057 16,675,757 114,374,801 277,987 7,133,371 1,506,720 26,582,018 3,932,842 113,307,000 1,097,284 5,388,057 2,308,651 16,675,757 2,355,897 277,987 4,184,064 1,506,720 3,932,842 3,017,099 $ 623,624 1,097,284 2,308,651 2,355,897 302,765,172 4,184,064 3,017,099 $ 623,624 302,765,172 Collection of loans and interest 2,696,602 Collection of loans 41,008 and interest 2,016,000 40,157 2,696,602 - 41,008 2,016,000 40,157 - - 4,793,767 - 4,793,767 Insurance plan receipts Insurance plan receipts 179,951,804 179,951,804 $ (128,675,372) 51,276,432 $ (128,675,372) 51,276,432 Auxiliary enterprise revenues: Auxiliary enterprise - revenues: - Athletics 103,323,543 318,761 Athletics 5,161,455 545,287 1,721,589 103,323,543 318,761 5,161,45517,831 545,287 1,721,589 17,831 111,088,466 111,088,466 Housing and food service 52,015,522 3,019,606 Housing 6,672,497 and food service 8,652,000 1,723,350 4,612,037 52,015,522 3,019,606 6,672,49779,371 8,652,000 1,723,350 4,612,037 79,371 76,774,383 76,774,383 Bookstore 12,270,412 368,575 Bookstore 242,506 408,360 151,365 12,270,412 368,575 177,111 242,506 48,811 186,667 408,360 468,384 151,365 85,971 177,111 194,525 48,811 186,667 468,384 14,602,687 85,971 194,525 14,602,687 Other auxiliary enterprises 12,319,681 314,925 Other auxiliary 1,282,727 enterprises 4,345,000 787,887 312,294 12,319,681 314,925 1,282,727 81,587 4,345,000 121,451 787,887 312,294 12,913 81,587 50,241 121,451 19,628,706 12,913 50,241 19,628,706 Payments to employees (379,558,964) (33,798,967)Payments (91,837,449) to employees (801,034,000) (21,399,151) (34,388,093) (379,558,964) (6,283,375) (33,798,967) (6,155,416) (91,837,449) (8,992,531) (801,034,000) (5,587,444) (21,399,151) (6,236,766) (34,388,093) (7,075,383) (6,283,375) (20,555,455) (6,155,416) (8,992,531) (3,943,029) (3,364,207) (5,587,444) (6,236,766) (1,430,210,230) (7,075,383) (20,555,455) (3,943,029) (3,364,207) (1,430,210,230) Payment of employee benefits (105,426,231) (8,794,668)Payment of(23,535,357) employee benefits (176,055,000) (6,085,121) (8,955,093) (105,426,231) (1,804,108) (8,794,668) (1,924,417) (23,535,357) (2,933,841) (176,055,000) (1,897,181) (6,085,121) (1,708,573) (8,955,093) (2,370,194) (1,804,108) (6,350,324) (1,924,417) (2,933,841) (1,624,130) (1,035,971) (1,897,181) 128,489,583 (1,708,573) (2,370,194) (222,010,626) (6,350,324) (1,624,130) (1,035,971) 128,489,583 (222,010,626) Payments to suppliers (248,258,374) (17,919,240)Payments (43,291,417) to suppliers (461,332,000) (10,838,640) (22,978,880) (248,258,374) (2,866,868) (17,919,240) (2,960,374) (43,291,417) (4,319,041) (461,332,000) (2,466,330) (10,838,640) (2,879,784) (22,978,880) (3,104,877) (2,866,868) (9,518,325) (2,960,374) (4,319,041) (2,248,612) (3,790,065) (2,466,330) (2,879,784) 4,829,708 (3,104,877) (833,943,119) (9,518,325) (2,248,612) (3,790,065) 4,829,708 (833,943,119) Loans issued to students (2,626,711) 2,560 Loans issued to students - (3,337,000) (2,626,711) - 2,560 - (3,337,000) - - (5,961,151) - (5,961,151) Scholarships and fellowships (20,730,599) (3,644,491)Scholarships (14,759,623) and fellowships (880,000) (6,410,814) (5,277,531) (20,730,599) (3,644,491) (1,164,569) (14,759,623) (1,613,041) (880,000) (1,212,285) (6,410,814) (3,330,578) (5,277,531) (2,884,755) (4,944,569) (1,164,569) (1,613,041) (959,438) (1,212,285) (3,330,578) (2,884,755) (67,812,293) (4,944,569) (959,438) (67,812,293) Payments of insurance plan expenses Payments of insurance plan expenses (164,020,140) (164,020,140) (164,020,140) (164,020,140) Other receipts and payments 29,548,343 759,332 Other receipts 3,065,820 and payments 74,268,000 883,032 3,544,087 29,548,343 4,562,621 759,332 223,897 3,065,820 175,697 74,268,000 113,602 883,032 227,063 3,544,087 198,366 4,562,621 953,017 223,897 175,697 67,718 269,738 113,602 (4,653,130) 227,063 114,207,203 198,366 953,017 67,718 269,738 (4,653,130) 114,207,203 Net cash used by operating activities (186,860,611) (35,864,336)Net cash (78,132,873) used by operating 13,781,000 activities (23,326,746) (37,081,901) (186,860,611) 10,019,249 (35,864,336) (8,050,130) (78,132,873) (12,808,639) 13,781,000 (8,591,949) (23,326,746) (9,840,480) (37,081,901) (9,269,681) 10,019,249 (24,389,176) (8,050,130) (12,808,639) (4,684,469) (7,296,881) (8,591,949) (9,840,480) (9,211) (9,269,681) (422,406,834) (24,389,176) (4,684,469) (7,296,881) (9,211) (422,406,834)

Cash Flows from Noncapital Financing Activities Cash Flows from Noncapital Financing Activities State appropriations 206,764,617 24,056,683 State appropriations 68,575,478 32,069,000 18,570,160 28,254,901 206,764,617 3,701,195 24,056,683 4,747,973 68,575,478 10,381,540 32,069,000 4,997,821 18,570,160 6,450,944 28,254,901 6,313,341 3,701,195 17,411,209 4,747,973 10,381,540 3,420,616 8,793,103 4,997,821 6,450,944 6,313,341 444,508,581 17,411,209 3,420,616 8,793,103 444,508,581 Property and sales tax 6,127,231 Property and sales - tax - 6,127,231 1,304,240 - 1,926,242 1,390,091 1,431,692 - 640,841 1,304,240 1,926,242 420,674 1,390,091 1,431,692 13,241,011 640,841 420,674 13,241,011 Gifts and grants for other than capital purposes 119,648,432 19,809,218 Gifts and grants 29,658,224 for other than capital 19,673,000 purposes 9,719,133 11,844,445 119,648,432 19,809,218 2,664,743 29,658,224 2,653,439 19,673,000 3,214,347 9,719,133 3,937,185 11,844,445 4,501,465 16,915,299 2,664,743 2,653,439 1,543,671 100,544 3,214,347 3,937,185 4,501,465 245,883,145 16,915,299 1,543,671 100,544 245,883,145 Direct Lending, Plus and FFEL loan receipts 120,749,237 16,657,034 Direct Lending, 58,951,108 Plus and FFEL 56,233,000 loan receipts 12,612,076 14,288,064 120,749,237 16,657,034 58,951,108 56,233,000 1,421,363 12,612,076 14,288,064 2,826,972 17,836,620 - 1,421,363 2,826,972 301,575,474 17,836,620 - 301,575,474 Direct Lending, Plus and FFEL loan payments (121,795,309) (16,858,844)Direct Lending, (59,571,850) Plus and FFEL (56,287,000) loan payments (12,784,394) (13,911,061) (121,795,309) (16,858,844) (59,571,850) (56,287,000) (1,404,376) (12,784,394) (13,911,061) (2,826,972) (17,836,620) - (1,404,376) (2,826,972) (303,276,426) (17,836,620) - (303,276,426) Other agency funds - net 179,020 85,539 Other agency funds 53,483 - net 16,074 (97,063) (154,314) 179,020 85,539 3,052 53,483 (3,404) 16,074 (9,379) (97,063) (3,701) (154,314) (87) 8,878 3,052 (3,404) 8,227 9,284 (9,379) (3,701) 95,609 (87) 8,878 8,227 9,284 95,609 Payment of principal on debt Payment of principal on debt (49,616) (49,616) (49,616) (49,616) Payment of interest on debt Payment of interest on debt (44,527) (44,527) 43,536 (991) 43,536 (991) Inter-fund loan receipts Inter-fund loan receipts 2,487,749 2,487,749 (2,487,749) - (2,487,749) - Inter-fund loan payments (1,167,131) (74,729)Inter-fund loan (193,375) payments (653,074) (27,392) (232,096) (1,167,131) (74,729) (18,439) (193,375) (44,968) (653,074) (24,423) (27,392) (16,394) (232,096) (21,030) (18,439) (44,968) (14,698) (24,423) 2,487,749 (16,394) (21,030) - (14,698) 2,487,749 - Refunds to grantors Refunds to grantors (27,675) (27,675) (27,675) (27,675) Net cash provided (used) by noncapital financing activities 324,378,866 49,802,132 Net cash 97,473,068 provided (used) by 51,051,000 noncapital financing 27,964,845 activities 40,089,939 324,378,866 6,094,801 49,802,132 8,701,569 97,473,068 14,912,849 51,051,000 9,585,444 27,964,845 11,799,726 40,089,939 11,434,530 6,094,801 34,335,386 8,701,569 14,912,849 5,393,188 8,888,233 9,585,444 11,799,726 43,536 11,434,530 701,949,112 34,335,386 5,393,188 8,888,233 43,536 701,949,112

Cash Flows from Capital and Related Financing Activities Cash Flows from Capital and Related Financing Activities Distributions from debt proceeds 40,920,765 2,106,748 Distributions from684,118 debt proceeds 4,330,000 40,920,765 2,106,748 684,118 4,330,000 2,000,000 4,067,134 2,000,000 4,067,134 54,108,765 54,108,765 Capital appropriations 350,000 430,737 Capital appropriations - 350,000 430,737 175,000 - 175,000 955,737 955,737 Capital grants and gifts 17,653,202 26,652 Capital grants 17,408,755 and gifts 1,285,000 9,50017,653,202 26,652 17,408,755 270,955 1,285,000 9,500 823,605 270,955 134,176 37,611,845 823,605 134,176 37,611,845 Property taxes - capital allocation Property taxes - capital - allocation - - - - - Proceeds from sale of capital assets Proceeds from sale - of capital assets 58,000 435 - - 58,000 435 - 9,161 9,161 67,596 67,596 Purchases of capital assets (100,613,126) (3,264,573)Purchases (13,782,923) of capital assets (35,885,000) (1,985,841) (9,219,174) (100,613,126) (3,264,573) (13,782,923) (312,557) (1,118,729) (35,885,000) (64,128) (1,985,841) (240,328) (9,219,174) (6,169,053) (881,719) (312,557) (1,118,729) (95,010) (386,333) (64,128) (240,328) (6,169,053) (174,018,494) (881,719) (95,010) (386,333) (174,018,494) Payment of capital related principal on debt (29,257,903) (4,654,674)Payment of (5,172,292) capital related principal (33,011,000) on debt (1,016,380) (785,000) (29,257,903) 150,000 (4,654,674) (267,289) (5,172,292) (375,806) (33,011,000) (370,667) (1,016,380) (664,888) (785,000) (445,300) 150,000 (1,955,000) (267,289) (375,806) (160,000) (150,000) (370,667) (664,888) (78,136,199) (445,300) (1,955,000) (160,000) (150,000) (78,136,199) Payments of capital related interest and fees (29,481,238) (2,515,374)Payments of (4,775,567) capital related interest (10,825,000) and fees (530,991) (633,169) (29,481,238) (2,515,374) (164,770) (4,775,567) (365,313) (10,825,000) (23,457) (530,991) (132,003) (633,169) (55,505) (3,829,232) (164,770) (365,313) (216,247) (23,457) (132,003) (53,547,866) (55,505) (3,829,232) (216,247) (53,547,866) PaymentsInsurance forproceeds bond refunding and related costs 102,796 PaymentsInsurance for proceeds bond - refunding and related costs 102,796 - - 102,796 - 102,796 Payments to/from trustee for reserve (775,000)Payments to/from trustee- for reserve (775,000) - (775,000) (775,000) Net cash provided (used) by capital & related financing act (100,428,300) (8,542,688)Net cash (5,637,909) provided (used) (74,048,000)by capital & related financing(3,532,777) act (10,627,843) (100,428,300) 150,000 (8,542,688) (569,616) (5,637,909) (1,588,893) (74,048,000) 1,541,748 (3,532,777) (1,037,219) (10,627,843) (1,769,958) 150,000 (6,665,951) (569,616) (1,588,893) (337,081) (536,333) 1,541,748 (1,037,219) - (1,769,958) (213,630,820) (6,665,951) (337,081) (536,333) - (213,630,820)

Cash Flows from Investing Activities Cash Flows from Investing Activities Proceeds from sales and maturities of investments 4,607,529 10,687,333 Proceeds from 74,293sales and maturities 48,274,000 of investments 490,025 4,607,529 10,687,333 74,293 34,555 48,274,000 1,500,000 490,025 1,900,000 1,009,932 34,555 1,500,000 1,900,000 68,577,667 1,009,932 68,577,667 Investment income (net of fees) 900,790 126,091 Investment income 432,567 (net of fees) 624,000 9,432 49,222 900,790 34,338 126,091 2,918432,567 11,301 624,000 47,328 9,432 1,060 49,222 21,279 34,338 38,768 2,918 11,301 11,026 48,934 47,328 (43,536) 1,060 2,315,518 21,279 38,768 11,026 48,934 (43,536) 2,315,518 Purchases of investments (190,000,025) (10,801,599)Purchases (30,195,362) of investments (48,392,000) (616,911) (190,000,025) (10,801,599) (30,195,362) (100,000) (3,000,000) (48,392,000) (1,600,000) (616,911) (650,000) (100,000) (3,000,000) (96,161) (1,600,000) (285,452,058) (650,000) (96,161) (285,452,058) Net cash provided (used) by investing activities (184,491,706) 11,825 Net cash (29,688,502) provided (used) by investing 506,000 activities 9,432 (77,664) (184,491,706) 34,338 11,825 (29,688,502) (97,082) (2,954,144) 506,000 (52,672) 9,432 1,060 (77,664) 1,271,279 34,338 38,768 (97,082) (2,954,144) 924,797 48,934 (52,672) (43,536) 1,060 (214,558,873) 1,271,279 38,768 924,797 48,934 (43,536) (214,558,873)

Net increase in cash (147,401,751) 5,406,933 Net increase (15,986,216) in cash (8,710,000) 1,114,754 (7,697,469) (147,401,751) 16,298,388 5,406,933 (15,986,216) (15,259) (2,438,827) (8,710,000) 2,482,571 1,114,754 923,087 (7,697,469) 1,666,170 16,298,388 3,319,027 (15,259) (2,438,827) 1,296,435 1,103,953 2,482,571 923,087 (9,211) (148,647,415) 1,666,170 3,319,027 1,296,435 1,103,953 (9,211) (148,647,415) Cash, beginning of year 287,320,123 18,748,291 Cash, 35,261,122beginning of year 108,977,000 6,391,591 42,642,221 287,320,123 30,158,792 18,748,291 2,052,149 35,261,122 11,137,034 108,977,000 2,923,679 6,391,591 2,848,185 42,642,221 1,805,157 30,158,792 2,052,149 11,137,034 5,634,986 2,923,679 2,848,185 202,925 1,805,157 556,103,255 5,634,986 202,925 556,103,255 Mergers with UAPTC and UACCRM Mergers with UAPTC and UACCRM 24,630,381 2,535,023 27,165,404 24,630,381 2,535,023 27,165,404 Cash, beginning of the year, restated 287,320,123 18,748,291 Cash, 35,261,122beginning of the year, 108,977,000 restated 6,391,591 42,642,221 287,320,123 30,158,792 18,748,291 2,052,149 35,261,122 11,137,034 108,977,000 2,923,679 6,391,591 2,848,185 42,642,221 1,805,157 30,158,792 24,630,381 2,052,149 11,137,034 2,535,023 5,634,986 2,923,679 2,848,185 202,925 1,805,157 583,268,659 24,630,381 2,535,023 5,634,986 202,925 583,268,659 Cash, end of year $ 139,918,372 $ 24,155,224 Cash,$ 19,274,906end of year $ 100,267,000 $ 7,506,345 $ 34,944,752$ 139,918,372 $ 46,457,180$ 24,155,224 $ $ 2,036,890 19,274,906$ $ 8,698,207 100,267,000$ 5,406,250$ 7,506,345 $ 3,771,272$ 34,944,752$ $ 3,471,327 46,457,180$ $ 27,949,408 2,036,890 $ $ 8,698,207 3,831,458 $$ 6,738,939 5,406,250$ $ 3,771,272 193,714 $$ 3,471,327 434,621,244$ 27,949,408 $ 3,831,458 $ 6,738,939 $ 193,714 $ 434,621,244

30 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2017

UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method - By Campus For the Year Ended June 30, 2017

Elimination UAF UAFS UALR UAMS UAM UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM UAPTC UACCRM ASMSA (Note 19) TOTAL Cash Flows from Operating Activities Student tuition and fees (net of scholarships) $ 227,146,153 $ 16,375,900 $ 52,242,942 $ 47,207,000 $ 11,630,850 $ 7,500,567 $ 201,328 $ 2,149,716 $ 810,878 $ 1,052,287 $ 1,311,123 $ 3,512,381 $ 11,842,416 $ 761,157 $ 383,744,698 Patient and insurance payments 1,206,624,000 1,206,624,000 Federal and county appropriations 16,045,211 - - - 16,045,211 Grants and contracts 114,374,801 7,133,371 26,582,018 113,307,000 5,388,057 16,675,757 277,987 1,506,720 3,932,842 1,097,284 2,308,651 2,355,897 4,184,064 3,017,099 $ 623,624 302,765,172 Collection of loans and interest 2,696,602 41,008 2,016,000 40,157 - - 4,793,767 Insurance plan receipts 179,951,804 $ (128,675,372) 51,276,432 Auxiliary enterprise revenues: - Athletics 103,323,543 318,761 5,161,455 545,287 1,721,589 17,831 111,088,466 Housing and food service 52,015,522 3,019,606 6,672,497 8,652,000 1,723,350 4,612,037 79,371 76,774,383 Bookstore 12,270,412 368,575 242,506 408,360 151,365 177,111 48,811 186,667 468,384 85,971 194,525 14,602,687 Other auxiliary enterprises 12,319,681 314,925 1,282,727 4,345,000 787,887 312,294 81,587 121,451 12,913 50,241 19,628,706 Payments to employees (379,558,964) (33,798,967) (91,837,449) (801,034,000) (21,399,151) (34,388,093) (6,283,375) (6,155,416) (8,992,531) (5,587,444) (6,236,766) (7,075,383) (20,555,455) (3,943,029) (3,364,207) (1,430,210,230) Payment of employee benefits (105,426,231) (8,794,668) (23,535,357) (176,055,000) (6,085,121) (8,955,093) (1,804,108) (1,924,417) (2,933,841) (1,897,181) (1,708,573) (2,370,194) (6,350,324) (1,624,130) (1,035,971) 128,489,583 (222,010,626) Payments to suppliers (248,258,374) (17,919,240) (43,291,417) (461,332,000) (10,838,640) (22,978,880) (2,866,868) (2,960,374) (4,319,041) (2,466,330) (2,879,784) (3,104,877) (9,518,325) (2,248,612) (3,790,065) 4,829,708 (833,943,119) Loans issued to students (2,626,711) 2,560 - (3,337,000) - - (5,961,151) Scholarships and fellowships (20,730,599) (3,644,491) (14,759,623) (880,000) (6,410,814) (5,277,531) (1,164,569) (1,613,041) (1,212,285) (3,330,578) (2,884,755) (4,944,569) (959,438) (67,812,293) Payments of insurance plan expenses (164,020,140) (164,020,140) Other receipts and payments 29,548,343 759,332 3,065,820 74,268,000 883,032 3,544,087 4,562,621 223,897 175,697 113,602 227,063 198,366 953,017 67,718 269,738 (4,653,130) 114,207,203 Net cash used by operating activities (186,860,611) (35,864,336) (78,132,873) 13,781,000 (23,326,746) (37,081,901) 10,019,249 (8,050,130) (12,808,639) (8,591,949) (9,840,480) (9,269,681) (24,389,176) (4,684,469) (7,296,881) (9,211) (422,406,834)

Cash Flows from Noncapital Financing Activities State appropriations 206,764,617 24,056,683 68,575,478 32,069,000 18,570,160 28,254,901 3,701,195 4,747,973 10,381,540 4,997,821 6,450,944 6,313,341 17,411,209 3,420,616 8,793,103 444,508,581 Property and sales tax 6,127,231 - - 1,304,240 1,926,242 1,390,091 1,431,692 640,841 420,674 13,241,011 Gifts and grants for other than capital purposes 119,648,432 19,809,218 29,658,224 19,673,000 9,719,133 11,844,445 2,664,743 2,653,439 3,214,347 3,937,185 4,501,465 16,915,299 1,543,671 100,544 245,883,145 Direct Lending, Plus and FFEL loan receipts 120,749,237 16,657,034 58,951,108 56,233,000 12,612,076 14,288,064 1,421,363 2,826,972 17,836,620 - 301,575,474 Direct Lending, Plus and FFEL loan payments (121,795,309) (16,858,844) (59,571,850) (56,287,000) (12,784,394) (13,911,061) (1,404,376) (2,826,972) (17,836,620) - (303,276,426) Other agency funds - net 179,020 85,539 53,483 16,074 (97,063) (154,314) 3,052 (3,404) (9,379) (3,701) (87) 8,878 8,227 9,284 95,609 Payment of principal on debt (49,616) (49,616) Payment of interest on debt (44,527) 43,536 (991) Inter-fund loan receipts 2,487,749 (2,487,749) - Inter-fund loan payments (1,167,131) (74,729) (193,375) (653,074) (27,392) (232,096) (18,439) (44,968) (24,423) (16,394) (21,030) (14,698) 2,487,749 - Refunds to grantors (27,675) (27,675) Net cash provided (used) by noncapital financing activities 324,378,866 49,802,132 97,473,068 51,051,000 27,964,845 40,089,939 6,094,801 8,701,569 14,912,849 9,585,444 11,799,726 11,434,530 34,335,386 5,393,188 8,888,233 43,536 701,949,112

Cash Flows from Capital and Related Financing Activities Distributions from debt proceeds 40,920,765 2,106,748 684,118 4,330,000 2,000,000 4,067,134 54,108,765 Capital appropriations 350,000 430,737 - 175,000 955,737 Capital grants and gifts 17,653,202 26,652 17,408,755 1,285,000 9,500 270,955 823,605 134,176 37,611,845 Property taxes - capital allocation - - - Proceeds from sale of capital assets - 58,000 435 - 9,161 67,596 Purchases of capital assets (100,613,126) (3,264,573) (13,782,923) (35,885,000) (1,985,841) (9,219,174) (312,557) (1,118,729) (64,128) (240,328) (6,169,053) (881,719) (95,010) (386,333) (174,018,494) Payment of capital related principal on debt (29,257,903) (4,654,674) (5,172,292) (33,011,000) (1,016,380) (785,000) 150,000 (267,289) (375,806) (370,667) (664,888) (445,300) (1,955,000) (160,000) (150,000) (78,136,199) Payments of capital related interest and fees (29,481,238) (2,515,374) (4,775,567) (10,825,000) (530,991) (633,169) (164,770) (365,313) (23,457) (132,003) (55,505) (3,829,232) (216,247) (53,547,866) PaymentsInsurance forproceeds bond refunding and related costs 102,796 - - 102,796 Payments to/from trustee for reserve (775,000) - (775,000) Net cash provided (used) by capital & related financing act (100,428,300) (8,542,688) (5,637,909) (74,048,000) (3,532,777) (10,627,843) 150,000 (569,616) (1,588,893) 1,541,748 (1,037,219) (1,769,958) (6,665,951) (337,081) (536,333) - (213,630,820)

Cash Flows from Investing Activities Proceeds from sales and maturities of investments 4,607,529 10,687,333 74,293 48,274,000 490,025 34,555 1,500,000 1,900,000 1,009,932 68,577,667 Investment income (net of fees) 900,790 126,091 432,567 624,000 9,432 49,222 34,338 2,918 11,301 47,328 1,060 21,279 38,768 11,026 48,934 (43,536) 2,315,518 Purchases of investments (190,000,025) (10,801,599) (30,195,362) (48,392,000) (616,911) (100,000) (3,000,000) (1,600,000) (650,000) (96,161) (285,452,058) Net cash provided (used) by investing activities (184,491,706) 11,825 (29,688,502) 506,000 9,432 (77,664) 34,338 (97,082) (2,954,144) (52,672) 1,060 1,271,279 38,768 924,797 48,934 (43,536) (214,558,873)

Net increase in cash (147,401,751) 5,406,933 (15,986,216) (8,710,000) 1,114,754 (7,697,469) 16,298,388 (15,259) (2,438,827) 2,482,571 923,087 1,666,170 3,319,027 1,296,435 1,103,953 (9,211) (148,647,415) Cash, beginning of year 287,320,123 18,748,291 35,261,122 108,977,000 6,391,591 42,642,221 30,158,792 2,052,149 11,137,034 2,923,679 2,848,185 1,805,157 5,634,986 202,925 556,103,255 Mergers with UAPTC and UACCRM 24,630,381 2,535,023 27,165,404 Cash, beginning of the year, restated 287,320,123 18,748,291 35,261,122 108,977,000 6,391,591 42,642,221 30,158,792 2,052,149 11,137,034 2,923,679 2,848,185 1,805,157 24,630,381 2,535,023 5,634,986 202,925 583,268,659 Cash, end of year $ 139,918,372 $ 24,155,224 $ 19,274,906 $ 100,267,000 $ 7,506,345 $ 34,944,752 $ 46,457,180 $ 2,036,890 $ 8,698,207 $ 5,406,250 $ 3,771,272 $ 3,471,327 $ 27,949,408 $ 3,831,458 $ 6,738,939 $ 193,714 $ 434,621,244

31 UNIVERSITY OF ARKANSAS Statement of Revenues, Expenses, and Changes in Net Position For The Year Ended June 30, 2017 with comparative figures for 2016

Year Ended Year Ended Operating Revenues June 30, 2017 June 30, 2016 Student tuition & fees, net of scholarship allowances of $164,914,825 and $146,466,438 $ 379,908,656 $ 339,492,237 Patient services, net of contractual allowances of $1,792,176,000 and $1,651,452,000 1,186,364,000 1,176,856,000 Federal and county appropriations 16,068,919 14,588,335 Federal grants and contracts 155,355,250 135,347,533 State and local grants and contracts 91,686,958 74,144,743 Non-governmental grants and contracts 58,191,800 58,937,226 Sales and services of educational departments 59,408,974 58,114,942 Insurance plan 51,649,212 49,636,512 Auxiliary enterprises Athletics, net of scholarship allowances of $2,533,061 and $2,242,886 111,514,319 105,097,147 Housing/food service, net of scholarship allowances of $27,634,860 and $27,693,725 77,477,554 75,640,113 Bookstore, net of scholarship allowances of $787,586 and $1,419,153 14,687,648 15,757,739 Other auxiliary enterprises, net of scholarship allowances of $613,340 and $341,881 17,975,232 17,768,906 Other operating revenues 77,645,429 70,071,040 Total operating revenues 2,297,933,951 2,191,452,473

Operating Expenses Compensation and benefits 1,668,589,914 1,555,156,358 Supplies and services 851,807,551 793,383,878 Scholarships and fellowships 67,847,355 64,246,520 InsuranceUNIVERSITY plan OF ARKANSAS SYSTEM: Campus Financial Statements 161,001,798 FY2017 161,167,230 Depreciation 187,239,009 178,113,075 Total operating expenses 2,936,485,627 2,752,067,061 UNIVERSITY OF ARKANSAS UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method - Continued - By Campus Statement of Cash Flows - Direct Method - Continued - By Campus Operating loss For the Year Ended June 30, 2017 (638,551,676) (560,614,588)For the Year Ended June 30, 2017

Non-Operating Revenues (Expenses) Elimination Elimination UAF UAFS State appropriations,UALR netUAMS of Medicaid UAMmatch paymentsUAFUAPB of $80,742,000SYSTEMUAFS and $99,151,000UALRCCCUA UAMSPCCUA 443,698,581UAMUACCB UAPB 402,577,620UACCH SYSTEMUACCM CCCUAUAPTC PCCUA UACCRMUACCB ASMSAUACCH (Note 19)UACCM TOTALUAPTC UACCRM ASMSA (Note 19) TOTAL Reconciliation of net operating revenue (loss) to net cash Reconciliation of net operating revenue (loss) to net cash provided (used) by operating activities: providedProperty (used) by operating and salesactivities: tax 13,343,751 12,715,581

FederalOperating revenuegrants (loss) $ (258,623,585) $ (42,998,787) $ (95,283,625) $ (86,421,000) 101,150,219$ (26,983,766) $ (43,266,879) 85,527,558$ 13,445,148 $ (9,173,403) $ (13,967,726) $ (9,584,891) $ (11,110,939) $ (10,502,819) $ (30,083,603) $ (6,260,179) $ (7,735,622) $ - $ (638,551,676) Operating revenue (loss) $ (258,623,585) $ (42,998,787) $ (95,283,625) $ (86,421,000) $ (26,983,766) $ (43,266,879) $ 13,445,148 $ (9,173,403) $ (13,967,726) $ (9,584,891) $ (11,110,939) $ (10,502,819) $ (30,083,603) $ (6,260,179) $ (7,735,622) $ - $ (638,551,676) State and local grants 46,378,854 47,308,994 Adjustments to reconcile net revenue (loss) to net cash provided Adjustments to reconcile net revenue (loss) to net cash provided Non-governmental(used) by operating activities: grants 1,095,030 1,084,460 (used) by operating activities: Gifts 98,609,383 103,423,775 Depreciation expense 75,527,340 7,720,862 16,056,746 66,021,000 3,573,539 6,422,880 434,010 941,082 1,381,051 815,945 958,707 959,511 4,805,635 1,215,362 405,339 187,239,009 Depreciation expense 75,527,340 7,720,862 Investment Other miscellaneous16,056,746 income, operating net 66,021,000 receipts 3,573,539 (4,384,879) 6,422,880 434,010 941,082 1,381,051 38,223,625 815,945 160,945 958,707 133,873 959,511 4,805,635 1,215,362 405,339 187,239,009 (4,251,006) Other miscellaneous operating receipts (4,384,879) Adjustment to cash for amounts in transit within the system 133,873 (4,251,006) (9,211) (9,211) Adjustment to cash for amounts in transit within the system InterestChange and in assets fees and on liabilities: capital asset-related debt (47,706,714) (43,132,251) (9,211) (9,211) Change in assets and liabilities: Loss on disposalReceivables, ofnet assets (3,050,259) (517,825) (578,353) (2,875,000) (3,135,310) (175,078) (718,775) (202,651) (1,102,863) (88,027) (44,223) (39,331) 77,039 23,723 123,852 42,967 (18,844) (8,940,997) Receivables, net (3,050,259) (517,825) Inventories (578,353) (2,875,000) (175,078) (718,775)264,547 (1,102,863) 4,764 41,413 (88,027) (1,311,000) (44,223) 57,406 (39,331) (13,595) 77,039 23,723 21,877 123,852 (4,160) 42,967 25,429 (18,844) (150,721) 2,570 (8,940,997) 30,540 (1,030,930) Inventories 264,547 4,764Other Prepaid 41,413 expenses and other (1,311,000) assets 57,406 (472,002) (13,595) (30,798) (107,720) 21,877 (2,497,000) (4,160) 1,798,895 22,501 25,429 1,669,812 2,327 (150,721) (5,005) 2,570 9,670 2,688 30,540 9,835 - (63,738) (1,030,930) 265,842 35,776 36,537 (2,791,087) Prepaid expenses and other assets (472,002) (30,798) Net Accounts (107,720) non-operating payable and other(2,497,000) revenues accrued liabilities 22,501 445,098 2,327 (214,893) (5,005) 541,124 9,670 16,466,000 2,688 693,456,314 184,750 9,835 611,133,843 293,210 - 168,545 (63,738) 35,535 265,842 (261,227) 35,776 15,265 36,537 (9,174) (20,648) (2,791,087) 101,044 (7,390) 33,528 17,770,767 Accounts payable and other accrued liabilities 445,098 (214,893) Unearned 541,124 revenue 16,466,000 184,750 829,495 293,210 (43,103) 168,545 (42,467) 35,535 (1,895,000) (261,227) (55,006) 15,265 (11,747) (9,174) 144 (20,648) 80,464 101,044 (13,450) (7,390) (14,484) 33,528 6,201 17,770,767 (65,540) 66,010 6,190 (1,152,293) Unearned revenue 829,495 (43,103) Income Liability (42,467) before for future insuranceother (1,895,000) revenuesclaims and (55,006)expenses (11,747) - 144 80,464 - (13,450) 54,904,638 (14,484) 50,519,255 (3,232,100) 6,201 (65,540) 66,010 6,190 (1,152,293) - (3,232,100) Loans to students and employees (306,496) 2,560 - - (303,936) Liability for future insurance claims - - (3,232,100) - (3,232,100) Refundable federal advance 66,467 - - (24,625) - 41,842 Loans to students and employees (306,496) 2,560 - - (303,936) Compensated absences 1,031,887 35,886 (65,120) 4,986,000 (35,937) 81,876 (63,729) (3,099) 32,655 (1,051) (1,082) 8,470 38,205 4,182 21,333 6,070,476 Refundable federal advance 66,467 Other - Changes in Net - Position (24,625) - 41,842 OPEB liability 941,224 147,069 284,110 2,096,000 56,464 145,578 17,686 44,770 37,853 31,602 41,307 36,625 63,067 59,780 15,613 4,018,748 Compensated absences 1,031,887 35,886Capital appropriations Pension (65,120) related 4,986,000 (35,937) 866,584 81,876 29,929 (63,729) 1,021,019 (3,099) (3,796,000) 32,655 903,920 53,006 (1,051) (13,430) 2,169,838 (1,082) 223,540 8,470 81,001 38,205 27,900 4,182 149,732 21,333 354,383 84,211 6,070,476 362,322 128,483 (60,955) (488,275) OPEB liability 941,224 147,069 Other 284,110 2,096,000 56,464 145,578 3,968 17,686 44,770 - 23,007,000 37,853 31,602 (3,346) 41,307 36,625 63,067 59,780 15,613 196,213 4,018,748 23,203,835 Pension related 866,584 29,929Capital grants 1,021,019 and gifts (3,796,000) 53,006 (13,430) 223,540 81,001 27,900 40,864,347 149,732 13,369,683 354,383 84,211 362,322 128,483 (60,955) (488,275) Other 3,968 Adjustments NET CASH PROVIDED to - prior (USED) year 23,007,000 revenuesBY OPERATING and ACTIVITIES expenses$ (186,860,611) (3,346) $ (35,864,336) $ (78,132,873) $ 13,781,000 $ 44,178(23,326,746) $ (37,081,901) (87,207)$ 10,019,249 196,213$ (8,050,130) $ (12,808,639) $ (8,591,949) $ (9,840,480) $ (9,269,681) 23,203,835$ (24,389,176) $ (4,684,469) $ (7,296,881) $ (9,211) $ (422,406,834) Extraordinary item-pollution remediation (9,648,242) - NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES$ (186,860,611) $ Non-Cash (35,864,336) Transactions$ (78,132,873) $ 13,781,000 $ (23,326,746) $ (37,081,901) $ 10,019,249 $ (8,050,130) $ (12,808,639) $ (8,591,949) $ (9,840,480) $ (9,269,681) $ (24,389,176) $ (4,684,469) $ (7,296,881) $ (9,211) $ (422,406,834) OtherCapital Gifts $ 7,234,064 $ 61,555 $ 1,285,000 $ 1,595,418 22,263 (999,147) $ 35,000 $ 9,176 $ 8,647,058 Non-Cash Transactions Fixed assets Total acquired other by incurring revenues capital leaseand obligations expenses 3,213,000 33,759,621 $ 8,564,008 14,453,167 11,777,008 Capital Gifts $ 7,234,064 Capital$ outlay & 61,555maintenance$ paid directly 1,285,000 from proceeds$ of debt 22,263 315,658 $ 35,000 $ 9,176 $ 8,647,058 315,658 Fixed assets acquired by incurring capital lease obligations Payment of bond proceeds/premium/accrued 3,213,000 interest/debt svc $ 8,564,008 11,777,008 Capital outlay & maintenance paid directly from proceeds of debt 315,658 reserve Increase directly into indeposits net withposition trustees/escrow 119,759,469 $ 23,062,932 88,664,259 14,511,920 64,972,422 315,658 157,334,321 Payment of bond proceeds/premium/accrued interest/debt svc Payment of bond issuance costs and underwriter's discounts directly from bond proceeds and/or debt service reserve 565,254 189,292 155,116 909,662 reserve directly into deposits with trustees/escrow 119,759,469 $ 23,062,932 14,511,920 157,334,321 Payment of principal & interest on long-term debt from deposits with trustees 159,415 $ 158 $ 411,025 376,960 947,558 Payment of bond issuance costs and underwriter's discounts Net Position,Interest earned beginning on deposits with of trustees year 417,694 7,659 2,699 2,199,324,594 13,059 2,134,352,172 $ 1,361 $ 877 14,723 678 458,750 directly from bond proceeds and/or debt service reserve 565,254 189,292MergersLoss on disposal with of assetsUAPTC and UACCRM (Note 155,116 24) 3,576,949 15,105 47,186 46,321,542 400 9,503 - 909,662 9,608 3,658,751 Payment of principal & interest on long-term debt from deposits with trustees 159,415 Valuation adjustment to capital assets $ (1,241,000) 158 $ 411,025 376,960 7,430 947,558 (1,233,570) Interest earned on deposits with trustees 417,694 Net 7,659 Position,Value of goods beginning received 2,699 from ofsponsorship year, agreementsrestated with vendors 13,059 3,389,056 2,245,646,136$ 1,361 $ 2,134,352,172 877 14,723 678 458,750 3,389,056 Loss on disposal of assets 3,576,949 15,105Fixed assets transferred 47,186 to another state agency 400 9,503 9,608 3,658,751 37,872 37,872 Valuation adjustment to capital assets (1,241,000) 7,430 (1,233,570) Value of goods received from sponsorship agreements with vendors 3,389,056 Net Position, end of year $ 2,334,310,395 $ 2,199,324,594 3,389,056 Fixed assets transferred to another state agency 37,872 37,872

See accompanying notes.

32 UNIVERSITY OF ARKANSAS SYSTEM: Campus Financial Statements FY2017

UNIVERSITY OF ARKANSAS Statement of Cash Flows - Direct Method - Continued - By Campus For the Year Ended June 30, 2017

Elimination UAF UAFS UALR UAMS UAM UAPB SYSTEM CCCUA PCCUA UACCB UACCH UACCM UAPTC UACCRM ASMSA (Note 19) TOTAL Reconciliation of net operating revenue (loss) to net cash provided (used) by operating activities:

Operating revenue (loss) $ (258,623,585) $ (42,998,787) $ (95,283,625) $ (86,421,000) $ (26,983,766) $ (43,266,879) $ 13,445,148 $ (9,173,403) $ (13,967,726) $ (9,584,891) $ (11,110,939) $ (10,502,819) $ (30,083,603) $ (6,260,179) $ (7,735,622) $ - $ (638,551,676)

Adjustments to reconcile net revenue (loss) to net cash provided (used) by operating activities:

Depreciation expense 75,527,340 7,720,862 16,056,746 66,021,000 3,573,539 6,422,880 434,010 941,082 1,381,051 815,945 958,707 959,511 4,805,635 1,215,362 405,339 187,239,009 Other miscellaneous operating receipts (4,384,879) 133,873 (4,251,006) Adjustment to cash for amounts in transit within the system (9,211) (9,211) Change in assets and liabilities: Receivables, net (3,050,259) (517,825) (578,353) (2,875,000) (175,078) (718,775) (1,102,863) (88,027) (44,223) (39,331) 77,039 23,723 123,852 42,967 (18,844) (8,940,997) Inventories 264,547 4,764 41,413 (1,311,000) 57,406 (13,595) 21,877 (4,160) 25,429 (150,721) 2,570 30,540 (1,030,930) Prepaid expenses and other assets (472,002) (30,798) (107,720) (2,497,000) 22,501 2,327 (5,005) 9,670 2,688 9,835 - (63,738) 265,842 35,776 36,537 (2,791,087) Accounts payable and other accrued liabilities 445,098 (214,893) 541,124 16,466,000 184,750 293,210 168,545 35,535 (261,227) 15,265 (9,174) (20,648) 101,044 (7,390) 33,528 17,770,767 Unearned revenue 829,495 (43,103) (42,467) (1,895,000) (55,006) (11,747) 144 80,464 (13,450) (14,484) 6,201 (65,540) 66,010 6,190 (1,152,293) Liability for future insurance claims - - (3,232,100) - (3,232,100) Loans to students and employees (306,496) 2,560 - - (303,936) Refundable federal advance 66,467 - - (24,625) - 41,842 Compensated absences 1,031,887 35,886 (65,120) 4,986,000 (35,937) 81,876 (63,729) (3,099) 32,655 (1,051) (1,082) 8,470 38,205 4,182 21,333 6,070,476 OPEB liability 941,224 147,069 284,110 2,096,000 56,464 145,578 17,686 44,770 37,853 31,602 41,307 36,625 63,067 59,780 15,613 4,018,748 Pension related 866,584 29,929 1,021,019 (3,796,000) 53,006 (13,430) 223,540 81,001 27,900 149,732 354,383 84,211 362,322 128,483 (60,955) (488,275) Other 3,968 - 23,007,000 (3,346) 196,213 23,203,835

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES$ (186,860,611) $ (35,864,336) $ (78,132,873) $ 13,781,000 $ (23,326,746) $ (37,081,901) $ 10,019,249 $ (8,050,130) $ (12,808,639) $ (8,591,949) $ (9,840,480) $ (9,269,681) $ (24,389,176) $ (4,684,469) $ (7,296,881) $ (9,211) $ (422,406,834)

Non-Cash Transactions Capital Gifts $ 7,234,064 $ 61,555 $ 1,285,000 $ 22,263 $ 35,000 $ 9,176 $ 8,647,058 Fixed assets acquired by incurring capital lease obligations 3,213,000 $ 8,564,008 11,777,008 Capital outlay & maintenance paid directly from proceeds of debt 315,658 315,658 Payment of bond proceeds/premium/accrued interest/debt svc reserve directly into deposits with trustees/escrow 119,759,469 $ 23,062,932 14,511,920 157,334,321 Payment of bond issuance costs and underwriter's discounts directly from bond proceeds and/or debt service reserve 565,254 189,292 155,116 909,662 Payment of principal & interest on long-term debt from deposits with trustees 159,415 $ 158 $ 411,025 376,960 947,558 Interest earned on deposits with trustees 417,694 7,659 2,699 13,059 $ 1,361 $ 877 14,723 678 458,750 Loss on disposal of assets 3,576,949 15,105 47,186 400 9,503 9,608 3,658,751 Valuation adjustment to capital assets (1,241,000) 7,430 (1,233,570) Value of goods received from sponsorship agreements with vendors 3,389,056 3,389,056 Fixed assets transferred to another state agency 37,872 37,872

33

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Note 1: Summary of Significant Accounting Policies

The financial statements for the University of Arkansas (“the University”) have been prepared in accordance with generally accepted accounting principles as prescribed by the Governmental Accounting Standards Board (GASB). The accompanying notes to the financial statements are an integral part of the financial statements.

The following acronyms are used for the various campuses and divisions of the University as reported in the financial statements: UAF (University of Arkansas Fayetteville, including Agricultural Experiment Station, Cooperative Extension Service, Arkansas Archeological Survey (AAS), Criminal Justice Institute (CJI), and Clinton School of Public Service), UAFS (University of Arkansas at Fort Smith), UALR (University of Arkansas at Little Rock), UAMS (University of Arkansas for Medical Sciences), UAM (University of Arkansas at Monticello), UAPB (University of Arkansas at Pine Bluff), CCCUA (Cossatot Community College of the University of Arkansas), PCCUA (Phillips Community College of the University of Arkansas), UACCB (University of Arkansas Community College at Batesville), UACCH (University of Arkansas Community College at Hope), UACCM (University of Arkansas Community College at Morrilton), University of Arkansas-Pulaski Technical College (UAPTC), University of Arkansas Community College at Rich Mountain (UACCRM), ASMSA (Arkansas School for Mathematics, Sciences and the Arts), and SYSTEM (University of Arkansas System Administration, including University of Arkansas System eVersity).

Basis of Presentation and Measurement Focus For financial reporting purposes, the University is considered a special-purpose government engaged in business-type activities. Accordingly, the University’s financial statements have been presented using the economic resources measurement focus and the accrual basis of accounting. Revenues are recognized in the accounting period in which they are earned and become measurable. Expenses are recognized in the period in which they are incurred, if measurable, including depreciation.

Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, deferred inflows, deferred outflows, revenues and expenses at the date of the financial statements. Significant estimates affecting the financial statements include the determination of allowances for uncollectible accounts, patient services related contractual adjustments and third-party payor settlements, and various investment risks and fair market valuations. Actual results could differ from those estimates.

Cash and Cash Equivalents Cash and cash equivalents include short-term, highly liquid investments that are readily convertible to cash and have a maturity at acquisition of three months or less.

Investments Investments and funds held in trust by others of marketable securities are reported at fair value as established by major securities markets The fair value of venture capital and other investments is

1

34

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 based on the most current information reported to the University by the respective investment managers Changes in unrealized gain (loss) on the carrying value are reported as a component of investment income on the statement of revenues, expenses and changes in net position

Accounts Receivable Receivables that represent charges due the University from various student fees, room and board, student fines, patient care services, and other charges are stated at estimated net realizable values; that is, the gross amount of the receivable is reduced by allowances for estimated uncollectible accounts and contractual allowances (related to patient care revenue). Receivables can also include unreimbursed expenses relating to research contracts with federal, state, and private agencies.

Patient Accounts Receivable Patient accounts receivable are shown net of contractual allowances and an allowance for doubtful accounts. Credit balances representing refunds due are reported as accounts payable. The amount of the allowance for doubtful accounts is based upon management's assessment of historical and expected net collections, business and economic conditions, trends in federal and state governmental care coverage and other collection indicators.

Inventories Inventories are valued at the lower of cost or market, with cost generally being determined on a first-in, first-out (FIFO) or average-cost basis.

Capital Assets Capital assets consisting of land, buildings, improvements, furniture, equipment, intangible assets, and construction in progress, are stated at cost or acquisition value at date of gift Library holdings are generally valued using average prices for library acquisitions If material, interest on borrowings to finance facilities is capitalized during construction, net of any investment income earned through the temporary investment of project borrowings. In accordance with the University’s capitalization policy, equipment includes all furniture, fixtures and equipment with a unit cost of $5,000 or more and an estimated useful life of one year or more. Intangible assets are capitalized when the cost is $500,000 or more for purchased software, $1,000,000 or more for internally developed software, or $250,000 or more for easements, land use rights, trademarks and copyrights, and patents.

Livestock is maintained primarily for research purposes with any other benefits derived from the operations considered as incidental to the primary mission of the University. The inventory value placed on the animals is determined by utilizing current market prices and breeding and research intangibles.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets -- generally 15-30 years for buildings, 15-20 years for infrastructure and land improvements, 3-10 years for equipment, 10 years for library holdings, and the applicable term for capital leases

UAMS bases its estimated useful lives on guidelines established by the American Hospital Association (AHA) which may differ slightly from those shown above for the other campuses

2

35

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

CapitalizationUNIVERSITY of OF Interest ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 The University capitalizes interest involving qualifying assets. The amount of interest cost to be Capitalizationcapitalized is netted of Interest against any interest earned on temporary investments of the proceeds of those Theborrowings University from capitalizes the initial interest date of involving borrowing qualifying until the specifiedassets. The qualifying amount ofassets interest acquired cost towith be capitalizedthat debt are is nettedready foragainst their any intended interest use. earned The on total temporary amount investments of interest ofcost the incurred proceeds (gross of those of borrowingsamortizations from of the premiums initial date and of discounts) borrowing and until the the net specified amount qualifying that has been assets capitalized acquired with was that$55,798,658 debt are andread $y 4,157,454,for their intended respectively, use. forThe thetotal fiscal amount year of ended interest June cost 30, incurred 2017 The(gross total of amortizationsamount of interest of premiums cost incurred and (gross discounts) of amortizations and the net of amount premiums that and has discounts) been capitalized and the wasnet $amount55,798,658 that has and been $4,157,454, capitalized respectively, was $49,155,698 for the and fiscal $2,860,539, year ended respectively, June 30, for 201 the7 fiscal The totalyear amountended June of interest 30, 201 cost6 incurred (gross of amortizations of premiums and discounts) and the net amount that has been capitalized was $49,155,698 and $2,860,539, respectively, for the fiscal year endedDeferred June Outflows 30, 201 6of Resources Deferred outflows of resources represent a decrease of net position that applies to future periods. DeferredTherefore, Outflows these items of Resourceswill not be recognized as an expense or expenditure until a future period Deferred outflows of resources represent a decrease of net position that applies to future periods. Therefore,Compensated these Absences items will not be recognized as an expense or expenditure until a future period Vested or accumulated vacation and sick leave of University employees are recorded as an expense Compensatedand liability as Absencesthe benefits are earned. Amounts recorded include salary expense as well as salary- Vestedrelated or payments accumulated (e.g., vacation FICA taxes,and sick retirement, leave of University etc.). No employees liability is are recorded recorded for as annonvested expense andaccumulated liability as rights the benefits to receive are sick earned. leave Amounts benefits. recorded The current include portion salary of expense compensated as well absences as salary- is relateddetermined payments using the (e.g., average FICA balance taxes, paid retirement, annually etc.). in the No prior liability two-year is recordedperiod. for nonvested accumulated rights to receive sick leave benefits. The current portion of compensated absences is Unearneddetermined Revenueusing the average balance paid annually in the prior two-year period. Unearned revenue consists primarily of student tuition and fees and athletic ticket sales related to Unearnedfuture fiscal Revenue years, and amounts received from grant and contract sponsors that have not yet been Unearnedearned under revenue the terms consists of the primarily agreements. of student tuition and fees and athletic ticket sales related to future fiscal years, and amounts received from grant and contract sponsors that have not yet been earnedDeferred under Inflows the terms of Resources of the agreements. Deferred inflows of resources represent an increase of net position that applies to future periods. DeferredTherefore, Inflows these items of Resources will not be recognized as revenue until a future period. D eferred inflows of resources represent an increase of net position that applies to future periods. Therefore,Pensions these items will not be recognized as revenue until a future period. For purposes of measuring the net pension liability, deferred outflows of resources and deferred Pensionsinflows of resources related to pensions, and pension expense, information about the fiduciary net Forposition purposes of theof measuring Arkansas the Public net pension Employees liability, Retirement deferred System outflows and of theresources Arkansas and deferred Teacher inflowsRetirement of resources System (therelated respective to pensions, Systems) and pension and additions expense, to/deductionsinformation about from the the fiduciary respective net positionSystem’s offiduciary the Arkansas net position Public have Employees been determined Retirement on the System same basis and as the they Arkansas are reported Teacher by Retirementthe respective System Systems. (the respectiveFor this purpose, Systems) benefit and additions payments to/deductions (including refunds from the of respective employee System’scontributions) fiduciary are recognizednet position whenhave been due determined and payable on in the accordance same basis with as they the are benefit reported terms. by theInvestments respective are Systems.reported at For fair this value purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value

Net Position The University’s net position is classified as follows: Net Position The University’s net position is classified as follows: 3

3

36

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

 UNIVERSITYNet investment OF ARKANSASin capital assets SYSTEM - C apital– Notes assets, to Consolidated net of accumulated Financial Statements depreciation FY2017 and outstanding principal balances of debt obligations related to those capital assets. However,  unexpendedNet investment debt in proceeds capital assets at year- - endCapital are reported assets, netas net of accumulatedposition restricted depreciation for capital and projects.outstanding principal balances of debt obligations related to those capital assets. However,  Restricted:unexpended debt proceeds at year-end are reported as net position restricted for capital projects.Non-expendable - Portion subject to externally-imposed stipulations that they be  Restricted:maintained permanently by the University. Such assets include the University’s permanent endowmentNon-expendable funds - Portion subject to externally-imposed stipulations that they be Expendablemaintained permanently - Portion whose by the University. use by the Such University assets include is subject the University’s to externally- permaimposednent stipulationsendowment thatfunds can be fulfilled by actions of the University pursuant to those stipulations orExpendable that expire - byPortion the passage whose of use time. by Therethe University is no formal is subjectpolicy requiring to externally- restrictedimposed net positionstipulations to bethat used can eitherbe fulfilled before by or actions after unrestrictedof the University net position pursuant is to used those for stipulations the same purpose.or that expire Responsible by the passage officials of time. determine There at is the no timeformal funds policy are requiring expended restricted to use anynet unrestrictedposition to benet used position either that before may beor available.after unrestricted net position is used for the same  Unrestrictedpurpose. – ResponsiblePortion that is officials not subject determine to externally at the imposed time funds stipulations. are expended This portion to use may any be designatedunrestricted for net specificposition purposesthat may be by available. management or the Board of Trustees or may be  otherwiseUnrestricted limited – Portion by contractual that is not agreements subject to externally with outside imposed parties. stipulations. This portion may be designated for specific purposes by management or the Board of Trustees or may be Classificationotherwise limitedof Revenues by contractual agreements with outside parties. The University has classified its revenues as either operating or non-operating according to the followingClassification criteria: of Revenues The University has classified its revenues as either operating or non-operating according to the following Operating criteria: Revenue - includes activities that have the characteristics of exchange transactions, such as student tuition and fees (net of scholarship discounts and allowances), patient services  (netOperating of contractual Revenue agreements), - includes activities most federal, that have state, the andcharacteristics local grants of and exchange contracts, transactions, revenues associatedsuch as student with tuitionauxiliary and enterprises fees (net of(net scholarship of scholarship discounts discounts and allowances), and allowances), patient interest services on institutional(net of contractual student agreements), loans, and the most Unive federal,rsity’s state, self-funded and local insurance grants plans.and contracts, revenues  Non-associatedOperating with auxiliaryRevenue enterprises - includes activities(net of scholarship that have discounts the characteristics and allowances), of non- interestexchange on transactions,institutional student such as loans, gifts and and the contributions, University’s selfstate-funded appropriations insurance, plans. interest on debt, and  investmentNon-Operating income. Revenue - includes activities that have the characteristics of non-exchange transactions, such as gifts and contributions, state appropriations, interest on debt, and Scholarshipinvestment Discounts income. and Allowances Student tuition and fee revenues, and certain other revenues from students, are reported net of scholarshipScholarship discounts Discounts and and allowances. Allowances Scholarship discounts and allowances are the differences betweenStudent tuitionthe stated and charge fee revenues, for goods and and certain services other provided revenues by thefrom University, students, andare thereported amount net that of isscholarship paid by studentsdiscounts and/or and allowances. third parties Scholarship making payments discounts onand the allowances students’ are behalf. the differences Certain governmentalbetween the stated grants, charge such foras Pellgoods grants, and services and other provided federal, by state, the University,or nongovernmental and the amount programs, that areis paidrecord byed students as either operatingand/or third or non-partiesoperating making revenues payments in the on University’s the students’ financial behalf. statements. Certain Togovernmental the extent grants,that revenues such as fromPell grants, such programs and other are federal, used tostate, satisfy or nongovernmental tuition and fees programs, and other studentare record charges,ed as either the University operating hasor non- recordedoperating a scholarship revenues indiscount the University’s and allowance. financial statements. To the extent that revenues from such programs are used to satisfy tuition and fees and other student charges, the University has recorded a scholarship discount and allowance.

Net Patient Services Revenue Patient care revenue is reported at the estimated net realizable amounts from patients, third-party payors,Net Patient and Servicesothers for Revenue services rendered. Retroactive adjustments arising under reimbursement Patient care revenue is reported at the estimated net realizable amounts from patients, third-party payors, and others for services rendered. Retroactive4 adjustments arising under reimbursement

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 agreements with third-party payors are accrued on an estimated basis in the period in which the related services are rendered and adjusted as final settlements are determined.

Prior to 2017, contractual pharmacy revenues for UAMS were included in the Statement of Revenues, Expenses, and Changes in Net Position as Net Patient Services revenue. In 2017, these revenues began being reported as Other Operating Revenues. Therefore, these revenues for 2016, which totaled $35,210,000, have been reclassified for comparability.

Charity Care UAMS provides care to patients who meet certain criteria under its charity care policy without charge or at amounts less than its established rates. Because UAMS does not pursue collection of amounts determined to qualify as charity care, these amounts are accounted for as a reduction of patient services revenue at the time the services are rendered.

Grants and Contracts The University has been awarded grants and contracts for operations for which the moneys have not been received or expended. These awards have not been reflected in the financial statements but represent commitments of sponsors to provide funds for specific research and training projects.

Federal research grants and contracts normally provide for the recovery of direct and indirect costs, subject to adjustment based upon review by the granting agencies. The University recognizes revenue associated with direct costs as the related costs are incurred. The recovery of indirect costs is recorded at predetermined rates negotiated with the federal government.

State Appropriations State appropriations are reported in the Statement of Revenues, Expenses, and Changes in Net Position as non-operating revenue, net of the Medicaid match payments required under various contracts between UAMS and the Arkansas Department of Human Services. The match payments were $80,742,000 and $99,151,000 for the fiscal years 2017 and 2016, respectively.

Component Units In fiscal year 2017, there were two qualifying foundations determined to be component units under GASB Statement No. 39 for the University of Arkansas: The University of Arkansas Foundation, Inc. and the University of Arkansas Fayetteville Campus Foundation, Inc. Although the University does not control the timing or amount of receipts from either of these foundations, the majority of resources or income thereon, which the foundations hold and invest, is restricted to the activities of the University by the donors. Because these restricted resources held by the foundations can be used only by, or for the benefit of, the University, and their individual net assets are considered as having met the financial accountability criteria by management, these two foundations are considered component units and are discretely presented in the University’s financial statements.

The University of Arkansas Foundation, Inc. is a separate not-for-profit organization, which operates for charitable educational purposes, including the administration and investment of gifts and other amounts received directly or indirectly for the benefit of the University of Arkansas. The Board of Directors has twenty-two members, four of which are current or previous members of the Board of Trustees of the University of Arkansas. During the years ended June 30, 2017 and

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

2016, the Foundation distributed $65,294,457 and $66,373,172, respectively, to or on behalf of the University. Complete financial statements for the Foundation can be obtained from the administrative office at 535 Research Center Boulevard, Suite 120, Fayetteville, AR 72701.

The University of Arkansas Fayetteville Campus Foundation, Inc. is a not-for-profit charitable organization which was established by the Walton Family Charitable Support Foundation, Inc., for the exclusive benefit of the University of Arkansas, Fayetteville campus. The Foundation was established on March 11, 2003, and exists primarily to support the Honors College, the Graduate School, and the University’s library. The Board of Trustees of the Foundation is made up of seven members, including three members who are also employees of the University. During the years ended June 30, 2017 and 2016, the Foundation distributed $16,916,811 and $16,434,565, respectively, to or on behalf of the University. Complete financial statements for the Foundation can be obtained from the administrative office at 535 Research Center Boulevard, Suite 120, Fayetteville, AR 72701.

Encumbrances Encumbrances representing commitments and outstanding purchase orders for goods and services not received as of the last day of the fiscal year are not reported as expenses or included in liabilities in the accompanying financial statements.

New Accounting Pronouncements The GASB issued the following statements, which became effective for the fiscal year ended June 30, 2017:

• Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, • Statement No. 77, Tax Abatement Disclosures, • Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans, • Statement No. 80, Blending Requirements for Certain Component Units- an amendment of GASB Statement No. 14, • Statement No. 82, Pension Issues- an amendment of GASB Statements No. 67, No. 68, and No. 73 Management has determined these statements did not materially impact the University

Additionally, the GASB issued the following statements, which become effective for the future fiscal years noted below:

For the year ending June 30, 2018 • Statement No. 75, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, • Statement No. 81, Irrevocable Split-Interest Agreements, • Statement No. 85, Omnibus 2017, • Statement No. 86, Certain Debt Extinguishment Issues For the year ending June 30, 2019 • Statement No. 83, Certain Asset Retirement Obligations

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

For the year ending June 30, 2020 • Statement No. 84, Fiduciary Activities For the year ending June 30, 2021 • Statement No. 87, Leases

Management has not yet determined the effects of these statements on the University’s financial statements

Note 2: Reporting Entity

The University of Arkansas System, which prior to 1969 consisted of the Fayetteville and Medical Sciences campuses, was expanded in 1969 to include the Little Rock campus (formerly Little Rock University), in 1971 to include the Monticello campus (formerly Arkansas A&M College), in 1972 to include the Pine Bluff campus (formerly Arkansas AM&N College), in 1996 to include the Phillips campus (formerly Phillips County Community College), and the Hope campus (formerly Red River Technical College), and in 1998 to include the Batesville campus (formerly Gateway Technical College). On July 1, 2001, the University was expanded to include campuses in Morrilton (formerly Petit Jean College) and DeQueen (formerly Cossatot Community College). The Fort Smith campus (formerly Westark College) joined the University on January 1, 2002. Forest Echoes Technical Institute in Crossett and Great Rivers Technical Institute in McGehee merged with the Monticello campus on July 1, 2003. The Arkansas School for Mathematics, Sciences and the Arts, a residential high school, joined the University on January 1, 2004. On February 1, 2017, Pulaski Technical College and Rich Mountain Community College became the sixth and seventh two-year college to join the UA System. In addition to these campuses, the University includes the System Administration, whose financial statements include eVersity, and the following units that are included in the financial statements of the Fayetteville campus: Clinton School of Public Service, Division of Agriculture (Agricultural Experiment Station and the Cooperative Extension Service), Arkansas Archeological Survey, and the Criminal Justice Institute

All programs and activities of the University of Arkansas System are governed by its Board of Trustees, which has been accorded constitutional status for the exercise of its powers and authority by Amendment 33 to the Arkansas Constitution. The Board of Trustees has delegated to the President the administrative authority for all aspects of the University’s operations. Administrative authority is further delegated to the Chancellors, the Vice President for Agriculture, the Dean of the Clinton School, the Director of the CJI, the Director of AAS, and the Director of ASMSA, who have responsibility for the programs and activities of their respective campuses or state-wide operating division

The financial reporting entity consists of (a) the primary government; (b) organizations for which the primary government is financially accountable, and (c) other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete. Under the provisions of this statement, the University is an institution of higher education of the State of Arkansas (primary government).

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Note 3: Net Patient Services Revenue and Charity Care

Patient care operations are included in the accompanying financial statements under accounting principles generally followed by governmental colleges and universities. Patient accounts receivable at June 30, 2017 and 2016, are recorded net of an allowance for doubtful accounts of $331,482,000 and $404,672,000, respectively.

Net patient services revenue for the years ended June 30, 2017 and 2016, are as follows:

GROSS PATIENT REVENUE 2017 2016 Gross patient revenue $ 3,014,287,000 $ 2,864,535,000 Less: patient services contractual allowances (1,792,176,000) (1,651,452,000) Less: provision for bad debt (35,747,000) (36,227,000) TOTAL $ 1,186,364,000 $ 1,176,856,000

UAMS provided approximately $47,668,000 and $77,654,000 in charity care, based on established rates, during the years ended June 30, 2017 and 2016, respectively. Because UAMS does not pursue collection of amounts determined to qualify as charity care, they are not included in gross patient revenue above. Net patient services revenue for the years ended June 30, 2017 and 2016, includes approximately $78,269,000 and $73,891,000, respectively, from the Medicaid program representing payments relating to Upper Payment Limit and Disproportionate Share reimbursements. These payments are available to state-operated teaching hospitals under Medicaid regulations. Net patient services revenue for the years ended June 30, 2017 and 2016, includes approximately $42,368,000 and $35,520,000, respectively, of net revenue from the Supplemental Medicaid program.

The Hospital, Faculty Group Practice (FGP), and Area Health Education Centers (AHECs) have agreements with governmental and other third-party payors that provide for reimbursement at amounts different from their established rates. Contractual adjustments under third-party reimbursement programs represent the difference between the billings at established rates for services and amounts reimbursed by third-party payors. A summary of the basis of reimbursement with significant third-party payors is as follows:

Hospital: Medicare – Inpatient acute care services rendered to program beneficiaries are paid at prospectively determined rates per discharge. These rates vary according to a patient classification system that is based on clinical, diagnostic, and other factors. Some transplantation services are paid based upon a cost reimbursement methodology. Outpatient services are paid based on a prospective payment system where services are classified into groups called Ambulatory Payment Classifications (APC). Services in each APC are similar clinically and in terms of the resources they require. The Hospital is paid for cost-reimbursable items at a tentative rate with final settlement determined after submission of an annual cost report by the Hospital and audit by the Medicare fiscal intermediary. As of June 30, 2017, the Hospital’s Medicare cost reports have been audited by the Medicare fiscal intermediary through June 30, 2015

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Medicaid – Inpatient and outpatient services rendered to Medicaid program beneficiaries are reimbursed based upon a cost reimbursement methodology. The Hospital is paid at a tentative rate with final settlement determined after submission of an annual cost report by the Hospital and audits by the Medicaid audit contractor. The Hospital is required to pay the federal match for the difference in reimbursement between the Tax Equity and Fiscal Responsibility Act inpatient rate and full cost. For outpatient services, the Hospital is required to pay the federal match for the difference reimbursed between the outpatient prospective rates and full cost. As of June 30, 2017, the Hospital’s Medicaid cost reports have been audited by the Medicaid audit contractor through June 30, 2012

FGP and AHECs: Services rendered to both Medicare and Medicaid program beneficiaries are reimbursed on prospectively determined rates per unit of service.

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. As a result, there is at least a reasonable possibility that recorded estimates will change by a material amount in the near term. The net adjustments to estimated settlements resulted in no change to net patient services revenue for the years ended June 30, 2017 and 2016 Management believes that UAMS is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medicaid programs

The Hospital, FGP, and AHECs have agreements with certain commercial insurance carriers and preferred provider organizations, which include prospectively determined rates per discharge, discounts from established charges, and prospectively determined per diem rates.

Additionally, UAMS has agreements to provide healthcare professionals to independent healthcare providers at contractually determined rates. These providers are responsible for billing and collecting from patients and third party payors, as applicable, for the services provided by UAMS staff supplied by these contracts.

Note 4: Compensated Absences

Employees accrue and accumulate annual and sick leave in accordance with policies established by the Board of Trustees. The University accrues the dollar value of leave benefits in accordance with generally accepted accounting principles which require accrual of salary-related payments directly and incrementally associated with compensated absences, such as employer’s share of social security taxes, as well as applicable salary expenses. These leave benefits are payable upon retirement, termination, or death of employees, up to the maximum allowed.

Full-time, non-classified employees accrue annual leave at the rate of fifteen hours per month and full-time classified employees accrue at a variable rate (from eight to fifteen hours per month) depending upon the number of years of employment in state government. Employees who are less

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 than full-time, but are at least 50% time, accrue annual leave at prorated amounts. Under the University’s policy, an employee may carry accrued annual leave forward from one calendar year to another, up to a maximum of 240 hours (30 working days). Classified employees who meet the conditions to be considered retirees at the time of termination of employment, are entitled to a partial payment of accumulated, unused sick leave in accordance with the provisions of Arkansas Code Annotated (A.C.A.) § 21-4-501. In accordance with A C A § 21-4-505, two-year institutions may, at their discretion, provide to non-classified employees the same compensation for accumulated unused sick leave provided to classified employees. The Code also allows four-year institutions the same option. Three campuses have chosen to follow the policy for non-classified employees: CCCUA, UACCB and UACCM. Sick leave for those three campuses can be paid upon termination in accordance with guidelines outlined in the law. In no event shall an employee receive a sick leave amount that exceeds $7,500.

Changes in compensated absences are shown below:

COMPENSATED ABSENCES Balance Balance Current Campus 6/30/16 Additions Reductions 6/30/17 Portion UAF $ 20,204,725 $ 1,268,717 $ 236,828 $ 21,236,614 $ 1,535,013 UAFS 1,653,423 194,322 158,436 1,689,309 231,748 UALR 4,374,402 319,198 384,319 4,309,281 424,236 UAMS 52,713,000 7,043,000 2,057,000 57,699,000 3,447,000 UAM 1,125,678 884,855 920,792 1,089,741 112,369 UAPB 2,319,647 2,220,295 2,138,419 2,401,523 152,079 CCCUA 372,533 300,631 303,730 369,434 18,472 PCCUA 481,202 456,046 423,391 513,857 29,367 UACCB 483,730 392,342 393,393 482,679 25,392 UACCH 381,776 366,638 367,719 380,695 30,143 UACCM 363,277 351,254 342,784 371,747 34,386 UAPTC 728,985 739,698 701,494 767,189 146,678 UACCRM 215,515 220,027 215,845 219,697 25,799 ASMSA 121,650 32,341 11,007 142,984 15,959 SYSTEM 631,251 552,811 616,540 567,522 24,929 TOTAL $ 86,170,794 $ 15,342,175 $ 9,271,697 $ 92,241,272 $ 6,253,570

The beginning balance at June 30, 2016 shown above includes two campuses that merged with the University on July 1, 2016 The balance of compensated absences for UAPTC was $728,985 and for UACCRM was $215,515. These amounts are not included in the prior year amount in the Statement of Net Position

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Note 5: Cash, Cash Equivalents and Investments

A C A §19-4-805 authorizes institutions of higher learning to determine the depositories and nature of investments of any of their cash funds which are not currently needed for operating purposes

Cash and Cash Equivalents Cash deposits are carried at cost. The following schedule reconciles the amount of deposits to the statement of net position at June 30, 2017:

Cash and Cash Equivalents Cash deposits at year end $ 441,375,499 cash held on deposit in state treasury 6,855,112 cash equivalents 12,189,834 cash on hand 153,016 adjustment for deposits in transit within the system 193,714 Less: cash/cash equiv shown as deposits held in trust on SNP (26,145,931) TOTAL $ 434,621,244

Deposits are exposed to custodial risk if they are not covered by depository insurance (FDIC) and are uncollateralized At June 30, 2017, none of the University’s bank balance were exposed to custodial credit risk.

Investments Investments are reported at fair value, which, for reporting purposes, is market value. The following is a summary of the University’s investments held at June 30, 2017:

Investment Type Fair Value Mutual & Money Market Funds $ 23,730,473 Corporate & Municipal Bonds 26,193,085 External Investment Pool 392,266,747 Certificate of Deposits 33,851,006 U.S. Treasury & Government Sponsored Agencies 189,530,639 Commercial Paper 81,534,052 Other 2,816,009 Sub-Total 749,922,011 -shown as cash/cash equiv on Stmt of Net Position (1,198,223) -shown as deposits held in trust on Stmt of Net Position (125,058,084) Investments as reported on Stmt of Net Position $ 623,665,704

The University is required under GASB Statement No. 40 to provide investment risk disclosures for all invested funds. Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The following tables show these risks for the University’s funds outside the external investment pool.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Interest Rate Risk Investment M aturies (in years) Investment Type Fair Value Less than 1 1 to 5 over 5 More than 10 Bonds $ 26,193,085 $ 6,127,067 $ 18,713,581 $ 1,302,376 $ 50,061 Commercial Paper 81,534,052 81,534,052 U.S. Treasury & Gov't Agencies 187,755,772 86,798,430 84,927,337 9,522,448 6,507,557 Totals $ 295,482,909 $ 174,459,549 $ 103,640,918 $ 10,824,824 $ 6,557,618

Investment Credit Risk Type Fair Value AAA AA A B & below Not Rated Mutual Funds $ 21,310,631 $ 20,293,895 $ - $ - $ - $ 1,016,736 Commercial Paper 81,534,052 81,534,052 Bonds 26,193,085 7,745,270 18,100,458 347,357 - - Totals 129,037,768 109,573,217 18,100,458 347,357 - 1,016,736

External Investment Pool In 1997, the University of Arkansas and the University of Arkansas Foundation established an external investment pool. This arrangement commingles (pools) the moneys of more than one legally separate entity and invests, on the participants’ behalf, in an investment portfolio. Subsequent to its establishment, other entities have joined including the Walton Arts Foundation in 1998, the Fayetteville Campus Foundation in 2003, the University of Arkansas Community College at Hope Foundation in 2007, the Razorback Foundation in 2012, and the University of Arkansas Technology Development Foundation in 2016.

The external investment pool is exempt from registration with the Securities and Exchange Commission The University of Arkansas Board of Trustees and the University of Arkansas Foundation Board of Trustees were the sponsors of this investment pool and were responsible for operation and oversight for the pool. All participation in this investment pool is voluntary.

In January 2010, the University of Arkansas Investment Committee approved an agreement which delegated authority to the UA Foundation to manage University funds held in the Pool. The agreement included delegation of all responsibility for all investment guidelines and performance objectives for accounts within the Pool. The agreement also delegated to the UA Foundation authority for further delegation of portfolio implementation decisions to one or more investment managers. In January 2010, the UA Foundation entered into such an agreement with Cambridge Associates, LLC.

The implementation of GASB 72 during the fiscal year ended June 30, 2016, caused management to reassess the University of Arkansas Board of Trustees’ sponsorship role. Based on the UA Foundation’s fiduciary responsibilities outlined in the January 2010 agreement, management concluded that the UA Foundation acts as sole sponsor of this investment pool.

At June 30, 2017, six campuses (UAF, UALR, UAMS, UAM, UAPB, and UACCM) and six foundations participated in the Pool, whose net assets totaled $1,879,311,744 The Pool was combined with 20 41% of the net assets owned by the University of Arkansas and external portions as follows: 49 46% by the University of Arkansas Foundation, 28 42% by the Fayetteville Campus Foundation, 0.74% by the Walton Arts Foundation, 0.11% by the University of Arkansas

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Community College at Hope Foundation, 0.03% by the University of Arkansas Technical Development Foundation, and 0 83% by the Razorback Foundation. The following tables contain information on the risk disclosure of the Pool.

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Statement of Invested Assets June 30, 2017

Investment Type Fair Value* Equities 529,355,249 Common Stock 243,790,593 Funds - Common Stock 259,232,645 Rights/Warrants 78,107 Funds - Equities ETF 26,253,904 Fixed Income 435,256,959 Government Bonds 109,856,684 Corporate Bonds 34,926,706 Government Mortgage Backed Securities 25,289,255 Commercial Mortgage-Backed 2,778,176 Asset Backed Securities 13,067,624 Non-Government Backed C.M.O.s 1 Funds - Fixed Income ETF 249,338,513 Venture Capital and Partnerships 635,535,299 Partnerships 635,535,299 Hedge Fund 243,195,051 Hedge Equity 207,324,244 Hedge Event Driven 35,870,807 All Other 529,239 Recoverable Taxes 529,239 Cash/Cash Equivalents 35,439,947 Funds - Short Term Investment 35,244,484 Cash (3,783,549) Invested Cash 3,979,012 TOTAL 1,879,311,744

*Includes accrued income

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Credit Risk - S&P Quality Ratings June 30, 2017

US GOVN. Investment Type & Fair Value* AAA AA A BBB BB NR GUAR Asset Backed Securities $9,343,000 $3,710,161 Commerical Mortgage-Backed $1,019,254 $1,752,024 Corporate Bonds $387,669 $3,887,845 $17,095,920 $13,185,837 $90,854 Funds - Fixed Income ETF $249,338,513 Funds - Short Term Investment $35,224,573 Government Bonds $5,465 $109,496,036 Govn Mortgage Backed Securities $25,213,043 Hedge Event Driven $35,870,807 Non-Govn Backed C.M.O.s $1 Total $10,749,923 $3,887,845 $17,095,920 $13,185,837 $5,465 $325,986,933 $134,709,079

*Does not include accrued income UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Years to Maturity June 30, 2017

Maturity not Investment Type Fair Value* Less than 1 1+ to 6 6+ to 10 10+ Determined Asset Backed Securities $13,053,161 $13,053,161 Commercial Mortgage-Backed $2,771,278 $2,771,278 Corporate Bonds $34,648,125 $163,585 $17,239,473 $11,462,252 $5,782,815 Funds - Fixed Income ETF $249,338,513 $249,338,513 Funds - Short Term Investment $35,224,573 $35,224,573 Government Bonds $109,501,501 $15,188,477 $91,499,111 $2,813,913 Govn Mortgage Backed Securities $25,213,043 $25,213,043 Hedge Event Driven $35,870,807 $35,870,807 Non-Government Backed C.M.O.'s $1 $1 Total $505,621,002 $163,585 $45,481,111 $102,961,363 $36,581,049 $320,433,894

*Does not include accrued income UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Interest Rate Sensitivity - Effective Duration June 30, 2017

Effective Investment Type Fair Value* Duration Asset Backed Securities $13,053,161 1 80 Commercial Mortgage-Backed $2,771,278 1 49 Corporate Bonds $34,557,271 6 51 Corporate Bonds $90,854 N/A Funds - Fixed Income ETF $249,338,513 N/A Funds - Short Term Investment $35,224,573 N/A Government Bonds $109,501,501 8 18 Govn Mortgage Backed Securities $25,213,043 4 37 Hedge Event Driven $35,870,807 N/A Non-Govn Backed C.M.O.s $1 N/A Total $505,621,002

*Does not include accrued income

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS EXTERNAL INVESTMENT POOL Foreign Currency Risk By Investment Type June 30, 2017

Other Currency By Investment and Fair Value* Cash Equi ty Assets AUSTRALIAN DOLLAR $4,278,385 $5,335,408 $0 CANADIAN DOLLAR ($1,021,434) $1,339,906 $25,822 SWISS FRANC $23,041 $7,692,780 $147,246 HK OFFSHORE CHINESE YUAN RENMINBI ($888,450) $0 $0 CHINESE YUAN RENMINBI ($3,434,686) $0 $0 DANISH KRONE ($43) $2,596,919 $8,289 EURO ($3,744,527) $41,768,950 $281,094 BRITISH POUND STERLING $5,390,749 $14,119,604 $0 HONG KONG DOLLAR $63,817 $8,953,151 $0 NEW ISRAELI SHEKEL $612 $594,564 $0 JAPANESE YEN $3,486,581 $24,348,743 $52,065 SOUTH KOREAN WON $0 $2,628,988 $0 NORWEGIAN KRONE $401,941 $1,078,645 $0 NEW ZEALAND DOLLAR $5 $515,523 $0 POLISH ZLOTY $1,787 $0 $0 SWEDISH KRONA $1,656,360 $4,675,519 $0 SINGAPORE DOLLAR $554,732 $1,148,698 $0 Total $6,768,870 $116,797,398 $514,516

*Includes accrued income

Endowment Funds A C A § 28-69-804 states, “Subject to the intent of a donor expressed in the gift instrument, an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established. Unless stated otherwise in the gift instrument, the assets in an endowment fund are donor-restricted assets until appropriated for expenditure by the institution.

The University does not have a uniform policy addressing the authorization and spending of investment income. Such policies have been established at the applicable campuses and include spending rates averaged over a specified period and compliance with donor restrictions. The computation of net appreciation on investments of donor-restricted endowments that were available for expenditure at June 30, 2017, and June 30, 2016, are as follows:

June 30, 2017 June 30, 2016 Total Endowment $ 162,943,631 $ 147,961,791 Less: Funds treated as endowment (48,511,378) (44,533,367) Less: Non-expendable portion of endowment (49,334,742) (48,099,545) Available for Expenditure $ 65,097,511 $ 55,328,879

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Note 6: Fair Value Measurement

In February 2015, GASB issued Statement No. 72, Fair Value Measurement and Application. The statement established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

An individual investment’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the University. The University considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by multiple, independent sources that are actively involved in the relevant market. The categorization of an investment within the hierarchy is based upon the pricing transparency of that investment and does not necessarily correspond to the University’s perceived risk of that investment.

The three levels of the fair value hierarchy are as follows:

Level 1: Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the University has the ability to access at the measurement date. Publicly traded equity securities and mutual funds are the primary investments included in Level 1 and are valued at the individual security’s closing market price.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Observable inputs are those that reflect the assumptions market participants would use in pricing the asset developed based on market data obtained from independent sources. These types of sources would include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets, models or other valuation methodologies. Level 2 investments include U.S. and international government debt securities valued at market corroborated prices and certain equity and fixed income investments in commingled investment vehicles reported at net asset value derived from the market prices of security holdings.

Level 3: Inputs that are unobservable. Unobserved inputs are those that reflect the University’s own assumptions about the assumptions that market participants would use in pricing the asset developed based on the best information available. These types of sources would include investment manager pricing for private equities, hedge funds and certain limited partnerships. Limited partner interests in private equity and other partnerships and hedge fund investments are included in Level 3 and are valued using the individual investment manager’s reported estimates of fair value developed in accordance with reasonable valuation policies.

The preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the University believes

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table sets forth, by level within the valuation hierarchy, University invested funds, including amounts reported as deposits with bond trustees on the Statement of Net Position, at June 30, 2017:

Summary of Investments by Fair Value Level

Investment by fair value level Level 1 Level 2 Level 3 Total

Equity Securities: US $ 5,963,399 $ 402,463 $ - $ 6,365,862 International - 57,232 - 57,232

Fixed Income Securities: US Government Debt 8,198,479 165,500,910 - 173,699,389 Other Debt Securities 6,743,663 97,047,579 29,754,932 133,546,174

Commingled Funds: US Equity 104,046 28,458 - 132,504 International Equity 83,750 29,315 - 113,065 US Government Bonds 13,175,469 1,808,067 - 14,983,536 Non-US Government Bonds - - - - Corporate Bonds 186,724 509,305 - 696,029

Exchange Traded Funds: Equity 595,000 - - 595,000 Fixed Income 177,000 - - 177,000

Other Partnerships: US (j) 1,215,379 1,215,379 International (k)

Certificates of Deposit 12,256,301 1,251,027 - 13,507,328

Non-marketable alternatives - - 3,016 3,016

Marketable alternatives 4,121 - - 4,121

Money markets and short-term investments 11,474,261 35,755 - 11,510,016 Total investments by fair value level $ 58,962,213 $ 266,670,111 $ 30,973,327 $ 356,605,651

Investments measured at NAV (net asset value) External Investment Pool - Total Return Pool - UA Foundation $ 267,362,180 External Investment Pool - Intermediate Pool - UA Foundation $ 124,685,476 External Investment Pool - UAFS Foundation $ 219,091 Total investments by NAV $ 392,266,747

TOTAL INVESTMENTS $ 748,872,398

Debt and equity securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Debt and equity securities classified in Level 2 of the fair value hierarchy are valued using a funds accounting technique or are provided by time deposit custodians. Securities classified in Level 3 are valued using par value on the face of the investments

Investments Measured at the NAV at June 30, 2017:

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period External Investment Pool - UA Foundation Total Return Pool (1) $ 267,362,180 $ - Daily 0 - 30 days Intermediate Pool (2) 124,685,476 - Daily 0 - 30 days External Investment Pool - UAFS Foundation 219,091 - Daily 0 days Total Investments measured at the NAV $ 392,266,747 $ -

(1) This type includes investments in a broadly diversified external investment pool. Pooled investments include allocations to global equities, hedge funds, bonds, natural resources and real estate. The assets in the pool are accounted for at fair value determined according to the principles of the Financial Accounting Standards Board. A one-week notice is required for redemptions over $1 million. There is also a requirement for 30-days written notice if total withdrawals will exceed $25 million in any 30 day period

(2) This type includes investments in an external investment pool comprised of fixed income investments. The pooled investments are allocated primarily to intermediate term government bonds and investment-grade intermediate term corporate bonds. The pool also includes allocations to mortgage-backed securities, high yield bonds, emerging market debt and money market funds. The assets in the pool are accounted for at fair value determined according to the principles of the Financial Accounting Standards Board. A one-week notice is required for redemptions over $1 million. There is also a requirement for 30-days written notice if total withdrawals will exceed $25 million in any 30 day period.

Note 7: Income Taxes

The University is tax exempt under the Internal Revenue Code except for tax on unrelated business income. The University had no significant unrelated business income for the year ended June 30, 2017. It is also exempt from state income taxes under Arkansas law. Accordingly, no provision for income taxes is made in the financial statements.

Note 8: Bonds, Notes, Capital Leases and Installment Contracts Payable

The retirement of some bond issues is secured by a specific pledge of certain gross revenues, surplus revenues and specific fees. Separate accounting is not required for these facilities under the provisions of the debt instruments; accordingly, segment reporting is not required for financial reporting purposes. A summary of long-term debt by campus is shown below. Total debt of $1,482,839,924 shown in these schedules, which is related to bonds, notes, capital leases and installment contracts, differs from the amount of $1,477,167,373 shown on the Statement of Net Position. This is due to an elimination entry of $5,672,551 to account for two loans between UA campuses (see Note 19). Schedule of Debt by Campus

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period External Investment Pool - UA Foundation Total Return Pool (1) $ 267,362,180 $ - Daily 0 - 30 days Intermediate Pool (2) 124,685,476 - Daily 0 - 30 days External Investment Pool - UAFS Foundation 219,091 - Daily 0 days Total Investments measured at the NAV $ 392,266,747 $ -

(1) This type includes investments in a broadly diversified external investment pool. Pooled investments include allocations to global equities, hedge funds, bonds, natural resources and real estate. The assets in the pool are accounted for at fair value determined according to the principles of the Financial Accounting Standards Board. A one-week notice is required for redemptions over $1 million. There is also a requirement for 30-days written notice if total withdrawals will exceed $25 million in any 30 day period

(2) This type includes investments in an external investment pool comprised of fixed income investments. The pooled investments are allocated primarily to intermediate term government bonds and investment-grade intermediate term corporate bonds. The pool also includes allocations to mortgage-backed securities, high yield bonds, emerging market debt and money market funds. The assets in the pool are accounted for at fair value determined according to the principles of the Financial Accounting Standards Board. A one-week notice is required for redemptions over $1 million. There is also a requirement for 30-days written notice if total withdrawals will exceed $25 million in any 30 day period.

Note 7: Income Taxes

The University is tax exempt under the Internal Revenue Code except for tax on unrelated business income. The University had no significant unrelated business income for the year ended June 30, 2017. It is also exempt from state income taxes under Arkansas law. Accordingly, no provision for income taxes is made in the financial statements.

Note 8: Bonds, Notes, Capital Leases and Installment Contracts Payable

The retirement of some bond issues is secured by a specific pledge of certain gross revenues, surplus revenues and specific fees. Separate accounting is not required for these facilities under the provisions of the debt instruments; accordingly, segment reporting is not required for financial reporting purposes. A summary of long-term debt by campus is shown below. Total debt of $1,482,839,924 shown in these schedules, which is related to bonds, notes, capital leases and installment contracts, differs from the amount of $1,477,167,373 shown on the Statement of Net PositionUNIVERSITY. This is OF due ARKANSAS to an elimination SYSTEM entry – ofNotes $5, 672to Consolidated,551 to account Financial for two Statements loans between FY2017 UA

campusesUNIVERSITY (see NoteOF ARKANSAS 19). SYSTEM – Notes to Consolidated Financial Statements FY2017 Schedule of Debt by Campus UNIVERSITY OF ARKANSAS FAYETTEVILLE Issue Maturity Interest Amount Maturities to Out st anding Date Date UNIVERSITYRate OF ARKANSASIssued FAYETTEVILLE Year-End Year-End 12/15/2009Issue Maturity11/1/2039 3.00%Interest to 5.00% $ Amount 52,430,000 $Maturities 6,450,000 to Out$ st 45,980,000 anding 6/30/2010 9/15/2020 1.00% to 4.82% 23,965,000 13,985,000 9,980,000 Date Date Rate 18 Issued Year-End Year-End 12/15/20096/29/2011 11/1/203911/1/2040 3.00%2.00% to to5.00% 5.00% $ 52,430,000 101,225,000 $ 6,450,000 10,695,000 $ 45,980,000 90,530,000 6/30/20106/29/2011 9/15/202011/1/2022 1.00%3.00% to to4.82% 5.00% 23,965,000 8,895,000 13,985,000 1,105,000 9,980,000 7,790,000 6/29/20116/29/2011 11/1/20409/15/2021 2.00%2.00% to to 5.00% 4.895% 101,225,000 23,575,000 10,695,000 23,575,000 90,530,000 - 6/29/20114/17/2012 11/1/202211/1/2032 3.00%1.00% to to5.00% 5.00% 8,895,000 56,965,000 1,105,000 8,580,000 7,790,000 48,385,000 6/29/20119/13/2012 9/15/202111/1/20422.00%2.00% to 4.895%to 5.00% 23,575,000 60,540,000 23,575,000 3,625,000 56,915,000 - 4/17/20125/16/2013 11/1/203211/1/2042 1.00%1.00% to to5.00% 5.00% 56,965,000 54,450,000 8,580,000 4,520,000 48,385,000 49,930,000 9/13/20125/16/2013 11/1/20429/15/2027 2.00%1.00% to to5.00% 5.00% 60,540,000 30,355,000 3,625,000 5,920,000 56,915,000 24,435,000 5/16/20136/30/2014 11/1/204211/1/2043 1.00%2.00% to to5.00% 5.00% 54,450,000 24,730,000 4,520,000 1,085,000 49,930,000 23,645,000 5/16/20136/30/2014 9/15/202711/1/2043 1.00%0.85% to to5.00% 4.50% 30,355,000 5,020,000 5,920,000 255,000 24,435,000 4,765,000 6/30/20142/12/2015 11/1/204311/1/2036 2.00%2.00% to to5.00% 5.00% 24,730,000 70,360,000 1,085,000 5,645,000 23,645,000 64,715,000 6/30/20142/12/2015 11/1/20439/15/2022 0.85%2.00% to to4.50% 5.00% 5,020,000 14,180,000 255,000 980,000 4,765,000 13,200,000 2/12/20158/27/2015 11/1/203611/1/2045 2.00%1.02% to to5.00% 4.40% 70,360,000 7,510,000 5,645,000 145,000 64,715,000 7,365,000 2/12/20158/27/2015 9/15/202211/1/2021 2.00%2.00% to to5.00% 5.00% 14,180,000 36,675,000 10,680,000 980,000 13,200,000 25,995,000 8/27/20154/5/2016 11/1/204511/1/2046 1.02%3.00% to to4.40% 5.00% 7,510,000 93,590,000 145,000 1,560,000 7,365,000 92,030,000 8/27/20154/5/2016 11/1/202111/1/2028 2.00%0.87% to to5.00% 3.25% 36,675,000 15,280,000 10,680,000 1,025,000 25,995,000 14,255,000 10/19/20164/5/2016 11/1/20469/15/2036 3.00% to5.00% 5.00% 93,590,000 24,845,000 1,560,000 92,030,000 24,845,000 10/19/20164/5/2016 11/1/20289/15/2034 0.87%1.192% to to3.25% 3.388% 15,280,000 90,000,000 1,025,000 14,255,000 90,000,000 10/19/201611/30/1991 9/15/20365/1/2022 5.00%5.50% 24,845,000 3,000,000 2,113,008 24,845,000 886,992 10/19/201611/29/1995 9/15/203411/1/20341.192%2.00% to to3.388% 5.00% 90,000,000 2,071,140 1,374,087 90,000,000 697,053 11/30/19917/31/2015 5/1/20227/1/2023 5.50%1.97% 3,000,000 4,935,766 2,113,008 583,335 886,992 4,352,431 11/29/19957/31/2015 11/1/203411/19/2023 2.00% 0to 0199 5.00% 2,071,140 16,969,012 1,374,087 3,790,729 13,178,283 697,053 7/31/20157/31/2015 7/1/20231/8/2023 1.97%0 0195 4,935,766 6,844,590 583,335 1,515,266 4,352,431 5,329,324 7/31/2015Vario us 11/19/2023Vario us 0 0199Vario us 16,969,012 863,794 3,790,729 521,292 13,178,283 342,502 7/31/2015 Net1/8/2023 unamortized premium/discount0 0195 6,844,590 76,730,036 1,515,266 13,529,443 5,329,324 63,200,593 Vario us Vario us VarioTOTALS us $ 906,004,338 863,794 $ 123,257,160 521,292 $ 782,747,178 342,502 Net unamortized premium/discount 76,730,036 13,529,443 63,200,593 TOTALS $ 906,004,338 $ 123,257,160 $ 782,747,178 UNIVERSITY OF ARKANSAS AT FORT SMITH Issue Maturity Interest Amount Maturities to Outstanding Date Date UNIVERSITYRate OF ARKANSAS ATIssued FORT SMITH Year-End Year-End Issue6/1/2010 Maturity12/1/2021 Interest2-4% $ Amount 29,895,000 $Maturities 15,385,000 to Outstanding$ 14,510,000 Date12/1/2010 Date12/1/2035 Rate2-4.75% Issued 9,300,000 Year-End 1,500,000 Year-End 7,800,000 6/1/20101/1/2012 12/1/202112/1/2030 2-4%2-4.25% $ 29,895,000 17,540,000 $ 15,385,000 4,235,000 $ 14,510,000 13,305,000 12/1/20106/1/2014 12/1/20356/1/2031 2-4.75%2-3.5% 9,300,000 5,295,000 1,500,000 690,000 7,800,000 4,605,000 1/1/20126/1/2014 12/1/203012/1/2039 2-4.25%2-5% 17,540,000 10,930,000 4,235,000 825,000 13,305,000 10,105,000 10/20/20166/1/2014 6/1/203112/1/2034 2-3.5%2-5% 5,295,000 19,500,000 690,000 - 4,605,000 19,500,000 6/1/20142/29/2012 12/1/20391/1/2022 2-5%0% 10,930,000 2,166,500 825,000 1,083,250 10,105,000 1,083,250 10/20/20165/12/2012 12/1/20345/4/2027 2-5%4.00% 19,500,000 650,000 178,357 - 19,500,000 471,643 2/29/2012 Net1/1/2022 unamort ized premium/discount0% 2,166,500 5,882,032 1,083,250 1,229,845 1,083,250 4,652,187 5/12/2012 5/4/2027 4.00%TOTALS $ 101,158,532 650,000 $ 25,126,452 178,357 $ 76,032,080 471,643 Net unamort ized premium/discount 5,882,032 1,229,845 4,652,187 TOTALS $ 101,158,532 $ 25,126,452 $ 76,032,080

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS AT LITTLE ROCK Issue Maturity Interest Amount Maturities to Out st anding Date Date Rate Issued Year-End Year-End 4/1/2012 5/1/2037 2%-5% $ 14,880,000 $ 1,900,000 $ 12,980,000 9/19/2012 12/1/2029 1%-5% 13,850,000 3,060,000 10,790,000 4/24/2013 12/1/2024 1%-5% 10,770,000 3,085,000 7,685,000 4/24/2013 12/1/2024 .530%-2.884% 6,530,000 2,035,000 4,495,000 8/1/2013 10/1/2030 2%-5% 28,740,000 3,610,000 25,130,000 2/24/2016 10/1/2029 2%-5% 22,475,000 175,000 22,300,000 4/6/2016 10/1/2034 2%-5% 24,490,000 870,000 23,620,000 8/23/2011 12/1/2020 0.00% 1,732,620 1,111,111 621,509 1/11/2017 1/1/2027 0.00% 505,111 - 505,111 Vario us Vario us .0198-1.26% 3,936,193 3,468,584 467,609 Net unamortized premium/discount 16,004,706 5,439,607 10,565,099 TOTALS $ 143,913,630 $ 24,754,302 $ 119,159,328

UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 6/1/2010 7/1/2019 2.0% - 4.5% $ 7,605,000 $ 4,755,000 $ 2,850,000 12/21/2010 12/1/2030 2.00% - 5.00% 42,680,000 6,405,000 36,275,000 11/15/2011 7/1/2034 2.0% - 4.25% 8,985,000 1,670,000 7,315,000 5/14/2013 11/1/2034 1.0% - 5.0% 112,665,000 11,025,000 101,640,000 12/17/2014 3/1/2036 2.00% - 5.00% 86,035,000 3,770,000 82,265,000 Vario us Vario us Vario us 43,770,000 16,511,000 27,259,000 Vario us Vario us Vario us 30,682,000 7,955,000 22,727,000 Net unamort ized premium/discount 32,761,000 6,092,000 26,669,000 TOTALS $ 365,183,000 $ 58,183,000 $ 307,000,000

UNIVERSITY OF ARKANSAS AT MONTICELLO Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 10/1/2010 10/1/2018 2.0% - 2.35% $ 2,870,000 $ 2,105,000 $ 765,000 2/1/2012 12/1/2035 2.0% - 4.0% 8,745,000 1,420,000 7,325,000 12/1/2012 10/1/2037 1% - 4.0% 8,650,000 1,015,000 7,635,000 3/30/2017 12/1/2041 5.00% 11,270,000 11,270,000 3/30/2017 12/1/2023 1.94%-2.99% 1,765,000 1,765,000 1/27/2009 2/1/2019 0.53% 1,000,000 807,097 192,903 Net unamort ized premium/discount 1,999,713 107,169 1,892,544 TOTALS $ 36,299,713 $ 5,454,266 $ 30,845,447

UNIVERSITY OF ARKANSAS AT PINE BLUFF Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 10/12/2005 12/1/2017 2.8% - 3.8% $ 3,330,000 $ 3,090,000 $ 240,000 6/1/2014 6/30/2036 2% - 5.0% 15,160,000 480,000 14,680,000 6/1/2014 12/1/2018 1.875% 1,810,000 1,065,000 745,000 12/15/2016 1/1/2035 2.51% 17,245,359 - 17,245,359 Net unamort ized premium/discount 1,095,017 141,375 953,642 TOTALS $ 38,640,376 $ 4,776,375 $ 33,864,001

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS SYSTEM ADMINISTRATION Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 11/17/2014 11/17/2024 0.22% $ 500,000 $ 99,123 $ 400,877 4/1/2016 4/1/2026 1.75% 2,487,749 - 2,487,749 12/1/2016 12/1/2026 1.75% 2,487,749 - 2,487,749 $ 5,475,498 $ 99,123 $ 5,376,375

COSSATOT COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 6/13/2013 5/1/2035 1.0% - 3.625% $ 3,930,000 $ 475,000 $ 3,455,000 1/25/2008 3/30/2023 2.91% 2,000,000 1,213,745 786,255 Vario us Vario us Vario us 13,451 10,977 2,474 Net unamort ized premium/discount 141,059 25,843 115,216 TOTALS $ 6,084,510 $ 1,725,565 $ 4,358,945

PHILLIPS COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 4/22/2015 12/1/2038 2.0% - 4.0% $ 11,270,000 $ 650,000 $ 10,620,000 6/1/2013 6/1/2018 4.30% 219,026 175,273 43,753 Net unamort ized premium/discount 272,074 24,908 247,166 TOTALS $ 11,761,100 $ 850,181 $ 10,910,919

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT BATESVILLE Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 6/15/2010 12/1/2018 1.0% - 3.25% $ 2,295,000 $ 1,735,000 $ 560,000 2/2/2010 2/1/2020 0.45% 1,000,000 695,271 304,729 10/1/2016 10/1/2026 0.68% 2,000,000 2,000,000 Net unamort ized premium/discount 4,032 3,353 679 TOTALS $ 5,299,032 $ 2,433,624 $ 2,865,408

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT HOPE Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 6/1/2010 9/1/2020 1.00% - 4.00% $ 4,625,000 $ 3,115,000 $ 1,510,000 6/1/2013 10/1/2038 1.00% - 3.625% 2,590,000 285,000 2,305,000 3/27/2012 4/1/2022 0.20% 1,100,000 547,253 552,747 Net unamort ized premium/discount 111,731 75,912 35,819 TOTALS $ 8,426,731 $ 4,023,165 $ 4,403,566

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT MORRILTON Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 5/18/2005 11/1/2017 3.0% - 4.0% $ 2,095,000 $ 1,900,000 $ 195,000 6/16/2010 5/1/2022 2.0% - 3.5% 2,030,000 1,105,000 925,000 2/23/2016 5/1/2046 3.5% - 5.0% 10,000,000 - 10,000,000 7/30/2010 8/1/2020 0.38% 800,000 516,539 283,461 Net unamort ized premium/discount 975,148 46,048 929,100 TOTALS $ 15,900,148 $ 3,567,587 $ 12,332,561

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT RICH MOUNTAIN Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 8/15/2012 4/1/2042 1.0 - 4.15% $ 4,830,000 $ 475,000 $ 4,355,000 8/15/2012 4/1/2042 1.2 - 4.15% 1,870,000 200,000 1,670,000 Net unamort ized premium/discount (11,610) (1,935) (9,675) TOTALS $ 6,688,390 $ 673,065 $ 6,015,325

UNIVERSITY OF ARKANSAS PULASKI TECHNCIAL COLLEGE Issue Maturity Interest Amount Maturities to Outstanding Date Date Rate Issued Year-End Year-End 9/29/2011 4/1/2041 2.0-5.0% $ 69,485,000 $ 7,450,000 $ 62,035,000 7/1/2015 6/30/2037 2.0-5.0% 25,875,000 1,785,000 24,090,000 Net unamort ized premium/discount 907,167 103,376 803,791 TOTALS $ 96,267,167 $ 9,338,376 $ 86,928,791

Schedule of Changes in Debt

BONDS Balance Balance Current Campus 6-30-16 Additions Reductions 6-30-17 Portion UAF $ 605,315,000 $ 114,845,000 $ 25,400,000 $ 694,760,000 $ 25,705,000 Net unamortized prem/disc 62,004,805 5,154,015 3,958,227 63,200,593 3,954,973 UAFS 76,160,000 19,500,000 25,835,000 69,825,000 5,030,000 Net unamortized prem/disc 2,255,471 2,692,100 295,384 4,652,187 345,008 UALR 111,645,000 4,645,000 107,000,000 4,870,000 Net unamortized prem/disc 11,325,968 760,869 10,565,099 760,868 UAMS 237,310,000 6,965,000 230,345,000 7,205,000 Net unamortized prem/disc 28,248,000 1,579,000 26,669,000 - UAM 16,640,000 13,035,000 915,000 28,760,000 935,000 Net unamortized prem/disc 294,476 1,632,036 33,968 1,892,544 82,617 UAPB 16,450,000 785,000 15,665,000 805,000 Net unamortized prem/disc 1,002,848 49,206 953,642 49,206 CCCUA 3,580,000 125,000 3,455,000 130,000 Net unamortized prem/disc 121,677 6,461 115,216 6,461 PCCUA 10,950,000 330,000 10,620,000 330,000 Net unamortized prem/disc 258,662 11,496 247,166 11,496 UACCB 830,000 270,000 560,000 275,000 Net unamortized prem/disc 1,158 479 679 479 UACCH 4,370,000 555,000 3,815,000 565,000 Net unamortized prem/disc 46,697 10,878 35,819 10,877 UACCM 11,485,000 365,000 11,120,000 370,000 Net unamortized prem/disc 961,605 32,505 929,100 32,505 UAPTC 88,080,000 1,955,000 86,125,000 2,000,000 Net unamortized prem/disc 842,511 38,720 803,791 38,720 UACCRM 6,185,000 160,000 6,025,000 165,000 Net unamortized prem/disc (10,062) (387) (9,675) (387) TOTAL $ 1,296,353,816 $ 156,858,151 $ 75,081,806 $ 1,378,130,161 $ 53,677,823

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

NOTES Balance Balance Current Campus 6-30-16 Additions Reductions 6-30-17 Portion UAF $ 1,754,858 $ 170,813 $ 1,584,045 $ 179,811 UAFS 1,299,900 216,650 1,083,250 216,650 UALR 843,731 505,111 222,222 1,126,620 422,222 UAMS 40,149,000 3,621,000 16,511,000 27,259,000 10,809,000 UAM 294,636 101,733 192,903 101,918 CCCUA 925,867 139,612 786,255 143,730 UACCB 405,396 2,000,000 100,667 2,304,729 295,076 UACCH 662,635 109,888 552,747 110,108 UACCM 363,761 80,300 283,461 80,605 SYSTEM 2,938,242 2,487,749 49,616 5,376,375 49,725 TOTAL $ 49,638,026 $ 8,613,860 $ 17,702,501 $ 40,549,385 $ 12,408,845

CAPITAL LEASES Balance Balance Current Campus 6-30-16 Additions Reductions 6-30-17 Portion UAF $ 285,805 $ 248,207 $ 191,510 $ 342,502 $ 220,657 UAFS 509,666 38,023 471,643 39,573 UALR 1,277,789 810,180 467,609 421,015 UAMS 27,469,000 3,213,000 7,955,000 22,727,000 6,498,000 UAPB - 17,245,359 - 17,245,359 - CCCUA 5,152 2,678 2,474 2,474 PCCUA 89,559 45,806 43,753 43,753 TOTAL $ 29,636,971 $ 20,706,566 $ 9,043,197 $ 41,300,340 $ 7,225,472

INSTALLMENT CONTRACTS Balance Balance Current Campus 6-30-16 Additions Reductions 6-30-17 Portion UAF $ 26,191,591 $ 3,331,553 $ 22,860,038 $ 3,463,936

The current portion shown above for bonds, notes, capital leases, and installment contracts differs from the statement of net position by $21,122, which is the current portion of an elimination entry (see Note 19). The beginning balance at June 30, 2016, above, includes bonds payable for UAPTC of $88,922,511 and for UACCRM of $6,174,938, which are not reflected in the Statement of Net Position due to the mergers being effective on July 1, 2016.

Future Principal and Interest Payments Total long-term debt principal and interest payments are shown below. Interest payments for variable rate debt have been calculated using the rate in effect at the financial statement date, though actual rates will vary. Total debt of $1,482,839,924 shown in these schedules, which is related to bonds, notes, capital leases and installment contracts, differs from the amount of $1,477,167,373 shown on the Statement of Net Position. This is due to an elimination entry of $5,672,551 to account for two loans between UA campuses (see Note 19).

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

FUTURE PRINCIPAL AND INTEREST PAYMENTS Year Ended June 30, Principal Interest Total 2018 $ 71,483,253 $ 56,113,442 $ 127,596,695 2019 77,388,491 54,620,464 132,008,955 2020 71,118,077 51,665,915 122,783,992 2021 68,599,346 49,039,043 117,638,389 2022 66,735,045 46,337,611 113,072,656 2023-2027 300,160,170 193,000,508 493,160,678 2028-2032 308,455,501 126,572,967 435,028,468 2033-2037 275,834,880 61,758,537 337,593,417 2038-2042 113,110,000 16,545,621 129,655,621 2043-2047 19,900,000 1,574,965 21,474,965 TOTALS 1,372,784,763 657,229,073 2,030,013,836 + Net unamortized premiums/discounts 110,055,161 - 110,055,161 GRAND TOTALS $ 1,482,839,924 $ 657,229,073 $ 2,140,068,997

Capitalization of Assets held under Capital Leases The capitalized value of capital assets held under capital leases totaled $42,045,285 at June 30, 2017. The present value of the net minimum lease payments is as follows: Accumulated Cost Depreciation Net CIP $ 8,544,009 $ - $ 8,544,009 Improvements/Infrastructure 868,686 356,593 512,093 Buildings 26,303,000 13,053,000 13,250,000 Equipment 32,312,813 19,433,630 12,879,183 Other 10,025,000 3,165,000 6,860,000 TOTAL $ 42,045,285

Total Minimum Lease Payments $ 47,769,668 Less: Amount representing interest 6,469,328 Total Present Value of Net Minimum Lease Payments $ 41,300,340

Pledged Revenues For purposes of extinguishing the University’s long-term debt issues, certain revenues have been pledged as security. The following is a summary of the gross revenues collected during the fiscal year ended June 30, 2017, that are pledged:

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

BOND SERIES REVENUE SOURCE FY17 REVENUE

UNIVERSITY OF ARKANSAS FAYETTEVILLE Series 1997 Various Facilities Student Tuition and Fees $ 296,366,889 Series 2005B Various Facilities Sales and Services 8,685,226 Series 2007 Various Facilities Residential Life 65,722,511 Series 2008A&B Various Facilities Bookstore 15,425,386 Series 2009A Various Facilities Student Health Services 2,406,462 Series 2011A&B Various Facilities Transit and Parking 9,438,067 Series 2012A Various Facilities Other Auxiliaries 286,959 Series 2012B Various Facilities Series 2013 Various Facilities Series 2014A&B Various Facilities Series 2015A Various Facilities Series 2015B Various Facilities Series 2015C Various Facilities Series 2016A Various Facilities Series 2016B Various Facilities $ 398,331,500 Maturity dates range from November, 2021 through November, 2046 FY17 Principal and Interest $ 43,194,954 % of Revenues Pledged 10.84% Remaining Principal & Interest $ 848,275,869 Series 2010 Athletic Refunding Men's Athletics 98,456,238 Series 2011 Athletic Facilities (less game guarantees) (3,410,450) Series 2013 Athletic Facilities Series 2015 Athletic Facilities Series 2016A Athletic Facilities Series 2016B Athletic Facilities $ 95,045,788 Maturity dates range from September, 2016 through September, 2036 FY17 Principal and Interest $ 11,094,054 % of Revenues Pledged 11.67% Remaining Principal & Interest $ 223,021,797

UNIVERSITY OF ARKANSAS AT FORT SMITH Series 2010 Student Fee Revenue Student Fees $ 38,087,904 Series 2010B Student Fee Revenue Series 2012 Refunding Series 2014A Student Fee Revenue Series 2014B Student Fee Revenue Series 2016 Refunding

$ 38,087,904 Maturity dates range from December, 2021 through June, 2039 FY17 Principal and Interest $ 6,895,678 % of Revenue Pledge 18.10% Remaining Principal & Interest $ 93,884,946

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS AT LITTLE ROCK Series 2013A Revenue Refunding Student Fees $ 75,731,745 Series 2013 Student Fee Revenue Capital Improvements Series 2013B Taxable Revenue Refunding Series 2016, Revenue Refunding $ 75,731,745 Maturity dates range from December, 2024 through October, 2030 FY17 Principal and Interest $ 5,410,153 % of Revenue Pledge 7.14% Remaining Principal & Interest $ 77,439,290 Series 2009 Auxiliary Enterprises Revenue Auxiliaries $ 18,570,806 Series 2012A Student Housing Revenue Series 2012B Student Housing Refunding $ 18,570,806 Maturity dates range from December, 2029 through May, 2037 FY17 Principal and Interest $ 3,983,201 % of Revenue Pledge 21.45% Remaining Principal & Interest $ 68,137,478

UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES Series 2006 Various Facilities Clinical Programs $ 821,359,000 Series 2010 Various Facilities Series 2013 Various Facilities $ 821,359,000 Maturity dates range from July, 2019 through March, 2036 FY17 Principal and Interest $ 16,180,000 % of Revenue Pledge 1.97% Remaining Principal & Interest $ 326,649,000 Series 2010 Refunding Parking System Parking Fees $ 4,071,000 Series 2011 Refunding Parking System $ 4,071,000 Maturity dates range from July, 2019 through July, 2034 FY17 Principal and Interest $ 1,601,000 % of Revenue Pledge 39.33% Remaining Principal & Interest $ 13,007,000

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS AT MONTICELLO Series 2012 Various Facilities Refunding Student Fees $ 20,537,355 Series 2017B (Taxable) Various Facilities Sales and Services 247,998 Series 2017A (Tax-Exempt) Various Facilities Auxiliary Enterprises 6,869,998 $ 27,655,351 Maturity dates range from December, 2023 through December, 2041 FY17 Principal and Interest $ 535,426 % of Revenue Pledge 1.94% Remaining Principal & Interest $ 33,201,046 Series 2010 Auxiliary Facilities Refunding Auxiliary Enterprises $ 6,869,998 Series 2012 Auxiliary Facilities $ 6,869,998 Maturity dates range from October, 2018 through December, 2041 FY17 Principal and Interest $ 900,938 % of Revenue Pledge 13.11% Remaining Principal & Interest $ 11,540,874

UNIVERSITY OF ARKANSAS AT PINE BLUFF Series 2005B Various Facilities Revenue Unrestricted Funds $ 32,895,510 Series 2014A Various Facilities Series 2014B Various Facilities Refunding $ 32,895,510 Maturity dates range from December, 2017 through December, 2035 FY17 Principal and Interest $ 1,415,404 % of Revenue Pledge 4.30% Remaining Principal & Interest $ 22,342,698

COSSATOT COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Series 2013 Student Fees $ 3,836,092 Maturity date is May, 2035 FY17 Principal and Interest $ 262,987 % of Revenue Pledge 6.86% Remaining Principal & Interest $ 4,766,656

PHILLIPS COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Series 2015 Refunding Student Fees $ 2,966,651 Maturity date is December, 2038 FY17 Principal and Interest $ 684,769 % of Revenue Pledge 23.08% Remaining Principal & Interest $ 14,984,666

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT BATESVILLE Series 2010 Student Fee Refunding Student Fees $ 3,193,719 Maturity date is December, 2018 FY17 Principal and Interest $ 291,133 % of Revenue Pledge 9.12% Remaining Principal & Interest $ 577,293

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT HOPE Series 2010 Student Fee Revenue Student Fees $ 2,955,187 Series 2013 Student Fee Refunding $ 2,955,187 Maturity dates are September, 2020 through October, 2038 FY17 Principal and Interest $ 691,525 % of Revenue Pledge 23.40% Remaining Principal & Interest $ 4,912,856

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT MORRILTON Series 2005 Student Fee Refunding Student Fees $ 6,630,234 Series 2010 Student Fee Refunding Series 2016 Student Fee $ 6,630,234 Maturity dates are November, 2017 through May, 2046 FY17 Principal and Interest $ 823,468 % of Revenue Pledge 12.42% Remaining Principal & Interest $ 18,700,990

UNIVERSITY OF ARKANSAS PULASKI TECHNICAL COLLEGE Series 2011 Student Tuition and Fee Student Fees $ 25,066,842 Series 2015 Student Tuition and Fee Refunding $ 25,066,842 Maturity dates are June, 2037 through April, 2041 FY17 Principal and Interest $ 5,814,990 % of Revenue Pledge 23.20% Remaining Principal & Interest $ 144,712,458

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT RICH MOUNTAIN Series 2012 Student Fee & Tuition Student Fees $ 2,118,220 Maturity date is April, 2042 FY17 Principal and Interest $ 105,948 % of Revenue Pledge 5.00% Remaining Principal & Interest $ 2,629,078 Series 2012 Refunding and Capital Improvement Property Taxes $ 426,616 Maturity date is April, 2042 FY17 Principal and Interest $ 271,013 % of Revenue Pledge 63.53% Remaining Principal & Interest $ 6,824,530

New Bonds Payable and Refundings

Fayetteville Campus: On October 19, 2016, the University issued $24,845,000 in Athletic Facilities Revenue Bonds (Fayetteville Campus), Tax-Exempt Series 2016A, with an interest rate of 5.0%; and $90,000,000 in Athletic Facilities Revenue Bonds, (Fayetteville Campus), Taxable Series 2016B, with interest rates of 1.192% to 3.388%. The bonds were issued to provide funds to finance the construction, reconstruction, enlarging and repairing additional facilities including particularly improvements to and expansion of the Donald W. Reynolds Razorback Stadium and renovation and replacement of the Frank Broyles Athletic Center and related projects.

On April 5, 2016, the University issued $93,590,000 in Various Facility Revenue Bonds, (Fayetteville Campus), Refunding and Improvement Series 2016A and $15,280,000 in Various Facility Revenue Bonds, (Fayetteville Campus), Refunding Series 2016B. The Series 2016A bonds, with interest rates of 3.0% to 5.0% were issued to provide funds to finance various construction and renovation projects on the University campus, and to refund $38,200,000 of outstanding bonds dated October 2, 2007, (Series 2007) with interest rates of 4.0% to 5.0%; and $35,545,000 of outstanding bonds dated August 1, 2008, (Series 2008A) with interest rates of 4.0% to 5.0%. Net bonds proceeds and premiums of $28,504,688 was available to finance construction of a civil engineering research and education center, a library storage building, campus entrance signs, intramural sports playing fields, and an addition to the Pat Walker Student Health Center; to finance renovations of student housing; and to continue renovations of Kimpel Hall, and Discovery Hall. The Series 2016B bonds with interest rates of 0.87% to 3.35% were issued on a taxable basis to refund $13,500,000 of outstanding bonds dated August 1, 2008, (Series 2008B) with interest rates of 5.1% to 6.375%.

Net bond proceeds and premiums from Series 2016A and Series 2016B of $94,689,148 along with $1,873,821 of cash from the University was deposited into an escrow account to retire the bonds. The refunding of the bonds dated October 2, 2007, and all of the bonds dated August 1, 2008, was an advance refunding. The combined refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $5,764,322 for the Series 2016A bonds and $1,679,827 for the Series 2016B bonds. These differences, reported in the accompanying financial statements as deferred outflows of resources, will be amortized through the fiscal year 2039 for Series 2016A and fiscal year 2029 for Series 2016B. The University completed the refunding to

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 reduce its total debt service payments over the next twenty-three years by $13,450,092 and to obtain an economic gain of $10,092,618. The escrow balance as of June 30, 2017, was $88,521,712. The bonds will have regularly scheduled principal and interest payments made from the escrow account until the bond call dates of November 1, 2017, for Series 2007 and November 1, 2018, for Series 2008A and Series 2008B, at which times the remaining balances of each defeased bond issue will be refunded. The remaining balance of the defeased bonds as of June 30, 2017, was $37,165,000 for Series 2007, $34,665,000 for Series 2008A, and $13,010,000 for Series 2008B

Little Rock Campus: On February 24, 2016, the University issued $22,475,000 in Series 2016 Enterprises Refunding Revenue Bonds, with interest rates of 2% to 5% to advance refund $25,250,000 of the Series 2009 Capital Improvement Revenue Bonds, with interest rates of 4% to 5%. Bond proceeds and premium of $27,180,955 were deposited into an escrow account with the trustee for defeasance of the prior bond. The combined refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $644,478. This difference, reported in the accompanying financial statements as deferred outflows of resources, will be amortized through the fiscal year 2030 using the straight-line method. The University completed the refunding to reduce its total debt service requirements by $2,314,066 over the next fourteen years and to obtain an economic gain (difference between the present value of the debt service payments on the old and new debt) of $2,170,844. The bonds will be fully paid by October 1, 2017. The balance in the escrow account at June 30, 2017, was $24,389,388, and the remaining balance of the defeased bonds was $22,300,000

On April 6, 2016, the University issued $24,490,000 in Series 2016 Auxiliary Revenue Refunding Bonds, with interest rates of 2% to 5% to advance refund $25,600,000 of the Series 2009 Auxiliary Revenue Bonds, with interest rates of 4% to 5%. Bond proceeds and premium of $28,581,504 were deposited into an escrow account with the trustee for defeasance of the prior bond. The combined refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $2,543,643. This difference, reported in the accompanying financial statements as deferred outflows of resources, will be amortized through the fiscal year 2035 using the straight- line method. The University completed the refunding to reduce its total debt service requirements by $1,736,111 over the next nineteen years and to obtain an economic gain (difference between the present value of the debt service payments on the old and new debt) of $1,152,088. The bonds will be fully paid by October 1, 2019. The balance in the escrow account at June 30, 2017, was $26,837,069, and the remaining balance of the defeased bonds was $23,620,000

Fort Smith Campus: On October 20, 2016, the University issued refunding bonds of $19,500,000.00 with interest rates of 2% to 5% to advance refund $21,435,000.00 of outstanding bonds dated May 1, 2009 with interest rates of 2% to 5%. Bond proceeds of $22,002,809 and debt service reserve funds of $857,507 and deposit with trustee funds of $781,102 were deposited in the advance refunding fund to retire the 2009 bonds. The advance refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $2,206,417. The difference, reported in the accompanying financial statements as a deferred outflow, will be amortized through the fiscal year 2035 using the straight-line method. The University completed the refunding to reduce its total debt service payments over the next eighteen years by $1,874,533 and to obtain an economic gain (difference between the present values of the

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 old and new debt) of $1,709,148. The bonds will be fully paid by June 1, 2019. The escrow balance at June 30, 2017 was $22,062,664, and the remaining balance of the defeased bonds was $20,660,000.

Note 9: Commitments

The University has contracted for the construction and renovations of several facilities. At June 30, 2017, the estimated remaining costs to complete these facilities are shown below.

Contract Campus Balance UAF $ 190,399,774 UAFS 269,792 UALR 9,007,593 UAMS 11,161,000 UAM 8,792,976 UAPB 15,188,521 PCCUA 553,442 UACCB 118,072 UACCH 34,574 UACCM 8,105,284 UACCRM 99,053 ASMSA 51,755 $ 243,781,836

The University has entered into various operating leases for buildings and equipment. It is expected that in the normal course of business such leases will continue to be required. Total operating leases paid in the fiscal year ended June 30, 2017, were $16,818,807 Below are the scheduled payments for each of the five succeeding fiscal years and thereafter.

Operating Leases Year Ended June 30, Amount 2018 $ 8,948,177 2019 5,148,071 2020 3,214,341 2021 1,540,791 2022 1,013,422 2023-2027 4,026,710

Note 10: Short-Term Borrowing

The GASB Statement No. 38, Certain Financial Statement Note Disclosures, states that governments should provide details about short-term debt activity during the year, even if no short- term debt is outstanding at year-end. The University had no short-term debt activity during the fiscal year, nor is there any outstanding balance of short-term debt as of June 30, 2017

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Note 11: Capital Assets

Following are changes in capital assets for the year ended June 30, 2017:

June 30, 2016 June 30, 2017 C AP ITAL AS S ETS Balance Additions Transfers Deletions Balance Land $ 107,422,135 $ 2,779,287 $ - $ - $ 110,201,422 Library Holdings 139,772,898 8,088,361 - $ 1,918,666 145,942,593 Construction in progress 107,396,881 125,008,272 $ (104,001,717) 17,578 128,385,858 Improvements and infrastructure 290,144,997 4,227,735 38,505,359 383,455 332,494,636 Buildings 3,521,602,742 21,371,593 58,022,352 16,939,493 3,584,057,194 Equipment 632,522,268 41,360,921 5,061,134 18,406,329 660,537,994 Int angibles 163,100,914 173,000 7,474,000 2,052,575 168,695,339 Other 53,587,405 1,536,648 (5,099,000) 3,000 50,022,053 Total Capital Assets 5,015,550,240 204,545,817 (37,872) 39,721,096 5,180,337,089

Less accumulated depreciation: Library Holdings 118,439,981 4,825,004 - 1,916,204 121,348,781 Improvements and infrastructure 140,740,735 13,618,143 - 2,167,611 152,191,267 Buildings 1,415,948,652 113,684,802 - 13,029,218 1,516,604,236 Equipment 505,745,967 41,566,796 $ 5,454,128 18,316,735 534,450,156 Intangibles 101,004,744 8,792,883 - - 109,797,627 Other 22,461,808 4,751,381 (5,492,000) - 21,721,189 Total Accum Depreciation 2,304,341,887 187,239,009 (37,872) 35,429,768 2,456,113,256

Capital Assets, Net $ 2,711,208,353 $ 17,306,808 $ - $ 4,291,328 $ 2,724,223,833

Library holdings, including old and rare books, valued at $1,316,000, held by the Medical Sciences Campus, are not included in the above chart or in the accompanying Statement of Net Position The beginning balance at June 30, 2016, above, includes capital assets and accumulated depreciation for UAPTC of $139,461,840 and $37,441,172, respectively, and for UACCRM of $22,734,288 and $11,366,030, respectively, which are not reflected in the Statement of Net Position due to the mergers being effective on July 1, 2016.

Note 12: Risk Management

The University of Arkansas Risk Management Program provides insurance coverage for all campuses within the University of Arkansas System with the exception of the Fort Smith campus. The role of the System Office is to analyze and recommend insurance coverage, but it is ultimately up to each campus to inform the System Office regarding their specific coverage requirements.

Property coverage is insured through FM Global with a $100,000 deductible at the Fayetteville, Medical Sciences, and Little Rock campuses. The other covered campuses have a $50,000 deductible. The FM Global policy also contains earthquake/flood and domestic/foreign terrorism coverage. Additionally, the Fayetteville, Medical Sciences, Phillips, and Morrilton campuses have business interruption coverage with FM Global.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Auto coverage, through Cypress Insurance, has a physical damage deductible of $1,000 and provides coverage against liability losses up to $1,000,000 per occurrence.

The Medical Sciences campus maintains malpractice insurance for certain employees under a claims-made policy. The Fort Smith campus acquires its own property insurance through Alliant Property Insurance ($25,000 deductible) and auto insurance through Cypress Insurance ($5,000 deductible).

The University does not purchase general liability, errors or admissions, or tort immunity for claims arising from third-party losses on University property as the University of Arkansas has sovereign immunity against such claims. Claims against the University for such losses are heard before the State Claims Commission. In such cases where the University enters into a lease agreement to hold a function at a location not owned by the University or for special events off- campus, general liability coverage may be purchased for such functions.

The University maintains worker’s compensation coverage through the State of Arkansas program. Premiums are paid through payroll and are based on a formula calculated by the Arkansas Department of Finance and Administration. The types of benefits and expenditures that are paid include the following: medical expenses, hospital expenses, death benefits, disability and claimant’s attorney fees.

Additionally, the University participates in the State of Arkansas Fidelity Bond Program for claims of employee dishonesty. This program has a limit of $300,000 recovery per occurrence with a $2,500 deductible. Premiums are paid annually via a fund transfer from state appropriations to the Arkansas Department of Finance and Administration.

There have been no reductions in insurance coverage from the prior fiscal year. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years.

Note 13: Employee Benefits

Insurance Plans The Board of Trustees of the University of Arkansas System sponsors self-funded health (including prescription coverage) and dental benefit plans for University employees and their eligible dependents. All campuses participate in the health plan. All campuses, except CCCUA, PCCUA, UACCH, UAPTC and UACCRM, participate in the dental plan. The plans are also offered to employees of the University of Arkansas Winthrop Rockefeller Institute, the University of Arkansas Foundation, Inc., the Razorback Foundation, Inc., the Walton Arts Center, and the University of Arkansas Technology Development Foundation.

At June 30, 2017, a total of 17,859 active employees, former employees, and pre-65 retirees were participants in the health plan. As of June 30, 2017, the University offers two different health plans: Classic (HMO) and Point of Service (POS). Participating campuses pay anywhere from 40% to 92% of the Classic Plan premium and 35% to 86% of the Point of Service Plan premium.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Each campus makes its contribution determination based on budget considerations. Retirees and former employees, through COBRA, participate on a fully contributory basis. A total of 18,219 active employees, former employees, and retirees were participants in the dental plan as of June 30, 2017. The University pays 0% to 100% of the total premium for full-time active employees, while retirees and former employees, through COBRA, participate on a fully contributory basis.

Both plans are accounted for on the accrual basis. The System administration estimates the medical, pharmacy and dental claims liability to be $15,180,200 at June 30, 2017. This liability is established for incurred but not paid (IBNP) claims, and includes a related accrual for claim adjustment expenses, which are expenses incurred in the ultimate settlement of the claim. The claims and claims adjustment accrual for health, pharmacy and dental is based on the calculation prepared by Sibson Consulting

The System administration purchases specific reinsurance from United Healthcare-BP to reduce its exposure to large claims. In a fiscal year, after paying claims of more than $1,000,000 for any one covered individual, the University pays an aggregating specific deductible of $125,000, whether from one or more covered individuals also exceeding $1,000,000 in paid claims, before being reimbursed from the reinsurance company The plan has not purchased any annuity contracts on behalf of claimants. If needed, the University would make arrangements through its reinsurance carrier.

The funding levels for the Plan were established based upon anticipated year-end loss ratios of 95%. As of June 30, 2017, the loss ratio for the health plan was 90% and the loss ratio for the dental plan was 94%

The System administration retains and accounts for all of the risk financing associated with the self-insurance plan’s activities in accordance with GAAP.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Reconciliation of Changes in the Liability for Future Insurance Claims FY1 7 FY1 6 Unpaid claims and claim adjustment expenses at beginning of year $ 18,412,300 $ 20,800,000

Incurred claims and claim adjustment expenses: Provision for insured events of the current year 147,636,140 151,039,946 Adjustment in provision for insured events of prior years (4,297,346) (5,710,599) Total incurred claims and claim adjustment expenses 143,338,794 145,329,347

Payments : Claims and claim adjustment expenses attributable to insured events of the current year 132,455,940 132,627,646 Claims and claim adjustment expenses attributable to insured events of prior years 14,114,954 15,089,401 Total Payments 146,570,894 147,717,047

Total unpaid claims and claim adjustment expenses at end of year $ 15,180,200 $ 18,412,300

The liability for future insurance claims includes health, pharmacy and dental incurred but not paid (IBNP) claims/ claim adjustment expenses only.

Retirement Plans Approximately ninety-seven percent of all employees of the University participate in the University of Arkansas Retirement Program (URP). The URP is a defined contribution 403(b) and 457(b) program as defined by the Internal Revenue Service Code. The authority under which the URP’s benefits provisions are established or amended is through the President of the University through the Board of Trustees. Arkansas Code Annotated authorizes participation in the plan. Active vendors to the URP includes Teachers Insurance Annuity Association (TIAA) and Fidelity Investments

The URP is a contributory plan with the required employee contribution and the University matching contribution, within IRS match limits, varying by campus. All four-year campuses are transitioning to a uniform contribution formula by July 2020. That contribution formula requires an employer base contribution of 5% of an employee’s eligible salary to their TIAA and/or Fidelity Investments retirement account, allocated between the two companies according to the employee’s choice, with a required employee contribution of 5% The University makes an equal contribution for employee contributions in excess of 5%, with a maximum total University contribution of 10% of eligible salary up to the IRS match limit, which at June 30, 2017, was $27,000 The transition period began in July 2016 and provides for an annual increase of 1% in the employee required contribution percentage to reach 5% by July 2020. The most common formula in place at the community college campuses is a required employee contribution of 6% of eligible salary with a University contribution of 10% of eligible salary. Employee contributions in excess of 10% are allowed by the plans in accordance with Internal Revenue Service regulations, but the University does not match these additional contributions. All benefits attributable to plan contributions made by the participant are immediately vested in the participant, and contributions made by the University are cliff vested upon completion of two consecutive years of URP participation The

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

University’s TIAA and Fidelity contributions for the fiscal year 2017 were $97,178,361. The participants’ contributions for the fiscal year 2017 were $106,100,806

The majority of the remaining benefits eligible employees of the University participate in one of the two State-sponsored defined benefit retirement plans which are closed to new University participant enrollment. Current University employees who are participants in the Arkansas Public Employees Retirement System (APERS) or the Arkansas Teachers Retirement System (ATRS) continue in that participation. Current University employees who are current APERS or ATRS participants and who transfer without a break in service between University campuses may continue in APERS participation.

APERS is a cost-sharing multiple employer defined benefit pension plan administered by the State of Arkansas. The University’s required contribution rate was 14 50% in fiscal year 2017. Those employees hired after July 1, 2005, must be contributory unless they had prior service as a state employee. Employees hired before that date may be contributory. The University’s contributions for the fiscal year 2017 were $5,847,656 Participants’ contributions for the fiscal year 2017 were $1,674,039 The annual required contribution amounts and the percentage contributed are determined by the annual actuarial valuation as set forth in Arkansas Code. APERS issues a publicly available financial report, which may be obtained by writing: APERS, One Union National Plaza, 124 W. Capitol, 5th Floor, Little Rock, AR 72201.

ATRS is a cost-sharing multi-employer defined benefit pension plan. The University contributes 14% of all covered employees’ salaries. Under certain conditions, covered employees may voluntarily contribute 6% of their salary. The University’s contributions for the fiscal year 2017 were $2,210,329. Participants’ contributions for the fiscal year 2017 were $733,779. The annual required contribution amounts and the percentage contributed are determined by the annual actuarial valuation as set forth in Arkansas Code. ATRS issues a publicly available financial report, which may be obtained by writing: ATRS, 1400 W. 3rd Street, Little Rock, AR 72201.

Cooperative Extension Service employees who previously held appointments with the U.S. Department of Agriculture are covered by either the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS), depending on date of appointment. Both plans are single-employer defined benefit plans. The CSRS plan became effective in 1920, and established retirement benefits for certain federal employees. Congress created the FERS plan in 1986, becoming effective on January 1, 1987. Since that time new federal civilian employees who have retirement coverage are covered under the FERS plan. FERS provides benefits from three different sources: a Basic Benefit Plan, Social Security and the Thrift Savings Plan. As of June 30, 2017, ten active employees were covered under the CSRS plan and thirteen active employees were covered under the FERS plan. Participants in the CSRS plan contribute 7% of salaries and employers are required to contribute 7%. Participants in the FERS plan are required to contribute 0.80% of salaries and employers are required to contribute 13.7% for the Basic Benefit and Social Security portions of the plan benefits. The University’s and participants’ CSRS and FERS contributions were $223,094 and $72,563 respectively for the fiscal year ended June 30, 2017.

The Thrift Savings Plan (TSP) is the third component of the FERS plan and is a supplement to the CSRS plan. It is a defined contribution plan designed to provide retirement income for Federal

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 employees similar to a 401(k) plan. The TSP is administered by the Federal Retirement Thrift Investment Board. For FERS participants, employers are required to contribute an amount equal to 1% of salaries to a TSP account established for the participant. Employees may also contribute to their TSP account, with employer matching on the first 5% of employee contributions up to 4%. There is no employer matching for CSRS participants. All contributions are exempt from taxation. The University’s and participants’ TSP contributions were $56,273 and $99,315 respectively for the fiscal year ended June 30, 2017.

Additionally, employees covered by these plans may also participate in the University of Arkansas Retirement Plan which includes Teachers Insurance Annuity Association (TIAA) and Fidelity Investments, but are not eligible for any additional University contribution

The University has, from time to time, negotiated voluntary early retirement agreements with faculty and staff which may include the provision of a stipend and healthcare or other benefits for future periods The amount of liability established for these type agreements was $1,734,487 and $1,853,052, respectively, at June 30, 2017, and June 30, 2016

NOTE 14: Defined Benefit Pension Plans

Arkansas Public Employees Retirement System (APERS)

Plan Description APERS is a cost-sharing, multiple-employer, defined benefit plan administered by the State of Arkansas. The plan was established by the authority of the Arkansas General Assembly with the passage of Act 177 of 1957. The costs of administering the plan are paid out of investment earnings. The general administration and responsibility for the proper operation of the System is vested in the nine members of the Board of Trustees of the Arkansas Public Employees Retirement System (the Board). Membership includes three state and three non-state employees, all appointed by the Governor, and three ex-officio trustees, including the Auditor of the State, the Treasurer of the State and the Director of the Department of Finance and Administration. APERS issues a publicly available financial report that can be obtained at http://www.apers.org/annualreports

Benefits Provided Benefit provisions are set forth in Arkansas Code Annotated, Title 24, Chapter 4 and may only be amended by the Arkansas General Assembly. APERS provides retirement, disability and death benefits. Retirement benefits are determined as a percentage of the member’s highest 3-year average compensation times the member’s years of service. The percentage used is based upon whether a member is contributory or noncontributory as follows:

Contributory, prior to 7/1/2005 2.07% Contributory, 7/1/2005 – 6/30/2007 2.03% Contributory, on or after 7/1/2007 2.00% Non-Contributory 1.72%

Members are eligible to retire with a full benefit under the following conditions:  at age 65 with 5 years of service,

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

 at any age with 28 years actual service.

Members may retire with a reduced benefit at age 55 with at least 5 years of actual service at age 55, or at any age with 25 years of service.

Members are eligible for disability benefits with 5 years of service. Disability benefits are computed as an age and service benefit, based on service and pay at disability. Death benefits are paid to a surviving spouse as if the member had 5 years of service and the monthly benefit is computed as if the member had retired and elected the Joint & 75% Survivor option. A cost-of- living adjustment of 3% of the current benefit is added each year.

Effective July 1, 2016, new employees of the University are no longer eligible to participate in the Arkansas Public Employees Retirement System (APERS). Existing APERS participants are allowed to continue APERS participation.

Contributions Contribution requirements are set forth in Arkansas Code Annotated, Title 24, Chapter 4. The contributions are expected to be sufficient to finance the costs of benefits earned by members during the year and make a level payment that, if paid annually over a reasonable period of future years, will fully cover the unfunded costs of benefit commitments for services previously rendered. Members who began service prior to July 1, 2005, who elected to remain in the non-contributory plan, are not required to make contributions to APERS. Members who began service on or after July 1, 2005, are required to participate in the contributory plan and contribute 5% of their salaries. Employers are required to contribute at a rate established by the Board of Trustees of APERS based on an actuary’s determination of a rate required to fund the plan. The University contributed 14.5% of applicable compensation for the fiscal year ended June 30, 2017. The University’s and members’ contributions for the year ending June 30, 2017, were $5,847,656 and $1,674,039, respectively.

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources to Pensions At June 30, 2017, the University reported a liability of $52,660,632 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The university’s proportion of the net pension liability was based on the university’s share of contributions to the pension plan relative to the total contributions of all participating employers. At June 30, 2017, the university’s proportion was 2.202%, which was an increase of 0 543% from its proportion measured as of June 30, 2016 This increase is affected by adding the campuses of UAPTC and UACCRM

For the year ended June 30, 2017, the University recognized pension expense of $9,825,353 At June 30, 2017, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows of Deferred Inflows of Resources Resources

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

 at any age with 28 years actual service.

Members may retire with a reduced benefit at age 55 with at least 5 years of actual service at age 55, or at any age with 25 years of service.

Members are eligible for disability benefits with 5 years of service. Disability benefits are computed as an age and service benefit, based on service and pay at disability. Death benefits are paid to a surviving spouse as if the member had 5 years of service and the monthly benefit is computed as if the member had retired and elected the Joint & 75% Survivor option. A cost-of- living adjustment of 3% of the current benefit is added each year.

Effective July 1, 2016, new employees of the University are no longer eligible to participate in the Arkansas Public Employees Retirement System (APERS). Existing APERS participants are allowed to continue APERS participation.

Contributions Contribution requirements are set forth in Arkansas Code Annotated, Title 24, Chapter 4. The contributions are expected to be sufficient to finance the costs of benefits earned by members during the year and make a level payment that, if paid annually over a reasonable period of future years, will fully cover the unfunded costs of benefit commitments for services previously rendered. Members who began service prior to July 1, 2005, who elected to remain in the non-contributory plan, are not required to make contributions to APERS. Members who began service on or after July 1, 2005, are required to participate in the contributory plan and contribute 5% of their salaries. Employers are required to contribute at a rate established by the Board of Trustees of APERS based on an actuary’s determination of a rate required to fund the plan. The University contributed 14.5% of applicable compensation for the fiscal year ended June 30, 2017. The University’s and members’ contributions for the year ending June 30, 2017, were $5,847,656 and $1,674,039, respectively.

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources to Pensions At June 30, 2017, the University reported a liability of $52,660,632 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The university’s proportion of the net pension liability was based on the university’s share of contributions to the pension plan relative to the total contributions of all participating employers. At June 30, 2017, the university’s proportion was 2.202%, which was an increase of 0 543% from its proportion measured as of June 30, 2016 This increase is affected by adding the campuses of UAPTC and UACCRM

For the year ended June 30, 2017, the University recognized pension expense of $9,825,353 At June 30, 2017, the University reported deferred outflows of resources and deferred inflows of resourcesUNIVERSITY related OF to pensionsARKANSAS from SYSTEM the following – Notes sources: to Consolidated Financial Statements FY2017

UNIVERSITYDifferences between OF ARKANSAS SYSTEMDeferred – Notes Outflows to Consolidated of FinancialDeferred Statements Inflows FY of 2017 expected and actual Resources Resources experienceDifferences between $ 49,720 $ (1,889,042) Changesexpected ofand assumptions actual or 38 otherexperience inputs $ 4,035,456 49,720 $ (1,889,042) NetChanges difference of assumptions between or projectedother inputs and actual 4,035,456 earningsNet difference on pension between plan investmentsprojected and actual 9,194,106 Changesearnings onin thepension proportion plan andinvestments differences between the 9,194,106 employerChanges in contributions the proportion and shareand differences of contributions between the 6,688,904 (636,141) Universityemployer contributions contributions and subsequentshare of contributions to the 6,688,904 (636,141) measurementUniversity contributions date 5,847,656 Totalsubsequent to the $ 25,815,842 $(2,525,183) measurement date 5,847,656 Total $ 25,815,842 $(2,525,183) D eferred outflows of resources of $5,847,656, related to pensions resulting from University contributions subsequent to the measurement date, will be recognized as a reduction of the net pensionDeferred liability outflows in the of year resources ended of June $5,847,656, 30, 2018. Other related amounts to pensions reported resulting as deferred from outflows University of resourcescontributions and subsequentdeferred inflows to the of measurement resources related date, towill pensions be recognized will be recognizedas a reduction in the of pensionthe net expensepension liabilityin the financial in the year statements ended June as follows: 30, 201 8 . Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in the pension expenseYear ended in the June financial 30: statements as follows: 2018 $ 4,386,966 201Year9 ended June 30: 4,016,968 20201208 $ 6,068,7434,386,966 20220119 2,970,3264,016,968 20220202 6,068,743 - Thereafter2021 2,970,326 - 2022 - ActuarialThereafter Assumptions - The total pension liability in the June 30, 2016 actuarial valuation was determined using the followingActuarial actuarialAssumptions assumptions, applied to all periods included in the measurement: The total pension liability in the June 30, 2016 actuarial valuation was determined using the followingActuarial actuarial Cost Method assumptions, applied to all periodsEntry included Age Normal in the measurement: Amortization Method Level of Percent of Payroll, Closed RemainingActuarial Cost Amortizatio Method n Period 2Entry1 years Age Normal AssetAmortization Valuation Method Method 4Level-year of smoothed Percent ofmarket; Payroll, 25% Closed corridor InvestmentRemaining AmortizatioRate of Returnn Period 7.50%21 years SalaryAsset Valuation Increases Method 3.25%4-year smoothed– 9.85% including market; 25%inflation corridor WageInvestment Inflation Rate of Return 3.25%7.50% PostSalary-Retirement Increases Cost-of-Living Increases 3.00%3.25% Annual– 9.85% Compounded including inflation Increase Wage Inflation 3.25% Post-Retirement Cost-of-Living Increases 39 3.00% Annual Compounded Increase

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Retirement Age Experience-based table of rates that are specific to the type of eligibility condition. Last updated for the 2013 valuation pursuant to an experience study for the period 2007- 2012 Mortality Table Based on RP-2000 Combined Health mortality table, projected to 2020 using Projection Scale BB, set-forward 2 years for males and 1 year for females Average Service Life of All Members 4 4487

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the current asset allocation percentage and by adding expected price inflation. Best estimates of arithmetic real rates of return for the 10-year period from 2015 to 2024 were based upon capital market assumptions provided by plan’s investment consultant(s). For each major asset class that is included in the pension plan’s current asset allocation as of June 30, 2016, these best estimates are summarized in the following table:

Asset Class Current Allocation Long-Term Expected Real Rate of Return Broad Domestic Equity 38% 6.82% International Equity 24 6 88 Real Assets 16 3 07 Absolute Return 5 3 35 Domestic Fixed 17 0 83 Total 100%

Assumption Changes: Economic assumptions were updated in the June 30, 2015 valuation to a 7.50% investment return assumption, a 2.50% price inflation assumption, and a 3.25% wage inflation assumption These assumptions were unchanged in the June 30, 2016 valuation.

Discount Rate A single discount rate of 7.50% was used to measure the total pension liability. This single discount rate was based on the expected rate of return on pension plan investments of 7.50%. It incorporates a municipal bond rate of 2.85% based on the “20-Bond GO Index” from the Bond Buyer Index of general obligation municipal bonds (based on the weekly rate closest to but not later than the measurement date

The projection of cash flows used to determine this single discount rate assumed that plan member contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on these assumptions, the pension plan’s fiduciary net position was projected

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the University’s proportionate share of the net pension liability using the discount rate of 7.50%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50%) or 1-percentage-point higher (8.50%) than the current rate:

Sensitivity of Discount Rate 1% Discount 1% Decrease Rate Increase (6.50%) (7.50%) (8.50%) $79,715,014 $52,660,632 $30,144,886

Pension Plan Fiduciary Net Position Detailed information about the pension plan’s net position is available in the separately issued APERS financial report.

Arkansas Teacher Retirement System (ATRS)

Plan Description ATRS is a cost-sharing, multiple-employer, defined benefit pension plan administered by the State of Arkansas. The plan was established by the authority of the Arkansas General Assembly with the passage of Act 266 of 1937. The costs of administering the plan are paid out of investment earnings. The general administration and responsibility for the proper operation of the System is vested in the fifteen members of the Board of Trustees of the Arkansas Teacher Retirement System (the Board). Membership includes eleven members who are elected and consist of seven active members of ATRS with at least five years of actual service, three retired members receiving an annuity from ATRS, and one active or retired member from a minority racial ethnic group. There are also four ex officio members, including the State Bank Commissioner, the Treasurer of the State, the Auditor of the State and the Commissioner of Education. ATRS issues a publicly available financial report that can be obtained at https://www.artrs.gov/publications

Benefits Provided Benefit provisions are set forth in Arkansas Code Annotated, Title 24, Chapter 7 and may only be amended by the Arkansas General Assembly. ATRS provides retirement, disability and death benefits. Retirement benefits are determined as a percentage of the member’s highest 3-year average compensation times the member’s years of service. The percentage used is based upon whether a member is contributory or noncontributory as follows:

 Contributory 2.15%  Non-Contributory 1.39%

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Members are eligible to retire with a full benefit under the following conditions:

 at age 60 with 5 years of credited service,  at any age with 28 years credited service.

Members with 25 years of credited service who have not attained age 60 may retire with a reduced benefit.

Members are eligible for disability benefits with 5 years of service. Disability benefits are computed as an age and service benefit, based on service and pay at disability. Survivor benefits are payable to qualified survivors upon the death of an active member with 5 years of service. The monthly benefit paid to eligible spouse survivors is computed as if the member had retired and elected the Joint & 100% Survivor option. Minor child survivors receive a percentage of the member’s highest salary earned. ATRS also provides a lump sum death benefit for active and retired members with 10 years of actual service. The amount for contributory members will be up to $10,000 and up to $6,667 for noncontributory members. A cost-of-living adjustment of 3% of the current benefit is added each year.

Effective July 1, 2011, new employees of the University are no longer eligible to participate in the Arkansas Teacher Retirement System (ATRS). Existing ATRS participants are allowed to continue ATRS participation.

Contributions Contribution requirements are set forth in Arkansas Code Annotated, Title 24, Chapter 7. The contributions are expected to be sufficient to finance the costs of benefits earned by members during the year and make a level payment that, if paid annually over a reasonable period of future years, will fully cover the unfunded costs of benefit commitments for services previously rendered. ATRS has contributory and noncontributory plans. The contributory plan has been in effect since the beginning of ATRS. The noncontributory plan became available July 1, 1986. Act 81 of 1999, effective July 1, 1999, requires all new members to be contributory and allowed active members as of July 1, 1999, until July 1, 2000, to make an irrevocable choice to be contributory or noncontributory. Act 93 of 2007 allows any noncontributory member to make an irrevocable election to become contributory on July 1 of each fiscal year. Employers are required to contribute at a rate established by the Board of ATRS based on an actuary’s determination of a rate required to fund the plan. The University contributed 14.00% of applicable compensation for the fiscal year ended June 30, 2017. The University’s and member’s contributions for the year ending June 30, 2017, were $2,210,329 and $733,779, respectively.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources to Pensions At June 30, 2017, the University reported a liability of $26,000,421 for its proportionate share of the net pension liability. The net pension liability was measured as of June 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The University’s proportion of the net pension liability was based on the University’s share of contributions to the pension plan relative to the total contributions of all participating employers. At June 30, 2017, the University’s proportion was 0 589 percent, which was an increase of 0 194 from its proportion measured as of June 30, 2016 This increase is affected by adding the campuses of UAPTC and UACCRM

For the year ended June 30, 2017, the University recognized pension expense of $2,179,970 At June 30, 2017, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

Deferred Outflows of Deferred Inflows of Resources Resources Differences between expected and actual experience $ 471,584 $ (360,615) Changes of assumptions or other inputs - - Net difference between projected and actual earnings on pension plan investments 3,984,618 - Changes in the proportion and differences between the employer contributions and share of contributions 160,386 (3,068,128) University contributions subsequent to the measurement date 2,210,329 - Total $ 6,826,917 $(3,428,743)

Deferred outflows of resources related to pensions of $2,210,329, resulting from University contributions subsequent to the measurement date, will be recognized as a reduction of the net pension liability in the year ended June 30, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in the pension expense in the financial statements as follows:

Year ended June 30: 2018 $(375,417) 2019 (375,417) 2020 1,321,908 2021 831,993 2022 (215,222)

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Actuarial Assumptions The total pension liability in the June 30, 2016, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement:

Actuarial Cost Method Entry Age Normal Amortization Method Level of Percent of Payroll, closed Amortization Period 30 years Asset Valuation Method 4-year smoothed market; 20% corridor Wage Inflation 3.25% Salary Increases 3 25 – 9.10% including inflation Investment Rate of Return 8.00% Post-Retirement Cost-of-Living Increases 3.00% Simple Retirement Age Experience-based table of rates that are specific to the type of eligibility condition. Last updated for the 2011 valuation pursuant to an experience study for the period July 1, 2005 – June 30, 2010 Mortality Table Based on RP-2000 Mortality table for males and females, projected 25 years with scale AA, (95% for men & 87% for women)

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of geometric real rates of return for each major asset class included in the System’s target asset allocation as of June 30, 2016, are summarized below:

Asset Class Target Allocation Long-Term Expected Real Rate of Return Global Equity 50% 5 0% Fixed Income 20 0 8 Alternatives 5 4 4 Real Assets 15 3 4 Private Equity 10 6 3 Cash Equivalents - -0 2 Total 100%

Discount Rate A single discount rate of 8.0% was used to measure the total pension liability. This single discount rate was based on the expected rate of return on pension plan investments of 8.00%. The projection of cash flows used to determine this single discount rate assumed that plan member contributions

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 will be made at the current contribution rate and that employer contributions will be 14% of payroll. Based on these assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following presents the University’s proportionate share of the net pension liability using the discount rate of 8.00%, as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (7.00%) or 1-percentage-point higher (9.00%) than the current rate:

Sensitivity of Discount Rate 1% Discount 1% Decrease Rate Increase (7.00%) (8.00%) (9.00%) $39,065,678 $26,000,421 $15,046,354

Pension Plan Fiduciary Net Position Detailed information about the pension plan’s net position is available in the separately issued ATRS financial report.

NOTE 15: Other Postemployment Benefits (OPEB)

In June 2004, the GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, which became effective for the fiscal year ending June 30, 2008. This statement requires governmental entities to recognize and match other postemployment benefit costs with related services received and also to provide information regarding the actuarially calculated liability and funding level of the benefits associated with past services. The calculation reflects expected future medical costs. It includes an accrual for all active employees by valuing the benefits they are anticipated to receive in retirement based on the likelihood that they will stay employed until eligible for postemployment benefits. As a result of the implementation of this statement, the University accrued $68,680,550 in retiree healthcare liability as of June 30, 2017.

As of February 1, 2017, the University of Arkansas Pulaski Technical College and, as of April 1, 2017, the University of Arkansas Community College at Rich Mountain (UACCRM) joined the health plan. Both of these entities maintain their own dental plans.

University of Arkansas System

The University offers postemployment health (including prescription drugs) and dental benefits, along with life insurance ($10,000 available coverage), to eligible retirees. Health and dental benefits are provided in the University’s self-funded plan sponsored by the Board of Trustees of the University of Arkansas System for current and pre-65 retired employees. The plan is

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 considered a single-employer, defined benefit plan. The System Administration manages and administers the plan. Although benefits are also provided under the University’s plan for the employees of the University of Arkansas Foundation, Inc., the University of Arkansas Winthrop Rockefeller Institute, the Walton Arts Center Foundation, Inc., the Razorback Foundation, Inc., and the University of Arkansas Technology Development Foundation, no postemployment benefit is accrued by the University for these private entities. Financial activities of the plan are reported in the accompanying consolidated financial report

Retirees pay 100% of premiums for all campuses with the exception of UACCM, who will pay the premium for those employees retiring on or after age 62 with at least 20 years of service. Employer costs are funded on a pay-as-you-go basis for all campuses. Retirees qualify for postemployment benefits as follows:

CCCUA: Employees must be at least age 60 and have at least 5 years of service.

UACCM: Employees must be at least age 60 and have at least 10 years of service.

ALL OTHERS: Employees must have a combination of age and years of service of at least 70 with at least 10 years of coverage under the plan. Retirees may cover spouses and eligible dependent children. Surviving spouses can continue coverage after retiree’s death.

Retirees pay 100% of the fully insured premium directly to United Healthcare. As a result, no liabilities for Medicare eligible retiree benefits are included in this valuation.

Summary of Key Actuarial Methods and Assumptions

Valuation date July 1, 2016; Census data collected as of November 1, 2016 Actuarial cost method Projected unit credit Amortization method 30 years open, level % of payroll Asset valuation method N/A Discount rate 4.0% Projected payroll growth rate 4.0% Medical inflation rate Immediate rate of 0.00%, 6.75% with an ultimate rate of 4.25%

General Overview of the Valuation Methodology

The process of determining the liability for retiree medical benefits is based on many assumptions about future events. Future increases in health care costs are affected by many factors, including: medical inflation; change in utilization patterns; technological advances; cost shifting; cost leveraging; and changes to government medical programs, such as Medicare.

Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future, and actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Actuarial calculations reflect a long-term perspective. Actuarial methods and

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Calculations are based on the types of benefits provided under the terms of each plan at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point.

Changes in Actuarial Assumptions and Methods since the Prior Valuation:

The claim costs and trends were updated to reflect changes in benefits and experience and expectations for the future costs. Also, the initial retiree contribution was adjusted to reflect current contribution rates.

The election percentage for CCCUA, UACCM, UACCH and UAFS was changed to 55% of all active employees are assumed to elect coverage at retirement.

This report does not reflect future changes in benefits, penalties, taxes (including future excise taxes), or administrative costs that may be required as a result of the Patient Protection and Affordable Care Act of 2010, related legislation, or regulations. It does reflect all ACA costs to date such as Patient-Center Outcomes Research Institute (PCORI) fees.

Medical Coverage – Retirees not Eligible for Medicare:

The claims costs were developed from the active premium rates for the period July 1, 2017 to June 30, 2018 loaded for 1% to reflect that premiums are set about 1% below expected costs. 70.3% of the premium was assumed to be for medical, 23.0% for pharmacy, and 6.8% for expenses. The claim and expense costs were trended back to the period July 1, 2016 to June 30, 2017 using an annual trend assumption of 0.0% for medical, 9.5% for pharmacy, and 3% expenses.

Dental Coverage:

The dental rates are set to match projected costs. Based on a comparison of the recent dental claims plus fees, the dental rates are set at a level sufficient to cover projected costs. Retirees pay 100% of the budget rate for coverage. Therefore, the cost for dental coverage was excluded from this valuation

Mortality Rates: Healthy RP-2014 Fully Generational Mortality Table for employees and healthy annuitants using projection scale MP-2014

Disabled RP-2014 Fully Generational Mortality Table for disabled retirees using projection scale MP-2014

Withdrawal Rates: Select rates by location are based on length of service for the first five years and age thereafter:

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Year UAF UAMS Other 0 25% 30% 20% 1 25% 20% 20% 2 20% 18% 20% 3 16% 18% 15% 4 16% 15% 15%

Ultimate rates are from Sarason turnover table T-6 for UAF, table T-7 for UAMS, and table T-4 for all other locations except CCCUA, UACCM, UAFS, and UACCH. Rates for CCCUA, UACCM, UAFS, and UACCH vary and are available in the actuarial reports which can be obtained by writing to the University of Arkansas System.

Retirement Rates, CCCUA, UACCM, UAFS, and UACCH:

Age Rate 50-59 5% 60 15% 61 14% 62 25% 63-64 15% 65 35% 66-68 30% 69 + 100%

Retirement Rates, All Others: Age Rate 50-59 5% 60-61 10% 62 15% 63-66 10% 67-69 50% 70 + 100%

Future Retiree Coverage: Retirees were assumed to remain in their current plan indefinitely (until age 65 at which point they would join the UHC Medicare Advantage plan). 55% of employees are assumed to elect medical, dental and Rx coverage at retirement.

75% of employees are assumed to elect life insurance coverage at retirement.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Future Dependent Coverage: 50% of future retirees are assumed to be married and elect spouse coverage.

Spouse Age Differential: Males are assumed to be 4 years older than females.

Determination of FY17 Accrual

Unfunded actuarial accrued liability at 7-1-16 $ 57,432,000

Annual Required Contribution (ARC) Normal cost $ 3,411,000 Amortization of the unfunded actuarial accrued liability over 30 years 1,914,000 Interest 213,000 Annual Required Contribution for FY17 5,538,000 Interest on Net OPEB Obligation 2,511,000 ARC Amortization Adjustment (2,176,000) Annual OPEB Cost for FY17 $ 5,873,000

Net OPEB Obligation, 7-1-16 $ 62,779,000 Annual OPEB Cost for FY17 5,873,000 Less: Expected Employer Contributions (1,976,000)

Net OPEB Obligation, 6-30-17 $ 66,676,000

Schedule of Employer Contributions

Fiscal Year Annual Required Annual Required Benefit Pymts Percentage Net Obligation Ending Contribution (ARC) Contribution (AOC) During FY Contributed at Year-End 6-30-10 $ 6,863,000 $ 7,061,000 $ 1,984,000 28.10% $ 30,808,000 6-30-11 5,960,000 6,197,000 1,674,000 27.01% 35,331,000 6-30-12 6,461,000 6,732,000 1,636,000 24.30% 40,427,000 6-30-13 6,069,000 6,379,000 2,016,000 31.60% 44,790,000 6-30-14 5,160,000 5,505,000 1,496,000 27.18% 49,064,000 6-30-15 7,681,000 8,059,000 2,156,000 26.75% 56,025,000 6-30-16 8,648,000 9,079,000 2,325,000 25.61% 62,779,000 6-30-17 5,538,000 5,873,000 1,976,000 33.65% 66,676,000

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Schedule of Funding Progress

Actuarial UAAL as Actuarial Accrued Unfunded Percentage Fiscal Year Value of Liability AAL Funded Covered of Covered Ending Assets (AAL) (UAAL) Ratio Payroll Payroll 6-30-10 $ - $ 66,620,000 $ 66,620,000 0%$ 952,170,000 7.00% 6-30-11 - 58,439,000 58,439,000 0% 977,592,000 5.98% 6-30-12 - 63,292,000 63,292,000 0% 1,042,067,000 6.07% 6-30-13 - 58,874,000 58,874,000 0% 1,072,222,000 5.49% 6-30-14 - 52,311,000 52,311,000 0% 1,103,764,000 4.74% 6-30-15 - 72,780,000 72,780,000 0% 1,127,553,000 6.45% 6-30-16 - 82,402,000 82,402,000 0% 1,167,667,000 7.06% 6-30-17 - 57,432,000 57,432,000 0% 1,298,871,000 4.42%

Pulaski Technical College

Pulaski Technical College sponsors an unfunded agent multi-employer defined benefit postretirement medical plan administered by the Arkansas Higher Education Consortium. The Board of Trustees adopted an early retirement policy 2.62 on May 10, 1999, later revised in April 2004 that will pay for a retiring full-time employee’s individual health and basic life coverage up to the age of 65 years, provided that their age plus years of service equals 70. The employee must have at least 10 years of service with the College and be at least age 55 or older. Eligible employees may elect single or family coverage; however, the retiree will be entirely responsible for total cost of insurance premium for spouse and any unmarried dependent. The number of retired employees enrolled in the Pulaski Technical College Health Insurance Plan was eighteen as of June 30, 2017. A basic life insurance policy of $20,000 is included with the medical coverage.

Summary of Key Actuarial Methods and Assumptions

Valuation date June 30, 2017; Census data collected as of June 30, 2017 Actuarial cost method Projected unit credit Amortization method 30 years open, level % of payroll Asset valuation method N/A Discount rate 3.5% Projected payroll growth rate 3.0% Medical inflation rate Immediate rate of 6.6% with an ultimate rate of 4.10%

Mortality Rates:

Healthy RP-2000 Fully Generational Mortality Table for employees and healthy annuitants using projection scale AA

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Withdrawal Rates: Rates are based on gender and length of service for the first five years and gender and age thereafter:

Select rates Ultimate Rates (0 to 5 Years of service) (After 5 years of service)

Years of Service Male Female Age Male Female 0 -1 25.3% 18.0% 25 3.5% 4.0% 1-2 13.8% 11.3% 35 2.8% 2.9% 2-3 10.6% 9.1% 45 1.9% 1.8% 3-4 8.4% 8.4% 55 3.6% 2.6% 4-5 5.0% 6.6%

Retirement Rates:

Age Male Female 55 9% 9% 56 11% 10% 57 11% 12% 58 11% 12% 59 14% 16% 60 16% 16% 61 15% 15% 62 30% 26% 63 24% 22% 64 22% 20%

Future Retiree Coverage: 40% of eligible employees who retire prior to age 65 are assumed to elect medical coverage under the plan.

Future Dependent Coverage: Current active members are assumed to elect spouse coverage at retirement as follows.

Male Female 40% 40%

Spouse Age Differential: All female spouses are assumed to be 3 years younger than males

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Determination of FY17 Accrual

Unfunded actuarial accrued liability at 7-1-16 $ 1,266,000

Annual Required Contribution (ARC) Normal cost $ 105,000 Amortization of the unfunded actuarial accrued liability over 30 years 45,000 Interest - Annual Required Contribution for FY17 150,000 Interest on Net OPEB Obligation 46,000 ARC Amortization Adjustment (47,000) Annual OPEB Cost for FY17 $ 149,000

Net OPEB Obligation, 7-1-16 $ 1,312,000 Annual OPEB Cost for FY17 149,000 Less: Actual Employer Contributions (86,000)

Net OPEB Obligation, 6-30-17 $ 1,375,000

Schedule of Employer Contributions

Fiscal Year Annual OPEB Actual Percentage Net Obligation Ending Cost Contribution Contributed at Year-End 6-30-09 $ 116,000 $ 5,000 4.31% $ 221,000 6-30-10 161,000 5,000 3.11% 377,000 6-30-11 163,000 5,000 3.07% 535,000 6-30-12 153,000 9,000 5.88% 679,000 6-30-13 155,000 12,000 7.74% 822,000 6-30-14 173,000 18,000 10.40% 977,000 6-30-15 173,000 44,000 25.43% 1,106,000 6-30-16 265,000 59,000 22.26% 1,312,000 6-30-17 149,000 86,000 57.72% 1,375,000

Schedule of Funding Progress

Actuarial UAAL as Actuarial Accrued Unfunded Percentage Fiscal Year Value of Liability AAL Funded Covered of Covered Ending Assets (AAL) (UAAL) Ratio Payroll Payroll 6-30-10 $ - $ 776,000 $ 776,000 0% $ 15,148,000 5.12% 6-30-12 - 741,000 741,000 0% 19,585,000 3.78% 6-30-14 - 883,000 883,000 0% 20,784,000 4.25% 6-30-16 - 1,759,000 1,759,000 0% 18,055,000 9.74% 6-30-17 - 1,266,000 1,266,000 0% 18,124,000 6.99%

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Rich Mountain Community College (UACCRM)

The College offers postemployment health care and life insurance benefits to all employees who officially retire from the College and meet certain age and service-related requirements. Health care benefits are offered through the College’s participation in the Arkansas Higher Education Consortium (AHEC), an unfunded agent multi-employer defined benefit plan. Regular retirement eligibility is for employees sixty (60) years of age and older in which they have at least twelve (12) continuous years of full time service to the College. Continuous years of full time service shall be defined as employment without a break in service (qualified leave does not count as a break in service). Early retirement eligibility for employees between the age of fifty-five (55) and sixty (60) are eligible for early retirement benefits in the calendar year in which the sum of the employee’s age and number of years of continuous full-time services to the College totals seventy-two (72).

Benefits for retired employees consists of medical PPO coverage with rates the same as for current full-time employees. The College pays for 90% of the medical cost and the retired employee pays for 10%. While the college allows the spouse of the retired employee to purchase insurance through the plan, the College does not pay any of the cost associated with the spousal coverage. The College covers the cost of a $20,000 life insurance policy for each retiree up to the age of 65 From age 65-70, the policy pays $13,000 (or 65% of the original amount) and after 70, the policy pays $10,000 (or 50% of the original amount). The retiree is eligible to continue to participate in the dental and vision insurance that they participated in while employed full time. Medical insurance benefits provided to retirees will terminate when the retiree becomes eligible for Medicare coverage.

Summary of Key Actuarial Methods and Assumptions

Valuation date July 1, 2016; Census data collected as of July 1, 2016 Actuarial cost method Projected unit credit Amortization method 30 years open, level % of payroll Asset valuation method N/A Discount rate 4.5% Projected payroll growth rate N/A Medical inflation rate Immediate rate of 10.0% with an ultimate rate of 5.00%

Changes in Actuarial Assumptions and Methods since the Prior Valuation:

The assumed discount rate was lowered from 4.75% (7/1/13 valuation) to 4.5%. This change increased the Unfunded Actuarial Accrued Liability at July 1, 2016, by $18,000, and the ARC and Annual OPEB cost for 2016-2017 by $2,000.

The assumed life expectancy was changed from the 1994 UP Table to the RP-2014 Table. This change increased the Unfunded Actuarial Accrued Liability at July 1, 2016, by $11,000, and the ARC and Annual OPEB cost for 2016-2017 by $2,000.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Mortality Rates: Pre-Retirement Deaths have been projected on the basis of the RP-2014 Mortality Table.

Post-Retirement The RP-2014 Mortality Table was used. The life expectancy according to this table is as follows:

Age Males Females 55 28.90 years 31.36 years 65 20.01 years 21.99 years

Withdrawal Rates: Select rates by location are based on length of service for the first five years and age thereafter:

Rate Per 100 Age Members 20 4.60% 25 4.84% 30 4.40% 35 3.10% 40 2.20% 45 2.00% 50 2.00% 55 5.00% Retirement Rates:

Rate Per 100 Age Members 55-59 5.0% 60 15.0% 61 14.0% 62 25.0% 63-64 15.0% 65 35.0% 66-68 30.0% 69 100.0%

Future Retiree Coverage: 100% of eligible retirees are assumed to elect medical and Rx coverage at retirement and 0% will continue it past 65.

Future Dependent Coverage: 80% of employees electing medical and Rx coverage at retirement are assumed to elect family coverage.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Determination of FY17 Accrual Unfunded actuarial accrued liability at 7-1-16 $ 750,000

Annual Required Contribution (ARC) Normal cost $ 66,000 Amortization of the unfunded actuarial accrued liability over 30 years 44,000 Interest 5,000 Annual Required Contribution for FY17 115,000 Interest on Net OPEB Obligation 26,000 ARC Amortization Adjustment (35,000) Annual OPEB Cost for FY17 $ 106,000

Net OPEB Obligation, 7-1-16 $ 570,000 Annual OPEB Cost for FY17 106,000 Less: Expected Actual Contributions (46,000)

Net OPEB Obligation, 6-30-17 $ 630,000

Schedule of Employer Contributions

Fiscal Year Annual OPEB Actual Percentage Net Obligation Ending Cost Contribution Contributed at Year-End 6-30-10 $ 119,000 $ 59,000 49.58% $ 189,000 6-30-11 97,000 41,000 42.27% 245,000 6-30-12 98,000 45,000 45.92% 298,000 6-30-13 98,000 48,000 48.98% 348,000 6-30-14 99,000 25,000 25.25% 422,000 6-30-15 100,000 25,000 25.00% 497,000 6-30-16 99,000 26,000 26.26% 570,000 6-30-17 106,000 46,000 43.40% 630,000

Schedule of Funding Progress

Actuarial UAAL as Actuarial Accrued Unfunded Percentage Fiscal Year Value of Liability AAL Funded Covered of Covered Ending Assets (AAL) (UAAL) Ratio Payroll Payroll 6-30-11 $ - $ 661,000 $ 661,000 0% $ 3,956,000 16.71% 6-30-14 - 688,000 688,000 0% 3,934,000 17.49% 6-30-17 - 750,000 750,000 0% 3,441,000 21.80%

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Note 16: Other Organizations

There are in existence several entities, in addition to those identified as component units in Note 1, which are related to the University. The purposes of these organizations are varied, but all were established to benefit the University, or its students, faculty and staff in some manner

The Razorback Foundation, Inc. was incorporated on October 17, 1980, for the sole purpose of supporting intercollegiate athletics at the Fayetteville campus. Audited financial statements for the year ended June 30, 2017, are presented below in summary form and include the accounts of its wholly owned subsidiaries, Sports Shows, Inc., Cato Springs Road LLC, TSSD LLC, and Hog Wild Productions, LLC.

THE RAZORBACK FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2017

Assets Cash and investments $ 29,221,706 Other assets 50,440,237 Total Assets $ 79,661,943

Liabilities and Net Assets Liabilities $ 672,251 Net Assets 78,989,692 Total Liabilities and Net Assets $ 79,661,943

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2017

Income and Other Additions $ 39,835,543 Expenditures and Other Deductions (35,205,027) Total Increase in Net Assets $ 4,630,516

Arkansas Alumni Association, Inc. was incorporated in 1960 for the purpose of providing various services to the members, consisting of graduates, former students and friends, in connection with the promotion and furtherance of the Fayetteville campus. Audited financial statements for the year ended June 30, 2017, are presented below in summary form.

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UNIVERSITYUNIVERSITYUNIVERSITY OF OF ARKANSAS OFARKANSAS ARKANSAS SYSTEM SYSTEM SYSTEM – Notes – Notes – toNotes Consolidatedto Consolidated to Consolidated Financial Financial Financial Statements Statements Statements FY FY20172017 FY 2017

ARKANSASARKANSASARKANSAS ALUMNI ALUMNI ALUMNI ASSOCIATION, ASSOCIATION, ASSOCIATION, INC. INC. INC. CONDENSEDCONDENSEDCONDENSED STATEMENT STATEMENT STATEMENT OF OFFINANCIAL FINANCIAL OF FINANCIAL POSITION POSITION POSITION As Asof June ofAs June of30, June 30,2017 2017 30, 2017

AssetsAssetsAssets CashCash andCash and investments investmentsand investments $ $ 2,679,465 $ 2,679,465 2,679,465 OtherOther assetsOther assets assets 8,766,417 8,766,417 8,766,417 Total Total Assets Total Assets Assets $ $ 11,445,882 $ 11,445,882 11,445,882

LiabilitiesLiabilitiesLiabilities and and Net Netand Assets AssetsNet Assets LiabilitiesLiabilitiesLiabilities $ $ 1,286,991 $ 1,286,991 1,286,991 NetNet Assets AssetsNet Assets 10,158,891 10,158,891 10,158,891 Total Total Liabilities Total Liabilities Liabilities and and Net Netand Assets AssetsNet Assets$ $ 11,445,882 $ 11,445,882 11,445,882

CONDENSEDCONDENSEDCONDENSED STATEMENT STATEMENT STATEMENT OF OFACTIVITIES ACTIVITIES OF ACTIVITIES FY FYEnded EndedFY June Ended June 30, June 30,2017 2017 30, 2017

IncomeIncome Incomeand and Other Otherand Additions Other Additions Additions $ $ 5,530,352 $ 5,530,352 5,530,352 ExpendituresExpendituresExpenditures and and Other Otherand Deductions Other Deductions Deductions (4,290,223) (4,290,223) (4,290,223) TotalTotal IncreaseTotal Increase Increase in Net in Net Assets in AssetsNet Assets $ $ 1,240,129 $ 1,240,129 1,240,129

ArkansasArkansasArkansas 4- H4 -Foundation,H 4 Foundation,-H Foundation, Inc. Inc. was Inc. was incorporated was incorporated incorporated in 1951.in 1951. in 1951.The The purpose The purpose purposes ands and objectivess andobjectives objectives of ofthe the of the FoundationFoundationFoundation are are exclusively areexclusively exclusively educational. educational. educational. The The Foundation The Foundation Foundation was was formed was formed formed to toencourage encourage to encourage and and support andsupport support suchsuch purposessuch purposes purposes that that will that will meet will meet the meet the needs needsthe andneeds and advance andadvance advance the the interests intereststhe interests of 4-ofH 4- of youthH 4- youthH programsyouth programs programs throughout throughout throughout thethe State Statethe of State Arkansas.of Arkansas. of Arkansas. Audited Audited Audited financial financial financial statements statements statements for for the thefor year yearthe ended year ended endedJune June 30, June 30, 20 172030,,17 are20, are17 presented, presentedare presented belowbelow belowin summaryin summary in summary form. form. form.

ARKANSASARKANSASARKANSAS 4-H 4-H FOUNDATION, FOUNDATION,4-H FOUNDATION, INC. INC. INC. CONDENSEDCONDENSEDCONDENSED STATEMENT STATEMENT STATEMENT OF OFFINANCIAL FINANCIAL OF FINANCIAL POSITION POSITION POSITION As Asof June ofAs June of30, June 30,2017 2017 30, 2017

AssetsAssetsAssets CashCash andCash and investments investmentsand investments $ $ 4,784,738 $ 4,784,738 4,784,738 OtherOther assetsOther assets assets 5,202,874 5,202,874 5,202,874 Total Total Assets Total Assets Assets $ $ 9,987,612 $ 9,987,612 9,987,612

LiabilitiesLiabilitiesLiabilities and and Net Netand Assets AssetsNet Assets LiabilitiesLiabilitiesLiabilities $ $ 229,629$ 229,629 229,629 NetNet Assets AssetsNet Assets 9,757,983 9,757,983 9,757,983 Total Total Liabilities Total Liabilities Liabilities and and Net Netand Assets AssetsNet Assets$ $ 9,987,612 $ 9,987,612 9,987,612

CONDENSEDCONDENSEDCONDENSED STATEMENT STATEMENT STATEMENT OF OFACTIVITIES ACTIVITIES OF ACTIVITIES FY FYEnded EndedFY June Ended June 30, June 30,2017 2017 30, 2017

IncomeIncome Incomeand and Other Otherand Additions Other Additions Additions $ $ 2,437,536 $ 2,437,536 2,437,536 ExpendituresExpendituresExpenditures and and Other Otherand Deductions Other Deductions Deductions (2,329,517) (2,329,517) (2,329,517) TotalTotal IncreaseTotal Increase Increase in Net in Net Assets in AssetsNet Assets $ $ 108,019$ 108,019 108,019

57 57 57

90

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

University of Arkansas Technology Development Foundation was incorporated in May 2003, and is considered a supporting organization of the Fayetteville campus. Its mission is to stimulate a knowledge-based economy in the state of Arkansas through partnerships that lead to new opportunities for learning and discovery, build and retain a knowledge-based workforce, and spawn the development of new technologies that enrich the economic base of Arkansas. Audited financial statements for the year ended June 30, 2017, are presented below in summary form.

UNIVERSITY OF ARKANSAS TECHNOLOGY DEVELOPMENT FOUNDATION CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2017

Assets Cash and investments $ 1,620,806 Other assets 14,237 Total Assets $ 1,635,043

Liabilities and Net Assets Liabilities $ 109,245 Net Assets 1,525,798 Total Liabilities and Net Assets $ 1,635,043

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2017

Income and Other Additions $ 1,744,460 Expenditures and Other Deductions (1,602,424) Total Increase in Net Assets $ 142,036

University of Arkansas Fort Smith Foundation, Inc. operates as a nonprofit corporation whose primary activity is providing support to the Fort Smith campus. Audited financial statements for the year ended June 30, 2017, are presented below in summary form

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS FORT SMITH CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2017

Assets Cash and investments $ 87,079,841 Other assets 365,136 Total Assets $ 87,444,977

Liabilities and Net Assets Liabilities $ 1,194,142 Net Assets 86,250,835 Total Liabilities and Net Assets $ 87,444,977

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2017

Income and Other Additions $ 13,211,975 Expenditures and Other Deductions (4,668,570) Total Increase in Net Assets $ 8,543,405

The University of Arkansas at Little Rock Alumni Association is utilized to receive and disburse funds obtained from gifts, activity fees and receipts from special projects. The Association operates as a nonprofit benevolent corporation for charitable educational purposes. The assets of the Association are held by the University of Arkansas Foundation, Inc.

Trojan Athletic Foundation, Inc. is a non-profit entity established to support the athletic department at the Little Rock campus. Audited financial statements for the year ended June 30, 2017, are presented below in summary form. TROJAN ATHLETIC FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2017

Assets Cash $ 291,837 Other Assets 85,563 Total Assets $ 377,400

Liabilities and Net Assets Liabilities $ 3,561 Net Assets 373,839 Total Liabilities and Net Assets $ 377,400

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2017

Income and Other Additions $ 485,069 Expenditures and Other Deductions (431,005) Total Increase in Net Assets $ 54,064

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92

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

University of Arkansas at Pine Bluff/AM&N Alumni Association, Inc. was organized to foster and promote the general welfare and growth of the University of Arkansas at Pine Bluff. Unaudited financial statements for the year ended December 31, 2016, are presented below in summary form. UAPB/AM&N ALUMNI ASSOCIATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION UNAUDITED As of December 31, 2016

Assets Cash & investments $ 216,029 Other assets 13,100 Total Assets $ 229,129

Liabilities and Net Assets Liabilities $ 25,726 Net Assets 203,403 Total Liabilities and Net Assets $ 229,129

CONDENSED STATEMENT OF ACTIVITIES FY Ended December 31, 2016

Income and Other Additions $ 128,000 Expenditures and Other Deductions (132,531) Total Decrease in Net Assets $ (4,531)

University of Arkansas at Pine Bluff Scholarship Endowment Fund was created to provide scholarships to a culturally diverse student population at the University of Arkansas at Pine Bluff. Financial information include in the Form 990 for the year ended December 31, 2016, are presented below in summary form. UNIVERSITY OF ARKANSAS-PINE BLUFF SCHOLARSHIP ENDOWMENT FUND PER FORM 990 CONDENSED STATEMENT OF FINANCIAL POSITION As of December 31, 2016

Assets Cash & investments $ 4,388,855 Total Assets $ 4,388,855

Liabilities & Net Assets Liabilities $ - Net Assets 4,388,855 Total Liabilities & Net Assets $ 4,388,855

CONDENSED STATEMENT OF ACTIVITIES FY Ended December 31, 2016

Income and Other Additions $ 408,048 Expenditures and Other Deductions (220,411) Total Increase in Net Assets $ 187,637

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UNIVERSITYUNIVERSITY OF OF ARKANSAS ARKANSAS SYSTEM SYSTEM – Notes – Notes to Consolidatedto Consolidated Financial Financial Statements Statements FY FY20172017 UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 CossatotCossatot Community Community College College of ofthe the University University of ofArkansas Arkansas Foundation, Foundation, Inc. Inc. assists assists in in Cossatotdevelopingdeveloping Community and and improv improv Collegeinging the the programsof programsthe University and and facilities facilities of Arkansas for for the their ircampusFoundation, campuses.es . Audited Inc. Audited assists financial financial in developingstatementsstatements forand for the ithemprov year year endeding ended the June programsJune 30, 30, 201 201 7 and, are7, facilitiesare presented presented for below thebelowir in campus summaryin summaryes. form. Audited form. financial statements for the year ended June 30, 2017, are presented below in summary form. COSSATOT COSSATOT COMMUNITY COMMUNITY COLLEGE COLLEGE OF OF THE THE UNIVERSITY COSSATOTUNIVERSITY OF COMMUNITY OF ARKANSAS ARKANSAS COLLEGEFOUNDATION, FOUNDATION, OF THE INC. INC. CONDENSEDUNIVERSITYCONDENSED STATEMENT OF STATEMENT ARKANSAS OF OF FINANCIAL FOUNDATION, FINANCIAL POSITION POSITION INC. CONDENSED STATEMENTAs Asof June of June OF 30, FINANCIAL30, 2017 2017 POSITION As of June 30, 2017 AssetsAssets AssetsCashCash and and investments investments $ $ 487,599 487,599 CashOtherOther and investments $ 487,599 49,000 49,000 Other Total Total Assets Assets $ $ 536,599 49,000 536,599 Total Assets $ 536,599 LiabilitiesLiabilities and and Net Net Assets Assets LiabilitiesLiabilities andLiabilities Net Assets $ $ 6,339 6,339 LiabilitiesNetNet Assets Assets $ 530,260 6,339 530,260 Net Total Assets Total Liabilities Liabilities and and Net Net Assets Assets $ $ 530,260536,599 536,599 Total Liabilities and Net Assets $ 536,599 CONDENSEDCONDENSED STATEMENT STATEMENT OF OF ACTIVITIES ACTIVITIES CONDENSEDFY FY EndedSTATEMENT Ended June June 30, OF30, 2017 ACTIVITIES2017 FY Ended June 30, 2017 IncomeIncome and and Other Other Additions Additions $ $ 151,469 151,469 IncomeExpendituresExpenditures and Other and and OtherAdditions Other Deductions Deductions $ 151,469 (89,491) (89,491) ExpendituresTotalTotal Increase Increase and in NetOtherin Net Assets Deductions Assets $ $ (89,491) 61,978 61,978 Total Increase in Net Assets $ 61,978 PhillipsPhillips Community Community College College Foundation Foundation is is dedicated dedicated to to raising raising funds funds to to support support the the Phillips Phillips PhillipsCommunityCommunity Community College College College campus campus Foundation and and to to provide provide is dedicated scholarships scholarships to raising for for its its funds students. students. to support Audited Audited the financial Phillips financial Communitystatementsstatements for Collegefor the the year year campus ended ended December and December to provide 31, 31, 201 201 scholarships6, are6, are presented presented for below its below students. in summaryin summary Audited form. form. financial statements for the year endedPHILLIPS DecemberPHILLIPS COMMUNITY COMMUNITY31, 2016, COLLEGEare COLLEGE presented FOUNDATION FOUNDATION below in summary form. CONDENSEDPHILLIPSCONDENSED COMMUNITY STATEMENT STATEMENT COLLEGE OF OF FINANCIAL FINANCIAL FOUNDATION POSITION POSITION CONDENSED STATEMENTAs Asof December of December OF 31,FINANCIAL 31, 2016 2016 POSITION As of December 31, 2016 AssetsAssets AssetsCashCash and and investments investments $ $ 3,639,079 3,639,079 CashOtherOther and Assets Assetsinvestments $ 3,639,079 71,499 71,499 Other Total TotalAssets Assets Assets $ $ 3,710,578 71,499 3,710,578 Total Assets $ 3,710,578 LiabilitiesLiabilities and and Net Net Assets Assets LiabilitiesLiabilities andLiabilities Net Assets $ $ 371,005 371,005 LiabilitiesNetNet Assets Assets $ 3,339,573 371,005 3,339,573 Net Total Assets Total Liabilities Liabilities and and Net Net Assets Assets $ $ 3,339,5733,710,578 3,710,578 Total Liabilities and Net Assets $ 3,710,578 CONDENSEDCONDENSED STATEMENT STATEMENT OF OF ACTIVITIES ACTIVITIES CONDENSEDFY FYEnded STATEMENTEnded December December 31,OF 31, 2016ACTIVITIES 2016 FY Ended December 31, 2016 IncomeIncome and and Other Other Additions Additions $ $ 624,639 624,639 IncomeExpendituresExpenditures and Other and and OtherAdditions Other Deductions Deductions $ (638,335) 624,639 (638,335) ExpendituresTotalTotal Decrease Decrease and in OtherNet in Net Assets Deductions Assets $ $ (638,335) (13,696) (13,696) Total Decrease in Net Assets $ (13,696)

61 61 61 94

UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

University of Arkansas Community College at Hope Foundation, Inc. operates for the sole benefit of the Hope campus. Audited financial statements for the year ended June 30, 2016, are presented below in summary form. UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT HOPE FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2016

Assets Cash and investments $ 2,286,154 Other Assets 70,213 Total Assets $ 2,356,367

Liabilities and Net Assets Liabilities $ 101,738 Net Assets 2,254,629 Total Liabilities and Net Assets $ 2,356,367

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2016

Income and Other Additions $ 650,782 Expenditures and Other Deductions (613,107) Total Increase in Net Assets $ 37,675

Rich Mountain Community College Foundation, Inc. operates for the sole benefit of the Rich Mountain campuses. Audited financial statements for the year ended June 30, 2016, are presented below in summary form. RICH MOUNTAIN COMMUNITY COLLEGE FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2016

Assets Cash and investments $ 3,543,878 Other assets 74,883 Property and equipment 133,283 Total Assets $ 3,752,044

Liabilities and Net Assets Liabilities $ - Net Assets 3,752,044 Total Liabilities and Net Assets $ 3,752,044

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2016

Income and Other Additions $ 259,699 Expenditures and Other Deductions (141,079) Total Increase in Net Assets $ 118,620

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Pulaski Technical College Foundation, Inc. operates for the sole benefit of the UAPTC campuses. Audited financial statements for the year ended June 30, 2016, are presented below in summary form. PULASKI TECHNICAL COLLEGE FOUNDATION, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2016

Assets Cash and investments $ 1,714,663 Other assets $ 115,342 Total Assets $ 1,830,005

Liabilities and Net Assets Liabilities $ 4,302 Net Assets 1,825,703 Total Liabilities and Net Assets $ 1,830,005

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2016

Income and Other Additions $ 1,985,062 Expenditures and Other Deductions (1,417,125) Total Increase in Net Assets $ 567,937

University of Arkansas Winthrop Rockefeller Institute (prior to June 11, 2012, known as the University of Arkansas Winthrop Rockefeller Center d/b/a/ Winthrop Rockefeller Institute) is an educational conference center incorporated in January 2005. The Institute’s mission is to provide extended learning for youth and adults and conferences focused on enriching and informing Arkansas leaders. Audited financial statements for the year ended June 30, 2017, are presented below in summary form.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

UNIVERSITY OF ARKANSAS WINTHROP ROCKEFELLER CENTER, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2017

Assets Cash and investments $ 3,405,852 Grant Receivable 5,150,000 Other 304,233 Property and Equipment, Net 14,880,159 Total Assets $ 23,740,244

Liabilities and Net Assets Liabilities $ 519,217 Net Assets 23,221,027 Total Liabilities and Net Assets $ 23,740,244

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2017

Income and Other Additions $ 10,955,872 Expenditures and Other Deductions (6,460,783) Total Increase in Net Assets $ 4,495,089

Delta Student Housing, Inc. (Delta) is a nonprofit corporation organized in Arkansas Delta was created for the purpose of facilitating the financing for construction of student housing facilities on the various campuses of the University. In the fiscal year ended June 30, 2010, the Arkansas School for Mathematics, Sciences and the Arts (ASMSA) received $6,000,000 in American Recovery & Reinvestment Act funds through the State of Arkansas and $1,000,000 from state general improvement funds to be used toward the construction of a new residence/student life facility. In addition, ASMSA had almost $4,000,000 of reserve funds to be used for the project. By leveraging these available funds, a financing structure was developed using federal New Markets Tax Credits (NMTC) which made available almost $15,000,000 to construct the facility. Construction of the facility was completed in the summer of 2012 The facility will be owned and managed by Delta until the completion of the NMTC compliance period of seven years, at which time the transaction will be unwound and the building will be owned by ASMSA through the Board of Trustees of the University. Audited financial statements for the year ended June 30, 2017, are presented below in summary form.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

DELTA STUDENT HOUSING, INC. CONDENSED STATEMENT OF FINANCIAL POSITION As of June 30, 2017

Assets Cash $ 401,700 Property and equipment 12,021,603 Total Assets $ 12,423,303

Liabilities and Net Assets Liabilities $ 14,848,190 Net Assets (2,424,887) Total Liabilities and Net Assets $ 12,423,303

CONDENSED STATEMENT OF ACTIVITIES FY Ended June 30, 2017

Income and Other Additions $ 249,402 Expenditures and Other Deductions (697,504) Total Decrease in Net Assets $ (448,102)

Note 17: Natural & Functional Classifications of Operating Expenses

Following is a reconciliation of the natural classifications as presented in the statement of revenues, expenses, and changes in net position to the functional classifications for fiscal year 2017 Natural Classifications Functional Compensation S upplies Scholarships & Classifications & Benefits & Services Fellowships Insurance Depreciation TOTAL Instruction $ 380,789,422 $ 57,259,333 $ - $ - $ - $ 438,048,755 Research 163,003,733 79,881,307 - - - 242,885,040 Public Service 84,411,310 43,781,906 - - - 128,193,216 Academic Support 87,891,941 37,499,956 - - - 125,391,897 Student Services 48,427,496 21,397,829 - - - 69,825,325 Institutional Support 198,302,884 46,139,179 - - - 244,442,063 Scholarships/Fellowships 118,509 106,725 65,334,993 - - 65,560,227 Plant Operations 64,595,817 78,197,600 - - - 142,793,417 Auxiliary Enterprises 69,980,495 113,970,716 2,512,362 - - 186,463,573 Depreciation - - - - 187,239,009 187,239,009 Patient Care 567,835,307 361,330,000 - - - 929,165,307 Other 3,233,000 12,243,000 - - - 15,476,000 Insurance expenses - - - 161,001,798 - 161,001,798 TOTAL $ 1,668,589,914 $ 851,807,551 $ 67,847,355 $ 161,001,798 $ 187,239,009 $ 2,936,485,627

Note 18: Contingencies

The University has been named as defendant in several lawsuits. It is the opinion of management and its legal counsel that these matters will be resolved without material adverse effect on the future operations or financial position of the University.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Immunity provisions in Arkansas law prohibit suits naming the Board of Trustees of the University of Arkansas System as a defendant in Arkansas State courts. Employees of UAMS acting in good faith in the course and scope of their employment may be sued in state courts, but only to the extent of maintained insurance coverage. UAMS maintains malpractice insurance for certain employees under a claims-made policy. Premiums are accrued based on estimated claims, with the final premium amount determined based on actual claims experience. The cost of this policy is included in supplies and other expenses. UAMS incurred costs of $2,891,000 for this insurance during each of the year ended June 30, 2017 and 2016. A party may bring an action against the University through the Arkansas State Claims Commission (the Claims Commission). The Claims Commission may award a claim of up to $15,000 without further review or appropriation. Awards that the Claims Commission approves in excess of $15,000 must be approved and appropriated by the Arkansas State Legislature. Appropriations of this type, if any, reduce appropriations from the state to UAMS in the period in which the claim is appropriated.

In the fiscal year ended June 30, 2006, the Arkansas Development Finance Authority (the Authority) issued $36,775,000 in Tobacco Settlement Revenue Bonds. The Authority made the proceeds of the bonds available to the University of Arkansas Board of Trustees (UA Board) to fund an expansion to the Arkansas Cancer Research Center (ACRC) on the campus of the University of Arkansas for Medical Sciences (UAMS). The bonds have an approximate yield to maturity of 4.77% to 5.10% and principal and accumulated interest are payable beginning in 2021 through 2031 for $22,158,000 of serial bonds and beginning in 2036 through 2046 for $14,617,000 of term bonds.

Funds received from the Arkansas Tobacco Settlement Funds Act of 2000 are pledged for debt service and are the primary source of payment for the bonds. In accordance with a Loan Agreement dated June 1, 2006, between the UA Board and the Authority, the UA Board will be required to make debt service payments on the Series 2006 bond issue in the event of a shortfall in tobacco settlement revenues. However, no such payments will be made unless the debt service revenues are insufficient to make such payments. Management believes the debt service revenues will be sufficient to service the entire principal and interest due. The Global Insights USA, Inc. report, prepared in August 2006, on the Forecast of U.S. Cigarette Consumption (2004-2046) indicates that tobacco consumption in 2046 is expected to decline by 54% from the 2003 level. For fiscal year 2003, Arkansas received $60,067,457 from the Tobacco Settlement Fund. Using the 54% decline from above, Arkansas should receive approximately $27.6 million in 2046 with the first $5 million dedicated to pay the debt service on this bond issue.

If debt service revenues had been considered insufficient at June 30, 2017, the University would have incurred a liability of $63,194,000 related to issue. This amount includes draw down of funds related to the project, issuance costs, discounts, accreted interest, and other expenses related to the issue. The revenues pledged by UAMS to secure the Loan Agreement consist of inpatient service fees and fees collected from other ancillary, therapeutic, and diagnostic services provided within the walls of the hospital but exclude physician-generated revenues, state appropriations, and revenues restricted for other purposes.

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Note 19: Elimination of Inter-Company Transactions

The consolidated financial statements were prepared from financial statements submitted by each campus and the System Administration of the University. The inclusion of inter-company transactions in the consolidated financial statements is not considered materially significant to distort the amounts presented in the consolidated financial statements with the following exceptions, which were eliminated.

FY17 - Statement of Net Position An elimination entry was made to reduce accounts receivable by $15,492,177, which represent amounts owed by the campuses to the System Administration for insurance premiums and campus billings for services rendered, amounts owed between campuses, and interest due from a System Administration loan for eVersity from the campuses. Accounts payable was reduced by $15,448,463, representing these billed amounts adjusted by cash in-transit within the system. Cash was increased by $193,714 to account for payments in-transit within the system.

Three loans between University entities were eliminated to reduce assets and liabilities: (1) $600,000 (current portion $150,000) to reflect a loan to ASMSA by the System Administration; and (2) $697,053 (current portion $21,122) to reflect a loan from UAMS to UAF, and (3) $4,975,498 to reflect a loan from the campuses to eVersity

FY17 - Statement of Revenues, Expenses, and Changes in Net Position As explained in Note 13, the System Administration administers the self-funded insurance programs for the University. Insurance premiums remitted to the System Administration by the campuses are shown as insurance revenues, and insurance claims paid are shown as insurance expenditures on the System Administration’s financial statements. The premiums expensed by the campuses are recorded as part of compensation benefits. An elimination entry was made to reduce insurance revenue and compensation/benefits expenditures in the amount of $129,580,546

An elimination entry was made for billings by System Administration to the campuses for services rendered to reduce operating sales and services revenue and operating supplies/services expense in the amount of $3,392,007. An elimination entry for services provided among campuses in the amount of $1,480,201. These amounts decreased operating sales and services, other operating revenues and operating supplies/services.

An elimination entry for the System Administration’s interest expense for a loan from the campuses was made to decrease other non-operating revenues (expenses) and investment income in the amount of $36,280

FY17 - Statement of Cash Flows The effects of the elimination entries described above to the statement of net position and the statement of revenues, expenses and changes in net position are also reflected in the statement of cash flows.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Note 20: Disaggregation of Accounts Receivable and Accounts Payable

Current accounts receivable balances, net of allowances, at June 30, 2017, and June 30, 2016, as shown on the Statement of Net Position, consist of the following:

ACCOUNTS RECEIVABLE June 30, 2017 June 30, 2016 Student accounts $ 16,768,714 $ 18,720,830 Non-student accounts 30,596,348 48,733,055 Grants and contracts 60,984,055 27,674,033 Property and sales taxes 2,514,268 2,194,511 Other 737,358 428,643 Total $ 111,600,743 $ 97,751,072

Current accounts payable balances at June 30, 2017, and June 30, 2016, as shown on the Statement of Net Position, consist of the following:

ACCOUNTS PAYABLE June 30, 2017 June 30, 2016 Trade related $ 52,857,979 $ 40,144,294 Payroll related 74,518,396 71,911,113 Interest 8,461,477 6,867,742 Other 36,430,748 25,759,713 Total $ 172,268,600 $ 144,682,862

Note 21: Joint Endeavor

In 1987, the University of Arkansas and the City of Fayetteville engaged in a joint endeavor to operate the Walton Arts Center. Funds were pooled from each entity to provide for the construction and operation of the center. The University of Arkansas/City of Fayetteville Arts Foundation, Inc., now called the Walton Arts Center Foundation, Inc., was established to administer this project and its funds. Activities of the foundation were managed by nine directors - three appointed by the University, three by the City of Fayetteville, and three recommended by the Foundation that were approved by the mayor and chancellor.

The Walton Arts Center Council, Inc. was formed to construct, operate, manage, and maintain the Arts Center in Fayetteville, Arkansas, in accordance with the Interlocal Cooperation Agreement between the City of Fayetteville and the University of Arkansas. The ownership of the Arts Center facilities, including land, is held equally by the City and the University. The Arts Center Council was required to submit an annual budget to both the City and the University for approval. The Board of Trustees of The Arts Center Council was comprised of five members appointed by the University, five members appointed by the City, and ten members appointed at large, all of whom served as volunteers

On August 14, 2014, the governing documents establishing and defining the joint endeavor between the City of Fayetteville and the University of Arkansas to operate the Walton Arts Center were revised to ensure clarity and flexibility to allow the Walton Arts Center to meet the arts and entertainment needs of all residents of Northwest Arkansas with a multi-venue system, while at the same time confirming support of the original partnership. Revisions were made to the

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017 respective Articles of Incorporation of the Walton Arts Center Foundation, Inc. and the Walton Arts Center Council, Inc. to clarify the purpose of each entity to encompass multiple venues in the Northwest Arkansas region; to allow the Walton Family Foundation to appoint nine additional directors to the Board of Directors of the Arts Center Council while ensuring that the City and University maintain their proportionate number of Directors on the Board; to return the City of Fayetteville’s initial payment of $1.5 million to the Foundation back to the City for the City’s use in the construction of a parking facility adjacent to the Walton Arts Center or as otherwise determined by the Fayetteville City Council; and with consent by the University to expend the institution’s initial payment of $1.5 million to the Foundation to help defray the construction costs of the proposed enlargement and enhancement of the Walton Arts Center located in Fayetteville, Arkansas. To date, the University’s funds placed in the endowment have not been spent. Accordingly, the relationship of the University and Walton Arts Center Foundation, Inc., remains unchanged. In the event the funds are expended, as provided in the revised agreement, the Walton Arts Center Foundation, Inc. would no longer be an agent for the University nor would the University have the right of appointment of Walton Arts Center Foundation, Inc. directors.

An Amended and Restated Interlocal Cooperation Agreement was also executed that permits the Walton Arts Center to conduct business as a separate, free-standing non-profit corporation; that budget and operational oversight rests exclusively with the Walton Arts Center Council and confirms the Walton Arts Center is no longer an agent of the University or the City, nor restricted to the terms of the original agreement; and affirms the Walton Arts Center must comply with the terms of a new lease agreement executed by the University, City of Fayetteville and the Walton Arts Center Council.

The lease agreement extends the term to twenty-five years and recognizes the changed scope of the Walton Arts Center. The lease also provides assurances regarding the on-going quality and type of performances at the Walton Arts Center in Fayetteville.

Note 22: Related Parties

The following are significant related party transactions other than those with component units discussed in Note 1.

For a portion of this fiscal year, the Bank Chairman of the privately-held First Security Bancorp, based in Searcy, Arkansas, was Chairman of the Board of Trustees of the University of Arkansas At June 30, 2017, bank balances held at First Security Bank for UAF and UAMS totaled $119,286,164 (book balances shown on the Statement of Net Position total $114,191,874). The University has conducted business with the bank for several years. In addition, Crews and Associates, Inc. (Crews) is a wholly owned, non-bank affiliate of First Security Bancorp and has served as one of the University’s bond underwriters for several years. In FY17, the Board of Trustees, with this member abstaining from the vote, approved the selection of Crews as co- underwriter for two bond issues for the Fayetteville campus in the amount of $114,845,000.

The Vice Chancellor and Director of Athletics and the Dean of the School of Law on the Fayetteville campus are members of the Board of Directors of Arvest Bank Fayetteville, one of the community-oriented banks which comprise Arvest Bank Group, Inc., based in Bentonville,

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Arkansas. At June 30, 2017, bank balances held for the Fayetteville campus at Arvest Bank Group, Inc. banks total $58,133,337 (book balances shown on the Statement of Net Position for the campus total $57,688,323).

Note 23: Prior Year Restatement

Statement of Revenues, Expenses, and Changes in Net Position The Statement of Revenues, Expenses and Changes in Net Position has been restated for the year ended June 30, 2016 to reflect a change in how certain revenues and expenses relating to Residence Life are reported For the Fayetteville campus, Residence Life revenues were increased $1,958,017 to capture room and board revenue from students who serve as Resident Assistants. Overall scholarship program expenses, comprised of scholarship allowance netted against revenue and scholarship expense were also restated, with the overall scholarship allowance increased by $1,638,191 and scholarship and fellowship expense increased by $319,826. The scholarship allowance for tuition and fees for Fayetteville decreased $3,670,130 and bookstore by $6,657, but was offset by the increase in the housing and food service allowance of $5,314,978. A similar restatement for scholarship allowance for the year ended June 30, 2016 was made by the Pine Bluff campus with a decrease in the allowance for tuition and fees of $4,671,398 and for Athletics of $790,254. The offsetting increase in the scholarship allowance for housing and food service was $5,461,652

The Fayetteville campus also reevaluated how general student meal plan revenue and expenses are recognized. In past years, the funds collected from students for meal plans were passed through to the University’s third party provider of campus dining services, with no revenue or expense recognized in the University’s financial statements. Management has determined that revenue received from students for meal plans and the related expense to the third party provider should be reported. As a result, the Residence Life revenue has been increased for the year ended June 30, 2016 by $18,868,980. Supplies and other services expense has been increased by the same amount. These restatements also affect the allocation of the Scholarship allowance, and adjust the amount netted against Student tuition and fees revenue, Residence Life revenue, and Bookstore revenue Neither of the restatements discussed above had any effect on the Statement of Net Position. The Statement of Cash Flows was also restated to reflect the changes.

The Statement of Revenues, Expenses and Changes in Net Position has also been restated for the year ending June 30, 2016 to reflect a change in the classification of certain grants and contracts, patient services and other operating revenues for UAMS. Patient services revenue increased $1,198,000, state and local grants and contracts decreased $20,988,000, nongovernmental grants and contracts decreased $15,420,000, and other operating revenues increased $35,210,000. The Statement of Cash Flows was also restated to reflect the changes.

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Note 24: Mergers

On February 1, 2017, Pulaski Technical College and Rich Mountain Community College merged with the University to become University of Arkansas-Pulaski Technical College (UAPTC) and University of Arkansas Community College at Rich Mountain (UACCRM). The University is the surviving legal institution and will continue to be governed by the laws of the State of Arkansas under the governance of the Board of Trustees of the University of Arkansas. The effective date of the mergers is July 1, 2016 for financial statement purposes and the restatement of net position

As of July 1, 2016, UAPTC and the UACCRM has the following summarized assets, deferred outflows, liabilities, deferred inflows and net position.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

PULASKI TECHNICAL COLLEGE CONDENSED STATEMENT OF NET POSITION As of June 30, 2016 Assets Cash and investments $ 30,263,694 Receivables 1,018,541 Prepaid expnese and other 1,570,834 Deposits and funds held in trust 5,650,723 Property and equipment 102,020,668 Total Assets $ 140,524,460

Deferred Outflows of Resources $ 3,668,608

Liabilities Accounts payable and accruals $ 1,409,936 Other liabilities 411,273 Compensated absences 728,985 Other postemployment benefits 1,312,083 Net pension liability 11,168,749 Bonds, notes, and capital leases 88,922,511 Total Liabilities $ 103,953,537

Deferred Inflows of Resources $ 1,745,866

Net position Net investment in capital assets $ 14,198,314 Restricted-expendable 8,281,571 Unrestricted 16,013,780 Total Net Position $ 38,493,665

CONDENSED STATEMENT OF REVENUES AND EXPENSES FY Ended June 30, 2016

Operating loss Operating revenues $ 15,532,751 Operating expenses (49,558,140) Operating loss (34,025,389) Non operating revenues (expenses) State appropriations 17,411,209 Federal and state grants 20,762,047 Interest on capital asset debt (3,381,482) Other, net (152,954) Net nonoperating revenues 34,638,820 Income before other revenues 613,431 Capital grants and gifts 328,220 Increase in Net Position $ 941,651

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

RICH MOUNTAIN COMMUNITY COLLEGE CONDENSED STATEMENT OF NET POSITION As of June 30, 2016 Assets Cash and investments $ 4,507,989 Receivables 512,340 Prepaid expnese and other 275,862 Deposits and funds held in trust 173,150 Property and equipment 11,368,258 Total Assets $ 16,837,599

Deferred Outflows of Resources $ 562,554

Liabilities Accounts payable and accruals $ 108,662 Other liabilities 168,056 Compensated absences 215,515 Other postemployment benefits 570,345 Net pension liability 1,988,568 Bonds, notes, and capital leases 6,174,938 Total Liabilities $ 9,226,084

Deferred Inflows of Resources $ 346,192

Net position Net investment in capital assets $ 5,265,223 Restricted-expendable 77,634 Unrestricted 2,485,020 Total Net Position $ 7,827,877

CONDENSED STATEMENT OF REVENUES AND EXPENSES FY Ended June 30, 2016

Operating loss Operating revenues $ 4,227,172 Operating expenses (10,194,159) Operating loss (5,966,987) Non operating revenues (expenses) State appropriations 3,412,013 Property taxes 409,880 Federal and state grants 1,511,808 Interest on capital asset debt (222,661) Other, net 8,134 Net nonoperating revenues 5,119,174 Loss before other revenues (847,813) Capital appropriations 12,500 Decrease in Net Position $ (835,313)

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Note 25: Pollution Remediation

The Fayetteville campus completed a study in 2012, funded by a $1,889,647 award from the United States Department of Energy (DOE), to develop a plan for remediation of the Southwest Experimental Fast Oxide Reactor (SEFOR) site. This study developed an estimate for future remediation costs and assessed the university’s obligation for remediation at the site. The cost estimate was $26.1 million to complete remediation of the site. Although the study concluded that the University was under no obligation to begin remediation work at that time, the study was considered Phase 1 of the voluntary remediation of the SEFOR site. During 2014, DOE appropriated an additional $1 million to review estimated remediation costs. Of that award, $968,500 was made available to the university in the 2017 funding obligation

During fiscal year 2017, the Fayetteville campus received an additional DOE award totaling $9,500,000. This award, combined with the residual left from the 2014 appropriation, brought total funds available for remediation costs to $10,468,500. The Fayetteville campus began Phase 2 of the voluntary remediation by entering into a contract with EnergySolutions, LLC on November 7, 2016 to provide technical services for deconstruction and green fielding of the site. Total estimated cost of the Phase 2 voluntary remediation project was $9,648,242. Expenses incurred during fiscal year 2017 totaled $7,276,379. The remaining project costs to complete Phase 2, totaling $2,371,863, were accrued and are included in accounts payable reported on the Statement of Net Position. All project costs were funded by the DOE award on a cost reimbursement basis. Drawdowns during fiscal year 2017 totaled $6,276,599. A receivable of $3,371,643, reflecting amounts that have not yet been invoiced to the DOE award, was also established, and is included in the accounts receivable reported on the Statement of Net Position.

The Fayetteville campus expects to continue remediation of the SEFOR site on a voluntary basis in Phases as funding becomes available. The Fayetteville campus received notice in July 2017 that an additional $5.5 million was authorized by the DOE to continue remediation of the SEFOR site. The entire award has been obligated with funding available for spending. The Fayetteville campus entered into a Phase 3 voluntary remediation project with a Firm-Fixed Price not to exceed $4,800,000 on September 20, 2017.

Note 26: Subsequent Events

Long-Term Debt

Fayetteville Campus On August 1, 2017, the University closed the Board of Trustees of the University of Arkansas Various Facility Revenue Bonds (Fayetteville Campus), Series 2017 with a par amount of $95,805,000. The bonds provide resources for the purpose of constructing, reconstructing, enlarging and repairing additional facilities including particularly improvements to and expansion of the Pat Walker Health Center, utility systems on the south side of campus, intramural sports fields and Kimpel Hall; and construction of an offsite library storage facility, student housing facilities, the Civil Engineering Research and Education Center and a black box theater. The bonds will also provide funds to conduct design studies for the renovation of Mullins Library and for construction of a student success center.

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UNIVERSITY OF ARKANSAS SYSTEM – Notes to Consolidated Financial Statements FY2017

Little Rock Campus On September 19, 2017, the University closed the Board of Trustees of the University of Arkansas Student Fee Revenue Bonds (Little Rock Campus), Series 2017 with a par amount of $6,510,000 The bonds provide resources for the purpose of constructing, renovating, equipping and furnishing the Physics Building, infrastructure upgrades, roof repairs to the Donaghey Student Center, and other critical maintenance needs.

Gifts

Fayetteville Campus On September 6, 2017, the University received a $120 million gift from the Walton Family Charitable Support Foundation to establish the School of Art. The school, to be housed within the J. William Fulbright College of Arts and Sciences, will be the first and only accredited, collegiate school of art in Arkansas, and will focus on art education, art history, graphic design and studio art curriculum.

Transfer of Assets

Arkansas School for Mathematics, Sciences and the Arts On November 9, 2017, the Board of Trustees of the University of Arkansas approved the forgiveness of indebtedness of Delta Student Housing, Inc. (“Delta”), the termination of the sublease and ground lease with Delta, and acceptance of the facilities and facility equipment from Delta. At June 30, 2017, the indebtedness totaled $10,972,265 and the depreciated value of the facilities and facility equipment totaled $12,021,603.

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Employee Benefits

Schedule of University's Proportional Share of the Net Pension Liability Arkansas Public Employees Retirement System Last Three Fiscal Years*

2017 2016 2015 University's proportion of net pension liability 2.202% 1.659% 1.462%

University's proportionate share of net pension liability $ 52,660,632 $ 30,550,726 $ 20,737,110

University's covered payroll** $ 39,968,417 $ 29,241,762 $ 24,610,760

University's proportionate share of the net pension liability as a percentagepercentage ofof itsits coveredcovered payrollpayroll 131.76% 104.48% 84.26%

Plan fiduciary net position as a percentage of the total pension liability 75.50% 80.39% 84.15%

The amounts presented for each fiscal year were determined as of June 30 of the previous year. *Information is presented for those years for which it is available until a full 10-year trend is compiled. **Includes Pulaski Technical College and Rich Mountain Community College for FY17.

Schedule of University Contributions Arkansas Public Employees Retirement System Last Three Fiscal Years*

2017 2016 2015 Contractually required contribution $ 5,847,656 $ 5,122,338 $ 4,316,084

Contributions in relation to the contractually required contribution (5,847,656)(5,847,656) (5,122,338) (5,122,338) (4,316,084) (4,316,084)

Contribution deficiency (excess) $ -- $ - - $ - -

University's covered payroll $ 40,658,901 $ 35,350,993 $ 29,241,762

Contributions as a percentage of covered payroll 14.38% 14.49% 14.76%

*Information is presented for those years for which it is available until a full 10-year trend is compiled.

Schedule of University's Proportional Share of the Net Pension Liability Arkansas Teacher Retirement System Last Three Fiscal Years*

2017 2016 2015 University's proportion of net pension liability 0.589% 0.395% 0.437%

University's proportionate share of net pension liability $ 26,000,421 $ 12,850,498 $ 11,467,444

University's covered payroll** $ 17,474,936 $ 11,516,407 $ 11,527,065

University's proportionate share of the net pension liability as a percentagepercentage ofof itsits coveredcovered payrollpayroll 148.79% 111.58% 99.48%

Plan fiduciary net position as a percentage of the total pension liability 76.75% 82.20% 84.98%

The amounts presented for each fiscal year were determined as of June 30 of the previous year. *Information is presented for those years for which it is available until a full 10-year trend is compiled. **Includes Pulaski Technical College and Rich Mountain Community College for FY17.

109 UNIVERSITY OF ARKANSAS SYSTEM CONSOLIDATED FINANCIAL STATEMENTS FY2017 REQUIRED SUPPLEMENTARY INFORMATION

Schedule of University Contributions Arkansas Teacher Retirement System Last Three Fiscal Years*

2017 2016 2015 Contractually required contribution $ 2,210,329 $ 1,448,084 $ 1,612,297

Contributions in relation to the contractually required contribution (2,210,329) (1,448,084) (1,612,297)

Contribution deficiency (excess) $ - $ - $ -

University's covered payroll 15,932,158 10,392,131 11,516,407

Contributions as a percentage of covered payroll 13.87% 13.93% 14.00%

*Information is presented for those years for which it is available until a full 10-year trend is compiled.

Other Postemployment Benefits

University of Arkansas System

General Overview of the Valuation Methodology The process of determining the liability for retiree medical benefits is based on many assumptions about future events. Future increases in health care costs are affected by many factors, including: medical inflation; change in utilization patterns; technological advances; cost shifting; cost leveraging; and changes to government medical programs, such as Medicare.

Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future, and actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future. Actuarial calculations reflect a long-term perspective. Actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets. Calculations are based on the types of benefits provided under the terms of each plan at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point.

Changes in Actuarial Assumptions and Methods since the Prior Valuation: The claim costs and trends were updated to reflect changes in benefits and experience and expectations for the future costs. Also, the initial retiree contribution was adjusted to reflect current contribution rates

The election percentage for CCCUA, UACCM, UACCH and UAFS was changed to 55% of all active employees are assumed to elect coverage at retirement.

This report does not reflect future changes in benefits, penalties, taxes (including future excise taxes), or administrative costs that may be required as a result of the Patient Protection and Affordable Care Act of 2010, related legislation, or regulations. It does reflect all ACA costs to date such as Patient-Center Outcomes Research Institute (PCORI) fees.

110 UNIVERSITY OF ARKANSAS SYSTEM CONSOLIDATED FINANCIAL STATEMENTS FY2017 REQUIRED SUPPLEMENTARY INFORMATION

Medical Coverage – Retirees not Eligible for Medicare: The claims costs were developed from the active premium rates for the period July 1, 2017 to June 30, 2018 loaded for 1% to reflect that premiums are set about 1% below expected costs. 70.3% of the premium was assumed to be for medical, 23.0% for pharmacy, and 6.8% for expenses. The claim and expense costs were trended back to the period July 1, 2016 to June 30, 2017 using an annual trend assumption of 0.0% for medical, 9.5% for pharmacy, and 3% expenses.

Dental Coverage: The dental rates are set to match projected costs. Based on a comparison of the recent dental claims plus fees, the dental rates are set at a level sufficient to cover projected costs. Retirees pay 100% of the budget rate for coverage. Therefore, the cost for dental coverage was excluded from this valuation.

Determination of FY17 Accrual

Unfunded actuarial accrued liability at 7-1-16 $ 57,432,000

Annual Required Contribution (ARC) Normal cost $ 3,411,000 Amortization of the unfunded actuarial accrued liability over 30 years 1,914,000 Interest 213,000 Annual Required Contribution for FY17 5,538,000 Interest on Net OPEB Obligation 2,511,000 ARC Amortization Adjustment (2,176,000) Annual OPEB Cost for FY17 $ 5,873,000

Net OPEB Obligation, 7-1-16 $ 62,779,000 Annual OPEB Cost for FY17 5,873,000 Less: Expected Employer Contributions (1,976,000)

Net OPEB Obligation, 6-30-17 $ 66,676,000

111 UNIVERSITY OF ARKANSAS SYSTEM CONSOLIDATED FINANCIAL STATEMENTS FY2017 REQUIRED SUPPLEMENTARY INFORMATION

Schedule of Employer Contributions

Fiscal Year Annual Required Annual Required Benefit Pymts Percentage Net Obligation Ending Contribution (ARC) Contribution (AOC) During FY Contributed at Year-End 6-30-10 $ 6,863,000 $ 7,061,000 $ 1,984,000 28.10% $ 30,808,000 6-30-11 5,960,000 6,197,000 1,674,000 27.01% 35,331,000 6-30-12 6,461,000 6,732,000 1,636,000 24.30% 40,427,000 6-30-13 6,069,000 6,379,000 2,016,000 31.60% 44,790,000 6-30-14 5,160,000 5,505,000 1,496,000 27.18% 49,064,000 6-30-15 7,681,000 8,059,000 2,156,000 26.75% 56,025,000 6-30-16 8,648,000 9,079,000 2,325,000 25.61% 62,779,000 6-30-17 5,538,000 5,873,000 1,976,000 33.65% 66,676,000

Since there is no funding, the expected contributions are any retiree premiums actually paid by the University plus expected implicit subsidy payments. The implicit rate subsidy is the difference between the true cost of medical benefits and the cost sharing premiums paid by the retiree.

Schedule of Funding Progress

Actuarial UAAL as Actuarial Accrued Unfunded Percentage Fiscal Year Value of Liability AAL Funded Covered of Covered Ending Assets (AAL) (UAAL) Ratio Payroll Payroll 6-30-10 $ - $ 66,620,000 $ 66,620,000 0%$ 952,170,000 7.00% 6-30-11 - 58,439,000 58,439,000 0% 977,592,000 5.98% 6-30-12 - 63,292,000 63,292,000 0% 1,042,067,000 6.07% 6-30-13 - 58,874,000 58,874,000 0% 1,072,222,000 5.49% 6-30-14 - 52,311,000 52,311,000 0% 1,103,764,000 4.74% 6-30-15 - 72,780,000 72,780,000 0% 1,127,553,000 6.45% 6-30-16 - 82,402,000 82,402,000 0% 1,167,667,000 7.06% 6-30-17 - 57,432,000 57,432,000 0% 1,298,871,000 4.42%

112 UNIVERSITY OF ARKANSAS SYSTEM CONSOLIDATED FINANCIAL STATEMENTS FY2017 REQUIRED SUPPLEMENTARY INFORMATION

Pulaski Technical College

Determination of FY17 Accrual

Unfunded actuarial accrued liability at 7-1-16 $ 1,266,000

Annual Required Contribution (ARC) Normal cost $ 105,000 Amortization of the unfunded actuarial accrued liability over 30 years 45,000 Interest - Annual Required Contribution for FY17 150,000 Interest on Net OPEB Obligation 46,000 ARC Amortization Adjustment (47,000) Annual OPEB Cost for FY17 $ 149,000

Net OPEB Obligation, 7-1-16 $ 1,312,000 Annual OPEB Cost for FY17 149,000 Less: Actual Employer Contributions (86,000)

Net OPEB Obligation, 6-30-17 $ 1,375,000

Schedule of Employer Contributions

Fiscal Year Annual OPEB Actual Percentage Net Obligation Ending Cost Contribution Contributed at Year-End 6-30-09 $ 116,000 $ 5,000 4.31% $ 221,000 6-30-10 161,000 5,000 3.11% 377,000 6-30-11 163,000 5,000 3.07% 535,000 6-30-12 153,000 9,000 5.88% 679,000 6-30-13 155,000 12,000 7.74% 822,000 6-30-14 173,000 18,000 10.40% 977,000 6-30-15 173,000 44,000 25.43% 1,106,000 6-30-16 265,000 59,000 22.26% 1,312,000 6-30-17 149,000 86,000 57.72% 1,375,000

Schedule of Funding Progress

113 UNIVERSITY OF ARKANSAS SYSTEM CONSOLIDATED FINANCIAL STATEMENTS FY2017 REQUIRED SUPPLEMENTARY INFORMATION

Rich Mountain Community College (UACCRM) Changes in Actuarial Assumptions and Methods since the Prior Valuation: The assumed discount rate was lowered from 4.75% (7/1/13 valuation) to 4.5%. This change increased the Unfunded Actuarial Accrued Liability at July 1, 2016, by $18,000, and the ARC and Annual OPEB cost for 2016-2017 by $2,000.

The assumed life expectancy was changed from the 1994 UP Table to the RP-2014 Table. This change increased the Unfunded Actuarial Accrued Liability at July 1, 2016, by $11,000, and the ARC and Annual OPEB cost for 2016-2017 by $2,000.

Determination of FY17 Accrual Unfunded actuarial accrued liability at 7-1-16 $ 750,000

Annual Required Contribution (ARC) Normal cost $ 66,000 Amortization of the unfunded actuarial accrued liability over 30 years 44,000 Interest 5,000 Annual Required Contribution for FY17 115,000 Interest on Net OPEB Obligation 26,000 ARC Amortization Adjustment (35,000) Annual OPEB Cost for FY17 $ 106,000

Net OPEB Obligation, 7-1-16 $ 570,000 Annual OPEB Cost for FY17 106,000 Less: Expected Actual Contributions (46,000)

Net OPEB Obligation, 6-30-17 $ 630,000

Schedule of Employer Contributions

Fiscal Year Annual OPEB Actual Percentage Net Obligation Ending Cost Contribution Contributed at Year-End 6-30-10 $ 119,000 $ 59,000 49.58% $ 189,000 6-30-11 97,000 41,000 42.27% 245,000 6-30-12 98,000 45,000 45.92% 298,000 6-30-13 98,000 48,000 48.98% 348,000 6-30-14 99,000 25,000 25.25% 422,000 6-30-15 100,000 25,000 25.00% 497,000 6-30-16 99,000 26,000 26.26% 570,000 6-30-17 106,000 46,000 43.40% 630,000 Schedule of Funding Progress

114 UNIVERSITY OF ARKANSAS SYSTEM: Supplemental Information – Campuses & Affiliates

The University of Arkansas System is a comprehensive, publicly-supported higher education system composed of unique institutions, units and divisions that share the singular goal of serving Arkansas residents and others by developing and sharing knowledge to impact an ever changing world. The System provides access to academic and professional education, and develops intellectual growth and cultural awareness in its students, staff and faculty. The System further promotes an atmosphere of excellence that honors the heritage and diversity of our state and nation, and provides students, researchers and professionals with tools to promote responsible stewardship of human, natural and financial resources at home and abroad.

Enrollment listed by campus are the preliminary official 11th-day headcounts as provided in September 2017 to the Arkansas Department of Higher Education for Fall 2017

UNIVERSITY OF ARKANSAS, FAYETTEVILLE

Established: 1871 Enrollment: 27,558 www.uark.edu

Founded in 1871, the University of Arkansas, Fayetteville (UAF) is the flagship institution of the University of Arkansas System. UAF is the state’s foremost partner, resource and catalyst for education and economic development and is a university for the integration of student engagement, scholarship, research and innovation that collectively transforms lives and inspires leadership for a global society.

As Arkansas’s first land-grant university, UAF has a mandate to teach, conduct research and perform outreach. The university offers baccalaureate, master’s, doctoral, professional and specialist degree programs, including a Juris Doctor degree and an LL M in Agriculture and Food Law. The Carnegie Foundation for the Advancement of Teaching places UAF in its highest category for research activity, a classification shared by only two percent of universities nationwide. Research activity is a significant academic element at the university and an economic engine for the state.

UNIVERSITY OF ARKANSAS AT FORT SMITH

Established: 1928 Joined System: 2002 Enrollment: 6,637 www.uafs.edu

The University of Arkansas at Fort Smith (UAFS) was created in 1928 in response to the need to establish an institution of higher education to improve the local workforce. UAFS continues that tradition today as the premiere regional institution for western Arkansas, with a mission to connect education with careers and a focus on preparing students to succeed in an ever-changing global world while advancing economic development and quality of place.

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As one of the leading workforce development universities in Arkansas, UAFS prides itself on crafting curricula that respond to the needs of local and regional business and industry, as well as healthcare, educational and social services organizations. Small class sizes, attentive professors, and hands-on learning opportunities produce graduates that are recognized throughout the region and the state for their job readiness in high-demand career fields.

UNIVERSITY OF ARKANSAS AT LITTLE ROCK

Established: 1927 Joined system: 1969 Enrollment: 11,625 www.ualr edu

The University of Arkansas at Little Rock (UALR), located in the state’s capital city, offers a comprehensive academic experience at the baccalaureate, master’s and doctoral levels; innovative research opportunities; a quality faculty educated from around the world; and a rich student life experience with athletics, housing, study abroad, Greek life and service learning.

From high school students and traditional residential and graduate degree seekers, to mid-life adults and senior citizens, UALR fulfills one of the state’s greatest needs by educating more college graduates. UALR’s faculty and staff in programs such as the Academic Success Center and the Mentoring Network provide students with extra help to be successful.

UALR has been selected by the Carnegie Foundation for the Advancement of Teaching for the Community Engagement classification – the only institution in Arkansas in this category. The university is widely recognized for its involvement in community issues such as race and ethnicity, criminal justice and pre-kindergarten to 12th grade education. UALR students, faculty and staff are actively involved in service-learning activities around the state through partnerships with the Clinton School of Public Service and the Shepherd Higher Education Consortium on Poverty.

UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES

Established: 1879 Enrollment: 2,834 www.uams.edu and www.uamshealth.com

The University of Arkansas for Medical Sciences (UAMS) is the only academic health sciences university in Arkansas. It is the state’s largest public employer with more than 10,000 employees in 73 of the state’s 75 counties. Clinical affiliates include Arkansas Children’s Hospital and the Central Arkansas Veterans Healthcare System.

With its combination of education, research and clinical programs, UAMS has a unique capacity to lead health care improvement in the state. Its assets include The University Hospital of Arkansas, regional programs (including Tele-education, Rural Hospital Program, and Area Health Education Centers located throughout the state), the Translational Research Institute, the Winthrop P. Rockefeller Cancer Institute, the Jackson T. Stephens Spine & Neurosciences Institute, the

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Donald W. Reynolds Institute on Aging, the Harvey & Bernice Jones Eye institute, the Psychiatric Research Institute and the Myeloma Institute for Research & Therapy.

UNIVERSITY OF ARKANSAS AT MONTICELLO

Established: 1909 Joined System: 1971 Enrollment: 3,533 www.uamont.edu

Founded in 1909 as the Fourth District Agricultural School, the University of Arkansas at Monticello (UAM) is one of the region’s few remaining open access universities. Serving southeast Arkansas, UAM offers 30 baccalaureate and seven master’s degree programs Additionally, the university offers eight two-year associate degrees, 16 technical certificates and 14 certificates of proficiency through its College of Technology in Crossett and McGehee.

UAM has established a reputation for academic excellence in areas such as forestry, nursing, teacher education, pre-medicine, health-related sciences, business and social sciences. The university is home to the Arkansas Forest Resources Center, which brings together interdisciplinary expertise from across the University System. In recent years, UAM has added new opportunities to its curriculum, including popular programs in social work and criminal justice, a fast-track master’s degree program to place more teachers in the classroom, online master’s degree programs in coaching, education, educational leadership and creative writing and a low residency master of music in jazz studies

UNIVERSITY OF ARKANSAS AT PINE BLUFF

Established: 1873 Joined System: 1972 Enrollment: 2,658 www.uapb.edu

An 1890 land-grant institution, the University of Arkansas at Pine Bluff (UAPB) is the second- oldest university and the only public historically black university in Arkansas. The institution’s historic mission is to teach in areas related to agriculture and the mechanical arts, as well as scientific and classical studies and help solve economic, agricultural and other problems in the community, state and region.

UAPB offers 30 undergraduate programs, eight master’s degree, and a PhD program in Aquaculture/Fisheries, one of the country’s leading programs that also supports Arkansas’s $165 million aquaculture and baitfish industry. The university’s bachelor degree program in regulatory science is a designated Center of Excellence by the U.S. Department of Agriculture. Other areas of emphasis at UAPB include teacher education, business development and student leadership development and its NSF funded Science, Technology, Engineering and Math (STEM) Academy.

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COSSATOT COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS

Established: 1975 Joined System: 2001 Enrollment: 1,485 www.cccua.edu

Cossatot Community College of the University of Arkansas (CCCUA) is located in De Queen with classroom sites in Nashville, Ashdown, Lockesburg, Dierks and Foreman. The college offers both technical certification and associate’s degrees and collaborates with other colleges and universities to offer bachelor’s and master's degrees. Accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools, CCCUA is the only community college in the state supported by sales taxes in three separate counties and one city, and has the highest percentage of Hispanic students in Arkansas

PHILLIPS COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS

Established: 1964 Joined system: 1996 Enrollment: 1,648 www.pccua.edu

The first community college established in Arkansas, Phillips Community College of the University of Arkansas (PCCUA) is a multi-campus, two-year college serving Eastern Arkansas. Students are offered academic, occupational/technical and continuing education programs. PCCUA has campuses in DeWitt, Helena-W. Helena and Stuttgart.

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT BATESVILLE

Established: 1975 Joined System: 1997 Enrollment: 1,241 www.uaccb.edu

The University of Arkansas Community College at Batesville (UACCB) serves a multi-county area in north central Arkansas, offering associate degrees, technical certificates, certificates of proficiency, adult education (GED and ESL) and kids’ college. Accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools, the campus has expanded program offerings and student services in order to meet its student-focused mission. Supported by an Independence County sales tax, UACCB provides affordable access to technical education and college transfer programs that meet the diverse higher education needs of the citizens of northeast Arkansas.

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT HOPE

Year Established: 1965

118 UNIVERSITY OF ARKANSAS SYSTEM: Supplemental Information – Campuses & Other Entities

COSSATOT COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS

Established: 1975 Joined System: 2001 Enrollment: 1,485 www.cccua.edu

Cossatot Community College of the University of Arkansas (CCCUA) is located in De Queen with classroom sites in Nashville, Ashdown, Lockesburg, Dierks and Foreman. The college offers both technical certification and associate’s degrees and collaborates with other colleges and universities to offer bachelor’s and master's degrees. Accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools, CCCUA is the only community college in the state supported by sales taxes in three separate counties and one city, and has the highest percentage of Hispanic students in Arkansas

PHILLIPS COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS

Established: 1964 Joined system: 1996 Enrollment: 1,648 www.pccua.edu

The first community college established in Arkansas, Phillips Community College of the University of Arkansas (PCCUA) is a multi-campus, two-year college serving Eastern Arkansas. Students are offered academic, occupational/technical and continuing education programs. PCCUA has campuses in DeWitt, Helena-W. Helena and Stuttgart.

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT BATESVILLE

Established: 1975 Joined System: 1997 Enrollment: 1,241 www.uaccb.edu

The University of Arkansas Community College at Batesville (UACCB) serves a multi-county area in north central Arkansas, offering associate degrees, technical certificates, certificates of proficiency, adult education (GED and ESL) and kids’ college. Accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools, the campus has expanded program offerings and student services in order to meet its student-focused mission. Supported by an Independence County sales tax, UACCB provides affordable access to technical education and collegeUNIVERSITY transfer programs OF ARKANSAS that meet SYSTEM: the diverse Supplement higher aleducation Information needs – Campuses of the citizens & Other of Entities northeast Arkansas.

UNIVERSITYJoinedUNIVERSITY System: OF1996 OF ARKANSAS ARKANSAS SYSTEM: COMMUNITY Supplement COLLEGEal Information AT HOPE – Campuses & Other Entities Enrollment: 1,543 Yearwww.uacch.edu Established: 1965 Joined System: 1996 Enrollment:Serving Southwest 1,543 Arkansas, the University of Arkansas Community College at Hope (UACCH) www.uacch.eduoffers the first two years of a traditional college education transferable to a four-year university, as well as an array of certificate programs to prepare students for an ever-changing workforce. ServingUACCH Southwest is an accredited, Arkansas, open-access the University institution of Arkansas that connects Community students College and community at Hope (UACCH) partners offersto quality the first education two years and of supports a traditional a culture college of education academic, transferable occupational, to a personalfour-year growth university, and asenrichment well as an programs array of throughoutcertificate programs Southwest to Arkansas.prepare students UACCH for isan supported ever-changing by a Hempsteadworkforce. UACCHCounty sales is an tax. accredited, open-access institution that connects students and community partners to quality education and supports a culture of academic, occupational, personal growth and enrichmentWith the opening programs of UACCH-Texarkanathroughout Southwest Instructional Arkansas. Facility UACCH in is2012, supported UACCH by becamea Hempstead better Countyprepared sales to be tax. a regional contributor to the educational needs of southwest Arkansas, and has enabled the College to expand programs in both the technical and industrial areas, as well as the Withhealth the professions. opening of Through UACCH-Texarkana a partnership withInstructional the University Facility of inArkansas 2012, UACCH at Little Rockbecame (UALR) better, preparedstudents areto beable a tregionalo complete contributor bachelor todegrees the educational needs of southwest Arkansas, and has enabled the College to expand programs in both the technical and industrial areas, as well as the healthUNIVERSITY professions. OF ThroughARKANSAS a partnership COMMUNITY with the COLLEGE University ofAT Arkansas MORRILTON at Little Rock (UALR), students are able to complete bachelor degrees Established: 1961 UNIVERSITYJoined system: OF2001 ARKANSAS COMMUNITY COLLEGE AT MORRILTON Enrollment: 1,925 Established:www.uaccm.edu 1961 Joined system: 2001 Enrollment:Originally established 1,925 as a technical college, the University of Arkansas Community College at www.uaccm.eduMorrilton (UACCM) is a two-year institution offering university-transfer and career-specific training programs, adult education, workforce education and community outreach programs. OriginallyUACCM offersestablished an associate as a technical of arts andcollege, an as thesociate University of science of Arkansas degrees designedCommunity for Collegeuniversity at Morriltontransfer, as (UACCM) well as associate is a two-year of applied institution science degrees, offering technical university-transfer certificates and and career-specific certificates of trainingproficiency programs, designed adult for immediate education, entry workforce into the education job market. and UACCM community is supported outreach by programs.a Conway UACCMCounty sales offers tax an associate of arts and an associate of science degrees designed for university transfer, as well as associate of applied science degrees, technical certificates and certificates of proficiencyUACCM has designed university for immediatepartnerships entry to intoallow the completion job market. of UACCM bachelor’s is supported degrees withby a Conwaystudents Counttakingy most sales of tax their classes on the campus or online.

UACCM has university partnerships to allow completion of bachelor’s degrees with students taking most of their classes on the campus or online.

119 UNIVERSITY OF ARKANSAS SYSTEM: Supplemental Information – Campuses & Other Entities

UNIVERSITY OF ARKANSAS PULASKI TECHNICAL COLLEGE

Established: 1945 Joined system: 2017 Enrollment: 6,044 www.pulaskitech.edu

The University of Arkansas Pulaski Technical College (UAPTC) is a two-year technical college based in North Little Rock with a mission to serve its community’s education needs through technical programs, university-based transfer programs and specialized programs for business and industry Originally founded as a vocational-technical school, UAPTC has evolved through the years to meet the varying education needs of the citizens of Central Arkansas. In addition to its main campus in North Little Rock, the college has locations across Pulaski and Saline Counties.

UAPTC has university partnerships to allow completion of bachelor’s degrees with students taking most of their classes on the campus or online.

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT RICH MOUNTAIN

Established: 1983 Joined system: 2017 Enrollment: 937 www.uarichmountain.edu

The University of Arkansas Community College at Rich Mountain (UACCRM), based in Mena, is a comprehensive, learning-centered community college providing a range of programs including transfer and technical degrees, workforce development and adult education, among others. Through its main campus and satellite location in Waldron, UACCRM serves the Ouachita Mountain Region with exemplary educational and enrichment opportunities to improve quality of life and economic advancement.

ARKANSAS SCHOOL FOR MATHEMATICS, SCIENCES AND THE ARTS

Established: 1993 Joined System: 2004 asmsa org

The Arkansas School for Mathematics, Sciences and the Arts (ASMSA) is the state’s premier high school focusing on excellence in mathematics, science and the arts. Located in Hot Springs, ASMSA is one of sixteen public residential high schools in the country specializing in the education of gifted and talented students who have an interest and aptitude for mathematics and science. All classes are taught at the college level, and the school offers nearly 60 concurrent courses Through the school’s “college bridge” program, ASMSA graduates average 50 hours of college credit while finishing high school.

120 UNIVERSITY OF ARKANSAS SYSTEM: Supplemental Information – Campuses & Other Entities

Beyond the residential experience, ASMSA’s outreach programs provide Saturday enrichment opportunities for motivated middle and early high school students. Digital learning programs like the Global Languages and Shared Societies (GLASS) Initiative and Arkansas STEM Pathways provide online instruction for students whose local school districts lack the resources for advanced instruction.

UNIVERSITY OF ARKANSAS CLINTON SCHOOL OF PUBLIC SERVICE

Established: 2004 www.clintonschool.uasys.edu

Located on the grounds of the William J. Clinton Presidential Center and Park in Little Rock, the University of Arkansas Clinton School of Public Service is the first graduate school in the nation to offer a Master of Public Service (MPS) degree, helping students further their careers in the areas of government, non-profit, volunteer and private sector service. As part of the school’s unique curriculum, students complete hands-on public service projects, including local work in Arkansas communities and international projects across the world. The school also hosts a renowned public lecture series, featuring leaders in government, politics, foreign policy, journalism and philanthropy.

The model is unique in higher education because most of the school's financial investment is in scholarship and service and not in infrastructure and overhead. Little Rock's River Market serves as its student union. The Central Arkansas Main Library is the school library. When there is a need for auditorium space, the school accesses the Clinton Library, the Statehouse Convention Center or the Ron Robinson Theater--all of which are in walking distance.

The school's curriculum is enhanced with a national and international speaker series (www.clintonschoolspeakers.com) which brings in leaders and scholars from the arts, business, education, government, international development, nonprofits, philanthropy and public service and are free and open to the public. The speakers have included United States presidents and ambassadors, Pulitzer Prize recipients, and Nobel Prize winners

DIVISION OF AGRICULTURE

Established: 1959 www.division.uaex.edu

The University of Arkansas Division of Agriculture is the statewide research and extension agency serving Arkansas agriculture, communities, families and youth. The mission of the division is to discover new knowledge, incorporate it into practical applications and assist Arkansans in its application. The division is comprised of two principal units: the Agriculture Experiment Station and the Cooperative Extension Service. Division faculty and facilities are located on several university campuses, at regional research and extension centers, branch stations and other locations. An extension office is located in each county in cooperation with county governments.

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The Division of Agriculture has earned patents in a variety of research programs in food science, biological and agricultural engineering, poultry science, crop, soil, and environmental sciences, and the Rice Research and Extension Center Volunteers are an extremely important component of delivering Extension programs, particularly in 4-H, Extension Homemakers and Master Gardeners.

ARKANSAS ARCHEOLOGICAL SURVEY

Established: 1967 www.uark.edu/campus-resources/archinfo/

The mission of the Arkansas Archeological Survey is to study and protect the 13,000-year archeological heritage of Arkansas, to preserve and manage information and collections from archeological sites, and to communicate what is learned to the people of the state. The survey has research stations across the state, each with a full-time Ph.D. archeologist associated with regional higher education institutions and state parks. The archeologists conduct research, assist other state and federal agencies to help promote the economic importance of the state’s heritage resources, and are available to local officials, landowners, educators and students, and citizens in need of information about archeology or archeological sites.

Arkansas Archeological Survey databases contain information on more than 48,000 archeological sites and 8,000 projects, available to qualified professional archeologists at state and federal agencies, colleges and universities, and federally recognized tribes. The Survey’s curation facility, managed jointly with the University of Arkansas Museum, provides a secure, state-of-the-art home for both Survey and University artifact collections. Students and teachers across Arkansas use the Survey’s educational websites to learn about our state’s prehistoric and historic cultural heritage.

CRIMINAL JUSTICE INSTITUTE

Established: 1988 www.cji.edu

The Criminal Justice Institute (CJI) is a campus of the University of Arkansas System that serves a unique population of non-traditional students—certified law enforcement professionals who are actively employed within the state’s law enforcement organizations. The Institute is committed to making communities safer by supporting law enforcement professionals through training, education, resources and collaborative partnerships.

Utilizing both online learning opportunities and classroom-based instruction, CJI provides an educational experience designed to enhance the performance and professionalism of law enforcement in progressive areas of policing, including law enforcement leadership and management, forensic sciences, computer technologies and related crimes, traffic safety, illicit drug investigations and school safety. In addition, the Institute develops and delivers curriculum in cyberterrorism and sexual assault management and investigation through the National Center for Rural Law Enforcement (NCRLE), a division of CJI committed to helping rural law enforcement agencies effectively combat crime in their communities.

122 UNIVERSITY OF ARKANSAS SYSTEM: Supplemental Information – Campuses & Other Entities UNIVERSITY OF ARKANSAS SYSTEM: Supplemental Information – Campuses & Other Entities

UNIVERSITY OF ARKANSAS SYSTEM eVERSITY UNIVERSITY OF ARKANSAS SYSTEM eVERSITY Established: 2014 http://eversity.uasys.eduEstablished: 2014 http://eversity.uasys.edu The University of Arkansas System eVersity is a one-hundred percent online institution created byThe the University UA Board of of Arkansas Trustees Systemin March eVersity 2014 to is serve a one students-hundred who percent are unable online to institution access traditional created higherby the UAeducation Board campuses.of Trustees The in March core principles 2014 to serve of the students institution who includeare unable providing to access high-quality traditional courses,higher education affordable campuses. tuition and The workforce-relevant core principles of degree the institution programs, include along withproviding promoting high-quality student successcourses, inaffordable programs. tuition eVersity and workforce-relevant began offering classes degree in programs, partnership along with with existing promoting UA Systemstudent institutionssuccess in programs.in the spring eVersity of 2016. began offering classes in partnership with existing UA System institutions in the spring of 2016. Faculty from across the UA System develop and deliver rigorous certificate and degree programs thatFaculty utilize from rich across data analyticsthe UA System to enhance develop student and successdeliver rigorousand achievement. certificate and degree programs that utilize rich data analytics to enhance student success and achievement. UNIVERSITY OF ARKANSAS SYSTEM www.uasys.eduUNIVERSITY OF ARKANSAS SYSTEM www.uasys.edu The System administration carries out the governance and administration of the University of ArkansasThe System System administration in accordance carries with out policies the governance of the Board and and administration the President. of the University of Arkansas System in accordance with policies of the Board and the President. The System administration includes the activities that further efforts to meet the goals of the strategicThe System plan administrationfor the UA System includes and to the achieve activities the comprehensive that further efforts mission to meetof the the UA goals System. of theIn thisstrategic capacity, plan thefor Systemthe UA OfficeSystem provides and to achieve the oversight the comprehensive and development mission of policies of the UAand System.procedures In tothis assist capacity, the campuses the System and Office units; provides provides the oversight oversight of theand preparationdevelopment of of annual policies operating and procedures budgets andto assist financial the campuses reports and to units; the Board; provides prepares oversight the of consolidatedthe preparation annual of annual financial operating statement budgetss; administersand financial a program reports to of theemployee Board; benefits prepares and the risk consolidated management; annual provides financial legal advicestatement ands; representation;administers a program provides of internal employee audits benefits and riskand riskassessments management; of the provides fiscal operations legal advice of and the campusesrepresentation; and entities; provides and internal coordinates audits and public risk relations, assessments media of theand fiscal governmental operations relations of the activitiescampuses on and behalf entities; of the and System, coordinates campuses public and relations,entities. The media System and Officegovernmental further provides relations administraactivities ontive behalf staff supportof the System,for the Board campuses and President. and entities. The System Office further provides administra tive staff support for the Board and President. Academic Affairs/E-learning advises and assists the institutions to provide academic support servicesAcademic to Affairs/E-learning the campuses concerning advises and academic assists thecoursework, institutions student to provide success academic initiatives, support and professionalservices to deve the lopment campuses support concerning for faculty; academic coordinate coursework, and support student online success learning initiatives, initiatives; and andprofessional track appropriate development and supporteffective for quality faculty; enhancement coordinate measures.and support Academic online learning Affairs initiatives; provides leadershipand track appropriateand guidance and to assisteffective campuses quality and enhancement entities to meet measures. statewide Academic goals in studentAffairs retentionprovides andleadership graduation and guidance to assist campuses and entities to meet statewide goals in student retention and graduation

123 124 UNIVERSITY OF ARKANSAS, FAYETTEVILLE Joseph E. Steinmetz, Chancellor Tim O’Donnell, Vice Chancellor for Finance and Administration

UNIVERSITY OF ARKANSAS AT FORT SMITH Paul Beran, Chancellor Brad Sheriff, Vice Chancellor for Finance

UNIVERSITY OF ARKANSAS AT LITTLE ROCK Andrew Rogerson, Chancellor Steve McClellan, Vice Chancellor of Finance and Administration

UNIVERSITY OF ARKANSAS AT MONTICELLO Karla Hughes, Chancellor Debbie Gasaway, Associate Vice Chancellor for Finance and Administration

UNIVERSITY OF ARKANSAS FOR MEDICAL SCIENCES Stephanie F. Gardner, Interim Chancellor William R. Bowes, Senior Vice Chancellor for Finance & Administration/Chief Financial Officer

UNIVERSITY OF ARKANSAS AT PINE BLUFF Laurence Alexander, Chancellor Carla Martin, Vice Chancellor for Finance and Administration

COSSATOT COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS Steve Cole, Chancellor Charlotte Johnson, Vice Chancellor for Business and Financial Services

PHILLIPS COMMUNITY COLLEGE OF THE UNIVERSITY OF ARKANSAS G. Keith Pinchback, Chancellor Stan Sullivant, Vice Chancellor for Finance and Administration

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT BATESVILLE Deborah J. Frazier, Chancellor Gayle Cooper, Vice Chancellor for Finance and Administration

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT HOPE Chris Thomason, Chancellor Brian Berry, Executive Vice Chancellor for Student Services and Finance

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT MORRILTON Larry D. Davis, Chancellor Lisa Gunderman-Willenberg, Vice Chancellor for Finance

UNIVERSITY OF ARKANSAS PULASKI TECHNICAL COLLEGE Margaret Ellibee, Chancellor Stacy Hogue, Vice Chancellor for Finance

UNIVERSITY OF ARKANSAS COMMUNITY COLLEGE AT RICH MOUNTAIN Phillip Wilson, Chancellor Morris Boydstun, Vice Chancellor of Administration

ARKANSAS SCHOOL FOR MATHEMATICS, SCIENCES, & THE ARTS Corey Alderdice, Director Ashley Smith, Director of Finance

UNIVERSITY OF ARKANSAS SYSTEM eVersity Michael Moore, Chief Academic Officer

UAThe University of ArkansasM at Monticello Monticello • Crossett • McGehee

This report was prepared by the Office of Finance and Administration and is available on the University of Arkansas System’s website at www.uasys.edu APPENDIX D

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (this “Disclosure Agreement”) is executed and delivered by the Board of Trustees of the University of Arkansas (the “Issuer”) and Simmons Bank (the “Dissemination Agent”), in connection with the issuance by the Issuer of (i) the Board of Trustees of the University of Arkansas Various Facility Revenue Bonds (Fayetteville Campus), Tax-Exempt Series 2018A, in the aggregate principal amount of $______, and (ii) the Board of Trustees of the University of Arkansas Various Facility Revenue Bonds (Fayetteville Campus), Taxable Series 2018B, in the aggregate principal amount of $______(collectively, the “Bonds”). The Bonds are being issued pursuant to a Master Trust Indenture between the Issuer and the Trustee dated as of November 1, 1996, as supplemented by a First Supplement to Master Trust Indenture between the Issuer and the Trustee dated as of May 1, 2011 (collectively, the “Master Indenture”), and a Series 2018 Trust Indenture dated as of the date of delivery of the Bonds (together with the Master Indenture, the “Indenture”). The Issuer and the Dissemination Agent covenant and agree as follows: 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Issuer and the Dissemination Agent for the benefit of the Owners of the Bonds and in order to assist the Participating Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). The Dissemination Agent shall have no liability with respect to the content of the disclosure provided hereunder and shall be liable only to the Issuer for sending notices hereunder. 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Report” shall mean any annual report provided by the Issuer pursuant to, and as described in, this Disclosure Agreement. “Beneficial Owner” of a Bond shall mean any person who has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries). “Dissemination Agent” shall mean Simmons Bank, acting in its capacity as Dissemination Agent, or any successor Dissemination Agent designated in writing by the Issuer and that has filed with the Trustee a written acceptance of such designation. “EMMA” shall mean the Electronic Municipal Market Access System as described in 1934 Act Release No. 59062 and maintained by the MSRB for purposes of the Rule. “Listed Events” shall mean any of the events listed hereunder in Section 5(a). “MSRB” shall mean the Municipal Securities Rulemaking Board. “Participating Underwriters” shall mean Crews & Associates, Inc. and Stephens Inc. “Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. 3. Provision of Annual Reports. (a) The Issuer shall, or shall cause the Dissemination Agent to, not later than December 31 of each year (or one hundred eighty (180) days after the end of the Issuer’s fiscal year if the Issuer’s fiscal year changes), commencing with the report after the end of the fiscal year ending June 30, 2018, provide to the MSRB, through its continuing disclosure service portal provided through EMMA at http://www.emma.msrb.org or any similar system acceptable to the Securities and Exchange Commission, an Annual Report which is consistent with the requirements of this Disclosure Agreement. The Annual Report shall be in electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. The Annual Report may be submitted as a single document or as separate documents comprising a package and may cross-reference other information as provided in this Disclosure Agreement; provided that, the audited financial statements of the Issuer may be submitted

D-1 separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date, but, in such event, such audited financial statements shall be submitted not less than sixty (60) days after receipt thereof by the Issuer. The Annual Reports (including audited financial statements) may be posted on the EMMA system on the Board’s customized EMMA issuer page entitled “Board of Trustees of the University of Arkansas Financial Information.” So long as such Annual Reports and audited financial statements shall be posted as set forth in the previous sentence within the time period set forth in this Section 3, the Issuer shall be deemed to have complied with this Section 3. If the Issuer’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event. (b) Not later than fifteen (15) business days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the Issuer shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date, the Trustee has not received a copy of the Annual Report, the Trustee shall contact the Issuer and the Dissemination Agent to determine if the Issuer is in compliance with the first sentence of this subsection (b). (c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall file a notice thereof with the MSRB in substantially the form set forth in Exhibit A hereto or in the form prescribed by the MSRB. 4. Content of Annual Reports. The Issuer’s Annual Report shall contain or include by reference the following: (a) Information of the type set forth in the Official Statement dated July __, 2018, relating to the Bonds, under the caption THE FAYETTEVILLE CAMPUS OF THE UNIVERSITY with respect to Student Enrollment, Pledged Revenues and Existing Parity Bonds. (b) The annual audits of the Issuer and of the UA-Fayetteville, each prepared in accordance with the governmental accounting standards and applicable State law. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the Issuer is an “obligated person” (as defined by the Rule), which have been filed with the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Issuer shall clearly identify each such other document so included by reference. 5. Reporting of Significant Events. (a) The Issuer shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds within ten (10) business days of the occurrence thereof: 1. Principal and interest payment delinquencies. 2. Non-payment related defaults, if material. 3. Unscheduled draws on debt service reserves reflecting financial difficulties. 4. Unscheduled draws on credit enhancements reflecting financial difficulties. 5. Substitution of credit or liquidity providers, or their failure to perform. 6. Adverse tax opinions or events affecting the tax-exempt status of the security. 7. Modification to rights of security holders, if material. 8. Bond calls (except for mandatory sinking fund redemption). 9. Defeasances. 10. Release, substitution, or sale of property securing repayment of the securities, if material. 11. Rating changes. 12. Bankruptcy, insolvency, receivership or similar event of the Issuer or the UA-Fayetteville. 13. Merger, consolidation, or acquisition of the Issuer or the UA-Fayetteville, and

D-2 14. Appointment of a successor or additional trustee, or the change of name of a trustee, if material. (b) When the Issuer obtains knowledge of the occurrence of a Listed Event, the Issuer shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence and shall be accompanied by a copy of the “Notice of Listed Event” described in subsection (c).

(c) Whenever the Dissemination Agent obtains knowledge of the occurrence of a Listed Event, whether from notice by the Issuer or otherwise, the Dissemination Agent shall file a notice of such occurrence with the MSRB through its continuing disclosure service portal provided through EMMA at http://emma/msrb.org, or any other similar system that is acceptable to the Securities and Exchange Commission, and with the Issuer. Notwithstanding the foregoing, notice of the Listed Event described in clause (a)8 need not be given any earlier than the notice for the underlying event is given to registered owners of affected Bonds pursuant to the terms of the Indenture. Each notice of the occurrence of a Listed Event shall be captioned “Notice of Listed Event” and shall be filed in electronic format as prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. Such notices may be posted on the EMMA system on the Board’s customized EMMA issuer page entitled “Board of Trustees of the University of Arkansas Financial Information.” So long as such notices shall be posted as set forth in the previous sentence within the time period set forth in Section 5, the Issuer shall be deemed to have complied with this Section 5(c). 6. Termination of Reporting Obligation. The Issuer’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Issuer shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). 7. Dissemination Agent. The Issuer may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Issuer pursuant to this Disclosure Agreement. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. The initial Dissemination Agent shall be the Trustee. 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Issuer and the Dissemination Agent may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the Issuer), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an “obligated person” with respect to the Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Owners of the Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of the Beneficial Owners, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the Owners or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Issuer shall describe such amendment in its next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented with respect to the Issuer. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section 5(c), and (ii) the Annual

D-3 Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Issuer from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Issuer chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Issuer shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. 10. Default. In the event of a failure of the Issuer or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the request of a Participating Underwriter, or the Owners of at least 25% in aggregate principal amount of Outstanding Bonds, shall), or any Owners or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Issuer or Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Issuer or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII of the Master Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and, unless prohibited by law, the Issuer agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including reasonable attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct; provided that, with respect to such liability of the Issuer, the Issuer agrees with the Dissemination Agent that: (a) it will cooperate with the Dissemination Agent in the defense of any action or claim brought by a third party against the Dissemination Agent seeking the foregoing damages or relief; (b) it will cooperate with the Dissemination Agent should the Dissemination Agent present any claims of the foregoing nature against the Issuer to the Arkansas State Claims Commission; and (c) it will not take any action to frustrate or delay the prompt hearing on claims of the foregoing nature by the said Claims Commission and will make reasonable efforts to expedite said hearing; provided, however, the Issuer reserves the right to assert in good faith all claims and defenses available to it in any proceeding in said Claims Commission. The obligations of the Issuer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the Issuer: Board of Trustees of the University of Arkansas 2404 North University Avenue Little Rock, Arkansas 72207 Attention: President Fax: 501-686-2507 with a copy to: University of Arkansas 406 Administration Building Fayetteville, Arkansas 72701 Attention: Vice Chancellor for Finance and Administration Fax: 479-575-5400

D-4 To the Dissemination Agent: Simmons Bank 501 Main Street Pine Bluff, Arkansas 71601 Attention: Corporate Trust Department Fax: 870-541-1418 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Issuer, the Trustee, the Dissemination Agent, the Participating Underwriters and Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Dated: As of ______, 2018.

BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS

By: ______Donald R. Bobbitt, President

SIMMONS BANK, as Dissemination Agent

By: ______Authorized Officer

D-5 EXHIBIT A

NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Board of Trustees of the University of Arkansas

Name of Bond Issue: Board of Trustees of the University of Arkansas Various Facilities Revenue Bonds (Fayetteville Campus), Tax-Exempt Series 2018A and Board of Trustees of the University of Arkansas Various Facilities Revenue Bonds (Fayetteville Campus), Taxable Series 2018B

Date of Issuance: ______, 2018

NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above- named Bonds as required by the Continuing Disclosure Agreement between the Issuer and the undersigned dated ______, 2018.

Dated: ______, ____

SIMMONS BANK Pine Bluff, Arkansas

By:______Authorized Officer

D-6

BOARD OF TRUSTEES OF THE UNIVERSITY OF ARKANSAS • VARIOUS FACILITY REVENUE BONDS (FAYETTEVILLE CAMPUS), TAX-EXEMPT SERIES 2018A AND TAXABLE SERIES 2018B