Ball State University Board of Trustees

This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the 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, qualification or filing under the securities laws of any such jurisdiction. * Preliminary, subjecttochange Dated: June___, 2018 Dated: DateofDelivery BOOK-ENTRY-ONLY NEW ISSUE regulations, judicial decisions and rulings, interest on the Series 2018 Bonds is exempt from income taxation in the in taxation income State ofIndiana.See“TAXMATTERS,”“ORIGINALISSUEDISCOUNT,”“BONDPREMIUM”andAPPENDIXEherein. from exempt is Bonds 2018 Series the on interest rulings, and decisions judicial regulations, laws, existing under Counsel, Bond Indiana, Indianapolis, LLP, Miller Ice of opinion the In defined). Covenants hereinafter Tax (as the with compliance continuing on conditioned is opinion Such 2018. 1, January to prior began that years taxable for income taxable minimum alternative corporate calculating in earnings current adjusted in included a specific preference item for purposes of the federal alternative minimum tax, although Bond Counsel tax observes that it is income for federal excluded is defined) hereinafter purposes (as from gross income under Bonds Section 103 of the Internal 2018 Revenue Code of 1986, Series as amended (the “Code”), and the is not on interest rulings, and decisions DTC inNewYork, onoraboutJune___,2018. IceMillerLLP, by to delivery for available be will form definitive in Bonds 2018 legality Series the that expected is It of University. the to counsel Indiana, approval tothe and notice, without offer Indianapolis, the Indiana, Bond Counsel. Certain legal of matters will be passed upon for modification the University by DeFur Voran LLP, or Muncie, withdrawal to sale, prior to must readtheentireOfficialStatementtoobtaininformation essentialtomakinganinformedinvestmentdecision. or fund of the University or the State of Indiana, except to the extent of the Pledged Funds. See “SECURITY FOR THE BONDS.” defined and described herein). The Series 2018 Bonds are not a general obligation debt, liability or charge against any property secured by a pledge of the Pledged Funds (as defined and described herein) and additionally payable from Available Funds (as the campusofUniversity,asfurtherdescribedherein. construction, expansion, renovation or equipping of certain Housing and Dining Facilities (as defined and described herein) on Supplemental Fourth the and supplemented, Indenture, collectively, heretofore the “Indenture”). as The Indenture, proceeds of Original the Series (the 2018 Bonds Trustee will be the used primarily and to financeUniversity the acquisition, the between Indenture”) Supplemental “Fourth (the 2018 1, June of as dated Indenture Supplemental Fourth a by supplemented further as “University”) and an Indenture of Trust, dated as of January 1, 2006 (the “Original Indenture”), as heretofore supplemented and OF SERIES2018BONDS-RedemptionOptionalMandatorySinkingFundRedemption”. the DTCParticipantsandIndirectParticipants.See“DESCRIPTIONOFSERIES2018BONDS-Book-Entry-Only System.” Bonds. The final disbursements of such payments to the Beneficial Owners of the Series 2018 Bonds will be the responsibility of (the “Trustee”) under the Indenture (hereinafter defined), so long as DTC or its nominee is agent paying and trustee as Indiana, the Indianapolis, in office trust corporate designated a with registeredN.A.), Company, Trust Merchants owner of the Series 2018 together with any premium, will bepaiddirectly to DTC by The Bank of New York Mellon Trust Company, N.A. (successor to is payableonJanuary1andJulyofeachyear,beginning1,2019.PrincipalinteresttheSeries2018 Bonds, Series 2018Bondswillbeissuedindenominationsof$5,000oranyintegralmultiplethereof.Interestonthe Bonds “Beneficial Owners”) will not receive physical delivery of certificates representing their interests in the Series 2018 Bonds. The in the Series 2018 Bonds will be made in book-entry only form. Purchasers of beneficial interests in the Series 2018 Bonds (the interests beneficial of Purchases (“DTC”). York New York, New Company, Trust Depository The for nominee as Co., & CEDE (the “Series 2018 Bonds”), will be issued only as fully registered bonds and, when issued, will be registered in the name of The Series2018Bondsarebeingofferedwhen,asandifissued bytheUniversityandreceivedUnderwriters,subject Investors issue. this of summary a not is It only. reference quick for information certain contains page cover This In theopinionofIceMillerLLP,Indianapolis,Indiana,BondCounsel,underexistinglaws,regulations,judicial The Series2018BondsandanyadditionalbondsissuedonaparitytherewitharelimitedobligationsoftheUniversity, The Series2018BondsarebeingissuedpursuanttoresolutionsadoptedbytheBallStateUniversityBoardofTrustees (the The Series 2018 Bonds are subject to redemption prior to maturity as described in this Official Statement. See “DESCRIPTION The BallStateUniversityBoardofTrustees,HousingandDiningSystemRevenueBonds,Series 2018

Ball StateUniversityHousingandDiningSystemRevenueBonds,Series2018

PRELIMINARY OFFICIAL STATEMENT DATED MAY 23, 2018

BALL STATE UNIVERSITY BOARD OF TRUSTEES See theinsidecoverpageformaturities,principalamounts, interest rates,prices,yieldsandCUSIPnumbers $82,330,000* Due: July1,asshownontheinsidecoverpage S&P: Moody’s: RATINGS

AA- Aa3

MATURITIES, PRINCIPAL AMOUNTS INTEREST RATES, PRICES, YIELDS AND CUSIP1 NUMBERS

$82,330,000* Ball State University Housing and Dining System Revenue Bonds, Series 2018

$72,690,000* Serial Bonds

Date of Maturity Principal Amount* Interest Rate Price Yield CUSIP1 July 1, 2019 $2,490,000 July 1, 2020 2,620,000 July 1, 2021 2,750,000 July 1, 2022 2,895,000 July 1, 2023 3,040,000 July 1, 2024 3,200,000 July 1, 2025 3,360,000 July 1, 2026 3,535,000 July 1, 2027 3,715,000 July 1, 2028 3,905,000 July 1, 2029 4,105,000 July 1, 2030 4,315,000 July 1, 2031 4,540,000 July 1, 2034 5,115,000 July 1, 2035 5,380,000 July 1, 2036 5,655,000 July 1, 2037 5,915,000 July 1, 2038 6,155,000

$9,640,000* _____% Term Bonds due July 1, 2033* -- Price ____% -- Yield ____% -- CUSIP1 ______

1 Copyright 2018, American Bankers Association. CUSIP data herein provided by Standard & Poor’s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. CUSIP numbers are provided for convenience and reference only. Neither the University nor the Trustee is responsible for the selection or use of the CUSIP numbers, nor is any representation made as to their correctness on the Series 2018 Bonds or as indicated above.

* Preliminary, subject to change

No dealer, broker, salesman or any other person has been authorized by the University or the Underwriters to give any information or to make any representation other than those contained in this Official Statement, and if given or made, such information or representations must not be relied upon as having been authorized by the University or the Underwriters. Certain information in this Official Statement has been obtained from the University and other sources considered to be reliable, but is not guaranteed as to accuracy or completeness, and is not to be construed to be the representation of the Underwriters. This Official Statement should be considered in its entirety and no one factor considered more or less important than any other by reason of its position in this Official Statement. Any information or expressions of opinion in this Official Statement are subject to change without notice and neither the delivery of this Official Statement nor any sale hereunder shall under any circumstances create an implication that there has been no change as to the affairs of the University and other parties referred to herein since the date of this Official Statement or since any earlier date as of which information is stated to be given.

This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy the Series 2018 Bonds in any jurisdiction in which or to any person to whom it is unlawful to make such offer, solicitation or sale.

In connection with this offering, the Underwriters may overallot or effect transactions which stabilize or maintain the market price of the Series 2018 Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.

The Series 2018 Bonds have not been registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, or registered in any state and will not be listed on any stock or other securities exchange. Neither the Securities and Exchange Commission nor any other federal, state or other governmental entity or agency will have passed upon the accuracy or adequacy of this Official Statement nor approved the Series 2018 Bonds for sale.

In making an investment decision, investors must rely on their own examination of the issuer and the terms of the offering, including the merit and risk 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.

THE UNDERWRITERS HAVE PROVIDED THE FOLLOWING SENTENCE FOR INCLUSION IN THIS OFFICIAL STATEMENT. THE UNDERWRITERS HAVE REVIEWED THE INFORMATION IN THIS OFFICIAL STATEMENT IN ACCORDANCE WITH, AND AS PART OF, THEIR RESPECTIVE RESPONSIBILITIES TO INVESTORS UNDER THE FEDERAL SECURITIES LAWS AS APPLIED TO THE FACTS AND CIRCUMSTANCE OF THIS TRANSACTION, BUT THE UNDERWRITERS DO NOT GUARANTEE THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION.

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______

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “believe,” “expect,” “estimate,” “anticipate,” “intend,” “projected,” “budget,” “could,” or other similar words. Additionally, all statements in this Official Statement, including forward-looking statements, speak only as of the date they are made, and none of the University or the Underwriters undertakes any obligation to update any statement in light of new information or future events.

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVES KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE, OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. NEITHER THE UNIVERSITY, THE UNDERWRITERS NOR ANY OTHER PARTY PLANS TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN THEIR EXPECTATIONS, OR EVENTS, CONDITIONS, OR CIRCUMSTANCES UPON WHICH SUCH STATEMENTS ARE BASED OCCUR.

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TABLE OF CONTENTS

Page SUMMARY STATEMENT ...... v INTRODUCTION ...... 1 DESCRIPTION OF SERIES 2018 BONDS...... 3 ESTIMATED SOURCES AND USES OF FUNDS ...... 10 PLAN OF FINANCE ...... 10 THE SERIES 2018 PROJECT...... 10 SECURITY FOR THE BONDS ...... 11 THE FACILITIES AND THE SYSTEM ...... 14 ANNUAL DEBT SERVICE REQUIREMENTS ...... 21 DEBT SERVICE COVERAGE ...... 22 TAX MATTERS ...... 22 ORIGINAL ISSUE DISCOUNT ...... 23 BOND PREMIUM...... 24 ENFORCEABILITY OF RIGHTS AND REMEDIES AND LEGAL OPINIONS ...... 25 LITIGATION ...... 26 CERTAIN LEGAL MATTERS ...... 26 FINANCIAL INFORMATION ...... 26 UNDERWRITING ...... 26 CONTINUING DISCLOSURE ...... 27 RATINGS ...... 30 SPECIAL RELATIONSHIPS ...... 31 MISCELLANEOUS ...... 31

APPENDIX A - BALL STATE UNIVERSITY ...... A-1 APPENDIX B - BALL STATE UNIVERSITY FINANCIAL REPORT FOR THE YEAR ENDING JUNE 30, 2017 ...... B-1 APPENDIX C - DEFINITIONS ...... C-1 APPENDIX D - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE ...... D-1 APPENDIX E - FORM OF BOND COUNSEL OPINION ...... E-1

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BALL STATE UNIVERSITY BOARD OF TRUSTEES Muncie, Indiana Board of Trustees Richard Hall, Chair E. Renae Conley, Vice Chair Thomas C. Bracken, Secretary Matt Momper, Assistant Secretary R. Wayne Estopinal, Trustee Brian Gallagher, Trustee Jean Ann Harcourt, Trustee Mike McDaniel, Trustee Marlene Jacocks, Student Trustee Officers of the Board of Trustees Richard Hall, Chair E. Renae Conley, Vice Chair Thomas C. Bracken, Secretary Matt Momper, Assistant Secretary Bernard M. Hannon, Treasurer Principal Administrative Officers Geoffrey S. Mearns, President Sue Hodges Moore, Chief Strategy Officer Marilyn Buck, Interim Provost and Interim Executive Vice President for Academic Affairs* Kay Bales, Vice President for Student Affairs and Enrollment Services and Dean of Students Bernard M. Hannon, Vice President for Business Affairs and Treasurer Mark Sandy, Director of Intercollegiate Athletics (retiring June, 2018)* Rebecca Polcz, Vice President for Governmental Relations Kathy Wolf, Vice President for Marketing and Communications Sali Falling, Vice President and General Counsel Loren Malm, Interim Vice President for Information Technology* Principal Administrative Officer of the Ball State University Foundation Cheri O’Neill, President and Chief Executive Officer Trustee The Bank of New York Mellon Trust Company, N.A. Indianapolis, Indiana Bond Counsel Ice Miller LLP Indianapolis, Indiana

* Susana Rivera-Mills will commence service as Provost and Executive Vice President for Academic Affairs, effective July 1, 2018. Beth Goetz will commence service as Director of Intercollegiate Athletics effective June 18, 2018. A search is currently underway for the position of Vice President for Information Technology.

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SUMMARY STATEMENT

Subject, in all respects, to more complete information contained in the Official Statement.

BALL STATE UNIVERSITY. The University was founded as a state institution in 1918 with a gift by the Ball brothers of Muncie of the land and buildings of the Muncie Normal Institute to the State of Indiana. The Ball State University Board of Trustees (the “University”) serves and controls Ball State University and consists of nine members appointed by the Governor. Ball State University is located in Muncie, approximately 56 miles northeast of Indianapolis. Ball State University offers seven associate-level programs, 178 undergraduate programs, 99 master’s level programs, 16 doctoral-level programs and two specialists programs providing professional and pre-professional specialization as well as education in the liberal arts and sciences. Ball State University’s 2017 on/off campus unduplicated fall semester full-time equivalent enrollment totaled 19,014, with total on/off campus unduplicated headcount of 22,513.

Purposes of Issue: The Series 2018 Bonds are being issued to (i) finance all or a portion of the cost of the Series 2018 Project (as defined herein), (ii) reimburse previously expended costs of the Series 2018 Project, and (iii) pay costs of issuing the Series 2018 Bonds.

Security: The Series 2018 Bonds are limited obligations of the University secured by and payable solely from a pledge of and first lien on the Net Income of the Housing and Dining System as provided in the Indenture, any insurance proceeds and investment income thereon, and any moneys on deposit in the Sinking Fund, the Project Fund or the Reserve Fund established under the Indenture (collectively, the “Pledged Funds”). The Series 2018 Bonds are not a general obligation debt or liability of the University or the State of Indiana, and no recourse shall be had for the payment of the principal of or interest on the Series 2018 Bonds against the State of Indiana, the University, or against the property or funds of the University or the State of Indiana, except to the extent of the Pledged Funds.

Available Funds: In addition to Pledged Funds, the University covenants that Available Funds shall be used, if needed, to pay principal, premium and interest on the Bonds. Available Funds include any and all other funds of the University legally available for transfer to the Sinking Fund, and not otherwise restricted, except for state appropriations or mandatory student fees assessed students attending Ball State University (unless specifically authorized by the Indiana General Assembly).

Housing and Dining System: The Housing and Dining System (the “Housing and Dining System” or the “System”) consists of a variety of residence halls and dining services owned and operated by the University, on its Muncie campus, for single and married students. Accommodations offer both undergraduate and graduate students housing and dining options including room and board, board only and apartments. As of Fall 2017, approximately 40% of the student population lived in campus housing, which places the University among the more highly residential campuses in the nation. Freshman and transfer students are required to live in residence halls. The Housing and Dining System includes facilities listed as follows:

- v -

(a) Residence Halls and Dining Services: Residence hall facilities provide housing opportunities for approximately 6,962 students in 25 residence halls, grouped in twelve housing complexes. All complexes are multi-storied facilities containing student rooms, lounges, recreation areas, computer labs and laundry facilities. All residence halls have wireless access to internet services and University systems. The Residence Hall Dining Services operates eleven dining service centers providing multiple food service options for students and the general public including food courts, special all-you-can-eat buffets, micro cafes, convenience stores, and late night food services.

(b) University Apartments: There are approximately 524 University owned and operated apartments located near or adjacent to the campus. Students and families living in the apartments are within walking distance of the campus or are served by a University operated shuttle bus service. The majority of all apartments are unfurnished and include one, two, and three bedroom units.

Net income from the Housing and Dining System is pledged for the payment of debt service on the Bonds. For additional information regarding the Housing and Dining System, see “THE FACILITIES AND THE SYSTEM” herein. See also “APPENDIX C – DEFINITIONS” for a definition of the “Housing and Dining System.”

Debt Service Coverage: The following debt service coverage summary is based on Net Income of the Housing and Dining System.

Year Ended June 30 (rounded to nearest thousand) 2015 2016 2017 Net Income $18,185 $17,831 $22,852 Average Annual Debt Service(1)* $11,250 $11,250 $11,250 Coverage of Average Annual Debt Service* 1.62 times 1.59 times 2.03 times

(1) Utilizes the Average Annual Debt Service in Fiscal Years 2018 and forward, following issuance of the Series 2018 Bonds.

Rate Covenant: The University covenants that it will establish and collect rates and charges for the use of the Housing and Dining System sufficient to generate Net Income in each Fiscal Year equal to no less than the sum of (i) the Annual Debt Service Requirement for such Fiscal Year, and (ii) any other amounts to be paid from Net Income with respect to such Fiscal Year, in accordance with the Indenture.

No Reserve Fund: No Reserve Fund Requirement exists for the Series 2018 Bonds, and holders of the Series 2018 Bonds shall have no claim on any Reserve Fund established for any subsequent series of First Lien Bonds.

First Lien Bonds: The Series 2018 Bonds will be issued on a parity with the Ball State University Housing and Dining System Revenue Bonds, Series 2013 (the “Series 2013 Bonds”),

* Preliminary, subject to change

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currently outstanding in the aggregate principal amount of $28,325,000, and the Ball State University Housing and Dining System Revenue Bonds, Series 2016 (the “Series 2016 Bonds”), currently outstanding in the aggregate principal amount of $48,400,000. The University may issue Additional Bonds, the payments of which are secured by a pledge of and first lien on Pledged Funds (the Series 2013 Bonds, the Series 2016 Bonds, the Series 2018 Bonds and all such Additional Bonds, collectively, the “First Lien Bonds”); provided, among other things, that the actual Net Income received by the University during the preceding Fiscal Year (or actual Net Income adjusted as provided in the Indenture) is at least equal to the Average Annual Debt Service to become due in succeeding Fiscal Years on all First Lien Bonds then outstanding under the Indenture including the First Lien Bonds to be issued; provided, that for purposes of this computation, Net Income shall include the amount on deposit at the beginning of the Fiscal Year in the Revenue Fund and the Reserve Fund up to 25% of the Annual Debt Service Requirement for such Fiscal Year. In addition, First Lien Bonds may be issued to refund Bonds (as hereinafter defined, including First Lien Bonds and Junior Lien Obligations (as hereinafter defined)) and to avoid a default, as more fully described in this Official Statement. First Lien Bonds may be issued by the University which have no claim on the Reserve Fund.

In addition to the Series 2018 Project, the University presently anticipates that construction of a second new residence hall will began in the summer of 2019, at a cost of approximately $50 million, to complete the replacement of LaFollette Complex. This will constitute Phase 2 of the North Residential Neighborhood. The University presently anticipates that it will use Housing & Dining Repair and Replacement Reserves as the funding source for the second new residence hall.

Continuing Disclosure. Pursuant to the continuing disclosure requirements promulgated by the Securities and Exchange Commission in SEC Rule 15c2-12, as amended, the University entered into an Amended and Restated Continuing Disclosure Undertaking Agreement, dated as of February 15, 2011, as heretofore supplemented, to be further supplemented by a Fifth Supplement to Amended and Restated Continuing Disclosure Undertaking Agreement dated as of June 1, 2018, pursuant to which the University will agree to provide (i) on an annual basis to the Municipal Securities Rulemaking Board (the “MSRB”), as the only nationally recognized municipal securities information repository, certain annual financial information and (ii) notice to the MSRB upon the occurrence of certain reportable events more fully described herein.

In order to assist the Underwriters in complying with the Underwriters’ obligations pursuant to the SEC Rule, the University represents that it has identified certain deficiencies with regard to its undertakings which occurred during the previous five years, including, but not limited to, the following instance: The University did not file a reportable event notice with respect to the redemption of its outstanding Parking System Revenue Bonds, which were redeemed in full using available cash on April 2, 2015. The bondholders in question did, however, receive timely 30 day notice of the redemption on March 2, 2015. The University makes no representation as to any potential materiality of such prior instance, as materiality is dependent upon individual facts and circumstances. Otherwise, there have been no instances in the past five years when the University has failed to comply, in all material respects, with any undertakings in a written contract or agreement as specified in paragraph (b)(5)(i) of the SEC Rule. See “CONTINUING DISCLOSURE.”

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$82,330,000* Ball State University Board of Trustees Ball State University Housing and Dining System Revenue Bonds, Series 2018

INTRODUCTION

This Official Statement, including the cover page and the appendices, is furnished by the Ball State University Board of Trustees to provide information concerning the offering of $82,330,000* aggregate principal amount of its Ball State University Housing and Dining System Revenue Bonds, Series 2018 (the “Series 2018 Bonds”).

The University

Ball State University was founded as a state institution in 1918 with a gift by the Ball brothers of Muncie of the land and buildings of the Muncie Normal Institute to the State of Indiana. The Ball State University Board of Trustees (the “University” or the “Issuer”) serves and controls Ball State University and consists of nine members appointed by the Governor. Ball State University is located in Muncie, approximately 56 miles northeast of Indianapolis. Ball State University offers seven associate level programs, 178 undergraduate programs, 99 masters level programs, 16 doctoral level programs, and two specialist programs providing professional and pre-professional specialization as well as education in the liberal arts and sciences. Ball State University’s 2017 on/off campus unduplicated fall semester full-time equivalent enrollment totaled 19,014, with total on/off campus unduplicated headcount of 22,513. For more information about the University see “APPENDIX A -- BALL STATE UNIVERSITY.”

The Series 2018 Bonds

The Series 2018 Bonds are being issued by the University to provide the funds necessary to: (i) finance the acquisition, construction, expansion, renovation or equipping of certain Housing and Dining Facilities on the University’s Muncie campus (the “Series 2018 Project”); (ii) reimburse the University for certain costs previously expended for acquisition, construction, expansion, renovation or equipping of the Series 2018 Project; and (iii) pay certain related costs. See “PLAN OF FINANCE.”

The Series 2018 Bonds are authorized pursuant to Indiana Code 21-35-1 et seq. The Series 2018 Bonds will be issued on a parity with the Ball State University Housing and Dining System Revenue Bonds, Series 2013 (the “Series 2013 Bonds”), issued on October 30, 2013 and currently outstanding in the aggregate principal amount of $28,325,000, and the Ball State University Housing and Dining System Revenue Bonds, Series 2016 (the “Series 2016 Bonds”) issued on January 27, 2016 and currently outstanding in the aggregate principal amount of $48,400,000. Additional bonds may be issued under the Indenture pursuant to Indiana Code 21- 35-1 et seq., as it may be amended or supplemented from time to time, including any other provision which may be added to the Indiana Code authorizing revenues of any designated

* Preliminary, subject to change

related facilities to be pledged for the payment of debt service (collectively, the “Act”). The Act permits the University to issue revenue obligations, erect, construct, reconstruct, extend, remodel, improve, complete, equip, furnish, operate, control and manage certain auxiliary facilities, including University housing and dining facilities, and to pledge the revenues from such facilities, in addition to unobligated revenues from any other revenue-producing facility, to the payment of such revenue obligations.

The Series 2018 Bonds are being issued pursuant to a resolution adopted by the Board of Trustees of the University on May 4, 2018 (the “Resolution”), and in accordance with the provisions of an Indenture of Trust dated as of January 1, 2006 (the “Original Indenture”), as heretofore supplemented and as further supplemented by a Fourth Supplemental Indenture dated as of June 1, 2018, between the University and The Bank of New York Mellon Trust Company, N.A. (successor to Merchants Trust Company, N.A.), Indianapolis, Indiana, as trustee and paying agent (the “Trustee”) (the “Original Indenture”, as heretofore supplemented, and the Fourth Supplemental Indenture, collectively, the “Indenture”). Under the Indenture, the University may pledge revenues to the payment of Bonds (as hereinafter defined) from any revenue-producing University Housing and Dining Facility (as hereinafter defined) authorized under the Act.

The Series 2018 Bonds, together with the Series 2013 Bonds, the Series 2016 Bonds and any additional bonds issued on parity with the Series 2013 Bonds, the Series 2016 Bonds and the Series 2018 Bonds (collectively, the “First Lien Bonds”), are limited obligations of the University, secured by a pledge of and parity first lien on (a) the Net Income of the System (each, as defined herein), (b) any insurance proceeds and investment income thereon, and (c) any amounts held in the Sinking Fund, the Project Fund or the Reserve Fund (each as defined herein) and the investment income thereon (collectively, the “Pledged Funds”). See “SECURITY FOR THE BONDS” and “APPENDIX C - DEFINITIONS.”

Upon the issuance of the Series 2018 Bonds, the Pledged Funds will include the Net Income of the housing and dining facilities on the University’s Muncie campus (individually, a “Facility” or “Housing and Dining Facility,” and collectively, the “Facilities,” “Housing and Dining Facilities” or “System”). The University may from time to time determine to include in Net Income all revenues derived from any other Housing and Dining Facility not currently part of the System, less the costs of operating, maintaining and repairing such Housing and Dining Facility, except where these costs are otherwise paid and permitted by the Act and the Indenture pursuant to a supplemental indenture. In addition to Pledged Funds, the University covenants to use other funds of the University legally available for transfer to the Sinking Fund (see definition of “Available Funds” in APPENDIX C hereto), to make timely principal and interest payments on the Bonds (hereinafter defined), in the event Pledged Funds are insufficient. The University considers Available Funds to include (but not to be limited to) unrestricted operating fund balances, auxiliary fund balances, and certain other fund balances of the University and selected related entities, in each case without any priority among any such fund balances and only to the extent not pledged, restricted, or specifically authorized for other purposes, now or in the future, or otherwise restricted by law. Available Funds does not include generally assessed student fees or appropriations by the State of Indiana (the “State”), except to the extent specifically authorized by the Indiana General Assembly. No assurance can be provided as to the availability or adequacy of any such Available Funds as of any particular date. See “SECURITY FOR THE BONDS.”

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The University may issue additional bonds under the Indenture (“Additional Bonds”) consisting of either First Lien Bonds or bonds subordinated to First Lien Bonds as to principal and interest repayment (“Junior Lien Obligations”), which are payable out of other Pledged Funds remaining after the payment of the First Lien Bonds (all obligations issued under the Indenture which are payable out of Pledged Funds, including all First Lien Bonds and any Junior Lien Obligations, collectively, the “Bonds”). See “SECURITY FOR THE BONDS -- Issuance of Additional Bonds.” The Bonds are not a general obligation debt, liability or charge against any property or fund of the University or the State, except to the extent of the pledge of Pledged Funds under the Indenture. See “SECURITY FOR THE BONDS.”

DESCRIPTION OF SERIES 2018 BONDS

General

The Series 2018 Bonds will be issued in the aggregate principal amount of $82,330,000* and will be dated and bear interest from the date of their delivery. Interest on the Series 2018 Bonds will be payable on January 1 and July 1 of each year, commencing January 1, 2019 (each such date, an “Interest Payment Date”).

The principal of and redemption premium, if any, on each Series 2018 Bond will be payable upon presentation and surrender thereof by the registered owners thereof (the “Bondholders”) (such Bondholders being DTC, as hereinafter defined or its nominee, for so long as the Series 2018 Bonds are held in book-entry-only form) at the designated corporate trust office of the Trustee for the Series 2018 Bonds in Indianapolis, Indiana. Interest on the Series 2018 Bonds will be paid by check of the Trustee mailed on each Interest Payment Date to the Bondholders appearing on the registration books maintained by the Trustee as of the close of business on the last day of the month preceding such Interest Payment Date (the “Record Date”). However, Bondholders of at least $1,000,000 in principal amount may request in writing that such payment be made by wire transfer to an account specified in writing.

For so long as the Series 2018 Bonds are held in book-entry-only form, payments of principal of and redemption premium, if any, and interest on the Series 2018 Bonds will be paid by the Trustee only to DTC or its nominee. Neither the University nor the Trustee will have any responsibility for a Beneficial Owner’s receipt from DTC or its nominee, or from any DTC Participant or Indirect Participant, of any payments of principal of or redemption premium, if any, or interest on any Series 2018 Bonds. See “Book-Entry-Only System” in this section.

Redemption

Optional Redemption. The Series 2018 Bonds maturing on or after July 1, 2029* are subject to redemption prior to maturity at the option of the University at any time on or after July 1, 2028*, in whole or in part, in any order of maturity designated by the University (less than all of such Series 2018 Bonds of a particular maturity to be selected by lot in such manner as may be designated by the Trustee), at the redemption price of 100% of the principal amount to be redeemed, plus accrued interest to the date of redemption, without premium.

* Preliminary, subject to change

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Mandatory Sinking Fund Redemption. The Series 2018 Bonds maturing on July 1, 2033* (the “2033* Term Bonds”) are subject to mandatory sinking fund redemption by lot prior to maturity on the dates and in the amounts set forth below at a price equal to 100% of principal amount to be redeemed, plus accrued interest to the date of redemption, without any premium.

Series 2018 Bonds due July 1, 2033*

July 1* Amount* 2032 $4,735,000 2033 4,905,000 (final maturity)

Notice of Redemption. Notice of redemption of the Series 2018 Bonds will be given by the Trustee by mailing a copy of the redemption notice by first-class mail not less than 30 or more than 45 days prior to the date fixed for redemption to the registered owner of each Series 2018 Bond to be redeemed (such Bondholder being DTC or its nominee, for so long as the Series 2018 Bonds are held in book-entry-only form); provided, however, that failure to give such notice, or any defect therein, with respect to any such registered Series 2018 Bond shall not affect the validity of any proceedings for the redemption of other Series 2018 Bonds. If for any reason it is impossible or impractical to mail such notice of call for redemption in the manner described above, then the mailing will be made in a manner approved by the Trustee and will constitute sufficient notice. Likewise, the Trustee may provide notice in any other manner which may be approved by the Trustee from time to time in accordance with prevailing industry standards and practices. The University also may direct the Trustee to publish any redemption notice in a newspaper or financial journal of general circulation published in New York, New York, not less than 30 days or more than 45 days prior to the redemption date. On and after the redemption date specified in the notice of redemption, the Series 2018 Bonds or portions thereof called for redemption (provided funds for their redemption are on deposit at the place of payment) will not bear interest, will no longer be protected by the Indenture and will not be deemed to be outstanding under the provisions of the Indenture, and the Bondholders will have the right to receive only the redemption price thereof, plus accrued interest thereon to the date fixed for redemption.

The redemption described in any such notice of redemption may be made conditional on the successful issuance of Bonds intended to provide funds to refund or advance refund the Outstanding Series 2018 Bonds (or portions thereof) to be redeemed.

For so long as the Series 2018 Bonds are held in book-entry-only form, the Trustee will mail notices of redemption of Series 2018 Bonds only to DTC or its nominee, in accordance with the preceding paragraph. Neither the University nor the Trustee will have any responsibility for any Beneficial Owner’s receipt from DTC or its nominee, or from any DTC Participant or Indirect Participant, of any notices of redemption. See “Book-Entry-Only System” in this section.

Partial Redemption. If less than all of the Series 2018 Bonds are called for redemption, the Series 2018 Bonds will be redeemed only in whole multiples of the denominations authorized

* Preliminary, subject to change

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for such Series 2018 Bonds. For purposes of redemption, each authorized denomination of principal will be considered as a Bond. If less than all of the Series 2018 Bonds are called for redemption, the principal amount, series and maturity of the particular Series 2018 Bonds redeemed will be selected by the University and the Trustee will select the particular Series 2018 Bonds to be redeemed by lot within a series and maturity in such manner as the Trustee may determine.

For so long as the Series 2018 Bonds are held in book-entry-only form, the Trustee will select for redemption only Series 2018 Bonds or portions thereof registered in the name of DTC or its nominee, in accordance with the preceding paragraph. Neither the University nor the Trustee will have any responsibility for selecting for redemption any Beneficial Owner’s interests in the Series 2018 Bonds. See “Book-Entry-Only System” in this section.

Registration, Transfer and Exchange

The University will cause books for the registration and the transfer and exchange of the Bonds to be kept by the Trustee. The University and the Trustee may deem and treat the person in whose name any Bond is registered as the absolute owner of such Bond (such person being DTC or its nominee, for so long as the Bonds are held in book-entry-only form), for the purpose of receiving nor the Trustee will be affected by any notice to the contrary.

The owner of any Bonds (such owner of the Series 2018 Bonds being DTC or its nominee, for so long Series 2018 Bonds are held in book-entry-only form) may transfer or exchange such Bonds by surrendering such Bonds at the principal office of the Trustee, duly endorsed by, or accompanied by a written instrument or instruments of transfer or exchange in form satisfactory to the Trustee, and duly executed by such Bondholder or such Bondholder’s attorney duly authorized in writing. Upon any such surrender for transfer or exchange, the University will execute, and the Trustee will authenticate and deliver, in the name of the transferee or exchangee, as appropriate, a new Bond or Bonds of the same series and maturity for a like aggregate principal amount or for a like aggregate amount of fully registered Bonds of other authorized denominations of the same series and the same maturity. The Trustee will not be required to transfer or exchange any Bond either after the mailing of notice calling such Bond for redemption or during a period of fifteen days next preceding mailing of a notice of redemption of any Bond. No service charge or payment will be required to be made by the owner of any Series 2018 Bond requesting a transfer or exchange of such Bond, but the University and the Trustee may require payment of a sum sufficient to cover any tax, fee or other governmental charge required to be paid with respect to such transfer or exchange. The execution by the University of any fully registered Bond of any denomination shall constitute full and due authorization of such domination, and the Trustee shall thereby be authorized to authenticate and deliver such registered Bond.

For so long as the Series 2018 Bonds are held in book-entry-only form, the Series 2018 Bonds will be registered in the name of DTC or its nominee, and the University and the Trustee will deem and treat DTC or its nominee as the absolute owner of the Series 2018 Bonds for all purposes whatsoever. The Trustee will transfer and exchange Series 2018 Bonds only on behalf of DTC or its nominee, in accordance with the preceding paragraph. Neither the University nor

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the Trustee will have any responsibility for registering, transferring or exchanging any Beneficial owners interests in the Series 2018 Bonds. See “Book-Entry-Only System” in this section.

Book-Entry-Only System

The information in this sub-section has been furnished by The Depository Trust Company, New York, New York (“DTC”). No representation is made by the University, the Trustee or the Underwriters as to the completeness or accuracy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. No attempt has been made by the University, the Trustee or the Underwriters to determine whether DTC is or will be financially or otherwise capable of fulfilling its obligations. Neither the University nor the Trustee will have any responsibility or obligation to Direct Participants, Indirect Participants (both as defined below) or the persons for which they act as nominees with respect to the Series 2018 Bonds, or for any principal, premium, if any, or interest payment thereon.

The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Series 2018 Bonds. The Series 2018 Bonds will be issued as fully-registered securities 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 Series 2018 Bond certificate will be issued for each maturity of the Series 2018 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest 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 17 A 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 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 of AA+. 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.

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Purchases of Series 2018 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2018 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2018 Bond (“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 Series 2018 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 the Series 2018 Bonds, except in the event that use of the book-entry system for the Series 2018 Bonds is discontinued.

To facilitate subsequent transfers, all Series 2018 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 Series 2018 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 Series 2018 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2018 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 the Series 2018 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2018 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Series 2018 Bond documents. For example, Beneficial Owners of the Series 2018 Bonds may wish to ascertain that the nominee holding the Series 2018 Bond 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 Series 2018 Bonds within an issue 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 Series 2018 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the University 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 Series 2018 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

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Redemption proceeds, distributions, and other payments on the Series 2018 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 University or the Trustee, on the 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 securities 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 University or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and other payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of’ DTC) is the responsibility of the University 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 Series 2018 Bonds at any time by giving reasonable notice to the University or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Series 2018 Bond certificates are required to be printed and delivered.

The University may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 2018 Bond certificates will be printed and delivered.

The information in this section concerning DTC and DTC’s book-entry-system has been obtained from sources that the University believes to be reliable, but the University takes no responsibility for the accuracy thereof.

Disclaimer

THE INFORMATION PROVIDED ABOVE UNDER THIS CAPTION HAS BEEN PROVIDED BY DTC. NO REPRESENTATION IS MADE BY THE UNIVERSITY, THE TRUSTEE OR THE UNDERWRITERS AS TO THE ACCURACY OR ADEQUACY OF SUCH INFORMATION PROVIDED BY DTC OR AS TO THE ABSENCE OF MATERIAL ADVERSE CHANGES IN SUCH INFORMATION SUBSEQUENT TO THE DATE HEREOF.

The University and the Trustee will have no responsibility or obligation with respect to:

(i) the accuracy of the records of DTC, its nominee or any Direct Participant or Indirect Participant with respect to any beneficial ownership interest in any Series 2018 Bonds;

(ii) the delivery to any Direct Participant or Indirect Participant or any other person, other than an owners, as shown in the bond register, of any notice with respect to any Series 2018 Bond including, without limitation, any notice of redemption;

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(iii) the payment to any Direct Participant or Indirect Participant or any other person, other than an owner, as shown in the bond register, of any amount with respect to the principal of or premium, if any, or interest on any Series 2018 Bond; or

(iv) any consent given by DTC or its nominee as registered owner.

Prior to any discontinuation of the book-entry only system described under this caption, the University and the Trustee may treat DTC as, and deem DTC to be, the absolute owner of the Series 2018 Bonds for all purposes whatsoever, including, without limitation:

(i) the payment of the principal of and premium, if any, and interest on the Series 2018 Bonds;

(ii) giving notices of redemption and other matters with respect to the Series 2018 Bonds;

(iii) registering transfers with respect to the Series 2018 Bonds; and

(iv) the selection of Series 2018 Bonds for redemption.

Revision of Book-Entry-Only System

In the event that either (i) the University receives notice from DTC to the effect that DTC is unable or unwilling to discharge its responsibilities as a clearing agency for the Series 2018 Bonds, or (ii) the University elects to discontinue its use of DTC as a clearing agency for the Series 2018 Bonds, and in either case the University does not appoint an alternative clearing agency, then the University and the Trustee will do or perform or cause to be done or performed all acts or things, not adverse to the rights of the holders of the Series 2018 Bonds, as are necessary or appropriate to discontinue use of DTC as a clearing agency for the Series 2018 Bonds, and to transfer the ownership of each of the Series 2018 Bonds, to such person or persons, including another clearing agency as the holders of the Series 2018 Bonds may direct in accordance with the Indenture. See “Registration, Transfer and Exchange” in this section.

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ESTIMATED SOURCES AND USES OF FUNDS

The estimated sources and uses of funds of the Series 2018 Bonds is shown below:

Sources of Funds Principal Amount of Series 2018 Bonds Plus: Net Bond Premium Total Sources

Uses of Funds Series 2018 Project Costs Costs of Issuance(1) Total Uses ______(1) Including Underwriters’ discount, legal fees and expenses, printing expenses, Trustee fees and expenses, and other expenses.

PLAN OF FINANCE

The Series 2018 Bonds are being issued for the principal purpose of providing funds to (i) finance the acquisition, construction, expansion, renovation or equipping of certain Housing and Dining Facilities on the University’s Muncie campus (the “Series 2018 Project”); (ii) reimburse the University for certain costs previously expended for acquisition, construction, expansion, renovation or equipping of the Series 2018 Project; and (iii) pay certain related costs, including costs of issuance.

THE SERIES 2018 PROJECT

The proceeds of the Series 2018 Bonds will be used in part to finance costs of the Series 2018 Project. The Series 2018 Project consists of the construction of Phase 1 of the North Residential Neighborhood, located on the University’s campus in Muncie, Indiana. At an expected cost of $82,330,000, the Series 2018 Project will be financed in whole from proceeds of the Series 2018 Bonds.

The Series 2018 Project will be constructed using the Construction Manager as Constructor (CMc) delivery method and will consist of the construction of Phase 1 of the North Residential Neighborhood, including (i) the realignment of McKinley Avenue (Architect – Schmidt Associates, Indianapolis, Indiana), (ii) the construction of a new 500 bed residence hall north of LaFollette Complex (Architect – Schmidt Associates, Indianapolis, Indiana), (iii) the construction of a stand-alone dining facility north of LaFollette Complex (Architect - CSO Architects, Indianapolis, Indiana, and (iv) all related landscaping and site preparation work.

Work on the Series 2018 Project is expected to begin in May, 2018 and is scheduled for completion in Summer 2020.

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SECURITY FOR THE BONDS

The Bonds are limited obligations of the University secured by a pledge of the Pledged Funds. The Bonds are not a general obligation debt or liability, or a charge against any property or fund of the University or the State of Indiana, except to the extent of the pledge of the Pledged Funds under the Indenture.

Under the Indenture, the University pledges the Pledged Funds for the repayment of the Bonds. At the time of issuance of the Series 2018 Bonds, such pledge includes a pledge of the Net Income of the System, together with any insurance proceeds and investment income thereon, any amounts held in the Sinking Fund, the Project Fund, the Reserve Fund and investment income thereon. In addition to Net Income, the University covenants to transfer to the Sinking Fund other Available Funds, if any, to make timely principal and interest payments on the Bonds, in the event Net Income is insufficient. However, no assurance can be provided as to the availability or adequacy of such other Available Funds as of any particular date. Available Funds does not include generally assessed student fees or State appropriations, except to the extent specifically authorized by the Indiana General Assembly. See “APPENDIX D - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”

Revenues and Net Income

Revenues means all revenues derived from the operation of the System, including rents, fees, fines, rates and charges for use of the Facilities that make up the System, and certain investment earnings thereon and on other Funds established under the Indenture. Net Income consists of Revenues, less Operation and Maintenance Expenses of the System. Operation and Maintenance Expenses include all current expenses of operation, maintenance, insurance, and normal incidental repair of the Housing and Dining Facilities excluding General Administrative Expenses, Capital Improvements, Depreciation, Financing Expenses and amortization of financing costs. See “APPENDIX C - DEFINITIONS.”

All Revenues will be deposited in the Revenue Fund, and all Operation and Maintenance Expenses will be paid out of the Revenue Fund. The University covenants and agrees in the Indenture to transfer from the Revenue Fund to the Trustee for deposit into the Sinking Fund, on the Business Day (as defined in the Indenture) before each interest payment date, amounts sufficient to pay the principal of and interest on the Bonds. See “APPENDIX D - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE - Flow of Funds.”

Rate Covenant

The University will establish and collect rates and charges for the use of the System so as to generate Net Income in the next following Fiscal Year equal to no less than the sum of:

(a) an amount equal to the Annual Debt Service Requirement (as defined in “APPENDIX C - DEFINITIONS”) for such Fiscal Year; and

(b) any other amounts reasonably required or anticipated to be paid from Net Income with respect to such Fiscal Year in accordance with the Indenture.

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The University covenants to monitor the rents, fees, rates and other charges for the use and occupancy of the System on a regular basis, and to make such adjustments as may be necessary to provide the University with sufficient amounts to make the required deposits into the Sinking Fund. In the event that the University uses Available Funds to make payment of debt service on Bonds, the University covenants to re-establish and adjust the rents, fees, rates and other charges for the use and occupancy of the System so as to generate Net Income sufficient to make the required deposits into the Sinking Fund for the remainder of such Fiscal Year.

Other Covenants of the University

The University makes several covenants in the Indenture, including the following:

(a) The University covenants that it has a valid and existing right to the use and occupancy of the System and the right to construct, equip, operate, and manage the Housing and Dining Facilities constituting the System; that, except as otherwise expressly authorized herein, it will not encumber the System or the Net Income therefrom; and that it will, within three (3) months after accrual, pay and discharge or cause to be paid and discharged all lawful claims and demands of mechanics, laborers, and others which, if unpaid, might by law become further liens upon the System;

(b) The University covenants that if (i) the cost of acquiring, constructing, equipping, completing and furnishing any Housing and Dining Facility or improving any such Housing and Dining Facility in such manner that it is useful and adequate, free of all liens, claims, and encumbrances other than the lien of current taxes and assessments not in default and putting the same into use so that it shall be revenue-producing, exceeds (ii) the available proceeds of the Bonds issued to finance the same, the University will pay or cause to be paid into the Project Fund the amount of such excess out of any other funds legally available to the University for such purpose; and

(c) As a part of the University’s annual budgeting process, and following adoption of the University’s official budget for all operations for the next Fiscal Year, the Treasurer or authorized designee, prior to July 1, shall approve an annual operations budget for the next Fiscal Year which shall include a detailed estimate of the Revenues, Operation and Maintenance Expenses, and Net Income for each Housing and Dining Facility operating unit as well as a summary budget for the Housing and Dining System. The budget will include (i) the estimated Annual Debt Service Requirement, and (ii) any required deposits to the Funds and Accounts established by the Indenture.

For further information, see “APPENDIX D - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.”

Issuance of Additional Bonds

Additional Bonds may be authorized and executed by the University, authenticated by the Trustee or Registrar, and issued under the Indenture from time to time in order to provide funds for any one or more of the following purposes: (a) to erect, construct, improve, renovate, equip, and furnish additional Housing and Dining Facilities; (b) to acquire by purchase, lease,

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condemnation, gift, or otherwise, such property, real or personal, as may be necessary in connection with additional Housing and Dining Facilities or for improvements, rehabilitation, or renovation made or to be made on existing Housing and Dining Facilities; (c) to refinance indebtedness incurred, or reimburse the Issuer for funds advanced, for purposes of (a) or (b) above; (d) to refund or advance refund Outstanding Bonds or other outstanding obligations of the University; or (e) to exchange for Outstanding Bonds. Additional Bonds may be categorized as either First Lien Bonds or Junior Lien Obligations. First Lien Bonds means Additional Bonds which are secured as to the payment of principal and interest (other than Optional Maturities, if any, for which a Credit Facility is provided) by a pledge, assignment and grant of a security interest and a parity first lien on the Pledged Funds. Additional Bonds may be issued under the Indenture specifically to evidence liability of the University in favor of any entity providing a Credit Facility (“Credit Facility Obligations”). In such event, whether such Credit Facility Obligations are First Lien Bonds will depend on the ability of the University with regard to those Credit Facility Obligations to meet the test described below at the time that funds are advanced pursuant to such Credit Facility and not immediately reimbursed by the University. If such test cannot be met, the rights of the holders to receive the principal of and interest on such Credit Facility Obligations will be subordinated to the holders of all First Lien Bonds. See “APPENDIX D - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE--Flow of Funds.”

First Lien Bonds may be issued if the actual Net Income during the preceding Fiscal Year, as adjusted to reflect:

(a) any anticipated changes to the schedule of rents, fees, rates, or other charges for the Housing and Dining Facilities to become effective at the beginning of the semester, quarter or other school period next following the end of the preceding Fiscal Year;

(b) any anticipated changes in Operation and Maintenance Expenses and any anticipated changes in Financing Expenses;

(d) any loss of any Net Income for Housing and Dining Facilities being replaced or withdrawn from the System in that Fiscal Year, shall be equal to or greater than 100% of the Average Annual Debt Service to become due in the succeeding Fiscal Years on Bonds Outstanding and on such series of First Lien Bonds; provided, that for the purposes of the above computation, Net Income shall include the amount on deposit at the beginning of the Fiscal Year in the Revenue Fund and the Reserve Fund up to twenty-five percent (25%) of the Annual Debt Service Requirement for such Fiscal Year.

First Lien Bonds also may be authorized and executed by the University and authenticated and delivered by the Trustee or Registrar to refund or advance refund Outstanding Bonds or other outstanding obligations of the University or to exchange for Outstanding Bonds without compliance with the above-described provisions, if the issuance of such Bonds results in

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a reduction (on a net present value basis) in the amount of debt service to be paid on the Bonds to be refunded or exchanged.

All such computations required shall be made by the Treasurer. Compliance with these provisions shall be conclusively evidenced to the Trustee and Registrar by a certificate of the Treasurer.

Reserve Fund

No Reserve Fund Requirement exists for the Series 2018 Bonds, and the Series 2018 Bonds shall have no claim on the Reserve Fund described in “APPENDIX D - SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” The Series 2018 Bonds will have no claim on the Reserve Fund established for any subsequent series of First Lien Bonds.

THE FACILITIES AND THE SYSTEM

General

A Housing and Dining Facility may include any University facility permitted under the Act. As of the date of this Official Statement, the Housing and Dining System consists of substantially all of the Housing and Dining Facilities located on the University’s Muncie campus.

Residence halls and dining services at the University date back to the opening of Lucina Hall, a gift from the Ball family, in the Fall of 1927. Residence halls are expected to be operated on a financially sound basis while contributing significantly to educational programs of the University. The Vice President for Business Affairs and Treasurer and the Vice President for Student Affairs and Enrollment Services and Dean of Students of the University share responsibility for the overall operation of the residence hall and dining service facilities.

The Housing and Dining Facilities consist of a variety of residence halls and dining services owned and operated by the University for students. Accommodations including room and board and apartments are available to both undergraduate and graduate students.

Facilities

Housing and Dining System: The Housing and Dining System consists of a variety of residence halls and dining services owned and operated by the University, on its Muncie campus, for students. Accommodations offer both undergraduate and graduate students housing and dining options including room and board and apartments. Approximately 40% of the student population lives in campus housing. Freshman and transfer students are required to live in

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residence halls with some exceptions. The Housing and Dining System includes facilities listed as follows:

(a) Residence Halls and Dining Services: Residence hall facilities provide housing opportunities for approximately 6,962 students in 25 residence halls, grouped in twelve housing complexes. All complexes are multi-storied facilities containing student rooms, lounges, recreation areas, computer labs and laundry facilities. All residence halls have wireless access to internet services and University systems. Dining locations include a variety of food courts, all-you-care-to-eat buffets, cafes, convenience stores, and several national brands, such as Chick-fil-A, Starbucks, Taco Bell, Jamba Juice, and Papa John’s Pizza. A catering department within Dining offers service for campus events and provides football stadium suite-level food service.

Net income from the Housing and Dining System is pledged for the payment of debt service on the Bonds. See “APPENDIX C – DEFINITIONS” for a definition of the “Housing and Dining System.”

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The table below sets forth the year of initial occupancy and the capacity of the Housing and Dining Facilities as of Fall 2017.

Initial Spaces Occupancy Available Residence Hall and Frank Elliott Ball Hall ...... 1937 119 Dining Facilities: Frances Woodworth Ball Hall ...... 1956 590 W. E. Wagoner Hall ...... 1957 316* Grace DeHority Hall ...... 1960 551 Ralph Noyer Hall ...... 1962 757 Mark E. Studebaker Hall - West ...... 1964 963 Mark E. Studebaker Hall - East ...... 1965 439 Robert LaFollette Hall ...... 1964 1,048** Botsford/Swinford Hall in Johnson Complex .. 1967 572 Schmidt/Wilson Hall in Johnson Complex ...... 1969 505 Don Park Hall ...... 2007 502 Thomas J. Kinghorn Hall ...... 2010 600

Apartments: Anthony Apartments - I ...... 1958 38 - II ...... 1962 48 - III ...... 1964 45 Scheidler Apartments - I ...... 1967 78 - II ...... 1968 130 - III ...... 1971 185

*Wagoner Hall is used to house high school students attending the Indiana Academy for Science, Mathematics, and Humanities. ** The LaFollette Hall number reflects the reopening of Shively (188 spaces), and the demolition of LaFollete Woody/Shales Halls and one wing of Mysch/Hurst Halls (707 spaces).

The Series 2018 Project will be included in the Housing and Dining System immediately upon completion. See “THE SERIES 2018 PROJECT.”

Management

The residence hall facilities are managed by a central administrative staff headed by the Associate Vice President for Student Affairs and Director of Housing and Residence Life. He is assisted by two associate directors, ten assistants, and more than 30 residence hall directors, graduate assistant residence hall directors, and resident managers for university apartments.

The dining hall facilities are also managed by a central administrative staff headed by the Director of Dining and Dining Initiatives. The Director is responsible for more than 1,000 employees, 700 of whom are students working on a part-time basis. The University operates a “Best Practice” campus dining program by offering: (1) choice and variety in dining experiences; (2) hours of operation that respond to the extended learning day and busy schedules of students; and (3) high quality and a variety of food options.

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Occupancy

The following table is a breakdown of the type of residence facility available and the occupancy percentage for the past five Fiscal Years.

Fiscal Year Ended June 30 2013-14 2014-15 2015-16 2016-17 2017-18 Residence Halls: Spaces Available 7,200 7,011(3) 7,127(3) 6,975(4) 6,962(5) Spaces Occupied 6,546 6,466 6,304 6,637 6,750 Occupancy Percentage(1) 91% 92% 88% 95% 97% Apartments: Apartments Available 524 524 524 524 524 Apartments Occupied 501 494 477 411 388 Occupancy Percentage(2) 96% 94% 91% 78% 74%

(1) Computed on the basis of an academic year not including summer. (2) Computed on the basis of a 12-month period. (3) Reflects closure of Shively Hall (-192 spaces). (4) Reflects closure of Woody Hall Floors 6, 7 and 8 (-153 spaces). (5) Reflects opening of Schmidt/Wilson (+508), reopening of Shively (+188), reclaimed space in Williams (+1), and closure of halls that were demolished or repurposed at LaFollette (Mysch -216, Woody -63, Hurst -214, Shales - 214).

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Rental Rates

The University operates its academic programs on a two semester and summer session basis. The following table gives the minimum and maximum rates per year by type of facility for the past five Fiscal Years. A variety of payment plans is available to accommodate student needs.

Fiscal Year Ended June 30 2013-14 2014-15 2015-16 2016-17 2017-18 Residence Halls:(1)(2) Minimum Academic Year Rate $7,950 $8,340 $8,715 $8,970 $9,060 Maximum Academic Year Rate 11,946 12,532 13,096 13,478 13,614 Apartments:(3)(4) Minimum Monthly Rate $522 $548 $573 $590 $590 Maximum Monthly Rate 814 854 915 825 825

(1) Computed on the basis of an academic year not including summer. (2) A variety of room types are available from a small double to group living units as well as a limited number of single rooms. Various dining plans are available for student selection. Students have the choice of 10-, 14-, 18, or 21-meal dining plans. Students also get varying amounts of “Dining Plus” dollars depending on the plan they choose. In addition, an incentive plan called the Premium Plan offers students a two-year housing agreement with a guaranteed room and board rate for two academic school years. Students who choose the Premium Plan also are given additional dining plus dollars, standard vehicle registration, preferred room scheduling in the second year and an earlier move in date. This plan allows parents and students to better manage college expenses. (3) Computed on the basis of a 12-month period. (4) One, two and three bedroom units are available, each furnished with stove and refrigerator, including internet and all utilities except telephone.

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Financial Operations

The following table, prepared by the University, presents a summary statement of combined Revenues and Operating and Maintenance Expenses for the Housing and Dining System for the past five Fiscal Years.

Summary of Revenues and Operating and Maintenance Expenses Fiscal Years Ended June 30

2013(1) 2014(1) 2015 2016 2017 Revenues Housing $30,362,514 $31,080,591 $32,126,273 $32,271,101 $34,751,829 Dining $35,589,471 $36,606,436 $37,442,169 $38,207,053 $41,257,837 Total Revenue $65,951,985 $67,687,027 $69,568,442 $70,478,154 $76,009,666

Operating and Maintenance Expenses Housing $20,671,973 $20,053,239 $19,621,663 $20,118,675 $19,575,234 Dining $30,770,219 $31,636,690 $31,761,623 $32,528,546 $33,582,845 Total Expenses $51,442,192 $51,689,929 $51,383,286 $52,647,221 $53,158,079 Net Income $14,509,793 $15,997,098 $18,185,156 $17,830,933 $22,851,587

Average Annual Debt Service(2)* $11,250,423 $11,250,423 $11,250,423 $11,250,423 $11,250,423

Coverage* 1.29 times 1.42 times 1.62 times 1.59 times 2.03 times

(1) Housing and Dining System Revenue and Expenses were restated for these years to exclude intra-university transfers. These restatements did not materially change the Net Income.

(2) Utilizes the Average Annual Debt Service in Fiscal Years 2018 and forward, following issuance of the Series 2018 Bonds.

* Preliminary, subject to change

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The following table, prepared by the University, presents combined projected operating results for the Housing and Dining System for the Fiscal Years ending June 30, 2018 through 2020.

Projected Operating Results of the Housing and Dining System Fiscal Years Ending June 30

2018 2019 2020 Budgeted Projected(2) Projected(2) Revenues Housing $34,860,487 $35,557,697 $36,268,851 Dining $43,342,028 $44,208,869 $45,093,046 Total Revenue $78,202,515 $79,766,565 $81,361,897

Operating and Maintenance Expenses Housing $21,188,227 $21,611,992 $22,044,231 Dining $36,330,145 $37,056,748 $37,797,883 Total Expenses $57,518,372 $58,668,739 $59,842,114 Net Income $20,684,143 $21,097,826 $21,519,782

Average Annual Debt Service(1)* $11,250,423 $11,250,423 $11,250,423

Coverage* 1.84 times 1.88 times 1.91 times

(1) Utilizes the Average Annual Debt Service in Fiscal Years 2018 and forward, following issuance of the Series 2018 Bonds. (2) For projected figures, room and board rates are anticipated to increase annually by 2%. The University projects that Revenues for the Housing and Dining System will increase annually by 2%. The Housing and Dining System Operating and Maintenance Expenses are projected to increase annually by 2%

Additional Capital Projects: Housing and Dining Facilities

In 2001, as a means of updating its plans, the University engaged the consulting firm of Anderson Strickler to study the University’s existing facilities and make recommendations for future improvements. As a result of this process, the University has been systematically renovating many of its residence halls as well as constructing new residence halls to provide the type of facilities desired by students attending college today. Over the past seven years, the University has invested nearly $100 million in a variety of upgrades and major remodeling projects in its residence hall and dining facilities, all designed to keep the facilities serviceable and attractive. The University has a multi-year plan in place to renovate and replace additional residence halls. The North Residential Neighborhood project is the next step in this plan. When completed, the North Residential Neighborhood project will allow for the demolition of LaFollette Complex, one of the largest and oldest halls on campus. Also upon completion of the project, substantially all of the facilities will be new or modernized and surplus inventory will have been reduced. This should result in higher demand and lower operating costs. The Series

* Preliminary, subject to change

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2018 Project will finance Phase 1 of the North Residential Neighborhood project, including realignment of McKinley Avenue and construction of one new residence hall and a stand-alone dining facility. Phase 1 will begin in May 2018 and be completed by Summer 2020. A second new residence hall will be constructed in Phase 2 with financing of the $50 million project coming from internal housing and dining reserves. Phase 2 construction is anticipated to start in Summer, 2019 and be ready for occupancy in Fall, 2021.

ANNUAL DEBT SERVICE REQUIREMENTS

The following table sets forth, for each Fiscal Year, the Annual Debt Service Requirements for the Bonds payable by the University from the Pledged Funds.

Fiscal Year Series 2018 Bonds Ending June 30 Series 2013 Bonds Series 2016 Bonds Principal* Interest Total Debt Service 2018 $2,547,875 $5,087,450 $0 2019 2,549,125 5,091,450 0 2020 2,547,375 5,083,575 2,490,000 2021 2,542,625 5,093,325 2,620,000 2022 2,544,625 5,090,200 2,750,000 2023 2,543,125 5,084,200 2,895,000 2024 2,538,125 5,075,075 3,040,000 2025 2,539,375 5,077,200 3,200,000 2026 2,536,625 5,065,200 3,360,000 2027 2,534,750 2,728,575 3,535,000 2028 2,528,625 2,724,700 3,715,000 2029 2,528,000 2,721,450 3,905,000 2030 2,537,800 2,718,575 4,105,000 2031 2,533,800 2,720,700 4,315,000 2032 2,520,375 2,717,575 4,540,000 2033 2,521,250 2,714,075 4,735,000 2034 2,516,375 2,734,350 4,905,000 2035 2,709,875 5,115,000 2036 2,706,000 5,380,000 2037 5,655,000 2038 5,915,000 2039 6,155,000

* Preliminary, subject to change

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DEBT SERVICE COVERAGE

The following table shows coverage of Net Income of the Housing and Dining System for the past three Fiscal Years, compared to the Average Annual Debt Service on the Series 2013 Bonds, Series 2016 Bonds and Series 2018 Bonds. Year Ended June 30 (rounded to nearest thousand) 2015 2016 2017 Net Income $18,185 $17,831 $22,852 Average Annual Debt Service(1)* $11,250 $11,250 $11,250 Coverage of Average Annual Debt Service* 1.62 times 1.59 times 2.03 times

(1) Utilizes the Average Annual Debt Service in Fiscal Years 2018 and forward, following issuance of the Series 2018 Bonds.

TAX MATTERS

In the opinion of Ice Miller LLP, Indianapolis, Indiana, Bond Counsel, under existing laws, regulations, judicial decisions and rulings, interest on the Series 2018 Bonds is excludable for federal income tax purposes from gross income under Section 103 of the Internal Revenue Code of 1986, as amended and in effect on the issuance date of the Series 2018 Bonds (the “Code”), and is not a specific preference item for purposes of the federal alternative minimum tax, although Bond Counsel observes that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income for taxable years that began prior to January 1, 2018. Such opinion is conditioned on continuing compliance by the University with the Tax Covenants (hereinafter defined). Failure to comply with the Tax Covenants could cause interest on the Series 2018 Bonds to lose the exclusion from gross income for federal income tax purposes retroactive to the date of issue.

In the opinion of Ice Miller LLP, Indianapolis, Indiana, Bond Counsel, under existing laws, regulations, judicial decisions and rulings, interest on the Series 2018 Bonds is exempt from income taxation in the State of Indiana. This opinion relates only to the exemption of interest on the Series 2018 Bonds for the State of Indiana income tax purposes. See APPENDIX E for the form of opinion of Bond Counsel with respect to the Series 2018 Bonds.

The Code imposes certain requirements which must be met subsequent to the issuance of the Series 2018 Bonds as a condition to the exclusion from gross income of interest on the Series 2018 Bonds for federal income tax purposes. The University will covenant not to take any action, within its power and control, nor fail to take any action with respect to the Series 2018 Bonds that would result in the loss of the exclusion from gross income for federal income tax purposes of interest on the Series 2018 Bonds pursuant to Section 103 of the Code and will covenant to adopt and maintain appropriate procedures to accomplish such purpose (collectively, the “Tax Covenants”). The Tax Covenants are based solely on the laws and regulations in effect on the date of delivery of the Series 2018 Bonds. The Indenture and certain certificates and

* Preliminary, subject to change

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agreements to be delivered on the date of delivery of the Series 2018 Bonds establish procedures under which compliance with the requirements of the Code can be met. It is not an event of default under the Indenture if the interest on the Series 2018 Bonds is not excludable from gross income for federal income tax purposes or otherwise pursuant to any provision of the Code which is not in effect on the issue date of the Series 2018 Bonds.

Indiana Code (IC) 6 5.5 imposes a franchise tax on certain taxpayers (as defined in IC 6 5.5) which, in general, include all corporations which are transacting the business of a financial institution in Indiana. The franchise tax is measured in part by interest excluded from gross income under Section 103 of the Code minus associated expenses disallowed under Section 265 of the Code. Taxpayers should consult their own tax advisors regarding the impact of this legislation on their ownership of the Series 2018 Bonds.

Although Bond Counsel will render its opinion that interest on the Series 2018 Bonds is excludable from federal gross income and that interest on the Series 2018 Bonds is exempt from State of Indiana income tax, the accrual or receipt of interest on the Series 2018 Bonds may otherwise affect a Bondholder’s federal income or State tax liability. The nature and extent of these other tax consequences will depend upon the Bondholder’s particular tax status and a Bondholder’s other items of income or deduction. Taxpayers who may be affected by such other tax consequences include, without limitation, financial institutions, certain insurance companies, S corporations, certain foreign corporations, individual recipients of Social Security or railroad retirement benefits and taxpayers who may be deemed to have incurred (or continued) indebtedness to purchase or carry the Series 2018 Bonds. Bond Counsel expresses no opinion regarding any other such tax consequences. Prospective owners of the Series 2018 Bonds should consult their own tax advisors with respect to the foregoing and other tax consequences of owning the Series 2018 Bonds.

Legislation affecting municipal bonds is considered from time to time by the United States Congress. There can be no assurance that legislation enacted or proposed after the date of issuance of the Series 2018 Bonds will not have an adverse effect on the tax-exempt status of the Series 2018 Bonds or the market price of the Series 2018 Bonds.

ORIGINAL ISSUE DISCOUNT

The initial public offering prices of the Series 2018 Bonds maturing on ______(collectively, the “Discount Bonds”) are less than the principal amounts payable at maturity. As a result the Discount Bonds will be considered to be issued with original issue discount. The difference between the initial public offering price of the Discount Bonds, as set forth on the cover page of this Official Statement (assuming it is the first price at which a substantial amount of that maturity is sold) (the “Issue Price” for such maturity), and the amount payable at maturity of the Discount Bonds will be treated as “original issue discount.” A taxpayer who purchases a Discount Bond in the initial public offering at the Issue Price for such maturity and who holds such Discount Bond to maturity may treat the full amount of original issue discount as interest which is excludable from the gross income of the owner of that Discount Bond for federal income tax purposes and will not, under present federal income tax law, realize taxable capital gain upon payment of the Discount Bond at maturity.

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The original issue discount on each of the Discount Bonds is treated as accruing daily over the term of such Bond on the basis of the yield to maturity determined on the basis of compounding at the end of each six-month period (or shorter period from the date of the original issue) ending on January 1 and July 1 (with straight line interpolation between compounding dates).

Section 1288 of the Code provides, with respect to tax-exempt obligations such as the Discount Bonds, that the amount of original issue discount accruing each period will be added to the owner’s tax basis for the Discount Bonds. Such adjusted tax basis will be used to determine taxable gain or loss upon disposition of the Discount Bonds (including sale, redemption or payment at maturity). Owners of Discount Bonds who dispose of Discount Bonds prior to maturity should consult their tax advisors concerning the amount of original issue discount accrued over the period held and the amount of taxable gain or loss upon the sale or other disposition of such Discount Bonds prior to maturity.

As described above in “TAX MATTERS,” the original issue discount that accrues in each year to an owner of a Discount Bond may result in certain collateral federal income tax consequences. Owners of any Discount Bonds should be aware that the accrual of original issue discount in each year may result in a tax liability from these collateral tax consequences even though the owners of such Discount Bonds will not receive a corresponding cash payment until a later year.

Owners who purchase Discount Bonds in the initial public offering but at a price different from the Issue Price for such maturity should consult their own tax advisors with respect to the tax consequences of the ownership of the Discount Bonds.

The Code contains certain provisions relating to the accrual of original issue discount in the case of subsequent purchasers of bonds such as the Discount Bonds. Owners who do not purchase Discount Bonds in the initial offering should consult their own tax advisors with respect to the tax consequences of the ownership of the Discount Bonds.

Owners of Discount Bonds should consult their own tax advisors with respect to the state and local tax consequences of owning the Discount Bonds. It is possible under the applicable provisions governing the determination of state or local income taxes accrued interest on the Discount Bonds may be deemed to be received in the year of accrual even through there will not be a corresponding cash payment until a later year.

BOND PREMIUM

The initial public offering prices of the Series 2018 Bonds maturing on ______(collectively, the “Premium Bonds”) are greater than the principal amounts payable at maturity or the call date. As a result, the Premium Bonds will be considered to be issued with amortizable bond premium (the “Bond Premium”). An owner who acquires a Premium Bond in the initial offering will be required to adjust the owner’s basis in the Premium Bond downward as a result of the amortization of the Bond Premium, pursuant to Section 1016(a)(5) of the Code. Such adjusted tax basis will be used to determine taxable gain or loss upon the disposition of the Premium Bonds including sale, redemption or payment at maturity or call date. The amount of

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amortizable Bond Premium will be computed on the basis of the owner’s yield. Rules for determining (i) yield, (ii) the amount of amortizable Bond Premium and (iii) the amount amortizable in a particular year are set forth at Section 171(b) of the Code and the Regulations accompanying that section. No income tax deduction for the amount of amortizable Bond Premium will be allowed pursuant to Section 171(a)(2) of the Code, but the amortization of Bond Premium may be taken into account as a reduction in the amount of tax-exempt income for purposes of determining other tax consequences of owning the Premium Bonds. Owners of the Premium Bonds should consult their tax advisors with respect to the precise determination for federal income tax purposes of the treatment of Bond Premium upon the sale or other disposition of such Premium Bonds and with respect to the state and local tax consequences of owning and disposing of Premium Bonds.

Special rules governing the treatment of Bond Premium, which are applicable to dealers in tax-exempt securities, are found at Section 75 of the Code. Dealers in tax-exempt securities are urged to consult their own tax advisors concerning the treatment of Bond Premium.

ENFORCEABILITY OF RIGHTS AND REMEDIES AND LEGAL OPINIONS

The enforceability of the rights and remedies of the Trustee or the holders of the Series 2018 Bonds under the Indenture, and the availability of remedies to any party seeking to enforce the pledge of the Pledged Funds, are in many respects dependent upon judicial actions which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically Title 11 of the United States Code (the federal bankruptcy code), the rights and remedies provided in the Indenture and any other agreement in this financing, and the rights and remedies of any party seeking to enforce the pledge of the Pledged Funds, may not be readily available or may be limited.

The various legal opinions to be delivered concurrently with the delivery of the Series 2018 Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by, inter alia, the valid exercise of the constitutional powers of the State of Indiana and the United States of America and bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The exceptions would encompass any exercise of federal, State or local police powers (including the police powers of the University and the State), in a manner consistent with the public health and welfare. Enforceability of the Indenture, and availability of remedies to a party seeking to enforce the pledge of the Pledged Funds in a situation where such enforcement or availability may adversely affect public health and welfare may be subject to these police powers.

The various legal opinions to be delivered concurrently with the delivery of the Series 2018 Bonds express the professional judgment of the attorneys rendering the opinions as to the legal issues explicitly addressed therein. By rendering a legal opinion, the opinion giver does not become an insurer or guarantor of that expression of professional judgment of the transaction opined upon or of the future performance of parties to such transaction. Nor does the rendering of an opinion guarantee the outcome of any legal dispute that may arise out of the transaction.

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LITIGATION

At the time of delivery of the Series 2018 Bonds, the University will certify that there is no litigation or other proceeding pending or, to the University’s knowledge, threatened, in any court, agency or other administrative body restraining or contesting the issuance of the Series 2018 Bonds, or the pledging of Pledged Funds, or in any way affecting the validity of any provision of the Series 2018 Bonds, the Resolution or the Indenture.

CERTAIN LEGAL MATTERS

Certain legal matters incidental to the authorization and issuance of the Series 2018 Bonds are subject to the approval of Ice Miller LLP, Indianapolis, Indiana, Bond Counsel. The form of approving opinion of Bond Counsel with respect to the Series 2018 Bonds is attached hereto as APPENDIX E. Certain legal matters will be passed upon for the University by DeFur Voran LLP, Muncie, Indiana, as counsel to the University.

Bond Counsel has not undertaken independently to verify any information contained in this Official Statement, except that representatives of such firm participating in the issuance of the Series 2018 Bonds have reviewed the information under the headings “SUMMARY STATEMENT,” “INTRODUCTION,” “DESCRIPTION OF SERIES 2018 BONDS (except for the information under Book-Entry-Only System),” “PLAN OF FINANCE,” “SECURITY FOR THE BONDS,” “TAX MATTERS,” “ORIGINAL ISSUE DISCOUNT,” “BOND PREMIUM,” and “CONTINUING DISCLOSURE” and APPENDICES C, D and E and determined that such information conforms in all material respects to the provisions of the documents and other matters set forth therein. Bond Counsel has not undertaken to review the accuracy or completeness of statements under any other heading of this Official Statement, including particularly matters related to the financial condition of the University and other financial data concerning the University and expresses no opinion thereon or assumes any responsibility therewith.

FINANCIAL INFORMATION

A financial report of the University is prepared annually by the Office of the Vice President for Business Affairs and Treasurer. The most recent financial information currently available regarding the University is the report for the Fiscal Year ended June 30, 2017. A copy of this report is appended hereto as APPENDIX B.

UNDERWRITING

The Underwriters have jointly and severally agreed to purchase the Series 2018 Bonds from the University at an aggregate Underwriters’ discount of $______from the initial public offering prices set forth or reflected on the inside cover page of this Official Statement, from which the Underwriters will pay certain expenses. The obligations of the Underwriters to purchase the Series 2018 Bonds are subject to certain customary conditions precedent to closing and the Underwriters will be obligated to purchase all of the Series 2018 Bonds if any Series 2018 Bonds are purchased. The Underwriters have agreed to make a bona fide public offering of all the Series 2018 Bonds at prices not in excess of the initial public offering prices set forth or reflected on the inside cover page of this Official Statement. The Series 2018 Bonds may be

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offered and sold to certain dealers (including the Underwriters and other dealers depositing such Series 2018 Bonds into investment trusts) at prices lower than such public offering prices and, after completion of the initial bona fide public offering, such public offering prices may be changed, from time to time, by the Underwriters.

The Underwriters have entered into distribution agreements with other broker-dealers (that have not been designated by the University as Underwriters) for the distribution of the Series 2018 Bonds at the original issue prices. Such agreements generally provide that the Underwriters will share a portion of their underwriting compensation or selling concession with such broker-dealers.

CONTINUING DISCLOSURE

Pursuant to continuing disclosure requirements promulgated by the Securities and Exchange Commission in SEC Rule 15c2-12, as amended (the “SEC Rule”), the University entered into an Amended and Restated Continuing Disclosure Undertaking Agreement, dated as of February 15, 2011, as heretofore supplemented, to be further supplemented by a Fifth Supplement to Amended and Restated Continuing Disclosure Undertaking Agreement, dated as of June 1, 2018 (together, the “Undertaking”). Pursuant to the terms of the Undertaking, the University will agree to provide the following information while any of the Series 2018 Bonds are Outstanding:

• Audited Financial Statements. To the Municipal Securities Rulemaking Board (the “MSRB”), when and if available, the audited financial statements of the University for each fiscal year, beginning with the fiscal year ending June 30, 2018, together with the auditor’s report and all notes thereto; and

• Financial Information in this Official Statement. To the MSRB, within 180 days of the close of the University’s fiscal year, beginning with the fiscal year ending June 30, 2018, annual financial information, other than the audited financial statements described above, including (i) unaudited financial statements of the University if audited financial statements are not available and (ii) operating data (excluding any demographic information or forecasts) of the general type provided under the following headings in this Official Statement (as well as other Official Statements of the University for its Student Fee Bonds, as designated below) (collectively, the “Annual Information”):

THE FACILITIES AND THE SYSTEM -- Housing and Dining System Revenue Bonds ANNUAL DEBT SERVICE REQUIREMENTS -- Student Fee Bonds ANNUAL DEBT SERVICE REQUIREMENTS -- Housing and Dining System Revenue Bonds DEBT SERVICE COVERAGE -- Housing and Dining System Revenue Bonds BALL STATE UNIVERSITY (Appendix A) Enrollment Student Admissions Tuition and Fees

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State Appropriations Financial Aid to Students Financial Operations of the University Outstanding Indebtedness

• Reportable Events. In a timely manner within 10 business days of the occurrence of any of the following events, if material (which determination of materiality shall be made by the University in accordance with the standards established by federal securities laws), to the MSRB:

• non-payment related defaults; • modifications to the rights of owners of the Series 2018 Bonds; • Series 2018 Bond calls (other than scheduled mandatory sinking fund redemptions for which notice is given in accordance with the Indenture); • release, substitution or sale of property securing repayment of the Series 2018 Bonds; • the consummation of a merger, consolidation, or acquisition, or certain asset sales, involving the obligated person, or entry into or termination of a definitive agreement relating to the foregoing; and • appointment of a successor or additional trustee or the change of name of a trustee.

In a timely manner within 10 business days of the occurrence of any of the following events, regardless of materiality, to the MSRB:

• principal and interest payment delinquencies; • unscheduled draws on debt service reserves reflecting financial difficulties; • unscheduled draws on credit enhancements reflecting financial difficulties; • substitution of credit or liquidity providers, or their failure to perform; • defeasances; • rating changes; • adverse tax opinions or other material events affecting the tax exempt status of the Series 2018 Bonds; the issuance by the IRS of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the securities; • tender offers; and • bankruptcy, insolvency, receivership or similar event of the obligated person.

• Failure to Disclose. In a timely manner, to the MSRB, notice of the University failing to provide the annual financial information as described above.

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If any Annual Information or audited financial statements relating to the University referred to above no longer can be provided because the operations to which they related have been materially changed or discontinued, a statement to that effect, provided by the University to the MSRB, along with any other Annual Information or audited financial statements required to be provided under the Undertaking, shall satisfy the Undertaking. To the extent available, the University shall cause to be filed along with the other Annual Information or audited financial statements operating data similar to that which can no longer be provided.

The University has agreed to make a good faith effort to provide Annual Information. However, failure to provide any component of Annual Information because it is not available to the University on the date by which Annual Information is required to be provided hereunder, shall not be deemed to be a breach of this Agreement. The University has further agreed to supplement the Annual Information filing when such data is available.

Dissemination Agent. The University may, at its sole discretion, utilize an agent (a “Dissemination Agent”) in connection with the dissemination of any annual financial information required to be provided by the University pursuant to the terms of the Undertaking.

Remedy. The sole remedy against the University for any failure to carry out any provision of the Undertaking shall be for specific performance of the University’s disclosure obligations under the Undertaking and not for money damages of any kind or in any amount. The University’s failure to honor its covenants thereunder shall not constitute a breach or default of the Series 2018 Bonds, the Indenture or any other agreement to which the University is a party.

In the event the University fails to provide any information required of it by the terms of the Undertaking, any holder or beneficial owner of Series 2018 Bonds may pursue the remedy set forth above in any court of competent jurisdiction in the State of Indiana. Any challenge to the adequacy of the information provided by the University by the terms of the Undertaking may be pursued only by holders or beneficial owners of not less than 25% in principal amount of Series 2018 Bonds then Outstanding in any court of competent jurisdiction in the State of Indiana. An affidavit to the effect that such persons are holders or beneficial owners of Series 2018 Bonds supported by reasonable documentation of such claim shall be sufficient to evidence standing to pursue the remedy set forth above.

Prior to pursuing any remedy for any breach of any obligation under the Undertaking, a holder or beneficial owner of Series 2018 Bonds shall give notice to the University, by registered or certified mail, of such breach and its intent to pursue such remedy. Fifteen (15) days after the mailing of such notice, and not before, such remedy may be pursued under the Undertaking if and to the extent the University has failed to cure such breach within such fifteen (15) days.

Modification of Undertaking. The University may, from time to time, amend or modify the Undertaking without the consent of or notice to the owners of the Series 2018 Bonds if either (a)(i) such amendment or modification is 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 the University, or type of business conducted, (ii) the Undertaking, as so amended or modified, would have complied with the requirements of the Rule on the date hereof, after taking

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into account any amendments or interpretations of the Rule, as well as any change in circumstances, and (iii) such amendment or modification does not materially impair the interests of the holders of the Series 2018 Bonds, as determined either by (A) any person selected by the University that is unaffiliated with the University (including the trustee under the Indenture, or nationally recognized bond counsel) or (B) an approving vote of the holders of the requisite percentage of Outstanding Series 2018 Bonds as required under Section 16.01 of the Indenture at the time of such amendment or modification; or (b) such amendment or modification (including an amendment or modification which rescinds this Agreement) is permitted by the Rule, as then in effect.

Past Compliance. In order to assist the Underwriters in complying with the Underwriters’ obligations pursuant to the SEC Rule, the University represents that it has identified certain deficiencies with regard to its undertakings which occurred during the previous five years, including, but not limited to, the following instance: The University did not file a reportable event notice with respect to the redemption of its outstanding Parking System Revenue Bonds, which were redeemed in full using available cash on April 2, 2015. The bondholders in question did, however, receive timely 30 day notice of the redemption on March 2, 2015. The University makes no representation as to any potential materiality of such prior instance, as materiality is dependent upon individual facts and circumstances. Otherwise, there have been no instances in the past five years when the University has failed to comply, in all material respects, with any undertakings in a written contract or agreement as specified in paragraph (b)(5)(i) of the SEC Rule.

EMMA. The Securities and Exchange Commission approved the submission of continuing disclosure filings with the Electronic Municipal Market Access (“EMMA”) system established by the MSRB, as the sole nationally recognized municipal securities information repository recognized by the SEC, effective July 1, 2009. Accordingly, all continuing disclosure filings under the Undertaking shall be filed solely by transmitting such filings to EMMA at www.emma.msrb.org.

RATINGS

Moody’s Investors Service (“Moody’s”) and S&P Global Ratings (“S&P”) have assigned their municipal bond ratings of “Aa3” and “AA-” to the Series 2018 Bonds, respectively.

An explanation of the rating by Moody’s may be obtained from such agency at 7 World Trade Center at 250 Greenwich Street, New York, New York 10007. An explanation of the rating by S&P may be obtained from such agency at 130 East Randolph St., Suite 2900, Chicago, IL 60601. Such ratings reflect only the view of the rating agencies and are not a recommendation to buy, sell or hold any of the Series 2018 Bonds. There is no assurance that any rating will continue for any given period of time or that any rating will not be revised downward or withdrawn entirely if, in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of any rating may have an adverse effect on the market price or marketability of the Series 2018 Bonds.

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SPECIAL RELATIONSHIPS

Ice Miller LLP, Indianapolis, Indiana, is serving as Bond Counsel and as special disclosure counsel.

MISCELLANEOUS

During the initial offering period for the Series 2018 Bonds, copies of the Indenture will be available for inspection at the Office of the Vice President for Business Affairs and Treasurer, Ball State University, 2000 University Avenue, Muncie, Indiana 47306; or at the Public Finance Division of Piper Jaffray & Co., 444 West Lake Street, Suite 3300, Chicago, Illinois 60606.

The execution and delivery of this Official Statement have been duly authorized by the Ball State University Board of Trustees.

BALL STATE UNIVERSITY BOARD OF TRUSTEES

By: Bernard M. Hannon, Treasurer

Dated: June ___, 2018

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APPENDIX A

BALL STATE UNIVERSITY

[THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A

BALL STATE UNIVERSITY

General

Ball State University (the “University” or “Ball State”), located in Muncie, Indiana, was founded as Indiana State Normal School, Eastern Division, in 1918. Its antecedents, all housed in what is now the Ball State Administration Building, were also normal schools, owned and operated under various names. In 1918, the Ball brothers, a prominent Muncie industrial family, bought the property and donated it to the State of Indiana, which, in turn, transferred control of the school to the Board of Trustees of the Indiana State Normal School. In 1922, in recognition of the generosity of the Ball brothers, the Board added Ball Teachers College to the school’s name. In 1929, the Indiana General Assembly separated the two colleges, naming the campus in Muncie Ball State Teachers College. In 1965, the General Assembly renamed the institution Ball State University, in recognition of its phenomenal growth in enrollment and physical facilities, the variety and quality of its educational programs and services, and in anticipation of the much broader role it would be expected to assume in the future.

Leadership

Geoffrey S. Mearns became the 17th President of Ball State University on May 15, 2017. President Mearns came to Ball State from Northern Kentucky University, where he served as president for five years. Prior to that President Mearns served as provost and senior vice president for academic affairs at Cleveland State University. He previously served as dean and professor of law at Cleveland State’s Cleveland-Marshall College of Law. President Mearns also practiced law for fifteen years, including serving as a federal prosecutor in the U.S. Department of Justice. He earned his undergraduate degree in English from Yale University and his J.D. from the University of Virginia.

Strategic Plan

Ball State celebrates its centennial anniversary in 2018 and planning for the celebration has included the launch of a new marketing campaign and the launch of a new strategic planning process.

In late fall 2017, President Mearns announced the launch of a more visible and vocal marketing campaign which includes a refreshed Beneficence logo and the new “We Fly” theme. “We Fly” celebrates the spirit of intellectual curiosity that challenges all of the University community including students, graduates, faculty and staff.

In January, 2018, President Mearns appointed a Strategic Planning Committee and charged the committee with designing and leading the planning process to begin the University’s second century. The plan will include a mission statement, core values, 2019-23 strategic plan goals, and the 2040 vision.

Guiding the Strategic Planning Committee’s work will be Sue Hodges Moore who joined Ball State as its first Chief Strategy Officer in early March, 2018. As Chief Strategy Officer,

A - 1 Moore will be responsible for assisting with the development and implementation of a new strategic plan for the University as well as assisting divisions, colleges, and units with developing and implementing their own individual plans that align with the University’s overall plan.

In early spring, 2018, President Mearns announced updates related to the work completed by the Strategic Planning Committee. Those updates include a timeline, organization of various working groups, and ways in which input may be given by faculty, staff, students, alumni and community partners. Additionally the strategic planning process was titled, “Spreading our Wings.”

Work will continue on the strategic plan throughout summer of 2018. The final draft of “Spreading our Wings” is scheduled to be presented to the Board of Trustees for approval by the end of 2018.

Organization

Ball State is organized into seven academic colleges: Architecture and Planning; Business; Communication, Information, and Media; Fine Arts; Science and Humanities; Teachers College, and the newly formed College of Health. Ball State offers 7 associate-level programs, 178 undergraduate programs, 99 master’s level programs, 16 doctoral-level programs and 2 specialists programs providing professional and pre-professional specialization as well as education in the liberal arts and sciences.

University and Program Highlights

University-Wide

Completing construction in 2018 on the largest ground source geothermal system in the country, spurring jobs throughout Indiana and the nation. The system will heat and cool over 45 buildings throughout the approximately 700-acre campus, cutting the University’s carbon footprint roughly in half and saving about $2 million a year in energy costs.

Named one of the best universities in the Midwest by The Princeton Review for 13 years.

Designated a doctoral university: higher research activity by The Carnegie Classification of Institutions of Higher Education.

Earned the Community Engagement Classification from the Carnegie Foundation for the Advancement of Teaching. The classification recognizes colleges and universities that demonstrate an institution-wide commitment to public service, civic involvement, and community partnerships.

Received a Higher Education Excellence in Diversity (HEED) Award from Insight into Diversity in 2016 and 2017. This honor is for exemplary initiatives focusing on all aspects of diversity and inclusion, including gender, race, ethnicity, veterans, people with disabilities, and members of the LGBTQ community.

A - 2 Ranked in the top 20 in the country for three graduate programs in U.S. News & World Report’s 2017 “Best Online Programs”: MBA was 12th, nursing was 13th, and education was 16th. U.S. News also ranked the online bachelor’s programs 36th.

Recognized as the first higher education institution in the country to earn Quality Matters’ Learner Support Program Certification. Quality Matters, known as QM, provides a nationally recognized standard of best practices for online and blended learning.

Ranked in U.S. News & World Report’s 2015 “Best Online Programs for Veterans” at No. 7 in graduate education, No. 14 in MBA, No. 22 in graduate nursing, and No. 29 in bachelor’s programs.

Named a Military Friendly School for eight years by Victory Media. In 2016 Victory Media also ranked online programs No. 8 in the country.

Named among only 24 schools in the country to make The Princeton Review’s Green Honor Roll announced in 2017. Schools on this list received a perfect score of 99, covering such issues as academics, construction, food sources, and recycling. Ball State is also on the organization’s 2017 Guide to 375 Green Colleges.

Academic Programs

College of Architecture and Planning

All of the College of Architecture and Planning’s professional degree programs are nationally accredited.

Ball State’s architecture, landscape architecture, and urban planning programs are uniquely blended in a studio-oriented design college, where all freshman students follow a common first-year curriculum introducing them to all three disciplines.

The Department of Architecture is Indiana’s only state-supported architecture program.

Ball State’s fourth-year architecture studio was named one of the nation’s seven best courses in sustainable design in 2016 by Architecture 2030. Students are designing and building a home that will produce all the energy it needs from renewable sources. The course will receive support from Architecture 2030, a nonprofit organization that seeks solutions to climate change in the built environment.

DesignIntelligence has consistently ranked Ball State’s landscape architecture programs in the top 15 in the country. In 2016, the undergraduate program was ranked No. 6 and the graduate program No. 12. Hiring professionals also placed Ball State in the top five for communication skills, construction methods and materials, cross-disciplinary teamwork, and design.

Teamwork between graduate architecture and undergraduate construction management students culminated in all four teams receiving a finalist designation and one team

A - 3 placing first in the Department of Energy’s 2017 Race to Zero competition on the design of energy efficient residential typologies.

The Community Based Projects program helped address planning and development issues around the memorial site where United Airlines Flight 93 crashed during the 9/11 attacks.

The graduate program in historic preservation is one of the first of its kind in the Midwest and is uniquely housed in the Department of Architecture.

The interior design program is accredited by the Council for Interior Design Accreditation, attained by less than one-third of such programs, and the National Association of Schools of Art and Design (NASAD).

Miller College of Business

The Miller College of Business is accredited by AACSB International -- The Association to Advance Collegiate Schools of Business -- and was the first state-supported institution in Indiana to hold separate AACSB accreditation for the accounting program. Less than 5 percent of the world’s business schools have earned AACSB accreditation.

Accounting

Public Accounting Report’s 2015 survey of accounting professors ranked Ball State’s undergraduate accounting program seventh in the nation among those of similar size, and ranked the master’s program 15th.

Economics

The bachelor of science in economics program has been accepted into the CFA (Chartered Financial Analyst) Institute University Recognition Program. This status is granted to institutions whose degree programs incorporate at least 70 percent of the CFA Program Candidate Body of Knowledge and emphasize the CFA Institute’s code of ethics and standards of practice.

Entrepreneurial Management

The entrepreneurial management program was ranked 20th in the nation in 2017 by The Princeton Review and Entrepreneur magazine.

Students may receive assistance in starting their own businesses through a business incubator program that fosters entrepreneurial activity in the community, particularly within the growing communications and information technology sectors.

Management

Allegre, Ball State’s popular student-operated restaurant, gives students an opportunity to learn everything from food preparation and presentation to restaurant management.

A - 4 Ball State’s residential property management (RPM) program, one of only nine such programs in the country, is supported by the National Apartment Association. Ball State is among only a few universities that offers students—typically sophomores and juniors—the opportunity to earn the National Apartment Leasing Professional (NALP) designation.

Insurance and Risk Management

In 2017, Ball State was one of only 20 universities worldwide to be designated a Global Center of Insurance Excellence by the International Insurance Society.

Information Systems

Students in computer information systems have built a powerful cluster computer and have used it to test complex software for the U.S. Department of Defense and to regularly work with area businesses.

A state-of-the-art networking lab teaches students how to protect computer networks and other information systems from cyber-attacks. The lab features the latest equipment, providing a technologically advanced setting for students to manage all types of networks.

Marketing

The Center for Professional Selling is one of only 28 full member schools with the University Sales Center Alliance. The center’s annual Sales Career Fair is one of the largest of its kind in the country.

The Sales Education Foundation has listed Ball State’s sales program among its “Top Universities for Professional Sales Education” since 2013.

The apparel design program is accredited by the National Association of Schools of Art and Design (NASAD).

MBA

The master of business administration (MBA) program was ranked 12th in U.S. News & World Report’s 2017 “Best Online Programs.”

The Princeton Review, in partnership with Entrepreneur magazine, included Ball State in its 2016 “Top 25 Online MBA Programs.”

U.S. News & World Report’s 2015 “Best Online Programs for Veterans” ranked the MBA program No. 14.

A - 5 Discover Business listed the MBA program on its “2015-2016 Top Recommended Online MBA Programs.”

College of Communications, Information, and Media

Telecommunications

Ball State students and faculty have won 66 Emmys. The honors also include two gold Student Academy Awards.

Sports Link, an immersive learning program that has produced content for Fox College Sports and NCAA March Madness Live, has won multiple Emmys and a College Sports Media Award.

Sportscasters Talent Agency of America named Ball State the No. 3 sports broadcasting school in the country in 2017.

The student-created documentary Everlasting Light: The Story of Indiana’s Bicentennial Torch Relay was shown during the 2017 Heartland Film Festival. Other awards for the film include a Gold Aurora Award and a Society of Professional Journalists award. The entire immersive learning project, where students produced daily videos, photos, articles, and social media, won a Mercury Award for Best Public Relations Campaign from the U.S. Travel Association and a Summit Emerging Media Award, among others.

Unmasked: The Stigma of Meth, produced by an immersive learning class, won the Associated Press Media Editors (APME) 2017 Innovator of the Year Award for College Students.

From their very first semester, students in the Department of Telecommunications receive hands-on experience with sophisticated audio and video equipment, including HD cameras.

Journalism

In 2016-17, Ball Bearings magazine won two first place Pacemaker awards from the Associated Collegiate Press, three Pinnacle Awards from the College Media Association, four Gold Circle Awards from the Columbia Scholastic Press Association (CSPA), and a Hearst. The student-run newspaper, The Ball State Daily News, was recognized with 71 Gold Circle awards from CSPA and nominated for the Pacemaker in 2017.

The BSU Athletics App, the official app for interactive annual reports, media guides, and more for Ball State University sports, received a 2015 Best of the Festival King Foundation Award from the Broadcast Education Association. The app was developed by the Ball State Digital Publishing Studio in collaboration with Sports Link and Ball State Athletics.

The University’s journalism graphics program is one of the leading programs of its type in the country.

A - 6 Advertising and Public Relations

The Ball State chapter of the Public Relations Student Society of America received a Star Chapter Award from PRSSA at the organization’s 2016 national conference.

Cardinal Communications, one of the nation’s first student-operated public relations and advertising agencies, is among about 30 student agencies in the country to be designated a National Affiliation Program with the Public Relations Student Society of America.

The master’s degree in public relations is the first graduate program in the nation to receive Certification in Education for Public Relations (CEPR) by the Public Relations Society of America (PRSA). The undergraduate public relations program in 2016 was one of only 38 certified programs in the world.

Communication Studies

Ball State won the team championship at the 2016, 2017 and 2018 National Educational Debate Association (NEDA) National Championship Debate Tournament.

College of Fine Arts

Music

Ball State has one of the nation’s leading music teacher-training programs.

The music media production program is one of only a few of its kind in the nation, blending science and music and encouraging students to explore electronic music with the latest digital technology.

The School of Music’s annual Chamber Music Festival is believed to be the longest- running continuous university-affiliated series of its kind in the country.

Ball State’s Musical Arts Woodwind Quintet is one of the nation’s oldest and most distinguished chamber ensembles of its kind.

The School of Music is an All-Steinway School, where all pianos used by music students for practicing or performing are Steinway.

The Jazz Lab Ensemble has performed four times at the Montreux Jazz Festival in Switzerland, the world’s largest music festival and leading jazz festival.

Since 1964, the Ball State University Singers have been recognized as one of America’s top collegiate entertainment organizations, performing as Indiana’s Official Goodwill Ambassadors in nearly 20 countries, at major entertainment competitions, and at presidential inaugurations.

A - 7 The Music Instruction Building features a 600-seat “tunable” performance hall, a digital studio that can record performances in the hall and practice rooms, and state-of-the-art music technology studios.

Theatre and Dance

Since 2004, students from the Department of Theatre and Dance have been invited as national qualifiers to the yearly Kennedy Center American College Theater Festival (KCACTF), one of the nation’s premier events for collegiate theatre programs.

Ball State has Indiana’s largest theatre and dance program.

Art

Programs in the School of Art are accredited by the National Association of Schools of Art and Design (NASAD).

With more than 11,000 works in its collection, the David Owsley Museum of Art at Ball State University is one of four art museums in Indiana with a notable, well-rounded collection, and the only such facility in east central Indiana.

The David Owsley Museum of Art is nationally recognized for excellence through accreditation from the American Association of Museums. The Museum loans works for major exhibitions at museums across the country and overseas, including the Musee du Louvre in Paris and the Metropolitan Museum of Art in New York.

School of Art faculty members have works in prestigious private and corporate collections and many museums.

College of Health

Nursing, radiography, and respiratory therapy students continue a tradition of outstanding performance on licensing examinations, including a nearly 100 percent pass rate.

The radiography program was recognized as one of nine Best Radiologic Technologist Training Programs across the country in 2016 by AuntMinnie.com.

Ball State’s graduate nursing programs were ranked 13th in U.S. News & World Report’s 2017 “Best Online Programs.”

U.S. News & World Report’s 2015 “Best Online Programs for Veterans” ranked the graduate nursing programs No. 22.

The Human Performance Lab is internationally renowned for studying exercise and its effects on human physiology. The center’s researchers are working with NASA astronauts and Russian cosmonauts to study the effects of long space missions on muscle tissue.

A - 8 Seventy percent of the licensed certified speech language pathologists in Indiana are Ball State graduates.

The School of Kinesiology offers one of the few aquatics majors in the country.

The fully accredited dietetics internship program is the largest in Indiana.

Ball State’s doctorate in audiology is the country’s oldest existing four-year program.

Many sport administration majors intern with professional sport teams or state and national governing organizations.

Ball State’s bachelor of social work (BSW) program is the oldest accredited undergraduate program in Indiana and the largest.

Military science students had 100 percent successful completion of the Cadet Leaders Course at Fort Knox, Kentucky.

College of Sciences and Humanities

The Department of Chemistry’s longtime summer research program is a model for other universities and a major partner in the interuniversity Center for Authentic Science Practice in Education (CASPiE), a National Science Foundation funded program to advance undergraduate research in chemistry.

Ball State formed Indiana’s first student chapter of the American Society for Microbiology (BSUASM).

The Charles W. Brown Planetarium is the largest in Indiana. The state-of-the-art projector can simulate a night sky with 10 million stars, and its audience can fly virtually through Saturn’s rings, land on Mars, or travel to distant stars and galaxies.

At the Center for Computational Nanoscience, undergraduate and graduate students work on research projects in nanoscience, the study of objects at the molecular level.

The Field Station and Environmental Education Center is a collaboration of the Departments of Biology, Natural Resources and Environmental Management, Landscape Architecture, Geology, and others.

Each summer, Ball State geography students travel to America’s Tornado Alley in search of severe storms to hone their weather forecasting skills and learn how tornadoes are formed.

The risk management, insurance, and actuarial science program is a collaborative effort between Miller College and the College of Sciences and Humanities that provides opportunities for research and interaction with industry. Actuarial science students contend successfully in international competitions, applying their skills to real-world problems.

A - 9 The Bowen Center for Public Affairs conducted the 2017 Old National Bank/Ball State University Hoosier Survey about political and social concerns. All members of the General Assembly and elected state officials receive the survey’s results.

Ball State’s Department of Criminal Justice and Criminology was the first program in the United States to be accredited by the Academy of Criminal Justice Sciences.

Teachers College

All Teachers College education programs are fully accredited by the Council for the Accreditation of Educator Preparation (CAEP), the Higher Learning Commission, and the Indiana Professional Standards Board. In addition, 34 programs have received national recognition through their respective professional associations.

Ball State graduates have a nearly 90 percent pass rate on the Indiana Core Assessment for licensure in Indiana.

Ball State was one of four universities in Indiana selected by the Woodrow Wilson National Fellowship Foundation to pilot a program to help overhaul teacher education and encourage exceptional science and math teacher candidates to seek long-term careers in high-need classrooms. This program is now expanding beyond Indiana’s borders.

Ball State is the first university in Indiana authorizing charter schools, helping to provide more choices in public education.

The Teacher Educator, a Teachers College publication, is the official journal of the Indiana Association of Teacher Educators. It has been in publication since 1965.

Programs

Schools Within the Context of Community (SCC) received the 2017 Best Practice Award in Support of Multicultural Education and Diversity from AACTE (American Association of Colleges for Teacher Education) and the 2016 Christa McAuliffe Excellence in Teacher Education Award from the American Association of State Colleges and Universities (AASCU). Started in 2009, SCC is a partnership between Teachers College, Longfellow Elementary School, Huffer Memorial Children’s Center, Buley Community Center, and Muncie’s Whitely neighborhood. During and after school, Ball State students and professors supplement the work of Longfellow teachers, and students are matched with community mentors and attend events such as dinners, athletic competitions, and church services. Ball State had previously received the McAuliffe Award in 2005 for its Learning Assessment Model Project (LAMP).

The Department of Special Education has the only deaf education teacher-training program in Indiana. Students complete a one-year residency at the Indiana School for the Deaf in Indianapolis.

The graduate education programs were ranked 11th in U.S. News & World Report’s 2017 “Best Online Programs.”

A - 10 U.S. News & World Report’s 2015 “Best Online Programs for Veterans” ranked the graduate education programs No. 7.

Technology

Starting in their freshman classes, Ball State’s education students are exposed to advanced instructional technology -- including assembling an electronic portfolio -- to prepare them for the 21st century classroom.

Teachers College is the home of Ball State’s first technology spin-off company, rGrade. As an ongoing research and development effort within Teachers College, rGrade has generated more than $1.5 million in grants for research and outreach programs that address assessment of student learning.

Teachers College’s technologies have been featured on Apple’s website, at the University of Cincinnati’s Vision 2020 Conference, and in the Consortium for the Application of Technology and Learning Innovations in Schools of Education (CATALISE).

Schools

Burris Laboratory School, which serves Ball State’s teaching majors, has been listed among the nation’s best high schools since 2007 in analyses by U.S. News & World Report. In 2017, Burris was named a U.S. Department of Education Green Ribbon School for its commitment to sustainable practices.

The Indiana Academy for Science, Mathematics, and Humanities earned a Gold Medal on U.S. News & World Report’s 2017 Best High Schools list. In 2016 it was named No. 3 on Niche’s “Best Public High Schools in America” and No. 1 on the organization’s “Best Public High Schools in Indiana.”

Ball State’s Child Study Center has been accredited by the National Association for the Education of Young Children (NAEYC) since 1998. It is home-licensed by the State of Indiana and has achieved the highest rank, Level 4, on Paths to Quality, an Indiana Family and Social Services Administration program.

Accreditation and Memberships

The University is fully accredited in all of its departments and divisions by the Higher Learning Commission. Numerous other professional agencies, licensing boards, and state agencies have accredited various schools, departments and programs within the University. For example, the Miller College of Business is accredited by the Association to Advance Collegiate Schools of Business.

The Board of Trustees

The University is governed by a nine member Board of Trustees. The Governor of Indiana appoints the Trustees, one of whom is a full-time student at the University and two of whom are nominated or selected by the Ball State University Alumni Association. All members

A - 11 of the Board of Trustees are appointed for terms of four years, except for the student member whose term is two years. The current members of the Board of Trustees are listed below:

Richard Hall, Chair E. Renae Conley, Vice Chair Thomas C. Bracken, Secretary Matt Momper, Assistant Secretary R. Wayne Estopinal Michael McDaniel Jean Ann Harcourt Brian A. Gallagher Marlene Jacocks, Student Trustee

Principal Administrative Officers of Ball State University

The current principal administrative officers who manage the administration and academic affairs of Ball State University are listed below:

Geoffrey S. Mearns, President Sue Hodges Moore, Chief Strategy Officer Marilyn Buck, Interim Provost and Interim Executive Vice President for Academic Affairs* Kay Bales, Vice President for Student Affairs and Enrollment Services and Dean of Students Bernard M. Hannon, Vice President for Business Affairs and Treasurer Mark Sandy, Director of Intercollegiate Athletics (retiring June, 2018)* Rebecca Polcz, Vice President for Governmental Relations Kathy Wolf, Vice President for Marketing and Communications Sali Falling, Vice President and General Counsel Loren Malm, Interim Vice President for Information Technology*

Facilities

Ball State facilities include approximately 125 buildings totaling approximately 7 million gross square feet. The University also owns over 1,000 acres of land. The current replacement value of campus facilities is more than $2.5 billion.

The University has long had a systematic plan for ongoing capital repair and renewal of its facilities. Academic and administrative buildings, accounting for approximately 45 percent of the campus square footage, are funded, in part, through state appropriated funds allocated on a biennial basis by the Indiana General Assembly. The remaining 55 percent of the campus square footage consists of buildings which are not state supported. The 1950’s and 1960’s saw a substantial increase in gross square footage of non-state supported buildings, including dining and residence halls, parking facilities, the student center, Emens Auditorium, athletic facilities,

A - 12 and conference venues. At the present time, these non-state supported buildings have a current replacement value of approximately $1.1 billion. For the period from 2018 to 2024, the University plans to invest over $250 million, in current dollars, in renewal projects on these facilities. Currently, $123.5 million has been allocated from auxiliary operations revenues and student fees for the stewardship and renewal of these facilities. The University believes that pre- funding these critical needs sets Ball State apart from many other institutions of higher learning, and constitutes a sound financial management practice.

Following several national reports with titles such as “Crumbling Academe” and “The Decaying American Campus: A Ticking Time Bomb,” attention has been focused nationally on the need for a systematic and thoughtful approach to long term facility stewardship. Financial Planning Guidelines for Facility Renewal and Adaption, a study sponsored by the Lilly Endowment and conducted by the Society for College and University Planning, the National Association of College and University Business Officers, the Association of Physical Plant Administrators of Universities and Colleges, and Coopers and Lybrand (now Pricewaterhouse Coopers), estimates that between two percent and four percent of plant replacement cost needs to be provided, on average, each year in order to adequately fund repairs and renewal, and to adapt facilities to changing code requirements and to evolving, contemporary needs. Based on this and other studies, as well as direct experience over many years managing complex University facilities, the University believes that an annual target of three percent of current replacement value is in order to adequately fund its stewardship responsibility for housing, dining, and other non-state supported buildings and avoid even higher costs caused by accumulated deferred maintenance. For parking facilities, which are comprised of multi-level structures and paved and gravel lots, an annual target of two percent of current replacement value has been established. This methodology is based on the premise that users should pay their fair share for the deterioration of the facilities they use. The University’s goal is to maintain competitive, quality facilities at the lowest long term cost to students.

New Construction and/or Renovation Projects in the Last Ten Years

DeHority Complex: Completed in Summer 2009, the DeHority Complex renovation project included major exterior and interior renovation. In addition, the building was updated with various building core enhancements and improved connectivity for residents as well as the addition of eighty-nine beds.

L.A. Pittenger Student Center: Completed in Winter 2010, the L.A. Pittenger Student Center Renovation project consisted of replacing and upgrading building systems including windows, plumbing, mechanical and electrical equipment, elevators, sprinkler systems, selected interior finishes and ceilings, the addition of a new food court, and bringing the building into compliance with current building code and ADA requirements. The project also enhanced the usability and function of this student focused building to enhance the student experience at the University.

Honors College: Completed in the Spring of 2010, the Edmund F. and Virginia B. Ball House was renovated for use as the new home of the Honors College. The Honors College is a four-year University-wide program featuring special course offerings, colloquia, seminars, and independent study. Relocating the Honors College to the former residence of Ed and Virginia

A - 13 Ball placed the Honors College in a visible location central to academic life on campus and more accessible to students, faculty, and visitors.

Thomas J. Kinghorn Hall: Completed in Fall 2010, Kinghorn Hall represents the University’s second new residence hall opened in the last nine years. The 187,400 square feet building provides heated and air-conditioned accommodations for more than 600 students. The hall features double occupancy rooms clustered around semi-private baths and a limited number of single occupancy rooms with private baths. The facility includes accommodations for disabled access, living areas, and community areas with room arrangements and design that will promote social interaction, provide flexible spaces, integrate technology, and provide computer labs and study lounges.

The Marilyn K. Glick Center for Glass: Also completed in Fall 2010, the Glick Center contains 9,200 gross square feet of newly constructed space. The facility was built to support and promote the practice of the contemporary glass arts at Ball State University and in the East Central Indiana Region. The Center’s studio spaces, equipment, faculty, and staff support a broad-based and dynamic undergraduate and graduate curriculum in contemporary glass, as well as community outreach and education about the glass arts.

Jo Ann Gora Student Recreation and Wellness Center: Also completed in Fall 2010, the Jo Ann Gora Student Recreation and Wellness Center represents a building that all Ball State students have the opportunity to enjoy. This facility includes more than 400,000 square feet of new or renovated space. It features a new fitness space on all three levels, a suspended 200- meter track, 20,000 square feet of artificial indoor turf, an extensive outdoor pursuits center and climbing wall, and seven traditional basketball and volleyball courts as well as racquetball courts.

North Quadrangle Building: The renovated North Quadrangle Building reopened in the Spring of 2012. The renovation consisted of converting the stacks space into classrooms, improved accessibility, enhancements to offices and classrooms, simplified circulation paths, and mechanical, plumbing, and electrical replacement.

Studebaker East Residence Hall: Completed in Fall 2012, the Studebaker East renovation included major interior and exterior renovation. A new addition to the residence hall provides two-story lounges and gathering spaces. The hall houses approximately 430 students and is home to the International and Modern Languages Living-Learning Communities.

Teachers College: The renovation of Teachers College followed North Quad as the second of three buildings to be renovated as part of the Central Campus Academic Renovation and Utilities Improvement Project. The renovation, completed in 2013, included installation of a fire suppression system, replacement of the vertical electric bus system, replacement of all main air handling units, and evaluation of all other systems. Public areas and offices were also updated.

Heat Plant (Geothermal Energy System): In May, 2009, the University broke ground on a new geothermal energy system that will heat and cool more than 45 buildings over 700 acres. It will be the largest full-scale district geothermal project in the country, cutting the University’s carbon footprint roughly in half. This system includes four components: well fields, heat pump

A - 14 chillers or energy centers, hot and cold district loops, and building interfaces. Phase I of the system became operational in March, 2012. Work continues on Phase II with an estimated completion date in 2018.

Dr. Joe and Alice Rinard Orchid Greenhouse: Completed in Spring 2014, the new greenhouse allows for improved access, more educational opportunities, and greater interdisciplinary use. The 3,400 square foot facility provides an ideal tropical rainforest environment for more than 1,800 plants in the world-renowned Wheeler-Thanhauser Orchid Collection and Species Bank.

Charles W. Brown Planetarium: The new planetarium, which opened in Fall 2014, is the largest planetarium in Indiana and one of the top ten university planetariums in the country. The 52-foot diameter dome and state-of-the-art projector transforms teaching and learning for science students, faculty, professionals, and the community.

Applied Technology: The Applied Technology Building is the third academic building to be renovated as part of the Central Campus Academic Renovation and Utilities Improvement Project. The renovation of this building, which was completed in the Spring of 2016, involved upgrading of laboratories and related infrastructure, replacement of lighting systems, improvements to heating, cooling, and ventilation systems, replacement of plumbing and plumbing fixtures; and installation of new electrical and communication systems. In addition, accessibility was improved and floor, ceiling, and wall materials original to the building were replaced.

Johnson A (Botsford/Swinford) Residence Hall: The renovation of Botsford/Swinford Halls within the Johnson Complex was completed in Summer 2015. The renovation provided for a complete make-over of the interior and exterior features of the residence hall. A new tower connecting the two wings provides greater accessibility and added approximately 130 beds.

Johnson B (Schmidt/Wilson) Residence Hall: The renovation of Schmidt/Wilson Halls within the Johnson Complex was completed in Summer 2017. The building exterior was removed and replaced with a more energy-efficient masonry wall assembly, roof and windows. Lighting, plumbing and electrical systems were replaced throughout the building. A new elevator tower was added to the east end of the building serving all floors, and a relatively small addition to the west end allowed for a new stairwell and an increase in capacity by approximately 48 beds.

First Merchants Ballpark: The softball and baseball venues at First Merchants Ballpark underwent a multi-phase renovation that was completed in Fall 2015. The improvements included turf fields for both diamonds, new dugouts, a new press box and grandstands at the baseball field, and a new multi-use building at softball. This project was made possible, in part, through the Cardinal Commitment capital campaign.

Ron and Joan Venderly Football Center: Also funded by the Cardinal Commitment capital campaign, the Venderly Football Center opened in Spring 2016. The new facility features a theater style meeting room that can accommodate the entire team, dedicated coaches’ offices, a full coaching staff meeting room, and a recruiting lounge.

A - 15 Emens Auditorium Lobby Expansion and Renovation: The expansion of the lobby area at Emens Auditorium was completed in Fall 2017. The improvements include a facelift to the external structure of the building, first-floor restrooms, a more spacious lobby, an indoor box office, a second-story hospitality room, two concession stands, and an additional 12,000 square feet overall.

Earl Yestingsmeier Golf Center: The 6,400 square-foot Yestingsmeier Golf Center opened in late 2017 and provides dedicated space for men’s and women’s golf. The facility features a golfing simulator, a 2,200 square-foot putting green and chipping area, a club repair room, four hitting bays, and putting labs. Construction of the facility was funded by the Cardinal Commitment capital campaign.

Dr. Don Shondell Practice Center: The Shondell Practice Center will be completed in Summer 2018. The facility, connected to Worthen Arena, will provide needed practice space for the women’s and men’s basketball and volleyball teams. Amenities include two regulation-size courts that can be utilized by either basketball or volleyball, eight retractable basketball goals, an athletic training room, a study room, and two team meeting rooms. Funding for the facility is coming from the Cardinal Commitment capital campaign.

Health Professions Building: The new Health Professions Building is currently under construction in the new academic quadrangle on the east side of the campus. The 165,000 square-foot building will be home to the University’s new College of Health and will serve departments such as Nursing, Nutrition and Health Science, Social Work, Speech Pathology and Audiology, Counseling Psychology, Social Psychology and Counseling, and the Social Science Research Center. Project funding is provided by the Series R Student Fee Bonds issued in January 2017, and construction is expected to be complete in Fall 2019.

North Residential Neighborhood Phase 1: The North Residential Neighborhood Project will serve as the replacement for the housing and dining options located in the aging LaFollette Complex. Work on Phase 1, which will include reconfiguration of McKinley Avenue and construction of a new residence hall and stand-alone dining facility, will begin in Summer 2018. Project funding is provided by the Series 2018 Bonds, and construction is expected to be complete in Summer 2020.

Faculty and Employees

As of the beginning of the 2017-18 academic year, the University’s staff and faculty totaled approximately 3,155 on a full-time basis and 434 on a part-time basis. This number does not include student employees and graduate assistants.

For the 2017 Fall semester, the University’s instructional staff on campus totaled 1,291 with 1,022 full-time staff and 269 part-time or temporary instructional staff. The full-time staff consisted of 210 professors, 227 associate professors, 338 assistant professors, and 247 instructors. Of the full time instructional staff, nearly 65% held tenured positions or were in tenure track positions and about 96% of the tenure or tenure-track faculty members held terminal degrees in their disciplines.

A - 16 The American Federation of State, County and Municipal Employees (AFSCME) Local Number 293 is the bargaining agent for certain janitorial, maintenance, and food service personnel of the University. The University meets and confers with AFSCME about specific working conditions under the framework of “Conditions of Cooperation,” a policy statement adopted by the Board of Trustees. As an instrumentality of the State of Indiana, the University and its employees are not subject to the provisions of the National Labor Relations Act, as amended. In accordance with the “Conditions of Cooperation,” AFSCME’s status as the exclusive representative of certain of the University’s employees is conditioned upon its disavowal of the right to strike, picket, slowdown, or take any other concerted action to impede, or threaten to impede, the Board of Trustees or administrative officials in the proper, orderly, and normal operation of the University.

Retirement Plans

Ball State provides a retirement program for all eligible employees. Faculty and professional staff are provided the choice of participation in an Alternate Pension Plan (APP), which is a defined contribution plan providing 100% immediate vesting, or the Teachers’ Retirement Fund 1996 Account (TRF 1996), which is a cost-sharing, multiple-employer defined benefit plan providing 100% immediate vesting in the annuity portion and 10 year vesting in the pension portion of the benefit at age 65. Additional vesting opportunities are available based on age and years of service. The funds available in the APP are administered by the Teachers’ Insurance and Annuity Association (TIAA), the College Retirement Equities Fund (CREF), Fidelity Investments Institutional Services Company, Inc., Voya Financial (formally ING Financial Advisers, Inc.), Lincoln Financial Group, AUL (OneAmerica Financial Partners, Inc.), and AXA Equitable Financial Services, LLC. Clerical and service staff participate in the Public Employees Retirement Fund (PERF), which is a cost-sharing, multiple-employer defined benefit plan funded from employer contributions. The eligibility and vesting for PERF is the same as that for the TRF 1996 plan.

All of the defined benefit plans are administered by the Indiana Public Retirement System (INPRS) Board, which administers the retirement plans for all state employees. The financial report that includes all the financial statements and required supplementary information for the plans is available at www.in.gov/inprs/annualreports.htm.

Benefits of each of the plans are designed to be comparable. Effective with the fiscal year ended June 30, 2015, the University must include its proportionate share of the unfunded liability associated with both PERF and TRF 1996 plans on its financial statements due to GASB Statement 68, Accounting and Financial Reporting for Pensions, and GASB Statement 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. The University’s net pension liability under these retirement plans is based on wages reported by employers relative to the collective wages of the plan. This basis of allocation measures the proportionate relationship of an employer to all employers, and is consistent with the manner in which contributions to the pension plan are determined. Neither of these plans (PERF and TRF 1996) are special funding situations. The University is current with all amounts due under each type of retirement plan provided to employees.

A - 17 Employees in a benefits eligible status are also provided with the opportunity to contribute additional funds deducted from their pay to the TRF 1996 account or PERF account, via a voluntary tax deferred annuity program.

The University also has eligible active and retired employees participating in the Teachers’ Retirement Fund Pre-1996 Account. In 1995, legislation was passed that closed this plan to newly hired members. This plan is also administered by INPRS. However, this plan is a special funding situation as the State of Indiana makes contributions as the sole non-employer contribution entity. The contributions are made from funds designated for such purpose by the Indiana General Assembly through biennial appropriations. As the contributions are made directly to INPRS on the University’s behalf, the University does not report or recognize a liability associated with this plan.

The University also offers health care and life insurance benefits for eligible retired employees. Substantially all of the University’s regular employees may become eligible for these benefits if they retire from the University after accruing the required years of service. Like pensions, other post-employment benefits (OPEB) are a form of deferred pay, part of an exchange of salaries and benefits for employees’ service. The cost to the University accrues over the period of employment, although the benefits are not provided until later.

Most public institutions and governments have historically recognized the annual outlays required to pay OPEB costs on an ongoing basis, and have not accrued a liability for their future obligations. Under GASB Statement 45, OPEB costs are measured and reported as they are incurred during the employment period. The actuarial methods used to estimate liabilities are similar to those for pension plans. Beginning with the fiscal year ended June 30, 2017, the plans that have trusts associated with them are subject to GASB 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. At the June 30, 2018 fiscal year end, GASB 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, will be in effect which supersedes GASB 45. These two standards will greatly impact the calculation of the liability of the plans and how the net liability is reported on the employer’s financial statements. The unfunded portion of the liability will be presented in the financial statements rather than being reflected only in the notes to the financial statements.

Many institutions may face a significant unfunded liability as a result of these standards. As of June 30, 2017 after the implementation of GASB 74, Ball State’s OPEB 115 Trust, which was established to help fund the cost of retiree life insurance benefits, was 113.9 percent funded. This plan has been fully funded since June 30, 2013. The Voluntary Employee Beneficiary Association (VEBA) trust fund established for the purpose of funding future retiree health care was approximately 94.38 percent funded at June 30, 2017. The funding rates have remained high even after the plans implemented a new cost method and adopted new mortality tables for actuarial valuation. Both of these changes to valuation should have had a significant impact in driving down the funded percent; however, asset valuations and reduced claim experience offset these changes. Ball State has successfully funded more than the required actuarially determined contribution each year. This practice has resulted in a well-funded trust for both plans.

A - 18 Enrollment

The Fall 2017 enrollment of 22,513 is the highest total enrollment in the University’s history. The University attracts students from a variety of backgrounds and geographical locations. As of Fall 2017 approximately 81.6 percent of the University’s on campus students are characterized as Indiana residents; however, all 50 states and the District of Columbia and 68 foreign nations are represented in the student body.

Ball State participates in two programs which facilitate growth in out-of-state enrollments. The Midwest Higher Education Compact’s Midwest Student Exchange Program enables students from eight regional states to attend Ball State at 150% of in-state tuition. The Indiana-Ohio reciprocity agreement provides in-state tuition for students from 14 Ohio counties.

The table below presents the University’s on-campus blended student enrollment (includes on campus students and on campus students taking off campus courses) for the Fall term of the academic years 2013-14 through 2017-18.

On Campus & Blended Student Enrollment

Headcount Headcount Academic Under- Full Part Full-Time Year Graduate Graduate Total Time Time Total Equivalent 2013-14 15,631 1,594 17,225 15,945 1,280 17,225 16,765 2014-15 15,378 1,627 17,005 15,741 1,264 17,005 16,493 2015-16 14,997 1,605 16,602 15,362 1,240 16,602 16,118 2016-17 15,304 1,504 16,808 15,634 1,174 16,808 16,369 2017-18 15,379 1,446 16,825 15,715 1,110 16,825 16,390

The table below presents the University’s off-campus only student enrollment (includes only students taking only off campus courses for the Fall term of the academic years 2013-14 through 2017-18). Off campus courses include: online courses and off-main campus courses (ex. Fishers Center, Indy Center, field studies, overseas centers, and dual credit).

Off Campus Only Student Enrollment

Headcount Headcount Academic Under- Full Part Full-Time Year Graduate Graduate Total Time Time Total Equivalent 2013-14 669 2,609 3,278 653 2,625 3,278 1,575 2014-15 1,037 2,613 3,650 715 2,935 3,650 1,762 2015-16 1,605 2,989 4,594 749 3,845 4,594 2,113 2016-17 1,707 3,483 5,190 755 4,435 5,190 2,402 2017-18 1,625 4,063 5,688 725 4,963 5,688 2,624

The following table presents the University’s on/off unduplicated student enrollment for the Fall term of the academic years 2013-14 through 2017-18.

A - 19 On/Off Unduplicated Student Enrollment Headcount Headcount Academic Under- Full Part Full-Time Year Graduate Graduate Total Time Time Total Equivalent 2013-14 16,300 4,203 20,503 16,598 3,905 20,503 18,340 2014-15 16,415 4,240 20,655 16,456 4,199 20,655 18,255 2015-16 16,602 4,594 21,196 16,111 5,085 21,196 18,230 2016-17 17,011 4,987 21,998 16,389 5,609 21,998 18,771 2017-18 17,004 5,509 22,513 16,440 6,073 22,513 19,014

Considerable effort is also being placed on retention of existing and future students. The University continues to implement new programs that enable freshmen to be academically successful, to bond with faculty and staff, and to get involved on campus. Freshman retention continues to rise from 74.5% in Fall 2006 to 78.5% in Fall 2017.

Student Admissions

The table below sets forth the total number of freshmen applications received and accepted, and the number of students enrolled at Ball State University, for the academic years indicated.

Academic Applications Applications Percent Students Percent Year Received Accepted Accepted Enrolled* Enrolled 2013-14 17,136 10,363 60% 3,600 35% 2014-15 18,105 10,829 60% 3,583 33% 2015-16 22,145 13,385 60% 3,493 26% 2016-17 24,306 15,068 62% 3,857 26% 2017-18 24,221 15,031 62% 3,962 26%

* Represents degree seeking first time freshman

Over the past five years the number of freshman applications has increased by 41%. Selectivity remains high with 62% of applicants being admitted. The average high school G.P.A. for enrolled students is 3.5, up from 3.35 in 2012. 72.7% of the freshmen enrolled in 2017-18 had an academic honors or equivalent diploma from high school, which is a 10% increase compared to five years ago.

The table below sets forth the average scores on the SAT (Scholastic Aptitude Test) for the University’s entering freshmen classes for the academic years indicated. Following changes to the SAT in 2016, the figures reported for 2017-18 in the table below are based on a concorded two-part to three-part score. The average two-part score for students admitted in Fall 2017 is 1,161 which remains above the national average.

2013-14 2014-15 2015-16 2016-17 2017-18* SAT Data 1607 1629 1638 1611 1609

* Based on concorded two-part to three-part score.

A - 20 Tuition and Fees

The University operates its academic programs on a two semester and summer session basis. The general fee and other fees vary by resident status and course load.

In 2010, the University developed a task force to review the University’s tuition and fees structure. In response to the task force’s recommendation, the University restructured tuition and fees with a goal towards a more transparent fee structure. A restructured tuition and fees schedule was incorporated in Fall 2011. The new tuition structure makes it easier for students to create hybrid course schedules with both on campus and online courses. The changes facilitate time-to-degree by offering more ways to increase the number of courses in a semester without additional charges and more affordable classes during summer sessions.

The table below sets forth the general fees for on-campus undergraduate instruction (not including housing and related fees) assessed annually for a normal course load of 12-18 hours per term, for the academic years 2013-14 through 2017-18.

Academic Year Indiana Resident Non-Resident 2013-14(a) $9,160 $24,124 2014-15(a) $9,344 $24,610 2015-16(a) $9,498 $25,016 2016-17(a) $9,654 $25,428 2017-18(a) $9,774 $25,942

(a) Fees include additional health fee of $152, additional technology fee of $336, and additional student recreation center fee of $174.

All graduate students taking courses on the main Ball State campus, Independent Learning, off-campus, short-term, online or distance education courses pay $402 per credit hour as Basic Graduate Tuition. Graduate students also pay the Student Services Fee and other mandatory fees or course fees as applicable.

Student Fee Revenues: The total amount of Student Fee revenues, including academic, tuition, and other fees charged during the past five Fiscal Years, are as follows:

Student Fees Fiscal Year Ended June 30 2013 2014 2015 2016 2017 2018 Actual Actual Actual Actual Actual Budget

General Fund $179,825,652 $184,461,670 $187,463,640 $196,013,809 $206,456,871 $211,786,000 Designated 35,787,273 35,692,693 35,062,127 34,233,761 34,612,244 35,230,000

Total Student Fees $215,612,925 $220,154,363 $222,525,767 $230,247,570 $241,069,115 $247,016,000

A - 21 These Student Fee totals do not include fees collected from students at the Indiana Academy for Science, Mathematics and Humanities, and, therefore, do not match the Student Tuition and Fees line item on the Statement of Revenues, Expenses and Changes in Net Position.

Room and Board: Room and Board rates are combined. Students may choose from the following: 10-meal plan, 14-meal plan, 18-meal plan, and 21-meal plan. Each plan includes a number of specified meals in addition to varying amounts of “Dining Plus” dollars. Plans are graduated in price, based on the number of meals each provides. For Fall 2017, the range for a standard double room with meal plan is as follows: $9,060 for a 10-meal plan, $9,914 for a 14- meal plan, $10,264 for an 18-meal plan and $10,346 for a 21-meal plan. The amount shown in the table below is for a 14-meal dining plan which was the most popular plan chosen. In addition, there is also a residence hall technology fee as shown below.

The following table sets forth room and board charges for the past five academic years: Academic Year Room and Board* 2013-14 $8,820 (14- meal) 2014-15 $9,246 (14- meal) 2015-16 $9,657 (14- meal) 2016-17 $9,936 (14- meal) 2017-18 $10,034 (14- meal) * Charge includes $120 residence hall technology fee.

Estimated Costs: The following student budget has been used by the University’s Admissions Office and represents estimated average student costs for the 2017-18 academic year.

Basic Costs Indiana Resident Non-Resident Instruction and Fees $9,774 $25,942 Room and Board (14- Meal Plan) 10,034 10,034 Books and Supplies 1,330 1,330 Personal Expenses 1,700 1,700 Transportation 1,500 2,100 Total $24,338 $41,106

State Appropriations

The University receives a major portion of the revenues needed to sustain its educational and research activities from the State of Indiana, from student fees, and from the federal government.

The University has annually received and anticipates receiving appropriations from the Indiana General Assembly, which are to be applied to the educational and general expenditures of the University. In addition, the General Assembly previously appropriated to the University an amount equal to the annual debt service requirements due on all previously outstanding

A - 22 Building Facilities Fee Bonds (which were refunded with issuance of the University’s Student Fee Bonds, Series A). Beginning in the 1987 biennium and all subsequent biennia, the General Assembly has appropriated amounts relative to debt service on certain outstanding Student Fee Bonds (the “Fee Replacement Appropriations”). Under the Constitution of the State of Indiana, the General Assembly cannot bind subsequent General Assemblies to the continuation of Fee Replacement Appropriations. However, the University anticipates that the policy of Fee Replacement Appropriations will be continued in future years. The Fee Replacement Appropriations are not pledged under the trust indenture for Student Fee Bonds.

The state appropriations received by the University in recent years, and the appropriations budgeted for 2017-2018, are set forth below: State Appropriations (Dollars in Thousands)

Fiscal Year General Fee Repair and Total Ended June 30 Operating (1) Replacement Rehabilitation Academy (2) Appropriations

2013 $121,223 $14,016 - (3) $4,274 $139,513 2014 122,167 (5) 15,075 $2,379 4,297 (5) 143,918 (4) 2015 122,167 (6) 14,307 2,379 4,385 143,238 2016 126,743 12,957 2,647 4,385 146,732 2017 128,895 12,086 2,647 4,385 148,013

Current 2018 133,056 16,009 2,715 4,385 156,165

(1) Beginning in the 2007-09 Biennium, the State of Indiana added a new line item for Ball State University designated as the Entrepreneurial College. This allocation is included here with the General Operating Appropriation. The Entrepreneurial College additional support is intended to fund items related to admissions objectives, retention, graduate rates, immersive learning opportunities, technology related items, and growth in research. Additionally, in the 2013-15 Biennium, the State of Indiana added a new line item for Dual Credit. It is included here with the General Operating appropriation as well. (2) Includes appropriations for the Indiana Academy for Science, Mathematics and Humanities; but excludes that portion based upon a formula using average daily attendance for the Academy (which is budgeted at $1,908,470 in 2017-18). Does not include appropriations for the Burris Laboratory School. (3) The Indiana General Assembly did not approve any funds for Repair and Rehabilitation for the 2011-13 biennium. (4) Does not include a $30,000,000 cash appropriation received in the 2013-14 fiscal year from the State for completion of the geothermal project. These funds were appropriated by the 2013 Indiana General Assembly. (5) In 2013-14, the state appropriation allocated by the Indiana General Assembly was as follows: General - $124,660,125 and Indiana Academy - $4,384,956; however, due to the financial condition of the State of Indiana, 2% was withheld. (6) In 2014-15, the state appropriation allocated by the Indiana General Assembly was as follows: General $124,660,125 and Indiana Academy - $4,384,956; however, due to the financial condition of the State of Indiana, 2% was withheld on the General portion only. The withheld amount was restored in July, 2015 and is not reflected in this schedule.

In its Spring 2017 Fiscal Survey of States, the National Association of State Budget Officers stated that general fund spending is expected to increase just 1.0 percent in fiscal 2017- 2018 as compared to estimated spending levels for fiscal 2016-2017. This would represent the

A - 23 smallest increase recommended by governors since fiscal 2009-2010 when most states were heavily impacted by the Great Recession. The budget recommendations call for increased spending in K-12 education, Medicaid, corrections, higher education, public assistance, and transportation, while all other program areas are expected to see decreased spending. States continue to contend with slow revenue growth and limited budget flexibility as well as uncertainty at the federal level. Overall, general fund revenues are projected to increase 3.1 percent in fiscal 2017-2018 as a result of continued job growth and modest recovery in energy- producing states.

According to their respective published 2017 outlooks for higher education, both Moody’s Investors Service and Standard & Poor’s Ratings Services announced a stable outlook for U.S. higher education. In its report, Moody’s noted that all revenue streams are expected to grow over the next 12-18 months, with aggregate annual revenue growth at or above 3 percent. Standard & Poor’s remarked that demand for higher education in the U.S. remains strong and continues to grow. Both agencies cited increases in pension and OPEB liabilities, affordability, and uncertainty regarding federal policies, including student loan and grant programs, as being factors that could negatively impact the higher education market. The University’s ratings for all outstanding debt were confirmed in November 2016 by Moody’s (Aa3/stable outlook) and Standard & Poor’s (AA-/stable outlook).

Ball State, as a public university, relied on the State of Indiana for approximately 29 percent of the total financial resources in fiscal year 2016-2017. State revenues for fiscal year 2016-2017 were 0.7 percent above forecast and 3.1 percent above fiscal year 2015-2016, allowing the state to close the year with a $42.0 million surplus. State reserves ended the year at $1.8 billion despite $427.9 million in appropriations for road funding. The State of Indiana is rated Aaa by Moody’s and AAA by Standard & Poor’s, making it one of only a handful of states with top rankings by both ratings agencies.

Since 2004, the State of Indiana has used a performance funding formula for higher education. The formula is drafted and managed by the Indiana Commission for Higher Education (ICHE), which uses the formula to recommend funding to the Indiana legislature for appropriations to the various public universities in the state. The two constants in the funding formula have been to recommend increases in funding to campuses that increase the number of degrees awarded to resident undergraduate students, and to campuses that increase graduation rates. Due to deliberate actions by Ball State leadership the University received a measurable operating increase during the 2017-2019 biennium.

Ball State is classified as a research campus and earns funding under the formula primarily for an increase in the number of degrees awarded to resident students, increases in the number of “high-impact” degrees awarded to resident students (as chosen by ICHE, primarily in Science, Technology, Engineering, and Math (STEM) disciplines), and increases in the resident undergraduate four-year graduation rate. Ball State takes very seriously the goals set forth by ICHE in creating its budget recommendations. With an eye toward increasing the amount of funding that Ball State receives under the performance funding formula, while being true to its strategic direction of becoming better and not bigger, the University continues to focus on enrolling students who are increasingly better prepared academically. Due to Ball State’s increasing selectivity in student admissions, and a concerted set of policy initiatives, the

A - 24 University’s graduation and retention rates have been growing substantially. In a study conducted by ICHE, Ball State showed the largest increase in on-time (within four years) graduation rates among all Indiana public universities between 2009 and 2014.

The increase in selectivity of the University’s student body is demonstrated in the fall 2017 freshman class which continues the tradition of strong academic abilities, posting an average GPA of 3.50. Also, 72.7 percent earned the Indiana Academic Honors Diploma or its equivalent, a nearly ten point increase since 2012. The average SAT for the fall 2017 freshman class was 1609, above the national norm.

Ball State also rolled out a four-point affordability plan in the fall of 2011, designed to both increase the graduation rate and to keep college affordable for students and families. The four-point plan included: (1) reducing the number of credit hours required for a baccalaureate degree from 126 to 120 for most majors; (2) allowing students to take on-line courses as part of the 12-18 credit hour bracket for no additional charge, giving students the ability to complete more credit hours for less money and more flexibility in scheduling courses; (3) reducing the cost of summer school; and (4) granting a $500 Completion Scholarship to any resident student who graduates in four calendar years or less.

These policies and initiatives play a major part in increasing student performance as measured by the State’s performance funding formula. Indeed, for the 2017-19 budget cycle Ball State made progress on all performance funding metrics used by the State to fund research campuses. As a result, the General Assembly awarded Ball State with an increase in operating appropriation of 3.2% for 2017-18 and an additional 1.7% for 2018-19, compared to the 2016-17 funding level.

Financial Aid to Students

During the 2016-17 academic year, approximately $298 million of financial assistance was available to University students. Of this amount, $157 million (53%) was available from federal programs; $69 million (23%) from University funds; $29 million (10%) from the State Student Assistance Commission of Indiana; and $43 million (14%) from private organizations and foreign governments.

By type of aid, loans accounted for 50% of the total; gift aid (scholarships, grants, and fee waivers) constituted 44%; and on-campus work totaled 6%. Approximately 18,457 students received some type of financial aid for the 2016-17 academic year. There can be no assurance that federal and state financial aid to students will be available in the future at the same levels and under the same terms and conditions as presently apply.

A - 25 The following table summarizes the financial aid provided by the University to students for the five years ended June 30, 2017.

Ball State University Foundation

The Ball State University Foundation was established in 1951 as a private, non-profit, tax-exempt corporation to solicit, receive and administer gifts and bequests for the benefit of the University.

Cheri O’Neill currently serves as the President and Chief Executive Officer of the Ball State University Foundation.

The Ball State University Foundation’s net assets include (1) permanently restricted assets which are subject to the restrictions of gift instruments requiring that the principal be maintained in perpetuity and that only the income be utilized, either for donor-specified purposes or for general purposes of the University; (2) temporarily restricted assets which represent expendable funds received which, by decision of the Board of Directors of the Foundation, have been retained and invested for future use, in accordance with the donor’s restrictions or at the discretion of the Board of Directors of the Foundation; and (3) unrestricted net assets.

A - 26 The market value of the Foundation’s endowment for the Fiscal Year ended June 30, 2017 was $201.6 million (based on the definition of endowment as used in the NACUBO - Commonfund Study on Endowments). The total net assets of the Foundation for the past five Fiscal Years are shown in the following table:

Fiscal Year Total Ended June 30(1) Net Assets 2013 $185,048,895 2014 209,250,642 2015 213,369,439 2016 196,193,138 2017 217,209,884

(1) All Fiscal Years above are reported in accordance with SFAS 116 and SFAS 117, restating the Foundation’s financial statements in a net asset presentation and including contributions receivable.

Fund Raising Campaign

In 1988, Ball State University initiated its first comprehensive campaign, “Wings for the Future,” which raised $44 million over five years. In late 1999, the University began another comprehensive fund-raising campaign called “Above and Beyond.” This campaign concluded in June 2002 and raised over $112 million. An effort to raise funds to expand the football stadium was initiated in November 2004 and raised more than $13.5 million. The stadium effort served as the initial phase for a third comprehensive campaign.

In September 2008, the University kicked off its “Ball State Bold: Investing in the Future” campaign. The campaign goal was $200 million and concluded with $210.8 million raised by June 2011. The campaign goals were based on the initiatives outlined in the University’s strategic plan. The campaign priorities and results were as follows: $40.8 million for funding more than 200 new scholarships; $17.5 million for creating more immersive learning experiences; $35 million to build national recognition by funding endowed chairs, professorships, faculty fellows, centers of excellence, and emerging media initiatives; $66.7 million for capital projects (including a portion of the cost of the Student Recreation and Wellness Center, Honors College, and Museum of Art expansion); and $50.8 million for University enhancements such as the Ball State Fund.

The “CARDINAL COMMITMENT: Developing Champions” capital, campaign was announced on April 20, 2013 with a goal of $20 million. In January 2015, the University concluded the campaign after having successfully raised more than $20.6 million. Funds raised by the campaign are going towards improvements and expansion of facilities critical to athletic success, including the recently completed improvements to the softball and baseball facilities and football team meeting complex. Other Cardinal Commitment projects are currently in the planning phase for men’s and women’s golf, men’s and women’s basketball, and men’s and women’s volleyball.

The University is in the process of developing a new strategic plan that will lead Ball State into its second century. Once the plan is completed and approved, which is expected to

A - 27 occur in the fall of 2018, it will be used as a basis to begin exploring a comprehensive campaign. If a campaign is approved, a feasibility study will be conducted in the spring/summer of 2019 with a goal of entering the silent/leadership phase in the fall of that year or the beginning of calendar year 2020. Gifts The University solicits private gifts, grants and contracts for current operating purposes and other needs. Total gifts collected for the University through the Ball State Foundation for the five years ended June 30, 2017 amounted to approximately $93 million. Approximately 24,500 alumni and friends made gifts to Ball State University in Fiscal Year 2016-17. Sponsored Projects During the Fiscal Year ended June 30, 2017, the University’s Office of Sponsored Programs Administration (SPA) received 289 new project awards, totaling approximately $11.7 million in grant awards, contracts awarded to University Centers and Institutes, and funding for the Ball State University Foundation. Various industries, foundations, and non-profit organizations constituted a large part of the support for these projects, funding 245 projects amounting to $7.5 million. Federal agencies funded 22 projects totaling $2.1 million. Various state agencies awarded 22 projects totaling $2.1 million. Notable proposals funded in fiscal year 2016-17 included continued work by the Bowen Center on the Voting System Technical Oversight Program; a partnership with other Indiana institutions for the Luis Stokes Alliance for Minority Participation; ongoing assistance with the State’s “Launch Indiana” initiative; multiple awards from the National Science Foundation supporting research projects in Biology, Chemistry, Computer Science and Anthropology; and State-funded projects from the Departments of Education, Natural Resources, and Economic Development Corporation. Grant awards may include cash received in advance, letters of credit, and cost reimbursable projects. The following table sets forth the amounts of grants and contracts received by the University during the past five Fiscal Years, identified by source. The table represents awards, (not moneys received) and does not include federal student financial aid.

Fiscal Year Ended June 30 2013 2014 2015 2016 2017 Federal Sources $5,339,237 $5,326,523 $4,758,061 $5,248,521 $2,155,596 State of Indiana 2,000,058 1,879,187 868,609 3,411298 2,150,422 Other Governmental Grants 51,879 79,287 302,130 121,481 155,235 Private Gifts, Industry, & Foundations* 11,286,597 9,423,479 3,712,457 15,291,528 3,776,966 Non-Profits, including Higher Education 1,559,536 1,523,074 1,513,881 1,691,252 3,503,526 $20,237,307 $18,231,550 $11,155,138 $25,764,080 $11,741,745

* Private Gifts, Industry, & Foundations: SPA external funding totals include Ball State University Foundation funds that are considered as externally sponsored projects, as well as funding self-administered by University Service Centers. The change reflects a commitment to consistency throughout various University reports on sponsored programs activity.

A - 28 Financial Operations of the University

The University reports financial information under the methodology set forth in Governmental Accounting Standards Board Statement 35.

The table below prepared by the University sets forth the University’s Statement of Revenues, Expenses and Changes in Net Position for the Fiscal Years ended June 30, 2013 through June 30, 2017. The table is based on audited financial statements for the Fiscal Years ended June 30, 2013 through June 30, 2017.

A - 29 Ball State University State of Revenues, Expenses and Changes in Net Position June 30, 2013 through June 30, 2017

2013 2014 2015 2016 2017

Operating Revenues: Student Tuition and Fees $ 217,476,258 $ 222,842,172 $ 227,094,099 $ 232,846,880 $ 242,310,313 Scholarship Allow ances (67,776,493) (75,433,696) (64,402,799) (68,154,632) (73,983,322) Net Student Tuition and Fees $ 149,699,765 $ 147,408,476 $ 162,691,300 $ 164,692,248 $ 168,326,991 Federal Grants and Contracts 6,836,429 6,158,114 5,561,137 5,561,193 4,654,999 State & Local Grants and Contracts 2,471,052 1,684,823 1,622,278 2,584,002 2,432,258 Non-Governmental Grants and Contracts 7,146,986 5,994,425 4,345,768 3,972,010 6,126,332 Sales and Services of Educational Departments 12,759,993 9,941,338 10,509,521 9,094,559 9,141,266 Auxiliary Enterprises: Residential Life (Net of Scholarships and Allow ances: 2017 - $12,060,040; 2016 - $10,226,3 56,819,743 57,438,723 55,414,926 55,934,465 59,650,650 Other 8,038,457 10,848,762 9,244,856 11,535,834 10,899,429 Other Operating Revenues 7,558,205 10,851,104 12,806,433 11,628,170 12,775,021 Total Operating Revenues $ 251,330,630 $ 250,325,765 $ 262,196,219 $ 265,002,481 $ 274,006,946 Operating Expenses: Personnel Services $ 216,089,205 $ 223,401,128 $ 231,215,375 $ 237,570,267 $ 241,757,718 Benefits 69,903,749 79,491,469 76,308,128 89,808,828 96,879,658 Utilities 12,197,026 13,147,394 12,791,665 11,968,177 12,695,991 Repairs and Maintenance 13,676,386 13,435,936 17,187,467 19,432,632 16,841,701 Other Supplies and Expenses 81,428,222 86,048,964 83,362,786 81,160,280 81,739,709 Student Aid 4,027,667 4,400,138 15,884,773 15,417,584 15,711,576 Depreciation 23,813,272 24,635,858 28,346,751 26,488,249 27,440,008 Total Operating Expenses $ 421,135,527 $ 444,560,887 $ 465,096,945 $ 481,846,017 $ 493,066,361 Operating Income/(Loss) $ (169,804,897) $ (194,235,122) $ (202,900,726) $ (216,843,536) $ (219,059,415) Non-Operating Revenues/(Expenses): Federal and State Scholarship and Grants $ 41,402,424 $ 47,183,397 $ 48,015,068 $ 49,905,136 $ 52,408,370 State Appropriations 139,513,297 141,538,979 143,352,066 144,084,123 145,366,234 Investment Income 399,241 2,416,213 2,834,541 3,403,502 2,011,538 Interest on Capital Asset Related Debt (7,651,334) (8,703,514) (8,718,647) (8,118,784) (9,671,225) Private Gifts 7,212,364 7,299,442 6,715,720 8,255,215 7,951,836 State Pension Contributions - - 7,249,126 15,717,760 8,760,094 Other Non-Operating Income 5,782,692 4,250,688 5,050,101 7,110,039 6,995,717 Net Non-Operating Revenues/(Expenses) $ 186,658,684 $ 193,985,205 $ 204,497,975 $ 220,356,991 $ 213,822,564 Income Before Other Revenues, Expenses, Gains or Losses $ 16,853,787 $ (249,917) $ 1,597,249 $ 3,513,455 $ (5,236,851) Capital Appropriations - 14,220,896 13,780,490 3,603,291 5,448,228 Capital Gifts 3,658,732 4,126,108 1,010,323 4,387,712 2,231,141 Increase in Net Position Before Extraordinary Item $ 20,512,519 $ 18,097,087 $ 16,388,062 $ 11,504,458 $ 2,442,518 Extraordinary Item: Loss from Extraordinary Item $ - $ (10,022,705) $ - $ - $ - Increase in Net Position After Extraordinary Item 20,512,519 8,074,382 16,388,062 11,504,458 2,442,518

Net Position – Beginning of Year 697,417,286 717,929,805 726,004,187 713,357,876 724,862,334 Change in Accounting Policy - - (29,034,373) - - Net Position – End of Year $ 717,929,805 $ 726,004,187 $ 713,357,876 $ 724,862,334 $ 727,304,852

Source: Ball State University Financial Statements (audited for the Fiscal Years ended June 30, 2013 through June 30, 2017).

A - 30 Budgeting Procedures

The University adopts an operating budget for each Fiscal Year based on a detailed budget for each of Ball State University’s departments or budgetary units. Budgets are reviewed by the appropriate professional personnel and the President prior to approval by the Board of Trustees. In conjunction with its budgeting process, the University submits a biennial appropriation request to the State Budget Agency, the Indiana Commission for Higher Education and the General Assembly. The State appropriation includes various components for operations, fee replacement, maintenance, research, public service and other special functions. For more information, see “State Appropriations.” The Board of Trustees considers the amount of appropriations, when determined, along with the University’s budget requirements and other revenue sources in establishing Student Fees and other fees for each academic year.

The University has adopted a balanced operating budget for the Fiscal Year ending June 30, 2018 which is in alignment with the University’s strategic plan. Total estimated revenue for 2017-18 for which the University has fiscal responsibility is approximately $507,834,000. The 2017-18 budget anticipates the receipt of $149,065,000 in State appropriations and $247,016,000 in Student Fee revenue.

Each year, the University prepares and updates its ten year capital improvement program. This provides the basis for a capital appropriation request which the University submits each biennium to the State Budget Agency, the Indiana Commission for Higher Education, and the General Assembly. The request identifies the projects, purpose, priority and the amount and source of funds. The General Assembly may approve or decline, in its capital appropriation program for the University, each project and may stipulate the source of funding (either direct appropriation or debt) and the amount. Under the various enabling statutes, the University may only issue Student Fee debt up to the amount authorized by the General Assembly. For the 2017-19 biennium, the State authorized $5,430,000 for General Repair and Rehabilitation projects. One half of this authorized amount was requested for the 2017-18 fiscal year, and the remainder of the appropriation has been requested for the second year of the biennium. Also in 2017, the State authorized $87.5 million in Student Fee debt financing for the Foundational Sciences Building, to be issued in Spring 2019.

Capital Programs and Additional Financing

The University has an on-going capital improvement program of new construction and the renovation of existing facilities. Capital improvement projects are expected to be funded from a variety of sources, including gifts, state appropriations, debt financing and University funds.

The University received approval for a cash appropriation of $30 million from the Indiana General Assembly in 2013 for completion of the geothermal energy system. The Indiana General Assembly also authorized the first two phases of the STEM and Health Professions Facility Project. Phase I, for which Series R Student Fee Bonds were issued in January 2017, is funding construction of a new Health Professions Building that will support the University’s College of Health. Phase II of the STEM and Health Professions Facility Project was authorized by the 2017 General Assembly in the amount of $87.5 million and provides for the construction

A - 31 of a new Foundational Science Building that will provide needed space for Biology, Chemistry, and Physiology. Student Fee Bonds will be issued for Phase II in the spring of 2019. Debt service on the Student Fee Bonds for both phases is being fee replaced by the State.

In addition, donor gifts have supported recent projects such as the new $1.7 million Yestingsmeier Golf Center, the $5.0 million Emens Auditorium Lobby Expansion and Renovation, the new $3.7 million Venderly Football Center, the $5.0 million in improvements completed at First Merchants Ballpark, the new $4.6 million Brown Planetarium, and the new $1.35 million Rinard Orchid Greenhouse. Donor-supported projects currently underway include the new $6.4 million Shondell Practice Center.

Over the last six years, the University has completed major projects that were funded with internal resources, including the $24.1 million renovation of Studebaker East, as well as many smaller capital projects. The $35.7 million renovation of the Botsford/Swinford Residence Halls within the Johnson Complex, and the $40.1 million renovation of the Schmidt/Wilson Residence Halls within the Johnson Complex, were funded using proceeds of Housing and Dining System Revenue Bonds.

The University will soon start construction on Phase 1 of the North Residential Neighborhood at a cost of $90 million, which will be funded with proceeds of the Series 2018 Bonds. Over the next five years, the University plans to utilize existing capital repair and replacement reserve funds to fund approximately $141.4 million for major projects and on-going minor capital projects for non-state supported facilities. The largest of these reserve-funded projects is the $50 million Phase 2 of the North Residential Neighborhood Project, which is currently in the design phase. Phases 1 and 2 of the North Residential Neighborhood Project, when completed, will allow for the demolition of the aging LaFollette Complex. Existing reserve funds also will be used to fund construction of a new parking structure to replace the Emens Parking Structure. That project is scheduled for completion in Fall 2019.

Other Indebtedness

The University is authorized by various acts of the Indiana General Assembly to issue bonds for the purposes of financing construction of housing facilities, student union buildings, halls of music, athletic facilities, parking, and academic and administrative facilities. The University has never failed to pay punctually and in full all amounts due for principal of and interest on any indebtedness.

Total indebtedness of the University as of January 1, 2018, including (i) debt on Bonds secured by Student Fees, and (ii) debt on bonds secured by revenue of the Housing and Dining System, was $236,045,000, and is summarized in the following table.

A - 32 Final Outstanding as of Title of Indebtedness Maturity January 1, 2018 Bonds Outstanding Student Fee Bonds, Series L 2021 $4,180,000 Student Fee Bonds, Series N 2027 11,315,000 Student Fee Bonds, Series Q 2032 27,510,000 Student Fee Bonds, Series R 2036 116,315,000 Housing and Dining System Revenue Bonds, Series 2013 2033 28,325,000 Housing and Dining System Revenue Bonds, Series 2016 2035 48,400,000 Total Indebtedness $236,045,000

Physical Property

Physical property owned by the University or otherwise available to and utilized by the University consists primarily of over 1,000 acres of land and approximately 125 buildings totaling approximately 7 million gross square feet. The buildings and land, together with equipment and furnishings, were valued at an insurable cost of approximately $2.5 billion as of June 30, 2017. The following table sets forth the investment in plant at cost and insurable value since June 30, 2013.

Fiscal Year Ended Investment in Estimated Insurable June 30 Plant (at cost) Value of Plant 2013 $926,798,235 $2,097,000,000 2014 984,693,388 2,199,000,000 2015 1,015,459,943 2,292,000,000 2016 1,059,424,759 2,410,000,000 2017 1,086,354,293 2,506,000,000

Insurance

All Risk of Direct Physical Loss or Damage Coverage. All facilities of the University and their contents are insured under a blanket property insurance policy. Buildings under construction are also insured under the blanket property insurance policy. The blanket form policy covers each building and its contents for loss up to the total of its replacement cost value for all risks of direct physical loss to the property from any external cause subject to standard exclusions. The limits for either flood or earthquake are $100 million.

Premises and Operations Liability. The University, through its general liability policy, provides insurance for liability to third parties arising out of accidents on the premises of the University and in connection with University operations off-premises. The limit is $1,000,000 per occurrence for bodily injury and property damage. The University’s umbrella liability policy in the amount of $30 million annual aggregate applies as excess to this and certain other liability insurance coverages.

Loss of Income and Tuition Fees. The University has business interruption insurance in the amount of $15 million to cover the loss of revenues for residence halls, parking facilities,

A - 33 tuition, and other revenue generating activities in the event of physical loss of or damage to such facilities.

For the three items listed above, the following apply. The sum of the deductible shall not be less than $100,000 in any one loss. The University self-insures those losses that might fall within the deducible through a reserve for self-insurance. The balance of the reserve for self- insurance as of June 30, 2017 was $1,567,500.

Muncie Community Schools

In December 2017, Indiana’s Distressed Unit Appeal Board (DUAB) voted 5‐0 to designate Muncie Community Schools (MCS) a “distressed political subdivision” and thereby take full control of both the finances and academics of MCS. MCS had previously been working with an appointed emergency manager after being designated a “fiscally impaired school corporation” on April 28, 2017. In January 2018, House Bill 1315 was introduced to the Indiana House Ways and Means Committee. HB 1315 was adopted by the Indiana General Assembly during a special session on May 14, 2018, and was signed into law by Indiana Governor Eric Holcomb that same day. The University’s Board of Trustees adopted a resolution on May 16, 2018 accepting the responsibilities imposed by HB 1315.

The new law provides that Ball State shall appoint a new school board to manage MCS, effective July 1, 2018. The law makes it clear, however, that Ball State and MCS will remain separate entities. The law expressly preserves the financial and legal independence of Ball State and MCS. Ball State will not assume financial responsibility for MCS debt or its operating costs. Ball State will not receive any compensation from the State for assuming this new responsibility. Rather, the monies allocated by the State to the emergency manager will be provided to MCS to fund its operations. Ball State will not use any of its financial resources to subsidize the operation of MCS, nor will it use any of its Student Fee revenue or any of its regular State funding to support MCS. The only resources which will be devoted by Ball State to its new responsibility will be the in-kind expertise of its faculty, staff, students, alumni and University leadership.

A - 34

APPENDIX B

BALL STATE UNIVERSITY FINANCIAL REPORT FOR THE YEAR ENDING JUNE 30, 2017

[THIS PAGE INTENTIONALLY LEFT BLANK] Financial Report Year Ended June 30, 2017 Table of Contents

Ball State University Financial Report 2016-2017

To the President and Board of Trustees ii

Report of the Treasurer iii-iv

General Information v

Board of Trustees and President of Ball State University vi

Independent Auditor’s Report viii-x

Management’s Discussion and Analysis 1-16

Statement of Net Position 18

BSU Foundation Combined and Consolidated Statements of Net Position 19

Statement of Revenues, Expenses and Changes in Net Position 20

BSU Foundation Combined and Consolidated Statements of Activities 21

Statement of Cash Flows 22-23

BSU Foundation Combined and Consolidated Statements of Cash Flows 24

Notes to Financial Statements 25-49

Required Supplemental Information 50-54

Supplemental Information 55-60

The President and Board of Trustees

Ball State University

This financial report presents

the financial position of

Ball State University at June 30, 2017

and the results of activities for

the year then ended.

Bernard M. Hannon Vice President for Business Affairs and Treasurer

Ball State University’s Report Date…..…………………..……..………November 7, 2017

ii Ball State University—2017 Financial Report Report of the Treasurer

On behalf of the Board of Trustees of Ball State University, I am pleased to submit the Annual Financial Report of Ball State University for the year ended June 30, 2017. The audit opinion letter from the Indiana State Board of Accounts which shows an unmodified opinion appears on the following pages.

This Annual Financial Report includes the financial statements for the year ended June 30, 2017, as well as other useful information that helps ensure the University’s accountability to the public. Responsibility for the accuracy of the information and for the completeness and fairness of its presentation, including all disclosures, rests with the management of the University. We believe the information presented is accurate in all material respects and fairly presents the University’s financial position, revenues, expenses, and other changes in net position.

About Us

Ball State University came into existence from the philanthropic ideals and generosity of the five Ball Brothers nearly a century ago. Their contribution to the University which bears their name is also symbolized in the pillars and statue of Beneficence, our institutional icon. The University and the Muncie community have prospered from the giving nature of this family and many others. However, our growth from a Teacher’s College to a multi-disciplinary University with many nationally recognized programs would not have been possible without the support from the State of Indiana for which we are deeply grateful.

The University and the City of Muncie are committed to work together toward common goals. Each recognizes that the accomplishments and challenges facing each of us will in fact impact the other. The City of Muncie is a community of 70,000 residents, many with ties to the University. Together, we take pride in the upcoming centennial anniversary of the University in 2018. The University has gone through many changes during these 100 years, but our core values remain unchanged.

Mission and Vision

“As a public research university, we focus on students and high-quality, relevant educational outcomes. Disciplinary knowledge is integrated with application. We do this in a manner that fundamentally changes students, researchers, and our external partners, who look to the university for guidance. We transform information into knowledge, knowledge into judgement, and judgement into action that addresses complex problems.” –- Ball State University Mission

“Ball State aspires to be the model of the most student-centered and community-engaged of the 21st century public research universities, transforming entrepreneurial learners into impactful leaders—committed to improving the quality of life for all.” – Ball State University Vision

Finance and Facilities – A look to the past, a plan for the future

In order to offer top-notch educational opportunities to our students from high quality faculty using state-of-the-art facilities and equipment that will best position them for their future careers, we must strategically envision the needs of all our current programs as well as the future areas of growth. For almost a century, the stewards of Ball State University have made prudent and measured decisions to keep the University growing in a steady and stable pace. We operate in a lean and responsible manner and continue to be good stewards of the resources entrusted to us by families and taxpayers.

As regulation, technology and the needs of education change, so must our facilities and infrastructure. The University has been very fortunate to largely keep pace with the demands of repair and maintenance on our buildings in order to keep them in good shape. However, inevitably there are building renovations or replacements that are necessary. When renovations or new buildings are designed, it is done so with sustainability measures in mind. The University is committed to reducing its energy consumption, waste production and carbon footprint.

As evidenced by the information contained in this document, the University is in a strong financial position for the next century. Our budget is structurally balanced; our debt load is manageable; and we have a strong bond rating. We have positive financial ratios, bolstered by substantial unrestricted net assets. Most importantly, a Ball State education is highly valued as evidenced by near all-time highs in applications and in enrollment.

Ball State University—2017 Financial Report iii Conclusion

Ball State will continue its efforts to differentiate from other public institutions by enhancing the quality of the academic experiences to all students, by attracting students of even higher quality, by supporting strong faculty and academic programs, by enhancing a vibrant and diverse University community, and by providing a distinctive impact on the economic and social well-being of our community, the State of Indiana and, indeed, the world.

Bernard M. Hannon Vice President for Business Affairs and Treasurer

* This report has been prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) for governmental colleges and universities as put forth by the Governmental Accounting Standards Board (GASB). See the accompanying Notes to Financial Statements for a full disclosure of the accounting principles observed.

* GAAP require that management provide a narrative introduction, overview and analysis to accompany the basic financial statements in the form of the Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The MD&A can be found immediately following the Independent Auditor’s Report.

iv Ball State University—2017 Financial Report This financial report has been prepared by the Office of University Controller Ball State University, Muncie, Indiana 47306

Ball State University is committed to the principles of nondiscrimination and equal opportunity in education and employment. Further, the University is committed to the pursuit of excellence by prohibiting discrimination and being inclusive of individuals without regard to race, religion, color, sex (including pregnancy), sexual orientation, gender identity or gender expression, disability, genetic information, ethnicity, national origin or ancestry, age, or protected veteran status. This commitment enables the University to provide qualified individuals access to all academic and employment programs on the basis of demonstrated ability without regard to personal factors that are irrelevant to the program or job requirements involved.

The University assigns a high priority to the implementation of this equal opportunity policy and, through its affirmative action program, seeks to expand its efforts to guarantee equality of opportunity in employment. Affirmative action is taken to attract and recruit diversity, including underrepresented minority groups, females, protected veterans or individuals with disabled veteran status, and otherwise qualified persons with disabilities. Ball State will hire, transfer, recruit, train, promote, assign work, compensate, layoff and/or terminate based upon the tenets of this policy.

The University President affirms the commitment to equal opportunity and accepts responsibility for the implementation of the affirmative action program along with the vice presidents, deans, directors and heads of units. All persons involved in the decision-making process, including members of faculty and other employee committees, shall act in a nondiscriminatory manner. The Director of Employee Relations and Affirmative Action has been specifically designated to be responsible for overall compliance with all federal and state laws and regulations regarding nondiscrimination and for implementation and coordination of the University’s affirmative action program. Information concerning the University's affirmative action program can be obtained from the Director of Employee Relations and Affirmative Action, Ball State University, Muncie, IN 47306.

To ensure equal employment opportunity and nondiscrimination, each member of the Ball State University community must understand the importance of this policy and his/her responsibilities to contribute to its success. This policy seeks to encourage the reporting of incidents so they may be addressed. Employees and applicants shall not be subjected to harassment, intimidation, threats, coercion, discrimination, or retaliation because they have engaged or may engage in any of the following: 1) filing a complaint; 2) assisting or participating in an investigation, compliance review, hearing, or any other activity related to the administration of any federal, state, or local law requiring equal employment opportunity; 3) opposing an act or practice deemed unlawful by a federal, state, or local law requiring equal employment opportunity; or 4) exercising any right according to this policy and/or any other lawfully protected right.

Complaints regarding unlawful discrimination or retaliation should be filed within 45 calendar days following the alleged act or incident giving rise to the complaint with the Director of Institutional Equity and Internal Investigations in accordance with the Ball State University Equal Opportunity and Affirmative Action Complaint Investigation Procedure and Appeal Process. A copy of this document may be obtained by contacting the Director of Institutional Equity and Internal Investigations. Any individual or group found to have violated this policy will be subject to disciplinary or remedial action, up to and including termination of employment or expulsion from the University.

The University maintains an audit and reporting system to determine overall compliance with its equal employment opportunity and affirmative action mandates. As a part of this system, the President will review the University's equal opportunity and affirmative action policy and program at least once each year, measure progress against the objectives stated in the affirmative action program, and report findings and conclusions to the Board of Trustees.

Revised by the Board of Trustees July 17, 2015

Ball State University—2017 Financial Report v Ball State University Board of Trustees and President

2016-2017

Thomas C. Bracken, Muncie, IN

E. Renae Conley, Chicago, IL

R. Wayne Estopinal, Jeffersonville, IN

Brian Gallagher, Chevy Chase, MD (appointed January 1, 2017)

Marianne Glick, Indianapolis, IN (resigned July 7, 2016)

Richard J. Hall, Carmel, IN

Jean Ann Harcourt, Milroy, IN (appointed July 8, 2016)

Frank Hancock, Indianapolis, IN (resigned October 28, 2016)

Hollis E. Hughes Jr., South Bend, IN (completed term December 31, 2016)

Mike McDaniel, Indianapolis, IN (appointed November 29, 2016)

Matthew Momper, Fort Wayne, IN

Marlene Jacocks, Fishers IN (appointed July 1, 2017)

Dustin Meeks, Fishers, IN (completed term June 30, 2017)

Officers

Richard J. Hall ………………………………………………………………………………………. Chair E. Renae Conley ...... Vice Chair Thomas C. Bracken ...... Secretary Matthew Momper ...... Assistant Secretary Bernard M. Hannon ...... Treasurer

University President (interim ended May 14, 2017 – retired June 9, 2017) Terry S. King

University President (began May 15, 2017) Geoffrey S. Mearns

vi Ball State University—2017 Financial Report This page intentionally left blank

Ball State University—2017 Financial Report vii viii Ball State University—2017 Financial Report Ball State University—2017 Financial Report ix x Ball State University—2017 Financial Report Ball State University Management’s Discussion and Analysis June 30, 2017

The University

Ball State University, located in Muncie, Indiana was founded in 1918 as the Indiana State Normal School, Eastern Division. The Ball brothers, a prominent Muncie industrial family, had acquired the land and buildings of a private normal school and donated the property to the State of Indiana. In 1929, the Indiana General Assembly separated the Muncie campus from Indiana State Normal School, naming the Muncie campus Ball State Teachers College. In 1965, the General Assembly renamed the institution Ball State University, in recognition of its significant growth in enrollment and physical facilities, the variety and quality of its educational programs and services, and in anticipation of the much broader role it would be expected to assume in the future. The University is governed by a nine-member Board of Trustees, which includes a full-time student and two members nominated by the Ball State University Alumni Association. All members of the Board are appointed by the Governor of Indiana to four-year terms, except for the student member, who is appointed to a two-year term.

Ball State University’s eight academic colleges offer six associate-level programs, 170 undergraduate degree programs, 88 masters-level programs, 16 doctoral-level programs and two education specialists programs. The University is fully accredited by the Higher Learning Commission. Various schools, departments and programs are also accredited by numerous other professional agencies, licensing boards, and state agencies. The University operates Indiana’s only K-12 laboratory school, as well as the Indiana Academy for Science, Mathematics and Humanities, the state’s only residential high school for gifted and talented students.

Enrollment for fall 2016 totaled 18,771 full-time equivalent students from a total headcount of 21,998. On-campus and blended (on-campus students taking off-campus courses) enrollment totaled 16,369 full-time equivalent students from a total headcount of 16,808. The University attracts students from a variety of backgrounds and geographical locations. As of fall 2016, approximately 82 percent of the University’s students are characterized as Indiana residents; however, all 50 states and the District of Columbia and 69 foreign nations are represented in the student body. The University provides on-campus housing in residence halls and apartments for approximately 7,500 students. As of the beginning of the 2016-2017 academic year, the University’s staff and faculty (not including student employees and graduate assistants) totaled approximately 3,131 full-time and 387 part-time personnel. The campus facilities include approximately 125 buildings totaling over seven million gross square feet on over 1,000 acres. Using this Report This section of Ball State University’s (University) annual report presents management’s discussion and analysis of the financial performance of the University for the year ended June 30, 2017, with selected comparative information for the two fiscal years ended June 30, 2016, and 2015. The financial statements, note disclosures and this discussion are the responsibility of University management. This information is presented to assist the reader in understanding the University’s financial position and operating activities.

This financial report includes three basic financial statements: the Statement of Net Position, the Statement of Revenues, Expenses and Changes in Net Position and the Statement of Cash Flows, prepared in accordance with principles from the Governmental Accounting Standards Board (GASB). These financial statements focus on the financial condition, results of operations, and cash flows of the University as a whole. Important features of these statements, which are mandated by the Governmental Accounting Standards Board, include:

Revenues that are charges for services and goods, including tuition and fees and non-capital grants, are recorded as operating revenues. This means that state appropriations, which are used primarily for operations, are required to be shown as non-operating revenue.

Scholarship allowances are required to be recorded in three different places: as a reduction to tuition and fees, as a reduction to room and board, and as an operating expense. The user must total the three amounts in order to ascertain the total scholarship aid received by students from the University. Not included in these amounts are scholarship aid received directly by students, as well as loan and work-study aid.

Federal and state scholarships and grants received by the University, the proceeds of which are reported as a reduction of operating income, are reported as non-operating revenue.

Ball State University—2017 Financial Report 1 Management’s Discussion and Analysis

Capital assets include construction in progress and infrastructure, as well as completed capital projects and capital acquisitions.

Net pension liability and related deferred inflows and outflows of defined benefit pension plans administered by the Indiana Public Retirement System (INPRS) are included in the University’s financial statements beginning with the fiscal year ended June 30, 2015. Prior to this date, the information was presented in the Notes to Financial Statements.

This financial report also includes the financial statements and significant notes to the financial statements for the Ball State University Foundation. The Ball State University Foundation is a legally separate, not-for-profit corporation which solicits, collects and invests donations for the sole benefit of Ball State University. The Foundation’s financial statements are presented in accordance with the reporting principles of the Financial Accounting Standards Board and therefore are not comparable to those of the University. Financial Highlights

The total net position of the University increased by $2.4 million compared to the fiscal year 2015-2016, primarily due to a $2.8 million increase in net position restricted for external grants. The issue of student fee bonds to finance the new Health Professions Building accounted for an offsetting decrease in investment in capital assets, net of accumulated depreciation and related debt, an increase in net position restricted for construction, and a decrease in unrestricted net position due to the premium on the bonds. A more detailed discussion of the change in net position can be found later in this report. For fiscal year 2015-2016, the total net position of the University increased by $11.5 million as compared to fiscal year 2014-2015, and was driven primarily by increases in restricted expendable net position of $9.4 million and unrestricted net position of $1.8 million. The increase in restricted expendable net position was primarily a result of unspent proceeds from the issue of the bonds to finance the now completed renovation of Schmidt/Wilson Residence Hall.

The current ratio for the University, which is calculated by dividing current assets by current liabilities, increased from 4.01 to 1 at June 30, 2016, to 4.87 to 1 at June 30, 2017. The June 30, 2015, ratio was 4.11 to 1. This ratio measures the University’s ability to meet short term obligations with short term assets. One of the most basic determinants of clear financial health is the availability of expendable net position to cover debt should it become necessary to settle those debt obligations. The viability ratio measures the University’s ability to fund these long-term obligations. At June 30, 2017, the University’s viability ratio was 1.24 to 1, compared to 1.28 to 1 at June 30, 2016, which was down slightly from the June 30, 2015, viability ratio of 1.36 to 1. A ratio above 1 to 1 indicates that the University is able to respond to adverse conditions as well as attract capital from external resources and fund new objectives.

Studebaker Hall West

2 Ball State University—2017 Financial Report Management’s Discussion and Analysis

The Statement of Net Position and the Statement of Revenues, Expenses and Changes in Net Position

The Statement of Net Position and the Statement of Revenues, Expenses and Changes in Net Position report in summary fashion the financial position of the University as a whole and on its activities, focusing on the University’s net position. These statements include all assets, liabilities, revenues and expenses using the accrual basis of accounting. The only exceptions are gifts, grants, and interest on student loans, which are generally recorded only when received.

The following is a summary of the University’s assets, deferred outflows and inflows of resources, liabilities, and net position as of the end of the previous three fiscal years.

Net Position As of June 30, 2017, 2016, and 2015

2017 2016 2015 Assets: Current Assets $ 242,597,539 $ 197,933,498 $ 186,001,562 Noncurrent Assets: Capital Assets, Net of Depreciation 667,350,402 664,658,279 644,270,731 Other 172,495,176 166,161,888 158,624,055 Deferred Outflows of Resources 26,628,804 25,062,319 7,589,809 Total Assets and Deferred Outflows of Resources $ 1,109,071,921 $ 1,053,815,984 $ 996,486,157 Liabilities: Current Liabilities $ 49,774,724 $ 49,411,657 $ 49,078,031 Noncurrent Liabilities 327,311,261 273,716,582 227,290,917 Deferred Inflows of Resources 4,681,084 5,825,411 6,759,333 Total Liabilities and Deferred Inflows of Resources $ 381,767,069 $ 328,953,650 $ 283,128,281 Net Position: Net Investment in Capital Assets $ 416,710,402 $ 452,598,279 $ 452,275,434 Restricted 77,536,738 29,598,161 20,239,087 Unrestricted 233,057,712 242,665,894 240,843,355 Total Net Position $ 727,304,852 $ 724,862,334 $ 713,357,876 Total Liabilities, Deferred Inflows of Resources and Net Position $ 1,109,071,921 $ 1,053,815,984 $ 996,486,157

Current and Noncurrent Assets

Current assets, such as cash and cash equivalents, accounts receivable, and inventories, support the current operations of the University. Current assets increased $44.7 million, or 22.6 percent, from the previous year, primarily due to a net increase in cash and cash equivalents and short term investments of $43.4 million. The net increase can be attributed primarily to market forces favoring shorter duration assets and the issuance of new bonds in fiscal year 2016-2017. Deposit with bond trustee increased by $3.5 million, also a result of the issuance of new bonds. The remaining current asset line items showed minimal variance to the prior fiscal year.

In fiscal year 2015-2016, current assets increased $11.9 million, or 6.4 percent, from the previous year primarily due to an increase in cash and cash equivalents of $6.2 million. Accounts receivable, net, and unbilled costs also increased by $2.3 million while prepaid retiree benefits increased by $2.0 million. The remaining current asset line items showed minimal variance to the prior fiscal year.

Noncurrent assets primarily consist of investments and capital assets, net of depreciation. Noncurrent assets at June 30, 2017, showed a $9.0 million, or 1.1 percent, increase over the previous year. The increase included a $5.7 million increase in investments and a $2.7 million increase in capital assets, net of depreciation. Noncurrent assets at June 30, 2016, showed a $27.9 million, or 3.5 percent, increase over the previous year, primarily due to a $20.4 million increase in capital assets, net of depreciation. Investments also increased by $7.3 million over the previous year.

The Capital Assets section of the Management’s Discussion and Analysis provides greater detail of the projects and renovations addressed during the fiscal years ended June 30, 2017, and June 30, 2016.

Ball State University—2017 Financial Report 3 Management’s Discussion and Analysis

Deferred Outflows of Resources and Deferred Inflows of Resources

Deferred outflows of resources and deferred inflows of resources represent consumption or receipt of resources applicable to a future reporting period. The amounts recorded result from the implementation of GASB Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27; and GASB Statement No. 71, Pension Transition for Contributions Made subsequent to the Measurement Date an amendment of GASB Statement No. 68. The balances reported on these line items represent changes of the net pension liability (total pension liability less the fiduciary net position). Most changes to net pension liability are to be included in pension expense in the period of the change. However, certain changes are required to be expensed over current and future periods. Changes of economic and demographic assumptions or of other inputs and differences between expected and actual experience are required to be recorded as deferred outflows of resources or deferred inflows of resources as appropriate. Changes and differences to deferred outflows at June 30, 2017, was a $1.6 million, or 6.25 percent, increase, while changes and differences to deferred inflows was a $1.1 million, or 19.6 percent, decrease. Changes and differences to deferred outflows at June 30, 2016, was much higher at $17.5 million, related primarily to annual activity for pensions during fiscal year 2015-2016. The measurement date of the defined benefit pension plans that are administered by INPRS is June 30, 2016, for the 2016-2017 financial report, and June 30, 2015, for the 2015-2016 financial report.

Students walking in front of David Letterman Communication and Media Building

Current and Noncurrent Liabilities

Current liabilities consist primarily of trade accounts and interest payable, accrued compensation and related benefits, deposits, unearned revenue, and the current portion of bonds that are payable within one year or less. Accounts payable and accrued liabilities may fluctuate from year to year based on timing of University initiatives and programmatic costs. For fiscal year 2016-2017, the University’s current liabilities increased by $0.4 million, or 0.7 percent. The net increase was primarily due to a decrease in accounts payable of $3.0 million and an increase in the current portion of bonds payable of $2.9 million. For fiscal year 2015-2016, the University’s current liabilities increased minimally by $0.3 million, or 0.7 percent.

Noncurrent liabilities are predominantly comprised of bonds payable, pension liability, liability for compensated absences, and the Perkins loan program. Total noncurrent liabilities increased by $53.6 million, or 19.6 percent, in fiscal year 2016-2017. Pension liability, recorded in accordance with GASB Statements 68 and 71, increased by $6.7 million. Bonds payable (long

4 Ball State University—2017 Financial Report Management’s Discussion and Analysis term liabilities, net) increased $46.9 million over the previous fiscal year due to the issuance of new student fee bonds for the construction of the new Health Professions Building and the refunding of older student fee bonds at a lower rate.

In fiscal year 2015-2016, total noncurrent liabilities increased by $46.4 million, or 20.4 percent. The effect of the GASB Standards for fiscal year 2015-2016 was an increase of $20.1 million to pension liability. Bonds payable (long term liabilities, net) increased $27.0 million over the previous fiscal year due to the issuance of new housing & dining system revenue bonds for the renovation of Schmidt/Wilson Residence Hall and the refunding of older revenue bonds at a lower rate.

Debt Administration

The University employs various sources such as philanthropy, internal cash reserves, cash appropriations from the state, and bond proceeds to fund new construction and large renovation projects on campus. As of June 30, 2017, the University had $250.6 million of capital-related bond indebtedness outstanding, compared to $212.1 million and $192.0 million outstanding as of June 30, 2016, and June 30, 2015, respectively. The increase in indebtedness is due, as noted above, to the issuance of new student fee bonds, offset in part by regularly scheduled debt payments as well as refunding of older revenue bonds at a lower rate. All of the University’s bonds are fixed-rate, tax-exempt issuances that are secured by student fees or auxiliary revenues, depending on the original purpose of the bond.

Ball State University’s rating of AA-/Stable by Standard & Poor’s and Aa3/Stable by Moody’s was reaffirmed in November 2016. S&P noted the University’s solid operating performance, healthy financial resource ratios relative to the rating category, steady demand and stable enrollment, manageable debt burden, while Moody’s called out the consistently strong capital and operating support from the State of Indiana, very good unrestricted liquidity, and the University’s stature as a large provider of higher education within the state. More details regarding the University’s bonds payable are presented in the Notes to Financial Statements.

Shafer Tower

Capital Assets

As of June 30, 2017, the University had $416.7 million invested in capital assets, net of accumulated depreciation of $419.0 million and related debt of $250.6 million. Depreciation charges totaled $27.4 million for the current fiscal year. All of these amounts reflect cost of construction rather than replacement cost. As of June 30, 2016, the University had $452.6 million invested in capital assets, net of accumulated depreciation of $394.8 million and related debt of $212.1 million. Depreciation charges totaled $26.5 million for fiscal year 2015-2016.

Ball State University—2017 Financial Report 5 Management’s Discussion and Analysis

The renovation of Schmidt/Wilson Residence Hall, part of the Johnson Complex, was completed near the end of fiscal year 2016-2017 and will welcome students back in the fall semester of 2017. The renovation included a completely new building envelope, new elevators accessing all floors, and new mechanical, electrical, and plumbing systems. The renovated hall will serve as a living-learning community for the Department of Theatre and Dance students. Approximately $11.8 million and $23.7 million was spent on the project in the last two fiscal years, respectively.

Johnson Complex-Schmidt/Wilson Halls Expansion and renovation of the lobby at the John R. Emens College-Community Auditorium Renovation was completed in the summer of 2017. The improvements include a 12,000 square foot addition to the venue to provide additional gathering space for pre-event, intermission and post-event crowds, new restrooms adjacent to the lobby, relocation of the box office of the interior of the lobby, and new hospitality space, conference room and offices, and support space on the second story. Construction expenditures on this project totaled $4.5 million during fiscal year 2016-2017 and $0.7 million during fiscal year 2015-2016.

Design work for the new Health Professions Building, home to the recently formed College of Health, has been completed and sitework is underway. The building is expected to be open in the fall of 2019 and will include modern classrooms, teaching laboratories, and clinical spaces. Approximately $2.1 million was expended on this project during fiscal year 2016-2017 and nearly $0.4 million during fiscal year 2015-2016.

“No Boundaries” by Julie Borden, commemorating the 50th anniversary of John R. Emens College-Community Auditorium (1964-2014)

6 Ball State University—2017 Financial Report Management’s Discussion and Analysis

New College of Health Building rendering

With renovations to both Botsford/Swinford and Schmidt/Wilson Residence Halls of the Johnson Complex now complete, the focus now turns to the eventual replacement of the aging LaFollette Complex on the north side. Portions of LaFollette were demolished during fiscal year 2016-2017 at a cost of $1.4 million. Meanwhile, designs for the first phase of the new North Residential Neighborhood are underway. Phase 1 will include a new stand-alone dining facility and a new residence hall, along with realignment of McKinley Avenue. Expenditures for this first phase of work totaled $0.9 million during fiscal year 2016-2017.

LaFollette demolition

Ball State University—2017 Financial Report 7 Management’s Discussion and Analysis

Current operating funds were utilized to purchase $3.8 million in capital equipment in fiscal year 2016-2017 and $6.3 million in fiscal year 2015-2016. Some of these purchases replaced mostly fully-depreciated equipment dispositions originally costing $3.1 million in fiscal year 2016-2017 and $3.0 million in fiscal year 2015-2016.

Net Position

At June 30, 2017, total net position for the University was $727.3 million, up $2.4 million over the previous year. Net position is classified into four categories: Net investment in capital assets, restricted nonexpendable, restricted expendable, and unrestricted. Net investment in capital assets accounted for approximately $416.7 million as of June 30, 2017. This balance represents the University’s investment in land, buildings, infrastructure, land improvements, and equipment, and is reported net of accumulated depreciation and related debt. Additional discussion of capital assets is available in the Capital Assets section of this report as well as in the accompanying Notes to Financial Statements.

Restricted nonexpendable net position remained unchanged from the previous year and accounts for only $0.9 million of net position. These funds represent permanent endowments received by donors, the principal of which must be held in perpetuity with only present and future income earnings being used to support the wishes of the donor. Restricted expendable net position represents funds that have restrictions imposed by third parties in their purpose. Restricted expendable net position increased by $47.9 million in fiscal year 2016-2017, totaling $76.6 million as of June 30, 2017. Of these restricted expendable funds, $67.2 million are funds restricted for construction, such as the bond proceeds for the new Health Professions Building or state appropriations for repair and rehabilitation. $6.8 million is restricted for external grants, and $2.6 million is restricted for student loans. The overall change in restricted expendable net position was primarily due to unspent proceeds from the sale of student fee bonds offset by bond premiums on the same issue.

Johnson Complex-Schmidt/Wilson Halls with Botsford/Swinford Halls in foreground

Aside from capital assets and restricted net position, the remaining $233.1 million of net position is in unrestricted net position. Unrestricted net position is not subject to externally imposed restrictions. However, portions of the unrestricted net position are internally restricted for specific authorized purposes at the end of each fiscal year. The specific purposes for which these assets are internally restricted include the stewardship and renewal of capital assets, campus development and infrastructure, technological advancements, self-insurance reserves, unforeseen contingencies, and other purposes. In addition, adjustments

8 Ball State University—2017 Financial Report Management’s Discussion and Analysis to unrestricted net position are required each year for prepaid expense related to retiree benefits as calculated in accordance with GASB Statement No. 45 (an increase to unrestricted net position), and pension liability as required by GASB Statements No. 68 and 71 (a reduction to unrestricted net position). Additional information regarding GASB Statements No. 68 and 71 are discussed within the Notes to Financial Statements. Overall, unrestricted net position decreased by $9.6 million over the prior fiscal year primarily due to a $8.8 million reclassification of negative restricted net position, a $6.0 million decrease in operating fund surpluses, a $4.0 million increase in the pension liability, and a $2.2 million decrease in endowment funds. The decrease in unrestricted net position was partially offset by an $11.1 million increase in internal reserves.

At June 30, 2016, the University’s net position was $724.9 million. Approximately $452.6 million was comprised of net investment in capital assets. Additionally, the University had other net positions totaling $272.3 million as of June 30, 2016, of which $29.6 million was restricted net position. The $29.6 million restricted net position was comprised of: $0.9 million in nonexpendable endowment restricted for student scholarships, $2.6 million restricted for student loans, $22.1 million restricted for construction, and $4.0 million restricted for external grants. Restricted net position increased by $9.4 million, primarily due to unspent proceeds from the sale of housing and dining system revenue bonds offset by bond premiums on the same bond issue.

Unrestricted net position at June 30, 2016, was $242.7 million, an increase of $1.8 million over the prior fiscal year which was primarily attributable to increases in funds set aside for repair and rehabilitation of auxiliary buildings.

Change in Net Position

The following is a summary of the revenues and expenses resulting in the changes in net position as of the end of the previous three fiscal years. Note that, for purposes of this statement, state appropriations are considered non-operating revenues.

Change in Net Position Years Ended June 30, 2017, 2016, and 2015 2017 2016 2015 Operating Revenues $ 274,006,946 $ 265,002,481 $ 262,196,219 Operating Expenses 493,066,361 481,846,017 465,096,945 Net Operating Income/(Loss) $ (219,059,415) $ (216,843,536) $ (202,900,726) Net Non-Operating Revenues 213,822,564 220,356,991 204,497,975 Other Revenue – Capital Appropriations and Gifts 7,679,369 7,991,003 14,790,813 Increase in Net Position $ 2,442,518 $ 11,504,458 $ 16,388,062 Net Position - Beginning of Year 724,862,334 713,357,876 726,004,187 Change in Accounting Policy - - (29,034,373) Net Position - End of Year $ 727,304,852 $ 724,862,334 $ 713,357,876

Operating Revenues

Operating revenues increase net position and include all transactions that result in sales and/or receipts from goods and services such as tuition and fees, housing, dining, and athletics. In addition, federal, state, and private grants are considered operating if they are not for financial aid or capital purposes. Revenues from tuition and fees and auxiliary enterprises are reported net of allowances for scholarships.

Total operating revenues increased $9.0 million, or 3.4 percent, in fiscal year 2016-2017. Gross revenue from student tuition and fees for fiscal year 2016-2017 increased 4.1 percent while scholarship allowances increased by 8.6 percent resulting in a net revenue increase of $3.6 million. The rise in tuition and fees resulted from a modest rate increase of 1.65 percent coupled with increased enrollment of 3.0 percent. These increases were slightly offset by a decrease in course fee revenue associated with a decline in electronic textbook sales. Auxiliary enterprise revenue for residential life which includes housing and dining increased $3.7 million, or 6.6 percent, after scholarship allowances.

In fiscal year 2015-2016, total operating revenues increased $2.8 million, or 1.1 percent. Gross student tuition and fees for fiscal year 2015-2016 increased 2.5 percent while scholarship allowances increased by 5.8 percent resulting in a net revenue increase of $2.0 million. The small increase in tuition and fees resulted from a modest rate increase and a slight enrollment upturn that was offset by an increase in student scholarship allowances. Auxiliary enterprise revenue for residential life stayed fairly flat with an increase of $0.5 million, while other auxiliary enterprises including revenue from parking, athletic events, and cultural events saw an increase of $2.3 million.

Ball State University—2017 Financial Report 9 Management’s Discussion and Analysis

For fiscal year 2016-2017, grants and contracts revenue increased by $1.1 million from the prior year to total $13.2 million. For fiscal year 2015-2016, grants and contracts revenue increased by a modest $0.6 million from the prior year to total $12.1 million. Total Revenues by Source

2016-2017 2015-2016 2014-2015 Tuition&Fees,Net

Scholarships&Grants 8% 9% 8% Grants&Contracts 14% 13% 33% 14% 33% 33% CapitalAppropriations&Gifts

StateAppropriations

29% 29% 10% 29% AuxiliaryEnterprises,Net 10% 10% 3% 2% 3% 3% 5% 2% OtherRevenues

Operating Expenses

Operating expenses reduce net position and consist of all the costs necessary to perform and conduct the programs and primary purposes of the University. In fiscal year 2016-2017, operating expenses increased $11.2 million, or 2.3 percent. Personnel services and benefits account for approximately 70 percent of total operating expenses. They increased collectively by 11.3 million, or 3.4 percent in fiscal year 2016-2017, due primarily to a 2.0 percent salary increase and an increase to benefits expense. Other supplies and expenses and repairs and maintenance decreased a combined $2.0 million, while other operating expense components changed only slightly.

Operating expenses for fiscal year 2015-2016 increased $16.8 million, or 3.6 percent. Personnel services increased $6.4 million, due primarily to a 2.0 percent salary increase as well as adding new positions, while benefits increased by $13.5 million. The large benefits increase was primarily due to the mandatory posting of pension benefits as required by GASB Statements 68 and 71, discussed in the accompanying Pension Plans and Other Post- Employment Benefits Note.

Students dancing in the quad

10 Ball State University—2017 Financial Report Management’s Discussion and Analysis

90% Health PlanMigration LowDeductible 80% 78% HighDeductibleWellness 70% HighDeductibleHSA 62% 60% 57% 59% 57% 53% 50% 48% 43% 43% 39% 40% 34% 29% 30% 26% 24% 26% 21% 20% 18% 18% 18% 14% 15% 10% 9% 4% 4% 0% 200910 201011 201112 201213 201314 201415 201516 201617

Health care continues to be one of the largest areas of uncertainty when budgeting operating expenses. With personnel services and benefits accounting for approximately 70.0 percent of the total operating expenses each year and the University’s cost of self-insured health care comprising roughly 9.0 percent of this total, the importance of managing health care is imperative. The University offers health insurance to both active employees and to qualified retirees. The health care plan design is evaluated and analyzed using information from several third party experts and consultants utilizing industry best practices. The uncertain and evolving regulatory landscape regarding the future of the Patient Protection and Affordable Care Act (PPACA) complicates this analysis. Attempting to forecast future health care costs is a challenge, but is necessary when developing plan designs and premiums.

The University offers active employees a choice of three different plans: Low Deductible; High Deductible Wellness; and High Deductible Health Savings Account (HSA). Retirees are only offered the High Deductible Wellness plan option. The two high deductible plans are considered consumer-driven plans. Over the last eight years, the University has seen a tremendous migration out of the Low Deductible Plan and into the High Deductible Wellness and HSA plans as shown in the previous chart. This migration should be indicative of a population that is more engaged and aware of their own health and well-being. The HSA plan has the lowest premiums and the highest cost share. The consumer driven plans encourage participants to be conscientious about the cost of health care and to choose medical providers based on quality of care and competitive pricing.

The University is diligent in working to control costs and still provide competitive benefit rich plans. As a result, the University has been able to reduce premiums paid by both employee and the University, while at the same time reducing medical claims in the consumer driven health care plans. Since fiscal year 2006-2007, premiums have actually seen a reduction in two of the three health care plans offered by the University.

In an effort to promote healthy lifestyles and quality of life, members are encouraged to participate in the wellness initiatives. The University provides health enhancement program activities including free health risk assessments and screenings to employees and their spouses, incentives for participation in wellness activities, onsite workout facilities and classes, free tobacco cessation programs, and continues to work with employees on managing their chronic health conditions. Due to the University’s efforts to monitor and make appropriate changes to the various health plans to encourage good consumer behavior, such as use of generic drugs and preventative care to control costs, without adversely affecting medical care, the plan’s performance has resulted in a surplus for the last few years. This surplus is held in reserve for one year and then contributed to the Voluntary Employee Beneficiary Association (VEBA) Trust. In order to adequately fund the VEBA Trust, the University must make payments that are equal to the Actuarial Required Contribution (ARC) each year. Since the University is operating the plan outside of the VEBA Trust, it has more than satisfied the ARC requirement. Although payments were not required to meet our baseline obligations, making payments to the VEBA Trust is necessary to ensure the continued growth and renewed commitment to provide retiree health care to current and future retirees. Therefore, the surplus experienced

Ball State University—2017 Financial Report 11 Management’s Discussion and Analysis during fiscal year 2016-2017 of $4.0 million is held in reserve while the surpluses from fiscal years 2015-2016 and 2014-2015 in the amount of $6.5 and $1.6 million, respectively, have been contributed to the VEBA Trust during the last two years.

Total Expenses by Source

2016-2017 2015-2016 2014-2015 Salaries&Benefits

6% 6% 6% 3% 3% 3% InterestonCapital AssetRelatedDebt

23% OtherOperating 22% 24% Expenses

StudentAidPayments 2% 65% 2% 67% 66% 2% Depreciation

Non-Operating Revenues and Expenses

Non-operating revenues increase net position, and non-operating expenses decrease net position. Non-operating revenues and expenses are generated from transactions that are primarily non-exchange in nature, consisting mainly of state appropriations, federal and state scholarships and grants, private gifts, interest expense, and investment income (interest and dividend income and realized and unrealized gains and losses).

In fiscal year 2016-2017, net non-operating revenues and expenses decreased $6.5 million, or 3.0 percent. Federal and state scholarships and state appropriations make up the majority of non-operating revenues. Federal and state scholarships and grants and state appropriations increased $2.5 million and $1.3 million, respectively. Decreases were seen in investment income and interest on capital asset related debt for $1.4 million and $1.6 million, respectively. State pension contributions revenue is the amount the State of Indiana pays on behalf of the University to INPRS for the Teachers’ Retirement Fund Pre- 1996 (TRF Pre-1996) Account. Since TRF Pre-1996 is a closed plan, the impact of any changes in actuarial assumptions or any differences between expected and actual results must be recognized in the current year. Therefore, the year to year contributions may vary widely. The amount of contributions decreased in fiscal year 2016-2017 by $7.0 million over the prior fiscal year.

In fiscal year 2015-2016, net non-operating revenues and expenses increased by $15.9 million, or 7.8 percent. Federal and state scholarship and grants increased by $1.9 million, State appropriations increased by $0.7 million, and state pension contributions (State of Indiana’s payments to INPRS on behalf of the University for the TRF Pre-1996 Account) increased by $8.5 million.

Other Revenues

Other revenues increase net position and consist Renewal and Replacement Appropriations of capital appropriations, gifts and grants, as well (millions of dollars) as items that are typically non-recurring, or unusual to the University. 2012 2013 2014 2015 2016 2017 The State of Indiana’s biennial appropriations to $4.3 $0.0 $14.2 $13.8 $3.6 $5.4 the University typically include an appropriation of capital renewal and replacement funds for state- supported buildings. The funding amount is based on a formula that takes into account the age, condition, and use of the campus facilities. For many years, the state has not allocated full funding for capital renewal and replacement appropriations due to the financial condition of the state. In 2013, the state also appropriated $30.0 million in capital funds for the University’s geothermal conversion project. These funds are remitted to the University on a reimbursement basis. Renewal and replacement appropriations received in fiscal year 2016-2017 include $2.6 million ($2.6 million for fiscal year 2015-2016 and $2.4 million for fiscal year 2014-2015) in appropriations for general repair and rehabilitation and $2.8 million ($1.0 million in

12 Ball State University—2017 Financial Report Management’s Discussion and Analysis fiscal year 2015-2016 and $11.4 million in fiscal year 2014-2015) in draws against the geothermal appropriation. Capital gifts from the Ball State University Foundation totaled $2.2 million ($4.4 million for fiscal year 2015-2016 and $1.0 million for fiscal year 2014-2015) for various capital projects.

Geothermal heat pump chillers

Statement of Cash Flows

The Statement of Cash Flows provides a means to assess the financial health of the University by presenting relevant information about the cash receipts and cash payments of the University during the fiscal year. It assists in determining the University’s ability to generate future net cash flows to meet its obligations as they become due and to assess the University’s need for external financing. The statement is divided into four sections based on major activity – operating, non-capital financing, capital financing, and investing. A fifth section reconciles the operating income or loss on the Statement of Revenues, Expenses, and Changes in Net Position to the net cash used in operations. A sixth section shows non-cash transactions.

Ball State University—2017 Financial Report 13 Management’s Discussion and Analysis

The following is a summarized comparison of the University’s changes in cash and cash equivalents for the previous three fiscal years:

Cash Flows Years Ended June 30, 2017, 2016, and 2015 2017 2016 2015 Cash and Cash Equivalents Provided By/(Used In): Operating Activities $ (178,673,202) $ (181,270,683) $ (178,932,726) Non-Capital Financing Activities 212,301,949 211,362,907 220,292,407 Capital and Related Financing Activities 13,534,336 (19,726,858) (55,061,543) Investing Activities (71,708,552) (4,118,627) (2,762,532) Net Increase in Cash and Cash Equivalents $ (24,545,469) $ 6,246,739 $ (16,464,394) Cash and Cash Equivalents – Beginning of Year 112,402,255 106,155,516 122,619,910 Cash and Cash Equivalents – End of Year $ 87,856,786 $ 112,402,255 $ 106,155,516

The University’s cash and cash equivalents decreased in fiscal year 2016-2017 by $24.5 million, and increased in fiscal year 2015-2016 by $6.2 million. Net cash flows from operating activities consist primarily of tuition and fees, grants and contracts, and auxiliary enterprise receipts. Payments to employees represent the largest use of cash for operating activities. Cash flows provided from non-capital financing activities are primarily state appropriations and scholarships and grants from federal and state sources, such as Pell and 21st Century Scholarship. Changes in capital and related financing activities result from the University’s capital plan. Details are provided in the Debt Administration and Capital Assets sections in the Management’s Discussion and Analysis. Cash flows from investing activities primarily consist of reinvesting the proceeds from investments as they mature.

Burris Laboratory School K-12

Economic Factors That Will Affect the Future

In its spring 2017 Fiscal Survey of States, the National Association of State Budget Officers stated that general fund spending is expected to increase just 1.0 percent in fiscal year 2017-2018 as compared to estimated spending levels for fiscal year 2016-2017. This would represent the smallest increase recommended by governors since fiscal year 2009-2010 when most states were heavily impacted by the Great Recession. The budget recommendations call for increased spending in K-12 education, Medicaid, corrections, higher education, public assistance, and transportation, while all other program areas are expected to see decreased spending. States continue to contend with slow revenue growth and limited budget flexibility as well as uncertainty at the federal level. Overall, general fund revenues are projected to increase 3.1 percent in fiscal year 2017-2018 as a result of continued job growth and modest recovery in energy-producing states.

According to their respective published 2017 outlooks for higher education, both Moody’s Investors Service and Standard & Poor’s Ratings Services announced a stable outlook for U.S. higher education. In its report, Moody’s noted that all revenue streams are expected to grow over the next 12-18 months, with aggregate annual revenue growth at or above 3.0 percent. Standard & Poor’s remarked that demand for higher education in the U.S. remains strong and continues to grow. Both agencies cited increases in pension and other post-employment benefit (OPEB) liabilities, affordability, and uncertainty regarding federal policies, including student loan and grant programs, as being factors that could negatively impact the higher

14 Ball State University—2017 Financial Report Management’s Discussion and Analysis education market. The University’s ratings for all outstanding debt were confirmed in November 2016 by Moody’s (Aa3/stable outlook) and Standard & Poor’s (AA-/stable outlook).

Ball State University, as a public university, relied on the State of Indiana for approximately 29.0 percent of the total financial resources in fiscal year 2016-2017. State revenues for fiscal year 2016-2017 were 0.7 percent above forecast and 3.1 percent above fiscal year 2015-2016, allowing the state to close the year with a $42.0 million surplus. State reserves ended the year at $1.8 billion despite $427.9 million in appropriations for road funding. The State of Indiana is rated Aaa by Moody’s and AAA by Standard & Poor’s, making it one of only a handful of states with top rankings by both ratings agencies.

Since 2004, the State of Indiana has used a performance funding formula for higher education. The formula is drafted and managed by the Indiana Commission for Higher Education (ICHE), which uses the formula to recommend funding to the Indiana legislature for appropriations to the various public universities in the state. The two constants in the funding formula have been to recommend increases in funding to campuses that increase the number of degrees awarded to resident undergraduate students, and to campuses that increase graduation rates. Due to deliberate actions by Ball State leadership, the University received a measurable operating increase during the 2017-2019 biennium.

Ball State is classified as a research campus and earns funding under the formula primarily for an increase in the number of degrees awarded to resident students, increases in the number of “high-impact” degrees awarded to resident students (as chosen by ICHE, primarily in Science, Technology, Engineering, and Math (STEM) disciplines), and increases in the resident undergraduate four-year graduation rate. Ball State takes very seriously the goals set forth by ICHE in creating its budget recommendations. With an eye toward increasing the amount of funding that Ball State receives under the performance funding formula, while being true to our strategic direction of becoming better and not bigger, the University continues to focus on enrolling students who are increasingly better academically prepared. Due to Ball State’s increasing selectivity in student admissions, and a concerted set of policy initiatives, the University’s graduation and retention rates have been growing substantially. In a study conducted by ICHE, Ball State showed the largest increase in on-time (within four years) graduation rates among all Indiana public universities between 2009 and 2014.

The increase in selectivity of the University’s student body is demonstrated in the fall 2016 freshman class who continue the tradition of strong academic abilities, posting an average GPA of 3.45. Also, 71.0 percent earned the Indiana Academic Honors Diploma or its equivalent, an eight point increase since 2012. The average SAT for the fall 2016 freshman class was 1,611 above the national norm.

Ball State University—2017 Financial Report 15 Management’s Discussion and Analysis

David Letterman Communication and Media Building

Conclusion

In summary, as the financial statements indicate, the University has been an effective steward of the human, physical, and financial resources entrusted to it, based on a planned approach to addressing long-term needs and liabilities while facing shorter-term challenges not unlike other public institutions nationwide. When all of this is taken into consideration, Ball State University remains in a strong position to be a major asset of significant benefit to the citizens of the State of Indiana.

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Ball State University—2017 Financial Report 17 Financial Statements

Ball State University Statement of Net Position As of June 30, 2017 and 2016

2017 2016 Assets: Current Assets: Cash and Cash Equivalents $ 87,856,786 $ 112,402,255 Short Term Investments 88,059,379 20,080,737 Accounts Receivable, Net, and Unbilled Costs 28,254,050 31,135,451 Inventories 1,217,463 1,513,991 Deposit with Bond Trustee 20,116,185 16,595,802 Notes Receivable, Net 1,653,777 1,709,024 Prepaid Retiree Benefits 13,853,579 11,758,766 Prepaid Expenses 1,586,320 2,737,472 Total Current Assets $ 242,597,539 $ 197,933,498 Noncurrent Assets: Accounts and Notes Receivable, Net $ 8,963,825 $ 8,371,985 Investments 163,531,351 157,789,903 Capital Assets, Net 667,350,402 664,658,279 Total Noncurrent Assets $ 839,845,578 $ 830,820,167 Total Assets $ 1,082,443,117 $ 1,028,753,665 Deferred Outflows of Resources: Pension Contributions $ 26,628,804 $ 25,062,319 Total Assets and Deferred Outflows of Resources $ 1,109,071,921 $ 1,053,815,984

Liabilities: Current Liabilities: Accounts Payable and Accrued Liabilities $ 27,135,115 $ 30,378,871 Deposits 7,348,237 6,465,722 Unearned Revenue 696,372 887,064 Long Term Liabilities – Current Portion 14,595,000 11,680,000 Total Current Liabilities $ 49,774,724 $ 49,411,657 Noncurrent Liabilities: Liability for Compensated Absences $ 3,012,997 $ 2,917,621 Pension Liability 53,221,971 46,473,866 Perkins Loan Program – Federal Capital Contribution 8,184,069 8,365,923 Long Term Liabilities, Net 262,892,224 215,959,172 Total Noncurrent Liabilities $ 327,311,261 $ 273,716,582 Total Liabilities $ 377,085,985 $ 323,128,239 Deferred Inflows of Resources: Pension Contributions $ 4,681,084 $ 5,825,411 Total Liabilities and Deferred Inflows of Resources $ 381,767,069 $ 328,953,650 Net Position: Net Investment in Capital Assets $ 416,710,402 $ 452,598,279 Restricted for: Nonexpendable Scholarships 900,110 906,730 Expendable: Debt Service - - Loans 2,608,693 2,571,716 Construction 67,246,654 22,158,027 External Grants 6,781,281 3,961,688 Unrestricted 233,057,712 242,665,894 Total Net Position $ 727,304,852 $ 724,862,334 Total Liabilities, Deferred Inflows of Resources and Net Position $ 1,109,071,921 $ 1,053,815,984

See accompanying Notes to Financial Statements

18 Ball State University—2017 Financial Report Financial Statements

Ball State University Foundation, Inc. Combined and Consolidated Statements of Financial Position As of June 30, 2017 and 2016

2017 2016 Assets Cash and cash equivalents $ 2,314,000 $ 2,825,081 Certificates of deposit 263,070 261,332 Contributions receivable, net 9,482,805 10,437,320 Investments 212,040,030 193,257,425 Investments held in split-interest agreements 1,720,560 1,821,156 Beneficial interest in remainder trusts 1,096,440 1,069,534 Other assets 743,851 711,661 Cash surrender value of life insurance 1,937,294 1,765,847 Property and equipment 9,215,502 9,818,314 Beneficial interest in perpetual trusts 2,556,014 2,377,444 Total assets $ 241,369,566 $ 224,345,114

Liabilities Accounts payable $ 7,529,910 $ 10,102,859 Accrued expenses 785,387 705,330 Line of credit 1,000,000 2,000,000 Notes payable 1,025,000 340,000 Term notes payable 11,300,000 12,300,000 Annuity obligations 1,865,323 2,133,484 Trust obligations 654,062 570,303 Total liabilities 24,159,682 28,151,976 Net Assets Unrestricted (2,491,540) (9,089,090) Temporarily restricted 142,635,882 130,697,089 Permanently restricted 77,065,542 74,585,139 Total net assets 217,209,884 196,193,138 Total liabilities and net assets $ 241,369,566 $ 224,345,114

See Note A in Notes to Financial Statements

Ball State University—2017 Financial Report 19 Financial Statements

Ball State University Statement of Revenues, Expenses and Changes in Net Position Years Ended June 30, 2017 and 2016

2017 2016 Operating Revenues: Student Tuition and Fees $ 242,310,313 $ 232,846,880 Scholarship Allowances (73,983,322) (68,154,632) Net Student Tuition and Fees $ 168,326,991 $ 164,692,248 Federal Grants and Contracts 4,654,999 5,561,193 State & Local Grants and Contracts 2,432,258 2,584,002 Non-Governmental Grants and Contracts 6,126,332 3,972,010 Sales and Services of Educational Departments 9,141,266 9,094,559 Auxiliary Enterprises: Residential Life (Net of Scholarships and Allowances: 2017 - $12,060,040; 2016 - $10,226,374) 59,650,650 55,934,465 Other 10,899,429 11,535,834 Other Operating Revenues 12,775,021 11,628,170 Total Operating Revenues $ 274,006,946 $ 265,002,481 Operating Expenses: Personnel Services $ 241,757,718 $ 237,570,267 Benefits 96,879,658 89,808,828 Utilities 12,695,991 11,968,177 Repairs and Maintenance 16,841,701 19,432,632 Other Supplies and Expenses 81,739,709 81,160,280 Student Aid 15,711,576 15,417,584 Depreciation 27,440,008 26,488,249 Total Operating Expenses $ 493,066,361 $ 481,846,017 Operating Income/(Loss) $ (219,059,415) $ (216,843,536) Non-Operating Revenues/(Expenses): Federal and State Scholarships and Grants $ 52,408,370 $ 49,905,136 State Appropriations 145,366,234 144,084,123 Investment Income 2,011,538 3,403,502 Interest on Capital Asset Related Debt (9,671,225) (8,118,784) Private Gifts 7,951,836 8,255,215 State Pension Contributions 8,760,094 15,717,760 Other Non-Operating Income 6,995,717 7,110,039 Net Non-Operating Revenues/(Expenses) $ 213,822,564 $ 220,356,991 Income Before Other Revenues, Expenses, Gains or Losses $ (5,236,851) $ 3,513,455 Capital Appropriations 5,448,228 3,603,291 Capital Gifts 2,231,141 4,387,712 Increase in Net Position $ 2,442,518 $ 11,504,458 Net Position – Beginning of Year 724,862,334 713,357,876 Net Position – End of Year $ 727,304,852 $ 724,862,334

See accompanying Notes to Financial Statements

20 Ball State University—2017 Financial Report Financial Statements

Ball State University Foundation, Inc. Combined and Consolidated Statements of Activities Years Ended June 30, 2017 and 2016

2017 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Gains and Other Support Contributions $ 1,073,440 $ 11,286,291 $ 1,925,745 $ 14,285,476 Promotional activities and other revenue 520,326 - - 520,326 Investment income, net of fees 11,609,238 13,947,312 267,259 25,823,809 Change in value of split-interest agreements 215,094 138,721 297,828 651,643 Rental and other income 746,536 - - 746,536 Operating support fees 2,023,448 (2,013,019) (10,429) - 16,188,082 23,359,305 2,480,403 42,027,790 Net assets released from restrictions 11,420,512 (11,420,512) - - Total revenues, gains and other support 27,608,594 11,938,793 2,480,403 42,027,790

Expenses University programs 11,782,849 - - 11,782,849 Management and general 4,879,169 - - 4,879,169 Fund raising 4,349,026 - - 4,349,026 Total expenses 21,011,044 - - 21,011,044

Change in Net Assets 6,597,550 11,938,793 2,480,403 21,016,746

Net Assets, Beginning of Year (9,089,090) 130,697,089 74,585,139 196,193,138 Net Assets, End of Year $ (2,491,540) $ 142,635,882 $ 77,065,542 $ 217,209,884

2016 Temporarily Permanently Unrestricted Restricted Restricted Total Revenues, Gains and Other Support Contributions $ 1,374,038 11,192,284 $ 2,195,434 $ 14,761,756 Promotional activities and other revenue 373,760 - - 373,760 Investment income (loss), net of fees (7,430,588) (1,966,319) 238,006 (9,158,901) Change in value of split-interest agreements (48,331) (45,864) (129,762) (223,957) Rental and other income 769,578 - - 769,578 Operating support fees 1,626,804 (1,604,624) (22,180) - (3,334,739) 7,575,477 2,281,498 6,522,236 Net assets released from restrictions 14,575,959 (14,795,313) 219,354 - Total revenues, gains and other support 11,241,220 (7,219,836) 2,500,852 6,522,236

Expenses University programs 15,079,175 - - 15,079,175 Management and general 4,664,533 - - 4,664,533 Fund raising 3,954,829 - - 3,954,829 Total expenses 23,698,537 - - 23,698,537

Change in Net Assets (12,457,317) (7,219,836) 2,500,852 (17,176,301)

Net Assets, Beginning of Year 3,368,227 137,916,925 72,084,287 213,369,439 Net Assets, End of Year $ (9,089,090) $ 130,697,089 $ 74,585,139 $ 196,193,138

See Note A in Notes to Financial Statements

Ball State University—2017 Financial Report 21 Financial Statements

Ball State University Statement of Cash Flows Years Ended June 30, 2017 and 2016

2017 2016 Source / (Uses) of Cash: Operating Activities: Tuition and Fees $ 169,973,980 $ 165,202,159 Grants and Contracts 12,866,431 3,537,766 Payments to Suppliers (80,548,205) (80,560,237) Payments for Maintenance and Repair (16,841,701) (19,432,632) Payments for Utilities (12,695,991) (11,968,177) Payments for Personnel Services (244,479,939) (237,436,462) Payments for Benefits (85,368,695) (75,790,026) Payments for Scholarships and Fellowships (15,652,429) (14,980,396) Auxiliary Enterprise Charges: Room and Board 59,277,554 55,459,438 Other 10,899,429 11,535,834 Sales and Services of Educational Activities 9,152,837 9,100,423 Other Receipts/Disbursements/Advances 14,743,527 14,061,627 Net Cash Provided/(Used) by Operating Activities $ (178,673,202) $ (181,270,683) Non-Capital Financing Activities: Federal and State Scholarships and Grants $ 52,408,370 $ 49,905,136 State Appropriations 145,366,234 146,596,782 William D. Ford Direct Lending Receipts 127,077,179 122,363,697 William D. Ford Direct Lending Disbursements (127,188,361) (122,616,497) Private Gifts 7,642,810 8,003,750 Foundation Receipts 620,684 518,364 Foundation Disbursements (620,684) (518,364) Other Non-Operating Revenue 6,995,717 7,110,039 Net Cash Provided/(Used) by Non-Capital Financing Activities $ 212,301,949 $ 211,362,907 Capital Financing Activities: Proceeds from Capital Debt $ 134,781,892 $ 60,687,295 Capital Appropriations 5,448,228 3,603,291 Capital Gifts 2,231,141 4,387,712 Purchases of Capital Assets (31,895,699) (47,046,373) Principal Paid on Capital Debt (84,445,000) (33,165,000) Interest Paid on Capital Debt (9,065,843) (7,760,339) Deposits with Trustee (3,520,383) (433,444) Net Cash Provided/(Used) by Capital Financing Activities $ 13,534,336 $ (19,726,858) Investing Activity: Proceeds from Sales and Maturities of Investments $ 105,424,198 $ 101,031,887 Interest on Investments 3,702,083 2,760,033 Purchase of Investments (180,834,833) (107,910,547) Net Cash Provided/(Used) by Investing Activities $ (71,708,552) $ (4,118,627) Net Increase/(Decrease) in Cash $ (24,545,469) $ 6,246,739 Cash – Beginning of the Year 112,402,255 106,155,516 Cash – End of the Year $ 87,856,786 $ 112,402,255

Ball State University—2017 Financial Report 22 Financial Statements

Ball State University Statement of Cash Flows Years Ended June 30, 2017 and 2016

2017 2016 Reconciliation of Net Operating Revenues/(Expenses) to Net Cash Provided/(Used) by Operating Activities: Operating Income/(Loss) $ (219,059,415) $ (216,843,536) Adjustments to Reconcile Income/(Loss) to Net Cash Provided/(Used) by Operating Activities: Depreciation Expense 27,440,008 26,488,249 Equipment Retired 1,763,568 170,575 GIK Donations 309,026 251,465 Pensions Covered by State of Indiana 8,760,094 15,717,760 Changes in Assets and Liabilities: Operating Receivables, Net 2,992,583 (4,532,720) Inventories 296,528 (259,797) Other Assets (943,661) (2,642,044) Accounts Payable (4,337,978) (64,440) Unearned Revenue (190,692) 381,072 Deposits Held for Others 700,661 (1,423,646) Compensated Absences 95,376 (69,481) Pension Liability 6,748,105 20,055,044 Deferred Outflows (1,566,485) (17,472,510) Deferred Inflows (1,144,327) (933,922) Long Term Accounts and Notes Receivable (536,593) (92,752) Net Cash Provided/(Used) by Operating Activities $ (178,673,202) $ (181,270,683)

Non-Cash Transactions TRF Pre-1996 Pension Expense Covered by State of Indiana $ 8,760,094 $ 15,717,760 Gifts in Kind Donations $ 309,026 $ 251,465 See accompanying Notes to Financial Statements

Ball State University—2017 Financial Report 23 Financial Statements

Ball State University Foundation, Inc. Combined and Consolidated Statements of Cash Flows Years Ended June 30, 2017 and 2016

2017 2016 Operating Activities Change in net assets $ 21,016,746 $ (17,176,301) Items not requiring (providing) cash: Depreciation and amortization 262,530 293,789 Net realized and unrealized (gains) losses on investments (28,253,038) 7,725,803 Gain on sale of property and equipment (10,710) (1,814) Change in value of trusts (205,476) 183,277 Contributions of marketable equity securities (1,975,138) (688,230) Contributions restricted for long-term investment (1,925,745) (2,195,434) Net change in value of split-interest agreements (83,806) 526,934 Changes In Contributions receivable, including accretion of discount on pledges receivable 945,515 1,421,936 Other assets (32,190) (67,701) Accounts payable and accrued expenses (2,492,892) 5,833,902 Net cash used in operating activities (12,754,204) (4,143,839)

Investing Activities Purchase of property and equipment (1,961,385) (3,130,786) Proceeds from property and equipment and sale of real estate 2,312,377 1,938,965 Purchase of investments and certificates of deposit (13,896,178) (20,501,774) Sales and maturities of investments and certificates of deposit 25,340,011 24,242,135 Net (increase) decrease in cash surrender value of life insurance (171,447) 1,065 Net cash provided by investing activities 11,623,378 2,549,605

Financing Activities Borrowings under line of credit agreement 9,050,000 6,850,000 Payments under line of credit agreement (10,050,000) (5,850,000) Proceeds from term notes payable 1,025,000 - Reduction of term notes payable (1,340,000) (1,000,000) Proceeds from contributions restricted for investment in permanent endowment 1,925,745 2,195,434 Net cash provided by financing activities 610,745 2,195,434

Net Increase (Decrease) in Cash (511,081) 601,200 Cash and Cash Equivalents, Beginning of the Year 2,825,081 2,223,881 Cash and Cash Equivalents, End of Year $ 2,314,000 $ 2,825,081

Interest Paid $ 395,411 $ 316,215 See Note A in Notes to Financial Statements

24 Ball State University—2017 Financial Report Ball State University Notes to Financial Statements June 30, 2017

Note A–Basis of Presentation and Summary of Significant Accounting Policies

Organization Ball State University (University) is a public institution of higher education governed by a nine-member Board of Trustees in accordance with IC 21-19-3. The University is considered to be a component unit of the State of Indiana. The Governor of Indiana appoints the Trustees, one of whom is a full-time student at the University and two of whom are nominated or selected by the Ball State University Alumni Association. All members of the Board of Trustees are appointed for terms of four years, except for the student member whose term is two years. No more than six of the non-student Trustees may be of the same sex, and at least one of them must be a resident of Delaware County, Indiana.

Reporting Entity

The financial reporting entity consists of the primary government, Ball State University, organizations for which the primary government is financially accountable, and 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, as required by GASB Statement No. 14, The Financial Reporting Entity. As additionally required by GASB Statement No. 39, Determining Whether Certain Organizations Are Component Units, organizations that raise and hold economic resources for the direct benefit of the University are included in the reporting entity. The reporting entity is further clarified by the addition of GASB Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34. This statement modifies certain requirements for inclusion of component units in the financial reporting entity. A financial benefit or burden relationship must now also exist between the primary government and the component unit before it becomes part of the reporting entity. Based on these criteria, the financial report includes the University and our related entity, Ball State University Foundation which is discretely presented. Other related entities may meet the requirements for a blended presentation, but are not included in these financial statements as they are not material and their omission does not significantly impact the Ball State University financial statements. The University evaluates potential component units for inclusion in the reporting entity based on all of the aforementioned criteria on an annual basis.

Discrete Component Unit

The Ball State University Foundation (Foundation or BSUF) is a legally separate, tax-exempt Indiana nonprofit corporation that is an Internal Revenue Code Section 170(b) (1) (A) organization organized and operated for the benefit of the University. Under the reporting standards of the Governmental Accounting Standards Board (GASB), the Foundation is defined to be a component unit of the University. The Foundation acts primarily as a fund-raising organization to supplement the resources that are available to the University in support of its programs. The Foundation by-laws allow for thirty-one voting directors, seven of whom serve by position. The seven directors who serve by position include the following:

Chair of the Ball State University Board of Trustees; President of Ball State University; Vice President for Business Affairs and Treasurer, Ball State University; President of the Ball State University Foundation; Two (2) additional members of the Ball State University Board of Trustees, as designated by the Board of Trustees; One (1) member of the Executive Committee of the Alumni Council of the Ball State University Alumni Association, as designated by the Alumni Council.

Although the University does not control the timing or amount of receipts from the Foundation, the majority of resources or income that the Foundation holds and invests are restricted to the activities of the University by the donors. Because these restricted resources held by the Foundation can only be used by, or for the benefit of, the University, the Foundation is considered a component unit of the University and is discretely presented in the University’s financial statements.

Ball State University—2017 Financial Report 25 Notes to Financial Statements

Transactions with the Foundation primarily involve the funding of expenditures for which the University funds are not available. These include both unrestricted funds and those restricted by donors. Expenditures include scholarships, funding of distinguished professorships, capital expenditures, and operational support.

Effective July 1, 2015, the Foundation was reorganized to include all Advancement functions, including development, alumni association, and advancement services. All non-payroll financial activity for these departments is reported by the Foundation in their financial statements. Payroll and benefit expenses remain as expenses on the University’s statements. The reorganization resulted in the Foundation combining the financial statement of the Ball State University Alumni Association, Inc. (Alumni Association) in their financial statements.

The Foundation is a private nonprofit organization that reports under Financial Accounting Standards Board (FASB) standards, including FASB Statement No. 117, Financial Reporting for Not-for-Profit Organizations. As such, certain revenue recognition criteria and presentation features are different from GASB revenue recognition criteria and presentation features. No modifications have been made to the BSUF’s financial information in the University’s annual report for these differences.

To assist those reading the financial statements of the Foundation, the following excerpts from the Notes to Combined and Consolidated Financial Statements of the Ball State University Foundation are reproduced as follows:

Note 7: Line of Credit and Term Note Payable (complete reproduction)

BSUF has a $15,000,000 unsecured revolving line of credit with a group of banks expiring in June 2018. At June 30, 2017 and 2016, there was $1,000,000 and $2,000,000, respectively, borrowed against this line. Interest varies with the one month London InterBank Offer Rate (LIBOR) plus 2.00%. There is a minimum interest rate of 3.25%, which was the interest rate in effect at June 30, 2017 and 2016.

BSUF also has a term loan facility that is due December 30, 2018. The line is unsecured, with a fixed interest rate of 3.30%. There was $1,300,000 and $2,300,000 borrowed against this facility at June 30, 2017 and 2016, respectively. Repayments are $250,000 quarterly and extending through December 2018, when the remaining balance outstanding is due.

On May 13, 2015, BSUF entered into a $10,000,000 term credit agreement with a bank that is due on March 31, 2022. The agreement is unsecured with an interest rate of 1.22% over 30 day LIBOR, which was 2.44% and 1.68% at June 30, 2017 and 2016, respectively. Interest only payments are due quarterly until March 31, 2020. Commencing on June 30, 2020, a principal payment of $125,000 each quarter will also be due. On March 31, 2022, the remaining unpaid principal balance on the note, along with the accrued interest, will be due and payable. The proceeds of this note were used to retire the $10,000,000 of variable rate demand notes that were outstanding since their issuance in 2001.

Each of these agreements contain covenants, which include maintaining minimum net assets of $100,000,000. Additionally, the term credit agreement requires BSUF to have liquid assets to funded long-term debt ratio of 2.50 to 1.0, as measured at the end of each fiscal year. As of June 30, 2017 and 2016, management is not aware of any violations of the financial covenants.

On August 15, 2016, Cardinal Properties entered into a $225,000 note payable. This note is secured by a mortgage on the related property and matures on August 1, 2019. The note bears interest at 8.00%, with interest only payments due August 1, 2017, 2018 and 2019.

On November 15, 2016, Cardinal Properties entered into an $800,000 note payable. This note is secured by the related real estate and matures on January 1, 2025. The note bears interest at 7.00%, with interest only payments due January 1, 2018 – 2021. Beginning January 1, 2022 – 2025, principal and interest payments of $36,182.

Complete financial statements for the BSUF can be requested from the Ball State University Foundation office at 2800 W. Bethel Ave., Muncie, IN 47306.

26 Ball State University—2017 Financial Report Notes to Financial Statements

Basis of Presentation The financial statements of the University are prepared in accordance with the principles contained in GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments as amended by GASB Statement No. 35, Basic Financial Statements – and Management’s Discussion and Analysis – for Public Colleges and Universities. The University has elected to report its financial results as a special-purpose government engaged only in business-type activities, using proprietary fund accounting and financial reporting.

Required financial statements consist of:

Management’s Discussion and Analysis Statement of Net Position Statement of Revenues, Expenses and Changes in Net Position Statement of Cash Flows Notes to Financial Statements Required Supplemental Information other than Management’s Discussion and Analysis

The financial statements have been prepared using the economic resource measurement focus and the accrual basis of accounting with the following exceptions, which are common practices in colleges and universities:

Interest on student loans is recorded only when received. Gifts are recorded when received.

During fiscal year 2015-2016, the University adopted GASB Statement No. 72, Fair Value Measurement and Application Overview, which requires governments to provide additional disclosures related to the methodology of deriving fair value for certain investments held primarily for income or profit. The intent of the additional disclosures is to enhance comparability of governmental financial statements by requiring fair value measurement for certain assets and liabilities using a consistent definition and accepted valuation techniques. The additional fair value disclosures help to provide comprehensive information for financial statement users about the impact of fair value measurements on a government’s financial position. In accordance with the statement, the University has included the additional note disclosures along with other necessary disclosures pertaining to investments together in Note H – Deposits and Investments of this financial report.

The University is included in the state’s financial statements as a discrete component unit. Transactions with the State of Indiana relate primarily to: appropriations for operations, repairs and rehabilitations, and debt service for academic buildings; appropriations and other revenues for operation of the Indiana Academy for Science, Mathematics, and Humanities; grants for other purposes; and payments to state retirement programs for University employees.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with maturities of ninety days or less as of June 30 for each fiscal year end, that bear little or no market risk. Amounts included are cash held in banks, revolving and change funds, cash in transit, interest due within ninety days, and investments with maturities of ninety days or less at June 30 for each fiscal year end. Investments

Investments are reported at fair value. Investments with a maturity date of ninety-one days to one year are considered to be short term investments. Investments with a maturity date of greater than one year are considered to be noncurrent assets.

Accounts Receivable

Accounts receivable consists primarily of amounts due from students, grants and contracts, and auxiliary enterprises and are recorded net of a calculated reserve for uncollectible amounts. The reserves as of June 30, 2017, and June 30, 2016, were $7,282,864 and $6,604,671, respectively.

Ball State University—2017 Financial Report 27 Notes to Financial Statements

Inventories

Inventories are stated at the lower of cost or market value, based on a physical count. Cost is based on purchases and determined on a moving average basis for Central Stores and a first-in, first-out basis for all other inventories.

Notes Receivable

Notes receivable consists primarily of student loan repayments due the University and are recorded net of a calculated reserve for uncollectible amounts. The reserves as of June 30, 2017, and June 30, 2016, were $2,439,230 and $2,478,230, respectively. Notes receivable due in greater than one year are classified as a noncurrent asset.

Capital Assets

Capital assets consist of land and land improvements, infrastructure, buildings and building improvements, construction in progress, and equipment and are recorded at cost or, for contributed assets, at fair value at the date of acquisition. Additionally, in accordance with GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets, intangible assets costing in excess of $100,000 and having a life greater than one year are capitalized. All land and building acquisitions are capitalized. Capital assets also include land improvements and infrastructure costing in excess of $100,000. Building improvements are capitalized if the project cost is more than $100,000 or 20.0 percent of the building’s replacement value and either extends the useful life of the building, changes the use or purpose of the original building, or expands the total square footage of the building. The University capitalizes equipment with a cost of $5,000 or more and a useful life in excess of one year. Construction costs that cross fiscal years are capitalized as construction in progress, but are not depreciated until the assets are placed in service. Non-capital equipment and facility costs, routine repairs, and maintenance are charged to operating expenses in the year the expense was incurred.

Depreciation expense is computed using the straight-line method over the estimated useful lives of the respective assets, generally fifty years for buildings, ten to fifty years for exhaustible land improvements, and three to ten years for equipment. Land is not depreciated.

The library collection is not depreciated. All items in the collection are deemed to retain their full value if they are still on hand. All new additions to the collection are treated as an expense at the time of purchase.

The art collection, housed primarily in the David Owsley Museum of Art at Ball State University, is not included, due to the difficulty in determining an accurate value, plus the restrictions in place regarding sales of artwork and use of the funds resulting from such sales, as well as disposition of the artwork in the unlikely event that the museum would cease to exist.

Deferred Outflows of Resources

Deferred outflows of resources represents a consumption of net position that applies to a future period that will not be recognized as an outflow of resources (expense) until then. Deferred outflows of resources represent the consumption of resources that are applicable to a future reporting period, but do not require a further exchange of goods or services. The deferred outflows of resources reported in both fiscal years are related to the University’s net pension liability.

Unearned Revenue

Unearned revenue is recorded for current cash receipts for certain student fees and auxiliary goods and services, which will be recorded as revenue in future periods. Also included are amounts received from contract and grant sponsors that have not yet been earned.

Compensated Absences

Liabilities for compensated absences are recorded for all unused vacation and sick leave balances that are payable upon employee termination in accordance with University policy. Accumulation of vacation and sick leave are dependent upon a University employee’s job classification. University policy determines other variables with each job classification such as: years

28 Ball State University—2017 Financial Report Notes to Financial Statements of service, age, eligibility for retirement, and in which retirement plan the employee participates. All of these variables are considered in computing the University’s liability for compensated absences.

Deferred Inflows of Resources

Deferred inflows of resources represents an acquisition of net position that applied to a future period and so will not be recognized as an inflow or resources (revenue) until that time. Deferred inflows of resources represent the acquisition of resources that are applicable to a future reporting period, but do not require a further exchange of goods or services. The deferred inflows of resources reported in both fiscal years are related to the University’s net pension liability.

Net Position

The University’s net position is classified for financial reporting in the following categories:

Net investment in capital assets: This component of net position includes capital assets, net of accumulated depreciation and outstanding principal debt balances related to the acquisition, construction, or improvement of those assets.

Restricted – nonexpendable scholarships: This includes endowments received by donors, for which the principal is to be maintained in perpetuity and invested for the purpose of producing present and future income, which may be either expended or added to principal.

Restricted – expendable: Resources classified as restricted and expendable are those for which the University is legally obligated to spend in accordance with externally imposed stipulations.

Unrestricted: Unrestricted resources are not subject to externally imposed restrictions and are primarily used for meeting expenses for academic, capital and general operations of the University.

Intra-University Transactions

Intra-university transactions are eliminated from the statement to avoid double counting of certain activities. Examples of these transactions are sales and services between University departments.

Operating Revenues and Expenses

Operating revenues encompass all revenues from exchange transactions arising from the activities necessary to carry out the primary mission of the University, including tuition and fees, grants and contracts, sales and services of educational departments, and auxiliary enterprises net revenues.

Operating expenses encompass all expenses paid to acquire goods and services provided in return for operating revenues and to carry out the mission of the University. Examples include personnel services, benefits, and other supplies and expenses. Expenses are reported using natural classifications in the Statement of Revenues, Expenses and Changes in Net Position.

Non-Operating Revenues and Expenses

Revenues and expenses that do not meet the definition of operating or capital revenues are classified as non-operating. Examples are investment income, Ball State University Foundation donations, federal and state financial aid, and state appropriations.

Student Tuition and Fees

Student tuition and fees are net of scholarship allowances funded from University funds as well as scholarships and fellowships funded from federal, state and other grants, to the extent that these funds offset all or a portion of each student’s tuition and fees. Scholarships and grants awarded by third parties directly to students without University involvement in the decision- making process are not treated as a reduction of tuition and fees but rather as a source of direct payment.

Ball State University—2017 Financial Report 29 Notes to Financial Statements

The University conducts summer classes, which for billing purposes consist of two five-week summer sessions and a ten-week summer semester. The first summer session takes place during May and June, while the second summer session takes place during June and July, with slightly more days falling in July. The summer semester takes place during the two summer sessions. Bills are due on June 1. By June 30, students have exhausted most of their rights to any refund of tuition and fees. Therefore, all summer tuition and fees are reported as revenue for the year ended June 30 of that summer. Faculty salaries for summer are paid in June for first summer session and half of summer semester and in July for second summer session and the second half of summer semester.

Service Concession Agreements

The University has entered into agreements with various vendors. Some of these arrangements are considered to be Service Concession Agreements as Ball State University is the transferor and each of these entities is recognized as an operator under GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Agreements. However, none of the agreements have resulted in significant deferred inflows or outflows of resources that would require further disclosure as of June 30, 2017.

New Accounting Pronouncements: Adoption of New Standard

GASB released very few standards with effective dates for the 2016-2017 fiscal year. Most of the statements were narrowly focused or were amending prior statements, and none of them were applicable to Ball State University except for one. GASB 82, Pension Issues, clarified the definition of “covered employee payroll” as it relates to the tables found in the Required Supplemental Information (RSI) section of the annual financial report. A minor adjustment was made to this calculation.

Statement Reclassifications

Certain reclassifications have been made to prior year statements and notes schedules for comparative purposes and do not constitute a restatement of prior periods.

Reclassifications have been made to consolidate the accrued interest receivable and endowment investments line items into the appropriate classification of either cash and cash equivalents, short term investments, or investments. See reclassification details on the following tables:

Ball State University Statement of Net Position Reclassifications for June 30, 2016 Reclassed Original 2016 2016 Cash and Cash Equivalents $ 112,402,255 $ 111,223,501 Short Term Investments 20,080,737 19,879,365 Accrued Interest Receivable - Investments - 766,684 Endowment Investments - 906,730 Investments 157,789,903 157,496,615 Totals $ 290,272,895 $ 290,272,895

Ball State University Statement of Cash Flows for June 30, 2016 Reclassed Original 2016 2016 Investing Activity: Proceeds from Sales and Maturities of Investments $ 102,228,055 $ 101,815,981 Interest on Investments 3,260,362 2,493,682

30 Ball State University—2017 Financial Report Notes to Financial Statements

Reclassifications were made to move the current portion of liability for compensated absences to accounts payable and accrued liabilities. See reclassification details below:

Ball State University Statement of Net Position Reclassifications for June 30, 2016 Reclassed Original 2016 2016 Accounts Payable and Accrued Liabilities $ 30,378,871 $ 26,155,914 Liability for Compensated Absences 2,917,621 7,140,578 Totals $ 33,296,492 $ 33,296,492

Reclassifications were made to the Statement of Cash Flow for gifts in kind and state pension contributions. Both are non-cash transactions reported under a different section on the Cash Flow as follows:

Ball State University Statement of Cash Flows for June 30, 2016 Reclassed Original 2016 2016 Source/(Uses) of Cash: Operating Activities: Payments to Suppliers $ (80,560,237) $ (80,811,702) Payments for Benefits (75,790,026) (91,507,786) Non-Capital Financing Activities: Private Gifts 8,003,750 8,255,215 State Pension Contributions - 15,717,760

Reconciliation of Net Operating Revenues/(Expenses) to Net Cash Provided/(Used) by Operating Activities: Adjustments to Reconcile Income/(Loss) to Net Cash Provided/(Used) by Operating Activities: GIK Donations 251,465 - Pensions Covered by State of Indiana 15,717,760 -

Non-Cash Transactions TRF Pre-1996 Pension Expense Covered by State of Indiana 15,717,760 - Gifts in Kind Donations 251,465 -

Ball State University—2017 Financial Report 31 Notes to Financial Statements

Note B – Capital Assets

Book Value Book Value July 1, 2016 Additions Deductions CIP Transfers June 30, 2017 Assets not Being Depreciated: Land $ 18,845,887 $ 4,171,177 $ - $ - $ 23,017,064 Construction in Progress 30,489,825 5,883,637 255,442 (27,949,349) 8,168,671 Total capital assets not being depreciated $ 49,335,712 $ 10,054,814 $ 255,442 $ (27,949,349) $ 31,185,735

Other Capital Assets: Land Improvements $ 43,552,061 $ 827,227 $ 227,977 $ 216,610 $ 44,367,921 Infrastructure 96,511,066 1,094,764 - 1,746,955 99,352,785 Educational Buildings 353,528,993 192,545 606,653 - 353,114,885 Utility Buildings 42,605,940 9,342 230,122 - 42,385,160 Educational Equipment 53,249,562 3,205,880 2,789,110 - 53,666,332 Auxiliary Enterprise Buildings 383,973,195 15,169,270 195,375 25,985,784 424,932,874 Auxiliary Enterprise Equipment 16,335,768 585,721 329,255 - 16,592,234 Other Property 2,135,540 756,136 332,231 - 2,559,445 Software 18,196,922 - - - 18,196,922 Total Other Capital Assets $ 1,010,089,047 $ 21,840,885 $ 4,710,723 $ 27,949,349 $ 1,055,168,558

Less Accumulated Depreciation: Land Improvements $ 23,157,966 $ 1,510,265 $ 11,399 $ - $ 24,656,832 Infrastructure 22,475,598 3,338,214 - - 25,813,812 Educational Buildings 157,484,889 7,086,779 184,940 - 164,386,728 Utility Buildings 11,375,490 845,880 18,410 - 12,202,960 Educational Equipment 40,851,869 3,360,453 2,578,066 - 41,634,256 Auxiliary Enterprise Buildings 118,717,265 8,489,946 195,375 - 127,011,836 Auxiliary Enterprise Equipment 11,674,170 1,123,290 169,676 - 12,627,784 Other Property 267,417 50,289 44,731 - 272,975 Software 8,761,816 1,634,892 - - 10,396,708 Total Accumulated Depreciation, Other Capital Assets $ 394,766,480 $ 27,440,008 $ 3,202,597 $ - $ 419,003,891 Capital Assets, Net $ 664,658,279 $ 4,455,691 $ 1,763,568 $ - $ 667,350,402 Book Value Book Value July 1, 2015 Additions Deductions CIP Transfers June 30, 2016 Assets not Being Depreciated: Land $ 17,914,243 $ 931,644 $ - $ - $ 18,845,887 Contruction in Progress 7,444,680 27,983,849 - (4,938,704) 30,489,825 Total Capital Assets Not Being Depreciated $ 25,358,923 $ 28,915,493 $ - $ (4,938,704) $ 49,335,712

Other Capital Assets: Land Improvements $ 43,359,754 $ 192,307 $ 35,670 $ 35,670 $ 43,552,061 Infrastructure 91,847,059 2,900,532 - 1,763,475 96,511,066 Educational Buildings 350,010,767 2,981,018 - 537,208 353,528,993 Utility Buildings 41,983,953 413,627 - 208,360 42,605,940 Educational Equipment 52,606,225 3,470,424 2,827,087 - 53,249,562 Auxiliary Enterprise Buildings 376,437,188 5,142,016 - 2,393,991 383,973,195 Auxiliary Enterprise Equipment 13,749,404 2,805,160 218,796 - 16,335,768 Other Property 1,909,745 225,795 - - 2,135,540 Software 18,196,922 - - - 18,196,922 Total Other Capital Assets $ 990,101,017 $ 18,130,879 $ 3,081,553 $ 4,938,704 $ 1,010,089,047

Less Accumulated Depreciation: Exhaustible Land Improvements $ 21,685,275 $ 1,472,691 $ - $ - $ 23,157,966 Infrastructure 19,262,763 3,212,835 - - 22,475,598 Educational Buildings 150,388,618 7,096,271 - - 157,484,889 Utility Buildings 10,525,195 850,295 - - 11,375,490 Educational Equipment 40,387,538 3,228,141 2,763,810 - 40,851,869 Auxiliary Enterprise Buildings 111,000,163 7,717,102 - - 118,717,265 Auxiliary Enterprise Equipment 10,888,055 925,249 139,134 - 11,674,170 Other Property 224,644 42,773 - - 267,417 Software 6,826,958 1,942,892 8,034 - 8,761,816 Total Accumulated Depreciation, Other Capital Assets $ 371,189,209 $ 26,488,249 $ 2,910,978 $ - $ 394,766,480 Capital Assets, Net $ 644,270,731 $ 20,558,123 $ 170,575 $ - $ 664,658,279

32 Ball State University—2017 Financial Report Notes to Financial Statements

Note C – Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following at June 30, 2017 and 2016:

June 30, 2017 June 30, 2016 Accrued Payroll $ 1,884,438 $ 1,577,007 Accrual for Compensated Absences 4,012,332 4,222,957 Interest Payable 7,130,920 6,036,697 Vendor and Other Payables 14,107,425 18,542,210 Total Accounts Payable and Accrued Liabilities $ 27,135,115 $ 30,378,871

Note D – Other Liabilities

Other liability activity for the fiscal years ended June 30, 2017 and 2016, is summarized below as follows:

Balance Balance July 1, 2016 Additions Reductions June 30, 2017 Current Long Term Liabilities $ 228,760,034 $ 138,367,934 $ 88,031,041 $ 279,096,927 $ 16,204,703 Liability for Compensated Absences 7,140,578 1,262,203 1,377,452 7,025,329 4,012,332 Pension Liability 46,473,866 25,753,374 19,005,269 53,221,971 - Perkins Loan Program - Federal Capital Contribution 8,365,923 502,161 684,015 8,184,069 - Total Other Liabilities $ 290,740,401 $ 165,885,672 $ 109,097,777 $ 347,528,296 $ 20,217,035

Balance Balance July 1, 2015 Additions Reductions June 30, 2016 Current Long Term Liabilities $ 201,237,739 $ 62,113,293 $ 34,590,998 $ 228,760,034 $ 12,800,862 Liability for Compensated Absences 7,210,059 1,465,144 1,534,625 7,140,578 4,222,957 Pension Liability 26,418,822 26,864,437 6,809,393 46,473,866 - Perkins Loan Program - Federal Capital Contribution 8,898,835 469,918 1,002,830 8,365,923 - Total Other Liabilities $ 243,765,455 $ 90,912,792 $ 43,937,846 $ 290,740,401 $ 17,023,819

Note E – Bonds Payable

Long term liabilities reported in the Statement of Net Position include principal obligations for outstanding bonds and the noncurrent portions of premiums received on certain bond series and unamortized deferred costs. The premiums are being amortized over the life of each series and reduce the recorded interest expense. The deferred costs represent losses on refunding of previous debt and are amortized over the shorter of the life of the old or new debt. The current portion of net unamortized premium and deferred costs are reflected in the Statement of Net Position as accounts payable and accrued liabilities.

Balance Balance Current Debt-Related Liabilities June 30, 2016 Increases Decreases June 30, 2017 Portion Bonds Payable Revenue Bonds $ 83,800,000 $ - $ 3,280,000 $ 80,520,000 $ 3,795,000 Student Fee Bonds 128,260,000 123,025,000 81,165,000 170,120,000 10,800,000 Total Bonds Payable 212,060,000 123,025,000 84,445,000 250,640,000 14,595,000 Net Unamortized Premiums and Deferred Costs 16,700,034 15,342,934 3,586,041 28,456,927 1,609,703 TotalDebt-RelatedLiabilities $ 228,760,034 $ 138,367,934 $ 88,031,041 $ 279,096,927 $ 16,204,703

Balance Balance Current Debt-Related Liabilities June 30, 2015 Increases Decreases June 30, 2016 Portion Bonds Payable Revenue Bonds $ 54,840,000 $ 53,230,000 $ 24,270,000 $ 83,800,000 $ 3,280,000 Student Fee Bonds 137,155,000 8,895,000 128,260,000 8,400,000 Total Bonds Payable 191,995,000 53,230,000 33,165,000 212,060,000 11,680,000 Net Unamortized Premiums and Deferred Costs 9,242,739.00 8,883,293 1,425,998 16,700,034 1,120,862 TotalDebt-RelatedLiabilities $ 201,237,739 $ 62,113,293 $ 34,590,998 $ 228,760,034 $ 12,800,862

When necessary, the University issues municipal bonds for purposes of construction and renovation of campus facilities. All outstanding bonds are tax-exempt with fixed rates and maturities of twenty years or less. The principal and interest on these bonds are payable from net revenues of specific auxiliary enterprises and/or from student fees. As part of each biennial budget, the Indiana General Assembly authorizes a state appropriation to the University for ”fee replacement” of debt service payments on certain student fee bonds issued under IC 21-34-6. While state statutes prohibit a current General Assembly from binding future General Assemblies to provide fee replacement, the State of Indiana has never failed to fully fund fee replacement

Ball State University—2017 Financial Report 33 Notes to Financial Statements obligations established by a prior General Assembly. In the table that follows, all student fee bonds with the exception of Series O (now a part of Series R) are eligible for fee replacement from the state. Current Portion Interest Date of Final Original Outstanding Retired Outstanding Outstanding Issue Description Rates Issue Maturity Issue June 30, 2016 2016-2017 June 30, 2017 June 30, 2017 Revenue Bonds Issued Under Authority of IC 21-35-3: Housing and Dining Fund the renovation and expansion of Series 2013 Botsford/Swinford Residence Halls in Johnson 3.00-5.00% 10/08/13 2034 $ 33,160,000 $ 30,570,000 $ 1,100,000 $ 29,470,000 $ 1,145,000 Complex Housing and Dining Fund the renovation and expansion of Series 2016 Schmidt/Wilson Residence Halls in Johnson Complex and to refund the outstanding Housing 2.00-5.00% 01/27/16 2036 53,230,000 53,230,000 2,180,000 51,050,000 2,650,000 and Dining System Revenue Bonds, Series 2006.

Student Fee Bonds Issued Under Authority of IC 21-34-6: Series L Refund all of the outstanding Student Fee Bonds 3.00-5.50% 7/21/04 2021 16,425,000 6,605,000 1,180,000 5,425,000 1,245,000 remaining in Series J Series N Fund a portion of the University’s conversion to a geothermal district heating and cooling system 3.50-5.00% 01/30/08 2028 63,615,000 41,390,000 29,030,000 12,360,000 1,045,000 and to refund portions of the outstanding Student Fee Bonds remaining in Series I and K.

Series O Fund a portion of the construction and renovation 3.00-5.25% 03/12/09 2017 29,175,000 22,890,000 22,890,000 - - of the Student Recreation and Wellness Center

Series P Fund Phase I of the Central Campus Renovation 3.00-5.25% 03/15/11 2017 32,225,000 26,350,000 26,350,000 - - and Utilities Improvement Project Series Q Fund Phase II of the Central Campus Renovation and Utilities Improvement Project, a portion of the 2.00-5.00% 10/21/13 2033 35,840,000 31,025,000 1,715,000 29,310,000 1,800,000 campus geothermal project, and to refund the outstanding Student Fee Bonds, Series M

Series R Fund construction of the new Health Professions Building and to refund the portions of the outstanding Student Fee Bonds, Series N and all 2.00-5.00% 01/26/17 2037 123,025,000 - - 123,025,000 6,710,000 outstanding Student Fee Bonds, Series O and Series P Subtotal Bonds Payable $ 386,695,000 $ 212,060,000 $ 84,445,000 $ 250,640,000 $ 14,595,000 Net Unamortized Premiums and Costs - 16,700,035 - 28,456,928 1,609,703 Total Bonds Payable $ - $ 228,760,035 $ 84,445,000 $ 279,096,928 $ 16,204,703

Future payments related to debt for the fiscal years ending June 30 are as follows:

Bonds Payable As of June 30, 2017

Fiscal Year Principal Interest Total 2018 $ 14,595,000 $ 11,168,554 $ 25,763,554 2019 14,775,000 10,986,813 25,761,813 2020 15,415,000 10,332,813 25,747,813 2021 16,190,000 9,579,400 25,769,400 2022 15,460,000 8,786,850 24,246,850 2023-2027 79,875,000 32,309,425 112,184,425 2028-2032 59,215,000 15,095,663 74,310,663 2033-2037 35,115,000 3,673,325 38,788,325 Total $ 250,640,000 $ 101,932,843 $ 352,572,843

Note F – Defeased Bonds

Bonds are defeased by early redemption or refunding with an issuance of new debt. When the bonds are defeased, irrevocable escrow accounts are established with a trustee for purposes of satisfying all future obligations of the defeased debt. Federal, state, and local government securities are purchased in amounts sufficient to pay principal and interest payments through the call date.

Proceeds of Student Fee Bonds, Series R, dated January 26, 2017, were used to refund a portion of the outstanding Student Fee Bonds, Series N and all of the outstanding Student Fee Bonds, Series O and Series P and to provide funding for construction of the new Health Professions Building. The refunding of the impacted maturities of Series N, Series O, and Series P resulted in a net accounting loss of $2,901,139, which is being amortized over the remaining life of the bonds.

Through the refunding, the University reduced its aggregate debt service payment by $6,143,683, which will be realized over the next fourteen years. There was an economic gain (difference between the present values of the old and new debt service payments) of $5,274,027 on the refinancing activity. The portion of the gain related to Student Fee Bonds, Series N and

34 Ball State University—2017 Financial Report Notes to Financial Statements

Series P accrues to the State of Indiana in that it reduces the amount of fee replacement funds provided to the University by the state. The gain related to Student Fee Bonds, Series O accrues to the University.

Under the terms of the escrow agreements, the University is relieved of all liability for the defeased issues. As such, neither the defeased bonds nor the related escrow accounts are reflected in the accompanying financial statements. The University’s defeased debt is shown below: Final Maturity/ Amount Outstanding Issue Call Date June 30, 2017 June 30, 2016 Student Fee Bonds, Series N 7/1/2018 $ 25,955,000 $ - Student Fee Bonds, Series O 1/1/2019 21,695,000 - Student Fee Bonds, Series P 7/1/2020 25,115,000 -

Note G – Operating Leases

The University leases various buildings and equipment under operating lease rental agreements. Operating leases do not give rise to property rights or meet other capital lease criteria and, therefore, the related assets and liabilities are not recorded in the accompanying financial statements. The total rental expense under these agreements was $507,369 for the year ended June 30, 2017.

Future minimum lease payments on all significant operating leases with initial terms in excess of one year, as of June 30, 2017, are as follows:

Future Lease Fiscal Year Payments 2018 $ 494,086 2019 474,977 2020 70,117 2021 25,896 2022 25,013 Total $ 1,090,089

Note H – Deposits and Investments

The Ball State University Board of Trustees (Trustees) have acknowledged responsibility as a fiduciary body for the invested assets of the University. Indiana Code 30-4-3-3 requires the Trustees to “exercise the judgment and care required by Indiana Code 30-4-3.5,” the Indiana Uniform Prudent Investor Act. That act requires the Trustees to act “as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the Trustee shall exercise reasonable care, skill, and caution.” The Trustees have the responsibility to assure the assets are prudently invested in a manner consistent with the University’s investment policy. The Trustees have delegated the day-to-day responsibilities for overseeing the investment program to the University Investment Committee which is overseen by the Vice President for Business Affairs and Treasurer.

As of June 30, 2017 and 2016, the University held deposits and investments, including endowment funds, as reflected below:

June 30, 2017 June 30, 2016 Cash and Cash Equivalents $ 87,856,786 $ 112,402,255 Short Term Investments 88,059,379 20,080,737 Investments 163,531,351 157,789,903 Total $ 339,447,516 $ 290,272,895

Interest Rate Risk

Interest rate risk is the risk that changes in interest rates may adversely impact the fair value of individual investments. As interest rates rise the fair value of the underlying assets are reduced. Those assets with longer durations to maturity are the most susceptible to interest rate risk. The University has reduced its exposure to this risk by structuring subcomponents of the

Ball State University—2017 Financial Report 35 Notes to Financial Statements portfolio to a range of targeted balances. The targeted balances are determined by each of the subcomponent’s specific purposes.

The University held deposits and investments with the following maturities at June 30, 2017:

Fair Value Maturities (in years) Investment Type June 30, 2017 Less than 1 1 - 5 Money Market Funds $ 75,472,555 $ 75,472,555 $ - Commercial Paper 9,381,609 9,381,609 - Certificate of Deposits 47,875,392 13,511,766 34,363,626 US Treasury Bonds 4,531,349 11,108 4,520,241 US Agency Bonds 153,168,080 59,094,758 94,073,322 Corporate Debt 43,702,419 16,851,441 26,850,978 Municipal Bonds 5,257,657 1,534,473 3,723,184 All Other 58,455 58,455 - Total Investments $ 339,447,516 $ 175,916,165 $ 163,531,351

The University held deposits and investments with the following maturities at June 30, 2016:

Fair Value Maturities (in years) Investment Type June 30, 2016 Less than 1 1 - 5 Money Market Funds $ 102,081,085 $ 102,081,085 $ - Certificate of Deposits 57,161,316 17,846,379 39,314,937 US Agency Bonds 130,975,089 12,500,123 118,474,966 All Other 55,405 55,405 - Total Investments $ 290,272,895 $ 132,482,992 $ 157,789,903

Custodial Credit Risk – Deposits

The custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover deposits or will not be able to recover collateral securities that are in the possession of an outside party.

As of June 30, 2017, the balance of the University’s deposits were covered in full between the Federal Deposit Insurance Corporation (FDIC) and the Public Deposit Insurance Fund (PDIF), which covers all public funds held in approved depositories.

Custodial Credit Risk – Investments

The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. The University manages custodial credit risk by identifying the types of investments permissible through its investment policy. The University also monitors the credit rating and other performance metrics of its custodian and commercial banks. All investments of the University are registered in the name of the University.

Credit Risk

Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. The University addresses this risk by establishing an acceptable minimum credit rating by investment type. The minimum credit ratings do not permit ratings lower than BBB- or Baa3 thus maintaining an investment grade rating.

36 Ball State University—2017 Financial Report Notes to Financial Statements

As of June 30, 2017 and 2016, University deposits and investments were held with the respective credit ratings as illustrated below: Fair Value June 30, 2017 Fair Value June 30, 2016 Maturities (in years) Percentage of Maturities (in years) Percentage of Credit Quality Rating Less than 1 1 -5 Total Pool Less than 1 1 -5 Total Pool Short Term Ratings A-1 $ 6,687,630 $ - 1.97% $ - $ - 0.00% A-2 2,693,979 - 0.79% - - 0.00%

Long Term Ratings AAA 15,750 4,509,486 1.33% - - 0.00% AA+ 56,846,969 92,120,878 43.89% 12,262,341 108,771,713 41.70% AA 1,566,963 2,718,414 1.26% - - 0.00% AA- 8,477,249 18,597,166 7.98% - 1,921,220 0.66% A+ 615,330 - 0.18% - - 0.00% Not rated 99,012,295 45,585,407 42.60% 120,220,650 47,096,970 57.64% Total $ 175,916,165 $ 163,531,351 100.0% $ 132,482,991 $ 157,789,903 100.00%

Credit Risk Concentration

Concentration of credit risk is the risk of loss attributed to the magnitude of a government’s investment in a single issuer. The University’s investment practices require that deposits and investments are diversified to the extent that the securities of a single issuer are limited to less than 5% of the total portfolio market value. U.S. government securities and U.S. governmental agency securities are exempt from this requirement in practice as well as financial institutions demand deposit and other cash accounts covered by federal and state insurance.

Investments held at individual financial institutions are insured by the Federal Deposit Insurance Corporation (FDIC) and the Public Deposit Insurance Fund (PDIF) and are limited to less than 20% of the total market portfolio per financial institution.

Foreign Currency Risk

Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of a government’s deposits and investments. The University only invests in assets denominated in U.S. dollars and therefore has no direct exposure to foreign currency risk.

Fair Value Measurements

The University categorizes its fair value measurements within the fair value hierarchy as established by GASB Statement No. 72, Fair Value Measurement and Application. The hierarchy is based on the valuation inputs used to measure the fair value of the underlying assets. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.

The University had the following recurring fair value measurements as of June 30, 2017: Fair Value Measurements Using

Quoted Prices in Active Markets for Significant Other Identical Assets Observable Inputs Investments by Fair Value Level June 30, 2017 (Level 1) (Level 2) Commercial Paper $ 9,381,609 $ - $ 9,381,609 U.S. Treasuries 4,531,349 4,531,349 - U.S. Government Agencies 153,168,080 - 153,168,080 Corporate Debt 43,702,419 - 43,702,419 Municipal Bonds 5,257,657 - 5,257,657 Total Investments by Fair Value Level $ 216,041,114 $ 4,531,349 $ 211,509,765

Non-Classified Assets Certificate of Deposits $ 47,875,392 $ - $ - Money Markets 75,472,555 - - All Other 58,455 - - Total Non-Classified Assets $ 123,406,402 $ - $ - Total Investments by Fair Value $ 339,447,516 $ 4,531,349 $ 211,509,765

Ball State University—2017 Financial Report 37 Notes to Financial Statements

The University had the following recurring fair value measurements as of June 30, 2016: Fair Value Measurements Using

Quoted Prices in Active Markets for Significant Other Identical Assets Observable Inputs Investments by Fair Value Level June 30, 2016 (Level 1) (Level 2) U.S. Government Agencies $ 130,975,089 $ - $ 130,975,089 Negotiable Certificate of Deposits 6,706,240 - 6,706,240 Total Investments by Fair Value Level $ 137,681,329 $ - $ 137,681,329

Non-Classified Assets Certificate of Deposits $ 50,455,076 $ - $ - Demand Deposit Accounts 102,081,085 - - All Other 55,405 - - Total Non-Classified Assets $ 152,591,566 $ - $ - Total Investments by Fair Value $ 290,272,895 $ - $ 137,681,329

Endowments

The majority of endowments pledged are held and reported by the Ball State University Foundation pursuant to Indiana Code 30-2-12, Uniform Management of Institutional Funds. This code sets forth the provisions governing the investment of endowment assets and the expenditure of endowment fund appreciation. The code requires that trustees and their agents act in good faith and with the care a prudent person acting in a like position would use under similar circumstances, with respect to the investment of endowment assets. The code also sets forth provisions governing the expenditure of endowment fund appreciation under which the trustees may authorize expenditures, consistent with donor intent. Complete financial statements for the BSUF can be requested from the Ball State University Foundation office at 2800 W Bethel Ave., Muncie, IN 47306.

While Ball State University Foundation holds most of the endowments, the University still has a handful of legacy endowments that were given to the University approximately fifty years ago. Endowment funds are to be held in perpetuity and may be invested in any investment type that is within the University’s Investment policy including cash. The University held $900,110 in endowment funds included as part of the cash and investment balances at June 30, 2017. At June 30, 2016, endowments held at the University were $906,730.

Note I – Pension Plans and Other Post-Employment Benefits

Public Employees’ Retirement Fund Pension Plan Description. The University contributes to the Public Employees’ Retirement Fund (PERF), a defined benefit pension plan. As part of the implementation of GASB Statement No. 67, Financial Reporting for Pension Plans-an amendment of GASB Statement No. 25, the plan changed from an agent to a cost-sharing, multiple-employer defined benefit plan effective July 1, 2013, based on 35 IAC 21-1-1, 35 IAC 21-1-2 and amended IC 5-10.2-2-11(b). State statutes (IC 5-10.2 and 5-10.3) give the University authority to contribute to the plan and govern, through the Indiana Public Retirement System (INPRS) Board, most requirements of the system. INPRS administers the plan and issues a publicly available financial report that includes financial statements and required supplementary information for the plan as a whole and for its participants and may be obtained at www.in.gov/inprs/annualreports.htm.

Basis of the Allocation. The University’s (an employer of the plan) proportion of the net pension liability for PERF was based on wages reported by employers relative to the collective wages of the plan. This basis of allocation measures the proportionate relationship of an employer to all employers, and is consistent with the manner in which contributions to the pension plan are determined. The PERF pension plan does not have a special funding situation, as there is not a non-employer contributing entity legally responsible for making contributions that are used to provide pension benefits to members of the pension plans.

Benefits Provided. PERF was established to provide retirement, disability, and survivor benefits to full-time employees of the State of Indiana not covered by another plan. As an instrumentality of the State of Indiana, Ball State University is allowed to participate in this plan. All full-time staff and service personnel are eligible to participate in the defined benefit plan. The benefit

38 Ball State University—2017 Financial Report Notes to Financial Statements formula for PERF is Lifetime Annual Benefit = (Years of Creditable Service x Average Highest 20 quarters of Salary x .011) + Annuity Savings Account. Cost of living adjustments (COLA) are granted by the Indiana General Assembly on an ad hoc basis.

Eligibility for Pension Benefit Payment

Early retirement with reduced benefits between ages 50-59 with 15 years of service At age 55, if age and creditable service total at least 85 (“Rule of 85”) Age 60 with 15 years of service Age 65 with 10 years of service Age 70 with 20 years of service

Contributions. The PERF retirement benefit consists of the pension provided by employer contributions plus an annuity provided by the member’s annuity savings account. The annuity savings account consists of the member’s contributions, set by state statute at three percent of compensation, plus the investment earnings credited to the member’s account. The University has elected to make the contributions on behalf of the member. The required contributions are determined by the INPRS Board of Trustees based on actuarial investigation and valuation in accordance with IC 5-10.2-2-1.1. The funding policy provides for periodic employer contributions at actuarially determined rates that, expressed as percentages of annual covered payroll, are sufficient to fund the pension benefits when they become due. As PERF is a cost-sharing plan, all risks and costs, including benefit costs, are shared proportionately by the participating employers. During the year 2016, all participating employers were required to contribute 11.2 percent of covered payroll for members employed by the state. For the fiscal year ended June 30, 2016, there were 1,453 employees participating in PERF with an annual pay equal to $50,958,452. In addition, there were 1,473 employees with an annual pay of $51,878,741 participating in PERF for fiscal year ended June 30, 2017. The University’s contribution to the PERF account for the years ended June 30, 2017 and 2016, were $7,330,823 and $7,206,871, respectively. The University contributed 100.0 percent of required contributions for each of the fiscal years.

Teachers’ Retirement Fund 1996 Account Pension Plan Description. The Teachers’ Retirement Fund (TRF) is a cost-sharing, multiple employer public employee retirement system. State statute (IC 5-10.2) gives the University authority to contribute and governs most requirements of the system. The TRF retirement benefit consists of the pension provided by employer contributions plus an annuity provided by the member’s annuity savings account.

Certain employees who participate in TRF are also eligible for supplementary retirement benefits under a noncontributory plan wherein the employee may designate one or more of the following companies to administer the funds:

Voya Financial Fidelity Investments Institutional Services Company, Inc. Lincoln Financial Group Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF)

The same companies administer the funds in the Alternate Pension Plan which is designed to provide benefits comparable to those under TRF and the supplementary plan.

The Indiana Public Retirement System (INPRS) administers the plan and issues a publicly available financial report that includes financial statements and required supplementary information for the plan as a whole and for its participants and may be obtained at www.in.gov/inprs/annualreports.htm.

Basis of the Allocation. The University’s (an employer of the plan) proportion of the net pension liability for the TRF 1996 Account was based on wages reported by employers relative to the collective wages of the plan. This basis of allocation measures the proportionate relationship of an employer to all employers, and is consistent with the manner in which contributions to the pension plan are determined. The TRF 1996 pension plan does not have a special funding situation, as there is not a non-employer contributing entity legally responsible for making contributions that are used to provide pension benefits to members of the pension plans.

Benefits Provided. This plan provides retirement, disability, and survivor benefits to plan members and beneficiaries. All faculty and professional personnel are eligible to participate in the defined benefits plan per state statute (IC 5-10.2). This annual pension benefit is equal to 1.1 percent times the average annual compensation times the number of years of creditable

Ball State University—2017 Financial Report 39 Notes to Financial Statements service. Generally, the average annual compensation in this calculation is the average of the highest five years of annual compensation in a covered position.

Monthly pension benefits for members in pay status may be increased as COLA. Such increases are not guaranteed by statute and have historically been provided on an ad hoc basis and can only be granted by the Indiana General Assembly. There was no COLA for the year ended June 30, 2016.

Contributions. For the fiscal year ended June 30, 2016, there were 383 employees participating in TRF with annual pay equal to $18,353,483. The University recorded 367 employees participating in the TRF 1996 Account with annual pay equal to $20,822,068 for fiscal year ended June 30, 2017. The University contributes at an actuarially determined rate. The current rate has been actuarially determined under the entry age normal cost method to be 7.5 percent of covered payroll. The annuity savings account consists of the member’s contributions, set by state statute at three percent of compensation, plus the interest credited to the member’s account. The University has elected to make the contributions on behalf of the member. The University’s contributions to both Teachers’ Retirement Plans combined, including those made to the annuities on behalf of the members, for the fiscal year ended June 30, 2015, was $1,697,009. The University’s contribution to the Teachers’ Retirement Fund 1996 account for the years ended June 30, 2017 and 2016, were $2,173,276 and $1,922,027, respectively. The University contributed 100.0 percent of required contributions for each of the fiscal years.

Teachers’ Retirement Fund Pre-1996 Account Pension Plan Description. The Indiana State Teachers’ Retirement Fund (TRF) was established by the Indiana General Assembly in 1921. In 1955, TRF was designed as a pay-as-you-go defined benefit retirement plan. In 1995, legislation was passed that closed the pay-as-you-go plan (renamed the TRF Pre-1996 Account) to newly hired members and created a new account (named the TRF 1996 Account) for all members hired after June 30, 1995. TRF is two (2) cost-sharing, multiple- employer defined benefit plans, TRF Pre-1996 Account and TRF 1996 Account. TRF is governed by the INPRS Board of Trustees in accordance with IC 5-10.2, IC 5-10.4, and IC 5-10.5. There are two (2) aspects to the TRF Pre-1996 defined benefit structure. The first portion is the monthly defined benefit pension that is funded by the State of Indiana. The second portion of the TRF Pre-1996 benefit structure is the annuity savings account that supplements the defined benefit at retirement. Generally, members hired prior to 1996 participate in the TRF Pre-1996 Account and members hired after 1996 participate in the TRF 1996 Account (IC 5-10.2-2-2; IC 5-10.4-4-1; IC 5-10.4-7-1; 35 IAC 14-4-16(a)).

Basis of the Allocation. The basis to determine the University’s (an employer of the plan) proportionate share is a weighted calculation using a combination of wages reported by employers relative to the collective wages of the plan, and benefits paid to retirees of employers relative to total benefits paid by the plan. The weighted calculation is 45.6 percent for wages and 54.4 percent for benefits paid, which are determined by the non-retirees and retirees respective net pension liabilities. This method is used as it provides a fairer distribution so that employers with no active employees still show a proportionate share.

This pension plan is a special funding situation in that the State of Indiana, a non-employer contributing entity, is legally responsible for the net pension liability and contributions to the pension plan. These contributions are paid directly to the pension plan and are used to provide pension benefits for members of the pension plan.

Benefits Provided. The plan was established to provide retirement, disability, and survivor benefits to regularly employed licensed teachers and administrators at certain state universities and other educational institutions hired before July 1, 1995, who have maintained continuous employment with the same covered institution since that date to June 30, 2005. This annual pension benefit is equal to 1.1 percent times the average annual compensation times the number of years of creditable service. Generally, the average annual compensation in this calculation is the average of the highest five years of annual compensation in a covered position.

40 Ball State University—2017 Financial Report Notes to Financial Statements

Contributions. The State of Indiana makes contributions as the sole non-employer contributing entity. State appropriations are made in accordance with IC 5-10.4-2-4 for each fiscal year. Currently, a three (3) percent year-over-year increase is being provided through state appropriations. If the actual pension benefit payout for the fiscal year exceeds the amount appropriated, the difference is paid from the Pension Stabilization Fund as part of the assets of the TRF Pre-1996, which was established according to IC 5-10.4-2-5. As a non-employer contributing entity, the State of Indiana contributed $887.5 million in fiscal year 2015-2016 to TRF Pre-1996. As part of the $887.5 million contribution, the state pre-funded a one-time check (a.k.a.13th check) of $41.0 million in accordance with 2015 HEA 1001 for $20.3 million and in accordance with 2016 HEA 1161 for $20.7 million (which went into the Pension Stabilization Fund). Employers contributed $5.0 million in fiscal year 2015-2016.

TRF Pre-1996 Account members contribute three percent of covered payroll to their annuity savings account, which is not used to fund the defined benefit pension. The employer may elect to make the contributions on behalf of the member. In addition, members may elect to make additional voluntary contributions, under certain criteria, of up to ten percent of their compensation into their annuity savings accounts. The University has elected to make three percent contributions on behalf of their participating employees. Prior to June 30, 2015, the University reported both Teachers’ Retirement Funds as one fund. Due to the requirements of GASB Statement No. 68 and GASB Statement No. 71, the funds were reported separately starting June 30, 2015, and going forward. For the fiscal year ended June 30, 2016, the University showed 39 employees participating in the Teachers’ Retirement Fund Pre-1996 Account with annual payroll equal to $3,275,322. The University’s contributions to the Teachers’ Retirement Fund Pre-1996 for fiscal year ended June 30, 2016, was $323,002. For the fiscal year ended June 30, 2017, the University shows 39 employees participating in the Teachers’ Retirement Fund Pre-1996 Account with annual payroll equal to $3,097,835. The University made contributions of $311,060 which included payments for the annuity on behalf of the members.

Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions

At June 30, 2017, the University reported a liability of $53,221,971 for its proportionate share of the net pension liability, as compared to $46,473,866 for the year ended June 30, 2016. The net pension liability reported by the University was measured as of June 30, 2016, for fiscal year 2016-2017, and as of June 30, 2015, for fiscal year 2015-2016 reporting. The total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of those dates for all plans.

The University’s proportionate percentage, deferred outflows of resources, deferred inflows of resources, net pension liability, and pension expense for each plan are shown in the following tables:

June 30, 2016: PERF TRF-1996 TRF Pre-1996 Aggregate Proportionate Share 0.0106414 0.0063119 - Net Pension Liability/(Asset) 48,295,404 4,926,567 - 53,221,971 Deferred Outflow of Resources 14,947,941 4,124,280 - 19,072,221 Deferred Inflow of Resources 3,462,193 1,218,891 - 4,681,084 Pension Expense/(Income) 9,591,231 1,771,006 8,760,094 20,122,331

June 30, 2015: PERF TRF-1996 TRF Pre-1996 Aggregate Proportionate Share 0.0106374 0.0059797 - Net Pension Liability/(Asset) 43,325,088 3,148,778 - 46,473,866 Deferred Outflow of Resources 14,715,817 3,058,616 - 17,774,433 Deferred Inflow of Resources 4,298,431 1,526,980 - 5,825,411 Pension Expense/(Income) 7,572,757 1,219,447 15,717,760 24,509,964

The University recognized expenses of $20,122,331 at June 30, 2017, and $24,509,964 at June 30, 2016. For the TRF Pre- 1996 plan, the University’s proportionate share (amount) of the collective net pension liability was zero for both fiscal years. The portion of the non-employer contributing entity’s (the state) total proportionate share (amount) of the collective net pension liability that was associated with the University was an amount equal to 100.0 percent of the net pension liability. The total of the University’s proportionate share (amount) of the collective net pension liability, and the portion of the state’s total proportionate share of the collective net pension liability associated with the University, reflects all of the net pension liability. The net pension liability associated with the University at June 30, 2016, was $122,758,869, and $115,339,633 at June 30, 2015. The total net pension liability for the TRF Pre-1996 Account at June 30, 2016, was $12,052,671,460, compared to $11,917,836,859 at June 30, 2015. Since the TRF Pre-1996 Account was a special funding situation, the University was not

Ball State University—2017 Financial Report 41 Notes to Financial Statements required to report the net pension liability in the financial statements as the University was not legally responsible for the net pension liability and contributions to the pension plan. The University was required to show the pension expense paid by the state that was associated with its proportionate share totaling $8,760,094 for June 30, 2017, and $15,717,760 at June 30, 2016. An increase for these amounts was recorded as a state pension contribution to recognize the amount paid to INPRS by the state on behalf of the University.

At June 30, 2017, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

PERF TRF 1996 TRF Pre-1996 Average Remaining Service Life for 2016: 3.15 Years 14 Years

Deferred Outflow of Deferred Inflow of Deferred Outflow Deferred Inflow of Deferred Outflow Resources Resources of Resources Resources of Resources Differences Between Expected and Actual Experience $ 1,081,998 $ 89,152 $ 177,552 $ 221,046 $ - Net Difference Between Projected and Actual Investment Earnings on Pension Plan Investments 10,622,377 2,717,396 2,190,964 645,217 - Change of Assumptions 2,130,831 - 1,428,244 - - Changes in Proportion and Differences Between Employer Contributions and Proportionate Share of Contributions 1,112,735 655,645 327,520 352,628 - Contributions Subsequent to the Measurement Date 5,782,058 - 1,552,340 - 222,186 Total$ 20,729,999 $ 3,462,193 $ 5,676,620 $ 1,218,891 $ 222,186

At June 30, 2016, the University reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

PERF TRF 1996 TRF Pre-1996 Average Remaining Service Life for 2015: 3.39 Years 14 Years

Deferred Outflow of Deferred Inflow of Deferred Outflow Deferred Inflow of Deferred Outflow Resources Resources of Resources Resources of Resources Differences Between Expected and Actual Experience $ 1,859,715 $ 89,600 $ 2,551 $ 226,863 $ - Net Difference Between Projected and Actual Investment Earnings on Pension Plan Investments 7,305,150 4,074,562 1,323,043 916,888 - Change of Assumptions 3,662,426 - 1,465,831 - - Changes in Proportion and Differences Between Employer Contributions and Proportionate Share of Contributions 1,888,526 134,269 267,191 383,229 - Contributions Subsequent to the Measurement Date 5,684,293 - 1,372,877 - 230,716 Total$ 20,400,110 $ 4,298,431 $ 4,431,493 $ 1,526,980 $ 230,716

Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:

Amortization of Net Deferred Outflows/(Inflows) of PERF TRF 1996 Resources - Debit/(Credit) 2017 $ 4,476,737 $ 425,877 2018 2,653,450 425,877 2019 3,070,198 748,485 2020 1,285,363 399,349 2021 - 113,460 Thereafter - 792,341 Total$ 11,485,748 $ 2,905,389

Actuarial Assumptions. Actuarial calculations reflect a long-term perspective. For a newly hired employee, actuarial calculations will take into account the employee’s entire career with the employer and also take into consideration the benefits, if any, paid to the employee after termination of employment until the death of the employee and any applicable contingent annuitant. In many cases, actuarial calculations reflect several decades of service with the employer and the payment of

42 Ball State University—2017 Financial Report Notes to Financial Statements benefits after termination. Key methods and assumptions used in calculating the total pension liability at June 30, 2017, and at June 30, 2016, can be seen in the actuarial valuations presented as follows:

Description PERF TRF Pre-1996 Account TRF 1996 Account

Valuation Date: Assets June 30, 2016

June 30, 2015 - Member census data as of June 30, 2015, was used in the valuation and adjusted, where appropriate, to reflect changes between June 30, 2015, and June 30, 2016. Liabilities Standard actuarial roll forward techniques were then used to project the total pension liability computed as of June 30, 2015, to the June 30, 2016 measurement date.

Actuarial Cost Method (Accounting) Entry Age Normal (Level Percent of Payroll) Actuarial Assumptions: Period of 4 Years ended Experience Study Date Period of 3 Years ended June 30, 2014 June 30, 2014 Investment Rate of Return (Accounting) 6.75%, net of investment expense, including inflation Cost of Living Increases (COLA) or "Ad Hoc" COLA 1.0% 1.0% Future Salary Increases, including Inflation 2.50% - 4.25% 2.5% - 12.5% Inflation 2.25% RP-2014 Total Data Set Mortality Table, with Social RE-2014 White Collar Mortality Table, with Social Security Mortality Security Administration Administration generational improvement scale from 2006 generational improvement scale from 2006

Description PERF TRF Pre-1996 Account TRF 1996 Account

Valuation Date: Assets June 30, 2015

June 30, 2014 - Members census data as of June 30, 2014, was used in the valuation and adjusted, where appropriate, to reflect changes between June 30, 2014, and June 30, 2015. Liabilities Standard actuarial roll forward techniques were then used to project the total pension liability computed as of June 30, 2014, to June 30, 2015.

Actuarial Cost Method Entry Age Normal (Level Percent of Payroll) Actuarial Assumptions: Period of 4 Years Ended Experience Study Date Period of 3 Years Ended June 30, 2014 June 30, 2014 Investment Rate of Return 6.75%, Net of Investment Expense, Including Inflation Cost of Living Increases (COLA) or "Ad Hoc" COLA 1.0% 1.0% Future Salary Increases, Including Inflation 2.50% - 4.25% 2.5% - 12.5% Inflation 2.25% RP-2014 Total Data Set Mortality Table, with Social RP-2014 White Collar Mortality Table, with Social Security Mortality Security Administration Administration generational improvement scale from 2016 generational improvement scale from 2016

The long-term return expectation for the INPRS defined benefit retirement plans has been determined by using a building-block approach and assumes a time horizon, as defined in the INPRS Investment Policy Statement. A forecasted rate of inflation serves as the baseline for the return expectation. Various real return premiums over the baseline inflation rate have been established for each asset class. The long-term expected nominal rate of return has been determined by calculating a weighted average of the expected real return premiums for each asset class, adding the projected inflation rate, and adding the expected return from rebalancing uncorrelated asset classes.

Geometric Basis at June 30, 2016 Geometric Basis at June 30, 2015 Long-Term Expected Target Asset Long-Term Expected Target Asset Real Rate of Return Allocation Real Rate of Return Allocation Public Equity 5.7% 22.0% 5.3% 22.5% Private Equity 6.2% 10.0% 5.6% 10.0% Fixed Income - Ex Inflation-Linked 2.7% 24.0% 2.1% 22.0% Fixed Income - Inflation-Linked 0.7% 7.0% 0.7% 10.0% Commodities 2.0% 8.0% 2.0% 8.0% Real Estate 2.7% 7.0% 3.0% 7.5% Absolute Return 4.0% 10.0% 3.9% 10.0% Risk Parity 5.0% 12.0% 5.0% 10.0%

Ball State University—2017 Financial Report 43 Notes to Financial Statements

Discount Rate. Total pension liability for each defined benefit pension plan was calculated using the discount rate of 6.75 percent at both June 30, 2016 and at June 30, 2015. The projection of cash flows used to determine the discount rate assumed the contributions from employers and, where applicable, from the members would at the minimum be made at the actuarially determined required rates computed in accordance with the current funding policy adopted by the Board, and contributions required by the State of Indiana (the non-employer contributing entity) would be made as stipulated by state statute. Projected inflows from investment earnings were calculated using the long-term assumed investment rate of return (6.75 percent). Based on those assumptions, each defined benefit pension plan’s fiduciary net position were 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 benefits to determine the total pension liability for each plan.

Sensitivity of the University’s Proportionate Share of the Net Pension Liability. Net pension liability is sensitive to changes in the discount rate, and to illustrate the potential impact, the following tables present the net pension liability of each defined benefit pension plan calculated using the discount rate of 6.75 percent for the last two fiscal years, as well as what each plan’s net pension liability would be if it were calculated using a discount rate that is one percentage point lower (5.75 percent), or one percentage point higher (7.75 percent) than the current rate:

Discount Rate Sensitivity - Liability / (Asset) at June 30, 2016 Pre-Funded Defined Benefit

PERF TRF 1996 1% Current Discount 1% 1% Current Discount 1% Decrease Rate Increase Decrease Rate Increase (5.75%) (6.75%) (7.75%) (5.75%) (6.75%) (7.75%) $ 69,363,635 $ 48,295,404 $ 30,784,518 $ 10,967,575 $ 4,926,567 $ 97,794

Discount Rate Sensitivity - Liability / (Asset) at June 30, 2015 Pre-Funded Defined Benefit

PERF TRF 1996 1% Discount 1% 1% Discount 1% Decrease Rate Increase Decrease Rate Increase (5.75%) (6.75%) (7.75%) (5.75%) (6.75%) (7.75%) $ 63,908,217 $ 43,325,088 $ 26,237,331 $ 8,419,418 $ 3,148,778 $ (1,030,302)

Basis of Accounting. The financial statements of INPRS have been prepared using the accrual basis of accounting in conformity with GAAP as applied to government units. Under the accrual basis, revenues are recognized when earned, and expenses are recognized when liabilities are incurred, regardless of the timing of related cash flows. The Governmental Accounting Standards Board (GASB) is the accepted standards setting body for established governmental accounting and financial reporting principles. INPRS applies all applicable GASB pronouncements in accounting and reporting for its operations. Investments are reported at fair value.

For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position and additions to/deductions from the fiduciary net position have been determined on the same basis as they are reported by INPRS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms.

Required Supplementary Information and Other Supplementary Schedules

The historical trend information is designed to provide decision-usefulness of the financial reports, improved value for assessing accountability and greater transparency related to measures of net pension liabilities impacting INPRS. The Schedule of Ball State University’s Proportionate Share of the Net Pension Liability and Schedule of University Contributions are included immediately following the Notes to the Financial Statements in the Required Supplemental Information Section.

44 Ball State University—2017 Financial Report Notes to Financial Statements

Pension Plans - General Plan Information – Defined Contribution Plan

Alternate Pension

Faculty and professional personnel of the University have the option, in accordance with IC 21-38-3-3 and IC 21-38-7-3, to participate in a defined contribution plan administered by Fidelity Investments Institutional Services Company, Inc., Voya Financial, Lincoln Financial Group, and Teachers Insurance and Annuity Association – College Retirement Equities Fund (TIAA-CREF), which are the same companies used for the TRF supplementary retirement contribution. Benefit provisions are established and/or amended by the University’s Board of Trustees. These plans have no assets held in trust as the plan purchases individual annuity contracts for members and provides for immediate vesting. Any forfeiture is applied to reduce plan contributions. The University contributes 12.27 percent of each participating employee’s base salary. For employees hired on or after October 1, 2010, the University contributes five percent of each employee’s base salary for the first three years and 10.5 percent for each year thereafter. The table below shows the amounts contributed for our participating members:

2017 2016 2015

Contributions $ 12,894,655 $ 12,755,862 $ 12,640,748

Number of Participating Members 1,694 1,720 1,799

Related Payroll $ 120,522,440 $ 122,759,453 $ 119,577,455

Other Post-Employment Benefits

In addition to providing pension benefits, the University, as authorized by the University’s Board of Trustees, provides certain health care and life insurance benefits for retired employees. Substantially all of the University’s regular employees may become eligible for those benefits if they retire from the University after accruing the required years of service (15 years at age 62 with 15 years in the plan; 15 years at age 50 and 15 years in the plan for those hired before July 1, 2009; and for those employees who were hired August 31, 1999 and prior may also retire with health and life insurance benefits at the earlier of age 50 with 15 years of service or age 60 with 10 years of service and only 12 months participation in the plans). As of June 30, 2015, approximately 2,007 (1,957 at June 30, 2014) participants were eligible and were receiving one or both of these benefits.

Plan Description

The University’s Retiree Health and Life Insurance Plans (Plans) are single-employer defined benefit health and life insurance plans administered by the University. The Plans provide medical, dental, and prescription drug insurance benefits to eligible retirees and spouses and life insurance benefits to eligible retirees. IC 21-38-3-3 assigns authority to the University’s Board of Trustees to establish and amend benefit provisions for the University. The Plans issue a publicly available financial report that includes financial statements and required supplementary information for the Plans as a whole and for the participants. That report may be obtained by contacting: Ball State University, Office of University Controller, AD 301, Muncie, IN 47306.

Funding Policy

The contribution requirements for members of the Plans are established by the University’s Board of Trustees. The required contribution is based on projected pay-as-you-go financing requirements, as well as amounts necessary to prefund benefits as determined annually by the University. In addition, the University has followed a practice of contributing additional amounts generated by savings within the employee plans as well as the retiree plans. For the fiscal year ended June 30, 2016, the University contributed $7,591,506 ($8,209,169 for 2015) for current claims and estimated applicable administrative costs and an additional $1,924,605 ($3,123,319 for 2015) from Medicare prescription drug subsidies, rebates on prescription drugs, and savings generated within the employee and retiree plans this year and last year, in order to prefund benefits. Plan members receiving benefits contributed $3,115,598 ($3,035,939 for 2015) for health insurance and $69,070 ($67,805 for 2015) for life insurance or approximately 25.0 percent of the total premiums assessed, through their required contributions, which for health insurance and dental insurance ranged, for those not eligible for Medicare, from $100.97 to $175.97 per month for single coverage and $262.16 to $337.16 for family coverage. For those eligible for Medicare, the monthly premiums remained

Ball State University—2017 Financial Report 45 Notes to Financial Statements unchanged from prior year at $109.92 for medical and prescription drug coverage and $10.73 ($10.52 for 2015) for optional dental coverage. These premium amounts were also paid by Medicare-eligible spouses for their coverage. Retiree life insurance monthly premiums are on a sliding scale based on coverage in the last year employed. Retirees are eligible to receive 50.0 percent of the amount of coverage they have immediately prior to retirement or prior to reaching age 66, whichever occurs first, up to a maximum of $37,500. Retirees pay $0.173 per $1,000 of coverage per month, which means the maximum monthly premium paid by retirees is $6.50.

Annual OPEB Cost and Net OPEB Obligation

The University’s annual other postemployment benefit (OPEB) cost is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years. The following table shows the components of the University’s annual OPEB cost for the fiscal year, the amount actually contributed to the plan, and changes in the University’s net OPEB obligation (asset) to the plan:

2016 2015 Annual Required Contribution $ 8,361,558 $ 7,346,354 Interest on Net OPEB Obligation (881,907) (732,994) Adjustment to Annual Required Contribution 765,102 617,158 Annual OPEB Cost $ 8,244,753 $ 7,230,518 Contributions Made (10,339,568) (9,216,039) Increase (Decrease) in Net OPEB Obligation $ (2,094,815) $ (1,985,521) Net OPEB Obligation (Asset), Beginning of Year (11,758,764) (9,773,243) Net OPEB Obligation (Asset), End of Year $ (13,853,579) $ (11,758,764)

The University’s annual OPEB cost, the percentage of the annual OPEB cost contributed to the plan, and the net OPEB obligation for 2016 and the two previous years were as follows:

Percentage of Annual Year Annual OPEB Cost Net OPEB Ending OPEB Cost Contributed Obligation (Asset) Health Insurance 6/30/2014 $ 8,435,393 102.6% $ (8,492,491) 6/30/2015 6,896,136 119.0% (9,805,524) 6/30/2016 8,151,644 113.7% (10,923,483)

Life Insurance 6/30/2014 $ 456,105 204.4% $ (1,280,754) 6/30/2015 334,382 301.1% (1,953,242) 6/30/2016 93,109 1149.2% (2,930,096)

Funded Status and Funding Progress

Actuarial UAAL as Valu- Acrued Unfunded a % of ation Value of Liability AAL Funded Covered Covered Date Assets (AAL) (UAAL) Ratio Payroll Payroll Health 7/1/16 $ 224,965,896 $ 260,747,983 $ 35,782,087 86.3% $ 181,818,904 19.7% Life 7/1/16 23,246,027 22,593,209 (652,818) 102.9% $ 181,818,904 -0.4% Total $ 248,211,923 $ 283,341,192 $ 35,129,269 87.6% $ 181,818,904 19.3% Health 7/1/15 $ 226,660,904 $ 259,673,454 $ 33,012,550 87.3% $ 175,587,314 18.8% Life 7/1/15 23,817,938 21,548,055 (2,269,883) 110.5% $ 175,587,314 -1.3% Total $ 250,478,842 $ 281,221,509 $ 30,742,667 89.1% $ 175,587,314 17.5%

As of June 30, 2016, (while using the July 1, 2016, actuarial valuation report), the health insurance plan was 86.3 percent funded. This is lower than the 87.3 percent from the previous July 1, 2015, actuarial report and reflects a change in actuarial assumption for discount rate. The trust assets also experienced a dip in the market thus reducing our asset valuation from unrealized losses by $14.9 million.

46 Ball State University—2017 Financial Report Notes to Financial Statements

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The Schedule of Funding Progress, presented as required supplementary information following the Notes to the Financial Statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.

Actuarial Methods and Assumptions

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are consistent with the long-term perspective of the calculations.

In the July 1, 2015, Actuarial Valuation Report, the Entry Age Normal cost method was used. The change in cost method from the Projected Unit Credit cost method was done in anticipation of a requirement contained in GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans, which is in effect for fiscal year ending June 30, 2017. As a result, the ARC, as calculated by the actuaries, is lower than was seen in previous valuations as this cost method shifts the payment responsibility into future periods thus increasing the Actuarial Accrued Liability (AAL). Another change that significantly impacted the July 1, 2015, actuarial study, and caused a lower funded percentage, was the use of a new mortality table published in 2014. This study shows that both males and females are living longer and thus incurring health claims over a longer period of time that, in turn, drives up the liability projection. The change in AAL between the July 1, 2015, and July 1, 2016, actuarial studies was minimal.

The prior study used a 7.5 percent discount rate and the July 1, 2016, study is using a 7.0 percent discount rate. Most other actuarial assumptions remained unchanged. This lower rate more accurately portrays the experience of the investment trust asset growth over the last several years. It is the University’s intent to make annual contributions (through a combination of benefits paid from general assets and contributions to the VEBA Trust) that are at least as large as the ARC. If the plans were “unfunded,” the ARC would be calculated using a discount rate reflective of the University’s internal rates of return, which would result in a significantly larger ARC. The actuarial assumptions for 2016 and 2015 also included an annual health care cost trend rate for medical and prescription drug to be 8.25 percent the first year and reduced to an ultimate 3.5 percent after ten years. The dental cost trend rate for 2016 increased to 4.5 percent from 4.0 percent and drops to 3.5 percent after ten years. Administrative costs relating to the healthcare trends are included. A payroll growth rate was reduced to 3.5 percent for 2016 as opposed to 4.0 percent. The actuarial value of the plan assets is market value for the VEBA Trust (Retiree Healthcare). The OPEB 115 Trust (Retiree Life Insurance) calculates actuarial value of the plan assets as market value adjusted for the value of the IBNP (Incurred But Not Processed claims) at year end. The UAAL is being amortized as a level percentage of projected payroll on a closed basis. The remaining amortization period at July 1, 2015, was 22 years.

Fund Balances and Activity

The VEBA Trust fund established for the sole purpose of funding future retiree health care had the following activity for the years ended June 30, 2016 and June 30, 2015:

2016 2015 Fund Balance, Beginning of Year $ 226,660,904 $ 218,409,567 Adjustment Due to Difference on Fund Manager Statement - (51,743) Adjusted Market Value, Beginning of Year $ 226,660,904 $ 218,357,824 Transfer from Ball State University 1,631,567 - Reinvested Net Earnings 11,537,736 8,706,502 Unrealized (Loss) (14,864,311) (403,422) Fund Balance, End of Year $ 224,965,896 $ 226,660,904

These funds cannot under any circumstances revert to the University.

Ball State University—2017 Financial Report 47 Notes to Financial Statements

The OPEB 115 Trust Fund (formerly Life Insurance Continuance Fund) established for the sole purpose of funding future retiree life insurance benefits had the following activity for the years ended June 30, 2016 and June 30, 2015:

2016 2015 Fund Balance, Beginning of Year $ 23,883,938 $ 23,466,229 Adjustment Due to Difference on Fund Manager Statement - (7,174) Adjusted Market Value, Beginning of Year $ 23,883,938 $ 23,459,055 Retiree Benefit Payments (370,025) - Reinvested Net Earnings 555,777 584,969 Unrealized (Loss) (619,163) (160,086) Fund Balance, End of Year $ 23,450,527 $ 23,883,938

These funds cannot under any circumstances revert to the University.

Note J – Included Entities

The University operates Burris Laboratory School (kindergarten through high school), and the Indiana Academy for Science, Mathematics, and Humanities (a residential high school), under the direction of the Teachers College. The financial activity for these entities is included in the required financial statements of this annual report.

Note K – Commitments and Contingent Liability

During the normal course of operations, the University has become an interested party to various legal and administrative actions, the resolutions of which are not yet known. However, in the opinion of legal counsel and University management, the disposition of all pending litigation and actions will not have a material adverse effect on the financial condition of the University. To protect the integrity of any litigation or action, further details are held confidential.

The University has entered into a loan guaranty agreement on one property as discussed below:

Sigma Phi Epsilon Alumni Corporation – The loan agreement allowed for the construction of a new fraternity house for Sigma Phi Epsilon Fraternity, Indiana Gamma chapter in Muncie, Indiana. On June 18, 2009, the University guaranteed a term loan in the amount of $1,040,000 and a term note in the amount of $559,000. On January 2, 2014, the loan and note were consolidated with a reduction in the original interest rate at the request of the housing corporation and the consent of the University for a total consolidated loan of $1,068,957.13. Current financial statements provided by the chapter show the housing corporation has the ability to service the debt and meet its other financial obligations.

The University has outstanding commitments for capital construction contracts of $50,072,477 at June 30, 2017.

Note L – Risk Management

The University is exposed to risks of loss related to: torts; theft of, damage to, or destruction of assets; errors or omissions; job-related illnesses or injuries to employees; life, health and other medical benefits provided to employees and their dependents; and, long-term disability benefits provided to employees.

The University handles these risks of loss through combinations of risk retention and commercial insurance. For buildings, contents and general liability, the risk retention per incident is $100,000. The University retains the entire risk for job-related illnesses or injury to employees, property damage to its auto fleet, and short-term disability. Auto liability, life insurance, and long-term disability are handled through fully insured commercial policies. The University retains the risk for its medical benefits.

Separate funds and accounts have been established to measure the results of the various combinations of risk retention and commercial insurance. Periodically (in some cases annually), after reviewing exposures with insurance consultants and

48 Ball State University—2017 Financial Report Notes to Financial Statements actuaries, adjustments are made to reflect potential liabilities arising from risk retention. The University has had no settlements in excess of insurance coverage for each of the past three fiscal years. The University accounts for incurred, but not reported, health care claims by calculating an amount based on a review of applicable claims submitted after year end, as well as past experience.

This estimated liability at June 30, 2017, and June 30, 2016, was $3.4 million and $3.5 million, respectively, as determined by the University’s actuarial consultants. Claims activity for each year was as follows:

June 30, 2017 Unpaid Health Care Claims at July 1, 2016 $ 3,521,278 Claims Incurred 44,390,356 Claims Paid 44,531,571 Unpaid Health Care Claims at June 30, 2017 $ 3,380,063

June 30, 2016 Unpaid Health Care Claims at July 1, 2015 $ 5,383,747 Claims Incurred 38,353,599 Claims Paid 40,216,068 Unpaid Health Care Claims at June 30, 2016 $ 3,521,278

Note M – Functional Expenses

The University’s operating expenses by functional classification were as follows for fiscal year ended June 30, 2017:

Functional Classification Supplies and Expenses Personnel Repairs and Services Benefits Student Aid Utilities Maintenance Depreciation Total

Instruction $ 105,173,071 $ 43,728,003 $ 101,642 $ 4,285 $ 13,508,959 $- $ 162,515,960 Research 4,775,585 1,598,084 11,009 827 1,838,342 - 8,223,847 Public Service 5,618,018 2,249,113 - 35,716 4,591,737 - 12,494,584 Academic Support 27,103,580 12,339,628 26,125 8,969 8,866,029 - 48,344,331 Student Services 6,750,501 3,000,519 7,810 2,068 7,590,062 - 17,350,960 Institutional Support 44,984,249 14,055,729 7,971 (775,010) 22,589,321 -80,862,260 Oper & Maint of Physical Plant 13,793,220 8,415,770 -12,459,333 5,094,188 - 39,762,511 Scholarships & Fellowships 1,716,657 802,970 7,188,983 - 178,745 - 9,887,355 Auxilliary Enterprises 31,842,837 10,689,842 8,368,036 959,803 34,324,027 -86,184,545 Depreciation - - - - - 27,440,008 27,440,008 Total Operating Expenses $ 241,757,718 $ 96,879,658 $ 15,711,576 $ 12,695,991 $ 98,581,410 $ 27,440,008 $ 493,066,361

The University’s operating expenses by functional classification were as follows for fiscal year ended June 30, 2016:

Functional Classification Supplies and Expenses Personnel Repairs and Services Benefits Student Aid Utilities Maintenance Depreciation Total

Instruction $ 102,280,018 $ 42,203,632 $ 135,103 $ 3,887 $ 14,771,206 $ - $ 159,393,846 Research 4,826,468 1,586,267 19,528 1,576 2,016,618 - 8,450,457 Public Service 6,234,746 2,334,206 5,000 35,146 4,853,795 - 13,462,893 Academic Support 25,441,432 11,814,282 17,794 9,105 9,840,346 - 47,122,959 Student Services 6,712,393 2,976,048 7,700 2,006 8,670,350 - 18,368,497 Institutional Support 44,814,946 13,887,280 7,162,098 (764,053) 19,331,359 - 84,431,630 Oper & Maint of Physical Plant 13,695,871 8,148,743 - 11,753,258 6,702,111 - 40,299,983 Scholarships & Fellowships 1,839,859 1,115,238 143,598 - 185,264 - 3,283,959 Auxilliary Enterprises 31,724,534 5,743,132 7,926,763 927,252 34,221,863 - 80,543,544 Depreciation - - - - - 26,488,249 26,488,249 Total Operating Expenses $ 237,570,267 $ 89,808,828 $ 15,417,584 $ 11,968,177 $ 100,592,912 $ 26,488,249 $ 481,846,017

Ball State University—2017 Financial Report 49 Ball State University Required Supplemental Information June 30, 2017

Other Post-Employment Benefits Retiree Health and Life Insurance Plans

Actuarial UAAL as Valu- Acrued Unfunded a % of ation Value of Liability AAL Funded Covered Covered Date Assets (AAL) (UAAL) Ratio Payroll Payroll

Health 7/1/16 $ 224,965,896 $ 260,747,983 $ 35,782,087 86.3% $ 181,818,904 19.7% Life 7/1/16 23,246,027 22,593,209 (652,818) 102.9% $ 181,818,904 -0.4% Total $ 248,211,923 $ 283,341,192 $ 35,129,269 87.6% $ 181,818,904 19.3%

Health 7/1/15 $ 226,660,904 $ 259,673,454 $ 33,012,550 87.3% $ 175,587,314 18.8% Life 7/1/15 23,817,938 21,548,055 (2,269,883) 110.5% $ 175,587,314 -1.3% Total $ 250,478,842 $ 281,221,509 $ 30,742,667 89.1% $ 175,587,314 17.5%

Health 7/1/13 $ 181,841,263 $ 203,498,679 $ 21,657,416 89.4% $ 161,541,171 13.4% Life 7/1/13 21,672,127 21,579,195 (92,932) 100.4% $ 161,541,171 -0.1% Total $ 203,513,390 $ 225,077,874 $ 21,564,484 90.4% $ 161,541,171 13.3%

Health 7/1/11 $ 156,645,643 $ 181,683,897 $ 25,038,254 86.2% $ 157,397,746 15.9% Life 7/1/11 21,487,762 22,261,030 773,268 96.5% $ 157,397,746 0.5% Total $ 178,133,405 $ 203,944,927 $ 25,811,522 87.3% $ 157,397,746 16.4%

Health 7/1/09 $ 114,147,732 $ 192,195,650 $ 78,047,918 59.4% $ 151,120,585 51.6% Life 7/1/09 16,546,332 20,150,137 3,603,805 82.1% $ 151,120,585 2.4% Total $ 130,694,064 $ 212,345,787 $ 81,651,723 61.5% $ 151,120,585 54.0%

Health 7/1/07 $ 148,827,822 $ 171,887,451 $ 23,059,629 86.6% $ 136,645,256 16.9 % Life 7/1/07 25,238,907 19,036,901 (6,202,006) 132.6% $ 136,645,256 (4.5)% Total $ 174,066,729 $ 190,924,352 $ 16,857,623 91.2% $ 136,645,256 12.3 %

50 Ball State University—2017 Financial Report Required Supplemental Information

Schedule of Ball State University's Proportionate Share of the Net Pension Liability Public Employees' Retirement Fund (PERF) Last 10 Fiscal Years*

Proportionate Share of the Net Plan Fiduciary Net Proportion of the Pension Liability (Asset) as a Position as a Percentage Net Pension Proportionate Share of the Net Covered-Employee Percentage of its Covered- of the Total Pension Fiscal Year Liability (Asset) Pension Liability (Asset) Payroll Employee Payroll Liability 2016 0.0106414 $ 48,295,404 $ 50,999,766 94.7% 75.3% 2015 0.0106374 $ 43,325,088 $ 50,950,992 85.0% 77.3% 2014 0.0099214 $ 26,072,795 $ 48,439,081 53.8% 84.3% 2013 0.0098422 $ 33,710,313 $ 47,254,108 71.3% 78.8%

*The ten year schedule will be built over time. Measurement date is June 30 for each year.

Schedule of Ball State University's Proportionate Share of the Net Pension Liability Teachers' Retirement Fund 1996 Account (TRF 1996) Last 10 Fiscal Years*

Proportionate Share of the Net Plan Fiduciary Net Proportion of the Pension Liability (Asset) as a Position as a Percentage Net Pension Proportionate Share of the Net Covered-Employee Percentage of its Covered- of the Total Pension Fiscal Year Liability (Asset) Pension Liability (Asset) Payroll Employee Payroll Liability 2016 0.0063119 $ 4,926,567 $ 18,180,579 27.1% 87.79% 2015 0.0059797 $ 3,148,778 $ 16,389,126 19.2% 91.08% 2014 0.0072770 $ 346,027 $ 18,832,391 1.8% 99.1% 2013 0.0065355 $ 2,055,229 $ 15,926,895 12.9% 93.4%

*The ten year schedule will be built over time. Measurement date is June 30 for each year.

Schedule of Ball State University's Proportionate Share of the Net Pension Liability Teachers' Retirement Fund Pre-1996 Account (TRF Pre-1996) Last 10 Fiscal Years*

Portion of the Non- Employer Contributing Entities Total Proportionate Proportionate Share of the Share (Amount) of Net Pension Liability Plan Fiduciary Net Proportion of the the Collective NPL (Asset) as a Percentage of Position as a Percentage Net Pension Proportionate Share of the Net Associated with the its Covered-Employee of the Total Pension Fiscal Year Liability (Asset) Pension Liability (Asset) University Covered-Employee Payroll Payroll Liability 2016 $ - $ - 100.00% $ 989,093,000 N/A 28.4% 2015 $ - $ - 100.00% $ 1,074,827,000 N/A 30.0% 2014 $ - $ - 100.00% $ 1,262,828,000 N/A 33.6% 2013 $ - $ - 100.00% $ 1,383,428,000 N/A 31.7%

*The ten year schedule will be built over time. Measurement date is June 30 for each year.

Ball State University—2017 Financial Report 51 Required Supplemental Information

Schedule of University Contributions Public Employees' Retirement Fund (PERF) Last 10 Fiscal Years*

Contributions in Contributions as a Relation to the Contribution Percentage of Contractually Required Contractually Required Deficiency Covered-Employee Covered-Employee Fiscal Year Contribution Contribution (Excess) Payroll Payroll 2016 $ 5,689,277 $ 5,689,277 $ - $ 50,999,766 11.16% 2015 $ 5,504,427 $ 5,504,427 $ - $ 50,950,992 10.80% 2014 $ 5,409,794 $ 5,409,794 $ - $ 48,439,081 11.17% 2013 $ 4,554,942 $ 3,247,355 $ - $ 47,254,108 6.87%

*The ten year schedule will be built over time. Measurement date is June 30 for each year.

Schedule of University Contributions Teachers' Retirement Fund 1996 Account (TRF 1996) Last 10 Fiscal Years*

Contributions in Contributions as a Relation to the Contribution Percentage of Contractually Required Contractually Required Deficiency Covered-Employee Covered-Employee Fiscal Year Contribution Contribution (Excess) Payroll Payroll 2016 $ 1,366,970 $ 1,366,970 $ - $ 18,180,579 7.52% 2015 $ 1,304,966 $ 1,304,966 $ - $ 16,389,126 7.96% 2014 $ 1,321,375 $ 1,321,375 $ - $ 18,832,391 7.02% 2013 $ 1,194,517 $ 1,194,517 $ - $ 15,926,895 7.50%

*The ten year schedule will be built over time. Measurement date is June 30 for each year.

Schedule of University Contributions Teachers' Retirement Fund Pre-1996 Account (TRF Pre-1996) Last 10 Fiscal Years*

Contributions in Contributions as a Relation to the Contribution Percentage of Contractually Required Contractually Required Deficiency Covered-Employee Covered-Employee Fiscal Year Contribution Contribution (Excess) Payroll Payroll 2016 $ 230,716 $ 230,716 $ - $ 3,275,322 7.04% 2015 $ 230,667 $ 230,667 $ - $ 3,335,080 6.92% 2014 $ 441,356 $ 441,356 $ - $ 4,370,814 10.10% 2013 $ 443,976 $ 443,976 $ - $ 4,274,503 10.39%

*The ten year schedule will be built over time. Measurement date is June 30 for each year.

Closed plan - the contributions would need to be calculated and provided by the actuaries

52 Ball State University—2017 Financial Report Required Supplemental Information

Notes to Required Supplementary Information

To assist in the review of the PERF and TRF schedules please see actuarial assumptions per year on the table below, as reported on the Indiana Public Retirement System (INPRS) Comprehensive Annual Financial Reports (CAFR):

Actuarial Assumptions per Fiscal Year PERF

RP-2014 Total Data 6.75%, Net of Set Mortality Table, Period of 4 Investment with Social Security Years ended 2016 Expense, 1.00% 2.50% - 4.25% 2.25% Administration 2016 Page 90 June 30, Including generational 2014 Inflation improvement scale from 2006

RP-2014 Total Data 6.75%, Net of Set Mortality Table, Period of 4 Investment with Social Security Years Ended 2015 Expense, 1.00% 2.50% - 4.25% 2.25% Administration 2015 Page 87 June 30, Including generational 2014 Inflation improvement scale from 2016

6.75%, Net of Period of 5 Investment Years Ended 2014 Expense, 1.00% 3.25% - 4.5% 3.00% N/A 2014 Page 87 June 30, Including 2010 Inflation

Actuarial Assumptions per Fiscal Year TRF 1996

Cost of Living Investment Increases Future Salary Rate of (COLA) or Increases, Experience Return "Ad Hoc" including Source: Fiscal Year Study Date (Accounting) COLA Inflation Inflation Mortality INPRS CAFR RP-2014 White Collar Mortality 6.75%, net of Period of 3 Table, with Social investment years ended Security 2016 expense, 1.00% 2.5% - 12.5% 2.25% 2016 Page 90 June 30, Administration including 2014 generational inflation improvement scale from 2006 RP-2014 White Collar Mortality 6.75%, net of Period of 3 Table, with Social investment years ended Security 2015 expense, 1.00% 2.5% - 12.5% 2.25% 2015 Page 87 June 30, Administration including 2014 generational inflation improvement scale from 2016 6.75%, net of Period of 4 investment years ended 2014 expense, 1.00% 3.0% – 12.5% 3.00% N/A 2014 Page 87 June 30, including 2011 inflation

Ball State University—2017 Financial Report 53 Required Supplemental Information

Actuarial Assumptions per Fiscal Year TRF Pre-1996

RP-2014 White Collar Mortality 6.75%, net of Period of 3 Table, with Social investment years ended Security 2015 expense, 1.00% 2.5% - 12.5% 2.25% 2015 Page 87 June 30, Administration including 2014 generational inflation improvement scale from 2016 6.75%, net of Period of 4 investment years ended 2014 expense, 1.00% 3.0% – 12.5% 3.00% N/A 2014 Page 87 June 30, including 2011 inflation

54 Ball State University—2017 Financial Report Supplemental Information

The following supplemental information has not been subjected to the auditing procedures applied to the basic financial statements and accordingly, the State Board of Accounts expresses no opinion thereon.

55 Ball State University—2017 Financial Report Supplemental Information Student Enrollment Fall Headcount 1991-2016

25,000 Off Campus 20,000 On Campus

15,000

10,000

5,000

- 91 96 01 06 11 16

25,000 Graduate

20,000 Undergraduate

15,000

10,000

5,000

- 91 96 01 06 11 16

25,000 Non-Resident

20,000 Resident

15,000

10,000

5,000

- 91 96 01 06 11 16

56 Ball State University—2017 Financial Report Supplemental Information

Ball State University—2017 Financial Report 57 Supplemental Information

58 Ball State University—2017 Financial Report Supplemental Information

Ball State University—2017 Financial Report 59 Supplemental Information Student Financial Assistance 2006-2007 through 2016-2017 (in millions of dollars)

300

Remission of Fees

250

Student Employment

200 Scholarships, Grants, and Awards

150 Loans

100

60 Ball State University—2017 Financial Report [THIS PAGE INTENTIONALLY LEFT BLANK]

APPENDIX C

DEFINITIONS

“Account” means any of the accounts established pursuant to the Indenture.

“Act” means Indiana Code 21-35-1 et seq., as may be further amended and supplemented from time to time, including any other provisions of the Indiana Code which may be added authorizing net income or net revenues of Housing and Dining Facilities and any designated related facilities of the Issuer to be pledged for payment of debt service on bonds.

“Annual Debt Service Requirement” for any Fiscal Year means the sum of (i) an amount equal to the amount of scheduled principal or mandatory sinking fund payments and interest due in such Fiscal Year on Fixed Rate Bonds (excluding principal of any balloon maturity and also excluding the principal component of any Optional Maturity for which a Credit Facility has been provided), (ii) the amount of principal and interest projected to become due in such Fiscal Year on Variable Rate Bonds (excluding principal of any balloon maturity (less the total amount of principal, if any, required to be repaid prior to maturity pursuant to any Credit Facility) and also excluding the principal component of any Optional Maturity for which a Credit Facility has been provided), and (iii) an amount equal to the principal amount of a balloon maturity divided by the number of years to maturity from its date of original issuance or from such later date as specified in the Supplemental Indenture authorizing the issuance of such balloon maturity. Such projection of interest on Variable Rate Bonds shall be calculated at any date of calculation as an amount equal to one hundred and ten percent (110%) of the greater of (a) the average daily interest rate during the then preceding twelve (12) month period or (b) the rate in effect on the date of calculation, but in either event, not to exceed any maximum interest rate which may be set for any Variable Rate Bonds. Interest which is payable from the proceeds of Bonds set aside for such purpose (i.e., accrued or capitalized interest) shall be excluded in determining the Annual Debt Service Requirement. To the extent that the Issuer has entered into a Derivative Product with regard to any series of Bonds, any payments expected to be made or received by the Issuer pursuant to such Derivative Product shall be taken into account, by adding the amount of any payments expected to be made by the Issuer pursuant to such Derivative Product, if any, and subtracting the amount of any payments expected to be received by the Issuer pursuant to such Derivative Product, if any, from the sum of the amounts described in the first sentence of this definition. For purposes of this definition, “balloon maturity” shall mean Bonds of any series or multiple series of Bonds issued at substantially the same time which results in principal and interest on such series of Bonds due and payable within any twelve (12) month period equal to or greater than thirty percent (30%) of the average Annual Debt Service Requirement on such series of Bonds (calculated pursuant to clauses (i) and (ii) above); provided that, in calculating the amount due and payable in any twelve (12) month period, such principal amount shall be reduced to the extent that all or any portion of such amount is required to be amortized prior to such twelve (12) month period; and provided further that for any balloon maturity the Issuer may elect to waive the provisions of clause (iii) above for any one or more series of Bonds at the time of delivery thereof and treat such one or more series of Bonds as if such balloon maturity was not a balloon maturity for purposes of the application of this definition. The maturing amounts of such Bonds issued at a discount shall not be considered a balloon maturity unless the original principal amount of such Bonds would be considered a balloon maturity.

C - 1

“Available Funds” means Pledged Funds and any and all other funds of the Issuer legally available for transfer to the Sinking Fund. Available Funds include (but are not limited to) unrestricted operating fund balances, auxiliary fund balances, and certain other fund balances of the Issuer and selected related entities, in each case without any priority among any such fund balances and only to the extent not pledged, restricted, or specifically authorized for other purposes, now or in the future, or otherwise restricted by law. Available Funds do not include, however, generally assessed student fees or state appropriations, except to the extent specifically authorized by the Indiana General Assembly.

“Average Annual Debt Service” means the sum of the Annual Debt Service Requirements for all Fiscal Years in which Bonds will be Outstanding (without regard to any early redemption thereof) divided by the number of such Fiscal Years.

“Beneficial Owner” means a person owning a Beneficial Ownership Interest in the Bonds, as evidenced to the satisfaction of the Trustee.

“Beneficial Ownership Interest” means the beneficial right to receive payments and notices with respect to the Bonds which are held by a Depository under a book entry system.

“Bond” or “Bonds” means any obligation including bonds, notes, temporary, interim or permanent certificates of indebtedness, debentures, capitalized leases, or other obligations payable from Pledged Funds which obligation or obligations are authenticated and delivered under and pursuant to the Indenture.

“Bond Expense Fund” means the Fund by that name established pursuant to the Indenture.

“Bondholder” or “holder of a Bond” or any similar term means a registered owner of any Bond.

“Business Day” means any day other than a Saturday, a Sunday or legal holiday or any other day on which the New York Stock Exchange or banking institutions in Indiana and New York are authorized by law to close or to remain closed.

“Capital Improvements” means any improvement, addition or renovation to the buildings, property, equipment, fixtures and furnishings of the Housing and Dining Facilities which would typically be subject to depreciation and capitalization in accordance with generally accepted accounting principles.

“Capitalized Interest Account” means the Account established within the Project Fund pursuant to the Indenture.

“Code” means the Internal Revenue Code of 1986, as amended from time to time. References to the Code include any subsequent federal income tax statute or code.

“Construction Account” means the Construction Account of the Project Fund, established in the Indenture.

C - 2

“Costs of Issuance” means any and all costs and expenses relating to the issuance, sale and delivery of any series of Bonds, including but not limited to initial fees and expenses of any Derivative Product or any Credit Facility, or initial cost of providing other credit enhancements or liquidity features for such Bonds; all fees and expenses of legal counsel, financial feasibility or other consultants, trustees, underwriters, and accountants; the preparation and printing of the Indenture, the preliminary and final official statement and such Bonds; and any and all other costs incurred in connection with the issuance of Bonds including costs to be reimbursed to the Issuer.

“Credit Facility” means a Liquidity Facility or an irrevocable letter of credit, line of credit, insurance policy, guaranty or surety bond, or similar instrument providing for the payment of or guaranteeing the payment of principal and/or interest on Bonds when due.

“Credit Facility Obligations” means obligations of the Issuer to make payment to a Credit Facility Provider which shall be designated as Credit Facility Obligations in a Supplemental Indenture authorizing the issuance of a series of Bonds and shall be considered to be Bonds for all purposes, but which shall be subordinated to First Lien Bonds and prior to Junior Lien Obligations as to payment of principal thereof and interest thereon.

“Credit Facility Provider” means, for any series of Bonds, the provider of a Credit Facility.

“Depository” means DTC and its successors and assigns, including any surviving, resulting or transferee corporation, or any successor corporation that may be appointed in a manner consistent with the Indenture.

“Depreciation” means the allowance for depreciation under generally accepted accounting principles applicable to public colleges and universities as in effect from time to time.

“Derivative Products” means contractual arrangements which create a synthetic bond structure, including but not limited to, a rate swap agreement, basis swap, forward rate agreement, rate cap agreement, rate flow agreement, rate collar agreement, or any other similar agreement (including any option to enter into any such agreement) into which the Issuer is authorized to enter pursuant to Indiana law; provided, that the claims paying ability of any counterparty to any such contractual arrangement must be rated at least as high as “A” by Moody’s Investors Service and “A” by Standard & Poor’s Ratings Group.

“DTC” means The Depository Trust Company and its successors and assigns, and includes any direct or indirect participant of DTC.

“Event of Default” means those events of default specified in and defined by the Indenture.

“Federal Securities” means direct obligations of, or obligations the timely payment of principal of and interest on which are unconditionally guaranteed by, the United States of America.

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“Financing Expenses” means (i) Rebatable Amounts, if any, (ii) any fees and expenses related to the computation of Rebatable Amounts, or to any Derivative Product or any Credit Facility, or the cost of providing other credit enhancements or liquidity features in connection with Bonds issued under the Indenture, and (iii) any fees, charges and expenses which may be owed to the Trustee, Registrar and Paying Agent from time to time as set forth in the Indenture.

“First Lien Bonds” means all Bonds which are secured by a pledge of and first lien against the Pledged Funds.

“Fiscal Year” means the period commencing on the first day of July of any year and ending on the last day of June of the next succeeding year or such period as established by the Issuer from time to time with respect to the System.

“Fixed Rate Bond” means a Bond issued at a fixed rate (or rates) of interest to the final maturity of such Bond.

“Fourth Supplemental Indenture” means the Fourth Supplemental Indenture, dated as of June 1, 2018, between the Issuer and the Trustee, authorizing the issuance of the Series 2018 Bonds.

“General Administrative Expenses” means the portion of salaries, expenses and other administrative or general overhead of the Issuer indirectly allocable to the Housing and Dining System.

“Housing and Dining Facilities” or “Facilities” means any residence hall, dormitory, apartment or other housing or dining facility for single or married students or school personnel of the Issuer and any designated related facility, the revenues of which may be pledged under the Indenture pursuant to the Act, included in the System and listed and described on Exhibit A to the Original Indenture, as such exhibit may be amended from time to time pursuant to the terms of the Indenture and/or a Supplemental Indenture authorizing the issuance of a series of Bonds, as well as any other dining halls/cafeteria/food service facilities which may be financed by the Issuer under the Act and designated by the Issuer in the Indenture.

“Indenture” means the Original Indenture as heretofore supplemented and as further supplemented by the Fourth Supplemental Indenture, and as further supplemented or amended by any indenture supplemental thereto or amendatory thereof.

“Interest Payment Date” means any date on which interest is payable on the Bonds.

“Issuer” means the Ball State University Board of Trustees, a body corporate created and existing under the laws of the State of Indiana, or any successor entity.

“Junior Lien Obligations” means all obligations of the Issuer which are junior and subordinate to First Lien Bonds and Credit Facility Obligations, if any, as to payment of principal thereof and interest thereon, issued pursuant to the authority of Article IV of the Original Indenture.

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“Liquidity Facility” means a line of credit or similar instrument providing for the payment of the Purchase Price (as such term may be defined in a Supplemental Indenture) on Bonds when due.

“Net Income” means all Revenues derived from the operation of the Housing and Dining System, less Operation and Maintenance Expenses.

“Opinion of Bond Counsel” means a legal opinion from a lawyer or firm of lawyers experienced in matters relating to state and local obligations and acceptable to the Issuer and the Trustee.

“Operation and Maintenance Expenses” means all expenses of operation, maintenance, insurance, and normal, incidental repair of Housing and Dining Facilities excluding (i) General Administrative Expenses, (ii) Capital Improvements, (iii) Depreciation, and (iv) amortization of financing costs. Further, the Issuer may, in its discretion, furnish heat light, power and other utility services to any or all Housing and Dining Facilities with or without charge therefor, and if utility services are provided without charge, the cost thereof shall not be included as “Operation and Maintenance Expenses.”

“Optional Maturity” means any maturity of Bonds which may, at the option of the owners thereof, be subject to payment, redemption, tender, or purchase by or on behalf of the Issuer.

“Original Indenture” means the Indenture of Trust between the Issuer and the Trustee dated as of January 1, 2006.

“Outstanding” or “Bonds Outstanding” means all Bonds which have been duly authenticated, and delivered by the Trustee under the Indenture, except:

i. Bonds canceled after purchase in the open market or because of payment at or redemption prior to maturity;

ii. Bonds deemed to have been redeemed as provided in the Indenture; and

iii. Bonds in lieu of which others have been authenticated under the Indenture.

“Paying Agent” means the Trustee, any other paying agent appointed hereunder and any successor paying agent.

“Permitted Investments” means the following investments to the extent permitted under Indiana law:

i. Federal Securities; and

ii. Any other investment authorized to be made pursuant to the Issuer’s internal investment guidelines, as these guidelines may be amended or supplemented from time to time.

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“Pledged Funds” means the Net Income together with (i) any insurance proceeds and investment income thereon as provided in the Indenture, (ii) any amounts held in the Sinking Fund and the investment income thereon, and (iii) any amounts held in the Project Fund and Reserve Fund and the investment income thereon.

“Project Fund” means the Housing and Dining System Project Fund established by or pursuant to the Indenture into which Bond proceeds may be deposited from time to time.

“Projects” means, collectively, the acquisition, construction, improving, and equipping of certain projects with respect to Housing and Dining Facilities on or in connection with any campus of the Issuer more fully described in a Supplemental Indenture authorizing the issuance of a series of Bonds.

“Put Bonds” means Bonds which by their terms may be tendered by and at the option of the holder thereof for payment by the Issuer prior to the stated maturity thereof.

“Rating Agency” means any nationally recognized securities rating agency.

“Rebatable Amount” means that sum of money which is periodically payable to the United States of America with respect to the Bonds pursuant to Section 148 of the Code.

“Rebate Agreement” means the Construction and Rebate Agreement between the Issuer and the Trustee for the Series 2018 Bonds, dated as of June 1, 2018.

“Rebate Fund” means the Housing and Dining System Rebate Fund established by the Indenture.

“Record Date” means the 15th day of the month preceding each Interest Payment Date.

“Redemption Fund” means the Housing and Dining System Redemption Fund established by the Indenture.

“Refunding Account” means the Account by that name established within the Project Fund pursuant to the Indenture.

“Registrar” means the Trustee, and any successor registrar.

“Representation Letter” means any representation letter relating to the Series 2018 Bonds to be delivered by the Issuer to DTC. Notwithstanding the foregoing, a Blanket Issuer Letter of Representations currently on file and acceptable to DTC shall constitute the Representation Letter required in the Fourth Supplemental Indenture.

“Reserve Fund” means the reserve fund established by the Indenture.

“Reserve Fund Credit Instrument” means an insurance policy, guaranty or surety bond or irrevocable letter of credit which may be deposited in the Reserve Fund in lieu of or in partial substitution for cash to be on deposit therein. The Credit Facility Providers shall have the right to give prior consent to such instrument and the provider thereof, unless (i) the company

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providing such insurance policy, guaranty or surety bond shall be an insurer which, at the time of issuance of the policy, guaranty or surety bond has been assigned the highest rating accorded insurers by Moody’s or any successor rating service, (ii) the policy, guaranty or surety bond shall be subject to the irrevocable right of the Trustee to draw thereon in a timely fashion upon satisfaction of any conditions set forth in the Indenture and (iii) such policy guaranty or surety bond shall be an absolute, irrevocable and unconditionable obligation of the provider thereof for so long as there is a Reserve Fund Requirement for such series. Any irrevocable letter of credit shall be payable to and deposited with the Trustee and shall be issued by a banking institution which has, or the parent company of which has, or the holding corporation of which it is the principal bank has, at the time of issuance, a credit rating on its long-term unsecured debt within the three highest rating categories from a nationally recognized rating service.

“Reserve Fund Requirement” means an amount equal to the least of (a) 10% of the stated principal amount of all Bonds with any claim on the Reserve Fund, (b) the maximum annual principal and interest requirements on all Bonds with any claim on the Reserve Fund, or (c) 125% of the average annual principal and interest requirements on all Bonds with any claim on the Reserve Fund.

“Revenue Fund” means the Housing and Dining System Revenue Fund established by the Indenture.

“Revenues” means all revenues derived from the operation of the Housing and Dining System, including rents, fees, fines, rates, and charges for use of such Housing and Dining Facility (including any specific source of income identified in a Supplemental Indenture authorizing the issuance of a series of Bonds), all investment income on the Sinking Fund, the Reserve Fund and the Revenue Fund established under the Indenture and any other income pledged pursuant to the Indenture.

“Series 2018 Bonds” means the Ball State University Board of Trustees, Ball State University Housing and Dining System Revenue Bonds, Series 2018, as authorized by, and authenticated and delivered pursuant to, the Fourth Supplemental Indenture.

“Series 2018 Project” means the construction of Phase 1 of the North Residential Neighborhood, including (i) the realignment of McKinley Avenue, (ii) the construction of a new 500 bed residence hall north of LaFollette Complex, (iii) the construction of a stand-along dining facility north of LaFollette Complex, and (iv) all related landscaping and site preparation work, such project to be located on the Ball State University campus in Muncie, Indiana, at a total cost of approximately $82,330,000.

“Sinking Fund” means the Housing and Dining System Bond and Interest Sinking Fund established by the Indenture.

“Supplemental Indenture” means any indenture between the Issuer and the Trustee entered into, pursuant to and in compliance with the provisions of Article XV of the Original Indenture.

“System” or “Housing and Dining System” means the Housing and Dining Facilities listed and described on Exhibit A to the Original Indenture, as such exhibit may be amended

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from time to time pursuant to the terms of the Indenture, for which Net Income is pledged to support Bonds under the Indenture.

“Tax-Exempt Bonds” means Bonds, the interest on which is intended to be excludable from gross income for federal income tax purposes under Section 103 of the Code.

“Treasurer” means the Treasurer of the Issuer.

“Trustee” means The Bank of New York Mellon Trust Company, N.A., and any successor trustee.

“Variable Rate Bonds” means a Bond, the interest rate on which changes or can change from time to time prior to final maturity of such Bond.

“Written Request” means a request in writing signed by the Chair, any Vice Chair, or the Treasurer of the Board of Trustees of the Issuer or other authorized officer of the Issuer.

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APPENDIX D

SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE

The Indenture contains various covenants and security provisions, certain of which are summarized below. Reference should be made to the Indenture for a full and complete statement of its provisions.

Flow of Funds

Project Fund. The University will establish and hold a Project Fund, into which proceeds of any Bonds issued from time to time, along with any other funds for any Facilities for which any Bonds have been issued under the Indenture, may be deposited. The University may establish accounts for any series of Bonds within the Project Fund, including a Construction Account, a Refunding Account and a Capitalized Interest Account, as applicable.

In connection with the Series 2018 Bonds the University will establish and hold within the Project Fund a Series 2018 Construction Account, into which a portion of the proceeds of the Series 2018 Bonds will be deposited.

At any time and from time to time, the University may withdraw any money on deposit in the Series 2018 Construction Account, without any requisition, voucher or other direction or authorization, for the purpose of paying, or reimbursing the University for the payment of, any costs of acquiring, erecting, constructing, reconstructing, extending, remodeling, improving, completing, equipping, furnishing or financing the Series 2018 Project. The University will transfer any money remaining in the Series 2018 Construction Account of the Project Fund, after acquisition, erection, construction, reconstruction, extension, remodeling, improvement, completion, equipping, furnishing or financing of the Series 2018 Project has been completed, to the Series 2018 Account of the Sinking Fund, for application in accordance with any instructions from the University.

Bond Expense Fund. Moneys deposited to the credit of the Bond Expense Fund will be used to pay from time to time the Costs of Issuance of the Bonds. No later than six (6) months after the issuance of a series of Bonds, the University will transfer to the Sinking Fund any moneys allocable to a series of Bonds on deposit in the Bond Expense Fund. Separate accounts of the Bond Expense Fund may be created for each separate series of Bonds issued pursuant to a Supplemental Indenture.

Revenue Fund. Into the Revenue Fund there will be set aside and deposited from time to time as received all of the Revenues.

All Operation and Maintenance Expenses will be paid first by the University out of the Revenue Fund. The University then will make the required transfers from the Revenue Fund to the Sinking Fund, and then will pay Financing Expenses from the Revenue Fund, then make any transfers needed to the Reserve Fund. After making these transfers, moneys held in the Revenue Fund may be applied in the discretion of the University (i) to pay the cost of the purchase, acquisition, construction, or equipping of additional Housing and Dining Facilities or to improve, repair, or replace any existing Housing and Dining Facilities or to accumulate a reserve for these

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purposes, (ii) to purchase or redeem First Lien Bonds or to establish reserves for such purposes, (iii) to pay debt service on Junior Lien Obligations, (iv) to pay any other lawful expenditure or cost related to the System, and (v) for any other lawful purpose of the University, including purposes not related to the System.

Sinking Fund. On or before the Business Day prior to each principal or interest payment date not provided for by a Credit Facility supporting Bonds with Optional Maturities, the University will transfer from the Revenue Fund (and from any Capitalized Interest Account of the Project Fund, as applicable), and remit to the Trustee for deposit in the Sinking Fund an amount which, when added to any amount available for such deposit in the Sinking Fund, equals the sum of the principal of and interest on the First Lien Bonds becoming due on the following principal or interest payment date (other than Optional Maturities payable from a Credit Facility) and any deficiencies then in existence with regard to such Sinking Fund. Payments of such Optional Maturities from the Sinking Fund will be subordinated to the payment of other principal of and interest on other First Lien Bonds and will be paid as provided below. Notwithstanding the foregoing, if Bonds are issued as Variable Rate Bonds, the transfer from the Revenue Fund to the Trustee for deposit into the Sinking Fund to pay principal of and interest on such Bonds will be in accordance with the provisions of the supplemental indenture pursuant to which such Bonds are issued.

If at any time the funds in the Revenue Fund are not sufficient to permit the transfers to the Trustee set forth in the preceding paragraph, the University will make or cause to be made to the Trustee transfers from any Available Funds up to the amount of such deficiencies.

The moneys in the Sinking Fund are irrevocably pledged to and will be used by the Trustee for the payment of the interest on and principal of the First Lien Bonds as the same become due. No part of the moneys in the Sinking Fund will be used or applied to the redemption of First Lien Bonds prior to maturity except any portion which is in excess of the amount required to be accumulated therein. (Moneys in the Sinking Fund allocable to Outstanding Bonds to be refunded may be used in connection with the issuance of Bonds to redeem such Outstanding Bonds to be refunded.)

On or before any interest or principal payment date on Credit Facility Obligations or any time for paying Optional Maturities not paid through a Credit Facility, after making the transfers required above, the University will transfer and remit to the Trustee from the Revenue Fund by wire transfer or otherwise in immediately available funds for deposit in the special account therefor in the Sinking Fund an amount which, when added to any amount in such special account and other funds legally available for that purpose, equals the principal amount of Credit Facility Obligations and the Optional Maturities due on that payment date and interest accrued to that payment date, all in such priority as provided by the Supplemental Indenture authorizing such series of Bonds.

Reserve Fund. There will be deposited in the Reserve Fund an amount sufficient to maintain such fund in an amount equal to the Reserve Fund Requirement. No deposit need to be made in the Reserve Fund on account of any series of Additional Bonds if the amount on deposit in the Reserve Fund equals the Reserve Fund Requirement.

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All or any part of the foregoing requirement for a deposit in the Reserve Fund in connection with the issuance of Additional Bonds may also be satisfied by providing in the Supplemental Indenture pursuant to which the Additional Bonds are issued that annual deposits will be made into the Reserve Fund in lieu of any such deposit. Such annual deposits for such series of Additional Bonds will commence on the July 1 following the date on which that series of Additional Bonds is issued and will continue on or before each July 1 thereafter for three succeeding years or such lesser number of years specified in the Supplemental Indenture providing for the issuance of such series of Additional Bonds. Said annual deposits will equal, after taking into account any other moneys deposited in the Reserve Fund on the day of delivery and payment for such series of Additional Bonds, an amount equal to the initial unfunded Reserve Fund Requirement divided by the total number of annual deposits to be made. In the alternative and except as provided in the Indenture, the Issuer may elect to provide a Reserve Fund Credit Instrument for purposes of the valuation required under the Indenture. The Trustee will include in the total amount held in the Reserve Fund an amount equal to the maximum principal amount which could be drawn by the Trustee under any such Reserve Fund Credit Instrument deposited with the Trustee.

On each June 30, the investments held in the Reserve Fund if any, will be valued using the fair market value method of valuation. If the value of such investments together with the moneys held in the Reserve Fund will be less than the Reserve Fund Requirement, the amount of such deficiency will be restored from the first available moneys in the Revenue Fund after all current payments for Operation and Maintenance Expenses and required transfers to the Sinking Fund have been made in full. Such replacement and restoration will first be, as provided in the next paragraph below with regard to the Reserve Fund Credit Instrument or Instruments on a pro rata basis (or as otherwise prescribed in the applicable Supplemental Indentures) and thereafter in favor of any portion of the Reserve Fund to be maintained in cash or Permitted Investments. Upon such valuation date, if the value of such investments and the moneys on deposit in the Reserve Fund are in excess of the amount of the Reserve Fund Requirement, then such excess amount will be transferred to the Sinking Fund by the Trustee.

If a drawing is made from any Reserve Fund Credit Instrument, the Issuer will reinstate the maximum limits of such instrument within twelve months following such drawing, solely from Net Income available after all required payments have been made into the Sinking Fund, so that, together with moneys on deposit therein, if any, there will be on deposit in the Reserve Fund an amount (including the maximum amount then payable under the terms of the Reserve Fund Credit Instrument) equal to the Reserve Fund Requirement.

The Reserve Fund will be used and applied in accordance with the Indenture, and the Trustee will draw first, on cash and Permitted Investments on deposit in the Reserve Fund and then pro rata or as otherwise provided in the applicable Supplemental Indentures on the Reserve Fund Credit Instrument or Instruments as needed, for the purpose of paying the principal of, redemption premium, if any, and interest on the Bonds when due when there are insufficient monies in the Sinking Fund for such purpose. The Reserve Fund will not be used to pay Optional Maturities with respect to which a Credit Support Instrument has been provided. From time to time Additional Bonds may be issued hereunder which will have no claim on the Reserve Fund. No Reserve Fund Requirement will exist for such Bonds.

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From time to time, the University may provide in a Supplemental Indenture that the holders of the Additional Bonds being issued pursuant thereto shall have no claim on the Reserve Fund for the payment of such Additional Bonds and that no Reserve Fund Requirement exists with respect to such Additional Bonds.

No Reserve Fund Requirement exists for the Series 2018 Bonds and the Series 2018 Bonds shall have no claim on the Reserve Fund.

Rebate Fund. So long as any Bonds are outstanding and are subject to a requirement that arbitrage profits be rebated to the United States of America, the Trustee will establish and maintain a Rebate Fund. The Trustee will make information regarding the Bonds and investments available to the University. The University will make, or cause to be made, deposits into and payments to the United States of America from the Rebate Fund in the amounts and at the times required by the Code, and will deposit, or cause to be deposited, income from such investments immediately upon receipt thereof in the Rebate Fund.

Not later than sixty (60) days after the date which is five (5) years after the date of issuance of any series of Bonds, and every five (5) years thereafter to the extent required by law, the Trustee will, upon receipt of direction from the University, pay to the United States of America ninety percent (90%) of the amount required to be paid to the United States of America as of such payment date. Not later than sixty (60) days after the final retirement of the Bonds of any series, the Trustee will, upon receipt of direction from the University, pay to the United States of America the amount required to be paid to the United States of America. Each payment required to be paid to the United States of America will be filed with the Internal Revenue Service at the appropriate location and with the appropriate reports, forms, and documentation as the Code requires. The Rebate Fund is not pledged as security for the Bonds.

Investments

All moneys on deposit in the Funds and Accounts established under the Indenture held by the University may be commingled for investment purposes in the University’s other investments and invested as permitted by law. The funds held by the Trustee shall be invested by the Trustee as directed in writing by the University in Permitted Investments, and, if no direction is provided by the University, the Trustee shall hold such funds uninvested. Notwithstanding the comingling described in the first sentence above, interest earned or gains or losses realized on moneys on deposit in the Funds and Accounts held by the University shall be credited or debited to the University’s Revenue Fund and shall constitute Revenues producing Net Income. Interest earned or gains or losses realized on the Project Fund or on investment of Funds and Accounts held by the Trustee will be credited or debited to the respective Fund or Account; provided, that investment income on the Rebate Fund will be applied thereto. Notwithstanding the foregoing, the Supplemental Indenture authorizing the issuance of a series of Bonds may provide for different disposition of investment income from proceeds of such Bonds deposited in the Funds and Accounts relating to such series of Bonds.

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Additional Security

At any time, by a Supplemental Indenture, the University may grant a security interest in or a lien on any additional funds or sources of regular income of the University to the Trustee for the security of the Bonds free and clear of any equal or prior security interest or lien. Any such Supplemental Indenture will be accompanied by an Opinion of Bond Counsel to the effect that a pledge of such additional security is valid, binding, and effective and that the pledge of such additional security will not adversely affect the excludability of interest on the Tax Exempt Bonds from gross income for federal income tax purposes. Upon the execution and delivery of any such Supplemental Indenture, the additional income will be added to the amount of Revenues for all purposes under the Indenture.

Covenants of the University

In the Indenture, the University covenants, among other things:

(a) that it is duly authorized under the laws of the State of Indiana and under all other applicable provisions of law to create and issue the Bonds, to execute and deliver the Indenture, and to pledge and apply the Pledged Funds as provided in the Indenture; that all corporate and other action on its part for the execution of the Indenture has been duly and effectively taken; that the Bonds when issued and delivered will be valid and enforceable obligations of the Issuer according to the import thereof; that the Indenture is and always will be a valid Indenture to secure the payment of the Bonds; and that the Issuer has complete and lawful authority to construct, equip, operate, and manage the System;

(b) that it has a valid and existing right to the use and occupancy of the System and the right to construct, equip, operate, and manage the Housing and Dining Facilities constituting the System; that, except as otherwise expressly authorized herein, it will not encumber the System or the Net Income therefrom; that it will, within three (3) months after accrual, pay and discharge or cause to be paid and discharged all lawful claims and demands of mechanics, laborers, and others which, if unpaid, might by law become further liens upon the System;

(c) that it will duly and punctually pay or cause to be paid from Pledged Funds or Available Funds the principal of, redemption premium, if any, and the interest on the Bonds secured hereby, at the dates and places, and in the manner provided in the Bonds, according to the terms thereof;

(d) that if (a) the cost of acquiring, constructing, equipping, completing and furnishing any Housing and Dining Facility or improving any such Housing and Dining Facility in such manner that it is useful and adequate, free of all liens, claims, and encumbrances other than the lien of current taxes and assessments not in default and putting the same into use so that it will be revenue-producing, exceeds (b) the available proceeds of the Bonds issued to finance the same, the Issuer will pay or cause to be paid into the Project Fund the amount of such excess out of any other funds legally available to the Issuer for such purpose;

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(e) that it will pay and discharge all taxes, assessments, and governmental charges which will be lawfully imposed upon the System; provided, however, that the Issuer will not be required to pay any such tax, assessment, charge, or claim so long as the Issuer in good faith and by appropriate legal proceedings will contest the validity thereof or its enforceability as a lien; and provided, further, that any such delay occasioned thereby will not subject the System or any Housing and Dining Facility to forfeiture or sale;

(f) that it will pay the costs, charges, and expenses (including reasonable attorney fees) reasonably incurred or paid at any time by the Trustee, Registrar, and Paying Agent or any successor Trustee, Registrar, and Paying Agent or by any Bondholder because of the Issuer’s failure to perform any of the covenants of the Bonds or the Indenture;

(g) that as part of the Issuer’s annual budgeting process, and following adoption of the Issuer’s official budget for all operations for the next Fiscal Year, the Treasurer or authorized designee, prior to July 1, will approve an annual operating budget for the next Fiscal Year which will include a detailed estimate of the Revenues, Operation and Maintenance Expenses, and Net Income for each Housing and Dining Facility operating unit as well as a summary budget for the Housing and Dining System. The budget will include (i) the estimated Annual Debt Service Requirement, and (ii) any required deposits to the Funds and Accounts established by the Indenture;

(h) that, as a part of the annual budget process, it will establish and collect rents, fees, rates, and other charges for the use and occupancy of the System so as to generate Net Income in the next following Fiscal Year equal to no less than the sum of:

(1) an amount equal to the Annual Debt Service Requirement for such Fiscal Year; and

(2) any other amounts reasonably required or anticipated to be paid from Net Income with respect to such Fiscal Year in accordance with the Indenture.

(i) to monitor the rents, fees, rates, and other charges for the use and occupancy of the System on a regular basis, and to make such adjustments as may be necessary to provide the Issuer with sufficient Net Income to make the required deposits into the Sinking Fund. In the event that the Issuer uses Available Funds to make payment of debt service on Bonds, the Issuer covenants to reestablish and adjust the rents, fees, rates and other charges for the use and occupancy of the System so as to generate Net Income sufficient to make the required deposits into the Sinking Fund for the remainder of such Fiscal Year;

(j) that it will, so long as any of the Bonds remain Outstanding and unpaid, keep proper and separate books of accounts and records in which full, true, and correct entries will be made of all transactions relating to the properties, business, and financial affairs as related to the System;

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(k) that the books, documents, and vouchers relating to the System will at all reasonable times be open to inspection by authorized agents of the Trustee;

(l) that, following the issuance of each series of Bonds under the Indenture, it will cause the Housing and Dining Facilities for which such Bonds were issued to be completed with all reasonable dispatch; that subject to the right of sale, transfer, abandonment, or other disposition, or removal from the System as permitted and provided by the Indenture and subject to the provisions of the Indenture, it will at all times, from revenues from Housing and Dining Facilities made available for such purpose, maintain, preserve, and keep all of the Housing and Dining Facilities comprising the System and betterments thereto and every part and parcel thereof in good repair, working order, and operating condition and will continuously operate the System on a revenue producing basis; and that it will use and apply such revenues only as provided in the Indenture.

Insurance

The University covenants to maintain for so long as any of the Bonds are Outstanding, fire and extended coverage insurance on all Housing and Dining Facilities constituting the System from time to time, and on additional Housing and Dining Facilities which will become part of the System upon acceptance of such Housing and Dining Facilities by the University from the contractor. The University further covenants to maintain business interruption insurance to cover the loss of revenues resulting from physical loss of or damage to revenue generating facilities. So long as any of the Bonds are Outstanding, the University will maintain public liability insurance with respect to operations of the System. This public liability insurance will be from companies and with coverage and limits consistent with sound insurance practices of owners of similar facilities.

In the event that the University determines in good faith that any insurance required above is not commercially available at a reasonable cost or with reasonable terms, it will so certify to the Trustee and notify the Trustee that it proposes to engage an independent insurance consultant to make recommendations regarding the types, amounts, and provisions of any such insurance that should be purchased by the University and alternative or supplementary programs to provide protection against the types of losses and liabilities covered by such insurance. The University may, upon the recommendations of such insurance consultant, adopt alternative and supplemental risk management programs which the University determines to be reasonable and which shall not have a material adverse impact on the Pledged Funds, including without limitation (i) the right to self-insure, in whole or in part, (ii) to organize, either solely or in connection with other institutions or organizations, captive insurance companies, (iii) to participate in programs of captive insurance companies organized by others, (iv) to establish a self insurance trust fund, (v) to participate in mutual or other cooperative insurance or other risk management programs with other institutions or organizations, (vi) to participate in or enter into agreements with local, state, or federal governments in order to achieve such insurance, or (vii) to participate in other alternative risk management programs.

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The proceeds of insurance will be applied either to the repair, replacement, and reconstruction of the damaged or destroyed property or to the construction or acquisition of a similar property.

Pending disbursement for the purposes set forth above, the University may from time to time invest all or any part of such unexpended insurance proceeds in Permitted Investments as determined by the University. Interest accruing and any realized gains or losses as a result of such investments shall be credited or debited to the balance of such unexpended insurance proceeds. Pending application for the uses and purposes provided in the Indenture, the moneys and investments carried to the credit of the unexpended insurance proceeds shall be subject to a lien and charge in favor of the Outstanding Bonds as further security for the payment of such Bonds.

The University covenants and agrees that in all contracts for the construction or improvement of Housing and Dining Facilities, it will require that insurance be carried by the general contractor with respect to all builder’s risks, including fire and windstorm, or if it shall not so require, that it will itself adequately insure such Housing and Dining Facility or improvement thereto from its inception.

Operation of Additional Housing and Dining Facilities

The University has the right exercisable by the University in its discretion, without any limitation or restriction whatsoever by virtue of the Indenture, (a) to acquire property for and to construct, equip, operate, control and manage, and use and apply the income of, facilities which are not included in the System (now existing or hereafter acquired) so long as Bonds have not been issued, authenticated, and delivered under the terms of the Indenture for such facilities; (b) to issue and sell bonds under the provisions of the Act, or otherwise, for the purpose of raising funds to acquire property for and to construct, equip, operate and manage such facilities, which bonds shall not be secured by the Indenture; and (c) to provide funds in any manner other than by the issuance and sale of bonds under the or any other indenture for the purpose of acquiring property for or to construct, equip, operate and manage such additional Housing and Dining Facilities which are not included in the System.

Additions to the System

The University may include additional housing and dining facilities in the System; provided, that a certificate of the Treasurer is delivered to the Trustee stating that, taking into account the facilities to be added to the System, the University is expected to be in compliance with the covenants in the Indenture for the first full Fiscal Year following the addition of such facilities and the next succeeding Fiscal Year thereafter.

Defaults and Remedies

Any of the following constitutes an “Event of Default” with respect to the Bonds:

(a) A default occurs in the payment by the University of the principal of, premium, if any, or interest on any Bond when the same shall become due and payable; or

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(b) A default is made by the University in the performance or observance of any other of the covenants, agreements, or conditions on its part in the Indenture or in the Bonds, and such default shall have continued for a period of sixty (60) days after the University has been given written notice of such default by the Trustee.

Upon the occurrence and continuance of an Event of Default, the Trustee will (i) notify the holders of all Outstanding Bonds of such Event of Default by registered or certified mail, and (ii) have the following rights and remedies:

(A) The Trustee may pursue any available legal or equitable remedy to enforce payment of the principal of and interest on the Bonds then Outstanding, including any and all such actions as may be necessary to require the University to transfer Available Funds to the Sinking Fund for such payment;

(B) The Trustee may by action at law or in equity require the University to account as if it were the trustee of an express trust for the Bondholders, and may then take any action which the Trustee deems necessary, appropriate, and in the best interest of the Bondholders; and

(C) Upon the filing of a suit or other commencement of judicial proceedings to enforce any rights of the Trustee and of the Bondholders under the Indenture, the Trustee will be entitled, as a matter of right, to the appointment of a receiver or receivers of the Pledged Funds, issues, earnings, income, products, and profits thereof pending such proceedings, with such powers as the court making such appointment shall confer.

If an Event of Default occurs and continues, and if requested to do so by the owners of twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding, and if indemnified as provided in the Indenture, the Trustee will be obligated to exercise such one or more of the rights and powers conferred by the Indenture as the Trustee, being advised by counsel, shall deem most expedient in the interest of the Bondholders.

Subject to certain provisions of the Indenture, the owners of a majority (in aggregate principal amount) of the Bonds then Outstanding will have the right, at any time during the continuance of an Event of Default, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, method, and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture, or for the appointment of a receiver or any other proceedings hereunder; provided, that such direction will not be otherwise than in accordance with the provisions of law and of the Indenture.

No Bondholder will have any right to institute any suit, action, or proceeding in equity or at law for the enforcement of the Indenture or for the execution of any trust thereof or for any other remedy thereunder unless (a) a default has occurred, (b) such default has become an Event of Default and the-owners of twenty-five percent (25%) in aggregate principal amount of the Bonds then Outstanding have made written request to the Trustee and have offered it reasonable opportunity either to proceed to exercise the powers granted herein or to institute such action, suit, or proceeding in its own name, (c) such Bondholders have offered to the Trustee indemnity as provided in the Indenture, and (d) the Trustee has refused, or for sixty (60) days after receipt

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of such request and offer of indemnification has failed to exercise the remedies granted, or to institute such action, suit, or proceeding in its own name; and such notification, request, and offer of indemnity are in every case at the option of the Trustee to be conditions precedent to the execution of the powers and trusts of the Indenture, and to any action or cause of action for the enforcement of the Indenture, and for the appointment of a receiver or for any other remedy thereunder; it being understood and intended that no Bondholder will have any right in any manner whatsoever to affect, disturb, or prejudice the lien of the Indenture by its, his, her, or their action or to enforce any right hereunder except in the manner provided, and that all proceedings at law or in equity will be instituted, had, and maintained in the manner provided and for the equal benefit of the holders of all of the Bonds then Outstanding. Nothing contained in the Indenture will, however, affect or impair the right of any Bondholder to enforce the payment of the principal of and interest on such Bond at and after the maturity thereof, or the limited obligation of the University to pay the principal of and interest on each of the Bonds to the respective holders thereof at the time and place, from the source and in the manner expressed in the Indenture and in such Bond.

Defeasance

Except as otherwise provided, if payment or provision for payment is made to the Trustee of the whole amount of principal of and interest due and to become due on all of the Bonds then Outstanding under the Indenture at the times and in the manner stipulated therein, and there is paid or caused to be paid to the Trustee all sums of money due and to become due according to the provisions thereof, then these presents and rights granted by the Indenture will cease, determine, and be void. In such event, the Trustee will cancel and discharge the lien of the Indenture and execute and deliver to the University such instruments in writing as shall be requisite to cancel and discharge the lien thereof, and release, assign, and deliver unto the University any and all of the estate, right, title, and interest in and to any and all rights assigned or pledged to the Trustee thereby or otherwise subject to the lien of the Indenture, except moneys or securities held by the Trustee for the payment of the principal of and interest on the Bonds.

Any Bond will be deemed to be paid within the meaning of the Indenture when (a) payment of the principal of such Bond and interest thereon to the due date thereof (whether by reason of maturity or upon redemption as provided in the Indenture or otherwise), either (i) will have been made or caused to have been made in accordance with the terms thereof, or (ii) shall have been provided for by irrevocably depositing with the Trustee, in trust and exclusively for such payment, (1) moneys sufficient to make such payment or (2) Federal Securities, which shall not contain provisions permitting the redemption thereof at the option of the issuer thereof, and maturing as to principal and interest in such amounts and at such times, without consideration of any reinvestment thereof, as will insure the availability of sufficient moneys to make such payment, or (3) a combination of such moneys and Federal Securities, and (b) all other sums payable by the University, including the necessary and proper fees and expenses of the Trustee pertaining to the Bonds and the amount, if any, required to be rebated to the United States of America, shall have been paid to or deposited with the Trustee.

Upon the deposit with the Trustee, in trust, at or before maturity, of money or Federal Securities in the necessary amount to pay or redeem all Outstanding Bonds (whether upon or prior to their maturity or the redemption date of such Bonds); and in compliance with the other

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payment requirements of the Indenture; the Indenture may be discharged in accordance with the provisions thereof, provided, that if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as provided in the Indenture, or provisions satisfactory to the Trustee shall have been given as provided therein, or provisions satisfactory to the Trustee shall have been made for the giving of such notice, Following such discharge, the Bondholders will be entitled to payment only out of the moneys or Federal Securities deposited with the Trustee.

Bonds Not Presented For Payment When Due

Notwithstanding any other provision of the Indenture, and subject in all cases to applicable provisions of law, any moneys held by the Trustee or a paying agent in trust for the payment and discharge of any of the Bonds which remain unclaimed for five (5) years after the date when such Bonds have become due and payable, either at their stated maturity dates or by call for earlier redemption, if such moneys were held by the Trustee or paying agent at such date, or for five (5) years after the date of deposit of such moneys if deposited with the Trustee or paying agent after the date when such Bonds became due and payable, will, at the written request of the University, be repaid by the Trustee or paying agent to the University, as its absolute property and free from trust, and the Trustee and paying agent will thereupon be released and discharged with respect thereto and the Bondholders shall look only to the University for the payment of such Bonds.

Supplemental Indentures

The University and the Trustee, without the consent of or notice to any of the Bondholders, may enter into an indenture or indentures supplemental to the Indenture, not inconsistent with the terms and provisions of the Indenture, for any one or more of the following purposes:

(a) To cure any ambiguity or formal defect or omission in the Indenture or any Supplemental Indenture;

(b) To grant to or confer upon the Trustee for the benefit of the holders of the Bonds then Outstanding any additional benefits, rights, remedies, Powers, or authorities that may be lawfully granted to or conferred upon the Bondholders or the Trustee or either of them;

(c) To subject to the lien and pledge of the Indenture for the benefit and security of the owners of the outstanding Bonds, additional revenues, properties, or collateral;

(d) To modify, amend, or supplement the Indenture or any indenture supplemental hereto in such manner as to permit qualification under the Trust Indenture Act of 1939, as amended, or any other similar federal statute hereafter in effect or to permit the qualification of the Bonds for sale under any federal or state securities laws, and, in connection therewith, if they so determine, to add to the Indenture or any Supplemental Indenture such other terms, conditions, and provisions as may be permitted or required by the Trust Indenture Act of 1939, as amended, or any other federal or state

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statute pertaining to any of the foregoing; provided, that any such Supplemental Indenture referred to in this paragraph (d) shall not, in the judgment of the Trustee, which may rely on an opinion or advice of counsel, be to the prejudice of the holders of any of the Bonds;

(e) To evidence the appointment of a successor Trustee, successor bond registrar, or successor paying agent;

(f) To effect or facilitate the issuance of an additional series of Bonds in accordance with the provisions of the Indenture;

(g) To amend Exhibit A to the Indenture to add additional Housing and Dining Facilities to or delete Housing and Dining Facilities from the System in accordance with the provisions of the Indenture;

(h) To make any modification or amendment to the provisions of the Indenture necessary or desirable to permit the University to issue Variable Rate Bonds or Put Bonds, or to utilize a Credit Facility, or Derivative Product; provided, that the University shall obtain written confirmation that such modification or amendment shall not adversely affect the then-current rating or ratings assigned to the Outstanding Bonds by any Rating Agency then rating the Bonds;

(i) To modify, amend, or supplement the Indenture or any indenture supplemental hereto in any manner which the University determines in good faith will not have a material adverse effect on the security for the Bonds; and

(j) Otherwise to modify any of the provisions of the Indenture or to relieve the University from any of the obligations, conditions, or restrictions herein contained; provided that no such modifications will be or become operative or effective, or will in any manner impair any of the rights of the Bondholders or of the Trustee (except as otherwise provided), while any Bonds of any series issued prior to the execution of such Supplemental Indenture will remain Outstanding; and provided further, that such Supplemental Indenture will be specifically referred to in the text of all Bonds of any series issued after the execution of such Supplemental Indenture.

Except for Supplemental Indentures authorized by the preceding paragraph and subject to the terms and provisions contained in the Indenture, and not otherwise, the owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding which are affected (exclusive of any such Bonds held by the University) will have the right from time to time to consent to and approve the execution by the University and the Trustee of such other Supplemental Indenture as shall be deemed necessary and desirable by the University or the Trustee for the purpose of modifying altering, amending, adding to, or rescinding, in any particular, any of the terms or provisions contained in the Indenture or in any Supplemental Indenture; provided, however, that nothing contained in the Indenture will permit, or be construed as permitting, without the consent of the owners of all Bonds then Outstanding (a) an extension of the stated maturity or redemption date or a reduction in the principal amount of or redemption premium, or reduction in the rate or extension of the time of payment of interest on,

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any Bonds, or (b) the creation of any lien on the Pledged Funds or any part thereof pledged under the Indenture prior to or on a parity with the lien of the Indenture other than a lien ratably securing all of the Bonds at any time Outstanding hereunder, or (c) a reduction in the aggregate principal amount of Bonds the owners of which are required pursuant to the Indenture to consent to any such Supplemental Indenture, or (d) except with regard to Junior Lien Obligations or Credit Facility Obligations, the creation of a privilege, priority or preference of any one Bond or Bonds over any other Bond or Bonds, or (e) any amendment or modification of the trusts, powers, obligations, remedies, rights, duties, or immunities of the Trustee without the written consent of the Trustee.

If at any time the University shall request the Trustee to enter into a Supplemental Indenture for any purpose set forth in the preceding paragraph, the Trustee will, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such Supplemental Indenture to be mailed by registered or certified mail to each Bondholder at the address shown on the registration books of the Trustee. All notices so given will briefly set forth the nature of the proposed Supplemental Indenture and shall state that copies thereof are on file at the principal corporate trust office of the Trustee for inspection by all Bondholders. If, within sixty (60) days or such longer period as shall be prescribed by the University following the giving of such notice, the owners of not less than fifty-one percent (51%) (or 100%, if required) in aggregate principal amount of the Bonds Outstanding at the time of the execution of any such Supplemental Indenture shall have consented to and approved the execution thereof, no owner of any Bond will have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Trustee or the University from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any such Supplemental Indenture, the Indenture will be and be deemed to be modified and amended in accordance therewith.

The Trustee may receive and rely upon an opinion of counsel acceptable to the University as conclusive evidence that any Supplemental Indenture entered into by the University and the Trustee complies with the provisions of the Indenture.

No Supplemental Indenture will be executed and delivered without fifteen (15) days’ prior written notice given by the Trustee to any Rating Agency then rating the Bonds of the Trustee’s intention to execute such Supplemental Indenture.

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APPENDIX E

FORM OF BOND COUNSEL OPINION

Upon delivery of the Series 2018 Bonds, Ice Miller LLP, Bond Counsel, propose to deliver their opinions substantially in the following form:

June ___, 2018

Ball State University Board of Trustees Piper Jaffray & Co. Muncie Indiana Chicago, Illinois

The Bank of New York Mellon Trust Stifel Nicolaus & Company, Incorporated Company, N.A. (successor to Merchants Indianapolis, Indiana Trust Company, N.A.), as Trustee Indianapolis, Indiana Backstrom McCarley Berry & Co., LLC Indianapolis

Re: Ball State University Housing and Dining System Revenue Bonds, Series 2018 in the aggregate principal amount of $82,330,000* (the “Series 2018 Bonds”) issued by the Ball State University Board of Trustees (the “University”) pursuant to an Indenture of Trust, dated as of January 1, 2006, as heretofore supplemented, and as further supplemented by a Fourth Supplemental Indenture, dated as of June 1, 2018 (collectively, the “Indenture”), between the University and The Bank of New York Mellon Trust Company, N.A. (successor to Merchants Trust Company, N.A.), as trustee (the “Trustee”)

Ladies and Gentlemen:

We have examined a transcript of the proceedings had by the University relative to (i) the authorization, issuance and sale of the Series 2018 Bonds to provide funds for the financing of the Series 2018 Project (as defined in the Indenture), as certified by the Secretary or the Assistant Secretary of the University; and (ii) the Indenture as executed and delivered for the purpose of securing the payment of the Series 2018 Bonds and the interest thereon.

We have relied upon a certified transcript of proceedings and other certificates and representations of the University, including the tax covenants and representations (the “Tax Covenants”), and have not undertaken to verify any facts by independent investigation.

Based on the foregoing and our review of such other information, papers and documents as we believe necessary or advisable, we are of the opinion that:

* Preliminary, subject to change

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(1) The Indenture has been duly authorized, executed and delivered by the University, and assuming due authorization, execution and delivery thereof by the Trustee, is a valid and binding agreement of the University, enforceable in accordance with its terms.

(2) The Series 2018 Bonds have been duly authorized, executed and issued and are the valid and binding obligations of the University, enforceable in accordance with their terms.

(3) Under statutes, decisions, regulations and rulings existing on this date, the interest on the Series 2018 Bonds is exempt from income taxation in the State of Indiana. This opinion relates only to the exemption of interest on the Series 2018 Bonds from state income taxes.

(4) Under federal statutes, decisions, regulations and rulings existing on this date, the interest on the Series 2018 Bonds is excludable from gross income for purposes of federal income taxation pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), and is not a specific preference item for purposes of the federal alternative minimum tax, although Bond Counsel observes that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income for taxable years that began prior to January 1, 2018. This opinion is conditioned on continuing compliance by the University with the Tax Covenants. Failure to comply with the Tax Covenants could cause interest on the Series 2018 Bonds to lose the exclusion from gross income for purposes of federal income taxation purposes retroactive to the date of issuance of the Series 2018 Bonds.

It is to be understood that the rights of the owners of the Series 2018 Bonds, the University and the Trustee and the enforceability of the Series 2018 Bonds and the Indenture may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights heretofore and hereafter enacted and that their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity. It is also to be understood that the rights of the owners of the Series 2018 Bonds, the University and the Trustee and the enforceability of the Series 2018 Bonds and the Indenture may be subject to the valid exercise of the constitutional powers of the State of Indiana and the United States of America.

Very truly yours,

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BALL STATE UNIVERSITY BOARD OF TRUSTEES • Ball State University Housing and Dining System Revenue Bonds, Series 2018